PIMCO Funds:
                      Pacific Investment Management Series

                       Statement of Additional Information

     This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the prospectuses of PIMCO Funds: Pacific Investment
Management Series, as supplemented from time to time. The Trust offers up to ten
classes of shares of each of its Funds. Class A, Class B, and Class C shares of
certain Funds are offered through the "Class A, B and C Prospectus" (dated July
31, 2003), Class A, B and C shares of the Municipal Bond Fund, Class A and C
shares of the Short Duration Municipal Income Fund and Class A shares of the
California Intermediate Municipal Bond Fund, California Municipal Bond Fund and
New York Municipal Bond Fund are offered through the "Municipal Bond Prospectus"
(dated July 31, 2003), Class D shares of certain Funds are offered through the
"Class D Prospectus" (dated July 31, 2003), Class D Shares of the California
Intermediate Municipal Bond , California Municipal Bond, Municipal Bond, New
York Municipal Bond and Short Duration Municipal Income Funds are offered
through the "Class D Municipal Bond Prospectus" (dated July 31, 2003), Class R
shares of certain Funds are offered through the "Class R Prospectus" (dated July
31, 2003), Institutional Class and Administrative Class shares of the Funds are
offered through the "Institutional Prospectus" (dated July 31, 2003), Advisor
Class shares of certain Funds are offered through the "Advisor Class Prospectus"
(dated July 31, 2003), Institutional Class and Administrative Class shares of
the All Asset, CommodityRealReturn Strategy, Real Return, Real Return II and
Real Return Asset are offered through the "Real Return Prospectus" (dated July
31, 2003), Institutional Class and Administrative Class shares of the Total
Return Fund, Class A, B and C shares of the Total Return Fund and shares of the
Liquid Assets Fund are each offered through separate prospectuses (each dated
July 31, 2003), as amended or supplemented from time to time (collectively, the
"Prospectuses"). Additionally, Class J and Class K shares for certain Funds are
offered solely to non-U.S. investors outside the United States. This information
does not constitute an offer of Class J shares or Class K shares to any person
who resides within the United States.

     Audited financial statements for the Trust, as of March 31, 2003, including
notes thereto, and the reports of PricewaterhouseCoopers LLP thereon, are
incorporated by reference from the Trust's March 31, 2003 Annual Reports. Copies
of Prospectuses, Annual or Semi-Annual Reports, and the PIMCO Funds
Shareholders' Guide for Class A, B, C and R Shares (the "Guide"), which is a
part of this Statement of Additional Information, may be obtained free of charge
at the addresses and telephone number(s) listed below.

     Institutional and Advisor Prospectuses     Class A, B and C, Class D and
     and Annual and Semi-Annual Reports:        Class R Prospectuses, Annual and
                                                Semi-Annual Reports, and the
                                                Guide:

     PIMCO Funds                                PIMCO Advisors Distributors LLC
     840 Newport Center Drive                   2187 Atlantic Street
     Newport Beach, California 92660            Stamford, Connecticut 06902
     Telephone: (800) 927-4648                  Telephone: (800) 426-0107

July 31, 2003, as supplemented on September 5, 2003.

                                TABLE OF CONTENTS

                                                                            Page

THE TRUST......................................................................1

INVESTMENT OBJECTIVES AND POLICIES.............................................1

     Municipal Bonds...........................................................1
     Mortgage-Related and Other Asset-Backed Securities........................7
     Bank Obligations.........................................................11
     Loan Participations......................................................11
     Corporate Debt Securities................................................12
     High Yield Securities ("Junk Bonds").....................................13
     Participation on Creditors Committees....................................13
     Variable and Floating Rate Securities....................................14
     Inflation-Indexed Bonds..................................................14
     Event-Linked Exposure....................................................15
     Convertible Securities...................................................15
     Warrants to Purchase Securities..........................................16
     Foreign Securities.......................................................16
     Foreign Currency Transactions............................................17
     Foreign Currency Exchange-Related Securities.............................18
     Borrowing................................................................19
     Derivative Instruments...................................................20
     Hybrid Instruments.......................................................28
     Delayed Funding Loans and Revolving Credit Facilities....................28
     When-Issued, Delayed Delivery and Forward Commitment Transactions........29
     Short Sales..............................................................29
     Illiquid Securities......................................................30
     Loans of Portfolio Securities............................................30
     Social Investment Policies...............................................30

INVESTMENT RESTRICTIONS.......................................................30

     Fundamental Investment Restrictions......................................30
     Non-Fundamental Investment Restrictions..................................32
     Non-Fundamental Operating Policies Relating to the Sale of Shares
     of Total Return Fund in Japan............................................34

MANAGEMENT OF THE TRUST.......................................................35

     Trustees and Officers....................................................35
     Standing Committees......................................................40
     Compensation Table.......................................................41
     Investment Adviser.......................................................41
     Advisory Agreement.......................................................42
     Proxy Voting Policies and Procedures.....................................44
     Fund Administrator.......................................................45

DISTRIBUTION OF TRUST SHARES..................................................47

     Distributor and Multi-Class Plan.........................................47
     Initial Sales Charge and Contingent Deferred Sales Charge................48
     Distribution and Servicing Plans for Class A, Class B, Class C
     and Class R Shares.......................................................49
     Payments Pursuant to Class A Plan........................................52
     Payments Pursuant to Class B Plan........................................53
     Payments Pursuant to Class C Plan........................................54
     Payments Pursuant to Class R Plan........................................55
     Distribution and Administrative Services Plans for
     Administrative Class and Advisor Class Shares............................57

     Payments Pursuant to the Administrative Plans
     for Administrative Class Shares..........................................58
     Plan for Class D Shares..................................................59
     Payments Pursuant to Class D Plan........................................60
     Distribution and Servicing Plan for Class J and Class K Shares...........60
     Purchases, Exchanges and Redemptions.....................................61
     Request for Multiple Copies of Shareholder Documents.....................62

PORTFOLIO TRANSACTIONS AND BROKERAGE..........................................63

     Investment Decisions and Portfolio Transactions..........................63
     Brokerage and Research Services..........................................63
     Portfolio Turnover.......................................................66

NET ASSET VALUE...............................................................67

TAXATION..................................................................... 67

     Distributions............................................................69
     Sales of Shares..........................................................69
     Backup Withholding.......................................................70
     Options, Futures and Forward Contracts, and Swap Agreements..............70
     Short Sales..............................................................70
     Passive Foreign Investment Companies.....................................71
     Foreign Currency Transactions............................................71
     Foreign Taxation.........................................................71
     Original Issue Discount and Market Discount..............................72
     Constructive Sales.......................................................72
     Non-U.S. Shareholders....................................................72
     Other Taxation...........................................................73

OTHER INFORMATION.............................................................73

     Capitalization...........................................................73
     Portfolio Managers.......................................................74
     Performance Information..................................................76
     Calculation of Yield.....................................................76
     Calculation of Total Return..............................................79
     Potential College Cost Table.............................................88
     Voting Rights............................................................91
     Control Persons and Principal Holders of Securities......................92
     The Reorganization of the PIMCO Money Market and Total
     Return II Funds.........................................................109
     The Reorganization of the PIMCO Global Bond Fund II.....................109
     Code of Ethics..........................................................109
     Custodian, Transfer Agent and Dividend Disbursing Agent.................109
     Independent Accountants.................................................109
     Counsel  ...............................................................110
     Registration Statement..................................................110
     Financial Statements....................................................110

                                    THE TRUST

     PIMCO Funds (the "Trust") is an open-end management investment company
("mutual fund") consisting of separate investment portfolios (the "Funds"),
including:

All Asset Fund                              Low Duration Fund II
California Intermediate Municipal
 Bond Fund                                  Low Duration Fund III
California Municipal Bond Fund              Moderate Duration Fund
Commercial Mortgage Securities Fund         Money Market Fund
CommodityRealReturn Strategy Fund           Municipal Bond Fund
Convertible Fund                            New York Municipal Bond Fund
Diversified Income Fund                     Real Return Fund
Emerging Markets Bond Fund                  Real Return Fund II
European Convertible Fund                   Real Return Asset Fund
Foreign Bond Fund                           Short Duration Municipal Income Fund
Global Bond Fund                            Short-Term Fund
Global Bond Fund II                         StocksPLUS Fund
GNMA Fund                                   StocksPLUS Total Return Fund
High Yield Fund                             Strategic Balanced Fund
Investment Grade Corporate Bond Fund        Total Return Fund
Liquid Assets Fund                          Total Return Fund II
Long Duration Fund                          Total Return Fund III
Long-Term U.S. Government Fund              Total Return Mortgage Fund
Low Duration Fund

                       INVESTMENT OBJECTIVES AND POLICIES

     The investment objectives and general investment policies of each Fund are
described in the Prospectuses. Additional information concerning the
characteristics of certain of the Funds' investments is set forth below. The
Strategic Balanced Fund invests all of its assets in the StocksPLUS and Total
Return Funds. The All Asset Fund invests only in Funds of the Trust, except the
Strategic Balanced Fund. The PIMCO Funds in which the All Asset and Strategic
Balanced Funds invest are referred to in this Statement as "Underlying Funds."
By investing in Underlying Funds, the All Asset and Strategic Balanced Funds may
have indirect investment interests in some or all of the securities and
instruments described below depending upon how their assets are allocated
between the Underlying Funds.

Municipal Bonds

     Each Fund may invest in securities issued by states, municipalities and
other political subdivisions, agencies, authorities and instrumentalities of
states and multi-state agencies or authorities. It is a policy of each of the
California Intermediate Municipal Bond, California Municipal Bond, Municipal
Bond, New York Municipal Bond, and Short Duration Municipal Income Funds
(collectively, the "Municipal Funds") to have 80% of its net assets invested in
debt obligations the interest on which, in the opinion of bond counsel to the
issuer at the time of issuance, is exempt from federal income tax ("Municipal
Bonds"). In the case of the California Intermediate Municipal Bond, California
Municipal Bond, and New York Municipal Bond Funds, the Funds will invest, under
normal circumstances, at least 80% of their net assets in debt securities whose
interest is, in the opinion of bond counsel for the issuers at the time of
issuance, exempt from federal income tax and California or New York income tax,
respectively. The ability of the Fund to invest in securities other than
Municipal Bonds is limited by a requirement of the Internal Revenue Code that at
least 50% of the Fund's total assets be invested in Municipal Bonds at the end
of each calendar quarter. See "Taxes."

     The Municipal Bond and Short Duration Municipal Income Funds may, from time
to time, invest more than 25% of their total assets in Municipal Bonds of
issuers in California and New York, and, if so, will be subject to the
California and New York state-specific risks discussed in the "Summary of Risks"
section of the Prospectuses and in this "Municipal Bonds" section of this
Statement of Additional Information, but neither Fund has any present intention
to invest more than that amount in a particular state.

     Municipal Bonds share the attributes of debt/fixed income securities in
general, but are generally issued by states, municipalities and other political
subdivisions, agencies, authorities and instrumentalities of states and
multi-state agencies or authorities. Specifically, California and New York
Municipal Bonds generally are issued by or on behalf of the State of

California and New York, respectively, and their political subdivisions and
financing authorities, and local governments. The Municipal Bonds which the
Municipal Funds may purchase include general obligation bonds and limited
obligation bonds (or revenue bonds), including industrial development bonds
issued pursuant to former federal tax law. General obligation bonds are
obligations involving the credit of an issuer possessing taxing power and are
payable from such issuer's general revenues and not from any particular source.
Limited obligation bonds are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the proceeds
of a special excise or other specific revenue source. Tax-exempt private
activity bonds and industrial development bonds generally are also revenue bonds
and thus are not payable from the issuer's general revenues. The credit and
quality of private activity bonds and industrial development bonds are usually
related to the credit of the corporate user of the facilities. Payment of
interest on and repayment of principal of such bonds is the responsibility of
the corporate user (and/or any guarantor).

     Under the Internal Revenue Code, certain limited obligation bonds are
considered "private activity bonds" and interest paid on such bonds is treated
as an item of tax preference for purposes of calculating federal alternative
minimum tax liability.

     The Municipal Funds may invest in municipal lease obligations. A lease is
not a full faith and credit obligation of the issuer and is usually backed only
by the borrowing government's unsecured pledge to make annual appropriations for
lease payments. There have been challenges to the legality of lease financing in
numerous states, and, from time to time, certain municipalities have considered
not appropriating money for lease payments. In deciding whether to purchase a
lease obligation, the Municipal Funds will assess the financial condition of the
borrower, the merits of the project, the level of public support for the
project, and the legislative history of lease financing in the state. These
securities may be less readily marketable than other municipals. A Municipal
Fund may also purchase unrated lease obligations if determined by PIMCO to be of
comparable quality to rated securities in which the Fund is permitted to invest.

     The Municipal Funds may seek to enhance their yield through the purchase of
private placements. These securities are sold through private negotiations,
usually to institutions or mutual funds, and may have resale restrictions. Their
yields are usually higher than comparable public securities to compensate the
investor for their limited marketability. A Municipal Fund may not invest more
than 15% of its net assets in illiquid securities, including unmarketable
private placements.

     Some longer-term Municipal Bonds give the investor the right to "put" or
sell the security at par (face value) within a specified number of days
following the investor's request - usually one to seven days. This demand
feature enhances a security's liquidity by shortening its effective maturity and
enables it to trade at a price equal to or very close to par. If a demand
feature terminates prior to being exercised, a Municipal Fund would hold the
longer-term security, which could experience substantially more volatility.

     The Municipal Funds may invest in municipal warrants, which are essentially
call options on Municipal Bonds. In exchange for a premium, they give the
purchaser the right, but not the obligation, to purchase a Municipal Bond in the
future. A Municipal Fund might purchase a warrant to lock in forward supply in
an environment where the current issuance of bonds is sharply reduced. Like
options, warrants may expire worthless and they may have reduced liquidity. A
Municipal Fund will not invest more than 5% of its net assets in municipal
warrants.

     The Municipal Funds may invest in Municipal Bonds with credit enhancements
such as letters of credit, municipal bond insurance and Standby Bond Purchase
Agreements ("SBPAs"). Letters of credit that are issued by a third party,
usually a bank, to enhance liquidity and ensure repayment of principal and any
accrued interest if the underlying Municipal Bond should default. Municipal bond
insurance, which is usually purchased by the bond issuer from a private,
nongovernmental insurance company, provides an unconditional and irrevocable
guarantee that the insured bond's principal and interest will be paid when due.
Insurance does not guarantee the price of the bond or the share price of any
fund. The credit rating of an insured bond reflects the credit rating of the
insurer, based on its claims-paying ability. The obligation of a municipal bond
insurance company to pay a claim extends over the life of each insured bond.
Although defaults on insured Municipal Bonds have been low to date and municipal
bond insurers have met their claims, there is no assurance this will continue. A
higher-than-expected default rate could strain the insurer's loss reserves and
adversely affect its ability to pay claims to bondholders. The number of
municipal bond insurers is relatively small, and not all of them have the
highest rating. An SBPA is a liquidity facility provided to pay the purchase
price of bonds that cannot be re-marketed. The obligation of the liquidity
provider (usually a bank) is only to advance funds to purchase tendered bonds
that cannot be remarketed and does not cover principal or interest under any
other circumstances. The liquidity provider's obligations under the SBPA are
usually subject to numerous conditions, including the continued creditworthiness
of the underlying borrower.

     The Municipal Funds may invest in Residual Interest Bonds ("RIBS"), which
are created by dividing the income stream provided by an underlying bond to
create two securities, one short term and one long term. The interest rate on
the

                                       2

short-term component is reset by an index or auction process normally every
seven to 35 days. After income is paid on the short-term securities at current
rates, the residual income goes to the long-term securities. Therefore, rising
short-term interest rates result in lower income for the longer-term portion,
and vice versa. An investment in RIBS typically will involve greater risk than
an investment in a fixed rate bond. RIBS have interest rates that bear an
inverse relationship to the interest rate on another security or the value of an
index. Because increases in the interest rate on the other security or index
reduce the residual interest paid on a RIB, the value of a RIB is generally more
volatile than that of a fixed rate bond. RIBS have interest rate adjustment
formulas that generally reduce or, in the extreme, eliminate the interest paid
to the Funds when short-term interest rates rise, and increase the interest paid
to the Funds when short-term interest rates fall. RIBS have varying degrees of
liquidity that approximate the liquidity of the underlying bond(s), and the
market price for these securities is volatile. The longer-term bonds can be very
volatile and may be less liquid than other Municipal Bonds of comparable
maturity. These securities will generally underperform the market of fixed rate
bonds in a rising interest rate environment, but tend to outperform the market
of fixed rate bonds when interest rates decline or remain relatively stable.
Although volatile, RIBS typically offer the potential for yields exceeding the
yields available on fixed rate bonds with comparable credit quality, coupon,
call provisions and maturity. To the extent permitted by each Fund's investment
objectives and general investment policies, a Fund, without limitation, may
invest in RIBS.

     The Municipal Funds also may invest in participation interests.
Participation interests are various types of securities created by converting
fixed rate bonds into short-term, variable rate certificates. These securities
have been developed in the secondary market to meet the demand for short-term,
tax-exempt securities. The Municipal Funds will invest only in securities deemed
tax-exempt by a nationally recognized bond counsel, but there is no guarantee
the interest will be exempt because the IRS has not issued a definitive ruling
on the matter.

     Municipal Bonds are subject to credit and market risk. Generally, prices of
higher quality issues tend to fluctuate less with changes in market interest
rates than prices of lower quality issues and prices of longer maturity issues
tend to fluctuate more than prices of shorter maturity issues.

     The Municipal Funds may purchase and sell portfolio investments to take
advantage of changes or anticipated changes in yield relationships, markets or
economic conditions. The Municipal Funds may also sell Municipal Bonds due to
changes in PIMCO's evaluation of the issuer or cash needs resulting from
redemption requests for Fund shares. The secondary market for Municipal Bonds
typically has been less liquid than that for taxable debt/fixed income
securities, and this may affect the Fund's ability to sell particular Municipal
Bonds at then-current market prices, especially in periods when other investors
are attempting to sell the same securities.

     Prices and yields on Municipal Bonds are dependent on a variety of factors,
including general money-market conditions, the financial condition of the
issuer, general conditions of the Municipal Bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
A number of these factors, including the ratings of particular issues, are
subject to change from time to time. Information about the financial condition
of an issuer of Municipal Bonds may not be as extensive as that which is made
available by corporations whose securities are publicly traded.

     Each Fund may purchase custodial receipts representing the right to receive
either the principal amount or the periodic interest payments or both with
respect to specific underlying Municipal Bonds. In a typical custodial receipt
arrangement, an issuer or third party owner of Municipal Bonds deposits the
bonds with a custodian in exchange for two classes of custodial receipts. The
two classes have different characteristics, but, in each case, payments on the
two classes are based on payments received on the underlying Municipal Bonds. In
no event will the aggregate interest paid with respect to the two classes exceed
the interest paid by the underlying Municipal Bond. Custodial receipts are sold
in private placements. The value of a custodial receipt may fluctuate more than
the value of a Municipal Bond of comparable quality and maturity.

     Obligations of issuers of Municipal Bonds are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. Congress or state legislatures may seek to extend the time for
payment of principal or interest, or both, or to impose other constraints upon
enforcement of such obligations. There is also the possibility that as a result
of litigation or other conditions, the power or ability of issuers to meet their
obligations for the payment of interest and principal on their Municipal Bonds
may be materially affected or their obligations may be found to be invalid or
unenforceable. Such litigation or conditions may from time to time have the
effect of introducing uncertainties in the market for Municipal Bonds or certain
segments thereof, or of materially affecting the credit risk with respect to
particular bonds. Adverse economic, business, legal or political developments
might affect all or a substantial portion of a Fund's Municipal Bonds in the
same manner. In particular, the California Intermediate Municipal Bond,
California Municipal Bond, and New York Municipal Bond Funds are subject to the
risks inherent in concentrating investment in a particular state or region. The
following summarizes information drawn from official statements, and other
public documents

                                       3

available relating to issues potentially affecting securities offerings of
issuers domiciled in the states of California and New York. PIMCO has not
independently verified the information, but has no reason to believe that it is
substantially different.

     California. The California Intermediate Municipal Bond Fund and the
California Municipal Bond Fund may be particularly affected by political,
economic or regulatory developments affecting the ability of California issuers
to pay interest or repay principal. Provisions of the California Constitution
and State statutes that limit the taxing and spending authority of California
governmental entities may impair the ability of California governmental issuers
to maintain debt service on their obligations. Future California political and
economic developments, constitutional amendments, legislative measures,
executive orders, administrative regulations, litigation and voter initiatives
could have an adverse effect on the debt obligations of California issuers. The
information set forth below constitutes only a brief summary of a number of
complex factors which may impact issuers of California Municipal Bonds. The
information is derived from sources that are generally available to investors,
including information promulgated by the State's Department of Finance and
State's Treasurer's Office. Such information has not been independently verified
by the Funds, and the Funds assume no responsibility for the completeness or
accuracy of such information. The information is intended to give recent
historical description and is not intended to indicate future or continuing
trends in the financial or other positions of California. It should be noted
that the financial strength of local California issuers and the creditworthiness
of obligations issued by local California issuers is not directly related to the
financial strength of the State or the creditworthiness of obligations issued by
the State, and there is no obligation on the part of the State to make payment
on such local obligations in the event of default.

     Certain debt obligations held by the California Intermediate Municipal Bond
Fund and the California Municipal Bond Fund may be obligations of issuers that
rely in whole or in substantial part on California state government revenues for
the continuance of their operations and payment of their obligations. Whether
and to what extent the California Legislature will continue to appropriate a
portion of the State's General Fund to counties, cities and their various
entities, which do depend upon State government appropriations, is not entirely
certain. To the extent local entities do not receive money from the state
government to pay for their operations and services, their ability to pay debt
service on obligations held by the California Intermediate Municipal Bond Fund
and the California Municipal Bond Fund may be impaired.

     Certain tax-exempt securities in which the California Intermediate
Municipal Bond Fund and the California Municipal Bond Fund may invest may be
obligations payable solely from the revenues of specific institutions, or may be
secured by specific properties, which are subject to provisions of California
law that could adversely affect the holders of such obligations. For example,
the revenues of California health care institutions may be subject to state
laws, and California law limits the remedies of a creditor secured by a mortgage
or deed of trust on real property.

         According to the State's Legislative Analyst Office, with a gross state
product in excess of $1 trillion, California's economy is the largest state
economy in the United States, accounting for 13% of the nation's output, and the
fifth largest economy in the world, trailing only the United States as a whole,
Japan, Germany and England. In addition to its size, California's economy is
diverse, with no industry sector accounting for more than one-quarter of the
State's output.

     While California's economy is broad, it does have major concentrations in
high technology, aerospace and defense-related manufacturing, entertainment,
real estate and financial services, and may be sensitive to economic factors
affecting those industries. One example of such potential sensitivity occurred
from mid-1990 to late 1993, when the State suffered a recession. Construction,
manufacturing (especially aerospace), and financial services, among others, were
all severely affected, particularly in Southern California. More recently,
reflective of the nationwide economic slowdown, the high technology sector of
the State's economy has entered a cyclical downturn.

     A series of reports after the start of the 2001-02 Fiscal Year have
indicated that both the national and the State economies have been in a
recession starting in 2001. In California, the impact has been particularly felt
in the high technology sector centered in the Bay Area/Silicon Valley, in the
construction sector and in exports. The tragic events of September 11 have
exacerbated the impact of the weakened economy, especially on tourism-related
industries and locations. The Governor's Administration predicts there will be
continued weakness through at least the first half of 2002 until recovery
starts.

     California has experienced difficulties with the supply and price of
electricity and natural gas in much of the State since mid-2000, which are
likely to continue for several years. California's difficulties with energy
supplies could pose serious risks to the State's economy. The State instituted
rolling electricity blackouts in 2001 and remains braced for anticipated energy
shortages as well as increased energy costs. The Governor directed the
Department of Water Resources ("DWR") to enter into contracts and arrangements
for the purchase and sale of electric power as necessary to assist in mitigating
the effects of the emergency (the "Power Supply Program"). The Power Supply
Program has also been implemented under legislation enacted in 2001 (the "Power
Supply Act") and by orders of the California Public Utilities

                                       4

Commission ("CPUC"). The Power Supply Program is expected to supply the
shortfall between the amount of electricity required by customers and the amount
of electricity furnished to customers by the investor-owned utilities until
December 31, 2002. The Administration and the CPUC are developing plans for the
provision of the energy shortfall after 2002. The severity and long-term impact
of these developments on the State's economy is difficult to predict, but any
significant interruptions in energy supply or rate increases could adversely
affect California's economy.

     In addition to the energy supply difficulties, increased uncertainty
regarding the timing of state budget adoption and the potential negative effect
any delay may have on California's ability to meet its debt obligations forced
California's bonds to undergo a review for a potential downgrade in ratings. The
progress of the current gubernatorial recall effort is complicating the state's
ability to resolve the budget stalemate and increasing the risk that the state
may not be able to reach a consensus on the budget before it exhausts available
cash resources. The recall election has been scheduled for October 7, 2003.
After a debt ratings downgrade (discussed below) by Standard & Poor's Ratings
Services ("S&P") on July 24, 2003, the State Senate passed a compromise budget
that technically closes this year's shortfall but leaves an $8 billion
structural deficit for the next year. The State Assembly was scheduled to take
up the compromise budget during the last week of July, 2003.

     As of July 24, 2003, California's general obligation bonds have been
assigned ratings of BBB, A2, and A by S&P, Moody's Investor Service, Inc.
("Moody's") and Fitch, respectively. Moody's and Fitch have placed the current
ratings on negative credit watch and are currently evaluating the bonds for a
potential downgrade. The agencies are monitoring the state's budget
deliberations closely to determine whether or not to lower the current ratings.
It should be recognized that these ratings are not an absolute standard of
quality, but rather general indicators. Such ratings reflect only the view of
the originating rating agencies, from which an explanation of the significance
of such ratings may be obtained. There is no assurance that a particular rating
will continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
establishing the rating, circumstances so warrant. A downward revision or
withdrawal of such ratings, or either of them, may have an effect on the market
price of the State Municipal Obligations in which the California Intermediate
Municipal Bond Fund or the California Municipal Bond Fund invest.

     Revenue bonds represent both obligations payable from State
revenue-producing enterprises and projects, which are not payable from the
General Fund, and conduit obligations payable only from revenues paid by private
users of facilities financed by such revenue bonds, are liable. Such enterprises
and projects include transportation projects, various public works and
exposition projects, educational facilities (including the California State
University and University of California systems), housing, health facilities,
and pollution control facilities.

     The State is party to numerous legal proceedings, many of which normally
occur in governmental operations and which, if decided against the State, might
require the State to make significant future expenditures or impair future
revenue sources.

     Constitutional and statutory amendments as well as budget developments may
affect the ability of California issuers to pay interest and principal on their
obligations. The overall effect may depend upon whether a particular California
tax-exempt security is a general or limited obligation bond and on the type of
security provided for the bond. It is possible that measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future.

     New York. Because the New York Municipal Bond Fund concentrates its
investments in New York tax-exempt bonds, the Fund may be affected significantly
by economic or regulatory developments, affecting the ability of New York
tax-exempt issuers to pay interest or repay principal. Investors should be aware
that certain issuers of New York tax-exempt securities have at times experienced
serious financial difficulties. A reoccurrence of these difficulties may impair
the ability of certain New York issuers to maintain debt service on their
obligations. The following information provides only a brief summary of the
complex factors affecting the financial situation in New York and is derived
from sources that are generally available to investors. The information is
intended to give a recent historical description and is not intended to indicate
future or continuing trends in the financial or other positions of New York. It
should be noted that the creditworthiness of obligations issued by local New
York issuers may be unrelated to the creditworthiness of obligations issued by
New York city and state agencies, and that there is no obligation on the part of
New York State to make payment on such local obligations in the event of
default.

     The events of September 11, 2001 had a significant impact upon the New York
State economy and more directly on that of New York City. It is expected, based
on actions of the U.S. Congress and the President, that both New York State and
New York City will be fully reimbursed for the cost to recover from, clean up
and repair the consequences of the World

                                       5

Trade Center attack. However, prior to September 11, the nation's and the
State's economies had been weakening and the loss of over seventy thousand jobs
in New York City as a direct result of September 11 has produced material
budgetary pressures including increases to later year budget gaps for New York
City and reductions to the State surpluses. The City of New York Executive
Budget Fiscal Year 2003 released by the Mayor of New York City on April 17, 2002
(the "City Executive Budget"), projects total revenue lost to New York City as a
result of September 11 during the 2002-2006 fiscal years will be $3.9 billion
and that expense over the same period have increased by $6.1 billion from
projections prepared prior to September 11. On June 19, 2002, the Mayor and the
City Council announced a budget agreement which, while it restored some of the
funds cut in the City Executive Budget, adopted the City Executive Budget with
no material changes.

     New York State has historically been one of the wealthiest states in the
nation. New York State currently maintains the ninth largest economy in the
world and the second largest economy in the United States. For decades, however,
the State's economy grew more slowly than that of the nation as a whole,
gradually eroding the State's relative economic affluence, as urban centers lost
the more affluent to the suburbs and people and businesses migrated to the South
and the West. However, since 1999, prior to the events of September 11, the
growth of New York State's economy has equaled or exceeded national trends. The
State has for many years imposed a very high, relative to other states, state
and local tax burden on residents. The burden of state and local taxation in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within New York. The economic and financial condition of
the State also may be affected by various financial, social, economic and
political factors. For example, the securities industry is more central to New
York's economy than to the national economy, therefore any significant decline
in stock market performance could adversely effect the State's income and
employment levels. Furthermore, such social, economic and political factors can
be very complex, may vary from year to year and can be the result of actions
taken not only by the State and its agencies and instrumentalities, but also by
entities, such as the Federal government, that are not under the control of the
State.

     The fiscal stability of New York State is related to the fiscal stability
of the State's municipalities, its agencies and authorities (which generally
finance, construct and operate revenue-producing public benefit facilities).
This is due in part to the fact that agencies, authorities and local governments
in financial trouble often seek State financial assistance. The experience has
been that if New York City or any of its agencies or authorities suffers serious
financial difficulty, both the ability of the State, New York City, the State's
political subdivisions, the agencies and the authorities to obtain financing in
the public credit markets and the market price of outstanding New York
tax-exempt securities will be adversely affected.

     State actions affecting the level of receipts and disbursements, the
relative strength of the State and regional economies and actions of the federal
government may create budget gaps for the State. These gaps may result from
significant disparities between recurring revenues and the costs of maintaining
or increasing the level of spending for State programs. To address a potential
imbalance in any given fiscal year, the State would be required to take actions
to increase receipts and/or reduce disbursements as it enacts the budget for
that year. Under the State constitution, the governor is required to propose a
balanced budget each year. There can be no assurance, however, that the
legislature will enact the governor's proposals or that the State's actions will
be sufficient to preserve budgetary balance in a given fiscal year or to align
recurring receipts and disbursements in future fiscal years.

     The fiscal stability of the State is related to the fiscal stability of its
public authorities. Authorities have various responsibilities, including those
that finance, construct and/or operate revenue-producing public facilities.
Authorities are not subject to the constitutional restrictions on the incurrence
of debt that apply to the State itself, and may issue bonds and notes within the
amounts and restrictions set forth in their legislative authorization.

     Authorities are generally supported by revenues generated by the projects
financed or operated, such as tolls charged for use of highways, bridges or
tunnels, charges for electric power, electric and gas utility services, rentals
charged for housing units and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques for
authorities. Also, there are statutory arrangements providing for State local
assistance payments otherwise payable to localities, to be made under certain
circumstances directly to the authorities. Although the State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to authorities under these arrangements, if local assistance
payments are diverted the affected localities could seek additional State
assistance. Some authorities also receive monies from State appropriations to
pay for the operating costs of certain of their programs.

     As of July 16, 2003, S&P had given New York State's general obligation
bonds a rating of AA, Moody's had given the State's general obligation bonds a
rating of A2 and Fitch had given the bonds a rating of AA-. Both S&P and Fitch
have negative outlooks regarding the state's bonds citing concerns over a $752
million deficit for the next year. Such ratings reflect only the view of the
originating rating agencies, from which an explanation of the significance of
such ratings may be obtained. There is no assurance that a particular rating
will continue for any given period of time or that any such rating will

                                       6

not be revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the State municipal obligations in which the New York
Municipal Bond Fund invests.

     Over the long term, the State and New York City may face potential economic
problems. New York City accounts for a large portion of the State's population
and personal income, and New York City's financial health affects the State in
numerous ways. New York City continues to require significant financial
assistance from the State and depends on State aid to both enable it to balance
its budget and to meet its cash requirements. The State could also be affected
by the ability of the City to market its securities successfully in the public
credit markets.

Mortgage-Related and Other Asset-Backed Securities

     Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. See "Mortgage Pass-Through
Securities." Certain of the Funds may also invest in debt securities which are
secured with collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.

     Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass-through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
"Government National Mortgage Association," or "GNMA") are described as
"modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
at the scheduled payment dates regardless of whether or not the mortgagor
actually makes the payment.

     The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase in the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.

     The principal governmental guarantor of mortgage-related securities is
GNMA. GNMA is a wholly owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by institutions approved
by GNMA (such as savings and loan institutions, commercial banks and mortgage
bankers) and backed by pools of mortgages insured by the Federal Housing
Administration (the "FHA"), or guaranteed by the Department of Veterans Affairs
(the "VA").

     Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the United States Government. FHLMC was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. It is a government-sponsored corporation
formerly owned by the twelve Federal Home Loan Banks and now owned entirely by
private stockholders. FHLMC issues Participation Certificates ("PCs") which
represent interests in conventional mortgages from FHLMC's national portfolio.
FHLMC guarantees the timely payment of interest and ultimate collection of
principal, but PCs are not backed by the full faith and credit of the United
States Government.

     Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-

                                       7

related securities. Pools created by such non-governmental issuers generally
offer a higher rate of interest than government and government-related pools
because there are no direct or indirect government or agency guarantees of
payments in the former pools. However, timely payment of interest and principal
of these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of
credit, which may be issued by governmental entities, private insurers or the
mortgage poolers. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Trust's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Funds may buy mortgage-related securities without insurance or
guarantees if, through an examination of the loan experience and practices of
the originator/servicers and poolers, PIMCO determines that the securities meet
the Trust's quality standards. Although the market for such securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. No Fund will purchase mortgage-related securities
or any other assets which in PIMCO's opinion are illiquid if, as a result, more
than 15% of the value of the Fund's net assets will be illiquid (10% in the case
of the Liquid Assets and Money Market Funds).

     Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Funds take the position that mortgage-related securities do not
represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by a portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the FHA or the
VA. In the case of private issue mortgage-related securities whose underlying
assets are neither U.S. Government securities nor U.S. Government-insured
mortgages, to the extent that real properties securing such assets may be
located in the same geographical region, the security may be subject to a
greater risk of default than other comparable securities in the event of adverse
economic, political or business developments that may affect such region and,
ultimately, the ability of residential homeowners to make payments of principal
and interest on the underlying mortgages.

     Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, on a monthly basis. CMOs
may be collateralized by whole mortgage loans, but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.

     CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.

     In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.

     FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semi-annually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral

                                       8

pool in excess of FHLMC's minimum sinking fund requirement, the rate at which
principal of the CMOs is actually repaid is likely to be such that each class of
bonds will be retired in advance of its scheduled maturity date.

     If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.

     Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.

     Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.

     Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including mortgage dollar rolls, CMO residuals or stripped
mortgage-backed securities ("SMBS"). Other mortgage-related securities may be
equity or debt securities issued by agencies or instrumentalities of the U.S.
Government or by private originators of, or investors in, mortgage loans,
including savings and loan associations, homebuilders, mortgage banks,
commercial banks, investment banks, partnerships, trusts and special purpose
entities of the foregoing.

     CMO Residuals. CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.

     The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses and any management fee of
the issuer. The residual in a CMO structure generally represents the interest in
any excess cash flow remaining after making the foregoing payments. Each payment
of such excess cash flow to a holder of the related CMO residual represents
income and/or a return of capital. The amount of residual cash flow resulting
from a CMO will depend on, among other things, the characteristics of the
mortgage assets, the coupon rate of each class of CMO, prevailing interest
rates, the amount of administrative expenses and the prepayment experience on
the mortgage assets. In particular, the yield to maturity on CMO residuals is
extremely sensitive to prepayments on the related underlying mortgage assets, in
the same manner as an interest-only ("IO") class of stripped mortgage-backed
securities. See "Other Mortgage-Related Securities--Stripped Mortgage-Backed
Securities." In addition, if a series of a CMO includes a class that bears
interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are based. As described below with respect
to stripped mortgage-backed securities, in certain circumstances a Fund may fail
to recoup fully its initial investment in a CMO residual.

     CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended (the "1933 Act").
CMO residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.

     Stripped Mortgage-Backed Securities. SMBS are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing.

     SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and

                                       9

most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, a
Fund may fail to recoup some or all of its initial investment in these
securities even if the security is in one of the highest rating categories.

     Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.

Collateralized Debt Obligations. The Funds may invest in collateralized debt
obligations ("CDOs"), which includes collateralized bond obligations ("CBOs"),
collateralized loan obligations ("CLOs") and other similarly structured
securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust
which is backed by a diversified pool of high risk, below investment grade fixed
income securities. A CLO is a trust typically collateralized by a pool of loans,
which may include, among others, domestic and foreign senior secured loans,
senior unsecured loans, and subordinate corporate loans, including loans that
may be rated below investment grade or equivalent unrated loans. CDOs may charge
management fees and administrative expenses.

For both CBOs and CLOs, the cashflows from the trust are split into two or more
portions, called tranches, varying in risk and yield. The riskiest portion is
the "equity" tranche which bears the bulk of defaults from the bonds or loans in
the trust and serves to protect the other, more senior tranches from default in
all but the most severe circumstances. Since it is partially protected from
defaults, a senior tranche from a CBO trust or CLO trust typically have higher
ratings and lower yields than their underlying securities, and can be rated
investment grade. Despite the protection from the equity tranche, CBO or CLO
tranches can experience substantial losses due to actual defaults, increased
sensitivity to defaults due to collateral default and disappearance of
protecting tranches, market anticipation of defaults, as well as aversion to CBO
or CLO securities as a class.

     The risks of an investment in a CDO depend largely on the type of the
collateral securities and the class of the CDO in which a Fund invests.
Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus,
are not registered under the securities laws. As a result, investments in CDOs
may be characterized by the Funds as illiquid securities, however an active
dealer market may exist for CDOs allowing a CDO to qualify for Rule 144A
transactions. In addition to the normal risks associated with fixed income
securities discussed elsewhere in this SAI and the Funds' Prospectuses (e.g.,
interest rate risk and default risk), CDOs carry additional risks including, but
are not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the
quality of the collateral may decline in value or default; (iii) the Funds may
invest in CDOs that are subordinate to other classes; and (iv) the complex
structure of the security may not be fully understood at the time of investment
and may produce disputes with the issuer or unexpected investment results.

     Other Asset-Backed Securities. Similarly, PIMCO expects that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including Certificates for Automobile Receivables/SM/
("CARS/SM/"). CARS/SM/ represent undivided fractional interests in a trust whose
assets consist of a pool of motor vehicle retail installment sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARS/SM/ are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the trust. An investor's return on CARS/SM/ may be affected by
early prepayment of principal on the underlying vehicle sales contracts. If the
letter of credit is exhausted, the trust may be prevented from realizing the
full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

     Consistent with a Fund's investment objectives and policies, PIMCO also may
invest in other types of asset-backed securities.

                                       10

Bank Obligations

     Bank obligations in which the Funds may invest include certificates of
deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit
are negotiable certificates issued against funds deposited in a commercial bank
for a definite period of time and earning a specified return. Bankers'
acceptances are negotiable drafts or bills of exchange, normally drawn by an
importer or exporter to pay for specific merchandise, which are "accepted" by a
bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 15% of its net assets (10% in the case of the Liquid Assets
and Money Market Funds) would be invested in such deposits, repurchase
agreements maturing in more than seven days and other illiquid assets.

     The California Intermediate Municipal Bond, California Municipal Bond,
Commercial Mortgage Securities, GNMA, Liquid Assets, Long-Term U.S. Government,
Low Duration II, Money Market, Municipal Bond, New York Municipal Bond, Real
Return II, Short Duration Municipal Income, Total Return II and Total Return
Mortgage Funds may invest in the same types of bank obligations as the other
Funds, but they must be U.S. dollar-denominated. Subject to the Trust's
limitation on concentration of no more than 25% of its total assets in the
securities of issuers in a particular industry, there is no limitation on the
amount of a Fund's assets which may be invested in obligations of foreign banks
which meet the conditions set forth herein.

     Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.

Loan Participations

     Certain Funds may purchase participations in commercial loans. Such
indebtedness may be secured or unsecured. Loan participations typically
represent direct participation in a loan to a corporate borrower, and generally
are offered by banks or other financial institutions or lending syndicates. The
Funds may participate in such syndications, or can buy part of a loan, becoming
a part lender. When purchasing loan participations, a Fund assumes the credit
risk associated with the corporate borrower and may assume the credit risk
associated with an interposed bank or other financial intermediary. The
participation interests in which a Fund intends to invest may not be rated by
any nationally recognized rating service.

     A loan is often administered by an agent bank acting as agent for all
holders. The agent bank administers the terms of the loan, as specified in the
loan agreement. In addition, the agent bank is normally responsible for the
collection of principal and interest payments from the corporate borrower and
the apportionment of these payments to the credit of all institutions which are
parties to the loan agreement. Unless, under the terms of the loan or other
indebtedness, a Fund has direct recourse against the corporate borrower, the
Fund may have to rely on the agent bank or other financial intermediary to apply
appropriate credit remedies against a corporate borrower.

     A financial institution's employment as agent bank might be terminated in
the event that it fails to observe a requisite standard of care or becomes
insolvent. A successor agent bank would generally be appointed to replace the
terminated agent bank, and assets held by the agent bank under the loan
agreement should remain available to holders of such indebtedness. However, if
assets held by the agent bank for the benefit of a Fund were determined to be
subject to the claims of the agent bank's general creditors, the Fund might
incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or governmental agency) similar risks may arise.

                                       11

     Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the corporate borrower for payment of principal and
interest. If a Fund does not receive scheduled interest or principal payments on
such indebtedness, the Fund's share price and yield could be adversely affected.
Loans that are fully secured offer a Fund more protection than an unsecured loan
in the event of non-payment of scheduled interest or principal. However, there
is no assurance that the liquidation of collateral from a secured loan would
satisfy the corporate borrower's obligation, or that the collateral can be
liquidated.

     The Funds may invest in loan participations with credit quality comparable
to that of issuers of its securities investments. Indebtedness of companies
whose creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Some companies may never pay off their indebtedness, or may
pay only a small fraction of the amount owed. Consequently, when investing in
indebtedness of companies with poor credit, a Fund bears a substantial risk of
losing the entire amount invested.

     Each Fund limits the amount of its total assets that it will invest in any
one issuer or in issuers within the same industry (see "Investment
Restrictions"). For purposes of these limits, a Fund generally will treat the
corporate borrower as the "issuer" of indebtedness held by the Fund. In the case
of loan participations where a bank or other lending institution serves as a
financial intermediary between a Fund and the corporate borrower, if the
participation does not shift to the Fund the direct debtor-creditor relationship
with the corporate borrower, Securities and Exchange Commission ("SEC")
interpretations require the Fund to treat both the lending bank or other lending
institution and the corporate borrower as "issuers" for the purposes of
determining whether the Fund has invested more than 5% of its total assets in a
single issuer. Treating a financial intermediary as an issuer of indebtedness
may restrict a Funds' ability to invest in indebtedness related to a single
financial intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different companies
and industries.

     Loans and other types of direct indebtedness may not be readily marketable
and may be subject to restrictions on resale. In some cases, negotiations
involved in disposing of indebtedness may require weeks to complete.
Consequently, some indebtedness may be difficult or impossible to dispose of
readily at what PIMCO believes to be a fair price. In addition, valuation of
illiquid indebtedness involves a greater degree of judgment in determining a
Fund's net asset value than if that value were based on available market
quotations, and could result in significant variations in the Fund's daily share
price. At the same time, some loan interests are traded among certain financial
institutions and accordingly may be deemed liquid. As the market for different
types of indebtedness develops, the liquidity of these instruments is expected
to improve. In addition, the Funds currently intend to treat indebtedness for
which there is no readily available market as illiquid for purposes of the
Funds' limitation on illiquid investments. Investments in loan participations
are considered to be debt obligations for purposes of the Trust's investment
restriction relating to the lending of funds or assets by a Portfolio.

     Investments in loans through a direct assignment of the financial
institution's interests with respect to the loan may involve additional risks to
the Funds. For example, if a loan is foreclosed, a Fund could become part owner
of any collateral, and would bear the costs and liabilities associated with
owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, a Fund could be held liable
as co-lender. It is unclear whether loans and other forms of direct indebtedness
offer securities law protections against fraud and misrepresentation. In the
absence of definitive regulatory guidance, the Funds rely on PIMCO's research in
an attempt to avoid situations where fraud or misrepresentation could adversely
affect the Funds.

Corporate Debt Securities

     A Fund's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Fund, or, if unrated, are in PIMCO's
opinion comparable in quality to corporate debt securities in which the Fund may
invest.

     Corporate income-producing securities may include forms of preferred or
preference stock. The rate of interest on a corporate debt security may be
fixed, floating or variable, and may vary inversely with respect to a reference
rate. The rate of return or return of principal on some debt obligations may be
linked or indexed to the level of exchange rates between the U.S. dollar and a
foreign currency or currencies. Debt securities may be acquired with warrants
attached.

