<PAGE>
PIMCO Funds Prospectus
Pacific
Investment
Management
Series
September 29, 2000
Share Classes
(Ins) -- Institutional
(Adm) -- Administrative
--------------------------------------------------------------------------------
SHORT DURATION BOND FUNDS
Money Market Fund Low Duration Fund II
Short-Term Fund Low Duration Fund III
Low Duration Fund
--------------------------------------------------------------------------------
INTERMEDIATE DURATION BOND FUNDS
GNMA Fund Total Return Fund III
Moderate Duration Fund Total Return Mortgage Fund
Real Return Bond Fund Investment Grade Corporate Bond Fund
Total Return Fund High Yield Fund
Total Return Fund II
--------------------------------------------------------------------------------
LONG DURATION BOND FUNDS
Long-Term U.S. Government Long Duration Fund
Fund
--------------------------------------------------------------------------------
TAX EXEMPT BOND FUNDS
Short Duration Municipal California Intermediate
Income Fund Municipal Bond Fund
Municipal Bond Fund California Municipal Bond Fund
New York Municipal Bond Fund
--------------------------------------------------------------------------------
INTERNATIONAL BOND FUNDS
Global Bond Fund Foreign Bond Fund
Global Bond Fund II Emerging Markets Bond Fund
--------------------------------------------------------------------------------
STOCK AND BOND FUNDS
Strategic Balanced Fund Convertible Fund
--------------------------------------------------------------------------------
STOCK FUNDS
StocksPLUS Fund
This cover is not part of the Prospectus P I M C O
---------
FUNDS
<PAGE>
PIMCO Funds Prospectus
PIMCO This Prospectus describes 28 mutual funds offered by PIMCO Funds:
Funds: Pacific Investment Management Series. The Funds provide access to
Pacific the professional investment advisory services offered by Pacific
Investment Investment Management Company LLC ("PIMCO"). As of June 30, 2000,
Management PIMCO managed approximately $199.3 billion in assets. The firm's
Series institutional heritage is reflected in the PIMCO Funds offered in
this Prospectus.
September
29, 2000 This Prospectus explains what you should know about the Funds
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
Insti- truthful or complete. Any representation to the contrary is a
tutional criminal offense.
and
Admini-
strative
1 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Summary Information.............................................. 3
Fund Summaries
Money Market Fund.............................................. 5
Short-Term Fund................................................ 7
Low Duration Fund.............................................. 9
Low Duration Fund II........................................... 11
Low Duration Fund III.......................................... 13
GNMA Fund...................................................... 15
Moderate Duration Fund......................................... 17
Real Return Bond Fund.......................................... 19
Total Return Fund.............................................. 21
Total Return Fund II........................................... 23
Total Return Fund III.......................................... 25
Total Return Mortgage Fund..................................... 27
Investment Grade Corporate Bond Fund........................... 29
High Yield Fund................................................ 31
Long-Term U.S. Government Fund................................. 33
Long Duration Fund............................................. 35
Short Duration Municipal Income Fund........................... 37
Municipal Bond Fund............................................ 39
California Intermediate Municipal Bond Fund.................... 41
California Municipal Bond Fund................................. 43
New York Municipal Bond Fund................................... 45
Global Bond Fund............................................... 47
Global Bond Fund II............................................ 49
Foreign Bond Fund.............................................. 51
Emerging Markets Bond Fund..................................... 53
Strategic Balanced Fund........................................ 55
Convertible Fund............................................... 57
StocksPLUS Fund................................................ 59
Summary of Principal Risks....................................... 61
Management of the Funds.......................................... 64
Investment Options............................................... 68
Purchases, Redemptions and Exchanges............................. 69
How Fund Shares are Priced....................................... 73
Fund Distributions............................................... 74
Tax Consequences................................................. 75
Characteristics and Risks of Securities and Investment
Techniques...................................................... 76
Financial Highlights............................................. 85
Appendix A--Description of Securities Ratings.................... A-1
</TABLE>
Prospectus
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 5. Following the table are certain key concepts which are
used throughout the prospectus.
<TABLE>
<CAPTION>
Non-U.S. Dollar
Main Investments Duration Credit Quality(1) Denominated Securities(2)
------------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
Short Money Market Money market (less than or =) Min 95% Aaa or 0%
Duration instruments 90 days dollar- Prime 1; (less than or =)
Bond Funds weighted average 5% Aa or Prime 2
maturity
---------------------------------------------------------------------------------------------------------------------------
Short-Term Money market 0-1 year B to Aaa; max 10% 0-5%(3)
instruments and below Baa
short maturity
fixed income
securities
---------------------------------------------------------------------------------------------------------------------------
Low Duration Short maturity 1-3 years B to Aaa; max 10% 0-20%(3)
fixed income below Baa
securities
---------------------------------------------------------------------------------------------------------------------------
Low Duration II Short maturity 1-3 years A to Aaa 0%
fixed income
securities with
quality and non-
U.S. issuer
restrictions
---------------------------------------------------------------------------------------------------------------------------
Low Duration III Short maturity 1-3 years B to Aaa; max 10% 0-20%(3)
fixed income below Baa
securities with
prohibitions on
firms engaged in
socially
sensitive
practices
-----------------------------------------------------------------------------------------------------------------------------------
Intermediate GNMA Short and 1-7 years Baa to Aaa; max 10% 0%
Duration Bond intermediate below Aaa
Funds maturity
mortgage-related
fixed income
securities
issued by the
Government
National Mortgage
Association
---------------------------------------------------------------------------------------------------------------------------
Moderate Duration Short and 2-5 years B to Aaa; max 10% 0-20%(3)
intermediate below Baa
maturity fixed
income
securities
---------------------------------------------------------------------------------------------------------------------------
Real Return Bond Inflation- N/A B to Aaa; max 10% 0-20%(3)
indexed fixed below Baa
income
securities
---------------------------------------------------------------------------------------------------------------------------
Total Return Intermediate 3-6 years B to Aaa; max 10% 0-20%(3)
maturity fixed below Baa
income
securities
---------------------------------------------------------------------------------------------------------------------------
Total Return II Intermediate 3-6 years Baa to Aaa 0%
maturity fixed
income
securities with
quality and
non-U.S. issuer
restrictions
---------------------------------------------------------------------------------------------------------------------------
Total Return III Intermediate 3-6 years B to Aaa; max 10% 0-20%(3)
maturity fixed below Baa
income
securities with
prohibitions on
firms engaged in
socially
sensitive
practices
---------------------------------------------------------------------------------------------------------------------------
Total Return Mortgage Intermediate 2-6 years Baa to Aaa; max 10% 0%
maturity below Aaa
mortgage-related
fixed income
securities
---------------------------------------------------------------------------------------------------------------------------
Investment Grade Corporate fixed 3-7 years B to Aaa; max 10% 0-20%(3)
Corporate Bond income below Baa
securities
---------------------------------------------------------------------------------------------------------------------------
High Yield Higher yielding 2-6 years B to Aaa; min 65% 0-15%(4)
fixed income below Baa
securities
------------------------------------------------------------------------------------------------------------------------------------
Long Duration Long-Term Long-term (greater than A to Aaa 0%
Bond Funds U.S. Government maturity fixed or =) 8 years
income
securities
---------------------------------------------------------------------------------------------------------------------------
Long Duration Long-term (greater than B to Aaa; max 10% 0-20%(3)
maturity fixed or =) 8 years below Baa
income
securities
------------------------------------------------------------------------------------------------------------------------------------
Tax Exempt Short Duration Short and 0-2 years Baa to Aaa 0%
Bond Funds Municipal Income intermediate
maturity
municipal
securities
(exempt from
federal income
tax)
---------------------------------------------------------------------------------------------------------------------------
Municipal Bond Intermediate and 3-10 years Ba to Aaa; max 0%
long-term 10% below Baa
maturity
municipal
securities
(exempt from
federal income
tax)
---------------------------------------------------------------------------------------------------------------------------
California Intermediate Intermediate 3-7 years B to Aaa; max 10% 0%
Municipal Bond maturity below Baa
municipal
securities
(exempt from
federal and
California
income tax)
---------------------------------------------------------------------------------------------------------------------------
California Intermediate to 3-12 years B to Aaa; max 10% 0%
Municipal Bond long-term below Baa
maturity
municipal
securities
(exempt from
federal and
California
income tax)
---------------------------------------------------------------------------------------------------------------------------
New York Intermediate to 3-12 years B to Aaa; max 10% 0%
Municipal Bond long-term below Baa
maturity
municipal
securities
(exempt from
federal and New
York income tax)
------------------------------------------------------------------------------------------------------------------------------------
International Global Bond U.S. and non- 3-7 years B to Aaa; max 25-75%(5)
Bond Funds U.S. 10% below Baa
intermediate
maturity fixed
income
securities
---------------------------------------------------------------------------------------------------------------------------
Global Bond II U.S. and hedged 3-7 years B to Aaa; max 25-75%(5)
non-U.S. 10% below Baa
intermediate
maturity fixed
income
securities
---------------------------------------------------------------------------------------------------------------------------
Foreign Bond Intermediate 3-7 years B to Aaa; max (greater than or =) 85%(5)
maturity hedged 10% below Baa
non-U.S. fixed
income
securities
---------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond Emerging market 0-8 years B to Aaa (greater than or =) 80%(5)
fixed income
securities
------------------------------------------------------------------------------------------------------------------------------------
Stock and Strategic Balanced 45-75% in the 0-6 years(6) B to Aaa; max 0-20%(3)(6)
Bond StocksPLUS Fund; 10% below Baa(6)
Funds 25-55% in the
Total Return
Fund
---------------------------------------------------------------------------------------------------------------------------
Convertible Convertible N/A Caa to Aaa; max 0-20%(3)
securities 40% below Baa and
10% below B
------------------------------------------------------------------------------------------------------------------------------------
Stock Funds StocksPLUS S&P 500 stock 0-1 year B to Aaa; max 0-20%(3)
index 10% below Baa
derivatives
backed by a
portfolio of
short-term
fixed-income
securities
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As rated by Moody's Investors Service, Inc. or equivalently rated by
Standard & Poor's Ratings Service, or if unrated, determined by PIMCO to be
of comparable quality.
(2) Each Fund (except the Low Duration II, Total Return II, Long-Term U.S.
Government, Short-Duration Municipal Income, Municipal Bond, California
Intermediate Municipal Bond, California Municipal Bond, and New York
Municipal Bond Funds) may invest beyond these limits in U.S. dollar-
denominated securities of non-U.S. issuers.
(3) The percentage limitation relates to non-U.S. dollar-denominated securities.
(4) The percentage limitation relates to euro-denominated securities.
(5) The percentage limitation relates to securities of foreign issuers
denominated in any currency.
(6) The Fund does not invest in securities directly, but in other PIMCO Funds
with these characteristics.
3 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Summary Information (continued)
Fixed The "Fixed Income Funds" are the Money Market, Short-Term, Low
Income Duration, Low Duration II, Low Duration III, GNMA, Moderate
Instruments Duration, Real Return Bond, Total Return, Total Return II, Total
Return III, Total Return Mortgage, Investment Grade Corporate Bond,
High Yield, Long-Term U.S. Government, Long Duration, Short Duration
Municipal Income, Municipal Bond, California Intermediate Municipal
Bond, California Municipal Bond, New York Municipal Bond, Global
Bond, Global Bond II, Foreign Bond, and Emerging Markets Bond Funds.
Each Fixed Income Fund differs from the others primarily in the
length of the Fund's duration or the proportion of its investments
in certain types of fixed income securities. Each Fixed Income Fund
invests at least 65% of its assets in "Fixed Income Instruments,"
which as used in this prospectus includes:
. securities issued or guaranteed by the U.S. Government, its
agencies or government-sponsored enterprises ("U.S. Government
Securities");
. corporate debt securities of U.S. and non-U.S. issuers,
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,
event-linked 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 government-sponsored
enterprises;
. obligations of non-U.S. governments or their subdivisions,
agencies and government-sponsored enterprises; 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 Ratings Service
("S&P") or Moody's Investors Service, 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 broad range of investment choices. The
Descrip- following summaries identify each Fund's investment objective,
tions, principal investments and strategies, principal risks, performance
Performance information and fees and expenses. A more detailed "Summary of
and Fees Principal Risks" describing principal risks of investing in the
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.
Prospectus 4
<PAGE>
PIMCO Money Market Fund Ticker
Symbols:
PMIXX
(Inst.
Class)
PMAXX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Money market Minimum 95% rated
and current income, instruments Aaa or Prime 1;
Strategies consistent with (less than or =) 5%
preservation of Average Portfolio Aa or Prime 2
capital and daily Maturity (less
liquidity than or =) 90 Dividend Frequency
days dollar-weighted Declared daily and
average maturity distributed monthly
The Fund seeks to achieve its investment objective by investing at
least 95% of its total assets in a diversified portfolio of money
market securities that are in the highest rating category for
short-term obligations. The Fund also may invest up to 5% of its
total assets in money market securities that are in the second-
highest rating category for short-term obligations. The Fund may
only invest in U.S. dollar-denominated securities that mature in
397 days or fewer from the date of purchase. The dollar-weighted
average portfolio maturity of the Fund may not exceed 90 days. The
Fund attempts to maintain a stable net asset value of $1.00 per
share, although there is no assurance that it will be successful
in doing so.
The Fund may invest in the following: obligations of the U.S.
Government (including its agencies and instrumentalities); short-
term corporate debt securities of domestic and foreign
corporations; obligations of domestic and foreign commercial
banks, savings banks, and savings and loan associations; and
commercial paper. The Fund may invest more than 25% of its total
assets in securities or obligations issued by U.S. banks. The Fund
may lend its portfolio securities to brokers, dealers and other
financial institutions in order to earn income.
The Fund's investments will comply with applicable rules
governing the quality, maturity and diversification of securities
held by money market funds.
--------------------------------------------------------------------------------
Principal An investment in the Fund is not insured or guaranteed by the
Risks Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by
investing in the Fund. Among the principal risks of investing in
the Fund, which could adversely affect its net asset value, yield
and total return, are:
.Interest Rate Risk .Market Risk
.Credit Risk .Issuer Risk
.Management 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (1/25/95), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. To obtain the Fund's
current yield, call 1-800-927-4648. Past performance is no
guarantee of future results.
5 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Money Market Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
[GRAPH] Information
Annual Return --------------------
92 93 94 95 96 97 98 99 1/1/00-6/30/00 2.88%
----- ----- ----- ----- ----- ----- ----- -----
3.44% 2.80% 3.92% 6.06% 5.28% 5.34% 5.34% 4.90%
Highest and Lowest
Quarter Returns
(for periods shown
in the bar chart)
--------------------
Highest (4th Qtr.
'95) 1.72%
--------------------
Lowest (2nd Qtr.
'93) 0.67%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (3/1/91)(3)
---------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class 4.90% 5.38% 4.73%
---------------------------------------------------------------------
Administrative Class 4.63% 5.14% 4.48%
---------------------------------------------------------------------
Salomon 3-Month Treasury Bill Index(1) 4.73% 5.20% 4.70%
---------------------------------------------------------------------
Lipper Institutional Money Market Fund
Average(2) 4.92% 5.32% 4.77%
---------------------------------------------------------------------
</TABLE>
(1) The Salomon 3-Month Treasury Bill Index is an unmanaged index
representing monthly return equivalents of yield averages of
the last 3 month Treasury Bill issues. It is not possible to
invest directly in the index.
(2) The Lipper Institutional Money Market Fund Average is a total
return performance average of Funds tracked by Lipper
Analytical Services, Inc. that invest in high quality
financial instruments (rated in the top two grades) with
dollar-weighted maturities of less than 90 days. It does not
take into account sales charges.
(3) The Fund commenced operations on 3/1/91. Index comparisons
begin at 2/28/91.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional 0.15% None 0.20% 0.35%
---------------------------------------------------------------------
Administrative 0.15 0.25% 0.20 0.60
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect a 0.20% Administrative Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $36 $113 $197 $443
----------------------------------------------------------------
Administrative 61 192 335 750
----------------------------------------------------------------
</TABLE>
Prospectus 6
<PAGE>
PIMCO Short-Term Fund Ticker
Symbols:
PTSHX
(Inst.
Class)
PSFAX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Money market B to Aaa; maximum
and current income, instruments and 10% below Baa
Strategies consistent with short maturity
preservation of fixed income Dividend Frequency
capital and daily securities Declared daily and
liquidity distributed monthly
Average Portfolio
Duration
0-1 year
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund will vary
based on PIMCO's forecast for interest rates and will normally not
exceed one year. For point of reference, the dollar-weighted
average portfolio maturity of this Fund is normally not expected
to exceed three years.
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. The Fund
may invest up to 5% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls).
--------------------------------------------------------------------------------
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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (2/1/96), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
7 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Short-Term Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH]
More Recent Return
Annual Return Information
90 91 92 93 94 --------------------
----- ----- ----- ----- -----
8.47% 6.65% 3.63% 4.62% 2.90% 1/1/00-6/30/00 3.17%
95 96 97 98 99
----- ----- ----- ----- ----- Highest and Lowest
9.21% 7.00% 6.51% 5.74% 5.24% Quarter Returns
(for periods shown
in the bar chart)
-------------------
Highest (4th Qtr.
'95) 2.60
-------------------
Lowest (1st Qtr.
'94) 0.19
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
1 Year 5 Years 10 Years
---------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class 5.24% 6.73% 5.98%
----------------------------------------------------------------------
Administrative Class 4.97% 6.47% 5.72%
----------------------------------------------------------------------
Salomon 3-Month Treasury Bill(1) 4.73% 5.20% 5.05%
----------------------------------------------------------------------
Lipper Ultrashort Obligation Fund Avg(2) 4.58% 5.62% 5.59%
----------------------------------------------------------------------
</TABLE>
(1) The Salomon 3-Month Treasury Bill Index is an unmanaged index
representing monthly return equivalents of yield averages of
the last 3 month Treasury Bill issues. It is not possible to
invest directly in the index.
(2) The Lipper Ultrashort Obligation 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 investment-grade debt issues or better, and
maintain a portfolio dollar-weighted average maturity between
91 and 365 days. 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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.39% 0.64%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.39 0.89
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.20% and
interest expense of 0.19% paid during the most recent fiscal
year. Total Annual Operating Expenses excluding interest
expense is 0.45% for the Institutional Class and 0.70% for the
Administrative Class. Interest expense is generally incurred
as a result of investment management activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $65 $205 $357 $798
--------------------------------------------------------------------
Administrative 91 284 493 1,096
--------------------------------------------------------------------
</TABLE>
Prospectus 8
<PAGE>
PIMCO Low Duration Fund Ticker
Symbols:
PTLDX
(Inst.
Class)
PLDAX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Short maturity B to Aaa; maximum
and total return, fixed income 10% below Baa
Strategies consistent with securities
preservation of Dividend Frequency
capital and Average Portfolio Declared daily and
prudent Duration 1-3 years distributed monthly
investment
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund normally
varies within a one- to three-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 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. The Fund
may invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 . Derivatives Risk . Currency Risk
. Credit Risk . Liquidity Risk . Leveraging Risk
. Market Risk . Mortgage Risk . Management Risk
. Issuer Risk . Foreign Investment
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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (1/3/95), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
9 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Low Duration Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
[GRAPH] Information
--------------------
Annual Returns
1/1/00-6/30/0 3.13%
90 91 92 93 94 95 96 97
----- ------ ----- ----- ----- ------ ----- -----
9.05% 13.46% 7.69% 7.76% 0.63% 11.93% 6.14% 8.24% Highest and Lowest
Quarter Returns
98 99 (for periods shown
----- ----- in the bar chart)
7.16% 2.97% -------------------
Highest (3rd Qtr.
'91) 3.90%
--------------------
Lowest (1st Qtr.
'94) -0.32%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
-----------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class 2.97% 7.25% 7.44%
-----------------------------------------------------------------------
Administrative Class 2.72% 6.98% 7.18%
-----------------------------------------------------------------------
Merrill Lynch 1-3 Year Treasury Index(1) 3.06% 6.51% 6.59%
-----------------------------------------------------------------------
Lipper Short Investment Grade Debt Fund Avg(2) 2.81% 5.95% 6.36%
-----------------------------------------------------------------------
</TABLE>
(1) The Merrill Lynch 1-3 Year Treasury Index is an unmanaged
index of U.S Treasury obligations having maturities from one
to 2.99 years. It is not possible to invest directly in the
index.
(2) The Lipper Short Investment Grade 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 investment-grade debt issues (rated in the top four
grades) with dollar-weighted average maturities of less than
three years. 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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.26% 0.51%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.18% paid by
each class and interest expense of 0.08% for the Institutional
Class and 0.07% for the Administrative Class, paid during the
most recent fiscal year. Total Annual Operating Expenses
excluding interest expense is 0.43% for the Institutional
Class and 0.68% for the Administrative Class. Interest expense
is generally incurred as a result of investment management
activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $52 $164 $285 $640
---------------------------------------------------------------------
Administrative 77 240 417 930
---------------------------------------------------------------------
</TABLE>
Prospectus 10
<PAGE>
PIMCO Low Duration Fund II Ticker
Symbols:
PLDTX
(Inst.
Class)
PDFAX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Short maturity A to Aaa
and total return, fixed income
Strategies consistent with securities Dividend Frequency
preservation of Declared daily and
capital and Average Portfolio distributed monthly
prudent Duration
investment 1-3 years
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund normally
varies within a one- to three-year time frame based on PIMCO's
forecast for interest rates. The Fund may invest only in
investment grade U.S. dollar denominated securities of U.S.
issuers that are rated A or higher by Moody's or S&P, or, if
unrated, determined by PIMCO to be of comparable quality.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Liquidity Risk
.Market Risk .Mortgage Risk .Management 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (2/2/98), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
11 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Low Duration Fund II (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
[GRAPH] Information
---------------------------
Annual Return
1/1/00-6/30/00 3.08%
92 93 94 95 96
----- ----- ----- ------ ----- Highest and Lowest
6.23% 6.58% 0.32% 11.78% 5.22% Quarter Returns
(for periods shown
97 98 99 in the bar chart)
----- ----- ----- ---------------------------
7.62% 6.60% 2.55% Highest (1st Qtr. '95)3.83%
---------------------------
Lowest (1st Qtr. '94)-0.60%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (11/1/91)(3)
-----------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class 2.55% 6.71% 6.08%
-----------------------------------------------------------------------
Administrative Class 2.29% 6.44% 5.81%
-----------------------------------------------------------------------
Merrill Lynch 1-3 Year Treasury Index(1) 3.06% 6.51% 5.80%
-----------------------------------------------------------------------
Lipper Short Investment Grade Debt
Fund Avg(2) 2.81% 5.95% 5.59%
-----------------------------------------------------------------------
</TABLE>
(1) The Merrill Lynch 1-3 Year Treasury Index is an unmanaged
index of U.S Treasury obligations having maturities from one
to 2.99 years. It is not possible to invest directly in the
index.
(2) The Lipper Short Investment Grade 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 investment-grade debt issues (rated in the top four
grades) with dollar-weighted average maturities of less than
three years. It does not take into account sales charges.
(3) The Fund began operations on 11/1/91. Index comparisons began
on 10/31/91.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.32% 0.57%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.67 1.17
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.25% paid by
each class and interest expense of 0.07% for the Institutional
Class and 0.42% for the Administrative Class, paid during the
most recent fiscal year. Total Annual Operating Expenses
excluding interest expense is 0.50% for the Institutional
Class and 0.75% for the Administrative Class. Interest expense
is generally incurred as a result of investment management
activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $58 $183 $318 $714
---------------------------------------------------------------------
Administrative 119 372 644 1,420
---------------------------------------------------------------------
</TABLE>
Prospectus 12
<PAGE>
PIMCO Low Duration Fund III Ticker
Symbols:
PLDIX
(Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Short maturity B to Aaa; maximum
and total return, fixed income 10% below Baa
Strategies consistent with securities
preservation of Dividend Frequency
capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment 1-3 years
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund normally
varies within a one- to three-year time frame based on PIMCO's
forecast for interest rates. The Fund will not invest in the
securities of any issuer determined by PIMCO to be engaged
principally in the provision of healthcare services, the
manufacture of alcoholic beverages, tobacco products,
pharmaceuticals or military equipment, or the operation of
gambling casinos. The Fund will also avoid, to the extent possible
on the basis of information available to PIMCO, 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.
The Fund invests primarily in investment grade 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. The Fund may
invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in exchange rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Derivatives Risk .Currency Risk
.Credit Risk .Liquidity Risk .Leveraging Risk
.Market Risk .Mortgage Risk .Management Risk
.Issuer Risk .Foreign Investment
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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (3/19/99), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
13 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Low Duration Fund III (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
1/1/00-6/30/00 2.97%
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
97 98 99 --------------------
----- ----- ----- Highest (3rd Qtr.
7.12% 6.65% 2.73% '98) 2.66%
--------------------
Lowest (2nd Qtr.
'99) 0.29%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year (12/31/96)
------------------------------------------------------------------
<S> <C> <C>
Institutional Class 2.73% 5.48%
------------------------------------------------------------------
Administrative Class 2.48% 5.22%
------------------------------------------------------------------
Merrill Lynch 1-3 Year Treasury Index(1) 3.06% 5.56%
------------------------------------------------------------------
Lipper Short Investment Grade Debt Fund Avg(2) 2.81% 4.93%
------------------------------------------------------------------
</TABLE>
(1) The Merrill Lynch 1-3 Year Treasury Index is an unmanaged
index of U.S Treasury obligations having maturities from one to
2.99 years. It is not possible to invest directly in the index.
(2) The Lipper Short Investment Grade 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
investment-grade debt issues (rated in the top four grades) with
dollar-weighted average maturities of less than three years. 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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.30% 0.55%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.32 0.82
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.25% paid by
each class and interest expense of 0.05% for the Institutional
Class and 0.07% for the Administrative Class, paid during the
most recent fiscal year. Total Annual Operating Expenses
excluding interest expense is 0.50% for the Institutional
Class and 0.75% for the Administrative Class. Interest expense
is generally incurred as a result of investment management
activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $56 $176 $307 $689
------------------------------------------------------------------
Administrative 84 262 455 1,014
------------------------------------------------------------------
</TABLE>
Prospectus 14
<PAGE>
Ticker Symbols:
PIMCO GNMA Fund PDMIX (Inst. Class)
N/A (Admin. Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Short to Baa to Aaa; maximum
and total return, intermediate 10% below Aaa
Strategies consistent with maturity
preservation of mortgage-related Dividend Frequency
capital and fixed income Declared daily and
prudent securities distributed monthly
investment
management Average Portfolio
Duration
1-7 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of securities of varying maturities issued
by the Government National Mortgage Association ("GNMA"). The Fund
is neither sponsored by nor affiliated with GNMA. The average
portfolio duration of this Fund normally varies within a one- to
seven-year time frame based on PIMCO's forecast for interest
rates. The Fund invests primarily in securities that are in the
highest rating category, but may invest up to 10% of its assets in
investment grade securities rated below Aaa by Moody's or AAA by
S&P, subject to a minimum rating of Baa by Moody's or BBB by S&P,
or, if unrated, determined by PIMCO to be of comparable quality.
The Fund may not invest in securities denominated in foreign
currencies, but may invest without limit in U.S. dollar-
denominated securities of foreign issuers.
The Fund may invest all of its assets 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. The Fund may, without limitation,
seek to obtain market exposure to the securities in which it
primarily invests by entering into a series of purchase and sale
contracts or by using other investment techniques (such as buy
backs or dollar rolls). The "total return" sought by the Fund
consists of income earned on the Fund's investments, plus capital
appreciation, if any, which generally arises from decreases in
interest rates or improving credit fundamentals for a particular
sector or security.
--------------------------------------------------------------------------------
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 .Mortgage Risk .Foreign Investment
.Credit Risk .Derivatives Risk Risk
.Market Risk .Liquidity Risk .Leveraging Risk
.Issuer Risk .Management 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 Institutional Class Shares.
The Administrative Class of the Fund had not commenced operations
as of the date of this prospectus. Past performance is no
guarantee of future results, and the Fund achieved the performance
track record shown during a period when it pursued its investment
objective using different investment strategies.
15 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO GNMA Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
[GRAPH] --------------------
1/1/00-6/30/00 4.50%
Annual Reports
98 99 Highest and Lowest
------- ------- Quarter Returns
6.10% 2.86% (for periods shown
in the bar chart)
--------------------
Highest (3rd Qtr.
'98) 2.82%
--------------------
Lowest (4th Qtr.
'99) -0.48%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (7/31/97)
-----------------------------------------------------------------------
<S> <C> <C>
Institutional Class 2.86% 5.53%
-----------------------------------------------------------------------
Merrill Lynch 1-3 Year Treasury Index(1) 3.06% 5.22%
-----------------------------------------------------------------------
Lipper U.S. Mortgage Fund Avg(2) 0.65% 4.12%
-----------------------------------------------------------------------
</TABLE>
(1) The Merrill Lynch 1-3 Year Treasury Index is an unmanaged
index of U.S Treasury obligations having maturities from one
to 2.99 years. It is not possible to invest directly in the
index.
(2) The Lipper U.S. Mortgage 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
mortgages/securities issued or guaranteed as to principal and
interest by the U.S. government and certain federal agencies.
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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 1.35% 1.60%
---------------------------------------------------------------------
Administrative 0.25 0.25% 1.35 1.85
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.25%, interest
expense of 1.09% and organizational expense of 0.01% paid by
the Institutional Class during the most recent fiscal year.
Because the Administrative Class of the Fund was not
operational during the last fiscal year, Other Expenses include
interest and organizational expenses incurred by the
Institutional Class. Total Annual Fund Operating Expenses
excluding interest and organizational expense is 0.50% for the
Institutional Class and 0.75% for the Administrative Class.
Interest expense is generally incurred as a result of
investment management activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $163 $505 $871 $1,900
---------------------------------------------------------------------
Administrative 188 582 1,001 2,169
---------------------------------------------------------------------
</TABLE>
Prospectus 16
<PAGE>
PIMCO Moderate Duration Fund Ticker
Symbols:
PMDRX
(Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Short and B to Aaa; maximum
and total return, intermediate 10% below Baa
Strategies consistent with maturity fixed
preservation of income securities Dividend Frequency
capital and Declared daily and
prudent Average Portfolio distributed monthly
investment Duration
management 2-5 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund normally
varies within a two- to five-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 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. The Fund
may invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Derivatives Risk .Currency Risk
.Credit Risk .Liquidity Risk .Leveraging Risk
.Market Risk .Mortgage Risk .Management Risk
.Issuer Risk .Foreign Investment 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 Institutional Class Shares.
The Administrative Class of the Fund has not commenced operations
as of the date of this prospectus. Past performance is no
guarantee of future results.
17 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Moderate Duration Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
1/1/00-6/30/00 3.20%
Highest and Lowest
[GRAPH] Quarter Returns
(for periods shown
Annual Return in the bar chart)
--------------------
97 98 99 Highest (3rd Qtr.
------ ------ ------ '98) 4.26%
7.97% 8.11% 0.89% --------------------
Lowest (2nd Qtr.
'99) -0.64%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (12/31/96)
----------------------------------------------------------------------
<S> <C> <C>
Institutional Class 0.89% 5.61%
----------------------------------------------------------------------
Lehman Brothers Intermediate
Government/Corporate Bond Index(1) 0.39% 5.50%
----------------------------------------------------------------------
Lipper Short Intermediate Investment Grade Debt
Fund Avg(2) 0.89% 4.75%
----------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Intermediate Government/Corporate Bond
Index is an unmanaged index of fixed income securities having
maturities from 1 to 9.99 years. It is not possible to invest
directly in the index.
(2) The Lipper Short Intermediate Investment Grade 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 investment-grade debt issues (rated in the
top four grades) with dollar-weighted average maturities of
one to five years. 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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.22% 0.47%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.22 0.72
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.20% and
interest expense of 0.02% paid by the Institutional Class
during the most recent fiscal year. Because the Administrative
Class of the Fund was not operational during the last fiscal
year, Other Expenses include interest expense incurred by the
Institutional Class. Total Annual Fund Operating Expenses
excluding interest expense is 0.45% for the Institutional
Class and 0.70% for the Administrative Class. Interest expense
is generally incurred as a result of investment management
activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $48 $151 $263 $591
------------------------------------------------------------------
Administrative 74 230 401 894
------------------------------------------------------------------
</TABLE>
Prospectus 18
<PAGE>
PIMCO Real Return Bond Fund Ticker
Symbols:
PRRIX
(Inst.
Class)
PARRX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Fund Focus Credit Quality
Investments Objective Inflation-indexed B to Aaa; maximum
and Seeks maximum fixed income 10% below Baa
Strategies real return, securities
consistent with Dividend Frequency
preservation of Average Portfolio Declared daily and
real capital and Duration distributed monthly
prudent See description
investment below
management
The Fund seeks its investment objective by investing under normal
circumstances at least 65% of its assets in inflation-indexed
bonds of varying maturities issued by the U.S. and non-U.S.
governments, their agencies or instrumentalities, and
corporations. Inflation-indexed bonds are fixed income securities
that are structured to provide protection against inflation. The
value of the bond's principal or the interest income paid on the
bond is adjusted to track changes in an official inflation
measure. The U.S. Treasury uses the Consumer Price Index for Urban
Consumers as the inflation measure. Inflation-indexed bonds issued
by a foreign government are generally adjusted to reflect a
comparable inflation index, calculated by that government. "Real
return" equals total return less the estimated cost of inflation,
which is typically measured by the change in an official inflation
measure.
Because of the unique features of inflation-indexed bonds, PIMCO
uses a modified form of duration for the Fund ("real duration")
which measures price changes as a result of changes in "real"
interest rates. A "real" interest rate is the market interest rate
minus expected inflation. There is no limit on the real duration
of the Fund, but it is expected that the average real duration of
this Fund will normally vary approximately within the range of the
average real duration of all inflation-indexed bonds issued by the
U.S. Treasury in the aggregate, which as of June 30, 2000 was 8.92
years. For point of reference, it is expected that the average
portfolio duration (as opposed to real duration) of the Fund will
generally vary within a one- to five-year time frame, although
this range is subject to change.
The Fund invests primarily in investment grade 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. The Fund also may
invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates. The Fund is non-diversified, which means that it may
concentrate its assets in a smaller number of issuers than a
diversified Fund.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls).
--------------------------------------------------------------------------------
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 . Derivatives Risk . Currency Risk
. Credit Risk . Liquidity Risk . Leveraging Risk
. Market Risk . Issuer Non- . Management Risk
. Issuer Risk Diversification
Risk
. Foreign
Investment 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 Institutional Class Shares.
The Administrative Class of the Fund had not commenced operations
as of March 31, 2000, the Fund's fiscal year end. Past performance
is no guarantee of future results.
19 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Real Return Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 6.84%
Annual Return
Highest and Lowest
98 99 Quarter Returns
----- ----- (for periods shown
5.21% 5.72% in the bar chart)
--------------------
Highest (3rd Qtr.
'98) 3.19%
-------------------
Lowest (4th Qtr.
'98) -0.05%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (1/29/97)(3)
----------------------------------------------------------------------
<S> <C> <C>
Institutional Class 5.72% 5.13%
----------------------------------------------------------------------
Lehman Brothers Inflation Linked Treasury
Index(1) 2.36% 2.99%
----------------------------------------------------------------------
Lipper Short U.S. Government Fund Avg(2) 2.50% 4.57%
----------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Inflation Linked Treasury Index is an
unmanaged index consisting of the U.S. Treasury Inflation
Protected Securities market with an average duration of 3.17
years as of 6/30/00. It is not possible to invest directly in
the index.
(2) The Lipper Short U.S. Government 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
securities issued or guaranteed by the U.S. government, its
agencies, or its instrumentalities, with dollar-weighted average
maturities of less than three years. It does not take into
account sales charges.
(3) The Fund began operations on 1/29/97. Index comparisons began
on 1/31/97.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.28% 0.53%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.28 0.78
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.25% and
interest expense of 0.03% paid by the Institutional Class
during the most recent fiscal year. Because the Administrative
Class was not operational during the last fiscal year, Other
Expenses include interest expense incurred by the
Institutional Class. Total Annual Fund Operating Expenses
excluding interest expense is 0.50% for the Institutional
Class and 0.75% for the Administrative Class. Interest expense
is generally incurred as a result of investment management
activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $54 $170 $296 $665
---------------------------------------------------------------------
Administrative 80 249 433 966
---------------------------------------------------------------------
</TABLE>
Prospectus 20
<PAGE>
PIMCO Total Return Fund Ticker
Symbols:
PTTRX
(Inst.
Class)
PTRAX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Intermediate B to Aaa; maximum
and total return, maturity fixed 10% below Baa
Strategies consistent with income securities
preservation of Dividend Frequency
capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment 3-6 years
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund normally
varies within a three- to six-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 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. The Fund may
invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Derivatives Risk .Currency Risk
.Credit Risk .Liquidity Risk .Leveraging Risk
.Market Risk .Mortgage Risk .Management Risk
.Issuer Risk .Foreign Investment
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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (9/8/94), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
21 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Total Return Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH]
More Recent Return
Annual Return Information
--------------------
90 91 92 93 94 1/1/00-6/30/00 4.07%
----- ------ ----- ------ ------
8.05% 19.55% 9.73% 12.51% -3.58%
Highest and Lowest
95 96 97 98 99 Quarter Returns
----- ------ ----- ------ ------ (for periods shown
19.77% 4.69% 10.16% 9.76% -0.28% in the bar chart)
-------------------
Highest (3rd
Qtr. '91) 6.66%
-------------------
Lowest (1st
Qtr. '94) -2.69%
-------------------
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
-----------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class -0.28% 8.62% 8.80%
-----------------------------------------------------------------------
Administrative Class -0.53% 8.35% 8.54%
-----------------------------------------------------------------------
Lehman Aggregate Bond Index(1) -0.82% 7.73% 7.70%
-----------------------------------------------------------------------
Lipper Intermediate Investment Grade Debt Fund
Avg(2) -1.31% 6.79% 7.09%
-----------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index
of investment grade, U.S. dollar-denominated fixed income
securities of domestic issuers having a maturity greater than
one year. It is not possible to invest directly in the index.
(2) The Lipper Intermediate Investment Grade 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 investment-grade debt issues (rated in the top four
grades) with dollar-weighted average maturities of five to ten
years. 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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.29% 0.54%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.29 0.79
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.18% and
interest expense of 0.11% paid during the most recent fiscal
year. Total Annual Operating Expenses excluding interest
expense is 0.43% for the Institutional Class and 0.68% for the
Administrative Class. Interest expense is generally incurred
as a result of investment management activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $55 $173 $302 $677
---------------------------------------------------------------------
Administrative 81 252 439 978
---------------------------------------------------------------------
</TABLE>
Prospectus 22
<PAGE>
PIMCO Total Return Fund II Ticker
Symbols:
PMBIX
(Inst.
Class)
PRADX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Intermediate Baa to Aaa
and total return, maturity fixed
Strategies consistent with income securities Dividend Frequency
preservation of Declared daily and
capital and Average Portfolio distributed monthly
prudent Duration
investment 3-6 years
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund normally
varies within a three- to six-year time frame based on PIMCO's
forecast for interest rates. The Fund may invest only in
investment grade U.S. dollar denominated securities of U.S.
issuers that are rated at least Baa by Moody's or BBB by S&P, or,
if unrated, determined by PIMCO to be of comparable quality.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Liquidity Risk
.Market Risk .Mortgage Risk .Management 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (11/30/94), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
23 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Total Return Fund II (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
1/1/00-6/30/00 3.95%
[GRAPH]
Highest and Lowest
Quarter Returns
92 93 94 95 96 97 98 99 (for periods shown
------ ------ ------ ------ ------ ------ ----- ------- in the bar chart)
9.43% 10.90% -2.21% 18.97% 3.85% 9.99% 9.62% -1.07% --------------------
Highest (3rd Qtr.
