PIMCO Strategic Balanced Fund
Institutional Class Shares
November 22, 2000
This profile summarizes key information about the Fund that
is included in the Fund's Prospectus. The Fund's Prospectus includes
additional information about the Fund, including a more detailed
description of the risks associated with investing in the Fund that you
may want to consider before you invest. You may obtain the
Prospectus and other information about the Fund at no cost by
calling us at 1-800-927-4648, visiting our Web site at www.pimco.com,
or by contacting your financial intermediary.
What is the Fund's Investment Objective?
The Fund seeks maximum total return, consistent with preservation of capital
and prudent investment management.
What is the Fund's principal investment strategy?
The Fund seeks to achieve its investment objective by normally investing
between 45% and 75% of its assets in the StocksPLUS Fund and between 25% and
55% of its assets in the Total Return Fund (collectively, the "Underlying
Funds"). The Fund invests all of its assets in shares of the Underlying Funds
and does not invest directly in stocks or bonds of other issuers.
The StocksPLUS Fund seeks to exceed the total return of the S&P 500 by
investing under normal circumstances substantially all of its assets in S&P 500
derivatives, backed by a portfolio of fixed income instruments. The Total
Return Fund seeks to achieve its investment objective by investing at least
65% of its assets in a diversified portfolio of fixed income securities of
various maturities.
PIMCO determines how the Fund will allocate and reallocate its assets between
the Underlying Funds according to the Fund's equity/fixed income allocation
targets and ranges. PIMCO does not allocate the Fund's assets according to a
predetermined blend of shares of the Underlying Funds. Instead, PIMCO will
determine the mix of Underlying Funds appropriate for the Fund based on
methodology, developed by PIMCO, that forecasts stages in the business cycle
and considers the risk and reward potential of equity and fixed income
investments within specific phases of the business cycle.
The Fund is a "fund of funds," which is a term used to describe mutual funds
that pursue their investment objectives by investing in other mutual funds. The
cost of investing in the Fund will generally be higher than the cost of
investing in a mutual fund that invests directly in individual stocks and
bonds. By investing in the Fund, an investor will indirectly bear fees and
expenses charged by the Underlying Funds in addition to the Fund's direct
fees and expenses. In addition, the use of a fund of funds structure could
affect the timing, amount and character of distributions to shareholders and
may therefore increase the amount of taxes payable by shareholders.
The StocksPLUS Fund may invest in common stocks, options, futures, options on
futures and swaps. This 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.
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.
The average portfolio duration of the Total Return Fund normally varies
within a three- to six-year time frame based on PIMCO's forecast for
interest rates. Duration is a measure of the expected life of a fixed income
security that is used to determine the sensitivity of the security's price
to changes in interest rates.
The Total Return 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 Total Return 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 typically uses 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 Fund may lend its portfolio securities to brokers, dealers and other
financial institutions to earn income. The Fund may, without limitation,
seek to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as buy backs or dollar rolls). The "total
return" sought by the Fund consists of income earned on the Fund's
investments, plus capital appreciation, if any, which generally arises from
decreases in interest rates or improving credit fundamentals for a particular
sector or security.
In addition to the StocksPLUS and Total Return Funds, the Fund may in the
future invest in additional funds in the PIMCO Funds family at the
discretion of PIMCO and without shareholder approval.
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its past fiscal
year. You may obtain these reports at no cost by calling us at 1-800-927-4648.
What are the principal risks of investing in the Fund?
You could lose money on an investment in the Fund. The principal risks of
investing in the Fund are:
* Allocation Risk: The Fund's investment performance depends upon how its
assets are allocated and reallocated between the Underlying Funds according to
the Fund's equity/fixed income allocation targets and ranges. A principal risk
of investing in the Fund is that PIMCO will make less than optimal or poor
asset allocation decisions. PIMCO attempts to identify allocations for the
Underlying Funds that will provide consistent, quality performance for the
Fund, but there is no guarantee that PIMCO's allocation techniques will
produce the desired results. It is possible that PIMCO will focus on an
Underlying Fund that performs poorly or underperforms other Funds under
various market conditions. You could lose money on your investment in the Fund
as a result of these allocation decisions.
