<PAGE>
As filed with the Securities and Exchange Commission on October 22, 1999
File Nos. 33-12113
811-5028
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 /X/
Post-Effective Amendment No. 51 /X/
and
Registration Statement Under the Investment Company Act of 1940 /X/
Amendment No. 56 /X/
PIMCO FUNDS
-----------
(Exact Name of Registrant as Specified in Charter)
840 Newport Center Drive
Newport Beach, California 92660
-------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code:
(949) 720-6533
Robert W. Helm, Esq. R. Wesley Burns
Dechert Price & Rhoads Pacific Investment Management Company
1775 Eye Street, N.W. 840 Newport Center Drive
Washington, D.C. 20006 Newport Beach, California 92660
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C>
/X/ Immediately upon filing pursuant to paragraph (b) / / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1) / / On (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2) / / On April 30, 1999 pursuant to paragraph (a)(2)
of Rule 485
</TABLE>
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
The purpose of this Post-Effective Amendment is to reflect a reduction in
sales charges paid by shareholders and certain other non-material changes.
<PAGE>
PIMCO Funds Prospectus
PIMCO This Prospectus describes 3 mutual funds offered by PIMCO Funds:
Funds: Pacific Investment Management Series. The Funds provide access to
Municipal the professional investment advisory services offered by Pacific
Bond Investment Management Company ("PIMCO"). As of September 30, 1999
Series PIMCO managed approximately $181 billion in assets.
October This Prospectus explains what you should know about the Funds
22, 1999 before you invest. Please read it carefully.
Share The Securities and Exchange Commission has not approved or
Classes disapproved these securities, or determined if this Prospectus is
A, B and C truthful or complete. Any representation to the contrary is a
criminal offense.
1 Prospectus
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Summary Information.............................................. 3
Fund Summaries
Municipal Bond Fund............................................ 4
California Intermediate Municipal Bond Fund.................... 6
New York Intermediate Municipal Bond Fund...................... 8
Summary of Principal Risks....................................... 10
Management of the Funds.......................................... 12
Investment Options............................................... 13
How Fund Shares Are Priced....................................... 16
How to Buy and Sell Shares....................................... 16
Fund Distributions............................................... 20
Tax Consequences................................................. 21
Characteristics and Risks of Securities and Investment
Techniques...................................................... 22
Financial Highlights............................................. 28
Appendix A--Description of Securities Ratings.................... A-1
</TABLE>
Pacific Investment Management Series 2
<PAGE>
Summary Information
The table below compares certain investment characteristics of the Funds.
Other important characteristics are described in the individual Fund
Summaries beginning on page 4. Following the table are certain key concepts
which are used throughout the prospectus.
<TABLE>
<CAPTION>
Credit
Main Investments Duration Quality(1) Foreign
----------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
Tax Exempt Municipal Bond Intermediate to long- 3-10 years Ba to Aaa; max 0%
Bond Funds term maturity municipal 10% below Baa
securities (exempt from
federal income tax)
-----------------------------------------------------------------------------------
California Intermediate maturity 3-7 years B to Aaa; max 0%
Intermediate municipal securities 10% below Baa
Municipal Bond (exempt from federal and
California income tax)
-----------------------------------------------------------------------------------
New York Intermediate maturity 3-7 years B to Aaa; max 0%
Intermediate municipal securities 10% below Baa
Municipal Bond (exempt from federal and
New York income tax)
----------------------------------------------------------------------------------------------
</TABLE>
(1) As rated by Moody's Investors Service, Inc., or if unrated, determined by
PIMCO to be of comparable quality.
Fixed "Fixed Income Instruments" as used in this Prospectus includes:
Income
Instruments
. securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities ("U.S. Government securities");
. corporate debt securities, including convertible securities and
corporate commercial paper;
. mortgage-backed and other asset-backed securities;
. inflation-indexed bonds issued both by 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 or local governments and their
agencies, authorities and other instrumentalities;
. obligations of foreign governments or their subdivisions,
agencies and instrumentalities; and
. obligations of international agencies or supranational
entities.
Duration Duration is a measure of the expected life of a fixed income
security that is used to determine the sensitivity of a security's
price to changes in interest rates. The longer a security's
duration, the more sensitive it will be to changes in interest
rates. Similarly, a Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund
with a shorter average portfolio duration.
Credit In this Prospectus, references are made to credit ratings of debt
Ratings securities which measure an issuer's expected ability to pay
principal and interest on time. Credit ratings are determined by
rating organizations, such as Standard & Poor's Rating Service
("S&P") or Moody's Investors Services, Inc. ("Moody's"). The
following terms are generally used to describe the credit quality
of debt securities depending on the security's credit rating or,
if unrated, credit quality as determined by PIMCO:
. high quality
. investment grade
. below investment grade ("high yield securities" or "junk
bonds")
For a further description of credit ratings, see "Appendix A--
Description of Securities Ratings."
Fund The Funds provide a range of investment choices. The following
Descrip- summaries identify each Fund's investment objective, principal
tions, investments and strategies, principal risks, performance
Perfor- information and fees and expenses. A more detailed "Summary of
mance Principal Risks" describing principal risks of investing in the
and Fees Funds begins after the Fund Summaries.
It is possible to lose money on investments in the Funds. An
investment in a Fund is not a deposit of a bank and is not
guaranteed or insured by the Federal Deposit Insurance Corporation
or any other government agency.
3 Prospectus
<PAGE>
PIMCO Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Fund Focus Credit Quality
Investments Objective Intermediate to Ba to Aaa; maximum
and Seeks high current long-term 10% below Baa
Strategies income exempt from maturity
federal income tax, municipal
consistent with securities
preservation of (exempt from Dividend Frequency
capital. Capital federal income Declared daily and
appreciation is a tax) distributed monthly
secondary
objective.
Average
Portfolio
Duration
Fund
Category 3-10 years
Tax
Exempt
Bond
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 80% of its net assets in debt
securities whose interest is, in the opinion of bond counsel for
the issuer at the time of issuance, exempt from federal income tax
("Municipal Bonds"). Municipal Bonds generally are issued by or on
behalf of states and local governments and their agencies,
authorities and other instrumentalities.
The Fund may invest up to 20% of its net assets in U.S.
Government securities, money market instruments and/or "private
activity" bonds. For shareholders subject to the federal
alternative minimum tax ("AMT"), distributions derived from
"private activity" bonds must be included in their AMT
calculations, and as such may be subject to federal income tax.
The average portfolio duration of this Fund normally varies within
a three- to ten-year time frame based on PIMCO's forecast for
interest rates. The Fund invests primarily in investment grade
debt securities, but may invest up to 10% of its net assets in
Municipal Bonds or "private activity" bonds which are high yield
securities ("junk bonds") rated at least Ba by Moody's or BB by
S&P, or, if unrated, determined by PIMCO to be of comparable
quality.
The Fund may purchase or write call and put options, futures and
options on futures on U.S. Government securities and Municipal
Bonds, and invest in mortgage- or asset-backed securities. Rather
than investing directly in securities in which it primarily
invests, the Fund may use other investment techniques to gain
exposure to market movements related to such securities, such as
entering into a series of contracts to buy and sell such
securities. The Fund may lend its portfolio securities to brokers,
dealers and other financial institutions to earn income.
- --------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund which could
Risks adversely affect its net asset value, yield and total return are:
. Interest Rate Risk . Issuer Risk . Leveraging Risk
. Credit Risk . Derivatives Risk . Management Risk
. Market Risk . Mortgage Risk
Please see "Summary of Principal Risks" following the Fund
Summaries for a description of these and other risks of investing
in the Fund.
- --------------------------------------------------------------------------------
Performance The top of the next page shows summary performance information for
Information the Fund in a bar chart and an Average Annual Total Returns table.
The information provides some indication of the risks of investing
in the Fund by showing changes in its performance from year to
year and by showing how the Fund's average annual returns compare
with the returns of a broad-based securities market index and an
index of similar funds. The bar chart and the information to its
right show performance of the Fund's Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(4/1/98), performance information shown in the bar chart and table
for those classes is based on the performance of the Fund's
Institutional Class shares, which are offered in a different
prospectus. The prior Institutional Class performance has been
adjusted to reflect the actual sales charges (in the Average
Annual Total Returns table only), distribution and/or service
(12b-1) fees, administrative fees and other expenses paid by Class
A, B and C shares. Past performance is no guarantee of future
results.
Pacific Investment Management Series 4
<PAGE>
PIMCO Municipal Bond Fund (continued)
Calendar Year Total Returns -- Class A
More Recent Return
Information
--------------------
1/1/99-9/30/99
-2.82%
Highest and Lowest
Quarter Returns
(for periods shown
in the bar chart)
--------------------
Highest: 3rd Qtr.
'99 3.23%8
--------------------
Lowest: 4th Qtr.
'99 -2.45%9
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/98)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (12/31/97)
--------------------------------------------------------------------
Class A 2.51% 2.51%
--------------------------------------------------------------------
Class B -0.12% -0.12%
--------------------------------------------------------------------
Class C 4.14% 4.14%
--------------------------------------------------------------------
Lehman General Municipal Bond Index(/1/) 6.48% 6.48%
--------------------------------------------------------------------
Lipper General Municipal Fund Average(/2/) 5.32% 5.32%
--------------------------------------------------------------------
</TABLE>
(1) The Lehman General Municipal Bond Index is an unmanaged index
of municipal bonds. It is not possible to invest directly in
the index.
(2) The Lipper General Municipal Debt Fund Average is a total
return performance average of Funds tracked by Lipper
Analytical Services, Inc. that invest at least 65% of their
assets in municipal debt issues in the top four credit
ratings. It does not take into account sales charges.
- --------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class A, B or C shares of the Fund:
of the
Fund
Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A 3% 1%(/1/)
------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment Options
(Class A, B and C Shares--Contingent Deferred Sales Charges
(CDSCs))--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
A Shares 0.25% 0.25% 0.36 0.86%
-----------------------------------------------------------------
B Shares 0.25 1.00 0.36 1.61
-----------------------------------------------------------------
C Shares 0.25 0.75 0.35 1.35
-----------------------------------------------------------------
</TABLE>
(1) Due to the 12b-1 distribution fee imposed on Class B and Class
C shares, a Class B or Class C shareholder may, depending upon
the length of time the shares are held, pay more than the
economic equivalent of the maximum front-end sales charges
permitted by relevant rules of the National Association of
Securities Dealers, Inc.
(2) Other expenses reflect a 0.35% Administration Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Classes A, B or C of the Fund with the costs of
investing in other mutual funds. The Examples assume that you
invest $10,000 in the noted class of shares for the time periods
indicated, your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and the Fund's
operating expenses remain the same. Although your actual costs may
be higher or lower, the Examples show what your costs would be
based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you do not
Example: Assuming you redeem shares at the end of each period redeem your shares
Share Class <S> <C> <C> <C> <C> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------------------------
Class A $385 $566 $762 $ 1,329 $385 $566 $762 $1,329
--------------------------------------------------------------------------------------------------------
Class B 664 808 1,076 1,612 164 508 876 1,612
--------------------------------------------------------------------------------------------------------
Class C 237 428 739 1,624 137 428 739 1,624
--------------------------------------------------------------------------------------------------------
</TABLE>
5 Prospectus
<PAGE>
PIMCO California Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high Intermediate B to Aaa; maximum
and current income maturity 10% below Baa
Strategies exempt from municipal
federal and securities
California income (exempt from
tax. Capital federal and Dividend Frequency
appreciation is a California income Declared daily and
secondary tax) distributed monthly
objective.
Average Portfolio Duration
Fund Category 3-7 years
Tax Exempt Bond
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 80% of its net assets in
Municipal Bonds whose interest is, in the opinion of bond counsel
for the issuer at the time of issuance, exempt from federal income
tax. The Fund invests under normal circumstances at least 65% of
its net assets in debt securities whose interest is, in the
opinion of bond counsel for the issuer at the time of issuance,
exempt from regular federal income tax and California income tax
("California Municipal Bonds"). California Municipal Bonds
generally are issued by or on behalf of the State of California
and its political subdivisions, financing authorities and their
agencies.
The Fund may invest without limit in "private activity" bonds
whose interest is a tax-preference item for purposes of the
federal alternative minimum tax ("AMT"). For shareholders subject
to the AMT, a substantial portion of the Fund's distributions may
not be exempt from federal income tax. The Fund may invest up to
20% of its net assets in other types of Fixed Income Instruments.
The average portfolio duration of this Fund normally varies within
a three- to seven-year time frame based on the PIMCO's forecast
for interest rates. The Fund will seek income that is high
relative to prevailing rates from Municipal Bonds. Capital
appreciation, if any, generally arises from decreases in interest
rates or improving credit fundamentals for a particular state,
municipality or issuer.
The Fund invests primarily in investment grade debt securities,
but may invest up to 10% of its assets in high yield securities
("junk bonds") rated B or higher by Moody's or S&P, or, if
unrated, determined by PIMCO to be of comparable quality.
Rather than investing directly in securities in which it
primarily invests, the Fund may use other investment techniques to
gain exposure to market movements related to such securities, such
as entering into a series of contracts to buy or sell such
securities. The Fund may invest in derivative instruments, such as
options, futures contracts or swap agreements, or in mortgage- or
asset-backed securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions to
earn income.
- --------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect its net asset value, yield and total return are:
. Interest Rate Risk . Issuer Risk . Mortgage Risk
. Credit Risk . Concentration Risk . Leveraging Risk
. California State . Liquidity Risk . Management Risk
Specific Risk . Derivatives Risk
. Market Risk
Please see "Summary of Principal Risks" following the Fund
Summaries for a description of these and other risks of investing
in the Fund.
- --------------------------------------------------------------------------------
Performance The Fund does not have a full calendar year of performance. Thus,
Information no bar chart or annual returns table is included for the Fund.
Pacific Investment Management Series 6
<PAGE>
PIMCO California Intermediate Municipal Bond Fund (continued)
These tables describe the fees and expenses you may pay if
Fees and you buy and hold Class A shares of the Fund:
Expenses
of the
Fund
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A 3% 1%(/1/)
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A
shares are purchased without a front-end sales charge at
the time of purchase.
Annual Fund Operating Expenses (expenses that are deducted
from Fund assets)
<TABLE>
<CAPTION>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(/1/) Expenses
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.35% 0.85%
-----------------------------------------------------------------
</TABLE>
(1) Other expenses reflect a 0.35% Administration Fee paid by
the class.
Examples. The Examples are intended to help you compare the
cost of investing in Class A shares of the Fund with the
costs of investing in other mutual funds. The Examples assume
that you invest $10,000 in the noted class of shares for the
time periods indicated, your investment has a 5% return each
year, the reinvestment of all dividends and distributions,
and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, the
Examples show what your costs would be based on these
assumptions.
<TABLE>
<CAPTION>
Example: Assuming you do not
Example: Assuming you redeem shares at the end of each period redeem your shares
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A $384 $563 $757 $1,318 $384 $563 $757 $1,318
-----------------------------------------------------------------------------------------------------------
</TABLE>
7 Prospectus
<PAGE>
PIMCO New York Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high current Intermediate B to Aaa; maximum
and income exempt from maturity 10% below Baa
Strategies federal and New York municipal
income tax. Capital securities
appreciation is a (exempt from
secondary objective. federal and New
York income tax)
Dividend Frequency
Declared daily and
distributed monthly
Fund Category
Tax Exempt Bond Average Portfolio
Funds Duration
3-7 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 80% of its net assets in
Municipal Bonds whose interest is, in the opinion of bond counsel
for the issuer at the time of issuance, exempt from federal income
tax. The Fund will invest under normal circumstances at least 65%
of its net assets in debt securities whose interest is, in the
opinion of bond counsel for the issuer at the time of issuance,
exempt from regular federal income tax and New York income tax
("New York Municipal Bonds"). New York Municipal Bonds generally
are issued by or on behalf of the State of New York and its
political subdivisions, financing authorities and their agencies.
The Fund may invest without limit in "private activity" bonds
whose interest is a tax-preference item for purposes of the
federal alternative minimum tax ("AMT"). For shareholders subject
to the AMT, a substantial portion of the Fund's distributions may
not be exempt from federal income tax. The Fund may invest up to
20% of its net assets in other types of Fixed Income Instruments.
The average portfolio duration of this Fund normally varies within
a three-to seven-year time frame, based on PIMCO's forecast for
interest rates. The Fund will seek income that is high relative to
prevailing rates from municipal bonds. Capital appreciation, if
any, generally arises from decreases in interest rates or
improving credit fundamentals for a particular state, municipality
or issuer.
The Fund invests primarily in investment grade debt securities,
but may invest up to 10% of its assets in high yield securities
("junk bonds") rated B or higher by Moody's or S&P, or, if
unrated, determined by PIMCO to be of comparable quality.
Rather than investing directly in securities in which it
primarily invests, this Fund may use other investment techniques
to gain exposure to market movements related to such securities,
such as entering into a series of contracts to buy or sell such
securities. The Fund may invest in derivative instruments, such as
options, futures contracts or swap agreements, or in mortgage- or
asset-backed securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions to
earn income.
- --------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund which could
Risks adversely affect its net asset value, yield and total return are:
.Interest Rate Risk .Issuer Risk .Mortgage Risk
.Credit Risk .Concentration Risk .Leveraging Risk
.New York State Specific Risk
.Liquidity Risk .Management Risk
.Market Risk .Derivatives Risk
Please see "Summary of Principal Risks" following the Fund
Summaries for a description of these and other risks of investing
in the Fund.
- --------------------------------------------------------------------------------
Performance The Fund does not have a full calendar year of performance. Thus,
Information no bar chart or annual returns table is included for the Fund.
Pacific Investment Management Series 8
<PAGE>
PIMCO New York Intermediate Municipal Bond Fund (continued)
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class D shares of the Fund:
of the
Fund
Shareholder fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A 3% 1%(/1/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of
purchase.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<CAPTION>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(/1/) Expenses
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.35% 0.85%
--------------------------------------------------------------
</TABLE>
(1) Other expenses reflect a 0.35% Administration Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Class A shares of the Fund with the costs of
investing in other mutual funds. The Examples assume that you
invest $10,000 in the noted class of shares for the time periods
indicated, your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the
Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, the Examples show what your costs
would be based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you do not
Example: Assuming you redeem shares at the end of each period redeem your shares
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $384 $563 $757 $1,318 $384 $563 $757 $1,318
------------------------------------------------------------------------------------------------------------
</TABLE>
9 Prospectus
<PAGE>
Summary of Principal Risks
The value of your investment in a Fund changes with the values of
that Fund's investments. Many factors can affect those values. The
factors that are most likely to have a material effect on a
particular Fund's portfolio as a whole are called "principal
risks." The principal risks of each Fund are identified in the
Fund Summaries and are summarized in this section. Each Fund may
be subject to additional principal risks and risks other than
those described below because the types of investments made by a
Fund can change over time. Securities and investment techniques
mentioned in this summary and described in greater detail under
"Characteristics and Risks of Securities and Investment
Techniques" appear in bold type. That section and "Investment
Objectives and Policies" in the Statement of Additional
Information also include more information about the Funds, their
investments and the related risks. There is no guarantee that a
Fund will be able to achieve its investment objective.
Interest As interest rates rise, the value of fixed income securities in a
Rate Risk Fund's portfolio are likely to decrease. Securities with longer
durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than securities with shorter
durations.
Credit A Fund could lose money if the issuer or guarantor of a fixed
Risk income security, or the counterparty to a derivatives contract,
repurchase agreement or a loan of portfolio securities, is unable
or unwilling to make timely principal and/or interest payments, or
to otherwise honor its obligations. Securities are subject to
varying degrees of credit risk, which are often reflected in
credit ratings. Municipal Bonds are subject to the risk that
litigation, legislation or other political events, local business
or economic conditions, or the bankruptcy of the issuer could have
a significant effect on an issuer's ability to make payments of
principal and/or interest.
Market The market price of securities owned by a Fund may go up or down,
Risk sometimes rapidly or unpredictably. Securities may decline in
value due to factors affecting securities markets generally or
particular industries represented in the securities markets. The
value of a security may decline due to general market conditions
which are not specifically related to a particular company, such
as real or perceived adverse economic conditions, changes in the
general outlook for corporate earnings, changes in interest or
currency rates or adverse investor sentiment generally. They may
also decline due to factors which affect a particular industry or
industries, such as labor shortages or increased production costs
and competitive conditions within an industry. Equity securities
generally have greater price volatility than fixed income
securities.
Issuer The value of a security may decline for a number of reasons which
Risk directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer's goods or
services.
Liquidity Liquidity risk exists when particular investments are difficult to
Risk purchase or sell. A Fund's investments in illiquid securities may
reduce the returns of the Fund because it may be unable to sell
the illiquid securities at an advantageous time or price. Funds
with principal investment strategies that involve derivatives or
securities with substantial market and/or credit risk tend to have
the greatest exposure to liquidity risk.
Derivatives Each Fund may use derivatives, which are financial contracts whose
Risk value depends on, or is derived from, the value of an underlying
asset, reference rate or index. The various derivative instruments
that the Funds may use are referenced under "Characteristics and
Risks of Securities and Investment Techniques--Derivatives" in
this Prospectus and described in more detail under "Investment
Objectives and Policies" in the Statement of Additional
Information. The Funds may sometimes use derivatives as part of a
strategy designed to reduce exposure to other risks, such as
interest rate risk. The Funds may also use derivatives for
leverage in which case their use would involve leveraging risk. A
Fund's use of derivative instruments involves risks different
from, or possibly greater than, the risks associated with
investing directly in securities and other traditional
investments. Derivatives are subject to a number of risks
described elsewhere in this section, such as liquidity risk,
interest rate risk, market risk, credit risk and management risk.
They also involve the risk of mispricing or improper valuation and
the risk that changes in the value of the derivative may not
correlate perfectly with the underlying asset, rate or index. A
fund investing in a derivative instrument could lose more than the
principal amount invested. Also, suitable derivative transactions
may not be available in all circumstances and there can be no
assurance that a Fund will engage in these transactions to reduce
exposure to other risks when that would be beneficial.
Pacific Investment Management Series 10
<PAGE>
Mortgage A Fund that purchases mortgage-related securities is subject to
Risk certain additional risks. Rising interest rates tend to extend the
duration of mortgage-related securities, making them more
sensitive to changes in interest rates. As a result, in a period
of rising interest rates, a Fund that holds mortgage-related
securities are subject to prepayment risk. When interest rates
decline, borrowers may pay off their mortgages sooner than
expected. This can reduce the returns of a Fund because the Fund
will have to reinvest that money at the lower prevailing interest
rates.
Concen- Concentration of investments in a small number of issuers,
tration industries or foreign currencies increases risk. The California
Risk and New York Intermediate Municipal Bond Funds are "non-
diversified," which means that each may invest a greater
percentage of its assets in the securities of a single issuer
(such as bonds issued by a particular state) than diversified
Funds. Funds that invest in a relatively small number of issuers
are more susceptible to risks associated with a single economic,
political or regulatory occurrence than a more diversified
portfolio might be. Some of those issuers also may present
substantial credit or other risks. Similarly, a Fund may be more
sensitive to adverse economic, business or political developments
if it invests a substantial portion of its assets in the bonds of
similar projects or from issuers in a similar state.
Leveraging Certain Funds may engage in transactions that give rise to a form
Risk of leverage. Such transactions may include, among, others, reverse
repurchase agreements, loans of portfolios securities, and the use
of when-issued, delayed delivery or forward commitment
transactions. The use of derivatives may also create leveraging
risk. To mitigate leveraging risk, PIMCO will segregate liquid
assets or otherwise cover the transactions that may give rise to
such risk. The use of leverage may cause a Fund to liquidate
portfolio positions when it may not be advantageous to do so to
satisfy its obligations or to meet segregation requirements.
Leverage, including borrowing, will cause a Fund to be more
volatile than if the Fund had not been leveraged. This is because
leverage tends to exaggerate the effect of any increase or
decrease in the value of a Fund's portfolio securities.
Management Each Fund is subject to management risk because it is an actively
Risk managed investment portfolio. PIMCO and each individual portfolio
manager will apply investment techniques and risk analyses in
making investment decisions for the Funds, but there can be no
guarantee that these will produce the desired results.
California Because the California Intermediate Municipal Bond Fund
State concentrates its investments in California municipal bonds, the
Specific Fund may be affected significantly by economic, regulatory or
Risk political developments affecting the ability of California issuers
to pay interest or repay principal. Provisions of the California
Constitution and State statutes which limit the taxing and
spending authority of California governmental entities may impair
the ability of California issuers to pay principal and/or interest
on their obligations. While California's economy is broad, it does
have major concentrations in high technology, aerospace and
defense-related manufacturing, trade, entertainment, real estate
and financial services, and may be sensitive to economic problems
affecting those industries. Future California political and
economic developments, constitutional amendments, legislative
measures, executive orders, administrative regulations, litigation
and voter initiatives could have an adverse effect on the debt
obligations of California issuers.
New York Because the New York Intermediate Municipal Bond Fund concentrates
State its investments in New York municipal bonds, the Fund may be
Specific affected significantly by economic, regulatory or political
Risk developments affecting the ability of New York issuers to pay
interest or repay principal. Certain issuers of New York municipal
bonds have experienced serious financial difficulties in recent
years. A reoccurrence of these difficulties may impair the ability
of certain New York issuers to pay principal or interest on their
obligations. The financial health of New York City affects that of
the State, and when New York City experiences financial difficulty
it may have an adverse affect on New York municipal bonds held by
the Fund. The growth rate of New York has recently been somewhat
slower than the nation overall. The economic and financial
condition of New York also may be affected by various financial,
social, economic and political factors.
11 Prospectus
<PAGE>
Management of the Funds
Investment PIMCO serves as the investment adviser and the administrator
Adviser (serving in its capacity as administrator, the "Administrator")
and for the Funds. Subject to the supervision of the Board of
Adminis- Trustees, PIMCO is responsible for managing the investment
trator activities of the Funds and the Funds' business affairs and other
administrative matters.
PIMCO is located at 840 Newport Center Drive, Newport Beach,
California 92660. Organized in 1971, PIMCO provides investment
management and advisory services to private accounts of
institutional and individual clients and to mutual funds. As of
September 30, 1999, PIMCO had approximately $181 billion in assets
under management.
Advisory Each Fund pays PIMCO fees in return for providing investment
Fees advisory services. The California Intermediate Municipal Bond and
New York Intermediate Municipal Bond Funds were not operational
during the fiscal year ended March 31, 1999. The investment
advisory fees are set at the annual rate (stated as a percentage
of the average daily net assets of each Fund) of 0.25%.
Adminis- Each Fund pays for the administrative services it requires under a
trative fee structure which is essentially fixed. Class A, Class B and
Fees Class C shareholders of a Fund pay an administrative fee to PIMCO,
computed as a percentage of the Fund's assets attributable in the
aggregate to that class of shares. PIMCO, in turn, provides
administrative services for Class A, Class B and Class C
shareholders and also bears the costs of various third-party
services required by the Funds, including audit, custodial,
portfolio accounting, legal transfer agency and printing costs.
The result of this fee structure is an expense level for Class A,
Class B and Class C shareholders of each Fund that, with limited
exceptions, is precise and predictable under ordinary
circumstances.
The California Intermediate Municipal Bond and New York
Intermediate Municipal Bond Funds were not operational during the
fiscal year ended March 31, 1999. The administrative fees for each
Fund are set at the annual rates (stated as a percentage of the
average daily net assets attributable in the aggregate to a Fund's
Class A, Class B, and Class C shares) of 0.35%.
Individual The following individual has primary responsibility for managing
Portfolio each of the noted Funds.
Managers
<TABLE>
<CAPTION>
Portfolio
Manager Since Recent Professional Experience
----------------------------------------------------------------------------------------------------------------------
<C> <C> <S>
Benjamin Ehlert 12/97* for the Municipal Bond Fund; 9/99* for the other Funds Executive Vice President, PIMCO. He has
been a Portfolio Manager for PIMCO
since 1986, and has managed fixed
income accounts for various
institutional clients and funds since
that time.
</TABLE>
-------
* Inception of the Fund.
Distributor The Trust's Distributor is PIMCO Funds Distributors LLC, a wholly
owned subsidiary of PIMCO Advisors. The Distributor, located at
2187 Atlantic Street, Stamford, CT 06902, is a broker-dealer
registered with the SEC.
Pacific Investment Management Series 12
<PAGE>
Investment Options--Class A, B and C Shares
The Trust offers investors Class A, Class B and Class C shares of
the Municipal Bond Fund and Class A shares of the California
Intermediate Municipal Bond and New York Intermediate Municipal
Bond Fund in this Prospectus. Each class of shares is subject to
different types and levels of sales charges than the other classes
and bears a different level of expenses.
The class of shares that is best for you depends upon a number of
factors, including the amount and the intended length of your
investment. The following summarizes key information about each
class to help you make your investment decision, including the
various expenses associated with each class. More extensive
information about the Trust's multi-class arrangements is included
in the PIMCO Funds Shareholders Guide for Class A, B and C Shares
(the "Guide"), which is included as part of the Statement of
Additional Information and can be obtained free of charge from the
Distributor. See "How to Buy and Sell Shares--PIMCO Funds
Shareholders Guide" below.
Class A . You pay an initial sales charge when you buy Class A shares of
Shares any Fund. The maximum initial sales charge is 3.00% for each of
the Funds. The sales charge is deducted from your investment so
that not all of your purchase payment is invested.
. You may be eligible for a reduction or a complete waiver of the
initial sales charge under a number of circumstances. For
example, you normally pay no sales charge if you purchase
$1,000,000 or more of Class A shares. Please see the Guide for
details.
. Class A shares are subject to lower 12b-1 fees than Class B or
Class C shares. Therefore, Class A shareholders generally pay
lower annual expenses and receive higher dividends than Class B
or Class C shareholders.
. You normally pay no contingent deferred sales charge ("CDSC")
when you redeem Class A shares of the Municipal Bond Fund,
although you may pay a 1% CDSC if you purchase $1,000,000 or
more of Class A shares (and therefore pay no initial sales
charge) and then redeem the shares during the first 18 months
after your initial purchase. The Class A CDSC is waived for
certain categories of investors and does not apply if you are
otherwise eligible to purchase Class A shares without a sales
charge. Please see the Guide for details.
Class B . You do not pay an initial sales charge when you buy Class B
Shares shares. The full amount of your purchase payment is invested
initially.
. You normally pay a CDSC of up to 5% if you redeem Class B
shares during the first six years after your initial purchase.
The amount of the CDSC declines the longer you hold your Class
B shares. You pay no CDSC if you redeem during the seventh year
and thereafter. The Class B CDSC is waived for certain
categories of investors. Please see the Guide for details.
. Class B shares are subject to higher 12b-1 fees than Class A
shares for the first seven years they are held. During this
time, Class B shareholders normally pay higher annual expenses
and receive lower dividends than Class A shareholders.
. Class B shares automatically convert into Class A shares after
they have been held for seven years. After the conversion takes
place, the shares are subject to the lower 12b-1 fees paid by
Class A shares.
Class C . You do not pay an initial sales charge when you buy Class C
Shares shares. The full amount of your purchase payment is invested
initially.
. You normally pay a CDSC of 1% if you redeem Class C shares
during the first year after your initial purchase. The Class C
CDSC is waived for certain categories of investors. Please see
the Guide for details.
. Class C shares are subject to higher 12b-1 fees than Class A
shares. Therefore, Class C shareholders normally pay higher
annual expenses and receive lower dividends than Class A
shareholders.
. Class C shares do not convert into any other class of shares.
Because Class B shares convert into Class A shares after seven
years, Class C shares will normally be subject to higher
expenses and will pay lower dividends than Class B shares if
the shares are held for more than seven years.
13 Prospectus
<PAGE>
The following provides additional information about the sales
charges and other expenses associated with Class A, Class B and
Class C shares.
- --------------------------------------------------------------------------------
Initial Unless you are eligible for a waiver, the public offering price
Sales you pay when you buy Class A shares of the Funds is the net asset
Charges-- value ("NAV") of the shares plus an initial sales charge. The
Class A initial sales charge varies depending upon the size of your
Shares purchase, as set forth below. No sales charge is imposed where
Class A shares are issued to you pursuant to the automatic
reinvestment of income dividends or capital gains distributions.
- --------------------------------------------------------------------------------
Municipal
Bond Fund
<TABLE>
<S> <C> <C>
Initial Sales Charge Initial Sales Charge
Amount of as % of Net as % of Public
Purchase Amount Invested Offering Price
-------------------------------------------------------------------
$0-$49,999 3.09% 3.00%
-------------------------------------------------------------------
$50,000-$99,999 2.56% 2.50%
-------------------------------------------------------------------
$100,000-$249,999 2.04% 2.00%
-------------------------------------------------------------------
$250,000-$499,999 1.52% 1.50%
-------------------------------------------------------------------
$500,000-$999,999 1.27% 1.25%
-------------------------------------------------------------------
$1,000,000 + 0.00%* 0.00%*
-------------------------------------------------------------------
*As shown, investors that purchase $1,000,000 or more of any
Fund's Class A shares will not pay any initial sales charge on the
purchase. However, purchasers of $1,000,000 or more of Class A
shares may be subject to a CDSC of 1% if the shares are redeemed
during the first 18 months after their purchase. See "CDSCs on
Class A Shares" below.
- -------------------------------------------------------------------------------
California
and New
York
Interme-
diate
Municipal
Bond
Funds
Initial Sales Charge Initial Sales Charge
Amount of as % of Net as % of Public
Purchase Amount Invested Offering Price
-------------------------------------------------------------------
$0-$49,999 3.09% 3.00%
-------------------------------------------------------------------
$50,000-$99,999 2.04% 2.00%
-------------------------------------------------------------------
$100,000-$249,999 2.01% 1.00%
-------------------------------------------------------------------
$250,000-$499,999 0.00% 0.00%
-------------------------------------------------------------------
- -------------------------------------------------------------------------------
Contingent Unless you are eligible for a waiver, if you sell (redeem) your
Deferred Class B or Class C shares of the Municipal Bond Fund within the
Sales time periods specified below, you will pay a CDSC according to the
Charges following schedules.
(CDSCs)--
Class B
and Class
C Shares
- -------------------------------------------------------------------------------
Class B
Shares Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
-------------------------------------------------------------------
First 5
-------------------------------------------------------------------
Second 4
-------------------------------------------------------------------
Third 3
-------------------------------------------------------------------
Fourth 3
-------------------------------------------------------------------
Fifth 2
-------------------------------------------------------------------
Sixth 1
-------------------------------------------------------------------
Seventh 0*
-------------------------------------------------------------------
*After the seventh year, Class B shares convert into Class A
shares.
- -------------------------------------------------------------------------------
Class C
Shares Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
-------------------------------------------------------------------
First 1
-------------------------------------------------------------------
Thereafter 0
-------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CDSCs on Unless a waiver applies, investors who purchase $1,000,000 or more
Class A of Class A shares of the Municipal Bond Fund (and, thus, pay no
Shares initial sales charge) will be subject to a 1% CDSC if the shares
are redeemed within 18 months of their purchase. The Class A CDSC
does not apply if you are otherwise eligible to purchase Class A
shares without an initial sales charge or are eligible for a
waiver of the CDSC. See "Reductions and Waivers of Initial Sales
Charges and CDSCs" below.
Pacific Investment Management Series 14
<PAGE>
How CDSCs A CDSC is imposed on redemptions of Class B and Class C shares of
are the Municipal Bond Fund (and where applicable, Class A shares) on
Calculated the amount of the redemption which causes the current value of
your account for the particular class of shares of a Fund to fall
below the total dollar amount of your purchase payments subject to
the CDSC. However, no CDSC is imposed if the shares redeemed have
been acquired through the reinvestment of dividends or capital
gains distributions or if the amount redeemed is derived from
increases in the value of your account above the amount of the
purchase payments subject to the CDSC. CDSCs are deducted from the
proceeds of your redemption, not from amounts remaining in your
account. In determining whether a CDSC is payable, it is assumed
that the purchase payment from which the redemption is made is the
earliest purchase payment for the particular class of shares in
your account (from which a redemption or exchange has not already
been effected).
For instance, the following example illustrates the operation of
the Class B CDSC:
. Assume that an individual opens an account and makes a
purchase payment of $10,000 for Class B shares of a Fund and
that six months later the value of the investor's account for
that Fund has grown through investment performance and
reinvestment of distributions to $11,000. The investor then
may redeem up to $1,000 from that Fund ($11,000 minus
$10,000) without incurring a CDSC. If the investor should
redeem $3,000, a CDSC would be imposed on $2,000 of the
redemption (the amount by which the investor's account for
the Fund was reduced below the amount of the purchase
payment). At the rate of 5%, the Class B CDSC would be $100.
In determining whether an amount is available for redemption
without incurring a CDSC, the purchase payments made for all
shares of a particular class of a Fund in the shareholder's
account are aggregated, and the current value of all such shares
is aggregated.
- --------------------------------------------------------------------------------
Reductions The initial sales charges on Class A shares and the CDSCs on Class
and A, Class B and Class C shares may be reduced or waived under
Waivers certain purchase arrangements and for certain categories of
of investors. Please see the Guide for details. The Guide is
Initial available free of charge from the Distributor. See "How to Buy and
Sales Sell Shares--PIMCO Funds Shareholders Guide" below.
Charges
and CDSCs
- --------------------------------------------------------------------------------
Distribu- The Funds pay fees to the Distributor on an ongoing basis as
tion and compensation for the services the Distributor renders and the
Servicing expenses it bears in connection with the sale and distribution of
(12b-1) Fund shares ("distribution fees") and/or in connection with
Plans personal services rendered to Fund shareholders and the
maintenance of shareholder accounts ("servicing fees"). These
payments are made pursuant to Distribution and Servicing Plans
("12b-1 Plans") adopted by each Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940.
There is a separate 12b-1 Plan for each class of shares offered
in this Prospectus. Class A shares pay only servicing fees. Class
B and Class C shares pay both distribution and servicing fees. The
following lists the maximum annual rates at which the distribution
and/or servicing fees may be paid under each 12b-1 Plan
(calculated as a percentage of each Fund's average daily net
assets attributable to the particular class of shares):
<TABLE>
Servicing Distribution
Class A Fee Fee
-------------------------------------------------------------------------------
<S> <C> <C>
All Funds 0.25% 0.00%
-------------------------------------------------------------------------------
Class B
-------------------------------------------------------------------------------
Municipal Bond Fund 0.25% 0.75%
-------------------------------------------------------------------------------
Class C
-------------------------------------------------------------------------------
Municipal Bond Fund 0.25% 0.50%
-------------------------------------------------------------------------------
</TABLE>
Because 12b-1 fees are paid out of a Fund's assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than sales charges which are
deducted at the time of investment. Therefore, although Class B
and Class C shares do not pay initial sales charges, the
distribution fees payable on Class B and Class C shares may, over
time, cost you more than the initial sales charge imposed on Class
A shares. Also, because Class B shares convert into Class A shares
after they have been held for seven years and are not subject to
distribution fees after the conversion, an investment in Class C
shares may cost you more over time than an investment in Class B
shares.
15 Prospectus
<PAGE>
How Fund Shares Are Priced
The net asset value ("NAV") of a Fund's Class A, Class B and Class
C shares is determined by dividing the total value of a Fund's
portfolio investments and other assets attributable to that class,
less any liabilities, by the total number of shares outstanding of
that class.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are available are stated at market
value. Market value is generally determined on the basis of last
reported sales prices, or if no sales are reported, based on
quotes obtained from a quotation reporting system, established
market makers, or pricing services. Certain securities or
investments for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the
Board of Trustees, with reference to other securities or indices.
Short-term investments having a maturity of 60 days or less are
generally valued at amortized cost. Exchange traded options,
futures and options on futures are valued at the settlement price
determined by the exchange. Other securities for which market
quotes are not readily available are valued at fair value as
determined in good faith by the Board of Trustees or persons
acting at their direction.
Fund shares are valued at the close of regular trading (normally
4:00 p.m., Eastern time) (the "NYSE Close") on each day that the
New York Stock Exchange is open. For purposes of calculating the
NAV, the Funds normally use pricing data for domestic equity
securities received shortly after the NYSE Close and do not
normally take into account trading, clearances or settlements that
take place after the NYSE Close. Domestic fixed income and foreign
securities are normally priced using data reflecting the earlier
closing of the principal markets for those securities. Information
that becomes known to the Funds or its agents after the NAV has
been calculated on a particular day will not generally be used to
retroactively adjust the price of a security or the NAV determined
earlier that day.
In unusual circumstances, instead of valuing securities in the
usual manner, the Funds may value securities at fair value or
estimate their value as determined in good faith by the Board of
Trustees, generally based upon recommendations provided by PIMCO.
Fair valuation may also be used if extraordinary events occur
after the close of the relevant market but prior to the NYSE
Close.
How to Buy and Sell Shares
The following section provides basic information about how to buy,
sell (redeem) and exchange shares of the Funds.
PIMCO More detailed information about the Trust's purchase, sale and
Funds exchange arrangements for Fund shares is provided in the PIMCO
Share- Funds Shareholders Guide, which is included in the Statement of
holders Additional Information and can be obtained free of charge from the
Guide Distributor by written request or by calling 1-800-426-0107. The
Guide provides technical information about the basic arrangements
described below and also describes special purchase, sale and
exchange features and programs offered by the Trust, including:
. Automated telephone and wire transfer procedures
. Automatic purchase, exchange and withdrawal programs
. Programs that establish a link from your Fund account to your
bank account
. Special arrangements for tax-qualified retirement plans
. Investment programs which allow you to reduce or eliminate
the initial sales charges on Class A shares
Calculation When you buy shares of the Funds, you pay a price equal to the NAV
of Share of the shares, plus any applicable sales charge. When you sell
Price and (redeem) shares, you receive an amount equal to the NAV of the
Redemption shares, minus any applicable CDSC. NAVs are determined at the
Payments close of regular trading (normally, 4:00 p.m. Eastern time) on
each day the New York Stock Exchange is open. See "How Fund Shares
Are Priced" above for details. Generally, purchase and redemption
orders for Fund shares are processed at the NAV next calculated
after your order is received by the Distributor. There are certain
exceptions where an order is received by a broker or dealer prior
to the close of regular trading on the New York Stock Exchange and
then transmitted to the Distributor after the NAV has been
calculated for that day (in which case the order may be processed
according to that day's NAV). Please see the Guide for details.
The Trust does not calculate NAVs or process orders on days when
the New York Stock Exchange is closed. If your purchase or
redemption order is received by the Distributor on a day when the
New York Stock Exchange is closed, it will be processed on the
next succeeding day when the New York Stock Exchange is open
(according to the succeeding day's NAV).
Pacific Investment Management Series 16
<PAGE>
Buying You can buy Class A, Class B or Class C shares of the Funds in the
Shares following ways:
. Through your broker, dealer or other financial intermediary.
Your broker, dealer or other intermediary may establish
higher minimum investment requirements than the Trust and may
also independently charge you transaction fees and additional
amounts (which may vary) in return for its services, which
will reduce your return. Shares you purchase through your
broker, dealer or other intermediary will normally be held in
your account with that firm.
. Directly from the Trust. To make direct investments, you must
open an account with the Distributor and send payment for
your shares either by mail or through a variety of other
purchase options and plans offered by the Trust.
If you wish to invest directly by mail, please send a check
payable to PIMCO Funds Distributors LLC, along with a completed
application form to:
PIMCO Funds Distributors LLC
P.O. Box 9688
Providence, RI 02940-0926
The Trust accepts all purchases by mail subject to collection of
checks at full value and conversion into federal funds. You may
make subsequent purchases by mailing a check to the address above
with a letter describing the investment or with the additional
investment portion of a confirmation statement. Checks for
subsequent purchases should be payable to PIMCO Funds Distributors
LLC and should clearly indicate your account number. Please call
the Distributor at 1-800-426-0107 if you have any questions
regarding purchases by mail.
The Guide describes a number of additional ways you can make
direct investments, including through the PIMCO Funds Auto-Invest
and PIMCO Funds Fund Link programs. You can obtain a Guide free of
charge from the Distributor by written request or by calling 1-
800-426-0107. See "PIMCO Funds Shareholders Guide" above.
The Distributor, in its sole discretion, may accept or reject any
order for purchase of Fund shares. No share certificates will be
issued unless specifically requested in writing.
Investment Minimums. The following investment minimums apply for
purchases of Class A, Class B and Class C shares.
<TABLE>
<CAPTION>
Initial Investment Subsequent Investments
------------------ ----------------------
<S> <C>
$2,500 per Fund $100 per Fund
</TABLE>
Lower minimums may apply for certain categories of investors,
including certain tax-qualified retirement plans, and for special
investment programs and plans offered by the Trust, such as the
PIMCO Funds Auto-Invest and PIMCO Funds Fund Link programs. Please
see the Guide for details.
Small Because of the disproportionately high costs of servicing accounts
Account with low balances, if you have a direct account with the
Fee Distributor, you will be charged a fee at the annual rate of $16
if your account balance for any Fund falls below a minimum level
of $2,500. However, you will not be charged this fee if the
aggregate value of all of your PIMCO Funds accounts is at least
$50,000. Any applicable small account fee will be deducted
automatically from your below-minimum Fund account in quarterly
installments and paid to the Administrator. Each Fund account will
normally be valued, and any deduction taken, during the last five
business days of each calendar quarter. Lower minimum balance
requirements and waivers of the small account fee apply for
certain categories of investors. Please see the Guide for details.
Minimum Due to the relatively high cost to the Funds of maintaining small
Account accounts, you are asked to maintain an account balance in each
Size Fund in which you invest of at least the minimum investment
necessary to open the particular type of account. If your balance
for any Fund remains below the minimum for three months or longer,
the Administrator has the right (except in the case of employer-
sponsored retirement accounts) to redeem your remaining shares and
close that Fund account after giving you 60 days to increase your
balance. Your Fund account will not be liquidated if the reduction
in size is due solely to a decline in market value of your Fund
shares or if the aggregate value of all your PIMCO Funds accounts
exceeds $50,000.
Exchanging You may exchange your Class A, Class B or Class C shares of any
Shares Fund for the same Class of shares of any other Fund or of a series
of PIMCO Funds: Pacific Investment Management Series or PIMCO
Funds: Multi-Manager Series. Shares are exchanged on the basis of
their respective NAVs next
17 Prospectus
<PAGE>
calculated after your exchange order is received by the
Distributor. Currently, the Trust does not charge any exchange
fees or charges. Exchanges are subject to the $2,500 minimum
initial purchase requirements for each Fund, except with respect
to tax-qualified programs and exchanges effected through the PIMCO
Funds Auto-Exchange plan. If you maintain your account with the
Distributor, you may exchange shares by completing a written
exchange request and sending it to PIMCO Funds Distributors LLC,
P.O. Box 9688, Providence, RI 02940-0926. You can get an exchange
form by calling the Distributor at 1-800-426-0107.
The Trust reserves the right to refuse exchange purchase if, in
the judgment of PIMCO, the purchase would adversely affect a Fund
and its shareholders. In particular, a pattern of exchanges
characteristic of "market-timing" strategies may be deemed by
PIMCO to be detrimental to the Trust or a particular Fund.
Currently, the Trust limits the number of "round trip" exchanges
an investor may make. An investor makes a "round trip" exchange
when the investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a different
PIMCO Fund and then exchanges back into the originally purchased
Fund. The Trust has the right to refuse any exchange for any
investor who completes (by making the exchange back into the
shares of the originally purchased Fund) more than six round trip
exchanges in any twelve-month period. Although the Trust has no
current intention of terminating or modifying the exchange
privilege other than as set forth in the preceding sentence, it
reserves the right to do so at any time. Except as otherwise
permitted by the Securities and Exchange Commission, the Trust
will give you 60 days' advance notice if it exercises its right to
terminate or materially modify the exchange privilege. The Guide
provides more detailed information about the exchange privilege,
including the procedures you must follow and additional exchange
options. You can obtain a Guide free of charge from the
Distributor by written request or by calling 1-800-426-0107. See
"PIMCO Funds Shareholders' Guide" above.
Pacific Investment Management Series 18
<PAGE>
Selling You can sell (redeem) Class A, Class B or Class C shares of the
Shares Funds in the following ways:
. Through your broker, dealer or other financial intermediary.
Your broker, dealer or other intermediary may independently
charge you transaction fees and additional amounts in return for
its services, which will reduce your return.
. Directly from the Trust by Written Request. To redeem shares
directly from the Trust by written request (whether or not the
shares are represented by certificates), you must send the
following items to the Trust's Transfer Agent, First Data Investor
Services Group, Inc., P.O. Box 9688, Providence, RI 02940-0926:
(1) a written request for redemption signed by all registered
owners exactly as the account is registered on the Transfer
Agent's records, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of
shares to be redeemed;
(2) for certain redemptions described below, a guarantee of all
signatures on the written request or on the share certificate or
accompanying stock power, if required, as described under
"Signature Guarantee" below;
(3) any share certificates issued for any of the shares to be
redeemed (see "Certificated Shares" below); and
(4) any additional documents which may be required by the
Transfer Agent for redemption by corporations, partnerships or
other organizations, executors, administrators, trustees,
custodians or guardians, or if the redemption is requested by
anyone other than the shareholder(s) of record. Transfers of
shares are subject to the same requirements.
A signature guarantee is not required for redemptions, requested
by and payable to all shareholders of record for the account, and
to be sent to the address of record for that account. To avoid
delay in redemption or transfer, if you have any questions about
these requirements you should contact the Transfer Agent in
writing or call 1-800-426-0107 before submitting a request.
Written redemption or transfer requests will not be honored until
all required documents in the proper form have been received by
the Transfer Agent. You cannot redeem your shares by written
request if they are held in broker "street name" accounts--you
must redeem through your broker.
If the proceeds of your redemption (i) are to be paid to a person
other than the record owner, (ii) are to be sent to an address
other than the address of the account on the Transfer Agent's
records, and/or (iii) are to be paid to a corporation,
partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power
must be guaranteed as described under "Signature Guarantee" below.
The Distributor may, however, waive the signature guarantee
requirement for redemptions up to $2,500 by a trustee of a
qualified retirement plan, the administrator for which has an
agreement with the Distributor.
The Guide describes a number of additional ways you can redeem
your shares, including:
. Telephone requests to the Transfer Agent
. PIMCO Funds Automated Telephone System (ATS)
. Expedited wire transfers
. Automatic Withdrawal Plan
. PIMCO Funds Fund Link
Unless you specifically elect otherwise, your initial account
application permits you to redeem shares by telephone subject to
certain requirements. To be eligible for ATS, expedited wire
transfer, Automatic Withdrawal Plan, and Fund Link privileges, you
must specifically elect the particular option on your account
application and satisfy certain other requirements. The Guide
describes each of these options and provides additional
information about selling shares. You can obtain an Guide free of
charge from the Distributor by written request or by calling 1-
800-426-0107.
Other than an applicable CDSC, you will not pay any special fees
or charges to the Trust or the Distributor when you sell your
shares. However, if you sell your shares through your broker,
dealer or other financial intermediary, that firm may charge you a
commission or other fee for processing your redemption request.
Redemptions of Fund shares may be suspended when trading on the
New York Stock Exchange is restricted or during an emergency which
makes it impracticable for the Funds to dispose of their
securities or to determine fairly the value of their net assets,
or during any other period as permitted by the Securities and
Exchange Commission for the protection of investors.
19 Prospectus
<PAGE>
Timing of Redemption proceeds will normally be mailed to the redeeming
Redemption shareholder within seven calendar days or, in the case of wire
Payments transfer or Fund Link redemptions, sent to the designated bank
account within one business day. Fund Link redemptions may be
received by the bank on the second or third business day. In cases
where shares have recently been purchased by personal check,
redemption proceeds may be withheld until the check has been
collected, which may take up to 15 days. To avoid such
withholding, investors should purchase shares by certified or bank
check or by wire transfer. Under unusual circumstances, the Trust
may delay your redemption payments for more than seven days, as
permitted by law.