     Securities rated Baa and BBB are the lowest which are considered
"investment grade" obligations. Moody's describes securities rated Baa as
"medium-grade" obligations; they are "neither highly protected nor poorly
secured ... [i]nterest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics

                                       12

and in fact have speculative characteristics as well." S&P describes securities
rated BBB as "regarded as having an adequate capacity to pay interest and repay
principal... [w]hereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal... than in higher
rated categories." For a discussion of securities rated below investment grade,
see "High Yield Securities ("Junk Bonds")" below.

High Yield Securities ("Junk Bonds")

     Investments in securities rated below investment grade that are eligible
for purchase by certain of the Funds and in particular, by the Convertible,
Emerging Markets, European Convertible and High Yield Funds are described as
"speculative" by both Moody's and S&P. Investment in lower rated corporate debt
securities ("high yield securities" or "junk bonds") generally provides greater
income and increased opportunity for capital appreciation than investments in
higher quality securities, but they also typically entail greater price
volatility and principal and income risk. These high yield securities are
regarded as predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. Analysis of the
creditworthiness of issuers of debt securities that are high yield may be more
complex than for issuers of higher quality debt securities.

     High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities have been found to be less sensitive to
interest-rate changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. A projection of
an economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If an issuer of high yield securities
defaults, in addition to risking payment of all or a portion of interest and
principal, the Funds investing in such securities may incur additional expenses
to seek recovery. In the case of high yield securities structured as zero-coupon
or pay-in-kind securities, their market prices are affected to a greater extent
by interest rate changes, and therefore tend to be more volatile than securities
which pay interest periodically and in cash. PIMCO seeks to reduce these risks
through diversification, credit analysis and attention to current developments
and trends in both the economy and financial markets.

     The secondary market on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading market could adversely affect the price at which the Funds
could sell a high yield security, and could adversely affect the daily net asset
value of the shares. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of high
yield securities, especially in a thinly-traded market. When secondary markets
for high yield securities are less liquid than the market for higher grade
securities, it may be more difficult to value the securities because such
valuation may require more research, and elements of judgment may play a greater
role in the valuation because there is less reliable, objective data available.
PIMCO seeks to minimize the risks of investing in all securities through
diversification, in-depth credit analysis and attention to current developments
in interest rates and market conditions.

     The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. PIMCO
does not rely solely on credit ratings when selecting securities for the Funds,
and develops its own independent analysis of issuer credit quality. If a credit
rating agency changes the rating of a portfolio security held by a Fund, the
Fund may retain the portfolio security if PIMCO deems it in the best interest of
shareholders.

Participation on Creditors Committees

     A Fund (in particular, the High Yield Fund) may from time to time
participate on committees formed by creditors to negotiate with the management
of financially troubled issuers of securities held by the Fund. Such
participation may subject a Fund to expenses such as legal fees and may make a
Fund an "insider" of the issuer for purposes of the federal securities laws, and
therefore may restrict such Fund's ability to trade in or acquire additional
positions in a particular security when it might otherwise desire to do so.
Participation by a Fund on such committees also may expose the Fund to potential
liabilities under the federal bankruptcy laws or other laws governing the rights
of creditors and debtors. A Fund will participate on such committees only when
PIMCO believes that such participation is necessary or desirable to enforce the
Fund's rights as a creditor or to protect the value of securities held by the
Fund.

                                       13

Variable and Floating Rate Securities

     Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate. The Liquid Assets and Money
Market Funds may invest in a variable rate security having a stated maturity in
excess of 397 calendar days if the interest rate will be adjusted, and the Fund
may demand payment of principal from the issuers, within the period.

     Certain Funds may invest in floating rate debt instruments ("floaters") and
(except the Liquid Assets and Money Market Funds) engage in credit spread
trades. The interest rate on a floater is a variable rate which is tied to
another interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
While, because of the interest rate reset feature, floaters provide a Fund with
a certain degree of protection against rises in interest rates, a Fund will
participate in any declines in interest rates as well. A credit spread trade is
an investment position relating to a difference in the prices or interest rates
of two securities or currencies, where the value of the investment position is
determined by movements in the difference between the prices or interest rates,
as the case may be, of the respective securities or currencies.

     Each Fund (except the Liquid Assets and Money Market Funds) may also invest
in inverse floating rate debt instruments ("inverse floaters"). The interest
rate on an inverse floater resets in the opposite direction from the market rate
of interest to which the inverse floater is indexed. An inverse floating rate
security may exhibit greater price volatility than a fixed rate obligation of
similar credit quality. Each Fund (except the Money Market Fund) may invest up
to 5% of its total assets in any combination of mortgage-related or other
asset-backed inverse floater, interest only ("IO"), or principal only ("PO")
securities.

Inflation-Indexed Bonds

     Inflation-indexed bonds are fixed income securities whose principal value
is periodically adjusted according to the rate of inflation. Two structures are
common. The U.S. Treasury and some other issuers use a structure that accrues
inflation into the principal value of the bond. Most other issuers pay out the
CPI accruals as part of a semiannual coupon.

     Inflation-indexed securities issued by the U.S. Treasury have maturities of
five, ten or thirty years, although it is possible that securities with other
maturities will be issued in the future. The U.S. Treasury securities pay
interest on a semi-annual basis, equal to a fixed percentage of the
inflation-adjusted principal amount. For example, if a Fund purchased an
inflation-indexed bond with a par value of $1,000 and a 3% real rate of return
coupon (payable 1.5% semi-annually), and inflation over the first six months
were 1%, the mid-year par value of the bond would be $1,010 and the first
semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation
during the second half of the year resulted in the whole years' inflation
equaling 3%, the end-of-year par value of the bond would be $1,030 and the
second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).

     If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed, and will fluctuate. The Funds may
also invest in other inflation related bonds which may or may not provide a
similar guarantee. If a guarantee of principal is not provided, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.

     The value of inflation-indexed bonds is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.

     While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.

                                       14

     The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation
and energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.

     Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.

Event-Linked Exposure

     Certain Funds may obtain event-linked exposure by investing in
"event-linked bonds" or "event-linked swaps," or implement "event-linked
strategies." Event-linked exposure results in gains that typically are
contingent on the non-occurrence of a specific "trigger" event, such as a
hurricane, earthquake, or other physical or weather-related phenomena. Some
event-linked bonds are commonly referred to as "catastrophe bonds." They may be
issued by government agencies, insurance companies, reinsurers, special purpose
corporations or other on-shore or off-shore entities. If a trigger event causes
losses exceeding a specific amount in the geographic region and time period
specified in a bond, a Fund investing in the bond may lose a portion or all of
its principal invested in the bond. If no trigger event occurs, the Fund will
recover its principal plus interest. For some event-linked bonds, the trigger
event or losses may be based on company-wide losses, index-portfolio losses,
industry indices, or readings of scientific instruments rather than specified
actual losses. Often the event-linked bonds provide for extensions of maturity
that are mandatory, or optional at the discretion of the issuer, in order to
process and audit loss claims in those cases where a trigger event has, or
possibly has, occurred. An extension of maturity may increase volatility. In
addition to the specified trigger events, event-linked bonds may also expose the
Fund to certain unanticipated risks including but not limited to issuer risk,
credit risk, counterparty risk, adverse regulatory or jurisdictional
interpretations, and adverse tax consequences.

     Event-linked bonds are a relatively new type of financial instrument. As
such, there is no significant trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop. See
"Illiquid Securities" below. Lack of a liquid market may impose the risk of
higher transaction costs and the possibility that a Fund may be forced to
liquidate positions when it would not be advantageous to do so. Event-linked
bonds are typically rated, and a Fund will only invest in catastrophe bonds that
meet the credit quality requirements for the Fund.

Convertible Securities

     A convertible debt security is a bond, debenture, note, or other security
that entitles the holder to acquire common stock or other equity securities of
the same or a different issuer. A convertible security generally entitles the
holder to receive interest paid or accrued until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to non-convertible debt securities.
Convertible securities rank senior to common stock in a corporation's capital
structure and, therefore, generally entail less risk than the corporation's
common stock, although the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security.

     Because of the conversion feature, the price of the convertible security
will normally fluctuate in some proportion to changes in the price of the
underlying asset, and as such is subject to risks relating to the activities of
the issuer and/or general market and economic conditions. The income component
of a convertible security may tend to cushion the security against declines in
the price of the underlying asset. However, the income component of convertible
securities causes fluctuations based upon changes in interest rates and the
credit quality of the issuer. In addition, convertible securities are often
lower-rated securities.

     A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Fund is
called for redemption, the Fund would be required to permit the issuer to redeem
the security and convert it to underlying common stock, or would sell the
convertible security to a third party, which may have an adverse effect on the
Fund's ability to achieve its investment objective. A Fund generally would
invest in convertible securities for their favorable price characteristics and
total return potential and would normally not exercise an option to convert
unless the security is called or conversion is forced.

                                       15

Warrants to Purchase Securities

     The Funds may invest in or acquire warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity securities
have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional fixed income securities at
the same coupon rate. A decline in interest rates would permit a Fund to buy
additional bonds at the favorable rate or to sell the warrants at a profit. If
interest rates rise, the warrants would generally expire with no value.

     A Fund will not invest more than 5% of its net assets, valued at the lower
of cost or market, in warrants to purchase securities. Warrants acquired in
units or attached to securities will be deemed without value for purposes of
this restriction.

Foreign Securities

     Each Fund (except the California Intermediate Municipal Bond, California
Municipal Bond, Long-Term U.S. Government, Low Duration II, Municipal Bond, New
York Municipal Bond, Short Duration Municipal Income and Total Return II Funds)
may invest in corporate debt securities of foreign issuers (including preferred
or preference stock), certain foreign bank obligations (see "Bank Obligations")
and U.S. dollar or foreign currency-denominated obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies and supranational entities. The Commercial Mortgage Securities, GNMA,
Liquid Assets, Money Market, Real Return II and Total Return Mortgage Funds may
invest in securities of foreign issuers only if they are U.S.
dollar-denominated. The High Yield Fund may invest up to 15% of its total assets
in Euro-denominated securities.

     Securities traded in certain emerging market countries, including the
emerging market countries in Eastern Europe, may be subject to risks in addition
to risks typically posed by international investing due to the inexperience of
financial intermediaries, the lack of modern technology, and the lack of a
sufficient capital base to expand business operations. Additionally, former
Communist regimes of a number of Eastern European countries previously
expropriated a large amount of property, the claims on which have not been
entirely settled. There can be no assurance that a Fund's investments in Eastern
Europe will not also be expropriated, nationalized or otherwise confiscated.

     Each Fund (except the California Intermediate Municipal Bond, California
Municipal Bond, Long-Term U.S. Government, Low Duration II, Municipal Bond, New
York Municipal Bond, Real Return II, Short Duration Municipal Income and Total
Return II Funds) may invest in Brady Bonds. Brady Bonds are securities created
through the exchange of existing commercial bank loans to sovereign entities for
new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas
F. Brady (the "Brady Plan"). Brady Plan debt restructurings have been
implemented in a number of countries, including: Argentina, Bolivia, Brazil,
Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger,
Nigeria, Panama, Peru, the Philippines, Poland, Uruguay, and Venezuela.

     Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
over-the-counter secondary market. Brady Bonds are not considered to be U.S.
Government securities. U.S. dollar-denominated, collateralized Brady Bonds,
which may be fixed rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal by U.S. Treasury zero coupon bonds having
the same maturity as the Brady Bonds. Interest payments on these Brady Bonds
generally are collateralized on a one-year or longer rolling-forward basis by
cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's interest payments based on the
applicable interest rate at that time and is adjusted at regular intervals
thereafter. Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental interest payments
but generally are not collateralized. Brady Bonds are often viewed as having
three or four valuation components: (i) the collateralized repayment of
principal at final maturity; (ii) the collateralized interest payments; (iii)
the uncollateralized interest payments; and (iv) any uncollateralized repayment
of principal at maturity (these uncollateralized amounts constitute the
"residual risk").

     Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.

                                       16

     Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds. There can be no assurance that Brady
Bonds in which the Funds may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause the Funds to suffer
a loss of interest or principal on any of its holdings.

     Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of the debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also depend on expected disbursements from foreign
governments, multilateral agencies and others to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Funds) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.

     A Fund's investments in foreign currency denominated debt obligations and
hedging activities will likely produce a difference between its book income and
its taxable income. This difference may cause a portion of the Fund's income
distributions to constitute returns of capital for tax purposes or require the
Fund to make distributions exceeding book income to qualify as a regulated
investment company for federal tax purposes.

     The Funds will consider an issuer to be economically tied to a country with
an emerging securities market if (1) the issuer is organized under the laws of,
or maintains its principal place of business in, the country, (2) its securities
are principally traded in the country's securities markets, or (3) the issuer
derived at least half of its revenues or profits from goods produced or sold,
investments made, or services performed in the country, or has at least half of
its assets in that country.

Foreign Currency Transactions

     All Funds that may invest in foreign currency-denominated securities also
may purchase and sell foreign currency options and foreign currency futures
contracts and related options (see "Derivative Instruments"), and may engage in
foreign currency transactions either on a spot (cash) basis at the rate
prevailing in the currency exchange market at the time or through forward
currency contracts ("forwards") with terms generally of less than one year.
Funds may engage in these transactions in order to protect against uncertainty
in the level of future foreign exchange rates in the purchase and sale of
securities. The Funds may also use foreign currency options and foreign currency
forward contracts to increase exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one country to another.

     A forward involves an obligation to purchase or sell a specific currency at
a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts may be bought or sold to protect a Fund against a possible loss
resulting from an adverse change in the relationship between foreign currencies
and the U.S. dollar or to increase exposure to a particular foreign currency.
Open positions in forwards used for non-hedging purposes will be covered by the
segregation of assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees, and are marked to market daily.
Although forwards are intended to minimize the risk of loss due to a decline in
the value of the hedged currencies, at the same time, they tend to limit any
potential gain which might result should the value of such currencies increase.
Forwards will be used primarily to adjust the foreign exchange exposure of each
Fund with a view to protecting the outlook, and the Funds might be expected to
enter into such contracts under the following circumstances:

     Lock In. When PIMCO desires to lock in the U.S. dollar price on the
purchase or sale of a security denominated in a foreign currency.

                                       17

     Cross Hedge. If a particular currency is expected to decrease against
another currency, a Fund may sell the currency expected to decrease and purchase
a currency which is expected to increase against the currency sold in an amount
approximately equal to some or all of the Fund's portfolio holdings denominated
in the currency sold.

     Direct Hedge. If PIMCO wants to a eliminate substantially all of the risk
of owning a particular currency, and/or if PIMCO thinks that a Fund can benefit
from price appreciation in a given country's bonds but does not want to hold the
currency, it may employ a direct hedge back into the U.S. dollar. In either
case, a Fund would enter into a forward contract to sell the currency in which a
portfolio security is denominated and purchase U.S. dollars at an exchange rate
established at the time it initiated the contract. The cost of the direct hedge
transaction may offset most, if not all, of the yield advantage offered by the
foreign security, but a Fund would hope to benefit from an increase (if any) in
value of the bond.

     Proxy Hedge. PIMCO might choose to use a proxy hedge, which may be less
costly than a direct hedge. In this case, a Fund, having purchased a security,
will sell a currency whose value is believed to be closely linked to the
currency in which the security is denominated. Interest rates prevailing in the
country whose currency was sold would be expected to be closer to those in the
U.S. and lower than those of securities denominated in the currency of the
original holding. This type of hedging entails greater risk than a direct hedge
because it is dependent on a stable relationship between the two currencies
paired as proxies and the relationships can be very unstable at times.

     Costs of Hedging. When a Fund purchases a foreign bond with a higher
interest rate than is available on U.S. bonds of a similar maturity, the
additional yield on the foreign bond could be substantially reduced or lost if
the Fund were to enter into a direct hedge by selling the foreign currency and
purchasing the U.S. dollar. This is what is known as the "cost" of hedging.
Proxy hedging attempts to reduce this cost through an indirect hedge back to the
U.S. dollar.

     It is important to note that hedging costs are treated as capital
transactions and are not, therefore, deducted from a Fund's dividend
distribution and are not reflected in its yield. Instead such costs will, over
time, be reflected in a Fund's net asset value per share.

     Tax Consequences of Hedging. Under applicable tax law, the Funds may be
required to limit their gains from hedging in foreign currency forwards,
futures, and options. Although the Funds are expected to comply with such
limits, the extent to which these limits apply is subject to tax regulations as
yet unissued. Hedging may also result in the application of the mark-to-market
and straddle provisions of the Internal Revenue Code. Those provisions could
result in an increase (or decrease) in the amount of taxable dividends paid by
the Funds and could affect whether dividends paid by the Funds are classified as
capital gains or ordinary income.

Foreign Currency Exchange-Related Securities

     Foreign currency warrants. Foreign currency warrants such as Currency
Exchange Warrants/SM/ ("CEWs/SM/") are warrants which entitle the holder to
receive from their issuer an amount of cash (generally, for warrants issued in
the United States, in U.S. dollars) which is calculated pursuant to a
predetermined formula and based on the exchange rate between a specified foreign
currency and the U.S. dollar as of the exercise date of the warrant. Foreign
currency warrants generally are exercisable upon their issuance and expire as of
a specified date and time. Foreign currency warrants have been issued in
connection with U.S. dollar-denominated debt offerings by major corporate
issuers in an attempt to reduce the foreign currency exchange risk which, from
the point of view of prospective purchasers of the securities, is inherent in
the international fixed-income marketplace. Foreign currency warrants may
attempt to reduce the foreign exchange risk assumed by purchasers of a security
by, for example, providing for a supplemental payment in the event that the U.S.
dollar depreciates against the value of a major foreign currency such as the
Japanese yen or the euro. The formula used to determine the amount payable upon
exercise of a foreign currency warrant may make the warrant worthless unless the
applicable foreign currency exchange rate moves in a particular direction (e.g.,
unless the U.S. dollar appreciates or depreciates against the particular foreign
currency to which the warrant is linked or indexed). Foreign currency warrants
are severable from the debt obligations with which they may be offered, and may
be listed on exchanges. Foreign currency warrants may be exercisable only in
certain minimum amounts, and an investor wishing to exercise warrants who
possesses less than the minimum number required for exercise may be required
either to sell the warrants or to purchase additional warrants, thereby
incurring additional transaction costs. In the case of any exercise of warrants,
there may be a time delay between the time a holder of warrants gives
instructions to exercise and the time the exchange rate relating to exercise is
determined, during which time the exchange rate could change significantly,
thereby affecting both the market and cash settlement values of the warrants
being exercised. The expiration date of the warrants may be accelerated if the
warrants should be delisted from an exchange or if their trading should be
suspended permanently, which would result in the loss of any remaining "time
value" of the warrants (i.e., the difference between the current market value
and the exercise value of the warrants), and, in the case the warrants were
"out-of-the-money," in a total loss of the purchase price of the warrants.

                                       18

Warrants are generally unsecured obligations of their issuers and are not
standardized foreign currency options issued by the Options Clearing Corporation
("OCC"). Unlike foreign currency options issued by OCC, the terms of foreign
exchange warrants generally will not be amended in the event of governmental or
regulatory actions affecting exchange rates or in the event of the imposition of
other regulatory controls affecting the international currency markets. The
initial public offering price of foreign currency warrants is generally
considerably in excess of the price that a commercial user of foreign currencies
might pay in the interbank market for a comparable option involving
significantly larger amounts of foreign currencies. Foreign currency warrants
are subject to significant foreign exchange risk, including risks arising from
complex political or economic factors.

     Principal exchange rate linked securities. Principal exchange rate linked
securities ("PERLs/SM/") are debt obligations the principal on which is payable
at maturity in an amount that may vary based on the exchange rate between the
U.S. dollar and a particular foreign currency at or about that time. The return
on "standard" principal exchange rate linked securities is enhanced if the
foreign currency to which the security is linked appreciates against the U.S.
dollar, and is adversely affected by increases in the foreign exchange value of
the U.S. dollar; "reverse" principal exchange rate linked securities are like
the "standard" securities, except that their return is enhanced by increases in
the value of the U.S. dollar and adversely impacted by increases in the value of
foreign currency. Interest payments on the securities are generally made in U.S.
dollars at rates that reflect the degree of foreign currency risk assumed or
given up by the purchaser of the notes (i.e., at relatively higher interest
rates if the purchaser has assumed some of the foreign exchange risk, or
relatively lower interest rates if the issuer has assumed some of the foreign
exchange risk, based on the expectations of the current market). Principal
exchange rate linked securities may in limited cases be subject to acceleration
of maturity (generally, not without the consent of the holders of the
securities), which may have an adverse impact on the value of the principal
payment to be made at maturity.

     Performance indexed paper. Performance indexed paper ("PIPs/SM/") is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on performance
indexed paper is established at maturity as a function of spot exchange rates
between the U.S. dollar and a designated currency as of or about that time
(generally, the index maturity two days prior to maturity). The yield to the
investor will be within a range stipulated at the time of purchase of the
obligation, generally with a guaranteed minimum rate of return that is below,
and a potential maximum rate of return that is above, market yields on U.S.
dollar-denominated commercial paper, with both the minimum and maximum rates of
return on the investment corresponding to the minimum and maximum values of the
spot exchange rate two business days prior to maturity.

Borrowing

     Each Fund may borrow money to the extent permitted under the Investment
Company Act of 1940, as amended ("1940 Act"), and as interpreted, modified or
otherwise permitted by regulatory authority having jurisdiction, from time to
time. This means that, in general, a Fund may borrow money from banks for any
purpose on a secured basis in an amount up to 1/3 of the Fund's total assets. A
Fund may also borrow money for temporary administrative purposes on an unsecured
basis in an amount not to exceed 5% of the Fund's total assets.

     Specifically, provisions of the 1940 Act require a Fund to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed, with an
exception for borrowings not in excess of 5% of the Fund's total assets made for
temporary administrative purposes. Any borrowings for temporary administrative
purposes in excess of 5% of the Fund's total assets must maintain continuous
asset coverage. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, a Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time.

     As noted below, a Fund also may enter into certain transactions, including
reverse repurchase agreements, mortgage dollar rolls, and sale-buybacks, that
can be viewed as constituting a form of borrowing or financing transaction by
the Fund. To the extent a Fund covers its commitment under a reverse repurchase
agreement (or economically similar transaction) by the segregation of assets
determined in accordance with procedures adopted by the Trustees, equal in value
to the amount of the Fund's commitment to repurchase, such an agreement will not
be considered a "senior security" by the Fund and therefore will not be subject
to the 300% asset coverage requirement otherwise applicable to borrowings by the
Funds. Borrowing will tend to exaggerate the effect on net asset value of any
increase or decrease in the market value of a Fund's portfolio. Money borrowed
will be subject to interest costs which may or may not be recovered by
appreciation of the securities purchased. A Fund also may be required to
maintain minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
The Global Bond Fund II has adopted a non-fundamental investment

                                       19

restriction under which the Fund may not borrow in excess of 10% of the value of
its total assets and then only from banks as a temporary measure to facilitate
the meeting of redemption requests (not for leverage) or for extraordinary or
emergency purposes. Non-fundamental investment restrictions may be changed
without shareholder approval.

     A Fund may enter into reverse repurchase agreements, mortgage dollar rolls,
and economically similar transactions. A reverse repurchase agreement involves
the sale of a portfolio-eligible security by a Fund, coupled with its agreement
to repurchase the instrument at a specified time and price. Under a reverse
repurchase agreement, the Fund continues to receive any principal and interest
payments on the underlying security during the term of the agreement. The Fund
typically will segregate assets determined to be liquid by PIMCO in accordance
with procedures established by the Board of Trustees, equal (on a daily
mark-to-market basis) to its obligations under reverse repurchase agreements.
However, reverse repurchase agreements involve the risk that the market value of
securities retained by the Fund may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. To the extent
that positions in reverse repurchase agreements are not covered through the
segregation of liquid assets at least equal to the amount of any forward
purchase commitment, such transactions would be subject to the Funds'
limitations on borrowings, which would, among other things, restrict the
aggregate of such transactions (plus any other borrowings) to 1/3 (for each Fund
except the Global Bond Fund II) of a Fund's total assets.

     A "mortgage dollar roll" is similar to a reverse repurchase agreement in
certain respects. In a "dollar roll" transaction a Fund sells a mortgage-related
security, such as a security issued by GNMA, to a dealer and simultaneously
agrees to repurchase a similar security (but not the same security) in the
future at a pre-determined price. A "dollar roll" can be viewed, like a reverse
repurchase agreement, as a collateralized borrowing in which a Fund pledges a
mortgage-related security to a dealer to obtain cash. Unlike in the case of
reverse repurchase agreements, the dealer with which a Fund enters into a dollar
roll transaction is not obligated to return the same securities as those
originally sold by the Fund, but only securities which are "substantially
identical." To be considered "substantially identical," the securities returned
to a Fund generally must: (1) be collateralized by the same types of underlying
mortgages; (2) be issued by the same agency and be part of the same program; (3)
have a similar original stated maturity; (4) have identical net coupon rates;
(5) have similar market yields (and therefore price); and (6) satisfy "good
delivery" requirements, meaning that the aggregate principal amounts of the
securities delivered and received back must be within 2.5% of the initial amount
delivered.

     A Fund's obligations under a dollar roll agreement must be covered by
segregated liquid assets equal in value to the securities subject to repurchase
by the Fund. As with reverse repurchase agreements, to the extent that positions
in dollar roll agreements are not covered by segregated liquid assets at least
equal to the amount of any forward purchase commitment, such transactions would
be subject to the Funds' restrictions on borrowings. Furthermore, because dollar
roll transactions may be for terms ranging between one and six months, dollar
roll transactions may be deemed "illiquid" and subject to a Fund's overall
limitations on investments in illiquid securities.

     A Fund also may effect simultaneous purchase and sale transactions that are
known as "sale-buybacks." A sale-buyback is similar to a reverse repurchase
agreement, except that in a sale-buyback, the counterparty who purchases the
security is entitled to receive any principal or interest payments make on the
underlying security pending settlement of the Fund's repurchase of the
underlying security. A Fund's obligations under a sale-buyback typically would
be offset by liquid assets equal in value to the amount of the Fund's forward
commitment to repurchase the subject security.

Derivative Instruments

     In pursuing their individual objectives the Funds (except the Liquid Assets
and Money Market Funds) may purchase and sell (write) both put options and call
options on securities, swap agreements, securities indexes, commodity indexes
and foreign currencies, and enter into interest rate, foreign currency, index
and commodity futures contracts and purchase and sell options on such futures
contracts ("futures options") for hedging purposes or as part of their overall
investment strategies, except that those Funds that may not invest in foreign
currency-denominated securities may not enter into transactions involving
currency futures or options. The Funds (except the California Intermediate
Municipal Bond, California Municipal Bond, Liquid Assets, Long-Term U.S.
Government, Low Duration II, Money Market, Municipal Bond, New York Municipal
Bond, Real Return II, Short Duration Municipal Income and Total Return II Funds)
also may purchase and sell foreign currency options for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another. The Funds (except the Liquid Assets
and Money Market Funds) also may enter into swap agreements with respect to
interest rates, commodities, and indexes of securities or commodities, and to
the extent it may invest in foreign currency-denominated securities, may enter
into swap agreements with respect to foreign currencies. The Funds may invest in
structured notes. If other types of financial instruments, including other types
of options, futures contracts, or futures options are traded in the future, a
Fund may also use those instruments, provided that the Trustees determine that
their use is consistent with the Fund's investment objective.

                                       20

     The value of some derivative instruments in which the Funds invest may be
particularly sensitive to changes in prevailing interest rates, and, like the
other investments of the Funds, the ability of a Fund to successfully utilize
these instruments may depend in part upon the ability of PIMCO to forecast
interest rates and other economic factors correctly. If PIMCO incorrectly
forecasts such factors and has taken positions in derivative instruments
contrary to prevailing market trends, the Funds could be exposed to the risk of
loss.

     The Funds might not employ any of the strategies described below, and no
assurance can be given that any strategy used will succeed. If PIMCO incorrectly
forecasts interest rates, market values or other economic factors in utilizing a
derivatives strategy for a Fund, the Fund might have been in a better position
if it had not entered into the transaction at all. Also, suitable derivative
transactions may not be available in all circumstances. The use of these
strategies involves certain special risks, including a possible imperfect
correlation, or even no correlation, between price movements of derivative
instruments and price movements of related investments. While some strategies
involving derivative instruments can reduce the risk of loss, they can also
reduce the opportunity for gain or even result in losses by offsetting favorable
price movements in related investments or otherwise, due to the possible
inability of a Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable or the possible need to sell a portfolio security
at a disadvantageous time because the Fund is required to maintain asset
coverage or offsetting positions in connection with transactions in derivative
instruments, and the possible inability of a Fund to close out or to liquidate
its derivatives positions. In addition, a Fund's use of such instruments may
cause the Fund to realize higher amounts of short-term capital gains (generally
taxed at ordinary income tax rates) than if it had not used such instruments.

     Options on Securities and Indexes. A Fund may, to the extent specified
herein or in the Prospectuses, purchase and sell both put and call options on
fixed income or other securities or indexes in standardized contracts traded on
foreign or domestic securities exchanges, boards of trade, or similar entities,
or quoted on NASDAQ or on an over-the-counter market, and agreements, sometimes
called cash puts, which may accompany the purchase of a new issue of bonds from
a dealer.

     An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect features of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)

     A Fund will write call options and put options only if they are "covered."
In the case of a call option on a security, the option is "covered" if the Fund
owns the security underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or, if additional
cash consideration is required, cash or other assets determined to be liquid by
PIMCO in accordance with procedures established by the Board of Trustees, in
such amount are segregated) upon conversion or exchange of other securities held
by the Fund. For a call option on an index, the option is covered if the Fund
maintains with its custodian assets determined to be liquid by PIMCO in
accordance with procedures established by the Board of Trustees, in an amount
equal to the contract value of the index. A call option is also covered if the
Fund holds a call on the same security or index as the call written where the
exercise price of the call held is (i) equal to or less than the exercise price
of the call written, or (ii) greater than the exercise price of the call
written, provided the difference is maintained by the Fund in segregated assets
determined to be liquid by PIMCO in accordance with procedures established by
the Board of Trustees. A put option on a security or an index is "covered" if
the Fund segregates assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees equal to the exercise price. A
put option is also covered if the Fund holds a put on the same security or index
as the put written where the exercise price of the put held is (i) equal to or
greater than the exercise price of the put written, or (ii) less than the
exercise price of the put written, provided the difference is maintained by the
Fund in segregated assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees.

     If an option written by a Fund expires unexercised, the Fund realizes a
capital gain equal to the premium received at the time the option was written.
If an option purchased by a Fund expires unexercised, the Fund realizes a
capital loss equal to the premium paid. Prior to the earlier of exercise or
expiration, an exchange traded option may be closed out by an offsetting
purchase or sale of an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Fund desires.

                                       21

     A Fund may sell put or call options it has previously purchased, which
could result in a net gain or loss depending on whether the amount realized on
the sale is more or less than the premium and other transaction costs paid on
the put or call option which is sold. Prior to exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option of the same
series. A Fund will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.

     The premium paid for a put or call option purchased by a Fund is an asset
of the Fund. The premium received for an option written by a Fund is recorded as
a deferred credit. The value of an option purchased or written is marked to
market daily and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is available, at the
mean between the last bid and asked prices.

     The Funds may write covered straddles consisting of a combination of a call
and a put written on the same underlying security. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations.
The Funds may use the same liquid assets to cover both the call and put options
where the exercise price of the call and put are the same, or the exercise price
of the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."

     Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.

     During the option period, the covered call writer has, in return for the
premium on the option, given up the opportunity to profit from a price increase
in the underlying security above the exercise price, but, as long as its
obligation as a writer continues, has retained the risk of loss should the price
of the underlying security decline. The writer of an option has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying security at the exercise price. If a put
or call option purchased by the Fund is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price (in the case of a put), or remains less than or equal to
the exercise price (in the case of a call), the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security.

     There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes, during
the option's life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the premium and the
exercise price of the call.

     If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however, such losses may be mitigated by changes
in the value of the Fund's securities during the period the option was
outstanding.

     Foreign Currency Options. Funds that invest in foreign currency-denominated
securities may buy or sell put and call options on foreign currencies. A Fund
may buy or sell put and call options on foreign currencies either on exchanges
or in the over-the-counter market. A put option on a foreign currency gives the
purchaser of the option the right to sell a foreign currency at the exercise
price until the option expires. A call option on a foreign currency gives the
purchaser of the option the right to purchase the currency at the exercise price
until the option expires. Currency options traded on U.S. or other exchanges may
be subject to position limits which may limit the ability of a Fund to reduce
foreign currency risk using such

                                       22

options. Over-the-counter options differ from traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller, and generally do not have as much market liquidity as exchange-traded
options.

     Futures Contracts and Options on Futures Contracts. A futures contract is
an agreement between two parties to buy and sell a security or commodity for a
set price on a future date. These contracts are traded on exchanges, so that, in
most cases, either party can close out its position on the exchange for cash,
without delivering the security or commodity. An option on a futures contract
gives the holder of the option the right to buy or sell a position in a futures
contract to the writer of the option, at a specified price and on or before a
specified expiration date.

     Each Fund (except the Liquid Assets and Money Market Funds) may invest in
futures contracts and options thereon ("futures options") with respect to, but
not limited to, interest rates, commodities, and security or commodity indexes.
To the extent that a Fund may invest in foreign currency-denominated securities,
it may also invest in foreign currency futures contracts and options thereon.

     An interest rate, commodity, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument, commodity, foreign currency or the
cash value of an index at a specified price and time. A futures contract on an
index is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to the difference between the value of the
index at the close of the last trading day of the contract and the price at
which the index contract was originally written. Although the value of an index
might be a function of the value of certain specified securities, no physical
delivery of these securities is made. A public market exists in futures
contracts covering a number of indexes as well as financial instruments and
foreign currencies, including: the S&P 500; the S&P Midcap 400; the Nikkei 225;
the NYSE composite; U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates;
three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of
deposit; Eurodollar certificates of deposit; the Australian dollar; the Canadian
dollar; the British pound; the Japanese yen; the Swiss franc; the Mexican peso;
and certain multinational currencies, such as the euro. It is expected that
other futures contracts will be developed and traded in the future. Certain of
the Funds may also invest in commodity futures contracts and options thereon. A
commodity futures contract is an agreement between two parties, in which one
party agrees to buy a commodity, such as an energy, agricultural or metal
commodity from the other party at a later date at a price and quantity
agreed-upon when the contract is made.

     A Fund may purchase and write call and put futures options, as specified
for that Fund in the Prospectuses. Futures options possess many of the same
characteristics as options on securities and indexes (discussed above). A
futures option gives the holder the right, in return for the premium paid, to
assume a long position (call) or short position (put) in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position. In the case of
a put option, the opposite is true.

     To comply with applicable rules of the Commodity Futures Trading Commission
("CFTC") under which the Trust and the Funds avoid being deemed a "commodity
pool" or a "commodity pool operator," each Fund intends generally to limit its
use of futures contracts and futures options to "bona fide hedging"
transactions, as such term is defined in applicable regulations, interpretations
and practice. For example, a Fund might use futures contracts to hedge against
anticipated changes in interest rates that might adversely affect either the
value of the Fund's securities or the price of the securities which the Fund
intends to purchase. A Fund's hedging activities may include sales of futures
contracts as an offset against the effect of expected increases in interest
rates, and purchases of futures contracts as an offset against the effect of
expected declines in interest rates. Although other techniques could be used to
reduce that Fund's exposure to interest rate fluctuations, the Fund may be able
to hedge its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.

     A Fund will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.

     When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees ("initial margin"). The margin
required for a futures contract is set by the exchange on which the contract is
traded and may be modified during the term of the contract. Margin requirements
on foreign exchanges may be different than U.S. exchanges. The initial margin is
in the nature of a performance bond or good faith deposit on the futures
contract which is returned to the Fund upon termination of the contract,
assuming all contractual obligations have been satisfied. Each Fund expects to
earn interest income on its initial margin deposits. A futures contract held by
a Fund is valued daily at the official settlement price of the exchange on which
it is traded. Each day the Fund pays

                                       23

or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by a Fund but is instead a
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing daily net asset value, each Fund
will mark to market its open futures positions.

     A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.

     Although some futures contracts call for making or taking delivery of the
underlying securities or commodities, generally these obligations are closed out
prior to delivery by offsetting purchases or sales of matching futures contracts
(same exchange, underlying security or index, and delivery month). Closing out a
futures contract sale is effected by purchasing a futures contract for the same
aggregate amount of the specific type of financial instrument or commodity with
the same delivery date. If an offsetting purchase price is less than the
original sale price, the Fund realizes a capital gain, or if it is more, the
Fund realizes a capital loss. Conversely, if an offsetting sale price is more
than the original purchase price, the Fund realizes a capital gain, or if it is
less, the Fund realizes a capital loss. The transaction costs must also be
included in these calculations.

     The Funds may write covered straddles consisting of a call and a put
written on the same underlying futures contract. A straddle will be covered when
sufficient assets are deposited to meet the Funds' immediate obligations. A Fund
may use the same liquid assets to cover both the call and put options where the
exercise price of the call and put are the same, or the exercise price of the
call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money."

     Limitations on Use of Futures and Futures Options. In general, the Funds
intend to enter into positions in futures contracts and related options only for
"bona fide hedging" purposes. With respect to positions in futures and related
options that do not constitute bona fide hedging positions, a Fund will not
enter into a futures contract or futures option contract if, immediately
thereafter, the aggregate initial margin deposits relating to such positions
plus premiums paid by it for open futures option positions, less the amount by
which any such options are "in-the-money," would exceed 5% of the Fund's net
assets. A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option. In addition, the CFTC has allowed, on a
temporary basis, non-hedging transactions where the notional value of
non-hedging futures contracts and related options do not exceed the liquidation
value of a Fund's investments (after taking into account unrealized profits and
unrealized losses on any such contracts). Pending CFTC rule amendments may
eliminate the limitations set forth above, in which case the Funds may no longer
be subject to such limitations.

     When purchasing a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by PIMCO in
accordance with procedures established by the Board of Trustees, that, when
added to the amounts deposited with a futures commission merchant as margin, are
equal to the market value of the futures contract. Alternatively, the Fund may
"cover" its position by purchasing a put option on the same futures contract
with a strike price as high or higher than the price of the contract held by the
Fund.

     When selling a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) assets determined to be liquid by PIMCO in
accordance with procedures established by the Board of Trustees, that are equal
to the market value of the instruments underlying the contract. Alternatively,
the Fund may "cover" its position by owning the instruments underlying the
contract (or, in the case of an index futures contract, a portfolio with a
volatility substantially similar to that of the index on which the futures
contract is based), or by holding a call option permitting the Fund to purchase
the same futures contract at a price no higher than the price of the contract
written by the Fund (or at a higher price if the difference is maintained in
liquid assets with the Trust's custodian).

     When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by PIMCO in accordance with procedures established by the Board of
Trustees, that, when added to the amounts deposited with a futures commission
merchant as margin, equal the total market value of the futures contract
underlying the call option. Alternatively, the Fund may cover its position by
entering into a long position in the same futures contract at a price no higher
than the strike price of the call option, by owning the instruments underlying
the futures contract, or by holding a separate call option permitting the Fund
to purchase the same futures contract at a price not higher than the strike
price of the call option sold by the Fund.

                                       24

     When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) assets determined to be
liquid by PIMCO in accordance with procedures established by the Board of
Trustees, that equal the purchase price of the futures contract, less any margin
on deposit. Alternatively, the Fund may cover the position either by entering
into a short position in the same futures contract, or by owning a separate put
option permitting it to sell the same futures contract so long as the strike
price of the purchased put option is the same or higher than the strike price of
the put option sold by the Fund.

     To the extent that securities with maturities greater than one year are
used to segregate assets to cover a Fund's obligations under futures contracts
and related options, such use will not eliminate the risk of a form of leverage,
which may tend to exaggerate the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio, and may require liquidation
of portfolio positions when it is not advantageous to do so. However, any
potential risk of leverage resulting from the use of securities with maturities
greater than one year may be mitigated by the overall duration limit on a Fund's
portfolio securities. Thus, the use of a longer-term security may require a Fund
to hold offsetting short-term securities to balance the Fund's portfolio such
that the Fund's duration does not exceed the maximum permitted for the Fund in
the Prospectuses.

     The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures, futures options or
forward contracts. See "Taxation."

     Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be no guarantee
that there will be a correlation between price movements in the hedging vehicle
and in the Fund securities being hedged. In addition, there are significant
differences between the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given hedge not to achieve
its objectives. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for futures and
futures options on securities, including technical influences in futures trading
and futures options, and differences between the financial instruments being
hedged and the instruments underlying the standard contracts available for
trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.

     Futures contracts on U.S. Government securities historically have reacted
to an increase or decrease in interest rates in a manner similar to that in
which the underlying U.S. Government securities reacted. To the extent, however,
that a Municipal Bond Fund enters into such futures contracts, the value of such
futures will not vary in direct proportion to the value of the Fund's holdings
of Municipal Bonds (as defined above). Thus, the anticipated spread between the
price of the futures contract and the hedged security may be distorted due to
differences in the nature of the markets. The spread also may be distorted by
differences in initial and variation margin requirements, the liquidity of such
markets and the participation of speculators in such markets.

     Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.

     There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or a futures option position, and that Fund
would remain obligated to meet margin requirements until the position is closed.
In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.

     Risks Associated with Commodity Futures Contracts. There are several
additional risks associated with transactions in commodity futures contracts.

     Storage. Unlike the financial futures markets, in the commodity futures
markets there are costs of physical storage associated with purchasing the
underlying commodity. The price of the commodity futures contract will reflect
the storage costs of purchasing the physical commodity, including the time value
of money invested in the physical commodity. To the

                                       25

extent that the storage costs for an underlying commodity change while the Fund
is invested in futures contracts on that commodity, the value of the futures
contract may change proportionately.

     Reinvestment. In the commodity futures markets, producers of the underlying
commodity may decide to hedge the price risk of selling the commodity by selling
futures contracts today to lock in the price of the commodity at delivery
tomorrow. In order to induce speculators to purchase the other side of the same
futures contract, the commodity producer generally must sell the futures
contract at a lower price than the expected future spot price. Conversely, if
most hedgers in the futures market are purchasing futures contracts to hedge
against a rise in prices, then speculators will only sell the other side of the
futures contract at a higher futures price than the expected future spot price
of the commodity. The changing nature of the hedgers and speculators in the
commodity markets will influence whether futures prices are above or below the
expected future spot price, which can have significant implications for a Fund.
If the nature of hedgers and speculators in futures markets has shifted when it
is time for a Fund to reinvest the proceeds of a maturing contract in a new
futures contract, the Fund might reinvest at higher or lower futures prices, or
choose to pursue other investments.

     Other Economic Factors. The commodities which underlie commodity futures
contracts may be subject to additional economic and non-economic variables, such
as drought, floods, weather, livestock disease, embargoes, tariffs, and
international economic, political and regulatory developments. These factors may
have a larger impact on commodity prices and commodity-linked instruments,
including futures contracts, than on traditional securities. Certain commodities
are also subject to limited pricing flexibility because of supply and demand
factors. Others are subject to broad price fluctuations as a result of the
volatility of the prices for certain raw materials and the instability of
supplies of other materials. These additional variables may create additional
investment risks which subject a Fund's investments to greater volatility than
investments in traditional securities.

     Additional Risks of Options on Securities, Futures Contracts, Options on
Futures Contracts, and Forward Currency Exchange Contracts and Options Thereon.
Options on securities, futures contracts, and options on currencies may be
traded on foreign exchanges. Such transactions may not be regulated as
effectively as similar transactions in the United States; may not involve a
clearing mechanism and related guarantees, and are subject to the risk of
governmental actions affecting trading in, or the prices of, foreign securities.
The value of such positions also could be adversely affected by (i) other
complex foreign political, legal and economic factors, (ii) lesser availability
than in the United States of data on which to make trading decisions, (iii)
delays in the Trust's ability to act upon economic events occurring in foreign
markets during non-business hours in the United States, (iv) the imposition of
different exercise and settlement terms and procedures and margin requirements
than in the United States, and (v) lesser trading volume.

     Swap Agreements and Options on Swap Agreements. Each Fund (except the
Liquid Assets and Money Market Funds) may engage in swap transactions,
including, but not limited to, swap agreements on interest rates, security or
commodity indexes, specific securities and commodities, and credit and
event-linked swaps. To the extent a Fund may invest in foreign
currency-denominated securities, it may also invest in currency exchange rate
swap agreements. A Fund may also enter into options on swap agreements ("swap
options").

     A Fund may enter into swap transactions for any legal purpose consistent
with its investment objective and policies, such as for the purpose of
attempting to obtain or preserve a particular return or spread at a lower cost
than obtaining a return or spread through purchases and/or sales of instruments
in other markets, to protect against currency fluctuations, as a duration
management technique, to protect against any increase in the price of securities
a Fund anticipates purchasing at a later date, or to gain exposure to certain
markets in the most economical way possible.

     Swap agreements are two party contracts entered into primarily by
institutional investors for periods ranging from a few weeks to more than one
year. In a standard "swap" transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on particular
predetermined investments or instruments, which may be adjusted for an interest
factor. The gross returns to be exchanged or "swapped" between the parties are
generally calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
or commodities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified rate, or "floor"; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels. Consistent with a Fund's investment objectives and general investment
polices, certain of the Funds may invest in commodity swap agreements. For
example, an investment in a commodity swap agreement may involve the exchange of
floating-rate interest payments for the total return on a commodity index. In a
total return commodity swap, a Fund will receive the price appreciation of a
commodity index, a portion of the

                                       26

index, or a single commodity in exchange for paying an agreed-upon fee. If the
commodity swap is for one period, a Fund may pay a fixed fee, established at the
outset of the swap. However, if the term of the commodity swap is more than one
period, with interim swap payments, a Fund may pay an adjustable or floating
fee. With a "floating" rate, the fee may be pegged to a base rate, such as the
London Interbank Offered Rate, and is adjusted each period. Therefore, if
interest rates increase over the term of the swap contract, a Fund may be
required to pay a higher fee at each swap reset date.

