<PAGE>
PIMCO Funds Prospectus
------------------------------------------------------------
Pacific INTERMEDIATE DURATION BOND FUND
Investment
Management Total Return Fund
Series
December 12, 2000
Share Classes
(Ins) Institutional
(Adm) Administrative
This cover is not part of the Prospectus P I M C O
---------
FUNDS
<PAGE>
PIMCO Funds Prospectus
PIMCO This Prospectus describes the PIMCO Total Return Fund. The Fund
Funds: provides access to the professional investment advisory services
Pacific offered by Pacific Investment Management Company LLC ("PIMCO"). As
Investment of October 31, 2000, PIMCO managed approximately $210.3 billion in
Management assets.
Series
This Prospectus explains what you should know about the Fund
December before you invest. Please read it carefully.
12, 2000
The Securities and Exchange Commission has not approved or
Share disapproved these securities, or determined if this Prospectus is
Classes truthful or complete. Any representation to the contrary is a
Institu- criminal offense.
tional and
Adminis-
trative
Prospectus 1
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Summary Information.............................................. 3
Fund Summary
Total Return Fund.............................................. 4
Summary of Principal Risks....................................... 6
Management of the Fund........................................... 8
Investment Options............................................... 9
Purchases, Redemptions and Exchanges............................. 10
How Fund Shares are Priced....................................... 14
Fund Distributions............................................... 15
Tax Consequences................................................. 15
Characteristics and Risks of Securities and Investment
Techniques...................................................... 16
Financial Highlights............................................. 26
Appendix A--Description of Securities Ratings.................... A-1
</TABLE>
2 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Summary Information
The table below compares certain investment characteristics of the Fund. Other
important characteristics are described in the Fund Summary beginning on page
4. 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> <S> <C> <C> <C>
Total Return Fund Intermediate maturity 3-6 years B to Aaa; max 10% below Baa 0-20%
fixed income securities
------------------------------------------------------------------------------------------------
</TABLE>
(1) As rated by Moody's Investors Service, Inc., or equivalently rated by
Standard & Poor's Ratings Service, or if unrated, determined by PIMCO to be
of comparable quality.
(2) The percentage limitation relates to non-U.S. dollar-denominated
securities. The Fund may invest beyond this limit in U.S. dollar-
denominated securities of foreign issuers.
Fixed The "Fixed Income Instruments" as used in this prospectus
Income includes:
Instruments
. securities issued or guaranteed by the U.S. Government, its
agencies or government-sponsored enterprises ("U.S. Government
Securities");
. corporate debt securities of U.S. and non-U.S. issuers,
including convertible securities and corporate commercial paper;
. mortgage-backed and other asset-backed securities;
. inflation-indexed bonds issued both by governments and
corporations;
. structured notes, including hybrid or "indexed" securities,
event-linked bonds and loan participations;
. delayed funding loans and revolving credit facilities;
. bank certificates of deposit, fixed time deposits and bankers'
acceptances;
. repurchase agreements and reverse repurchase agreements;
. debt securities issued by states or local governments and their
agencies, authorities and other government-sponsored
enterprises;
. obligations of non-U.S. governments or their subdivisions,
agencies and government-sponsored enterprises; and
. obligations of international agencies or supranational entities.
Duration Duration is a measure of the expected life of a fixed income
security that is used to determine the sensitivity of a security's
price to changes in interest rates. The longer a security's
duration, the more sensitive it will be to changes in interest
rates. Similarly, a Fund with a longer average portfolio duration
will be more sensitive to changes in interest rates than a Fund
with a shorter average portfolio duration.
Credit In this prospectus, references are made to credit ratings of debt
Ratings securities which measure an issuer's expected ability to pay
principal and interest over time. Credit ratings are determined by
rating organizations, such as Standard & Poor's Ratings Service
("S&P") or Moody's Investors Service, Inc. ("Moody's"). The
following terms are generally used to describe the credit quality
of debt securities depending on the security's credit rating or,
if unrated, credit quality as determined by PIMCO:
. high quality
. investment grade
. below investment grade ("high yield securities" or "junk bonds")
For a further description of credit ratings, see "Appendix A--
Description of Securities Ratings."
Fund The following summary identifies the Fund's investment objective,
Descrip- principal investments and strategies, principal risks, performance
tion, information and fees and expenses. A more detailed "Summary of
Performance Principal Risks" describing principal risks of investing in the
and Fees Fund begins after the Fund Summary.
It is possible to lose money on investments in the Fund.
