<PAGE>
PIMCO Funds Shareholder Update
and Semi-Annual Report
[GRAPHIC APPEARS HERE]
If investment jargon has you confused, take a quick course in "Street Talk."
Class is in session on page 4.
December 31, 1998
Asset Allocation
Series
Share Classes
A B C
90/10 Portfolio
60/40 Portfolio
30/70 Portfolio
Page 2 Asset Allocation Committee Report
What a Difference a Quarter Makes
Page 4 Today's Investor
Wall Street 101--A quick course in Street Talk
Page 6 Asset Allocation Series
PIMCO Funds Semi-Annual Report
Page 7 PIMCO Funds
90/10 Portfolio
Page 8 PIMCO Funds
60/40 Portfolio
Page 9 PIMCO Funds
30/70 Portfolio
Page 10 Underlying PIMCO Funds
P I M C O
FUNDS
<PAGE>
Asset Allocation
Committee Report
What a Difference a Quarter Makes
Economy
The negative global market forces that were in place during the third quarter of
1998 seemed to become a positive for the markets in the fourth quarter as the
Federal Reserve continued to cut interest rates. Fear of global economic and
market turmoil was replaced with renewed confidence that all will be well.
Strong economic growth with low inflation at home offset the flood of problems
from abroad.
Investor flight to the safety of U.S. Treasury securities, and away from stocks
and riskier segments of the bond market, reversed course in the fourth quarter,
causing many equity indices to soar to new highs while Treasury securities
lagged in the bond market.
A primary force behind this reversal in investor sentiment was a synchronized
easing of interest rates by the Federal Reserve and many other central banks
around the world. During the quarter there were a total of 68 easing moves
globally. To many, these rate reductions indicated that monetary authorities
were willing to do what was necessary to avoid the global deflationary spiral
that had been feared. U.S. investors speculated that the global problems would
not reach our shores.
Asian economies appeared to find a bottom. Stock markets in the region rose.
Japan made significant progress on the policy front, sparking optimism that the
almost decade long economic slump might end. In response, the yen soared to its
highest level since 1995. Brazil caught the Asian flu and accepted a rescue
package from the International Monetary Fund. Speculation increased that the
contagion would spread to the rest of Latin America.
Stocks
After experiencing the worst quarterly U.S. equity performance in eight years
during the third quarter of 1998, the stock market recovered significantly by
posting the largest quarterly return of the S&P 500 Index since the first
quarter of 1975. The S&P 500 posted a total return of 21.3% for the quarter,
finishing the year with a return of 28.6%. 1998 marks the fourth consecutive
year that the S&P 500 has returned at least 20%, a first in the history of the
Index. Interest rate reductions by the Federal Reserve and other central banks
inspired confidence that stability would return to the global financial markets
and economies. This belief, in turn, raised hope that corporate profitability
would not suffer to the degree previously feared.
Stocks of smaller companies, as measured by the Russell 2000 Index, also
rebounded nicely in the fourth quarter, gaining 16.3% after falling 20.2% in the
prior quarter. The Russell 2000 Index actually lost 2.5% during 1998,
highlighting the performance disparity between large company stocks and stocks
of smaller companies. The fourth quarter also continued a trend in 1998 in which
growth stocks significantly out-performed value
Fed Has More Room to Ease
As "Real" Interest Rates Remain Historically High
[LINE GRAPH APPEARS HERE]
Real Fed Funds Rates
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
2.7 1991 1.5 1994 1.6 1997 3.7
2.9 1.6 1.7 3.6
3.0 1.7 1.9 3.6
2.8 1.9 2.1 3.9
3.2 1.5 2.9 4.0
3.4 0.6 2.8 4.2
1988 3.1 0.8 2.7 4.4
3.7 0.8 3.4 4.6
3.6 0.5 3.5 4.8
3.6 0.3 3.4 4.8
3.9 0.4 3.3 4.5
4.2 0.3 3.5 4.7
4.1 1992 -0.3 1995 3.5 1998 4.7
4.6 0.3 3.6 4.7
4.5 -0.2 3.8 4.9
4.4 -0.4 3.8 4.4
4.3 -0.1 4.0 4.2
4.4 0.0 3.7
1989 4.1 0.0 3.3
4.4 0.0 3.3
4.6 0.1 3.2
4.2 0.1 3.1
3.9 0.2 3.2
3.7 0.4 3.3
3.6 1993 0.7 1996 3.2
3.5 0.2 3.4
3.5 0.6 3.3
3.8 0.5 3.2
3.8 0.5 3.1
3.6 0.6 3.0
1990 3.3 0.9 3.0
2.6 1.2 2.9
2.3 1.2 3.3
1.9 1.6 3.5
1.7 1.9 3.7
1.4 1.9 3.6
1.3
1.0
1.2
1.1
1.1
1.4
</TABLE>
Past performance is no guarantee of future results. Real rate is the Fed Funds
Rate adjusted for inflation (Fed Funds Rate less the annual rise in the PCE
Deflator.
2
<PAGE>
Strong Economic Growth and Low Inflation Creates a Good Environment for Stocks
. Economic Growth . Inflation . S&P 500 Index
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Economic Growth Inflation S&P 500 Index
<S> <C> <C> <C>
3/31/96 0.0244947 0.0202342 645.5
6/30/96 0.0386227 0.0186498 670.63
9/30/96 0.0354706 0.0184687 687.31
12/31/96 0.0391638 0.0179149 740.74
3/31/97 0.0413665 0.0191902 757.12
6/30/97 0.0361671 0.0200476 885.14
9/30/97 0.0414872 0.0184071 947.28
12/31/97 0.0382776 0.0169645 970.43
3/31/98 0.0415791 0.0117117 1101.75
6/30/98 0.0362248 0.0101409 1133.84
9/30/98 0.0349067 0.00966357 1017.01
12/31/98 0.0414622 0.00865299 1229.23
</TABLE>
Past performance is no guarantee of future results. "Economic Growth" measured
by GDP year over year percentage change. "Inflation" measured by GDP Implicit
Price Deflator year over year percentage change. S&P 500 is an unmanaged index
of common stocks and it is not possible to invest directly in such an index.
stocks. The Russell 3000 Growth Index gained 9.0% in the fourth quarter and
35.0% for the year, while the Russell 3000 Value Index returned 3.4% for the
quarter and only 13.5% for the year.
Bonds
The flight to quality that occurred in the third quarter reversed itself in the
fourth as hopes for stability returned to the global financial markets. Treasury
securities, in particular, lost appeal as a safe haven. In response to Federal
Reserve easing, investors shifted money out of Treasuries to other bond markets
and to stocks. Hopes of more rate cuts by the Federal Reserve faded in the
quarter, as the U.S. economy continued to show signs of strength. This
development further sapped demand for Treasuries and pushed yields higher.
In a partial reversal of the previous quarter, corporate, high yield and
emerging markets debt outperformed Treasuries during the fourth quarter.
Monetary easing worldwide calmed global financial markets and made investors
less wary of owning non-Treasury bonds. Although credit spreads did not return
to normal levels in the corporate and high yield markets, strong U.S. economic
growth boosted confidence that corporate earnings and credit quality would hold
up.
Portfolio Composition
Interest rate cuts by central banks have helped lessen the stress in the global
economy. However, global over-capacity, decreasing demand and other deflationary
forces that still exist cannot be ignored. These influences could adversely
affect corporate profits in the year ahead. With real interest rates high and
the global economic outlook gloomy, the Federal Reserve has room to ease --a
move which should be stimulative to the economy and the stock market. For this
reason, our portfolios remain overweight in equities relative to bonds. Non-U.S.
market positions will still be slightly favored over the U.S. equity market, as
we believe economic and monetary union in Europe provides opportunities for
these companies to enhance their competitiveness in the world marketplace. The
bond portion of our portfolios will maintain a longer duration than the
benchmarks going forward. An above-benchmark weighting of mortgages will be used
as a prudent way to enhance portfolio yield. Corporate debt securities will
comprise a lesser portion of the portfolios than the benchmark while risks of
renewed financial market turmoil are still present.