     A Fund may enter into credit default swap agreements. The "buyer" in a
credit default contract is obligated to pay the "seller" a periodic stream of
payments over the term of the contract provided that no event of default on an
underlying reference obligation has occurred. If an event of default occurs, the
seller must pay the buyer the full notional value, or "par value," of the
reference obligation in exchange for the reference obligation. A Fund may be
either the buyer or seller in a credit default swap transaction. If a Fund is a
buyer and no event of default occurs, the Fund will lose its investment and
recover nothing. However, if an event of default occurs, the Fund (if the buyer)
will receive the full notional value of the reference obligation that may have
little or no value. As a seller, a Fund receives a fixed rate of income
throughout the term of the contract, which typically is between six months and
three years, provided that there is no default event. If an event of default
occurs, the seller must pay the buyer the full notional value of the reference
obligation. Credit default swap transactions involve greater risks than if a
Fund had invested in the reference obligation directly.

     A swap option is a contract that gives a counterparty the right (but not
the obligation) in return for payment of a premium, to enter into a new swap
agreement or to shorten, extend, cancel or otherwise modify an existing swap
agreement, at some designated future time on specified terms. Each Fund (except
the Liquid Assets and Money Market Funds) may write (sell) and purchase put and
call swap options.

     Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owed to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
segregation of assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees, to avoid any potential
leveraging of the Fund's portfolio. Obligations under swap agreements so covered
will not be construed to be "senior securities" for purposes of the Fund's
investment restriction concerning senior securities. Each Fund, except the
CommodityRealReturn Strategy Fund, will not enter into a swap agreement with any
single party if the net amount owed or to be received under existing contracts
with that party would exceed 5% of the Fund's total assets.

     Whether a Fund's use of swap agreements or swap options will be successful
in furthering its investment objective of total return will depend on PIMCO's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Because they are two party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, a Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a swap agreement counterparty. The Funds will
enter into swap agreements only with counterparties that meet certain standards
of creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Funds' repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may limit
the Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.

     Depending on the terms of the particular option agreement, a Fund will
generally incur a greater degree of risk when it writes a swap option than it
will incur when it purchases a swap option. When a Fund purchases a swap option,
it risks losing only the amount of the premium it has paid should it decide to
let the option expire unexercised. However, when a Fund writes a swap option,
upon exercise of the option the Fund will become obligated according to the
terms of the underlying agreement.

     Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC.
To qualify for this exemption, a swap agreement must be entered into by
"eligible participants," which includes the following, provided the
participants' total assets exceed established levels: a bank or trust company,
savings association or credit union, insurance company, investment company
subject to regulation under the 1940 Act, commodity pool, corporation,
partnership, proprietorship, organization, trust or other entity, employee
benefit plan, governmental entity, broker-dealer, futures commission merchant,
natural person, or regulated foreign person. To be eligible, natural persons and
most other entities must have total assets exceeding $10 million; commodity
pools and employee benefit plans must have

                                       27

assets exceeding $5 million. In addition, an eligible swap transaction must meet
three conditions. First, the swap agreement may not be part of a fungible class
of agreements that are standardized as to their material economic terms. Second,
the creditworthiness of parties with actual or potential obligations under the
swap agreement must be a material consideration in entering into or determining
the terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.

     This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.

     Structured Notes. Structured notes are derivative debt securities, the
interest rate or principal of which is determined by an unrelated indicator.
Indexed securities include structured notes as well as securities other than
debt securities, the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities may include a multiplier that multiplies
the indexed element by a specified factor and, therefore, the value of such
securities may be very volatile. To the extent a Fund invests in these
securities, however, PIMCO analyzes these securities in its overall assessment
of the effective duration of the Fund's portfolio in an effort to monitor the
Fund's interest rate risk.

Hybrid Instruments

     A hybrid instrument is a type of potentially high-risk derivative that
combines a traditional stock, bond, or commodity with an option or forward
contract. Generally, the principal amount, amount payable upon maturity or
redemption, or interest rate of a hybrid is tied (positively or negatively) to
the price of some commodity, currency or securities index or another interest
rate or some other economic factor (each a "benchmark"). The interest rate or
(unlike most fixed income securities) the principal amount payable at maturity
of a hybrid security may be increased or decreased, depending on changes in the
value of the benchmark. An example of a hybrid could be a bond issued by an oil
company that pays a small base level of interest with additional interest that
accrues in correlation to the extent to which oil prices exceed a certain
predetermined level. Such an hybrid instrument would be a combination of a bond
and a call option on oil.

     Hybrids can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management, and increased
total return. Hybrids may not bear interest or pay dividends. The value of a
hybrid or its interest rate may be a multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and political events,
such as commodity shortages and currency devaluations, which cannot be readily
foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail
significant market risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that has a fixed principal amount and
pays a fixed rate or floating rate of interest. The purchase of hybrids also
exposes a Fund to the credit risk of the issuer of the hybrids. These risks may
cause significant fluctuations in the net asset value of the Fund. Each Fund,
except the CommodityRealReturn Strategy Fund, will not invest more than 5% of
its total assets in hybrid instruments.

     Certain hybrid instruments may provide exposure to the commodities markets.
These are derivative securities with one or more commodity-linked components
that have payment features similar to commodity futures contracts, commodity
options, or similar instruments. Commodity-linked hybrid instruments may be
either equity or debt securities, and are considered hybrid instruments because
they have both security and commodity-like characteristics. A portion of the
value of these instruments may be derived from the value of a commodity, futures
contract, index or other economic variable. The Funds will only invest in
commodity-linked hybrid instruments that qualify under applicable rules of the
CFTC for an exemption from the provisions of the CEA.

     Certain issuers of structured products such as hybrid instruments may be
deemed to be investment companies as defined in the 1940 Act. As a result, the
Funds' investments in these products may be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act.

Delayed Funding Loans and Revolving Credit Facilities

     Each Fund (except the Liquid Assets, Money Market and Municipal Bond Funds)
may enter into, or acquire participations in, delayed funding loans and
revolving credit facilities. Delayed funding loans and revolving credit
facilities are borrowing arrangements in which the lender agrees to make loans
up to a maximum amount upon demand by the borrower during a specified term. A
revolving credit facility differs from a delayed funding loan in that as the
borrower

                                       28

repays the loan, an amount equal to the repayment may be borrowed again during
the term of the revolving credit facility. Delayed funding loans and revolving
credit facilities usually provide for floating or variable rates of interest.
These commitments may have the effect of requiring a Fund to increase its
investment in a company at a time when it might not otherwise decide to do so
(including at a time when the company's financial condition makes it unlikely
that such amounts will be repaid). To the extent that a Fund is committed to
advance additional funds, it will at all times segregate assets, determined to
be liquid by PIMCO in accordance with procedures established by the Board of
Trustees, in an amount sufficient to meet such commitments.

     The Funds may invest in delayed funding loans and revolving credit
facilities with credit quality comparable to that of issuers of its securities
investments. Delayed funding loans and revolving credit facilities may be
subject to restrictions on transfer, and only limited opportunities may exist to
resell such instruments. As a result, a Fund may be unable to sell such
investments at an opportune time or may have to resell them at less than fair
market value. The Funds currently intend to treat delayed funding loans and
revolving credit facilities for which there is no readily available market as
illiquid for purposes of the Funds' limitation on illiquid investments. For a
further discussion of the risks involved in investing in loan participations and
other forms of direct indebtedness see "Loan Participations." Participation
interests in revolving credit facilities will be subject to the limitations
discussed in "Loan Participations." Delayed funding loans and revolving credit
facilities are considered to be debt obligations for purposes of the Trust's
investment restriction relating to the lending of funds or assets by a
Portfolio.

When-Issued, Delayed Delivery and Forward Commitment Transactions

     Each of the Funds may purchase or sell securities on a when-issued, delayed
delivery, or forward commitment basis. When such purchases are outstanding, the
Fund will segregate until the settlement date assets determined to be liquid by
PIMCO in accordance with procedures established by the Board of Trustees, in an
amount sufficient to meet the purchase price. Typically, no income accrues on
securities a Fund has committed to purchase prior to the time delivery of the
securities is made, although a Fund may earn income on securities it has
segregated.

     When purchasing a security on a when-issued, delayed delivery, or forward
commitment basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the Fund
is not required to pay for the security until the delivery date, these risks are
in addition to the risks associated with the Fund's other investments. If the
Fund remains substantially fully invested at a time when when-issued, delayed
delivery, or forward commitment purchases are outstanding, the purchases may
result in a form of leverage.

     When the Fund has sold a security on a when-issued, delayed delivery, or
forward commitment basis, the Fund does not participate in future gains or
losses with respect to the security. If the other party to a transaction fails
to deliver or pay for the securities, the Fund could miss a favorable price or
yield opportunity or could suffer a loss. A Fund may dispose of or renegotiate a
transaction after it is entered into, and may sell when-issued, delayed delivery
or forward commitment securities before they are delivered, which may result in
a capital gain or loss. There is no percentage limitation on the extent to which
the Funds may purchase or sell securities on a when-issued, delayed delivery, or
forward commitment basis.

Short Sales

     Certain of the Funds, may make short sales of securities as part of their
overall portfolio management strategies involving the use of derivative
instruments and to offset potential declines in long positions in similar
securities. A short sale is a transaction in which a Fund sells a security it
does not own in anticipation that the market price of that security will
decline.

     When a Fund makes a short sale, it must borrow the security sold short and
deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any accrued interest and dividends on such borrowed
securities.

     If the price of the security sold short increases between the time of the
short sale and the time and the Fund replaces the borrowed security, the Fund
will incur a loss; conversely, if the price declines, the Fund will realize a
capital gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. The successful use of short selling may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.

                                       29

     To the extent that a Fund engages in short sales, it will provide
collateral to the broker-dealer and (except in the case of short sales "against
the box") will maintain additional asset coverage in the form of segregated
assets determined to be liquid by PIMCO in accordance with procedures
established by the Board of Trustees. Each Fund does not intend to enter into
short sales (other than those "against the box") if immediately after such sale
the aggregate of the value of all collateral plus the amount of the segregated
assets exceeds one-third of the value of the Fund's assets. This percentage may
be varied by action of the Trustees. A short sale is "against the box" to the
extent that the Fund contemporaneously owns, or has the right to obtain at no
added cost, securities identical to those sold short. The Funds will engage in
short selling to the extent permitted by the 1940 Act and rules and
interpretations thereunder.

Illiquid Securities

     The Funds may invest up to 15% of their net assets in illiquid securities
(10% in the case of the Liquid Assets and Money Market Funds). The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which a Fund has valued the securities. Illiquid securities are
considered to include, among other things, written over-the-counter options,
securities or other liquid assets being used as cover for such options,
repurchase agreements with maturities in excess of seven days, certain loan
participation interests, fixed time deposits which are not subject to prepayment
or provide for withdrawal penalties upon prepayment (other than overnight
deposits), and other securities whose disposition is restricted under the
federal securities laws (other than securities issued pursuant to Rule 144A
under the 1933 Act and certain commercial paper that PIMCO has determined to be
liquid under procedures approved by the Board of Trustees).

     Illiquid securities may include privately placed securities, which are sold
directly to a small number of investors, usually institutions. Unlike public
offerings, such securities are not registered under the federal securities laws.
Although certain of these securities may be readily sold, others may be
illiquid, and their sale may involve substantial delays and additional costs.

Loans of Portfolio Securities

     For the purpose of achieving income, each Fund may lend its portfolio
securities to brokers, dealers, and other financial institutions, provided: (i)
the loan is secured continuously by collateral consisting of U.S. Government
securities, cash or cash equivalents (negotiable certificates of deposits,
bankers' acceptances or letters of credit) maintained on a daily mark-to-market
basis in an amount at least equal to the current market value of the securities
loaned; (ii) the Fund may at any time call the loan and obtain the return of the
securities loaned; (iii) the Fund will receive any interest or dividends paid on
the loaned securities; and (iv) the aggregate market value of securities loaned
will not at any time exceed 331/3% of the total assets of the Fund. Each Fund's
performance will continue to reflect the receipt of either interest through
investment of cash collateral by the Fund in permissible investments, or a fee,
if the collateral is U.S. Government securities. Securities lending involves the
risk of loss of rights in the collateral or delay in recovery of the collateral
should the borrower fail to return the securities loaned or become insolvent.
The Funds may pay lending fees to the party arranging the loan.

Social Investment Policies

     The Low Duration Fund III and Total Return Fund III will not, as a matter
of non-fundamental operating policy, invest in the securities of any issuer
determined by PIMCO to be engaged principally in the provision of healthcare
services, the manufacture of alcoholic beverages, tobacco products,
pharmaceuticals, military equipment, the operation of gambling casinos or in the
production or trade of pornographic materials. To the extent possible on the
basis of information available to PIMCO, an issuer will be deemed to be
principally engaged in an activity if it derives more than 10% of its gross
revenues from such activities. Evaluation of any particular issuer with respect
to these criteria may involve the exercise of subjective judgment by PIMCO.
PIMCO's determination of issuers engaged in such activities at any given time
will, however, be based upon its good faith interpretation of available
information and its continuing and reasonable best efforts to obtain and
evaluate the most current information available, and to utilize such
information, as it becomes available, promptly and expeditiously in portfolio
management for the Funds. In making its analysis, PIMCO may rely, among other
things, upon information contained in such publications as those produced by the
Investor Responsibility Research Center, Inc.

                             INVESTMENT RESTRICTIONS

Fundamental Investment Restrictions

     Each Fund's investment objective, except for the Global Bond Fund II, as
set forth in the Prospectuses under "Investment Objectives and Policies,"
together with the investment restrictions set forth below, are fundamental
policies of

                                       30

the Fund and may not be changed with respect to a Fund without shareholder
approval by vote of a majority of the outstanding shares of that Fund.

(1)  A Fund may not concentrate its investments in a particular industry, as
     that term is used in the Investment Company Act of 1940, as amended, and as
     interpreted, modified, or otherwise permitted by regulatory authority
     having jurisdiction, from time to time (except that the Liquid Assets and
     Money Market Funds may concentrate their investments in securities or
     obligations issued by U.S. banks).

(2)  A Fund may not, with respect to 75% of the Fund's total assets, purchase
     the securities of any issuer, except securities issued or guaranteed by the
     U.S. government or any of its agencies or instrumentalities, if, as a
     result (i) more than 5% of the Fund's total assets would be invested in the
     securities of that issuer, or (ii) the Fund would hold more than 10% of the
     outstanding voting securities of that issuer; (This investment restriction
     is not applicable to the California Intermediate Municipal Bond, California
     Municipal Bond, Commercial Mortgage Securities, CommodityRealReturn
     Strategy, Emerging Markets Bond, Foreign Bond, Global Bond, Global Bond II,
     New York Municipal Bond Fund, Real Return and Real Return Asset Funds.) For
     the purpose of this restriction, each state and each separate political
     subdivision, agency, authority or instrumentality of such state, each
     multi-state agency or authority, and each guarantor, if any, are treated as
     separate issuers of Municipal Bonds.

(3)  A Fund may not purchase or sell real estate, although it may purchase
     securities secured by real estate or interests therein, or securities
     issued by companies which invest in real estate, or interests therein.

(4)  A Fund may not purchase or sell commodities or commodities contracts or
     oil, gas or mineral programs. This restriction shall not prohibit a Fund,
     subject to restrictions described in the Prospectuses and elsewhere in this
     Statement of Additional Information, from purchasing, selling or entering
     into futures contracts, options on futures contracts, foreign currency
     forward contracts, foreign currency options, or any interest rate,
     securities-related or foreign currency-related hedging instrument,
     including swap agreements and other derivative instruments, subject to
     compliance with any applicable provisions of the federal securities or
     commodities laws (This restriction is not applicable to the Global Bond
     Fund II, but see non-fundamental restriction "F").

(5)  A Fund may borrow money or issue any senior security, only as permitted
     under the Investment Company Act of 1940, as amended, and as interpreted,
     modified, or otherwise permitted by regulatory authority having
     jurisdiction, from time to time.

(6)  A Fund may make loans only as permitted under the Investment Company Act of
     1940, as amended, and as interpreted, modified, or otherwise permitted by
     regulatory authority having jurisdiction, from time to time.

(7)  A Fund may not act as an underwriter of securities of other issuers, except
     to the extent that in connection with the disposition of portfolio
     securities, it may be deemed to be an underwriter under the federal
     securities laws.

(8)  Notwithstanding any other fundamental investment policy or limitation, it
     is a fundamental policy of each Fund that it may pursue its investment
     objective by investing in one or more underlying investment companies or
     vehicles that have substantially similar investment objectives, policies
     and limitations as the Fund.

(9)  The Municipal Bond and Short Duration Municipal Income Funds will invest,
     under normal circumstances, at least 80% of their assets in investments the
     income of which is exempt from federal income tax.

(10) The California Intermediate Municipal Bond and California Municipal Bond
     Funds will invest, under normal circumstances, at least 80% of their assets
     in investments the income of which is exempt from both federal income tax
     and California income tax.

(11) The New York Municipal Bond Fund will invest, under normal circumstances,
     at least 80% of its assets in investments the income of which is exempt
     from both federal income tax and New York income tax.

     For purposes of Fundamental Investment Restrictions No. 9, 10 and 11, the
term "asset," as defined in Rule 35d-1 under the 1940 Act, means net assets,
plus the amount of any borrowings for investment purposes.

                                       31

Non-Fundamental Investment Restrictions

     Each Fund is also subject to the following non-fundamental restrictions and
policies (which may be changed without shareholder approval) relating to the
investment of its assets and activities.

(A)  A Fund may not invest more than 15% of the net assets of a Fund (10% in the
     case of the Liquid Assets and Money Market Funds) (taken at market value at
     the time of the investment) in "illiquid securities," illiquid securities
     being defined to include securities subject to legal or contractual
     restrictions on resale (which may include private placements), repurchase
     agreements maturing in more than seven days, certain loan participation
     interests, fixed time deposits which are not subject to prepayment or
     provide for withdrawal penalties upon prepayment (other than overnight
     deposits), certain options traded over the counter that a Fund has
     purchased, securities or other liquid assets being used to cover such
     options a Fund has written, securities for which market quotations are not
     readily available, or other securities which legally or in PIMCO's opinion
     may be deemed illiquid (other than securities issued pursuant to Rule 144A
     under the Securities Act of 1933 and certain commercial paper that PIMCO
     has determined to be liquid under procedures approved by the Board of
     Trustees).

(B)  A Fund may not purchase securities on margin, except for use of short-term
     credit necessary for clearance of purchases and sales of portfolio
     securities, but it may make margin deposits in connection with covered
     transactions in options, futures, options on futures and short positions.

(C)  Each Fund (except the Liquid Assets and Money Market Funds) may invest up
     to 5% of the total assets of a Fund (taken at market value at the time of
     investment) in any combination of mortgage-related or other asset-backed
     interest only, principal only, or inverse floating rate securities.

(D)  The Global Bond Fund II may not borrow money in excess of 10% of the value
     (taken at the lower of cost or current value) of the Fund's total assets
     (not including the amount borrowed) at the time the borrowing is made, and
     then only from banks as a temporary measure to facilitate the meeting of
     redemption requests (not for leverage) which might otherwise require the
     untimely disposition of portfolio investments or for extraordinary or
     emergency purposes (Such borrowings will be repaid before any additional
     investments are purchased.); or pledge, hypothecate, mortgage or otherwise
     encumber its assets in excess of 10% of the Fund's total assets (taken at
     cost) and then only to secure borrowings permitted above (The deposit of
     securities or cash or cash equivalents in escrow in connection with the
     writing of covered call or put options, respectively, is not deemed to be
     pledges or other encumbrances. For the purpose of this restriction,
     collateral arrangements with respect to the writing of options, futures
     contracts, options on futures contracts, and collateral arrangements with
     respect to initial and variation margin are not deemed to be a pledge of
     assets and neither such arrangements nor the purchase or sale of futures or
     related options are deemed to be the issuance of a senior security).

(E)  A Fund may not maintain a short position, or purchase, write or sell puts,
     calls, straddles, spreads or combinations thereof, except on such
     conditions as may be set forth in the Prospectuses and in this Statement of
     Additional Information.

(F)  The Global Bond Fund II may not purchase or sell commodities or commodity
     contracts except that the Fund may purchase and sell financial futures
     contracts and related options.

(G)  In addition, the Trust has adopted the following non-fundamental investment
     policies that may be changed on 60 days notice to shareholders:

     (1)  The GNMA Fund will invest, under normal circumstances, at least 80% of
          its assets in GNMA investments.

     (2)  The Total Return Mortgage Fund will invest, under normal
          circumstances, at least 80% of its assets in mortgage investments.

     (3)  The Investment Grade Corporate Bond Fund will invest, under normal
          circumstances, at least 80% of its assets in investment grade
          corporate bond investments.

     (4)  The High Yield Fund will invest, under normal circumstances, at least
          80% of its assets in high yield investments.

                                       32

     (5)  The Long-Term U.S. Government Fund will invest, under normal
          circumstances, at least 80% of its assets in U.S. Government
          investments.

     (6)  The Global Bond and Global Bond II Funds will invest, under normal
          circumstances, at least 80% of their assets in bond investments.

     (7)  The Foreign Bond Fund will invest, under normal circumstances, at
          least 80% of its assets in foreign bond investments.

     (8)  The Emerging Markets Bond Fund will invest, under normal
          circumstances, at least 80% of its assets in emerging market bond
          investments.

     (9)  The Convertible Fund will invest, under normal circumstances, at least
          80% of its assets in convertible investments.

     (10) The European Convertible Fund will invest, under normal circumstances,
          at least 80% of its assets in convertible investments that are tied
          economically to Europe.

     For purposes of these policies, the term "assets," as defined in Rule 35d-1
     under the 1940 Act, means net assets plus the amount of any borrowings for
     investment purposes.

     Currency Hedging. In addition, the Trust has adopted a non-fundamental
policy pursuant to which each Fund that may invest in securities denominated in
foreign currencies, except the Convertible, Emerging Markets Bond, and Global
Bond Funds, will hedge at least 75% of its exposure to foreign currency using
the techniques described in the Prospectuses. There can be no assurance that
currency hedging techniques will be successful.

     Under the 1940 Act, a "senior security" does not include any promissory
note or evidence of indebtedness where such loan is for temporary purposes only
and in an amount not exceeding 5% of the value of the total assets of the issuer
at the time the loan is made. A loan is presumed to be for temporary purposes if
it is repaid within sixty days and is not extended or renewed. To the extent
that borrowings for temporary administrative purposes exceed 5% of the total
assets of a Fund (except the Global Bond Fund II), such excess shall be subject
to the 300% asset coverage requirement.

     To the extent a Fund covers its commitment under a reverse repurchase
agreement (or economically similar transaction) by the segregation of assets
determined to be liquid in accordance with procedures adopted by the Trustees,
equal in value to the amount of the Fund's commitment to repurchase, such an
agreement will not be considered a "senior security" by the Fund and therefore
will not be subject to the 300% asset coverage requirement otherwise applicable
to borrowings by the Fund.

     The staff of the SEC has taken the position that purchased over-the-counter
("OTC") options and the assets used as cover for written OTC options are
illiquid securities. Therefore, the Funds have adopted an investment policy
pursuant to which a Fund will not purchase or sell OTC options if, as a result
of such transactions, the sum of: 1) the market value of OTC options currently
outstanding which are held by the Fund, 2) the market value of the underlying
securities covered by OTC call options currently outstanding which were sold by
the Fund and 3) margin deposits on the Fund's existing OTC options on futures
contracts, exceeds 15% of the net assets of the Fund, taken at market value,
together with all other assets of the Fund which are illiquid or are otherwise
not readily marketable. However, if an OTC option is sold by the Fund to a
primary U.S. Government securities dealer recognized by the Federal Reserve Bank
of New York and if the Fund has the unconditional contractual right to
repurchase such OTC option from the dealer at a predetermined price, then the
Fund will treat as illiquid such amount of the underlying securities equal to
the repurchase price less the amount by which the option is "in-the-money"
(i.e., current market value of the underlying securities minus the option's
strike price). The repurchase price with the primary dealers is typically a
formula price which is generally based on a multiple of the premium received for
the option, plus the amount by which the option is "in-the-money." This policy
is not a fundamental policy of the Funds and may be amended by the Trustees
without the approval of shareholders. However, the Funds will not change or
modify this policy prior to the change or modification by the SEC staff of its
position.

     Unless otherwise indicated, all limitations applicable to Fund investments
(as stated above and elsewhere in this Statement of Additional Information)
apply only at the time a transaction is entered into. Any subsequent change in a
rating assigned by any rating service to a security (or, if unrated, deemed to
be of comparable quality), or change in the percentage of Fund assets invested
in certain securities or other instruments, or change in the average duration of
a Fund's investment portfolio, resulting from market fluctuations or other
changes in a Fund's total assets will not require a Fund to dispose of an

                                       33

investment until PIMCO determines that it is practicable to sell or close out
the investment without undue market or tax consequences to the Fund. In the
event that ratings services assign different ratings to the same security, PIMCO
will determine which rating it believes best reflects the security's quality and
risk at that time, which may be the higher of the several assigned ratings.

     For purposes of applying the Funds' investment policies and restrictions
(as stated in the Prospectuses and this SAI) swap agreements are generally
valued by the Funds at market value. In the case of a credit default swap sold
by a Fund (i.e., where the Fund is selling credit default protection), however,
the Fund will value the swap at its notional amount. The manner in which certain
securities or other instruments are valued by the Funds for purposes of applying
investment policies and restrictions may differ from the manner in which those
investments are valued by other types of investors.

     The Funds interpret their policy with respect to the purchase and sale of
commodities or commodities contracts under Fundamental Investment Restriction
No. 4 above to permit the Funds, subject to each Fund's investment objectives
and general investment policies (as stated in the Prospectuses and elsewhere in
this Statement of Additional Information), to invest in commodity futures
contracts and options thereon, commodity-related swap agreements, and other
commodity-related derivative instruments.

     The Funds interpret their policies with respect to borrowing and lending to
permit such activities as may be lawful for the Funds, to the full extent
permitted by the 1940 Act or by exemption from the provisions therefrom pursuant
to exemptive order of the SEC. The Funds have filed an application seeking an
order from the SEC to permit the Funds to enter into transactions among
themselves with respect to the investment of daily cash balances of the Funds in
shares of the money market and/or short-term bond funds, as well as the use of
daily excess cash balances of the money market and/or short-term bond funds in
inter-fund lending transactions with the other Funds for temporary cash
management purposes. The interest paid by a Fund in such an arrangement will be
less than that otherwise payable for an overnight loan, and will be in excess of
the overnight rate the money market and/or short-term bond funds could otherwise
earn as lender in such a transaction.

Non-Fundamental Operating Policies Relating to the Sale of Shares of Total
Return Fund in Japan

     In connection with an offering of Administrative Class shares of the Total
Return Fund in Japan, the Trust has adopted the following non-fundamental
operating policies (which may be changed without shareholder approval) with
respect to the Total Return Fund. These non-fundamental policies will remain in
effect only so long as (i) they are required in accordance with standards of the
Japanese Securities Dealers Association and (ii) shares of the Total Return Fund
are being offered in Japan.

(1)  The Trust will not sell shares of the Total Return Fund in Japan except
     through PIMCO Advisors Distributors LLC.

(2)  The Trust has appointed, and will maintain the appointment of, a bank or
     trust company as the place for safe-keeping of its assets in connection
     with the Total Return Fund.

(3)  The Tokyo District Court shall have the jurisdiction over any and all
     litigation related to transactions in any class of shares of the Total
     Return Fund acquired by Japanese investors as required by Article 26, Item
     4 of the Rules Concerning Transactions of Foreign Securities of the Japan
     Securities Dealers Association.

(4)  The Total Return Fund may not make short sales of securities or maintain a
     short position for the account of the Fund unless the total current value
     of the securities being the subject of short sales or of the short position
     is equal to or less than the net asset value of the Total Return Fund.

(5)  The Total Return Fund may not borrow money in excess of 10% of the value
     (taken at the lower of cost or current value) of its total assets (not
     including the amount borrowed) at the time the borrowing is made, except
     for extraordinary or emergency purposes, such as in the case of a merger,
     amalgamation or the like.

(6)  The Total Return Fund may not acquire more than 50% of the outstanding
     voting securities of any issuer, if aggregated with the portion of holding
     in such securities by any and all other mutual funds managed by PIMCO.

(7)  The Total Return Fund may not invest more than 15% of its total assets in
     voting securities privately placed, mortgage securities or unlisted voting
     securities which cannot be readily disposed of. This restriction shall not
     be applicable to securities determined by PIMCO to be liquid and for which
     a market price (including a dealer

                                       34

     quotation) is generally obtainable or determinable.

(8)  None of the portfolio securities of the Total Return Fund may be purchased
     from or sold or loaned to any Trustee of the Trust, PIMCO, acting as
     investment adviser of the Trust, or any affiliate thereof or any of their
     directors, officers or employees, or any major shareholder thereof (meaning
     a shareholder who holds to the actual knowledge of PIMCO, on his own
     account whether in his own or other name (as well as a nominee's name), 10%
     or more of the total issued outstanding shares of such a company) acting as
     principal or for their own account unless the transaction is made within
     the investment restrictions set forth in the Fund's Prospectus and
     statement of additional information and either (i) at a price determined by
     current publicly available quotations (including a dealer quotation) or
     (ii) at competitive prices or interest rates prevailing from time to time
     on internationally recognized securities markets or internationally
     recognized money markets (including a dealer quotation).

     All percentage limitations on investments described in the restrictions
relating to the sale of shares in Japan will apply at the time of the making of
an investment and shall not be considered violated unless an excess or
deficiency occurs or exists immediately after and as a result of such
investment. If any violation of the foregoing investment restrictions occurs,
the Trust will, promptly after discovery of the violation, take such action as
may be necessary to cause the violation to cease, which shall be the only
obligation of the Trust and the only remedy in respect of the violation.

     If any of the foregoing standards shall, at any time when shares of the
Total Return Fund are being offered for subscription by the Trust in Japan or
thereafter, no longer be required in accordance with the standards of the
Japanese Securities Dealers Association, then such standards shall no longer
apply.

                             MANAGEMENT OF THE TRUST

Trustees and Officers

     The business of the Trust is managed under the direction of the Trust's
Board of Trustees. Subject to the provisions of the Trust's Declaration of
Trust, its By-Laws and Massachusetts law, the Trustees have all powers necessary
and convenient to carry out this responsibility, including the election and
removal of the Trust's officers.

     The charts below identify the Trustees and executive officers of the Trust.
Unless otherwise indicated, the address of all persons below is 840 Newport
Drive, Newport Beach, CA 92660.

Trustees of the Trust

                         Term of                                                   Number of
                         Office and                                                Funds in
                         Length of                                                 Fund Complex
Name, Age and Position   Time         Principal Occupation(s) During Past 5        Overseen by    Other Directorships
Held with Trust*         Served /+/   Years                                        Trustee        Held by Trustee
- ------------------------------------------------------------------------------------------------------------------------
Interested Trustees/1/

Brent R. Harris          02/1992 to    Managing Director, PIMCO; Chairman and           71        None
(43)                     present       Director, PIMCO Commercial Mortgage
                                       Securities Trust, Inc.; Chairman and
Chairman of the Board                  Trustee, PIMCO Variable Insurance Trust;
and Trustee                            Chairman, Director and President, PIMCO
                                       Strategic Global Government Fund, Inc.;
                                       Director, PIMCO

- ----------
*    The ages of the individuals listed below are as of June 30,2003.
/+/  Trustees serve until their successors are duly elected and qualified.
/1/  Mr. Harris and Mr. Burns are "interested persons" of the Trust (as that
     term is defined in the 1940 Act because of their affiliations with PIMCO.

                                       35

                         Term of                                                   Number of
                         Office and                                                Funds in
                         Length of                                                 Fund Complex
Name, Age and Position   Time         Principal Occupation(s) During Past 5        Overseen by    Other Directorships
Held with Trust*         Served /+/   Years                                        Trustee        Held by Trustee
- ------------------------------------------------------------------------------------------------------------------------
                                       Luxembourg S.A.; and Board of Governors
                                       and Executive Committee, Investment
                                       Company Institute.

R. Wesley Burns (43)     07/1987 to    Director, PIMCO.  President and Director,        70        None
                         present       PIMCO Commercial Mortgage Securities
President and Trustee    (since        Trust, Inc.; President and Trustee, PIMCO
                         11/1997 as    Variable Insurance Trust; Senior Vice
                         Trustee)      President, PIMCO Strategic Global
                                       Government Fund, Inc.; Director, PIMCO
                                       Funds: Global Investors Series plc and
                                       Director, PIMCO Global Advisors (Ireland)
                                       Limited.  Formerly, Managing Director,
                                       PIMCO and Executive Vice President, PIMCO
                                       Funds: Multi-Manager Series.

Independent Trustees

E. Philip Cannon (62)    03/2000 to    Proprietor, Cannon & Company, an                 114       None
                         present       affiliate of Inverness Management LLC, (a
Trustee                                private equity investment firm).
                                       President, Houston Zoo; Director, PIMCO
                                       Commercial Mortgage Securities Trust,
                                       Inc.; Trustee, PIMCO Variable Insurance
                                       Trust; Trustee, PIMCO Funds:
                                       Multi-Manager Series.  Formerly,
                                       Headmaster, St. John's School, Houston,
                                       Texas.

                                       36

                         Term of                                                   Number of
                         Office and                                                Funds in
                         Length of                                                 Fund Complex
Name, Age and Position   Time         Principal Occupation(s) During Past 5        Overseen by    Other Directorships
Held with Trust*         Served /+/   Years                                        Trustee        Held by Trustee
- ------------------------------------------------------------------------------------------------------------------------
Vern O. Curtis           02/1995 to    Private Investor; Director, PIMCO                70        Director, Public
(69)                     present       Commercial Mortgage Securities Trust,                      Storage Business
                                       Inc.; and Trustee, PIMCO Variable                          Parks, Inc., (a Real
Trustee                                Insurance Trust.                                           Estate Investment
                                                                                                  Trust); Director,
                                                                                                  Fresh Choice, Inc.
                                                                                                  (restaurant company).

J. Michael Hagan (63)    03/2000 to    Private Investor and Business                    70        Director, Ameron
                         present       Consultant.  Director, PIMCO Commercial                    International
Trustee                                Mortgage Securities Trust, Inc.; Trustee,                  (manufacturing); and
                                       PIMCO Variable Insurance Trust; Director                   Director, Fleetwood
                                       Freedom Communications; Director, Remedy                   Enterprises
                                       Temp (staffing); Director, Saint Gobain                    (manufacturer of
                                       Corporation (manufacturing); Member of                     housing and
                                       the Board of Regents at Santa Clara                        recreational
                                       University; Member of the Board, Taller                    vehicles).
                                       San Jose; Trustee, South Coast Repertory
                                       Theater.  Formerly, Chairman and CEO,
                                       Furon Company (manufacturing).

William J. Popejoy (64)  07/1993 to    Managing Member, Pacific Capital                 70        Director, New Century
                         02/1995 and   Investors; Trustee, PIMCO Variable                         Financial Corporation
Trustee                  08/1995 to    Insurance Trust; and Director, PIMCO                       (mortgage banking)
                         present       Commercial Mortgage Securities Trust,
                                       Inc.  Formerly, Director, California
                                       State Lottery.

Executive Officers

Name, Age and Position Held with   Term of Office and Length of
Trust                              Time Served                    Principal Occupation(s) During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------------
Gregory A. Bishop                  02/2003 to present             Senior Vice President, PIMCO.
(41)
Senior Vice President

William H. Gross                   04/1987 to present             Managing Director and Executive Committee Member, PIMCO.
(59)
Senior Vice President

Raymond C. Hayes                   02/1995 to present (since      Senior Vice President, PIMCO; Formerly, Vice President
(58)                               02/03 as Senior Vice           PIMCO.
Senior Vice President              President.

                                       37

Name, Age and Position Held with   Term of Office and Length of
Trust                              Time Served                    Principal Occupation(s) During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------------
Margaret Isberg                    02/1996 to present             Managing Director, PIMCO.  Formerly, Executive Vice
(46)                                                              President, PIMCO.
Senior Vice President

Steven P. Kirkbaumer               02/2003 to present             Senior Vice President, PIMCO.  Formerly, Vice
(47)                                                              President, PIMCO
Senior Vice President

John S. Loftus                     02/2001 to present             Managing Director, PIMCO.
(44)
Senior Vice President

James F. Muzzy                     04/1987 to present (since      Managing Director, PIMCO.
(64)                               02/2003 as Senior Vice
Senior Vice President              President)

Douglas J. Ongaro                  08/1995 to present (since      Senior Vice President, PIMCO.  Formerly, Vice
(42)                               02/2003 as Senior Vice         President, PIMCO.
Senior Vice President              President)

Mark A. Romano                     02/1998 to present             Senior Vice President, PIMCO.  Formerly, Vice
(45)                                                              President, PIMCO.
Senior Vice President

Jeffrey M. Sargent                 02/1993 to present (since      Senior Vice President, PIMCO.  Formerly, Vice
(40)                               02/1999 as Senior Vice         President, PIMCO.
Senior Vice President              President)

Leland T. Scholey                  02/1996 to present             Senior Vice President, PIMCO.
(50)
Senior Vice President

William S. Thompson, Jr.           11/1993 to present (since      Managing Director and Chief Executive Officer, PIMCO.
(57)                               02/2003 as Senior Vice
Senior Vice President              President)

Jim Johnstone                      02/2002 to present             Vice President, PIMCO.  Formerly, Vice President,
(39)                                                              Fidelity Investments.
Vice President

Kevin D. Kuhner                    02/2003 to present             Vice President, PIMCO.  Formerly, Account Manager, PIMCO
(37)
Vice President

Henrik P. Larsen                   02/1999 to present             Vice President, PIMCO.  Formerly, Manager, PIMCO.
(33)
Vice President

Andre J. Mallegol, III             02/1998 to present             Vice President, PIMCO.
(37)
Vice President

                                       38

Name, Age and Position Held with   Term of Office and Length of
Trust                              Time Served                    Principal Occupation(s) During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------------
Gail Mitchell                      02/2003 to present             Vice President, PIMCO.  Formerly, Account Manager, PIMCO
(53)
Vice President

Bruce P. Pflug                     02/2003 to present             Senior Vice President, PIMCO.
(44)
Vice President

David J. Pittman                   02/1998 to present             Vice President, PIMCO.
(55)
Vice President

Scott M. Spalding                  02/2002 to present             Vice President, PIMCO.  Formerly, associated with
(33)                                                              PacificCare Healthcare Systems.
Vice President

Christina L. Stauffer              02/2003 to present             Vice President, PIMCO. Formerly, Account Manager,
(39)                                                              PIMCO and a vice president of client services and
Vice President                                                    marketing with Transamerica Investment Management.

Michael J. Willemsen                11/1988 to present (since     Vice President, PIMCO.  Formerly, Manager, PIMCO.
(43)                                02/2002 as Vice President)
Vice President

Garlin G. Flynn                     08/1995 to present            Specialist, PIMCO
(56)
Secretary

John P. Hardaway                    08/1990 to present            Senior Vice President, PIMCO.  Formerly, Vice
(45)                                                              President, PIMCO.
Treasurer

Erik C. Brown                       02/2001 to present            Vice President, PIMCO.  Formerly, tax consultant with
(35)                                                              Deloitte and Touche LLP and PricewaterhouseCoopers LLC.
Assistant Treasurer

     Listed below for each Trustee is a dollar range of securities beneficially
owned in the Trust together with the aggregate dollar range of equity securities
in all registered investment companies overseen by each Trustee that are in the
same family of investment companies as the Trust, as of December 31, 2002.

- ----------------------------------------------------------------------------------------------------------

                                                                         Aggregate Dollar Range of Equity
                                                                       Securities in All Funds Overseen by
                                Dollar Range of Equity Securities in     Trustee or Nominee in Family of
 Name of Trustee or Nominee                  the Funds                         Investment Companies
- ----------------------------------------------------------------------------------------------------------
R. Wesley Burns                            Over $100,000                           Over $100,000
- ----------------------------------------------------------------------------------------------------------
E. Philip Cannon                                None                               Over $100,000
- ----------------------------------------------------------------------------------------------------------
Vern O. Curtis                             Over $100,000                           Over $100,000
- ----------------------------------------------------------------------------------------------------------
J. Michael Hagan                                None                                    -0-
- ----------------------------------------------------------------------------------------------------------
Brent R. Harris                            Over $100,000                           Over $100,000
- ----------------------------------------------------------------------------------------------------------
William J. Popejoy                              None                                    -0-
- ---------------------------------- ----------------------------------------- -----------------------------

                                       39

     No independent Trustee (or an immediate family member thereof) had any
direct or indirect interest, the value of which exceeds $60,000, in the
investment adviser, the principal underwriter of the Trust, or any entity
controlling, controlled by or under common control with the investment adviser
or the principal underwriter of the Trust (not including registered investment
companies). Set forth in the table below is information regarding each
independent Trustee's (and his or her immediate family members') share ownership
in securities of the investment adviser of the Trust, the principal underwriter
of the Trust, and any entity controlling, controlled by or under common control
with the investment adviser or principal underwriter of the Trust (not including
registered investment companies), as of December 31, 2002.


- ------------------------------------------------------------------------------------------------
                     Name of Owners and
Name of Trustee or    Relationships to                                   Value of     Percent of
    Nominee          Trustee or Nominee    Company    Title of Class    Securities      Class
- ------------------------------------------------------------------------------------------------
E. Philip Cannon           None             None           None            None          None
- ------------------------------------------------------------------------------------------------
Vern O. Curtis             None             None           None            None          None
- ------------------------------------------------------------------------------------------------
J. Michael Hagan           None             None           None            None          None
- ------------------------------------------------------------------------------------------------
William J. Popejoy         None             None           None            None          None
- ------------------------------------------------------------------------------------------------

     No independent Trustee or immediate family member has during the two most
recently completed calendar years had: (i) any material interest, direct or
indirect, in any transaction or series of similar transactions, in which the
amount involved exceeds $60,000; (ii) any securities interest in the principal
underwriter of the Trust or the investment adviser or their affiliates (other
than the Trust); or (iii) any direct or indirect relationship of any nature, in
which the amount involved exceeds $60,000, with:

..  the Funds;

..  an officer of the Funds;

..  an investment company, or person that would be an investment company but for
   the exclusions provided by sections 3(c)(1) and 3(c)(7) of the 1940 Act,
   having the same investment adviser or principal underwriter as the Funds or
   having an investment adviser or principal underwriter that directly or
   indirectly controls, is controlled by, or is under common control with the
   investment adviser or principal underwriter of the Funds;

..  an officer or an investment company, or a person that would by an investment
   company but for the exclusions provided by sections 3(c)(1) and 3(c)(7) of
   the 1940 Act, having the same investment adviser or principal underwriter as
   the Funds or having an investment adviser or principal underwriter that
   directly or indirectly controls, is controlled by, or is under common control
   with the investment adviser or principal underwriter of the Funds;

..  the investment adviser or principal underwriter of the Funds;

..  an officer of the investment adviser or principal underwriter of the Funds;

..  a person directly or indirectly controlling, controlled by, or under common
   control with the investment adviser or principal underwriter of the Funds; or

..  an officer of a person directly or indirectly controlling, controlled by, or
   under common control with the investment adviser or principal underwriter of
   the Funds.

Standing Committees

     The Trust has a standing Audit Committee that consists of all of the
independent Trustees (Messrs. Cannon, Curtis, Hagan and Popejoy). The Audit
Committee reviews both the audit and non-audit work of the Trust's independent
public accountant, submits a recommendation to the Board as to the selection of
an independent public accountant, and reviews generally the maintenance of the
Trust's records and the safekeeping arrangement of the Trust's custodian. During
the fiscal year ended March 31, 2003, the Audit Committee met four times. Each
member of the Audit Committee attended 100% of such meetings during the period
in which he or she was a member of the Audit Committee.

     The Board has formed a Valuation Committee whose function is to monitor the
valuation of portfolio securities and other investments and, as required by the
Trust's valuation policies, when the Board is not in session it shall determine
the fair value of portfolio holdings after consideration of all relevant
factors, which determinations shall be reported to the full Board. The Valuation
Committee currently consists of all of the Trust's Board members. The Valuation
Committee held two meetings during the last fiscal year.

                                       40

     The Trust also has a Nominating Committee, composed of independent Trustees
(Messrs. Cannon, Curtis, Hagan and Popejoy), that is responsible for the
selection and nomination of candidates to serve as Trustees of the Trust. The
Nominating Committee does not currently have a policy regarding whether it will
consider nominees recommended by shareholders. During the fiscal year ended
March 31, 2003, there were no meetings of the Nominating Committee.

Compensation Table

     The following table sets forth information regarding compensation received
by the Trustees for the fiscal year ended March 31, 2003.