An investment in the 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 3
<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 prudent Average Portfolio Declared daily and
investment management Duration distributed monthly
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 invests primarily in investment grade debt securities,
but may invest up to 10% of its assets in high yield securities
("junk bonds") rated B or higher by Moody's or S&P or, if unrated,
determined by PIMCO to be of comparable quality. The Fund may
invest up to 20% of its assets in securities denominated in
foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. The Fund will
normally hedge at least 75% of its exposure to foreign currency to
reduce the risk of loss due to fluctuations in currency exchange
rates.
The Fund may invest all of its assets in derivative instruments,
such as options, futures contracts or swap agreements, or in
mortgage- or asset-backed securities. The Fund may lend its
portfolio securities to brokers, dealers and other financial
institutions to earn income. The Fund may, without limitation,
seek to obtain market exposure to the securities in which it
primarily invests by entering into a series of purchase and sale
contracts or by using other investment techniques (such as buy
backs or dollar rolls). The "total return" sought by the Fund
consists of income earned on the Fund's investments, plus capital
appreciation, if any, which generally arises from decreases in
interest rates or improving credit fundamentals for a particular
sector or security.
--------------------------------------------------------------------------------
Principal Among the principal risks of investing in the Fund, which could
Risks adversely affect its net asset value, yield and total return, are:
.Interest Rate Risk .Derivatives Risk .Currency Risk
.Credit Risk .Liquidity Risk .Leveraging Risk
.Market Risk .Mortgage Risk .Management Risk
.Issuer Risk .Foreign Investment
Risk
Please see "Summary of Principal Risks" following the Fund Summary
for a description of these and other risks of investing in the
Fund.
--------------------------------------------------------------------------------
Performance The 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.
4 PIMCO Funds: Pacific Investment Management Series
<PAGE>
PIMCO Total Return Fund (continued)
Calendar Year Total Returns -- Institutional Class
More Recent Return
Information
-----------------------
1/1/00-9/30/00 7.06%
Annual Return Highest and Lowest
Quarter Returns
'90 '91 '92 '93 '94 (for periods shown in
------ ------ ------ ------ ------ the bar chart)
8.05% 19.55% 9.73% 12.51% -3.58% -----------------------
Highest
'95 '96 '97 '98 '99 (3rd Qtr. '91) 6.66%
------ ------ ------ ------ ------ -----------------------
19.77% 4.69% 10.16% 9.76% -0.28% Lowest
(1st Qtr. '94) -2.69%
Calendar Year End (through 12/31)
Average Annual Total Returns (for periods ended 12/31/99)
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%
--------------------------------------------------------------------
(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)
Distribution Total Annual
Advisory and/or Service Other Fund Operating
Share Class Fees (12b-1) Fees Expenses(1) Expenses
--------------------------------------------------------------------
Institutional 0.25% None 0.29% 0.54%
--------------------------------------------------------------------
Administrative 0.25 0.25% 0.29 0.79
--------------------------------------------------------------------
(1) Other Expenses reflect an Administrative Fee of 0.18% and
interest expense of 0.11% paid during the most recent fiscal
year. Total Annual Operating Expenses excluding interest
expense is 0.43% for the Institutional Class and 0.68% for the
Administrative Class. Interest expense is generally incurred
as a result of investment management activities.
Examples. The Examples are intended to help you compare the cost
of investing in Institutional Class or Administrative Class shares
of the Fund with the costs of investing in other mutual funds. The
Examples assume that you invest $10,000 in the noted class of
shares for the time periods indicated, and then redeem all your
shares at the end of those periods. The Examples also assume that
your investment has a 5% return each year, the reinvestment of all
dividends and distributions, and that the Fund's operating
expenses remain the same. Although your actual costs may be higher
or lower, the Examples show what your costs would be based on
these assumptions.
Share Class Year 1 Year 3 Year 5 Year 10
--------------------------------------------------------------------
Institutional $55 $173 $302 $677
--------------------------------------------------------------------
Administrative 81 252 439 978
--------------------------------------------------------------------
Prospectus 5
<PAGE>
Summary of Principal Risks
The value of your investment in the Fund changes with the values
of the Fund's investments. Many factors can affect those values.
The factors that are most likely to have a material effect on the
Fund's portfolio as a whole are called "principal risks." The
principal risks of the Fund are identified in the Fund Summary and
are described in this section. The Fund may be subject to
additional principal risks and risks other than those described
below because the types of investments made by the 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 Fund, its 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 the 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 The 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 the Fund may go up or
Risk down, 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, possibly preventing the Fund from selling such
illiquid securities at an advantageous time or price. Investing in
foreign securities, derivatives or securities with substantial
market and/or credit risk will tend to increase 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 Fund 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 Fund may
sometimes use derivatives as part of a strategy designed to reduce
exposure to other risks, such as interest rate or currency risk.