3
<PAGE>
Today's
Investor
Wall Street 101--A quick course in Street Talk
Are you puzzling over P/Es? Having trouble telling a small-cap from a pillbox
hat? Take heart. You're in good company. Today, millions of Americans are
learning the language of Wall Street. That's because more and more of us are
investing in the market. In the past ten years, we've doubled the percentage of
our assets we invest in stocks. In fact, stocks now represent a greater share of
our personal wealth than our homes do. And mutual funds have overtaken banks as
our investment medium of choice.
So, to give you a leg up on some of the basic jargon, we've put together this
short overview. It's intended to give you a better understanding of what's
happening on Wall Street and in your investment portfolio.
The Bulls Versus the Bears
Despite some bumps in the road, for the past eight years the stock market has
posted one of the all-time great "bull runs". A good bull run is just another
way of saying bull market, which typically refers to a prolonged period of
rising stock, bond or commodity prices. A bear market is just the opposite. Many
bears view 1998's sharp and frequent fluctuations (i.e., volatility) as the
early stages of a down market. Bulls, on the other hand, see these dizzying
bursts of volatility as mere blips in the course of a continuing upward trend.
A New Economy?
1998 was the fourth consecutive year the overall stock market gained over 20%.
This unprecedented performance has led some observers to speculate about a new
paradigm, or a new set of rules governing the market. You'll also hear Wall
Street bulls and Silicon Valley pundits talking about a new economy. That's a
term they use to describe the way globalization and information technologies are
changing the way the economy works. Governments around the world are stepping
back and allowing the free market to drive their economies. The spirit of
enterprise is widespread, and new technological innovations have made it
possible for businesses to do more at lower cost and in less time.
The Pros and Cons of Globalization
Many large American companies have expanded their overseas operations in recent
years, partly in response to a new, friendlier international business climate.
In fact, many of these multinationals now earn more of their profits abroad than
at home. In many ways, this globalization has been a boon to the American market
and to the individual investor.
Percent of Foreign Sales
Many companies derive a large portion of their sales from foreign countries.
[BAR GRAPH APPEARS HERE]
Coca Cola McDonalds General Electric Nike
64% 49% 42% 40%
Based on non-U.S. sales, 1997.
Source: Company annual reports.
However, globalization is a double-edged sword. These new rewards have brought
new risks. When companies are heavily invested in overseas markets, and thus
reliant on foreign earnings, they are more vulnerable to international crises
such as those that occurred in recent years. So even though you may not be
investing directly in international stocks or mutual funds, your investments may
not be immune to international turmoil. In fact, the Asian crisis that began in
1997 and the collapse of the Russian economy in 1998 are two threats to the
ongoing health of the bull market.
Short-Term Market Gyrations Were the Norm Last Year
The bulls and the bears could each make a case for their views given the
market's volatility in 1998
[LINE GRAPH APPEARS HERE]
S & P 500 INDEX
<TABLE>
<S> <C> <C> <C> <C> <C>
1/2 975.04 5/1 1121.00 9/4 973.89
1/9 927.69 5/8 1108.14 9/11 1009.06
1/16 961.51 5/15 1108.73 9/18 1020.09
1/23 957.59 5/22 1110.47 9/25 1044.75
1/30 980.28 5/29 1090.82
10/2 1002.60
2/6 1012.46 6/5 1113.86 10/9 984.39
2/13 1020.09 6/12 1098.84 10/16 1056.42
2/20 1034.21 6/19 1100.65 10/23 1070.67
2/27 1049.34 6/26 1133.20 10/30 1098.67
3/6 1055.69 7/3 1146.42 11/6 1141.01
3/13 1068.61 7/10 1164.33 11/13 1125.72
3/20 1099.16 7/17 1186.75 11/20 1163.55
3/27 1095.44 7/24 1140.80 11/27 1192.29
7/31 1120.67
4/3 1122.70 12/4 1176.74
4/10 1110.67 8/7 1089.45 12/11 1166.46
4/17 1122.72 8/14 1062.75 12/18 1188.03
4/24 1107.90 8/21 1081.18 12/25 1226.27
8/28 1027.14
</TABLE>
12/97 S&P 500 Index 12/98
4
<PAGE>
The Ongoing Appeal of Blue Chips
A common strategy to manage risk during times of instability is to focus on
higher quality investments. In the case of equities, quality means blue chips, a
term, which derives from the most expensive (blue) chips, used in poker. Most
blue-chip stocks are household names, like IBM, Coca-Cola, Gillette and Walt
Disney. They have long records of profit, growth and solid reputations for the
high standard of their management, products and services. Their relatively high
stock prices are often justified by their unique combination of growth and
stability. The largest capitalized stocks are known collectively as "The Nifty
Fifty."
Disappearing Dividends
Blue-chip stocks have had a long-standing reputation for paying dividends, the
portion of a company's net profits it pays to its shareholders. But
increasingly, blue chip and many other companies are reinvesting their earnings
in their own businesses to pay for expansion, research and marketing. A dividend
certainly can no longer be taken as a measure of a company's success, as it once
was. For example, thriving companies like Microsoft, Cisco, and Oracle do not
pay them.
The Valuation Game
As an investor, you can determine the value of a stock in a number of ways. One
of the most commonly used is a stock's "price/earnings (P/E) ratio," also known
as its multiple. Because a stock is essentially a claim on a company's future
profits, it's important to know how much you're paying for each dollar of that
profit. The P/E will give you the answer. And it's obtained by dividing the
price of a stock by its earnings per share. Here's an example:
How to Calculate P/E
(Stockprice / Earnings per share)
Stock price $40
Earnings per share / $2
----------------------------------
= P/E ratio: 20
While P/Es are fairly straight forward, it's important to know what's being used
as the "earnings per share" figure. P/Es may be based on earnings for the most
recent four quarters (i.e., trailing P/Es) or on a forecast of next year's
earnings (i.e., forward P/Es). The Wall Street Journal's stock quotations, for
example, list trailing P/Es.
In the past, stocks with high P/Es (over 20) tended to belong to young, dynamic
companies. Low P/E stocks were associated with older, more mature companies. But
in these days of soaring stock prices, many blue-chip stocks have sported
record-high P/Es. As of December 31, 1998, well-established companies like
Gillette and Coca-Cola had P/Es over 40.
Net Stocks--How High is Up?
The truth is, no one really knows how to value "Net" (Internet) stocks, like
Yahoo! and Amazon.com. As their prices have soared up, up, and away, they've
left the old rules of valuation behind in the dust. Despite sky-high stock
prices, many Internet companies have yet to make a dime of profit, making P/E
ratios virtually meaningless. As a result, many analysts have turned to
price/sales (P/S) ratios and price/cash-flow (P/CF) ratios in an attempt to
measure what these companies actually earn each year.
America Online's Stock Increased Over 400% in 1998
High growth prospects led to sky-high return for many Internet companies.
