<PAGE>
As filed with the Securities and Exchange Commission on May 18, 2000
File Nos. 33-12113
811-5028
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under the Securities Act of 1933 [X]
Post-Effective Amendment No. 54 [X]
and
Registration Statement Under the Investment Company Act of 1940 [X]
Amendment No. 62 [X]
PIMCO FUNDS
-----------
(Exact Name of Registrant as Specified in Charter)
840 Newport Center Drive
Newport Beach, California 92660
-------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code:
(949) 720-6533
Robert W. Helm, Esq. R. Wesley Burns
Dechert Price & Rhoads Pacific Investment Management Company
1775 Eye Street, N.W. 840 Newport Center Drive, Suite 300
Washington, D.C. 20006 Newport Beach, California 92660
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C>
[_] Immediately upon filing pursuant to paragraph (b) [_] On (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1) [_] On (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2) [_] On (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This Amendment to the Registration Statement of PIMCO Funds: Pacific
Investment Management Series (the "Trust") on Form N-1A (File No. 33-12113) is
being filed for the purpose of offering (i) Class A, Class D and Institutional
and Administrative Class shares of the PIMCO California Municipal Bond Fund and
(ii) Class A, Class B and Class C shares of the PIMCO Total Return Mortgage
Fund. The PIMCO Total Return Mortgage Fund currently offers Class D and
Institutional and Administrative Class shares pursuant to separate prospectuses.
The PIMCO California Municipal Bond Fund is not currently offered under the
Securities Act of 1933.
<PAGE>
<TABLE>
<CAPTION>
PIMCO Funds Prospectus
<S> <C>
--------------------------------------------------------------------------------
Pacific SHORT DURATION BOND FUNDS
Investment Money Market Fund Low Duration Fund II
Management Short-Term Fund Low Duration Fund III
Series Low Duration Fund Low Duration Mortgage Fund
--------------------------------------------------------------------------------
August 1, 2000 INTERMEDIATE DURATION BOND FUNDS
Moderate Duration Fund Total Return Fund III
Share Classes Real Return Bond Fund Total Return Mortgage Fund
Total Return Fund Investment Grade Corporate Bond Fund
Ins Institutional Total Return Fund II High Yield Fund
--------------------------------------------------------------------------------
Adm Administrative LONG DURATION BOND FUNDS
Long-Term U.S. Government Fund Long Duration 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
P I M C 0
This cover is not part of the Prospectus ---------
FUNDS
</TABLE>
<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 ("PIMCO"). As of December 31, 1999,
Management PIMCO managed approximately $186 billion in assets. The firm's
Series institutional heritage is reflected in the PIMCO Funds offered in
this Prospectus.
This Prospectus explains what you should know about the Funds
August 1, before you invest. Please read it carefully.
2000
The Securities and Exchange Commission has not approved or
disapproved these securities, or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.
Share
Classes
Institutional
and
Administrative
PIMCO Funds: Pacific Investment Management Series
1
<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
Low Duration Mortgage 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............................................... 67
Purchases, Redemptions and Exchanges............................. 68
How Fund Shares are Priced....................................... 72
Fund Distributions............................................... 73
Tax Consequences................................................. 74
Characteristics and Risks of Securities and Investment
Techniques...................................................... 75
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
---------------------------------------------------------------------------------------------------------------------------
Low Duration Mortgage Short and 1-3 years Baa to Aaa; max 10% 0%
intermediate below Aaa
maturity
mortgage-related
fixed income
securities
- ------------------------------------------------------------------------------------------------------------------------------------
Intermediate Moderate Duration Short and 2-5 years B to Aaa; max 10% 0-20%(3)
Duration Bond intermediate below Baa
Funds 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 Intermediate 0-6 years B to Aaa; max 0-20%(3)
Bond maturity fixed- 10% below Baa
Funds income
securities and
S&P 500 stock
index
derivatives
---------------------------------------------------------------------------------------------------------------------------
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 Rating 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.
3
<PAGE>
Summary Information (continued)
Fixed The "Fixed Income Funds" are the Money Market, Short-Term, Low
Income Duration, Low Duration II, Low Duration III, Low Duration
Instruments Mortgage, Moderate 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 instrumentalities;
. obligations of non-U.S. governments or their subdivisions,
agencies and instrumentalities; and
. obligations of international agencies or supranational
entities.
Duration Duration is a measure of the expected life of a fixed income
security that is used to determine the sensitivity of a security's
price to changes in interest rates. The longer a security's
duration, the more sensitive it will be to changes in interest
rates. Similarly, a Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund
with a shorter average portfolio duration.
Credit In this Prospectus, references are made to credit ratings of debt
Ratings securities which measure an issuer's expected ability to pay
principal and interest on time. Credit ratings are determined by
rating organizations, such as Standard & Poor's Rating Service
("S&P") or Moody's Investors 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.
PIMCO Funds: Pacific Investment Management Series
5
<PAGE>
PIMCO Money Market Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
92 93 94 95 96 97 98 99 --------------------
----- ----- ----- ----- ----- ----- ----- ----- Highest (4th Qtr.
3.44% 2.80% 3.92% 6.06% 5.28% 5.34% 5.34% 4.90% '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>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (3/1/91)(3)
------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.15% None 0.20% 0.35%
------------------------------------------------------------------
Administrative 0.15 0.25% 0.20 0.60
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects 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)
- --------------------------------------------------------------------------------
Fund Focus Credit Quality
Principal Investment Objective Money market B to Aaa; maximum
Investments Seeks maximum instruments and 10% below Baa
and current income, short maturity
Strategies consistent with fixed income Dividend Frequency
preservation of securities Declared daily and
capital and daily distributed monthly
liquidity 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 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] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
90 91 92 93 94 --------------------
----- ----- ----- ----- ----- Highest (4th Qtr.
8.47% 6.65% 3.63% 4.62% 2.90% '95) 2.60%
--------------------
95 96 97 98 99 Lowest (1st Qtr.
----- ----- ----- ----- ----- '94) 0.19%
9.21% 7.00% 6.51% 5.74% 5.24%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
----------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
---------------------------------------------------------------------
Institutional 0.25% None 0.20% 0.45%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.20 0.70
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects 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 $46 $144 $252 $567
---------------------------------------------------------------------
Administrative 72 224 390 871
---------------------------------------------------------------------
</TABLE>
Prospectus 8
<PAGE>
PIMCO Low Duration Fund Ticker
Symbols:
PTLDX
(Inst.
Class)
PLDAX
(Admin.
Class)
- --------------------------------------------------------------------------------
Fund Focus Credit Quality
Principal Investment Objective Short maturity B to Aaa; maximum
Investments Seeks maximum fixed income 10% below Baa
and total return, securities
Strategies consistent with Dividend Frequency
preservation of Average Portfolio Declared daily and
capital and Duration 1-3 years distributed monthly
prudent
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 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
[GRAPH] Highest and Lowest
Quarter Returns
Annual Returns (for periods shown
in the bar chart)
90 91 92 93 94 95 96 97 -------------------
----- ------ ----- ----- ----- ------ ----- ----- Highest (3rd Qtr.
9.05% 13.46% 7.69% 7.76% 0.63% 11.93% 6.14% 8.24% '91) 3.90%
--------------------
98 99 Lowest (1st Qtr.
----- ----- '94) -0.32%
7.16% 2.97%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
--------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.18% 0.43%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.18 0.68
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.18% 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 $44 $138 $241 $542
------------------------------------------------------------------
Administrative 69 218 379 847
------------------------------------------------------------------
</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
preservation of
capital and Average Portfolio
prudent Duration Dividend Frequency
investment 1-3 years Declared daily and
management distributed monthly
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 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.
PIMCO Funds: Pacific Investment Management Series
11
<PAGE>
PIMCO Low Duration Fund II (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH]
Annual Return Highest and Lowest
Quarter Returns
92 93 94 95 96 (for periods shown
----- ----- ----- ------ ----- in the bar chart)
6.23% 6.58% 0.32% 11.78% 5.22% ---------------------------
Highest (1st Qtr. '95)3.83%
97 98 99 ---------------------------
----- ----- ----- Lowest (1st Qtr. '94)-0.60%
7.62% 6.60% 2.55%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (11/1/91)(3)
--------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
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 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
capital and Average Portfolio
prudent Duration Dividend Frequency
investment 1-3 years Declared daily and
management distributed monthly
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 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.
PIMCO Funds: Pacific Investment Management Series
13
<PAGE>
PIMCO Low Duration Fund III (continued)
Calendar Year Total Returns -- Institutional Class
[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>
<S> <C> <C>
Fund Inception
1 Year (12/31/96)
------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
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
14
<PAGE>
PIMCO Low Duration Mortgage Fund Ticker
Symbols:
N/A (Inst.
Class)
N/A
(Admin.
Class)
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Short maturity Baa to Aaa; maximum
and total return, mortgage-related 10% below Aaa
Strategies consistent with fixed income
preservation of securities
capital and
prudent Average Portfolio
investment Duration Dividend Frequency
management 1-3 years Declared daily and
distributed monthly
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 one- to three-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 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 Risk
.Credit Risk .Derivatives Risk .Leveraging Risk
.Market Risk .Liquidity Risk .Management Risk
.Issuer 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.
PIMCO Funds: Pacific Investment Management Series
15
<PAGE>
PIMCO Low Duration Mortgage Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Reports (for periods shown
in the bar chart)
98 99 --------------------
------- ------- Highest (3rd Qtr.
6.10% 2.86% '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>
<S> <C> <C>
Fund Inception
1 Year (7/31/97)
---------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.26% 0.51%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.26 0.76
------------------------------------------------------------------
</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 $52 $164 $285 $640
------------------------------------------------------------------
Administrative 78 243 422 942
------------------------------------------------------------------
</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
capital and
prudent Average Portfolio
investment Duration Dividend Frequency
management 2-5 years Declared daily and
distributed monthly
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 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.
PIMCO Funds: Pacific Investment Management Series
17
<PAGE>
PIMCO Moderate Duration Fund (continued)
Calendar Year Total Returns -- Institutional Class
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>
<S> <C> <C>
Fund Inception
1 Year (12/31/96)
----------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
---------------------------------------------------------------------
Institutional 0.25% None 0.20% 0.45%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.20 0.70
---------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects 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 $46 $144 $252 $567
---------------------------------------------------------------------
Administrative 72 224 390 871
---------------------------------------------------------------------
</TABLE>
Prospectus 18
<PAGE>
PIMCO Real Return Bond Fund Ticker
Symbols:
PRRIX
(Inst.
Class)
N/A
(Admin.
Class)
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Inflation-indexed B to Aaa; maximum
and real return, fixed income 10% below Baa
Strategies consistent with securities
preservation of Dividend Frequency
real capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment See description
management below
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 March 7, 2000 was 9.0
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 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 Risks
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 .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 has not commenced operations
as of the date of this prospectus. 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
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
----- ----- Highest (3rd
5.21% 5.72% 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>
<S> <C> <C>
Fund Inception
1 Year (1/29/97)(3)
-------------------------------------------------------------------
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 3.2 years
as of 12/31/99. 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.27% 0.52%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.27 0.77
------------------------------------------------------------------
</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 $53 $167 $291 $653
------------------------------------------------------------------
Administrative 79 246 428 954
------------------------------------------------------------------
</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 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.
PIMCO Funds: Pacific Investment Management Series
21
<PAGE>
PIMCO Total Return Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRPAH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
90 91 92 93 94 --------------------
----- ------ ----- ------ ------ Highest (3rd
8.05% 19.55% 9.73% 12.51% -3.58% Qtr. '91) 6.66%
--------------------
95 96 97 98 99 Lowest (1st
------ ----- ------ ----- ------ Qtr. '94) -2.69%
19.77% 4.69% 10.16% 9.76% -0.28%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
--------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.18% 0.43%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.18 0.68
------------------------------------------------------------------
(1) Other Expenses reflects a 0.18% 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.
<CAPTION>
Share Class Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $44 $138 $241 $542
------------------------------------------------------------------
Administrative 69 218 379 847
------------------------------------------------------------------
</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 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.
PIMCO Funds: Pacific Investment Management Series
23
<PAGE>
PIMCO Total Return Fund II (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
92 93 94 95 96 97 98 99 --------------------
----- ------ ------ ------ ----- ----- ----- ------ Highest (3rd Qtr.
9.43% 10.90% -2.21% 18.97% 3.85% 9.99% 9.62% -1.07% '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>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (12/30/91)(3)
----------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.25% 0.50%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
------------------------------------------------------------------
(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.
<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 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.
PIMCO Funds: Pacific Investment Management Series
25
<PAGE>
PIMCO Total Return Fund III (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
92 93 94 95 96 --------------------
----- ------ ------ ------ ------ Highest
9.02% 12.64% -3.43% 19.23% 4.63% (1st Qtr.'95) 5.73%
--------------------
97 98 99 Lowest
------ ------ ------ (1st Qtr.'94) -2.68%
10.21% 10.37% -0.95%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (5/1/91)(3)
-------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
---------------------------------------------------------------------
Institutional 0.25% None 0.25% 0.50%
---------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
---------------------------------------------------------------------
(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.
<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:
N/A (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 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
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
----- ----- Highest (3rd Qtr.
7.23% 2.42% '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>
<S> <C> <C>
Fund Inception
1 Year (7/31/97)
-------------------------------------------------------------------------
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 4.27 years as of 12/31/99. 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
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 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.
PIMCO Funds: Pacific Investment Management Series
29
<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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.25% 0.50%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
------------------------------------------------------------------
(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.
<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
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 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 Risks
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 . 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
Highest and Lowest
[GRAPH] Quarter Returns
(for periods shown
Annual Return in the bar chart)
--------------------
93 94 95 96 97 98 99 Highest (1st Qtr.
- ------ ------ ------ ------ ------ ------ ------ '93) 6.27%
18.70% 2.39% 20.68% 11.68% 13.21% 6.54% 2.82% --------------------
Lowest (3rd Qtr.
'98) -1.76%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (12/16/92)(3)
-----------------------------------------------------------------
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 4.40 years as of
12/31/99. 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 not 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
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 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
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
92 93 94 95 96 97 98 99 --------------------
------ ------ ------ ------ ----- ------ ----- ------ Highest (2nd Qtr.
11.93% 18.57% -7.39% 31.57% 0.71% 15.02% 13.39 -7.99% '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>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (7/1/91)(3)
----------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.25% 0.50%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.26 0.76
------------------------------------------------------------------
</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 78 243 422 942
------------------------------------------------------------------
</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 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 does not yet have a full calendar year of performance.
Information Thus, no bar chart or annual returns table is included for the
Fund.
PIMCO Funds: Pacific Investment Management Series
35
<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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.25% 0.50%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
------------------------------------------------------------------
(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.
<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
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 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.
PIMCO Funds: Pacific Investment Management Series
37
<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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.20% None 0.19% 0.39%
------------------------------------------------------------------
Administrative 0.20% 0.25% 0.19% 0.64%
------------------------------------------------------------------
(1) Other expenses reflects a 0.19% 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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $40 $125 $219 $493
------------------------------------------------------------------
Administrative $65 $205 $357 $798
------------------------------------------------------------------
</TABLE>
Prospectus
38
<PAGE>
PIMCO 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 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 Fund will seek income that is high relative to
prevailing rates from Municipal Bonds. 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 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 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.
PIMCO Funds: Pacific Investment Management Series
39
<PAGE>
PIMCO Municipal Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
----- ------ Highest (3rd Qtr.
6.07% -3.72% '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>
<S> <C> <C>
Fund Inception
1 Year (12/31/97)
----------------------------------------------------------------------
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 7.68 years as
of 12/31/99. 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
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
Ticker
Municipal Bond Fund Symbols:
N/A (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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.24% 0.49%
------------------------------------------------------------------
Administrative 0.25% 0.25% 0.24% 0.74%
------------------------------------------------------------------
(1) Other expenses reflects a 0.24% Administrative Fee paid by the
class.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $50 $157 $274 $616
------------------------------------------------------------------
Administrative $76 $237 $411 $918
------------------------------------------------------------------
</TABLE>
Prospectus
42
<PAGE>
PIMCO California
Ticker
Municipal Bond Fund Symbols:
N/A (Inst.
Class)
N/A
(Admin.
Class)
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high B to Aaa; maximum
and current income Intermediate to 10% below Baa
Strategies exempt from long-term
federal and maturity Dividend Frequency
California income municipal Declared daily and
tax. Capital securities distributed monthly
appreciation is a (exempt from
secondary federal and
objective. California income
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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.24% 0.49%
------------------------------------------------------------------
Administrative 0.25% 0.25% 0.24% 0.74%
------------------------------------------------------------------
(1) Other expenses reflects a 0.24% Administrative Fee paid by the
class.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $50 $157 $274 $616
------------------------------------------------------------------
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 B to Aaa; maximum
and current income Intermediate to 10% below Baa
Strategies exempt from long-term
federal and New maturity Dividend Frequency
York income tax. municipal Declared daily and
Capital securities distributed monthly
appreciation is a (exempt from
secondary federal and New
objective. York income 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 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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.24% 0.49%
------------------------------------------------------------------
Administrative 0.25% 0.25% 0.24% 0.74%
------------------------------------------------------------------
(1) Other expenses reflects a 0.24% 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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $50 $157 $274 $616
------------------------------------------------------------------
Administrative $76 $237 $411 $918
------------------------------------------------------------------
</TABLE>
Prospectus
46
<PAGE>
PIMCO Global Bond Fund Ticker
Symbols:
PIGLX
(Inst.
Class)
N/A
(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 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
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
94 95 96 97 98 99 --------------------
------ ------ ------ ------ ------ ------ Highest (1st Qtr.
-1.70% 22.96% 10.32% -0.90% 12.50% -4.29% '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>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (11/23/93)(3)
------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.30% 0.55%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.30 0.80
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.30% 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 $56 $176 $307 $689
------------------------------------------------------------------
Administrative 82 255 444 990
------------------------------------------------------------------
</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 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.
PIMCO Funds: Pacific Investment Management Series
49
<PAGE>
PIMCO Global Bond Fund II (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
--------------------
96 97 98 99 Highest (3rd Qtr.
------ ------ ------ ------ '96) 5.39%
12.84% 8.68% 7.71% 0.29% --------------------
Lowest (2nd Qtr.
'99) -1.72%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (10/2/95)(3)
-----------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.30% 0.55%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.30 0.80
------------------------------------------------------------------
(1) Other Expenses reflects a 0.30% 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.
<CAPTION>
Share Class Year 1 Year 3 Year 5 Year 10
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional $56 $176 $307 $689
------------------------------------------------------------------
Administrative 82 255 444 990
------------------------------------------------------------------
</TABLE>
Prospectus
50
<PAGE>
PIMCO Foreign Bond Fund Ticker
Symbols:
PFORX
(Inst.
Class)
N/A
(Admin.
Class)
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Intermediate B to Aaa; maximum
and total return, maturity hedged 10% below Baa
Strategies consistent with non-U.S. fixed
preservation of income securities
capital and Dividend Frequency
prudent Average Portfolio Declared daily and
investment Duration distributed monthly
management 3-7 years
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 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 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.
PIMCO Funds: Pacific Investment Management Series
51
<PAGE>
PIMCO Foreign Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
93 94 95 96 97 98 99 --------------------
------ ------ ------ ------ ------ ------ ------ Highest (4th Qtr.
16.40% -7.30% 21.22% 18.89% 9.60% 10.03% 1.56% '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>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (12/3/92)(3)
-------------------------------------------------------------------
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
5.62 years as of 12/31/99. 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.25% None 0.25% 0.50%
------------------------------------------------------------------
Administrative 0.25 0.25% 0.25 0.75
------------------------------------------------------------------
(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.
<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
52
<PAGE>
PIMCO Emerging Markets Bond Fund Ticker
Symbols:
N/A (Inst.
Class)
N/A
(Admin.
Class)
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Emerging market B to Aaa
and total return, fixed income
Strategies consistent with securities
preservation of Dividend Frequency
capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment 0-8 years
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 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.
PIMCO Funds: Pacific Investment Management Series
53
<PAGE>
PIMCO Emerging Markets Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
Highest and Lowest
[GRAPH] Quarter Returns
(for periods shown
Annual Return in the bar chart)
---------------------
98 99 Highest (4th Qtr. '98)
------- ------ 12.27%
-11.76% 26.58% ---------------------
Lowest (3rd Qtr. '98
21.05%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (7/31/97)
-------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.45% None 0.40% 0.85%
------------------------------------------------------------------
Administrative 0.45 0.25% 0.40 1.10
------------------------------------------------------------------
</TABLE>
(1) Other Expenses reflects a 0.40% 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 $87 $271 $471 $1,049
------------------------------------------------------------------
Administrative 112 350 606 1,340
------------------------------------------------------------------
</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 Intermediate B to Aaa; maximum
and total return, maturity fixed 10% below Baa
Strategies consistent with income securities Dividend Frequency
preservation of and S&P 500 stock Declared and
capital and index derivatives distributed
prudent quarterly
investment Average Portfolio
management Duration
0-6 years
The Fund seeks to achieve its investment objective by normally
investing in a combination of fixed income securities and equity
securities or derivatives on equity securities. The percentage of
the Fund's assets invested in equities and equity derivatives or
in fixed income securities will be determined 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 securities within specific phases of the
business cycle. The Fund's equity exposure will vary between 45%
and 75% of assets, and its fixed income exposure will range from a
minimum of 25% to a maximum of 55%.
The Fund's equity exposure normally consists of S&P 500
derivatives, backed by a portfolio of short-term Fixed Income
Instruments. PIMCO 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 will actively manage the fixed income assets
serving as cover for derivatives, as well as any other fixed
income assets held by the Fund, with a view toward enhancing the
Fund's total return investment performance. 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 the equity portion of its assets in a "basket" of
S&P 500 stocks.
The Fund's fixed income exposure will normally consist of a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of the fixed income
portion of this Fund's assets will normally vary within a three-
to six-year time frame. The Fixed Income Instruments in which the
Fund invests are primarily investment grade, but 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.
The Fund may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements. The Fund
may lend its portfolio securities to brokers, dealers and other
financial institutions to earn income. The Fund may 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 net income
earned on the Fund's investments, plus capital appreciation
arising from increases in the market value of the Fund's holdings.
- --------------------------------------------------------------------------------
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 .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 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 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.
PIMCO Funds: Pacific Investment Management Series
55
<PAGE>
PIMCO Strategic Balanced Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
97 98 99 --------------------
------ ------ ------ Highest (2nd Qtr.
24.17% 19.66% 11.56% '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>
<S> <C> <C>
Fund Inception
1 Year (6/28/96)(4)
--------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
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
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 typically issued by small to mid-size
capitalization companies, 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 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 stocks 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 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 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 arising from
increases in the market value of the Fund's holdings.
- --------------------------------------------------------------------------------
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
.Issuer Risk .Derivatives Risk Risk
.Interest Rate Risk .Liquidity Risk .Currency Risk
.Credit Risk .Smaller Company 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 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.
PIMCO Funds: Pacific Investment Management Series
57
<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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
Institutional 0.40% None 0.25% 0.65%
------------------------------------------------------------------
Administrative 0.40 0.25% 0.25 0.90
------------------------------------------------------------------
(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.
<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
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 .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 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.
PIMCO Funds: Pacific Investment Management Series
59
<PAGE>
PIMCO StocksPLUS Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
94 95 96 97 98 99 --------------------
----- ------ ------ ------ ------ ------ Highest (4th Qtr.
2.92% 40.52% 23.07% 32.85% 28.33% 20.13% '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>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (5/13/93)(3)
-------------------------------------------------------------------
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 Growth & Income Fund Avg(2) 13.71% 21.35% 16.88%
-------------------------------------------------------------------
</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 Growth & Income Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that combine a growth-of-earnings orientation
and an income requirement for level and/or rising dividends.
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
------------------------------------------------------------------
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. High yield
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 high yield securities and
reduce a Fund's ability to sell its high yield 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.
PIMCO Funds: Pacific Investment Management Series
61
<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.
PIMCO Funds: Pacific Investment Management Series
63
<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
recent years. A reoccurrence of these difficulties may impair the
ability of certain New York issuers to pay principal or interest
on their obligations. The financial health of New York City
affects that of the State, and when New York City experiences
financial difficulty it may have an adverse affect on New York
municipal bonds held by the Fund. The growth rate of New York has
recently been somewhat slower than the nation overall. The
economic and financial condition of New York also may be affected
by various financial, social, economic and political factors.
Investment Management of the Funds
Adviser
and PIMCO serves as the investment adviser and the administrator
Adminis- (serving in its capacity as administrator, the "Administrator")
trator for the Funds. Subject to the supervision of the Board of
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
December 31, 1999, PIMCO had approximately $186 billion in assets
under management.
Advisory Each Fund pays PIMCO fees in return for providing investment
Fees advisory services. For the fiscal year ended March 31, 1999, 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-Term, Low Duration, Low Duration II, Low
Duration III, Low Duration Mortgage, 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, Global Bond,
Global Bond II, and Foreign Bond Funds 0.25%
Strategic Balanced and StocksPLUS Funds 0.40%
Emerging Markets Bond Fund 0.45%
</TABLE>
The Investment Grade Corporate Bond, Long Duration, Short
Duration Municipal Income, California Intermediate Municipal Bond,
California Municipal Bond, New York Municipal Bond and Convertible
Funds were not operational during the fiscal year ended March 31,
1999. The investment advisory fees for the Investment Grade
Corporate Bond, Long Duration, Short Duration Municipal Income,
California Intermediate Municipal Bond, California Municipal Bond,
New York Municipal Bond and Convertible Funds are at an annual
rate of 0.25%, 0.25%, 0.20%, 0.25%, 0.25%, 0.25% and 0.40%,
respectively, 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. The result of this fee
structure is an expense level for Institutional and Administrative
Class shareholders of each Fund that, with limited exceptions, is
precise and predictable under ordinary circumstances.
Prospectus
64
<PAGE>
For the fiscal year ended March 31, 1999, 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%
Money Market, Short-Term and Moderate
Duration Funds 0.20%
Low Duration II, Low Duration III, Low
Duration Mortgage, 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
and StocksPLUS Funds 0.25%
Global Bond and Global Bond II Funds 0.30%
Emerging Markets Bond Fund 0.40%
</TABLE>
The Investment Grade Corporate Bond, Long Duration, Short
Duration Municipal Income, California Intermediate Municipal Bond,
California Municipal Bond, New York Municipal Bond, and
Convertible Funds were not operational during the fiscal year
ended March 31, 1999. The administrative fees for the Investment
Grade Corporate Bond, Long Duration, Short Duration Municipal
Income, California Intermediate Municipal Bond, California
Municipal Bond, New York Municipal Bond and Convertible Funds are
at an annual rate of 0.25%, 0.25%, 0.19%, 0.24%, 0.24%, 0.24% and
0.25%, respectively, based upon the average daily net assets of
the Fund.
PIMCO Funds: Pacific Investment Management Series
65
<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
Low Duration Mortgage W. Scott Simon 4/00 Executive Vice
Total Return Mortgage 4/00 President, PIMCO. He
joined PIMCO as a
Portfolio Manager in
2000. Prior to that, he
was a Senior Managing
Director and co-head of
MBS 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 that
time from 1992-1998.
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. Prior to joining
PIMCO, he was associated
with Investcorp as a
member of the management
committee responsible
for global securities
and foreign exchange
trading.
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 to
1999, and a Quantitative
Analyst since 1994.
</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.
Prospectus 66
<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.
PIMCO Funds: Pacific Investment Management Series
67
<PAGE>
Purchases, Redemptions and Exchanges
Investors may purchase Institutional Class and Administrative
Purchasing Class shares of the Funds at the relevant net asset value ("NAV")
Shares 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 in "Investment Limitations" 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.
Prospectus 68
<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
PIMCO Funds: Pacific Investment Management Series
69
<PAGE>
details. For questions about participant accounts, participants
should contact their employee benefits office, the 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, 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 and the account number. Redemption
requests of an amount of $10 million or more may be initiated by
telephone, but must be confirmed in writing by an authorized party
prior to processing.
In electing a telephone redemption, the investor authorizes PIMCO
and the Transfer Agent to act on telephone instructions from any
person representing himself to be the investor, and reasonably
believed by PIMCO 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 redemption option, they may be giving up a
measure of security that they might have if they were to redeem
their shares in writing. Furthermore, interruptions in telephone
service may mean that a shareholder will be unable to effect a
redemption by telephone when desired. The Transfer Agent 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). 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 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.
Prospectus
70
<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: Pacific Investment Management Series
71
<PAGE>
PIMCO Funds: Multi-Manager Series, an affiliated mutual fund
family composed primarily of equity portfolios managed by PIMCO
Advisors and its subsidiary partnerships. 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
Prospectus
72
<PAGE>
changes in the value of currencies in relation to the U.S. dollar.
The value of securities traded in markets 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.
PIMCO Funds: Pacific Investment Management Series
73
<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 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.
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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.
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 the following sectors: 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 shift assets
among sectors depending upon changes in relative valuations and
credit spreads. There is no guarantee that PIMCO's security
selection techniques will produce the desired results.
U.S. U.S. Government Securities are obligations of, or guaranteed by,
Government the U.S. Government, its agencies or 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.
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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.
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 Investors Service, Inc.
Yield ("Moody's") or lower than BBB by Standard & Poor's Ratings
Securities Services ("S&P") are sometimes referred to as "high yield" or
"junk" bonds. Investing in high yield securities involves special
risks in addition to the risks associated with investments in
higher-rated fixed income securities. While offering a greater
potential opportunity for capital appreciation and higher
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76
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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
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
77 PIMCO Funds: Pacific Investment Management Series
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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.
Each Fund may invest in convertible securities. Convertible
Convertible securities are generally preferred stocks and other securities,
and including fixed income securities and warrants, that are
Equity convertible into or exercisable for common stock at a stated price
Securities 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 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
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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 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.
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. 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 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.
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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.
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.
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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
Transac- settlement date. This risk is in addition to the risk that the
tions Fund's other assets will decline in the value. Therefore, these
transactions may result in a form of leverage and increase a
Fund's overall investment exposure. Typically, no income accrues
on securities a Fund has committed to purchase prior to the time
delivery of the securities is made, although a Fund may earn
income on securities it has segregated to cover these positions.
Investment Each Fund may invest up to 10% of its assets in securities of
in Other other investment companies, such as closed-end management
Investment investment companies, or in pooled accounts or other investment
Companies vehicles 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, in the future, elect to pursue its investment objective
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
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.
Prospectus
82
<PAGE>
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.
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.
PIMCO Funds: Pacific Investment Management Series
83
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
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
Institutional Class
09/30/1999(b) $ 1.00 $0.02(a) $ 0.00 (a) $0.02 $(0.02) $ 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
10/31/1995(a) 1.00 0.06 0.00 0.06 (0.06) 0.00 0.00 0.00
Administrative Class
09/30/1999(b) 1.00 0.02(a) 0.00 (a) 0.02 (0.02) 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
01/24/1995 -
10/31/1995(a) 1.00 0.05 0.00 0.05 (0.05) 0.00 0.00 0.00
Short-Term
Institutional Class
09/30/1999(b) $10.03 $0.28(a) $(0.07)(a) $0.21 $(0.28) $ 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
03/31/1995 9.92 0.56 (0.13) 0.43 (0.55) (0.01) 0.00 0.00
Administrative Class
09/30/1999(b) 10.03 0.27(a) (0.07)(a) 0.20 (0.27) 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
Institutional Class
09/30/1999(b) $10.10 $0.31(a) $(0.20)(a) $0.11 $(0.31) $ 0.00 $ 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
03/31/1995 10.04 0.65 (0.30) 0.35 (0.54) 0.00 0.00 0.00
Administrative Class
09/30/1999(b) 10.10 0.30(a) (0.20)(a) 0.10 (0.30) 0.00 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
12/31/1994 - 03/31/1995 9.67 0.18 0.07 0.25 (0.14) 0.00 0.00 0.00
</TABLE>
- -------
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Unaudited
PIMCO Funds: Pacific Investment Management Series
85
<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 $(0.02) $ 1.00 2.37% $ 271,338 0.35%+ 4.57%+ 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 (0.06) 1.00 5.67 7,741 0.40 5.53 N/A
0.00 (0.02) 1.00 2.24 8,431 0.60+ 4.34+ 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 (0.05) 1.00 4.21 10 0.68+ 5.94+ N/A
$ 0.00 $(0.28) $ 9.96 2.12% $ 487,849 0.45%+ 5.59%+ 21%
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) 9.79 4.46 90,114 0.50 5.67 79
0.00 (0.27) 9.96 1.99 5,712 0.70+ 5.35+ 21
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 $(0.31) $ 9.90 1.11% $4,067,967 0.43%+ 6.20%+ 52%
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
(0.09) (0.63) 9.76 3.60 2,332,032 0.41 6.46 77
0.00 (0.30) 9.90 0.98% 120,300 0.68+ 5.93+ 52
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
(0.02) (0.16) 9.76 2.53 771 0.66+ 6.93+ 77
</TABLE>
- -------
+ Annualized.
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 II
Institutional Class
09/30/1999(b) $ 9.95 $0.28(a) $(0.19)(a) $ 0.09 $(0.28) $ 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
03/31/1995 9.94 0.62 (0.16) 0.46 (0.58) (0.03) 0.00 0.00
Administrative Class
09/30/1999(b) 9.95 0.28(a) (0.20)(a) 0.08 (0.27) 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 III
Institutional Class
09/30/1999(b) $ 9.98 $0.30(a) $(0.17)(a) $ 0.13 $(0.30) $ 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
09/30/1999(b) 9.98 0.30 (0.19) 0.11 (0.28) 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
Low Duration Mortgage
Institutional Class
09/30/1999(b) $10.01 $0.31(a) $(0.09)(a) $ 0.22 $(0.31) $ 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
Institutional Class
09/30/1999(b) $ 9.94 $0.28(a) $(0.26)(a) $ 0.02 $(0.29) $ 0.00 $ 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
Institutional Class
09/30/1999(b) $ 9.83 $0.36(a) $(0.03)(a) $ 0.33 $(0.34) $ 0.00 $ 0.00 $ 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
Institutional Class
09/30/1999(b) $10.36 $0.31(a) $(0.30)(a) $ 0.01 $(0.31) $ 0.00 $ 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
03/31/1995 10.25 0.64 (0.24) 0.40 (0.56) (0.05) 0.00 0.00
Administrative Class
09/30/1999(b) 10.36 0.29(a) (0.30)(a) (0.01) (0.29) 0.00 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
09/07/1994 - 03/31/1995 10.00 0.31 0.06 0.37 (0.32) (0.03) 0.00 0.00
</TABLE>
- -------
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Unaudited
PIMCO Funds: Pacific Investment Management Series
87
<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 $(0.28) $ 9.76 0.97 % $ 467,105 0.62%+(e) 5.77%+ 59%
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
(0.02) (0.63) 9.77 4.80 170,866 0.47 6.35 102
0.00 (0.27) 9.76 0.83 303 0.88+ (f) 5.69+ 59
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 $(0.30) $ 9.81 1.30 % $ 25,485 0.57%+(g) 6.01%+ 53%
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 (0.28) 9.81 1.17 10 0.81+ (h) 2.84+ 53
0.00 (0.02) 9.98 0.15 6 0.75 6.42 167
$ 0.00 $(0.31) $ 9.92 2.26 % $ 4,178 1.73%+(e) 6.27% 115%
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+ (f) 6.30+ 486
$ 0.00 $(0.29) $ 9.67 0.26 % $ 345,033 0.45%+ 6.01%+ 70%
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 $(0.34) $ 9.82 3.40 % $ 86,100 0.54%+ 7.28%+ 103%
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 $(0.31) $10.06 0.07 % $23,305,606 0.46%+ 6.00%+ 46%
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
(0.02) (0.63) 10.02 4.22 7,239,735 0.41 6.72 98
0.00 (0.29) 10.06 (0.06) 2,873,555 0.71+ 5.73+ 46
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
(0.01) (0.36) 10.01 3.76 9,037 0.66+ 6.54+ 98
</TABLE>
- -------
+ Annualized.
(c) Ratio of expenses to average net assets excluding interest expense on
reverse repurchase agreement is 0.50%.
(d) Ratio of expenses to average net assets excluding interest expense on
reverse repurchase agreement is 0.75%.
(e) Ratio of expenses to net assets excluding interest expense is 0.50%.
(f) Ratio of expenses to net assets excluding interest expense is 0.75%.
(g) Ratio of expenses to average net assets excluding interest expense is
0.50%.
(h) Ratio of expenses to average net assets excluding interest expense is
0.76%.
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 II
Institutional Class
09/30/1999(b) $10.11 $0.28(a) $ 0.33 (a) $(0.05) $(0.28) $ 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)
10/31/1995(a) 9.39 0.69 0.76 1.45 (0.62) 0.00 (0.01) 0.00
Administrative Class
09/30/1999(b) 10.11 0.28(a) (0.34)(a) (0.06) (0.27) 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)
11/30/1994 -
10/31/1995(a) 9.34 0.56 0.88 1.44 (0.55) 0.00 (0.01) 0.00
Total Return III
Institutional Class
09/30/1999(b) $ 9.27 $0.28(a) $(0.34)(a) $(0.06) $(0.27) $ 0.00 $ 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
03/31/1995 9.18 0.59 (0.16) 0.43 (0.52) (0.02) 0.00 0.00
Administrative Class
09/30/1999(b) 9.27 0.28(a) (0.35)(a) (0.07) (0.26) 0.00 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
Institutional Class
09/30/1999(b) $10.19 $0.29(a) $(0.21)(a) $ 0.08 $(0.29) $ 0.00 $ 0.00 $ 0.00
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
Institutional Class
09/30/1999(b) $11.23 $0.46(a) $(0.49)(a) $(0.03) $(0.47) $ 0.00 $ 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
03/31/1995 10.52 0.99 (0.12) 0.87 (0.93) (0.02) 0.00 (0.02)
Administrative Class
09/30/1999(b) 11.23 0.45(a) (0.50)(a) (0.05) (0.45) 0.00 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
01/16/1995 - 03/31/1995 10.14 0.23 0.25 0.48 (0.21) 0.00 0.00 0.00
Long-Term U.S. Gov't
Institutional Class
09/30/1999(b) $10.30 $0.32(a) $(0.62)(a) $(0.30) $(0.31) $ 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)
03/31/1995 9.96 0.60 (0.09) 0.51 (0.60) (0.02) 0.00 0.00
Administrative Class
09/30/1999(b) 10.30 0.28(a) (0.59)(a) (0.30) (0.31) 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.
(b) Unaudited
PIMCO Funds: Pacific Investment Management Series
89
<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 $(0.28) $ 9.78 (0.49)% $1,150,127 0.50%+ 5.65%+ 53%
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 (0.63) 10.21 15.96 442,091 0.50 6.47 41
0.00 (0.27) 9.78 (0.61) 50,434 0.75+ 5.27+ 53
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 (0.56) 10.22 15.92 3,163 0.76+ 6.22+ 41
$ 0.00 $(0.27) $ 8.94 (0.60)% $ 617,808 0.51%+ 6.00%+ 56%
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
(0.08) (0.62) 8.99 4.92 99,497 0.50 6.95 146
0.00 (0.26) 8.94 (0.73) 3,270 0.76+ 5.78+ 56
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 $(0.29) $ 9.98 0.85 % $ 3,901 0.51%+ 5.83%+ 190%
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 $(0.47) $10.73 (0.32)% $2,320,018 0.50%+ 8.45%+ 17%
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 (0.97) 10.42 8.81 336,310 0.48 9.37 78
0.00 (0.45) 10.73 (0.44) 320,987 0.75+ 8.17+ 17
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 (0.21) 10.41 4.66 41 0.73+ 10.12+ 78
$ 0.00 $(0.31) $ 9.69 (2.88)% $ 281,120 0.55%+(c) 6.34%+ 167%
0.00 (1.10) 10.30 7.76 170,847 0.89(d) 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 (0.62) 9.85 5.50 32,349 0.50 6.62 89
0.00 (0.30) 9.69 (2.99) 44,170 0.80+ (e) 5.55+ 167
0.00 (1.07) 10.30 7.46 11,383 1.15 (f) 5.58 364
0.00 (0.37) 10.57 7.60 4,957 .76+ 4.87+ 177
</TABLE>
- -------
+ Annualized.
(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 on
reverse repurchase agreement is 0.50%.
(e) Ratio of expenses to average net assets excluding interest expense is
0.75%.
(f) Ratio of expenses to average net assets excluding interest expense on
reverse repurchase agreement 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 -
09/30/1999(b) $10.00 $0.03 $ 0.00 $ 0.03 $(0.03) $ 0.00 $ 0.00 $0.00
Municipal Bond
Institutional Class
09/30/1999(b) $10.12 $0.23(a) $(0.56)(a) $(0.33) $(0.23) $ 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
09/30/1999(b) 10.12 0.21 (0.55) (0.34) (0.22) 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 -
09/30/1999(b) $10.00 $0.03 $ 0.04 $ 0.07 $(0.03) $ 0.00 $ 0.00 $0.00
Administrative Class
09/07/1999 -
09/30/1999(b) 10.02 0.02 0.02 0.04 (0.02) 0.00 0.00 0.00
New York Intermediate Municipal
Bond Fund
Institutional Class
08/31/1999 -
09/30/1999(b) $10.00 $0.03 $ 0.01 $ 0.04 $(0.03) $ 0.00 $ 0.00 $0.00
Global Bond
Institutional Class
09/30/1999(b) $ 9.76 $0.27(a) $(0.34)(a) $(0.07) $(0.28) $ 0.00 $ 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)
03/31/1995 9.85 0.69 (0.14) 0.55 (0.29) (0.24) 0.00 0.00
Administrative Class
09/30/1999(b) 9.76 0.27(a) (0.35)(a) (0.08) (0.27) 0.00 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 II
Institutional Class
09/30/1999(b) $ 9.89 $0.27(a) $(0.35)(a) $(0.08) $(0.27) $ 0.00 $(0.09) $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
Institutional Class
09/30/1999(b) $10.63 $0.32(a) $(0.49)(a) $(0.17) $(0.32) $ 0.00 $ 0.00 $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)
03/31/1995 10.18 0.38 (0.57) (0.19) 0.00 0.00 0.00 0.00
Administrative Class
09/30/1999(b) 10.63 0.31(a) (0.49)(a) (0.18) (0.31) 0.00 0.00 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.
(b) Unaudited.
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 $(0.03) $10.00 0.30% $ 10,536 0.39%+ 3.60%+ 104%
$ 0.00 $(0.23) $ 9.56 (3.31)% $ 4,325 0.52%+ 4.60%+ 48%
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 (0.22) 9.56 (3.43) 2,477 0.77+ 2.22+ 48
0.00 (0.21) 10.12 0.83 1,419 0.75+ 2.11 70
$ 0.00 $(0.03) $10.04 0.71 % $ 3,123 0.49%+ 3.83%+ 181%
0.00 (0.02) 10.04 0.63 10 0.49+ 2.95+ 181
$ 0.00 $(0.03) $10.01 0.39 % $ 3,010 0.49%+ 3.69%+ 193%
$ 0.00 $(0.28) $ 9.41 (0.56)% $283,268 0.62%+(c) 5.96%+ 39%
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
0.00 (0.53) 9.87 10.35 76,476 0.64 5.59 461
0.00 (0.27) 9.41 (0.68) 7,065 0.87+ (d) 5.80+ 39
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 $(0.36) $ 9.45 (1.69)% $ 29,033 0.58%+ 2.84%+ 55%
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 $(0.32) $10.14 (1.63)% $461,433 0.59%+(e) 6.16%+ 90%
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
(0.61) (0.61) 9.38 (1.85) 232,700 0.47 6.44 299
0.00 (0.31) 10.14 (1.75) 4,906 0.85+ (f) 5.97+ 90
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.
(c) Ratio of expenses to average net assets excluding interest expense is 0.55%.
(d) Ratio of expenses to average net assets excluding interest expense is 0.80%.
(e) Ratio of expenses to average net assets excluding interest expense on
agreement is 0.50%.
(f) 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
Institutional Class
09/30/1999(b) $ 7.51 $ 0.45(a) $ 0.17 (a) $0.62 $(0.45) $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
09/30/1999(b) 7.51 0.45 0.16 0.61 (0.44) 0.00 0.00 0.00
09/30/98 - 03/31/1999 6.82 0.45 0.74 1.19 (0.45) 0.00 0.00 (0.05)
Strategic Balanced
Institutional Class
09/30/1999(b) $12.76 $ 0.33(a) $(0.26)(a) $0.07 $(0.23) $0.00 $ 0.00 $ 0.00
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 -
09/30/1999(b) 13.17 0.69 (0.56) (0.47) (0.11) 0.00 0.00 0.00
Convertible Fund
Institutional Class
09/30/1999(b) $10.00 $(0.05) $ 1.42 $1.37 $ 0.00 $0.00 $ 0.00 $ 0.00
StocksPLUS
Institutional Class
09/30/1999(b) $14.32 $ 0.32(a) $(0.20)(a) $0.12 $(0.25) $0.00 $ 0.00 $ 0.00
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)
03/31/1995 9.52 1.03 0.69 1.72 (0.76) 0.00 0.00 0.00
Administrative Class
09/30/1999(b) 14.25 0.27(a) (0.20)(a) 0.07 (0.24) 0.00 0.00 0.00
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.
(b) Unaudited.
PIMCO Funds: Pacific Investment Management Series
93
<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 $(0.45) $ 7.68 8.45 % $ 4,478 0.90%+(c) 11.66%+ 188%
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 (0.44) 7.68 8.30 11,563 1.13+ 5.73+ 188
0.00 (0.50) 7.51 17.88 118 1.10 6.24 315
$0.00 $(0.23) $12.60 0.51 % $125,686 0.65%+ 4.96%+ 34%
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 (0.11) 12.59 (3.58) 248 0.90+ 2.71+ 34
$0.00 $ 0.00 $11.37 13.70 % $ 36,145 0.70%+(d) (0.81)%+ 205%
$0.00 $(0.25) $14.19 0.83 % $546,622 0.66%+ 4.30%+ 46%
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 (0.76) 10.48 18.64 46,498 0.50 11.89 177
0.00 (0.24) 14.08 0.49 51,992 0.91+ 1.77+ 46
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.
(c) Ratio of expenses to average net assets excluding interest expense is
0.85%.
(d) Ratio of expenses to average net assets excluding interest expense is
0.65%.
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
Services AAA: Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions, or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
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 CUSTODIAN
Series 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 Statement of Additional Information ("SAI") and annual and
semi-annual reports to shareholders include additional information about the
Funds. The SAI and the financial statements included in the Funds' most recent
annual report to shareholders are incorporated by reference into this
Prospectus, which means they are part of this Prospectus for legal purposes. The
Funds' annual report discusses the market conditions and investment strategies
that significantly affected each Funds' performance during its last fiscal
year. You may get free copies of any of these materials, request other
information about a Fund, or make shareholder inquiries by calling the Trust at
1-800-927-4648 or PIMCO Infolink Audio Response Network at 1-800-987-4626, or by
writing to:
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
You can also visit our Web site at www.pimco.com for additional information
about the Funds.
You may review and copy information about the Trust, including SAI, at the
Securities and Exchange Commission's public reference room in Washington. You
may call the Commission at 1-202-942-8090 for information about the operation of
the reference room. You may also access reports and other information about the
trust on the Commission's Web site at www.sec.gov. You may get copies of this
information, with payment of a duplication fee, by writing Public Reference
Section of the Commission, Washington D.C. 20549-0102, or by electronic request
at [email protected].
PIMCO
- -------
FUNDS
PIMCO Funds
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
www.pimco.com
Investment Company Act file no. 811-5028
PY000.3/00
<PAGE>
PIMCO Funds Prospectus
Pacific Investment Management Series
August 1, 2000
Share Class
D
SHORT DURATION BOND FUNDS
Short-Term Fund
Low Duration Fund
INTERMEDIATE DURATION BOND FUNDS
Total Return Fund
Total Return Mortgage Fund
INTERNATIONAL BOND FUNDS
Foreign Bond Fund
Emerging Markets Bond Fund
HIGH YIELD BOND FUNDS
High Yield Fund
INFLATION-INDEXED BOND FUNDS
Real Return Bond Fund
TAX-EXEMPT BOND FUNDS
Short Duration Municipal
Income FUnd
Municipal Bond Fund
California Intermediate
Municipal Bond Fund
California
Municipal Bond Fund
New York
Municipal Bond Fund
CONVERTIBLE FUNDS
Convertible Fund
STOCK AND BOND FUNDS
Strategic Balanced Fund
ENHANCED INDEX STOCK FUNDS
StockPLUS Fund
This cover is not part of the Prospectus. PIMCO
FUNDS
<PAGE>
PIMCO Funds Prospectus
PIMCO This Prospectus describes 16 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 ("PIMCO"). As of December 31, 1999,
Management PIMCO managed approximately $186 billion in assets. The firm's
Series institutional heritage is reflected in the PIMCO Funds offered in
this Prospectus.
August 1, The Funds offer Class D shares in this Prospectus. This Prospectus
2000 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
Class disapproved these securities, or determined if this Prospectus is
D truthful or complete. Any representation to the contrary is a
criminal offense.
PIMCO Funds: Pacific Investment Management Series
1
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Summary Information.............................................. 3
Fund Summaries
California Intermediate Municipal Bond Fund.................... 5
California Municipal Bond Fund................................. 7
Convertible Fund............................................... 9
Emerging Markets Bond Fund..................................... 11
Foreign Bond Fund.............................................. 13
High Yield Fund................................................ 15
Low Duration Fund.............................................. 17
Municipal Bond Fund............................................ 19
New York Municipal Bond Fund................................... 21
Real Return Bond Fund.......................................... 23
Short Duration Municipal Income Fund........................... 25
Short-Term Fund................................................ 27
StocksPLUS Fund................................................ 29
Strategic Balanced Fund........................................ 31
Total Return Fund.............................................. 33
Total Return Mortgage Fund..................................... 35
Summary of Principal Risks....................................... 37
Management of the Funds.......................................... 39
How to Buy and Sell Shares....................................... 42
How Fund Shares are Priced....................................... 44
Fund Distributions............................................... 44
Tax Consequences................................................. 45
Characteristics and Risks of Securities and Investment
Techniques...................................................... 46
Financial Highlights............................................. 55
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
Denominated
Main Investments Duration Credit Quality(1) Securities(2)
------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
Short Duration Short-Term Money market 0-1 year B to Aaa; max 10% 0-5%(3)
Bond Funds instruments and short below Baa
maturity fixed income
securities
-----------------------------------------------------------------------------------------------------
Low Duration Short maturity fixed 1-3 years B to Aaa; max 10% 0-20%(3)
income securities below Baa
-----------------------------------------------------------------------------------------------------------------------
Intermediate Total Return Intermediate maturity 3-6 years B to Aaa; max 10% 0-20%(3)
Duration Bond fixed income below Baa
Funds securities
-----------------------------------------------------------------------------------------------------
Total Return Mortgage Intermediate maturity 2-6 years Baa to Aaa; max 10% 0%
mortgage-related below Aaa
fixed income
securities
-----------------------------------------------------------------------------------------------------------------------
International Foreign Bond Intermediate maturity 3-7 years B to Aaa; max (greater
Bond Funds hedged non-U.S. fixed 10% below Baa than or
income securities equal
to) 85%(5)
-----------------------------------------------------------------------------------------------------
Emerging Markets Bond Emerging market fixed 0-8 years B to Aaa (greater
income securities than or
equal
to) 80%(5)
-----------------------------------------------------------------------------------------------------------------------
High Yield High Yield Higher yielding fixed 2-6 years B to Aaa; min 65% 0-15%(4)
Bond Funds income securities below Baa
-----------------------------------------------------------------------------------------------------------------------
Tax Exempt Short Duration Municipal Income Short and intermediate 0-2 years Baa to Aaa 0%
Bond Funds maturity municipal
securities (exempt from
federal income tax)
-----------------------------------------------------------------------------------------------------
Municipal Bond Intermediate and 3-10 years Ba to Aaa; max 10% 0%
long-term maturity below Baa
municipal securities
(exempt from federal
income tax)
-----------------------------------------------------------------------------------------------------
California Intermediate Intermediate maturity 3-7 years B to Aaa; max 0%
Municipal Bond municipal securities 10% below Baa
(exempt from federal and
California income tax)
-----------------------------------------------------------------------------------------------------
California Municipal Bond Intermediate to long- 3-12 years B to Aaa; max 10% 0%
term maturity below Baa
municipal securities
(exempt from federal
and California income
tax)
-----------------------------------------------------------------------------------------------------
New York Municipal Bond Intermediate to long- 3-12 years B to Aaa; max 10% 0%
term maturity below Baa
municipal securities
(exempt from federal
and New York income
tax)
-----------------------------------------------------------------------------------------------------------------------
Inflation-Indexed Real Return Bond Inflation-indexed N/A B to Aaa; max 10% 0-20%(3)
Bond Funds fixed income below Baa
securities
-----------------------------------------------------------------------------------------------------------------------
Convertible Convertible Convertible N/A Caa to Aaa; max 0-20%(3)
Funds securities 40% below Baa
and 10% below B
-----------------------------------------------------------------------------------------------------------------------
Stock and Bond Strategic Balanced Intermediate maturity 0-6 years B to Aaa; max 0-20%(3)
Funds fixed income 10% below Baa
securities and
S&P 500 stock index
derivatives
-----------------------------------------------------------------------------------------------------------------------
Enhanced Index StocksPLUS S&P 500 stock index 0-1 year B to Aaa; max 0-20%(3)
Stock Funds derivatives backed by 10% below Baa
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 Services, or if unrated, determined by PIMCO
to be of comparable quality.
(2) Each Fund (except the 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.
PIMCO Funds: Pacific Investment Management Series
3
<PAGE>
Summary Information (continued)
Fixed The "Fixed Income Funds" are the Short-Term, Low Duration, Total
Income Return, Total Return Mortgage, Foreign Bond, Emerging Markets
Instruments Bond, High Yield, Short Duration Municipal Income, Municipal Bond,
California Intermediate Municipal Bond, California Municipal Bond,
New York Municipal Bond, and Real Return 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 instrumentalities;
. obligations of non-U.S. governments or their subdivisions,
agencies and instrumentalities; and
. obligations of international agencies or supranational
entities.
Duration Duration is a measure of the expected life of a fixed income
security that is used to determine the sensitivity of a security's
price to changes in interest rates. The longer a security's
duration, the more sensitive it will be to changes in interest
rates. Similarly, a Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund
with a shorter average portfolio duration.
Credit In this Prospectus, references are made to credit ratings of debt
Ratings securities which measure an issuer's expected ability to pay
principal and interest over time. Credit ratings are determined by
rating organizations, such as Standard & Poor's Rating 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
Perfor- information and fees and expenses. A more detailed "Summary of
mance Principal Risks" describing principal risks of investing in the
and Fees Funds begins after the Fund Summaries.
It is possible to lose money on investments in the Funds.
An investment in a Fund is not a deposit of a bank and is not
guaranteed or insured by the Federal Deposit Insurance Corporation
or any other government agency.
Prospectus
4
<PAGE>
PIMCO California Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high Intermediate B to Aaa; maximum
and current income maturity 10% below Baa
Strategies exempt from municipal
federal and securities 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
Fund Category 3-7 years
Tax Exempt Bond
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 80% of its net assets in
Municipal Bonds whose interest is, in the opinion of bond counsel
for the issuer at the time of issuance, exempt from federal income
tax. The Fund invests under normal circumstances at least 65% of
its assets in debt securities whose interest is, in the opinion of
bond counsel for the issuer at the time of issuance, exempt from
regular federal income tax and California income tax ("California
Municipal Bonds"). California Municipal Bonds generally are issued
by or on behalf of the State of California and its political
subdivisions, financing authorities and their agencies.
The Fund may invest without limit in "private activity" bonds
whose interest is a tax-preference item for purposes of the
federal alternative minimum tax ("AMT"). For shareholders subject
to the AMT, a substantial portion of the Fund's distributions may
not be exempt from federal income tax. The Fund may invest up to
20% of its net assets in other types of Fixed Income Instruments.
The average portfolio duration of this Fund normally varies within
a three- to seven-year time frame based on the PIMCO's forecast
for interest rates. The Fund will seek income that is high
relative to prevailing rates from Municipal Bonds. Capital
appreciation, if any, generally arises from decreases in interest
rates or improving credit fundamentals for a particular state,
municipality or issuer.
The Fund invests primarily in investment grade debt securities,
but may invest up to 10% of its assets in high yield securities
("junk bonds") rated B or higher by Moody's or S&P, or, if
unrated, determined by PIMCO to be of comparable quality.
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 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.
5 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 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>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D 0.25% 0.25% 0.35% 0.85%
--------------------------------------------------------------------------
</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
0.60% 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 Administrative Fee paid
by the class that is not reflected under Distribution and/or
Service (12b-1) Fees.
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, 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.
Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
Class D $87 $271 $471 $1,049
---------------------------------------------------------------------
Prospectus
6
<PAGE>
PIMCO California Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high B to Aaa; maximum
and current income Intermediate to 10% below Baa
Strategies exempt from long-term
federal and maturity Dividend Frequency
California income municipal Declared daily and
tax. Capital securities distributed monthly
appreciation is a (exempt from
secondary federal and
objective. California income
tax)
Fund Category
Tax Exempt Bond 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 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 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.
7
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 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>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D 0.25% 0.25% 0.35% 0.85%
--------------------------------------------------------------------------
(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
0.60% 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 Administrative Fee paid
by the class that is not reflected under Distribution and/or
Service (12b-1) Fees.
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, 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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------
Class D $87 $271 $471 $1,049
---------------------------------------------------------------------
</TABLE>
Prospectus
8
<PAGE>
PIMCO Convertible Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Convertible Caa to Aaa; maximum
and total return, securities 40% below Baa and 10%
Strategies consistent with below B
prudent investment Average Portfolio
management Duration Dividend Frequency
N/A Declared and
Fund Category distributed quarterly
Convertible
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 typically issued by small to mid-sized
capitalization companies, 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 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 stocks 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 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 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 arising from
increases in the market value of the Fund's holdings.
- --------------------------------------------------------------------------------
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
.Issuer Risk .Derivatives Risk Risk
.Interest Rate Risk .Liquidity Risk .Currency Risk
.Credit Risk .Smaller Company 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 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.
9 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 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>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D 0.40% 0.25% 0.40% 1.05%
--------------------------------------------------------------------------
</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 Administrative Fee paid
by the class that is not reflected under Distribution and/or
Service (12b-1) Fees.
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, 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>
Class D $107 $334 $579 $1,283
----------------------------------------------------------
</TABLE>
Prospectus
10
<PAGE>
PIMCO Emerging Markets Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Emerging market B 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 investment Duration
management 0-8 years
Fund Category
International Bond
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 the 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 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 .Management Risk
.Issuer Risk 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, the information to its right and the Average
Annual Total Returns table show performance of the Fund's
Institutional Class Shares, which are offered in a different
prospectus. This is because the Fund has not offered Class D
shares for a full calendar year. Although Class D and
Institutional Class shares would have similar annual returns
(because all the Fund's shares represent interests in the same
portfolio of securities), Class D performance would be lower than
Institutional Class performance because of the higher expenses
paid by Class D shares.
The Average Annual Total Returns table also shows estimated
historical performance for Class D shares. The performance of the
Class D Shares 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.
11 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Emerging Markets Bond Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
------- ------ Highest (10/1/98-
-11.76% 26.58% 12/31/98) 12.27%
--------------------
Lowest (7/1/98-
9/30/98) -21.05%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (7/31/97)
----------------------------------------------------------------------
Class D 26.08% 3.04%
----------------------------------------------------------------------
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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
Class D 0.45% 0.25% 0.55% 1.25%
--------------------------------------------------------------------------
</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
0.80% 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 Administrative Fee paid
by the class that is not reflected under Distribution and/or
Service (12b-1) Fees.
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, 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>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------
Class D $127 $397 $686 $1,511
--------------------------------------------------------------------------------------
</TABLE>
Prospectus
12
<PAGE>
PIMCO Foreign Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Intermediate B to Aaa; maximum
and total return, maturity hedged 10% below Baa
Strategies consistent with non-U.S. fixed
preservation of income securities Dividend Frequency
capital and Declared daily and
prudent investment Average Portfolio distributed monthly
management Duration
3-7 years
Fund Category
International Bond
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 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 Risks
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 .Foreign Investment Risk .Mortgage Risk
.Credit Risk .Currency Risk .Derivatives Risk
.Market Risk .Issuer Non-Diversification .Leveraging Risk
.Issuer Risk Risk .Management 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, 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.
13 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Foreign Bond Fund (continued)
Calendar Year Total Returns -- Class D
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
93 94 95 96 97 98 99 --------------------
------ ------ ------ ------ ----- ----- ----- Highest (10/1/95-
15.92% -7.72% 20.68% 18.42% 9.14% 9.55% 1.12% 12/31/95) 7.12%
--------------------
Lowest (1/1/94-
3/31/94) -4.32%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (12/3/92)(3)
-----------------------------------------------------------------------
<S> <C> <C> <C>
Class D 1.12% 11.56% 9.29%
-----------------------------------------------------------------------
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
5.62 years as of 12/31/99. 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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
Class D 0.25% 0.25% 0.45% 0.95%
--------------------------------------------------------------------------
(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
0.70% 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.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $97 $303 $525 $1,166
----------------------------------------------------------------------
</TABLE>
Prospectus
14
<PAGE>
PIMCO High Yield Fund
- --------------------------------------------------------------------------------
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 investment Duration distributed monthly
management 2-6 years
Fund Category
High Yield Bond
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 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, 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.
PIMCO Funds: Pacific Investment Management Series
15
<PAGE>
PIMCO High Yield Fund (continued)
Calendar Year Total Returns -- Class D
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
93 94 95 96 97 98 99 --------------------
------- ----- ------ ------ ------ ----- ----- Highest (1/1/93-
18.26% 2.01% 20.23% 11.28% 12.82% 6.15% 2.43% 3/31/93) 6.17%
--------------------
Lowest (7/1/98-
9/30/98) -1.86%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (12/16/92)(3)
--------------------------------------------------------------------
<S> <C> <C> <C>
Class D 2.43% 10.42% 10.22%
--------------------------------------------------------------------
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 4.40 years as of
12/31/99. 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 not 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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
Class D 0.25% 0.25% 0.40% 0.90%
--------------------------------------------------------------------------
(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.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $92 $287 $498 $1,108
----------------------------------------------------------------------
</TABLE>
Prospectus
16
<PAGE>
PIMCO Low Duration Fund
- --------------------------------------------------------------------------------
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 investment Duration distributed monthly
management 1-3 years
Fund Category
Short Duration Bond
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 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, 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.
17 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Low Duration Fund (continued)
Calendar Year Total Returns -- Class D
Highest and Lowest
Quarter Returns
'90 '91 '92 '93 '94 (for periods shown
---- ---- ---- ---- ---- in the bar chart)
8.70% 13.11% 7.36% 7.43% 0.30% --------------------
Highest (7/1/91-
'95 '96 '97 '98 '99 9/30/91) 3.82%
---- ---- ---- ---- ---- --------------------
11.57% 5.80% 7.90% 6.81% 2.65% Lowest (1/1/94-
3/31/94) -0.40%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
--------------------------------------------------------------------
Class D 2.65% 6.91% 7.10%
--------------------------------------------------------------------
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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
-----------------------------------------------------------------------
Class D 0.25% 0.25% 0.25% 0.75%
-----------------------------------------------------------------------
</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
0.50% 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.
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 $77 $240 $417 $930
-----------------------------------------------------------------------
</TABLE>
Prospectus
18
<PAGE>
PIMCO Municipal Bond Fund
- --------------------------------------------------------------------------------
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 (exempt from distributed monthly
preservation of federal income
capital. Capital tax)
appreciation is
a secondary Average Portfolio
objective. Duration
3-10 years
Fund Category
Tax Exempt Bond
The Fund seeks to achieve its investment objective by investing
under normal circumstances at least 80% of its net assets in debt
securities whose interest is, in the opinion of bond counsel for
the issuer at the time of issuance, exempt from federal income tax
("Municipal Bonds"). Municipal Bonds generally are issued by or on
behalf of states and local governments and their agencies,
authorities and other instrumentalities.
The Fund may invest up to 20% of its net assets in U.S.
Government Securities, money market instruments and/or "private
activity" bonds. For shareholders subject to the federal
alternative minimum tax ("AMT"), distributions derived from
"private activity" bonds must be included in their AMT
calculations, and as such 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") but 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 Fund will seek income that is high relative to
prevailing rates from Municipal Bonds. 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 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 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 . California State
.Credit Risk .Derivatives Risk Specific Risk
.Market Risk .Leveraging Risk . New York State
.Issuer Risk .Management Risk 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, 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.
PIMCO Funds: Pacific Investment Management Series
19
<PAGE>
PIMCO Municipal Bond Fund (continued)
Calendar Year Total Returns -- Class D
Highest and Lowest
Quarter Returns
'98 '99 (for periods shown
---- ---- in the bar chart)
5.68% -4.06% --------------------
Highest (7/1/98-
9/30/98) 3.24%
--------------------
Lowest (4/1/99-
6/30/99) -2.44%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (12/31/97)
----------------------------------------------------------------------
Class D -4.06% 0.69%
----------------------------------------------------------------------
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 7.68 years as
of 12/31/99. It is not possible to invest directly in the
index.
(2) The Lipper General Municipal Debt Fund Average is a total
return performance average of Funds tracked by Lipper
Analytical Services, Inc. that invest at least 65% of their
assets in municipal debt issues in the top four credit
ratings. It does not take into account sales charges.
- --------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
-----------------------------------------------------------------------
Class D 0.25% 0.25% 0.35% 0.85%
-----------------------------------------------------------------------
(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
0.60% 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.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $87 $271 $471 $1,049
-----------------------------------------------------------------------
</TABLE>
Prospectus
20
<PAGE>
PIMCO New York Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high current Intermediate to B to Aaa; maximum
and income exempt from long-term 10% below Baa
Strategies federal and New York maturity municipal
income tax. Capital securities Dividend Frequency
appreciation is a (exempt from Declared daily and
secondary objective. federal and New distributed monthly
York income tax)
Fund Category Average Portfolio
Tax Exempt Bond 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 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 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 .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.
PIMCO Funds: Pacific Investment Management Series
21
<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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
-----------------------------------------------------------------------
Class D 0.25% 0.25% 0.35% 0.85%
-----------------------------------------------------------------------
(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
0.60% 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 Administrative Fee paid
by the class that is not reflected under Distribution and/or
Service (12b-1) Fees.
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, 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.
Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------
Class D $87 $271 $471 $1,049
-----------------------------------------------------------------------
</TABLE>
Prospectus
22
<PAGE>
PIMCO Real Return Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Inflation-indexed B to Aaa; maximum 10%
and real return, fixed income below Baa
Strategies consistent with securities
preservation of Dividend Frequency
real capital and Average Portfolio Declared daily and
prudent Duration distributed monthly
investment See description
management below
Fund Category
Inflation-Indexed Bond
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 March 7, 2000 was 9.0
years. For point of reference, it is expected that the average
portfolio duration (as opposed to real duration) of this Fund will
generally vary with 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 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, 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.
PIMCO Funds: Pacific Investment Management Series
23
<PAGE>
PIMCO Real Return Bond Fund (continued)
Calendar Year Total Returns -- Class D
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
----- ----- Highest (7/1/98-
4.80% 5.30% 9/30/98) 3.09%
--------------------
Calendar Year End (through 12/31) Lowest (10/1/98-
12/31/98) -0.15%
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year (1/29/97)(3)
----------------------------------------------------------------------
<S> <C> <C>
Class D 5.30% 4.72%
----------------------------------------------------------------------
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 3.2
years as of 12/31/99. 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 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>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D 0.25% 0.25% 0.42% 0.92%
--------------------------------------------------------------------------
(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.
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.
Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------
Class D $94 $293 $509 $1,131
-----------------------------------------------------------------------
</TABLE>
Prospectus
24
<PAGE>
PIMCO Short Duration Municipal Income Fund
- --------------------------------------------------------------------------------
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)
Fund Category
Tax Exempt Bond 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 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.
25 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 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>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D 0.20% 0.25% 0.35% 0.80%
--------------------------------------------------------------------------
(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
0.60% 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 Administrative Fee paid
by the class that is not reflected under Distribution and/or
Service (12b-1) Fees.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $82 $255 $444 $990
-------------------------------------------------------------------
</TABLE>
Prospectus
26
<PAGE>
PIMCO Short-Term Fund
- --------------------------------------------------------------------------------
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
Fund Category Duration
Short Duration Bond 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 normally
does 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 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, 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.
27 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Short-Term Fund (continued)
Calendar Year Total Returns -- Class D
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
90 91 92 93 94 --------------------
----- ----- ----- ----- ----- Highest (10/1/95-
8.14% 6.34% 3.32% 4.31% 2.58% 12/31/95) 2.52%
--------------------
95 96 97 98 99 Lowest (1/1/94-
----- ----- ----- ----- ----- 3/31/94) 0.12%
8.87% 6.68% 6.20% 5.43% 4.92%
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>
Class D 4.92% 6.41% 5.66%
----------------------------------------------------------------------
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 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>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D 0.25% 0.25% 0.25% 0.75%
--------------------------------------------------------------------------
(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 0.50% 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.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $77 $240 $417 $930
-------------------------------------------------------------------
</TABLE>
Prospectus
28
<PAGE>
PIMCO StocksPLUS Fund
- --------------------------------------------------------------------------------
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
Fund Category income securities distributed quarterly
Enhanced Index Stock
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, the information to its right and the Average
Annual Total Returns table show performance of the Fund's Class D
Shares. For the period 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.
29 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO StocksPLUS Fund (continued)
Calendar Year Total Returns -- Class D
[GRAPH] Highest and Lowest
Quarter Returns
(for periods shown
in the bar chart)
Annual Return --------------------
Highest (10/1/98-
12/31/98) 21.17%
94 95 96 97 98 99 --------------------
----- ------ ------ ----- ------ ------ Lowest (7/1/98-
2.58% 39.86% 22.61% 32.34% 27.71% 19.56% 9/30/98) -9.87%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (5/13/93)(3)
----------------------------------------------------------------------
<S> <C> <C> <C>
Class D 19.56% 28.22% 22.57%
----------------------------------------------------------------------
S&P 500 Index(1) 21.04% 28.56% 22.38%
----------------------------------------------------------------------
Lipper Growth & Income Fund Avg(2) 13.71% 21.35% 16.88%
----------------------------------------------------------------------
</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 Growth & Income Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that combine a growth-of-earnings orientation
and an income requirement for level and/or rising dividends.
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 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>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D 0.40% 0.25% 0.40% 1.05%
--------------------------------------------------------------------------
</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.
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.
Year 1 Year 3 Year 5 Year 10
-------------------------------------------------------------------
Class D $107 $334 $579 $1,283
-------------------------------------------------------------------
Prospectus 30
<PAGE>
PIMCO Strategic Balanced Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum total Intermediate B to Aaa; maximum
and return, consistent maturity fixed 10% below Baa
Strategies with preservation of income securities
capital and prudent and S&P 500 stock Dividend Frequency
investment index derivatives Declared and
management distributed
Average Portfolio quarterly
Fund Category Duration
Stock and Bond 0-6 years
The Fund seeks to achieve its investment objective by normally
investing in a combination of fixed income securities and equity
securities or derivatives on equity securities. The percentage of
the Fund's assets invested in equities and equity derivatives or
in fixed income securities will be determined 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 securities within specific phases of the
business cycle. The Fund's equity exposure will vary between 45%
and 75% of assets, and its fixed income exposure will range from a
minimum of 25% to a maximum of 55%.
The Fund's equity exposure normally consists of S&P 500
derivatives, backed by a portfolio of short-term Fixed Income
Instruments. PIMCO 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 will actively manage the fixed income assets
serving as cover for derivatives, as well as any other fixed
income assets held by the Fund, with a view toward enhancing the
Fund's total return investment performance. 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 the equity portion of its assets in a "basket" of
S&P 500 stocks.
The Fund's fixed income exposure will normally consist of a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of the fixed income
portion of this Fund's assets will normally vary within a three-to
six-year time frame based on PIMCO's forecast for interest rates.
The Fixed Income Instruments in which the Fund invests are
primarily investment grade, but 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.
The Fund may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements. The Fund
may lend its portfolio securities to brokers, dealers and other
financial institutions to earn income. The Fund may 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 net income
earned on the Fund's investments, plus capital appreciation
arising from increases in the market value of the Fund's holdings.
- --------------------------------------------------------------------------------
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 .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 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 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.
PIMCO Funds: Pacific Investment Management Series
31
<PAGE>
PIMCO Strategic Balanced Fund (continued)
Calendar Year Total Returns -- Class D
Highest and Lowest
[GRAPH] Quarter Returns
(for periods shown
Annual Return in the bar chart)
--------------------
Highest (4/1/97-
'97 '98 '99 6/30/97) 12.12%
---- ---- ---- --------------------
23.69% 19.13% 11.07% 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>
<S> <C> <C>
Fund Inception
1 Year (6/28/96)(4)
--------------------------------------------------------------------
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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
-----------------------------------------------------------------------
Class D 0.40% 0.25% 0.40% 1.05%
-----------------------------------------------------------------------
</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.
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 $107 $334 $579 $1,283
-----------------------------------------------------------------------
</TABLE>
Prospectus
32
<PAGE>
PIMCO Total Return Fund
- --------------------------------------------------------------------------------
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
Fund Category
Intermediate Duration Bond
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 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, 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.
PIMCO Funds: Pacific Investment Management Series
33
<PAGE>
PIMCO Total Return Fund (continued)
Calendar Year Total Returns -- Class D
Highest and Lowest
'90 '91 '92 '93 '94 Quarter Returns
---- ---- ---- ---- ---- (for periods shown
7.70% 19.19% 9.42% 12.20% -3.88% in the bar chart)
--------------------
'95 '96 '97 '98 '99 Highest (7/1/91-
---- ---- ---- ---- ---- 9/30/91) 6.58%
19.41% 4.37% 9.84% 9.43% -0.60% --------------------
Lowest (1/1/94-
3/31/94) -2.76%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
--------------------------------------------------------------------
Class D -0.60% 8.29% 8.47%
--------------------------------------------------------------------
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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
-----------------------------------------------------------------------
Class D 0.25% 0.25% 0.25% 0.75%
-----------------------------------------------------------------------
(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
0.50% 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.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $77 $240 $417 $930
-----------------------------------------------------------------------
</TABLE>
Prospectus
34
<PAGE>
PIMCO Total Return Mortgage Fund
- --------------------------------------------------------------------------------
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
Fund Category
Intermediate
Duration Bond
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 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, 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.
PIMCO Funds: Pacific Investment Management Series
35
<PAGE>
PIMCO Total Return Mortgage Fund (continued)
Calendar Year Total Returns -- Class D
Highest and Lowest
Quarter Returns
'98 '99 (for periods shown
---- ---- in the bar chart)
6.81% 2.01% --------------------
Highest (7/1/98-
9/30/98) 3.08%
--------------------
Lowest (4/1/99-
6/30/99) -0.23%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (7/31/97)
-------------------------------------------------------------------------
Class D 2.01% 5.62%
-------------------------------------------------------------------------
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 4.27 years as of 12/31/99. 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 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Fees (12b-1) Fees(1) Expenses(2) Expenses
-----------------------------------------------------------------------
Class D 0.25% 0.25% 0.40% 0.90%
-----------------------------------------------------------------------
(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.
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.
<CAPTION>
Year 1 Year 3 Year 5 Year 10
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class D $92 $287 $498 $1,108
-----------------------------------------------------------------------
</TABLE>
Prospectus
36
<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. High yield
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 high yield securities and
reduce a Fund's ability to sell its high yield 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.
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
37 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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. 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, the 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-
Diversifi- diversified" may invest a greater percentage of their assets in
cation 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.
Prospectus 38
<PAGE>
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.
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
recent years. A reoccurrence of these difficulties may impair the
ability of certain New York issuers to pay principal or interest
on their obligations. The financial health of New York City
affects that of the State, and when New York City experiences
financial difficulty it may have an adverse affect on New York
municipal bonds held by the Fund. The growth rate of New York has
recently been somewhat slower than the nation overall. The
economic and financial condition of New York also may be affected
by various financial, social, economic and political factors.
Management of the Funds
Investment PIMCO serves as the investment adviser and the administrator
Adviser (serving in its capacity as administrator, the "Administrator")
and for the Funds. Subject to the supervision of the Board of
Admin- Trustees, PIMCO is responsible for managing the investment
istrator 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
December 31, 1999, PIMCO had approximately $186 billion in assets
under management.
Advisory Each Fund pays PIMCO fees in return for providing investment
Fees advisory services. For the fiscal year ended March 31, 1999, 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>
Strategic Balanced and StocksPLUS Funds 0.40%
Emerging Markets Bond Fund 0.45%
All other Funds 0.25%
</TABLE>
The Short Duration Municipal Income, California Intermediate
Municipal Bond, California Municipal Bond, New York Municipal Bond
and Convertible Bond Funds were not operational during the fiscal
year ended March 31, 1999. The investment advisory fees for the
Short Duration Municipal Income, California Intermediate Municipal
Bond, California Municipal Bond, New York Municipal Bond, and
Convertible Funds are at an annual rate of 0.20%, 0.25%, 0.25%,
0.25% and 0.40%, respectively, based upon the average daily net
assets of the Fund.
Admini Each Fund pays for the administrative services it requires under a
- -strative fee structure which is essentially fixed. Class D shareholders of
Fees 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 Class D shareholders and also bears
the costs of various third-party services required by the Funds,
including audit, custodial, portfolio accounting, legal transfer
agency and printing costs. The result of this fee structure is an
expense level for Class D shareholders of each Fund that, with
limited exceptions, is precise and predictable under ordinary
circumstances.
39 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO may pay financial service firms a portion of the Class D
administrative fees in return for the firm's services (normally
not to exceed an annual rate of 0.35% of a Fund's average daily
net assets attributable to Class D shares purchased through such
firms).
For the fiscal year ended March 31, 1999, 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 Class D shares):
<TABLE>
<CAPTION>
Fund Administrative Fees*
------------------------------------------------------------------
<S> <C>
Short-Term, Low Duration and Total Return
Funds 0.25%
Municipal Bond Fund 0.35%
Total Return Mortgage, High Yield, Real
Return Bond, Strategic Balanced and
StocksPLUS Funds 0.40%
Foreign Bond 0.45%
Emerging Markets Bond Fund 0.55%
</TABLE>
* As described below under "12b-1 Plan for Class D Shares," the
administration agreement includes a plan adopted in conformity
with Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act") which provides for the payment of up to 0.25% of the
Administrative Fee 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. In the Fund Summaries above, the
"Annual Fund Operating Expenses" table provided under "Fees and
Expenses of the Fund" for each Fund shows the Administrative Fees
rate under two separate columns entitled "Distribution and/or
Service (12b-1) Fees" and "Other Expenses."
The Short Duration Municipal Income, California Intermediate
Municipal Bond, California Municipal Bond, New York Municipal
Bond, Convertible Bond Funds were not operational during the
fiscal year ended March 31, 1999. The administrative fees for the
Short Duration Municipal Income, California Intermediate Municipal
Bond, California Municipal Bond, New York Municipal Bond, and
Convertible Bond Funds are at an annual rate of 0.19%, 0.24%,
0.24%, 0.24% and 0.25%, respectively, based upon the average daily
net assets of the Fund.