The Fund may also use derivatives for leverage, in which case
their use would involve leveraging risk. The Fund's use of
derivative instruments involves risks different from,
6 PIMCO Funds: Pacific Investment Management Series
<PAGE>
or 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. If the Fund invests in a derivative
instrument it 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 the Fund will
engage in these transactions to reduce exposure to other risks
when that would be beneficial.
Mortgage When the Fund purchases mortgage-related securities, it is subject
Risk to 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, if the Fund holds mortgage-related
securities it 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 the Fund because it will have to reinvest that
money at the lower prevailing interest rates.
Foreign When the Fund invests in foreign securities, it may experience
(Non- more rapid and extreme changes in value than if it invested
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 the Fund's investments in a
foreign country. In the event of nationalization, expropriation or
other confiscation, the 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 the 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.
Currency When the Fund invests directly in foreign currencies or in
Risk securities that trade in, and receive revenues 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 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.
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 the Fund to liquidate portfolio positions when
it may not be advantageous to do so to satisfy its obligations or
to meet segregation requirements. Leverage, including borrowing,
will cause the 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 the Fund's
portfolio securities.
Prospectus 7
<PAGE>
Management The Fund is subject to management risk because it is an actively
Risk managed investment portfolio. PIMCO and the portfolio manager will
apply investment techniques and risk analyses in making investment
decisions for the Fund, but there can be no guarantee that these
will produce the desired results.
Management of the Fund
Investment PIMCO serves as the investment adviser and the administrator
Adviser (serving in its capacity as administrator, the "Administrator")
and Ad- for the Fund. Subject to the supervision of the Board of Trustees,
ministrator PIMCO is responsible for managing the investment activities of the
Fund and the Fund's 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
October 31, 2000, PIMCO had approximately $210.3 billion in assets
under management.
Advisory The Fund pays PIMCO a fee in return for providing investment
Fees advisory services. For the fiscal year ended March 31, 2000, the
Fund paid monthly advisory fees to PIMCO at the annual rate
(stated as a percentage of the average daily net assets of the
Fund) of 0.25%.
Adminis- The Fund pays for the administrative services it requires under a
trative fee structure which is essentially fixed. Institutional and
Fees Administrative Class shareholders of the 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 Fund, including audit, custodial, portfolio accounting,
legal, transfer agency and printing costs.
For the fiscal year ended March 31, 2000, the Fund paid PIMCO
monthly administrative fees at the following annual rate (stated
as a percentage of the average daily net assets attributable in
the aggregate to the Fund's Institutional and Administrative Class
shares) of 0.18%.
Individual The following person has primary responsibility for managing the
Portfolio Fund.
Manager
Portfolio
Manager Since Recent Professional Experience
--------------------------------------------------------------------
William H. Gross 5/87* Managing Director, Chief Investment Officer
and a founding partner of PIMCO.
___________
* Since inception of the Fund.
Distributor The Fund'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.
8 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Investment Options--
Institutional Class and Administrative Class Shares
The Fund offers investors Institutional Class and Administrative
Class shares in this prospectus.
The Fund 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 Fund has adopted an Administrative Services Plan for
the Administrative Class shares. It has also adopted a
Distribution Plan for the Administrative Class shares. 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 Fund 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
Fund as their funding medium and for related expenses.
In combination, the Plans permit the 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 the 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 Fund may be offered through
certain brokers and financial intermediaries ("service agents")
that have established a shareholder servicing relationship with
the Fund on behalf of their customers. The Fund 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 Fund 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 Fund. These additional fees may vary over time and
would increase the cost of the customer's investment and lower
investment returns. Each service agent is responsible for
transmitting to its customers a schedule of any such fees and
information regarding any additional or different conditions
regarding purchases, redemptions and exchanges. Shareholders who
are customers of service agents should consult their service
agents for information regarding these fees and conditions.
Prospectus 9
<PAGE>
Purchases, Redemptions and Exchanges
Purchasing Investors may purchase Institutional Class and Administrative
Shares Class shares of the Fund at the relevant net asset value ("NAV")
of that class without a sales charge or other fee.
Institutional Class shares are offered primarily for direct
investment by investors such as pension and profit sharing plans,
employee benefit trusts, endowments, foundations, corporations and
high net worth individuals. Institutional Class shares may also be
offered through certain financial intermediaries that charge their
customers transaction or other fees with respect to their
customers' investments in the Fund.
Administrative Class shares are offered primarily through
employee benefit plan alliances, broker-dealers and other
intermediaries, and the 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 the Fund and will not require the 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.
The Fund and the Distributor may waive the minimum initial
investment for other categories of investors at their discretion.