Redemptions The Trust will redeem shares of each Fund solely in cash up to the
In Kind lesser of $250,000 or 1% of the Fund's net assets during any 90-
day period for any one shareholder. In consideration of the best
interests of the remaining shareholders, the Trust may pay any
redemption proceeds exceeding this amount in whole or in part by a
distribution in kind of securities held by a Fund in lieu of cash.
It is highly unlikely that your shares would ever be redeemed in
kind. If your shares are redeemed in kind, you should expect to
incur transaction costs upon the disposition of the securities
received in the distribution.
Certifi- If you are redeeming shares for which certificates have been
cated issued, the certificates must be mailed to or deposited with the
Shares Trust, duly endorsed or accompanied by a duly endorsed stock power
or by a written request for redemption. Signatures must be
guaranteed as described under "Signature Guarantee" below. The
Trust may request further documentation from institutions or
fiduciary accounts, such as corporations, custodians (e.g., under
the Uniform Gifts to Minors Act), executors, administrators,
trustees or guardians. Your redemption request and stock power
must be signed exactly as the account is registered, including
indication of any special capacity of the registered owner.
Signature When a signature guarantee is called for, you should have
Guarantee "Signature Guaranteed" stamped under your signature and guaranteed
by any of the following entities: U.S. banks, foreign banks having
a U.S. correspondent bank, credit unions, savings associations,
U.S. registered dealers and brokers, municipal securities dealers
and brokers, government securities dealers and brokers, national
securities exchanges, registered securities associations and
clearing agencies (each an "Eligible Guarantor Institution"). The
Distributor reserves the right to reject any signature guarantee
pursuant to its written signature guarantee standards or
procedures, which may be revised in the future to permit it to
reject signature guarantees from Eligible Guarantor Institutions
that do not, based on credit guidelines, satisfy such written
standards or procedures. The Trust may change the signature
guarantee requirements from time to time upon notice to
shareholders, which may be given by means of a new or supplemented
Prospectus.
Investments initially valued in foreign currencies are converted
to U.S. dollars using foreign exchange rates obtained from pricing
services. As a result, the NAV of a Fund's shares may be affected
by changes in the value of foreign currencies in relation to the
U.S. dollar. The value of securities traded in foreign markets or
denominated in foreign currencies may be affected significantly on
a day that the New York Stock Exchange is closed and an investor
is not able to buy, redeem or exchange shares.
Fund Distributions
Each Fund distributes substantially all of its net investment
income to shareholders in the form of dividends. You begin earning
dividends on Fund shares the day after the Trust receives your
purchase payment. Dividends paid by each Fund with respect to each
class of shares are calculated in the same manner and at the same
time, but dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares as a result of the
distribution fees applicable to Class B and Class C shares. The
Funds intend to declare daily and distribute dividends monthly to
shareholders of record.
In addition, each Fund distributes any net capital gains it earns
from the sale of portfolio securities to shareholders no less
frequently than annually. Net short-term capital gains may be paid
more frequently.
You can choose from the following distribution options:
. Reinvest all distributions in additional shares of the same
class of your Fund at NAV. This will be done unless you elect
another option.
. Invest all distributions in shares of the same class of any
other Fund or another series of PIMCO Funds: Pacific
Investment Management Series or PIMCO Funds: Multi-Manager
Series which
Pacific Investment Management Series 20
<PAGE>
offers that class at NAV. You must have an account existing in
the Fund or series selected for investment with the identical
registered name. You must elect this option on your account
application or by a telephone request to the Transfer Agent at
1-800-426-0107.
. Receive all distributions in cash (either paid directly to you
or credited to your account with your broker or other
financial intermediary. You must elect this option on your
account application or by a telephone request to the Transfer
Agent at 1-800-426-0107.
You do not pay any sales charges on shares you receive through
the reinvestment of Fund distributions.
If you elect to receive Fund distributions in cash and the postal
or other delivery service is unable to deliver checks to your
address of record, the Trust's Transfer Agent will hold the
returned check for your benefit in a non-interest bearing account.
For further information on distribution options, please contact
your financial service firm or call the Distributor at 1-800-426-
0107.
Tax Consequences
The following Information is meant as a general summary for U.S.
taxpayers. Please see the SAI for additional information. You
should rely on your own tax adviser for advice about the
particular federal, state and local tax consequences to you of
investing in each Fund.
Each Fund will distribute substantially all of its income and
gains to its shareholders every year, and shareholders will be
taxed on distributions they receive unless the distribution is
derived from tax-exempt income and is designated as an "exempt-
interest dividend." If a Fund declares a dividend in October,
November or December but pays it in January, you may be taxed on
the dividend as if you received it in the previous year.
. Dividends paid to shareholders of each Fund and derived from
Municipal Bond interest are expected to be designated by each Fund
as "exempt-interest dividends" and shareholders may generally
exclude such dividends from gross income for federal income tax
purposes. The federal tax exemption for "exempt-interest
dividends" from Municipal Bonds does not necessarily result in the
exemption of such dividends from state and local taxes although
the California Intermediate Municipal Bond Fund and the New York
Intermediate Municipal Bond Fund intend to arrange their affairs
so that a portion of such distributions will be exempt from state
taxes in the respective state. Each Fund may invest a portion of
its assets in securities that generate income that is not exempt
from federal or state income tax. Dividends derived from taxable
interest or capital gains will be subject to federal income tax.
If a Fund invests in "private activity bonds," certain shareholder
may become subject to alternative minimum tax on the part of the
Fund's distributions derived from interest on such bonds.
. If you are subject to U.S. federal income tax, you will be
subject to tax on Fund distributions derived from taxable interest
or capital gains whether you received them in cash or reinvested
them in additional shares of the Funds. For federal income tax
purposes, Fund distributions that are taxable will be taxable to
you as either ordinary income or capital gains. Ordinary taxable
Fund dividends (i.e., distributions of investment income) are
taxable to you as ordinary income. If the Fund designates a
dividend as a capital gain distribution, you will pay tax on that
dividend at the long-term capital gains tax rate, no matter how
long you have held your Fund shares. Distributions of gains from
investments that the Fund owned for 12 months or less will
generally be taxable to you as ordinary income.
Taxable Fund distributions are taxable to you even if they are
paid from income or gains earned by a Fund prior to your
investment and thus were included in the price you paid for your
shares. For example, if you purchase shares on or just before the
record date of a Fund distribution, you will pay full price for
the shares and may receive a portion of your investment back as a
taxable distribution.
You will generally have a taxable capital gain or loss if you
dispose of your Fund shares by redemption, exchange or sale. The
amount of the gain or loss and the rate of tax will depend
primarily upon how much you pay for the shares, how much you sell
them for, and how long you hold them. When you exchange shares of
a Fund for shares of another series, the transaction will be
treated as a sale of the Fund shares for these purposes, and any
gain on those shares will generally be subject to federal income
tax. The Fund will send you a tax report each year. The report
will tell you which dividends and redemptions must be treated as
taxable ordinary income and which are short-term or long-term
capital gains.
21 Prospectus
<PAGE>
The Funds seek to produce income that is generally exempt from
U.S. income tax and will not benefit investors in tax-sheltered
retirement plans or individuals not subject to U.S. income tax.
Further, the California and New York Intermediate Municipal Bond
Funds seek to produce income that is generally exempt from the
relevant state's income tax and will not benefit individuals that
are not subject to that state's income tax.
This section relates only to federal income tax; the consequences
under other tax laws may differ. Shareholders should consult their
tax advisers as to the possible application of foreign, state and
local income tax laws to Fund dividends and capital distributions.
Please see the Statement of Additional Information for additional
information regarding the tax aspects of investing in the Funds.
Characteristics and Risks of Securities and Investment Techniques
This section provides additional information about some of the
principal investments and related risks of the Funds described
under "Summary Information" above. It also describes
characteristics and risks of additional securities and investment
techniques that may be used by the Funds from time to time. Most
of these securities and investment techniques are discretionary,
which means that PIMCO can decide whether to use them or not. This
Prospectus does not attempt to disclose all of the various types
of securities and investment techniques that may be used by the
Funds. As with any mutual fund, investors in the Funds rely on the
professional investment judgment and skill of PIMCO and the
individual portfolio managers. Please see "Investment Objectives
and Policies" in the Statement of Additional Information for more
detailed information about the securities and investment
techniques described in this section and about other strategies
and techniques that may be used by the Funds.
Securities In selecting securities for a Fund, PIMCO develops an outlook for
Selection interest rates and the economy; analyzes credit and call risks,
and uses other security selection techniques. The proportion of a
Fund's assets committed to investment in securities with
particular characteristics (such as quality, sector, interest rate
or maturity) varies based on PIMCO's outlook for the U.S. economy,
the financial markets and other factors.
PIMCO attempts to identify areas of the bond market that are
undervalued relative to the rest of the market. PIMCO identifies
these areas by grouping bonds into sectors. Sophisticated
proprietary software then assists in evaluating sectors and
pricing specific securities. Once investment opportunities are
identified, PIMCO will shift assets among sectors depending upon
changes in relative valuations and credit spreads. There is no
guarantee that PIMCO's security selection techniques will produce
the desired results.
U.S. U.S. Government securities are obligations of, or guaranteed by,
Government the U.S. Government, its agencies or instrumentalities. U.S.
Securities Government securities are subject to market and interest rate
risk, and may be subject to varying degrees of credit risk. U.S.
Government securities include zero coupon securities, which tend
to be subject to greater market risk than interest-paying
securities of similar maturities.
Corporate Corporate debt securities are subject to the risk of the issuer's
Debt inability to meet principal and interest payments on the
Securities obligation and may also be subject to price volatility due to such
factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity. When
interest rates rise, the value of corporate debt securities can be
expected to decline. Debt securities with longer maturities tend
to be more sensitive to interest rate movements than those with
shorter maturities.
Variable Variable and floating rate securities provide for a periodic
and adjustment in the interest rate paid on the obligations. Each Fund
Floating may invest in floating rate debt instruments ("floaters") and
Rate engage in credit spread trades. While floaters provide a certain
Securities degree of protection against rises in interest rates, a Fund will
participate in any declines in interest rates as well. Each Fund
may also invest in inverse floating rate debt instruments
("inverse floaters"). An inverse floater may exhibit greater price
volatility than a fixed rate obligation of similar credit quality.
A Fund may not invest more than 5% of its net assets in any
combination of inverse floater, interest only, or principal only
securities.
High Securities rated lower than Baa by Moody's or lower than BBB by
Yield S&P are sometimes referred to as "high yield" or "junk" bonds.
Securities Investing in high yield securities involves special risks in
addition to the risks associated with investments in higher-rated
fixed income securities. While offering a greater
Pacific Investment Management Series 22
<PAGE>
potential opportunity for capital appreciation and higher yields,
high yield securities typically entail greater potential price
volatility and may be less liquid than higher-rated securities.
High yield securities may be regarded as predominately speculative
with respect to the issuer's continuing ability to meet principal
and interest payments. They may also be more susceptible to real
or perceived adverse economic and competitive industry conditions
than higher-rated securities.
Credit Ratings and Unrated Securities. Rating agencies are
private services that provide ratings of the credit quality of
fixed income securities, including convertible securities.
Appendix A to the Prospectus describes the various ratings
assigned to fixed income securities by Moody's and S&P. Ratings
assigned by a rating agency are not absolute standards of credit
quality and do not evaluate market risks. Rating agencies may fail
to make timely changes in credit ratings and an issuer's current
financial condition may be better or worse than a rating
indicates. A Fund will not necessarily sell a security when its
rating is reduced below its rating at the time of purchase. PIMCO
does not rely solely on credit ratings, and develops its own
analysis of issuer credit quality.
A Fund may purchase unrated securities (which are not rated by a
rating agency) if its portfolio manager determines that the
security is of comparable quality to a rated security that the
Fund may purchase. Unrated securities may be less liquid than
comparable rated securities and involve the risk that the
portfolio manager may not accurately evaluate the security's
comparative credit rating. Analysis of the creditworthiness of
issuers of high yield securities may be more complex than for
issuers of higher-quality fixed income securities. To the extent
that a Fund invests in high yield and/or unrated securities, the
Fund's success in achieving its investment objective may depend
more heavily on the portfolio manager's creditworthiness analysis
than if the Fund invested exclusively in higher-quality and rated
securities.
Inflation- Inflation-indexed bonds are fixed income securities whose
Indexed principal value is periodically adjusted according to the rate of
Bonds inflation. If the index 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. For bonds that do not provide a similar
guarantee, 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 are tied to
the relationship between nominal interest rates and the rate of
inflation. If nominal interest rates increase at a faster rate
than inflation, real interest rates may rise, leading to a
decrease in value of inflation-indexed bonds. Short-term increases
in inflation may lead to a decline in value. 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.
Derivatives Each Fund may, but is not required to, use certain derivative
instruments for risk management purposes or as part of its
investment strategies. Generally, derivatives are financial
contracts whose value depends upon, or is derived from, the value
of an underlying asset, reference rate or index, and may relate to
stocks, bonds, interest rates, currencies or currency exchange
rates, commodities, and related indexes. Examples of derivative
instruments include options contracts, futures contracts, options
on futures contracts and swap agreements. A portfolio manager may
decide not to employ any of these strategies and there is no
assurance that any derivatives strategy used by a Fund will
succeed. A description of these and other derivative instruments
that the Funds may use are described under "Investment Objectives
and Policies" in the Statement of Additional Information.
A Fund's use of derivative instruments involves risks different
from, or possibly greater than, the risks associated with
investing directly in securities and other more traditional
investments. A description of various risks associated with
particular derivative instruments is included in "Investment
Objectives and Policies" in the Statement of Additional
Information. The following provides a more general discussion of
important risk factors relating to all derivative instruments that
may be used by the Funds.
Management Risk Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of
a derivative requires an understanding not only of the underlying
instrument but also of the derivative itself, without the benefit
of observing the performance of the derivative under all possible
market conditions.
Credit Risk The use of a derivative instrument involves the risk
that a loss may be sustained as a result of the failure of another
party to the contract (usually referred to as a "counterparty") to
make required payments or otherwise comply with the contract's
terms.
23 Prospectus
<PAGE>
Liquidity Risk Liquidity risk exists when a particular derivative
instrument is difficult to purchase or sell. If a derivative
transaction is particularly large or if the relevant market is
illiquid (as is the case with many privately negotiated
derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous time or price.
Leverage Risk Because many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset,
reference rate or index can result in a loss substantially greater
than the amount invested in the derivative itself. Certain
derivatives have the potential for unlimited loss, regardless of
the size of the initial investment. When a Fund uses derivatives
for leverage, investments in that Fund will tend to be more
volatile, resulting in larger gains or losses in response to
market changes. To limit leverage risk, each Fund will segregate
assets determined to be liquid by PIMCO 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 derivative instruments.
Lack of Availability Because the markets for certain derivative
instruments (including markets located in foreign countries) are
relatively new and still developing, suitable derivatives
transactions may not be available in all circumstances for risk
management or other purposes. There is no assurance that a Fund
will engage in derivatives transactions at any time or from time
to time. A Fund's ability to use derivatives may also be limited
by certain regulatory and tax considerations.
Market and Other Risks Like most other investments, derivative
instruments are subject to the risk that the market value of the
instrument will change in a way detrimental to a Fund's interest.
If a portfolio manager incorrectly forecasts the values of
securities, currencies or interest rates or other economic factors
in using derivatives for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all.
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
other Fund investments. A Fund may also have to buy or sell a
security at a disadvantageous time or price because the Fund is
legally required to maintain offsetting positions or asset
coverage in connection with certain derivatives transactions.
Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates
and indexes. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Also, the value of
derivatives may not correlate perfectly, or at all, with the value
of the assets, reference rates or indexes they are designed to
closely track. In addition, a Fund's use of derivatives may cause
the Fund to realize higher amounts of short-term capital gains
(generally taxed at ordinary income tax rates) than if the Fund
had not used such instruments.
Convertible Each Fund may invest in convertible securities. Convertible
Securities securities are generally preferred stocks and other securities,
including fixed income securities and warrants, that are
convertible into or exercisable for common stock at a stated price
or rate. The price of a convertible security will normally vary in
some proportion to changes in the price of the underlying common
stock because of this conversion or exercise feature. However, the
value of a convertible security may not increase or decrease as
rapidly as the underlying common stock. A convertible security
will normally also provide income and is subject to interest rate
risk. Convertible securities may be lower-rated securities subject
to greater levels of credit risk. A Fund may be forced to convert
a security before it would otherwise choose, which may have an
adverse effect on the Fund's ability to achieve its investment
objective.
While the Funds intend to invest primarily in fixed income
securities, each may invest in convertible securities or equity
securities. While some countries or companies may be regarded as
favorable investments, pure fixed income opportunities may be
unattractive or limited due to insufficient supply, or legal or
technical restrictions. In such cases, a Fund may consider equity
securities or convertible securities to gain exposure to such
investments.
Mortgage- Each Fund may invest in mortgage- or other asset-backed
Related securities. Mortgage-related securities include mortgage pass-
and Other through securities, collateralized mortgage obligations ("CMOs"),
Asset- commercial mortgage-backed securities, mortgage dollar rolls, CMO
Backed residuals, stripped mortgage-backed securities ("SMBSs") and other
Securities securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans on real
property.
The value of some mortgage- or asset-backed securities may be
particularly sensitive to changes in prevailing interest rates.
Early repayment of principal on some mortgage-related securities
may expose a Fund to a lower rate of return upon reinvestment of
principal. When interest rates rise, the value of a
Pacific Investment Management Series 24
<PAGE>
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 shorten or extend the effective
maturity of the security beyond what was anticipated at the time
of purchase. If unanticipated rates of prepayment on underlying
mortgages increase the effective maturity of a mortgage-related
security, the volatility of the security can be expected to
increase. The value of these securities may fluctuate in response
to the market's perception of the creditworthiness of the issuers.
Additionally, although mortgages and mortgage-related securities
are generally supported by some form of government or private
guarantee and/or insurance, there is no assurance that private
guarantors or insurers will meet their obligations.
One type of SMBS has one class receiving all of the interest from
the mortgage assets (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 underlying mortgage assets, and a rapid rate
of principal payments may have a material adverse effect on a
Fund's yield to maturity from these securities. A Fund may not
invest more than 5% of its net assets in any combination of IO,
PO, or inverse floater securities. The Funds may invest in other
asset-backed securities that have been offered to investors.
Municipal Municipal bonds are generally issued by states and local
Bonds governments and their agencies, authorities and other
instrumentalities. Municipal bonds are subject to interest rate,
credit and market risk. The ability of an issuer to make payments
could be affected by litigation, legislation or other political
events or the bankruptcy of the issuer. Lower rated municipal
bonds are subject to greater credit and market risk than higher
quality municipal bonds. The types of municipal bonds in which the
Funds may invest include municipal lease obligations. The Funds
may also invest in securities issued by entities whose underlying
assets are municipal bonds.
Loan The Funds may invest in fixed- and floating-rate loans, which
Participa- investments generally will be in the form of loan participations
tions and and assignments of portions of such loans. Participations and
Assignments assignments involve special types of risk, including credit risk,
interest rate risk, liquidity risk, and the risks of being a
lender. If a 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.
Delayed The Funds may also enter into, or acquire participations in,
Funding delayed funding loans and revolving credit facilities, in which a
Loans and lender agrees to make loans up to a maximum amount upon demand by
Revolving the borrower during a specified term. These commitments may have
Credit the effect of requiring a Fund to increase its investment in a
Facilities 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). To the extent that
a Fund is committed to advance additional funds, it will segregate
assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees in an amount
sufficient to meet such commitments. Delayed funding loans and
revolving credit facilities are subject to credit, interest rate
and liquidity risk and the risks of being a lender.
Loans of For the purpose of achieving income, each Fund may lend its
Portfolio portfolio securities to brokers, dealers, and other financial
Securities institutions provided a number of conditions are satisfied,
including that the loan is fully collateralized. Please see
"Investment Objectives and Policies" in the Statement of
Additional Information for details. When a Fund lends portfolio
securities, its investment performance will continue to reflect
changes in the value of the securities loaned, and the Fund will
also receive a fee or interest on the collateral. Securities
lending involves the risk of loss of rights in the collateral or
delay in recovery of the collateral if the borrower fails to
return the security loaned or becomes insolvent. A Fund may pay
lending fees to a party arranging the loan.
Short Each Fund may make short sales as part of its overall portfolio
Sales management strategies or to offset a potential decline in value of
a security. A short sale involves the sale of a security that is
borrowed from a broker or other institution to complete the sale.
The Funds may make short sales if the security sold short is held
in the Fund's portfolio or if the Fund has the right to acquire
the security without the payment of further consideration (a
"short sale against the box"). For these purposes, a Fund may also
hold or have the right to acquire securities which, without the
payment of any further consideration, are convertible into or
exchangeable for the securities sold short. Short sales expose a
Fund to the risk that it will be required to acquire, convert or
exchange securities to replace the borrowed securities (also known
as "covering" the short position) at a time when the securities
sold short have appreciated in value, thus resulting in a loss to
the Fund. A Fund making a short sale (other than a "short sale
against the box") must segregate assets determined to be liquid by
PIMCO in accordance with procedures established by the Board of
Trustees or otherwise cover its position in a permissible manner.
25 Prospectus
<PAGE>
When- Each Fund may purchase securities which it is eligible to purchase
Issued, on a when-issued basis, may purchase and sell such securities for
Delayed delayed delivery and may make contracts to purchase such
Delivery securities for a fixed price at a future date beyond normal
and settlement time (forward commitments). When-issued transactions,
Forward delayed delivery purchases and forward commitments involve a risk
Commitment of loss if the value of the securities declines prior to the
Transac- settlement date. This risk is in addition to the risk that the
tions Fund's other assets will decline in the value. Therefore, these
transactions may result in a form of leverage and increase a
Fund's overall investment exposure. Typically, no income accrues
on securities a Fund has committed to purchase prior to the time
delivery of the securities is made, although a Fund may earn
income on securities it has segregated to cover these positions.
Repurchase Each Fund may enter into repurchase agreements, in which the Fund
Agreements purchases a security from a bank or broker-dealer and agrees to
repurchase the security at the Fund's cost plus interest within a
specified time. If the party agreeing to repurchase should
default, the Fund will seek to sell the securities which it holds.
This could involve procedural costs or delays in addition to a
loss on the securities if their value should fall below their
repurchase price. Repurchase agreements maturing in more than
seven days are considered illiquid securities.
Reverse Each Fund may enter into reverse repurchase agreements and dollar
Repurchase rolls, subject to the Fund's limitations on borrowings. A reverse
Agreements, repurchase agreement or dollar roll involves the sale of a
Dollar security by a Fund and its agreement to repurchase the instrument
Rolls And at a specified time and price, and may be considered a form of
Other borrowing for some purposes. A Fund will segregate assets
Borrowings determined to be liquid by PIMCO in accordance with procedures
established by the Board of Trustees to cover its obligations
under reverse repurchase agreements. A Fund also may borrow money
for investment purposes subject to any policies of the Fund
currently described in this Prospectus or in the Statement of
Additional Information. Reverse repurchase agreements, dollar
rolls and other forms of borrowings may create leveraging risk for
a Fund.
Catastrophe Each Fund may invest in "catastrophe bonds," which are fixed
Bonds income securities for which the return of principal and payment of
interest is contingent on the non-occurrence of a specific
"trigger" catastrophic event, such as a hurricane or an
earthquake. If a trigger event occurs, a Fund may lose a portion
or all of its principal invested in the bond. Catastrophe bonds
often provide for an extension of maturity to process and audit
loss claims where a trigger event has, or possibly has, occurred.
An extension of maturity may increase volatility. Catastrophe
bonds may also expose the Fund to certain unanticipated risks
including credit risk, adverse regulatory or jurisdictional
interpretations, and adverse tax consequences. Catastrophe bonds
may also be subject to liquidity risk.
Portfolio The length of time a Fund has held a particular security is not
Turnover generally a consideration in investment decisions. A change in the
securities held by a Fund is known as "portfolio turnover." Each
Fund may engage in frequent and active trading of portfolio
securities to achieve its investment objective, particularly
during periods of volatile market movements. High portfolio
turnover (e.g., over 100%) involves correspondingly greater
expenses to a 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 also result in
realization of taxable capital gains, including short-term capital
gains (which are generally taxed at ordinary income tax rates).
The trading costs and tax effects associated with portfolio
turnover may adversely affect a Fund's performance.
Illiquid Each Fund may invest up to 15% of its net assets in illiquid
Securities securities. Certain illiquid securities may require pricing at
fair value as determined in good faith under the supervision of
the Board of Trustees. A portfolio manager may be subject to
significant delays in disposing of illiquid securities, and
transactions in illiquid securities may entail registration
expenses and other transaction costs that are higher than those
for transactions in liquid securities. The term "illiquid
securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business
at approximately the amount at which a Fund has valued the
securities. Restricted securities, i.e., securities subject to
legal or contractual restrictions on resale, may be illiquid.
However, some restricted securities (such as securities issued
pursuant to Rule 144A under the Securities Act of 1933 and certain
commercial paper) may be treated as liquid, although they may be
less liquid than registered securities traded on established
secondary markets.
Investment Each Fund may invest up to 10% of its assets in securities of
in Other other investment companies, such as closed-end management
Investment investment companies, or in pooled accounts or other investment
Companies vehicles. As a shareholder of an investment company, a Fund may
indirectly bear service and other fees which are in addition to
the fees the Fund pays its service providers.
Pacific Investment Management Series 26
<PAGE>
Year 2000 Many of the services provided to the Funds depend on the smooth
Readiness functioning of computer systems. Many systems in use today cannot
Disclosure distinguish between the year 1900 and the year 2000. Should any of
the service systems fail to process information properly, this
could have an adverse impact on the Funds' operations and services
provided to shareholders. PIMCO, the Distributor, the Trust's
shareholder servicing and transfer agent and custodian, and
certain other service providers to the Funds have reported that
each is working toward mitigating the risks associated with the
so-called "year 2000 problem." However, there can be no assurance
that the problem will be corrected in all respects and that the
Funds' operations and services provided to shareholders will not
be adversely affected, nor can there be any assurance that the
year 2000 problem will not have an adverse effect on the entities
whose securities are held by the Funds or on domestic or global
securities markets or economies, generally.
Temporary For temporary or defensive purposes, each fund may invest without
Defensive limit in U.S. debt securities, including taxable and short-term
Strategies money market securities, when PIMCO deems it appropriate to do so.
When a Fund engages in such strategies, it may not achieve its
investment objective.
Changes The investment objective of each Fund is fundamental and may not
in be changed without shareholder approval. Unless otherwise stated,
Investment all other investment policies of the Funds may be changed by the
Objectives Board of Trustees without shareholder approval.
and
Policies
Percentage Unless otherwise stated, all percentage limitations on Fund
Investment investments listed in this Prospectus will apply at the time of
Limitations investment. A Fund would not violate these limitations unless an
excess or deficiency occurs or exists immediately after and as a
result of an investment.
Other The Funds may invest in other types of securities and use a
Investments variety of investment techniques and strategies which are not
and described in this Prospectus. These securities and techniques may
Techniques subject the Funds to additional risks. Please see the Statement of
Additional Information for additional information about the
securities and investment techniques described in this Prospectus
and about additional securities and techniques that may be used by
the Funds.
27 Prospectus
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand
the financial performance of Class A, Class B and Class C shares
of the Municipal Bond Fund since the class of shares was first
offered. Financial information for the California Intermediate
Municipal Bond and New York Intermediate Municipal Bond Funds is
not shown because shares of each Fund were not offered prior to
August 31, 1999. Certain information reflects financial results
for a single Fund share. The total returns in the table represent
the rate that an investor would have earned or lost on an
investment in a particular class of shares of the Fund, assuming
reinvestment of all dividends and distributions. This information
has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, are included in the
Trust's annual report to shareholders. The annual report is
incorporated by reference in the Statement of Additional
Information and is available free of charge upon request from the
Distributor.
28 Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Net and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Investment Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period Income (Loss) Investments Operations Income Income Capital Gains Capital Gains
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond
Class A
03/31/1999 $9.97 $0.41 (a) $0.15 (a) $0.56 $(0.41) $0.00 $0.00 $0.00
Class B
03/31/1999 9.97 0.34 (a) 0.14 (a) 0.48 (0.33) 0.00 0.00 0.00
Class C
03/31/1999 9.97 0.36 (a) 0.15 (a) 0.51 (0.36) 0.00 0.00 0.00
<CAPTION>
Net Assets Ratio of Ratio of Net
Year or Tax Basis Net Asset End Expenses to Investment Portfolio
Period Return Total Value End Total of Period Average Income to Average Turnover
Ended of Capital Distributions of Period Return (000's) Net Assets Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond
Class A
03/31/1999 $0.00 $(0.41) $10.12 5.67% $7,020 0.86% 4.10 70%
Class B
03/31/1999 0.00 (0.33) 10.12 4.88 6,070 1.61 3.33 70
Class C
03/31/1999 0.00 (0.36) 10.12 5.13 37,913 1.35 3.60 70
</TABLE>
- -----
(a)Per share amounts based on average number of shares outstanding during the
period.
29 Prospectus
<PAGE>
Appendix A
Description of Securities Ratings
A Fund's investment 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 PIMCO to be of comparable
quality). The percentage of a Fund's assets invested in securities
particular rating category will vary. The following terms are
generally used to described the credit quality of fixed income
securities:
High Quality Debt Securities are those rated in one of the two
highest rating categories (the highest category for commercial
paper) or, if unrated, deemed comparable by PIMCO.
Investment Grade Debt Securities are those rated in one of the
four highest rating categories or, if unrated deemed comparable by
PIMCO.
Below Investment Grade, High Yield Securities ("Junk Bonds") are
those rated lower than Baa by Moody's or BBB by S&P and comparable
securities. They are considered predominantly speculative with
respect to the issuer's ability to repay principal and interest.
Following is a description of Moody's and S&P's rating categories
applicable to fixed income securities.
Moody's Corporate and Municipal Bond Ratings
Investors
Service, Aaa: Bonds which are rated Aaa are judged to be of the best
Inc. 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.
A-1 Prospectus
<PAGE>
Moody's employes 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.
Short-Term Municipal Bond Ratings
There are four rating categories for short-term municipal bonds
that define an investment grade situation, which are listed below.
In the case of variable rate demand obligations (VRDOs), a two-
component rating is assigned. The first element represents an
evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other represents an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When either the long- or short-term
aspect of a VRDO is not rated, that piece is designated NR, e.g.,
Aaa/NR or NR/VMIG 1. MIG ratings terminate at the retirement of
the obligation while VMIG rating expiration will be a function of
each issue's specific structural or credit features.
MIG 1/VMIG 1: This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market
for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality. All
security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality.
Protection commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.
SG: This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
Standard Corporate and Municipal Bond Ratings
& Poor's
Ratings Investment Grade
Services 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.
Pacific Investment Management Series A-2
<PAGE>
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.
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 An S&P commercial paper rating is a current assessment of the
Paper likelihood of timely payment of debt having an original maturity
Rating of no more than 365 days. Ratings are graded into several
Definitions 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-3 Prospectus
<PAGE>
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.
Pacific Investment Management Series A-4
<PAGE>
PIMCO Funds: Pacific Investment Management Series
The Trust's Statement of Additional Information ("SAI") includes
additional information about the Funds. The SAI is incorporated by
reference into this Prospectus, which means it is part of this
Prospectus for legal purposes.
The SAI includes the PIMCO Funds Shareholders Guide for Class A, B
and C Shares, a separate booklet which contains more detailed
information about Fund purchase, redemption and exchange options
and procedures and other information about the Funds. You can get
a free copy of the Guide together with or separately from the rest
of the SAI.
You may get free copies of the SAI, request other information
about a Fund, or make shareholder inquiries by calling the Trust
at 1-800-426-0107, or PIMCO Infolink Audio Response Network at 1-
800-987-4626, or by writing to:
PIMCO Funds Pacific Investment Management Series
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
You can also visit our Web site at www.pimco.com for additional
information about the Funds.
You may review and copy information about the Trust, including its
SAI, at the Securities and Exchange Commission's public reference
room in Washington, D.C. You may call the Commission at 1-800-SEC-
0330 for information about the operation of the public reference
room. You may also access reports and other information about the
Trust on the Commission's Web site at www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009. You may need to refer to the Trust's
file number under the Investment Company Act, which is 811-5028.
[LOGO OF PIMCO FUNDS APPEARS HERE]
File no. 811-5028
<PAGE>
-------------------------------------------------------------------
PIMCO INVESTMENT ADVISER AND ADMINISTRATOR
Funds: PIMCO, 840 Newport Center Drive, Suite 300, Newport Beach, CA
Pacific 92660
Investment
Management
Series -------------------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distributors LLC, 2187 Atlantic Street, Stamford, CT
06902-6896
-------------------------------------------------------------------
CUSTODIAN
Investor Fiduciary Trust Company, 801 Pennsylvania, Kansas City,
MO 64105
-------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
First Data Investor Services Group, Inc., P.O. Box 9688,
Providence, RI 02940
-------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO 64105
-------------------------------------------------------------------
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street N.W., Washington, D.C.
20006
-------------------------------------------------------------------
<PAGE>
PIMCO Funds:
Pacific Investment Management Series
Statement of Additional Information
This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the prospectuses of PIMCO Funds: Pacific Investment
Management Series, as supplemented from time to time. The Trust offers up to
eight classes of shares of each of its Funds. Class A, Class B, and Class C
shares of certain Funds are offered through the "Class A, B and C Prospectus,"
Institutional Class and Administrative Class shares of certain Funds are offered
through the "Institutional Prospectus," Class D shares of certain Funds are
offered through the "Class D Prospectus," and Class A shares of the Total Return
Fund also are offered through a separate prospectus, each dated August 1, 1999,
each as amended or supplemented from time to time (collectively, the
"Prospectuses"). Additionally, Class J and Class K shares for certain Funds are
offered solely to non-U.S. investors outside the United States. This
information does not constitute an offer of Class J shares or Class K shares to
any person who resides within the United States.
Audited financial statements for the Trust, as of March 31, 1999, including
notes thereto, and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated by reference from the Trust's March 31, 1999 Annual Reports.
Copies of Prospectuses, Annual or Semi-Annual Reports, and the PIMCO Funds
Shareholders' Guide for Class A, B and C Shares (the "Guide"), which is a part
of this Statement of Additional Information, may be obtained free of charge at
the addresses and telephone number(s) listed below.
Class A, B and C and Class D
Institutional Prospectus and Prospectuses, Annual and
Annual and Semi-Annual Reports: Semi-Annual Reports, and the Guide:
PIMCO Funds PIMCO Funds Distributors LLC
840 Newport Center Drive 2187 Atlantic Street
Suite 300 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: (800) 426-0107
Telephone: (800) 927-4648
October 22, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE TRUST.................................................................................................... 1
INVESTMENT OBJECTIVES AND POLICIES........................................................................... 1
Borrowing............................................................................................... 1
Corporate Debt Securities............................................................................... 2
Convertible Securities.................................................................................. 3
High Yield Securities ("Junk Bonds").................................................................... 3
Variable and Floating Rate Securities................................................................... 4
Participation on Creditors Committees................................................................... 5
Mortgage-Related and Other Asset-Backed Securities...................................................... 5
Foreign Securities...................................................................................... 9
Foreign Currency Transactions........................................................................... 11
Foreign Currency Exchange-Related Securities............................................................ 12
Bank Obligations........................................................................................ 13
Loan Participations..................................................................................... 14
Delayed Funding Loans and Revolving Credit Facilities................................................... 16
Loans of Portfolio Securities........................................................................... 16
Short Sales............................................................................................. 16
When-Issued, Delayed Delivery and Forward Commitment Transactions....................................... 17
Derivative Instruments.................................................................................. 17
Inflation-Indexed Bonds................................................................................. 25
Hybrid Instruments...................................................................................... 26
Catastrophe Bonds....................................................................................... 27
Warrants to Purchase Securities......................................................................... 27
Illiquid Securities..................................................................................... 27
Municipal Bonds......................................................................................... 28
Social Investment Policies.............................................................................. 33
INVESTMENT RESTRICTIONS...................................................................................... 33
Fundamental Investment Restrictions..................................................................... 33
Non-Fundamental Investment Restrictions................................................................. 36
Non-Fundamental Operating Policies Relating to the Sale of Shares of PIMCO Total Return Fund in Japan... 38
MANAGEMENT OF THE TRUST...................................................................................... 40
Trustees and Officers................................................................................... 40
Compensation Table...................................................................................... 43
Investment Adviser...................................................................................... 44
Fund Administrator...................................................................................... 46
DISTRIBUTION OF TRUST SHARES................................................................................. 49
Distributor and Multi-Class Plan........................................................................ 49
Contingent Deferred Sales Charge and Initial Sales Charge............................................... 50
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Distribution and Servicing Plans for Class A, Class B and Class C Shares................................ 51
Distribution and Administrative Services Plans for Administrative Class Shares.......................... 57
Plan for Class D Shares................................................................................. 59
Distribution and Servicing Plan for Class J and Class K Shares.......................................... 61
Purchases, Exchanges and Redemptions.................................................................... 62
PORTFOLIO TRANSACTIONS AND BROKERAGE......................................................................... 63
Investment Decisions and Portfolio Transactions......................................................... 63
Brokerage and Research Services......................................................................... 64
Portfolio Turnover...................................................................................... 65
NET ASSET VALUE.............................................................................................. 65
TAXATION..................................................................................................... 66
Distributions........................................................................................... 68
Sales of Shares......................................................................................... 68
Backup Withholding...................................................................................... 69
Options, Futures and Forward Contracts, and Swap Agreements............................................. 69
Short Sales............................................................................................. 70
Passive Foreign Investment Companies.................................................................... 70
Foreign Currency Transactions........................................................................... 70
Foreign Taxation........................................................................................ 71
Original Issue Discount and Market Discount............................................................. 71
Non-U.S. Shareholders................................................................................... 72
Other Taxation.......................................................................................... 73
OTHER INFORMATION............................................................................................ 73
Capitalization.......................................................................................... 73
Performance Information................................................................................. 73
Potential College Cost Table............................................................................ 83
Voting Rights........................................................................................... 86
The Reorganization of the PIMCO Money Market and Total Return II Funds.................................. 113
The Reorganization of the PIMCO Global Bond Fund II..................................................... 113
Code of Ethics.......................................................................................... 113
Year 2000 Readiness Disclosure.......................................................................... 113
Custodian, Transfer Agent and Dividend Disbursing Agent................................................. 114
Independent Accountants................................................................................. 115
Counsel................................................................................................. 115
Registration Statement.................................................................................. 115
Financial Statements.................................................................................... 115
SHAREHOLDER GUIDE FOR CLASS A, B AND C SHARES................................................................ SG-1
</TABLE>
<PAGE>
THE TRUST
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") currently consisting of thirty separate investment portfolios
(the "Funds"): the PIMCO Money Market Fund; the PIMCO Short-Term Fund; the PIMCO
Low Duration Fund; the PIMCO Low Duration Fund II; the PIMCO Low Duration Fund
III; the PIMCO Low Duration Mortgage Fund; the PIMCO Moderate Duration Fund; the
PIMCO Real Return Bond Fund; the PIMCO Total Return Fund; the PIMCO Total Return
Fund II; the PIMCO Total Return Fund III; the PIMCO Total Return Mortgage Fund;
the PIMCO Commercial Mortgage Securities Fund; the PIMCO High Yield Fund; the
PIMCO Long-Term U.S. Government Fund; the PIMCO Long Duration Fund; the PIMCO
Global Bond Fund; the PIMCO Global Bond Fund II; the PIMCO Foreign Bond Fund;
the PIMCO International Bond Fund; the PIMCO Emerging Markets Bond Fund; the
PIMCO Emerging Markets Bond Fund II; the PIMCO Short Duration Municipal Income
Fund; the PIMCO Municipal Bond Fund; the PIMCO California Intermediate Municipal
Bond Fund; the PIMCO New York Intermediate Municipal Bond Fund; the PIMCO
Strategic Balanced Fund; the PIMCO Convertible Bond Fund; the PIMCO StocksPLUS
Fund; and the PIMCO StocksPLUS Short Strategy Fund. Shares of the PIMCO
International Bond Fund and PIMCO Emerging Markets Bond Fund II are offered only
to clients of PIMCO who maintain separately managed private accounts.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and general investment policies of each Fund are
described in the Prospectuses. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below.
Borrowing
A Fund may borrow for temporary administrative purposes. This borrowing
may be unsecured. Provisions of the Investment Company Act of 1940 ("1940 Act")
require a Fund to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed, with an exception for borrowings not in excess of 5% of the
Fund's total assets made for temporary administrative purposes. Any borrowings
for temporary administrative purposes in excess of 5% of the Fund's total assets
must maintain continuous asset coverage. If the 300% asset coverage should
decline as a result of market fluctuations or other reasons, a Fund may be
required to sell some of its portfolio holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. As noted below, a
Fund also may enter into certain transactions, including reverse repurchase
agreements, mortgage dollar rolls, and sale-buybacks, that can be viewed as
constituting a form of borrowing or financing transaction by the Fund. To the
extent a Fund covers its commitment under a reverse repurchase agreement (or
economically similar transaction) by the segregation of assets determined 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 borrowings by the Funds.
Borrowing will tend to exaggerate the effect on net asset value of any increase
or decrease in the market value of a Fund's portfolio. Money borrowed will be
subject to interest costs which may or may not be recovered by appreciation of
the securities purchased. A Fund also may be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate. The PIMCO Global
Bond Fund II may not borrow in excess of 10% of the value of its total assets
and then only from banks as a temporary measure to facilitate the meeting of
redemption requests (not for leverage) or for extraordinary or emergency
purposes.
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In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements, mortgage dollar rolls, and economically similar
transactions. A reverse repurchase agreement involves the sale of a portfolio-
eligible security by a Fund, coupled with its agreement to repurchase the
instrument at a specified time and price. 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 typically will
segregate assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees, equal (on a daily mark-to-
market basis) to its obligations under reverse repurchase agreements. However,
reverse repurchase agreements involve the risk that the market value of
securities retained by the Fund may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. To the extent
that positions in reverse repurchase agreements are not covered through the
segregation of liquid assets at least equal to the amount of any forward
purchase commitment, such transactions would be subject to the Funds'
limitations on borrowings, which would restrict the aggregate of such
transactions (plus any other borrowings) to 33 1/3% (for each Fund except the
PIMCO Global Bond Fund II) of a Fund's total assets.
A "mortgage dollar roll" is similar to a reverse repurchase agreement in
certain respects. In a "dollar roll" transaction a Fund sells a mortgage-
related security, such as a security issued by the Government National Mortgage
Association ("GNMA"), to a dealer and simultaneously agrees to repurchase a
similar security (but not the same security) in the future at a pre-determined
price. A "dollar roll" can be viewed, like a reverse repurchase agreement, as a
collateralized borrowing in which a Fund pledges a mortgage-related security to
a dealer to obtain cash. Unlike in the case of reverse repurchase agreements,
the dealer with which a Fund enters into a dollar roll transaction is not
obligated to return the same securities as those originally sold by the Fund,
but only securities which are "substantially identical." To be considered
"substantially identical," the securities returned to a Fund generally must:
(1) be collateralized by the same types of underlying mortgages; (2) be issued
by the same agency and be part of the same program; (3) have a similar original
stated maturity; (4) have identical net coupon rates; (5) have similar market
yields (and therefore price); and (6) satisfy "good delivery" requirements,
meaning that the aggregate principal amounts of the securities delivered and
received back must be within 2.5% of the initial amount delivered.
A Fund's obligations under a dollar roll agreement must be covered by
segregated liquid assets equal in value to the securities subject to repurchase
by the Fund. As with reverse repurchase agreements, to the extent that
positions in dollar roll agreements are not covered by segregated liquid assets
at least equal to the amount of any forward purchase commitment, such
transactions would be subject to the Funds' limitations on borrowings.
Furthermore, because dollar roll transactions may be for terms ranging between
one and six months, dollar roll transactions may be deemed "illiquid" and
subject to a Fund's overall limitations on investments in illiquid securities.
A Fund also may effect simultaneous purchase and sale transactions that are
known as "sale-buybacks". A sale-buyback is similar to a reverse repurchase
agreement, except that in a sale-buyback, the counterparty who purchases the
security is entitled to receive any principal or interest payments make on the
underlying security pending settlement of the Fund's repurchase of the
underlying security. A Fund's obligations under a sale-buyback typically would
be offset by liquid assets equal in value to the amount of the Fund's forward
commitment to repurchase the subject security.
Corporate Debt Securities
A Fund's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Fund, or, if unrated, are in the
Adviser's opinion comparable in quality to corporate debt securities in which
the Fund may invest.
Corporate income-producing securities may 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
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respect to a reference rate. 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. Debt securities may be
acquired with warrants attached.
Securities rated Baa and BBB are the lowest which are considered
"investment grade" obligations. Moody's Investor Service, Inc. ("Moody's")
describes securities rated Baa as "medium-grade" obligations; they are "neither
highly protected nor poorly secured . . . [i]nterest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well." Standard & Poor's Ratings Services ("S&P")
describes securities rated BBB as "regarded as having an adequate capacity to
pay interest and repay principal . . . [w]hereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal .
. . than in higher rated categories." For a discussion of securities rated
below investment grade, see "High Yield Securities ("Junk Bonds")" below.
Convertible Securities
A convertible debt security is a bond, debenture, note, or other security
that entitles the holder to acquire common stock or other equity securities of
the same or a different issuer. A convertible security generally entitles the
holder to receive interest paid or accrued until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to non-convertible debt securities.
Convertible securities rank senior to common stock in a corporation's capital
structure and, therefore, generally entail less risk than the corporation's
common stock, although the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security.
Because of the conversion feature, the price of the convertible security
will normally fluctuate in some proportion to changes in the price of the
underlying asset, and as such is subject to risks relating to the activities of
the issuer and/or general market and economic conditions. The income component
of a convertible security may tend to cushion the security against declines in
the price of the underlying asset. However, the income component of convertible
securities causes fluctuations based upon changes in interest rates and the
credit quality of the issuer. In addition, convertible securities are often
lower-rated securities.
A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Fund is
called for redemption, the Fund would be required to permit the issuer to redeem
the security and convert it to underlying common stock, or would sell the
convertible security to a third party, which may have an adverse effect on the
Fund's ability to achieve its investment objective. A Fund generally would
invest in convertible securities for their favorable price characteristics and
total return potential and would normally not exercise an option to convert.
High Yield Securities ("Junk Bonds")
Investments in securities rated below investment grade that are eligible
for purchase by certain of the Funds (i.e., rated B or better by Moody's or
S&P), and in particular, by the PIMCO High Yield Fund, are described as
"speculative" by both Moody's and S&P. Investment in lower rated corporate debt
securities ("high yield securities" or "junk bonds") generally provides greater
income and increased opportunity for capital appreciation than investments in
higher quality securities, but they also typically entail greater price
volatility and principal and income risk. These high yield securities are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Analysis of the
creditworthiness of issuers of debt securities that are high yield may be more
complex than for issuers of higher quality debt securities.
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High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities have been found to be less sensitive to
interest-rate changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection
of an economic downturn or of a period of rising interest rates, for example,
could cause a decline in high yield security prices because the advent of a
recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Funds investing in such securities may incur
additional expenses to seek recovery. In the case of high yield securities
structured as zero-coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest periodically and in cash. The
Adviser seeks to reduce these risks through diversification, credit analysis and
attention to current developments and trends in both the economy and financial
markets.
The secondary market on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Funds
could sell a high yield security, and could adversely affect the daily net asset
value of the shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly-traded market. When secondary markets
for high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
The Adviser seeks to minimize the risks of investing in all securities through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit
ratings in a timely fashion to reflect events since the security was last rated.
The Adviser does not rely solely on credit ratings when selecting securities for
the Funds, and develops its own independent analysis of issuer credit quality.
If a credit rating agency changes the rating of a portfolio security held by a
Fund, the Fund may retain the portfolio security if the Adviser deems it in the
best interest of shareholders.
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 Money Market Fund may
invest in a variable rate security having a stated maturity in excess of 397
calendar days if the interest rate will be adjusted, and the Fund may demand
payment of principal from the issuers, within the period.
Each Fund may invest in floating rate debt instruments ("floaters") and
(except the Money Market and Municipal Bond Funds) engage in credit spread
trades. The interest rate on a floater is a variable rate which is tied to
another interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
While, because of the interest rate reset feature, floaters provide a Fund with
a certain degree of protection against rises in interest rates, a Fund will
participate in any declines in interest rates as well. 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.
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Each Fund (except the PIMCO Money Market and Municipal Bond Funds) may also
invest in inverse floating rate debt instruments ("inverse floaters"). The
interest rate on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floating rate security may exhibit greater price volatility than a fixed rate
obligation of similar credit quality. The Funds have adopted a policy under
which no Fund will invest more than 5% (10% in the case of the PIMCO Low
Duration Mortgage and Total Return Mortgage Funds) of its net assets in any
combination of inverse floater, interest only ("IO"), or principal only ("PO")
securities.
Participation on Creditors Committees
A Fund (in particular, the PIMCO High Yield Fund) may from time to time
participate on committees formed by creditors to negotiate with the management
of financially troubled issuers of securities held by the Fund. Such
participation may subject a Fund to expenses such as legal fees and may make a
Fund an "insider" of the issuer for purposes of the federal securities laws, and
therefore may restrict such Fund's ability to trade in or acquire additional
positions in a particular security when it might otherwise desire to do so.
Participation by a Fund on such committees also may expose the Fund to potential
liabilities under the federal bankruptcy laws or other laws governing the rights
of creditors and debtors. A Fund will participate on such committees only when
the Adviser believes that such participation is necessary or desirable to
enforce the Fund's rights as a creditor or to protect the value of securities
held by the Fund.
Mortgage-Related and Other Asset-Backed Securities
Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. See "Mortgage Pass-Through
Securities." Certain of the Funds may also invest in debt securities which are
secured with collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect,
these payments are a "pass-through" of the monthly payments made by the
individual borrowers on their residential or commercial mortgage loans, net of
any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-related securities (such as securities issued by
GNMA) are described as "modified pass-through." These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether or not
the mortgagor actually makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment
on underlying mortgages increase in the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by
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pools of mortgages insured by the Federal Housing Administration (the "FHA"), or
guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government. FHLMC was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. It is a government-sponsored corporation
formerly owned by the twelve Federal Home Loan Banks and now owned entirely by
private stockholders. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the United
States Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create pass-
through pools of conventional residential mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments in the former pools. However, timely
payment of interest and principal of these pools may be supported by various
forms of insurance or guarantees, including individual loan, title, pool and
hazard insurance and letters of credit, which may be issued by governmental
entities, private insurers or the mortgage poolers. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Trust's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. The Funds may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, the Adviser determines that the securities meet the Trust's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. No Fund will purchase mortgage-related securities or any other
assets which in the Adviser's opinion are illiquid if, as a result, more than
15% of the value of the Fund's net assets will be illiquid (10% in the case of
the PIMCO Money Market Fund.)
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Funds take the position that mortgage-related securities do not
represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by a portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the FHA or the
VA. In the case of private issue mortgage-related securities whose underlying
assets are neither U.S. Government securities nor U.S. Government-insured
mortgages, to the extent that real properties securing such assets may be
located in the same geographical region, the security may be subject to a
greater risk of default than other comparable securities in the event of adverse
economic, political or business developments that may affect
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such region and, ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, 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, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding
the longer maturity classes receive principal only after the first class has
been retired. An investor is partially guarded against a sooner than desired
return of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C
Bonds all bear current interest. Interest on the Series Z Bond is accrued and
added to principal and a like amount is paid as principal on the Series A, B, or
C Bond currently being paid off. When the Series A, B, and C Bonds are paid in
full, interest and principal on the Series Z Bond begins to be paid currently.