                                                 Total Compensation
                                 Aggregate        from Trust and
                               Compensation      Fund Complex Paid
Name and Position              from Trust/1/       to Trustees/2/
- ----------------------------  --------------     ------------------
E. Philip Cannon,  Trustee    $       74,289/3/  $          185,956/4/
Vern O. Curtis,  Trustee      $       74,314     $           92,314
J. Michael Hagan,  Trustee    $       72,500     $           90,500
William J. Popejoy,  Trustee  $       72,500     $           90,500

     1    Each Trustee, other than those affiliated with PIMCO or its
affiliates, receives an annual retainer of $60,000 plus $3,000 for each Board of
Trustees meeting attended in person and $500 for each meeting attended
telephonically, plus reimbursement of related expenses. In addition, a Trustee
serving as a Committee Chair, other than those affiliated with PIMCO or its
affiliates, receives an additional annual retainer of $1,500. For the fiscal
year ended March 31, 2003, the unaffiliated Trustees as a group received
compensation in the amount of $465,266. Note: Guilford C. Babcock and Thomas P.
Kemp served as unaffiliated Trustees until their retirement on June 30, 2003.
For the fiscal year ended March 31, 2003, Mr. Babcock and Mr. Kemp each received
compensation in the amounts of $72,500 and $90,500 from the Trust and the Fund
Complex, respectively.

     2    Each Trustee also serves as a Director of PIMCO Commercial Mortgage
Securities Trust, Inc., a registered closed-end management investment company,
and as a Trustee of PIMCO Variable Insurance Trust, a registered open-end
management investment company. For their services to PIMCO Commercial Mortgage
Securities Trust, Inc., the Directors listed above received an annual retainer
of $6,000 plus $1,000 for each Board of Directors meeting attended in person and
$500 for each meeting attended telephonically, plus reimbursement of related
expenses. In addition, a Director serving as a Committee Chair, other than those
affiliated with PIMCO or its affiliates, receives an additional annual retainer
of $500. For the fiscal year ended December 31, 2002, the unaffiliated Directors
as a group received compensation in the amount of $64,493.

     The Trustees listed above, for their services as Trustees of PIMCO Variable
Insurance Trust, receive an annual retainer of $4,000 plus $1,500 for each Board
of Trustees meeting attended in person and $250 for each meeting attended
telephonically, plus reimbursement of related expenses. In addition, a Trustee
serving as a Committee Chair, other than those affiliated with PIMCO or its
affiliates, receives an additional annual retainer of $500. For the fiscal year
ended December 31, 2002, the unaffiliated Trustees as a group received
compensation in the amount of $61,493.

     3    The Trust, PIMCO Commercial Mortgage Securities Trust, Inc., and
PIMCO Variable Insurance Trust have adopted a deferred compensation plan. For
fiscal year ended December 31, 2002, Mr. Cannon elected to have $10,500 and
$10,000 in compensation deferred from the PIMCO Commercial Mortgage Securities
Trust, Inc. and PIMCO Variable Insurance Trust, respectively. For fiscal year
ended March 31, 2003, Mr. Cannon elected to have $72,500 in compensation from
the Trust deferred.

     4    Mr. Cannon also serves as a Trustee of PIMCO Funds: Multi-Manager
Series which has adopted a deferred compensation plan. For the fiscal year ended
December 31, 2002, Mr. Cannon elected to have $78,250 in compensation from that
Trust deferred.

Investment Adviser

     Pacific Investment Management Company LLC ("PIMCO"), a Delaware limited
liability company, serves as investment adviser to the Funds pursuant to an
investment advisory contract ("Advisory Contract") between PIMCO and the Trust.
PIMCO is a majority owned subsidiary of Allianz Dresdner Asset Management of
America L.P. ("ADAM LP") with a minority interest held by PIMCO Partners, LLC.
PIMCO Partners, LLC is owned by the current managing directors and

                                       41

executive management of PIMCO. ADAM LP was organized as a limited partnership
under Delaware law in 1987. ADAM LP's sole general partner is Allianz PacLife
Partners LLC. Allianz-Paclife Partners LLC is a Delaware limited liability
company with three members, ADAM U.S. Holding LLC, the managing member, which is
a Delaware limited liability company, Pacific Life Insurance Company and Pacific
Asset Management LLC, a Delaware limited liability company. ADAM U.S. Holding
LLC's sole member is Allianz Dresdner Asset Management of America LLC, a
Delaware limited liability company. Allianz Dresdner Asset Management of America
LLC has two members, Allianz of America, Inc., a Delaware corporation which owns
a 99.9% non-managing interest and Allianz Dresdner Asset Management of America
Holding Inc., a Delaware corporation which owns a 0.01% managing interest.
Allianz Dresdner Asset Management of America Holding Inc. is a wholly-owned
subsidiary of ADAM GmbH, which is wholly-owned by Allianz Aktiengesellschaft
("Allianz AG"). Allianz of America, Inc. is wholly-owned by Allianz AG. Pacific
Asset Management LLC is a wholly-owned subsidiary of Pacific Life Insurance
Company, a wholly-owned subsidiary of Pacific Mutual Holding Company. Allianz AG
indirectly owns a controlling interest in ADAM LP. Allianz AG is a
European-based, multi-national insurance and financial services holding company.
Pacific Life Insurance Company owns an indirect minority equity interest in ADAM
LP and is a California based insurance company.

     PIMCO has engaged Research Affiliates, LLC ("Research Affiliates"), a
California limited liability company, to serve as asset allocation sub-adviser
to the All Asset Fund pursuant to an asset allocation sub-advisory agreement
("Asset Allocation Agreement"). Research Affiliates was organized in March 2002
and is located at 800 E. Colorado Blvd., 9th Floor, Pasadena, CA 91101.

     PIMCO is located at 840 Newport Center Drive, Newport Beach, California
92660. PIMCO had approximately $348.8 billion of assets under management as of
June 30, 2003.

     Allianz AG is a European based insurance and financial services holding
company and a publicly traded German company. As of December 31, 2002, the
Allianz Group (including PIMCO) had assets under management of more than $1.04
trillion.

     Significant institutional shareholders of Allianz AG currently include
Munchener Ruckversicherungs-Gesellschaft AG ("Munich Re") and Bayerische
Hypo-und Vereinsbank AG ("HypoVereinsbank"). These entities as well as certain
broker-dealers that might be controlled by or affiliated with Allianz AG or
these entities (collectively, the "Affiliated Brokers"), may be considered to be
affiliated persons of PIMCO. Absent an SEC exemption or other relief, the Funds
generally are precluded from effecting principal transactions with the
Affiliated Brokers, and its ability to purchase securities being underwritten by
an Affiliated Broker or to utilize the Affiliated Brokers for agency
transactions is subject to restrictions. PIMCO does not believe that the
restrictions on transactions with the Affiliated Brokers described above
materially adversely affect its ability to provide services to the Funds, the
Funds' ability to take advantage of market opportunities, or the Funds' overall
performance.

Advisory Agreement

     PIMCO is responsible for making investment decisions and placing orders for
the purchase and sale of the Trust's investments directly with the issuers or
with brokers or dealers selected by it in its discretion. See "Portfolio
Transactions." PIMCO also furnishes to the Board of Trustees, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of each Fund.

     Under the terms of the Advisory Contract, PIMCO is obligated to manage the
Funds in accordance with applicable laws and regulations. The investment
advisory services of PIMCO to the Trust are not exclusive under the terms of the
Advisory Contract. PIMCO is free to, and does, render investment advisory
services to others.

     PIMCO is responsible for determining how the assets of the Strategic
Balanced Fund are allocated and reallocated from time to time between the
Underlying Funds. The Fund does not pay any fees to PIMCO in return for these
services under the Advisory Agreement. The Fund does, however, indirectly pay a
proportionate share of the advisory fees paid to PIMCO by the Underlying Funds
in which the Fund invests.

     Following the expiration of the two year period commencing with the
effectiveness of the Advisory Contract, it will continue in effect on a yearly
basis provided such continuance is approved annually (i) by the holders of a
majority of the outstanding voting securities of the Trust or by the Board of
Trustees and (ii) by a majority of the Independent Trustees. The Advisory
Contract may be terminated without penalty by vote of the Trustees or the
shareholders of the Trust, or by PIMCO, on 60 days' written notice by either
party to the contract and will terminate automatically if assigned.

                                       42

     Continuation of the Advisory Contract was last approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties ("Independent
Trustees"), at a meeting held on August 20, 2002. In determining whether to
continue the Advisory Contract, the Trustees considered the fees and expenses
paid by the Funds and by comparable funds, the costs of providing these
services, and the profitability of PIMCO's relationship with the Funds. The
Trustees also considered the nature and quality of services provided under the
Advisory Contract, and the investment performance of the Funds on an absolute
basis, and relative to the performance of comparable funds. The Trustees also
considered the terms of the Trust's Administration Agreement and the fees paid
and services provided to the Funds under their "unified fee" structure. In
addition, the Trustees considered the relationships among PIMCO, Allianz AG, and
their affiliates, including any collateral benefits received by PIMCO or its
affiliates due to PIMCO's relationship with the Funds. The Trustees also
considered PIMCO's representations concerning its staffing, capabilities and
methodologies applied in managing the Funds, including the importance of
retention of personnel with relevant portfolio management experience. Upon
completion of the Board's review and discussion, the Trustees concluded that the
investment advisory fees payable to PIMCO under the Advisory Contract are fair
and reasonable in light of the services provided to the Funds, and approved the
continuation of the Advisory Contract between the Trust and PIMCO for one year.

     PIMCO employs Research Affiliates to provide asset allocation services to
the All Asset Fund pursuant to an Asset Allocation Agreement. Under the Asset
Allocation Agreement, Research Affiliates is responsible for the management of
the Fund and determining how the assets of the Fund are allocated and
reallocated from time to time among the Underlying Funds. For services provided
to the All Asset Fund, PIMCO (not the Trust) pays a fee to Research Affiliates
at an annual rate of 0.20% of the average daily net assets of the Fund. The Fund
also indirectly pays a proportionate share of the advisory fees paid to PIMCO by
the Underlying Funds in which the Fund invests. Research Affiliates is not
compensated directly by the All Asset Fund.

     Under the terms of the Asset Allocation Agreement, Research Affiliates is
obligated to manage the All Asset Fund in accordance with applicable laws and
regulations. The Asset Allocation Agreement will continue in effect with respect
to the All Asset Fund for two years from its effective date, and thereafter on a
yearly basis provided such continuance is approved annually (i) by the holders
of a majority of the outstanding voting securities of the Trust or by the Board
of Trustees and (ii) by a majority of the Independent Trustees. The Asset
Allocation Agreement may be terminated without penalty by vote of the Trustees
or its shareholders, or by PIMCO, on 60 days' written notice by either party to
the contract and will terminate automatically if assigned. If Research
Affiliates ceases to manage the portfolio of the Fund, PIMCO will either assume
full responsibility for the management of the Fund, or retain a new asset
allocation sub-adviser, subject to the approval of the Trustees and, if
required, the Fund's shareholders.

     Except for the Strategic Balanced Fund, PIMCO receives a monthly investment
advisory fee from each Fund at an annual rate based on average daily net assets
of the Funds as follows:

                                                           Advisory
Fund                                                       Fee Rate
- ---------------------------------------------------        --------
Liquid Assets Fund                                             0.10%
Money Market Fund                                              0.15%
All Asset and Short Duration Municipal Income Funds            0.20%
Commercial Mortgage Securities, Convertible, Real
Return Asset, and StocksPLUS Funds                             0.40%
Diversified Income and Emerging Markets Bond Funds             0.45%
CommodityRealReturn Strategy and StocksPLUS
Total Return Funds                                             0.49%
European Convertible Fund                                      0.50%
All other Funds                                                0.25%

     For the fiscal years ended March 31, 2003, 2002 and 2001, the aggregate
amount of the advisory fees paid by each operational Fund was as follows:

                                       43

                                                 Year Ended     Year Ended     Year Ended
Fund                                               3/31/03       3/31/02        3/31/01
- -------------------------------------------     ------------   ------------   ------------
All Asset Fund                                  $     53,124            N/A            N/A
California Intermediate Municipal Bond Fund          374,702   $    245,724   $    235,549
California Municipal Bond Fund                        40,417         38,652         23,189
CommodityRealReturn Strategy Fund                    176,335            N/A            N/A
Convertible Fund                                     105,967        177,766        592,451
Emerging Markets Bond Fund                         1,554,522        475,043        211,416
European Convertible Fund                             24,176         25,385          8,367
Foreign Bond Fund                                  2,624,791      1,833,823      1,477,689
Global Bond Fund                                   1,008,664        799,652        731,816
Global Bond Fund II                                  249,874        197,770        191,774
GNMA                                                 537,840        117,225         20,257
High Yield Fund                                   10,590,729      7,996,501      7,084,431
Investment Grade Corporate Bond Fund                  63,778         14,792         12,277
Long-Term U.S. Government Fund                     1,873,831      1,320,155      1,026,205
Low Duration Fund                                 21,105,390     13,116,919     10,648,205
Low Duration Fund II                               1,092,814      1,177,684      1,517,422
Low Duration Fund III                                130,019        122,127         99,814
Moderate Duration Fund                             2,188,970      1,627,129      1,179,075
Money Market Fund                                    580,550        541,950        595,731
Municipal Bond Fund                                  803,095        272,823        153,408
New York Municipal Bond Fund                          25,189         12,643          8,227
Real Return Fund                                  14,082,155      5,064,008      1,358,282
Real Return Fund II                                   44,914          3,371            N/A
Real Return Asset Fund                               151,562         31,567            N/A
Short Duration Municipal Income Fund                 369,566         31,171         26,241
Short-Term Fund                                    7,487,012      3,548,056      1,707,119
StocksPLUS Fund                                    3,207,673      3,938,464      5,319,379
StocksPLUS Total Return Fund                          11,056            N/A            N/A
Strategic Balanced Fund                                    0              0        217,176
Total Return Fund                                158,776,873    118,913,898     89,506,328
Total Return Fund II                               5,152,176      4,368,499      3,840,097
Total Return Fund III                              2,321,409      2,130,614      1,970,439
Total Return Mortgage Fund                           453,198        119,995         41,637


Proxy Voting Policies and Procedures

     PIMCO has adopted written proxy voting policies and procedures ("Proxy
Policy") as required by Rule 206(4)-6 under the Investment Advisers Act of 1940,
as amended. The Proxy Policy has been adopted by the Trust as the policies and
procedures that PIMCO will use when voting proxies on behalf of the Funds.
Recognizing that proxy voting is a rare event in the realm of fixed income
investing and is typically limited to solicitation of consent to changes in
features of debt securities, the Proxy Policy also applies to any voting rights
and/or consent rights of PIMCO, on behalf of the Funds, with respect to debt
securities, including but not limited to, plans of reorganization, and waivers
and consents under applicable indentures.

     The Proxy Policy is designed and implemented in a manner reasonably
expected to ensure that voting and consent rights are exercised in the best
interests of the Funds and their shareholders. Each proxy is voted on a
case-by-case basis taking into consideration any relevant contractual
obligations as well as other relevant facts and circumstances at the time of the
vote. In general, PIMCO reviews and considers corporate governance issues
related to proxy matters and generally supports proposals that foster good
corporate governance practices. PIMCO may vote proxies as recommended by
management on routine matters related to the operation of the issuer and on
matters not expected to have a significant economic impact on the issuer and/or
its shareholders.

     PIMCO will supervise and periodically review its proxy voting activities
and implementation of the Proxy Policy. PIMCO will review each proxy to
determine whether there may be a material conflict between PIMCO and the Funds.
If no conflict exists, the proxy will be forwarded to the appropriate portfolio
manager for consideration. If a conflict does exist, PIMCO will seek to resolve
any such conflict in accordance with the Proxy Policy. PIMCO seeks to resolve
any material conflicts of interest by voting in good faith in the best interest
of the Funds. If a material conflict of interest should arise, PIMCO will seek
to resolve such conflict in the Funds' best interest by pursuing any one of the
following courses of action: (i) convening a committee to assess and resolve the
conflict; (ii) voting in accordance with the instructions of the Board; (iii)
voting in accordance with the recommendation of an independent third-party
service provider; (iv) suggesting to the Board that the Fund engage another
party to determine how the proxy should be voted; (v) delegating the vote to a
third-party service provider; or (vi) voting in accordance with the factors
discussed in the Proxy Policy.

                                       44

     Information about how the Fund voted proxies relating to portfolio
securities held during the year July 1, 2003 through June 30, 2004 will be
available no later than August 31, 2004 without charge, upon request, by calling
the Trust at 1-800-927-4648 and on the SEC's website at http://www.sec.gov.

Fund Administrator

     PIMCO also serves as Administrator to the Funds pursuant to an
administration agreement (the "Administration Agreement") with the Trust. PIMCO
provides the Funds with certain administrative and shareholder services
necessary for Fund operations and is responsible for the supervision of other
Fund service providers. PIMCO may in turn use the facilities or assistance of
its affiliates to provide certain services under the Administration Agreement,
on terms agreed between PIMCO and such affiliates. The administrative services
provided by PIMCO include but are not limited to: (1) shareholder servicing
functions, including preparation of shareholder reports and communications, (2)
regulatory compliance, such as reports and filings with the SEC and state
securities commissions, and (3) general supervision of the operations of the
Funds, including coordination of the services performed by the Funds' transfer
agent, custodian, legal counsel, independent accountants, and others. PIMCO (or
an affiliate of PIMCO) also furnishes the Funds with office space facilities
required for conducting the business of the Funds, and pays the compensation of
those officers, employees and Trustees of the Trust affiliated with PIMCO. In
addition, PIMCO, at its own expense, arranges for the provision of legal, audit,
custody, transfer agency and other services for the Funds, and is responsible
for the costs of registration of the Trust's shares and the printing of
Prospectuses and shareholder reports for current shareholders. PIMCO has
contractually agreed to provide these services, and to bear these expenses, at
the following rates for each Fund (each expressed as a percentage of the Fund's
average daily net assets attributable to its classes of shares on an annual
basis):


                                                       Administrative Fee Rate
                                                    -------------------------------
                                 Institutional
                                     and
                                 Administrative     Advisor   Class A,      Class
 Fund                                Class           Class    B and C       Class D*  J and K   Class R
- ----------------------------     --------------     -------   --------      -------   -------   -------
All Asset Fund                             0.05%       0.15%      0.45%        0.70%      N/A       N/A
California Intermediate
 Municipal Bond, California
 Municipal Bond and New
 York Municipal Bond Funds                 0.22%       0.32%      0.40%**      0.60%     0.25%      N/A
CommodityRealReturn
 Strategy Fund                             0.25%       0.35%      0.50%        0.75%      N/A      0.50%
Convertible Fund                           0.25%       0.35%       N/A          N/A      0.25%     0.40%
Diversified Income Fund                    0.30%       0.30%      0.50%        0.50%      N/A      0.50%
Emerging Markets Bond Fund                 0.40%       0.50%      0.55%        0.80%     0.30%     0.55%
Foreign Bond Fund                          0.25%       0.35%      0.45%        0.70%     0.25%     0.45%
Global Bond Fund                           0.30%       0.40%      0.45%        0.70%     0.30%      N/A
Global Bond II Fund                        0.30%       0.40%      0.45%        0.70%     0.30%     0.45%
GNMA Fund                                  0.25%       0.35%      0.40%***     0.65%     0.25%     0.40%
Investment Grade
Corporate Bond Fund                        0.25%       0.35%      0.40%        0.65%     0.25%      N/A
Liquid Assets Fund                         0.05%        N/A        N/A          N/A       N/A       N/A
Low Duration and
Total Return Funds                         0.18%       0.20%      0.40%        0.50%     0.25%     0.40%
Moderate Duration Fund                     0.20%       0.30%      0.40%        0.65%     0.25%      N/A
Money Market Fund                          0.20%       0.30%      0.40%**      0.45%     0.25%     0.40%
Municipal Bond Fund                        0.24%       0.30%      0.40%**      0.60%     0.25%      N/A
Real Return Fund                           0.20%       0.30%      0.40%        0.65%     0.25%     0.40%
Real Return Fund II                        0.20%       0.30%      0.40%        0.65%      N/A       N/A
Real Return Asset Fund                     0.25%       0.35%      0.40%        0.65%      N/A       N/A
Short Duration Municipal
Income Fund                                0.19%       0.29%      0.40%**      0.60%     0.25%      N/A
Short-Term Fund                            0.20%       0.20%      0.40%**      0.50%     0.25%     0.40%
StocksPLUS Total Return Fund               0.25%       0.35%      0.45%        0.70%      N/A       N/A
Strategic Balanced Fund                    0.05%       0.15%       N/A          N/A      0.25%     0.40%
All other Funds                            0.25%       0.35%      0.40%        0.65%     0.25%     0.40%

- ----------
*    As described below, the Administration Agreement includes a plan adopted
     under Rule 12b-1 which provides for the payment of up to 0.25% of the Class
     D Administrative Fee rate as reimbursement for expenses in respect of
     activities that may be deemed to be primarily intended to result in the
     sale of Class D shares.

**   On January 1, 2003, the administrative fee for the California
     Intermediate Municipal Bond, California Municipal Bond, Money Market,
     Municipal Bond, New York Municipal Bond, Short Duration Municipal Income
     and Short-Term Funds was increased by 0.05% to a rate of 0.40% of each
     Fund's average daily net assets.

***  On December 1, 2002, the GNMA Fund's administrative fee was reduced by
     0.10% to a rate of 0.40% of the Fund's average daily net assets.

                                       45

     Except for the expenses paid by PIMCO, the Trust bears all costs of its
operations. The Funds are responsible for: (i) salaries and other compensation
of any of the Trust's executive officers and employees who are not officers,
directors, stockholders, or employees of PIMCO or its subsidiaries or
affiliates; (ii) taxes and governmental fees; (iii) brokerage fees and
commissions and other portfolio transaction expenses; (iv) costs of borrowing
money, including interest expenses; (v) fees and expenses of the Trustees who
are not "interested persons" of PIMCO or the Trust, and any counsel retained
exclusively for their benefit; (vi) extraordinary expenses, including costs of
litigation and indemnification expenses; (vii) expenses, such as organizational
expenses, which are capitalized in accordance with generally accepted accounting
principles; and (viii) any expenses allocated or allocable to a specific class
of shares ("Class-specific expenses").

     Class-specific expenses include distribution and service fees payable with
respect to different classes of shares and administrative fees as described
above, and may include certain other expenses as permitted by the Trust's
Amended and Restated Multi-Class Plan adopted pursuant to Rule 18f-3 under the
1940 Act and subject to review and approval by the Trustees.

     The Administration Agreement may be terminated by the Trustees, or by a
vote of a majority of the outstanding voting securities of the Trust, Fund, or
Class as applicable, at any time on 60 days' written notice. Following the
expiration of the one-year period commencing with the effectiveness of the
Administration Agreement, it may be terminated by PIMCO, also on 60 days'
written notice.

     The All Asset and Strategic Balanced Funds indirectly pay a proportionate
share of the administrative fees paid to PIMCO by the Underlying Funds in which
each Fund invests.

     The Administration Agreement is subject to annual approval by the Board,
including a majority of the Trust's Independent Trustees (as that term is
defined in the 1940 Act). The current Administration Agreement, dated May 5,
2000, as supplemented from time to time, was last approved by the Board of
Trustees, including all of the Independent Trustees at a meeting held on August
20, 2002. In approving the Administration Agreement, the Trustees determined
that: (1) the Administration Agreement is in the best interests of the Funds and
their shareholders; (2) the services to be performed under the Agreement are
services required for the operation of the Funds; (3) PIMCO is able to provide,
or to procure, services for the Funds which are at least equal in nature and
quality to services that could be provided by others; and (4) the fees to be
charged pursuant to the Agreement are fair and reasonable in light of the usual
and customary charges made by others for services of the same nature and
quality.

     For the fiscal years ended March 31, 2003, 2002 and 2001, the aggregate
amount of the administrative fees paid by each operational Fund was as follows:

                                                 Year Ended     Year Ended     Year Ended
Fund                                              3/31/03        3/31/02        3/31/01
- -------------------------------------------     ------------   ------------   ------------
All Asset Fund                                  $     13,781            N/A            N/A
California Intermediate Municipal Bond Fund          401,332   $    253,580   $    257,061
California Municipal Bond Fund                        42,338         39,181         22,381
CommodityRealReturn Strategy Fund                    101,238            N/A            N/A
Convertible Fund                                      85,736        146,125        405,525
Emerging Markets Bond Fund                         1,547,755        445,517        191,697
European Convertible Fund                             11,593         12,707          4,154
Foreign Bond Fund                                  3,341,802      2,252,160      1,757,855
Global Bond Fund                                   1,210,057        959,541        878,179


                                       46

                                                 Year Ended     Year Ended     Year Ended
Fund                                              3/31/03        3/31/02        3/31/01
- -------------------------------------------     ------------   ------------   ------------
Global Bond Fund II                                  346,704        261,251        247,485
GNMA                                                 878,084        172,922         20,262
High Yield Fund                                   13,292,594      9,812,572      8,316,046
Investment Grade Corporate Bond Fund                  63,778         14,792         12,277
Long-Term U.S. Government Fund                     2,312,484      1,632,901      1,199,085
Low Duration Fund                                 20,946,408     11,333,576      8,636,136
Low Duration Fund II                               1,092,814      1,177,684      1,513,253
Low Duration Fund III                                130,019        122,423         99,853
Moderate Duration Fund                             1,751,176      1,301,704        943,260
Money Market Fund                                  1,200,841      1,012,402      1,055,918
Municipal Bond Fund                                  990,873        339,822        196,287
New York Municipal Bond Fund                          32,917         13,247          7,942
Real Return Fund                                  18,200,673      6,326,433      1,559,146
Real Return Fund II                                   35,931          2,697            N/A
Real Return Asset Fund                                87,786         15,887            N/A
Short Duration Municipal Income Fund                 583,958         29,651         24,945
Short-Term Fund                                    7,961,958      3,679,902      1,529,935
StocksPLUS Fund                                    2,557,737      3,256,936      4,439,129
StocksPLUS Total Return Fund                           5,641            N/A            N/A
Strategic Balanced Fund                              103,701        138,137        223,761
Total Return Fund                                140,013,873    100,611,284     73,048,093
Total Return Fund II                               5,152,176      4,379,226      3,839,588
Total Return Fund III                              2,321,409      2,130,813      1,970,778
Total Return Mortgage Fund                           654,566        158,102         43,807


     Under the Administration Agreement, the Administrator or an affiliate may
pay financial service firms a portion of the Class D administration fees in
return for the firms' services (normally not to exceed an annual rate of 0.35%
of a Fund's average daily net assets attributable to Class D shares purchase
through such firms). The Administration Agreement includes a plan specific to
Class D shares that has been adopted in conformity with the requirements set
forth under Rule 12b-1 of the 1940 Act to allow for payment of up to 0.25% per
annum of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares. The principal types of activities for which such
payments may be made are services in connection with the distribution and
marketing of Class D shares and/or the provision of shareholder services. See
"Distribution of Trust Shares - Plan for Class D Shares."

                          DISTRIBUTION OF TRUST SHARES

Distributor and Multi-Class Plan

     PIMCO Advisors Distributors LLC (the "Distributor") serves as the principal
underwriter of each class of the Trust's shares pursuant to a distribution
contract ("Distribution Contract") with the Trust which is subject to annual
approval by the Board. The Distributor is an indirect subsidiary of Allianz
Dresdner Asset Management of America L.P. The Distributor, located at 2187
Atlantic Street, Stamford, Connecticut 06902, is a broker-dealer registered with
the Securities and Exchange Commission. The Distribution Contract is terminable
with respect to a Fund or class without penalty, at any time, by the Fund or
class by not more than 60 days' nor less than 30 days' written notice to the
Distributor, or by the Distributor upon not more than 60 days' nor less than 30
days' written notice to the Trust. The Distributor is not obligated to sell any
specific amount of Trust shares.

     The Distribution Contract will continue in effect with respect to each Fund
and each class of shares thereof for successive one-year periods, provided that
each such continuance is specifically approved (i) by the vote of a majority of
the Trustees who are not interested persons of the Trust (as defined in the 1940
Act) and who have no direct or indirect financial interest in the Distribution
Contract, the Administration Agreement or the Distribution and/or Servicing
Plans described below; and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose. If the
Distribution Contract is terminated (or not renewed) with respect to one or more
Funds or classes thereof, it may continue in effect with respect to any class of
any Fund as to which it has not been terminated (or has been renewed).

                                       47

     The Trust offers ten classes of shares: Class A, Class B, Class C, Class D,
Class J, Class K, Class R, the Institutional Class, the Administrative Class,
and the Advisor Class.

     Class A, Class B and Class C shares of the Trust are offered through firms
("participating brokers") which are members of the NASD, Inc. ("NASD"), and
which have dealer agreements with the Distributor, or which have agreed to act
as introducing brokers for the Distributor ("introducing brokers").

     Class D shares are generally offered to clients of financial service firms,
such as broker-dealers or registered investment advisors, with which the
Distributor has an agreement for the use of PIMCO Funds: Pacific Investment
Management Series in particular investment products, programs or accounts for
which a fee may be charged.

     Class J and Class K shares are offered only to non-U.S. investors outside
the United States. Class J and Class K shares are offered through foreign broker
dealers, banks and other financial institutions and are offered to non-U.S.
investors as well as through various non-U.S. investment products, programs or
accounts for which a fee may be charged by investment intermediaries in addition
to those described in the Prospectuses and SAI.

     Class R shares generally are available only to 401(k) plans, 457 plans,
employer sponsored 403(b) plans, profit sharing and money purchase pension
plans, defined benefit plans, non-qualified deferred compensation plans and
other accounts whereby the plan or the plan's financial service firm has an
agreement with the Distributor or the Administrator to utilize Class R shares in
certain investment products or programs (collectively, "retirement plans"). In
addition, Class R shares also are generally available only to retirement plans
where Class R shares are held on the books of the Funds through omnibus accounts
(either at the plan level or at the level of the financial service firm). Class
R shares are not available to retail or institutional non-retirement accounts,
traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs,
SIMPLE IRAs, or individual 403(b) plans, or through the PIMCO CollegeAccess 529
Plan. Financial service firms may provide or arrange for the provision of some
or all of the shareholder servicing, account maintenance and other services
required by retirement plan accounts and their plan participants, for which fees
or expenses may be charged in addition to those described in the Prospectus and
SAI.

     Institutional Class shares are offered primarily for direct investment by
investors such as pension and profit sharing plans, employee benefit trusts,
endowments, foundations, corporations and high net worth individuals.
(Institutional Class shares may also be offered through certain financial
intermediaries that charge their customers transaction or other fees with
respect to the customer's investment in the Funds.) Administrative Class shares
are offered primarily through employee benefit plans alliances, broker-dealers,
and other intermediaries, and each Fund pays service or distribution fees to
such entities for services they provide to Administrative Class shareholders.

     Advisor Class shares are offered primarily through broker-dealers and other
intermediaries, and each Fund pays service or distribution fees to such entities
for services they provide to Advisor Class shareholders.

     The Trust has adopted a Fourth Amended and Restated Multi-Class Plan
("Multi-Class Plan") pursuant to Rule 18f-3 under the 1940 Act. Under the
Multi-Class Plan, shares of each class of each Fund represent an equal pro rata
interest in such Fund and, generally, have identical voting, dividend,
liquidation, and other rights, preferences, powers, restrictions, limitations,
qualifications and terms and conditions, except that: (a) each class has a
different designation; (b) each class of shares bears any class-specific
expenses allocated to it; and (c) each class has exclusive voting rights on any
matter submitted to shareholders that relates solely to its distribution or
service arrangements, and each class has separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class.

     Each class of shares bears any class specific expenses allocated to such
class, such as expenses related to the distribution and/or shareholder servicing
of such class. In addition, each class may, at the Trustees' discretion, also
pay a different share of other expenses, not including advisory or custodial
fees or other expenses related to the management of the Trust's assets, if these
expenses are actually incurred in a different amount by that class, or if the
class receives services of a different kind or to a different degree than the
other classes. All other expenses are allocated to each class on the basis of
the net asset value of that class in relation to the net asset value of the
particular Fund. In addition, each class may have a differing sales charge
structure, and differing exchange and conversion features.

Initial Sales Charge and Contingent Deferred Sales Charge

     As described in the Class A, B and C Prospectus under the caption
"Investment Options (Class A, B and C Shares)," Class A shares of the Trust
(except with respect to the Money Market Fund) are sold pursuant to an initial
sales charge, which declines as the amount of purchase reaches certain defined
levels. For the fiscal years ended March 31, 2003, March 31, 2002

                                       48

and March 31, 2001, the Distributor received an aggregate of $46,236,209,
$22,855,033 and $6,167,114, respectively, and retained $6,024,796, $3,066,255
and $949,986, respectively, in initial sales charges paid by Class A
shareholders of the Trust.

     As described in the Class A, B and C Prospectus under the caption
"Investment Options (Class A, B and C Shares)," a contingent deferred sales
charge is imposed upon certain redemptions of the Class A, Class B and Class C
shares. No contingent deferred sales charge is currently imposed upon
redemptions of Class D, Class R, Institutional Class, Advisor Class or
Administrative Class shares. Because contingent deferred sales charges are
calculated on a fund-by-fund basis, shareholders should consider whether to
exchange shares of one fund for shares of another fund prior to redeeming an
investment if such an exchange would reduce the contingent deferred sales charge
applicable to such redemptions.

     During the fiscal years ended March 31, 2003, March 31, 2002 and March 31,
2001, the Distributor received the following aggregate amounts in contingent
deferred sales charges on Class A shares, Class B shares and Class C shares of
the Funds:

                   Year Ended     Year Ended     Year Ended
                     3/31/03        3/31/02        3/31/01
                  ------------   ------------   ------------
Class A           $  1,347,854   $    801,591   $  1,295,898
Class B             13,158,086      6,489,465      5,221,113
Class C              3,475,948      1,185,520        508,383

     In certain cases described in the Class A, B and C Prospectus, the
contingent deferred sales charge is waived on redemptions of Class A, Class B or
Class C shares for certain classes of individuals or entities on account of (i)
the fact that the Trust's sales-related expenses are lower for certain of such
classes than for classes for which the contingent deferred sales charge is not
waived, (ii) waiver of the contingent deferred sales charge with respect to
certain of such classes is consistent with certain Internal Revenue Code
policies concerning the favored tax treatment of accumulations, and (iii) with
respect to certain of such classes, considerations of fairness, and competitive
and administrative factors.

Distribution and Servicing Plans for Class A, Class B, Class C and Class R
Shares

     As stated in the text of the Class A, B and C Prospectus under the caption
"Management of the Trust--Distribution and Servicing (12b-1) Plans," and in the
Class R Prospectus under the caption "How to Buy and Sell Shares," Class A,
Class B, Class C and Class R shares of the Trust are continuously offered
through participating brokers which are members of the NASD and which have
dealer agreements with the Distributor, or which have agreed to act as
introducing brokers.

     Pursuant to separate Distribution and Servicing Plans for Class A, Class B
and Class C shares (the "Retail Plans"), as well as Class R shares, as described
in the Class A, B and C Prospectus and the Class R Prospectus, in connection
with the distribution of Class B, Class C and Class R shares of the Trust, the
Distributor receives certain distribution fees from the Trust, and in connection
with personal services rendered to Class A, Class B, Class C and Class R
shareholders of the Trust and the maintenance of shareholder accounts, the
Distributor receives certain servicing fees from the Trust. Subject to the
percentage limitations on these distribution and servicing fees set forth below,
the distribution and servicing fees may be paid with respect to services
rendered and expenses borne in the past with respect to Class A, Class B, Class
C and Class R shares as to which no distribution and servicing fees were paid on
account of such limitations. As described in the Class A, B and C Prospectus and
the Class R Prospectus, the Distributor pays (i) all or a portion of the
distribution fees it receives from the Trust to participating and introducing
brokers, and (ii) all or a portion of the servicing fees it receives from the
Trust to participating and introducing brokers, certain banks and other
financial intermediaries.

     The Distributor makes distribution and servicing payments to participating
brokers and servicing payments to certain banks and other financial
intermediaries (including retirement plans, their service providers and their
sponsors) in connection with the sale of Class B, Class C and Class R shares and
servicing payments to participating brokers, certain banks and other financial
intermediaries in connection with the sale of Class A shares. In the case of
Class A shares, these parties are also compensated based on the amount of the
front-end sales charge reallowed by the Distributor, except in cases where Class
A shares are sold without a front-end sales charge (although the Distributor may
pay brokers additional compensation in connection with sales of Class A shares
without a sales charge). In the case of Class B shares, participating brokers
and other financial intermediaries are compensated by an advance of a sales
commission by the Distributor. In the case of Class C shares, part or all of the
first year's distribution and servicing fee is generally paid at the time of
sale. Pursuant to a Distribution Contract with the Trust, with respect to each
Fund's Class A, Class B, Class C and Class R shares,

                                       49

the Distributor bears various other promotional and sales related expenses,
including the cost of printing and mailing Prospectuses to persons other than
current shareholders.

     The Retail Plans were adopted pursuant to Rule 12b-l under the 1940 Act and
are of the type known as "compensation" plans. This means that, although the
Trustees of the Trust are expected to take into account the expenses of the
Distributor and its predecessors in their periodic review of the Retail Plans,
the fees are payable to compensate the Distributor for services rendered even if
the amount paid exceeds the Distributor's expenses.

     The distribution fee applicable to Class B, Class C and Class R shares may
be spent by the Distributor on any activities or expenses primarily intended to
result in the sale of Class B, Class C or Class R shares, respectively,
including compensation to, and expenses (including overhead and telephone
expenses) of, financial consultants or other employees of the Distributor or of
participating or introducing brokers who engage in distribution of Class B,
Class C or Class R shares, printing of Prospectuses and reports for other than
existing Class B, Class C or Class R shareholders, advertising, and preparation,
printing and distribution of sales literature. The servicing fee, applicable to
Class A, Class B, Class C and Class R shares of the Trust, may be spent by the
Distributor on personal services rendered to shareholders of the Trust and the
maintenance of shareholder accounts, including compensation to, and expenses
(including telephone and overhead expenses) of, financial consultants or other
employees of participating or introducing brokers, certain banks and other
financial intermediaries (including retirement plans, their service providers
and their sponsors who provide services to plan participants) who aid in the
processing of purchase or redemption requests or the processing of dividend
payments, who provide information periodically to shareholders showing their
positions in a Fund's shares, who forward communications from the Trust to
shareholders, who render ongoing advice concerning the suitability of particular
investment opportunities offered by the Trust in light of the shareholders'
needs, who respond to inquiries from shareholders relating to such services, or
who train personnel in the provision of such services. Distribution and
servicing fees may also be spent on interest relating to unreimbursed
distribution or servicing expenses from prior years.

     Many of the Distributor's sales and servicing efforts involve the Trust as
a whole, so that fees paid by Class A, Class B, Class C or Class R shares of any
Fund may indirectly support sales and servicing efforts relating to the other
Funds' shares of the same class. In reporting its expenses to the Trustees, the
Distributor itemizes expenses that relate to the distribution and/or servicing
of a single Fund's shares, and allocates other expenses among the Funds based on
their relative net assets. Expenses allocated to each Fund are further allocated
among its classes of shares annually based on the relative sales of each class,
except for any expenses that relate only to the sale or servicing of a single
class. The Distributor may make payments to brokers (and with respect to
servicing fees only, to certain banks and other financial intermediaries) of up
to the following percentages annually of the average daily net assets
attributable to shares in the accounts of their customers or clients:

                                        Servicing      Distribution
Class A                                 Fee/(1)/         Fee/(1)/
===================================================================
Money Market Fund                            0.10%             N/A
- -------------------------------------------------------------------
All other Funds                              0.25%             None
Class B/(2)/
- -------------------------------------------------------------------
All Funds                                    0.25%             None
- -------------------------------------------------------------------
Class C - Shares purchased on or after 7/1/91/(3)/
- -------------------------------------------------------------------
Money Market Fund                            0.10%             0.00%
- -------------------------------------------------------------------
Short-Duration Municipal Income and
Short Term Funds                             0.25%             0.30%
- -------------------------------------------------------------------
California Intermediate Municipal
Bond, California Municipal Bond, Low
Duration, New York Municipal Bond,
Real Return, Municipal Bond and
StocksPLUS Funds                             0.25%             0.50%
- -------------------------------------------------------------------
All other Funds                              0.25%             0.65%

                                       50

Class C - Shares purchased before 7/1/91
- -------------------------------------------------------------------
Money Market Fund                            0.10%             0.00%
- -------------------------------------------------------------------
All other Funds                              0.25%             None

(1)  Applies, in part, to Class A, Class B and Class C shares of the Trust
     issued to former shareholders of PIMCO Advisors Funds in connection with
     the reorganizations/mergers of series of PIMCO Advisors Funds as/with Funds
     of the Trust in a transaction which took place on January 17, 1997.

(2)  Payable only with respect to shares outstanding for one year or more.

(3)  Payable only with respect to shares outstanding for one year or more
     except in the case of shares for which no payment is made to the party at
     the time of sale.

     The Distributor may from time to time pay additional cash bonuses or other
incentives to selected participating brokers in connection with the sale or
servicing of Class A, Class B, Class C and Class R shares of the Funds. On some
occasions, such bonuses or incentives may be conditioned upon the sale of a
specified minimum dollar amount of the shares of a Fund and/or all of the Funds
together or a particular class of shares, during a specific period of time. The
Distributor currently expects that such additional bonuses or incentives will
not exceed 0.50% of the amount of any sale. Pacific Investment Management (in
its capacity as administrator) may also pay participating brokers and other
intermediaries for sub-transfer agency and other services.

     If in any year the Distributor's expenses incurred in connection with the
distribution of Class B, Class C and Class R shares and, for Class A, Class B,
Class C and Class R shares, in connection with the servicing of shareholders and
the maintenance of shareholder accounts, exceed the distribution and/or
servicing fees paid by the Trust, the Distributor would recover such excess only
if the Retail Plan with respect to such class of shares continues to be in
effect in some later year when the distribution and/or servicing fees exceed the
Distributor's expenses. The Trust is not obligated to repay any unreimbursed
expenses that may exist at such time, if any, as the relevant Retail Plan
terminates.

     Each Retail Plan may be terminated with respect to any Fund to which the
Plan relates by vote of a majority of the Trustees who are not interested
persons of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or the Distribution
Contract ("Disinterested Trustees") or by vote of a majority of the outstanding
voting securities of the relevant class of that Fund. Any change in any Retail
Plan that would materially increase the cost to the class of shares of any Fund
to which the Plan relates requires approval by the affected class of
shareholders of that Fund. The Trustees review quarterly written reports of such
costs and the purposes for which such costs have been incurred. Each Retail Plan
may be amended by vote of the Disinterested Trustees cast in person at a meeting
called for the purpose. As long as the Retail Plans are in effect, selection and
nomination of those Trustees who are not interested persons of the Trust shall
be committed to the discretion of such Disinterested Trustees.

     The Retail Plans will continue in effect with respect to each Fund and each
class of shares thereof for successive one-year periods, provided that each such
continuance is specifically approved (i) by the vote of a majority of the
Disinterested Trustees and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.

     The Retail Plans went into effect for the Trust in January 1997 (December
2002 for Class R shares). If a Retail Plan is terminated (or not renewed) with
respect to one or more Funds, it may continue in effect with respect to any
class of any Fund as to which it has not been terminated (or has been renewed).

     The Trustees believe that the Retail Plans will provide benefits to the
Trust. The Trustees believe that the Retail Plans will result in greater sales
and/or fewer redemptions of Trust shares, although it is impossible to know for
certain the level of sales and redemptions of Trust shares that would occur in
the absence of the Retail Plans or under alternative distribution schemes.
Although the Funds' expenses are essentially fixed, the Trustees believe that
the effect of the Retail Plans on sales and/or redemptions may benefit the Trust
by reducing Fund expense ratios and/or by affording greater flexibility to
Portfolio Managers. From time to time, expenses of the Distributor incurred in
connection with the sale of Class B, Class C and Class R shares of the Funds,
and in connection with the servicing of Class B, Class C and Class R
shareholders of the Funds and the maintenance of shareholder accounts, may
exceed the distribution and servicing fees collected by the Distributor. The
Trustees consider such unreimbursed amounts, among other factors, in determining
whether to cause the Funds to continue payments of distribution and servicing
fees in the future with respect to Class B, Class C and Class R shares.

                                       51

     As compensation for services rendered and borne by the Distributor in
connection with personal services rendered to Class R shareholders of the Trust
and the maintenance of Class R shareholder accounts (including in each case the
accounts of plan participants where shares are held by a retirement plan or its
financial service firm through an omnibus account), the Trust pays the
Distributor servicing fees up to the current rate of 0.25% and distribution fees
up to the current rate of 0.25% (each calculated as a percentage of each Fund's
average daily net assets attributable to Class R shares).