* Underlying Fund Risks: Because the Fund invests all of its assets in
Underlying Funds, the risks associated with investing in the Fund are closely
related to the risks associated with the securities and other investments held
by the Underlying Funds. The ability of the Fund to achieve its investment
objective will depend upon the ability of the Underlying Funds to achieve their
objectives. There can be no assurance that the investment objective of any
Underlying Fund will be achieved.
The Fund's net asset value will fluctuate in response to changes in the net
asset values of the Underlying Funds in which it invests. The extent to which
the investment performance and risks associated with the Fund correlate to
those of a particular Underlying Fund will depend upon the extent to which
the Fund's assets are allocated from time to time for investment in the
Underlying Fund, which will vary. The Fund's investment in a particular
Underlying Fund normally will exceed 25% of its assets. Because the Fund
invests a significant portion of its assets in each Underlying Fund, it will
be particularly sensitive to the risks associated with each of the
Underlying Funds.
* Market Risk: The value of securities owned by the Underlying Funds may go
up or down, sometimes rapidly or unpredictably. Securities may decline in value
due to factors affecting securities markets generally or particular industries.
Equity securities generally have greater price volatility than fixed income
securities.
* Issuer Risk: The value of a security may 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.
* Interest Rate Risk: As interest rates rise, the value of fixed income
securities in the Underlying Funds' portfolios are likely to decrease.
Securities with longer durations tend to be more sensitive to changes in
interest rates.
* Credit Risk: The Underlying Funds could lose money if the issuer or
guarantor of a fixed income security, or the counterparty to a derivative
contract, is unable or unwilling to meet its financial obligations.
* Derivatives Risk: When an Underlying Fund invests in a derivative
instrument, it could lose more than the principal amount invested. Derivatives
are subject to a number of risks, such as liquidity, interest rate, market,
credit and management risk. They also involve the risk of improper valuation.
Changes in the value of a derivative may not correlate perfectly with the
underlying asset, rate or index.
* Liquidity Risk: Liquidity risk exists when particular investments are
difficult to purchase or sell. The Underlying Funds' investments in illiquid
securities may reduce the returns of a Fund because it may be unable to sell
the illiquid securities at an advantageous time or price.
* Foreign Investment Risk: When an Underlying Fund invests in foreign
securities, it may experience more rapid and extreme changes in value than if
it invested exclusively in U.S. securities. The securities markets of many
foreign countries are relatively small. Reporting, accounting and auditing
standards of foreign countries differ from U.S. standards. Also,
nationalization, expropriation or confiscatory taxation, currency blockage,
political changes or diplomatic developments could adversely affect the
Underlying Funds' investments in a foreign country.
* Currency Risk: When an Underlying Fund invests in securities denominated
in foreign currencies, it is 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 reasons such as changes in interest rates,
government intervention or political developments. As a result, the Underlying
Funds' investments in foreign currency-denominated securities may reduce the
returns of the Underlying Funds.
* Mortgage Risk: Rising interest rates tend to extend the duration of
mortgage-related securities, making them more sensitive to changes in interest
rates. When interest rates decline, borrowers may pay off their mortgages
sooner than expected. This can reduce the returns of an Underlying Fund
because the Fund will have to reinvest that money at the lower prevailing
interest rates.
* Leveraging Risk: The Underlying Funds may engage in transactions that give
rise to a form of leverage. Leverage may cause a Fund to sell holdings when it
may not be advantageous to do so. Leverage, including borrowing, may cause a
Fund to be more volatile than if the Fund had not been leveraged.
* Management Risk: There is no guarantee that the investment techniques and
risk analyses applied by PIMCO will produce the desired results.
How has the Fund performed?
The bar chart and table below provide 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 table show performance of the Fund's Institutional Class shares
net of fees. Past performance is no guarantee of future results, and the
Fund achieved the performance track record shown below during a period when
it pursued its investment objective using
different investment strategies.
Calendar Year Total Returns
1997 1998 1999
24.17% 19.66% 11.56%
During the period shown in the bar chart, the highest quarterly return was
12.23% (2nd Quarter 1997) and the lowest quarterly return was -4.60% (3rd
Quarter 1998). As of September 30, 2000, the end of the most recent calendar
quarter, the Fund's year-to-date return was 0.09%.
Average Annual Total Returns
for the periods ended September 30, 2000
1 year Since Inception4
Strategic Balanced Fund,
Institutional Class 8.55% 15.29%
S&P 500 Index1 13.28% 21.47%
S&P 500 and Lehman Aggregate
Bond Index Blend2 11.05% 15.80%
Lipper Balanced Fund Avg3 11.34% 12.62%
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 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.