With some CMOs, the issuer serves as a conduit to allow loan originators
(primarily builders or savings and loan associations) to borrow against their
loan portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are
made semi-annually, as opposed to monthly. The amount of principal payable on
each semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of
all principal payments received on the collateral pool in excess of FHLMC's
minimum sinking fund requirement, the rate at which principal of the CMOs is
actually repaid is likely to be such that each class of bonds will be retired in
advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral
in the event of delinquencies and/or defaults.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently and
in terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate
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securing the underlying mortgage loans. These risks reflect the effects of local
and other economic conditions on real estate markets, the ability of tenants to
make loan payments, and the ability of a property to attract and retain tenants.
Commercial mortgage-backed securities may be less liquid and exhibit greater
price volatility than other types of mortgage- or asset-backed securities.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including mortgage dollar rolls, CMO residuals or stripped
mortgage-backed securities ("SMBS"). Other mortgage-related securities may be
equity or debt securities issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.
CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets.
In particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities--Stripped Mortgage-Backed Securities." In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped mortgage-
backed securities, in certain circumstances a Fund may fail to recoup fully its
initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended (the "1933 Act").
CMO residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. SMBS are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the "IO"
class), while the other class will receive all of the principal (the
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principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, a Fund may fail to recoup some or all of
its initial investment in these securities even if the security is in one of the
highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Other Asset-Backed Securities. Similarly, the Adviser expects that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile Receivables(SM)
("CARS(SM)"). CARS(SM) represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS(SM) are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARS(SM) may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the trust may be prevented from realizing the
full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.
Consistent with a Fund's investment objectives and policies, the Adviser
also may invest in other types of asset-backed securities.
Foreign Securities
All Funds (except the PIMCO Low Duration II, Total Return II, Long-Term
U.S. Government, Short Duration Municipal Income, Municipal Bond, California
Intermediate Municipal Bond and New York Intermediate Municipal Bond Funds) may
invest in corporate debt securities of foreign issuers (including preferred or
preference stock), certain foreign bank obligations (see "Bank Obligations") and
U.S. dollar or foreign currency-denominated obligations of foreign governments
or their subdivisions, agencies and instrumentalities, international agencies
and supranational entities. The PIMCO Money Market, High Yield, Commercial
Mortgage Securities, Low Duration Mortgage and Total Return Mortgage Funds may
invest in securities of foreign issuers only if they are U.S. dollar-
denominated.
Securities traded in certain emerging market countries, including the
emerging market countries in Eastern Europe, may be subject to risks in addition
to risks typically posed by international investing due to the inexperience of
financial intermediaries, the lack of modern technology, and the lack of a
sufficient capital base to expand business operations. Additionally, former
Communist regimes of a number of Eastern European countries previously
expropriated a large amount of property, the claims on which have not been
entirely settled. There can be no assurance that a Fund's investments in
Eastern Europe will not also be expropriated, nationalized or otherwise
confiscated.
Each of the Fixed Income Funds (except the PIMCO Low Duration II, Total
Return II, Long-Term U.S. Government, Short Duration Municipal Income, Municipal
Bond, California Intermediate Municipal Bond and New York Intermediate Municipal
Bond Funds) may invest in Brady Bonds. Brady Bonds are securities created
through the exchange of existing commercial bank loans to sovereign entities for
new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S.
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Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Plan
debt restructurings have been implemented in a number of countries, including:
Argentina, Bolivia, Bulgaria, Costa Rica, the Dominican Republic, Ecuador,
Jordan, Mexico, Niger, Nigeria, the Philippines, Poland, Uruguay, and Venezuela.
In addition, Brazil has concluded a Brady-like plan. It is expected that other
countries will undertake a Brady Plan in the future, including Panama and Peru.
Brady Bonds have been issued only recently, and accordingly do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market. Brady Bonds are not considered to be
U.S. Government securities. U.S. dollar-denominated, collateralized Brady
Bonds, which may be fixed rate par bonds or floating rate discount bonds, are
generally collateralized in full as to principal by U.S. Treasury zero coupon
bonds having the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized on a one-year or longer rolling-forward
basis by cash or securities in an amount that, in the case of fixed rate bonds,
is equal to at least one year of interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's interest payments based on
the applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.
Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds. There can be no assurance that Brady
Bonds in which the Funds may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause the Funds to suffer
a loss of interest or principal on any of its holdings.
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of the debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also depend on expected disbursements from foreign
governments, multilateral agencies and others to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Funds) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
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entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
A Fund's investments in foreign currency 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 federal tax purposes.
Each of the PIMCO Emerging Markets Bond Fund and PIMCO Emerging Markets
Bond Fund II will consider an issuer to be economically tied to a country with
an emerging securities market if (1) the issuer is organized under the laws of,
or maintains its principal place of business in, the country, (2) its securities
are principally traded in the country's securities markets, or (3) the issuer
derived at least half of its revenues or profits from goods produced or sold,
investments made, or services performed in the country, or has at least half of
its assets in that country.
Foreign Currency Transactions
All Funds that may invest in foreign currency-denominated securities also
may purchase and sell foreign currency options and foreign currency futures
contracts and related options (see "Derivative Instruments"), and may engage in
foreign currency transactions either on a spot (cash) basis at the rate
prevailing in the currency exchange market at the time or through forward
currency contracts ("forwards") with terms generally of less than one year.
Funds may engage in these transactions in order to protect against uncertainty
in the level of future foreign exchange rates in the purchase and sale of
securities. The Funds may also use foreign currency options and foreign
currency forward contracts to increase exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another.
A forward involves an obligation to purchase or sell a specific currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts may be bought or sold to protect a Fund against a possible loss
resulting from an adverse change in the relationship between foreign currencies
and the U.S. dollar or to increase exposure to a particular foreign currency.
Open positions in forwards used for non-hedging purposes will be covered by the
segregation with the Trust's custodian of assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees, and
are marked to market daily. Although forwards are intended to minimize the risk
of loss due to a decline in the value of the hedged currencies, at the same
time, they tend to limit any potential gain which might result should the value
of such currencies increase. Forwards will be used primarily to adjust the
foreign exchange exposure of each Fund with a view to protecting the outlook,
and the Funds might be expected to enter into such contracts under the following
circumstances:
Lock In. When the Adviser desires to lock in the U.S. dollar price on the
purchase or sale of a security denominated in a foreign currency.
Cross Hedge. If a particular currency is expected to decrease against
another currency, a Fund may sell the currency expected to decrease and purchase
a currency which is expected to increase against the currency sold in an amount
approximately equal to some or all of the Fund's portfolio holdings denominated
in the currency sold.
Direct Hedge. If the Adviser wants to a eliminate substantially all of the
risk of owning a particular currency, and/or if the Adviser thinks that a Fund
can benefit from price appreciation in a given country's bonds but does not want
to hold the currency, it may employ a direct hedge back into the U.S. dollar.
In either case, a Fund would enter into a forward contract to sell the currency
in which a portfolio security is denominated and purchase U.S. dollars at an
exchange rate established at the time it initiated the
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contract. The cost of the direct hedge transaction may offset most, if not all,
of the yield advantage offered by the foreign security, but a Fund would hope to
benefit from an increase (if any) in value of the bond.
Proxy Hedge. The Adviser might choose to use a proxy hedge, which may be
less costly than a direct hedge. In this case, a Fund, having purchased a
security, will sell a currency whose value is believed to be closely linked to
the currency in which the security is denominated. Interest rates prevailing in
the country whose currency was sold would be expected to be closer to those in
the U.S. and lower than those of securities denominated in the currency of the
original holding. This type of hedging entails greater risk than a direct hedge
because it is dependent on a stable relationship between the two currencies
paired as proxies and the relationships can be very unstable at times.
Costs of Hedging. When a Fund purchases a foreign bond with a higher
interest rate than is available on U.S. bonds of a similar maturity, the
additional yield on the foreign bond could be substantially reduced or lost if
the Fund were to enter into a direct hedge by selling the foreign currency and
purchasing the U.S. dollar. This is what is known as the "cost" of hedging.
Proxy hedging attempts to reduce this cost through an indirect hedge back to the
U.S. dollar.
It is important to note that hedging costs are treated as capital
transactions and are not, therefore, deducted from a Fund's dividend
distribution and are not reflected in its yield. Instead such costs will, over
time, be reflected in a Fund's net asset value per share.
Tax Consequences of Hedging. Under applicable tax law, the Funds may be
required to limit their gains from hedging in foreign currency forwards,
futures, and options. Although the Funds are expected to comply with such
limits, the extent to which these limits apply is subject to tax regulations as
yet unissued. Hedging may also result in the application of the marked-to-
market and straddle provisions of the Internal Revenue Code. Those provisions
could result in an increase (or decrease) in the amount of taxable dividends
paid by the Funds and could affect whether dividends paid by the Funds are
classified as capital gains or ordinary income.
Foreign Currency Exchange-Related Securities
Foreign currency warrants. Foreign currency warrants such as Currency
Exchange Warrants(SM) ("CEWs(SM)") are warrants which entitle the holder to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States, in U.S. dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese Yen or German Deutschmark. The formula used to determine the amount
payable upon exercise of a foreign currency warrant may make the warrant
worthless unless the applicable foreign currency exchange rate moves in a
particular direction (e.g., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered, and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required either to sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
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be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (i.e., the difference between the current
market value and the exercise value of the warrants), and, in the case the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unsecured obligations of their issuers and are
not standardized foreign currency options issued by the Options Clearing
Corporation ("OCC"). Unlike foreign currency options issued by OCC, the terms
of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to significant foreign exchange risk, including risks arising from
complex political or economic factors.
Principal exchange rate linked securities. Principal exchange rate linked
securities ("PERLs(SM)") are debt obligations the principal on which is payable
at maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The return
on "standard" principal exchange rate linked securities is enhanced if the
foreign currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange value of
the U.S. dollar; "reverse" principal exchange rate linked securities are like
the "standard" securities, except that their return is enhanced by increases in
the value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based on the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.
Performance indexed paper. Performance indexed paper ("PIPs(SM)") is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on U.S.
dollar-denominated commercial paper, with both the minimum and maximum rates of
return on the investment corresponding to the minimum and maximum values of the
spot exchange rate two business days prior to maturity.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more
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than 15% of its net assets (10% in the case of the PIMCO Money Market Fund)
would be invested in such deposits, repurchase agreements maturing in more than
seven days and other illiquid assets.
Each Fund limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.
Each Fund that may invest in foreign securities (except the PIMCO Money
Market, Low Duration Mortgage, Total Return Mortgage, Commercial Mortgage
Securities, High Yield and Long-Term U.S. Government Funds) limits its
investments in foreign bank obligations to United States dollar-or foreign
currency-denominated obligations of foreign banks (including United States
branches of foreign banks) which at the time of investment (i) have more than
$10 billion, or the equivalent in other currencies, in total assets; (ii) in
terms of assets are among the 75 largest foreign banks in the world; (iii) have
branches or agencies (limited purpose offices which do not offer all banking
services) in the United States; and (iv) in the opinion of the Adviser, are of
an investment quality comparable to obligations of United States banks in which
the Funds may invest. The PIMCO Money Market, Low Duration Mortgage, Total
Return Mortgage, Commercial Mortgage Securities, High Yield and Long-Term U.S.
Government Funds may invest in the same types of bank obligations as the other
Funds, but they must be U.S. dollar-denominated. Subject to the Trust's
limitation on concentration of no more than 25% of its assets in the securities
of issuers in a particular industry, there is no limitation on the amount of a
Fund's assets which may be invested in obligations of foreign banks which meet
the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.
Loan Participations
Each Fund (except the PIMCO Municipal Bond Fund) may purchase
participations in commercial loans. Such indebtedness may be secured or
unsecured. Loan participations typically represent direct participation in a
loan to a corporate borrower, and generally are offered by banks or other
financial institutions or lending syndicates. The Funds may participate in such
syndications, or can buy part of a loan, becoming a part lender. When
purchasing loan participations, a Fund assumes the credit risk associated with
the corporate borrower and may assume the credit risk associated with an
interposed bank or other financial intermediary. The participation interests in
which a Fund intends to invest may not be rated by any nationally recognized
rating service.
A loan is often administered by an agent bank acting as agent for all
holders. The agent bank administers the terms of the loan, as specified in the
loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the corporate borrower and
the apportionment of these payments to the credit of all institutions which are
parties to the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the corporate
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borrower, the Fund may have to rely on the agent bank or other financial
intermediary to apply appropriate credit remedies against a corporate borrower.
A financial institution's employment as agent bank might be terminated in
the event that it fails to observe a requisite standard of care or becomes
insolvent. A successor agent bank would generally be appointed to replace the
terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if
assets held by the agent bank for the benefit of a Fund were determined to be
subject to the claims of the agent bank's general creditors, the Fund might
incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or governmental agency) similar risks may arise.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the corporate borrower for payment of principal and
interest. If a Fund does not receive scheduled interest or principal payments
on such indebtedness, the Fund's share price and yield could be adversely
affected. Loans that are fully secured offer a Fund more protection than an
unsecured loan in the event of non-payment of scheduled interest or principal.
However, there is no assurance that the liquidation of collateral from a secured
loan would satisfy the corporate borrower's obligation, or that the collateral
can be liquidated.
The Funds may invest in loan participations with credit quality comparable
to that of issuers of its securities investments. Indebtedness of companies
whose creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Some companies may never pay off their indebtedness, or may
pay only a small fraction of the amount owed. Consequently, when investing in
indebtedness of companies with poor credit, a Fund bears a substantial risk of
losing the entire amount invested.
Each Fund limits the amount of its total assets that it will invest in any
one issuer or in issuers within the same industry (see "Investment
Restrictions"). For purposes of these limits, a Fund generally will treat the
corporate borrower as the "issuer" of indebtedness held by the Fund. In the case
of loan participations where a bank or other lending institution serves as a
financial intermediary between a Fund and the corporate borrower, if the
participation does not shift to the Fund the direct debtor-creditor relationship
with the corporate borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund to treat both the lending bank or other lending
institution and the corporate borrower as "issuers" for the purposes of
determining whether the Fund has invested more than 5% of its total assets in a
single issuer. Treating a financial intermediary as an issuer of indebtedness
may restrict a Funds' ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.
Loans and other types of direct indebtedness may not be readily marketable
and may be subject to restrictions on resale. In some cases, negotiations
involved in disposing of indebtedness may require weeks to complete.
Consequently, some indebtedness may be difficult or impossible to dispose of
readily at what the Adviser believes to be a fair price. In addition, valuation
of illiquid indebtedness involves a greater degree of judgment in determining a
Fund's net asset value than if that value were based on available market
quotations, and could result in significant variations in the Fund's daily share
price. At the same time, some loan interests are traded among certain financial
institutions and accordingly may be deemed liquid. As the market for different
types of indebtedness develops, the liquidity of these instruments is expected
to improve. In addition, the Funds currently intend to treat indebtedness for
which there is no readily available market as illiquid for purposes of the
Funds' limitation on illiquid investments. Investments in loan participations
are considered to be debt obligations for purposes of the Trust's investment
restriction relating to the lending of funds or assets by a Portfolio.
Investments in loans through a direct assignment of the financial
institution's interests with respect to the loan may involve additional risks to
the Funds. For example, if a loan is foreclosed, a Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and
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disposing of the collateral. In addition, it is conceivable that under emerging
legal theories of lender liability, a Fund could be held liable as co-lender. It
is unclear whether loans and other forms of direct indebtedness offer securities
law protections against fraud and misrepresentation. In the absence of
definitive regulatory guidance, the Funds rely on the Adviser's research in an
attempt to avoid situations where fraud or misrepresentation could adversely
affect the Funds.
Delayed Funding Loans and Revolving Credit Facilities
The Funds (except the PIMCO Money Market and Municipal Bond Funds) may
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. Delayed funding loans and revolving credit
facilities usually provide for floating or variable rates of interest. These
commitments may have the effect of requiring a 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). To the extent that a Fund is committed to advance
additional funds, it will at all times segregate assets, determined to be liquid
by the Adviser in accordance with procedures established by the Board of
Trustees, in an amount sufficient to meet such commitments. The Funds may
invest in delayed funding loans and revolving credit facilities with credit
quality comparable to that of issuers of its securities investments. Delayed
funding loans and revolving credit facilities may be subject to restrictions on
transfer, and only limited opportunities may exist to resell such instruments.
As a result, a Fund may be unable to sell such investments at an opportune time
or may have to resell them at less than fair market value. The Funds currently
intend to treat delayed funding loans and revolving credit facilities for which
there is no readily available market as illiquid for purposes of the Funds'
limitation on illiquid investments. For a further discussion of the risks
involved in investing in loan participations and other forms of direct
indebtedness see "Loan Participations." Participation interests in revolving
credit facilities will be subject to the limitations discussed in "Loan
Participations." Delayed funding loans and revolving credit facilities are
considered to be debt obligations for purposes of the Trust's investment
restriction relating to the lending of funds or assets by a Portfolio.
Loans of Portfolio Securities
For the purpose of achieving income, each 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 deposits,
bankers' acceptances or letters of credit) maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (ii) the Fund may at any time call the loan and obtain the return of the
securities loaned; (iii) the Fund will receive any interest or dividends paid on
the loaned securities; and (iv) the aggregate market value of securities loaned
will not at any time exceed 33 1/3% (25% in the case of the Global Bond Fund II)
of the total assets of the Fund.
Short Sales
Certain of the Funds, particularly the PIMCO StocksPLUS Short Strategy
Fund, may make short sales of securities as part of their overall portfolio
management strategies involving the use of derivative instruments and to offset
potential declines in long positions in similar securities. A short sale is a
transaction in which a Fund sells a security it does not own in anticipation
that the market price of that security will decline.
When a Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon
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conclusion of the sale. The Fund may have to pay a fee to borrow particular
securities and is often obligated to pay over any accrued interest and dividends
on such borrowed securities.
If the price of the security sold short increases between the time of the
short sale and the time and the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. The successful use of short selling may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
To the extent that a Fund engages in short sales, it will provide
collateral to the broker-dealer and (except in the case of short sales "against
the box") will maintain additional asset coverage in the form of segregated
assets determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees. Each Fund, except the PIMCO StocksPLUS
Short Strategy Fund, does not intend to enter into short sales (other than those
"against the box") if immediately after such sale the aggregate of the value of
all collateral plus the amount of the segregated assets exceeds one-third of the
value of the Fund's net assets. This percentage may be varied by action of the
Trustees. A short sale is "against the box" to the extent that the Fund
contemporaneously owns, or has the right to obtain at no added cost, securities
identical to those sold short. The Funds will engage in short selling to the
extent permitted by the 1940 Act and rules and interpretations thereunder. The
PIMCO Global Bond Fund II may only engage in short sales that are "against the
box."
When-Issued, Delayed Delivery and Forward Commitment Transactions
Each of the Funds may purchase or sell securities on a when-issued, delayed
delivery, or forward commitment basis. When such purchases are outstanding, the
Fund will segregate until the settlement date assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of Trustees,
in an amount sufficient to meet the purchase price. Typically, no income
accrues on securities a Fund has committed to purchase prior to the time
delivery of the securities is made, although a Fund may earn income on
securities it has 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-issued,
delayed delivery, or forward commitment purchases are outstanding, the purchases
may result in a form of leverage.
When the Fund has sold a security on a when-issued, delayed delivery, or
forward commitment basis, the Fund does not participate in future gains or
losses with respect to the security. If the other party to a transaction fails
to deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity or could suffer a loss. A Fund may dispose of or renegotiate
a transaction after it is entered into, and may sell when-issued, 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 Funds may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.
Derivative Instruments
In pursuing their individual objectives the Funds (except the PIMCO Money
Market Fund) may purchase and sell (write) both put options and call options on
securities, securities indexes, and foreign currencies, and enter into interest
rate, foreign currency and index futures contracts and purchase and sell options
on such futures contracts ("futures options") for hedging purposes or as part of
their overall investment strategies, except that those Funds that may not invest
in foreign currency-denominated
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securities may not enter into transactions involving currency futures or
options. The Funds (except the PIMCO Money Market, Short Duration Municipal
Income, Municipal Bond, California Intermediate Municipal Bond and New York
Intermediate Municipal Bond Funds) also may purchase and sell foreign currency
options for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one country to another. The Funds
(except the PIMCO Money Market and Municipal Bond Funds) also may enter into
swap agreements with respect to interest rates and indexes of securities, and to
the extent it may invest in foreign currency-denominated securities, may enter
into swap agreements with respect to foreign currencies. The Funds may invest in
structured notes. If other types of financial instruments, including other types
of options, futures contracts, or futures options are traded in the future, a
Fund may also use those instruments, provided that the Trustees determine that
their use is consistent with the Fund's investment objective.
The value of some derivative instruments in which the Funds invest may be
particularly sensitive to changes in prevailing interest rates, and, like the
other investments of the Funds, the ability of a Fund to successfully utilize
these instruments may depend in part upon the ability of the Adviser to forecast
interest rates and other economic factors correctly. If the Adviser incorrectly
forecasts such factors and has taken positions in derivative instruments
contrary to prevailing market trends, the Funds could be exposed to the risk of
loss.
The Funds might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If the Adviser
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a derivatives strategy for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. Also,
suitable derivative transactions 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 otherwise, due to the
possible inability of a Fund to purchase or sell a portfolio security at a time
that otherwise would be favorable or the possible need to sell a portfolio
security at a disadvantageous time because the Fund is required to maintain
asset coverage or offsetting positions in connection with transactions in
derivative instruments, and the possible inability of a Fund to close out or to
liquidate its derivatives positions. In addition, a 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 and Indexes. A Fund may, to the extent specified
herein or in the Prospectuses, purchase and sell both put and call options on
fixed income or other securities or indexes in standardized contracts traded on
foreign or domestic securities exchanges, boards of trade, or similar entities,
or quoted on NASDAQ or on a regulated foreign over-the-counter market, and
agreements, sometimes called cash puts, which may accompany the purchase of a
new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect features of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
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cash consideration is required, cash or other assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of Trustees,
in such amount are segregated by its custodian) upon conversion or exchange of
other securities held by the Fund. For a call option on an index, the option is
covered if the Fund maintains with its custodian assets determined to be liquid
by the Adviser in accordance with procedures established by the Board of
Trustees, in an amount equal to the contract value of the index. A call option
is also covered if the Fund holds a call on the same security or index as the
call written where the exercise price of the call held is (i) equal to or less
than the exercise price of the call written, or (ii) greater than the exercise
price of the call written, provided the difference is maintained by the Fund in
segregated assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees. A put option on a security or
an index is "covered" if the Fund segregates assets determined to be liquid by
the Adviser in accordance with procedures established by the Board of Trustees
equal to the exercise price. A put option is also covered if the Fund holds a
put on the same security or index as the put written where the exercise price of
the put held is (i) equal to or greater than the exercise price of the put
written, or (ii) less than the exercise price of the put written, provided the
difference is maintained by the Fund in segregated assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees.
If an option written by a Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an exchange traded option may be closed out by an offsetting
purchase or sale of an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Fund desires.
A Fund 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. Prior to exercise or expiration, an
option may be closed out by an offsetting purchase or sale of an option of the
same series. A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Fund will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price of the underlying security or index in
relation to the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded
as a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
The Funds may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
The Funds may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use
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options involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
During the option period, the covered call writer has, in return for the
premium on the option, given up the opportunity to profit from a price increase
in the underlying security above the exercise price, but, as long as its
obligation as a writer continues, has retained the risk of loss should the price
of the underlying security decline. The writer of an option has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying security at the exercise price. If a put
or call option purchased by the Fund is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price (in the case of a put), or remains less than or equal to
the exercise price (in the case of a call), the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.
Foreign Currency Options. Funds that invest in foreign currency-denominated
securities may buy or sell put and call options on foreign currencies. A Fund
may buy or sell put and call options on foreign currencies either on exchanges
or in the over-the-counter market. A put option on a foreign currency gives the
purchaser of the option the right to sell a foreign currency at the exercise
price until the option expires. A call option on a foreign currency gives the
purchaser of the option the right to purchase the currency at the exercise price
until the option expires. Currency options traded on U.S. or other exchanges
may be subject to position limits which may limit the ability of a Fund to
reduce foreign currency risk using such options. Over-the-counter options differ
from traded options in that they are two-party contracts with price and other
terms negotiated between buyer and seller, and generally do not have as much
market liquidity as exchange-traded options.
Futures Contracts and Options on Futures Contracts. Each Fund (except the
PIMCO Money Market and Municipal Bond Funds) may invest in interest rate futures
contracts and options thereon ("futures options"), and to the extent it may
invest in foreign currency-denominated securities, may also invest in foreign
currency futures contracts and options thereon. The PIMCO Short Duration
Municipal Income, Municipal Bond, California Intermediate Municipal Bond and New
York Intermediate Municipal Bond Funds may purchase and sell futures contracts
on U.S. Government securities and Municipal Bonds, as well as purchase put and
call options on such futures contracts. The Strategic Balanced, Convertible
Bond, StocksPLUS and StocksPLUS Short Strategy Funds may invest in interest
rate, stock index and foreign currency futures contracts and options thereon.
An interest rate, foreign currency or index futures contract provides for
the future sale by one party and purchase by another party of a specified
quantity of a financial instrument, foreign currency or the cash
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value of an index at a specified price and time. A futures contract on an index
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery of
these securities is made. A public market exists in futures contracts covering a
number of indexes as well as financial instruments and foreign currencies,
including: the S&P 500; the S&P Midcap 400; the Nikkei 225; the NYSE composite;
U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit;
Eurodollar certificates of deposit; the Australian dollar; the Canadian dollar;
the British pound; the German mark; the Japanese yen; the French franc; the
Swiss franc; the Mexican peso; and certain multinational currencies, such as the
euro. It is expected that other futures contracts will be developed and traded
in the future.
A Fund may purchase and write call and put futures options, as specified
for that Fund in the Prospectuses. Futures options possess many of the same
characteristics as options on securities and indexes (discussed above). A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (call) or short position (put) in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position. In the case of
a put option, the opposite is true.
To comply with applicable rules of the Commodity Futures Trading Commission
("CFTC") under which the Trust and the Funds avoid being deemed a "commodity
pool" or a "commodity pool operator," each Fund intends generally to limit its
use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, a Fund might use futures contracts to hedge against
anticipated changes in interest rates that might adversely affect either the
value of the Fund's securities or the price of the securities which the Fund
intends to purchase. A Fund's hedging activities may include sales of futures
contracts as an offset against the effect of expected increases in interest
rates, and purchases of futures contracts as an offset against the effect of
expected declines in interest rates. Although other techniques could be used to
reduce that Fund's exposure to interest rate fluctuations, the Fund may be able
to hedge its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
A Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of assets determined to be liquid by the Adviser in accordance
with procedures established by the Board of Trustees ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. Margin
requirements on foreign exchanges may be different than U.S. exchanges. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. Each Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking to market." Variation margin does not
represent a borrowing or loan by a Fund but is instead a settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, each Fund will mark to
market its open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying
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futures contract (and the related initial margin requirements), the current
market value of the option, and other futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
realizes a capital gain, or if it is less, the Fund realizes a capital loss.
The transaction costs must also be included in these calculations.
The Funds may write covered straddles consisting of a call and a put
written on the same underlying futures contract. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
A Fund may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
Limitations on Use of Futures and Futures Options. In general, the Funds
intend to enter into positions in futures contracts and related options only for
"bona fide hedging" purposes. With respect to positions in futures and related
options that do not constitute bona fide hedging positions, a Fund will not
enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less the amount by
which any such options are "in-the-money," would exceed 5% of the Fund's net
assets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.
When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees,
that, when added to the amounts deposited with a futures commission merchant as
margin, are equal to the market value of the futures contract. Alternatively,
the Fund may "cover" its position by purchasing a put option on the same futures
contract with a strike price as high or higher than the price of the contract
held by the Fund.
When selling a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by the
Adviser in accordance with procedures established by the Board of Trustees, that
are equal to the market value of the instruments underlying the contract.
Alternatively, the Fund may "cover" its position by owning the instruments
underlying the contract (or, in the case of an index futures contract, a
portfolio with a volatility substantially similar to that of the index on which
the futures contract is based), or by holding a call option permitting the Fund
to purchase the same futures contract at a price no higher than the price of the
contract written by the Fund (or at a higher price if the difference is
maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees, that, when added to the amounts deposited with a futures commission
merchant as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.
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When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by the Adviser in accordance with procedures established by the Board of
Trustees, that equal the purchase price of the futures contract, less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund.
To the extent that securities with maturities greater than one year are
used to segregate assets to cover a Fund's obligations under futures contracts
and related options, such use will not eliminate the risk of a form of leverage,
which may tend to exaggerate the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio, and may require liquidation
of portfolio positions when it is not advantageous to do so. However, any
potential risk of leverage resulting from the use of securities with maturities
greater than one year may be mitigated by the overall duration limit on a Fund's
portfolio securities. Thus, the use of a longer-term security may require a
Fund to hold offsetting short-term securities to balance the Fund's portfolio
such that the Fund's duration does not exceed the maximum permitted for the Fund
in the Prospectuses.
The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures, futures options or
forward contracts. See "Taxation."
Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no
guarantee that there will be a correlation between price movements in the
hedging vehicle and in the Fund securities being hedged. In addition, there are
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.
Futures contracts on U.S. Government securities historically have reacted
to an increase or decrease in interest rates in a manner similar to that in
which the underlying U.S. Government securities reacted. To the extent,
however, that the PIMCO Municipal Bond Fund enters into such futures contracts,
the value of such futures will not vary in direct proportion to the value of the
Fund's holdings of Municipal Bonds (as defined below). Thus, the anticipated
spread between the price of the futures contract and the hedged security may be
distorted due to differences in the nature of the markets. The spread also may
be distorted by differences in initial and variation margin requirements, the
liquidity of such markets and the participation of speculators in such markets.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
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There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position, and that Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Additional Risks of Options on Securities, Futures Contracts, Options on
Futures Contracts, and Forward Currency Exchange Contracts and Options Thereon.
Options on securities, futures contracts, options on futures contracts, and
options on currencies may be traded on foreign exchanges. Such transactions may
not be regulated as effectively as similar transactions in the United States;
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser
availability than in the United States of data on which to make trading
decisions, (iii) delays in the Trust's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, and (v) lesser trading
volume.
Swap Agreements. Each Fund (except the PIMCO Money Market and Municipal
Bond Funds) may enter into interest rate, index and, to the extent it may invest
in foreign currency-denominated securities, currency exchange rate swap
agreements. These transactions are entered into in a attempt to obtain a
particular return when it is considered desirable to do so, possibly at a lower
cost to the Fund than if the Fund had invested directly in an instrument that
yielded that desired return. Swap agreements are two party contracts entered
into primarily by institutional investors for periods ranging from a few weeks
to more than one year. In a standard "swap" transaction, two parties agree to
exchange the returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments, which may be adjusted for
an interest factor. The gross returns to be exchanged or "swapped" between the
parties are generally calculated with respect to a "notional amount," i.e., the
return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified rate, or "floor"; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
segregation of assets determined to be liquid by the Adviser in accordance with
procedures established by the Board of Trustees, to avoid any potential
leveraging of the Fund's portfolio. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of the Fund's
investment restriction concerning senior securities. A Fund will not enter into
a swap agreement with any single party if the net amount owed or to be received
under existing contracts with that party would exceed 5% of the Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective of total return will depend on the Adviser's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid. Moreover, a Fund bears the risk of loss of the
amount expected to be received under a swap agreement in
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the event of the default or bankruptcy of a swap agreement counterparty. The
Funds will enter into swap agreements only with counterparties that meet certain
standards of creditworthiness (generally, such counterparties would have to be
eligible counterparties under the terms of the Funds' repurchase agreement
guidelines). Certain restrictions imposed on the Funds by the Internal Revenue
Code may limit the Funds' ability to use swap agreements. The swaps market is a
relatively new market and is largely unregulated. It is possible that
developments in the swaps market, including potential government regulation,
could adversely affect a Fund's ability to terminate existing swap agreements or
to realize amounts to be received under such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC
effective February 22, 1993. To qualify for this exemption, a swap agreement
must be entered into by "eligible participants," which includes the following,
provided the participants' total assets exceed established levels: a bank or
trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through
a multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
Structured Notes. Structured notes are derivative debt securities, the
interest rate or principal of which is determined by an unrelated indicator.
Indexed securities include structured notes as well as securities other than
debt securities, the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities may include a multiplier that
multiplies the indexed element by a specified factor and, therefore, the value
of such securities may be very volatile. To the extent a Fund invests in these
securities, however, the Adviser analyzes these securities in its overall
assessment of the effective duration of the Fund's portfolio in an effort to
monitor the Fund's interest rate risk.
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 accrues
inflation into the principal value of the bond. Most other issuers pay out the
CPI accruals as part of a semiannual 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 U.S. Treasury securities pay
interest on a semi-annual basis, equal to a fixed percentage of the inflation-
adjusted principal amount. For example, if a Fund purchased an inflation-indexed
bond with a par value of $1,000 and a 3% real rate of return coupon (payable
1.5% semi-annually), and inflation over the first six months were 1%, the mid-
year par value of the bond would be $1,010 and the first semi-annual interest
payment would be
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$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 Funds may
also invest in other inflation related bonds which may or may not provide a
similar guarantee. If a guarantee of principal is not provided, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.
The value of inflation-indexed bonds is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The 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.
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 a
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Fund to the credit risk of the issuer of the hybrids. These risks may cause
significant fluctuations in the net asset value of the Fund. Accordingly, no
Fund will invest more than 5% of its assets in 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
Funds' investments in these products will be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act.
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" catastrophic event, such as a hurricane or an earthquake.
They may be issued by government agencies, insurance companies, reinsurers,
special purpose corporations or other on-shore or off-shore entities. If a
trigger event causes losses exceeding a specific amount in the geographic region
and time period specified in a bond, a Fund investing in the bond 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 company-wide losses, index-
portfolio losses, industry indices, 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. See
"Illiquid Securities" below. Lack of a liquid market may impose the risk of
higher transaction costs and the possibility that a Fund may be forced to
liquidate positions when it would not be advantageous to do so. Catastrophe
bonds are typically rated, and a Fund will only invest in catastrophe bonds that
meet the credit quality requirements for the Fund.
Warrants to Purchase Securities
The Funds may invest in or acquire warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity securities
have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional fixed income securities at
the same coupon rate. A decline in interest rates would permit a Fund to buy
additional bonds at the favorable rate or to sell the warrants at a profit. If
interest rates rise, the warrants would generally expire with no value.
A Fund will not invest more than 5% of its net assets, valued at the lower
of cost or market, in warrants to purchase securities. Warrants acquired in
units or attached to securities will be deemed without value for purposes of
this restriction.
Illiquid Securities
The Funds may invest up to 15% of their net assets in illiquid securities
(10% in the case of the PIMCO Money Market Fund). The term "illiquid
securities" for this purpose means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which a Fund has valued the securities. Illiquid securities are considered to
include, among other things, written over-the-counter options, securities or
other liquid assets being used as cover for such options, repurchase agreements
with maturities in excess of seven days, certain loan participation interests,
fixed time deposits which are not subject to prepayment or provide for
withdrawal penalties upon prepayment (other than overnight deposits), and other
securities whose disposition is restricted under the federal securities laws
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(other than securities issued pursuant to Rule 144A under the 1933 Act and
certain commercial paper that the Adviser has determined to be liquid under
procedures approved by the Board of Trustees).
Illiquid securities may include privately placed securities, which are sold
directly to a small number of investors, usually institutions. Unlike public
offerings, such securities are not registered under the federal securities laws.
Although certain of these securities may be readily sold, others may be
illiquid, and their sale may involve substantial delays and additional costs.
Municipal Bonds
Each Fund may invest in securities issued by states, municipalities and
other political subdivisions, agencies, authorities and instrumentalities of
states and multi-state agencies or authorities. It is a policy of the PIMCO
Short Duration Municipal Income, Municipal Bond, California Intermediate
Municipal Bond and New York Intermediate Municipal Bond Funds (collectively, the
"Municipal Funds") to have 80% of its net assets invested in debt obligations
the interest on which, in the opinion of bond counsel to the issuer at the time
of issuance, is exempt from federal income tax ("Municipal Bonds"). In the case
of the PIMCO California Intermediate Municipal Bond and New York Intermediate
Municipal Bond Funds, the Funds will invest, under normal circumstances, at
least 65% of their net assets in debt securities whose interest is, in the
opinion of bond counsel for the issuers at the time of issuance, exempt from
federal income tax and California or New York income tax, respectively. The
ability of the Fund to invest in securities other than Municipal Bonds is
limited by a requirement of the Internal Revenue Code that at least 50% of the
Fund's total assets be invested in Municipal Bonds at the end of each calendar
quarter. See "Taxes."
Municipal Bonds share the attributes of debt/fixed income securities in
general, but are generally issued by states, municipalities and other political
subdivisions, agencies, authorities and instrumentalities of states and multi-
state agencies or authorities. Specifically, California and New York Municipal
Bonds generally are issued by or on behalf of the State of California and New
York, respectively, and their political subdivisions and financing authorities,
and local governments. The Municipal Bonds which the Municipal Funds may
purchase include general obligation bonds and limited obligation bonds (or
revenue bonds), including industrial development bonds issued pursuant to former
federal tax law. General obligation bonds are obligations involving the credit
of an issuer possessing taxing power and are payable from such issuer's general
revenues and not from any particular source. Limited obligation bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Tax-exempt private activity bonds and industrial
development bonds generally are also revenue bonds and thus are not payable from
the issuer's general revenues. The credit and quality of private activity bonds
and industrial development bonds are usually related to the credit of the
corporate user of the facilities. Payment of interest on and repayment of
principal of such bonds is the responsibility of the corporate user (and/or any
guarantor).
Under the Internal Revenue Code, certain limited obligation bonds are
considered "private activity bonds" and interest paid on such bonds is treated
as an item of tax preference for purposes of calculating federal alternative
minimum tax liability.
The Municipal Funds may invest in municipal lease obligations. A lease is
not a full faith and credit obligation of the issuer and is usually backed only
by the borrowing government's unsecured pledge to make annual appropriations for
lease payments. There have been challenges to the legality of lease financing in
numerous states, and, from time to time, certain municipalities have considered
not appropriating money for lease payments. In deciding whether to purchase a
lease obligation, the Municipal Funds will assess the financial condition of the
borrower, the merits of the project, the level of public support for the
project, and the legislative history of lease financing in the state. These
securities may be less readily marketable than other municipals. A Municipal
Fund may also purchase unrated
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lease obligations if determined by the Adviser to be of comparable quality to
rated securities in which the Fund is permitted to invest.
The Municipal Funds may seek to enhance their yield through the purchase of
private placements. These securities are sold through private negotiations,
usually to institutions or mutual funds, and may have resale restrictions. Their
yields are usually higher than comparable public securities to compensate the
investor for their limited marketability. A Municipal Fund may not invest more
than 15% of its net assets in illiquid securities, including unmarketable
private placements.
Some longer-term Municipal Bonds give the investor the right to "put" or
sell the security at par (face value) within a specified number of days
following the investor's request-usually one to seven days. This demand feature
enhances a security's liquidity by shortening its effective maturity and enables
it to trade at a price equal to or very close to par. If a demand feature
terminates prior to being exercised, a Municipal Fund would hold the longer-term
security, which could experience substantially more volatility.
The Municipal Funds may invest in municipal warrants, which are essentially
call options on Municipal Bonds. In exchange for a premium, they give the
purchaser the right, but not the obligation, to purchase a Municipal Bond in the
future. A Municipal Fund might purchase a warrant to lock in forward supply in
an environment where the current issuance of bonds is sharply reduced. Like
options, warrants may expire worthless and they may have reduced liquidity. A
Municipal Fund will not invest more than 5% of its net assets in municipal
warrants.
The Municipal Funds may invest in Municipal Bonds with credit enhancements
such as letters of credit, municipal bond insurance and Standby Bond Purchase
Agreements ("SBPAs"). Letters of credit that are issued by a third party,
usually a bank, to enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying Municipal Bond should default. Municipal
bond insurance, which is usually purchased by the bond issuer from a private,
nongovernmental insurance company, provides an unconditional and irrevocable
guarantee that the insured bond's principal and interest will be paid when due.
Insurance does not guarantee the price of the bond or the share price of any
fund. The credit rating of an insured bond reflects the credit rating of the
insurer, based on its claims-paying ability. The obligation of a municipal bond
insurance company to pay a claim extends over the life of each insured bond.
Although defaults on insured Municipal Bonds have been low to date and municipal
bond insurers have met their claims, there is no assurance this will continue. A
higher-than-expected default rate could strain the insurer's loss reserves and
adversely affect its ability to pay claims to bondholders. The number of
municipal bond insurers is relatively small, and not all of them have the
highest rating. An SBPA is a liquidity facility provided to pay the purchase
price of bonds that cannot be re-marketed. The obligation of the liquidity
provider (usually a bank) is only to advance funds to purchase tendered bonds
that cannot be remarketed and does not cover principal or interest under any
other circumstances. The liquidity provider's obligations under the SBPA are
usually subject to numerous conditions, including the continued creditworthiness
of the underlying borrower.
The Municipal Funds may invest in Residual Interest Bonds, which are
created by dividing the income stream provided by an underlying bond to create
two securities, one short term and one long term. The interest rate on the
short-term component is reset by an index or auction process normally every
seven to 35 days. After income is paid on the short-term securities at current
rates, the residual income goes to the long-term securities. Therefore, rising
short-term interest rates result in lower income for the longer-term portion,
and vice versa. The longer-term bonds can be very volatile and may be less
liquid than other Municipal Bonds of comparable maturity. A Municipal Fund will
not invest more than 10% of its total assets in Residual Interest Bonds.
The Municipal Funds also may invest in participation interests.
Participation interests are various types of securities created by converting
fixed rate bonds into short-term, variable rate certificates. These securities
have been developed in the secondary market to meet the demand for short-term,
tax-exempt
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securities. The Municipal Funds will invest only in securities deemed tax-exempt
by a nationally recognized bond counsel, but there is no guarantee the interest
will be exempt because the IRS has not issued a definitive ruling on the matter.
Municipal Bonds are subject to credit and market risk. Generally, prices
of higher quality issues tend to fluctuate less with changes in market interest
rates than prices of lower quality issues and prices of longer maturity issues
tend to fluctuate more than prices of shorter maturity issues.
The Municipal Funds may purchase and sell portfolio investments to take
advantage of changes or anticipated changes in yield relationships, markets or
economic conditions. The Municipal Funds may also sell Municipal Bonds due to
changes in the Adviser's evaluation of the issuer or cash needs resulting from
redemption requests for Fund shares. The secondary market for Municipal Bonds
typically has been less liquid than that for taxable debt/fixed income
securities, and this may affect the Fund's ability to sell particular Municipal
Bonds at then-current market prices, especially in periods when other investors
are attempting to sell the same securities.
Prices and yields on Municipal Bonds are dependent on a variety of factors,
including general money- market conditions, the financial condition of the
issuer, general conditions of the Municipal Bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial condition
of an issuer of Municipal Bonds may not be as extensive as that which is made
available by corporations whose securities are publicly traded.
Obligations of issuers of Municipal Bonds are subject to the provisions of
bankruptcy, insolvency and other laws, such as the Federal Bankruptcy Reform Act
of 1978, affecting the rights and remedies of creditors. Congress or state
legislatures may seek to extend the time for payment of principal or interest,
or both, or to impose other constraints upon enforcement of such obligations.
There is also the possibility that as a result of litigation or other
conditions, the power or ability of issuers to meet their obligations for the
payment of interest and principal on their Municipal Bonds may be materially
affected or their obligations may be found to be invalid or unenforceable. Such
litigation or conditions may from time to time have the effect of introducing
uncertainties in the market for Municipal Bonds or certain segments thereof, or
of materially affecting the credit risk with respect to particular bonds.
Adverse economic, business, legal or political developments might affect all or
a substantial portion of a Fund's Municipal Bonds in the same manner. In
particular, the California and New York Intermediate Municipal Bond Funds are
subject to the risks inherent in concentrating investment in a particular state
or region. The following summarizes information drawn from official statements,
and other public documents available relating to issues potentially affecting
securities offerings of the states of California and New York. PIMCO has not
independently verified the information, but has no reason to believe that it is
not correct.
California. The California Intermediate Municipal Bond Fund may be
particularly affected by political, economic or regulatory developments
affecting the ability of California issuers to pay interest or repay principal.
Provisions of the California Constitution and State statutes which limit the
taxing and spending authority of California governmental entities may impair the
ability of California issuers to maintain debt service on their obligations.
Future California political and economic developments, constitutional
amendments, legislative measures, executive orders, administrative regulations,
litigation and voter initiatives could have an adverse effect on the debt
obligations of California issuers.
Certain debt obligations held by the California Intermediate Municipal Bond
Fund may be obligations of issuers which rely in whole or in substantial part on
California state revenues for the continuance of their operations and payment of
their obligations. Whether and to what extent the California Legislature will
continue to appropriate a portion of the State's General Fund to counties,
cities and their various entities, is not entirely certain. To the extent local
entities do not receive money
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from the State to pay for their operations and services, their ability to pay
debt service on obligations held by the California Intermediate Municipal Bond
Fund may be impaired.
Certain tax-exempt securities in which the California Intermediate
Municipal Bond Fund may invest may be obligations payable solely from the
revenues of specific institutions, or may be secured by specific properties,
which are subject to provisions of California law which could adversely affect
the holders of such obligations. For example, the revenues of California health
care institutions may be subject to state laws, and California law limits the
remedies of a creditor secured by a mortgage or deed of trust on real property.
California is the most populous state in the nation with a total population
estimated at 32.9 million. The State now comprises 12.3% of the nation's
population and 12.5% of its total personal income. Its economy is broad and
diversified with major concentrations in high technology research and
manufacturing, aerospace and defense-related manufacturing, trade,
entertainment, real estate, and financial services. After experiencing strong
growth throughout much of the 1980s, from 1990-1993 the State suffered through a
severe recession, the worst since the 1930's, heavily influenced by large
cutbacks in defense/aerospace industries and military base closures and a major
drop in real estate construction. California's economy has been recovering and
growing steadily stronger since the start of 1994, to the point where the
State's economic growth is outpacing the rest of the nation. The unemployment
rate, while still higher than the national average, fell to an average of 5.9%
in 1998, compared to over 10% at the worst of the recession. California's
economic recovery from the recession is continuing at a strong pace. Recent
economic reports indicate that, while the rate of economic growth in California
is expected to moderate over the next year, the increases in employment and
income may exceed those of the nation as a whole. The unsettled financial
situation occurring in certain Asian economies, and its spillover effect
elsewhere, may adversely affect the State's export-related industries and,
therefore, the State's rate of economic growth.
Revenue bonds represent both obligations payable from State revenue-
producing enterprises and projects, which are not payable from the General Fund,
and conduit obligations payable only from revenues paid by private users of
facilities financed by such revenue bonds. Such enterprises and projects include
transportation projects, various public works and exposition projects,
educational facilities (including the California State University and University
of California systems), housing, health facilities, and pollution control
facilities.
In years past, because of the State's budget problems, the State's General
Obligation bonds were downgraded. In 1996, however, citing California's
improving economy and budget situation, Fitch and S&P raised their ratings from
A to A+. In October, 1997, Fitch raised its rating from A+ to AA-referring to
the State's fundamental strengths, the extent of its economic recovery and the
return of financial stability. In October 1998, Moody's raised its rating from
A1 to Aa3 citing the State's continuing economic recovery and a number of
actions taken to improve the State's credit condition, including the rebuilding
of cash and budget reserves. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the State Municipal Obligations in which the California
Intermediate Municipal Bond Fund invests.
The State is party to numerous legal proceedings, many of which normally
occur in governmental operations and which, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.
Constitutional and statutory amendments as well as budget developments may
affect the ability of California issuers to pay interest and principal on their
obligations. The overall effect may depend upon whether a particular California
tax-exempt security is a general or limited obligation bond and on
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the type of security provided for the bond. It is possible that other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future.
New York. Because the New York Intermediate Municipal Bond Fund
concentrates its investments in New York tax-exempt bonds, the Fund may be
affected significantly by economic or regulatory developments affecting the
ability of New York tax-exempt issuers to pay interest or repay principal.
Investors should be aware that certain issuers of New York tax-exempt securities
have experienced serious financial difficulties in recent years. A reoccurrence
of these difficulties may impair the ability of certain New York issuers to
maintain debt service on their obligations.
The economic and financial condition of the State also may be affected by
various financial, social, economic and political factors. Such factors can be
very complex, may vary from year to year and are frequently the result of
actions taken not only by the State and its agencies and instrumentalities, but
also by entities, such as the Federal government, that are not under the control
of the State.
The fiscal stability of New York State is related to the fiscal stability
of the State's municipalities, its agencies and authorities (which generally
finance, construct and operate revenue-producing public benefit facilities).
This is due in part to the fact that agencies, authorities and local governments
in financial trouble often seek State financial assistance. The experience has
been that if New York City or any of the agencies or authorities suffers serious
financial difficulty, both the ability of the State, the City, the State's
political subdivisions, the agencies and the authorities to obtain financing in
the public credit markets and the market price of outstanding New York tax-
exempt securities are adversely affected.
The New York state economy has continued to expand, but growth remains
somewhat slower than in the nation overall. Although the State has added
approximately 400,000 jobs since late 1992, employment growth in the State has
been hindered during recent years by significant cutbacks in the computer and
instrument manufacturing, utility, defense and banking industries.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy and
actions of the federal government have helped to create projected budget gaps
for the State. These gaps result from a significant disparity between recurring
revenues and the costs of maintaining or increasing the level of support for
State programs. To address a potential imbalance in any given fiscal year, the
State would be required to take actions to increase receipts and/or reduce
disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
The fiscal stability of the State is related to the fiscal stability of its
public authorities. Authorities have various responsibilities, including those
which finance, construct and/or operate revenue-producing public facilities.
Authorities are not subject to the constitutional restrictions on the incurrence
of debt which apply to the State itself, and may issue bonds and notes within
the amounts and restrictions set forth in their legislative authorization.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as tolls charged for use of highways, bridges or
tunnels, charges for electric power, electric and gas utility services, rentals
charged for housing units and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques for
authorities. Also, there are statutory arrangements providing for State local
assistance payments otherwise payable to localities to be made under certain
circumstances to authorities. Although the State has no obligation to provide
additional assistance to localities whose local assistance payments have been
paid to authorities under these arrangements, if local assistance payments are
diverted the affected localities could seek additional
32
<PAGE>
State assistance. Some authorities also receive moneys from State appropriations
to pay for the operating costs of certain of their programs.
S&P rates the State's general obligation bonds A, and Moody's rates the
State's general obligation bonds A2. There is no assurance that a particular
rating will continue for any given period of time or that any such rating will
not be revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the State Municipal Obligations in which the New York
Intermediate Bond Fund invests.
Over the long term, the State and New York City face potential economic
problems. New York City accounts for a large portion of the State's population
and personal income, and New York City's financial health affects the State in
numerous ways. New York City continues to require significant financial
assistance from the State. New York City depends on State aid both to enable
it to balance its budget and to meet its cash requirements. The State could
also be affected by the ability of the City to market its securities
successfully in the public credit markets.
Each Fund may purchase custodial receipts representing the right to receive
either the principal amount or the periodic interest payments or both with
respect to specific underlying Municipal Bonds. In a typical custodial receipt
arrangement, an issuer or third party owner of Municipal Bonds deposits the
bonds with a custodian in exchange for two classes of custodial receipts. The
two classes have different characteristics, but, in each case, payments on the
two classes are based on payments received on the underlying Municipal Bonds.
In no event will the aggregate interest paid with respect to the two classes
exceed the interest paid by the underlying Municipal Bond. Custodial receipts
are sold in private placements. The value of a custodial receipt may fluctuate
more than the value of a Municipal Bond of comparable quality and maturity.