Payments Pursuant to Class A Plan

     For the fiscal years ended March 31, 2003, March 31, 2002 and March 31,
2001, the Trust paid the Distributor an aggregate of $27,499,697, $14,494,419
and $8,055,920, respectively, pursuant to the Distribution and Servicing Plan
for Class A shares, of which the indicated amounts were attributable to the
following Funds:

                                     Year Ended      Year Ended      Year Ended
Fund                                   3/31/03         3/31/02         3/31/01
- ---------------------------------   ------------    ------------    ------------
California Intermediate Municipal
Bond Fund                           $    115,595    $     55,208    $     68,463
California Municipal Bond Fund            11,606           7,486             252
CommodityRealReturn Strategy Fund          6,619             N/A             N/A
Convertible Fund                           7,623          14,260          15,351
Emerging Markets Bond Fund                89,044          10,672           1,331
European Convertible Fund                      9              25               9
Foreign Bond Fund                        392,567         243,819         167,687
Global Bond Fund II                       25,838           9,781           5,559
GNMA Fund                                161,199          33,949             N/A
High Yield Fund                        1,530,590         876,436         491,894
Long-Term U.S. Government Fund           347,359         257,041         131,419
Low Duration Fund                      3,474,114       1,214,265         620,464
Money Market Fund                         79,971          55,469          63,732
Municipal Bond Fund                      123,415          39,445          19,443
New York Municipal Bond Fund              17,126           3,050              51
Real Return Fund                       2,669,920         751,242         103,952
Short Duration Municipal Income
 Fund                                    265,567             N/A             N/A
Short-Term Fund                        2,063,992       1,050,486         204,603
StocksPLUS Fund                          221,686         270,436         367,939
Strategic Balanced Fund                    8,088           9,666          10,098
Total Return Fund                     15,839,094       9,576,009       5,783,098
Total Return Mortgage Fund                48,675          15,675             576

     During the fiscal year ended March 31, 2003, the amounts collected pursuant
to the Distribution and Servicing Plan for Class A shares were used as follows:
sales commissions and other compensation to sales personnel, $20,329,773;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing Prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $6,776,591.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:

                                                       Sales
                                                      Material
                                                     and Other
Fund                                Compensation      Expenses         Total
- ---------------------------------   ------------    ------------    ------------
California Intermediate Municipal
Bond Fund                           $     82,466    $     27,489    $    109,955
California Municipal Fund                  8,331           2,777          11,108
CommodityRealReturn Strategy Fund         31,928          10,643          42,571
Convertible Fund                           2,081             694           2,775
Emerging Markets Bond Fund               128,109          42,703         170,812
European Convertible Fund                     14               5              19
Foreign Bond Fund                        298,048          99,349         397,397
Global Bond Fund II                       31,182          10,394          41,576
GNMA Fund                                133,813          44,604         178,417
High Yield Fund                        1,370,554         456,851       1,827,405
Long-Term U.S. Government Fund           223,174          74,391         297,565

                                       52

                                                       Sales
                                                      Material
                                                     and Other
Fund                                Compensation      Expenses         Total
- ---------------------------------   ------------    ------------    ------------
Low Duration Fund                      2,858,515         952,838       3,811,353
Money Market Fund                        114,142          38,047         152,189
Municipal Bond Fund                       94,120          31,373         125,493
New York Municipal Bond Fund              16,814           5,605          22,419
Real Return Fund                       2,138,208         712,736       2,850,944
Short-Term Fund                        1,333,994         444,665       1,778,659
StocksPLUS Fund                          114,260          38,087         152,347
Strategic Balanced Fund                    2,034             678           2,712
Total Return Fund                     11,299,752       3,766,584      15,066,336
Total Return Mortgage Fund                48,234          16,078          64,312

Payments Pursuant to Class B Plan

     For the fiscal years ended March 31, 2003, March 31, 2002 and March 31,
2001, the Trust paid the Distributor an aggregate of $42,456,306, $24,609,833
and $15,793,100, respectively, pursuant to the Distribution and Servicing Plan
for Class B shares, of which the indicated amounts were attributable to the
following Funds:

                                     Year Ended      Year Ended      Year Ended
Fund                                   3/31/03         3/31/02         3/31/01
- ---------------------------------   ------------    ------------    ------------
CommodityReal Return Strategy
 Fund                               $      5,893             N/A             N/A
Convertible Fund                          50,947    $     59,733    $     48,249
Emerging Markets Bond Fund               201,751          38,985          12,778
Foreign Bond Fund                        415,553         316,086         258,249
Global Bond Fund II                       89,854          58,059          45,017
GNMA Fund                                424,583          41,071             N/A
High Yield Fund                        4,575,296       3,712,799       2,952,887
Long-Term U.S. Government Fund           948,476         643,477         385,053
Low Duration Fund                      3,555,084       1,305,471         766,462
Money Market Fund                        635,305         398,263         239,885
Municipal Bond Fund                      327,166         122,549          58,902
Real Return Fund                       6,961,748       2,113,937         250,760
Short-Term Fund                          185,247          86,041          66,389
StocksPLUS Fund                        1,419,501       2,205,080       3,235,886
Strategic Balanced Fund                   58,173          84,873         102,592
Total Return Fund                     22,482,348      13,389,734       7,368,323
Total Return Mortgage Fund               119,381          33,675           1,667

     During the fiscal year ended March 31, 2003, the amounts collected pursuant
to the Distribution and Servicing Plan for Class B shares were used as follows:
sales commissions and other compensation to sales personnel, $31,895,493;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing Prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $10,631,832.
These totals, if allocated among (i) compensation and (ii) sales materials and
other expenses for each Fund, were as follows:

                                                       Sales
                                                      Material
                                                     and Other
Fund                                Compensation      Expenses         Total
- ---------------------------------   ------------    ------------    ------------
CommodityRealReturn Strategy Fund   $     34,365    $     11,455    $     45,820
Convertible Fund                          26,349           8,783          35,132
Emerging Markets Bond Fund               223,205          74,402         297,607
Foreign Bond Fund                        323,411         107,804         431,215
Global Bond Fund II                       80,096          26,699         106,795
GNMA Fund                                406,567         135,522         542,089
High Yield Fund                        3,405,309       1,135,103       4,540,412

                                       53

                                                       Sales
                                                      Material
                                                     and Other
Fund                                Compensation      Expenses         Total
- ---------------------------------   ------------    ------------    ------------
Long-Term U.S. Government Fund           680,123         226,708         906,831
Low Duration Fund                      3,210,989       1,070,330       4,281,319
Money Market Fund                        488,989         162,996         651,985
Municipal Bond Fund                      258,465          86,155         344,620
Real Return Fund                       6,032,508       2,010,836       8,043,344
Short-Term Fund                          165,710          55,237         220,947
StocksPLUS Fund                          688,865         229,622         918,487
Strategic Balanced Fund                   26,914           8,971          35,885
Total Return Fund                     15,734,436       5,244,812      20,979,248
Total Return Mortgage Fund               109,192          36,397         145,589

Payments Pursuant to Class C Plan

     For the fiscal years ended March 31, 2003, March 31, 2002 and March 31,
2001, the Trust paid the Distributor an aggregate of $53,334,297, $26,882,400
and $15,860,701, respectively, pursuant to the Distribution and Servicing Plan
for Class C shares, of which the indicated amounts were attributable to the
following Funds:

                                     Year Ended      Year Ended      Year Ended
Fund                                  3/31/03         3/31/02         3/31/01
- ---------------------------------   ------------    ------------    ------------
CommodityRealReturn Strategy Fund   $      8,891             N/A             N/A
Convertible Fund                          49,544    $    116,667    $    125,211
Emerging Markets Bond Fund               238,283          28,699           5,161
Foreign Bond Fund                        648,281         413,771         312,825
Global Bond Fund II                      119,163          62,333          48,452
GNMA Fund                                561,682          55,321             N/A
High Yield Fund                        5,839,859       4,243,004       3,316,077
Long-Term U.S. Government Fund           586,444         404,818         248,741
Low Duration Fund                      5,931,168       1,688,011         834,108
Money Market Fund                        117,432          97,829          87,507
Municipal Bond Fund                      575,373         284,954         212,868
Real Return Fund                       7,910,631       2,092,955         271,991
Short Duration Municipal Income
Fund                                     105,981             N/A             N/A
Short-Term Fund                        1,817,686         656,575         105,798
StocksPLUS Fund                        1,021,340       1,492,602       2,018,908
Strategic Balanced Fund                  115,595         150,768         128,151
Total Return Fund                     27,458,705      15,040,655       8,139,338
Total Return Mortgage Fund               228,239          53,437           5,566

     During the fiscal year ended March 31, 2003, the amounts collected pursuant
to the Distribution and Servicing Plan for Class C shares were used as follows:
sales commissions and other compensation to sales personnel, $40,054,767;
preparing, printing and distributing sales material and advertising (including
preparing, printing and distributing Prospectuses to non-shareholders), and
other expenses (including data processing, legal and operations), $13,351,589.

                                       54

     These totals, if allocated among (i) compensation and (ii) sales materials
and other expenses for each Fund, were as follows:

                                                       Sales
                                                      Material
                                                     and Other
Fund                                Compensation      Expenses         Total
- ---------------------------------   ------------    ------------    ------------
CommodityRealReturn Strategy Fund   $     46,097    $     15,366    $     61,463
Convertible Fund                          16,512           5,504          22,016
Emerging Markets Bond Fund               259,897          86,632         346,529
Foreign Bond Fund                        473,318         157,773         631,091
Global Bond Fund II                       91,855          30,618         122,473
GNMA Fund                                448,802         149,601         598,403
High Yield Fund                        4,159,969       1,386,656       5,546,625
Long-Term U.S. Government Fund           327,907         109,302         437,209
Low Duration Fund                      6,115,161       2,038,387       8,153,548
Money Market Fund                        637,238         212,413         849,651
Municipal Bond Fund                      463,158         154,386         617,544
Real Return Fund                       7,337,823       2,445,941       9,783,764
Short Duration Municipal Income          227,148          75,716         302,864
Short-Term Fund                        2,055,864         685,288       2,741,152
StocksPLUS Fund                          588,558         196,186         784,744
Strategic Balanced Fund                   37,532          12,511          50,043
Total Return Fund                     16,585,950       5,528,650      22,114,600
Total Return Mortgage                    181,978          60,659         242,637

Payments Pursuant to Class R Plan

     For the fiscal year ended March 31, 2003, the initial fiscal year of Class
R, the Trust paid the Distributor an aggregate of $784, pursuant to the
Distribution and Servicing Plan for Class R shares, of which the indicated
amounts were attributable to the following Funds:

                                  Year Ended
Fund                               3/31/03
- -----------------                ------------
Foreign Bond Fund                $         12
High Yield Fund                            12
Low Duration Fund                          12
Real Return Fund                           12
Short-Term Fund                            12
StocksPLUS Fund                            12
Total Return Fund                         712

     During the fiscal year ended March 31, 2003, the amounts collected pursuant
to the Distribution and Servicing Plan for Class R shares were used as follows:
sales commissions and other compensation to sales personnel, $679; preparing,
printing and distributing sales material and advertising (including preparing,
printing and distributing Prospectuses to non-shareholders), and other expenses
(including data processing, legal and operations), $196.

     These totals, if allocated among (i) compensation and (ii) sales materials
and other expenses for each Fund, were as follows:

                                                    Sales
                                                   Material
                                                  and Other
Fund                             Compensation      Expenses         Total
- -----------------                ------------    ------------    ------------
Foreign Bond Fund                $          3    $          1    $          4
High Yield Fund                             3               1               4
Low Duration Fund                           3               1               4
Real Return Fund                            3               1               4
Short-Term Fund                             3               1               4
StocksPLUS Fund                             3               1               4
Total Return Fund                         571             190             761

                                       55

     From time to time, expenses of principal underwriters incurred in
connection with the distribution of Class B and Class C shares of the Funds, and
in connection with the servicing of Class A, Class B, Class C and Class R
shareholders of the Funds and the maintenance of Class A, Class B, Class C and
Class R shareholder accounts, may exceed the distribution and/or servicing fees
collected by the Distributor. Class A, Class B and Class C Distribution and
Servicing Plans, which are similar to the Trust's current Plans, were in effect
prior to January 17, 1997 in respect of the series of PAF that was the
predecessor of the Global Bond Fund II. As of March 31, 2003, such expenses were
approximately $72,517,544 in excess of payments under the Class A Plan,
$143,322,339 in excess of payments under the Class B Plan, $28,356,096 in excess
of payments under the Class C Plan and $0.00 in excess of payments under the
Class R Plan.

     The allocation of such excess (on a pro rata basis) among the Funds listed
below as of March 31, 2003 was as follows:

Fund                                               Class A         Class B         Class C        Class R
- -------------------------------------------     ------------    ------------    ------------    ------------
CommodityRealReturn Strategy Fund               $    112,239    $    154,419    $     32,634             N/A
California Intermediate Municipal Bond Fund          289,896             N/A             N/A             N/A
California Municipal Fund                             29,286             N/A             N/A             N/A
Convertible Fund                                       7,316         118,401          11,690             N/A
Emerging Markets Bond Fund                           450,346       1,002,970         183,991             N/A
European Convertible Fund                                 50             N/A             N/A             N/A
Foreign Bond Fund                                  1,047,740       1,453,245         335,080             N/A
Global Bond Fund II                                  109,617         359,909          65,027             N/A
GNMA Fund                                            470,396       1,826,910         317,723             N/A
High Yield Fund                                    4,817,957      15,301,749       2,944,997             N/A
Long-Term U.S. Government Fund                       784,530       3,056,131         232,138             N/A
Low Duration Fund                                 10,048,638      14,428,574       4,329,150             N/A
Money Market Fund                                    401,249       2,197,273         451,124             N/A
Municipal Bond Fund                                  330,864       1,161,413         327,887             N/A
New York Municipal Bond Fund                          59,105             N/A             N/A             N/A
Real Return Fund                                   7,516,519      27,107,065       5,194,718             N/A
Short-Duration Municipal Income                    1,051,540             N/A         160,806             N/A
Short-Term Fund                                    4,689,438         744,616       1,455,423             N/A
StocksPLUS Fund                                      401,662       3,095,414         416,662             N/A
Strategic Balanced Fund                                7,149         120,938          26,570             N/A
Total Return Fund                                 39,722,420      70,702,657      11,741,811             N/A
Total Return Mortgage Fund                           169,557         490,655         128,829             N/A

     The allocation of such excess (on a pro rata basis) among the Funds,
calculated as a percentage of net assets of each Fund listed below as of March
31, 2003 was as follows:

Fund                                              Class A         Class B         Class C         Class R
- -------------------------------------------     ------------    ------------    ------------    ------------
CommodityRealReturn Strategy Fund                       0.51%           2.66%           0.36%            N/A
California Intermediate Municipal Bond Fund             0.51%            N/A             N/A             N/A
California Municipal Fund                               0.51%            N/A             N/A             N/A
Convertible Fund                                        0.51%           2.66%           0.36%            N/A
Emerging Markets Bond Fund                              0.51%           2.66%           0.36%            N/A
European Convertible Fund                               0.51%            N/A             N/A             N/A
Foreign Bond Fund                                       0.51%           2.66%           0.36%            N/A
Global Bond Fund II                                     0.51%           2.66%           0.36%            N/A
GNMA Fund                                               0.51%           2.66%           0.36%            N/A
High Yield Fund                                         0.51%           2.66%           0.36%            N/A
Long-Term U.S. Government Fund                          0.51%           2.66%           0.36%            N/A
Low Duration Fund                                       0.51%           2.66%           0.36%            N/A
Money Market Fund                                       0.51%           2.66%           0.36%            N/A
Municipal Bond Fund                                     0.51%           2.66%           0.36%            N/A
New York Municipal Bond Fund                            0.51%            N/A             N/A             N/A
Real Return Fund                                        0.51%           2.66%           0.36%            N/A
Short Duration Municipal Income Fund                    0.51%            N/A            0.36%            N/A
Short-Term Fund                                         0.51%           2.66%           0.36%            N/A

                                       56

Fund                                              Class A         Class B         Class C         Class R
- -------------------------------------------     ------------    ------------    ------------    ------------

StocksPLUS Fund                                         0.51%           2.66%           0.36%            N/A
Strategic Balanced Fund                                 0.51%           2.66%           0.36%            N/A
Total Return Fund                                       0.51%           2.66%           0.36%            N/A
Total Return Mortgage Fund                              0.51%           2.66%           0.36%            N/A

Distribution and Administrative Services Plans for Administrative Class and
Advisor Class Shares

     The Trust has adopted separate Administrative Services Plans and
Administrative Distribution Plans (together, the "Administrative Plans") with
respect to the Administrative Class and the Advisor Class shares of each Fund.
The Administrative Class and Advisor Class are each subject to their own
Administrative Plans.

     Under the terms of each class's Administrative Distribution Plan, the Trust
is permitted to reimburse, out of the assets attributable to the respective
Administrative Class shares or Advisor Class shares of each Fund, in amounts up
to 0.25% for each class, on an annual basis of the respective average daily net
assets of that class, financial intermediaries for costs and expenses incurred
in connection with the distribution and marketing of the Administrative Class
shares and the Advisor Class shares and/or the provision of certain shareholder
services to its customers that invest in Administrative Class shares and Advisor
Class shares of the Funds. Such services may include, but are not limited to,
the following: providing facilities to answer questions from prospective
investors about a Fund; receiving and answering correspondence, including
requests for Prospectuses and statements of additional information; preparing,
printing and delivering Prospectuses and shareholder reports to prospective
shareholders; complying with federal and state securities laws pertaining to the
sale of Administrative Class shares or Advisor Class shares; and assisting
investors in completing application forms and selecting dividend and other
account options.

     Under the terms of each class's Administrative Services Plan, the Trust is
permitted to reimburse, out of the assets attributable to the respective
Administrative Class shares or Advisor Class shares of each Fund, in amounts up
to 0.25% for each class on an annual basis of the respective average daily net
assets of that class, financial intermediaries that provide certain
administrative services for Administrative Class shareholders and Advisor Class
shareholders of the Funds. Such services may include, but are not limited to,
the following functions: receiving, aggregating and processing shareholder
orders; furnishing shareholder sub-accounting; providing and maintaining
elective shareholder services such as check writing and wire transfer services;
providing and maintaining pre-authorized investment plans; communicating
periodically with shareholders; acting as the sole shareholder of record and
nominee for shareholders; maintaining accounting records for shareholders;
answering questions and handling correspondence from shareholders about their
accounts; and performing similar account administrative services.

     The same entity may be the recipient of fees under each class's
Administrative Distribution Plan and Administrative Services Plan, with respect
to that particular class of shares, but may not receive fees under both plans of
the same class, with respect to the same assets of either the Administrative
Class shares or the Advisor Class shares. Fees paid pursuant to either of the
Administrative Plans of a class may be paid for shareholder services and the
maintenance of shareholder accounts, and therefore may constitute "service fees"
for purposes of applicable rules of the National Association of Securities
Dealers, Inc. Each of the Administrative Plans has been adopted in accordance
with the requirements of Rule 12b-1 under the 1940 Act and will be administered
in accordance with the provisions of that rule, except that shareholders will
not have the voting rights set forth in Rule 12b-1 with respect to the
Administrative Services Plans that they will have with respect to the
Administrative Distribution Plans.

     Each of the Administrative Plans provides that it may not be amended to
materially increase the costs which Administrative Class or Advisor Class
shareholders may bear under the Administrative Plans without the approval of a
majority of the outstanding voting securities of the Administrative Class or
Advisor Class and by vote of a majority of both (i) the Trustees of the Trust
and (ii) those Trustees who are not "interested persons" of the Trust (as
defined in the 1940 Act) and who have no direct or indirect financial interest
in the operation of the Plan or any agreements related to it (the "Plan
Trustees"), cast in person at a meeting called for the purpose of voting on the
Plan and any related amendments.

     Each of the Administrative Plans provides that it may not take effect until
approved by vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Trustees defined above. Each of the Administrative
Distribution Plans further provides that it may not take effect unless approved
by the vote of a majority of the outstanding voting securities of the
Administrative Class or the Advisor Class, as applicable.

                                       57

     Each of the Administrative Plans provides that it shall continue in effect
so long as such continuance is specifically approved at least annually by the
Trustees and the disinterested Trustees defined above. Each of the
Administrative Plans provides that any person authorized to direct the
disposition of monies paid or payable by a class pursuant to that Plan or any
related agreement shall provide to the Trustees, and the Board shall review at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.

     Each of the Administrative Plans is a "reimbursement plan," which means
that fees are payable to the relevant financial intermediary only to the extent
necessary to reimburse expenses incurred pursuant to such plan. Each of the
Administrative Plans provides that expenses payable under the Administrative
Plans may be carried forward for reimbursement for up to twelve months beyond
the date in which the expense is incurred, subject to the limit that not more
that 0.25% of the respective average daily net assets of the Administrative
Class or the Advisor Class, as applicable, shares may be used in any month to
pay expenses under that class's Administrative Plans. Each of the Administrative
Plans requires that the Administrative Class shares and the Advisor Class shares
incur no interest or carrying charges.

     Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that some, if not
all, of the fees paid pursuant to both Administrative Plans will qualify as
"service fees" and therefore will not be limited by NASD rules.

     Institutional Class, Administrative Class and Advisor Class shares of the
Trust may also be offered through certain brokers and financial intermediaries
("service agents") that have established a shareholder servicing relationship
with the Trust on behalf of their customers. The Trust pays no compensation to
such entities other than service fees paid with respect to Administrative Class
or Advisor Class shares. Service agents may impose additional or different
conditions than the Trust on the purchase, redemption or exchanges of Trust
shares by their customers. Service agents may also independently establish and
charge their customers transaction fees, account fees and other amounts in
connection which purchases, sales and redemption of Trust shares in addition to
any fees charged by the Trust. Each service agent is responsible for
transmitting to its customers a schedule of any such fees and information
regarding any additional or different conditions regarding purchases and
redemptions. Shareholders who are customers of service agents should consult
their service agents for information regarding these fees and conditions.

Payments Pursuant to the Administrative Plans for Administrative Class Shares

     For the fiscal years ended March 31, 2003, March 31, 2002 and March 31,
2001, the Trust paid qualified service providers an aggregate amount of
$35,599,137, $20,737,705 and $11,849,697, respectively, pursuant to the
Administrative Services Plan and the Administrative Distribution Plan. Such
payments were allocated among the Funds listed below as follows:

                                                 Year Ended      Year Ended      Year Ended
Fund                                              3/31/03         3/31/02          3/31/01
- -------------------------------------------     ------------    ------------    ------------
All Asset Fund                                  $          6             N/A             N/A
California Intermediate Municipal Bond Fund            6,722    $      4,258    $      3,614
California Municipal Bond Fund                         2,270             N/A             N/A
CommodityRealReturn Strategy Fund                          3             N/A             N/A
Convertible Fund                                          19             460             629
Emerging Markets Bond Fund                            30,770          22,348          25,087
Foreign Bond Fund                                     68,902          46,404          18,800
Global Bond Fund                                      57,015           8,572           5,633
High Yield Fund                                    1,148,447       1,337,821       1,054,052
Investment Grade Corporate Bond Fund                      13             N/A             N/A
Long-Term U.S. Government Fund                       308,322         179,913         116,546
Low Duration Fund                                    790,037         543,855         345,320
Low Duration Fund II                                   2,374             224              92
Low Duration Fund III                                     45              30              26
Money Market Fund                                     34,682          38,733          21,069
Municipal Bond Fund                                  148,394          17,180          10,305
Real Return Fund                                     917,326         337,185          41,269
Short Duration Municipal Income Fund                     426             N/A             N/A
Short-Term Fund                                      731,458         162,223          16,697
StocksPLUS Fund                                      262,480         107,135          88,080
Strategic Balanced Fund                                5,296           2,354           1,495
Total Return Fund                                 30,768,828      17,670,766       9,917,611
Total Return Fund II                                 287,154         231,438         156,989
Total Return Fund III                                  5,018          20,627          26,382
Total Return Mortgage Fund                            23,130           6,179             N/A


                                       58

     The remaining Funds did not make payments under either Administrative Plan.

Plan for Class D Shares

     As described under "Management of the Trust- Fund Administrator," the
Funds' Administration Agreement includes a plan (the "Class D Plan") adopted
pursuant to Rule 12b-1 under the 1940 Act which provides for the payment of up
to 0.25% of the Class D administrative fees as reimbursement for expenses in
respect of activities that may be deemed to be primarily intended to result in
the sale of Class D shares.

     Specifically, the Administration Agreement provides that the Administrator
shall provide in respect of Class D shares (either directly or by procuring
through other entities, including various financial services firms such as
broker-dealers and registered investment advisors ("Service Organizations"))
some or all of the following services and facilities in connection with direct
purchases by shareholders or in connection with products, programs or accounts
offered by such Service Organizations ("Special Class D Services"): (i)
facilities for placing orders directly for the purchase of a Fund's shares and
tendering a Fund's Class D shares for redemption; (ii) advertising with respect
to a Fund's Class D shares; (iii) providing information about the Funds; (iv)
providing facilities to answer questions from prospective investors about the
Funds; (v) receiving and answering correspondence, including requests for
Prospectuses and statements of additional information; (vi) preparing, printing
and delivering Prospectuses and shareholder reports to prospective shareholders;
(vii) assisting investors in applying to purchase Class D shares and selecting
dividend and other account options; and (viii) shareholder services provided by
a Service Organization that may include, but are not limited to, the following
functions: receiving, aggregating and processing shareholder orders; furnishing
shareholder sub-accounting; providing and maintaining elective shareholder
services such as check writing and wire transfer services; providing and
maintaining pre-authorized investment plans; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining accounting records for shareholders; answering
questions and handling correspondence from shareholders about their accounts;
issuing confirmations for transactions by shareholders; performing similar
account administrative services; providing such shareholder communications and
recordkeeping services as may be required for any program for which the Service
Organization is a sponsor that relies on Rule 3a-4 under the 1940 Act; and
providing such other similar services as may reasonably be requested to the
extent the Service Organization is permitted to do so under applicable statutes,
rules, or regulations.

     The Administrator has entered into an agreement with the Distributor under
which the distributor is compensated for providing or procuring certain of the
Class D Services at the rate of 0.25% per annum of all assets attributable to
Class D shares sold through the Distributor.

     The Trust and the Administrator understand that some or all of the Special
Class D Services pursuant to the Administration Agreement may be deemed to
represent services primarily intended to result in the sale of Class D shares.
The Administration Agreement includes the Class D Plan to account for this
possibility. The Administration Agreement provides that any portion of the fees
paid thereunder in respect of Class D shares representing reimbursement for the
Administrator's and the Distributor's expenditures and internally allocated
expenses in respect of Class D Services of any Fund shall not exceed the rate of
0.25% per annum of the average daily net assets of such Fund attributable to
Class D shares.

     In accordance with Rule 12b-1 under the 1940 Act, the Class D Plan may not
be amended to increase materially the costs which Class D shareholders may bear
under the Plan without approval of a majority of the outstanding Class D shares,
and by vote of a majority of both (i) the Trustees of the Trust and (ii) those
Trustees ("disinterested Class D Plan Trustees") who are not "interested
persons" of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any agreements
related to it, cast in person at a meeting called for the purpose of voting on
the Plan and any related amendments. The Class D Plan may not take effect until
approved by a vote of a majority of both (i) the Trustees of the Trust and (ii)
the disinterested Class D Plan Trustees. In addition, the Class D Plan may not
take effect unless it is approved by the vote of a majority of the outstanding
Class D shares and it shall continue in effect so long as such continuance is
specifically approved at least annually by the Trustees and the disinterested
Class D Plan Trustees.

                                       59

     With respect to the Class D Plan, the Administration Agreement requires the
Administrator to present reports as to out-of-pocket expenditures and internal
expenses allocations of the Administrator and the Distributor at least quarterly
and in a manner that permits the disinterested Class D Plan Trustees to
determine that portion of the Class D administrative fees paid thereunder which
represents reimbursements in respect of Special Class D Services.

     Rules of the NASD limit the amount of distribution fees that may be paid by
mutual funds. "Service fees," defined to mean fees paid for providing
shareholder services or the maintenance of accounts (but not transfer agency
services) are not subject to the limits. The Trust believes that most, if not
all, of the fees paid pursuant to the Class D Plan will qualify as "service
fees" and therefore will not be limited by NASD rules.

Payments Pursuant to Class D Plan

     For the fiscal year ended March 31, 2003, March 31, 2002 and March 31,
2001, the Trust paid $6,232,187, $2,302,640 and $612,076, respectively, pursuant
to the Class D Plan, of which the indicated amounts were attributable to the
following operational Funds:

                                                Year Ended     Year Ended      Year Ended
Fund                                              3/31/03       3/31/02         3/31/01
- -------------------------------------------     ----------    ------------    ------------
California Intermediate Municipal Bond Fund     $     8494    $      1,884    $        124
California Municipal Bond Fund                          45              28              17
CommodityRealReturn Strategy Fund                      956             N/A             N/A
Convertible Fund                                        15              19              23
Emerging Markets Bond Fund                          77,544          11,375              26
Foreign Bond Fund                                  237,732          96,639          39,752
GNMA Fund                                           10,748             439             N/A
High Yield Fund                                    368,722         161,769          66,440
Low Duration Fund                                  611,876         137,440          36,164
Municipal Bond Fund                                 48,708           7,739           2,082
New York Municipal Bond Fund                         1,055             254              49
Real Return Fund                                 1,621,445         641,758          77,474
Short Duration Municipal Income Fund                10,171              80              25
Short-Term Fund                                    280,593          95,941          13,325
StocksPLUS Fund                                      4,555           6,472           7,701
Strategic Balanced Fund                              3,903           2,899             768
Total Return Fund                                2,745,592       1,111,975         366,874
Total Return Mortgage Fund                         200,033          25,929           1,233


Distribution and Servicing Plan for Class J and Class K Shares

     Class J and Class K each has a separate distribution and servicing plan
(the "Class J-K Plans"). Distribution fees paid pursuant to the Class J-K Plans
may only be paid in connection with services provided with respect to Class J
and Class K shares.

     As stated in the Prospectus relating to Class J and Class K shares under
the caption "Service and Distribution Fees," the Distributor pays (i) all or a
portion of the distribution fees it receives from the Trust to participating and
introducing brokers, and (ii) all or a portion of the servicing fees it receives
from the Trust to participating and introducing brokers, certain banks and other
financial intermediaries.

     Each Class J-K Plan may be terminated with respect to any Fund to which the
Class J-K Plan relates by vote of a majority of the Trustees who are not
interested persons of the Trust (as defined in the 1940 Act) and who have no
direct or indirect financial interest in the operation of the Plan or the
Distribution Contract ("Disinterested Trustees") or by vote of a majority of the
outstanding voting securities of the relevant class of that Fund. Pursuant to
Rule 12b-1, any change in either Class J-K Plan that would materially increase
the cost to the class of shares of any Fund to which the Plan relates requires
approval by the affected class of shareholders of that Fund. The Trustees review
quarterly written reports of such costs and the purposes for which such costs
have been incurred. Each Class J-K Plan may be amended by vote of the
Disinterested Trustees cast in person at a meeting called for the purpose. As
long as the Class J-K Plans are in effect, selection and

                                       60

nomination of those Trustees who are not interested persons of the Trust shall
be committed to the discretion of such Disinterested Trustees.

     The Class J-K Plans will continue in effect with respect to each Fund and
each class of shares thereof for successive one-year periods, provided that each
such continuance is specifically approved (i) by the vote of a majority of the
Disinterested Trustees and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.

     If a Class J-K Plan is terminated (or not renewed) with respect to one or
more Funds, it may continue in effect with respect to any class of any Fund as
to which it has not been terminated (or has been renewed).

     The Trustees believe that the Class J-K Plans will provide benefits to the
Trust. The Trustees believe that the Class J-K Plans will result in greater
sales and/or fewer redemptions of Trust shares, although it is impossible to
know for certain the level of sales and redemptions of Trust shares that would
occur in the absence of the Class J-K Plans or under alternative distribution
schemes. Although the Funds' expenses are essentially fixed, the Trustees
believe that the effect of the Class J-K Plans on sales and/or redemptions may
benefit the Trust by reducing Fund expense ratios and/or by affording greater
flexibility to Portfolio Managers. From time to time, expenses of the
Distributor incurred in connection with the sale of Class J and Class K shares
of the Funds, and in connection with the servicing of Class J and Class K
shareholders of the Funds and the maintenance of shareholder accounts, may
exceed the distribution and servicing fees collected by the Distributor. The
Trustees consider such unreimbursed amounts, among other factors, in determining
whether to cause the Funds to continue payments of distribution and servicing
fees in the future with respect to Class J and Class K shares.

Purchases, Exchanges and Redemptions

     Purchases, exchanges and redemptions of Class A, Class B, Class C, Class D
and Class R shares are discussed in the Class A, B and C, Class D and Class R
Prospectuses under the headings "Buying Shares," "Exchanging Shares," and
"Selling Shares," and in the Guide (with respect to Class A, B, C and R shares
only), and that information is incorporated herein by reference. Purchases,
exchanges and redemptions of Advisor Class shares are discussed in the Advisor
Class Prospectus under the headings "Purchasing Shares," "Exchange Privilege,"
and "Redeeming Shares," and that information is incorporated herein by
reference. Purchases, exchanges and redemptions of Institutional and
Administrative Class shares and Class J and Class K shares are discussed in the
Institutional Prospectus under the headings "Purchasing Shares," "Exchange
Privilege," and "Redeeming Shares," and in the Guide (with respect to Class A,
B, C and R shares only), and in the Class J and Class K supplement thereto, and
that information is incorporated herein by reference.

     Certain managed account clients of PIMCO may purchase shares of the Trust.
To avoid the imposition of duplicative fees, PIMCO may be required to make
adjustments in the management fees charged separately by PIMCO to these clients
to offset the generally higher level of management fees and expenses resulting
from a client's investment in the Trust.

     Certain clients of PIMCO whose assets would be eligible for purchase by one
or more of the Funds may purchase shares of the Trust with such assets. Assets
so purchased by a Fund will be valued in accordance with procedures adopted by
the Board of Trustees.

     Certain shares of the Funds are not qualified or registered for sale in all
states and Class J and Class K shares are not qualified or registered for sale
in the United States. Prospective investors should inquire as to whether shares
of a particular Fund or class are available for offer and sale in their state of
domicile or residence. Shares of a Fund may not be offered or sold in any state
unless registered or qualified in that jurisdiction, unless an exemption from
registration or qualification is available.

     Independent financial intermediaries unaffiliated with PIMCO may perform
shareholder servicing functions with respect to certain of their clients whose
assets may be invested in the Funds. These services, normally provided by PIMCO
directly to Trust shareholders, may include the provision of ongoing information
concerning the Funds and their investment performance, responding to shareholder
inquiries, assisting with purchases, redemptions and exchanges of Trust shares,
and other services. PIMCO may pay fees to such entities for the provision of
these services which PIMCO normally would perform, out of PIMCO's own resources.

     As described in the Class A, B and C, Class D and Class R Prospectuses
under the caption "Exchanging Shares," and in the Institutional and Advisor
Class Prospectuses under the caption "Exchange Privilege," and in the Guide
(with respect to Class A, B, C and R shares only), a shareholder may exchange
shares of any Fund (except for the Liquid Assets

                                       61

Fund) for shares of any other Fund of the Trust or any series of PIMCO Funds:
Multi-Manager Series, within the same class on the basis of their respective net
asset values. The original purchase date(s) of shares exchanged for purposes of
calculating any contingent deferred sales charge will carry over to the
investment in the new Fund. For example, if a shareholder invests in the Class C
shares of one Fund and 6 months later (when the contingent deferred sales charge
upon redemption would normally be 1%) exchanges his shares for Class C shares of
another Fund, no sales charge would be imposed upon the exchange but the
investment in the other Fund would be subject to the 1% contingent deferred
sales charge until one year after the date of the shareholder's investment in
the first Fund as described in the Class A, B and C Prospectus under
"Alternative Purchase Arrangements."

     Orders for exchanges accepted prior to the close of regular trading on the
New York Stock Exchange on any day the Trust is open for business will be
executed at the respective net asset values determined as of the close of
business that day. Orders for exchanges received after the close of regular
trading on the Exchange on any business day will be executed at the respective
net asset values determined at the close of the next business day.

     An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange, reserves
the right to adopt a policy of terminating the exchange privilege of any
shareholder who makes more than a specified number of exchanges in a 12-month
period or in any calendar quarter. The Trust reserves the right to modify or
discontinue the exchange privilege at any time.

     The Trust reserves the right to suspend or postpone redemptions during any
period when: (a) trading on the New York Stock Exchange is restricted, as
determined by the SEC, or that Exchange is closed for other than customary
weekend and holiday closings; (b) the SEC has by order permitted such
suspension; or (c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.

     The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Funds, limited in amount with respect to each
shareholder during any 90-day period to the lesser of (i) $250,000, or (ii) 1%
of the net asset value of the Trust at the beginning of such period. Although
the Trust will normally redeem all shares for cash, it may, in unusual
circumstances, redeem amounts in excess of the lesser of (i) or (ii) above by
payment in kind of securities held in the Funds' portfolios.

     The Trust has adopted procedures under which it may make
redemptions-in-kind to shareholders who are affiliated persons of a Fund. Under
these procedures, the Trust generally may satisfy a redemption request from an
affiliated person in-kind, provided that: (1) the redemption-in-kind is effected
at approximately the affiliated shareholder's proportionate share of the
distributing Fund's current net assets, and thus does not result in the dilution
of the interests of the remaining shareholders; (2) the distributed securities
are valued in the same manner as they are valued for purposes of computing the
distributing Fund's net asset value; (3) the redemption-in-kind is consistent
with the Fund's Prospectus and statement of additional information; and (4)
neither the affiliated shareholder nor any other party with the ability and the
pecuniary incentive to influence the redemption-in-kind selects, or influences
the selection of, the distributed securities.

     Due to the relatively high cost of maintaining smaller accounts, the Trust
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time, due to shareholder
redemption, the shares in the account do not have a value of at least a
specified amount, the minimums of which are currently set at $250 for Class A,
Class B and Class C shares, $2,000 for Class D shares, $50,000 for Class R
shares, and $100,000 ($25,000,000 for the Liquid Assets Fund) for Institutional
Class, Administrative Class and Advisor Class shares ($10,000 with respect to
Institutional Class and Administrative Class accounts opened before January 1,
1995). The Prospectuses may set higher minimum account balances for one or more
classes from time to time depending upon the Trust's current policy. An investor
will be notified that the value of his account is less than the minimum and
allowed at least 30 days to bring the value of the account up to at least the
specified amount before the redemption is processed. The Declaration of Trust
also authorizes the Trust to redeem shares under certain other circumstances as
may be specified by the Board of Trustees. The Trust may also charge periodic
account fees for accounts that fall below minimum balances, as described in the
Prospectuses.

Request for Multiple Copies of Shareholder Documents

     To reduce expenses, it is intended that only one copy of the Funds'
Prospectuses and each annual and semi-annual report will be mailed to those
addresses shared by two or more accounts. If you wish to receive individual
copies of these documents and your shares are held directly with the Trust, call
the Trust at 1-800-927-4648. Alternatively, if your shares are held through a
financial institution, please contact it directly. Within 30 days after receipt
of your request by the Trust or financial institution, as appropriate, such
party will begin sending you individual copies.

                                       62

                      PORTFOLIO TRANSACTIONS AND BROKERAGE

Investment Decisions and Portfolio Transactions

     Investment decisions for the Trust and for the other investment advisory
clients of PIMCO are made with a view to achieving their respective investment
objectives. Investment decisions are the product of many factors in addition to
basic suitability for the particular client involved (including the Trust). Some
securities considered for investments by the Funds may also be appropriate for
other clients served by PIMCO. Thus, a particular security may be bought or sold
for certain clients even though it could have been bought or sold for other
clients at the same time. If a purchase or sale of securities consistent with
the investment policies of a Fund and one or more of these clients served by
PIMCO is considered at or about the same time, transactions in such securities
will be allocated among the Fund and clients in a manner deemed fair and
reasonable by PIMCO. PIMCO may aggregate orders for the Funds with simultaneous
transactions entered into on behalf of other clients of PIMCO so long as price
and transaction expenses are averaged either for that transaction or for the
day. Likewise, a particular security may be bought for one or more clients when
one or more clients are selling the security. In some instances, one client may
sell a particular security to another client. It also sometimes happens that two
or more clients simultaneously purchase or sell the same security, in which
event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in
PIMCO's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. There may be circumstances when purchases or sales of
portfolio securities for one or more clients will have an adverse effect on
other clients.

Brokerage and Research Services

     There is generally no stated commission in the case of fixed income
securities, which are traded in the over-the-counter markets, but the price paid
by the Trust usually includes an undisclosed dealer commission or mark-up. In
underwritten offerings, the price paid by the Trust includes a disclosed, fixed
commission or discount retained by the underwriter or dealer. Transactions on
U.S. stock exchanges and other agency transactions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction. Transactions in
foreign securities generally involve the payment of fixed brokerage commissions,
which are generally higher than those in the United States.

     PIMCO places all orders for the purchase and sale of portfolio securities,
options and futures contracts for the relevant Fund and buys and sells such
securities, options and futures for the Trust through a substantial number of
brokers and dealers. In so doing, PIMCO uses its best efforts to obtain for the
Trust the most favorable price and execution available, except to the extent it
may be permitted to pay higher brokerage commissions as described below. In
seeking the most favorable price and execution, PIMCO, having in mind the
Trust's best interests, considers all factors it deems relevant, including, by
way of illustration, price, the size of the transaction, the nature of the
market for the security, the amount of the commission, the timing of the
transaction taking into account market prices and trends, the reputation,
experience and financial stability of the broker-dealer involved and the quality
of service rendered by the broker-dealer in other transactions.

     For the fiscal years ended March 31, 2003, 2002 and 2001, the following
amounts of brokerage commissions were paid by each operational Fund:

                                      Year Ended     Year Ended      Year Ended
Fund                                   3/31/03        3/31/02         3/31/01
- -----------------------------------  ------------   ------------    ------------
All Asset Fund                       $         0             N/A             N/A
California Intermediate Municipal
Bond Fund/(1)/                             7,818             N/A    $      5,773
California Municipal Bond Fund/(1)/        2,362             N/A           3,129
CommodityRealReturn Strategy Fund              0             N/A             N/A
Convertible Fund/(1)/                     14,610    $     17,651          51,074
Emerging Markets Bond Fund                     0             N/A             N/A
European Convertible Fund                  1,429           1,323             N/A
Foreign Bond Fund                        205,672         119,155          62,546
Global Bond Fund                          75,999          45,116          32,198
Global Bond Fund II                       25,079          13,576          10,981
GNMA                                         918             N/A             N/A
High Yield Fund                          677,101          49,675          39,005
Investment Grade Corporate
Bond Fund                                  3,153             242             211

                                       63

                                      Year Ended     Year Ended      Year Ended
Fund                                   3/31/03        3/31/02         3/31/01
- -----------------------------------  ------------   ------------    ------------
Long-Term U.S. Government Fund           381,090         238,861         569,363
Low Duration Fund                        156,404          12,343          88,565
Low Duration Fund II                       7,693              11           3,629
Low Duration Fund III                        564             N/A             626
Moderate Duration Fund                    55,216          36,520          26,455
Money Market Fund                              0             N/A             N/A
Municipal Bond Fund/(1)/                  20,190             N/A           5,847
New York Municipal Bond Fund/(1)/          1,218             N/A             429
Real Return Fund/(1)/                     58,901           2,056          24,846
Real Return Fund II                            0             N/A             N/A
Real Return Asset Fund                       570             N/A             N/A
Short Duration Municipal
Income Fund/(1)/                          14,400             N/A              53
Short-Term Fund                          356,984           3,672             875
StocksPLUS Fund/(1)/                     106,015          73,094         251,648
StocksPLUS Total Return Fund               1,720             N/A             N/A
Strategic Balanced Fund/(2)/                   0             N/A          21,189
Total Return Fund                      4,428,430       7,318,948       4,371,226
Total Return Fund II                     270,744         344,783         230,995
Total Return Fund III                     87,138         114,811         146,733
Total Return Mortgage Fund                   825             N/A              40

(1)  Changes in the aggregate amount of brokerage commissions, markups and
     markdowns paid by a Fund from year-to-year may be attributable to changes
     in the asset size of the Fund, the volume of portfolio transactions
     effected by the Fund, the types of instruments in which the Fund invests,
     or the rates negotiated by PIMCO on behalf of the Funds.

(2)  Changes in the aggregate amount of brokerage commissions are attributable
     to changes in investment restrictions and policies.

     PIMCO places orders for the purchase and sale of portfolio investments for
the Funds' accounts with brokers or dealers selected by it in its discretion. In
effecting purchases and sales of portfolio securities for the account of the
Funds, PIMCO will seek the best price and execution of the Funds' orders. In
doing so, a Fund may pay higher commission rates than the lowest available when
PIMCO believes it is reasonable to do so in light of the value of the brokerage
and research services provided by the broker effecting the transaction, as
discussed below. PIMCO also may consider sales of shares of the Trust as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Trust.

     It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
PIMCO receives research services from many broker-dealers with which PIMCO
places the Trust's portfolio transactions. PIMCO may also receive research or
research credits from brokers which are generated from underwriting commissions
when purchasing new issues of fixed income securities or other assets for a
Fund. These services, which in some cases may also be purchased for cash,
include such matters as general economic and security market reviews, industry
and company reviews, evaluations of securities and recommendations as to the
purchase and sale of securities. Some of these services are of value to PIMCO in
advising various of its clients (including the Funds), although not all of these
services are necessarily useful and of value in managing the Trust. The
management fee paid by the Trust is not reduced because PIMCO and its affiliates
receive such services.

     As permitted by Section 28(e) of the Securities Exchange Act of 1934, PIMCO
may cause the Trust to pay a broker-dealer which provides "brokerage and
research services" (as defined in the Act) to PIMCO an amount of disclosed
commission for effecting a securities transaction for the Trust in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.

     As noted above, PIMCO may purchase new issues of securities for the Trust
in underwritten fixed price offerings. In these situations, the underwriter or
selling group member may provide PIMCO with research in addition to selling the
securities (at the fixed public offering price) to the Trust or other advisory
clients. Because the offerings are conducted at a fixed price, the ability to
obtain research from a broker-dealer in this situation provides knowledge that
may benefit the Trust, other PIMCO clients, and PIMCO without incurring
additional costs. These arrangements may not fall within the safe harbor of
Section 28(e) because the broker-dealer is considered to be acting in a
principal capacity in underwritten transactions. However, the NASD has adopted
rules expressly permitting broker-dealers to provide bona fide research to
advisers in connection with fixed price offerings under certain circumstances.
As a general matter in these situations, the underwriter or

                                       64

selling group member will provide research credits at a rate that is higher than
that which is available for secondary market transactions.