The investment minimums discussed in this section and the
limitations set forth below do not apply to participants in PIMCO
Advisors Portfolio Strategies, a managed product sponsored by
PIMCO Advisors.
. Timing of Purchase Orders and Share Price Calculations. A
purchase order received by the Fund'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 Fund 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 Fund 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 Fund 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.
10 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Except as described below, an investor may purchase Institutional
Class and Administrative Class shares only by wiring federal funds
to the Fund'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 Fund
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 Fund on behalf of
their customers.
. Additional Investments. An investor may purchase additional
Institutional Class and Administrative Class shares of the Fund at
any time by calling the Fund and wiring federal funds to the
Transfer Agent as outlined above.
. Other Purchase Information. Purchases of the 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 Fund and the Distributor each reserves the right, in its sole
discretion, to suspend the offering of shares of the Fund 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 Fund.
An investor should invest in the Fund for long-term investment
purposes only. The Fund 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 Fund
are not qualified or registered for sale in all states. Investors
should inquire as to whether shares of the Fund are available for
offer and sale in the investor's state of residence. Shares of the
Fund 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 Fund, an investor may purchase
shares of the 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 Fund'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 the 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 Fund reserves the right to amend or
terminate this practice at any time.
. Retirement Plans. Shares of the Fund 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 the Fund as an
investment option. Participants in a retirement or savings plan
may be permitted to elect different investment options, alter the
amounts contributed to the plan, or change how contributions are
allocated among investment options in accordance with the plan's
specific provisions. The plan administrator or employee benefits
office should be consulted for details. For questions about
participant accounts, participants should contact their employee
benefits office, the plan administrator,
Prospectus 11
<PAGE>
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 Fund'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 Fund at 1-800-927-4648, by sending a
facsimile to 1-949-725-6830, by sending an e-mail to
[email protected], or by other means of wire
communication. Investors should state the Fund and class from
which the shares are to be redeemed, the number or dollar amount
of the shares to be redeemed, the account number and the signature
(which may be an electronic signature) of an authorized signatory.
Redemption requests of an amount of $10 million or more may be
initiated by telephone or by e-mail, but must be confirmed in
writing by an authorized party prior to processing.
In electing a telephone redemption, the investor authorizes PIMCO
and the Transfer Agent to act on telephone instructions from any
person representing himself to be the investor, and reasonably
believed by PIMCO or the Transfer Agent to be genuine. Neither the
Fund nor the Transfer Agent may be liable for any loss, cost or
expense for acting on instructions (whether in writing or by
telephone) believed by the party receiving such instructions to be
genuine and in accordance with the procedures described in this
Prospectus. Shareholders should realize that by electing the
telephone, or wire or e-mail redemption option, they may be giving
up a measure of security that they might have if they were to
redeem their shares in writing. Furthermore, interruptions in
service may mean that a shareholder will be unable to effect a
redemption by telephone or e-mail when desired. The Transfer Agent
also provides written confirmation of transactions initiated by
telephone as a procedure designed to confirm that telephone
instructions are genuine (written confirmation is also provided
for redemption requests received in writing or via e-mail). All
telephone transactions are recorded, and PIMCO or the Transfer
Agent may request certain information in order to verify that the
person giving instructions is authorized to do so. The Fund 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 Fund detailed below. See "Other Redemption Information."
Shareholders may decline telephone exchange or redemption
privileges after an account is opened by instructing the Transfer
Agent in writing at least seven business days prior to the date
the instruction is to be effective. Shareholders may experience
delays in exercising telephone redemption privileges during
periods of abnormal market activity. During periods of volatile
economic or market conditions, shareholders may wish to consider
transmitting redemption orders by telegram, facsimile, e-mail or
overnight courier.
Defined contribution plan participants may request redemptions by
contacting the employee benefits office, the plan administrator or
the organization that provides recordkeeping services for the
plan.
12 PIMCO Funds: Pacific Investment Management Series
<PAGE>
. Timing of Redemption Requests and Share Price Calculations. A
redemption request received by the Fund 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 Fund 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
Fund 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 Fund to dispose of its securities
or to determine fairly the value of its 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 Fund 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 Fund'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 Fund 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 Fund agrees to redeem shares of the 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 Fund reserves
the right to pay any redemption proceeds exceeding this amount in
whole or in part by a distribution in kind of securities held by
the Fund in lieu of cash. It is highly unlikely that 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 the 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 the Fund for shares
of the same class of a series of PIMCO Funds: Multi-Manager
Series, an affiliated mutual fund family composed primarily of
equity portfolios managed by PIMCO
Prospectus 13
<PAGE>
Advisors and its subsidiaries. Shareholders interested in such an
exchange may request a prospectus for these other series by
contacting PIMCO Funds at the same address and telephone number as
the Fund.