12b-1 The Funds' administration agreement includes a plan for Class D
Plan for shares that has been adopted in conformity with the requirements
Class D set forth in Rule 12b-1 under the 1940 Act. The plan provides that
Shares up to 0.25% per annum of the Class D administrative fees paid
under the administration agreement may represent 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 of Class D shares
and/or the provision of shareholder services. Because 12b-1 fees
would be paid out of a Fund's Class D share assets on an ongoing
basis, over time these fees would increase the cost of your
investment in Class D shares and may cost you more than other
types of sales charges.
Prospectus
40
<PAGE>
Individual The following individuals have primary responsibility for managing
Portfolio each of the noted Funds.
Managers
<TABLE>
<CAPTION>
Fund Portfolio Manager Since Recent Professional Experience
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Short-Term Paul A. McCulley 8/99 Executive Vice 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 Investment Officer and a founding
Total Return 5/87* partner of PIMCO. He leads a team which manages the
Strategic Balanced 1/98 Strategic Balanced and StocksPLUS Funds.
StocksPLUS 1/98
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 MBS pass-through trading
at Bear Stearns & Co.
Foreign Bond Lee R. Thomas, III 7/95 Managing Director and Senior International 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. Prior to
joining PIMCO, he was associated with Investcorp as a
member of the management committee responsible for global
securities and foreign exchange trading.
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.
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, PIMCO. He joined PIMCO as a
Municipal Income Portfolio Manager in 2000. Prior to that, he was a bond
Municipal Bond 4/00 trader from 1992-1999 at Goldman, Sachs & Co. where he was
California Intermediate 4/00 appointed Vice President in 1996 and named co-head of
Municipal Bond municipal bond trading in 1997 with responsibility for the
California Municipal Bond 5/00 firm's proprietary account and supervised municipal bond
New York 4/00 traders.
Municipal Bond
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 that time.
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 to 1999, and a Quantitative
Analyst since 1994.
</TABLE>
_____________
* Since inception of the Fund.
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.
PIMCO Funds: Pacific Investment Management Series
41
<PAGE>
How to Buy and Sell Shares
The following section provides basic information about how to buy,
sell (redeem) and exchange Class D shares of the Funds.
General . Financial Service Firms. Broker-dealers, registered
Information investment advisers and other financial service firms provide
varying investment products, programs or accounts, pursuant to
arrangements with the Distributor, through which their clients may
purchase and redeem Class D shares of the Funds. Firms will
generally provide or arrange for the provision of some or all of
the shareholder servicing and account maintenance services
required by your account, including, without limitation, transfers
of registration and dividend payee changes. Firms may also perform
other functions, including generating confirmation statements and
disbursing cash dividends, and may arrange with their clients for
other investment or administrative services. Your firm may
independently establish and charge you transaction fees and/or
other additional amounts for such services, which may change over
time. These fees and additional amounts could reduce your
investment returns on Class D shares of the Funds.
Your financial service firm may have omnibus accounts and similar
arrangements with the Trust and may be paid for providing sub-
transfer agency and other services. A firm may be paid for its
services directly or indirectly by the Funds, PIMCO Advisors or an
affiliate (normally not to exceed an annual rate of 0.35% of a
Fund's average daily net assets attributable to its Class D shares
and purchased through such firm for its clients). Your firm may
establish various minimum investment requirements for Class D
shares of the Funds and may also establish certain privileges with
respect to purchases, redemptions and exchanges of Class D shares
or the reinvestment of dividends. Please contact your firm for
information.
This Prospectus should be read in connection with your firm's
materials regarding its fees and services.
. Calculation of Share Price and Redemption Payments. When you
buy or sell (redeem) Class D shares of the Funds, you pay or
receive a price equal to the NAV of the shares. NAVs are
determined at the close of regular trading (normally 4:00 p.m.
Eastern time) on each day the New York Stock Exchange is open. See
"How Fund Shares Are Priced" below for details. Generally,
purchase and redemption orders for Fund shares are processed at
the NAV next calculated after your order is received by the
Distributor. In addition, orders received by the Distributor from
financial service firms after NAV is determined that day will be
processed at that day's NAV if the orders were received by the
firm from its customer prior to such determination and were
transmitted to and received by the Distributor prior to its close
of business that day (normally 7:00 p.m., Eastern time).
The Trust does not calculate NAVs or process orders on days when
the New York Stock Exchange is closed. If your purchase or
redemption order is received by the Distributor on a day when the
New York Stock Exchange is closed, it will be processed on the
next succeeding day when the New York Stock Exchange is open
(according to the succeeding day's NAV).
Buying Class D shares of each Fund are continuously offered through
Shares financial service firms, such as broker-dealers or registered
investment advisers, with which the Distributor has an agreement
for the use of the Funds in particular investment products,
programs or accounts for which a fee may be charged. See
"Financial Service Firms" above.
You may purchase Class D shares only through your financial
service firm. In connection with purchases, your financial service
firm is responsible for forwarding all necessary documentation to
the Distributor, and may charge you for such services. If you wish
to purchase shares of the Funds directly from the Trust or the
Distributor, you should inquire about the other classes of shares
offered by the Trust. Please call the Distributor at 1-888-87-
PIMCO for information about other investment options.
Class D shares of the Funds will be held in your account with
your financial service firm and, generally, your firm will hold
your Class D shares in nominee or street name as your agent. In
most cases, the Trust's transfer agent will have no information
with respect to or control over accounts of specific Class D
shareholders and you may obtain information about your accounts
only through your financial service firm. In certain
circumstances, your firm may arrange to have your shares held in
your own name or you may subsequently become a holder of record
for some other reason (for instance, if you terminate your
relationship with your firm). In such circumstances, please
contact the Distributor at 1-888-87-PIMCO for information about
your account. In the interest of economy and convenience,
certificates for Class D shares will not be issued.
Prospectus
42
<PAGE>
The Distributor, in its sole discretion, may accept or reject any
order for purchase of Fund shares. The sale of shares will be
suspended during any period in which the Exchange is closed for
other than weekends or holidays, or if permitted by the rules of
the Securities and Exchange Commission, when trading on the 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.
. Investment Minimums. The following investment minimums apply
for purchases of Class D shares.
<TABLE>
<CAPTION>
Initial Investment Subsequent Investments
-------------------------------------------------------
<S> <C>
$2,500 per Fund $100 per Fund
</TABLE>
Your financial service firm may impose different investment
minimums than the Trust. For example, if your firm maintains an
omnibus account with a particular Fund, the firm may impose higher
or lower investment minimums than the Trust when you invest in
Class D shares of the Fund through your firm. Please contact your
firm for information.
Exchanging You may exchange your Class D shares of any Fund for Class D
Shares shares of any other Fund or any series of PIMCO Funds: Multi-
Manager Series that offers Class D shares. Shares are exchanged on
the basis of their respective NAVs next calculated after your
exchange order is received by the Distributor. Currently, the
Trust does not charge any exchange fees or charges. Your financial
service firm may impose various fees and charges, investment
minimums and other requirements with respect to exchanges. Please
contact your financial service firm to exchange your shares and
for additional information about the exchange privilege.
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
an investor may make. An investor makes a "round trip" exchange
when the investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a different Fund
and then exchanges back into the originally purchased Fund. The
Trust has the right to refuse any exchange for any investor who
completes (by making the exchange back into the shares of the
originally purchased Fund) more than six round trip exchanges in
any twelve-month period. Although the Trust has no current
intention of terminating or modifying the exchange privilege other
than as set forth in the preceding sentence, it reserves the right
to do so at any time. Except as otherwise permitted by Securities
and Exchange Commission regulations, the Trust will give 60 days'
advance notice to your financial service firm of any termination
or material modification of the exchange privilege.
Selling You can sell (redeem) Class D shares through your financial
Shares service firm on any day the New York Stock Exchange is open. You
do not pay any fees or other charges to the Trust or the
Distributor when you sell your shares, although your financial
service firm may charge you for its services in processing your
redemption request. Please contact your firm for details. If you
are the holder of record of your Class D shares, you may contact
the Distributor at 1-888-87-PIMCO for information regarding how to
sell your shares directly to the Trust.
Your financial service firm is obligated to transmit your
redemption orders to the Distributor promptly and is responsible
for ensuring that your redemption request is in proper form. Your
financial service firm will be responsible for furnishing all
necessary documentation to the Distributor or the Trust's transfer
agent and may charge you for its services. Redemption proceeds
will be forwarded to your financial service firm as promptly as
possible and in any event within seven days after the redemption
request is received by the Distributor in good order. 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.
Redemptions The Trust had agreed to redeem shares of each Fund solely in cash
In Kind 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 may pay
any redemption proceeds exceeding this amount in whole or in part
by a distribution in kind of securities held by a Fund in lieu of
cash. Except for Funds with a tax-efficient management strategy,
it is highly unlikely that your shares would ever be
43 PIMCO Funds: Pacific Investment Management Series
<PAGE>
redeemed in kind. If your shares are redeemed in kind, you should
expect to incur transaction costs upon the disposition of the
securities received in the distribution.
How Fund Shares Are Priced
The net asset value ("NAV") of a Fund's Class D shares is
determined by dividing the total value of a Fund's portfolio
investments and other assets attributable to that class, less any
liabilities, by the total number of shares outstanding of that
class.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are available are stated at market
value. Market value is generally determined on the basis of last
reported sales prices, or if no sales are reported, based on
quotes obtained from a quotation reporting system, established
market makers, or pricing services. Certain securities or
investments for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the
Board of Trustees, with reference to other securities of 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.
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 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.
Fund Distributions
Each Fund distributes substantially all of its net investment
income to shareholders in the form of dividends. You begin earning
dividends on Fund shares the day after the Trust receives your
purchase payment. Dividends paid by each Fund with respect to each
class of shares are calculated in the same manner and at the same
time. 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 .
-----------------------------------------------------------
Convertible, Strategic Balanced
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.
Prospectus
44
<PAGE>
You can choose from the following distribution options:
. Reinvest all distributions in additional Class D shares of
your Fund at NAV. This will be done unless you elect another
option.
. Invest all distributions in Class D shares of any other Fund
or any series of PIMCO Funds: Multi-Manager Series which offers
Class D shares at NAV. You must have an account existing in the
Fund or series selected for investment with the identical
registered name. This option must be elected when your account is
set up.
. Receive all distributions in cash (either paid directly to you
or credited to your account with your financial service firm).
This option must be elected when your account is set up.
Your financial service firm may offer additional distribution
reinvestment programs or options. Please contact your firm for
details.
You do not pay any sales charges on shares you receive through
the reinvestment of Fund distributions. If you elect to receive
Fund distributions in cash and the postal or other delivery
service is unable to deliver checks to your address of record, the
Trust's Transfer Agent will hold the returned checks for your
benefit in a non-interest bearing account.
Tax Consequences
. Taxes on Fund distributions. If you are subject to U.S.
federal income tax, you will be subject to tax on Fund
distributions whether you received them in cash or reinvested in
additional shares of the Funds. For federal income tax purposes,
Fund distributions will be taxable to you as either ordinary
income or capital gains.
Fund dividends (i.e., distributions of investment income) are
taxable to you 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 you
have owned your shares. Distributions of gains from investments
that a Fund owned for more than 12 months will generally be
taxable to you as capital gains. Distributions of gains from
investments that the Fund owned for 12 months or less will
generally be taxable to you as ordinary income.
Fund distributions are taxable to you even if they are paid from
income or gains earned by a Fund prior to your investment and thus
were included in the price you paid for your shares. For example,
if you purchase shares on or just before the record date of a Fund
distribution, you will pay full price for the shares and may
receive a portion of your investment back as a taxable
distribution.
. Taxes when you sell (redeem) or exchange your shares. Any gain
resulting from the sale of Fund shares will generally be subject
to federal income tax. When you exchange shares of a Fund for
shares of another series, the transaction will be treated as a
sale of the Fund shares for these purposes, and any gain on those
shares will generally be subject to federal income tax.
. Consult your tax advisor about other possible tax
consequences. This is a summary of certain federal income tax
consequences of investing in a Fund. You should consult your tax
advisor for more information on your own tax situation, including
possible state, local and foreign tax consequences.
. 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 you 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, 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
PIMCO Funds: Pacific Investment Management Series
45
<PAGE>
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, if you 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, California Municipal Bond, and New York Municipal Bond Funds
seek to produce income that is generally exempt from the relevant
state's income tax and will not benefit individuals that are not
subject to that state's income tax.
This section relates only to federal income tax; the consequences
under other tax laws may differ. Shareholders should consult their
tax 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.
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 the following sectors: 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 shift assets
among sectors depending upon changes in relative valuations and
credit spreads. There is no guarantee that PIMCO's security
selection techniques will produce the desired results.
U.S. U.S. Government Securities are obligations of, or guaranteed by,
Government the U.S. Government, its agencies or 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.
Prospectus
46
<PAGE>
Mortgage- Each Fund may invest in mortgage- or other asset-backed
Related securities. Except for the Short Duration Municipal Income,
and Other Municipal Bond, California Intermediate Municipal Bond, California
Asset- Municipal Bond, New York Municipal Bond and Convertible Funds,
Backed 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.
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 Investors Service, Inc.
Yield ("Moody's") or lower than BBB by Standard & Poor's Ratings
Securities Services ("S&P") are sometimes referred to as "high yield" or
"junk" bonds. Investing in high yield securities involves special
risks in addition to the risks associated with investments in
higher-rated fixed income securities. While offering a greater
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
PIMCO Funds: Pacific Investment Management Series
47
<PAGE>
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 engage in credit spread trades. While floaters provide a certain
Securities degree of protection against rises in interest rates, a Fund will
participate in any declines in interest rates as well. Each Fund
may also invest in inverse floating rate debt instruments
("inverse floaters"). An inverse floater may exhibit greater price
volatility than a fixed rate obligation of similar credit quality.
A Fund may not invest more than 5% of its 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
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 may invest in "event-linked bonds," which are fixed
Linked income securities for which the return of principal and payment of
Bonds 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.
Prospectus
48
<PAGE>
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 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
and Low Duration 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 Municipal Bond, Short Duration Municipal
Income, 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 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
PIMCO Funds: Pacific Investment Management Series
49
<PAGE>
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 served 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 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 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 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.
Prospectus
50
<PAGE>
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.
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 Municipal Bond Fund) may also enter into, or
Funding acquire participations in, delayed funding loans and revolving
Loans and credit facilities, in which a lender agrees to make loans up to a
Revolving maximum amount upon demand by the borrower during a specified
Credit term. These commitments may have the effect of requiring a Fund to
Facilities 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
51 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Each Fund may invest up to 10% of its assets in securities of
in Other other investment companies, such as closed-end management
Investment investment companies, or in pooled accounts or other investment
Companies vehicles 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, in the future, elect to pursue its investment objectives
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% of its net assets in illiquid
Securities securities. Certain illiquid securities may require pricing at
fair value as determined in good faith under the supervision of
the Board of Trustees. A portfolio manager may be subject to
significant delays in disposing of illiquid securities, and
transactions in illiquid securities may entail registration
expenses and other transaction costs that are higher than those
for transactions in liquid securities. The term "illiquid
securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business
at approximately the amount at which a Fund has valued the
securities. Restricted securities, i.e., securities subject to
legal or contractual restrictions on resale, may be illiquid.
However, some restricted securities (such as securities issued
pursuant to Rule 144A under the Securities Act of 1933 and certain
commercial paper) may be treated as liquid, although they may be
less liquid than registered securities traded on established
secondary markets.
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.
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 in The investment objective of each Fund is fundamental and may not
Investment be changed without shareholder approval. Unless otherwise stated,
Objectives all other investment policies of the Funds may be changed by the
and Board of Trustees without shareholder approval.
Policies
Prospectus 52
<PAGE>
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.
53 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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Prospectus
54
<PAGE>
Financial Highlights
The financial highlights table is intended to help a shareholder
understand the financial performance of Class D shares of each
Fund 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 Class D shares of a
Fund, assuming reinvestment of all dividends and distributions.
The information for the fiscal year ended March 31, 1999 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. The
information for the semi-annual period ended September 30, 1999 is
unaudited.
<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(b) Investments(b) Operations Income Income Capital Gains Capital Gains
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term Fund (a)
09/30/1999 (c) $10.03 $0.26 $(0.06) $0.20 $(0.27) $ 0.00 $ 0.00 $0.00
03/31/1999 10.07 0.53 (0.03) 0.50 (0.53) 0.00 0.00 (0.01)
Low Duration Fund (a)
09/30/1999 (c) 10.10 0.29 (0.20) 0.09 (0.29) 0.00 0.00 0.00
03/31/1999 10.19 0.60 (0.03) 0.57 (0.60) 0.00 (0.01) (0.05)
Total Return Fund (a)
09/30/1999 (c) 10.36 0.29 (0.30) (0.01) (0.29) 0.00 0.00 0.00
03/31/1999 10.66 0.59 0.12 0.71 (0.59) 0.00 (0.24) (0.18)
Total Return Mortgage Fund (a)
09/30/1999 (c) 10.19 0.27 (0.21) 0.06 (0.27) 0.00 0.00 0.00
03/31/1999 14.13 0.79 1.38 2.17 (0.79) 0.00 (1.24) 0.00
Foreign Bond Fund (a)
09/30/1999 (c) 10.63 0.30 (0.49) (0.19) (0.30) 0.00 0.00 0.00
03/31/1999 10.83 0.53 0.15 0.68 (0.53) 0.00 (0.10) (0.25)
High Yield Fund (a)
09/30/1999 (c) 11.23 0.44 (0.50) (0.06) (0.44) 0.00 0.00 0.00
03/31/1999 11.68 0.89 (0.45) 0.44 (0.88) (0.01) 0.00 0.00
Municipal Bond Fund (a)
09/30/1999 (c) 10.12 0.21 (0.56) (0.35) (0.21) 0.00 0.00 0.00
03/31/1999 9.98 0.40 0.14 0.54 (0.40) 0.00 0.00 0.00
Real Return Bond Fund (a)
09/30/1999 (c) 9.83 0.29 0.02 0.31 (0.32) 0.00 0.00 0.00
03/31/1999 9.77 0.47 0.09 0.56 (0.44) (0.06) 0.00 0.00
Strategic Balanced Fund (a)
09/30/1999 (c) 12.75 0.30 (0.36) (0.06) (0.11) 0.00 0.00 0.00
03/31/1999 12.65 0.79 0.60 1.39 (0.62) 0.00 (0.67) 0.00
StocksPLUS Fund (a)
09/30/1999 (c) 14.27 0.26 (0.16) 0.10 (0.23) 0.00 0.00 0.00
03/31/1999 14.13 0.79 1.38 2.17 (0.79) 0.00 (1.24) 0.00
</TABLE>
- -------
(a) Commenced operations on April 8, 1998.
(b) Per share amounts based on average number of shares outstanding during the
period.
(c) Unaudited.
(d) Ratio of expenses to average net assets excluding interest expense is 0.95%
PIMCO Funds: Pacific Investment Management Series
55
<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>
$(0.27) $ 9.96 1.97% $ 4,119 0.75%+ 5.27%+ 21%
$0.00 (0.54) 10.03 5.10 2,278 0.75 5.05 47
(0.29) 9.90 0.95 9,288 0.75+ 5.85+ 52
0.00 (0.66) 10.10 5.77 6,481 0.75 5.81 245
(0.29) 10.06 (0.09) 57,434 0.78+ 5.66+ 46
0.00 (1.01) 10.36 6.73 34,839 0.75 5.21 154
(0.27) 9.98 0.54 129 0.91+ 5.34+ 190
0.00 (0.63) 10.19 5.41 183 0.90 5.15 158
(0.30) 10.14 (1.85) 10,940 1.04+ 5.70+ 90
0.00 (0.88) 10.63 6.46 8,513 0.95 4.82 376
(0.44) 10.73 (0.52) 18,947 0.90+ 8.05+ 17
0.00 (0.89) 11.23 4.00 9,065 0.90 8.07 39
(0.21) 9.56 (3.48) 362 0.86+ 4.24+ 48
0.00 (0.40) 10.12 5.47 242 0.85 3.99 70
(0.32) 9.82 3.19 5,436 0.92+ 5.90+ 103
0.00 (0.50) 9.83 5.89 193 0.92 4.75 438
(0.11) 12.58 0.25 223 1.05+ 4.54+ 34
0.00 (1.29) 12.75 11.45 173 1.05 6.41 82
(0.23) 14.14 0.67 2,873 1.05+ 3.52+ 46
0.00 (2.03) 14.27 16.69 1,721 1.05 8.12 81
</TABLE>
- -------
+ Annualized
Prospectus 56
<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 to be 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.
Corporate and Municipal Bond Ratings
Moody's Aaa: Bonds which are rated Aaa are judged to be of the best
Investors quality. They carry the smallest degree of investment risk and are
Service, generally referred to as "gilt edge." Interest payments are
Inc. protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classified from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Prospectus
A-1
<PAGE>
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of
issuers to repay punctually senior debt obligations which have an
original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters of credit and bonds of
indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of
rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Short-Term Municipal Bond Ratings
There are four rating categories for short-term municipal bonds
that define an investment grade situation, which are listed below.
In the case of variable rate demand obligations (VRDOs), a two-
component rating is assigned. The first element represents an
evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other represents an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When either the long- or short-term
aspect of a VRDO is not rated, that piece is designated NR, e.g.,
Aaa/NR or NR/VMIG 1. MIG ratings terminate at the retirement of
the obligation while VMIG rating expiration will be a function of
each issue's specific structural or credit features.
MIG 1/VMIG 1: This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market
for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality. All
security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality.
Protection commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.
SG: This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
Standard Corporate and Municipal Bond Ratings
& Poor's
Ratings Investment Grade
Services AAA: Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A-2
PIMCO Funds: Pacific Investment Management Series
<PAGE>
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions, or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and
repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
CI: The rating CI is reserved for income bonds on which no
interest is being paid.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The D rating will also be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
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.
Prospectus
A-3
<PAGE>
Commercial An S&P commercial paper rating is a current assessment of the
Paper likelihood of timely payment of debt having an original maturity
Rating of no more than 365 days. Ratings are graded into several
Definitions categories, ranging from A for the highest quality obligations to
D for the lowest. These categories are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B: Issues rated B are regarded as having only speculative
capacity for timely payment.
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period.
A 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-4
PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Funds: Pacific Investment Management Series
The Trust's Statement of Additional Information ("SAI") and annual
and semi-annual reports to shareholders include additional
information about the Funds. The SAI and the financial statements
included in the Funds' most recent annual report to shareholders
are incorporated by reference into this Prospectus, which means
they are part of this Prospectus for legal purposes. The Funds'
annual report discusses the market conditions and investment
strategies that significantly affected each Fund's performance
during its last fiscal year.
You may get free copies of any of these materials, request other
information about a Fund, or make shareholder inquiries by calling
the Trust at 1-888-87-PIMCO, or by writing to:
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
You may also contact your financial service firm for details.
You may review and copy information about the Trust, including its
SAI, at the Securities and Exchange Commission's public reference
room in Washington, D.C. You may call the Commission at 1-202-942-
8090 for information about the operation of the public reference
room. You may also access reports and other information about the
Trust on the Commission's Web site at www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009, or by electronic request @
[email protected].
You can also visit our Web site at www.pimcofunds.com for
additional information about the Funds.
[LOGO OF PIMCO FUNDS APPEARS HERE]
Investment Company File No. 811-5028
<PAGE>
-------------------------------------------------------------------
PIMCO INVESTMENT ADVISER AND ADMINISTRATOR
Funds: PIMCO, 840 Newport Center Drive, Suite 300, Newport Beach, CA
Pacific 92660
Investment
Management -------------------------------------------------------------------
Series DISTRIBUTOR
PIMCO Funds Distributors LLC, 2187 Atlantic Street, Stamford, CT
06902-6896
-------------------------------------------------------------------
CUSTODIAN
State Street Bank & Trust Co., 801 Pennsylvania, Kansas City, MO
64105
-------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
PFPC Inc., P.O. Box 9688, Providence, RI 02940-9688
-------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO 64105
-------------------------------------------------------------------
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street N.W., Washington, D.C.
20006-2401
-------------------------------------------------------------------
For further information about the PIMCO Funds, call 1-800-426-0107
or visit our Web site at http://www.pimcofunds.com.
<PAGE>
PIMCO Funds is on the Web
www.pimcofunds.com
A Partial List of What's Available:
Daily Share Prices
Daily Manager Commentary
Current and Historical Fund Performance
Lipper Rankings
Morningstar Ratings
Listing of Fund Portfolio Holdings
Risk Analysis
Fund Manager Bios
Resources for Investment Professionals
Through the PIMCO Funds Website, at www.pimcofunds.com, you and your financial
advisor have around-the-clock access to the most timely and comprehensive
information available on PIMCO Funds.
[GRAPHIC]
In addition, the site includes daily commentary from our fund managers,
with insights on the economy and other factors affecting the stock and bond
markets.
[GRAPHIC]
Investment Insight
The Investment Insight section provides an overview of the investment management
firms under the PIMCO Advisors L.P. umbrella. You'll find an explanation of each
firm's investment process, biographies of the investment team, manager updates
and more.
[GRAPHIC]
Fund Information
In the Fund Information section you'll access detailed profiles of all the PIMCO
Funds, including current and historical performance, Lipper rankings and
Morningstar ratings.
Additionally, we provide a summary of a fund's portfolio -- complete with
risk analysis data. You can also obtain daily fund share prices. Please read the
relevant prospectus carefully before you invest in any PIMCO Fund.
Not part of the Prospectus
- --------------------------------------------------------------------------------
P I C M O
Funds
PIMCO Funds
Distributors LLC
2187 Atlantic Street
Stanford, CT 06902-6896
<PAGE>
<TABLE>
<CAPTION>
PIMCO Funds Prospectus
<S> <C>
--------------------------------------------------------------------------------
Pacific SHORT DURATION BOND FUNDS HIGH YIELD BOND FUNDS
Investment Money Market Fund High Yield Fund
Management Short-Term Fund
Series Low Duration Fund INFLATION-INDEXED BOND FUNDS
Real Return Bond Fund
--------------------------------------------------------------------------------
August 1, 2000 INTERMEDIATE DURATION BOND FUNDS
Total Return Fund CONVERTIBLE FUNDS
Share Classes Total Return Mortgage Fund Convertible Fund
A B C --------------------------------------------------------------------------------
LONG DURATION BOND FUNDS
Long-Term U.S. Government Fund STOCK AND BOND FUNDS
Strategic Balanced Fund
--------------------------------------------------------------------------------
INTERNATIONAL BOND FUNDS
Global Bond Fund II ENHANCED INDEX STOCK FUNDS
Foreign Bond Fund StocksPLUS Fund
Emerging Markets Bond Fund
--------------------------------------------------------------------------------
P I M C O
This cover is not part of the Prospectus. ---------
FUNDS
</TABLE>
<PAGE>
PIMCO Funds Prospectus
PIMCO
Funds: This Prospectus describes 14 mutual funds offered by PIMCO Funds:
Pacific Pacific Investment Management Series. The Funds provide access to
Investment the professional investment advisory services offered by Pacific
Management Investment Management Company ("PIMCO"). As of December 31, 1999,
Series PIMCO managed approximately $186 billion in assets.
This Prospectus explains what you should know about the Funds
August 1, before you invest. Please read it carefully.
2000
Share The Securities and Exchange Commission has not approved or
Classes disapproved these securities, or determined if this Prospectus is
A, B truthful or complete. Any representation to the contrary is a
and C criminal offense.
Pacific Investment Management Series
1
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Summary Information.............................................. 3
Fund Summaries
Convertible Fund............................................... 5
Emerging Markets Bond Fund..................................... 7
Foreign Bond Fund.............................................. 9
Global Bond Fund II............................................ 11
High Yield Fund................................................ 13
Long-Term U.S. Government Fund................................. 15
Low Duration Fund.............................................. 17
Money Market Fund.............................................. 19
Real Return Bond Fund.......................................... 21
Short-Term Fund................................................ 23
StocksPLUS Fund................................................ 25
Strategic Balanced Fund........................................ 27
Total Return Fund.............................................. 29
Total Return Mortgage Fund..................................... 31
Summary of Principal Risks....................................... 33
Management of the Funds.......................................... 35
Investment Options............................................... 37
How Fund Shares are Priced....................................... 40
How to Buy and Sell Shares....................................... 41
Fund Distributions............................................... 44
Tax Consequences................................................. 45
Characteristics and Risks of Securities and Investment
Techniques...................................................... 46
Financial Highlights............................................. 53
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 Duration Money Market Money market (less than or =) 90 days Min 95% Aaa or 0%
Bond Funds instruments dollar- weighted average Prime 1; (less than or =)
maturity 5% Aa or Prime 2
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Money market 0-1 year B to Aaa; max 0-5%(3)
instruments and 10% below Baa
short maturity
fixed income
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Low Duration Short maturity 1-3 years B to Aaa; max 0-20%(3)
fixed income 10% below Baa
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Intermediate Total Return Intermediate 3-6 years B to Aaa; max 0-20%(3)
Duration maturity fixed 10% below Baa
Bond Funds income
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return Intermediate 2-6 years Baa to Aaa; max a 0%
Mortgage maturity 10% below Aaa
mortgage-related
fixed income
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Long Duration Long-Term Long-term (greater than or =) A to Aaa 0%
Bond Funds U.S. Government maturity fixed 8 years
income
securities
- -----------------------------------------------------------------------------------------------------------------------------------
International Global Bond II U.S. and hedged 3-7 years B to Aaa; max 25-75%(5)
Bond Funds non-U.S. 10% below Baa
intermediate
maturity fixed
income
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Bond Intermediate 3-7 years B to Aaa; max (greater than or
maturity hedged 10% below Baa equal to) 85%(5)
non-U.S. fixed
income
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Emerging Emerging market 0-8 years B to Aaa (greater than or
Markets Bond fixed income equal to) 80%(5)
securities
- -----------------------------------------------------------------------------------------------------------------------------------
High Yield High Yield Higher yielding 2-6 years B to Aaa; min 0-15%(4)
Bond Funds fixed income 65% below Baa
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Inflation-Indexed Real Return Inflation- N/A B to Aaa; max 0-20%(3)
Bond Funds Bond indexed fixed 10% below Baa
income
securities
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Convertible Convertible N/A Caa to Aaa; max 0-20%(3)
Funds securities 40% below Baa
and 10% below B
- -----------------------------------------------------------------------------------------------------------------------------------
Stock and Bond Strategic Intermediate 0-6 years B to Aaa; max 0-20%(3)
Funds Balanced maturity fixed- 10% below Baa
income
securities and
S&P 500 stock
index
derivatives
- -----------------------------------------------------------------------------------------------------------------------------------
Enhanced Index StocksPLUS S&P 500 stock 0-1 year B to Aaa; max 0-20%(3)
Stock Funds 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 Rating Service, or if unrated, determined by PIMCO to
be of comparable quality.
(2) Each Fund (except the Long-Term U.S. Government Fund) 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.
Pacific Investment Management Series
3
<PAGE>
Summary Information (continued)
Fixed
Income The "Fixed Income Funds" are the Money Market, Short-Term, Low
Instruments Duration, Total Return,Total Return Mortgage, Long-Term U.S.
Government, Global Bond II, Foreign Bond, Emerging Markets Bond,
High Yield, and Real Return 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 instrumentalities;
. obligations of non-U.S. governments or their subdivisions,
agencies and instrumentalities; and
. obligations of international agencies or supranational entities.
Duration Duration is a measure of the expected life of a fixed income
security that is used to determine the sensitivity of a security's
price to changes in interest rates. The longer a security's
duration, the more sensitive it will be to changes in interest
rates. Similarly, a Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund
with a shorter average portfolio duration.
Credit In this Prospectus, references are made to credit ratings of debt
Ratings securities which measure an issuer's expected ability to pay
principal and interest over time. Credit ratings are determined by
rating organizations, such as Standard & Poor's Rating 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
Perform- information and fees and expenses. A more detailed "Summary of
ance and Principal Risks" describing principal risks of investing in the
Fees Funds begins after the Fund Summaries.
It is possible to lose money on investments in the Funds.
An investment in a Fund is not a deposit of a bank and is not
guaranteed or insured by the Federal Deposit Insurance Corporation
or any other government agency.
Prospectus
4
<PAGE>
PIMCO Convertible Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Convertible Caa to Aaa; maximum
and total return, securities 40% below Baa and 10%
Strategies consistent with below B
prudent Average Portfolio
investment Duration
management N/A Dividend Frequency
Declared and
Fund Category distributed quarterly
Convertible
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 typically issued by small to mid-size
capitalization companies, 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 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 the Adviser 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 stocks 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 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 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 arising from
increases in the market value of the Fund's holdings.
- --------------------------------------------------------------------------------
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
.Issuer Risk .Derivatives Risk Risk
.Interest Rate Risk .Smaller Company Risk .Currency Risk
.Credit Risk .Liquidity 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 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.
Pacific Investment Management Series
5
<PAGE>
PIMCO Convertible Fund (continued)
- --------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class A, B or C shares of the Fund:
of the
Fund
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.40% 0.25% 0.40% 1.05%
-----------------------------------------------------------------
Class B 0.40 1.00 0.40 1.80
-----------------------------------------------------------------
Class C 0.40 1.00 0.40 1.80
-----------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by the
class.
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 redeem shares Example: Assuming you do not redeem
at the end of each period 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 $552 $769 $1,003 $1,675 $552 $769 $1,003 $1,675
----------------------------------------------------------------------------------------------------------
Class B 683 866 1,175 1,822 183 566 975 1,822
----------------------------------------------------------------------------------------------------------
Class C 283 566 975 2,116 183 566 975 2,116
----------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus 6
<PAGE>
PIMCO Emerging Markets Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Emerging market fixed B to Aaa
and total return, income securities
Strategies consistent with Dividend Frequency
preservation of Average Portfolio Declared daily and
capital and Duration distributed monthly
prudent 0-8 years
investment
management
Fund Category
International Bond
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 the 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 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
.Credit Risk .Foreign Investment Risk Risk
.Market Risk .Currency Risk .Derivatives
.Issuer Risk .Issuer Non-Diversification Risk
.High Yield Risk 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 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. Past
performance is no guarantee of future results.
7 Pacific Investment Management Series
<PAGE>
PIMCO Emerging Markets Bond Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
------- ------ Highest (10/1/98-
-12.10% 26.10% 12/31/98) 12.17%
--------------------
Lowest (7/1/98-
9/30/98) -21.14%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<CAPTION>
<S> <C> <C>
Fund Inception
1 Year (7/31/97)
---------------------------------------------------------------------
Class A 20.42% 1.11%
---------------------------------------------------------------------
Class B 20.16% 1.24%
---------------------------------------------------------------------
Class C 24.17% 2.26%
---------------------------------------------------------------------
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 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%(/1/)
------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.45% 0.25% 0.55% 1.25%
-----------------------------------------------------------------
Class B 0.45 1.00 0.55 2.00
-----------------------------------------------------------------
Class C 0.45 1.00 0.55 2.00
-----------------------------------------------------------------
(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 reflects a 0.55% Administrative Fee paid by the
class.
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 redeem shares Example: Assuming you do not
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 $572 $829 $1,105 $1,893 $572 $829 $1,105 $1,893
----------------------------------------------------------------------------------------------------------
Class B 703 927 1,278 2,038 203 627 1,078 2,038
----------------------------------------------------------------------------------------------------------
Class C 303 627 1,078 2,327 203 627 1,078 2,327
----------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus 8
<PAGE>
PIMCO Foreign Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum total Intermediate maturity B to Aaa; maximum
and return, consistent hedged non-U.S. 10% below Baa
Strategies with preservation of fixed income
capital and prudent securities Dividend Frequency
investment management Declared daily and
Average Portfolio distributed monthly
Fund Category Maturity
International Bond 3-7 years
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 the 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 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 Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(1/20/97), 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.
9 Pacific Investment Management Series
<PAGE>
PIMCO Foreign Bond Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
93 94 95 96 97 98 99 --------------------
------ ------ ------ ------ ----- ----- ----- Highest (10/1/95-
15.92% -7.72% 20.68% 18.42% 9.07% 9.53% 1.11% 12/31/95) 7.12%
--------------------
Lowest (1/1/94-
3/31/94) -4.32
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (12/3/92)(/3/)
-----------------------------------------------------------------------
<S> <C> <C> <C>
Class A -3.44% 10.52% 8.57%
-----------------------------------------------------------------------
Class B -4.35% 10.46% 8.50%
-----------------------------------------------------------------------
Class C -0.58% 10.72% 8.48%
-----------------------------------------------------------------------
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 5.62 years as of 12/31/99. 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 commenced operations 12/3/92. Index comparisons
begin on 11/30/92.
- --------------------------------------------------------------------------------
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>
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%(/1/)
------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares
are purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.45% 0.95%
--------------------------------------------------------------------
Class B 0.25 1.00 0.45 1.70
--------------------------------------------------------------------
Class C 0.25 1.00 0.45 1.70
--------------------------------------------------------------------
</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 reflects a 0.45% Administrative Fee paid by
the class.
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, 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 $543 $739 $952 $1,564 $543 $739 $952 $1,564
--------------------------------------------------------------------------------------------------------------
Class B 673 836 1,123 1,712 173 536 923 1,712
--------------------------------------------------------------------------------------------------------------
Class C 273 536 923 2,009 173 536 923 2,009
--------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
10
<PAGE>
PIMCO Global Bond Fund II
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum total U.S. and hedged B to Aaa; maximum
and return, consistent foreign intermediate 10% below Baa
Strategies with preservation maturity fixed income
of capital securities Dividend Frequency
Declared daily and
Fund Category Average Portfolio distributed monthly
International Bond 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 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 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. Past
performance is no guarantee of future results.
11 Pacific Investment Management Series
<PAGE>
PIMCO Global Bond Fund II (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
96 97 98 99 --------------------
------ ----- ----- ------ Highest (07/01/96-
12.40% 8.29% 7.29% -0.11% 09/30/96) 5.29%
--------------------
Lowest (07/01/99-
09/30/99) -1.82%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year (10/2/95)(/3/)
-------------------------------------------------------------------------
<S> <C> <C>
Class A -4.61% 6.93%
----------------------------------------------------------------------
Class B -5.59% 6.91%
----------------------------------------------------------------------
Class C -1.80% 7.26%
----------------------------------------------------------------------
J.P. Morgan Global (Hedged) Index(/1/) 0.73% 8.40%
----------------------------------------------------------------------
Lipper Growth 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 commenced operations on 10/2/95. Index comparisons
begin on 9/30/95.
- --------------------------------------------------------------------------------
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>
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%(/1/)
---------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
---------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares
are purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.45% 0.95%
-----------------------------------------------------------------
Class B 0.25 1.00 0.45 1.70
-----------------------------------------------------------------
Class C 0.25 1.00 0.45 1.70
-----------------------------------------------------------------
</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 reflects a 0.45% Administrative Fee paid by
the class.
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 $543 $739 $952 $1,564 $543 $739 $952 $1,564
---------------------------------------------------------------------------------------------------------------
Class B 673 836 1,123 1,712 173 536 923 1,712
---------------------------------------------------------------------------------------------------------------
Class C 273 536 923 2,009 173 536 923 2,009
---------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
12
<PAGE>
PIMCO High Yield Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum total Higher yielding B to Aaa; minimum 65%
and return, consistent fixed income below Baa
Strategies with preservation of securities
capital and prudent
investment management
Fund Category Average Portfolio Dividend Frequency
High Yield Bond Duration Declared daily and
2-6 years distributed monthly
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 the Adviser 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 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.
- -------------------------------------------------------------------------------
Perform- The top of the next page shows summary performance information for
ance the Fund in a bar chart and an Average Annual Total Returns table.
Inform- The information provides some indication of the risks of investing
ation in the Fund by showing changes in its performance from year to
year and by showing how the Fund's average annual returns compare
with the returns of a broad-based securities market index and an
index of similar funds. The bar chart and the information to its
right show performance of the Fund's Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(1/13/97), 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.
13 Pacific Investment Management Series
<PAGE>
PIMCO High Yield Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
93 94 95 96 97 98 99 --------------------
------ ------ ------ ------ ------ ------ ------ Highest (1/1/93-
18.26% 2.01% 20.23% 11.28% 12.78% 6.12% 2.41% 3/31/93) 6.17%
--------------------
Lowest (7/1/98-
9/30/98) -1.86%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (12/16/92)(/3/)
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A -2.20% 9.39% 9.49%
------------------------------------------------------------------------------------
Class B -3.07% 9.31% 9.41%
------------------------------------------------------------------------------------
Class C 0.70% 9.60% 9.42%
-------------------------------------------------------------------------------------
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 4.40 years as of
12/31/99. 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 commenced operations on 12/16/92. Index comparisons
begin on 12/31/92.
- --------------------------------------------------------------------------------
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>
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%(/1/)
---------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
---------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares
are purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.40% 0.90%
--------------------------------------------------------------------
Class B 0.25 1.00 0.40 1.65
--------------------------------------------------------------------
Class C 0.25 1.00 0.40 1.65
--------------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by
the class.
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 $538 $724 $926 $1,508 $538 $724 $926 $1,508
-----------------------------------------------------------------------------------------------------------
Class B 668 820 1,097 1,657 168 520 897 1,657
-----------------------------------------------------------------------------------------------------------
Class C 268 520 897 1,955 168 520 897 1,955
-----------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus 14
<PAGE>
PIMCO Long-Term U.S. Government Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Long-term A to Aaa
and total return, maturity fixed
Strategies consistent with income
preservation of securities Dividend Frequency
capital and Declared daily and
prudent distributed monthly
investment Average Portfolio
management Duration
Fund Category (greater than
Long Duration or =)8 years
Bond
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 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 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 .Management Risk
.Market Risk .Mortgage Risks
Please see "Summary of Principal Risks" following the Fund
Summaries for a description of these and other risks of investing
in the Fund.
- --------------------------------------------------------------------------------
Performance The top of the next page shows summary performance information for
Information the Fund in a bar chart and an Average Annual Total Returns table.
The information provides some indication of the risks of investing
in the Fund by showing changes in its performance from year to
year and by showing how the Fund's average annual returns compare
with the returns of a broad-based securities market index and an
index of similar funds. The bar chart and the information to its
right show performance of the Fund's Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(1/20/97), performance information shown in the bar chart and
table for those classes is based on the performance of the Fund's
Institutional Class shares, which are offered in a different
prospectus. The prior Institutional Class performance has been
adjusted to reflect the actual sales charges (in the Average
Annual Total Returns table only), distribution and/or service
(12b-1) fees, administrative fees and other expenses paid by Class
A, B and C shares. Past performance is no guarantee of future
results.
Pacific Investment Management Series
15
<PAGE>
PIMCO Long-Term U.S. Government Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
92 93 94 95 96 97 98 99 --------------------
------ ------ ------ ------ ------ ------ ------ ------ Highest (4/1/95-
11.56% 18.21% -7.77% 31.09% 0.31% 14.59% 12.97% -8.35% 6/30/95) 10.66%
--------------------
Lowest (1/1/96-
3/31/96) -6.35%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
Fund Inception
1 Year 5 Years (7/1/91)(/3/)
---------------------------------------------------------------------
<S> <C> <C> <C>
Class A -12.47% 8.30% 9.35%
---------------------------------------------------------------------
Class B -13.36% 8.18% 9.27%
---------------------------------------------------------------------
Class C -9.89% 8.49% 9.15%
---------------------------------------------------------------------
Lehman Long-Term Treasury Bond
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 commenced operations on 7/1/91. Index comparisons
begin on 6/30/91.
- --------------------------------------------------------------------------------
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>
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%(/1/)
------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares
are purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.40% 0.90%
-----------------------------------------------------------------
Class B 0.25 1.00 0.40 1.65
-----------------------------------------------------------------
Class C 0.25 1.00 0.40 1.65
-----------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by
the class.
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 $538 $724 $926 $1,508 $538 $724 $926 $1,508
--------------------------------------------------------------------------------------------------------
Class B 668 820 1,097 1,657 168 520 897 1,657
--------------------------------------------------------------------------------------------------------
Class C 268 520 897 1,955 168 520 897 1,955
--------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
16
<PAGE>
PIMCO Low Duration Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum total Short maturity B to Aaa; maximum
and return, consistent fixed income 10% below Baa
Strategies with preservation of securities
capital and prudent Dividend Frequency
investment Average Portfolio Declared daily and
management Duration distributed monthly
1-3 years
Fund Category
Short Duration Bond
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 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 Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(1/13/97), 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.
17 Pacific Investment Management Series
<PAGE>
PIMCO Low Duration Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
90 91 92 93 94 --------------------
----- ------ ----- ----- ----- Highest (10/1/91-
8.54% 12.94% 7.20% 7.27% 0.16% 12/31/91) 3.78%
--------------------
95 96 97 98 99 Lowest (1/1/94-
------ ----- ----- ----- ----- 3/31/94) -0.44%
11.41% 5.54% 7.74% 6.66% 2.49%
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>
Class A -0.58% 6.10% 6.62%
-------------------------------------------------------------------
Class B -3.11% 5.63% 6.39%
-------------------------------------------------------------------
Class C 1.02% 6.23% 6.42%
-------------------------------------------------------------------
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 Class A, B or C shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Class A 3% 1%(/1/)
---------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
---------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares
are purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.40% 0.90%
--------------------------------------------------------------------
Class B 0.25 1.00 0.40 1.65
--------------------------------------------------------------------
Class C 0.25 0.75 0.40 1.40
--------------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by
the class.
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 $389 $578 $ 784 $1,375 $389 $578 $784 $1,375
-----------------------------------------------------------------------------------------------------------
Class B 668 820 1,097 1,657 168 520 897 1,657
-----------------------------------------------------------------------------------------------------------
Class C 243 443 766 1,680 143 443 766 1,680
-----------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
18
<PAGE>
PIMCO Money Market Fund
- --------------------------------------------------------------------------------
Principal Investment Fund Focus Credit
Investments Objective Money Quality
and Seeks maximum market Minimum 95%
Strategies current income, instruments rated Aaa or
consistent with Prime 1;
preservation of Average (less than or
capital and Portfolio =) 5% Aa or
daily liquidity Maturity Prime 2
(less than or =)
Fund Category 90 days dollar- Dividend
Short weighted average Frequency
Duration Bond maturity Declared daily
and distributed
monthly
The Fund seeks to achieve its investment objective by investing at
least 95% of its 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 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 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 .Issuer Risk
.Credit Risk .Management 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 Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(1/13/97), 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. To obtain the Fund's current yield, call 1-800-
927-4648. Past performance is no guarantee of future results.
Pacific Investment Management Series
19
<PAGE>
PIMCO Money Market Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
92 93 94 95 96 97 98 99 ------------------------
----- ----- ----- ----- ----- ----- ----- ----- Highest
3.18% 2.54% 3.66% 5.80% 5.02% 5.04% 4.97% 4.61% (10/1/95-12/31/95) 1.65%
------------------------
Calendar Year End (through 12/31) Lowest
(4/1/93-6/30/93) 0.61%
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (3/1/91)(/3/)
--------------------------------------------------------------------
Class A 4.61% 5.09% 4.45%
--------------------------------------------------------------------
Class B 3.78% 4.20% 3.54%
--------------------------------------------------------------------
Class C 4.64% 5.12% 4.46%
--------------------------------------------------------------------
Salomon 3-month Treasury Bill Index(/1/) 4.73% 5.20% 4.70%
--------------------------------------------------------------------
Lipper Money Market Fund Avg(/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 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
average 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 on 2/28/91.
- --------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class A, B or C shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A None(/1/) None
------------------------------------------------------------------------------------------------------
Class B None None
------------------------------------------------------------------------------------------------------
Class C None None
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Regular sales charges apply when Class A shares of the Money
Market Fund (on which no sales charge was paid at the time of
purchase) are exchanged for shares of any other Fund.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.15% 0.10% 0.35% 0.60%
-----------------------------------------------------------------
Class B 0.15 1.00 0.35 1.50
-----------------------------------------------------------------
Class C 0.15 0.10 0.35 0.60
-----------------------------------------------------------------
</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 reflects a 0.35% Administrative Fee paid by the
class.
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 redeem shares Example: Assuming you do not redeem
at the end of each period your shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
----------------------------------------------------------------------------------
Class A $61 $192 $335 $750 $61 $192 $335 $750
----------------------------------------------------------------------------------
Class B 653 774 1,018 1,429 153 474 818 1,429
----------------------------------------------------------------------------------
Class C 161 192 335 750 61 192 335 750
----------------------------------------------------------------------------------
</TABLE>
Prospectus 20
<PAGE>
PIMCO Real Return Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Inflation- B to Aaa; maximum 10%
and real return, indexed fixed below Baa
Strategies consistent with income
preservation of securities Dividend Frequency
real capital and Declared daily and
prudent Average Portfolio distributed monthly
investment Duration
management See description
below
Fund Category
Inflation-
Indexed Bond
The Fund seeks its investment objective by investing under normal
circumstances at least 65% of its assets in inflation-indexed
bonds 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
the 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 March 7, 2000 was 9.0
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 securities rated below
investment grade but rated B or higher by Moody's or S&P (or, if
unrated, determined by the Adviser 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 is non-diversified, which means that it may concentrate
its assets in a smaller number of issuers than a diversified Fund.
The Fund may also invest up to 35% 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 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 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. Past
performance is no guarantee of future results.
21 Pacific Investment Management Series
<PAGE>
PIMCO Real Return Bond Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
------ ------ Highest (7/1/98-
4.77% 5.29% 9/30/98) 3.09%
--------------------
Lowest (9/1/98-
12/31/98) -0.15%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (1/29/97)
--------------------------------------------------------------------
Class A 2.14% 3.62%
--------------------------------------------------------------------
Class B -0.39% 3.02%
--------------------------------------------------------------------
Class C 3.79% 4.18%
--------------------------------------------------------------------
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 3.2
years as of 12/31/99. 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.
- --------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class A, B or C shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A 3% 1%(/1/)
------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.25% 0.25% 0.42% 0.92%
-----------------------------------------------------------------
Class B 0.25 1.00 0.43 1.68
-----------------------------------------------------------------
Class C 0.25 0.75 0.43 1.43
-----------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by the
class.
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 $391 $584 $794 $1,397 $391 $584 $794 $1,397
--------------------------------------------------------------------------------------------------------
Class B 671 830 1,113 1,686 171 530 913 1,686
--------------------------------------------------------------------------------------------------------
Class C 246 452 782 1,713 146 452 782 1,713
--------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
22
<PAGE>
PIMCO Short-Term Fund
- --------------------------------------------------------------------------------
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
capital and daily securities Dividend Frequency
liquidity Declared daily and
Average Portfolio distributed monthly
Fund Category Duration
Short Duration Bond 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 normally
does not exceed one year. For point of reference, the dollar-
weighted average portfolio maturity of the 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 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 a broad-based securities market index and an index of similar
funds. The bar chart and the information to its right show
performance of the Fund's Class A shares, but do not reflect the
impact of sales charges (loads). If they did, the returns would be
lower than those shown. Unlike the bar chart, performance for
Class A, B and C shares in the Average Annual Total Returns table
reflect the impact of sales charges. For periods prior to the
inception date of Class A, B and C shares (1/20/97), performance
information shown in the bar chart and table for those classes is
based on the performance of the Fund's Institutional Class shares,
which are offered in a different prospectus. The prior
Institutional Class performance has been adjusted to reflect the
actual sales charges (in the Average Annual Total Returns table
only), distribution and/or service (12b-1) fees, administrative
fees and other expenses paid by Class A, B and C shares. Past
performance is no guarantee of future results.
Pacific Investment Management Series
23
<PAGE>
PIMCO Short-Term Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] More Recent
Return Information
Annual Return --------------------
1/1/99-6/30/99 2.31%
Highest and Lowest
90 91 92 93 94 95 Quarter Returns
----- ----- ----- ----- ----- ----- (for periods shown
8.04% 6.23% 3.21% 4.21% 2.48% 8.76% in the bar chart)
--------------------
96 97 98 99 Highest (10/1/95-
----- ----- ----- ----- (2/31/95) 2.49%
6.58% 6.07% 5.32% 4.82% --------------------
Lowest (1/1/94-
3/31/94) 0.10%
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>
Class A 2.72% 5.87% 5.34%
----------------------------------------------------------------
Class B -0.93% 5.22% 5.00%
----------------------------------------------------------------
Class C 3.51% 5.99% 5.24%
----------------------------------------------------------------
Salomon 3-month Treasury Bill Index(/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 Class A, B or C shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
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 2% 1%(/1/)
---------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
---------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 0.25% 0.25% 0.35% 0.85%
--------------------------------------------------------------------
Class B 0.25 1.00 0.35 1.60
--------------------------------------------------------------------
Class C 0.25 0.55 0.35 1.15
--------------------------------------------------------------------
</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 reflects a 0.35% Administrative Fee paid by the
class.
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 redeem shares Example: Assuming you do not redeem
at the end of each period 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 $285 $466 $662 $1,228 $285 $466 $662 $1,228
-------------------------------------------------------------------------------------
Class B 663 805 1,071 1,601 163 505 871 1,601
-------------------------------------------------------------------------------------
Class C 217 365 633 1,398 117 365 633 1,398
-------------------------------------------------------------------------------------
</TABLE>
Prospectus
24
<PAGE>
PIMCO StocksPLUS Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks total S&P 500 stock B to Aaa; maximum 10%
and return which index below Baa
Strategies exceeds that of derivatives
the S&P 500 backed by a Dividend Frequency
portfolio of Declared and
Fund Category short-term fixed distributed quarterly
Enhanced Index income
Stock securities
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 .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 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 Class A Shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(1/20/97), 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.
25 Pacific Investment Management Series
<PAGE>
PIMCO StocksPLUS Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
94 95 96 97 98 99 --------------------
----- ------ ------ ------ ------ ------ Highest (10/1/98-
2.51% 39.97% 22.59% 32.35% 27.70% 19.49% 12/31/98) 21.23%
--------------------
Lowest (7/1/98-
9/30/98) -9.87%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
Fund Inception
1 Year 5 Years (5/13/93)(/3/)
----------------------------------------------------------------
Class A 15.90% 27.44% 22.00%
----------------------------------------------------------------
Class B 13.72% 27.12% 21.68%
----------------------------------------------------------------
Class C 17.94% 27.61% 21.96%
----------------------------------------------------------------
S&P 500 Index(/1/) 21.04% 28.56% 22.38%
----------------------------------------------------------------
Lipper Growth & Income Fund Avg(/2/) 13.71% 21.35% 16.88%
----------------------------------------------------------------
</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 Growth & Income Fund Average is a total return
performance average of Funds tracked by Lipper Analytical
Services, Inc. that combine a growth-of-earnings orientation
and an income requirement for level and/or rising dividends.
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 Class A, B or C shares of the Fund:
of the
Fund Shareholder Fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A 3% 1%(/1/)
------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares
are purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment
Options--Class A, B and C Shares--Contingent Deferred Sales
Charges (CDSCs)--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.40% 0.25% 0.40% 1.05%
-----------------------------------------------------------------
Class B 0.40 1.00 0.40 1.80
-----------------------------------------------------------------
Class C 0.40 0.75 0.40 1.55
-----------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by
the class.
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 $404 $624 $862 $1,544 $404 $624 $862 $1,544
--------------------------------------------------------------------------------------------------------
Class B 683 866 1,175 1,822 183 566 975 1,822
--------------------------------------------------------------------------------------------------------
Class C 258 490 845 1,845 158 490 845 1,845
--------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
26
<PAGE>
PIMCO Strategic Balanced Fund
- --------------------------------------------------------------------------------
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 and Dividend Frequency
capital and S&P 500 stock Declared and
prudent index distributed quarterly
investment derivatives
management
Average Portfolio
Fund Category Duration
Stock and Bond 0-6 years
The Fund seeks to achieve its investment objective by normally
investing in a combination of fixed income securities and equity
securities or derivatives on equity securities. The percentage of
the Fund's assets invested in equities and equity derivatives or
in fixed income securities will be determined 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 securities within specific phases of the
business cycle. The Fund's equity exposure will vary between 45%
and 75% of assets, and its fixed income exposure will range from a
minimum of 25% to a maximum of 55%.
The Fund's equity exposure normally consists of S&P 500
derivatives, backed by a portfolio of short-term Fixed Income
Instruments. PIMCO 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 will actively manage the fixed income assets
serving as cover for derivatives, as well as any other fixed
income assets held by the Fund, with a view toward enhancing the
Fund's total return investment performance. 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 the equity portion of its assets in a "basket" of
S&P 500 stocks.
The Fund's fixed income exposure will normally consist of a
diversified portfolio of Fixed Income Instruments of varying
maturities. The average portfolio duration of the fixed income
portion of the Fund's assets will normally vary within a three- to
six-year time frame. The Fixed Income Instruments in which the
Fund invests are primarily investment grade, but 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.
The Fund may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements. The Fund
may lend its portfolio securities to brokers, dealers and other
financial institutions to earn income. The Fund may 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 net income
earned on the Fund's investments, plus capital appreciation
arising from increases in the market value of the Fund's holdings.
- --------------------------------------------------------------------------------
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 .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 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 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.
Pacific Investment Management Series
27
<PAGE>
PIMCO Strategic Balanced Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
97 98 99 --------------------
------ ------ ------ Highest (4/1/97-
23.69% 19.18% 10.83% 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>
<S> <C> <C>
Fund Inception
1 Year (6/28/96)(/4/)
-----------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class A, B or C shares of the Fund:
of the
Fund Shareholder Fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.40% 0.25% 0.40% 1.05%
-----------------------------------------------------------------
Class B 0.40 1.00 0.40 1.80
-----------------------------------------------------------------
Class C 0.40 1.00 0.40 1.80
-----------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by
the class.
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 $552 $769 $1,003 $1,675 $552 $769 $1,003 $1,675
--------------------------------------------------------------------------------------------------------
Class B 683 866 1,175 1,822 183 566 975 1,822
--------------------------------------------------------------------------------------------------------
Class C 283 566 975 2,116 183 566 975 2,116
--------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
28
<PAGE>
PIMCO Total Return Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks maximum Intermediate B to Aaa;
and total return, maturity fixed maximum 10%
Strategies consistent with income below Baa
preservation of securities
capital and
prudent Average Portfolio Dividend Frequency
investment Duration Declared daily and
management 3-6 years distributed monthly
Fund Category
Intermediate
Duration Bond
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 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 Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(1/13/97), performance information shown in the bar chart and
table for those classes is based on the performance of the Fund's
Institutional Class shares, which are offered in a different
prospectus. The prior Institutional Class performance has been
adjusted to reflect the actual sales charges (in the Average
Annual Total Returns table only), distribution and/or service
(12b-1) fees, administrative fees and other expenses paid by Class
A, B and C shares. Past performance is no guarantee of
future results.
Pacific Investment Management Series
29
<PAGE>
PIMCO Total Return Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
90 91 92 93 94 --------------------
------ ------ ------ ------ ------ Highest (10/1/91-
7.54% 19.02% 9.26% 12.05% -4.02% 12/31/91) 6.54%
--------------------
95 96 97 98 99 Lowest (1/1/94
------ ------ ------ ------ ------ -3/31/94) -2.80%
19.23% 4.22% 9.65% 9.25% -0.75%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C> <C>
1 Year 5 Years 10 Years
--------------------------------------------------------------------
Class A -5.21% 7.13% 7.81%
--------------------------------------------------------------------
Class B -6.18% 7.02% 7.77%
--------------------------------------------------------------------
Class C -2.43% 7.33% 7.53%
--------------------------------------------------------------------
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 Class A, B or C shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.25% 0.25% 0.40% 0.90%
-----------------------------------------------------------------
Class B 0.25 1.00 0.40 1.65
-----------------------------------------------------------------
Class C 0.25 1.00 0.40 1.65
-----------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by the
class.
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 redeem shares Example: Assuming you do not
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 $538 $724 $926 $1,508 $538 $724 $926 $1,508
---------------------------------------------------------------------------
Class B 668 820 1,097 1,657 168 520 897 1,657
---------------------------------------------------------------------------
Class C 268 520 897 1,955 168 520 897 1,955
---------------------------------------------------------------------------
</TABLE>
Prospectus
30
<PAGE>
PIMCO Total Return Mortgage Fund
- --------------------------------------------------------------------------------
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
Fund Category
Intermediate Duration
Bond
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 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 of31
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 which are offered in a separate prospectus. Classes A, B and
C Shares of the Fund have not commenced operations as of the date
of this prospectus. Past performance is no guarantee of future
results.
PIMCO Funds: Pacific Investment Management Series
31
<PAGE>
PIMCO Total Return Mortgage Fund (continued)
Calendar Year Total Returns -- Institutional Class
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
'98 '99 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>
<S> <C> <C>
Fund Inception
1 Year (7/31/97)
-------------------------------------------------------------------------
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 4.27 years as of 12/31/99. 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>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
Class A 0.25% 0.25% 0.40% 0.90%
-----------------------------------------------------------------
Class B 0.25 1.00 0.40 1.65
-----------------------------------------------------------------
Class C 0.25 1.00 0.40 1.65
-----------------------------------------------------------------
</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 reflects a 0.40% Administrative Fee paid by the
class.
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 redeem shares Example: Assuming you do not
at the end of each period redeem your shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------------
Class A $538 $724 $926 $1,508 $538 $724 $926 $1,508
---------------------------------------------------------------------------
Class B 668 820 1,097 1,657 168 520 897 1,657
---------------------------------------------------------------------------
Class C 268 520 897 1,955 168 520 897 1,955
---------------------------------------------------------------------------
</TABLE>
Prospectus 32
<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 the
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. High yield
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 high yield securities and
reduce a Fund's ability to sell its high yield 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.
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
Pacific Investment Management Series
33
<PAGE>
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
Risks 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. 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, the 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-
Diversifi- diversified" may invest a greater percentage of their assets in
cation the securities of a single issuer than Funds that are
Risk "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 a single 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.
Prospectus
34
<PAGE>
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.
Management of the Funds
Investment PIMCO serves as the investment adviser and the administrator
Adviser (serving in its capacity as administrator, the "Administrator")
and for the Funds. Subject to the supervision of the Board of
Adminis- Trustees, PIMCO is responsible for managing the investment
trator activities of the Funds and the Funds' business affairs and other
administrative matters.
PIMCO is located at 840 Newport Center Drive, Newport Beach,
California 92660. Organized in 1971, PIMCO provides investment
management and advisory services to private accounts of
institutional and individual clients and to mutual funds. As of
December 31, 1999, PIMCO had approximately $186 billion in assets
under management.
Advisory Each Fund pays PIMCO fees in return for providing investment
Fees advisory services. For the fiscal year ended March 31, 1999, 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%
Foreign Bond, Global Bond II, High Yield, Long-
Term U.S. Government, Low Duration,
Real Return Bond, Short-Term, Total Return and
Total Return Mortgage Funds 0.25%
StocksPLUS and Strategic Balanced Funds 0.40%
Emerging Markets Bond Fund 0.45%
</TABLE>
The Convertible Fund was not operational during the fiscal year
ended March 31, 1999. The investment advisory fee for the
Convertible Fund is at an annual rate of 0.40% 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. Class A, Class B and
Fees Class C 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 Class A, Class B and Class
C shareholders and also bears the costs of various third-party
services required by the Funds, including audit, custodial,
portfolio accounting, legal, transfer agency and printing costs.
The result of this fee structure is an expense level for Class A,
Class B and Class C shareholders of each Fund that, with limited
exceptions, is precise and predictable under ordinary
circumstances.
For the fiscal year ended March 31, 1999, 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 Class A, Class B and Class C shares):
<TABLE>
<CAPTION>
Fund Administrative Fees
-------------------------------------------------------------------
<S> <C>
Money Market and Short-Term Funds 0.35%
High Yield, Long-Term U.S. Government, Low
Duration, Real Return Bond, StocksPLUS,
Strategic Balanced, Total Return Funds
and Total Return Mortgage 0.40%
Foreign Bond and Global Bond II Funds 0.45%
Emerging Markets Bond Fund 0.55%
</TABLE>
35 Pacific Investment Management Series
<PAGE>
The Convertible Fund was not operational during the fiscal year
ended March 31, 1999. The administrative fee for the Convertible
Fund is at an annual rate of 0.40% based upon the average daily
net assets of the Fund.
Individual The following individuals have primary responsibility for managing
Portfolio each of the noted Funds.
Managers
<TABLE>
<CAPTION>
Fund Portfolio Manager Since Recent Professional Experience
- ---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <S>
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 to 1999, and a Quantitative
Analyst since 1994.
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.
Foreign Bond Lee R. Thomas, III 7/95 Managing Director and Senior International Portfolio Manager, PIMCO.
Global Bond II 10/95* He joined PIMCO as a Portfolio Manager in 1995, and has managed
fixed income accounts for various institutional clients and funds
since that time. Prior to joining PIMCO, he was associated with
Investcorp as a member of the management committee responsible for
global securities and foreign exchange trading.
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.
Long-Term U.S. James M. Keller 4/00 Executive Vice President, PIMCO. He joined PIMCO as a Portfolio
Government Manager in 1996, and has managed fixed income accounts for various
institutional clients since that time.
Low Duration William H. Gross 5/87* Managing Director, Chief Investment Officer and a founding partner of
PIMCO.
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 MBS pass-through trading at Bear Stearns & Co.
Money Market Paul A. McCulley 11/99 Executive Vice President, PIMCO. He has managed fixed income assets
since joining PIMCO in 1999. Prior to joining PIMCO, Mr. McCulley was
associated with Warburg Dillion 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.
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 that time.
Short-Term Paul A. McCulley 8/99 Executive Vice President, PIMCO. He has managed fixed income assets
since joining PIMCO in 1999. Prior to joining PIMCO, Mr. McCulley was
associated with Warburg Dillion 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.
StocksPLUS William H. Gross 1/98 Managing Director, Chief Investment Officer and a founding partner of
Strategic Balanced 1/98 PIMCO. He leads a team which manages the Strategic Balanced and
Total Return 5/87* StocksPLUS Funds.
________________
* Since inception of the Fund.
</TABLE>
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.
Prospectus 36
<PAGE>
Investment Options--Class A, B and C Shares
The Trust offers investors Class A, Class B and Class C shares of
each Fund in this Prospectus. Each class of shares is subject to
different types and levels of sales charges than the other classes
and bears a different level of expenses.
The class of shares that is best for you depends upon a number of
factors, including the amount and the intended length of your
investment. The following summarizes key information about each
class to help you make your investment decision, including the
various expenses associated with each class. More extensive
information about the Trust's multi-class arrangements is included
in the PIMCO Funds Shareholders' Guide for Class A, B and C Shares
(the "Guide"), which is included as part of the Statement of
Additional Information and can be obtained free of charge from the
Distributor. See "How to Buy and Sell Shares--PIMCO Funds
Shareholders' Guide" below.
Class A . You pay an initial sales charge when you buy Class A shares of
Shares any Fund except the Money Market Fund. The maximum initial
sales charge is 2.00% for the Short-Term Fund, 3.00% for the
Low Duration, Real Return Bond and StocksPLUS Funds and 4.50%
for all other Funds. The sales charge is deducted from your
investment so that not all of your purchase payment is
invested.
. You may be eligible for a reduction or a complete waiver of the
initial sales charge under a number of circumstances. For
example, you normally pay no sales charge if you purchase
$1,000,000 or more of Class A shares. Please see the Guide for
details.
. Class A shares are subject to lower 12b-1 fees than Class B or
Class C shares. Therefore, Class A shareholders generally pay
lower annual expenses and receive higher dividends than Class B
or Class C shareholders.
. You normally pay no contingent deferred sales charge ("CDSC")
when you redeem Class A shares, although you may pay a 1% CDSC
if you purchase $1,000,000 or more of Class A shares (and
therefore pay no initial sales charge) and then redeem the
shares during the first 18 months after your initial purchase.
The Class A CDSC is waived for certain categories of investors
and does not apply if you are otherwise eligible to purchase
Class A shares without a sales charge. Please see the Guide for
details.
Class B . You do not pay an initial sales charge when you buy Class B
Shares shares. The full amount of your purchase payment is invested
initially. Class B shares of the Money Market and Short-Term
Funds are not offered for initial purchase but may be obtained
through exchanges of Class B shares of other Funds.
. You normally pay a CDSC of up to 5% if you redeem Class B
shares during the first six years after your initial purchase.
The amount of the CDSC declines the longer you hold your Class
B shares. You pay no CDSC if you redeem during the seventh year
and thereafter. The Class B CDSC is waived for certain
categories of investors. Please see the Guide for details.
. Class B shares are subject to higher 12b-1 fees than Class A
shares for the first seven years they are held. During this
time, Class B shareholders normally pay higher annual expenses
and receive lower dividends than Class A shareholders.
. Class B shares automatically convert into Class A shares after
they have been held for seven years. After the conversion takes
place, the shares are subject to the lower 12b-1 fees paid by
Class A shares.
Class C . You do not pay an initial sales charge when you buy Class C
Shares shares. The full amount of your purchase payment is invested
initially.
. You normally pay a CDSC of 1% if you redeem Class C shares
during the first year after your initial purchase. The Class C
CDSC is waived for certain categories of investors. Please see
the Guide for details.
. Class C shares are subject to higher 12b-1 fees than Class A
shares. Therefore, Class C shareholders normally pay higher
annual expenses and receive lower dividends than Class A
shareholders.
. Class C shares do not convert into any other class of shares.
Because Class B shares convert into Class A shares after seven
years, Class C shares will normally be subject to higher
expenses and will pay lower dividends than Class B shares if
the shares are held for more than seven years.
Pacific Investment Management Series
37
<PAGE>
The following provides additional information about the sales
charges and other expenses associated with Class A, Class B and
Class C shares.
- --------------------------------------------------------------------------------
Initial Unless you are eligible for a waiver, the public offering price
Sales you pay when you buy Class A shares of the Funds is the net asset
Charges-- value ("NAV") of the shares plus an initial sales charge. The
Class A initial sales charge varies depending upon the size of your
Shares purchase, as set forth below. No sales charge is imposed where
Class A shares are issued to you pursuant to the automatic
reinvestment of income dividends or capital gains distributions.
- --------------------------------------------------------------------------------
Short-
Term Fund
<TABLE>
<S> <C> <C>
Initial Sales Charge Initial Sales Charge
Amount of as % of Net as % of Public
Purchase Amount Invested Offering Price
-------------------------------------------------------------------
$0-$49,999 2.04% 2.00%
-------------------------------------------------------------------
$50,000-$99,999 1.78% 1.75%
-------------------------------------------------------------------
$100,000-$249,999 1.52% 1.50%
-------------------------------------------------------------------
$250,000 + 0.00%* 0.00%*
-------------------------------------------------------------------
- -------------------------------------------------------------------------------
Low
Duration,
Real
Return
Bond and
StocksPLUS
Funds
Initial Sales Charge Initial Sales Charge
Amount of as % of Net as % of Public
Purchase Amount Invested Offering Price
-------------------------------------------------------------------
$0-$49,999 3.09% 3.00%
-------------------------------------------------------------------
$50,000-$99,999 2.56% 2.50%
-------------------------------------------------------------------
$100,000-$249,999 2.04% 2.00%
-------------------------------------------------------------------
$250,000-$499,999 1.52% 1.50%
-------------------------------------------------------------------
$500,000-$999,999 1.27% 1.25%
-------------------------------------------------------------------
$1,000,000 + 0.00%* 0.00%*
-------------------------------------------------------------------
- -------------------------------------------------------------------------------
All Other
Funds Initial Sales Charge Initial Sales Charge
(except Amount of as % of Net as % of Public
Money Purchase Amount Invested Offering Price
Market -------------------------------------------------------------------
Fund) $0-$49,999 4.71% 4.50%
-------------------------------------------------------------------
$50,000-$99,999 4.17% 4.00%
-------------------------------------------------------------------
$100,000-$249,999 3.63% 3.50%
-------------------------------------------------------------------
$250,000-$499,999 2.56% 2.50%
-------------------------------------------------------------------
$500,000-$999,999 2.04% 2.00%
-------------------------------------------------------------------
$1,000,000 + 0.00%* 0.00%*
-------------------------------------------------------------------
*As shown, investors that purchase $1,000,000 or more of any
Fund's Class A shares ($250,000 in the case of the Short-Term
Fund) will not pay any initial sales charge on the purchase.
However, purchasers of $1,000,000 or more of Class A shares
($250,000 in the case of the Short-Term Fund) may be subject to a
CDSC of 1% if the shares are redeemed during the first 18 months
after their purchase. See "CDSCs on Class A Shares" below.
- -------------------------------------------------------------------------------
Contingent Unless you are eligible for a waiver, if you sell (redeem) your
Deferred Class B or Class C shares within the time periods specified below,
Sales you will pay a CDSC according to the following schedules.
Charges
(CDSCs)--
Class B
and Class
C Shares
- -------------------------------------------------------------------------------
Class B
Shares Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
-------------------------------------------------------------------
First 5
-------------------------------------------------------------------
Second 4
-------------------------------------------------------------------
Third 3
-------------------------------------------------------------------
Fourth 3
-------------------------------------------------------------------
Fifth 2
-------------------------------------------------------------------
Sixth 1
-------------------------------------------------------------------
Seventh 0*
-------------------------------------------------------------------
</TABLE>
*After the seventh year, Class B shares convert into Class A
shares.
Prospectus
38
<PAGE>
Class C
Shares
<TABLE>
<S> <C> <C>
Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
-----------------------------------------------------------------------------
First 1
-----------------------------------------------------------------------------
Thereafter 0
-----------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CDSCs on Unless a waiver applies, investors who purchase $1,000,000
Class A ($250,000 in the case of the Short-Term Fund) or more of Class A
Shares shares (and, thus, pay no initial sales charge) of a Fund other
than the Money Market Fund will be subject to a 1% CDSC if the
shares are redeemed within 18 months of their purchase. The Class
A CDSC does not apply if you are otherwise eligible to purchase
Class A shares without an initial sales charge or are eligible for
a waiver of the CDSC. See "Reductions and Waivers of Initial Sales
Charges and CDSCs" below. The Class A CDSC does not apply to the
Money Market Fund; however, if Money Market Fund Class A shares
are purchased in an amount that for any other Fund would be
subject to a CDSC and are subsequently exchanged for shares of
another Fund, a Class A CDSC will apply for 18 months from the
date of the exchange.
- --------------------------------------------------------------------------------
How CDSCs A CDSC is imposed on redemptions of Class B and Class C shares
are (and where applicable, Class A shares) on the amount of the
Calculated redemption which causes the current value of your account for the
particular class of shares of a Fund to fall below the total
dollar amount of your purchase payments subject to the CDSC.
However, no CDSC is imposed if the shares redeemed have been
acquired through the reinvestment of dividends or capital gains
distributions or if the amount redeemed is derived from increases
in the value of your account above the amount of the purchase
payments subject to the CDSC. CDSCs are deducted from the proceeds
of your redemption, not from amounts remaining in your account. In
determining whether a CDSC is payable, it is assumed that the
purchase payment from which the redemption is made is the earliest
purchase payment for the particular class of shares in your
account (from which a redemption or exchange has not already been
effected).
For instance, the following example illustrates the operation of
the Class B CDSC:
. Assume that an individual opens an account and makes a
purchase payment of $10,000 for Class B shares of a Fund and
that six months later the value of the investor's account for
that Fund has grown through investment performance and
reinvestment of distributions to $11,000. The investor then
may redeem up to $1,000 from that Fund ($11,000 minus
$10,000) without incurring a CDSC. If the investor should
redeem $3,000, a CDSC would be imposed on $2,000 of the
redemption (the amount by which the investor's account for
the Fund was reduced below the amount of the purchase
payment). At the rate of 5%, the Class B CDSC would be $100.
In determining whether an amount is available for redemption
without incurring a CDSC, the purchase payments made for all
shares of a particular class of a Fund in the shareholder's
account are aggregated, and the current value of all such shares
is aggregated.
- --------------------------------------------------------------------------------
Reductions The initial sales charges on Class A shares and the CDSCs on Class
and A, Class B and Class C shares may be reduced or waived under
Waivers certain purchase arrangements and for certain categories of
of investors. Please see the Guide for details. The Guide is
Initial available free of charge from the Distributor. See "How to Buy and
Sales Sell Shares--PIMCO Funds Shareholders' Guide" below.
Charges
and CDSCs
- --------------------------------------------------------------------------------
Distribu- The Funds pay fees to the Distributor on an ongoing basis as
tion and compensation for the services the Distributor renders and the
Servicing expenses it bears in connection with the sale and distribution of
(12b-1) Fund shares ("distribution fees") and/or in connection with
Plans personal services rendered to Fund shareholders and the
maintenance of shareholder accounts ("servicing fees"). These
payments are made pursuant to Distribution and Servicing Plans
("12b-1 Plans") adopted by each Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940.
There is a separate 12b-1 Plan for each class of shares offered
in this Prospectus. Class A shares pay only servicing fees. Class
B and Class C shares pay both distribution and servicing fees. The
following lists the maximum annual rates at which the distribution
and/or servicing fees may be paid under each 12b-1 Plan
(calculated as a percentage of each Fund's average daily net
assets attributable to the particular class of shares):
<TABLE>
<S> <C> <C>
Servicing Distribution
Class A Fee Fee
--------------------------------------------------------------------------------
Money Market Fund 0.10% 0.00%
--------------------------------------------------------------------------------
All other Funds 0.25% 0.00%
--------------------------------------------------------------------------------
Class B
--------------------------------------------------------------------------------
All Funds 0.25% 0.75%
--------------------------------------------------------------------------------
</TABLE>
Pacific Investment Management Series
39
<PAGE>
<TABLE>
<S> <C> <C>
Class C
-------------------------------------------------------------------------------
Money Market Fund 0.10% 0.00%
-------------------------------------------------------------------------------
Short-Term Fund 0.25% 0.30%
-------------------------------------------------------------------------------
Low Duration, Real Return Bond
and StocksPLUS Funds 0.25% 0.50%
-------------------------------------------------------------------------------
All other Funds 0.25% 0.75%
-------------------------------------------------------------------------------
</TABLE>
Because 12b-1 fees are paid out of a Fund's assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than sales charges which are
deducted at the time of investment. Therefore, although Class B
and Class C shares do not pay initial sales charges, the
distribution fees payable on Class B and Class C shares may, over
time, cost you more than the initial sales charge imposed on Class
A shares. Also, because Class B shares convert into Class A shares
after they have been held for seven years and are not subject to
distribution fees after the conversion, an investment in Class C
shares may cost you more over time than an investment in Class B
shares.
How Fund Shares Are Priced
The net asset value ("NAV") of a Fund's Class A, Class B and
Class C shares is determined by dividing the total value of a
Fund's portfolio investments and other assets attributable to that
class, less any liabilities, by the total number of shares
outstanding of that class.
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 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.
Prospectus
40
<PAGE>
How to Buy and Sell Shares
The following section provides basic information about how to buy,
sell (redeem) and exchange shares of the Funds.