'92) 5.57%
--------------------
Lowest (1st Qtr.
'94) -2.60%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (12/30/91)(3)
-------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class -1.07% 8.07% 7.25%
-------------------------------------------------------------------
Administrative Class -1.32% 7.79% 6.98%
-------------------------------------------------------------------
Lehman Aggregate Bond Index(1) -0.82% 7.73% 6.55%
-------------------------------------------------------------------
Lipper Intermediate Investment Grade
Debt Fund Avg(2) -1.31% 6.79% 6.14%
-------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index
of investment grade, U.S. dollar-denominated fixed income
securities of domestic issuers having a maturity greater than
one year. It is not possible to invest directly in the index.
(2) The Lipper Intermediate Investment Grade 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 investment-grade debt issues (rated in the top four
grades) with dollar-weighted average maturities of five to ten
years. It does not take into account sales charges.
(3) The Fund began operations on 12/30/91. Index comparisons began
on 12/31/91.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.25% 0.50%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.25% Administrative Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $51 $160 $280 $628
---------------------------------------------------------------------
Administrative 77 240 417 930
---------------------------------------------------------------------
</TABLE>
Prospectus 24
<PAGE>
PIMCO Total Return Fund III Ticker
Symbols:
PTSAX (Inst.
Class)
PRFAX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Intermediate B to Aaa; maximum 10%
and total return, maturity fixed below Baa
Strategies consistent with income
preservation of securities Dividend Frequency
capital and Declared daily and
prudent Average Portfolio distributed monthly
investment Duration
management 3-6 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of this Fund normally
varies within a three- to six-year time frame based on PIMCO's
forecast for interest rates. The Fund will not invest in the
securities of any issuer determined by PIMCO to be engaged
principally in the provision of healthcare services, the
manufacture of alcoholic beverages, tobacco products,
pharmaceuticals or military equipment, or the operation of
gambling casinos. The Fund 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.
The Fund invests primarily in investment grade 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. The Fund may
invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in exchange rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Derivatives Risk .Currency Risk
.Credit Risk .Liquidity Risk .Leveraging Risk
.Market Risk .Mortgage Risk .Management Risk
.Issuer Risk .Foreign Investment
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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (4/11/97), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
25 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Total Return Fund III (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 -2.61%
Annual Return Highest and Lowest
Quarter Returns
92 93 94 95 96 (for periods shown
----- ------ ------ ------ ------ in the bar chart)
9.02% 12.64% -3.43% 19.23% 4.63% --------------------
Highest
97 98 99 (1st Qtr.'95) 5.73%
------ ------ ------ --------------------
10.21% 10.37% -0.95% Lowest
(1st Qtr.'94) -2.68%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (5/1/91)(3)
-------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class -0.95% 8.49% 8.49%
-------------------------------------------------------------------
Administrative Class -1.20% 8.21% 8.22%
-------------------------------------------------------------------
Lehman Aggregate Bond Index(1) -0.82% 7.73% 7.38%
-------------------------------------------------------------------
Lipper Intermediate Investment Grade
Debt Fund Avg(2) -1.31% 6.79% 6.96%
-------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Aggregate Bond Index is an unmanaged index
of investment grade, U.S. dollar-denominated fixed income
securities of domestic issuers having a maturity greater than
one year. It is not possible to invest directly in the index.
(2) The Lipper Intermediate Investment Grade 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 investment-grade debt issues (rated in the top four
grades) with dollar-weighted average maturities of five to ten
years. It does not take into account sales charges.
(3) The Fund began operations on 5/1/91. Index comparisons began
on 4/30/91.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.25% 0.50%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.25% Administrative Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $51 $160 $280 $628
---------------------------------------------------------------------
Administrative 77 240 417 930
---------------------------------------------------------------------
</TABLE>
Prospectus 26
<PAGE>
PIMCO Total Return Mortgage Fund Ticker
Symbols:
PTRIX
(Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Intermediate Baa to Aaa; maximum
and total return, maturity fixed 10% below Aaa
Strategies consistent with income securities Dividend Frequency
preservation of
capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment 2-6 years
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 80% of its assets in a
diversified portfolio of mortgage-related Fixed Income Instruments
of varying maturities (such as mortgage pass-through securities,
collateralized mortgage obligations, commercial mortgage-backed
securities and mortgage dollar rolls). The average portfolio
duration of this Fund normally varies within a two- to six-year
time frame based on PIMCO's forecast for interest rates. The Fund
invests primarily in securities that are in the highest rating
category, but may invest up to 10% of its assets in investment
grade securities rated below Aaa by Moody's or AAA by S&P, subject
to a minimum rating of Baa by Moody's or BBB by S&P, or, if
unrated, determined by PIMCO to be of comparable quality. The Fund
may not invest in securities denominated in foreign currencies,
but may invest without limit in U.S. dollar-denominated securities
of foreign issuers.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Mortgage Risk .Foreign Investment
.Credit Risk .Derivatives Risk Risk
.Market Risk .Liquidity Risk .Leveraging Risk
.Issuer Risk .Management 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 Institutional Class Shares.
The Administrative Class of the Fund has not commenced operations
as of the date of this prospectus. Past performance is no
guarantee of future results.
27 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Total Return Mortgage Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 3.76%
Annual Return Highest and Lowest
Quarter Returns
98 99 (for periods shown
----- ----- in the bar chart)
7.23% 2.42% --------------------
Highest (3rd Qtr.
'98) 2.78%
--------------------
Lowest (2nd Qtr.
'99) -0.13%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (7/31/97)
----------------------------------------------------------------------------
<S> <C> <C>
Institutional Class 2.42% 6.04%
----------------------------------------------------------------------------
Lehman Mortgage Index(1) 1.86% 5.06%
----------------------------------------------------------------------------
Lipper U.S. Mortgage Fund Avg(2) 0.65% 4.12%
----------------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers Mortgage Index is an unmanaged index of
mortgage-related fixed income securities with an average
duration of 4.11 years as of 6/30/00. It is not possible to
invest directly in the index.
(2) The Lipper U.S. Mortgage 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
mortgages/securities issued or guaranteed as to principal and
interest by the U.S. government and certain federal agencies.
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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.25% 0.50%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.25% Administrative Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $51 $160 $280 $628
---------------------------------------------------------------------
Administrative 77 240 417 930
---------------------------------------------------------------------
</TABLE>
Prospectus 28
<PAGE>
PIMCO Investment Grade Corporate Bond Fund Ticker
Symbols:
N/A (Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Corporate fixed B to Aaa; maximum
and total return, income 10% below Baa
Strategies consistent with securities
preservation of Dividend Frequency
capital and Average Portfolio Declared daily and
prudent investment Duration distributed monthly
management 3-7 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of investment grade corporate fixed income
securities of varying maturities. 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 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. The Fund may
invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Derivatives Risk .Currency Risk
.Credit Risk .Liquidity Risk .Leveraging Risk
.Market Risk .Mortgage Risk .Management Risk
.Issuer Risk .Foreign Investment
Risk
Please see "Summary of Principal Risks" following the Fund Summary
for a description of these and other risks of investing in the
Fund.
--------------------------------------------------------------------------------
Performance The Fund does not yet have a full calendar year of performance.
Information Thus, no bar chart or annual returns table is included for the
Fund.
29 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Investment Grade Corporate Bond Fund (continued)
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<CAPTION>
Distribution Total Annual Net Fund
Advisory and/or Service Other Fund Operating Expense Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses Reduction(2) Expenses
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional 0.25% None 0.40% 0.65% (0.15)% 0.50%
-----------------------------------------------------------------------------------------
Administrative 0.25 0.25% 0.40 0.90 (0.15) 0.75
-----------------------------------------------------------------------------------------
</TABLE>
(1) Other Expenses, which are based on estimated amounts for the
initial fiscal year of the class, reflect a 0.25%
Administrative Fee, and 0.15% representing the Fund's
organizational expenses as attributed to the class and pro
rata Trustees' fees.
(2) PIMCO has contractually agreed, for the Fund's current fiscal
year, to reduce Total Annual Operating Expenses for the
Institutional and Administrative Class shares to the extent
they would exceed, due to the payment of organizational
expenses and Trustees' fees, 0.50% and 0.75%, respectively, of
average daily net assets. Under the Expense Limitation
Agreement, PIMCO may recoup these waivers and reimbursement in
future periods, not exceeding three years, provided total
expenses, including such recoupment, do not exceed the annual
expense limit.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $51 $193 $347 $796
--------------------------------------------------------------------------------------
Administrative 77 272 484 1,094
--------------------------------------------------------------------------------------
</TABLE>
Prospectus 30
<PAGE>
PIMCO High Yield Fund Ticker
Symbols:
PHIYX
(Inst.
Class)
PHYAX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Higher yielding B to Aaa; minimum
and total return, fixed income 65% below Baa
Strategies consistent with securities
preservation of Dividend Frequency
capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment 2-6 years
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of high yield securities ("junk bonds")
rated below investment grade but rated at least B by Moody's or
S&P, or, if unrated, determined by PIMCO to be of comparable
quality. The remainder of the Fund's assets may be invested in
investment grade Fixed Income Instruments. The average portfolio
duration of this Fund normally varies within a two- to six-year
time frame based on PIMCO's forecast for interest rates. The Fund
may invest up to 15% of its assets in euro-denominated securities
and may invest without limit in U.S. dollar-denominated securities
of foreign issuers. The Fund normally will hedge at least 75% of
its exposure to the euro to reduce the risk of loss due to
fluctuations in currency exchange rates.
The Fund may invest up to 15% of its assets in derivative
instruments, such as options, futures contracts or swap agreements.
The Fund may invest all of its assets in mortgage- or asset-backed
securities. The Fund may lend its portfolio securities to brokers,
dealers, and other financial institutions to earn income. The Fund
may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series
of purchase and sale contracts or by using other investment
techniques (such as buy backs or dollar rolls). The "total return"
sought by the Fund consists of income earned on the Fund's
investments, plus capital appreciation, if any, which generally
arises from decreases in interest rates or improving credit
fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 . Foreign Investment
. Credit Risk . Liquidity Risk Risk
. High Yield Risk . Derivatives Risk . Currency Risk
. Market Risk . Mortgage Risk . Leveraging Risk
. Management 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (1/16/95), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
31 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO High Yield Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
[GRAPH] --------------------
Annual Return 1/1/00-6/30/00 -0.58%
93 94 95 96 97 98 99 Highest and Lowest
------ ------ ------ ------ ------ ------ ------ Quarter Returns
18.70% 2.39% 20.68% 11.68% 13.21% 6.54% 2.82% (for periods shown
in the bar chart)
--------------------
Highest (1st Qtr.
'93) 6.27%
--------------------
Lowest (3rd Qtr.
'98) -1.76%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (12/16/92)(3)
--------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class 2.82% 10.82% 10.63%
--------------------------------------------------------------------
Administrative Class 2.57% 10.55% 10.36%
--------------------------------------------------------------------
Lehman Brothers BB Intermediate
Corporate Index(1) 2.20% 9.38% 8.85%
--------------------------------------------------------------------
Lipper High Current Yield Fund Avg(2) 4.53% 8.84% 8.65%
--------------------------------------------------------------------
</TABLE>
(1) The Lehman Brothers BB Intermediate Corporate Index is an
unmanaged index comprised of various fixed income securities
rated BB with an average duration of 4.32 years as of 6/30/00.
It is not possible to invest directly in the index.
(2) The Lipper High Current Yield Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that aim at high (relative) current yield from
fixed income securities, have no quality or maturity
restrictions, and tend to invest in lower grade debt issues.
It does not take into account sales charges.
(3) The Fund began operations on 12/16/92. Index comparisons began
on 12/31/92.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.25% 0.50%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.25% Administrative Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $51 $160 $280 $628
---------------------------------------------------------------------
Administrative 77 240 417 930
---------------------------------------------------------------------
</TABLE>
Prospectus 32
<PAGE>
PIMCO Long-Term U.S. Government Fund Ticker
Symbols:
PGOVX(Inst.
Class)
PLGBX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Long-term A to Aaa
and total return, maturity fixed
Strategies consistent with income securities Dividend
preservation of Frequency
capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment (greater than or =)
management 8 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of fixed income securities that are issued
or guaranteed by the U.S. Government, its agencies or government-
sponsored enterprises ("U.S. Government Securities"). Assets not
invested in U.S. Government Securities may be invested in other
types of Fixed Income Instruments. The Fund also may obtain
exposure to U.S. Government Securities through the use of futures
contracts (including related options) with respect to such
securities, and options on such securities, when PIMCO deems it
appropriate to do so. While PIMCO may invest in derivatives at any
time it deems appropriate, it will generally do so when it
believes that U.S. Government Securities are overvalued relative
to derivative instruments. This Fund will normally have a minimum
average portfolio duration of eight years. For point of reference,
the dollar-weighted average portfolio maturity of the Fund is
normally expected to be more than ten years.
The Fund's investments in Fixed Income Instruments are limited to
those of investment grade U.S. dollar-denominated securities of
U.S. issuers that are rated at least A by Moody's or S&P, or, if
unrated, determined by PIMCO to be of comparable quality. In
addition, the Fund may only invest up to 10% of its assets in
securities rated A by Moody's or S&P, and may only invest up to
25% of its assets in securities rated Aa by Moody's or AA by S&P.
The Fund may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements, or in
mortgage-backed securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions to
earn income. The Fund may, without limitation, seek to obtain market
exposure to the securities in which it primarily invests by entering
into a series of purchase and sale contracts or by using other
investment techniques (such as buy backs or dollar rolls). The
"total return" sought by the Fund consists of income earned on the
Fund's investments, plus capital appreciation, if any, which
generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 . Issuer Risk . Leveraging Risk
Risk . Derivatives Risk . Management Risk
. Credit Risk . Mortgage 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 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (9/23/97), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
33 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Long-Term U.S. Government Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 8.37%
Annual Return
Highest and Lowest
92 93 94 95 96 97 98 99 Quarter Returns
------ ------ ------ ------ ----- ------ ----- ------ (for periods shown
11.93% 18.57% -7.39% 31.57% 0.71% 15.02% 13.39 -7.99% in the bar chart)
--------------------
Highest (2nd Qtr.
'95) 10.76%
--------------------
Lowest (1st Qtr.
'96) -6.26%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (7/1/91)(3)
-------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class -7.99% 9.72% 10.35%
-------------------------------------------------------------------------
Administrative Class -8.21% 9.45% 10.09%
-------------------------------------------------------------------------
Lehman Long-Term Treasury Index(1) -8.74% 9.08% 9.04%
-------------------------------------------------------------------------
Lipper General U.S. Government Fund Avg(2) -3.01% 6.51% 6.46%
-------------------------------------------------------------------------
</TABLE>
(1) The Lehman Long-Term Treasury Index is an unmanaged index of
U.S. Treasury issues with maturities greater than 10 years. It
is not possible to invest directly in the index.
(2) The Lipper General U.S. Government 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 U.S. government and agency issues. It does not take
into account sales charges.
(3) The Fund began operations on 7/1/91. Index comparisons began
on 6/30/91.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.32% 0.57%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.32 0.82
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.25% and
interest expense of 0.07%, paid during the most recent fiscal
year. Total Annual Operating Expenses excluding interest
expense is 0.50% for the Institutional Class and 0.75% for the
Administrative Class. Interest expense is generally incurred
as a result of investment management activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $58 $183 $318 $714
------------------------------------------------------------------
Administrative 84 262 455 1,014
------------------------------------------------------------------
</TABLE>
Prospectus 34
<PAGE>
PIMCO Long Duration Fund Ticker
Symbols:
N/A (Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Long-term B to Aaa; maximum
and total return, maturity fixed 10% below Baa
Strategies consistent with income securities
preservation of Dividend Frequency
capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment (greater than
management or =) 8 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of Fixed Income Instruments of varying
maturities. This Fund will normally have a minimum average
portfolio duration of eight years.
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. The Fund may
invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Derivatives Risk .Currency Risk
.Credit Risk .Liquidity Risk .Leveraging Risk
.Market Risk .Mortgage Risk .Management Risk
.Issuer Risk .Foreign Investment
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 has not commenced operations as of the date of this
Information prospectus. Thus, no bar chart or annual returns table is included
for the Fund.
35 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Long Duration Fund (continued)
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.46% 0.71%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.46 0.96
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses, which are based on estimated amounts for the
initial fiscal year of the class, reflect a 0.25%
Administrative Fee and 0.21% representing the Fund's
organizational expenses as attributed to the class and
pro rata Trustee fees.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $73 $227 $395 $883
---------------------------------------------------------------------
Administrative 98 306 531 1,178
---------------------------------------------------------------------
</TABLE>
Prospectus 36
<PAGE>
PIMCO Short Duration Municipal Income Fund Ticker
Symbols:
PSDIX
(Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high Short and Baa to Aaa
and current income intermediate
Strategies exempt from maturity Dividend Frequency
federal income municipal Declared daily and
tax, consistent securities distributed monthly
with preservation (exempt from
of capital. federal income tax)
Average Portfolio
Duration
0-2 years
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 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 Fund may only invest in investment grade debt securities. The
Fund may invest more than 25% of its assets in bonds of issuers in
California and New York. To the extent that the Fund concentrates
its investments in California or New York, it will be subject to
California or New York State Specific Risk. The average portfolio
duration of this Fund varies based on PIMCO's forecast for
interest rates and under normal market conditions is not expected
to exceed two years. The Fund will seek income that is high
relative to prevailing rates from Municipal Bonds.
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.
The Fund may, without limitation, seek to obtain market exposure to
the securities in which it primarily invests by entering into a
series of purchase and sale contracts or by using other investment
techniques (such as buy backs or dollar rolls).
--------------------------------------------------------------------------------
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 .Derivatives Risk .Management Risk
.Credit Risk .Mortgage Risk .California State
.Market Risk .Leveraging Risk Specific Risk
.Issuer Risk .New York State
Specific 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.
37 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Short Duration Municipal Income Fund (continued)
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets):
<TABLE>
<CAPTION>
Distribution Total Annual Net Fund
Advisory and/or Service Other Fund Operating Expense Operating
Share Classes Fees (12b-1) Fees Expenses(1) Expenses Reduction(2) Expenses
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional 0.20% None 0.42% 0.62% (0.23)% 0.39%
-----------------------------------------------------------------------------------------
Administrative 0.20 0.25% 0.19 0.64 0.00 0.64
-----------------------------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect a 0.19% Administrative Fee paid by each
class and 0.23% organizational expenses paid by the
Institutional Class.
(2) PIMCO has contractually agreed, for the Fund's current fiscal
year, to reduce Total Annual Fund Operating Expenses for the
Institutional and Administrative Class shares to the extent
they would exceed, due to the payment of organizational
expenses and Trustees fees, 0.39% and 0.64%, respectively.
Under the Expense Limitation Agreement, PIMCO may recoup these
waivers and reimbursements in future periods, not exceeding
three years, provided total expenses, including such
recoupment, do not exceed the annual expense limit.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Classes Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $40 $175 $323 $752
--------------------------------------------------------------------------------------
Administrative 65 205 357 798
--------------------------------------------------------------------------------------
</TABLE>
Prospectus 38
<PAGE>
PIMCO Municipal Bond Fund Ticker
Symbols:
PFMIX (Inst.
Class)
N/A (Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high Intermediate to Ba to Aaa; maximum 10%
and current income long-term below Baa
Strategies exempt from maturity
federal income municipal Dividend Frequency
tax, consistent securities Declared daily and
with preservation (exempt from distributed monthly
of capital. federal income
Capital tax)
appreciation is
a secondary Average Portfolio
objective. Duration
3-10 years
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 a portion of the Fund's distribution may
be subject to federal income tax. 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 invest more than 25% of its
assets in bonds of issuers in California and New York. To the
extent that the Fund concentrates its investments in California or
New York, it will be subject to California or New York State
Specific Risk. 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 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 may invest in derivative instruments, such as options,
futures contracts or swap agreements on U.S. Government Securities
and Municipal Bonds, and invest in mortgage- or asset-backed
securities. The Fund may lend its portfolio securities to brokers,
dealers and other financial institutions to earn income. The Fund
may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series
of purchase and sale contracts or by using other investment
techniques (such as buy backs or dollar rolls).
--------------------------------------------------------------------------------
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 .Liquidity Risk .Management Risk
.Credit Risk .Derivatives Risk .California State
.Market Risk .Leveraging Risk Specific Risk
.Issuer Risk .New York State
Specific 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (9/30/98), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
39 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Municipal Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 4.15%
Annual Return Highest and Lowest
Quarter Returns
98 99 (for periods shown
----- ------ in the bar chart)
6.07% -3.72% --------------------
Highest (3rd Qtr.
'98) 3.33%
--------------------
Lowest (2nd Qtr.
'99) -2.36%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (12/31/97)
-------------------------------------------------------------------------
<S> <C> <C>
Institutional Class -3.72% 1.06%
-------------------------------------------------------------------------
Administrative Class -3.95% 0.64%
-------------------------------------------------------------------------
Lehman General Municipal Bond Index(1) -2.07% 2.12%
-------------------------------------------------------------------------
Lipper General Municipal Fund Avg(2) -4.63% 0.23%
-------------------------------------------------------------------------
</TABLE>
(1) The Lehman General Municipal Bond Index is an unmanaged index
of municipal bonds with an average duration of 7.50 years as
of 6/30/00. 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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.25% 0.50%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.25% Administrative Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $51 $160 $280 $628
---------------------------------------------------------------------
Administrative 77 240 417 930
---------------------------------------------------------------------
</TABLE>
Prospectus 40
<PAGE>
PIMCO California Intermediate
Municipal Bond Fund Ticker
Symbols:
PCIMX
(Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
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 Dividend Frequency
California income (exempt from Declared daily and
tax. Capital federal and distributed monthly
appreciation is a California income
secondary tax)
objective.
Average Portfolio
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 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 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.
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.
The Fund may, without limitation, seek to obtain market exposure to
the securities in which it primarily invests by entering into a
series of purchase and sale contracts or by using other investment
techniques (such as buy backs or dollar rolls).
--------------------------------------------------------------------------------
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 . Issuer Non- . Leveraging Risk
. California State Diversification . Management Risk
Specific Risk Risk
. Market Risk . Liquidity 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.
41 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO California Intermediate Municipal Bond Fund (continued)
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class and Administrative Class shares of
of the the Fund:
Fund
Shareholder fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets):
<TABLE>
<CAPTION>
Distribution Total Annual Net Fund
Advisory and/or Service Other Fund Operating Expense Operating
Share Class Fees (12b-1) Fees Expenses Expenses Reduction(3) Expenses
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional 0.25% None 0.77%(1) 1.02% (0.53)% 0.49%
--------------------------------------------------------------------------------------
Administrative 0.25 0.25% 0.51 (2) 1.01 (0.26) 0.75
--------------------------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect a 0.24% Administrative Fee and 0.53%
organizational expense paid by the class.
(2) Other Expenses reflect an Administrative Fee of 0.24%,
interest expense of 0.01% and organizational expense of 0.26%
paid during the most recent fiscal year. Net Fund Operating
Expenses excluding interest and organizational expense is
0.74%. Interest expense is generally incurred as a result of
investment management activities.
(3) PIMCO has contractually agreed, for the Fund's current fiscal
year, to reduce Total Annual Fund Operating Expenses for the
Institutional and Administrative Class shares to the extent
they would exceed, due to the payment of organizational
expenses and Trustees fees, 0.49% and 0.74%, respectively.
Under the Expense Limitation Agreement, PIMCO may recoup these
waivers and reimbursements in future periods, not exceeding
three years, provided total expenses, including such
recoupment, do not exceed the annual expense limit.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class and Administrative Class
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, and then redeem
all your shares at the end of those periods. The Examples also
assume that 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>
Share Class Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $50 $272 $512 $1,200
--------------------------------------------------------------------------------------
Administrative 77 296 533 1,213
--------------------------------------------------------------------------------------
</TABLE>
Prospectus 42
<PAGE>
PIMCO California
Municipal Bond Fund Ticker
Symbols:
N/A (Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high Intermediate to B to Aaa; maximum
and current income long-term 10% below Baa
Strategies exempt from maturity
federal and municipal Dividend Frequency
California income securities Declared daily and
tax. Capital (exempt from distributed monthly
appreciation is a federal and
secondary California income
objective. tax)
Average Portfolio
Duration
3-12 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 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 twelve-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.
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.
The Fund may, without limitation, seek to obtain market exposure to
the securities in which it primarily invests by entering into a
series of purchase and sale contracts or by using other investment
techniques (such as buy backs or dollar rolls).
--------------------------------------------------------------------------------
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 .Issuer Non- .Leveraging Risk
.California State Diversification Risk .Management Risk
Specific Risk .Liquidity 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.
43 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO California Municipal Bond Fund (continued)
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class and Administrative Class shares of
of the the Fund:
Fund
Shareholder fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets):
<TABLE>
<CAPTION>
Distribution Total Annual Net Fund
Advisory and/or Service Other Fund Operating Expense Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses Reduction(2) Expenses
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional 0.25% None 0.63% 0.88% (0.39)% 0.49%
-----------------------------------------------------------------------------------------
Administrative 0.25 0.25% 0.24 0.74 0.00 0.74
-----------------------------------------------------------------------------------------
</TABLE>
(1) Other Expenses, which are based on estimated amounts for the
initial fiscal year of the class, reflect a 0.24%
Administrative Fee and 0.39% representing the Fund's
organizational expenses as attributed to the class and pro
rata Trustee's fees.
(2) PIMCO has contractually agreed, for the Fund's current fiscal
year, to reduce Total Annual Fund Operating Expenses for the
Institutional and Administrative Class shares to the extent
they would exceed, due to the payment of organizational
expenses and Trustees fees, 0.49% and 0.74%, respectively.
Under the Expense Limitation Agreement, PIMCO may recoup these
waivers and reimbursements in future periods, not exceeding
three years, provided total expenses, including such
recoupment, do not exceed the annual expense limit.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class and Administrative Class
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, and then redeem
all your shares at the end of those periods. The Examples also
assume that 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>
Share Class Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $50 $242 $449 $1,048
-----------------------------------------------------------------------------------------
Administrative 76 237 411 918
-----------------------------------------------------------------------------------------
</TABLE>
Prospectus 44
<PAGE>
PIMCO New York Ticker
Municipal Bond Fund Symbols:
N/A (Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high Intermediate to B to Aaa; maximum
and current income long-term 10% below Baa
Strategies exempt from maturity
federal and New municipal Dividend Frequency
York income tax. securities Declared daily and
Capital (exempt from distributed monthly
appreciation is a federal and New
secondary York income tax)
objective.
Average Portfolio
Duration
3-12 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 twelve-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.
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.The Fund may, without limitation, seek to obtain market
exposure to the securities in which it primarily invests by entering
into a series of purchase and sale contracts or by using other
investment techniques (such as buy backs or dollar rolls).
--------------------------------------------------------------------------------
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 .Issuer Non- .Leveraging Risk
.New York State Diversification Risk .Management Risk
Specific Risk .Liquidity 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.
45 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO New York Municipal Bond Fund (continued)
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets):
<TABLE>
<CAPTION>
Distribution Total Annual Net Fund
Advisory and/or Service Other Fund Operating Expense Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses Reduction(2) Expenses
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional 0.25% None 1.05% 1.30% (0.81)% 0.49%
-----------------------------------------------------------------------------------------
Administrative 0.25 0.25% 0.24 0.74 0.00 0.74
-----------------------------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect a 0.24% Administrative Fee paid by each
class and 0.81% organizational expenses paid by the
Institutional Class.
(2) PIMCO has contractually agreed, for the Fund's current fiscal
year, to reduce Total Annual Fund Operating Expenses for the
Institutional and Administrative Class shares to the extent
they would exceed, due to the payment of organizational
expenses and Trustees fees, 0.49% and 0.74%, respectively.
Under the Expense Limitation Agreement, PIMCO may recoup these
waivers and reimbursements in future periods, not exceeding
three years, provided total expenses, including such
recoupment, do not exceed the annual expense limit.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $50 $332 $635 $1,497
--------------------------------------------------------------------------------------
Administrative 76 237 411 918
--------------------------------------------------------------------------------------
</TABLE>
Prospectus 46
<PAGE>
PIMCO Global Bond Fund Ticker Symbols:
PIGLX (Inst. Class)
PADMX (Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum U.S. and non-U.S. B to Aaa; maximum
and total return, intermediate maturity 10% below Baa
Strategies consistent with fixed income
preservation of securities Dividend Frequency
capital and Declared daily and
prudent Average Portfolio distributed monthly
investment Duration
management 3-7 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in Fixed
Income Instruments of issuers located in at least three countries
(one of which may be the United States), which may be represented
by futures contracts (including related options) with respect to
such securities, and options on such securities. The Fund invests
primarily in securities of issuers located in economically
developed countries. Securities may be denominated in major
foreign currencies, baskets of foreign currencies (such as the
euro), or the U.S. dollar.
PIMCO selects the Fund's foreign country and currency
compositions based on an evaluation of various factors, including,
but not limited to, relative interest rates, exchange rates,
monetary and fiscal policies, trade and current account balances.
Investments in the securities of issuers located outside the
United States will normally vary between 25% and 75% of the Fund's
assets. The average portfolio duration of this Fund normally
varies within a three- to seven-year time frame. 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. The Fund is non-diversified, which
means that it may concentrate its assets in a smaller number of
issuers than a diversified Fund.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Foreign Investment .Mortgage Risk
.Credit Risk Risk .Derivatives Risk
.Market Risk .Currency Risk .Leveraging Risk
.Issuer Risk .Issuer Non- .Management Risk
Diversification Risk
.Liquidity 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (7/31/96), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
47 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Global Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 -0.32%
Annual Return Highest and Lowest
Quarter Returns
94 95 96 97 98 99 (for periods shown
------ ------ ------ ------ ------ ------ in the bar chart)
-1.70% 22.96% 10.32% -0.90% 12.50% -4.29% --------------------
Highest (1st Qtr.
'95) 8.40%
--------------------
Lowest (1st Qtr.
'97) -4.40%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (11/23/93)(3)
---------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class -4.29% 7.68% 6.57%
---------------------------------------------------------------------
Administrative Class -4.52% 7.45% 6.34%
---------------------------------------------------------------------
J.P. Morgan Global (Unhedged) Index(1) -5.07% 6.69% 5.86%
---------------------------------------------------------------------
Lipper Global Income Fund Avg(2) -2.43% 6.36% 4.45%
---------------------------------------------------------------------
</TABLE>
(1) The J.P. Morgan Global (Unhedged) Index is an unmanaged index
representative of the total return performance in U.S. dollars
on an unhedged basis of major world bond markets. It is not
possible to invest directly in the index.
(2) The Lipper Global Income Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that invest primarily in U.S. dollar and non-
U.S. dollar debt securities of issuers located in at least
three countries, one of which may be the United States. It
does not take into account sales charges.
(3) The Fund began operations on 11/23/93. Index comparisons began
on 11/30/93.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.46% 0.71%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.42 0.92
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.30% paid by
each class and interest expense of 0.16% for the Institutional
Class and 0.12% for the Administrative Class, paid during the
most recent fiscal year. Total Annual Operating Expenses
excluding interest expense is 0.55% for the Institutional
Class and 0.80% for the Administrative Class. Interest expense
is generally incurred as a result of investment management
activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $73 $227 $395 $883
---------------------------------------------------------------------
Administrative 94 293 509 1,131
---------------------------------------------------------------------
</TABLE>
Prospectus 48
<PAGE>
PIMCO Global Bond Fund II Ticker
Symbols:
PGBIX
(Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum U.S. and hedged B to Aaa; maximum
and total return, foreign 10% below Baa
Strategies consistent with intermediate
preservation of maturity fixed Dividend Frequency
capital income securities Declared daily and
distributed monthly
Average Portfolio
Duration
3-7 years
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in Fixed
Income Instruments of issuers located in at least three countries
(one of which may be the United States), which may be represented
by futures contracts (including related options) with respect to
such securities, and options on such securities. The Fund invests
primarily in securities of issuers located in economically
developed countries. Securities may be denominated in major
foreign currencies, baskets of foreign currencies (such as the
euro), or the U.S. dollar. The Fund will normally hedge at least
75% of its exposure to foreign currency to reduce the risk of loss
due to fluctuations in currency exchange rates.
PIMCO selects the Fund's foreign country and currency
compositions based on an evaluation of various factors, including,
but not limited to, relative interest rates, exchange rates,
monetary and fiscal policies, trade and current account balances.
Investments in the securities of issuers located outside the
United States will normally vary between 25% and 75% of the Fund's
assets. The average portfolio duration of this Fund normally
varies within a three- to seven-year time frame. The Fund invests
primarily in investment grade 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. The Fund is non-diversified, which means
that it may concentrate its assets in a smaller number of issuers
than a diversified Fund.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Foreign Investment Risk .Mortgage Risk
.Credit Risk .Currency Risk .Derivatives
.Market Risk .Issuer Non-Diversification Risk
.Issuer Risk Risk .Leveraging Risk
.Liquidity Risk .Management 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 Institutional Class Shares.
For periods prior to the inception of Institutional Class shares
(2/25/98), performance information shown in the bar chart
(including the information to its right) and in the Average Annual
Total Returns table is based on the performance of the Fund's
Class A shares, which are offered in a different prospectus. The
prior Class A performance has been adjusted to reflect the actual
fees and expenses paid by Institutional Class shares, including no
sales charges (loads) and lower distribution and/or service (12b-
1) fees (if any) and administrative fees. The Administrative Class
of the Fund has not yet commenced operations as of the date of
this prospectus. Past performance is no guarantee of future
results.
49 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Global Bond Fund II (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 3.89%
Annual Return
Highest and Lowest
Quarter Returns
96 97 98 99 (for periods shown
------ ------ ------ ------ in the bar chart)
12.84% 8.68% 7.71% 0.29% --------------------
Highest (3rd Qtr.
'96) 5.39%
--------------------
Lowest (2nd Qtr.
'99) -1.72%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (10/2/95)(3)
--------------------------------------------------------------------------
<S> <C> <C>
Institutional Class 0.29% 8.51%
--------------------------------------------------------------------------
J.P. Morgan Global (Hedged) Index(1) 0.73% 8.40%
--------------------------------------------------------------------------
Lipper Global Income Fund Avg(2) -2.43% 4.63%
--------------------------------------------------------------------------
</TABLE>
(1) The J.P. Morgan Global (Hedged) Index is an unmanaged index
representative of the total return performance in U.S.
dollars on a hedged basis of major world bond markets. It is
not possible to invest directly in the index.
(2) The Lipper Global Income Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that invest primarily in U.S. dollar and non-
U.S. dollar debt securities of issuers located in at least
three countries, one of which may be the United States. It
does not take into account sales charges.
(3) The Fund began operations on 10/2/95. Index comparisons began
on 9/30/95.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.36% 0.61%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.36 0.86
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.30% paid by
each class and interest expense of 0.06% paid by the
Institutional Class during the most recent fiscal year.
Because the Administrative Class of the Fund was not
operational during the last fiscal year, Other Expenses
include interest expense incurred by the Institutional Class.
Total Annual Fund Operating Expenses excluding interest
expense is 0.55% for the Institutional Class and 0.80% for the
Administrative Class. Interest expense is generally incurred
as a result of investment management activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $62 $195 $340 $762
---------------------------------------------------------------------
Administrative 88 274 477 1,061
---------------------------------------------------------------------
</TABLE>
Prospectus 50
<PAGE>
PIMCO Foreign Bond Fund Ticker Symbols:
PFORX (Inst. Class)
PFRAX (Admin. Class)
--------------------------------------------------------------------------------
Principal Investment Fund Focus Credit Quality
Investments Objective Intermediate B to Aaa; maximum
and Seeks maximum maturity hedged 10% below Baa
Strategies total return, non-U.S. fixed
consistent with income securities Dividend Frequency
preservation of Declared daily and
capital and Average Portfolio distributed monthly
prudent Duration
investment 3-7 years
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 85% of its assets in Fixed
Income Instruments of issuers located outside the United States,
representing at least three foreign countries, which may be
represented by futures contracts (including related options) with
respect to such securities, and options on such securities. Such
securities normally are denominated in major foreign currencies or
baskets of foreign currencies (such as the euro). The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
PIMCO selects the Fund's foreign country and currency
compositions based on an evaluation of various factors, including,
but not limited to relative interest rates, exchange rates,
monetary and fiscal policies, trade and current account balances.
The average portfolio duration of this Fund normally varies within
a three- to seven-year time frame. 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. The Fund is non-diversified, which means that
it may concentrate its assets in a smaller number of issuers than
a diversified Fund.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 . Foreign Investment . Mortgage Risk
Risk Risk . Derivatives
. Credit Risk . Currency Risk Risk
. Market Risk . Issuer Non- . Leveraging Risk
. Issuer Risk Diversification . Management Risk
Risk
. Liquidity 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (1/28/97), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
51 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Foreign Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
--------------------
[GRAPH] 1/1/00-6/30/00 3.84%
Annual Return Highest and Lowest
Quarter Returns
93 94 95 96 97 98 99 (for periods shown
------ ------ ------ ------ ------ ------ ------ in the bar chart)
16.40% -7.30% 21.22% 18.89% 9.60% 10.03% 1.56% --------------------
Highest (4th Qtr.
'95) 7.23%
--------------------
Lowest (1st Qtr.
'94) -4.22%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (12/3/92)(3)
-------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class 1.56% 12.04% 9.76%
-------------------------------------------------------------------
Administrative Class 1.31% 11.76% 9.50%
-------------------------------------------------------------------
J.P. Morgan Non-U.S. Index (Hedged)(1) 2.48% 11.14% 9.11%
-------------------------------------------------------------------
Lipper International Income Fund Avg(2) -4.57% 6.45% 6.06%
-------------------------------------------------------------------
</TABLE>
(1) The J.P. Morgan Non-U.S. Index (Hedged) in an unmanaged index
representative of the total return performance in U.S. dollars
of major non-U.S. bond markets with an average duration of
5.74 years as of 6/30/00. It is not possible to invest
directly in the index.
(2) The Lipper International Income Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that invest primarily in U.S. dollar and non-
U.S. dollar debt securities of issuers located in at least
three countries, excluding the United States, except in
periods of market weakness. It does not take into account
sales charges.
(3) The Fund began operations on 12/3/92. Index comparisons began
on 11/30/92.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.25% None 0.44% 0.69%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.47 0.97
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.25% paid by
each class and interest expense of 0.19% for the Institutional
Class and 0.22% for the Administrative Class, paid during the
most recent fiscal year. Total Annual Operating Expenses
excluding interest expense is 0.50% for the Institutional
Class and 0.75% for the Administrative Class. Interest expense
is generally incurred as a result of investment management
activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $70 $221 $384 $859
------------------------------------------------------------------
Administrative 99 309 536 1,190
------------------------------------------------------------------
</TABLE>
Prospectus 52
<PAGE>
PIMCO Emerging Markets Bond Fund Ticker Symbols:
PEBIX (Inst. Class)
PEBAX (Admin. Class)
--------------------------------------------------------------------------------
Principal Investment Fund Focus Credit Quality
Investments Objective Emerging market B to Aaa
and Seeks maximum fixed income
Strategies total return, securities Dividend Frequency
consistent with Declared daily and
preservation of Average Portfolio distributed monthly
capital and Duration
prudent 0-8 years
investment
management
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 80% of its assets in Fixed
Income Instruments of issuers that economically are tied to
countries with emerging securities markets. Such securities may be
denominated in non-U.S. currencies and the U.S. dollar. A security
is economically tied to an emerging market country if it is
principally traded on the country's securities markets, or the
issuer is organized or principally operates in the country,
derives a majority of its income from its operations within the
country, or has a majority of its assets in the country. The
average portfolio duration of this Fund varies based on PIMCO's
forecast for interest rates and, under normal market conditions,
is not expected to exceed eight years.
