[TRANSLATION]
PROSPECTUS January 1999
US Jurisdiction Open-Ended Contractual Type Foreign Investment Fund
(denominated in the US dollar)
PIMCO
Monthly Distribution Type
PIMCO FUNDS - PIMCO TOTAL RETURN FUND (in Japanese)
PIMCO FUNDS - PIMCO TOTAL RETURN FUND (in English)
Investment Advisor and Administrator: For purchase, contact:
PACIFIC INVESTMENT MANAGEMENT COMPANY NIKKO SECURITIES
<PAGE>
(TRANSLATION)
SECURITIES REGISTRATION STATEMENT, AS AMENDED
To: Director-General of Kanto Finance Bureau
Filed as of December 28, 1998, as amended on January 11, 13 and 14, 1999
Name of Trust: PIMCO FUNDS
Name of Trustees:
Brent R. Harris
R. Wesley Burns
Guilford C. Babcock
Vern O. Curtis
Thomas P. Kemp
William J. Popejoy
Address of Head Office: 840 Newport Center Drive, Suite 300 Newport Beach,
California 92660, U.S.A.
Name of Attorney-in-fact:
Tsunematsu Yanase & Sekine
Hidetaka Mihara, Attorney-at-law
Signature --------------------- (Seal)
Masaki Konishi, Attorney-at-law
Signature --------------------- (Seal)
Address of Attorney-in-fact: Tsunematsu Yanase & Sekine
Sumitomo Sarugakucho Building,
8-8, Sarugakucho 2-chome, Chiyoda-ku, Tokyo
Name of Person to Contact with:
Masaki Konishi
Motohiro Yanagawa
Place to Contact with:
Same as the Address of the Attorney-in-fact
Telephone Number: 03-5280-2711
<PAGE>
Offering for Subscription Covered by
the Securities Registration Statement, as Amended
- --------------------------------------------------------------------------------
Name of the Fund Concerning the Foreign Investment Trust Securities to be
Offered for Subscription:
PIMCO FUNDS - PIMCO Total Return Fund
Type and Amount of the Foreign Investment Trust Securities to be Offered for
Subscription:
Up to 300 million Administrative Class Shares.
Up to the total amount aggregating the amounts calculated by
multiplying the respective net asset value per Administrative
Class Share by the respective number of Administrative Class
Shares in respect of 300 million Administrative Class Shares
(The maximum amount expected to be sold is U.S.$3,294 million
(Yen 404.2 billion)).
Note 1: U.S.$ amount is translated into Japanese Yen at the rate of
U.S.$l.00=Yen 122.70, the mean of the exchange rate quotations by
The Bank of Tokyo-Mitsubishi, Ltd. for buying and selling spot
dollars by telegraphic transfer against yen on December 1, 1998.
Note 2: The maximum amount expected to be sold is an amount calculated
by multiplying the net asset value per Administrative Class Share
as of December 1, 1998 (U.S.$10.98) by 300 million Administrative
Class Shares for convenience.
The Place(s) at Which Copies of
the Securities Registration Statement, as Amended
Are Made Available for Public Inspection
- --------------------------------------------------------------------------------
Not Applicable
<PAGE>
TABLE OF CONTENTS
Page
PART INFORMATION CONCERNING SECURITIES............................ 1
PART INFORMATION CONCERNING ISSUER................................ 7
. DESCRIPTION OF THE FUND.................................. 7
. OUTLINE OF THE TRUST..................................... 76
. OUTLINE OF THE OTHER RELATED COMPANIES................... 101
. FINANCIAL CONDITIONS OF THE FUND......................... 104
. SUMMARY OF INFORMATION CONCERNING
FOREIGN INVESTMENT FUND SECURITIES.................. 208
. MISCELLANEOUS............................................ 209
<PAGE>
PART I. INFORMATION CONCERNING SECURITIES
1. NAME OF FUND
PIMCO FUNDS (hereinafter referred to as the "Trust")
The Trust is an umbrella fund consisting of sub-funds, the sub-fund shares
of which will be offered in Japan is the following:
PIMCO Total Return Fund (hereinafter referred to as the "Fund").
2. NATURE OF FOREIGN INVESTMENT FUND SECURITIES CERTIFICATES:
Registered shares with par value of $0.0001 each
The Trust consists of the following 27 sub-funds, and its shares are
divided into at most 6 classes: Institutional Class, Administrative Class, Class
A, Class B, Class C and Class D.
1. Money Market Fund
2. Short-Term Fund
3. Low Duration Fund
4. Low Duration Fund II
5. Low Duration Fund III
6. Moderate Duration Fund
7. High Yield Fund
8. PIMCO Total Return Fund
9. Total Return Fund II
10. Total Return Fund III
11. Commercial Mortgage Securities Fund
12. Low Duration Mortgage Fund
13. Total Return Mortgage Fund
14. Long-Term U.S. Government Fund
15. Long Duration Fund
16. Municipal Bond Fund
17. Real Return Bond Fund
18. Foreign Bond Fund
19. Global Bond Fund
20. Global Bond Fund II
21. International Bond Fund
22. Emerging Markets Bond Fund
23. Emerging Markets Bond Fund II
24. StocksPLUS Fund
25. StocksPLUS Short Strategy Fund
26. Strategic Balanced Fund
27. Convertible Bond Fund
<PAGE>
In Japan, Administrative Class Shares (hereinafter referred to as the
"Shares") of the following sub-fund are for public offering. No rating has been
acquired.
PIMCO Total Return Fund
3. NUMBER OF SHARES TO BE OFFERED FOR SALE (IN JAPAN)
Up to 300 million Shares
4. TOTAL AMOUNT OF OFFERING PRICE:
Up to the total amount aggregating the amounts calculated by multiplying
the respective net asset value per Share by the respective number of Shares in
respect of 300 million Shares (The maximum amount expected to be sold is
U.S.$3,294 million (Yen 404.2 billion).)
Note 1: The maximum amount expected to be sold is the amount
calculated, for convenience, by multiplying the net asset
value per Share as of December 1, 1998 ($10.98) by the
number of Shares to be offered (300 million). "U.S. $ " may
be referred to hereafter as "$".
Note 2: Dollar amount is translated for convenience at the rate
of $1.00=Yen 122.70 (the mean of the exchange rate
quotations by The Bank of Tokyo-Mitsubishi, Ltd. for buying
and selling spot dollars by telegraphic transfer against yen
on December 1, 1998). The same applies hereinafter.
Note 3: In this document, money amounts and percentages have been
rounded. Therefore, there are cases in which the amount of
the "total column" is not equal to the aggregate amount.
Also, translation into yen is made simply by multiplying the
corresponding amount by the conversion rate specified and
rounded up or down when necessary. As a result, in this
document, there are cases in which Japanese yen figures for
the same information differ from each other.
5. ISSUE PRICE:
The Net Asset Value per Share (denominated in U.S. dollars) next calculated
on a Fund Business Day after each application for purchase is received by the
Trust.
Note : A "Fund Business Day" means a day on which the New York Stock
Exchange is open for business.
6. SALES CHARGE:
No sales charge is payable at the time of application for purchase;
provided that the investor shall pay a monthly sales charge (the "Sales Charge")
equal to 0.15% of the net asset value per Share (determined on the last Fund
Business Day in each month in respect of which the relevant dividend is
calculated). The Sales Charge is deducted upon payment of the monthly dividend,
and will be deducted for a period of at least 3 and up to 24 months, depending
on the number of Shares to which the investor subscribes, beginning two months
after the month in which the application for purchase is made, and thereafter as
follows:
<TABLE>
<S> <C> <C>
----------------------------------------------------- --------------------------------------
Number of Shares applied per transaction Rate of Sales Charge
----------------------------------------------------- --------------------------------------
Less than 100,000 Shares 0.15%24 times=3.60%
----------------------------------------------------- --------------------------------------
Less than 500,000 Shares 0.15%16 times=2.40%
----------------------------------------------------- --------------------------------------
Less than 1,000,000 Shares 0.15%10 times=1.50%
----------------------------------------------------- --------------------------------------
Less than 5,000,000 Shares 0.15%6 times=0.90%
----------------------------------------------------- --------------------------------------
5,000,000 Shares or more 0.15%3 times=0.45%
----------------------------------------------------- --------------------------------------
</TABLE>
* If the request for redemption is made before all the Sales Charge
as referred to in the above table are fully paid, then the unpaid
Sales Charges, which were not previously paid out by setting off with
the dividend, will be deducted from the redemption price, In such
case, such unpaid Sales Charge will be calculated based on the net
asset value per Share on the date of the relevant request for
redemption (which is the last Fund Business Day in the relevant
month).
<PAGE>
** If (i) no dividend is paid in any month or (ii) the amount of any
dividend to be paid in any month is less than the amount of the Sales
Charge payable with respect to such month, then the relevant Sales
Charge with respect to such month shall not be paid in such month,
but shall be payable in the next month.
7. MINIMUM AMOUNT OR NUMBER OF SHARES FOR SUBSCRIPTION:
The minimum amount for purchase of Shares is 100 Shares and in integral
multiples of 10 Shares.
8. PERIOD OF SUBSCRIPTION:
From: January 22 , 1999 (Friday)
To: December 31, 1999 (Friday)
Provided that the subscription is handled only on a Fund Business Day and a
business day in Japan.
9. DEPOSIT FOR SUBSCRIPTION:
None.
10. PLACE OF SUBSCRIPTION:
The Nikko Securities Co., Ltd. (hereinafter referred to as " Nikko") at
3-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo
Note: The subscription is handled at the head office and the branch
offices in Japan of the above-mentioned securities company.
11. DATE AND PLACE OF PAYMENT:
Investors shall pay the subscription amount in yen to Nikko on the third
business day in Japan from the day (which is a business day in Japan) when Nikko
receives confirmation from the Trust of the execution of the order (the "Trade
Day") (see "Part II. Information Concerning Issuer, I. Description of the Fund,
3. Management Structure, (A) C. Sales, Repurchase and Custody" below.). Nikko
shall pay such subscription amount in U.S. dollars to the Trust, or its
designee, on the date in the U.S corresponding to the date in Japan Nikko
receives the subscription amount from investors ("Payment Date") or such other
time as may be required by laws of U.S.
12. OUTLINE OF UNDERWRITING, ETC.:
(A) Nikko undertakes to make a public offering of up to 300 million
Shares in accordance with an agreement dated July 14, 1998 entered
into with the Distributor in connection with the sale of the
Shares in Japan.
(B) During the subscription period, Nikko will forward the purchase
orders and repurchase requests of the Shares received directly or
indirectly through other handling securities companies (the
"Handling Securities Companies") to the Distributor.
(C) The Fund has appointed Nikko as the Agent JSDA Member in Japan.
Note: "The Agent JSDA Member" shall mean a financial institution
which, under a contract made with a foreign issuer of
investment securities, makes public the information
concerning the net asset value per Share and submits or
forwards the financial reports or other documents to the
Japan Securities Dealers Association ("JSDA") and other
Handling Securities Companies rendering such other
services.
13. MISCELLANEOUS:
(A) Method of Subscription:
Investors who subscribe for Shares shall enter into an agreement
with a Handling Securities Company concerning transactions of foreign
securities. A Handling Securities Company shall provide to the investors
a Contract Concerning a Foreign Securities Transactions Account
("Contract") and the investors submit to the Handling Securities Company
an application for requesting the opening of a transactions account under
the Contract. The subscription amount shall be paid in yen and the yen
exchange rate shall be the exchange rate which shall be based on the
foreign exchange rate quoted in the Tokyo Foreign Exchange Market on the
Trade Day of each subscription and which shall be determined by such
Handling Securities Company. Provided, however, that such subscription
amount may be paid in dollars to the extent acceptable to the Handling
Securities Company, such as by means of wire transfer through banks.
The subscription amount shall be paid in dollars to the Trust, or
its designee, by Nikko on the Payment Date or such other time as may be
required by laws of U.S..
<PAGE>
(B) Custody of Shares
In the interest of economy and convenience, certificates for
shares will not be issued to investors in the U.S. To shareholders in
Japan, the Trust shall issue a global certificate representing Shares of
such Shareholders, and such global certificate shall be held in custody
in the name of Nikko by the Custodian, the Distributor or any designated
entity thereof; provided, however, that neither Nikko nor shareholders in
Japan can withdraw the said global certificate or any part of it from the
custody, or request the Trust to issue any certificate (in definitive
form or otherwise) representing any Share. Shareholders in Japan shall be
required to entrust the custody of their Shares with Nikko.
The matters concerning the receipt are in accordance with the
Contract.
(C) Expenses summary:
Expenses are one of several factors to consider when investing.
The following table summarizes an investor's maximum transaction costs
from investing in Shares of the Fund and expenses incurred in respect of
Shares in the most recent fiscal year.
Shareholder transaction expenses
<TABLE>
<S> <C> <C>
Sales load imposed on purchases (Notes)
Redemption fee None
Annual Fund operating expenses
(as a percentage of average net assets)
Administrative fees 0.18%
Advisory fees 0.25%
12b-1 (service) fees 0.25%
- -----------------------------------------------------------------------------------------------------------------------
Total Fund operating expenses 0.68%
</TABLE>
The table is provided to help you understand the expenses of investing in
Shares of the Fund and of your share of the operating expenses. The expenses
shown in the table do not reflect the application of credits that reduce certain
Fund expenses.
(Note) See 6. "Sales Charge" above.
<PAGE>
PART II. INFORMATION CONCERNING ISSUER
I. DESCRIPTION OF THE FUND
1. GENERAL INFORMATION
(A) Outline of Laws Regulating the Fund in the Jurisdiction Where Established:
(1) Name of the Fund:
PIMCO FUNDS (the "Trust")
The Trust is an umbrella fund consisting of sub-funds, the sub-fund shares
of which will be offered in Japan is PIMCO Total Return Fund (the "Fund").
(2) Form of the Fund
The Fund is a diversified series of the Trust, a Massachusetts business
trust organized on February 19, 1987. The Trust was created under, and is
subject to, the General Laws of the Commonwealth of Massachusetts. A
Massachusetts business trust is an association organized by the execution and
delivery of a declaration of trust, which establishes the rights and obligations
of the trustees of the trust and the holders of its shares of beneficial
interest. Unlike a corporation, which is a form of organization created through
compliance with applicable state statutes, a Massachusetts business trust is
created by agreement (i.e., the declaration of trust). While the General Laws of
Massachusetts require that a Massachusetts business trust file its declaration
of trust with the Commonwealth of Massachusetts, such filing is not a condition
precedent to the existence of the trust. As such, the Fund is a contract type of
investment fund. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of the Commonwealth of Massachusetts.
The Trust is an open-end management investment fund with an unlimited number of
authorized shares of beneficial interest which may be divided without
shareholder approval into two or more series or classes of shares having such
preferences and special or relative rights and privileges as the Trustees of the
Trust determine. The Trust's shares currently are divided into twenty-seven
series, one of which is this PIMCO Total Return Fund, and the Fund's shares are
divided into six classes. Only the Fund's Administrative Class shares currently
are offered in Japan. The Fund also offers in the United States of America other
classes of shares with different sales charges and expenses. Because of these
different sales charges and expenses, the investment performance of the classes
will vary.
Each share has one vote, with fractional shares voting proportionally. Shares of
all classes will vote together as a single class except when otherwise required
by law or as determined by the Trustees. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the Fund were
liquidated, would receive the net residual assets of the Fund. The Fund may
suspend the sale of shares at any time and may refuse any order to purchase
shares. Although the Fund is not required to hold annual meetings of its
shareholders, shareholders holding at least 10% of the outstanding shares of the
Trust have the right to call a meeting to consider the removal of a Trustee.
(3) Governing Law
The Trust is registered with the United States Securities and Exchange
Commission (the "SEC") as an investment company and is therefore subject to
regulation under the United States Investment Company Act of 1940, as amended
(the "1940 Act"). The sale of the Fund's shares is subject to, among other
things, the United States Securities Act of 1933, as amended (the "1933 Act").
The Fund also intends to qualify each year and elect to be taxed as a regulated
investment company under the United States Internal Revenue Code of 1986, as
amended.
The following is a brief outline of certain of the principal statutes
regulating the operations of the Fund in the U.S.:
a. Massachusetts General Laws, Chapter 182 - Voluntary Associations
and Certain Trusts, which provides, Inter alia, as follows:
A copy of the Declaration of Trust must be filed with the
Secretary of State of the Commonwealth of Massachusetts. Any
amendment of the Declaration of Trust must be filed with the
Secretary within thirty days after the adoption of such amendment.
The Trust must annually file with the Secretary of State on or
before June 1 a report providing the name of the Trust, its
address, number of shares outstanding and the names and address of
its trustees.
Penalties may be assessed against the Trust for failure to comply
with certain of the provisions of Chapter 182.
b. Investment Company Act of 1940
The 1940 Act generally requires investment companies to register as
such with the SEC, and to comply with a number of substantive regulations
of their operations. The 1940 Act requires, among other things, that an
investment company provide periodic reports to its shareholders, generally
limits an investment company's ability to engage in transactions with its
affiliates, and requires that the company's contract with its investment
manager be approved by shareholders and the independent members of the
investment company's governing board. The 1940 Act also imposes limits on
the capital structure of an open-end investment company by effectively
limiting the securities that such an investment company may issue to common
shares and by restricting the investment company's ability to incur debt.
c. Securities Act of 1933
The 1933 Act regulates sales of securities unless the securities are
exempt or excluded from regulation under that Act. The 1933 Act, among
other things, imposes various registration requirements upon sellers of
securities and provides for various liabilities for failures to comply with
its provisions or in respect of other specified matters.
d. Securities Exchange Act of 1934
The Securities Exchange Act of 1934, as amended (the "1934 Act"),
regulates a variety of matters involving, among other things, the secondary
trading of securities, periodic reporting by the issuers of securities, and
certain of the activities of transfer agents, brokers, and dealers.
e. The Internal Revenue Code
The Fund intends to qualify as a "regulated investment company" for
U.S. federal income tax purposes, which will subject the Trust to
restrictions applicable to the sources from which it derives its gross
income, the diversification of its assets and the distribution of its
investment company taxable income and tax exempt interest, and to meet all
other requirements necessary for it to be relieved of U.S. federal taxes on
income and gains it distributes to shareholders. Shareholders that are not
exempt from taxation must pay tax on their distributions even if they
reinvest their dividends in the Fund.
f. Other Laws
The Fund is subject to the provisions of other laws, rules, and
regulations applicable to the Fund or its operations, such as, for example,
various state laws regarding the registration of the Fund's shares.
(B) Outline of the Competent Authorities
Among the regulatory authorities having jurisdiction over the Trust or
certain of its operations are the SEC, the Internal Revenue Service, and state
regulatory agencies or authorities.
a. The SEC has broad authority to oversee the application and enforcement
of the federal securities laws, including the 1940 Act, the 1933 Act,
and the 1934 Act, among others, to the Trust and the Fund. The 1940
Act provides the SEC with broad authority to inspect the records of
investment companies, to exempt investment companies or certain
practices from the provisions of the 1940 Act, and otherwise to
enforce the provisions of the 1940 Act.
b. The Internal Revenue Service has broad authority to administer and
enforce the federal tax laws, including the authority to inspect the
records of the Trust and the Fund to monitor compliance with
applicable tax laws and regulations.
c. State authorities have the authority to require the registration of
investment company securities sold to their residents or within their
jurisdictions and to regulate the activities of brokers, dealers, or
other persons directly or indirectly engaged in related activities.
(C) Objects and Basic Nature of the Fund:
The Fund, a diversified mutual fund, seeks to maximize total return,
consistent with preservation of capital and prudent investment management. The
Fund is not intended to be a complete investment program, and there is no
assurance it will achieve its objective.
(D) History of the Fund:
<TABLE>
<S> <C>
February 19, 1987: Organization in the name of Pacific
Investment Management Institutional Trust as a Massachusetts
business trust issuing a single class of shares, (subsequently
designated the "Institutional Class"). Adoption of Declaration of
Trust
February 25, 1992: Change of the name of the Trust to PIMCO
Funds. Amendment of Declaration of Trust Amended and Restated
Establishment and Designation of Total Return Portfolio as Total
Return Fund
May 31, 1994: Amended and Restated Establishment and Designation
of Total Return Fund so as to establish and designate Class A
(redesignated "Institutional Class") and Class B (redesignated
"Administrative Class") shares.
<PAGE>
August 27, 1996: Amended and Restated Establishment and
Designation of Total Return Fund so as to establish and designate
three new classes of Shares, designated Class A, Class B and
Class C shares.
February 24,1998: Amended and Restated Establishment and
Designation of Total Return Fund so as to establish and designate
an additional class of shares; Class D shares.
July 22, 1998: Commencement of public offering of the
Administrative Class Shares of Total Return Fund in Japan.
</TABLE>
(E) Affiliated Companies of the Fund:
Names and related business of the affiliated companies of the Fund are as
follows:
(1) Pacific Investment Management Company (the "Administrator", the
"Investment Advisor" the "Advisor" or "PIMCO") renders investment
advisory and administrative services to the Fund.
(2) Investors Fiduciary Trust Company (the "Custodian" or the "Transfer
Agent") acts as custodian, transfer agent, and dividend disbursing agent.
(3) PIMCO Funds Distributors LLC (the "Distributor") engages in providing
distribution and marketing services to the Fund.
(4) The Nikko Securities Co., Ltd. (the "Distributor in Japan" and "Agent
JSDA Member") engages in forwarding the purchase or repurchase orders for
the Shares in Japan and also acts as the agent JSDA member.
Related parties to the Fund
---------------------------
[CHART]
2. INVESTMENT POLICY
(A) Basic Policy for Investment and Objects of Investment:
The investment objective and general investment policies of the Fund are
described below. There can be no assurance that the investment objective of the
Fund will be achieved. For temporary, defensive or emergency purposes, the Fund
may invest without limit in U.S. debt securities, including short-term money
market securities, when in the opinion of the Advisor it is appropriate to do
so. It is impossible to predict for how long such alternative strategies will be
utilized. The value of all securities and other instruments held by the Fund
will vary from time to time in response to a wide variety of market factors.
Consequently, the net asset value per share of the Fund will vary.
The investment objective of the Fund is fundamental and may not be changed
without shareholder approval by vote of a majority of the outstanding shares of
the Fund. If there is a change in the Fund's investment objective, including a
change approved by a shareholder vote, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current financial
position and needs.
Specific portfolio securities eligible for purchase by the Fund, investment
techniques that may be used by the Fund, and the risks associated with these
securities and techniques are described more fully below under "Characteristics
and Risks of Securities and Investment Techniques".
Total Return Fund Description
The investment objective of the Fund is to seek to maximize total return,
consistent with preservation of capital and prudent investment management.
In selecting securities for the Fund, the Advisor utilizes economic
forecasting, interest rate anticipation, credit and call risk analysis, foreign
currency exchange rate forecasting, and other security selection techniques. The
proportion of the Fund's assets committed to investment in securities with
particular characteristics (such as maturity, type and coupon rate) will vary
based on the Advisor's outlook for the U.S. and non-U.S. economies, the
financial markets, and other factors.
The Fund invests under normal circumstances at least 65% of its assets in a
diversified portfolio of the following types of securities, which may have a
variety of maturities: securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities ("U.S. Government securities"); corporate debt
securities, including convertible securities and corporate commercial paper;
mortgage-backed and other asset-backed securities; inflation-indexed bonds
<PAGE>
issued by both governments and corporations; structured notes, including hybrid
or "indexed" securities, catastrophe bonds, and loan participations; delayed
funding loans and revolving credit facilities; bank certificates of deposit,
fixed time deposits and bankers' acceptances; repurchase agreements and reverse
repurchase agreements; debt securities issued by states and local governments
and their agencies and instrumentalities; obligations of foreign governments or
their subdivisions, agencies and instrumentalities; and obligations of
international agencies or supranational entities. Fixed income securities may
have fixed, variable, or floating rates of interest, including rates of interest
that vary inversely at a multiple of a designated or floating rate, or that vary
according to changes in relative values of currencies.
The average portfolio duration of the Fund will normally vary within a
three to six-year time frame based on the Advisor's forecast for interest rates.
The Fund may invest up to 10% of its assets in fixed income securities that are
rated below investment grade (i.e., securities rated at least Baa by Moody's
Investors Service, Inc. ("Moody's") or BBB by Standard & Poor's Ratings Services
("S&P")) but rated B or higher by Moody's or S&P (or, if unrated, determined by
the Advisor to be of comparable quality). For information on the risks
associated with investments in securities rated below investment grade, see
"Description of Securities Ratings." The Fund may also invest up to 20% of its
assets in securities denominated in foreign currencies, and may invest beyond
this limit in U.S. dollar-denominated securities of foreign issuers. Portfolio
holdings will be concentrated in areas of the bond market (based on quality,
sector, coupon or maturity) which the Advisor believes to be relatively
undervalued. The Fund may invest all of its assets in derivative instruments or
in mortgage- or asset-backed securities.
The Fund may adhere to its investment policy by entering into a series of
purchase and sale contracts or utilizing other investment techniques by which it
may obtain market exposure to the securities in which it primarily invests. In
addition, the Fund may lend its portfolio securities to brokers, dealers and
other financial institutions in order to earn income. The Fund may purchase and
sell options and futures subject to the limits discussed below, engage in credit
spread trades and enter into forward foreign currency contracts.
As a non-fundamental, operating policy, the Advisor intends to use
foreign currency-related derivative instruments (currency futures and related
options, currency options, forward contracts and swap agreements) in an effort
to hedge foreign currency risk with respect to at least 75% of the assets of the
Fund denominated in currencies other than the U.S. dollar. There can be no
assurance that the Advisor will be successful in doing so. The active use of
currency derivatives involves transaction costs which may adversely affect yield
and return.
Total Return
The "total return" sought by the Fund will consist of interest and
dividends from underlying securities, capital appreciation reflected in
unrealized increases in value of portfolio securities (realized by the
shareholder only upon selling shares), or realized from the purchase and sale of
securities and use of futures and options, or gains from favorable changes in
foreign currency exchange rates. Generally, over the long term, the total return
obtained by a portfolio investing primarily in fixed income securities is not
expected to be as great as that obtained by a portfolio that invests primarily
in equity securities. At the same time, the market risk and price volatility of
a fixed income portfolio is expected to be less than that of an equity
portfolio, so that a fixed income portfolio is generally considered to be a more
conservative investment. The change in market value of fixed income securities
(and therefore their capital appreciation or depreciation) is largely a function
of changes in the current level of interest rates.
In managing fixed income securities, one of the principal tools generally
used by the Advisor is "duration," which is a measure of the expected life of a
fixed income security on a present value basis, incorporating a bond's yield,
coupon interest payments, final maturity and call features. See "Description of
Duration." Generally, when interest rates are falling, a portfolio with a
shorter duration will not generate as high a level of total return as a
portfolio with a longer duration. Conversely, when interest rates are rising, a
portfolio with a shorter duration will generally outperform longer duration
portfolios. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case). With respect to the composition of any fixed income
portfolio, the longer the duration of the portfolio, the greater the anticipated
potential for total return, with, however, greater attendant market risk and
price volatility than for a portfolio with a shorter duration. The market value
of fixed income securities denominated in currencies other than the U.S. dollar
also may be affected by movements in foreign currency exchange rates.
Investment Risks and Considerations
The following are some of the principal risks of investing in the Fund.
Investors should read this document carefully for a more complete discussion of
the risks relating to an investment in the Fund. The net asset value per share
of the Fund may be less at the time of redemption than it was at the time of
investment. Generally, the value of fixed income securities can be expected to
vary inversely with changes in prevailing interest rates, i.e., as interest
rates rise, market value tends to decrease, and vice versa. In addition, the
Fund may invest in securities rated lower than Baa by Moody's or BBB by S&P.
Such securities carry a high degree of credit risk and are considered
speculative by the major rating agencies.
The Fund may invest in securities of non-U.S. issuers, which may be subject
to additional risk factors, including foreign currency and political risks, not
applicable to securities of U.S. issuers. The Fund's investment techniques may
involve a form of borrowing, which may tend to exaggerate the effect on net
asset value of any increase or decrease in the market value of the Fund's
portfolio and may require liquidation of portfolio positions when it is not
advantageous to do so. The Fund may sell securities short, which exposes the
Fund to a risk of loss if the value of the security sold short should increase.
The Fund may use derivative instruments, consisting of futures, options,
options on futures, and swap agreements, for hedging purposes or as part of its
investment strategies. Use of these instruments may involve certain costs and
risks, including the risk that the Fund could not close out a position when it
would be most advantageous to do so, the risk of an imperfect correlation
between the value of the securities being hedged and the value of the particular
derivative instrument, and the risk that unexpected changes in interest rates
may adversely affect the value of the Fund's investments in particular
derivative instruments. Unless otherwise indicated, all limitations applicable
to the Fund's investments (as stated in this document) apply only at the time a
transaction is entered into. Any subsequent change in a rating assigned by any
rating service to a security (or, if unrated, deemed to be of comparable
quality), or change in the percentage of the Fund's assets invested in certain
securities or other instruments, or change in the average duration of the Fund's
investment portfolio, resulting from market fluctuations or other changes in the
Fund's total assets, will not require the Fund to dispose of an investment until
the Advisor determines that it is practicable to sell or close out the
investment without undue market or tax consequences to the Fund. In the event
that ratings services assign different ratings to the same security, the Advisor
will determine which rating it believes best reflects the security's quality and
risk at that time, which may be the higher of the several assigned ratings.
The Fund offers its shares to both retail and institutional investors.
Institutional shareholders, some of whom also may be investment advisory clients
of the Advisor, may hold large positions in the Fund. Such shareholders may on
occasion make large redemptions of their holdings in the Fund to meet their
liquidity needs, in connection with strategic adjustments to their overall
portfolio of investments, or for other purposes. Large redemptions from the Fund
could require the Advisor to liquidate portfolio positions when it is not most
desirable to do so. Liquidation of portfolio holdings also may cause the Fund to
realize taxable capital gains.
Characteristics and Risks of Securities and Investment Techniques
The following describes in greater detail different types of securities and
investment techniques used by the Fund, and discusses certain concepts relevant
to the investment policies of the Fund.
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Fund's shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(STRIPs and CUBEs) are direct obligations of the U.S. Government.
Corporate Debt Securities
Corporate debt securities include corporate bonds, debentures, notes and
other similar corporate debt instruments, including convertible securities. Debt
securities may be acquired with warrants attached. Corporate income-producing
securities may also include forms of preferred or preference stock. The rate of
interest on a corporate debt security may be fixed, floating or variable, and
may vary inversely with respect to a reference rate. See "Variable and Floating
Rate Securities" below. The rate of return or return of principal on some debt
obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.
<PAGE>
Investments in corporate debt securities that are rated below investment
grade (rated below Baa (Moody's) or BBB (S&P)) are described as "speculative"
both by Moody's and S&P. Such securities are sometimes referred to as "junk
bonds," and may be subject to greater market fluctuations, less liquidity and
greater risk of loss of income or principal, including a greater possibility of
default or bankruptcy of the issuer of such securities, than are more highly
rated debt securities. Moody's also describes securities rated Baa as having
speculative characteristics. The Advisor seeks to minimize these risks through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions. See "Description of Securities
Ratings." Investments in high yield securities are discussed separately below
under "High Yield Securities ("Junk Bonds")."
Convertible Securities
The Fund may invest in convertible securities, which may offer higher
income than the common stocks into which they are convertible. Typically,
convertible securities are callable by the company, which may, in effect, force
conversion before the holder would otherwise choose.
The convertible securities in which the Fund may invest consist of bonds,
notes, debentures and preferred stocks which may be converted or exchanged at a
stated or determinable exchange ratio into underlying shares of common stock.
The Fund may be required to permit the issuer of a convertible security to
redeem the security, convert it into the underlying common stock, or sell it to
a third party. Thus, the Fund may not be able to control whether the issuer of a
convertible security chooses to convert that security. If the issuer chooses to
do so, this action could have an adverse effect on the Fund's ability to achieve
its investment objectives.
While the Fund intends to invest primarily in fixed income securities, it
may invest in convertible securities or equity securities. While some countries
or companies may be regarded as favorable investments, pure fixed income
opportunities may be unattractive or limited due to insufficient supply, legal
or technical restrictions. In such cases, the Fund may consider equity
securities or convertible bonds to gain exposure to such investments.
Loan Participations and Assignments
The Fund may invest in fixed- and floating-rate loans arranged through
private negotiations between an issuer of debt instruments and one or more
financial institutions ("lenders"). Generally, the Fund's investments in loans
are expected to take the form of loan participations and assignments of portions
of loans from third parties.
Large loans to corporations or governments may be shared or syndicated
among several lenders, usually banks. The Fund may participate in such
syndicates, or can buy part of a loan, becoming a direct lender. Participations
and assignments involve special types of risk, including limited marketability
and the risks of being a lender. See "Illiquid Securities" for a discussion of
the limits on the Fund's investments in loan participations and assignments with
limited marketability. If the Fund purchases a participation, it may only be
able to enforce its rights through the lender, and may assume the credit risk of
the lender in addition to the borrower. In assignments, the Fund's rights
against the borrower may be more limited than those held by the original lender.
Delayed Funding Loans and Revolving Credit Facilities
The Fund may also enter into, or acquire participations in, delayed funding
loans and revolving credit facilities. Delayed funding loans and revolving
credit facilities are borrowing arrangements in which the lender agrees to make
loans up to a maximum amount upon demand by the borrower during a specified
term. A revolving credit facility differs from a delayed funding loan in that as
the borrower repays the loan, an amount equal to the repayment may be borrowed
again during the term of the revolving credit facility. These commitments may
have the effect of requiring the Fund to increase its investment in a company at
a time when it might not otherwise decide to do so (including at a time when the
company's financial condition makes it unlikely that such amounts will be
repaid).
The Fund may acquire a participation interest in delayed funding loans or
revolving credit facilities from a bank or other financial institution. See
"Loan Participations and Assignments." The terms of the participation require
the Fund to make a pro rata share of all loans extended to the borrower and
entitles the Fund to a pro rata share of all payments made by the borrower.
Delayed funding loans and revolving credit facilities usually provide for
floating or variable rates of interest. To the extent that the Fund is committed
to advance additional funds, it will at all times segregate assets, determined
to be liquid by the Advisor in accordance with procedures established by the
Board of Trustees, in an amount sufficient to meet such commitments.
<PAGE>
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment
in the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters") and
engage in credit spread trades. The interest rate on a floater is a variable
rate which is tied to another interest rate, such as a money-market index or
Treasury bill rate. The interest rate on a floater resets periodically,
typically every six months. While, because of the interest rate reset feature,
floaters provide the Fund with a certain degree of protection against rises in
interest rates, the Fund will participate in any declines in interest rates as
well. A credit spread trade is an investment position relating to a difference
in the prices or interest rates of two securities or currencies, where the value
of the investment position is determined by movements in the difference between
the prices or interest rates, as the case may be, of the respective securities
or currencies.
The Fund may also invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security may exhibit greater price
volatility than a fixed rate obligation of similar credit quality. The Fund has
adopted a policy under which the Fund will invest no more than 5% of its net
assets in any combination of inverse floater, interest only ("IO"), or principal
only ("PO") securities. See "Mortgage-Related and Other Asset-Backed Securities"
for a discussion of IOs and POs.
Inflation-Indexed Bonds
Inflation-indexed bonds are fixed income securities whose principal value
is periodically adjusted according to the rate of inflation. Two structures are
common. The U.S. Treasury and some other issuers use a structure that secures
inflation into the principal value of the bond. Most other issuers pay out the
CPI accruals as part of a semi-annual coupon.
Inflation-indexed securities issued by the U.S. Treasury have maturities of
five, ten or thirty years, although it is possible that securities with other
maturities will be issued in the future. The securities will pay interest on a
semi-annual basis, equal to a fixed percentage of the inflation-adjusted
principal amount. For example, if an investor purchased an inflation-indexed
bond with a par value of $1,000 and a 3% real rate of return coupon (payable
1.5% semi-annually), and inflation over the first six months were 1%, the
mid-year par value of the bond would be $1,010 and the first semi-annual
interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the
second half of the year resulted in the whole years' inflation equaling 3%, the
end-of-year par value of the bond would be $1,030 and the second semi-annual
interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed, and will fluctuate. The Fund may
also invest in other inflation related bonds which may or may not provide a
similar guarantee. If such a guarantee of principal is not provided, the
adjusted principal value of the bond repaid at maturity may be less than the
original principal.
The value of inflation-indexed bonds is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation
and energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
Mortgage-Related And Other Asset-Backed Securities
The Fund may invest all of its assets in mortgage- or other asset-backed
securities. The value of some mortgage- or asset-backed securities in which the
Fund invests may be particularly sensitive to changes in prevailing interest
rates, and, like the other investments of the Fund, the ability of the Fund to
successfully utilize these instruments may depend in part upon the ability of
the Advisor to forecast interest rates and other economic factors correctly.
Mortgage-Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property in
which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on some mortgage-related securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Fund to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, the value of the premium would be
lost in the event of prepayment. Like other fixed income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed income securities. The rate of prepayments on underlying mortgages
will affect the price and volatility of a mortgage-related security, and may
have the effect of shortening or extending the effective maturity of the
security beyond what was anticipated at the time of purchase. To the extent that
unanticipated rates of prepayment on underlying mortgages increase the effective
maturity of a mortgage-related security, the volatility of such security can be
expected to increase.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Interest and pre-paid principal on a CMO are paid, in most cases,
on a monthly basis. CMOs may be collateralized by whole mortgage loans but are
more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured into multiple classes,
with each class bearing a different stated maturity. Monthly payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class; investors holding the longer maturity classes receive
principal only after the first class has been retired. CMOs that are issued or
guaranteed by the U.S. Government or by any of its agencies or instrumentalities
will be considered U.S. Government securities by the Fund, while other CMOs,
even if collateralized by U.S. Government securities, will have the same status
as other privately issued securities for purposes of applying the Fund's
diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage-related or asset-backed securities.
Mortgage-Related Securities include securities other than those described above
that directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property, such as mortgage dollar rolls
(see "Reverse Repurchase Agreements, Dollar Rolls, and Borrowings"), CMO
residuals or stripped mortgage-backed securities ("SMBS"), and may be structured
in classes with rights to receive varying proportions of principal and interest.
<PAGE>
A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the interest-only, or
"IO" class), while the other class will receive all of the principal (the
principal-only, or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets, and a rapid rate of principal payments
may have a material adverse effect on the Fund's yield to maturity from these
securities. The Fund has adopted a policy under which the Fund will invest no
more than 5% of its net assets in any combination of IO, PO, or inverse floater
securities. The Fund may invest in other asset-backed securities that have been
offered to investors.
Repurchase Agreements
For the purpose of achieving income, the Fund may enter into repurchase
agreements, which entail the purchase of a portfolio-eligible security from a
bank or broker-dealer that agrees to repurchase the security at the Fund's cost
plus interest within a specified time (normally one day). If the party agreeing
to repurchase should default, as a result of bankruptcy or otherwise, the Fund
will seek to sell the securities which it holds, which action could involve
procedural costs or delays in addition to a loss on the securities if their
value should fall below their repurchase price. The Fund will invest no more
than 15% of its net assets (taken at current market value) in repurchase
agreements maturing in more than seven days.
Reverse Repurchase Agreements, Dollar Rolls, and Borrowings
A reverse repurchase agreement involves the sale of a security by the Fund
and its agreement to repurchase the instrument at a specified time and price.
Under a reverse repurchase agreement, the Fund continues to receive any
principal and interest payments on the underlying security during the term of
the agreement. The Fund generally will segregate assets determined to be liquid
by the Advisor in accordance with procedures established by the Board of
Trustees to cover its obligations under reverse repurchase agreements and, to
this extent, a reverse repurchase agreement (or economically similar
transaction) will not be considered a "senior security" subject to the 300%
asset coverage requirements otherwise applicable to borrowings by the Fund.
The Fund may enter into dollar rolls, in which the Fund sells
mortgage-backed or other securities for delivery in the current month and
simultaneously contracts to purchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-backed
securities, the mortgage-backed securities that are purchased will be of the
same type and will have the same interest rate as those sold, but will be
supported by different pools of mortgages. The Fund forgoes principal and
interest paid during the roll period on the securities sold in a dollar roll,
but the Fund is compensated by the difference between the current sales price
and the lower price for the future purchase as well as by any interest earned on
the proceeds of the securities sold. The Fund also could be compensated through
the receipt of fee income equivalent to a lower forward price. The Fund will
segregate assets determined to be liquid by the Advisor in accordance with
procedures established by the Board of Trustees to cover its obligations under
dollar rolls.
To the extent that positions in reverse repurchase agreements, dollar rolls
or similar transactions are not covered through the maintenance of segregated
liquid assets at least equal to the amount of any forward purchase commitment,
such transactions would be subject to the Fund's limitations on borrowings,
which would restrict the aggregate of such transactions (plus any other
borrowings) to 331/3% of the Fund's total assets. Apart from such transactions,
the Fund will not borrow money, except for temporary administrative purposes.
Loans of Portfolio Securities
For the purpose of achieving income, the Fund may lend its portfolio
securities to brokers, dealers, and other financial institutions, provided:
(i) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash or cash equivalents (negotiable
certificates of deposit, bankers' acceptances or letters of credit)
maintained on a daily mark-to-market basis in an amount at least equal
to the current market value of the securities loaned;
(ii) the Fund may at any time call the loan and obtain the return of the
securities loaned;
(iii) the Fund will receive any interest or dividends paid on the loaned
securities; and
(iv) the aggregate market value of securities loaned will not at any time
exceed 331/3% of the total assets of the Fund.
<PAGE>
The Fund's performance will continue to reflect changes in the value of the
securities loaned and will also reflect the receipt of either interest, through
investment of cash collateral by the Fund in permissible investments, or a fee,
if the collateral is U.S. Government securities. Securities lending involves the
risk of loss of rights in the collateral or delay in recovery of the collateral
should the borrower fail to return the security loaned or become insolvent. The
Fund may pay lending fees to the party arranging the loan.
When-Issued, Delayed Delivery and Forward Commitment Transactions
The Fund may purchase or sell securities on a when-issued, delayed
delivery, or forward commitment basis. These transactions involve a commitment
by the Fund to purchase or sell securities for a predetermined price or yield,
with payment and delivery taking place more than seven days in the future, or
after a period longer than the customary settlement period for that type of
security. When such purchases are outstanding, the Fund will segregate until the
settlement date, assets determined to be liquid by the Advisor in accordance
with procedures established by the Board of Trustees, in an amount sufficient to
meet the purchase price. Typically, no income accrues on securities the Fund has
committed to purchase prior to the time delivery of the securities is made,
although the Fund may earn income on securities it has segregated.
When purchasing a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the Fund
is not required to pay for the security until the delivery date, these risks are
in addition to the risks associated with the Fund's other investments. If the
Fund remains substantially fully invested at a time when when-issued, delayed
delivery, or forward commitment purchases are outstanding, the purchases may
result in a form of leverage.
When the Fund has sold a security on a when-issued, delayed delivery, or
forward commitment basis, the Fund does not participate in future gains or
losses with respect to the security. If the other party to a transaction fails
to deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity or could suffer a loss. The Fund may dispose of or renegotiate
a transaction after it is entered into, and may sell when-issued, delayed
delivery or forward commitment securities before they are delivered, which may
result in a capital gain or loss. There is no percentage limitation on the
extent to which the Fund may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.
Short Sales
The Fund may from time to time effect short sales as part of its overall
portfolio management strategies, including the use of derivative instruments, or
to offset potential declines in value of long positions in similar securities as
those sold short. A short sale (other than a short sale against the box) is a
transaction in which the Fund sells a security it does not own at the time of
the sale in anticipation that the market price of that security will decline. To
the extent that the Fund engages in short sales, it must (except in the case of
short sales "against the box") maintain asset coverage in the form of segregated
assets determined to be liquid by the Advisor in accordance with procedures
established by the Board of Trustees, or otherwise cover its position in a
permissible manner. A short sale is "against the box" to the extent that the
Fund contemporaneously owns, or has the right to obtain at no added cost,
securities identical to those sold short.
Non-U.S. Securities
The Fund may invest directly in fixed income securities of non-U.S.
issuers. The Fund will concentrate its non-U.S. investments in securities of
issuers based in developed countries; however, the Fund may invest up to 10% of
its assets in securities of issuers based in a country that is defined as an
emerging or developing economy by any of the following: the International Bank
for Reconstruction and Development (i.e., the World Bank), including its various
offshoots, such as the International Finance Corporation, or the United Nations
or its authorities.
Individual non-U.S. economies may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments positions. The securities markets, values of securities, yields and
risks associated with securities markets in different countries may change
independently of each other. Investing in the securities of issuers in any
non-U.S. country involves special risks and considerations not typically
associated with investing in U.S. companies. Shareholders should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations. These risks include: differences
in accounting, auditing and financial reporting standards; generally higher
commission rates on non-U.S. portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political instability which
could affect U.S. investments in non-U.S. countries. Additionally, non-U.S.
securities and dividends and interest payable on those securities may be subject
to non-U.S. taxes, including taxes withheld from payments on those securities.
Non-U.S. securities often trade with less frequency and volume than U.S.
securities and therefore may exhibit greater price volatility. Additional costs
associated with an investment in non-U.S. securities may include higher
custodial fees than apply to U.S. custodial arrangements and transaction costs
of non-U.S. currency conversions. Changes in foreign exchange rates also will
affect the value of securities denominated or quoted in currencies other than
the U.S. dollar.
The Fund may invest in the securities of issuers based in countries with
developing economies. Investing in developing (or "emerging market") countries
involves certain risks not typically associated with investing in U.S.
securities, and imposes risks greater than, or in addition to, risks of
investing in non-U.S., developed countries. A number of emerging market
countries restrict, to varying degrees, foreign investment in securities.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some emerging
market countries. A number of the currencies of emerging market countries have
experienced significant declines against the U.S. dollar in recent years, and
devaluation may occur subsequent to investment in these currencies by the Fund.
Inflation and rapid fluctuations in inflation rates have had, and may continue
to have, negative effects on the economies and securities markets of certain
emerging market countries. Many of the emerging securities markets are
relatively small, have low trading volumes, suffer periods of relative
illiquidity, and are characterized by significant price volatility. There is a
risk in emerging market countries that a future economic or political crisis
could lead to price controls, forced mergers of companies, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies, any of which may have a detrimental effect on the Fund's investment.
Additional risks of investing in emerging market countries may include:
currency exchange rate fluctuations; greater social, economic and political
uncertainty and instability (including the risk of war); more substantial
governmental involvement in the economy; less governmental supervision and
regulation of the securities markets and participants in those markets;
unavailability of currency hedging techniques in certain emerging market
countries; the fact that companies in emerging market countries may be newly
organized and may be smaller and less seasoned companies; the difference in, or
lack of, auditing and financial reporting standards, which may result in
unavailability of material information about issuers; the risk that it may be
more difficult to obtain and/or enforce a judgment in a court outside the United
States; and significantly smaller market capitalization of securities markets.
Also, any change in the leadership or policies of Eastern European countries, or
the countries that exercise a significant influence over those countries, may
halt the expansion of or reverse the liberalization of foreign investment
policies now occurring and adversely affect existing investment opportunities.
Emerging securities markets may have different clearance and settlement
procedures, which may be unable to keep pace with the volume of securities
transactions or otherwise make it difficult to engage in such transactions.
Settlement problems may cause the Fund to miss attractive investment
opportunities, hold a portion of its assets in cash pending investment, or delay
in disposing of a portfolio security. Such a delay could result in possible
liability to a purchaser of the security.
The Fund may invest in Brady Bonds, which are securities created through
the exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructurings under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady.
Brady Bonds have been issued only recently, and for that reason do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (but primarily the U.S. dollar), and are actively
traded in the over-the-counter secondary market. Brady Bonds are not considered
to be U.S. Government securities. In light of the residual risk of Brady Bonds
and, among other factors, the history of defaults with respect to commercial
bank loans by public and private entities in countries issuing Brady Bonds,
investments in Brady Bonds may be viewed as speculative. There can be no
assurance that Brady Bonds acquired by the Fund will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Fund to suffer a loss of interest or principal on any of its holdings.
The Fund's investments in non-U.S. dollar denominated debt obligations and
hedging activities will likely produce a difference between its book income and
its taxable income. This difference may cause a portion of the Fund's income
distributions to constitute returns of capital for tax purposes or require the
Fund to make distributions exceeding book income to qualify as a regulated
investment company for U.S. federal tax purposes.
Foreign Currency Transactions
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks, by currency controls
or political developments in the U.S. or abroad. For example, significant
uncertainty surrounds the introduction of the euro (a common currency unit for
the European Union) in January 1999 and its effect on the value of securities
denominated in local European currencies. These and other currencies in which
the Fund's assets are denominated may be devalued against the U.S. dollar,
resulting in a loss to the Fund.
<PAGE>
The Fund may buy and sell foreign currencies on a spot and forward basis to
reduce the risks of adverse changes in foreign exchange rates. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. By entering into a forward foreign currency exchange contract, the
Fund "locks in" the exchange rate between the currency it will deliver and the
currency it will receive for the duration of the contract. As a result, the Fund
reduces its exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. The effect on the value of the Fund is similar to selling securities
denominated in one currency and purchasing securities denominated in another.
Contracts to sell foreign currency would limit any potential gain which might be
realized by the Fund if the value of the hedged currency increases. The Fund may
enter into these contracts for the purpose of hedging against foreign exchange
risk arising from the Fund's investment or anticipated investment in securities
denominated in non-U.S. currencies. The Fund also may enter into these contracts
for purposes of increasing exposure to a non-U.S. currency or to shift exposure
to non-U.S. currency fluctuations from one country to another. The Fund may use
one currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. The Fund will segregate
assets determined to be liquid by the Advisor in accordance with procedures
established by the Board of Trustees to cover its obligations under forward
non-U.S. currency exchange contracts entered into for non-hedging purposes.
The Fund may invest in options on non-U.S. currencies and non-U.S. currency
futures and options thereon. The Fund also may invest in non-U.S. currency
exchange-related securities, such as non-U.S. currency warrants and other
instruments whose return is linked to non-U.S. currency exchange rates. The Fund
will use these techniques to hedge at least 75% of its exposure to non-U.S.
currency. For a description of these instruments, see "Derivative Instruments"
below.
High Yield Securities ("Junk Bonds")
The Fund may invest up to 10% of its assets in fixed income securities
rated lower than Baa by Moody's or lower than BBB by S&P but rated at least B by
Moody's or S&P (or, if not rated, of comparable quality). Securities rated lower
than Baa by Moody's or lower than BBB by S&P are sometimes referred to as "high
yield" or "junk" bonds. Securities rated Baa are considered by Moody's to have
some speculative characteristics. Investors should consider the following risks
associated with high yield securities before investing in the Fund.
Investing in high yield securities involves special risks in addition to
the risks associated with investments in higher rated fixed income securities.
High yield securities may be regarded as predominately speculative with respect
to the issuer's continuing ability to meet principal and interest payments.
Analysis of the creditworthiness of issuers of high yield securities may be more
complex than for issuers of higher quality debt securities, and the ability of
the Fund to achieve its investment objective may, to the extent of its
investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield securities
defaults, the Fund may incur additional expenses to seek recovery. In the case
of high yield securities structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes, and therefore tend to be more volatile than
securities which pay interest periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of the Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. The
Advisor does not rely solely on credit ratings when selecting securities for the
Fund, and develops its own independent analysis of issuer credit quality. If a
credit rating agency changes the rating of a portfolio security held by the
Fund, the Fund may retain the portfolio security if the Advisor deems it in the
best interest of shareholders.
<PAGE>
During the year ended March 31, 1998, based upon the dollar-weighted
average ratings of the Fund's portfolio holdings at the end of each month in the
Fund's fiscal year, the Fund had the following percentages of its net assets
invested in securities rated in the categories indicated as rated by Moody's
(or, if unrated, determined by the Advisor to be of comparable quality). See
"Description of Securities Ratings."
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Below
Prime 1 Aaa Aa A Prime 1 Baa Ba B
20% 47% 0% 13% 6% 8% 6% 0%
</TABLE>
These figures are intended solely to provide disclosure about the Fund's
asset composition during its most recent fiscal year. The asset composition
after this time may or may not be approximately the same as represented by such
figures. In addition, the categories reflect ratings by Moody's, and ratings
assigned by S&P may not be consistent with ratings assigned by Moody's or other
credit ratings services, and the Advisor may not necessarily agree with a rating
assigned by any credit rating agency.
Derivative Instruments
The Fund may purchase and write call and put options on securities,
securities indexes and non-U.S. currencies, and enter into futures contracts and
use options on futures contracts as further described below. The Fund also may
enter into swap agreements with respect to non-U.S. currencies, interest rates,
and securities indexes. The Fund may use these techniques to hedge against
changes in interest rates, foreign currency exchange rates or securities prices
or as part of its overall investment strategies. The Fund may also purchase and
sell options relating to non-U.S. currencies for purposes of increasing exposure
to a non-U.S. currency or to shift exposure to non-U.S. currency fluctuations
from one country to another. The Fund will segregate assets determined to be
liquid by the Advisor in accordance with procedures established by the Board of
Trustees (or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under options, futures, and swaps
to limit leveraging of the Fund.
Derivative instruments are considered for these purposes to consist of
securities or other instruments whose value is derived from or related to the
value of some other instrument or asset, and not to include those securities
whose payment of principal and/or interest depends upon cash flows from
underlying assets, such as mortgage-related or asset-backed securities. The Fund
may invest all of its assets in derivative instruments. The value of some
derivative instruments in which the Fund invests may be particularly sensitive
to changes in prevailing interest rates, and, like the other investments of the
Fund, the ability of the Fund to successfully utilize these instruments may
depend in part upon the ability of the Advisor to forecast interest rates and
other economic factors correctly. If the Advisor incorrectly forecasts such
factors and has taken positions in derivative instruments contrary to prevailing
market trends, the Fund could be exposed to the risk of loss.
The Fund might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If the Advisor
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a derivatives strategy for the Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. Also,
suitable derivative instruments may not be available in all circumstances. The
use of these strategies involves certain special risks, including a possible
imperfect correlation, or even no correlation, between price movements of
derivative instruments and price movements of related investments. While some
strategies involving derivative instruments can reduce the risk of loss, they
can also reduce the opportunity for gain or even result in losses by offsetting
favorable price movements in related investments, or due to the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, because the Fund is
required to maintain asset coverage or offsetting positions in connection with
transactions in derivative instruments, and the possible inability of the Fund
to close out or to liquidate its derivatives positions. In addition, the Fund's
use of such instruments may cause the Fund to realize higher amounts of
short-term capital gains (generally taxed at ordinary income tax rates) than if
it had not used such instruments.
Options on Securities, Securities Indexes, and Currencies. The Fund may
purchase put options on securities and indexes. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value. The Fund may also purchase call options on
securities and indexes. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Fund intends to
purchase pending its ability to invest in such securities in an orderly manner.
An option on a security (or index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a call)
or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.
The Fund may sell put or call options it has previously purchased, which
could result in a net gain or loss depending on whether the amount realized on
the sale is more or less than the premium and other transaction costs paid on
the put or call option which is sold. The Fund may write a call or put option
only if the option is "covered" by the Fund holding a position in the underlying
securities or by other means which would permit immediate satisfaction of the
Fund's obligation as writer of the option. Prior to exercise or expiration, an
option may be closed out by an offsetting purchase or sale of an option of the
same series.
The Fund may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to meet the Fund's immediate obligations.
The Fund may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Fund will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
The purchase and writing of options involves certain risks. During the
option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying security above the exercise price, but, as long as its obligation as
a writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying security at the exercise price. If a put
or call option purchased by the Fund is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price (in the case of a put), or remains less than or equal to
the exercise price (in the case of a call), the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will exist when
the Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, the Fund may be
unable to close out a position.
The Fund may buy or sell put and call options on non-U.S. currencies.
Currency options traded on U.S. or other exchanges may be subject to position
limits which may limit the ability of the Fund to reduce non-U.S. currency risk
using such options. Over-the-counter options differ from traded options in that
they are two-party contracts, with price and other terms negotiated between
buyer and seller, and generally do not have as much market liquidity as
exchange-traded options. The Fund may be required to treat as illiquid
over-the-counter options purchased and securities being used to cover certain
written over-the-counter options.
Swap Agreements. The Fund may enter into interest rate, index, equity and
currency exchange rate swap agreements. These transactions would be entered into
in an attempt to obtain a particular return when it is considered desirable to
do so, possibly at a lower cost to the Fund than if the Fund had invested
directly in the asset that yielded the desired return. Swap agreements are
two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. The gross returns to
be exchanged or "swapped" between the parties are generally calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a particular
foreign currency, or in a "basket" of securities representing a particular
index. Forms of swap agreements include interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap"; interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates fall below a specified level, or
"floor"; and interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding given minimum or maximum levels.
<PAGE>
Most swap agreements entered into by the Fund calculate the obligations of
the parties to the agreement on a "net basis." Consequently, the Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
The Fund's current obligations under a swap agreement will be accrued daily
(offset against amounts owed to the Fund), and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by the segregation of assets
determined to be liquid by the Advisor in accordance with procedures established
by the Board of Trustees, to limit any potential leveraging of the Fund's
portfolio. Obligations under swap agreements so covered will not be construed to
be "senior securities" for purposes of the Fund's investment restriction
concerning senior securities. The Fund will not enter into a swap agreement with
any single party if the net amount owed or to be received under existing
contracts with that party would exceed 5% of the Fund's assets.
Whether the Fund's use of swap agreements will be successful in furthering
its investment objective will depend on the Advisor's ability to predict
correctly whether certain types of investments are likely to produce greater
returns than other investments. Because they are two-party contracts and because
they may have terms of greater than seven days, swap agreements may be
considered to be illiquid investments. Moreover, the Fund bears the risk of loss
of the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The Fund will enter into
swap agreements only with counterparties that meet certain standards for
creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Fund's repurchase agreement guidelines).
Certain restrictions imposed on the Fund by the U.S. Internal Revenue Code may
limit the Fund's ability to use swap agreements. The swaps market is a
relatively new market and is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect the Fund's ability to terminate existing swap agreements
or to realize amounts to be received under such agreements.
<PAGE>
Futures Contracts and Options on Futures Contracts. The Fund may invest in
interest rate futures contracts and options thereon ("futures options"), and to
the extent it may invest in non-U.S. dollar currency-denominated securities, may
also invest in non-U.S. currency futures contracts and options thereon.
There are several risks associated with the use of futures and futures
options for hedging purposes. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. An incorrect correlation could result in a loss on both
the hedged securities in the Fund and the hedging vehicle, so that the portfolio
return might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when the Fund seeks to close
out a futures contract or a futures option position. Most futures exchanges and
boards of trade limit the amount of fluctuation permitted in futures contract
prices during a single day; once the daily limit has been reached on a
particular contract, no trades may be made that day at a price beyond that
limit. In addition, certain of these instruments are relatively new and without
a significant trading history. As a result, there is no assurance that an active
secondary market will develop or continue to exist. Lack of a liquid market for
any reason may prevent the Fund from liquidating an unfavorable position, and
the Fund would remain obligated to meet margin requirements until the position
is closed.
The Fund may write covered straddles consisting of a call and a put written
on the same underlying futures contract. A straddle will be covered when
sufficient assets are deposited to meet the Fund's immediate obligations. The
Fund may use the same liquid assets to cover both the call and put options where
the exercise price of the call and put are the same, or the exercise price of
the call is higher than that of the put. In such cases, the Fund will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
The Fund will only enter into futures contracts or futures options which
are standardized and traded on a U.S. or non-U.S. exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Fund will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the U.S.