PIMCO More detailed information about the Trust's purchase, sale and
Funds exchange arrangements for Fund shares is provided in the PIMCO
Share- Funds Shareholders' Guide, which is included in the Statement of
holders' Additional Information and can be obtained free of charge from the
Guide Distributor by written request or by calling 1-800-426-0107. The
Guide provides technical information about the basic arrangements
described below and also describes special purchase, sale and
exchange features and programs offered by the Trust, including:
. Automated telephone and wire transfer procedures
. Automatic purchase, exchange and withdrawal programs
. Programs that establish a link from your Fund account to your
bank account
. Special arrangements for tax-qualified retirement plans
. Investment programs which allow you to reduce or eliminate the
initial sales charges on Class A shares
. Categories of investors that are eligible for waivers or
reductions of initial sales charges and CDSCs
Calculation When you buy shares of the Funds, you pay a price equal to the NAV
of Share of the shares, plus any applicable sales charge. When you sell
Price and (redeem) shares, you receive an amount equal to the NAV of the
Redemption shares, minus any applicable CDSC. NAVs are determined at the
Payments close of regular trading (normally 4:00 p.m., Eastern time) on
each day the New York Stock Exchange is open. See "How Fund Shares
Are Priced" above for details. Generally, purchase and redemption
orders for Fund shares are processed at the NAV next calculated
after your order is received by the Distributor. There are certain
exceptions where an order is received by a broker or dealer prior
to the close of regular trading on the New York Stock Exchange and
then transmitted to the Distributor after the NAV has been
calculated for that day (in which case the order may be processed
according to that day's NAV). Please see the Guide for details.
The Trust does not calculate NAVs or process orders on days when
the New York Stock Exchange is closed. If your purchase or
redemption order is received by the Distributor on a day when the
New York Stock Exchange is closed, it will be processed on the
next succeeding day when the New York Stock Exchange is open
(according to the succeeding day's NAV).
Buying You can buy Class A, Class B or Class C shares of the Funds in the
Shares following ways:
. Through your broker, dealer or other financial intermediary.
Your broker, dealer or other intermediary may establish higher
minimum investment requirements than the Trust and may also
independently charge you transaction fees and additional
amounts (which may vary) in return for its services, which
will reduce your return. Shares you purchase through your
broker, dealer or other intermediary will normally be held in
your account with that firm.
. Directly from the Trust. To make direct investments, you must
open an account with the Distributor and send payment for your
shares either by mail or through a variety of other purchase
options and plans offered by the Trust.
If you wish to invest directly by mail, please send a check
payable to PIMCO Funds Distributors LLC, along with a completed
application form to:
PIMCO Funds Distributors LLC
P.O. Box 9688
Providence, RI 02940-0926
The Trust accepts all purchases by mail subject to collection of
checks at full value and conversion into federal funds. You may
make subsequent purchases by mailing a check to the address above
with a letter describing the investment or with the additional
investment portion of a confirmation statement. Checks for
subsequent purchases should be payable to PIMCO Funds Distributors
LLC and should clearly indicate your account number. Please call
the Distributor at 1-800-426-0107 if you have any questions
regarding purchases by mail.
The Guide describes a number of additional ways you can make
direct investments, including through the PIMCO Funds Auto-Invest
and PIMCO Funds Fund Link programs. You can obtain an
Pacific Investment Management Series
41
<PAGE>
Guide free of charge from the Distributor by written request or by
calling 1-800-426-0107. See "PIMCO Funds Shareholders' Guide"
above.
The Distributor, in its sole discretion, may accept or reject any
order for purchase of Fund shares. No share certificates will be
issued unless specifically requested in writing.
Investment Minimums. The following investment minimums apply for
purchases of Class A, Class B and Class C shares.
<TABLE>
<CAPTION>
Initial Investment Subsequent Investments
------------------ ----------------------
<S> <C>
$2,500 per Fund $100 per Fund
</TABLE>
Lower minimums may apply for certain categories of investors,
including certain tax-qualified retirement plans, and for special
investment programs and plans offered by the Trust, such as the
PIMCO Funds Auto-Invest and PIMCO Funds Fund Link programs. Please
see the Guide for details.
Small Because of the disproportionately high costs of servicing accounts
Account with low balances, if you have a direct account with the
Fee Distributor, you will be charged a fee at the annual rate of $16
if your account balance for any Fund falls below a minimum level
of $2,500. However, you will not be charged this fee if the
aggregate value of all of your PIMCO Funds accounts is at least
$50,000. Any applicable small account fee will be deducted
automatically from your below-minimum Fund account in quarterly
installments and paid to the Administrator. Each Fund account will
normally be valued, and any deduction taken, during the last five
business days of each calendar quarter. Lower minimum balance
requirements and waivers of the small account fee apply for
certain categories of investors. Please see the Guide for details.
Minimum Due to the relatively high cost to the Funds of maintaining small
Account accounts, you are asked to maintain an account balance in each
Size Fund in which you invest of at least the minimum investment
necessary to open the particular type of account. If your balance
for any Fund remains below the minimum for three months or longer,
the Administrator has the right (except in the case of employer-
sponsored retirement accounts) to redeem your remaining shares and
close that Fund account after giving you 60 days to increase your
balance. Your Fund account will not be liquidated if the reduction
in size is due solely to a decline in market value of your Fund
shares or if the aggregate value of all your PIMCO Funds accounts
exceeds $50,000.
Exchanging You may exchange your Class A, Class B or Class C shares of any
Shares Fund for the same Class of shares of any other Fund or of a series
of PIMCO Funds: Multi-Manager Series. Shares are exchanged on the
basis of their respective NAVs next calculated after your exchange
order is received by the Distributor (except if Class A shares of
the Money Market Fund are exchanged for Class A shares of any
other Fund, the usual sales charges applicable to investments in
such other Fund apply on shares for which no sales load was paid
at the time of purchase). Currently, the Trust does not charge any
exchange fees or charges. Exchanges are subject to the $2,500
minimum initial purchase requirements for each Fund, except with
respect to tax-qualified programs and exchanges effected through
the PIMCO Funds Auto-Exchange plan. If you maintain your account
with the Distributor, you may exchange shares by completing a
written exchange request and sending it to PIMCO Funds
Distributors LLC, P.O. Box 9688, Providence, RI 02940-0926. You
can get an exchange form by calling the Distributor at
1-800-426-0107.
The Trust reserves the right to refuse exchange 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
an investor may make. An investor makes a "round trip" exchange
when the investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a different
PIMCO Fund and then exchanges back into the originally purchased
Fund. The Trust has the right to refuse any exchange for any
investor who completes (by making the exchange back into the
shares of the originally purchased Fund) more than six round trip
exchanges in any twelve-month period. Although the Trust has no
current intention of terminating or modifying the exchange
privilege other than as set forth in the preceding sentence, it
reserves the right to do so at any time. Except as otherwise
permitted by the Securities and Exchange Commission, the Trust
will give you 60 days' advance notice if it exercises its right to
terminate or materially modify the exchange privilege. The Guide
provides more detailed information about the exchange privilege,
including the procedures you must follow and additional exchange
options. You can obtain a Guide free of charge from the
Distributor by written request or by calling 1-800-426-0107. See
"PIMCO Funds Shareholders' Guide" above.
Prospectus
42
<PAGE>
Selling You can sell (redeem) Class A, Class B or Class C shares of the
Shares Funds in the following ways:
. Through your broker, dealer or other financial
intermediary. Your broker, dealer or other intermediary may
independently charge you transaction fees and additional amounts
in return for its services, which will reduce your return.
. Directly from the Trust by Written Request. To redeem shares
directly from the Trust by written request (whether or not the
shares are represented by certificates), you must send the
following items to the Trust's Transfer Agent, PFPC Inc., P.O. Box
9688, Providence, RI 02940-9688:
(1) a written request for redemption signed by all registered
owners exactly as the account is registered on the Transfer
Agent's records, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of
shares to be redeemed;
(2) for certain redemptions described below, a guarantee of all
signatures on the written request or on the share certificate or
accompanying stock power, if required, as described under
"Signature Guarantee" below;
(3) any share certificates issued for any of the shares to be
redeemed (see "Certificated Shares" below); and
(4) any additional documents which may be required by the
Transfer Agent for redemption by corporations, partnerships or
other organizations, executors, administrators, trustees,
custodians or guardians, or if the redemption is requested by
anyone other than the shareholder(s) of record. Transfers of
shares are subject to the same requirements.
A signature guarantee is not required for redemptions requested
by and payable to all shareholders of record for the account, and
to be sent to the address of record for that account. To avoid
delay in redemption or transfer, if you have any questions about
these requirements you should contact the Transfer Agent in
writing or call 1-800-426-0107 before submitting a request.
Written redemption or transfer requests will not be honored until
all required documents in the proper form have been received by
the Transfer Agent. You can not redeem your shares by written
request if they are held in broker "street name" accounts--you
must redeem through your broker.
If the proceeds of your redemption (i) are to be paid to a person
other than the record owner, (ii) are to be sent to an address
other than the address of the account on the Transfer Agent's
records, and/or (iii) are to be paid to a corporation,
partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power
must be guaranteed as described under "Signature Guarantee" below.
The Distributor may, however, waive the signature guarantee
requirement for redemptions up to $2,500 by a trustee of a
qualified retirement plan, the administrator for which has an
agreement with the Distributor.
The Guide describes a number of additional ways you can redeem
your shares, including:
. Telephone requests to the Transfer Agent
. PIMCO Funds Automated Telephone System (ATS)
. Expedited wire transfers
. Automatic Withdrawal Plan
. PIMCO Funds Fund Link
Unless you specifically elect otherwise, your initial account
application permits you to redeem shares by telephone subject to
certain requirements. To be eligible for ATS, expedited wire
transfer, Automatic Withdrawal Plan, and Fund Link privileges, you
must specifically elect the particular option on your account
application and satisfy certain other requirements. The Guide
describes each of these options and provides additional
information about selling shares. You can obtain a Guide free of
charge from the Distributor by written request or by calling 1-
800-426-0107.
Other than an applicable CDSC, you will not pay any special fees
or charges to the Trust or the Distributor when you sell your
shares. However, if you sell your shares through your broker,
dealer or other financial intermediary, that firm may charge you a
commission or other fee for processing your redemption request.
Redemptions of Fund shares may be suspended when trading on the
New York Stock Exchange is restricted or during an emergency which
makes it impracticable for the Funds to dispose of their
securities or to determine fairly the value of their net assets,
or during any other period as permitted by the Securities and
Exchange Commission for the protection of investors. Under these
and other unusual circumstances, the Trust may suspend redemptions
or postpone payment for more than seven days, as permitted by law.
Pacific Investment Management Series
43
<PAGE>
Timing of Redemption proceeds will normally be mailed to the redeeming
Redemption shareholder within seven calendar days or, in the case of wire
Payments transfer or Fund Link redemptions, sent to the designated bank
account within one business day. Fund Link redemptions may be
received by the bank on the second or third business day. In cases
where shares have recently been purchased by personal check,
redemption proceeds may be withheld until the check has been
collected, which may take up to 15 days. To avoid such
withholding, investors should purchase shares by certified or bank
check or by wire transfer.
Redemptions The Trust will redeem shares of each Fund solely in cash up to the
In Kind lesser of $250,000 or 1% of the Fund's net assets during any 90-
day period for any one shareholder. In consideration of the best
interests of the remaining shareholders, the Trust may pay any
redemption proceeds exceeding this amount in whole or in part by a
distribution in kind of securities held by a Fund in lieu of cash.
It is highly unlikely that your shares would ever be redeemed in
kind. If your shares are redeemed in kind, you should expect to
incur transaction costs upon the disposition of the securities
received in the distribution.
CertificatedIf you are redeeming shares for which certificates have been
Shares issued, the certificates must be mailed to or deposited with the
Trust, duly endorsed or accompanied by a duly endorsed stock power
or by a written request for redemption. Signatures must be
guaranteed as described under "Signature Guarantee" below. The
Trust may request further documentation from institutions or
fiduciary accounts, such as corporations, custodians (e.g., under
the Uniform Gifts to Minors Act), executors, administrators,
trustees or guardians. Your redemption request and stock power
must be signed exactly as the account is registered, including
indication of any special capacity of the registered owner.
Signature When a signature guarantee is called for, you should have
Guarantee "Signature Guaranteed" stamped under your signature and guaranteed
by any of the following entities: U.S. banks, foreign banks having
a U.S. correspondent bank, credit unions, savings associations,
U.S. registered dealers and brokers, municipal securities dealers
and brokers, government securities dealers and brokers, national
securities exchanges, registered securities associations and
clearing agencies (each an "Eligible Guarantor Institution"). The
Distributor reserves the right to reject any signature guarantee
pursuant to its written signature guarantee standards or
procedures, which may be revised in the future to permit it to
reject signature guarantees from Eligible Guarantor Institutions
that do not, based on credit guidelines, satisfy such written
standards or procedures. The Trust may change the signature
guarantee requirements from time to time upon notice to
shareholders, which may be given by means of a new or supplemented
Prospectus.
Fund Distributions
Each Fund distributes substantially all of its net investment
income to shareholders in the form of dividends. You begin earning
dividends on Fund shares the day after the Trust receives your
purchase payment. Dividends paid by each Fund with respect to each
class of shares are calculated in the same manner and at the same
time, but dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares as a result of the
distribution fees applicable to Class B and Class C shares. The
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 .
-----------------------------------------------------------------
Convertible, StocksPLUS and Strategic
Balanced 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.
You can choose from the following distribution options:
. Reinvest all distributions in additional shares of the same
class of your Fund at NAV. This will be done unless you elect
another option.
. Invest all distributions in shares of the same class of any
other Fund or another series of the Trust or PIMCO Funds:
Multi-Manager Series which offers that class at NAV. You must
have an account existing in the Fund or series selected for
investment with the identical registered name.
Prospectus
44
<PAGE>
You must elect this option on your account application or by a
telephone request to the Transfer Agent at 1-800-426-0107.
. Receive all distributions in cash (either paid directly to
you or credited to your account with your broker or other
financial intermediary). You must elect this option on your
account application or by a telephone request to the Transfer
Agent at 1-800-426-0107.
You do not pay any sales charges on shares you receive through
the reinvestment of Fund distributions.
If you elect to receive Fund distributions in cash and the postal
or other delivery service is unable to deliver checks to your
address of record, the Trust's Transfer Agent will hold the
returned checks for your benefit in a non-interest bearing
account.
Tax Consequences
. Taxes on Fund distributions. If you are subject to U.S. federal
income tax, you will be subject to tax on Fund distributions
whether you received them in cash or reinvested them in additional
shares of the Funds. For federal income tax purposes, Fund
distributions will be taxable to you as either ordinary income or
capital gains.
Fund dividends (i.e., distributions of investment income) are
taxable to you 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 you
have owned your shares. Distributions of gains from investments
that a Fund owned for more than 12 months will generally be
taxable to you as capital gains. Distributions of gains from
investments that the Fund owned for 12 months or less will
generally be taxable to you as ordinary income.
Fund distributions are taxable to you even if they are paid from
income or gains earned by a Fund prior to your investment and thus
were included in the price you paid for your shares. For example,
if you purchase shares on or just before the record date of a Fund
distribution, you will pay full price for the shares and may
receive a portion of your investment back as a taxable
distribution.
. Taxes when you sell (redeem) or exchange your shares. Any gain
resulting from the sale of Fund shares will generally be subject
to federal income tax. When you exchange shares of a Fund for
shares of another series, the transaction will be treated as a
sale of the Fund shares for these purposes, and any gain on those
shares will generally be subject to federal income tax.
. Consult your tax advisor about other possible tax
consequences. This is a summary of certain federal income tax
consequences of investing in a Fund. You should consult your tax
advisor for more information on your own tax situation, including
possible state, local and foreign tax consequences.
. 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.
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.
Pacific Investment Management Series
45
<PAGE>
Characteristics and Risks of Securities and Investment Techniques
This section provides additional information about some of the
principal investments and related risks of the Funds described
under "Summary Information" above. It also describes
characteristics and risks of additional securities and investment
techniques that may be used by the Funds from time to time. Most
of these securities and investment techniques are discretionary,
which means that PIMCO can decide whether to use them or not. This
Prospectus does not attempt to disclose all of the various types
of securities and investment techniques that may be used by the
Funds. As with any mutual fund, investors in the Funds rely on the
professional investment judgment and skill of PIMCO and the
individual portfolio managers. Please see "Investment Objectives
and Policies" in the Statement of Additional Information for more
detailed information about the securities and investment
techniques described in this section and about other strategies
and techniques that may be used by the Funds.
Securities 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, 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 the following sectors: 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 shift assets
among sectors depending upon changes in relative valuations and
credit spreads. There is no guarantee that PIMCO's security
selection techniques will produce the desired results.
U.S. U.S. Government Securities are obligations of, or guaranteed by,
Government the U.S. Government, its agencies or 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.
Mortgage- Each Fund may invest in mortgage-or other asset-backed securities.
Related Except for the Money Market and Convertible Funds, each Fund may
and Other invest all of its assets in such securities. Mortgage-related
Asset- securities include mortgage pass-through securities,
Backed collateralized mortgage obligations ("CMOs"), commercial mortgage-
Securities 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
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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.
Loan Certain Funds may invest in fixed- and floating-rate loans, which
Participa- investments generally will be in the form of loan participations
tions and and assignments of portions of such loans. Participations and
Assignments assignments involve special types of risk, including credit risk,
interest rate risk, liquidity risk, and the risks of being a
lender. If a Fund purchases a participation, it may only be able
to enforce its rights through the lender, and may assume the
credit risk of the lender in addition to the borrower.
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 Investors Service, Inc.
Yield ("Moody's") or lower than BBB by Standard & Poor's Ratings
Securities Services ("S&P") are sometimes referred to as "high yield" or
"junk" bonds. Investing in high yield securities involves special
risks in addition to the risks associated with investments in
higher-rated fixed income securities. While offering a greater
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
Pacific Investment Management Series
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<PAGE>
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
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. Even-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 (except the Money Market Fund) may invest in convertible
and securities. Convertible securities are generally preferred stocks
Equity and other securities, including fixed income securities and
Securities warrants, that are convertible into or exercisable for common
stock at a stated price or rate. The price of a convertible
security will normally vary in some proportion to changes in the
price of the underlying common stock because of this conversion or
exercise feature. However, the value of a convertible security may
not increase or decrease as rapidly as the underlying common
stock. A convertible security will normally also provide income
and is subject to interest rate risk. Convertible securities may
be lower-rated securities subject to greater levels of credit
risk. A Fund may be forced to convert a security before it would
otherwise choose, which may have an adverse effect on the Fund's
ability to achieve its investment objective.
While the 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 inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. The
securities markets, values of securities, yields and
Prospectus
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<PAGE>
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
and Low Duration 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 Long-Term U.S. Government Fund) may invest
in Brady Bonds, which are securities created through the exchange
of existing commercial bank loans to sovereign entities for new
obligations in connection with 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 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
Pacific Investment Management Series
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<PAGE>
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 the Fund's limitations on borrowings. A reverse
Agreements, repurchase agreement or dollar roll involves the sale of a
Dollar security by a Fund and its agreement to repurchase the instrument
Rolls and at a specified time and price, and may be considered a form of
Other borrowing for some purposes. A Fund will segregate assets
Borrowings determined to be liquid by PIMCO in accordance with procedures
established by the Board of Trustees or otherwise to 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 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
Prospectus
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<PAGE>
with many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position at an
advantageous time or price.
Leverage Risk. Because many derivatives have a leverage
component, adverse changes in the value or level of the underlying
asset, reference rate or index can result in a loss substantially
greater than the amount invested in the derivative itself. Certain
derivatives have the potential for unlimited loss, regardless of
the size of the initial investment. When a Fund uses derivatives
for leverage, investments in that Fund will tend to be more
volatile, resulting in larger gains or losses in response to
market changes. To limit leverage risk, each Fund will segregate
assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees (or, as permitted
by applicable regulation, enter into certain offsetting positions)
to cover its obligations under derivative instruments.
Lack of Availability. Because the markets for certain derivative
instruments (including markets located in foreign countries) are
relatively new and still developing, suitable derivatives
transactions may not be available in all circumstances for risk
management or other purposes. There is no assurance that a Fund
will engage in derivatives transactions at any time or from time
to time. A Fund's ability to use derivatives may also be limited
by certain regulatory and tax considerations.
Market and Other Risks. Like most other investments, derivative
instruments are subject to the risk that the market value of the
instrument will change in a way detrimental to a Fund's interest.
If a portfolio manager incorrectly forecasts the values of
securities, currencies or interest rates or other economic factors
in using derivatives for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all.
While some strategies involving derivative instruments can reduce
the risk of loss, they can also reduce the opportunity for gain or
even result in losses by offsetting favorable price movements in
other Fund investments. A Fund may also have to buy or sell a
security at a disadvantageous time or price because the Fund is
legally required to maintain offsetting positions or asset
coverage in connection with certain derivatives transactions.
Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates
and indexes. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Also, the value of
derivatives may not correlate perfectly, or at all, with the value
of the assets, reference rates or indexes they are designed to
closely track. In addition, a Fund's use of derivatives may cause
the Fund to realize higher amounts of short-term capital gains
(generally taxed at ordinary income tax rates) than if the Fund
had not used such instruments.
Delayed The Funds (except the Money Market Fund) may also enter into, or
Funding acquire participations in, delayed funding loans and revolving
Loans and credit facilities, in which a lender agrees to make loans up to a
Revolving maximum amount upon demand by the borrower during a specified
Credit term. These commitments may have the effect of requiring a Fund to
Facilities 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
Transac- settlement date. This risk is in addition to the risk that the
tions Fund's other assets will decline in the value. Therefore, these
transactions may result in a form of leverage and increase a
Fund's overall investment exposure. Typically, no income accrues
on securities a Fund has committed to purchase prior to the time
delivery of the securities is made, although a Fund may earn
income on securities it has segregated to cover these positions.
Investment Each Fund may invest up to 10% of its assets in securities of
in Other other investment companies, such as closed-end management
Investment investment companies, or in pooled accounts or other investment
Companies vehicles 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, in the future, elect to pursue its investment objective
by investing in one or more underlying investment vehicles or
companies that have substantially similar investment objectives,
policies and limitations as the Fund.
Pacific Investment Management Series
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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
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.
Temporary For temporary or defensive purposes, each Fund may invest without
Defensive limit in U.S. debt securities, including short-term money market
Strategies 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
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<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand
the financial performance of Class A, Class B and Class C shares
of 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 (Loss) Investments Operations Income Income Capital Gains Capital Gains
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market
Class A
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
01/13/1997 - 03/31/1997 1.00 0.01 0.00 0.01 (0.01) 0.00 0.00 0.00
Class B
03/31/1999 1.00 0.04(a) 0.00 (a) 0.04 (0.04) 0.00 0.00 0.00
03/31/1998 1.00 0.04(a) 0.00 (a) 0.04 (0.04) 0.00 0.00 0.00
01/13/1997 - 03/31/1997 1.00 0.01 0.00 0.01 (0.01) 0.00 0.00 0.00
Class C
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
01/13/1997 - 03/31/1997 1.00 0.01 0.00 0.01 (0.01) 0.00 0.00 0.00
Short-Term
Class A
03/31/1999 $10.06 $0.53(a) $(0.02)(a) $0.51 $(0.53) $ 0.00 $ 0.00 $(0.01)
03/31/1998 10.00 0.55(a) 0.09 (a) 0.64 (0.56) (0.01) (0.01) 0.00
01/20/1997 - 03/31/1997 10.04 0.10 (0.03) 0.07 (0.10) (0.01) 0.00 0.00
Class B
03/31/1999 10.06 0.45(a) (0.02)(a) 0.43 (0.45) 0.00 0.00 (0.01)
03/31/1998 10.00 0.50(a) 0.08 (a) 0.58 (0.50) (0.01) (0.01) 0.00
01/20/1997 - 03/31/1997 10.04 0.09 (0.03) 0.06 (0.10) 0.00 0.00 0.00
Class C
03/31/1999 10.06 0.50(a) (0.02)(a) 0.48 (0.50) 0.00 0.00 (0.01)
03/31/1998 10.00 0.54(a) 0.07 (a) 0.61 (0.53) (0.01) (0.01) 0.00
01/20/1997 - 03/31/1997 10.04 0.09 (0.03) 0.06 (0.10) 0.00 0.00 0.00
Low Duration
Class A
03/31/1999 $10.18 $0.60(a) $(0.02)(a) $0.58 $(0.60) $ 0.00 $(0.01) $(0.05)
03/31/1998 9.98 0.60(a) 0.23 (a) 0.83 (0.58) (0.02) (0.03) 0.00
01/13/1997 - 03/31/1997 10.02 0.12 (0.03) 0.09 (0.12) (0.01) 0.00 0.00
Class B
03/31/1999 10.18 0.52(a) (0.02)(a) 0.50 (0.52) 0.00 (0.01) (0.05)
03/31/1998 9.98 0.53(a) 0.22 (a) 0.75 (0.50) (0.02) (0.03) 0.00
01/13/1997 - 03/31/1997 10.02 0.10 (0.03) 0.07 (0.11) 0.00 0.00 0.00
Class C
03/31/1999 10.18 0.55(a) (0.02)(a) 0.53 (0.55) 0.00 (0.01) (0.05)
03/31/1998 9.98 0.55(a) 0.23 (a) 0.78 (0.53) (0.02) (0.03) 0.00
01/13/1997 - 03/31/1997 10.02 0.11 (0.03) 0.08 (0.11) (0.01) 0.00 0.00
</TABLE>
- -------
(a) Per share amounts based on average number of shares outstanding during the
period.
Pacific Investment Management Series
53
<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 4.76% 105,200 0.60% 4.78% N/A
0.00 (0.05) 1.00 5.10 41,375 0.60 5.02 N/A
0.00 (0.01) 1.00 1.01 43,589 0.57+ 4.44+ N/A
0.00 (0.04) 1.00 4.03 14,968 1.50 3.79 N/A
0.00 (0.04) 1.00 4.21 2,937 1.50 4.15 N/A
0.00 (0.01) 1.00 0.83 3,143 1.41+ 3.62+ N/A
0.00 (0.05) 1.00 4.85 86,159 0.60 4.79 N/A
0.00 (0.05) 1.00 5.14 55,696 0.60 5.05 N/A
0.00 (0.01) 1.00 1.02 85,398 0.58+ 4.47+ N/A
$0.00 $(0.54) $10.03 5.21% 80,787 0.85% 5.15% 47%
0.00 (0.58) 10.06 6.64 24,182 0.85 5.48 48
0.00 (0.11) 10.00 0.66 2,533 0.86+ 5.07+ 77
0.00 (0.46) 10.03 4.43 3,813 1.60 4.45 47
0.00 (0.52) 10.06 5.96 1,258 1.60 4.97 48
0.00 (0.10) 10.00 0.58 114 1.62+ 4.83+ 77
0.00 (0.51) 10.03 4.91 15,589 1.15 4.92 47
0.00 (0.55) 10.06 6.33 6,763 1.15 5.33 48
0.00 (0.10) 10.00 0.63 1,359 1.14+ 4.78+ 77
$0.00 $(0.66) $10.10 5.86% 191,727 0.90% 5.85% 245%
0.00 (0.63) 10.18 8.49 109,531 0.90 5.93 309
0.00 (0.13) 9.98 0.85 59,348 0.91+ 5.84+ 240
0.00 (0.58) 10.10 5.07 65,160 1.65 5.03 245
0.00 (0.55) 10.18 7.68 17,624 1.65 5.16 309
0.00 (0.11) 9.98 0.68 5,296 1.67+ 5.03+ 240
0.00 (0.61) 10.10 5.33 112,229 1.40 5.35 245
0.00 (0.58) 10.18 8.01 68,766 1.40 5.46 309
0.00 (0.12) 9.98 0.75 63,606 1.42+ 5.36+ 240
</TABLE>
- -------
+ Annualized.
Prospectus
54
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Investment and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Income Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period (Loss) Investments Operations Income Income Capital Gains Capital Gains
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Return
Class A
03/31/1999 $10.62 $0.58(a) $ 0.16 (a) $ 0.74 $(0.58) $ 0.00 $(0.24) $(0.18)
03/31/1998 10.27 0.58(a) 0.63 (a) 1.21 (0.57) (0.02) (0.27) 0.00
01/13/1997 - 03/31/1997 10.40 0.12 (0.12) 0.00 (0.13) 0.00 0.00 0.00
Class B
03/31/1999 10.62 0.50(a) 0.16 (a) 0.66 (0.50) 0.00 (0.24) (0.18)
03/31/1998 10.27 0.50(a) 0.63 (a) 1.13 (0.50) (0.01) (0.27) 0.00
01/13/1997 - 03/31/1997 10.40 0.11 (0.12) (0.01) (0.12) 0.00 0.00 0.00
Class C
03/31/1999 10.62 0.50(a) 0.16 (a) 0.66 (0.50) 0.00 (0.24) (0.18)
03/31/1998 10.27 0.51(a) 0.63 (a) 1.14 (0.51) (0.01) (0.27) 0.00
01/13/1997 - 03/31/1997 10.40 0.11 (0.12) (0.01) (0.12) 0.00 0.00 0.00
Long-Term U.S. Government
Class A
03/31/1999 $10.57 $0.59(a) $ 0.20 (a) $ 0.79 $(0.60) $ 0.00 $ 0.00 $(0.46)
03/31/1998 9.39 0.48(a) 1.34 (a) 1.82 (0.58) 0.00 (0.06) 0.00
01/20/1997 - 03/31/1997 9.67 0.32 (0.47) (0.15) (0.13) 0.00 0.00 0.00
Class B
03/31/1999 10.57 0.51(a) 0.20 (a) 0.71 (0.52) 0.00 0.00 (0.46)
03/31/1998 9.39 0.39(a) 1.35 (a) 1.74 (0.50) 0.00 (0.06) 0.00
01/20/1997 - 03/31/1997 9.67 0.29 (0.47) (0.18) (0.10) 0.00 0.00 0.00
Class C
03/31/1999 10.57 0.50(a) 0.21 (a) 0.71 (0.52) 0.00 0.00 (0.46)
03/31/1998 9.39 0.39(a) 1.35 (a) 1.74 (0.50) 0.00 (0.06) 0.00
01/20/1997 - 03/31/1997 9.67 0.29 (0.47) (0.18) (0.10) 0.00 0.00 0.00
Global Bond II
Class A
03/31/1999 $ 9.92 $0.48(a) $ 0.06 (a) $ 0.54 $(0.48) $ 0.00 $(0.01) $(0.08)
03/31/1998 10.84 0.64(a) 0.51 (a) 1.15 0.00 (0.54) (1.53) 0.00
10/01/1996 - 03/31/1997 10.96 0.66 (0.16) 0.50 (0.22) 0.00 (0.40) 0.00
09/30/1996 10.00 0.32(b) 0.95 1.27 (0.31) 0.00 0.00 0.00
Class B
03/31/1999 9.92 0.41(a) 0.06 (a) 0.47 (0.41) 0.00 (0.01) (0.08)
03/31/1998 10.84 0.66(a) 0.41 (a) 1.07 0.00 (0.46) (1.53) 0.00
10/01/1996 - 03/31/1997 10.96 0.62 (0.16) 0.46 (0.18) 0.00 (0.40) 0.00
09/30/1996 10.00 0.30(b) 0.92 1.22 (0.26) 0.00 0.00 0.00
Class C
03/31/1999 9.92 0.41(a) 0.06 (a) 0.47 (0.41) 0.00 (0.01) (0.08)
03/31/1998 10.84 0.55(a) 0.52 (a) 1.07 0.00 (0.46) (1.53) 0.00
10/01/1996 - 03/31/1997 10.96 0.62 (0.16) 0.46 (0.18) 0.00 (0.40) 0.00
09/30/1996 10.00 0.30(b) 0.92 1.22 (0.26) 0.00 0.00 0.00
Foreign Bond
Class A
03/31/1999 $10.74 $0.53(a) $ 0.24 (a) $ 0.77 $(0.53) $ 0.00 $(0.10) $(0.25)
03/31/1998 10.41 0.61(a) 0.62 (a) 1.23 (0.59) 0.00 (0.31) 0.00
01/20/1997 - 03/31/1997 10.59 0.59 (0.72) (0.13) (0.05) 0.00 0.00 0.00
Class B
03/31/1999 10.74 0.46(a) 0.24 (a) 0.70 (0.46) 0.00 (0.10) (0.25)
03/31/1998 10.41 0.53(a) 0.61 (a) 1.14 (0.50) 0.00 (0.31) 0.00
01/20/1997 - 03/31/1997 10.59 0.58 (0.72) (0.14) (0.04) 0.00 0.00 0.00
Class C
03/31/1999 10.74 0.45(a) 0.24 (a) 0.69 (0.45) 0.00 (0.10) (0.25)
03/31/1998 10.41 0.52(a) 0.62 (a) 1.14 (0.50) 0.00 (0.31) 0.00
01/20/1997 - 03/31/1997 10.59 0.58 (0.72) (0.14) (0.04) 0.00 0.00 0.00
</TABLE>
- -------
(b) Reflects voluntary waiver of investment advisory fee of $12,041 (.01 per
share) by the adviser.
Pacific Investment Management Series
55
<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 $(1.00) $10.36 7.09% $1,140,606 0.90% 5.37% 154%
0.00 (0.86) 10.62 12.11 533,893 0.90 5.46 206
0.00 (0.13) 10.27 0.02 115,742 0.91+ 6.08+ 173
0.00 (0.92) 10.36 6.28 549,478 1.65 4.55 154
0.00 (0.78) 10.62 11.26 186,932 1.65 4.74 206
0.00 (0.12) 10.27 (0.10) 74,130 1.67+ 5.28+ 173
0.00 (0.92) 10.36 6.29 715,201 1.65 4.63 154
0.00 (0.79) 10.62 11.28 405,037 1.65 4.83 206
0.00 (0.12) 10.27 (0.11) 329,104 1.67+ 5.32+ 173
$0.00 $(1.06) $10.30 7.34% $ 29,809 1.34%(e) 5.33% 364%
0.00 (0.64) 10.57 19.78 6,161 0.91 4.49 177
0.00 (0.13) 9.39 (1.72) 1,204 1.12+ 6.91+ 402
0.00 (0.98) 10.30 6.51 37,946 2.13(f) 4.53 364
0.00 (0.56) 10.57 18.85 7,516 1.66 4.64 177
0.00 (0.10) 9.39 (1.92) 454 1.87+ 4.95+ 402
0.00 (0.98) 10.30 6.52 31,653 2.16(g) 4.50 364
0.00 (0.56) 10.57 18.86 7,258 1.66 4.64 177
0.00 (0.10) 9.39 (1.83) 275 1.88+ 5.52+ 402
$0.00 $(0.57) $ 9.89 5.65% $ 2,728 0.95% 5.07% 236%
0.00 (2.07) 9.92 11.21 6,816 0.95 5.88 369
0.00 (0.62) 10.84 4.55 7,652 2.05+ 5.60+ 307
0.00 (0.31) 10.96 15.01 7,360 1.27(c) 4.88(d) 1,246
0.00 (0.50) 9.89 4.85 4,909 1.70 4.16 236
0.00 (1.99) 9.92 10.39 4,473 1.70 5.12 369
0.00 (0.58) 10.84 4.17 3,925 2.57+ 4.22+ 307
0.00 (0.26) 10.96 14.54 3,240 2.49(c) 4.09(d) 1,246
0.00 (0.50) 9.89 4.82 5,863 1.70 4.16 236
0.00 (1.99) 9.92 10.39 6,096 1.70 5.12 369
0.00 (0.58) 10.84 4.17 5,323 2.43+ 4.14+ 307
0.00 (0.26) 10.96 14.54 3,459 2.49(c) 4.09(d) 1,246
$0.00 $(0.88) $10.63 7.43% $ 29,009 0.95% 4.87% 376%
0.00 (0.90) 10.74 12.14 9,582 0.95 5.88 280
0.00 (0.05) 10.41 (1.21) 704 0.97+ 4.95+ 984
0.00 (0.81) 10.63 6.69 21,256 1.70 4.14 376
0.00 (0.81) 10.74 11.29 10,631 1.70 5.13 280
0.00 (0.04) 10.41 (1.34) 1,221 1.75+ 3.73+ 984
0.00 (0.80) 10.63 6.63 29,584 1.70 4.16 376
0.00 (0.81) 10.74 11.29 17,080 1.70 5.13 280
0.00 (0.04) 10.41 (1.32) 1,788 1.76+ 4.09+ 984
</TABLE>
- -------
+ Annualized.
(c) The ratio of expenses to average net assets without the waiver would have
been 1.57%.
(d) The ratio of net investment income to average net assets without the waiver
would have been 4.58%.
(e) The ratio of expenses to average net assets excluding interest expense on
reverse repurchase agreements is 0.90%.
(f) The ratio of expenses to average net assets excluding interest expense on
reverse repurchase agreements is 1.65%.
(g) The ratio of expenses to average net assets excluding interest expense on
reverse repurchase agreements is 1.65%.
Prospectus
56
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Realized Total Income Dividends Dividends in Distributions Distributions
Year or Value Net and Unrealized (Loss) from from Net Excess of Net from Net in Excess of
Period Beginning Investment Gain (Loss) on Investment Investment Investment Realized Net Realized
Ended of Period Income (Loss) Investments Operations Income Income Capital Gains Capital Gains
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Emerging Markets Bond
Class A
03/31/1999 $ 9.67 $ 0.83 (a) $(2.11)(a) $(1.28) $(0.83) $ 0.00 $ 0.00 $(0.05)
07/31/1997 - 03/31/1998 10.00 0.44 (a) (0.18)(a) 0.26 (0.44) 0.00 (0.15) 0.00
Class B
03/31/1999 9.67 0.77 (a) (2.11)(a) (1.34) (0.77) 0.00 0.00 (0.05)
07/31/1997 - 03/31/1998 10.00 0.40 (a) (0.20)(a) 0.20 (0.38) 0.00 (0.15) 0.00
Class C
03/31/1999 9.67 0.77 (a) (2.11)(a) (1.34) (0.77) 0.00 0.00 (0.05)
07/31/1997 - 03/31/1998 10.00 0.38 (a) (0.18)(a) 0.20 (0.38) 0.00 (0.15) 0.00
High Yield
Class A
03/31/1999 $11.66 $ 0.91 (a) $(0.43)(a) $ 0.48 $(0.90) $(0.01) $ 0.00 $ 0.00
03/31/1998 11.10 0.93 (a) 0.66 (a) 1.59 (0.94) 0.00 0.00 (0.09)
01/13/1997 - 03/31/1997 11.18 0.17 (0.05) 0.12 (0.20) 0.00 0.00 0.00
Class B
03/31/1999 11.66 0.82 (a) (0.43)(a) 0.39 (0.81) (0.01) 0.00 0.00
03/31/1998 11.10 0.84 (a) 0.66 (a) 1.50 (0.85) 0.00 0.00 (0.09)
01/13/1997 - 03/31/1997 11.18 0.15 (0.05) 0.10 (0.18) 0.00 0.00 0.00
Class C
03/31/1999 11.66 0.82 (a) (0.43)(a) 0.39 (0.81) (0.01) 0.00 0.00
03/31/1998 11.10 0.85 (a) 0.65 (a) 1.50 (0.85) 0.00 0.00 (0.09)
01/13/1997 - 03/31/1997 11.18 0.15 (0.05) 0.10 (0.18) 0.00 0.00 0.00
Real Return Bond
Class A
03/31/1999 $ 9.77 $ 0.43 (a) $ 0.14 (a) $ 0.57 $(0.45) $(0.06) $ 0.00 $ 0.00
03/31/1998 9.93 0.40 (a) 0.03 (a) 0.43 (0.42) (0.03) (0.14) 0.00
01/29/1997 - 03/31/1997 10.00 0.11 (a) (0.10)(a) 0.01 (0.08) 0.00 0.00 0.00
Class B
03/31/1999 9.77 0.37 (a) 0.12 (a) 0.49 (0.38) (0.05) 0.00 0.00
03/31/1998 9.93 0.33 (a) 0.03 (a) 0.36 (0.36) (0.02) (0.14) 0.00
01/29/1997 - 03/31/1997 10.00 0.09 (0.10) (0.01) (0.06) 0.00 0.00 0.00
Class C
03/31/1999 9.77 0.44 (a) 0.08 (a) 0.52 (0.40) (0.06) 0.00 0.00
03/31/1998 9.93 0.35 (a) 0.04 (a) 0.39 (0.38) (0.03) (0.14) 0.00
01/29/1997 - 03/31/1997 10.00 0.09 (0.10) (0.01) (0.06) 0.00 0.00 0.00
StocksPLUS
Class A
03/31/1999 $14.06 $ 0.93 (a) $ 1.29 (a) $ 2.22 $(0.78) $ 0.00 $(1.24) $ 0.00
03/31/1998 11.46 1.66 (a) 3.41 (a) 5.07 (1.38) 0.00 (1.09) 0.00
01/20/1997 - 03/31/1997 11.91 (0.10) (0.20) (0.30) (0.15) 0.00 0.00 0.00
Class B
03/31/1999 14.01 0.84 (a) 1.26 (a) 2.10 (0.69) 0.00 (1.24) 0.00
03/31/1998 11.44 1.61 (a) 3.35 (a) 4.96 (1.30) 0.00 (1.09) 0.00
01/20/1997 - 03/31/1997 11.91 (0.13) (0.20) (0.33) (0.14) 0.00 0.00 0.00
Class C
03/31/1999 14.03 0.86 (a) 1.28 (a) 2.14 (0.72) 0.00 (1.24) 0.00
03/31/1998 11.45 1.64 (a) 3.35 (a) 4.99 (1.32) 0.00 (1.09) 0.00
01/20/1997 - 03/31/1997 11.91 (0.12) (0.20) (0.32) (0.14) 0.00 0.00 0.00
<CAPTION>
Year or
Period
Ended
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Emerging Markets Bond
Class A
03/31/1999
07/31/1997 - 03/31/1998
Class B
03/31/1999
07/31/1997 - 03/31/1998
Class C
03/31/1999
07/31/1997 - 03/31/1998
High Yield
Class A
03/31/1999
03/31/1998
01/13/1997 - 03/31/1997
Class B
03/31/1999
03/31/1998
01/13/1997 - 03/31/1997
Class C
03/31/1999
03/31/1998
01/13/1997 - 03/31/1997
Real Return Bond
Class A
03/31/1999
03/31/1998
01/29/1997 - 03/31/1997
Class B
03/31/1999
03/31/1998
01/29/1997 - 03/31/1997
Class C
03/31/1999
03/31/1998
01/29/1997 - 03/31/1997
StocksPLUS
Class A
03/31/1999
03/31/1998
01/20/1997 - 03/31/1997
Class B
03/31/1999
03/31/1998
01/20/1997 - 03/31/1997
Class C
03/31/1999
03/31/1998
01/20/1997 - 03/31/1997
</TABLE>
Pacific Investment Management Series
57
<PAGE>
<TABLE>
<CAPTION>
Net Asset Net Assets Ratio of Ratio of Net
Tax Basis Value End Expenses to Investment Portfolio
Return Total End Total of Period Average Income to Average Turnover
of Capital Distributions of Period Return (000's) Net Assets Net Assets Rate
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(0.88) $ 7.51 (12.90)% $ 172 1.25% 10.26% 315%
0.00 (0.59) 9.67 2.84 317 1.26+ 6.93+ 695
0.00 (0.82) 7.51 (13.58) 398 2.00 9.68 315
0.00 (0.53) 9.67 2.29 304 2.01+ 6.33+ 695
0.00 (0.82) 7.51 (13.57) 229 2.00 9.79 315%
0.00 (0.53) 9.67 2.29 136 2.01+ 6.11+ 695
$0.00 $(0.91) $11.23 4.32 % $155,466 0.90% 7.94% 39%
0.00 (1.03) 11.66 14.80 70,858 0.90 8.02 37
0.00 (0.20) 11.10 1.06 28,873 0.92+ 8.28+ 67
0.00 (0.82) 11.23 3.54 286,198 1.65 7.21 39
0.00 (0.94) 11.66 13.94 156,099 1.65 7.27 37
0.00 (0.18) 11.10 0.86 60,269 1.67+ 7.52+ 67
0.00 (0.82) 11.23 3.55 370,861 1.65 7.24 39
0.00 (0.94) 11.66 13.95 284,836 1.65 7.36 37
0.00 (0.18) 11.10 0.88 205,297 1.68+ 7.56+ 67
$0.00 $(0.51) $ 9.83 5.99 % $ 6,250 0.92% 4.40% 438%
0.00 (0.59) 9.77 4.12 370 0.92 4.06 967
0.00 (0.08) 9.93 0.15 1 0.90+ 6.14+ 160
0.00 (0.43) 9.83 5.19 3,646 1.68 3.72 438
0.00 (0.52) 9.77 3.50 1,496 1.67 3.32 967
0.00 (0.06) 9.93 (0.08) 509 1.59+ 3.43+ 160
0.00 (0.46) 9.83 5.46 2,534 1.43 4.49 438
0.00 (0.55) 9.77 3.73 490 1.42 3.56 967
0.00 (0.06) 9.93 (0.07) 148 1.62+ 5.13+ 160
$0.00 $(2.02) $14.26 17.07 % $148,748 1.05% 6.66% 81%
0.00 (2.47) 14.06 47.07 62,970 1.05 13.34 30
0.00 (0.15) 11.46 (2.59) 5,790 1.10+ (10.69)+ 47
0.00 (1.93) 14.18 16.21 281,930 1.80 6.05 81
0.00 (2.39) 14.01 46.11 99,039 1.80 12.60 30
0.00 (0.14) 11.44 (2.81) 8,281 1.88+ (15.13)+ 47
0.00 (1.96) 14.21 16.48 245,088 1.55 6.19 81
0.00 (2.41) 14.03 46.38 96,960 1.55 12.85 30
0.00 (0.14) 11.45 (2.71) 11,254 1.65+ (12.79)+ 47
</TABLE>
- -------
+ Annualized.
Prospectus
58
<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 considered predominantly speculative with
respect to the issuer's ability to repay principal and interest.
Following is a description of Moody's and S&P's rating categories
applicable to fixed income securities.
Moody's Corporate and Municipal Bond Ratings
Investors
Service, Aaa: Bonds which are rated Aaa are judged to be of the best
Inc. quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classified from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of
issuers to repay punctually senior debt obligations which have an
original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters of credit and bonds of
indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of
rated issuers:
A-1
Pacific Investment Management Series
<PAGE>
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Standard Corporate and Municipal Bond Ratings
& Poor's
Ratings Investment Grade
Services AAA: Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions, or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and
repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
CI: The rating CI is reserved for income bonds on which no
interest is being paid.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The D rating will also be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Prospectus
A-2
<PAGE>
Plus (+) or Minus (-): The ratings from AA to CCC may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in
total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the
obligor but do not take into account currency exchange and related
uncertainties.
Commercial An S&P commercial paper rating is a current assessment of the
Paper likelihood of timely payment of debt having an original maturity
Rating of no more than 365 days. Ratings are graded into several
Definitions categories, ranging from A for the highest quality obligations to
D for the lowest. These categories are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B: Issues rated B are regarded as having only speculative
capacity for timely payment.
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period.
A 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-3
Pacific Investment Management Series
<PAGE>
PIMCO Funds: Pacific Investment Management Series
The Trust's Statement of Additional Information ("SAI") and annual
and semi-annual reports to shareholders include additional
information about the Funds. The SAI and the financial statements
included in the Funds' most recent annual report to shareholders
are incorporated by reference into this Prospectus, which means
they are part of this Prospectus for legal purposes. The Funds'
annual report discusses the market conditions and investment
strategies that significantly affected each Fund's performance
during its last fiscal year.
The SAI includes the PIMCO Funds Shareholders' Guide for Class A,
B and C Shares, a separate booklet which contains more detailed
information about Fund purchase, redemption and exchange options
and procedures and other information about the Funds. You can get
a free copy of the Guide together with or separately from the rest
of the SAI.
You may get free copies of any of these materials, request other
information about a Fund, or make shareholder inquiries by calling
1-800-426-0107, or by writing to:
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, Connecticut 06902
You may review and copy information about the Trust, including its
SAI, at the Securities and Exchange Commission's public reference
room in Washington, D.C. You may call the Commission at 1-202-942-
8090 for information about the operation of the public reference
room. You may also access reports and other information about the
Trust on the Commission's Web site at www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
writing the Public Reference Section of the Commission,
Washington, D.C. 20549-0102, or by electronic request at
[email protected].
You can also visit our Web site at www.pimcofunds.com for
additional information about the Funds.
[LOGO OF PIMCO FUNDS APPEARS HERE]
Investment Company Act File no. 811-5028
<PAGE>
PIMCO Funds:
Pacific Investment
Management Series
- --------------------------------------------------------------------------------
INVESTMENT ADVISER AND ADMINISTRATOR
PIMCO, 840 Newport Center Drive, Suite 300,
Newport Beach, CA 92660
- --------------------------------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distributors LLC, 2187 Atlantic Street, Stamford, CT 06902-6896
- --------------------------------------------------------------------------------
CUSTODIAN
State Street Bank & Trust Co., 801 Pennsylvania, Kansas City, Mo 64105
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
PFPC Inc., P.O. Box 9688, Providence, RI 02940-9688
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO 64105
- --------------------------------------------------------------------------------
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street N.W., Washington, D.C. 20006-2401
- --------------------------------------------------------------------------------
For further information about the PIMCO Funds, call 1-800-426-0107 or visit our
Web site at http://www.pimcofunds.com.
<PAGE>
PIMCO Funds is on the Web
www.pimcofunds.com
A Partial List of What's Available:
On-line Account Access
Daily share Prices
Daily Manager Commentary
Current and Historical Fund Performance
Lipper Rankings
Morningstar Ratings
Listing of Fund Portfolio Holdings
Risk Analysis
Fund Manager Bios
Downloadable Literature Section
On-line Requests for Literature by Mail
Resources for Investment Professionals
Through the PIMCO funds Web site, at www.pimcofunds.com, you and your financial
advisor have around-the-clock access to the most timely and comprehensive
information available on PIMCO funds.
In addition, the site includes daily commentary from our fund managers,
with insights on the economy and other factors affecting the stock and bond
markets.
And now you can access your account--securely--on-line. This feature is
available to shareholders with direct accounts (a direct account is one where
the shareholder receives statements directly form PIMCO Funds.)
[GRAPHIC OF WEB SITE]
You'll find the site to be informative and easy-to-use. It's divided into three
main sections: Investment Insight, Fund Information and Resources.
Investment Insight
The Investment Insight section provides an overview of the investment management
firms under the PIMCO Advisors L.P. umbrella. You'll find an explanation of each
firm's investment process, biographies of the investment team, manager updates
and more.
Fund Information
In the Fund Information section you'll access detailed profiles of all the PIMCO
Funds, including current and historical performance, Lipper rankings and
Morningstar ratings.
Additionally, we provide a summary of a fund's portfolio--complete with
risk analysis data. You can also obtain daily fund share prices. Read read the
relevant prospectus carefully before you investment in any PIMCO Fund.
Resources
Our Resources section features a variety of useful information, including:
an on-line document library with applications and prospectuses that you can
view and print
a literature-by-mail "catalog," so you can order free materials
information about our convenient shareholder services, such as Auto-Invest,
Fund Link and our 24-Hour Telephone Information System
a listing of the features and benefits of the retirement plans offered by
PIMCO funds
Questions?
We're sure you'll find the PIMCO Funds Web site to be an invaluable tool. If you
have any questions about the site, call us at 1-800-426-0107.
Or, send us e-mail at [email protected].
PZ000.3/00 Not part of the Prospectus
- --------------------------------------------------------------------------------
PIMCO FUNDS
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902-6896
<PAGE>
PIMCO Funds Prospectus
Pacific
Investment
Management
Series
August 1, 2000
Share Classes NATIONAL TAX EXEMPT BOND FUNDS
A B C Municipal Bond Fund
Share Class STATE-SPECIFIC TAX EXEMPT BOND FUNDS
A California Intermediate Municipal
Bond Fund
California Municipal
Bond Fund
New York Municipal
Bond Fund
PIMCO
--------
FUNDS
This cover is not part of the Prospectus
<PAGE>
PIMCO Funds Prospectus
PIMCO This Prospectus describes 4 mutual municipal bond funds offered by
Funds: PIMCO Funds: Pacific Investment Management Series. The Funds
Pacific provide access to the professional investment advisory services
Investment offered by Pacific Investment Management Company ("PIMCO"). As of
Management December 31, 1999 PIMCO managed approximately $186 billion in
Series assets.
August 1, This Prospectus explains what you should know about the Funds
2000 before you invest. Please read it carefully.
Share The Securities and Exchange Commission has not approved or
Classes disapproved these securities, or determined if this Prospectus is
A, B truthful or complete. Any representation to the contrary is a
and C criminal offense.
Pacific Investment Management Series
1
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Summary Information.............................................. 3
Fund Summaries
California Intermediate Municipal Bond Fund.................... 5
California Municipal Bond Fund................................. 7
Municipal Bond Fund............................................ 9
New York Municipal Bond Fund................................... 11
Summary of Principal Risks....................................... 13
Management of the Funds.......................................... 15
Investment Options............................................... 16
How Fund Shares Are Priced....................................... 19
How to Buy and Sell Shares....................................... 19
Fund Distributions............................................... 23
Tax Consequences................................................. 23
Characteristics and Risks of Securities and Investment
Techniques...................................................... 24
Financial Highlights............................................. 30
Appendix A--Description of Securities Ratings.................... A-1
</TABLE>
2
Prospectus
<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
Credit Denominated
Main Investments Duration Quality(1) Securities
--------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C>
Tax Exempt Municipal Bond Intermediate to long- 3-10 years Ba to Aaa; max 0%
Bond Funds term maturity municipal 10% below Baa
securities (exempt from
federal income tax)
---------------------------------------------------------------------------------------
California Intermediate maturity 3-7 years B to Aaa; max 0%
Intermediate municipal securities 10% below Baa
Municipal Bond (exempt from federal and
California income tax)
---------------------------------------------------------------------------------------
California Intermediate to long- 3-12 years B to Aaa; max 0%
Municipal Bond term maturity municipal 10% below Baa
securities (exempt from
federal and California
income tax)
---------------------------------------------------------------------------------------
New York Intermediate to long- 3-12 years B to Aaa; max 0%
Municipal Bond term maturity municipal 10% below Baa
securities (exempt from
federal and New York
income tax)
--------------------------------------------------------------------------------------------------
</TABLE>
(1) As rated by Moody's Investors Service, Inc., or equivalently rated by
Standard & Poor's Rating Service, or if unrated, determined by PIMCO to
be of comparable quality.
Fixed While the Funds will primarily invest in debt securities whose
Income interest is, in the opinion of bond counsel for the issuer at the
Instruments time of issuance, exempt from federal income tax ("Municipal
Bonds"), the term "Fixed Income Instruments" as used generally 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, 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 instrumentalities;
. obligations of foreign governments or their subdivisions,
agencies and instrumentalities; and
. obligations of international agencies or supranational
entities.
3 Pacific Investment Management Series
<PAGE>
Summary Information (continued)
Duration Duration is a measure of the expected life of a fixed income
security that is used to determine the sensitivity of a security's
price to changes in interest rates. The longer a security's
duration, the more sensitive it will be to changes in interest
rates. Similarly, a Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund
with a shorter average portfolio duration.
Credit In this Prospectus, references are made to credit ratings of debt
Ratings securities which measure an issuer's expected ability to pay
principal and interest on time. Credit ratings are determined by
rating organizations, such as Standard & Poor's Rating Service
("S&P") or Moody's Investors Services, Inc. ("Moody's"). The
following terms are generally used to describe the credit quality
of debt securities depending on the security's credit rating or,
if unrated, credit quality as determined by PIMCO:
. high quality
. investment grade
. below investment grade ("high yield securities" or "junk
bonds")
For a further description of credit ratings, see "Appendix A--
Description of Securities Ratings."
Fund
Descriptions,
Performance
and Fees
The Funds provide a range of investment choices. The following
summaries identify each Fund's investment objective, principal
investments and strategies, principal risks, performance
information and fees and expenses. A more detailed "Summary of
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 California Intermediate Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high Intermediate B to Aaa; maximum
and current income maturity 10% below Baa
Strategies exempt from municipal
federal and securities 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
Fund Category Duration
Tax Exempt Bond 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 assets in debt securities whose interest is, in the opinion of
bond counsel for the issuer at the time of issuance, exempt from
regular federal income tax and California income tax ("California
Municipal Bonds"). California Municipal Bonds generally are issued
by or on behalf of the State of California and its political
subdivisions, financing authorities and their agencies.
The Fund may invest without limit in "private activity" bonds
whose interest is a tax-preference item for purposes of the
federal alternative minimum tax ("AMT"). For shareholders subject
to the AMT, a substantial portion of the Fund's distributions may
not be exempt from federal income tax. The Fund may invest up to
20% of its net assets in other types of Fixed Income Instruments.
The average portfolio duration of this Fund normally varies within
a three- to seven-year time frame based on the PIMCO's forecast
for interest rates. The Fund will seek income that is high
relative to prevailing rates from Municipal Bonds. Capital
appreciation, if any, generally arises from decreases in interest
rates or improving credit fundamentals for a particular state,
municipality or issuer.
The Fund invests primarily in investment grade debt securities,
but may invest up to 10% of its assets in high yield securities
("junk bonds") rated B or higher by Moody's or S&P, or, if
unrated, determined by PIMCO to be of comparable quality.
The Fund may 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 Fund may invest in derivative
instruments, such as options, futures contracts or swap
agreements, or in mortgage- or asset-backed securities. The Fund
may lend its portfolio securities to brokers, dealers and other
financial institutions to earn income.
- --------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect its net asset value, yield and total return are:
. Interest Rate Risk . Issuer Risk . Mortgage Risk
. Credit Risk . 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.
5 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 Class A shares of the Fund:
of the
Fund
Shareholder fees (fees paid directly from your investment)
<TABLE>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price)
-----------------------------------------------------------
<S> <C>
Class A 3%
-----------------------------------------------------------
</TABLE>
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>
Class A 0.25% 0.25% 0.35% 0.85%
--------------------------------------------------------------
</TABLE>
(1) Other expenses reflect a 0.35% Administration Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Class A shares of the Fund with the costs of
investing in other mutual funds. The Examples assume that you
invest $10,000 in the noted class of shares for the time periods
indicated, your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the
Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, the Examples show what your costs
would be based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you do not
Example: Assuming you redeem shares at the end of each period redeem your shares
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $384 $563 $757 $1,318 $384 $563 $757 $1,318
--------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
6
<PAGE>
PIMCO California Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high B to Aaa; maximum
and current income Intermediate to 10% below Baa
Strategies exempt from long-term
federal and maturity Dividend Frequency
California income municipal Declared daily and
tax. Capital securities distributed monthly
appreciation is a (exempt from
secondary federal and
objective. California income
tax)
Fund Category
Tax Exempt Bond 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 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 the PIMCO's forecast
for interest rates. The Fund will seek income that is high
relative to prevailing rates from Municipal Bonds. Capital
appreciation, if any, generally arises from decreases in interest
rates or improving credit fundamentals for a particular state,
municipality or issuer.
The Fund invests primarily in investment grade debt securities,
but may invest up to 10% of its assets in high yield securities
("junk bonds") rated B or higher by Moody's or S&P, or, if
unrated, determined by PIMCO to be of comparable quality.
The Fund may 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 Fund may invest in derivative
instruments, such as options, futures contracts or swap
agreements, or in mortgage- or asset-backed securities. The Fund
may lend its portfolio securities to brokers, dealers and other
financial institutions to earn income.
- --------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect its net asset value, yield and total return are:
. Interest Rate Risk . Issuer Risk . Mortgage Risk
. Credit Risk . 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.
7 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 Class A shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price)
-----------------------------------------------------------
Class A 3%
-----------------------------------------------------------
</TABLE>
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>
Class A 0.25% 0.25% 0.35% 0.85%
--------------------------------------------------------------
</TABLE>
(1) Other expenses reflect a 0.35% Administration Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Class A shares of the Fund with the costs of
investing in other mutual funds. The Examples assume that you
invest $10,000 in the noted class of shares for the time periods
indicated, your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the
Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, the Examples show what your costs
would be based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you do not
Example: Assuming you redeem shares at the end of each period redeem your shares
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $384 $563 $757 $1,318 $384 $563 $757 $1,318
---------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
8
<PAGE>
PIMCO Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Fund Focus Credit Quality
Investments Objective Intermediate to Ba to Aaa; maximum
and Seeks high current long-term 10% below Baa
Strategies income exempt from maturity
federal income municipal
tax, consistent securities
with preservation (exempt from Dividend Frequency
of capital. federal income Declared daily and
Capital tax) distributed monthly
appreciation is a
secondary
objective.
Fund Category Average Portfolio
Tax Exempt Duration
Bond 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 Fund will seek income that is high relative to
prevailing rates from Municipal Bonds. 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 may purchase or write call and put options, futures and
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 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 Fund may lend
its portfolio securities to brokers, dealers and other financial
institutions to earn income.
- --------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund which could
Risks adversely affect its net asset value, yield and total return are:
. Interest Rate . Derivatives Risk . Management Risk
Risk . Mortgage Risk . California State
. Credit Risk . Leveraging Risk Specific Risk
. Market Risk . New York State
. Issuer Risk 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 Class A shares, but do not
reflect the impact of sales charges (loads). If they did, the
returns would be lower than those shown. Unlike the bar chart,
performance for Class A, B and C shares in the Average Annual
Total Returns table reflect the impact of sales charges. For
periods prior to the inception date of Class A, B and C shares
(4/1/98), performance information shown in the bar chart and table
for those classes is based on the performance of the Fund's
Institutional Class shares, which are offered in a different
prospectus. The prior Institutional Class performance has been
adjusted to reflect the actual sales charges (in the Average
Annual Total Returns table only), distribution and/or service
(12b-1) fees, administrative fees and other expenses paid by Class
A, B and C shares. Past performance is no guarantee of future
results.
9 Pacific Investment Management Series
<PAGE>
PIMCO Municipal Bond Fund (continued)
Calendar Year Total Returns -- Class A
[GRAPH] Highest and Lowest
Quarter Returns
Annual Return (for periods shown
in the bar chart)
98 99 --------------------
----- ------ Highest (7/1/98-
5.68% -4.05% 9/30/98) 3.23%
--------------------
Lowest (4/1/99-
6/30/99) -2.45%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
<TABLE>
<S> <C> <C>
Fund Inception
1 Year (12/31/97)
--------------------------------------------------------------------
Class A -6.93% -0.82%
--------------------------------------------------------------------
Class B -9.36% -1.94%
--------------------------------------------------------------------
Class C -5.44% 0.19%
--------------------------------------------------------------------
Lehman General Municipal Bond Index(/1/) -2.07% 2.12%
--------------------------------------------------------------------
Lipper General Municipal Fund Average(/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 7.68 years as
of 12/31/99. It is not possible to invest directly in the
index.
(2) The Lipper General Municipal Debt Fund Average is a total
return performance average of Funds tracked by Lipper
Analytical Services, Inc. that invest at least 65% of their
assets in municipal debt issues in the top four credit
ratings. It does not take into account sales charges.
- --------------------------------------------------------------------------------
Fees and These tables describe the fees and expenses you may pay if you buy
Expenses and hold Class A, B or C shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C> <C>
Maximum Sales Charge (Load) Imposed Maximum Contingent Deferred Sales Charge (Load)
on Purchases (as a percentage of offering price) (as a percentage of original purchase price)
------------------------------------------------------------------------------------------------------
Class A 3% 1%(/1/)
------------------------------------------------------------------------------------------------------
Class B None 5%(/2/)
------------------------------------------------------------------------------------------------------
Class C None 1%(/3/)
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Imposed only in certain circumstances where Class A shares are
purchased without a front-end sales charge at the time of
purchase.
(2) The maximum CDSC is imposed on shares redeemed in the first
year. For shares held longer than one year, the CDSC declines
according to the schedule set forth under "Investment Options
(Class A, B and C Shares--Contingent Deferred Sales Charges
(CDSCs))--Class B Shares."
(3) The CDSC on Class C shares is imposed only on shares redeemed
in the first year.
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
<TABLE>
<S> <C> <C> <C> <C>
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees(/1/) Expenses(/2/) Expenses
-----------------------------------------------------------------
A Shares 0.25% 0.25% 0.36 0.86%
-----------------------------------------------------------------
B Shares 0.25 1.00 0.36 1.61
-----------------------------------------------------------------
C Shares 0.25 0.75 0.35 1.35
-----------------------------------------------------------------
</TABLE>
(1) Due to the 12b-1 distribution fee imposed on Class B and
Class C shares, a Class B or Class C shareholder may,
depending upon the length of time the shares are held, pay
more than the economic equivalent of the maximum front-end
sales charges permitted by relevant rules of the National
Association of Securities Dealers, Inc.
(2) Other expenses reflect a 0.35% Administration Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Classes A, B or C of the Fund with the costs of
investing in other mutual funds. The Examples assume that you
invest $10,000 in the noted class of shares for the time periods
indicated, your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and the Fund's
operating expenses remain the same. Although your actual costs may
be higher or lower, the Examples show what your costs would be
based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you redeem shares Example: Assuming you do not redeem
at the end of each period your shares
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
----------------------------------------------------------------------------------
Class A $385 $566 $762 $ 1,329 $385 $566 $762 $1,329
----------------------------------------------------------------------------------
Class B 664 808 1,076 1,612 164 508 876 1,612
----------------------------------------------------------------------------------
Class C 237 428 739 1,624 137 428 739 1,624
----------------------------------------------------------------------------------
</TABLE>
Prospectus
10
<PAGE>
PIMCO New York Municipal Bond Fund
- --------------------------------------------------------------------------------
Principal Investment Objective Fund Focus Credit Quality
Investments Seeks high current B to Aaa; maximum
and income exempt from Intermediate to 10% below Baa
Strategies federal and New York long-term
income tax. Capital maturity Dividend Frequency
appreciation is a municipal Declared daily and
secondary objective. securities distributed monthly
(exempt from
Fund Category federal and New
Tax Exempt Bond York income 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 will invest under normal circumstances at least 65%
of its 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 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 Fund may invest in derivative
instruments, such as options, futures contracts or swap
agreements, or in mortgage- or asset-backed securities. The Fund
may lend its portfolio securities to brokers, dealers and other
financial institutions to earn income.
- --------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund which could
Risks adversely affect its net asset value, yield and total return are:
.Interest Rate Risk .Issuer Risk .Mortgage Risk
.Credit Risk .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.
Pacific Investment Management Series
11
<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 Class A shares of the Fund:
of the
Fund Shareholder fees (fees paid directly from your investment)
<TABLE>
<S> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price)
-----------------------------------------------------------
Class A 3%
-----------------------------------------------------------
</TABLE>
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>
Class A 0.25% 0.25% 0.35% 0.85%
--------------------------------------------------------------
</TABLE>
(1) Other expenses reflect a 0.35% Administration Fee paid by the
class.
Examples. The Examples are intended to help you compare the cost
of investing in Class A shares of the Fund with the costs of
investing in other mutual funds. The Examples assume that you
invest $10,000 in the noted class of shares for the time periods
indicated, your investment has a 5% return each year, the
reinvestment of all dividends and distributions, and that the
Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, the Examples show what your costs
would be based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you do not
Example: Assuming you redeem shares at the end of each period redeem your shares
Share Class Year 1 Year 3 Year 5 Year 10 Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A $384 $563 $757 $1,318 $384 $563 $757 $1,318
--------------------------------------------------------------------------------------------------------------
</TABLE>
Prospectus
12
<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.
Market The market price of securities owned by a Fund may go up or down,
Risk sometimes rapidly or unpredictably. Securities may decline in
value due to factors affecting securities markets generally or
particular industries represented in the securities markets. The
value of a security may decline due to general market conditions
which are not specifically related to a particular company, such
as real or perceived adverse economic conditions, changes in the
general outlook for corporate earnings, changes in interest or
currency rates or adverse investor sentiment generally. They may
also decline due to factors which affect a particular industry or
industries, such as labor shortages or increased production costs
and competitive conditions within an industry. Equity securities
generally have greater price volatility than fixed income
securities.
Issuer The value of a security may decline for a number of reasons which
Risk directly relate to the issuer, such as management performance,
financial leverage and reduced demand for the issuer's goods or
services.
Liquidity Liquidity risk exists when particular investments are difficult to
Risk purchase or sell. A Fund's investments in illiquid securities may
reduce the returns of the Fund because it may be unable to sell
the illiquid securities at an advantageous time or price. Funds
with principal investment strategies that involve derivatives or
securities with substantial market and/or credit risk tend to have
the greatest exposure to liquidity risk.
Derivatives 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 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.
13 Pacific Investment Management Series
<PAGE>
Mortgage A Fund that purchases mortgage-related securities is subject to
Risk certain additional risks. Rising interest rates tend to extend the
duration of mortgage-related securities, making them more
sensitive to changes in interest rates. As a result, in a period
of rising interest rates, a Fund that holds mortgage-related
securities are subject to prepayment risk. When interest rates
decline, borrowers may pay off their mortgages sooner than
expected. This can reduce the returns of a Fund because the Fund
will have to reinvest that money at the lower prevailing interest
rates.
Focusing investments in a small number of issuers, industries or
foreign currencies increases risk. Funds that are "non-
diversified" may invest a greater percentage of its assets in the
securities of a single issuer (such as bonds issued by a
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 a similar state.
Issuer
Non-
Diversification
Risk
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.
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, it does
have major concentrations in high technology, aerospace and
defense-related manufacturing, trade, entertainment, real estate
and financial services, and may be sensitive to economic problems
affecting those industries. Future California political and
economic developments, constitutional amendments, legislative
measures, executive orders, administrative regulations, litigation
and voter initiatives could have an adverse effect on the debt
obligations of California issuers.
New York 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
recent years. A reoccurrence of these difficulties may impair the
ability of certain New York issuers to pay principal or interest
on their obligations. The financial health of New York City
affects that of the State, and when New York City experiences
financial difficulty it may have an adverse affect on New York
municipal bonds held by the Fund. The growth rate of New York has
recently been somewhat slower than the nation overall. The
economic and financial condition of New York also may be affected
by various financial, social, economic and political factors.
Prospectus 14
<PAGE>
Management of the Funds
Investment PIMCO serves as the investment adviser and the administrator
Adviser (serving in its capacity as administrator, the "Administrator")
and for the Funds. Subject to the supervision of the Board of
Adminis- Trustees, PIMCO is responsible for managing the investment
trator activities of the Funds and the Funds' business affairs and other
administrative matters.
PIMCO is located at 840 Newport Center Drive, Newport Beach,
California 92660. Organized in 1971, PIMCO provides investment
management and advisory services to private accounts of
institutional and individual clients and to mutual funds. As of
December 31, 1999, PIMCO had approximately $186 billion in assets
under management.
Advisory Each Fund pays PIMCO fees in return for providing investment
Fees advisory services. The California Intermediate Municipal Bond,
California Municipal Bond and New York Municipal Bond Funds were
not operational during the fiscal year ended March 31, 1999. The
investment advisory fees are set at the annual rate (stated as a
percentage of the average daily net assets of each Fund) of 0.25%.
Adminis- Each Fund pays for the administrative services it requires under a
trative fee structure which is essentially fixed. Class A, Class B and
Fees Class C shareholders of a Fund pay an administrative fee to PIMCO,
computed as a percentage of the Fund's assets attributable in the
aggregate to that class of shares. PIMCO, in turn, provides or
procures administrative services for Class A, Class B and Class C
shareholders and also bears the costs of various third-party
services required by the Funds, including audit, custodial,
portfolio accounting, legal transfer agency and printing costs.
The result of this fee structure is an expense level for Class A,
Class B and Class C shareholders of each Fund that, with limited
exceptions, is precise and predictable under ordinary
circumstances.
The California Intermediate Municipal Bond, California Municipal
Bond and New York Municipal Bond Funds were not operational during
the fiscal year ended March 31, 1999. The administrative fees for
each Fund are set at the annual rates (stated as a percentage of
the average daily net assets attributable in the aggregate to a
Fund's Class A, Class B, and Class C shares) of 0.35%.
Individual
Portfolio The following individual has primary responsibility for managing
Manager each of the Funds.
<TABLE>
<CAPTION>
Portfolio
Manager Since Recent Professional Experience
---------------------------------------------------------------------------------------------------------------
<C> <C> <S>
Mark V. McCray 4/00* Senior Vice-President, PIMCO. He joined PIMCO as a Portfolio Manager in
2000. Prior to that, he was a bond trader from 1992-1999 at Goldman Sachs
& Co. where he was appointed 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.
</TABLE>
* The California Municipal Bond Fund began operations in May 2000.
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.
15 Pacific Investment Management Series
<PAGE>
Investment Options--Class A, B and C Shares
The Trust offers investors Class A, Class B and Class C shares of
the Municipal Bond Fund and Class A shares of the California
Intermediate Municipal Bond, California Municipal Bond, and New
York Municipal Bond Funds in this Prospectus. Each class of shares
is subject to different types and levels of sales charges than the
other classes and bears a different level of expenses.
The class of shares that is best for you depends upon a number of
factors, including the amount and the intended length of your
investment. The following summarizes key information about each
class to help you make your investment decision, including the
various expenses associated with each class. More extensive
information about the Trust's multi-class arrangements is included
in the PIMCO Funds Shareholders Guide for Class A, B and C Shares
(the "Guide"), which is included as part of the Statement of
Additional Information and can be obtained free of charge from the
Distributor. See "How to Buy and Sell Shares--PIMCO Funds
Shareholders Guide" below.
Class A . You pay an initial sales charge when you buy Class A shares of
Shares any Fund. The maximum initial sales charge is 3.00% for each of
the Funds. The sales charge is deducted from your investment so
that not all of your purchase payment is invested.
. You may be eligible for a reduction or a complete waiver of the
initial sales charge under a number of circumstances. For
example, you normally pay no sales charge if you purchase
$1,000,000 or more of Class A shares. Please see the Guide for
details.
. Class A shares are subject to lower 12b-1 fees than Class B or
Class C shares. Therefore, Class A shareholders generally pay
lower annual expenses and receive higher dividends than Class B
or Class C shareholders.
. You normally pay no contingent deferred sales charge ("CDSC")
when you redeem Class A shares of the Municipal Bond Fund,
although you may pay a 1% CDSC if you purchase $1,000,000 or
more of Class A shares (and therefore pay no initial sales
charge) and then redeem the shares during the first 18 months
after your initial purchase. The Class A CDSC is waived for
certain categories of investors and does not apply if you are
otherwise eligible to purchase Class A shares without a sales
charge. Please see the Guide for details.
Class B . You do not pay an initial sales charge when you buy Class B
Shares shares. The full amount of your purchase payment is invested
initially.
. You normally pay a CDSC of up to 5% if you redeem Class B
shares during the first six years after your initial purchase.
The amount of the CDSC declines the longer you hold your Class
B shares. You pay no CDSC if you redeem during the seventh year
and thereafter. The Class B CDSC is waived for certain
categories of investors. Please see the Guide for details.
. Class B shares are subject to higher 12b-1 fees than Class A
shares for the first seven years they are held. During this
time, Class B shareholders normally pay higher annual expenses
and receive lower dividends than Class A shareholders.
. Class B shares automatically convert into Class A shares after
they have been held for seven years. After the conversion takes
place, the shares are subject to the lower 12b-1 fees paid by
Class A shares.
Class C . You do not pay an initial sales charge when you buy Class C
Shares shares. The full amount of your purchase payment is invested
initially.
. You normally pay a CDSC of 1% if you redeem Class C shares
during the first year after your initial purchase. The Class C
CDSC is waived for certain categories of investors. Please see
the Guide for details.
. Class C shares are subject to higher 12b-1 fees than Class A
shares. Therefore, Class C shareholders normally pay higher
annual expenses and receive lower dividends than Class A
shareholders.
. Class C shares do not convert into any other class of shares.
Because Class B shares convert into Class A shares after seven
years, Class C shares will normally be subject to higher
expenses and will pay lower dividends than Class B shares if
the shares are held for more than seven years.
Prospectus
16
<PAGE>
The following provides additional information about the sales
charges and other expenses associated with Class A, Class B and
Class C shares.
- --------------------------------------------------------------------------------
Initial Unless you are eligible for a waiver, the public offering price
Sales you pay when you buy Class A shares of the Funds is the net asset
Charges-- value ("NAV") of the shares plus an initial sales charge. The
Class A initial sales charge varies depending upon the size of your
Shares purchase, as set forth below. No sales charge is imposed where
Class A shares are issued to you pursuant to the automatic
reinvestment of income dividends or capital gains distributions.
- --------------------------------------------------------------------------------
Municipal
Bond Fund
<TABLE>
<S> <C> <C>
Initial Sales Charge Initial Sales Charge
Amount of as % of Net as % of Public
Purchase Amount Invested Offering Price
----------------------------------------------------------------------
$0-$49,999 3.09% 3.00%
----------------------------------------------------------------------
$50,000-$99,999 2.56% 2.50%
----------------------------------------------------------------------
$100,000-$249,999 2.04% 2.00%
----------------------------------------------------------------------
$250,000-$499,999 1.52% 1.50%
----------------------------------------------------------------------
$500,000-$999,999 1.27% 1.25%
----------------------------------------------------------------------
$1,000,000 + 0.00%* 0.00%*
----------------------------------------------------------------------
*As shown, investors that purchase $1,000,000 or more of any
Fund's Class A shares will not pay any initial sales charge on the
purchase. However, purchasers of $1,000,000 or more of Class A
shares may be subject to a CDSC of 1% if the shares are redeemed
during the first 18 months after their purchase. See "CDSCs on
Class A Shares" below.
- -------------------------------------------------------------------------------
California
Intermediate
Municipal
Bond,
California
Municipal
Bond, and
New York
Municipal
Bond
Funds
Initial Sales Charge Initial Sales Charge
Amount of as % of Net as % of Public
Purchase Amount Invested Offering Price
----------------------------------------------------------------------
$0-$49,999 3.09% 3.00%
----------------------------------------------------------------------
$50,000-$99,999 2.04% 2.00%
----------------------------------------------------------------------
$100,000-$249,999 2.01% 1.00%
----------------------------------------------------------------------
$250,000-$499,999 0.00% 0.00%
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
Contingent Unless you are eligible for a waiver, if you sell (redeem) your
Deferred Class B or Class C shares of the Municipal Bond Fund within the
Sales time periods specified below, you will pay a CDSC according to the
Charges following schedules.
(CDSCs)--
Class B
and Class
C Shares
- -------------------------------------------------------------------------------
Class B
Shares Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
----------------------------------------------------------------------
First 5
----------------------------------------------------------------------
Second 4
----------------------------------------------------------------------
Third 3
----------------------------------------------------------------------
Fourth 3
----------------------------------------------------------------------
Fifth 2
----------------------------------------------------------------------
Sixth 1
----------------------------------------------------------------------
Seventh 0*
----------------------------------------------------------------------
*After the seventh year, Class B shares convert into Class A
shares.
- -------------------------------------------------------------------------------
Class C
Shares Years Since Purchase Percentage Contingent
Payment was Made Deferred Sales Charge
----------------------------------------------------------------------
First 1
----------------------------------------------------------------------
Thereafter 0
----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
CDSCs on
Class A
Shares
Unless a waiver applies, investors who purchase $1,000,000 or more
of Class A shares of the Municipal Bond Fund (and, thus, pay no
initial sales charge) will be subject to a 1% CDSC if the shares
are redeemed within 18 months of their purchase. The Class A CDSC
does not apply if you are otherwise eligible to purchase Class A
shares without an initial sales charge or are eligible for a
waiver of the CDSC. See "Reductions and Waivers of Initial Sales
Charges and CDSCs" below.