PIMCO has broad discretion to identify and invest in countries
that it considers to qualify as emerging securities markets.
However, PIMCO generally considers an emerging securities market
to be one located in any country that is defined as an emerging or
developing economy by the World Bank or its related organizations,
or the United Nations or its authorities. The Fund emphasizes
countries with relatively low gross national product per capita
and with the potential for rapid economic growth. PIMCO will
select the Fund's country and currency composition based on its
evaluation of relative interest rates, inflation rates, exchange
rates, monetary and fiscal policies, trade and current account
balances, and any other specific factors PIMCO believes to be
relevant. The Fund likely will concentrate its investments in
Asia, Africa, the Middle East, Latin America and the developing
countries of Europe. The Fund may invest in securities whose
return is based on the return of an emerging securities market,
such as a derivative instrument, rather than investing directly in
securities of issuers from emerging markets.
The Fund may invest substantially all 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. The
Fund is non-diversified, which means that it may concentrate its
assets in a smaller number of issuers than a diversified Fund.
The Fund may invest all of its assets 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. The Fund may, without limitation, seek
to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or
by using other investment techniques (such as buy backs or dollar
rolls). The "total return" sought by the Fund consists of income
earned on the Fund's investments, plus capital appreciation, if any,
which generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
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 .Emerging Markets Risk .Liquidity Risk
.Credit Risk .Foreign Investment Risk .Derivatives Risk
.High Yield Risk .Currency Risk .Leveraging Risk
.Market Risk .Issuer Non-Diversification
.Issuer Risk Risk
.Management 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (9/30/98), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
53 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Emerging Markets Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
------------------------
[GRAPH] 1/1/00-6/30/00 7.01%
Annual Return Highest and Lowest
Quarter Returns
98 99 (for periods shown
------- ------ in the bar chart)
-11.76% 26.58% ------------------------
Highest (4th Qtr.
'98) 12.27%
------------------------
Lowest (3rd Qtr.
'98 -21.05%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (7/31/97)
----------------------------------------------------------------------
<S> <C> <C>
Institutional Class 26.58% 3.45%
----------------------------------------------------------------------
Administrative Class 26.28% 3.19%
----------------------------------------------------------------------
J.P. Morgan Emerging Markets Bond Index Plus(1) 25.99% 2.52%
----------------------------------------------------------------------
Lipper Emerging Market Debt Fund Avg(2) 24.51% -1.10%
----------------------------------------------------------------------
</TABLE>
(1) The J.P. Morgan Emerging Markets Bond Index Plus is an
unmanaged index which tracks the total returns for external-
currency denominated debt instruments of emerging markets. It
is not possible to invest directly in the index.
(2) The Lipper Emerging Market Debt Fund Average is a total
return performance average of Funds tracked by Lipper
Analytical Services, Inc. that seek either current income or
total return by investing at least 65% of total assets in
emerging market debt securities. 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 Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.45% None 0.44% 0.89%
---------------------------------------------------------------------
Administrative 0.45 0.25% 0.44 1.14
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect an Administrative Fee of 0.40% and
interest expense of 0.04% paid during the most recent fiscal
year. Total Annual Operating Expenses excluding interest
expense is 0.85% for the Institutional Class and 1.10% for the
Administrative Class. Interest expense is generally incurred
as a result of investment management activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $91 $284 $493 $1,096
---------------------------------------------------------------------
Administrative 116 362 628 1,386
---------------------------------------------------------------------
</TABLE>
Prospectus 54
<PAGE>
PIMCO Strategic Balanced Fund Ticker Symbols:
PSBIX (Inst. Class)
PSBAX (Admin. Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum 45-75% StocksPLUS (of Underlying Funds)
and total return, Fund; 25-55% B to Aaa; maximum
Strategies consistent with Total Return Fund 10% below Baa
preservation of
capital and Average Portfolio Dividend Frequency
prudent Duration Declared and
investment (of Underlying Funds) distributed quarterly
management 0-6 years
The Fund seeks to achieve its investment objective by normally
investing between 45% and 75% of its assets in the StocksPLUS Fund
and between 25% and 55% of its assets in the Total Return Fund
(collectively, the "Underlying Funds"). The Fund invests all of
its assets in shares of the Underlying Funds and does not invest
directly in stocks or bonds of other issuers.
The StocksPLUS Fund seeks to exceed the total return of the S&P
500 by investing under normal circumstances substantially all of
its assets in S&P 500 derivatives, backed by a portfolio of Fixed
Income Instruments. The Total Return Fund seeks to achieve its
investment objective by investing at least 65% of its assets in a
diversified portfolio of Fixed Income Securities of various
maturities. Please see the Fund Summaries of the Underlying Funds
in this prospectus for information on their investment styles and
primary investments.
PIMCO determines how the Fund will allocate and reallocate its
assets between the Underlying Funds according to the Fund's
equity/fixed income allocation targets and ranges. PIMCO does not
allocate the Fund's assets according to a predetermined blend of
shares of the Underlying Funds. Instead, PIMCO will determine the
mix of Underlying Funds appropriate for the Fund based on
methodology, developed by PIMCO, that forecasts stages in the
business cycle and considers the risk and reward potential of
equity and fixed income investments within specific phases of the
business cycle.
The Fund is a "fund of funds," which is a term used to describe
mutual funds that pursue their investment objectives by investing
in other mutual funds. The cost of investing in the Fund will
generally be higher than the cost of investing in a mutual fund
that invests directly in individual stocks and bonds. By investing
in the Fund, an investor will indirectly bear fees and expenses
charged by the Underlying Funds in addition to the Fund's direct
fees and expenses. In addition, the use of a fund of funds
structure could affect the timing, amount and character of
distributions to shareholders and may therefore increase the
amount of taxes payable by shareholders.
In addition to the StocksPLUS and Total Return Funds, the Fund
may in the future invest in additional funds in the PIMCO Funds
family at the discretion of PIMCO and without shareholder
approval.
--------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect the net asset value, yield and total return of
the Fund are:
.Allocation Risk .Underlying Fund Risk
Among the principal risks of investing in the Underlying Funds,
and consequently the Fund, which could adversely affect the net
asset value, yield and total return of the Fund, are:
.Market Risk .Derivatives Risk .Mortgage Risk
.Issuer Risk .Liquidity Risk .Leveraging Risk
.Interest Rate Risk .Foreign Investment .Management Risk
.Credit Risk Risk
.Currency Risk
Please see "Summary of Principal Risks" following the Fund
Summaries for a description of these and other risks associated
with the Underlying Funds and an investment 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 broad-based securities market indices and an
index of similar funds. The bar chart and the information to its
right show performance of the Fund's Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (6/30/99), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results, and the Fund achieved the
performance track record shown during a period when it pursued its
investment objective using different investment policies strategies.
55 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Strategic Balanced Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
---------------------
1/1/00-6/30/00 -0.49%
[GRAPH]
Annual Return Highest and Lowest
Quarter Returns
97 98 99 (for periods shown
------ ------ ------ in the bar chart)
24.17% 19.66% 11.56% ---------------------
Highest (2nd Qtr.
'97) 12.23%
---------------------
Lowest (3rd Qtr.
'98) -4.60%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (6/28/96)(4)
-----------------------------------------------------------------------
<S> <C> <C>
Institutional Class 11.56% 18.74%
-----------------------------------------------------------------------
Administrative Class 11.26% 18.44%
-----------------------------------------------------------------------
S&P 500 Index(1) 21.04% 27.14%
-----------------------------------------------------------------------
S&P 500 and Lehman Aggregate Bond Index Blend(2) 12.00% 18.76%
-----------------------------------------------------------------------
Lipper Balanced Fund Avg(3) 8.73% 14.35%
-----------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Composite Stock Price Index is an
unmanaged index of common stocks. It is not possible to invest
directly in the index.
(2) The index used for the Fund is a static self-blended index
consisting 60% of the S&P 500 Composite Stock Price Index and
40% of the Lehman Brothers Aggregate Bond Index. The Fund
believes this self-blended index reflects the Fund's
investment strategy more accurately than the S&P 500 Index. It
is not possible to invest directly in the index.
(3) The Lipper Balanced Fund Average is a total return performance
average of Funds tracked by Lipper Analytical Services, Inc.,
whose primary objective is to conserve principal by
maintaining at all times a balanced portfolio of both stocks
and bonds. It does not take into account sales charges.
(4) The Fund began operations on 6/28/96. Index comparisons began
on 6/30/96.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<CAPTION>
Distribution Total Annual
Advisory and/or Service Other Underlying Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Fund Expenses Expenses(2)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional None None 0.05% 0.59% 0.64%
-----------------------------------------------------------------------------------
Administrative None 0.25% 0.05 0.59 0.89
-----------------------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect a 0.05% Administrative Fee paid by the
class.
(2) Based on estimated expenses for the current fiscal year.
Underlying Fund Expenses for the Fund are estimated based upon
a 65%/35% allocation of the Fund's assets between the
StocksPLUS and Total Return Funds and upon the estimated total
annual operating expenses of the Institutional Class Shares of
these Underlying Funds. Total Actual Underlying Fund Expenses
will vary with changes in the expenses of the Underlying
Funds, as well as allocation of the Fund's assets, and may be
higher or lower than those shown above. For a listing of the
expenses associated with each Underlying Fund for the most
recent fiscal year, please see the Fund Summaries of the
Underlying Funds.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $65 $205 $357 $798
---------------------------------------------------------------------
Administrative 91 284 493 1,096
---------------------------------------------------------------------
</TABLE>
Prospectus 56
<PAGE>
PIMCO Convertible Fund Ticker
Symbols:
PFCIX
(Inst.
Class)
N/A
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Convertible Caa to Aaa; maximum
and total return, securities 40% below Baa and
Strategies consistent with 10% below B
prudent Average Portfolio
investment Duration Dividend Frequency
management N/A Declared and
distributed
quarterly
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 65% of its assets in a
diversified portfolio of convertible securities. Convertible
securities, which are issued by companies of all sizes and market
capitalizations, include, but are not limited to: corporate bonds,
debentures, notes or preferred stocks and their hybrids that can
be converted into (exchanged for) common stock or other
securities, such as warrants or options, which provide an
opportunity for equity participation. The Fund may invest in
securities of any market capitalization, and may from time to time
invest a significant amount of its assets in securities of smaller
companies.
The Fund invests primarily in investment grade debt securities,
but may invest up to 40% of its assets in high yield securities
("junk bonds") rated Caa or higher by Moody's or CCC or higher by
S&P or, if unrated, determined by PIMCO to be of comparable
quality. The Fund may only invest up to 10% of its assets in
convertible securities rated Caa or CCC or, if unrated, determined
by PIMCO to be of comparable quality. The Fund may also invest up
to 20% of its assets in securities denominated in foreign
currencies, and may invest beyond this limit in U.S. dollar-
denominated securities of foreign issuers. In addition, the Fund
may invest up to 35% of its assets in common stock or in other
Fixed Income Instruments.
The Fund may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements, and may
invest in asset-backed securities. The Fund may lend its portfolio
securities to brokers, dealers and other financial institutions to
earn income. The Fund may, without limitation, seek to obtain market
exposure to the securities in which it primarily invests by entering
into a series of purchase and sale contracts or by using other
investment techniques (such as buy backs or dollar rolls). The
"total return" sought by the Fund consists of income earned on the
Fund's investments, plus capital appreciation, if any, which
generally arises from decreases in interest rates or improving
credit fundamentals for a particular sector or security.
--------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect its net asset value, yield and total return, are:
.Market Risk .High Yield Risk .Foreign Investment Risk
.Issuer Risk .Derivatives Risk .Currency Risk
.Interest Rate Risk .Liquidity Risk .Leveraging Risk
.Credit Risk .Smaller Company Risk .Management 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 As the Fund commenced operations in April, 1999, it does not yet
Information have a full calendar year of performance. Thus, no bar chart or
annual returns table is included for the Fund.
57 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Convertible Fund (continued)
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<CAPTION>
Distribution Total Annual Net Fund
Advisory and/or Service Other Fund Operating Expense Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses Reduction(2) Expenses
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Institutional 0.40% None 0.29% 0.69% (0.04)% 0.65%
-----------------------------------------------------------------------------------------
Administrative 0.40 0.25% 0.25 0.90 0.00 0.90
-----------------------------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflect a 0.25% Administrative Fee paid by each
class and 0.04% organizational expenses paid by the
Institutional Class.
(2) PIMCO has contractually agreed, for the Fund's current fiscal
year, to reduce Total Annual Fund Operating Expenses for the
Institutional and Administrative Class shares to the extent
they would exceed, due to the payment of organizational
expenses and Trustees fees, 0.65% and 0.90%, respectively.
Under the Expense Limitation Agreement, PIMCO may recoup these
waivers and reimbursements in future periods, not exceeding
three years, provided total expenses, including such
recoupment, do not exceed the annual expense limit.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $66 $217 $380 $855
--------------------------------------------------------------------------------------
Administrative 92 287 498 1,108
--------------------------------------------------------------------------------------
</TABLE>
Prospectus 58
<PAGE>
PIMCO StocksPLUS Fund Ticker
Symbols:
PSTKX
(Inst.
Class)
PPLAX
(Admin.
Class)
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks total S&P 500 stock B to Aaa; maximum
and return which index derivatives 10% below Baa
Strategies exceeds that of backed by a
the S&P 500 portfolio of Dividend Frequency
short-term fixed Declared and
income securities distributed
quarterly
Average Portfolio
Duration
0-1 year
The Fund seeks to exceed the total return of the S&P 500 by
investing under normal circumstances substantially all of its
assets in S&P 500 derivatives, backed by a portfolio of Fixed
Income Instruments. The Fund may invest in common stocks, options,
futures, options on futures and swaps. The Fund uses S&P 500
derivatives in addition to or in place of S&P 500 stocks to
attempt to equal or exceed the performance of the S&P 500. The
value of S&P 500 derivatives closely track changes in the value of
the index. However, S&P 500 derivatives may be purchased with a
fraction of the assets that would be needed to purchase the equity
securities directly, so that the remainder of the assets may be
invested in Fixed Income Instruments. PIMCO actively manages the
fixed income assets held by the Fund with a view toward enhancing
the Fund's total return, subject to an overall portfolio duration
which is normally not expected to exceed one year.
The S&P 500 is composed of 500 selected common stocks that
represent approximately two-thirds of the total market value of
all U.S. common stocks. The Fund is neither sponsored by nor
affiliated with S&P. The Fund seeks to remain invested in S&P 500
derivatives or S&P 500 stocks even when the S&P 500 is declining.
Though the Fund does not normally invest directly in S&P 500
securities, when S&P 500 derivatives appear to be overvalued
relative to the S&P 500, the Fund may invest all of its assets in
a "basket" of S&P 500 stocks. Individual stocks are selected based
on an analysis of the historical correlation between the return of
every S&P 500 stock and the return on the S&P 500 itself. PIMCO
may employ fundamental analysis of factors such as earnings and
earnings growth, price to earnings ratio, dividend growth, and
cash flows to choose among stocks that satisfy the correlation
tests. Stocks chosen for the Fund are not limited to those with
any particular weighting in the S&P 500. The Fund also may invest
in exchange traded funds based on the S&P 500, such as Standard &
Poor's Depositary Receipts.
Assets not invested in equity securities or derivatives may be
invested in Fixed Income Instruments. The Fund 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. The Fund may invest up to 20% of its
assets in securities denominated in foreign currencies and may
invest beyond this limit in U.S. dollar denominated securities of
foreign issuers. The Fund will normally hedge at least 75% of its
exposure to foreign currency to reduce the risk of loss due to
fluctuations in currency exchange rates. In addition, the Fund may
lend its portfolio securities to brokers, dealers and other
financial institutions to earn income.
--------------------------------------------------------------------------------
Principal Under certain conditions, generally in a market where the value of
Risks both S&P 500 derivatives and fixed income securities are
declining, the Fund may experience greater losses than would be
the case if it invested directly in a portfolio of S&P 500 stocks.
Among the principal risks of investing in the Fund, which could
adversely affect its net asset value, yield and total return, are:
.Market Risk .Interest Rate Risk .Mortgage Risk
.Issuer Risk .Liquidity Risk .Leveraging Risk
.Derivatives Risk .Foreign Investment Risk .Management Risk
.Credit Risk .Currency 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 risk 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 Institutional Class Shares.
For periods prior to the inception date of Administrative Class
shares (1/7/97), performance information shown in the table for
that class is based on the performance of the Fund's Institutional
Class shares. The prior Institutional Class performance has been
adjusted to reflect the actual 12b-1/service fees and other
expenses paid by Administrative Class shares. Past performance is
no guarantee of future results.
59 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO StocksPLUS Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
[GRAPH] --------------------
1/1/00-6/30/00-0.64%
Annual Return
94 95 96 97 98 99
----- ------ ------ ------ ------ ------ Highest and Lowest
2.92% 40.52% 23.07% 32.85% 28.33% 20.13% Quarter Returns
(for periods shown
in the bar chart)
--------------------
Highest (4th Qtr.
'98) 21.45%
--------------------
Lowest (3rd Qtr.
'98) -9.77%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year 5 Years (5/13/93)(3)
----------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Class 20.13% 28.78% 23.09%
----------------------------------------------------------------------
Administrative Class 19.62% 28.36% 22.71%
----------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.56% 22.38%
----------------------------------------------------------------------
Lipper Large Cap Fund Average(2) 22.29% 25.53% 19.90%
----------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Composite Stock Price Index is an
unmanaged index of common stocks. It is not possible to invest
directly in the index.
(2) The Lipper Large Cap Core Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that invest at least 75% of their equity assets
in companies with market capitalizations (on a 3 year weighted
basis) of greater than 300% of the dollar weighted median
market capitalization of the S&P 400 Mid-Cap Index. It does
not take into account sales charges.
(3) The Fund began operations on 5/13/93. Index comparisons began
on 4/30/93.
--------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Institutional Class or Administrative Class shares of the
of the Fund:
Fund
Shareholder Fees (fees paid directly from your investment) None
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>
Institutional 0.40% None 0.25% 0.65%
---------------------------------------------------------------------
Administrative 0.40 0.25% 0.25 0.90
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.25% Administrative Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class 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, and then redeem all your
shares at the end of those periods. The Examples also assume that
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>
Share Class Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $66 $208 $362 $810
---------------------------------------------------------------------
Administrative 92 287 498 1,108
---------------------------------------------------------------------
</TABLE>
Prospectus 60
<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 described 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 held
Rate Risk by a Fund 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.
High Funds that invest in high yield securities and unrated securities
Yield of similar credit quality (commonly known as "junk bonds") may be
Risk subject to greater levels of interest rate, credit and liquidity
risk than Funds that do not invest in such securities. These
securities are considered predominately speculative with respect
to the issuer's continuing ability to make principal and interest
payments. An economic downturn or period of rising interest rates
could adversely affect the market for these securities and reduce
a Fund's ability to sell these securities (liquidity risk).
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 foreign
securities, derivatives or securities with substantial market
and/or credit risk tend to have the greatest exposure to liquidity
risk.
61 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Derivatives Derivatives are financial contracts whose value depends on, or is
Risk 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
typically use derivatives as a substitute for taking a position in
the underlying asset and/or as part of a strategy designed to
reduce exposure to other risks, such as interest rate or currency
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.
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 may exhibit additional volatility. This is known as
extension risk. In addition, 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.
Foreign A Fund that invests in foreign securities may experience more
(Non- rapid and extreme changes in value than a Fund that invests
U.S.) exclusively in securities of U.S. companies. The securities
Investment markets of many foreign countries are relatively small, with a
Risk limited number of companies representing a small number of
industries. Additionally, issuers of foreign securities are
usually not subject to the same degree of regulation as U.S.
issuers. Reporting, accounting and auditing standards of foreign
countries differ, in some cases significantly, from U.S.
standards. Also, nationalization, expropriation or confiscatory
taxation, currency blockage, political changes or diplomatic
developments could adversely affect a Fund's investments in a
foreign country. In the event of nationalization, expropriation or
other confiscation, a Fund could lose its entire investment in
foreign securities. Adverse conditions in a certain region can
adversely affect securities of other countries whose economies
appear to be unrelated. To the extent that a Fund invests a
significant portion of its assets in a concentrated geographic
area like Eastern Europe or Asia, the Fund will generally have
more exposure to regional economic risks associated with foreign
investments.
Emerging Foreign investment risk may be particularly high to the extent
Markets that a Fund invests in emerging market securities of issuers based
Risk in countries with developing economies. These securities may
present market, credit, currency, liquidity, legal, political and
other risks different from, or greater than, the risks of
investing in developed foreign countries.
Currency Funds that invest directly in foreign currencies or in securities
Risk that trade in, and receive revenues in, foreign (non-U.S.)
currencies are subject to the risk that those currencies will
decline in value relative to the U.S. dollar, or, in the case of
hedging positions, that the U.S. dollar will decline in value
relative to the currency being hedged.
Prospectus 62
<PAGE>
Currency rates in foreign countries may fluctuate significantly
over short periods of time for a number of reasons, including
changes in interest rates, intervention (or the failure to
intervene) by U.S. or foreign governments, central banks or
supranational entities such as the International Monetary Fund, or
by the imposition of currency controls or other political
developments in the U.S. or abroad. As a result, a Fund's
investments in foreign currency-denominated securities may reduce
the returns of the Fund.
Issuer Focusing investments in a small number of issuers, industries or
Non- foreign currencies increases risk. Funds that are "non-
Diversi- diversified" may invest a greater percentage of their assets in
fication the securities of a single issuer (such as bonds issued by a
Risk particular state) than Funds that are "diversified." 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 the same state.
Leveraging Certain transactions may give rise to a form of leverage. Such
Risk 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, may
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.
Smaller The general risks associated with fixed income securities are
Company particularly pronounced for securities issued by companies with
Risk smaller market capitalizations. These companies may have limited
product lines, markets or financial resources or they may depend
on a few key employees. As a result, they may be subject to
greater levels of credit, market and issuer risk. Securities of
smaller companies may trade less frequently and in lesser volumes
than more widely held securities and their values may fluctuate
more sharply than other securities. Companies with medium-sized
market capitalizations may have risks similar to those of smaller
companies.
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 A Fund that concentrates its investments in California municipal
State- bonds may be affected significantly by economic, regulatory or
Specific political developments affecting the ability of California issuers
Risk 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, its
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.
63 PIMCO Funds: Pacific Investment Management Series
<PAGE>
New York A Fund that concentrates its investments in New York municipal
State- bonds may be affected significantly by economic, regulatory or
Specific political developments affecting the ability of New York issuers
Risk to pay interest or repay principal. Certain issuers of New York
municipal bonds have experienced serious financial difficulties in
the past and 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
at times 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.
Allocation The Strategic Balanced Fund's investment performance depends upon
Risk how its assets are allocated and reallocated between the
Underlying Funds according to the Fund's equity/fixed income
allocation targets and ranges. A principal risk of investing in
the Fund is that PIMCO will make less than optimal or poor asset
allocation decisions. PIMCO attempts to identify allocations for
the Underlying Funds that will provide consistent, quality
performance for the Fund, but there is no guarantee that PIMCO's
allocation techniques will produce the desired results. It is
possible that PIMCO will focus on an Underlying Fund that performs
poorly or underperforms other Funds under various market
conditions. You could lose money on your investment in the Fund as
a result of these allocation decisions.
Underlying Because the Strategic Balanced Fund invests all of its assets in
Fund Underlying Funds, the risks associated with investing in the Fund
Risks are closely related to the risks associated with the securities
and other investments held by the Underlying Funds. The ability of
the Fund to achieve its investment objective will depend upon the
ability of the Underlying Funds to achieve their objectives. There
can be no assurance that the investment objective of any
Underlying Fund will be achieved.
The Strategic Balanced Fund's net asset value will fluctuate in
response to changes in the net asset values of the Underlying
Funds in which it invests. The extent to which the investment
performance and risks associated with the Fund correlate to those
of a particular Underlying Fund will depend upon the extent to
which the Fund's assets are allocated from time to time for
investment in the Underlying Fund, which will vary. The Fund's
investment in a particular Underlying Fund normally will exceed
25% of its assets. Because the Fund invests a significant portion
of its assets in each Underlying Fund, it will be particularly
sensitive to the risks associated with each of the Underlying
Funds.
Management of the Funds
Investment PIMCO serves as the investment adviser and the administrator
Adviser (serving in its capacity as administrator, the "Administrator")
and Ad- for the Funds. Subject to the supervision of the Board of
ministrator Trustees, PIMCO is responsible for managing the investment
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
June 30, 2000, PIMCO had approximately $199.3 billion in assets
under management.
Prospectus 64
<PAGE>
Advisory Each Fund, except the Strategic Balanced Fund, pays PIMCO fees in
Fees return for providing investment advisory services. For the fiscal
year ended March 31, 2000, the Funds paid monthly advisory fees to
PIMCO at the following annual rates (stated as a percentage of the
average daily net assets of each Fund taken separately):
<TABLE>
<CAPTION>
Fund Advisory Fees
----------------------------------------------------------------------
<S> <C>
Money Market Fund 0.15%
Short Duration Municipal Income Fund 0.20%
Short-Term, Low Duration, Low Duration II, Low
Duration III, GNMA, Moderate Duration, Real
Return Bond, Total Return, Total Return II,
Total Return III, Total Return Mortgage, High
Yield, Long-Term U.S. Government, Municipal
Bond, California Intermediate Municipal Bond,
New York Municipal Bond, Global Bond, Global
Bond II, and Foreign Bond Funds 0.25%
Strategic Balanced*, Convertible and StocksPLUS
Funds 0.40%
Emerging Markets Bond Fund 0.45%
</TABLE>
-------
*Effective September 29, 2000, the advisory fee for the Strategic
Balanced Fund is equal to an annual rate of 0.00%.
The Investment Grade Corporate Bond, Long Duration and California
Municipal Bond Funds were not operational during the fiscal year
ended March 31, 2000. The investment advisory fees for the
Investment Grade Corporate Bond, Long Duration, and California
Municipal Bond Funds are at an annual rate of 0.25%, based upon
the average daily net assets of the Fund.
Adminis- Each Fund pays for the administrative services it requires under a
trative fee structure which is essentially fixed. Institutional and
Fees Administrative Class shareholders of each 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 or procures administrative
services for Institutional and Administrative Class 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.
For the fiscal year ended March 31, 2000, the Funds paid PIMCO
monthly administrative fees at the following annual rates (stated
as a percentage of the average daily net assets attributable in
the aggregate to the Fund's Institutional and Administrative Class
shares):
<TABLE>
<CAPTION>
Fund Administrative Fees
---------------------------------------------------------------------
<S> <C>
Low Duration and Total Return Funds 0.18%
Short Duration Municipal Income Fund 0.19%
Money Market, Short-Term and Moderate Duration
Funds 0.20%
California Intermediate Municipal Bond and New
York Municipal Bond Funds 0.24%
Low Duration II, Low Duration III, GNMA, Real
Return Bond, Total Return II, Total Return III,
Total Return Mortgage, High Yield, Long-Term
U.S. Government, Municipal Bond, Foreign Bond,
Strategic Balanced*, Convertible and StocksPLUS
Funds 0.25%
Global Bond and Global Bond II Funds 0.30%
Emerging Markets Bond Fund 0.40%
</TABLE>
-------
*Effective September 29, 2000, the administrative fee for the
Strategic Balanced Fund is equal to an annual rate of 0.05%.
The Investment Grade Corporate Bond, Long Duration and California
Municipal Bond Funds were not operational during the fiscal year
ended March 31, 2000. The administrative fees for the Investment
Grade Corporate Bond, Long Duration and California Municipal Bond
Funds are at an annual rate of 0.25%, 0.25% and 0.24%,
respectively, based upon the average daily net assets of the Fund.
Strategic Effective September 29, 2000, the Strategic Balanced Fund does not
Balanced pay any fees to PIMCO under the Trust's investment advisory
Fund Fees agreement in return for the advisory and asset allocation services
provided by PIMCO. The Fund does, however, indirectly pay its
proportionate share of the advisory fees paid to PIMCO by the
Underlying Funds in which the Fund invests.
The Fund pays administrative fees to PIMCO at an annual rate of
0.05% based on the average daily net assets attributable in the
aggregate to the Fund's Institutional Class and Administrative
Class shares. The Fund also indirectly pays its proportionate
share of the administrative fees charged by PIMCO to the
Underlying Funds in which the Fund invests.
65 PIMCO Funds: Pacific Investment Management Series
<PAGE>
The expenses associated with investing in a "fund of funds," such
as the Fund, are generally higher than those for mutual funds that
do not invest primarily in other mutual funds. This is because
shareholders in a "fund of funds" indirectly pay a portion of the
fees and expense charged at the underlying fund level.
The Strategic Balanced Fund is structured in the following ways
to lessen the impact of expenses incurred at the Underlying Fund
level:
. The Fund does not pay any fees for asset allocation or advisory
services under the Trust's investment advisory agreement.
. The Fund invests in Institutional Class shares of the
Underlying Funds, which are not subject to any sales charges or
12b-1 fees.
PIMCO has broad discretion to allocate and reallocate the Fund's
assets among the Underlying Funds consistent with the Fund's
investment objective and policies and asset allocation targets and
ranges. Although PIMCO does not charge an investment advisory fee
for its asset allocation services, PIMCO indirectly receives fees
(including investment advisory and administrative fees) from the
Underlying Funds in which the Fund invests. In this regard, PIMCO
has a financial incentive to invest the Fund's assets in
Underlying Funds with higher fees than other Funds, even if it
believes that alternate investments would better serve the Fund's
investment program. PIMCO is legally obligated to disregard that
incentive in making asset allocation decisions for the Fund. The
Trustees and officers of the Trust may also have conflicting
interests in fulfilling their fiduciary duties to both the Fund
and the Underlying Funds of the Trust.
Prospectus 66
<PAGE>
Individual The following individuals have primary responsibility for managing
Portfolio each of the noted Funds.
Managers
<TABLE>
<CAPTION>
Recent Professional
Fund Portfolio Manager Since Experience
------------------------------------------------------------------------------
<C> <C> <C> <S>
Money Market Paul A. McCulley 11/99 Executive Vice
Short-Term 8/99 President, PIMCO. He has
managed fixed income
assets since joining
PIMCO in 1999. Prior to
joining PIMCO, Mr.
McCulley was associated
with Warburg Dillon Read
as a Managing Director
from 1992-1999 and Head
of Economic and Strategy
Research for the
Americas from 1995-1999,
where he managed macro
research world-wide.
Low Duration William H. Gross 5/87* Managing Director, Chief
Low Duration II 11/91* Investment Officer and a
Low Duration III 12/96* founding partner of
Moderate Duration 12/96* PIMCO. He leads a team
Total Return 5/87* which manages the
Total Return II 12/91* Moderate Duration,
Total Return III 5/91* Strategic Balanced and
Strategic Balanced 1/98 StocksPLUS Funds.
StocksPLUS 1/98
GNMA Scott A. Mather 9/00 Executive Vice
President, PIMCO. He
joined PIMCO as a
Portfolio Manager in
1998. Prior to that he
was a bond trader at
Goldman Sachs & Co.,
where he specialized in
mortgage-backed
securities.
Total Return Mortgage W. Scott Simon 4/00 Executive Vice
President, PIMCO. He
joined PIMCO as a
Portfolio Manager in
2000. Prior to that, he
was a Senior Managing
Director and co-head of
mortgage-backed security
pass-through trading at
Bear Stearns & Co.
Real Return Bond John B. Brynjolfsson 1/97* Executive Vice
President, PIMCO. He
joined PIMCO as a
Portfolio Manager in
1989, and has managed
fixed income accounts
for various
institutional clients
and funds since 1992.
Long-Term U.S. Government James M. Keller 4/00 Executive Vice
Long Duration ** President, PIMCO. He
joined PIMCO as a
Portfolio Manager in
1996, and has managed
fixed income accounts
for various
institutional clients
since that time.
Investment Grade Chris P. Dialynas 4/00* Managing Director,
Corporate Bond PIMCO. He is a Portfolio
Manager and a senior
member of PIMCO's
investment strategy
group, and has been
associated with PIMCO
since 1980.
High Yield Benjamin L. Trosky 12/92* Managing Director,
PIMCO. He joined PIMCO
as a Portfolio Manager
in 1990, and has managed
fixed income accounts
for various
institutional clients
and funds since that
time.
Short Duration Mark V. McCray 4/00 Senior Vice President,
Municipal Income PIMCO. He joined PIMCO
Municipal Bond 4/00 as a Portfolio Manager
California Intermediate 4/00 in 2000. Prior to that,
Municipal Bond he was a bond trader
California 5/00* from 1992-1999 at
Municipal Bond Goldman Sachs & Co.
New York 4/00 where he was appointed
Municipal Bond Vice President in 1996
and named co-head of
municipal bond trading
in 1997 with
responsibility for the
firm's proprietary
account and supervised
municipal bond traders.
Global Bond Lee R. Thomas, III 7/95 Managing Director and
Global Bond II 10/95* Senior International
Foreign Bond 7/95 Portfolio Manager,
PIMCO. He joined PIMCO
as a Portfolio Manager
in 1995, and has managed
fixed income accounts
for various
institutional clients
and funds since that
time.
Emerging Markets Bond Mohamed A. El-Erian 8/99 Managing Director,
PIMCO. He joined PIMCO
as a Portfolio Manager
in 1999. Prior to
joining PIMCO, he was a
Managing Director from
1998-1999 for Salomon
Smith Barney/Citibank,
where he was head of
emerging markets
research. Prior to that
he was associated with
the International
Monetary Fund as a
Deputy Director and
Advisor from 1983-1998.
Convertible Sandra K. Durn 4/99* Senior Vice President,
PIMCO. She joined PIMCO
as a Portfolio Manager
in 1999. Prior to
joining PIMCO in 1999,
she was associated with
Nicholas-Applegate
Capital Management where
she was a Convertible
Securities Portfolio
Manager from 1995-1999.
</TABLE>
-------
* Since inception of the Fund.
**Fund has not commenced operation as of the date of this prospectus.
Distributor The Trust's Distributor is PIMCO Funds Distributors LLC, a wholly
owned subsidiary of PIMCO Advisors L.P. The Distributor, located
at 2187 Atlantic Street, Stamford CT 06902, is a broker-dealer
registered with the Securities and Exchange Commission.
67 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Investment Options--
Institutional Class and Administrative Class Shares
The Trust offers investors Institutional Class and Administrative
Class shares of the Funds in this prospectus.
The Trust does not charge any sales charges (loads) or other fees
in connection with purchases, sales (redemptions) or exchanges of
Institutional Class or Administrative Class shares. Administrative
Class shares are subject to a higher level of operating expenses
than Institutional Class shares due to the additional service
and/or distribution fees paid by Administrative Class shares as
described below. Therefore, Institutional Class shares will
generally pay higher dividends and have a more favorable
investment return than Administrative Class shares.
. Service and Distribution (12b-1) Fees--Administrative Class
Shares. The Trust has adopted an Administrative Services Plan for
the Administrative Class shares of each Fund. It has also adopted
a Distribution Plan for the Administrative Class shares of each
Fund. Each Plan has been adopted in accordance with the
requirements of Rule 12b-1 under the Investment Company Act of
1940 and is administered in accordance with that rule. However,
shareholders do not have the voting rights set forth in Rule 12b-1
with respect to the Administrative Services Plan.
Each Plan allows the Funds to use its Administrative Class assets
to reimburse financial intermediaries that provide services
relating to Administrative Class shares. The Distribution Plan
permits reimbursement for expenses in connection with the
distribution and marketing of Administrative Class shares and/or
the provision of shareholder services to Administrative Class
shareholders. The Administrative Services Plan permits
reimbursement for services in connection with the administration
of plans or programs that use Administrative Class shares of the
Funds as their funding medium and for related expenses.
In combination, the Plans permit a Fund to make total
reimbursements at an annual rate of up to 0.25% of the Fund's
average daily net assets attributable to its Administrative Class
shares. The same entity may not receive both distribution and
administrative services fees with respect to the same
Administrative Class assets, but may receive fees under each Plan
with respect to separate assets. Because these fees are paid out
of a Fund's Administrative Class assets on an ongoing basis, over
time they will increase the cost of an investment in
Administrative Class shares and may cost an investor more than
other types of sales charges.
. Arrangements with Service Agents. Institutional Class and
Administrative Class shares of the Funds may 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 and/or
distribution fees paid with respect to Administrative Class
shares. Service agents may impose additional or different
conditions than the Trust on purchases, redemptions or exchanges
of Fund shares by their customers. Service agents may also
independently establish and charge their customers transaction
fees, account fees and other amounts in connection with purchases,
sales and redemptions of Fund shares in addition to any fees
charged by the Trust. These additional fees may vary over time and
would increase the cost of the customer's investment and lower
investment returns. 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, redemptions and exchanges. Shareholders who
are customers of service agents should consult their service
agents for information regarding these fees and conditions.
Prospectus 68
<PAGE>
Purchases, Redemptions and Exchanges
Purchasing Investors may purchase Institutional Class and Administrative
Shares Class shares of the Funds at the relevant net asset value ("NAV")
of that class without a sales charge or other fee.
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 their
customers' investments in the Funds.
Administrative Class shares are offered primarily through
employee benefit plan alliances, broker-dealers and other
intermediaries, and each Fund pays service and/or distribution
fees to these entities for services they provide to Administrative
Class shareholders.
Pension and profit-sharing plans, employee benefit trusts and
employee benefit plan alliances and "wrap account" programs
established with broker-dealers or financial intermediaries may
purchase shares of either class only if the plan or program for
which the shares are being acquired will maintain an omnibus or
pooled account for each Fund and will not require a Fund to pay
any type of administrative payment per participant account to any
third party. Shares may be offered to clients of PIMCO and its
affiliates, and to the benefit plans of PIMCO and its affiliates.
. Investment Minimums. The minimum initial investment for shares
of either class is $5 million, except that the minimum initial
investment for a registered investment adviser purchasing
Institutional Class shares for its clients through omnibus
accounts is $250,000 per Fund. In addition, the minimum initial
investment does not apply to Institutional Class shares offered
through fee-based programs sponsored and maintained by a
registered broker-dealer and approved by the Distributor which
each investor pays an asset based fee at an annual rate of at
least 0.50% of the assets in the account to a financial
intermediary for investment advisory and/or administrative
services.
The Trust and the Distributor may waive the minimum initial
investment for other categories of investors at their discretion.
The investment minimums discussed in this section and the
limitations set forth below do not apply to participants in PIMCO
Advisors Portfolio Strategies, a managed product sponsored by
PIMCO Advisors.
. Timing of Purchase Orders and Share Price Calculations. A
purchase order received by the Trust's transfer agent, National
Financial Data Services ("Transfer Agent"), prior to the close of
regular trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, on a day the Trust is open for business, together
with payment made in one of the ways described below, will be
effected at that day's NAV. An order received after the close of
regular trading on the New York Stock Exchange will be effected at
the NAV determined on the next business day. However, orders
received by certain retirement plans and other financial
intermediaries on a business day prior to the close of regular
trading on the New York Stock Exchange and communicated to the
Transfer Agent prior to 9:00 a.m., Eastern time, on the following
business day will be effected at the NAV determined on the prior
business day. The Trust is "open for business" on each day the New
York Stock Exchange is open for trading, which excludes the
following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Purchase orders
will be accepted only on days on which the Trust is open for
business.
. Initial Investment. Investors may open an account by
completing and signing a Client Registration Application and
mailing it to PIMCO Funds at 840 Newport Center Drive, Suite 300,
Newport Beach, California 92660. A Client Registration Application
may be obtained by calling 1-800-927-4648.