Commodity Futures Trading Commission ("CFTC") or, with respect to positions in
financial futures and related options that do not qualify as "bona fide hedging"
positions, will enter such positions only to the extent that aggregate initial
margin deposits plus premiums paid by it for open futures option positions, less
the amount by which any such positions are "in-the-money," would not exceed 5%
of the Fund's net assets.
Hybrid Instruments
A hybrid instrument can combine the characteristics of securities, futures,
and options. For example, the principal amount or interest rate of a hybrid
could be tied (positively or negatively) to the price of some commodity,
currency or securities index or another interest rate (each a "benchmark"). The
interest rate or (unlike most fixed income securities) the principal amount
payable at maturity of a hybrid security may be increased or decreased,
depending on changes in the value of the benchmark.
Hybrids can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management, and increased
total return. Hybrids may not bear interest or pay dividends. The value of a
hybrid or its interest rate may be a multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and political events,
such as commodity shortages and currency devaluations, which cannot be readily
foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail
significant market risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that has a fixed principal amount and
pays a fixed rate or floating rate of interest. The purchase of hybrids also
exposes the Fund to the credit risk of the issuer of the hybrids. These risks
may cause significant fluctuations in the net asset value of the Fund.
Accordingly, the Fund will invest no more than 5% of its assets in hybrid
instruments.
Certain issuers of structured products such as hybrid instruments may be
deemed to be investment companies as defined in the 1940 Act. As a result, the
Fund's investments in these products will be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act.
Catastrophe Bonds
The Fund may invest in "catastrophe bonds." Catastrophe bonds are fixed
income securities, for which the return of principal and payment of interest is
contingent on the non-occurrence of a specific "trigger" catastrophe event, such
as a hurricane or an earthquake. They may be issued by government agencies,
insurance companies, reinsurers, special purpose corporations or other entities.
If a trigger event causes losses exceeding a specific amount in the geographic
region and time period specified in a bond, the Fund may lose a portion or all
of its principal invested in the bond. If no trigger event occurs, the Fund will
recover its principal plus interest. For some catastrophe bonds, the trigger
event or losses may be based on companywide losses, index portfolio losses,
industry indexes, or readings of scientific instruments rather than specified
actual losses. Often the catastrophe bonds provide for extensions of maturity
that are mandatory, or optional at the discretion of the issuer, in order to
process and audit loss claims in those cases where a trigger event has, or
possibly has, occurred. In addition to the specified trigger events, catastrophe
bonds may also expose the Fund to certain unanticipated risks including but not
limited to issuer (credit) default, adverse regulatory or jurisdictional
interpretations, and adverse tax consequences.
Catastrophe bonds are a relatively new type of financial instrument. As
such, there is no significant trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop. Lack of
a liquid market may impose the risk of higher transaction costs and the
possibility that the Fund may be forced to liquidate positions when it would not
be advantageous to do so. Catastrophe bonds are typically rated, and the Fund
will only invest in catastrophe bonds that meet the credit quality requirements
for the Fund.
Investment in Investment Companies
The Fund may invest up to 10% of its assets in securities of other
investment companies, such as closed-end management investment companies, or in
pooled accounts or other investment vehicles. As a shareholder of an investment
company, the Fund may indirectly bear service and other fees which are in
addition to the fees the Fund pays its service providers.
Portfolio Turnover
The length of time the Fund has held a particular security is not generally
a consideration in investment decisions. The investment policies of the Fund may
lead to frequent changes in the Fund's investments, particularly in periods of
volatile market movements. A change in the securities held by the Fund is known
as "portfolio turnover." High portfolio turnover (e.g., over 100%) involves
correspondingly greater expenses to the Fund, including brokerage commissions or
dealer mark-ups and other transaction costs on the sale of securities and
reinvestments in other securities. Such sales may result in realization of
taxable capital gains. The portfolio turnover rate for the Fund is set forth
under "PART- Financial Highlights."
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities.
Certain illiquid securities may require pricing at fair value as determined in
good faith under the supervision of the Board of Trustees. The Advisor may be
subject to significant delays in disposing of illiquid securities, and
transactions in illiquid securities may entail registration expenses and other
transaction costs that are higher than transactions in liquid securities. The
term "illiquid securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Illiquid
securities are considered to include, among other things, written
over-the-counter options, securities or other liquid assets being used as cover
for such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests, fixed time deposits which are not subject
to prepayment or provide for withdrawal penalties upon prepayment (other than
overnight deposits), securities that are subject to legal or contractual
restrictions on resale (such as privately placed debt securities) and other
securities whose disposition is restricted under the federal securities laws
(other than securities issued pursuant to Rule 144A under the 1933 Act and
certain commercial paper that the Advisor has determined to be liquid under
procedures approved by the Board of Trustees).
Illiquid securities may include privately placed securities, which are sold
directly to a small number of investors, usually institutions. Unlike public
offerings, such securities are not registered under the U.S. federal securities
laws. Although certain of these securities may be readily sold, for example,
under Rule 144A, others may be illiquid, and their sale may involve substantial
delays and additional costs.
<PAGE>
Service Systems-- Year 2000 Problem
Many of the services provided to the Fund depend on the smooth functioning
of computer systems. Many systems in use today cannot distinguish between the
year 1900 and the year 2000. Should any of the service systems fail to process
information properly, that could have an adverse impact on the Fund's operations
and services provided to the shareholders. Similarly, information processing
difficulties may adversely impact the business of companies in which the Fund
may invest and, consequently, the market value of securities issued by such
companies. The Advisor, Distributor, Shareholder Servicing and Transfer Agent,
Custodian, and certain other service providers to the Fund have reported that
each is working toward mitigating the risks associated with the so-called "year
2000 problem." However, there can be no assurance that the problem will be
corrected in all respects and that the Fund's operations and services provided
to shareholders will not be adversely affected, nor can there be any assurances
that the year 2000 problem will not have an adverse effect on the entities whose
securities are held by the Fund or on global or U.S. domestic markets or
economies, generally.
Description of Duration
Duration is a measure of the expected life of a fixed income security that
was developed as a more precise alternative to the concept of "term to
maturity." Traditionally, a fixed income security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in
interest rates (which is the "interest rate risk" or "volatility" of the
security). However, "term to maturity" measures only the time until a fixed
income security provides its final payment, taking no account of the pattern of
the security's payments prior to maturity. In contrast, duration incorporates a
bond's yield, coupon interest payments, final maturity and call features into
one measure. Duration management is one of the fundamental tools used by the
Advisor.
Duration is a measure of the expected life of a fixed income security on a
present value basis. Duration takes the length of the time intervals between the
present time and the time that the interest and principal payments are scheduled
or, in the case of a callable bond, expected to be received, and weights them by
the present values of the cash to be received at each future point in time. For
any fixed income security with interest payments occurring prior to the payment
of principal, duration is always less than maturity. In general, all other
things being equal, the lower the stated or coupon rate of interest of a fixed
income security, the longer the duration of the security; conversely, the higher
the stated or coupon rate of interest of a fixed income security, the shorter
the duration of the security.
Futures, options and options on futures have durations which, in general,
are closely related to the duration of the securities which underlie them.
Holding long futures or call option positions (backed by a segregated account of
cash and cash equivalents) will lengthen the Fund's duration by approximately
the same amount that holding an equivalent amount of the underlying securities
would.
Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie these positions, and have the
effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. For inflation-indexed bonds, duration is calculated on the basis
of modified real duration, which measures price changes of inflation-indexed
bonds on the basis of changes in real, rather than nominal, interest rates.
Another example where the interest rate exposure is not properly captured by
duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure.
Finally, the duration of a fixed income security may vary over time in response
to changes in interest rates and other market factors. In these and other
similar situations, the Advisor will use more sophisticated analytical
techniques that incorporate the anticipated economic life of a security into the
determination of its interest rate exposure.
Description of Securities Ratings
The Fund's investments may range in quality from securities rated in the
lowest category in which the Fund is permitted to invest to securities rated in
the highest category (as rated by Moody's or S&P or, if unrated, determined by
the Advisor to be of comparable quality). The percentage of the Fund's assets
invested in securities in a particular rating category will vary. Following is a
description of Moody's and S&P's ratings applicable to fixed income securities.
<PAGE>
Moody's Investors Service, Inc.
Corporate and Municipal Bond Ratings
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than with Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
that suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classified from Aa through B in its corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as letters
of credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's Ratings Services
Corporate and Municipal Bond Ratings
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC- debt rating. The C rating may be used
to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI: The rating CI is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
<PAGE>
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
r: The "r" is attached to highlight derivative, hybrid, and certain other
obligations that S&P believes may experience high volatility or high variability
in expected returns due to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to equities,
commodities, or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Commercial Paper Rating Definitions
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into several categories, ranging from A for the highest
quality obligations to D for the lowest. These categories are as follows:
A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D: Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished to
S&P by the issuer or obtained from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended, or
withdrawn as a result of changes in or unavailability of such information.
(B) Restrictions of Investment:
The Fund's investment objective as set forth under "Investment Objective
and Policies," and the investment restrictions set forth below are fundamental
policies of the Fund and may not be changed with respect to the Fund without
shareholder approval by vote of a majority of the outstanding shares of the
Fund. Under these restrictions, the Fund may not:
(1) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such
investment) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities (or repurchase agreements with respect thereto);
(2) with respect to 75% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of any one issuer, except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. For the purpose of this restriction,
each state and each separate political subdivision, agency, authority
or instrumentality of such state, each multi-state agency or
authority, and each guarantor, if any, are treated as separate issuers
of Municipal Bonds;
(3) with respect to 75% of its assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the
time of such investment) of the outstanding voting securities of any
one issuer;
(4) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate or interests therein;
(5) purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit the Fund,
subject to restrictions described in the prospectus filed in the U.S.
and in the statement of additional information relating thereto, from
purchasing, selling or entering into futures contracts, options on
futures contracts, foreign currency forward contracts, foreign
currency options, or any interest rate, securities-related or foreign
currency-related hedging instrument, including swap agreements and
other derivative instruments, subject to compliance with any
applicable provisions of the federal securities or commodities laws;
(6) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that the Fund may (i) borrow from banks
or enter into reverse repurchase agreements, or employ similar
investment techniques, and pledge its assets in connection therewith,
but only if immediately after each borrowing there is asset coverage
of 300% and (ii) enter into transactions in options, futures, options
on futures, and other derivative instruments as described in the
prospectus filed in the U.S. and in the statement of additional
information relating thereto (the deposit of assets in escrow in
connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis,
collateral arrangements with respect to initial or variation margin
deposits for futures contracts, and commitments entered into under
swap agreements or other derivative instruments will not be deemed to
be pledges of the Fund' assets);
(7) lend any funds or other assets, except that the Fund may, consistent
with its investment objective and policies: (a) investment in debt
obligations, including bonds, debentures, or other debt securities,
bankers' acceptances and commercial paper, even though the purchase of
such obligations may be deemed to be the making of loans, (b) enter
into repurchase agreements, and (c) lend its portfolio securities in
an amount not to exceed one-third of the value of its total assets,
provided such loans are made in accordance with applicable guidelines
established by the SEC and the Trustees of the Trust.
(8) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio
securities, it may be deemed to be an underwriter under the federal
securities laws; or
(9) maintain a short position, or purchase, write or sell puts, calls,
straddles, spreads or combinations thereof, except on such conditions
as may be set forth in the prospectus filed in the U.S. and in the
statement of additional information relating thereto.
<PAGE>
To the extent the Fund covers its commitment under a reverse repurchase
agreement (or economically similar transaction) by the maintenance of segregated
assets determined to be liquid in accordance with procedures adopted by the
Trustees, equal in value to the amount of the Fund's commitment to repurchase,
such an agreement will not be considered a "senior security" by the Fund and
therefore will not be subject to the 300% asset coverage requirement otherwise
applicable to borrowing by the Fund.
The Fund is also subject to non-fundamental restrictions and policies
(which may be changed without shareholder approval) relating to the investment
of its assets and activities.
Unless otherwise indicated, all limitations applicable to Fund investments
(as stated above and in the prospectus filed in the U.S. and in the statement of
additional information relating thereto) apply only at the time a transaction is
entered into. Any subsequent change in a rating assigned by any rating service
to a security (or, if unrated, deemed to be of comparable quality), or change in
the percentage of Fund assets invested in certain securities or other
instruments, or change in the average duration of the Fund's investment
portfolio, resulting from market fluctuations or other changes in the Fund's
total assets will not require the Fund to dispose of an investment until the
Advisor determines that it is practicable to sell or close out the investment
without undue market or tax consequences to the Fund. In the event that ratings
services assign different ratings to the same security, the Advisor will
determine which rating it believes best reflects the security's quality and risk
at that time, which may be the higher of the several assigned ratings.
Investment Restriction pursuant to Japanese Regulations
In addition, the Fund will, so long as the Shares are being offered for
subscription by the Fund in Japan, comply with the following standards of
selection of the Japan Securities Dealers Association;
1. The Trust will not sell the Shares in Japan except through PIMCO Funds
Distributors LLC.
2. The Trust will not sell the Shares in Japan with any special services,
such as life insurance and pension, and/or any commodities.
3. The Trust has appointed, and will maintain the appointment of, a bank
or trust company as the place for safe-keeping of its assets in
connection with the Fund.
4. The Tokyo District Court shall have the jurisdiction over any and all
litigation related to transactions in any class of shares of the Fund
acquired by Japanese investors as required by Section 5(2) of the
Standards of Foreign Investment Fund Securities of the Japan
Securities Dealers Association.
5. The assets of the Fund may not be used to underwrite securities issued
by other persons.
6. The Fund may not make short sales of securities or maintain a short
position for the account of the Fund unless at all times when a short
position is open it owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as,
and equal in amount to, the securities sold short.
7. The Fund may not borrow money in excess of 10% of the value (taken at
the lower of cost or current value) of its total assets (not including
the amount borrowed) at the time the borrowing is made, except for
extraordinary or emergency purposes, such as in the case of a merger,
amalgamation or the like.
8. The Fund may not invest in voting securities of any issuer if,
immediately after such investment, more than 10% of the total assets
of the Fund (taken at current value) would be invested in such
securities of such issuer.
9. The Fund may not acquire more than 10% of the outstanding voting
securities of any issuer; and the Fund may not acquire more than 15%
of the outstanding voting securities of any issuer, if aggregated with
the portion of holding in such securities by any and all other mutual
funds managed by Pacific Investment Management Company.
10. The Fund may not invest more than 10% of its total assets in the
securities of any other investment funds or companies, except as they
may be acquired temporarily as part of a merger, consolidation or
acquisition of assets.
<PAGE>
11. The Fund may not invest more than 10% of its total assets in voting
securities privately placed, mortgage securities or unlisted voting
securities which cannot be readily disposed of. This restriction shall
not be applicable to securities determined by Pacific Investment
Management Company to be liquid and for which a market price
(including a dealer quotation) is generally obtainable or
determinable.
12. The Fund may not grant any rights or privileges to purchase the Shares
to shareholders or investors by issuing warrants, subscription rights
or options, or other similar rights.
13. None of the portfolio securities of the Fund may be purchased from or
sold or loaned to any Trustee of the Trust, Pacific Investment
Management Company, acting as investment adviser of the Trust, or any
affiliate thereof or any of their directors, officers or employees, or
any major shareholder thereof (meaning a shareholder who holds to the
actual knowledge of Pacific Investment Management Company, on his own
account whether in his own or other name (as well as a nominee's
name), 10% or more of the total issued outstanding shares of such a
company) acting as principal or for their own account unless the
transaction is made within the investment restrictions set forth in
the Fund's prospectus and statement of additional information and
either (i) at a price determined by current publicly available
quotations (including a dealer quotation) or (ii) at competitive
prices or interest rates prevailing from time to time on
internationally recognized securities markets or internationally
recognized money markets (including a dealer quotation).
All percentage limitations on investments will apply at the time of the
making of an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. If any violation of the foregoing investment restrictions occurs,
the Trust will, promptly after discovery of the violation, take such action as
may be necessary to cause the violation to cease, which shall be the only
obligation of the Trust and the only remedy in respect of the violation.
If any of the foregoing standards shall, at any time when the Shares are
being offered for subscription by the Trust in Japan or thereafter, no longer be
required in accordance with the standards of the Japanese Securities Dealers
Association, then such standards shall no longer apply.
(C) Distribution Policy:
Shares begin earning dividends on the effective date of purchase, which
shall be the Payment Date on which the subscription amount of the relevant
Shares is received by the Trust. Dividends are declared daily from net
investment income to shareholders of record at the close of the previous
business day, and distributed to shareholders monthly. Any net realized capital
gains from the sale of portfolio securities will be distributed no less
frequently than once yearly. Dividend and capital gain distributions of the Fund
will be reinvested in additional Shares unless the shareholder elects to have
them paid in cash, though shareholders in Japan may only elect to receive them
in cash. The dividend may, in certain circumstances, be set off with the Sales
Charge, and is closely connected to the terms of the subscription and
repurchase; the details thereof are set out in "3. Management Structure, (A) C.
Sales, Repurchase and Custody, (1) b. Sales in Japan and (2) b. Repurchase in
Japan" below.
3. MANAGEMENT STRUCTURE
(A) Outline of Management of Assets, etc.:
A. Valuation of assets:
The net asset value per share of Shares of the Fund will be determined once
on each day on which the New York Stock Exchange (the "Exchange") is open as of
the close of regular trading (normally 4:00 p.m., Eastern time) on the Exchange
by dividing the total market value of the Fund's portfolio investments and other
assets attributable to Administrative Class shares of the Fund, less any
liabilities, by the number of total outstanding shares of that class. Net asset
value will not be determined on the following days on which the Exchange is
closed: Sunday, Saturday, New Year's Day, Martin Luther King, Jr. Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Portfolio securities and other assets for which market quotations are
readily available are stated at market value. Market value is determined on the
basis of last reported sales prices, or if no sales are reported, as is the case
for most securities traded over-the-counter, at the mean between representative
bid and asked quotations obtained from a quotation reporting system or from
established market makers. Fixed income securities, including those to be
purchased under firm commitment agreements (other than obligations having a
maturity of 60 days or less), are normally valued on the basis of quotations
obtained from brokers and dealers or pricing services, which take into account
appropriate factors such as institutional-sized trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data.
<PAGE>
Quotations of non-U.S. securities in non-U.S. currency are converted to
U.S. dollar equivalents using foreign exchange quotations received from
independent dealers. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, when the Board of Trustees determines that
amortized cost is their fair value. Certain fixed income securities for which
daily market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed income
securities whose prices are more readily obtainable and whose durations are
comparable to the securities being valued. Subject to the foregoing, other
securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Board of Trustees.
The Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that class's distribution and/or servicing
fees and any other expenses specially allocated to that class are then deducted
from the class's proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that class
outstanding to produce the class's "net asset value" per share.
B. Management Fee, etc.:
(1) Advisory and Administrative Fees:
Investment Advisor
Pacific Investment Management Company serves as Investment Advisor to the
Fund pursuant to an investment advisory contract. The Investment Advisor manages
the investment and reinvestment of the assets of the Fund. The Investment
Advisor is responsible for placing orders for the purchase and sale of the
Fund's investments directly with brokers or dealers selected by it in its
discretion.
Fund Administrator
Pacific Investment Management Company also serves as Administrator for the
Fund's Administrative Class Shares pursuant to an administration agreement with
the Trust. The Administrator provides administrative services for Administrative
Class shareholders of the Fund, which include clerical help and accounting,
bookkeeping, internal audit services, and certain other services required by the
Fund, preparation of reports to the Fund's shareholders and regulatory filings.
In addition, the Administrator, at its own expense, arranges for the provision
of legal, audit, custody, transfer agency and other services for the Fund, and
is responsible for the costs of registration of the Fund's shares and the
printing of prospectuses and shareholder reports for current shareholders.
The Fund (and not the Administrator) 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 the Administrator or its subsidiaries or affiliates; (ii) taxes and
governmental fees; (iii) brokerage fees and commissions and other portfolio
transaction expenses; (iv) the costs of borrowing money, including interest
expenses; (v) fees and expenses of the Trustees who are not "interested persons"
of Pacific Investment Management Company or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) expenses, such as organizational
expenses, which are capitalized in accordance with generally accepted accounting
principles; and (viii) any expenses allocated or allocable to a specific class
of shares, which include servicing fees payable with respect to Shares, and may
include certain other expenses as permitted by the Trust's Multi-Class Plan
adopted pursuant to Rule 18f-3 under the 1940 Act, subject to review and
approval by the Trustees.
Advisory and Administrative Fees
The Fund features fixed advisory and administrative fee rates. For
providing investment advisory and administrative services to the Fund as
described above, Pacific Investment Management Company receives monthly fees
from the Fund at an annual rate based on the average daily net assets of the
Fund as follows:
Advisory Administrative
Fee Rate Fee Rate
.25% .18%
Both the investment advisory contract and administration agreement with
respect to the Fund may be terminated by the Trustees at any time on 60 days'
written notice. The investment advisory contract may be terminated by the
Investment Advisor on 60 days' written notice. Following the expiration of the
two-year period commencing with the effectiveness of the administration
agreement, it may be terminated by the Administrator on 60 days' written notice.
Following their initial two-year terms, the investment advisory contract and
administration agreement will continue from year to year if approved by the
Trustees.
<PAGE>
For the fiscal years ended March 31, 1998, 1997, and 1996, the aggregate
amount of the advisory fees paid by the Fund was as follows:
<TABLE>
<S> <C> <C>
Year Ended Year Ended Year Ended
3/31/98 3/31/97 3/31/96
$38,327,843 $ 29,232,090 $ 22,775,075
</TABLE>
For the fiscal years ended March 31, 1997,1996 and 1995, the aggregate
amount of the administration fees paid by the Fund was as follows:
<TABLE>
<S> <C> <C>
Year Ended Year Ended Year Ended
3/31/98 3/31/97 3/31/96
$29,219,721 $ 21,266,359 $ 13,084,413
</TABLE>
(2) Administrative Class Servicing Fees
The Distributor, a wholly owned subsidiary of PIMCO Advisors L.P., serves
as the principal underwriter of the Fund's shares pursuant to a Distribution
Contract. The Distributor is a broker-dealer registered with the SEC.
The Distribution Contract is terminable with respect to the Fund or Shares
without penalty, at any time, by the Fund or Administrative Class Shares by not
more than 60 days' nor less than 30 days' written notice to the Distributor, or
by the Distributor upon not more than 60 days' nor less than 30 days' written
notice to the Trust. The Distributor is not obliged to sell any specific amount
of Trust shares.
The Distribution Contract will continue in effect with respect to the Fund
or Shares for successive one - year periods, provided that such continuance is
specifically approved (i) by the vote of a majority of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the Distribution Contract, the
Administration Agreement or the Distribution and/or Administrative Servicing
Plans described below; and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
Service and Distribution Fees
The Trust has adopted an Administrative Service Plan and a Distribution
Plan (the "Plans") with respect to the Administrative Class shares of the Fund.
Under the terms of the Plans, the Trust is permitted to reimburse, out of the
assets attributable to the Administrative Class shares of the Fund, in an amount
up to 0.25% on an annual basis of the average daily net assets of that class,
financial intermediaries that provide services in connection with the
distribution and marketing of Shares and/or the provision of certain shareholder
services (in the case of the Distribution Plan) or the administration of plans
or programs that use Shares as their funding medium (in the case of the
Administrative Services Plan), and to reimburse certain other related expenses.
Under the terms of the Administrative Class Distribution Plan, these
services may include, but are not limited to, the following functions: providing
facilities to answer questions from prospective investors about the Fund;
receiving and answering correspondence, including requests for prospectuses and
statements of additional information relating thereto; preparing, printing and
delivering prospectuses and shareholder reports to prospective shareholders;
complying with federal and state securities laws pertaining to the sale of
Shares; and assisting investors in completing application forms and selecting
dividend and other account options. Under the terms of the Administrative
Services Plan, the services may include, but are not limited to, the following
functions: receiving, aggregating and processing shareholder orders; furnishing
shareholder sub-accounting; providing and maintaining elective shareholder
services such as check writing and wire transfer services; providing and
maintaining pre-authorized investment plans; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining accounting records for shareholders; answering
questions and handling correspondence from shareholders about their accounts;
and performing similar account administrative services.
The same entity may not receive both distribution and administrative
services fees with respect to the same assets but may with respect to separate
assets receive fees under both a Distribution Plan and Administrative Services
Plan.
Each Plan provides that it may not be amended to materially increase the
costs which shareholders of Shares may bear under the Plan without the approval
of a majority of the outstanding voting securities of the Administrative Class,
and by vote of a majority of both (i) the Trustees of the Trust and (ii) those
Trustees who are not "interested persons" of the Trust (as defined in the 1940
Act) and who have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it (the "Plan Trustees"), cast in person
at a meeting called for the purpose of voting on the Plan and any related
amendments.
Each Plan provides that expenses payable under the Plan may be carried
forward for reimbursement for up twelve months beyond the date in which the
expense is incurred, subject to the limit that not more than 0.25% of the
average daily net assets of Shares may be used in any month to pay expenses
under the Plan. Each Plan requires that Administrative Class shares incur no
interest or carrying charges.
Rules of the National Association of Securities Dealers, Inc. (the "NASD")
limit the amount of distribution fees that may be paid by mutual funds. "Service
fees," defined to mean fees paid for providing shareholder services or the
maintenance of accounts (but not transfer agency services) are not subject to
the limits. The Trust believes that some, if not all, of the fees paid pursuant
to both Plans will qualify as "service fees" and therefore will not be limited
by NASD rules.
Each Plan has been adopted in accordance with the requirements of Rule
12b-1 under the 1940 Act and will be administered in accordance with the
provisions of that rule, except that shareholders will not have the voting
rights set forth in Rule 12b-1 with respect to the Administrative Service Plan
that they will have with respect to the Distribution Plan.
For the fiscal year ended March 31, 1998, the Administrative Class Shares
of the Fund paid aggregate fees under the Plans to qualified service providers
in the amount of $699,976.
(3) Other Expenses:
Except for the expenses paid by PIMCO, the Trust bears all costs of its
operations. The series of the Trust are responsible for: (i) salaries and other
compensation of any of the Trust's executive officers and employees who are not
officers, directors, stockholders, or employees of PIMCO or its subsidiaries or
affiliates; (ii) taxes and governmental fees; (iii) brokerage fees and
commissions and other portfolio transaction expenses; (iv) costs of borrowing
money, including interest expenses; (v) fees and expenses of the Trustees who
are not "interested persons" of PIMCO or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) expenses, such as organizational
expenses; which are capitalized in accordance with generally accepted accounting
principles; and (viii) any expenses allocated or allocable to a specific class
of shares.
Trustee Compensation Table
The following table sets forth information regarding compensation received
by the Trustees from the Trust and certain other investment companies for which
the Investment Advisor provides investment advisory services for the fiscal year
ended March 31,1998.
<TABLE>
<S> <C> <C>
Total Compensation from Trust
Aggregate Compensation and Fund Complex Paid to
from Trust (2) Trustee (3)
Name (1)
Guilford C. Babcock $57,500 $70,500
Vern O. Curtis $60,090 $74,123
Thomas P. Kemp $57,500 $70,500
William J. Popejoy $57,500 $70,500
</TABLE>
(1) Each of Mr. Harris and Mr. Burns, Trustees of the Trust, is an "interested
person" of the Trust (as that term is defined in the 1940 Act) because of
his affiliations with the Investment Advisor so that the Trust does not
incur any expense in connection with his compensation.
(2) Each Trustee, other than those affiliated with the Investment Advisor or
its affiliates, received 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, a Trustee serving as a Committee Chair, other than those
affiliated with the Advisor or its affiliates, receives an additional
annual retainer of $1,500. For the fiscal year ended March 31, 1998, the
unaffiliated Trustees as a group received compensation in the amount of
$232,590.
<PAGE>
(3) Each Trustee also serves as a Director of PIMCO Commercial Mortgage
Securities Trust, Inc., a registered closed-end management investment
company, and as a Trustee of PIMCO Variable Insurance Trust, a registered
open-end management investment company. For their services to PIMCO
Commercial Mortgage Securities Trust, Inc., the Directors listed above
received an annual retainer of $6,000 plus $1,000 for each Board of
Directors meeting attended in person and $500 for each meeting attended
telephonically plus reimbursement of related expenses In addition, a
Director serving as a Committee Chair, other than those affiliated with the
Advisor or its affiliates, receives an additional annual retainer of $500.
For the one year period ended March 31, 1998, the unaffiliated Directors as
a group received compensation in the amount of $42,790.
The Trustees listed above, for their services as Trustees of PIMCO
Variable Insurance Trust, receive an annual retainer of $4,000 plus $1,500
for each Board of Trustees meeting attended in person and $250 for each
meeting attended telephonically, plus reimbursement of related expenses. In
addition, a Trustee serving as a Committee Chair, other than those
affiliated with the Advisor or its affiliates, receives an additional
annual retainer of $500. For the one year period ended March 31, 1998, the
unaffiliated Trustees as a group received compensation in the amount of
$10,243.
C. Sales, Repurchases and Custody:
(1) Sales of Shares:
a. Sales in the United States
Shares of the Administrative Class are offered primarily through
employee benefit plan alliances, broker-dealers, and other intermediaries,
and the Fund pays service and/or distribution fees to such entities for
services they provide to shareholders of that class.
The Administrative Class Shares may be purchased at the relevant net
asset value of the Administrative Class without a sales charge. The minimum
initial investment for shares of the Administrative Class is $ 5 million.
An account may be opened by completing and signing a Client
Registration Application and mailing it to the Trust.
Purchases of Shares of Administrative Class generally can only be made
by wiring federal funds to Investors Fiduciary Trust Company (the "Transfer
Agent"). Before wiring federal funds, the investor must first telephone the
Trust to receive instructions for wire transfer, and the following
information will be requested: name of authorized person; shareholder name;
shareholder account number; name of Fund and share class; amount being
wired; and wiring bank name.
A purchase order, together with payment in proper form, received by
the Transfer Agent prior to the close of business (ordinarily, 4:00 p.m.,
Eastern time) on a day the Trust is open for business will be effected at
that day's net asset value. An order received after the close of business
will generally be effected at the net asset value determined on the next
business day. However, orders received by certain retirement plans and
other financial intermediaries by the close of, business and communicated
to the Transfer Agent by 9:00 a.m. Eastern time, on the following business
day will be effected at the net asset value determined on the prior
business day. The Trust is "open for business" on each day the Exchange is
open for trading, which excludes the following days: Sunday, Saturday, New
Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. Purchase orders will be accepted only on days on which the Trust is
open for business.
b. Sales in Japan
The terms applicable to an investor's account may restrict the
frequency or timing of purchases, exchanges or redemptions, which may have
the effect of limiting an investor's ability to respond to changing market
conditions.
The offer for subscription of the Shares may be made in Japan on any
date (which is a Fund Business Day and a business day in Japan), during the
subscription period, referred to in "Part I. Information Concerning
Securities, 8. Period of Subscription" of the Securities Registration
Statement filed by the Trust in accordance with the terms set forth in
"Part I. Information Concerning Securities" of the Securities Registration
Statement.
A Handling Securities Company shall provide to the investors the
Contract and receive from such investors an application for requesting the
opening of a transactions account under the Contract. The purchase shall be
made in the minimum investment of 100 Shares and in integral multiples of
10 Shares for the initial subscription and the same for any subsequent
subscription.
The issue price per Share shall be, in principle, the net asset value
per Share, next calculated on a Fund Business Day on which the Trust has
received the application for purchase of such Share. The Trade Day in Japan
is the day (which shall be a business day in Japan) on which the Handling
Securities Company obtains a confirmation from the Trust to the effect that
the relevant order is executed; such Trade Day is ordinarily the business
day in Japan immediately following the day on which the relevant
application for purchase of Shares is made to the Handling Securities
Company. The settlement shall be made with the investors on the third
business day (which is the business day in Japan) after the Trade Day.
The dividend is declared on a daily basis and shall be calculated as
of the last Fund Business Day of each month, so that the dividend shall be
paid out with respect of such month. The dividend shall be paid out by the
Trust on the first Fund Business Day of each month, and such dividend shall
be paid in yen to the investors in Japan on the business day in Japan
immediately following the business day in Japan on which the Handling
Securities Company confirms its receipt of dividend (which confirmation may
ordinarily be made on the business day in Japan following the date the
dividend is paid out from overseas). The details of payment method of such
dividend to each investor is determined by the Handling Securities Company
and each such investor. The dividend shall be attributable to the
shareholders from and including the business day in Japan on which the
settlement is made (such date is usually the fourth business day after the
date of application for purchase made to the Handling Securities Company).
The Sales Charge shall be payable monthly at the certain rates of the
net asset value per Share on the last Fund Business Day of the month in
respect of which the relevant dividend, set forth in the next sentence, is
calculated in equal monthly installments up to 24 times, depending on the
number of Shares applied, as set forth in "Part I. Information Concerning
Securities, 6. Sale Charge" in the Securities Registration Statement of the
Trust. Such Sales Charge shall become payable, by deducting from the
dividend, starting two months after the month in which the application for
purchase is made. If (i) no dividend is paid in any month or (ii) the
amount of any dividend to be paid in any month is less than the amount of
the Sales Charge payable with respect to such month, then the relevant
Sales Charge with respect to such month shall not be paid in such month,
but shall be payable in the next month.
The Shareholders in Japan are required to entrust the custody of their
Shares represented by a global certificate with Nikko. The matters
concerning the receipt are in accordance with the Contract.
The subscription amount of Shares shall be paid in yen and the yen
exchange rate shall be the exchange rate which shall be based on the
foreign exchange rate quoted in the Tokyo Foreign Exchange Market on the
Trade Day of each subscription and which shall be determined by such
Handling Securities Company. Provided, however, that such subscription
amount may be paid in dollars to the extent acceptable to Handling
Securities Company, such as by means of wire transfer through banks.
In addition, the Handling Securities Companies in Japan who are
members of the Japan Securities Dealers Association ("JSDA") cannot
continue sales of the Shares in Japan when the net assets of the Fund are
less than Yen 500,000,000 or the Shares otherwise cease to comply with the
"Standards of Selection of Foreign Investment Fund Securities" established
by JSDA.
c. Other Purchase Information
In the interest of economy and convenience, certificates for Shares
will not be issued to the investors in the U.S. For description of the
Shares of the investors in Japan, see "(5) Custody of Shares" below.
The Trust and the Distributor each reserves the right, in its sole
discretion, to suspend the offering of Administrative Class Shares or to
reject any purchase order, in whole or in part, or to redeem Administrative
Class Shares, in whole or in part, when, in the judgment of management,
such suspension or rejection is in the best interests of the Trust. The
Trust and the Distributor may also waive the minimum initial investment for
certain investors.
The Trust and Advisor each reserves the right to restrict purchases of
Administrative Class Shares when a pattern of frequent purchases and sales
made in response to short-term fluctuation in share price appears evident.
<PAGE>
(2) Repurchase of Shares:
a. Repurchase in the United States
Redemptions by Mail
Administrative Class Shares may be redeemed by submitting a written request
to the Trust, stating the Fund from which the Administrative Class Shares are to
be redeemed, the class of shares, the number or dollar amount of the Shares to
be redeemed and the account number. The request must be signed exactly as the
names of the registered owners appear on the Trust's account records, and the
request must be signed by the minimum number of persons designated on the Client
Registration Application that are required to effect a redemption.
Redemptions by Telephone or Other Wire Communication
If an election is made on the Client Registration Application (or
subsequently in writing), redemptions of Administrative Class Shares may be
requested by calling the Trust or by other means of wire communication.
Investors should state the Fund and class from which the Administrative Class
Shares are to be redeemed, the number or dollar amount of the Administrative
Class Shares to be redeemed and the account number. Redemption requests of an
amount of $10 million or more may be initiated by telephone, but must be
confirmed in writing by an authorized party prior to processing.
In electing a telephone redemption, the investor authorizes PIMCO and the
Transfer Agent to act on telephone instructions from any person representing
himself to be the investor, and reasonably believed by PIMCO and the Transfer
Agent to be genuine. Neither the Trust nor its Transfer Agent will be liable for
any loss, cost or expense for acting on instructions (whether in writing or by
telephone) believed by the party receiving such instructions to be genuine and
in accordance with the procedures described in the prospectus describing the
Shares. Shareholders should realize that by electing the telephone or wire
redemption option, they may be giving up a measure of security that they might
have if they were to redeem their shares in writing. Furthermore, interruptions
in telephone service may mean that a shareholder will be unable to effect a
redemption by telephone when desired. The Transfer Agent provides written
confirmation of transactions initiated by telephone as a procedure designed to
confirm that telephone instructions are genuine (written confirmation is also
provided for redemption requests received in writing). All telephone
transactions are recorded, and PIMCO or the Transfer Agent may request certain
information in order to verify that the person giving instructions is authorized
to do so. All redemptions, whether initiated by letter or telephone, will be
processed in a timely manner and proceeds will be forwarded by wire in
accordance with the redemption policies of the Trust detailed below.
Shareholders may decline telephone redemption privileges after an account
is opened by instructing the Transfer Agent in writing at least seven business
days prior to the date the instruction is to be effective. Shareholders may
experience delays in exercising telephone redemption privileges during periods
of abnormal market activity. During periods of volatile economic or market
conditions, shareholders may wish to consider transmitting redemption orders by
telegram, facsimile or overnight courier.
Other Redemption Information
Redemption requests for Shares are effected at the net asset value per
share next determined after receipt in good order of the redemption request by
the Trust or its designee. A redemption request received by the Trust or its
designee prior to 4:00 p.m. Eastern time on a day the Trust is open for business
is effective on that day. A redemption request received after that time becomes
effective on the next business day.
<PAGE>
Payment of the redemption price will ordinarily be wired to the investor's
bank one business day after the redemption request, but may take up to seven
business days. Redemption proceeds will be sent by wire only to the bank name
designated on the Client Registration Application.
For shareholder protection, a request to change information contained in an
account registration (for example, a request to change the bank designated to
receive wire redemption proceeds) must be received in writing, signed by the
minimum number of persons designated on the Client Registration Application that
are required to effect a redemption, and accompanied by a signature guarantee
from any eligible guarantor institution, as determined in accordance with the
Trust's procedures.
b. Repurchase in Japan
The Shareholders in Japan may request for repurchase of their Shares only
on the last Fund Business Day in each month. For such purpose, such Shareholders
may entrust the repurchase (as of the last Fund Business Day in each month) with
the Handling Securities Company during the period of five business days in Japan
on and prior to the last Fund Business Day in each month. The request for
repurchase is made to the Trust through PIMCO Fund Distributors LLC, the
Distributor, and through the Handling Securities Company. The repurchase may be
made per Share. The repurchase price is equal to the net asset value per Share
on the Fund Business Day on which the Trust receives the request for repurchase.
The Trade Day for each repurchase is the business day in Japan on which the
Handling Securities Company receives a confirmation from the Trust or any
designated entity thereof to the effect that the repurchase order is executed
(such confirmation may usually be received in Japan on the business day in Japan
immediately after the last Fund Business Day on which the relevant request for
repurchase is made). The settlement is usually made on the third business day in
Japan immediately after the Trade Day for the relevant repurchase. Provided,
however, that the Shareholder in Japan who requests the repurchase of Share will
cease to be a Shareholder as of the date on which the Trust receives, through
the Handling Securities Company, and confirms the execution of, the relevant
repurchase. In case the request for repurchase is made, the dividend shall be
paid from and including the date of settlement of each subscription of Shares on
which the subscription amount of Shares is received by the Trust (or, if any
dividend is already paid, from the first Fund Business Day of the month in which
the request for repurchase is made) to and including the last Fund Business Day
on which the request for repurchase is made (which is the Trade Day for each
repurchase); accordingly, no dividend is payable with respect to the period
after the Trade Day for each repurchase until the date of settlement of
repurchase. If all or any part of the Sales Charge (which is stated in "Part I.
Information Concerning Security, 6. Sales Charge" of the Securities Registration
Statement of the Trust) is not yet paid when the request for repurchase is made,
then the unpaid Sales Charge shall be deducted from the repurchase price. The
repurchase shall be paid in yen through the Handling Securities Company in
accordance with the Contract. The yen exchange rate therefor shall be the
exchange rate which shall be based on the foreign exchange rate quoted in the
Tokyo Foreign Exchange Market on the Trade Day of each repurchase and which
shall be determined by such Handling Securities Company; provided, however, that
such repurchase price may be paid in dollars to the extent acceptable to the
Handling Securities Company, such as by means of wire transfer to banks.
(3) Suspension of Repurchase:
The Fund may suspend shareholders' right of redemption, or postpone payment
for more than seven days, if the Exchange is closed for other than customary
weekends or holidays, or if permitted by the rules of the SEC during periods
when trading on the Exchange is restricted or during any emergency which makes
it impracticable for the Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for protection of investors.
<PAGE>
(4) Trust's right to redeem Shares
Due to the relatively high cost of maintaining small accounts, the Trust
reserves the right to redeem Administrative Class Shares of the Trust in any
account for their then-current value (which will be promptly paid to the
investor) if at any time, due to redemption by the investor, the Administrative
Class Shares in the account do not have a value of at least $100,000. A
shareholder will receive advance notice of a mandatory redemption and will be
given at least 30 days to bring the value of its account up to at least
$100,000, or $10,000 as the case may be. This mandatory redemption policy does
not apply to participants in PIMCO Advisors Portfolio Strategies, managed
product sponsored by PIMCO Advisors.
The Trust agrees to redeem shares of the Fund solely in cash up to the
lesser of $250,000 or 1% of the net assets during any 90-day period for any one
shareholder. In consideration of the best interests of the remaining
shareholders, the Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a distribution in kind of
securities held by the Fund in lieu of cash. It is highly unlikely that
Administrative Class Shares would ever be redeemed in kind. If Administrative
Class Shares are redeemed in kind, however, the redeeming shareholder should
expect to incur transaction costs upon the disposition of the securities
received in the distribution.
(5) Custody of Shares:
In the interest of economy and convenience, certificates for Shares will
not be issued to shareholders in the U.S.
To shareholders in Japan, the Trust shall issue a global certificate
representing Shares held by such shareholders, and such global certificate shall
be held in custody in the name of Nikko by the Custodian, the Distributor or any
designated entity thereof; provided, however, that neither Nikko nor
shareholders in Japan can withdraw the said global certificate or any part
thereof from the custody, or request the Trust to issue of any certificate (in
definitive form or otherwise) representing any Share. Shareholders in Japan
shall be required to entrust the custody of their Shares with Nikko.
D. Miscellaneous:
(1) Duration and Liquidation:
Unless terminated, the Fund shall continue without limitation of time. The
Fund may be terminated at any time by a vote of the Shareholders holding at
least 66 2/3% of the shares entitled to a vote or by written instrument signed
by a majority of the Trustees and consented to by a vote of shareholders holding
at least 66 2/3% of the shares entitled to a vote, or by such other vote as may
be established by the Trustees.
(2) Accounting Year:
The accounts of the Fund will be closed each year on March 31.
(3) Authorized Shares:
There is no prescribed authorized number of shares, and shares may be
issued from time to time.
(4) Declaration of Trust:
Originals or copies of the Declaration of Trust, as amended, are maintained
in the office of the Trust and are made available for public inspection for the
shareholders on such terms as are conferred by law or authorized by the Trustees
or by resolutions of the shareholders. Originals or copies of the Declaration of
Trust, as amended, are on file in the United States with the Secretary of State
of the Commonwealth of Massachusetts.
The Declaration of Trust may be amended at any time by an instrument in
writing signed by a majority of the Trustees and consented to by a vote of
shareholders holding a majority of the share outstanding and entitled to a vote,
or by vote of shareholders holding a majority of the shares entitled to vote,
except that an amendment which shall affect the holders of one or more series or
classes of shares but not the holders of all outstanding series and classes
shall be authorized by vote of the shareholders holding a majority of the shares
entitled to vote of each series and class affected and no vote of shareholders
of a series or class not affected shall be required. Amendments having the
purpose of changing the name of the Trust or of supplying any omission, or
curing, correcting or supplementing any ambiguous, defective or inconsistent
provision contained in the Declaration of Trust, or if the Trustees deem it
necessary to conform the Declaration of Trust to the requirements of applicable
state or federal laws or regulations, including the U.S. Internal Revenue Code,
shall not require authorization by shareholder vote.
In Japan, material changes in the Declaration of Trust shall be published
or notice thereof shall be sent to the Japanese Shareholders.
<PAGE>
(5) Issue of Warrants, Subscription Rights, etc.:
The Trust may not grant privileges to purchase shares of the Fund to
shareholders or investors by issuing warrants, subscription rights or options,
or other similar rights.
(6) How Performance Is Shown:
The Trust may, from time to time, include the yield and total return for
Administrative Class Shares of the Fund in advertisements or reports to
shareholders or prospective investors. Quotations of yield will be based on the
investment income per share (as defined by the SEC) during a particular 30-day
(or one-month) period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and will be computed by dividing
net investment income by the maximum public offering price per share on the last
day of the period.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment over
periods of one, five and ten years (up to the life of the Fund), reflect the
deduction of a proportional share of expenses (on an annual basis), and assume
that all dividends and distributions are reinvested when paid. Total return is
measured by comparing the value of an investment in the Fund at the beginning of
the relevant period to the redemption value of the investment in the Fund at the
end of the period (assuming immediate reinvestment of any dividends or capital
gains distributions at net asset value). The Fund may advertise total return
using alternative methods that reflect all elements of return, but that may be
adjusted to reflect the cumulative impact of alternative fee and expense
structures, such as the currently effective advisory and administrative fees for
the Fund. Consistent with SEC rules and informal guidance, for periods prior to
the initial offering date of Administrative Class Shares of the Fund, total
return presentations for the class will be based on the historical performance
of an older class of the Fund (the "Institutional Class"), but not reflecting
any higher operating expenses (such as distribution and servicing fees)
associated with the Shares. All other things being equal, such higher expenses
would have adversely affected (i.e., reduced) total return for Administrative
Class Shares by the amount of such higher expenses, compounded over the relevant
period. For the one-year, and three-year periods ended March 31, 1998, the
average annual total return for Shares of the Fund was 12.36% and 9.86%,
respectively. For the period from the September 8, 1994 inception of the
Administrative Class of the Fund though March 31, 1998, the annualized total
return of the Shares of the Fund was 9.37%. The 30-day yield for the Shares of
the Fund for the period ended March 31, 1998 was 5.47%. The Trust also may
provide current distribution information to its shareholders in shareholder
reports or other shareholder communications, or in certain types of sales
literature provided to prospective investors. Current distribution information
for the Administrative Class Shares of the Fund will be based on distributions
for a specified period (i.e., total dividends from net investment income),
divided by the class net asset value per share on the last day of the period and
annualized. The rate of current distributions does not reflect deductions for
unrealized losses from transactions in derivative instruments such as options
and futures, which may reduce total return. Current distribution rates differ
from standardized yield rates in that they represent what the Administrative
Class Shares of the Fund has declared and paid to shareholders as of the end of
a specified period rather than the Fund's actual net investment income for that
period.
Performance information for the Trust may also be compared to various
unmanaged indexes, as well as to indexes prepared for entities or organizations
which track the performance of investment companies or investment advisors.
Unmanaged indexes generally do not reflect deductions for administrative and
management costs and expenses. PIMCO may also report to shareholders or to the
public in advertisements concerning the performance of PIMCO as advisor to
clients other than the Trust, and on the comparative performance or standing of
PIMCO in relation to other money managers. Such comparative information may be
compiled or provided by independent ratings services or by news organizations.
Any performance information, whether related to the Fund or to the Advisor,
should be considered in light of the Fund's investment objective and policies,
characteristics and quality of the portfolio, and the market conditions during
the time period indicated, and should not be considered to be representative of
what may be achieved in the future.
Investment results will fluctuate over time, and any presentation of total
return or yield for any prior period should not be considered as a
representation of what an investor's total return or yield may be in any future
period.
(B) Outline of Disclosure System:
(1) Disclosure in U.S.A.:
(i) Disclosure to shareholders
In accordance with the 1940 Act, the Trust is required to send to
its shareholders annual and semi-annual reports containing financial
information.
(ii) Disclosure to the SEC
The Trust has filed a registration statement with the SEC on Form
N-1A; the Trust updates that registration statement periodically in
accordance with the 1933 Act and the 1940 Act.
(2) Disclosure in Japan:
a. Disclosure to the Supervisory Authority:
(i) Disclosure under the Securities and Exchange Law
When the Fund intends to offer the shares amounting to more than
500 million yen in Japan, it shall submit to the Director-General of
Kanto Finance Bureau of Japan securities registration statements
together with the copies of the Declaration of Trust and the
agreements with major related companies as attachments thereto. The
said documents are made available for public inspection for investors
and any other persons who desire at the Kanto Finance Bureau.
The Handling Securities Companies of the shares shall deliver to
the investors prospectuses the contents of which are substantially
identical to Part I and Part II of the securities registration
statements. For the purpose of disclosure of the financial conditions,
etc., the Trustees shall submit to the Director-General of Kanto
Finance Bureau of Japan securities reports within 6 months of the end
of each fiscal year, semi-annual reports within 3 months of the end of
each semi-annual period and extraordinary reports from time to time
when changes occur as to material subjects of the Fund. These
documents are available for public inspection for the investors and
any other persons who desire at the Kanto Finance Bureau.
(ii) Notification, etc. under the Law Concerning Securities Investment
Trusts and Securities Investment Corporations
In order to deal with the subscription, etc. of the Shares, the
Fund shall, in advance, notify certain matters concerning the Fund to
the Head of the Financial Supervisory Agency in accordance with the
Law Concerning Securities Investment Trusts and Securities Investment
Corporations (Law No. 198 of 1951) (hereinafter referred to as the
"Investment Trust Law"). Also, in case of an amendment to the
Declaration of Trust of the Fund and the agreements of the Fund, the
Fund shall, in advance, notify such effect and contents thereof to the
Head of the Financial Supervisory Agency. Furthermore, the Fund shall,
promptly after each fiscal period of the Fund is closed, make and file
with the Head of the Financial Supervisory Agency an investment report
on certain matters concerning the assets of the Fund in accordance
with the Investment Trust Law.
b. Disclosure to Japanese Shareholders:
The Japanese Shareholders will be notified of the material facts
which would change their position, including material amendments to
the Declaration of Trust of the Trust, and of notices from the
Trustees, through the Handling Securities Companies.
The financial statements shall be sent to the Japanese
shareholders through the Handling Securities Companies or the summary
thereof shall be carried in daily newspapers.
(C) Restrictions on Transactions with Interested Parties:
None of the portfolio securities of the Fund may be purchased from or sold
or loaned to any Trustee of the Trust, Pacific Investment Management Company,
acting as investment adviser of the Trust, or any affiliate thereof or any of
their directors, officers or employees, or any major shareholder thereof
(meaning a shareholder who holds to the actual knowledge of Pacific Investment
Management Company, on his own account whether in his own or other name (as well
as a nominee's name),10% or more of the total issued outstanding shares of such
a company) acting as principal or for their own account unless the transaction
is made within the investment restriction and set forth in the Fund's prospectus
and statement of additional information and either (i) at a price determined by
current publicly available quotations (including a dealer quotation) or (ii) at
competitive prices or interest rates prevailing from time to time on
internationally recognized securities markets or internationally recognized
money markets (including dealer quotation).
4. INFORMATION CONCERNING THE EXERCISE OF RIGHTS BY SHAREHOLDERS, ETC.
(A) Rights of Shareholders and Procedures for Their Exercise:
Shareholders must register their shares in their own name in order to
exercise directly their rights as shareholders. Therefore, shareholders in Japan
cannot exercise directly their shareholders' rights, because their Shares are
registered in the name of Nikko. Shareholders in Japan may have the Handling
Securities Companies exercise their rights on their behalf in accordance with
the Account Agreement with the Handling Securities Companies. The major rights
enjoyed by Shareholders are as follows:
(i) Voting rights
Each share has one vote, with fractional shares voting
proportionally. Shares of the Fund will vote together as a single
class except when otherwise required by law or as determined by the
Trustees. Although the Fund is not required to hold annual meetings of
its shareholders, shareholders holding at least 10% of the outstanding
shares entitled to vote have the right to call a meeting for the
purpose of removing a Trustee.
(ii) Repurchase rights
Shareholders are entitled to request repurchase of shares at
their net asset value at any time.
(iii) Rights to receive dividends
Shareholders are entitled to receive any distribution declared by
the Trustees. Distributions are generally made from net investment
income monthly and from any net realized capital gains at least
annually.
Shareholders may choose two distribution options, though
investors in Japan may only choose the last alternative.
- Reinvest all distributions in additional Shares without a sales
charge; or
- Receive distributions from net investment income and capital
gains distributions in cash.
(iv) Right to receive distributions upon dissolution
Shareholders of the Fund are entitled to receive distributions
upon dissolution in proportion to the number of shares then held by
them, except as otherwise required.
(v) Right to inspect accounting books and the like
The Trustees shall from time to time determine whether and to
what extent, and at what times and places, and under what conditions
and regulations the accounts and books of the Trust or any of them
shall be open to the inspection of the shareholders; and no
shareholder shall have any right to inspect any account or book or
document of the Trust except as conferred by laws or authorized by the
Trustees or by resolution of the shareholders.
(vi) Right to transfer shares
Shares are transferable without restriction except as limited by
applicable law.
(vii) Rights with respect to the U.S. registration statement
If, under the 1933 Act, there is any false statement concerning
any material information in the U.S. registration statement, or any
omission of any statement of material information necessary to be
stated therein to avoid materially misleading investors, shareholders
are generally entitled to institute a lawsuit, against a person who
signed the relevant registration statement, including a trustee of the
issuer (or any person placed in the same position) at the time of
filing such statement, as well as certain persons involved in
preparing such statement.
(B) Tax Treatment of Shareholders in Japan:
The tax treatment of shareholders in Japan shall be as follows:
(1) The distributions to be made by the Fund will be treated as
distributions made by a domestic investment trust.
a. The distributions to be made by the Fund to Japanese individual
shareholders will be subject to separate taxation from other
income (i.e. withholding of income tax at the rate of 15% and
withholding of local taxes at the rate of 5% in Japan). In this
case, no report concerning distributions will be filed with the
Japanese tax authorities.
b. The distributions to be made by the Fund to Japanese corporate
shareholders will be subject to withholding of income tax at the
rate of 15% and to withholding of local taxes at the rate of 5%
in Japan. In certain cases, the Handling Securities Companies
will prepare a report concerning distributions and file such
report with the Japanese tax authorities.
c. Net investment returns such as dividends, etc. and distributions
of short-term net realized capital gain, among distributions on
shares of the Fund, will be, in principle, subject to withholding
of U.S. federal income tax at the rate of 15% and the amount
obtained after such deduction will be paid in Japan.
Distributions of long-term net realized capital gain will not be subject to
withholding of U.S. federal income tax and the full amount thereof will be paid
in Japan. The amount subject to withholding of U.S. federal income tax may be
deducted from the tax levied on a foreign entity in Japan.
The Japanese withholding tax imposed on distributions as referred to in a.
and b. above will be collected by way of so-called "difference collecting
method." In this method only the difference between the amount equivalent to 20%
of the distributions before U.S. withholding tax and the amount of U.S.
withholding tax withheld in the U.S. will be collected in Japan.
(2) The provisions of Japanese tax laws giving the privilege of a certain
deduction from taxable income to corporations, which may apply to dividends
paid by a domestic corporation, shall not apply.
(3) Capital gains and losses arising from purchase and repurchase of the Shares
shall be treated in the same way as those arising from purchase and sale of
a domestic investment trust. The distribution of the net liquidation assets
shall be also treated in the same way as those arising from liquidation of
a domestic investment trust.
(4) The Japanese securities transaction tax will not be imposed so far as the
transactions concerned are conducted outside Japan. Such tax, however, is
applicable to dealers' transactions for their own account and to privately
negotiated transactions conducted in Japan.
(C) Foreign Exchange Control in U.S.A.:
In the United States, there are no foreign exchange control restrictions on
remittance of dividends, repurchase money, etc. of the Shares to Japanese
shareholders.
(D) Agent in Japan:
Tsunematsu Yanase & Sekine
Sumitomo Sarugakucho Building, 12th Floor
8-8, Sarugakucho 2-chome
Chiyoda-ku, Tokyo
The foregoing law firm is the true and lawful agent of the Trust to
represent and act for the Trust in Japan for the purpose of;
(1) the receipt of any and all communications, claims as to matters involving
problems under the laws and the rules and regulations of the JSDA and
(2) any and all judicial and extra-judicial acts and things on behalf of the
Trust in connection with any and all disputes, and legal proceedings
relating to the sale, offer and repurchase transactions in Japan of the
Shares of the Fund.
The agent for the registration with the Japanese Minister of Finance of the
continuous disclosure is each of the following persons:
Hidetaka Mihara
Masaki Konishi
Motohiro Yanagawa
Attorneys-at-law
Tsunematsu Yanase & Sekine
Sumitomo Sarugakucho Building, 12th Floor
8-8, Sarugakucho 2-chome
Chiyoda-ku, Tokyo
(E) Jurisdiction:
Limited only to litigation brought by Japanese investors regarding
transactions relating to (D)(2) above, the Fund has agreed that the following
court has jurisdiction over such litigation and the Japanese law is applicable
thereto:
Tokyo District Court
1-4, Kasumigaseki 1-chome
Chiyoda-ku, Tokyo
5. INVESTMENT CONDITIONS
A. Conditions of the Investment
<TABLE>
<S> <C> <C> <C> <C>
(As of the end of May, 1998)
Kinds of Assets Name of country Total Value Investment Ratio (%)
(U.S. Dollars)
US Treasury Obligations United States 7,604,388,669 38.93
US Agency Obligations United States 7,623,405 0.04
Mortgage-Backed Securities United States 6,601,283,371 33.80
Asset-Backed Securities United States 58,690,728 0.30
Corporate Bonds United States 2,373,019,814 12.15
Sovereign Issues Australia 98,226,597 0.50
(Foreign Currency
Denominated)
Canada 88,404,524 0.45
Germany 5,481,896 0.03
Japan 52,503,842 0.27
New Zealand 169,414,302 0.87
United Kingdom 674,290,774 3.45
Emerging Markets Issues Argentina 434,828,429 2.23
(US Dollar Denominated)
Brazil 59,302,614 0.30
Mexico 28,354,460 0.15
Philippines 13,493,943 0.07
Poland 22,601,892 0.12
Preferred Stock United States 32,893,515 0.17
Net Cash & Equivalents 1,208,449,277 6.19
Total (Net Asset Value) 19,533,252,052 100.00
Investment ratio is calculated by dividing each asset at its market value by the
total Net Asset Value of the Fund.
As of the end of May 1998, 58.02%, 3.54%,20.63%, 10.41%. 7.19% and 0.22% of the
total Net Assets of the Fund was invested in securities rated AAA (or its equivalent),
AA (or its equivalent), A (or its equivalent), BBB (or its equivalent), BB (or its
equivalent) and B (or its equivalent) respectively.