Pacific Investment Management Series
17
<PAGE>
- --------------------------------------------------------------------------------
How CDSCs A CDSC is imposed on redemptions of Class B and Class C shares of
are the Municipal Bond Fund (and where applicable, Class A shares) on
Calculated the amount of the redemption which causes the current value of
your account for the particular class of shares of a Fund to fall
below the total dollar amount of your purchase payments subject to
the CDSC. However, no CDSC is imposed if the shares redeemed have
been acquired through the reinvestment of dividends or capital
gains distributions or if the amount redeemed is derived from
increases in the value of your account above the amount of the
purchase payments subject to the CDSC. CDSCs are deducted from the
proceeds of your redemption, not from amounts remaining in your
account. In determining whether a CDSC is payable, it is assumed
that the purchase payment from which the redemption is made is the
earliest purchase payment for the particular class of shares in
your account (from which a redemption or exchange has not already
been effected).
For instance, the following example illustrates the operation of
the Class B CDSC:
. Assume that an individual opens an account and makes a
purchase payment of $10,000 for Class B shares of a Fund and
that six months later the value of the investor's account for
that Fund has grown through investment performance and
reinvestment of distributions to $11,000. The investor then
may redeem up to $1,000 from that Fund ($11,000 minus
$10,000) without incurring a CDSC. If the investor should
redeem $3,000, a CDSC would be imposed on $2,000 of the
redemption (the amount by which the investor's account for
the Fund was reduced below the amount of the purchase
payment). At the rate of 5%, the Class B CDSC would be $100.
In determining whether an amount is available for redemption
without incurring a CDSC, the purchase payments made for all
shares of a particular class of a Fund in the shareholder's
account are aggregated, and the current value of all such shares
is aggregated.
- --------------------------------------------------------------------------------
Reductions The initial sales charges on Class A shares and the CDSCs on Class
and A, Class B and Class C shares may be reduced or waived under
Waivers certain purchase arrangements and for certain categories of
of investors. Please see the Guide for details. The Guide is
Initial available free of charge from the Distributor. See "How to Buy and
Sales Sell Shares--PIMCO Funds Shareholders Guide" below.
Charges
and CDSCs
- --------------------------------------------------------------------------------
Distri- The Funds pay fees to the Distributor on an ongoing basis as
bution compensation for the services the Distributor renders and the
and expenses it bears in connection with the sale and distribution of
Servicing Fund shares ("distribution fees") and/or in connection with
(12b-1) personal services rendered to Fund shareholders and the
Plans maintenance of shareholder accounts ("servicing fees"). These
payments are made pursuant to Distribution and Servicing Plans
("12b-1 Plans") adopted by each Fund pursuant to Rule 12b-1 under
the Investment Company Act of 1940.
There is a separate 12b-1 Plan for each class of shares offered
in this Prospectus. Class A shares pay only servicing fees. Class
B and Class C shares pay both distribution and servicing fees. The
following lists the maximum annual rates at which the distribution
and/or servicing fees may be paid under each 12b-1 Plan
(calculated as a percentage of each Fund's average daily net
assets attributable to the particular class of shares):
<TABLE>
<S> <C> <C>
Servicing Distribution
Class A Fee Fee
----------------------------------------------------------------------------------
All Funds 0.25% 0.00%
----------------------------------------------------------------------------------
Class B
----------------------------------------------------------------------------------
Municipal Bond Fund 0.25% 0.75%
----------------------------------------------------------------------------------
Class C
----------------------------------------------------------------------------------
Municipal Bond Fund 0.25% 0.50%
----------------------------------------------------------------------------------
</TABLE>
Because 12b-1 fees are paid out of a Fund's assets on an ongoing
basis, over time these fees will increase the cost of your
investment and may cost you more than sales charges which are
deducted at the time of investment. Therefore, although Class B
and Class C shares do not pay initial sales charges, the
distribution fees payable on Class B and Class C shares may, over
time, cost you more than the initial sales charge imposed on Class
A shares. Also, because Class B shares convert into Class A shares
after they have been held for seven years and are not subject to
distribution fees after the conversion, an investment in Class C
shares may cost you more over time than an investment in Class B
shares.
Prospectus
18
<PAGE>
How Fund Shares Are Priced
The net asset value ("NAV") of a Fund's Class A, Class B and Class
C shares is determined by dividing the total value of a Fund's
portfolio investments and other assets attributable to that class,
less any liabilities, by the total number of shares outstanding of
that class.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are available are stated at market
value. Market value is generally determined on the basis of last
reported sales prices, or if no sales are reported, based on
quotes obtained from a quotation reporting system, established
market makers, or pricing services. Certain securities or
investments for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the
Board of Trustees, with reference to other securities or indices.
Short-term investments having a maturity of 60 days or less are
generally valued at amortized cost. Exchange traded options,
futures and options on futures are valued at the settlement price
determined by the exchange. Other securities for which market
quotes are not readily available are valued at fair value as
determined in good faith by the Board of Trustees or persons
acting at their direction.
Fund shares are valued at the close of regular trading (normally
4:00 p.m., Eastern time) (the "NYSE Close") on each day that the
New York Stock Exchange is open. For purposes of calculating the
NAV, the Funds normally use pricing data for domestic equity
securities received shortly after the NYSE Close and do not
normally take into account trading, clearances or settlements that
take place after the NYSE Close. Domestic fixed income and foreign
securities are normally priced using data reflecting the earlier
closing of the principal markets for those securities. Information
that becomes known to the Funds or its agents after the NAV has
been calculated on a particular day will not generally be used to
retroactively adjust the price of a security or the NAV determined
earlier that day.
In unusual circumstances, instead of valuing securities in the
usual manner, the Funds may value securities at fair value or
estimate their value as determined in good faith by the Board of
Trustees, generally based upon recommendations provided by PIMCO.
Fair valuation may also be used if extraordinary events occur
after the close of the relevant market but prior to the NYSE
Close.
How to Buy and Sell Shares
The following section provides basic information about how to buy,
sell (redeem) and exchange shares of the Funds.
PIMCO More detailed information about the Trust's purchase, sale and
Funds exchange arrangements for Fund shares is provided in the PIMCO
Share- Shareholders Guide, which is included in the Statement of
holders Additional Information and can be obtained free of charge from the
Funds Distributor by written request or by calling 1-800-426-0107. The
Guide Guide provides technical information about the basic arrangements
described below and also describes special purchase, sale and
exchange features and programs offered by the Trust, including:
. Automated telephone and wire transfer procedures
. Automatic purchase, exchange and withdrawal programs
. Programs that establish a link from your Fund account to your
bank account
. Special arrangements for tax-qualified retirement plans
. Investment programs which allow you to reduce or eliminate
the initial sales charges on Class A shares
Calculation When you buy shares of the Funds, you pay a price equal to the NAV
of Share of the shares, plus any applicable sales charge. When you sell
Price and (redeem) shares, you receive an amount equal to the NAV of the
Redemption shares, minus any applicable CDSC. NAVs are determined at the
Payments close of regular trading (normally, 4:00 p.m. Eastern time) on
each day the New York Stock Exchange is open. See "How Fund Shares
Are Priced" above for details. Generally, purchase and redemption
orders for Fund shares are processed at the NAV next calculated
after your order is received by the Distributor. There are certain
exceptions where an order is received by a broker or dealer prior
to the close of regular trading on the New York Stock Exchange and
then transmitted to the Distributor after the NAV has been
calculated for that day (in which case the order may be processed
according to that day's NAV). Please see the Guide for details.
The Trust does not calculate NAVs or process orders on days when
the New York Stock Exchange is closed. If your purchase or
redemption order is received by the Distributor on a day when the
New York Stock Exchange is closed, it will be processed on the
next succeeding day when the New York Stock Exchange is open
(according to the succeeding day's NAV).
Pacific Investment Management Series
19
<PAGE>
Buying You can buy Class A, Class B or Class C shares of the Funds in the
Shares following ways:
. Through your broker, dealer or other financial intermediary.
Your broker, dealer or other intermediary may establish
higher minimum investment requirements than the Trust and may
also independently charge you transaction fees and additional
amounts (which may vary) in return for its services, which
will reduce your return. Shares you purchase through your
broker, dealer or other intermediary will normally be held in
your account with that firm.
. Directly from the Trust. To make direct investments, you must
open an account with the Distributor and send payment for
your shares either by mail or through a variety of other
purchase options and plans offered by the Trust.
If you wish to invest directly by mail, please send a check
payable to PIMCO Funds Distributors LLC, along with a completed
application form to:
PIMCO Funds Distributors LLC
P.O. Box 9688
Providence, RI 02940-0926
The Trust accepts all purchases by mail subject to collection of
checks at full value and conversion into federal funds. You may
make subsequent purchases by mailing a check to the address above
with a letter describing the investment or with the additional
investment portion of a confirmation statement. Checks for
subsequent purchases should be payable to PIMCO Funds Distributors
LLC and should clearly indicate your account number. Please call
the Distributor at 1-800-426-0107 if you have any questions
regarding purchases by mail.
The Guide describes a number of additional ways you can make
direct investments, including through the PIMCO Funds Auto-Invest
and PIMCO Funds Fund Link programs. You can obtain a Guide free of
charge from the Distributor by written request or by calling 1-
800-426-0107. See "PIMCO Funds Shareholders Guide" above.
The Distributor, in its sole discretion, may accept or reject any
order for purchase of Fund shares. No share certificates will be
issued unless specifically requested in writing.
Investment Minimums. The following investment minimums apply for
purchases of Class A, Class B and Class C shares.
<TABLE>
<CAPTION>
Initial Investment Subsequent Investments
------------------ ----------------------
<S> <C>
$2,500 per Fund $100 per Fund
</TABLE>
Lower minimums may apply for certain categories of investors,
including certain tax-qualified retirement plans, and for special
investment programs and plans offered by the Trust, such as the
PIMCO Funds Auto-Invest and PIMCO Funds Fund Link programs. Please
see the Guide for details.
Small Because of the disproportionately high costs of servicing accounts
Account with low balances, if you have a direct account with the
Fee Distributor, you will be charged a fee at the annual rate of $16
if your account balance for any Fund falls below a minimum level
of $2,500. However, you will not be charged this fee if the
aggregate value of all of your PIMCO Funds accounts is at least
$50,000. Any applicable small account fee will be deducted
automatically from your below-minimum Fund account in quarterly
installments and paid to the Administrator. Each Fund account will
normally be valued, and any deduction taken, during the last five
business days of each calendar quarter. Lower minimum balance
requirements and waivers of the small account fee apply for
certain categories of investors. Please see the Guide for details.
Minimum Due to the relatively high cost to the Funds of maintaining small
Account accounts, you are asked to maintain an account balance in each
Size Fund in which you invest of at least the minimum investment
necessary to open the particular type of account. If your balance
for any Fund remains below the minimum for three months or longer,
the Administrator has the right (except in the case of employer-
sponsored retirement accounts) to redeem your remaining shares and
close that Fund account after giving you 60 days to increase your
balance. Your Fund account will not be liquidated if the reduction
in size is due solely to a decline in market value of your Fund
shares or if the aggregate value of all your PIMCO Funds accounts
exceeds $50,000.
Exchanging You may exchange your Class A, Class B or Class C shares of any
Shares Fund for the same Class of shares of any other Fund or of a series
of PIMCO Funds: Pacific Investment Management Series or PIMCO
Funds: Multi-Manager Series. Shares are exchanged on the basis of
their respective NAVs next
Prospectus
20
<PAGE>
calculated after your exchange order is received by the
Distributor. Currently, the Trust does not charge any exchange
fees or charges. Exchanges are subject to the $2,500 minimum
initial purchase requirements for each Fund, except with respect
to tax-qualified programs and exchanges effected through the PIMCO
Funds Auto-Exchange plan. If you maintain your account with the
Distributor, you may exchange shares by completing a written
exchange request and sending it to PIMCO Funds Distributors LLC,
P.O. Box 9688, Providence, RI 02940-0926. You can get an exchange
form by calling the Distributor at 1-800-426-0107.
The Trust reserves the right to refuse exchange purchase if, in
the judgment of PIMCO, the purchase would adversely affect a Fund
and its shareholders. In particular, a pattern of exchanges
characteristic of "market-timing" strategies may be deemed by
PIMCO to be detrimental to the Trust or a particular Fund.
Currently, the Trust limits the number of "round trip" exchanges
an investor may make. An investor makes a "round trip" exchange
when the investor purchases shares of a particular Fund,
subsequently exchanges those shares for shares of a different
PIMCO Fund and then exchanges back into the originally purchased
Fund. The Trust has the right to refuse any exchange for any
investor who completes (by making the exchange back into the
shares of the originally purchased Fund) more than six round trip
exchanges in any twelve-month period. Although the Trust has no
current intention of terminating or modifying the exchange
privilege other than as set forth in the preceding sentence, it
reserves the right to do so at any time. Except as otherwise
permitted by the Securities and Exchange Commission, the Trust
will give you 60 days' advance notice if it exercises its right to
terminate or materially modify the exchange privilege. The Guide
provides more detailed information about the exchange privilege,
including the procedures you must follow and additional exchange
options. You can obtain a Guide free of charge from the
Distributor by written request or by calling 1-800-426-0107. See
"PIMCO Funds Shareholders' Guide" above.
Selling You can sell (redeem) Class A, Class B or Class C shares of the
Shares Funds in the following ways:
. Through your broker, dealer or other financial intermediary.
Your broker, dealer or other intermediary may independently
charge you transaction fees and additional amounts in return for
its services, which will reduce your return.
. Directly from the Trust by Written Request. To redeem shares
directly from the Trust by written request (whether or not the
shares are represented by certificates), you must send the
following items to the Trust's Transfer Agent, PFPC Inc., P.O. Box
9688, Providence, RI 02940-9688:
(1) a written request for redemption signed by all registered
owners exactly as the account is registered on the Transfer
Agent's records, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of
shares to be redeemed;
(2) for certain redemptions described below, a guarantee of all
signatures on the written request or on the share certificate or
accompanying stock power, if required, as described under
"Signature Guarantee" below;
(3) any share certificates issued for any of the shares to be
redeemed (see "Certificated Shares" below); and
(4) any additional documents which may be required by the
Transfer Agent for redemption by corporations, partnerships or
other organizations, executors, administrators, trustees,
custodians or guardians, or if the redemption is requested by
anyone other than the shareholder(s) of record. Transfers of
shares are subject to the same requirements.
A signature guarantee is not required for redemptions, requested
by and payable to all shareholders of record for the account, and
to be sent to the address of record for that account. To avoid
delay in redemption or transfer, if you have any questions about
these requirements you should contact the Transfer Agent in
writing or call 1-800-426-0107 before submitting a request.
Written redemption or transfer requests will not be honored until
all required documents in the proper form have been received by
the Transfer Agent. You cannot redeem your shares by written
request if they are held in broker "street name" accounts--you
must redeem through your broker.
If the proceeds of your redemption (i) are to be paid to a person
other than the record owner, (ii) are to be sent to an address
other than the address of the account on the Transfer Agent's
records, and/or (iii) are to be paid to a corporation,
partnership, trust or fiduciary, the signature(s) on the
redemption request and on the certificates, if any, or stock power
must be guaranteed as described under "Signature Guarantee" below.
The Distributor may, however, waive the signature guarantee
21 Pacific Investment Management Series
<PAGE>
requirement for redemptions up to $2,500 by a trustee of a
qualified retirement plan, the administrator for which has an
agreement with the Distributor.
The Guide describes a number of additional ways you can redeem
your shares, including:
. Telephone requests to the Transfer Agent
. PIMCO Funds Automated Telephone System (ATS)
. Expedited wire transfers
. Automatic Withdrawal Plan
. PIMCO Funds Fund Link
Unless you specifically elect otherwise, your initial account
application permits you to redeem shares by telephone subject to
certain requirements. To be eligible for ATS, expedited wire
transfer, Automatic Withdrawal Plan, and Fund Link privileges, you
must specifically elect the particular option on your account
application and satisfy certain other requirements. The Guide
describes each of these options and provides additional
information about selling shares. You can obtain an Guide free of
charge from the Distributor by written request or by calling 1-
800-426-0107.
Other than an applicable CDSC, you will not pay any special fees
or charges to the Trust or the Distributor when you sell your
shares. However, if you sell your shares through your broker,
dealer or other financial intermediary, that firm may charge you a
commission or other fee for processing your redemption request.
Redemptions of Fund shares may be suspended when trading on the
New York Stock Exchange is restricted or during an emergency which
makes it impracticable for the Funds to dispose of their
securities or to determine fairly the value of their net assets,
or during any other period as permitted by the Securities and
Exchange Commission for the protection of investors. Under these
and other unusual circumstances, the Trust may suspend redemptions
or postpone payment for more than seven days, as permitted by law.
Timing of Redemption proceeds will normally be mailed to the redeeming
Redemption shareholder within seven calendar days or, in the case of wire
Payments transfer or Fund Link redemptions, sent to the designated bank
account within one business day. Fund Link redemptions may be
received by the bank on the second or third business day. In cases
where shares have recently been purchased by personal check,
redemption proceeds may be withheld until the check has been
collected, which may take up to 15 days. To avoid such
withholding, investors should purchase shares by certified or bank
check or by wire transfer.
Redemptions The Trust will redeem shares of each Fund solely in cash up to the
In Kind lesser of $250,000 or 1% of the Fund's net assets during any 90-
day period for any one shareholder. In consideration of the best
interests of the remaining shareholders, the Trust may pay any
redemption proceeds exceeding this amount in whole or in part by a
distribution in kind of securities held by a Fund in lieu of cash.
It is highly unlikely that your shares would ever be redeemed in
kind. If your shares are redeemed in kind, you should expect to
incur transaction costs upon the disposition of the securities
received in the distribution.
CertificatedIf you are redeeming shares for which certificates have been
Shares issued, the certificates must be mailed to or deposited with the
Trust, duly endorsed or accompanied by a duly endorsed stock power
or by a written request for redemption. Signatures must be
guaranteed as described under "Signature Guarantee" below. The
Trust may request further documentation from institutions or
fiduciary accounts, such as corporations, custodians (e.g., under
the Uniform Gifts to Minors Act), executors, administrators,
trustees or guardians. Your redemption request and stock power
must be signed exactly as the account is registered, including
indication of any special capacity of the registered owner.
Signature When a signature guarantee is called for, you should have
Guarantee "Signature Guaranteed" stamped under your signature and guaranteed
by any of the following entities: U.S. banks, foreign banks having
a U.S. correspondent bank, credit unions, savings associations,
U.S. registered dealers and brokers, municipal securities dealers
and brokers, government securities dealers and brokers, national
securities exchanges, registered securities associations and
clearing agencies (each an "Eligible Guarantor Institution"). The
Distributor reserves the right to reject any signature guarantee
pursuant to its written signature guarantee standards or
procedures, which may be revised in the future to permit it to
reject signature guarantees from Eligible Guarantor Institutions
that do not, based on credit guidelines, satisfy such written
standards or procedures. The Trust may change the signature
guarantee requirements from time to time upon notice to
shareholders, which may be given by means of a new or supplemented
Prospectus.
Prospectus
22
<PAGE>
Fund Distributions
Each Fund distributes substantially all of its net investment
income to shareholders in the form of dividends. You begin earning
dividends on Fund shares the day after the Trust receives your
purchase payment. Dividends paid by each Fund with respect to each
class of shares are calculated in the same manner and at the same
time, but dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares as a result of the
distribution fees applicable to Class B and Class C shares. The
Funds intend to declare daily and distribute dividends monthly to
shareholders of record.
In addition, each Fund distributes any net capital gains it earns
from the sale of portfolio securities to shareholders no less
frequently than annually. Net short-term capital gains may be paid
more frequently.
You can choose from the following distribution options:
. Reinvest all distributions in additional shares of the same
class of your Fund at NAV. This will be done unless you elect
another option.
. Invest all distributions in shares of the same class of any
other Fund or another series of PIMCO Funds: Pacific
Investment Management Series or PIMCO Funds: Multi-Manager
Series which offers that class at NAV. You must have an
account existing in the Fund or series selected for investment
with the identical registered name. You must elect this option
on your account application or by a telephone request to the
Transfer Agent at 1-800-426-0107.
. Receive all distributions in cash (either paid directly to you
or credited to your account with your broker or other
financial intermediary. You must elect this option on your
account application or by a telephone request to the Transfer
Agent at 1-800-426-0107.
You do not pay any sales charges on shares you receive through
the reinvestment of Fund distributions.
If you elect to receive Fund distributions in cash and the postal
or other delivery service is unable to deliver checks to your
address of record, the Trust's Transfer Agent will hold the
returned check for your benefit in a non-interest bearing account.
Tax Consequences
The following Information is meant as a general summary for U.S.
taxpayers. Please see the SAI for additional information. You
should rely on your own tax adviser for advice about the
particular federal, state and local tax consequences to you of
investing in each Fund.
Each Fund will distribute substantially all of its income and
gains to its shareholders every year, and shareholders will be
taxed on distributions they receive unless the distribution is
derived from tax-exempt income and is designated as an "exempt-
interest dividend." If a Fund declares a dividend in October,
November or December but pays it in January, you may be taxed on
the dividend as if you received it in the previous year.
.Dividends paid to shareholders of each Fund and derived from
Municipal Bond interest are expected to be designated by each Fund
as "exempt-interest dividends" and shareholders may generally
exclude such dividends from gross income for federal income tax
purposes. The federal tax exemption for "exempt-interest
dividends" from Municipal Bonds does not necessarily result in the
exemption of such dividends from state and local taxes although
the California Intermediate Municipal Bond Fund, 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 Fund
may invest a portion of its assets in securities that generate
income that is not exempt from federal or state income tax.
Dividends derived from taxable interest or capital gains will be
subject to federal income tax. If a Fund invests in "private
activity bonds," certain shareholders may become subject to
alternative minimum tax on the part of the Fund's distributions
derived from interest on such bonds.
. If you are subject to U.S. federal income tax, you will be
subject to tax on Fund distributions derived from taxable interest
or capital gains whether you received them in cash or reinvested
them in additional shares of the Funds. For federal income tax
purposes, Fund distributions that are taxable will be taxable to
you as either ordinary income or capital gains. Ordinary taxable
Fund dividends (i.e., distributions of investment income) are
taxable to you as ordinary income. If the Fund designates a
dividend as a capital gain distribution, you will pay tax on that
dividend at the long-term capital gains
Pacific Investment Management Series
23
<PAGE>
tax rate, no matter how long you have held your Fund shares.
Distributions of gains from investments that the Fund owned for 12
months or less will generally be taxable to you as ordinary
income.
Taxable Fund distributions are taxable to you even if they are
paid from income or gains earned by a Fund prior to your
investment and thus were included in the price you paid for your
shares. For example, if you purchase shares on or just before the
record date of a Fund distribution, you will pay full price for
the shares and may receive a portion of your investment back as a
taxable distribution.
You will generally have a taxable capital gain or loss if you
dispose of your Fund shares by redemption, exchange or sale. The
amount of the gain or loss and the rate of tax will depend
primarily upon how much you pay for the shares, how much you sell
them for, and how long you hold them. When you exchange shares of
a Fund for shares of another series, the transaction will be
treated as a sale of the Fund shares for these purposes, and any
gain on those shares will generally be subject to federal income
tax. The Fund will send you a tax report each year. The report
will tell you which dividends and redemptions must be treated as
taxable ordinary income and which are short-term or long-term
capital gains.
The Funds seek to produce income that is generally exempt from
U.S. income tax and will not benefit investors in tax-sheltered
retirement plans or individuals not subject to U.S. income tax.
Further, the California Intermediate Municipal Bond, California
Municipal Bond, and New York Municipal Bond Funds seek to produce
income that is generally exempt from the relevant state's income
tax and will not benefit individuals that are not subject to that
state's income tax.
This section relates only to federal income tax; the consequences
under other tax laws may differ. Shareholders should consult their
tax advisers as to the possible application of foreign, state and
local income tax laws to Fund dividends and capital distributions.
Please see the Statement of Additional Information for additional
information regarding the tax aspects of investing in the Funds.
Characteristics and Risks of Securities and Investment Techniques
This section provides additional information about some of the
principal investments and related risks of the Funds described
under "Summary Information" above. It also describes
characteristics and risks of additional securities and investment
techniques that may be used by the Funds from time to time. Most
of these securities and investment techniques are discretionary,
which means that PIMCO can decide whether to use them or not. This
Prospectus does not attempt to disclose all of the various types
of securities and investment techniques that may be used by the
Funds. As with any mutual fund, investors in the Funds rely on the
professional investment judgment and skill of PIMCO and the
individual portfolio managers. Please see "Investment Objectives
and Policies" in the Statement of Additional Information for more
detailed information about the securities and investment
techniques described in this section and about other strategies
and techniques that may be used by the Funds.
Securities In selecting securities for a Fund, PIMCO develops an outlook for
Selection interest rates and the economy; analyzes credit and call risks,
and uses other security selection techniques. The proportion of a
Fund's assets committed to investment in securities with
particular characteristics (such as quality, sector, interest rate
or maturity) varies based on PIMCO's outlook for the U.S. economy,
the financial markets and other factors.
PIMCO attempts to identify areas of the bond market that are
undervalued relative to the rest of the market. PIMCO identifies
these areas by grouping bonds into sectors. Sophisticated
proprietary software then assists in evaluating sectors and
pricing specific securities. Once investment opportunities are
identified, PIMCO will shift assets among sectors depending upon
changes in relative valuations and credit spreads. There is no
guarantee that PIMCO's security selection techniques will produce
the desired results.
U.S. U.S. Government Securities are obligations of, or guaranteed by,
Government the U.S. Government, its agencies or 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
Prospectus 24
<PAGE>
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. Mortgage-related securities include mortgage pass-
and Other through securities, collateralized mortgage obligations ("CMOs"),
Asset- commercial mortgage-backed securities, mortgage dollar rolls, CMO
Backed residuals, stripped mortgage-backed securities ("SMBSs") and other
Securities securities that directly or indirectly represent a participation
in, or are secured by and payable from, mortgage loans on real
property.
The value of some mortgage- or asset-backed securities may be
particularly sensitive to changes in prevailing interest rates.
Early repayment of principal on some mortgage-related securities
may expose a Fund to a lower rate of return upon reinvestment of
principal. When interest rates rise, the value of a 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.
Loan The 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,
Assign- interest rate risk, liquidity risk, and the risks of being a
ments 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
Yield S&P are sometimes referred to as "high yield" or "junk" bonds.
Securities Investing in high yield securities involves special risks in
addition to the risks associated with investments in higher-rated
fixed income securities. While offering a greater 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
25 Pacific Investment Management Series
<PAGE>
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 engage in credit spread trades. While floaters provide a certain
Securities degree of protection against rises in interest rates, a Fund will
participate in any declines in interest rates as well. Each Fund
may also invest in inverse floating rate debt instruments
("inverse floaters"). An inverse floater may exhibit greater price
volatility than a fixed rate obligation of similar credit quality.
A Fund may not invest more than 5% of its 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
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 may invest in "event-linked bonds," which are fixed
Linked income securities for which the return of principal and payment of
Bonds 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 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.
Prospectus 26
<PAGE>
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.
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 may, but is not required to, use certain derivative
instruments for risk management purposes or as part of its
investment strategies. Generally, derivatives are financial
contracts whose value depends upon, or is derived from, the value
of an underlying asset, reference rate or index, and may relate to
stocks, bonds, interest rates, currencies or currency exchange
rates, commodities, and related indexes. Examples of derivative
instruments include options contracts, futures contracts, options
on futures contracts and swap agreements. A portfolio manager may
decide not to employ any of these strategies and there is no
assurance that any derivatives strategy used by a Fund will
succeed. A description of these and other derivative instruments
that the Funds may use are described under "Investment Objectives
and Policies" in the Statement of Additional Information.
A Fund's use of derivative instruments involves risks different
from, or possibly greater than, the risks associated with
investing directly in securities and other more traditional
investments. A description of various risks associated with
particular derivative instruments is included in "Investment
Objectives and Policies" in the Statement of Additional
Information. The following provides a more general discussion of
important risk factors relating to all derivative instruments that
may be used by the Funds.
Management Risk. Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of
a derivative requires an understanding not only of the underlying
instrument but also of the derivative itself, without the benefit
of observing the performance of the derivative under all possible
market conditions.
Credit Risk. The use of a derivative instrument involves the risk
that a loss may be sustained as a result of the failure of another
party to the contract (usually referred to as a "counterparty") to
make required payments or otherwise comply with the contract's
terms.
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
27 Pacific Investment Management Series
<PAGE>
changes. To limit leverage risk, each Fund will segregate assets
determined to be liquid by PIMCO in accordance with procedures
established by the Board of Trustees (or, as permitted by
applicable regulation, enter into certain offsetting positions) to
cover its obligations under derivative instruments.
Lack of Availability. Because the markets for certain derivative
instruments (including markets located in foreign countries) are
relatively new and still developing, suitable derivatives
transactions may not be available in all circumstances for risk
management or other purposes. There is no assurance that a Fund
will engage in derivatives transactions at any time or from time
to time. A Fund's ability to use derivatives may also be limited
by certain regulatory and tax considerations.
Market and Other Risks. Like most other investments, derivative
instruments are subject to the risk that the market value of the
instrument will change in a way detrimental to a Fund's interest.
If a portfolio manager incorrectly forecasts the values of
securities, currencies or interest rates or other economic factors
in using derivatives for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all.
While some strategies involving derivative instruments can reduce
the risk of loss, they can also reduce the opportunity for gain or
even result in losses by offsetting favorable price movements in
other Fund investments. A Fund may also have to buy or sell a
security at a disadvantageous time or price because the Fund is
legally required to maintain offsetting positions or asset
coverage in connection with certain derivatives transactions.
Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates
and indexes. Many derivatives, in particular privately negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Fund. Also, the value of
derivatives may not correlate perfectly, or at all, with the value
of the assets, reference rates or indexes they are designed to
closely track. In addition, a Fund's use of derivatives may cause
the Fund to realize higher amounts of short-term capital gains
(generally taxed at ordinary income tax rates) than if the Fund
had not used such instruments.
Delayed The Funds may also enter into, or acquire participations in,
Funding delayed funding loans and revolving credit facilities, in which a
Loans and lender agrees to make loans up to a maximum amount upon demand by
Revolving the borrower during a specified term. These commitments may have
Credit the effect of requiring a Fund to increase its investment in a
Facilities company at a time when it might not otherwise decide to do so
(including at a time when the company's financial condition makes
it unlikely that such amounts will be repaid). To the extent that
a Fund is committed to advance additional funds, it will segregate
assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees in an amount
sufficient to meet such commitments. Delayed funding loans and
revolving credit facilities are subject to credit, interest rate
and liquidity risk and the risks of being a lender.
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 Each Fund may invest up to 10% of its assets in securities of
in Other other investment companies, such as closed-end management
Investment investment companies, or in pooled accounts or other investment
Companies vehicles. As a shareholder of an investment company, a Fund may
indirectly bear service and other fees which are in addition to
the fees the Fund pays its service providers.
Subject to the restrictions and limitations of the 1940 Act, each
Fund may, in the future, elect to pursue its investment objective
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
Prospectus 28
<PAGE>
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% of its net assets in illiquid
Securities securities. Certain illiquid securities may require pricing at
fair value as determined in good faith under the supervision of
the Board of Trustees. A portfolio manager may be subject to
significant delays in disposing of illiquid securities, and
transactions in illiquid securities may entail registration
expenses and other transaction costs that are higher than those
for transactions in liquid securities. The term "illiquid
securities" for this purpose means securities that cannot be
disposed of within seven days in the ordinary course of business
at approximately the amount at which a Fund has valued the
securities. Restricted securities, i.e., securities subject to
legal or contractual restrictions on resale, may be illiquid.
However, some restricted securities (such as securities issued
pursuant to Rule 144A under the Securities Act of 1933 and certain
commercial paper) may be treated as liquid, although they may be
less liquid than registered securities traded on established
secondary markets.
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.
Temporary For temporary or defensive purposes, each fund may invest without
Defensive limit in U.S. debt securities, including taxable and short-term
Strategies money market securities, when PIMCO deems it appropriate to do so.
When a Fund engages in such strategies, it may not achieve its
investment objective.
Changes The investment objective of each Fund is fundamental and may not
in be changed without shareholder approval. Unless otherwise stated,
Investment all other investment policies of the Funds may be changed by the
Objectives Board of Trustees without shareholder approval.
and
Policies
Percentage Unless otherwise stated, all percentage limitations on Fund
Investment investments listed in this Prospectus will apply at the time of
Limitations investment. A Fund would not violate these limitations unless an
excess or deficiency occurs or exists immediately after and as a
result of an investment.
Other The Funds may invest in other types of securities and use a
Investments variety of investment techniques and strategies which are not
and described in this Prospectus. These securities and techniques may
Techniques subject the Funds to additional risks. Please see the Statement of
Additional Information for additional information about the
securities and investment techniques described in this Prospectus
and about additional securities and techniques that may be used by
the Funds.
29 Pacific Investment Management Series
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand
the financial performance of the Fund. Certain information
reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would
have earned or lost on an investment in a particular class of
shares of the Fund, assuming reinvestment of all dividends and
distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's
financial statements, are included in the Trust's annual report to
shareholders. The annual report is incorporated by reference in
the Statement of Additional Information and is available free of
charge upon request from the Distributor.
<TABLE>
<CAPTION>
Municipal Bond Class A Class B Class C
----------------------------------------------------------------------------
<S> <C> <C> <C>
Year or Period Ended................ 03/31/1999 03/31/1999 03/31/1999
Net Asset Value Beginning of
Period............................. $ 9.97 9.97 9.97
Net Investment Income (Loss)........ $ 0.41 (a) 0.34 (a) 0.36 (a)
Net Realized and Unrealized Gain
(Loss) on Investments.............. $ 0.15 (a) 0.14 (a) 0.15 (a)
Total Income (Loss) from Investment
Operations......................... $ 0.56 0.48 0.51
Dividends from Net Investment
Income............................. $(0.41) (0.33) (0.36)
Dividends in Excess of Net
Investment Income.................. $ 0.00 0.00 0.00
Distributions from Net Realized
Capital Gains...................... $ 0.00 0.00 0.00
Distributions in Excess of Net
Realized Capital Gains............. $ 0.00 0.00 0.00
Tax Basis Return of Capital......... $ 0.00 0.00 0.00
Total Distributions................. $(0.41) (0.33) (0.36)
Net Asset Value End of Period....... $10.12 10.12 10.12
Total Return........................ 5.67% 4.88 5.13
Net Assets End of Period (000's).... $7,020 6,070 37,913
Ratio of Expenses to Average
Net Assets......................... 0.86% 1.61 1.35
Ratio of Net Investment
Income to Average Net Assets....... 4.10 3.33 3.60
Portfolio Turnover Rate............. 70% 70 70
</TABLE>
-------
(a) Per share amounts based on average number of shares outstanding during
the period.
Prospectus 30
<PAGE>
Appendix A
Description of Securities Ratings
A Fund's investment may range in quality from securities rated in
the lowest category in which the Fund is permitted to invest to
securities rated in the highest category (as rated by Moody's or
S&P or, if unrated, determined by PIMCO to be of comparable
quality). The percentage of a Fund's assets invested in securities
particular rating category will vary. The following terms are
generally used to described the credit quality of fixed income
securities:
High Quality Debt Securities are those rated in one of the two
highest rating categories (the highest category for commercial
paper) or, if unrated, deemed comparable by PIMCO.
Investment Grade Debt Securities are those rated in one of the
four highest rating categories or, if unrated deemed comparable by
PIMCO.
Below Investment Grade, High Yield Securities ("Junk Bonds") are
those rated lower than Baa by Moody's or BBB by S&P and comparable
securities. They are considered predominantly speculative with
respect to the issuer's ability to repay principal and interest.
Following is a description of Moody's and S&P's rating categories
applicable to fixed income securities.
Moody's Corporate and Municipal Bond Ratings
Investors
Service, Aaa: Bonds which are rated Aaa are judged to be of the best
Inc. quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classified from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of
issuers to repay punctually senior debt obligations which have an
original maturity not exceeding one year. Obligations relying upon
support mechanisms such as letters of credit and bonds of
indemnity are excluded unless explicitly rated.
A-1 Pacific Investment Management Series
<PAGE>
Moody's employes the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of
rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Short-Term Municipal Bond Ratings
There are four rating categories for short-term municipal bonds
that define an investment grade situation, which are listed below.
In the case of variable rate demand obligations (VRDOs), a two-
component rating is assigned. The first element represents an
evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other represents an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When either the long- or short-term
aspect of a VRDO is not rated, that piece is designated NR, e.g.,
Aaa/NR or NR/VMIG 1. MIG ratings terminate at the retirement of
the obligation while VMIG rating expiration will be a function of
each issue's specific structural or credit features.
MIG 1/VMIG 1: This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market
for refinancing.
MIG 2/VMIG 2: This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality. All
security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality.
Protection commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.
SG: This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
Standard Corporate and Municipal Bond Ratings
& Poor's
Ratings Investment Grade
Services AAA: Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions, or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
Prospectus
A-2
<PAGE>
BB: Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and
repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
CI: The rating CI is reserved for income bonds on which no
interest is being paid.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The D rating will also be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in
total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the
obligor but do not take into account currency exchange and related
uncertainties.
Commercial An S&P commercial paper rating is a current assessment of the
Paper likelihood of timely payment of debt having an original maturity
Rating of no more than 365 days. Ratings are graded into several
Definitions categories, ranging from A for the highest quality obligations to
D for the lowest. These categories are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B: Issues rated B are regarded as having only speculative
capacity for timely payment.
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period.
A-3
Pacific Investment Management Series
<PAGE>
A commercial paper rating is not a recommendation to purchase,
sell or hold a security inasmuch as it does not comment as to
market price or suitability for a particular investor. The ratings
are based on current information furnished to S&P by the issuer or
obtained from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may
be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
Prospectus
A-4
<PAGE>
PIMCO Funds: Pacific Investment Management Series
The Trust's Statement of Additional Information ("SAI") includes
additional information about the Funds. The SAI is incorporated by
reference into this Prospectus, which means it is part of this
Prospectus for legal purposes.
The SAI includes the PIMCO Funds Shareholders Guide for Class A, B
and C Shares, a separate booklet which contains more detailed
information about Fund purchase, redemption and exchange options
and procedures and other information about the Funds. You can get
a free copy of the Guide together with or separately from the rest
of the SAI.
You may get free copies of the SAI, request other information
about a Fund, or make shareholder inquiries by calling the Trust
at 1-800-426-0107, or PIMCO Infolink Audio Response Network at 1-
800-987-4626, or by writing to:
PIMCO Funds Pacific Investment Management Series
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
You can also visit our Web site at www.pimcofunds.com for
additional information about the Funds.
You may review and copy information about the Trust, including its
SAI, at the Securities and Exchange Commission's public reference
room in Washington, D.C. You may call the Commission at 1-202-942-
8090 for information about the operation of the public reference
room. You may also access reports and other information about the
Trust on the Commission's Web site at www.sec.gov. You may get
copies of this information, with payment of a duplication fee, by
writing the Public Reference Section of the Commission,
Washington, D.C. 20549-0102, or by electronic request at
[email protected].
[LOGO OF PIMCO FUNDS APPEARS HERE]
Investment Company Act File no. 811-5028
<PAGE>
--------------------------------------------------------
PIMCO Funds: INVESTMENT ADVISER AND ADMINISTRATOR
Pacific Investment
Management Series PIMCO, 840 Newport Center Drive, Suite 300,
Newport Beach, CA 92660
--------------------------------------------------------
DISTRIBUTOR
PIMCO Funds Distributors LLC, 2187 Atlantic Street,
Stamford, CT 06902-6896
--------------------------------------------------------
CUSTODIAN
State Street Bank & Trust Co., 801 Pennsylvania, Kansas
City, MO 64105
--------------------------------------------------------
SHAREHOLDER SERVICING AGENT AND TRANSFER AGENT
PFPC Inc., P.O. Box 9688, Providence, RI 02940-9688
--------------------------------------------------------
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City,
MO 64105
--------------------------------------------------------
LEGAL COUNSEL
Dechert Price & Rhoads, 1775 Eye Street N.W.,
Washington, D.C. 20006-2401
-------------------------------------------------------
For further information about the PIMCO Funds, call
1-800-426-0107 or visit our Web site at
http://www.pimcofunds.com.
Not part of the Prospectus
<PAGE>
PIMCO Funds is on the Web
www.pimcofunds.com
A Partial List of What's Available:
On-line Account Access
Daily Share Prices
Daily Manager Commentary
Current and Historical Fund Performance
Lipper Rankings
Morningstar Ratings
Listing of Fund Portfolio Holdings
Risk Analysis
Fund Manager Bios
Downloadable Literature Section
On-line Requests for Literature by Mail
Resources for Investment Professionals
Through the PIMCO Funds Web site, at www.pimcofunds.com, you and your financial
advisor have around-the-clock access to the most timely and comprehensive
information available on PIMCO Funds.
In addition, the site includes daily commentary from our fund managers, with
insights on the economy and other factors affecting the stock and bond markets.
And now you can access your account--securely--on-line. The feature is
available to shareholders with direct accounts (a direct account is one where
the shareholder receives statements directly from PIMCO Funds.)
[GRAPHIC]
You'll find the site to be informative and easy-to-use. It's divided into
three main sections: Investment Insight, Fund Information and Resources.
Investment Insight
The Investment Insight section provides an overview of the investment management
firms under the PIMCO Advisors L.P. umbrella. You'll find an explanation of each
firm's investment process, biographies of the investment team, manager updates
and more.
Fund Information
In the Fund Information section you'll access detailed profiles of all the PIMCO
Funds, including current and historical performance, Lipper rankings and
Morningstar ratings.
Additionally, we provide a summary of a fund's portfolio--complete with
risk analysis data. You can also obtain daily fund share prices. Please read the
relevant prospectus carefully before you invest in any PIMCO Fund.
Resources
Our Resources section features a variety of useful information, including:
an on-line document library with applications and prospectuses that you can
view and print
a literature-by-mail "catalog," so you can order free materials information
about our convenient shareholder services, such as Auto-Invest, Fund Link and
our 24-Hour Telephone Information System
a listing of the features and benefits of the retirement plans offered by
PIMCO Funds
Questions?
We're sure you'll find the PIMCO Funds Web site to be an invaluable tool. If you
have any questions about the site, call us at 1-800-426-0107.
Or, send us e-mail at [email protected].
PZ002 3/00 Not part of the Prospectus
- --------------------------------------------------------------------------------
PIMCO
FUNDS
PIMCO Funds
Distributors LLC
2187 Atlantic Street
Stamford, CT 06902-6896
<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,"
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," Class D
shares of the Funds are offered through the "Class D Prospectus," Institutional
Class and Administrative Class shares of the Funds are offered through the
"Institutional Prospectus," while Class A shares of the Total Return Fund are
offered through a separate prospectus (each 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, 1999, including
notes thereto, and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated by reference from the Trust's March 31, 1999 Annual Reports. Copies
of Prospectuses, Annual or Semi-Annual Reports, and the PIMCO Funds
Shareholders' Guide for Class A, B and C Shares (the "Guide"), which is a part
of this Statement of Additional Information, may be obtained free of charge at
the addresses and telephone number(s) listed below.
Class A, B and C and Class D
Institutional Prospectus and Prospectuses, Annual and
Annual and Semi-Annual Reports: Semi-Annual Reports, and the Guide:
PIMCO Funds PIMCO Funds Distributors LLC
840 Newport Center Drive 2187 Atlantic Street
Suite 300 Stamford, Connecticut 06902
Newport Beach, California 92660 Telephone: (800) 426-0107
Telephone: (800) 927-4648
August 1, 2000
<PAGE>
TABLE OF CONTENTS
Page
THE TRUST................................................................ 1
INVESTMENT OBJECTIVES AND POLICIES....................................... 1
Municipal Bonds..................................................... 1
Mortgage-Related and Other Asset-Backed Securities.................. 6
Bank Obligations.................................................... 11
Loan Participations................................................. 11
Corporate Debt Securities........................................... 13
High Yield Securities ("Junk Bonds")................................ 13
Participation on Creditors Committees............................... 14
Variable and Floating Rate Securities............................... 14
Inflation-Indexed Bonds............................................. 15
Event-Linked Bonds.................................................. 16
Convertible Securities.............................................. 16
Warrants to Purchase Securities..................................... 17
Foreign Securities.................................................. 17
Foreign Currency Transactions....................................... 19
Foreign Currency Exchange-Related Securities........................ 20
Borrowing........................................................... 21
Derivative Instruments.............................................. 23
Hybrid Instruments.................................................. 31
Delayed Funding Loans and Revolving Credit Facilities............... 31
When-Issued, Delayed Delivery and Forward Commitment Transactions... 32
Short Sales......................................................... 32
Illiquid Securities................................................. 33
Loans of Portfolio Securities....................................... 33
Social Investment Policies.......................................... 33
INVESTMENT RESTRICTIONS.................................................. 33
Fundamental Investment Restrictions................................. 33
Non-Fundamental Investment Restrictions............................. 34
Non-Fundamental Operating Policies Relating to the Sale of
Shares of Total Return Fund in Japan.............................. 37
MANAGEMENT OF THE TRUST.................................................. 38
Trustees and Officers............................................... 38
Compensation Table.................................................. 43
Investment Adviser.................................................. 44
Fund Administrator.................................................. 47
<PAGE>
DISTRIBUTION OF TRUST SHARES.............................................. 49
Distributor and Multi-Class Plan..................................... 49
Contingent Deferred Sales Charge and Initial Sales Charge............ 50
Distribution and Servicing Plans for Class A, Class B and Class C
Shares............................................................. 51
Payments Pursuant to Class A Plan.................................... 54
Payments Pursuant to Class B Plan.................................... 55
Payments Pursuant to Class C Plan.................................... 56
Distribution and Administrative Services Plans for Administrative
Class Shares....................................................... 58
Payments Pursuant to the Administrative Plans........................ 59
Plan for Class D Shares.............................................. 60
Payments Pursuant to Class D Plan.................................... 62
Distribution and Servicing Plan for Class J and Class K Shares....... 62
Purchases, Exchanges and Redemptions................................. 63
PORTFOLIO TRANSACTIONS AND BROKERAGE...................................... 65
Investment Decisions and Portfolio Transactions...................... 65
Brokerage and Research Services...................................... 65
Portfolio Turnover................................................... 66
NET ASSET VALUE........................................................... 67
TAXATION.................................................................. 68
Distributions........................................................ 69
Sales of Shares...................................................... 70
Backup Withholding................................................... 70
Options, Futures and Forward Contracts, and Swap Agreements.......... 70
Short Sales.......................................................... 71
Passive Foreign Investment Companies................................. 71
Foreign Currency Transactions........................................ 72
Foreign Taxation..................................................... 72
Original Issue Discount and Market Discount.......................... 73
Constructive Sales................................................... 73
Non-U.S. Shareholders................................................ 73
Other Taxation....................................................... 74
OTHER INFORMATION......................................................... 74
Capitalization....................................................... 74
Performance Information.............................................. 75
Calculation of Yield................................................. 76
Calculation of Total Return.......................................... 78
Potential College Cost Table......................................... 84
Voting Rights........................................................ 87
<PAGE>
The Reorganization of the Money Market and Total Return II Funds..... 114
The Reorganization of the Global Bond Fund II........................ 114
Code of Ethics....................................................... 114
Custodian, Transfer Agent and Dividend Disbursing Agent.............. 114
Independent Accountants.............................................. 115
Counsel.............................................................. 115
Registration Statement............................................... 115
Financial Statements................................................. 115
<PAGE>
THE TRUST
PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") currently consisting of thirty separate investment portfolios
(the "Funds"):
<TABLE>
<CAPTION>
<S> <C>
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
Low Duration Mortgage 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
Total Return Fund II Bond Fund
Total Return Fund III California Municipal Bond Fund
Total Return Mortgage Fund New York Municipal Bond Fund
Commercial Mortgage Securities Fund Strategic Balanced Fund
Investment Grade Corporate Bond Convertible Fund
Fund StocksPLUS Fund
High Yield Fund StocksPLUS Short Strategy Fund
</TABLE>
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.
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 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
<PAGE>
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 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
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of a municipal bond insurance company to pay a claim extends over the life of
each insured bond. Although defaults on insured Municipal Bonds have been low to
date and municipal bond insurers have met their claims, there is no assurance
this will continue. A higher-than-expected default rate could strain the
insurer's loss reserves and adversely affect its ability to pay claims to
bondholders. The number of municipal bond insurers is relatively small, and not
all of them have the highest rating. An SBPA is a liquidity facility provided to
pay the purchase price of bonds that cannot be re-marketed. The obligation of
the liquidity provider (usually a bank) is only to advance funds to purchase
tendered bonds that cannot be remarketed and does not cover principal or
interest under any other circumstances. The liquidity provider's obligations
under the SBPA are usually subject to numerous conditions, including the
continued creditworthiness of the underlying borrower.
The Municipal Funds may invest in Residual Interest Bonds, which are
created by dividing the income stream provided by an underlying bond to create
two securities, one short term and one long term. The interest rate on the
short-term component is reset by an index or auction process normally every
seven to 35 days. After income is paid on the short-term securities at current
rates, the residual income goes to the long-term securities. Therefore, rising
short-term interest rates result in lower income for the longer-term portion,
and vice versa. The longer-term bonds can be very volatile and may be less
liquid than other Municipal Bonds of comparable maturity. A Municipal Fund will
not invest more than 10% of its total assets in Residual Interest Bonds.
The Municipal Funds also may invest in participation interests.
Participation interests are various types of securities created by converting
fixed rate bonds into short-term, variable rate certificates. These securities
have been developed in the secondary market to meet the demand for short-term,
tax-exempt 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
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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 the 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 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 or 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
or the California Municipal Bond Fund may be impaired.
Certain tax-exempt securities in which the California Intermediate
Municipal Bond Fund or 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 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
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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.
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
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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 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
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and others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations.
See "Mortgage Pass-Through Securities." Certain of the Funds may also invest in
debt securities which are secured with collateral consisting of mortgage-related
securities (see "Collateralized Mortgage Obligations"), and in other types of
mortgage-related securities.
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by GNMA)
are described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase in the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by 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
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former pools. However, timely payment of interest and principal of these pools
may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit, which
may be issued by governmental entities, private insurers or the mortgage
poolers. The insurance and guarantees are issued by governmental entities,
private insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets the Trust's investment quality
standards. There can be no assurance that the private insurers or guarantors can
meet their obligations under the insurance policies or guarantee arrangements.
The Funds may buy mortgage-related securities without insurance or guarantees
if, through an examination of the loan experience and practices of the
originator/servicers and poolers, 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 Series A, B, and C Bonds are paid in full,
interest and principal on the
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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 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
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administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities--Stripped Mortgage-Backed Securities." In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped mortgage-
backed securities, in certain circumstances a Fund may fail to recoup fully its
initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended (the "1933 Act").
CMO residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities. SMBS are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the 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
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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
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, Low Duration Mortgage, 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
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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 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 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
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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.
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.
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High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities have been found to be less sensitive to
interest-rate changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If an issuer of high yield securities
defaults, in addition to risking payment of all or a portion of interest and
principal, the Funds investing in such securities may incur additional expenses
to seek recovery. In the case of high yield securities structured as zero-coupon
or pay-in-kind securities, their market prices are affected to a greater extent
by interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash. 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 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
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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.
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.
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While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes
in the cost of living, made up of components such as housing, food,
transportation and energy. Inflation-indexed bonds issued by a foreign
government are generally adjusted to reflect a comparable inflation index,
calculated by that government. There can be no assurance that the CPI-U or any
foreign inflation index will accurately measure the real rate of inflation in
the prices of goods and services. Moreover, there can be no assurance that the
rate of inflation in a foreign country will be correlated to the rate of
inflation in the United States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
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, Low Duration Mortgage 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 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
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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.
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
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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
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.
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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.
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
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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 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 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
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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, 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,
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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, 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 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
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purchase or sell a portfolio security at a time that otherwise would be
favorable or the possible need to sell a portfolio security at a disadvantageous
time because the Fund is required to maintain asset coverage or offsetting
positions in connection with transactions in derivative instruments, and the
possible inability of a Fund to close out or to liquidate its derivatives
positions. In addition, a Fund's use of such instruments may cause the Fund to
realize higher amounts of short-term capital gains (generally taxed at ordinary
income tax rates) than if it had not used such instruments.
Options on Securities and Indexes. A Fund may, to the extent specified
herein or in the Prospectuses, purchase and sell both put and call options on
fixed income or other securities or indexes in standardized contracts traded on
foreign or domestic securities exchanges, boards of trade, or similar entities,
or quoted on NASDAQ or on a regulated foreign over-the-counter market, and
agreements, sometimes called cash puts, which may accompany the purchase of a
new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect features of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
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
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transaction costs paid on the put or call option which is sold. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase or
sale of an option of the same series. A Fund will realize a capital gain from a
closing purchase transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the Fund will
realize a capital loss. If the premium received from a closing sale transaction
is more than the premium paid to purchase the option, the Fund will realize a
capital gain or, if it is less, the Fund will realize a capital loss. The
principal factors affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the underlying
security or index in relation to the exercise price of the option, the
volatility of the underlying security or index, and the time remaining until the
expiration date.
The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded
as a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.
The Funds may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
The Funds may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
During the option period, the covered call writer has, in return for the
premium on the option, given up the opportunity to profit from a price increase
in the underlying security above the exercise price, but, as long as its
obligation as a writer continues, has retained the risk of loss should the price
of the underlying security decline. The writer of an option has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying security at the exercise price. If a put
or call option purchased by the Fund is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price (in the case of a put), or remains less than or equal to
the exercise price (in the case of a call), the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
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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, California 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 Strategic Balanced, 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.
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
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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.
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.
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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 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
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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 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 and, to the extent it may invest in foreign currency-
denominated securities, currency exchange rate swap agreements. 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.
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 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.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC
effective February 22, 1993. To qualify for this exemption, a swap agreement
must be entered into by "eligible participants," which includes the following,
provided the participants' total assets exceed established levels: a bank or
trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through
a multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap
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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 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.
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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.
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
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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 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,
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be based upon its good faith interpretation of available information and its
continuing and reasonable best efforts to obtain and evaluate the most current
information available, and to utilize such information, as it becomes available,
promptly and expeditiously in portfolio management for the Funds. In making its
analysis, 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".).
(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.
34
<PAGE>
(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 may 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 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.
35
<PAGE>
(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 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
36
<PAGE>
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 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
37
<PAGE>
outstanding shares of such a company) acting as principal or for their own
account unless the transaction is made within the investment restrictions
set forth in the Fund's prospectus and statement of additional information
and either (i) at a price determined by current publicly available
quotations (including a dealer quotation) or (ii) at competitive prices or
interest rates prevailing from time to time on internationally recognized
securities markets or internationally recognized money markets (including a
dealer quotation).
All percentage limitations on investments described in the restrictions
relating to the sale of shares in Japan will apply at the time of the making of
an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. If any violation of the foregoing investment restrictions occurs,
the Trust will, promptly after discovery of the violation, take such action as
may be necessary to cause the violation to cease, which shall be the only
obligation of the Trust and the only remedy in respect of the violation.
If any of the foregoing standards shall, at any time when shares of the
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 Board and Managing Director, PIMCO; Board of Governors,
Age 40 Trustee Investment Company Institute; Chairman and
Director, PIMCO Commercial Mortgage
Securities Trust, Inc.; Chairman and Trustee,
PIMCO Variable Insurance Trust.
R. Wesley Burns* President and Trustee Managing Director, PIMCO; President and
Age 40 Director, PIMCO Commercial Mortgage
Securities Trust, Inc.; President and
Trustee, PIMCO Variable Insurance Trust;
Executive Vice President, PIMCO Funds:
Multi-Manager Series. Formerly Executive Vice
President, PIMCO.
</TABLE>
38
<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 68 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; Trustee of PIMCO Funds:
Age 59 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 Drive Mortgage Securities Trust, Inc.; Trustee,
Portland, Oregon 97229 PIMCO Variable Insurance Trust; Director,
Age 65 Public Storage Business Parks, Inc., a Real
Estate Investment Trust; Director, Fresh
Choice, Inc. (restaurant company) Formerly
charitable work, The Church of Jesus Christ
of Latter-day Saints.
J. Michael Hagan Trustee Retired from Furon Company (manufacturing)
6 Merced where he served as Chairman and CEO from June
San Clemente, California 92673 1991 to November 1999, and in other
Age 60 capacities since 1967. He was previously
associated with Ross Laboratories and
Standard Oil of California. Mr. Hagan serves
on the Boards of Directors for Ameron
International (manufacturing), Freedom
Communications, Remedy Temp (staffing) and
Saint-Gobain Company. He is also a 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.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas P. Kemp Trustee Private Investor; Director, PIMCO Commercial
1141 Marine Drive Mortgage Securities Trust, Inc.; Trustee,
Laguna Beach, California 92651 PIMCO Variable Insurance Trust. Formerly
Age 69 Co-Chairman, U.S. Committee to Assist Russian
Reform; Director, Union Financial Corp.;
Senior Consultant, World Cup 1994 Organizing
Committee.
William J. Popejoy Trustee President, Pacific Capital Investors;
29 Chatham Court Chairman, PacPro (vinyl assembly products;
Newport Beach, California 92660 formerly Western Printing); Director, PIMCO
Age 61 Commercial Mortgage Securities Trust, Inc.;
Trustee, PIMCO Variable Insurance Trust.
Formerly Director, California State Lottery;
Chief Executive Officer, Orange County,
California.
Michael G. Dow Senior Vice 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 55 President President, PIMCO Variable Insurance Trust.
Margaret Isberg Senior Vice Managing Director, PIMCO.
Age 43 President
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.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas 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 33 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 60 President, PIMCO Variable Insurance Trust.
Douglas J. Ongaro Vice President Vice President, PIMCO. Formerly Regional
Age 39 Marketing Manager, Charles Schwab & Co., Inc.
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 41 with Wells Fargo's institutional money
management group and First Interstate's
Pacifica family of mutual funds.
William S. Thompson, Jr. Vice President Chief Executive Officer and Managing
Age 54 Director, PIMCO; Senior Vice President, PIMCO
Variable Insurance Trust; Vice President,
PIMCO Commercial Mortgage Securities Trust,
Inc.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Position with Principal Occupation(s)
Name, Address and Age the Trust During the Past Five Years
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
John P. Hardaway Treasurer Senior Vice President and Manager of
Age 42 Investment Operations Accounting, PIMCO;
Treasurer, PIMCO Commercial Mortgage
Securities Trust, Inc., PIMCO Funds:
Multi-Manager Series and PIMCO Variable
Insurance Trust. Formerly Vice President,
PIMCO.
Garlin G. Flynn Secretary Specialist, PIMCO; Secretary, PIMCO
Age 53 Commercial Mortgage Securities Trust, Inc.
and PIMCO Variable Insurance Trust; Assistant
Secretary, PIMCO Funds: Multi-Manager Series.
Formerly Senior Fund Administrator, PIMCO;
Senior Mutual Fund Analyst, PIMCO Advisors
Institutional Services.
Joseph D. Hattesohl Assistant Vice President and Manager of Financial
Age 36 Treasurer Reporting and Taxation, PIMCO; Assistant
Treasurer, PIMCO Funds: Multi-Manager Series,
PIMCO Commercial Mortgage Securities Trust,
Inc. and PIMCO Variable Insurance Trust.
Formerly, Manager of Fund Taxation, PIMCO;
Director of Financial Reporting, Carl I.
Brown & Co.
Michael J. Willemsen Assistant Manager, PIMCO; Assistant Secretary, PIMCO
Age 40 Secretary Commercial Mortgage Securities Trust, Inc.
and PIMCO Variable Insurance Trust. Formerly
Project Lead, PIMCO.
</TABLE>
___________________
*Each of Mr. Harris and Mr. Burns is an "interested person" of the Trust
(as that term is defined in the 1940 Act) because of his affiliations with
PIMCO.
Compensation Table
The following table sets forth information regarding compensation received
by the Trustees for the fiscal year ended March 31, 1999.
42
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Compensation from
Compensation Trust and Fund Complex
Name and Position from Trust/1/ Paid to Trustees/2/
- -------------------------------- ---------------- -----------------------
<S> <C> <C>
Guilford C. Babcock $58,000 $ 78,750
Trustee
E. Philip Cannon 0 $57,0003
Trustee
Vern O. Curtis $59,500 $ 82,619
Trustee
J. Michael Hagan 0 0
Trustee
Thomas P. Kemp $58,000 $ 78,750
Trustee
William J. Popejoy $58,000 $ 78,750
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, 1999, the unaffiliated Trustees as a group received compensation in
the amount of $234,297.
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.
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 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
$57,000 in compensation deferred from that Trust.
Investment Adviser
43
<PAGE>
PIMCO serves as investment adviser to the Funds pursuant to an investment
advisory contract ("Advisory Contract") between PIMCO and the Trust. PIMCO is a
subsidiary partnership of PIMCO Advisors.
On May 5, 2000, Allianz of America, Inc., a subsidiary of Allianz AG,
completed the acquisition of approximately 70% of the outstanding partnership
interests in PIMCO Advisors L.P. ("PIMCO Advisors"), of which PIMCO is a
subsidiary partnership. In connection with the acquisition, Allianz of America,
Inc. entered into a put/call arrangement with Pacific Life Insurance Company,
which holds the remainder of the partnership interests in PIMCO Advisors, for
the possible disposition of Pacific Life Insurance Company's stake in PIMCO
Advisors.
As a result of this transaction, PIMCO Advisors and its subsidiaries,
including PIMCO, are now controlled by Allianz AG, a leading provider of
financial services, particularly in Europe. However, PIMCO remains
operationally independent, continues to operate under its existing name, and now
leads the global fixed income investment efforts of Allianz AG. With the
addition of PIMCO Advisors, the Allianz group manages assets of approximately
$650 billion, including more than 300 mutual funds for retail and institutional
clients.
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 Fund generally is 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 Fund, the Fund's ability to take advantage of market
opportunities, or the Fund's overall performance.
Under the terms of the Advisory Contract, PIMCO is obligated to manage the
Funds in accordance with applicable laws and regulations. The investment
advisory services of PIMCO to the Trust are not exclusive under the terms of the
Advisory Contract. PIMCO is free to, and does, render investment advisory
services to others. The current Advisory Contract was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties ("Independent
Trustees"), at a meeting held on November 22, 1994, as supplemented at meetings
held on October 1, 1995, November 21, 1995, February 27, 1996, November 19,
1996, January 14, 1997, May 27, 1997, February 24, 1998, August 25, 1998, May
25, 1999, and December 1, 1999 and was last approved by the Trustees on December
1, 1999 and by shareholders of all then-operational Funds on October 17, 1994
and March 3, 2000.
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.
44
<PAGE>
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:
Advisory
Fund Fee Rate
- ---- --------
Money Market Fund 0.15%
Short Duration Municipal Income Fund 0.20%
Commercial Mortgage Securities, Strategic Balanced,
Convertible, StocksPLUS, and StocksPLUS Short
Strategy Funds 0.40%
Emerging Markets Bond Fund 0.45%
All other Funds 0.25%
For the fiscal years ended March 31, 1999, 1998, and 1997, the aggregate
amount of the advisory fees paid by each operational Fund was as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- --------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Money Market Fund $ 364,480 $ 205,384 $ 67,626
Short-Term Fund 1,163,042 487,226 311,485
Low Duration Fund 8,636,635 7,416,427 6,877,132
Low Duration Fund II 1,060,930 869,853 685,047
Low Duration Fund III 61,917 32,700 6,114
Low Duration Mortgage Fund 9,728 5,914 N/A
Moderate Duration Fund 685,876 294,466 6,525
Real Return Bond Fund 37,011 18,838 2,453
Total Return Fund 55,229,968 38,327,843 29,232,090
Total Return Fund II 2,107,392 1,145,766 1,171,011
Total Return Fund III 1,045,573 701,110 423,216
Total Return Mortgage Fund 9,766 5,679 N/A
High Yield Fund 6,323,956 3,670,999 1,983,580
Long-Term U.S. Government Fund 419,981 117,242 64,058
Global Bond Fund 666,901 642,260 423,547
Global Bond Fund II* 106,821 50,123 41,683
Foreign Bond Fund 1,325,590 811,698 541,283
Emerging Markets Bond Fund 19,121 11,365 N/A
Municipal Bond Fund 107,083 N/A N/A
Strategic Balanced Fund 201,742 117,547 31,660
StocksPLUS Fund 3,432,600 1,919,328 779,413
</TABLE>
- ----------------
*The Global Bond Fund II, for the fiscal year ended September 30, 1996, paid
aggregate management fees in the amount of $54,325, pursuant to a management
contract between PIMCO Advisors Funds and PIMCO Advisors, under which PIMCO
Advisors provided or procured investment advisory services for the Fund. See
"The Reorganization of the PIMCO Global Bond Fund II" for additional
information.
Fund Administrator
PIMCO also serves as Administrator to the Funds pursuant to an administration
agreement (the "Administration Agreement") with the Trust. PIMCO provides the
Funds with certain administrative and shareholder services necessary for Fund
operations and is responsible for the supervision of other Fund
45
<PAGE>
service providers. PIMCO may in turn use the facilities or assistance of its
affiliates to provide certain services under the Administration Agreement, on
terms agreed between PIMCO and such affiliates. The administrative services
provided by PIMCO include but are not limited to: (1) shareholder servicing
functions, including preparation of shareholder reports and communications, (2)
regulatory compliance, such as reports and filings with the SEC and state
securities commissions, and (3) general supervision of the operations of the
Funds, including coordination of the services performed by the Funds' transfer
agent, custodian, legal counsel, independent accountants, and others. PIMCO (or
an affiliate of PIMCO) also furnishes the Funds with office space facilities
required for conducting the business of the Funds, and pays the compensation of
those officers, employees and Trustees of the Trust affiliated with PIMCO. In
addition, PIMCO, at its own expense, arranges for the provision of legal, audit,
custody, transfer agency and other services for the Funds, and is responsible
for the costs of registration of the Trust's shares and the printing of
prospectuses and shareholder reports for current shareholders. PIMCO has
contractually agreed to provide these services, and to bear these expenses, at
the following rates for each Fund (each expressed as a percentage of the Fund's
average daily net assets attributable to its classes of shares on an annual
basis):
<TABLE>
<CAPTION>
Administrative Fee Rate
-----------------------
Institutional and Class A, B Class J
Fund Administrative Class 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%
All other Funds 0.25% 0.40% 0.65% 0.25%
</TABLE>
* As described below, the Administration Agreement includes a plan adopted
under Rule 12b-1 which provides for the payment of up to .25% of the Class
D Administrative Fee rate as reimbursement for expenses in respect of
activities that may be deemed to be primarily intended to result in the
sale of Class D shares.
Except for the expenses paid by PIMCO, the Trust bears all costs of its
operations. The Funds are responsible for: (i) salaries and other compensation
of any of the Trust's executive officers and employees who are not officers,
directors, stockholders, or employees of PIMCO or its subsidiaries or
affiliates; (ii) taxes and governmental fees; (iii) brokerage fees and
commissions and other portfolio transaction expenses; (iv) costs of borrowing
money, including interest expenses; (v) fees and expenses of the Trustees who
are not "interested persons" of PIMCO or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) expenses, such as organizational
expenses, which are capitalized in accordance with generally accepted accounting
principles; and (viii) any expenses allocated or allocable to a specific class
of shares ("Class-specific expenses").
Class-specific expenses include distribution and service fees payable with
respect to different classes of shares and administrative fees as described
above, and may include certain other expenses as
46
<PAGE>
permitted by the Trust's Amended and Restated Multi-Class Plan adopted pursuant
to Rule 18f-3 under the 1940 Act and subject to review and approval by the
Trustees.
The Administration Agreement may be terminated by the Trustees, or by a vote
of a majority of the outstanding voting securities of the Trust, Fund, or Class
as applicable, at any time on 60 days' written notice. Following the expiration
of the one-year period commencing with the effectiveness of the Administration
Agreement, it may be terminated by PIMCO, also on 60 days' written notice.
The Administration Agreement is subject to annual approval by the Board,
including a majority of the Trust's Independent Trustees (as that term is
defined in the 1940 Act). The current Administration Agreement was approved by
the Board of Trustees, including all of the Independent Trustees at a meeting
held on February 24, 1998, as supplemented on August 25, 1998, February 23, 1999
and May 25, 1999. In approving the Administration Agreement, the Trustees
determined that: (1) the Administration Agreement is in the best interests of
the Funds and their shareholders; (2) the services to be performed under the
Agreement are services required for the operation of the Funds; (3) PIMCO is
able to provide, or to procure, services for the Funds which are at least equal
in nature and quality to services that could be provided by others; and (4) the
fees to be charged pursuant to the Agreement are fair and reasonable in light of
the usual and customary charges made by others for services of the same nature
and quality.
Under the Administration Agreement, the Administrator or an affiliate may pay
financial service firms a portion of the Class D administration fees in return
for the firms' services (normally not to exceed an annual rate of .35% of a
Fund's average daily net assets attributable to Class D shares purchase through
such firms). The Administration Agreement includes a plan specific to Class D
shares that has been adopted in conformity with the requirements set forth under
Rule 12b-1 of the 1940 Act to allow for payment of up to .25% per annum of the
Class D administrative fees as reimbursement for expenses in respect of
activities that may be deemed to be primarily intended to result in the sale of
Class D shares. The principal types of activities for which such payments may
be made are services in connection with the distribution and marketing of Class
D shares and/or the provision of shareholder services. See "Distribution of
Trust Shares - Plan for Class D Shares."
For the fiscal years ended March 31, 1999, 1998, and 1997, the aggregate
amount of the administration fees paid by each operational Fund was as follows:
<TABLE>
<S> <C> <C> <C>
Fund Year Ended Year Ended Year Ended
- --------------------------------- 3/31/99 3/31/98 3/31/97
----------- ----------- -----------
Money Market Fund $ 731,013 $ 423,936 $ 117,570
Short-Term Fund 1,024,794 410,894 249,655
Low Duration Fund 6,841,437 5,665,996 5,005,045
Low Duration Fund II 1,060,930 869,853 685,047
Low Duration Fund III 61,917 32,700 6,114
Low Duration Mortgage Fund 9,728 5,914 N/A
Moderate Duration Fund 548,701 235,572 5,220
Real Return Bond Fund 48,397 21,841 2,503
Total Return Fund 43,425,035 29,219,721 21,266,359
Total Return Fund II 2,107,391 1,145,766 1,171,011
Total Return Fund III 1,045,572 701,110 423,216
Total Return Mortgage Fund 9,937 5,679 N/A
High Yield Fund 7,243,110 4,258,485 2,071,177
Long-Term U.S. Government Fund 508,159 130,444 64,374
Global Bond Fund 800,281 770,719 508,256
Global Bond Fund II* 151,390 87,617 14,646
Foreign Bond Fund 1,454,801 849,691 540,519
Emerging Markets Bond Fund 18,034 10,526 N/A
Municipal Bond Fund 145,118 N/A N/A
Strategic Balanced Fund 126,263 73,467 19,788
StocksPLUS Fund 2,757,948 1,392,509 491,519
</TABLE>
47
<PAGE>
____________________
*The Global Bond Fund II, for the fiscal year ended September 30, 1996, paid
aggregate management fees in the amount of $54,325, pursuant to a management
contract between PIMCO Advisors Funds and PIMCO Advisors, under which PIMCO
Advisors provided or procured administrative services for the Fund. See "The
Reorganization of the PIMCO Global Bond Fund II" for additional information.
DISTRIBUTION OF TRUST SHARES
Distributor and Multi-Class Plan
PIMCO Funds Distributors LLC (the "Distributor") serves as the principal
underwriter of each class of the Trust's shares pursuant to a distribution
contract ("Distribution Contract") with the Trust which is subject to annual
approval by the Board. The Distributor is a wholly owned subsidiary of PIMCO
Advisors. The Distributor, located at 2187 Atlantic Street, Stamford,
Connecticut 06902, is a broker-dealer registered with the Securities and
Exchange Commission. The Distribution Contract is terminable with respect to a
Fund or class without penalty, at any time, by the Fund or class by not more
than 60 days' nor less than 30 days' written notice to the Distributor, or by
the Distributor upon not more than 60 days' nor less than 30 days' written
notice to the Trust. The Distributor is not obligated to sell any specific
amount of Trust shares.
The Distribution Contract will continue in effect with respect to each Fund
and each class of shares thereof for successive one-year periods, provided that
each such continuance is specifically approved (i) by the vote of a majority of
the Trustees who are not interested persons of the Trust (as defined in the 1940
Act) and who have no direct or indirect financial interest in the Distribution
Contract, the Administration Agreement or the Distribution and/or Servicing
Plans described below; and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose. If the
Distribution Contract is terminated (or not renewed) with respect to one or more
Funds or classes thereof, it may continue in effect with respect to any class of
any Fund as to which it has not been terminated (or has been renewed).
The Trust offers eight classes of shares: Class A, Class B, Class C, Class D,
Class J, Class K, the Institutional Class and the Administrative Class. Class J
and Class K shares are offered only to non-U.S. investors outside the United
States.
Class A, Class B and Class C shares of the Trust are offered through firms
("participating brokers") which are members of the National Association of
Securities Dealers, Inc. ("NASD"), and which have dealer agreements with the
Distributor, or which have agreed to act as introducing brokers for the
Distributor ("introducing brokers").
Class D shares are generally offered to clients of financial service firms,
such as broker-dealers or registered investment advisors, with which the
Distributor has an agreement for the use of PIMCO Funds: Pacific Investment
Management Series in particular investment products, programs or accounts for
which a fee may be charged.
Institutional Class shares are offered primarily for direct investment by
investors such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations, corporations and high net
48
<PAGE>
worth individuals. (Institutional Class shares may also be offered through
certain financial intermediaries that charge their customers transaction or
other fees with respect to the customer's investment in the Funds.)
Administrative Class shares are offered primarily through employee benefit plans
alliances, broker-dealers, and other intermediaries, and each Fund pays service
or distribution fees to such entities for services they provide to
Administrative Class shareholders.
Class J and Class K shares are offered through foreign broker dealers, banks
and other financial institutions. Class J and Class K shares are offered to
non-U.S. investors as well as though various non-U.S. investment products,
programs or accounts for which a fee may be charged by investment intermediaries
in addition to those described in the Prospectus and SAI.
The Trust has adopted an Amended and Restated Multi-Class Plan ("Multi-Class
Plan") pursuant to Rule 18f-3 under the 1940 Act. Under the Multi-Class Plan,
shares of each class of each Fund represent an equal pro rata interest in such
Fund and, generally, have identical voting, dividend, liquidation, and other
rights, preferences, powers, restrictions, limitations, qualifications and terms
and conditions, except that: (a) each class has a different designation; (b)
each class of shares bears any class-specific expenses allocated to it; and (c)
each class has exclusive voting rights on any matter submitted to shareholders
that relates solely to its distribution or service arrangements, and each class
has separate voting rights on any matter submitted to shareholders in which the
interests of one class differ from the interests of any other class.
Each class of shares bears any class specific expenses allocated to such
class, such as expenses related to the distribution and/or shareholder servicing
of such class. In addition, each class may, at the Trustees' discretion, also
pay a different share of other expenses, not including advisory or custodial
fees or other expenses related to the management of the Trust's assets, if these
expenses are actually incurred in a different amount by that class, or if the
class receives services of a different kind or to a different degree than the
other classes. All other expenses are allocated to each class on the basis of
the net asset value of that class in relation to the net asset value of the
particular Fund. In addition, each class may have a differing sales charge
structure, and differing exchange and conversion features.
Contingent Deferred Sales Charge and Initial Sales Charge
As described in the Class A, B and C Prospectus under the caption "Investment
Options (Class A, B and C Shares)," a contingent deferred sales charge is
imposed upon certain redemptions of the Class A, Class B and Class C shares. No
contingent deferred sales charge is currently imposed upon redemptions of Class
D, Institutional Class or Administrative Class shares. Because contingent
deferred sales charges are calculated on a Fund-by-Fund basis, shareholders
should consider whether to exchange shares of one Fund for shares of another
Fund prior to redeeming an investment if such an exchange would reduce the
contingent deferred sales charge applicable to such redemptions.
During the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997, the Distributor received the following aggregate amounts in contingent
deferred sales charges on Class A shares, Class B shares and Class C shares of
the Funds:
<TABLE>
<CAPTION>
Year Ended 3/31/99 Year Ended 3/31/98 Year Ended 3/31/97
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Class A $ 37,142 $ 37,724 $ 670
Class B 1,653,443 694,715 85,380
Class C 543,223 246,969 44,409
</TABLE>
In certain cases described in the Class A, B and C Prospectus, the contingent
deferred sales charge is waived on redemptions of Class A, Class B or Class C
shares for certain classes of individuals or entities on account of (i) the fact
that the Trust's sales-related expenses are lower for certain of such classes
than for classes for which the contingent deferred sales charge is not waived,
(ii) waiver of the
49
<PAGE>
contingent deferred sales charge with respect to certain of such classes is
consistent with certain Internal Revenue Code policies concerning the favored
tax treatment of accumulations, and (iii) with respect to certain of such
classes, considerations of fairness, and competitive and administrative factors.
As described in the Class A, B and C Prospectus under the caption "Investment
Options (Class A, B and C Shares)," Class A shares of the Trust (except with
respect to the Money Market Fund) are sold pursuant to an initial sales charge,
which declines as the amount of purchase reaches certain defined levels. For the
fiscal years ended March 31, 1999, March 31, 1998, and March 31, 1997, the
Distributor received an aggregate of $6,227,864, $2,598,104 and $389,133,
respectively, and retained $750,751, $186,443 and $45,871, respectively, in
initial sales charges paid by Class A shareholders of the Trust.
Distribution and Servicing Plans for Class A, Class B and Class C Shares
As stated in the text of the Class A, B and C Prospectus under the caption
"Management of the Trust--Distribution and Servicing (12b-1) Plans," Class A,
Class B and Class C shares of the Trust are continuously offered through
participating brokers which are members of the NASD and which have dealer
agreements with the Distributor, or which have agreed to act as introducing
brokers.
Pursuant to separate Distribution and Servicing Plans for Class A, Class B and
Class C shares (the "Retail Plans"), as described in the Class A, B and C
Prospectus, in connection with the distribution of Class B and Class C shares of
the Trust, the Distributor receives certain distribution fees from the Trust,
and in connection with personal services rendered to Class A, Class B and Class
C shareholders of the Trust and the maintenance of shareholder accounts, the
Distributor receives certain servicing fees from the Trust. Subject to the
percentage limitations on these distribution and servicing fees set forth below,
the distribution and servicing fees may be paid with respect to services
rendered and expenses borne in the past with respect to Class A, Class B and
Class C shares as to which no distribution and servicing fees were paid on
account of such limitations. As described in the Class A, B and C Prospectus,
the Distributor pays (i) all or a portion of the distribution fees it receives
from the Trust to participating and introducing brokers, and (ii) all or a
portion of the servicing fees it receives from the Trust to participating and
introducing brokers, certain banks and other financial intermediaries.