69 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Except as described below, an investor may purchase Institutional
Class and Administrative Class shares only by wiring federal funds
to the Trust's Transfer Agent, National Financial Data Services,
330 West 9th Street, 4th Floor, Kansas City, Missouri 64105.
Before wiring federal funds, the investor must telephone the Trust
at 1-800-927-4648 to receive instructions for wire transfer and
must provide the following information: name of authorized person,
shareholder name, shareholder account number, name of Fund and
share class, amount being wired, and wiring bank name.
An investor may purchase shares without first wiring federal
funds if the proceeds of the investment are derived from an
advisory account the investor maintains with PIMCO or one of its
affiliates, from surrender or other payment from an annuity,
insurance, or other contract held by Pacific Life Insurance
Company, or from an investment by broker-dealers, institutional
clients or other financial intermediaries which have established a
shareholder servicing relationship with the Trust on behalf of
their customers.
. Additional Investments. An investor may purchase additional
Institutional Class and Administrative Class shares of the Funds
at any time by calling the Trust and wiring federal funds to the
Transfer Agent as outlined above.
. Other Purchase Information. Purchases of a Fund's
Institutional Class and Administrative Class shares will be made
in full and fractional shares. In the interest of economy and
convenience, certificates for shares will not be issued.
The Trust and the Distributor each reserves the right, in its
sole discretion, to suspend the offering of shares of the Funds or
to reject any purchase order, in whole or in part, when, in the
judgment of management, such suspension or rejection is in the
best interests of the Trust.
An investor should invest in the Funds for long-term investment
purposes only. The Trust and PIMCO each reserves the right to
restrict purchases of Fund shares (including exchanges) when a
pattern of frequent purchases and sales made in response to short-
term fluctuations in share price appears evident. Notice of any
such restrictions, if any, will vary according to the particular
circumstances.
Institutional Class and Administrative Class shares of the Trust
are not qualified or registered for sale in all states. Investors
should inquire as to whether shares of a particular Fund are
available for offer and sale in the investor's state of residence.
Shares of the Trust may not be offered or sold in any state unless
registered or qualified in that jurisdiction or unless an
exemption from registration or qualification is available.
Subject to the approval of the Trust, an investor may purchase
shares of a Fund with liquid securities that are eligible for
purchase by the Fund (consistent with the Fund's investment
policies and restrictions) and that have a value that is readily
ascertainable in accordance with the Trust's valuation policies.
These transactions will be effected only if PIMCO intends to
retain the security in the Fund as an investment. Assets purchased
by a Fund in such a transaction will be valued in generally the
same manner as they would be valued for purposes of pricing the
Fund's shares, if such assets were included in the Fund's assets
at the time of purchase. The Trust reserves the right to amend or
terminate this practice at any time.
. Retirement Plans. Shares of the Funds are available for
purchase by retirement and savings plans, including Keogh plans,
401(k) plans, 403(b) custodial accounts, and Individual Retirement
Accounts. The administrator of a plan or employee benefits office
can provide participants or employees with detailed information on
how to participate in the plan and how to elect a Fund as an
investment option. Participants in a retirement or savings plan
may be permitted to elect different investment options, alter the
amounts contributed to the plan, or change how contributions are
allocated among investment options in accordance with the plan's
specific provisions. The plan administrator or employee benefits
office should be consulted for details. For questions about
participant accounts, participants should contact their employee
benefits office, the
Prospectus 70
<PAGE>
plan administrator, or the organization that provides
recordkeeping services for the plan. Investors who purchase shares
through retirement plans should be aware that plan administrators
may aggregate purchase and redemption orders for participants in
the plan. Therefore, there may be a delay between the time the
investor places an order with the plan administrator and the time
the order is forwarded to the Transfer Agent for execution.
Redeeming . Redemptions by Mail. An investor may redeem (sell)
Shares Institutional Class and Administrative Class shares by submitting
a written request to PIMCO Funds at 840 Newport Center Drive,
Suite 300, Newport Beach, California 92660. The redemption request
should state the Fund from which the shares are to be redeemed,
the class of shares, the number or dollar amount of the shares to
be redeemed and the account number. The request must be signed
exactly as the names of the registered owners appear on the
Trust's account records, and the request must be signed by the
minimum number of persons designated on the Client Registration
Application that are required to effect a redemption.
. Redemptions by Telephone or Other Wire Communication. An
investor that elects this option on the Client Registration
Application (or subsequently in writing) may request redemptions
of shares by calling the Trust at 1-800-927-4648, by sending a
facsimile to 1-949-725-6830, by sending an e-mail to
[email protected], or by other means of wire
communication. Investors should state the Fund and class from
which the shares are to be redeemed, the number or dollar amount
of the shares to be redeemed, the account number and the signature
(which may be an electronic signature) of an authorized signatory.
Redemption requests of an amount of $10 million or more may be
initiated by telephone or by e-mail, but must be confirmed in
writing by an authorized party prior to processing.
In electing a telephone redemption, the investor authorizes PIMCO
and the Transfer Agent to act on telephone instructions from any
person representing himself to be the investor, and reasonably
believed by PIMCO or the Transfer Agent to be genuine. Neither the
Trust nor the Transfer Agent may be liable for any loss, cost or
expense for acting on instructions (whether in writing or by
telephone) believed by the party receiving such instructions to be
genuine and in accordance with the procedures described in this
Prospectus. Shareholders should realize that by electing the
telephone, or wire or e-mail redemption option, they may be giving
up a measure of security that they might have if they were to
redeem their shares in writing. Furthermore, interruptions in
service may mean that a shareholder will be unable to effect a
redemption by telephone or e-mail when desired. The Transfer Agent
also provides written confirmation of transactions initiated by
telephone as a procedure designed to confirm that telephone
instructions are genuine (written confirmation is also provided
for redemption requests received in writing or via e-mail). All
telephone transactions are recorded, and PIMCO or the Transfer
Agent may request certain information in order to verify that the
person giving instructions is authorized to do so. The Trust or
Transfer Agent may be liable for any losses due to unauthorized or
fraudulent telephone transactions if it fails to employ reasonable
procedures to confirm that instructions communicated by telephone
are genuine. All redemptions, whether initiated by letter or
telephone, will be processed in a timely manner, and proceeds will
be forwarded by wire in accordance with the redemption policies of
the Trust detailed below. See "Other Redemption Information."
Shareholders may decline telephone exchange or redemption
privileges after an account is opened by instructing the Transfer
Agent in writing at least seven business days prior to the date
the instruction is to be effective. Shareholders may experience
delays in exercising telephone redemption privileges during
periods of abnormal market activity. During periods of volatile
economic or market conditions, shareholders may wish to consider
transmitting redemption orders by telegram, facsimile, e-mail or
overnight courier.
Defined contribution plan participants may request redemptions by
contacting the employee benefits office, the plan administrator or
the organization that provides recordkeeping services for the
plan.
71 PIMCO Funds: Pacific Investment Management Series
<PAGE>
. Timing of Redemption Requests and Share Price Calculations. A
redemption request received by the Trust or its designee prior to
the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m., Eastern time), on a day the Trust is open for
business, is effective on that day. A redemption request received
after that time becomes effective on the next business day.
Redemption requests for Fund shares are effected at the NAV per
share next determined after receipt of a redemption request by the
Trust or its designee. The request must properly identify all
relevant information such as account number, redemption amount (in
dollars or shares), the Fund name, and must be executed or
initiated by the appropriate signatories.
. Other Redemption Information. Redemption proceeds will
ordinarily be wired to the investor's bank within three business
days after the redemption request, but may take up to seven
business days. Redemption proceeds will be sent by wire only to
the bank name designated on the Client Registration Application.
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. Under these
and other unusual circumstances, the Trust may suspend redemptions
or postpone payment for more than seven days, as permitted by law.
For shareholder protection, a request to change information
contained in an account registration (for example, a request to
change the bank designated to receive wire redemption proceeds)
must be received in writing, signed by the minimum number of
persons designated on the Client Registration Application that are
required to effect a redemption, and accompanied by a signature
guarantee from any eligible guarantor institution, as determined
in accordance with the Trust's procedures. Shareholders should
inquire as to whether a particular institution is an eligible
guarantor institution. A signature guarantee cannot be provided by
a notary public. In addition, corporations, trusts, and other
institutional organizations are required to furnish evidence of
the authority of the persons designated on the Client Registration
Application to effect transactions for the organization.
Due to the relatively high cost of maintaining small accounts,
the Trust reserves the right to redeem Institutional Class and
Administrative Class shares in any account for their then-current
value (which will be promptly paid to the investor) if at any
time, due to redemption by the investor, the shares in the account
do not have a value of at least $100,000. A shareholder will
receive advance notice of a mandatory redemption and will be given
at least 30 days to bring the value of its account up to at least
$100,000. This mandatory redemption policy does not apply to
participants in PIMCO Advisors Portfolio Strategies, a managed
product sponsored by PIMCO Advisors.
The Trust agrees to redeem shares of each Fund 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, the Trust reserves
the right to pay any redemption proceeds exceeding this amount in
whole or in part by a distribution in kind of securities held by a
Fund in lieu of cash. 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.
Exchange An investor may exchange Institutional Class or Administrative
Privilege Class shares of a Fund for shares of the same class of any other
Fund or other series of the Trust that offers that class based on
the respective NAVs of the shares involved. An exchange may be
made by following the redemption procedure described above under
"Redemptions by Mail" or, if the investor has elected the
telephone redemption option, by calling the Trust at 1-800-927-
4648. An investor may also exchange shares of a Fund for shares of
the same class of a series of PIMCO Funds: Multi-Manager Series,
an affiliated mutual fund family composed primarily of equity
portfolios
Prospectus 72
<PAGE>
managed by PIMCO Advisors and its subsidiaries. Shareholders
interested in such an exchange may request a prospectus for these
other series by contacting PIMCO Funds at the same address and
telephone number as the Trust.
An investor may exchange shares only with respect to Funds or
other eligible series that are registered in the investor's state
of residence or where an exemption from registration is available.
An exchange order is treated the same for tax purposes as a
redemption followed by a purchase and may result in a capital gain
or loss, and special rules may apply in computing tax basis when
determining gain or loss. See "Tax Consequences" in this
Prospectus and "Taxation" in the Statement of Additional
Information.
The Trust reserves the right to refuse exchange purchases 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
investors 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. The Trust reserves the right to impose
additional restrictions on exchanges at any time, although it will
attempt to give shareholders 30 days' prior notice whenever it is
reasonably able to do so.
How Fund Shares Are Priced
The net asset value ("NAV") of a Fund's Institutional and
Administrative Class 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.
Except for the Money Market Fund, 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.
The Money Market Fund's securities are valued using the amortized
cost method of valuation, which 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.
Investments initially valued in currencies other than the U.S.
dollar are converted to U.S. dollars using 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 currencies in relation to
the U.S. dollar. The value of securities traded in markets
73 PIMCO Funds: Pacific Investment Management Series
<PAGE>
outside the United States or denominated in currencies other than
the U.S. dollar may be affected significantly on a day that the
New York Stock Exchange is closed and an investor is not able to
purchase, redeem or exchange shares.
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.
Under certain circumstances, the per share NAV of the
Administrative Class shares of the Funds may be lower than the per
share NAV of the Institutional Class shares as a result of the
daily expense accruals of the service and/or distribution fees
paid by Administrative Class 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 the two classes.
Fund Distributions
Each Fund distributes substantially all of its net investment
income to shareholders in the form of dividends. A shareholder
begins earning dividends on Fund shares the day after the Trust
receives the shareholder's 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
Administrative Class shares are expected to be lower than
dividends on Institutional Class shares as a result of the
distribution fees applicable to Administrative Class shares. The
following shows when each Fund intends to declare and distribute
income dividends to shareholders of record.
<TABLE>
<CAPTION>
Declared Daily
and Paid Declared and
Fund Monthly Paid Quarterly
------------------------------------------------------------------
<S> <C> <C>
Fixed Income Funds .
------------------------------------------------------------------
Strategic Balanced, Convertible and
StocksPLUS Funds .
------------------------------------------------------------------
</TABLE>
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.
A Fund's dividend and capital gain distributions with respect to
a particular class of shares will automatically be reinvested in
additional shares of the same class of the Fund at NAV unless the
shareholder elects to have the distributions paid in cash. A
shareholder may elect to have distributions paid in cash on the
Client Registration Application or by submitting a written
request, signed by the appropriate signatories, indicating the
account number, Fund name(s) and wiring instructions. Shareholders
do not pay any sales charges on shares received through the
reinvestment of Fund distributions.
Prospectus 74
<PAGE>
Tax Consequences
. Taxes on Fund Distributions. A shareholder subject to U.S.
federal income tax will be subject to tax on Fund distributions
whether they are paid in cash or reinvested in additional shares
of the Funds. For federal income tax purposes, Fund distributions
will be taxable to the shareholder as either ordinary income or
capital gains.
Fund dividends (i.e., distributions of investment income) are
taxable to shareholders as ordinary income. Federal taxes on Fund
distributions of gains are determined by how long the Fund owned the
investments that generated the gains, rather than how long a
shareholder has owned the shares. Distributions of gains from
investments that a Fund owned for more than 12 months will generally
be taxable to shareholders as capital gains. Distributions of gains
from investments that the Fund owned for 12 months or less will
generally be taxable as ordinary income.
Fund distributions are taxable to shareholders even if they are
paid from income or gains earned by a Fund prior to the
shareholder's investment and thus were included in the price paid
for the shares. For example, a shareholder who purchases shares on
or just before the record date of a Fund distribution will pay full
price for the shares and may receive a portion of his or her
investment back as a taxable distribution.
. Taxes on Redemption or Exchanges of Shares. Any gain resulting
from the sale of Fund shares will generally be subject to federal
income tax. When a shareholder exchanges 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.
. A Note on the Real Return Bond Fund. Periodic adjustments for
inflation to the principal amount of an inflation-indexed bond may
give rise to original issue discount, which will be includable in
the Fund's gross income. Due to original issue discount, the Fund
may be required to make annual distributions to shareholders that
exceed the cash received, which may cause the Fund to liquidate
certain investments when it is not advantageous to do so. Also, if
the principal value of an inflation-indexed bond is adjusted
downward due to deflation, amounts previously distributed in the
taxable year may be characterized in some circumstances as a
return of capital.
. A Note on the Municipal Funds. Dividends paid to shareholders
of the Municipal Funds and derived from Municipal Bond interest
are expected to be designated by the Funds 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, the California Municipal Bond Fund, and the
New York 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 Municipal 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. The interest on "private activity" bonds is a tax-
preference item for purposes of the federal alternative minimum
tax. As a result, for shareholders that are subject to the
alternative minimum tax, income derived from "private activity"
bonds will not be exempt from federal income tax. The Municipal
Funds seek to produce income that is generally exempt from federal
income tax and will not benefit investors in tax-sheltered
retirement plans or individuals not subject to federal income tax.
Further, the California Intermediate Municipal Bond, the
California Municipal Bond, and the New York Municipal Bond Funds
seek
75 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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.
. A Note on the Strategic Balanced Fund. The Strategic Balanced
Fund's use of a fund of funds structure could affect the amount,
timing and character of distributions to shareholders, and may
therefore increase the amount of taxes payable by shareholders.
See "Taxation--Distributions" in the Statement of Additional
Information.
This section relates only to federal income tax; the consequences
under other tax laws may differ. Shareholders should consult their
tax advisors 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.
The Strategic Balanced Fund invests its assets in shares of the
Underlying Funds, and as such does not invest directly in the
securities described below. The Underlying Funds, however, may
invest in such securities. Because the value of an investment in
the Strategic Balanced Fund is directly related to the investment
performance of the Underlying Funds in which it invests, the risks
of investing in the Strategic Balanced Fund are closely related to
the risks associated with the Underlying Funds and their
investments in the securities described below.
Securities Most of the Funds in this prospectus seek maximum total return.
Selection The total return sought by a Fund consists of both income earned
on a Fund's investments and capital appreciation, if any, arising
from increases in the market value of a Fund's holdings. Capital
appreciation of fixed income securities generally results from
decreases in market interest rates or improving credit
fundamentals for a particular market sector or security.
In selecting securities for a Fund, PIMCO develops an outlook for
interest rates, currency exchange 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 and the economies of other
countries in the world, 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 such as: money markets,
governments, corporates, mortgages, asset-backed and
international. Sophisticated proprietary software then assists in
evaluating sectors and pricing specific securities. Once
investment opportunities are identified, PIMCO will
Prospectus 76
<PAGE>
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.
With respect to the Strategic Balanced Fund, PIMCO will purchase
shares of the StocksPLUS and Total Return Funds according to the
Strategic Balanced Fund's equity/fixed income allocation ranges.
PIMCO does not purchase shares of the Underlying Funds according
to any predetermined formula, but rather decides how to allocate
the Fund's investments based upon PIMCO's methodology for
forecasting stages in the business cycle, and the potential risk
and reward of equity and fixed income investments at specific
stages of the business cycle. In addition to purchasing shares of
the StocksPLUS and Total Return Funds, PIMCO may in the future
invest in additional funds in the PIMCO fund family without
shareholder approval.
U.S. U.S. Government Securities are obligations of, or guaranteed by,
Government the U.S. Government, its agencies or government-sponsored
Securities enterprises. U.S. 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.
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.
Mortgage- Each Fund may invest in mortgage- or other asset-backed
Related securities. Except for the Money Market, Short Duration Municipal
and Other Income, Municipal Bond, California Intermediate Municipal Bond,
Asset- California Municipal Bond, New York Municipal Bond, and
Backed Convertible Funds, each Fund may invest all of its assets in such
Securities securities. Mortgage-related securities include mortgage pass-
through securities, collateralized mortgage obligations ("CMOs"),
commercial mortgage-backed securities, mortgage dollar rolls, CMO
residuals, stripped mortgage-backed securities ("SMBSs") and other
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 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 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.
77 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Loan Certain Funds may invest in fixed- and floating-rate loans, which
Partici- investments generally will be in the form of loan participations
pations and assignments of portions of such loans. Participations and
and assignments involve special types of risk, including credit risk,
Assignments 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.
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.
High Securities rated lower than Baa by Moody's or lower than BBB by S&P
Yield are sometimes referred to as "high yield" or "junk" bonds. Investing
Securities 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 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 this 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.
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 (except the Money Market Fund) engage in credit spread trades.
Securities While floaters provide a certain degree of protection against
rises in interest rates, a Fund will participate in any declines
in interest rates as well. Each Fund (except the Money Market
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 assets in any
combination of inverse floater, interest only, or principal only
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
Prospectus 78
<PAGE>
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.
Event- Each Fund (except the Money Market Fund) may invest in "event-
Linked linked bonds," which are fixed income securities for which the
Bonds return of principal and payment of interest is contingent on the
non-occurrence of a specific "trigger" event, such as a hurricane,
earthquake, or other physical or weather-related phenomenon. Some
event-linked bonds are commonly referred to as "catastrophe
bonds." If a trigger event occurs, a Fund may lose a portion or
all of its principal invested in the bond. Event-linked 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. Event-linked
bonds may also expose the Fund to certain unanticipated risks
including credit risk, adverse regulatory or jurisdictional
interpretations, and adverse tax consequences. Event-linked bonds
may also be subject to liquidity risk.
Convertible Each Fund may invest in convertible securities. Convertible
and securities are generally preferred stocks and other securities,
Equity including fixed income securities and warrants, that are
Securities 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 Fixed Income Funds intend to invest primarily in fixed
income securities, each may invest in convertible securities or
equity securities. While some countries or companies may be
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 convertible securities or equity securities to gain
exposure to such investments.
Equity securities generally have greater price volatility than
fixed income securities. The market price of equity securities
owned by a Fund may go up or down, sometimes rapidly or
unpredictably. Equity securities may decline in value due to
factors affecting equity securities markets generally or
particular industries represented in those markets. The value of
an equity security may also decline for a number of reasons which
directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer's goods or
services.
Foreign Investing in foreign securities involves special risks and
(Non- considerations not typically associated with investing in U.S.
U.S.) securities. Shareholders should consider carefully the substantial
Securities risks involved for Funds that invest in securities issued by
foreign companies and governments of foreign countries. These
risks include: differences in accounting, auditing and financial
reporting standards; generally higher commission rates on foreign
portfolio transactions; the possibility of nationalization,
expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations; and political
instability. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of
gross domestic product, rates of
79 PIMCO Funds: Pacific Investment Management Series
<PAGE>
inflation, capital reinvestment, resources, self-sufficiency and
balance of payments position. The securities markets, values of
securities, yields and risks associated with foreign securities
markets may change independently of each other. Also, foreign
securities and dividends and interest payable on those securities
may be subject to foreign taxes, including taxes withheld from
payments on those securities. Foreign securities often trade with
less frequency and volume than domestic securities and therefore
may exhibit greater price volatility. Investments in foreign
securities may also involve higher custodial costs than domestic
investments and additional transaction costs with respect to
foreign currency conversions. Changes in foreign exchange rates
also will affect the value of securities denominated or quoted in
foreign currencies.
Certain Funds also may invest in sovereign debt issued by
governments, their agencies or instrumentalities, or other
government-related entities. Holders of sovereign debt may be
requested to participate in the rescheduling of such debt and to
extend further loans to governmental entities. In addition, there
is no bankruptcy proceeding by which defaulted sovereign debt may
be collected.
. Emerging Market Securities. The Emerging Markets Bond Fund
invests primarily in securities of issuers based in countries with
developing (or "emerging market") economies, while the Short-Term,
Low Duration and Low Duration III Funds may invest up to 5% of
their assets in such securities and each remaining Fund that may
invest in foreign securities may invest up to 10% of its assets in
such securities. Investing in emerging market securities imposes
risks different from, or greater than, risks of investing in
domestic securities or in foreign, developed countries. These
risks include: smaller market capitalization of securities
markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment;
possible repatriation of investment income and capital. In
addition, foreign investors may be required to register the
proceeds of sales; future economic or political crises could lead
to price controls, forced mergers, expropriation or confiscatory
taxation, seizure, nationalization, or creation of government
monopolies. The currencies of emerging market countries may
experience significant declines against the U.S. dollar, and
devaluation may occur subsequent to investments in these
currencies by a Fund. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain
emerging market countries.
Additional risks of emerging markets securities may include:
greater social, economic and political uncertainty and
instability; more substantial governmental involvement in the
economy; less governmental supervision and regulation;
unavailability of currency hedging techniques; companies that are
newly organized and small; differences in auditing and financial
reporting standards, which may result in unavailability of
material information about issuers; and less developed legal
systems. In addition, emerging securities markets may have
different clearance and settlement procedures, which may be unable
to keep pace with the volume of securities transactions or
otherwise make it difficult to engage in such transactions.
Settlement problems may cause a Fund to miss attractive investment
opportunities, hold a portion of its assets in cash pending
investment, or be delayed in disposing of a portfolio security.
Such a delay could result in possible liability to a purchaser of
the security.
Each Fund (except the Low Duration II, Total Return II, Long-Term
U.S. Government, Short Duration Municipal Income, Municipal Bond,
California Intermediate Municipal Bond, California Municipal Bond,
and New York Municipal Bond Funds) may invest in Brady Bonds,
which are securities created through the exchange of existing
commercial bank loans to sovereign entities for new obligations in
connection with a debt restructuring. Investments in Brady Bonds
may be viewed as speculative. Brady Bonds acquired by a Fund may
be subject to restructuring arrangements or to requests for new
credit, which may cause the Fund to suffer a loss of interest or
principal on any of its holdings.
Foreign A Fund that invests directly in foreign currencies or in
(Non- securities that trade in, or receive revenues in, foreign
U.S.) currencies will be subject to currency risk. Foreign currency
Currencies exchange rates may fluctuate significantly over
Prospectus 80
<PAGE>
short periods of time. They generally are determined by supply and
demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or perceived changes in
interest rates and other complex factors. Currency exchange rates
also can be affected unpredictably by intervention (or the failure
to intervene) by U.S. or foreign governments or central banks, or
by currency controls or political developments. For example,
uncertainty surrounds the introduction of the euro (a common
currency unit for the European Union) and the effect it may have
on the value of European currencies as well as securities
denominated in local European currencies. These and other
currencies in which the Funds' assets are denominated may be
devalued against the U.S. dollar, resulting in a loss to the
Funds.
. Foreign Currency Transactions. Funds that invest in securities
denominated in foreign currencies may enter into forward foreign
currency exchange contracts and invest in foreign currency futures
contracts and options on foreign currencies and futures. A forward
foreign currency exchange contract, which involves an obligation
to purchase or sell a specific currency at a future date at a
price set at the time of the contract, reduces a Fund's exposure
to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it
will receive for the duration of the contract. The effect on the
value of a Fund is similar to selling securities denominated in
one currency and purchasing securities denominated in another
currency. A contract to sell foreign currency would limit any
potential gain which might be realized if the value of the hedged
currency increases. A Fund may enter into these contracts to hedge
against foreign exchange risk, to increase exposure to a foreign
currency or to shift exposure to foreign currency fluctuations
from one currency to another. Suitable hedging transactions may
not be available in all circumstances and there can be no
assurance that a Fund will engage in such transactions at any
given time or from time to time. Also, such transactions may not
be successful and may eliminate any chance for a Fund to benefit
from favorable fluctuations in relevant foreign currencies. A Fund
may use one currency (or a basket of currencies) to hedge against
adverse changes in the value of another currency (or a basket of
currencies) when exchange rates between the two currencies are
positively correlated. The Fund will segregate assets determined
to be liquid by PIMCO in accordance with procedures established by
the Board of Trustees to cover its obligations under forward
foreign currency exchange contracts entered into for non-hedging
purposes.
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 a 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 or otherwise cover its
obligations under reverse repurchase agreements, dollar rolls, and
other borrowings. Reverse repurchase agreements, dollar rolls and
other forms of borrowings may create leveraging risk for a Fund.
Each Fund may borrow money to the extent permitted under the
Investment Company Act of 1940 ("1940 Act"), as amended. This
means that, in general, a Fund may borrow money from banks for any
purpose on a secured basis in an amount up to 1/3 of the Fund's
total assets. A Fund may also borrow money for temporary
administrative purposes on an unsecured basis in an amount not to
exceed 5% of the Fund's total assets.
Derivatives Each Fund (except the Money Market Fund) may, but is not required
to, use 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
81 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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. Each Fund (except the Money Market Fund) may invest
some or all of its assets in derivative instruments. 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.
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.
Prospectus 82
<PAGE>
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.
Delayed The Funds (except the Money Market and Municipal Bond Funds) may
Funding also enter into, or acquire participations in, delayed funding
Loans and loans and revolving credit facilities, in which a lender agrees to
Revolving make loans up to a maximum amount upon demand by the borrower
Credit during a specified term. These commitments may have the effect of
Facilities 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 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.
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
Trans- settlement date. This risk is in addition to the risk that the
actions 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.
Investment The Strategic Balanced Fund invests substantially all of its
in Other assets in other investment companies. Each other Fund may invest
Investment up to 10% of its assets in securities of other investment
Companies companies, such as closed-end management investment companies, or
in pooled accounts or other investment vehicles which invest in
foreign markets. 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.
Subject to the restrictions and limitations of the 1940 Act, each
Fund may elect to pursue its investment objective either by
investing directly in securities, or by investing in one or more
underlying investment vehicles or companies that have
substantially similar investment objectives, policies and
limitations as the Fund.
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.
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 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.
Illiquid Each Fund may invest up to 15% (10% in the case of the Money
Securities Market Fund) of its net assets in illiquid securities. Certain
illiquid securities may require pricing at fair value as
determined in good faith under the supervision of the Board of
Trustees. 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
83 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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.
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.
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.
With respect to the Strategic Balanced Fund, PIMCO does not
expect to reallocate the Fund's assets among the Underlying Funds
on a frequent basis so the portfolio turnover rate for the Fund is
expected to be modest (i.e., less than 25%) in comparison to most
mutual funds. However, the Fund indirectly bears the expenses
associated with portfolio turnover of the Underlying Funds, which
may have fairly high portfolio turnover rates (i.e., in excess of
100%). Shareholders in the Fund may also bear expenses directly or
indirectly through sales of securities held by the Fund and the
Underlying Funds which result in realization of taxable capital
gains. To the extent such gains relate to securities held for
twelve months or less, such gains will be short-term capital gains
taxed at ordinary income tax rates when distributed to
shareholders who are individuals.
Temporary For temporary or defensive purposes, each Fund may invest without
Defensive limit in U.S. debt securities, including taxable securities and
Strategies short-term 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 the Global Bond Fund II may be changed
in by the Board of Trustees without shareholder approval. The
Investment investment objective of each other Fund is fundamental and may not
Objectives be changed without shareholder approval. Unless otherwise stated,
and all other investment policies of the Funds may be changed by the
Policies Board of Trustees without shareholder approval.
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.
Prospectus 84
<PAGE>
Financial Highlights
The financial highlights table is intended to help a shareholder
understand the financial performance of Institutional and
Administrative Class shares of each Fund for the past 5 years or,
if the class is less than 5 years old, since the class of shares
was first offered. 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 a Fund, assuming
reinvestment of all dividends and distributions. This information
has been audited by PricewaterhouseCoopers LLP, whose report,
along with each 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.
<TABLE>
<CAPTION>
Net Asset Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Net and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Investment Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period Income Investments Operations Income Income Capital Gains Capital Gains
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund
Institutional Class
03/31/2000 $ 1.00 $0.05(a) $ 0.00 (a) $0.05 $(0.05) $ 0.00 $ 0.00 $ 0.00
03/31/1999 1.00 0.05(a) 0.00 (a) 0.05 (0.05) 0.00 0.00 0.00
03/31/1998 1.00 0.05(a) 0.00 (a) 0.05 (0.05) 0.00 0.00 0.00
03/31/1997 1.00 0.05 0.00 0.05 (0.05) 0.00 0.00 0.00
11/01/1995 - 03/31/1996 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00 0.00
Administrative Class
03/31/2000 1.00 0.05(a) 0.00 (a) 0.05 (0.05) 0.00 0.00 0.00
03/31/1999 1.00 0.05(a) 0.00 (a) 0.05 (0.05) 0.00 0.00 0.00
03/31/1998 1.00 0.05(a) 0.00 (a) 0.05 (0.05) 0.00 0.00 0.00
03/31/1997 1.00 0.05 0.00 0.05 (0.05) 0.00 0.00 0.00
11/01/1995 - 03/31/1996 1.00 0.02 0.00 0.02 (0.02) 0.00 0.00 0.00
Short-Term Fund
Institutional Class
03/31/2000 $10.03 $0.59(a) $(0.08)(a) $0.51 $(0.59) $ 0.00 $ 0.00 $ 0.00
03/31/1999 10.06 0.57(a) (0.02)(a) 0.55 (0.57) 0.00 0.00 (0.01)
03/31/1998 10.00 0.62(a) 0.06 (a) 0.68 (0.60) (0.01) (0.01) 0.00
03/31/1997 9.92 0.61 0.08 0.69 (0.59) (0.02) 0.00 0.00
03/31/1996 9.79 0.69 0.12 0.81 (0.65) (0.03) 0.00 0.00
Administrative Class
03/31/2000 10.03 0.57(a) (0.09)(a) 0.48 (0.56) 0.00 0.00 0.00
03/31/1999 10.06 0.54(a) (0.02)(a) 0.52 (0.54) 0.00 0.00 (0.01)
03/31/1998 10.00 0.59(a) 0.07 (a) 0.66 (0.58) (0.01) (0.01) 0.00
03/31/1997 9.92 0.58 0.08 0.66 (0.57) (0.01) 0.00 0.00
02/01/1996 - 03/31/1996 9.98 0.11 (0.07) 0.04 (0.10) 0.00 0.00 0.00
Low Duration Fund
Institutional Class
03/31/2000 $10.10 $0.64(a) $(0.29)(a) $0.35 $(0.63) $(0.01) $ 0.00 $ 0.00
03/31/1999 10.18 0.65(a) (0.02)(a) 0.63 (0.65) 0.00 (0.01) (0.05)
03/31/1998 9.98 0.65(a) 0.23 (a) 0.88 (0.63) (0.02) (0.03) 0.00
03/31/1997 9.95 0.64 0.03 0.67 (0.63) (0.01) 0.00 0.00
03/31/1996 9.76 0.66 0.21 0.87 (0.68) 0.00 0.00 0.00
Administrative Class
03/31/2000 10.10 0.61(a) (0.29)(a) 0.32 (0.60) (0.01) 0.00 0.00
03/31/1999 10.18 0.62(a) (0.02)(a) 0.60 (0.62) 0.00 (0.01) (0.05)
03/31/1998 9.98 0.63(a) 0.22 (a) 0.85 (0.60) (0.02) (0.03) 0.00
03/31/1997 9.95 0.62 0.03 0.65 (0.60) (0.02) 0.00 0.00
03/31/1996 9.76 0.63 0.21 0.84 (0.65) 0.00 0.00 0.00
</TABLE>
-------
(a) Per share amounts based on average number of shares outstanding during the
period.
85 PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
Ratio of Net
Tax Basis Net Asset Net Assets Ratio of Investment
Return Value End Expenses to Income to Portfolio
of Total End Total of Period Average Average Turnover
Capital Distributions of Period Return (000's) Net Assets Net Assets Rate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(0.05) $ 1.00 5.21% $ 305,016 0.35% 5.04% N/A
0.00 (0.05) 1.00 5.14 322,290 0.35 4.85 N/A
0.00 (0.05) 1.00 5.40 55,335 0.35 5.29 N/A
0.00 (0.05) 1.00 5.19 23,497 0.40 5.08 N/A
0.00 (0.02) 1.00 2.58 25,935 0.33+ 5.44+ N/A
0.00 (0.05) 1.00 4.96 9,791 0.60 4.79 N/A
0.00 (0.05) 1.00 4.93 9,273 0.60 4.44 N/A
0.00 (0.05) 1.00 5.12 749 0.60 5.04 N/A
0.00 (0.05) 1.00 4.94 12 0.66 4.83 N/A
0.00 (0.02) 1.00 2.47 10 0.61+ 5.95+ N/A
$0.00 $(0.59) $ 9.95 5.19% $ 589,203 0.64% (c) 5.88% 38%
0.00 (0.58) 10.03 5.63 495,752 0.45 5.66 47
0.00 (0.62) 10.06 7.06 172,846 0.45 6.12 48
0.00 (0.61) 10.00 7.12 156,515 0.47 6.12 77
0.00 (0.68) 9.92 8.49 101,797 0.58 6.86 215
0.00 (0.56) 9.95 4.91 15,137 0.89 (e) 5.67 38
0.00 (0.55) 10.03 5.39 3,769 0.70 5.37 47
0.00 (0.60) 10.06 6.80 5,147 0.70 5.86 48
0.00 (0.58) 10.00 6.86 4,513 0.72 5.87 77
0.00 (0.10) 9.92 0.41 3,999 0.52+ 4.44+ 215
$0.00 $(0.64) $ 9.81 3.56% $3,440,455 0.51% (b) 6.40% 82%
0.00 (0.71) 10.10 6.35 3,367,438 0.43 6.36 245
0.00 (0.68) 10.18 9.00 2,759,531 0.43 6.39 309
0.00 (0.64) 9.98 6.97 2,797,001 0.43 6.46 240
0.00 (0.68) 9.95 9.13 2,677,574 0.42 6.88 209
0.00 (0.61) 9.81 3.30% 118,874 0.75 (d) 6.13 82
0.00 (0.68) 10.10 6.09 128,212 0.68 6.09 245
0.00 (0.65) 10.18 8.73 46,186 0.68 6.16 309
0.00 (0.62) 9.98 6.71 23,564 0.68 6.21 240
0.00 (0.65) 9.95 8.83 2,536 0.69 6.73 209
</TABLE>
-------
+ Annualized.
(b) Ratio of expenses to average net assets excluding interest expense is
0.43%.
(c) Ratio of expenses to average net assets excluding interest expense is
0.45%.
(d) Ratio of expenses to average net assets excluding interest expense is
0.68%.
(e) Ratio of expenses to average net assets excluding interest expense is
0.70%.
Prospectus 86
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Net Asset Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Net and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Investment Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period Income Investments Operations Income Income Capital Gains Capital Gains
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Low Duration Fund II
Institutional Class
03/31/2000 $ 9.95 $0.58(a) $(0.27)(a) $0.31 $(0.57) $ 0.00 $ 0.00 $ 0.00
03/31/1999 10.00 0.58(a) 0.00 (a) 0.58 (0.58) 0.00 0.00 (0.05)
03/31/1998 9.81 0.22(a) 0.59 (a) 0.81 (0.56) (0.04) (0.02) 0.00
03/31/1997 9.82 0.62 (0.03) 0.59 (0.58) (0.02) 0.00 0.00
03/31/1996 9.77 0.66 0.04 0.70 (0.60) (0.03) 0.00 0.00
Administrative Class
03/31/2000 9.95 0.52(a) (0.23)(a) 0.29 (0.55) 0.00 0.00 0.00
03/31/1999 10.00 0.56(a) 0.00 (a) 0.56 (0.56) 0.00 0.00 (0.05)
02/02/1998 - 03/31/1998 10.03 0.14(a) (0.08)(a) 0.06 (0.08) (0.01) 0.00 0.00
Low Duration Fund III
Institutional Class
03/31/2000 $ 9.98 $0.61(a) $(0.32)(a) $0.29 $(0.61) $ 0.00 $ 0.00 $ 0.00
03/31/1999 10.05 0.60(a) 0.00 (a) 0.60 (0.60) 0.00 0.00 (0.07)
03/31/1998 9.91 0.53(a) 0.24 (a) 0.77 (0.60) 0.00 (0.03) 0.00
12/31/1996 - 03/31/1997 10.00 0.15 (0.09) 0.06 (0.15) 0.00 0.00 0.00
Administrative Class
03/31/2000 9.98 0.57(a) (0.31) 0.26 (0.58) 0.00 0.00 0.00
03/19/1999 - 03/31/1999 9.97 0.02 0.01 0.03 (0.02) 0.00 0.00 0.00
GNMA Fund
Institutional Class
03/31/2000 $10.01 $0.62(a) $(0.12)(a) $0.50 $(0.62) $ 0.00 $ 0.00 $ 0.00
03/31/1999 10.13 0.64(a) (0.08)(a) 0.56 (0.64) 0.00 0.00 (0.04)
07/31/1997 - 03/31/1998 10.00 0.43(a) 0.14 (a) 0.57 (0.42) 0.00 (0.02) 0.00
Moderate Duration Fund
Institutional Class
03/31/2000 $ 9.94 $0.60(a) $(0.42)(a) $0.18 $(0.58) $(0.02) $ 0.00 $ 0.00
03/31/1999 10.14 0.60(a) 0.07 (a) 0.67 (0.60) 0.00 (0.11) (0.16)
03/31/1998 9.83 0.38(a) 0.56 (a) 0.94 (0.60) 0.00 (0.03) 0.00
12/31/1996 - 03/31/1997 10.00 0.15 (0.17) (0.02) (0.15) 0.00 0.00 0.00
Real Return Bond Fund
Institutional Class
03/31/2000 $ 9.83 $0.68(a) $ 0.11 (a) $0.79 $(0.68) $ 0.00 ($0.02) $ 0.00
03/31/1999 9.77 0.51(a) 0.10 (a) 0.61 (0.48) (0.07) 0.00 0.00
03/31/1998 9.93 0.44(a) 0.05 (a) 0.49 (0.48) (0.03) (0.14) 0.00
01/29/1997 - 03/31/1997 9.92 0.11 (0.02) 0.09 (0.08) 0.00 0.00 0.00
Total Return Fund
Institutional Class
03/31/2000 $10.36 $0.63(a) $(0.40)(a) $0.23 $(0.60) $(0.03) $ 0.00 $ 0.00
03/31/1999 10.62 0.63(a) 0.16 (a) 0.79 (0.63) 0.00 (0.24) (0.18)
03/31/1998 10.27 0.64(a) 0.62 (a) 1.26 (0.62) (0.02) (0.27) 0.00
03/31/1997 10.29 0.68 (0.02) 0.66 (0.66) (0.02) 0.00 0.00
03/31/1996 10.02 0.81 0.29 1.10 (0.61) (0.10) (0.12) 0.00
Administrative Class
03/31/2000 10.36 0.61(a) (0.41)(a) 0.20 (0.58) (0.02) 0.00 0.00
03/31/1999 10.62 0.61(a) 0.16 (a) 0.77 (0.61) 0.00 (0.24) (0.18)
03/31/1998 10.27 0.61(a) 0.63 (a) 1.24 (0.60) (0.02) (0.27) 0.00
03/31/1997 10.29 0.66(a) (0.02)(a) 0.64 (0.64) (0.02) 0.00 0.00
03/31/1996 10.01 0.80 0.29 1.09 (0.60) (0.09) (0.12) 0.00
</TABLE>
-------
(a) Per share amounts based on average number of shares outstanding during the
period.