</TABLE>
<PAGE>
B. Results of Investment
(1) Movement in Net Assets (Administrative Class Shares)
(i) Movement in Net Assets as of the end of the indicated fiscal
years and as of the end of each month within one year prior to
the end of May 1998 is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Total Net Asset Net Asset Value per Share
Dollar Yen (Million) Dollar Yen
(Thousand)
The First FY End of 9,037 12,534.4 10.01 1388.4
March 1995
The Second FY 104,618 14,510.5 10.29 1427.2
End of March 1996
The Third FY End of 151,194 20,970.6 10.27 1424.4
March 1997
The Fourth FY End of 481,730 66,816.0 10.62 1473.0
March 1998
End of June, 1997 177,709 24,648.2 10.52 1459.1
July, 1997 186,700 25,895.3 10.76 1492.4
August, 1997 198,660 27,554.1 10.61 1471.6
September, 1997 228,077 31,634.3 10.73 1488.3
October, 1997 338,695 46,977.0 10.80 1498.0
November, 1997 329,906 45,758.0 10.80 1498.0
December, 1997 316,107 43,844.0 10.60 1470.2
January, 1998 408,070 56,599.3 10.71 1485.5
February, 1998 437,632 60,699.6 10.63 1474.4
March, 1998 481,730 66,816.0 10.62 1473.0
April, 1998 538,739 74,723.1 10.61 1471.6
May, 1998 561,042 77,816.5 10.67 1479.9
(Note) Operations of Administrative Class Shares were commenced on September 8, 1994.
</TABLE>
(2) Movement in Dividend (Administrative Class Shares)
Movement in Dividend for the indicated fiscal years is as follows:
<TABLE>
<S> <C> <C> <C>
Period Income Dividend Capital Gain Dividend
1st FY September 7, 1994-March 31, 1995 0.354382150 0
2nd FY April 1, 1995-March 31, 1996 0.685025997 0.11994
3rd FY April 1, 1996-March 31, 1997 0.656652864 0
4th FY April 1, 1997-March 31, 1998 0.618120145 0.26963
</TABLE>
<PAGE>
C. Results of Sales and Repurchases
Results of sales and repurchases during each of the following fiscal years
and number of outstanding shares of the Fund as of the end of such fiscal years
are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of in Japan Number of Shares in Japan Number of in Japan
Shares sold repurchased Outstanding Shares
1st FY 942,000 0 40,000 0 902,000 0
94/9/7-95/3/31
2nd FY 11,624,000 0 2,359,000 0 10,167,000 0
95/4/1-96/3/31
3rd FY 13,723,000 0 9,168,000 0 14,722,000 0
96/4/1-97/3/31
4th FY 41,794,000 0 11,156,000 0 45,360,000 0
97/4/1-98/3/31
(Note) The Shares will be sold in Japan from July 22, 1998.
</TABLE>
<PAGE>
II. OUTLINE OF THE TRUST
1. Trust
(A) Law of Place of Organization
PIMCO Total Return Fund is a diversified series of PIMCO Funds, a
Massachusetts business trust organized in Massachusetts, U.S.A. on February 19,
1987.
Chapter 182 of the Massachusetts General Laws prescribes the fundamental
matters in regard to the operations of certain business trusts constituting
voluntary associations under that chapter.
The Trust is an open-end, management investment company under the
Investment Company Act of 1940.
(B) Outline of the Supervisory Authority
Refer to I - l (B) Outline of the Supervisory Authority.
(C) Purpose of the Trust
The purpose of the Trust is to provide investors a trust for the investment
and reinvestment of funds contributed thereto.
(D) History of the Trust
Refer to I-I (D) History of the Fund
(E) Amount of Capital
Not applicable.
(F) Structure of the management of the Trust
The Trustees are responsible for generally overseeing the conduct of the
Trust's business. The Declaration of Trust provides that they shall have all
powers necessary, proper or desirable to promote the interests of the Trust. The
number of Trustees is fixed by the Trustees and may not be less than one nor
more than fifteen. Trustees are elected by the shareholders, except that, in the
event of a vacancy on the board, a Trustee may be appointed by the Trustees. At
any meeting called for the purpose or by declaration in writing, a Trustee may
be removed by vote of two-thirds of the outstanding shares of the Trust. Each
Trustee shall serve until he or she retires, resigns, is removed, or dies, or
until the next meeting of shareholders called for the purpose of electing
Trustees and until the election and qualification of his or her successor.
The Trustees of the Trust are authorized by the Declaration of Trust to
issue shares of the Trust in one or more series with variations in relative
rights and preferences as fixed and determined by the Trustees. The Trustees may
amend the Declaration of Trust, any time and from time to time, in such manner
as the Trustees may determine in their sole discretion, without the need for
shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the shares contained in the Declaration of Trust,
provided that before adopting any such amendment without shareholder approval,
the Trustees shall determine that it is consistent with the fair and equitable
treatment of all shareholders or that shareholder approval is not otherwise
required by the 1940 Act, as amended from time to time, or other applicable law.
Under the Declaration of Trust the shareholders shall have power, as and to
the extent provided therein, to vote only (i) for the election of Trustees, to
the extent provided therein (ii) for the removal of Trustees, to the extent
provided therein (iii) with respect to any investment advisory contract, to the
extent provided therein (iv) with respect to any termination of the Trust, to
the extent provided therein (v) with respect to any merger, consolidation or
sale of assets, to the extent provided therein, (vi) with respect to
incorporation of the Trust to the extent provided therein, (vii) with respect to
certain amendments of the Declaration of Trust, to the extent provided therein,
(viii) to the same extent as the stockholders of a Massachusetts business
corporation as to whether or not a court action, proceeding, or claim should or
should not be brought or maintained derivatively or as a class action on behalf
of the Trust or the shareholders, and (ix) with respect to such additional
matters relating to the Trust as may be required by the Declaration of Trust,
the By-laws of the Trust, or any registration of the Trust with the SEC (or any
successor agency) or as the Trustees may consider necessary or desirable.
Certain of the foregoing actions may, in addition, be taken by the Trustees
without vote of the shareholders of the Trust.
Each share of the Fund shall be entitled to one vote (or fraction thereof
in respect of a fractional share) on matters on which such shares of the Fund
shall be entitled to vote. Shareholders of each series shall vote separately as
a class on any matter, except, consistent with the 1940 Act, as amended from
time to time, and the rules and the Trust's registration statement thereunder,
with respect to (i) the election of Trustees, (ii) any amendment of the
Declaration of Trust, unless the amendment affects fewer than all classes of
shares, in which case only shareholders of the affected classes shall vote, and
(iii) ratification of the selection of auditors, and except when the Trustees
have determined that the matter affects only the interests of shareholders of a
particular class of shares, in which case only the shareholders of such class
shall be entitled to vote thereon. In each case of separate voting, the Trustees
shall determine whether, for the matter to be effectively acted upon within the
meaning of Rule 18f-2 under the 1940 Act (or any successor rule) as to a series
or class, the applicable percentage (as specified in the Declaration of Trust,
or the 1940 Act and the rules thereunder) of the shares of that series or class
alone must be voted in favor of the matter, or whether the favorable vote of
such applicable percentage of the shares of each series or class entitled to
vote on the matter is required. There is no cumulative voting.
Meetings of shareholders shall be held whenever ordered by the Trustees or
requested in writing by the holder or holders of at least one-tenth of the
outstanding shares of the Trust for the purpose of considering the removal of a
Trustee. Written notice of any meeting of shareholders must be given by mailing
the notice at least ten days before the meeting. A majority of shares entitled
to vote on a particular matter is a quorum for the transaction of business on
that matter at a shareholders' meeting, except that, where any provision of law
or of the Declaration of Trust permits or requires that holders of any series or
class vote as an individual series or class, then a majority of the aggregate
number of shares of that series or class entitled to vote are necessary to
constitute a quorum for the transaction of business by that series or class. For
the purpose of determining the shareholders of any class or series of shares who
are entitled to vote or act at any meeting, or who are entitled to receive
payment of any dividend or other distribution, the Trustees are authorized to
fix record dates, which may not be more than 60 days before the date of any
meeting of shareholders or distribution or other action, except for dividend
payments.
The Trustees are authorized by the Declaration of Trust to adopt Bylaws not
inconsistent with the Declaration of Trust providing for the conduct of the
business of the Trust. The Bylaws contemplate that the Trustees shall elect the
President, the Treasurer, and the Secretary of the Trust, and that other
officers, if any, may be elected or appointed by the Trustees at any time. The
By-laws may be amended or repealed, in whole or in part, by a majority of the
Trustees or a majority of the shares outstanding and entitled to vote.
Regular meetings of the Trustees may be held without notice at such places
and at such times as the Trustees may from time to time determine. It shall be
sufficient notice to a Trustee of a special meeting to send notice by mail at
least two days or by telegraph, cable, wireless or personal delivery at least
one day before the meeting. Such notice may be waived by a Trustee.
At any meeting of Trustees, a majority of the Trustees then in office shall
constitute a quorum.
Except as otherwise provided by law, the Declaration of Trust or the
Bylaws, any action to be taken by the Trustees may be taken by a majority of the
Trustees present at a meeting (a quorum being present), or by written consents
of a majority of the Trustees then in office.
Subject to any necessary shareholder approval, the Trustees may contract
for exclusive or nonexclusive advisory, management or administrative services.
The Declaration of Trust contains provisions for the indemnification of
Trustees, officers, and shareholders of the Trust under the circumstances and on
the terms specified therein.
The Trust or any series of the Trust may be terminated at any time by vote
of shareholders holding at least two-thirds of the shares outstanding and
entitled to vote, or by a majority of the Trustees by written instrument
consented to by the holders of two-thirds of the shares, or by such other vote
as may be established by the Trustees.
The foregoing is a general summary of certain provisions of the Declaration
of Trust and By-laws of the Trust, and is qualified in its entirety by reference
to each of those documents.
(G) Information Concerning Major Shareholders
Not applicable.
<PAGE>
(H) Information Concerning Directors, Officers and Employees
(1) Trustees and Officers of the Trust
<TABLE>
(as of the filing date of this document)
<S> <C> <C> <C> <C>
Shares
Name Office and Title Resume owned
Brent R. Harris Chairman of the Board Managing Director, PIMCO; Board of 11,436
and Trustee Governors, Investment Company .379
Institute; Director, Harris Holdings;
Director, Harris Oil Company;
Chairman and Director,
PIMCO Commercial Mortgage
Securities Trust, Inc.; Chairman
and Trustee, PIMCO Variable
Insurance Trust. Formerly
Principal, Senior Vice President
and Vice President of PIMCO.
R. Wesley Burns President and Trustee Executive Vice President, PIMCO; None
President and Director, PIMCO
Commercial Mortgage Securities
Trust, Inc.; President and Trustee,
PIMCO Variable Insurance Trust;
Executive Vice President, PIMCO
Funds; Multi-Manager Series.
Formerly Vice President, PIMCO.
Guilford C. Babcock Trustee Associate Professor of Finance, None
University of Southern California;
Director, PIMCO Commercial Mortgage
Securities Trust, Inc.; Trustee,
PIMCO Variable Insurance Trust;
Director, Growth Fund of America
and Fundamental Investors Fund of
the Capital Group; Director, Good
Hope Medical Foundation.
Vern O. Curtis Trustee Private Investor; Director, PIMCO 10,216
Commercial Mortgage Securities .624
Trust, Inc.; Trustee,
PIMCO Variable Insurance
Trust; Director,
American Office Park
Properties, Inc., a Real
Estate Investment Trust;
Director, Fresh Choice,
Inc. Formerly charitable
work, The Church of
Jesus Christ of Latter
Day Saints.
Thomas P. Kemp Trustee Private Investor, Director, PIMCO 26,865
Commercial Mortgage Securities .323
Trust, Inc.; Trustee, PIMCO
Variable Insurance Trust.
Formerly Co-Chairman, U.S.
Committee to Assist Russian Reform;
Director, Union Financial Corp.;
Senior Consultant World Cup 1994
Organizing Committee; Chairman and
CEO of Coca Cola Bottling Company
of L.A.
William J. Popejoy Trustee Director, PIMCO Commercial Mortgage None
Securities Trust, Inc.; Trustee,
PIMCO Variable Insurance Trust.
Director, PacPro (formerly Western
Printing); Formerly Director,
California State Lottery; Chief
Executive Officer, Orange County,
California; Principal, Castine
Partners.
William H. Gross Senior Vice President Managing Director, PIMCO; Senior None
Insurance Trust. Vice President, PIMCO Variable
Insurance Trust
Margaret Isberg Senior Vice President Executive Vice President, PIMCO. None
Leland T. Scholey Senior Vice President Senior Vice President, PIMCO. None
Formerly Vice President, PIMCO.
<PAGE>
Michael G. Dow Vice President Account Manager, PIMCO. Formerly None
Fixed Income Specialist, Salomon
Brothers, Inc.; Vice President
Operations, Citibank NA Global
Consumer Banking Group.
U. Teri Frisch Vice President Account Manager, PIMCO. None
Raymond C. Hayes Vice President Account Manager, PIMCO. Formerly None
Marketing Director, Pacific
Financial Asset Management
Corporation.
Thomas J. Kelleher, III Vice President Vice President, PIMCO. Previously None
associated with Delaware, Mellon
and Girard Trusts.
Andre Mallegol Vice President Vice President, PIMCO. Formerly None
associated with Fidelity
Investments Institutional Services
Company.
Dean S. Meiling Vice President Managing Director, PIMCO. 191,452
.586
James F Muzzy Vice President Managing Director, PIMCO; Senior 828,681
Vice President, PIMCO Variable .310
Insurance Trust.
Douglas J. Ongaro Vice President Account Manager, PIMCO. Formerly None
Regional Marketing Manager, Charles
Schwab & Co., Inc.
David J. Pittman Vice President Vice President, PIMCO. Formally a None
senior executive with Bank of
America, the Northern Trust Co. and
NationsBank.
Mark A. Romano Vice President Account Manager, PIMCO. Previously None
associated with Wells Fargo's
institutional money management
group and First Interstate's
Pacifica family of
mutual funds.
Jeffrey M. Sargent Vice President Vice President and Manager of None
Investment Operations Shareholder
Services, PIMCO; Vice President,
PIMCO Commercial Mortgage
Securities Trust, Inc., PIMCO
Funds; Multi-Manager Series and
PIMCO Variable Insurance Trust.
William S. Thompson, Jr. Vice President Chief Executive Officer and None
Managing Director, PIMCO; Senior
Vice President, PIMCO Variable
Insurance Trust. Formerly Managing
Director, Salomon Brothers, Inc.
Kristen M. Wilsey Vice President Senior Vice President, PIMCO. None
Formerly Vice President, Account
Manager, PIMCO; Vice President,
Pacific Financial Asset Management
Corporation.
John P. Hardaway Treasurer Vice President and Manager of Fund 1,630
Operations, PIMCO; Treasurer, PIMCO .034
Commercial Mortgage Securities
Trust, Inc., PIMCO Funds
Multi-Manager Series and PIMCO
Variable Insurance Trust.
Garlin G. Flynn Secretary Specialist, PIMCO; Secretary, PIMCO None
Commercial Mortgage Securities
Trust, Inc. and PIMCO Variable
Insurance Trust; Assistant
Secretary, PIMCO Funds;
Multi-Manager Series. Formerly
Senior Fund Administrator, PIMCO;
Senior Mutual Fund Analyst, PIMCO
Advisors Institutional Services.
<PAGE>
Joseph D. Hattesohl Assistant Treasurer Vice President and Manager of Fund None
Taxation, PIMCO; Assistant
Treasurer, PIMCO Funds;
Multi-Manager Series, PIMCO
Commercial Mortgage Securities
Trust, Inc. and PIMCO Variable
Insurance Trust. Formerly
Director of Financial Reporting,
Carl I. Brown & Co.; Tax Manager,
Price Waterhouse LLP.
Michael J. Willemsen Assistant Secretary Manager, PIMCO; Assistant None
Secretary, PIMCO Commercial
Mortgage Securities Trust, Inc. and
PIMCO Variable Insurance Trust.
Formerly Project Lead, PIMCO.
</TABLE>
(2) Employees of the Trust
The Trust does not have any employees.
(I) Description of Business and Outline of Operation
The Trust may carry out any administrative and managerial act, including
the purchase, sale, subscription and exchange of any securities, and the
exercise of all rights directly or indirectly pertaining to the Fund's assets.
The Trust has retained Pacific Investment Management Company, the Investment
Adviser and the Administrator, to render investment advisory and administrative
services, Investors Fiduciary Trust Company, to hold the assets of the Fund in
custody and act as the Transfer Agent and dividend disbursing agent.
(J) Miscellaneous
(1) Changes of Trustees and Officers
Trustees may be removed by a vote of two-thirds of the outstanding shares
of the Trust at a meeting called for the purpose or by declaration in writing.
In the event of vacancy, the remaining Trustees may fill such vacancy by
appointing for the remaining term of the predecessor Trustee such other person
as they in their discretion shall see fit. The Trustees may add to their number
as they consider appropriate subject to having no more than fifteen Trustees
serve on the Board. The Trustees may elect and remove officers as they consider
appropriate.
(2) Amendment to the Declaration of Trust
The Declaration of Trust may be amended at any time by an instrument in
writing signed by a majority of the Trustees and consented to by a vote of
shareholders holding a majority of the shares outstanding and entitled to a
vote, or by vote of shareholders holding a majority of the shares entitled to
vote, except that an amendment which shall affect the holders of one or more
series or classes of shares but not the holders of all outstanding series and
classes shall be authorized by vote of the shareholders holding a majority of
the shares entitled to vote of each series and class affected and no vote of
shareholders of a series or class not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, or curing, correcting or supplementing any ambiguous, defective or
inconsistent provision contained in the Declaration of Trust, or if the Trustees
deem it necessary to conform the Declaration of Trust to the requirements of
applicable state or federal laws or regulations, including the U.S. Internal
Revenue Code, shall not require authorization by shareholder vote.
(3) Litigation and Other Significant Events
Nothing which has or which would have a material adverse effect on the
Trust has occurred which has not been disclosed. The fiscal year end of the
Trust is March 31. The Trust is established for an indefinite period and may be
dissolved at any time by vote of the shareholders holding at least two-thirds of
the shares entitled to vote or by written instrument signed by a majority of the
Trustees and consented to by a vote of shareholders holding at least two-thirds
of the shares entitled to a vote, or by such vote as may be established by the
Trustees.
2. Pacific Investment Management Company (Administrator, Investment Advisor)
(A) Law of Place of Organization
Pacific Investment Management Company was formed in 1971 under the laws of
the state of California ("PIMCO California"). In September 1994, all of the
assets of PIMCO California were contributed to Pacific Investment Management
Company, a Delaware general partnership.
Its investment advisory business is regulated under the 1940 Act. Under the
1940 Act, an investment adviser includes, with certain exceptions, any person
who, for compensation, engages in the business of advising others, either
directly or through publications or writings, as to the value of securities or
as to the advisability of investing in, purchasing or selling securities, or
who, for compensation and as part of a regular business, issues analyses or
reports concerning securities. Investment advisers under the 1940 Act may not
conduct their business unless they are registered with the SEC.
(B) Outline of the Supervisory Authority
The Investment Advisor is registered as an investment adviser under the
Investment Advisers Act of 1940 .
(C) Purpose of the Company
The principal purpose and business of the Investment Advisor is to own and
conduct investment management business activities, directly or indirectly
through subsidiary entities, as the same may be developed and/or changed, and to
engage in and enter into any and all activities, contracts, joint ventures and
agreements related or incident to the operation and development of such
investment management business activities. The Investment Advisor is also
authorized to engage in any other lawful activity for which general partnerships
may be organized under Delaware law, subject to the receipt of necessary
approvals and consents.
(D) History of the Company
The Investment Advisor is an investment counseling firm founded in 1971,
and had approximately $127 billion in assets under management as of March 31,
1998. The Investment Advisor is a subsidiary of PIMCO Advisory L. P. ("PIMCO
Advisors"). The general partners of PIMCO Advisors are PIMCO Partners, G. P. and
PIMCO Advisors Holdings L. P. ("PIMCO Holdings"). PIMCO Partners, G. P. is a
general partnership between PIMCO Holding LLC, a Delaware limited liability
company and indirect wholly-owned subsidiary of Pacific Life Insurance Company
and PIMCO Partners LLC, a California limited liability company controlled by the
current Managing Directors and two former Managing Directors of PIMCO. PIMCO
Partners, G. P. is the sole general partner of PIMCO Holdings. PIMCO Holdings is
traded on the Exchange under the symbol of "PA". PIMCO Holdings is subject to
the information and reporting requirements of the 1934 Act and therefore files
annual, quarterly and periodic reports with the SEC. The Investment Advisor is
registered as an investment adviser with the SEC and as a commodity trading
advisor with the U.S. Commodity Futures Trading Commission.
(E) Amount of Capital (as of the end of March 1998)
1. Amount of Capital
$28,256,347
2. Number of authorized units of general partnership interest:
Inapplicable
3. Number of outstanding units of general partnership interests:
Inapplicable
4. Amount of Capital for the past five years
Amount of Partners Capital
Year (In Thousands)
End of 1993 $15,405
End of 1994 $20,249
End of 1995 $26,083
End of 1996 $25,709
End of 1997 $29,145
(F) Structure of the Management of the Company
The Investment Advisor is managed by a management board consisting of its
Managing Directors pursuant to an irrevocable delegation from the Investment
Advisor's managing general partner. The approval of the Supervisory Partner
(PIMCO Advisors) must be obtained prior to certain acts. Each fund managed by
the Investment Advisor is managed by one or more portfolio managers. These
managers, in coordination with analysts who research specific securities and
other members of the relevant investment group, provide a continuous investment
program for the Fund and place all orders for the purchase and sale of portfolio
securities. The investment performance and portfolio of the Fund is overseen by
the Trust's Board of Trustees, a majority of whom are not affiliated with the
Investment Advisor. The Trustees meet at least four times a year and review the
performance of the Fund at least quarterly. In selecting portfolio securities
for the Fund, the Investment Advisor utilizes economic forecasting, interest
rate anticipation, credit and call risk analysis, foreign currency exchange rate
forecasting, and other security selection techniques. The proportion of the
Fund's assets committed to investment in securities with particular
characteristics (such as maturity, type and coupon rate) will vary based on the
Investment Advisor's outlook for the U.S. and non-U.S. economies, the financial
markets, and other factors. The Investment Advisor is one of the largest
managers of fixed income investments in the United States. The following officer
of the Investment Advisor has had primary responsibility for the day-to-day
management of the Fund's portfolio since 1987.
<PAGE>
<TABLE>
<S> <C> <C>
Name Business Experience
(at least 5 years)
William H. Gross Managing Director, Pacific Investment
Management Company. A fixed Income
Portfolio Manager, Mr. Gross is one of
the founders of Pacific Investment
Management Company and has managed the
Fund since its inception, May 11, 1987.
</TABLE>
(G) Information Concerning Major Shareholders
The partnership interest of the Administrator and the Investment Advisor
are held 99.9% by PIMCO Advisors L.P. and .01% by PIMCO Management Inc., a
wholly-owned subsidiary of PIMCO Advisors L.P., as of the end of June, 1997.
(H) Information Concerning Officers and Directors
The following table lists the names of various officers and directors and
also their respective positions with the Investment Advisor. For each named
individual, the table lists: (i) any other organizations (excluding other funds
for which the Investment Advisor acts as investment advisor) with which the
officer and / or director has recently had substantial involvement; and (ii)
positions held with such organization:
<TABLE>
<S> <C> <C>
(as of the filing date of this document)
Name Title Principal Other Connections
Allan, George C. Senior Vice President, PIMCO and PIMCO Management, Inc.
Arnold, Tamara J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Asay, Michael R. Vice President, PIMCO.
Banno, Denise C. Vice President, PIMCO and PIMCO Management, Inc.
Barbi, Leslie A. Senior Vice President, PIMCO and PIMCO Management, Inc.
Benz, William R. II Managing Director, PIMCO; Director and Managing Director,
PIMCO Management, Inc.; Member of PIMCO Partners LLC.
Bishop, Gregory A. Vice President, PIMCO.
Brynjolfsson, John B. Vice President, PIMCO and PIMCO Management, Inc.
Burns, R. Wesley Executive Vice President, PIMCO and PIMCO Management, Inc.
Cohen, Carl J. Vice President, PIMCO and PIMCO Management, Inc.
Coleman, Jerry Vice President, PIMCO and PIMCO Management, Inc.
Cummings, Doug Vice President, PIMCO.
Cupps, Wendy W. Vice President, PIMCO and PIMCO Management, Inc.
Dialynas Chris Managing Director, PIMCO; Director and Managing Director,
PIMCO Management, Inc.
Dorff, David J. Vice President, PIMCO and PIMCO Management, Inc.
Dow, Michael Vice President, PIMCO and PIMCO Management, Inc.
Dunn, Anita Vice President, PIMCO and PIMCO Management, Inc.
Ehlert, A. Benjamin Executive Vice President, PIMCO and PIMCO Management, Inc.
Ettl, Robert A. Senior Vice President, PIMCO and PIMCO Management, Inc.
Faillace, Anthony L. Vice President, PIMCO and PIMCO Management, Inc.
<PAGE>
Fitzgerald, Robert M. Chief Financial Officer and Treasurer, PIMCO, PIMCO
Management, Inc., Cadence Capital Management, Inc., NFJ
Investment Group, NFJ Management, Inc., Parametric
Portfolio Associates, Parametric Management Inc.,
StocksPLUS Management Inc. and PIMCO Funds Distributors
LLC; Chief Financial Officer and Assistant Treasurer,
Cadence Capital Management; Chief Financial Officer and
Treasurer, Columbus Circle Investors and Columbus
Circle Investors Management Inc.; Chief Financial
Officer and Senior Vice President, PIMCO Advisors.
Frisch, Ursula T. Vice President, PIMCO and PIMCO Management Inc.
Gross, William H. Managing Director, PIMCO;
Director and Managing Director, PIMCO
Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.;
Member of Management Board, PIMCO Advisors;
Member of PIMCO Partners LLC.
Hague, John L. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Hally, Gordon C. Executive Vice President, PIMCO and PIMCO Management, Inc.
Hamalainen, Pasi M. Executive Vice President, PIMCO and PIMCO Management, Inc.
Hardaway, John P. Vice President, PIMCO and PIMCO Management, Inc.
Harris, Brent R. Managing Director, PIMCO; Director
and Managing Director, PIMCO Management,
Inc.; Director and Vice President,
StocksPLUS Management, Inc.; Member of
Management Board, PIMCO Advisors; Member of
PIMCO Partners LLC.
Hattesohl, Joseph D. Vice President, PIMCO and PIMCO Management, Inc.
Hayes, Raymond C. Vice President, PIMCO and PIMCO Management, Inc.
Herin, Robert G. Vice President, PIMCO and PIMCO Management, Inc.
Hinman, David C. Vice President, PIMCO and PIMCO Management, Inc.
Hocson, Liza Vice President, PIMCO and PIMCO Management, Inc.
Hodge, Douglas M. Executive Vice President, PIMCO and PIMCO Management, Inc.
Holden, Brent L. Executive Vice President, PIMCO and PIMCO Management, Inc.
Holloway, Dwight F., Jr. Vice President, PIMCO and PIMCO Management, Inc.
Howe, Jane T. Vice President, PIMCO and PIMCO Management, Inc.
Hudoff, Mark Vice President, PIMCO and PIMCO Management, Inc.
Isberg, Margaret E. Executive Vice President, PIMCO and PIMCO Management, Inc.
Kelleher, Thomas J. Vice President, PIMCO and PIMCO Management, Inc.
Keller, James M. Vice President, PIMCO and PIMCO Management, Inc.
Kennedy, Raymond G. Senior Vice President, PIMCO and PIMCO Management, Inc.
Kiesel, Mark R. Vice President, PIMCO and PIMCO Management, Inc.
Kirkbaumer, Steven P. Vice President, PIMCO and PIMCO Management, Inc.
Loftus, John S. Executive Vice President, PIMCO and PIMCO Management,
Inc.; Vice President and
Assistant Secretary, StocksPLUS Management, Inc.
Lown, David Vice President, PIMCO and PIMCO Management, Inc.
Mallegol, Andre J. Vice President, PIMCO and PIMCO Management, Inc.
Martini, Michael E. Vice President, PIMCO and PIMCO Management, Inc.
Mayer, Benjamin L. Vice President, PIMCO.
McDevitt, Joseph E. Executive Vice President, PIMCO and PIMCO Management, Inc.
Meiling, Dean S. Managing Director, PIMCO; Director and Managing Director,
PIMCO Management, Inc.;
Member of PIMCO Partners, LLC.
Muzzy, James F. Managing Director, PIMCO; Director and Managing Director,
PIMCO Management, Inc.;
Director and Vice President,
StocksPLUS Management, Inc.; Member of PIMCO Partners LLC.
Nakamura, Doris S. Vice President, PIMCO and PIMCO Management, Inc.
Nguyen, Vinh T. Controller, PIMCO; Vice President, Controller, PIMCO
Advisors, Columbus Circle Investors Management, Inc.;
Cadence Capital Management, Inc.; NJF Management, Inc.,
Parametric Management, Inc., StocksPLUS Management,
Inc., PIMCO Funds Distributors LLC, PIMCO Management,
Inc.
Ongaro, Douglas J. Vice President, PIMCO and PIMCO Management, Inc.
Otterbein, Thomas J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Paradis, Victoria M. Vice President, PIMCO and PIMCO Management, Inc.
Philipp, Elizabeth M. Vice President, PIMCO and PIMCO Management, Inc.
Pittman, David J. Vice President, PIMCO and PIMCO Management, Inc.
Podlich, William F. III Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of Management
Board, PIMCO Advisors; Member of PIMCO Partners LLC.
Powers, William C. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Randall, Terry A. Vice President, PIMCO and PIMCO Management, Inc.
Rennie, Edward P. Senior Vice President, PIMCO and PIMCO Management, Inc.
Roney, Scott L. Senior Vice President, PIMCO and PIMCO Management, Inc.
Rosborough, Michael J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Ruthen, Seth R. Vice President, PIMCO and PIMCO Management, Inc.
Sargent, Jeffrey M. Vice President, PIMCO and PIMCO Management, Inc.
Schmider, Ernest L. Executive Vice President,
Secretary, Chief Administrative and Legal
Officer, PIMCO and PIMCO Management, Inc.;
Secretary, PIMCO Partners LLC; Director,
Assistant Secretary and Assistant Treasurer,
StocksPLUS Management, Inc.
Scholey, Leland T. Senior Vice President, PIMCO and PIMCO Management, Inc.
Selby, Richard W. Senior Vice President, Chief Technology Officer, PIMCO.
Seliga, Denise C. Vice President, PIMCO and PIMCO Management, Inc.
Seymour, Rita J. Vice President, PIMCO and PIMCO Management, Inc.
Sullivan, Christopher Vice President, PIMCO and PIMCO Management, Inc.
Sylwester, Cheryl L. Vice President, PIMCO and PIMCO Management, Inc.
Thomas, Lee R. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member PIMCO Partners
LLC.
Thompson, William S. Jr. Chief Executive Officer and Managing Director, PIMCO;
Director, Managing Director and Chief Executive
Officer, PIMCO Management, Inc.; Director and
President, StocksPLUS Management, Inc.; Director,
Thomson Advisory Group; Member of Management Board,
PIMCO Advisors; Member, President and Chief Executive
Officer of PIMCO Partners LLC.
Trosky, Benjamin L. Managing Director, PIMCO; Director and Managing
Director, PIMCO Management, Inc.; Member of Management
Board, PIMCO Advisors; Member of PIMCO Partners LLC.
Tyson, Richard E. Vice President, PIMCO and PIMCO Management, Inc.
Van de Zilver, Peter A. Vice President, PIMCO and PIMCO Management, Inc.
Wegener, Marilyn Vice President, PIMCO and PIMCO Management, Inc.
Weil, Richard M. Assistant Secretary, PIMCO, Columbus Circle Investors,
Columbus Circle Investors Management, Inc., Cadence
Capital Management, and PIMCO Funds Distributors LLC;
Senior Vice President and Assistant Secretary, PIMCO
Management, Inc.; Senior Vice President Legal and
Secretary, PIMCO Advisors; Senior Vice President and
Secretary, Thomson Advisory Group; Secretary, Cadence
Capital Management, Inc. NFJ Management, Inc.,
Parametric Management, Inc., NFJ Investment Group,
Parametric Portfolio Associates, and StocksPLUS
Management, Inc.
Westhead, Paul C. Vice President, PIMCO and PIMCO Management, Inc.
Wilsey, Kristen M. Senior Vice President of PIMCO and PIMCO Management, Inc.
Wood, George H. Senior Vice President, PIMCO and PIMCO Management, Inc.
Yetter, Michael A. Vice President, PIMCO and PIMCO Management, Inc.
Young, David Vice President, PIMCO.
</TABLE>
(I) Description of Business and Outline of Operation
The Administrator and the Investment Advisor is engaged in the business of
providing investment advisory services. As of the end of May, 1998, the
Investment Advisor managed, advised, and/or administered the following twelve
different styles of accounts (having an aggregate net asset value of
approximately $133 billion).
Assets
Style (in millions)
----- -------------
Total Return $ 81,317
Low Duration $ 6,705
Low Volatility $ 3,448
Short Term Bond $ 2,731
Long Term Bond $ 11,334
Global/Non-US Bond $ 6,261
Money Market $ 176
High Yield Bond $ 4,282
Mortgage $ 3,861
Other $ 195
Balanced $ 39
StocksPLUS $ 13,227
---------- ---------------
As of the end of May 1998, the Investment Advisor managed, advised, and/or
administered the following 51 mutual funds and fund portfolios (having an
aggregate net asset value of approximately $33.6 billion):
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
in U.S. $
- --------------- -------------------------------------- -------- ------------------- ----------------------- ---------------------
Name Month/Date Principal Total Net Asset Value Net Asset Value per
Year Establish as of the end of May, share as of the end
Characteristics 1998 ($million) of May, 1998
1 PIMCO Funds
NAME OF FUND
Total Return Fund 5/11/87 Open-end, fixed $19,533.3 10.67
income
International Fund 12/13/89 Open-end, fixed 577.1 7.36
income
Low Duration Fund 5/11/87 Open-end, fixed 3,185.6 10.19
income
Foreign Fund 12/3/92 Open-end, fixed 469.1 10.78
income
High Yield Fund 12/16/92 Open-end, fixed 2,428.2 11.59
income
Low Duration Fund II 11/1/91 Open-end, fixed 406.7 10.02
income
Total Return Fund III 5/1/91 Open-end, fixed 380.5 9.58
income
Short-Term Fund 10/7/87 Open-end, fixed 477.3 10.06
income
Strategic Balanced 6/28/96 Open-end, balanced 39.0 12.58
Low Duration III 12/31/96 Open-end, fixed 24.2 10.07
income
Moderate Duration 12/31/96 Open-end, fixed 271.7 10.17
income
Long-Term US Gov't Fund 7/1/91 Open-end, fixed 82.1 10.73
income
Global Fund 16/23/93 Open-end, fixed 261.9 9.75
income
Stocks PLUS Fund 5/14/93 Open-end, growth 716.7 13.98
and income
Money Market Fund 3/1/91 Open-end, fixed 168.7 1.00
income (money
market)
Total Return Fund II 12/30/91 Open-end, fixed 624.0 10.32
income
Global Bond II 10/2/95 Open-end, fixed 44.0 9.93
income
Real Return Fund 1/29/97 Open-end, fixed 10.6 9.77
income
Emerging Markets Bond Fund 7/31/97 Open-end, fixed 4.6 9.25
income
Emerging Markets Bond Fund II 4/3/98 Open-end, fixed 49.8 9.74
income
Total Return Mortgage Fund 7/31/97 Open-end, fixed 3.7 10.30
income
Low Duration Mortgage Fund 7/31/97 Open-end, fixed 3.8 10.13
income
Municipal Bond Fund 4/1/98 Open-end, fixed 3.8 10.03
income
2 PIMCO Variable Insurance Trust
NAME OF FUND
Total Return Bond Portfolio 1/2/98 Open-end, fixed 3.1 10.01
income
High Yield Bond Portfolio 5/1/98 Open-end, fixed 12.2 9.95
income
StockPLUS Growth & Inc. Portfolio 12/31/97 Open-end, growth 3.5 11.26
and income
3 Frank Russell Investment
Management Company
NAME OF FUND
Fixed Income I Fund 7/3/89 Open-end, fixed 117.1 (1)
income
Diversified Bond Fund 7/3/89 Open-end, fixed 97.0 (1)
income
Fixed Income III Fund 2/9/93 Open-end, fixed 124.9 (1)
income
Multistrategy Bond Fund 2/9/93 Open-end, fixed 149.3 (1)
4 Russell Insurance Funds
NAME OF FUND
Core Bond Fund 1/2/97 Open-end, fixed 8.9 (1)
income
5 The Harbor Group
NAME OF FUND
Harbor Bond Fund 1/4/88 Open-end, fixed 409.0 11.54
income
6 Pacific Select Fund
NAME OF FUND
Managed Bond Series 1/4/88 Open-end, fixed 580.3 11.07
income
Government Securities Series 1/4/88 Open-end, fixed 136.6 10.63
income
7 PIMCO Funds: Multi-Manager Series
NAME OF FUND
Balanced Fund 6/25/92 Open-end, balanced 25.6 12.02
8 Prudential Securities TARGET
Portfolio Trust
NAME OF FUND
Intermediate Term Bond Portfolio 1/4/93 Open-end, fixed 98.9 10.43
income
Total Return Bond Portfolio 1/4/93 Open-end, fixed 60.0 10.64
income
9 PIMCO Commercial Mortgage Securities
Trust, Inc.
NAME OF FUND
PIMCO Commercial Mortgage 9/2/93 Closed-end, fixed 1 57.6 13.98
Securities Trust, Inc. income
10 American Skandia Trust
NAME OF FUND
Total Return Bond Portfolio 1/3/94 Open-end, fixed 683.6 11.32
income
Limited Maturity Bond Portfolio 5/1/95 Open-end, fixed 304.9 10.71
income
Master Trust Total Return 6/18/97 Open-end, fixed 23.4 10.65
income
11 Fremont Mutual Funds, Inc.
NAME OF FUND
Total Return Fund 3/1/94 Open-end, fixed 115.8 10.2
income
<PAGE>
12 PaineWebber Managed Investment Trust
NAME OF FUND
LD US Gov't Income Fund 10/20/94 Open-end, fixed 147.0 2.38
income
13 PaineWebber Series Trust
NAME OF FUND
Strategic Fixed Income 8/24/95 Open-end, fixed 10.5 10.98
income
14 PaineWebber Managed Accounts
Services Portfolio Trust
PACE Govt Securities Fixed Inc. 8/24/95 Open-end, fixed 150.4 12.58
income
PACE Strategic Fixed Income Inv. 8/24/95 Open-end, fixed 116.7 13.26
income
15 Landmark Funds I
NAME OF FUND
CitiSelect Foreign Bond 9/4/96 Open-end, fixed 276.9 (2)
income
16 Variable Annuity Portfolios
NAME OF FUND
CitiSelect VIP Folio 200 2/10/97 Open-end, fixed 2.4 (1)
income
CitiSelect VIP Folio 300 2/10/97 Open-end, fixed 3.9 (1)
income
CitiSelect VIP Folio 400 2/10/97 Open-end, fixed 2.9 (1)
income
CitiSelect VIP Folio 500 2/10/97 Open-end, fixed 1.1 (1)
income
</TABLE>
Notes(1):Each fund is part of larger portfolio. NAV per share is not available.
(2):NAV per share of each fund is not available.
<PAGE>
(J) Miscellaneous
1. Election and Removal of Directors
Managing Directors of the Administrator and the Investment Advisor are
admitted or removed from office by the Management Board with the prior approval
of the Supervisory Partner (PIMCO Advisers) in accordance with the Amended and
Restated General Partnership Agreement (the "Partnership Agreement") of the
Administrator and the Investment Advisor.
2. Election and Removal of Officers
Officers are elected by the Managing Directors. The Managing Directors may
remove any officer without cause, except for the Chief Executive Officer, which
requires the prior approval of the Supervisory Partner (PIMCO Advisors).
3. Supervision by SEC of Changes in Directors and Certain Officers.
The Investment Advisor files certain reports with the SEC in accordance
with Sections 203 and 204 of the Investment Advisers Act of 1940, which reports,
lists and provides certain information relating to Directors and Officers of the
Investment Advisor.
The SEC may prohibit any such Directors or Officers, or other person, from
serving or acting as an employee, officer, trustee, investment advisor, or
principal underwriter of the Trust under Section 9(b) of the 1940 Act under some
certain circumstances including in the event that such person has willfully
violated any provision of the 1933 Act, the 1934 Act, of the 1940 Act or
otherwise.
4. Amendment to the Articles of Organization, Transfer of Business and
Other Important Matters
a) The Partnership Agreement of the Administrator and the Investment
Advisor may be amended, under the law of Delaware by the partners of
the Investment Advisor.
b) Under the laws of the state of Delaware and the Partnership Agreement,
transfer of business requires the agreement of the partners of the
Investment Advisor, and would be subject to the restrictions regarding
receipt of Compensation imposed by Section 15 of the 1940 Act.
c) Under the Investment Advisor's Partnership Agreement, a partner may
transfer its interest in the Investment Advisor with the approval of
the other partner and a super-majority of the Investment Advisor's
Managing Board.
d) The Investment Advisor may be dissolved upon the agreement of the
partners and the approval of a super-majority of the Investment
Advisor's Managing Board.
e) The Administrator and the Investment Advisor has no direct
subsidiaries other than StocksPLUS Management, Inc.
5. Litigation, etc.
There are no known facts, such as legal proceedings, which are expected to
materially affect the Trust and / or the Administrator and the Investment
Advisor within the six-month period proceeding the filing of this document.
<PAGE>
III. OUTLINE OF THE OTHER RELATED COMPANIES
(A) Investors Fiduciary Trust Company (the "Custodian" or the "Transfer
Agent")
(1) Amount of Capital
U.S. $41,138,000 as of the end of March, 1998.
(2) Description of Business
Investor Fiduciary Trust Company is a Missouri trust company that
provides custody, investment accounting and recordkeeping services to
mutual funds, including the Fund
(3) Outline of Business Relationship with the Fund
Investor Fiduciary Trust Company provides custody, investment
accounting, transfer agent, dividend disbursing agent and recordkeeping
services to the Institutional and Administrative Class Shares of the Fund
(B) PIMCO Funds Distributors LLC (the "Distributor")
(1) Amount of Capital
U.S. $ 18,331,753 as of the end of March 31, 1998.
(2) Description of business
PIMCO Funds Distributors LLC, a wholly owned subsidiary of PIMCO
Advisors L.P. and a Delaware limited liability company, is the principal
underwriter of the shares of the Trust, including the Fund.
(3) Outline of business Relationship with the Fund
PIMCO Funds Distributors LLC engages in providing marketing and
distribution services to the Fund.
(C) The Nikko Securities Co., Ltd. ("Distributor in Japan" and "Agent JSDA
Member")
(1) Amount of Capital
Yen 123,736 million as of the end of March, 1998.
(2) Description of Business
The Nikko Securities Co., Ltd. is a diversified securities company in
Japan.
(3) Outline of Business Relationship with the Fund
The Nikko Securities Co., Ltd. acts as a distributor in Japan and Agent
JSDA Member for the Fund in connection with the offering of Shares in Japan.
(D) Capital Relationship
As of the end of June, 1998, the partnership interest of Pacific Investment
Management Company are held 99.9% by PIMCO Advisors L.P. and .01% by PIMCO
Management Inc. is a wholly-owned subsidiary of PIMCO Advisors L.P.
PIMCO Funds Distributors LLC is a wholly owned subsidiary of PIMCO Advisors
L.P.
<PAGE>
(E) Interlocking Directors
Names and functions of Trustees or officers of the Trust who also are
officers of the related companies are as follows:
<TABLE>
<S> <C> <C>
Name Position with Trust Position with
Administrator and
Investment Advisor
Brent R. Harris Chairman of the Board and Trustee Managing Director
R. Wesley Burns President and Trustee Executive Vice President
William H. Gross Senior Vice President Managing Director
Margaret Isberg Senior Vice President Executive Vice President
Leland T. Scholey Senior Vice President Senior Vice President
Thomas J. Kelleher, III Vice President Vice President
Andre Mallegol Vice President Vice President
Dean S. Meiling Vice President Managing Director
James F. Muzzy Vice President Managing Director
David J. Pittman Vice President Vice President
Jeffrey M. Sargent Vice President Vice President and Manager of
Investment Operations
Shareholder Services
William S. Thompson, Jr. Vice President Chief Executive Officer and
Managing Director
Kristen M. Wilsey Vice President Senior Vice President
John P. Hardaway Treasurer Vice President and Manager of
Investment Operations Accounting
Joseph D. Hattesohl Assistant Treasurer Vice President and Manager of
Fund Taxation
</TABLE>
No Trustee or Officer of the Trust is an officer of the Custodian, the
Transfer Agent or the Distributor.
<PAGE>
IV. FINANCIAL CONDITIONS OF THE FUND
a. Financial Statements in Japanese language of the Fund for the last two
fiscal years are translated from the English version of audited financial
statements, which are prepared by the Trust pursuant to the provisions of
Article 127 (5) proviso of the "Regulations Concerning Terminology, Forms
and Method of Preparation of Financial Statements, etc." (Ministry of
Finance (MOF) ordinance No. 59 of 1963) under the "Ordinance Concerning
the Disclosure of the Content, etc. of the Specific Securities" (MOF
ordinance No. 22 of 1993), except the parts presented in yen translated
from dollars.
The aforesaid financial statements have been audited by Price Waterhouse
LLP, the accountants in the U.S. of the Trust, and their Auditor's report
as included herein has been received by the Trust.
b. The original financial statements of the Fund are presented in U.S.
dollars. The Japanese translation of the financial statements are also
presented in Japanese yen translated from the U.S. dollars. The amount
presented in Japanese yen are translated solely for convenience from the
amounts in U.S. dollars at the exchange rate of U.S.$1.00=Yen 122.70,
being the mean of telegraphic transfer selling and buying exchange rate
vis-a-vis Customers quoted from The Bank of Tokyo-Mitsubishi as of
December 1, 1998. Amounts less than one million yen are rounded up or
down to nearer one million yen.
c. The signed originals of the Auditors reports and the Consent Letters for
the aforementioned financial statements of the Fund with respect to the
year ended March 31, 1998 are included in the Securities Registration
Statement ("SRS") of the Fund dated July 6, 1998, as amended;
accordingly, the Auditors Reports and Consent Letters included herein are
the copies of such signed originals of the Auditors Reports and Consent
Letters included in the SRS.
<PAGE>
Total Return Fund
Statement of Assets and Liabilities
March 31, 1997
Amounts in thousands, except per share amounts
- --------------------------------------------------------------------------------
Assets:
Investments, at value $ 13,968,846
Cash and foreign currency 15,161
Receivable for investments and foreign currency sold 539,341
Receivable for Fund shares sold 32,523
Interest and dividends receivable 105,489
Other assets -
-----------------
14,661,360
-----------------
Liabilities:
Payable for investments and foreign currency purchased $ 1,375,168
Written options outstanding 26,352
Payable for Fund shares redeemed 39,825
Dividends payable 13,501
Accrued investment advisor's fee 2,721
Accrued administrator's fee 2,052
Accrued distribution fee 280
Accrued servicing fee 105
Variation margin payable 2,360
Other liabilities 290
-----------------
1,462,654
-----------------
Net Assets $ 13,198,706
-----------------
Net Assets Consist of:
Paid in capital $ 13,358,162
Overdistributed net investment income (25,279)
Accumulated net realized loss (63,168)
Net unrealized depreciation (71,009)
-----------------
$ 13,198,706
-----------------
Net Assets:
Institutional Class $ 12,528,536
Administrative Class 151,194
Retail Classes 518,976
Shares Issued and Outstanding:
Institutional Class 1,219,656
Administrative Class 14,719
Retail Classes 50,524
Net Asset Value and Redemption Price Per Share
Institutional Class $ 10.27
Administrative Class 10.27
Retail Classes 10.27
-----------------
Cost of Investments Owned $14,009,795
-----------------
Cost of Foreign Currency Held $ 3
-----------------
See accompanying notes
<PAGE>
Total Return Fund
Statement of Operations
March 31, 1997
Amounts in thousands
- --------------------------------------------------------------------------------
Investment Income:
Interest $ 820,530
Dividends 1,523
-----------------
Total Income 822,053
-----------------
Expenses:
Investment advisory fees 29,232
Administration fees 21,266
Distribution fees-Administrative Class 341
Distribution and servicing fees-Retail Classes 854
Trustees' fees 21
Reorganization costs 25
Miscellaneous -
-----------------
Total Expenses 51,739
-----------------
Net Investment Income 770,314
-----------------
Net Realized and Unrealized Gain (Loss):
Net realized loss on investments (31,830)
Net realized loss on futures
contracts and written options (29,476)
Net realized gain on foreign currency transactions 3,378
Net change in unrealized appreciation
(depreciation) on investments (15,704)
Net change in unrealized appreciation
(depreciation on translation of assets and
liabilities denominated in foreign currencies 27,904
Net change in unrealized appreciation (depreciation)
on translation of assets and liabilities denominated in
foreign currencies 3,259
-----------------
Net Loss (42,469)
-----------------
-----------------
Net Increase in Assets Resulting from Operations $ 727,845
-----------------
See accompanying notes
<PAGE>
Total Return Fund
Statement of Changes in Net Assets
March 31, 1997
<TABLE>
<S> <C> <C>
Amounts in thousands
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended
March 31, 1997 March 31, 1996
------------- --------------
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 770,314 $ 621,582
Net realized gain (loss) (57,928) 254,693
Net change in unrealized appreciation (depreciation) 15,459 11,343
-------------------- ------------
Net increase resulting from operations 727,845 887,618
-------------------- ------------
Distribution to Shareholders:
From net investment income
Institutional Class (737,816) (533,126)
Administrative Class (8,454) (3,203)
Retail Classes (5,252) 0
In excess of net investment income
Institutional Class (18,432) (84,779)
Administrative Class (211) (510)
Retail Classes (131) 0
From net realized capital gains
Institutional Class 0 (110,361)
Administrative Class 0 (772)
Retail Classes 0 0
-------------------- ----------
Total Distributions (770,296) (732,751)
-------------------- -----------
Fund Share Transactions:
Receipts for shares sold
Institutional Class 3,709,839 3,567,811
Administrative Class 132,504 117,173
Retail Classes 59,247 0
Shares issued in reorganization
Retail Classes 499,338 0
Issued as reinvestment of distributions
Institutional Class 606,425 592,359
Administrative Class 8,479 3,923
Retail Classes 3,729 0
Cost of share redeemed
Institutional Class (2,001,935) (1,308,591)
Administrative Class (94,080) (24,091)
Retail Classes (34,612) 0
-------------------- ----------
Net increase resulting from Fund share transactions 2,888,934 2,948,584
-------------------- ----------
Total Increase in Net Assets 2,846,483 3,103,451
-------------------- ---------
Net Assets:
Beginning of period 10,352,223 7,248,772
-------------------- -----------
End of period* $ 13,198,706 $ 10,352,223
-------------------- ------------
* Including net overdistributed investment income of: $ (25,279) $ (18,792)
-------------------- ------------
</TABLE>
See accompanying notes
<PAGE>
Total Return Fund
Financial Highlights - Institutional Class
March 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
Institutional Class
- --------------------------------------------------------------------------------------------------------------------------------
3/31/97 3/31/96 3/31/95 3/31/94 3/31/93
-------- ------- ------- -------- -------
Net Asset Value
Beginning of Period $ 10.29 $ 10.02 $ 10.25 $ 10.91 $ 10.46
Net Investment Income 0.68 0.81 0.64 0.68 0.76
Net Realized and Unrealized
Gain (Loss) on Investments (0.02) 0.29 (0.24) (0.16) 0.76
--------------- ---------------- --------------- --------------- --------------
Total Income from Investment Operations 0.66 1.10 0.40 0.52 1.52
--------------- ---------------- --------------- --------------- --------------
Dividends from Net Investment Income (0.66) (0.61) (0.56) (0.71) (0.76)
Dividends in Excess of Net Investment Income (0.02) (0.10) (0.05) (0.15) 0.00
Distributions from Net Realized Capital Gains 0.00 (0.12) 0.00 (0.30) (0.31)
Distributions in Excess of Net
Realized Capital Gains 0.00 0.00 (0.02) 0.00
Tax Basis Return of Capital 0.00 0.00 (0.02) 0.00 0.00
--------------- ---------------- --------------- --------------- --------------
Total Distributions $ (0.68) (0.83) (0.63) (1.18) (1.07)
--------------- ---------------- --------------- --------------- --------------
Net Asset Value End of Period $ 10.27 $ 10.29 $ 10.02 $ 10.25 $ 10.91
--------------- ---------------- --------------- --------------- --------------
Total Return 6.60% 11.14% 4.22% 4.55% 15.29%
Net Assets End of Period (000s) $ 12,528,536 $ 10,247,605 $ 7,239,735 $ 5,008,160 $ 3,155,441
Ratio of Expenses to Average Net Assets 0.43% 0.42% 0.41% 0.41% 0.43%
Ratio of Net Investment Income to Average
Net Assets 6.60% 6.85% 6.72% 6.27% 7.07%
Portfolio Turnover Rate 173% 221% 98% 177% 90%
See accompanying notes
<PAGE>
Total Return Fund
Financial Highlights - Administrative Class
March 31, 1997
- --------------------------------------------------------------------------------
Administrative Class
----------------------------------------------------
9/7/94 -
3/31/97 3/31/96 3/31/95
--------------- ---------------- ---------------
Net Asset Value
Beginning of Period $ 10.29 $ 10.01 $ 10.00
Net Investment Income 0.66(a) 0.80 0.31
Net Realized and Unrealized Gain (Loss)
on Investments (0.02(a) 0.29 0.06
--------------- ---------------- ---------------
Total Income from Investment
Operations 0.64 1.09 0.37
--------------- ---------------- ---------------
Dividends from Net Investment Income (0.64) (0.60) (0.32)
Dividends in Excess of Net Investment
Income (0.02) (0.09) (0.03)
Distributions from Net Realized Capital
Gains 0.00 (0.12) 0.00
Distributions in Excess of Net Realized
Capital 0.00 0.00 0.00
Tax Basis Return of Capital 0.00 0.00 (0.01)
--------------- ---------------- ---------------
Total Distributions (0.66) (0.81) (0.36)
--------------- ---------------- ---------------
Net Asset Value End of Period $ 10.27 $ 10.29 $ 10.01
--------------- ---------------- ---------------
Total Return 6.34% 10.99% 3.76%
Net Assets End of Period (000s) $ 151,194 $ 104,618 $ 9,037
Ratio of Expenses to Average Net Assets 0.68% 0.68% 0.66%+
Ratio of Net Investment Income to
Average Net Assets 6.35% 6.64% 6.54%+
Portfolio Turnover Rate 173% 221% 98%
+Annualized.
See accompanying notes
</TABLE>
<PAGE>
Total Return Fund
Notes to Financial Statements
March 31, 1997
- --------------------------------------------------------------------------------
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 20 separate
investment funds. Information presented in these financial statements pertains
to the Total Return Fund (the "Fund"). The Trust may offer up to six classes of
shares for certain funds. Each share class has identical voting rights except
that shareholders of a class have exclusive voting rights regarding any matter
relating solely to that class of shares. As used in these financial statements,
"Institutional Classes" refers to the Institutional and Administrative classes
and "Retail Classes" refers to the A, B, and C Classes of the Trust.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. These policies
are 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, are normally
valued on the basis of quotes obtained from brokers and dealers or pricing
services. Short-term investments which mature in 60 days or less are valued at
amortized cost, which approximates market value. Certain fixed income securities
for which daily market quotations are not readily available may be valued,
pursuant to guidelines established by the Board of Trustees, with reference to
fixed income securities whose prices are more readily obtainable.
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.
<PAGE>
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, of the Fund are declared on each day the Trust is open for
business and are distributed to shareholders monthly. Net realized capital gains
earned by the 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.
Certain 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 dividend 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.
Multiclass Operations. Each class offered by the Trust has equal rights as to
assets and voting privileges. Income and non-class specific expenses of the Fund
are allocated daily to each class of shares based on the relative value of
settled shares. Realized and unrealized capital gains and losses of the Fund are
allocated daily to each class of shares based on the relative net assets of each
class.
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.
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 counter-party to whom the Fund sells the security becomes insolvent, the
Fund's right to repurchase the security may be restricted; the value of the
security may change over the term of the financing transaction; and the return
earned by the Fund with the proceeds of a financing transaction may not exceed
transaction costs. There were no financing transactions outstanding as of March
31, 1997.
Futures and Options. The Fund is authorized to enter into futures contracts and
options. The 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 the Fund and the prices of futures contracts and options, the possibility of
an illiquid market, and the inability of the counter-party to meet the terms of
the contract. Futures contracts and purchased options are valued based upon
their quoted daily settlement prices. The premium received for a written option
is recorded as an asset with an equal liability which is marked to market based
on the option's quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Forward Currency Transactions. 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 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.
Stripped mortgage backed securities (SMBS). SMBS represent a participation in,
or are secured by and payable from, mortgage loans on real property, and may be
structured in classes with rights to receive varying proportions of principal
and interest. SMBS include interest-only securities (IOs), which receive all of
the interest, and principal-only securities (POs), which receive all of the
principal. If the underlying mortgage assets experience greater than anticipated
payments of principal, the Fund may fail to recoup some or all of its initial
investment in these securities. The market value of these securities is highly
sensitive to changes in interest rates.
<PAGE>
Swaps. The Fund is authorized to enter into interest rate, index and currency
exchange swap agreements. PIMCO uses these agreements in order to obtain a
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded the desired return. Risk may arise upon
entering into these agreements from potential inability of counterparties to
meet the terms of the agreements and are generally limited to the amount of net
receivable position, if any, at the date of default.
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.
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 investors do not receive their principal until
maturity.
Repurchase Agreements. The 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.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO 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% based on average daily net assets of the Fund.
Administration Fee. PIMCO also serves as administrator (the "Administrator"),
and provides administrative services to the Trust for which it receives from the
Fund a monthly administrative fee based on each share class's average daily net
assets. The Administration Fee for the Institutional Classes is charged at an
annual rate of 0.18%. The Administration Fee for the Retail Classes is charged
at the annual rate of 0.40%.
Distribution and Servicing Fees. 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 Trust's shares.
The Trust is permitted to reimburse, out of the Administrative Class assets of
the Fund, an amount up to 0.25% on an annual basis of the average daily net
assets of that class, financial intermediaries that provide services in
connection with the distribution of shares or administration of plans or
programs that use Fund shares as their funding medium. The effective rate paid
to PFD was 0.25% during 1998.
Pursuant to the Distribution and Servicing Plans adopted by the Retail Classes
of the Trust, the Trust compensates PFD for services provided and expenses
incurred in connection with assistance rendered in the sale of shares and
services rendered to shareholders and for maintenance of shareholder accounts of
the Retail Classes. The Trust pays PFD distribution and servicing fees at rates
as agreed to by each share class out of each respective Retail Class's net
assets.
PFD also receives the proceeds of the initial sales charges paid by the
shareholders upon the purchase of Class A shares, and the contingent deferred
sales charges paid by the shareholders upon certain redemptions of Retail Class
shares.