The Distributor makes distribution and servicing payments to participating
brokers and servicing payments to certain banks and other financial
intermediaries in connection with the sale of Class B and Class C shares and
servicing payments to participating brokers, certain banks and other financial
intermediaries in connection with the sale of Class A shares. In the case of
Class A shares, these parties are also compensated based on the amount of the
front-end sales charge reallowed by the Distributor, except in cases where Class
A shares are sold without a front-end sales charge (although the Distributor may
pay brokers additional compensation in connection with sales of Class A shares
without a sales charge). In the case of Class B shares, participating brokers
and other financial intermediaries are compensated by an advance of a sales
commission by the Distributor. In the case of Class C shares, part or all of the
first year's distribution and servicing fee is generally paid at the time of
sale. Pursuant to a Distribution Contract with the Trust, with respect to each
Fund's Class A, Class B and Class C shares, the Distributor bears various other
promotional and sales related expenses, including the cost of printing and
mailing prospectuses to persons other than current shareholders.
The Retail Plans were adopted pursuant to Rule 12b-l under the 1940 Act and
are of the type known as "compensation" plans. This means that, although the
Trustees of the Trust are expected to take into account the expenses of the
Distributor and its predecessors in their periodic review of the Retail Plans,
the fees are payable to compensate the Distributor for services rendered even if
the amount paid exceeds the Distributor's expenses.
The distribution fee applicable to Class B and Class C shares may be spent
by the Distributor on any activities or expenses primarily intended to result in
the sale of Class B or Class C shares, respectively, including compensation to,
and expenses (including overhead and telephone expenses) of,
50
<PAGE>
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
Class C - Shares purchased on or after 7/1/91(3)
- -------------------------------------------------------------------------------------
Money Market Fund 0.10% 0.00%
- -------------------------------------------------------------------------------------
Short-Term and Short Duration Municipal 0.25% 0.25%
Income Funds
- -------------------------------------------------------------------------------------
Low Duration, Real Return Bond, 0.25% 0.45%
Municipal Bond, California Intermediate
Municipal Bond, 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>
51
<PAGE>
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 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
52
<PAGE>
shareholders of the Funds and the maintenance of shareholder accounts, may
exceed the distribution and servicing fees collected by the Distributor. The
Trustees consider such unreimbursed amounts, among other factors, in determining
whether to cause the Funds to continue payments of distribution and servicing
fees in the future with respect to Class B and Class C shares.
Payments Pursuant to Class A Plan
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31, 1997,
the Trust paid the Distributor an aggregate of $3,158,937, $1,180,030 and
$108,294, respectively, pursuant to the Distribution and Servicing Plan for
Class A shares, of which the indicated amounts were attributable to the
following Funds:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ----- ---------- -------- --------
<S> <C> <C> <C>
Money Market Fund $ 79,137 $ 38,216 $ 5,447
Short-Term Fund 123,595 23,033 530
Low Duration Fund 382,868 192,859 27,514
Real Return Fund 6,053 1,143 0
Total Return Fund 1,980,636 679,157 47,448
High Yield Fund 234,956 121,858 15,347
Long-Term U.S. Government Fund 39,481 8,199 396
Global Bond Fund II 12,179 20,868 9,836
Foreign Bond Fund 52,053 10,245 127
Emerging Markets Bond Fund 498 316 0
Municipal Bond 14,101 0 0
StocksPLUS Fund 233,380 84,136 1,609
</TABLE>
During the fiscal year ended March 31, 1999, the amounts collected pursuant to
the Distribution and Servicing Plan for Class A shares were used as follows:
sales commissions and other compensation to sales personnel, $2,527,150;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $631,787.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
- ---- ------------ --------------- ---------
<S> <C> <C> <C>
Money Market Fund $ 103,815 $ 25,954 $ 129,768
Short-Term Fund 109,015 27,254 136,269
Low Duration Fund 256,567 64,142 320,709
Real Return Bond Fund 8,431 2,108 10,539
Total Return Fund 1,548,329 387,082 1,935,411
High Yield Fund 208,082 52,021 260,103
Long-Term U.S. Government Fund 39,784 9,946 49,730
Global Bond Fund II 3,688 922 4,610
Foreign Bond Fund 39,181 9,795 48,976
Emerging Markets Bond Fund 231 58 289
Municipal Bond Fund 9,497 2,374 11,871
StocksPLUS Fund 200,530 50,133 250,663
</TABLE>
Payments Pursuant to Class B Plan
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31, 1997,
the Trust paid
53
<PAGE>
the Distributor an aggregate of $8,169,978, $2,884,164 and $293,036,
respectively, pursuant to the Distribution and Servicing Plan for Class B
shares, of which the indicated amounts were attributable to the following Funds:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ----- ---------- ---------- --------
<S> <C> <C> <C>
Money Market Fund $ 86,809 $ 27,747 $ 4,084
Short-Term Fund 21,254 7,508 156
Low Duration Fund 433,206 95,153 9,853
Real Return Fund 28,545 9,701 256
Total Return Fund 3,372,168 1,153,121 140,575
High Yield Fund 2,065,488 1,013,423 110,003
Long-Term U.S. Government Fund 229,521 28,337 361
Global Bond Fund II 11,000 42,965 18,506
Foreign Bond Fund 164,040 58,084 1,129
Emerging Markets Bond Fund 2,953 928 0
Municipal Bond 10,000 0 0
StocksPLUS Fund 1,679,748 447,197 8,113
</TABLE>
During the fiscal year ended March 31, 1999, the amounts collected pursuant to
the Distribution and Servicing Plan for Class B shares were used as follows:
sales commissions and other compensation to sales personnel, $6,535,984;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $1,633,994.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
- ----- -------------------- ------------------- ------------------
<S> <C> <C> <C>
Money Market Fund $ 77,056 $ 19,264 $ 96,320
Short-Term Fund 19,361 4,840 24,201
Low Duration Fund 333,694 83,423 417,117
Real Return Bond Fund 18,677 4,669 23,346
Total Return Fund 2,816,842 704,210 3,521,052
High Yield Fund 1,465,286 366,321 1,831,607
Long-Term U.S. Government Fund 193,955 48,489 242,444
Global Bond Fund II 24,775 6,194 30,969
Foreign Bond Fund 108,858 27,214 136,072
Emerging Markets Bond Fund 2,036 509 2,545
Municipal Bond Fund 31,208 7,802 39,010
StocksPLUS Fund 1,444,236 361,059 1,805,295
</TABLE>
Payments Pursuant to Class C Plan
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31, 1997,
the Trust paid the Distributor an aggregate of $11,016,443, $7,026,337 and
$1,219,775, respectively, pursuant to the Distribution and Servicing Plan for
Class C shares, of which the indicated amounts were attributable to the
following Funds:
54
<PAGE>
<TABLE>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ----- ---------- ---------- --------
<S> <C> <C> <C>
Money Market Fund $ 75,541 $ 59,070 $ 12,352
Short-Term Fund 61,224 22,612 462
Low Duration Fund 645,396 461,997 92,491
Real Return Fund 16,396 4,292 79
Total Return Fund 5,309,578 3,510,589 666,085
High Yield Fund 3,098,891 2,415,721 412,589
Long-Term U.S. Government Fund 200,406 26,880 163
Global Bond Fund II 49,000 56,574 23,021
Foreign Bond Fund 237,914 91,131 1,520
Emerging Markets Bond Fund 1,972 635 0
Municipal Bond 10,000 0 0
StocksPLUS Fund 1,097,998 376,836 11,013
</TABLE>
During the fiscal year ended March 31, 1999, the amounts collected pursuant
to the Distribution and Servicing Plan for Class C shares were used as follows:
sales commissions and other compensation to sales personnel, $8,813,154;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $2,203,289.
55
<PAGE>
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:
<TABLE>
<CAPTION>
Sales Material
and Other
Fund Compensation Expenses Total
- ---- -------------- ------------------- ------------
<S> <C> <C> <C>
Money Market Fund $ 405,879 $101,470 $ 507,349
Short-Term Fund 83,744 20,936 104,680
Low Duration Fund 600,960 150,240 751,200
Real Return Bond Fund 13,618 3,405 17,023
Total Return Fund 3,838,393 959,598 4,797,991
High Yield Fund 1,989,895 497,474 2,487,369
Long-Term U.S. Government Fund 170,669 42,667 213,336
Global Bond Fund II 31,495 7,874 39,369
Foreign Bond Fund 159,037 39,759 198,796
Emerging Markets Bond Fund 1,225 306 1,531
Municipal Bond Fund 203,876 50,969 254,845
StocksPLUS Fund 1,314,363 328,591 1,642,954
</TABLE>
From time to time, expenses of principal underwriters incurred in
connection with the distribution of Class B and Class C shares of the Funds, and
in connection with the servicing of Class A, Class B and Class C shareholders of
the Funds and the maintenance of Class A, Class B and Class C shareholder
accounts, may exceed the distribution and/or servicing fees collected by the
Distributor. Class A, Class B and Class C Distribution and Servicing Plans,
which are similar to the Trust's current Plans, were in effect prior to January
17, 1997 in respect of the series of PAF that was the predecessor of the Global
Bond Fund II. As of March 31, 1999, such expenses were approximately
$11,665,000 in excess of payments under the Class A Plan, $48,493,002 in excess
of payments under the Class B Plan and $1,770,000 in excess of payments under
the Class C Plan.
The allocation of such excess (on a pro rata basis) among the Funds
listed below as of March 31, 1999 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- --------- --------- ---------
<S> <C> <C> <C>
Money Market Fund $ 479,195 $ 571,708 $ 81,515
Short-Term Fund 503,199 143,645 16,819
Low Duration Fund 1,184,278 2,475,803 120,694
Real Return Bond Fund 38,917 138,573 2,735
Total Return Fund 7,146,889 20,899,248 770,888
High Yield Fund 960,482 10,871,531 399,643
Long-Term U.S. Government Fund 183,638 1,439,028 34,277
Global Bond Fund II 17,024 183,814 6,325
Foreign Bond Fund 180,855 807,658 31,940
Emerging Markets Bond Fund 1,066 15,105 246
Municipal Bond Fund 43,835 231,541 40,946
StocksPLUS Fund 925,622 10,715,348 263,972
</TABLE>
56
<PAGE>
The allocation of such excess (on a pro rata basis) among the Funds,
calculated as a percentage of net assets of each Fund listed below as of March
31, 1999 was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C
- ---- ------- ------- -------
<S> <C> <C> <C>
Money Market Fund 0.63% 3.81% 0.11%
Short-Term Fund 0.63 3.81 0.11
Low Duration Fund 0.63 3.81 0.11
Total Return Fund 0.63 3.81 0.11
Real Return Fund 0.63 3.81 0.11
High Yield Fund 0.63 3.81 0.11
Long-Term U.S. Government Fund 0.63 3.81 0.11
Global Bond Fund II 0.63 3.81 0.11
Foreign Bond Fund 0.63 3.81 0.11
Emerging Markets Bond Fund 0.63 3.81 0.11
Municipal Bond Fund 0.63 3.81 0.11
StocksPLUS Fund 0.63 3.81 0.11
</TABLE>
Distribution and Administrative Services Plans for Administrative Class Shares
The Trust has adopted an Administrative Services Plan and an Administrative
Distribution Plan (together, the "Administrative Plans") with respect to the
Administrative Class shares of each Fund.
Under the terms of the Administrative Distribution Plan, the Trust is
permitted to reimburse, out of the assets attributable to the Administrative
Class shares of each Fund, in an amount up to 0.25% on an annual basis of the
average daily net assets of that class, financial intermediaries for costs and
expenses incurred in connection with the distribution and marketing of
Administrative Class shares and/or the provision of certain shareholder services
to its customers that invest in Administrative Class shares of the Funds. Such
services may include, but are not limited to, the following: providing
facilities to answer questions from prospective investors about a Fund;
receiving and answering correspondence, including requests for prospectuses and
statements of additional information; preparing, printing and delivering
prospectuses and shareholder reports to prospective shareholders; complying with
federal and state securities laws pertaining to the sale of Administrative Class
shares; and assisting investors in completing application forms and selecting
dividend and other account options.
Under the terms of the Administrative Services Plan, the Trust is permitted
to reimburse, out of the assets attributable to the Administrative Class shares
of each Fund, in an amount up to 0.25% on an annual basis of the average daily
net assets of that class, financial intermediaries that provide certain
administrative services for Administrative Class shareholders. Such services
may include, but are not limited to, the following functions: receiving,
aggregating and processing shareholder orders; furnishing shareholder sub-
accounting; providing and maintaining elective shareholder services such as
check writing and wire transfer services; providing and maintaining pre-
authorized investment plans; communicating periodically with shareholders;
acting as the sole shareholder of record and nominee for shareholders;
maintaining accounting records for shareholders; answering questions and
handling correspondence from shareholders about their accounts; and performing
similar account administrative services.
The same entity may be the recipient of fees under both the Administrative
Class Distribution Plan and the Administrative Services Plan, but may not
receive fees under both plans with respect to the same assets. Fees paid
pursuant to either Plan may be paid for shareholder services and the maintenance
of shareholder accounts, and therefore may constitute "service fees" for
purposes of applicable rules of the National Association of Securities Dealers,
Inc. Each Plan has been adopted in accordance with the requirements of Rule 12b-
1 under the 1940 Act and will be administered in accordance with the
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<PAGE>
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.
Each Administrative Plan provides that it shall continue in effect so long
as such continuance is specifically approved at least annually by the Trustees
and the disinterested Trustees defined above. Each Administrative Plan provides
that any person authorized to direct the disposition of monies paid or payable
by a class pursuant to the Plan or any related agreement shall provide to the
Trustees, and the Board shall review at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made.
Each Administrative Plan is a "reimbursement plan," which means that fees
are payable to the relevant financial intermediary only to the extent necessary
to reimburse expenses incurred pursuant to such plan. Each Administrative Plan
provides that expenses payable under the Plan may be carried forward for
reimbursement for up to twelve months beyond the date in which the expense is
incurred, subject to the limit that not more that 0.25% of the average daily net
assets of Administrative Class shares may be used in any month to pay expenses
under the Plan. Each Plan requires that Administrative Class shares incur no
interest or carrying charges.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that some, if not
all, of the fees paid pursuant to both Administrative Plans will qualify as
"service fees" and therefore will not be limited by NASD rules.
Institutional and Administrative Class shares of the Trust may also be
offered through certain brokers and financial intermediaries ("service agents")
that have established a shareholder servicing relationship with the Trust on
behalf of their customers. The Trust pays no compensation to such entities
other than service fees paid with respect to Administrative Class shares.
Service agents may impose additional or different conditions than the Trust on
the purchase, redemption or exchanges of Trust shares by their customers.
Service agents may also independently establish and charge their customers
transaction fees, account fees and other amounts in connection which purchases,
sales and redemption of Trust shares in addition to any fees charged by the
Trust. Each service agent is responsible for transmitting to its customers a
schedule of any such fees and information regarding any additional or different
conditions regarding purchases and redemptions. Shareholders who are customers
of service agents should consult their service agents for information regarding
these fees and conditions.
Payments Pursuant to the Administrative Plans
For the fiscal years ended March 31, 1999, March 31, 1998 and March 31,
1997 the Trust paid qualified service providers an aggregate amount of
$3,691,083, $850,407 and $301,019, respectively,
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<PAGE>
pursuant to the Administrative Services Plan and the Administrative Distribution
Plan. Such payments were allocated among the Funds listed below as follows:
<TABLE>
<S> <C> <C> <C>
Year Ended Year Ended Year Ended
Fund 3/31/99 3/31/98 3/31/97
- ----- ---------- -------- --------
Money Market Fund $ 10,213 $ 716 $ 0
Short-Term Fund 16,719 10,315 4,289
Low Duration Fund 297,918 72,650 33,143
Low Duration Fund II 28,257 19 0
Total Return Fund 2,826,235 691,950 229,400
Total Return Fund II 135,827 0 8,414
Total Return Fund III 3,586 0 140
High Yield Fund 336,744 60,079 17,859
Long-Term U.S. Government Fund 15,870 5,340 72
Municipal Bond 447 0 0
Global Bond Fund 2,995 8,806 6,336
Foreign Bond Fund 3,134 532 185
Emerging Markets Bond Fund 135 0 0
StocksPLUS Fund 13,003 0 1,181
</TABLE>
The remaining Funds did not make payments under either Administrative Plan.
Plan for Class D Shares
As described under "Management of the Trust- Fund Administrator," the
Funds' Administration Agreement includes a plan (the "Class D Plan") adopted
pursuant to Rule 12b-1 under the 1940 Act which provides for the payment of up
to .25% of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares.
Specifically, the Administration Agreement provides that the Administrator
shall provide in respect of Class D shares (either directly or by procuring
through other entities, including various financial services firms such as
broker-dealers and registered investment advisors ("Service Organizations"))
some or all of the following services and facilities in connection with direct
purchases by shareholders or in connection with products, programs or accounts
offered by such Service Organizations ("Special Class D Services"): (i)
facilities for placing orders directly for the purchase of a Fund's shares and
tendering a Fund's Class D shares for redemption; (ii) advertising with respect
to a Fund's Class D shares; (iii) providing information about the Funds; (iv)
providing facilities to answer questions from prospective investors about the
Funds; (v) receiving and answering correspondence, including requests for
prospectuses and statements of additional information; (vi) preparing, printing
and delivering prospectuses and shareholder reports to prospective shareholders;
(vii) assisting investors in applying to purchase Class D shares and selecting
dividend and other account options; and (viii) shareholder services provided by
a Service Organization that may include, but are not limited to, the following
functions: receiving, aggregating and processing shareholder orders; furnishing
shareholder sub-accounting; providing and maintaining elective shareholder
services such as check writing and wire transfer services; providing and
maintaining pre-authorized investment plans; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining accounting records for shareholders; answering
questions and handling correspondence from shareholders about their accounts;
issuing confirmations for transactions by shareholders; performing similar
account administrative services; providing such shareholder communications and
recordkeeping services as may be required for any program for which the Service
Organization is a sponsor that relies on Rule 3a-4 under the 1940 Act; and
providing such other similar services as may reasonably be requested to the
extent the Service Organization is permitted to do so under applicable statutes,
rules, or regulations.
59
<PAGE>
The Administrator has entered into an agreement with the Distributor under
which the distributor is compensated for providing or procuring certain of the
Class D Services at the rate of .25% per annum of all assets attributable to
Class D shares sold through the Distributor.
The Trust and the Administrator understand that some or all of the Special
Class D Services pursuant to the Administration Agreement may be deemed to
represent services primarily intended to result in the sale of Class D shares.
The Administration Agreement includes the Class D Plan to account for this
possibility. The Administration Agreement provides that any portion of the fees
paid thereunder in respect of Class D shares representing reimbursement for the
Administrator's and the Distributor's expenditures and internally allocated
expenses in respect of Class D Services of any Fund shall not exceed the rate of
.25% per annum of the average daily net assets of such Fund attributable to
Class D shares.
In accordance with Rule 12b-1 under the 1940 Act, the Class D Plan may not
be amended to increase materially the costs which Class D shareholders may bear
under the Plan without approval of a majority of the outstanding Class D shares,
and by vote of a majority of both (i) the Trustees of the Trust and (ii) those
Trustees ("disinterested Class D Plan Trustees") who are not "interested
persons" of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it, cast in person at a meeting called for the purpose of voting on
the Plan and any related amendments. The Class D Plan may not take effect until
approved by a vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Class D Plan Trustees. In addition, the Class D Plan may not
take effect unless it is approved by the vote of a majority of the outstanding
Class D shares and it shall continue in effect so long as such continuance is
specifically approved at least annually by the Trustees and the disinterested
Class D Plan Trustees.
With respect to the Class D Plan, the Administration Agreement requires the
Administrator to present reports as to out-of-pocket expenditures and internal
expenses allocations of the Administrator and the Distributor at least quarterly
and in a manner that permits the disinterested Class D Plan Trustees to
determine that portion of the Class D administrative fees paid thereunder which
represents reimbursements in respect of Special Class D Services.
Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.
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<PAGE>
Payments Pursuant to Class D Plan
For the fiscal year ended March 31, 1999, the Trust paid $48,375 pursuant
to the Class D Plan, of which the indicated amounts were attributable to the
following operational Funds:
<TABLE>
<CAPTION>
Year Ended
Fund 3/31/99
- ---- ----------
<S> <C>
Short-Term Fund $ 1,589
Low Duration Fund 5,733
Real Return Fund 323
Total Return Fund 23,268
Total Return Mortgage Fund 283
High Yield Fund 5,873
Foreign Bond Fund 8,973
Municipal Bond 402
Strategic Balanced 291
StocksPLUS Fund 1,640
</TABLE>
Distribution and Servicing Plan for Class J and Class K Shares
Class J and Class K each has a separate distribution and servicing plan
(the "Class J-K Plans"). Distribution fees paid pursuant to the Class J-K Plans
may only be paid in connection with services provided with respect to Class J
and Class K shares.
As stated in the Prospectus relating to Class J and Class K shares under
the caption "Service and Distribution Fees," the Distributor pays (i) all or a
portion of the distribution fees it receives from the Trust to participating and
introducing brokers, and (ii) all or a portion of the servicing fees it receives
from the Trust to participating and introducing brokers, certain banks and other
financial intermediaries.
Each Class J-K Plan may be terminated with respect to any Fund to which the
Class J-K Plan relates by vote of a majority of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or the
Distribution Contract ("Disinterested Trustees") or by vote of a majority of the
outstanding voting securities of the relevant class of that Fund. Pursuant to
Rule 12b-1, any change in either Class J-K Plan that would materially increase
the cost to the class of shares of any Fund to which the Plan relates requires
approval by the affected class of shareholders of that Fund. The Trustees review
quarterly written reports of such costs and the purposes for which such costs
have been incurred. Each Class J-K Plan may be amended by vote of the
Disinterested Trustees cast in person at a meeting called for the purpose. As
long as the Class J-K Plans are in effect, selection and nomination of those
Trustees who are not interested persons of the Trust shall be committed to the
discretion of such Disinterested Trustees.
The Class J-K Plans will continue in effect with respect to each Fund and
each class of shares thereof for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
Disinterested Trustees and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
If a Class J-K Plan is terminated (or not renewed) with respect to one or
more Funds, it may continue in effect with respect to any class of any Fund as
to which it has not been terminated (or has been renewed).
The Trustees believe that the Class J-K Plans will provide benefits to the
Trust. The Trustees believe that the Class J-K Plans will result in greater
sales and/or fewer redemptions of Trust shares, although it is impossible to
know for certain the level of sales and redemptions of Trust shares that would
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
Trust may also charge periodic account fees for accounts that fall below minimum
balances, as described in the Prospectuses.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions and Portfolio Transactions
Investment decisions for the Trust and for the other investment advisory
clients of 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 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
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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, except those imposed on their ability to engage in short-term trading
by provisions of the federal tax laws, see "Taxation." The use of certain
derivative instruments with relatively short maturities may tend to exaggerate
the portfolio turnover rate for some of the Funds. Trading in fixed income
securities does not generally involve the payment of brokerage commissions, but
does involve indirect transaction costs. The use of futures contracts may
involve the payment of commissions to futures commission merchants. High
portfolio turnover (e.g., greater than 100%) involves correspondingly greater
expenses to a Fund, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and reinvestments in other
securities. The higher the rate of portfolio turnover of a Fund, the higher
these transaction costs borne by the Fund generally will be. Such sales may
result in realization of taxable capital gains (including short-term capital
gains which are generally taxed to shareholders at ordinary income tax rates).
The portfolio turnover rate of a Fund is calculated by dividing (a) the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. Proceeds from short sales and assets used to
cover short positions undertaken are included in the amounts of securities sold
and purchased, respectively, during the year. Portfolio turnover rates for each
Fund for which financial highlights for at least the past two fiscal years are
provided in the Prospectuses are set forth under ''Financial Highlights'' in the
applicable Prospectus.
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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 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.
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TAXATION
The following summarizes certain additional federal income tax
considerations generally affecting the Funds and their shareholders. The
discussion is for general information only and does not purport to consider all
aspects of U.S. federal income taxation that might be relevant to beneficial
owners of shares of the Funds. The discussion is based upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, which change could
be retroactive. The discussion applies only to beneficial owners of Fund shares
in whose hands such shares are capital assets within the meaning of Section 1221
of the Code, and may not apply to certain types of beneficial owners of shares
(such as insurance companies, tax exempt organizations, and broker-dealers) who
may be subject to special rules. Persons who may be subject to tax in more than
one country should consult the provisions of any applicable tax treaty to
determine the potential tax consequences to them. Prospective investors should
consult their own tax advisers with regard to the federal tax consequences of
the purchase, ownership and disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction. The discussion here and in the Prospectuses is not intended
as a substitute for careful tax planning.
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
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subject to federal income tax) in the calendar year in which the distributions
are declared, rather than the calendar year in which the distributions are
received. To avoid application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
Each Municipal Fund must have at least 50% of its total assets invested in
Municipal Bonds at the end of each calendar quarter so that dividends derived
from its net interest income on Municipal Bonds and so designated by the Fund
will be "exempt-interest dividends," which are generally exempt from federal
income tax when received by an investor. Certain exempt-interest dividends, as
described in the Class A, B and C Prospectus, may increase alternative minimum
taxable income for purposes of determining a shareholder's liability for the
alternative minimum tax. In addition, exempt-interest dividends allocable to
interest from certain "private activity bonds" will not be tax exempt for
purposes of the regular income tax to shareholders who are "substantial users"
of the facilities financed by such obligations or "related persons" of
"substantial users." The tax-exempt portion of dividends paid for a calendar
year constituting "exempt-interest dividends" will be designated after the end
of that year and will be based upon the ratio of net tax-exempt income to total
net income earned by the Fund during the entire year. That ratio may be
substantially different than the ratio of net tax-exempt income to total net
income earned during a portion of the year. Thus, an investor who holds shares
for only a part of the year may be allocated more or less tax-exempt interest
dividends than would be the case if the allocation were based on the ratio of
net tax-exempt income to total net income actually earned by the Fund while the
investor was a shareholder. All or a portion of interest on indebtedness
incurred or continued by a shareholder to purchase or carry shares of a
Municipal Fund will not be deductible by the shareholder. The portion of
interest that is not deductible is equal to the total interest paid or accrued
on the indebtedness multiplied by the percentage of the Fund's total
distributions (not including distributions of the excess of net long-term
capital gains over net short-term capital losses) paid to the shareholder that
are exempt-interest dividends. Under rules used by the Internal Revenue Service
for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares may be
considered to have been made with borrowed funds even though such funds are not
directly traceable to the purchase of shares.
Shareholders of the Municipal Funds receiving social security or railroad
retirement benefits may be taxed on a portion of those benefits as a result of
receiving tax exempt income (including exempt-interest dividends distributed by
the Fund). The tax may be imposed on up to 50% of a recipient's benefits in
cases where the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits,
exceeds a base amount. In addition, up to 85% of a recipient's benefits may be
subject to tax if the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits
exceeds a higher base amount. Shareholders receiving social security or
railroad retirement benefits should consult with their tax advisors.
In years when a Fund distributes amounts in excess of its earnings and
profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. Since certain of the Municipal Funds'
expenses attributable to earning tax-exempt income do not reduce such Fund's
current earnings and profits, it is possible that distributions, if any, in
excess of such Fund's net tax-exempt and taxable income will be treated as
taxable dividends to the extent of such Fund's remaining earnings and profits
(i.e., the amount of such expenses).
Distributions
Except for exempt-interest dividends paid by the Municipal Funds, all
dividends and distributions of a Fund, whether received in shares or cash,
generally are taxable and must be reported on each shareholder's federal income
tax return. Dividends paid out of a Fund's investment company taxable income
will be taxable to a U.S. shareholder as ordinary income. Distributions
received by tax-exempt
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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.
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.
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.
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The transactions may increase the amount of short-term capital gain realized by
a Fund which is taxed as ordinary income when distributed to shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate
to accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Funds intend to account for such transactions in a manner they deem to be
appropriate, the Internal Revenue Service might not accept such treatment. If
it did not, the status of a Fund as a regulated investment company might be
affected. The Trust intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for a Fund to qualify as a
regulated investment company may limit the extent to which a Fund will be able
to engage in swap agreements.
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
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taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains are treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income in prior years. If
this election were made, tax at the Fund level under the PFIC rules would
generally be eliminated, but the Fund could, in limited circumstances, incur
nondeductible interest charges. A Fund's intention to qualify annually as a
regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other things,
the character of gains and the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, and may subject a Fund itself
to tax on certain income from PFIC shares, the amount that must be distributed
to shareholders and will be taxed to shareholders as ordinary income or long-
term capital gain may be increased or decreased substantially as compared to a
fund that did not invest in PFIC shares.
Foreign Currency Transactions
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of certain
other instruments, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security or contract
and the date of 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 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
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alternative minimum tax imposed on corporations and individuals and foreign
taxes generally are not deductible in computing alternative minimum taxable
income.
Original Issue Discount and Market Discount
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A
Fund may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.
A Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
Constructive Sales
Recently enacted rules may affect the timing and character of gain if a
Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If a Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.
Non-U.S. Shareholders
Withholding of Income Tax on Dividends: Under the 1972 Convention and U.S.
federal tax law, dividends paid on shares beneficially held by a person who is a
"foreign person" within the meaning of the Internal Revenue Code of 1986, as
amended, are, in general, subject to withholding of U.S. federal income tax at a
rate of 30% of the gross dividend, which may, in some cases, be reduced by an
applicable tax treaty. However, if a beneficial holder who is a foreign person
has a permanent establishment in the United States, and the shares held by such
beneficial holder are effectively connected with such
72
<PAGE>
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.
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
73
<PAGE>
solely of an unlimited number of shares of beneficial interest with a par value
of $0.0001 each. The Board of Trustees may establish additional series (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional series will not alter the
rights of the Trust's shareholders. When issued, shares are fully paid, non-
assessable, redeemable and freely transferable. Shares do not have preemptive
rights or subscription rights. In liquidation of a Fund, each shareholder is
entitled to receive his pro rata share of the net assets of that Fund.
Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust also provides for
indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which such disclaimer is inoperative or the Trust
itself is unable to meet its obligations, and thus should be considered remote.
Performance Information
From time to time the Trust may make available certain information about
the performance of some or all of the classes of shares of some or all of the
Funds. Information about a Fund's performance is based 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.
74
<PAGE>
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 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, 1999 was as follows: Institutional Class - 4.62%, Administrative
Class - 4.24%, Class A - 4.26%, Class B - 3.40% and Class C - 4.31%.
Quotations of yield for the remaining Funds will be based on all investment
income per share (as defined by the SEC) during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[(a-b + 1)(To the power of 6) - 1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
75
<PAGE>
For the one month period ended March 31, 1999, the yield of the Funds was
as follows (all numbers are annualized) (Class J and Class K shares were not
offered during the period listed):
Yield for Period
Ended March 31, 1999
--------------------
<TABLE>
<CAPTION>
Institutional Administrative
Fund Class Class Class A Class B Class C Class D
- ---- ------------- -------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund 4.79% 4.34% 4.36% 3.52% 4.40% N/A
Short-Term Fund 5.16 4.90 4.66 4.01 4.46 4.86%
Low Duration Fund 5.95 5.70 5.31 4.72 4.97 5.63
Low Duration Fund II 5.64 5.39 N/A N/A N/A N/A
Low Duration Fund III 5.51 N/A N/A N/A N/A N/A
Low Duration Mortgage Fund 6.19 N/A N/A N/A N/A N/A
Moderate Duration Fund 5.81 N/A N/A N/A N/A N/A
Real Return Bond Fund 7.10 N/A 6.48 5.94 6.19 5.42
Total Return Fund 5.89 5.64 5.17 4.65 4.66 5.57
Total Return Fund II 5.52 5.27 N/A N/A N/A N/A
Total Return Fund III 5.79 5.54 N/A N/A N/A N/A
Total Return Mortgage Fund 5.82 N/A N/A N/A N/A N/A
High Yield Fund 8.32 8.07 7.55 7.15 7.15 7.92
Long-Term U.S. Govt. Fund 6.43 6.17 5.74 5.25 5.26 N/A
Municipal Bond Fund 4.48 4.27 4.01 3.38 3.63 4.11
Global Bond Fund 6.88 6.62 N/A N/A N/A N/A
Global Bond Fund II 6.30 N/A 5.62 5.14 5.14 N/A
Foreign Bond Fund 6.49 6.23 5.76 5.28 5.28 6.03
Emerging Markets Bond Fund 11.75 11.50 10.83 10.61 10.60 N/A
Strategic Balanced Fund 5.01 N/A N/A N/A N/A 4.73
StocksPLUS Fund 5.11 4.86 4.58 3.99 4.25 4.73
</TABLE>
The yield of each such Fund will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio and operating
expenses of the Trust allocated to the Fund or its classes of shares. These
factors, possible differences in the methods used in calculating yield (and the
tax exempt status of distributions for the Municipal Funds) should be considered
when comparing a Fund's yield to yields published for other investment companies
and other investment vehicles. Yield should also be considered relative to
changes in the value of a Fund's various classes of shares. These yields do not
take into account any applicable contingent deferred sales charges.
The Municipal Funds may advertise a tax equivalent yield of each class of
its shares, calculated as described above except that, for any given tax
bracket, net investment income of each class will be calculated using as gross
investment income an amount equal to the sum of (i) any taxable income of each
class of the Fund plus (ii) the tax exempt income of each class of the Fund
divided by the difference between 1 and the effective federal income tax rates
for taxpayers in that tax bracket. For example,
76
<PAGE>
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.
<TABLE>
<CAPTION>
A tax-exempt yield of
Filing Status is equivalent to a taxable yield of
Single (Married filing jointly) 3% 4% 5% 6% 7%
Taxable income Marginal tax rate*
<S> <C> <C> <C> <C> <C> <C> <C>
$23,350 or less $39,000 or less 15% 3.53% 4.71% 5.88% 7.06% 8.24%
Over $23,350 but Over $39,000 but 28% 4.17% 5.56% 6.94% 8.33% 9.72%
not over $56,550 not over $94,250
Over $56,550 but Over $94,250 but 31% 4.35% 5.80% 7.25% 8.70% 10.14%
not over $117,950 not over $143,600
Over $117,950 but Over $143,600 but 36% 4.69% 6.25% 7.81% 9.38% 10.94%
not over $256,500 not over $256,500
Over $256,500 Over $256,500 39.6% 4.97% 6.62% 8.28% 9.93% 11.59%
</TABLE>
- -------------------
* These marginal tax rates do not take into account the effect of the phase out
of itemized deductions and personal exemptions.
As is shown in the above table, the advantage of tax-exempt investing
becomes more advantageous to an investor as his or her marginal tax rate
increases.
The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time in
the future, yields and total return may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
Calculation of Total Return
Quotations of average annual total return for a Fund or class will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five and ten
years (up to the life of the Fund), calculated pursuant to the following
formula: P (1 + T)(To the power of n) = ERV (where P = a hypothetical initial
payment of $1,000, T = the average annual total return, n = the number of years,
and ERV = the ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period). Except as noted below all total return figures
reflect the deduction of a proportional share of Fund or class expenses on an
annual basis, and assume that (i) the maximum sales load (or other charges
deducted from payments) is deducted from the initial $1,000 payment and that the
maximum contingent deferred sales charge, if any, is deducted at the times, in
the amounts, and under the terms disclosed in the Prospectuses and (ii) all
dividends and distributions are reinvested when paid. The Funds also may, with
respect to certain periods of less than one year, provide total return
information for that period that is unannualized. Quotations of total return may
also be shown for other periods. Any such information would be accompanied by
standardized total return information.
77
<PAGE>
The table below sets forth the average annual total return of each class of
shares of the following Funds for the periods ended March 31, 1999. For periods
prior to the "Inception Date" of a particular class of a Fund's shares, total
return presentations for the class are based on the historical performance of
Institutional Class shares of the Fund (the oldest class) adjusted, as
necessary, to reflect any current sales charges (including any contingent
deferred sales charges) associated with the newer class and any different
operating expenses associated with the newer class, such as 12b-1 distribution
and servicing fees (which are not paid by the Institutional Class) and
administrative fee charges.
Total Return for Periods Ended March 31, 1999*
<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>
Money Market Institutional 5.14% 5.27% N/A 4.70% 03/01/91 03/01/91
Administrative 4.93 5.03 4.45 01/24/95
Class A 4.76 4.97 4.42 01/13/97
Class B 4.03 4.09 3.52 01/13/97
Class C 4.85 5.00 4.44 01/13/97
- ------------------------------------------------------------------------------------------------------------
Short-Term Institutional 5.63% 6.54% 6.32% 6.52% 10/07/87 10/07/87
Administrative 5.39 6.28 6.05 6.26 02/01/96
Class A 3.11 5.69 5.68 5.91 01/20/97
Class B -0.55 5.03 5.33 5.61 01/20/97
Class C 3.91 5.81 5.58 5.78 01/20/97
Class D 5.33 6.23 6.00 6.21 04/08/98
- ------------------------------------------------------------------------------------------------------------
Low Duration Institutional 6.35% 6.99% 8.25% 8.13% 05/11/87 05/11/87
Administrative 6.09 6.72 7.98 7.86 12/31/94
Class A 2.68 5.85 7.42 7.35 01/13/97
Class B 0.10 5.37 7.18 7.15 01/13/97
Class C 4.34 5.97 7.22 7.10 01/13/97
Class D 6.01 6.65 7.90 7.79 04/08/98
- ------------------------------------------------------------------------------------------------------------
Low Duration II Institutional 5.89% 6.52% N/A 6.45% 11/01/91 11/01/91
Administrative 5.63 6.25 6.18 02/02/98
- ------------------------------------------------------------------------------------------------------------
Low Duration III Institutional 6.10% N/A N/A 6.49% 12/31/96 12/31/96
- ------------------------------------------------------------------------------------------------------------
Low Duration Institutional 5.71% N/A N/A 6.99% 07/31/97 07/31/97
Mortgage
- ------------------------------------------------------------------------------------------------------------
Moderate Institutional 6.67% N/A N/A 7.17% 12/31/96 12/31/96
Duration
- ------------------------------------------------------------------------------------------------------------
Real Return Institutional 6.41% N/A N/A 5.15% 01/29/97 01/29/97
Bond Class A 2.81 3.27 01/29/97
Class B 0.19 2.65 01/29/97
Class C 4.46 4.20 01/29/97
Class D 5.99 4.74 04/08/98
- ------------------------------------------------------------------------------------------------------------
Total Return Institutional 7.59% 8.39% 10.13% 9.64% 05/11/87 05/11/87
Administrative 7.32 8.13 9.87 9.37 09/07/94
Class A 2.27 6.90 9.13 8.72 01/13/97
Class B 1.40 6.80 9.07 8.67 01/13/97
Class C 5.32 7.11 8.84 8.35 01/13/97
Class D 7.26 8.06 9.80 9.30 04/08/98
- ------------------------------------------------------------------------------------------------------------
Total Return II Institutional 7.45% 8.27% N/A 8.11% 12/30/91 12/30/91
Administrative 7.18 7.99 7.84 11/30/94
- ------------------------------------------------------------------------------------------------------------
</TABLE>
78
<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>
Total Return Institutional 8.19% 8.48% N/A 9.43% 05/01/91 05/01/91
III Administrative 7.91 8.19 9.16 04/11/97
- ------------------------------------------------------------------------------------------------------------
Total Return Institutional 5.85% N/A N/A 7.41% 07/31/97 07/31/97
Mortgage
- ------------------------------------------------------------------------------------------------------------
High Yield Institutional 4.73% 11.23% N/A 11.71% 12/16/92 12/16/92
Administrative 4.48 10.96 11.44 01/16/95
Class A -0.37 9.79 10.48 01/13/97
Class B -1.27 9.73 10.49 01/13/97
Class C 2.58 10.01 10.50 01/13/97
Class D 4.35 10.83 11.31 04/08/98
- ------------------------------------------------------------------------------------------------------------
Long-Term U.S. Institutional 7.75% 10.39% N/A 12.11% 07/01/91 07/01/91
Government Administrative 7.45 10.12 11.85 09/23/97
Class A 2.51 8.96 11.04 01/20/97
Class B 1.64 8.84 10.95 01/20/97
Class C 5.54 9.15 10.89 01/20/97
- ------------------------------------------------------------------------------------------------------------
Global Bond Institutional 6.90% 8.36% N/A 7.80% 11/23/93 11/23/93
Administrative 6.77 8.13 7.57 08/01/96
- ------------------------------------------------------------------------------------------------------------
Foreign Bond Institutional 7.91% 11.33% N/A 11.01% 12/03/92 12/03/92
Administrative 7.64 11.06 10.74 01/28/97
Class A 2.59 9.82 9.72 01/20/97
Class B 1.74 9.75 9.72 01/20/97
Class C 5.64 10.02 9.72 01/20/97
Class D 7.45 10.85 10.53 04/08/98
- ------------------------------------------------------------------------------------------------------------
Emerging Institutional -12.56% N/A N/A -6.03% 07/31/97 07/31/97
Markets Bond Administrative -13.62 -6.82 09/30/98
Class A -16.82 -8.95 07/31/97
Class B -17.47 -9.05 07/31/97
Class C -14.35 -7.13 07/31/97
- ------------------------------------------------------------------------------------------------------------
Municipal Bond Institutional 6.04% N/A N/A 5.49% 12/31/97 12/31/97
Administrative 5.44 4.94 09/30/98
Class A 2.50 2.57 04/01/98
Class B -0.12 1.13 04/01/98
Class C 4.10 4.58 04/01/98
Class D 5.67 5.11 04/08/98
- ------------------------------------------------------------------------------------------------------------
Strategic Institutional 12.36% N/A N/A 20.61% 06/28/96 06/28/96
Balanced Class D 11.89 20.15 04/08/98
- ------------------------------------------------------------------------------------------------------------
StocksPLUS Institutional 17.65% 26.99% N/A 23.38% 05/14/93 05/14/93
Administrative 17.21 26.61 23.01 01/07/97
Class A 13.56 25.70 22.24 01/20/97
Class B 11.12 25.39 21.91 01/20/97
Class C 15.48 25.83 22.25 01/20/97
Class D 17.02 26.45 22.86 04/08/98
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the current maximum sales charge (if any) applicable to that
class at the time of purchase and assume that the maximum CDSC (if any) for
Class A, Class B and Class C shares was deducted at the times, in the amounts,
and under the terms discussed in the Class A, B and C Prospectus.
79
<PAGE>
** For all Funds listed above, Class A, Class B, Class C, Class D and
Administrative Class total return presentations for periods prior to the
Inception Date of that class reflect the prior performance of Institutional
Class shares of the Fund (the oldest class) adjusted to reflect the actual
sales charges (none in the case of Class D and Administrative Class) of the
newer class. The adjusted performance also reflects the higher Fund operating
expenses associated with Class A, Class B, Class C, Class D and Administrative
Class shares. These include (i) 12b-1 distribution and servicing fees, which
are not paid by the Institutional Class but are paid by Class B and Class C
(at a maximum rate of 1.00% per annum) and Class A and the Administrative
Class (at a maximum rate of 0.25% per annum), and may be paid by Class D (at a
maximum of 0.25% per annum), and (ii) administration fee charges associated
with Class A, Class B and Class C shares (at a maximum differential of 0.22%
per annum) and Class D shares (at a maximum differential of 0.45% per annum).
The table below sets forth the average annual total return of certain classes
of shares of the Global Bond Fund II (which was a series of PIMCO Advisors
Funds ("PAF") prior to its reorganization as a Fund of the Trust on January 17,
1997) for the periods ended March 31, 1999. Accordingly, "Inception Date of
Fund" refers to the inception date of the PAF predecessor series. Since Class A
shares were offered since the inception of Global Bond Fund II, total return
presentations for periods prior to the Inception Date of the Institutional Class
are based on the historical performance of Class A shares, adjusted to reflect
that the Institutional Class does not have a sales charge, and the different
operating expenses associated with the Institutional Class, such as 12b-1
distribution and servicing fees and administration fee charges.
Total Return for Periods Ended March 31, 1999*
<TABLE>
<CAPTION>
Since Inception 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 II Institutional 6.06% N/A N/A 10.44% 10/02/95 02/25/98
Class A 0.89 8.58 10/02/95
Class B -0.13 8.49 10/02/95
Class C 3.83 9.17 10/02/95
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Average annual total return presentations for a particular class of shares
assume payment of the current maximum sales charge (if any) applicable to that
class at the time of purchase and assume that the maximum CDSC (if any) for
Class A, Class B and Class C shares was deducted at the times, in the amounts,
and under the terms discussed in the Class A, B and C Prospectus.
** Institutional Class total return presentations for periods prior to the
Inception Date of that class reflect the prior performance of Class A shares
of the former PAF series, adjusted to reflect the fact that there are no sales
charges on Institutional Class shares of the Fund. The adjusted performance
also reflects any different operating expenses associated with Institutional
Class shares. These include (i) 12b-1 distribution and servicing fees, which
are not paid by the Institutional Class but are paid by Class A (at a maximum
rate of 0.25% per annum), and (ii) administration fee charges, which are lower
for Institutional class shares (at a differential of 0.15% per annum).
Note also that, prior to January 17, 1997, Class A, Class B and Class C shares
of the 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
80
<PAGE>
lower total Fund operating expenses than its predecessor had under the fee
structure for PAF (prior to January 17, 1997). All other things being equal,
the higher expenses of PAF would have adversely affected total return
performance for the Fund after January 17, 1997.
The method of adjustment used in the table above for periods prior to the
Inception Date of Institutional Class shares of the Global Bond Fund II
resulted in performance for the period shown which is higher than if the
historical Class A performance were not adjusted to reflect the lower
operating expenses of the newer class. The following table shows the lower
performance figures that would be obtained if the performance for the
Institutional Class was calculated by tacking to the Institutional Class'
actual performance the actual performance of Class A shares (with their higher
operating expenses) for periods prior to the initial offering date of the
newer class (i.e. the total return presentations below are based, for periods
prior to the inception date of the Institutional Class, on the historical
performance of Class A shares adjusted to reflect the current sales charges
associated with Class A shares, but not reflecting lower operating expenses
---
associated with the Institutional Class, such as lower administrative fee
charges and/or distribution and servicing fee charges).
Total Return for Periods Ended March 31, 1999
(with no adjustment for operating expenses of the Institutional
Class for periods prior to its Inception Date)
<TABLE>
<CAPTION>
Since Inception
of Fund
Fund Class 1 Year 5 Years 10 Years (Annualized)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Bond II Institutional 6.06% N/A N/A 10.16%
- ---------------------------------------------------------------------------------
</TABLE>
Current distribution information for a Fund will be based on distributions for
a specified period (i.e., total dividends from net investment income), divided
by Fund net asset value per share on the last day of the period and annualized
according to the following formula:
DIVIDEND YIELD = (((a/b)*365)/c)
where a = actual dividends distributed for the calendar month in
question,
b = number of days of dividend declaration in the month in
question, and
c = net asset value (NAV) calculated on the last business day of
the month in question.
The rate of current distributions does not reflect deductions for unrealized
losses from transactions in derivative instruments such as options and futures,
which may reduce total return. Current distribution rates differ from
standardized yield rates in that they represent what a Fund has declared and
paid to shareholders as of the end of a specified period rather than the Fund's
actual net investment income for that same period. Distribution rates will
exclude net realized short-term capital gains. The rate of current distributions
for a Fund should be evaluated in light of these differences and in light of the
Fund's total return figures, which will always accompany any calculation of the
rate of current distributions.
81
<PAGE>
For the month ended March 31, 1999, the current distribution rates
(annualized) for the Funds were as follows (Class J and Class K shares were not
offered during the period listed):
Distribution Rate
-----------------
<TABLE>
<CAPTION>
Institutional Administrative
Fund Class Class Class A Class B Class C Class D
- ---- ------------- -------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund 4.52% 4.15% 4.18% 3.35% 4.23% N/A
Short-Term Fund 5.12 4.86 4.72 3.97 4.42 4.82%
Low Duration Fund 6.59 6.33 6.11 5.36 5.61 6.26
Low Duration Fund II 5.64 5.40 N/A N/A N/A N/A
Low Duration Fund III 5.60 5.53 N/A N/A N/A N/A
Low Duration Mortgage Fund 5.86 N/A N/A N/A N/A N/A
Moderate Duration Fund 5.97 N/A N/A N/A N/A N/A
Real Return Bond Fund 7.10 N/A 6.68 5.94 6.19 6.69
Total Return Fund 5.53 5.28 5.06 4.31 4.32 5.22
Total Return Fund II 5.38 5.10 N/A N/A N/A N/A
Total Return Fund III 5.86 5.61 N/A N/A N/A N/A
Total Return Mortgage Fund 5.51 N/A N/A N/A N/A 5.12
High Yield Fund 8.72 8.48 8.33 7.57 7.58 8.34
Municipal Bond Fund 4.60 4.37 4.25 3.50 3.75 4.25
Long-Term U.S. Govt. Fund 6.08 5.83 5.68 4.92 4.93 N/A
Global Bond Fund 5.71 5.46 N/A N/A N/A N/A
Global Bond Fund II 5.31 N/A 4.91 4.16 4.16 N/A
Foreign Bond Fund 5.04 4.79 4.59 3.84 3.84 4.59
Emerging Markets Bond Fund 2.76 12.52 12.37 11.64 11.64 N/A
Strategic Balanced Fund N/A N/A N/A N/A N/A N/A
StocksPLUS Fund N/A N/A N/A N/A N/A N/A
</TABLE>
Performance information for a Fund may also be compared to various unmanaged
indexes, such as the Standard & Poor's 500 Composite Stock Price Index, the Dow
Jones Industrial Average, the Lehman Brothers Aggregate Bond Index, the Lehman
Brothers Mortgage-Backed Securities Index, the Merrill Lynch 1 to 3 Year
Treasury Index, the Lehman Intermediate and 20+ Year Treasury Blend Index, the
Lehman BB Intermediate Corporate Index, indexes prepared by Lipper Analytical
Services, the J.P. Morgan Global Index, the J.P. Morgan Emerging Markets Bond
Index Plus, the Salomon Brothers World Government Bond Index-10 Non U.S.-Dollar
Hedged and the J.P. Morgan Government Bond Index Non U.S.-Dollar Hedged.
Unmanaged indexes (i.e., other than Lipper) generally do not reflect deductions
for administrative and management costs and expenses. PIMCO may report to
shareholders or to the public in advertisements concerning the performance of
PIMCO as adviser to clients other than the Trust, or on the comparative
performance or standing of PIMCO in relation to other money managers. PIMCO
also may provide current or prospective private account clients, in connection
with standardized performance information for the Funds, performance information
for the Funds gross of fees and expenses for the purpose of assisting such
clients in evaluating similar performance information provided by other
investment managers or institutions. Comparative information may be compiled or
provided by independent ratings services or by news organizations. Any
performance information, whether related to the Funds or to PIMCO, 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
82
<PAGE>
compared to the total return for the U.S. bond market for the years 1986 through
1998. 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
</TABLE>
Source: Salomon Brothers World Government Bond Index 1986-1998.
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1996/1997 costs of college and an assumed rate of increase for such costs. For
example, the table below sets forth the projected cost of four years of college
at a public college and a private college assuming a steady increase in both
cases of 3% per year. In presenting this information, the Trust is making no
prediction regarding what will be the actual growth rate in the cost of a
college education, which may be greater or less than 3% per year and may vary
significantly from year to year. The Trust makes no representation that an
investment in any of the Funds will grow at or above the rate of growth of the
cost of a college education.
<TABLE>
<CAPTION>
Potential College Cost Table
<S> <C> <C> <C> <C> <C>
Start Public Private Start Public Private
Year College College Year College College
- ---- ------- ------- ----- ------- -------
1997 $13,015 $57,165 2005 $16,487 $72,415
1998 $13,406 $58,880 2006 $16,982 $74,587
1999 $13,808 $60,646 2007 $17,491 $76,825
2000 $14,222 $62,466 2008 $18,016 $79,130
2001 $14,649 $64,340 2009 $18,557 $81,504
2002 $15,088 $66,270 2010 $19,113 $83,949
2003 $15,541 $68,258 2011 $19,687 $86,467
2004 $16,007 $70,306 2012 $20,278 $89,061
</TABLE>
Costs assume a steady increase in the annual cost of college of 3% per year from
a 1996-97 base year amount. Actual rates of increase may be more or less than 3%
and may vary.
83
<PAGE>
In its advertisements and other materials, the Trust may compare the returns
over periods of time of investments in stocks, bonds and treasury bills to each
other and to the general rate of inflation. For example, the average annual
return of each during the 25 years from 1974 to 1998 was:
*Stocks: 14.9%
Bonds: 9.9%
T-Bills: 7.0%
Inflation: 5.2%
*Returns of unmanaged indices do not reflect past or future performance of
any of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks
are represented by Ibbotson's Large Company Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. T-bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented by
the Cost of Living Index. These are all unmanaged indices, which can not be
invested in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will fluctuate
with changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 1999 Yearbook, Ibbotson Associates, Chicago. All
rights reserved.
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 20 years
from 1979-1998, the average annual return of stocks comprising the Ibbotson's
Large Company Stock Total Return Index ranged from -4.9% to 37.4% while the
annual return of a hypothetical portfolio comprised 40% of such common stocks,
40% of bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbotson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -1.0% to 28.2% over the same period. The
average annual returns of each investment for each of the years from 1979
through 1998 is set forth in the following table.
<TABLE>
<CAPTION>
MIXED
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- -------- ------- ------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% 3.87% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
1996 23.10% 1.40% 5.20% 3.30% 10.84%
1997 33.40% 12.90% 7.10% 1.70% 19.94%
1998 28.58% 10.76% 4.86% 1.61% 16.70%
</TABLE>
*Returns of unmanaged indices do not reflect past or future performance of any
of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks are
represented by Ibbotson's Large Company
84
<PAGE>
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 1999 Yearbook,
Ibbotson Associates, Chicago. All rights reserved.
The Trust may use in its advertisement and other materials examples designed
to demonstrate the effect of compounding when an investment is maintained over
several or many years. For example, the following table shows the annual and
total contributions necessary to accumulate $200,000 of savings (assuming a
fixed rate of return) over various periods of time:
<TABLE>
<CAPTION>
Investment Annual Total Total
Period Contribution Contribution Saved
- ------ ------------ ------------ --------
<S> <C> <C> <C>
30 Years $ 1,979 $ 59,370 $200,000
25 Years $ 2,955 $ 73,875 $200,000
20 Years $ 4,559 $ 91,180 $200,000
15 Years $ 7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
</TABLE>
This hypothetical example assumes a fixed 7% return compounded annually and a
guaranteed return of principal. The example is intended to show the benefits of
a long-term, regular investment program, and is in no way representative of any
past or future performance of a PIMCO Fund. There can be no guarantee that you
will be able to find an investment that would provide such a return at the times
you invest and an investor in any of the PIMCO Funds should be aware that
certain of the PIMCO Funds have experienced periods of negative growth in the
past and may again in the future.
The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 1997:
% of Income for Individuals
Aged 65 Years and Older in 1997*
--------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
1997 43% 57%
* For individuals with an annual income of at least $51,000. Other
includes personal savings, earnings and other undisclosed sources of income.
Source: Social Security Administration.
Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds may appear in various national
publications and services including, but not limited to: The Wall Street
Journal, Barron's, Pensions and Investments, Forbes, Smart Money, Mutual Fund
Magazine, The New York Times, Kiplinger's Personal Finance, Fortune, Money
Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies and The
Donoghue Organization. Some or all of these publications or reports may publish
their own rankings or performance reviews of mutual funds, including the Funds,
and may provide information relating to 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
85
<PAGE>
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 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
86
<PAGE>
shares would not be able to elect any Trustees. As of January 25, 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
Combined Master Retirement Trust 184,130,398.880 72.05% *
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240
Marin Community Foundation 15,359,357.990 6.01%
c/o Norwest Bank
P.O. Box 1533
Minneapolis, Minnesota 55480
California Community Foundation Fund D 14,437,720.760 5.65%
Attn: Finance Department
445 S. Figueroa Street, Suite 3400
Los Angeles, California 90071-1638
Administrative
Maltrust & Co. 3,097,163.390 31.75%
225 Essex Street
Salem, Massachusetts 01970
Security Trust for Group Health Cooperative of 1,655,194.590 16.97%
Puget Sound 403b Group Cust Account
2525 E. Camelback #570
Phoenix, Arizona 85016
Short-Term Fund
Institutional
Soka University of America 9,067,001.207 14.36%
26800 W. Mulholland Highway
Attention: Arnold Kawasaki
Calabasas, California 91302
Charles Schwab & Co., Inc. ** 8,863,685.684 14.04%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
</TABLE>
87
<PAGE>
<TABLE>
<S> <C> <C>
National Gallery of Art 6,825,126.977 10.81%
4th & Constitution Avenue, N.W.
Room 605
Washington, D.C. 20565-0001
Bankers Trust Company FBO: 4,921,288.823 7.79%
Georgia-Pacific Enhanced Int'l Eqty
648 Grassmere Business Park Rd.
Advisor Services Group, 2nd Floor
Nashville, Tennessee 37211
Trustees of Columbia University in 4,478,051.365 7.09%
the City of New York
Office of Investments
475 Riverside Dr., Suite 401
New York, New York 10115
Denison University 3,425,053.568 5.42%
P.O. Box
Granville, Ohio 43023
Administrative
FTC and Company FBO 149,597.552 29.50%
Hunt, Dupree, Rhine
P.O. Box 173736
Denver, Colorado 80217
National Financial Services Corporation** 89,016.870 17.55%
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
Lau & Co. 52,852.474 10.42%
c/o Frost National Bank
P. O. Box 2479
San Antonio, Texas 78298-2479
FTC and Company 42,752.183 8.43%
Attn: DATAlynx K83
P.O. Box 173736
Denver, Colorado 80217
Lynn R. Prebe TTEE of the 27,242.067 5.37%
F. James Prebe & Lynn R. Prebe Trust Dtd 7/23/92
16347 Grenoble Lane
Huntington Beach, CA 92649-1825
Class A
MLPF&S For the Sole Benefit of its Customers ** 2,301,403.130 25.77%
</TABLE>
88
<PAGE>
<TABLE>
<S> <C> <C>
Attention: Fund Administration #97MY2
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Mr. Ronald S. Taft TR 628,234.190 7.03%
Artist Management Inc.
Defined Benefit Pension Plan 61284
18 W. 55th Street, Apt. 4
New York, New York 10019-5368
Mr. Ronald S. Taft TR 484,843.258 5.43%
Ronald S. Taft Employee Defined Benefit Plan 1184
18 W. 55th Street, Apt. 4
New York, New York 10019-5368
Class B
MLPF&S For the Sole Benefit of its Customers ** 186,401.310 37.54%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Donaldson Lufkin Jenrette Securities Corp. Inc.** 66,010.724 13.29%
P.O. Box 2052
Jersey City, New Jersey 07303-9998
Class C
MLPF&S For the Sole Benefit of its Customers ** 471,539.554 24.30%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 296,700.830 91.38%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
National Investors Services Corp. 21,699.757 6.68%
For Exclusive Benefit of its Customers
Attn. Ms. Sandra Stewart
55 Water Street, 32nd Floor
New York, NY 10041-3299
Low Duration Fund
Institutional
Charles Schwab & Co., Inc. Rein** 41,678,609.860 11.06%
</TABLE>
89
<PAGE>
<TABLE>
<S> <C> <C>
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
MLTC of America FBO 25,511,888.171 6.77%
DuPont Savings and Investment Plan
300 Davidson Ave.
Somerset, NJ 08873-4175
Administrative
FIIOC as Agent for Certain Employee Benefits Plan** 4,088,837.219 32.81%
100 Magellan KW1C
Covington, Kentucky 41015
McClatchy Newspapers Defined Comp. Inv. Plan 2,009,387.842 16.12%
550 Kearny Street #600
San Francisco, California 94108
National Financial Services Corporation** 1,402,839.061 11.26%
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
Bankers Trust TTEE FBO 1,392,635.082 11.17%
Mapco Coal
100 Plaza One
Jersey City, New Jersey 07311-3999
Sonnenschein, Nath &Rosenthal 1,231,225.916 9.88%
P. O. Box 419260
Kansas City, Missouri 64141-6260
Class A
MLPF&S For the Sole Benefit of its Customers ** 5,360,567.825 22.54%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Richard J. Steinhelper Tr 2,928,956.726 12.31%
Michigan Tooling Association
Benefit Plans Investment Trust
28237 Orchard Lake Road
P. O. Box 9151
Farmington Hills, Michigan 48333-9151
Class B
MLPF&S For the Sole Benefit of its Customers ** 1,747,460.755 23.65%
Attention: Fund Administration #97M35
</TABLE>
90
<PAGE>
<TABLE>
<S> <C> <C>
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 2,984,554.835 25.08%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 855,929.192 85.81%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Low Duration Fund II
Institutional
Sprint Retirement Savings Plan 15,996,057.935 34.76% *
82 Devonshire Street - E1GA
Boston, Massachusetts 02109
American Bible Society 4,896,340.354 10.64%
1865 Broadway
New York, New York 10023
Salt River Project Decom Trust 4,585,277.891 9.96%
P. O. Box 52025
Phoenix, Arizona 85072
Associated Electric & Gas 3,923,677.336 8.53%
Insurance Services Limited
10 Exchange Place
Jersey City, New Jersey 07302
The Northern Trust Company FBO 2,980,675.575 6.48%
Nestle USA Inc. Savings Plan Trust
P.O. Box 92956
Chicago, IL 60675-2956
University of Illinois Foundation 2,426,008.659 5.27%
Pooled Short Term Funds
Manager of Accounting & Donor Records
Harker Hall 1305 W. Green Street
Urbana, Illinois 61801
</TABLE>
91
<PAGE>
<TABLE>
<S> <C> <C>
Administrative
FTC & Co. FBO First Trust Omnibus 10,407.327 69.46%
P.O. Box 173736
Denver, CO 80217-3736
National Financial Services Corporation** 4,576.396 30.54%
1 World Financial Center
200 Liberty Street
New York, NY 10281-1003
Low Duration Fund III
Institutional
Loyola Academy Endowment Fund 1,029,717.849 36.97% *
135 S. LaSalle Street
P. O. Box 1443
Chicago, Illinois 60690
Sisters of St. Joseph/Michigan 585,641.213 30.83%
3427 Gull Road
P. O. Box 13
Nazareth, Michigan 49074
National Jewish Medical & Research Center 521,276.552 18.72%
1400 Jackson Street
Denver, CO 80206-2762
Charles Schwab & Co., Inc. Rein** 354,721.558 12.74%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Low Duration Mortgage Fund
Institutional
Pacific Investment Management Company 386,048.924 90.08% *
840 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. Rein** 42,528.510 9.92%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
</TABLE>
92
<PAGE>
<TABLE>
<S> <C> <C>
Moderate Duration Fund
Institutional
Columbus Circle Trust Co-SV** 6,112,290.590 16.37%
1 Station Place Metro Center
Stamford, Connecticut 06902
Northern Trust Bank of Texas Custodian for 3,129,441.067 8.38%
John G. and Marie Stella Kenedy Memorial Foundation
P.O. Box 02056
Chicago, IL 60675
Lakeland Regional Medical Center 2,544,994.051 6.82%
c/o Wendel & Co.
One Wall Street, 6th Floor
P.O. Box 1066, Wall Street Station
New York, NY 10286
The Children's Hospital Association 2,333,860.261 6.25%
1056 E. 19th Avenue B020
Denver, Colorado 80218
Memorial Hospital of South Bend, Inc. 2,106,839.531 5.64%
615 N. Michigan Street
South Bend, Indiana 46601
Samaritan Health System Retirement Income Plan 1,976,704.350 5.29%
300 S. Grand Ave. 40th Floor
Los Angeles, California 90071
Bay State Health System Inc. 1,918,581.428 5.14%
c/o Bost & Co.
P.O. Box 3198
Pittsburgh, Pennsylvania 15230
Real Return Bond Fund
Institutional
National Financial Services Corporation ** 4,252,014.643 28.51%
1 World Financial Center
200 Liberty Street
New York, New York 10281
Charles Schwab & Co., Inc. Rein** 3,445,804.100 23.10%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
</TABLE>
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<S> <C> <C>
Schroder Wertheim & Co., Inc. 1,962,817.900 13.16%
Mutual Fund Control Account
c/o Lewco Securities
34 Exchange Place 4th Fl
Jersey City, New Jersey 07311
Wake Forest University 1,531,301.490 10.27%
P.O. Box 7354
Winston Salem, NC 27109-7354
McKinsey & Co. Inc. Profit Sharing Ret Plan Trust 1,235,721.703 8.29%
485 Madison Avenue, 21st Floor
New York, New York 10022
Hampton University 1,042,752.868 6.99%
1 Tyler Street
Hampton, Virginia 23668
Class A
Lewco Securities Corp. FBO 624,768.534 44.29%
A/C# H30-627865-6-01
34 Exchange Place, 4th Floor
Jersey City, New Jersey 07311
MLPF&S For the Sole Benefit of its Customers ** 484,376.606 34.34%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 343,928.678 33.85%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 726,249.245 51.38%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 472,469.051 45.91%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
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<S> <C> <C>
Total Return Fund
Institutional
Charles Schwab & Co., Inc.** 178,581,759.925 7.45%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Administrative
Nikko Securities Co., Ltd.** 91,443,186.000 29.26%
3-1 Marunouchi 3Chrome, Chiyodaku
Tokyo, Japan 101-0064
National Financial Services Corporation ** 54,609,994.426 17.47%
1 World Financial Center
200 Liberty Street
New York, New York 10281
FIIOC as Agent for Certain Employee Benefits Plan** 53,317,901.923 17.06%
100 Magellan KW1C
Covington, Kentucky 41015
Manufacturers Life Insurance Co. (USA) 25,543,796.129 8.17%
200 Bloor Street East
Toronto, Ontario
Canada M4W 1E5
Class A
MLPF&S For the Sole Benefit of its Customers ** 89,364,717.286 50.31%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 23,524,567.109 35.18%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 23,138,749.339 30.78%
Attention: Fund Administration
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
95
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<S> <C> <C>
Class D
Charles Schwab & Co., Inc. Rein** 6,033,020.923 87.49%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Total Return Fund II
Institutional
Catholic Archbishop of Chicago 9,957,209.770 8.37%
155 East Superior Street
Chicago, IL 60611-2911
Charles Schwab & Co., Inc. Rein** 8,070,574.275 6.78%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
IUE AFL-CIO Pension Plan 6,965,537.470 5.85%
1460 Broad Street
Blommfield, New Jersey 07003
Morley Capital Management 6,235,952.780 5.24%
P.O. Box 85484
San Diego, CA 92186
Administrative
Security Trust Co. as Inv. Agent for 3,034,513.838 58.95%
Twin City Pipe Trades Supply
Retirement Plan
2525 E. Camelback Road, #570
Phoenix, AZ 85016-4272
National Financial Services Corporation ** 550,999.190 10.70%
1 World Financial Center
200 Liberty Street
New York, New York 10281
Total Return Fund III
Institutional
Archdiocese of LA/Corp/Diocese Tucson 11,694,500.431 17.19%
3424 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010-2241
Diocese of Orange 6,784,382.883 9.97%
c/o The Bank of New York
P.O. Box 1066, Wall Street Station
New York, NY 10268-1066
</TABLE>
96
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<S> <C> <C>
Sparrow Health System Pension 3,972,269.265 5.84%
c/o Mac & Co.
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Administrative
Lumpkin Foundation (PaineWebber) 419,194.267 88.35%
P. O. Box 1097
Mattoon, Illinois 61938
Dubuque Bank & Trust Co. ** 34,530.503 7.28%
Attention: Trust Department
P.O. Box 747
Dubuque, Iowa 52004
Total Return Mortgage Fund
Institutional
Pacific Investment Management Company 384,143.593 96.73% *
840 Newport Center Drive
Newport Beach, California 92660
Class D
National Investors Services Corp. 3,058.212 42.67%
for Exclusive Benefit of their Customers
55 Water Street, 32nd Floor
New York, NY 10041
Charles Schwab & Co., Inc.** 3,019.794 42.13%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Pacific Investment Management Company 1,089.250 15.20%
840 Newport Center Drive
Newport Beach, California 92660
High Yield Fund
Institutional
Charles Schwab & Co., Inc. Rein** 28,340,336.194 13.60%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
</TABLE>
97
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<S> <C> <C>
Bell Atlantic 10,980,973.233 5.27%
c/o Bost & Co.
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Administrative
National Financial Services Corporation ** 25,067,121.660 79.40%
1 World Financial Center
200 Liberty Street
New York, New York 10281
Centurion Trust Company FBO 2,970,970.150 9.41%
Omnibus/Centurion Capital Management
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
FIIOC as Agent for Certain Employee Benefits Plan** 2,416,868.949 7.66%
100 Magellan KW1C
Covington, Kentucky 41015
Class A
MLPF&S For the Sole Benefit of its Customers ** 3,227,501.173 16.89%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 7,658,806.580 25.37%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 6,058,000.024 17.00%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 1,831,008.771 86.80%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
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<S> <C> <C>
Long-Term U.S. Government Fund
Institutional
The St. Joe Company Salaried Pension Plan 5,418,326.601 25.04%
1650 Prudential Drive, Suite 400
Jacksonville, Florida 32207
Chicago Symphony Orchestra 3,493,875.607 16.15%
220 South Michigan Avenue
Chicago, Illinois 60604
Charles Schwab & Co. Inc. 3,142,686.173 14.53%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
The St. Joe Company Hourly Pension Plan 1,823,000.283 8.43%
1650 Prudential Drive, Suite 400
Jacksonville, Florida 32207
Allianz Defined Contribution Plan 1,454,263.246 6.72%
P. O. Box 92956
Chicago, Illinois 60675
FTC & Co. Attn: Datalynx House Account 1,322,886.248 6.11%
P.O. Box 173736
Denver, Colorado 80217
Administrative
FIIOC as Agent for Certain Employee Benefits Plan** 4,125,931.906 92.53%
100 Magellan KW1C
Covington, Kentucky 41015
Class A
Advest Inc. 600,120.953 13.77%
90 State House Square
Hartford, Connecticut 06103
MLPF&S For the Sole Benefit of its Customers ** 331,983.242 7.62%
Attention: Fund Administration #97MY2
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
99
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<S> <C> <C>
Prudential Bank & Trust Co. 324,456.877 7.45%
Defined Contribution Plan
For the Benefit of Plan Participants
30 Scranton Office Park
Scranton, Pennsylvania 18507-1755
Class B
MLPF&S For the Sole Benefit of its Customers ** 1,136,533.339 30.76%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 569,088.288 24.83%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Short Duration Municipal Income
Institutional
PIMCO Advisors L.P. 1,064,006.081 100.00% *
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660-6309
Municipal Bond
Institutional
Brent R. Harris & Elizabeth E. Harris JT WROS 154,802.234 27.07%
c/o 800 Newport Center Drive
Newport Beach, CA 92660
MediaOne VEBA Trust 119,302.567 20.86%
188 Inverness Drive West, Fl. 7
Englewood, CO 80112-5201
Charles Schwab & Co. Inc. 79,304.878 13.87%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
Phyllis K. Curtis TTEE of 75,466.607 13.20%
The Phyllis K. Curtis Separate Property Trust
14158 NW Bronson Creek Drive
Portland, OR 97229-7060
</TABLE>
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<S> <C> <C>
John L. Johnson 48,031.177 8.40%
7831 Stanford
Dallas, TX 75225-8209
Nelly B. Monroe 36,406.515 6.37%
57 Long Hill Farm
Guilford, CT 06437-1827
Administrative
Joy L. McNeese 29,424.879 10.54%
8438 Porter Lane
Alexandria, VA 22308-2142
Class A
MLPF&S For the Sole Benefit of its Customers ** 368,751.515 36.96%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Sitar Limited Partnership 101,493.521 10.17%
4800 Ira Avenue
Cleveland, Ohio 44144
Banc of America Securities LLC 87,713.411 8.79%
712-02020-10
Attn: Mutual Funds - 4th Floor
600 Montgomery Street
San Francisco, CA 94111
DB Alex Brown Incorporated 51,776.576 5.19%
FBO 255-29889-13
P.O. Box 1346
Baltimore, MD 21203
Class B
MLPF&S For the Sole Benefit of its Customers ** 195,791.683 31.28%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Dain Rauscher Incorporated FBO 66,529.644 10.63%
K. K. Kinsey Trustee
K. K. Kinsey Rev Intervivos TR
UA DTD 04-18-1997
2801 NE 14th Street
Fort Lauderdale, FL 33304-1680
</TABLE>
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<S> <C> <C>
Class C
MLPF&S For the Sole Benefit of its Customers ** 354,925.714 11.16%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 48,108.257 73.84%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Gary P. Hynes 8,537.887 13.10%
1018 Sheridan Road
Evanston, Illinois 60202
California Intermediate Municipal Bond
Institutional
PIMCO Advisors L.P. 303,748.240 72.86% *
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660-6309
Chris P. Dialynas 58,347.005 14.00%
2140 Mesa Drive
Newport Beach, California 92660
Donaldson Lufkin Jenrette Securities Corp. Inc.** 38,896.798 9.33%
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Class A
Bear Stearns Securities Corp. 25,198.286 44.38%
FBO 709-93145-23
1 MetroTech Center North
Brooklyn, New York 11201-3859
Bear Stearns Securities Corp. 12,518.484 22.05%
FBO 709-93193-16
1 MetroTech Center North
Brooklyn, New York 11201-3859
Donaldson Lufkin Jenrette Securities Corp. Inc.** 12,036.108 21.20%
P.O. Box 2052
Jersey City, New Jersey 07303-9998
</TABLE>
102
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<S> <C> <C>
Robert B. Kuppenheimer 4,056.795 7.14%
19900 MacArthur Blvd., Suite 500
Irvine, California 92612
New York Municipal Bond
Institutional
PIMCO Advisors L.P. 304,375.897 100.00% *
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660-6309
Class A
PIMCO Advisors L.P. 1,019.088 100.00%
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660-6309
Global Bond
Institutional
Blue Cross Blue Shield of Massachusetts Inc. 4,525,056.362 14.74%
Managed Care
100 Summer Street, Treasury 01-06
Boston, MA 02110-2106
Walker Art Center, Inc. 3,151,868.294 10.27%
Vineland Place
Minneapolis, Minnesota 55403
University of Denver (Colorado Seminary) 2,435,522.690 7.93%
2199 South University Blvd.
Denver, Colorado 80208
Kamehameha Schools 2,355,738.775 7.67%
c/o The Bank of New York
P.O. Box 1066 Wall Street Station
New York, New York 10268
Worcester Polytechnic 1,638,334.726 5.34%
100 Institute Road
Worcester, Massachusetts 01609
Hobart and William Smith Colleges 1,613,078.591 5.25%
337 Pulteney Street
Geneva, New York 14456
</TABLE>
103
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<S> <C> <C>
Administrative
FIIOC as Agent for Certain Employee Benefits Plan** 269,411.103 98.83%
100 Magellan KW1C
Covington, Kentucky 41015
Global Bond Fund II
Institutional
Citibank (Switzerland) Acting as Agent 2,151,513.195 27.94%
Attn: Securities Support Group Fund
Seestrasse 25
P.O. Box 3760
8021 Zurich, Switzerland
Weil Gotshal & Manges 1,908,376.798 24.78%
Partners Pension Trust
c/o The Citibank Private Bank
120 Broadway, 2nd Floor
New York, New York 10271
Canterbury/Uniform Code Council 1,743,416.302 22.64%
c/o MAC & Co.
P.O. Box 3198
Pittsburgh, PA 15230-3198
GMP & Employers Retiree Trust 1,078,303.624 14.00%
c/o Mellon Bank N.A.
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Weil Gotshal & Manges 573,123.662 7.44%
Employees Pension Trust
c/o The Citibank Private Bank
120 Broadway, 2nd Floor
New York, New York 10271
Class A
MLPF&S For the Sole Benefit of its Customers ** 42,946.017 15.16%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Salomon Smith Barney Inc. 15,140.819 5.34%
157657431
333 West 34th Street, 3rd Floor
New York, New York 10001
</TABLE>
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<S> <C> <C>
Class B
MLPF&S For the Sole Benefit of its Customers ** 94,287.101 18.39%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 87,596.761 14.69%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Foreign Bond Fund
Institutional
Charles Schwab & Co., Inc. Rein** 24,611,699.833 58.99% *
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Donaldson Lufkin Jenrette Securities Corp. Inc.** 6,110,108.404 14.65%
P. O. Box 2052
Jersey City, New Jersey 07399
Administrative
CBNA FBO Clients of Benefit Plans 139,720.026 29.60%
1500 Genesee Street
Utica, New York 13502
National Financial Services Corporation ** 62,514.924 13.25%
1 World Financial Center
200 Liberty Street
New York, New York 10281
Resources Trust Company for 52,430.248 11.11%
the Exclusive Benefit of the Customers of IMS
P.O. Box 3865
Englewood, CO 80155
Class A
Advest Inc. 698,781.176 12.91%
768-12284-12
90 State House Square
Hartford, CT 06103
Advest Inc. 487,616.814 9.01%
768-12284-11
90 State House Square
Hartford, CT 06103
</TABLE>
105
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<TABLE>
<S> <C> <C>
David P. Lanoha 401,203.611 7.41%
5250 E. Arapahoe Road
#F7, Suite 303
Littleton, Colorado 80122
MLPF&S For the Sole Benefit of its Customers ** 281,236.639 5.20%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 177,223.106 7.32%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 797,277.353 87.75%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
Sandra Stewart 48,967.808 5.39%
c/o National Investors Services Corp.
55 Water Street, 32nd Floor
New York, New York 10041
Emerging Markets Bond Fund
Institutional
State Street Bank & Trust FBO 534,487.129 37.34%
Hallmark Master Trust
Master Trust Services Division
P.O. Box 1992
Boston, Massachusetts 02105-1992
Tenet Healthcare (AMI) 521,743.130 36.45%
14001 Dallas Pkwy., Suite 105
Dallas, Texas 75240-4362
Arrow & Co. 242,718.447 16.95%
P.O. Box 30010
Durham, North Carolina 27702
</TABLE>
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<S> <C> <C>
Charles Schwab & Co., Inc. Rein** 84,479.748 5.90%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Administrative
Centurion Trust Company 1,671,197.883 99.91% *
FBO Omnibus/Centurion Cap. Mgmt.
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
Class A
MLPF&S For the Sole Benefit of its Customers ** 4,869.000 15.56%
Attention: Fund Administration #97RD2
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Steve M. Foulke & Maria M. Foulke 4,714.724 15.07%
Community Property
1 Altimira
Coto de Caza, California 92679-4901
PaineWebber for the Benefit of L.A. Razette & 3,591.016 11.48%
Clara M. Razette JTWROS
3357 Sabal Springs Blvd.
North Fort Myers, Florida 33917-2023
Julie D. Roth TR 3,529.057 11.28%
UA JUN 06 96
J&M Roth Family Trust
34300 Lantern Bay Drive, Apt. 9
Dana Point, California 92629-2858
Maria May Faulke TTEE 3,119.826 9.97%
Maria Michelle May 1992 Trust
FBO Chelsea & Ryan Faulke
1 Altimira
Trabuco Canyon, California 92679
Class B
MLPF&S For the Sole Benefit of its Customers ** 26,931.344 21.82%
Attention: Fund Administration #97M36 .