Social Investment Policies
The PIMCO Low Duration Fund III and PIMCO Total Return Fund III will not,
as a matter of non-fundamental operating policy, invest in the securities of any
issuer determined by the Adviser to be engaged principally in the provision of
healthcare services, the manufacture of alcoholic beverages, tobacco products,
pharmaceuticals, military equipment, or the operation of gambling casinos. The
Funds will also avoid, to the extent possible on the basis of information
available to the Adviser, the purchase of securities of issuers engaged in the
production or trade of pornographic materials. An issuer will be deemed to be
principally engaged in an activity if it derives more than 10% of its gross
revenues from such activities. Evaluation of any particular issuer with respect
to these criteria may involve the exercise of subjective judgment by the
Adviser. The Adviser's determination of issuers engaged in such activities at
any given time will, however, be based upon its good faith interpretation of
available information and its continuing and reasonable best efforts to obtain
and evaluate the most current information available, and to utilize such
information, as it becomes available, promptly and expeditiously in portfolio
management for the Funds. In making its analysis, the Adviser may rely, among
other things, upon information contained in such publications as those produced
by the Investor Responsibility Research Center, Inc.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
Each Fund's investment objective, except for the PIMCO Global Bond Fund II,
as set forth in the Prospectuses under "Investment Objectives and Policies,"
together with the investment restrictions set forth below, are fundamental
policies of the Fund and may not be changed with respect to a Fund without
shareholder approval by vote of a majority of the outstanding shares of that
Fund. Under these restrictions a Fund may not:
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<PAGE>
(1) (a) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment)
would be invested in the securities of issuers in any particular industry,
or, in the case of the Municipal Funds, in industrial development revenue
bonds based, directly or indirectly, on the credit of private entities in
any one industry; except that this restriction does not apply (a) to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements with respect thereto) and (b)
with respect to the Money Market Fund, to securities or obligations issued
by U.S. banks. Investments of the Municipal Funds in utilities, gas,
electric, water and telephone companies will be considered as being in
separate industries;
(b) for the Global Bond Fund II, concentrate more than 25% of the value of
its total assets in any one industry (The SEC staff takes the position that
investments in government securities of a single foreign country (including
agencies and instrumentalities of such government, to the extent such
obligations are backed by the assets and revenues of such government)
represent investments in a separate industry for these purposes.);
(2) with respect to 75% of its assets, invest in a security if, as a result of
such investment, more than 5% of its total assets (taken at market value at
the time of such investment) would be invested in the securities of any one
issuer, except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
(This investment restriction is not applicable to the Real Return Bond,
Commercial Mortgage Securities, Global Bond, Global Bond II, Foreign Bond,
International Bond, Emerging Markets Bond, Emerging Markets Bond II,
California Intermediate Municipal Bond and New York Intermediate Municipal
Bond Funds.). 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 (This
restriction is not applicable to the Real Return Bond, Commercial Mortgage
Securities, Global Bond, Global Bond II, Foreign Bond, International Bond,
Emerging Markets Bond, Emerging Markets Bond II, California Intermediate
Municipal Bond and New York Intermediate Municipal Bond Funds.);
(4) (a) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein;
(b) for the Global Bond Fund II, purchase or sell real estate, although it
may purchase securities of issuers which deal in real estate, including
securities of real estate investment trusts, and may purchase securities
which are secured by interests in real estate;
(5) purchase or sell commodities or commodities contracts or oil, gas or
mineral programs. This restriction shall not prohibit a Fund, subject to
restrictions described in the Prospectuses and elsewhere in this Statement
of Additional Information, from purchasing, selling or entering into
futures contracts, options on futures contracts, foreign currency forward
contracts, foreign currency options, or any interest rate, securities-
related or foreign currency-related hedging instrument, including swap
agreements and other derivative instruments, subject to compliance with any
applicable provisions of the federal securities or commodities laws (This
restriction is not applicable to the Global Bond Fund II, but see non-
fundamental restriction "F".);
(6) for the Total Return III, High Yield, International Bond and StocksPLUS
Funds: purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but
it may make margin deposits in connection with transactions in options,
futures, and options on futures;
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<PAGE>
(7) (a) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund may (i) borrow from banks or
enter into reverse repurchase agreements, or employ similar investment
techniques, and pledge its assets in connection therewith, but only if
immediately after each borrowing there is asset coverage of 300% and (ii)
enter into transactions in options, futures, options on futures, and other
derivative instruments as described in the Prospectuses and in this
Statement of Additional Information (the deposit of assets in escrow in
connection with the writing of covered put and call options and the
purchase of securities on a when-issued or delayed delivery basis,
collateral arrangements with respect to initial or variation margin
deposits for futures contracts and commitments entered into under swap
agreements or other derivative instruments, will not be deemed to be
pledges of a Fund's assets);
(b) for the Global Bond Fund II, borrow money in excess of 10% of the
value (taken at the lower of cost or current value) of the Fund's total
assets (not including the amount borrowed) at the time the borrowing is
made, and then only from banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage) which might otherwise
require the untimely disposition of portfolio investments or for
extraordinary or emergency purposes (Such borrowings will be repaid before
any additional investments are purchased.); or pledge, hypothecate,
mortgage or otherwise encumber its assets in excess of 10% of the Fund's
total assets (taken at cost) and then only to secure borrowings permitted
above (The deposit of securities or cash or cash equivalents in escrow in
connection with the writing of covered call or put options, respectively,
is not deemed to be pledges or other encumbrances. For the purpose of this
restriction, collateral arrangements with respect to the writing of
options, futures contracts, options on futures contracts, and collateral
arrangements with respect to initial and variation margin are not deemed to
be a pledge of assets and neither such arrangements nor the purchase or
sale of futures or related options are deemed to be the issuance of a
senior security.);
(8) lend any funds or other assets, except that a Fund may, consistent with its
investment objective and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances
and commercial paper, even though the purchase of such obligations may be
deemed to be the making of loans, (b) enter into repurchase agreements, and
(c) lend its portfolio securities in an amount not to exceed one-third of
the value of its total assets, provided such loans are made in accordance
with applicable guidelines established by the Securities and Exchange
Commission and the Trustees of the Trust (This restriction is not
applicable to the Global Bond Fund II, but see non-fundamental restriction
"G".);
(9) (a) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under the federal securities laws;
(b) for the Global Bond Fund II, underwrite securities issued by other
persons except to the extent that, in connection with the disposition of
its portfolio investments, it may be deemed to be an underwriter under
federal securities laws; or
(10) (a) for the Total Return III, High Yield, and StocksPLUS Funds: maintain
a short position, or purchase, write or sell puts, calls, straddles,
spreads or combinations thereof, except as set forth in the Prospectuses
and in this Statement of Additional Information for transactions in
options, futures, options on futures, and transactions arising under swap
agreements or other derivative instruments;
(b) for the Money Market, Short-Term, Low Duration, Low Duration II, Low
Duration III, Low Duration Mortgage, Moderate Duration, Total Return, Total
Return II, Total Return Mortgage, Commercial Mortgage Securities, Long-Term
U.S. Government, Long Duration, Global Bond, Foreign Bond, International,
Emerging Markets Bond, Emerging Markets Bond II, Strategic Balanced,
Convertible Bond and StocksPLUS Short Strategy Funds: maintain a short
position, or
35
<PAGE>
purchase, write or sell puts, calls, straddles, spreads or combinations
thereof, except on such conditions as may be set forth in the Prospectuses
and in this Statement of Additional Information.
Non-Fundamental Investment Restrictions
Each Fund is also subject to the following non-fundamental restrictions and
policies (which may be changed without shareholder approval) relating to the
investment of its assets and activities. Unless otherwise indicated, a Fund may
not:
(A) (a) invest more than 15% of the net assets of a Fund (10% in the case of
the PIMCO Money Market Fund) (taken at market value at the time of the
investment) in "illiquid securities," illiquid securities being defined to
include securities subject to legal or contractual restrictions on resale
(which may include private placements), repurchase agreements maturing in
more than seven days, certain loan participation interests, fixed time
deposits which are not subject to prepayment or provide for withdrawal
penalties upon prepayment (other than overnight deposits), certain options
traded over the counter that a Fund has purchased, securities or other
liquid assets being used to cover such options a Fund has written,
securities for which market quotations are not readily available, or other
securities which legally or in the Adviser's opinion may be deemed illiquid
(other than securities issued pursuant to Rule 144A under the Securities
Act of 1933 and certain commercial paper that PIMCO has determined to be
liquid under procedures approved by the Board of Trustees);
(b) for the Global Bond Fund II, invest in (a) securities which at the
time of such investment are not readily marketable, (b) securities the
disposition of which is restricted under federal securities laws, (c)
repurchase agreements maturing in more than seven days (d) OTC options (to
the extent described below), and (e) IO/PO stripped mortgage-backed
securities (as defined in the Prospectuses) if, as a result, more than 15%
of the Fund's net assets, taken at current value, would then be invested in
securities described in (a), (b), (c), (d) and (e) above (For the purpose
of this restriction securities subject to a 7-day put option or convertible
into readily saleable securities or commodities are not included with
subsections (a) or (b).); or purchase securities the disposition of which
is restricted under the federal securities laws (excluding for purposes of
this restriction securities offered and sold pursuant to Rule 144A of the
Securities Act of 1933 and Section 4(2) commercial paper) if, as a result,
such investments would exceed 10% of the value of the net assets of the
Fund;
(B) (a) for the PIMCO Money Market, Short-Term, Low Duration, Low Duration II,
Low Duration III, Moderate Duration, Total Return, Total Return II,
Commercial Mortgage Securities, Long-Term U.S. Government, Long Duration,
Short Duration Municipal Income, Municipal Bond, California Intermediate
Municipal Bond, New York Intermediate Municipal Bond, Global Bond, Foreign
Bond, Strategic Balanced, Convertible Bond and StocksPLUS Short Strategy
Funds: purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but
it may make margin deposits in connection with covered transactions in
options, futures, options on futures and short positions;
(b) for the Global Bond Fund II, purchase securities on margin, except
such short-term credits as may be necessary for the clearance of purchases
and sales of securities (For this purpose, the deposit or payment by the
Fund of initial or variation margin in connection with futures contracts or
related options transactions is not considered the purchase of a security
on margin.);
(C) invest more than 5% (10% in the case of the PIMCO Low Duration Mortgage and
Total Return Mortgage Funds) of the assets of a Fund (taken at market value
at the time of investment) in any combination of interest only, principal
only, or inverse floating rate securities (This restriction is not
applicable to the Global Bond Fund II, but see fundamental investment
restriction 7(b).);
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<PAGE>
(D) borrow money (excluding uncovered dollar rolls, reverse repurchase
agreements, sale-buybacks, and economically similar transactions, which are
subject to the Fund's fundamental borrowing restriction), except for
temporary administrative purposes (This restriction is not applicable to
the Global Bond Fund II, but see fundamental investment restriction 7(b).);
(E) for the Global Bond Fund II, make short sales of securities or maintain a
short position for the account of the Fund unless at all times when a short
position is open the Fund owns an equal amount of such securities or owns
securities which, without payment of any further consideration, are
convertible into or exchangeable for securities of the same issue as, and
equal in amount to, the securities sold short;
(F) for the Global Bond Fund II, purchase or sell commodities or commodity
contracts except that the Fund may purchase and sell financial futures
contracts and related options;
(G) for the Global Bond Fund II, make loans, except by purchase of debt
obligations or by entering into repurchase agreements or through the
lending of the Fund's portfolio securities with respect to not more than
25% of its total assets;
(H) for the Global Bond Fund II, write (sell) or purchase options except that
the Fund may (a) write covered call options or covered put options on
securities that it is eligible to purchase (and on stock indices) and enter
into closing purchase transactions with respect to such options, and (b) in
combination therewith, or separately, purchase put and call options on
securities it is eligible to purchase; provided that the premiums paid by
the Fund on all outstanding options it has purchased do not exceed 5% of
its total assets (The Fund may enter into closing sale transactions with
respect to options it has purchased.);
In addition, the Trust has adopted a non-fundamental policy pursuant to
which each Fund that may invest in securities denominated in foreign currencies,
except the PIMCO Global Bond, Emerging Markets Bond and Emerging Markets Bond II
Funds, will hedge at least 75% of its exposure to foreign currency using the
techniques described in the Prospectuses. There can be no assurance that
currency hedging techniques will be successful.
Under the 1940 Act, a "senior security" does not include any promissory
note or evidence of indebtedness where such loan is for temporary purposes only
and in an amount not exceeding 5% of the value of the total assets of the issuer
at the time the loan is made. A loan is presumed to be for temporary purposes
if it is repaid within sixty days and is not extended or renewed.
Notwithstanding the provisions of fundamental investment restriction (7)(a)
above, a Fund may borrow money for temporary administrative purposes. To the
extent that borrowings for temporary administrative purposes exceed 5% of the
total assets of a Fund (except the PIMCO Global Bond Fund II), such excess shall
be subject to the 300% asset coverage requirement of that restriction.
To the extent a Fund covers its commitment under a reverse repurchase
agreement (or economically similar transaction) by the segregation of 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 borrowings by the Fund.
The staff of the SEC has taken the position that purchased over-the-counter
("OTC") options and the assets used as cover for written OTC options are
illiquid securities. Therefore, the Funds have adopted an investment policy
pursuant to which a Fund will not purchase or sell OTC options if, as a result
of such transactions, the sum of the market value of OTC options currently
outstanding which are held by the Fund, the market value of the underlying
securities covered by OTC call options currently outstanding which were sold by
the Fund and margin deposits on the Fund's existing OTC options on futures
contracts exceeds 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund which are
37
<PAGE>
illiquid or are otherwise not readily marketable. However, if an OTC option is
sold by the Fund to a primary U.S. Government securities dealer recognized by
the Federal Reserve Bank of New York and if the Fund has the unconditional
contractual right to repurchase such OTC option from the dealer at a
predetermined price, then the Fund will treat as illiquid such amount of the
underlying securities equal to the repurchase price less the amount by which the
option is "in-the-money" (i.e., current market value of the underlying
securities minus the option's strike price). The repurchase price with the
primary dealers is typically a formula price which is generally based on a
multiple of the premium received for the option, plus the amount by which the
option is "in-the-money." This policy is not a fundamental policy of the Funds
and may be amended by the Trustees without the approval of shareholders.
However, the Funds will not change or modify this policy prior to the change or
modification by the SEC staff of its position.
Unless otherwise indicated, all limitations applicable to Fund investments
(as stated above and elsewhere in this Statement of Additional Information)
apply only at the time a transaction is entered into. Any subsequent change in a
rating assigned by any rating service to a security (or, if unrated, deemed to
be of comparable quality), or change in the percentage of Fund assets invested
in certain securities or other instruments, or change in the average duration of
a Fund's investment portfolio, resulting from market fluctuations or other
changes in a Fund's total assets will not require a Fund to dispose of an
investment until the Adviser determines that it is practicable to sell or close
out the investment without undue market or tax consequences to the Fund. In the
event that ratings services assign different ratings to the same security, the
Adviser will determine which rating it believes best reflects the security's
quality and risk at that time, which may be the higher of the several assigned
ratings.
The Funds interpret their policies with respect to borrowing and lending to
permit such activities as may be lawful for the Funds, to the full extent
permitted by the 1940 Act or by exemption from the provisions therefrom pursuant
to exemptive order of the SEC. The Funds have filed an application seeking an
order from the SEC to permit the Funds to enter into transactions among
themselves with respect to the investment of daily cash balances of the Funds in
shares of the PIMCO Money Market Fund, as well as the use of daily excess cash
balances of the PIMCO Money Market Fund in inter-fund lending transactions with
the other Funds for temporary cash management purposes. The interest paid by a
Fund in such an arrangement will be less than that otherwise payable for an
overnight loan, and will be in excess of the overnight rate the PIMCO Money
Market Fund could otherwise earn as lender in such a transaction.
Non-Fundamental Operating Policies Relating to the Sale of Shares of PIMCO Total
Return Fund in Japan
In connection with an offering of Administrative Class shares of the PIMCO
Total Return Fund in Japan, the Trust has adopted the following non-fundamental
operating policies (which may be changed without shareholder approval) with
respect to the PIMCO Total Return Fund. These non-fundamental policies will
remain in effect only so long as (i) they are required in accordance with
standards of the Japanese Securities Dealers Association and (ii) shares of the
PIMCO Total Return Fund are being offered in Japan.
(1) The Trust will not sell shares of the PIMCO Total Return Fund in Japan
except through PIMCO Funds Distributors LLC.
(2) 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 PIMCO Total Return Fund.
(3) The Tokyo District Court shall have the jurisdiction over any and all
litigation related to transactions in any class of shares of the PIMCO
Total Return Fund acquired by Japanese
38
<PAGE>
investors as required by Article 26, Item 4 of the Rules Concerning
Transactions of Foreign Securities of the Japan Securities Dealers
Association.
(4) The PIMCO Total Return Fund may not make short sales of securities or
maintain a short position for the account of the Fund unless the total
current value of the securities being the subject of short sales or of the
short position is equal to or less than the net asset value of the PIMCO
Total Return Fund.
(5) The PIMCO Total Return 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.
(6) The PIMCO Total Return Fund may not acquire more than 50% 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
PIMCO.
(7) The PIMCO Total Return Fund may not invest more than 15% 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 PIMCO to be
liquid and for which a market price (including a dealer quotation) is
generally obtainable or determinable.
(8) None of the portfolio securities of the PIMCO Total Return Fund may be
purchased from or sold or loaned to any Trustee of the Trust, PIMCO, 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 PIMCO, 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 described in the restrictions
relating to the sale of shares in Japan 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 shares of the
PIMCO Total Return Fund 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.
39
<PAGE>
MANAGEMENT OF THE TRUST
Trustees and Officers
The business of the Trust is managed under the direction of the Trust's
Board of Trustees. Subject to the provisions of the Trust's Declaration of
Trust, its By-Laws and Massachusetts law, the Trustees have all powers necessary
and convenient to carry out this responsibility, including the election and
removal of the Trust's officers.
The Trustees and Executive Officers of the Trust, their ages, their
business address and a description of their principal occupations during the
past five years are listed below. Unless otherwise indicated, the address of
all persons below is 840 Newport Center Drive, Suite 300, Newport Beach,
California 92660.
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Brent R. Harris* Chairman of the Board and Managing Director, PIMCO; Board of Governors,
Age 40 Trustee Investment Company Institute; Chairman and
Director, PIMCO Commercial Mortgage
Securities Trust, Inc.; Chairman and Trustee,
PIMCO Variable Insurance Trust.
R. Wesley Burns* President and Trustee Managing Director, PIMCO; President and
Age 40 Director, PIMCO Commercial Mortgage
Securities Trust, Inc.; President and
Trustee, PIMCO Variable Insurance Trust;
Executive Vice President, PIMCO Funds:
Multi-Manager Series. Formerly Executive Vice
President, PIMCO.
Guilford C. Babcock Trustee Associate Professor of Finance, University of
1500 Park Place Southern California; Director, PIMCO
San Marino, California 91108 Commercial Mortgage Securities Trust, Inc.;
Age 68 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 Commercial
14158 N.W. Bronson Creek Drive Mortgage Securities Trust, Inc.; Trustee,
Portland, Oregon 97229 PIMCO Variable Insurance Trust; Director,
Age 65 Public Storage Business Parks, Inc., a Real
Estate Investment Trust; Director, Fresh
Choice, Inc. (restaurant company) Formerly
charitable work, The Church of Jesus Christ
of Latter-day Saints.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas P. Kemp Trustee Private Investor; Director, PIMCO Commercial
1141 Marine Drive Mortgage Securities Trust, Inc.; Trustee,
Laguna Beach, California 92651 PIMCO Variable Insurance Trust. Formerly
Age 68 Co-Chairman, U.S. Committee to Assist Russian
Reform; Director, Union Financial Corp.;
Senior Consultant, World Cup 1994 Organizing
Committee.
William J. Popejoy Trustee President, Pacific Capital Investors;
29 Chatham Court Chairman, PacPro (vinyl assembly products;
Newport Beach, California 92660 formerly Western Printing); Director, PIMCO
Age 61 Commercial Mortgage Securities Trust, Inc.;
Trustee, PIMCO Variable Insurance Trust.
Formerly Director, California State Lottery;
Chief Executive Officer, Orange County,
California.
Michael G. Dow Senior Vice President Senior Vice President, PIMCO. Formerly Fixed
Age 35 Income Specialist, Salomon Brothers, Inc.;
Vice President Operations, Citibank NA Global
Consumer Banking Group.
William H. Gross Senior Vice President Managing Director, PIMCO; Senior Vice
Age 55 President, PIMCO Variable Insurance Trust.
Margaret Isberg Senior Vice President Managing Director, PIMCO.
Age 42
Jeffrey M. Sargent Senior Vice President Vice President and Manager of Investment
Age 36 Operations Shareholder Services, PIMCO;
Senior Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc. and PIMCO
Variable Insurance Trust; Vice President,
PIMCO Funds: Multi-Manager Series.
Leland T. Scholey Senior Vice President Senior Vice President, PIMCO. Formerly Vice
Age 47 President, PIMCO.
Raymond C. Hayes Vice President Vice President, PIMCO. Formerly Marketing
Age 54 Director, Pacific Financial Asset Management
Corporation.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas J. Kelleher, III Vice President Vice President, PIMCO. Previously associated
Age 49 with Delaware Trust, Mellon Bank and Girard
Trust (bank trust departments).
Henrik P. Larsen Vice President Manager, Fund Administration, PIMCO; Vice
Age 29 President, PIMCO Commercial Mortgage
Securities Trust, Inc. and PIMCO Variable
Insurance Trust. Formerly Supervisor, PIMCO.
Daniel T. Ludwig Vice President Account Manager, PIMCO. Formerly Vice
Age 41 President, Fidelity Investments;
Institutional Sales Representative, CS First
Boston.
Andre Mallegol Vice President Vice President, PIMCO. Formerly associated
Age 33 with Fidelity Investments Institutional
Services Company.
James F. Muzzy Vice President Managing Director, PIMCO; Senior Vice
Age 60 President, PIMCO Variable Insurance Trust.
Douglas J. Ongaro Vice President Vice President, PIMCO. Formerly Regional
Age 38 Marketing Manager, Charles Schwab & Co., Inc.
David J. Pittman Vice President Vice President, PIMCO. Formerly a senior
Age 51 executive with Bank of America, the Northern
Trust Co. and NationsBank.
Mark A. Romano Vice President Vice President, PIMCO. Previously associated
Age 41 with Wells Fargo's institutional money
management group and First Interstate's
Pacifica family of mutual funds.
William S. Thompson, Jr. Vice President Chief Executive Officer and Managing
Age 54 Director, PIMCO; Senior Vice President, PIMCO
Variable Insurance Trust; Vice President,
PIMCO Commercial Mortgage Securities Trust,
Inc. Formerly Managing Director, Salomon
Brothers, Inc.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John P. Hardaway Treasurer Senior Vice President and Manager of
Age 42 Investment Operations Accounting, PIMCO;
Treasurer, PIMCO Commercial Mortgage
Securities Trust, Inc., PIMCO Funds:
Multi-Manager Series and PIMCO Variable
Insurance Trust. Formerly Vice President,
PIMCO.
Garlin G. Flynn Secretary Specialist, PIMCO; Secretary, PIMCO
Age 53 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.
Joseph D. Hattesohl Assistant Treasurer Vice President and Manager of Financial
Age 35 Reporting and Taxation, PIMCO; Assistant
Treasurer, PIMCO Funds: Multi-Manager Series,
PIMCO Commercial Mortgage Securities Trust,
Inc. and PIMCO Variable Insurance Trust.
Formerly, Manager of Fund Taxation, PIMCO;
Director of Financial Reporting, Carl J.
Brown & Co.; Tax Manager, Price Waterhouse LLP.
Michael J. Willemsen Assistant Secretary Manager, PIMCO; Assistant Secretary, PIMCO
Age 39 Commercial Mortgage Securities Trust, Inc.
and PIMCO Variable Insurance Trust. Formerly
Project Lead, PIMCO.
</TABLE>
___________________
* Each of Mr. Harris and Mr. Burns is an "interested person" of the Trust
(as that term is defined in the 1940 Act) because of his affiliations with
PIMCO.
Compensation Table
The following table sets forth information regarding compensation received
by the Trustees for the fiscal year ended March 31, 1999.
43
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Trust and Fund Complex
Name and Position from Trust/1/ Paid to Trustees/2/
----------------- ------------- -----------------------
<S> <C> <C>
Guilford C. Babcock $58,000 $78,500
Trustee
Vern O. Curtis $59,500 $81,000
Trustee
Thomas P. Kemp $58,000 $78,500
Trustee
William J. Popejoy $58,000 $78,500
Trustee
</TABLE>
1 Each Trustee, other than those affiliated with the Adviser or its affiliates,
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, a Trustee serving as a
Committee Chair, other than those affiliated with the Adviser or its
affiliates, receives an additional annual retainer of $1,500. For the fiscal
year ended March 31, 1999, the unaffiliated Trustees as a group received
compensation in the amount of $233,500.
2 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 Adviser or its affiliates, receives an
additional annual retainer of $500. For the one year period ended March 31,
1999, the unaffiliated Directors as a group received compensation in the
amount of $42,500.
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 $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
Adviser or its affiliates, receives an additional annual retainer of $500.
For the one year period ended March 31, 1999, the unaffiliated Trustees as a
group received compensation in the amount of $40,500.
Investment Adviser
PIMCO serves as investment adviser to the Funds pursuant to an investment
advisory contract ("Advisory Contract") between PIMCO and the Trust. PIMCO is a
subsidiary partnership of PIMCO Advisors. The general partners of PIMCO Advisors
are PIMCO Partners, G.P. and PIMCO Advisors Holdings L.P. ("PAH"). PIMCO
Partners, G.P. is a general partnership between PIMCO Holding LLC, a Delaware
limited liability company and an 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 PAH.
PIMCO is responsible for making investment decisions and placing orders for
the purchase and sale of the Trust's investments directly with the issuers or
with brokers or dealers selected by it in its discretion. See "Portfolio
Transactions." PIMCO also furnishes to the Board of Trustees, which has overall
44
<PAGE>
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of each Fund.
Under the terms of the Advisory Contract, PIMCO is obligated to manage the
Funds in accordance with applicable laws and regulations. The investment
advisory services of PIMCO to the Trust are not exclusive under the terms of the
Advisory Contract. PIMCO is free to, and does, render investment advisory
services to others. The current Advisory Contract was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties ("Independent
Trustees"), at a meeting held on November 22, 1994, as supplemented at meetings
held on October 1, 1995, November 21, 1995, February 27, 1996, November 19,
1996, January 14, 1997, May 27, 1997, February 24, 1998, August 25, 1998 and May
25, 1999, and was last approved by the Trustees on August 24, 1999 and by
shareholders of all then-operational Funds on October 17, 1994.
The Advisory Contract will continue in effect on a yearly basis provided such
continuance is approved annually (i) by the holders of a majority of the
outstanding voting securities of the Trust or by the Board of Trustees and (ii)
by a majority of the Independent Trustees. The Advisory Contract may be
terminated without penalty by vote of the Trustees or the shareholders of the
Trust, or by the Adviser, on 60 days' written notice by either party to the
contract and will terminate automatically if assigned.
The Adviser currently receives a monthly investment advisory fee from each
Fund at an annual rate based on average daily net assets of the Funds as
follows:
<TABLE>
<CAPTION>
Advisory
Fund Fee Rate
- ---- --------
<S> <C>
Money Market Fund......................................... 0.15%
Short Duration Municipal Income Fund...................... 0.20%
Commercial Mortgage Securities, Strategic Balanced,
Convertible Bond, StocksPLUS, and StocksPLUS Short
Strategy Funds........................................... 0.40%
Emerging Markets Bond and Emerging Markets Bond II Funds.. 0.45%
All other Funds........................................... 0.25%
</TABLE>
For the fiscal years ended March 31, 1999, 1998, and 1997, the aggregate
amount of the advisory fees paid by each operational Fund was as follows:
<TABLE>
Fund Year Ended Year Ended Year Ended
- ---- 3/31/99 3/31/98 3/31/97
----------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund* $ 364,480 $ 205,384 $ 67,626
Short-Term Fund 1,163,042 487,226 311,485
Low Duration Fund 8,636,635 7,416,427 6,877,132
Low Duration Fund II 1,060,930 869,853 685,047
Low Duration Fund III 61,917 32,700 6,114
Low Duration Mortgage Fund 9,728 5,914 N/A
Moderate Duration Fund 685,876 294,466 6,525
Real Return Bond Fund 37,011 18,838 2,453
Total Return Fund 55,229,968 38,327,843 29,232,090
Total Return Fund II* 2,107,392 1,145,766 1,171,011
Total Return Fund III 1,045,573 701,110 423,216
Total Return Mortgage Fund 9,766 5,679 N/A
High Yield Fund 6,323,956 3,670,999 1,983,580
Long-Term U.S. Government Fund 419,981 117,242 64,058
Global Bond Fund 666,901 642,260 423,547
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C> <C>
Global Bond Fund II** 106,821 50,123 41,683
Foreign Bond Fund 1,325,590 811,698 541,283
International Bond Fund 1,283,333 2,045,487 2,810,494
Emerging Markets Bond Fund 19,121 11,365 N/A
Emerging Markets Bond Fund II 298,301 N/A N/A
Municipal Bond Fund 107,083 N/A N/A
Strategic Balanced Fund 201,742 117,547 31,660
StocksPLUS Fund 3,432,600 1,919,328 779,413
</TABLE>
____________________
* The PIMCO Money Market Fund, for the fiscal year ended October 31, 1995,
paid aggregate advisory fees in the amount of $14,500. The PIMCO Total Return
Fund II, for the fiscal year ended October 31, 1995, paid aggregate advisory
fees in the amount of $1,009,081. See "The Reorganization of the PIMCO Money
Market and Total Return II Funds" for additional information.
** The PIMCO Global Bond Fund II, for the fiscal year ended September 30,
1996, paid aggregate management fees in the amount of $54,325, pursuant to a
management contract between PIMCO Advisors Funds and PIMCO Advisors, under which
PIMCO Advisors provided or procured investment advisory services for the Fund.
See "The Reorganization of the PIMCO Global Bond Fund II" for additional
information.
Fund Administrator
PIMCO also serves as Administrator to the Funds pursuant to an administration
agreement (the "Administration Agreement") with the Trust. PIMCO provides the
Funds with certain administrative and shareholder services necessary for Fund
operations and is responsible for the supervision of other Fund service
providers. PIMCO may in turn use the facilities or assistance of its affiliates
to provide certain services under the Administration Agreement, on terms agreed
between PIMCO and such affiliates. The administrative services provided by
PIMCO include but are not limited to: (1) shareholder servicing functions,
including preparation of shareholder reports and communications, (2) regulatory
compliance, such as reports and filings with the SEC and state securities
commissions, and (3) general supervision of the operations of the Funds,
including coordination of the services performed by the Funds' transfer agent,
custodian, legal counsel, independent accountants, and others. PIMCO (or an
affiliate of PIMCO) also furnishes the Funds with office space facilities
required for conducting the business of the Funds, and pays the compensation of
those officers, employees and Trustees of the Trust affiliated with PIMCO. In
addition, PIMCO, at its own expense, arranges for the provision of legal, audit,
custody, transfer agency and other services for the Funds, and is responsible
for the costs of registration of the Trust's shares and the printing of
prospectuses and shareholder reports for current shareholders. PIMCO has
contractually agreed to provide these services, and to bear these expenses, at
the following rates for each Fund (each expressed as a percentage of the Fund's
average daily net assets attributable to its classes of shares on an annual
basis):
46
<PAGE>
<TABLE>
<CAPTION>
Administrative Fee Rate
-----------------------
Institutional and Class A, Class J
Fund Administrative Class B and C Class D* and K
- ---- -------------------- ---------- -------- -------
<S> <C> <C> <C> <C>
Money Market 0.20% 0.35% 0.45% 0.25%
Short-Term Fund 0.20% 0.35% 0.50% 0.25%
Low Duration and Total Return 0.18% 0.40% 0.50% 0.25%
Funds
Moderate Duration Fund 0.20% 0.40% 0.65% 0.25%
Short Duration Municipal Income 0.19% 0.35% 0.60% 0.25%
Municipal Bond Fund 0.25% 0.35% 0.60% 0.25%
California Intermediate Municipal Bond 0.24% 0.35% 0.60% 0.25%
and New York Intermediate Municipal
Bond Funds
Global Bond and Global Bond II 0.30% 0.45% 0.70% 0.30%
Funds
Foreign Bond Fund 0.25% 0.45% 0.70% 0.25%
International Bond Fund 0.25% 0.45% 0.70% 0.30%
Emerging Markets Bond and Emerging 0.40% 0.55% 0.80% 0.30%
Markets Bond II Funds
All other Funds 0.25% 0.40% 0.65% 0.25%
</TABLE>
- -------------------
* As described below, the Administration Agreement includes a plan adopted under
Rule 12b-1 which provides for the payment of up to .25% of the Class D
Administrative Fee rate as reimbursement for expenses in respect of activities
that may be deemed to be primarily intended to result in the sale of Class D
shares.
Except for the expenses paid by PIMCO, the Trust bears all costs of its
operations. The Funds are responsible for: (i) salaries and other compensation
of any of the Trust's executive officers and employees who are not officers,
directors, stockholders, or employees of PIMCO or its subsidiaries or
affiliates; (ii) taxes and governmental fees; (iii) brokerage fees and
commissions and other portfolio transaction expenses; (iv) costs of borrowing
money, including interest expenses; (v) fees and expenses of the Trustees who
are not "interested persons" of PIMCO or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) expenses, such as organizational
expenses, which are capitalized in accordance with generally accepted accounting
principles; and (viii) any expenses allocated or allocable to a specific class
of shares ("Class-specific expenses").
Class-specific expenses include distribution and service fees payable with
respect to different classes of shares and administrative fees as described
above, and may include certain other expenses as permitted by the Trust's
Amended and Restated Multi-Class Plan adopted pursuant to Rule 18f-3 under the
1940 Act and subject to review and approval by the Trustees.
The Administration Agreement may be terminated by the Trustees, or by a vote
of a majority of the outstanding voting securities of the Trust, Fund, or Class
as applicable, at any time on 60 days' written notice. Following the expiration
of the one-year period commencing with the effectiveness of the Administration
Agreement, it may be terminated by PIMCO, also on 60 days' written notice.
The Administration Agreement is subject to annual approval by the Board,
including a majority of the Trust's Independent Trustees (as that term is
defined in the 1940 Act). The current Administration Agreement was approved by
the Board of Trustees, including all of the Independent Trustees at a meeting
held on February 24, 1998, as supplemented on August 25, 1998, February 23, 1999
and May 25, 1999. In approving the Administration Agreement, the Trustees
determined that: (1) the Administration Agreement is in the best interests of
the Funds and their shareholders; (2) the services to be performed under the
Agreement are services required for the operation of the Funds; (3) PIMCO is
able to provide, or to procure,
47
<PAGE>
services for the Funds which are at least equal in nature and quality to
services that could be provided by others; and (4) the fees to be charged
pursuant to the Agreement are fair and reasonable in light of the usual and
customary charges made by others for services of the same nature and quality.
Under the Administration Agreement, the Administrator or an affiliate may pay
financial service firms a portion of the Class D administration fees in return
for the firms' services (normally not to exceed an annual rate of .35% of a
Fund's average daily net assets attributable to Class D shares purchase through
such firms). The Administration Agreement includes a plan specific to Class D
shares that has been adopted in conformity with the requirements set forth under
Rule 12b-1 of the 1940 Act to allow for payment of up to .25% per annum of the
Class D administrative fees as reimbursement for expenses in respect of
activities that may be deemed to be primarily intended to result in the sale of
Class D shares. The principal types of activities for which such payments may
be made are services in connection with the distribution and marketing of Class
D shares and/or the provision of shareholder services. See "Distribution of
Trust Shares - Plan for Class D Shares."
For the fiscal years ended March 31, 1999, 1998, and 1997, the aggregate
amount of the administration fees paid by each operational Fund was as follows:
<TABLE>
Fund Year Ended Year Ended Year Ended
- ---- 3/31/99 3/31/98 3/31/97
----------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund* $ 731,013 $ 423,936 $ 117,570
Short-Term Fund 1,024,794 410,894 249,655
Low Duration Fund 6,841,437 5,665,996 5,005,045
Low Duration Fund II 1,060,930 869,853 685,047
Low Duration Fund III 61,917 32,700 6,114
Low Duration Mortgage Fund 9,728 5,914 N/A
Moderate Duration Fund 548,701 235,572 5,220
Real Return Bond Fund 48,397 21,841 2,503
Total Return Fund 43,425,035 29,219,721 21,266,359
Total Return Fund II* 2,107,391 1,145,766 1,171,011
Total Return Fund III 1,045,572 701,110 423,216
Total Return Mortgage Fund 9,937 5,679 N/A
High Yield Fund 7,243,110 4,258,485 2,071,177
Long-Term U.S. Government Fund 508,159 130,444 64,374
Global Bond Fund 800,281 770,719 508,256
Global Bond Fund II** 151,390 87,617 14,646
Foreign Bond Fund 1,454,801 849,691 540,519
International Bond Fund 1,283,333 2,045,487 2,810,494
Emerging Markets Bond Fund 18,034 10,526 N/A
Emerging Markets Bond Fund II 265,156 N/A N/A
Municipal Bond Fund 145,118 N/A N/A
Strategic Balanced Fund 126,263 73,467 19,788
StocksPLUS Fund 2,757,948 1,392,509 491,519
</TABLE>
____________________
* The PIMCO Money Market Fund, for the fiscal year ended October 31, 1995,
paid aggregate administration fees in the amount of $24,166. The PIMCO Total
Return Fund II, for the fiscal year ended October 31, 1995, paid aggregate
administration fees in the amount of $1,009,081. See "The Reorganization of the
PIMCO Money Market and Total Return II Funds" for additional information.
** The PIMCO Global Bond Fund II, for the fiscal year ended September 30,
1996, paid aggregate management fees in the amount of $54,325, pursuant to a
management contract between PIMCO Advisors Funds and PIMCO Advisors, under which
PIMCO Advisors provided or procured administrative services for the Fund. See
"The Reorganization of the PIMCO Global Bond Fund II" for additional
information.
48
<PAGE>
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distributors LLC (the "Distributor") serves as the principal
underwriter of each class of the Trust's shares pursuant to a distribution
contract ("Distribution Contract") with the Trust which is subject to annual
approval by the Board. The Distributor is a wholly owned subsidiary of PIMCO
Advisors. The Distributor, located at 2187 Atlantic Street, Stamford,
Connecticut 06902, is a broker-dealer registered with the Securities and
Exchange Commission. The Distribution Contract is terminable with respect to a
Fund or class without penalty, at any time, by the Fund or class by not more
than 60 days' nor less than 30 days' written notice to the Distributor, or by
the Distributor upon not more than 60 days' nor less than 30 days' written
notice to the Trust. The Distributor is not obligated to sell any specific
amount of Trust shares.
The Distribution Contract will continue in effect with respect to each Fund
and each class of shares thereof for successive one-year periods, provided that
each such continuance is specifically approved (i) by the vote of a majority of
the Trustees who are not interested persons of the Trust (as defined in the 1940
Act) and who have no direct or indirect financial interest in the Distribution
Contract, the Administration Agreement or the Distribution and/or Servicing
Plans described below; and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose. If the
Distribution Contract is terminated (or not renewed) with respect to one or more
Funds or classes thereof, it may continue in effect with respect to any class of
any Fund as to which it has not been terminated (or has been renewed).
The Trust offers eight classes of shares: Class A, Class B, Class C, Class
D, Class J, Class K, the Institutional Class and the Administrative Class. Class
J and Class K shares are offered only to non-U.S. investors outside the United
States.
Class A, Class B and Class C shares of the Trust are offered through firms
("participating brokers") which are members of the National Association of
Securities Dealers, Inc. ("NASD"), and which have dealer agreements with the
Distributor, or which have agreed to act as introducing brokers for the
Distributor ("introducing brokers").
Class D shares are generally offered to clients of financial service firms,
such as broker-dealers or registered investment advisors, with which the
Distributor has an agreement for the use of PIMCO Funds: Pacific Investment
Management Series in particular investment products, programs or accounts for
which a fee may be charged.
Institutional Class shares are offered primarily for direct investment by
investors such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations, corporations and high net worth individuals.
(Institutional Class shares may also be offered through certain financial
intermediaries that charge their customers transaction or other fees with
respect to the customer's investment in the Funds.) Administrative Class shares
are offered primarily through employee benefit plans alliances, broker-dealers,
and other intermediaries, and each Fund pays service or distribution fees to
such entities for services they provide to Administrative Class shareholders.
Class J and Class K shares are offered through foreign broker dealers,
banks and other financial institutions. Class J and Class K shares are offered
to non-U.S. investors as well as though various non-U.S. investment products,
programs or accounts for which a fee may be charged by investment intermediaries
in addition to those described in the Prospectus and SAI.
The Trust has adopted an Amended and Restated Multi-Class Plan ("Multi-
Class Plan") pursuant to Rule 18f-3 under the 1940 Act. Under the Multi-Class
Plan, shares of each class of each Fund represent an
49
<PAGE>
equal pro rata interest in such Fund and, generally, have identical voting,
dividend, liquidation, and other rights, preferences, powers, restrictions,
limitations, qualifications and terms and conditions, except that: (a) each
class has a different designation; (b) each class of shares bears any class-
specific expenses allocated to it; and (c) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to its
distribution or service arrangements, and each class has separate voting rights
on any matter submitted to shareholders in which the interests of one class
differ from the interests of any other class.
Each class of shares bears any class specific expenses allocated to such
class, such as expenses related to the distribution and/or shareholder servicing
of such class. In addition, each class may, at the Trustees' discretion, also
pay a different share of other expenses, not including advisory or custodial
fees or other expenses related to the management of the Trust's assets, if these
expenses are actually incurred in a different amount by that class, or if the
class receives services of a different kind or to a different degree than the
other classes. All other expenses are allocated to each class on the basis of
the net asset value of that class in relation to the net asset value of the
particular Fund. In addition, each class may have a differing sales charge
structure, and differing exchange and conversion features.
Contingent Deferred Sales Charge and Initial Sales Charge
As described in the Class A, B and C Prospectus under the caption
"Investment Options (Class A, B and C Shares)," a contingent deferred sales
charge is imposed upon certain redemptions of the Class A, Class B and Class C
shares. No contingent deferred sales charge is currently imposed upon
redemptions of Class D, Institutional Class or Administrative Class shares.
Because contingent deferred sales charges are calculated on a Fund-by-Fund
basis, shareholders should consider whether to exchange shares of one Fund for
shares of another Fund prior to redeeming an investment if such an exchange
would reduce the contingent deferred sales charge applicable to such
redemptions.
During the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997, the Distributor received the following aggregate amounts in contingent
deferred sales charges on Class A shares, Class B shares and Class C shares of
the Funds:
<TABLE>
<CAPTION>
Year Ended 3/31/99 Year Ended 3/31/98 Year Ended 3/31/97
------------------ ------------------ ------------------
<S> <C> <C> <C>
Class A $37,142 $37,724 $670
Class B $1,653,443 $694,715 $85,380
Class C $543,223 $246,969 $44,409
</TABLE>
In certain cases described in the Class A, B and C Prospectus, the
contingent deferred sales charge is waived on redemptions of Class A, Class B or
Class C shares for certain classes of individuals or entities on account of (i)
the fact that the Trust's sales-related expenses are lower for certain of such
classes than for classes for which the contingent deferred sales charge is not
waived, (ii) waiver of the contingent deferred sales charge with respect to
certain of such classes is consistent with certain Internal Revenue Code
policies concerning the favored tax treatment of accumulations, and (iii) with
respect to certain of such classes, considerations of fairness, and competitive
and administrative factors.
As described in the Class A, B and C Prospectus under the caption
"Investment Options (Class A, B and C Shares)," Class A shares of the Trust
(except with respect to the Money Market Fund) are sold pursuant to an initial
sales charge, which declines as the amount of purchase reaches certain defined
levels. For the fiscal years ended March 31, 1999, March 31, 1998, and March 31,
1997, the Distributor received an aggregate of $6,227,864, $2,598,104 and
389,133, respectively, and retained $750,751, $186,443 and $45,871,
respectively, in initial sales charges paid by Class A shareholders of the
Trust.
50
<PAGE>
Distribution and Servicing Plans for Class A, Class B and Class C Shares
As stated in the text of the Class A, B and C Prospectus under the caption
"Management of the Trust--Distribution and Servicing (12b-1) Plans," Class A,
Class B and Class C shares of the Trust are continuously offered through
participating brokers which are members of the NASD and which have dealer
agreements with the Distributor, or which have agreed to act as introducing
brokers.
Pursuant to separate Distribution and Servicing Plans for Class A, Class B
and Class C shares (the "Retail Plans"), as described in the Class A, B and C
Prospectus, in connection with the distribution of Class B and Class C shares of
the Trust, the Distributor receives certain distribution fees from the Trust,
and in connection with personal services rendered to Class A, Class B and Class
C shareholders of the Trust and the maintenance of shareholder accounts, the
Distributor receives certain servicing fees from the Trust. Subject to the
percentage limitations on these distribution and servicing fees set forth below,
the distribution and servicing fees may be paid with respect to services
rendered and expenses borne in the past with respect to Class A, Class B and
Class C shares as to which no distribution and servicing fees were paid on
account of such limitations. As described in the Class A, B and C Prospectus,
the Distributor pays (i) all or a portion of the distribution fees it receives
from the Trust to participating and introducing brokers, and (ii) all or a
portion of the servicing fees it receives from the Trust to participating and
introducing brokers, certain banks and other financial intermediaries.
The Distributor makes distribution and servicing payments to participating
brokers and servicing payments to certain banks and other financial
intermediaries in connection with the sale of Class B and Class C shares and
servicing payments to participating brokers, certain banks and other financial
intermediaries in connection with the sale of Class A shares. In the case of
Class A shares, these parties are also compensated based on the amount of the
front-end sales charge reallowed by the Distributor, except in cases where Class
A shares are sold without a front-end sales charge (although the Distributor may
pay brokers additional compensation in connection with sales of Class A shares
without a sales charge). In the case of Class B shares, participating brokers
and other financial intermediaries are compensated by an advance of a sales
commission by the Distributor. In the case of Class C shares, part or all of the
first year's distribution and servicing fee is generally paid at the time of
sale. Pursuant to a Distribution Contract with the Trust, with respect to each
Fund's Class A, Class B and Class C shares, the Distributor bears various other
promotional and sales related expenses, including the cost of printing and
mailing prospectuses to persons other than current shareholders.
The Retail Plans were adopted pursuant to Rule 12b-l under the 1940 Act and
are of the type known as "compensation" plans. This means that, although the
Trustees of the Trust are expected to take into account the expenses of the
Distributor and its predecessors in their periodic review of the Retail Plans,
the fees are payable to compensate the Distributor for services rendered even if
the amount paid exceeds the Distributor's expenses.
The distribution fee applicable to Class B and Class C shares may be spent
by the Distributor on any activities or expenses primarily intended to result in
the sale of Class B or Class C shares, respectively, including compensation to,
and expenses (including overhead and telephone expenses) of, financial
consultants or other employees of the Distributor or of participating or
introducing brokers who engage in distribution of Class B or Class C shares,
printing of prospectuses and reports for other than existing Class B or Class C
shareholders, advertising, and preparation, printing and distribution of sales
literature. The servicing fee, applicable to Class A, Class B and Class C shares
of the Trust, may be spent by the Distributor on personal services rendered to
shareholders of the Trust and the maintenance of shareholder accounts, including
compensation to, and expenses (including telephone and overhead expenses) of,
financial consultants or other employees of participating or introducing
brokers, certain banks and other financial intermediaries who aid in the
processing of purchase or redemption requests or the processing of dividend
payments, who provide information periodically to shareholders showing their
positions in a Fund's shares, who forward communications from the Trust to
shareholders, who render ongoing advice concerning the suitability of particular
investment opportunities offered by the Trust in light of the
51
<PAGE>
shareholders' needs, who respond to inquiries from shareholders relating to such
services, or who train personnel in the provision of such services. Distribution
and servicing fees may also be spent on interest relating to unreimbursed
distribution or servicing expenses from prior years.
Many of the Distributor's sales and servicing efforts involve the Trust as
a whole, so that fees paid by Class A, Class B or Class C shares of any Fund may
indirectly support sales and servicing efforts relating to the other Funds'
shares of the same class. In reporting its expenses to the Trustees, the
Distributor itemizes expenses that relate to the distribution and/or servicing
of a single Fund's shares, and allocates other expenses among the Funds based on
their relative net assets. Expenses allocated to each Fund are further allocated
among its classes of shares annually based on the relative sales of each class,
except for any expenses that relate only to the sale or servicing of a single
class. The Distributor may make payments to brokers (and with respect to
servicing fees only, to certain banks and other financial intermediaries) of up
to the following percentages annually of the average daily net assets
attributable to shares in the accounts of their customers or clients:
<TABLE>
<CAPTION>
Servicing Distribution
Class A Fee(1) Fee(1)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Fund 0.10% N/A
- ------------------------------------------------------------------------------------
All other Funds 0.25% None
Class B(2)
- ------------------------------------------------------------------------------------
All Funds 0.25% None
Class C - Shares purchased on or after 7/1/91(3)
- ------------------------------------------------------------------------------------
Money Market Fund 0.10% 0.00%
- ------------------------------------------------------------------------------------
Short-Term and Short Duration Municipal 0.25% 0.25%
Income Funds
- ------------------------------------------------------------------------------------
Low Duration, Real Return Bond, 0.25% 0.45%
Municipal Bond, California Intermediate
Municipal Bond, New York Intermediate
Municipal Bond and StocksPLUS Funds
- ------------------------------------------------------------------------------------
All other Funds 0.25% 0.65%
Class C - Shares purchased before 7/1/91
- ------------------------------------------------------------------------------------
Money Market Fund 0.10% 0.00%
- ------------------------------------------------------------------------------------
All other Funds 0.25% None
</TABLE>
1. Applies, in part, to Class A, Class B and Class C shares of the Trust
issued to former shareholders of PIMCO Advisors Funds in connection with
the reorganizations/mergers of series of PIMCO Advisors Funds as/with Funds
of the Trust in a transaction which took place on January 17, 1997.
2. Payable only with respect to shares outstanding for one year or more.
3. Payable only with respect to shares outstanding for one year or more except
in the case of shares for which no payment is made to the party at the time
of sale.
The Distributor may from time to time pay additional cash bonuses or other
incentives to selected participating brokers in connection with the sale or
servicing of Class A, Class B and Class C shares of the Funds. On some
occasions, such bonuses or incentives may be conditioned upon the sale of a
specified
52
<PAGE>
minimum dollar amount of the shares of a Fund and/or all of the Funds together
or a particular class of shares, during a specific period of time. The
Distributor currently expects that such additional bonuses or incentives will
not exceed .50% of the amount of any sale. Pacific Investment Management (in its
capacity as administrator) may also pay participating brokers and other
intermediaries for sub-transfer agency and other services.
If in any year the Distributor's expenses incurred in connection with the
distribution of Class B and Class C shares and, for Class A, Class B and Class C
shares, in connection with the servicing of shareholders and the maintenance of
shareholder accounts, exceed the distribution and/or servicing fees paid by the
Trust, the Distributor would recover such excess only if the Retail Plan with
respect to such class of shares continues to be in effect in some later year
when the distribution and/or servicing fees exceed the Distributor's expenses.
The Trust is not obligated to repay any unreimbursed expenses that may exist at
such time, if any, as the relevant Retail Plan terminates.
Each Retail Plan may be terminated with respect to any Fund to which the
Plan relates by 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 operation of the Plan or the Distribution
Contract ("Disinterested Trustees") or by vote of a majority of the outstanding
voting securities of the relevant class of that Fund. Any change in any Retail
Plan that would materially increase the cost to the class of shares of any Fund
to which the Plan relates requires approval by the affected class of
shareholders of that Fund. The Trustees review quarterly written reports of such
costs and the purposes for which such costs have been incurred. Each Retail Plan
may be amended by vote of the Disinterested Trustees cast in person at a meeting
called for the purpose. As long as the Retail Plans are in effect, selection and
nomination of those Trustees who are not interested persons of the Trust shall
be committed to the discretion of such Disinterested Trustees.