<PAGE>
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 expense; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and any counsel
retained exclusively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; (vii) expenses, such as
organizational expenses, which are capitalized in accordance with generally
accepted accounting principles; and (viii) any expenses allocated or allocable
to a specific class of shares, which include service fees payable with respect
to the Administrative Class shares and may include certain other expenses as
permitted by the Trust's Multiclass Plan adopted pursuant to Rule 18f-3 under
the Act and subject to review and approval by the Trustees. The ratio of
expenses to average net assets per share class, as disclosed in Financial
Highlights, may differ from the annual fund operating expenses per share class
as disclosed in the Prospectus for the reasons set forth above. 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.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended March 31, 1997 were as follows (amount in thousands):
-------------------------------------------------------------------------------
U.S. Government/Agency All Other
-------------------------------------------------------------------------------
Purchases Sales Purchases Sales
$19,526,506 $17,697,807 $2,764,451 $3,440,894
-------------------------------------------------------------------------------
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amount in
thousands):
----------------------------- -- ---------------
Balance at 3/31/96 $ 11,679
Sales 41,410
Closing Buys 0
Expirations (11,682)
Exercised (11,189)
---------
Balance at 3/31/97 $ 30,218
<PAGE>
6. Shares of Beneficial Interest
The Trust 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>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Year Ended 3/31/97 Year Ended 3/31/96
Shares Amount Shares Amount
Receipts for shares sold
Institutional Class 358,561 $3,709,839 342,019 $3,567,811
Administrative Class 12,842 132,504 11,183 117,173
Retail Classes 5,691 59,247 0 0
Shares issued in reorganization
Retail Classes 47,783 499,338 0 0
Issued as reinvestment of distributions
Institutional Class 58,681 606,425 56,475 592,359
Administrative Class 820 8,479 373 3,923
Retail Classes 360 3,729 0 0
Cost of shares redeemed
Institutional Class (193,748) (2,001,935) (124,938) (1,308,591)
Administrative Class (9,113) (94,080) (2,289) (24,091)
Retail Classes (3,310) (34,612) 0 0
---------- ----------- -------- ----------
Net increase resulting from
Fund shares transactions 278,567 $ 2,888,934 282,823 $ 2,948,584
======= =========== ======= ===========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
7. Federal Income Tax Matters
As of March 31, 1997, the Fund had remaining capital loss carryforwards of
approximately $35,007,000 that were realized or acquired in prior years which
are listed in the table below. Use of the acquired capital loss carryforwards
may be limited under current tax laws.
- --------------------------------------------------------------------------------
Capital Loss Carryforwards
(amounts in thousands)
- --------------------------------------------------------------------------------
Realized Losses Acquired Losses Expiration
$ 8,241 $ -- 03/31/05
-- 988 03/31/04
-- 8,501 03/31/02
-- 17,277 03/31/01
----------------------------------------------------------
The Fund will resume capital gains distributions in the future to the extent
gains are realized in excess of the available carryforwards.
Additionally, the Fund realized capital losses during the fiscal year in the
amount of $96,365,587 for which it elected to defer to the following fiscal year
pursuant to income tax regulations.
8. Reorganization
The Fund (the "Acquiring Fund") acquired the assets and certain liabilities of
the PIMCO Advisors U.S. Government Fund (the "Acquired Fund") in a tax-free
exchange for shares of the Fund, pursuant to a plan of reorganization approved
by the Acquired Fund's shareholders (amounts in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------- -----------------
Value of Total Net
Shares Issued Shares Issued Total Net Total Net Assets of Acquired Fund
by Acquiring by Acquiring Assets of Assets of Acquiring Fund Unrealized
Date Fund Fund Acquired Fund Acquiring Fund After Acquisition Appreciation
- -------------- --------------- ---------------- ---------------- ---------------- ----------------- -----------------
01/17/97 47,783 $ 499,338 $ 449,338 $ 12,445,156 $ 12,944,494 $ 5,236
- -------------- --------------- ---------------- ---------------- ---------------- ----------------- -----------------
<PAGE>
Total Return Fund
Schedule of Investments
March 31, 1997
Principal
Amount Value
(000's) (000's)
Corporate Bonds and Notes - 16.6%
Banking and Finance - 7.3%
ABN AMRO Bank N.V.
7.750% due 05/15/23 $ 200 $ 198
Aetna Services, Inc.
6.750% due 09/15/13 200 182
Ahmanson (H.F.) & Co.
6.000% due 04/01/97 25,000 25,000
American Express Credit
6.800% due 12/15/03 1,500 1,498
American General Finance
5.875% due 07/01/00 75 73
8.125% due 08/15/09 50 52
Associates Corp. of North America
9.700% due 05/01/97 450 451
6.125% due 02/01/98 1,475 1,474
6.625% due 05/15/98 100 100
8.800% due 08/01/98 987 1,015
6.250% due 03/15/99 1,200 1,190
7.500% due 05/15/99 700 710
7.400% due 07/07/99 125 126
7.250% due 09/01/99 200 202
6.750% due 10/15/99 90 90
8.250% due 12/01/99 200 207
6.250% due 09/15/00 50 49
AT&T Capital Corp.
5.940% due 04/18/97 50,000 50,004
6.690% due 05/09/97 25,000 25,026
5.558% due 11/05/97 (d) 10,000 10,004
5.880% due 11/05/97 65,000 64,943
5.900% due 11/13/97 75,000 74,929
7.350% due 03/02/98 6,000 6,052
AVCO Financial Services
6.350% due 09/15/00 100 98
7.375% due 08/15/01 300 303
Bancomer
8.000% due 07/07/98 7,000 7,007
Banesto
8.250% due 07/28/02 28,900 30,046
BankAmerica Corp.
7.200% due 09/15/02 400 399
7.500% due 10/15/02 1,000 1,010
Bankers Trust
8.625% due 04/01/18 181 186
Banponce Corp.
5.893% due 05/05/97 (d) 5,000 4,973
8.040% due 11/24/97 9,000 9,092
Barclays American Corp.
9.125% due 12/01/97 350 357
Bear Stearns
6.750% due 04/15/03 105 102
Beneficial Corp.
6.210% due 09/11/97 145 145
9.600% due 10/16/98 250 261
Canadian Pacific Securities Ltd.
9.450% due 08/01/21 2,750 3,171
Chase Manhattan Corp.
8.500% due 02/15/02 200 211
8.000% due 05/01/05 200 199
Chemical Banking Corp.
6.125% due 11/01/08 400 355
Chrysler Financial Corp.
8.420% due 02/01/99 695 716
<PAGE>
8.460% due 01/19/00 700 728
Chubb Capital Corp.
6.875% due 02/01/03 100 99
Chubb Corp.
8.750% due 11/15/99 120 123
Citicorp
8.750% due 02/15/98 9,000 9,186
5.625% due 05/29/98 (d) 21,600 21,587
Commercial Credit Co.
6.750% due 05/15/00 100 99
6.000% due 06/15/00 300 292
8.250% due 11/01/01 2,500 2,605
Dean Witter Discover
5.670% due 03/02/99 (d) 100 100
6.750% due 08/15/00 100 99
Den Danske Bank
6.729% due 06/23/00 (d) 4,500 4,509
First Interstate Bancorp
12.750% due 05/01/97 1,250 1,256
5.913% due 06/25/97 (d) 5,000 5,002
8.875% due 01/01/09 324 329
Fleet Financial Group 9.900% due 06/15/01
Ford Motor Credit Corp.
9.350% due 05/14/97 1,000 1,004
8.000% due 12/01/97 260 263
7.240% due 04/01/98 11,000 11,094
6.030% due 11/09/98 (d) 17,080 17,125
8.375% due 01/15/00 150 156
7.020% due 10/10/00 70,000 70,027
7.000% due 09/25/01 250 249
6.625% due 06/30/03 575 557
8.250% due 02/23/05 2,500 2,616
General Electric Capital Corp.
8.300% due 09/20/09 150 163
General Motors Acceptance Corp.
6.700% due 04/15/97 26,100 26,110
7.750% due 04/15/97 8,150 8,156
8.375% due 05/01/97 1,350 1,353
7.750% due 05/12/97 2,000 2,004
7.250% due 05/19/97 7,500 7,516
7.125% due 05/23/97 1,000 1,002
6.125% due 06/09/97 8,000 8,008
6.000% due 06/16/97 1,000 1,000
7.100% due 07/01/97 1,700 1,705
6.400% due 07/30/97 1,000 1,002
6.300% due 09/10/97 1,000 1,002
6.000% due 10/10/97 23,000 23,016
7.850% due 11/17/97 13,000 13,148
7.375% due 03/23/98 2,290 2,312
7.375% due 05/26/99 190 192
8.625% due 06/15/99 650 674
7.000% due 03/01/00 100 100
9.625% due 12/15/01 300 329
7.000% due 09/15/02 100 99
Georgia Pacific Credit Corp.
9.850% due 06/15/97 3,000 3,023
Goldman Sachs Mortgage Corp.
6.000% due 12/31/07 11,528 10,181
Great Western Bank
8.625% due 12/01/98 3,000 3,086
Household Financial Corp.
6.250% due 10/15/97 201 201
Inter-American Development Bank
8.875% due 06/01/09 200 226
International Bank for
Reconstruction & Development
9.875% due 10/01/97 194 198
Kimco Realty Corp.
6.500% due 10/01/03 200 188
Lehman Brothers
8.375% due 04/01/97 90 90
6.730% due 02/27/98 45,000 45,148
6.375% due 06/01/98 100 100
6.150% due 06/22/98 (d) 25,000 25,182
6.250% due 06/29/98 5,400 5,380
<PAGE>
Mellon Bank
6.500% due 08/01/05 75 70
Merrill Lynch & Co.
5.380% due 06/23/97 (d) 19,000 18,992
6.500% due 04/01/01 100 98
8.300% due 11/01/02 200 210
7.000% due 03/15/06 1,500 1,464
7.000% due 04/27/08 100 96
Mesa Operating Co.
10.625% due 07/01/06 3,250 3,388
NationsBank Corp.
5.125% due 09/15/98 100 98
6.750% due 02/26/01 500 493
7.000% due 09/15/01 1,500 1,496
New England Mutual
7.875% due 02/15/24 1,500 1,455
Northern Trust
9.000% due 05/15/98 200 206
Norwest Financial, Inc.
6.500% due 11/15/97 1,500 1,505
6.230% due 09/01/98 100 100
5.750% due 11/16/98 300 296
7.000% due 01/15/03 300 296
PaineWebber
6.250% due 06/15/98 100 100
7.000% due 03/01/00 200 200
PNC Funding Corp.
6.875% due 03/01/03 100 97
Reliance Group Holdings
9.000% due 11/15/00 9,000 9,203
Saferco
9.460% due 05/31/99 1,000 1,051
9.590% due 05/31/01 3,000 3,255
Salomon, Inc.
5.820% due 08/12/97 2,700 2,700
5.530% due 08/25/97 2,400 2,394
5.470% due 08/29/97 18,000 17,976
5.650% due 10/15/97 6,000 5,981
5.763% due 10/31/97 (d) 14,000 14,002
5.763% due 11/05/97 (d) 7,000 7,001
5.890% due 11/10/97 99,000 98,960
5.650% due 02/10/98 1,165 1,159
5.700% due 02/11/98 1,300 1,294
6.625% due 11/30/00 70 69
3.650% due 02/14/02 17,052 16,642
Sears Financial
0.000% due 07/12/98 3,480 3,202
Security Pacific Corp.
6.249% due 03/01/18 (d) 174 171
Shearson Lehman
<PAGE>
9.875% due 10/25/17 123 125
Signet Bank Corp.
5.629% due 05/15/97 (d) 1,000 999
5.813% due 04/15/98 (d) 9,000 8,974
9.625% due 06/01/99 6,500 6,838
Smith Barney
6.625% due 06/01/00 95 94
Sparbanken Sverige AB
7.383% due 10/29/49 (d) 24,670 25,316
Toyota Motor Credit Corp.
6.912% due 02/15/02 (d) 40,000 39,587
Transamerica Financial
5.724% due 04/20/99 (d) 500 496
Trizec Finance
10.875% due 10/15/05 3,715 4,059
U.S. Life Corp.
6.750% due 01/15/98 100 100
U.S. West Capital Funding, Inc.
6.830% due 11/15/07 1,000 945
U.S. West Financial Services, Inc.
9.450% due 09/30/97 200 203
8.400% due 09/15/99 50 52
Wachovia Bank
6.700% due 04/14/99 500 500
6.625% due 11/15/06 75 71
Wells Fargo & Co.
8.750% due 05/01/02 100 106
967,609
Industrials - 5.2%
American Home Products
6.875% due 04/15/97 900 900
7.700% due 02/15/00 300 307
American Standard
11.375% due 05/15/04 10,000 10,625
Amerigas Partners L.P.
10.125% due 04/15/07 1,730 1,842
Amphenol Corp.
12.750% due 12/15/02 25,000 27,125
AMR Corp.
7.750% due 12/01/97 10,000 10,079
9.500% due 07/15/98 5,500 5,699
9.270% due 08/13/98 1,000 1,033
8.050% due 03/05/99 4,000 4,079
9.750% due 03/15/00 7,760 8,284
10.610% due 01/11/01 4,000 4,429
10.570% due 01/15/01 3,000 3,320
10.590% due 01/31/01 3,000 3,325
10.000% due 02/01/01 2,000 2,181
9.400% due 05/08/01 3,000 3,211
9.500% due 05/15/01 2,250 2,424
9.130% due 10/25/01 2,000 2,132
8.470% due 02/20/02 2,000 2,082
8.500% due 02/26/02 1,000 1,042
0.000% due 03/01/17 19,731 19,731
Anheuser Busch
7.000% due 09/01/05 300 294
Arkla, Inc.
9.875% due 04/15/97 55,050 55,123
9.320% due 12/15/97 1,000 1,020
8.740% due 05/14/98 3,000 3,061
Auburn Hills Trust
12.000% due 05/01/20 (d) 30 44
Baxter International
9.500% due 06/15/08 200 230
Boise Cascade Co.
9.900% due 03/15/00 65 70
BP America, Inc.
8.875% due 12/01/97 750 764
Bristol-Myers Squibb
7.150% due 06/15/23 300 287
Building Materials Corp.
0.000% due 07/01/04 (i) 10,320 9,146
CBS, Inc.
7.625% due 01/01/02 100 98
Centerior Fuel Corp.
9.200% due 08/02/98 15,000 15,164
Century Communication
9.500% due 08/15/00 6,000 6,030
11.875% due 10/15/03 6,000 6,405
CF Cable TV, Inc.
9.125% due 07/15/07 1,600 1,720
Coastal Corp.
8.750% due 05/15/99 4,300 4,466
Continental Cablevision
11.000% due 06/01/07 4,536 5,101
Cumberland Farms
10.500% due 10/01/03 3,754 3,679
Dayton Hudson Co.
<PAGE>
10.000% due 12/01/00 1,000 1,089
Delta Air Lines
7.730% due 05/14/97 8,800 8,819
9.750% due 05/15/21 500 580
Dimon, Inc.
8.875% due 06/01/06 3,000 3,060
E.I. Du Pont de Nemours
8.650% due 12/01/97 500 508
9.150% due 04/15/00 100 106
Eastman Kodak
8.550% due 05/01/97 425 426
Eli Lilly & Co.
8.125% due 02/07/00 387 394
Federal Express
10.000% due 09/01/98 800 834
Ford Motor Co.
9.250% due 07/15/97 100 101
9.000% due 09/15/01 200 214
8.875% due 01/15/22 200 221
General Motors Corp.
8.170% due 01/02/00 2,364 2,428
8.950% due 07/02/09 21,500 22,700
Gillette Co.
5.750% due 10/15/05 1,500 1,365
Gulf Canada Resources
9.250% due 01/15/04 1,250 1,306
9.625% due 07/01/05 2,000 2,135
HMH Properties
9.500% due 05/15/05 2,000 2,068
Hollinger International Publishing
9.250% due 02/01/06 3,000 2,985
IBM Corp.
7.250% due 11/01/02 100 101
Ikon Office Solutions
6.750% due 12/01/25 1,200 1,051
INDSPEC Chemical Corp.
0.000% due 12/01/03 (i) 5,500 5,088
Integrated Health Services
9.625% due 05/31/02 3,000 3,135
10.750% due 07/15/04 3,650 4,006
ISP Holdings, Inc.
9.00% due 10/15/03 5,000 5,050
ITT Corp.
6.250% due 11/15/00 (d) 70 67
K-III Communications Co.
10.625% due 05/01/02 5,185 5,392
8.500% due 02/01/06 4,000 3,900
Kaiser Aluminum & Chemical
9.875% due 02/15/02 250 249
Kellogg Co.
5.900% due 07/15/97 100 100
Keystone Group
9.750% due 09/01/03 250 268
Lenfest Communications
8.375% due 11/01/05 5,000 4,706
Maxus Energy Corp.
9.875% due 10/15/02 300 311
Mazda Manufacturing Corp.
10.500% due 07/01/08 1,980 2,434
Mobil Corp.
8.375% due 02/12/01 40 42
Nabisco, Inc.
8.000% due 01/15/00 6,500 6,654
New York Times
7.625% due 03/15/05 1,000 1,018
News America Holdings Corp.
7.500% due 03/01/00 65 66
8.625% due 02/01/03 750 789
<PAGE>
Noranda, Inc.
7.000% due 07/15/05 1,800 1,732
Northern Indiana Public
6.375% due 09/01/97 5,950 5,966
Owens Illinois
10.000% due 08/01/02 300 314
11.000% due 12/01/03 10,000 11,025
Parker Drilling Corp.
7.750% due 11/29/02 (d) 7,500 7,500
Pepsico, Inc.
5.463% due 07/01/98 400 395
7.750% due 10/01/98 500 509
Philip Morris Co.
8.750% due 06/15/97 100 101
7.375% due 02/15/99 115 116
8.625% due 03/01/99 200 206
7.500% due 01/15/02 50 50
Phillips Petroleum
9.500% due 11/15/97 500 510
Repap Wisconsin, Inc.
9.250% due 02/01/02 2,350 2,350
Revlon Consumer Products Corp.
9.375% due 04/01/01 5,255 5,380
RJR Nabisco
7.625% due 09/01/00 6,000 5,929
8.000% due 07/15/01 30,000 29,698
8.625% due 12/01/02 3,000 3,012
Rogers Cablesystems, Inc.
10.000% due 12/01/07 5,000 5,213
Rogers Cantel Mobile
11.125% due 07/15/02 5,000 5,244
9.375% due 06/01/08 2,750 2,833
SCI Television
11.000% due 06/30/05 3,275 3,496
Sears Roebuck & Co.
6.580% due 07/23/97 150 150
9.250% due 04/15/98 2,125 2,185
5.820% due 02/22/99 125 123
Showboat, Inc.
9.250% due 05/01/08 1,000 1,028
Stone Consolidated
10.250% due 12/15/00 5,000 5,288
Supervalu, Inc.
6.500% due 10/06/00 140 137
Telewest Communications
9.625% due 10/01/06 5,000 4,975
Tenet Healthcare
9.625% due 09/01/02 6,250 6,672
10.125% due 03/01/05 1,000 1,090
<PAGE>
Texaco Capital
9.000% due 11/15/97 1,000 1,019
Time Warner, Inc.
7.450% due 02/01/98 12,000 12,097
6.456% due 08/15/00 (d) 52,669 52,691
7.975% due 08/15/04 31,053 31,276
8.110% due 08/15/06 78,529 78,995
7.250% due 09/01/08 125 119
0.000% due 07/15/33 25,000 25,000
Transcontinental Gas Pipeline
9.125% due 02/01/17 2,000 2,061
Union Oil of California
9.750% due 12/01/00 400 434
6.700% due 10/15/07 100 94
United Air Lines
6.750% due 12/01/97 11,400 11,435
10.670% due 05/01/04 2,050 2,351
USX Corp.
6.375% due 07/15/98 16,200 16,135
9.800% due 07/01/01 300 328
Vons
6.625% due 05/15/98 10,001 10,026
W.R. Grace & Co.
6.880% due 06/23/97 5,000 5,012
Wal-Mart Stores
9.100% due 07/15/00 100 106
8.625% due 04/01/01 1,050 1,109
World Color Press, Inc.
9.125% due 03/15/03 5,000 5,025
Xerox Corp.
7.200% due 04/01/16 300 285
691,143
Utilities - 4.1%
AES Corp.
9.750% due 06/15/00 2,250 2,337
10.250% due 07/15/06 4,500 4,916
Arkansas Power & Light
10.370% due 12/22/97 3,000 3,057
Bell Atlantic Financial
6.625% due 11/30/97 400 401
California Energy
10.250% due 01/15/04 (d) 12,985 14,154
Calpine Corp.
9.250% due 02/01/04 4,150 4,223
Carolina Power & Light
6.375% due 10/01/97 50 50
5.375% due 07/01/98 100 99
Central Maine Power Co.
6.250% due 11/01/98 1,000 985
Central Power & Light
6.000% due 10/01/97 850 850
Chesapeake & Potomac Telephone
8.000% due 10/15/29 1,125 1,144
Chesapeake Energy Corp.
12.000% due 03/01/01 7,000 7,648
Cincinnati Bell Inc.
6.700% due 12/15/97 1,000 1,003
Cleveland Electric Illuminating Co.
9.375% due 03/01/17 3,000 3,067
CMS Energy
9.500% due 10/01/97 (d) 31,600 31,979
9.875% due 10/01/99 (d) 4,200 4,333
Commonwealth Edison
6.500% due 07/15/97 5,375 5,379
8.125% due 01/15/07 10,000 9,840
9.875% due 06/15/20 11,700 12,898
Connecticut Light & Power
6.500% due 01/01/98 1,000 1,000
7.250% due 07/01/99 6,000 5,951
Consolidated Edison
7.600% due 01/15/00 100 102
Consolidated Natural Gas Co.
5.875% due 10/01/98 500 496
Consumers Energy
8.750% due 02/15/98 5,550 5,640
CTC Mansfield Funding
10.250% due 03/30/03 16,074 16,476
11.125% due 09/30/16 101,315 108,154
Duke Power Co.
8.000% due 11/01/99 40 41
Eastern Edison Co.
7.780% due 07/30/02 9,000 9,147
<PAGE>
El Paso Electric Co.
7.250% due 02/01/99 10,956 10,908
First PV Funding
10.150% due 01/15/16 6,894 7,351
Georgia Power
7.000% due 10/01/00 5,000 4,920
GTE Corp.
8.850% due 03/01/98 200 204
10.750% due 09/15/17 300 321
Gulf States Utilities
7.250% due 03/01/99 6,200 6,178
Hydro Quebec
5.594% due 04/15/99 (d) 10,000 9,978
9.400% due 02/01/21 500 574
9.500% due 11/15/30 2,370 2,786
Long Island Lighting Co.
6.250% due 07/15/01 7,000 6,711
8.500% due 05/15/06 6,750 6,893
9.750% due 05/01/21 28,818 29,556
9.625% due 07/01/24 16,400 16,926
MCI Communications
6.250% due 03/23/99 600 595
New England Power
6.140% due 02/02/98 500 499
6.100% due 02/04/98 1,000 999
New Jersey Bell Telephone
7.850% due 11/15/29 70 74
New Orleans Public Service
8.670% due 04/01/05 2,230 2,271
New York Telephone Co.
6.250% due 02/15/04 150 142
Niagara Mohawk Power
0.000% due 06/01/04 25,000 25,000
0.000% due 01/01/18 43,021 43,021
North Atlantic Energy
9.050% due 06/01/02 5,202 5,146
Northern Illinois Gas Co.
6.450% due 08/01/01 1,450 1,423
Oklahoma Gas & Electric
6.375% due 01/01/98 100 100
Pacific Gas & Electric
5.375% due 08/01/98 500 493
7.670% due 12/15/98 208 211
6.750% due 12/01/00 709 702
Pacific Northwest Bell
4.375% due 09/01/02 50 44
Pennsylvania Power & Light
5.500% due 04/01/98 250 248
Public Service Electric & Gas
6.875% due 06/01/97 1,200 1,202
8.750% due 07/01/99 40 42
Public Service of New Hampshire
9.170% due 05/15/98 16,000 16,301
Questar Pipeline
9.375% due 06/01/21 200 215
Southern California Edison
6.125% due 07/15/97 500 500
5.875% due 02/01/98 343 342
5.450% due 06/15/98 400 395
Southwestern Bell Telephone Co.
5.550% due 03/10/98 1,000 994
6.125% due 03/01/00 50 49
<PAGE>
System Energy Resources
6.000% due 04/01/98 801 793
Texas-New Mexico Power
10.750% due 09/15/03 4,950 5,216
Texas Gas Transmission Corp.
9.625% due 07/15/97 5,400 5,453
Texas Utilities
5.891% due 05/01/99 (d) 32,125 32,161
Toledo Edison Co.
6.125% due 08/01/97 200 200
8.180% due 07/30/02 1,400 1,375
8.700% due 09/01/02 10,000 9,719
7.850% due 03/31/03 7,000 6,732
7.875% due 08/01/04 500 494
Trident NGL, Inc.
10.250% due 04/15/03 7,500 8,100
Triton Energy
0.000% due 11/01/97 6,800 6,562
Tucson Electric Power
8.500% due 10/01/09 1,000 953
U.S. West Communications, Inc.
6.625% due 09/15/05 300 287
Virginia Electric & Power Co.
9.375% due 06/01/98 500 515
6.250% due 08/01/98 200 199
Wilmington Trust Co. - Tucson Electric
10.732% due 01/01/13 991 974
539,417
Total Corporates Bonds and Notes 2,198,169
(Cost $2,190,755)
U.S. Treasury Obligations - 7.4%
U.S. Treasury Bonds
12.375% due 05/15/04 1,000 1,303
13.875% due 05/15/11 210 305
11.250% due 02/15/15 648,800 912,173
10.625% due 08/15/15 400 539
<PAGE>
U.S. Treasury Notes
6.000% due 09/30/98 48,600 48,387
6.750% due 06/30/99 500 503
7.750% due 11/30/99 2,000 2,057
8.500% due 02/15/00 900 944
6.750% due 04/30/00 2,800 2,810
6.250% due 05/31/00 500 495
5.875% due 06/30/00 500 489
6.125% due 09/30/00 200 197
6.375% due 03/31/01 300 296
6.500% due 08/31/01 250 248
5.750% due 08/15/03 1,350 1,274
5.875% due 02/15/04 2,850 2,696
7.500% due 02/15/05 200 207
6.500% due 05/15/05 1,000 973
U.S. Treasury Strips
0.000% due 05/15/03 9 6
Total U.S. Treasury Obligations 975,902
(Cost $1,010,545)
U.S. Government Agencies - 1.2%
A.I.D. Housing Guarantee - Peru
9.980% due 08/01/08 1,265 1,367
Federal Farm Credit Bank
7.240% due 06/21/06 2,500 2,496
Federal Home Loan Bank
6.520% due 04/24/97 250 250
9.200% due 08/25/97 150 152
6.320% due 12/04/97 1,500 1,504
6.560% due 04/04/01 100 99
Federal Home Loan Mortgage Corp.
6.610% due 08/07/00 1,000 993
6.565% due 11/04/02 2,000 1,953
6.170% due 12/11/02 2,000 1,920
7.900% due 04/27/05 300 299
7.250% due 06/08/05 30 29
6.750% due 08/01/05 2,400 2,353
7.120% due 09/30/05 100 97
6.780% due 12/07/05 100 95
7.275% due 12/11/06 3,000 2,910
Federal National Mortgage Assn.
0.000% due 04/10/97 869 868
8.700% due 06/10/99 30 31
9.050% due 04/10/00 255 271
5.880% due 07/17/00 1,200 1,172
6.110% due 09/20/00 40 39
8.500% due 02/01/05 150 155
7.375% due 03/28/05 40 41
7.000% due 12/05/05 250 241
7.040% due 12/09/05 100 98
7.150% due 03/09/11 2,125 2,052
Government Trust Certificate - Greece
8.000% due 05/15/98 67 68
Government Trust Certificate - Israel
0.000% due 05/15/10 7,300 2,824
Student Loan Marketing Assn.
5.540% due 02/17/98 (d) 100 100
7.000% due 03/03/98 30 30
6.612% due 02/20/00 (d) 134,700 133,287
7.500% due 03/08/00 30 31
7.200% due 11/09/00 35 36
Tennessee Valley Authority
0.000% due 05/15/97 1,242 1,234
0.000% due 04/15/42 (d) 855 259
Total U.S. Government Agencies 159,354
(Cost $160,926)
<PAGE>
Mortgage-Backed Securities - 55.9%
Federal Home Loan Mortgage Corporation - 5.7%
5.000% due 07/15/02 2,072 2,067
5.250% due 12/01/98 19 18
5.500% due 07/01/00-03/01/10(g) 99 98
6.000% due 12/01/98 -01/01/01(g) 816 799
6.000% due 01/01/11-04/01/16 (g) 659 616
6.000% due 01/01/25-04/01/26 (g) 3,968 3,589
6.375% due 04/01/17 (d) 71 73
6.500% due 04/01/08-03/01/11 (g) 1,412 1,368
6.500% due 09/01/25-05/13/27 (g) 287,638 267,895
6.775% due 11/01/03 70 69
7.000% due 05/01/00-12/01/07 (g) 2,250 2,255
7.000% due 06/01/10-01/01/14 (g) 1,639 1,612
7.000% due 11/01/25-03/01/26 (g) 1,148 1,103
7.125% due 06/01/17 (d) 43 45
7.283% due 07/(d)23 (d) 4,857 4,975
7.339% due 05/(d)23 (d) 3,430 3,559
7.424% due 07/(d)22 (d) 2,994 3,107
7.500% due 05/01/99-05/01/08 (g) 662 662
7.500% due 05/01/11-02/01/17 (g) 2,693 2,697
7.500% due 04/01/23-01/01/27 (g) 13,819 13,688
7.517% due 06/01/24 (d) 23,019 23,904
7.518% due 09/01/23 (d) 39,252 40,332
7.591% due 08/01/23 (d) 22,587 23,322
7.612% due 07/01/23 (d) 1,821 1,876
7.625% due 01/01/19 (d) 21 21
7.641% due 04/01/24 (d) 4,235 4,400
7.645% due 05/01/23 (d) 6,771 7,034
7.673% due 09/01/23 (d) 4,537 4,652
7.710% due 06/21/04 400 403
7.719% due 04/01/23 (d) 1,464 1,521
7.742% due 11/(d)23 (d) 6,271 6,525
7.750% due 04/01/07 65 65
7.800% due 08/01/23 (d) 36 38
7.820% due 04/01/24 (d) 20,607 21,426
7.838% due 08/01/23 (d) 4,023 4,156
7.842% due 06/01/28 (d) 9,776 10,165
7.870% due 06/01/24 (d) 4,107 4,237
7.879% due 11/01/23 (d) 2,298 2,375
7.882% due 08/01/24 (d) 1,285 1,336
7.884% due 04/01/24 (d) 2,301 2,392
7.889% due 11/01/23 (d) 1,313 1,351
7.894% due 07/01/24 (d) 6,965 7,243
7.906% due 08/01/23 (d) 2,019 2,086
7.973% due 09/01/23 (d) 9,606 9,913
7.992% due 04/01/29 (d) 5,741 5,973
8.016% due 10/01/23 (d) 4,489 4,672
8.021% due 10/01/23 (d) 6,981 7,263
8.025% due 11/01/23 (d) 2,031 2,110
8.028% due 10/01/23 (d) 7,167 7,459
8.041% due 10/01/23 (d) 1,418 1,457
8.045% due 01/01/24 (d) 1,229 1,279
8.070% due 10/01/23 (d) 2,571 2,674
8.097% due 09/01/23 (d) 9,198 9,574
8.104% due 01/01/24 (d) 1,580 1,628
8.000% due 10/01/07-05/01/17 (g) 4,052 4,115
8.000% due 03/01/25-06/01/26 (g) 45,574 46,089
8.250% due 08/01/07-12/01/09 (g) 278 285
8.500% due 09/01/01-06/01/09 (g) 1,305 1,347
8.500% due 08/01/14-06/01/22 (g) 1,030 1,065
8.500% due 12/01/24-04/10/27 (g) 146,263 150,383
8.750% due 02/01/01-09/01/10 (g) 671 693
9.000% due 01/01/02-08/01/11 (g) 1,035 1,083
9.000% due 06/01/12-05/01/17 (g) 545 573
9.250% due 06/01/09-08/01/09 (g) 154 164
9.500% due 08/01/01-12/01/05 (g) 1,885 1,960
9.500% due 03/01/16-06/01/21 (g) 2,274 2,444
10.000% due 06/01/04-12/01/05 (g) 1,329 1,399
10.250% due 04/01/09-05/01/09 (g) 2,758 2,976
11.000% due 12/01/99-11/01/09 (g) 40 45
11.000% due 04/01/10-07/01/19 (g) 1,453 1,612
11.250% due 10/01/09-09/01/15 (g) 212 234
11.500% due 03/01/00-05/01/00 (g) 37 39
12.500% due 07/01/99 9 9
13.250% due 10/01/13 85 99
14.000% due 04/01/16 40 46
15.500% due 08/01/11-11/01/11 (g) 25 29
16.250% due 05/01/11-11/01/11 (g) 19 22
751,868
<PAGE>
Federal Housing Administration - 0.8%
5.250% due 02/01/03 305 287
7.125% due 02/01/34 4,511 4,296
7.211% due 12/01/21 3,760 3,754
7.317% due 11/01/19 12,253 11,923
7.375% due 03/01/19-01/01/24 (g) 17,825 17,193
7.399% due 02/01/21 2,776 2,558
7.430% due 12/01/16-10/01/23 (g) 66,697 64,814
7.650% due 11/01/18 183 175
9.680% due 05/01/24 1,665 1,793
106,793
Federal National Mortgage Association - 5.8%
5.250% due 09/25/97 5 5
6.000% due 11/(g)03-03/01/11 (g) 4,920 4,785
6.000% due 03/01/24 2,445 2,222
6.073% due 11/01/18 (d) 51 51
6.083% due 09/01/24 (d) 5,451 5,414
6.085% due 11/01/23-05/01/29(g) 12,753 12,584
6.086% due 10/01/27 (d) 701 692
6.087% due 10/01/28 (d) 64,162 63,304
6.090% due 01/(d)(g)05/01/18 2,058 2,045
6.092% due 10/(d)(g)05/01/28 5,002 4,937
6.124% due 04/23/27 17,350 17,111
6.150% due 12/14/01 100 97
6.275% due 05/01/26 (d) 7,685 7,947
6.500% due 10/01/05-04/01/08 (g) 471 465
6.500% due 12/01/25-03/01/26 (g) 97,540 90,933
6.750% due 08/01/03 836 830
6.834% due 07/01/03 70 68
6.900% due 05/25/23 125 97
6.902% due 11/01/25 (d) 17,363 17,653
6.950% due 03/25/26 200 196
7.000% due 05/25/99-03/01/08 (g) 2,876 2,859
7.000% due 01/01/10-12/25/19 (g) 3,257 3,232
7.000% due 01/25/20-11/01/26 (g) 39,687 37,690
7.250% due 05/01/02-01/01/23 (g) 11,724 11,427
7.067% due 09/01/22 (d) 4,011 4,081
7.267% due 09/01/25 (d) 8,980 9,116
7.279% due 09/01/22 (d) 4,652 4,748
7.321% due 06/01/24 (d) 17,184 17,818
7.440% due 03/01/26 (d) 25,563 26,670
7.451% due 11/01/25 (d) 7,156 7,371
7.457% due 05/01/24 (d) 7,949 8,323
7.465% due 07/01/24 (d) 30,722 31,832
7.500% due 08/01/03-01/01/11 (g) 7,979 8,046
7.500% due 07/01/16-09/01/25 (g) 102,319 101,291
7.601% due 02/01/26 (d) 3,183 3,309
7.615% due 01/01/26 (d) 7,314 7,600
7.690% due 01/01/24 (d) 1,741 1,817
7.728% due 03/01/25 (d) 14,183 14,573
7.736% due 11/01/25 (d) 10,023 10,299
7.737% due 09/01/24 (d) 5,199 5,387
7.750% due 06/01/09 245 245
7.764% due 06/01/24 (d) 3,809 3,985
7.781% due 03/01/33 (d) 40,264 41,492
7.823% due 08/01/23 (d) 3,453 3,609
7.825% due 10/01/23 (d) 11,290 11,746
7.828% due 01/01/24 (d) 1,888 1,963
7.889% due 12/01/23 (d) 3,283 3,403
7.921% due 11/01/23-01/01/24 (d)(g) 3,960 4,124
7.939% due 12/01/24 (d) 5,204 5,470
7.976% due 01/01/24 (d) 8,201 8,540
7.990% due 10/01/23 (d) 1,291 1,348
7.998% due 12/01/23 (d) 10,661 11,138
8.000% due 09/01/01-02/01/09 (g) 4,194 4,286
8.000% due 04/01/18-12/01/26 (g) 32,105 31,888
8.018% due 09/01/23 (d) 8,546 8,875
8.075% due 11/01/23 (d) 1,997 2,068
8.099% due 12/01/23 (d) 5,488 5,706
8.250% due 10/01/08-02/01/17 (g) 1,136 1,165
8.500% due 07/01/99-06/01/09 (g) 5,530 5,708
8.500% due 12/01/09-09/01/18 (g) 1,792 1,864
8.500% due 10/01/21-05/01/25 (g) 47,134 48,426
8.750% due 01/25/07 796 800
9.000% due 01/01/99-11/01/06 (g) 2,561 2,665
9.500% due 05/01/15-07/01/22 (g) 746 793
9.750% due 11/01/08 93 100
10.500% due 12/01/16-04/01/22 (g) 1,277 1,391
12.000% due 05/01/16 26 29
13.000% due 09/01/13 72 83
13.250% due 09/01/11 25 28
<PAGE>
14.500% due 11/01/11-01/01/13 (g) 85 100
14.750% due 08/01/12-11/01/12 (g) 396 459
15.500% due 10/01/12-12/01/12 (g) 42 51
15.750% due 12/01/11-08/01/12 (g) 217 253
16.000% due 09/01/12 260 324
763,050
Government National Mortgage Association - 26.2%
5.000% due 01/20/24-05/20/24 (d)(g) 95,776 97,568
5.500% due 01/20/26-02/20/26 (d)(g) 34,781 35,137
5.650% due 10/15/12 14 12
6.000% due 10/15/08 305 290
6.000% due 10/15/23-11/20/26 (g) 227,794 208,856
6.000% due 07/20/26-09/20/26 (d)(g) 24,435 24,284
6.500% due 10/15/08 276 269
6.500% due 03/20/22-02/20/26(d)(g) 102,157 104,024
6.500% due 12/2023-04/17/27 (g) 1,154,056 1,074,992
6.875% due 12/20/22-12/20/25 (d)(g) 309,038 315,145
7.000% due 08/20/25-05/20/26 (d)(g) 37,887 38,566
7.000% due 10/15/08-05/19/27 (g) 396,792 380,036
7.125% due 06/20/21-08/20/25 (d)(g) 936,430 958,868
7.500% due 08/15/05-12/15/09 (g) 3,853 3,892
7.500% due 02/15/22-07/15/26 (g) 35,622 35,193
7.625% due 04/20/23 (d) 1,050 1,082
8.000% due 08/15/05-09/15/08 (g) 1,407 1,445
8.000% due 06/15/16-12/15/25 (g) 60,131 61,063
8.000% due 06/15/26-04/17/27 (g) 8,293 8,337
8.250% due 08/15/16-07/15/08 (g) 737 764
8.500% due 06/15/01-07/15/08 (g) 319 331
8.500% due 08/15/16-11/15/25 (g) 32,411 33,380
8.500% due 12/15/26-07/21/27 (g) 44,694 45,568
8.750% due 03/15/07-07/15/07 (g) 192 200
9.000% due 09/15/01-05/15/09 (g) 1,011 1,059
9.000% due 05/15/16-07/20/22 (g) 8,666 9,209
9.250% due 10/15/01-03/15/06 (g) 576 599
9.500% due 04/15/01-11/15/09 (g) 614 652
9.500% due 04/15/16-08/15/23 (g) 9,476 10,253
9.750% due 08/15/97-07/15/04 (g) 297 312
9.750% due 09/15/17-01/15/21 (g) 146 158
10.000% due 06/20/01-11/15/09 (g) 198 212
10.000% due 01/15/15-03/20/20 (g) 5,871 6,470
10.250% due 10/15/98-05/15/01 (g) 277 285
10.500% due 06/15/04 162 174
10.750% due 08/15/98-09/15/98 (g) 26 26
11.000% due 05/15/04-06/15/13 (g) 111 120
11.250% due 03/15/01 11 11
11.250% due 12/20/15 72 80
11.500% due 04/15/13-05/15/13 (g) 17 19
12.000% due 03/20/99-02/15/00 (g) 14 15
12.000% due 01/15/13-03/15/15 (g) 104 117
12.500% due 01/15/11 1 2
13.000% due 12/15/12-10/15/14 (g) 77 90
13.250% due 10/20/14 48 54
13.500% due 11/15/12-12/15/12 (g) 16 19
14.500% due 09/15/12 31 37
15.000% due 09/15/12-10/15/12 (g) 21 25
16.000% due 01/15/12-04/15/12 (g) 14 17
17.000% due 11/15/11-12/15/11 (g) 136 166
3,459,483
Collateralized Mortgage Obligations - 15.2%
AFC Home Equity Loan Trust
7.348% due 10/25/26 (d) 17,045 17,194
6.550% due 01/25/27 15,584 15,563
American Southwest Financial
12.250% due 11/01/14 82 92
12.500% due 04/01/15 941 1,046
12.000% due 05/01/15 1,500 1,683
11.400% due 09/01/15 1,231 1,285
<PAGE>
Bear Stearns
9.200% due 11/01/18 52 53
9.500% due 06/25/23 1,376 1,405
6.406% due 10/15/23 (d) 10,144 10,061
10.000% due 08/25/24 15,018 16,828
7.000% due 03/25/27 7,000 6,459
Capstead
8.400% due 01/25/21 5,063 5,076
8.750% due 07/25/21 10,000 9,806
Centex Acceptance Corp.
11.000% due 11/01/15 322 340
Chase Mortgage Financial Corp.
8.250% due 10/25/10 4,794 4,831
9.500% due 04/25/24 1,316 1,321
8.000% due 06/25/24 310 312
7.500% due 10/25/24 68 68
Citicorp Mortgage
8.500% due 04/01/17 357 356
8.000% due 07/25/18 116 117
9.500% due 01/01/19 4,365 4,410
9.500% due 09/25/19 250 250
9.500% due 09/25/20 1,885 1,933
7.750% due 04/25/21 369 367
6.000% due 08/25/21 584 575
7.463% due 10/25/22 (d) 27,777 28,402
CMC Securities Corp.
7.067% due 09/25/23 (d) 18,984 19,227
7.627% due 04/25/25 (d) 620 630
CMO Trust
10.200% due 02/01/16 777 821
8.000% due 01/01/17 326 327
8.000% due 09/20/21 7,531 7,522
Collateralized Mortgage Securities Corp.
11.875% due 04/01/15 2,075 2,213
11.450% due 09/01/15 68 73
11.450% due 11/01/15 392 394
8.750% due 04/20/19 1,213 1,258
Countrywide
7.634% due 07/25/24 (d) 19,026 19,240
Donaldson, Lufkin & Jenrette
7.393% due 08/01/21 (d) 8,567 8,586
7.928% due 12/25/22 (d) 6,966 7,149
7.708% due 03/25/24 (d) 2,529 2,596
6.500% due 04/25/24 35 35
7.835% due 05/25/24 (d) 549 559
Drexel Mortgage Funding
9.500% due 11/20/17 2,242 2,326
8.600% due 03/01/18 925 935
9.500% due 08/01/19 29 30
FBC Mortgage Securities Trust
6.025% due 01/25/17 (d) 2 2
<PAGE>
Federal Home Loan Mortgage Corp.
6.500% due 07/15/02 4,361 4,370
4.750% due 10/15/02 380 378
5.000% due 03/15/03 5,203 5,190
5.250% due 03/15/03 8,845 8,829
5.000% due 04/15/03 5,092 5,077
7.000% due 10/15/03 6,458 6,473
5.450% due 03/15/04 15,329 15,248
8.750% due 10/15/05 31 31
10.750% due 11/30/05 1,013 1,045
6.500% due 07/15/06 1,075 1,029
6.500% due 08/15/06 710 695
6.500% due 05/05/08 1,000 957
9.000% due 09/15/08 43 44
10.250% due 03/15/09 28 28
5.000% due 02/15/11 8,816 8,790
5.500% due 11/15/11 8,997 8,981
4.875% due 12/15/11 6,702 6,674
5.150% due 12/25/11 16,250 16,032
4.750% due 03/15/12 168 168
5.000% due 12/15/12 2,943 2,937
8.500% due 08/15/13 2,000 2,093
6.050% due 09/15/13 6,803 6,781
8.500% due 09/15/13 5,941 6,158
5.500% due 12/15/13 4,320 4,307
11.000% due 11/30/15 10,392 11,275
6.210% due 08/15/17 345 340
7.640% due 10/25/17 9,099 9,215
6.350% due 03/25/18 200 194
5.250% due 05/15/18 1,685 1,643
9.500% due 01/15/19 777 789
6.500% due 05/15/19 615 597
8.500% due 10/15/19 1,028 1,040
9.000% due 11/15/19 4,130 4,191
10.000% due 11/15/19 250 267
7.000% due 02/15/20 1,901 1,902
8.500% due 03/15/20 2,233 2,262
9.125% due 06/15/20 3,621 3,717
5.750% due 08/15/20 300 283
8.500% due 09/15/20 19,792 20,202
9.000% due 09/15/20 165 171
5.500% due 10/15/20 200 178
8.750% due 10/15/20 500 512
8.900% due 11/15/20 28,865 29,577
9.500% due 11/15/20 11,947 12,507
6.000% due 12/15/20 400 371
8.750% due 12/15/20 1,265 1,296
9.000% due 12/15/20 7,023 7,329
8.500% due 06/15/21 49,579 50,746
6.950% due 07/15/21 700 670
7.000% due 07/15/21 4,000 3,899
8.000% due 07/15/21 8,905 8,827
9.000% due 07/15/21 3,967 4,192
9.500% due 07/15/21 6,418 6,630
6.200% due 08/15/21 1,500 1,457
6.950% due 08/15/21 185 175
8.000% due 08/15/21 23,472 23,333
6.500% due 09/15/21 2,500 2,383
9.000% due 11/15/21 1,099 1,111
8.000% due 12/15/21 13,831 13,773
6.850% due 01/15/22 700 669
8.250% due 06/15/22 5,000 5,072
7.000% due 07/15/22 416 349
8.500% due 10/15/22 18,125 18,623
7.000% due 07/15/23 212 174
7.170% due 10/25/23 (d) 35,068 36,275
6.500% due 02/15/24 64 61
8.000% due 09/15/24 16,250 16,594
7.404% due 10/01/26 (d) 10,591 10,990
Federal National Mortgage Assn.
9.100% due 02/25/02 7,268 7,337
5.000% due 02/25/03 9,851 9,812
5.500% due 12/25/03 5,000 4,976
5.750% due 12/25/03 175 174
5.650% due 04/25/05 200 195
6.000% due 07/25/07 300 286
6.250% due 07/25/07 100 97
7.818% due 08/25/07 (d) 126 100
7.000% due 02/25/08 1,095 1,031
10.500% due 08/25/08 7,146 8,293
6.750% due 11/25/10 1,275 1,227
5.000% due 05/25/12 20,270 20,181
4.900% due 12/25/12 5,250 5,224
6.400% due 09/25/14 773 767
8.500% due 10/25/14 50 50
10.000% due 12/25/14 1,512 1,560
<PAGE>
7.000% due 04/25/15 2,328 2,331
6.000% due 11/25/15 19,900 19,804
7.500% due 08/25/16 2,071 2,071
9.670% due 01/25/17 690 708
9.200% due 12/25/17 1,609 1,652
9.300% due 05/25/18 2,282 2,391
6.206% due 06/25/18 (d) 10 10
9.500% due 06/25/18 1,143 1,205
5.500% due 07/25/18 220 214
8.500% due 07/25/18 217 217
7.000% due 08/25/18 15,375 15,365
7.750% due 10/25/18 808 809
9.500% due 11/25/18 12,838 13,835
6.625% due 06/25/19 47 47
9.500% due 06/25/19 4,623 4,865
8.000% due 10/25/19 18,238 18,432
7.500% due 12/25/19 200 198
9.000% due 12/25/19 19,392 19,907
7.750% due 05/25/20 8,000 7,954
8.000% due 07/25/20 182 184
9.000% due 09/25/20 7,164 7,474
8.000% due 12/25/20 20,210 20,412
8.750% due 01/25/21 10,140 10,349
7.500% due 02/25/21 19,017 18,993
7.500% due 03/25/21 20,919 20,429
7.250% due 04/25/21 8,960 8,612
7.500% due 06/25/21 320 320
8.000% due 07/25/21 26,239 26,075
8.500% due 09/25/21 15,822 16,099
8.000% due 10/25/21 22,430 22,362
6.000% due 12/25/21 200 188
8.000% due 01/25/22 21,700 21,797
8.000% due 03/25/22 565 566
7.000% due 04/25/22 17,091 15,690
7.000% due 07/25/22 9,217 8,739
8.000% due 07/25/22 24,518 23,514
6.500% due 10/25/22 3,226 2,563
7.800% due 10/25/22 5,235 5,057
7.000% due 06/25/23 3,808 2,970
6.000% due 08/25/23 5,137 4,503
6.500% due 08/25/23 242 231
6.750% due 10/25/23 472 382
6.500% due 11/25/23 170 152
First Boston Corp.
8.000% due 12/01/00 112 111
9.450% due 08/20/17 51 51
7.500% due 04/25/21 535 534
First Commonwealth Savings & Loan
10.375% due 04/01/05 23 24
General Electric Capital Mortgage
8.000% due 07/25/23 12,979 12,970
6.500% due 09/25/23 45 37
6.500% due 12/25/23 2,132 2,122
6.500% due 02/25/24 28 27
6.500% due 03/25/24 12,048 9,881
8.000% due 06/25/25 14,336 14,477
Glendale Federal Savings & Loan
7.264% due 03/01/28 (d) 11,450 11,575
<PAGE>
Greenwich
7.196% due 04/25/22 (d) 3,078 3,100
7.081% due 07/25/22 (d) 14,364 14,526
7.076% due 10/25/22 (d) 391 393
7.193% due 04/25/23 (d) 4,775 4,841
7.657% due 04/25/24 (d) 7,203 7,279
8.190% due 06/25/24 (d) 10,356 10,540
8.570% due 08/25/24 (d) 14,333 14,588
8.652% due 11/25/24 (d) 6,593 6,706
Imperial CMB Trust
6.008% due 09/25/26 46,161 46,147
Independent National Mortgage Corp.
9.000% due 12/25/19 8,389 8,427
6.650% due 10/25/24 2,723 2,412
7.946% due 11/25/24 (d) 15,309 15,697
7.069% due 07/25/25 (d) 41,664 42,341
7.740% due 07/25/25 (d) 46,783 47,719
International Mortgage Acceptance Corp.
12.250% due 03/01/14 695 755
J.P. Morgan & Co.
9.000% due 10/20/20 12,978 13,602
Kidder Peabody
8.390% due 05/20/18 (d) 493 499
8.043% due 03/25/24 (d) 27,801 28,218
8.010% due 09/25/24 (d) 20,000 20,306
Marine Midland
8.000% due 04/25/23 95 96
8.000% due 10/25/23 350 350
Merrill Lynch Mortgage
9.470% due 04/27/18 23 23
6.890% due 06/15/21 (d) 10,320 10,268
7.153% due 06/(d)21 (d) 9,686 9,710
8.210% due 06/15/21 2,163 2,187
8.093% due 06/25/22 (d) 12,336 12,382
Morgan Stanley Mortgage
8.150% due 07/20/21 17 17
Nomura Asset Securities Corp.
7.922% due 05/25/24 15,854 16,161
Norwest Mortgage
12.500% due 02/01/14 1,103 1,178
12.250% due 04/01/14 132 140
PaineWebber Mortgage
6.000% due 04/25/09 11,951 10,545
7.000% due 02/25/24 1,953 1,953
Prudential Bache
6.071% due 09/01/18 620 614
9.000% due 01/01/19 540 545
8.400% due 03/20/21 4,957 5,043
Prudential Home
7.000% due 04/25/99 117 117
8.000% due 06/25/22 19,408 18,875
6.900% due 03/25/23 914 911
7.000% due 04/25/23 5,203 5,187
8.447% due 11/25/23 (d) 16,599 17,035
6.000% due 05/25/24 33 33
7.750% due 10/25/24 8,000 8,080
7.500% due 06/25/25 11,716 11,766
PSB Financial Corp.
11.050% due 12/01/15 1,280 1,362
Residential Asset Securities Corp.
8.000% due 10/25/24 17,816 17,753
5.675% due 10/25/27 22,041 22,061
<PAGE>
Residential Funding
8.081% due 02/25/07 139 140
7.000% due 08/25/08 22,202 22,007
6.500% due 09/25/08 7,000 6,328
8.500% due 05/25/17 195 198
9.000% due 01/01/20 1,837 1,878
8.000% due 01/25/23 10,000 10,017
7.250% due 07/25/23 115 115
10.000% due 09/25/23 2,510 2,675
7.750% due 07/25/24 14 15
7.500% due 09/25/25 18,183 17,490
Resolution Trust Corp.
5.967% due 01/25/21 1,350 1,295
8.718% due 08/25/21 8,000 8,220
8.719% due 08/25/21 154 154
8.722% due 08/25/21 13,329 13,376
6.105% due 10/25/21 500 492
8.139% due 10/25/21 (d) 344 347
8.625% due 10/25/21 300 304
7.478% due 01/25/22 (d) 3,605 3,669
7.742% due 03/25/22 (d) 6,691 6,747
8.517% due 05/25/22 (d) 3,793 3,854
6.888% due 06/25/23 (d) 7,872 7,900
7.500% due 08/25/23 421 421
9.450% due 05/25/24 19,693 20,090
10.648% due 05/25/24 (d) 5,368 5,464
8.150% due 06/25/24 30 30
6.438% due 07/25/24 (d) 4,963 4,977
7.100% due 12/25/24 1,500 1,481
7.750% due 03/25/25 5,000 5,024
8.750% due 05/25/26 59 60
7.361% due 07/25/28 (d) 14,000 14,180
Ryan Mortgage Acceptance Corp.
9.450% due 10/01/16 209 218
Ryland Acceptance Corp.
8.650% due 05/15/00 4,743 4,706
7.065% due 03/25/22 (d) 6,326 6,344
7.516% due 07/25/22 (d) 42,000 42,643
8.068% due 08/25/22 (d) 4,751 4,838
8.000% due 09/25/22 5,147 5,166
8.200% due 09/25/22 100 103
7.360% due 08/(d)29 11,067 11,236
6.868% due 10/(d)31 17,783 17,789
14.000% due 11/25/31 2,343 2,594
Ryland Mortgage Securities Corp.
7.500% due 08/25/24 93 94
Salomon Mortgage
7.331% due 11/25/22 (d) 2,032 2,048
8.267% due 07/01/24 (d) 20,933 21,463
7.000% due 07/25/24 5 5
<PAGE>
Santa Barbara Savings
9.500% due 11/20/18 6,110 6,141
Saxon Mortgage
7.701% due 09/25/22 (d) 4,286 4,340
7.721% due 08/25/23 (d) 61,854 62,801
8.172% due 09/25/24 (d) 16,052 16,629
Sears Mortgage
6.763% due 06/25/22 (d) 1,222 1,223
7.098% due 09/25/22 (d) 4,359 4,428
8.650% due 05/25/32 (d) 18,527 18,718
Structured Asset Securities Corp.
5.944% due 02/25/28 24,500 23,421
UBS Mortgage
9.000% due 11/27/19 59 59
Vendee Mortgage
7.000% due 02/15/00 6,231 6,232
7.750% due 03/15/16 600 600
7.750% due 05/15/18 550 542
0.542% due 06/15/23 236,741 5,497
Western Federal Savings & Loan
6.973% due 06/25/21 (d) 13,594 13,726
1,999,767
Other Mortgage-Backed Securities - 2.0%
Bank of America
8.375% due 05/01/07 4 4
9.000% due 03/01/08 111 110
Daiwa Mortgage
7.438% due 09/25/06 (d) 2,110 2,126
First Interstate Bancorp
9.125% due 01/01/09 20 21
General Electric Credit Corp.
8.000% due 03/01/02 158 161
Georgia Federal Mortgage
10.500% due 11/01/14 2,306 2,386
German American Capital Corp.
8.360% due 09/30/02 4,944 5,003
6.611% due 07/01/18 (d) 9,940 9,800
Great Western Savings & Loan
5.940% due 09/25/17 (d) 238 230
Guardian
6.823% due 12/25/18 (d) 632 543
Home Savings of America
5.770% due 05/25/27 (d) 4,451 4,284
Imperial Savings & Loan
10.000% due 09/01/16 330 346
8.240% due 01/25/17 133 133
9.014% due 07/25/17 484 486
LTC Commercial Corp.
7.100% due 11/28/12 4,647 4,653
MDC Mortgage Funding
8.568% due 01/25/25 (d) 5,654 5,760
Mellon Financial Co.
13.250% due 01/15/99 267 284
Merrill Lynch Mortgage
9.250% due 12/15/09 55 57
Mid-State Trust
8.330% due 04/01/30 35,683 36,793
OSCC Home Equity
6.950% due 05/15/07 139 138
PaineWebber Mortgage
8.249% due 11/25/23 (d) 1,630 1,661
Resolution Trust Corp.
7.767% due 02/25/20 (d) 365 363
6.994% due 09/25/20 (d) 16,710 167
8.454% due 06/25/21 (d) 9,581 9,611
7.570% due 09/25/21 (d) 5,569 5,587
6.750% due 10/25/21 (d) 1,423 1,432
7.261% due 10/25/28 (d) 34,188 34,818
7.343% due 10/25/28 (d) 17,540 17,743
7.500% due 10/25/28 2,398 2,389
7.113% due 05/25/29 (d) 6,484 6,591
7.602% due 05/25/29 (d) 8,252 8,064
7.807% due 05/25/29 (d) 7,638 7,655
Rural Housing
3.330% due 10/01/28 609 554
Ryland Acceptance Corp.
9.000% due 12/01/16 1,046 1,078
11.500% due 12/25/16 262 285
7.580% due 11/28/22 (d) 7,000 7,125
7.837% due 09/25/23 (d) 16,142 16,400
Salomon Mortgage
11.500% due 09/01/15 2,099 2,258
<PAGE>
Saxon Mortgage
12.000% due 02/25/14 1,604 1,746
8.000% due 03/25/22 2,447 2,449
7.789% due 12/25/22 (d) 16,894 17,037
Securitized Asset Sales, Inc.
7.423% due 10/25/22 (d) 6,965 6,858
7.462% due 10/25/23 (d) 9,553 9,681
7.986% due 12/26/23 (d) 9,400 9,550
USGI Capital
8.500% due 11/25/07 12,602 12,527
Western Federal Savings & Loan
6.624% due 11/25/18 (d) 422 417
6.674% due 03/25/19 (d) 3,089 3,081
260,445
Stripped Mortgage-Backed Securities - 0.2%
Federal Home Loan Mortgage Corp. (IO)
6.500% due 12/15/02 58 1
10.038% due 09/15/05 59 7
6.500% due 11/15/06 4,116 379
6.500% due 03/15/07 8,669 635
5.750% due 09/15/07 (d) 16,924 1,339
5.428% due 02/15/08 (d) 1,137 106
11.651% due 01/15/16 72 8
6.500% due 08/15/16 8,596 589
7.000% due 04/15/18 6,485 571
9.993% due 11/15/18 300 57
8.845% due 01/15/21 601 132
9.000% due 05/15/22 298 82
Federal Home Loan Mortgage Corp. (PO)
0.000% due 06/15/21 7,930 7,217
Federal National Mortgage Assn. (IO)
33.862% due 04/25/02 35 1
6.750% due 09/25/04 178 12
7.000% due 06/25/05 48 1
10.458% due 07/25/05 (d) 1,798 229
6.500% due 07/25/06 10,985 889
6.500% due 02/25/07 8,046 774
6.500% due 07/25/07 2,321 207
6.500% due 09/25/07 12,701 1,113
6.500% due 10/25/07 3,856 373
0.100% due 03/25/09 (d) 65,671 1,486
7.000% due 05/25/12 636 10
7.000% due 08/25/15 7,052 554
7.000% due 08/25/16 1,828 146
6.500% due 08/25/20 2,666 674
10.070% due 01/25/21 201 59
9.032% due 08/25/21 3,022 719
0.950% due 11/25/21 (d) 67,555 1,198
6.500% due 01/25/23 8,935 1,266
Federal National Mortgage Assn. (PO) -
0.000% due 09/01/07 1,512 1,076
0.000% due 02/25/21 8,129 6,865
0.000% due 06/25/22 4,808 4,045
0.000% due 08/25/23 508 241
PaineWebber (IO)
13.595% due 08/01/19 362 141
33,202
Total Mortgage-Backed Securities 7,374,608
(Cost $7,426,376)
<PAGE>
Asset-Backed Securities - 2.3%
American Airlines Equipment Trust
10.210% due 01/01/10 6,500 7,628
Associates Manufactured Housing
7.000% due 03/15/27 900 900
Copelco Capital Funding Corp.