[LINE GRAPH APPEARS HERE]
AMERICA ONLINE'S STOCK PRICE RANGE FROM 12/31/97 - 12/31/98
<TABLE>
<S> <C> <C> <C> <C> <C>
1/2 22 13/32 5/1 41 3/4 9/4 43
1/9 21 11/32 5/8 45 1/16 9/11 47 1/2
1/16 23 1/4 5/15 42 15/32 9/18 48 15/16
1/23 23 13/16 5/22 42 5/16 9/25 57 3/8
1/30 23 29/32 5/29 41 21/32
10/2 53 19/32
2/6 24 5/8 6/5 41 5/8 10/9 46 5/32
2/13 28 9/16 6/12 43 9/16 10/16 51
2/20 29 55/64 6/19 48 3/16 10/23 57 15/32
2/27 30 11/32 6/26 53 7/8 10/30 63 11/16
3/6 30 3/8 7/3 55 5/32 11/6 70
3/13 31 29/32 7/10 56 1/4 11/13 70
3/20 31 1/4 7/17 64 11/20 84 7/8
3/27 34 1/2 7/24 59 19/32 11/27 94 7/8
7/31 58 9/16
4/3 37 1/4 12/4 88
4/10 36 3/4 8/7 55 15/16 12/11 91 9/16
4/17 36 25/32 8/14 53 1/8 12/18 104 1/4
4/24 37 1/4 8/21 55 1/16 12/25 136 5/8
8/28 48 1/8
</TABLE>
Returns from America Online from 12/31/97- 12/31/98. Past performance is no
guarantee of future results.
Diversification--the Real Name of the Game
One last thing to keep in mind--your best protection against all the market's
ups and downs is to maintain a well-balanced portfolio. Asset
Allocation--meaning the mix of stock, bond and money market funds--could be the
single most important factor in determining the long-term success of your
portfolio, even more important than the specific investments you choose.
Given the importance of asset allocation, more and more investors are opting to
work with a professional financial adviser and asset allocation specialists.
PIMCO Funds Asset Allocation Portfolios may be an ideal option for these
investors, providing a broadly diversified portfolio in a single investment.
5
<PAGE>
Asset
Allocation
Series
PIMCO Funds Semi-Annual Report
Dear Shareholder:
We are pleased to present our first shareholder report for the PIMCO Funds Asset
Allocation Series. Within this report you will find a performance analysis of
each of the three Asset Allocation Portfolios, as well as detailed financial
statements.
Schedule of Investment
The schedule of investments includes a listing of securities in the Fund's
portfolio as of December 31, 1998, including the number of shares or principal
amount and value as of that date.
Financial Highlights
This table shows a per share breakdown of the factors that affect the
Portfolios' NAV for the current and past reporting periods. The financial
highlights table includes total return, distributions, asset size, and expense
ratios.
Statements of Assets and Liabilities
A "balance sheet" of the Portfolios as of the last day of the fiscal period.
This statement includes the Portfolio's NAV per share, which is calculated by
dividing net assets (assets minus liabilities) by the number of shares
outstanding.
Statements of Operations
A list of the Portfolios' income, expenses, and gains and losses on
transactions. In addition, the statement shows appreciation and depreciation
from the underlying Funds.
Statements of Changes in Net Assets
This statement reports the increase and decrease in the Portfolios' net assets
during the reporting period. Changes in net assets are due to a variety of
factors, including investment operations, dividends, distributions and capital
share transactions.
Notes to Financial Statements
A description of the significant accounting policies of the Portfolios, and more
detailed information about the schedules and tables that appear in the report.
We encourage you to review this report carefully, and to discuss any questions
you may have with your financial adviser.
The PIMCO Asset Allocation Portfolios have met with great success among
investors, such as yourself, who are looking for a broadly diversified portfolio
in a single investment. We appreciate the trust you have placed in us with your
investment, and we look forward to helping you meet your financial goals.
Sincerely,
/s/ Stephen J. Treadway
Stephen J. Treadway
President
January 29, 1999
6
<PAGE>
December 31, 1998
OBJECTIVE
Long-term capital appreciation
PORTFOLIO
80-100% PIMCO Stock Funds
0-20% PIMCO
Bond Funds
INCEPTION DATE
9/30/98
DIVIDEND FREQUENCY
Annually
NET ASSETS
$3 million
PIMCO Funds 90/10 Portfolio
- --------------------------------------------------------------------------------
PERFORMANCE*
- --------------------------------------------------------------------------------
Total Return For period ended 12/31/98
A Shares B Shares C Shares
Adjusted Adjusted Adjusted
- -------------------------------------------------------------------------------
Inception 14.2% 8.0% 14.0% 9.1% 13.1%
*The adjusted returns above include the effect of paying the applicable sales
charges. Past performance is not an indication of future results. See page 10
for Footnotes, which include additional details.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
We are pleased to introduce the PIMCO Funds Asset Allocation Series which
consists of three professionally managed mutual funds that invest in a
diversified portfolio of PIMCO Funds. The 90/10 Portfolio seeks long-term
capital appreciation, with a strategic allocation of 90% stock Funds and 10%
bond Funds. In the fourth quarter the Class A shares posted a return of 14.2%,
the Class B shares returned 14.0%, and the Class C shares returned 13.1%. At the
end of the period the Portfolio's actual allocation was 96% stock funds and 4%
bond funds. This allocation was a significant positive for the Portfolio as
equities did better than fixed income for the quarter.
The asset allocation committee's tactical moves added value for the
quarter. In total, the moves enhanced performance by three-quarters of one
percent. Specifically, the Portfolio was over-weighted in equities versus fixed
income, which added value during the quarter. Within the equity portion of the
portfolio value stocks were over-weighted versus growth stocks. This actually
was a drag on performance for the quarter. Lastly, the Portfolio slightly
favored non-U.S. equities, which had only a minimal negative impact.
On the stock side of the portfolio, the Value Fund, which has a relatively
large weight in the Portfolio, had a good quarter. It outperformed the Russell
1000 Value Index by over half a percent. Both the consumer staples sector and
the financial sector contributed to the Fund's performance. The broad market
Funds, including StocksPLUS and Enhanced Equity, posted stronger results than
the S&P 500 for the quarter, which added to returns. Retail, technology, and
consumer services sectors propelled the Enhanced Equity Fund. The International
Fund lagged its benchmark, as Latin America holdings were not strong performers
for the Fund. However, Asian holdings ended the year on a better note and could
continue to contribute to performance in 1999.
Only a fraction of the Portfolio's assets were invested in fixed income
during the quarter and this small amount resided in the Money Market Fund. This
tactical move paid off as stocks outperformed bonds in the fourth quarter. The
S&P 500 was up 21.43% versus the Lehman Aggregate Bond Index which was up only
0.34%.
Looking ahead, although interest rate cuts around the world helped lessen
the stress in the global economy, global over-capacity, decreasing demand, and
other deflationary forces still exist and cannot be ignored. These influences
could adversely affect corporate profits in the year ahead. However, with real
interest rates high and the global economic outlook gloomy, the Federal Reserve
has room to ease which should be simulative to the economy and the stock market.
The 90/10 Portfolio will likely remain overweight in equities relative to bonds,
as the excess liquidity created by the Fed's monetary policy flow into financial
assets.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
PIMCO Stock Funds 96%
PIMCO Bond Funds 4%
PIMCO Stock Funds % of
Total Investments
- --------------------------------------------------------------------------------
Growth
- --------------------------------------------------------------------------------
Enhanced Equity Fund 12.1%
- --------------------------------------------------------------------------------
Mid-Cap Equity Fund 5.8%
- --------------------------------------------------------------------------------
Core Equity Fund 3.3%
- --------------------------------------------------------------------------------
Blend
- --------------------------------------------------------------------------------
StocksPLUS Fund 11.6%
- --------------------------------------------------------------------------------
Capital Appreciation Fund 6.0%
- --------------------------------------------------------------------------------
Mid-Cap Growth Fund 5.6%
- --------------------------------------------------------------------------------
Small-Cap Growth Fund 2.3%
- --------------------------------------------------------------------------------
Value
Value Fund 22.3%
- --------------------------------------------------------------------------------
Small-Cap Value Fund 5.1%
- --------------------------------------------------------------------------------
International
- --------------------------------------------------------------------------------
International Fund 22.3%
- --------------------------------------------------------------------------------
Total Stock Funds 96.4%
- --------------------------------------------------------------------------------
PIMCO Bond Funds
- --------------------------------------------------------------------------------
Short Duration
- --------------------------------------------------------------------------------
Money Market Fund 1.6%
- --------------------------------------------------------------------------------
Intermediate Duration
- --------------------------------------------------------------------------------
Total Return Fund 1.8%
- --------------------------------------------------------------------------------
High Yield
- --------------------------------------------------------------------------------
High Yield Fund 0.2%
- --------------------------------------------------------------------------------
Total Bond Funds 3.6%
- --------------------------------------------------------------------------------
See page 11 for financial details.