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 Fund reserves the right to refuse exchange purchases if, in
the judgment of PIMCO, the purchase would adversely affect the
Fund and its shareholders. In particular, a pattern of exchanges
characteristic of "market-timing" strategies may be deemed by
PIMCO to be detrimental to the Fund. Currently, the Fund limits
the number of "round trip" exchanges investors may make. An
investor makes a "round trip" exchange when the investor purchases
shares of the Fund, subsequently exchanges those shares for shares
of a different PIMCO Fund, and then exchanges back into the Fund.
The Fund has the right to refuse any exchange for any investor who
completes (by making the exchange back into the shares of the
Fund) more than six round trip exchanges in any twelve-month
period. The Fund 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 the Fund's Institutional and
Administrative Class shares is determined by dividing the total
value of the 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.
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 the 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 Fund normally uses pricing data for domestic equity
securities received shortly after the NYSE Close and does 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 Fund 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.
14 PIMCO Funds: Pacific Investment Management Series
<PAGE>
In unusual circumstances, instead of valuing securities in the
usual manner, the Fund 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 Fund 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, if the Fund pays
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
The 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 the 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 Fund intends to declare income dividends daily to
shareholders of record and distribute them monthly.
In addition, the 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.
The 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.
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 Fund. 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 the 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 the Fund prior to the
shareholder's investment and thus were included in the price paid
for the shares. For
Prospectus 15
<PAGE>
example, a shareholder who purchases shares on or just before the
record date of the 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 the 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.
Characteristics and Risks of
Securities and Investment Techniques
This section provides additional information about some of the
principal investments and related risks of the Fund described
under "Summary Information" above. It also describes
characteristics and risks of additional securities and investment
techniques that may be used by the Fund 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
Fund. As with any mutual fund, investors in the Fund 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 Fund.
Securities The Fund seeks maximum total return. The total return sought by
Selection the Fund consists of both income earned on the Fund's investments
and capital appreciation, if any, arising from increases in the
market value of the 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 the 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 the Fund's assets committed to
investment in securities with particular characteristics (such as
quality, sector, interest rate or maturity) varies based on
PIMCO's outlook for the U.S. economy and the economies of other
countries in the world, the financial markets and other factors.
PIMCO attempts to identify areas of the bond market that are
undervalued relative to the rest of the market. PIMCO identifies
these areas by grouping bonds into sectors such as: money markets,
governments, corporates, mortgages, asset-backed and
international. Sophisticated proprietary software then assists in
evaluating sectors and pricing specific securities. Once
investment opportunities are identified, PIMCO will 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
16 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 Fund may invest include municipal lease
obligations. The Fund may also invest in securities issued by
entities whose underlying assets are municipal bonds.
Mortgage- The Fund may invest all of its assets in mortgage- or other asset-
Related backed securities. Mortgage-related securities include mortgage
and Other pass-through securities, collateralized mortgage obligations
Asset- ("CMOs"), commercial mortgage-backed securities, mortgage dollar
Backed rolls, CMO residuals, stripped mortgage-backed securities
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 the 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 the
Fund's yield to maturity from these securities. The Fund may not
invest more than 5% of its assets in any combination of IO, PO, or
inverse floater securities. The Fund may invest in other asset-
backed securities that have been offered to investors.
Loan The Fund may invest in fixed- and floating-rate loans, which
Partici- investments generally will be in the form of loan participations
pations 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 the Fund purchases a participation, it may only be able
to enforce its rights through the lender, and may assume the
credit risk of the lender in addition to the borrower.
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
Prospectus 17
<PAGE>
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. The 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.
The 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 the 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. The 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, the Fund
will participate in any declines in interest rates as well. The
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.
The 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- The 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
18 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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, the 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 The 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. The 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 Fund intends to invest primarily in fixed income
securities, it may invest in convertible securities or equity
securities. While some countries or companies may be regarded as
favorable investments, pure fixed income opportunities may be
unattractive or limited due to insufficient supply, or legal or
technical restrictions. In such cases, the 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 the 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
Securities considerations not typically associated with investing in U.S.
securities. Shareholders should consider carefully the substantial
risks involved 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.
Prospectus 19
<PAGE>
The Fund 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 Fund may invest up to 10% of
its assets in securities of issuers based in countries with
developing (or "emerging market") economies. 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 the Fund. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain
emerging market countries.
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 the 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.