87 PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
Ratio of Net
Tax Basis Net Asset Net Assets Ratio of Investment
Return Value End Expenses to Income to Portfolio
of Total End Total of Period Average Average Turnover
Capital Distributions of Period Return (000's) Net Assets Net Assets Rate
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $(0.57) $9.69 3.28% $ 467,997 0.57% (g) 5.88% 117%
0.00 (0.63) 9.95 5.89 414,463 0.57 (c) 5.79 322
0.00 (0.62) 10.00 8.29 401,204 0.50 5.98 335
0.00 (0.60) 9.81 6.33 339,375 0.51 6.31 237
(0.02) (0.65) 9.82 7.30 253,299 0.48 6.61 225
0.00 (0.55) 9.69 3.01 71 1.17 (d) 5.30 117
0.00 (0.61) 9.95 5.63 22,594 0.85 (d) 5.47 322
0.00 (0.09) 10.00 0.58 56 0.75+ 8.53+ 335
$ 0.00 $(0.61) $9.66 2.98% $ 32,349 0.55% (c) 6.20% 87%
0.00 (0.67) 9.98 6.10 26,549 0.50 5.94 167
0.00 (0.63) 10.05 7.93 23,896 0.50 5.98 307
0.00 (0.15) 9.91 0.58 10,056 0.49+ 6.00+ 155
0.00 (0.58) 9.66 2.71 10 0.82 (d) 5.79 87
0.00 (0.02) 9.98 0.15 6 0.75 6.42 167
$ 0.00 $(0.62) $9.89 5.16% $ 4,308 1.60% (e) 6.23% 952%
0.00 (0.68) 10.01 5.71 4,119 2.37 (e) 6.35 198
0.00 (0.44) 10.13 5.86 3,748 1.81+ (c) 6.30+ 486
$ 0.00 $(0.60) $9.52 1.86% $ 387,126 0.47% 6.16% 129%
0.00 (0.87) 9.94 6.70 317,400 0.45 5.94 169
0.00 (0.63) 10.14 9.80 239,152 0.45 3.75 96
0.00 (0.15) 9.83 (0.25) 13,458 0.44+ 6.01+ 49
$ 0.00 $(0.70) $9.92 8.37% $ 207,826 0.53% 6.91% 253%
0.00 (0.55) 9.83 6.41 15,588 0.52 5.18 438
0.00 (0.65) 9.77 4.70 5,526 0.52 4.46 967
0.00 (0.08) 9.93 0.09 5,638 0.51+ 6.54+ 160
$ 0.00 $(0.63) $9.96 2.33% $24,900,321 0.54% (b) 6.25% 223%
0.00 (1.05) 10.36 7.60 21,711,396 0.43 5.91 154
0.00 (0.91) 10.62 12.63 16,484,119 0.43 6.06 206
0.00 (0.68) 10.27 6.60 12,528,536 0.43 6.60 173
0.00 (0.83) 10.29 11.14 10,247,605 0.42 6.85 221
0.00 (0.60) 9.96 2.07 3,233,785 0.79 (f) 6.01 223%
0.00 (1.03) 10.36 7.33 1,972,984 0.68 5.52 154
0.00 (0.89) 10.62 12.36 481,730 0.68 5.74 206
0.00 (0.66) 10.27 6.34 151,194 0.68 6.35 173
0.00 (0.81) 10.29 10.99 104,618 0.68 6.64 221
</TABLE>
-------
+ Annualized.
(b) Ratio of expenses to average net assets excluding interest expense is
0.43%.
(c) Ratio of expenses to average net assets excluding interest expense is
0.50%.
(d) Ratio of expenses to average net assets excluding interest expense is
0.75%.
(e) Ratio of expenses to average net assets excluding interest expense is
0.51%.
(f) Ratio of expenses to average net assets excluding interest expense is
0.68%.
(g) Ratio of expenses to average net assets excluding interest expense is
0.70%.
Prospectus 88
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Net Asset Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Net and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Investment Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period Income Investments Operations Income Income Capital Gains Capital Gains
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return Fund II
Institutional Class
03/31/2000 $10.11 $0.58(a) $(0.44)(a) $ 0.14 $(0.58) $ 0.00 $ 0.00 $ 0.00
03/31/1999 10.26 0.59(a) 0.17 (a) 0.76 (0.59) 0.00 (0.18) (0.14)
03/31/1998 9.85 0.63(a) 0.52 (a) 1.15 (0.60) (0.03) (0.11) 0.00
03/31/1997 9.89 0.61 (0.02) 0.59 (0.62) (0.01) 0.00 0.00
11/01/1995 - 03/31/1996 10.21 0.25 (0.17) 0.08 (0.26) 0.00 (0.09) (0.05)
Administrative Class
03/31/2000 10.11 0.55(a) (0.44)(a) 0.11 (0.55) 0.00 0.00 0.00
03/31/1999 10.26 0.56(a) 0.17 (a) 0.73 (0.56) 0.00 (0.18) (0.14)
03/31/1998 9.85 0.60(a) 0.52 (a) 1.12 (0.57) (0.03) (0.11) 0.00
03/31/1997 9.89 0.59 (0.02) 0.57 (0.60) (0.01) 0.00 0.00
11/01/1995 - 03/31/1996 10.22 0.24 (0.17) 0.07 (0.26) 0.00 (0.09) (0.05)
Total Return Fund III
Institutional Class
03/31/2000 $ 9.27 $0.55(a) $(0.53)(a) $ 0.02 $(0.54) $(0.01) $ 0.00 $ 0.00
03/31/1999 9.55 0.57(a) 0.20 (a) 0.77 (0.56) 0.00 (0.24) (0.25)
03/31/1998 9.15 0.57(a) 0.56 (a) 1.13 (0.54) (0.03) (0.16) 0.00
03/31/1997 9.13 0.55 0.05 0.60 (0.55) (0.02) 0.00 (0.01)
03/31/1996 8.99 0.72 0.17 0.89 (0.54) (0.09) (0.12) 0.00
Administrative Class
03/31/2000 9.27 0.54(a) (0.54)(a) 0.00 (0.52) (0.01) 0.00 0.00
03/31/1999 9.55 0.55(a) 0.20 (a) 0.75 (0.54) 0.00 (0.24) (0.25)
04/11/1997 - 03/31/1998 9.12 0.54(a) 0.58 (a) 1.12 (0.50) (0.03) (0.16) 0.00
Total Return Mortgage Fund
Institutional Class
03/31/2000 $10.19 $0.59(a) $(0.21)(a) $ 0.38 $(0.59) $ 0.00 $ 0.00 $(0.01)
03/31/1999 10.24 0.58(a) 0.05 (a) 0.63 (0.58) 0.00 (0.03) (0.07)
07/31/1997 - 03/31/1998 10.00 0.41(a) 0.30 (a) 0.71 (0.46) 0.00 (0.01) 0.00
High Yield Fund
Institutional Class
03/31/2000 $11.23 $0.94(a) $(1.01)(a) $(0.07) $(0.93) $(0.01) $ 0.00 $ 0.00
03/31/1999 11.66 0.95(a) (0.43)(a) 0.52 (0.94) (0.01) 0.00 0.00
03/31/1998 11.10 0.98(a) 0.65 (a) 1.63 (0.98) 0.00 0.00 (0.09)
03/31/1997 10.94 0.92 0.34 1.26 (0.97) 0.00 (0.13) 0.00
03/31/1996 10.42 1.04 0.54 1.58 (1.01) 0.00 (0.05) 0.00
Administrative Class
03/31/2000 11.23 0.91(a) (1.01)(a) (0.10) (0.90) (0.01) 0.00 0.00
03/31/1999 11.66 0.93(a) (0.43)(a) 0.50 (0.92) (0.01) 0.00 0.00
03/31/1998 11.10 0.95(a) 0.65 (a) 1.60 (0.95) 0.00 0.00 (0.09)
03/31/1997 10.94 0.85(a) 0.38 (a) 1.23 (0.94) 0.00 (0.13) 0.00
03/31/1996 10.41 1.02(a) 0.54 (a) 1.56 (0.98) 0.00 (0.05) 0.00
Long-Term U.S. Government Fund
Institutional Class
03/31/2000 $10.30 $0.61(a) $(0.50)(a) $ 0.11 $(0.62) $ 0.00 $ 0.00 $ 0.00
03/31/1999 10.57 0.63(a) 0.20 (a) 0.83 (0.64) 0.00 0.00 (0.46)
03/31/1998 9.39 0.52(a) 1.34 (a) 1.86 (0.62) 0.00 (0.06) 0.00
03/31/1997 9.96 0.79 (0.35) 0.44 (0.68) 0.00 0.00 (0.33)
03/31/1996 9.85 0.83 0.66 1.49 (0.68) (0.04) (0.50) (0.16)
Administrative Class
03/31/2000 10.30 0.57(a) (0.49)(a) 0.08 (0.59) 0.00 0.00 0.00
03/31/1999 10.57 0.60(a) 0.20 (a) 0.80 (0.61) 0.00 0.00 (0.46)
09/23/1997 - 03/31/1998 10.17 0.26(a) 0.51 (a) 0.77 (0.31) 0.00 (0.06) 0.00
</TABLE>
-------
(a) Per share amounts based on average number of shares outstanding during the
period.
89 PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
Ratio of Net
Tax Basis Net Asset Net Assets Ratio of Investment
Return Value End Expenses to Income to Portfolio
of Total End Total of Period Average Average Turnover
Capital Distributions of Period Return (000's) Net Assets Net Assets Rate
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(0.58) $ 9.67 1.46% $1,263,556 0.50% 5.89% 142%
0.00 (0.91) 10.11 7.46 986,690 0.50 5.65 213
0.00 (0.74) 10.26 11.99 574,587 0.50 6.15 361
0.00 (0.63) 9.85 6.15 478,451 0.50 6.38 293
0.00 (0.40) 9.89 0.78 455,583 0.51+ 6.36+ 73
0.00 (0.55) 9.67 1.20 56,755 0.75 5.56 142
0.00 (0.88) 10.11 7.19 54,736 0.75 5.33 213
0.00 (0.71) 10.26 11.71 15,172 0.75 5.86 361
0.00 (0.61) 9.85 5.88 5,304 0.75 6.13 293
0.00 (0.40) 9.89 0.57 3,320 0.76+ 6.06+ 73
$0.00 $(0.55) $ 8.74 0.33% $ 635,592 0.50% 6.21% 186%
0.00 (1.05) 9.27 8.20 488,243 0.50 5.85 216
0.00 (0.73) 9.55 12.62 365,249 0.51 5.99 183
0.00 (0.58) 9.15 6.76 193,297 0.51 6.21 90
0.00 (0.75) 9.13 10.06 142,223 0.50 6.82 177
0.00 (0.53) 8.74 0.08 10,144 0.75 6.11 186
0.00 (1.03) 9.27 7.93 1,867 0.75 5.59 216
0.00 (0.69) 9.55 12.46 178 0.76+ 5.85+ 183
$0.00 $(0.60) $ 9.97 3.91% $ 3,971 0.50% 5.94% 1,476%
0.00 (0.68) 10.19 6.27 4,128 0.50 5.66 158
0.00 (0.47) 10.24 6.69 3,588 0.52+ 6.07+ 593
$0.00 $(0.94) $10.22 (0.74)% $1,960,171 0.50% 8.64% 39%
0.00 (0.95) 11.23 4.73 2,162,868 0.50 8.41 39
0.00 (1.07) 11.66 15.26 1,628,930 0.50 8.52 37
0.00 (1.10) 11.10 12.04 744,498 0.50 8.77 67
0.00 (1.06) 10.94 15.70 536,983 0.47 9.28 66
0.00 (0.91) 10.22 (0.99) 354,296 0.75 8.40 39
0.00 (0.93) 11.23 4.49 238,792 0.75 8.17 39
0.00 (1.04) 11.66 14.98 69,937 0.75 8.21 37
0.00 (1.07) 11.10 11.76 10,428 0.76 8.48 67
0.00 (1.03) 10.94 15.54 1,007 0.80 9.16 66
$0.00 $(0.62) $ 9.79 1.26% $ 217,410 0.57%(b) 6.29% 320%
0.00 (1.10) 10.30 7.76 170,847 0.89 (b) 5.83 364
0.00 (0.68) 10.57 20.23 48,547 0.51 4.88 177
0.00 (1.01) 9.39 4.48 19,995 0.63 7.63 402
0.00 (1.38) 9.96 14.83 32,511 0.56 6.80 238
0.00 (0.59) 9.79 1.01 39,808 0.82 (c) 5.82 320
0.00 (1.07) 10.30 7.46 11,383 1.15 (d) 5.58 364
0.00 (0.37) 10.57 7.60 4,957 .76+ 4.87+ 177
</TABLE>
-------
+ Annualized.
(b) Ratio of expenses to average net assets excluding interest expense is 0.50%.
(c) Ratio of expenses to average net assets excluding interest expense is
0.75%.
(d) Ratio of expenses to average net assets excluding interest expense is
0.76%.
Prospectus 90
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Net Asset Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Net and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Investment Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period Income Investments Operations Income Income Capital Gains Capital Gains
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Duration Municipal
Income Fund
Institutional Class
08/31/1999 - 03/31/2000 $10.00 $0.23(a) $(0.01)(a) $ 0.22 $(0.23) $ 0.00 $ 0.00 $0.00
Municipal Bond Fund
Institutional Class
03/31/2000 $10.12 $0.46(a) $(0.65)(a) $(0.19) $(0.46) $ 0.00 $ 0.00 $0.00
03/31/1999 9.97 0.45(a) 0.14 (a) 0.59 (0.44) 0.00 0.00 0.00
12/31/1997 - 03/31/1998 10.00 0.11(a) (0.03)(a) 0.08 (0.11) 0.00 0.00 0.00
Administrative Class
03/31/2000 10.12 0.44(a) (0.65)(a) (0.21) (0.44) 0.00 0.00 0.00
09/30/98 - 03/31/1999 10.25 0.21 (0.13) 0.08 (0.21) 0.00 0.00 0.00
California Intermediate
Municipal Bond Fund
Institutional Class
08/31/1999 - 03/31/2000 $10.00 $0.25(a) $ 0.06 (a) $ 0.31 $(0.24) $ 0.00 $(0.02) $0.00
Administrative Class
09/07/1999 - 03/31/2000 10.02 0.22(a) 0.05 (a) 0.27 (0.22) 0.00 (0.02) 0.00
New York Municipal Bond Fund
Institutional Class
08/31/1999 -03/31/2000 $10.00 $0.23(a) $(0.04)(a) $ 0.19 $(0.23) $ 0.00 $(0.02) $0.00
Global Bond Fund
Institutional Class
03/31/2000 $ 9.76 $0.57(a) $(0.75)(a) $(0.18) $(0.46) $(0.06) $ 0.00 $0.00
03/31/1999 9.70 0.52(a) 0.14 (a) 0.66 (0.36) (0.16) (0.08) 0.00
03/31/1998 9.86 0.66(a) (0.10)(a) 0.56 (0.53) 0.00 0.00 (0.19)
03/31/1997 10.05 0.70 (0.01) 0.69 (0.44) 0.00 (0.44) 0.00
03/31/1996 9.87 0.45 0.72 1.17 (0.61) 0.00 (0.21) (0.17)
Administrative Class
03/31/2000 9.76 0.55(a) (0.75)(a) (0.20) (0.45) (0.05) 0.00 0.00
03/31/1999 9.70 0.51(a) 0.14 (a) 0.65 (0.35) (0.16) (0.08) 0.00
03/31/1998 9.86 0.59(a) (0.05)(a) 0.54 (0.51) 0.00 0.00 (0.19)
08/01/1996 - 03/31/1997 10.28 0.51 (0.23) 0.28 (0.26) 0.00 (0.44) 0.00
Global Bond Fund II
Institutional Class
03/31/2000 $ 9.89 $0.56(a) $(0.46)(a) $ 0.10 $(0.55) $(0.01) $(0.02) $0.00
03/31/1999 9.92 0.52(a) 0.06 (a) 0.58 (0.52) 0.00 (0.01) (0.08)
02/25/1998 - 03/31/1998 9.82 0.06(a) 0.09 (a) 0.15 0.00 (0.05) 0.00 0.00
Foreign Bond Fund
Institutional Class
03/31/2000 $10.63 $0.64(a) $(0.45)(a) $ 0.19 $(0.64) $ 0.00 $(0.15) $0.00
03/31/1999 10.74 0.58(a) 0.24 (a) 0.82 (0.58) 0.00 (0.10) (0.25)
03/31/1998 10.41 0.66(a) 0.61 (a) 1.27 (0.63) 0.00 (0.31) 0.00
03/31/1997 10.50 0.80 1.00 1.80 (0.40) 0.00 (1.49) 0.00
03/31/1996 9.38 0.96 1.03 1.99 (0.34) (0.25) (0.25) (0.03)
Administrative Class
03/31/2000 10.63 0.61(a) (0.45)(a) 0.16 (0.61) 0.00 (0.15) 0.00
03/31/1999 10.74 0.56(a) 0.24 (a) 0.80 (0.56) 0.00 (0.10) (0.25)
03/31/1998 10.41 0.63(a) 0.61 (a) 1.24 (0.60) 0.00 (0.31) 0.00
01/28/1997 - 03/31/1997 10.54 0.59 (0.67) (0.08) (0.05) 0.00 0.00 0.00
</TABLE>
-------
(a) Per share amounts based on average number of shares outstanding during the
period.
91 PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
Ratio of Net
Tax Basis Net Asset Net Assets Ratio of Investment
Return Value End Expenses to Income to Portfolio
of Total End Total of Period Average Average Turnover
Capital Distributions of Period Return (000's) Net Assets Net Assets Rate
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $(0.23) $ 9.99 2.19% $ 10,725 0.39%+(b) 3.92%+ 171%
$ 0.00 $(0.46) $ 9.47 (1.81)% $ 5,684 0.50% 4.80% 145%
0.00 (0.44) 10.12 6.04 5,894 0.50 4.41 70
0.00 (0.11) 9.97 0.78 3,023 0.50+ 4.46+ 60
0.00 (0.44) 9.47 (2.07) 3,141 0.75 4.58 145
0.00 (0.21) 10.12 0.83 1,419 0.75+ 2.11+ 70
$ 0.00 $(0.26) $10.05 3.16% $ 8,415 0.49%+(c) 4.22%+ 357%
0.00 (0.24) 10.05 2.73 10 0.75+ (d) 3.95+ 357
$ 0.00 $(0.25) $ 9.94 1.93% $ 3,058 0.49%+(e) 4.00%+ 270%
$(0.05) $(0.57) $ 9.01 (1.81)% $271,538 0.71% (f) 6.12% 301%
0.00 (0.60) 9.76 6.90 266,984 0.55 5.35 143
0.00 (0.72) 9.70 5.85 256,274 0.55 6.64 389
0.00 (0.88) 9.86 6.78 215,631 0.56 7.51 911
0.00 (0.99) 10.05 12.04 133,833 0.58 5.88 1083
(0.05) (0.55) 9.01 (2.05) 2,238 0.92 (g) 5.91 301
0.00 (0.59) 9.76 6.78 1,326 0.80 5.21 143
0.00 (0.70) 9.70 5.57 1,548 0.80 6.39 389
0.00 (0.70) 9.86 2.97 346 0.78+ 5.66+ 911
$ 0.00 $(0.58) $ 9.41 1.11% $ 84,926 0.61% (f) 5.92% 290%
0.00 (0.61) 9.89 6.06 29,044 0.55 5.29 236
0.00 (0.05) 9.92 1.02 24,517 0.55+ 6.24+ 369
$ 0.00 $(0.79) $10.03 1.96% $421,831 0.69% (h) 6.20% 330%
0.00 (0.93) 10.63 7.92 530,325 0.50 5.39 376
0.00 (0.94) 10.74 12.64 392,198 0.50 6.32 280
0.00 (1.89) 10.41 17.69 234,880 0.50 7.88 984
0.00 (0.87) 10.50 21.80 258,493 0.52 5.83 1234
0.00 (0.76) 10.03 1.70 4,824 0.97 (i) 6.01 330
0.00 (0.91) 10.63 7.65 2,096 0.75 5.13 376
0.00 (0.91) 10.74 12.34 315 0.75 6.07 280
0.00 (0.05) 10.41 (0.72) 30 0.79+ 7.63+ 984
</TABLE>
-------
+ Annualized.
(b) If the investment manager had not reimbursed expenses, the ratio of expenses
to average net assets would have been 0.62%.
(c) If the investment manager had not reimbursed expenses, the ratio of expenses
to average net assets would have been 1.02%.
(d) If the investment manager had not reimbursed expenses, the ratio of expenses
to average net assets would have been 1.01%.
(e) If the investment manager had not reimbursed expenses, the ratio of expenses
to average net assets would have been 1.30%.
(f) Ratio of expenses to average net assets excluding interest expense is 0.55%.
(g) Ratio of expenses to average net assets excluding interest expense is
0.80%.
(h) Ratio of expenses to average net assets excluding interest expense is
0.50%.
(i) Ratio of expenses to average net assets excluding interest expense is 0.75%.
Prospectus 92
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
Net Asset Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Net and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Investment Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period Income Investments Operations Income Income Capital Gains Capital Gains
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets Bond Fund
Institutional Class
03/31/2000 $ 7.51 $0.86(a) $ 1.11 (a) $ 1.97 $(0.87) $ 0.00 $ 0.00 $ 0.00
03/31/1999 9.67 0.87(a) (2.11)(a) (1.24) (0.87) 0.00 0.00 (0.05)
07/31/1997 - 03/31/1998 10.00 0.46(a) (0.18)(a) 0.28 (0.46) 0.00 (0.15) 0.00
Administrative Class
03/31/2000 7.51 0.83(a) 1.12 (a) 1.95 (0.85) 0.00 0.00 0.00
09/30/98 - 03/31/1999 6.82 0.45(a) 0.74 (a) 1.19 (0.45) 0.00 0.00 (0.05)
Strategic Balanced Fund
Institutional Class
03/31/2000 $12.76 $0.80(a) $ 0.44 (a) $ 1.24 $(0.74) $ 0.00 $(0.15) $(0.31)
03/31/1999 12.60 0.89(a) 0.60 (a) 1.49 (0.66) 0.00 (0.67) 0.00
03/31/1998 10.32 1.30(a) 2.05 (a) 3.35 (0.84) 0.00 (0.23) 0.00
06/28/1996 - 03/31/1997 10.00 0.85 0.31 1.16 (0.63) 0.00 (0.21) 0.00
Administrative Class
06/30/99 - 03/31/2000 13.17 0.62(a) 0.07 (a) 0.69 (0.61) 0.00 (0.15) (0.31)
Convertible Fund
Institutional Class
03/31/2000 $10.00 $0.07(a) $ 5.97 (a) $ 6.04 $(0.03) $(0.15) $(0.09) $ 0.00
StocksPLUS Fund
Institutional Class
03/31/2000 $14.32 $1.08(a) $ 1.33 (a) $ 2.41 $(1.10) $ 0.00 $(0.97) $(0.51)
03/31/1999 14.09 0.97(a) 1.32 (a) 2.29 (0.82) 0.00 (1.24) 0.00
03/31/1998 11.46 1.90(a) 3.23 (a) 5.13 (1.41) 0.00 (1.09) 0.00
03/31/1997 11.16 1.27 0.82 2.09 (1.27) 0.00 (0.52) 0.00
03/31/1996 10.48 0.91 2.48 3.39 (1.05) 0.00 (1.62) (0.04)
Administrative Class
03/31/2000 14.25 1.10(a) 1.23 (a) 2.33 (1.07) 0.00 (0.97) (0.51)
03/31/1999 14.06 1.10(a) 1.13 (a) 2.23 (0.80) 0.00 (1.24) 0.00
03/31/1998 11.46 1.89(a) 3.19 (a) 5.08 (1.39) 0.00 (1.09) 0.00
01/07/1997 - 03/31/1997 11.56 0.14 (0.09) 0.05 (0.15) 0.00 0.00 0.00
</TABLE>
-------
(a) Per share amounts based on average number of shares outstanding during the
period.
93 PIMCO Funds: Pacific Investment Management Series
<PAGE>
<TABLE>
<CAPTION>
Ratio of Net
Tax Basis Net Asset Net Assets Ratio of Investment
Return Value End Expenses to Income to Portfolio
of Total End Total of Period Average Average Turnover
Capital Distributions of Period Return (000's) Net Assets Net Assets Rate
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(0.87) $ 8.61 27.90% $ 12,614 0.89% 10.69% 328%
0.00 (0.92) 7.51 (12.55) 3,641 0.85 11.08 315
0.00 (0.61) 9.67 3.10 3,676 0.86+ 7.21+ 695
0.00 (0.85) 8.61 27.60 13,490 1.14 10.30 328
0.00 (0.50) 7.51 17.88 118 1.10+ 6.24+ 315
$0.00 $(1.20) $12.80 10.05% $124,934 0.65% 6.19% 176%
0.00 (1.33) 12.76 12.36 97,945 0.65 7.00 82
0.00 (1.07) 12.60 33.40 38,806 0.65 10.84 56
0.00 (0.84) 10.32 11.83 10,360 0.90+ 9.72+ 95
0.00 (1.07) 12.79 5.47 709 0.90+ 6.48+ 176
$0.00 $(0.27) $15.77 60.66% $168,224 0.65%(b) 0.50% 247%
$0.00 $(2.58) $14.15 17.82% $620,144 0.65% 7.42% 92%
0.00 (2.06) 14.32 17.65 512,953 0.65 6.92 81
0.00 (2.50) 14.09 47.75 416,600 0.65 13.74 30
0.00 (1.79) 11.46 19.44 235,829 0.65 11.78 47
0.00 (2.71) 11.16 34.07 151,869 0.70 15.23 102
0.00 (2.55) 14.03 17.31 28,403 0.90 7.61 92
0.00 (2.04) 14.25 17.21 11,302 0.90 7.83 81
0.00 (2.48) 14.06 47.19 2,143 0.90 13.49 30
0.00 (0.15) 11.46 0.34 682 0.95+ 4.83+ 47
</TABLE>
-------
+ Annualized.
(b) If the investment manager had not reimbursed expenses, the ratio of
expenses to average net assets would have been 0.69%.
Prospectus 94
<PAGE>
Appendix A
Description of Securities Ratings
A Fund's investments may range in quality from securities rated in
the lowest category in which the Fund is permitted to invest to
securities rated in the highest category (as rated by Moody's or
S&P or, if unrated, determined by PIMCO to be of comparable
quality). The percentage of a Fund's assets invested in securities
in a particular rating category will vary. The following terms are
generally used to describe 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 deemed predominately 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.
A-1 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Moody's short-term debt ratings are opinions of the ability of
Short- issuers to repay punctually senior debt obligations which have an
Term Debt original maturity not exceeding one year. Obligations relying upon
Ratings support mechanisms such as letters of credit and bonds of
indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of
rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Short- There are four rating categories for short-term municipal bonds
Term that define an investment grade situation, which are listed below.
Municipal In the case of variable rate demand obligations (VRDOs), a two-
Bond component rating is assigned. The first element represents an
Ratings 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.
Prospectus
A-2
<PAGE>
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
Service AAA: Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions, or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and
repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
A-3 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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.
Prospectus
A-4
<PAGE>
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period.
A commercial paper rating is not a recommendation to purchase,
sell or hold a security inasmuch as it does not comment as to
market price or suitability for a particular investor. The ratings
are based on current information furnished to S&P by the issuer or
obtained from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may
be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
A-5 PIMCO Funds: Pacific Investment Management Series
<PAGE>
-------------------------------------------------------------------
PIMCO INVESTMENT ADVISER AND ADMINISTRATOR
Funds: PIMCO, 840 Newport Center Drive, Suite 300, Newport Beach, CA
Pacific 92660
Investment
Management -------------------------------------------------------------------
Series CUSTODIAN
State Street Bank & Trust Co., 801 Pennsylvania, Kansas City, MO
64105
-------------------------------------------------------------------
TRANSFER AGENT
National Financial Data Services, 330 W. 9th Street, 4th Floor,
Kansas City, MO 64105
-------------------------------------------------------------------
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>
The Trust's You may get free You may review
Statement of copies of any of and copy informa-
Additional these materials, tion about the
Information request other Trust, including
("SAI") and information about its SAI, at the
annual and semi- a Fund, or make Securities and
annual reports to shareholder Exchange
shareholders inquiries by Commission's
include calling the Trust public ref-
additional at 1-800-927-4648 erence room in
information about or PIMCO Infolink Washington, D.C.
the Funds. The Audio Response You may call the
SAI and the Network at 1-800- Commission at 1-
financial 987-4626, or by 202-942-8090 for
statements writing to: information about
included in the the operation of
Funds' most PIMCO Funds: the public
recent annual Pacific reference room.
report to Investment You may also
shareholders are Management Series access reports
incorporated by 840 Newport and other
reference into Center Drive informa- tion
this Prospectus, Suite 300 about the Trust
which means they Newport Beach, CA on the
are part of this 92660 Commission's Web
Prospectus for site at
legal purposes. You can also www.sec.gov. You
The Funds' annual visit our Web may get copies of
report discusses site at this information,
the market www.pimco.com for with payment of a
conditions and additional duplication fee,
invest- ment information about by writing the
strategies that the Funds. Public Reference
significantly Section of the
affected each Commission,
Fund's Washington, D.C.
performance 20549-0102, or by
during its last electronic
fiscal year. request at
[email protected].
PIMCO Funds
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
www.pimco.com
Investment Company Act file no. 811-5028
PY000.9/00
<PAGE>
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES
Supplement dated
September 29, 2000
to the Prospectus for
Class D Shares
Dated August 1, 2000
Disclosure Relating to PIMCO Strategic Balanced Fund
Effective September 29, 2000, the PIMCO Strategic Balanced Fund will convert
to a "fund of funds," which is a term used to describe mutual funds that pursue
their investment objective by investing in other mutual funds. In connection
with this change, the Fund Summary for the Fund on pages 31 and 32 of the
Prospectus is amended to read in its entirety as set forth on the next two
pages.
<PAGE>
PIMCO Strategic Balanced Fund
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum total 45-75% StocksPLUS (of Underlying Funds)
and return, consistent Fund; 25-55% B to Aaa; maximum
Strategies with preservation of Total Return Fund 10% below Baa
capital and prudent
investment management Average Portfolio Dividend Frequency
Duration Declared and
Fund Category (of Underlying distributed quarterly
Stock and Bond Funds)
0-6 years
The Fund seeks to achieve its investment objective by normally
investing between 45% and 75% of its assets in the StocksPLUS Fund
and between 25% and 55% of its assets in the Total Return Fund
(collectively, the "Underlying Funds"). The Fund invests all of
its assets in shares of the Underlying Funds and does not invest
directly in stocks or bonds of other issuers.
The StocksPLUS Fund seeks to exceed the total return of the S&P
500 by investing under normal circumstances substantially all of
its assets in S&P 500 derivatives, backed by a portfolio of Fixed
Income Instruments. The Total Return Fund seeks to achieve its
investment objective by investing at least 65% of its assets in a
diversified portfolio of Fixed Income Securities of various
maturities. Please see the Fund Summaries of the Underlying Funds
in this prospectus for information on their investment styles and
primary investments.
PIMCO determines how the Fund will allocate and reallocate its
assets between the Underlying Funds according to the Fund's
equity/fixed income allocation targets and ranges. PIMCO does not
allocate the Fund's assets according to a predetermined blend of
shares of the Underlying Funds. Instead, PIMCO will determine the
mix of Underlying Funds appropriate for the Fund based on
methodology, developed by PIMCO, that forecasts stages in the
business cycle and considers the risk and reward potential of
equity and fixed income investments within specific phases of the
business cycle.
The Fund is a "fund of funds," which is a term used to describe
mutual funds that pursue their investment objectives by investing
in other mutual funds. The cost of investing in the Fund will
generally be higher than the cost of investing in a mutual fund
that invests directly in individual stocks and bonds. By investing
in the Fund, an investor will indirectly bear fees and expenses
charged by the Underlying Funds in addition to the Fund's direct
fees and expenses. In addition, the use of a fund of funds
structure could affect the timing, amount and character of
distributions to shareholders and may therefore increase the
amount of taxes payable by shareholders. In addition to the
StocksPLUS and Total Return Funds, the Fund may in the future
invest in additional funds in the PIMCO Funds family at the
discretion of PIMCO and without shareholder approval.
--------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect the net asset value, yield and total return of
the Fund, are:
.Allocation Risk .Underlying Fund Risk
Among the principal risks of investing in the Underlying Funds,
and consequently the Fund, which could adversely affect the net
asset value, yield and total return of the Fund, are:
.Market Risk .Derivatives Risk .Mortgage Risk
.Issuer Risk .Liquidity Risk .Leveraging Risk
.Interest Rate Risk .Foreign Investment Risk .Management Risk
.Credit Risk .Currency Risk
Please see "Summary of Principal Risks" following the Fund
Summaries for a description of these and other risks associated
with the Underlying Funds and an investment in the Fund.
<PAGE>
--------------------------------------------------------------------------------
Performance The following is summary performance information for the Fund in a
Information 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
broad-based securities market indices and an index of similar
funds.
The bar chart, the information to its right and the Average
Annual Total Returns table show performance of the Fund's Class D
Shares. For periods prior to the inception date of Class D shares
(4/8/98), performance information shown in the bar chart and table
is based on the performance of the Fund's Institutional Class
shares, adjusted to reflect the actual 12b-1/service fees and
other expenses paid by Class D shares. Past performance is no
guarantee of future results, and the Fund achieved the performance
track record shown during a period when it pursued its investment
objective using different investment policies.
Calendar Year Total Returns -- Class D
More Recent Return
Information
---------------------
[ANNUAL RETURN] 1/1/00-6/30/00 -0.68%
'97 '98 '99 Highest and Lowest
----- ----- ----- Quarter Returns
23.69% 19.13% 11.07% (for periods shown
in the bar chart)
--------------------
Highest (4/1/97-
6/30/97) 12.12%
---------------------
Lowest (7/1/98-
9/30/98) -4.62%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (6/28/96)(4)
-------------------------------------------------------------------------
<S> <C> <C>
Class D 11.07% 18.24%
-------------------------------------------------------------------------
S&P 500 Index(1) 21.04% 27.14%
-------------------------------------------------------------------------
S&P 500 and Lehman Aggregate Bond Index Blend(2) 12.00% 18.76%
-------------------------------------------------------------------------
Lipper Balanced Fund Avg(3) 8.73% 14.35%
-------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Composite Stock Price Index is an
unmanaged index of common stocks. It is not possible to invest
directly in the index.
(2) This index is a static blend consisting 60% of the S&P 500
Composite Stock Price Index and 40% of the Lehman Brothers
Aggregate Bond Index. This blended index reflects the Fund's
investment strategy more accurately than the S&P 500 Index. It
is not possible to invest directly in the index.
(3) The Lipper Balanced Fund Average is a total return performance
average of Funds tracked by Lipper Analytical Services, Inc.,
whose primary objective is to conserve principal by
maintaining at all times a balanced portfolio of both stocks
and bonds. It does not take into account sales charges.
(4) The Fund began operations on 6/28/96. Index comparisons began
on 6/30/96.
--------------------------------------------------------------------------------
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) None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<CAPTION>
Distribution Total Annual
Advisory and/or Service Other Underlying Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Fund Expenses Expenses(3)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class D None 0.25% 0.40% 0.59% 1.24%
--------------------------------------------------------------------------------------
</TABLE>
(1) The Fund's administration agreement includes a plan for Class
D shares that has been adopted in conformity with the
requirements set forth in Rule 12b-1 under the Investment
Company Act of 1940. Up to 0.25% per year of the total fees
paid under the administration agreement may be distribution
and/or service (12b-1) fees. The Fund will pay a total of
0.65% per year under the administration agreement regardless
of whether a portion or none of the 0.25% authorized under
the plan is paid under the plan. Please see "Management of
the Funds--Investment Adviser and Administrator--
Administrative Fees" for details. The Fund intends to treat
any fees paid under the plan as "service fees" for purposes
of applicable rules of the National Association of Securities
Dealers, Inc. (the "NASD"). To the extent that such fees are
deemed not to be "service fees," Class D shareholders may,
depending on 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 NASD.
(2) Other Expenses reflects the portion of the Administrative Fee
paid by the class that is not reflected under Distribution
and/or Service (12b-1) Fees.
(3) Based on estimated expenses for the current fiscal year.
Underlying Fund Expenses for the Fund are estimated based upon
a 65%/35% allocation of the Fund's assets between the
StocksPLUS and Total Return Funds and upon the estimated total
annual operating expenses of the Institutional Class Shares of
these Underlying Funds. Total Actual Underlying Fund Expenses
will vary with changes in the expenses of the Underlying
Funds, as well as allocation of the Fund's assets, and may be
higher or lower than those shown above. For a listing of the
expenses associated with each Underlying Fund for the most
recent fiscal year, please see the Fund Summaries of the
Underlying Funds.
Examples. The Examples are intended to help you compare the cost
of investing in Class D 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, and then redeem all your shares at the end of those
periods. The Examples also assume that 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>
Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $126 $393 $681 $1,500
--------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Changes to "Summary of Principal Risks"
The section of the Prospectus captioned "Summary of Principal
Risks" is amended as follows:
1. A new subsection captioned "Allocation Risk" is added to "Summary
of Principal Risks."
"Allocation Risk
The Strategic Balanced Fund's investment performance depends upon
how its assets are allocated and reallocated between the
Underlying Funds according to the Fund's equity/fixed income
allocation targets and ranges. A principal risk of investing in
the Fund is that PIMCO will make less than optimal or poor asset
allocation decisions. PIMCO attempts to identify allocations for
the Underlying Funds that will provide consistent, quality
performance for the Fund, but there is no guarantee that PIMCO's
allocation techniques will produce the desired results. It is
possible that PIMCO will focus on an Underlying Fund that performs
poorly or underperforms other Funds under various market
conditions. You could lose money on your investment in the Fund as
a result of these allocation decisions."
2. A new subsection captioned "Underlying Fund Risks" is added to
"Summary of Principal Risks."
"Underlying Fund Risks
Because the Strategic Balanced Fund invests all of its assets in
Underlying Funds, the risks associated with investing in the Fund
are closely related to the risks associated with the securities
and other investments held by the Underlying Funds. The ability of
the Fund to achieve its investment objective will depend upon the
ability of the Underlying Funds to achieve their objectives. There
can be no assurance that the investment objective of any
Underlying Fund will be achieved.