The Retail Plans will continue in effect with respect to each Fund and each
class of shares thereof for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Disinterested Trustees and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
The Retail Plans went into effect for the Trust in January 1997. If a
Retail Plan is terminated (or not renewed) with respect to one or more Funds, it
may continue in effect with respect to any class of any Fund as to which it has
not been terminated (or has been renewed).
The Trustees believe that the Retail Plans will provide benefits to the
Trust. The Trustees believe that the Retail Plans will result in greater sales
and/or fewer redemptions of Trust shares, although it is impossible to know for
certain the level of sales and redemptions of Trust shares that would occur in
the absence of the Retail Plans or under alternative distribution schemes.
Although the Funds' expenses are essentially fixed, the Trustees believe that
the effect of the Retail Plans on sales and/or redemptions may benefit the Trust
by reducing Fund expense ratios and/or by affording greater flexibility to
Portfolio Managers. From time to time, expenses of the Distributor incurred in
connection with the sale of Class B and Class C shares of the Funds, and in
connection with the servicing of Class B and Class C shareholders of the Funds
and the maintenance of shareholder accounts, may exceed the distribution and
servicing fees collected by the Distributor. The Trustees consider such
unreimbursed amounts, among other factors, in determining whether to cause the
Funds to continue payments of distribution and servicing fees in the future with
respect to Class B and Class C shares.
Payments Pursuant to Class A Plan
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997, the Trust paid the Distributor an aggregate of $3,158,937, $1,180,030 and
$108,294, respectively, pursuant to the Distribution and Servicing Plan for
Class A shares, of which the indicated amounts were attributable to the
following Funds:
53
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund $ 79,137 $ 38,216 $ 5,447
Short-Term Fund 123,595 23,033 530
Low Duration Fund 382,868 192,859 27,514
Real Return Fund 6,053 1,143 0
Total Return Fund 1,980,636 679,157 47,448
High Yield Fund 234,956 121,858 15,347
Long-Term U.S. Government Fund 39,481 8,199 396
Global Bond Fund II 12,179 20,868 9,836
Foreign Bond Fund 52,053 10,245 127
Emerging Markets Bond Fund 498 316 0
Municipal Bond 14,101 0 0
StocksPLUS Fund 233,380 84,136 1,609
</TABLE>
During the fiscal year ended March 31, 1999, the amounts collected pursuant
to the Distribution and Servicing Plan for Class A shares were used as follows:
sales commissions and other compensation to sales personnel, $2,527,150;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $631,787.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
- ---- ------------ -------------- -----
<S> <C> <C> <C>
Money Market Fund $ 103,815 $ 25,954 $ 129,768
Short-Term Fund 109,015 27,254 136,269
Low Duration Fund 256,567 64,142 320,708
Real Return Bond Fund 8,431 2,108 10,539
Total Return Fund 1,548,329 387,082 1,935,411
High Yield Fund 208,082 52,021 260,103
Long-Term U.S. Government Fund 39,784 9,946 49,730
Global Bond Fund II 3,688 922 4,610
Foreign Bond Fund 39,181 9,795 48,977
Emerging Markets Bond Fund 231 58 289
Municipal Bond Fund 9,497 2,374 11,871
StocksPLUS Fund 200,530 50,133 250,663
</TABLE>
Payments Pursuant to Class B Plan
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997, the Trust paid the Distributor an aggregate of $8,169,977, $2,884,164 and
$293,036, respectively, pursuant to the Distribution and Servicing Plan for
Class B shares, of which the indicated amounts were attributable to the
following Funds:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund $ 86,809 $ 27,747 $ 4,084
Short-Term Fund 21,254 7,508 156
Low Duration Fund 433,206 95,153 9,853
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C>
Real Return Fund 28,545 9,701 256
Total Return Fund 3,372,168 1,153,121 140,575
High Yield Fund 2,065,488 1,013,423 110,003
Long-Term U.S. Government Fund 229,521 28,337 361
Global Bond Fund II 45,566 42,965 18,506
Foreign Bond Fund 164,040 58,084 1,129
Emerging Markets Bond Fund 2,953 928 0
Municipal Bond 40,680 0 0
StocksPLUS Fund 1,679,748 447,197 8,113
</TABLE>
During the fiscal year ended March 31, 1999, the amounts collected pursuant
to the Distribution and Servicing Plan for Class B shares were used as follows:
sales commissions and other compensation to sales personnel, $6,535,982;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $1,633,995.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
- ---- ------------ -------------- -----
<S> <C> <C> <C>
Money Market Fund $ 77,056 $ 19,264 $ 96,320
Short-Term Fund 19,361 4,840 24,201
Low Duration Fund 333,694 83,423 417,117
Real Return Bond Fund 18,677 4,669 23,346
Total Return Fund 2,816,842 704,210 3,521,052
High Yield Fund 1,465,286 366,321 1,831,608
Long-Term U.S. Government Fund 193,955 48,489 242,444
Global Bond Fund II 24,775 6,194 30,968
Foreign Bond Fund 108,858 27,214 136,072
Emerging Markets Bond Fund 2,036 509 2,545
Municipal Bond Fund 31,208 7,802 39,009
StocksPLUS Fund 1,444,236 361,059 1,805,295
</TABLE>
Payments Pursuant to Class C Plan
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997, the Trust paid the Distributor an aggregate of $11,016,442, $7,026,337 and
$1,219,775, respectively, pursuant to the Distribution and Servicing Plan for
Class C shares, of which the indicated amounts were attributable to the
following Funds:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund $ 75,541 $ 59,070 $ 12,352
Short-Term Fund 61,224 22,612 462
Low Duration Fund 645,396 461,997 92,491
Real Return Fund 16,396 4,292 79
Total Return Fund 5,309,578 3,510,589 666,085
High Yield Fund 3,098,891 2,415,721 412,589
Long-Term U.S. Government Fund 200,406 26,880 163
Global Bond Fund II 60,419 56,574 23,021
Foreign Bond Fund 237,914 91,131 1,520
</TABLE>
55
<PAGE>
<TABLE>
<S> <C> <C> <C>
Emerging Markets Bond Fund 1,972 635 0
Municipal Bond 211,019 0 0
StocksPLUS Fund 1,097,998 376,836 11,013
</TABLE>
During the fiscal year ended March 31, 1999, the amounts collected pursuant
to the Distribution and Servicing Plan for Class C shares were used as follows:
sales commissions and other compensation to sales personnel, $8,813,154;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $2,203,288.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
- ---- ------------ -------------- -----
<S> <C> <C> <C>
Money Market Fund $ 405,879 $101,470 $ 507,349
Short-Term Fund 83,744 20,936 104,680
Low Duration Fund 600,960 150,240 751,200
Real Return Bond Fund 13,618 3,405 17,023
Total Return Fund 3,838,393 959,598 4,797,991
High Yield Fund 1,989,895 497,474 2,487,369
Long-Term U.S. Government Fund 170,669 42,667 213,336
Global Bond Fund II 31,495 7,874 39,368
Foreign Bond Fund 159,037 39,759 198,797
Emerging Markets Bond Fund 1,225 306 1,531
Municipal Bond Fund 203,876 50,969 254,845
StocksPLUS Fund 1,314,363 328,591 1,642,954
</TABLE>
From time to time, expenses of principal underwriters incurred in
connection with the distribution of Class B and Class C shares of the Funds, and
in connection with the servicing of Class A, Class B and Class C shareholders of
the Funds and the maintenance of Class A, Class B and Class C shareholder
accounts, may exceed the distribution and/or servicing fees collected by the
Distributor. Class A, Class B and Class C Distribution and Servicing Plans,
which are similar to the Trust's current Plans, were in effect prior to January
17, 1997 in respect of the series of PAF that was the predecessor of the Global
Bond Fund II. As of March 31, 1999, such expenses were approximately $11,665,000
in excess of payments under the Class A Plan, $48,493,000 in excess of payments
under the Class B Plan and $1,770,000 in excess of payments under the Class C
Plan.
The allocation of such excess (on a pro rata basis) among the Funds listed
below as of March 31, 1999 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- ---------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund $ 479,195 $ 571,708 $ 81,515
Short-Term Fund 503,199 143,645 16,819
Low Duration Fund 1,184,278 2,475,803 120,694
Real Return Bond Fund 38,917 138,573 2,735
Total Return Fund 7,146,889 20,899,248 770,888
High Yield Fund 960,482 10,871,531 399,643
Long-Term U.S. Government Fund 183,638 1,439,028 34,277
Global Bond Fund II 17,024 183,814 6,325
Foreign Bond Fund 180,855 807,658 31,940
Emerging Markets Bond Fund 1,066 15,105 246
Municipal Bond Fund 43,835 231,541 40,946
StocksPLUS Fund 925,622 10,715,348 263,972
</TABLE>
56
<PAGE>
The allocation of such excess (on a pro rata basis) among the Funds,
calculated as a percentage of net assets of each Fund listed below as of March
31, 1999 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- --------- --------- ---------
<S> <C> <C> <C>
Money Market Fund 0.63% 3.81% 0.11%
Short-Term Fund 0.63 3.81 0.11
Low Duration Fund 0.63 3.81 0.11
Total Return Fund 0.63 3.81 0.11
Real Return Fund 0.63 3.81 0.11
High Yield Fund 0.63 3.81 0.11
Long-Term U.S. Government Fund 0.63 3.81 0.11
Global Bond Fund II 0.63 3.81 0.11
Foreign Bond Fund 0.63 3.81 0.11
Emerging Markets Bond Fund 0.63 3.81 0.11
Municipal Bond Fund 0.63 3.81 0.11
StocksPLUS Fund 0.63 3.81 0.11
</TABLE>
Distribution and Administrative Services Plans for Administrative Class Shares
The Trust has adopted an Administrative Services Plan and an Administrative
Distribution Plan (together, the "Administrative Plans") with respect to the
Administrative Class shares of each Fund.
Under the terms of the Administrative Distribution Plan, the Trust is
permitted to reimburse, out of the assets attributable to the Administrative
Class shares of each Fund, in an amount up to 0.25% on an annual basis of the
average daily net assets of that class, financial intermediaries for costs and
expenses incurred in connection with the distribution and marketing of
Administrative Class shares and/or the provision of certain shareholder services
to its customers that invest in Administrative Class shares of the Funds. Such
services may include, but are not limited to, the following: providing
facilities to answer questions from prospective investors about a Fund;
receiving and answering correspondence, including requests for prospectuses and
statements of additional information; preparing, printing and delivering
prospectuses and shareholder reports to prospective shareholders; complying with
federal and state securities laws pertaining to the sale of Administrative Class
shares; and assisting investors in completing application forms and selecting
dividend and other account options.
Under the terms of the Administrative Services Plan, the Trust is permitted
to reimburse, out of the assets attributable to the Administrative Class shares
of each Fund, in an amount up to 0.25% on an annual basis of the average daily
net assets of that class, financial intermediaries that provide certain
administrative services for Administrative Class shareholders. Such services
may include, but are not limited to, the following functions: receiving,
aggregating and processing shareholder orders; furnishing shareholder sub-
accounting; providing and maintaining elective shareholder services such as
check writing and wire transfer services; providing and maintaining pre-
authorized investment plans; communicating periodically with shareholders;
acting as the sole shareholder of record and nominee for shareholders;
maintaining accounting records for shareholders; answering questions and
handling correspondence from shareholders about their accounts; and performing
similar account administrative services.
The same entity may be the recipient of fees under both the Administrative
Class Distribution Plan and the Administrative Services Plan, but may not
receive fees under both plans with respect to the same assets. Fees paid
pursuant to either Plan may be paid for shareholder services and the maintenance
of shareholder accounts, and therefore may constitute "service fees" for
purposes of applicable rules of the National Association of Securities Dealers,
Inc. Each Plan has been adopted in accordance with the requirements of Rule
12b-1 under the 1940 Act and will be administered in accordance with the
provisions of that rule, except that shareholders will not have the voting
rights set forth in Rule 12b-1
57
<PAGE>
with respect to the Administrative Services Plan that they will have with
respect to the Administrative Distribution Plan.
Each Administrative Plan provides that it may not be amended to materially
increase the costs which Administrative Class shareholders may bear under the
Plan without the approval of a majority of the outstanding voting securities of
the Administrative Class, and by vote of a majority of both (i) the Trustees of
the Trust and (ii) those Trustees who are not "interested persons" of the Trust
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the "Plan
Trustees"), cast in person at a meeting called for the purpose of voting on the
Plan and any related amendments.
Each Administrative Plan provides that it may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Trustees defined above. The Administrative Class Distribution
Plan further provides that it may not take effect unless approved by the vote of
a majority of the outstanding voting securities of the Administrative Class.
Each Administrative Plan provides that it shall continue in effect so long
as such continuance is specifically approved at least annually by the Trustees
and the disinterested Trustees defined above. Each Administrative Plan provides
that any person authorized to direct the disposition of monies paid or payable
by a class pursuant to the Plan or any related agreement shall provide to the
Trustees, and the Board shall review at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made.
Each Administrative Plan is a "reimbursement plan," which means that fees
are payable to the relevant financial intermediary only to the extent necessary
to reimburse expenses incurred pursuant to such plan. Each Administrative Plan
provides that expenses payable under the Plan may be carried forward for
reimbursement for up to twelve months beyond the date in which the expense is
incurred, subject to the limit that not more that 0.25% of the average daily net
assets of Administrative Class shares may be used in any month to pay expenses
under the Plan. Each Plan requires that Administrative Class shares incur no
interest or carrying charges.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that some, if not
all, of the fees paid pursuant to both Administrative Plans will qualify as
"service fees" and therefore will not be limited by NASD rules.
Institutional and Administrative Class shares of the Trust may also be
offered through certain brokers and financial intermediaries ("service agents")
that have established a shareholder servicing relationship with the Trust on
behalf of their customers. The Trust pays no compensation to such entities
other than service fees paid with respect to Administrative Class shares.
Service agents may impose additional or different conditions than the Trust on
the purchase, redemption or exchanges of Trust shares by their customers.
Service agents may also independently establish and charge their customers
transaction fees, account fees and other amounts in connection which purchases,
sales and redemption of Trust shares in addition to any fees charged by the
Trust. Each service agent is responsible for transmitting to its customers a
schedule of any such fees and information regarding any additional or different
conditions regarding purchases and redemptions. Shareholders who are customers
of service agents should consult their service agents for information regarding
these fees and conditions.
Payments Pursuant to the Administrative Plans
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997 the Trust paid qualified service providers an aggregate amount of
$3,691,082, $850,407 and $301,019, respectively, pursuant to the Administrative
Services Plan and the Administrative Distribution Plan. Such payments were
allocated among the Funds listed below as follows:
58
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ---- ---------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund $ 10,213 $ 716 $ 0
Short-Term Fund 16,719 10,315 4,289
Low Duration Fund 297,918 72,650 33,143
Low Duration Fund II 28,257 19 0
Total Return Fund 2,826,235 691,950 229,400
Total Return Fund II 135,827 0 8,414
Total Return Fund III 3,586 0 140
High Yield Fund 336,744 60,079 17,859
Long-Term U.S. Government Fund 15,870 5,340 72
Global Bond Fund 2,995 8,806 6,336
Foreign Bond Fund 3,134 532 185
Emerging Markets Bond Fund 135 0 0
Municipal Bond 447 0 0
StocksPLUS Fund 13,003 0 1,181
</TABLE>
The remaining Funds did not make payments under either Administrative Plan.
Plan for Class D Shares
As described under "Management of the Trust--Fund Administrator," the
Funds' Administration Agreement includes a plan (the "Class D Plan") adopted
pursuant to Rule 12b-1 under the 1940 Act which provides for the payment of up
to .25% of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares.
Specifically, the Administration Agreement provides that the Administrator
shall provide in respect of Class D shares (either directly or by procuring
through other entities, including various financial services firms such as
broker-dealers and registered investment advisors ("Service Organizations"))
some or all of the following services and facilities in connection with direct
purchases by shareholders or in connection with products, programs or accounts
offered by such Service Organizations ("Special Class D Services"): (i)
facilities for placing orders directly for the purchase of a Fund's shares and
tendering a Fund's Class D shares for redemption; (ii) advertising with respect
to a Fund's Class D shares; (iii) providing information about the Funds; (iv)
providing facilities to answer questions from prospective investors about the
Funds; (v) receiving and answering correspondence, including requests for
prospectuses and statements of additional information; (vi) preparing, printing
and delivering prospectuses and shareholder reports to prospective shareholders;
(vii) assisting investors in applying to purchase Class D shares and selecting
dividend and other account options; and (viii) shareholder services provided by
a Service Organization that 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;
issuing confirmations for transactions by shareholders; performing similar
account administrative services; providing such shareholder communications and
recordkeeping services as may be required for any program for which the Service
Organization is a sponsor that relies on Rule 3a-4 under the 1940 Act; and
providing such other similar services as may reasonably be requested to the
extent the Service Organization is permitted to do so under applicable statutes,
rules, or regulations.
59
<PAGE>
The Administrator has entered into an agreement with the Distributor under
which the distributor is compensated for providing or procuring certain of the
Class D Services at the rate of .25% per annum of all assets attributable to
Class D shares sold through the Distributor.
The Trust and the Administrator understand that some or all of the Special
Class D Services pursuant to the Administration Agreement may be deemed to
represent services primarily intended to result in the sale of Class D shares.
The Administration Agreement includes the Class D Plan to account for this
possibility. The Administration Agreement provides that any portion of the fees
paid thereunder in respect of Class D shares representing reimbursement for the
Administrator's and the Distributor's expenditures and internally allocated
expenses in respect of Class D Services of any Fund shall not exceed the rate of
.25% per annum of the average daily net assets of such Fund attributable to
Class D shares.
In accordance with Rule 12b-1 under the 1940 Act, the Class D Plan may not
be amended to increase materially the costs which Class D shareholders may bear
under the Plan without approval of a majority of the outstanding Class D shares,
and by vote of a majority of both (i) the Trustees of the Trust and (ii) those
Trustees ("disinterested Class D Plan 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, cast in person at a meeting called for the purpose of voting on
the Plan and any related amendments. The Class D Plan may not take effect until
approved by a vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Class D Plan Trustees. In addition, the Class D Plan may not
take effect unless it is approved by the vote of a majority of the outstanding
Class D shares and it shall continue in effect so long as such continuance is
specifically approved at least annually by the Trustees and the disinterested
Class D Plan Trustees.
With respect to the Class D Plan, the Administration Agreement requires the
Administrator to present reports as to out-of-pocket expenditures and internal
expenses allocations of the Administrator and the Distributor at least quarterly
and in a manner that permits the disinterested Class D Plan Trustees to
determine that portion of the Class D administrative fees paid thereunder which
represents reimbursements in respect of Special Class D Services.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.
Payments Pursuant to Class D Plan
For the fiscal year ended March 31, 1999, the Trust paid $48,375 pursuant
to the Class D Plan, of which the indicated amounts were attributable to the
following operational Funds:
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<TABLE>
<CAPTION>
Year Ended
Fund 3/31/99
- ---- ----------
<S> <C>
Short-Term Fund $ 1,589
Low Duration Fund 5,733
Real Return Fund 323
Total Return Fund 23,268
Total Return Mortgage Fund 283
High Yield Fund 5,873
Foreign Bond Fund 8,973
Municipal Bond 402
Strategic Balanced 291
StocksPLUS Fund 1,640
</TABLE>
Distribution and Servicing Plan for Class J and Class K Shares
Class J and Class K each has a separate distribution and servicing plan
(the "Class J-K Plans"). Distribution fees paid pursuant to the Class J-K Plans
may only be paid in connection with services provided with respect to Class J
and Class K shares.
As stated in the Prospectus relating to Class J and Class K shares under
the caption "Service and Distribution Fees," the Distributor pays (i) all or a
portion of the distribution fees it receives from the Trust to participating and
introducing brokers, and (ii) all or a portion of the servicing fees it receives
from the Trust to participating and introducing brokers, certain banks and other
financial intermediaries.
Each Class J-K Plan may be terminated with respect to any Fund to which the
Class J-K Plan relates by 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 operation of the Plan or the
Distribution Contract ("Disinterested Trustees") or by vote of a majority of the
outstanding voting securities of the relevant class of that Fund. Pursuant to
Rule 12b-1, any change in either Class J-K Plan that would materially increase
the cost to the class of shares of any Fund to which the Plan relates requires
approval by the affected class of shareholders of that Fund. The Trustees review
quarterly written reports of such costs and the purposes for which such costs
have been incurred. Each Class J-K Plan may be amended by vote of the
Disinterested Trustees cast in person at a meeting called for the purpose. As
long as the Class J-K Plans are in effect, selection and nomination of those
Trustees who are not interested persons of the Trust shall be committed to the
discretion of such Disinterested Trustees.
The Class J-K Plans will continue in effect with respect to each Fund and
each class of shares thereof for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
Disinterested Trustees and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
If a Class J-K Plan is terminated (or not renewed) with respect to one or
more Funds, it may continue in effect with respect to any class of any Fund as
to which it has not been terminated (or has been renewed).
The Trustees believe that the Class J-K Plans will provide benefits to the
Trust. The Trustees believe that the Class J-K Plans will result in greater
sales and/or fewer redemptions of Trust shares, although it is impossible to
know for certain the level of sales and redemptions of Trust shares that would
occur in the absence of the Class J-K Plans or under alternative distribution
schemes. Although the Funds' expenses are essentially fixed, the Trustees
believe that the effect of the Class J-K Plans on sales and/or redemptions may
benefit the Trust by reducing Fund expense ratios and/or by affording greater
flexibility to Portfolio Managers. From time to time, expenses of the
Distributor incurred in connection with the sale of
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Class J and Class K shares of the Funds, and in connection with the servicing of
Class J and Class K shareholders of the Funds and the maintenance of shareholder
accounts, may exceed the distribution and servicing fees collected by the
Distributor. The Trustees consider such unreimbursed amounts, among other
factors, in determining whether to cause the Funds to continue payments of
distribution and servicing fees in the future with respect to Class J and Class
K shares.
Purchases, Exchanges and Redemptions
Purchases, exchanges and redemptions of Class A, Class B, Class C and Class
D shares are discussed in the Class A, B and C and Class D Prospectuses under
the headings "How to Buy Shares," "Exchange Privilege," and "How to Redeem," and
that information is incorporated herein by reference. Purchases, exchanges and
redemptions of Institutional and Administrative Class shares and Class J and
Class K shares are discussed in the Institutional Prospectus under the headings
"Purchase of Shares," "Redemption of Shares," and "Net Asset Value," and in the
Class J and Class K supplement thereto, and that information is incorporated
herein by reference.
Certain managed account clients of the Adviser may purchase shares of the
Trust. To avoid the imposition of duplicative fees, the Adviser may be required
to make adjustments in the management fees charged separately by the Adviser to
these clients to offset the generally higher level of management fees and
expenses resulting from a client's investment in the Trust.
Certain clients of the Adviser whose assets would be eligible for purchase
by one or more of the Funds may purchase shares of the Trust with such assets.
Assets so purchased by a Fund will be valued in accordance with procedures
adopted by the Board of Trustees.
Certain shares of the Funds are not qualified or registered for sale in all
states and Class J and Class K shares are not qualified or registered for sale
in the United States. Prospective investors should inquire as to whether shares
of a particular Fund or class are available for offer and sale in their state of
domicile or residence. Shares of a Fund may not be offered or sold in any state
unless registered or qualified in that jurisdiction, unless an exemption from
registration or qualification is available.
Independent financial intermediaries unaffiliated with PIMCO may perform
shareholder servicing functions with respect to certain of their clients whose
assets may be invested in the Funds. These services, normally provided by PIMCO
directly to Trust shareholders, may include the provision of ongoing information
concerning the Funds and their investment performance, responding to shareholder
inquiries, assisting with purchases, redemptions and exchanges of Trust shares,
and other services. PIMCO may pay fees to such entities for the provision of
these services which PIMCO normally would perform, out of PIMCO's own resources.
As described in the Class A, B and C and Class D Prospectuses under the
caption "Exchanging Shares," and in the Institutional Prospectus under the
caption "Exchange Privilege," a shareholder may exchange shares of any Fund for
shares of any other Fund of the Trust (except the PIMCO International Fund and
the PIMCO Emerging Markets Bond Fund II, each of which is only available to
private account clients of PIMCO) or any series of PIMCO Funds: Multi-Manager
Series, within the same class on the basis of their respective net asset values.
The original purchase date(s) of shares exchanged for purposes of calculating
any contingent deferred sales charge will carry over to the investment in the
new Fund. For example, if a shareholder invests in the Class C shares of one
Fund and 6 months later (when the contingent deferred sales charge upon
redemption would normally be 1%) exchanges his shares for Class C shares of
another Fund, no sales charge would be imposed upon the exchange but the
investment in the other Fund would be subject to the 1% contingent deferred
sales charge until one year after the date of the shareholder's investment in
the first Fund as described in the Class A, B and C Prospectus under
"Alternative Purchase Arrangements." With respect to Class B or Class C shares,
or Class A shares subject to a contingent deferred sales charge, if less than
all of an investment is exchanged out of a Fund, any portion of the investment
attributable to capital appreciation and/or reinvested dividends or capital
gains
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distributions will be exchanged first, and thereafter any portions exchanged
will be from the earliest investment made in the Fund from which the exchange
was made.
Orders for exchanges accepted prior to the close of regular trading on the
New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of regular
trading on the Exchange on any business day will be executed at the respective
net asset values determined at the close of the next business day.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12-month
period or in any calendar quarter. The Trust reserves the right to modify or
discontinue the exchange privilege at any time.
The Trust reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Funds, limited in amount with respect to each
shareholder during any 90-day period to the lesser of (i) $250,000, or (ii) 1%
of the net asset value of the Trust at the beginning of such period. Although
the Trust will normally redeem all shares for cash, it may, in unusual
circumstances, redeem amounts in excess of the lesser of (i) or (ii) above by
payment in kind of securities held in the Funds' portfolios.
Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to shareholder
redemption, the shares in the account do not have a value of at least a
specified amount, the minimums of which are currently set at $250 for Class A,
Class B and Class C shares, $2,000 for Class D shares, and $100,000 for
Institutional Class and Administrative Class shares ($10,000 with respect to
Institutional Class and Administrative Class accounts opened before January 1,
1995). The Prospectuses may set higher minimum account balances for one or more
classes from time to time depending upon the Trust's current policy. An
investor will be notified that the value of his account is less than the minimum
and allowed at least 30 days to bring the value of the account up to at least
the specified amount before the redemption is processed. The Declaration of
Trust also authorizes the Trust to redeem shares under certain other
circumstances as may be specified by the Board of Trustees. The Trust may also
charge periodic account fees for accounts that fall below minimum balances, as
described in the Prospectuses.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions and Portfolio Transactions
Investment decisions for the Trust and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved (including the
Trust). Some securities considered for investments by the Funds may also be
appropriate for other clients served by the Adviser. Thus, a particular
security may be bought or sold for certain clients even though it could have
been bought or sold for other clients at the same time. If a purchase or sale
of securities consistent with the investment policies of a Fund and one or more
of these clients served by the Adviser is considered at or about the same time,
transactions in such securities will be allocated among the Fund and clients in
a manner deemed fair and reasonable by the Adviser. The Adviser may aggregate
orders for the Funds with
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<PAGE>
simultaneous transactions entered into on behalf of other clients of the Adviser
so long as price and transaction expenses are averaged either for that
transaction or for the day. Likewise, a particular security may be bought for
one or more clients when one or more clients are selling the security. In some
instances, one client may sell a particular security to another client. It also
sometimes happens that two or more clients simultaneously purchase or sell the
same security, in which event each day's transactions in such security are,
insofar as possible, averaged as to price and allocated between such clients in
a manner which in the Adviser's opinion is equitable to each and in accordance
with the amount being purchased or sold by each. There may be circumstances when
purchases or sales of portfolio securities for one or more clients will have an
adverse effect on other clients.
Brokerage and Research Services
There is generally no stated commission in the case of fixed income
securities, which are traded in the over-the-counter markets, but the price paid
by the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among
different brokers. Also, a particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction.
Transactions in foreign securities generally involve the payment of fixed
brokerage commissions, which are generally higher than those in the United
States.
The Adviser places all orders for the purchase and sale of portfolio
securities, options and futures contracts for the relevant Fund and buys and
sells such securities, options and futures for the Trust through a substantial
number of brokers and dealers. In so doing, the Adviser uses its best efforts
to obtain for the Trust the most favorable price and execution available, except
to the extent it may be permitted to pay higher brokerage commissions as
described below. In seeking the most favorable price and execution, the
Adviser, having in mind the Trust's best interests, considers all factors it
deems relevant, including, by way of illustration, price, the size of the
transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker-dealer
involved and the quality of service rendered by the broker-dealer in other
transactions.
The Adviser places orders for the purchase and sale of portfolio
investments for the Funds' accounts with brokers or dealers selected by it in
its discretion. In effecting purchases and sales of portfolio securities for the
account of the Funds, the Adviser will seek the best price and execution of the
Funds' orders. In doing so, a Fund may pay higher commission rates than the
lowest available when the Adviser believes it is reasonable to do so in light of
the value of the brokerage and research services provided by the broker
effecting the transaction, as discussed below. The Adviser also may consider
sales of shares of the Trust as a factor in the selection of broker-dealers to
execute portfolio transactions for the Trust.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser receives research services from many broker-dealers with which the
Adviser places the Trust's portfolio transactions. The Adviser may also receive
research or research credits from brokers which are generated from underwriting
commissions when purchasing new issues of fixed income securities or other
assets for a Fund. These services, which in some cases may also be purchased
for cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Adviser in advising various of its clients (including the Trust), although
not all of these services are necessarily useful and of value in managing the
Trust. The management fee paid by the Trust is not reduced because the Adviser
and its affiliates receive such services.
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As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser may cause the Trust to pay a broker-dealer which provides "brokerage and
research services" (as defined in the Act) to the Adviser an amount of disclosed
commission for effecting a securities transaction for the Trust in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the Rules of the NASD and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, the Adviser may also consider sales of shares of the Trust as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Trust.
Portfolio Turnover
A change in the securities held by a Fund is known as "portfolio turnover."
The Adviser manages the Funds without regard generally to restrictions on
portfolio turnover, except those imposed on their ability to engage in short-
term trading by provisions of the federal tax laws, see "Taxation." The use of
certain derivative instruments with relatively short maturities may tend to
exaggerate the portfolio turnover rate for some of the Funds. Trading in fixed
income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. The use of futures
contracts may involve the payment of commissions to futures commission
merchants. High portfolio turnover (e.g., greater than 100%) involves
correspondingly greater expenses to a Fund, including brokerage commissions or
dealer mark-ups and other transaction costs on the sale of securities and
reinvestments in other securities. The higher the rate of portfolio turnover of
a Fund, the higher these transaction costs borne by the Fund generally will be.
Such sales may result in realization of taxable capital gains (including short-
term capital gains which are generally taxed to shareholders at ordinary income
tax rates).
The portfolio turnover rate of a Fund is calculated by dividing (a) the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. Proceeds from short sales and assets used to
cover short positions undertaken are included in the amounts of securities sold
and purchased, respectively, during the year. Portfolio turnover rates for each
Fund for which financial highlights for at least the past two fiscal years are
provided in the Prospectuses are set forth under "Financial Highlights" in the
applicable Prospectus.
NET ASSET VALUE
Net Asset Value is determined as indicated under "How Fund Shares are
Priced" in the Prospectuses. Net asset value will not be determined on the
following holidays: 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.
For all Funds other than PIMCO Money Market Fund, 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.
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The PIMCO Money Market Fund's securities are valued using the amortized
cost method of valuation. This involves valuing a security at cost on the date
of acquisition and thereafter assuming a constant accretion of a discount or
amortization of a premium to maturity, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price the Fund would
receive if it sold the instrument. During such periods the yield to investors
in the Fund may differ somewhat from that obtained in a similar investment
company which uses available market quotations to value all of its portfolio
securities.
The SEC's regulations require the PIMCO Money Market Fund to adhere to
certain conditions. The Trustees, as part of their responsibility within the
overall duty of care owed to the shareholders, are required to establish
procedures reasonably designed, taking into account current market conditions
and the Fund's investment objective, to stabilize the net asset value per share
as computed for the purpose of distribution and redemption at $1.00 per share.
The Trustees' procedures include a requirement to periodically monitor, as
appropriate and at such intervals as are reasonable in light of current market
conditions, the relationship between the amortized cost value per share and the
net asset value per share based upon available indications of market value. The
Trustees will consider what steps should be taken, if any, in the event of a
difference of more than 1/2 of 1% between the two. The Trustees will take such
steps as they consider appropriate, (e.g., selling securities to shorten the
average portfolio maturity) to minimize any material dilution or other unfair
results which might arise from differences between the two. The Fund also is
required to maintain a dollar-weighted average portfolio maturity of 90 days or
less, to limit its investments to instruments having remaining maturities of 397
days or less (except securities held subject to repurchase agreements having 397
days or less maturity) and to invest only in securities determined by the
Adviser under procedures established by the Board of Trustees to be of high
quality with minimal credit risks.
Each Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that class's distribution and/or servicing
fees and any other expenses specially allocated to that class are then deducted
from the class's proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that class
outstanding to produce the class's "net asset value" per share. Under certain
circumstances, the per share net asset value of the Class B and Class C shares
of the Funds that do not declare regular income dividends on a daily basis may
be lower than the per share net asset value of the Class A shares as a result of
the daily expense accruals of the distribution fee applicable to the Class B and
Class C shares. Generally, for Funds that pay income dividends, those dividends
are expected to differ over time by approximately the amount of the expense
accrual differential between a particular Fund's classes.
TAXATION
The following summarizes certain additional federal income tax
considerations generally affecting the Funds and their shareholders. The
discussion is for general information only and does not purport to consider all
aspects of U.S. federal income taxation that might be relevant to beneficial
owners of shares of the Funds. The discussion is based upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, which change could
be retroactive. The discussion applies only to beneficial owners of Fund shares
in whose hands such shares are capital assets within the meaning of Section 1221
of the Code, and may not apply to certain types of beneficial owners of shares
(such as insurance companies, tax exempt organizations, and broker-dealers) who
may be subject to special rules. Persons who may be subject to tax in more than
one country should consult the provisions of any applicable tax treaty to
determine the potential tax consequences to them. Prospective investors should
consult their own tax advisers with regard to the federal tax consequences of
the purchase, ownership and disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction. The discussion here and in the Prospectuses is not
intended as a substitute for careful tax planning.
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Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under the Code. To qualify as a regulated
investment company, each Fund generally must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities or
currencies ("Qualifying Income Test"); (b) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies); and (c) distribute each taxable year the sum of
(i) at least 90% of its investment company taxable income (which includes
dividends, interest and net short-term capital gains in excess of any net long-
term capital losses) and (ii) 90% of its tax exempt interest, net of expenses
allocable thereto. The Treasury Department is authorized to promulgate
regulations under which gains from foreign currencies (and options, futures, and
forward contracts on foreign currency) would constitute qualifying income for
purposes of the Qualifying Income Test only if such gains are directly related
to investing in securities. To date, such regulations have not been issued.
As a regulated investment company, a Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders on a
timely basis. Each Fund intends to distribute to its shareholders, at least
annually, all or substantially all of its investment company taxable income and
any net capital gains. In addition, amounts not distributed by a Fund on a
timely basis in accordance with a calendar year distribution requirement are
subject to a nondeductible 4% excise tax. To avoid the tax, a Fund must
distribute during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (and adjusted for certain ordinary losses) for the twelve month
period ending on October 31, and (3) all ordinary income and capital gains for
previous years that were not distributed during such years. A distribution will
be treated as paid on December 31 of the calendar year if it is declared by a
Fund in October, November, or December of that year to shareholders of record on
a date in such a month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders (other than those not
subject to federal income tax) in the calendar year in which the distributions
are declared, rather than the calendar year in which the distributions are
received. To avoid application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Each Municipal Fund must have at least 50% of its total assets invested in
Municipal Bonds at the end of each calendar quarter so that dividends derived
from its net interest income on Municipal Bonds and so designated by the Fund
will be "exempt-interest dividends," which are generally exempt from federal
income tax when received by an investor. Certain exempt-interest dividends, as
described in the Class A, B and C Prospectus, may increase alternative minimum
taxable income for purposes of determining a shareholder's liability for the
alternative minimum tax. In addition, exempt-interest dividends allocable to
interest from certain "private activity bonds" will not be tax exempt for
purposes of the regular income tax to shareholders who are "substantial users"
of the facilities financed by such obligations or "related persons" of
"substantial users." The tax-exempt portion of dividends paid for a calendar
year constituting "exempt-interest dividends" will be designated after the end
of that year and will be based upon the ratio of net tax-exempt income to total
net income earned by the Fund during the entire year. That ratio may be
substantially different than the ratio of net tax-exempt income to total net
income earned during a portion of the year. Thus, an investor who holds shares
for only a part of the year may be allocated more or less tax-exempt interest
dividends than would be the case if the allocation were based on the ratio of
net tax-exempt income to total net income actually earned by the Fund while
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the investor was a shareholder. All or a portion of interest on indebtedness
incurred or continued by a shareholder to purchase or carry shares of a
Municipal Fund will not be deductible by the shareholder. The portion of
interest that is not deductible is equal to the total interest paid or accrued
on the indebtedness multiplied by the percentage of the Fund's total
distributions (not including distributions of the excess of net long-term
capital gains over net short-term capital losses) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal Revenue Service
for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
Shareholders of the Municipal Funds receiving social security or railroad
retirement benefits may be taxed on a portion of those benefits as a result of
receiving tax exempt income (including exempt-interest dividends distributed by
the Fund). The tax may be imposed on up to 50% of a recipient's benefits in
cases where the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits,
exceeds a base amount. In addition, up to 85% of a recipient's benefits may be
subject to tax if the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits
exceeds a higher base amount. Shareholders receiving social security or
railroad retirement benefits should consult with their tax advisors.
In years when a Fund distributes amounts in excess of its earnings and
profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. Since certain of the Municipal Funds'
expenses attributable to earning tax-exempt income do not reduce such Fund's
current earnings and profits, it is possible that distributions, if any, in
excess of such Fund's net tax-exempt and taxable income will be treated as
taxable dividends to the extent of such Fund's remaining earnings and profits
(i.e., the amount of such expenses).
Distributions
Except for exempt-interest dividends paid by the Municipal Funds, all
dividends and distributions of a Fund, whether received in shares or cash,
generally are taxable and must be reported on each shareholder's federal income
tax return. Dividends paid out of a Fund's investment company taxable income
will be taxable to a U.S. shareholder as ordinary income. Distributions
received by tax-exempt shareholders will not be subject to federal income tax to
the extent permitted under the applicable tax exemption.
A portion of the dividends paid by the PIMCO StocksPLUS Fund may qualify
for the deduction for dividends received by corporations. Dividends paid by the
other Funds generally are not expected to qualify for the deduction for
dividends received by corporations, although certain distributions from the
PIMCO High Yield Fund may qualify. Distributions of net capital gains, if any,
designated as capital gain dividends, are taxable as long-term capital gains,
regardless of how long the shareholder has held a Fund's shares and are not
eligible for the dividends received deduction. Any distributions that are not
from a Fund's investment company taxable income or net realized capital gains
may be characterized as a return of capital to shareholders or, in some cases,
as capital gain. The tax treatment of dividends and distributions will be the
same whether a shareholder reinvests them in additional shares or elects to
receive them in cash.
Sales of Shares
Upon the disposition of shares of a Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the
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shares are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a
disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
Backup Withholding
A Fund may be required to withhold 31% of all taxable distributions payable
to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal tax liability.
Options, Futures and Forward Contracts, and Swap Agreements
Some of the options, futures contracts, forward contracts, and swap
agreements used by the Funds may be "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally considered 60% long-term and 40%
short-term capital gains or losses ("60/40") although certain foreign currency
gains and losses from such contracts may be treated as ordinary in character.
Also, section 1256 contracts held by a Fund at the end of each taxable year
(and, for purposes of the 4% excise tax, on certain other dates as prescribed
under the Code) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as ordinary or 60/40 gain or loss.
Generally, the hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by a Fund, may result in
"straddles" for U.S. federal income tax purposes. In some cases, the straddle
rules also could apply in connection with swap agreements. The straddle rules
may affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate
to accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Funds intend to account for such transactions in a manner they deem to be
appropriate, the Internal Revenue Service might not accept such treatment. If
it did not, the status of a Fund as a regulated investment company might be
affected. The Trust intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for a Fund to qualify as a
regulated investment company may limit the extent to which a Fund will be able
to engage in swap agreements.
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The qualifying income and diversification requirements applicable to a
Fund's assets may limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts, forward contracts, and swap
agreements.
Short Sales
Certain Funds may make short sales of securities. Short sales may increase
the amount of short-term capital gain realized by a Fund, which is taxed as
ordinary income when distributed to shareholders.
Passive Foreign Investment Companies
Certain Funds may invest in the stock of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. If a Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself may be subject
to tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to stockholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior taxable years and an interest factor will be added to the
tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC stock are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
A Fund may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently is available in some
circumstances, a Fund generally would be required to include in its gross income
its share of the earnings of a PFIC on a current basis, regardless of whether
distributions are received from the PFIC in a given year. If this election were
made, the special rules, discussed above, relating to the taxation of excess
distributions, would not apply. Alternatively, another election may be
available that would involve marking to market a Fund's PFIC shares at the end
of each taxable year (and on certain other dates prescribed in the Code), with
the result that unrealized gains are treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. A Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains and the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, and may subject a Fund itself
to tax on certain income from PFIC shares, the amount that must be distributed
to shareholders and will be taxed to shareholders as ordinary income or long-
term capital gain may be increased or decreased substantially as compared to a
fund that did not invest in PFIC shares.
Foreign Currency Transactions
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of certain
other instruments, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security or contract
and the date of
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disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
Foreign Taxation
Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Adviser intends to manage the Funds with the intention
of minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the PIMCO Global Bond, Global Bond II, Foreign
Bond, International Bond, Emerging Markets Bond or Emerging Markets Bond II
Funds' total assets at the close of their taxable year consists of securities of
foreign corporations, such Fund will be eligible to elect to "pass-through" to
the Fund's shareholders the amount of foreign income and similar taxes paid by
the Fund. If this election is made, a shareholder generally subject to tax will
be required to include in gross income (in addition to taxable dividends
actually received) his pro rata share of the foreign taxes paid by the Fund, and
may be entitled either to deduct (as an itemized deduction) his or her pro rata
share of foreign taxes in computing his taxable income or to use it (subject to
limitations) as a foreign tax credit against his or her U.S. federal income tax
liability. No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions. Each shareholder will be notified within 60 days
after the close of the Fund's taxable year whether the foreign taxes paid by the
Fund will "pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through election
is made, the source of the PIMCO Global Bond, Global Bond II, Foreign Bond,
International Bond, Emerging Markets Bond or Emerging Markets Bond II Funds'
income will flow through to shareholders of the Trust. With respect to such
Funds, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency-denominated debt securities, receivables and payables will be
treated as ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income, and
to certain other types of income. Shareholders may be unable to claim a credit
for the full amount of their proportionate share of the foreign taxes paid by
the Fund. The foreign tax credit can be used to offset only 90% of the revised
alternative minimum tax imposed on corporations and individuals and foreign
taxes generally are not deductible in computing alternative minimum taxable
income.
Original Issue Discount and Market Discount
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A
Fund may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
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Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
A Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
Constructive Sales
Recently enacted rules may affect the timing and character of gain if a
Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If a Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.
Non-U.S. Shareholders
Withholding of Income Tax on Dividends: Under the 1972 Convention and U.S.
federal tax law, dividends paid on shares beneficially held by a person who is a
"foreign person" within the meaning of the Internal Revenue Code of 1986, as
amended, are, in general, subject to withholding of U.S. federal income tax at a
rate of 30% of the gross dividend, which may, in some cases, be reduced by an
applicable tax treaty. However, if a beneficial holder who is a foreign person
has a permanent establishment in the United States, and the shares held by such
beneficial holder are effectively connected with such permanent establishment
and, in addition, the dividends are effectively connected with the conduct by
the beneficial holder of a trade or business in the United States, the dividend
will be subject to U.S. federal net income taxation at regular income tax rates.
Distributions of long-term net realized capital gains will not be subject to
withholding of U.S. federal income tax.
Income Tax on Sale of a Fund's shares: Under U.S. federal tax law, a
beneficial holder of shares who is a foreign person is not, in general, subject
to U.S. federal income tax on gains (and is not allowed a deduction for losses)
realized on the sale of such shares unless (i) the shares in question are
effectively connected with a permanent establishment in the United States of the
beneficial holder and such gain is effectively connected with the conduct of a
trade or business carried on by such holder within the United States or (ii) in
the case of an individual holder, the holder is present in the United States for
a period or periods aggregating 183 days or more during the year of the sale and
certain other conditions are met.
State and Local Tax: A beneficial holder of shares who is a foreign person
may be subject to state and local tax in addition to the federal tax on income
referred above.
Estate and Gift Taxes: Under existing law, upon the death of a beneficial
holder of shares who is a foreign person, such shares will be deemed to be
property situated within the United States and will be subject to U.S. federal
estate tax. If at the time of death the deceased holder is a resident of a
foreign country and not a citizen or resident of the United States, such tax
will be imposed at graduated rates from 18% to 55% on the total value (less
allowable deductions and allowable credits) of the decedent's
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property situated within the United States. In general, there is no gift tax on
gifts of shares by a beneficial holder who is a foreign person.
The availability of reduced U.S. taxation pursuant to the 1972 Convention
or the applicable estate tax convention depends upon compliance with established
procedures for claiming the benefits thereof and may further, in some
circumstances, depend upon making a satisfactory demonstration to U.S. tax
authorities that a foreign investor qualifies as a foreign person under U.S.
domestic tax law and the 1972 Convention.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Under the laws of
various states, distributions of investment company taxable income generally are
taxable to shareholders even though all or a substantial portion of such
distributions may be derived from interest on certain federal obligations which,
if the interest were received directly by a resident of such state, would be
exempt from such state's income tax ("qualifying federal obligations").
However, some states may exempt all or a portion of such distributions from
income tax to the extent the shareholder is able to establish that the
distribution is derived from qualifying federal obligations. Moreover, for
state income tax purposes, interest on some federal obligations generally is not
exempt from taxation, whether received directly by a shareholder or through
distributions of investment company taxable income (for example, interest on
FNMA Certificates and GNMA Certificates). Each Fund will provide information
annually to shareholders indicating the amount and percentage of a Fund's
dividend distribution which is attributable to interest on federal obligations,
and will indicate to the extent possible from what types of federal obligations
such dividends are derived. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under a Declaration
of Trust dated February 19, 1987. The capitalization of the Trust consists
solely of an unlimited number of shares of beneficial interest with a par value
of $0.0001 each. The Board of Trustees may establish additional series (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional series will not alter the
rights of the Trust's shareholders. When issued, shares are fully paid, non-
assessable, redeemable and freely transferable. Shares do not have preemptive
rights or subscription rights. In liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the net assets of that Fund.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust also provides for
indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which such disclaimer is inoperative or the Trust
itself is unable to meet its obligations, and thus should be considered remote.
Performance Information
From time to time the Trust may make available certain information about
the performance of some or all of the classes of shares of some or all of the
Funds. Information about a Fund's performance is based
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on that Fund's (or its predecessor's) record to a recent date and is not
intended to indicate future performance.
The total return of classes of shares of all Funds may be included in
advertisements or other written material. When a Fund's total return is
advertised , it will be calculated for the past year, the past five years, and
the past ten years (or if the Fund has been offered for a period shorter than
one, five or ten years, that period will be substituted) since the establishment
of the Fund (or its predecessor series of PIMCO Advisors Funds for the Global
Bond Fund II), as more fully described below. For periods prior to the initial
offering date of a particular class of shares, total return presentations for
the class will be based on the historical performance of an older class of the
Fund (if any) restated to reflect any different sales charges and/or operating
expenses (such as different administrative fees and/or 12b-1/servicing fee
charges) associated with the newer class. In certain cases, such a restatement
will result in performance of the newer class which is higher than if the
performance of the older class were not restated to reflect the different
operating expenses of the newer class. In such cases, the Trust's advertisements
will also, to the extent appropriate, show the lower performance figure
reflecting the actual operating expenses incurred by the older class for periods
prior to the initial offering date of the newer class. Total return for each
class is measured by comparing the value of an investment in the Fund at the
beginning of the relevant period to the redemption value of the investment in
the Fund at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions at net asset value). Total return may
be advertised 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.
The Funds may also provide current distribution information to its
shareholders in shareholder reports or other shareholder communications, or in
certain types of sales literature provided to prospective investors. Current
distribution information for a particular class of a Fund will be based on
distributions for a specified period (i.e., total dividends from net investment
income), divided by the relevant class net asset value per share on the last day
of the period and annualized. The rate of current distributions does not reflect
deductions for unrealized losses from transactions in derivative instruments
such as options and futures, which may reduce total return. Current distribution
rates differ from standardized yield rates in that they represent what a class
of a Fund has declared and paid to shareholders as of the end of a specified
period rather than the Fund's actual net investment income for that period.
Performance information is computed separately for each class of a Fund.
The Trust may, from time to time, include the yield and effective yield of the
PIMCO Money Market Fund, and the yield and total return for each class of shares
of all of the Funds in advertisements or information furnished to shareholders
or prospective investors. Each Fund may from time to time include in
advertisements the ranking of the Fund's performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives. Information provided to any newspaper or
similar listing of the Fund's net asset values and public offering prices will
separately present each class of shares. The Funds also may compute current
distribution rates and use this information in their prospectuses and statement
of additional information, in reports to current shareholders, or in certain
types of sales literature provided to prospective investors.
Calculation of Yield
Current yield for the PIMCO Money Market Fund will be based on the change
in the value of hypothetical investment (exclusive of capital changes) over a
particular 7-day period less a pro-rata share of Fund expenses accrued over that
period (the "base period"), and stated as a percentage of the investment at the
start of the base period (the "base period return"). The base period return is
then annualized by multiplying by 365/7, with the resulting yield figure carried
to at least the nearest hundredth of one percent. "Effective yield" for the
PIMCO Money Market Fund assumes that all dividends received during an annual
period have been reinvested. Calculation of "effective yield" begins with the
same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
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Effective Yield = [(Base Period Return +1) (To the power of 365/7)] - 1
The effective yield of the PIMCO Money Market Fund for the seven day period
ended March 31, 1999 was as follows: Institutional Class - 4.62%,
Administrative Class - 4.24%, Class A - 4.26%, Class B - 3.40% and Class C -
4.31%.