7
<PAGE>
December 31, 1998
OBJECTIVE
Long-term capital appreciation and current income
PORTFOLIO
50-70% PIMCO Stock Funds
30-50% PIMCO
Bond Funds
INCEPTION DATE
9/30/98
DIVIDEND FREQUENCY
Quarterly
NET ASSETS
$3 million
PIMCO Funds 60/40 Portfolio
- --------------------------------------------------------------------------------
PERFORMANCE*
- --------------------------------------------------------------------------------
Total Return For period ended 12/31/98
A Shares B Shares C Shares
Adjusted Adjusted Adjusted
- --------------------------------------------------------------------------------
Inception 10.1% 4.0% 9.9% 4.9% 8.9%
*The adjusted returns above include the effect of paying the applicable sales
charges. Past performance is not an indication of future results. See page 10
for Footnotes, which include additional details.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
We are pleased to introduce the PIMCO Funds Asset Allocation Series which
consists of three professionally managed mutual funds that invest in a
diversified portfolio of PIMCO Funds. The 60/40 Portfolio seeks long-term
capital appreciation and current income. The Portfolio's strategic allocation is
60% stock Funds and 40% bond Funds. In the fourth quarter the fund's Class A
shares posted a return of 10.1%, the Class B shares returned 9.9%, and the Class
C shares returned 8.9%. At the end of the period the Portfolio's actual
allocation was 65% stock Funds and 35% bond Funds. This helped the Portfolio's
performance as equities did better than fixed income for the quarter.
Tactical asset allocation moves by the committee added value for the
quarter. In total, the moves enhanced performance by one-half of one percent.
Specifically, the Portfolio was over-weighted in equities versus fixed income,
which added value during the quarter. Within the equity portion of the
Portfolio, value stocks were over-weighted versus growth stocks. This actually
was a drag on performance for the quarter. Lastly, the Portfolio slightly
favored non-U.S. equities, which had only a minimal negative impact.
On the stock side of the Portfolio, the Value Fund, which has a relatively
large weight in the Portfolio, had a good quarter. It outperformed the Russell
1000 Value Index by over half a percent. Both the consumer staples sector and
the financial sector contributed to the Fund's performance. The broad market
Funds, including StocksPLUS and Enhanced Equity, posted stronger results than
the S&P 500 for the quarter, which added to returns. Retail, technology, and
consumer services sectors propelled the Enhanced Equity Fund. The International
Fund lagged its benchmark, as Latin America holdings were not strong performers
for the fund. However, Asian holdings ended the year on a better note and could
continue to contribute to performance in 1999.
As for the bond portion of the Portfolio, the Total Return Fund matched the
performance of the Lehman Brothers Aggregate Bond Index and outperformed the
Index by over one percent for the year. The holdings of below-investment grade
bonds added to returns as the Federal Reserve's interest rate cuts made
investors less wary of risk. In addition, synchronized interest cuts around the
world helped the Funds foreign holdings. The High Yield Fund also beat its
benchmark as signs of strong economic activity narrowed spreads on its single-B
holdings. The strong performance of the telecommunications and cable sectors
added to performance as the Fund was overweight in those sectors.
Looking ahead, although interest rate cuts around the world helped lessen
the stress in the global economy, global over-capacity, decreasing demand, and
other deflationary forces still exist and cannot be ignored. These influences
could adversely affect corporate profits in the year ahead. However, with real
interest rates high and the global economic outlook gloomy, the Federal Reserve
has room to ease which should be simulative to the economy and the stock market.
The 60/40 Portfolio will likely remain overweight in equities relative to bonds,
as the excess liquidity created by the Fed's monetary policy flow into financial
assets.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
65% PIMCO Stock Funds
35% PIMCO Bond Funds
PIMCO Stock Funds % of
Total Investments
- -------------------------------------------------------------
Growth
- -------------------------------------------------------------
Enhanced Equity Fund 8.2%
- -------------------------------------------------------------
Mid-Cap Equity Fund 3.9%
- -------------------------------------------------------------
Core Equity Fund 2.3%
- -------------------------------------------------------------
Blend
- -------------------------------------------------------------
StocksPLUS Fund 8.0%
- -------------------------------------------------------------
Capital Appreciation Fund 4.1%
- -------------------------------------------------------------
Mid-Cap Growth Fund 3.8%
- -------------------------------------------------------------
Small-Cap Growth Fund 1.5%
- -------------------------------------------------------------
Value
- -------------------------------------------------------------
Value Fund 15.1%
- -------------------------------------------------------------
Small-Cap Value Fund 3.4%
- -------------------------------------------------------------
International
- -------------------------------------------------------------
International Fund 14.8%
- -------------------------------------------------------------
Total Stock Funds 65.1%
- -------------------------------------------------------------
PIMCO Bond Funds
- -------------------------------------------------------------
Short Duration
- -------------------------------------------------------------
Money Market 1.6%
- -------------------------------------------------------------
Intermediate Duration
- -------------------------------------------------------------
Total Return Fund 29.8%
- -------------------------------------------------------------
High Yield
- -------------------------------------------------------------
High Yield Fund 3.5%
- -------------------------------------------------------------
Total Bond Funds 34.9%
- -------------------------------------------------------------
See page 11 for financial details.
8
<PAGE>
December 31, 1998
Objective
Current income with long-term capital appreciation as a secondary objective
Portfolio
25-35% PIMCO Stock Funds,
65-75% PIMCO Bond Funds
Inception Date
9/30/98
Dividend Frequency
Monthly
Net Assets
$2 million
PIMCO Funds 30/70 Portfolio
- --------------------------------------------------------------------------------
PERFORMANCE*
- --------------------------------------------------------------------------------
Total Return For period ended 12/31/98
A Shares B Shares C Shares
Adjusted Adjusted Adjusted
- --------------------------------------------------------------------------------
Inception 6.0% 0.2% 5.8% 0.8% 4.8%
*The adjusted returns above include the effect of paying the applicable sales
charges. Past performance is not an indication of future results. See page 10
for Footnotes, which include additional details.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
We are pleased to introduce the PIMCO Funds Asset Allocation Series which
consists of three professionally managed mutual funds that invest in a
diversified portfolio of PIMCO Funds. The 30/70 Portfolio seeks current income,
with long-term capital appreciation a secondary objective. The Portfolio's
strategic allocation is 30% stock Funds and 70% bond Funds. In the fourth
quarter the Portfolio's Class A shares posted a return of 6.0%, the Class B
shares returned 5.8%, and the Class C shares returned 4.8%. At the end of the
period the Portfolio's actual allocation was 33% stock Funds and 67% bond Funds.
The general move up in interest rates during the quarter did not help the
performance of this conservative, risk adverse Portfolio.
However, tactical asset allocation moves by the committee did add value
during the quarter. Specifically, the Portfolio was over-weighted in equities
versus fixed income, which helped returns. Within the equity portion of the
Portfolio, value stocks were over-weighted versus growth stocks. This actually
was a drag on performance for the quarter. Lastly, the Portfolio slightly
favored non-U.S. equities, which had only a minimal negative impact.