The Fund may invest in Brady Bonds, which are securities created
through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with a debt
restructuring. Investments in Brady Bonds may be viewed as
speculative. Brady Bonds acquired by the 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 If the Fund invests directly in foreign currencies or in
(Non- securities that trade in, or receive revenues in, foreign
U.S.) currencies, it 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 Fund's assets are denominated may be
devalued against the U.S. dollar, resulting in a loss to the Fund.
. Foreign Currency Transactions. The Fund may enter into forward
foreign currency exchange contracts and invest in foreign currency
futures contracts and options on foreign currencies and futures. A
forward
20 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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 the 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 the 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. The 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 the 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 the Fund to
benefit from favorable fluctuations in relevant foreign
currencies. The Fund may use one currency (or a basket of
currencies) to hedge against adverse changes in the value of
another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. The Fund
will segregate assets determined to be liquid by 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 The 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 The 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 the Fund and its agreement to repurchase the
Rolls and instrument at a specified time and price, and may be considered a
Other form of borrowing for some purposes. The Fund will segregate
Borrowings assets 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 the
Fund.
The Fund may borrow money to the extent permitted under the
Investment Company Act of 1940 ("1940 Act"), as amended. This
means that, in general, the 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. The 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 The 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. The 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 the Fund
will succeed. A description of these and other derivative
instruments that the Fund may use are described under "Investment
Objectives and Policies" in the Statement of Additional
Information.
Prospectus 21
<PAGE>
The 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 Fund.
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 the Fund uses derivatives
for leverage, investments in the Fund will tend to be more
volatile, resulting in larger gains or losses in response to
market changes. To limit leverage risk, the 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 the Fund
will engage in derivatives transactions at any time or from time
to time. The 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 the 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 the 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. The 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 the Fund. Also, the value
22 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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, the 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 Fund 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 the 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
the 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- The 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 the
Fund's overall investment exposure. Typically, no income accrues
on securities the Fund has committed to purchase prior to the time
delivery of the securities is made, although the Fund may earn
income on securities it has segregated to cover these positions.
Investment The Fund may invest up to 10% of its assets in securities of other
in Other investment companies, such as closed-end management investment
Investment companies, or in pooled accounts or other investment vehicles
Companies which invest in foreign markets. As a shareholder of an investment
company, the Fund may indirectly bear service and other fees which
are in addition to the fees the Fund pays its service providers.
Subject to the restrictions and limitations of the 1940 Act, the
Fund may elect to pursue its investment objective either by
investing directly in securities, or by investing in one or more
underlying investment vehicles or companies that have
substantially similar investment objectives, policies and
limitations as the Fund.
Short The 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 the 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. The 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 The 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
Prospectus 23
<PAGE>
disposed of within seven days in the ordinary course of business
at approximately the amount at which the 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, the 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 the 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. The Fund may pay
lending fees to a party arranging the loan.
Portfolio The length of time the Fund has held a particular security is not
Turnover generally a consideration in investment decisions. A change in the
securities held by the Fund is known as "portfolio turnover." The
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 the Fund, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and
reinvestments in other securities. Such sales may 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 the Fund's performance.
Temporary For temporary or defensive purposes, the 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 the Fund engages in such strategies, it
may not achieve its investment objective.
Changes in The investment objective of the Fund is fundamental and may not be
Investment changed without shareholder approval. Unless otherwise stated, all
Objectives other investment policies of the Fund may be changed by the Board
and of Trustees without shareholder approval.
Policies
Percentage Unless otherwise stated, all percentage limitations on Fund
Investment investments listed in this prospectus will apply at the time of
Limitations investment. The 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 Fund may invest in other types of securities and use a variety
Investments of investment techniques and strategies which are not described in
and this prospectus. These securities and techniques may subject the
Techniques Fund 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 Fund.
24 PIMCO Funds: Pacific Investment Management Series
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
Prospectus 25
<PAGE>
Financial Highlights
The financial highlights table is intended to help a shareholder
understand the financial performance of Institutional and
Administrative Class shares of the Fund for the past 5 years.
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, is included in the Fund'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>
Total Return Fund
Institutional Class
03/31/2000 $10.36 $0.63(a) $(0.40)(a) $0.23 $(0.60) $(0.03) $ 0.00 $ 0.00
03/31/1999 10.62 0.63(a) 0.16 (a) 0.79 (0.63) 0.00 (0.24) (0.18)
03/31/1998 10.27 0.64(a) 0.62 (a) 1.26 (0.62) (0.02) (0.27) 0.00
03/31/1997 10.29 0.68 (0.02) 0.66 (0.66) (0.02) 0.00 0.00
03/31/1996 10.02 0.81 0.29 1.10 (0.61) (0.10) (0.12) 0.00
Administrative Class
03/31/2000 10.36 0.61(a) (0.41)(a) 0.20 (0.58) (0.02) 0.00 0.00
03/31/1999 10.62 0.61(a) 0.16 (a) 0.77 (0.61) 0.00 (0.24) (0.18)
03/31/1998 10.27 0.61(a) 0.63 (a) 1.24 (0.60) (0.02) (0.27) 0.00
03/31/1997 10.29 0.66(a) (0.02)(a) 0.64 (0.64) (0.02) 0.00 0.00
03/31/1996 10.01 0.80 0.29 1.09 (0.60) (0.09) (0.12) 0.00
</TABLE>
-------
(a) Per share amounts based on average number of shares outstanding during the
period.