What are the Fund's Fees and Expenses?
These tables describe the fees and expenses you may pay if you buy and hold
Institutional Class shares of the Fund:
Shareholder Fees
(fees paid directly from your investment) None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets, shown as a percentage of average
daily net assets)
Advisory Fee None
Distribution (12b-1) and/or Service Fees None
Other Expenses1 0.05%
Underlying Fund Expenses 0.59%
Total Annual Fund Operating Expenses2 0.64%
1 Other Expenses reflect a 0.05% Administrative Fee paid by the class.
2 Based on estimated expenses for the current fiscal year. Underlying Fund
Expenses for the Fund are estimated based upon a 65%/35% allocation of the
Fund's assets between the StocksPLUS and Total Return Funds and upon the
estimated total annual operating expenses of the Institutional Class Shares of
these Underlying Funds. Total Actual Underlying Fund Expenses will vary with
changes in the expenses of the Underlying Funds, as well as allocation of the
Fund's assets, and may be higher or lower than those shown above.
Example: The Example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Fund for the time periods indicated, and then
redeem all your shares at the end of those periods. The Example also assumes 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 Example shows what your costs would be based on
these assumptions.
1 year 3 years 5 years 10 years
Strategic Balanced Fund,
Institutional Class $65 $205 $357 $798
Who is the Fund's Investment Adviser?
Pacific Investment Management Company LLC ("PIMCO"),
a subsidiary of PIMCO Advisors L.P., serves as investment adviser to the Fund.
PIMCO is an investment management company founded in 1971, and had over $207
billion in assets under management as of September 30, 2000. PIMCO manages the
investment and reinvestment of the assets of the Fund and is responsible for
placing orders for the purchase and sale of the Fund's investments. PIMCO is
located at 840 Newport Center Drive, Newport Beach, CA 92660.
The Fund's portfolio is managed by a team led by William H. Gross. Mr. Gross is
a Managing Director, Chief Investment Officer and a founding partner of PIMCO
and he has managed fixed income accounts for various institutional clients and
funds for over 25 years. He has led the team managing the Strategic Balanced
Fund since January 1998.
How do I Buy Fund Shares?
The minimum initial investment to open an account directly with the Fund is $5
million. The minimum initial investment for a registered investment adviser
purchasing Institutional Class shares for its clients through omnibus accounts
is $250,000. You may purchase Fund shares in one of the
following ways:
* Opening an account by completing and signing a Client Registration
Application, mailing it to us at the address shown below, and wiring funds.
Wiring instructions can be obtained by calling us at 1-800-927-4648.
* Exchanging Institutional Class shares in any amount from another PIMCO
Funds account.
* Additional purchases in any amount can be made by calling us at
1-800-927-4648 and wiring funds.
How do I Sell (Redeem) Fund Shares?
You may sell (redeem) all or part of your Fund shares on any business day. You
may sell by:
* Sending a written request by mail to PIMCO Funds.
* Telephone us at 1-800-927-4648 and a Shareholder Services associate will
assist you.
* By sending a fax to our Shareholder Services department at 1-949-725-6830.
How are Fund Distributions Made and Taxed?
The Fund pays dividends to shareholders quarterly and pays realized capital
gains, if any, annually. Dividend and capital gain distributions will be
reinvested in additional shares of the Fund unless you elect to have them paid
in cash. A shareholder may elect to have distributions paid in cash by calling
1-800-927-4648. Distributions may be taxable as ordinary income, capital gains,
or a combination of the two. The rate you pay on capital gains distributions
may vary depending on how long the Fund held the securities that generated the
gains. The Fund will advise shareholders annually of the amount and nature of
the dividends paid to them.
Shareholders should also bear in mind that the sale or exchange of shares may
give rise to a taxable event.
What other Services are Available from the Fund?
The Fund and PIMCO's Shareholder Services offer several programs to investors:
* The ability to exchange shares of the Fund for the same class of shares of
any other PIMCO Fund.
* Account and Fund information is available 24 hours every day through
Infolink, PIMCO Funds' audio response system, by calling 1-800-987-4626.
* Information about PIMCO Funds can be obtained on PIMCO's Institutional
Web site at www.pimco.com.