With regard to stocks, the broad market Funds, including StocksPLUS and
Enhanced Equity, posted stronger results than the S&P 500 for the quarter, which
added to the results. Retail, technology, and consumer services sectors
propelled the Enhanced Equity Fund. In addition, the Value Fund bounced back in
the fourth quarter outperforming the Russell 1000 Value Index by over half a
percent. Both the consumer staples sector and the financial sector contributed
to the Fund's performance. The International Fund lagged its benchmark, as Latin
America holdings were not strong performers for the Fund. However, Asian
holdings ended the year on a better note and could continue to contribute to
performance in 1999.
As for the bond portion of the Portfolio, the Total Return Fund matched the
performance of the Lehman Brothers Aggregate Bond Index. The holdings of
below-investment grade bonds added to returns as the Federal Reserve's interest
rate cuts made investors less wary of risk. In addition, synchronized interest
rate cuts around the world helped the Fund's foreign holdings. The High Yield
Fund also beat its benchmark as signs of a strong economy narrowed spreads on
its single-B holdings. The strong performance of the telecommunications and
cable sectors added to performance as the Fund was overweight in those sectors.
Looking ahead, although interest rate cuts around the world helped lessen
the stress in the global economy, global over-capacity, decreasing demand, and
other deflationary forces still exist and cannot be ignored. These influences
could adversely affect corporate profits in the year ahead. However, with real
interest rates high and the global economic outlook gloomy, the Federal Reserve
has room to ease which should be stimulative to the economy and the stock
market. The 30/70 Portfolio will likely remain overweight in equities relative
to bonds, as the excess liquidity created by Fed's monetary policy flow into
financial assets.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
PIMCO Bond Funds 67%
PIMCO Stock Funds 33%
PIMCO Stock Funds % of
Total Investments
- -----------------------------------------------------------------
Growth
Enhanced Equity Fund 4.2%
- -----------------------------------------------------------------
Mid-Cap Equity Fund 2.0%
- -----------------------------------------------------------------
Core Equity Fund 1.2%
- -----------------------------------------------------------------
Blend
- -----------------------------------------------------------------
StocksPLUS Fund 4.0%
- -----------------------------------------------------------------
Capital Appreciation Fund 2.1%
- -----------------------------------------------------------------
Mid-Cap Growth Fund 1.9%
- -----------------------------------------------------------------
Small-Cap Growth Fund 0.8%
- -----------------------------------------------------------------
Value
- -----------------------------------------------------------------
Value Fund 7.6%
- -----------------------------------------------------------------
Small-Cap Value Fund 1.7%
- -----------------------------------------------------------------
International
- -----------------------------------------------------------------
International Fund 7.6%
- -----------------------------------------------------------------
Total Stock Funds 33.1%
- -----------------------------------------------------------------
PIMCO Bond Funds
- -----------------------------------------------------------------
Short Duration
- -----------------------------------------------------------------
Money Market Fund 1.6%
- -----------------------------------------------------------------
Intermediate Duration
- -----------------------------------------------------------------
Total Return Fund 58.6%
- -----------------------------------------------------------------
High Yield
- -----------------------------------------------------------------
High Yield Fund 6.7%
- -----------------------------------------------------------------
Total Bond Funds 66.9%
- -----------------------------------------------------------------
See page 11 for financial details.
9
<PAGE>
PIMCO Funds Profiles
PIMCO Funds Asset Allocation Portfolios invest solely in Institutional Class
shares of PIMCO Funds. These Funds are run by PIMCO Advisors'
institutional-quality investment managers. Together, PIMCO manages approximately
$244 billion in assets and boasts an institutional client list that includes 46
of the 100 largest U.S. corporations.
PIMCO's investment managers are dedicated to specific disciplines, ensuring that
each PIMCO Fund consistently adheres to its stated investment objective and
strategy.
The following provides a closer look at each of the PIMCO Funds held in the
PIMCO Funds Asset Allocation Portfolios as of December 31, 1998.
<TABLE>
<CAPTION>
PIMCO STOCK FUNDS
- -----------------------------------------------------------------------------------------------------------------
Fund Name Objective Primary Portfolio Composition
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Core Equity Long-term growth of capital Stocks of larger-capitalized companies
Mid-Cap Equity Long-term growth of capital Stocks of medium-capitalized companies
Enhanced Equity Total return exceeding the Stocks represented in the S&P 500 Index
S&P 500 Index
- -----------------------------------------------------------------------------------------------------------------
Blend StocksPLUS Total return exceeding the S&P 500 stock index futures backed by
S&P 500 Index a portfolio of short-term, fixed-income
securities
Capital Appreciation Growth of capital Stocks of larger-capitalized companies
the manager believes are reasonably
priced
Mid-Cap Growth Growth of capital Stocks of medium-capitalized companies
the manager believes are reasonably
priced
Small-Cap Growth Growth of capital Stocks of smaller-capitalized companies
the manager believes are reasonably
priced
- -----------------------------------------------------------------------------------------------------------------
Value Value Long-term growth of capital Stocks of companies with
and income below-average P/Es
- -----------------------------------------------------------------------------------------------------------------
Small-Cap Value Long-term growth of capital Stocks of smaller-capitalized companies
and income with below-average P/Es
International International Capital appreciation Stocks of non-U.S. companies in
developed and emerging markets
PIMCO BOND FUNDS
- -----------------------------------------------------------------------------------------------------------------
Fund Name Objective Primary Portfolio Composition
- -----------------------------------------------------------------------------------------------------------------
Short Duration Money Market Maximum current income, Money market securities (less than 90 days)
consistent with preservation
of capital and daily liquidity
- -----------------------------------------------------------------------------------------------------------------
Intermediate Total Return Maximum total return Intermediate-term, investment-grade
Duration bonds (3-6 year duration)
- -----------------------------------------------------------------------------------------------------------------
High Yield High Yield Maximum total return High-yield bonds (2-6 year duration)
</TABLE>
Footnotes
A few notes and definitions are needed for a complete understanding of
the performance figures. Past performance is no indication of future results.
Investment return will fluctuate and the value of an investor's shares will
fluctuate and may be worth more or less than original cost when redeemed. Total
return measures performance, assuming that all dividends and capital gains
distributions were reinvested. Total return, both with and without a sales
charge, has been presented. For shareholders who have not bought or sold shares
during the period quoted, the non-adjusted figures are probably more meaningful
to you than the adjusted figures. The adjusted figures for Class A shares for
the 90/10 Portfolio and the 60/40 Portfolio include the effect of paying the
maximum initial sales charge of 5.5%. The adjusted figures for Class A shares
for the 30/70 Portfolio include the effect of paying the maximum initial sales
charge of 4.5%. The adjusted figures for Class B shares include the effect of
paying the contingent deferred sales charge (CDSC), which declines from 5% in
the first year to 0% at the beginning of the seventh year. The adjusted figures
for Class C shares include the effect of paying the 1% CDSC, which may apply to
shares redeemed during the first year of ownership. The PIMCO stock funds can
invest in foreign securities and the International Fund invest primarily in
these securities, which can involve special risks due to foreign economic and
political developments. These risks can be more pronounced with emerging market
securities. The Small-Cap Value Fund generally invest in small - cap stocks,
which can be riskier than the overall stock market. For additional details on
the underlying PIMCO funds in the Asset Allocation Series portfolios, contact
your financial advisor to receive a prospectus that contains more complete
information, including charges and expenses. Or contact PIMCO Funds Distributors
LLC at 2187 Atlantic Street, Stamford, CT 06902, 1-800-277-7337,
www.pimcofunds.com. Please read the prospectus carefully before you invest or
send money.