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Robert S. Baird & Co. Inc. 13,744.475 11.13%
A/C 1751-2072
777 East Wisconsin Avenue
Milwaukee, WI 53202-5391
</TABLE>
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<S> <C> <C>
Donaldson Lufkin Jenrette Securities Corp. Inc. ** 9,053.567 7.33%
P.O. Box 2052
Jersey City, New Jersey 07303-9998
Rosaylin Helford 6,234.466 5.05%
1655 Lake Cook Road, Apt. 149
Highland Park, Illinois 60035
Class C
MLPF&S For the Sole Benefit of its Customers ** 7,748.520 22.78%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
NFSC FEBO #120-077852 5,668.276 16.66%
FMT CO CUST IRA
FBO John J. Jordan
P. O. Box 466
Rye Beach, New Hampshire 03871
CIBC World Markets Corp. 4,176.072 12.28%
FBO 020-66126-24
P. O. Box 3484
Church Street Station
New York, New York 10008-8484
Orlin TE SLAA TR 3,783.557 11.12%
Patrick J. Rowland Rev Trust
U/A Dated 12/7/1993 as Amended
3800 W. 80th Street
Bloomington, Minnesota 55431-4420
Raymond James & Assoc. Inc. 3,489.592 10.26%
For Elite Acct #82729810
Janet A. Delsantro
REV Trust UA DTD 3 23 98
14505 Aeries Way Drive, Apt. 224
Fort Meyers, Florida 33912-1721
Strategic Balanced Fund
Institutional
California Community Foundation 5,436,805.743 55.76% *
606 South Olive Street, Suite 2400
Los Angeles, California 90014
</TABLE>
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<TABLE>
<S> <C> <C>
Carpenters Health and Security Trust 2,301,518.203 23.60%
of Western Washington
P.O. Box 1929
Seattle, Washington 98111
Dominguez Services Corporation 529,711.681 5.43%
Trusteed Pension Fund
21718 South Alameda Street
Long Beach, California 90810-1682
Administrative
Affiliated Medical Centers Profit Sharing Plan 32,656.121 66.15%
c/o Norwest Bank
P.O. Box 1533
Minneapolis, Minnesota 55480-1533
Affiliated Medical Center Pension Plan 15,890.216 32.19%
c/o Norwest Bank
P.O. Box 1533
Minneapolis, Minnesota 55480-1533
Class A
Prudential Securities Inc. FBO 37,609.042 10.38%
Prudential Retirement Services
Administrator for Plan 80322
MSSA-ILA Local 1985 401(k)
P.O. Box 15040
New Brunswick, NJ 08906
B. B. Schilberg & N. B. Schilberg TR UA 10/01/93 31,933.433 8.81%
Schilbert Integrated Metals Corp. 401(k) Plan
Riverview Square II
99 E River Drive
East Hartford, CT 06108
BSDT Cust. Rollover IRA 23,531.683 6.49%
FBO Frederick A. Otto
795 Fairway Court
Gaylord, MI 49735
Class B
MLPF&S For the Sole Benefit of its Customers ** 191,595.913 19.66%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
109
<PAGE>
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<S> <C> <C>
Class C
MLPF&S For the Sole Benefit of its Customers ** 188,640.641 18.70%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 8,167.868 63.97%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
National Investors Services Corp. for 3,308.175 25.91%
Exclusive Benefit of their Customers
55 Water Street, 32nd Floor
New York, NY 10041
PIMCO Advisors L.P. 960.617 7.52%
800 Newport Center Drive
Newport Beach, California 92660-6309
Convertible
Institutional
State Street Bank & Trust 1,166,165.646 12.14%
FBO: Pacific Gas & Electric Co.
Retirement Plan Master
1 Enterprise Drive
North Quincy, Massachusetts 02171-2126
Northern Trust Company FBO: 884,409.050 9.21%
Lucent Technologies Inc. Master Pension Trust
P.O. Box 92923
Chicago, IL 60675
State Street Bank & Trust Co. FBO: 696,564.497 7.25%
New York State Teamster Conference
Pension and Retirement Plan
P.O. Box 1992
Boston, Massachusetts 02105
Bankers Trust Co. FBO GTE Services Corp. 560,011.101 5.83%
Bond Pension Fund
c/o BT Services Tennessee Inc.
648 Grassmere Business Park Road
Nashville, Tennessee 37211
</TABLE>
110
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<S> <C> <C>
Class A
Dean Witter for the Benefit of 158,213.039 67.51%
American Osteopathic Association
P.O. Box 250, Church Street Station
New York, New York 10008-0250
MLPF&S For the Sole Benefit of its Customers ** 23,417.785 9.99%
Attention: Fund Administration #97
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class B
MLPF&S For the Sole Benefit of its Customers ** 56,880.770 70.62%
Attention: Fund Administration #97
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Prudential Securities Inc. FBO 4,479.054 5.56%
Mr. Larry R. Kirkman
2310 Whilden Ct.
Charlotte, NC 28211-3274
Class C
MLPF&S For the Sole Benefit of its Customers ** 126,666.790 39.04%
Attention: Fund Administration #97
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
StocksPLUS Fund
Institutional
Charles Schwab & Co., Inc. Rein** 5,294,526.544 11.89%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
St. Cloud Hospital 3,937,176.964 8.84%
1406 6th Avenue N.
St. Cloud, Minnesota 56301
Northern Trust Custodian FBO 3,038,147.185 6.82%
Reliastar Financial Acct. #26-48847
P.O. Box 92956
Chicago, IL 60675
</TABLE>
111
<PAGE>
<TABLE>
<S> <C> <C>
Firstar Trust Company Agent 2,567,251.321 5.77%
Firstar Des Moines TTEE
Iowa Methodist Medical Center
P.O. Box 1787
Milwaukee, Wisconsin 53201
Administrative
Centurion Trust Company 1,588,287.090 47.76%
FBO Omnibus/Centurion Cap. Mgmt.
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
The Colorado County Officials and Employees 1,275,759.623 38.36%
Retirement Association
Attn: Jay Shoemaker
4949 S. Syracuse Street, Suite 400
Denver, Colorado 80237-2747
Class A
MLPF&S For the Sole Benefit of its Customers ** 1,550,625.561 12.11%
Attention: Fund Administration #97M34
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
FTC & Co. 655,611.744 5.12%
Attn: Datalynx #179
P.O. Box 173736
Denver, Colorado 80217
Class B
MLPF&S For the Sole Benefit of its Customers ** 4,512,192.603 16.16%
Attention: Fund Administration #97M35
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class C
MLPF&S For the Sole Benefit of its Customers ** 3,867,979.750 15.82%
Attention: Fund Administration #97M36
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
Class D
Charles Schwab & Co., Inc.** 193,577.650 68.95%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, California 94104-4122
</TABLE>
112
<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
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.
113
<PAGE>
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, 1999 for its fiscal year
then ended, including notes thereto, and the reports of PricewaterhouseCoopers
LLP thereon dated May 19, 1999, are incorporated by reference from the Trust's
1999 Annual Reports. A copy of the Reports delivered with this Statement of
Additional Information should be retained for future reference.
114
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
--------
(a) (1) Declaration of Trust of Registrant/7/
(2) Form of Amendment to Declaration of Trust/16/
(3) Form of Amended and Restated Declaration of Trust
(4) Form of Amended and Restated Establishment and Designation of
Series of Shares of Beneficial Interest/8/
(5) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Long Duration Fund/11/
(6) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Convertible Bond Fund/12/
(7) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Low Duration Municipal Bond,
California Intermediate Municipal Bond and New York Intermediate
Municipal Bond Funds/15/
(8) Form of Establishment and Designation of Classes J and Class
K/16/
(9) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Loan Obligation Fund/16/
(10) Form of Amended Designation of Series Relating to Short Duration
Municipal Income Fund/16/
(11) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to the PIMCO Private Account
Portfolios/17/
(12) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to the Real Return Bond
Portfolio/17/
(13) Form of Amended Designation of Series Relating to the U.S.
Government Sector, U.S. Government Sector II, Mortgage, Mortgage
II, Investment Grade Corporate, Select Investment, High Yield,
International and Emerging Markets Portfolios/17/
(14) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to Investment Grade Corporate Bond
Fund/19/
(15) Form of Establishment and Designation of Series of Shares of
Beneficial Interest Relating to PIMCO California Municipal Bond
Fund and PIMCO Short-Term Emerging Markets Portfolio/20/
<PAGE>
(b) Form of By-laws of Registrant/7/
(c) Not applicable
(d) (1) Form of Investment Advisory Contract/7/
(2) Form of Amendment to Investment Advisory Contract/7/
(3) Form of Supplement to Investment Advisory Contract Relating to
StocksPLUS Short Strategy Fund/2/
(4) Form of Supplement to Investment Advisory Contract Relating to
Balanced Fund/3/
(5) Form of Supplement to Investment Advisory Contract Relating to
Global Bond Fund II/5/
(6) Form of Supplement to Investment Advisory Contract Relating to
Real Return Bond Fund/5/
(7) Form of Supplement to Investment Advisory Contract Relating to
Low Duration Mortgage Fund, Total Return Mortgage Fund, Emerging
Markets Bond Fund, and Emerging Markets Bond Fund II/6/
(8) Form of Supplement to Investment Advisory Contract Relating to
Municipal Bond Fund /9/
(9) Form of Supplement to Investment Advisory Contract Relating to
Long Duration Fund/11/
(10) Form of Supplement to Investment Advisory Contract Relating to
Convertible Bond Fund/13/
(11) Form of Supplement to Investment Advisory Contract Relating to
Low Duration Municipal Bond, California Intermediate Municipal
Bond and New York Intermediate Municipal Bond Funds/15/
(12) Form of Supplement to Investment Advisory Contract Relating to
PIMCO Private Account Portfolios/17/
(13) Form of Investment Advisory Contract/20/
(14) Form of Supplement to Investment Advisory Contract Relating to
PIMCO California Municipal Bond Fund and PIMCO Short-Term
Emerging Markets Portfolio/20/
(15) Form of Supplement to Investment Advisory Contract Relating to
Loan Obligation Fund
-2-
<PAGE>
(e) (1) Form of Amended and Restated Distribution Contract/14/
(2) Form of Supplement to Amended and Restated Distribution Contract
Relating to Low Duration Municipal Bond, California Intermediate
Municipal Bond and New York Intermediate Municipal Bond Funds/15/
(3) Form of Japan Dealer Sales Contract/14/
(4) Form of Supplement to Amended and Restated Distribution Contract
Relating to PIMCO Private Account Portfolios/17/
(5) Form of Distribution Contract
(6) Form of Supplement to Distribution Contract Relating to PIMCO
California Municipal Bond Fund and PIMCO Short-Term Emerging
Markets Portfolio
(f) Not applicable
(g) Form of Custody and Investment Accounting Agreement/14/
(h) (1) Form of Amended and Restated Administration Agreement /9/
(2) Form of Supplement to Amended and Restated Administration
Agreement relating to Long Duration Fund/11/
(3) Form of Supplement to Amended and Restated Administration
Agreement Relating to Convertible Bond Fund/13/
(4) Form of Supplement to Amended and Restated Administration
Agreement Relating to Class J and Class K Shares/14/
(5) Form of Supplement to Amended and Restated Administration
Agreement Relating to Low Duration Municipal Bond, California
Intermediate Municipal Bond and New York Intermediate Municipal
Bond Funds/15/
(6) Form of Supplement to Amended and Restated Administration
Agreement Relating to PIMCO Private Account Portfolios/17/
(7) Form of Second Amended and Restated Administration Agreement
(8) Form of Supplement to Second Amended and Restated Administration
Agreement Relating to PIMCO California Municipal Bond Fund and
PIMCO Short-Term Emerging Markets Portfolio
(9) Form of Supplement to Second Amended and Restated Administration
Agreement Relating to Loan Obligation Fund
-3-
<PAGE>
(10) Form of Shareholder Servicing Agreement /9/
(11) Form of Transfer Agency Agreement/7/
(12) Form of Transfer Agency Agreement with Shareholder Services,
Inc./1/
(i) Opinion and Consent of Counsel/21/
(j) Not Applicable
(k) Not applicable
(l) Not applicable
(m) (1) Form of Distribution and Servicing Plan for Class A Shares/4/
(2) Form of Distribution and Servicing Plan for Class B Shares/4/
(3) Form of Distribution and Servicing Plan for Class C Shares/4/
(4) Form of Amended and Restated Distribution Plan for Administrative
Class Shares/7/
(5) Form of Amended and Restated Administrative Services Plan for
Administrative Class Shares/7/
(6) Form of Distribution and Servicing Plan for Class J Shares/14/
(7) Form of Distribution and Servicing Plan for Class K Shares/14/
(n) Form of Amended and Restated Multi-Class Plan adopted pursuant to Rule
18f-3/14/
(p)(1) Form of Code of Ethics for the Registrant
(p)(2) Form of Code of Ethics for PIMCO
(p)(3) Form of Code of Ethics for PIMCO Funds Distributors LLC/21/
* Form of Power of Attorney
_____________________
/1/ Filed with Post Effective Amendment No. 33 to the Registration
Statement of PIMCO Advisors Funds (File No. 2-87203) on November 30,
1995.
/2/ Filed with Post-Effective Amendment No. 27 on January 16, 1996.
/3/ Filed with Post-Effective Amendment No. 28 on April 1, 1996.
-4-
<PAGE>
/4/ Filed with Registration Statement on Form N-14 (File No. 333-12871) on
September 27, 1996.
/5/ Filed with Post Effective Amendment No. 33 on January 13, 1997.
/6/ Filed with Post-Effective Amendment No. 36 on July 11, 1997.
/7/ Filed with Post-Effective Amendment No. 37 on November 17, 1997.
/8/ Filed with Post-Effective Amendment No. 39 on January 15, 1998.
/9/ Filed with Post-Effective Amendment No. 40 on March 13, 1998.
/10/ Filed with Post-Effective Amendment No. 41 on July 31, 1998.
/11/ Filed with Post-Effective Amendment No. 42 on September 11, 1998.
/12/ Filed with Post-Effective Amendment No. 43 on January 15, 1999.
/13/ Filed with Post-Effective Amendment No. 44 on April 2, 1999.
/14/ Filed with Post-Effective Amendment No. 45 on May 26, 1999.
/15/ Filed with Post-Effective Amendment No. 46 on June 17, 1999.
/16/ Filed with Post-Effective Amendment No. 50 on October 1, 1999.
/17/ Filed with Amendment No. 55 to the Registration Statement under the
Investment Company Act of 1940 on October 8, 1999.
/18/ Filed with Post-Effective Amendment No. 51 on October 22, 1999.
/19/ Filed with Post-Effective Amendment No. 52 on December 15, 1999.
/20/ Filed with Amendment No. 61 to the Registration Statement under the
Investment Company Act of 1940 on May 16, 2000.
/21/ To be filed by Amendment.
Item 24. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
No person is controlled by or under common control with the Registrant.
Item 25. Indemnification
---------------
Reference is made to Article IV of the Registrant's Declaration of Trust,
which was filed with the Registrant's initial Registration Statement.
-5-
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and, public policy as expressed in the Act and,
therefore, is unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by trustees, officers or controlling persons of
the Registrant in connection with the successful defense of any act, suit
or proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issues.
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
The directors and officers of PIMCO and their business and other
connections are as follows:
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Allan, George C. Senior Vice President, PIMCO and PIMCO Management, Inc.
Ariza, Jr., Augustine Vice President, PIMCO and PIMCO Management, Inc.
Arnold, Tamara J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Asay, Michael R. Senior Vice President, PIMCO and PIMCO Management, Inc.
Baker, Brian P. Vice President, PIMCO and PIMCO Management, Inc.
Barbi, Leslie A. Executive Vice President, PIMCO and PIMCO Management, Inc.
Beaumont, Stephen B. Vice President, PIMCO and PIMCO Management, Inc.
Benz, William R. II Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Member of PIMCO Partners LLC.
Bishop, Gregory A. Vice President, PIMCO and PIMCO Management, Inc.
Brick, Andrew Senior Vice President, PIMCO, and PIMCO Management, Inc.
Brynjolfsson, John B. Executive Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Burns, R. Wesley Managing Director and Executive Committee Member, PIMCO.
Director and Managing Director, PIMCO Management, Inc.; Member
of PIMCO Partners LLC. President and Trustee of the Trust and
PIMCO Variable Insurance Trust; President and Director of PIMCO
Commercial Mortgage Securities Trust, Inc.; Director, PIMCO
Funds: Global Investors Series plc and PIMCO Global Advisors
(Ireland) Limited.
Callin, Sabrina C. Vice President, PIMCO and PIMCO Management, Inc.
Clark, Marcia K. Vice President, PIMCO and PIMCO Management, Inc.
Coleman, Jerry Vice President, PIMCO and PIMCO Management, Inc.
Conseil, Cyrille Vice President, PIMCO and PIMCO Management, Inc.
Cummings, Doug Vice President, PIMCO and PIMCO Management, Inc.
Cupps, Wendy W. Senior Vice President, PIMCO and PIMCO Management, Inc.
Dialynas, Chris Managing Director, PIMCO; Director and Managing Director,
PIMCO Management, Inc.; Member of PIMCO Partners LLC.
Dorff, David J. Vice President, PIMCO and PIMCO Management, Inc.
Dow, Michael Senior Vice President, PIMCO, PIMCO Management, Inc. and the
Trust.
Dunn, Anita Vice President, PIMCO and PIMCO Management, Inc.
Durn, Sandra Senior Vice President, PIMCO and PIMCO Management, Inc.
Ehlert, A. Benjamin Executive Vice President, PIMCO and PIMCO Management, Inc.
El-Erian, Mohamed A. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.
Esquibel, Albert Vice President, PIMCO and PIMCO Management, Inc.
Ettl, Robert A. Executive Senior Vice President, PIMCO and PIMCO Management,
Inc.
Evans, Stephanie D. Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Fitzgerald, Robert M. Chief Financial Officer and Treasurer, PIMCO, PIMCO Management,
Inc., Cadence Capital Management, Inc., NFJ Investment Group,
NFJ Management, Inc., Parametric Portfolio Associates,
Parametric Management Inc., StocksPLUS Management Inc. and
PIMCO Funds Distributors LLC; Chief Financial Officer and
Assistant Treasurer, Cadence Capital Management; Director,
Senior Vice President and Chief Financial Officer, Oppenheimer
Group, Inc.; Chief Financial Officer and Senior Vice President,
PIMCO Advisors; Chief Financial Officer, PIMCO Global Advisors
LLC.
Foulke, Steve A. Vice President, PIMCO and PIMCO Management, Inc.
Frisch, Ursula T. Vice President, PIMCO and PIMCO Management, Inc.
Garbuzov, Yuri P. Vice President, PIMCO and PIMCO Management, Inc.
Gross, William H. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Director and Vice President, StocksPLUS
Management, Inc.; Senior Vice President of the Trust and PIMCO
Variable Insurance Trust; Member of Management Board, PIMCO
Advisors; Member of PIMCO Partners LLC.
Hague, John L. Managing Director and Executive Committee Member, PIMCO;
Director and Managing Director, PIMCO Management, Inc.; Member
of PIMCO Partners LLC.
Hally, Gordon C. Executive Vice President, PIMCO and PIMCO Management, Inc.
Hamalainen, Pasi M. Managing Director, PIMCO; Director and Managing Director,
PIMCO Management, Inc.
Hardaway, John P. Senior Vice President, PIMCO and PIMCO Management, Inc.;
Treasurer of the Trust, PIMCO Variable Insurance Trust, PIMCO
Funds: Multi-Manager Series and PIMCO Commercial Mortgage
Securities Trust, Inc.
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Harris, Brent R. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Director and Vice President, StocksPLUS
Management, Inc.; Trustee and Chairman of the Trust and PIMCO
Variable Insurance Trust; Director and Chairman, PIMCO
Commercial Mortgage Securities Trust, Inc.; Member of
Management Board and Executive Committee, PIMCO Advisors;
Member of PIMCO Partners LLC.
Hattesohl, Joseph D. Vice President, PIMCO and PIMCO Management, Inc. Assistant
Treasurer, the Trust, PIMCO Variable Insurance Trust, PIMCO
Funds: Multi-Manager Series and PIMCO Commercial Mortgage
Securities Trust, Inc.
Hayes, Raymond C. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
Hinman, David C. Senior Vice President, PIMCO and PIMCO Management, Inc.
Hocson, Liza M. Vice President, PIMCO and PIMCO Management, Inc.
Hodge, Douglas M. Executive Vice President, PIMCO and PIMCO Management, Inc.
Holden, Brent L. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.
Holloway, Dwight F., Jr. Senior Vice President, PIMCO and PIMCO Management, Inc.
Hudoff, Mark Senior Vice President, PIMCO and PIMCO Management, Inc.
Isberg, Margaret E. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Senior Vice President of the Trust.
Kelleher, Thomas J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust
Keller, James M. Executive Vice President, PIMCO and PIMCO Management, Inc.
Kennedy, Raymond G. Senior Vice President, PIMCO and PIMCO Management, Inc.
Kiesel, Mark R. Vice President, PIMCO and PIMCO Management, Inc.
Kilmer, Sharon Executive Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Kirkbaumer, Steven P. Vice President, PIMCO, PIMCO Management, Inc. and PIMCO
Variable Insurance Trust.
Loftus, John S. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Vice President and Assistant Secretary,
StocksPLUS Management, Inc.
Lown, David Vice President, PIMCO and PIMCO Management, Inc.
Lyon, Laura, M. Vice President, PIMCO and PIMCO Management, Inc.
Mallegol, Andre J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
Martin, Scott W. Vice President, PIMCO and PIMCO Management, Inc.
Martini, Michael E. Vice President, PIMCO and PIMCO Management, Inc.
Mather, Scott A. Senior Vice President, PIMCO and PIMCO Management, Inc.
Mayer, Benjamin L. Vice President, PIMCO and PIMCO Management, Inc.
McCray, Mark V. Senior Vice President, PIMCO and PIMCO Management, Inc.
McCulley, Paul A. Executive Vice President, PIMCO and PIMCO Management, Inc.
McDevitt, Joseph E. Executive Vice President, PIMCO and PIMCO Management, Inc.;
Director and Chief Executive Officer, PIMCO Global Advisors
(Europe) Limited.
Meiling, Dean S. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Vice President, PIMCO Commercial Mortgage
Securities Trust, Inc.; Director, PIMCO Funds: Global Investors
Series plc and PIMCO Global Advisors (Ireland) Limited; Member,
PIMCO Partners LLC.
Metsch, Mark E. Vice President, PIMCO and PIMCO Management, Inc.
Mewbourne, Curtis Vice President, PIMCO and PIMCO Management, Inc.
Millimet, Scott Vice President, PIMCO and PIMCO Management, Inc.
Moll, Jonathan D. Vice President, PIMCO and PIMCO Management, Inc.
Monson, Kirsten S. Senior Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Muzzy, James F. Managing Director and Executive Committee Member, PIMCO;
Director and Managing Director, PIMCO Management, Inc.;
Director and Vice President, StocksPLUS Management, Inc.;
Senior Vice President, PIMCO Variable Insurance Trust; Vice
President of the Trust; Member of PIMCO Partners LLC.
Nakamura, Doris S. Vice President, PIMCO and PIMCO Management, Inc.
Nellemann, Mark D. Vice President, PIMCO and PIMCO Management, Inc.
Nguyen, Vinh T. Controller, PIMCO; Vice President and Controller, PIMCO
Advisors, Cadence Capital Management, Inc., NJF Management,
Inc., Parametric Management, Inc., StocksPLUS Management, Inc.,
PIMCO Funds Distributors LLC, PIMCO Management, Inc., PIMCO
Global Advisors LLC.
Ongaro, Douglas J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
Otterbein, Thomas J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Palghat, Kumar N. Vice President, PIMCO and PIMCO Management, Inc.
Perez, Keith Vice President, PIMCO and PIMCO Management, Inc.
Phansalker, Mohan V. Senior Vice President, Senior Legal Officer and Assistant
Secretary, PIMCO and PIMCO Management, Inc.; Vice President and
Assistant Secretary, StocksPLUS Management, Inc.
Philipp, Elizabeth M. Vice President, PIMCO and PIMCO Management, Inc.
Pittman, David J. Vice President, PIMCO, PIMCO Management, Inc. and the Trust.
Podlich, William F. III Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Member of Management Board, PIMCO Advisors;
Member of PIMCO Partners LLC.
Powers, William C. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Senior Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc.; Member of PIMCO Partners LLC.
Randall, Terry A. Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Romano, Mark Vice President, PIMCO, PIMCO Management, Inc. and the Trust
Roney, Scott L. Senior Vice President, PIMCO and PIMCO Management, Inc.;
Director and Chief Executive Officer, PIMCO Global Advisors
(Japan) Limited.
Rosborough, Michael J. Senior Vice President, PIMCO and PIMCO Management, Inc.
Rowe, Cathy T. Vice President, PIMCO and PIMCO Management, Inc.
Ruthen, Seth R. Vice President, PIMCO and PIMCO Management, Inc.
Sargent, Jeffrey M. Vice President, PIMCO, PIMCO Management, Inc. and PIMCO Funds:
Multi-Manager Series; Senior Vice President of the Trust, PIMCO
Variable Insurance Trust, and PIMCO Commercial Mortgage
Securities Trust, Inc.
Schmider, Ernest L. Managing Director and Secretary, PIMCO; Director, Managing
Director and Secretary, PIMCO Management, Inc.; Secretary,
PIMCO Partners LLC; Director and Assistant Secretary,
StocksPLUS Management, Inc.; Senior Vice President, PIMCO
Advisors.
Scholey, Leland T. Senior Vice President, PIMCO, PIMCO Management, Inc. and the
Trust.
Schulist, Stephen O. Vice President, PIMCO and PIMCO Management, Inc.
Scibisz, Iwona E. Vice President, PIMCO and PIMCO Management, Inc.
Seliga, Denise C. Vice President, PIMCO and PIMCO Management, Inc.
Seymour, Rita J. Vice President, PIMCO and PIMCO Management, Inc.
Simon, Scott Executive Vice President, PIMCO and PIMCO Management, Inc.
Sullivan, Christopher Vice President, PIMCO and PIMCO Management, Inc.
Theodore, Kyle, J. Vice President, PIMCO and PIMCO Management, Inc.
Thomas, Lee R. Managing Director, PIMCO; Director and Managing Director,
PIMCO Management, Inc.; Member PIMCO Partners LLC.
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Thompson, William S. Jr. Chief Executive Officer, Managing Director and Executive
Committee Member, PIMCO; Director, Managing Director and Chief
Executive Officer, PIMCO Management, Inc.; Director and
President, StocksPLUS Management, Inc.; Senior Vice President
of PIMCO Variable Insurance Trust; Vice President of the Trust
and PIMCO Commercial Mortgage Securities Trust, Inc.; Member of
Management Board and Executive Committee Member, PIMCO
Advisors; Member, President and Chief Executive Officer of
PIMCO Partners LLC.
Trinidad, Ronaele K. Vice President, PIMCO and PIMCO Management, Inc.
Trosky, Benjamin L. Managing Director, PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Senior Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc.; Member of Management Board,
PIMCO Advisors; Member of PIMCO Partners LLC.
Tyson, Richard E. Vice President, PIMCO and PIMCO Management, Inc.
Van de Zilver, Peter A. Vice President, PIMCO and PIMCO Management, Inc.
Wantanabe, Koichi Vice President, PIMCO and PIMCO Management, Inc.; Executive
Vice President and Director, PIMCO Global Advisors (Japan)
Limited.
Wegener, Marilyn Vice President, PIMCO and PIMCO Management, Inc.
Weil, Richard M. Assistant Secretary, PIMCO, PIMCO Management, Inc., Cadence
Capital Management, and PIMCO Funds Distributors LLC; General
Counsel and Senior Vice President, PIMCO Advisors; Secretary,
Cadence Capital Management, Inc. NFJ Management, Inc.,
Parametric Management, Inc., NFJ Investment Group, Parametric
Portfolio Associates, and StocksPLUS Management, Inc.; Vice
President, PIMCO Funds: Multi-Manager Series; Senior Vice
President, General Counsel and Assistant Secretary, PIMCO
Global Advisors LLC; Senior Vice President and Assistant
Secretary, PIMCO Global Advisors (Japan) Limited.
Westhead, Paul C. Vice President, PIMCO and PIMCO Management, Inc.
Wilson, Susan Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Name Business and Other Connections
- ---- ------------------------------
<S> <C>
Wood, George H. Executive Vice President, PIMCO and PIMCO Management, Inc.
Yetter, Michael A. Senior Vice President, PIMCO and PIMCO Management, Inc.
Young, David Vice President, PIMCO, PIMCO Management, Inc. and PIMCO Global
Advisors (Europe) Limited.
Zhu, Changhong Vice President, PIMCO and PIMCO Management, Inc.
</TABLE>
The address of PIMCO is 840 Newport Center Drive, Newport Beach, CA 92260.
The address of PIMCO Advisors L.P. is 800 Newport Center Drive, Newport Beach,
CA 92660.
The address of PIMCO Funds Distributors LLC is 2187 Atlantic Street, Stamford,
CT 06902.
Item 27. Principal Underwriters
----------------------
(a) PIMCO Funds Distributors LLC (the "Distributor") serves as Distributor of
Shares of the Trust. The Distributor also acts as the principal
underwriter for PIMCO Funds: Multi-Manager Series. The Distributor is a
wholly-owned subsidiary of PIMCO Advisors.
(b)
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
------------------ --------------------- ---------------------
<S> <C> <C>
Aarts, Erik M. Vice President None
Bosch, James D. Regional Vice President None
Brennan, Deborah P. Vice President, Compliance None
Officer
Clark, Timothy R. Executive Vice President None
Crean, Kelly Regional Vice President None
DeNicolo, Paul Regional Vice President None
Fessel, Jonathan P. Regional Vice President None
Fitzgerald, Robert M. Chief Financial Officer and None
Treasurer
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
------------------ --------------------- ---------------------
<S> <C> <C>
Gallagher, Michael J. Regional Vice President None
Gengo, Joseph Regional Vice President None
Goldsmith, David S. Regional Vice President None
Gray, Ronald H. Regional Vice President None
Hally, Dan Regional Vice President None
Hammond, Ned Regional Vice President None
Hans, Charles Regional Vice President None
Hayes, Derek B. Vice President None
Horan, Christopher Regional Vice President None
Hooper, Kristina Vice President None
Hussey, John B. Regional Vice President None
Jobe, Stephen R. Senior Vice President None
Lynch, William E. Senior Vice President None
Maginn, Stephen Executive Vice President None
Meyer, Wayne Regional Vice President None
Meyers, Andrew J. Executive Vice President None
Murphy, George Regional Vice President None
Murphy, Kerry A. Vice President None
Moyer, Fiora N. Regional Vice President None
Neugebauer, Phil J. Senior Vice President None
Nguyen, Vinh T. Vice President, Controller None
Pearlman, Joffrey H. Regional Vice President None
Pisapia, Glynne Regional Vice President None
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* with Underwriter with Registrant
------------------ --------------------- ---------------------
<S> <C> <C>
Poli, Frank C. Vice President, Compliance None
Officer
Russo, Anne Marie Vice President None
Seymour, Christopher Regional Vice President None
Schlingheyde, Keith Regional Vice President None
Schott, Newton B., Jr. Executive Vice President/ None
Secretary, Chief
Administrative/ Legal Officer
Short, Elizabeth Vice President None
Smith Jr., Eugene M. Vice President None
Smith, Robert M. Regional Vice President None
Spear, Ellen Z. Vice President None
Spezakis, Zinovia Vice President None
Thomas, William H., Jr. Senior Vice President None
Treadway, Stephen J. Chairman, President and Chief None
Executive Officer
Troyer, Paul H. Senior Vice President None
Vlachos, Teresa Vice President None
Weil, Richard M. Assistant Secretary None
Zimmerman, Glen A. Vice President None
</TABLE>
__________
* The business address of all officers of the Distributor is either 2187
Atlantic Street, Stamford, CT 06902 or 800 Newport Center Drive, Newport
Beach, CA 92660.
Item 28. Location of Accounts and Records
--------------------------------
The account books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of
1940 and the Rules thereunder will be maintained at the offices of
Pacific Investment Management Company, 840 Newport Center Drive,
Newport Beach, California 92660, State
-16-
<PAGE>
Street Bank & Trust Co., 801 Pennsylvania, Kansas City, Missouri
64105, and Shareholder Services, Inc., P.O. Box 5866, Denver, Colorado
80217.
Item 29. Management Services
-------------------
Not applicable
Item 30. Undertakings
------------
Not applicable.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has duly caused this Post-
Effective Amendment No. 54 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Washington
in the District of Columbia on the 18th day of May, 2000.
PIMCO FUNDS
(Registrant)
By:
-----------------------------------
R. Wesley Burns*
President
*By: /s/ Robert W. Helm
-----------------------------------
Robert W. Helm, as attorney-in-fact
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
____________________________ Trustee May 18, 2000
Guilford C. Babcock*
____________________________ Trustee May 18, 2000
Thomas P. Kemp*
____________________________ Trustee May 18, 2000
Brent R. Harris*
____________________________ Trustee May 18, 2000
William J. Popejoy*
____________________________ Trustee May 18, 2000
Vern O. Curtis*
___________________________ Trustee May 18, 2000
E. Philip Cannon*
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<PAGE>
___________________________ Trustee May 18, 2000
J. Michael Hagan*
___________________________ President May 18, 2000
R. Wesley Burns* (Principal Executive
Officer)
___________________________ Treasurer May 18, 2000
John P. Hardaway* (Principal Financial
and Accounting
Officer)
*By: /s/ Robert W. Helm
----------------------
Robert W. Helm,
as attorney-in-fact
___________________
* Pursuant to power of attorney filed with Post-Effective Amendment No. 54 to
the Registration Statement No. 33-12113 on May 18, 2000.
-19-
<PAGE>
PIMCO Funds
INDEX TO EXHIBITS
Exhibit (a)(3) Form of Amended and Restated Declaration of Trust
Exhibit (d)(15) Form of Supplement to Investment Advisory Contract Relating to
Loan Obligation Fund
Exhibit (e)(5) Form of Distribution Contract
Exhibit (e)(6) Form of Supplement to Distribution Contract Relating to PIMCO
California Municipal Bond Fund and PIMCO Short-Term Emerging
Markets Portfolio
Exhibit (h)(7) Form of Second Amended and Restated Administration Agreement
Exhibit (h)(8) Form of Supplement to Second Amended and Restated
Administration Agreement Relating to PIMCO California Municipal
Bond Fund and PIMCO Short-Term Emerging Markets Portfolio
Exhibit (h)(9) Form of Supplement to Second Amended and Restated
Administration Agreement Relating to Loan Obligation Fund
Exhibit (p)(1) Form of Code of Ethics for the Registrant
Exhibit (p)(2) Form of Code of Ethics for PIMCO
* Form of Power of Attorney
<PAGE>
EXHIBIT 99(a)(3)
FORM OF
PIMCO FUNDS
AMENDED AND RESTATED DECLARATION OF TRUST
DATED MARCH 31, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. .................................................................................................... 1
Section 1.1. Name and Address.............................................................................. 1
Section 1.2. Definitions................................................................................... 1
ARTICLE II. ................................................................................................... 3
Section 2.1. General Powers................................................................................ 3
Section 2.2. Investments................................................................................... 3
Section 2.3. Legal Title................................................................................... 5
Section 2.4. Issuance and Repurchase of Shares............................................................. 5
Section 2.5. Delegation; Committees........................................................................ 5
Section 2.6. Collection and Payment........................................................................ 6
Section 2.7. Expenses...................................................................................... 6
Section 2.8. Manner of Acting; By-laws..................................................................... 6
Section 2.9. Miscellaneous Powers.......................................................................... 6
Section 2.10. Principal Transactions........................................................................ 7
Section 2.11. Number of Trustees............................................................................ 7
Section 2.12. Election and Term............................................................................. 7
Section 2.13. Resignation and Removal....................................................................... 7
Section 2.14. Vacancies..................................................................................... 8
Section 2.15. Delegation of Power to Other Trustees......................................................... 8
Section 2.16. Shareholder Vote, etc. ....................................................................... 9
ARTICLE III. .................................................................................................... 9
Section 3.1. Distribution Contract......................................................................... 9
Section 3.2. Advisory or Management Contract............................................................... 9
Section 3.3. Affiliations of Trustees or Officers, Etc..................................................... 10
Section 3.4. Compliance with 1940 Act...................................................................... 10
ARTICLE IV. .................................................................................................... 10
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. ........................................ 10
Section 4.2. Non-Liability of Trustees, Etc. .............................................................. 11
Section 4.3. Mandatory Indemnification..................................................................... 11
Section 4.4. No Bond Required of Trustees.................................................................. 13
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc. .................................. 13
Section 4.6. Reliance on Experts, Etc. .................................................................... 13
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE V. .................................................................................................... 14
Section 5.1. Beneficial Interest........................................................................... 14
Section 5.2. Rights of Shareholders........................................................................ 14
Section 5.3. Trust Only.................................................................................... 14
Section 5.4. Issuance of Shares............................................................................ 14
Section 5.5. Register of Shares............................................................................ 15
Section 5.6. Transfer of Shares............................................................................ 15
Section 5.7. Notices, Reports.............................................................................. 15
Section 5.8. Treasury Shares............................................................................... 16
Section 5.9. Voting Powers................................................................................. 16
Section 5.10. Meetings of Shareholders...................................................................... 16
Section 5.11. Series Designation............................................................................ 17
Section 5.12. Assent to Declaration of Trust................................................................ 18
Section 5.13. Class Designation............................................................................. 18
ARTICLE VI. .................................................................................................... 19
Section 6.1. Redemption of Shares.......................................................................... 19
Section 6.2. Price......................................................................................... 20
Section 6.3. Payment....................................................................................... 20
Section 6.4. Effect of Suspension of Determination of Net Asset Value...................................... 20
Section 6.5. Repurchase by Agreement....................................................................... 20
Section 6.6. Redemption of Shareholder's Interest.......................................................... 20
Section 6.7. Redemption of Shares in Order to Qualify as Regulated Investment Company; Disclosure of
Holding....................................................................................... 21
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net Asset Value Formula................ 21
Section 6.9. Suspension of Right of Redemption............................................................. 21
ARTICLE VII. .................................................................................................... 22
Section 7.1. Net Asset Value............................................................................... 22
Section 7.2. Distributions to Shareholders................................................................. 22
Section 7.3. Determination of Net Income; Constant Net Asset Value; Reduction of Outstanding Shares........ 23
Section 7.4. Allocation Between Principal and Income....................................................... 24
Section 7.5. Power to Modify Foregoing Procedures.......................................................... 24
ARTICLE VIII. .................................................................................................... 24
Section 8.1. Duration...................................................................................... 24
Section 8.2. Termination of Trust.......................................................................... 24
Section 8.3. Amendment Procedure........................................................................... 25
Section 8.4. Merger, Consolidation and Sale of Assets...................................................... 26
Section 8.5. Incorporation................................................................................. 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IX. .................................................................................................... 27
ARTICLE X. .................................................................................................... 27
Section 10.1. Filing........................................................................................ 27
Section 10.2. Governing Law................................................................................. 27
Section 10.3. Counterparts.................................................................................. 27
Section 10.4. Reliance by Third Parties..................................................................... 28
Section 10.5. Provisions in Conflict with Law or Regulations................................................ 28
Section 10.6. Resident Agent................................................................................ 28
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST OF
PIMCO FUNDS
DATED MARCH 31, 2000
AMENDED AND RESTATED DECLARATION OF TRUST made March 31, 2000, by the
undersigned Trustees;
WHEREAS, pursuant to a Declaration of Trust dated February 19, 1987, the
Trustees established a Massachusetts business trust for the investment and
reinvestment of funds contributed thereto, the beneficial interest in which is
divided into transferable shares;
WHEREAS, the Trustees desire to amend and restate said Declaration of Trust
in its entirety;
NOW, THEREFORE, the Trustees restate the Declaration of Trust as follows:
ARTICLE I
NAME AND DEFINITIONS
Section 1.
Section 1.1. Name and Address.
The name of the Trust created hereby, until and unless changed by the
Trustees as provided in Section 8.3.1 hereof, is "PIMCO Funds". The Trust is
located at 840 Newport Center Drive, Suite 300, Newport Beach, CA 92660. This
address shall also serve as the address of record for each Trustee.
Section 1.2. Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
1. "By-laws" means the By-laws referred to in Section 2.8 hereof, as from
-------
time to time amended.
2. "Class" means the two or more Classes as may be established and
-----
designated from time to time by the Trustees pursuant to Section 5.13 hereof.
3. The term "Commission" has the meaning given it in the 1940 Act. The
----------
term "Interested Person" has the meaning given it in the 1940 Act, as modified
-----------------
by any applicable order or orders of the Commission. Except as otherwise defined
by the Trustees in conjunction with the establishment of any series of Shares,
the term "vote of a majority of the Shares
--------------------------------
1
<PAGE>
outstanding and entitled to vote" shall have the same meaning as the term "vote
- -------------------------------- ----
of a majority of the outstanding voting securities" given it in the 1940 Act.
- --------------------------------------------------
4. "Custodian" means any Person other than the Trust who has custody of
---------
any Trust Property as required by Section 17(f) of the 1940 Act, but does not
include a system for the central handling of securities described in said
Section 17(f).
5. "Declaration" means this Amended and Restated Declaration of Trust as
-----------
further amended from time to time. Reference in this Declaration of Trust to
"Declaration," "hereof," "herein," and "hereunder" shall be deemed to refer to
------------ ------- ------- ---------
this Declaration rather than exclusively to the article or section in which such
words appear.
6. "Distributor" means the party, other than the Trust, to the contract
-----------
described in Section 3.1 hereof.
7. "His" shall include the feminine and neuter, as well as the masculine
---
genders.
8. "Investment Adviser" means the party, other than the Trust, to the
------------------
contract described in Section 3.2 hereof.
9. "Municipal Bonds" means obligations issued by or on behalf of states,
---------------
territories of the United States and the District of Columbia and their
political subdivisions, agencies and instrumentalities, or other issuers, the
interest from which is exempt from regular Federal income tax.
10. The "1940 Act" means the Investment Company Act of 1940, as amended
--------
from time to time.
11. "Person" means and includes individuals, corporations, partnerships,
------
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
12. "Series" individually or collectively means the two or more Series as
------
may be established and designated from time to time by the Trustees pursuant to
Section 5.11 hereof. Unless the context otherwise requires, the term "Series"
shall include Classes into which shares of the Trust, or of a Series, may be
divided from time to time.
13. "Shareholder" means a record owner of Outstanding Shares.
-----------
14. "Shares" means the equal proportionate units of interest into which the
------
beneficial interest in the Trust shall be divided from time to time, including
the Shares of any and all Series and Classes which may be established by the
Trustees and includes fractions of Shares as well as whole Shares. "Outstanding
Shares" means those Shares shown as of a time and from time to time on the books
of the Trust or its Transfer Agent as then issued and outstanding, but shall not
include Shares which have been redeemed or repurchased by the Trust and which
are at the time held in the Treasury of the Trust.
-2-
<PAGE>
15. "Transfer Agent" means any one or more Persons other than the Trust who
--------------
maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
16. The "Trust" means PIMCO Funds.
-----
17. The "Trust Property" means any and all property, real or personal,
--------------
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
18. The "Trustees" means the person or persons who has or have signed this
--------
Declaration, so long as he or they shall continue in office in accordance with
the terms hereof, and all other persons who may from time to time be duly
qualified and serving as Trustees in accordance with the provisions of Article
II hereof, and reference herein to a Trustee or the Trustees shall refer to such
person or persons in this capacity or their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.
Section 2.1. General Powers.
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 2.2. Investments.
The Trustees shall have the power:
1. To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
-3-
<PAGE>
2. To invest in, hold for investment, or reinvest in, securities,
including shares of open-end investment companies; common and preferred stocks;
warrants; bonds, debentures, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments; government securities,
including securities of any state, municipality or other political subdivision
thereof, or any governmental or quasi-governmental agency or instrumentality;
and money market instruments including bank certificates of deposit, finance
paper, commercial paper, bankers acceptances and all kinds of repurchase
agreements, of any corporation, company, trust, association, firm or other
business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or quasi-
governmental agency or instrumentality.
3. To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend, and to pledge any such securities and to enter
into repurchase agreements and forward foreign currency exchange contracts, to
purchase and sell futures contracts on securities, securities indices and
foreign currencies, to purchase or sell options on such contracts, foreign
currency contracts, and foreign currencies and to engage in all types of hedging
and risk management transactions.
4. To exercise all rights, powers and privileges of ownership or interest
in all securities, repurchase agreements, futures contracts and options and
other assets included in the Trust Property, including the right to vote thereon
and otherwise act with respect thereto and to do all acts for the preservation,
protection, improvement and enhancement in value of all such assets.
5. To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
6. To borrow money and in this connection issue notes or other evidence of
indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of any obligation or engagement of any other Person and to lend
Trust Property.
7. To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest, and to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
8. To enter into a plan of distribution and any related agreements whereby
the Trust may finance directly or indirectly any activity which is primarily
intended to result in the sale of Shares.
9. To invest, through a transfer of cash, securities and other assets or
otherwise, all or a portion of the Trust Property, or to sell all or a portion
of the Trust Property and invest the proceeds of such sales, in another
investment company that is registered under the 1940 Act.
-4-
<PAGE>
10. In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title.
Legal title to all the Trust Property, including the property of any Series
of the Trust, shall be vested in the Trustees as joint tenants except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the Trust,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is deemed
appropriately protected. The right, title and interest of the Trustees in the
Trust Property and the property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property or the property of any Series of the Trust, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
Section 2.4. Issuance and Repurchase of Shares.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles VI
and VII and Section 5.11 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
particular Series of the Trust with respect to which such Shares are issued,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
Section 2.5. Delegation; Committees.
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Trustees or otherwise as the
-5-
<PAGE>
Trustees may deem expedient, to the same extent as such delegation is permitted
by the 1940 Act.
Section 2.6. Collection and Payment.
The Trustees shall have power to collect all property due to the Trust; to
pay all claims, including taxes, against the Trust Property; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and other
instruments.
Section 2.7. Expenses.
The Trustees shall have the power to incur and pay any expenses that in the
opinion of the Trustees are necessary or incidental to carry out any of the
purposes of this Declaration, and to pay reasonable compensation from the funds
of the Trust to themselves as Trustees. The Trustees shall fix the compensation
of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws.
Except as otherwise provided herein or in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office. The
Trustees may adopt By-laws not inconsistent with this Declaration to provide for
the conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers.
Subject to Section 5.11 hereof, the Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may
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exercise some or all of the power and authority of the Trustees as the Trustees
may determine; (d) purchase, and pay for out of Trust Property, insurance
policies insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers, distributors, selected dealers or independent contractors
of the Trust against all claims arising by reason of holding any such position
or by reason of any action taken or omitted by any such Person in such capacity,
whether or not constituting negligence, or whether or not the Trust would have
the power to indemnify such Person against such liability; (e) establish
pension, profit-sharing, share purchase, and other retirement, incentive and
benefit plans for any Trustees, officers, employees and agents of the Trust; (f)
to the extent permitted by law, indemnify any person with whom the Trust has
dealings, including the Investment Adviser, Distributor, Transfer Agent and
selected dealers, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust and the method by which its accounts shall be kept; and
(i) adopt a seal for the Trust, but the absence of such seal shall not impair
the validity of any instrument executed on behalf of the Trust.
Section 2.10. Principal Transactions.
Except in transactions not permitted by the 1940 Act or rules and
regulations adopted by the Commission, the Trustees may, on behalf of the Trust,
buy any securities from or sell any securities to, or lend any assets of the
Trust to, any Trustee or officer of the Trust or any firm of which any such
Trustee or officer is a member acting as principal, or have any such dealings
with the Investment Adviser, Distributor or Transfer Agent or with any
Interested Person of such Person; and the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, dealer,
legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian
upon customary terms.
Section 2.11. Number of Trustees.
The number of Trustees shall initially be one (1), and thereafter shall be
such number as shall be fixed from time to time by a written instrument signed
by a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be more than fifteen (15).
Section 2.12. Election and Term.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 2.14 hereof, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
Except in the event of resignation or removals pursuant to Section 2.13 hereof,
each Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Shareholders, and thereafter until
the holding of a Shareholders' meeting as required by the next following
sentence. In such event the Trustees then in office will call a Shareholders'
meeting for the election of Trustees. Except for the foregoing circumstances,
the Trustees shall continue to hold office and may appoint successor Trustees.
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Section 2.13. Resignation and Removal.
Any Trustee may resign his trust (without the need for any prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument. Any of
the Trustees may be removed (provided the aggregate number of Trustees after
such removal shall not be less than one) with cause, by the action of two-thirds
of the remaining Trustees. Any Trustee may be removed at any meeting of
Shareholders by vote of two-thirds of the Outstanding Shares. The Trustees
shall promptly call a meeting of the Shareholders for the purpose of voting upon
the question of removal of any such Trustee or Trustees when requested in
writing so to do by the holders of not less than ten percent of the Outstanding
Shares and, in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property or property of any Series of the Trust held in the
name of the resigning or removed Trustee. Upon the incapacity or death of any
Trustee, his legal representative shall execute and deliver on his behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
Section 2.14. Vacancies.
The term of office of a Trustee shall terminate and a vacancy shall occur
in the event of the death, resignation, removal, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No such vacancy shall operate to annul the Declaration or to revoke
any existing agency created pursuant to the terms of the Declaration. In the
case of an existing vacancy, including a vacancy existing by reason of an
increase in the number of Trustees, subject to the provisions of Section 16(a)
of the 1940 Act, the remaining Trustees shall fill such vacancy by the
appointment of such other person as they in their discretion shall see fit, made
by a written instrument signed by a majority of the Trustees then in office.
Any such appointment shall not become effective, however, until the person named
in the written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
Section 2.15. Delegation of Power to Other Trustees.
Any Trustee may, by power of attorney, delegate his power for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees;
provided that in no case shall less
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than two (2) Trustees personally exercise the powers granted to the Trustees
under this Declaration except as herein otherwise expressly provided.
Section 2.16. Shareholder Vote, etc.
Except to the extent specifically provided to the contrary in this
Declaration, the Trustees may exercise each of the powers granted to them in
this Declaration without the vote, approval or agreement of the Shareholders,
unless such a vote, approval or agreement is required by the 1940 Act or
applicable laws of the Commonwealth of Massachusetts.
ARTICLE III
CONTRACTS
Section 3.
Section 3.1. Distribution Contract.
The Trustees may in their discretion from time to time enter into an
exclusive or non-exclusive underwriting contract or contracts providing for the
sale of the Shares at a price based on the net asset value of a Share, whereby
the Trustees may either agree to sell the Shares to the other party to the
contract or appoint such other party their sales agent for the Shares, and in
either case on such terms and conditions, if any, as may be prescribed in the
By-laws, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article III or
of the By-laws; and such contract may also provide for the repurchase of the
Shares by such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract.
The Trustees may in their discretion from time to time enter into an
investment advisory or management contract or separate advisory contracts with
respect to one or more Series whereby the other party to such contract shall
undertake to furnish to the Trust such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine, including the grant of authority to such other party
to determine what securities shall be purchased or sold by the Trust and what
portion of its assets shall be uninvested, which authority shall include the
power to make changes in the investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
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Section 3.3. Affiliations of Trustees or Officers, Etc.
The fact that:
(a) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character described in
Sections 3.1 or 3.2 above or for services as Custodian, Transfer Agent,
accounting agent or disbursing agent or for related services may have been
or may hereafter be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder of or has an interest in the Trust, or
that
(b) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections
3.1 or 3.2 above or for services as Custodian, Transfer Agent, accounting
agent or disbursing agent or for related services may have been or may
hereafter be made also has any one or more of such contracts with one or
more other partnerships, corporations, trusts, associations or other
organizations, or has other business or interests, shall not affect the
validity of any such contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust or its Shareholders.
Section 3.4. Compliance with 1940 Act.
Any contract entered into pursuant to Sections 3.1 or 3.2 shall be
consistent with and subject to the requirements of Section 15 of the 1940 Act
(including any amendment thereof or other applicable act of Congress hereafter
enacted), as modified by any applicable order or orders of the Commission, with
respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.
No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever to any Person, other than to the Trust or
its Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs
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of the Trust. If any Shareholder, Trustee, officer, employee, or agent, as such,
of the Trust, is made a party to any suit or proceeding to enforce any such
liability of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each Shareholder harmless
from and against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses reasonably incurred
by him in connection with any such claim or liability. The indemnification and
reimbursement required by the preceding sentence shall be made only out of the
assets of the one or more Series of which the Shareholder who is entitled to
indemnification or reimbursement was a Shareholder at the time the act or event
occurred which gave rise to the claim against or liability of said Shareholder.
The rights accruing to a Shareholder under this Section 4.1 shall not impair any
other right to which such Shareholder may be lawfully entitled, nor shall
anything herein contained restrict the right of the Trust to indemnify or
reimburse a Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc.
No Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or
agent thereof for any action or failure to act (including without limitation the
failure to compel in any way any former or acting Trustee to redress any breach
of trust) except for his own bad faith, willful misfeasance, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification.
1. Subject to the exceptions and limitations contained in paragraph (2)
below:
(a) every person who is, or has been, a Trustee or officer of the
Trust shall be indemnified by the Trust to the fullest extent permitted by
law against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred by
him in the settlement thereof;
(b) the words "claim," "action," "suit," or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the
words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
2. No indemnification shall be provided hereunder to a Trustee or
officer:
(a) against any liability to the Trust, a Series thereof, or the
Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
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(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interest of the Trust;
(c) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph 2(a) or 2(b) resulting in a
payment by a Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office:
(i) by the court or other body approving the settlement or
other disposition; or
(ii) based upon a review of readily available facts (as opposed
to a full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a majority
of the Disinterested Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
3. The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and assigns
of such a person. Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and officers
may be entitled by contract or otherwise under law.
4. Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph 1 of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has been
exempted from being an Interested Person by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
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Section 4.4. No Bond Required of Trustees.
No Trustee shall be obligated to give any bond or other security for the
performance of any of his duties hereunder.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc.
No purchaser, lender, Transfer Agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc.
Each Trustee and officer or employee of the Trust shall, in the performance
of his duties, be fully and completely justified and protected with regard to
any act or any failure to act resulting from reliance in good faith upon the
books of account or other records of the Trust, upon an opinion of counsel, or
upon reports made to the Trust by any of its officers or employees or by the
Investment Adviser, the Distributor, Transfer Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
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ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.
Section 5.1. Beneficial Interest.
The interest of the beneficiaries hereunder shall be divided into
transferable Shares of beneficial interest, all of one class, except as provided
in Section 5.11 and Section 5.13 hereof, par value $.01 per share. The number
of Shares of beneficial interest authorized hereunder is unlimited. All Shares
issued hereunder including, without limitation, Shares issued in connection with
a dividend in Shares or a split of Shares, shall be fully paid and non-
assessable.
Section 5.2. Rights of Shareholders.
The ownership of the Trust Property and the property of each Series of the
Trust of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration. The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any Series of Shares.
Section 5.3. Trust Only.
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention of the Trustees to create a general partnership,
limited partnership, joint stock association, corporation, bailment or any form
of legal relationship other than a trust. Nothing in this Declaration shall be
construed to make the Shareholders, either by themselves or with the Trustees,
partners or members of a joint stock association.
Section 5.4. Issuance of Shares.
The Trustees in their discretion may, from time to time without vote of the
Shareholders, issue Shares, in addition to the then issued and outstanding
Shares and Shares held in the treasury, to such party or parties and for such
amount and type of consideration, including cash or property, at such time or
times and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and Shares
held in the treasury. The Trustees may from time to time divide or combine the
Shares into a greater or lesser number without thereby
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changing the proportionate beneficial interests in the Trust. Contributions to
the Trust may be accepted for, and Shares shall be redeemed as, whole Shares
and/or 1/1,000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares.
A register shall be kept at the principal office of the Trust or an office
of the Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares.
Except as otherwise provided by the Trustees, Shares shall be transferable
on the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices, Reports.
Any and all notices to which any Shareholder may be entitled and any and
all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust. A notice of a meeting, an annual report
and any other communication to Shareholders need not be sent to a Shareholder
(i) if an annual report and a proxy statement for two consecutive shareholder
meetings have been mailed to such Shareholder's address and have been returned
as undeliverable, (ii) if all, and at least two, checks (if sent by first class
mail) in payment of
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dividends on Shares during a twelve-month period have been mailed to such
Shareholder's address and have been returned as undeliverable or (iii) in any
other case in which a proxy statement concerning a meeting of security holders
is not required to be given pursuant to the Commission's proxy rules as from
time to time in effect under the Securities Exchange Act of 1934. However,
delivery of such proxy statements, annual reports and other communications shall
resume if and when such Shareholder delivers or causes to be delivered to the
Trust written notice setting forth such Shareholder's then current address.
Section 5.8. Treasury Shares.
Shares held in the treasury shall, until reissued pursuant to Section 5.4,
not confer any voting rights on the Trustees, nor shall such Shares be entitled
to any dividends or other distributions declared with respect to the Shares.
Section 5.9. Voting Powers.
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Section 2.12; (ii) for the removal of Trustees as
provided in Section 2.13; (iii) with respect to termination of the Trust as
provided in Section 8.2; (iv) with respect to any amendment of this Declaration
to the extent and as provided in Section 8.3; (v) to the same extent as the
stockholders of Massachusetts business corporation as to whether or not a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or any Series or Class
thereof or the Shareholders (provided, however, that a Shareholder of a
particular Series or Class shall not be entitled to bring a derivative or class
action on behalf of any other Series or Class (or Shareholder of any other
Series or Class) of the Trust); and (vi) with respect to such additional matters
relating to the Trust as may be required by this Declaration, the By-laws or any
registration of the Trust as an investment company under the 1940 Act with the
Commission (or any successor agency) or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter
on which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote, except that the Trustees may, in conjunction with
the establishment of any Series or Class of Shares, establish or reserve the
right to establish conditions under which the several Series or Classes shall
have separate voting rights or, if a Series or Class would not, in the sole
judgment of the Trustees, be materially affected by a proposal, no voting
rights. There shall be no cumulative voting in the election of Trustees. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and may
take any action required by law, this Declaration or the By-laws to be taken by
Shareholders. The By-laws may include further provisions for Shareholders'
votes and meetings and related matters.
Section 5.10. Meetings of Shareholders.
A meeting of the Shareholders shall be called by the President and
Secretary at the request and in writing or by resolution of a majority of
Trustees and shall be held at such times, on such day and at such hour as the
Trustees may from time to time determine, either at the principal office of the
Trust, or at such other place as may be designated by the Trustees, for the
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purposes specified in Section 2.12 or 2.13 and for such other purposes as may be
specified by the Trustees.
Section 5.11. Series Designation.
The Trustees, in their discretion, may authorize the division of Shares
into two or more Series, and the different Series shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series shall be fixed and determined, by the Trustees; provided,
that all Shares shall be identical except that there may be variations so fixed
and determined between different Series as to investment objective, purchase
price, allocation of expenses, right of redemption, special and relative rights
as to dividends and on liquidation, conversion rights, and conditions under
which the several Series shall have separate voting rights. All references to
Shares in this Declaration shall be deemed to be Shares of any or all Series as
the context may require.
1. All provisions herein relating to the Trust shall apply equally to each
Series of the Trust except as the context requires otherwise.
2. The number of authorized Shares and the number of Shares of each Series
that may be issued shall be unlimited. The Trustees may classify or reclassify
any unissued Shares or any Shares previously issued and reacquired of any Series
into one or more Series that may be established and designated from time to
time. The Trustees may hold as treasury Shares (of the same or some other
Series), reissue for such consideration and on such terms as they may determine,
or cancel any Shares of any Series reacquired by the Trust at their discretion
from time to time.
3. All consideration received by the Trust for the issue or sale of Shares
of a particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that Series for
all purposes, subject only to the rights of creditors of such Series and except
as may otherwise be required by applicable laws, and shall be so recorded upon
the books of account of the Trust. In the event that there are any assets,
income, earnings, profits, and proceeds thereof, funds, or payments which are
not readily identifiable as belonging to any particular Series, the Trustees
shall allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable. Each such allocation by the Trustees
shall be conclusive and binding upon the Shareholders of all Series for all
purposes.
4. The assets belonging to each particular Series shall be charged with
the liabilities of the Trust in respect of that Series and with all expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and
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equitable. Each allocation of liabilities, expenses, costs, charges and reserves
by the Trustees shall be conclusive and binding upon the Shareholders of all
Series for all purposes. The Trustees shall have full discretion, to the extent
not inconsistent with the 1940 Act, to determine which items are capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders. The assets of a particular Series of the Trust shall, under no
circumstances, be charged with liabilities attributable to any other Series of
the Trust. All persons extending credit to, or contracting with or having any
claim against a particular Series of the Trust shall look only to the assets of
that particular Series for payment of such credit, contract or claim. No
Shareholder or former Shareholder of any Series shall have any claim on or right
to any assets allocated or belonging to any other Series.
5. Each Share of a Series of the Trust shall represent a beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his pro rata share of distributions of income and
capital gains made with respect to such Series, except as provided in Section
5.13 hereof. Upon redemption of his Shares or indemnification for liabilities
incurred by reason of his being or having been a Shareholder of a Series, such
Shareholder shall be paid solely out of the funds and property of such Series of
the Trust. Upon liquidation or termination of a Series of the Trust,
Shareholders of such Series shall be entitled to receive a pro rata share of the
net assets of such Series, except as provided in Section 5.13 hereof. A
Shareholder of a particular Series of the Trust shall not be entitled to
participate in a derivative or class action on behalf of any other Series or the
Shareholders of any other Series of the Trust.
6. The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
Trustees may by an instrument executed by a majority of their number abolish any
Series and the establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the power to determine the
designations, preferences, privileges, limitations and rights, of each class and
Series of Shares. Each instrument referred to in this paragraph shall have the
status of an amendment to this Declaration.
Section 5.12. Assent to Declaration of Trust.
Every Shareholder, by virtue of having become a shareholder, shall be held
to have expressly assented and agreed to the terms hereof and to have become a
party hereto.
Section 5.13. Class Designation.
The Trustees, in their discretion, may authorize the division of the Shares
of the Trust, or, if any Series be established, the Shares of any Series, into
two or more Classes, and the different Classes shall be established and
designated, and the variations in the relative rights and preferences as between
the different Classes shall be fixed and determined, by the Trustees; provided,
that all Shares of the Trust or of any Series shall be identical to all other
Shares of the Trust or the same Series, as the case may be, except that there
may be variations between different Classes as to allocation of expenses, right
of redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several
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Classes shall have separate voting rights. All references to Shares in this
Declaration shall be deemed to be Shares of any or all Classes as the context
may require.
1. All provisions herein relating to the Trust, or any Series of the
Trust, shall apply equally to each Class of Shares of the Trust or of any Series
of the Trust, except as the context requires otherwise.
2. The number of Shares of each Class that may be issued shall be
unlimited. The Trustees may classify or reclassify any Shares or any Series of
any Shares into one or more Classes that may be established and designated from
time to time. The Trustees may hold as treasury Shares (of the same or some
other Class), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Class reacquired by the Trust at their
discretion from time to time.
3. Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be allocated
to, the Shares of a particular Class may be charged to and borne solely by such
Class and the bearing of expenses solely by a Class of Shares may be
appropriately reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the dividend, redemption
and liquidation rights of, the Shares of different Classes. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Classes for all purposes.
4. The establishment and designation of any Class of Shares shall be
effective upon the execution by a majority of the then Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such instrument. The
Trustees may, by an instrument executed by a majority of their number, abolish
any Class and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.
Section 6.1. Redemption of Shares.
All Shares of the Trust shall be redeemable, at the redemption price
determined in the manner set out in this Declaration. Redeemed or repurchased
Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified written
application of the record holder thereof (or upon such other form of request as
the Trustees may determine) at such office or agency as may be designated from
time to time for that purpose in the Trust's then effective registration
statement under the Securities Act of 1933. The Trustees may from time to
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time specify additional conditions, not inconsistent with the 1940 Act,
regarding the redemption of Shares in the Trust's then effective registration
statement under the Securities Act of 1933.
Section 6.2. Price.
Shares shall be redeemed at their net asset value, determined as set forth
in Section 7.1 hereof as of such time as the Trustees shall have theretofore
prescribed by resolution. In the absence of such resolution, the redemption
price of Shares deposited shall be the net asset value of such Shares next
determined as set forth in Section 7.1 hereof after receipt of such application.
Section 6.3. Payment.
Payment for such Shares shall be made in cash or in property out of the
assets of the relevant Series of the Trust to the Shareholder of record at such
time and in the manner, not inconsistent with the 1940 Act or other applicable
laws, as may be specified from time to time in the Trust's then effective
registration statement under the Securities Act of 1933, subject to the
provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a suspension
of the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 6.1 hereof but
who shall not yet have received payment) to have Shares redeemed and paid for by
the Trust shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on deposit.
The redemption price of Shares for which redemption applications have not been
revoked shall be the net asset value of such Shares next determined as set forth
in Section 7.1 after the termination of such suspension, and payment shall be
made within seven (7) days after the date upon which the application was made
plus the period after such application during which the determination of net
asset value was suspended.
Section 6.5. Repurchase by Agreement.
The Trust may repurchase Shares directly, or through the Distributor or
another agent designated for the purpose, by agreement with the owner thereof at
a price not exceeding the net asset value per Share determined as of the time
when the purchase or contract of purchase is made or the net asset value as of
any time which may be later determined pursuant to Section 7.1 hereof, provided
payment is not made for the Shares prior to the time as of which such net asset
value is determined.
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Section 6.6. Redemption of Shareholder's Interest.
The Trust shall have the right at any time without prior notice to the
Shareholder to redeem Shares of any Shareholder for their then current net asset
value per Share if at such time the Shareholder owns Shares having an aggregate
net asset value of less than an amount set from time to time by the Trustees
subject to such terms and conditions as the Trustees may approve, and subject to
the Trust's giving general notice to all Shareholders of its intention to avail
itself of such right, either by publication in the Trust's registration
statement, if any, or by such other means as the Trustees may determine.
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding.
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust has
or may become concentrated in any Person to an extent which would disqualify any
Series of the Trust as a regulated investment company under the Internal Revenue
Code, then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption by any such Person a number, or
principal amount, of Shares or other securities of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would result in such disqualification. The redemption shall be
effected at the redemption price and in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula.
The Trust may also reduce the number of Outstanding Shares pursuant to the
provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption.
The Trust may declare a suspension of the right of redemption or postpone
the date of payment or redemption for the whole or any part of any period (i)
during which the New York Stock Exchange is closed other than customary week-end
and holiday closings, (ii) during which trading on the New York Stock Exchange
is restricted, (iii) during which an emergency exists as a result of which
disposal by the Trust of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Trust fairly to determine the value of
its net assets, or (iv) during any other period when the Commission may for the
protection of Shareholders of the Trust by order permit suspension of the right
of redemption or postponement of the date of
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payment or redemption; provided that applicable rules and regulations of the
Commission shall govern as to whether the conditions prescribed in (ii), (iii),
or (iv) exist. Such suspension shall take effect at such time as the Trust shall
specify but not later than the close of business on the business day next
following the declaration of suspension, and thereafter there shall be no right
of redemption or payment on redemption until the Trust shall declare the
suspension at an end, except that the suspension shall terminate in any event on
the first day on which said stock exchange shall have reopened or the period
specified in (ii) or (iii) shall have expired (as to which in the absence of an
official ruling by the Commission, the determination of the Trust shall be
conclusive). In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the net asset value existing after the termination of the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.
Section 7.1. Net Asset Value.
The value of the assets of the Trust or any Series of the Trust shall be
determined by appraisal of the securities of the Trust or allocated to such
Series, such appraisal to be on the basis of such method as shall be deemed to
reflect the fair value thereof, determined in good faith by or under the
direction of the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate.
The net asset value of a Share shall be determined by dividing the net asset
value of the Class, or, if no Class has been established, of the Series, or, if
no Series has been established, of the Trust, by the number of Shares of that
Class, or Series, or of the Trust, as applicable, outstanding. The net asset
value of Shares of the Trust or any Class or Series of the Trust shall be
determined pursuant to the procedure and methods prescribed or approved by the
Trustees in their discretion and as set forth in the most recent Registration
Statement of the Trust as filed with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933, as amended, the
1940 Act, as amended, and the Rules thereunder. The net asset value of the
Shares shall be determined at least once on each business day, as of the close
of trading on the New York Stock Exchange or as of such other time or times as
the Trustees shall determine. The power and duty to make the daily calculations
may be delegated by the Trustees to the Investment Adviser, the Custodian, the
Transfer Agent or such other Person as the Trustees may determine by resolution
or by approving a contract which delegates such duty to another Person. The
Trustees may suspend the daily determination of net asset value to the extent
permitted by the 1940 Act.
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Section 7.2. Distributions to Shareholders.
The Trustees shall from time to time distribute ratably among the
Shareholders of the Trust or a Series such proportion of the net profits,
surplus (including paid-in surplus), capital, or assets of the Trust or such
Series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of the Trust or such Series or any assets thereof), and the Trustees may
distribute ratably among the Shareholders additional Shares of the Trust or such
Series issuable hereunder in such manner, at such times, and on such terms as
the Trustees may deem proper. Such distributions may be among the Shareholders
of record at the time of declaring a distribution or among the Shareholders of
record at such other date or time or dates or times as the Trustees shall
determine. The Trustees may in their discretion determine that, solely for the
purposes of such distributions, Outstanding Shares shall exclude Shares for
which orders have been placed subsequent to a specified time on the date the
distribution is declared or on the next preceding day if the distribution is
declared as of a day on which Boston banks are not open for business, all as
described in the registration statement under the Securities Act of 1933. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or the Series or to meet
obligations of the Trust or the Series, or as they may deem desirable to use in
the conduct of its affairs or to retain for future requirements or extensions of
the business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate. The above provisions may be modified to the extent
required by a plan adopted by the Trustees to establish Classes of Shares of the
Trust or of a Series.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares.
Subject to Section 5.11 and Section 5.13 hereof, the net income of the
Trust or any Series shall be determined in such manner as the Trustees shall
provide by resolution. Expenses of the Trust or a Series, including the
advisory or management fee, shall be accrued each day. Such net income may be
determined by or under the direction of the Trustees as of the close of trading
on the New York Stock Exchange on each day on which such Exchange is open or as
of such other time or times as the Trustees shall determine, and, except as
provided herein, all the net income of the Trust or any Series, as so
determined, may be declared as a dividend on the Outstanding Shares of the Trust
or such Series. If, for any reason, the net income of the Trust or any Series,
determined at any time is a negative amount, the Trustees shall have the power
with respect to the Trust or such Series (i) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholder, or (ii) to reduce the number of Outstanding Shares of the Trust or
such Series by reducing the number of Shares in the account of such Shareholder
by that number of full and fractional Shares which represents the amount of
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such excess negative net income, or (iii) to cause to be recorded on the books
of the Trust or such Series an asset account in the amount of such negative net
income, which account may be reduced by the amount, provided that the same shall
thereupon become the property of the Trust or such Series with respect to the
Trust or such Series and shall not be paid to any Shareholder, of dividends
declared thereafter upon the Outstanding Shares of the Trust or such Series on
the day such negative net income is experienced, until such asset account is
reduced to zero; or (iv) to combine the methods described in clauses (i) and
(ii) and (iii) of this sentence, in order to cause the net asset value per Share
of the Trust or such Series to remain at a constant amount per Outstanding Share
immediately after each such determination and declaration. The Trustees shall
also have the power to fail to declare a dividend out of net income for the
purpose of causing the net asset value per Share to be increased to a constant
amount. The Trustees shall not be required to adopt, but may at any time adopt,
discontinue or amend the practice of maintaining the net asset value per Share
of the Trust or a Series at a constant amount.
Section 7.4. Allocation Between Principal and Income.
The Trustees shall have full discretion to determine whether any cash or
property received shall be treated as income or as principal and whether any
item of expense shall be charged to the income or the principal account, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VII, the
Trustees may prescribe, in their absolute discretion, such other bases and times
for determining the per Share net asset value or net income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 8.
Section 8.1. Duration.
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
Section 8.2. Termination of Trust.
1. The Trust or any Series of the Trust may be terminated by an instrument
in writing signed by a majority of the Trustees, or by the affirmative vote of
the holders of a majority of the
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Shares of the Trust or Series outstanding and entitled to vote at any meeting of
Shareholders. Upon the termination of the Trust or any Series,
(a) the Trust or any Series shall carry on no business except for the
purpose of winding up its affairs;
(b) the Trustees shall proceed to wind up the affairs of the Trust or
Series and all of the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust or Series shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust or
Series, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining Trust Property or property
of the Series to one or more persons at public or private sale for consideration
which may consist in whole or in part of cash, securities or other property of
any kind, discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business; and
(c) after paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or property of the Series, in cash or in
kind or partly each, among the Shareholders of the Trust or Series according to
their respective rights.
2. After termination of the Trust or any Series and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute and
lodge among the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and interests of
all Shareholders of the Trust or Series shall thereupon cease.
Section 8.3. Amendment Procedure.
1. This Declaration may be amended by a vote of the holders of a majority
of the Shares outstanding and entitled to vote. Amendments shall be effective
upon the taking of action as provided in this section or at such later time as
shall be specified in the applicable vote or instrument. The Trustees may also
amend this Declaration without the vote or consent of Shareholders if they deem
it necessary to conform this Declaration to the requirements of applicable
federal or state laws or regulations or the requirements of the regulated
investment company provisions of the Internal Revenue Code (including those
provisions of such Code relating to the retention of the exemption from federal
income tax with respect to dividends paid by the Trust out of interest income
received on Municipal Bonds), but the Trustees shall not be liable for failing
so to do. The Trustees may also amend this Declaration without the vote or
consent of Shareholders if they deem it necessary or desirable to change the
name of the Trust, to supply any omission, to cure, correct or supplement any
ambiguous, defective or inconsistent provision hereof, or to make any other
changes in the Declaration which do not materially adversely affect the rights
of Shareholders hereunder.
2. No amendment may be made under this Section 8.3 which would change any
rights with respect to any Shares of the Trust or Series by reducing the amount
payable thereon upon
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liquidation of the Trust or Series or by diminishing or eliminating any voting
rights pertaining thereto, except with the vote or consent of the holders of
two-thirds of the Shares of the Trust or Series outstanding and entitled to
vote. Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
3. A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets.
The Trust or any Series or class thereof may merge or consolidate with any
other corporation, association, trust or other organization or may sell, lease
or exchange all or substantially all of the Trust Property or the property of
any Series or class, including its good will, upon such terms and conditions and
for such consideration when and as authorized by an instrument in writing signed
by a majority of the Trustees.
Section 8.5. Incorporation.
When authorized by an instrument in writing signed by a majority of the
Trustees, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the property of any Series or to carry on any business in
which the Trust or the Series shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property or the property of any
Series to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
Series or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of Shareholders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organization or entities.
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ARTICLE IX
REPORTS TO SHAREHOLDERS
Section 9.
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus or
statement of additional information, of the transactions of the Trust, including
financial statements which shall at least annually be certified by independent
public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.
Section 10.1. Filing.
This Declaration and any amendment hereto shall be filed in the office of
the Secretary of the Commonwealth of Massachusetts and in such other places as
may be required under the laws of the Commonwealth of Massachusetts and may also
be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
Section 10.2. Governing Law.
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the internal laws thereof,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to the internal
laws of said State without regard to the choice of law rules thereof.
Section 10.3. Counterparts.
This Declaration may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and such counterparts,
together, shall constitute one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
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Section 10.4. Reliance by Third Parties.
Any certificate executed by an individual who, according to the records of
the Trust appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations.
The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
If any provision of this Declaration shall be held invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall attach only to
such provision in such jurisdiction and shall not in any manner affect such
provisions in any other jurisdiction or any other provision of this Declaration
in any jurisdiction.
Section 10.6. Resident Agent
The Trust shall maintain a resident agent in the Commonwealth of
Massachusetts, which agent shall be CT Corporation Systems, 101 Federal Street,
Boston, Massachusetts, 02110. The Trustees may designate a successor resident
agent, provided, however, that such appointment shall not become effective until
written notice thereof is delivered to the office of the Secretary of the
Commonwealth.
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IN WITNESS WHEREOF, the undersigned has executed this instrument this _____
day of May __, 2000.
___________________________________________
as Trustee and not Individually
___________________________________________
as Trustee and not Individually
___________________________________________
as Trustee and not Individually
___________________________________________
as Trustee and not Individually
___________________________________________
as Trustee and not Individually
___________________________________________
as Trustee and not Individually
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EXHIBIT 99(d)(15)
FORM OF
SUPPLEMENT TO
INVESTMENT ADVISORY CONTRACT
PIMCO FUNDS
840 Newport Center Drive
Newport Beach, California 92660
May 5, 2000
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, California 92660
RE: Loan Obligation Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
Pacific Investment Management Company (the "Adviser") as follows:
1. This Trust is an open-end investment company organized as a Massachusetts
business trust, and consisting of such investment Portfolios as have been or
may be established by the Trustees of the Trust from time to time. A
separate series of shares of beneficial interest of the Trust is offered to
investors with respect to each investment portfolio. The Loan Obligation
Fund (the "Fund") is a separate investment portfolio of the Trust.
2. The Trust and the Adviser have entered into an Investment Advisory Contract
("Contract") dated May 5, 2000, pursuant to which the Trust has employed the
Adviser to provide investment advisory and other services specified in the
Contract, and the Adviser has accepted such employment.
3. As provided in paragraph 2 of the Contract, the Trust hereby appoints the
Adviser to serve as Investment Adviser with respect to the Fund, and the
Adviser accepts such appointment, the terms and conditions of such
employment to be governed by the Contract, which is hereby incorporated
herein by reference.
4. As provided in paragraph 6 of the Contract and subject to further conditions
as set forth therein, the Trust shall with respect to the Fund pay the
Adviser a monthly fee on the first business day of each month, based upon
the value (as determined on the last business day of
<PAGE>
the preceding month at the time set forth in the Prospectus for determining
net asset value per share) of the net assets of the Fund during the
preceding month, at an annual rate of 0.25%.