The Strategic Balanced Fund's net asset value will fluctuate in
response to changes in the net asset values of the Underlying
Funds in which it invests. The extent to which the investment
performance and risks associated with the Fund correlate to those
of a particular Underlying Fund will depend upon the extent to
which the Fund's assets are allocated from time to time for
investment in the Underlying Fund, which will vary. The Fund's
investment in a particular Underlying Fund normally will exceed
25% of its assets. Because the Fund invests a significant portion
of its assets in each Underlying Fund, it will be particularly
sensitive to the risks associated with each of the Underlying
Funds."
Changes to "Management of the Funds"
The section of the Prospectus captioned "Management of the
Funds" is amended as follows:
1. A new subsection captioned "Strategic Balanced Fund Fees" is added
to "Management of the Funds."
"Strategic Balanced Fund Fees
Effective September 29, 2000, the Strategic Balanced Fund does not
pay any fees to PIMCO under the Trust's investment advisory
agreement in return for the advisory and asset allocation services
provided by PIMCO. The Fund does, however, indirectly pay its
proportionate share of the advisory fees paid to PIMCO by the
Underlying Funds in which the Fund invests.
The Fund pays administrative fees to PIMCO at an annual rate of
0.65% based on the average daily net assets attributable to the
Fund's Class D shares. The Fund also indirectly pays its
proportionate share of the administrative fees charged by PIMCO to
the Underlying Funds in which the Fund invests.
The expenses associated with investing in a "fund of funds," such
as the Fund, are generally higher than those for mutual funds that
do not invest primarily in other mutual funds. This is because
shareholders in a "fund of funds" indirectly pay a portion of the
fees and expense charged at the underlying fund level.
The Strategic Balanced Fund is structured in the following ways
to lessen the impact of expenses incurred at the Underlying Fund
level:
. The Fund does not pay any fees for asset allocation or advisory
services under the Trust's investment advisory agreement.
. The Fund invests in Institutional Class shares of the
Underlying Funds, which are not subject to any sales charges or
12b-1 fees.
<PAGE>
PIMCO has broad discretion to allocate and reallocate the Fund's
assets among the Underlying Funds consistent with the Fund's
investment objective and policies and asset allocation targets and
ranges. Although PIMCO does not charge an investment advisory fee
for its asset allocation services, PIMCO indirectly receives fees
(including investment advisory and administrative fees) from the
Underlying Funds in which the Fund invests. In this regard, PIMCO
has a financial incentive to invest the Fund's assets in
Underlying Funds with higher fees than other Funds, even if it
believes that alternate investments would better serve the Fund's
investment program. PIMCO is legally obligated to disregard that
incentive in making asset allocation decisions for the Fund. The
Trustees and officers of the Trust may also have conflicting
interests in fulfilling their fiduciary duties to both the Fund
and the Underlying Funds of the Trust."
Changes to "Tax Consequences"
The section of the Prospectus captioned "Tax Consequences" is
amended as follows:
1. A new subsection captioned "A Note on the Strategic Balanced Fund"
is added.
". A Note on the Strategic Balanced Fund. The Strategic
Balanced Fund's use of a fund of funds structure could affect the
amount, timing and character of distributions to shareholders, and
may therefore increase the amount of taxes payable by
shareholders. See "Taxation--Distributions" in the Statement of
Additional Information."
Changes to "Characteristics and Risks of Securities and Investment
Techniques"
The section of the Prospectus captioned "Characteristics and
Risks of Securities and Investment Techniques" is amended as
follows:
1. The following disclosure is added immediately preceding the
subsection captioned "Securities Selection":
"The Strategic Balanced Fund invests its assets in shares of the
Underlying Funds, and as such does not invest directly in the
securities described below. The Underlying Funds, however, may
invest in such securities. Because the value of an investment in
the Strategic Balanced Fund is directly related to the investment
performance of the Underlying Funds in which it invests, the risks
of investing in the Strategic Balanced Fund are closely related to
the risks associated with the Underlying Funds and their
investments in the securities described below."
2. The subsection captioned "Securities Selection" is amended by
adding the following disclosure:
"With respect to the Strategic Balanced Fund, PIMCO will purchase
shares of the StocksPLUS and Total Return Funds according to the
Strategic Balanced Fund's equity/fixed income allocation ranges.
PIMCO does not purchase shares of the Underlying Funds according
to any predetermined formula, but rather decides how to allocate
the Fund's investments based upon PIMCO's methodology for
forecasting stages in the business cycle, and the potential risk
and reward of equity and fixed income investments at specific
stages of the business cycle. In addition to purchasing shares of
the StocksPLUS and Total Return Funds, PIMCO may in the future
invest in additional funds in the PIMCO fund family without
shareholder approval."
Investors Should Retain This Supplement for Future Reference
<PAGE>
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES
Supplement dated
September 29, 2000
to the Prospectus for
Class A, B, and C Shares
Dated August 1, 2000
Disclosure Relating to PIMCO Strategic Balanced Fund
Effective September 29, 2000, the PIMCO Strategic Balanced Fund will convert
to a "fund of funds," which is a term used to describe mutual funds that pursue
their investment objective by investing in other mutual funds. In connection
with this change, the Fund Summary for the Fund on pages 27 and 28 of the
Prospectus is amended to read in its entirety as set forth on the next three
pages.
<PAGE>
PIMCO Strategic Balanced Fund
--------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum total 45-75% StocksPLUS (of Underlying Funds)
and return, consistent Fund; 25-55% Total B to Aaa; maximum
Strategies with preservation of Return Fund 10% below Baa
capital and prudent
investment management Average Portfolio Dividend Frequency
Duration Declared and
Fund Category (of Underlying Funds) distributed quarterly
Stock and Bond 0-6 years
The Fund seeks to achieve its investment objective by normally
investing between 45% and 75% of its assets in the StocksPLUS Fund
and between 25% and 55% of its assets in the Total Return Fund
(collectively, the "Underlying Funds"). The Fund invests all of
its assets in shares of the Underlying Funds and does not invest
directly in stocks or bonds of other issuers.
The StocksPLUS Fund seeks to exceed the total return of the S&P
500 by investing under normal circumstances substantially all of
its assets in S&P 500 derivatives, backed by a portfolio of Fixed
Income Instruments. The Total Return Fund seeks to achieve its
investment objective by investing at least 65% of its assets in a
diversified portfolio of Fixed Income Securities of various
maturities. Please see the Fund Summaries of the Underlying Funds
in this prospectus for information on their investment styles and
primary investments.
PIMCO determines how the Fund will allocate and reallocate its
assets between the Underlying Funds according to the Fund's
equity/fixed income allocation targets and ranges. PIMCO does not
allocate the Fund's assets according to a predetermined blend of
shares of the Underlying Funds. Instead, PIMCO will determine the
mix of Underlying Funds appropriate for the Fund based on
methodology, developed by PIMCO, that forecasts stages in the
business cycle and considers the risk and reward potential of
equity and fixed income investments within specific phases of the
business cycle.
The Fund is a "fund of funds," which is a term used to describe
mutual funds that pursue their investment objectives by investing
in other mutual funds. The cost of investing in the Fund will
generally be higher than the cost of investing in a mutual fund
that invests directly in individual stocks and bonds. By investing
in the Fund, an investor will indirectly bear fees and expenses
charged by the Underlying Funds in addition to the Fund's direct
fees and expenses. In addition, the use of a fund of funds
structure could affect the timing, amount and character of
distributions to shareholders and may therefore increase the
amount of taxes payable by shareholders. In addition to the
StocksPLUS and Total Return Funds, the Fund may in the future
invest in additional funds in the PIMCO Funds family at the
discretion of PIMCO and without shareholder approval.
--------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect the net asset value, yield and total return of
the Fund, are:
.Allocation Risk .Underlying Fund Risk
Among the principal risks of investing in the Underlying Funds,
and consequently the Fund, which could adversely affect the net
asset value, yield and total return of the Fund, are:
.Market Risk .Derivatives Risk .Mortgage Risk
.Issuer Risk .Liquidity Risk .Leveraging Risk
.Interest Rate Risk .Foreign Investment Risk .Management Risk
.Credit Risk .Currency Risk
Please see "Summary of Principal Risks" following the Fund
Summaries for a description of these and other risks associated
with the Underlying Funds and an investment in the Fund.
<PAGE>
--------------------------------------------------------------------------------
Performance The following is summary performance information for the Fund in a
Information 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 broad-based securities market indices 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. Because Class A, B and
C shares of the Fund do not have any performance history,
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, and
the Fund achieved the performance track record shown during a
period when it pursued its investment objective using different
investment policies.
Calendar Year Total Returns -- Class A
More Recent Return
[Annual Return] Information
--------------------------------
'97 '98 '99 1/1/00-6/30/00 -0.70%
----- ----- ----- --------------------------------
23.69 19.18 10.83 Highest and Lowest
Quarter Returns
(for periods shown
in the bar chart)
--------------------------------
Highest (4/1/97-6/30/97) 12.12%
--------------------------------
Lowest (7/1/98-9/30/98) -4.70%
--------------------------------
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
Fund Inception
1 Year (6/28/96)(/4/)
--------------------------------------------------------------------------
<S> <C> <C>
Class A 5.85% 16.64%
--------------------------------------------------------------------------
Class B 5.17% 16.79%
--------------------------------------------------------------------------
Class C 9.01% 17.31%
--------------------------------------------------------------------------
S&P 500 Index(/1/) 21.04% 27.14%
--------------------------------------------------------------------------
S&P 500 and Lehman Aggregate Bond
Index Blend(/2/) 12.00% 18.76%
--------------------------------------------------------------------------
Lipper Balanced Fund Average(/3/) 8.73% 14.35%
--------------------------------------------------------------------------
</TABLE>
(1) The Standard & Poor's 500 Composite Stock Price Index is an
unmanaged index of common stocks. It is not possible to
invest directly in the index.
(2) The index used for the Fund is a static blend consisting 60%
of the S&P 500 Composite Stock Price Index and 40% of The
Lehman Brothers Aggregate Bond Index. This blended index
reflects the Fund's investment strategy more accurately than
the S&P 500 Index. It is not possible to invest directly in
the index.
(3) The Lipper Balanced Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc., whose primary objective is to conserve
principal by maintaining at all times a balanced portfolio of
both stocks and bonds. It does not take into account sales
charges.
(4) The Fund commenced operations on 6/28/96. Index comparisons
begin on 6/30/96.
<PAGE>
--------------------------------------------------------------------------------
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>
<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 4.5% 1.0%(/1/)
---------------------------------------------------------------------------------------------------------
Class B None 5.0%(/2/)
---------------------------------------------------------------------------------------------------------
Class C None 1.0%(/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>
<CAPTION>
Distribution Total Annual
Advisory and/or Service Other Underlying Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Fund Expenses Expenses(/3/)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A None 0.25% 0.40% 0.59% 1.24%
-----------------------------------------------------------------------------------------
Class B None 1.00 0.40 0.59 1.99
-----------------------------------------------------------------------------------------
Class C None 1.00 0.40 0.59 1.99
-----------------------------------------------------------------------------------------
</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 0.40% Administrative Fee paid by the
class.
(3) Based on estimated expenses for the current fiscal year.
Underlying Fund Expenses for the Fund are estimated based upon
a 65%/35% allocation of the Fund's assets between the
StocksPLUS and Total Return Funds and upon the estimated total
annual operating expenses of the Institutional Class Shares of
these Underlying Funds. Total Actual Underlying Fund Expenses
will vary with changes in the expenses of the Underlying
Funds, as well as allocation of the Fund's assets, and may be
higher or lower than those shown above. For a listing of the
expenses associated with each Underlying Fund for the most
recent fiscal year, please see the Fund Summaries of the
Underlying Funds.
Examples. The Examples are intended to help you compare the cost
of investing in Class A, B or C 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 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 $571 $826 $1,100 $1,882 $571 $826 $1,100 $1,882
---------------------------------------------------------------------------------------------------------------
Class B 702 924 1,273 2,027 202 624 1,073 2,027
---------------------------------------------------------------------------------------------------------------
Class C 302 624 1,073 2,317 202 624 1,073 2,027
---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Changes to "Summary of Principal Risks"
The section of the Prospectus captioned "Summary of Principal
Risks" is amended as follows:
1. A new subsection captioned "Allocation Risk" is added to "Summary
of Principal Risks."
"Allocation Risk
The Strategic Balanced Fund's investment performance depends upon
how its assets are allocated and reallocated between the
Underlying Funds according to the Fund's equity/fixed income
allocation targets and ranges. A principal risk of investing in
the Fund is that PIMCO will make less than optimal or poor asset
allocation decisions. PIMCO attempts to identify allocations for
the Underlying Funds that will provide consistent, quality
performance for the Fund, but there is no guarantee that PIMCO's
allocation techniques will produce the desired results. It is
possible that PIMCO will focus on an Underlying Fund that performs
poorly or underperforms other Funds under various market
conditions. You could lose money on your investment in the Fund as
a result of these allocation decisions."
2. A new subsection captioned "Underlying Fund Risks" is added to
"Summary of Principal Risks."
"Underlying Fund Risks
Because the Strategic Balanced Fund invests all of its assets in
Underlying Funds, the risks associated with investing in the Fund
are closely related to the risks associated with the securities
and other investments held by the Underlying Funds. The ability of
the Fund to achieve its investment objective will depend upon the
ability of the Underlying Funds to achieve their objectives. There
can be no assurance that the investment objective of any
Underlying Fund will be achieved.
The Strategic Balanced Fund's net asset value will fluctuate in
response to changes in the net asset values of the Underlying
Funds in which it invests. The extent to which the investment
performance and risks associated with the Fund correlate to those
of a particular Underlying Fund will depend upon the extent to
which the Fund's assets are allocated from time to time for
investment in the Underlying Fund, which will vary. The Fund's
investment in a particular Underlying Fund normally will exceed
25% of its assets. Because the Fund invests a significant portion
of its assets in each Underlying Fund, it will be particularly
sensitive to the risks associated with each of the Underlying
Funds."
Changes to "Management of the Funds"
The section of the Prospectus captioned "Management of the Funds"
is amended as follows:
1. A new subsection captioned "Strategic Balanced Fund Fees" is added
to "Management of the Funds."
"Strategic Balanced Fund Fees
Effective September 29, 2000, the Strategic Balanced Fund does not
pay any fees to PIMCO under the Trust's investment advisory
agreement in return for the advisory and asset allocation services
provided by PIMCO. The Fund does, however, indirectly pay its
proportionate share of the advisory fees paid to PIMCO by the
Underlying Funds in which the Fund invests.
The Fund pays administrative fees to PIMCO at an annual rate of
0.40% based on the average daily net assets attributable in the
aggregate to the Fund's Class A, Class B and Class C shares. The
Fund also indirectly pays its proportionate share of the
administrative fees charged by PIMCO to the Underlying Funds in
which the Fund invests.
The expenses associated with investing in a "fund of funds," such
as the Fund, are generally higher than those for mutual funds that
do not invest primarily in other mutual funds. This is because
shareholders in a "fund of funds" indirectly pay a portion of the
fees and expense charged at the underlying fund level.
<PAGE>
The Strategic Balanced Fund is structured in the following ways
to lessen the impact of expenses incurred at the Underlying Fund
level:
. The Fund does not pay any fees for asset allocation or
advisory services under the Trust's investment advisory
agreement.
. The Fund invests in Institutional Class shares of the
Underlying Funds, which are not subject to any sales charges
or 12b-1 fees.
PIMCO has broad discretion to allocate and reallocate the Fund's
assets among the Underlying Funds consistent with the Fund's
investment objective and policies and asset allocation targets and
ranges. Although PIMCO does not charge an investment advisory fee
for its asset allocation services, PIMCO indirectly receives fees
(including investment advisory and administrative fees) from the
Underlying Funds in which the Fund invests. In this regard, PIMCO
has a financial incentive to invest the Fund's assets in
Underlying Funds with higher fees than other Funds, even if it
believes that alternate investments would better serve the Fund's
investment program. PIMCO is legally obligated to disregard that
incentive in making asset allocation decisions for the Fund. The
Trustees and officers of the Trust may also have conflicting
interests in fulfilling their fiduciary duties to both the Fund
and the Underlying Funds of the Trust."
Changes to "Tax Consequences"
The section of the Prospectus captioned "Tax Consequences" is
amended as follows:
1. A new subsection captioned "A Note on the Strategic Balanced Fund"
is added.
". A Note on the Strategic Balanced Fund. The Strategic
Balanced Fund's use of a fund of funds structure could affect the
amount, timing and character of distributions to shareholders, and
may therefore increase the amount of taxes payable by
shareholders. See "Taxation--Distributions" in the Statement of
Additional Information."
Changes to "Characteristics and Risks of Securities and Investment
Techniques"
The section of the Prospectus captioned "Characteristic and Risks
of Securities and Investment Techniques" is amended as follows:
1. The following disclosure is added immediately preceding the
subsection captioned "Securities Selection":
"The Strategic Balanced Fund invests its assets in shares of the
Underlying Funds, and as such does not invest directly in the
securities described below. The Underlying Funds, however, may
invest in such securities. Because the value of an investment in
the Strategic Balanced Fund is directly related to the investment
performance of the Underlying Funds in which it invests, the risks
of investing in the Strategic Balanced Fund are closely related to
the risks associated with the Underlying Funds and their
investments in the securities described below."
2. The subsection captioned "Securities Selection" is amended by
adding the following disclosure:
"With respect to the Strategic Balanced Fund, PIMCO will purchase
shares of the StocksPLUS and Total Return Funds according to the
Strategic Balanced Fund's equity/fixed income allocation ranges.
PIMCO does not purchase shares of the Underlying Funds according
to any predetermined formula, but rather decides how to allocate
the Fund's investments based upon PIMCO's methodology for
forecasting stages in the business cycle, and the potential risk
and reward of equity and fixed income investments at specific
stages of the business cycle. In addition to purchasing shares of
the StocksPLUS and Total Return Funds, PIMCO may in the future
invest in additional funds in the PIMCO fund family without
shareholder approval."
Investors Should Retain This Supplement for Future Reference
<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 (as
supplemented on September 29, 2000 to the prospectus dated August 1, 2000),"
Class A, B and C of the Municipal Bond Fund and Class A of the California
Intermediate Municipal Bond Fund, California Municipal Bond Fund and New York
Municipal Bond Fund are offered through the "Municipal Bond Prospectus" (dated
August 1, 2000), Class D shares of the Funds are offered through the "Class D
Prospectus" (as supplemented on September 29, 2000 to the prospectus dated
August 1, 2000), Institutional Class and Administrative Class shares of the
Funds are offered through the "Institutional Prospectus" (dated September 29,
2000) and Class A shares of the Total Return Fund are offered through a separate
prospectus (dated August 1, 2000), 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, 2000, including
notes thereto, and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated by reference from the Trust's March 31, 2000 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
September 29, 2000
<PAGE>
TABLE OF CONTENTS
Page
THE TRUST................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES........................................ 1
Municipal Bonds...................................................... 1
Mortgage-Related and Other Asset-Backed Securities................... 8
Bank Obligations..................................................... 13
Loan Participations.................................................. 14
Corporate Debt Securities............................................ 16
High Yield Securities ("Junk Bonds")................................. 17
Participation on Creditors Committees................................ 18
Variable and Floating Rate Securities................................ 18
Inflation-Indexed Bonds.............................................. 19
Event-Linked Bonds................................................... 20
Convertible Securities............................................... 20
Warrants to Purchase Securities...................................... 21
Foreign Securities................................................... 21
Foreign Currency Transactions........................................ 23
Foreign Currency Exchange-Related Securities......................... 25
Borrowing............................................................ 26
Derivative Instruments............................................... 28
Hybrid Instruments................................................... 38
Delayed Funding Loans and Revolving Credit Facilities................ 39
When-Issued, Delayed Delivery and Forward Commitment Transactions.... 39
Short Sales.......................................................... 40
Illiquid Securities.................................................. 41
Loans of Portfolio Securities........................................ 41
Social Investment Policies........................................... 41
INVESTMENT RESTRICTIONS................................................... 42
Fundamental Investment Restrictions.................................. 42
Non-Fundamental Investment Restrictions.............................. 43
Non-Fundamental Operating Policies Relating to the Sale of Shares of
Total Return Fund in Japan.......................................... 45
MANAGEMENT OF THE TRUST................................................... 47
Trustees and Officers................................................ 47
Compensation Table................................................... 52
Investment Adviser................................................... 53
Advisory Agreement................................................... 54
Fund Administrator................................................... 56
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DISTRIBUTION OF TRUST SHARES.............................................. 59
Distributor and Multi-Class Plan..................................... 59
Initial Sales Charge and Contingent Deferred Sales Charge............ 61
Distribution and Servicing Plans for Class A, Class B and Class C
Shares.............................................................. 62
Payments Pursuant to Class A Plan.................................... 65
Payments Pursuant to Class B Plan.................................... 67
Payments Pursuant to Class C Plan.................................... 68
Distribution and Administrative Services Plans for Administrative
Class Shares........................................................ 70
Payments Pursuant to the Administrative Plans........................ 72
Plan for Class D Shares.............................................. 73
Payments Pursuant to Class D Plan.................................... 75
Distribution and Servicing Plan for Class J and Class K Shares....... 75
Purchases, Exchanges and Redemptions................................. 76
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 79
Investment Decisions and Portfolio Transactions...................... 79
Brokerage and Research Services...................................... 79
Portfolio Turnover................................................... 80
NET ASSET VALUE........................................................... 81
TAXATION.................................................................. 82
Distributions........................................................ 85
Sales of Shares...................................................... 85
Backup Withholding................................................... 86
Options, Futures and Forward Contracts, and Swap Agreements.......... 86
Short Sales.......................................................... 87
Passive Foreign Investment Companies................................. 87
Foreign Currency Transactions........................................ 88
Foreign Taxation..................................................... 88
Original Issue Discount and Market Discount.......................... 89
Constructive Sales................................................... 90
Non-U.S. Shareholders................................................ 90
Other Taxation....................................................... 91
OTHER INFORMATION......................................................... 91
Capitalization....................................................... 91
Performance Information.............................................. 92
Calculation of Yield................................................. 93
Calculation of Total Return.......................................... 95
Potential College Cost Table......................................... 102
Voting Rights........................................................ 106
The Reorganization of the PIMCO Money Market and Total Return II
Funds............................................................... 141
The Reorganization of the PIMCO Global Bond Fund II.................. 141
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Code of Ethics....................................................... 141
Custodian, Transfer Agent and Dividend Disbursing Agent.............. 141
Independent Accountants.............................................. 142
Counsel.............................................................. 142
Registration Statement............................................... 142
Financial Statements................................................. 142
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THE TRUST
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") currently consisting of thirty separate investment portfolios
(the "Funds"):
Money Market Fund Long-Term U.S. Government Fund
Short-Term Fund Long Duration Fund
Low Duration Fund Global Bond Fund
Low Duration Fund II Global Bond Fund II
Low Duration Fund III Foreign Bond Fund
GNMA Fund Emerging Markets Bond Fund
Moderate Duration Fund Short Duration Municipal Income Fund
Real Return Bond Fund Municipal Bond Fund
Total Return Fund California Intermediate Municipal Bond Fund
Total Return Fund II California Municipal Bond Fund
Total Return Fund III New York Municipal Bond Fund
Total Return Mortgage Fund Strategic Balanced Fund
Commercial Mortgage Securities Fund Convertible Fund
Investment Grade Corporate Bond Fund StocksPLUS Fund
High Yield Fund StocksPLUS Short Strategy Fund
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. The
Strategic Balanced Fund invests all of its assets in the StocksPLUS and Total
Return Funds. These Funds are referred to in this Statement as "Underlying
Funds." By investing in Underlying Funds, the Strategic Balanced Fund may have
an indirect investment interest in some or all of the securities and instruments
described below depending upon how its assets are allocated between the
Underlying Funds.
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 Short
Duration Municipal Income, Municipal Bond, California Intermediate Municipal
Bond, California Municipal Bond, and New York 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 California Intermediate Municipal Bond, California
Municipal Bond, and New York 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
<PAGE>
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."
The Municipal Bond Fund may, from time to time, invest more than 25% of its
assets in Municipal Bonds of issuers in California and New York, and, if so,
will be subject to the California and New York state-specific risks discussed in
the "Summary of Risks" section of the Prospectus and in this "Municipal Bonds"
section of this Statement of Additional Information, but neither Fund has any
present intention to invest more than that amount in a particular state.
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 lease obligations if determined by
PIMCO 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
2
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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
3
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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 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 PIMCO'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 Intermediate Municipal Bond, New York Municipal Bond,
and California 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
4
<PAGE>
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 and the
California 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 and the California 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 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
and the California Municipal Bond Fund may be impaired.
Certain tax-exempt securities in which the California Intermediate
Municipal Bond Fund and the California 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
5
<PAGE>
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 or the California Municipal Bond Fund invest.
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 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 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.
6
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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 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
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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 Municipal 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.
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.
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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 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
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mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, PIMCO 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 PIMCO'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
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 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
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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 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
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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
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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 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, PIMCO 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, PIMCO also may
invest in other types of asset-backed securities.
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
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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 than 15% of its net assets (10% in the case of the Money Market
Fund) would be invested in such deposits, repurchase agreements maturing in more
than seven days and other illiquid assets.
The Money Market, Low Duration II, GNMA, Total Return II, Total Return
Mortgage, Commercial Mortgage Securities, Long-Term U.S. Government, Short
Duration Municipal Income, Municipal Bond, California Intermediate Municipal
Bond, California Municipal Bond, and New York Municipal Bond 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 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 borrower, the
Fund may have to
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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 PIMCO believes to be a fair price. In addition, valuation of
illiquid indebtedness involves a greater degree of judgment in determining a
Fund's
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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 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 PIMCO's research in an attempt to avoid situations where fraud or
misrepresentation could adversely affect the Funds.
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 PIMCO'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 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.
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High Yield Securities ("Junk Bonds")
Investments in securities rated below investment grade that are eligible
for purchase by certain of the Funds and in particular, by the High Yield,
Emerging Markets and Convertible Funds 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.
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.
PIMCO 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.
PIMCO 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.
PIMCO 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
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the rating of a portfolio security held by a Fund, the Fund may retain the
portfolio security if PIMCO deems it in the best interest of shareholders.
Participation on Creditors Committees
A Fund (in particular, the 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
PIMCO 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.
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 Fund) 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.
Each Fund (except the Money Market Fund) may also invest in inverse
floating rate debt instruments ("inverse floaters"). The interest rate on an
inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floating rate
security may exhibit greater price volatility than a fixed rate obligation of
similar credit quality. The Funds have adopted a policy under which no Fund will
invest more than 5% of its assets in any combination of inverse floater,
interest only ("IO"), or principal only ("PO") securities.
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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 $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
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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.
Event-Linked Bonds
Event-linked 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" event, such as a hurricane, earthquake, or other physical or
weather-related phenomenon. 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 event-linked 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 event-
linked 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, event-linked 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.
Event-linked 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. Event-linked
bonds are typically rated, and a Fund will only invest in catastrophe bonds that
meet the credit quality requirements for the Fund.
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.
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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
unless the security is called or conversion is forced.
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.
Foreign Securities
Each Fund (except the Low Duration II, Total Return II, Long-Term U.S.
Government, Short Duration Municipal Income, Municipal Bond, California
Intermediate Municipal Bond, California Municipal Bond, and New York 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 Money Market, Commercial
Mortgage Securities, GNMA and Total Return Mortgage Funds may invest in
securities of foreign issuers only if they are U.S. dollar-denominated. The
High Yield Fund may invest up to 15% of its assets in euro-denominated
securities.
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
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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 Fund (except the Low Duration II, Total Return II, Long-Term U.S.
Government, Short Duration Municipal Income, Municipal Bond, California
Intermediate Municipal Bond, California Municipal Bond, and New York 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. 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 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.
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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 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.
The Emerging Markets Bond Fund 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
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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
PIMCO 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 PIMCO 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 PIMCO wants to a eliminate substantially all of the risk
of owning a particular currency, and/or if PIMCO 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 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. PIMCO 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.
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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
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which
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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.
Borrowing
Each Fund may borrow money to the extent permitted under the Investment
Company Act of 1940 ("1940 Act"), as amended, and as interpreted, modified or
otherwise permitted by regulatory authority having jurisdiction, from time to
time. This means that, in general, a Fund
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may borrow money from banks for any purpose on a secured basis in an amount up
to 1/3 of the Fund's total assets. A Fund may also borrow money for temporary
administrative purposes on an unsecured basis in an amount not to exceed 5% of
the Fund's total assets.
Specifically, provisions of the 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 Global Bond Fund II has adopted a non-fundamental investment restriction
under which the Fund 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. Non-fundamental investment restrictions may be changed without
shareholder approval.
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 PIMCO 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, among other things,
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restrict the aggregate of such transactions (plus any other borrowings) to 1/3
(for each Fund except the 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' restrictions 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.
Derivative Instruments
In pursuing their individual objectives the Funds (except the Money Market
Fund) may purchase and sell (write) both put options and call options on
securities, swap agreements, 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 securities may
not enter into transactions involving currency futures or options. The Funds
(except the Money Market, Low Duration II, Total Return II, Long-Term U.S.
Government, Short Duration Municipal Income, Municipal Bond, California
Intermediate Municipal Bond, California Municipal Bond, and New York Municipal
Bond Funds) also may
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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 Money Market Fund) 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 PIMCO to forecast
interest rates and other economic factors correctly. If PIMCO 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 PIMCO
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, Swap Agreements 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, swap agreements or indexes in
standardized contracts traded on foreign or domestic securities exchanges,
boards of trade, or similar entities, or quoted on NASDAQ or on an 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
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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
cash consideration is required, cash or other assets determined to be liquid by
PIMCO 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 PIMCO 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 PIMCO 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 PIMCO 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 PIMCO 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
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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 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.
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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
Money Market Fund) 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 Short Duration Municipal Income, Municipal
Bond, California Intermediate Municipal Bond and New York 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 Convertible, 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 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.
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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 PIMCO 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 futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
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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 PIMCO 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 PIMCO 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 PIMCO 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
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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.
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 PIMCO 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 Municipal Bond Fund enters into such futures
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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.
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 Money Market Fund) may enter into
interest rate, index, credit and, to the extent it may invest in foreign
currency-denominated securities, currency exchange rate swap agreements. Each
Fund may also enter into options on swap agreements ("swap options"). These
transactions are entered into in an attempt to obtain a particular return when
it is considered desirable to do so, possibly at a lower cost to the Fund than
if the Fund had invested directly in 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
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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. A swap option is a contract that gives a counterparty
the right (but not the obligation) to enter into a new swap agreement, or to
shorten, extend, cancel or otherwise modify an existing swap agreement, at some
designated future time on specified terms. Each fund may write (sell) and
purchase put and call swap options.
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 owed to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
segregation of assets determined to be liquid by PIMCO 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 or swap options will be successful
in furthering its investment objective of total return will depend on PIMCO'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 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.
Depending on the terms of the particular option agreement, a Fund will
generally incur a greater degree of risk when it writes a swap option than it
will incur when it purchases a swap option. When a Fund purchases a swap option,
it risks losing only the amount of the premium it has paid should it decide to
let the option expire unexercised. However, when a Fund writes a swap option,
upon exercise of the option the Fund will become obligated according to the
terms of the underlying agreement.
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
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<PAGE>
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, PIMCO 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.
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 Fund to the credit risk of the issuer of the hybrids. These risks may
cause significant fluctuations
38
<PAGE>
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.
Delayed Funding Loans and Revolving Credit Facilities
Each Fund (except the 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 PIMCO 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.
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
PIMCO 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.
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<PAGE>
When purchasing a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the
Fund is not required to pay for the security until the delivery date, these
risks are in addition to the risks associated with the Fund's other investments.
If the Fund remains substantially fully invested at a time when when-issued,
delayed delivery, or forward commitment purchases are outstanding, the purchases
may result in a form of leverage.
When the Fund has sold a security on a when-issued, delayed delivery, or
forward commitment basis, the Fund does not participate in future gains or
losses with respect to the security. If the other party to a transaction fails
to deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity or could suffer a loss. 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.
Short Sales
Certain of the Funds, particularly the 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 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 PIMCO in accordance with procedures
established by the Board of Trustees. Each Fund, except the 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
40
<PAGE>
sold short. The Funds will engage in short selling to the extent permitted by
the 1940 Act and rules and interpretations thereunder.
Illiquid Securities
The Funds may invest up to 15% of their net assets in illiquid securities
(10% in the case of the 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 (other than
securities issued pursuant to Rule 144A under the 1933 Act and certain
commercial paper that PIMCO 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.
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% of the total assets of the Fund.
Social Investment Policies
The Low Duration Fund III and Total Return Fund III will not, as a matter
of non-fundamental operating policy, invest in the securities of any issuer
determined by PIMCO 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 PIMCO, 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 PIMCO.
PIMCO'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
41
<PAGE>
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, PIMCO 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 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.
(1) A Fund may not concentrate its investments in a particular industry, as
that term is used in the Investment Company Act of 1940, as amended, and as
interpreted, modified, or otherwise permitted by regulatory authority
having jurisdiction, from time to time (except that the Money Market Fund
may concentrate its investments in securities or obligations issued by U.S.
banks).
(2) A Fund may not, with respect to 75% of the Fund's total assets, purchase
the securities of any issuer, except securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, if, as a
result (i) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (ii) the Fund would hold more than 10% of the
outstanding voting securities of that issuer; (This investment restriction
is not applicable to the Real Return Bond, Commercial Mortgage Securities,
Global Bond, Global Bond II, Foreign Bond, Emerging Markets Bond,
California Intermediate Municipal Bond, California Municipal Bond, and New
York 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) A Fund may not 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.
(4) A Fund may not 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").
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<PAGE>
(5) A Fund may borrow money or issue any senior security, only as permitted
under the Investment Company Act of 1940, as amended, and as interpreted,
modified, or otherwise permitted by regulatory authority having
jurisdiction, from time to time.
(6) A Fund may make loans only as permitted under the Investment Company Act of
1940, as amended, and as interpreted, modified, or otherwise permitted by
regulatory authority having jurisdiction, from time to time.
(7) A Fund may not 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.
(8) Notwithstanding any other fundamental investment policy or limitation, it
is a fundamental policy of each Fund that it may pursue its investment
objective by investing in one or more underlying investment companies or
vehicles that have substantially similar investment objectives, policies
and limitations as the Fund.
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.
(A) A Fund may not invest more than 15% of the net assets of a Fund (10% in the
case of the 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 PIMCO'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) A Fund many not 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.
(C) A Fund may not invest more than 5% 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.
(D) The Global Bond Fund II may not 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
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<PAGE>
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).
(E) A Fund may not maintain a short position, or purchase, write or sell puts,
calls, straddles, spreads or combinations thereof, except on such
conditions as may be set forth in the Prospectuses and in this Statement of
Additional Information.
(F) The Global Bond Fund II may not purchase or sell commodities or commodity
contracts except that the Fund may purchase and sell financial futures
contracts and related options.
Currency Hedging. 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 Global Bond, and Emerging Markets Bond, and
Convertible 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. To the extent
that borrowings for temporary administrative purposes exceed 5% of the total
assets of a Fund (except the Global Bond Fund II), such excess shall be subject
to the 300% asset coverage requirement.
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: 1) the market value of OTC options
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<PAGE>
currently outstanding which are held by the Fund, 2) the market value of the
underlying securities covered by OTC call options currently outstanding which
were sold by the Fund and 3) 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 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 PIMCO 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, PIMCO
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 Money Market Fund, as well as the use of daily excess cash
balances of the 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 Money Market Fund could
otherwise earn as lender in such a transaction.
Non-Fundamental Operating Policies Relating to the Sale of Shares of Total
Return Fund in Japan
In connection with an offering of Administrative Class shares of the 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 Total Return Fund. These non-fundamental policies will remain in
effect only so long as (i) they are required in accordance
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<PAGE>
with standards of the Japanese Securities Dealers Association and (ii) shares of
the Total Return Fund are being offered in Japan.
(1) The Trust will not sell shares of the 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 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 Total
Return Fund acquired by Japanese investors as required by Article 26, Item
4 of the Rules Concerning Transactions of Foreign Securities of the Japan
Securities Dealers Association.
(4) The 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 Total Return Fund.
(5) The 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 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 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 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).
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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
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.
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 Managing Director, PIMCO; Board of Governors,
Age 41 Board and 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.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
----------------------------------------------------------------------------------------------
<S> <C> <C>
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 69 Trustee, PIMCO Variable Insurance Trust;
Director, Growth Fund of America and
Fundamental Investors Fund of the Capital
Group; Director, Good Hope Medical Foundation.
E. Philip Cannon Trustee Proprietor, Cannon & Company, an affiliate of
3838 Olympia Inverness Management LLC, a private equity
Houston, Texas 77019 investment firm; Director, PIMCO Commercial
Age 59 Mortgage Securities Trust, Inc.; Trustee,
PIMCO Variable Insurance Trust; Trustee of
PIMCO Funds: Multi-Manager Series.
Formerly, Headmaster, St. John's School,
Houston, Texas; Trustee of PIMCO Advisors
Funds ("PAF") and Cash Accumulation Trust
("CAT"); General Partner, J.B. Poindexter &
Co., Houston, Texas, a private equity
investment firm; and Partner, Iberia
Petroleum Company, an oil and gas production
company.
Vern O. Curtis Trustee Private Investor; Director, PIMCO Commercial
14158 N.W. Bronson Creek Dr. Mortgage Securities Trust, Inc.; Trustee,
Portland, Oregon 97229 PIMCO Variable Insurance Trust; Director,
Age 66 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>
48
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
----------------------------------------------------------------------------------------------
<S> <C> <C>
J. Michael Hagan Trustee Private Investor; Director, PIMCO Commercial
6 Merced Mortgage Securities Trust, Inc.; Trustee,
San Clemente, California 92673 PIMCO Variable Insurance Trust. Board of
Age 61 Directors for Ameron International
(manufacturing), Freedom Communications,
Remedy Temp (staffing) and Saint Gobain
Company. Member of the Board of Regents at
Santa Clara University, the Board of Taller
San Jose, and the Board of Trustees of the
South Coast Repertory Theater. Formerly,
Chairman and CEO, Furon Company
(manufacturing).
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 69 Co-Chairman, U.S. Committee to Assist Russian
Reform; Director, Union Financial Corp.
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 62 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 Senior Vice President, PIMCO. Formerly Fixed
Age 36 President Income Specialist, Salomon Brothers, Inc.;
Vice President Operations, Citibank NA Global
Consumer Banking Group.
William H. Gross Senior Vice Managing Director, PIMCO; Senior Vice
Age 56 President President, PIMCO Variable Insurance Trust.
Margaret Isberg Senior Vice Managing Director, PIMCO.
Age 43 President
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey M. Sargent Senior Vice Senior Vice President and Manager of
Age 37 President Investment 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.
Formerly, Vice President, PIMCO.
Leland T. Scholey Senior Vice Senior Vice President, PIMCO. Formerly Vice
Age 47 President President, PIMCO.
Raymond C. Hayes Vice President Vice President, PIMCO. Formerly Marketing
Age 55 Director, Pacific Financial Asset Management
Corporation.
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 Vice President and Manager, Fund
Age 30 Administration, PIMCO; Vice 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 34 with Fidelity Investments Institutional
Services Company.
Scott Millimet Vice President Vice President, PIMCO. Formerly Executive
Age 42 Vice President with Back Bay Advisors.
James F. Muzzy Vice President Managing Director, PIMCO; Senior Vice
Age 61 President, PIMCO Variable Insurance Trust.
Douglas J. Ongaro Vice President Vice President, PIMCO. Formerly Regional
Age 39 Marketing Manager, Charles Schwab & Co., Inc.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
------------------------------------------------------------------------------------------------------
<S> <C> <C>
David J. Pittman Vice President Vice President, PIMCO. Formerly a senior
Age 52 executive with Bank of America, the Northern
Trust Co. and NationsBank.