10
<PAGE>
Schedule of Investments
December 31, 1998 (Unaudited)
Value
90/10 Portfolio Shares (000s)
PIMCO FUNDS (b) 99.4%
Value 46,671 $ 653
International 59,027 652
Enhanced Equity 30,177 353
StocksPLUS 24,632 340
Capital Appreciation 7,029 175
Mid-Cap Equity 12,136 169
Mid-Cap Growth 7,058 163
Small-Cap Value 9,759 150
Core Equity 4,506 98
Small-Cap Growth 5,734 67
Total Return 4,946 52
Money Market 46,682 46
High Yield 629 7
--------
Total Investments (a) 99.4% $ 2,925
(Cost $2,879) ========
Other Assets and Liabilities (Net) 0.6% 19
--------
Net Assets 100.0% $ 2,944
========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1998, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation
for all investments in which there was an
excess of value over tax cost. $ 63
Aggregate gross unrealized depreciation
for all investments in which there was an
excess of tax cost over value. (17)
Unrealized appreciation-net $ 46
--------
(b) Institutional Class shares of each PIMCO Fund.
60/40 Portfolio
PIMCO FUNDS (b) 89.5%
Total Return 77,385 $ 816
Value 29,601 414
International 36,813 406
Enhanced Equity 19,335 226
StocksPLUS 15,857 219
Capital Appreciation 4,440 111
Mid-Cap Equity 7,776 108
Mid-Cap Growth 4,479 104
High Yield 8,389 95
Small-Cap Value 6,151 94
Core Equity 2,907 63
Money Market 43,116 43
Small-Cap Growth 3,609 42
Total Investments (a) 89.5% $ 2,741
(Cost $2,764) --------
Other Assets and Liabilities (Net) 10.5% 321
--------
Net Assets 100.0% $ 3,062
--------
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1998, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation
for all investments in which there was an
excess of value over tax cost. $ 30
Aggregate gross unrealized depreciation
for all investments in which there was an
excess of tax cost over value. (53)
--------
Unrealized depreciation-net $ (23)
========
(b) Institutional Class shares of each PIMCO Fund.
Value
Shares (000s)
30/70 Portfolio
PIMCO FUNDS (b) 82.0%
Total Return 80,921 $ 853
Value 7,956 111
International 9,945 110
High Yield 8,591 97
Enhanced Equity 5,194 61
StocksPLUS 4,252 59
Capital Appreciation 1,191 30
Mid-Cap Equity 2,098 29
Mid-Cap Growth 1,203 28
Small-Cap Value 1,650 25
Money Market 23,864 24
Core Equity 782 17
Small-Cap Growth 964 11
--------
Total Investments (a) 82.0% $ 1,455
(Cost $1,481) --------
Other Assets and Liabilities (Net) 18.0% 319
--------
Net Assets 100.0% $ 1,774
--------
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1998, the net unrealized appreciation
depreciation) of investments based on cost for federal
income tax purposes was as follows:
Aggregate gross unrealized appreciation
for all investments in which there was an
excess of value over tax cost. $ 8
Aggregate gross unrealized depreciation
for all investments in which there was an
excess of tax cost over value. (34)
--------
Unrealized depreciation-net $ (26)
--------
(b) Institutional Class shares of each PIMCO Fund.
See accompanying notes 11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected Per Share Data for the 90/10 Portfolio (a)(b) 60/40 Portfolio (a)(b)
Period Ended December 31, 1998: ----------------------------------- ------------------------------------
Class A Class B Class C Class A Class B Class C
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Net Investment Income (c) 0.18 0.18 0.18 0.19 0.18 0.18
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Net Realized / Unrealized Gain on Investments (c) 1.29 1.27 1.27 0.82 0.81 0.81
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Total Income from Investment Operations 1.47 1.45 1.45 1.01 0.99 0.99
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Dividends from Net Investment Income (0.18) (0.18) (0.18) (0.19) (0.18) (0.18)
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Total Distributions (0.18) (0.18) (0.18) (0.19) (0.18) (0.18)
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Net Asset Value End of Period 11.29 11.27 11.27 10.82 10.81 10.81
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Total Return 14.24% 14.09% 14.09% 10.07% 9.94% 9.94%
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Net Assets End of Period (000s) $ 167 $ 795 $ 1,982 $ 207 $ 1,443 $ 1,412
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Ratio of Expenses to Average Net Assets* 0.65% 1.40% 1.40% 0.65% 1.40% 1.40%
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Ratio of Net Investment Income to Average Net Assets 18.37% 17.86% 17.86% 18.69% 18.40% 18.39%
- ---------------------------------------------------- ----------------------------------- ------------------------------------
Portfolio Turnover Rate 0% 0% 0% 12% 12% 12%
- ---------------------------------------------------- ----------------------------------- -------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Selected Per Share Data for the 30/70 Portfolio (a)(b)
Period Ended December 31, 1998: -----------------------------------
Class A Class B Class C
<S> <C> <C> <C>
Net Asset Value Beginning of Period $ 10.00 $ 10.00 $ 10.00
- ---------------------------------------------------- -----------------------------------
Net Investment Income (c) 0.20 0.19 0.19
- ---------------------------------------------------- -----------------------------------
Net Realized / Unrealized Gain on Investments (c) 0.33 0.32 0.31
- ---------------------------------------------------- -----------------------------------
Total Income from Investment Operations 0.53 0.51 0.50
- ---------------------------------------------------- -----------------------------------
Dividends from Net Investment Income (0.20) (0.19) (0.19)
- ---------------------------------------------------- -----------------------------------
Total Distributions (0.20) (0.19) (0.19)
- ---------------------------------------------------- -----------------------------------
Net Asset Value End of Period 10.33 10.32 10.31
- ---------------------------------------------------- -----------------------------------
Total Return 6.02% 5.80% 5.76%
- ---------------------------------------------------- -----------------------------------
Net Assets End of Period (000s) $ 123 $ 1,036 $ 615
- ---------------------------------------------------- -----------------------------------
Ratio of Expenses to Average Net Assets* 0.65% 1.40% 1.40%
- ---------------------------------------------------- -----------------------------------
Ratio of Net Investment Income to Average Net Assets 20.11% 18.94% 19.48%
- ---------------------------------------------------- -----------------------------------
Portfolio Turnover Rate 11% 11% 11%
- ---------------------------------------------------- -----------------------------------
</TABLE>
* Annualized
(a) Unaudited
(b) Commenced operations on September 30, 1998.
(c) Per share amounts based on average number of shares outstanding during the
period.
12 See accompanying notes
<PAGE>
Statements of Assets and Liabilities
December 31, 1998 (Unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
90/10 Portfolio 60/40 Portfolio 30/70 Portfolio
--------------- --------------- ---------------
<S> <C> <C> <C>
Assets:
Investments, at value $ 2,925 $ 2,741 $ 1,455
- ----------------------------------------------------- --------------- --------------- ---------------
Cash 77 359 30
- ----------------------------------------------------- --------------- --------------- ---------------
Receivable for Fund shares sold 26 326 326
- ----------------------------------------------------- --------------- --------------- ---------------
Interest and dividends receivable 15 12 7
- ----------------------------------------------------- --------------- --------------- ---------------
3,043 3,438 1,818
- ----------------------------------------------------- --------------- --------------- ---------------
Liabilities:
Payable for investments $ 92 $ 372 $ 38
- ----------------------------------------------------- --------------- --------------- ---------------
Dividends payable 5 2 5
- ----------------------------------------------------- --------------- --------------- ---------------
Accrued administration fee 1 1 0
- ----------------------------------------------------- --------------- --------------- ---------------
Accrued distribution fee 1 1 1
- ----------------------------------------------------- --------------- --------------- ---------------
99 376 44
- ----------------------------------------------------- --------------- --------------- ---------------
Net Assets $ 2,944 $ 3,062 $ 1,774
- ----------------------------------------------------- --------------- --------------- ---------------
Net Assets Consist of:
Paid in capital $ 2,787 $ 2,975 $ 1,763
- ----------------------------------------------------- --------------- --------------- ---------------
Undistributed (overdistributed) net investment income (3) (2 0
- ----------------------------------------------------- --------------- --------------- ---------------
Accumulated undistributed net realized gain 114 112 37
- ----------------------------------------------------- --------------- --------------- ---------------
Net unrealized appreciation (depreciation) 46 (23 (26
- ----------------------------------------------------- --------------- --------------- ---------------
$ 2,944 $ 3,062 $ 1,774
- ----------------------------------------------------- --------------- --------------- ---------------
Net Assets:
Class A $ 16 $ 207 $ 123
- ----------------------------------------------------- --------------- --------------- ---------------
Class B 795 1,443 1,036
- ----------------------------------------------------- --------------- --------------- ---------------
Class C 1,982 1,412 615
- ----------------------------------------------------- --------------- --------------- ---------------
Shares Issued and Outstanding:
Class A 15 18 12
- ----------------------------------------------------- --------------- --------------- ---------------
Class B 71 134 100
- ----------------------------------------------------- --------------- --------------- ---------------
Class C 176 131 60
- ----------------------------------------------------- --------------- --------------- ---------------
Net Asset Value and Redemption Price* Per Share
(Net Assets Per Share Outstanding):
Class A $ 11.29 $ 10.82 $ 10.33
- ----------------------------------------------------- --------------- --------------- ---------------
Class B 11.27 10.81 10.32
- ----------------------------------------------------- --------------- --------------- ---------------
Class C 11.27 10.81 10.31
- ----------------------------------------------------- --------------- --------------- ---------------
Cost of Investments Owned $ 2,879 $ 2,764 $ 1,481
- ----------------------------------------------------- --------------- --------------- ---------------
</TABLE>
* With respect to the A, B and C Classes, the redemption price varies by the
length of time the shares are held.