6.340% due 07/20/04 105 105
CSXT Trade Receivables
5.050% due 09/25/99 500 491
Delta Air Lines Equipment Trust
9.230% due 07/02/02 15,392 15,988
10.500% due 01/02/07 7,701 8,844
10.570% due 01/02/07 15,881 19,206
9.550% due 01/02/08 7,773 8,282
10.140% due 08/14/12 1,000 1,144
10.000% due 06/05/13 10,828 12,214
Discover Card Trust
7.300% due 05/21/99 33 33
5.797% due 10/16/13 (d) 400 407
EQCC Home Equity Loan Trust
6.100% due 10/15/03 23,720 23,719
First Omni Bank
6.650% due 09/15/03 (d) 1,500 1,491
Ford Motor Credit Corp.
5.500% due 02/15/03 1,300 1,235
Green Tree Financial Group
7.150% due 07/15/27 1,025 1,021
Green Tree Home Improvement Loan Trust
6.100% due 01/15/28 22,960 22,946
IMC Home Equity Loan Trust
7.443% due 07/25/26 (d) 2,298 2,316
MBNA Master Credit Card Trust
6.050% due 11/15/02 245 240
Money Store
6.260% due 06/15/03 30,258 30,220
6.230% due 12/15/08 22,000 21,973
NationsBank Auto Owner Trust
6.375% due 07/15/00 1,700 1,701
NationsBank Corp.
5.850% due 06/15/02 716 714
Newcourt Receivable Asset Trust
6.240% due 12/20/04 62 62
Sears Credit Account Master Trust
6.050% due 01/16/08 500 477
Standard Credit Card Master Trust
6.750% due 06/07/00 290 292
7.250% due 04/07/08 300 300
Student Loan Marketing Assn.
5.815% due 04/25/04 (d) 36,672 36,749
United Air Lines Equipment Trust
9.200% due 03/22/08 4,466 4,690
10.360% due 11/13/12 7,000 8,134
10.020% due 03/22/14 4,500 5,080
10.850% due 07/05/14 34,111 40,872
10.125% due 03/22/15 14,300 16,323
9.060% due 06/17/15 5,000 5,266
9.210% due 01/21/17 2,000 2,137
Total Asset-Backed Securities 303,200
(Cost $298,467)
<PAGE>
Sovereign Issues - 4.8%
Banco Nacional de Obra y Servicios
6.875% due 10/01/98 19,500 19,305
Commonwealth of Canada
5.270% due 04/08/97 300 300
5.370% due 04/09/97 9,200 9,189
5.410% due 04/15/97 44,200 44,107
5.530% due 04/21/97 500 498
5.520% due 04/28/97 30,000 29,876
5.520% due 06/05/97 122,500 121,243
5.310% due 06/09/97 9,000 8,902
Kingdom Of Sweden
5.360% due 06/02/97 5,100 5,050
10.250% due 11/01/15 500 602
Province Of British Columbia
5.500% due 04/23/97 400 399
5.530% due 04/29/97 15,000 14,935
5.300% due 05/06/97 100 99
Province of Newfoundland
9.000% due 06/01/19 500 570
Province of Nova Scotia
9.375% due 07/15/02 1,000 1,096
Province of Ontario
6.125% due 06/28/00 50 49
7.750% due 06/04/02 200 207
7.000% due 08/04/05 1,000 986
Province of Quebec
7.500% due 07/15/02 6,000 6,067
Province of Saskatchewan
9.125% due 02/15/21 3,000 3,440
Republic of Argentina
5.500% due 09/01/97 (d) 500 499
5.627% due 04/01/00 (d) 60,000 27,600
5.375% due 04/01/01 (d) 19,904 19,017
6.750% due 03/31/05 (d) 316,560 282,925
United Mexican States
7.625% due 08/06/01 (d) 38,000 38,700
Total Sovereign Issues 635,661
(Cost $596,471)
Foreign Currency-Denominated Issues (c) (f) - 3.0%
City of Montreal
11.500% due 09/20/00 C$ 7,000 5,919
Commonwealth of Canada
8.500% due 03/01/00 103,860 81,232
6.500% due 06/01/04 1,000 722
4.250% due 12/01/26 (h) 145,404 104,037
Commonwealth of New Zealand
6.500% due 02/15/00 N$ 160,000 107,377
10.000% due 03/15/02 107,500 80,891
8.000% due 04/15/04 7,000 4,868
Petroleos Mexicanos
7.750% due 09/30/98 FF 5,000 924
Reynolds R.J.
6.875% due 11/22/00 DM 9,500 5,905
Total Foreign Currency- 391,875
Denominated Issues
(Cost $395,737)
OTC Interest Rate Caps - 0.0%
3 Month Libor
Strike @ 85.50 Exp. 06/16/97 $ 2,454,000 61
Total OTC Interest Rate Caps 61
(Cost $61)
<PAGE>
Purchased CME Put Options - 0.0%
Eurodollar June Futures
Strike @ 92.25 Exp. 06/16/97 500,000 13
Eurodollar September Futures
Strike @ 91.00 Exp. 09/15/97 2,000,000 50
Eurodollar September Futures
Strike @ 91.75 Exp. 09/15/97 8,650,000 216
Eurodollar September Futures
Strike @ 92.00 Exp. 09/15/97 1,000,000 25
Eurodollar December Futures
Strike @ 91.00 Exp. 12/15/97 1,800,000 45
Total Purchased CME Put Options 349
(Cost $267)
Purchased OTC Call Options - 0.0%
U.S. Treasury Note
6.250% due 05/00
Strike @ 91.875 Exp. 05/08/97 55,500 3,877
U.S. Treasury Note
6.50% due 05/01
Strike @ 92.14 Exp. 04/28/97 60,300 4,041
Total Purchased OTC Call Options 7,918
(Cost $9,058)
Preferred Stock - 0.1%
Shares
Banco Bilbao Vizcaya International
266,217 7,587
California Federal Bank
50,000 5,650
Unocal Capital Trust
402 22
Total Preferred Stocks 13,259
(Cost $12,586)
Short-Term Instruments - 14.5%
Principal Amount (000's)
Discount Notes - 13.0%
Abbott Laboratories
5.280% due 04/02/97 $ 37,000 36,995
5.500% due 04/29/97 58,900 58,648
Ameritech Corp.
5.290% due 04/03/97 1,500 1,500
5.290% due 04/08/97 35,000 34,964
5.280% due 04/11/97 37,000 36,946
5.530% due 04/30/97 21,000 20,906
Australian Wheat Board
5.310% due 04/04/97 200 200
Caisse d'Amortissement
5.540% due 04/30/97 18,000 17,920
Canadian Wheat Board
5.290% due 04/23/97 7,000 6,977
5.310% due 04/24/97 4,000 3,986
5.270% due 05/08/97 10,800 10,742
Dow Jones, Inc.
5.550% due 05/12/97 200 199
E.I. Du Pont de Nemours
5.290% due 04/10/97 1,200 1,198
Electricite de France
5.300% due 04/22/97 9,000 8,972
5.300% due 04/28/97 1,400 1,394
5.300% due 04/29/97 700 697
5.300% due 04/29/97 300 299
Emerson Electric Co.
5.490% due 05/05/97 1,000 995
Federal Farm Credit Bank
5.240% due 05/21/97 100 99
Federal Home Loan Bank
5.410% due 04/17/97 7,300 7,282
5.430% due 05/08/97 1,300 1,293
Florida Power Corp.
5.290% due 04/01/97 5,200 5,200
5.550% due 04/22/97 8,000 7,974
<PAGE>
Ford Motor Credit Corp.
5.320% due 04/03/97 1,300 1,300
5.310% due 04/07/97 43,000 42,962
5.310% due 04/09/97 57,200 57,133
5.280% due 04/22/97 53,100 52,936
5.300% due 04/23/97 2,700 2,691
5.290% due 04/24/97 36,300 36,177
5.280% due 04/25/97 18,000 17,937
5.550% due 05/02/97 500 498
5.550% due 05/05/97 2,500 2,487
5.550% due 05/21/97 150,000 148,844
Export Development Corp
5.280% due 04/14/97 50,000 49,905
Federal Home Loan Mortgage Corp.
5.170% due 04/10/97 6,000 5,992
5.280% due 06/05/97 879 870
Federal National Mortgage Assn.
5.240% due 04/08/97 600 599
5.220% due 04/22/97 1,400 1,396
5.470% due 05/02/97 24,000 23,887
5.480% due 05/02/97 15,300 15,228
General Electric Capital Corp.
5.300% due 04/09/97 150,000 149,823
5.300% due 04/23/97 40,000 39,870
5.310% due 04/23/97 46,300 46,150
5.250% due 04/24/97 56,000 55,812
5.340% due 04/28/97 3,900 3,884
5.330% due 04/29/97 700 697
5.550% due 05/05/97 500 497
5.320% due 05/07/97 2,800 2,785
General Motors Acceptance Corp.
5.260% due 04/02/97 40,000 39,994
5.350% due 04/09/97 26,000 25,969
5.350% due 04/10/97 13,000 12,983
5.333% due 04/23/97 20,000 19,935
5.580% due 05/07/97 400 398
KFW International Finance, Inc.
5.500% due 04/04/97 1,700 1,699
5.270% due 04/17/97 6,000 5,986
5.250% due 04/25/97 1,000 997
5.250% due 04/29/97 700 697
5.550% due 04/29/97 9,500 9,459
5.580% due 04/29/97 18,300 18,221
<PAGE>
Kellogg Co.
5.550% due 04/14/97 11,500 11,477
Kimberly-Clark Corp.
5.500% due 04/01/97 1,900 1,900
Minnesota Mining & Manufacturing Co.
5.280% due 04/02/97 679 679
Mobil Australia
6.750% due 04/01/97 28,600 28,600
5.320% due 04/30/97 6,800 6,771
5.550% due 05/21/97 37,800 37,509
5.420% due 06/18/97 5,100 5,037
National Rural Utilities Cooperative
5.290% due 04/01/97 7,700 7,700
5.300% due 04/03/97 800 800
5.280% due 04/11/97 5,000 4,993
5.290% due 04/18/97 20,000 19,950
5.280% due 04/21/97 25,000 24,927
5.330% due 04/29/97 2,000 1,992
5.550% due 05/14/97 4,800 4,768
5.550% due 05/15/97 65,000 64,559
5.330% due 05/20/97 27,000 26,804
5.330% due 05/22/97 50,000 49,622
5.600% due 05/28/97 8,700 8,623
New Center Asset Trust
6.700% due 04/01/97 900 900
5.300% due 04/02/97 100 100
5.270% due 04/09/97 40,300 40,253
5.320% due 04/11/97 1,300 1,298
5.520% due 04/25/97 2,600 2,590
5.570% due 05/08/97 500 497
5.570% due 06/24/97 176,500 174,163
Pitney Bowes Credit
5.290% due 04/08/97 1,400 1,399
Queensland Treasury Corp.
5.310% due 04/21/97 800 798
5.320% due 04/21/97 1,000 997
5.300% due 04/28/97 100 100
5.320% due 04/28/97 3,100 3,088
Shell Oil Co.
5.570% due 04/14/97 12,900 12,874
Western Australian Treasury Corp.
5.250% due 05/20/97 1,000 993
5.340% due 05/20/97 800 794
Wool International
5.300% due 04/16/97 1,218 1,215
1,710,854
Repurchase Agreements - 0.8%
Daiwa Securities America
6.200% due 04/01/97 95,000 95,000
(Dated 03/31/97. Collateralized by
U.S. Treasury Note 6.500%
05/31/01 valued at $97,125,864.
Repurchase proceeds are $95,016,361.)
State Street Bank
5.000% due 04/01/97 4,357 4,357
(Dated 03/31/97. Collateralized by
U.S. Treasury Bond 7.250%
05/15/16 valued at $4,448,269.
Repurchase proceeds are $4,357,605.)
99,357
U.S. Treasury Bills - 0.7%
5.057% due 05/(b)(g)07/03/97 99,195 98,279
Total Short-Term Instruments 1,908,490
(Cost $1,908,546)
Total Investments (a) - 105.8% $ 13,968,846
(Cost $14,009,795)
Written Options(e) - (0.2%) (26,352)
(Premiums $30,218)
Other Assets and Liabilities(Net) - (5.6%) (743,788)
Net Assets - 100.0% $ 13,198,706
Notes to Schedule of Investments($ in thousands):
(a)At March 31,1997, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost. $ 134,081
<PAGE>
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value. (175,030)
Unrealized depreciation-net $ (40,949)
(b)Securities with an aggregate market value of
$98,279 have been segregated with the custodian to
cover margin requirements for the following open
future contracts at March 31,1997:
Unrealized
Appreciation/
Type Contracts (Depreciation)
U.S. Municipal Bond (06/97) 735 $ (789)
U.S. Treasury 5 Year Note (06/97) 2,299 (2,227)
U.S. Treasury 10 Year Note (06/97) 23,712 (36,570)
U.S. Treasury 30 Year Bond (06/97) 4,751 (10,885)
Eurodollar June Futures (06/97) 6,638 9,480
Eurodollar September Futures (09/97) 430 (460)
Eurodollar December Futures (12/97) 500 (521)
$ (41,972)
(c)Foreign forward currency contracts outstanding at
March 31,1997:
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
Buy C$ 66,432 04/97 $ (579)
Buy 169,851 05/97 (1,558)
Sell 66,432 04/97 1,301
Sell 169,851 05/97 3,308
Sell 54,178 09/97 769
Sell 161,146 03/98 1,573
Buy DM 40,043 04/97 3,371
Sell 30,310 04/97 (2,052)
Buy DG 102 04/97 (1)
Sell FF 5,735 07/97 (28)
Sell N$ 22,340 05/97 214
Sell 194,393 06/97 212
$ 6,530
(d)Variable rate security. The rate listed is as of
March 31,1997.
(e) Premiums received on Written Options:
Type Par Premiums Received Market Value
Call - Commonwealth of Canada
6.250% due 09/98
Strike @ 103.35 Exp. 04/02/97 C$ 150,000 $ 278 $0
Put - Commonwealth of Canada
6.250% due 09/98
Strike @ 101.35 Exp. 04/02/97 150,000 289 0
Call - CBOT U.S. Treasury Bond June Futures
Strike @ 112.00 Exp. 05/17/97 $ 205,500 1,059 321
Strike @ 116.00 Exp. 05/17/97 200,000 1,755 31
Put - CBOT U.S. Treasury Bond June Futures
Strike @ 108.00 Exp. 05/17/97 205,500 2,101 3,853
Strike @ 110.00 Exp. 05/17/97 380,000 3,901 12,350
Call - CBOT U.S. Treasury Note September Futures
Strike @ 107.00 Exp. 08/23/97 8,700 1,770 2,382
Put - CME Eurodollar June Futures
Strike @ 93.00 Exp. 06/16/97 300,000 223 8
Strike @ 93.25 Exp. 06/16/97 1,200,000 1,059 30
Strike @ 93.50 Exp. 06/16/97 10,651,000 12,170 356
Strike @ 94.00 Exp. 06/16/97 4,969,000 1,474 1,118
Put - CME Eurodollar September Futures
Strike @ 93.00 Exp. 09/15/97 2,560,000 315 192
Put - CME Eurodollar December Futures
Strike @ 93.50 Exp. 12/15/97 1,000,000 570 825
Strike @ 93.75 Exp. 12/15/97 4,115,000 3,254 4,886
$ 30,218 $ 26,352
<PAGE>
(f)Principal amount denoted in indicated currency:
C$ - Canadian Dollar
DG - Dutch Guilder
DM - German Mark
FF - French Franc
N$ - New Zealand Dollar
(g)Securities are grouped by coupon and represent a range of
maturities.
(h) Principal amount of the security is adjusted for inflation.
(i) Security becomes interest bearing at a future date.
(j) Security is part of an integrated SWAP transaction as discussed in note K
below and as a result is restricted to resale.
(k) Terms of agreements require the payment of fixed rate interest earned on a
security held by the Fund in exchange for variable rate interest based upon the
3 Month LIBOR rate. The terms of the agreement also include a put option which
enables the Fund to put the underlying security to the counterparty at par. Swap
agreements outstanding at March 31, 1997:
Notional Unrealized
Type Amount Appreciation
Receive floating rate based on 3 month LIBOR and pay fixed rate.
Broker: Merrill Lynch
Exp. 04/11/97 $ 25,000 $ 0
Broker: Merrill Lynch
Exp. 04/11/97 43,021 0
Broker: Merrill Lynch
Exp. 09/11/97 19,731 0
Broker: Merrill Lynch
Exp. 09/11/97 25,000 0
$ 0
<PAGE>
Total Return Fund
Statement of Assets and Liabilities
March 31, 1998
Amounts in thousands, except per share amounts
- --------------------------------------------------------------------------------------
Assets:
Investments, at value $ 21,746,274
Cash and foreign currency 40,257
Receivable for investments and foreign currency sold 2,523,370
Receivable for Fund shares sold 222,430
Variation margin receivable 24,440
Interest and dividends receivable 176,822
Other assets 6,179
-----------------
24,739,772
-----------------
Liabilities:
Payable for investments and foreign currency purchased $ 6,604,539
Written options outstanding 1,459
Payable for Fund shares redeemed 17,120
Dividends payable 15,275
Accrued investment advisor's fee 3,713
Accrued administrator's fee 2,877
Accrued distribution fee 463
Accrued servicing fee 231
Other liabilities 2,384
-----------------
6,648,061
-----------------
Net Assets $ 18,091,711
-----------------
Net Assets Consist of:
Paid in capital $ 17,814,558
Undistributed net investment income 111,760
Accumulated undistributed net realized gain 40,149
Net unrealized appreciation 125,244
-----------------
$ 18,091,711
-----------------
Net Assets:
Institutional Class $ 16,484,119
Administrative Class 481,730
Retail Classes 1,125,862
Shares Issued and Outstanding:
Institutional Class 1,552,606
Administrative Class 45,374
Retail Classes 106,045
Net Asset Value and Redemption Price Per Share
Institutional Class $ 10.62
Administrative Class 10.62
Retail Classes 10.62
-----------------
Cost of Investments Owned $ 21,634,433
-----------------
Cost of Foreign Currency Held $ 35,189
-----------------
See accompanying notes
</TABLE>
<PAGE>
Total Return Fund
Statement of Operations
March 31, 1998
Amounts in thousands
- --------------------------------------------------------------------------------
Amounts in thousands
Investment Income:
Interest $ 993,323
Dividends 1,329
-----------------
Total Income 994,652
-----------------
Expenses:
Investment advisory fees 38,328
Administration fees 29,220
Distribution fees-Administrative Class 692
Distribution and servicing fees-Retail Classes 5,343
Trustees' fees 185
Reorganization costs 0
Miscellaneous 176
-----------------
Total Expenses 73,944
-----------------
Net Investment Income 920,708
-----------------
Net Realized and Unrealized Gain:
Net realized gain on investments 156,245
Net realized gain on futures
contracts and written options 455,420
Net realized gain on foreign currency translations 32,489
Net change in unrealized appreciation
(depreciation) on investments 158,814
Net change in unrealized appreciation
(on futures contracts and written options 35,424
Net change in unrealized appreciation (depreciation)
on translation of assets and liabilities denominated
in foreign currencies 2,015
-----------------
Net Gain 840,407
-----------------
Net Increase in Assets Resulting from Operations $ 1,761,115
-----------------
See accompanying notes
<PAGE>
Total Return Fund
Statement of Changes in Net Assets
March 31, 1998
Amounts in Thousands
<TABLE>
<S> <C> <C>
Year Ended Year Ended
March 31, 1998 March 31, 1997
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 920,708 $ 770,314
Net realized gain (loss) 644,154 (57,928)
Net change in unrealized appreciation (depreciation) 196,253 15,459
------------ -----------
Net increase resulting from operations 1,761,115 727,845
------------ ------------
Distribution to Shareholders:
From net investment income
Institutional Class (843,692) (737,816)
Administrative Class (15,470) (8,454)
Retail Classes (36,268) (5,252)
In excess of net investment income
Institutional Class (23,175) (18,432)
Administrative Class (425) (211)
Retail Classes (996) (131)
From net realized capital gains
Institutional Class (375,236) 0
Administrative Class (8,344) 0
Retail Classes (20,592) 0
------------- ----------
Total Distributions (1,324,198) (770,296)
------------- -----------
Fund Share Transactions:
Receipts for shares sold
Institutional Class 6,060,910 3,709,839
Administrative Class 420,992 132,504
Retail Classes 730,357 59,247
Issued in reorganization
Retail Classes 0 499,338
Issued as reinvestment of distributions
Institutional Class 1,031,930 606,425
Administrative Class 23,828 8,479
Retail Classes 46,126 3,729
Cost of share redeemed
Institutional Class (3,556,685) (2,001,935)
Administrative Class (117,585) (94,080)
Retail Classes (183,785) (34,612)
----------- ------------
Net increase resulting from Fund share transactions 4,456,088 2,888,934
------------ ------------
Total Increase in Net Assets 4,893,005 2,846,483
------------ -----------
Net Assets:
Beginning of period 13,198,706 10,352,223
------------- ----------
End of period* $ 18,091,711 $ 13,198,706
------------- -----------
* Including net undistributed (overdistributed
investment income of: $ 111,760 $ (25,279)
-------------- -----------
</TABLE>
See accompanying notes
<PAGE>
Total Return Fund
Financial Highlights - Institutional Class
March 31, 1998
<TABLE>
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Institutional Class
----------------------
3/31/98 3/31/97 3/31/96 3/31/95 3/31/94
--------------- ---------------- --------------- --------------- ----------
Net Asset Value Beginning of Period $ 10.27 $ 10.29 $ 10.02 $ 10.25 $ 10.91
Net Investment Income 0.64(a) 0.68 0.81 0.64 0.68
Net Realized and Unrealized Gain
(Loss) on Investments 0.62(a) (0.02) 0.29 (0.24) (0.16)
--------------- ---------------- --------------- --------------- ---------
Total Income from Investment Operations 1.26 0.66 1.10 0.40 0.52
--------------- ---------------- --------------- --------------- ---------
Dividends from Net Investment Income (0.62) (0.66) (0.61) (0.56) (0.71)
Dividends in Excess of Net Investment Income (0.02) (0.02) (0.10) (0.05) (0.15)
Distributions from Net Realized Capital Gains (0.27) 0.00 (0.12) 0.00 (0.30)
Distributions in Excess of Net Realized
Capital Gains 0.00 0.00 0.00 0.00 (0.02)
Tax Basis Return of Capital 0.00 0.00 0.00 (0.02) 0.00
--------------- ---------------- --------------- --------------- --------
Total Distributions (0.91) $ (0.68) (0.83) (0.63) (1.18)
--------------- ---------------- --------------- --------------- --------
Net Asset Value End of Period $ 10.62 $ 10.27 $ 10.29 $ 10.02 $ 10.25
---------------- ---------------- --------------- --------------- --------
Total Return 12.63% 6.60% 11.14% 4.22% 4.55%
Net Assets End of Period (000s) $ 16,484,119 $ 12,528,536 $10,247,605 $7,239,735 $ 5,008,160
Ratio of Expenses to Average Net Assets 0.43% 0.43% 0.42% 0.41% 0.41%
Ratio of Net Investment Income to Average
Net Assets 6.06% 6.60% 6.85% 6.72% 6.27%
Portfolio Turnover Rate 206% 173% 221% 98% 177%
(a) Per share amounts based on average shares outstanding during the period.
\
See accompanying notes
<PAGE>
Total Return Fund
Financial Highlights - Administrative Class
March 31, 1998
- -------------------------------------------------------------------------------------------------------------------
Administrative Class
-------------------------------------
9/7/94 -
3/31/98 3/31/97 3/31/96 3/31/95
---------------- ---------------- ---------------- ---------------
Net Asset Value Beginning of Period $ 10.27 $ 10.29 $ 10.01 $ 10.00
Net Investment Income 0.61(a) 0.66(a) 0.80 0.31
Net Realized and Unrealized Gain (Loss)
on Investments 0.63(a) (0.02(a) 0.29 0.06
---------------- ---------------- ---------------- ---------------
Total Income from Investment Operations 1.24 0.64 1.09 0.37
---------------- ---------------- ---------------- ---------------
Dividends from Net Investment Income (0.60) (0.64) (0.60) (0.32)
Dividends in Excess of Net Investment Income (0.02) (0.02) (0.09) (0.03)
Distributions from Net Realized Capital Gains (0.27) 0.00 (0.12) 0.00
Distributions in Excess of Net Realized
Capital Gains 0.00 0.00 0.00 0.00
Tax Basis Return of Capital 0.00 0.00 0.00 (0.01)
---------------- ---------------- ---------------- ---------------
Total Distributions (0.89) (0.66) (0.81) (0.36)
---------------- ---------------- ---------------- ---------------
Net Asset Value End of Period $ 10.62 $ 10.27 $ 10.29 $ 10.01
---------------- ---------------- ---------------- ---------------
Total Return 12.36% 6.34% 10.99% 3.76%
Net Assets End of Period (000s) $ 481,730 $ 151,194 $ 104,618 $ 9,037
Ratio of Expenses to Average Net Assets 0.68% 0.68% 0.68% 0.66%+
Ratio of Net Investment Income to Average Net
Assets 5.74% 6.35% 6.64% 6.54%+
Portfolio Turnover Rate 206% 173% 221% 98%
+ Annualized.
(a) Per share amounts based on average shares outstanding during the period.
See accompanying notes
</TABLE>
<PAGE>
Total Return Fund
Notes to Financial Statements
March 31, 1998
- --------------------------------------------------------------------------------
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. Information presented in these financial statements pertains
to the Total Return Fund (the "Fund"). The Trust may offer up to six classes of
shares for certain funds. Each share class has identical voting rights except
that shareholders of a class have exclusive voting rights regarding any matter
relating solely to that class of shares. As used in these financial statements,
"Institutional Classes" refers to the Institutional and Administrative classes
and "Retail Classes" refers to the A, B, and C Classes of the Trust. 2.
Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in preparation of its financial statements. These policies
are 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, are normally
valued on the basis of quotes obtained from brokers and dealers or pricing
services. Short-term investments which mature in 60 days or less are valued at
amortized cost, which approximates market value. Certain fixed income securities
for which daily market quotations are not readily available may be valued,
pursuant to guidelines established by the Board of Trustees, with reference to
fixed income securities whose prices are more readily obtainable.
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.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, of the Fund are declared on each day the Trust is open for
business and are distributed to shareholders monthly. Net realized capital gains
earned by the 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.
Certain 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 dividend 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.
Multiclass Operations. Each class offered by the Trust has equal rights as to
assets and voting privileges. Income and non-class specific expenses of the Fund
are allocated daily to each class of shares based on the relative value of
settled shares. Realized and unrealized capital gains and losses of the Fund are
allocated daily to each class of shares based on the relative net assets of each
class.
Federal Income Taxes. The Fund intends to qualify as a regulated investment
company and distribute all of its taxable income and net realized gains, if
applicable, to shareholders. Accordingly, no provision for Federal income taxes
has been made.
<PAGE>
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 counter-party to whom the Fund sells the security becomes insolvent, the
Fund's right to repurchase the security may be restricted; the value of the
security may change over the term of the financing transaction; and the return
earned by the Fund with the proceeds of a financing transaction may not exceed
transaction costs. Included in the payable for investments and foreign currency
purchased is the amount of $610,266,695 related to these financing transactions.
Futures and Options. The Fund is authorized to enter into futures contracts and
options. The 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 the Fund and the prices of futures contracts and options, the possibility of
an illiquid market, and the inability of the counter-party to meet the terms of
the contract. Futures contracts and purchased options are valued based upon
their quoted daily settlement prices. The premium received for a written option
is recorded as an asset with an equal liability which is marked to market based
on the option's quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized. Forward
Currency Transactions. 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 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.
Stripped mortgage backed securities (SMBS). SMBS represent a participation in,
or are secured by and payable from, mortgage loans on real property, and may be
structured in classes with rights to receive varying proportions of principal
and interest. SMBS include interest-only securities (IOs), which receive all of
the interest, and principal-only securities (POs), which receive all of the
principal. If the underlying mortgage assets experience greater than anticipated
payments of principal, the Fund may fail to recoup some or all of its initial
investment in these securities. The market value of these securities is highly
sensitive to changes in interest rates.
Swaps. The Fund is authorized to enter into interest rate, index and currency
exchange swap agreements. PIMCO uses these agreements in order to obtain a
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded the desired return. Risk may arise upon
entering into these agreements from potential inability of counterparties to
meet the terms of the agreements and are generally limited to the amount of net
receivable position, if any, at the date of default.
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.
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 investors do not receive their principal until
maturity.
<PAGE>
Repurchase Agreements. The 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.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO 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% based on average daily net assets of the Fund. Administration Fee.
PIMCO also serves as administrator (the "Administrator"), and provides
administrative services to the Trust for which it receives from the Fund a
monthly administrative fee based on each share class's average daily net assets.
The Administration Fee for the Institutional Classes is charged at an annual
rate of 0.18%. The Administration Fee for the Retail Classes is charged at the
annual rate of 0.40%.
Distribution and Servicing Fees. 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 Trust's shares.
The Trust is permitted to reimburse, out of the Administrative Class assets of
the Fund, an amount up to 0.25% on an annual basis of the average daily net
assets of that class, financial intermediaries that provide services in
connection with the distribution of shares or administration of plans or
programs that use Fund shares as their funding medium. The effective rate paid
to PFD was 0.25% during 1998.
Pursuant to the Distribution and Servicing Plans adopted by the Retail Classes
of the Trust, the Trust compensates PFD for services provided and expenses
incurred in connection with assistance rendered in the sale of shares and
services rendered to shareholders and for maintenance of shareholder accounts of
the Retail Classes. The Trust pays PFD distribution and servicing fees at rates
as agreed to by each share class out of each respective Retail Class's net
assets.
PFD also receives the proceeds of the initial sales charges paid by the
shareholders upon the purchase of Class A shares, and the contingent deferred
sales charges paid by the shareholders upon certain redemptions of Retail Class
shares.
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 expense; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and any counsel
retained exclusively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; (vii) expenses, such as
organizational expenses, which are capitalized in accordance with generally
accepted accounting principles; and (viii) any expenses allocated or allocable
to a specific class of shares, which include service fees payable with respect
to the Administrative Class shares and may include certain other expenses as
permitted by the Trust's Multiclass Plan adopted pursuant to Rule 18f-3 under
the Act and subject to review and approval by the Trustees. The ratio of
expenses to average net assets per share class, as disclosed in Financial
Highlights, may differ from the annual fund operating expenses per share class
as disclosed in the Prospectus for the reasons set forth above. 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.
<PAGE>
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for
the period ended March 31, 1998 were as follows (amount in thousands):
- --------------------------------------------------------------------------------
U.S. Government/Agency All Other
- --------------------------------------------------------------------------------
Purchases Sales Purchases Sales
$30,659,485 $27,541,592 $8,211,135 $3,429,448
- --------------------------------------------------------------------------------
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amount in
thousands):
---------------------------------------------------
Balance at 3/31/97 $ 30,218
Sales 14,996
Closing Buys 0
Expirations (36,693)
Exercised (4,868)
-----------------
Balance at 3/31/98 $ 3,653
--------------------------------- =================
. Shares of Beneficial Interest
6. Shares of Beneficial Interest
The Trust 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>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Year Ended 3/31/98 Year Ended 3/31/97
Shares Amount Shares Amount
Receipts for shares sold
Institutional Class 569,689 $6,060,910 358,561 $3,709,839
Administrative Class 39,423 420,992 12,842 132,504
Retail Classes 68,465 730,357 5,691 59,247
Shares issued in reorganization
Retail Classes 0 0 47,783 499,338
Issued as reinvestment of distributions
Institutional Class 97,133 1,031,930 58,681 606,425
Administrative Class 2,241 23,828 820 8,479
Retail Classes 4,339 46,126 360 3,729
Cost of shares redeemed
Institutional Class (333,872) (3,556,685) (193,748) (2,001,935)
Administrative Class (11,009) (117,585) (9,113) (94,080)
Retail Classes (17,283) (183,785) (3,310) (34,612)
-------- --------- ---------- ---------
Net increase resulting from
Fund shares transactions 419,126 $ 4,456,088 278,567 $ 2,888,934
======= =========== ======= ===========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
7. Federal Income Tax Matters
As of March 31, 1998, the Fund had remaining capital loss carryforwards of
approximately $988,000 that was acquired in prior years which expire on March
31, 2004. Use of the acquired capital loss carryforwards may be limited under
current tax laws.
The Fund will resume capital gains distributions in the future to the extent
gains are realized in excess of the available carryforwards.
8. Reorganization
The Fund (the "Acquiring Fund") acquired the assets and certain liabilities of
the PIMCO Advisors U.S. Government Fund (the "Acquired Fund") in a tax-free
exchange for shares of the Fund, pursuant to a plan of reorganization approved
by the Acquired Fund's shareholders (amounts in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Value of Total Net
Shares Issued Shares Issued Total Net Total Net Assets of Acquired Fund
by Acquiring by Acquiring Assets of Assets of Acquiring Fund Unrealized
Fund Fund Acquired Fund Acquiring Fund After Appreciation
Date Acquisition
- ---------------------------------------------------------------------------------------------------------------------
01/17/97 47,783 $ 499,338 $ 449,338 $ 12,445,156 $ 12,944,494 $ 5,236
- -------------- --------------- ---------------- ---------------- ---------------- ----------------- -----------------
</TABLE>
<PAGE>
Total Return Fund
Schedule of Investments
March 31, 1998
<TABLE>
<S> <C> <C> <C> <C>
Principal
Amount Value
(000s) (000s)
CORPORATE BONDS AND NOTES 28.2%
Banking and Finance 17.4%
Ahmanson (H.F.) & Co.
6.350% due 09/01/98 $6,000 $6,014
7.650% due 04/15/00 175 181
American Express Credit
8.500% due 08/15/01 250 269
6.800% due 12/15/03 1,500 1,539
American General Finance
7.250% due 04/15/00 500 511
5.875% due 07/01/00 75 75
Associates Corp. of North America
6.625% due 05/15/98 100 100
8.800% due 08/01/98 987 996
6.250% due 03/15/99 1,200 1,203
7.500% due 05/15/99 700 712
7.400% due 07/07/99 125 127
7.250% due 09/01/99 285 290
6.750% due 10/15/99 90 91
7.850% due 10/20/99 500 515
8.250% due 12/01/99 200 207
7.250% due 12/17/99 660 675
7.470% due 03/27/00 1,000 1,029
6.000% due 06/15/00 2,634 2,633
6.310% due 06/16/00 500 505
6.250% due 09/15/00 50 50
7.500% due 04/15/02 185 194
AT&T Capital Corp.
6.900% due 04/15/98 19,800 19,805
6.300% due 06/09/98 37,000 37,025
6.240% due 11/27/98 19,000 19,020
6.250% due 12/08/98(d) 10,000 10,010
5.858% due 01/15/99(d) 12,000 12,050
5.950% due 02/16/99 105,850 105,647
6.120% due 02/26/99 20,000 19,987
6.050% due 04/01/99(d) 158,500 158,500
6.580% due 09/03/99 500 503
AVCO Financial Services
6.350% due 09/15/00 100 101
7.375% due 08/15/01 300 311
Bancomer
8.000% due 07/07/98 7,000 7,000
Banesto Delaware
8.250% due 07/28/02 28,900 30,880
BankAmerica Corp.
6.050% due 06/10/98 36,000 36,004
6.052% due 11/01/99(d) 3,000 3,023
5.700% due 03/05/01(d) 7,000 7,003
5.938% due 02/20/02(d) 180 179
7.750% due 07/15/02 60 63
7.200% due 09/15/02 400 415
7.500% due 10/15/02 1,000 1,049
6.850% due 03/01/03 50 51
8.375% due 05/01/07 3 3
Bankers Trust Co.
8.625% due 04/01/18 124 127
Bear Stearns
5.825% due 09/10/99(d) 25,000 25,047
6.750% due 08/15/00 50 51
5.560% due 08/25/00(d) 1,400 1,406
5.860% due 08/29/00(d) 37,500 37,732
6.750% due 04/15/03 105 107
Beneficial Corp.
9.600% due 10/16/98 250 255
5.782% due 11/27/00(d) 70,000 69,898
6.050% due 01/09/01(d) 9,000 9,005
5.795% due 01/23/02(d) 5,000 4,994
6.069% due 03/01/02(d) 15,000 15,017
BT Securities Corp.
5.915% due 08/16/99(d) 10,000 9,985
Capital One Bank
6.356% due 06/08/98(d) 900 900
6.830% due 08/16/99 275 277
Caterpillar Financial
6.350% due 12/01/98 125 125
Charles Schwab
5.670% due 09/30/98 525 524
<PAGE>
Chase Manhattan Corp.
8.500% due 02/15/02 200 215
8.000% due 05/01/05 200 200
Chemical Banking Corp.
6.294% due 04/03/05(d) 5,000 5,000
6.125% due 11/01/08 400 390
Chrysler Financial Corp.
8.420% due 02/01/99 695 709
5.350% due 02/04/99(d) 9,000 8,997
6.350% due 06/22/99 8,000 8,028
8.460% due 01/19/00 700 729
6.250% due 03/06/00 14,735 14,772
5.410% due 07/28/00(d) 100 100
5.860% due 01/16/01 500 497
5.742% due 07/17/02(d) 20,000 19,993
5.867% due 02/03/03(d) 15,000 15,018
Chubb Capital Corp.
8.750% due 11/15/99 80 80
6.875% due 02/01/03 100 103
Citicorp
9.750% due 08/01/99 2,200 2,304
6.025% due 10/20/99(d) 10,000 10,042
6.021% due 10/25/99(d) 11,000 11,046
5.855% due 05/23/00(d) 25,000 25,073
7.070% due 05/25/00 1,250 1,258
6.109% due 06/01/00 5,000 5,015
5.922% due 11/28/00(d) 5,000 5,016
5.932% due 02/01/01(d) 10,000 10,042
5.750% due 05/24/01(d) 39,000 38,977
5.705% due 11/13/01(d) 10,000 9,992
5.956% due 06/27/02(d) 11,450 11,416
5.715% due 08/15/02(d) 11,500 11,503
5.754% due 11/12/02(d) 30,000 29,951
Coast Savings
10.000% due 03/01/00 8,000 8,440
Commercial Credit Co.
6.750% due 05/15/00 100 101
6.000% due 06/15/00 300 300
8.250% due 11/01/01 2,500 2,665
7.750% due 03/01/05 50 54
Dean Witter Discover
5.749% due 03/02/99(d) 100 100
6.750% due 08/15/00 100 102
Deutsche Bank Financial
7.500% due 04/25/09 3,000 3,207
Exxon Capital Corp.
7.450% due 12/15/01 250 263
First Chicago
5.855% due 02/10/00(d) 20,000 20,044
5.768% due 03/11/02(d) 10,000 10,008
First Interstate Bancorp
8.875% due 01/01/09 245 253
Fleet Financial Group
9.900% due 06/15/01 200 221
Ford Motor Credit Corp.
7.240% due 04/01/98 11,000 11,000
5.750% due 04/30/98 300 300
5.400% due 11/09/98(d) 17,080 17,124
8.000% due 01/15/99 500 508
8.875% due 06/15/99 100 103
7.750% due 10/01/99 35 36
8.375% due 01/15/00 195 203
6.950% due 05/15/00 8,450 8,602
5.470% due 08/14/00(d) 100 100
6.850% due 08/15/00 1,500 1,529
7.020% due 10/10/00 70,000 71,530
6.157% due 03/05/01(d) 5,000 5,014
5.838% due 04/10/01(d) 10,850 10,846
7.020% due 06/07/01 1,000 1,025
6.042% due 09/03/01(d) 9,000 9,001
7.000% due 09/25/01 1,125 1,156
7.320% due 05/23/02 14,000 14,140
6.068% due 06/04/02(d) 2,000 2,003
5.792% due 02/03/03(d) 30,000 30,025
5.725% due 02/13/03(d) 100,000 100,116
6.625% due 06/30/03 575 586
5.876% due 06/02/04(d) 1,500 1,501
8.250% due 02/23/05 2,500 2,768
6.125% due 01/09/06 25 25
7.700% due 05/15/97 450 495
General Electric Capital Corp.
5.980% due 03/19/99 1,500 1,503
8.375% due 03/01/01 600 639
5.500% due 11/01/01 50 49
8.300% due 09/20/09 150 174
<PAGE>
General Motors Acceptance Corp.
7.250% due 07/20/98 25,785 25,899
7.750% due 01/15/99 500 507
5.700% due 02/09/99 12,600 12,575
7.375% due 05/26/99 190 193
5.958% due 06/04/99(d) 5,000 5,000
7.375% due 06/09/99 10,000 10,150
8.625% due 06/15/99 650 670
6.700% due 06/24/99 3,700 3,728
6.625% due 07/07/99 10,000 10,069
7.375% due 09/09/99 1,000 1,018
6.150% due 09/20/99 20,300 20,366
8.000% due 10/01/99 10,850 11,115
6.050% due 10/04/99 2,550 2,549
6.375% due 10/12/99 2,000 2,009
8.400% due 10/15/99 360 373
6.250% due 10/18/99 1,000 1,003
8.170% due 01/02/00 1,447 1,491
8.625% due 01/10/00 5,000 5,212
7.000% due 03/01/00 100 102
7.875% due 03/15/00 5,650 5,835
7.500% due 06/09/00 1,000 1,030
5.500% due 01/16/01 15,000 14,759
8.625% due 01/18/01 15,000 15,946
8.500% due 01/19/01 3,675 3,899
6.800% due 04/17/01 500 509
6.700% due 04/30/01 3,000 3,045
7.125% due 05/01/01 95 98
5.645% due 10/22/01(d) 25,000 24,948
9.625% due 12/15/01 300 334
6.750% due 02/07/02 590 601
5.750% due 04/29/02(d) 41,240 41,204
7.000% due 09/15/02 250 258
5.875% due 01/22/03 30,500 30,165
8.950% due 07/02/09 21,500 23,811
Goldman Sachs
5.775% due 11/21/00(d) 10,000 10,022
6.085% due 11/24/00(d) 106,000 106,000
6.056% due 12/22/00(d) 17,000 17,069
5.848% due 01/09/01(d) 105,000 105,259
6.208% due 12/07/01(d) 25,000 25,005
Goldman Sachs & Co.
5.805% due 01/25/01(d) 47,000 46,998
Goldman Sachs Mortgage Corp.
6.000% due 12/31/07 10,761 10,220
Great Western Bank
8.625% due 12/01/98 6,000 6,099
Hartford Life
7.650% due 06/15/27 15,000 16,024
Heller Financial
6.250% due 01/15/99 200,000 200,486
5.765% due 04/01/99(d) 19,000 19,052
5.981% due 09/03/99(d) 4,000 4,007
5.755% due 08/25/00(d) 7,100 7,109
Household Bank
6.066% due 09/26/01(d) 9,000 9,000
5.813% due 10/22/03(d) 15,000 14,898
Household Finance Corp.
5.650% due 05/26/98 500 500
6.580% due 05/17/99 165 166
5.802% due 11/01/01(d) 5,000 4,995
Inter-American Development Bank
9.450% due 09/15/98 200 203
8.875% due 06/01/09 200 244
International Lease Finance
5.750% due 12/15/99 50 50
6.420% due 09/11/00 500 504
Key Bank N.A.
6.050% due 04/06/98 19,875 19,875
Kimco Realty Corp.
6.500% due 10/01/03 200 200
Korean Export-Import Bank
6.500% due 10/06/99 7,000 6,684
Lehman Brothers, Inc.
7.850% due 05/11/98 4,350 4,358
6.375% due 06/01/98 100 100
6.875% due 06/08/98 5,800 5,810
6.400% due 06/22/98(d) 25,000 25,038
6.250% due 06/29/98 5,400 5,405
7.625% due 08/01/98 250 251
6.840% due 09/25/98 20,750 20,829
5.740% due 01/12/99(d) 600 599
5.550% due 09/01/99(d) 10,000 9,973
7.110% due 09/27/99 20 20
5.938% due 01/18/00(d) 50,000 50,178
6.112% due 04/03/00(d) 30,000 30,016
6.525% due 07/27/00(d) 3,000 3,042
5.983% due 02/27/01(d) 49,000 48,933
6.442% due 08/28/02(d) 6,500 6,582
MBNA Corp.
6.275% due 12/01/99(d) 50,700 50,736
Mellon Bank
6.500% due 08/01/05 75 76
Merrill Lynch & Co.
6.375% due 03/30/99 400 402
6.200% due 07/19/99 10,000 10,021
5.695% due 04/17/00(d) 5,000 5,011
6.620% due 06/06/00 500 506
6.450% due 06/20/00 350 353
5.925% due 08/03/00(d) 5,000 5,019
5.675% due 10/03/00(d) 20,000 19,978
5.990% due 12/05/00(d) 89,000 89,025
6.500% due 04/01/01 100 101
5.694% due 01/15/02(d) 17,000 17,014
8.300% due 11/01/02 200 217
7.000% due 03/15/06 1,500 1,557
7.000% due 04/27/08 100 104
NationsBank Corp.
5.125% due 09/15/98 100 100
6.750% due 02/26/01 500 509
7.000% due 09/15/01 1,500 1,542
6.088% due 06/17/02(d) 10,000 9,942
NCNB Corp.
7.750% due 08/01/02 796 797
Northern Trust
9.000% due 05/15/98 200 201
Norwest Corp.
5.750% due 11/16/98 300 300
Norwest Financial, Inc.
6.230% due 09/01/98 100 100
7.000% due 01/15/03 300 310
6.000% due 02/01/04 50 49
PaineWebber
6.250% due 06/15/98 100 100
7.000% due 03/01/00 200 203
6.950% due 03/31/00 120 122
PNC Bank Corp.
5.725% due 01/24/02(d) 19,000 19,057
PNC Funding Corp.
6.875% due 03/01/03 100 103
Polysindo International Finance
9.375% due 07/30/07 3,610 2,211
Popular, Inc.
6.715% due 06/06/00 20,000 20,199
Reliance Group Holdings
9.000% due 11/15/00 19,000 19,886
Salomon, Inc.
6.125% due 05/15/98 12,820 12,823
5.721% due 07/24/98(d) 55,000 55,013
5.732% due 08/04/98(d) 15,000 15,003
5.250% due 10/15/98 400 399
5.975% due 11/19/98(d) 3,000 3,006
6.220% due 11/19/98 2,300 2,302
6.776% due 02/12/99(d) 1,000 1,002
7.000% due 05/15/99 21,790 21,998
5.790% due 06/24/99(d) 9,000 8,969
7.590% due 01/28/00 150 154
6.500% due 03/01/00 14,350 14,464
6.625% due 11/30/00 235 238
6.025% due 05/16/02(d) 12,000 12,012
Salomon, Smith Barney Holdings
7.980% due 03/01/00 12,000 12,399
3.650% due 02/14/02(h) 17,321 16,719
SB Treasury Co. LLC
9.400% due 12/29/49(d) 17,000 17,672
Sears Financial
0.000% due 07/12/98 3,480 3,423
Sears Roebuck Acceptance
6.000% due 03/20/03 135,000 133,857
Security Pacific Corp.
6.000% due 05/01/00 600 599
Signet Bank Corp.
5.875% due 04/15/98(d) 9,000 8,999
9.625% due 06/01/99 6,500 6,749
Smith Barney Holdings
6.625% due 06/01/00 95 96
Societe Generale
7.400% due 06/01/06 1,500 1,560
Sparbanken Sverige AB
7.664% due 10/29/49(d) 12,670 12,717
Swedbank
7.664% due 10/29/49(d) 12,000 12,161
Textron Financial Corp.
5.725% due 11/24/99(d) 10,000 9,994
Tokai Capital Corp.
9.980% due 12/31/49(d) 20,000 20,337
Toyota Motor Credit Corp.
1.586% due 02/15/02(h) 40,000 38,528
<PAGE>
Transamerica Financial
5.665% due 04/20/99(d) 500 499
Trizec Finance Limited
10.875% due 10/15/05 2,489 2,757
U.S. Bancorp
5.747% due 01/16/02(d) 49,000 48,997
U.S. West Financial, Inc.
8.400% due 09/15/99 50 52
Wachovia Bank
6.700% due 04/14/99 500 504
Wells Fargo & Co.
8.750% due 05/01/02 100 109
World Savings & Loan
9.900% due 07/01/00 250 258
Xerox Corp.
7.010% due 04/30/99 120 121
3,140,935
Industrials 7.4%
Albertson's, Inc.
6.375% due 06/01/00 150 151
American Home Products
7.700% due 02/15/00 300 309
Amerigas Partners LP
10.125% due 04/15/07 1,730 1,855
AMR Corp.
9.500% due 07/15/98 5,500 5,557
9.270% due 08/13/98 1,000 1,012
8.050% due 03/05/99 4,000 4,074
9.750% due 03/15/00 10,760 11,476
10.610% due 01/11/01 4,000 4,443
10.570% due 01/15/01 3,000 3,339
10.590% due 01/31/01 3,000 3,345
10.000% due 02/01/01 2,000 2,187
9.400% due 05/08/01 3,000 3,263
9.500% due 05/15/01 2,250 2,457
9.130% due 10/25/01 2,000 2,186
8.470% due 02/20/02 2,000 2,142
8.500% due 02/26/02 1,000 1,072
10.210% due 01/01/10 6,500 8,131
Arkla, Inc.
8.740% due 05/14/98 3,000 3,008
Baxter International
9.500% due 06/15/08 200 246
Bellat Racers
5.875% due 04/01/03 20,000 20,000
Boeing Co.
8.375% due 02/15/01 150 159
Boise Cascade Co.
9.900% due 03/15/00 235 249
Building Materials Corp.
0.000% due 07/01/04(i) 20,320 19,075
Canadian Pacific Limited
9.450% due 08/01/21 2,750 3,508
CBS, Inc.
7.625% due 01/01/02 100 101
Cemex SA
8.500% due 08/31/00 10,000 10,200
Centerior Fuel Corp.
9.200% due 08/02/98 15,000 15,074
9.540% due 08/02/99 10,000 10,431
9.750% due 08/02/00 8,000 8,520
Century Communications Corp.
9.500% due 08/15/00 6,000 6,278
CF Cable TV, Inc.
9.125% due 07/15/07 1,600 1,758
Coca-Cola Co.
6.375% due 08/01/01 200 202
Continental Cablevision
11.000% due 06/01/07 4,536 5,000
Cumberland Farms
10.500% due 10/01/03 3,666 3,629
Dayton Hudson Co.
10.000% due 12/01/00 1,000 1,094
Delta Air Lines
10.140% due 08/14/12 1,000 1,250
Dimon, Inc.
8.875% due 06/01/06 2,000 2,075
E.I. Du Pont de Nemours
9.150% due 04/15/00 100 106
Eli Lilly & Co.
8.125% due 02/07/00 387 400
Enron Corp.
5.775% due 11/18/99(d) 35,000 34,984
Federal Express
10.000% due 09/01/98 800 813
Ford Motor Co.
9.000% due 09/15/01 200 218
<PAGE>
Gaylord Containers
12.750% due 05/15/05 65,000 69,875
Gillette Co.
5.750% due 10/15/05 1,500 1,467
Gulf Canada Resources
9.250% due 01/15/04 7,250 7,614
9.625% due 07/01/05 2,000 2,165
HMH Properties, Inc.
9.500% due 05/15/05 2,000 2,130
Hollinger International Publishing
9.250% due 02/01/06 3,000 3,203
IBM Corp.
5.830% due 11/01/99(d) 35,000 34,956
7.250% due 11/01/02 100 105
7.125% due 12/01/96 2,500 2,612
Imperial Chemical
6.000% due 09/05/98(d) 79,000 78,968
6.000% due 12/05/98(d) 77,000 76,969
6.000% due 03/05/99(d) 72,700 72,793
INDSPEC Chemical Corp.
0.000% due 12/01/03(i) 5,500 5,583
Ingersoll-Rand
6.255% due 02/15/01 295 297
ISP Holdings, Inc.
9.750% due 02/15/02 3,000 3,195
9.000% due 10/15/03 5,000 5,263
ITT Corp.
6.250% due 11/15/00 70 69
K-III Communications Co.
8.500% due 02/01/06 4,000 4,110
Kellogg
5.750% due 02/02/01 74,850 74,265
Keystone Group
9.750% due 09/01/03 250 262
Lenfest Communications
8.375% due 11/01/05 5,000 5,206
Mallinckrodt, Inc.
6.300% due 03/15/11(d) 10,000 9,989
Mazda Manufacturing Corp.
10.500% due 07/01/08 1,980 2,540
Mobil Corp.
8.375% due 02/12/01 40 43
Nabisco, Inc.
6.125% due 02/01/33 15,000 14,805
Nabisco, Inc.
6.800% due 09/01/01 3,000 3,063
New York Times
7.625% due 03/15/05 1,000 1,080
News America Holdings Corp.
7.500% due 03/01/00 65 67
8.625% due 02/01/03 750 816
Nike, Inc.
6.510% due 06/16/00 1,000 1,013
Noranda, Inc.
7.000% due 07/15/05 1,800 1,837
Owens Corning
7.000% due 05/15/00 200 203
PDV America, Inc.
7.250% due 08/01/98 10,719 10,761
Pepsico, Inc.
5.463% due 07/01/98 400 400
7.750% due 10/01/98 800 808
7.625% due 11/01/98 1,500 1,515
Philip Morris Co.
7.375% due 02/15/99 115 116
8.625% due 03/01/99 200 204
6.150% due 03/15/00 20,000 20,017
7.500% due 01/15/02 50 52
6.800% due 12/01/03 48,345 49,123
Quantas Airways
6.625% due 06/30/98 25,000 25,047
Revlon Consumer Products Corp.
9.375% due 04/01/01 5,255 5,491
RJR Nabisco
8.000% due 01/15/00 6,777 6,876
7.625% due 09/01/00 6,000 6,163
8.000% due 07/15/01 35,605 36,619
8.625% due 12/01/02 3,000 3,154
7.625% due 09/15/03 9,000 9,105
8.750% due 04/15/04 19,000 20,092
8.750% due 07/15/07 25,000 26,454
Rogers Cablesystems, Inc.
10.000% due 12/01/07 5,000 5,563
Rogers Cantel Mobile
9.375% due 06/01/08 2,750 2,929
Saferco
9.460% due 05/31/99 1,000 1,040
<PAGE>
9.590% due 05/31/01 3,000 3,298
SCI Television
11.000% due 06/30/05 3,275 3,362
Sears Roebuck & Co.
9.250% due 04/15/98 2,125 2,127
7.960% due 02/18/99 500 508
5.820% due 02/22/99 125 125
6.800% due 05/07/01 500 508
6.790% due 05/21/01 500 509
9.400% due 08/02/01 250 274
Sears Roebuck Acceptance
5.817% due 06/27/00(d) 5,000 5,005
6.120% due 12/13/01 260 259
Showboat, Inc.
9.250% due 05/01/08 1,000 1,080
Smithfield Foods
7.625% due 02/15/08 2,000 2,000
Supervalu, Inc.
6.500% due 10/06/00 140 141
TCI Communications, Inc.
6.375% due 09/15/99 39,175 39,305
5.860% due 02/02/00(d) 50,000 49,979
6.185% due 09/11/00(d) 47,000 46,728
6.656% due 12/20/00(d) 10,000 10,008
Telecommunications, Inc.
9.875% due 04/01/98 3,000 3,000
8.250% due 01/15/03 125 134
Teleport Communications
0.000% due 07/01/07(i) 28,000 24,220
Telewest Communications
9.625% due 10/01/06 5,000 5,300
Tenet Healthcare Corp.
9.625% due 09/01/02 6,250 6,781
10.125% due 03/01/05 1,000 1,105
Time Warner, Inc.
7.975% due 08/15/04 31,803 33,966
8.110% due 08/15/06 80,929 88,143
8.180% due 08/15/07 2,400 2,646
7.250% due 09/01/08 125 131
USX Corp.
6.375% due 07/15/98 16,200 16,219
9.800% due 07/01/01 300 330
Wal-Mart Stores
9.100% due 07/15/00 100 107
8.625% due 04/01/01 1,050 1,127
Williams Co.
5.909% due 01/30/00(d) 23,000 23,010
WMX Technologies
6.700% due 05/01/01 10,000 10,068
World Color Press, Inc.
9.125% due 03/15/03 5,000 5,150
WorldCom, Inc.
9.375% due 01/15/04 21,203 22,475
Xerox Corp.
7.040% due 04/30/99 770 780
7.410% due 05/15/01 1,000 1,039
1,334,416
Utilities 3.4%
AES Corp.
10.250% due 07/15/06 4,500 4,973
Bell Atlantic Financial
5.300% due 09/01/98 1,000 998
California Energy
9.875% due 06/30/03 5,000 5,352
10.250% due 01/15/04 39,985 43,134
9.500% due 09/15/06 5,000 5,444
Calpine Corp.
9.250% due 02/01/04 4,150 4,316
7.875% due 04/01/08 2,500 2,522
Carolina Power & Light
5.375% due 07/01/98 100 100
Central Maine Power Co.
6.250% due 11/01/98 1,000 998
6.350% due 09/20/99 15,000 14,947
Chesapeake & Potomac Telephone
8.000% due 10/15/29 1,125 1,317
Cleveland Electric Illuminating Co.
8.150% due 11/30/98 7,500 7,592
7.850% due 11/01/99 6,000 6,127
Cleveland Electric/Toledo Edison
7.190% due 07/01/00 18,600 18,890
CMS Energy
7.375% due 11/15/00 7,000 7,056
7.000% due 01/15/05 18,000 17,298
<PAGE>
Coastal Corp.
8.750% due 05/15/99 4,300 4,418
Commonwealth Edison
6.500% due 04/15/00 185 186
8.000% due 10/15/03 7,550 7,671
8.125% due 01/15/07 10,000 10,211
9.875% due 06/15/20 11,700 13,726
Connecticut Light & Power
7.250% due 07/01/99 6,000 5,996
5.750% due 07/01/00 2,000 1,945
7.750% due 06/01/02 5,000 5,113
Consolidated Edison
7.600% due 01/15/00 100 103
Consolidated Natural Gas Co.
5.875% due 10/01/98 500 500
Duke Energy Corp.
8.000% due 11/01/99 40 41
7.000% due 06/01/00 700 713
Eastern Edison Co.
7.780% due 07/30/02 9,000 9,521
El Paso Electric Co.
7.250% due 02/01/99 10,956 11,008
First PV Funding
10.150% due 01/15/16 5,361 5,664
Gulf States Utilities
7.250% due 03/01/99 6,200 6,201
Illinois Power
6.500% due 09/01/99 12,050 12,118
Long Island Lighting Co.