5. This Supplement and the Contract shall become effective with respect to the
Fund on May 5, 2000 and shall continue in effect with respect to the Fund
for a period of more than two years from that date only so long as the
continuance is specifically approved at least annually (a) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act)
of the Fund or by the Trust's Board of Trustees and (b) by the vote, cast in
person at a meeting called for the purpose, of a majority of the Trust's
trustees who are not parties to this Contract or "interested persons" (as
defined in the 1940 Act) of any such party. The Contract may be terminated
with respect to the Fund at any time, without the payment of any penalty, by
a vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund or by a vote of a majority of the Trust's entire Board
of Trustees on 60 days' written notice to the Adviser or by the Adviser on
60 days' written notice to the Trust. The Contract shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
If the foregoing correctly sets forth the agreement between the Trust and
the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS
By:_________________________________________
Title:
ACCEPTED:
PACIFIC INVESTMENT MANAGEMENT COMPANY
By:_____________________________________________
Title:
<PAGE>
EXHIBIT 99(e)(5)
FORM OF
DISTRIBUTION CONTRACT
PIMCO Funds
840 Newport Center Drive
Newport Beach, California 92660
May 5, 2000
PIMCO Funds Distributors LLC
2187 Atlantic Avenue
Stamford, Connecticut 06902
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and you
(the "Distributor") as follows:
1. Description of Trust and Classes of Shares. The Trust is an open-end
investment company which presently has the following twenty-nine publicly
offered investment portfolios: the Money Market Fund; the Short-Term Fund; the
Low Duration Fund; the Low Duration Fund II; the Low Duration Fund III; the Low
Duration Mortgage Fund; the Moderate Duration Fund; the Real Return Bond Fund;
the Total Return Fund; the Total Return Fund II; the Total Return Fund III; the
Total Return Mortgage Fund; the High Yield Fund; the Investment Grade Corporate
Bond Fund; the Long-Term U.S. Government Fund; the Long Duration Fund; the Short
Duration Municipal Income Fund; the Municipal Bond Fund; the California
Intermediate Municipal Bond Fund; the New York Intermediate Municipal Bond Fund;
the Global Bond Fund; the Global Bond Fund II; the Foreign Bond Fund; the
Emerging Markets Bond Fund; the Strategic Balanced Fund; the Convertible Fund;
the StocksPLUS Fund; the Commercial Mortgage Securities Fund; the StocksPLUS
Short Strategy Fund (each a "Fund," and collectively, the "Funds") and the
following twelve privately offered investment portfolios: the Short-Term
Portfolio; the Short-Term Portfolio II; the U.S. Government Sector Portfolio;
the U.S. Government Sector Portfolio II; the Mortgage Portfolio; the Mortgage
Portfolio II; the Investment Grade Corporate Portfolio; the High Yield
Portfolio; the Municipal Sector Portfolio; the International Portfolio; the
Emerging Markets Portfolio; and the Real Return Bond Portfolio (each a
"Portfolio," and collectively, the "Portfolios"). Additional investment
portfolios may be established in the future. This Contract shall pertain to the
both the Funds and Portfolios and to such additional investment portfolios as
shall be designated in Supplements to this Contract, as further agreed between
the Trust and the Distributor. A separate series of shares of beneficial
interest in the Trust is offered to investors with respect to each Fund and
Portfolio, and each Fund currently offers its shares with respect to up to eight
classes: Class A shares, Class B shares, and Class C shares (together, the
"Retail Classes"), and Class D shares, Class J shares, Class K shares,
Institutional Class shares, and Administrative Class shares. The Trust engages
in the business of investing and reinvesting the assets of the Funds and
Portfolios in the manner and in accordance with the investment objectives and
restrictions specified in the Trust's currently effective Prospectuses and/or
Offering Memoranda, and Statement(s) of Additional
<PAGE>
Information and/or Offering Memoranda Supplement(s), (together, the
"Prospectus") relating to the Retail Classes, Class D, Class J, Class K,
Institutional Class and Administrative Class shares of the Funds and the shares
of the Portfolios, included in the Trust's Registration Statement, as amended
from time to time (the "Registration Statement"), as filed by the Trust under
the Investment Company Act of 1940, as amended (together with the rules and
regulations thereunder, the "1940 Act") and the Securities Act of 1933, as
amended (together with the rules and regulations thereunder, the "1933 Act").
Copies of the documents referred to in the preceding sentence have been
furnished to the Distributor. Any amendments to those documents shall be
furnished to the Distributor promptly. The Trust has adopted separate
Distribution and Servicing Plans pursuant to Rule 12b-1 under the 1940 Act with
respect to each of the Retail Classes (the "Retail Class Plans"), Class J shares
(the "Class J Plan") and Class K shares (the "Class K Plan"); has adopted a
distribution plan, also pursuant to Rule 12b-1, with respect to Class D shares
(the "Defensive Plan") as part of an Amended and Restated Administration
Agreement (the "Administration Agreement") between the Trust and Pacific
Investment Management Company (the "Administrator"), and has adopted a
Distribution Plan, also pursuant to Rule 12b-1, with respect to the
Administrative Class shares of the Funds (the "Administrative Distribution
Plan"). The Trust has also adopted an Administrative Services Plan with respect
to the Administrative Class shares of the Funds, in conformity with Rule 12b-1,
as if the expenditures made thereunder were subject to Rule 12b-1, excepting the
shareholder voting rights under Rule 12b-1 (the "Administrative Services Plan,"
and together with the Retail Class Plans, Class J Plan, Class K Plan, the
Administrative Distribution Plan and the Defensive Plan, the "Plans").
2. Appointment and Acceptance. The Trust hereby appoints the Distributor
as a distributor of shares of beneficial interest in the Trust (the "shares")
which may from time to time be registered under the 1933 Act and as servicing
agent of shareholders and shareholder accounts of the Trust, and the Distributor
hereby accepts such appointment in accordance with the terms and conditions set
forth herein. As the Trust's agent, the Distributor shall, except to the extent
provided in Section 4 hereof, be the exclusive distributor for the unsold
portion of the shares.
3. Sale of Shares to Distributor and Sales by Distributor. The
Distributor will have the right, as principal, to sell shares of each Class of
each Fund directly to the public against orders therefor at the applicable
public offering price as described below in the case of Class A shares, Class J
shares and Class K shares, and at net asset value in the case of Class B shares,
Class C shares, Class D shares, Institutional Class shares and Administrative
Class shares. For such purposes, the Distributor will have the right to purchase
shares at net asset value. The Distributor will also have the right, as agent,
to sell shares of a Fund indirectly to the public through broker-dealers who are
members of the National Association of Securities Dealers, Inc. and who are
acting as introducing brokers pursuant to clearing agreements with the
Distributor ("introducing brokers"), to broker-dealers which are members of the
National Association of Securities Dealers, Inc. and who have entered into
selling agreements with the Distributor ("participating brokers") or through
other financial intermediaries, in each case against orders therefor. The price
for introducing brokers, participating brokers and other financial
<PAGE>
intermediaries shall be, in the case of Class A shares, Class J shares and Class
K shares, the applicable public offering price less a concession to be
determined by the Distributor, which concession will not exceed the amount of
the sales charge or underwriting discount, if any, described below and, in the
case of Class B shares, Class C shares, Class D shares, Institutional Class
shares and Administrative Class shares, net asset value.
The Trust shall sell through the Distributor, as the Trust's agent, shares to
eligible investors as described in the Prospectus. All orders through the
Distributor shall be subject to acceptance and confirmation by the Trust. The
Trust shall have the right, at its election, to deliver either shares issued
upon original issue or treasury shares.
Prior to the time of transfer of any shares by the Trust to, or on the order of,
the Distributor or any introducing broker, participating broker or other
financial intermediary, the Distributor shall pay or cause to be paid to the
Trust or to its order an amount in New York clearing house funds equal to the
applicable net asset value of the shares. Upon receipt of registration
instructions in proper form, the Distributor will transmit or cause to be
transmitted such instructions to the Trust or its agent for registration of the
shares purchased.
The public offering price of Class A shares, Class J shares and Class K shares
shall be the net asset value of such shares, plus any applicable sales charge as
set forth in the Prospectus. In no event will any applicable sales charge or
underwriting discount exceed the limitations on permissible sales loads imposed
by Section 22(b) of the 1940 Act and Rule 2830(d) of the Conduct Rules of the
National Association of Securities Dealers, Inc., as either or both may be
amended from time to time.
On every sale, the Trust shall receive the net asset value of the shares. The
net asset value of shares shall be determined in the manner provided in the
Declaration of Trust and By-laws of the Trust as then amended. In the case of
Class A shares, Class J shares and Class K shares, the Distributor may retain so
much of any sales charge or underwriting discount as is not allowed by the
Distributor as a concession to dealers, and such sales charge or underwriting
discount shall be in addition to the fee paid to the Distributor in respect of
Class A shares, Class J shares and Class K shares as described in Section 5
hereof.
The Distributor agrees that shares of the Portfolios shall be distributed only
in accordance with Regulation D of the 1933 Act, and methods consistent
therewith. Prior to any investor's purchase of Portfolio shares, the
Distributor or its affiliate shall obtain from the investor a representation
that the investor is an "accredited investor," as defined in Regulation D under
the 1933 Act, and either (i) a "qualified purchaser" as defined in Section
2(a)(51) of the 1940 Act, or (ii) a "qualified institutional buyer," as defined
in Rule 144A(a)(1) of the 1933 Act.
4. Sales of Shares by the Trust. In addition to sales by the Distributor,
the Trust reserves the right to issue shares at any time directly to its
shareholders as a stock dividend or stock split or to sell shares to its
shareholders or other persons at not less than net asset value to the extent
that the Trust, its officers, or other persons associated with the Trust
participate in the
<PAGE>
sale, or to the extent that the Trust or the transfer agent for its shares
receive purchase requests for shares.
5. Fees. Except with respect to the PIMCO Money Market Fund, for its
services as servicing agent of a Fund's Class A shareholders and Class A
shareholder accounts, the Trust shall pay the Distributor on behalf of the Funds
a servicing fee at the annual rate of 0.25% of the Fund's average daily net
assets (0.10% in the case of the PIMCO Money Market Fund) attributable to its
Class A shares upon the terms and conditions set forth in the Distribution and
Servicing Plan attached as Exhibit A hereto, and as amended from time to time,
and may retain so much of any sales charge or underwriting discount as is not
allowed by the Distributor as a concession to dealers, and shall receive any
contingent deferred sales charge as provided in Section 8 hereof.
For its services as distributor of a Fund's Class B shares and as servicing
agent of Class B shareholders and Class B shareholder accounts, the Trust shall
pay the Distributor on behalf of the Fund a distribution fee at the annual rate
of 0.75% of the Fund's average daily net assets, and a servicing fee at the
annual rate of 0.25% of the Fund's average daily net assets, attributable to the
Fund's Class B shares upon the terms and conditions set forth in the relevant
Distribution and Servicing Plans attached as Exhibit B hereto, as amended from
time to time, and shall receive any contingent deferred sales charge as provided
in Section 8 hereof. The respective distribution and servicing fees shall be
accrued daily and paid monthly to the Distributor as soon as practicable after
the end of the calendar month in which they accrue, but in any event within 5
business days following the last calendar day of each month.
For its services as distributor of a Fund's Class C shares and as servicing
agent of Class C shareholders and Class C shareholder accounts, the Trust shall
pay the Distributor on behalf of the Fund a distribution fee at the annual rate
of 0.75% of the Fund's average daily net assets (except with respect to the
Short-Term Fund, Low Duration Fund, Real Return Bond Fund, and StocksPLUS Fund
for which Class C shareholders pay 0.30%, 0.50%, 0.50% and 0.50%, respectively),
and a servicing fee at the annual rate of 0.25% of the Fund's average daily net
assets, (except with respect to the Money Market Fund which pays 0.10%)
attributable to the Fund's Class C shares, upon the terms and conditions set
forth in the relevant Distribution and Servicing Plans attached as Exhibit C
hereto, as amended from time to time, and shall receive any contingent deferred
sales charge as provided in Section 8 hereof. The respective distribution and
servicing fees shall be accrued daily and paid monthly to the Distributor as
soon as practicable after the end of the calendar month in which they accrue,
but in any event within 5 business days following the last calendar day of each
month.
For its services as distributor of a Fund's Class J shares and as servicing
agent of Class J shareholders and Class J shareholder accounts, the Trust shall
pay the Distributor on behalf of the Fund a distribution fee at the annual rate
of 0.45% of the Fund's average daily net assets, and a servicing fee at the
annual rate of 0.25% of the Fund's average daily net assets, attributable to the
Fund's Class J shares, respectively, upon the terms and conditions set forth in
the Distribution and Servicing Plan attached as Exhibit D hereto, as amended
from time to time, and
<PAGE>
may retain so much of any sales charge or underwriting discount as is not
allowed by the Distributor as a concession to dealers. The respective
distribution and servicing fees shall be accrued daily and paid monthly to the
Distributor as soon as practicable after the end of the calendar month in which
they accrue, but in any event within 5 business days following the last calendar
day of each month.
For its services as distributor of a Fund's Class K shares and as servicing
agent of Class K shareholders and Class K shareholder accounts, the Trust shall
pay the Distributor on behalf of the Fund a distribution fee at the annual rate
of 0.75% of the Fund's average daily net assets, and a servicing fee at the
annual rate of 0.25% of the Fund's average daily net assets, attributable to the
Fund's Class K shares, respectively, upon the terms and conditions set forth in
the Distribution and Servicing Plan attached as Exhibit E hereto, as amended
from time to time, and may retain so much of any sales charge or underwriting
discount as is not allowed by the Distributor as a concession to dealers. The
respective distribution and servicing fees shall be accrued daily and paid
monthly to the Distributor as soon as practicable after the end of the calendar
month in which they accrue, but in any event within 5 business days following
the last calendar day of each month.
The Trust shall reimburse the Distributor at an annual rate not to exceed 0.25%
of the Fund's average daily net assets attributable to its Administrative Class
shares for payments made by the Distributor to various financial intermediaries
in connection with the distribution of Administrative Class shares upon the
terms and conditions set forth in the Administrative Distribution Plan set forth
as Exhibit F hereto.
The Distributor shall receive no compensation from the Trust for services as
distributor of the Institutional Class or Class D shares, although the
Administrator may choose, in respect of Class D shares, to make payments to the
Distributor pursuant to the Defensive Plan or otherwise.
6. Reservation of Right Not to Sell. The Trust reserves the right to
refuse at any time or times to sell any of its shares for any reason deemed
adequate by it.
7. Use of Sub-Agents; Non-exclusivity. The Distributor may employ such
sub-agents, including one or more participating brokers or introducing brokers,
for the purposes of selling shares of the Trust as the Distributor, in its sole
discretion, shall deem advisable or desirable. The Distributor may enter into
similar arrangements with other issuers and, except to the extent necessary to
perform its obligations hereunder, nothing herein shall be deemed to limit or
restrict the right of the Distributor, or any affiliate of the Distributor, or
any employee of the Distributor, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. Repurchase of Shares. The Distributor will act as agent for the Trust
in connection with the repurchase and redemption of shares by the Trust upon the
terms and conditions set forth in the Prospectus or as the Trust acting through
its Trustees may otherwise
<PAGE>
direct. The Distributor may employ such sub-agents, including one or more
participating brokers or introducing brokers, for such purposes as the
Distributor, in its sole discretion, shall deem to be advisable or desirable.
Any contingent deferred sales charge imposed on repurchases and redemptions of
Class A, Class B and Class C shares upon the terms and conditions set forth in
the Prospectus shall be paid to the Distributor in addition to the fees with
respect to Class A, Class B and Class C shares set forth in Section 5 hereof.
The Trust will take such steps as are commercially reasonable to track on a
share-by-share basis the aging of its shares for purposes of calculating any
contingent deferred sales charges and/or distribution fees.
9. Basis of Purchases and Sales of Shares. The Distributor's obligation
to sell shares hereunder shall be on a best efforts basis only and the
Distributor shall not be obligated to sell any specific number of shares. Shares
will be sold by the Distributor only against orders therefor. The Distributor
will not purchase shares from anyone other than the Trust except in accordance
with Section 8 hereof, and will not take "long" or "short" positions in shares
contrary to any applicable provisions of the Declaration of Trust of the Trust,
as amended.
10. Rules of Securities Associations, etc. As the Trust's agent, the
Distributor may sell and distribute shares in such manner not inconsistent with
the provisions hereof and the Trust's Prospectus as the Distributor may
determine from time to time. In this connection, the Distributor shall comply
with all laws, rules and regulations applicable to it, including, without
limiting the generality of the foregoing, all applicable rules or regulations
under the 1940 Act and of any securities association registered under the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "1934 Act"). The Distributor will conform to the
Conduct Rules of the National Association of Securities Dealers, Inc. and the
securities laws of any jurisdiction in which it sells, directly or indirectly,
any shares. The Distributor also agrees to furnish to the Trust sufficient
copies of any agreement or plans it intends to use in connection with any sales
of shares in adequate time for the Trust to file and clear them with the proper
authorities before they are put in use, and not to use them until so filed and
cleared.
11. Independent Contractor. The Distributor shall be an independent
contractor and neither the Distributor nor any of its officers or employees as
such, is or shall be an employee of the Trust. The Distributor is responsible
for its own conduct and the employment, control and conduct of its agents and
employees and for injury to such agents or employees or to others through its
agents or employees. The Distributor assumes full responsibility for its agents
and employees under applicable statutes and agrees to pay all employer taxes
thereunder.
12. Registration and Qualification of Shares. The Trust agrees to execute
such papers and to do such acts and things as shall from time to time be
reasonably requested by the Distributor for the purpose of qualifying and
maintaining qualification of the shares for sale under the so-called Blue Sky
Laws of any state or for maintaining the registration of each Fund and Portfolio
of the Trust and the Trust under the 1933 Act and the 1940 Act, to the end that
there will be available for sale from time to time such number of shares as the
Distributor may
<PAGE>
reasonably be expected to sell. The Trust shall advise the Distributor promptly
of (a) any action of the Securities and Exchange Commission or any authorities
of any state or territory, of which it may be advised, affecting registration or
qualification of the Trust, a Fund, a Portfolio or the shares thereof, or rights
to offer such shares for sale and (b) the happening of any event which makes
untrue any statement or which requires the making of any change in the
Registration Statement or Prospectus in order to make the statements therein not
misleading.
13. Securities Transactions. The Trust agrees that the Distributor may
effect a transaction on any national securities exchange of which it is a member
for the account of the Trust and any Fund of the Trust which is permitted by
Section 11(a) of the 1934 Act.
14. Expenses.
(a) The Distributor shall from time to time employ or associate with
it such persons as it believes necessary to assist it in carrying out its
obligations under this Contract. The compensation of such persons shall be paid
by the Distributor.
(b) The Distributor shall pay all expenses incurred in connection
with its qualification as a dealer or broker under Federal or state law.
(c) The Distributor will pay all expenses of preparing, printing and
distributing advertising and sales literature as such expenses relate to Retail
Class shares (apart from expenses of registering shares under the 1933 Act and
the 1940 Act and the preparation and printing of prospectuses and reports for
shareholders as required by said Acts and the direct expenses of the issue of
shares, except that the Distributor will pay the cost of the preparation and
printing of prospectuses and shareholders' reports used by it in the sale of
Trust shares). The Trust may enter into arrangements with affiliates of the
Distributor providing for the payment by such affiliates of some or all of these
expenses as they relate to Class D, Class J, Class K, Institutional Class and/or
Administrative Class shares.
(d) The Trust shall pay or cause to be paid all expenses incurred in
connection with (i) the preparation, printing and distribution to shareholders
of the Prospectus and reports and other communications to existing shareholders,
(ii) future registrations of shares under the 1933 Act and the 1940 Act, (iii)
amendments of the Registration Statement subsequent to the initial public
offering of shares, (iv) qualification of shares for sale in jurisdictions
designated by the Distributor, including under the securities or so-called "Blue
Sky" laws of any State, (v) qualification of the Trust as a dealer or broker
under the laws of jurisdictions designated by the Distributor, (vi)
qualification of the Trust as a foreign corporation authorized to do business in
any jurisdiction if the Distributor determines that such qualification is
necessary or desirable for the purpose of facilitating sales of shares, (vii)
maintaining facilities for the issue and transfer of shares, (viii) supplying
information, prices and other data to be furnished by the Trust under this
Contract, (ix) any expenses assumed by the Trust with regard to shares of each
Retail Class of each Fund pursuant to the Retail Class Plan applicable to that
class; (x) any expenses assumed by the Trust with regard to Class J shares of
each Fund pursuant to the Class J Plan; (xi) any expenses assumed by the Trust
with regard to Class K shares of each
<PAGE>
Fund pursuant to the Class K Plan; (xii) any expenses assumed by the Trust with
regard to the Administrative Class shares of each Fund pursuant to the
Administrative Distribution Plan; (xiii) any expenses assumed by the Trust with
regard to the Administrative Class shares of each Fund pursuant to the
Administrative Services Plan; and (xiv) any expenses assumed by the Trust with
regard to the Class D shares pursuant to the Administration Agreement and the
Defensive Plan.
(e) The Trust shall pay any original issue taxes or transfer taxes
applicable to the sale or delivery of shares or certificates therefor.
15. Indemnification of Distributor. The Trust shall prepare and furnish
to the Distributor from time to time such number of copies of the most recent
form of the Prospectus filed with the Securities and Exchange Commission as the
Distributor may reasonably request. The Trust authorizes the Distributor to use
the Prospectus, in the form furnished to the Distributor from time to time, in
connection with the sale of shares. The Trust shall indemnify, defend and hold
harmless the Distributor, its officers and trustees and any person who controls
the Distributor within the meaning of the 1933 Act, from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which the Distributor, its officers and trustees or any
such controlling person may incur under the 1933 Act, the 1940 Act, the common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either or necessary to make the statements in either
not misleading. This Contract shall not be construed to protect the Distributor
against any liability to the Trust or its shareholders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Contract. This indemnity
agreement is expressly conditioned upon the Trust being notified of any action
brought against the Distributor, its officers or directors or any such
controlling person, which notification shall be given by letter or by telegram
addressed to the Trust at its principal office in Newport Beach, California, and
sent to the Trust by the person against whom such action is brought within 10
days after the summons or other first legal process shall have been served. The
failure to notify the Trust of any such action shall not relieve the Trust from
any liability which it may have to the person against whom such action is
brought by reason of any such alleged untrue statement or omission otherwise
than on account of the indemnity agreement contained in this Section 15. The
Trust shall be entitled to assume the defense of any suit brought to enforce any
such claim, demand or liability, but, in such case, the defense shall be
conducted by counsel chosen by the Trust and approved by the Distributor. If the
Trust elects to assume the defense of any such suit and retain counsel approved
by the Distributor, the defendant or defendants in such suit shall bear the fees
and expenses of any additional counsel retained by any of them, but in the case
the Trust does not elect to assume the defense of any such suit, or in the case
the Distributor does not approve of counsel chosen by the Trust, the Trust will
reimburse the Distributor, its officers and directors or the controlling person
or persons named as defendant or defendants in such suit, for the fees and
expenses of any counsel retained by the Distributor or them. In addition, the
Distributor
<PAGE>
shall have the right to employ counsel to represent it, its officers and
directors and any such controlling person who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Distributor against the Trust hereunder if in the reasonable judgment of the
Distributor it is advisable for the Distributor, its officers and directors or
such controlling person to be represented by separate counsel, in which event
the fees and expenses of such separate counsel shall be borne by the Trust. This
indemnity agreement and the Trust's representations and warranties in this
Contract shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, its officers and
directors or any such controlling person. This indemnity agreement shall inure
exclusively to the benefit of the Distributor and its successors, the
Distributor's officers and directors and their respective estates and any such
controlling persons and their successors and estates. The Trust shall promptly
notify the Distributor of the commencement of any litigation or proceedings
against it in connection with the issue and sale of any shares.
16. Indemnification of Trust. The Distributor agrees to indemnify, defend
and hold harmless the Trust, its officers and Trustees and any person who
controls the Trust within the meaning of the 1933 Act, from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or Trustees
or any such controlling person, may incur under the 1933 Act, the 1940 Act, the
common law or otherwise, but only to the extent that such liability or expense
incurred by the Trust, its officers or Trustees or such controlling person
resulting from such claims or demands shall arise out of or be based upon (a)
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Trust specifically for use in the
Registration Statement or the Prospectus or shall arise out of or be based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or the
Prospectus or necessary to make such information not misleading, (b) any alleged
act or omission on the Distributor's part as the Trust's agent that has not been
expressly authorized by the Trust in writing, and (c) any claim, action, suit or
proceeding which arises out of or is alleged to arise out of the Distributor's
failure to exercise reasonable care and diligence with respect to its services
rendered in connection with investment, reinvestment, employee benefit and other
plans for shares. The foregoing rights of indemnification shall be in addition
to any other rights to which the Trust or a Trustee may be entitled as a matter
of law. This indemnity agreement is expressly conditioned upon the Distributor
being notified of any action brought against the Trust, its officers or Trustees
or any such controlling person, which notification shall be given by letter or
telegram addressed to the Distributor at its principal office in Stamford,
Connecticut, and sent to the Distributor by the person against whom such action
is brought, within 10 days after the summons or other first legal process shall
have been served. The failure to notify the Distributor of any such action shall
not relieve the Distributor from any liability which it may have to the Trust,
its officers or Trustees or such controlling person by reason of any alleged
misstatement, omission, act or failure on the Distributor's part otherwise than
on account of the indemnity agreement contained in this Section 16. The
Distributor shall have a right to control the defense of such action with
counsel of its own choosing and approved by the Trust if such action is based
solely upon such alleged
<PAGE>
misstatement, omission, act or failure on the Distributor's part, and in any
other event the Trust, its officers and Trustees or such controlling person
shall each have the right to participate in the defense or preparation of the
defense of any such action at their own expense. If the Distributor elects to
assume the defense of any such suit and retain counsel approved by the Trust,
the defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them, but in case the Distributor does not
elect to assume the defense of any such suit, or in the case the Trust does not
approve of counsel chosen by the Distributor, the Distributor will reimburse the
Trust, its officers and Trustees or the controlling person or persons named as
defendant or defendants in such suit, for the fees and expenses of any counsel
retained by the Trust or them. In addition, the Trust shall have the right to
employ counsel to represent it, its officers and Trustees and any such
controlling person who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Trust against the Distributor
hereunder if in the reasonable judgment of the Trust it is advisable for the
Trust, its officers and Trustees or such controlling person to be represented by
separate counsel, in which event the fees and expense of such separate counsel
shall be borne by the Distributor. This indemnity agreement and the
Distributor's representations and warranties in this Contract shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of the Trust, its officers and Trustees or any such controlling
person. This indemnity agreement shall inure exclusively to the benefit of the
Trust and its successors, the Trust's officers and Trustees and their respective
estates and any such controlling persons and their successors and estates. The
Distributor shall promptly notify the Trust of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any shares.
17. Assignment Terminates this Contract; Amendments of this Contract. This
Contract shall automatically terminate, without the payment of any penalty, in
the event of its assignment. This Contract may be amended only if such amendment
be approved either by action of the Trustees of the Trust or at a meeting of the
shareholders of the Trust by the affirmative vote of a majority of the
outstanding shares of the Trust, and by a majority of the Trustees of the Trust
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plans or this Contract by vote cast
in person at a meeting called for the purpose of voting on such approval.
18. Effective Period and Termination of this Contract. This Contract shall
take effect upon the date first above written and shall remain in full force and
effect continuously as to a Fund, a class of Fund shares, or a Portfolio,
(unless terminated automatically as set forth in Section 17 hereof) until
terminated:
(a) Either by such Fund, Fund class, Portfolio, or the Distributor by
not more than sixty (60) days' nor less than thirty (30) days' written
notice delivered or mailed by registered mail, postage prepaid, to the
other party; or
(b) Automatically as to any Fund or class thereof, or Portfolio, at
the close of business one year from the date hereof, or upon the
expiration of one year from
<PAGE>
the effective date of the last continuance of this Contract, whichever
is later, if the continuance of this Contract is not specifically
approved at least annually by the Trustees of the Trust or the
shareholders of such Fund, Fund class, or Portfolio, by the
affirmative vote of a majority of the outstanding shares of such Fund,
Fund class, or Portfolio; and by a majority of the Trustees of the
Trust who are not interested persons of the Trust and who have no
direct or indirect financial interest in the operation of the Plans or
this Contract by vote cast in person at a meeting called for the
purpose of voting on such approval.
Action by a Fund or a class thereof, or Portfolio, under (a) above may be
taken either (i) by vote of the Trustees of the Trust, or (ii) by the
affirmative vote of a majority of the outstanding shares of such Fund or such
class or Portfolio. The requirement under (b) above that the continuance of
this Contract be "specifically approved at least annually" shall be construed in
a manner consistent with the 1940 Act and the rules and regulations thereunder.
Termination of this Contract pursuant to this Section 18 shall be without
the payment of any penalty.
If this Contract is terminated or not renewed with respect to one or more
Funds or classes thereof, or one or more Portfolios, it may continue in effect
with respect to any Fund or any class thereof, or any Portfolio, as to which it
has not been terminated (or has been renewed).
19. Limited Recourse. The Distributor hereby acknowledges that the Trust's
obligations hereunder with respect to the distribution fee or servicing fee or
contingent deferred sales charges payable with respect to the shares of any Fund
of the Trust, or a particular class of shares of a Fund, or a Portfolio are
binding only on the assets and property belonging to such Fund, allocated to
such class, or Portfolio.
20. Certain Definitions. For the purposes of this Contract, the
"affirmative vote of a majority of the outstanding shares" means the affirmative
vote, at a duly called and held meeting of shareholders, (a) of the holders of
67% or more of the shares of the Trust, Fund, Fund class, or Portfolio, as the
case may be, present (in person or by proxy) and entitled to vote at such
meeting, if the holders of more than 50% of the outstanding shares of the Trust,
Fund, Fund class, or Portfolio as the case may be, entitled to vote at such
meeting are present in person or by proxy, or (b) of the holders of more than
50% of the outstanding shares of the Trust, Fund, Fund class, or Portfolio, as
the case may be, entitled to vote at such meeting, whichever is less.
For the purposes of this Contract, the terms "interested persons" and
"assignment" shall have the meanings defined in the 1940 Act, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act. Certain other items used herein that are not otherwise defined
have the meaning given in the Trust's Prospectus or constituent agreements or
documents of the Trust.
<PAGE>
The Declaration of Trust establishing the Trust, dated March 31, 2000, a
copy of which, together with all amendments thereto (the "Declaration"), is on
file in the Office of the Secretary of State of the Commonwealth of
Massachusetts, provides that the name "PIMCO Funds" refers to the Trustees under
the Declaration collectively as Trustees and not as individuals or personally,
and that no shareholder, trustee, officer, employee or agent of the Trust shall
be subject to claims against or obligations of the Trust (or a particular Fund,
class of Fund shares, or a particular Portfolio) to any extent whatsoever, but
that the Trust (or a particular Fund, or class of Fund shares, or Portfolio)
shall only be liable.
<PAGE>
If the foregoing correctly sets forth the agreement between the Trust and
the Distributor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS
By: ___________________________________
Title:
ACCEPTED:
PIMCO FUNDS DISTRIBUTORS LLC
By: ___________________________________
Title:
<PAGE>
EXHIBIT 99(e)(6)
FORM OF
SUPPLEMENT TO
DISTRIBUTION CONTRACT
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive
Newport Beach, California 92660
___________, 2000
PIMCO Funds Distributors LLC
2187 Atlantic Avenue
Stamford, CT 06902
RE: PIMCO California Municipal Bond Fund
PIMCO Short-Term Emerging Markets Portfolio
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
PIMCO Funds Distributors LLC (the "Distributor") as follows:
1. The Trust is an open-end management investment company organized as a
Massachusetts business trust and consisting of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate series of shares of beneficial interest in the Trust is
offered to investors with respect to each investment portfolio. The PIMCO
California Municipal Bond Fund (the "Fund") and PIMCO Short-Term Emerging
Markets Portfolio (the "Portfolio") are separate investment portfolios of the
Trust.
2. The Trust and the Distributor have entered into an Distribution
Contract (the "Contract") dated May 5, 2000, pursuant to which the Distributor
has agreed to be the distributor of shares of the Trust.
3. As provided in paragraph 1 of the Contract, the Distributor hereby
adopts the Contract with respect to the Portfolios and the Distributor hereby
acknowledges that the Contract shall pertain to the Fund and the Portfolio, the
terms and conditions of such Contract being hereby incorporated herein by
reference.
4. The Distributor agrees that shares of the Fund and the Portfolio shall
be distributed only in accordance with Regulation D of the Securities Act of
1933, as amended (the "1933 Act"), and methods consistent therewith. Prior to
any investor's purchase of Portfolio shares, the Distributor or its affiliate
shall obtain from the investor a representation that the investor is an
"accredited investor," as defined in Regulation D under the 1933 Act, and either
(i) a "qualified purchaser" as defined in Section 2(a)(51) of the Investment
Company Act of 1940,
1
<PAGE>
as amended (the "1940 Act"), or (ii) a "qualified institutional buyer," as
defined in Rule 144A(a)(1) of the 1933 Act.
5. This Supplement and the Contract shall become effective with respect
to the Fund and the Portfolio on _______________, ______ and shall continue in
effect with respect to the Fund and the Portfolio for a period of more than two
years from the effective date of this Supplement only so long as such
continuance is specifically approved at least annually by (a) the Trust's Board
of Trustees or by the vote of a majority of the Trust's outstanding voting
securities (as defined in the 1940 Act) and (b) by the vote, cast in person at a
meeting called for the purpose, of a majority of the Trust's Trustees who are
not parties to this Contract or "interested persons" (as defined in the 1940
Act) of any such party. This Contract shall terminate automatically in the event
of its assignment (as defined in the 1940 Act). This Contract may, in any event,
be terminated at any time without the payment of any penalty, by the Trust upon
60 days' written notice to the Distributor and by the Distributor upon 60 days'
written notice to the Trust.
2
<PAGE>
If the foregoing correctly sets forth the agreement between the Trust and
the Distributor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS: PACIFIC INVESTMENT
MANAGEMENT SERIES
By: _____________________________
Title: President
Accepted:
PIMCO FUNDS DISTRIBUTORS LLC
By: ____________________________________
Title: Executive Vice President and
Chief Administrative Officer
3
<PAGE>
EXHIBIT 99(h)(7)
FORM OF
SECOND AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
SECOND AMENDED AND RESTATED ADMINISTRATION AGREEMENT, made this 5th day of
May, 2000 amending and restating the Amended and Restated Administration
Agreement dated February 24, 1998, as amended to date, between PIMCO Funds
(operating as PIMCO Funds: Pacific Investment Management Series) (the "Trust"),
a Massachusetts business trust, and Pacific Investment Management Company (the
"Administrator" or "PIMCO").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series with each such series representing interests in a
separate portfolio of securities and other assets; and each series of the Trust
issues its Shares in up to eight classes: Class A, Class B, Class C, Class D,
Class J, Class K, the Institutional Class and the Administrative Class, with
each such class representing interests in the same portfolio of securities and
other assets; and
WHEREAS, the Trust has established forty-two series, which are designated
as the Money Market Fund; the Short-Term Fund; the Low Duration Fund; the Low
Duration Fund II; the Low Duration Fund III; the Low Duration Mortgage Fund; the
Moderate Duration Fund; the Real Return Bond Fund; the Total Return Fund; the
Total Return Fund II; the Total Return Fund III; the Total Return Mortgage Fund;
the High Yield Fund; the Investment Grade Corporate
<PAGE>
Bond Fund; the Long-Term U.S. Government Fund; the Long Duration Fund; the Short
Duration Municipal Income Fund; the Municipal Bond Fund; the California
Intermediate Municipal Bond Fund; the New York Intermediate Municipal Bond Fund;
the Global Bond Fund; the Global Bond Fund II; the Foreign Bond Fund; the
Emerging Markets Bond Fund; the Strategic Balanced Fund; the Convertible Fund;
the StocksPLUS Fund; the Commercial Mortgage Securities Fund; the StocksPLUS
Short Strategy Fund; the Short-Term Portfolio; the Short-Term Portfolio II; the
U.S. Government Sector Portfolio; the U.S. Government Sector Portfolio II; the
Mortgage Portfolio; the Mortgage Portfolio II; the Investment Grade Corporate
Portfolio; the High Yield Portfolio; the Municipal Sector Portfolio; the
International Portfolio; the Emerging Markets Portfolio; the Real Return Bond
Portfolio, and the Opportunity Portfolio, such series, together with any other
series subsequently established by the Trust, with respect to which the Trust
desires to retain the Administrator to render administrative services hereunder,
and with respect to which the Administrator is willing to do so, being herein
collectively referred to also as the "Funds"; and
WHEREAS, pursuant to an Investment Advisory Contract dated May 5, 2000,
between the Trust and PIMCO ("Investment Advisory Contract"), the Trust has
retained PIMCO to provide investment advisory services with respect to the Funds
in the manner and on the terms set forth therein; and
WHEREAS, the Trust wishes to retain PIMCO to provide or procure
administrative and other services to the Funds and their shareholders, including
services which may be deemed to constitute distribution-related services with
respect to Class D shares; and
-2-
<PAGE>
WHEREAS, PIMCO is willing to furnish and/or to arrange for such services in
the manner and on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Appointment. The Trust hereby appoints PIMCO as the Administrator to
-----------
provide or procure the administrative and other services with respect to the
Funds for the period and on the terms set forth in this Agreement, as
supplemented. The Administrator accepts such appointment and agrees during such
period to render the services herein set forth for the compensation herein
provided.
In the event the Trust establishes and designates additional series with
respect to which it desires to retain the Administrator to render or procure
administrative and other services hereunder, it shall notify the Administrator
in writing. If the Administrator is willing to render or procure such services
it shall notify the Trust in writing, whereupon the portfolio represented by
such additional series shall become a Fund hereunder.
2. Duties. Subject to the general supervision of the Board of Trustees, the
------
Administrator shall provide or cause to be furnished all administrative and
other services reasonably necessary for the operation of the Funds, including,
in the case of Class D shares, certain shareholder and distribution-related
services, but not including the investment advisory services provided pursuant
to the Investment Advisory Contract with the Trust or the distribution services
provided by PIMCO Funds Distributors LLC ("PFD") pursuant to its Distribution
Contract with the Trust.
-3-
<PAGE>
(a) Administrative Services. These services shall include the following:
-----------------------
(i) coordinating matters relating to the operation of the Funds, including any
necessary coordination among the adviser or advisers to the Funds, the
custodian, transfer agent, dividend disbursing agent, and recordkeeping agent
(including pricing and valuation of the Funds), accountants, attorneys, and
other parties performing services or operational functions for the Funds; (ii)
providing the Funds, at the Administrator's expense, with the services of a
sufficient number of persons competent to perform such administrative and
clerical functions as are necessary to ensure compliance with federal
securities laws as well as other applicable laws and to provide effective
administration of the Funds; (iii) maintaining or supervising the maintenance
by third parties of such books and records of the Trust and the Funds as may
be required by applicable federal or state law, other than the records and
ledgers maintained under the Investment Advisory Contract; (iv) preparing or
supervising the preparation by third parties of all federal, state, and local
tax returns and reports of the Funds required by applicable law; (v)
preparing, filing, and arranging for the distribution of proxy materials and
periodic reports to shareholders of the Funds as required by applicable law;
(vi) preparing and arranging for the filing of such registration statements
and other documents with the SEC and other federal and state regulatory
authorities as may be required to register the shares of the Funds and qualify
the Trust to do business or as otherwise required by applicable law; (vii)
taking such other action with respect to the Funds, as may be required by
-4-
<PAGE>
applicable law, including without limitation the rules and regulations of the
SEC and of state securities commissions and other regulatory agencies; and
(viii) providing the Funds, at the Administrator's expense, with adequate
personnel, office space, communications facilities, and other facilities
necessary for the Funds' operations as contemplated in this Agreement.
(b) Other Services. The Administrator shall also procure on behalf of the
--------------
Trust and the Funds, and at the expense of the Administrator, the following
persons to provide services to the Funds: (i) a custodian or custodians for
the Funds to provide for the safekeeping of the Funds' assets; (ii) a
recordkeeping agent to maintain the portfolio accounting records for the
Funds; (iii) a transfer agent for the Funds; and (iv) a dividend disbursing
agent for the Funds. The Trust may be a party to any agreement with any of the
persons referred to in this Section 2(b).
(c) Retail Class Services. In addition to the Administrator's
---------------------
responsibilities as specified in Subsections (a) and (b) above, subject to the
approval or consent of the Board of Trustees, the Administrator, at its own
expense, also shall provide, directly or through persons selected by the
Administrator, to the Class A, Class B, Class C and Class D shares (the
"Retail Classes") of the Funds administrative, recordkeeping, and shareholder
services reasonably required by the Retail Classes of the Funds, which may
include some or all of the following services: (i) transfer agency services
reasonably necessary to meet the increased account activity associated with
Retail Classes; (ii) dividend
-5-
<PAGE>
disbursing services reasonably necessary to meet the increased number of
accounts associated with the Retail Classes; (iii) preparing and arranging for
the distribution of prospectuses, statements of additional information, proxy
materials, periodic reports to shareholders, and other communications with
Retail Class shareholders; and (iv) taking such other actions and providing or
procuring such other services with respect to the Retail Classes as are
reasonably necessary or desirable.
(d) Special Class D Services. 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: (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
-6-
<PAGE>
provided by a Service Organization that may include, but are not limited to,
the following functions: receiving, aggregating and processing shareholder
orders; furnishing shareholder sub-accounting; providing and maintaining
elective shareholder services such as check writing and wire transfer
services; providing and maintaining pre-authorized investment plans;
communicating periodically with shareholders; acting as the sole shareholder
of record and nominee for shareholders; maintaining accounting records for
shareholders; answering questions and handling correspondence from
shareholders about their accounts; issuing confirmations for transactions by
shareholders; performing similar account administrative services; providing
such shareholder communications and recordkeeping services as may be required
for any program for which the Service Organization is a sponsor that relies on
Rule 3a-4 under the 1940 Act; and providing such other similar services as may
reasonably be requested to the extent the Service Organization is permitted to
do so under applicable statutes, rules, or regulations.
The Administrator shall not be required to provide directly hereunder any
of the foregoing services which may cause the Administrator to be engaged in
the business of effecting transactions in securities for the account of
others, or to induce or attempt to induce the purchase or sale of any
security, but may procure such services on behalf of the Trust from certain
Service Organizations. The parties hereto acknowledge that the Administrator
has entered into an agreement with its affiliate, PFD, the Trust's principal
underwriter, under
-7-
<PAGE>
which PFD is compensated for certain services contemplated by this Agreement,
including shareholder and distribution-related services, at the rate of 0.25%
per annum of all assets attributable to Class D shares sold through PFD (the
"PFD Fees").
The Administrator and the Trust understand that some or all of the services
described in this subparagraph (d) may be deemed to represent services
primarily intended to result in the sale of Class D shares ("Special Class D
Services"). The Administrator agrees to present reports as to out-of-pocket
expenditures and internal expense allocations of the Administrator and PFD at
least quarterly and in a manner that permits the Qualified Trustees
(hereinafter defined) to determine that portion of the fees hereunder which
represents reimbursements in respect of Special Class D Services.
(e) Personnel. The Administrator shall also make its officers and
---------
employees available to the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration of the Funds and
services provided to the Funds under this agreement.
(f) Standards; Reports. In performing these services, the Administrator:
------------------
(i) shall conform with the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Trust's
Board
-8-
<PAGE>
of Trustees, and with the provisions of the Trust's Registration
Statement filed on Form N-1A as supplemented or amended from time to
time;
(ii) will make available to the Trust, promptly upon request, any
of the Funds' books and records as are maintained under this
Agreement, and will furnish to regulatory authorities having the
requisite authority any such books and records and any information or
reports in connection with the Administrator's services under this
Agreement that may be requested in order to ascertain whether the
operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
(iii) will, in addition to reports required by Section 2(d),
regularly report to the Trust's Board of Trustees on the services
provided under this Agreement and will furnish the Trust's Board of
Trustees with respect to the Funds such periodic and special reports
as the Trustees may reasonably request.
3. Documentation. The Trust has delivered copies of each of the following
-------------
documents to the Administrator and will deliver to it all future amendments and
supplements thereto, if any:
(a) the Trust's Registration Statement as filed with the SEC and any
amendments thereto; and
-9-
<PAGE>
(b) exhibits, powers of attorney, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
4. Independent Contractor. The Administrator shall for all purposes herein
----------------------
be deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees of the Trust from time to
time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent.
5. Compensation. As compensation for the services rendered under this
------------
Agreement, the Trust shall pay to the Administrator a monthly fee, calculated as
a percentage (on an annual basis) of the average daily value of the net assets
of each of the Funds during the preceding month. The fee rates applicable to
each Class of a Fund shall be set forth in a schedule to this Agreement. The
fees payable to the Administrator for all of the Funds shall be computed and
accrued daily and paid monthly. If the Administrator shall serve for less than
any whole month, the foregoing compensation shall be prorated. Any portion of
the fees paid hereunder in respect of Class D shares representing reimbursement
for the Administrator's and PFD's out-of-pocket expenditures and internally
allocated expenses in respect of Special Class D Services of any Fund (as
reviewed quarterly by the Trustees based on the reports described in Section
2(d) above) shall not exceed the rate of 0.25% per annum of the average daily
net assets of such Fund attributable to Class D shares. To the extent such out-
of-pocket expenditures and internally allocated expenses exceed such rate, such
excess shall be paid by the Administrator and/or PFD from their own resources
(which may include legitimate profits from serving as investment adviser and/or
administrator) and shall not be used as a basis for justifying or evaluating
fees
-10-
<PAGE>
paid hereunder to the Administrator in respect of services other than the
Special Class D Services.
6. Special Class D Services: Distribution Plan. To the extent that this
--------------------------------------------
Agreement relates to payments made in connection with the distribution of the
Funds' Class D shares (i.e., Special Class D Services), it shall also constitute
----
a "distribution plan" and a "related agreement" within the meaning of Rule 12b-1
under the 1940 Act. As required by said Rule 12b-1 in respect of distribution
plans: (a) the term of this Agreement is as provided in Section 10 below; (b)
the Administrator shall provide to the Trustees of the Trust, and all such
Trustees shall review, at least quarterly, a written report of the amounts
expended by the Trust for Special Class D Services and the purposes for which
such expenditures were made; and (c) this Agreement may be terminated as
provided in Section 10 (b) below. As required by said Rule 12b-1 in respect of
agreements related to distribution plans: (a) this Agreement may be terminated
as provided in Section 10 below; and (b) this Agreement may also terminate in
the circumstances described in Section 15(d) below. This Agreement may not be
amended to increase materially the maximum amount specified in Section 5 (i.e.,
the rate of 0.25% per annum) payable out of Class D assets for Special Class D
Services without approval by a majority of the outstanding Class D shares (as
defined in Section 2(a)(42) of the 1940 Act in respect of voting securities) of
a Fund. All material amendments to this Agreement (insofar as the relevant
provision constitutes a part of a distribution plan) must be approved by a
majority of the Qualified Trustees. Insofar as this Agreement constitutes a
distribution plan for Class D shares, its provisions are severable for that
Class.
-11-
<PAGE>
It is acknowledged and agreed that classes of shares other than Class D may
have separately documented distribution plans and related agreements.
7. Non-Exclusivity. It is understood that the services of the Administrator
---------------
hereunder are not exclusive, and the Administrator shall be free to render
similar services to other investment companies and other clients.
8. Expenses. During the term of this Agreement, the Administrator will pay
--------
all expenses incurred by it in connection with its obligations under this
Agreement, except such expenses as are assumed by the Funds under this
Agreement, and any expenses that are paid under the terms of the Investment
Advisory Contract. The Administrator assumes and shall pay for maintaining its
staff and personnel and shall, at its own expense provide the equipment, office
space, office supplies (including stationery), and facilities necessary to
perform its obligations under this Agreement. In addition, the Administrator
shall bear the following expenses under this Agreement:
(a) Expenses of all audits by Trust's independent public accountants;
(b) Expenses of the Trust's transfer agent, registrar, dividend disbursing
agent, and shareholder recordkeeping services;
(c) Expenses of the Trust's custodial services, including any
recordkeeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of each
Fund's net assets;
(e) Expenses of obtaining Portfolio Activity Reports for each Fund;
(f) Expenses of maintaining the Trust's tax records;
-12-
<PAGE>
(g) Costs and/or fees, including legal fees, incident to meetings of the
Trust's shareholders, the preparation, printing and mailings of prospectuses,
notices and proxy statements and reports of the Trust to its shareholders,
the filing of reports with regulatory bodies, the maintenance of the Trust's
existence and qualification to do business, and the expense of issuing,
redeeming, registering and qualifying for sale, shares with federal and state
securities authorities;
(h) The Trust's ordinary legal fees, including the legal fees that arise
in the ordinary course of business for a Massachusetts business trust
registered as an open-end management investment company;
(i) Costs of printing certificates representing shares of the Trust;
(j) The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
(k) Association membership dues; and
(l) Services of Service Organizations rendered in respect of Class D
shares, to the extent and subject to the conditions set forth in Sections
2(d), 5 and 6 hereof.
The Trust shall bear the following expenses:
(a) Salaries and other compensation or expenses, including travel
expenses, of any of the Trust's executive officers and employees, if any, who
are not officers, directors, stockholders, partners or employees of the
Administrator or its subsidiaries or affiliates;
-13-
<PAGE>
(b) Taxes and governmental fees, if any, levied against the Trust or any
of its Funds;
(c) Brokerage fees and commissions, and other portfolio transaction
expenses incurred for any of the Funds;
(d) Costs, including the interest expenses, of borrowing money;
(e) Fees and expenses, including travel expenses, and fees and expenses of
legal counsel retained for their benefit, of Trustees who are not officers,
employees, partners or shareholders of PIMCO or its subsidiaries or
affiliates;
(f) Extraordinary expenses, including extraordinary legal expenses, as may
arise including expenses incurred in connection with litigation, proceedings,
other claims and the legal obligations of the Trust to indemnify its
trustees, officers, employees, shareholders, distributors, and agents with
respect thereto;
(g) Organizational and offering expenses of the Trust and the Funds, and
any other expenses which are capitalized in accordance with generally
accepted accounting principles; and
(h) Any expenses allocated or allocable to a specific class of shares,
including fees paid in respect of classes other than Class D pursuant to a
separate administrative service or distribution plan.
9. Liability. The Administrator shall give the Trust the benefit of the
---------
Administrator's best efforts in rendering services under this Agreement. The
Administrator may rely on information reasonably believed by it to be accurate
and reliable. As an inducement for
-14-
<PAGE>
the Administrator's undertaking to render services under this Agreement, the
Trust agrees that neither the Administrator nor its stockholders, officers,
directors, or employees shall be subject to any liability for, or any damages,
expenses or losses incurred in connection with, any act or omission or mistake
in judgment connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in performance of the Administrator's duties, or by reason of
reckless disregard of the Administrator's obligations and duties under this
Agreement. This provision shall govern only the liability to the Trust of the
Administrator and that of its stockholders, officers, directors, and employees,
and shall in no way govern the liability to the Trust or the Administrator or
provide a defense for any other person including persons that provide services
for the Funds as described in Section 2(b), (c) or (d) of this Agreement.
10. Term and Continuation. This Amended and Restated Agreement shall take
---------------------
effect as of the date indicated above, and shall remain in effect, unless sooner
terminated as provided herein, for one year from such date, and shall continue
thereafter on an annual basis with respect to each Fund provided that such
continuance is specifically approved at least annually (a) by the vote of a
majority of the Board of Trustees of the Trust, and (b) by the vote of a
majority of the Board of Trustees of the Trust who are not parties to this
Agreement or "interested persons" (as defined in the 1940 Act) of the Trust or
the Administrator, and who have no direct or indirect financial interest in the
operation of this agreement or any agreement related to Special Class D Services
("Qualified Trustees"), cast in person at a meeting called for the purpose of
voting on such approval. Failure of the Qualified Trustees to renew this
Agreement
-15-
<PAGE>
and/or its termination by shareholder vote, assignment, or otherwise, shall not
preclude the Board of Trustees from approving a substitute agreement in the
manner provided under applicable law.
(a) Except as provided in Section 10(b) below, this Agreement may be
terminated:
(i) by the Trust at any time with respect to the services provided by
the Administrator, without the payment of any penalty, by vote of a
majority of the entire Board of Trustees of the Trust or by a vote of a
majority of the outstanding voting shares of the Trust or, with respect to
a particular Fund or class, by vote of a majority of the outstanding
voting shares of such Fund or class, on 60 days' written notice to the
Administrator;
(ii) at the expiration of the one-year period commencing on the date
of this Amended and Restated Agreement, by the Administrator at any time,
without the payment of any penalty, upon 60 days' written notice to the
Trust.
(b) insofar as it relates to Class D shares of any Fund(s), at any time,
without the payment of any penalty, by a majority of the Qualified Trustees or
by vote of a majority of the outstanding Class D shares.
11. Use of Name. It is understood that the name "Pacific Investment
-----------
Management Company" or "PIMCO" or any derivative thereof or logo associated with
those names are the valuable property of PIMCO and its affiliates, and that the
right of the Trust and/or
-16-
<PAGE>
the Funds to use such names (or derivatives or logos) shall be governed by the
Investment Advisory Contract.
12. Notices. Notices of any kind to be given to the Administrator by the
-------
Trust shall be in writing and shall be duly given if mailed or delivered to the
Administrator at 840 Newport Center Drive, Newport Beach, California 92660, or
to such other address or to such individual as shall be specified by the
Administrator. Notices of any kind to be given to the Trust by the
Administrator shall be in writing and shall be duly given if mailed or delivered
to 840 Newport Center Drive, Newport Beach, California 92660, or to such other
address or to such individual as shall be specified by the Trust.
13. Trust Obligation. A copy of the Trust's Declaration of Trust is on file
----------------
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that the Agreement has been executed on behalf of the Trust by a trustee
of the Trust in his or her capacity as trustee and not individually. The
obligations of this Agreement shall only be binding upon the assets and property
of each Fund and shall not be binding upon any trustee, officer, or shareholder
of the Trust individually.
14. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original.
15. Miscellaneous. (a) This Agreement shall be governed by the laws of
-------------
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any rule
or order of the SEC thereunder.
-17-
<PAGE>
(b) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise with regard to any party, hereunder, such provisions with
respect to other parties hereto shall not be affected thereby.
(c) The captions in this Agreement are included for convenience only and
in no way define any of the provisions hereof or otherwise affect their
construction or effect.
(d) This Agreement may not be assigned by the Trust or the Administrator
without the consent of the other party. This Agreement will terminate with
respect to the Class D shares in the event of its "assignment" (as defined in
the 1940 Act).
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
PIMCO FUNDS
By: _________________________
Title: President
PACIFIC INVESTMENT
MANAGEMENT COMPANY
By: _______________________
Title: Managing Director
-19-
<PAGE>
Schedule A
Schedule to
Amended and Restated Administration Agreement
Fee Rate
--------
<TABLE>
<CAPTION>
Institutional and
Administrative Classes (%) Class A, B and C (%) Class D (%)
------------------------------------------------------------- --------------------------------
Custody and Custody and Custody and
Portfolio Other Portfolio Other Portfolio Other
Fund Accounting Expenses Total Accounting Expenses Total Accounting Expenses Total
- ---- ------------- -------- ----- ----------- -------- ----- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market 0.10 0.10 0.20 0.10 0.25 0.35 0.10 0.35 0.45
Short-Term 0.10 0.10 0.20 0.10 0.25 0.35 0.10 0.40 0.50
Low Duration 0.10 0.08 0.18 0.10 0.30 0.40 0.10 0.40 0.50
Low Duration II 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Low Duration III 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Moderate Duration 0.10 0.10 0.20 0.10 0.30 0.40 0.10 0.55 0.65
High Yield 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Investment Grade Corporate 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Bond Fund
Total Return 0.10 0.08 0.18 0.10 0.30 0.40 0.10 0.40 0.50
Total Return II 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Total Return III 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Low Duration Mortgage 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Total Return Mortgage 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Commercial Mortgage 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Securities
Long-Term U.S. Government 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Real Return Bond 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Foreign Bond 0.10 0.15 0.25 0.10 0.35 0.45 0.10 0.60 0.70
Global Bond 0.10 0.20 0.30 0.10 0.35 0.45 0.10 0.60 0.70
Global Bond II 0.10 0.20 0.30 0.10 0.35 0.45 0.10 0.60 0.70
Emerging Markets Bond 0.10 0.30 0.40 0.10 0.45 0.55 0.10 0.70 0.80
Municipal Bond 0.10 0.15 0.25 0.10 0.25 0.35 0.10 0.50 0.60
StocksPLUS 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
StocksPLUS Short Strategy 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Fund
Strategic Balanced 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Long Duration 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
Short Duration Municipal 0.10 0.09 0.19 0.10 0.25 0.35 0.10
Income Fund
California Intermediate
Municipal Bond 0.10 0.14 0.24 0.10 0.25 0.35 0.10 0.50 0.60
New York Municipal Bond 0.10 0.14 0.24 0.10 0.25 0.35 0.10 0.50 0.60
Convertible 0.10 0.15 0.25 0.10 0.30 0.40 0.10 0.55 0.65
</TABLE>
-20-
<PAGE>
Schedule to
Amended and Restated Administration Agreement
Fee Rate
--------
<TABLE>
<CAPTION>
Class J and K (%)
--------------------------------------
Custody and
Portfolio Other
Fund Accounting Expenses Total
- ---- ----------- -------- -----
<S> <C> <C> <C>
Short-Term 0.10 0.15 0.25
Low Duration 0.10 0.15 0.25
Low Duration II 0.10 0.15 0.25
High Yield 0.10 0.15 0.25
Total Return 0.10 0.15 0.25
Total Return II 0.10 0.15 0.25
Foreign Bond 0.10 0.15 0.25
Global Bond 0.10 0.20 0.30
StocksPLUS 0.10 0.15 0.25
Strategic Balanced 0.10 0.15 0.25
</TABLE>
-21-
<PAGE>
Schedule B
Schedule to
Amended and Restated Administration Agreement
Fee Rate
--------
<TABLE>
<CAPTION>
Portfolio Total (%)
- --------- ---------
<S> <C>
Short-Term Portfolio 0.03
Short-Term Portfolio II 0.03
U.S. Government Sector Portfolio 0.03
U.S. Government Sector Portfolio II 0.03
Mortgage Portfolio 0.03
Mortgage Portfolio II 0.03
Investment Grade Corporate Portfolio 0.03
High Yield Portfolio 0.03
Municipal Sector Portfolio 0.03
International Portfolio 0.10
Emerging Markets Portfolio 0.10
Real Return Bond Portfolio 0.03
Opportunity Portfolio 0.04
</TABLE>
-22-
<PAGE>
EXHIBIT 99(h)(8)
FORM OF
SUPPLEMENT TO THE SECOND
AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive
Newport Beach, California 92660
_____________, 2000
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, California 92660
RE: PIMCO California Municipal Bond Fund
PIMCO Short-Term Emerging Markets Portfolio
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
Pacific Investment Management Company (the "Administrator") as follows:
1. This Trust is an open-end investment company organized as a
Massachusetts business trust, and consisting of such investment portfolios as
have been or may be established by the Trustees of the Trust from time to time.
A separate series of shares of beneficial interest of the Trust is offered to
investors with respect to each investment portfolio. The PIMCO California
Municipal Bond Fund and PIMCO Short-Term Emerging Markets Portfolio (the
"Portfolios") are separate investment portfolios of the Trust.
2. The Trust and the Administrator have entered into an Amended and
Restated Administration Agreement ("Agreement") dated May 5, 2000, pursuant to
which the Trust has employed the Administrator to provide management and
administrative services to the Trust as set forth in that Agreement.
3. As provided in paragraph 1 of the Agreement, the Trust hereby adopts
the Agreement with respect to the Portfolios and the Administrator hereby
acknowledges that the Agreement shall pertain to the Portfolios, the terms and
conditions of such Agreement being hereby incorporated herein by reference.
4. As provided in paragraph 5 of the Agreement and subject to further
conditions as set forth therein, the Trust shall with respect to each Portfolio
pay the Administrator a monthly fee calculated as a percentage (on an annual
basis) of the value of net assets of the Portfolio during the preceding month,
as determined on the last business day of the preceding month, for the PIMCO
California Municipal Bond Fund, at a rate of 0.24% for Institutional and
Administrative Classes and at a rate of 0.35% for Class A, Class B, Class C and
Class D; and for the PIMCO Short-Term Emerging Markets Portfolio at a rate of
0.10%.
<PAGE>
5. This Supplement and the Agreement shall become effective with respect
to each Portfolio on ______________, ________ and shall continue in effect with
respect to each Portfolio for a period of more than two years from that date
only so long as the continuance is specifically approved at least annually (a)
by the vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of the Portfolio or by the Trust's Board of Trustees and (b) by
the vote, cast in person at a meeting called for the purpose, of a majority of
the Trust's trustees who are not parties to this Contract or "interested
persons" (as defined in the 1940 Act) of any such party. The Agreement may be
terminated at any time, without the payment of any penalty, by a vote of a
majority of the entire Board of Trustees of the Trust or by a majority of the
outstanding voting securities of the Trust or, with respect to a Portfolio by a
vote of a majority of the outstanding shares of the Portfolio, on 60 days'
written notice to the Administrator or, at or after the one-year period
commencing the date of its effectiveness, by the Administrator on 60 days'
written notice to the Trust. This Agreement shall terminate automatically in the
event of its assignment (as defined in the 1940 Act).
2
<PAGE>
If the foregoing correctly sets forth the agreement between the Trust and
the Administrator, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT
SERIES
By: ___________________________
Title: President
ACCEPTED:
PACIFIC INVESTMENT MANAGEMENT COMPANY
By: _________________________________
Title: Managing Director
3
<PAGE>
EXHIBIT 99(h)(9)
FORM OF
SUPPLEMENT TO
SECOND AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
PIMCO FUNDS
840 Newport Center Drive
Newport Beach, California 92660
May 5, 2000
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, California 92660
RE: Loan Obligation Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
Pacific Investment Management Company (the "Administrator") as follows:
1. This Trust is an open-end investment company organized as a Massachusetts
business trust, and consisting of such investment portfolios as have been or
may be established by the Trustees of the Trust from time to time. A
separate series of shares of beneficial interest of the Trust is offered to
investors with respect to each investment portfolio. The Loan Obligation
Fund (the "Fund") is a separate investment Portfolio of the Trust.
2. The Trust and the Administrator have entered into a Second Amended and
Restated Administration Agreement ("Agreement") dated May 5, 2000, pursuant
to which the Trust has employed the Administrator to provide management and
administrative services specified to the Trust as set forth in that
Agreement.
3. As provided in paragraph 1 of the Agreement, the Trust hereby adopts the
Agreement with respect to the Fund, and the Administrator hereby
acknowledges that the Agreement shall pertain to the Fund, the terms and
conditions of such Agreement being hereby incorporated herein by reference.
4. As provided in paragraph 5 of the Agreement and subject to further
conditions as set forth therein, the Trust shall with respect to the Fund
pay the Administrator a monthly fee calculated as a percentage (on an annual
basis) of the value of net assets of the Fund during the preceding month, as
determined on the last business day of the preceding month, at a rate of
0.25% of the assets.
<PAGE>
5. This Supplement and the Agreement shall take effect as of May 5, 2000, and
shall remain in effect, unless sooner terminated as provided herein, for one
year from such date, and shall continue thereafter on an annual basis with
respect to the Fund provided that such continuance is specifically approved
at least annually (a) by the vote of a majority of the Board of Trustees of
the Trust, and (b) by the vote of a majority of the Board of Trustees of the
Trust who are not parties to the Agreement or "interested persons" (as
defined in the 1940 Act) of the Trust or the Administrator, and who have no
direct or indirect financial interest in the operation of the Agreement or
any agreement related to Special Class D Services as defined in the
Agreement, cast in person at a meeting called for the purpose of voting on
such approval. The Agreement may be terminated at any time, without the
payment of any penalty, by a vote of a majority of the entire Board of
Trustees of the Trust or by a majority of the outstanding voting securities
of the Trust or, with respect to the Fund, by a vote of a majority of the
outstanding shares of the Fund, on 60 days' written notice to the
Administrator or, at or after the one-year period commencing the date of its
effectiveness, by the Administrator on 60 days' written notice to the Trust.
This Agreement shall terminate automatically in the event of its assignment
(as defined in the 1940 Act).
If the foregoing correctly sets forth the agreement between the Trust and
the Administrator, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS
By:__________________________________________
Title:
ACCEPTED:
PACIFIC INVESTMENT MANAGEMENT COMPANY
By:_________________________________________
Title:
<PAGE>
EXHIBIT 99(p)(1)
FORM OF
PIMCO FUNDS
CODE OF ETHICS
Pacific Investment Management Company ("PIMCO"), the investment adviser and
administrator to the PIMCO Funds, has adopted a Code of Ethics effective May 1,
1995, which incorporates the Insider Trading Policy and Procedures adopted by
PIMCO's parent company, PIMCO Advisors L.P. Both the PIMCO Code of Ethics and
PIMCO Advisors Insider Trading Policies and Procedures apply to any officers,
directors, or employees of PIMCO. The following Code of Ethics ("Code") is
adopted by PIMCO Funds (the "Trust") pursuant to Rule 17j-1 of the Investment
Company Act of 1940 (the "Act"). This Code is intended to ensure that all acts,
practices and courses of business engaged in by access persons (as defined) of
the Trust reflect high standards and comply with the requirements of Section
17(j) of the Act and Rule 17j-1 thereunder. This Code incorporates the PIMCO
Code of Ethics and PIMCO Advisers Insider Trading Policies and Procedures with
respect to any officer, employee, or director of PIMCO who may be an "access
person" or "advisory person" of the Trust, as defined in the Rule.
I. Definitions
-----------
(A) "Access person" means any director, trustee, officer, general partner,
or advisory person (as defined) of the Trust or PIMCO. However, the term "access
person," as contained herein, shall not include any Trustee or officer of the
Trust or any other access person of the Trust who is subject to the Code of
Ethics adopted by PIMCO. PIMCO has represented to the Trustees of the Trust that
the Code of Ethics adopted by PIMCO covers all of the officers of the Trust and
any other access persons of the Trust, with the exception of the Trustees who
are not "interested persons" of the Trust within the meaning of Section 2(a)(19)
of the Act.
(B) "Advisory person" means (1) any employee of the Trust or PIMCO (or of
any company in a control relationship to the Trust or PIMCO), who, in connection
with his or her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security (as defined in this
Code) by the Trust, or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and (2) any natural
person in a control relationship to the Trust or PIMCO who obtains information
concerning recommendations made to the Trust with regard to the purchase or sale
of a security by the Trust.
(C) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and communicated or,
with respect to the person making the recommendation, when such person seriously
considers making such a recommendation.
(D) A security is "being purchased or sold" by the Trust from the time
when a purchase or sale program has been communicated to the person who places
the buy and sell orders for the Trust until the time when such program has been
fully completed or terminated.
<PAGE>
(E) "Beneficial ownership" shall be interpreted in the same manner as it
would be under Rule 16a-1(a)(2) in determining whether a person is subject to
the provisions of Section 16 of the Securities Exchange Act of 1934 and the
rules and regulations thereunder.
(F) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act. Section 2(a)(9) provides that "control" generally means the
power to exercise a controlling influence over the management or polices of a
company, unless such power is solely the result of an official position with
such company.
(G) A "security held or to be acquired" means: (1) any security which,
within the most recent 15 days: (a) is or has been held by the Trust; or (b) is
being or has been considered by the Trust or PIMCO for purchase by the Trust;
and (2) any option to purchase or sell, and any security convertible into or
exchangeable for, a security described in Section I (K) of this Code.
(H) An "initial public offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934.
(I) "Investment personnel" means: (1) any employee of the Trust or PIMCO
(or of any company in a control relationship to the Trust or PIMCO) who, in
connection with his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of securities by the
Trust; and (2) any natural person who controls the Trust or PIMCO and who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities by the Trust.
(J) A "limited offering" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) or
Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities
Act of 1933.
(K) "Security" shall have the meaning set forth in Section 2(a)(36) of the
Act, except that it shall not include direct obligations of the Government of
the United States, bankers' acceptances, bank certificates of deposit,
commercial paper and high quality short-term debt instruments, including
repurchase agreements, and shares of registered open-end investment companies,
or such other securities as may be excepted under the provisions of Rule 17j-1.
II. Prohibited Purchases and Sales
------------------------------
(A) No access person shall, in connection with the purchase or sale,
directly or indirectly, by such person of a security held or to be acquired by
the Trust:
(1) employ any device, scheme or artifice to defraud the Trust;
-2-
<PAGE>
(2) make to the Trust any untrue statement of a material fact or omit
to state to the Trust a material fact necessary in order to make the statements
made, in light of the circumstances under which they are made, not misleading;
(3) engage in any act, practice or course of business which would
operate as a fraud or deceit upon the Trust;
(4) engage in any manipulative practice with respect to the Trust.
(B) In this connection it shall be impermissible for any access person to
purchase or sell, directly or indirectly, any security (or any option to
purchase or sell such security) in which he has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership and which he
knows at the time of such purchase or sale:
(1) is being considered for purchase or sale by the Trust, or
(2) is being purchased or sold by the Trust.
This prohibition shall apply to a transaction if it occurs within 15 days
prior to or after either:
(1) the purchase or sale of such security by the Trust; or
(2) the consideration of such purchase or sale by the Trust or PIMCO.
(C) No investment personnel may acquire any direct or indirect beneficial
ownership in any securities in an initial public offering or in a limited
offering unless the President of the Trust (or his delegate) or the Chief
Compliance Officer of PIMCO (or his delegate), as appropriate, has authorized
the transaction in advance.
(D) Any access person who questions whether a contemplated transaction is
prohibited by this Code should discuss the transaction with the President of the
Trust (or his delegate), the Chief Compliance Officer of PIMCO (or his
delegate), or both, as appropriate, prior to proceeding with the transaction.
III. Exempted Transactions
---------------------
The prohibitions of Section II of this Code shall not apply to the
following transactions by access persons:
(1) Purchases or sales of securities over which the access person has
no direct or indirect influence or control;
-3-
<PAGE>
(2) Purchases or sales of securities which are not eligible for
purchase or sale by the Trust;
(3) Purchases or sales of securities which are non-volitional on the
part of either the access person or the Trust;
(4) Purchases of securities which are part of an automatic dividend
reinvestment plan;
(5) Purchases of securities effected upon the exercise of rights
issued by an issuer pro rata to all holders of a class of its securities, to the
--- ----
extent such rights were acquired from such issuer;
(6) Transactions which appear to the President of the Trust (or his
delegate) or the Chief Compliance Officer of PIMCO (or his delegate), as
appropriate, to present no reasonable likelihood of harm to the Trust, which are
otherwise in accordance with Rule 17j-1, and which the President of the Trust
(or his delegate) or the Chief Compliance Officer of PIMCO (or his delegate), as
appropriate, has authorized in advance.
IV. Reporting
---------
(A) Every access person shall file with the Trust reports containing the
information described in Sections IV(B), (C) and (D) of this Code with respect
to transactions in any security in which such access person has, or by reason of
such transaction acquires, any direct or indirect beneficial ownership in the
security (regardless of whether such transaction is listed in Section III (1)
through (6)), provided, however, that such access person shall not be required
to make a report with respect to transactions effected for any account over
which such person does not have any direct or indirect influences or control; or
if such person is not an "interested person" of the Trust within the meaning of
Section 2(a)(19) of the Act, and would be required to make such a report solely
by reason of being a Trustee of the Trust, such Trustee is not required to file
a report under this Section IV, except that, where such Trustee knew or, in the
ordinary course of fulfilling his official duties as a Trustee of the Trust,
should have known that during the 15-day period immediately preceding or after
the date of the transaction in a security by the Trustee such security is or was
purchased or sold by the Trust or such purchase or sale by the Trust is or was
considered by the Trust or PIMCO, such Trustee must file a Quarterly Transaction
Report under Section IV(C).
(B) Initial Holding Reports. No later than ten (10) days after a person
-----------------------
becomes an access person, the person shall file a report containing the
following information:
(1) The title, number of shares and principal amount of each security
in which the access person had any direct or indirect beneficial ownership when
the person became an access
-4-
<PAGE>
person;
(2) The name of any broker, dealer or bank with whom the access
person maintained an account in which any securities were held for the direct or
indirect benefit of the access person as of the date the person became an access
person; and
(3) The date that the report is submitted by the access person.
(C) Quarterly Reports. Transaction Report. No later than ten (10) days
-----------------
after the end of the calendar quarter in which the transaction to which the
report relates was effected, every access person shall file a report containing
the following information:
(1) The date of the transaction, the title, the interest rate and
maturity (if applicable), the number of shares, and the principal amount of each
security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
----
type of acquisition or disposition), including information sufficient to
establish any exemption listed in Section III (2) through (6), or exception to
Section II(C) which is relied upon;
(3) The price at which the transaction was effected;
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(5) The date that the report is submitted by the access person.
Account Report. With respect to any account established by an access
person in which any securities were held during the quarter for the direct or
indirect benefit of the access person, the access person shall file a report
containing the following information:
(1) The name of the broker, dealer or bank with whom the access
person established the account;
(2) The date the account was established; and
(3) The date that the report is submitted by the access person.
-5-
<PAGE>
(D) Annual Holdings Reports. Annually, every access person shall file a
-----------------------
report containing the following information (which information must be current
as of a date no more than 30 days before the report is submitted):
(1) The title, number of shares and principal amount of each security
in which the access person had any direct or indirect beneficial ownership;
(2) The name of any broker, dealer or bank with whom the access
person maintains an account in which any securities are held for the direct or
indirect benefit of the access person; and
(3) The date that the report is submitted by the access person.
(E) Any report may contain a statement that the report shall not be
construed as an admission by the person making such report that he has any
direct or indirect beneficial ownership in the security to which the report
relates, and the existence of any report shall not be construed as an admission
that any event reported on constitutes a violation of Section II(A) hereof.
(F) If any access person is required to file reports of all his securities
transactions on a current basis with the President of the Trust (or his
delegate), and such reports contain the information required by Section IV (C),
such reports shall be deemed to be sufficient for purposes of Section IV(C) of
this Code and no separate report shall be required.
V. Review, Enforcement and Compliance
----------------------------------
(A) Review
------
(1) The President of the Trust (or his delegate) shall from time to
time review the reported personal securities transactions of access persons to
determine whether any transaction ("Reviewable Transactions") listed in Section
II may have occurred.
(2) If the President of the Trust (or his delegate) determines that a
Reviewable Transaction may have occurred, he shall then determine whether a
violation of this Code may have occurred, taking into account all the exemptions
provided under Section III. Before making any determination that a violation has
been committed by an individual, the President of the Trust (or his delegate)
shall give such person an opportunity to supply additional information regarding
the transaction in question.
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<PAGE>
(B) Enforcement
-----------
(1) If the President of the Trust (or his delegate) determines that a
violation of this Code may have occurred, he shall promptly report the possible
violation to the Trustees of the Trust. The Trustees, with the exception of any
person whose transaction is under consideration, shall take such actions as they
consider appropriate, including imposition of any sanctions that they consider
appropriate.
(2) No person shall participate in a determination of whether he has
committed a violation of this Code or in the imposition of any sanction against
himself. If, for example, a securities transaction of the President of the Trust
is under consideration, a Trustee of the Trust designated for the purpose by the
Trustees of the Trust shall act in all respects in the manner prescribed herein
for the President.
(C) Compliance
----------
(1) The President of the Trust (or his delegate) shall identify all
access persons required to make reports under this Code and inform them of their
reporting obligation.
(2) Each access person shall be required to acknowledge receipt of a
copy of this Code. A form for this purpose is attached to this Code as
Appendix I.
(3) Each access person shall be required to certify upon commencement
of the effective date of this Code, and annually thereafter, that such person
has read and understood this Code and recognizes that such person is subject to
this Code. Each annual certificate will also state that such person has complied
with the requirements of this Code during the prior year, and that such person
has disclosed, reported, or caused to be reported all transactions during the
prior year in securities of which such person had or acquired beneficial
ownership. A form for this purpose is attached to this Code as Appendix II.
(4) No less frequently than annually, the Trust shall furnish to the
Trust's Board of Trustees, and the Board must consider, a written report that:
(i) Describes any issues arising under the Code or procedures
since the last report to the Board of Trustees, including, but not limited to,
information about material violations of the Code or procedures and sanctions
imposed in response to the material violations; and
(ii) Certifies that the Trust has adopted procedures reasonably
necessary to prevent access person from violating the Code.
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<PAGE>
VI. Records
-------
The Trust shall maintain records in the manner and to the extent set forth
below, under the conditions described in Rule 31a-2(f)(1) under the Act and
shall be available for appropriate examination by representatives of the
Securities and Exchange Commission.
(1) A copy of this Code and any other Code of Ethics which is, or at
any time within the past five years has been in effect shall be preserved in an
easily accessible place;
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily accessible place for
a period of not less than five years following the end of the fiscal year in
which the violation occurs;
(3) A copy of each report made pursuant to this Code by an access
person, including any information provided under Section IV(F) in lieu of the
reports under Section IV(C), shall be preserved by the Trust for a period of not
less than five years from the end of the fiscal year in which it is made, the
first two years in an easily accessible place;
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code, or who are or were
responsible for reviewing these reports, shall be maintained in an easily
accessible place.
(5) A copy of each report required by Section V(C)(4) of the Code
shall be preserved by the Trust for at least five years after the end of the
fiscal year in which it is made, the first two years in an easily accessible
place.
(6) The Trust shall preserve a record of any decision, and the
reasons supporting the decision, to approve the acquisition by investment
personnel of securities under Section II(C) of this Code, for at least five
years after the end of the fiscal year in which the approval is granted.
VII. Confidentiality
---------------
All reports of securities transactions and any other information filed
with the Trust pursuant to this Code shall be treated as confidential, except as
regards appropriate examinations by representatives of the Securities and
Exchange Commission.
VIII. Amendment: Interpretation of Provisions
---------------------------------------
The Trustees may from time to time amend this Code or adopt such
interpretations of this Code as they deem appropriate.
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<PAGE>
Appendix I
ACKNOWLEDGMENT CERTIFICATION
PIMCO FUNDS
I hereby certify that I have read and understand the attached Code of
Ethics. Pursuant to such Code, I have recognized that I must disclose or report
all personal securities transactions required to be disclosed or reported
thereunder and comply in all other respects with the requirements of such Code.
I also agree to cooperate fully with any investigation or inquiry as to whether
a possible violation of the foregoing Code has occurred.
Date: _______________________ _____________________________________
Signature
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<PAGE>
Appendix II
ANNUAL CERTIFICATION OF COMPLIANCE
PIMCO FUNDS
I hereby certify that I have complied with the requirements of the Code of
Ethics for the year ended December 31, ____. Pursuant to such Code, I have
disclosed or reported all personal securities transactions required to be
disclosed or reported thereunder and complied in all other respects with the
requirements of such Code. I also agree to cooperate fully with any
investigation or inquiry as to whether a possible violation of the foregoing
Code has occurred.
Date: _______________________ _____________________________________
Signature
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<PAGE>
Appendix III
ANNUAL CERTIFICATION OF
PIMCO FUNDS
I, the undersigned hereby certify on behalf of PIMCO Funds (the "Trust"),
to the Board of Trustees pursuant to Rule 17j-1(c)(2)(B) under the Investment
Company Act of 1940, and pursuant to Section V(C)(4)(ii) of the Trust's Code of
Ethics ("Code"), that the Trust has adopted procedures that are reasonably
necessary to prevent access persons from violating the Code.
Date: _______________________ _____________________________________
President
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<PAGE>
EXHIBIT 99(P)(2)
FORM OF
PIMCO CODE OF ETHICS
--------------------
Effective as of March 31, 2000
INTRODUCTION
General Principles
This Code of Ethics is based on the principle that you, as a director,
officer or other Advisory Employee of Pacific Investment Management Company
("PIMCO"), owe a fiduciary duty to, among others, the shareholders of the Funds
and other clients (together with the Funds, the "Advisory Clients") for which
PIMCO serves as an advisor or subadvisor. Accordingly, you must avoid
activities, interests and relationships that might interfere or appear to
interfere with making decisions in the best interests of our Advisory Clients.