See accompanying notes 13
<PAGE>
Statements of Operations
For the three months ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
90/10 Portfolio 60/40 Portfolio 30/70 Portfolio
- -------------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Investment Income:
Dividends $ 49 $ 51 $ 30
- -------------------------------------------------------------------- --------------- --------------- ---------------
Total Income 49 51 30
==================================================================== =============== =============== ===============
Expenses:
Administration fees 1 1 1
- -------------------------------------------------------------------- --------------- --------------- ---------------
Distribution fees - Class B 1 1 1
- -------------------------------------------------------------------- --------------- --------------- ---------------
Distribution fees - Class C 2 1 0
- -------------------------------------------------------------------- --------------- --------------- ---------------
Servicing fees - Class B 0 1 0
- -------------------------------------------------------------------- --------------- --------------- ---------------
Servicing fees - Class C 1 1 0
- -------------------------------------------------------------------- --------------- --------------- ---------------
Total expenses 5 5 2
- -------------------------------------------------------------------- --------------- --------------- ---------------
Net Investment Income (Loss) 44 46 28
==================================================================== =============== =============== ===============
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 114 112 37
- -------------------------------------------------------------------- --------------- --------------- ---------------
Net change in unrealized appreciation (depreciation) on investments 46 (23) (26)
- -------------------------------------------------------------------- --------------- --------------- ---------------
Net Gain 160 89 11
- -------------------------------------------------------------------- --------------- --------------- ---------------
Net Increase in Assets Resulting from Operations $ 204 $ 135 $ 39
==================================================================== =============== =============== ===============
</TABLE>
14 See accompanying notes
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
90/10 Portfolio 60/40 Portfolio 30/70 Portfolio
---------------------- --------------------- ----------------------
Amounts in thousands Period from Period from Period from
September 30, 1998 September 30, 1998 September 30, 1998
to December 31, 1998 to December 31,1998 to December 31, 1998
Increase (Decrease) in Net Assets from: (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Operations:
Net investment income $ 44 $ 46 $ 28
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Net realized gain 114 112 37
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Net change in unrealized appreciation (depreciation) 46 (23) (26)
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Net increase resulting from operations 204 135 39
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Distributions to Shareholders:
From net investment income
Class A (3) (4) (2)
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class B (13) (21) (16)
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class C (31) (23) (10)
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Total Distributions (47) (48) (28)
====================================================== ===================== ===================== ======================
Fund Share Transactions:
Receipts for shares sold
Class A 191 254 156
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class B 852 1,425 1,051
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class C 1,953 1,407 638
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Issued as reinvestment of distributions
Class A 0 3 1
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class B 0 19 13
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class C 0 23 9
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Cost of shares redeemed
Class A (38) (62) (35)
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class B (99) (36) (35)
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Class C (72) (58) (35)
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Net increase resulting from Fund share transactions 2,787 2,975 1,763
- ------------------------------------------------------ --------------------- --------------------- ----------------------
Total Increase in Net Assets 2,944 3,062 1,774
====================================================== ===================== ===================== ======================
Net Assets:
Beginning of period 0 0 0
- ------------------------------------------------------ --------------------- --------------------- ----------------------
End of period * $ 2,944 $ 3,062 $ 1,774
- ------------------------------------------------------ --------------------- --------------------- ----------------------
*Including net undistributed investment income of: $ (3) $ (2) $ 0
- ------------------------------------------------------ --------------------- --------------------- ----------------------
</TABLE>
See accompanying notes 15
<PAGE>
Notes to Financial Statements
December 31, 1998 (Unaudited)
1. Organization
PIMCO Funds: Multi-Manager Series (the "Trust"), is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company organized as a Massachusetts business trust. The Trust currently
consists of twenty-eight funds. Information presented in these financial
statements pertains to the Asset Allocation Series of the Trust which is
comprised of the 90/10 Portfolio, 60/40 Portfolio and 30/70 Portfolios,
collectively referred to as (the "Portfolios"). The financial Statement of Funds
are presented under separate cover. The Portfolios are professionally- managed
series of the Trust designed to take advantage of the benefits of asset
allocation. Each Portfolio seeks to achieve its particular investment objective
by investing within specified equity and fixed income ranges among a number of
other mutual funds in the PIMCO Funds family (the "Underlying Funds"). The
Portfolios may offer up to three classes of shares: A, B and C. Each share class
has identical voting rights (except shareholders of a class that have exclusive
voting rights regarding any matter relating solely to that class of shares).
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. Investments in the Underlying Funds are valued at the price
of each Institutional share class of the respective Underlying Fund determined
as of the close of the New York Stock Exchange or the valuation date.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Distributions from the Underlying
Funds are recorded on the ex-dividend date.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, are declared and paid to shareholders of record at least
annually by the 90/10 Portfolio, at least quarterly by 60/40 Portfolio and at
least monthly by the 30/70 Portfolio. Net long-term capital gains earned by a
Portfolio, if any, will be distributed no less frequently than once each year.
Income dividends and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Multiclass Operations. Each class offered by the Trust has equal rights as to
assets. Income, non-class specific expenses and realized and unrealized capital
gains and losses are allocated to each class of shares based on the relative net
assets of each class.
Federal Income Taxes. Each Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net realized
gains, if applicable, to shareholders. Accordingly, no provision for Federal
income taxes has been made.
3. Fees, Expenses, and Related Party Transactions
Administration Fee. PIMCO Advisors L.P. ("PIMCO Advisors") provides
administrative services to the Trust for which it receives monthly fees from
each Portfolio at the annual rate of 0.40% based on the average daily net assets
of each Portfolio on the first $2.5 billion of net assets and 0.35% based on
such net assets in excess of $2.5 billion. In addition, the Portfolios
indirectly bear their pro-rata share of expenses of the Underlying Funds.