7.300% due 07/15/99 71,085 72,105
6.250% due 07/15/01 7,000 7,049
8.500% due 05/15/06 6,750 7,038
7.900% due 07/15/08 4,335 4,491
8.900% due 07/15/19 46,000 48,990
9.750% due 05/01/21 85,318 87,161
9.625% due 07/01/24 16,400 16,567
Louisiana Power & Light Co.
7.740% due 07/01/02 1,900 1,943
MCI Communications Corp.
6.250% due 03/23/99 600 600
New Jersey Bell Telephone
7.850% due 11/15/29 70 84
New Orleans Public Service
8.670% due 04/01/05 2,230 2,234
New York Telephone Co.
6.250% due 02/15/04 150 150
North Atlantic Energy
9.050% due 06/01/02 4,872 5,004
Northern Illinois Gas Co.
6.450% due 08/01/01 1,450 1,468
Ohio Edison
6.875% due 09/15/99 5,750 5,785
Pacific Gas & Electric Co.
5.375% due 08/01/98 500 499
7.670% due 12/15/98 208 210
6.750% due 12/01/00 709 709
Pacific Northwest Bell
4.375% due 09/01/02 50 47
Pennsylvania Power & Light
5.500% due 04/01/98 250 250
Philadelphia Electric
5.375% due 08/15/98 12,000 11,973
Public Service Electric & Gas
8.750% due 07/01/99 40 41
Public Service of New Hampshire
9.170% due 05/15/98 16,000 16,050
Queststar Pipeline
9.375% due 06/01/21 200 222
Southern California Edison
5.450% due 06/15/98 400 400
Southwestern Bell Telephone Co.
6.125% due 03/01/00 50 50
System Energy Resources
6.000% due 04/01/98 801 801
7.710% due 08/01/01 10,050 10,382
Tenneco
10.000% due 08/01/98 1,600 1,620
Texas Utilities
5.875% due 04/01/98 3,000 3,000
6.250% due 01/31/00 6,000 6,020
Texas Utilities Co.
5.750% due 07/01/98 11,750 11,743
Texas-New Mexico Power
10.750% due 09/15/03 4,950 5,389
Toledo Edison Co.
8.180% due 07/30/02 1,400 1,471
8.700% due 09/01/02 10,000 10,642
7.850% due 03/31/03 7,000 7,306
7.875% due 08/01/04 500 524
Trident NGL, Inc.
10.250% due 04/15/03 7,500 7,842
Tuscon Electric Power
8.500% due 10/01/09 1,000 1,036
U.S. West Communications, Inc.
6.625% due 09/15/05 300 306
United Air Lines
10.670% due 05/01/04 2,050 2,475
Virginia Electric & Power Co.
9.375% due 06/01/98 7,500 7,539
6.250% due 08/01/98 200 200
Western Massachusetts Electric
7.375% due 07/01/01 7,000 7,045
Wilmington Trust Co. - Tucson Electric
10.732% due 01/01/13 991 1,116
613,776
Total Corporate Bonds and Notes 5,089,127
(Cost $5,119,756)
U.S. GOVERNMENT AGENCIES 7.5%
A.I.D. Housing Guarantee - Peru
9.980% due 08/01/08 1,155 1,252
Federal Home Loan Bank
5.740% due 12/23/98(d) 250 250
8.600% due 06/25/99 20 21
Federal Home Loan Mortgage Corp.
5.950% due 06/19/98 35,000 35,014
6.610% due 08/07/00 1,000 1,002
6.565% due 11/04/02 2,000 2,002
6.170% due 12/11/02 2,000 1,986
7.120% due 09/30/05 100 100
6.780% due 12/07/05 100 100
Federal National Mortgage Assn.
5.250% due 05/13/98 100 100
5.830% due 06/12/98 500,000 500,748
5.840% due 06/19/98 190,000 190,076
5.100% due 07/22/98 250 249
4.875% due 10/15/98 100 100
5.360% due 02/16/01 1,500 1,483
7.650% due 03/10/05 100 110
Government Trust Certificate - Greece
8.000% due 05/15/98 14 14
Resolution Funding
0.000% due 01/15/07 800 478
Student Loan Marketing Assn.
6.000% due 06/30/98 279,500 279,765
5.089% due 02/20/00(d) 134,700 132,698
6.080% due 06/30/00(d) 30,600 30,653
5.693% due 04/25/04(d) 32,175 32,175
5.674% due 10/25/04(d) 15,895 15,903
5.578% due 10/25/05(d) 15,395 15,381
6.398% due 01/25/07(d) 112,000 112,162
Tennessee Valley Authority
6.875% due 01/15/02 125 128
0.000% due 04/15/42 855 325
Total U.S. Government Agencies 1,354,275
(Cost $1,354,188)
U.S. TREASURY OBLIGATIONS 3.8%
Treasury Inflation Protected Securities
3.625% due 07/15/02(h) 329,321 326,233
3.375% due 01/15/07(h) 204 198
326,431
U.S. Treasury Bonds
12.375% due 05/15/04 1,000 1,339
U.S. Treasury Notes
5.375% due 05/31/98 2,500 2,500
6.125% due 08/31/98 5,055 5,069
5.875% due 10/31/98 3,250 3,256
8.875% due 11/15/98 300 306
8.875% due 02/15/99 390 401
5.875% due 02/28/99 2,500 2,508
6.250% due 03/31/99 110 111
6.375% due 09/30/01 413 422
7.875% due 11/15/04 293,000 327,428
342,001
U.S. Treasury Strips
0.000% due 02/15/99 225 214
0.000% due 05/15/21 44,508 11,093
0.000% due 11/15/21 22,146 5,341
16,648
Total U.S. Treasury Obligations 686,419
(Cost $690,826)
<PAGE>
MORTGAGE-BACKED SECURITIES 51.1%
Collateralized Mortgage Obligations 11.9%
American Southwest Financial
0.000% due 06/04/13 55,823 61,545
12.250% due 11/01/14 70 79
12.500% due 04/01/15 698 777
12.000% due 05/01/15 1,176 1,311
11.400% due 09/01/15 921 962
Bear Stearns
9.500% due 06/25/23 750 753
6.381% due 10/25/23(d) 8,087 8,165
10.000% due 08/25/24 15,018 16,691
7.000% due 03/25/27 7,000 7,049
Capstead Mortgage Corp.
8.750% due 07/25/21 10,000 10,266
Centex Acceptance Corp.
11.000% due 11/01/15 252 263
Chase Mortgage Financial Corp.
8.250% due 10/25/10 2,954 2,976
9.500% due 04/25/24 477 484
5.400% due 05/25/24 534 533
7.500% due 10/25/24 15 15
Citicorp Mortgage Securities, Inc.
8.500% due 04/01/17 262 262
9.500% due 01/01/19 4,799 4,781
9.500% due 09/25/19 250 249
9.500% due 09/25/20 627 644
6.000% due 08/25/21 302 300
7.570% due 10/25/22(d) 21,202 21,503
7.250% due 02/25/27 360 364
CMC Securities Corp.
7.059% due 09/25/23(d) 12,861 13,128
7.679% due 04/25/25(d) 415 427
Collateralized Mortgage Obligation Trust
10.200% due 02/01/16 608 647
8.000% due 01/01/17 269 271
8.000% due 09/20/21 8,156 8,413
Collateralized Mortgage Securities Corp.
11.880% due 04/01/15 1,718 1,804
11.450% due 09/01/15 52 56
11.450% due 11/01/15(d) 298 322
8.750% due 04/20/19 965 1,023
Countrywide
8.212% due 07/25/24(d) 13,992 14,193
Donaldson, Lufkin & Jenrette
7.469% due 08/01/21(d) 7,092 7,145
7.971% due 12/25/22(d) 4,862 5,024
8.093% due 03/25/24(d) 1,558 1,607
6.500% due 04/25/24 18 18
7.411% due 05/25/24(d) 352 356
Drexel Mortgage Funding
9.500% due 11/20/17 1,823 1,866
8.600% due 03/01/18 634 636
Federal Home Loan Mortgage Corp.
6.500% due 03/15/00 1,654 1,665
7.000% due 10/15/03 5,875 5,994
5.450% due 03/15/04 3,297 3,294
5.500% due 11/15/04 7,065 7,061
6.000% due 06/15/05 15,848 15,869
10.750% due 11/30/05 130 131
6.500% due 07/15/06 1,075 1,082
6.500% due 08/15/06 710 714
6.500% due 11/15/06 113 113
6.500% due 05/15/08 1,000 1,006
4.500% due 08/15/08 5,578 5,567
5.150% due 12/25/11 8,035 8,012
8.500% due 08/15/13 2,000 2,152
8.500% due 09/15/13 5,941 6,314
5.500% due 12/15/13 931 930
7.000% due 04/25/15 992 994
11.000% due 11/30/15 11,567 13,482
6.900% due 03/15/16 2,991 2,998
7.000% due 11/15/16 14,200 14,373
6.210% due 08/15/17 345 345
6.350% due 03/25/18 200 201
5.250% due 05/15/18 1,084 1,075
9.500% due 01/15/19 124 124
6.500% due 05/15/19 615 619
8.500% due 10/15/19 189 189
9.000% due 11/15/19 1,372 1,382
7.000% due 02/15/20 538 538
8.500% due 03/15/20 779 783
9.125% due 06/15/20 2,090 2,127
8.500% due 09/15/20 10,853 11,007
5.500% due 10/15/20 200 194
8.750% due 10/15/20 406 410
9.500% due 11/15/20 9,538 10,153
6.000% due 12/15/20 400 395
8.750% due 12/15/20 1,265 1,346
9.000% due 12/15/20 6,078 6,390
6.500% due 05/17/21 120 116
8.500% due 06/15/21 50,330 52,797
6.950% due 07/15/21 700 707
8.000% due 07/15/21 9,580 9,945
9.000% due 07/15/21 3,457 3,636
9.500% due 07/15/21 4,739 4,932
6.200% due 08/15/21 1,500 1,503
6.950% due 08/15/21 185 187
8.000% due 08/15/21 23,472 24,260
6.500% due 09/15/21 2,438 2,436
8.000% due 12/15/21 15,079 16,019
6.850% due 01/15/22 700 706
8.250% due 06/15/22 5,000 5,315
7.000% due 07/15/22 7,778 7,845
8.500% due 10/15/22 18,014 18,743
6.500% due 07/15/23 462 452
7.000% due 07/15/23 227 228
7.500% due 01/20/24 480 484
6.500% due 02/15/24 54 54
7.250% due 08/15/24 190 192
8.000% due 09/15/24 16,250 17,692
7.877% due 10/01/26(d) 7,512 7,722
7.500% due 01/15/27 20,889 21,655
7.500% due 03/17/27 20,000 20,144
7.500% due 07/15/27 160 160
6.500% due 08/15/27 10,131 9,445
7.000% due 11/15/28 9,000 9,120
6.324% due 08/15/32(d) 45,898 46,017
Federal National Mortgage Assn.
9.100% due 02/25/02 5,203 5,340
5.500% due 12/25/03 412 411
5.750% due 12/25/03 80 79
7.500% due 05/25/05 6,700 6,949
7.000% due 11/25/05 20 20
7.500% due 02/25/06 375 391
6.500% due 07/25/06 75 76
8.000% due 11/25/06 30 31
6.000% due 07/25/07 300 298
7.269% due 08/25/07(d) 126 124
7.000% due 10/25/07 200 205
7.000% due 02/25/08 932 926
10.500% due 08/25/08 7,146 8,471
7.000% due 11/25/09 711 710
4.950% due 06/25/10 1,542 1,538
6.750% due 11/25/10 1,300 1,310
7.000% due 01/25/11 500 508
7.500% due 04/18/11 159 160
7.500% due 02/17/12 91 91
6.750% due 05/25/13 1,984 1,980
6.400% due 09/25/14 485 485
10.000% due 12/25/14 847 865
6.000% due 11/25/15 2,461 2,456
9.670% due 01/25/17 460 473
9.200% due 12/25/17 928 943
7.000% due 01/25/18 1,105 1,107
9.300% due 05/25/18 1,712 1,801
6.206% due 06/25/18(d) 8 8
9.500% due 06/25/18 893 944
5.500% due 07/25/18 220 218
7.000% due 08/25/18 4,768 4,769
7.750% due 10/25/18 107 108
9.500% due 11/25/18 14,112 15,176
6.500% due 03/25/19 885 893
9.500% due 06/25/19 3,572 3,818
8.000% due 10/25/19 19,743 20,153
7.500% due 12/25/19 183 189
9.000% due 12/25/19 15,068 16,236
7.500% due 05/25/20 8,000 8,186
8.000% due 07/25/20 99 99
9.000% due 09/25/20 7,836 8,321
8.000% due 12/25/20 21,855 23,090
8.750% due 01/25/21 7,893 8,339
7.500% due 02/17/21 210 213
7.500% due 02/25/21 11,157 11,227
7.500% due 03/25/21 20,919 21,293
6.500% due 06/25/21 4,992 4,919
7.500% due 06/25/21 320 326
8.000% due 07/25/21 28,230 29,139
8.500% due 09/25/21 14,714 15,417
7.000% due 10/25/21 7,825 7,843
8.000% due 10/25/21 22,430 23,516
6.000% due 12/25/21 176 174
8.000% due 01/25/22 21,700 22,647
8.000% due 03/25/22 406 417
<PAGE>
7.000% due 04/25/22 17,091 17,541
8.000% due 06/25/22 3,163 3,441
7.000% due 07/25/22 9,884 9,975
8.000% due 07/25/22 50,121 53,349
6.500% due 10/25/22 3,442 3,293
7.800% due 10/25/22 5,658 5,846
6.500% due 12/25/22 941 925
7.000% due 03/25/23 24,406 24,268
6.900% due 05/25/23 134 131
7.000% due 06/25/23 4,179 3,971
6.000% due 08/25/23 5,005 4,844
6.500% due 08/25/23 142 142
6.750% due 10/25/23 505 481
6.500% due 11/25/23 170 165
7.500% due 06/20/24 120 121
7.000% due 02/18/25 140 140
7.500% due 12/25/25 120 122
7.000% due 02/15/26 180 181
7.000% due 07/18/26 210 211
7.500% due 08/18/27 11,983 12,090
First Commonwealth Savings & Loan
10.375% due 04/01/05 21 22
General Electric Capital Mortgage
8.000% due 07/25/23 12,979 13,161
6.500% due 09/25/23 45 42
6.500% due 02/25/24 18 18
6.500% due 03/25/24 12,845 12,010
6.500% due 04/25/24 56,430 51,850
8.000% due 06/25/25 11,330 11,457
7.500% due 04/25/27 360 364
Glendale Federal Savings & Loan
7.394% due 03/01/28(d) 9,304 9,281
Government National Mortgage Assn.
8.000% due 05/16/24 120 123
7.000% due 08/20/26 170 169
7.500% due 02/16/27 140 143
7.500% due 07/16/27 24,664 25,444
Greenwich
7.292% due 04/25/22(d) 2,031 2,057
7.237% due 07/25/22(d) 10,251 10,353
7.319% due 10/25/22(d) 263 266
7.425% due 04/25/23(d) 3,279 3,325
7.926% due 04/25/24(d) 4,411 4,486
8.318% due 06/25/24(d) 5,243 5,368
8.928% due 08/25/24(d) 7,862 8,083
8.886% due 11/25/24(d) 2,473 2,542
Headlands Mortgage Securities, Inc.
7.250% due 11/25/12 7,183 7,300
Imperial CMB Trust
5.992% due 09/25/26(d) 23,067 23,183
Independent National Mortgage Corp.
6.650% due 10/25/24 2,723 2,672
8.278% due 11/25/24(d) 9,747 9,997
7.310% due 07/25/25(d) 27,949 28,705
8.079% due 07/25/25(d) 27,684 28,255
International Mortgage Acceptance Corp.
12.250% due 03/01/14 540 587
J.P. Morgan & Co.
9.000% due 10/20/20 14,195 14,974
Kidder Peabody Acceptance Corp.
8.390% due 05/20/18 404 410
8.193% due 03/25/24(d) 13,709 13,781
8.193% due 09/25/24(d) 20,000 20,244
Marine Midland
8.000% due 04/25/23 23 24
8.000% due 10/25/23 350 358
Merrill Lynch Mortgage
6.875% due 06/15/21(d) 8,470 8,653
7.714% due 06/15/21(d) 7,949 8,144
8.173% due 06/25/22(d) 6,702 6,763
Nascor
6.750% due 04/30/28 27,707 26,668
Nomura Asset Securities Corp.
8.076% due 05/25/24(d) 10,687 10,978
Norwest Mortgage
12.500% due 02/01/14 1,049 1,121
12.250% due 04/01/14 94 98
PaineWebber Mortgage
6.000% due 04/25/09 11,951 11,572
PNC Mortgage Securities Corp.
7.000% due 06/25/13 14,000 14,042
Prudential Bache
6.213% due 09/01/18(d) 479 478
9.000% due 01/01/19 535 535
8.400% due 03/20/21 4,646 4,819
<PAGE>
Prudential Home
8.000% due 06/25/22 21,019 21,466
6.950% due 11/25/22 222 219
7.000% due 04/25/23 785 782
8.217% due 11/25/23(d) 10,164 10,446
8.295% due 11/25/23(d) 872 895
7.000% due 02/25/24 541 540
6.000% due 05/25/24 23 23
7.750% due 10/25/24 4,611 4,640
7.500% due 06/25/25 2,730 2,741
PSB Financial Corp.
11.050% due 12/01/15 977 1,044
Residential Asset Securities Corp.
7.000% due 03/25/27(d) 245 246
7.250% due 05/25/27(d) 345 349
Residential Funding
6.750% due 01/25/06 41,236 41,342
7.000% due 08/25/08 18,545 18,747
6.500% due 09/25/08 7,000 6,954
6.450% due 10/25/12 8,000 8,000
6.500% due 01/25/13 215,551 215,180
8.500% due 05/25/17 109 113
8.000% due 01/25/23 10,000 10,333
7.250% due 07/25/23 6,334 6,340
7.750% due 07/25/24 6 6
7.993% due 10/25/24(d) 12,158 12,401
7.500% due 09/25/25 18,183 18,649
5.400% due 10/25/27(d) 11,938 11,814
Resolution Trust Corp.
7.573% due 02/25/20(d) 197 198
7.261% due 09/25/20(d) 15,471 155
6.043% due 01/25/21(d) 1,055 1,046
8.457% due 06/25/21(d) 2,320 2,333
8.718% due 08/25/21(d) 21412 21940
7.940% due 09/25/21(d) 3,307 3,355
6.260% due 10/25/21(d) 268 268
6.688% due 10/25/21(d) 1,240 1,242
8.143% due 10/25/21(d) 275 278
8.625% due 10/25/21 300 304
7.549% due 01/25/22(d) 2,898 2,908
7.772% due 03/25/22(d) 6,691 6,752
8.521% due 05/25/22(d) 2,871 2,946
6.950% due 06/25/23(d) 2,524 2,524
7.437% due 08/25/23(d) 2,001 2,006
7.500% due 08/25/23 240 240
9.450% due 05/25/24 19,693 19,786
10.261% due 05/25/24(d) 2,323 2,349
6.688% due 07/25/24(d) 460 461
7.100% due 12/25/24 1,500 1,535
7.750% due 03/25/25 5,000 4,992
7.491% due 07/25/28(d) 14,001 13,974
7.251% due 10/25/28(d) 27,951 28,255
7.334% due 10/25/28(d) 13,398 13,600
7.108% due 05/25/29(d) 5,203 5,272
7.583% due 05/25/29(d) 6,810 6,944
Rural Housing Trust
3.330% due 10/01/28 385 355
Ryan Mortgage Acceptance Corp.
9.450% due 10/01/16 170 179
Ryland Acceptance Corp.
9.000% due 12/01/16 877 909
11.500% due 12/25/16 207 208
8.000% due 09/25/22 2,593 2,599
8.200% due 09/25/22 100 103
14.000% due 11/25/31 1,853 2,053
Ryland Mortgage Securities Corp.
7.973% due 08/25/22(d) 3,662 3,712
7.500% due 08/25/24 66 67
7.277% due 08/25/29(d) 8,039 8,265
6.987% due 10/25/31(d) 14,626 14,735
Salomon Brothers Mortgage Securities
7.605% due 11/25/22(d) 1,543 1,574
8.391% due 07/01/24(d) 13,973 14,471
Santa Barbara Savings
9.500% due 11/20/18 4,577 4,609
Saxon Mortgage
7.899% due 08/25/23(d) 42,310 43,434
8.378% due 09/25/24(d) 13,027 13,491
Sears Mortgage
8.000% due 03/25/22 627 626
7.220% due 09/25/22(d) 3,263 3,315
7.852% due 12/25/22(d) 8,162 8,248
8.457% due 05/25/32(d) 13,095 13,050
Securitized Asset Sales, Inc.
7.821% due 10/25/23(d) 5,708 5,867
7.857% due 12/26/23(d) 5,530 5,675
5.944% due 02/25/28 16,320 16,270
<PAGE>
Security Pacific National Bank
6.336% due 03/01/18(d) 148 144
Vendee Mortgage
7.000% due 02/15/00 5,050 5,092
7.750% due 03/15/16 600 620
7.750% due 05/15/18 550 568
Western Federal Savings & Loan
7.104% due 07/01/21(d) 9,263 9,300
2,158,509
Federal Home Loan Mortgage Corporation 14.6%
5.250% due 12/01/98 1 1
5.500% due 04/01/01-03/01/10(g) 466 462
5.750% due 08/15/20 300 296
6.000% due 12/01/98-05/13/28(g) 450,567 435,078
6.199% due 07/01/27 (d) 9 9
6.500% due 06/01/03-05/13/28(g) 1,853,556 1,833,473
6.775% due 11/01/03 70 70
7.000% due 01/01/00-03/01/26(d)(g) 8,862 8,977
7.210% due 10/25/23 (d) 28,956 30,013
7.500% due 05/01/99-01/01/27(d)(g) 16,080 16,519
7.540% due 10/25/17 (d) 2,665 2,651
7.589% due 09/01/23 (d) 4,012 4,140
7.611% due 07/01/23 (d) 3,817 3,931
7.625% due 01/01/19 (d) 20 20
7.706% due 05/01/23 (d) 5,425 5,595
7.733% due 04/01/23 (d) 1,210 1,250
7.747% due 10/01/23 (d) 5,166 5,332
7.750% due 04/01/07 50 51
7.757% due 10/01/23 (d) 3,140 3,242
7.820% due 08/01/23 (d) 25 25
7.834% due 01/01/24 (d) 942 973
7.839% due 04/01/24 (d) 16,224 16,919
7.844% due 04/01/29 (d) 3,887 4,061
7.848% due 09/01/23 (d) 27,091 27,786
7.870% due 06/01/24 (d) 2,875 2,952
7.873% due 09/01/23 (d) 6,189 6,390
7.889% due 11/01/23 (d) 1,907 1,967
7.900% due 05/01/23 (d) 2,809 2,903
7.909% due 07/01/22 (d) 1,795 1,854
7.939% due 11/01/23 (d) 976 1,001
7.950% due 10/01/23 (d) 1,213 1,262
7.974% due 10/01/23 (d) 2,007 2,097
7.996% due 01/01/24 (d) 1,137 1,166
8.000% due 10/01/07-06/01/26(g) 4,510 4,677
8.031% due 07/01/23 (d) 1,355 1,412
8.047% due 08/01/23-07/01/24(d)(g) 21,060 21,822
8.048% due 11/01/23 (d) 1,424 1,468
8.099% due 09/01/23 (d) 6,934 7,211
8.152% due 08/01/23 (d) 2,894 3,005
8.178% due 08/01/24 (d) 481 498
8.185% due 08/01/23 (d) 1,296 1,336
8.206% due 10/01/23 (d) 4,765 4,947
8.250% due 08/01/07-12/01/09(g) 216 222
8.500% due 09/01/01-05/13/28(g) 115,944 121,090
8.750% due 02/01/01-09/01/10(g) 376 386
8.900% due 11/15/20 29,911 31,523
9.000% due 01/01/02-09/15/20(g) 1,246 1,303
9.250% due 06/01/09-08/01/09(g) 133 141
9.500% due 08/01/01-06/01/21(g) 3,127 3,329
10.000% due 06/01/04-11/15/19(g) 1,642 1,731
10.250% due 03/15/09-05/01/09(g) 2,149 2,326
11.000% due 12/01/99-07/01/19(g) 1,186 1,314
11.250% due 10/01/09-09/01/15(g) 197 219
11.500% due 03/01/00-05/01/00(g) 22 24
12.500% due 07/01/99 3 3
13.250% due 10/01/13 84 98
14.000% due 04/01/16 36 41
15.500% due 08/01/11-11/01/11(g) 19 23
16.250% due 05/01/11-11/01/11(g) 12 14
2,632,629
Federal Housing Administration 0.8%
7.125% due 03/01/34 4,483 4,537
7.211% due 12/01/21 3,347 3,429
7.316% due 05/01/19-11/01/19 (g) 11,760 12,019
7.375% due 03/01/19-01/01/24 (g) 17,551 18,055
7.399% due 02/01/21 2,669 2,746
7.430% due 12/01/16-05/01/25 (g) 86,964 90,401
7.450% due 12/01/21 12,179 12,472
7.650% due 11/01/18 167 173
143,832
Federal National Mortgage Association 6.3%
5.450% due 04/08/98 (d) 300 300
5.650% due 04/25/05 200 199
6.000% due 11/01/03-03/01/24 (g) 9,330 9,149
6.199% due 05/01/27-05/01/36 (d)(g) 78,054 78,611
6.200% due 02/01/28 (d) 2,418 2,436
6.201% due 05/01/36 (d) 4,997 5,043
6.203% due 08/01/29 (d) 10,180 10,255
6.205% due 05/01/36 (d) 30,376 30,653
6.207% due 02/01/18-03/01/33 (d)(g) 62,588 63,093
6.210% due 05/01/36 (d) 35,161 35,483
6.213% due 04/01/18-11/01/35 (d)(g) 52,241 52,674
6.222% due 11/01/28 (d) 2,602 2,621
6.227% due 04/01/27 (d) 279 280
6.250% due 07/25/07-04/01/19 (d)(g) 1,112 1,124
6.500% due 11/01/03-05/13/28 (g) 543,922 537,671
6.750% due 08/01/03-09/25/22 (g) 1,150 1,158
6.834% due 07/01/03 69 71
6.921% due 11/01/25 (d) 12,874 13,429
6.950% due 03/25/26 300 304
7.000% due 05/25/99-12/20/27 (g) 48,700 49,159
7.250% due 05/01/02-01/01/23 (g) 11,497 11,664
7.251% due 09/01/22 (d) 3,226 3,299
7.285% due 09/01/22 (d) 3,891 3,995
7.337% due 09/01/25 (d) 6,485 6,684
7.500% due 08/01/03-09/01/25 (g) 92,052 94,726
7.690% due 01/01/24 (d) 1,716 1,781
7.725% due 03/01/25 (d) 8,875 9,113
7.728% due 01/01/24 (d) 1,159 1,199
7.730% due 12/01/23 (d) 1,965 2,003
7.737% due 11/01/23 (d) 2,480 2,563
7.744% due 11/01/25 (d) 6,206 6,377
7.750% due 06/01/09-02/01/26 (d)(g) 2,066 2,139
7.755% due 07/01/24(d) 19,250 19,647
7.783% due 01/01/24(d) 5,922 6,133
7.785% due 05/01/26(d) 2,353 2,441
7.795% due 11/01/25(d) 4,206 4,336
7.817% due 01/01/26(d) 3,389 3,510
7.832% due 11/01/23(d) 946 977
7.835% due 10/01/23(d) 894 929
7.858% due 09/01/23(d) 6,423 6,733
7.895% due 12/01/23(d) 3,101 3,212
7.919% due 01/01/24(d) 318 332
7.920% due 03/01/26(d) 11,558 12,022
8.000% due 09/01/01-12/01/26 (g) 10,951 11,365
8.004% due 09/01/24 (d) 3,768 3,887
8.061% due 05/01/24 (d) 4,758 4,915
8.250% due 10/01/08-02/01/17 (g) 862 900
8.500% due 07/01/99-05/01/27 (g) 5,771 6,027
9.000% due 01/01/99-04/01/17 (g) 2,381 2,488
9.500% due 12/01/06-07/01/22(g) 164 178
9.750% due 11/01/08 88 94
10.000% due 03/01/21-05/01/22(g) 872 954
10.500% due 12/01/16-04/01/22(g) 995 1,093
12.000% due 05/01/16 20 23
13.000% due 09/01/13 55 64
13.250% due 09/01/11 20 23
14.500% due 11/01/11-01/01/13(g) 75 91
14.750% due 08/01/12-11/01/12(g) 288 333
15.500% due 10/01/12-12/01/12(g) 35 43
15.750% due 12/01/11-08/01/12(g) 174 208
16.000% due 09/01/12 191 238
1,132,452
Government National Mortgage Association 16.6%
5.650% due 10/15/12 13 12
6.000% due 10/15/08-01/20/28(d)(g) 633,162 624,713
6.500% due 10/15/08-04/20/28(d)(g) 818,779 821,416
7.000% due 07/15/08-09/20/27(d)(g) 1,151,453 1,179,581
7.375% due 06/20/21-05/20/26(d)(g) 250,587 257,423
7.500% due 08/15/05-02/15/28(g) 42,005 43,218
7.875% due 04/20/23 (d) 746 770
8.000% due 08/15/05-04/20/28(g) 45,612 47,242
8.250% due 08/15/04-07/15/08(g) 618 648
8.500% due 06/15/01-08/15/16(g) 274 287
8.750% due 03/15/07-07/15/07(g) 163 173
9.000% due 09/15/01-07/20/22(g) 7,877 8,513
9.250% due 10/15/01-03/15/06(g) 437 454
9.500% due 04/15/01-08/15/23(g) 8,021 8,778
9.750% due 09/15/02-01/15/21(g) 337 358
10.000% due 06/20/01-02/15/25(g) 6,023 6,649
10.250% due 10/15/98-12/15/99(g) 58 59
10.500% due 06/15/04 137 145
10.750% due 08/15/98-09/15/98(g) 7 7
11.000% due 05/15/04-06/15/13(g) 89 95
11.250% due 03/15/01-12/20/15(g) 63 70
11.500% due 04/15/13-05/15/13(g) 13 14
12.000% due 03/20/99-03/15/15(g) 97 110
12.500% due 01/15/11 1 2
13.000% due 12/15/12-10/15/14(g) 40 47
13.250% due 10/20/14 20 23
13.500% due 11/15/12-12/15/12(g) 7 8
15.000% due 09/15/12-10/15/12(g) 18 21
16.000% due 01/15/12-04/15/12(g) 9 11
17.000% due 11/15/11-12/15/11(g) 114 137
3,000,984
<PAGE>
Other Mortgage-Backed Securities 0.8%
Aames Mortgage Trust
7.275% due 05/15/20 405 411
Bank of America
9.000% due 03/01/08 85 85
Citibank, N.A.
8.000% due 07/25/18 91 91
Daiwa Mortgage
7.500% due 09/25/06(d) 130 131
DBL Mortgage Funding
9.500% due 08/01/19 23 24
First Interstate Bancorp
9.125% due 01/01/09 15 16
General Electric Credit Corp.
8.000% due 03/01/02 100 102
German American Capital Corp.
8.360% due 09/30/02 3,737 3,830
6.581% due 07/01/18(d) 9,490 9,365
Great Western Savings & Loan
6.060% due 08/01/17(d) 203 199
Guardian
6.887% due 12/25/18(d) 398 345
Home Savings of America
8.464% due 08/01/06 97 97
5.873% due 05/25/27(d) 3,801 3,715
6.386% due 08/25/29(d) 14,872 14,945
Imperial Savings & Loan
10.000% due 09/01/16 233 246
8.235% due 01/25/17(d) 108 108
8.840% due 07/25/17(d) 389 388
LTC Commercial Corp.
7.100% due 11/28/12 3,915 3,970
Manufacturers Mortgage Housing
13.250% due 01/15/99 237 252
MDC Mortgage Funding
8.841% due 01/25/25(d) 993 1,019
Merrill Lynch Mortgage
9.250% due 12/15/09 27 27
7.495% due 06/15/21(d) 1,775 1,830
Mid-State Trust
8.330% due 04/01/30 74,150 80,256
Morgan Stanley Mortgage
8.150% due 07/20/21 13 13
Resolution Trust Corp.
7.775% due 05/25/29(d) 6,215 6,333
Ryland Acceptance Corp.
7.644% due 11/28/22(d) 749 761
Salomon Brothers Mortgage Securities
11.500% due 09/01/15 1,632 1,775
Sears Mortgage
12.000% due 02/25/14 1,238 1,316
6.855% due 06/25/22(d) 903 913
7.588% due 10/25/22(d) 4,713 4,859
Structured Asset Securities Corp.
5.890% due 01/25/00(d) 14,397 14,397
Western Federal Savings & Loan
6.614% due 11/25/18(d) 296 296
6.664% due 03/25/19(d) 2,092 2,100
154,215
<PAGE>
Stripped Mortgage-Backed Securities 0.1%
Federal Home Loan Mortgage Corp. (IO)
10.038% due 09/15/05 32 3
6.500% due 11/15/06 2,573 195
6.500% due 03/15/07 3,516 260
5.750% due 09/15/07(d) 12,960 1,040
5.428% due 02/15/08(d) 940 103
11.651% due 01/15/16 32 3
6.500% due 08/15/16 3,644 264
7.000% due 04/15/18 3,531 289
9.993% due 11/15/18 224 28
8.845% due 01/15/21 469 92
9.000% due 05/15/22 240 45
Federal Home Loan Mortgage Corp. (PO)
0.000% due 06/15/21 4,380 4,173
Federal National Mortgage Assn. (IO)
6.750% due 09/25/04 79 4
7.000% due 06/25/05 6
10.458% due 07/25/05(d) 968 93
6.500% due 07/25/06 5,715 440
6.500% due 02/25/07 4,582 434
6.500% due 07/25/07 1,411 109
6.500% due 09/25/07 6,863 589
6.500% due 10/25/07 2,354 206
0.100% due 03/25/09(d) 51,708 1,218
7.000% due 08/25/15 3,792 215
7.000% due 08/25/16 946 63
6.500% due 08/25/20 2,666 555
10.070% due 01/25/21 158 35
9.032% due 08/25/21 2,208 471
0.950% due 11/25/21(d) 50,615 899
6.500% due 01/25/23 5,364 902
Federal National Mortgage Assn. (PO)
0.000% due 09/01/07 1,250 1,007
0.000% due 02/25/21 5,355 4,905
0.000% due 06/25/22 3,209 2,873
0.000% due 08/25/23 489 342
PaineWebber (IO)
13.595% due 08/01/19 280 90
Vendee Mortgage (IO)
0.542% due 06/15/23(d) 216,368 4,626
26,571
Total Mortgage-Backed Securities 9,249,192
(Cost $9,179,484)
ASSET-BACKED SECURITIES 5.8%
AFC Home Equity Loan Trust
7.402% due 10/25/26(d) 9,544 9,689
6.550% due 01/25/27(d) 3,529 3,528
Allied Waste Industries, Inc.
7.125% due 12/05/03 5,880 5,880
Arcadia Automobile Receivables Trust
6.300% due 07/16/01 9,000 9,048
Associates Manufactured Housing
7.000% due 03/15/27 900 923
Auto Receivables Trust
6.500% due 04/16/03 34,352 34,352
California Infrastructure
5.940% due 09/25/00 16,158 16,159
5.970% due 12/25/00 6,187 6,193
5.980% due 12/26/00 28,495 28,540
6.010% due 06/25/01 99,300 99,486
Case Equipment Loan Trust
6.150% due 09/15/02 2,474 2,484
Chase Manhattan Grantor Trust
6.000% due 09/17/01 3,568 3,576
5.900% due 11/15/01 9,971 9,988
6.610% due 09/15/02 5,340 5,387
Conti Mortgage Home Equity Loan Trust
5.588% due 10/15/12(d) 38,000 38,006
6.990% due 03/15/21 350 356
<PAGE>
Copelco Capital Funding Corp.
6.340% due 07/20/04 68 69
CSXT Trade Receivables
5.050% due 09/25/99 500 499
Daimler-Benz
6.050% due 03/20/05 12,339 12,333
Daimler-Benz Vehicle Trust
5.850% due 07/20/03 24,239 24,224
Delta Air Lines Equipment Trust
9.230% due 07/02/02 12,862 13,680
10.500% due 01/02/07 7,412 8,924
10.570% due 01/02/07 15,881 20,017
9.550% due 01/02/08 7,773 8,773
10.000% due 06/05/13 10,828 13,675
Discover Card Trust
6.062% due 10/16/13(d) 400 408
EQCC Home Equity Loan Trust
6.100% due 10/15/03 5,463 5,472
6.710% due 07/15/11 330 335
Equivantage Home Equity Loan Trust
6.550% due 04/01/27 200 201
Federal-Mogul Corp.
7.690% due 06/30/99 813 812
7.750% due 06/30/99 3,049 3,043
7.914% due 06/30/99(d) 14,638 14,610
7.940% due 12/31/05 1,319 1,316
8.000% due 12/31/05(d) 4,945 4,935
8.164% due 12/31/05(d) 23,737 23,691
First Omni Bank
6.650% due 09/15/03(d) 1,500 1,532
First Security Auto Grantor Trust
6.100% due 04/15/03 3,767 3,766
First Union Master Credit Card Trust
5.858% due 09/15/03 88,750 89,006
Flag Limited
9.400% due 12/15/04(d) 15,000 15,000
Ford Credit Grantor Trust
6.750% due 09/15/00 1,250 1,264
5.900% due 10/15/00 10,464 10,478
Ford Motor Credit Corp.
5.500% due 02/15/03 5,300 5,232
Fred Meyer, Inc.
8.750% due 03/19/03(d) 110,000 108,350
General Motors Acceptance Corp.
6.500% due 04/15/02 43,011 43,253
Green Tree Financial Group
7.150% due 07/15/27 1,025 1,051
Green Tree Home Improvement Loan Trust
6.100% due 01/15/28 3,845 3,850
IMC Home Equity Loan Trust
5.765% due 05/21/12(d) 47,110 47,111
7.429% due 07/25/26(d) 1,475 1,499
Integrated Health Services
7.625% due 09/16/04(d) 15,000 14,858
MBNA Master Credit Card Trust
6.050% due 11/15/02 245 246
Metlife Capital Equipment Loan Trust
6.850% due 05/20/08(d) 320 330
National Medical Care
6.969% due 09/30/03(d) 41,250 41,095
NationsBank Auto Owner Trust
6.375% due 07/15/00 1,700 1,707
NationsBank Corp.
5.850% due 06/15/02 349 350
Newcourt Receivable Asset Trust
6.240% due 12/20/04 35 35
Olympic Automobile Receivables Trust
5.700% due 04/15/00 1,802 1,804
5.650% due 01/15/01 818 819
OSCC Home Equity
6.950% due 05/15/07 92 93
Premiere Auto Trust
6.575% due 10/06/00 1,975 1,992
Saxon Asset Securities Trust
6.475% due 11/25/20 350 351
Sears Credit Account Master Trust
6.050% due 01/16/08 500 502
Standard Credit Card Master Trust
6.750% due 06/07/00 290 291
The Money Store Home Equity Trust
6.815% due 07/15/06 24,545 24,676
6.520% due 08/15/09 45,879 45,958
6.205% due 03/15/12 25,000 25,000
7.550% due 02/15/20 500 519
Total Renal Care
7.504% due 10/22/07(d) 33,000 33,083
UCFC Home Equity Loan
<PAGE>
6.381% due 07/15/10 250 250
United Air Lines Equipment Trust
9.200% due 03/22/08 4,309 4,877
10.360% due 11/13/12 7,000 9,097
10.020% due 03/22/14 4,500 5,572
10.850% due 07/05/14 34,111 44,611
10.125% due 03/22/15 14,300 18,386
9.060% due 06/17/15 5,000 5,486
9.210% due 01/21/17 2,000 2,369
WFS Financial Owner Trust
6.650% due 08/20/00 2,516 2,529
6.050% due 07/20/01 3,000 2,997
6.500% due 09/20/01 11,000 11,100
Total Asset-Backed Securities 1,062,987
(Cost $984,857)
SOVEREIGN ISSUES 3.0%
Banco Nacional de Obra y Servicios
6.875% due 10/01/98 19,500 19,159
City of Buenos Aires
11.250% due 04/11/07 5,000 5,350
Hydro Quebec
5.594% due 04/15/99(d) 10,000 9,985
9.400% due 02/01/21 500 650
9.500% due 11/15/30 2,370 3,178
Kingdom of Sweden
10.250% due 11/01/15 500 665
Providence of Newfoundland
9.000% due 06/01/19 500 620
Province of Nova Scotia
9.375% due 07/15/02 1,000 1,115
Province of Ontario
6.125% due 06/28/00 50 50
7.750% due 06/04/02 200 213
7.625% due 06/22/04 1,000 1,079
7.000% due 08/04/05 1,000 1,054
Province of Quebec
5.960% due 06/21/99(d) 50,000 50,201
7.500% due 07/15/02 6,000 6,275
Republic of Argentina
5.719% due 04/01/00(d) 21,611 21,140
5.615% due 04/01/01(d) 15,365 14,805
6.688% due 03/31/05(d) 369,408 340,778
8.726% due 04/10/05(d)$ 25,600 25,600
Republic of Philippines
6.656% due 01/05/05(d) 7,467 7,065
Republic of Poland
6.688% due 10/27/24(d) 35,000 34,346
Total Sovereign Issues 543,328
(Cost $502,717)
FOREIGN CURRENCY-DENOMINATED ISSUES (c)(f) 2.3%
Foreign Currency-Denominated Issues 2.3%
City of Montreal
11.500% due 09/20/00 C$ 7,000 5,611
Commonwealth of Australia
8.750% due 01/15/01 A $ 4,235 3,069
9.750% due 03/15/02 3,665 2,811
10.000% due 10/15/02 6,940 5,450
10.000% due 02/15/06 1,600 1,349
10.000% due 10/15/07 98,000 84,937
Commonwealth of Canada
6.500% due 06/01/04 C$ 1,000 750
4.250% due 12/01/26 (h) 120,542 87,938
Commonwealth of New Zealand
6.500% due 02/15/00 N$ 160,000 86,289
8.000% due 02/15/01 8,890 4,949
10.000% due 03/15/02 107,500 64,334
8.000% due 04/15/04 7,000 3,996
4.500% due 02/15/16 (h) 23,000 12,119
Petroleos Mexicanos
7.750% due 09/30/98 FF 5,000 818
Province of Saskatchewan
9.125% due 02/15/21 C$ 3,000 3,866
Republic of Argentina
2.976% due 04/01/01 (d)AP 45,927 43,164
Reynolds, R.J.
6.875% due 11/22/00 DM 9,500 5,271
Total Foreign Currency-Denominated Issues 416,721
(Cost $455,678)
<PAGE>
PREFERRED STOCK 0.4%
Shares
Banco Bilbao Vizcaya International 266,217 7,288
Barclays Bank 215,500 6,182
California Federal Bank 50,000 5,669
Sanwa International 7,494,000,000 55,428
Time Warner, Inc. 0 1
Unocal Capital Trust 402 22
Total Preferred Stock 74,590
(Cost $77,347)
SHORT-TERM INSTRUMENTS 18.1%
Principal
Amount
(000s)
Certificates of Deposit 5.5%
Bank of Tokyo
6.010% due 05/11/98 55,000 55,000
6.040% due 05/11/98 95,000 94,991
6.050% due 05/13/98 5,000 5,000
6.470% due 06/18/98 20,000 20,000
Bankers Trust
5.900% due 07/07/98 120,000 119,953
5.900% due 07/14/98 39,500 39,500
5.970% due 08/28/98 10,000 9,996
Deutsche Bank
5.930% due 06/16/98 250,000 250,000
5.950% due 06/16/98 10,000 10,000
Landesbank Hessen-Thueringen
5.930% due 06/30/98 210,000 210,000
Sanwa Bank Limited
6.160% due 05/11/98 155,000 155,000
6.530% due 06/22/98 30,000 30,042
999,482
Commercial Paper 9.7%
Abbott Laboratories
5.500% due 04/21/98 5,000 4,985
5.520% due 04/21/98 900 897
American Express Credit
5.540% due 04/03/98 15,000 14,995
5.520% due 04/15/98 3,400 3,393
5.520% due 04/27/98 1,700 1,693
AT&T Capital Corp.
5.856% due 05/05/98 16,000 15,912
5.875% due 05/05/98 3,000 2,983
5.900% due 06/05/98 30,000 29,697
Australian Wheat Board
5.460% due 04/06/98 9,600 9,593
5.450% due 04/23/98 2,200 2,193
5.530% due 04/23/98 100 100
BellSouth Telecommunications, Inc.
5.510% due 04/22/98 100 100
5.520% due 04/28/98 400 398
5.490% due 05/08/98 11,800 11,733
Caisse d'Amortissement
5.520% due 04/27/98 1,700 1,693
5.510% due 05/04/98 1,300 1,293
5.560% due 06/12/98 70,000 69,217
5.640% due 06/12/98 30,000 29,665
Campbell Soup Co.
5.500% due 05/01/98 1,600 1,593
5.540% due 06/12/98 50,000 49,441
E.I. Du Pont de Nemours
5.510% due 04/06/98 2,800 2,798
5.510% due 04/07/98 22,500 22,479
5.440% due 04/09/98 7,500 7,491
5.540% due 04/28/98 12,600 12,548
5.530% due 05/04/98 18,300 18,207
5.520% due 06/03/98 50,000 49,510
5.530% due 06/05/98 50,000 49,495
Emerson Electric Co.
5.510% due 04/27/98 1,000 996
5.500% due 04/30/98 7,900 7,865
Export Development Corp.
5.430% due 04/09/98 8,800 8,789
5.520% due 04/22/98 2,000 1,994
Federal Farm Credit Bank
5.500% due 04/02/98 5,300 5,299
Federal Home Loan Mortgage Corp.
5.485% due 04/21/98 15,300 15,253
5.510% due 04/23/98 100 100
Federal National Mortgage Assn.
5.490% due 04/30/98 7,000 6,969
Florida Power Corp.
5.520% due 04/21/98 3,600 3,589
5.500% due 06/09/98 1,200 1,187
Ford Motor Credit Corp.
5.550% due 04/03/98 10,300 10,297
5.480% due 04/06/98 6,000 5,995
5.520% due 04/08/98 90,200 90,103
5.480% due 04/09/98 3,000 2,996
5.540% due 04/16/98 2,200 2,195
General Electric Capital Corp.
5.560% due 04/03/98 4,100 4,099
5.550% due 04/06/98 65,000 64,950
5.470% due 04/08/98 72,900 72,822
5.520% due 04/09/98 9,000 8,989
5.550% due 04/16/98 5,700 5,687
5.470% due 04/20/98 1,600 1,595
5.530% due 04/28/98 20,000 19,917
5.520% due 06/05/98 500 495
5.560% due 06/09/98 128,000 126,628
5.560% due 06/11/98 70,000 69,229
5.660% due 06/11/98 14,000 13,846
General Motors Acceptance Corp.
5.530% due 04/08/98 23,000 22,975
5.570% due 04/08/98 36,300 36,261
5.580% due 04/24/98 1,200 1,196
5.540% due 04/29/98 2,000 1,991
5.580% due 06/10/98 82,000 81,109
IBM Credit Corp.
5.490% due 04/08/98 500 499
5.530% due 04/16/98 7,100 7,084
Kellogg Co.
5.530% due 04/17/98 200 200
KFW International Finance, Inc.
5.520% due 04/03/98 100 100
5.510% due 04/07/98 25,000 24,977
5.520% due 04/16/98 100 100
5.530% due 04/16/98 700 698
5.530% due 05/05/98 80,000 79,582
Kingdom of Sweden
5.410% due 04/02/98 7,450 7,449
Motorola, Inc.
5.490% due 05/11/98 4,500 4,473
5.490% due 05/12/98 100 99
National Rural Utilities Cooperative
5.460% due 04/07/98 1,300 1,299
5.430% due 04/09/98 28,800 28,765
5.490% due 05/07/98 600 597
5.500% due 05/21/98 600 595
5.500% due 06/11/98 1,000 989
5.510% due 06/12/98 1,300 1,285
5.480% due 06/16/98 1,700 1,680
5.500% due 06/16/98 2,000 1,976
5.500% due 07/10/98 49,000 48,251
New Center Asset Trust
5.490% due 04/07/98 79,000 78,928
5.450% due 04/08/98 42,800 42,755
5.540% due 04/09/98 3,000 2,996
5.530% due 04/22/98 6,500 6,479
5.570% due 05/13/98 3,900 3,875
5.530% due 05/20/98 30,000 29,774
Oesterreichische
5.500% due 04/20/98 1,000 997
5.570% due 04/22/98 15,000 14,951
Ontario Hydro
5.520% due 04/06/98 16,000 15,988
5.500% due 05/21/98 9,000 8,931
Pfizer, Inc.
5.500% due 05/08/98 50,000 49,717
Procter & Gamble Co.
5.510% due 04/14/98 3,100 3,094
5.500% due 04/15/98 3,000 2,994
5.510% due 05/14/98 59,800 59,406
Shell Oil Co.
5.490% due 04/29/98 1,600 1,593
5.540% due 04/29/98 50,000 49,785
Southwestern Public Service Co.
5.530% due 05/08/98 800 795
TCI Communications, Inc.
6.062% due 05/08/98 50,000 49,688
Wisconsin Electric Power & Light
5.500% due 04/10/98 700 699
Wool International
5.490% due 05/29/98 5,000 4,956
1,748,617
Repurchase Agreements 2.4%
State Street Bank
5.000% due 04/01/98 32,569 32,569
(Dated 03/31/98. Collateralized by U.S. Treasury
Note 6.125% 05/15/98 valued at $33,221,025.
Repurchase proceeds are $32,573,523.)
Daiwa Securities America
5.800% due 04/01/98 288,000 288,000
(Dated 03/31/98. Collateralized by U.S. Treasury Note 6.250%
04/30/01 valued at $29,012,296. and U.S. Treasury Note 6.000%
06/30/99 valued at $51,805,740 and U.S. Treasury Note 5.625%
12/31/99 valued at $99,601,867. Repurchase proceeds are
$180,419,903.)
First Boston
5.800% due 04/01/98 106,300 106,300
(Dated 03/31/98. Collateralized by U.S. Treasury Note 6.375%
05/15/99 valued at $213,726,584. Repurchase proceeds are
$213,943,623.)
426,869
U.S. Treasury Bills (b)(g) 0.5%
5.040% due 04/16/98-12/10/98 95,715 94,667
Total Short-Term Instruments 3,269,635
(Cost $3,269,580)
Total Investments (a) 120.2% $21,746,274
(Cost $21,634,433)
Written Options (e) (0.0%) (1,459)
(Premiums $3,653)
Other Assets and Liabilities (Net) (20.2%) (3,653,104)
Net Assets 100.0% $18,091,711
Notes to Schedule of Investments (amounts in thousands):
(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. $204,637
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (94,860)
Unrealized appreciation-net $109,777
(b) Securities with an aggregate market value of $94,667
have been segregated with the custodian to cover margin
requirements for the following open future contracts at
March 31, 1998: Contracts Unrealized
(Depreciation)
Eurodollar June Futures (06/98) 240 $ (108)
U.S. Treasury 2 Year Note (06/98) 28 (3)
U.S. Treasury 5 Year Note (06/98) 6,455 (1,565)
U.S. Treasury 10 Year Note (06/98) 30,605 (124)
U.S. Treasury 30 Year Bond (06/98) 24,388 (1,645)
United Kingdom 90 Day Libor (06/98) 5,772 (1,410)
$ (4,855)
(c) Foreign forward currency contracts outstanding at March 31, 1998:
Type Principal Amount Covered Expiration Unrealized Appreciation/
by Contract Month (Depreciation)
Buy C$ 55,203 04/98 $ 343
Sell 192,964 06/98 (334)
Buy DM 5,724 05/98 (70)
Sell 14,199 05/98 162
Buy BP 18,789 04/98 (34)
Sell 38,587 04/98 (923)
Sell JY 7,507,000 06/98 2,584
Sell N$ 22,362 04/98 293
$ 2,021
(d) Variable Rate Security. The rate listed is as of March 31, 1998.
(e) Premiums received on Written Options:
Market
Type Par Premiums Value
Call - CBOT U.S. Treasury 30 Year Bond (06/98)
Strike @ 130.00 Exp. 05/16/98 $ 2,300 $ 959 $ 36
Put - CME Eurodollar June Futures (06/98)
Strike @ 94.00 Exp. 06/15/98 2,500 370 38
Call - CBOT U.S. Treasury 30 Year Bond (09/98)
Strike @ 132.00 Exp. 08/22/98 6,000 1,187 656
Call - OTC Sanwa Communications
Strike @ 1,270.00 Exp. 02/26/99 465 1,137 729
$ 3,653 $ 1,459
<PAGE>
(f) Principal amount denoted in indicated currency:
A$ Australian Dollar
AP Argentine Peso
BP British Pound
CS Canadian Dollar
DM German Mark
FF French Franc
JY Japanese Yen
N$ New Zealand Dollar
(g) Securities are grouped by coupon and represent a range of maturities.
(h) Principal amount of the security is adjusted for inflation.
(i) Security becomes interest bearing at a future date.
(j) Swap agreements outstanding at March 31, 1998:
Fixed Notional Unrealized
Type Rate (%) Amount Appreciation
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 $125,000 $ 719
Broker: Merrill Lynch
Exp. 04/11/02 .3650 187,500 1,060
Broker: Merrill Lynch
Exp. 04/18/02 .3700 88,000 480
Broker: Merrill Lynch
Exp. 04/23/02 .3700 131,000 714
Broker: Merrill Lynch
Exp. 05/02/02 .3700 120,000 654
Broker: Merrill Lynch
Exp. 05/30/02 .3700 230,000 1,254
Broker: Merrill Lynch
Exp. 06/05/02 .3575 193,000 1,149
Broker: Deutsche Bank AG New York
Exp. 06/06/02 .3650 100,000 565
Broker: J.P. Morgan
Exp. 11/28/02 .4600 59,400 108
--------
$ 6,703
Notional Unrealized
Type Amount Appreciation
Receive fixed rate equal to 6.405% and
pay floating rate based on 6 month A$-LIBOR
Broker: Deutsche Bank AG New York
Exp. 10/08/07 A$ 137,000 $ 2,189
Receive floating rate based on 6 month JY-LIBOR and
pay fixed rate equal to 2.34%
Broker: Deutsche Bank AG New York
Exp. 10/08/07 JY 24,500,000 (2,712)
$ (523)
(k) Restricted security.
</TABLE>
<PAGE>
Statement of Assets and Liabilities
September 30, 1998 (Unaudited)
Amounts in thousands, except per share amounts Total Return Fund
Assets:
Investments, at value $ 27,642,164
Cash and foreign currency 38,121
Receivable for investments and foreign currency sold 41,842
Receivable for Fund shares sold 84,686
Variation margin receivable 66,083
Interest and dividends receivable 231,555
28,104,451
Liabilities:
Payable for investments and foreign currency purchased $ 5,368,211
Written options outstanding 51,236
Payable for Fund shares redeemed 260,212
Dividends payable 23,550
Accrued investment advisor's fee 4,684
Accrued administrator's fee 3,668
Accrued distribution fee 729
Accrued servicing fee 336
Other liabilities 25,762
5,738,388
Net Assets 22,366,063
Net Assets Consist of:
Paid in capital $ 21,160,678
Undistributed net investment income 111,594
Accumulated undistributed net realized gain 609,836
Net unrealized appreciation 483,955
$ 22,366,063
Net Assets:
Administrative Class 1,107,029
Other Classes 21,259,034
Shares Issued and Outstanding:
Administrative Class 99,831
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding)
Administrative Class $ 11.09
Cost of Investments Owned $ 27,332,479
Cost of Foreign Currency Held $ 37,146
<PAGE>
Statement of Changes in Net Assets
Amounts in thousands Total Return Fund
Six Months Ended Year Ended
September 30, 1998 March 31, 1998
Increase in Net Assets from: (Unaudited)
Operations
Net investment income $ 615,795 $ 920,708
Net realized gain 569,687 644,154
Net change in unrealized appreciation 358,711 196,253
Net increase resulting from operations 1,544,193 1,761,115
Distributions to Shareholders:
From net investment income
Administrative Class (20,852) (15,470)
Other Classes (595,109) (879,960)
In excess of net investment income
Administrative Class 0 (425)
Other Classes 0 (24,171)
From net realized capital gains
Administrative Class 0 (8,344)
Other Classes 0 (395,828)
Total Distributions (615,961) (1,324,198)
Fund Share Transactions
Receipts for shares sold
Administrative Class 684,843 420,992
Other Classes 4,877,641 6,791,267
Issued as reinvestment of distributions
Administrative Class 18,065 23,828
Other Classes 472,304 1,078,056
Cost of shares redeemed
Administrative Class (118,050) (117,585)
Other Classes (2,588,683) (3,740,470)
Net increase resulting from Fund share 3,346,120 4,456,088
transactions
Total Increase in Net Assets 4,274,352 4,893,005
Net Assets
Beginning of period 18,091,711 13,198,706
End of period * $ 22,366,063 $ 18,091,711
*Including net undistributed investment
income of: $ 111,594 $ 111,760
<PAGE>
Statement of Operations
For the six months ended September 30, 1998 (Unaudited)
Amounts in thousands Total Return Fund
Investment Income:
Interest $ 664,267
Dividends 1,887
Total Income 666,154
Expenses:
Investment advisory fees 25,346
Administration fees 19,734
Distribution and/or servicing fees - Administrative Class 899
Distribution and/or servicing fees - Other Classes 4,279
Trustees' fees 77
Reorganization costs 0
Miscellaneous 24
Total Expenses 50,359
Net Investment Income (Loss) 615,795
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 64,756
Net realized gain on futures contracts and written options 462,352
Net realized gain on foreign currency transactions 42,579
Net change in unrealized appreciation on investments 166,622
Net change in unrealized appreciation on futures contracts and
written options 208,283
Net change in unrealized (depreciation) on translation of assets
and liabilities denominated in foreign currenties (16,194)
Net Gain 928,398
Net Increase in Assets Resulting from Operations 1,544,193
<PAGE>
Financial Highlights
<TABLE>
<S> <C> <C> <C> <C> <C>
Selected Per Share Data for the Year or Period Ended: 9/30/98 (b) 3/31/98 3/31/97 3/31/96 09/07/97-03/31/95
Net asset value beginning of period $ 10.62 $ 10.27 $ 10.29 $ 10.01 $ 10.00
Net investment income 0.31(a) 0.61(a) 0.66(a) 0.80 0.31
Net realized and unrealized gain (loss) 0.48(a) 0.63(a) (0.02)(a) 0.29 0.06
Total income from investment operations 0.79 1.24 0.64 1.09 0.37
Dividends from net investment income (0.32) (0.60) (0.64) (0.60) (0.32)
Dividends in excess of net investment income 0.00 (0.02) (0.02) (0.09) (0.03)
Distributions from net realized capital gains 0.00 (0.27) 0.00 (0.12) 0.00
Distributions in excess of net realized capital gains 0.00 0.00 0.00 0.00 0.00
Tax basis return of capital 0.00 0.00 0.00 0.00 (0.01)
Total distributions (0.32) (0.89) (0.66) (0.81) (0.36)
Net asset value end of period $ 11.09 $ 10.62 $ 10.27 $ 10.29 $ 10.01
Total return (%) 7.54 12.36 6.34 10.99 3.76
Net assets end of period (000?) $ 1,107,029 $ 481,730 $ 151,194 104,618 $ 9,037
Ratio of expenses to average net assets (%) 0.68+ 0.68 0.68 0.68 0.66+
Ratio of net investment income to average net assets (%) 5.83+ 5.74 6.35 6.64 6.54+
Portfolio turnover rate (%) 103 206 173 221 98
</TABLE>
+ Annualized
(a) Per share amounts based on average number of shares
outstanding during the period.