Mark A. Romano Vice President Vice President, PIMCO. Previously associated
Age 42 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 55 Director, PIMCO; Senior Vice President, PIMCO
Variable Insurance Trust; Vice President,
PIMCO Commercial Mortgage Securities Trust,
Inc.
John P. Hardaway Treasurer Senior Vice President, PIMCO; Treasurer,
Age 43 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 54 Commercial Mortgage Securities Trust, Inc.
and PIMCO Variable Insurance Trust; Assistant
Secretary, PIMCO Funds: Multi-Manager Series.
Formerly Senior Fund Administrator, PIMCO.
Joseph D. Hattesohl Assistant Treasurer Vice President and Manager of Financial
Age 36 Reporting and Taxation, PIMCO; Assistant
Treasurer, PIMCO Funds: Multi-Manager Series,
PIMCO Commercial Mortgage Securities Trust,
Inc. and PIMCO Variable Insurance Trust.
Michael J. Willemsen Assistant Secretary Manager, PIMCO; Assistant Secretary, PIMCO
Age 40 Commercial Mortgage Securities Trust, Inc.
and PIMCO Variable Insurance Trust. Formerly
Project Lead, PIMCO.
</TABLE>
___________________
51
<PAGE>
*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, 2000.
<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 $55,000 $74,000
Trustee
E. Philip Cannon 0/3/ $63,753/4/
Trustee
Vern O. Curtis $59,000 $80,750
Trustee
J. Michael Hagan 0/3/ 0/3/
Trustee
Thomas P. Kemp $57,500 $78,250
Trustee
William J. Popejoy $57,500 $78,250
Trustee
</TABLE>
/1/ Each Trustee, other than those affiliated with PIMCO 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 PIMCO
or its affiliates, receives an additional annual retainer of $1,500. For the
fiscal year ended March 31, 2000, the unaffiliated Trustees as a group
received compensation in the amount of $231,546.
/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
PIMCO or its affiliates, receives an additional annual retainer of $500. For
the fiscal year ended December 31, 1999, the unaffiliated Directors as a
group received compensation in the amount of $42,786.
52
<PAGE>
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 PIMCO or its affiliates, receives an additional annual
retainer of $500. For the fiscal year ended December 31, 1999, the
unaffiliated Trustees as a group received compensation in the amount of
$41,786.
/3/ Messrs. Cannon and Hagan joined the Board on May 16, 2000 and therefore
received no compensation from the Trust for the fiscal year ending March
31, 2000. Messrs. Cannon and Hagan also received no compensation from
PIMCO Variable Insurance Trust or PIMCO Commercial Mortgage Securities
Trust, Inc. for the fiscal year ended December 31, 1999.
/4/ Mr. Cannon also serves as a Trustee of PIMCO Funds: Multi-Manager Series
which has adopted a deferred compensation plan. Mr. Cannon elected to have
$63,750 in compensation deferred from that Trust.
Investment Adviser
Pacific Investment Management Company LLC ("PIMCO"), a Delaware limited
liability company, serves as investment adviser to the Funds pursuant to an
investment advisory contract ("Advisory Contract") between PIMCO and the Trust.
PIMCO is a subsidiary of PIMCO Advisors L.P. ("PIMCO Advisors"). PIMCO Advisors
was organized as a limited partnership under Delaware law in 1987. PIMCO
Advisors' sole general partner is Pacific-Allianz Partners LLC. Pacific-Allianz
Partners LLC is a Delaware limited liability company with two members, Allianz
GP Sub LLC, a Delaware limited liability company and Pacific Asset Management
LLC, a Delaware limited liability company. Allianz GP Sub LLC is a wholly-owned
subsidiary of Allianz of America, Inc., which is wholly owned by Allianz AG.
Pacific Asset Management LLC is a wholly-owned subsidiary of Pacific Life
Insurance Company, which is a wholly-owned subsidiary of Pacific Mutual Holding
Company.
PIMCO is located at 840 Newport Center Drive, Suite 300, Newport Beach,
California 92660. PIMCO had approximately $199.3 billion of assets under
management as of June 30, 2000.
On May 5, 2000 the general partners of PIMCO Advisors closed the
transactions contemplated by the Implementation and Merger Agreement dated as of
October 31, 1999 ("Implementation Agreement"), as amended March 3, 2000, with
Allianz of America, Inc., Pacific Asset Management LLC, PIMCO Partners, LLC,
PIMCO Holding LLC, PIMCO Partners, G.P., and other parties to the Implementation
Agreement. As a result of completing these transactions, PIMCO Advisors is now
majority-owned indirectly by Allianz AG, with subsidiaries of Pacific Life
Insurance Company retaining a significant minority interest. Allianz AG is a
German based insurer. Pacific Life Insurance Company is a Newport Beach,
California based insurer.
In connection with the closing, Allianz of America entered into a put/call
arrangement for the possible disposition of Pacific Life's indirect interest in
PIMCO Advisors. The put option
53
<PAGE>
held by Pacific Life will allow it to require Allianz of America, on the last
business day of each calendar quarter following the closing, to purchase at a
formula-based price all of the PIMCO Advisors' units owned directly or
indirectly by Pacific Life. The call option held by Allianz of America will
allow it, beginning January 31, 2003 or upon a change in control of Pacific
Life, to require Pacific Life to sell or cause to be sold to Allianz of America,
at the same formula-based price, all of the PIMCO Advisors' units owned directly
or indirectly by Pacific Life. Allianz AG's address is Koniginstrasse 28, D-
80802, Munich, Germany.
Allianz AG, the parent of Allianz of America, is a publicly traded German
company which, together with its subsidiaries, comprises the world's second
largest insurance company as measured by premium income. Allianz AG is a
leading provider of financial services, particularly in Europe, and is
represented in 68 countries world-wide through subsidiaries, branch and
representative offices, and other affiliated entities. As of June 30, 2000, the
Allianz Group (including PIMCO) had assets under management of more than $650
billion, and in its last fiscal year wrote approximately $50 billion in gross
insurance premiums.
Significant institutional shareholders of Allianz AG currently include
Dresdner Bank AG, Deutsche Bank AG, Munich Reinsurance and HypoVereinsbank. BNP
Paribas, Credit Lyonnais, Munich Reinsurance, HypoVereinsbank, Dresdner Bank AG
and Deutsche Bank AG, as well as certain broker-dealers that might be controlled
by or affiliated with these entities, such as DB Alex. Brown LLC, Deutsche Bank
Securities, Inc. and Dresdner Klienwort Benson North America LLC (collectively,
the "Affiliated Brokers"), may be considered to be affiliated persons of PIMCO.
Absent an SEC exemption or other relief, the Funds generally are precluded from
effecting principal transactions with the Affiliated Brokers, and its ability to
purchase securities being underwritten by an Affiliated Broker or to utilize the
Affiliated Brokers for agency transactions is subject to restrictions. PIMCO
does not believe that the restrictions on transactions with the Affiliated
Brokers described above materially adversely affect its ability to provide
services to the Funds, the Funds' ability to take advantage of market
opportunities, or the Funds' overall performance.
Advisory Agreement
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
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 December 1, 1999, as supplemented from time to
------------
time.
54
<PAGE>
PIMCO is responsible for determining how the assets of the Strategic
Balanced Fund are allocated and reallocated from time to time between the
Underlying Funds. The Fund does not pay any fees to PIMCO in return for these
services under the Advisory Agreement. The Fund does, however, indirectly pay a
proportionate share of the advisory fees paid to PIMCO by the Underlying Funds
in which the Fund invests.
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 PIMCO, on 60 days' written notice by either party to the contract
and will terminate automatically if assigned.
PIMCO 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, Convertible, StocksPLUS
and StocksPLUS Short Strategy Funds....................................0.40%
Emerging Markets Bond Fund...............................................0.45%
All other Funds..........................................................0.25%
</TABLE>
55
<PAGE>
For the fiscal years ended March 31, 2000, 1999, and 1998, the aggregate
amount of the advisory fees paid by each operational Fund was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/00 3/31/00 3/31/98
---- ----------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund $ 754,997 $ 364,480 $ 205,384
Short-Term Fund 1,610,960 1,163,042 487,226
Low Duration Fund 10,480,477 8,636,635 7,416,427
Low Duration Fund II 1,154,518 1,060,930 869,853
Low Duration Fund III 69,310 61,917 32,700
GNMA 10,454 9,728 5,914
Moderate Duration Fund 859,866 685,876 294,466
Real Return Bond Fund 286,410 37,011 18,838
Total Return Fund 72,341,826 55,229,968 38,327,843
Total Return Fund II 2,997,701 2,107,392 1,145,766
Total Return Fund III 1,435,291 1,045,573 701,110
Total Return Mortgage Fund 10,026 9,766 5,679
High Yield Fund 8,796,696 6,323,956 3,670,999
Long-Term U.S. Government Fund 863,294 419,981 117,242
Short Duration Municipal Income Fund 12,387 N/A N/A
Municipal Bond Fund 140,711 107,083 N/A
California Intermediate Municipal Bond Fund 6,312 N/A N/A
New York Municipal Fund Bond 4,402 N/A N/A
Global Bond Fund 682,166 666,901 642,260
Global Bond Fund II 143,465 106,821 50,123
Foreign Bond Fund 1,455,350 1,325,590 811,698
Emerging Markets Bond Fund 86,725 19,121 11,365
Strategic Balanced Fund 526,900 201,742 117,547
Convertible Fund 266,262 N/A N/A
StocksPLUS Fund 5,710,564 3,432,600 1,919,328
</TABLE>
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
56
<PAGE>
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):
<TABLE>
<CAPTION>
Administrative Fee Rate
-----------------------
Institutional and
Administrative
----------------- Class A, Class J
Fund 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 0.24% 0.35% 0.60% 0.25%
Bond, California Municipal Bond and
New York 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%
Emerging Markets Bond Fund 0.40% 0.55% 0.80% 0.30%
Strategic Balanced Fund 0.05% 0.40% 0.40% 0.25%
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 0.25% 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
57
<PAGE>
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 Strategic Balanced Fund indirectly pays a proportionate share of the
administrative fees paid to PIMCO by the Underlying Funds in which the Fund
invests.
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, dated May 5,
2000, was approved by the Board of Trustees, including all of the Independent
Trustees at a meeting held on December 1, 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, 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.
For the fiscal years ended March 31, 2000, 1999, and 1998, the aggregate
amount of the administrative fees paid by each operational Fund was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/00 3/31/00 3/31/00
---- ----------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund $ 1,325,685 $ 731,013 $ 423,936
Short-Term Fund 1,445,630 1,024,794 410,894
Low Duration Fund 8,469,311 6,841,437 5,665,996
Low Duration Fund II 1,154,518 1,060,930 869,853
Low Duration Fund III 69,259 61,917 32,700
GNMA 10,454 9,728 5,914
Moderate Duration Fund 687,893 548,701 235,572
Real Return Bond Fund 333,697 48,397 21,841
Total Return Fund 58,764,667 43,425,035 29,219,721
Total Return Fund II 2,997,701 2,107,391 1,145,766
Total Return Fund III 1,435,291 1,045,572 701,110
Total Return Mortgage Fund 10,179 9,937 5,679
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/00 3/31/00 3/31/00
---- ----------- ----------- -----------
<S> <C> <C> <C>
High Yield Fund 10,201,282 7,243,110 4,258,485
Long-Term U.S. Government Fund 1,007,625 508,159 130,444
Short Duration Municipal Income 11,770 N/A N/A
Fund
Municipal Bond Fund 189,404 145,118 N/A
California Intermediate Municipal 6,412 N/A N/A
Bond Fund
New York Municipal Bond Fund 4,234 N/A N/A
Global Bond Fund 818,605 800,281 770,719
Global Bond Fund II 192,384 151,390 87,617
Foreign Bond Fund 1,668,942 1,454,801 849,691
Emerging Markets Bond Fund 79,064 18,034 10,526
Strategic Balanced Fund 353,282 126,263 73,467
Convertible Fund 172,987 N/A N/A
StocksPLUS Fund 4,783,693 2,757,948 1,392,509
</TABLE>
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 0.35%
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 0.25% 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."
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
59
<PAGE>
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 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.
Class J and Class K shares are offered only to non-U.S. investors outside
the United States. Class J and Class K shares are offered through foreign
broker dealers, banks and other financial institutions and 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.
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.
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 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.
60
<PAGE>
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.
Initial Sales Charge and Contingent Deferred Sales Charge
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, 2000, March 31, 1999 and March 31,
1998, the Distributor received an aggregate of $4,625,293, $6,227,864, and
$2,598,104, respectively, and retained $618,123, $750,751, and $186,443,
respectively, in initial sales charges paid by Class A shareholders of the
Trust.
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, 2000, March 31, 1999 and March 31,
1998, 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 Year Ended Year Ended
3/31/00 3/31/99 3/31/98
---------- ---------- ----------
<S> <C> <C> <C>
Class A $ 337,940 $ 37,142 $ 37,724
Class B 5,822,553 1,653,443 694,715
Class C 1,077,578 543,223 246,969
</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
61
<PAGE>
treatment of accumulations, and (iii) with respect to certain of such classes,
considerations of fairness, and competitive and administrative factors.
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.
62
<PAGE>
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 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
</TABLE>
63
<PAGE>
<TABLE>
<S> <C> <C>
Class C - Shares purchased on or after 7/1/91(3)
-----------------------------------------------------------------------
Money Market Fund 0.10% 0.00%
-----------------------------------------------------------------------
Short-Term and Short Duration 0.25% 0.25%
Municipal Income Funds
-----------------------------------------------------------------------
Low Duration, Real Return Bond, 0.25% 0.45%
Municipal Bond, California
Intermediate Municipal Bond,
California Municipal Bond, New
York 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 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
64
<PAGE>
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, 2000, March 31, 1999, and March 31,
1998, the Trust paid the Distributor an aggregate of $6,082,941, $3,158,937, and
$1,180,030, respectively, pursuant to the Distribution and Servicing Plan for
Class A shares, of which the indicated amounts were attributable to the
following Funds:
65
<PAGE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/00 3/31/99 3/31/98
---- ----------- ---------- --------
<S> <C> <C> <C>
Money Market Fund $ 109,208 $ 79,137 $ 38,216
Short-Term Fund 209,633 123,595 23,033
Low Duration Fund 566,330 382,868 192,859
Real Return Fund 25,380 6,053 1,143
Total Return Fund 4,053,760 1,980,636 679,157
High Yield Fund 471,207 234,956 121,858
Long-Term U.S. Government Fund 81,888 39,481 8,199
Global Bond Fund II 6,937 12,179 20,868
Foreign Bond Fund 107,878 52,053 10,245
Emerging Markets Bond Fund 587 498 316
Municipal Bond Fund 22,682 14,101 0
California Intermediate Municipal 795 N/A N/A
Bond Fund
New York Municipal Bond Fund 12 N/A N/A
Strategic Balanced Fund 6,235 N/A N/A
Convertible Fund 3,505 N/A N/A
StocksPLUS Fund 416,904 233,380 84,136
</TABLE>
During the fiscal year ended March 31, 2000, 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, $4,927,182;
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), $1,155,759.
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 $ 378,361 $ 88,751 $ 467,112
Short-Term Fund 137,380 32,225 169,605
Low Duration Fund 405,405 95,095 500,500
Real Return Bond Fund 29,173 6,843 36,016
Total Return Fund 3,211,487 753,312 3,964,799
High Yield Fund 304,307 71,381 375,688
Long-Term U.S. Government Fund 70,742 16,594 87,336
Global Bond Fund II 3,786 888 4,674
Foreign Bond Fund 89,621 21,022 110,644
Emerging Markets Bond Fund 521 122 643
Municipal Bond Fund 14,369 3,371 17,740
California Intermediate Municipal 2,966 696 3,662
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
---- ------------ --------------- -----
<S> <C> <C> <C>
Bond Fund
New York Municipal Bond Fund 17 4 21
Strategic Balanced Fund 7,419 1,740 9,159
Convertible Fund 8,631 2,024 10,655
StocksPLUS Fund 262,998 61,691 324,688
</TABLE>
Payments Pursuant to Class B Plan
For the fiscal years ended March 31, 2000, March 31, 1999, and March 31,
1998, the Trust paid the Distributor an aggregate of $14,835,909, $8,169,978,
and $2,884,164, 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 3/31/00 3/31/99 3/31/98
---- ---------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund $ 182,595 $ 86,809 $ 27,747
Short-Term Fund 47,772 21,254 7,508
Low Duration Fund 720,752 433,206 95,153
Real Return Fund 77,808 28,545 9,701
Total Return Fund 6,386,543 3,372,168 1,153,121
High Yield Fund 3,180,767 2,065,488 1,013,423
Long-Term U.S. Government Fund 375,143 229,521 28,337
Global Bond Fund II 49,328 11,000 42,965
Foreign Bond Fund 236,078 164,040 58,084
Emerging Markets Bond Fund 8,171 2,953 928
Municipal Bond Fund 58,146 10,000 0
Strategic Balanced Fund 65,297 N/A N/A
Convertible Fund 6,285 N/A N/A
StocksPLUS Fund 3,441,224 1,679,748 447,197
</TABLE>
During the fiscal year ended March 31, 2000, 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, $12,017,086;
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), $2,818,823.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:
67
<PAGE>
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
---- ------------ -------------- -----
<S> <C> <C> <C>
Money Market Fund $ 200,151 $ 46,949 $ 247,100
Short-Term Fund 52,656 12,351 65,008
Low Duration Fund 572,604 134,315 706,919
Real Return Bond Fund 89,853 21,077 110,929
Total Return Fund 5,123,726 1,201,862 6,325,587
High Yield Fund 2,380,212 558,321 2,938,533
Long-Term U.S. Government Fund 268,408 62,960 331,368
Global Bond Fund II 35,966 8,436 44,402
Foreign Bond Fund 191,179 44,845 236,024
Emerging Markets Bond Fund 9,144 2,145 11,289
Municipal Bond Fund 41,697 9,781 51,477
Strategic Balanced Fund 91,192 21,391 112,583
Convertible Fund 18,685 4,383 23,068
StocksPLUS Fund 2,941,613 690,008 3,631,621
</TABLE>
Payments Pursuant to Class C Plan
For the fiscal years ended March 31,2000, March 31, 1999, and March 31,
1998, the Trust paid the Distributor an aggregate of $15,752,921, $11,016,443,
and $7,026,337, 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 3/31/00 3/31/99 3/31/98
---- ---------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund $ 85,213 $ 75,541 $ 59,070
Short-Term Fund 96,622 61,224 22,612
Low Duration Fund 886,691 645,396 461,997
Real Return Fund 63,886 16,396 4,292
Total Return Fund 7,576,924 5,309,578 3,510,589
High Yield Fund 3,820,412 3,098,891 2,415,721
Long-Term U.S. Government Fund 259,510 200,406 26,880
Global Bond Fund II 57,768 49,000 56,574
Foreign Bond Fund 302,947 237,914 91,131
Emerging Markets Bond Fund 2,646 1,972 635
Municipal Bond Fund 250,017 10,000 0
Strategic Balanced Fund 67,806 N/A N/A
Convertible Fund 23,512 N/A N/A
StocksPLUS Fund 2,258,967 1,097,998 376,836
</TABLE>
68
<PAGE>
During the fiscal year ended March 31, 2000, 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, $12,759,866;
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), $2,993,055.
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 $ 788,447 $ 184,944 $ 973,391
Short-Term Fund 139,422 32,704 172,125
Low Duration Fund 810,628 190,147 1,000,775
Real Return Bond Fund 126,945 29,777 156,722
Total Return Fund 5,293,647 1,241,720 6,535,366
High Yield Fund 2,521,360 591,430 3,112,790
Long-Term U.S. Government Fund 153,569 36,022 189,591
Global Bond Fund II 38,545 9,041 47,587
Foreign Bond Fund 221,475 51,951 273,426
Emerging Markets Bond Fund 1,827 429 2,256
Municipal Bond Fund 211,170 49,534 260,704
Strategic Balanced Fund 97,035 22,761 119,797
Convertible Fund 56,910 13,349 70,260
StocksPLUS Fund 2,298,887 539,245 2,838,133
</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, 2000, such expenses were approximately
$20,809,000 in excess of payments under the Class A Plan, $47,518,000 in excess
of payments under the Class B Plan and $593,000 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, 2000 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Money Market Fund $ 1,597,934 $ 791,438 $ 36,642
Short-Term Fund 580,198 208,214 6,479
Low Duration Fund 1,712,148 2,264,193 37,673
Real Return Bond Fund 123,208 355,295 5,900
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Total Return Fund 13,563,094 20,260,252 246,016
High Yield Fund 1,285,182 9,411,841 117,177
Long-Term U.S. Government Fund 298,764 1,061,341 7,137
Global Bond Fund II 15,988 142,215 1,791
Foreign Bond Fund 378,498 755,962 10,293
Emerging Markets Bond Fund 2,200 36,158 85
Municipal Bond Fund 60,685 164,877 9,814
California Intermediate Municipal 12,528 N/A N/A
Bond Fund
New York Municipal Bond Fund 71 N/A N/A
Strategic Balanced Fund 31,332 360,591 4,510
Convertible Fund 36,450 73,886 2,645
StocksPLUS Fund 1,110,719 11,631,737 106,838
</TABLE>
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, 2000 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
---- ------- ------- -------
<S> <C> <C> <C>
Money Market Fund 0.70% 3.11% 0.03%
Short-Term Fund 0.70 3.11 0.03
Low Duration Fund 0.70 3.11 0.03
Total Return Fund 0.70 3.11 0.03
Real Return Fund 0.70 3.11 0.03
High Yield Fund 0.70 3.11 0.03
Long-Term U.S. Government Fund 0.70 3.11 0.03
Global Bond Fund II 0.70 3.11 0.03
Foreign Bond Fund 0.70 3.11 0.03
Emerging Markets Bond Fund 0.70 3.11 0.03
Municipal Bond Fund 0.70 3.11 0.03
California Intermediate Municipal 0.70 N/A N/A
Bond Fund
New York Municipal Bond Fund 0.70 N/A N/A
Strategic Balanced Fund 0.70 3.11 0.03
Convertible Fund 0.70 3.11 0.03
StocksPLUS Fund 0.70 3.11 0.03
</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
70
<PAGE>
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 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.
71
<PAGE>
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, 2000, March 31, 1999, and March 31,
1998, the Trust paid qualified service providers an aggregate amount of
$8,385,679, $3,691,083, and $850,407, respectively, pursuant to the
Administrative Services Plan and the Administrative Distribution Plan. Such
payments were allocated among the Funds listed below as follows:
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<TABLE>
<CAPTION>
Fund Year Ended Year Ended Year Ended
---- 3/31/00 3/31/99 3/31/98
---------- ---------- ----------
<S> <C> <C> <C>
Money Market Fund $ 22,491 $ 10,213 $ 716
Short-Term Fund 15,160 16,719 10,315
Low Duration Fund 307,872 297,918 72,650
Low Duration Fund II 528 28,257 19
Low Duration Fund III 50 0 0
Total Return Fund 6,890,843 2,826,235 691,950
Total Return Fund II 125,952 135,827 0
Total Return Fund III 8,755 3,586 0
High Yield Fund 772,780 336,744 60,079
Long-Term U.S. Government Fund 98,704 15,870 5,340
Municipal Bond Fund 6,275 447 0
California Intermediate Municipal 14 0 0
Bond Fund
Global Bond Fund 7,261 2,995 8,806
Foreign Bond Fund 10,669 3,134 532
Emerging Markets Bond Fund 22,231 135 0
Strategic Balanced Fund 852 0 0
StocksPLUS Fund 95,242 13,003 0
</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 0.25% 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:
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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.
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 0.25% 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
0.25% 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
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<PAGE>
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, 2000 and March 31, 1999, the Trust paid
$263,567 and $48,375, respectively, pursuant to the Class D Plan, of which the
indicated amounts were attributable to the following operational Funds:
<TABLE>
Year Ended Year Ended
Fund 3/31/00 3/31/99
---- ---------- -----------
<S> <C> <C>
Short-Term Fund $ 8,920 $ 1,589
Low Duration Fund 22,629 5,733
Real Return Fund 12,683 323
Total Return Fund 139,747 23,268
Total Return Mortgage Fund 255 283
High Yield Fund 46,520 5,873
Foreign Bond Fund 24,358 8,973
Short Duration Muni Income Fund 4 N/A
Municipal Bond Fund 1,175 402
California Intermediate Municipal Bond Fund 4 N/A
New York Municipal Bond Fund 4 N/A
Strategic Balanced Fund 439 291
StocksPLUS Fund 6,829 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
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<PAGE>
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 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 PIMCO may purchase shares of the Trust.
To avoid the imposition of duplicative fees, PIMCO may be required to make
adjustments in the management fees charged separately by PIMCO 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 PIMCO 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.
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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 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 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.
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<PAGE>
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.
The Trust has adopted procedures under which it may make redemptions-in-
kind to shareholders who are affiliated persons of a Fund. Under these
procedures, the Trust generally may satisfy a redemption request from an
affiliated person in-kind, provided that: (1) the redemption-in-kind is effected
at approximately the affiliated shareholder's proportionate share of the
distributing Fund's current net assets, and thus does not result in the dilution
of the interests of the remaining shareholders; (2) the distributed securities
are valued in the same manner as they are valued for purposes of computing the
distributing Fund's net asset value; (3) the redemption-in-kind is consistent
with the Fund's prospectus and statement of additional information; and (4)
neither the affiliated shareholder nor any other party with the ability and the
pecuniary incentive to influence the redemption-in-kind selects, or influences
the selection of, the distributed securities.
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.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions and Portfolio Transactions
Investment decisions for the Trust and for the other investment advisory
clients of PIMCO 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 PIMCO. 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
PIMCO 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 PIMCO. PIMCO may aggregate orders for the Funds with simultaneous
transactions entered into on behalf of other clients of PIMCO 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
PIMCO'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.
PIMCO 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, PIMCO 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, PIMCO, 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
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<PAGE>
financial stability of the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions.
PIMCO 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, PIMCO 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
PIMCO 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. PIMCO 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,
PIMCO receives research services from many broker-dealers with which PIMCO
places the Trust's portfolio transactions. PIMCO 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 PIMCO
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 PIMCO and its affiliates
receive such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, PIMCO
may cause the Trust to pay a broker-dealer which provides "brokerage and
research services" (as defined in the Act) to PIMCO 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, PIMCO 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."
PIMCO manages the Funds without regard generally to restrictions on portfolio
turnover. 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-
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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 five fiscal years are
provided in the Prospectuses are set forth under "Financial Highlights" in the
applicable Prospectus.
Because PIMCO does not expect to reallocate the Strategic Balanced Fund's
assets between the Underlying Funds on a frequent basis, the portfolio turnover
rate for the Fund is expected to be modest (i.e., less than 25%) in comparison
to most mutual funds. However, the Fund indirectly bears the expenses
associated with the portfolio turnover of the Underlying Funds, which may have
high (i.e., greater than 100%) portfolio turnover rates.
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 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.
The 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
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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 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 PIMCO
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
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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.
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.
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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 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).
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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 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 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.
The Strategic Balanced Fund will not be able to offset gains realized by
one Fund in which the Fund invests against losses realized by another Fund in
which the Fund invests. The Fund's use of the fund-of-funds structure could
therefore affect the amount, timing and character of distributions to
shareholders.
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 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.
Depending on the Strategic Balanced Fund's percentage ownership in an
Underlying Fund both before and after a redemption, the Fund's redemption of
shares of such Underlying Fund may cause the Fund to be treated as not receiving
capital gain income on the amount by which the distribution exceeds the Fund's
tax basis in the shares of the Underlying Fund, but instead to be treated as
receiving a dividend taxable as ordinary income on the full amount of the
distribution. This could cause shareholders of the Strategic Balanced Fund to
recognize higher amounts of ordinary income than if the shareholders had held
the shares of the Underlying Funds directly.
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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.
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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.
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
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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 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, PIMCO 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 Global Bond, Global Bond II, Foreign Bond, or
Emerging Markets Bond 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 Global Bond, Global Bond II, Foreign Bond, or
Emerging Markets Bond 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
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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.
Although the Strategic Balanced Fund may itself be entitled to a deduction
for such taxes paid by an Underlying Fund in which the Fund invests, the
Strategic Balanced Fund will not be able to pass any such credit or deduction
through to its own shareholders.
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.
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.
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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 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.
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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, as amended and restated March 31, 2000. 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
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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 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
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
92
<PAGE>
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 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
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:
Effective Yield = [(Base Period Return + 1)(To the power of 365/7)] - 1
The effective yield of the Money Market Fund for the seven day period ended
March 31, 2000 was as follows: Institutional Class - 5.69%, Administrative
Class - 5.44%, Class A - 5.58%, Class B - 4.78% and Class C - 5.54%.
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, 2000, the SEC yield of the Funds
was as follows (all numbers are annualized) (Class J and Class K shares were not
offered during the period listed):
93
<PAGE>
SEC 30 Day Yield for Period
Ended March 31, 2000
--------------------
<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 5.76% 5.52% 5.46% 4.64% 5.51% N/A
Short-Term Fund 5.96 5.64 5.45 4.82 5.26 5.66%
Low Duration Fund 6.92 6.67 6.25 5.69 5.94 6.60
Low Duration Fund II 6.28 6.02 N/A N/A N/A N/A
Low Duration Fund III 6.75 6.49 N/A N/A N/A N/A
GNMA 6.26 N/A N/A N/A N/A N/A
Moderate Duration Fund 6.54 N/A N/A N/A N/A N/A
Real Return Bond Fund 7.07 N/A 6.47 5.93 6.17 6.65
Total Return Fund 6.81 6.56 6.05 5.59 5.59 6.49
Total Return Fund II 6.36 6.11 N/A N/A N/A N/A
Total Return Fund III 6.83 6.58 N/A N/A N/A N/A
Total Return Mortgage Fund 6.06 N/A N/A N/A N/A 5.65
High Yield Fund 10.13 9.89 9.28 8.95 8.95 9.73
Long-Term U.S. Government Fund 6.60 6.35 5.93 5.46 5.46 N/A
Short Duration Municipal Income 4.18 N/A N/A N/A N/A 3.77
Fund
Municipal Bond Fund 5.34 5.09 4.84 4.25 4.49 4.95
California Intermediate Municipal 4.20 4.27 4.04 N/A N/A 4.16
Bond Fund
New York Municipal Bond Fund 4.49 N/A 4.00 N/A N/A 4.12
Global Bond Fund 6.09 5.84 N/A N/A N/A N/A
Global Bond Fund II 6.07 N/A 5.43 4.93 4.93 N/A
Foreign Bond Fund 5.99 5.74 5.29 4.78 4.79 5.54
Emerging Markets Bond Fund 8.48 8.22 7.71 7.30 7.31 N/A
Strategic Balanced Fund 5.87 5.62 5.22 4.73 4.72 5.48
Convertible Fund 1.93 N/A 1.46 0.77 0.77 N/A
StocksPLUS Fund 5.78 5.52 5.20 4.65 4.88 5.38
</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.
94
<PAGE>
<TABLE>
<CAPTION>
A tax-exempt yield of
Taxable income Taxable income Marginal tax is equivalent to a taxable yield of
Filing Single Married filing jointly rate* 3% 4% 5% 6% 7%
-------------- ---------------------- ------------- ----- ----- ----- ----- -----
<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, 2000. 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)
95
<PAGE>
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.
<TABLE>
<CAPTION>
Total Return for Periods Ended March 31, 2000*
-------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
of Fund Date of Date of
Fund Class** 1 Year 5 Years 10 Years (Annualized) Fund Class
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Institutional 5.21% 5.38% N/A 4.76% 03/01/91 03/01/91
Administrative 4.96 5.13 5.16 01/24/95
Class A 4.92 5.08 4.93 01/13/97
Class B 3.99 4.20 4.07 01/13/97
Class C 4.95 5.12 4.98 01/13/97
-------------------------------------------------------------------------------------------------------------
Short-Term Institutional 5.19% 6.69% 5.95% 6.43% 10/07/87 10/07/87
Administrative 4.91 6.43 5.69 5.85 02/01/96
Class A 4.76 6.26 5.53 5.42 01/20/97
Class B 4.00 5.51 4.98 4.69 01/20/97
Class C 4.45 5.95 5.22 5.11 01/20/97
Class D 4.87 6.38 5.64 5.05 04/08/98
-------------------------------------------------------------------------------------------------------------
Low Duration Institutional 3.56% 6.98% 7.46% 7.05% 05/11/87 05/11/87
Administrative 3.30 6.71 7.20 6.91 12/31/94
Class A 3.07 6.48 6.97 5.68 01/13/97
Class B 2.30 5.68 6.41 4.88 01/13/97
Class C 2.55 5.97 6.44 5.17 01/13/97
Class D 3.22 6.64 7.12 4.55 04/08/98
-------------------------------------------------------------------------------------------------------------
Low Duration II Institutional 3.28% 6.21% N/A 5.92% 11/01/91 11/01/91
Administrative 3.01 5.94 4.28 02/02/98
-------------------------------------------------------------------------------------------------------------
Low Duration III Institutional 2.98% N/A N/A 5.41% 12/31/96 12/31/96
Administrative 2.71 2.81 03/19/99
-------------------------------------------------------------------------------------------------------------
GNMA Institutional 5.61% N/A N/A 6.31% 07/31/97 07/31/97
-------------------------------------------------------------------------------------------------------------
Moderate Institutional 1.86% N/A N/A 5.52% 12/31/96 12/31/96
Duration
-------------------------------------------------------------------------------------------------------------
Real Return Bond Institutional 8.37% N/A N/A 6.17% 01/29/97 01/29/97
Class A 7.93 5.73 01/29/97
Class B 7.16 4.96 01/29/97
Class C 7.40 5.20 01/29/97
Class D 7.93 6.99 04/08/98
-------------------------------------------------------------------------------------------------------------
Total Return Institutional 2.33% 8.00% 9.20% 9.05% 05/11/87 05/11/87
Administrative 2.07 7.75 8.94 7.66 09/07/94
Class A 1.85 7.50 8.71 6.47 01/13/97
Class B 1.08 6.71 8.17 5.68 01/13/97
Class C 1.09 6.72 7.92 5.69 01/13/97
Class D 2.00 7.67 8.87 4.40 04/08/98
-------------------------------------------------------------------------------------------------------------
Total Return II Institutional 1.46% 1.20% N/A 7.28% 12/30/91 12/30/91
Administrative 7.46 7.19 7.93 11/30/94
-------------------------------------------------------------------------------------------------------------
Total Return III Institutional 0.33% 7.51% N/A 8.37% 05/01/91 05/01/91
Administrative 0.08 7.23 6.78 04/11/97
-------------------------------------------------------------------------------------------------------------
Total Return Institutional 3.91% N/A N/A 3.47% 07/31/97 07/31/97
Mortgage Class D 3.47 N/A N/A 4.50 04/08/98
------------------------------------------------------------------------------------------------------------ -
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
Since
Inception Inception Inception
of Fund Date of Date of
Fund Class** 1 Year 5 Years 10 Years (Annualized) Fund Class
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
High Yield Institutional -0.74% 9.20% N/A 9.92% 12/16/92 12/16/92
Administrative -0.99 8.96 9.56 01/16/95
Class A -1.15 8.79 5.75 01/13/97
Class B -1.89 7.99 4.95 01/13/97
Class C -1.89 8.00 4.96 01/13/97
Class D -1.14 8.80 1.43 04/08/98
-------------------------------------------------------------------------------------------------------------
Long-Term U.S. Institutional 1.26% 9.49% N/A 10.81% 07/01/91 07/01/91
Government Administrative 1.01 9.22 6.36 09/23/97
Class A 0.86 9.08 7.90 01/20/97
Class B 0.11 8.25 7.06 01/20/97
Class C 0.11 8.27 7.09 01/20/97
-------------------------------------------------------------------------------------------------------------
Short-Duration Institutional 1.88% N/A N/A 3.78% 08/31/99 08/31/99
Municipal Class D N/A 2.90 01/31/00
Income
-------------------------------------------------------------------------------------------------------------
Municipal Bond Institutional -1.81% N/A N/A 2.18% 12/31/97 12/31/97
Administrative -2.07 -0.84 09/30/98
Class A -2.16 1.68 04/01/98
Class B -2.89 0.92 04/01/98
Class C -2.64 1.18 04/01/98
Class D -2.16 1.61 04/08/98
-------------------------------------------------------------------------------------------------------------
California Institutional N/A N/A N/A 3.16% 08/31/99 08/31/99
Intermediate Administrative 2.94 09/07/99
Municipal Bond Class A 3.08 10/19/99
Class D 2.68 01/31/00
-------------------------------------------------------------------------------------------------------------
New York Institutional N/A N/A N/A 1.94% 08/31/99 08/31/99
Municipal Bond Class A 2.30 10/19/99
Class D 2.53 01/31/00
-------------------------------------------------------------------------------------------------------------
Global Bond Institutional -1.81% 5.86% N/A 6.23% 11/23/93 11/23/93
Administrative -2.05 5.63 3.57 08/01/96
-------------------------------------------------------------------------------------------------------------
Foreign Bond Institutional 1.96% 12.18% N/A 9.73% 12/03/92 12/03/92
Administrative 1.70 11.91 6.51 01/28/97
Class A 1.50 11.68 6.10 01/20/97
Class B 0.72 10.87 5.32 01/20/97
Class C 0.73 10.87 5.31 01/20/97
Class D 1.51 11.70 4.01 04/08/98
-------------------------------------------------------------------------------------------------------------
Emerging Institutional 27.90% N/A N/A -6.03% 07/31/97 07/31/97
Markets Bond Administrative 27.60 -6.82 09/30/98
Class A 27.39 -8.95 07/31/97
Class B 26.43 -9.05 07/31/97
Class C 26.49 -7.13 07/31/97
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
of Fund Date of Date of
Fund Class** 1 Year 5 Years 10 Years (Annualized) Fund Class
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Strategic Institutional 10.05% N/A N/A 17.70% 06/28/96 06/28/96
Balanced Fund Administrative 9.74 7.32 06/30/99
Class A 9.34 10.83 05/28/99
Class B 8.61 10.13 05/28/99
Class C 8.47 9.96 05/28/99
Class D 9.55 10.62 04/08/98
-------------------------------------------------------------------------------------------------------------
Convertible Fund Institutional 60.66% N/A N/A 60.66% 03/31/99 03/31/99
Class A 60.33 62.15 05/28/99
Class B 58.88 60.64 05/28/99
Class C 59.04 60.83 05/28/99
-------------------------------------------------------------------------------------------------------------
StocksPLUS Institutional 17.82% 26.84% N/A 22.56% 05/14/93 05/14/93
Administrative 17.31 26.39 24.54 01/07/97
Class A 17.26 26.27 23.61 01/20/97
Class B 16.40 25.33 22.69 01/20/97
Class C 16.69 25.66 22.99 01/20/97
Class D 17.32 26.27 17.21 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.
** 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 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, 2000. 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 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.