     Consistent with the Rules of the NASD and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, PIMCO may also consider sales of shares of the Trust as a factor
in the selection of broker-dealers to execute portfolio transactions for the
Trust.

     PIMCO may place orders for the purchase and sale of portfolio securities
with a broker-dealer that is affiliated to PIMCO where, in PIMCO's judgment,
such firm will be able to obtain a price and execution at least as favorable as
other qualified broker-dealers.

     Pursuant to applicable sections under the 1940 Act, a broker-dealer that is
an affiliate of the Adviser or sub-adviser may receive and retain compensation
for effecting portfolio transactions for a Fund if the commissions paid to such
an affiliated broker-dealer by a Fund do not exceed one per centum of the
purchase or sale price of such securities. The tables below describe the
commissions, if any, paid by the Funds to affiliated brokers during the fiscal
years ended March 31, 2003 and 2002.

                                 Fiscal Year Ended March 31, 2003
- -------------------------------------------------------------------------------------------------
                                                                                      % of Fund's
                                                                       % of Fund's    Aggregate
                                                          Amount of     Aggregate      Dollar
                                         Affiliated       Brokerage     Brokerage     Amount of
Fund                                       Broker        Commission     Commission   Transactions
- -------------------------------------------------------------------------------------------------
Foreign Bond Fund                       Deutsche Bank    $      7,643         3.72%         0.000%
- -------------------------------------------------------------------------------------------------
Global Bond Fund II                     Deutsche Bank           1,595         6.36          0.000
- -------------------------------------------------------------------------------------------------
High Yield Fund                         Deutsche Bank         113,200        16.72          0.001
- -------------------------------------------------------------------------------------------------
Investment Grade Corporate Bond Fund    Deutsche Bank             613        19.42          0.000
- -------------------------------------------------------------------------------------------------
Long-Term U.S. Government Fund          Deutsche Bank          37,425         9.82          0.001
- -------------------------------------------------------------------------------------------------
Low Duration Fund                       Deutsche Bank           1,493         0.95          0.000
- -------------------------------------------------------------------------------------------------
Low Duration Fund II                    Deutsche Bank              90         1.17          0.000
- -------------------------------------------------------------------------------------------------
Moderate Duration Fund                  Deutsche Bank             675         1.22          0.000
- -------------------------------------------------------------------------------------------------
Short-Term Fund                         Deutsche Bank           2,588         0.73          0.000
- -------------------------------------------------------------------------------------------------
StocksPLUS Total Return Fund            Deutsche Bank               4         0.22          0.000
- -------------------------------------------------------------------------------------------------
Total Return Fund II                    Deutsche Bank          37,330        13.79          0.000
- -------------------------------------------------------------------------------------------------
Total Return Fund III                   Deutsche Bank           9,090        10.43          0.000
- -------------------------------------------------------------------------------------------------

                                 Fiscal Year ended March 31, 2002
- -------------------------------------------------------------------------------------------------
                                                                                      % of Fund's
                                                                       % of Fund's    Aggregate
                                                          Amount of     Aggregate      Dollar
                                         Affiliated       Brokerage     Brokerage     Amount of
Fund                                       Broker        Commission     Commission   Transactions
- -------------------------------------------------------------------------------------------------
Foreign Bond Fund                       Deutsche Morgan  $     20,304        17.03%          0.00%
- -------------------------------------------------------------------------------------------------
Global Bond Fund                        Deutsche Morgan         4,432         9.82           0.00
- -------------------------------------------------------------------------------------------------
Global Bond Fund II                     Deutsche Morgan         1,264         9.31           0.00
- -------------------------------------------------------------------------------------------------
High Yield Fund                         Deutsche Morgan        24,286        48.89           0.00
- -------------------------------------------------------------------------------------------------
Long-Term U.S. Government Fund          Deutsche Morgan        68,953        28.86           0.00
- -------------------------------------------------------------------------------------------------
Total Return Fund                       Deutsche Morgan        93,696         1.28           0.00
- -------------------------------------------------------------------------------------------------
Total Return Fund II                    Deutsche Morgan         3,496         1.01           0.00
- -------------------------------------------------------------------------------------------------
Total Return Fund III                   Deutsche Morgan         4,314         3.75           0.00
- -------------------------------------------------------------------------------------------------
                                       65

                                 Fiscal Year ended March 31, 2001
- -------------------------------------------------------------------------------------------------
                                                                                     % of Fund's
                                                                       % of Fund's    Aggregate
                                                          Amount of     Aggregate       Dollar
                                          Affiliated      Brokerage     Brokerage     Amount of
Fund                                        Broker        Commission    Commission   Transactions
- -------------------------------------------------------------------------------------------------
Convertible Fund                        Deutsche Bank    $      1,250         2.44%          0.00%
- -------------------------------------------------------------------------------------------------
Foreign Bond Fund                       Deutsche Bank          12,456        19.91           0.00
- -------------------------------------------------------------------------------------------------
Global Bond Fund                        Deutsche Bank           4,873        15.13           0.00
- -------------------------------------------------------------------------------------------------
Global Bond Fund II                     Deutsche Bank           1,390        12.65           0.00
- -------------------------------------------------------------------------------------------------
Long-Term U.S. Government Fund          Deutsche Bank         141,661        28.88           0.00
- -------------------------------------------------------------------------------------------------
Low Duration Fund                       Deutsche Bank             204         0.23           0.00
- -------------------------------------------------------------------------------------------------
Moderate Duration Fund                  Deutsche Bank           3,451        13.04           0.00
- -------------------------------------------------------------------------------------------------
Real Return Fund                        Deutsche Bank             850         3.42           0.00
- -------------------------------------------------------------------------------------------------
Short-Term Fund                         Deutsche Bank             875          100           0.00
- -------------------------------------------------------------------------------------------------
Strategic Balanced Fund                 Deutsche Bank              43         0.20           0.00
- -------------------------------------------------------------------------------------------------
Total Return Fund                       Deutsche Bank         170,564         3.90           0.00
- -------------------------------------------------------------------------------------------------
Total Return Fund II                    Deutsche Bank           1,113         0.48           0.00
- -------------------------------------------------------------------------------------------------
Total Return Fund III                   Deutsche Bank           1,686         1.14           0.00
- -------------------------------------------------------------------------------------------------

Portfolio Turnover

     A change in the securities held by a Fund is known as "portfolio turnover."
PIMCO manages the Funds without regard generally to restrictions on portfolio
turnover. The use of certain derivative instruments with relatively short
maturities may tend to exaggerate the portfolio turnover rate for some of the
Funds. Trading in fixed income securities does not generally involve the payment
of brokerage commissions, but does involve indirect transaction costs. The use
of futures contracts may involve the payment of commissions to futures
commission merchants. High portfolio turnover (e.g., greater than 100%) involves
correspondingly greater expenses to a Fund, including brokerage commissions or
dealer mark-ups and other transaction costs on the sale of securities and
reinvestments in other securities. The higher the rate of portfolio turnover of
a Fund, the higher these transaction costs borne by the Fund generally will be.
Such sales may result in realization of taxable capital gains (including
short-term capital gains which are generally taxed to shareholders at ordinary
income tax rates).

     The portfolio turnover rate of a Fund is calculated by dividing (a) the
lesser of purchases or sales of portfolio securities for the particular fiscal
year by (b) the monthly average of the value of the portfolio securities owned
by the Fund during the particular fiscal year. In calculating the rate of
portfolio turnover, there is excluded from both (a) and (b) all securities,
including options, whose maturities or expiration dates at the time of
acquisition were one year or less. Proceeds from short sales and assets used to
cover short positions undertaken are included in the amounts of securities sold
and purchased, respectively, during the year. Portfolio turnover rates for each
Fund for which financial highlights for at least the past five fiscal years are
provided in the Prospectuses are set forth under "Financial Highlights" in the
applicable Prospectus.

     Because PIMCO does not expect to reallocate the Strategic Balanced Fund's
assets between the Underlying Funds on a frequent basis, the portfolio turnover
rate for the Fund is expected to be modest (i.e., less than 50%) in comparison
to most mutual funds. With respect to the All Asset Fund, the asset allocation
sub-adviser to the Fund expects the portfolio turnover to be, on average,
approximately 100% per year. In addition, the Funds indirectly bear the expenses
associated with the portfolio turnover of the Underlying Funds, which may have
fairly high portfolio turnover rates (i.e., in excess of 100%).

     In addition, the All Asset Fund and the Strategic Balanced Fund indirectly
bear the expenses associated with portfolio turnover of the Underlying Funds,
which may have fairly high portfolio turnover rates (i.e., in excess of 100%).
Shareholders in the All Asset and Strategic Balanced Funds may also bear
expenses directly or indirectly through sales of securities held by the Fund and
the Underlying Funds which result in realization of taxable capital gains. To
the extent such gains relate to securities held for twelve months or less, such
gains will be short-term taxable gains taxed at ordinary income tax rates when
distributed to shareholders who are individuals.

                                       66

                                 NET ASSET VALUE

     Net Asset Value is determined as indicated under "How Fund Shares are
Priced" in the Prospectuses. Net asset value will not be determined on the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.

     For all Funds other than Liquid Assets and Money Market Funds, portfolio
securities and other assets for which market quotations are readily available
are stated at market value. Market value is determined on the basis of last
reported sales prices, or if no sales are reported, as is the case for most
securities traded over-the-counter, at the mean between representative bid and
asked quotations obtained from a quotation reporting system or from established
market makers. For Nasdaq traded securities, market value may also be determined
on the basis of the Nasdaq Official Closing Price (NOCP) instead of the last
reported sales price. Fixed income securities, including those to be purchased
under firm commitment agreements (other than obligations having a maturity of 60
days or less), are normally valued on the basis of quotations obtained from
brokers and dealers or pricing services, which take into account appropriate
factors such as institutional-sized trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics,
and other market data.

     The Liquid Assets and Money Market Funds' securities are valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Fund would receive if it sold the instrument. During such periods the yield to
investors in the Fund may differ somewhat from that obtained in a similar
investment company which uses available market quotations to value all of its
portfolio securities.

     The SEC's regulations require the Liquid Assets and Money Market Funds to
adhere to certain conditions. The Trustees, as part of their responsibility
within the overall duty of care owed to the shareholders, are required to
establish procedures reasonably designed, taking into account current market
conditions and the Fund's investment objective, to stabilize the net asset value
per share as computed for the purpose of distribution and redemption at $1.00
per share. The Trustees' procedures include a requirement to periodically
monitor, as appropriate and at such intervals as are reasonable in light of
current market conditions, the relationship between the amortized cost value per
share and the net asset value per share based upon available indications of
market value. The Trustees will consider what steps should be taken, if any, in
the event of a difference of more than 1/2 of 1% between the two. The Trustees
will take such steps as they consider appropriate, (e.g., selling securities to
shorten the average portfolio maturity) to minimize any material dilution or
other unfair results which might arise from differences between the two. The
Fund also is required to maintain a dollar-weighted average portfolio maturity
of 90 days or less, to limit its investments to instruments having remaining
maturities of 397 days or less (except securities held subject to repurchase
agreements having 397 days or less maturity) and to invest only in securities
determined by PIMCO under procedures established by the Board of Trustees to be
of high quality with minimal credit risks.

     Each Fund's liabilities are allocated among its classes. The total of such
liabilities allocated to a class plus that class's distribution and/or servicing
fees and any other expenses specially allocated to that class are then deducted
from the class's proportionate interest in the Fund's assets, and the resulting
amount for each class is divided by the number of shares of that class
outstanding to produce the class's "net asset value" per share. Under certain
circumstances, the per share net asset value of the Class B and Class C shares
of the Funds that do not declare regular income dividends on a daily basis may
be lower than the per share net asset value of the Class A shares as a result of
the daily expense accruals of the distribution fee applicable to the Class B and
Class C shares. Generally, for Funds that pay income dividends, those dividends
are expected to differ over time by approximately the amount of the expense
accrual differential between a particular Fund's classes.

                                    TAXATION

     The following summarizes certain additional federal income tax
considerations generally affecting the Funds and their shareholders. The
discussion is for general information only and does not purport to consider all
aspects of U.S. federal income taxation that might be relevant to beneficial
owners of shares of the Funds. The discussion is based upon current provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, which change could
be retroactive. The discussion applies only to beneficial owners of Fund shares
in whose hands such shares are capital assets within the meaning of Section 1221
of the Code, and may not apply to certain types of beneficial owners of shares
(such as insurance companies, tax exempt organizations, and broker-dealers) who
may be subject to special rules. Persons who may be subject to tax in

                                       67

more than one country should consult the provisions of any applicable tax treaty
to determine the potential tax consequences to them. Prospective investors
should consult their own tax advisers with regard to the federal tax
consequences of the purchase, ownership and disposition of Fund shares, as well
as the tax consequences arising under the laws of any state, foreign country, or
other taxing jurisdiction. The discussion here and in the Prospectuses is not
intended as a substitute for careful tax planning.

     Each Fund intends to qualify annually and elect to be treated as a
regulated investment company under the Code. To qualify as a regulated
investment company, each Fund generally must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the sale or other
disposition of stock, securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities or
currencies ("Qualifying Income Test"); (b) diversify its holdings so that, at
the end of each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, U.S. Government securities,
the securities of other regulated investment companies and other securities,
with such other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities of
any one issuer (other than U.S. Government securities or the securities of other
regulated investment companies); and (c) distribute each taxable year the sum of
(i) at least 90% of its investment company taxable income (which includes
dividends, interest and net short-term capital gains in excess of any net
long-term capital losses) and (ii) 90% of its tax exempt interest, net of
expenses allocable thereto. The Treasury Department is authorized to promulgate
regulations under which gains from foreign currencies (and options, futures, and
forward contracts on foreign currency) would constitute qualifying income for
purposes of the Qualifying Income Test only if such gains are directly related
to investing in securities. To date, such regulations have not been issued. If a
Fund does not qualify as a regulated investment company in any year, then such
Fund will be subject to federal income tax on its net income and gains at
regular corporate income tax rates (without a deduction for distributions to
shareholders). In addition, the shareholders would also be taxed on
distributions of earnings.

     As a regulated investment company, a Fund generally will not be subject to
U.S. federal income tax on its investment company taxable income and net capital
gains (any net long-term capital gains in excess of the sum of net short-term
capital losses and capital loss carryovers from prior years) designated by the
Fund as capital gain dividends, if any, that it distributes to shareholders on a
timely basis. Each Fund intends to distribute to its shareholders, at least
annually, all or substantially all of its investment company taxable income and
any net capital gains. In addition, amounts not distributed by a Fund on a
timely basis in accordance with a calendar year distribution requirement are
subject to a nondeductible 4% excise tax. To avoid the tax, a Fund must
distribute during each calendar year an amount equal to the sum of (1) at least
98% of its ordinary income (not taking into account any capital gains or losses)
for the calendar year, (2) at least 98% of its capital gains in excess of its
capital losses (and adjusted for certain ordinary losses) for the twelve month
period ending on October 31, and (3) all ordinary income and capital gains for
previous years that were not distributed during such years. A distribution will
be treated as paid on December 31 of the calendar year if it is declared by a
Fund in October, November, or December of that year to shareholders of record on
a date in such a month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders (other than those not
subject to federal income tax) in the calendar year in which the distributions
are declared, rather than the calendar year in which the distributions are
received. To avoid application of the excise tax, each Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

     Each Municipal Fund must have at least 50% of its total assets invested in
Municipal Bonds at the end of each calendar quarter so that dividends derived
from its net interest income on Municipal Bonds and so designated by the Fund
will be "exempt-interest dividends," which are generally exempt from federal
income tax when received by an investor. A portion of the distributions paid by
a Municipal Fund may be subject to tax as ordinary income (including certain
amounts attributable to bonds acquired at a market discount). In addition, any
distributions of net short-term capital gains would be taxed as ordinary income
and any distribution of capital gain dividends would be taxed as long-term
capital gains. Certain exempt-interest dividends, as described in the Class A, B
and C Prospectus, may increase alternative minimum taxable income for purposes
of determining a shareholder's liability for the alternative minimum tax. In
addition, exempt-interest dividends allocable to interest from certain "private
activity bonds" will not be tax exempt for purposes of the regular income tax to
shareholders who are "substantial users" of the facilities financed by such
obligations or "related persons" of "substantial users." The tax-exempt portion
of dividends paid for a calendar year constituting "exempt-interest dividends"
will be designated after the end of that year and will be based upon the ratio
of net tax-exempt income to total net income earned by the Fund during the
entire year. That ratio may be substantially different than the ratio of net
tax-exempt income to total net income earned during a portion of the year. Thus,
an investor who holds shares for only a part of the year may be allocated more
or less tax-exempt interest dividends than would be the case if the allocation
were based on the ratio of net tax-exempt income to total net income actually
earned by the Fund while the investor was a shareholder. All or a portion of
interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Municipal Fund will not be

                                       68

deductible by the shareholder. The portion of interest that is not deductible is
equal to the total interest paid or accrued on the indebtedness multiplied by
the percentage of the Fund's total distributions (not including distributions of
the excess of net long-term capital gains over net short-term capital losses)
paid to the shareholder that are exempt-interest dividends. Under rules used by
the Internal Revenue Service for determining when borrowed funds are considered
used for the purpose of purchasing or carrying particular assets, the purchase
of shares may be considered to have been made with borrowed funds even though
such funds are not directly traceable to the purchase of shares.

     Shareholders of the Municipal Funds receiving social security or railroad
retirement benefits may be taxed on a portion of those benefits as a result of
receiving tax exempt income (including exempt-interest dividends distributed by
the Fund). The tax may be imposed on up to 50% of a recipient's benefits in
cases where the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits,
exceeds a base amount. In addition, up to 85% of a recipient's benefits may be
subject to tax if the sum of the recipient's adjusted gross income (with certain
adjustments, including tax-exempt interest) and 50% of the recipient's benefits
exceeds a higher base amount. Shareholders receiving social security or railroad
retirement benefits should consult with their tax advisors.

     In years when a Fund distributes amounts in excess of its earnings and
profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares. Since certain of the Municipal Funds'
expenses attributable to earning tax-exempt income do not reduce such Fund's
current earnings and profits, it is possible that distributions, if any, in
excess of such Fund's net tax-exempt and taxable income will be treated as
taxable dividends to the extent of such Fund's remaining earnings and profits
(i.e., the amount of such expenses).

Distributions

     Except for exempt-interest dividends paid by the Municipal Funds, all
dividends and distributions of a Fund, whether received in shares or cash,
generally are taxable and must be reported on each shareholder's federal income
tax return. Dividends paid out of a Fund's investment company taxable income
will be taxable to a U.S. shareholder as ordinary income. Distributions received
by tax-exempt shareholders will not be subject to federal income tax to the
extent permitted under the applicable tax exemption.

     Although a portion of the dividends paid by the StocksPLUS and StocksPLUS
Total Return Funds may qualify for the deduction for dividends received by
corporations and/or the reduced dividend rate for individuals, it is not
expected that any such portion would be significant. Dividends paid by the other
Funds generally are not expected to qualify for the deduction for dividends
received by corporations and/or the reduced dividend rate for individuals.
Distributions of net capital gains, if any, designated as capital gain
dividends, are taxable as long-term capital gains, regardless of how long the
shareholder has held a Fund's shares and are not eligible for the dividends
received deduction. Any distributions that are not from a Fund's investment
company taxable income or net realized capital gains may be characterized as a
return of capital to shareholders or, in some cases, as capital gain. The tax
treatment of dividends and distributions will be the same whether a shareholder
reinvests them in additional shares or elects to receive them in cash.

     The All Asset and Strategic Balanced Funds will not be able to offset gains
realized by one Fund in which the Fund invests against losses realized by
another Fund in which each Fund invests. The Funds' use of the fund-of-funds
structure could therefore affect the amount, timing and character of
distributions to shareholders.

Sales of Shares

     Upon the disposition of shares of a Fund (whether by redemption, sale or
exchange), a shareholder will realize a gain or loss. Such gain or loss will be
capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Any loss realized on a disposition
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a
disposition of shares held by the shareholder for six months or less will be
treated as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.

     Depending on the All Asset and Strategic Balanced Funds' percentage
ownership in an Underlying Fund both before and after a redemption, each Fund's
redemption of shares of such Underlying Fund may cause the Funds to be treated
as not receiving capital gain income on the amount by which the distribution
exceeds the Fund's tax basis in the shares of the Underlying Fund, but instead
to be treated as receiving a dividend taxable as ordinary income on the full
amount of the

                                       69

distribution. This could cause shareholders of the All Asset and Strategic
Balanced Funds to recognize higher amounts of ordinary income than if the
shareholders had held the shares of the Underlying Funds directly. Redemptions
of shares in an Underlying Fund could also cause additional distributable gains
to shareholders.

Backup Withholding

     A Fund may be required to withhold up to 28% of all taxable distributions
payable to shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal tax liability.

Options, Futures and Forward Contracts, and Swap Agreements

     Some of the options, futures contracts, forward contracts, and swap
agreements used by the Funds may be "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally considered 60% long-term and 40%
short-term capital gains or losses ("60/40") although certain foreign currency
gains and losses from such contracts may be treated as ordinary in character.
Also, section 1256 contracts held by a Fund at the end of each taxable year
(and, for purposes of the 4% excise tax, on certain other dates as prescribed
under the Code) are "marked to market" with the result that unrealized gains or
losses are treated as though they were realized and the resulting gain or loss
is treated as ordinary or 60/40 gain or loss.

     Generally, the hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by a Fund, may result in
"straddles" for U.S. federal income tax purposes. In some cases, the straddle
rules also could apply in connection with swap agreements. The straddle rules
may affect the character of gains (or losses) realized by a Fund. In addition,
losses realized by a Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures,
forward contracts, and swap agreements to a Fund are not entirely clear. The
transactions may increase the amount of short-term capital gain realized by a
Fund which is taxed as ordinary income when distributed to shareholders.

     A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.

     Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.

     Rules governing the tax aspects of swap agreements are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Funds intend to account for such transactions in a manner they deem to be
appropriate, the Internal Revenue Service might not accept such treatment. If it
did not, the status of a Fund as a regulated investment company might be
affected. The Trust intends to monitor developments in this area. Certain
requirements that must be met under the Code in order for a Fund to qualify as a
regulated investment company may limit the extent to which a Fund will be able
to engage in swap agreements.

     The qualifying income and diversification requirements applicable to a
Fund's assets may limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts, forward contracts, and swap
agreements.

Short Sales

     Certain Funds may make short sales of securities. Short sales may increase
the amount of short-term capital gain realized by a Fund, which is taxed as
ordinary income when distributed to shareholders.

                                       70

Passive Foreign Investment Companies

     Certain Funds may invest in the stock of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC for a taxable year if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. If a Fund receives a so-called
"excess distribution" with respect to PFIC stock, the Fund itself may be subject
to tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to stockholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC stock. A Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior taxable years and an interest factor will be added to the
tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC stock are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.

     A Fund may be eligible to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently is available in some circumstances,
a Fund generally would be required to include in its gross income its share of
the earnings of a PFIC on a current basis, regardless of whether distributions
are received from the PFIC in a given year. If this election were made, the
special rules, discussed above, relating to the taxation of excess
distributions, would not apply. Alternatively, another election may be available
that would involve marking to market a Fund's PFIC shares at the end of each
taxable year (and on certain other dates prescribed in the Code), with the
result that unrealized gains are treated as though they were realized and
reported as ordinary income. Any mark-to-market losses and any loss from an
actual disposition of PFIC shares would be deductible as ordinary losses to the
extent of any net mark-to-market gains included in income with respect to such
shares in prior years. If this election were made, tax at the Fund level under
the PFIC rules would generally be eliminated, but the Fund could, in limited
circumstances, incur nondeductible interest charges. A Fund's intention to
qualify annually as a regulated investment company may limit its elections with
respect to PFIC shares.

     Because the application of the PFIC rules may affect, among other things,
the character of gains and the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, and may subject a Fund itself
to tax on certain income from PFIC shares, the amount that must be distributed
to shareholders and will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased substantially as compared
to a fund that did not invest in PFIC shares.

Foreign Currency Transactions

     Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Fund accrues income or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects such receivables or pays such liabilities
generally are treated as ordinary income or loss. Similarly, on disposition of
debt securities denominated in a foreign currency and on disposition of certain
other instruments, gains or losses attributable to fluctuations in the value of
the foreign currency between the date of acquisition of the security or contract
and the date of disposition also are treated as ordinary gain or loss. These
gains and losses, referred to under the Code as "section 988" gains or losses,
may increase or decrease the amount of a Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.

Foreign Taxation

     Income received by the Funds from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, PIMCO intends to manage the Funds with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the Emerging Markets Bond, European Convertible,
Foreign Bond, Global Bond or Global Bond II Funds' total assets at the close of
their taxable year consists of securities of foreign corporations, such Fund
will be eligible to elect to "pass-through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by the Fund. If this election is
made, a shareholder generally subject to tax will be required to include in
gross income (in addition to taxable dividends actually received) his pro rata
share of the foreign taxes paid by the Fund, and may be entitled either to
deduct (as an itemized deduction) his or her pro rata share of foreign taxes in
computing his taxable income or to use it (subject to limitations) as a foreign
tax credit against his or her U.S. federal income tax liability. No deduction
for foreign taxes may be claimed by a shareholder who does not itemize
deductions. Each shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the Fund will
"pass-through" for that year.

                                       71

     Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the pass-through election is
made, the source of the Emerging Markets Bond, European Convertible, Foreign
Bond, Global Bond or Global Bond II Funds' income will flow through to
shareholders of the Trust. With respect to such Funds, gains from the sale of
securities will be treated as derived from U.S. sources and certain currency
fluctuation gains, including fluctuation gains from foreign currency-denominated
debt securities, receivables and payables will be treated as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit is applied
separately to foreign source passive income, and to certain other types of
income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit can be used to offset only 90% of the revised alternative minimum tax
imposed on corporations and individuals and foreign taxes generally are not
deductible in computing alternative minimum taxable income.

     Although the All Asset and Strategic Balanced Funds may be entitled to a
deduction for such taxes paid by an Underlying Fund in which each Fund invests,
the All Asset and Strategic Balanced Funds will not be able to pass any such
credit or deduction through to their own shareholders.

Original Issue Discount and Market Discount

     Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund may be treated as
debt securities that are issued originally at a discount. Generally, the amount
of the original issue discount ("OID") is treated as interest income and is
included in income over the term of the debt security, even though payment of
that amount is not received until a later time, usually when the debt security
matures. A portion of the OID includable in income with respect to certain
high-yield corporate debt securities may be treated as a dividend for Federal
income tax purposes.

     Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Fund in the secondary
market may be treated as having market discount. Generally, any gain recognized
on the disposition of, and any partial payment of principal on, a debt security
having market discount is treated as ordinary income to the extent the gain, or
principal payment, does not exceed the "accrued market discount" on such debt
security. Market discount generally accrues in equal daily installments. A Fund
may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of
income.

     Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Fund may be treated as having
acquisition discount, or OID in the case of certain types of debt securities.
Generally, the Fund will be required to include the acquisition discount, or
OID, in income over the term of the debt security, even though payment of that
amount is not received until a later time, usually when the debt security
matures. The Fund may make one or more of the elections applicable to debt
securities having acquisition discount, or OID, which could affect the character
and timing of recognition of income.

     A Fund generally will be required to distribute dividends to shareholders
representing discount on debt securities that is currently includable in income,
even though cash representing such income may not have been received by the
Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.

Constructive Sales

     Recently enacted rules may affect the timing and character of gain if a
Fund engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If a Fund enters into certain
transactions in property while holding substantially identical property, the
Fund would be treated as if it had sold and immediately repurchased the property
and would be taxed on any gain (but not loss) from the constructive sale. The
character of gain from a constructive sale would depend upon the Fund's holding
period in the property. Loss from a constructive sale would be recognized when
the property was subsequently disposed of, and its character would depend on the
Fund's holding period and the application of various loss deferral provisions of
the Code.

Non-U.S. Shareholders

     Withholding of Income Tax on Dividends: Under U.S. federal tax law,
dividends paid on shares beneficially held by a person who is a "foreign person"
within the meaning of the Internal Revenue Code of 1986, as amended, are, in
general, subject to withholding of U.S. federal income tax at a rate of 30% of
the gross dividend, which may, in some cases, be reduced by an applicable tax
treaty. However, if a beneficial holder who is a foreign person has a permanent
establishment in

                                       72

the United States, and the shares held by such beneficial holder are effectively
connected with such permanent establishment and, in addition, the dividends are
effectively connected with the conduct by the beneficial holder of a trade or
business in the United States, the dividend will be subject to U.S. federal net
income taxation at regular income tax rates. Distributions of long-term net
realized capital gains will not be subject to withholding of U.S. federal income
tax.

     Income Tax on Sale of a Fund's shares: Under U.S. federal tax law, a
beneficial holder of shares who is a foreign person is not, in general, subject
to U.S. federal income tax on gains (and is not allowed a deduction for losses)
realized on the sale of such shares unless (i) the shares in question are
effectively connected with a permanent establishment in the United States of the
beneficial holder and such gain is effectively connected with the conduct of a
trade or business carried on by such holder within the United States or (ii) in
the case of an individual holder, the holder is present in the United States for
a period or periods aggregating 183 days or more during the year of the sale and
certain other conditions are met.

     State and Local Tax: A beneficial holder of shares who is a foreign person
may be subject to state and local tax in addition to the federal tax on income
referred above.

     Estate and Gift Taxes: Under existing law, upon the death of a beneficial
holder of shares who is a foreign person, such shares will be deemed to be
property situated within the United States and will be subject to U.S. federal
estate tax. If at the time of death the deceased holder is a resident of a
foreign country and not a citizen or resident of the United States, such tax
will be imposed at graduated rates from 18% to 55% on the total value (less
allowable deductions and allowable credits) of the decedent's property situated
within the United States. In general, there is no gift tax on gifts of shares by
a beneficial holder who is a foreign person.

     The availability of reduced U.S. taxation pursuant to any applicable
treaties depends upon compliance with established procedures for claiming the
benefits thereof and may further, in some circumstances, depend upon making a
satisfactory demonstration to U.S. tax authorities that a foreign investor
qualifies as a foreign person under U.S. domestic tax law and such treaties.

Other Taxation

     Distributions also may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Under the laws of
various states, distributions of investment company taxable income generally are
taxable to shareholders even though all or a substantial portion of such
distributions may be derived from interest on certain federal obligations which,
if the interest were received directly by a resident of such state, would be
exempt from such state's income tax ("qualifying federal obligations"). However,
some states may exempt all or a portion of such distributions from income tax to
the extent the shareholder is able to establish that the distribution is derived
from qualifying federal obligations. Moreover, for state income tax purposes,
interest on some federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA Certificates
and GNMA Certificates). Each Fund will provide information annually to
shareholders indicating the amount and percentage of a Fund's dividend
distribution which is attributable to interest on federal obligations, and will
indicate to the extent possible from what types of federal obligations such
dividends are derived. Shareholders are advised to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in a Fund.

                                OTHER INFORMATION

Capitalization

     The Trust is a Massachusetts business trust established under a Declaration
of Trust dated February 19, 1987, as amended and restated March 31, 2000. The
capitalization of the Trust consists solely of an unlimited number of shares of
beneficial interest with a par value of $0.0001 each. The Board of Trustees may
establish additional series (with different investment objectives and
fundamental policies) at any time in the future. Establishment and offering of
additional series will not alter the rights of the Trust's shareholders. When
issued, shares are fully paid, non-assessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of a Fund, each shareholder is entitled to receive his pro rata
share of the net assets of that Fund.

     Under Massachusetts law, shareholders could, under certain circumstances,
be held personally liable for the obligations of the Trust. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees or
officers of the Trust for acts or obligations of the Trust, which are binding
only on the assets and property of the Trust, and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Trust or the Trustees. The Declaration of Trust also provides for
indemnification out of Trust property for all loss and expense of any
shareholder held

                                       73

personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which such disclaimer is inoperative or the Trust itself is
unable to meet its obligations, and thus should be considered remote.

Portfolio Managers

The Trust, in its advertisements, may discuss the individual portfolio managers
who manage the Funds. The following biographies supplement the information
contained in the Prospectuses with regard to each Fund's portfolio manager(s).

     Robert D. Arnott is Chairman of First Quadrant, L.P., Chairman of Research
Affiliates, L.L.C. and Editor of the Financial Analysts Journal. In 2002, he
established Research Affiliates in order to offer products and services that
were not consonant with the mission of First Quadrant, including subadvisory
services, software and asset management models. He has since joined forces with
PIMCO, serving as one of the firm's subadvisors, to offer the first global asset
allocation product to make active use of alternative markets, beyond
conventional stocks, bonds and cash. Mr. Arnott has previously developed
quantitative asset management products and teams as President of TSA Capital
Management (now TSA/Analytic) and as Vice President at The Boston Company (now
PanAgora). He has also served as Global Equity Strategist at Salomon (now
Salomon Smith Barney). He graduated summa cum laude from the University of
California in 1977 in economics, applied mathematics and computer science.

     John B. Brynjolfsson, CFA, is a Managing Director and Portfolio Manager at
PIMCO. He joined the firm and the fixed income management team in 1989. He is
co-author of Inflation-Protection Bonds and co-editor of The Handbook of
Inflation-Indexed Bonds. Previously, Mr. Brynjolfsson has worked as a consultant
for Charles River Associates and analyzed arbitrage opportunities for JP Morgan
Securities. He has over 17 years of investing experience. Mr. Brynjolfsson holds
a bachelor's degree in physics and mathematics from Columbia College and a
master's in finance and economics from the M.I.T. Sloan School of Management.

     Mohamed A. El-Erian is a Managing Director and a senior member of PIMCO's
portfolio management and investment strategy group as well as head of the firm's
emerging markets portfolio management team. He joined the firm in May 1999,
after serving as Managing Director in charge of the emerging markets economic
research team at Salomon Smith Barney/Citibank in London. He previously spent 15
years with the International Monetary Fund (IMF), leading policy work on debt
and country issues. Dr. El-Erian has published widely on international economic
topics and has appeared repeatedly on CNN, CNBC, Reuters and Bloomberg
television. In March of 2000, he was voted one of the "Ten Most Important
Executives in LatAm Borrowing" in the poll conducted by Emerging Markets. He
holds doctorate and master's degrees in economics from Oxford University, having
completed his undergraduate degree at Cambridge University. He serves on several
boards, including the Egyptian Center for Economic Studies (ECES), Emerging
Market Traders Association (EMTA) and the Emerging Markets Creditors Association
(EMCA). He is also a member of the Capital Markets Consultative Group.

     Yuri P. Garbuzov is a Senior Vice President and a financial engineer
involved in the development of quantitative analytics. Mr. Garbuzov joined the
firm in 1997, having previously been associated with the Institute of Physics at
the Russian Academy of Sciences and the Harvard Project on Economic Reform in
Moscow. He has over five years of investment experience and holds a masters
degree in physics from the Moscow Institute of Physics and Technology and an
M.B.A. from the University of Chicago's Graduate School of Business.

     William H. Gross, CFA, is a founder and Managing Director of PIMCO. He has
34 years of investment experience. Widely regarded as the world's foremost fixed
income authority, he pioneered the total return approach to bond investing,
which remains the backbone of all PIMCO portfolios. As of December 31, 2002, Mr.
Gross oversees over $300 billion in bond assets (over 1% of all such monies in
the United States). Mr. Gross writes numerous articles on the bond market and is
frequently quoted in the worldwide business press. He is also the author of the
book Bill Gross on Investing. In December 1996, Mr. Gross was the first
portfolio manager inducted into the FIASI's Hall of Fame due to PIMCO's
performance and his own contribution to the advancement of fixed-income analysis
and portfolio management. Mr. Gross and the PIMCO Bond Team have also been
awarded Morningstar's "Fixed Income Manager of the Year" award twice, a feat
unmatched by any other fund manager in any asset class at the time. He is also a
member of Barron's All Century Mutual Fund Team (1/00), and he received the
Distinguished Service Award from the Bond Market Association in October of 2000.
A Chartered Financial Analyst and a member of the Los Angeles Society of
Financial Analysts, Mr. Gross received his B.A. from Duke University and an
M.B.A. from UCLA Graduate School of Business.

     David Hinman, CFA, is an Executive Vice President and Portfolio Manager
focusing on high-yield corporate bonds and co-managing high yield funds and
structured-credit products. He joined PIMCO in 1995, having previously worked at
Merrill Lynch in New York where he underwrote high yield corporate bonds. Prior
to that, he was a credit analyst with First

                                       74

Union Corporation. Mr. Hinman has over ten years of investment experience and
holds a bachelor's degree in finance from the University of Alabama and an
M.B.A. in finance and accounting from the Wharton School of Business at the
University of Pennsylvania.

     Mark T. Hudoff is an Executive Vice President and portfolio manager. Mr.
Hudoff joined the firm in 1996, previously having been associated with Bank
Credit Analyst Research Group where he worked as a fixed income strategist. He
also has been associated with International City Managers Association,
Quantitative Risk Management Group and Martin Marietta Corporation as a
financial analyst. He has 16 years of investment experience and holds a
bachelor's degree in economics from Arizona State University, and an MBA in
finance from the University of Chicago School of Business.

     James M. Keller is a Managing Director, Portfolio Manager, and head of
PIMCO's Government Derivatives desks, specializing in treasuries and futures..
He joined the firm in 1996, having previously worked as a swaps trader at
Merrill Lynch. He has also been a member of the Chicago Board of Trade and the
Chicago Mercantile Exchange. He has over 15 years of investment experience and
holds a bachelor's degree in aerospace engineering from the University of
Illinois and an M.B.A. in finance and policy from the University of Chicago's
Graduate School of Business.

     Raymond G. Kennedy, CFA, is a Managing Director, Portfolio Manager and
senior member of PIMCO's investment strategy group. He also manages high yield
funds and oversees bank loan trading and collateralized debt obligations. Mr.
Kennedy has over 15 years of investment experience. He joined the firm in 1996,
after serving as Private Placement Asset Manager at Prudential Insurance Company
of America, where he was responsible for investing and managing a portfolio of
investment grade and high yield privately placed fixed income securities. Prior
to that, he was a consultant for Andersen Consulting (now Accenture) in Los
Angeles and London. He holds a bachelor's degree from Stanford University and an
M.B.A. from the Anderson Graduate School of Management at the University of
California, Los Angeles. Mr. Kennedy is also a member of LSTA.

     Mark Kiesel is an Executive Vice President, Generalist Portfolio Manager
and a senior member of PIMCO's investment strategy and portfolio management
group. He also heads the investment-grade corporate desk and manages corporate
portfolios for the firm. Previously, Mr. Kiesel served as PIMCO's Head of Equity
Derivatives and as a Senior Credit Analyst. Mr. Kiesel joined the firm in 1996,
after working in sales and trading at both Merrill Lynch and JP Morgan. He has
nine years of investment experience and holds a bachelor's degree in economics
from the University of Michigan and an M.B.A. in finance, economics and
international business from the University of Chicago's Graduate School of
Business.

     Sudi Mariappa is a Managing Director and Head of Global Portfolio
Management with responsibility for overseeing PIMCO's global portfolio
management efforts. Prior to joining PIMCO, he served as Managing Director for
Merrill Lynch in Tokyo as manager of JGB and swap derivative trading. Mr.
Mariappa's prior experience also includes work at Sumitomo Finance International
PLC and Long-Term Capital Management. In addition, he spent nine years at
Salomon Brothers in San Francisco and Tokyo, serving as Director of Fixed Income
Arbitrage in Tokyo for the last four. He holds a B.S. degree in chemical
engineering and an M.B.A., both from Cornell University.

     Mark V. McCray is an Executive Vice President and Portfolio Manager
responsible for PIMCO's municipal bond portfolios. He joined the firm in 2000
from Goldman, Sachs & Co. in New York, where he was Vice President and Co-Head
of Municipal Bond Trading, with primary responsibility for the firm's
proprietary municipal trading. Mr. McCray has fifteen years of investment
experience and holds a bachelor's degree from Temple University and an M.B.A.
from the Wharton School at the University of Pennsylvania, with a concentration
in finance, accounting and strategic management.

     Paul A. McCulley is Managing Director and is responsible for supervising
all short-term investment strategies at PIMCO. Mr. McCulley recently returned to
the firm, having previously worked at PIMCO from 1990 to 1992 as an account
manager and monetary policy specialist. Before coming back to PIMCO, he served
as a Managing Director and Head of both Economic Research for the Americas and
Fixed Income Strategy for the United States at Warburg Dillon Read. From 1996 to
1998, Paul was named to six seats on the Institutional Investor All-America
Fixed Income Research Team, including second and third in economics in 1997 and
1998. He has over 20 years of investment experience and holds a B.A. from
Grinnell College and an M.B.A. from Columbia University.

     W. Scott Simon is Executive Vice President, a senior member of PIMCO's
portfolio management and investment strategy groups, and head of PIMCO's
mortgage team. He joined the firm in 2000 from Bear Stearns & Co. in New York,
where he was a Senior Managing Director and co-head of MBS pass-through trading.
He also managed overall department MBS risk, traded a proprietary MBS book, and
authored the Daily MBS Commentary. Over the last 5 years, Mr. Simon was named
seven times to positions on the Institutional Investor All-America Fixed Income
Research Team, including first place

                                       75

honors in MBS pass-throughs and overall MBS strategies. He has twenty years of
investment experience and holds a B.A. and master's degrees in industrial
engineering from Stanford University.

     Lee R. Thomas, III is a Managing Director and senior member of PIMCO's
portfolio management and investment strategy groups. Mr. Thomas has over 20
years of experience in banking and money management. Previously, he was a member
of Investcorp's Management Committee, where he was responsible for global
securities and foreign exchange trading. Prior to that, he worked at Goldman,
Sachs & Co. as an Executive Director in the fixed income division of their
London office. Mr. Thomas earned his bachelor's degree and a Ph.D. in economics
from Tulane University.

Performance Information

     From time to time the Trust may make available certain information about
the performance of some or all of the classes of shares of some or all of the
Funds. Information about a Fund's performance is based on that Fund's (or its
predecessor's) record to a recent date and is not intended to indicate future
performance.

     The total return of classes of shares of all Funds may be included in
advertisements or other written material. When a Fund's total return is
advertised, it will be calculated for the past year, the past five years, and
the past ten years (or if the Fund has been offered for a period shorter than
one, five or ten years, that period will be substituted) since the establishment
of the Fund (or its predecessor series of PIMCO Advisors Funds for the Global
Bond Fund II), as more fully described below. For periods prior to the initial
offering date of a particular class of shares, total return presentations for
the class will be based on the historical performance of an older class of the
Fund (if any) restated to reflect any different sales charges and/or operating
expenses (such as different administrative fees and/or 12b-1/servicing fee
charges) associated with the newer class. In certain cases, such a restatement
will result in performance of the newer class which is higher than if the
performance of the older class were not restated to reflect the different
operating expenses of the newer class. In such cases, the Trust's advertisements
will also, to the extent appropriate, show the lower performance figure
reflecting the actual operating expenses incurred by the older class for periods
prior to the initial offering date of the newer class. Total return for each
class is measured by comparing the value of an investment in the Fund at the
beginning of the relevant period to the redemption value of the investment in
the Fund at the end of the period (assuming immediate reinvestment of any
dividends or capital gains distributions at net asset value). Total return may
be advertised using alternative methods that reflect all elements of return, but
that may be adjusted to reflect the cumulative impact of alternative fee and
expense structures.

     The Funds may also provide current distribution information to its
shareholders in shareholder reports or other shareholder communications, or in
certain types of sales literature provided to prospective investors. Current
distribution information for a particular class of a Fund will be based on
distributions for a specified period (i.e., total dividends from net investment
income), divided by the relevant class net asset value per share on the last day
of the period and annualized. The rate of current distributions does not reflect
deductions for unrealized losses from transactions in derivative instruments
such as options and futures, which may reduce total return. Current distribution
rates differ from standardized yield rates in that they represent what a class
of a Fund has declared and paid to shareholders as of the end of a specified
period rather than the Fund's actual net investment income for that period.

     Performance information is computed separately for each class of a Fund.
The Trust may, from time to time, include the yield and effective yield of the
Liquid Assets and Money Market Funds, and the yield and total return for each
class of shares of all of the Funds in advertisements or information furnished
to shareholders or prospective investors. Each Fund may from time to time
include in advertisements the ranking of the Fund's performance figures relative
to such figures for groups of mutual funds categorized by Lipper Analytical
Services as having the same investment objectives. Information provided to any
newspaper or similar listing of the Fund's net asset values and public offering
prices will separately present each class of shares. The Funds also may compute
current distribution rates and use this information in their Prospectuses and
statement of additional information, in reports to current shareholders, or in
certain types of sales literature provided to prospective investors.

Calculation of Yield

     Current yield for the Liquid Assets and Money Market Funds will be based on
the change in the value of hypothetical investment (exclusive of capital
changes) over a particular 7-day period less a pro-rata share of Fund expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
"Effective yield" for the Liquid Assets and Money Market Funds assume that all
dividends received during an annual period have been reinvested. Calculation of
"effective yield" begins with

                                       76

the same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:

          Effective Yield = [(Base Period Return +1)/365/7/] - 1

     The effective yield of the Money Market Fund for the seven day period ended
March 31, 2003 was as follows: Institutional Class 0.95%, Administrative Class
0.75%, Class A 0.64%, Class B 0.05% and Class C 0.65%.

     Quotations of yield for the remaining Funds will be based on all investment
income per share (as defined by the SEC) during a particular 30-day (or one
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:

          YIELD = 2[( a-b + 1)/6/-1]
                      ---
                      cd

     where  a = dividends and interest earned during the period,

            b = expenses accrued for the period (net of reimbursements),

            c = the average daily number of shares outstanding during the period
                that were entitled to receive dividends, and

            d = the maximum offering price per share on the last day of the
                period.