(b) Unaudited
<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 "Funds"). The Trust may offer up to six classes of shares:
Institutional, Administrative, A, B, C and D. Each share class has identical
voting rights (except that shareholders of a class have exclusive voting rights
regarding any matter relating solely to that class of shares). Information
presented in these financial statements pertains to the Administrative Class of
the Total Return Fund. Certain detailed financial information for the
Institutional, A, B, C and D Classes (the "Other Classes") is provided
separately and is available upon request.
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, are normally
valued on the basis of quotes obtained from brokers and dealers or pricing
services. Short-term investments which mature in 60 days or less are valued at
amortized cost, which approximates market value. Certain fixed income securities
for which daily market quotations are not readily available may be valued,
pursuant to guidelines established by the Board of Trustees, with reference to
fixed income securities whose prices are more readily obtainable.
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.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, of the Fund are declared on each day the Trust is open for
business and are distributed to shareholders monthly. Net realized capital gains
earned by the 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 dividend 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.
<PAGE>
Multiclass Operations. Each class offered by the Trust has equal rights as to
assets and voting privileges. Income and non-class specific expenses of the Fund
are allocated daily to each class of shares based on the relative value of
settled shares. Realized and unrealized capital gains and losses of the Fund are
allocated daily to each class of shares based on the relative net assets of each
class.
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.
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 counter-party to whom the Fund sells the security becomes insolvent, the
Fund's right to repurchase the security may be restricted; the value of the
security may change over the term of the financing transaction; and the return
earned by the Fund with the proceeds of a financing transaction may not exceed
transaction costs. Included in payable for investments and foreign currency
purchased is the amounts of $958,768,306 related to these financing
transactions.
Futures and Options. The Fund is authorized to enter into futures contracts and
options. The 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 the Fund and the prices of futures contracts and options, the possibility of
an illiquid market, and the inability of the counter-party to meet the terms of
the contract. Futures contracts and purchased options are valued based upon
their quoted daily settlement prices. The premium received for a written option
is recorded as an asset with an equal liability which is marked to market based
on the option's quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Forward Currency Transactions. 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 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 Fund is 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. The 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.
Stripped mortgage-backed securities (SMBS). SMBS represent a participation in,
or are secured by and payable from, mortgage loans on real property, and may be
structured in classes with rights to receive varying proportions of principal
and interest. SMBS include interest-only securities (IOs), which receive all of
the interest, and principal-only securities (POs), which receive all of the
principal. If the underlying mortgage assets experience greater than anticipated
payments of principal, the Fund may fail to recoup some or all of its initial
investment in these securities. The market value of these securities is highly
sensitive to changes in interest rates.
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.
<PAGE>
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 investors do not receive their principal until
maturity.
Repurchase Agreements. The 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.
Restricted Securities. The Fund is 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 the Fund at an annual
rate of 0.25% based on average daily net assets of the Fund.
Administration Fee. Pacific Investment Management Company (PIMCO) is a wholly
owned subsidiary partnership of PIMCO Advisors L.P. which also 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 for the
Administrative Class and Institutional Class is charged at the annual rate of
0.18%. The Administration Fee for the A, B and C Classes is charged at an annual
rate of 0.40%. The Administration Fee for Class D is charged at the annual rate
of 0.25%.
Distribution and Servicing Fees. 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 Trust's shares.
The Trust is permitted to reimburse, out of the Administrative Class assets
of the Fund in an amount up to 0.25% on an annual basis of the average daily net
assets of that class, financial intermediaries that provide services in
connection with the distribution of shares or administration of plans or
programs that use Fund shares as their funding medium. The effective rate paid
to PFD was 0.25% during 1998.
Pursuant to the Distribution and Servicing Plans adopted by the A, B, C and
D Classes of the Trust, the Trust compensates PFD or an affiliate with respect
to Class D for services provided and expenses incurred in connection with
assistance rendered in the sale of shares and services rendered to shareholders
and for maintenance of shareholder accounts of the A, B, C and D Classes. The
Trust pays PFD distribution and servicing fees at rates as agreed to by each
share class out of each respective A, B, C and D Classes' net assets.
PFD also receives the proceeds of the initial sales charges paid by the
shareholders upon the purchase of Class A shares, and the contingent deferred
sales charges paid by the shareholders upon certain redemptions of A, B and C
Class shares.
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 expense; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and any counsel
retained exclusively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; (vii) expenses, such as
organizational expenses, which are capitalized in accordance with generally
accepted accounting principles; and (viii) any expenses allocated or allocable
to a specific class of shares, which include service fees payable with respect
to the Administrative Class shares and may include certain other expenses as
permitted by the Trust's Multiple Class Plan adopted pursuant to Rule 18f-3
under the Act and subject to review and approval by the Trustees. The ratio of
expenses to average net assets per share class, as disclosed in Financial
Highlights, may differ from the annual fund operating expenses per share class
as disclosed in the Prospectus for the reasons set forth above. 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 Fund of the Trust according to their respective net assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended September 30, 1998 were as follows (amounts in thousands):
U.S. Government/Agency All Other
Purchases Sales Purchases Sales
$21,070,030 $17,926,804 $8,892,839 $2,123,781
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amount in
thousands):
Balance at 03/3 $ 3,653
Sales 17,788
Closing Buys 0
Expirations (5,423)
Exercosed (770)
Balance at 9/30/98 $15,248
6. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$0.0001 par value. Changes in shares of beneficial interest were as follows
(shares and amount in thousands):
<TABLE>
<S> <C> <C> <C> <C>
Total Return Refund
Six Months Ended 9/30/98 Year Ended 3/31/98
Receipts for shares sold Shares Amount Shares Amount
Administrative Class 63,758 $ 684,843 39,423 $ 420,992
Other Classes 454,870 4,877,641 638,154 6,791,267
Shares issued in reorganization
Administrative Class 0 0 0 0
Other Classes 0 0 0 0
Issued as reinvestment of distributions
Administrative Class 1,676 18,065 2,241 23,828
Other Classes 43,860 472,304 101,472 1,078,056
Cost of shares redeemed
Administrative Class (10,977) (118,050) (11,009) (117,585)
Other Classes (240,267) (2,588,683) (351,155) (3,740,470)
Net increase resulting from Fund 312,920 $ 3,346,120 419,126 4,456,088
Share transactions
</TABLE>
7. Federal Income Tax Matters
As of March 31, 1998, the Fund had remaining capital loss carryforwards of
approximately $988,000 that was acquired in prior years which expire on March
31, 2004. Use of the acquired capital loss carryforwards may be limited under
current tax laws.
The Fund will resume capital gains distributions in the future to the extent
gains are realized in excess of the available carryforwards.
<PAGE>
Schedule of Investments
Total Return Fund
September 30, 1998 (Unaudited)
<TABLE>
Principal
Amount Value
(000s) (000s)
<S> <C> <C>
CORPORATE BONDS & NOTES 39.7%
Banking & Finance 27.1%
Abbey National PLC
6.700% due 06/29/49 $ 5,000 $ 5,168
Abbey National Treasury
Service
6.625% due 05/23/01 240 251
ABN-AMRO Bank NV
7.250% due 05/31/05 150 161
Aetna, Inc.
7.250% due 08/15/23 50 50
Ahmanson (H.F.) & Co.
7.650% due 04/15/00 175 181
Allstate Corp.
6.750% due 05/15/18 280 285
6.900% due 05/15/38 60,400 61,328
American Express Credit
8.500% due 08/15/01 350 381
6.800% due 12/15/03 1,500 1,565
American General Finance
7.250% due 04/15/00 500 514
5.875% due 07/01/00 75 76
6.250% due 12/18/02 1,080 1,114
AON Capital Trust 'A'
8.205% due 01/01/27 725 805
Associates Corp. of North
America
7.250% due 09/01/99 285 290
6.750% due 10/15/99 90 91
7.850% due 10/20/99 500 513
8.250% due 12/01/99 200 207
7.250% due 12/17/99 660 676
7.470% due 03/27/00 1,000 1,034
6.000% due 06/15/00 2,634 2,666
6.310% due 06/16/00 500 510
6.250% due 09/15/00 200 204
6.625% due 05/15/01 300 310
7.000% due 07/23/01 500 522
5.788% due 08/27/01 (d) 2,000 2,005
6.450% due 10/15/01 23,600 24,441
7.500% due 04/15/02 185 198
6.500% due 07/15/02 750 782
6.000% due 07/15/05 60,365 62,231
AT&T Capital Corp.
6.020% due 12/04/98 20,200 20,212
6.250% due 12/08/98 (d) 4,700 4,705
5.936% due 01/15/99 (d) 14,500 14,527
6.390% due 01/22/99 9,600 9,625
5.610% due 02/01/99 11,000 11,003
5.950% due 02/16/99 140,850 141,068
6.120% due 02/26/99 20,000 20,045
6.061% due 04/01/99 (d) 175,500 175,509
6.410% due 08/13/99 4,000 4,026
6.580% due 09/03/99 500 505
5.982% due 09/20/99 (d) 9,000 9,002
6.160% due 12/03/99 1,000 1,006
6.060% due 03/21/00 (d) 31,100 31,108
AVCO Financial Services
6.350% due 09/15/00 100 102
7.375% due 08/15/01 300 318
Banco Latino Americano SA
6.310% due 10/18/99 850 860
Banco Nacional de
Comercio Exterior
8.000% due 04/14/00 4,600 4,145
Banco Nacional de Obra y
Servicios
6.875% due 10/01/98 5,000 5,000
Banesto Delaware
8.250% due 07/28/02 28,900 31,984
BankAmerica Corp.
6.119% due 11/01/99 (d) 3,000 3,014
5.708% due 03/05/01 (d) 36,000 36,117
5.758% due 02/20/02 (d) 35,180 35,114
7.750% due 07/15/02 60 65
7.200% due 09/15/02 400 426
7.500% due 10/15/02 1,000 1,077
6.850% due 03/01/03 50 53
6.875% due 06/01/03 100 106
8.375% due 05/01/07 3 3
Bankers Trust
6.750% due 10/03/01 500 517
8.125% due 05/15/02 300 325
5.769% due 07/03/02 (d) 10,000 9,980
7.125% due 07/31/02 150 158
5.788% due 05/11/03 (d) 82,800 82,946
8.625% due 04/01/18 100 102
Banponce Corp.
6.164% due 12/15/99 5,000 5,038
Bear Stearns
5.600% due 01/14/99 (d) 5,000 5,001
5.410% due 03/09/99 (d) 13,000 13,018
5.856% due 09/10/99 (d) 25,000 25,037
7.625% due 09/15/99 300 306
5.600% due 06/12/00 (d) 8,700 8,699
5.830% due 06/20/00 (d) 7,700 7,696
6.750% due 08/15/00 50 51
5.350% due 08/25/00 (d) 1,400 1,399
5.630% due 08/29/00 (d) 39,800 39,819
5.841% due 02/16/01 (d) 2,000 1,998
5.856% due 03/02/01 (d) 7,500 7,491
5.875% due 01/28/02 (d) 11,250 11,202
6.750% due 04/15/03 105 109
5.906% due 07/22/03 (d) 19,000 19,031
8.750% due 03/15/04 75 85
6.062% due 03/18/05 (d) 31,000 31,131
6.250% due 07/15/05 25,000 25,401
Beneficial Corp.
9.600% due 10/16/98 250 250
5.950% due 07/25/00 5,000 5,045
5.798% due 11/27/00 (d) 90,000 90,040
5.830% due 01/09/01 (d) 9,000 9,016
5.806% due 01/09/02 (d) 500 501
5.858% due 01/23/02 (d) 5,000 4,998
5.878% due 03/01/02 (d) 40,000 40,104
BT Securities Corp.
5.989% due 08/16/99 (d) 10,000 9,990
Capital One Bank
6.830% due 08/16/99 275 277
Caterpillar Financial
6.350% due 12/01/98 125 125
5.738% due 06/08/00 (d) 500 500
5.741% due 05/29/01 (d) 10,000 9,988
Central Hispano Financial
Services
6.187% due 04/29/05 (d) 5,000 5,012
Chase Manhattan Bank
5.875% due 08/04/99 400 401
Chase Manhattan Corp.
8.500% due 02/15/02 200 219
Chemical Banking Corp.
6.125% due 11/01/08 400 407
Chrysler Financial Corp.
8.420% due 02/01/99 695 701
5.650% due 02/04/99 (d) 9,000 9,008
6.350% due 06/22/99 8,000 8,046
8.460% due 01/19/00 700 730
6.250% due 03/06/00 14,735 14,973
5.630% due 07/28/00 (d) 100 100
6.625% due 08/15/00 300 308
5.860% due 01/16/01 500 505
5.686% due 06/11/01 (d) 6,000 6,001
5.777% due 07/17/02 (d) 20,000 20,015
5.792% due 08/08/02 (d) 34,000 34,046
5.836% due 02/03/03 (d) 15,000 15,021
5.822% due 03/06/03 (d) 5,000 5,011
5.702% due 06/18/03 (d) 35,000 35,027
Chubb Capital Corp.
8.750% due 11/15/99 80 82
6.875% due 02/01/03 100 107
Cincinnati Financial
Corp.
6.900% due 05/15/28 34,125 36,727
CIT Group, Inc.
6.200% due 10/20/00 830 844
6.750% due 05/14/01 30,000 31,026
Citicorp
9.750% due 08/01/99 2,200 2,275
6.088% due 10/20/99 (d) 10,000 10,037
6.088% due 10/25/99 (d) 11,000 11,043
5.918% due 05/23/00 (d) 25,000 25,098
5.918% due 06/01/00 (d) 5,000 5,020
5.941% due 11/28/00 (d) 5,000 5,022
5.999% due 02/01/01 (d) 10,000 10,047
5.813% due 05/24/01 (d) 69,000 69,071
5.768% due 11/13/01 (d) 10,000 10,005
5.738% due 06/27/02 (d) 11,450 11,434
5.781% due 08/15/02 (d) 11,500 11,522
5.813% due 11/12/02 (d) 30,000 29,994
8.000% due 02/01/03 250 273
7.125% due 09/01/05 100 107
Comerica, Inc.
7.250% due 06/15/07 200 221
Commercial Credit Co.
6.750% due 05/15/00 100 102
6.000% due 06/15/00 300 304
5.550% due 02/15/01 300 303
8.250% due 11/01/01 2,500 2,718
7.750% due 03/01/05 50 56
Dean Witter Discover
5.592% due 03/02/99 (d) 100 100
6.750% due 08/15/00 100 103
Deutsche Bank Financial
7.500% due 04/25/09 3,000 3,406
Donaldson, Lufkin &
Jenrette
5.938% due 09/18/02 (d) 13,600 13,621
6.170% due 07/15/03 20,000 20,234
Dow Capital BV
7.125% due 01/15/03 100 107
Edison Funding
6.400% due 12/17/98 27,000 27,216
6.000% due 12/20/99 5,000 5,061
Exxon Capital Corp.
7.450% due 12/15/01 250 268
First Chicago
5.918% due 02/10/00 (d) 20,000 20,066
5.768% due 03/11/02 (d) 10,000 10,056
First Chicago Corp.
5.828% due 02/18/03 (d) 10,000 9,931
5.813% due 07/28/03 (d) 50 50
First Interstate Bancorp
8.875% due 01/01/09 (j) 192 203
First Union Corp.
6.375% due 01/15/09 500 521
Fleet Financial Group
9.900% due 06/15/01 200 223
Ford Holdings, Inc.
9.250% due 03/01/00 9,190 9,686
Ford Motor Credit Corp.
5.480% due 11/09/98 (d) 17,580 17,583
8.000% due 01/15/99 500 504
5.330% due 03/23/99 (d) 4,600 4,597
5.340% due 03/30/99 (d) 18,000 17,982
5.293% due 04/05/99 (d) 5,000 4,987
8.875% due 06/15/99 100 102
7.750% due 10/01/99 35 36
8.375% due 01/15/00 195 202
6.950% due 05/15/00 8,450 8,700
5.400% due 08/14/00 (d) 75,800 75,943
6.850% due 08/15/00 1,500 1,541
7.020% due 10/10/00 70,000 72,661
6.250% due 11/08/00 750 765
5.907% due 03/05/01 (d) 5,000 5,020
5.803% due 04/10/01 (d) 10,850 10,851
7.020% due 06/07/01 1,000 1,047
5.690% due 07/13/01 (d) 34,000 34,202
5.788% due 08/27/01 (d) 17,000 16,989
5.828% due 09/03/01 (d) 11,000 11,019
7.000% due 09/25/01 1,125 1,179
5.776% due 10/15/01 (d) 10,000 10,013
5.813% due 01/17/02 (d) 53,945 53,720
8.200% due 02/15/02 11,600 12,613
6.500% due 02/28/02 1,560 1,615
5.847% due 04/29/02 (d) 42,000 42,012
7.320% due 05/23/02 14,000 14,158
5.838% due 06/04/02 (d) 2,000 2,006
5.838% due 10/15/02 (d) 4,000 4,004
7.750% due 11/15/02 5,000 5,436
5.828% due 02/03/03 (d) 30,000 30,058
5.788% due 02/13/03 (d) 100,000 100,181
5.813% due 02/13/03 (d) 190,985 191,316
6.125% due 04/28/03 580 598
6.625% due 06/30/03 575 605
5.888% due 06/02/04 (d) 1,500 1,504
8.250% due 02/23/05 2,500 2,872
5.875% due 04/28/05 (d) 50,000 49,972
6.125% due 01/09/06 25 26
7.700% due 05/15/97 450 519
Fuji Bank
9.870% due 12/31/49 (d) 10,000 4,445
General Electric Capital
Corp.
5.980% due 03/19/99 1,500 1,505
8.375% due 03/01/01 665 716
5.500% due 11/01/01 50 50
8.300% due 09/20/09 150 184
7.100% due 08/13/12 35 41
General Motors Acceptance
Corp.
5.330% due 03/16/99 (d) 13,000 13,029
8.625% due 06/15/99 650 664
6.625% due 07/07/99 10,000 10,083
7.375% due 09/09/99 1,000 1,016
6.150% due 09/20/99 20,300 20,480
8.000% due 10/01/99 28,850 29,565
6.050% due 10/04/99 2,550 2,572
6.375% due 10/12/99 2,000 2,016
8.400% due 10/15/99 360 371
6.250% due 10/18/99 1,000 1,007
8.170% due 01/02/00 1,244 1,282
8.625% due 01/10/00 5,000 5,191
6.500% due 01/17/00 46,110 46,612
7.000% due 03/01/00 100 102
7.875% due 03/15/00 5,650 5,841
6.650% due 05/05/00 6,500 6,624
6.875% due 06/01/00 10,250 10,493
7.500% due 06/09/00 1,000 1,040
5.500% due 01/16/01 15,000 15,069
8.625% due 01/18/01 15,000 16,066
8.500% due 01/19/01 3,675 3,946
5.800% due 04/09/01 8,340 8,440
6.800% due 04/17/01 4,800 4,993
5.950% due 04/20/01 22,150 22,496
6.700% due 04/30/01 3,000 3,101
7.125% due 05/01/01 44,095 46,020
6.750% due 06/05/01 880 912
5.708% due 10/22/01 (d) 25,000 24,971
9.625% due 12/15/01 300 338
5.772% due 01/08/02 (d) 3,000 3,000
6.625% due 01/10/02 500 522
6.750% due 02/07/02 1,590 1,660
5.813% due 04/29/02 (d) 168,184 168,204
7.000% due 09/15/02 250 265
6.625% due 10/01/02 5,000 5,262
5.788% due 11/12/02 (d) 10,200 10,188
5.875% due 01/22/03 30,500 31,110
6.750% due 03/15/03 40,125 42,477
7.125% due 05/01/03 36,000 38,577
5.788% due 08/18/03 (d) 31,990 31,997
5.550% due 09/15/03 32,000 32,243
6.625% due 10/20/03 2,000 2,109
8.950% due 07/02/09 21,500 24,258
Goldman Sachs & Co.
5.748% due 07/31/00 (d) 26,000 26,016
5.845% due 11/21/00 (d) 10,000 9,979
5.909% due 11/24/00 (d) 108,000 108,304
6.200% due 12/15/00 6,500 6,686
5.791% due 12/22/00 (d) 17,000 17,085
5.844% due 01/09/01 (d) 105,000 104,789
5.867% due 01/25/01 (d) 77,000 77,048
5.994% due 04/16/01 (d) 18,000 18,020
5.958% due 12/07/01 (d) 25,000 25,071
Goldman Sachs Mortgage
Corp.
6.000% due 12/31/07 (j) 10,361 10,425
Great Western Bank
8.625% due 12/01/98 6,000 6,029
Hartford Life
7.650% due 06/15/27 15,000 16,310
Heller Financial, Inc.
6.250% due 01/15/99 200,000 200,414
5.769% due 02/05/99 (d) 50,000 50,050
5.749% due 02/26/99 (d) 10,000 10,013
5.796% due 04/01/99 (d) 19,000 19,027
5.938% due 04/27/99 (d) 20,000 20,047
5.763% due 09/03/99 (d) 4,000 4,008
6.405% due 10/15/99 10,000 10,130
5.808% due 12/01/99 (d) 25,000 25,106
6.520% due 12/06/99 8,750 8,915
5.625% due 03/15/00 200 200
6.500% due 05/15/00 12,000 12,218
5.907% due 07/07/00 (d) 60,000 60,035
5.829% due 08/25/00 (d) 7,600 7,633
5.830% due 09/25/00 (d) 13,500 13,517
Hitachi Credit America
5.813% due 05/15/00 25,000 25,048
5.969% due 07/07/00 (d) 40,000 40,071
Household Bank
5.847% due 09/26/01 (d) 9,000 9,011
5.875% due 10/22/03 (d) 15,000 14,908
Household Capital Trust
6.038% due 06/26/04 (d) 3,075 3,064
Household Finance Corp.
6.580% due 05/17/99 165 166
5.869% due 11/01/01 (d) 5,000 5,001
5.816% due 05/07/02 (d) 40,850 40,493
5.938% due 06/24/03 (d) 35,000 35,072
5.948% due 06/24/03 (d) 31,000 31,063
Inter-American Development
Bank
8.875% due 06/01/09 200 259
International Lease
Finance
5.750% due 12/15/99 50 50
7.000% due 05/15/00 500 513
6.420% due 09/11/00 500 513
5.930% due 07/15/03 14,000 14,365
J.P. Morgan & Co.
6.250% due 12/15/05 200 203
Kimco Realty Corp.
6.500% due 10/01/03 200 207
Korea Development Bank
5.875% due 12/01/98 60 60
6.750% due 12/01/05 55 38
7.250% due 05/15/06 50 38
Korean Export-Import
Bank
6.500% due 10/06/99 7,000 6,622
LB Rheinland - PFALZ
5.000% due 02/23/28 (d) 3,400 3,555
Lehman Brothers, Inc.
5.750% due 11/15/98 2,000 1,998
5.570% due 01/12/99 (d) 600 600
7.410% due 05/25/99 500 503
5.040% due 09/01/99 (d) 10,000 10,000
7.140% due 09/24/99 11,900 11,938
7.110% due 09/27/99 20 20
6.710% due 10/12/99 3,000 2,997
5.894% due 01/18/00 (d) 55,000 54,610
6.150% due 03/15/00 7,700 7,635
6.007% due 04/03/00 (d) 30,000 30,023
6.525% due 07/27/00 (d) 8,000 7,949
5.540% due 08/11/00 (d) 30,000 29,264
6.106% due 09/26/00 (d) 5,000 5,011
6.066% due 11/06/00 (d) 18,610 18,641
6.277% due 12/01/00 (d) 500 503
5.877% due 02/27/01 (d) 49,000 47,371
5.893% due 06/01/01 (d) 100,000 96,035
6.461% due 08/28/02 (d) 6,500 6,486
5.987% due 09/03/02 (d) 14,000 14,028
Marine Midland Bank
5.813% due 12/20/00 (d) 3,700 3,739
MBNA Corp.
6.088% due 12/01/99 (d) 66,900 67,034
Mellon Bank Corp.
6.500% due 08/01/05 75 79
Merrill Lynch & Co.
6.375% due 03/30/99 400 402
8.250% due 11/15/99 250 258
5.758% due 04/17/00 (d) 5,000 4,999
6.620% due 06/06/00 500 510
6.450% due 06/20/00 350 357
6.019% due 08/03/00 (d) 5,000 5,020
5.738% due 09/25/00 (d) 5,000 4,986
5.757% due 10/03/00 (d) 20,000 19,988
5.800% due 12/05/00 (d) 89,000 89,127
6.500% due 04/01/01 400 412
5.798% due 05/08/01 54,900 54,755
5.888% due 05/30/01 (d) 3,800 3,810
5.758% due 06/04/01 (d) 30,000 30,053
5.758% due 11/01/01 (d) 30,000 30,021
5.768% due 11/09/01 (d) 10,000 9,967
5.756% due 01/15/02 (d) 17,000 16,932
8.300% due 11/01/02 200 222
6.875% due 03/01/03 140 149
5.838% due 06/24/03 (d) 22,000 22,066
5.849% due 10/01/03 (d) 5,000 5,008
7.000% due 03/15/06 1,500 1,617
7.000% due 04/27/08 100 109
MIC Financing Trust
8.375% due 02/01/27 36,000 39,101
Morgan Stanley Group,
Inc.
6.375% due 12/15/03 150 157
Morgan Stanley, Dean Witter, Discover and Co.
5.983% due 04/16/01 (d) 25,000 25,029
5.838% due 12/19/01 (d) 14,700 14,723
5.875% due 03/11/03 (d) 10,000 10,004
Nacional Financiera
8.000% due 06/19/00 4,500 4,230
NationsBank Corp.
6.750% due 02/26/01 500 518
7.000% due 09/15/01 1,500 1,568
5.838% due 06/17/02 (d) 10,000 9,961
NCNB Corp.
7.750% due 08/01/02 796 797
Norwest Corp.
5.750% due 11/16/98 300 300
5.625% due 02/05/01 400 404
Norwest Financial, Inc.
8.375% due 01/15/00 125 126
7.000% due 01/15/03 300 320
6.000% due 02/01/04 50 52
Okobank
6.049% due 05/23/06 (d) 10,000 9,954
Paccar Financial Corp.
6.740% due 09/15/00 250 258
PaineWebber
5.987% due 10/04/99 (d) 4,000 4,008
6.950% due 03/31/00 120 123
7.000% due 03/01/00 200 204
6.538% due 05/09/00 (d) 5,000 5,027
5.938% due 02/18/02 (d) 5,000 5,007
6.058% due 05/20/02 (d) 1,000 1,002
Pitney Bowes Credit
Corp.
6.540% due 07/15/99 400 404
PNC Bank Corp.
5.606% due 06/01/00 (d) 217,000 217,014
5.694% due 01/24/02 (d) 49,000 48,933
5.719% due 08/15/02 (d) 5,000 5,005
PNC Funding Corp.
6.875% due 03/01/03 100 106
Popular, Inc.
6.715% due 06/06/00 20,000 20,391
Prudential Insurance Co.
6.375% due 07/23/06 15,000 15,585
Reliance Group Holdings
9.000% due 11/15/00 19,000 19,595
9.750% due 11/15/03 10,000 10,350
Residential Reinsurance
9.848% due 06/01/99 (d) 34,500 34,338
Salomon, Inc.
5.250% due 10/15/98 400 400
5.975% due 11/19/98 (d) 3,000 3,003
6.220% due 11/19/98 37,455 37,481
6.554% due 02/12/99 (d) 1,000 1,002
8.690% due 03/01/99 2,270 2,299
5.582% due 04/05/99 (d) 5,500 5,503
7.000% due 05/15/99 26,090 26,386
5.540% due 06/24/99 (d) 9,000 8,974
7.590% due 01/28/00 150 154
6.500% due 03/01/00 18,350 18,633
6.625% due 11/30/00 235 242
6.650% due 07/15/01 600 621
7.000% due 03/04/02 5,000 5,270
6.025% due 05/16/02 (d) 19,000 19,042
Salomon, Smith Barney
Holdings
7.980% due 03/01/00 12,000 12,382
5.875% due 02/01/01 4,000 4,032
3.650% due 02/14/02 (h) 17,492 17,000
Sears Roebuck Acceptance
6.000% due 03/20/03 130,000 133,446
Security Pacific Corp.
6.000% due 05/01/00 600 606
11.500% due 11/15/00 4,000 4,482
Signet Bank Corp.
9.625% due 06/01/99 6,500 6,669
Smith Barney Holdings
6.625% due 06/01/00 95 97
Societe Generale
7.400% due 06/01/06 1,500 1,613
Sparbanken Sverige AB
7.531% due 10/29/49 (d) 12,670 12,738
Sumitomo
9.400% due 12/29/49 (d) 18,250 15,357
Swedbank
7.664% due 10/29/49 (d) 12,000 12,161
Textron Financial Corp.
5.788% due 11/24/99 (d) 10,000 10,011
Tokai Capital Corp.
9.980% due 12/29/49 (d) 20,250 15,263
Toyota Motor Credit
Corp.
5.388% due 02/15/02 (h) 40,000 38,954
Transamerica Financial
5.234% due 04/20/99 (d) 500 500
7.400% due 07/29/99 2,000 2,035
Trinet Corp. Realty
Trust
6.750% due 03/01/03 45 46
Trizec Finance Limited
10.875% due 10/15/05 2,489 2,651
U.S. Bancorp
5.782% due 01/16/02 (d) 49,000 48,998
Wachovia Bank
6.700% due 04/14/99 500 503
Wachovia Corp.
7.000% due 12/15/99 100 102
Wells Fargo & Co.
8.750% due 05/01/02 100 111
Westdeutsche
6.750% due 06/15/05 4,000 4,363
World Savings & Loan
9.900% due 07/01/00 250 255
Xerox Corp.
7.010% due 04/30/99 120 121
================
6,051,497 6051497
================
<PAGE>
Industrials 8.5%
Albertson's, Inc.
6.375% due 06/01/00 150 153
American Home Products
Corp.
7.700% due 02/15/00 300 311
Amerigas Partners LP
10.125% due 04/15/07 1,730 1,702
AMR Corp.
8.050% due 03/05/99 4,000 4,042
9.750% due 03/15/00 10,760 11,442
10.610% due 01/11/01 4,000 4,460
10.570% due 01/15/01 3,000 3,330
10.590% due 01/31/01 3,000 3,337
10.000% due 02/01/01 2,000 2,190
9.400% due 05/08/01 3,000 3,304
9.500% due 05/15/01 2,250 2,489
9.130% due 10/25/01 2,000 2,200
8.470% due 02/20/02 2,000 2,200
8.500% due 02/26/02 1,000 1,101
10.210% due 01/01/10 6,500 8,323
Baxter International
9.500% due 06/15/08 200 258
Bellat Racers
5.969% due 04/01/03 (d) 20,000 20,000
BOC Group PLC
5.875% due 01/29/01 250 255
Boeing Co.
8.375% due 02/15/01 150 161
6.350% due 06/15/03 500 529
Boise Cascade Co.
9.900% due 03/15/00 275 287
Building Materials Corp.
0.000% due 07/01/04 (i) 20,320 20,218
Canadian Pacific Limited
9.450% due 08/01/21 2,750 3,680
Casino Magic Financial
11.500% due 10/15/01 9,260 9,376
CBS, Inc.
7.625% due 01/01/02 100 104
Cemex SA
10.750% due 11/05/99 1,000 977
10.750% due 07/15/00 5,000 4,806
8.500% due 08/31/00 10,000 9,486
Centerior Fuel Corp.
9.540% due 08/02/99 (j) 10,000 10,416
9.750% due 08/02/00 (j) 8,000 8,665
Century Communications
Corp.
9.500% due 08/15/00 6,000 6,240
0.000% due 03/15/03 10,515 7,453
CF Cable TV, Inc.
9.125% due 07/15/07 1,600 1,801
Circus Circus
Enterprises
6.750% due 07/15/03 4,500 4,264
Coca-Cola Co.
6.375% due 08/01/01 200 206
7.875% due 02/01/02 600 650
Coltec Industries Rights
7.500% due 04/15/08 4,400 4,186
Columbia HCA Healthcare
8.020% due 08/05/02 3,880 3,921
8.130% due 08/04/03 7,000 7,158
Continental Cablevision
11.000% due 06/01/07 4,536 4,925
CSC Holdings, Inc
7.625% due 07/15/18 20,000 19,463
Cumberland Farms
10.500% due 10/01/03 3,000 2,955
Dayton Hudson Corp.
10.000% due 12/01/00 1,000 1,098
Delta Air Lines
10.140% due 08/14/12 1,000 1,331
Disney (Walt) Co.
6.375% due 03/30/01 250 260
6.750% due 03/30/06 100 110
E.I. Du Pont de Nemours
9.150% due 04/15/00 100 106
6.000% due 12/01/01 200 200
Eli Lilly & Co.
8.125% due 02/07/00 387 402
Enron Corp.
5.849% due 11/18/99 (d) 35,000 35,036
Federal-Mogul Corp.
7.880% due 12/31/05 3,886 3,878
7.940% due 12/31/05 1,139 1,137
<PAGE>
Ford Motor Co.
9.000% due 09/15/01 880 975
6.625% due 10/01/28 108,000 107,460
Fortune Brands
8.500% due 10/01/03 500 578
Fred Meyer, Inc.
7.150% due 03/01/03 6,000 6,002
7.375% due 03/01/05 39,325 41,586
General Motors Acceptance
Corp.
9.625% due 12/01/00 225 246
7.100% due 03/15/06 250 275
Gillette Co.
5.750% due 10/15/05 1,500 1,549
Gulf Canada Resources
9.250% due 01/15/04 7,250 7,408
9.625% due 07/01/05 2,000 2,025
H.J. Heinz Co.
7.500% due 04/26/00 150 156
Harris Chemical
10.250% due 07/15/01 22,975 23,521
10.750% due 10/15/03 42,420 44,117
Hollinger International
Publishing
9.250% due 02/01/06 3,000 3,098
IBM Corp.
5.732% due 11/01/99 (d) 35,000 34,956
7.250% due 11/01/02 100 109
7.125% due 12/01/96 2,500 2,826
Imperial Chemical
5.750% due 12/05/98 (d) 118,000 118,006
5.750% due 03/05/99 (d) 98,700 98,896
INDSPEC Chemical Corp.
0.000% due 12/01/03 (i) 5,500 5,693
Ingersoll-Rand Co.
6.255% due 02/15/01 295 303
Intermedia Communications,
Inc.
0.000% due 05/15/06 (i) 2,500 2,075
ISP Holdings, Inc.
9.750% due 02/15/02 4,500 4,770
9.000% due 10/15/03 5,000 5,213
ITT Corp.
6.250% due 11/15/00 70 69
K-III Communications Co.
8.500% due 02/01/06 4,000 4,060
Kellogg
5.750% due 02/02/01 74,850 76,144
Langdell
9.978% due 07/30/99 (d) 9,800 9,751
Lenfest Communications
8.375% due 11/01/05 5,000 5,263
Loyola University of
Chicago
6.030% due 06/15/00 (d) 16,100 16,489
Mallinckrodt, Inc.
6.300% due 03/15/11 (d) 10,000 10,244
Mazda Manufacturing
Corp.
10.500% due 07/01/08 (j) 1,980 2,648
Mobil Corp.
8.375% due 02/12/01 40 43
Nabisco, Inc.
6.800% due 09/01/01 3,000 3,060
6.125% due 02/01/33 15,000 15,211
New York Times Co.
7.625% due 03/15/05 1,000 1,136
News America Holdings
Corp.
8.625% due 02/01/03 750 833
News Corp Limited
0.000% due 06/15/99 (i) 900 845
Nike, Inc.
6.510% due 06/16/00 1,000 1,031
Noranda, Inc.
7.000% due 07/15/05 1,800 1,874
Owens Corning
7.000% due 05/15/00 200 205
Pennzoil Co.
9.625% due 11/15/98 5,000 5,193
Pepsico, Inc.
7.750% due 10/01/98 800 800
7.625% due 11/01/98 1,500 1,502
Petroleos Mexicanos
11.157% due 07/15/05 (d) 16,000 13,960
<PAGE>
Philip Morris Cos.,
Inc.
7.375% due 02/15/99 115 116
8.625% due 03/01/99 200 203
6.150% due 03/15/00 20,000 20,269
7.250% due 09/15/01 70 74
7.500% due 01/15/02 50 53
6.800% due 12/01/03 48,345 51,321
7.000% due 07/15/05 1,125 1,205
7.200% due 02/01/07 32,000 35,050
Procter & Gamble Co.
5.250% due 09/15/03 35,000 35,610
Racers
6.156% due 01/11/99 (d) 79,000 78,951
7.709% due 04/28/03 (d) 30,000 25,350
RJR Nabisco
8.000% due 01/15/00 6,777 6,810
7.625% due 09/01/00 6,000 6,246
8.000% due 07/15/01 35,630 36,426
8.625% due 12/01/02 4,370 4,574
7.625% due 09/15/03 9,000 8,938
8.750% due 04/15/04 23,800 24,495
8.250% due 07/01/04 2,000 1,917
8.750% due 07/15/07 25,000 25,476
Rogers Cablesystems,
Inc.
10.000% due 12/01/07 5,000 5,525
Rogers Cantel Mobile
9.375% due 06/01/08 2,750 2,805
Saferco
9.460% due 05/31/99 (j) 1,000 1,027
9.630% due 05/31/00 (j) 6,500 6,983
9.590% due 05/31/01 (j) 3,000 3,353
Sara Lee Corp.
6.300% due 11/07/05 500 535
Sears Roebuck & Co.
7.960% due 02/18/99 500 504
5.820% due 02/22/99 125 125
6.800% due 05/07/01 500 517
6.790% due 05/21/01 500 520
9.400% due 08/02/01 (j) 250 277
Sears Roebuck Acceptance
5.856% due 06/27/00 (d) 5,000 5,006
7.110% due 06/19/01 1,000 1,044
6.120% due 12/13/01 260 267
6.950% due 05/15/02 300 315
7.140% due 05/02/03 5,000 5,348
6.560% due 11/20/03 1,178 1,237
6.700% due 11/15/06 500 530
Shell Oil Co.
7.250% due 02/15/02 50 50
Smithfield Foods
7.625% due 02/15/08 2,000 1,970
Smithkline Beecham
7.375% due 04/15/05 150 169
Stone Container Corp.
11.875% due 12/01/98 4,074 4,074
SUPERVALU, Inc.
6.500% due 10/06/00 140 145
TCI Communications, Inc.
7.250% due 06/15/99 (d) 1,100 1,116
6.375% due 09/15/99 39,175 39,501
6.090% due 02/02/00 (d) 50,000 50,051
5.945% due 09/11/00 (d) 47,000 46,924
6.656% due 12/20/00 (d) 10,000 10,026
6.375% due 05/01/03 3,200 3,343
Telecommunications, Inc.
7.375% due 02/15/00 12,000 12,343
8.250% due 01/15/03 43,125 48,008
Telewest Communications
9.625% due 10/01/06 5,000 5,050
Tenet Healthcare Corp.
7.625% due 06/01/08 27,000 28,013
Time Warner, Inc.
6.100% due 12/30/01 1,375 1,410
7.975% due 08/15/04 31,803 35,654
8.110% due 08/15/06 80,929 93,201
8.180% due 08/15/07 2,400 2,810
7.250% due 09/01/08 125 139
Transamerica Corp.
6.750% due 11/15/06 500 534
Union Pacific Corp.
5.945% due 05/22/00 (d) 60,000 59,963
<PAGE>
United Airlines
9.000% due 12/15/03 1,000 1,156
USA Waste Services, Inc.
6.125% due 07/15/01 22,000 22,507
USX Corp.
9.800% due 07/01/01 300 334
Wal-Mart Stores, Inc.
9.100% due 07/15/00 100 107
8.625% due 04/01/01 1,050 1,144
Westvaco Corp.
9.650% due 03/01/02 150 172
Williams Co.
5.909% due 01/30/00 (d) 23,000 23,051
WMX Technologies
6.000% due 11/02/98 19,800 19,808
6.700% due 05/01/01 10,000 10,323
7.000% due 10/15/06 500 543
World Color Press, Inc.
9.125% due 03/15/03 5,000 5,025
WorldCom, Inc.
9.375% due 01/15/04 37,132 43,462
Xerox Corp.
7.040% due 04/30/99 770 777
6.500% due 06/29/00 280 287
5.750% due 07/21/00 500 508
7.410% due 05/15/01 1,000 1,054
================
1,902,540 1,902,540
================
Utilities 4.1%
AES Corp.
10.250% due 07/15/06 4,500 4,680
Appalachian Power Co.
6.350% due 03/01/00 500 509
AT&T Corp.
7.125% due 01/15/02 75 80
7.000% due 05/15/05 200 220
Baltimore Gas & Electric
6.125% due 07/01/03 150 156
Beaver Valley Funding
Corp.
8.250% due 06/01/03 825 859
BellSouth Telecommunica-
tions, Inc.
7.500% due 06/15/33 185 206
Bridas Corp.
10.250% due 12/07/98 430 433
California Energy
9.875% due 06/30/03 14,000 15,474
10.250% due 01/15/04 39,985 42,484
9.500% due 09/15/06 10,040 11,144
Calpine Corp.
9.250% due 02/01/04 4,150 4,171
7.875% due 04/01/08 2,500 2,413
Central Maine Power Co.
6.250% due 11/01/98 1,000 1,000
6.350% due 09/20/99 30,000 30,116
Chesapeake & Potomac
Telephone
8.000% due 10/15/29 1,125 1,420
Cleveland Electric
Illuminating Co.
8.150% due 11/30/98 7,500 7,527
7.850% due 11/01/99 6,000 6,132
9.500% due 05/15/05 13,000 14,365
Cleveland Electric/Toledo
Edison
7.190% due 07/01/00 20,400 20,897
CMS Energy
7.375% due 11/15/00 57,535 58,024
7.000% due 01/15/05 18,000 18,130
Coastal Corp.
8.750% due 05/15/99 4,300 4,377
Commonwealth Edison
6.500% due 04/15/00 6,185 6,298
5.560% due 06/15/02 (d) 1,000 1,001
8.000% due 10/15/03 7,550 7,654
8.125% due 01/15/07 10,000 10,225
9.875% due 06/15/20 11,700 14,234
Connecticut Light &
Power
7.250% due 07/01/99 4,485 4,486
5.750% due 07/01/00 2,000 2,000
7.750% due 06/01/02 5,000 5,248
8.590% due 06/05/03 22,000 23,272
Consolidated Edison
7.600% due 01/15/00 100 103
5.788% due 12/15/01 (d) 10,000 9,993
<PAGE>
Consolidated Natural
Gas Co.
5.875% due 10/01/98 500 500
Detroit Edison Co.
6.450% due 04/01/99 10,500 10,509
Duke Energy Corp.
8.000% due 11/01/99 40 41
7.000% due 06/01/00 700 722
6.750% due 08/01/25 25 25
Eastern Edison Co.
7.780% due 07/30/02 9,000 9,784
El Paso Electric Co.
7.250% due 02/01/99 10,956 11,001
First PV Funding
10.150% due 01/15/16 2,773 2,931
Gulf States Utilities
7.250% due 03/01/99 6,200 6,226
Illinois Power
6.500% due 09/01/99 12,050 12,162
Korea Electric Power
6.375% due 12/01/03 170 121
Long Island Lighting Co.
7.300% due 07/15/99 76,085 77,221
6.250% due 07/15/01 13,645 14,089
8.900% due 07/15/19 46,000 48,804
9.000% due 11/01/22 15,000 17,633
Louisiana Power &
Light Co.
7.740% due 07/01/02 1,900 1,940
MCI Communications Corp.
6.250% due 03/23/99 600 602
6.125% due 04/15/02 1,250 1,293
National Power Corp.
9.625% due 05/15/28 16,000 10,272
National Rural Utilities
Cooperative
6.250% due 04/15/03 50,000 51,748
New Jersey Bell Telephone
7.850% due 11/15/29 70 88
New York Telephone Co.
6.250% due 02/15/04 150 158
Niagara Mohawk Power
7.000% due 10/01/00 25,000 25,307
7.125% due 07/01/01 27,250 27,688
7.250% due 10/01/02 10,000 10,199
7.375% due 07/01/03 31,000 32,151
7.750% due 10/01/08 25,200 26,925
North Atlantic Energy
9.050% due 06/01/02 4,542 4,813
Northern Illinois Gas Co.
6.450% due 08/01/01 1,450 1,487
Ohio Edison
6.875% due 09/15/99 5,750 5,813
Pacific Gas & Electric
Co.
7.670% due 12/15/98 208 209
6.750% due 12/01/00 709 709
Pacific Northwest Bell
4.375% due 09/01/02 50 49
Pennsylvania Power &
Light
6.000% due 06/01/00 500 507
Philadelphia Electric
7.500% due 01/15/99 5,000 5,028
5.625% due 11/01/01 17,000 17,262
Public Service Electric
& Gas
8.750% due 07/01/99 90 92
7.625% due 02/01/00 150 154
6.500% due 06/01/00 500 510
6.125% due 08/01/02 1,000 1,040
Queststar Pipeline
9.375% due 06/01/21 200 238
Southwestern Bell
Telephone Co .
6.125% due 03/01/00 50 51
Sprint Corp.
8.125% due 07/15/02 10,378 11,509
System Energy Resources
7.380% due 10/01/00 5,000 5,165
7.710% due 08/01/01 14,850 15,708
Tennessee Valley
Authority
0.000% due 04/15/42 (i) 855 373
<PAGE>
Texas Utilities Co.
6.250% due 01/31/00 6,000 6,073
6.270% due 02/01/00 11,000 11,164
5.958% due 04/24/00 (d) 44,000 44,024
Texas-New Mexico Power
10.750% due 09/15/03 4,950 5,395
Toledo Edison Co.
8.180% due 07/30/02 1,400 1,519
8.700% due 09/01/02 10,000 10,927
7.850% due 03/31/03 7,000 7,582
Tuscon Electric Power 7.875% due 08/01/04 500 543
8.500% due 10/01/09 1,000 1,032
U.S. West Communications,
Inc.
6.625% due 09/15/05 300 322
6.125% due 11/15/05 400 418
United Air Lines
10.670% due 05/01/04 2,050 2,558
Western Massachusetts
Electric
6.875% due 01/01/00 700 708
7.375% due 07/01/01 7,000 7,219
Western Resources, Inc.
6.250% due 08/15/03 8,500 8,786
Wilmington Trust Co. -
Tucson Electric
10.732% due 01/01/13 (j) 991 1,149
WorldCom, Inc.
6.400% due 08/15/05 1,000 1,051
---------------
910,658 910,658
===================
Total Corporate Bonds &
Notes 8,864,695 8,864,695
===================
(Cost $8,801,014)
U.S. GOVERNMENT AGENCIES
4.2%
A.I.D. Housing Guarantee -
Peru
9.980% due 08/01/08 1,155 1,264
Federal Farm Credit Bank
5.600% due 05/03/99 500 502
Federal Home Loan Bank
5.540% due 07/15/99 295 297
5.010% due 09/21/00 970 977
5.755% due 03/25/03 50 52
6.500% due 11/29/05 100 109
Federal Home Loan
Mortgage Corp.
6.565% due 11/04/02 2,000 2,003
6.170% due 12/11/02 2,000 2,005
7.050% due 06/08/05 200 208
6.780% due 12/07/05 100 100
6.600% due 02/02/06 250 251
Federal National Mortgage
Assn.
4.875% due 10/15/98 100 100
5.360% due 02/16/01 1,500 1,524
5.780% due 09/17/03 100 100
6.625% due 03/21/06 200 221
7.040% due 03/27/07 1,000 1,031
New York City
6.008% due 08/01/02 (d) 19,813 19,813
6.023% due 08/01/02 (d) 15,674 15,634
Resolution Funding
0.000% due 01/15/07 (i) 800 544
Student Loan Marketing
Assn.
4.847% due 02/20/00 (d) 134,700 133,595
5.684% due 06/30/00 (d) 38,700 38,720
5.877% due 01/25/03 (d) 45,333 45,371
5.702% due 04/25/04 (d) 25,952 25,952
5.617% due 10/25/04 (d) 31,806 31,710
5.637% due 10/25/04 (d) 59,434 59,296
5.533% due 10/25/05 (d) 13,340 13,277
5.727% due 10/25/05 (d) 42,545 42,349
5.650% due 04/25/06 (d) 131,696 131,222
5.760% due 01/25/07 (d) 133,128 133,278
5.823% due 04/25/07 (d) 227,480 227,424
===================
Total U.S. Government
Agencies 928,929 $928,929
===================
(Cost $929,121)
<PAGE>
U.S. TREASURY OBLIGATIONS
8.3%
Treasury Inflation
Protected Securities
3.625% due 07/15/02 (h) 666,887 670,013
3.375% due 01/15/07 (h) 690 680
3.625% due 04/15/28 (h) 116,205 115,914
U.S. Treasury Bonds
11.125% due 08/15/03 800 1,033
11.875% due 11/15/03 18,000 24,086
12.375% due 05/15/04 1,000 1,393
11.625% due 11/15/04 270,000 373,360
12.000% due 08/15/13 8,845 13,873
13.250% due 05/15/14 5,000 8,505
11.750% due 11/15/14 40 64
9.250% due 02/15/16 75 111
8.875% due 02/15/19 51,000 74,603
8.500% due 02/15/20 7,142 10,180
8.125% due 05/15/21 225,000 312,117
8.125% due 08/15/21 1,890 2,625
8.000% due 11/15/21 75,555 103,888
6.750% due 08/15/26 510 626
U.S. Treasury Notes
5.000% due 02/15/99 2,000 2,003
5.875% due 03/31/99 2,000 2,013
6.375% due 07/15/99 500 507
5.625% due 10/31/99 170 172
5.875% due 11/15/99 2,000 2,028
7.875% due 11/15/99 125 129
7.750% due 11/30/99 2,000 2,071
7.750% due 01/31/00 2,000 2,083
5.500% due 04/15/00 2,000 2,030
6.250% due 05/31/00 245 252
6.250% due 08/31/00 340 352
6.125% due 09/30/00 2,640 2,728
5.750% due 10/31/00 2,000 2,054
5.625% due 11/30/00 4,500 4,615
5.250% due 01/31/01 4,000 4,078
5.375% due 02/15/01 1,295 1,325
6.500% due 08/31/01 1,300 1,374
6.375% due 09/30/01 2,720 2,870
6.625% due 03/31/02 2,000 2,144
5.750% due 10/31/02 1,750 1,839
5.750% due 11/30/02 100 105
5.625% due 12/31/02 105,100 110,224
6.500% due 05/15/05 950 1,067
6.500% due 08/15/05 685 772
6.875% due 05/15/06 815 942
6.125% due 08/15/07 575 644
U.S. Treasury Strips
0.000% due 05/15/01 390 348
0.000% due 11/15/08 1,630 1,010
0.000% due 05/15/17 1,530 567
0.000% due 08/15/17 650 237
0.000% due 05/15/18 1,310 458
===================
Total U.S. Treasury
Obligations 1,866,112 1,866,112
===================
(Cost $1,837,645)
<PAGE>
MORTGAGE-BACKED SECURITIES
56.4%
Collateralized Mortgage
Obligations 14.9%
American Southwest
Financial
0.000% due 06/04/13 (i) 64,050 70,896
12.250% due 11/01/14 63 71
12.500% due 04/01/15 559 622
12.000% due 05/01/15 1,031 1,150
11.400% due 09/01/15 773 808
Bear Stearns
6.438% due 10/25/23 (d) 6,273 6,279
10.000% due 08/25/24 12,256 13,167
7.000% due 03/25/27 7,000 7,205
Capstead Mortgage Corp.
8.750% due 07/25/21 10,000 10,049
Centex Acceptance Corp.
11.000% due 11/01/15 223 223
Chase Mortgage Financial
Corp.
8.250% due 10/25/10 2,032 2,029
9.500% due 04/25/24 26 26
Citicorp Mortgage
Securities, Inc.
9.500% due 09/25/19 250 249
6.000% due 08/25/21 52 51
7.374% due 10/25/22 (d) 17,147 17,672
7.250% due 02/25/27 227 229
CMC Securities Corp.
6.930% due 09/25/23 (d) 9,025 9,256
7.753% due 04/25/25 (d) 297 298
Collateralized Mortgage
Obligation Trust
10.200% due 02/01/16 535 571
8.000% due 01/01/17 215 216
8.000% due 09/20/21 8,431 8,742
Collateralized Mortgage
Securities Corp.
11.880% due 04/01/15 1,527 1,554
11.450% due 09/01/15 46 47
11.450% due 11/01/15 (d) 251 285
8.750% due 04/20/19 816 859
Countrywide
6.500% due 07/25/13 5,676 5,843
7.933% due 07/25/24 (d) 12,406 12,584
6.750% due 11/25/25 25,567 25,703
Donaldson, Lufkin &
Jenret 7.413% due 08/01/21 (d) 6,242 6,318
8.006% due 12/25/22 (d) 3,465 3,595
8.207% due 03/25/24 (d) 1,032 1,075
6.500% due 04/25/24 10 10
7.978% due 05/25/24 (d) 253 257
Drexel Mortgage Funding
9.500% due 11/20/17 1,439 1,497
8.600% due 03/01/18 492 495
<PAGE>
Federal Home Loan
Mortgage Corp.
7.000% due 05/15/99 44 44
6.500% due 03/15/00 1,003 1,012
7.000% due 10/15/03 5,432 5,608
7.500% due 11/01/03 12,698 13,027
5.500% due 11/15/04 2,188 2,187
6.000% due 06/15/05 13,709 13,817
6.500% due 07/25/05 24,593 24,627
6.500% due 07/15/06 1,075 1,109
6.500% due 08/15/06 710 732
6.500% due 05/15/08 1,000 1,031
4.500% due 08/15/08 456 454
6.400% due 10/15/08 183 16
6.000% due 03/15/09 265 274
8.500% due 08/15/13 2,000 2,110
8.500% due 09/15/13 5,941 6,268
7.000% due 04/25/15 119 118
11.000% due 11/30/15 11,347 13,389
6.900% due 03/15/16 211 211
5.400% due 05/25/16 70,422 71,193
7.000% due 06/15/16 139 139
7.000% due 11/15/16 13,044 13,214
6.210% due 08/15/17 274 275
6.350% due 03/25/18 200 204
5.250% due 05/15/18 847 846
6.500% due 12/15/18 5,610 5,674
6.500% due 05/15/19 615 627
5.000% due 08/15/19 178 176
7.000% due 02/15/20 151 151
9.125% due 06/15/20 1,120 1,133
5.250% due 07/15/20 770 767
8.500% due 09/15/20 1,527 1,529
5.500% due 10/15/20 200 200
8.750% due 10/15/20 60 60
9.500% due 11/15/20 7,714 8,465
6.000% due 12/15/20 345 348
8.750% due 12/15/20 1,265 1,377
9.000% due 12/15/20 5,283 5,592
6.500% due 05/15/21 189 192
6.500% due 05/17/21 120 119
8.500% due 06/15/21 46,339 48,746
6.950% due 07/15/21 700 723
8.000% due 07/15/21 10,036 10,447
9.000% due 07/15/21 3,012 3,226
9.500% due 07/15/21 3,981 4,123
6.200% due 08/15/21 1,500 1,528
6.950% due 08/15/21 185 196
7.000% due 08/15/21 299 304
8.000% due 08/15/21 23,472 24,275
6.500% due 09/15/21 1,966 1,996
7.000% due 09/15/21 251 258
8.000% due 09/15/21 73 74
7.000% due 10/15/21 25 26
8.000% due 12/15/21 15,692 16,873
6.850% due 01/15/22 700 734
8.250% due 06/15/22 5,000 5,307
7.000% due 07/15/22 8,008 8,320
7.000% due 07/15/22 229 233
8.500% due 10/15/22 13,946 14,610
6.500% due 07/15/23 363 363
7.000% due 07/15/23 235 247
7.250% due 07/15/23 25 25
7.500% due 01/20/24 403 411
5.000% due 02/15/24 116 113
6.500% due 02/15/24 32 32
7.250% due 08/15/24 190 194
8.000% due 09/15/24 16,250 17,633
7.000% due 11/17/25 40 41
7.599% due 10/01/26 (d) 4,954 5,141
7.500% due 01/15/27 21,685 22,964
7.500% due 03/17/27 20,000 21,600
7.500% due 06/20/27 16,746 18,509
7.500% due 07/15/27 160 161
6.500% due 08/15/27 10,522 10,636
6.500% due 10/15/27 32,300 32,848
6.500% due 01/25/28 8,691 9,276
6.500% due 04/15/28 154,931 157,384
6.500% due 05/15/28 48,000 48,598
6.500% due 06/15/28 47,542 48,539
6.500% due 06/20/28 20,547 20,567
6.500% due 07/15/28 24,471 24,793
6.500% due 08/15/28 222,614 225,680
7.000% due 11/15/28 9,000 9,523
6.337% due 08/15/32 (d) 39,807 39,958
<PAGE>
Federal Housing
Administration
7.430% due 01/01/24 1,058 1,098
Federal National
Mortgage Assn.
9.100% due 02/25/02 4,158 4,273
7.500% due 05/25/05 6,700 7,036
7.000% due 11/25/05 9 9
7.500% due 02/25/06 375 389
6.500% due 05/01/06 347 353
6.500% due 07/25/06 75 77
8.000% due 11/25/06 30 31
6.000% due 07/25/07 300 308
7.652% due 08/25/07 (d) 105 105
7.000% due 10/25/07 200 210
7.000% due 02/25/08 469 468
10.500% due 08/25/08 7,146 8,521
6.750% due 11/25/10 1,300 1,328
7.000% due 01/25/11 500 510
7.500% due 01/20/12 38 38
7.500% due 02/17/12 34 34
6.400% due 09/25/14 46 46
10.000% due 12/25/14 377 379
9.670% due 01/25/17 281 286
9.200% due 12/25/17 482 486
7.000% due 01/25/18 145 145
9.300% due 05/25/18 1,384 1,474
6.238% due 06/25/18 (d) 6 6
6.500% due 06/25/18 8,775 8,790
9.500% due 06/25/18 713 763
5.500% due 07/25/18 178 178
7.750% due 10/25/18 20 20
9.500% due 11/25/18 14,680 15,744
6.000% due 12/25/18 75 76
6.500% due 03/25/19 885 904
6.250% due 04/18/19 18,764 18,819
9.500% due 06/25/19 2,803 3,043
5.650% due 07/25/19 4,659 4,671
6.350% due 08/25/19 435 438
8.000% due 10/25/19 12,929 13,190
7.500% due 12/25/19 147 156
9.000% due 12/25/19 12,076 13,004
7.500% due 05/25/20 6,519 6,731
6.000% due 06/25/20 9,593 9,617
8.000% due 07/25/20 36 36
7.000% due 09/25/20 25,000 25,566
9.000% due 09/25/20 7,343 7,876
8.000% due 12/25/20 22,579 24,230
8.750% due 01/25/21 6,200 6,687
7.500% due 02/17/21 210 212
7.500% due 02/25/21 3,268 3,267
7.500% due 03/25/21 20,919 21,297
9.000% due 03/25/21 983 1,068
7.000% due 05/25/21 300 312
6.500% due 06/25/21 5,184 5,342
7.500% due 06/25/21 320 323
8.000% due 07/25/21 21,183 22,341
8.500% due 09/25/21 11,029 11,715
7.000% due 10/25/21 8,056 8,412
8.000% due 10/25/21 22,430 23,593
6.500% due 11/25/21 31 31
6.000% due 12/25/21 129 130
8.000% due 01/25/22 21,700 22,577
8.000% due 03/25/22 292 300
<PAGE>
7.000% due 04/25/22 17,091 17,823
10.000% due 05/01/22 272 297
7.000% due 06/25/22 2,307 2,364
8.000% due 06/25/22 3,292 3,677
7.000% due 07/25/22 10,175 10,475
8.000% due 07/25/22 51,814 56,696
6.500% due 10/25/22 313 32
6.500% due 10/25/22 3,556 3,631
7.800% due 10/25/22 5,882 6,173
6.500% due 12/25/22 747 747
7.000% due 03/25/23 25,273 25,617
6.900% due 05/25/23 138 145
7.000% due 06/25/23 4,303 4,272
6.000% due 08/25/23 4,003 4,049
6.500% due 08/25/23 81 82
1.000% due 09/25/23 350 317
6.750% due 10/25/23 519 566
7.500% due 10/25/23 132 134
6.500% due 11/25/23 170 168
7.250% due 02/25/24 50 51
7.500% due 06/20/24 120 124
7.000% due 02/18/25 140 142
7.000% due 05/25/25 520 522
7.500% due 12/25/25 120 123
7.000% due 02/15/26 180 183
7.000% due 07/18/26 210 212
7.000% due 12/18/26 14,066 14,604
6.000% due 05/17/27 5,470 5,295
7.500% due 08/18/27 2,619 2,626
6.500% due 03/01/28 674 685
6.500% due 07/18/28 67,412 69,287
First Commonwealth
Savings & Loan
10.375% due 04/01/05 20 21
First Union Residential
Securitization, Inc.