26 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 $(0.63) $ 9.96 2.33% $24,900,321 0.54%(b) 6.25% 223%
0.00 (1.05) 10.36 7.60 21,711,396 0.43 5.91 154
0.00 (0.91) 10.62 12.63 16,484,119 0.43 6.06 206
0.00 (0.68) 10.27 6.60 12,528,536 0.43 6.60 173
0.00 (0.83) 10.29 11.14 10,247,605 0.42 6.85 221
0.00 (0.60) 9.96 2.07 3,233,785 0.79 (c) 6.01 223
0.00 (1.03) 10.36 7.33 1,972,984 0.68 5.52 154
0.00 (0.89) 10.62 12.36 481,730 0.68 5.74 206
0.00 (0.66) 10.27 6.34 151,194 0.68 6.35 173
0.00 (0.81) 10.29 10.99 104,618 0.68 6.64 221
</TABLE>
-------
+ Annualized.
(b) Ratio of expenses to average net assets excluding interest expense is
0.43%.
(c) Ratio of expenses to average net assets excluding interest expense is
0.68%.
Prospectus 27
<PAGE>
Appendix A
Description of Securities Ratings
The Fund's investments may range in quality from securities rated
in the lowest category in which the Fund is permitted to invest to
securities rated in the highest category (as rated by Moody's or
S&P or, if unrated, determined by PIMCO to be of comparable
quality). The percentage of the Fund's assets invested in
securities in a particular rating category will vary. The
following terms are generally used to describe the credit quality
of fixed income securities:
High Quality Debt Securities are those rated in one of the two
highest rating categories (the highest category for commercial
paper) or, if unrated, deemed comparable by PIMCO.
Investment Grade Debt Securities are those rated in one of the
four highest rating categories or, if unrated, deemed comparable
by PIMCO.
Below Investment Grade, High Yield Securities ("Junk Bonds") are
those rated lower than Baa by Moody's or BBB by S&P and comparable
securities. They are deemed predominately speculative with respect
to the issuer's ability to repay principal and interest.
Following is a description of Moody's and S&P's rating categories
applicable to fixed income securities.
Moody's Corporate and Municipal Bond Ratings
Investors
Service, Aaa: Bonds which are rated Aaa are judged to be of the best
Inc. quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are
considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly
secured). Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes bonds
in this class.
B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments
or of maintenance of other terms of the contract over any long
period of time may be small.
A-1 PIMCO Funds: Pacific Investment Management Series
<PAGE>
Caa: Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classified from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the
higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
Corporate Moody's short-term debt ratings are opinions of the ability of
Short- issuers to repay punctually senior debt obligations which have an
Term Debt original maturity not exceeding one year. Obligations relying upon
Ratings support mechanisms such as letters of credit and bonds of
indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment ability of
rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have
a superior ability for repayment of senior short-term debt
obligations. Prime-1 repayment ability will often be evidenced by
many of the following characteristics: leading market positions in
well-established industries; high rates of return on funds
employed; conservative capitalization structure with moderate
reliance on debt and ample asset protection; broad margins in
earnings coverage of fixed financial charges and high internal
cash generation; and well-established access to a range of
financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have
a strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have
an acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt
protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the
Prime rating categories.
Short- There are four rating categories for short-term municipal bonds
Term that define an investment grade situation, which are listed below.
Municipal In the case of variable rate demand obligations (VRDOs), a two-
Bond component rating is assigned. The first element represents an
Ratings evaluation of the degree of risk associated with scheduled
principal and interest payments, and the other represents an
evaluation of the degree of risk associated with the demand
feature. The short-term rating assigned to the demand feature of
VRDOs is designated as VMIG. When either the long- or short-term
aspect of a VRDO is not rated, that piece is designated NR, e.g.,
Aaa/NR or NR/VMIG 1. MIG ratings terminate at the retirement of
the obligation while VMIG rating expiration will be a function of
each issue's specific structural or credit features.
MIG 1/VMIG 1: This designation denotes best quality. There is
present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market
for refinancing.