     For the one month period ended March 31, 2003, the SEC yield of the Funds
was as follows (all numbers are annualized) (Advisor Class, Class J and Class K
shares were not offered during the period listed):

                           SEC 30 Day Yield for Period
                              Ended March 31, 2003
                              --------------------

                                Institu       Adminis
                                -tional      -trative
Fund                             Class         Class       Class A     Class B     Class C    Class D   Class R
- ----------------------------    -------      --------      -------     -------     -------    -------   -------
All Asset Fund                     5.41%         5.18%         N/A         N/A         N/A        N/A       N/A
California Intermediate
Municipal Bond Fund                3.25          3.01         2.74%        N/A         N/A       2.89%      N/A
California Municipal
Bond Fund                          3.99          3.76         3.45         N/A         N/A       3.61       N/A
CommodityRealReturn
Strategy Fund                      7.23          6.93         6.28        5.86%       5.79       6.66       N/A
Convertible Fund                   4.44          4.22          N/A         N/A         N/A        N/A       N/A
Emerging Markets
Bond Fund                          6.59          6.34         5.88        5.44        5.42       6.18       N/A
European Convertible
Fund                               1.47           N/A          N/A         N/A         N/A        N/A       N/A
Foreign Bond Fund                  3.79          3.53         3.18        2.58        2.58       3.33      3.08%
Global Bond Fund                   3.93          3.68          N/A         N/A         N/A        N/A       N/A
Global Bond Fund II                3.04           N/A         2.53        1.91        1.90        N/A       N/A
GNMA                               2.06           N/A         1.55        0.88        0.88       1.63
High Yield Fund                    8.18          7.93         7.41        7.01        7.01       7.77      7.54
Investment Grade
Corporate Bond Fund                5.24          5.03          N/A         N/A         N/A        N/A       N/A
Long-Term U.S.
Government Fund                    4.12          3.87         3.55        2.96        2.96        N/A       N/A
Low Duration Fund                  2.55          2.30         2.01        1.33        1.58       2.23      1.82
Low Duration Fund II               3.18          2.94          N/A         N/A         N/A        N/A       N/A
Low Duration Fund III              3.01          2.79          N/A         N/A         N/A        N/A       N/A

                                       77

                                Institu       Adminis
                                -tional      -trative
Fund                             Class         Class       Class A     Class B     Class C    Class D   Class R
- ----------------------------    -------      --------      -------     -------     -------    -------   -------
Moderate Duration Fund             3.91           N/A          N/A         N/A         N/A        N/A       N/A
Money Market Fund                  0.93          0.69         0.63        0.05        0.64        N/A       N/A
Municipal Bond Fund                3.73          3.48         3.22        2.57        2.82       3.37       N/A
New York Municipal
Bond Fund                          3.38           N/A         2.85         N/A         N/A       2.98       N/A
Real Return Fund                   6.21          5.95         5.58        4.98        5.23       5.75      5.51
Real Return Fund II                5.30           N/A          N/A         N/A         N/A        N/A       N/A
Real Return Asset Fund             7.88           N/A          N/A         N/A         N/A        N/A       N/A
Short Duration Municipal
Income Fund                        1.92          1.67         1.42         N/A        1.15       1.49       N/A
Short-Term Fund                    2.05          1.80         1.57        0.87        1.31       1.76      1.35
StocksPLUS Fund                    1.71          1.47         1.28        0.58        0.82       1.32      1.07
StocksPLUS Total Return Fund       1.53           N/A          N/A         N/A         N/A        N/A       N/A
Strategic Balanced Fund            3.56          3.31          N/A         N/A         N/A        N/A       N/A
Total Return Fund                  3.58          3.33         2.97        2.36        2.36       3.26      2.91
Total Return Fund II               3.01          2.76          N/A         N/A         N/A        N/A       N/A
Total Return Fund III              4.06          3.82          N/A         N/A         N/A        N/A       N/A
Total Return
Mortgage Fund                      1.91          1.64         1.42        0.75        0.74       1.50       N/A

     The yield of each such Fund will vary from time to time depending upon
market conditions, the composition of the Fund's portfolio and operating
expenses of the Trust allocated to the Fund or its classes of shares. These
factors, possible differences in the methods used in calculating yield (and the
tax exempt status of distributions for the Municipal Funds) should be considered
when comparing a Fund's yield to yields published for other investment companies
and other investment vehicles. Yield should also be considered relative to
changes in the value of a Fund's various classes of shares. These yields do not
take into account any applicable contingent deferred sales charges.

     The Municipal Funds may advertise a tax equivalent yield of each class of
its shares, calculated as described above except that, for any given tax
bracket, net investment income of each class will be calculated using as gross
investment income an amount equal to the sum of (i) any taxable income of each
class of the Fund plus (ii) the tax exempt income of each class of the Fund
divided by the difference between 1 and the effective federal income tax rates
for taxpayers in that tax bracket. For example, taxpayers with the marginal
federal income tax rates indicated in the following table would have to earn the
tax equivalent yields shown in order to realize an after-tax return equal to the
corresponding tax-exempt yield shown.

                                                                  A tax-exempt yield of is
                                                              equivalent to a taxable yield of
   Taxable income           Taxable income        Marginal
   Filing Single        Married filing jointly   tax rate*    3%      4%     5%     6%      7%
- ---------------------   ----------------------   ---------   ----    ----   ----   ----   -----
Up to $7,000            Up to $14,000                   10%  3.33%   4.44%  5.56%  6.67%   7.78%
Over $7,000 but not     Over $14,000 but
 over $28,400            not over $56,800               15%  3.53%   4.71%  5.88%  7.06%   8.24%
Over $28,400 but not    Over $56,800 but
 over $68,800            not over $114,650              25%  4.00%   5.33%  6.67%  8.00%   9.33%
Over $68,800 but not    Over $114,650 but
 over $143,500           not over $174,700              28%  4.17%   5.56%  6.94%  8.33%   9.72%
Over $143,500 but not   Over $174,700 but
 over $311,950           not over $311,950              33%  4.48%   5.97%  7.46%  8.96%  10.45%
Over $311,950           Over $311,950                   35%  4.62%   6.15%  7.69%  9.23%  10.77%

- ----------
*  These marginal tax rates represent tax-equivalent yields taking Federal
   income tax into account only. Any potential impact at the state income tax
   level has not been included. Source: Marginal Tax Rates are from The Jobs &
   Growth Tax Relief Reconciliation Act of 2003.

                                       78

     As is shown in the above table, the advantage of tax-exempt investing
becomes more advantageous to an investor as his or her marginal tax rate
increases.

     The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time in
the future, yields and total return may be higher or lower than past yields and
there can be no assurance that any historical results will continue.

Calculation of Total Return

     Quotations of average annual total return for a Fund or class will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five and ten
years (up to the life of the Fund), calculated pursuant to the following
formula: P (1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T
= the average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). Except as noted below all total return figures reflect the deduction of
a proportional share of Fund or class expenses on an annual basis, and assume
that (i) the maximum sales load (or other charges deducted from payments) is
deducted from the initial $1,000 payment and that the maximum contingent
deferred sales charge, if any, is deducted at the times, in the amounts, and
under the terms disclosed in the Prospectuses and (ii) all dividends and
distributions are reinvested when paid. The Funds also may, with respect to
certain periods of less than one year, provide total return information for that
period that is unannualized. Quotations of total return may also be shown for
other periods. Any such information would be accompanied by standardized total
return information.

     The table below sets forth the average annual total return of each class of
shares of the following Funds for the periods ended March 31, 2002. For periods
prior to the "Inception Date" of a particular class of a Fund's shares, total
return presentations for the class are based on the historical performance of
Institutional Class shares of the Fund (the oldest class) adjusted, as
necessary, to reflect any current sales charges (including any contingent
deferred sales charges) associated with the newer class and any different
operating expenses associated with the newer class, such as 12b-1 distribution
and servicing fees (which are not paid by the Institutional Class) and
administrative fee charges.

                                           Total Return for Periods Ended March 31, 2003*
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Since
                                                                                                  Inception     Inception  Inception
                                                                                         10        of Fund       Date of    Date of
Fund                                Class**                        1 Year    5 Years    Years    (Annualized)     Fund       Class
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
All Asset          Institutional Return Before Taxes                   N/A       N/A       N/A          23.47%   07/31/02   07/31/02
                   Institutional Return After Taxes on
                   Distributions++                                     N/A       N/A       N/A          21.74
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++             N/A       N/A       N/A          14.18
                   Administrative Return Before Taxes                  N/A       N/A       N/A          23.17               12/31/02
                   Class A Return Before Taxes                         N/A       N/A       N/A          14.48               04/30/03
                   Class A Return After Taxes on Distributions++       N/A       N/A       N/A          12.89
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                           N/A       N/A       N/A           8.78
                   Class B Return Before Taxes                         N/A       N/A       N/A          21.78               04/30/03
                   Class C Return Before Taxes                         N/A       N/A       N/A          21.78               04/30/03
                   Class D Return Before Taxes                         N/A       N/A       N/A          22.68               04/30/03
                   Class D Return After Taxes on Distributions++       N/A       N/A       N/A          20.97
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                           N/A       N/A       N/A          13.71
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
California         Institutional Return Before Taxes                  5.55%      N/A       N/A           6.52%   08/31/99   08/31/99
Intermediate       Institutional Return After Taxes on
Municipal Bond     Distributions++                                    5.41       N/A       N/A           6.04
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            5.19       N/A       N/A           5.94
                   Administrative Return Before Taxes                 5.27       N/A       N/A           6.26               09/07/99
                   Class A Return Before Taxes                        1.98       N/A       N/A           5.23               10/19/99
                   Class A Return After Taxes on Distributions++      1.85       N/A       N/A           4.74
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          2.79       N/A       N/A           4.79
                   Class D Return Before Taxes                        5.16       N/A       N/A           6.13               01/31/00
                   Class D Return After Taxes on Distributions++      5.02       N/A       N/A           5.64
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          4.80       N/A       N/A           5.54
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------

                                       79

- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Since
                                                                                                  Inception     Inception  Inception
                                                                                         10        of Fund       Date of    Date of
Fund                                Class**                        1 Year    5 Years    Years    (Annualized)     Fund       Class
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
California         Institutional Return Before Taxes                  8.15%      N/A       N/A           8.60%   05/16/00   05/16/00
Municipal Bond     Institutional Return After Taxes on
                   Distributions++                                    8.13       N/A       N/A           7.54
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            6.81       N/A       N/A           7.31
                   Administrative Return Before Taxes                 7.89       N/A       N/A           8.34               08/19/02
                   Class A Return Before Taxes                        4.51       N/A       N/A           7.04               07/31/00
                   Class A Return After Taxes on Distributions++      4.49       N/A       N/A           6.00
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          4.37       N/A       N/A           5.96
                   Class D Return Before Taxes                        7.76       N/A       N/A           8.23               07/31/00
                   Class D Return After Taxes on Distributions++      7.73       N/A       N/A           7.17
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          6.42       N/A       N/A           6.94
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
CommodityReal-     Institutional Return Before Taxes                   N/A       N/A       N/A          40.51%   06/28/02   06/28/02
Return Strategy    Institutional Return After Taxes on
                   Distributions++                                     N/A       N/A       N/A          35.51
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++             N/A       N/A       N/A          24.34
                   Administrative Return Before Taxes                  N/A       N/A       N/A          40.23               02/14/03
                   Class A Return Before Taxes                         N/A       N/A       N/A          29.91               11/29/02
                   Class A Return After Taxes on Distributions++       N/A       N/A       N/A          25.27
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                           N/A       N/A       N/A          18.01
                   Class B Return Before Taxes                         N/A       N/A       N/A          31.98               11/29/02
                   Class C Return Before Taxes                         N/A       N/A       N/A          35.82               11/29/02
                   Class D Return Before Taxes                         N/A       N/A       N/A          40.11               11/29/02
                   Class D Return After Taxes on Distributions++       N/A       N/A       N/A          35.12
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                           N/A       N/A       N/A          24.10
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Convertible        Institutional Return Before Taxes                 -6.34%      N/A       N/A           3.16%   03/31/99   03/31/99
                   Institutional Return After Taxes on
                   Distributions++                                   -7.68       N/A       N/A           1.31
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++           -3.90       N/A       N/A           1.73
                   Administrative Return Before Taxes                -7.00       N/A       N/A           2.88               08/01/00
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Emerging Markets   Institutional Return Before Taxes                 16.11%    14.03%      N/A          12.89%   07/31/97   07/31/97
Bond               Institutional Return After Taxes on
                   Distributions++                                   11.69      8.68       N/A           7.72
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            9.61      8.32       N/A           7.49
                   Administrative Return Before Taxes                15.85     13.74       N/A          12.60               09/30/98
                   Class A Return Before Taxes                       10.44     12.52       N/A          11.52               07/31/97
                   Class A Return After Taxes on Distributions++      6.40      7.41       N/A           6.59
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          6.17      7.21       N/A           6.49
                   Class B Return Before Taxes                        9.79     12.46       N/A          11.47               07/31/97
                   Class C Return Before Taxes                       13.78     12.74                    11.61               07/31/97
                   Class D Return Before Taxes                       15.66     13.60       N/A          12.46               03/31/00
                   Class D Return After Taxes on Distributions++     11.42      8.43       N/A           7.48
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          9.36      8.08       N/A           7.25
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
European           Institutional Return Before Taxes                  9.98%      N/A       N/A           4.78%   11/30/00   11/30/00
Convertible        Institutional Return After Taxes on
                   Distributions++                                    9.09       N/A       N/A           3.31
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            6.10       N/A       N/A           3.09
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Foreign Bond       Institutional Return Before Taxes                  9.58%     7.24%     9.25%          9.47%   12/03/92   12/03/92
                   Institutional Return After Taxes on
                   Distributions++                                    6.99      4.31      5.68           5.94
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            5.82      4.30      5.61           5.83
                   Administrative Return Before Taxes                 9.49      7.01      9.00           9.22               01/28/97
                   Class A Return Before Taxes                        4.19      5.78      8.27           8.50               01/20/97
                   Class A Return After Taxes on Distributions++      1.90      3.07      4.91           5.18
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          2.52      3.22      4.90           5.13
                   Class B Return Before Taxes                        3.36      5.66      8.21           8.45               01/20/97
                   Class C Return Before Taxes                        7.33      5.96      7.97           8.18               01/20/97
                   Class D Return Before Taxes                        9.13      6.78      8.78           9.00               04/08/98
                   Class D Return After Taxes on Distributions++      6.72      4.04      5.40           5.66
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          5.55      4.02      5.33           5.55
                   Class R Return Before Taxes                        8.81%     6.50      8.50           8.71               12/31/02
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------

                                       80

- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Since
                                                                                                  Inception     Inception  Inception
                                                                                         10        of Fund       Date of    Date of
Fund                                Class**                        1 Year    5 Years    Years    (Annualized)     Fund       Class
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Global Bond        Institutional Return Before Taxes                 26.89%     6.46%      N/A           7.18%   11/23/93   11/23/93
                   Institutional Return After Taxes on
                   Distributions++                                   24.73      4.25       N/A           4.37
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++           16.39      4.03       N/A           4.32
                   Administrative Return Before Taxes                26.59      6.23       N/A         6.94                 08/01/96
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
GNMA               Institutional Return Before Taxes                  8.68%     8.14%      N/A           8.23%   07/31/97   07/31/97
                   Institutional Return After Taxes on
                   Distributions++                                    6.71      5.59       N/A           5.66
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            5.34      5.25       N/A           5.32
                   Class A Return Before Taxes                        3.32      6.72       N/A           6.93               11/30/00
                   Class A Return After Taxes on Distributions++      1.64      4.37       N/A           4.55
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          2.05      4.18       N/A           4.34
                   Class B Return Before Taxes                        2.35      6.56       N/A           6.84               05/31/01
                   Class C Return Before Taxes                        6.35      6.88       N/A           6.98               05/31/01
                   Class D Return Before Taxes                        8.16      7.68       N/A           7.78               05/31/01
                   Class D Return After Taxes on Distributions++      6.40      5.32       N/A           5.39
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          5.02      4.98       N/A           5.05
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
High Yield         Institutional Return Before Taxes                  5.58%     3.26%     7.76%          8.20%   12/16/92   12/16/92
                   Institutional Return After Taxes on
                   Distributions++                                    2.13     -0.16      4.01           4.45
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            3.26      0.88      4.36           4.73
                   Administrative Return Before Taxes                 5.33      3.01      7.50           7.94               01/16/95
                   Class A Return Before Taxes                        0.45      1.92      6.86           7.31               01/13/97
                   Class A Return After Taxes on Distributions++     -2.69     -1.31      3.29           3.74
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          0.12     -0.10      3.70           4.08
                   Class B Return Before Taxes                       -0.45      1.81      6.81           7.25               01/13/97
                   Class C Return Before Taxes                        3.43      2.09      6.57           7.00               01/13/97
                   Class D Return Before Taxes                        5.18      2.86      7.36           7.79               04/08/98
                   Class D Return After Taxes on Distributions++      1.89     -0.40      3.77           4.21
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          3.02      0.64      4.12           4.49
                   Class R Return Before Taxes                        4.92      2.60      7.07           7.51               12/31/02
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Investment Grade   Institutional Return Before Taxes                 13.87%      N/A       N/A          11.99%   04/28/00   04/28/00
Corporate Bond     Institutional Return After Taxes on
                   Distributions++                                    9.91       N/A       N/A           7.97
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            8.37       N/A       N/A           7.66
                   Administrative Return Before Taxes                13.59       N/A       N/A          11.72               09/30/02
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Long-Term U.S.     Institutional Return Before Taxes                 21.74%     9.48%     9.56%         11.36%   07/01/91   07/01/91
Government         Institutional Return After Taxes on
                   Distributions++                                   18.59      6.34      5.91           7.57
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++           14.02      6.12      5.88           7.42
                   Administrative Return Before Taxes                21.44      9.20      9.30          11.09               09/23/97
                   Class A Return Before Taxes                       15.80      8.05      8.64          10.51               01/20/97
                   Class A Return After Taxes on Distributions++     12.98      5.12      5.18           6.90
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                         10.36      5.05      5.21           6.79
                   Class B Return Before Taxes                       15.35      7.94      8.57          10.45               01/20/97
                   Class C Return Before Taxes                       19.35      8.24      8.34          10.13               01/20/97
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Low Duration       Institutional Return Before Taxes                  8.07%     6.65%     6.64%          7.77%   05/11/87   05/11/87
                   Institutional Return After Taxes on
                   Distributions++                                    5.99      4.12      4.00           5.04
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            4.94      4.05      3.97           5.00
                   Administrative Return Before Taxes                 7.81      6.38      6.37           7.50               12/31/94
                   Class A Return Before Taxes                        4.34      5.50      5.82           7.06               01/13/97
                   Class A Return After Taxes on Distributions++      2.51      3.20      3.39           4.53
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          2.66      3.24      3.41           4.51
                   Class B Return Before Taxes                        1.76      5.03      5.58           6.92               01/13/97
                   Class C Return Before Taxes                        6.03      5.62      5.62           6.74               01/13/97
                   Class D Return Before Taxes                        7.73      6.31      6.30           7.43               04/08/98
                   Class D Return After Taxes on Distributions++      5.78      3.92      3.80           4.83
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          4.74      3.85      3.77           4.79
                   Class R Return Before Taxes                        7.30      5.88      5.88           7.00               12/31/02
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------

                                       81

- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    Since
                                                                                                  Inception     Inception  Inception
                                                                                         10        of Fund       Date of    Date of
Fund                                 Class**                        1 Year   5 Years    Years    (Annualized)     Fund       Class
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Low Duration II    Institutional Return Before Taxes                  7.53%     6.42%     6.19%          6.48%   11/01/91   11/01/91
                   Institutional Return After Taxes on
                   Distributions++                                    5.65      3.92      3.65           3.98
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            4.66      3.90      3.67           3.97
                   Administrative Return Before Taxes                 7.26      6.15      5.92           6.22               02/02/98
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Low Duration III   Institutional Return Before Taxes                  8.83%     6.64%      N/A           6.67%   12/31/96   12/31/96
                   Institutional Return After Taxes on
                   Distributions++                                    6.42      4.17                     4.18
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            5.44      4.09       N/A           4.10
                   Administrative Return Before Taxes                 8.57      6.38       N/A           6.41               03/19/99
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Moderate Duration  Institutional Return Before Taxes                 11.75%     7.83%      N/A           7.78%   12/31/96   12/31/96
                   Institutional Return After Taxes on
                   Distributions++                                    8.90      5.03       N/A           5.02
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            7.21      4.89       N/A           4.87
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Money Market       Institutional Return Before Taxes                  1.34%     4.14%     4.47%          4.43%   03/01/91   03/01/91
                   Institutional Return After Taxes on
                   Distributions++                                    0.82      2.49      2.68           2.72
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            0.82      2.49      2.68           2.72
                   Administrative Return Before Taxes                 1.08      3.90      4.22           4.18               01/24/95
                   Class A Return Before Taxes                        1.08      3.86      4.19           4.16               01/13/97
                   Class A Return After Taxes on Distributions++      0.66      2.32      2.52           2.55
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          0.66      2.32      2.52           2.55
                   Class B Return Before Taxes                        0.25      2.99      3.57           3.62               01/13/97
                   Class C Return Before Taxes                        1.08      3.88      4.21           4.17               01/13/97
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Municipal Bond     Institutional Return Before Taxes                  6.48%     5.55%      N/A           5.44%   12/31/97   12/31/97
                   Institutional Return After Taxes on
                   Distributions++                                    6.38      5.46       N/A           5.36
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            5.81      5.37       N/A           5.28
                   Administrative Return Before Taxes                 6.22      5.29       N/A           5.18               09/30/98
                   Class A Return Before Taxes                        2.90      4.53       N/A           4.46               04/01/98
                   Class A Return After Taxes on Distributions++      2.81      4.45       N/A           4.37
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          3.41      4.46       N/A           4.40
                   Class B Return Before Taxes                        0.29      4.05       N/A           4.12               04/01/98
                   Class C Return Before Taxes                        4.55      4.65       N/A           4.54               04/01/98
                   Class D Return Before Taxes                        6.10      5.17       N/A           5.06               04/08/98
                   Class D Return After Taxes on Distributions++      6.01      5.09       N/A           4.98
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          5.43      5.00       N/A           4.91
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
New York           Institutional Return Before Taxes                  8.79%      N/A       N/A           8.31%   08/31/99   08/31/99
Municipal Bond     Institutional Return After Taxes on
                   Distributions++                                    8.54       N/A       N/A           7.71
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            7.30       N/A       N/A           7.37
                   Class A Return Before Taxes                        5.11       N/A       N/A           7.00               10/19/99
                   Class A Return After Taxes on Distributions++      4.87       N/A       N/A           6.41
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          4.83       N/A       N/A           6.21
                   Class D Return Before Taxes                        8.35       N/A       N/A           7.92               01/31/00
                   Class D Return After Taxes on Distributions++      8.10       N/A       N/A           7.32
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          6.87       N/A       N/A           6.98
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------
Real Return        Institutional Return Before Taxes                 17.99%    10.26%      N/A           9.07%   01/29/97   01/29/97
                   Institutional Return After Taxes on
                   Distributions++                                   15.35      7.47       N/A           6.34
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++           11.05      6.87       N/A           5.92
                   Administrative Return Before Taxes                17.67      9.97       N/A           8.78               04/28/00
                   Class A Return Before Taxes                       13.94      9.13       N/A           8.08               01/29/97
                   Class A Return After Taxes on Distributions++     11.58      6.55       N/A           5.55
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          8.57      6.04       N/A           5.20
                   Class B Return Before Taxes                       11.59      8.70       N/A           7.81               01/29/97
                   Class C Return Before Taxes                       15.88      9.26       N/A           8.07               01/29/97
                   Class D Return Before Taxes                       17.47      9.81       N/A           8.62               04/08/98
                   Class D Return After Taxes on Distributions++     15.04      7.20       N/A           6.08
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                         10.74      6.60       N/A           5.65
                   Class R Return Before Taxes                       17.18      9.50       N/A           8.31               12/31/02
- -----------------  ----------------------------------------------  -------   -------   -------   ------------   ---------  ---------

                                       82

                                                                                                    Since
                                                                                                  Inception     Inception  Inception
                                                                                         10        of Fund       Date of    Date of
Fund                                 Class**                        1 Year   5 Years    Years    (Annualized)      Fund      Class
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Real Return II     Institutional Return Before Taxes                 18.14%      N/A       N/A          16.36%   02/28/02   02/28/02
                   Institutional Return After Taxes on
                   Distributions++                                   14.88       N/A       N/A          13.22
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++           11.00       N/A       N/A          11.49
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Real Return Asset  Institutional Return Before Taxes                 24.35%      N/A       N/A          13.28%   11/12/01   11/12/01
                   Institutional Return After Taxes on
                   Distributions++                                   21.57                              11.27
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++           14.81       N/A       N/A           9.61
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Short-Duration     Institutional Return Before Taxes                  2.52%      N/A       N/A           4.25%   08/31/99   08/31/99
 Municipal Income  Institutional Return After Taxes on
                   Distributions++                                    2.52       N/A       N/A           4.20
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            2.56       N/A       N/A           4.12
                   Administrative Return Before Taxes                 2.27       N/A       N/A           3.99               10/22/02
                   Class A Return Before Taxes                        0.01       N/A       N/A           3.25               03/28/02
                   Class A Return After Taxes on Distributions++      0.01       N/A       N/A           3.21
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          0.83       N/A       N/A           3.23
                   Class C Return Before Taxes                        0.77       N/A       N/A           3.18               03/28/02
                   Class D Return Before Taxes                        2.10       N/A       N/A           3.82               01/31/00
                   Class D Return After Taxes on Distributions++      2.10       N/A       N/A           3.78
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          2.14       N/A       N/A           3.70
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Short-Term         Institutional Return Before Taxes                  3.60%     5.23%     5.68%          6.16%   10/07/87   10/07/87
                   Institutional Return After Taxes on
                   Distributions++                                    2.39      3.14      3.42           3.95
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            2.24      3.14      3.41           3.94
                   Administrative Return Before Taxes                 3.34      4.97      5.42           5.90               02/01/96
                   Class A Return Before Taxes                        1.11      4.38      5.05           5.60               01/20/97
                   Class A Return After Taxes on Distributions++      0.09      2.47      2.96           3.55
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          0.71      2.55      2.98           3.56
                   Class B Return Before Taxes                       -2.58      3.69      4.73           5.38               01/20/97
                   Class C Return Before Taxes                        1.87      4.49      4.95           5.42               01/20/97
                   Class D Return Before Taxes                        3.30      4.92      5.37           5.84               04/08/98
                   Class D Return After Taxes on Distributions++      2.21      2.95      3.23           3.75
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          2.05      2.95      3.22           3.74
                   Class R Return Before Taxes                        3.03      4.69      5.15           5.63               12/31/02
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
StocksPLUS         Institutional Return Before Taxes                -22.42%    -2.90%      N/A           9.83%   05/14/93   05/14/93
                   Institutional Return After Taxes on
                   Distributions++                                  -22.89     -5.72       N/A           5.37
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++          -13.76     -2.91       N/A           6.31
                   Administrative Return Before Taxes               -22.66     -3.30       N/A           9.45               01/07/97
                   Class A Return Before Taxes                      -25.13     -3.99       N/A           8.98               01/20/97
                   Class A Return After Taxes on Distributions++    -25.57     -6.71       N/A           4.63
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                        -15.43     -3.69       N/A           5.66
                   Class B Return Before Taxes                      -27.10     -4.35       N/A           8.74               01/20/97
                   Class C Return Before Taxes                      -23.90     -3.87       N/A           8.78               01/20/97
                   Class D Return Before Taxes                      -22.71     -3.49       N/A           9.27               04/08/98
                   Class D Return After Taxes on Distributions++    -23.16     -6.22       N/A           4.90
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                        -13.94     -3.30       N/A           5.91
                   Class R Return Before Taxes                      -22.91     -3.52       N/A           9.12               12/31/02
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
StocksPLUS Total   Institutional Return Before Taxes                   N/A       N/A       N/A         -10.23%   06/28/02   06/28/02
Return             Institutional Return After Taxes on
                   Distributions++                                     N/A       N/A       N/A         -10.75
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++             N/A       N/A       N/A          -6.26
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Strategic          Institutional Return Before Taxes                 -9.80%     1.27%      N/A           7.10%   06/28/96   06/28/96
Balanced           Institutional Return After Taxes on
                   Distributions++                                  -11.01     -1.34       N/A           4.06
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++           -6.01      0.02       N/A           4.50
                   Administrative Return Before Taxes               -10.02      1.03       N/A           6.84               06/30/99
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------

                                       83

                                                                                                     Since
                                                                                                  Inception     Inception  Inception
                                                                                         10        of Fund       Date of    Date of
Fund                                 Class**                        1 Year   5 Years    Years    (Annualized)      Fund      Class
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Total Return       Institutional Return Before Taxes                 11.76%     8.26%     8.02%          9.33%   05/11/87   05/11/87
                   Institutional Return After Taxes on
                   Distributions++                                    8.77      5.22      4.88           6.19
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            7.33      5.14      4.87           6.12
                   Administrative Return Before Taxes                11.47      7.99      7.75           9.06               09/07/94
                   Class A Return Before Taxes                        6.24      6.77      7.03           8.52               01/13/97
                   Class A Return After Taxes on Distributions++      3.58      3.96      4.10           5.57
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          3.94      4.04      4.16           5.52
                   Class B Return Before Taxes                        5.42      6.64      6.97           8.48               01/13/97
                   Class C Return Before Taxes                        9.41      6.95      6.74           8.04               01/13/97
                   Class D Return Before Taxes                       11.41      7.92      7.69           9.00               04/08/98
                   Class D Return After Taxes on Distributions++      8.55      5.02      4.68           5.98
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          7.12      4.94      4.67           5.91
                   Class R Return Before Taxes                       10.98      7.49      7.25           8.56               12/31/02
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Total Return II    Institutional Return Before Taxes                 11.23%     7.93%     7.68%          8.09%   12/30/91   12/30/91
                   Institutional Return After Taxes on
                   Distributions++                                    8.16      5.01      4.74           5.18
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            7.15      4.96      4.73           5.12
                   Administrative Return Before Taxes                10.96      7.67      7.41           7.82               11/30/94
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Total Return III   Institutional Return Before Taxes                 12.20%     8.04%     8.00%          8.95%   05/01/91   05/01/91
                   Institutional Return After Taxes on
                   Distributions++                                    8.97      5.01      4.82           5.53
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            7.55      4.97      4.83           5.56
                   Administrative Return Before Taxes                11.93      7.75      7.71           8.67               04/11/97
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Total Return       Institutional Return Before Taxes                  9.48%     8.08%      N/A           8.33%   07/31/97   07/31/97
Mortgage           Institutional Return After Taxes on
                   Distributions++                                    7.32      5.27       N/A           5.54
                   Institutional Return After Taxes on
                   Distributions and Sale of Fund Shares++            5.82      5.07       N/A           5.30
                   Administrative Return Before Taxes                 9.22      7.82       N/A           8.07               12/13/01
                   Class A Return Before Taxes                        4.11      6.67       N/A           7.03               07/31/00
                   Class A Return After Taxes on Distributions++      2.22      4.06       N/A           4.43
                   Class A Return After Taxes on Distributions
                   and Sale of Fund Shares++                          2.54      4.02       N/A           4.32
                   Class B Return Before Taxes                        3.27      6.55       N/A           6.97               07/31/00
                   Class C Return Before Taxes                        7.23      6.85       N/A           7.10               07/31/00
                   Class D Return Before Taxes                        9.05      7.66       N/A           7.90               04/08/98
                   Class D Return After Taxes on Distributions++      7.07      5.01       N/A           5.28
                   Class D Return After Taxes on Distributions
                   and Sale of Fund Shares++                          5.57      4.82       N/A           5.04
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------

     ++ After-tax returns are calculated using the highest historical individual
     federal marginal income tax rates and do not reflect the impact of state
     and local taxes. Actual after-tax returns depend on an investor's tax
     situation and may differ from those shown, and the after-tax returns shown
     are not relevant to investors who hold their Fund shares through
     tax-deferred arrangements, such as 401(k) plans or individual retirement
     accounts. In some cases the return after taxes may exceed the return before
     taxes due to an assumed tax benefit from any losses on a sale of Fund
     shares at the end of the measurement period. After-tax returns are for
     Institutional Class, Class A and Class D shares only. After-tax returns for
     Administrative Class, Advisor Class, Class B, Class C and Class R shares
     will vary.
     * Average annual total return presentations for a particular class of
     shares assume payment of the current maximum sales charge (if any)
     applicable to that class at the time of purchase and assume that the
     maximum CDSC (if any) for Class A, Class B and Class C shares was deducted
     at the times, in the amounts, and under the terms discussed in the Class A,
     B and C Prospectus.
     ** For all Funds listed above, Class A, Class B, Class C, Class D, Class R,
     Administrative Class and Advisor Class total return presentations for
     periods prior to the Inception Date of that class reflect the prior
     performance of Institutional Class shares of the Fund (the oldest class)
     adjusted to reflect the actual sales charges (none in the case of Class D,
     Class R, Administrative Class and Advisor Class) of the newer class. The
     adjusted performance also reflects the higher Fund operating expenses
     associated with Class A, Class B, Class C, Class D, Class R, Administrative
     Class and Advisor Class shares. These include (i) 12b-1 distribution and
     servicing fees, which are not paid by the Institutional Class but are paid
     by Class B and Class C (at a maximum rate of 1.00% per annum) and Class A,
     the Administrative Class and the Advisor Class (at a maximum rate of 0.25%
     per annum), Class R (at a maximum rate of 0.50% per annum) and may be paid
     by

                                       84

     Class D (at a maximum of 0.25% per annum), and (ii) administration fee
     charges associated with Class A, Class B and Class C shares (at a maximum
     differential of 0.22% per annum) and Class D shares (at a maximum
     differential of 0.45% per annum) and Class R shares (at a maximum
     differential of 0.25% per annum) and Advisor Class shares (at a maximum
     differential of 0.10% per annum).
     The table below sets forth the average annual total return of certain
classes of shares of the Global Bond Fund II (which was a series of PIMCO
Advisors Funds ("PAF") prior to its reorganization as a Fund of the Trust on
January 17, 1997) for the periods ended March 31, 2003. Accordingly, "Inception
Date of Fund" refers to the inception date of the PAF predecessor series. Since
Class A shares were offered since the inception of Global Bond Fund II, total
return presentations for periods prior to the Inception Date of the
Institutional Class are based on the historical performance of Class A shares,
adjusted to reflect that the Institutional Class does not have a sales charge,
and the different operating expenses associated with the Institutional Class,
such as 12b-1 distribution and servicing fees and administration fee charges.

                 Total Return for Periods Ended March 31, 2003*
                                                                                                    Since
                                                                                                  Inception     Inception  Inception
                                                                                         10        of Fund       Date of    Date of
Fund                                 Class**                        1 Year   5 Years    Years    (Annualized)      Fund      Class
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------
Global Bond II     Institutional Return Before Taxes                 11.70%     7.24%      N/A           9.03    10/02/95   02/25/98
                   Institutional Return After Taxes
                   on Distributions++                                 9.95      4.53       N/A           5.53
                   Institutional Return After Taxes
                   on Distributions and Sale of Fund
                   Shares++                                           7.13      4.42       N/A           5.49
                   Class A Return Before Taxes                        6.24      5.83       N/A           7.94               10/02/95
                   Class A Return After Taxes on
                   Distributions++                                    4.74      3.32       N/A           4.64
                   Class A Return After Taxes on
                   Distributions and Sale of Fund
                   Shares++                                           3.79      3.38       N/A           4.69
                   Class B Return Before Taxes                        5.42      5.70       N/A           7.83               10/02/95
                   Class C Return Before Taxes                        9.42      6.01       N/A           7.78               10/02/95
- -----------------  ----------------------------------------------   ------   -------   -------   ------------   ---------  ---------

     ++ After-tax returns are calculated using the highest historical individual
     federal marginal income tax rates and do not reflect the impact of state
     and local taxes. Actual after-tax returns depend on an investor's tax
     situation and may differ from those shown, and the after-tax returns shown
     are not relevant to investors who hold their Fund shares through
     tax-deferred arrangements, such as 401(k) plans or individual retirement
     accounts. In some cases the return after taxes may exceed the return before
     taxes due to an assumed tax benefit from any losses on a sale of Fund
     shares at the end of the measurement period. After-tax returns are for
     Institutional Class and Class A shares only. After-tax returns for Advisor
     Class, Class B, Class C and Class R shares will vary.
     * Average annual total return presentations for a particular class of
     shares assume payment of the current maximum sales charge (if any)
     applicable to that class at the time of purchase and assume that the
     maximum CDSC (if any) for Class A, Class B and Class C shares was deducted
     at the times, in the amounts, and under the terms discussed in the Class A,
     B and C Prospectus.
     ** Institutional Class total return presentations for periods prior to the
     Inception Date of that class reflect the prior performance of Class A
     shares of the former PAF series, adjusted to reflect the fact that there
     are no sales charges on Institutional Class shares of the Fund. The
     adjusted performance also reflects any different operating expenses
     associated with Institutional Class shares. These include (i) 12b-1
     distribution and servicing fees, which are not paid by the Institutional
     Class but are paid by Class A (at a maximum rate of 0.25% per annum), and
     (ii) administration fee charges, which are lower for Institutional class
     shares (at a differential of 0.15% per annum).
     Note also that, prior to January 17, 1997, Class A, Class B and Class C
     shares of the Global Bond Fund II were subject to a variable level of
     expenses for such services as legal, audit, custody and transfer agency
     services. As described in the Class A, B and C Prospectus, for periods
     subsequent to January 17, 1997, Class A, Class B and Class C shares of the
     Trust are subject to a fee structure which essentially fixes these expenses
     (along with other administrative expenses) under a single administrative
     fee based on the average daily net assets of the Fund attributable to Class
     A, Class B and Class C shares. Under the current fee structure, the Global
     Bond Fund II is expected to have lower total Fund operating expenses than
     its predecessor had under the fee structure for PAF (prior to January 17,
     1997). All other things being

                                       85

     equal, the higher expenses of PAF would have adversely affected total
     return performance for the Fund after January 17, 1997.

     The method of adjustment used in the table above for periods prior to the
     Inception Date of Institutional Class shares of the Global Bond Fund II
     resulted in performance for the period shown which is higher than if the
     historical Class A performance were not adjusted to reflect the lower
     operating expenses of the newer class. The following table shows the lower
     performance figures that would be obtained if the performance for the
     Institutional Class was calculated by tacking to the Institutional Class'
     actual performance the actual performance of Class A shares (with their
     higher operating expenses) for periods prior to the initial offering date
     of the newer class (i.e. the total return presentations below are based,
     for periods prior to the inception date of the Institutional Class, on the
     historical performance of Class A shares adjusted to reflect the current
     sales charges associated with Class A shares, but not reflecting lower
     operating expenses associated with the Institutional Class, such as lower
     administrative fee charges and/or distribution and servicing fee charges).

                  Total Return for Periods Ended March 31, 2003
         (with no adjustment for operating expenses of the Institutional
                 Class for periods prior to its Inception Date)
- ----------------------------------------------------------------------------
                                                             Since Inception
                                                                 of Fund
     Fund           Class      1 Year   5 Years   10 Years     (Annualized)
- ----------------------------------------------------------------------------
Global Bond II  Institutional   11.70%     7.24%       n/a              8.90%
- ----------------------------------------------------------------------------

     Current distribution information for a Fund will be based on distributions
for a specified period (i.e., total dividends from net investment income),
divided by Fund net asset value per share on the last day of the period and
annualized according to the following formula:

     DIVIDEND YIELD = (((a/b)*365)/c)

     where  a = actual dividends distributed for the calendar month in question,

            b = number of days of dividend declaration in the month in
                question, and

            c = net asset value (NAV) calculated on the last business day of
                the month in question.

     The rate of current distributions does not reflect deductions for
unrealized losses from transactions in derivative instruments such as options
and futures, which may reduce total return. Current distribution rates differ
from standardized yield rates in that they represent what a Fund has declared
and paid to shareholders as of the end of a specified period rather than the
Fund's actual net investment income for that same period. Distribution rates
will exclude net realized short-term capital gains. The rate of current
distributions for a Fund should be evaluated in light of these differences and
in light of the Fund's total return figures, which will always accompany any
calculation of the rate of current distributions.

     For the month ended March 31, 2003, the current distribution rates
(annualized) for the Funds were as follows (Advisor Class, Class J and Class K
shares were not offered during the period listed):

                               Distribution Rate
                               -----------------

                                   Institutional  Administrative
Fund                                   Class           Class       Class A   Class B   Class C   Class D   Class R
- ---------------------------------  -------------  --------------   -------   -------   -------   -------   -------
All Asset Fund                               N/A             N/A       N/A       N/A       N/A       N/A       N/A
California Intermediate Municipal
 Bond Fund                                  4.46%           4.21%     4.03%      N/A       N/A      4.10%      N/A
California Municipal Bond Fund              4.77            4.53      4.34       N/A       N/A      4.39       N/A

                                       86

                                   Institutional  Administrative
Fund                                   Class           Class       Class A   Class B   Class C   Class D   Class R
- ---------------------------------  -------------  --------------   -------   -------   -------   -------   -------
CommodityRealReturn Strategy Fund            N/A             N/A       N/A       N/A       N/A       N/A       N/A
Convertible Fund                             N/A             N/A       N/A       N/A       N/A       N/A       N/A
Emerging Markets Bond Fund                  6.98            6.73      6.56      5.82%     5.82%     6.58%      N/A
European Convertible Fund                    N/A             N/A       N/A       N/A       N/A       N/A       N/A
Foreign Bond Fund                           3.78            3.51      3.31      2.57      2.57      3.33      3.07%
Global Bond Fund                            2.71            2.39       N/A       N/A       N/A       N/A       N/A
Global Bond Fund II                         2.95             N/A      2.52      1.79      1.78       N/A       N/A
GNMA Fund                                   2.63             N/A      2.21      1.46      1.46      2.22       N/A
High Yield Fund                             7.78            7.52      7.36      6.63      6.62      7.38      7.15
Investment Grade Corporate
 Bond Fund                                  6.20            6.00       N/A       N/A       N/A       N/A       N/A
Long-Term U.S. Govt. Fund                   4.07            3.82      3.65      2.90      2.86       N/A       N/A
Low Duration Fund                           2.96            2.71      2.49      1.74      1.85      2.64       N/A
Low Duration Fund II                        3.58            3.33       N/A       N/A       N/A       N/A       N/A
Low Duration Fund III                       3.43            3.20       N/A       N/A       N/A       N/A       N/A
Moderate Duration Fund                      4.15             N/A       N/A       N/A       N/A       N/A       N/A
Money Market Fund                           0.92            0.68      0.63      0.05      0.63       N/A       N/A
Municipal Bond Fund                         4.07            3.82      3.66      2.90      3.16      3.71       N/A
New York Municipal Bond Fund                3.98             N/A      3.54       N/A       N/A      3.59       N/A
Real Return Fund                            5.81            5.55      5.34      4.58      4.82      5.36      5.07
Real Return Fund II                         5.56             N/A       N/A       N/A       N/A       N/A       N/A
Real Return Asset Fund                      1.86             N/A       N/A       N/A       N/A       N/A       N/A
Short Duration Municipal Fund               2.56            2.31      2.08       N/A      1.77      2.14       N/A
Short-Term Fund                             2.24            1.97      1.79      1.05      1.48      1.94      1.53
StocksPLUS Fund                              N/A             N/A       N/A       N/A       N/A       N/A       N/A
StocksPLUS Total Return Fund                 N/A             N/A       N/A       N/A       N/A       N/A       N/A
Strategic Balanced Fund                      N/A             N/A       N/A       N/A       N/A       N/A       N/A
Total Return Fund                           3.80            3.55      3.33      2.57      2.56      3.48      3.12
Total Return Fund II                        3.38            3.13       N/A       N/A       N/A       N/A       N/A
Total Return Fund III                       4.31            4.08       N/A       N/A       N/A       N/A       N/A
Total Return Mortgage Fund                  2.73            2.60      2.44      1.69      1.69      2.45       N/A

     Performance information for a Fund may also be compared to various
unmanaged indexes, such as the Standard & Poor's 500 Index, the Dow Jones
Industrial Average, the Lehman Brothers Aggregate Bond Index, the Lehman
Brothers Mortgage Index, the Merrill Lynch 1 to 3 Year Treasury Index, the
Lehman Brothers Intermediate Government/Corporate Bond Index, the Lehman U.S.
High Yield Index, indexes prepared by Lipper Analytical Services, Inc., the J.P.
Morgan Global Index (Unhedged), the J.P. Morgan Emerging Markets Bond Index
Global, the Salomon Brothers 3-Month Treasury Bill Index, and the J.P. Morgan
Non U.S. Index (Hedged). Unmanaged indexes (i.e., other than Lipper) generally
do not reflect deductions for administrative and management costs and expenses.
PIMCO may report to shareholders or to the public in advertisements concerning
the performance of PIMCO as adviser to clients other than the Trust, or on the
comparative performance or standing of PIMCO in relation to other money
managers. PIMCO also may provide current or prospective private account clients,
in connection with standardized performance information for the Funds,
performance information for the Funds gross of fees and expenses for the purpose
of assisting such clients in evaluating similar performance information provided
by other investment managers or institutions. Comparative information may be
compiled or provided by independent ratings services or by news organizations.
Any performance information, whether related to the Funds or to PIMCO, should be
considered in light of the Funds' investment objectives and policies,
characteristics and quality of the Funds, and the market conditions during the
time period indicated, and should not be considered to be representative of what
may be achieved in the future.