6.750% due 08/25/28 9,048 9,204
General Electric Capital
Mortgage
6.750% due 12/25/12 6,256 6,353
6.500% due 09/25/23 1,175 1,170
6.500% due 02/25/24 13 13
6.500% due 03/25/24 13,262 13,417
6.500% due 04/25/24 58,591 60,145
7.500% due 04/25/27 213 214
7.000% due 11/25/27 15,000 15,492
6.550% due 06/25/28 23,450 23,858
6.500% due 10/25/28 19,500 19,680
General Motors Acceptance
Corp.
6.700% due 03/15/08 1,000 1,062
Government National
Mortgage Assn.
7.500% due 07/20/20 356 359
7.000% due 01/15/24 554 574
8.000% due 05/16/24 120 123
7.000% due 08/20/26 161 164
7.500% due 02/16/27 131 134
7.500% due 07/16/27 25,603 26,685
6.500% due 06/20/28 10,000 10,050
6.500% due 07/20/28 34,369 35,517
6.500% due 09/20/28 25,000 24,563
<PAGE>
Greenwich
7.176% due 04/25/22 (d) 1,497 1,516
7.079% due 07/25/22 (d) 7,607 7,692
7.127% due 10/25/22 (d) 195 198
7.259% due 04/25/23 (d) 2,561 2,595
7.846% due 04/25/24 (d) 3,351 3,413
8.147% due 06/25/24 (d) 3,740 3,834
8.861% due 08/25/24 (d) 5,526 5,821
8.719% due 11/25/24 (d) 1,636 1,720
Headlands Mortgage
Securities, Inc.
7.250% due 11/25/12 5,442 5,509
6.750% due 03/25/28 57,000 58,425
Imperial CMB Trust
5.992% due 09/25/26 (d) 15,997 16,127
Independent National
Mortgage Corp.
6.650% due 10/25/24 2,723 2,770
7.800% due 11/25/24 (d) 6,505 6,671
7.319% due 07/25/25 (d) 19,853 20,364
7.918% due 07/25/25 (d) 17,994 18,365
International Mortgage
Acceptance Corp.
12.250% due 03/01/14 540 613
J.P. Morgan & Co.
9.000% due 10/20/20 14,735 15,224
Kidder Peabody Acceptance
Corp.
8.390% due 05/20/18 375 379
8.193% due 03/25/24 (d) 4,962 4,955
8.145% due 09/25/24 (d) 20,000 20,156
Marine Midland
8.000% due 10/25/23 350 352
Mellon Residential
Funding Corp.
6.350% due 06/25/28 22,000 22,223
Merrill Lynch Mortgage
7.307% due 06/15/21 (d) 7,804 8,170
7.794% due 06/15/21 (d) 7,325 7,636
8.161% due 06/25/22 (d) 5,322 5,345
Morgan Stanley Mortgage
Trust
8.250% due 07/01/18 7,841 8,051
Mortgage Capital Trust
8.875% due 04/01/18 131 134
NationsBank Corp.
6.125% due 10/20/13 18,000 18,017
Nomura Asset Securities
Corp.
8.001% due 05/25/24 (d) 9,505 9,779
Norwest Mortgage
12.500% due 02/01/14 1,104 1,179
12.250% due 04/01/14 78 80
PaineWebber Mortgage
6.000% due 04/25/09 11,951 12,023
PNC Mortgage Securities
Corp.
7.000% due 05/25/28 13,078 13,416
6.750% due 09/25/28 4,000 4,103
Prudential Bache 6.153% due 09/01/18 (d) 418 412
8.400% due 03/20/21 3,756 3,957
Prudential Home
8.000% due 06/25/22 20,791 21,070
6.950% due 11/25/22 222 227
6.750% due 10/25/23 8,353 8,627
7.970% due 11/25/23 (d) 165 167
8.150% due 11/25/23 (d) 6,144 6,340
5.900% due 12/25/23 18,403 18,422
6.050% due 04/25/24 6,668 6,678
6.000% due 05/25/24 18 18
PSB Financial Corp.
11.050% due 12/01/15 883 960
Residential Asset
Securities Corp.
7.000% due 03/25/27 (d) 150 151
7.250% due 05/25/27 (d) 345 348
<PAGE>
Residential Funding
7.000% due 08/25/08 15,939 16,191
6.500% due 09/25/08 7,000 7,169
6.250% due 10/25/08 4,419 4,433
6.450% due 10/25/12 8,000 8,053
6.500% due 01/25/13 195,330 198,698
8.500% due 05/25/17 89 93
8.000% due 01/25/23 8,677 8,913
7.750% due 07/25/24 2 2
8.000% due 10/25/24 (d) 10,662 11,138
7.400% due 09/25/25 85 86
7.500% due 09/25/25 18,183 18,766
5.948% due 10/25/27 (d) 8,188 8,227
7.250% due 10/25/27 24,000 24,142
6.750% due 05/25/28 60,741 61,809
6.750% due 09/25/28 61,993 61,916
6.500% due 10/25/28 52,100 52,426
Resolution Trust Corp.
7.647% due 02/25/20 (d) 157 158
7.063% due 09/25/20 (d) 12,418 1,863
6.073% due 01/25/21 (d) 934 931
8.229% due 06/25/21 (d) 1,832 1,848
8.701% due 08/25/21 (d) 38 38
8.704% due 08/25/21 8,000 8,205
8.704% due 08/25/21 (d) 13,329 13,524
7.250% due 09/25/21 (d) 2,784 2,787
5.686% due 10/25/21 (d) 186 186
6.688% due 10/25/21 (d) 588 591
8.139% due 10/25/21 (d) 242 243
8.625% due 10/25/21 267 267
7.371% due 01/25/22 (d) 2,463 2,457
7.736% due 03/25/22 (d) 6,691 6,752
8.551% due 05/25/22 (d) 2,429 2,528
7.437% due 08/25/23 (d) 2,001 2,005
9.450% due 05/25/24 19,693 19,660
10.561% due 05/25/24 (d) 594 593
7.100% due 12/25/24 1,500 1,595
7.750% due 03/25/25 1,285 1,310
7.302% due 07/25/28 (d) 14,001 14,128
7.198% due 10/25/28 (d) 23,712 24,251
7.412% due 10/25/28 (d) 11,178 11,541
7.179% due 05/25/29 (d) 4,551 4,630
7.544% due 05/25/29 (d) 5,676 5,838
Rural Housing Trust
3.330% due 10/01/28 259 243
Ryan Mortgage Acceptance
Corp.
9.450% due 10/01/16 149 159
Ryland Acceptance Corp.
9.000% due 12/01/16 701 724
11.500% due 12/25/16 159 159
8.200% due 09/25/22 97 98
14.000% due 11/25/31 1,495 1,664
Ryland Mortgage
Securities Corp.
7.805% due 08/25/22 (d) 3,012 3,054
7.500% due 08/25/24 38 38
7.221% due 08/25/29 (d) 6,184 6,358
6.926% due 10/25/31 (d) 11,610 11,701
Salomon Brothers Mortgage
Securities
7.605% due 11/25/22 (d) 1,219 1,244
8.068% due 07/01/24 (d) 11,024 11,420
5.928% due 06/25/27 (d) 3,749 3,746
Santa Barbara Savings
9.500% due 11/20/18 3,773 3,785
Saxon Mortgage
7.910% due 08/25/23 (d) 29,961 30,756
8.312% due 09/25/24 (d) 11,470 11,879
Sears Mortgage
6.712% due 09/25/22 (d) 2,297 2,355
Securitized Asset
Sales, Inc.
7.697% due 10/25/23 (d) 3,989 4,100
7.652% due 12/26/23 (d) 4,108 4,244
5.944% due 02/25/28 9,608 9,629
Security Pacific National
Bank
6.279% due 03/01/18 (d) 126 126
Southern Pacific Secured
Assets Corp.
5.818% due 06/25/28 (d) 94,856 94,407
Structured Asset Mortgage
Investments, Inc.
6.921% due 06/25/28 (d) 49,976 51,210
6.250% due 08/25/28 (d) 10,695 10,700
Union Planters Mortgage
Finance Corp.
6.750% due 01/25/28 4,000 4,306
6.800% due 01/25/28 15,000 15,736
Vendee Mortgage
7.000% due 02/15/00 3,789 3,830
7.750% due 03/15/16 600 616
7.750% due 05/15/18 550 574
Western Federal Savings
& Loan
6.985% due 06/25/21 (d) 7,978 8,137
===================
3,335,688 3,335,688
===================
Federal Home Loan
Mortgage Corporation
14.7%
5.250% due 12/01/98-04/15/16 (g) 3,001 2,998
5.500% due 04/01/01-03/01/10 (g) 395 394
5.750% due 08/15/20 300 303
6.000% due 12/01/98-10/14/28 (g) 1,635,865 1,641,558
6.145% due 12/01/26 (d) 9,262 9,376
6.250% due 03/15/28 38,700 39,104
6.500% due 06/01/03-10/14/28 (g) 1,288,633 1,312,645
6.750% due 04/01/17-01/17/25 (g) 25,008 25,201
6.775% due 11/01/03 70 70
7.000% due 01/01/00-03/01/26 (g) 21,632 22,078
7.210% due 10/25/23 (d) 24,562 25,485
7.327% due 05/01/27 (d) 2,810 2,918
7.428% due 07/01/22 (d) 1,604 1,672
7.479% due 09/01/23 (d) 3,277 3,352
7.500% due 05/01/99-10/14/28 (g) 17,133 17,672
7.510% due 07/01/23 (d) 1,002 1,025
7.520% due 07/01/23 (d) 3,129 3,203
7.557% due 08/01/23 (d) 1,967 2,008
7.568% due 09/01/23 (d) 19,718 20,072
7.569% due 08/01/23 (d) 10,890 11,108
7.589% due 05/01/23 (d) 6,119 6,335
7.609% due 04/01/23-08/01/24 (d)(g) 1,330 1,380
7.625% due 01/01/19 (d) 18 18
7.635% due 09/01/23 (d) 4,860 5,028
7.642% due 08/01/23 (d) 18 19
7.666% due 08/01/23-07/01/24 (d)(g) 4,375 4,531
7.687% due 09/01/23 (d) 3,854 3,990
7.705% due 06/01/24 (d) 2,066 2,109
7.734% due 10/01/23 (d) 3,132 3,262
7.737% due 10/01/23 (d) 3,797 3,925
7.738% due 10/01/23 (d) 2,265 2,340
7.750% due 04/01/07 46 46
7.756% due 04/01/24 (d) 13,405 13,924
7.766% due 11/01/23 (d) 1,328 1,345
7.820% due 04/01/29 (d) 2,933 3,056
7.822% due 11/01/23 (d) 797 816
7.825% due 10/01/23 (d) 1,206 1,245
7.840% due 01/01/24 (d) 813 841
7.857% due 10/01/23 (d) 1,591 1,621
7.974% due 11/01/23 (d) 851 876
7.982% due 01/01/24 (d) 843 859
8.000% due 10/01/07-06/01/26 (g) 5,742 5,959
8.250% due 08/01/07-12/01/09 (g) 177 182
8.500% due 09/01/01-01/01/28 (g) 48,524 50,558
8.750% due 02/01/01-12/10/10 (g) 289 298
8.900% due 11/15/20 24,735 26,341
9.000% due 01/01/02-09/15/20 (g) 1,079 1,129
9.250% due 06/01/09-08/01/09 (g) 80 85
9.500% due 08/01/01-06/01/21 (g) 2,554 2,714
9.750% due 11/01/04-05/01/09 (g) 74 77
10.000% due 06/01/04-11/15/19 (g) 1,354 1,440
10.250% due 03/15/09-05/01/09 (g) 1,875 2,033
11.000% due 12/01/99-07/01/19 (g) 983 1,078
11.250% due 10/01/09-09/01/15 (g) 189 210
11.500% due 03/01/00-05/01/00 (g) 16 17
12.500% due 07/01/99 1 1
13.250% due 10/01/13 83 95
14.000% due 04/01/16 29 33
15.500% due 08/01/11-11/01/11 (g) 18 20
16.250% due 05/01/11 6 7
===================
3,292,085 $3,292,085
===================
Federal Housing
Administration 0.8%
6.155% due 12/01/21 12,056 12,617
7.125% due 03/01/34 4,475 4,862
7.211% due 12/01/21 2,852 2,925
7.316% due 05/01/19 5,049 5,408
7.375% due 03/01/19-01/01/24 (g) 17,429 18,775
7.400% due 02/01/21 2,607 2,711
7.430% due 12/01/16-05/01/25 (g) 90,557 95,721
7.465% due 11/01/19 45,345 47,357
7.650% due 11/01/18 166 175
===================
190,551 190,551
===================
<PAGE>
Federal National Mortgage
Association 7.8%
5.500% due 11/12/28 2,000 1,940
5.650% due 04/25/05 200 200
6.000% due 12/01/00-12/10/28 (g) 493,426 493,337
6.125% due 04/01/19 (d) 999 1,010
6.130% due 07/01/17 (d) 105 106
6.131% due 02/01/18-05/01/36 (d)(g) 93,809 94,913
6.132% due 08/01/29-05/01/36 (d)(g) 69,261 70,095
6.136% due 05/01/29 (d) 1,504 1,521
6.138% due 05/01/36 (d) 72,224 73,245
6.142% due 08/01/29 (d) 9,197 9,304
6.143% due 05/01/36 (d) 71,840 72,858
6.148% due 04/01/19 (d) 161 163
6.153% due 03/01/33 (d) 51,651 52,262
6.156% due 11/01/28 (d) 2,359 2,386
6.167% due 09/01/24-10/26/28 (d)(g) 122,367 123,780
6.175% due 07/01/24 (d) 804 813
6.231% due 04/01/27 (d) 239 243
6.250% due 07/25/07 100 102
6.390% due 05/25/36 5,027 4,926
6.500% due 11/01/03-10/14/28 (g) 452,742 460,462
6.600% due 09/25/18 6,500 6,595
6.750% due 08/01/03-09/25/22 (g) 746 755
6.834% due 07/01/03 68 72
6.900% due 07/25/99 1,272 1,279
6.950% due 03/25/26 300 305
7.000% due 05/25/99-12/20/27 (g) 71,702 73,904
7.062% due 09/01/22 (d) 2,332 2,390
7.132% due 09/01/22 (d) 2,293 2,356
7.223% due 11/01/25 (d) 9,062 9,273
7.250% due 05/01/02-01/01/23 (g) 11,391 11,672
7.266% due 09/01/25 (d) 4,030 4,133
7.373% due 09/01/24 (d) 2,601 2,707
7.455% due 07/01/24 (d) 12,928 13,187
7.500% due 08/01/03-07/01/28 (g) 83,837 86,614
7.502% due 11/01/25 (d) 2,690 2,799
7.585% due 03/01/25 (d) 6,018 6,212
7.595% due 11/01/25 (d) 4,135 4,270
7.673% due 05/01/26 (d) 1,544 1,613
7.690% due 01/01/24 (d) 1,491 1,551
7.691% due 01/01/26 (d) 2,365 2,460
7.724% due 01/01/24 (d) 735 762
7.727% due 12/01/23 (d) 1,372 1,388
7.735% due 11/01/23-05/01/24 (d)(g) 5,411 5,569
7.736% due 09/01/23 (d) 5,249 5,416
7.750% due 06/01/09 215 225
7.756% due 02/01/26 (d) 1,049 1,091
7.775% due 01/01/24 (d) 4,205 4,362
7.813% due 10/01/23 (d) 612 637
7.825% due 11/01/23 (d) 280 290
7.860% due 12/01/23 (d) 1,969 2,048
7.897% due 03/01/26 (d) 7,482 7,820
7.914% due 01/01/24 (d) 286 299
8.000% due 09/01/01-12/01/26 (g) 8,787 9,129
8.250% due 10/01/08-02/01/17 (g) 768 800
8.500% due 07/01/99-05/01/27 (g) 4,587 4,771
9.000% due 01/01/99-04/01/17 (g) 1,659 1,756
9.500% due 12/01/06-07/01/22 (g) 133 143
9.750% due 11/01/08 86 93
10.000% due 09/01/03-05/01/22 (g) 906 988
10.500% due 12/01/16-04/01/22 (g) 843 949
12.000% due 05/01/16 17 20
13.000% due 09/01/13 48 57
13.250% due 09/01/11 19 21
14.500% due 11/01/11-01/01/13 (g) 71 87
14.750% due 08/01/12-11/01/12 (g) 244 277
15.500% due 10/01/12-12/01/12 (g) 31 39
15.750% due 12/01/11-08/01/12 (g) 158 187
16.000% due 09/01/12 171 214
===================
1,747,251 $1,747,251
===================
<PAGE>
Government National
Mortgage Association
17.4%
4.500% due 01/20/24-05/20/28 (d)(g) 52,646 53,586
5.000% due 04/20/28-08/20/28 (d)(g) 66,673 66,981
5.650% due 10/15/12 13 13
6.000% due 10/15/08-08/20/27 (d)(g) 439,045 444,106
6.500% due 10/15/08-10/21/28 (d)(g) 1,495,067 1,527,567
6.750% due 06/20/28 19,322 20,629
6.875% due 06/20/21-06/20/27 (d)(g) 739,649 755,700
7.000% due 07/15/08-03/15/28 (d)(g) 915,392 933,130
7.375% due 04/20/23 (d) 533 548
7.500% due 08/15/05-02/15/28 (g) 40,830 42,415
8.000% due 05/15/01-10/15/25 (g) 2,990 3,135
8.250% due 08/15/04-05/15/22 (g) 701 742
8.500% due 06/15/01-01/20/27 (g) 15,694 16,478
8.750% due 01/15/99-07/15/07 (g) 140 147
9.000% due 06/15/01-07/20/22 (g) 7,181 7,704
9.250% due 10/15/01-05/20/21 (g) 406 429
9.500% due 04/15/01-08/15/23 (g) 6,485 7,034
9.750% due 09/15/02-01/15/21 (g) 224 238
10.000% due 04/15/01-02/15/25 (g) 5,551 6,116
10.250% due 10/15/98-02/20/19 (g) 47 51
10.500% due 06/15/04 125 135
11.000% due 05/15/04-03/15/19 (g) 142 157
11.250% due 03/15/01-12/20/15 (g) 60 66
11.500% due 04/15/13-05/15/13 (g) 8 9
12.000% due 03/20/99-03/15/15 (g) 85 95
12.500% due 01/15/11 1 2
13.000% due 12/15/12-10/15/14 (g) 40 46
13.250% due 10/20/14 20 23
13.500% due 11/15/12-12/15/12 (g) 7 8
15.000% due 09/15/12-10/15/12 (g) 18 21
16.000% due 01/15/12-04/15/12 (g) 9 11
17.000% due 11/15/11-12/15/11 (g) 102 122
===================
3,887,444 $3,887,444
===================
Other Mortgage-Backed
Securities 0.7%
Aames Mortgage Trust
7.275% due 05/15/20 270 274
Bank of America
9.000% due 03/01/08 74 73
Citibank, N.A.
8.000% due 07/25/18 82 84
DBL Mortgage Funding
9.500% due 08/01/19 23 24
First Interstate Bancorp
9.125% due 01/01/09 12 12
General Electric Capital
Mortgage
7.250% due 07/25/11 13,000 13,144
General Electric Credit
Corp.
8.000% due 03/01/02 (j) 78 80
German American Capital
Corp.
8.360% due 09/30/02 3,364 3,552
6.581% due 07/01/18 (d) 9,330 9,295
Great Western Savings
& Loan
5.980% due 08/01/17 (d) 179 176
Guardian
6.976% due 12/25/18 (d) 285 249
Home Savings of America
8.464% due 08/01/06 90 93
5.838% due 05/25/27 (d) 3,383 3,325
6.438% due 08/20/29 (d) 13,187 13,256
Imperial Savings & Loan
10.000% due 09/01/16 (j) 195 205
8.238% due 01/25/17 (d) 99 99
8.844% due 07/25/17 (d) 353 352
LTC Commercial Corp.
8.059% due 11/28/12 3,883 4,021
MDC Mortgage Funding
8.696% due 01/25/25 (d) 659 683
Merrill Lynch Mortgage
9.250% due 12/15/09 15 15
8.153% due 06/15/21 (d) 1,635 1,704
Mid-State Trust
8.330% due 04/01/30 74,786 84,371
Morgan Stanley Mortgage
8.150% due 07/20/21 11 11
Resolution Trust Corp.
7.107% due 05/25/29 (d) 5,459 5,545
Salomon Brothers Mortgage
Securities
11.500% due 09/01/15 1,435 1,561
Sears Mortgage
12.000% due 02/25/14 1,030 1,036
6.738% due 06/25/22 (d) 667 675
7.416% due 10/25/22 (d) 4,138 4,184
Structured Asset
Securities Corp.
5.794% due 01/25/00 (d) 2,605 2,607
Western Federal
Savings & Loan
6.631% due 11/25/18 (d) 184 185
6.682% due 03/25/19 (d) 1,468 1,472
===================
152,363 152363
===================
Stripped Mortgage-Backed
Securities 0.1%
Federal Home Loan Mortgage
Corp. (IO)
10.038% due 09/15/05 15 1
6.500% due 11/15/06 1,964 112
6.500% due 03/15/07 2,737 167
5.750% due 09/15/07 (d) 10,107 610
5.428% due 02/15/08 (d) 855 52
11.651% due 01/15/16 22 1
6.500% due 08/15/16 2,756 128
7.000% due 04/15/18 2,714 112
9.993% due 11/15/18 (d) 100 5
8.845% due 01/15/21 385 66
9.000% due 05/15/22 192 21
Federal Home Loan
Mortgage Corp. (PO)
0.000% due 06/15/21 1,476 1,455
Federal National Mortgage Assn. (IO)
6.750% due 09/25/04 55 2
7.000% due 06/25/05 15 1
10.458% due 07/25/05 (d) 514 22
6.500% due 07/25/06 4,507 197
7.272% due 09/25/06 4 57
6.500% due 02/25/07 3,513 306
6.500% due 07/25/07 1,622 99
6.500% due 09/25/07 4,474 365
6.500% due 10/25/07 1,797 128
0.950% due 03/25/09 (d) 44,031 713
7.000% due 08/25/15 2,613 85
7.000% due 08/25/16 709 28
6.500% due 08/25/20 2,666 373
10.070% due 01/25/21 108 13
9.032% due 08/25/21 1,439 233
0.950% due 11/25/21 (d) 43,780 742
6.500% due 01/25/23 4,042 562
Federal National
Mortgage Assn. (PO)
0.000% due 09/01/07 1,107 992
0.000% due 02/25/21 3,700 3,685
0.000% due 06/25/22 2,277 2,153
0.000% due 08/25/23 407 349
PaineWebber (IO)
13.595% due 08/01/19 239 75
Vendee Mortgage (IO)
0.542% due 06/15/23 (d) 202,805 3,987
17,897 17897
===================
Total Mortgage-Backed
Securities 12,623,279 $12,623,279
===================
(Cost $12,375,186)
ASSET-BACKED SECURITIES
7.7%
AFC Home Equity Loan
Trust
7.294% due 10/25/26 (d) 6,974 7,105
Americredit Automobile
Receivable Trust
6.540% due 05/12/01 500 509
Arcadia Automobile
Receivables Trust
6.300% due 07/16/01 9,000 9,061
Aspetuck Trust
5.781% due 02/01/99 (d) 80,000 79,400
5.816% due 09/01/99 (d) 100,000 100,000
Asset-Backed Securities
Investment Trust
6.790% due 08/17/03 26,606 26,722
Associates Manufactured
Housing
7.000% due 03/15/27 900 929
Auto Receivables Trust
6.500% due 04/16/03 23,021 23,021
<PAGE>
California Infrastructure
5.940% due 09/25/00 3,676 3,680
5.970% due 12/26/00 4,340 4,370
5.980% due 12/26/00 20,584 20,681
6.010% due 06/25/01 73,864 74,234
6.150% due 06/25/02 19,500 19,827
Capital Equipment
Receivables Trust
6.030% due 02/15/00 5,000 5,035
Case Equipment Loan
Trust
6.150% due 09/15/02 1,515 1,520
Chase Manhattan Auto
Owner Trust
5.750% due 10/15/01 500 505
Chase Manhattan Grantor
Trust
6.000% due 09/17/01 2,133 2,144
5.900% due 11/15/01 6,142 6,167
6.610% due 09/15/02 3,948 4,003
Chase Mortgage Financial
Corp.
6.750% due 10/25/28 30,000 29,850
Citicorp Mortgage
Securities, Inc.
6.750% due 04/25/28 16,297 16,750
Community Program
Loan Trust
4.500% due 10/01/18 26,867 26,136
4.500% due 04/01/29 26,000 23,122
Conti Mortgage Home
Equity Loan Trust
5.811% due 10/15/12 (d) 31,024 31,167
6.990% due 03/15/21 350 368
5.730% due 06/15/28 (d) 7,427 7,427
Copelco Capital Funding
Corp.
6.340% due 07/20/04 49 50
CS First Boston Mortgage
Securities Corp.
6.750% due 09/25/28 6,960 7,369
CSXT Trade Receivables
5.050% due 09/25/99 500 500
Daimler-Benz Vehicle
Trust
5.850% due 07/20/03 15,298 15,317
6.050% due 03/20/05 9,313 9,407
Delta Air Lines Equipment
Trust
9.230% due 07/02/02 (j) 10,099 10,930
10.500% due 01/02/07 (j) 7,412 8,988
10.570% due 01/02/07 (j) 15,881 20,186
9.550% due 01/02/08 (j) 7,773 9,104
10.000% due 06/05/13 10,828 14,362
Discover Card Trust
5.800% due 09/16/03 500 509
6.031% due 10/16/13 (d) 400 405
EQCC Home Equity Loan
Trust
6.710% due 07/15/11 330 339
Equivantage Home Equity
Loan Trust
6.550% due 04/01/27 158 163
Federal-Mogul Corp.
7.880% due 12/31/05 (d) 23,636 23,591
7.940% due 12/31/05 1,340 1,337
First Omni Bank
6.650% due 09/15/03 (d) 1,500 1,558
First Security Auto
Grantor Trust
6.100% due 04/15/03 2,744 2,772
First Union Master Credit
Card Trust
5.760% due 09/15/03 88,750 88,949
Flag Limited
7.588% due 12/15/04 94 94
7.650% due 12/15/04 (d) 13,073 12,778
7.588% due 01/30/05 3,778 3,693
Ford Credit Grantor
Trust
6.750% due 09/15/00 1,250 1,266
5.900% due 10/15/00 7,350 7,383
Ford Motor Credit Corp.
5.500% due 02/15/03 5,300 5,357
Fred Meyer, Inc.
6.688% due 03/19/03 (d) 84,519 83,781
6.750% due 03/19/03 30,481 30,214
<PAGE>
General Motors Acceptance
Corp.
6.500% due 04/15/02 30,194 30,430
Green Tree Financial
Group
7.150% due 07/15/27 1,025 1,054
IMC Home Equity Loan
Trust
5.796% due 05/21/12 (d) 29,401 29,429
7.482% due 07/25/26 (d) 1,143 1,163
Independent National
Mortgage Corp.
8.750% due 12/25/24 30 32
8.000% due 06/25/25 100 101
Integrated Health
Services
7.687% due 09/16/04 (d) 15,000 15,260
Korea National Housing
9.062% due 05/23/01 60,000 49,200
Lyondell Petroleum
7.687% due 06/17/99 (d) 20,000 19,900
7.687% due 06/17/00 (d) 27,000 26,865
7.687% due 06/17/03 (d) 20,000 19,900
MBNA Master Credit Card
Trust
5.572% due 01/15/02 73,635 73,814
6.050% due 11/15/02 245 250
Metlife Capital Equipment
Loan Trust
6.850% due 05/20/08 (d) 320 339
<PAGE>
Money Store Home Equity
Trust
6.815% due 07/15/06 73 74
6.520% due 08/15/09 31,273 31,436
6.205% due 03/15/12 25,000 25,114
7.550% due 02/15/20 500 520
Morgan Stanley Capital
5.886% due 07/25/27 (d) 3,501 3,503
National Medical Care
7.250% due 09/30/03 (d) 51,250 50,930
NationsBanc Montgomery
Funding Corp.
6.500% due 10/25/28 9,000 9,068
NationsBank Auto Owner
Trust
6.375% due 07/15/00 911 916
NationsBank Corp.
5.850% due 06/15/02 224 225
Newcourt Receivable Asset
Trust
6.240% due 12/20/04 24 24
Norwest Asset Securities
Corp
6.500% due 04/25/13 22,079 22,792
6.500% due 06/25/13 11,438 11,805
6.250% due 10/25/13 50,000 50,305
7.500% due 03/25/27 26,622 27,636
6.750% due 05/25/28 27,707 28,410
6.750% due 07/25/28 12,657 12,980
6.200% due 09/25/28 19,077 19,184
6.500% due 10/25/28 20,000 20,138
Olympic Automobile
Receivables Trust
5.650% due 01/15/01 520 520
OSCC Home Equity
6.950% due 05/15/07 75 75
Premiere Auto Trust
6.575% due 10/06/00 1,975 1,998
Residential Asset
Securities Corp.
6.750% due 03/25/28 40,000 41,016
Saxon Asset Securities
Trust
6.475% due 11/25/20 274 276
Sears Credit Account
Master Trust
6.050% due 01/16/08 500 520
7.000% due 07/15/08 500 541
Total Renal Care Holdings
7.437% due 03/31/08 (d) 48,000 47,940
UCFC Home Equity Loan
6.381% due 07/15/10 104 104
United Air Lines
Equipment Trust
9.200% due 03/22/08 4,309 5,073
10.360% due 11/13/12 7,000 9,241
10.020% due 03/22/14 5,825 7,105
10.850% due 07/05/14 34,111 45,640
10.125% due 03/22/15 14,300 18,602
9.060% due 06/17/15 5,000 5,875
9.210% due 01/21/17 2,000 2,442
USAA Auto Loan Grantor
Trust
5.800% due 01/15/05 9,311 9,391
WFS Financial Owner Trust
6.650% due 08/20/00 1,713 1,722
6.050% due 07/20/01 1,966 1,972
6.500% due 09/20/01 10,777 10,907
Ziff-Davis, Inc.
7.469% due 03/31/06 40,000 40,025
===================
Total Asset-Backed
Securities 1,717,917 1717917
===================
(Cost $1,693,486)
<PAGE>
SOVEREIGN ISSUES 3.2%
Banco Nacional de Obra y
Servicios
6.875% due 10/01/98 19,500 19,500
Central Bank Philippines
6.000% due 06/01/08 (d) 12,240 8,690
City of Buenos Aires
11.250% due 04/11/07 5,000 3,917
Government of Brazil
6.625% due 04/15/06 (d) 25,026 14,265
6.688% due 04/15/12 (d) 81,700 40,850
8.000% due 04/15/14 13,342 7,923
Hydro Quebec
5.656% due 04/15/99 (d) 10,000 9,993
7.375% due 02/01/03 150 163
9.400% due 02/01/21 500 669
8.500% due 12/01/29 5,085 6,384
9.375% due 04/15/30 600 822
9.500% due 11/15/30 2,370 3,289
Kingdom of Sweden
10.250% due 11/01/15 500 727
Nacional Financiera
9.000% due 01/25/99 13,260 13,161
Providence of
Newfoundland
9.000% due 06/01/19 500 654
Province of Nova Scotia
9.375% due 07/15/02 1,000 1,130
Province of Ontario
6.125% due 06/28/00 50 51
7.750% due 06/04/02 200 219
7.625% due 06/22/04 1,000 1,125
7.000% due 08/04/05 1,000 1,102
5.500% due 10/01/08 10,000 10,050
Province of Quebec
6.090% due 06/21/99 (d) 50,000 50,129
7.500% due 07/15/02 6,000 6,466
8.800% due 04/15/03 100 114
5.838% due 06/11/04 (d) 15,500 15,461
7.125% due 02/09/24 710 765
Republic of Argentina
8.399% due 08/15/99 (d) 17,500 16,395
5.688% due 04/01/00 (d) 16,965 13,379
5.635% due 04/01/01 (d) 45,690 38,164
6.625% due 03/31/05 (d) 341,220 269,564
8.726% due 04/10/05 (d) 43,650 37,648
Republic of Columbia
8.750% due 10/06/99 500 490
Republic of Korea
8.281% due 04/08/00 (d) 64,044 58,761
Republic of Philippines
6.500% due 12/01/17 4,216 3,041
6.563% due 01/05/05 (d) 11,879 9,394
Republic of Poland
4.000% due 10/27/14 25,000 21,408
State of Israel
6.200% due 06/15/03 25 26
United Mexican States
7.002% due 06/27/02 (d) 44,000 40,525
===================
Total Sovereign Issues 726,414 726414
===================
(Cost $760,430)
FOREIGN CURRENCY-DENOMINATED
ISSUES (c)(f) 2.1%
City of Montreal
11.500% due 09/20/00 C$ 7,000 5,107
Commonwealth of
Australia
8.750% due 01/15/01 A$ 4,235 2,742
9.750% due 03/15/02 3,665 2,528
10.000% due 10/15/02 6,940 4,919
10.000% due 02/15/06 1,600 1,240
10.000% due 10/15/07 23,000 18,512
Commonwealth of Canada
6.500% due 06/01/04 C$ 1,000 706
4.250% due 12/01/26 (h) 121,800 82,163
Commonwealth of
New Zealand
6.500% due 02/15/00 N$ 160,000 81,010
8.000% due 02/15/01 8,890 4,682
10.000% due 03/15/02 107,500 61,027
8.000% due 04/15/04 7,000 3,888
4.500% due 02/15/16 (h) 23,000 12,103
Federal National
Mortgage Assn.
6.875% due 06/07/02 BP 15,000 26,351
<PAGE>
Petroleos Mexicanos
7.750% due 09/30/98 FF 5,000 893
Province of Saskatchewan
9.125% due 02/15/21 C$ 3,000 4,099
Republic of Argentina
3.044% due 04/01/01 (d) AP 7,392 5,668
Reynolds, R.J.
6.875% due 11/22/00 DM 9,500 5,804
United Kingdom Gilt
7.400% due 01/08/99 BP 27,022 45,910
7.000% due 06/07/02 50,000 89,752
===================
Total Foreign Currency-
Denominated Issues 459,104 459104
===================
(Cost $510,546)
PURCHASED CALL
OPTIONS 0.3%
U.S. Treasury Note (OTC)
5.375% due 07/31/00
Strike @ 99.96 Exp. 02/19/99 127,000 2,176
5.375% due 07/31/00
Strike @ 100.00 Exp. 02/19/99 30,000 503
5.375% due 07/31/00
Strike @ 99.99 Exp. 02/26/99 250,000 4,200
6.625% due 06/30/01
Strike @ 96.46 Exp. 11/12/98 135,200 11,519
5.750% due 11/30/02
Strike @ 93.89 Exp. 10/29/98 75,000 8,399
5.500% due 02/28/03
Strike @ 94.39 Exp. 12/02/98 2,000 213
5.500% due 02/28/03
Strike @ 92.99 Exp. 11/23/98 125,000 14,354
5.250% due 08/15/03
Strike @ 92.16 Exp. 08/20/99 1,500,000 2
5.250% due 08/15/03
Strike @ 99.29 Exp. 08/20/99 127,000 6,438
5.250% due 08/15/03
Strike @ 100.00 Exp. 08/20/99 250,000 11,078
5.250% due 08/03
Strike @ 99.47 Exp. 08/27/99 380,000 18,624
===================
Total Purchased Call Options 77,506 77,506
===================
(Cost $36,605)
PURCHASED PUT OPTIONS
0.0%
U.S. Treasury 5 Year Note
December Futures (CBOT)
5.375% due 07/31/00
Strike @106.00 Exp. 11/21/98 3,001,200 125
===================
Total Purchased Put Options 125 125
===================
(Cost $293)
PREFERRED STOCK 0.2%
Shares
Banco Bilbao Vizcaya
International
2.438% due 01/01/00 266,217 7,221
Barclays Bank
2.875% due 01/01/00 215,500 5,899
CSC Holdings, Inc.
11.932% due 01/01/00 21,127 2,324
Home Ownership Funding
0.133% due 01/01/00 1,125 1,128
Sanwa International
0.000% due 01/01/00 3,006,00,000 13,409
TCI Communications, Inc.
2.430% due 01/01/00 622,553 16,965
2.500% due 01/01/00 49,000 1,338
Unocal Capital Trust
3.125% due 01/01/00 402 21
===================
Total Preferred Stock 48,305 48,305
===================
(Cost $58,536)
<PAGE>
SHORT-TERM INSTRUMENTS
1.5%
Principal
Amount
(000s)
Certificates of Deposit
0.2%
Bank of Tokyo
5.890% due 10/05/98 17,000 17,000
5.940% due 01/19/99 15,000 15,000
===================
32,000 32,000
===================
Commercial Paper 0.1%
Federal Home Loan
Mortgage Corp.
5.240% due 10/16/98 300 299
Federal Housing
Administration
5.888% due 10/29/98 18,900 18,900
New Center Asset Trust
5.220% due 12/17/98 1,300 1,285
Pfizer, Inc.
5.270% due 10/30/98 100 100
Procter & Gamble Co.
5.140% due 12/29/98 1,500 1,480
===================
22,064 22064
===================
Repurchase Agreements 0.7%
State Street Bank 4.750% due 10/01/98 24,945 24,945
(Dated 09/30/98. Collateralized by U.S. Treasury
Note 6.375% 03/31/01 valued at $25,446,625.
Repurchase proceeds are $24,948,291.)
First Boston
5.150% due 10/01/98 134,400 134,400
(Dated 09/30/98. Collateralized by U.S. Treasury
Note 4.500% 09/30/00 valued at $137,759,040.
Repurchase proceeds are $134,419,227.)
===================
159,345 159,345
===================
U.S. Treasury Bills
(b)(g) 0.5%
4.959% due 12/03/98-08/19/99 117,076 116,369
-------------------
Total Short-Term Instruments 329,778
===================
(Cost $329,617)
Total Investments (a) 123.6% $27,642,164
(Cost $27,332,479)
Written Options (e) (0.2%) (51,236)
(Premiums $15,248)
Other Assets and Liabilities (Net) (23.4%) (5,224,865)
-------------------
Net Assets 100.0% $22,366,063
===================
<PAGE>
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. $498,202
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (188,517)
-----------------------
Unrealized appreciation-net $309,685
=======================
(b) Securities with an aggregate market value of $116,369 have been segregated
with the custodian to cover margin requirements for the following open futures
contracts at September 30, 1998:
Unrealized
Type Contracts Appreciation
Eurodollar March Futures (03/01) 50 $ 122
Eurodollar March Futures (03/02) 2,682 4,735
Eurodollar June Futures (06/01) 50 116
Eurodollar June Futures (06/02) 1,075 1,627
Eurodollar September Futures (09/00) 1,050 2,780
Eurodollar September Futures (09/01) 1,707 3,557
Eurodollar December Futures (12/00) 1,050 2,546
Eurodollar December Futures (12/01) 1,607 2,810
U.S. Treasury 5 Year Note (12/98) 11,754 43,403
U.S. Treasury 10 Year Note (12/98) 33,667 122,508
U.S. Treasury 10 Year Note (03/99) 37 174
U.S. Treasury 30 Year Bond (12/98) 16,553 52,066
U.S. Treasury 30 Year Bond (12/99) 500 2,051
United Kingdom 90 Day LIBOR (12/98) 4,472 1,404
United Kingdom 90 Day LIBOR (03/99) 1,000 403
United Kingdom 90 Day LIBOR (12/99) 562 1,306
=======================
$ 241,608
=======================
(c) Foreign forward currency contracts outstanding at September 30, 1998:
Principal
Amount Unrealized
Covered by Expiration Appreciation/
Type Contract Month (Depreciation)
Sell BP 19,798 10/98 ($1,327)
Sell C$ 137,761 10/98 339
Sell DM 8,475 11/98 (352)
Sell N$ 19,132 12/98 (190)
=======================
($1,530)
=======================
(d) Variable rate security. The rate listed is as of September 30, 1998. (e)
Premiums received on written options:
Type Par Premium Value
Call - CBOT U.S. Treasury Bond December Futures
Strike @ 128.00 Exp. 11/21/98 $ 3,365 $ 1,634 $ 13,512
Put - CBOT U.S. Treasury Bond December Futures
Strike @ 112.00 Exp. 11/21/98 1,000 510 16
Call - CBOT U.S. Treasury Bond December Futures
Strike @ 130.00 Exp. 11/21/98 3,000 828 7,922
Put - CBOT U.S. Treasury Bond December Futures
Strike @ 114.00 Exp. 11/21/98 1,500 578 23
Call - OTC U.S. Treasury Note
5.375% due 07/00
Strike @ 100.51 Exp. 02/19/99 1,270 139 1,543
Put - OTC U.S. Treasury Note
5.375% due 07/00
Strike @ 99.62 Exp. 02/19/98 2,540 278 13
Call - OTC U.S. Treasury Note
5.375% due 07/00
Strike @ 100.79 Exp. 02/19/98 300 40 294
Put - OTC U.S. Treasury Note
5.375% due 07/00
Strike @ 99.96 Exp. 02/19/99 600 61 7
Call - CBOT U.S. Treasury Bond March Futures
Strike @ 138.00 Exp. 02/20/99 1,500 660 1,219
Call - OTC Sanwa Communications
Strike @ 1,270.00 Exp. 02/26/99 465 1,137 17
Call - OTC U.S. Treasury Note
5.375% due 07/00
Strike @ 100.53 Exp. 02/26/99 2,500 313 2,982
Put - OTC U.S. Treasury Note
5.375% due 07/00
Strike @ 99.66 Exp. 02/26/99 5,000 547 30
<PAGE>
Call - OTC U.S. Treasury Note
5.250% due 08/98
Strike @ 101.25 Exp. 08/20/99 1,270 466 4,279
Put - OTC U.S. Treasury Note
5.250% due 08/98
Strike @ 97.97 Exp. 08/20/99 2,540 1,012 41
Put - OTC U.S. Treasury Note
5.250% due 08/98
Strike @ 98.59 Exp. 08/20/99 5,000 1,719 135
Call - OTC U.S. Treasury Note
5.250% due 08/98
Strike @ 101.79 Exp. 08/20/99 2,500 1,172 7,347
Call - OTC U.S. Treasury Note
5.250% due 08/98
Strike @ 101.60 Exp. 08/27/99 2,500 858 7,720
Call - OTC U.S. Treasury Note
5.250% due 08/98
Strike @ 101.60 Exp. 08/27/99 1,300 446 4,014
Put - OTC U.S. Treasury Note
5.250% due 08/98
Strike @ 97.94 Exp. 08/27/99 7,600 2,850 122
===========================================
$ 15,248 $ 51,236
===========================================
(f) Principal amount denoted in indicated currency:
A$ - Australian Dollar
AP - Argentine Peso
BP - British Pound
C$ - Canadian Dollar
DM - German Mark
FF - French Franc
JY - Japanese Yen
N$ - New Zealand Dollar
(g) Securities are grouped by coupon and represent a range of maturities.
(h) Principal amount of the security is adjusted for inflation.
(i) Security becomes interest bearing at a future date.
(j) Restricted security.
(k) Swap agreements outstanding at September 30, 1998:
Contract Notional Unrealized
Type Spread Lock Amount Appreciation
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. 05/02/02 0.3700 $ 120,000 $ 1,967
Unrealized
Notional Appreciation/
Type Amount (Depreciation)
Receive fixed rate equal to 6.405% and
pay floating rate based on 6 month A$-LIBOR.
Broker: Deutsche Bank AG New York
Exp. 10/08/07 A$ 137,000 $ 3,979
Receive floating rate based on 6 month
JY-LIBOR and pay fixed rate equal to 2.340%
Broker: Deutsche Bank AG New York
Exp. 10/08/07 JY 24,500,000 (17,133)
Receive floating rate based on 6 month JY-LIBOR and pay fixed rate equal to
2.295%.
Broker: Deutsche Bank AG New York
Exp. 04/14/08 JY 11,635,000 (7,840)
Receive floating rate based on 6 month JY-LIBOR and pay fixed rate equal to
2.305%.
Broker: Deutsche Bank AG New York
Exp. 04/15/08 JY 7,563,000 (5,146)
Receive floating rate based on 6 month JY-LIBOR and pay fixed rate equal to
1.495%.
Broker: Deutsche Bank AG New York
Exp. 09/16/08 JY 7,000,000 837
---------
($25,303)
</TABLE>
<PAGE>
Consent of Independent Accountants
To the Trustees and Institutional Shareholders of
the Total Return Fund (a portfolio of PIMCO Funds:
Pacific Investment Management Series)
You have informed us that the Report of Independent Accountants dated May 22,
1997 relating to the financial statements for the fiscal year ended March 31,
1997 of the Total Return Fund (the "Fund") is to be included in Part II,
"Information Concerning the Issuer", Item IV, "Accounting of the Fund" of the
Securities Registration Statement of the Fund.
We hereby consent to the inclusion in the Securities Registration Statement of
our Report of Independent Accountants and any reference thereto and references
to our name in the form and context in which they are included.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1055 Broadway
Kansas City, Missouri 64105
June 30, 1998
<PAGE>
Consent of Independent Accountants
To the Trustees and Institutional Shareholders of
the Total Return Fund (a portfolio of PIMCO Funds:
Pacific Investment Management Series)
You have informed us that the Report of Independent Accountants dated May 22,
1998 relating to the financial statements for the fiscal year ended March 31,
1998 of the Total Return Fund (the "Fund") is to be included in Part II,
"Information Concerning the Issuer", Item IV, "Accounting of the Fund" of the
Securities Registration Statement of the Fund.
We hereby consent to the inclusion in the Securities Registration Statement of
our Report of Independent Accountants and any reference thereto and references
to our name in the form and context in which they are included.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1055 Broadway
Kansas City, Missouri 64105
June 30, 1998
<PAGE>
Report of Independent Accountants
To the Trustees and Institutional Shareholders of
the Total Return Fund (a portfolio of PIMCO Funds:
Pacific Investment Management Series)
In our opinion, the accompanying statements of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Total Return Fund (the "Fund")
at March 31, 1997, and the results of its operations, the changes in its net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles in the United States.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund 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, 1997 by corresponding with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1055 Broadway
Kansas City, Missouri 64105
May 22, 1997
<PAGE>
Report of Independent Accountants
To the Trustees and Institutional Shareholders of
the Total Return Fund (a portfolio of PIMCO Funds:
Pacific Investment Management Series)
In our opinion, the accompanying statements of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Total Return Fund (the "Fund")
at March 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles in the United States.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund 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 corresponding with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1055 Broadway
Kansas City, Missouri 64105
May 22, 1998
<PAGE>
2. CONDITIONS OF THE FUND
(A) Statements of Net Assets
(As of the end of May, 1998)
Dollar Thousand Yen
Aggregate Amount of Assets $24,776,562,848 3,436,509,267
Aggregate Amount of Liabilities $ 5,376,343,949 745,698,906
Aggregate Amount of Net Assets () Inst $17,583,673,175 2,438,855,469
Admin $ 561,042,038 77,816,531
A. $ 613,236,960 85,055,966
B. $ 213,568,101 29,621,896
C. $ 427,891,541 59,348,557
D. $ 807,084 111,943
Total $19,400,218,899 2,690,810,361
Quantity of Inst 1,647,574,558.534
Outstanding Shares Admin 52,563,339.320
A. 57,459,562.432
B. 20,011,073.033
C. 40,092,920.484
D. 75,623.330
Net Asset per Share Inst $ 10.67 Yen 1,480
() Admin $ 10.67 1,480
A. $ 10.67 1,480
B. $ 10.67 1,480
C. $ 10.67 1,480
D. $ 10.67 1,480
<PAGE>
(B) Names of Major Investment Portfolios other than Equity Shares (Top 30
Names)
Major investment portfolios of Total Return Fund are securities other than
shares except for some preferred stocks.
<TABLE>
<S> <C> <C> <C> <C> <C>
(As of the end of May, 1998)
Rank Name Country Kind Interest Redemption Date
Rate
1 FIN FUT US 10YR CBT GSC 6/19/88 USA FUTURE 8.00000 1998/6/30
2 FIN FUT US 30YR CBT GSC 6/19/98 USA FUTURE 8.00000 1998/6/30
3 FHLMC TBA GOLD 6.50% JUL USA MORTGAGE BACKED 6.50000 2028/7/14
4 FIN FUT UK 90DAY LIBOR GSC 12/16 UK FUTURE 0.00000 1998/12/31
5 FHLMC TBA GOLD 6.00% JUN USA MORTGAGE BACKED 6.00000 2028/6/10
6 FIN FUT US 30YR CBT GSC 9/21/98 USA FUTURE 8.00000 1998/9/30
7 FNMA MTN 6/12/97 USA MORTGAGE BACKED 5.83000 1998/6/12
8 FNMA TBA 6.50% AUG USA MORTGAGE BACKED 6.50000 2028/8/13
9 FHLMC TBA GOLD 6% JUN 15YR USA MORTGAGE BACKED 6.00000 2013/6/15
10 FHLMC TBA GOLD 6.50% AUG USA MORTGAGE BACKED 6.50000 2028/8/13
11 FIN FUT US 30YR CBT SAL 6/19/98 USA FUTURE 8.00000 1998/6/30
12 GNMA I TBA 6.50% AUG USA MORTGAGE BACKED 6.50000 2028/8/19
13 ARGENTINA BEARER FRB BRADY ARGENTINA FOREIGN BOND 6.62500 2005/3/31
14 US TREASURY INFLAT PROTECT USA US GOV'T 3.62500 2002/7/15
15 FIN FUT US 10YR CBT GSC 9/21/98 USA FUTURE 8.00000 1998/9/30
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Rank U.S. Dollars Investment
Ratio
Principal Amount Acquisition Cost Value
1 $2,716,700,000.00 $3,053,577,167.49 $3,069,022,031.25 15.71%
2 $2,085,000,000.00 $2,512,689,379.15 $2,537,835,937.50 12.99%
3 $1,031,750,000.00 $1,021,621,718.75 $1,025,946,406.25 5.25%
4 $2,236,000,000.00 $3,453,899,789.80 $3,384,809,419.18 4.33%
5 $ 590,100,000.00 $571,090,843.74 $573,687,843.75 2.94%
6 $ 440,000,000.00 $531,193,760.00 $534,600,000.00 2.74%
7 $ 500,000,000.00 $499,234,555.00 $500,025,000.00 2.56%
8 $ 446,930,000.00 $443,499,296.88 $443,438,359.38 2.27%
9 $ 442,500,000.00 $434,705,859.37 $437,798,437.50 2.24%
10 $ 423,150,000.00 $420,373,078.12 $420,439,195.31 2.15%
11 $ 326,600,000.00 $393,870,890.02 $397,533,437.50 2.04%
12 $ 358,000,000.00 $355,762,500.00 $355,650,625.00 1.82%
13 $ 369,407,500.00 $284,393,087.49 $331,543,231.25 1.70%
14 $ 330,801,332.89 $316,250,991.30 $326,977,269.49 1.67%
15 $ 250,000,000.00 $281,933,590.00 $282,812,500.00 1.45%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Rank Name Country Kind Interest Redemption Date
Rate
16 SALLIE MAE MTN 6/30/97 USA CORPORATE BOND 6.00000 1998/6/30
17 FIN FUT US 30YR CBT SLH 6/19/98 USA FUTURE 8.00000 1998/6/30
18 DEUTSCHE BANK NY CERT OF DEPOSIT USA CORPORATE BOND 5.93000 1998/6/16
19 FIN FUT UK 90DAY LIBOR SLH 6/17 UK FUTURE 0.00000 1998/6/30
20 PNC BANK NA FRN USA CORPORATE BOND 5.60234 2000/6/1
21 LANDBK HESSEN - THUERINGEN CD GERMANY CORPORATE BOND 5.93000 1998/6/30
22 RFMSI 1998-S1-A1 WM 12 WC 7.327 USA CORPORATE BOND 6.50000 2013/1/25
23 GNMA I TBA 6.50% JUN USA MORTGAGE BACKED 6.50000 2028/6/18
24 HELLER FINANCIAL INC MTN 12/16/97 USA CORPORATE BOND 6.25000 1999/1/15
25 FNMA MTN 6/19/97 USA CORPORATE BOND 5.84000 1998/6/19
26 GEN MTRS ACC CORP DISC NT USA CORPORATE BOND 5.51000 1998/6/10
27 FHLMC TBA GOLD 6.50% JUN USA MORTGAGE BACKED 6.50000 2028/6/10
28 US TREASURY REPO USA USGOV'T 5.53000 1998/6/1
29 AT&T CAP CORP FRN MTN PRIV 144A USA CORPORATE BOND 6.04950 1999/4/1
30 FIN FUT US 30YR CBT MLP 6/19/98 USA FUTURE 8.00000 1998/6/30
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Rank U.S. Dollars Investment Ratio
Principal Amount Acquisition Cost Value
16 $279,500,000.00 $279,476,075.30 $279,581,055.00 1.43%
17 $222,600,000.00 $269,154,697.56 $270,945,937.50 1.39%
18 $250,000,000.00 $249,844,675.00 $249,844,675.00 1.28%
19 $650,000,000.00 $1,000,421,649.50 $980,670,366.00 1.26%
20 $217,000,000.00 $216,667,990.00 $216,660,937.50 1.11%
21 $210,000,000.00 $209,811,800.00 $209,811,800.00 1.07%
22 $207,314,982.32 $206,537,551.13 $206,602,337.07 1.06%
23 $201,870,000.00 $199,286,843.75 $200,955,286.66 1.03%
24 $200,000,000.00 $199,880,000.00 $200,396,000.00 1.03%
25 $190,000,000.00 $189,707,400.00 $190,019,000.00 0.97%
26 $182,000,000.00 $178,207,041.11 $178,207,041.11 0.91%
27 $163,600,000.00 $161,068,750.00 $162,833,125.00 0.83%
28 $159,000,000.00 $159,000,000.00 $159,000,000.00 0.81%
29 $158,500,000.00 $158,500,000.00 $158,561,815.00 0.81%
30 $125,000,000.00 $149,160,162.50 $152,148,437.50 0.78%
</TABLE>
V. SUMMARY OF INFORMATION CONCERNING FOREIGN INVESTMENT TRUST SECURITIES
1. Transfer of the Shares
The transfer agent for the Shares is as follows:
Agent: Investors Fiduciary Trust Company
Address: 801 Pennsylvania, Kansas City, MO 64105, U.S.A.
Because shareholders in Japan are required to entrust the custody of a
global certificate representing their Shares and to register their Shares in the
name of Nikko, they may not register their Shares in their own name directly. No
fee is chargeable for the transfer of Shares.
2. The Closing Period of the Shareholders' Book
No provision is made.
3. Shareholders' Meeting
There are no annual shareholders' meetings. Special shareholders' meeting
may be held whenever ordered by the Trustees or requested in writing by the
holder or holders of at least one-tenth of the outstanding shares of the Trust
for the purpose of considering the removal of a Trustee.
4. Special Privilege to Shareholders, Restriction on Transfer
No special privilege is granted to shareholders.
The acquisition of Shares by any person may be restricted.
<PAGE>
VI. MISCELLANEOUS
(1) The ornamental design is used in, and the following terms are added to, the
cover page of the Japanese Prospectus:
(a) "US Jurisdiction Open-Ended Contractual Type Foreign Investment Fund
(denominated in the US dollar)";
(b) "Monthly Distribution Type";
(c) "PIMCO FUNDS - PIMCO Total Return Fund" (in Japanese);
(d) "PIMCO FUNDS - PIMCO Total Return Fund" (in English);
(e) "Investment Advisor and Administrator: Pacific Investment Management
Company"; and
(f) "For purchase, contact: Nikko Securities".
(2) The following must be set forth in the Prospectus. Outline of the
Prospectus will be included at the beginning of the Prospectus, summarizing
the content of Part I., Information on the securities, "I. Descriptions of
the Fund", "III. Outline of Other Related Companies" and "IV. Financial
Condition of the Fund" in Part II, Information on the Issuer, of the SRS.
(3) Summarized Preliminary Prospectus will be used. Attached document
(Summarized Preliminary Prospectus) will be used pursuant to the below, as
the document (Summarized Preliminary Prospectus) as set forth at Item
1.(1)(b), of Article 12 of the Ordinance Concerning the Disclosure of the
Content, etc. of the Specified Securities.
(a) The content of the summarized Preliminary Prospectus may be publicized
by leaflets, pamphlets, direct mails (post cards and mail in
envelopes) or at newspapers, magazines and other books.
(b) The layout, quality of papers, printing color, design etc. of the
Summarized Preliminary Prospectus may vary depending on manner of
usage. Photos and illustrations set forth in the attached may be used.
(c) Information on the Fund's performance, the changes in the net asset
value per Share, the breakdown of the portfolios classified by rating,
a part of the client lists and the fluctuation rates since the
establishment of the Fund or for other periods may be set out in the
figures or graphs. Such information regarding the Fund's achievement
may be converted into and presented in yen.
(d) An example of dividend receivable corresponding to a certain amount of
purchase may be mentioned on the basis of historical performance of
the Fund. Such amount of dividend and purchase may be converted into
and presented in Japanese yen.
(e) An example of delivery amount corresponding to a certain number of
shares applied may be mentioned on the basis of the historical Net
Asset Value. Such amount of delivery may be described converted into
and presented in Japanese yen.
<PAGE>
* * * *
THE END OF THE DOCUMENT
* * * *
<PAGE>
Representation Letter
April 20, 1999
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: PIMCO Funds
File No. 33-12113
Ladies and Gentlemen:
This letter serves as notification of the existence of a Japanese language
prospectus describing the Administrative Class shares of the PIMCO Total Return
Fund series of PIMCO Funds, for which I serve as a Senior Vice President.
Pursuant to Rule 306 of Regulation S-T, I hereby represent that, to the best of
my knowledge, the attached is a fair and accurate translation of the PIMCO Total
Return Fund's Japanese language prospectus.
Please call Keith Robinson at (202) 261-3386 with any questions or comments
regarding the attached.
Sincerely,
/s/Jeffrey M. Sargent
Attachment