Expenses. Under the terms of the Administrative Agreement ("the Agreement")
PIMCO Advisers has agreed to bear any and all fees and expenses of the Portfolio
(other than the administrative fee payable under the Agreement), except for (i)
salaries and other compensation of any of the Trust's executive officers and
employees who are not officers, directors, stockholders or employees of PIMCO
Advisors, PIMCO, or its subsidiaries or affiliates; (ii) taxes and governmental
fees; (iii) brokerage fees and commissions and other portfolio transaction
expenses; (iv) the cost of borrowing money, including interest expenses; (v)
fees and expenses of the Trustees who are not "interested persons" of the
Adviser, any Portfolio Manager, or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) any expenses allocated or
allocable to a specific class of shares, which include distribution and/or
service fees payable and may
16
<PAGE>
include certain other expenses as permitted by the Trust's Multiple Class Plan
adopted pursuant to Rule 18f-3 under the Investment Company Act of 1940 and
subject to review and approval by the Trustees.
Each unaffiliated Trustee receives an annual retainer of $45,000, plus
$2,000 for each Board of Trustees meeting attended, and $500 for each Audit and
Performance Committee meeting attended, plus reimbursement of related expenses.
Each Audit and Performance Committee receives an additional annual retainer of
$1,000, the Chairman of the Audit and Performance Committees receives an
additional annual retainer of $2,000, the Chairman of the Independent Trustees
receives an additional annual retainer of $6,000, and each Vice Chairman of the
entire Board receives an additional annual retainer of $3,000. These expenses
are allocated to the Portfolios and to the Funds of the Trust according to their
respective net assets.
Distribution and Servicing Fees. PIMCO Funds Distributors LLC ("PFD") a
wholly-owned subsidiary of PIMCO Advisors L.P., serves as the distributor of the
Trust's shares.
Pursuant to the Distribution and Servicing Plans adopted by the A, B and C
Classes of the Trust, the Trust compensates PFD for services provided and
expenses incurred in connection with assistance rendered in the sale of shares
and services rendered to shareholders and for maintenance of shareholder
accounts of the Class A, Class B and Class C. The Trust paid PFD distribution
and servicing fees at an effective rate as set forth below (calculated as a
percentage of each Portfolio's average daily net assets attributable to each
class):
Distribution Fee (%) Servicing Fee (%)
- --------------------------------------------------------------------
Class A
All Portfolios -- 0.25
Class B
All Portfolios 0.75 0.25
Class C
All Portfolios 0.75 0.25
PFD also receives the proceeds of the initial sales charges paid by the
shareholders upon the purchase of Class A shares and the contingent deferred
sales charges paid by the shareholders upon certain redemptions of Class A, B
and C shares. For the period ended December 31, 1998, PFD received $18,180
representing commissions (sales charges) and contingent deferred sales charges.
4. Purchase and Sale of Securities
Purchases and sales of securities (excluding short-term investments) for the
three month ended December 31, 1998 were as follows (amounts in thousands):
Purchases Sales
- -------------------------------------------------------------
90/10 Portfolio $ 2,885 $ 6
60/40 Portfolio 2,959 212
30/70 Portfolio 1,576 95
5. Risk Factors of the Funds
Investing in the Underlying Funds through the Portfolios involves certain
additional expenses and tax results that would not be present in a direct
investment in the Underlying Funds. Under certain circumstances, an Underlying
Fund may pay a redemption request by a Portfolio wholly or partly by a
distribution in kind of securities from its portfolio, instead of cash, in
accordance with the rules of the Securities and Exchange Commission. In such
cases, the Portfolios may hold securities distributed by an Underlying Fund
until PIMCO Advisors determines that it is appropriate to dispose of such
securities.
Each of the Underlying Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
purposes; exchange-traded options; over-the-counter options executed with
primary dealers, including long calls and puts and covered calls and financial
futures and options. Certain of the Underlying Funds may invest in restricted
securities; instruments issued by trusts, partnerships or other issuers,
including pass-through certificates representing participations in, or debt
instruments backed by, the securities owned by such issuers. These Underlying
Funds also may engage in securities lending, reverse repurchase agreements and
dollar roll transactions. In addition, certain of the Underlying Funds may
invest in below-investment grade debt, debt obligations of foreign issuers and
stocks of foreign corporations, securities in foreign investment funds or
trusts, foreign derivative securities including futures contracts, options,
interest rate and currency swap transactions, and various other investment
vehicles, each with inherent risks.
The officers and directors of the Company also serve as officers and
directors/trustees of the Underlying Funds. Conflicts may arise as these
companies seek to fulfill their fiduciary responsibilities to both the
Portfolios and Underlying Funds.
17
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1998
6. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
90/10 Portfolio 60/40 Portfolio 30/70 Portfolio
------------------- ------------------- -------------------
Period from Period from Period from
9/30/98 to 12/31/98 9/30/98 to 12/31/98 9/30/98 to 12/31/98
Shares Amount Shares Amount Shares Amount
------------------- ------------------- -------------------
<S> <C> <C> <C>
Receipts for shares sold
Class A 18 $ 191 24 $ 254 15 $ 156
- ----------------------------------------- ------------------- ------------------- -------------------
Class B 79 852 135 1,425 102 1,051
- ----------------------------------------- ------------------- ------------------- -------------------
Class C 180 1,953 134 1,407 62 638
- ----------------------------------------- ------------------- ------------------- -------------------
Issued as reinvestment of distributions
Class A 0 0 0 3 0 1
- ----------------------------------------- ------------------- ------------------- -------------------
Class B 1 0 2 19 1 13
- ----------------------------------------- ------------------- ------------------- -------------------
Class C 3 0 2 23 1 9
- ----------------------------------------- ------------------- ------------------- -------------------
Cost of shares redeemed
Class A (3) (38) (6) (62) (3) (35)
- ----------------------------------------- ------------------- ------------------- -------------------
Class B (9) (99) (3) (36) (3) (35)
- ----------------------------------------- ------------------- ------------------- -------------------
Class C (7) (72) (5) (58) (3) (35)
- ----------------------------------------- ------------------- ------------------- -------------------
Net increase resulting from
Fund share transactions 262 $ 2,787 283 $ 2,975 172 $ 1,763
========================================= =================== =================== ===================
</TABLE>
18
<PAGE>
PIMCO Funds Asset Allocation Series
Actively managed portfolios of select PIMCO Funds
PIMCO Funds Asset Allocation Series offers unique access to the allocation and
investment capabilities of PIMCO Advisors L.P., manager of $244 billion,
including assets for 46 of the 100 largest U.S. corporations. To learn more
about PIMCO Funds Asset Allocation Portfolios, speak to your financial advisor,
or call 1-800-227-7337.
Manager PIMCO Advisors L.P., 800 Newport Center Drive,
Newport Beach, CA 92660
Distributor PIMCO Funds Distributors LLC, 2187 Atlantic Street,
Stamford, CT 06902
Custodian Investors Fiduciary Trust Company, 801 Pennsylvania,
Kansas City, MO 64105
Shareholder First Data Investor Services Group, Inc., P.O. Box 9688,
Servicing Agent and Providence, RI 02940-9688
Transfer Agent
Independent PricewaterhouseCoopers LLP, 1055 Broadway,
Accountant Kansas City, MO, 64105
Legal Counsel Ropes & Gray, One International Place,
Boston, MA 02110
For Account For PIMCO Funds Asset Allocation account information
Information contact your financial advisor, or if you receive account
statements directly from PIMCO Funds, you can also call
1-800-426-0107. Telephone representatives are available
Monday-Friday 8:30 am to 8:00 pm Eastern Time.
This is a copy of a report by PIMCO Funds to its Asset Allocation Series
shareholders. Distribution of this report to persons other than shareholders of
the Trust is authorized only when accompanied by the Trust's prospectus. This
report does not offer for sale or solicit orders to buy any securities.
This material is authorized for use only when preceded or accompanied by a
current PIMCO Funds Asset Allocation Series prospectus, which describes in
greater detail the investment policies, management fees and other matters of
interest to prospective investors. Please read the prospectus carefully before
you invest or send money. PZ028.2/99
P I M C O
FUNDS
PIMCO Funds
Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