Quotations of yield for the remaining Funds will be based on all investment
income per share (as defined by the SEC) during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[(a-b + 1) (To the power of 6) - 1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
For the one month period ended March 31, 1999, the yield of the Funds was
as follows (all numbers are annualized) (Class J and Class K shares were not
offered during the period listed):
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Yield for Period
Ended March 31, 1999
--------------------
<TABLE>
<CAPTION>
Institutional Administrative
Fund Class Class Class A Class B Class C Class D
- ---- ------------- -------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund 4.79% 4.34% 4.36% 3.52% 4.40% N/A
Short-Term Fund 5.16 4.90 4.66 4.01 4.46 4.86%
Low Duration Fund 5.95 5.70 5.31 4.72 4.97 5.63
Low Duration Fund II 5.64 5.39 N/A N/A N/A N/A
Low Duration Fund III 5.51 N/A N/A N/A N/A N/A
Low Duration Mortgage Fund 6.19 N/A N/A N/A N/A N/A
Moderate Duration Fund 5.81 N/A N/A N/A N/A N/A
Real Return Bond Fund 7.10 N/A 6.48 5.94 6.19 5.42
Total Return Fund 5.89 5.64 5.17 4.65 4.66 5.57
Total Return Fund II 5.52 5.27 N/A N/A N/A N/A
Total Return Fund III 5.79 5.54 N/A N/A N/A N/A
Total Return Mortgage Fund 5.82 N/A N/A N/A N/A N/A
High Yield Fund 8.32 8.07 7.55 7.15 7.15 7.92
Municipal Bond Fund 4.48 4.27 4.01 3.38 3.63 4.11
Long-Term U.S. Govt. Fund 6.43 6.17 5.74 5.25 5.26 N/A
Global Bond Fund 6.88 6.62 N/A N/A N/A N/A
Global Bond Fund II 6.30 N/A 5.62 5.14 5.14 N/A
Foreign Bond Fund 6.49 6.23 5.76 5.28 5.28 6.03
International Bond Fund 6.45 N/A N/A N/A N/A N/A
Emerging Markets Bond Fund 11.75 11.50 10.83 10.61 10.60 N/A
Emerging Markets Bond Fund II 7.77 N/A N/A N/A N/A N/A
Strategic Balanced Fund 5.01 N/A N/A N/A N/A 4.73
StocksPLUS Fund 5.11 4.86 4.58 3.99 4.25 4.73
</TABLE>
The yield of each such Fund will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio and operating
expenses of the Trust allocated to the Fund or its classes of shares. These
factors, possible differences in the methods used in calculating yield (and the
tax exempt status of distributions for the Municipal Funds) should be considered
when comparing a Fund's yield to yields published for other investment companies
and other investment vehicles. Yield should also be considered relative to
changes in the value of a Fund's various classes of shares. These yields do not
take into account any applicable contingent deferred sales charges.
The Municipal Funds may advertise a tax equivalent yield of each class of
its shares, calculated as described above except that, for any given tax
bracket, net investment income of each class will be calculated using as gross
investment income an amount equal to the sum of (i) any taxable income of each
class of the Fund plus (ii) the tax exempt income of each class of the Fund
divided by the difference between 1 and the effective federal income tax rates
for taxpayers in that tax bracket. For example, taxpayers with the marginal
federal income tax rates indicated in the following table would have to earn the
tax equivalent yields shown in order to realize an after-tax return equal to the
corresponding tax-exempt yield shown.
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<TABLE>
<CAPTION>
A tax-exempt yield of
Filing Status is equivalent to a taxable yield of
Single (Married filing jointly) 3% 4% 5% 6% 7%
Taxable income Marginal tax rate*
<S> <C> <C> <C> <C> <C> <C> <C>
$23,350 or less $39,000 or less 15% 3.53% 4.71% 5.88% 7.06% 8.24%
Over $23,350 but Over $39,000 but 28% 4.17% 5.56% 6.94% 8.33% 9.72%
not over $56,550 not over $94,250
Over $56,550 but Over $94,250 but 31% 4.35% 5.80% 7.25% 8.70% 10.14%
not over $117,950 not over $143,600
Over $117,950 but Over $143,600 but 36% 4.69% 6.25% 7.81% 9.38% 10.94%
not over $256,500 not over $256,500
Over $256,500 Over $256,500 39.6% 4.97% 6.62% 8.28% 9.93% 11.59%
</TABLE>
___________________
* These marginal tax rates do not take into account the effect of the phase out
of itemized deductions and personal exemptions.
As is shown in the above table, the advantage of tax-exempt investing
becomes more advantageous to an investor as his or her marginal tax rate
increases.
The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time
in the future, yields and total return may be higher or lower than past yields
and there can be no assurance that any historical results will continue.
Calculation of Total Return
Quotations of average annual total return for a Fund or class will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five and ten
years (up to the life of the Fund), calculated pursuant to the following
formula: P(1 + T)(To the power of n) = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of years,
and ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). Except as noted below all total return figures
reflect the deduction of a proportional share of Fund or class expenses on an
annual basis, and assume that (i) the maximum sales load (or other charges
deducted from payments) is deducted from the initial $1,000 payment and that the
maximum contingent deferred sales charge, if any, is deducted at the times, in
the amounts, and under the terms disclosed in the Prospectuses and (ii) all
dividends and distributions are reinvested when paid. The Funds also may, with
respect to certain periods of less than one year, provide total return
information for that period that is unannualized. Quotations of total return may
also be shown for other periods. Any such information would be accompanied by
standardized total return information.
The table below sets forth the average annual total return of each class of
shares of the following Funds for the periods ended March 31, 1999. For periods
prior to the "Inception Date" of a particular class of a Fund's shares, total
return presentations for the class are based on the historical performance of
Institutional Class shares of the Fund (the oldest class) adjusted, as
necessary, to reflect any current sales charges (including any contingent
deferred sales charges) associated with the newer class and any different
operating expenses associated with the newer class, such as 12b-1 distribution
and servicing fees (which are not paid by the Institutional Class) and
administrative fee charges.
77
<PAGE>
Total Return for Periods Ended March 31, 1999*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Since
Inception
of Fund Inception Inception
(Annual Date of Date of
Fund Class** 1 Year 5 Years 10 Years -ized) Fund Class
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Institutional 5.14% 5.27% N/A 4.70% 03/01/91 03/01/91
Administrative 4.93 5.03 4.45 01/24/95
Class A 4.76 4.97 4.42 01/13/97
Class B 4.03 4.09 3.52 01/13/97
Class C 4.85 5.00 4.44 01/13/97
- -------------------------------------------------------------------------------------------------------
Short-Term Institutional 5.63% 6.54% 6.32% 6.52% 10/07/87 10/07/87
Administrative 5.39 6.28 6.05 6.26 02/01/96
Class A 3.11 5.69 5.68 5.91 01/20/97
Class B -0.55 5.03 5.33 5.61 01/20/97
Class C 3.91 5.81 5.58 5.78 01/20/97
Class D 5.33 6.23 6.00 6.21 04/08/98
- -------------------------------------------------------------------------------------------------------
Low Duration Institutional 6.35% 6.99% 8.25% 8.13% 05/11/87 05/11/87
Administrative 6.09 6.72 7.98 7.86 12/31/94
Class A 2.68 5.85 7.42 7.35 01/13/97
Class B 0.10 5.37 7.18 7.15 01/13/97
Class C 4.34 5.97 7.22 7.10 01/13/97
Class D 6.01 6.65 7.90 7.79 04/08/98
- -------------------------------------------------------------------------------------------------------
Low Duration II Institutional 5.89% 6.52% N/A 6.45% 11/01/91 11/01/91
Administrative 5.63 6.25 6.18 02/02/98
- -------------------------------------------------------------------------------------------------------
Low Duration III Institutional 6.10% N/A N/A 6.49% 12/31/96 12/31/96
- -------------------------------------------------------------------------------------------------------
Low Duration Institutional 5.71% N/A N/A 6.99% 07/31/97 07/31/97
Mortgage
- -------------------------------------------------------------------------------------------------------
Moderate Duration Institutional 6.67% N/A N/A 7.17% 12/31/96 12/31/96
- -------------------------------------------------------------------------------------------------------
Real Return Bond Institutional 6.41% N/A N/A 5.15% 01/29/97 01/29/97
Class A 2.81 3.27 01/29/97
Class B 0.19 2.65 01/29/97
Class C 4.46 4.20 01/29/97
Class D 5.99 4.74 04/08/98
- -------------------------------------------------------------------------------------------------------
Total Return Institutional 7.59% 8.39% 10.13% 9.64% 05/11/87 05/11/87
Administrative 7.32 8.13 9.87 9.37 09/07/94
Class A 2.27 6.90 9.13 8.72 01/13/97
Class B 1.40 6.80 9.07 8.67 01/13/97
Class C 5.32 7.11 8.84 8.35 01/13/97
Class D 7.26 8.06 9.80 9.30 04/08/98
- -------------------------------------------------------------------------------------------------------
Total Return II Institutional 7.45% 8.27% N/A 8.11% 12/30/91 12/30/91
Administrative 7.18 7.99 7.84 11/30/94
- -------------------------------------------------------------------------------------------------------
Total Return III Institutional 8.19% 8.48% N/A 9.43% 05/01/91 05/01/91
Administrative 7.91 8.19 9.16 04/11/97
- -------------------------------------------------------------------------------------------------------
Total Return Institutional 5.85% N/A N/A 7.41% 07/31/97 07/31/97
Mortgage
- -------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Since
Inception
of Fund Inception Inception
(Annual Date of Date of
Fund Class** 1 Year 5 Years 10 Years -ized) Fund Class
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Institutional 4.73% 11.23% N/A 11.71% 12/16/92 12/16/92
Administrative 4.48 10.96 11.44 01/16/95
Class A -0.37 9.79 10.48 01/13/97
Class B -1.27 9.73 10.49 01/13/97
Class C 2.58 10.01 10.50 01/13/97
Class D 4.35 10.83 11.31 04/08/98
- -------------------------------------------------------------------------------------------------------
Long-Term U.S. Institutional 7.75% 10.39% N/A 12.11% 07/01/91 07/01/91
Government Administrative 7.45 10.12 11.85 09/23/97
Class A 2.51 8.96 11.04 01/20/97
Class B 1.64 8.84 10.95 01/20/97
Class C 5.54 9.15 10.89 01/20/97
- -------------------------------------------------------------------------------------------------------
Global Bond Institutional 6.90% 8.36% N/A 7.80% 11/23/93 11/23/93
Administrative 6.77 8.13 7.57 08/01/96
- -------------------------------------------------------------------------------------------------------
Foreign Bond Institutional 7.91% 11.33% N/A 11.01% 12/03/92 12/03/92
Administrative 7.64 11.06 10.74 01/28/97
Class A 2.59 9.82 9.72 01/20/97
Class B 1.74 9.75 9.72 01/20/97
Class C 5.64 10.02 9.72 01/20/97
Class D 7.45 10.85 10.53 04/08/98
- -------------------------------------------------------------------------------------------------------
International Institutional 5.71% 9.18% N/A 9.04% 12/13/89 12/13/89
Bond
- -------------------------------------------------------------------------------------------------------
Emerging Markets Institutional -12.56% N/A N/A -6.03% 07/31/97 07/31/97
Bond Administrative -13.62 -6.82 09/30/98
Class A -16.82 -8.95 07/31/97
Class B -17.47 -9.05 07/31/97
Class C -14.35 -7.13 07/31/97
- -------------------------------------------------------------------------------------------------------
Emerging Markets Institutional N/A N/A N/A N/A 04/03/98 04/03/98
Bond II
- -------------------------------------------------------------------------------------------------------
Municipal Bond Institutional 6.04% N/A N/A 5.49% 12/31/97 12/31/97
Administrative 5.44 4.94 09/30/98
Class A 2.50 2.57 04/01/98
Class B -0.12 1.13 04/01/98
Class C 4.10 4.58 04/01/98
Class D 5.67 5.11 04/08/98
- -------------------------------------------------------------------------------------------------------
Strategic Institutional 12.36% N/A N/A 20.61% 06/28/96 06/28/96
Balanced Class D 11.89 20.15 04/08/98
- -------------------------------------------------------------------------------------------------------
StocksPLUS Institutional 17.65% 26.99% N/A 23.38% 05/14/93 05/14/93
Administrative 17.21 26.61 23.01 01/07/97
Class A 13.56 25.70 22.24 01/20/97
Class B 11.12 25.39 21.91 01/20/97
Class C 15.48 25.83 22.25 01/20/97
Class D 17.02 26.45 22.86 04/08/98
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the current maximum sales charge (if any) applicable to that
class at the time of purchase and assume that the maximum CDSC (if any) for
Class A, Class B and Class C shares was deducted at the times, in the amounts,
and under the terms discussed in the Class A, B and C Prospectus.
79
<PAGE>
** For all Funds listed above, Class A, Class B, Class C, Class D and
Administrative Class total return presentations for periods prior to the
Inception Date of that class reflect the prior performance of Institutional
Class shares of the Fund (the oldest class) adjusted to reflect the actual
sales charges (none in the case of Class D and Administrative Class) of the
newer class. The adjusted performance also reflects the higher Fund operating
expenses associated with Class A, Class B, Class C, Class D and Administrative
Class shares. These include (i) 12b-1 distribution and servicing fees, which
are not paid by the Institutional Class but are paid by Class B and Class C
(at a maximum rate of 1.00% per annum) and Class A and the Administrative
Class (at a maximum rate of 0.25% per annum), and may be paid by Class D (at a
maximum of 0.25% per annum), and (ii) administration fee charges associated
with Class A, Class B and Class C shares (at a maximum differential of 0.22%
per annum) and Class D shares (at a maximum differential of 0.45% per annum).
The table below sets forth the average annual total return of certain
classes of shares of the PIMCO Global Bond Fund II (which was a series of PIMCO
Advisors Funds ("PAF") prior to its reorganization as a Fund of the Trust on
January 17, 1997) for the periods ended March 31, 1999. Accordingly, "Inception
Date of Fund" refers to the inception date of the PAF predecessor series. Since
Class A shares were offered since the inception of PIMCO Global Bond Fund II,
total return presentations for periods prior to the Inception Date of the
Institutional Class are based on the historical performance of Class A shares,
adjusted to reflect that the Institutional Class does not have a sales charge,
and the different operating expenses associated with the Institutional Class,
such as 12b-1 distribution and servicing fees and administration fee charges.
Total Return for Periods Ended March 31, 1999*
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Since
Inception
of Fund Inception Inception
(Annual Date of Date of
Fund Class** 1 Year 5 Years 10 Years -ized) Fund Class
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Bond II Institutional 6.06% N/A N/A 10.44% 10/02/95 02/25/98
Class A 0.89 8.58 10/02/95
Class B -0.13 8.49 10/02/95
Class C 3.83 9.17 10/02/95
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the current maximum sales charge (if any) applicable to that
class at the time of purchase and assume that the maximum CDSC (if any) for
Class A, Class B and Class C shares was deducted at the times, in the amounts,
and under the terms discussed in the Class A, B and C Prospectus.
** Institutional Class total return presentations for periods prior to the
Inception Date of that class reflect the prior performance of Class A shares
of the former PAF series, adjusted to reflect the fact that there are no sales
charges on Institutional Class shares of the Fund. The adjusted performance
also reflects any different operating expenses associated with Institutional
Class shares. These include (i) 12b-1 distribution and servicing fees, which
are not paid by the Institutional Class but are paid by Class A (at a maximum
rate of 0.25% per annum), and (ii) administration fee charges, which are lower
for Institutional class shares (at a differential of 0.15% per annum).
Note also that, prior to January 17, 1997, Class A, Class B and Class C shares
of the PIMCO Global Bond Fund II were subject to a variable level of expenses
for such services as legal, audit, custody and transfer agency services. As
described in the Class A, B and C Prospectus, for periods subsequent to
January 17, 1997, Class A, Class B and Class C shares of the Trust are subject
to a fee structure which essentially fixes these expenses (along with other
administrative expenses) under a single administrative fee based on the
average daily net assets of the Fund attributable to Class A, Class B and
Class C shares. Under the current fee structure, the PIMCO Global Bond Fund II
is expected to have
80
<PAGE>
lower total Fund operating expenses than its predecessor had under the fee
structure for PAF (prior to January 17, 1997). All other things being equal,
the higher expenses of PAF would have adversely affected total return
performance for the Fund after January 17, 1997.
The method of adjustment used in the table above for periods prior to the
Inception Date of Institutional Class shares of the PIMCO Global Bond Fund II
resulted in performance for the period shown which is higher than if the
historical Class A performance were not adjusted to reflect the lower
operating expenses of the newer class. The following table shows the lower
performance figures that would be obtained if the performance for the
Institutional Class was calculated by tacking to the Institutional Class'
actual performance the actual performance of Class A shares (with their higher
operating expenses) for periods prior to the initial offering date of the
newer class (i.e. the total return presentations below are based, for periods
prior to the inception date of the Institutional Class, on the historical
performance of Class A shares adjusted to reflect the current sales charges
associated with Class A shares, but not reflecting lower operating expenses
---
associated with the Institutional Class, such as lower administrative fee
charges and/or distribution and servicing fee charges).
Total Return for Periods Ended March 31, 1999
(with no adjustment for operating expenses of the Institutional
Class for periods prior to its Inception Date)
<TABLE>
<CAPTION>
Since Inception
of Fund
Fund Class 1 Year 5 Years 10 Years (Annualized)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Bond II Institutional 6.06% N/A N/A 10.16%
- --------------------------------------------------------------------------------
</TABLE>
Current distribution information for a Fund will be based on distributions
for a specified period (i.e., total dividends from net investment income),
divided by Fund net asset value per share on the last day of the period and
annualized according to the following formula:
DIVIDEND YIELD = (((a/b)*365)/c)
where a = actual dividends distributed for the calendar month in
question,
b = number of days of dividend declaration in the month in
question, and
c = net asset value (NAV) calculated on the last business day of
the month in question.
The rate of current distributions does not reflect deductions for
unrealized losses from transactions in derivative instruments such as options
and futures, which may reduce total return. Current distribution rates differ
from standardized yield rates in that they represent what a Fund has declared
and paid to shareholders as of the end of a specified period rather than the
Fund's actual net investment income for that same period. Distribution rates
will exclude net realized short-term capital gains. The rate of current
distributions for a Fund should be evaluated in light of these differences and
in light of the Fund's total return figures, which will always accompany any
calculation of the rate of current distributions.
For the month ended March 31, 1999, the current distribution rates
(annualized) for the Funds were as follows (Class J and Class K shares were not
offered during the period listed):
81
<PAGE>
Distribution Rate
-----------------
<TABLE>
<CAPTION>
Institutional Administrative
Fund Class Class Class A Class B Class C Class D
- ---- ------------- -------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund 4.52% 4.15% 4.18% 3.35% 4.23% N/A
Short-Term Fund 5.12 4.86 4.72 3.97 4.42 4.82%
Low Duration Fund 6.59 6.33 6.11 5.36 5.61 6.26
Low Duration Fund II 5.64 5.40 N/A N/A N/A N/A
Low Duration Fund III 5.60 5.53 N/A N/A N/A N/A
Low Duration Mortgage Fund 5.86 N/A N/A N/A N/A N/A
Moderate Duration Fund 5.97 N/A N/A N/A N/A N/A
Real Return Bond Fund 7.10 N/A 6.68 5.94 6.19 6.69
Total Return Fund 5.53 5.28 5.06 4.31 4.32 5.22
Total Return Fund II 5.38 5.10 N/A N/A N/A N/A
Total Return Fund III 5.86 5.61 N/A N/A N/A N/A
Total Return Mortgage Fund 5.51 N/A N/A N/A N/A 5.12
High Yield Fund 8.72 8.48 8.33 7.57 7.58 8.34
Municipal Bond Fund 4.60 4.37 4.25 3.50 3.75 4.25
Long-Term U.S. Govt. Fund 6.08 5.83 5.68 4.92 4.93 N/A
Global Bond Fund 5.71 5.46 N/A N/A N/A N/A
Global Bond Fund II 5.31 N/A 4.91 4.16 4.16 N/A
Foreign Bond Fund 5.04 4.79 4.59 3.84 3.84 4.59
International Bond Fund N/A N/A N/A N/A N/A N/A
Emerging Markets Bond Fund 12.76 12.52 12.37 11.64 11.64 N/A
Emerging Markets Bond Fund II 8.75 N/A N/A N/A N/A N/A
Strategic Balanced Fund N/A N/A N/A N/A N/A N/A
StocksPLUS Fund N/A N/A N/A N/A N/A N/A
</TABLE>
Performance information for a Fund may also be compared to various unmanaged
indexes, such as the Standard & Poor's 500 Composite Stock Price Index, the Dow
Jones Industrial Average, the Lehman Brothers Aggregate Bond Index, the Lehman
Brothers Mortgage-Backed Securities Index, the Merrill Lynch 1 to 3 Year
Treasury Index, the Lehman Intermediate and 20+ Year Treasury Blend Index, the
Lehman BB Intermediate Corporate Index, indexes prepared by Lipper Analytical
Services, the J.P. Morgan Global Index, the J.P. Morgan Emerging Markets Bond
Index Plus, the Salomon Brothers World Government Bond Index-10 Non U.S.-Dollar
Hedged and the J.P. Morgan Government Bond Index Non U.S.-Dollar Hedged.
Unmanaged indexes (i.e., other than Lipper) generally do not reflect deductions
for administrative and management costs and expenses. PIMCO may report to
shareholders or to the public in advertisements concerning the performance of
PIMCO as adviser to clients other than the Trust, or on the comparative
performance or standing of PIMCO in relation to other money managers. PIMCO
also may provide current or prospective private account clients, in connection
with standardized performance information for the Funds, performance information
for the Funds gross of fees and expenses for the purpose of assisting such
clients in evaluating similar performance information provided by other
investment managers or institutions. Comparative information may be compiled or
provided by independent ratings services or by news organizations. Any
performance information, whether related to the Funds or to the Adviser, should
be considered in light of the Funds' investment objectives and policies,
characteristics and quality of the Funds, and the market conditions during the
time period indicated, and should not be considered to be representative of what
may be achieved in the future.
Advertisements and information relating to the PIMCO Global Bond Fund II may
use data comparing the total returns of the top foreign bond market as compared
to the total return of the U.S. bond market for a particular year. For instance,
the following table sets forth the total return of the top foreign bond market
compared to the total return for the U.S. bond market for the years 1986 through
1998.
82
<PAGE>
Performance is shown in U.S. dollar terms, hedged for currency rate
changes and is no way indicative of the performance of the PIMCO Global Bond
Fund II.
<TABLE>
<CAPTION>
Top Foreign
Year Performer U.S.
---- ----------- ----
<S> <C> <C>
1986 +13.1% Japan +15.7%
1987 +12.8 UK +1.9
1988 +15.0 France +7.0
1989 +10.0 Canada +14.4
1990 +11.0 Australia +8.6
1991 +20.0 Australia +15.3
1992 +10.5 UK +7.2
1993 +20.0 Italy +11.0
1994 -0.9 Japan -3.4
1995 +21.0 Netherlands +18.3
1996 +18.8 Spain +2.7
1997 +13.5 UK +9.6
1998 +17.4 UK +8.7
</TABLE>
Source: Salomon Brothers World Government Bond Index 1986-1998.
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1996/1997 costs of college and an assumed rate of increase for such costs. For
example, the table below sets forth the projected cost of four years of college
at a public college and a private college assuming a steady increase in both
cases of 3% per year. In presenting this information, the Trust is making no
prediction regarding what will be the actual growth rate in the cost of a
college education, which may be greater or less than 3% per year and may vary
significantly from year to year. The Trust makes no representation that an
investment in any of the Funds will grow at or above the rate of growth of the
cost of a college education.
<TABLE>
<CAPTION>
Potential College Cost Table
Start Public Private Start Public Private
Year College College Year College College
- ----- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
1997 $13,015 $57,165 2005 $16,487 $72,415
1998 $13,406 $58,880 2006 $16,982 $74,587
1999 $13,808 $60,646 2007 $17,491 $76,825
2000 $14,222 $62,466 2008 $18,016 $79,130
2001 $14,649 $64,340 2009 $18,557 $81,504
2002 $15,088 $66,270 2010 $19,113 $83,949
2003 $15,541 $68,258 2011 $19,687 $86,467
2004 $16,007 $70,306 2012 $20,278 $89,061
</TABLE>
Costs assume a steady increase in the annual cost of college of 3% per year from
a 1996-97 base year amount. Actual rates of increase may be more or less than 3%
and may vary.
In its advertisements and other materials, the Trust may compare the returns
over periods of time of investments in stocks, bonds and treasury bills to each
other and to the general rate of inflation. For example, the average annual
return of each during the 25 years from 1974 to 1998 was:
83
<PAGE>
* Stocks: 14.9%
Bonds: 9.9%
T-Bills: 7.0%
Inflation: 5.2%
* Returns of unmanaged indices do not reflect past or future performance of
any of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks
are represented by Ibbotson's Large Company Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. T-bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented by
the Cost of Living Index. These are all unmanaged indices, which can not be
invested in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will fluctuate
with changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 1999 Yearbook, Ibbotson Associates, Chicago. All
rights reserved.
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 20 years
from 1979-1998, the average annual return of stocks comprising the Ibbotson's
Large Company Stock Total Return Index ranged from -4.9% to 37.4% while the
annual return of a hypothetical portfolio comprised 40% of such common stocks,
40% of bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbotson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -1.0% to 28.2% over the same period. The
average annual returns of each investment for each of the years from 1979
through 1998 is set forth in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ----- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% 3.87% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
1996 23.10% 1.40% 5.20% 3.30% 10.84%
1997 33.40% 12.90% 7.10% 1.70% 19.94%
1998 28.58% 10.76% 4.86% 1.61% 16.70%
</TABLE>
* Returns of unmanaged indices do not reflect past or future performance of any
of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks are
represented by Ibbotson's Large Company Stock Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. T'bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented by
the Cost of Living Index. These are all unmanaged indices, which can not be
invested in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will fluctuate
with changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and
84
<PAGE>
Inflation (SBBI), 1989, updated in Stocks, Bonds, Bills and Inflation 1999
Yearbook, Ibbotson Associates, Chicago. All rights reserved.
The Trust may use in its advertisement and other materials examples designed
to demonstrate the effect of compounding when an investment is maintained over
several or many years. For example, the following table shows the annual and
total contributions necessary to accumulate $200,000 of savings (assuming a
fixed rate of return) over various periods of time:
<TABLE>
<CAPTION>
Investment Annual Total Total
Period Contribution Contribution Saved
- ---------- ------------ ------------ --------
<S> <C> <C> <C>
30 Years $ 1,979 $ 59,370 $200,000
25 Years $ 2,955 $ 73,875 $200,000
20 Years $ 4,559 $ 91,180 $200,000
15 Years $ 7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
</TABLE>
This hypothetical example assumes a fixed 7% return compounded annually and a
guaranteed return of principal. The example is intended to show the benefits of
a long-term, regular investment program, and is in no way representative of any
past or future performance of a PIMCO Fund. There can be no guarantee that you
will be able to find an investment that would provide such a return at the times
you invest and an investor in any of the PIMCO Funds should be aware that
certain of the PIMCO Funds have experienced periods of negative growth in the
past and may again in the future.
The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 1997:
% of Income for Individuals
Aged 65 Years and Older in 1997*
--------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
1997 43% 57%
* For individuals with an annual income of at least $51,000. Other
includes personal savings, earnings and other undisclosed sources of income.
Source: Social Security Administration.
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds may appear in various national
publications and services including, but not limited to: The Wall Street
Journal, Barron's, Pensions and Investments, Forbes, Smart Money, Mutual Fund
Magazine, The New York Times, Kiplinger's Personal Finance, Fortune, Money
Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies and The
Donoghue Organization. Some or all of these publications or reports may publish
their own rankings or performance reviews of mutual funds, including the Funds,
and may provide information relating to the Adviser, including descriptions of
assets under management and client base, and opinions of the author(s) regarding
the skills of personnel and employees of the Adviser who have portfolio
management responsibility. From time to time, the Trust may include references
to or reprints of such publications or reports in its advertisements and other
information relating to the Funds.
From time to time, the Trust may set forth in its advertisements and other
materials information about the growth of a certain dollar-amount invested in
one or more of the Funds over a specified period of time and may use charts and
graphs to display that growth.
85
<PAGE>
From time to time, the Trust may set forth in its advertisements and other
materials the names of and additional information regarding investment analysts
employed by the Adviser who assist with portfolio management and research
activities on behalf of the Funds. The following lists various analysts
associated with the Adviser: Jane Howe, Mark Hudoff, Doris Nakamura and Ray
Kennedy.
Ibbotson Associates ("Ibbotson") has analyzed the risk and returns of the
Funds and relevant benchmark market indexes in a variety of market conditions.
Based on its independent research and analysis, Ibbotson has developed model
portfolios of the Funds and series of PIMCO Funds: Multi-Manager Series ("MMS")
which indicate how, in Ibbotson's opinion, a hypothetical investor with a 5+
year investment horizon might allocate his or her assets among the Funds and
series of MMS. Ibbotson bases its model portfolios on five levels of investor
risk tolerance which it developed and defines as ranging from "Very
Conservative" (low volatility; emphasis on capital preservation, with some
growth potential) to "Very Aggressive" (high volatility; emphasis on long-term
growth potential). However, neither Ibbotson nor the Trust offers Ibbotson's
model portfolios as investments. Moreover, neither the Trust, the Adviser nor
Ibbotson represent or guarantee that investors who allocate their assets
according to Ibbotson's models will achieve their desired investment results.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of Trust shareholders to elect Trustees or for other purposes. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. In addition, the Declaration of Trust provides that
the holders of not less than two-thirds of the outstanding shares of the Trust
may remove a person serving as Trustee either by declaration in writing or at a
meeting called for such purpose. The Trustees are required to call a meeting
for the purpose of considering the removal of a person serving as Trustee if
requested in writing to do so by the holders of not less than ten percent of the
outstanding shares of the Trust. In the event that such a request was made, the
Trust has represented that it would assist with any necessary shareholder
communications. Shareholders of a class of shares have different voting rights
with respect to matters that affect only that class.
The Trust's shares do not have cumulative voting rights, so that the holder of
more than 50% of the outstanding shares may elect the entire Board of Trustees,
in which case the holders of the remaining shares would not be able to elect any
Trustees. As of October 5, 1999, the following persons owned of record or
beneficially 5% or more of the noted class of shares of the following Funds:
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
-----------------------------
<S> <C> <C>
Money Market Fund
Institutional
Combined Master Retirement Trust 198,476,289.530 73.19%*
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240
The Beacon Group, LLC 21,764,146.110 8.03%
399 Park Avenue
New York, NY 10022-4614
</TABLE>
86
<PAGE>
<TABLE>
<S> <C> <C>
Administrative
Maltrust & Co. (Hooker & Holcombe, Inc.) 2,389,014.480 28.34%
225 Essex Street
Salem, Massachusetts 01970
Security Trust for Group Health Cooperative of 1,356,444.840 16.09%
Puget Sound 403b Group Cust Account
2525 E. Camelback #570
Phoenix, Arizona 85016
Joseph C. Tusa Jr., Edward L. Pierce 584,843.290 6.94%
Henry P. Holland as Trustees FBO
Metamor Worldwide 401(k)
4400 Post Oak Pkwy., Suite 1100
Houston, TX 77027-3400
Class A
Carn & Co. 8,250,875.470 12.91%
PIMCO Advisors
401K Savings and Investment Plan
Attention: Mutual Fund Department
P. O. Box 96211
Washington D.C. 20090-6211
Bear Stearns Securities Corp. 4,723,121.870 7.39%
FBO 102-06578-29
1 MetroTech Center North
Brooklyn, NY 11201-3859
Class C
Gilbert Kelly Crowley Jennett 5,573,656.210 6.83%
RE Trust UA DTD March 1, 1968 W D E
Jennett & C. Cooper & T. J. Viola
1200 Wilshire Blvd., Suite 5
Los Angeles, CA 90017-1908
Short-Term Fund
Institutional
Soka University of America 7,630,553.239 15.54%
26800 W. Mulholland Highway
Attention: Arnold Kawasaki
Calabasas, California 91302
Charles Schwab & Co., Inc. ** 6,288,958.566 12.81%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
</TABLE>
87
<PAGE>
<TABLE>
<S> <C> <C>
Bankers Trust Company FBO: 4,638,890.200 9.45%
Georgia-Pacific Corporation Master Trust for Employee
648 Grassmere Business Park Rd.
Advisor Services Group, 2nd Floor
Nashville, Tennessee 37211
Trustees of Columbia University in 4,409,968.052 8.98%
the City of New York
Office of Investments
475 Riverside Dr., Suite 401
New York, New York 10115
Northern Trust Company as TTEE FBO 2,782,952.480 5.67%
Trigon Services, Inc.
P.O. Box 92956
Chicago, Illinois 60675
Denison University 2,553,147.307 5.20%
Mr. Seth H. Patton
Director of Finance & Budget
P.O. Box F
Granville, OH 43023-0734
Administrative
FTC and Company 141,373.293 24.92%
Attn: DATAlynx #083
P.O. Box 173736
Denver, Colorado 80217
National Financial Services Corp. 93,535.175 16.49%
For the Exclusive Benefit of its Customers
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
FTC and Company 67,001.477 11.81%
Attn: DATAlynx K83
P.O. Box 173736
Denver, Colorado 80217
Lau & Co. c/o Frost 51,373.698 9.06%
National Bank
P. O. Box 2479
San Antonio, Texas 78298-2479
Lynn R. Prebe TTEE of the 28,568.239 5.04%
F. James Prebe & Lynn R. Prebe Trust Dtd 7/23/92
16347 Grenoble Lane
Huntington Beach, CA 92649-1825
</TABLE>
88
<PAGE>
<TABLE>
<S> <C> <C>
Class A
MLPF&S For the Sole Benefit of its Customers ** 2,396,224.382 27.27%
Attention: Fund Administration #97MY2
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Mr. Ronald S. Taft TR 661,871.714 7.53%
Artist Management Inc.
Defined Benefit Pension Plan 61284
18 W. 55th Street, Apt. 4
New York, New York 10019-5368
PaineWebber FBO 578,266.819 6.58%
Adventist Healthcare Inc. - Fixed Income
Dan Bowen
1801 Research Boulevard, Suite 300
Rockville, Maryland 20850-3152
Mr. Ronald S. Taft TR 493,200.502 5.61%
Ronald S. Taft Employee Defined Benefit Plan 1184
18 W. 55th Street, Apt. 4
New York, New York 10019-5368
Class B
MLPF&S For the Sole Benefit of its Customers ** 195,218.015 40.23%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Donaldson Lufkin Jenrette 65,198.960 13.44%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, New Jersey 07303-9998
Class C
MLPF&S For the Sole Benefit of its Customers ** 425,053.745 21.83%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Dean Witter for the Benefit of 107,903.497 5.54%
Noel Kutuyev
P.O. Box 250, Church Street Station
New York, NY 10008-0250
Prudential Securities FBO 107,154.370 5.50%
Oakwood Orthopaedic Clinic PA
PS P&T DTD 12/30/1974
Drs. Manning & Evins TTEES
Greenville, South Carolina 29605-4235
</TABLE>
89
<PAGE>
<TABLE>
<S> <C> <C>
Class D
Charles Schwab & Co., Inc.** 317,009.675 76.69%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Donaldson Lufkin Jenrette Securities Corp. 36,322.887 8.79%
P.O. Box 2052
Jersey City, NJ 07303-9998
National Investors Services Corp. 23,685.203 5.73%
For Exclusive Benefit of its Customers
Attn. Ms. Sandra Stewart
55 Water Street, 32nd Floor
New York, NY 10041-3299
Low Duration Fund
Institutional
MLTC of America FBO 40,037,451.134 9.81%
Dupont Savings & Investment Plan
300 Davidson Ave.
Somerset, NJ 08873-4175
Charles Schwab & Co., Inc. Rein** 37,886,158.204 9.28%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
MLTC of America FBO 20,541,373.277 5.03%
Conoco Thrift Plan
300 Davidson Ave.
Somerset, NJ 08873-4175
Administrative
FIIOC as Agent for Certain Employee Benefits Plan** 4,208,360.143 34.61%
100 Magellan KW1C
Covington, Kentucky 41015
McClatchy Newspapers Defined Comp. Inv. Plan 2,096,258.727 17.24%
550 Kearny Street #600
San Francisco, California 94108
</TABLE>
90
<PAGE>
<TABLE>
<S> <C> <C>
Bankers Trust TTEE FBO 1,302,520.670 10.71%
Mapco Coal
100 Plaza One
Jersey City, New Jersey 07311-3999
Sonnenschein, Nath & Rosenthal 1,236,709.472 10.17%
P. O. Box 419260
Kansas City, Missouri 64141-6260
National Financial Services Corp. 1,210,373.501 9.95%
For the Exclusive Benefit of its Customers
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
Class A
MLPF&S For the Sole Benefit of its Customers ** 5,908,557.671 25.70%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Richard J. Steinhelper Tr 3,349,371.135 14.57%
Michigan Tooling Association
Benefit Plans Investment Trust
28237 Orchard Lake Road
P. O. Box 9151
Farmington Hills, Michigan 48333-9151
Class B
MLPF&S For the Sole Benefit of its Customers ** 1,870,666.128 24.85%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 3,244,312.789 26.43%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 826,493.826 87.19%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
91
<PAGE>
<TABLE>
<S> <C> <C>
National Investors Services Corp. 67,065.291 7.08%
For Exclusive Benefit of its Customers
Attn. Ms. Sandra Stewart
55 Water Street, 32nd Floor
New York, NY 10041-3299
Low Duration Fund II
Institutional
Sprint Retirement Savings Plan 15,758,858.972 32.96%*
82 Devonshire Street - E1GA
Boston, Massachusetts 02109
American Bible Society 5,812,868.031 12.16%
1865 Broadway
New York, New York 10023
Salt River Project Decom Trust 4,096,145.287 8.57%
P. O. Box 52025
Phoenix, Arizona 85072
Associated Electric & Gas 3,865,494.739 8.08%
Insurance Services Limited
10 Exchange Place
Jersey City, NJ 07302-3901
The Northern Trust Company FBO 2,936,476.364 6.14%
Nestle USA Inc. Savings Plan Trust
P.O. Box 92956
Chicago, IL 60675-2956
Administrative
FTC & Co. Attn: Datalynx #383 25,584.261 82.31%
P.O. Box 173736
Denver, CO 80217-3736
National Financial Services Corp. 5,498.629 17.69%
For the Exclusive Benefit of its Customers
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
Low Duration Fund III
Institutional
Loyola Academy Endowment Fund 1,013,189.086 39.01%*
135 S. LaSalle Street
P. O. Box 1443
Chicago, Illinois 60690
</TABLE>
92
<PAGE>
<TABLE>
<S> <C> <C>
Sisters of St. Joseph/Michigan 844,858.528 32.53%*
3427 Gull Road
P. O. Box 13
Nazareth, Michigan 49074
National Jewish Medical & Research Center 512,909.158 19.75%
1400 Jackson Street
Denver, CO 80206-2762
Charles Schwab & Co., Inc. Rein** 210,941.353 8.12%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Administrative
Pacific Investment Management Company 1,024.009 100.00%
840 Newport Center Drive
Newport Beach, CA 92660
Low Duration Mortgage Fund
Institutional
Pacific Investment Management Company 379,684.384 90.15%*
840 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. Rein** 41,462.845 9.85%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Moderate Duration Fund
Institutional
Columbus Circle Trust Co-SV** 5,681,132.273 15.75%
1 Station Place Metro Center
Stamford, Connecticut 06902
Mac & Co. A/C SPNF6001552 3,212,067.194 8.91%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Northern Trust Bank of Texas 3,080,176.925 8.54%
Custodian for John G. and Marie Stella Kenedy
Memorial Foundation, Acct. #2617646
P.O. Box 02056
Chicago, IL 60675
</TABLE>
93
<PAGE>
<TABLE>
<S> <C> <C>
Wendel & Co. A/C 706009 3,000,390.585 8.32%
The Bank of New York
Attn: Mutual Fund/Reorg. Dept.
P.O. Box 1066, Wall Street Station
New York, NY 10268-1066
The Children's Hospital Association 2,297,120.388 6.37%
1056 E. 19th Avenue B020
Denver, Colorado 80218
Samaritan Health System Retirement Income Plan 1,945,586.767 5.39%
300 S. Grand Ave. 40th Floor
Los Angeles, California 90071
Washington Teamsters Welfare Trust 1,897,037.596 5.26%
Attention: Jack Cowan
2323 Eastlake Avenue E.
Seattle, Washington 98102
Real Return Bond Fund
Institutional
National Financial Services Corporation ** 3,749,559.164 42.34%*
1 World Financial Center
200 Liberty Street
New York, New York 10281
Schroder Wertheim & Co., Inc. 1,585,455.233 17.90%
Mutual Fund Control Account
c/o Lewco Securities
34 Exchange Place 4th Fl
Jersey City, New Jersey 07311
Wake Forest University 1,520,145.279 17.16%
P.O. Box 7354
Winston Salem, NC 27109-7354
Charles Schwab & Co., Inc. Rein** 722,255.514 8.16%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Class A
Lewco Securities Corp. FBO 610,929.082 64.39%
A/C# H30-627865-6-01
34 Exchange Place, 4th Floor
Jersey City, New Jersey 07311
</TABLE>
94
<PAGE>
<TABLE>
<S> <C> <C>
MLPF&S For the Sole Benefit of its Customers ** 151,072.377 15.92%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 309,612.853 37.09%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Everen Clearing Corp. 41,945.964 5.03%
A/C# 3276-2387
Barbara K. Fritzberg
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
Class C
MLPF&S For the Sole Benefit of its Customers ** 498,501.125 51.40%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 348,414.258 59.94%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Ronald K. Filippi MD 30,696.055 5.28%
5960 Pelican Bay Blvd.
Naples, FL 34108
Total Return Fund
Institutional
Charles Schwab & Co., Inc. Rein** 170,302,992.737 7.35%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Administrative
Nikko Securities Co., Ltd.** 90,240,973.000 30.17%
3-1 Marunouchi 3Chrome, Chiyodaku
Tokyo, Japan 101-0064
</TABLE>
95
<PAGE>
<TABLE>
<S> <C> <C>
FIIOC as Agent for Certain Employee Benefits Plan** 57,613,193.027 19.26%
100 Magellan KW1C
Covington, Kentucky 41015
National Financial Services Corporation ** 48,462,628.533 16.20%
1 World Financial Center
200 Liberty Street
New York, New York 10281
Manufacturers Life Insurance Co. (USA) 23,148,310.847 7.74%
200 Bloor Street East
Toronto, Ontario
Canada M4W 1E5
Class A
MLPF&S For the Sole Benefit of its Customers ** 86,430,261.102 51.51%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 23,664,922.706 36.01%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 25,869,259.826 33.36%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc. Rein** 5,273,674.811 91.89%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Total Return Fund II
Institutional
Charles Schwab & Co., Inc. Rein** 11,929,998.447 9.94%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Catholic Archbishop of Chicago 8,530,196.258 7.11%
155 East Superior Street
Chicago, IL 60611-2911
</TABLE>
96
<PAGE>
<TABLE>
<S> <C> <C>
IUE AFL-CIO Pension Plan 6,861,518.190 5.72%
1460 Broad Street
Blommfield, New Jersey 07003
Morley Capital Management 6,142,828.690 5.12%
P.O. Box 85484
San Diego, CA 92186
Administrative
Security Trust Co. as Inv. Agent for 3,329,195.015 66.61%
Twin City Pipe Trades Supply
Retirement Plan
2525 E. Camelback Road, #570
Phoenix, AZ 85016-4272
Total Return Fund III
Institutional
Archdiocese of LA/Corp/Diocese Tucson 12,511,823.887 18.79%
3424 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010-2241
Wendel & Co. A/C 092937 6,676,607.147 10.03%
C/O The Bank of New York
Attn: Mutual Fund/Reorg. Dept.
P.O. Box 1066, Wall Street Station
New York, NY 10268-1066
Mac & Co Acct SPDF7002552 4,043,590.218 6.07%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Administrative
Lumpkin Foundation (PaineWebber) 323,598.432 88.46%
P. O. Box 1097
Mattoon, Illinois 61938
Dubuque Bank & Trust Co. ** 34,656.823 9.47%
Attention: Trust Department
Dubuque, Iowa 5200-0747
Total Return Mortgage Fund
Institutional
Pacific Investment Management Company 378,074.847 96.72%*
840 Newport Center Drive
Newport Beach, California 92660
</TABLE>
97
<PAGE>
<TABLE>
<S> <C> <C>
Class D
Pacific Investment Management Company 10,629.922 82.45%
840 Newport Center Drive
Newport Beach, California 92660
National Investors Services Corp. 2,010.677 15.59%
for Exclusive Benefit of their Customers
55 Water Street, 32nd Floor
New York, NY 10041
High Yield Fund
Institutional
Charles Schwab & Co., Inc. Rein** 29,927,472.898 13.85%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Administrative
National Financial Services Corporation ** 22,163,579.482 74.14%
1 World Financial Center
200 Liberty Street
New York, New York 10281
Investors Fiduciary Trust Co. Custodian 3,198,730.066 10.70%
FBO Centurion Trust Co.
801 Pennsylvania Avenue
Kansas City, MO 64105-1307
FIIOC as Agent for Certain Employee Benefits Plan** 2,396,590.408 8.02%
100 Magellan KW1C
Covington, Kentucky 41015
Class A
MLPF&S For the Sole Benefit of its Customers ** 3,324,481.672 19.28%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 7,869,939.029 25.96%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 6,712,356.852 18.70%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
98
<PAGE>
<TABLE>
<S> <C> <C>
Class D
Charles Schwab & Co., Inc.** 1,615,292.051 91.73%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Long-Term U.S. Government Fund
Institutional
Chronicle Publishing 8,373,589.239 28.86%
22 4th Street, Suite 1400
San Francisco, CA 94103
The St. Joe Company Salaried Pension Plan 5,355,839.760 18.39%
1650 Prudential Drive, Suite 400
Jacksonville, Florida 32207
Chicago Symphony Orchestra 3,591,132.326 12.38%
220 South Michigan Avenue
Chicago, Illinois 60604
Charles Schwab & Co. Inc. 2,729,882.952 9.41%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
The St. Joe Company Hourly Pension Plan 1,795,247.521 6.19%
1650 Prudential Drive, Suite 400
Jacksonville, Florida 32207
Allianz Defined Contribution Plan 1,649,043.623 5.68%
P. O. Box 92956
Chicago, Illinois 60675
Administrative
FIIOC as Agent for Certain Employee Benefits Plan** 4,520,726.678 92.25%
100 Magellan KW1C
Covington, Kentucky 41015
Class A
MLPF&S For the Sole Benefit of its Customers ** 388,141.985 12.87%
Attention: Fund Administration #97MY2
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
99
<PAGE>
<TABLE>
<S> <C> <C>
Prudential Bank & Trust Co. 343,143.548 11.38%
Defined Contribution Plan
For the Benefit of Plan Participants
30 Scranton Office Park
Scranton, Pennsylvania 18507-1755
Class B
MLPF&S For the Sole Benefit of its Customers ** 1,300,756.780 32.31%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 888,269.094 32.83%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Municipal Bond
Institutional
Brent R. Harris & Elizabeth E. Harris JT WROS 152,878.849 33.80%
c/o 800 Newport Center Drive
Newport Beach, CA 92660
MediaOne VEBA Trust 123,351.210 27.27%
188 Inverness Drive West, Fl. 7
Englewood, CO 80112-5201
Phyllis K. Curtis TTEE of 74,528.947 16.48%
The Phyllis K. Curtis Separate Property Trust
14158 NW Bronson Creek Drive
Portland, OR 97229-7060
John L. Johnson 42,202.000 9.33%
7831 Stanford
Dallas, TX 75225-8209
Nelly B. Monroe 35,954.173 7.95%
57 Long Hill Farm
Guilford, CT 06437-1827
Administrative
Joy L. McNeese 29,732.736 11.40%
8438 Porter Lane
Alexandria, VA 22308-2142
Diana F. Mezrah 24,092.781 9.24%
Leon M. Mezrah TEN ENT
623 Island Place Way
Tampa, FL 33602-5798
</TABLE>
100
<PAGE>
<TABLE>
<S> <C> <C>
William c. Tidball 13,433.631 5.15%
Ann G. Tidball JT WROS
5669 Rayburn Ave.
Alexandria, VA 22311
Class A
MLPF&S For the Sole Benefit of its Customers ** 362,926.799 37.87%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Banc of America Securities LLC 88,753.026 9.26%
712-02020-10
Attn: Mutual Funds - 4th Floor
600 Montgomery Street
San Francisco, CA 94111
Joseph R. White 74,102.558 7.73%
P.O. Box 572
Waltham, MA 02454-0572
BT Alex Brown Incorporated 51,179.720 5.34%
FBO 255-29889-13
P.O. Box 1346
Baltimore, MD 21203
Class B
MLPF&S For the Sole Benefit of its Customers ** 135,445.279 21.57%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Dain Rauscher Incorporated FBO 66,529.644 10.59%
K. K. Kinsey Trustee
K. K. Kinsey Rev Intervivos TR
UA DTD 04-18-1997
2801 NE 14th Street
Fort Lauderdale, FL 33304-1680
Prudential Securities Inc. FBO 59,055.728 9.40%
Ruth G. Battel
6 Willow Bank Ct.
Mahwah, NJ 07430-2909
</TABLE>
101
<PAGE>
<TABLE>
<S> <C> <C>
Class C
MLPF&S For the Sole Benefit of its Customers ** 457,419.672 13.21%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 29,502.367 78.00%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Donaldson Lufkin Jenrette 2,921.397 7.72%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Global Bond
Institutional
Walker Art Center, Inc. 3,143,262.990 10.45%
Vineland Place
Minneapolis, Minnesota 55403
University of Denver (Colorado Seminary) 2,367,198.366 7.87%
2199 South University Blvd.
Denver, Colorado 80208
Kamehameha Schools 2,316,701.467 7.70%
P. O. Box 3466
Honolulu, Hawaii 96801
Blue Cross Blue Shield of Massachusetts Inc. 1,733,416.680 5.76%
Managed Care
100 Summer Street, Treasury 01-06
Boston, MA 02110-2106
Worcester Polytechnic 1,638,334.726 5.45%
100 Institute Road
Worcester, Massachusetts 01609
Sunkist Master Trust 1,619,936.061 5.39%
14130 Riverside Drive
Sherman Oaks, California 91423
Hobart and William Smith Colleges 1,608,911.391 5.35%
337 Pulteney Street
Geneva, New York 14456
</TABLE>
102
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<TABLE>
<S> <C> <C>
Administrative
FIIOC as Agent for Certain Employee Benefits Plan** 749,642.615 100.00%
100 Magellan KW1C
Covington, Kentucky 41015
Class A
MLPF&S For the Sole Benefit of its Customers ** 45,663.818 14.88%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 103,760.464 19.89%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 110,969.102 17.42%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Global Bond Fund II
Institutional
MAC & Co. A/C CTBF8606452 1,791,161.617 58.33%*
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
GMP & Employers Retiree Trust 1,059,006.805 34.49%
MIDF965N032
Mutual Funds Operations
Pittsburgh, Pennsylvania 15230-3198
Foreign Bond Fund
Institutional
Charles Schwab & Co., Inc. Rein** 27,819,293.919 61.26%*
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Donaldson Lufkin Jennrette** 7,153,363.548 15.75%
1 Pershing Plaza
P. O. Box 2052
Jersey City, New Jersey 07399
</TABLE>
103
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<TABLE>
<S> <C> <C>
Administrative
CBNA FBO Clients of Benefit Plans 143,149.410 31.00%
1500 Genesee Street
Utica, New York 13502
National Financial Services Corporation ** 52,059.129 11.27%
1 World Financial Center
200 Liberty Street
New York, New York 10281
Resources Trust Company for 41,826.588 9.06%
the Exclusive Benefit of the Customers of IMS
P.O. Box 3865
Englewood, CO 80155
Class A
Advest Inc. 677,424.924 14.21%
768-12284-12
90 State House Square
Hartford, CT 06103
Advest Inc. 472,719.899 9.92%
768-12284-11
90 State House Square
Hartford, CT 06103
Class B
MLPF&S For the Sole Benefit of its Customers ** 157,868.283 6.70%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 1,011,260.907 93.54%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
International Bond Fund
Institutional
Bost & Co. (A/C NYXF8661002) 13,171,805.266 9.65%
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
</TABLE>
104
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<TABLE>
<S> <C> <C>
Emerging Markets Bond Fund
Institutional
Charles Schwab & Co., Inc. Rein** 521,498.061 89.00%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Administrative
Centurion Trust Company 1,486,249.592 99.90%*
FBO Omnibus/Centurion Cap. Mgmt.