At all times, you must observe the following general rules:
1. You must place the interests of our Advisory Clients first. In other
words, as a fiduciary you must scrupulously avoid serving your own
personal interests ahead of the interests of our Advisory Clients. You
must adhere to this general fiduciary principle as well as comply with
the Code's specific provisions. Technical compliance with the Code's
procedures will not automatically insulate from scrutiny any trades
that indicate an abuse of your fiduciary duties or that create an
appearance of such abuse.
Your fiduciary obligation applies not only to your personal trading
activities but also to actions taken on behalf of Advisory Clients. In
particular, you may not cause an Advisory Client to take action, or not
to take action, for your personal benefit rather than the benefit of
the Advisory Client. For example, you would violate this Code if you
caused an Advisory Client to purchase a Security or Futures Contract
you owned for the purpose of increasing the value of that Security or
Futures Contract. If you are a portfolio manager or an employee who
provides information or advice to a portfolio manager or helps execute
a portfolio manager's decisions, you would also violate this Code if
you made a personal investment in a Security or Futures Contract that
might be an appropriate investment for an Advisory Client without first
considering the Security or Futures Contract as an investment for the
Advisory Client.
2. You must conduct all of your personal Investment Transactions in full
compliance with this Code, the PIMCO Advisors L.P. Insider Trading
Policy and Procedures (the "Insider Trading Policy"), and the PIMCO
Advisors L.P. Policy Regarding Special Trading Procedures for
Securities of PIMCO
1
<PAGE>
Advisors L.P. (the "Special Trading Procedures")/1/ and in such a
manner as to avoid any actual or potential conflict of interest or any
abuse of your position of trust and responsibility. PIMCO encourages
you and your family to develop personal investment programs. However,
those investment programs must remain within boundaries reasonably
necessary to ensure that appropriate safeguards exist to protect the
interests of our Advisory Clients and to avoid even the appearance of
unfairness or impropriety. Accordingly, you must comply with the
policies and procedures set forth in this Code under the heading
PERSONAL INVESTMENT TRANSACTIONS. In addition, you must comply with the
--------------------------------
policies and procedures set forth in the Insider Trading Policy and
Special Trading Procedures, which are attached to this Code as Appendix
II and III, respectively. Doubtful situations should be resolved in
favor of our Advisory Clients and against your personal trading.
3. You must not take inappropriate advantage of your position. The receipt
of investment opportunities, perquisites, gifts or gratuities from
persons seeking business with PIMCO directly or on behalf of an
Advisory Client could call into question the independence of your
business judgment. Accordingly, you must comply with the policies and
procedures set forth in this Code under the heading GIFTS AND SERVICE
-----------------
AS A DIRECTOR. Doubtful situations should be resolved against your
-------------
personal interest.
The General Scope Of The Code's
Applications To Personal Investment Activities
The Code reflects the fact that PIMCO specializes in the management of
fixed income portfolios. The vast majority of assets PIMCO purchases and sells
on behalf of its Advisory Clients consist of corporate debt Securities, U.S. and
foreign government obligations, asset-backed Securities, money market
instruments, foreign currencies, and futures contracts and options with respect
to those instruments. For its StocksPLUS Funds, PIMCO also purchases futures
and options on the S & P 500 index and, on rare occasions, may purchase or sell
baskets of the stocks represented in the S & P 500. For its Convertible Bond
Fund and other Advisory Clients, PIMCO purchases convertible securities that may
be converted or exchanged into underlying shares of common stock. Other PIMCO
Funds may also invest in convertible securities. The Convertible Bond Fund and
other Advisory Clients may also invest a portion of their assets in common
stocks.
Rule 17j-1 under the Investment Company Act of 1940 requires reporting of
all personal transactions in Securities (other than certain Exempt Securities)
by certain persons, whether or not they are Securities that might be purchased
or sold by PIMCO on behalf of its Advisory Clients. The Code implements that
reporting requirement.
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/1/ PIMCO expects Allianz of America ("AZOA") to acquire a majority interest in
PIMCO Advisors L.P. ("PALP") in the second quarter of 2000. When that
acquisition is consummated, the Special Trading Procedures for PALP
securities will no longer apply since PALP securities will not be publicly
owned or traded.
2
<PAGE>
However, since the purpose of the Code is to avoid conflicts of interest
arising from personal trading activities in Securities and other instruments
that are held or might be acquired on behalf of our Advisory Clients, this Code
only places restrictions on personal trading activities in such investments. As
a result, this Code does not place restrictions (beyond reporting) on personal
trading in most individual equity Securities. Except for the small number of
Portfolio Employees who are responsible for PIMCO's Municipal Bond Fund, this
Code also does not place restrictions (beyond reporting) on personal trading in
Tax-Exempt Municipal Bonds. Although equities and Tax-Exempt Municipal Bonds
are Securities, they are not purchased or sold by PIMCO on behalf of the vast
majority of PIMCO's Advisory Clients and PIMCO has established special
procedures to avoid conflicts of interest that might otherwise arise from
personal trading in those Securities. On the other hand, this Code does require
reporting and restrict trading in certain Futures Contracts which, although they
are not Securities, are instruments in which PIMCO frequently trades for many of
its Advisory Clients.
This Code applies to PIMCO's officers and directors as well as to all of
its Advisory Employees. The Code recognizes that portfolio managers and the
investment personnel who provide them with advice and who execute their
decisions occupy more sensitive positions than other Advisory Employees and that
it is appropriate to subject their personal investment activities to greater
restrictions.
The Organization Of The Code
The remainder of this Code is divided into three sections. The first
section concerns Personal Investment Transactions. The second section describes
the restrictions on Gifts And Service As A Director. The third section
summarizes the methods for ensuring Compliance under the Code. In addition, the
following Appendices are also a part of this Code:
I. Definitions of Capitalized Terms.
II. The PIMCO Advisors L.P. Insider Trading Policy and Procedures.
III. The PIMCO Advisors L.P. Policy Regarding Special Trading Procedures for
Securities of PIMCO Advisors L.P.
IV. Form for Acknowledgment of Receipt of this Code.
V. Form for Annual Certification of Compliance with this Code.
VI. Form for Initial Report of Accounts.
VII. Form for Quarterly Report of Investment Transactions.
VIII. Form for Annual Holdings Report.
IX. Preclearance Request Form
X. List of PIMCO Compliance Officers.
Questions
Questions regarding this Code should be addressed to a Compliance Officer
listed on Appendix X. Those Compliance Officers compose the PIMCO Compliance
Committee.
3
<PAGE>
PERSONAL INVESTMENT TRANSACTIONS
In General
Subject to the limited exceptions described below, you are required to
report all Investment Transactions in Securities and Futures Contracts made by
you, a member of your Immediate Family or a trust in which you have an interest,
or on behalf of any account in which you have an interest or which you direct.
In addition, you must preclear certain Investment Transactions in Securities and
Futures Contracts that PIMCO holds or may acquire on behalf of an Advisory
Client, including certain Investment Transactions in Related Securities.
The details of these reporting and preclearance requirements are described
below. This Code uses a number of capitalized terms, e.g. Advisory Employee,
Beneficial Ownership, Designated Equity Security, Exempt Security, Fixed Income
Security, Fund, Futures Contract, Immediate Family, Initial Public Offering,
Investment Transaction, Personal Account, Portfolio Employee, Private Placement,
Qualified Foreign Government, Related Account, Related Security, and Security.
The definitions of these capitalized terms are set forth in Appendix I. To
understand your responsibilities under the Code, it is important that you review
and understand the definitions in Appendix I.
Reporting Obligations
Notification Of Reporting Obligations
As an Advisory Employee, you are required to report accounts and Investment
Transactions in accordance with the requirements of this Code.
Use Of Broker-Dealers And Futures Commission Merchants
Unless you are an independent director, you must use a registered broker-
dealer or registered futures commission merchant to engage in any purchase or
sale of a publicly-traded Security or Publicly-Traded Futures Contract. This
requirement also applies to any purchase or sale of a publicly-traded Security
or of a Publicly-Traded Futures Contract in which you have, or by reason of the
Investment Transaction will acquire, a Beneficial Ownership interest. Thus, as
a general matter, any Investment Transaction in publicly-traded Securities or
Publicly-Traded Futures Contracts by members of your Immediate Family will need
to be made through a registered broker-dealer or futures commission merchant.
Initial Report
Within 10 days after commencing employment or within 10 days of any event
that causes you to become subject to this Code (e.g. promotion to a position
that makes you an Advisory Employee), you shall supply to a Compliance Officer
copies of the most recent statements for each and every Personal Account and
Related Account that holds or is likely to hold a Security or a Futures Contract
in which you have a Beneficial Ownership interest, as well as copies of
confirmations for any and all Investment Transactions subsequent to the
effective date of those
4
<PAGE>
statements. These documents shall be supplied to the Compliance Officer by
attaching them to the form appended hereto as Appendix VI.
On that same form you shall supply the name of any broker, dealer, bank or
futures commission merchant and the number for any Personal Account and Related
Account that holds or is likely to hold a Security or a Futures Contract in
which you have a Beneficial Ownership interest for which you cannot supply the
most recent account statement. You shall also certify, where indicated on the
form, that the contents of the form and the documents attached thereto disclose
all such Personal Accounts and Related Accounts.
In addition, you shall also supply, where indicated on the form, the
following information for each Security or Futures Contract in which you have a
Beneficial Ownership interest, to the extent that this information is not
available from the statements attached to the form:
1. A description of the Security or Futures Contract, including its name
or title;
2. The quantity (e.g. in terms of numbers of shares, units or contracts)
and principal amount (in dollars) of the Security or Futures Contract;
and
3. The name of any broker, dealer, bank or futures commission merchant
with which you maintained an account in which the Security or Futures
Contract was held.
New Accounts
Immediately upon the opening of a new Personal Account or a Related Account
that holds or is likely to hold a Security or a Futures Contract, you shall
supply a Compliance Officer with the name of the broker, dealer, bank or futures
commission merchant for that account, the identifying number for that Personal
Account or Related Account, and the date the account was established.
Timely Reporting Of Investment Transactions
You must cause each broker, dealer, bank or futures commission merchant
that maintains a Personal Account or a Related Account that holds a Security or
a Futures Contract in which you have a Beneficial Ownership interest to provide
to a Compliance Officer, on a timely basis, duplicate copies of trade
confirmations of all Investment Transactions in that account and of periodic
statements for that account ("duplicate broker reports").
In addition, you must report to a Compliance Officer, on a timely basis,
any Investment Transaction in a Security or a Futures Contract in which you have
or acquired a Beneficial Ownership interest that was established without the use
of a broker, dealer, bank or futures commission merchant.
Quarterly Certifications And Reporting
At the end of the first, second and third calendar quarters, a Compliance
Officer will provide you with a list of all accounts that you have previously
identified to PIMCO as a Personal Account or a Related Account that holds or is
likely to hold a Security or Futures
5
<PAGE>
Contract. Within 10 days after the end of that calendar quarter, you shall make
any necessary additions, corrections or deletions to that list and return it to
a Compliance Officer with a certification that: (a) the list, as modified (if
necessary), represents a complete list of the Personal Accounts and Related
Accounts that hold Securities or Futures Contracts in which you have or had a
Beneficial Ownership interest and for which PIMCO should have received or will
receive timely duplicate broker reports for the calendar quarter just ended, and
(b) the broker, dealer, bank or futures commission merchant for each account on
the list has been instructed to send a Compliance Officer timely duplicate
broker reports for that account.
You shall provide, on a copy of the form attached hereto as Appendix VII,
the following information for each Investment Transaction during the calendar
quarter just ended, to the extent that the duplicate broker reports for that
calendar quarter did not supply this information to PIMCO:
1. The date of the Investment Transaction, the title, the interest rate
and maturity date (if applicable), the number of shares or contracts,
and the principal amount of each Security or Futures Contract involved;
2. The nature of the Investment Transaction (i.e. purchase, sale or any
other type of acquisition or disposition);
3. The price of the Security or Futures Contract at which the transaction
was effected; and
4. The name of the broker, dealer, bank, or futures commission merchant
with or through which the transaction was effected.
You shall provide similar information for the fourth calendar quarter on a copy
of the form attached hereto as Appendix VIII, which form shall also be used for
the Annual Holdings Report described below.
Annual Holdings Reports
Beginning with calendar year 2000, a Compliance Officer will provide to
you, promptly after the end of the calendar year, a list of all accounts that
you have previously identified to PIMCO as a Personal Account or a Related
Account that held or was likely to hold a Security or Futures Contract during
that calendar year. Within 10 days after the end of that calendar year, you
shall make any necessary additions, corrections or deletions to that list and
return it to a Compliance Officer with a certification that: (a) the list, as
modified (if necessary), represents a complete list of the Personal Accounts and
Related Accounts that held Securities or Futures Contracts in which you had a
Beneficial Ownership interest as of the end of that calendar year and for which
PIMCO should have received or will receive an account statement of holdings as
of the end of that calendar year, and (b) the broker, dealer, bank or futures
commission merchant for each account on the list has been instructed to send a
Compliance Officer such an account statement.
You shall provide, on a copy of the form attached hereto as Appendix VIII,
the following information for each Security or Futures Contract in which you had
a Beneficial Ownership
6
<PAGE>
interest, as of the end of the previous calendar year, to the extent that the
previously referenced account statements have not supplied or will not supply
this information to PIMCO:
1. The title, quantity (e.g. in terms of numbers of shares, units or
contracts) and principal amount of each Security or Futures Contract
in which you had any Beneficial Ownership interest; and
2. The name of any broker, dealer, bank or futures commission merchant
with which you maintain an account in which any such Securities or
Futures Contracts have been held or are held for your benefit.
In addition, you shall also provide, on that same form, Investment Transaction
information for the fourth quarter of the calendar year just ended. This
information shall be of the type and in the form required for the quarterly
reports described above.
Related Accounts
The reporting and certification obligations described above also apply to
any Related Account (as defined in Appendix I) and to any Investment Transaction
in a Related Account.
It is important for you to recognize that the definitions of "Related
Account" and "Beneficial Ownership" in Appendix I may require you to provide, or
to arrange for the broker, dealer, bank or futures commission merchant to
furnish, copies of reports for any account used by or for a member of your
Immediate Family or a trust in which you or a member of your Immediate Family
has any vested interest, as well as for any other accounts in which you may have
the opportunity, directly or indirectly, to profit or share in the profit
derived from any Investment Transaction in that account.
Exemptions From Reporting
You need not report Investment Transactions in any account over which
neither you nor an Immediate Family Member has or had any direct or indirect
influence or control.
You also need not report Investment Transactions in Exempt Securities (as
defined in Appendix I) nor need you furnish, or require a broker, dealer, bank
or futures commission merchant to furnish, copies of confirmations or periodic
statements for accounts that hold only Exempt Securities. This includes
accounts that only hold U.S. Government Securities, money market interests, or
shares in open-end mutual funds. This exemption from reporting shall end
immediately, however, at such time as there is an Investment Transaction in that
account in a Futures Contract or in a Security that is not an Exempt Security.
7
<PAGE>
Prohibited Investment Transactions
Initial Public Offerings of Equity Securities
If you are a Portfolio Employee (as defined in Appendix I), you may not
acquire Beneficial Ownership of any equity Security in an Initial Public
Offering.
Private Placements and Initial Public Offering of Debt Securities
If you are a Portfolio Employee, you may not acquire a Beneficial Ownership
interest in any Security through a Private Placement (or subsequently sell it),
or acquire a Beneficial Ownership interest in any debt Security in an Initial
Public Offering unless you have received the prior written approval of the Chief
Executive Officer of PIMCO or of a Compliance Officer listed on Appendix X.
Approval will not be given unless a determination is made that the investment
opportunity should not be reserved for one or more Advisory Clients, and that
the opportunity to invest has not been offered to you by virtue of your position
with PIMCO.
If, after receiving the necessary approval, you have acquired a Beneficial
Ownership interest in Securities through a Private Placement, you must disclose
that investment when you play a part in any consideration of any investment by
an Advisory Client in the issuer of the Securities, and any decision to make
such an investment must be independently reviewed by a portfolio manager who
does not have a Beneficial Ownership interest in any Securities of the issuer.
PIMCO Advisors L.P.
You may not engage in any Investment Transaction in interests in PIMCO
Advisors L.P. ("PALP"), except in compliance with the Special Trading Procedures
applicable to such transactions./2/
Preclearance
All Investment Transactions in Securities and Futures Contracts in a
Personal Account or Related Account, or in which you otherwise have or will
acquire a Beneficial Ownership interest, must be precleared by a Compliance
Officer unless an Investment Transaction, Security or Futures Contract falls
into one of the following categories that are identified as "exempt from
preclearance."
Preclearance Procedure
Preclearance shall be requested by completing and submitting a copy of the
preclearance request form attached hereto as Appendix IX to a Compliance
Officer. No Investment Transaction subject to preclearance may be effected
prior to receipt of written authorization of the transaction by a Compliance
Officer. The authorization and the date of authorization will be
- ---------------------
/2/ As indicated in note 1, above, those procedures will expire and no longer
be effective after AZOA completes its acquisition of a majority interest in
PALP.
8
<PAGE>
reflected on the preclearance request form. Unless otherwise specified, that
authorization shall be effective, unless revoked, until the earlier of: (a) the
close of business on the day the authorization is given, or (b) until you
discover that the information on the preclearance request form is no longer
accurate.
The Compliance Officer from whom authorization is sought may undertake such
investigation as he or she considers necessary to determine that the Investment
Transaction for which preclearance has been sought complies with the terms of
this Code and is consistent with the general principles described at the
beginning of the Code.
Before deciding whether to authorize an Investment Transaction in a
particular Security or Futures Contract, the Compliance Officer shall determine
and consider, based upon the information reported or known to that Compliance
Officer, whether within the most recent 15 days: (a) the Security, the Futures
Contract or any Related Security is or has been held by an Advisory Client, or
(b) is being or has been considered for purchase by an Advisory Client. The
Compliance Officer shall also determine whether there is a pending buy or sell
order in the same Security or Futures Contract, or in a Related Security, on
behalf of an Advisory Client. If such an order exists, authorization of the
personal Investment Transaction shall not be given until the Advisory Client's
order is executed or withdrawn. This prohibition may be waived by a Compliance
Officer if he or she is convinced that: (a) your personal Investment Transaction
is necessary, (b) your personal Investment Transaction will not adversely affect
the pending order of the Advisory Client, and (c) provision can be made for the
Advisory Client trade to take precedence (in terms of price) over your personal
Investment Transaction.
Exemptions From Preclearance
Preclearance shall not be required for the following Investment
Transactions, Securities and Futures Contracts. They are exempt only from the
Code's preclearance requirement, and, unless otherwise indicated, remain subject
to the Code's other requirements, including its reporting requirements.
Investment Transactions Exempt From Preclearance
------------------------------------------------
Preclearance shall not be required for any of the following Investment
Transactions:
1. Any transaction in a Security or Futures Contract in an account that is
managed or held by a broker, dealer, bank, futures commission merchant,
investment adviser, commodity trading advisor or trustee and over which
you do not exercise investment discretion, have notice of transactions
prior to execution, or otherwise have any direct or indirect influence
or control. There is a presumption that you can influence or control
accounts held by members of your Immediate Family sharing the same
household. This presumption may be rebutted only by convincing
evidence.
2. Purchases of Securities under dividend reinvestment plans.
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3. Purchases of Securities by exercise of rights issued to the holders of
a class of Securities pro rata, to the extent they are issued with
respect to Securities in which you have a Beneficial Ownership
interest.
4. Acquisitions or dispositions of Securities as the result of a stock
dividend, stock split, reverse stock split, merger, consolidation,
spin-off or other similar corporate distribution or reorganization
applicable to all holders of a class of Securities in which you have a
Beneficial Ownership interest.
Securities Exempt From Preclearance
Regardless Of Transaction Size
------------------------------
Preclearance shall not be required for an Investment Transaction in the
following Securities or Related Securities, regardless of the size of that
transaction:
1. All "Exempt Securities" defined in Appendix I, i.e. U.S. Government
Securities, shares in open-end mutual funds, and high quality short-
term debt instruments.
2. All closed-end mutual funds (other than PIMCO Commercial Mortgage
Securities Trust, Inc.), and rights distributed to shareholders in
closed-end mutual funds.
3. All options on any index of equity Securities.
4. All Fixed Income Securities issued by agencies or instrumentalities of,
or unconditionally guaranteed by, the Government of the United States.
5. All options on foreign currencies or baskets of foreign currencies
(whether or not traded on an exchange or board of trade).
6. Except for Designated Equity Securities (as defined in Appendix I and
discussed below), all equity Securities or options, warrants or other
rights to equity Securities.
Securities Exempt from Preclearance
Depending On Transaction Size
-----------------------------
Preclearance shall not be required for an Investment Transaction in the
following Securities or Related Securities if they do not exceed the specified
transaction size thresholds (which thresholds may be increased or decreased by
PIMCO upon written notification to employees in the future depending on the
depth and liquidity of Fixed Income Securities or Tax-Exempt Municipal Bonds
market):
1. Purchases or sales of up to $1,000,000 (in market value or face amount
whichever is greater) per calendar month per issuer of Fixed Income
Securities issued by a Qualified Foreign Government.
2. Purchases or sales of the following dollar values (measured in market
value or face amount, whichever is greater) of corporate debt
Securities, mortgage-backed
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and other asset-backed Securities, Tax-Exempt Municipal Bonds, taxable
state, local and municipal Fixed Income Securities, structured notes
and loan participations, and foreign government debt Securities issued
by non-qualified foreign governments (hereinafter collectively referred
to as "Relevant Debt Securities"):
a. Purchases or sales of up to $100,000 per calendar month per
issuer if the original issue size of any Relevant Debt Security
being purchased or sold was less than $50 million;
b. Purchases or sales of up to $500,000 per calendar month per
issuer if the original issue size of any Relevant Debt Security
being purchased or sold was at least $50 million but less than
$100 million; or
c. Purchases or sales of up to $1,000,000 per calendar month per
issuer if the original issue size of any Relevant Debt Security
being purchased or sold was at least $100 million.
Preclearance of Designated Equity Securities
--------------------------------------------
If a Compliance Officer receives notification from a Portfolio Employee
that an equity Security or an option, warrant or other right to an equity
Security is being considered for purchase or sale by PIMCO on behalf of one of
its Advisory Clients, the Compliance Officer will send you an e-mail message or
similar transmission notifying you that this equity Security or option, warrant
or other right to an equity Security is now a "Designated Equity Security." A
current list of Designated Equity Securities (if any) will also be available on
the PIMCO intranet site. You must preclear any Investment Transaction in a
Designated Equity Security or a Related Security during the period when that
designation is in effect.
Futures Contracts Exempt From Preclearance
Regardless Of Transaction Size
------------------------------
Preclearance shall not be required for an Investment Transaction in the
following Futures Contracts, regardless of the size of that transaction (as
indicated in Appendix I, for these purposes a "Futures Contract" includes a
futures option):
1. Currency Futures Contracts.
2. U.S. Treasury Futures Contracts.
3. Eurodollar Futures Contracts.
4. Futures Contracts an any index of equity Securities.
5. Futures Contracts on physical commodities or indices thereof (e.g.
contracts for future delivery of grain, livestock, fiber or metals
whether for physical delivery or cash).
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6. Privately-Traded Contracts.
Futures Contracts Exempt From Preclearance
Depending On Transaction Size
-----------------------------
Preclearance shall not be required for an Investment Transaction in the
following Futures Contracts if the total number of contracts purchased or sold
during a calendar month does not exceed the specified limitations:
1. Purchases or sales of up to 50 Publicly-Traded Futures Contracts to
acquire Fixed Income Securities issued by a particular Qualified
Foreign Government.
2. Purchases or sales of up to 10 of each other individual Publicly-Traded
Futures Contract if the open market interest for such Futures Contract
as reported in The Wall Street Journal on the date of your Investment
Transaction (for the previous trading day) is at least 1,000 contracts.
Examples of Futures Contracts for which this exemption would be
available include a Futures Contract on a foreign government debt
Security issued by a non-qualified foreign government as well as a 30-
day federal funds Futures Contract.
For purposes of these limitations, a Futures Contract is defined by its
expiration month. For example, you need not obtain preclearance to purchase 50
December Futures Contracts on German Government Bonds and 50 March Futures
Contracts on German Government Bonds. Similarly, you may roll over 10 September
Fed Funds Futures Contracts by selling those 10 contracts and purchasing 10
October Fed Funds Futures Contracts since the contracts being sold and those
being purchased have different expiration months. On the other hand, you could
not purchase 10 January Fed Funds Future Contracts if the open interest for
those contracts was less than 1,000 contracts, even if the total open interest
for all Fed Funds Futures Contracts was greater than 1,000 contracts.
Additional Exemptions From Preclearance
---------------------------------------
The Compliance Committee may exempt other classes of Investment
Transactions, Securities or Futures Contracts from the Code's preclearance
requirement upon a determination that they do not involve a realistic
possibility of violating the general principles described at the beginning of
the Code.
Preclearance Required
---------------------
Given the exemptions described above, preclearance shall be required for
Investment Transactions in:
1. Designated Equity Securities.
2. Relevant Debt Securities (as defined under the section "Securities
Exempt from Preclearance Depending on Transaction Size, paragraph 2")
in excess of the per calendar month per issuer thresholds specified for
purchases or sales of those Securities.
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3. More than $1,000,000 per calendar month in debt Securities of a
Qualified Foreign Government.
4. Related Securities that are exchangeable for or convertible into one of
the Securities requiring preclearance under (1), (2), or (3) above.
5. More than 50 Publicly-Traded Futures Contracts per calendar month to
acquire Fixed Income Securities issued by a particular Qualified
Foreign Government.
6. More than 10 of any other individual Publicly-Traded Futures Contract
or any Publicly-Traded Futures Contract for which the open market
interest as reported in The Wall Street Journal on the date of your
Investment Transaction (for the previous trading day) is less than
1,000 contracts, unless the Futures Contract is exempt from
preclearance regardless of transaction size.
7. Any other Security or Publicly-Traded Futures Contract that is not
within the "exempt" categories listed above.
8. PIMCO Commercial Mortgage Securities Trust, Inc.
Short-Term Trading Profits
You may not profit from the purchase and sale, or the sale and purchase,
within 60 calendar days, of Fixed Income Securities, Tax-Exempt Municipal Bonds
or Related Securities. Portfolio Employees may not profit from the purchase and
sale, or the sale and purchase, within 60 calendar days, of Designated Equity
Securities. Any such short-term trade must be unwound, or if that is not
practical, the profits must be contributed to a charitable organization.
This ban does not apply to Investment Transactions in U.S. Government
Securities, most equity Securities, mutual fund shares, index options or Futures
Contracts. This ban also does not apply to a purchase or sale in connection
with one of the four categories of Investment Transactions Exempt From
Preclearance described on pages 9-10, above.
You are considered to profit from a short-term trade if Securities in which
you have a Beneficial Ownership interest are sold for more than their purchase
price, even though the Securities purchased and the Securities sold are held of
record or beneficially by different persons or entities.
Blackout Periods
You may not purchase or sell a Security, a Related Security or a Futures
Contract at a time when you intend or know of another's intention to purchase or
sell that Security or Futures Contract on behalf of any Advisory Client.
As noted previously in the description of the Preclearance Process, a
Compliance Officer may not preclear an Investment Transaction in a Security or a
Futures Contract at a time when
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there is a pending buy or sell order in the same Security or Futures Contract,
or a Related Security, until that order is executed or withdrawn.
These prohibitions do not apply to Investment Transactions in any Futures
Contracts that are exempt from preclearance regardless of transaction size.
GIFTS AND SERVICE AS A DIRECTOR
Gifts
You may not accept any investment opportunity, gift, gratuity or other
thing of more than nominal value from any person or entity that does business,
or desires to do business, with PIMCO directly or on behalf of an Advisory
Client (a "Giver"). You may, however, accept gifts from a single Giver so long
as their aggregate annual value does not exceed $500, and you may attend
business meals, sporting events and other entertainment events at the expense of
a Giver (without regard to their aggregate annual value), so long as the expense
is reasonable and both you and the Giver are present.
Service As A Director
If you are an Advisory Employee, you may not serve on the board of
directors or other governing board of a publicly traded entity, other than of a
Fund for which PIMCO is an advisor or subadvisor, unless you have received the
prior written approval of the Chief Executive Officer and the Chief Legal
Officer of PIMCO. Approval will not be given unless a determination is made
that your service on the board would be consistent with the interests of our
Advisory Clients. If you are permitted to serve on the board of a publicly
traded entity, you will be isolated from those Advisory Employees who make
investment decisions with respect to the Securities of that entity, through a
"Chinese Wall" or other procedures.
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COMPLIANCE
Certifications
Upon Receipt Of This Code
Upon commencement of your employment or the effective date of this Code,
whichever occurs later, you shall be required to acknowledge receipt of your
copy of this Code by completing and returning a copy of the form attached hereto
as Appendix IV. By that acknowledgment, you will also agree:
1. To read the Code, to make a reasonable effort to understand its
provisions, and to ask questions about those provisions you find
confusing or difficult to understand.
2. To comply with the Code, including its general principles, its
reporting requirements, its preclearance requirements, and its
provisions regarding gifts and service as a director.
3. To advise the members of your Immediate Family about the existence of
the Code, its applicability to their personal trading activity, and
your responsibility to assure that their personal trading activity
complies with the Code.
4. To cooperate fully with any investigation or inquiry by or on behalf of
a Compliance Officer to determine your compliance with the provisions
of the Code.
In addition, your acknowledgment will recognize that any failure to comply with
the Code and to honor the commitments made by your acknowledgment may result in
disciplinary action, including dismissal.
Annual Certificate Of Compliance
You are required to certify on an annual basis, on a copy of the form
attached hereto as Appendix V, that you have complied with each provision of
your initial acknowledgment (see above). In particular, your annual
certification will require that you certify that you have read and that you
understand the Code, that you recognize you are subject to its provisions, that
you complied with the requirements of the Code during the year just ended and
that you have disclosed, reported, or caused to be reported all Investment
Transactions required to be disclosed or reported pursuant to the requirements
of the Code.
Post-Trade Monitoring
The Compliance Officers will review the duplicate broker reports and other
information supplied to them concerning your personal Investment Transactions so
that they can detect and prevent potential violations of the Code. The
Compliance Officers will perform such investigation and make such inquiries as
they consider necessary to perform this function. You agree to cooperate with
any such investigation and to respond to any such inquiry. You should expect
that, as a matter of course, the Compliance Officers will make inquiries
regarding any
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personal Investment Transaction in a Security or Futures Contract
that occurs on the same day as a transaction in the same Security or Futures
Contract on behalf of an Advisory Client.
Remedial Actions
If you violate this Code, you are subject to remedial actions, which may
include, but are not limited to, disgorgement of profits, imposition of a fine,
censure, demotion, suspension or dismissal. As part of any sanction, you may be
required to reverse an Investment Transaction and to forfeit any profit or to
absorb any loss from the transaction.
The Compliance Committee shall have the ultimate authority to determine
whether you have violated the Code and, if so, the remedial actions it considers
appropriate. In making its determination, the Compliance Committee shall
consider, among other factors, the gravity of your violation, the frequency of
your violations, whether any violation caused harm or the potential of harm to
any Advisory Client, your efforts to cooperate with their investigation, and
your efforts to correct any conduct that led to a violation.
Reports To Directors And Trustees
Reports Of Significant Remedial Actions
The General Counsel of PIMCO Advisors L.P. and the directors or trustees of
any affected Fund that is an Advisory Client will be informed on a timely basis
of each significant remedial action taken in response to a violation of this
Code. For this purpose, a significant remedial action will include any action
that has a significant financial effect on the violator.
Reports of Material Changes To The Code
PIMCO will promptly advise the directors or trustees of any Fund that is an
Advisory Client if PIMCO makes any material change to this Code.
Annual Reports
PIMCO's management will furnish a written report annually to the General
Counsel of PIMCO Advisors L.P. and to the directors or trustees of each Fund
that is an Advisory Client. Each report, at a minimum, will:
1. Describe any significant issues arising under the Code, or under
procedures implemented by PIMCO to prevent violations of the Code,
since management's last report, including, but not limited to,
information about material violations of the Code or those procedures
and sanctions imposed in response to material violations; and
2. Certify that PIMCO has adopted procedures reasonably necessary to
prevent Advisory Employees from violating the Code.
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Recordkeeping
Beginning on the effective date of this Code, PIMCO will maintain, at
its principal place of business, the following records, which shall be available
to the Securities and Exchange Commission or any representative of the
Commission at any time and from time to time for reasonable periodic, special or
other examination:
1. PIMCO's Chief Compliance Officer shall maintain, in any easily
accessible place:
(a) a copy of PIMCO's current Code and of each predecessor of that
Code that was in effect at any time within the previous five (5)
years;
(b) a record of any violation of the Code, and of any action taken as
a result of the violation, for at least five (5) years after the
end of the fiscal year in which the violation occurred;
(c) a copy of each report made by an Advisory Employee pursuant to
this Code, including any duplicate broker report submitted on
behalf of that Advisory Employee, for at least two (2) years
after the end of the fiscal year in which that report was made or
that information was provided;
(d) a record of all persons, currently or within the past five (5)
years, who are or were required to make reports pursuant to this
Code or who are or were responsible for reviewing such reports;
and
(e) a copy of each report to the General Counsel of PIMCO Advisors
L.P. or to the directors or trustees of each Fund that is an
Advisory Client for at least two (2) years after the end of the
fiscal year in which that report was made.
2. PIMCO shall also maintain the following additional records:
(a) a copy of each report made by an Advisory Employee pursuant to
this Code, including any duplicate broker report submitted on
behalf of that Advisory Employee, for at least five (5) years
after the end of the fiscal year in which that report was made or
that information was provided;
(b) a copy of each report to the General Counsel of PIMCO Advisors
L.P. or to the directors or trustees of each Fund that is an
Advisory Client for at least five (5) years after the end of the
fiscal year in which that report was made; and
(c) a record of any decision, and the reasons supporting the
decision, to approve the acquisition by a Portfolio Employee of a
Beneficial Ownership interest in any Security in an Initial
Public Offering or in a Private Placement for at least five (5)
years after the end of the fiscal year in which such approval was
granted.
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APPENDIX I
Definitions Of Capitalized Terms
The following definitions apply to the capitalized terms used in the Code:
Advisory Employee
The term "Advisory Employee" means: (1) a director, officer, general
partner or employee of PIMCO who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security or Futures Contract by PIMCO on behalf of an
Advisory Client, or whose functions relate to the making of any recommendations
with respect to such purchases or sales, or (2) or a natural person in a control
relationship to PIMCO, or an employee of any company in a control relationship
to PIMCO, who: (a) makes, participates in, or obtains information regarding the
purchase or sale of a Security by a Fund that is an Advisory Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales, or (b) obtains information concerning recommendations to a
Fund with regard to the purchase or sale of a Security by the Fund.
Beneficial Ownership
As a general matter, you are considered to have a "Beneficial Ownership"
interest in a Security or a Futures Contract if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from an
Investment Transaction in that Security or Futures Contract. You are presumed
to have a Beneficial Ownership interest in any Security or Futures Contract
held, individually or jointly, by you or a member of your Immediate Family (as
defined below). In addition, unless specifically excepted by a Compliance
Officer based on a showing that your interest in a Security or Futures Contract
is sufficiently attenuated to avoid the possibility of conflict, you will be
considered to have a Beneficial Ownership interest in a Security or Futures
Contract held by: (1) a joint account to which you are a party, (2) a
partnership in which you are a general partner, (3) a limited liability company
in which you are a manager-member, or (4) a trust in which you or a member of
your Immediate Family has a vested interest.
As a technical matter, the term "Beneficial Ownership" for purposes of this
Code shall be interpreted in the same manner as it would be under SEC Rule 16a-
1(a)(2) (17 C.F.R. (S)240.16a-1(a)(2)) in determining whether a person has a
beneficial ownership interest in a Security for purposes of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations thereunder.
Designated Equity Security
The term "Designated Equity Security" shall mean any equity Security,
option, warrant or other right to an equity Security designated as such by a
Compliance Officer, after receiving notification from a Portfolio Employee that
said Security is being considered for purchase or sale by PIMCO on behalf of one
of its Advisory Clients.
<PAGE>
Exempt Security
The term "Exempt Security" shall mean any Security not included within the
definition of Covered Security in SEC Rule 17j-l(a)(4) (17 C.F.R. (S) 17j-
1(a)(4)), including:
1. Direct obligations of the Government of the United States;
2. Shares issued by open-end Funds; and
3. Bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements. For these purposes, a "high quality short-term debt
instrument" means any instrument having a maturity at issuance of less
than 366 days and that is rated in one of the two highest rating
categories by a Nationally Recognized Statistical Rating Organization.
Fixed Income Security
For purposes of this Code, the term "Fixed Income Security" shall mean a
fixed income Security issued by an agency or instrumentality of, or
unconditionally guaranteed by, the Government of the United States, a corporate
debt Security, a mortgage-backed or other asset-backed Security, a taxable fixed
income Security issued by a state or local government or a political subdivision
thereof, a structured note or loan participation, a foreign government debt
Security, or a debt Security of an international agency or a supranational
agency. For purposes of this Code, the term "Fixed Income Security" shall not
be interpreted to include a U.S. Government Security or any other Exempt
Security (as defined above) nor shall it be interpreted to include a Tax-Exempt
Municipal Bond (as defined below).
Fund
The term "Fund" means an investment company registered under the Investment
Company Act.
Futures Contract
The term "Futures Contract" includes (a) a futures contract and an option
on a futures contract traded on a United States or foreign board of trade, such
as the Chicago Board of Trade, the Chicago Mercantile Exchange, the London
International Financial Futures Exchange or the New York Mercantile Exchange (a
"Publicly-Traded Futures Contract"), as well as (b) a forward contract, a swap,
a cap, a collar, a floor and an over-the-counter option (other than an option on
a foreign currency, an option on a basket of currencies, an option on a Security
or an option on an index of Securities) (a "Privately-Traded Contract").
Consult with a Compliance Officer prior to entering into a transaction in case
of any doubt. For purposes of this definition, a Publicly-Traded Futures
Contract is defined by its expiration month, i.e. a Publicly-Traded Futures
Contract on a U.S. Treasury Bond that expires in June is treated as a separate
Publicly-Traded Futures Contract, when compared to a Publicly-Traded Futures
Contract on a U.S. Treasury Bond that expires in July.
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Immediate Family
The term "Immediate Family" means any of the following persons who reside
in your household or depend on you for basic living support: your spouse, any
child, stepchild, grandchild, parent, stepparent, grandparent, sibling, mother-
in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-
in-law, including any adoptive relationships.
Initial Public Offering
The term "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 (15 U.S.C. (S) 77a), the issuer of
which, immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. (S) 78m or (S) 78o(d)).
Investment Transaction
For purposes of this Code, the term "Investment Transaction" means any
transaction in a Security or Futures Contract in which you have, or by reason of
the transaction will acquire, a Beneficial Ownership interest, and includes,
among other things, the writing of an option to purchase or sell a Security.
Personal Account
The term "Personal Account" means the following accounts that hold or are
likely to hold a Security (as defined below) or a Futures Contract (as defined
above) in which you have a Beneficial Ownership interest: any account in your
individual name; any joint or tenant-in-common account in which you have an
interest or are a participant; any account for which you act as trustee,
executor, or custodian; any account over which you have investment discretion or
otherwise can exercise control (other than non-related clients' accounts over
which you have investment discretion), including the accounts of entities
controlled directly or indirectly by you; and any other account in which you
have a Beneficial Ownership interest (other than such accounts over which you
have no investment discretion and cannot otherwise exercise control).
Portfolio Employee
The term "Portfolio Employee" means: (1) a portfolio manager or any
employee of PIMCO (or of any company in a control relationship with PIMCO) who,
in connection with his or her regular functions or duties, makes or participates
in making recommendations regarding the purchase or sale of securities by a
Fund, or (2) any natural person who controls PIMCO and who obtains information
concerning recommendations made to a Fund that is an Advisory Client regarding
the purchase or sale of Securities by the Fund. For these purposes, "control"
has the same meaning as in Section 2(a)(9) of the Investment Advisers Act (15
U.S.C. (S) 80a-2(a)(9)).
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Private Placement
The term "Private Placement" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) or
Section 4(6) (15 U.S.C. (S) 77d(2) or (S) 77d(6)) or pursuant to SEC Rules 504,
505 or 506 (17 C.F.R. (S)(S) 230.504, 230.505, or 230.506) under the Securities
Act of 1933.
Qualified Foreign Government
The term "Qualified Foreign Government" means a national government of a
developed foreign country with outstanding Fixed Income Securities in excess of
fifty billion dollars. A list of Qualified Foreign Governments will be prepared
as of the last business day of each calendar quarter, will be available from the
Chief Compliance Officer, and will be effective for the following calendar
quarter.
Related Account
The term "Related Account" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a
Beneficial Ownership interest.
Related Security
The term "Related Security" shall mean any option to purchase or sell, and
any Security convertible into or exchangeable for, a Security that is or has
been held by PIMCO on behalf of one of its Advisory Clients or any Security that
is being or has been considered for purchase by PIMCO on behalf of one of its
Advisory Clients.
Security
As a general matter, the term "Security" shall mean any stock, note, bond,
debenture or other evidence of indebtedness (including any loan participation or
assignment), limited partnership interest or investment contract other than an
Exempt Security (as defined above). The term "Security" includes an option on a
Security, on an index of Securities, on a currency or on a basket of currencies,
including such an option traded on the Chicago Board of Options Exchange or on
the New York, American, Pacific or Philadelphia Stock Exchanges, as well as such
an option traded in the over-the-counter market. The term "Security" shall not
include a Futures Contract or a physical commodity (such as foreign exchange or
a precious metal).
As a technical matter, the term "Security" shall have the meaning set forth
in Section 2(a)(36) of the Investment Company Act of 1940 (15 U.S.C. (S) 80a-
2(a)(36)), which defines a Security to mean:
Any note, stock, treasury stock, bond debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate of subscription,
transferable share, investment contract, voting-trust certificate, certificate
of deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option, or privilege on any security
(including a certificate of deposit) or on any group or index of securities
(including any interest therein or based on the
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value thereof), or any put, call, straddle, option, or privilege entered into on
a national securities exchange relating to foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any certificate of
interest or instrument commonly known as a "security", or any certificate of
interest or participation in, temporary or interim certificate for, receipt for,
guarantee of, warrant or right to subscribe to or purchase, any of the
foregoing, except that the term "Security" shall not include any Security that
is an Exempt Security (as defined above), a Futures Contract or a physical
commodity (such as foreign exchange or precious metal).
Tax-Exempt Municipal Bond
The term "Tax-Exempt Municipal Bond" shall mean any Fixed Income Security
exempt from federal income tax that is issued by a state or local government or
a political subdivision thereof.
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Appendix II
Insider Trading Policy and Procedures
PIMCO Advisors L.P.
Effective as of May 1, 1996
Section I. Policy Statement on Insider Trading.
A. Policy Statement on Insider Trading.
PIMCO Advisors L.P. ("PALP"), its affiliated Subpartnerships, PIMCO
Partners, G.P. ("PIMCO GP") and PIMCO Funds Distributors LLC ("PFD")
(collectively the "Company" or "PIMCO Advisors") forbid any of their officers,
directors or employees from trading, either personally or on behalf of others
(such as, mutual funds and private accounts managed by PALP or its affiliated
Subpartnerships), on the basis of material, non-public information or
communicating material, non-public information to others in violation of the
law. This conduct is frequently referred to as "insider trading."
The term "insider trading" is not defined in the federal securities laws,
but generally is used to refer to the use of material, non-public information to
trade in securities or to communications of material, non-public information to
others in breach of a fiduciary duty.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material, non-public
information; or
(2) trading by a non-insider, while in possession of material, non-public
information, where the information was disclosed to the non-insider in
violation of an insider's duty to keep it confidential; or
(3) communicating material, non-public information to others in breach of
a fiduciary duty.
This communication applies to every such officer, director and employee and
extends to activities within and outside their duties at PIMCO Advisors. Every
officer, director and employee must read and retain this policy statement. Any
questions regarding this policy statement and the related procedures set forth
herein should be referred to a Compliance Officer of PALP or the applicable
subpartnership.
The remainder of this memorandum discusses in detail the elements of
insider trading, the penalties for such unlawful conduct and the procedures
adopted by the Company to implement its policy against insider trading.
1. TO WHOM DOES THIS POLICY APPLY?
-------------------------------
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This Policy applies to all employees, officers and directors (direct or
indirect) of the Company ("Covered Persons"), as well as to any transactions in
any securities participated by family members, trusts or corporations controlled
by such persons. In particular, this Policy applies to securities transactions
by:
. the Covered Person's spouse;
. the Covered Person's minor children;
. any other relative living in the Covered Person's household;
. a trust in which the Covered Person has a beneficial interest, unless
such person has no direct or indirect control over the trust;
. a trust as to which the Covered Person is a trustee;
. a revocable trust as to which the Covered Person is a settlor;
. a corporation of which the Covered Person is an officer, director or 10%
or greater stockholder; or
. a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
2. What is material information?
-----------------------------
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities.
Although there is no precise, generally accepted definition of materiality,
information is likely to be "material" if it relates to significant changes
affecting such matters as:
. dividend or earnings expectations;
. write-downs or write-offs of assets;
. additions to reserves for bad debts or contingent liabilities;
. expansion or curtailment of company or major division operations;
. proposals or agreements involving a joint venture, merger, acquisition,
divestiture, or leveraged buy-out;
. new products or services;
. exploratory, discovery or research developments;
. criminal indictments, civil litigation or government investigations;
. disputes with major suppliers or customers or significant changes in
the relationships with such parties;
. labor disputes including strikes or lockouts;
. substantial changes in accounting methods;
. major litigation developments;
. major personnel changes;
. debt service or liquidity problems;
. bankruptcy or insolvency;
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. extraordinary management developments;
. public offerings or private sales of debt or equity securities;
. calls, redemptions or purchases of a company's own stock;
. issuer tender offers; or
. recapitalizations.
Information provided by a company could be material because of its expected
effect on a particular class of the company's securities, all of the company's
securities, the securities of another company, or the securities of several
companies. Moreover, the resulting prohibition against the misuses of "material"
information reaches all types of securities (whether stock or other equity
interests, corporate debt, government or municipal obligations, or commercial
paper) as well as any option related to that security (such as a put, call or
index security).
Material information does not have to relate to a company's business.
For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court
--------- ----
considered as material certain information about the contents of a forthcoming
newspaper column that was expected to affect the market price of a security. In
that case, a reporter for The Wall Street Journal was found criminally liable
-----------------------
for disclosing to others the dates that reports on various companies would
appear in the Journal and whether those reports would be favorable or not.
-------
3. What is Non-public Information?
-------------------------------
In order for issues concerning insider trading to arise, information must
not only be "material," it must be "non-public." "Non-public" information is
----------
information which has not been made available to investors generally.
Information received in circumstances indicating that it is not yet in general
circulation or where the recipient knows or should know that the information
could only have been provided by an "insider" is also deemed "non-public"
information.
At such time as material, non-public information has been effectively
distributed to the investing public, it is no longer subject to insider trading
restrictions. However, for "non-public" information to become public
information, it must be disseminated through recognized channels of distribution
designed to reach the securities marketplace.
To show that "material" information is public, you should be able to
point to some fact verifying that the information has become generally
available, for example, disclosure in a national business and financial wire
service (Dow Jones or Reuters), a national news service (AP or UPI), a national
newspaper (The Wall Street Journal or The New York Times), or a publicly
----------------------- ------------------
disseminated disclosure document (a proxy statement or prospectus). The
circulation of rumors or "talk on the street," even if accurate, widespread and
reported in the media, does not constitute the requisite public disclosure. The
information must not only be publicly disclosed, there must also be adequate
time for the market as a whole to digest the information. Although timing may
vary depending upon the circumstances, a good rule of thumb is that information
is considered non-public until the third business day after public disclosure.
Material, non-public information is not made public by selective
dissemination. Material information improperly disclosed only to institutional
investors or to a fund analyst or a favored group of analysts retains its
8
<PAGE>
status as "non-public" information which must not be disclosed or otherwise
misused. Similarly, partial disclosure does not constitute public dissemination.
So long as any material component of the "inside" information possessed by the
Company has yet to be publicly disclosed, the information is deemed "non-public"
and may not be misused.
Information Provided in Confidence. Occasionally, one or more directors,
----------------------------------
officers, or employees of companies in PIMCO Advisors may become temporary
"insiders" because of a fiduciary or commercial relationship. For example,
personnel at PALP or a subpartnership may become insiders when an external
source, such as a company whose securities are held by one or more of the
accounts managed by PALP or a subpartnership, entrusts material, non-public
information to the Company portfolio managers or analysts with the expectation
that the information will remain confidential.
As an "insider," the Company has a fiduciary responsibility not to breach
the trust of the party that has communicated the "material, non-public"
information by misusing that information. This fiduciary duty arises because the
Company has entered or has been invited to enter into a commercial relationship
with the client or prospective client and has been given access to confidential
information solely for the corporate purposes of that client or prospective
client. This obligation remains whether or not the Company ultimately
participates in the transaction.
Information Disclosed in Breach of a Duty. Analysts and portfolio managers
-----------------------------------------
at PIMCO Advisors must be especially wary of "material, non-public" information
disclosed in breach of a corporate insider's fiduciary duty. Even where there is
no expectation of confidentiality, a person may become an "insider" upon
receiving material, non-public information in circumstances where a person
knows, or should know, that a corporate insider is disclosing information in
breach of the fiduciary duty he or she owes the corporation and its
shareholders. Whether the disclosure is an improper "tip" that renders the
recipient a "tippee" depends on whether the corporate insider expects to benefit
personally, either directly or indirectly, from the disclosure. In the context
of an improper disclosure by a corporate insider, the requisite "personal
benefit" may not be limited to a present or future monetary gain. Rather, a
prohibited personal benefit could include a reputational benefit, an expectation
of a quid pro quo from the recipient or the recipient's employer by a gift of
---- --- ---
the "inside" information.
A person may, depending on the circumstances, also become an "insider" or
"tippee" when he or she obtains apparently material, non-public information by
happenstance, including information derived from social situations, business
gatherings, overheard conversations, misplaced documents, and "tips" from
insiders or other third parties.
4. Identifying Material Information?
---------------------------------
Before trading for yourself or others, including investment companies or
private accounts managed by PALP or its affiliated Subpartnerships, in the
securities of a company about which you may have potential material, non-public
information, ask yourself the following questions:
i. Is this information that an investor could consider important in making his
or her investment decisions? Is this information that could substantially
affect the market price of the securities if generally disclosed?
9
<PAGE>
ii. To whom has this information been provided? Has the information been
effectively communicated to the marketplace by being published in Reuters,
-------
The Wall Street Journal or other publications of general circulation.
-----------------------
Given the potentially severe regulatory, civil and criminal sanctions to
which you and PIMCO Advisors and its personnel could be subject, any director,
officer and employee uncertain as to whether the information he or she possesses
is "material, non-public" information should immediately take the following
steps:
i. Report the matter immediately to a Compliance Officer or the Chief
Executive Officer of PALP;
ii. Do not purchase or sell the securities on behalf of yourself or others,
including investment companies or private accounts managed by PALP or the
applicable affiliated subpartnership; and
iii. Do not communicate the information inside or outside the Company, other
than to a Compliance Officer or the Chief Executive Officer of PALP.
After a Compliance Officer or the Chief Executive Officer has reviewed the
issue, you will be instructed to continue the prohibitions against trading and
communication or will be allowed to trade and communicate the information.
5. Penalties for Insider Trading.
-----------------------------
Penalties for trading on or communicating material, non-public information
are severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
. civil injunctions
. treble damages
. disgorgement of profits
. jail sentences
. fines for the person who committed the violation of up to three times
the profit gained or loss avoided, whether or not the person actually
benefited, and
. fines for the employer or other controlling person of up to the greater
of $1,000,000 or three times the amount of the profit gained or loss
avoided.
In addition, any violation of this policy statement can be expected to
result in serious sanctions by PIMCO Advisors, including dismissal of the
persons involved.
Section II. Procedures to Implement PIMCO Advisors' Policy.
A. Procedures to Implement the Policy Against Insider Trading.
The following procedures have been established to aid the officers,
directors and employees of PIMCO Advisors in avoiding insider trading, and to
aid the Company in preventing, detecting and imposing sanctions
10
<PAGE>
against insider trading. Every officer, director and employee of PIMCO Advisors
must follow these procedures or risk serious sanctions, including dismissal,
substantial personal liability and criminal penalties.
Trading Restrictions and Reporting Requirements
- -----------------------------------------------
1. No employee, officer or director of the Company who possesses material,
non-public information relating to the Company or any of its affiliates or
subsidiaries, may buy or sell any securities of the Company or engage in
any other action to take advantage of, or pass on to others, such material,
non-public information.
2. No employee, officer or director of the Company who obtains material, non-
public information which relates to any other company or entity in
circumstances in which such person is deemed to be an insider or is
otherwise subject to restrictions under the federal securities laws may buy
or sell securities of that company or otherwise take advantage of, or pass
on to others, such material, non-public information.
3. No employee, officer or director of the Company shall engage in a
securities transaction with respect to the securities of PIMCO Advisors,
except in accordance with the specific procedures published from time to
------
time by the company.
4. Each employee, officer or director of the Company shall submit reports of
every securities transaction involving securities of PIMCO Advisors to a
Compliance Officer in accordance with the terms of the Company's Code of
Ethics as they relate to any other securities transaction.
5. No Employee (as such term is defined in the applicable Code of Ethics)
shall engage in a securities transaction with respect to any securities of
any other company, except in accordance with the specific procedures set
------
forth in the Company's Code of Ethics.
6. Employees shall submit reports concerning each securities transaction in
accordance with the terms of the Code of Ethics and verify their personal
ownership of securities in accordance with the procedures set forth in the
Code of Ethics.
7. Because even inadvertent disclosure of material, non-public information to
others can lead to significant legal difficulties, officers, directors and
employees of the Company should not discuss any potentially material, non-
public information concerning the Company or other companies, including
other officers, employees and directors, except as specifically required in
the performance of their duties.
B. Chinese Wall Procedures.
The Insider Trading and Securities Fraud Enforcement Act requires the
establishment and strict enforcement of procedures reasonably designed to
prevent the misuse of "inside" information./1/ Accordingly, you
- -----------
/1/ The antifraud provisions of United States securities laws reach insider
trading or tipping activity worldwide which defrauds domestic securities
markets. In addition, the Insider Trading and Securities Fraud Enforcement
Act specifically authorizes the SEC to conduct investigations at the
request of foreign governments, without regard to whether the conduct
violates United States law.
11
<PAGE>
should not discuss material, non-public information about the Company or other
companies with anyone, including other employees, except as required in the
performance of your regular duties. In addition, care should be taken so that
such information is secure. For example, files containing material, non-public
information should be sealed; access to computer files containing material, non-
public information should be restricted.
C. Resolving Issues Concerning Insider Trading.
The federal securities laws, including the laws governing insider trading,
are complex. If you have any doubts or questions as to the materiality or non-
public nature of information in your possession or as to any of the
applicability or interpretation of any of the foregoing procedures or as to the
propriety of any action, you should contact a Compliance Officer. Until advised
to the contrary by a Compliance Officer, you should presume that the information
is material and non-public and you should not trade in the securities or
---
disclose this information to anyone.
12
<PAGE>
Appendix III
PIMCO ADVISORS L.P.
POLICY REGARDING SPECIAL TRADING PROCEDURES
FOR SECURITIES OF PIMCO ADVISORS L.P.
Effective as of May 1, 1996
Introduction
- ------------
PIMCO Advisors L.P. (as defined below) has adopted an Insider Trading
Policy and Procedures applicable to all personnel which prohibits insider
trading in any securities, and prohibits all employees from improperly using or
disclosing material, non-public information, a copy of which has been supplied
to you.
For the purposes of this memorandum, the term the "Company" shall include
PIMCO Advisors L.P. ("PALP"), PIMCO Partners, G.P. ("PIMCO GP"), PIMCO Funds
Distributors LLC ("PFD") and any entity in relation to which PALP acts as a
general partner or owns 50% or more of one the issued and outstanding stock.
Persons to Whom this Special Trading Policy Applies
- ---------------------------------------------------
This Policy applies to all employees of the Company and, in the case of
PALP, the inside members of the Operating Board and the Equity Board ("Covered
Persons"), as well as to any transactions in securities participated in by
family members, trusts or corporations controlled by a Covered Person. In
particular, this Policy applies to securities transactions by:
a. the Covered Person's spouse;
b. the Covered Person's minor children;
c. any other relatives living in the Covered Person's household;
d. a trust in which the Covered Person has a beneficial interest, unless such
Covered Person has no direct or indirect control over the trust;
e. a trust as to which the Covered Person is a trustee;
f. a revocable trust as to which the Covered Person is a settlor;
g. a corporation of which the Covered Person is an officer, director or 10% or
greater stockholder; or
h. a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
The family members, trust and corporations listed above are hereinafter
referred to as "Related persons."
Securities to which this special trading policy applies
- -------------------------------------------------------
Unless stated otherwise, the following Special Trading Procedures apply to
all transactions by Covered Persons and their Related Persons involving any
class or series of units of limited partner interest of PALP or other
13
<PAGE>
securities of PALP, including options and other derivative securities (such as a
put, call or index security) in relation to such securities (the "PALP
Securities").
Special trading procedures relating to securities of pimco advisors l.p.
- ------------------------------------------------------------------------
1. Trading Windows
There are times when the Company may be engaged in a material non-public
development or transaction. Even if you are not aware of this development or
transaction, if you trade PALP's Securities before such development or
transaction is disclosed to the public, you might expose yourself and the
Company to a charge of insider trading that could be costly and difficult to
refute. In addition, such a trade by you could result in adverse publicity to
you or the company.
Therefore, the following rule shall apply: each Covered Person and all of
-------------------------------------------------------------------------
such person's Related Persons may only purchase or sell PALP Securities during
- ------------------------------------------------------------------------------
four "trading windows" that occur each year. The four trading windows consist of
- --------------------------------------------------------------------------------
the months of February, May, August and November. TRADING ON THE BASIS OF
- --------------------------------------------------------------------------
MATERIAL NON-PUBLIC INFORMATION OR COMMUNICATING MATERIAL NON-PUBLIC INFORMATION
- --------------------------------------------------------------------------------
TO OTHERS AT ANY TIME, INCLUDING IN A TRADING WINDOW, IS A VIOLATION OF THE LAW
- -------------------------------------------------------------------------------
AND A VIOLATION OF THIS POLICY.
- -------------------------------
In accordance with the procedure for waivers described below, in special
circumstances a waiver may be given to allow a trade to occur outside of a
trading window.
Employees of PALP should be aware that there are potential tax consequences
for such employees resulting from the ownership of PALP Securities. Each such
employee contemplating purchasing PALP Securities should discuss the matter with
such employee's tax advisor.
The exercise of options to purchase PALP Securities for cash are not
Covered to the procedures outlined above, but the securities so acquired may not
be sold except during a trading window and after all other requirements of this
policy have been satisfied.
2. Post-Trade Reporting
All Covered Persons shall submit to a Compliance Officer a report of every
securities transaction in PALP Securities in which they and any of their Related
Persons have participated as soon as practicable following the transaction and
in any event not later than the fifth day after the end of the month in which
the transaction occurred. The report shall include: (1) the date of the
transaction and the title and number of shares or principal amount of each
security involved; (2) the nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition); (3) the price at which the
transaction was effected; and (4) the name of the broker/dealer with or through
whom the transaction was effected. In addition, on an annual basis, each
Covered Person must confirm the amount of PALP Securities which such person and
his her Related Persons beneficially own.
14
<PAGE>
Each Covered Person (and not the Company) is personally responsible for
insuring that his or her transactions comply fully with any and all applicable
securities laws, including, but not limited to, the restrictions imposed under
Section 16(b) of the Securities and Exchange Act of 1934 and Rule 144 under the
Securities Act of 1933.
3. Resolving Issues Concerning Insider Trading
If you have any doubts or questions as to whether information is material
or non-public, or as to the applicability or interpretation of any of the
foregoing procedures, or as to the propriety of any action, you should contact a
Compliance Officer before trading or communicating the information to anyone.
Until these doubts or questions are satisfactorily resolved, you should presume
that the information is material and non-public and you should not trade in the
---
securities or communicate this information to anyone.
4. Modifications and Waivers
The Company reserves the right to amend or modify this policy statement at
any time. Waiver of any provision of this policy statement in a specific
instance may be authorized in writing by a Compliance Officer and either the
Chief Executive Officer of PALP or any member of the Operating Committee of
PALP, and any such waiver shall be reported to the Equity and Operating Boards
of PALP at the next regularly scheduled meeting of each.
15
<PAGE>
Appendix IV
ACKNOWLEDGMENT OF RECEIPT
of the
Code of Ethics
and the
Insider Trading Policy and Procedures of
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have received the attached Code of Ethics and
Insider Trading Policy and Procedures. I hereby agree to read the Code, to make
a reasonable effort to understand its provisions and to ask questions about
those provisions I find confusing or difficult to understand. I also agree to
comply with the Code, including its general principles, its reporting
requirements, its preclearance requirements, and its provisions regarding gifts
and service as a director. I also agree to advise members of my Immediate
Family about the existence of the Code of Ethics, its applicability to their
personal trading activity, and my responsibility to assure that their personal
trading activity complies with the Code of Ethics. Finally, I agree to
cooperate fully with any investigation or inquiry by or on behalf of a
Compliance Officer to determine my compliance with the provisions of the Code.
I recognize that any failure to comply in all aspects with the Code and to honor
the commitments made by this acknowledgment may result in disciplinary action,
including dismissal.
Date: _____________________________ _______________________________________
Signature
_______________________________________
Print Name
16
<PAGE>
Appendix V
ANNUAL CERTIFICATION OF COMPLIANCE
with the
Code of Ethics of
PACIFIC INVESTMENT MANAGEMENT COMPANY
I hereby certify that I have complied with the requirements of the Code of
Ethics and Insider Trading Policy and Procedures that have applied to me during
the year ended December 31, 200_. In addition, I hereby certify that I have read
the Code and understand its provisions. I also certify that I recognize that I
am subject to the provisions of the Code and that I have disclosed, reported, or
caused to be reported all transactions required to be disclosed or reported
pursuant to the requirements of the Code. I recognize that any failure to comply
in all aspects with the Code and that any false statement in this certification
may result in disciplinary action, including dismissal.
Date: _____________________________ _______________________________________
Signature
_______________________________________
Print Name
17
<PAGE>
Appendix VI
INITIAL REPORT OF ACCOUNTS
Pursuant to the
Code of Ethics of
PACIFIC INVESTMENT MANAGEMENT COMPANY
In accordance with the Code of Ethics, I have attached to this form copies
of the most recent statements for each and every Personal Account and Related
Account that holds or is likely to hold a Security or Futures Contract in which
I have a Beneficial Ownership interest, as well as copies of confirmations for
any and all Investment Transactions subsequent to the effective dates of those
statements./3/
In addition, I hereby supply the following information for each and every
Personal Account and Related Account in which I have a Beneficial Ownership
interest for which I cannot supply the most recent account statement:
(1) Name of employee: _________________________
(2) If different than #1, name of the person
in whose name the account is held: _________________________
(3) Relationship of (2) to (1): _________________________
(4) Firm(s) at which Account is maintained: _________________________
_________________________
_________________________
_________________________
(5) Account Number(s): _________________________
_________________________
_________________________
_________________________
_________________________
(6) Phone number(s) of Broker or Representative: _________________________
_________________________
_________________________
_________________________
__________
/3/ The Code of Ethics uses various capitalized terms that are defined in
Appendix I to the Code. The capitalized terms used in this Report have the
same definitions.
<PAGE>
(7) Account holdings:
Name of Security Quantity Principal Amount Custodian
1. ___________________ _______ _______________ ________
2. ___________________ _______ _______________ ________
3. ___________________ _______ _______________ ________
4. ___________________ _______ _______________ ________
5. ___________________ _______ _______________ ________
(Attach additional sheets if necessary)
I also supply the following information for each and every Security or
Futures Contract in which I have a Beneficial Ownership interest, to the extent
this information is not available elsewhere on this form or from the statements
and confirmations attached to this form. This includes Securities or Futures
Contracts held at home, in safe deposit boxes, or by an issuer.
<TABLE>
<CAPTION>
Person Who Description
Owns the Security of the Security
Or Futures Contract Or Futures Contract Quantity Principal Amount Custodian
___________________ ___________________ ________ ________________ _________
<S> <C> <C> <C> <C> <C>
1. ___________________ ___________________ _________________ ________________ _________________
2. ___________________ ___________________ _________________ ________________ _________________
3. ___________________ ___________________ _________________ _________________ _________________
4. ___________________ ___________________ _________________ _________________ _________________
5. ___________________ ___________________ _________________ _________________ _________________
</TABLE>
(Attach additional sheets if necessary.)
I hereby certify that this form and the attachments (if any) identify all
of the Personal Accounts, Related Accounts, Securities and Futures Contracts in
which I have a Beneficial Ownership interest as of this date.
____________________________________
Signature
____________________________________
Print Name
Date: ___________
Attachments
<PAGE>
Appendix VII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
QUARTERLY REPORT OF INVESTMENT TRANSACTIONS
FOR THE QUARTER ENDED MARCH 31, 2000
================================================================================
Please mark one of the following:
[_] No reportable Investment Transactions have occurred.
[_] Except as indicated below, all reportable Investment Transactions were
made through Personal Accounts and Related Accounts identified on the attached
list, which, except as indicated, represents a complete list of the Personal
Accounts and Related Accounts that hold Securities or Futures Contracts in which
I have or had a Beneficial Ownership interest and for which PIMCO should have
received or will receive timely duplicate broker reports for the calendar
quarter just ended./4/ I hereby certify that the broker, dealer, bank or
futures commission merchant for each such account has been instructed to send a
Compliance Officer timely duplicate broker reports for that account.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<CAPTION>
Title, Interest Rate and
Transaction Maturity Date of Security Number of Shares or Contracts Nature of Transaction Transaction Broker, Dealer,
Date or Futures Contract And Principal Amount (i.e., Buy or Sell) Price Bank or FCM
<S> <C> <C> <C> <C> <C>
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
</TABLE>
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each quarter for PIMCO Funds
Distributors LLC.
1 The Code of Ethics uses various capitalized terms that are defined in
Appendix I to the Code. The capitalized terms used in this Report have the same
definitions.
<PAGE>
SIGNED: ______________________________
PRINT NAME: ______________________________
DATE: ______________________________
<PAGE>
1. Please see the Code of Ethics for a full description of the Investment
Transactions that must be reported.
2. Transaction Date. In the case of a market transaction, state the trade date
(not the settlement date).
3. Title of Security or Futures Contract. State the name of the issuer and the
class of the Security (e.g., common stock, preferred stock or designated
issue of debt securities). For Fixed Income Securities, please provide the
Security's interest rate and maturity date. For a Futures Contract, state
the title of any Security subject to the Futures Contract and the expiration
date of the Futures Contract.
4. Number of Shares or Contracts and Principal Amount. State the number of
shares of Securities, the face amount of Fixed Income Securities or the
units of other securities. For options, state the amount of securities
subject to the option. Provide the principal amount of each Security or
Futures Contract. If your ownership interest was through a spouse, relative
or other natural person or through a partnership, trust, other entity, state
the entire quantity of Securities or Futures Contracts involved in the
transaction. You may indicate, if you wish, the extent of your interest in
the transaction.
5. Nature of Transaction. Identify the nature of the transaction (e.g.,
purchase, sale or other type of acquisition or disposition).
6. Transaction Price. State the purchase or sale price per share or other
unit, exclusive of brokerage commissions or other costs of execution. In
the case of an option, state the price at which it is currently exercisable.
No price need be reported for transactions not involving cash.
7. Broker, Dealer, Bank or FCM Effecting Transaction. State the name of the
broker, dealer, bank or FCM with or through which the transaction was
effected.
8. Signature. Sign and date the report in the spaces provided.
9. Filing of Report. A report should be filed NOT LATER THAN 10 CALENDAR DAYS
after the end of each calendar quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
10. Duplicate Broker Reports. Please remember that duplicates of all trade
confirmations, purchase and sale reports, and periodic statements must be
sent to the firm by your broker. You should use the address above.
<PAGE>
Appendix VIII
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO FUNDS DISTRIBUTORS LLC
ANNUAL HOLDINGS REPORT AND
FOURTH QUARTER REPORT OF INVESTMENT TRANSACTIONS
================================================================================
FOR THE YEAR AND QUARTER ENDED DECEMBER 31, 2000
================================================================================
I hereby certify that, except as indicated below, all Securities or Futures
Contracts in which I had a Beneficial Ownership interest at the end of the 2000
calendar year were held in Personal Accounts or Related Accounts identified on
the attached list, for which PIMCO should have received or will receive an
account statement of holdings as of the end of that calendar year./5/ I hereby
certify that the broker, dealer, bank or futures commission merchant for each
such account has been instructed to send a Compliance Officer timely duplicate
broker reports, including a statement of holdings in that account as of the end
of the calendar year.
The following information describes other Securities or Futures Contracts in
which I had a Beneficial Ownership interest as of the end of the 2000 calendar
year:
Title, Interest Rate Number of Shares or
and Maturity Date of Security Contracts And Broker, Dealer,
or Futures Contract Principal Amount Bank or FCM
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
__________
1 The Code of Ethics uses various capitalized terms that are defined in
Appendix I to the Code. The capitalized terms used in this Report have the same
definitions.
<PAGE>
Except as indicated below, all reportable Investment Transactions during the
quarter ended December 31, 2000, were made through Personal Accounts and Related
-----------------
Accounts identified on the attached list, which, except as indicated, represents
a complete list of the Personal Accounts and Related Accounts that hold
Securities or Futures Contracts in which I have or had a Beneficial Ownership
interest and for which PIMCO should have received or will receive timely
duplicate broker reports for the calendar quarter just ended.
The following information for Investment Transactions during the calendar
quarter just ended does not appear on the duplicate broker reports referenced
above.
<TABLE>
<CAPTION>
Title, Interest Rate and
Transaction Maturity Date of Security Number of Shares or Contracts Nature of Transaction Transaction Broker, Dealer,
Date or Futures Contract And Principal Amount (i.e., Buy or Sell) Price Bank or FCM
<S> <C> <C> <C> <C> <C>
_________________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________________
_________________________________________________________________________________________________________________________________
</TABLE>
SPECIAL NOTE TO PIMCO FUNDS DISTRIBUTORS LLC REGISTERED REPS AND ACCESS PERSONS:
You will not have to fill out an extra form for each year for PIMCO Funds
Distributors LLC.
SIGNED: ______________________________
PRINT NAME: ______________________________
DATE: ______________________________
<PAGE>
1. Please see the Code of Ethics for a full description of the Investment
Transactions that must be reported.
2. Transaction Date. In the case of a market transaction, state the trade date
(not the settlement date).
3. Title of Security or Futures Contract. State the name of the issuer and the
class of the Security (e.g., common stock, preferred stock or designated
issue of debt securities). For Fixed Income Securities, please provide the
Security's interest rate and maturity date. For a Futures Contract, state
the title of any Security subject to the Futures Contract and the expiration
date of the Futures Contract.
4. Number of Shares or Contracts and Principal Amount. State the number of
shares of Securities, the face amount of Fixed Income Securities or the
units of other securities. For options, state the amount of securities
subject to the option. Provide the principal amount of each Security or
Futures Contract. If your ownership interest was through a spouse, relative
or other natural person or through a partnership, trust, other entity, state
the entire quantity of Securities or Futures Contracts involved in the
transaction. You may indicate, if you wish, the extent of your interest in
the transaction.
5. Nature of Transaction. Identify the nature of the transaction (e.g.,
purchase, sale or other type of acquisition or disposition).
6. Transaction Price. State the purchase or sale price per share or other
unit, exclusive of brokerage commissions or other costs of execution. In
the case of an option, state the price at which it is currently exercisable.
No price need be reported for transactions not involving cash.
7. Broker, Dealer, Bank or FCM Effecting Transaction. State the name of the
broker, dealer, bank or FCM with or through which the transaction was
effected.
8. Signature. Sign and date the report in the spaces provided.
9. Filing of Report. A report should be filed NOT LATER THAN 10 CALENDAR DAYS
after the end of each calendar quarter with:
PIMCO
ATTN: Compliance Officer
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
10. Duplicate Broker Reports. Please remember that duplicates of all trade
confirmations, purchase and sale reports, and periodic statements must be
sent to the firm by your broker. You should use the address above.
<PAGE>
Appendix IX
PRECLEARANCE REQUEST FORM
-------------------------
This form must be submitted to a Compliance Officer before executing any
Investment Transaction for which preclearance is required under the PIMCO Code
of Ethics. Before completing this form, you should review the PIMCO Code,
including the terms defined in that Code. The capitalized terms used in this
form are governed by those definitions. In addition, the Code provides
information regarding your preclearance obligations under the Code, and
information regarding the Transactions, Securities and Futures Contracts that
are exempt from the Code's preclearance requirement./6/
No Investment Transaction subject to preclearance may be effected prior to
receipt of written authorization of that Investment Transaction by a Compliance
Officer. Unless otherwise specified, that authorization shall be effective,
unless revoked, until the earlier of (a) the close of business on the date
authorization is given, or (b) until you discover that information on this
preclearance request form is no longer accurate.
<TABLE>
<CAPTION>
<S> <C>
(1) Your Name: _____________________________________
(2) If the Investment Transaction will be in someone else's name or
in the name of a trust, the name of that person or trust: _____________________________________
The relationship of that person or trust to you: _____________________________________
(3) Name of the firm (e.g., broker, dealer, bank, futures
commission merchant) through which the Investment Transaction
will be executed: ____________________________________
The relevant account number at that firm: ____________________________________
(4) Issuer of the Security or identity of the Futures Contract for
which preclearance is requested: ____________________________________
The relevant CUSIP number or call symbol: ____________________________________
(5) The maximum number of shares, units or contracts for which
preclearance is requested, or the market value or face amount of
the Fixed Income Securities for which preclearance is requested: ____________________________________
(6) The type of Investment Transaction for which preclearance is
requested (check all that apply): ____ Purchase ___ Sale ____ Market Order
____ Limit Order (Price Of Limit Order:_______)
</TABLE>
Please answer the following questions TO THE BEST OF YOUR KNOWLEDGE AND BELIEF:
----------------------------------------
(a) Do you possess material nonpublic information regarding the Security or
__________
/6/ Preclearance is required for any Investment Transaction in Securities,
Related Securities or Futures Contracts in a Personal Account or a Related
Account in which you have or will acquire a Beneficial Ownership interest.
<PAGE>
<TABLE>
<S> <C>
Futures Contract identified above or regarding the issuer of that Security? ____ Yes ____ No
(b) Is the Security or Futures Contract identified above held by any PIMCO
Advisory Client or is it a Related Security (as defined in the PIMCO Code)? ____ Yes ____ No
(c) Is there a pending buy or sell order on behalf of a PIMCO Advisory
Client for the Security or Futures Contract identified above or for a
Security for which the Security identified above is a Related Security? ____ Yes ____ No
(d) Do you intend or do you know of another's intention to purchase or sell
the Security or Futures Contract identified above, or a Security for which
the Security identified above is a Related Security, on behalf of a PIMCO
Advisory Client? ____ Yes ____ No
(e) Has the Security or Futures Contract identified above or a Related
Security been considered for purchase by a PIMCO Advisory Client within the
most recent 15 days? (Note: rejection of any opportunity to purchase the
Security or Futures Contract for an Advisory Client would require an
affirmative response to this question.) ____ Yes ____ No
(f) If you are a Portfolio Employee, is the Security being acquired in an
Initial Public Offering?/7/ ____ Yes ____ No
(g) If you are a Portfolio Employee, are you acquiring or did you acquire
Beneficial Ownership of the Security in a Private Placement?/8/ ____ Yes ____ No
(h) If you are seeking preclearance of a purchase or sale of Securities,
have you purchased or sold the same or similar Securities, or have you
acquired or disposed of a Beneficial Ownership interest in the same or
similar Securities, within the past 60 calendar days?/9/ ____ Yes ____ No
</TABLE>
By executing this form, you hereby certify that you have reviewed the PIMCO Code
of Ethics and believe that the Investment Transaction for which you are
requesting preclearance complies with the General Principles and the specific
requirements of the PIMCO Code.
__________
/7/ Under the PIMCO Code, Portfolio Employees generally are not permitted to
acquire Securities in an Initial Public Offering.
/8/ The PIMCO Code applies special rules to the acquisition of Securities
through a Private Placement and to the disposition of Securities acquired
through a Private Placement.
/9/ Under the PIMCO Code, you may not profit from short-term trades in Fixed
Income Securities. A Portfolio Employee may not profit from short-term
trades in Designated Equities Securities and a Municipal Bond
Portfolio Employee may not profit from short-term trades in Tax-Exempt
Municipal Bonds. This rule does not apply to transactions in U.S.
Government Securities, mutual fund shares, index options or Futures
Contracts.
<PAGE>
____________________________
Employee Signature
____________________________
Print or Type name
____________________________
Date Submitted
<PAGE>
You are authorized to execute the Investment Transaction described above. Unless
indicated otherwise below, this authorization remains effective, unless revoked,
until: (a) the close of business today, or (b) until you discover that the
information on this request form is no longer accurate.
_________________________________________________
Compliance Officer
_________________________________________________
Date of Authorization
<PAGE>
Appendix X
COMPLIANCE OFFICERS
PACIFIC INVESTMENT MANAGEMENT COMPANY
March 31, 2000
PIMCO's Compliance Officers, as of March 31, 2000, are:
Denise C. Seliga
(Chief Compliance Officer)
Mohan V. Phansalkar
Ernest L. Schmider
Richard M. Weil
<PAGE>
EXHIBIT 99(K)
FORM OF
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints R. Wesley Burns, Jeffrey M. Sargent, Robert W.
Helm, Keith T. Robinson, Jeffrey S. Puretz, Jack W. Murphy, David A. Vaughan,
and Brendan C. Fox and each of them, to act severally as attorneys-in-fact and
agents, with power of substitution and resubstitution, for the undersigned in
any and all capacities to sign the Registration Statement of PIMCO Funds and any
post-effective amendments thereto, and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and conforming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by virtue hereof.
Date:________,2000 ______________________________________
Guilford C. Babcock
Date:________,2000 ______________________________________
Thomas P. Kemp, Sr.
Date:________,2000 ______________________________________
Brent R. Harris
Date:________,2000 ______________________________________
William J. Popejoy
Date:________,2000 ______________________________________
Vern O. Curtis
Date:________,2000 ______________________________________
John P. Hardaway
Date:________,2000 ______________________________________
R. Wesley Burns
Date:________,2000 ______________________________________
E. Philip Cannon
Date:________,2000 ______________________________________
J. Michael Hagan