Prospectus A-2
<PAGE>
MIG 2/VMIG 2: This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality. All
security elements are accounted for but there is lacking the
undeniable strength of the preceding grades. Liquidity and cash
flow protection may be narrow and market access for refinancing is
likely to be less well established.
MIG 4/VMIG 4: This designation denotes adequate quality.
Protection commonly regarded as required of an investment security
is present and although not distinctly or predominantly
speculative, there is specific risk.
SG: This designation denotes speculative quality. Debt
instruments in this category lack margins of protection.
Standard Corporate and Municipal Bond Ratings
& Poor's
Ratings Investment Grade
Service
AAA: Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions, or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity
to pay interest and repay principal. BB indicates the least degree
of speculation and C the highest. While such debt will likely have
some quality and protective characteristics, these are outweighed
by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The BB rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions
will likely impair capacity or willingness to pay interest and
repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied
BB or BB-rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and
repayment of principal. In the event of adverse business,
financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating
category is also used for debt subordinated to senior debt that is
assigned an actual or implied B or B- rating.
A-3 PIMCO Funds: Pacific Investment Management Series
<PAGE>
CC: The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued.
CI: The rating CI is reserved for income bonds on which no
interest is being paid.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period. The D rating will also be used upon the filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication
that an obligation will exhibit no volatility or variability in
total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the
obligor but do not take into account currency exchange and related
uncertainties.
Commercial An S&P commercial paper rating is a current assessment of the
Paper likelihood of timely payment of debt having an original maturity
Rating of no more than 365 days. Ratings are graded into several
Definitions categories, ranging from A for the highest quality obligations to
D for the lowest. These categories are as follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.
A-2: Capacity for timely payment on issues with this designation
is satisfactory. However, the relative degree of safety is not as
high as for issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the
higher designations.
B: Issues rated B are regarded as having only speculative
capacity for timely payment.
Prospectus A-4
<PAGE>
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on
the date due, even if the applicable grace period has not expired,
unless S&P believes that such payments will be made during such
grace period.
A commercial paper rating is not a recommendation to purchase,
sell or hold a security inasmuch as it does not comment as to
market price or suitability for a particular investor. The ratings
are based on current information furnished to S&P by the issuer or
obtained from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may
be changed, suspended, or withdrawn as a result of changes in or
unavailability of such information.
A-5 PIMCO Funds: Pacific Investment Management Series
<PAGE>
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PIMCO INVESTMENT ADVISER AND ADMINISTRATOR
Funds: PIMCO, 840 Newport Center Drive, Suite 300, Newport Beach, CA
Pacific 92660
Investment
Management -------------------------------------------------------------------
Series CUSTODIAN
State Street Bank & Trust Co., 801 Pennsylvania, Kansas City, MO
64105
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TRANSFER AGENT
National Financial Data Services, 330 W. 9th Street, 4th Floor,
Kansas City, MO 64105
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INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO 64105
-------------------------------------------------------------------
LEGAL COUNSEL
Dechert Price & Rhoads 1775 Eye Street N.W., Washington, D.C.
20006
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<PAGE>
The Trust's You may get free You may review
Statement of copies of any of and copy informa-
Additional these materials, tion about the
Information request other Trust, including
("SAI") and information about its SAI, at the
annual and semi- the Fund, or make Securities and
annual reports to shareholder Exchange
shareholders inquiries by Commission's
include calling the Trust public ref-
additional at 1-800-927-4648 erence room in
information about or PIMCO Infolink Washington, D.C.
the Fund. The SAI Audio Response You may call the
and the financial Network at 1-800- Commission at 1-
statements 987-4626, or by 202-942-8090 for
included in the writing to: information about
Fund's most the operation of
recent annual PIMCO Funds: the public
report to Pacific reference room.
shareholders are Investment You may also
incorporated by Management Series access reports
reference into 840 Newport and other
this Prospectus, Center Drive informa- tion
which means they Suite 300 about the Trust
are part of this Newport Beach, CA on the
Prospectus for 92660 Commission's Web
legal purposes. site at
The Fund's annual www.sec.gov. You
report discusses may get copies of
the market this information,
conditions and with payment of a
investment duplication fee,
strategies that by writing the
significantly Public Reference
affected the Section of the
Fund's Commission,
performance Washington, D.C.
during its last 20549-0102, or by
fiscal year. e-mailing your
request to
[email protected].
Reference the
Trust's
Investment
Company Act file
number in your
correspondence.
Investment Company Act file no. 811-5028
[LOGO OF PIMCO FUNDS]
PIMCO Funds
840 Newport Center Drive
Suite 300
Newport Beach, CA 92660
PY000.12/00