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
Class A
MLPF&S For the Sole Benefit of its Customers ** 4,869.000 15.01%
Attention: Fund Administration #97RD2
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Steve M. Foulke & Maria M. Foulke 4,598.463 14.17%
Community Property
1 Altimira
Coto de Caza, California 92679-4901
PaineWebber for the Benefit of L.A. Razette & 3,502.469 10.80%
Clara M. Razette JTWROS
3357 Sabal Springs Blvd.
North Fort Myers, Florida 33917-2023
Julie D. Roth TR 3,442.036 10.61%
UA JUN 06 96
J&M Roth Family Trust
34300 Lantern Bay Drive, Apt. 9
Dana Point, California 92629-2858
Maria May Faulke TTEE 3,042.898 9.38%
Maria Michelle May 1992 Trust
FBO Chelsea & Ryan Faulke
1 Altimira
Trabuco Canyon, California 92679
Patricia D. Rodilosso Cust. 2,423.372 7.47%
FBO Christopher Adam Rodilosso
Unif GIFT MIN ACT NJ
9 River Edge Drive
Rumson, New Jersey 07760-1025
Thomas Rodilosso & 1,855.814 5.72%
Patricia D. Rodilosso
Joint TEN WROS NOT TC
9 River Edge Drive
Rumson, New Jersey 07760-1025
</TABLE>
105
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<TABLE>
<S> <C> <C>
Class B
MLPF&S For the Sole Benefit of its Customers ** 20,642.667 17.44%
Attention: Fund Administration #97M36 .
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Robert S. Baird & Co. Inc. 13,430.844 11.34%
A/C 1751-2072
777 East Wisconsin Avenue
Milwaukee, WI 53202-5391
Donaldson Lufkin Jenrette Securities Corp. Inc. ** 9,053.567 7.65%
P.O. Box 2052
Jersey City, New Jersey 07303-9998
Donaldson Lufkin Jenrette Securities Corp. Inc. ** 6,763.366 5.71%
P.O. Box 2052
Jersey City, New Jersey 07303-9998
PaineWebber FBO 6,234.466 5.27%
Rosalyn Helford
1655 Lake Cook Road, Apt. 149
Highland Park, Illinois 60035-4400
Class C
MLPF&S For the Sole Benefit of its Customers ** 7,689.614 21.70%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
NFSC FEBO #120-077852 5,538.963 15.63%
FMT CO CUST IRA
FBO John J. Jordan
P. O. Box 466
Rye Beach, New Hampshire 03871
CIBC World Markets Corp. 4,176.072 11.78%
FBO 020-66126-24
P. O. Box 3484
Church Street Station
New York, New York 10008-8484
Orlin TE SLAA TR 3,697.246 10.43%
Patrick J. Rowland Rev Trust
U/A Dated 12/7/1993 as Amended
3800 W. 80th Street
Bloomington, Minnesota 55431-4420
</TABLE>
106
<PAGE>
<TABLE>
<S> <C> <C>
Raymond James & Assoc. Inc. 3,489.892 9.85%
For Elite Acct #82729810
Janet A. Delsantro
REV Trust UA DTD 3 23 98
14505 Aeries Way Drive, Apt. 224
Fort Meyers, Florida 33912-1721
Emerging Markets Bond Fund II
Institutional
Northeast Utilities 2,134,178.914 9.30%
IT Division 027-002C
20 Cabot Road
Medford, Massachusetts 02155-5160
Northern Trust Company FBO: 1,731,279.291 7.55%
Deluxe Corporation #22-53693
P.O. Box 92923
Chicago, Illinois 60675
Nebraska Public Employees Retirement System 1,533,264.349 6.68%
P. O. Box 1992
Boston, Massachusetts 02105-1992
New York State Teamster Conference Pension 1,446,975.160 6.31%
and Retirement Plan A/C T628
P.O. Box 1992
Boston, Massachusetts 02105-1992
Strategic Balanced Fund
Institutional
California Community Foundation 5,248,275.002 52.56%*
606 South Olive Street, Suite 2400
Los Angeles, California 90014
Carpenters Health and Security Trust 2,155,813.563 21.59%
of Western Washington
P.O. Box 1929
Seattle, Washington 98111
Pacific Asset Management LLC 566,795.458 5.68%
700 Newport Center Drive
Newport Beach, California 92660-6307
</TABLE>
107
<PAGE>
<TABLE>
<S> <C> <C>
Class A
Prudential Securities Inc. FBO 85,279.915 21.45%
Prudential Retirement Services
Administrator for Plan 80322
MSSA-ILA Local 1985 401(k)
P.O. Box 15040
New Brunswick, NJ 08906
B. B. Schilberg & N. B. Schilberg TR UA 10/01/93 33,506.617 8.43%
Schilbert Integrated Metals Corp. 401(k) Plan
Riverview Square II
99 E River Drive
East Hartford, CT 06108
BSDT Cust. Rollover IRA 22,061.410 5.55%
FBO Frederick A. Otto
795 Fairway Court
Gaylord, MI 49735
Class B
MLPF&S For the Sole Benefit of its Customers ** 215,053.577 21.91%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 206,951.431 21.37%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
PIMCO Advisors L.P. 8,881.583 50.06%
800 Newport Center Drive
Newport Beach, California 92660-6309
Charles Schwab & Co., Inc.** 5,495.011 30.97%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
National Investors Services Corp. for 3,101.963 17.48%
Exclusive Benefit of their Customers
55 Water Street, 32nd Floor
New York, NY 10041
</TABLE>
108
<PAGE>
Convertible Bond
<TABLE>
<S> <C> <C>
Institutional
Northern Trust Company FBO: 442,869.796 13.94%
Lucent Technologies Inc. Master Pension Trust
P.O. Box 92923
Chicago, IL 60675
Phillip Morris Master Retirement Trust 436,681.223 13.75%
c/o State Street Bank & Trust
P.O. Box 1992
Boston, Massachusetts 02105-1992
Baptist Foundation 379,912.664 11.96%
c/o Bost & Co.
One Cabot Road
Medford, Massachusetts 02155-5141
Reynolds Metals Inc. 335,507.922 10.56%
c/o Chase Manhattan Bank NA
Chase MetroTech Center
Brooklyn, NY 11245
State Street Bank & Trust FBO 303,819.444 9.56%
New York State Teamsters Conf. Pen. & Ret.
P.O. Box 1992
Boston, MA 02105
Northern States Power Pension Plan 281,306.715 8.86%
c/o Norwest Bank NA
733 Marquette Avenue, MS #0036
Minneapolis, MN 55402-2309
Carpenters of Western Washington 254,083.485 8.00%
c/o Bank of New York
1 Wall Street, 8th Floor
New York, NY 10005-2500
State Street Bank & Trust FBO: 206,362.855 6.50%
Milacron Inc. Master Trust
P.O. Box 1992
Boston, MA 02105
Toyota Motor Insurance Services Inc. 200,546.946 6.31%
c/o Bankers Trust Company
648 Grassmere Business Park Road
Nashville, Tennessee 37211
Keebler Retirement Trust 199,637.024 6.28%
c/o Northern Trust Company
P.O. Box 92923
Chicago, Illinois 60675-2923
</TABLE>
109
<PAGE>
<TABLE>
<S> <C> <C>
Potomac Electric 191,470.844 6.03%
1900 Pennsylvania Ave., N.W.
Washington, D.C. 20068
Salt River Project 185,356.812 5.83%
c/o Marshall & Isley
1000 North Water, 14th Floor
Milwaukee, Wisconsin 53202
Citicorp Services, Inc. 171,969.046 5.41%
FBO Seagrams
3800 Citibank Center
Tampa, FL 33610
Class A
Salomon Smith Barney Inc. 9,041.591 30.36%
333 West 34th Street, 3rd Floor
New York, New York 10001
MLPF&S For the Sole Benefit of its Customers ** 8,281.008 27.81%
Attention: Fund Administration #97
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
First Clearing Corporation 3,965.923 13.32%
Stephen R. Evans and Janice B. Evans
4 Chelsea Drive
Cambridge, MD 21613
Raymond James & Assoc. Inc. CSDN 3,423.712 10.89%
Arlene A. Travis IRA
2739 Randolph Street, N.E.
Minneapolis, MN 55418
First Clearing Corporation 1,967.584 6.61%
Edward N. Evans II
303 Bradley Drive
Wilmington, NC 28409
Painewebber for the Benefit of 1,760.880 5.91%
Painewebber CDN FBO
Joseph J. Vizzini
P.O. Box 3321
Weehawken, NJ 07087
Class B
MLPF&S For the Sole Benefit of its Customers ** 12,169.302 31.70%
Attention: Fund Administration #97
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
110
<PAGE>
<TABLE>
<S> <C> <C>
PaineWebber for the Benefit of 11,456.633 29.84%
PaineWebber CDN FBO
Stanley Tolin
P.O. Box 3321
Weehawken, NJ 07087
Prudential Securities Inc. FBO 4,424.779 11.53%
Mr. Larry R. Kirkman
2310 Whilden Ct.
Charlotte, NC 28211-3274
Class C
MLPF&S For the Sole Benefit of its Customers ** 87,367.271 51.60%
Attention: Fund Administration #97
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Salomon Smith Barney Inc. 9,149.131 5.40%
151865027
333 West 34th Street, 3rd Floor
New York, New York 10001
Salomon Smith Barney Inc. 9,149.131 5.40%
151814457
333 West 34th Street, 3rd Floor
New York, New York 10001
Salomon Smith Barney Inc. 8,788.493 5.19%
151816903
333 West 34th Street, 3rd Floor
New York, New York 10001
StocksPLUS Fund
Institutional
Charles Schwab & Co., Inc. Rein** 4,659,990.208 12.11%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
St. Cloud Hospital 3,383,816.976 8.79%
1406 6th Avenue N.
St. Cloud, Minnesota 56301
Northern Trust Custodian FBO 2,267,764.269 5.89%
Reliastar Financial Acct. #26-48847
P.O. Box 92956
Chicago, IL 60675
</TABLE>
111
<PAGE>
<TABLE>
<S> <C> <C>
Firstar Trust Company Agent 2,206,430.820 5.73%
Firstar Des Moines TTEE
Iowa Methodist Medical Center
P.O. Box 1787
Milwaukee, Wisconsin 53201
Administrative
Centurion Trust Company 2,513,580.435 65.83%
FBO Omnibus/Centurion Cap. Mgmt.
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
Colorado County Off and Emp (Sungard) 905,117.477 23.70%
1666 S. University Blvd. #D
Denver, Colorado 80210
Class A
MLPF&S For the Sole Benefit of its Customers ** 1,364,484.154 11.26%
Attention: Fund Administration #97M34
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 3,756,686.744 15.90%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 3,592,247.826 17.23%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 155,300.077 76.42%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
* Entity owned 25% or more of the outstanding shares of beneficial interest of
the Fund, and therefore may be presumed to "control" the Fund, as that term is
defined in the 1940 Act.
** Shares are believed to be held only as nominee.
112
<PAGE>
The Reorganization of the PIMCO Money Market and Total Return II Funds
On November 1, 1995, the Money Market Fund and the PIMCO Managed Bond and
Income Fund, two former series of PIMCO Funds: Equity Advisors Series, were
reorganized as series of the Trust, and were renamed PIMCO Money Market Fund and
PIMCO Total Return Fund II, respectively. All information presented for these
Funds prior to this date represents their operational history as series of PIMCO
Funds: Equity Advisors Series. In connection with the Reorganization, the
Funds changed their fiscal year end from October 31 to March 31.
The Reorganization of the PIMCO Global Bond Fund II
On January 17, 1997, the Global Income Fund, a former series of PIMCO
Advisors Funds, was reorganized as a series of the Trust, and was renamed the
PIMCO Global Bond Fund II. All information presented for this Fund prior to
that date represents its operational history as a series of PIMCO Advisors
Funds. In connection with the Reorganization, the Fund changed its fiscal year
end from September 30 to March 31.
Code of Ethics
The Trust and PIMCO have each adopted a Code of Ethics governing personal
trading activities of all Trustees and officers of the Trust, and Directors,
officers and employees of PIMCO who, in connection with their regular functions,
play a role in the recommendation of any purchase or sale of a security by the
Trust or obtain information pertaining to such purchase or sale or who have the
power to influence the management or policies of the Trust or PIMCO. Such
persons are prohibited from effecting certain transactions, allowed to effect
certain exempt transactions, required to preclear certain security transactions
with PIMCO's Compliance Officer or his designee and to report certain
transactions on a regular basis. PIMCO has developed procedures for
administration of the Codes.
Year 2000 Readiness Disclosure
Many of the world's computer systems may be unable to correctly recognize,
interpret or use dates beyond the year 1999. This inability might lead to
significant business disruptions. PIMCO Advisors and PIMCO are taking steps to
assure that their computer systems will function properly. PIMCO Advisors has
designated a team of information and business professionals to address the Year
2000 problem and developed a written Year 2000 Plan.
The PIMCO Advisors Year 2000 Plan consists of five general phases:
Awareness, Assessment, Remediation, Testing, and Implementation. During the
Awareness phase, the Year 2000 team informs the employees of PIMCO Advisors and
its subsidiaries, including the highest levels of management, about the Year
2000 problem. A written Year 2000 Plan and budget is prepared and approved by
the PIMCO Advisors Management Board. During the Assessment phase, the Year 2000
team prepares an inventory of information technology ("IT") and non-IT systems
used in PIMCO Advisors and its subsidiaries business. Systems are classified as
software, hardware, and embedded chips. Separately, systems are also classified
as mission critical and non-mission critical systems. As the inventory is
compiled and verified, each system is preliminarily assessed for Year 2000
compliance. This preliminary assessment is made by obtaining manufacturers'
representations that a given product is Year 2000 compliant or other evidence of
compliance. Systems for which no such evidence can be obtained are identified
as candidates for correction or replacement ("Remediation"). During the
Remediation phase, software, hardware, and embedded chips identified during the
Assessment phase to be non-Year 2000 compliant are corrected or replaced.
Necessarily, further corrections and replacements may need to be made after the
Remediation phase has been completed as a result of problems identified during
the Testing phase or otherwise. During the Testing phase, PIMCO Advisors
performs internal testing, point-to-point testing, and industry testing
programs. Testing generally will be performed in order of criticality
113
<PAGE>
(mission critical, then non-mission critical). Several PIMCO Advisors
subsidiaries plan on participating in the Securities Industry Association's
industry-wide testing forum. During the Implementation phase, systems that have
been tested and identified as being Year 2000 Compliant are put into normal
business operation and contingency plans are finalized.
As all investment advisers, PIMCO Advisors' and PIMCO's business operations
are heavily dependent upon a complex worldwide network of financial systems that
utilize date fields. PIMCO Advisors' and PIMCO's ability to endure any adverse
effects of the transition to Year 2000 is highly dependent upon the efforts of
third parties, particularly brokers, dealers, and custodians. The failure of
third party organizations to resolve their own processing issues with respect to
the Year 2000 Problem in a timely manner could have a material adverse effect on
PIMCO Advisors' or PIMCO's business. The management of PIMCO Advisors and PIMCO
believe that the transition to Year 2000 will not have a material adverse effect
on their business or operations as of the date of this Statement of Additional
Information. However, complications as yet unidentified may arise in internal
or external systems, with data providers, with other securities firms or
institutions, with issuers, with other counterparties, with other entities, or
even with general economic conditions related to the Year 2000 in general. The
Year 2000 Problem may be particularly acute with respect to foreign markets and
securities of foreign issuers in which the Funds invest due to a potential lack
of Year 2000 compliance efforts in foreign markets or by foreign companies.
Although PIMCO Advisors' efforts and expenditures on Year 2000 issues are
substantial, there can be no assurances that shareholders or others will not
suffer from disruptions or adverse results arising as a consequence of entering
Year 2000.
Custodian, Transfer Agent and Dividend Disbursing Agent
Investors Fiduciary Trust Company ("IFTC") 801 Pennsylvania, Kansas City,
Missouri 64105 serves as custodian for assets of all Funds. Pursuant to a sub-
custody agreement between IFTC and State Street Bank and Trust Company ("State
Street"), State Street serves as subcustodian of the Trust for the custody of
the foreign securities acquired by those Funds that invest in foreign
securities. Under the agreement, State Street may hold the foreign securities
at its principal office at 225 Franklin Street, Boston. Massachusetts 02110, and
at State Street's branches, and subject to approval by the Board of Trustees, at
a foreign branch of a qualified U.S. bank, with an eligible foreign
subcustodian, or with an eligible foreign securities depository.
Pursuant to rules adopted under the 1940 Act, the Trust may maintain
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and financial stability of the
institution; the ability of the institution to perform capably custodial
services for the Trust; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and further risks of potential nationalization or
expropriation of Trust assets. The Board of Trustees reviews annually the
continuance of foreign custodial arrangements for the Trust. No assurance can
be given that the Trustees' appraisal of the risks in connection with foreign
custodial arrangements will always be correct or that expropriation,
nationalization, freezes, or confiscation of assets that would impact assets of
the Funds will not occur, and shareholders bear the risk of losses arising from
these or other events.
National Financial Data Services, 330 W. 9th Street, 4th Floor, Kansas
City, Missouri serves as transfer agent and dividend disbursing agent for the
Institutional Class, Administrative Class, J Class and K Class shares of the
Funds. First Data Investor Services Group, Inc., P.O. Box 9688, Providence,
Rhode Island 02940-9688 serves as transfer agent and dividend disbursing agent
for the Class A, Class B, Class C and Class D shares of the Funds.
114
<PAGE>
Independent Accountants
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO 64105, serves
as independent public accountants for all Funds. PricewaterhouseCoopers LLP
provides audit services, tax return preparation and assistance and consultation
in connection with review of SEC filings. Prior to November 1, 1995, Deloitte &
Touche LLP served as independent accountants for the PIMCO Money Market and
Total Return II Funds. See "The Reorganization of the PIMCO Money Market and
Total Return II Funds" for additional information.
Counsel
Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006,
passes upon certain legal matters in connection with the shares offered by the
Trust, and also act as counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectuses do not
contain all of the information included in the Trust's registration statement
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectuses as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
Financial Statements
Financial statements for the Trust as of March 31, 1999 for its fiscal year
then ended, including notes thereto, and the reports of PricewaterhouseCoopers
LLP thereon dated May 19, 1999, are incorporated by reference from the Trust's
1999 Annual Reports. A copy of the Reports delivered with this Statement of
Additional Information should be retained for future reference.
115
<PAGE>
[Front Cover]
PIMCO Funds Shareholders' Guide for Class A, B and C Shares
__________, 1999
This Guide relates to the mutual funds (each, a "Fund") that are series of PIMCO
Funds: Multi-Manager Series (the "MMS Trust") and PIMCO Funds: Pacific
Investment Management Series (the "PIMS Trust" and, together with the MMS Trust,
the "Trusts"). Unless otherwise indicated, references to the Funds include the
PIMCO Funds Asset Allocation Series portfolios (the "Portfolios") and PIMCO
Funds: Municipal Bond Series funds (the "Municipal Funds"). The Portfolios are
so called "funds-of-funds" which are also series of the MMS Trust, but are
offered through a separate prospectus. The Municipal Funds are series of the
PIMS Trust, but are also offered through a separate prospectus. The MMS Trust,
the PIMS Trust, the Portfolios, and Municipal Funds each offer Class A, B and C
shares of their respective Funds in separate prospectuses (each, a "Retail
Prospectus").
This Guide contains detailed information about Fund purchase, redemption and
exchange options and procedures and other information about the Funds. This
Guide is not a prospectus, and should be used in conjunction with the applicable
Retail Prospectus. This Guide, and the information disclosed herein, is
incorporated by reference in, and considered part of, each Retail Prospectus.
PIMCO Funds Distributors LLC distributes the Funds' shares. You can call PIMCO
Funds Distributors LLC at 1-800-426-0107 to find out more about the Funds and
other funds in the PIMCO Funds family. You can also visit our Web site at
www.pimcofunds.com.
TABLE OF CONTENTS
How to Buy Shares...............................
Alternative Purchase Arrangements...............
Exchange Privilege..............................
How to Redeem...................................
<PAGE>
How to Buy Shares
Class A, Class B and Class C shares of each Fund are continuously offered
through the Trusts' principal underwriter, PIMCO Funds Distributors LLC (the
"Distributor") and through other firms which have dealer agreements with the
Distributor ("participating brokers") or which have agreed to act as
introducing brokers for the Distributor ("introducing brokers"). The
Distributor is a wholly owned subsidiary of PIMCO Advisors L.P. ("PIMCO
Advisors"), the investment adviser to the Funds that are series of the MMS
Trust, and an affiliate of Pacific Investment Management Company ("Pacific
Investment Management"), the investment adviser to the Funds that are series of
the PIMS Trust. PIMCO Advisors and Pacific Investment Management are each
referred to herein as an "Adviser."
There are two ways to purchase Class A, Class B or Class C shares: either
(i) through your dealer or broker which has a dealer agreement with the
Distributor or (ii) directly by mailing a PIMCO Funds account application (an
"account application") with payment, as described below under the heading
Direct Investment, to the Distributor (if no dealer is named in the account
application, the Distributor may act as dealer).
Shares may be purchased at a price equal to their net asset value per share
next determined after receipt of an order, plus a sales charge which, at the
election of the purchaser, may be imposed either (i) at the time of the purchase
in the case of Class A shares (the "initial sales charge alternative"), (ii)
on a contingent deferred basis in the case of Class B shares (the "deferred
sales charge alternative") or (iii) by the deduction of an ongoing asset based
sales charge in the case of Class C shares (the "asset based sales charge
alternative"). In certain circumstances, Class A and Class C shares are also
subject to a CDSC. See "Alternative Purchase Arrangements." Purchase payments
for Class B and Class C shares are fully invested at the net asset value next
determined after acceptance of the trade. Purchase payments for Class A shares,
less the applicable sales charge, are invested at the net asset value next
determined after acceptance of the trade.
All purchase orders received by the Distributor prior to the close of
regular trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange (the "Exchange") on a regular business day are processed at that
day's offering price. However, orders received by the Distributor from dealers
or brokers after the offering price is determined that day will receive such
offering price if the orders were received by the dealer or broker from its
customer prior to such determination and were transmitted to and received by the
Distributor prior to its close of business that day (normally 5:00 p.m., Eastern
time) or, in the case of certain retirement plans, received by the Distributor
prior to 9:30 a.m., Eastern time on the next business day. Purchase orders
received on other than a regular business day will be executed on the next
succeeding regular business day. The Distributor, in its sole discretion, may
accept or reject any order for purchase of Fund shares. The sale of shares will
be suspended during any period in which the Exchange is closed for other than
weekends or holidays, or, if permitted by the rules of the Securities and
Exchange Commission, when trading on the Exchange is restricted or during an
emergency which makes it impracticable for the Funds to dispose of their
securities or to determine fairly the value of their net assets, or during any
other period as permitted by the Securities and Exchange Commission for the
protection of investors.
Except for purchases through the PIMCO Funds Auto-Invest plan, the PIMCO
Funds Auto-Exchange plan, investments pursuant to the Uniform Gifts to Minors
Act, and tax-qualified
SG-2
<PAGE>
and wrap programs referred to below under "Tax-Qualified Retirement Plans" and
"Alternative Purchase Arrangements--Sales at Net Asset Value," the minimum
initial investment in Class A, Class B or Class C shares of any Fund, and the
minimum additional investment is $100 per Fund. For information about dealer
commissions, see "Alternative Purchase Arrangements" below. Persons selling
Fund shares may receive different compensation for selling Class A, Class B or
Class C shares. Normally, Fund shares purchased through participating brokers
are held in the investor's account with that broker. No share certificates will
be issued unless specifically requested in writing by an investor or broker-
dealer.
Direct Investment
Investors who wish to invest in Class A, Class B or Class C shares of a
Fund directly, rather than through a participating broker, may do so by opening
an account with the Distributor. To open an account, an investor should complete
the account application. All shareholders who open direct accounts with the
Distributor will receive from the Distributor individual confirmations of each
purchase, redemption, dividend reinvestment, exchange or transfer of Fund
shares, including the total number of Fund shares owned as of the confirmation
date, except that purchases which result from the reinvestment of daily-accrued
dividends and/or distributions will be confirmed once each calendar quarter. See
"Distributions" in the applicable Retail Prospectus. Information regarding
direct investment or any other features or plans offered by the Trusts may be
obtained by calling the Distributor at 1-800-426-0107 or by calling your broker.
Purchase by Mail
Investors who wish to invest directly may send a check payable to PIMCO
Funds Distributors LLC, along with a completed application form to:
PIMCO Funds Distributors LLC
P.O. Box 9688
Providence, RI 02940-0926
Purchases are accepted subject to collection of checks at full value and
conversion into federal funds. Payment by a check drawn on any member of the
Federal Reserve System can normally be converted into federal funds within two
business days after receipt of the check. Checks drawn on a non-member bank may
take up to 15 days to convert into federal funds. In all cases, the purchase
price is based on the net asset value next determined after the purchase order
and check are accepted, even though the check may not yet have been converted
into federal funds.
Subsequent Purchases of Shares
Subsequent purchases of Class A, Class B or Class C shares can be made as
indicated above by mailing a check with a letter describing the investment or
with the additional investment portion of a confirmation statement. Except for
subsequent purchases through the PIMCO Funds Auto-Invest plan, the PIMCO Funds
Auto-Exchange plan, tax-qualified programs and PIMCO Funds Fund Link referred to
below, and except during periods when an Automatic Withdrawal Plan is in effect,
the minimum subsequent purchase is $100 in any Fund. All payments should be made
payable to PIMCO Funds Distributors LLC and should clearly indicate the
shareholder's account number. Checks should be mailed to the address above under
"Purchase by Mail."
SG-3
<PAGE>
Tax-Qualified Retirement Plans
The Distributor makes available retirement plan services and documents for
Individual Retirement Accounts (IRAs), including Roth IRAs, for which Boston
Safe Deposit & Trust Company serves as trustee and for IRA Accounts established
with Form 5305-SIMPLE under the Internal Revenue Code of 1986, as amended (the
"Code"). These accounts include Simplified Employee Pension Plan (SEP) and
Salary Reduction Simplified Employee Pension Plan (SAR/SEP) IRA accounts and
prototype documents. In addition, prototype documents are available for
establishing 403(b)(7) custodial accounts with Boston Safe Deposit & Trust
Company as custodian. This type of plan is available to employees of certain
non-profit organizations.
The Distributor also makes available prototype documents for establishing
Money Purchase and/or Profit Sharing Plans and 401(k) Retirement Savings Plans.
These prototype plans require certain minimum per participant account sizes and
certain minimum aggregate investments in the Trust, but are not subject to the
small account fees described below that will apply to other plans. Investors
should call the Distributor at 1-800-426-0107 for further information about
these plans and should consult with their own tax advisers before establishing
any retirement plan. Investors who maintain their accounts with participating
brokers should consult their broker about similar types of accounts that may be
offered through the broker. The minimum initial investment for all tax-qualified
plans (except for employer-sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs) is
$1,000 per Fund and the minimum subsequent investment is $100. The minimum
initial investment for employer-sponsored plans, SIMPLE IRAs, SEPs and SAR/SEPs
and the minimum subsequent investment per Fund for all such plans is $50.
PIMCO Funds Auto-Invest
The PIMCO Funds Auto-Invest plan provides for periodic investments into the
shareholder's account with the Trust by means of automatic transfers of a
designated amount from the shareholder's bank account. The minimum investment
for eligibility in the PIMCO Funds Auto-Invest plan is $1,000 per Fund.
Investments may be made monthly or quarterly, and may be in any amount subject
to a minimum of $50 per month for each Fund in which shares are purchased
through the plan. Further information regarding the PIMCO Funds Auto-Invest plan
is available from the Distributor or participating brokers. You may enroll by
completing the appropriate section on the account application, or you may obtain
an Auto-Invest application by calling the Distributor or your broker.
PIMCO Funds Auto-Exchange
The PIMCO Funds Auto-Exchange plan establishes regular, periodic exchanges
from one Fund to another Fund. The plan provides for regular investments into a
shareholder's account in a specific Fund by means of automatic exchanges of a
designated amount from another Fund account of the same class of shares and with
identical account registration.
Exchanges may be made monthly or quarterly, and may be in any amount
subject to a minimum of $1,000 to open a new Fund account and of $50 for any
existing Fund account for which shares are purchased through the plan.
SG-4
<PAGE>
Further information regarding the PIMCO Funds Auto-Exchange plan is
available from the Distributor at 1-800-426-0107 or participating brokers. You
may enroll by completing an application which may be obtained from the
Distributor or by telephone request at 1-800-426-0107. For more information on
exchanges, see "Exchange Privilege."
PIMCO Funds Fund Link
PIMCO Funds Fund Link ("Fund Link") connects your Fund account with a
bank account. Fund Link may be used for subsequent purchases and for redemptions
and other transactions described under "How to Redeem." Purchase transactions
are effected by electronic funds transfers from the shareholder's account at a
U.S. bank or other financial institution that is an Automated Clearing House
("ACH") member. Investors may use Fund Link to make subsequent purchases of
shares in amounts from $50 to $10,000. To initiate such purchases, call 1-800-
426-0107. All such calls will be recorded. Fund Link is normally established
within 45 days of receipt of a Fund Link application by the Funds' transfer
agent for Class A, B and C shares, First Data Investor Services Group, Inc. (the
"Transfer Agent"). The minimum investment by Fund Link is $50 per Fund. Shares
will be purchased on the regular business day the Distributor receives the funds
through the ACH system, provided the funds are received before the close of
regular trading on the Exchange. If the funds are received after the close of
regular trading, the shares will be purchased on the next regular business day.
Fund Link privileges must be requested on the account application. To
establish Fund Link on an existing account, complete a Fund Link application,
which is available from the Distributor or your broker, with signatures
guaranteed from all shareholders of record for the account. See "Signature
Guarantee" below. Such privileges apply to each shareholder of record for the
account unless and until the Distributor receives written instructions from a
shareholder of record canceling such privileges. Changes of bank account
information must be made by completing a new Fund Link application signed by all
owners of record of the account, with all signatures guaranteed. The
Distributor, the Transfer Agent and the Fund may rely on any telephone
instructions believed to be genuine and will not be responsible to shareholders
for any damage, loss or expenses arising out of such instructions. The Fund
reserves the right to amend, suspend or discontinue Fund Link privileges at any
time without prior notice. Fund Link does not apply to shares held in broker
"street name" accounts.
Signature Guarantee
When a signature guarantee is called for, the shareholder should have
"Signature Guaranteed" stamped under his signature and guaranteed by any of
the following entities: U.S. banks, foreign banks having a U.S. correspondent
bank, credit unions, savings associations, U.S. registered dealers and brokers,
municipal securities dealers and brokers, government securities dealers and
brokers, national securities exchanges, registered securities associations and
clearing agencies (each an "Eligible Guarantor Institution"). The Distributor
reserves the right to reject any signature guarantee pursuant to its written
signature guarantee standards or procedures, which may be revised in the future
to permit it to reject signature guarantees from Eligible Guarantor Institutions
that do not, based on credit guidelines, satisfy such written standards or
procedures. The Funds may change the signature guarantee requirements from time
to time upon notice to shareholders, which may be given by means of a new or
supplemented Retail Prospectus.
SG-5
<PAGE>
Account Registration Changes
Changes in registration or account privileges may be made in writing to the
Transfer Agent. Signature guarantees may be required. See "Signature
Guarantee" above. All correspondence must include the account number and must
be sent to:
PIMCO Funds Distributors LLC
P.O. Box 9688
Providence, RI 02940-0926
Small Account Fee
Because of the disproportionately high costs of servicing accounts with low
balances, a fee at an annual rate of $16, paid to the applicable Fund's
administrator; will automatically be deducted from direct accounts with balances
falling below a minimum level. The valuation of accounts and the deduction are
expected to take place during the last five business days of each calendar
quarter. The fee will be deducted in quarterly installments from accounts with
balances below $2,500 except for Uniform Gift to Minors, IRA, Roth IRA and Auto-
Invest accounts, for which the limit is $1,000. Except for prototype plans
described above, the fee also applies to employer-sponsored retirement plan
accounts, Money Purchase and/or Profit Sharing plans, 401(k) plans, 403(b)(7)
custodial accounts, SIMPLE IRAs, SEPs and SAR/SEPs. (A separate custodial fee
may apply to IRAs, Roth IRAs and other retirement accounts.) No fee will be
charged on any account of a shareholder if the aggregate value of all of the
shareholder's accounts is at least $50,000. No small account fee will be charged
to employee and employee-related accounts of PIMCO Advisors and/or its
affiliates.
Minimum Account Size
Due to the relatively high cost to the Funds of maintaining small accounts,
you are asked to maintain an account balance of at least the amount necessary to
open the type of account involved. If your balance is below such minimum for
three months or longer, the applicable Fund's administrator shall have the right
(except in the case of employer-sponsored retirement accounts) to close your
account after giving you 60 days in which to increase your balance. Your account
will not be liquidated if the reduction in size is due solely to market decline
in the value of your Fund shares or if the aggregate value of all your accounts
in PIMCO Funds exceeds $50,000.
Alternative Purchase Arrangements
The Funds offer investors Class A, Class B and Class C shares in the
applicable Retail Prospectus. Class A, B and C shares bear sales charges in
different forms and amounts and bear different levels of expenses, as described
below. Through separate prospectuses, certain of the Funds currently offer up to
three additional classes of shares in the United States: Class D, Institutional
Class and Administrative Class shares. Class D shares are offered through
financial intermediaries. Institutional Class and Administrative Class shares
are offered to pension and profit sharing plans, employee benefit trusts,
endowments, foundations, corporations and other high net worth individuals.
Class D, Institutional Class and Administrative Class shares are sold without a
sales charge and have different expenses than Class A, Class B and Class C
shares. As a result of lower sales charges and/or operating expenses, Class D,
Institutional Class and
SG-6
<PAGE>
Administrative Class shares are generally expected to achieve higher investment
returns than Class A, Class B or Class C shares. Certain Funds also offer up to
two additional classes of shares that are offered only to non-U.S. investors
outside the United States: Class J and Class K shares. To obtain more
information about the other classes of shares, please call the applicable Trust
at 1-800-927-4648 (for Institutional and Administrative Class shares) or the
Distributor at 1-888-87-PIMCO (for Class D shares).
The alternative purchase arrangements described in this Guide are designed
to enable a retail investor to choose the method of purchasing Fund shares that
is most beneficial to the investor based on all factors to be considered,
including the amount and intended length of the investment, the particular Fund
and whether the investor intends to exchange shares for shares of other Funds.
Generally, when making an investment decision, investors should consider the
anticipated life of an intended investment in the Funds, the accumulated
distribution and servicing fees plus CDSCs on Class B or Class C shares, the
initial sales charge plus accumulated servicing fees on Class A shares (plus a
CDSC in certain circumstances), the possibility that the anticipated higher
return on Class A shares due to the lower ongoing charges will offset the
initial sales charge paid on such shares, the automatic conversion of Class B
shares to Class A shares and the difference in the CDSCs applicable to Class A,
Class B and Class C shares.
Class A The initial sales charge alternative (Class A) might be preferred by
investors purchasing shares of sufficient aggregate value to qualify for
reductions in the initial sales charge applicable to such shares. Similar
reductions are not available on the contingent deferred sales charge alternative
(Class B) or the asset based sales charge alternative (Class C). Class A shares
are subject to a servicing fee but are not subject to a distribution fee and,
accordingly, such shares are expected to pay correspondingly higher dividends on
a per share basis. However, because initial sales charges are deducted at the
time of purchase, not all of the purchase payment for Class A shares is invested
initially. Class B and Class C shares might be preferable to investors who wish
to have all purchase payments invested initially, although remaining subject to
higher distribution and servicing fees and, for certain periods, being subject
to a CDSC. An investor who qualifies for an elimination of the Class A initial
sales charge should also consider whether he or she anticipates redeeming shares
in a time period which will subject such shares to a CDSC as described below.
See "Initial Sales Charge Alternative--Class A Shares--Class A Deferred Sales
Charge" below.
Class B Class B shares might be preferred by investors who intend to invest in
the Funds for longer periods and who do not intend to purchase shares of
sufficient aggregate value to qualify for sales charge reductions applicable to
Class A shares. Both Class B and Class C shares can be purchased at net asset
value without an initial sales charge. However, unlike Class C shares, Class B
shares convert into Class A shares after the shares have been held for seven
years. After the conversion takes place, the shares will no longer be subject to
a CDSC, and will be subject to the servicing fees charged for Class A shares
which are lower than the distribution and servicing fees charged on either Class
B or Class C shares. See "Deferred Sales Charge Alternative--Class B Shares"
below. Class B shares are not available for purchase by employer sponsored
retirement plans.
Class C Class C shares might be preferred by investors who intend to purchase
shares which are not of sufficient aggregate value to qualify for Class A sales
charges of 1% or less and who wish to have all purchase payments invested
initially. Class C shares are preferable to Class B shares for investors who
intend to maintain their investment for intermediate periods and therefore may
SG-7
<PAGE>
also be preferable for investors who are unsure of the intended length of their
investment. Unlike Class B shares, Class C shares are not subject to a CDSC
after they have been held for one year and are subject to only a 1% CDSC during
the first year. However, because Class C shares do not convert into Class A
shares, Class B shares are preferable to Class C shares for investors who intend
to maintain their investment in the Funds for long periods. See "Asset Based
Sales Charge Alternative--Class C Shares" below.
In determining which class of shares to purchase, an investor should
always consider whether any waiver or reduction of a sales charge or a CDSC is
available. See generally "Initial Sales Charge Alternative--Class A Shares"
and "Waiver of Contingent Deferred Sales Charges" below.
The maximum single purchase of Class B shares of a Fund is $249,999. The
maximum single purchase of Class C shares of a Fund is $999,999. The Funds may
refuse any order to purchase shares.
For a description of the Distribution and Servicing Plans and distribution
and servicing fees payable thereunder with respect to Class A, Class B and Class
C shares, see "Distributor and Distribution and Servicing Plans" below.
Waiver of Contingent Deferred Sales Charges The CDSC applicable to Class A and
Class C shares is currently waived for (i) any partial or complete redemption in
connection with (a) required minimum distributions to IRA account owners or
beneficiaries who are age 70 1/2 or older or (b) distributions to participants
in employer-sponsored retirement plans upon attaining age 59 1/2 or on account
of death or disability; (ii) any partial or complete redemption in connection
with a qualifying loan or hardship withdrawal from an employer sponsored
retirement plan; (iii) any complete redemption in connection with a distribution
from a qualified employer retirement plan in connection with termination of
employment or termination of the employer's plan and the transfer to another
employer's plan or to an IRA (with the exception of a Roth IRA); (iv) any
partial or complete redemption following death or disability (as defined in the
Internal Revenue Code) of a shareholder (including one who owns the shares as
joint tenant with his or her spouse) from an account in which the deceased or
disabled is named, provided the redemption is requested within one year of the
death or initial determination of disability; (v) any redemption resulting from
a return of an excess contribution to a qualified employer retirement plan or an
IRA (with the exception of a Roth IRA); (vi) up to 10% per year of the value of
an account which (a) has the value of at least $10,000 at the start of such year
and (b) is subject to an Automatic Withdrawal Plan; (vii) redemptions by
Trustees, officers and employees of either Trust, and by directors, officers and
employees of the Distributor, PIMCO Advisors or Pacific Investment Management;
(viii) redemptions effected pursuant to a Fund's right to involuntarily redeem a
shareholder's account if the aggregate net asset value of shares held in such
shareholder's account is less than a minimum account size specified in such
Fund's prospectus; (ix) involuntary redemptions caused by operation of law; (x)
redemption of shares of any Fund that is combined with another Fund, investment
company, or personal holding company by virtue of a merger, acquisition or other
similar reorganization transaction; (xi) redemptions by a shareholder who is a
participant making periodic purchases of not less than $50 through certain
employer sponsored savings plans that are clients of a broker-dealer with which
the Distributor has an agreement with respect to such purchases; (xii)
redemptions effected by trustees or other fiduciaries who have purchased shares
for employer sponsored plans, the trustee, administrator, fiduciary, broker,
trust company or registered investment adviser for which has an agreement with
the Distributor with respect to such purchases; (xiii) redemptions in connection
with IRA
SG-8
<PAGE>
accounts established with Form 5305-SIMPLE under the Code for which the Trust is
the designated financial institution; or (xiv) a redemption by a holder of Class
A shares who purchased $1,000,000 or more of Class A shares (and therefore did
not pay a sales charge) where the participating broker or dealer involved in the
sale of such shares waived the commission it would normally receive from the
Distributor pursuant to an agreement with the Distributor.
The CDSC applicable to Class B shares is currently waived for any partial
or complete redemption in each of the following cases: (a) in connection with
required minimum distributions to IRA account owners or to plan participants or
beneficiaries who are age 70 1/2 or older; (b) following death or disability (as
defined in the Code) of a shareholder (including one who owns the shares as
joint tenant with his or her spouse) from an account in which the deceased or
disabled is named, provided the redemption is requested within one year of the
death or initial determination of disability; and (c) up to 10% per year of the
value of an account which (i) has a value of at least $100,000 at the start of
such year and (ii) is subject to an Automatic Withdrawal Plan. See "How to
Redeem--Automatic Withdrawal Plan."
The Distributor may require documentation prior to waiver of the CDSC for
any class, including distribution letters, certification by plan administrators,
applicable tax forms, death certificates, physicians' certificates, etc.
Initial Sales Charge Alternative--Class A Shares
Class A shares are sold at a public offering price equal to their net asset
value per share plus a sales charge, as set forth below. As indicated below
under "Class A Deferred Sales Charge," certain investors that purchase
$1,000,000 or more of any Fund's Class A shares (and thus pay no initial sales
charge) may be subject to a 1% CDSC if they redeem such shares during the first
18 months after their purchase.
Initial Sales Charge -- Class A Shares
PIMCO Growth, Target, Opportunity, Capital Appreciation, Mid-Cap Growth, Small-
Cap Growth, Equity Income, Renaissance, Value, Value 25, Small-Cap Value, Tax-
Efficient Equity, International, Innovation, Precious Metals and Balanced Funds,
and PIMCO Funds Asset Allocation Series -- 90/10 and 40/60 Portfolios
<TABLE>
<CAPTION>
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Discount or Commission to
Amount Invested Public Offering Price dealers as % of Public
Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 5.82% 5.50% 4.75%
- -------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.71% 4.50% 4.00%
- -------------------------------------------------------------------------------------------------------------
$100,000 - 249,999 3.63% 3.50% 3.00%
- -------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
- -------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
- -------------------------------------------------------------------------------------------------------------
$1,000,000 + 0.00%/(1)/ 0.00%/(1)/ 0.75%/(2)/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SG-9
<PAGE>
30/70 Portfolio
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Discount or Commission to
Amount Invested Public Offering Price dealers as % of Public
Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 4.71% 4.50% 4.00%
- -------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
- -------------------------------------------------------------------------------------------------------------
$100,000 - 249,999 3.63% 3.50% 3.00%
- -------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
- -------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
- -------------------------------------------------------------------------------------------------------------
$1,000,000 + 0.00%/(1)/ 0.00%/(1)/ 0.50%/(2)/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PIMCO Total Return, High Yield, Long-Term U.S. Government, Global Bond II,
Foreign Bond, Emerging Markets Bond, Strategic Balanced and Convertible Bond
Funds
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Discount or Commission to
Amount Invested Public Offering Price dealers as % of Public
Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 4.71% 4.50% 4.00%
- -------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.17% 4.00% 3.50%
- -------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.63% 3.50% 3.00%
- -------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.56% 2.50% 2.00%
- -------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.04% 2.00% 1.75%
- -------------------------------------------------------------------------------------------------------------
$1,000,000+ 0.00%/(1)/ 0.00%/(1)/ 0.50%/(3)/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PIMCO Low Duration, Real Return Bond, Municipal Bond, California Intermediate
Municipal Bond, New York Intermediate Municipal Bond and StocksPlus Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Discount or Commission to
Amount Invested Public Offering Price dealers as % of Public
Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 3.09% 3.00% 2.50%
- -------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 2.56% 2.50% 2.00%
- -------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 2.04% 2.00% 1.75%
- -------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 1.52% 1.50% 1.25%
- -------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 1.27% 1.25% 1.00%
- -------------------------------------------------------------------------------------------------------------
$1,000,000+ 0.00%/(1)/ 0.00%/(1)/ 0.50%/(3)/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SG-10
<PAGE>
PIMCO Short-Term Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Discount or Commission to
Amount Invested Public Offering Price dealers as % of Public
Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 2.04% 2.00% 1.75%
- -------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 1.78% 1.75% 1.50%
- -------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 1.52% 1.50% 1.25%
- -------------------------------------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(3)/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PIMCO California and New York Intermediate Bond Funds
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount of Purchase Sales Charge as % of Net Sales Charge as % of Discount or Commission to
Amount Invested Public Offering Price dealers as % of Public
Offering Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0 - $49,999 3.09% 3.00% 2.75%
- -------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 2.04% 2.00% 1.75%
- -------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 2.01% 1.00% 0.90%
- -------------------------------------------------------------------------------------------------------------
$250,000+ 0.00%/(1)/ 0.00%/(1)/ 0.25%/(4)/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
1. As shown, investors that purchase more than $1,000,000 of any Fund's Class
A shares ($250,000 in the case of the PIMCO Short-Term Fund) will not pay
any initial sales charge on such purchase. However, except with regard to
purchases of Class A shares of the PIMCO Money Market, California
Intermediate Bond, and New York Intermediate Bond Funds, purchasers of
$1,000,000 or more ($250,00 in the case of the PIMCO Short-Term Fund) of
Class A shares (other than those purchasers described below under ``Sales
at Net Asset Value'' where no commission is paid) will be subject to a CDSC
of 1% if such shares are redeemed during the first 18 months after such
shares are purchased unless such purchaser is eligible for a waiver of the
CDSC as described under ``Waiver of Contingent Deferred Sales Charges''
above. See ``Class A Deferred Sales Charge'' below.
2. The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 or more of Class A shares (or who sell Class A shares at net
asset value to certain employer-sponsored plans as outlined in ``Sales at
Net Asset Value'' below) of each of these Funds and the Portfolios (except
for the 30/70 Portfolio) according to the following schedule: 0.75% of the
first $2,000,000, 0.50% of amounts from $2,000,001 to $5,000,000, and 0.25%
of amounts over $5,000,000; and of the 30/70 Portfolio according to the
following schedule: 0.50% of the first $2,000,000, and 0.25% of amounts
over $2,000,000.
3. The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 ($250,000 in the case of the PIMCO Short-Term Fund) or more of
Class A shares (or who sell Class A shares at net asset value to certain
employer-sponsored plans as outlined in "Sales at Net Asset Value") of each
of these Funds except for the PIMCO Money Market Fund (for which no payment
is made) and the PIMCO Short-Term Fund, according to the following
schedule: 0.50% of the first $2,000,000 and 0.25% of amounts over
$2,000,000; and 0.25% of sales of Class A shares of the PIMCO Short-Term
Fund in excess of $250,000.
4. The Distributor will pay a commission to dealers who sell $250,000 or more
of Class A shares of the PIMCO California Intermediate Bond and New York
Intermediate Bond Funds at an annual rate of 0.25%, to be paid in quarterly
installments.
SG-11
<PAGE>
Each Fund receives the entire net asset value of its Class A shares
purchased by investors. The Distributor receives the sales charge shown above
less any applicable discount or commission "reallowed" to participating
brokers in the amounts indicated in the table above. The Distributor may,
however, elect to reallow the entire sales charge to participating brokers for
all sales with respect to which orders are placed with the Distributor for any
particular Fund during a particular period. During such periods as may from time
to time be designated by the Distributor, the Distributor will pay an additional
amount of up to 0.50% of the purchase price on sales of Class A shares of all or
selected Funds purchased to each participating broker which obtains purchase
orders in amounts exceeding thresholds established from time to time by the
Distributor. From time to time, the Distributor, its parent and/or its
affiliates may make additional payments to one or more participating brokers
based upon factors such as the level of sales or the length of time clients'
assets have remained in the Trust.
Shares issued pursuant to the automatic reinvestment of income dividends or
capital gains distributions are issued at net asset value and are not subject to
any sales charges.
Under the circumstances described below, investors may be entitled to pay
reduced sales charges for Class A shares.
Combined Purchase Privilege Investors may qualify for a reduced sales charge by
combining purchases of the Class A shares of one or more Funds which offer Class
A shares (together, "eligible PIMCO Funds") into a "single purchase," if the
resulting purchase totals at least $50,000. The term single purchase refers to:
(i) a single purchase by an individual, or concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of 21
years purchasing Class A shares of the eligible PIMCO Funds for his,
her or their own account;
(ii) single purchase by a trustee or other fiduciary purchasing shares for
a single trust, estate or fiduciary account although more than one
beneficiary is involved; or
(iii) a single purchase for the employee benefit plans of a single
employer.
For further information, call the Distributor at 1-800-426-0107 or your
broker.
Cumulative Quantity Discount (Right of Accumulation) A purchase of additional
Class A shares of any eligible PIMCO Fund may qualify for a Cumulative Quantity
Discount at the rate applicable to the discount bracket obtained by adding:
(i) the investor's current purchase;
(ii) the value (at the close of business on the day of the current
purchase) of all Class A shares of any eligible PIMCO Fund held by
the investor computed at the maximum offering price; and
(iii) the value of all shares described in paragraph (ii) owned by another
shareholder eligible to be combined with the investor's purchase into
a "single purchase" as defined above under "Combined Purchase
Privilege."
SG-12
<PAGE>
For example, if you owned Class A shares of the PIMCO Equity Income Fund
worth $25,000 at the current maximum offering price and wished to purchase
Class A shares of the PIMCO Growth Fund worth an additional $30,000, the
sales charge for the $30,000 purchase would be at the 4.50% rate applicable
to a single $55,000 purchase of shares of the PIMCO Growth Fund, rather
than the 5.50% rate.
Letter of Intent An investor may also obtain a reduced sales charge by means of
a written Letter of Intent, which expresses an intention to invest not less than
$50,000 within a period of 13 months in Class A shares of any eligible PIMCO
Fund(s) other than the PIMCO Money Market Fund. Each purchase of shares under a
Letter of Intent will be made at the public offering price or prices applicable
at the time of such purchase to a single transaction of the dollar amount
indicated in the Letter. At the investor's option, a Letter of Intent may
include purchases of Class A shares of any eligible PIMCO Fund (other than the
PIMCO Money Market Fund) made not more than 90 days prior to the date the Letter
of Intent is signed; however, the 13-month period during which the Letter is in
effect will begin on the date of the earliest purchase to be included and the
sales charge on any purchases prior to the Letter will not be adjusted.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the eligible PIMCO Funds under a single Letter of Intent.
For example, if at the time you sign a Letter of Intent to invest at least
$100,000 in Class A shares of any Fund (other than the PIMCO Money Market Fund),
you and your spouse each purchase Class A shares of the PIMCO Growth Fund worth
$30,000 (for a total of $60,000), it will only be necessary to invest a total of
$40,000 during the following 13 months in Class A shares of any of the Funds
(other than the PIMCO Money Market Fund) to qualify for the 3.50% sales charge
on the total amount being invested (the sales charge applicable to an investment
of $100,000 in any of the Funds other than the PIMCO Money Market, Short-Term,
Low Duration, Real Return Bond, Municipal Bond, California Intermediate
Municipal Bond, New York Intermediate Municipal Bond and StocksPLUS Funds).
A Letter of Intent is not a binding obligation to purchase the full amount
indicated. The minimum initial investment under a Letter of Intent is 5% of such
amount. Shares purchased with the first 5% of such amount will be held in escrow
(while remaining registered in your name) to secure payment of the higher sales
charge applicable to the shares actually purchased in the event the full
intended amount is not purchased. If the full amount indicated is not purchased,
a sufficient amount of such escrowed shares will be involuntarily redeemed to
pay the additional sales charge applicable to the amount actually purchased, if
necessary. Dividends on escrowed shares, whether paid in cash or reinvested in
additional eligible PIMCO Fund shares, are not subject to escrow. When the full
amount indicated has been purchased, the escrow will be released.
If you wish to enter into a Letter of Intent in conjunction with your
initial investment in Class A shares of a Fund, you should complete the
appropriate portion of the account application. If you are a current Class A
shareholder desiring to do so you may obtain a form of Letter of Intent by
contacting the Distributor at 1-800-426-0107 or any broker participating in this
program.