98
<PAGE>
Total Return for Periods Ended March 31, 2000*
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Since
Inception Inception Inception
of Fund Date of Date of
Fund Class** 1 Year 5 Years 10 Years (Annualized) Fund Class
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Bond Institutional 1.11% N/A N/A 8.54% 10/02/95 02/25/98
II Class A -3.83 7.03 10/02/95
Class B -4.81 6.97 10/02/95
Class C -1.00 7.29 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 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 Global Bond Fund II is
expected to have 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 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
99
<PAGE>
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, 2000
(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 1.11% N/A N/A 8.33%
---------------------------------------------------------------------------
</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, 2000, the current distribution rates
(annualized) for the Funds were as follows (Class J and Class K shares were not
offered during the period listed):
100
<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 5.61% 5.38% 5.33% 4.53% 5.38% N/A
Short-Term Fund 6.32 6.08 5.93 5.19 5.63 6.02%
Low Duration Fund 7.05 6.80 6.59 5.84 6.09 6.74
Low Duration Fund II 5.92 5.67 N/A N/A N/A N/A
Low Duration Fund III 6.44 6.20 N/A N/A N/A N/A
GNMA 4.99 N/A N/A N/A N/A N/A
Moderate Duration Fund 6.45 N/A N/A N/A N/A N/A
Real Return Bond Fund 7.01 N/A 6.58 5.87 6.11 6.54
Total Return Fund 6.24 5.99 5.78 5.03 5.03 5.92
Total Return Fund II 6.35 6.10 N/A N/A N/A N/A
Total Return Fund III 6.33 6.09 N/A N/A N/A N/A
Total Return Mortgage Fund 5.95 N/A N/A N/A N/A 5.55
High Yield Fund 8.75 8.50 8.35 7.59 7.59 8.35
Long-Term U.S. Govt. Fund 6.76 6.51 6.37 5.64 5.63 N/A
Short Duration Municipal Fund 3.98 N/A N/A N/A N/A N/A
Municipal Bond Fund 4.86 4.61 4.54 3.79 4.09 4.55
California Intermediate Municipal 4.21 3.89 3.81 N/A N/A 3.78
Bond Fund
New York Municipal Bond Fund 4.28 N/A 3.91 N/A N/A 3.91
Global Bond Fund 5.71 5.46 N/A N/A N/A N/A
Global Bond Fund II 6.07 N/A 5.66 4.92 4.92 N/A
Foreign Bond Fund 5.86 5.61 5.37 4.45 4.50 5.44
Emerging Markets Bond Fund 9.67 9.42 9.05 8.33 8.73 N/A
Strategic Balanced Fund N/A N/A N/A N/A N/A N/A
Convertible 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 PIMCO,
101
<PAGE>
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 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
1999. Performance is shown in U.S. dollar terms, hedged for currency rate
changes and is no way indicative of the performance of the Global Bond Fund II.
<TABLE>
<CAPTION>
Top Foreign
Year Performer U.S.
---- ----------- ----
<S> <C> <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
1999 +10.4 Japan -2.4
</TABLE>
Source: Salomon Brothers World Government Bond Index 1986-1999.
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.
Potential College Cost Table
<TABLE>
<CAPTION>
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
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
Start Public Private Start Public Private
Year College College Year College College
----- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
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 1999 was:
*Stocks: 15.2%
Bonds: 9.2%
T-Bills: 6.9%
Inflation: 5.1%
*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 2000 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 1980-2000, 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 1980
through 2000 is set forth in the following table.
<TABLE>
<CAPTION>
Mixed
Year Stocks Bonds T-Bills Inflation Portfolio
---- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
Mixed
Year Stocks Bonds T-Bills Inflation Portfolio
---- ------ ----- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
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%
1999 21.00% -7.40% 4.70% 2.70% 5.9%
</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 Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 2000 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
104
<PAGE>
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:
<TABLE>
<CAPTION>
% of Income for Individuals
Aged 65 Years and Older in 1997*
--------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
<S> <C> <C>
1997 43% 57%
</TABLE>
* 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 PIMCO, including descriptions of assets
under management and client base, and opinions of the author(s) regarding the
skills of personnel and employees of PIMCO 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.
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 PIMCO who assist with portfolio management and research activities
on behalf of the Funds. The following lists various analysts associated with
PIMCO: 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
105
<PAGE>
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, PIMCO 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. To avoid potential conflicts of interest, the Strategic
Balanced Fund will vote shares of each Underlying Fund which it owns in
proportion to the votes of all other shareholders in the Underlying Fund.
As of September 18, 2000 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
Combines Master Retirement Trust Val-Hi 126,364,844.450 58.73%*
5430 LBJ Fwy Suite 1700
Dallas TX 75240-2620
</TABLE>
106
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------------
<S> <C> <C>
Saint John's Hospital and Health Center FDN 24,437,094.690 11.36%
Capital Campaign
PO Box 92956
Chicago IL 60675-2956
Marin Community Foundation 12,541,930.850 5.83%
C/O Norwest Bank
PO Box 1533
Minneapolis MN 55480-1533
Charles Schwab & Co Inc** 12,583,328.650 5.85%
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Administrative
Maltrust & Co C/O** 3,262,013.960 33.59%*
Eastern Bank & Trust
225 Essex St
Salem MA 01970-3728
Cooperative of Puget Sound 403B 2,141,693.375 22.06%
Group Custodian Account
2390 E Camelback Rd Suite 240
Phoenix AZ 85016-3434
The Trustees of the Aviall Inc 487,675.830 5.02%
Employees Savings Plan
2055 Diplomat Drive
Dallas TX 75234-8919
Class A
Bear Stearns Securities Corp 3,102,892.440 6.64%
1 Metrotech Center North
Brooklyn NY 11201-3859
</TABLE>
107
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------------
<S> <C> <C>
Short-Term Fund
Institutional
Charles Schwab & Co Inc** 9,747,113.699 16.99%
Special Custody Account
Attn: Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Soka University of America 6,678,454.802 11.64%
Attn Arnold Kawasaki
26800 W. Mulholland Highway
Calabasas CA 91302-1950
National Gallery of Art 5,114,865.408 8.91%
4th & Constitution Ave
NW Room 605
Washington DC 20565-0001
Trustees of Columbia University 4,665,917.964 8.13%
in the City of New York
Office of Investments
475 Riverside Dr Suite 401
New York NY 10115-0499
Denison university 4,303,399.034 7.50%
Director of Finance & Budget
PO Box F
Granville OH 43023-0734
Administrative
FTC & Co Attn: Datalynx #083 155,497.224 33.03%*
PO Box 173736
Denver CO 80217-3736
Donaldson Lufkin & Jenrette Secs** 60,819.842 12.92%
One Pershing Plaza
Jersey City NJ 07399-0001
</TABLE>
108
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
-------------------------------
<S> <C> <C>
FTC & Co. Attn: Datalynx K83 49,245.291 10.46%
PO Box 173736
Denver, CO 80217-3736
LAN & Co. 44,595.044 9.47%
c/o Frost National Bank
PO Box 2479
San Antonio, TX 78298-2479
Lynn R. Prebe Trust 26,019.853 5.53%
16347 Grenoble Arc
Huntington Beach, CA 92649-1825
Class A
MLPF&S For the Sole Benefit** 1,114,133.710 13.43%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
DB Alex Brown LLC 591,335,343 7.13%
PO Box 1346
Baltimore MD 21203
Dean Witter for the Benefit of 512,237.628 6.17%
Ronald S Taft TTEE
PO Box 250 Church Street Station
New York NY 10008-0250
Dean Witter for the Benefit of 472,480.505 5.69%
Ronald S Taft TTEE
PO Box 250 Church Street Station
New York NY 10008-0250
Class B
MLPF&S For the Sole Benefit** 205,456.933 32.87%*
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
109
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Donaldson Lufkin & Jenrette Secs** 68,265.945 10.92%
Securities Corporation Inc
PO Box 2052
Jersey City NJ 07399-0001
Donaldson Lufkin & Jenrette Secs** 31,289.681 5.00%
Securities Corporation Inc
PO Box 2052
Jersey City NJ 07399-0001
Class C
MLPF&S For the Sole Benefit** 329,575.798 17.87
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc** 497,645.740 91.88%*
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
Low Duration Fund
Institutional
Charles Schwab & Co Inc** 44,215,632.642 11.80%
Special Custody Account
Attn: Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
MLTC of America FBO Dupont 19,202,961.560 5.13%
Savings & Investment Plan
Attn: Robert Arimenta, Jr.
300 Davidson Avenue
Administrative
FIIOC As Agent for** 4,837,049.222 34.63%
Certain Employee Benefits Trans
100 Magellan Way KW1C
Covington KY 41015-1987
McClatchy Newspapers Restated 2,097,250.155 15.02%
Def Comp & Investment Plan
550 Kearny St #600
San Francisco CA 94108-2527
</TABLE>
110
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------------
<S> <C> <C>
National financial Services Corp** 1,902,690.196 13.62%
For the Exclusive Benefit of Our Customers
1 World Financial Center
200 Liberty Street
New York NY 10281-1003
MAPCO COAL 1,311,718.009 9.39%
C/O Bankers Trust
100 Plaza One
Jersey City NJ 07311-3999
UMBSC & Co TEE FBO 1,138,715.447 8.15%
Sonnenschein Nath & Rosenthal
PO Box 419260
Kansas City MO 64141-6260
Centurion Trust Co ** 841,861.554 6.09%
FBO Omnibus/Canturion Cap Mgmt
2425 EB Camelback Road Suite 530
Phoenix AZ 85016
Class A
MLPF&S For the Sole Benefit** 5,071,629.796 20.48%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Richard J Steinhelper TR 2,500,325.254 10.09%
Michigan Tooling Association
Benefit Plans Investment Trust
28237 Orchard Lake Road
PO Box 9151
Farmington Hills MI 48333-9151
Class B
MLPF&S For the Sole Benefit** 1,829,490.317 23.65%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
111
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
-------------------------------
<S> <C> <C>
Class C
MLPF&S For the Sole Benefit** 2,123,894.122 19.05%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc** 1,256,403.015 88.58%*
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
Low Duration Fund II
Institutional
Mac & Co 19,456,290.835 27.76%
Attn Mutual Fund Operations
PO Box 3198
Pittsburgh PA 15230-3198
FMTC TTEE for the ** 15,324,084.013 21.87%*
Sprint Retirement Savings Plan
Attn Ms Rhonda Snow
82 Devonshire St - E1GA
Boston MA 02109-3605
M & I Trust Co TTEE FBO 4,774,536.551 6.81%
Salt Reiver Project NUC Decomm
1000 North Water St 11th Floor
Milwaukee WI 53202-6648
American Bible Society 3,861,408.339 5.51%
1865 Broadway
New York NY 10023-7503
Associated Electrc & Gas 3,559,548.657 5.08%
Insurance Services Limited
10 Exchange Pl
Jersey City NJ 07302-3901
</TABLE>
112
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
-------------------------------
<S> <C> <C>
Administrative
National Financial Services Corp** 201.433 100.00%*
for the Exclusive Benefit of our Customers
1 World Financial Center
200 Liberty St
New York NY 10281-1003
Low Duration Fund III
Institutional
Sisters of St Joseph 1,433,569.447 38.32%*
3427 Gull Rd
PO Box 13
Nazareth MI 49074-0013
Loyola Academy Endowment Fund 1,117,718.705 29.88%*
135 S LaSalle St
PO Box 1443
Chicago Il 60690-1443
Key Trust Co. TTEE FBO 447,505.075 11.96%
Congregation of Sisters of Saint Agnes
PO Box 94871
Cleveland, OH 44101-4871
National Jewish Medical & Research Center 544,330.197 14.55%
1400 Jackson St
Denver Co 80206-2762
Administrative
Pacific Investment Management Co 1,084.50 100.00%*
800 Newport Center Dr FL 6
Newport Beach CA 92660-6309
GNMA Fund
Institutional
Pacific Investment Management Co 402,076.356 50.82%*
800 Newport Center Dr FL 6
Newport Beach CA 92660-6309
</TABLE>
113
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
----------------------------------
<S> <C> <C>
Charles Schwab & Co Inc** 389,132.295 49.18%*
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Moderate Duration Fund
Institutional
Columbus Circle Trust Co SV** 6,792,901.506 14.06%
1 Station Place Metro Center
Stamfor CT 06902
Northern Trust Bank of Texas 3,265,855.739 6.76%
Cust John G and Marie Stella Kennedy
Memorial Foundation
PO Box 92956
Chicago IL 60675-2956
Northern Trust Custodian FBO 2,911,281.032 6.03%
Westlake Health Foundation
PO Box 92956
Chicago IL 60675-2956
Bost & Co. 3,111,423.775 6.44%
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
The Children's Hospital Association 2,435,594.971 5.04%
1056 E. 19th Avenue, #B010
Denver, CO 80218-1088
Wendel & Co. 2,655,932.243 5.50%
Bank of New York
P.O. Box 1066 Wall Street Station
New York, NY 10268-1066
</TABLE>
114
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
-------------------------------
<S> <C> <C>
Helen F. Whitaker Fund 2,461,069,427 5.10%
C/O Chase Manhattan Bank
P.O. Box 31412
Rochester, NY 14603-1412
Real Return Bond Fund
Institutional
Charles Schwab & Co Inc** 15,605,123.246 39.33%
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
National Financial Services Corp** 5,752,813.128 14.50%
For Exclusive Benefit of Our Customers
PO Box 3908
Church Street Station
New York NY 10008-3908
Wake Forest University 3,640,839.371 9.18%
PO Box 7354
Winston Salem NC 27109-7354
Administrative
FTC & Co. 692,792.755 57.13%
Attn: Datalynx #154
P.O. Box 173736
Denver, CO 80217-3736
National Financial Services Corp** 518,772.571 42.78%
for the Exclusive Benefit of our Customers
1 World Financial Center
200 Liberty St
New York NY 10281-1003
Class A
MLPF&S For the Sole Benefit** 667,141.105 18.49%
Of Its Customers
Attn Fund/Admin/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
115
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
LEWCO Securities Corp 657,553.722 18.22%
34 Exchange Pl FL 4
Jersey City NJ 07302-3885
Soka Grakkail International 203,569.250 5.64%
606 Wilshire Blvd.
Santa Monica, CA 90401-1502
Class B
MLPF&S For the Sole Benefit** 662,389.991 30.86%*
Of Its Customers
Attn Fund/Admin/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class C
MLPF&S For the Sole Benefit** 1,369,212.605 42.27%*
Of Its Customers
Attn Fund/Admin/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc** 1,492,147.896 50.85%*
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
National Investors Services Corp** 193,951.608 6.61%
For Exclusive Benefit of Our Customers
55 Water St FL 32
New York NY 10041-3299
Total Return Fund
Institutional
Charles Schwab & Co Inc** 201,942,491.859 7.35%
Special Custody Account
Attn: Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Administrative
The Nikko Securities Co LTD 78,353,088.000 21.04%
Tokyo DIA Bldg No 5
28-23, Shinkawa 1-Chome, Chuo-Ku
Tokyo Japan
National Financial Services Corp** 74,132,698.808 19.91%
for the Exclusive Benefit of our Customers
1 World Financial Center
200 Liberty St
New York NY 10281-1003
FIIOC As Agent For Certain** 66,602,427.768 17.89%
Employee Benefits Trans
100 Magellan Way KW1C
Covington KY 41015-1987
Manufacturers Life Ins Co (USA) 30,906,176.309 8.30%
Attn Rosie Chuck Seg Funds/Acct
US SRS Seg Funds/Accounting
200 Floor St East
Toronto ON
Canada M4W 1E5
Total Return
Class A
MLPF&S For the Sole Benefit** 106,709,654.687 48.24%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL3
Jacksonville FL 32246-6484
Class B
MLPF&S For the Sole Benefit** 22,664,805.887 32.48%*
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL3
Jacksonville FL 32246-6484
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Class C
MLPF&S For the Sole Benefit** 20,265,020.675 26.54%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc** 11,737,156.092 88.61%
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
Total Return Fund II
Institutional
Catholic Archbishop of Chicago 10,641,717.658 6.91%
155 East Superior Street
Chicago IL 60611-2911
Charles Schwab & Co Inc** 8,914,656.327 5.79%
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Administrative
Security Trust Co as Inv Agent for** 2,533,118.631 38.91%
Twin City Pipe Trades Supp Retirement Plan
2390 E. Camelback Rd Suite 240
Phoenix AZ 85016-3434
National Financial Services Corp** 1,016,257.066 15.61%
1 World Financial Center
200 Liberty Street
New York NY 10281-1003
Mellon Bank as Agent/Omnibus** 620,733.472 9.54%
135 Santilli Highway
Everett MA 02149-1906
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Putnam Fiduciary Trust Co TTEE FBO 437,139.312 6.72%
The Capital City Press
859 Willard St
Quincy MA 02169-7428
Total Return Fund III
Institutional
Roman Catholic Archbishop of LA 17,395,575.858 19.36%
Attn Jose A Debasa
3424 Wilshire Blvd
Los Angeles CA 90010-2241
Wendel & Co 7,083,379.293 7.88%
C/O The Bank of New York
Attn Mutual Fund/Reorg Dept
PO Box 1066 Wall St Station
New York NY 10268-1066
Administrative
The Lumpkin Foundation 1,133,030.527 94.87%
PO Box 1097
Mattoon IL 61938-1097
Total Return Mortgage Fund
1,265,964.182 78.22%
Institutional
Charles Schwab & Co Inc**
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Pacific Investment Management Co 342,636.197 21.17%
800 Newport Center Dr Fl6
Newport Beach CA 92660-6309
Class A
PIMCO Advisors LP 1001.918 26.53%*
800 Newport Center Drive, Fl 6
Newport Beach, CA 92660-6309
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Donaldson Lufkin Jenrette Securities Corp. Inc. 2,774.114 73.46%*
Securities Corp Inc
P.O. Box 2052
Jersey City, NJ 07303-9998
Class B
PIMCO Advisors LP 1,001.599 100.00%*
800 Newport Center Drive, F16
Newport Beach, CA 92660-6309
Class C
PIMCO Advisors LP 1,001.599 100.00%*
800 Newport Center Drive, F16
Newport Beach, CA 92660-6309
Class D
Charles Schwab & Co Inc** 23,647.427 60.71%*
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
National Investors Services Corp** 6,472.387 16.61%
For Exclusive Benefit of Our Customers
55 Water St FL 32
New York NY 10041-3299
NFSC 6,231.454 15.99%
CUST IRA ROLLOVER
455 Beverly Street
Robins, IA 52328
FMT Co Cust IRA Rollover 2,599.381 6.67%
FBO Keith O Westmoreland
6 Cherry Blossom PL
The Woodlands TX 77381
Investment Grade Corporate Bond Fund
Institutional
PIMCO Advisors LP 513,098.270 100.00%*
800 Newport Center Dr Fl 6
Newport Beach CA 92660-6309
</TABLE>
120
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
High Yield Fund
Institutional
Charles Schwab & Co Inc** 31,391,406.678 17.39%
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Administrative
National Financial Services Corp** 37,534,210.487 89.93%
for the Exclusive Benefit of our Customers
1 World Financial Center
200 Liberty St
New York NY 10281-1003
FIIOC As Agent for Certain Employee** 2,525,403.893 6.05%
Benefits Trans
100 Magellan Way KW1C
Covington KY 41015-1987
MLPF&S For the Sole Benefit** 3,214,165.835 17.80%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class A
MLPF&S For the Sole Benefit of its customers 3,219,928.064 16.83%
Attn: Fund Admin/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class B
MLPF&S For the Sole Benefit** 6,744,579.531 23.19%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
121
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Class C
MLPF&S For the Sole Benefit** 5,038,831.100 15.41%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc** 1,950,805.419 85.72%*
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
Long-Term U.S. Government Fund
Institutional
Wendel & Co. 7,555,003.293 33.94%*
C/O Bank of NY
P.O. Box 1066 Wall Street Station
New York, NY 10268-1066
Chicago Symphony Orchestra 3,611,809.258 16.23%
220 South Michigan Ave
Chicago IL 60604-2596
Charles Schwab & Co Inc** 1,931,024.917 8.68%
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Northern Trust Co FBO 1,862,533.827 8.37%
Allianz DC Plan - Master Trust
PO Box 92956
Chicago IL 60675-2956
Wells Fargo Bank MN FBO 1,424,879.122 6.40%
Chronicle Publishing Pension Plan
P.O. Box 1533
Minneapolis, MN 55480-1533
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Administrative
FIIOC As Agent for** 3,762,955.700 90.74%*
Certain Employee Benefits Trans
100 Magellan Way KW1C
Covington KY 41015-1987
Class A
Advest INC ** 482,196.425 10.33%
90 State House Square
Hartford CT 06103
MLPF&S For the Sole Benefit** 373,066.167 7.99%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Advest INC ** 347,449.010 7.44%
90 State House Square
Hartford CT 06103
Prudential Defined Contribution Plan ** 338,736.705 7.25%
FBO Plan Participants
30 Scranton Office Park
Scranton PA 18507-1755
Advest INC ** 281,017.570 6.02%
90 State House Square
Hartford CT 06103
Class B
MLPF&S For the Sole Benefit** 997,766.235 28.06%*
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class C
MLPF&S For the Sole Benefit** 473,944.766 20.82%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Short Duration Municipal Income Fund
Institutional
PIMCO Advisors LP 1,092,782.104 83.79%
800 Newport Center Dr. Fl 6
Newport Beach, CA 92660-6309
John L Johnson 178,850.855 13.71%
7831 Stanford
Dallas TX 75225-8209
Class D
PIMCO Advisors LP 1,022.455 100.00%*
800 Newport Center Dr Fl 6
Newport Beach CA 92660-6309
Municipal Bond Fund
Institutional
Federick Henry Prince 1932 Trust 652,725.984 53.61%
10 S Wacker Dr Suite 2575
Chicago IL 60606-7407
Mediaone Veba Trust 120,724.990 9.92%
Attn: Karen Frame
188 Inverness Dr W FL 7
Englewood CO 80112-5202
Northern Trust Co FBO 110,656.935 9.09%
Reliant Energy Incorporated Retirement Plan
PO Box 92923
Chicago IL 60675-2923
Brent R. Harris 74,981.752 6.16%
Elizabeth E Harris JT WROS
1 Crest Road East
Rolling Hills CA 90274-5224
Phyllis K. Curtis Trustee of 67,329.766 5.53%
The Phyllis k. Curtis Separate Property Trust
14158 NW Bronson Creek Drive
Portland, OR 97229-7060
</TABLE>
124
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Administrative
Marjorie P Bucklew Usufruct 41,539.010 9.57%
Elizabeth B Ingrish Naked Ownr
2801 Marye St
Alexandria LA 71301-4927
Joy L. McNeese 27,345.799 6.30%
8438 Porter Ln
Alexandria VA 22308-2142
Annie P. Allen 25,525.602 5.88%
IMPAC
601 E First Street
Belzoni, MS 39038-3405
Class A
MLPF&S For the Sole Benefit** 155,421.838 23.13%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Banc of America Securities LLC 87,713.411 13.05%
600 Montgomery St
San Francisco CA 94111
DB Alex Brown LLC 51,776.576 7.70%
PO Box 1346
Baltimore MD 21203
Anne D Hopper & Duane B Hopper 36,279.731 5.39%
TTEES U/A DTD 03/02/99
Anne D Hopper Rev Trust
PO Box 5123
Charlottesville VA 22905-5123
Class B
MLPF&S For the Sole Benefit** 100,948.775 19.65%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
125
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Dain Rauscher Incorporated FBO 66,529.644 12.59%
K K Kinsey Trustee
K K Kinsey Rev Intervivos TR
US DTD 04-18-1997
2801 NE 14th St
Fort Lauderdale FL 33304-1680
Class C
MLPF&S For the Sole Benefit** 270,093.806 9.32%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc** 53,203.327 80.79%*
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
California Intermediate Municipal Bond Fund
Institutional
Brent R Harris 2,568,523.411 39.30%*
Elizabeth E Harris JT WROS
1 Crest Road East
Rolling Hills CA 90274-5224
James Invalid Muzzy & Pamela B Muzzy 1,017,450.709 15.57%
TTEES U/A 01-10-89
Muzzy family Trust
2546 Riviera Drive
Laguna Beach CA 92651-1029
Charles Schwab & Co Inc** 1,117,192.859 17.09%
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
William S. and Nancy E. Thompson 507,329.116 7.76%
Revocable Trust
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
2431 Riviera Dr
Laguna Beach CA 92651-1013
Salomon Smith Barney, Inc. 394,643.953 6.04%
333 West 34th Street, 3rd Floor
New York, NY 10001
Bear Stearns Securities Corp 352,038.185 5.39%
1 Metrotech Ctr N
Brooklyn NY 11201-3870
Bear Stearns Securities Corp 101,979.112 64.71%*
1 Metrotech Center N
Brooklyn, NY 11201-3870
Bear Stearns Securities Corp 15,259.500 9.68%
1 Metrotech Center N
Brooklyn, NY 11201-3870
Bear Stearns Securities Corp 10,198.415 6.47%
1 Metrotech Center N
Brooklyn, NY 11201-3870
Bear Stearns Securities Corp 10,173.334 6.46%
1 Metrotech Center N
Brooklyn, NY 11201-3870
Bear Stearns Securities Corp 10,163.205 6.45%
1 Metrotech Center N
Brooklyn, NY 11201-3870
Bear Stearns Securities Corp 9,813.160 6.23%
1 Metrotech Center N
Brooklyn, NY 11201-3870
Class A
Salomon Smith Barney Inc 1,187,174.330 39.65%*
333 West 34th St - FL 3
New York NY 10001
</TABLE>
127
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Dean Witter For the Benefit of 1,315,852.022 43.95%*
William C Powers
PO Box 250 Church Street Station
New York NY 10008-0250
Salomon Smith Barney Inc 171,503.195 5.72%
333 West 34th St - FL 3
New York NY 10001
Class D
PIMCO Advisors LP 1,035.942 29.89%*
800 Newport Center Dr Fl 6
Newport Beach CA 92660-6309
National Investors Services Corp** 2,429.543 70.10%*
For Exclusive Benefit of Our Customers
55 Water Street, FL 32
New York, NY 10041-3299
California Municipal Bond Fund
Institutional
William C Powers 304,378.674 34.83%
2012 The Strand
Manhattan Beach CA 90266-4559
James F. Muzzy & Pamela B. Muzzy 304,378.674 34.83%
TTEES U/A 01/10/89
Muzzy Family Trust
2546 Riviera Drive
Laguna Beach CA 92651-1029
Chris P. Dialynas 152,189.338 17.42%
2140 Mesa Drive
Newport Beach CA 92660-1709
William S. and Nancy E. Thompson 101,459.553 11.61%
Revocable Trust
2431 Riviera Drive
Laguna Beach CA 92651-1013
</TABLE>
128
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
--------------------------------
<S> <C> <C>
Class A
PIMCO Advisors LP 969.308 100.00%
800 Newport Center Drive, FL 6
Newport Beach, CA 92660-6309
Class D
PIMCO Advisors LP 969.308 100.00%
800 Newport Center Drive, Fl 6
Newport Beach, CA 92660-6309
New York Municipal Bond Fund
Institutional
PIMCO Advisors LP 313,205.515 100.00%*
800 Newport Center Dr Fl 6
Newport Beach CA 92660-6309
Class A
PIMCO Advisors LP 1,046.112 99.52%
800 Newport Center Dr FL 6
Newport Beach CA 92660-6309
Class D
PIMCO Advisors LP 1,045.273 100.00%*
800 Newport Center Dr FL 6
Newport Beach CA 92660-6309
Global Bond Fund
Institutional
Regents of the University of 5,876,853.596 17.02%
Massachusetts, Inc. - Managed Care
100 Summer Street, Treasury 01-06
Boston, MA 02110-2106
Blue Cross Blue Shield of 5,723,504.269 16.58%
Massachusetts Inc - Managed Care
100 Summer St - Treasury 01-06
Boston MA 02110-2106
</TABLE>
129
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Walker Art Center Inc 4,795,046.724 13.89%
Mr. David M. Galligan - Admin
Director & Treasurer
Vineland Place
Minneapolis MN 55403
Administrative
FIIOC As Agent for** 259,211.329 97.01%
Certain Employee Benefits Trans
100 Magellan Way KW1C
Covington KY 41015-1987
Global Bond Fund II
Institutional
Weil Gotshal & Manges 2,168,401.768 33.74%*
Partners Pension Trust
C/O Citibank Private Bank
120 Broadway 2nd Fl/Zone 2
New York NY 10271-0002
Mac & Co 1,814,215.525 28.23%
PO Box 3198
Pittsburgh PA 15230-3198
GMP Employers Retiree Trust 1,181,666.223 18.39%
PO Box 3198
Pittsburgh PA 15230-3198
Weil Gotshal & Manges 596,456.777 9.28%
Employees Pension Trust
C/O Citibank Private Bank
120 Broadway 2nd Fl/Zone 2
New York NY 10271-0002
The American University in Cairo 321,398.175 5.00%
AUC Endowment
420 5th Ave
New York NY 10018-2729
</TABLE>
130
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Class A
MLPF&S For the Sole Benefit** 22,057.833 10.55%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Donaldson Lufkin Jenrett** 14,950.692 7.15%
Securities Corporation Inc
PO Box 2052
Jersey City NJ 07303-9998
OLDE Discount 11,029.956 5.27%
751 Griswold Street
Detroit, MI 48226
Raymond James & Assoc Inc. 10,561.086 5.05%
504 Galen Circle
Ann Arbor, MI 48103
Class B
MLPF&S For the Sole Benefit** 105,357.242 22.54%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class C
MLPF&S For the Sole Benefit** 71,162.800 14.50%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Foreign Bond Fund
Institutional
Charles Schwab & Co Inc** 5,042,668.568 57.48%*
Special Custody Account
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
PFPC FBO LPL Supermarket Program 2,858,555.592 6.56%
211 S Gulph Rd
King of Prussia PA 19406-3101
Donaldson Lufkin Jennrette** 2,426,143.099 5.57%
Pershing Division
One Pershing Plaza
PO Box 2052
Jersey City NJ 07303-2052
Resources Trust Co For The Exclusive
Benefit of the Customers of IMS 139,300.806 23.41%
PO Box 3865
Englewood CO 80155-3865
Administrative
CBNA Custodian FBO Clients of**
Benefit Plans Administrators 118,530.691 19.92%
1500 Genesee St
Utica NY 13502-5104
National Financial Services Corp**
for the Exclusive Benefit of our Customers 84,716.610 14.24%
1 World Financial Center
200 Liberty St
New York NY 10281-1003
Class A
Advest Inc 724,389.231 11.21%
90 State House Square
Hartford CT 06103
Advest Inc 505,486.375 7.82%
90 State House Square
Hartford CT 06103
Class B
MLPF&S For the Sole Benefit** 169,417.687 6.69%
Of Its Customers
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Class D
Charles Schwab & Co Inc** 1,292,670.213 87.84%*
Special Custody Accounts FBO Customers
101 Montgomery St
San Francisco CA 94104-4122
Emerging Markets Bond Fund
Institutional
IBM Retirement Plan Long Duration II
C/O Chase Manhattan Bank 2,298,747.725 52.01%*
Global Securities Services
3 Chase Metrotech Center 7th Fl
Brooklyn NY 11245-0001
State Street Bank & Trust FBO
Hallmark Master Trust 570,670.003 12.91%
PO Box 1992
Boston MA 02105-1992
Tenet Healthcare (AMI)
C/O State Street Bank & Trust 557,063.281 12.60%
Master Trust Services Division
PO Box 1992
Boston MA 02105-1992
Charles Schwab & Co Inc**
Special Custody Account 397,635.178 9.00%
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Arrow & Co** 242,718.447 5.49%
PO Box 30010
Durham NC 27702-3010
Wendel & Co
C/O The Bank of New York 234,333.196 5.30%
Attn Mutual Fund/Reorg Dept
PO Box 1066 Wall St Station
New York NY 10268-1066
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Administrative
Centurion Trust Co**
FBO Omunibus/Centurion Cap Mgmt 1,279,425.170 99.88%*
2425 EB Camelback Road Suite 530
Phoenix AZ 85016
Class A
BSDT Cust Rollover IRA FBO 6,774.572 19.29%
LEO William Hoffman
2305 Atkins Road
Petosky MI 49770
Steve M Foulke & 5,019.286 14.29%
Maria M Foulke Community Property
1 Altimira
Coto de Caza CA 92679-4901
Painewebber FBO 4,362.000 12.42%
Patricia Lopez Hold &
Mark Garcia JTWROS
10066 Garnet Avenue, PMB 606
San Diego, CA 92109-3116
Maria May Faulke TTEE
Maria Michelle May 1992 Trust 3,272.097 9.41%
FBO Chelsea & Ryan Faulke
1 Altimira
Trabuco Canyon CA 92679
Class B
MLPF&S For the Sole Benefit**
Of Its Customers 58,632.434 38.47%*
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Robert W Baird & Co Inc
777 East Wisconsin Ave 11,278.763 7.40%
Milwaukee WI 53202-5391
</TABLE>
134
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Donaldson Lufkin Jenrette
Securities Corporation Inc 8,937.642 5.86%
PO Box 2052
Jersey City NJ 07303-9998
Class C
MLPF&S For the Sole Benefit**
Of Its Customers 26,139.164 40.71%*
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Prudential Securities Inc. 10,867.609 16.92%
60 Altadena Drive
Pittsburgh, PA 15228-1002
CIBC World Markets Corp
PO Box 3484 4,176.072 6.50%
Church Street Station
New York NY 10008-3484
First Closing Corp
Patrick J Rowland Marital 3,838.495 5.97%
3800 W 80th Suite 1000
Bloomington, MN 55431-4425
CIBC World Markets Corp
PO Box 3484 3,579.698 5.57%
Church Street Station
New York NY 10008-3484
Raymond James & Assoc Inc
FBO J A Del Santro TTEE UA DTD 3,489.592 5.43%
3/23/98 J A Del Santro Rev TR
381 Amber Lake Dr
Fairmont MN 56031
Class D
PIMCO Advisors LP 1,207.560 100.00%*
800 Newport Center Dr FL6
Newport Beach CA 92660-6309
</TABLE>
135
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Strategic Balanced Fund
Institutional
Carpenters Health & Security Trust of
Western Washington 2,383,347.846 57.10%
PO Box 1929
Seattle WA 98111-1929
Dominguez Services Corp
Trusted Pension Fund 548,545.388 13.14%
21718 South Alameda St
Long Beach CA 90810-1682
BNY Western Trust Co TTEE FBO
Pacific Life Insurance Co Retirement 417,358.647 10.00%
Incentive Savins Plan
700 S Flower St FL2
Los Angeles Ca 90017-4101
Norwest Bank MN NA FBO
Music Center Retirement Plan 323,041.846 7.74%
PO Box 1533
Minneapolis MN 55480-1533
The Northern Trust Co TTEE FBO
Ameron 401K 270,203.989 6.47%
PO Box 92956
Chicago IL 60675-2956
Administrative
Norwest Bank MN NA FBO
Affiliated Medical Centers PSP 33,035.179 73.26%
PO Box 1533
Minneapolis MN 55480-1533
Norwest Bank MN NA FBO
Affiliated Med Center Pension Plan 12,058.862 26.74%
PO Box 1533
Minneapolis MN 55480-1533
</TABLE>
136
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Class A
Prudential Securities Inc FBO
Prudential Retirement Services 39,218.330 11.54%
MSSA-ILA Local 1985 401K
PO Box 15040
New Brunswick NJ 08906-5040
BSDT Cust Rollover IRA
FBO Frederick A Otto 20,872.980 6.14%
795 Fairway Court
Gaylord MI 49735-9386
A G Edwards & Sons Inc C/F
Roy A Vandermeer IRA Account 17,740.061 5.22%
2121 Jamieson Ave Unit 2111
Alexandria VA 22314-5717
Class B
MLPF&S For the Sole Benefit**
Of Its Customers 138,989.420 16.19%
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class C
MLPF&S For the Sole Benefit**
Of Its Customers 156,263.339 14.42%
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc**
Special Custody Accounts FBO Customers 14,721.503 81.01%*
101 Montgomery St
San Francisco CA 94104-4122
National Investors Services Corp**
For Exclusive Benefit of Our Customers 3,449.952 18.98%
55 Water St FL 32
New York NY 10041-3299
</TABLE>
137
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Convertible Fund
Institutional
State Street Bank & Trust
FBO Pacific Gas & Electric Co 686,976.851 7.96%
Retirement Plan Master
1 Enterprise Dr
North Quincy MA 02171-2126
Kamehamelia Activities Association
c/o Bank of New York 556,419.420 6.56%
1 Wall Street, 25th Floor
Investor Management Services Group
New York, NY 90286-0001
Administrative
Bear Stearns Securities Corp
1 Metrotech Center North 27,605.245 97.56%
Brooklyn, NY 11201-3870
Class A
Dean Witter For the Benefit of
American Osteopathic Association 146,135.887 33.50%*
PO Box 250 Church Street Station
New York NY 10008-0250
MLPF&S For the Sole Benefit**
Of Its Customers 45,181.781 10.36%
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class B
MLPF&S For the Sole Benefit**
Of Its Customers 134,283.852 37.93%*
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Dean Witter*
P O Box 250 146,135.887 33.50%*
Church Street Station
New York, NY 10008-0250
</TABLE>
138
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Class C
MLPF&S For the Sole Benefit**
Of Its Customers 193,092.089 21.11%
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
PIMCO Advisors LP
800 Newport Center Dr FL 6 638.116 100.00%*
Newport Beach CA 92660-6309
StocksPLUS Fund
Institutional
Charles Schwab & Co Inc**
Special Custody Account 4,587,051.307 10.54%
Attn Mutual Funds Dept
101 Montgomery St
San Francisco CA 94104-4122
Northern Trust Custodian FBO
Reliastar Financial Acct 3,707,575.009 8.52%
PO Box 92956
Chicago IL 60675-2956
Dain Rauscher Inc FBO
St Cloud Hospital Memrndm Acct 3,015,809.317 6.93%
1406 6th Ave N
Saint Cloud MN 56303-1900
Pacific Mutual Life Insurance Co
Employee's Retirement Plan Trust 2,878,326.594 6.61%
700 Newport Center Dr
Newport Beach CA 92660-6397
Firstar Des Moines TTEE
Iowa Methodist Medical Ctr 2,568,973.849 5.90%
PO Box 1787
Milwaukee WI 53201-1787
</TABLE>
139
<PAGE>
<TABLE>
<CAPTION>
Shares Percent
Beneficially of
Owned Class
------------------------------
<S> <C> <C>
Administrative
The Colorado County Officials and
Employees Retirement Association 2,174,562.860 77.28%*
4949 S Syracuse St Suite 400
Denver Co 80237-2747
Transamerica Life Insurance & Annuity Co (TI)
PO Box 30368 187,503.655 6.66%
Los Angeles CA 90030-0368
National Financial Services Corp**
for the Exclusive Benefit of our Customers 148,576.123 5.28%
1 World Financial Center
200 Liberty St
New York NY 10281-1003
Class A
MLPF&S For the Sole Benefit**
Of its Customers 1,797,976.597 16.15%
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class B
MLPF&S For the Sole Benefit**
Of its Customers 4,286,023.398 16.88%
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class C
MLPF&S For the Sole Benefit**
Of its Customers 2,403,653.116 11.54%
Attn Fund Admn/#97M
4800 Deer Lake Dr E FL 3
Jacksonville FL 32246-6484
Class D
Charles Schwab & Co Inc**
Special Custody Accounts FBO Customers 214,740.584 91.83%*
101 Montgomery St
San Francisco CA 94104-4122
</TABLE>
140
<PAGE>
* Entity owned 25% or more of the outstanding shares of beneficial interest of
the Fund, and therefore may be presumed to "control" the Funds, as that term is
defined in the 1940 Act.
** Shares are believed to be held only as nominee.
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 Money Market Fund and 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
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.
Custodian, Transfer Agent and Dividend Disbursing Agent
State Street Bank and Trust Company ("State Street"), 801 Pennsylvania,
Kansas City, Missouri 64105 serves as custodian for assets of all Funds. Under
the custody 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
141
<PAGE>
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. PFPC 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.
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 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, 2000 for its fiscal year
then ended, including notes thereto, and the reports of PricewaterhouseCoopers
LLP thereon dated May 23, 2000, are incorporated by reference from the Trust's
2000 Annual Reports. A copy of the Reports delivered with this Statement of
Additional Information should be retained for future reference.
142