Reinstatement Privilege A Class A shareholder who has caused any or all of his
shares (other than PIMCO Money Market Fund shares that were not acquired by
exchanging Class A shares of another Fund) to be redeemed may reinvest all or
any portion of the redemption proceeds in Class A shares of any eligible PIMCO
Fund at net asset value without any sales charge, provided
SG-13
<PAGE>
that such reinvestment is made within 120 calendar days after the redemption or
repurchase date. Shares are sold to a reinvesting shareholder at the net asset
value next determined. See "How Net Asset Value is Determined" in the
applicable Retail Prospectus. A reinstatement pursuant to this privilege will
not cancel the redemption transaction and, consequently, any gain or loss so
realized may be recognized for federal tax purposes except that no loss may be
recognized to the extent that the proceeds are reinvested in shares of the same
Fund within 30 days. The reinstatement privilege may be utilized by a
shareholder only once, irrespective of the number of shares redeemed, except
that the privilege may be utilized without limit in connection with transactions
whose sole purpose is to transfer a shareholder's interest in a Fund to his
Individual Retirement Account or other qualified retirement plan account. An
investor may exercise the reinstatement privilege by written request sent to the
Distributor or to the investor's broker.
Sales at Net Asset Value Each Fund may sell its Class A shares at net asset
value without a sales charge to (a) current or retired officers, trustees,
directors or employees of either Trust, the Adviser of either Trust, the
Distributor, affiliates of the Fund's Adviser or the Distributor, a parent,
brother or sister of any such officer, trustee, director or employee or a spouse
or child of any of the foregoing persons, or any trust, profit sharing or
pension plan for the benefit of any such person and to any other person if the
Distributor anticipates that there will be minimal sales expenses associated
with the sale, (b) current or retired trustees of both Trusts, (c) current
registered representatives and other full-time employees of participating
brokers or such persons' spouses or for trust or custodial accounts for their
minor children, (d) trustees or other fiduciaries purchasing shares for certain
plans sponsored by employers, professional organizations or associations or
charitable organizations, the trustee, administrator, fiduciary, broker, trust
company or registered investment adviser for which has an agreement with the
Distributor with respect to such purchases (including provisions related to
minimum levels of investment in the Trust), and to participants in such plans
and their spouses purchasing for their account(s) or IRAs (with the exception of
Roth IRAs), (e) participants investing through accounts known as "wrap
accounts" established with brokers or dealers approved by the Distributor where
such brokers or dealers are paid a single, inclusive fee for brokerage and
investment management services, (f) client accounts of broker-dealers or
registered investment advisers affiliated with such broker-dealers with which
the Distributor has an agreement for the use of a Fund in particular investment
products or programs and (g) accounts for which a trust company affiliated with
the Trust or the Fund's Adviser serves as trustee or custodian. As described
above, the Distributor will not pay any initial commission to dealers upon the
sale of Class A shares to the purchasers described in this paragraph except for
sales to purchasers described under (d) in this paragraph.
Notification of Distributor An investor or participating broker must notify the
Distributor whenever a quantity discount or reduced sales charge is applicable
to a purchase and must provide the Distributor with sufficient information at
the time of purchase to verify that each purchase qualifies for the privilege or
discount. Upon such notification, the investor will receive the lowest
applicable sales charge. The quantity discounts described above may be modified
or terminated at any time.
Class A Deferred Sales Charge For all Funds, except the PIMCO Money Market,
California Intermediate Municipal Bond, and New York Intermediate Municipal Bond
Funds, investors who purchase $1,000,000 ($250,000 in the case of the PIMCO
Short-Term Fund) or more of Class A shares (and, thus, purchase such shares
without any initial sales charge) may be subject to a 1% CDSC (the "Class A
CDSC") if such shares are redeemed within 18 months of their purchase. The
Class A CDSC does not apply to investors purchasing $1,000,000 ($250,000 in the
case of the PIMCO Short-Term Fund) or more of any Fund's Class A shares if such
investors
SG-14
<PAGE>
are otherwise eligible to purchase Class A shares without any sales charge
because they are described under "Sales at Net Asset Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will apply for any
redemption of such Class A shares that occurs within 18 months of their
purchase. No CDSC will be imposed if the shares redeemed have been acquired
through the reinvestment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the account above the
amount of purchase payments subject to the CDSC. In determining whether a CDSC
is payable, it is assumed that Class A shares acquired through the reinvestment
of dividends and distributions are redeemed first, and thereafter that Class A
shares that have been held by an investor for the longest period of time are
redeemed first.
The Class A CDSC does not apply to Class A shares of the PIMCO Money
Market, California Intermediate Municipal Bond, and New York Intermediate
Municipal Bond Funds but, if PIMCO Money Market Fund Class A shares are
purchased in a transaction that, for any other Fund, would be subject to the
CDSC (i.e., a purchase of $1,000,000 ($250,000 in the case of the PIMCO Short-
Term Fund) or more) and are subsequently exchanged for Class A shares of any
other Fund, a Class A CDSC will apply to the shares of the Fund acquired by
exchange for a period of 18 months from the date of the exchange.
The Class A CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class A
CDSC, call the Distributor at 1-800-426-0107.
Participating Brokers Investment dealers and other financial intermediaries
provide varying arrangements for their clients to purchase and redeem Fund
shares. Some may establish higher minimum investment requirements than set forth
above. Firms may arrange with their clients for other investment or
administrative services and may independently establish and charge transaction
fees and/or other additional amounts to their clients for such services, which
charges would reduce clients' return. Firms also may hold Fund shares in nominee
or street name as agent for and on behalf of their customers. In such instances,
the Trust's transfer agent will have no information with respect to or control
over accounts of specific shareholders. Such shareholders may obtain access to
their accounts and information about their accounts only from their broker. In
addition, certain privileges with respect to the purchase and redemption of
shares or the reinvestment of dividends may not be available through such firms.
Some firms may participate in a program allowing them access to their clients'
accounts for servicing including, without limitation, transfers of registration
and dividend payee changes; and may perform functions such as generation of
confirmation statements and disbursement of cash dividends. This Guide and the
Retail Prospectuses should be read in connection with such firms' material
regarding their fees and services.
Deferred Sales Charge Alternative--Class B Shares
Class B shares are sold at their current net asset value without any
initial sales charge. The full amount of an investor's purchase payment will be
invested in shares of the Fund(s) selected. A CDSC will be imposed on Class B
shares if an investor redeems an amount which causes the current value of the
investor's account for a Fund to fall below the total dollar amount of purchase
payments subject to the CDSC, except that no CDSC is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions
SG-15
<PAGE>
or if the amount redeemed is derived from increases in the value of the account
above the amount of purchase payments subject to the CDSC.
Class B shares of the PIMCO Short-Term Fund and the PIMCO Money Market Fund
are not offered for initial purchase but may be obtained through exchanges of
Class B shares of other Funds. See "Exchange Privilege" below. Class B shares
are not available for purchase by employer sponsored retirement plans.
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
<TABLE>
<CAPTION>
Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
---------------- ---------------------
<S> <C>
First 5
Second 4
Third 3
Fourth 3
Fifth 2
Sixth 1
Seventh 0*
</TABLE>
* After the seventh year, Class B shares convert into Class A shares as
described below.
In determining whether a CDSC is payable, it is assumed that the purchase
payment from which a redemption is made is the earliest purchase payment from
which a redemption or exchange has not already been fully effected.
The following example will illustrate the operation of the Class B CDSC:
Assume that an individual opens an account and makes a purchase payment of
$10,000 for Class B shares of a Fund and that six months later the value of the
investor's account for that Fund has grown through investment performance and
reinvestment of distributions to $11,000. The investor then may redeem up to
$1,000 from that Fund ($11,000 minus $10,000) without incurring a CDSC. If the
investor should redeem $3,000, a CDSC would be imposed on $2,000 of the
redemption (the amount by which the investor's account for the Fund was reduced
below the amount of the purchase payment). At the rate of 5%, the Class B CDSC
would be $100.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class B shares in the
shareholder's account with the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class B shares is paid to the Distributor.
Class B shares are subject to higher distribution fees than Class A shares
for a fixed period after their purchase, after which they automatically convert
to Class A shares and are no longer subject to such higher distribution fees.
Class B shares of each Fund automatically convert into Class A shares after they
have been held for seven years.
SG-16
<PAGE>
For sales of Class B shares made and services rendered to Class B
shareholders, the Distributor intends to make payments to participating brokers,
at the time a shareholder purchases Class B shares, of 4.00% of the purchase
amount for each of the Funds. During such periods as may from time to time be
designated by the Distributor, the Distributor will pay selected participating
brokers an additional amount of up to .50% of the purchase price on sales of
Class B shares of all or selected Funds purchased to each participating broker
which obtains purchase orders in amounts exceeding thresholds established from
time to time by the Distributor.
The Class B CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class B CDSC,
call the Distributor at 1-800-426-0107.
Asset Based Sales Charge Alternative--Class C Shares
Class C shares are sold at their current net asset value without any
initial sales charge. A CDSC is imposed on Class C shares if an investor redeems
an amount which causes the current value of the investor's account for a Fund to
fall below the total dollar amount of purchase payments subject to the CDSC,
except that no CDSC is imposed if the shares redeemed have been acquired through
the reinvestment of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account above the amount
of purchase payments subject to the CDSC. All of an investor's purchase payments
are invested in shares of the Fund(s) selected.
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed. Purchases are subject to the CDSC according to the following
schedule:
Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
---------------- ---------------------
First 1
Thereafter 0
In determining whether a CDSC is payable, it is assumed that the purchase
payment from which the redemption is made is the earliest purchase payment (from
which a redemption or exchange has not already been effected).
The following example will illustrate the operation of the Class C CDSC:
Assume that an individual opens an account and makes a purchase payment of
$10,000 for Class C shares of a Fund and that six months later the value of the
investor's account for that Fund has grown through investment performance and
reinvestment of distributions to $11,000. The investor then may redeem up to
$1,000 from that Fund ($11,000 minus $10,000) without incurring a CDSC. If the
investor should redeem $3,000, a CDSC would be imposed on $2,000 of the
redemption (the amount by which the investor's account for the Fund was reduced
below the amount of the purchase payment). At the rate of 1%, the Class C CDSC
would be $20.
SG-17
<PAGE>
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class C shares in the
shareholder's account with the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class C shares is paid to the Distributor. Unlike Class B shares, Class C shares
do not automatically convert to any other class of shares of the Funds.
Except as described below, for sales of Class C shares made and services
rendered to Class C shareholders, the Distributor expects to make payments to
participating brokers, at the time the shareholder purchases Class C shares, of
1.00% (representing .75% distribution fees and .25% servicing fees) of the
purchase amount for all Funds, except the Money Market, Short-Term Duration,
Real Return Bond, Municipal Bond, and StocksPlus Funds. For the PIMCO Low
Duration, Real Return Bond, Municipal Bond, and StocksPlus Funds, the
Distributor expects to make payments of .75% (representing .50% distribution
fees and .25% service fees); for the PIMCO Short-Term Fund, the Distributor
expects to make payments of .55% (representing .30% distribution fees and .25%
service fees); and for the PIMCO Money Market Fund, the Distributor expects to
make no payment. For sales of Class C shares made to participants making
periodic purchases of not less than $50 through certain employer sponsored
savings plans which are clients of a broker-dealer with which the Distributor
has an agreement with respect to such purchases, no payments are made at the
time of purchase. During such periods as may from time to time be designated by
the Distributor, the Distributor will pay an additional amount of up to .50% of
the purchase price on sales of Class C shares of all or selected Funds purchased
to each participating broker which obtains purchase orders in amounts exceeding
thresholds established from time to time by the Distributor.
The Class C CDSC is currently waived in connection with certain redemptions
as described above under "Alternative Purchase Arrangements--Waiver of
Contingent Deferred Sales Charges." For more information about the Class C
CDSC, contact the Distributor at 1-800-426-0107.
Exchange Privilege
Except with respect to exchanges for shares of Funds for which sales may be
suspended to new investors, a shareholder may exchange Class A, Class B and
Class C shares of any Fund for the same Class of shares of any other Fund in an
account with identical registration on the basis of their respective net asset
values (except that a sales charge will apply on exchanges of Class A shares of
the PIMCO Money Market Fund on which no sales charge was paid at the time of
purchase.) Class A shares of the PIMCO Money Market Fund may be exchanged for
Class A shares of any other Fund, but the usual sales charges applicable to
investments in such other Fund apply on shares for which no sales charge was
paid at the time of purchase. There are currently no exchange fees or charges.
All exchanges are subject to the $2,500 minimum initial purchase requirement for
each Fund, except with respect to tax-qualified programs and exchanges effected
through the PIMCO Funds Auto-Exchange plan. An exchange will constitute a
taxable sale for federal income tax purposes.
Investors who maintain their account with the Distributor may exchange
shares by a written exchange request sent to PIMCO Funds Distributors LLC,
P.O. Box 9688, Providence, RI 02940-0926 or, unless the investor has
specifically declined telephone exchange privileges on the account applic-
ation or elected in writing not to utilize telephone exchanges, by a
telephone request to the Distributor at 1-800-426-0107. Each Trust will employ
reasonable procedures to
SG-18
<PAGE>
confirm that instructions communicated by telephone are genuine, and may be
liable for any losses due to unauthorized or fraudulent instructions if it
fails to employ such procedures. Each Trust will require a form of personal
identification prior to acting on a caller's telephone instructions, will
provide written confirmations of such transactions and will record telephone
instructions. Exchange forms are available from the Distributor at
1-800-426-0107 and may be used if there will be no change in the registered name
or address of the shareholder. Changes in registration information or account
privileges may be made in writing to the Transfer Agent, First Data Investor
Services Group, Inc., P.O. Box 9688, Providence, RI 02940-0926, or by use of
forms which are available from the Distributor. A signature guarantee is
required. See "How to Buy Shares--Signature Guarantee." Telephone exchanges
may be made between 9:00 a.m., Eastern time and the close of regular trading
(normally 4:00 p.m., Eastern time) on the Exchange on any day the Exchange is
open (generally weekdays other than normal holidays). The Trusts reserve the
right to refuse exchange purchases if, in the judgment of the Fund's Adviser,
the purchase would adversely affect the Fund and its shareholders. In
particular, a pattern of exchanges characteristic of "market-timing"
strategies may be deemed by an Adviser to be detrimental to a Trust or a
particular Fund.
Currently, each Trust limits the number of "round trip" exchanges an
investor may make. An investor makes a "round trip" exchange when the investor
purchases shares of a particular Fund, subsequently exchanges those shares for
shares of a different Fund, and then exchanges back into the originally
purchased Fund. The Trusts have the right to refuse any exchange for any
investor who completes (by making the exchange back into the shares of the
originally purchased Fund) more than six round trip exchanges in any twelve-
month period. Although the Trusts have no current intention of terminating or
modifying the exchange privilege other than as set forth in the preceding
sentence, each reserves the right to do so at any time. Except as otherwise
permitted by Securities and Exchange Commission regulations, each Trust will
give 60 days' advance notice to shareholders of any termination or material
modification of the exchange privilege. For further information about exchange
privileges, contact your participating broker or call the Distributor at
1-800-426-0107.
With respect to Class B and Class C shares, or Class A shares subject to a
CDSC, if less than all of an investment is exchanged out of a Fund, any portion
of the investment attributable to capital appreciation and/or reinvested
dividends or capital gains distributions will be exchanged first, and thereafter
any portions exchanged will be from the earliest investment made in the Fund
from which the exchange was made. Shareholders should take into account the
effect of any exchange on the applicability of any CDSC that may be imposed upon
any subsequent redemption.
Investors may also select the PIMCO Funds Auto-Exchange plan which
establishes automatic periodic exchanges. For further information on automatic
exchanges see "How to Buy Shares--PIMCO Funds Auto-Exchange" above.
How to Redeem
Class A, Class B or Class C shares may be redeemed through a participating
broker, by telephone, by submitting a written redemption request directly to the
Transfer Agent (for non-broker accounts), or through an Automatic Withdrawal
Plan or PIMCO Funds Fund Link.
SG-19
<PAGE>
A CDSC may apply to a redemption of Class A, Class B or Class C shares. See
"Alternative Purchase Arrangements" above. Shares are redeemed at their net
asset value next determined after a proper redemption request has been received,
less any applicable CDSC. There is no charge by the Distributor (other than an
applicable CDSC) with respect to a redemption; however, a participating broker
who processes a redemption for an investor may charge customary commissions for
its services. Dealers and other financial services firms are obligated to
transmit orders promptly. Requests for redemption received by dealers or other
firms prior to the close of regular trading (normally 4:00 p.m., Eastern time)
on the Exchange on a regular business day and received by the Distributor prior
to the close of the Distributor's business day will be confirmed at the net
asset value effective as of the closing of the Exchange on that day, less any
applicable CDSC.
Direct Redemption
A shareholder's original account application permits the shareholder to
redeem by written request and by telephone (unless the shareholder specifically
elects not to utilize telephone redemptions) and to elect one or more of the
additional redemption procedures described below. A shareholder may change the
instructions indicated on his original account application, or may request
additional redemption options, only by transmitting a written direction to the
Transfer Agent. Requests to institute or change any of the additional redemption
procedures will require a signature guarantee.
Redemption proceeds will normally be mailed to the redeeming shareholder
within seven days or, in the case of wire transfer or Fund Link redemptions,
sent to the designated bank account within one business day. Fund Link
redemptions may be received by the bank on the second or third business day. In
cases where shares have recently been purchased by personal check, redemption
proceeds may be withheld until the check has been collected, which may take up
to 15 days. To avoid such withholding, investors should purchase shares by
certified or bank check or by wire transfer.
Written Requests
To redeem shares in writing (whether or not represented by certificates), a
shareholder must send the following items to the Transfer Agent, First Data
Investor Services Group, Inc., P.O. Box 9688, Providence, RI 02940-0926.
(1) a written request for redemption signed by all registered owners exactly as
the account is registered on the Transfer Agent's records, including
fiduciary titles, if any, and specifying the account number and the dollar
amount or number of shares to be redeemed;
(2) for certain redemptions described below, a guarantee of all signatures on
the written request or on the share certificate or accompanying stock
power, if required, as described under "How to Buy Shares--Signature
Guarantee";
(3) any share certificates issued for any of the shares to be redeemed (see
"Certificated Shares" below); and
(4) any additional documents which may be required by the Transfer Agent for
redemption by corporations, partnerships or other organizations, executors,
administrators, trustees,
SG-20
<PAGE>
custodians or guardians, or if the redemption is requested by anyone other
than the shareholder(s) of record.
Transfers of shares are subject to the same requirements. A signature
guarantee is not required for redemptions of $50,000 or less, requested by and
payable to all shareholders of record for the account, to be sent to the address
of record for that account. To avoid delay in redemption or transfer,
shareholders having any questions about these requirements should contact the
Transfer Agent in writing or call the Distributor at 1-800-426-0107 before
submitting a request. Redemption or transfer requests will not be honored until
all required documents in the proper form have been received by the Transfer
Agent. This redemption option does not apply to shares held in broker "street
name" accounts.
If the proceeds of the redemption (i) exceed $50,000, (ii) are to be paid
to a person other than the record owner, (iii) are to be sent to an address
other than the address of the account on the Transfer Agent's records or (iv)
are to be paid to a corporation, partnership, trust or fiduciary, the
signature(s) on the redemption request and on the certificates, if any, or stock
power must be guaranteed as described above, except that the Distributor may
waive the signature guarantee requirement for redemptions up to $2,500 by a
trustee of a qualified retirement plan, the administrator for which has an
agreement with the Distributor.
Telephone Redemptions
Each Trust accepts telephone requests for redemption of uncertificated
shares for amounts up to $50,000 within any 7 calendar day period, except for
investors who have specifically declined telephone redemption privileges on the
account application or elected in writing not to utilize telephone redemptions.
The proceeds of a telephone redemption will be sent to the record shareholder at
his record address. Changes in account information must be made in a written
authorization with a signature guarantee. See "How to Buy Shares--Signature
Guarantee." Telephone redemptions will not be accepted during the 30-day period
following any change in an account's record address. This redemption option does
not apply to shares held in broker "street name" accounts.
By completing an account application, an investor agrees that the
applicable Trust, the Distributor and the Transfer Agent shall not be liable for
any loss incurred by the investor by reason of the Trust accepting unauthorized
telephone redemption requests for his account if the Trust reasonably believes
the instructions to be genuine. Thus, shareholders risk possible losses in the
event of a telephone redemption not authorized by them. Each Trust may accept
telephone redemption instructions from any person identifying himself as the
owner of an account or the owner's broker where the owner has not declined in
writing to utilize this service. Each Trust will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine, and may be
liable for any losses due to unauthorized or fraudulent instructions if it fails
to employ such procedures. Each Trust will require a form of personal
identification prior to acting on a caller's telephone instructions, will
provide written confirmations of such transactions and will record telephone
instructions.
A shareholder making a telephone redemption should call the Distributor at
1-800-426-0107 and state (i) the name of the shareholder as it appears on the
Transfer Agent's records, (ii) his account number with the Trust, (iii) the
amount to be withdrawn and (iv) the name of the person requesting the
redemption. Usually the proceeds are sent to the investor on the next Trust
business day after the redemption is effected, provided the redemption request
is received prior to
SG-21
<PAGE>
the close of regular trading (normally 4:00 p.m., Eastern time) on the Exchange
that day. If the redemption request is received after the close of the Exchange,
the redemption is effected on the following Trust business day at that day's net
asset value and the proceeds are usually sent to the investor on the second
following Trust business day. Each Trust reserves the right to terminate or
modify the telephone redemption service at any time. During times of severe
disruptions in the securities markets, the volume of calls may make it difficult
to redeem by telephone, in which case a shareholder may wish to send a written
request for redemption as described under "Written Requests" above. Telephone
communications may be recorded by the Distributor or the Transfer Agent.
Fund Link Redemptions
If a shareholder has established Fund Link, the shareholder may redeem
shares by telephone and have the redemption proceeds sent to a designated
account at a financial institution. Fund Link is normally established within 45
days of receipt of a Fund Link application by the Transfer Agent. To use Fund
Link for redemptions, call the Distributor at 1-800-426-0107. Subject to the
limitations set forth above under "Telephone Redemptions," the Distributor, a
Trust and the Transfer Agent may rely on instructions by any registered owner
believed to be genuine and will not be responsible to any shareholder for any
loss, damage or expense arising out of such instructions. Requests received by
the Transfer Agent prior to the close of regular trading (normally 4:00 p.m.,
Eastern time) on the Exchange on a business day will be processed at the net
asset value on that day and the proceeds (less any CDSC) will normally be sent
to the designated bank account on the following business day and received by the
bank on the second or third business day. If the redemption request is received
after the close of regular trading on the Exchange, the redemption is effected
on the following business day. Shares purchased by check may not be redeemed
through Fund Link until such shares have been owned (i.e., paid for) for at
least 15 days. Fund Link may not be used to redeem shares held in certificated
form.
Changes in bank account information must be made by completing a new Fund
Link application, signed by all owners of record of the account, with all
signatures guaranteed. See "How to Buy Shares--Signature Guarantee." See "How
to Buy Shares--PIMCO Funds Fund Link" for information on establishing the Fund
Link privilege. Either Trust may terminate the Fund Link program at any time
without notice to its shareholders. This redemption option does not apply to
shares held in broker "street name" accounts.
PIMCO Funds Automated Telephone System
PIMCO Funds Automated Telephone System ("ATS") is an automated telephone
system that enables shareholders to perform a number of account transactions
automatically using a touch-tone telephone. ATS may be used on already-
established Fund accounts after you obtain a Personal Identification Number
(PIN) by calling the special ATS number: 1-800-223-2413.
Purchasing Shares. You may purchase shares in amounts up to $100,000 by
telephone by calling 1-800-223-2413. You must have established ATS privileges to
link your bank account with the Fund to pay for these purchases.
Exchanging Shares. With the PIMCO Funds Exchange Privilege, you can exchange
shares automatically by telephone from your Fund Link Account to another PIMCO
Funds account you
SG-22
<PAGE>
have already established by calling 1-800-223-2413. Please refer to "Exchange
Privilege" for details.
Redemptions. You may redeem shares by telephone automatically by calling 1-
800-223-2413 and the Fund will send the proceeds directly to your Fund bank
account. Please refer to "How to Redeem" for details.
Expedited Wire Transfer Redemptions
If a shareholder has given authorization for expedited wire redemption,
shares can be redeemed and the proceeds sent by federal wire transfer to a
single previously designated bank account. Requests received by a Trust prior to
the close of the Exchange will result in shares being redeemed that day at the
next determined net asset value (less any CDSC). Normally the proceeds will be
sent to the designated bank account the following business day. The bank must be
a member of the Federal Reserve wire system. Delivery of the proceeds of a wire
redemption request may be delayed by the applicable Trust for up to 7 days if
the Distributor deems it appropriate under then current market conditions. Once
authorization is on file with a Trust, such Trust will honor requests by any
person identifying himself as the owner of an account or the owner's broker by
telephone at 1-800-426-0107 or by written instructions. A Trust cannot be
responsible for the efficiency of the Federal Reserve wire system or the
shareholder's bank. Neither Trust currently charges for wire transfers. The
shareholder is responsible for any charges imposed by the shareholder's bank.
The minimum amount that may be wired is $2,500. Each Trust reserves the right
to change this minimum or to terminate the wire redemption privilege. Shares
purchased by check may not be redeemed by wire transfer until such shares have
been owned (i.e., paid for) for at least 15 days. Expedited wire transfer
redemptions may be authorized by completing a form available from the
Distributor. Wire redemptions may not be used to redeem shares in certificated
form. To change the name of the single bank account designated to receive wire
redemption proceeds, it is necessary to send a written request with signatures
guaranteed to PIMCO Funds Distributors LLC, P.O. Box 9688, Providence, RI 02940-
0926. See "How to Buy Shares--Signature Guarantee." This redemption option
does not apply to shares held in broker "street name" accounts.
Certificated Shares
To redeem shares for which certificates have been issued, the certificates
must be mailed to or deposited with the applicable Trust, duly endorsed or
accompanied by a duly endorsed stock power or by a written request for
redemption. Signatures must be guaranteed as described under "How to Buy
Shares--Signature Guarantee." Further documentation may be requested from
institutions or fiduciary accounts, such as corporations, custodians (e.g.,
under the Uniform Gifts to Minors Act), executors, administrators, trustees or
guardians ("institutional account owners"). The redemption request and stock
power must be signed exactly as the account is registered, including indication
of any special capacity of the registered owner.
Automatic Withdrawal Plan
An investor who owns or buys shares of a Fund having a net asset value of
$10,000 or more may open an Automatic Withdrawal Plan and have a designated sum
of money (not less than $100 per Fund) paid monthly (or quarterly) to the
investor or another person. Such a plan may be established by completing the
appropriate section of the account application or by obtaining an Automatic
Withdrawal Plan application from the Distributor or your broker. If an
SG-23
<PAGE>
Automatic Withdrawal Plan is set up after the account is established providing
for payment to a person other than the record shareholder or to an address other
than the address of record, a signature guarantee is required. See "How to Buy
Shares--Signature Guarantee." Class A, Class B and Class C shares of any Fund
are deposited in a plan account and all distributions are reinvested in
additional shares of the particular class of the Fund at net asset value. Shares
in a plan account are then redeemed at net asset value (less any applicable
CDSC) to make each withdrawal payment. Any applicable CDSC may be waived for
certain redemptions under an Automatic Withdrawal Plan. See "Alternative
Purchase Arrangements--Waiver of Contingent Deferred Sales Charges."
Redemptions for the purpose of withdrawals are ordinarily made on the
business day preceding the day of payment at that day's closing net asset value
and checks are mailed on the day of payment selected by the shareholder. The
Transfer Agent may accelerate the redemption and check mailing date by one day
to avoid weekend delays. Payment will be made to any person the investor
designates; however, if the shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary, except in the case
of a profit-sharing or pension plan where payment will be made to the designee.
As withdrawal payments may include a return of principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with an Automatic Withdrawal Plan may result
in a gain or loss for tax purposes. Continued withdrawals in excess of income
will reduce and possibly exhaust invested principal, especially in the event of
a market decline. The maintenance of an Automatic Withdrawal Plan concurrently
with purchases of additional shares of the Fund would be disadvantageous to the
investor because of the CDSC that may become payable on such withdrawals in the
case of Class A, Class B or Class C shares and because of the initial sales
charge in the case of Class A shares. For this reason, the minimum investment
accepted for a Fund while an Automatic Withdrawal Plan is in effect for that
Fund is $1,000, and an investor may not maintain a plan for the accumulation of
shares of the Fund (other than through reinvestment of distributions) and an
Automatic Withdrawal Plan at the same time. The Trust or the Distributor may
terminate or change the terms of the Automatic Withdrawal Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of capital,
investors should consider carefully with their own financial advisers whether
the plan and the specified amounts to be withdrawn are appropriate in their
circumstances. The Trust and the Distributor make no recommendations or
representations in this regard.
Redemptions In Kind
Each Trust agrees to redeem shares of its Funds solely in cash up to the
lesser of $250,000 or 1% of the Fund's net assets during any 90-day period for
any one shareholder. In consideration of the best interests of the remaining
shareholders, each Trust reserves the right to pay any redemption proceeds
exceeding this amount in whole or in part by a distribution in kind of
securities held by a Fund in lieu of cash. Except for Funds with a tax-efficient
management strategy, it is highly unlikely that shares would ever be redeemed in
kind. When shares are redeemed in kind, the redeeming shareholder should expect
to incur transaction costs upon the disposition of the securities received in
the distribution.
SG-24
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
--------
(a) (1) Declaration of Trust of Registrant/7/
(2) Form of Amendment to Declaration of Trust/16/
(3) Form of Amended and Restated Establishment and Designation of
Series of Shares of Beneficial Interest/8/
(4) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Long Duration Fund/11/
(5) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Convertible Bond Fund/12/
(6) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Low Duration Municipal Bond,
California Intermediate Municipal Bond and New York Intermediate
Municipal Bond Funds/15/
(7) Form of Establishment and Designation of Classes J and Class
K/16/
(8) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Loan Obligation Fund/16/
(9) Form of Amended Designation of Series Relating to Short Duration
Municipal Income Fund/16/
(10) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to the PIMCO Private Account
Portfolios/17/
(11) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to the Real Return Bond
Portfolio/17/
(12) Form of Amended Designation of Series Relating to the U.S.
Government Sector, U.S. Government Sector II, Mortgage, Mortgage
II, Investment Grade Corporate, Select Investment, High Yield,
International and Emerging Markets Portfolios/17/
(b) Form of By-laws of Registrant/7/
(c) Not applicable
<PAGE>
(d) (1) Form of Investment Advisory Contract/7/
(2) Form of Amendment to Investment Advisory Contract/7/
(3) Form of Supplement to Investment Advisory Contract Relating to
StocksPLUS Short Strategy Fund/2/
(4) Form of Supplement to Investment Advisory Contract Relating to
Balanced Fund/3/
(5) Form of Supplement to Investment Advisory Contract Relating to
Global Bond Fund II/5/
(6) Form of Supplement to Investment Advisory Contract Relating to
Real Return Bond Fund/5/
(7) Form of Supplement to Investment Advisory Contract Relating to
Low Duration Mortgage Fund, Total Return Mortgage Fund, Emerging
Markets Bond Fund, and Emerging Markets Bond Fund II/6/
(8) Form of Supplement to Investment Advisory Contract Relating to
Municipal Bond Fund /9/
(9) Form of Supplement to Investment Advisory Contract Relating to
Long Duration Fund/11/
(10) Form of Supplement to Investment Advisory Contract Relating to
Convertible Bond Fund/13/
(11) Form of Supplement to Investment Advisory Contract Relating to
Low Duration Municipal Bond, California Intermediate Municipal
Bond and New York Intermediate Municipal Bond Funds/15/
(12) Form of Supplement to Investment Advisory Contract Relating to
PIMCO Private Account Portfolios/17/
(e) (1) Form of Amended and Restated Distribution Contract/14/
(2) Form of Supplement to Amended and Restated Distribution Contract
Relating to Low Duration Municipal Bond, California Intermediate
Municipal Bond and New York Intermediate Municipal Bond Funds/15/
(3) Form of Japan Dealer Sales Contract/14/
(4) Form of Supplement to Amended and Restated Distribution Contract
Relating to PIMCO Private Account Portfolios/17/
-2-
<PAGE>
(f) Not applicable
(g) Form of Custody and Investment Accounting Agreement/14/
(h) (1) Form of Amended and Restated Administration Agreement /9/
(2) Form of Supplement to Amended and Restated Administration
Agreement relating to Long Duration Fund/11/
(3) Form of Supplement to Amended and Restated Administration
Agreement Relating to Convertible Bond Fund/13/
(4) Form of Supplement to Amended and Restated Administration
Agreement Relating to Class J and Class K Shares/14/
(5) Form of Supplement to Amended and Restated Administration
Agreement Relating to Low Duration Municipal Bond, California
Intermediate Municipal Bond and New York Intermediate Municipal
Bond Funds/15/
(6) Form of Supplement to Amended and Restated Administration
Agreement Relating to PIMCO Private Account Portfolios/17/
(7) Form of Shareholder Servicing Agreement /9/
(8) Form of Transfer Agency Agreement/7/
(9) Form of Transfer Agency Agreement with Shareholder Services,
Inc./1/
(i) Opinion and Consent of Counsel
(j) Consent of PricewaterhouseCoopers LLP
(k) Not applicable
(l) Not applicable
(m) (1) Form of Distribution and Servicing Plan for Class A Shares/4/
(2) Form of Distribution and Servicing Plan for Class B Shares/4/
(3) Form of Distribution and Servicing Plan for Class C Shares/4/
(4) Form of Amended and Restated Distribution Plan for Administrative
Class Shares/7/
-3-
<PAGE>
(5) Form of Amended and Restated Administrative Services Plan for
Administrative Class Shares/7/
(6) Form of Distribution and Servicing Plan for Class J Shares/14/
(7) Form of Distribution and Servicing Plan for Class K Shares/14/
(n) Not applicable
(o) Form of Amended and Restated Multi-Class Plan adopted pursuant to Rule
18f-3/14/
_____________________
/1/ Filed with Post Effective Amendment No. 33 to the Registration
Statement of PIMCO Advisors Funds (File No. 2-87203) on November 30,
1995.
/2/ Filed with Post-Effective Amendment No. 27 on January 16, 1996.
/3/ Filed with Post-Effective Amendment No. 28 on April 1, 1996.
/4/ Filed with Registration Statement on Form N-14 (File No. 333-12871) on
September 27, 1996.
/5/ Filed with Post Effective Amendment No. 33 on January 13, 1997.
/6/ Filed with Post-Effective Amendment No. 36 on July 11, 1997.
/7/ Filed with Post-Effective Amendment No. 37 on November 17, 1997.
/8/ Filed with Post-Effective Amendment No. 39 on January 15, 1998.
/9/ Filed with Post-Effective Amendment No. 40 on March 13, 1998.
/10/ Filed with Post-Effective Amendment No. 41 on July 31, 1998.
/11/ Filed with Post-Effective Amendment No. 42 on September 11, 1998.
/12/ Filed with Post-Effective Amendment No. 43 on January 15, 1999.
/13/ Filed with Post-Effective Amendment No. 44 on April 2, 1999.
/14/ Filed with Post-Effective Amendment No. 45 on May 26, 1999.
/15/ Filed with Post-Effective Amendment No. 46 on June 17, 1999.
/16/ Filed with Post-Effective Amendment No. 50 on October 1, 1999.
-4-
<PAGE>
/17/ Filed with Amendment No. 55 to the Registration Statement under the
Investment Company Act of 1940 on October 8, 1999.
Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
No person is controlled by or under common control with the Registrant.
Item 25. Indemnification
---------------
Reference is made to Article IV of the Registrant's Declaration of Trust,
which was filed with the Registrant's initial Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and, public policy as expressed in the Act and,
therefore, is unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by trustees, officers or controlling persons of
the Registrant in connection with the successful defense of any act, suit
or proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
The directors and officers of PIMCO and their business and other
connections are as follows:
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Allan, George C. Senior Vice President, PIMCO and PIMCO Management, Inc.
Ariza, Jr., Augustine Vice President, PIMCO and PIMCO Management, Inc.
Arnold, Tamara J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Asay, Michael R. Senior Vice President, PIMCO and PIMCO Management, Inc.
Baker, Brian P. Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Barbi, Leslie A. Executive Vice President, PIMCO and PIMCO Management, Inc.
Beaumont, Stephen B. 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 and PIMCO Management, Inc.
Brick, Andrew Senior Vice President, PIMCO.
Brynjolfsson, John B. Senior Vice President, PIMCO and PIMCO Management, Inc.
Burns, R. Wesley Managing Director, PIMCO and PIMCO Management, Inc.; President
and Trustee of the Trust and PIMCO Variable Insurance Trust;
President and Director of PIMCO Commercial Mortgage Securities
Trust, Inc.; Executive Vice President, PIMCO Funds:
Multi-Manager Series; Director, PIMCO Funds: Global Investors
Series plc and PIMCO Global Advisors (Ireland) Limited.
Callin, Sabrina C. Vice President, PIMCO and PIMCO Management, Inc.
Clark, Marcia K. 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.
Conseil, Cyrille Vice President, PIMCO and PIMCO Management, Inc.
Cummings, Doug Vice President, PIMCO and PIMCO Management, Inc.
Cupps, Wendy W. Senior Vice President, PIMCO and PIMCO Management, Inc.
Dialynas, Chris Managing Director, PIMCO and PIMCO Management, Inc.
Dorff, David J. Vice President, PIMCO and PIMCO Management, Inc.
Dow, Michael Senior Vice President, PIMCO, PIMCO Management, Inc. and the
Trust.
Dunn, Anita Vice President, PIMCO and PIMCO Management, Inc.
Durn, Sandra Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Ehlert, A. Benjamin Executive Vice President, PIMCO and PIMCO Management, Inc.
El-Erian, Mohamed A. Executive Vice President, PIMCO and PIMCO Management, Inc.
Ettl, Robert A. Executive Senior Vice President, PIMCO and PIMCO Management,
Inc.
Evans, Stephanie D. Vice President, PIMCO and PIMCO Management, Inc.
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 Director, Columbus Circle Trust Company;
Director, Senior Vice President and Chief Financial Officer,
Oppenheimer Group, Inc.; Chief Financial Officer and Senior
Vice President, PIMCO Advisors; Director, Senior Vice President
and Chief Financial Officer, PIMCO Global Advisors LLC.
Foulke, Steve A. Vice President, PIMCO and PIMCO Management, Inc.
Frisch, Ursula Vice President, PIMCO and PIMCO Management, Inc.
Garbuzov, Yuri P. 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.; Senior Vice President of the Trust and PIMCO
Variable Insurance Trust; 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.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Hardaway, John P. Senior Vice President, PIMCO and PIMCO Management, Inc.;
Treasurer of the Trust, PIMCO Variable Insurance Trust, PIMCO
Funds: Multi-Manager Series and PIMCO Commercial Mortgage
Securities Trust, Inc.
Harris, Brent R. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Director and Vice President, StocksPLUS
Management, Inc.; Trustee and Chairman of the Trust and PIMCO
Commercial Mortgage Securities Trust, Inc.; Member of
Management Board, PIMCO Advisors; Chairman, PIMCO Variable
Insurance Trust; Member of PIMCO Partners LLC.
Hattesohl, Joseph D. Vice President, PIMCO and PIMCO Management, Inc. Assistant
Treasurer, the Trust, PIMCO Variable Insurance Trust, PIMCO
Funds: Multi-Manager Series and PIMCO Commercial Mortgage
Securities Trust, Inc.
Hayes, Raymond C. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
Hinman, David C. Senior 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. Senior Vice President, PIMCO and PIMCO Management, Inc.
Hudoff, Mark Senior Vice President, PIMCO and PIMCO Management, Inc.
Isberg, Margaret E. Managing Director, PIMCO and PIMCO Management, Inc.; Senior
Vice President of the Trust.
Kelleher, Thomas J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust
Keller, James M. Senior 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.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Kilmer, Sharon Executive Vice President, PIMCO and PIMCO Management, Inc.
Kirkbaumer, Steven P. Vice President, PIMCO and PIMCO Management, Inc.
Larsen, Henrik P. Vice President, PIMCO Commercial Mortgage Securities Trust,
Inc., PIMCO Variable Insurance Trust, and the Trust.
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.
Ludwig, Daniel T. Vice President of Trust
Lyon, Laura, M. Vice President, PIMCO and PIMCO Management, Inc.
Mallegol, Andre J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
Martin, Scott W. Vice President, PIMCO and PIMCO Management, Inc.
Martini, Michael E. Vice President, PIMCO and PIMCO Management, Inc.
Mather, Scott A. Senior Vice President, PIMCO and PIMCO Management, Inc.
Mayer, Benjamin L. Vice President, PIMCO and PIMCO Management, Inc.
McCulley, Paul A. Executive Vice President, PIMCO and PIMCO Management, Inc.
McDevitt, Joseph E. Executive Vice President, PIMCO and PIMCO Management, Inc.;
Director and Chief Executive Officer, PIMCO Global Advisors
(Europe) Limited.
Meiling, Dean S. Managing Director, PIMCO and Director and Managing Director,
PIMCO Management, Inc.; Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc.; Director, PIMCO Funds: Global
Investors Series plc and PIMCO Global Advisors (Ireland)
Limited; Member, PIMCO Partners LLC.
Metsch, Mark E. Vice President, PIMCO and PIMCO Management, Inc.
Mewbourne, Curtis Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Moll, Jonathan D. Vice President, PIMCO and PIMCO Management, Inc.
Monson, Kirsten S. Senior Vice President, PIMCO and PIMCO Management, Inc.
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; Vice President
of the Trust.
Nakamura, Doris S. Vice President, PIMCO and PIMCO Management, Inc.
Nellemann, Mark D. Vice President, PIMCO and PIMCO Management, Inc.
Nguyen, Vinh T. Controller, PIMCO; Vice President and Controller, PIMCO
Advisors, Cadence Capital Management, Inc., NJF Management,
Inc., Parametric Management, Inc., StocksPLUS Management, Inc.,
PIMCO Funds Distributors LLC, PIMCO Management, Inc., PIMCO
Global Advisors LLC.
Ongaro, Douglas J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
Otterbein, Thomas J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Palghat, Kumar N. Vice President, PIMCO and PIMCO Management, Inc.
Perez, Keith Vice President, PIMCO and PIMCO Management, Inc.
Phansalker, Mohan V. Senior Vice President, Senior Legal Officer and Assistant
Secretary, PIMCO and PIMCO Management, Inc.; Vice President and
Assistant Secretary, StocksPLUS Management, Inc.
Philipp, Elizabeth M. Vice President, PIMCO and PIMCO Management, Inc.
Pittman, David J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
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.; Senior Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc.; Member of PIMCO Partners LLC.
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Randall, Terry A. Vice President, PIMCO and PIMCO Management, Inc.
Romano, Mark Vice President, PIMCO, PIMCO Management, Inc. and the Trust
Roney, Scott L. Senior Vice President, PIMCO and PIMCO Management, Inc.;
Director and Chief Executive Officer, PIMCO Global Advisors
(Japan) Limited.
Rosborough, Michael J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Rowe, Cathy T. Vice President, PIMCO and PIMCO Management, Inc.
Ruthen, Seth R. Vice President, PIMCO and PIMCO Management, Inc.
Sargent, Jeffrey M. Vice President, PIMCO, PIMCO Management, Inc. and PIMCO Funds:
Multi-Manager Series; Senior Vice President of the Trust, PIMCO
Variable Insurance Trust, PIMCO Commercial Mortgage Securities
Trust, Inc.
Schmider, Ernest L. Executive Vice President, Secretary, Chief Administrative and
Legal Officer, PIMCO and PIMCO Management, Inc.; Vice
President, PIMCO Partners, G.P.; Secretary, PIMCO Partners LLC;
Director, Assistant Secretary, StocksPLUS Management, Inc.;
Senior Vice President, PIMCO Advisors.
Scholey, Leland T. Senior Vice President, PIMCO, PIMCO Management, Inc. and the
Trust.
Schulist, Stephen O. Vice President, PIMCO and PIMCO Management, Inc.
Scibisz, Iwona E. Vice President, PIMCO and PIMCO Management, Inc.
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.
Theodore, Kyle, J. Vice President, PIMCO and PIMCO Management, Inc.
Thomas, Lee R. Director and Managing Director, PIMCO and PIMCO Management,
Inc.; Member PIMCO Partners LLC.
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
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.; Senior Vice President of PIMCO Variable
Insurance Trust; Vice President of the Trust and PIMCO
Commercial Mortgage Securities Trust, Inc.; Member of
Management Board, PIMCO Advisors; Member, President and Chief
Executive Officer of PIMCO Partners LLC; President and Chief
Executive Officer, PIMCO Partners GP.
Trinidad, Ronaele K. Vice President, PIMCO and PIMCO Management, Inc.
Trosky, Benjamin L. Managing Director and Management Board Member, PIMCO; Director
and Managing Director, PIMCO Management, Inc.; Senior Vice
President, PIMCO Commercial Mortgage Securities Trust, 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.
Wantanabe, Koichi Vice President, PIMCO; Executive Vice President and Director,
PIMCO Global Advisors (Japan) Limited.
Wegener, Marilyn Vice President, PIMCO and PIMCO Management, Inc.
Weil, Richard M. Assistant Secretary, PIMCO, PIMCO Management, Inc., Cadence
Capital Management, and PIMCO Funds Distributors LLC; General
Counsel, Senior Vice President and Secretary, PIMCO Advisors;
Secretary, Cadence Capital Management, Inc. NFJ Management,
Inc., Parametric Management, Inc., NFJ Investment Group,
Parametric Portfolio Associates, and StocksPLUS Management,
Inc.; Vice President, PIMCO Funds: Multi-Manager Series; Senior
Vice President, General Counsel and Assistant Secretary, PIMCO
Global Advisors LLC; Senior Vice President and Assistant
Secretary, PIMCO Global Advisors (Japan) Limited.
Westhead, Paul C. Vice President, PIMCO and PIMCO Management, Inc.
Wood, George H. Executive Vice President, PIMCO and PIMCO Management, Inc.
Yetter, Michael A. Senior Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Young, David Vice President, PIMCO, PIMCO Management, Inc. and PIMCO Global
Advisors (Europe) Limited.
Zhu, Changhong Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
The address of PIMCO is 840 Newport Center Drive, Newport Beach, CA 92260.
The address of PIMCO Advisors L.P. is 800 Newport Center Drive, Newport Beach,
CA 92660.
The address of PIMCO Funds Distributors LLC is 2187 Atlantic Street, Stamford,
CT 06902.
Item 27. Principal Underwriters
----------------------
(a) PIMCO Funds Distributors LLC (the "Distributor") serves as Distributor of
Shares of the Trust. The Distributor also acts as the principal
underwriter for PIMCO Funds: Multi-Manager Series. The Distributor is a
wholly-owned subsidiary of PIMCO Advisors.
(b)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------------------ ------------------------------- -------------------------------
<S> <C> <C>
Aartz, Erik M. Vice President None
Booth, Jeffrey L. Vice President None
Bosch, James D. Regional Vice President None
Brennan, Deborah P. Vice President, Compliance None
Officer
Clark, Timothy R. Senior Vice President None
Fessel, Jonathan P. Vice President None
Fitzgerald, Robert M. Chief Financial Officer and None
Treasurer
Gallagher, Michael J. Vice President None
Goldsmith, David S. Vice President None
Gray, Ronald H. Vice President None
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ --------------------- ---------------------
<S> <C> <C>
Hussey, John B. Vice President None
Jobe, Stephen R. Vice President None
Jones, Jonathan C. Vice President None
Lazcano, Raymond Vice President None
Lynch, William E. Senior Vice President None
McCarthy, Jacqueline A. Vice President None
Maloney, Kevin D. Compliance Officer None
Meyers, Andrew J. Executive Vice President None
Moyer, Fiora N. Vice President None
Neugebauer, Phil J. Vice President None
Nguyen, Vinh T. Vice President, Controller None
Pearlman, Joffrey H. Regional Vice President None
Russell, Mathew M. Vice President None
Schott, Newton B., Jr. Executive Vice President/ None
Secretary, Chief
Administrative/ Legal Officer
Smith, Robert M. Vice President None
Spear, Ellen Z. Vice President None
Stone, David P. Regional Vice President None
Sullivan, Daniel W. Vice President None
Thomas, William H., Jr. Regional Vice President None
Treadway, Stephen J. Director, Chairman, President None
and Chief Executive Officer
Troyer, Paul H. Senior Vice President None
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
- ------------------ ---------------------- ---------------------
<S> <C> <C>
Trumbore, Brian F. Executive Vice President None
Weil, Richard M. Assistant Secretary None
Zimmerman, Glen A. Vice President None
</TABLE>
- ----------------------
* The business address of all officers of the Distributor is either 2187
Atlantic Street, Stamford, CT 06902 or 800 Newport Center Drive, Newport Beach,
CA 92660.
Item 28. Location of Accounts and Records
--------------------------------
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and the Rules thereunder will be maintained at the offices of
Pacific Investment Management Company, 840 Newport Center Drive,
Newport Beach, California 92660, Investors Fiduciary Trust Company,
801 Pennsylvania, Kansas City, Missouri 64105, and Shareholder
Services, Inc., P.O. Box 5866, Denver, Colorado 80217.
Item 29. Management Services
-------------------
Not applicable
Item 30. Undertakings
------------
Not applicable.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 51 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington in the
District of Columbia on the 22/nd/ day of October, 1999.
PIMCO FUNDS
(Registrant)
By: ____________________________
R. Wesley Burns*
President
*By: /s/ Robert W. Helm
----------------------------
Robert W. Helm,
as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
____________________________ Trustee October 22, 1999
Guilford C. Babcock*
____________________________ Trustee October 22, 1999
Thomas P. Kemp*
____________________________ Trustee October 22, 1999
Brent R. Harris*
____________________________ Trustee October 22, 1999
William J. Popejoy*
____________________________ Trustee October 22, 1999
Vern O. Curtis*
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
____________________________ President October 22, 1999
R. Wesley Burns* (Principal Executive
Officer)
____________________________ Treasurer October 22, 1999
John P. Hardaway* (Principal Financial
and Accounting
Officer)
</TABLE>
*By: /s/ Robert W. Helm
----------------------
Robert W. Helm,
as attorney-in-fact
________________
* Pursuant to power of attorney filed with Post-Effective Amendment No. 36 to
Registration Statement No. 33-12113 on July 11, 1997.
<PAGE>
PIMCO Funds
INDEX TO EXHIBITS
<TABLE>
<S> <C>
Exhibit (i) Opinion and Consent of Counsel
Exhibit (j) Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE>
EXHIBIT(i)
[Letterhead of Dechert Price & Rhoads]
October 22, 1999
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive
Newport Beach, California 92660
Re: PIMCO Funds: Pacific Investment Management Series
(File Nos. 33-12113 and 811-5028)
-------------------------------------------------
Dear Sirs:
We have examined such documents and records as we deemed necessary to
render this opinion. Based upon the foregoing, we are of the opinion that the
shares to be sold pursuant to the Registration Statement of PIMCO Funds: Pacific
Investment Management Series (the "Trust"), when paid for as contemplated in the
Trust's Registration Statement, will be legally and validly issued, fully paid
and non-assessable by the Trust .
We hereby consent to the filing of this opinion as an exhibit to Post-
Effective Amendment No. 51 to the Trust's Registration Statement, and to all
references to our firm therein. In giving such consent, however, we do not admit
that we are within the category of persons whose consent is required by Section
7 of the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
Very truly yours,
/s/ Dechert Price & Rhoads
<PAGE>
EXHIBIT(j)
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 51 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated May 19, 1999, relating to the financial
statements and financial highlights appearing in the March 31, 1999 Annual
Reports to Shareholders of PIMCO Funds: Pacific Investment Management Series
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the headings "Financial Highlights"
and "Independent Accountants" in the Prospectuses and under the headings
"Independent Accountants" and "Financial Statements" in the Statement of
Additional Information.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
Kansas City, Missouri
October 22, 1999