     Advertisements and information relating to the Global Bond Fund II may use
data comparing the total returns of the top foreign bond market as compared to
the total return of the U.S. bond market for a particular year. For instance,
the following table sets forth the total return of the top foreign bond market
compared to the total return for the U.S. bond market for the years 1987 through
2001. Performance is shown in U.S. dollar terms, hedged for currency rate
changes and is no way indicative of the performance of the Global Bond Fund II.

                                       87

       Top Foreign
Year    Performer                      U.S.
- ----   -----------                    -----
1986         +13.1%   Japan           +15.7%
1987         +12.8    UK               +1.9
1988         +15.0    France           +7.0
1989         +10.0    Canada          +14.4
1990         +11.0    Australia        +8.6
1991         +20.0    Australia       +15.3
1992         +10.5    UK               +7.2
1993         +20.0    Italy           +11.0
1994          -0.9    Japan            -3.4
1995         +21.0    Netherlands     +18.3
1996         +18.8    Spain            +2.7
1997         +13.5    UK               +9.6
1998         +17.4    UK               +8.7
1999         +10.4    Japan            -2.4
2000         +14.0    Australia       +13.5
2001          +6.7    United States    +6.7
2002         +35.1    Switzerland     +11.6

     Source: Salomon Brothers World Government Bond Index 1986-2002.

     The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
2001/2002 costs of college and an assumed rate of increase for such costs.
Source: College Board. For example, the table below sets forth 1/4 the projected
cost - using a national average - of four years of college at an out-of-state
public college and a private college assuming a steady increase in both cases of
4% per year. In presenting this information, the Trust is making no prediction
regarding what will be the actual growth rate in the cost of a college
education, which may be greater or less than 4% per year and may vary
significantly from year to year. The Trust makes no representation that an
investment in any of the Funds will grow at or above the rate of growth of the
cost of a college education.

Potential College Cost Table

Start     Public      Private     Start     Public       Private
Year      College     College     Year      College      College
- -----   ----------   ----------   -----   ----------   ----------
2003    $   19,586   $   28,743    2013   $   28,992   $   42,606
2004    $   20,369   $   29,934    2014   $   30,152   $   44,310
2005    $   21,184   $   31,132    2015   $   31,358   $   46,083
2006    $   22,032   $   32,377    2016   $   32,612   $   47,942
2007    $   22,913   $   33,672    2017   $   33,917   $   49,843
2008    $   23,829   $   35,019    2018   $   35,274   $   51,837
2009    $   24,783   $   36,420    2019   $   36,685   $   53,910
2010    $   25,774   $   37,877    2020   $   38,152   $   56,067
2011    $   26,805   $   39,392    2021   $   39,678   $   60,642
2012    $   27,877   $   40,967

Costs assume a steady increase in the annual cost of college of 4% per year from
a 2001-02 base year amount. Actual rates of increase may be more or less than 4%
and may vary.

     In its advertisements and other materials, the Trust may compare the
returns over periods of time of investments in stocks, bonds and treasury bills
to each other and to the general rate of inflation. For example, the average
annual return of each during the 25 years from 1977 to 2002 was:

                                       88

          *Stocks:                  14.30%
           Bonds:                    8.88%
           T-Bills:                  6.89%
           Inflation:                5.21%

     *Returns of unmanaged indexes do not reflect past or future performance of
any of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks
are represented by Ibbotson's Large Company Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. T-bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented by
the Cost of Living Index. These are all unmanaged indices, which can not be
invested in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will fluctuate
with changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 2003 Yearbook, Ibbotson Associates, Chicago. All
rights reserved.

     The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 20 years
from 1981-2001, the average annual return of stocks comprising the Ibbotson's
Large Company Stock Total Return Index ranged from -11.8% to 37.4% while the
annual return of a hypothetical portfolio comprised 40% of such common stocks,
40% of bonds comprising the Ibbotson's Long-term Corporate bond Index and 20% of
Treasury bills comprising the Ibbotson's Treasury Bill Index (a "mixed
portfolio") would have ranged from -1.0% to 28.2% over the same period. The
average annual returns of each investment for each of the years from 1981
through 2002 is set forth in the following table.

                                                     Mixed
Year   Stocks     Bonds    T-Bills    Inflation    Portfolio
- ----   ------    ------    -------    ---------    ---------
1981    -4.91%    -1.24%     14.71%        8.94%        0.48%
1982    21.41%    42.56%     10.54%        3.87%       27.70%
1983    22.51%     6.26%      8.80%        3.80%       13.27%
1984     6.27%    16.86%      9.85%        3.95%       11.22%
1985    32.16%    30.97%      7.72%        3.77%       26.44%
1986    18.47%    19.85%      6.16%        1.13%       16.56%
1987     5.23%    -0.27%      5.47%        4.41%        3.08%
1988    16.81%    10.70%      6.35%        4.42%       12.27%
1989    31.49%    16.23%      8.37%        4.65%       20.76%
1990    -3.17%     6.78%      7.81%        6.11%        3.01%
1991    30.55%    19.89%      5.60%        3.06%       21.30%
1992     7.67%     9.39%      3.51%        2.90%        7.53%
1993     9.99%    13.19%      2.90%        2.75%        9.85%
1994     1.31%    -5.76%      3.90%        2.67%       -1.00%
1995    37.43%    27.20%      5.60%        2.54%       26.97%
1996    23.07%     1.40%      5.21%        3.32%       10.83%
1997    33.36%    12.95%      5.26%        1.70%       19.58%
1998    28.58%    10.76%      4.86%        1.61%       16.71%
1999    21.04%    -7.45%      4.68%        2.68%        6.37%
2000    -9.11%    12.87%      5.89%        3.39%        2.68%
2001   -11.88%    10.65%      3.83%        1.55%        0.27%
2002    22.10%    16.33%      1.65%        2.69%        1.98%

*Returns of unmanaged indexes do not reflect past or future performance of any
of the Funds of PIMCO Funds: Pacific Investment Management Series. Stocks are
represented by Ibbotson's Large Company Stock Total Return Index. Bonds are
represented by Ibbotson's Long-term Corporate Bond Index. T-bills are
represented by Ibbotson's Treasury Bill Index and Inflation is represented by
the Cost of Living Index. These are all unmanaged indices, which can not be
invested in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will fluctuate
with changes in market conditions. Source: Ibbotson, Roger G., and Rex A.
Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989, updated in Stocks,
Bonds, Bills and Inflation 2003 Yearbook, Ibbotson Associates, Chicago. All
rights reserved.

     The Trust may use in its advertisement and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the

                                       89

annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:

Investment      Annual          Total            Total
  Period     Contribution    Contribution        Saved
- ----------   ------------    ------------    ------------
30 Years     $      1,979    $     59,370    $    200,000
25 Years     $      2,955    $     73,875    $    200,000
20 Years     $      4,559    $     91,180    $    200,000
15 Years     $      7,438    $    111,570    $    200,000
10 Years     $     13,529    $    135,290    $    200,000

This hypothetical example assumes a fixed 7% return compounded annually and a
guaranteed return of principal. The example is intended to show the benefits of
a long-term, regular investment program, and is in no way representative of any
past or future performance of a PIMCO Fund. There can be no guarantee that you
will be able to find an investment that would provide such a return at the times
you invest and an investor in any of the PIMCO Funds should be aware that
certain of the PIMCO Funds have experienced periods of negative growth in the
past and may again in the future.

     The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 2001:

         % of Income for Individuals
       Aged 65 Years and Older in 2001*
       --------------------------------

              Social Security
Year         and Pension Plans      Other
- ----         -----------------      -----
2001                57%              43%

     * Other includes personal savings, earnings and other undisclosed sources
of income. Source: Social Security Administration.

     Articles or reports which include information relating to performance,
rankings and other characteristics of the Funds may appear in various national
publications and services including, but not limited to: The Wall Street
Journal, Barron's, Pensions and Investments, Forbes, Smart Money, Mutual Fund
Magazine, The New York Times, Kiplinger's Personal Finance, Fortune, Money
Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies and The
Donoghue Organization. Some or all of these publications or reports may publish
their own rankings or performance reviews of mutual funds, including the Funds,
and may provide information relating to PIMCO, including descriptions of assets
under management and client base, and opinions of the author(s) regarding the
skills of personnel and employees of PIMCO who have portfolio management
responsibility. From time to time, the Trust may include references to or
reprints of such publications or reports in its advertisements and other
information relating to the Funds.

     From time to time, the Trust may set forth in its advertisements and other
materials information about the growth of a certain dollar-amount invested in
one or more of the Funds over a specified period of time and may use charts and
graphs to display that growth.

     From time to time, the Trust may set forth in its advertisements and other
materials the names of and additional information regarding investment analysts
employed by PIMCO who assist with portfolio management and research activities
on behalf of the Funds.

     Ibbotson Associates ("Ibbotson") has analyzed the risk and returns of the
Funds and relevant benchmark market indexes in a variety of market conditions.
Based on its independent research and analysis, Ibbotson has developed model
portfolios of the Funds and series of PIMCO Funds: Multi-Manager Series ("MMS")
which indicate how, in Ibbotson's opinion, a hypothetical investor with a 5+
year investment horizon might allocate his or her assets among the Funds and
series of MMS. Ibbotson bases its model portfolios on five levels of investor
risk tolerance which it developed and defines as ranging from "Very
Conservative" (low volatility; emphasis on capital preservation, with some
growth potential) to "Very Aggressive" (high volatility; emphasis on long-term
growth potential). However, neither Ibbotson nor the Trust offers

                                       90

Ibbotson's model portfolios as investments. Moreover, neither the Trust, PIMCO
nor Ibbotson represent or guarantee that investors who allocate their assets
according to Ibbotson's models will achieve their desired investment results.

Voting Rights

     Under the Declaration of Trust, the Trust is not required to hold annual
meetings of Trust shareholders to elect Trustees or for other purposes. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. In addition, the Declaration of Trust provides that
the holders of not less than two-thirds of the outstanding shares of the Trust
may remove a person serving as Trustee either by declaration in writing or at a
meeting called for such purpose. The Trustees are required to call a meeting for
the purpose of considering the removal of a person serving as Trustee if
requested in writing to do so by the holders of not less than ten percent of the
outstanding shares of the Trust. In the event that such a request was made, the
Trust has represented that it would assist with any necessary shareholder
communications. Shareholders of a class of shares have different voting rights
with respect to matters that affect only that class.

     The Trust's shares do not have cumulative voting rights, so that the holder
of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees. To avoid potential conflicts of interest, the All Asset and
Strategic Balanced Funds will vote shares of each Underlying Fund which they own
in proportion to the votes of all other shareholders in the Underlying Fund.

                                       91

Control Persons and Principal Holders of Securities

As of July 2, 2003 the following persons owned of record or beneficially 5% or
more of the noted class of shares of the Funds:

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned      of Class
                                                                                                 ------------------     ----------
    All Asset Fund
    --------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St, San Francisco, CA 94104                                                       16,228,685.458*         49.80%
    Northern Trust Custodian FBO Lifeway Christian Resources Master Retirement Fund,
    P.O. Box 92956, Chicago, IL 60675                                                                 3,996,242.042          12.17%

    California Intermediate Municipal Bond Fund
    -------------------------------------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St, San Francisco, CA 94104                                                        3,113,595.086          39.74%
    Leo B and Florence Helzel Living Trust, 5550 Redwood Rd, Oakland, CA 94619                          738,194.643           9.42%
    James F Muzzy & Pamela B Muzzy TTEES Muzzy Family Trust, 2546 Riviera Drive, Laguna Beach,
    CA 92651                                                                                            663,251.186           8.47%
    Bear Stearns Securities Corp, 1 Metrotech Ctr N, Brooklyn, NY 11201                                 460,649.181           5.88%
    First Ship Holdings B LLC, Attn: Constance M. Goodyear, 940 Green St., San Francisco,
    CA 94113                                                                                            409,018.762           5.22%

    Administrative Class
**  Bear Stearns Securities Corp, 1 Metrotech Ctr N, Brooklyn NY 11201                                  120,286.154          40.32%
    First Clearing Corp., Cvengros Living Trust U/A Dtd. 11/1/95 William & Joan,
    31975 Peppertree Bnd. San Juan Cap, CA 92675                                                         73,717.373          24.71%
    CIBC World Markets Corp, Church Street Station, P.O. Box 3484, New York NY 10008-3484                30,054.144          10.08%
    First Clearing Corp., Christina S. Linden Revoc. Trust/Christina Linden Stoney TTEE,
    93 Live Oak Dr., Ventura, CA 93001                                                                   16,248.623           5.45%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            861,999.247          14.34%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ St.,
    New York, NY 10001                                                                                  472,942.610           8.58%
    Raymond James & Assoc Inc FBO Sevaly Family Trust, 880 Carillon Pkwy, St. Petersburg
    FL 33716                                                                                            329,033.600           5.47%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St, San Francisco CA 94104                                                           518,390.498          98.35%

    California Municipal Bond Fund
    ------------------------------
    Institutional Class
    James F Muzzy & Pamela B Muzzy TTEES Muzzy Family Trust, 2546 Riviera Drive, Laguna Beach,
    CA 92651                                                                                            553,7043509*         59.60%
    Chris and Sheri Dialynas Family Living Trust, 15 Pelican Hill Circle, Newport Coast,
    CA 92657                                                                                            152,430.255          16.41%
    Ian & Helen Smith Revocable Trust, 2241 Liane Ln., Santa Ana, CA 92705-3394                          82,949.177           8.93%
    Brains Stern/Debbi Stern JT WROS, 1956 Port Cardiff Pl., Newport Beach, CA 92660-5415                69,614.182           7.49%

                                       92

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Administrative Class
    Allianz Dresdner Asset Management of America LP, 888 San Clemente Dr., Suite 100, Newport
    Beach, CA 92660                                                                                       1,004.783         100.00%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                             66,446.701          11.91%
    Emily Magee Andres TTEE Andres Family Trust, Dtd. 9/11/89 2956 E Del Mar Blvd, #232,
    Pasadena, CA 91107                                                                                   52,2513843           9.37%
    Dain Rauscher Inc FBO Leroy H. Huemoeller & Lois I. Huemoeller Co-Ttees/Leroy & Lois
    Huemoeller Living Trust, 250 Westridge Dr. Santa Clara, CA 95050                                     50,108.535           8.98%

    Class D
**  National Investor Services FBO its Customers, 55 Water Street, 32/nd/ Floor, New York,
    NY 10041                                                                                                476.419         100.00%

    CommodityRealReturn Strategy Fund
    ---------------------------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St, San Francisco, CA 94104                                                        4,093,991.186          44.94%
    Wake Forest University, P.O. Box 7354, Winston Salem, NC 27109-7354                                 931,172.100          10.22%
**  National Financial Services Corp. for the exclusive benefit of our customers,
    P.O. Box 3908, Church Street Station, New York, NY 10008                                            643,166.979           7.06%
**  Pershing LLC, Attn: Mutual Funds, P.O. Box 2052, Jersey City, NJ 07303                              642,705.292           7.05%
    University of Minnesota Foundation, Attn: Douglas J. Gorence, 200 Oak Street SE, Suite 225,
    Minneapolis, MN 55455                                                                               464,729.067           5.10%

    Class A
**  MLPF&S for the sole benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            323,918.186           9.33%

    Class B
**  MLPF&S for the sole benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            166,459.276          17.43%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                            137,570.911          14.41%

    Class C
**  MLPF&S for the sole benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            292,982.397          16.33%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                            184,180.042          10.27%

    Class D
**  Charles Schwab & Co., Inc. Special Custody Acct. for the Exclusive Benefit of our Cust.
    101 Montgomery St., San Francisco, CA 94101                                                       1,191,868.166          61.35%
**  National Investor Services FBO its Customers, 55 Water Street, 32/nd/ Floor, New York,
    NY 10041                                                                                            107,991.946           5.56%

    Convertible Fund
    ----------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                         157,598.845          11.90%

                                       93

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Northern Trust Co. FBO Lockheed Martin Master Ret. Trust, P.O. Box 92923, Chicago, IL 60675         147,319.370          11.13%
    Kamehameha Schools C/O Bank of New York, 1 Wall St #25, New York, NY 10286                          123,390.567           9.32%

    Administrative Class
    Allianz Dresdner Asset Management of America LP, 888 San Clemente Drive Suite 100, Newport
    Beach, CA 92660                                                                                         800.067         100.00%

    Emerging Markets Bond Fund
    --------------------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       8,722,113.549          20.59%
**  Bost & Co., Attn: Mutual Fund OPS-TC, P.O. Box 3198, Pittsburgh, PA 15230                         3,152,813.372           7.44%
    Keybank NA TTEE FBO Parker PIMCO Emerging, P.O. Box 94871, Cleveland, OH 44101-4871               2,847,172.341           6.72%
**  National Financial Services Corp. for the exclusive benefit of our customers,
    P.O. Box 3908, Church Street Station, New York, NY 10008                                          2,753,545.283           6.50%
    All Asset Portfolio, Attn: Shareholder Services, 840 Newport Center Drive, Newport Beach,
    CA 92660                                                                                          2,661,757.204           6.28%
    Northern Trust Co TTEE FBO Phelps, PO Box 92956, Chicago IL 60675                                 2,202,348.103           5.20%

    Administrative Class
**  National Investors Srv Corp for Exclusive Benefit of our Customers, 55 Water St 32/nd/  Fl,
    New York, NY 10041                                                                                1,227,131.480          50.61%
**  National Financial Services Corp. for the exclusive benefit of our customers,
    1 World Financial Center, 200 Liberty Street, New York NY 10281                                     428,435.616          17.67%
**  Trust Company of America for the benefit of our customers, Attn: Institutional Trading,
    P.O. Box 6503, Englewood, CO 80155                                                                  232,984.901           9.61%
**  Trust Company of America for the benefit of our customers, Attn: Institutional Trading,
    P.O. Box 6503, Englewood, CO 80155                                                                  180,376.590           7.44%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          2,320,002.495          14.60%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            451,071.844           8.60%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ, 07311                                                                                           440,683.643           8.40%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  272,243.531           5.19%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          1,227,536.959          14.38%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                1,175,121.618          13.76%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco CA, 94104                                                       7,163,948.619          49.93%

                                       94

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    European Convertible Fund
    -------------------------
    Institutional Class
    All Asset Portfolio, Attn: Shareholder Services, 840 Newport Center Drive, Newport Beach,
    CA 92660                                                                                          1,751,992.788 *        98.14%

    Foreign Bond Fund
    -----------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      29,741,641.656          36.36%
    State Street Bank & Trust Cust FBO Northrop Grumman Pension Master Trust,
    1 Enterprise Dr. #SWB6C, North Quincy, MA 02171-2126                                              9,496,933.662          11.61%
**  PFPC FBO LPL Supermarket Program, 760 Moore Road, King of Prussia, PA 19406                        5,910584.082           7.22%
**  National Financial Services Corp. for the exclusive benefit of our customers,
    P.O. Box 3908, Church Street Station, New York, NY 10008                                          4,925,903.430           6.02%
    Lumina Foundation for Education Inc., Attn: Nathan Fisher, P.O. Box 1806, Indianapolis,
    IN 46206                                                                                          4,227,285.847           5.17%

    Administrative Class
**  National Financial Services Corp for Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty Street, New York, NY 10281                                  1,969,862.445          43.54%
    Hubco, Regions Financial Corp., Attn: Trust Ops, 14/th/ Floor, P.O. Box 830668, Birmingham,
    AL 35283                                                                                           1,070490.183          23.66%
**  Manufacturers Life Ins. Co. (USA), Attn: Laura Ross Seg Funds/Acct, US Srs Seg Funds/
    Accounting, 200 Bloor Street East, Toronto, ON Canada M4W 1E5                                       649,310.193          14.35%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          1,154,627.268           5.11%

    Class B
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                            515,836.829           9.13%
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            333,983.898           5.91%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001

    Class C
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  859,044.578           8.21%
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            736,194.218           7.04%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                            634,713.603           6.07%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St, San Francisco CA 94104                                                         9,912,820.747          61.87

    Class R
    Allianz Dresdner Asset Management of America LP, 888 San Clemente Dr., Suite 100,
    Newport Beach, CA 92660                                                                                 959.298         100.00%

                                       95

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Global Bond Fund
    ----------------
    Institutional Class
    Blue Cross Blue Shield of Mass - Managed Care Landmark Center Treasury, 401 Park Dr.,
    Boston, MA 02215                                                                                  9,300,579.028          19.23%
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St, San Francisco CA 94104                                                         7,011,009.658          14.50%
    Blue Cross Blue Shield of Mass Inc Indemnity Landmark Center Treasury, 401 Park Dr.,
    Boston MA 02215                                                                                   6,811,547.951          14.08%
    Regents of the University of Minnesota, 1300 S 2/nd/ St Rm 205D, Minneapolis MN 55454             4,472,229.192           9.25%
    Tufts Associated Health Maintenance Organization In., 333 Wyman Street, Waltham, MA 02451         3,572,582.928           7.39%
**  JP Morgan Securities Inc. FBO our customers, Attn: Mutual Fund Dept., 500 Stanton
    Christina Rd., Newark, DE 19713                                                                   2,588,349.313           5.29%

    Administrative Class
**  FIIOC as Agent for Certain Employee Benefit Trans, 100 Magellan Way KW1C, Covington,
    KY 41015-1987                                                                                     3,136,311.996          73.49%
    Fidelity Management Trust Co as Trustee for Stevedoring Services of America,
    82 Devonshire St. #Z1M, Boston MA 02109-3605                                                        580,631.912          13.60%
**  National Financial Services Corp. for the exclusive benefit of our customers,
    1 World Financial Center, 200 Liberty Street, New York, NY 10281                                    270,779.343           6.34%
**  Pershing LLC, Attn: Mutual Funds, P.O. Box 2052, Jersey City, NJ 07303                              252,543.837           5.92%

    Global Bond Fund II
    -------------------
    State Street Bank & Trust as TTEE for Goldman Sachs 401k Plan, 105 Rosemont Rd., Westwood,
    MA 02090                                                                                          5,139,549.827          45.93%
    Weil Gotshal & Manges Partners Pension Trust C/O Citibank Private Bank,
    120 Broadway 2nd Fl/Zone 2, New York NY 10271                                                     2,353,779.146          21.03%
**  Mac & Co, Mutual Fund Operations, P.O. Box 3198, Pittsburgh, PA 15230                             1,247,649.402          11.15%
    Mac & Co (GMP Employers Retiree Trust), P.O. Box 3198, Mutual Funds Operations, Pittsburgh,
    PA 15230                                                                                            863,304.031           7.71%

    Class A
    Memphis Light, Gas & Water Division Post Retirement Benefits Trust Fund,
    220 South Main Street, Memphis, TN 38103                                                            342,801.175          12.11%
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            268,506.577           9.49%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr E Fl 3, Jacksonville
    FL 32246                                                                                            255,480.449          17.57%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  112,627.822           7.74%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            382,111.137          17.85%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  157,420.401           7.36%

    GNMA Fund
    ---------
    Institutional Class
    Bank of Namimbia, Attn: Mr. Festus Hangula, P.O. Box 2882 Windhoek, 71 R Mugabe Ave.,
    Windhoek, Namibia 9000                                                                            3,190,473.243          28.09%

                                       96

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    All Asset Portfolio, Attn: Shareholder Services, 840 Newport Center Drive, Newport Beach,
    CA 92660                                                                                          3,025,874.682          26.64%
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       1,471,808.890          12.96%
**  National Financial Services Corp for  Exclusive Benefit of our Customers,
    P.O. Box 3908, Church Street Station, New York NY 10008                                             965,062.265           8.50%
**  Pershing LLC, Attn: Mutual Funds, P.O. Box 2052, Jersey City NJ 07303                               885,828.924           7.80%

    Class A
**  Wells Fargo Investments LLC, 608 Second Avenue South 8/th/ Fl, Minneapolis, MN 55402              1,240,504.606          16.13%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E. Fl 3, Jacksonville,
    FL 32246                                                                                            487,408.426           7.72%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr E Fl 3, Jacksonville
    FL 32246                                                                                            651,111.697           8.23%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  486,616.033           6.15%

    High Yield Fund
    ---------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      79,502,150.584          23.34%
**  National Financial Services Corp for  Exclusive Benefit of our Customers,
    P.O. Box 3908, Church Street Station, New York, NY 10008                                         22,764,398.137           6.68%
**  Bost & Co., Mutual Fund Operations, P.O. Box 3198, Pittsburgh, PA 15230                          19,736,864.068           5.79%

    Administrative Class
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                    44,170,822.398          63.58%
**  FIIOC as Agent for Certain EE Benefits Trans, 100 Magellan Way KW1C, Covington, KY 41015         10,607,631.450          15.27%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         18,831,821.625          14.41%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         14,476,786.854          18.81%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                6,824,243.451           8.87%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                          5,912,013.705           7.68%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         20,642,247.704          17.50%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                               12,442,143.771          10.55%

                                       97

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      27,788,926.343          67.29%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                2,292,839.694           5.55%

    Class R
    MCB Trust Services Cust. FBO Yoder Oil Company, Inc., 700 17/th/ Street, Suite 300, Denver,
    CO 80202                                                                                              9,315.143          88.45%
    Allianz Dresdner Asset Management of America LP, 888 San Clemente Dr., Suite 100, Newport
    Beach, CA 92660                                                                                       1,216.904          11.55%

    Investment Grade Corporate Bond Fund
    ------------------------------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       1,866,225.596 *        73.29%
    Segel Partnership II LP, 1038 Raffles Lane, Bryn Mawr, PA 19010                                     224,002.424           8.80%
**  Maril & Co. c/o Marshall & Ilsley Trust Co., 1000 N. Water St. Milwaukee, WI 53202                  200,206.899           7.86%

    Long-Term US Government Fund
    ----------------------------
    Institutional Class
**  FIIOC as Agent for Certain EE Benefits Trans, 100 Magellan Way KW1C, Covington, KY 41015         11,813,629.421          32.83%
    Northern Trust Company FBO Allianz DC Plan - Master Trust, P.O. Box 92956, Chicago,
    IL 60675                                                                                          4,761,028.778          13.23%
    Mea-Messa-Mea Financial Services Staff Ret Plan & Trust, 1216 Kendale Blvd., East Lansing,
    MI 48823                                                                                          3,646,931.355          10.13%
    Bank of New York FBO VNU Retirement Plan Master Trust, 1 Wall Street, 12th Floor, New York,
    NY 10286                                                                                          2.275,615.684           9.10%
**  Mac & Co., P.O. Box 3198, Pittsburgh, PA 15230-3198                                               3,158,899.975           8.78%
**  Svg Program for EE of Certain EMPLRAT US Dept of Energy Fac-Oakridge Tn,
    104 Union Valley Road MS 8267, Oakridge, TN 37830-8044                                            2,450,323.107           6.81%

    Administrative Class
**  FIIOC as Agent for Certain EE Benefits Trans, 100 Magellan Way KW1C, Covington, KY 41015         10,039,924.770          63.94%
    WTC TTEE FBO Key Corp. 401k Savings Plan c/o Mutual Funds, P.O. Box 8880, Wilmington,
    DE 19899                                                                                          2,630,810.262          16.75%
    State Street Bank & Trust Co TTEE FBO Southern California Edison Stock Savings Plus Plan,
    P.O. Box 351, Boston, MA 02101                                                                    1,355,548.165           8.63%
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                     1,015,135.403           6.47%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          1,160,501.296           8.08%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          1,479,489.823          14.72%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                1,060,127.571          10.55%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                            759,761.159           7.56%

                                       98

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr E Fl 3, Jacksonville
    FL 32246                                                                                          1,407,137.097          24.38%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  439,469.837           7.61%

    Low Duration Fund
    -----------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                     135,439,162.203          16.56%
    MLTC of America FBO Dupont Savings & Investment Plan, 300 Davidson Ave., Somerset, NJ 08873      51,909,514.496           6.35%

    Administrative Class
**  FIIOC as Agent for Certain EE Benefits Trans, 100 Magellan Way KW1C, Covington, KY 41015         10,866,149.956          25.99%
**  Pershing LLC, Attn: Mutual Funds, P.O. Box 2052, Jersey City, NJ 07303                            8,956,197.700          21.42%
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                     6,583,727.698          15.75%
    BNY Western Trust Co TTEE FBO McClatchy Newspapers Restated Def Comp & Inv Plan,
    550 Kearny St. #600, San Francisco, CA 94108                                                      3,078,719.095           7.36%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         35,458,877.259          16.25%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                         25,776,444.495          11.81%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         11,385,193.548          20.07%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                          4,665,675.485           8.23%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                3,804,483.930           6.71%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         32,857,199.964          25.10%
**  Citigroup Global Markets, Inc., Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                9,249,811.578           7.07%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      30,828,393.311          62.57%

    Class R
    Allianz Dresdner Asset Management of America LP, 888 San Clemente Dr., Suite 100,
    Newport Beach, CA 92660                                                                                 984.560         100.00%

    Low Duration Fund II
    --------------------
    Institutional Class
**  Mac & Co., Mutual Fund Ops-TC, P.O. Box 3198, Pittsburgh, PA 15230                                6,807,192.037          11.40%
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco CA, 94104                                                       5,623,299.918           9.42%

                                       99

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Marshall & Ilsley Trust Co FBO SRP Nuc Decomm TR C/O Marshall & Ilsley Trust Co,
    1000 N. Water St., Milwaukee, WI 53202                                                            4,612,378.787           7.73%
    Montefiore Medical Center, 111 E 210th Street, Bronx, NY 10467-2490                               4,345,764.174           7.28%
**  Trulin and Co. c/o JPMorgan Chase Bank, P.O. Box 31412, Rochester NY 14603-1412                   4,131,727.696           6.92%
    Univ of IL Fdn Pooled Short Term Funds, Manager of Acct & Donor Records,
    Harker Hall 1305 W. Green St., Urbana, IL 61801                                                   3,907,507.039           6.54%

    Administrative Class
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                       128,910.076          85.49%
**  Pershing LLC, Attn: Mutual Funds, P.O. Box 2052, Jersey City, NJ 10281                               20,863.173          13.84%

    Low Duration Fund III
    ---------------------
    Institutional Class
    Northern Tr Co Cust FBO St Mary's, P.O. Box 92956, Chicago, IL 60675                              2,413,471.539 *        43.52%
    Sisters of St Joseph, 3427 Gull Rd, P.O. Box 13, Nazareth, MI 49074                               1,126,366.823          20.31%
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco CA, 94104                                                         397,011.386           7.16%
    National Jewish Medical & Research Center, 1400 Jackson St., Denver, CO 80206                       389,383.414           7.02%
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    P.O. Box 3908, Church Street Station, New York, NY 10008                                            371,886.013           6.71%

    Administrative Class
    Pacific Investment Management Company, 888 San Clemente Dr., Suite 100, Newport Beach
    CA 92660                                                                                              1,256.388          90.24%
**  National Investors Services Corp for Exclusive Benefit of our Customers, 55 Water St.
    32nd Fl, New York, NY 10041                                                                             135.851           9.76%

    Moderate Duration Fund
    ----------------------
    Institutional Class
    The Northern Trust Co as TTEE FBO Accenture PS and 401K Trust Plan - DV, P.O. Box 92977,
    Chicago, IL 60675                                                                                 8,557,609.598           6.80%
    Comerica Bank FBO Pipefitters, 597 Pension, P.O. Box 75000, Detroit, MI 48275                     8,150,988.872           6.48%
**  Mac & Co, Mutual Fund Operations, P.O. Box 3198, Pittsburgh, PA 15230                             8,110,996.996           6.45%
**  BNY Clearing Services LLC WENDEL & CO, One Wall St., 6th Fl, New York, NY 10286                   7,115,077.784           5.66%

    Money Market
    ------------
    Institutional Class
    Tripod LLC, c/o Deutsche Bank AG MS NYC, 31 W. 52/nd/ Street, New York, NY 10019                 32,942,903.960          18.78%
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      27,582,311.270          15.73%
    Northern Trust Custodian FBO Saint John's Hospital and Health Center Foundation acct,
    P.O. Box 92956, Chicago, IL 60675                                                                22,421,110.450          12.78%
    Wells Fargo Bank MN FBO Marin Community Fdn, P.O. Box 1533, Minneapolis, MN 55480                16,797,977.580           9.58%

                                      100

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    The Glenstone Foundation, 8404 Parham Ct., McLean, VA 22102-1533                                 10,654,863.270           6.07%
    Thornberry Hill LP, 11621 Kew Gardens Ave., Suite 210, Palm Beach Gdns., FL 33410                 9,945,803.820           5.67%

    Administrative Class
    Security Trust FBO Cooperative of Puget Sound 403B Group Custodian Account,
    2390 E Camelback Rd Suite 240, Phoenix AZ 85016                                                   2,566,197.800          60.70%
**  Wells Fargo Investments LLC, 608 2nd Ave. S. Fl 8, Minneapolis, MN 55402                            601,225.240          14.22%
    Inline Plastics Corp. Savings Plus Retirement Plan, Attn: Charles Johnson, 42 Canal St.,
    Shelton, CT 06484                                                                                   378,101.970           8.94%
**  MALTRUST & CO C/O Eastern Bank & Trust, 225 Essex St., Salem, MA 01970                              299,403.550           7.08%
    Lorraine E. Long Living Trust/Lorraine E. Long & CJ Voigt & Nancy O'Malley TTEEs,
    24729 Meadow Ln., Harrison TWP, MI 48045                                                            278,354.380           6.58%

    Class A
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                6,374,857.480           6.19%

    Class B
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                          6,260,731.780           9.25%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                5,505,130.700           8.14%

    Class C
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                9,069,618.600           9.67%

    Municipal Bond Fund
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       4,388,859.038          39.80%
    Northern Trust Co TTEE FBO Alsam Trust, P.O. Box 92956, Chicago, IL 60675                         1,129,975.237          10.25%
    Frederick Henry Prince 1932 Trust, 10 S Wacher Dr St 2575, Chicago, IL 60606                        944,924.235           8.57%
**  Northern Trust Co as Trustee FBO Columbia Energy Group Life Insurance Veba Trust,
     P.O. Box 92956, Chicago, IL 60675-2956                                                             582,373.388           5.28%

    Administrative Class
**  National Financial Services Corp for Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                     3,716,594.463          99.59%

    Class A
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  512,459.657           7.58%
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            455,422.096           6.73%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            931,891.466          20.53%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  327,345.774           7.21%

                                      101

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          1,476,724.949          16.11%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  733,881.061           8.01%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       1,218,941.556          60.91%
**  Pershing LLC, P.O. Box 2052, Jersey City, NJ 07303                                                  108,069.078           5.40%

    New York Municipal Bond Fund
    ----------------------------
    Institutional Class
    Midhill, P.O. Box 2680, Casper, WY 82602-2680                                                       162,842.498          50.33%
**  PFPC FBO LPL Supermarket Program, 760 Moore Road, King of Prussia, PA 19406                          39,840.455          12.31%
    Lazard Freres and Co LLC, 30 Rockefeller Plz Fl 60, New York, NY 10112                               33,247.629          10.28%
**  BALSA & Co C/O Chase Manhattan Bank, 16 HCB 040, P.O. Box 2558, Houston, TX 77252                    32,527.881          10.05%
**  National Investor Services Corp for the Exclusive Benefit of our Customers, 55 Water St.
    32/nd/  Fl, New York, NY 10041                                                                       27,516.094           8.51%
    Ursula T Frisch 2000 Trust, 200 Central Park S Apt 8N, New York, NY 10019                            17,733.950           5.48%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                             84,692.539           6.58%
    Ruth M. Hill, 350 Stafford Way, Rochester, NY 146626                                                 75,874.690           5.89%

    Class D
**  National Investors Services Corp for Benefit of our Customers, 55 Water St 32nd Fl,
    New York, NY 10041                                                                                   54,259.217          29.55%
    NFSC for Exclusive Benefit of Peter A. Bakst/Anna J. Bakst, 158 Mercer St. # 10M,
    New York, NY 10012                                                                                   47,827.070          26.05%
    NFSC for Exclusive Benefit of Melvyn F. Trepper, 315 W 23/rd/ St., Apt. 7B, New York,
    NY 10011                                                                                              9,448.312           5.15%
    NFSC for Exclusive Benefit of Thomas G. Miglis/Deborah Miglis, 9 Shannon Drive, Woodbury,
    NY 11797                                                                                              9,412.303           5.13%

    Real Return Asset Fund
    ----------------------
    Institutional Class
    All Asset Portfolio, Attn: Shareholder Services 840 Newport Center Drive, Newport Beach,
    CA 92660                                                                                         11,190,261.508*         75.91%
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       1,338,097.387           9.08%
    Brent R. Harris and Elizabeth E. Harris as Co-trustees of the Harris Family Trust of 1997,
    3410 Hermosa Ave., Hermosa Beach, CA 90254                                                        1,240,182.163           8.41%

    Real Return Fund
    ----------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      74,683,638.102          39.29%
**  FIIOC as Agent for Certain EE Benefit Trans, 100 Magellan Way KW1C, Covington, KY 41015          30,191,764.663          15.88%

                                       102

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
**  National Financial Services Corp for Exclusive Benefit of our Customers,
    P.O. Box 3908, Church Street Station, New York, NY 10008                                         10,501,517.261           5.52%
    All Asset Portfolio, Attn: Shareholder Services 840 Newport Center Drive, Newport Beach,
    CA 92660                                                                                         10,365,550.787           5.45%
**  PFPC FBO LPL Supermarket Program, 760 Moore Rd., King of Prussia, PA 19406-1212                   9,784,366.152           5.15%

    Administrative Class
**  National Financial Services Corp for Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                    26,105,277.003          56.31%
**  Manufacturers Life Ins. Co. (USA), Attn: Laura Ross Seg Funds/Acct, US Srs Seg
    Funds/Accounting, 200 Bloor Street East, Toronto, ON Canada M4W 1E5                              15,481,465.817          33.39%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         14,080,950.982          10.21%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         17,358,985.598          17.92%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                          7,955,496.310           8.21%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                6,031,159.047           6.23%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         35,570,249.810          25.80%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                               10,495,975.251           7.61%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      37,357,467.041          50.16%

    Class R
    MCB Trust Services Cust. FBO Yoder Oil Company, Inc., 700 17/th/ Street, Suite 300, Denver,
    CO 80202                                                                                             17,079.497          63.64%
    Elizabeth Daoud, 4600 Jefferson St., Hollywood, FL 33021                                              5,818.139          21.68%
    Reliance Trust Co. Cust. FBO Amsec Loss Control Svc 401k, P.O. Box 48529, Atlanta,
    GA 30362                                                                                              2,388.124           8.90%

    Real Return Fund II
    -------------------
    Institutional Class
    Reliance Trust Co FBO Clayton County, P.O. Box 48449, Atlanta, GA 30362                           1,770,722.425*         87.20%
    Segel Partnership II LP, 1038 Raffles Lane, Bryn Mawr, PA 19010                                     220,744.681          10.87%

    Short-Duration Municipal Income Fund
    ------------------------------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       2,796,472.380          37.84%
**  National Investor Services for the Benefit of Our Customers, 55 Water Street, 32nd Floor,
    New York NY 10041-0028                                                                            1,123,394.810          15.20%

                                       103

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    William S. and Nancy E. Thompson Revocable Trust, 2431 Riviera Dr., Laguna Beach, CA 92651          757,512.378          10.25%
**  PFPC FBO LPL Supermarket Program, 211 S Gulph Rd, King of Prussia, PA 19406                         513,651.305           6.95%
**  Merrill Lynch Pierce Fenner & Smith Inc. for the Sole Benefit of its Customers,
    4800 Deer Lake Drive East, 3/rd/ Floor, Jacksonville, FL 32246                                      495,450.594           6.70%

    Administrative Class
**  CIBC World Markets for the benefit of its customers, P.O. Box 3484, Church Street Station,
    New York, NY 10008-3484                                                                              42,108.016          60.38%
**  CIBC World Markets, P.O. Box 3484, Church Street Station, New York, NY 10008-3484                    27,624.704          39.62%

    Class A
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                1,423,953.752           5.74%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          1,162,211.303          19.38%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  418,708.902           6.98%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                         658,145.271          57.94%
    Fahnestock & Co. Inc. FBO William & Anna Teneblatt Trust, 608 N. Beverly Drive,
    Beverly Hills, CA 90210                                                                             101,169.415           8.91%

    Short-Term Fund
    ---------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      27,984,870.450          13.17%
    National City Bank FBO National Collegiate Athletic Association, Attn: Mutual Funds
    P.O. Box 94984, Cleveland, OH 44101                                                              15,163,732.194           7.13%

    Administrative Class
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                    30,767,144.850          88.58%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         10,243,971.889          10.65%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            649,052.327          22.90%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  286,175.345          10.10%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         13,920,511.009          32.88%

                                       104

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      11,499,356.895          72.77%

    Class R
    Allianz Dresdner Asset Management of America LP, 888 San Clemente Dr., Suite 100,
    Newport Beach, CA 92660                                                                               1,008.742         100.00%

    StocksPLUS Fund
    ---------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       5,441,726.122          12.16%
    Northern Tr. Co. as TTEE FBO Safeway Inc. Multi Emp. Retirement Plan, P.O. Box 92956,
    Chicago, IL 60675                                                                                 3,678,226.642           8.22%
    Girl Scouts of the USA Enhanced Index Separate Account of Mutual of America Life
    Insurance Co.,
    320 Park Ave., New York, NY 10022                                                                 2,782,083.447           6.22%
    FTC & Co., Attn: Datalynx, House Account, P.O. Box 173736, Denver, CO 80217                       2,541,937.773           5.68%
    Strategic Balanced Portfolio, Allianz Dresdner Asset Management of America LP,
    888 San Clemenete Drive Suite 100, Newport Beach CA 92660                                         2,470,623.999           5.52%
    First Busey Trust & Investment Co. Ttee FBO Carle Clinic Pension Plan,
    502 W Windsor Rd., P.O. Box 3309, Champaign, IL 61826-3309                                        2,459,311.211          87.65%

    Administrative Class
**  National Financial Services Corp for Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty Street, New York, NY 10281-1003                            38,944,876.882*         87.65%
    The Colorado County Officials and EE Ret Assoc, 4949 S Syracuse St., Suite 400, Denver,
    CO 80237                                                                                          5,167,893.715          11.63%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          2,306,839.639          21.79%
**  FTC & Co., Datalynx, P.O. Box 173736, Denver, CO 80237                                              691,849.305           6.54%
    Security Trust Company NA Corp TTEE FBO IBEW Local 332 Pension Plan Part B,
    2390 East Camelback Rd., Suite 240, Phoenix, AZ 85016                                               663,533.170           6.27%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          2,422,381.470          15.89%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                          1,140,817.738           7.48%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                  778,564.934           5.11%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                          1,241,033.185           8.12%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                                1,165,837.998           7.36%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                         147,569.952          54.94%

                                       105

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Strafe & Co. FAO Edwin & Wilma Parker LLC Custody, P.O. Box 160, Westerville, OH 43086               24,219.998           9.02%
**  National Investors Services Corp for Exclusive Benefit of our Customers, 55 Water St
    32nd Fl, New York, NY 10041                                                                          22,407.609           8.34%
    NFSC FEBO FMT Co. Cust. IRA Rollover FBO Jeffrey J. Tyson, 6055 Fairmont Rd., Newark,
    OH 43056                                                                                             14,756.307           5.49%

    Class R
    Allianz Dresdner Asset Management of America LP, 888 San Clemente Dr., Suite 100,
    Newport Beach, CA 92660                                                                               1,270.549         100.00%

    StocksPLUS Total Return Fund
    ----------------------------
    Institutional Class
    All Asset Portfolio, 840 Newport Center Drive, Newport Beach CA 92660-6310                        4,275,338.320          99.86%

    Strategic Balanced Fund
    -----------------------
    Institutional Class
    Carpenters Health & Security Trust of Western Washington, P.O. Box 1929, Seattle,
    WA 98111-1929                                                                                     1,023,857.400*         32.75%
    California Water Service Co Dominguez Pension Plan, 1720 N 1/st/ St., San Jose, CA 95112            652,604.239          20.88%
    BNY Western Trust Co TTEE Pacific Life Insurance Co Ret Incentive Svg Pln,
    700 S Flower St., 2/nd/ Floor, Los Angeles, CA 90017                                                550,048.026          17.60%
    The Northern Trust Co TTEE FBO Ameron 401K, P.O. Box 92956, Chicago, IL 60675                       379,154.346          12.13%
    Wells Fargo Bank MN NA FBO the Music Center, P.O. Box 1533, Minneapolis, MN 55480                   315,035.943          10.08%

    Administrative Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                         326,742.092          63.80%
    Delaware Management Trust C/F United Food Workers 401K, 1818 Market St., Philadelphia,
    PA 19103                                                                                            121,500.206          23.72%
**  Wells Fargo Bank MN NA FBO Retirement Plan Services, P.O. Box 1533, Minneapolis, MN 55480            62,661.167          12.23%

    Total Return Fund
    -----------------
    Institutional Class
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                     350,209,786.559           9.03%

    Administrative Class
**  FIIOC as Agent for Certain EE Benefits Trans, 100 Magellan Way KW1C, Covington, KY 41015        331,087,254.769          21.48%
    Nikko Cordial Securities Inc Tokyo Dia Bldg No 5, Sinkawa 1-Chome 28-23, Chuo-Ku Tokyo
    Japan 104-8271                                                                                  271,347,519.000          17.61%
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    200 Liberty St., One World Financial Center, New York, NY 10281                                 122,598,648.403           7.95%
    Manufacturers Life Ins Co (USA), US SRS Seg Funds/Accounting, 200 Bloor St East,
    Toronto ON, Canada M4W 15                                                                        95,526,756.646           6.20%

    Class A
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                        220,184,277.159          28.80%

                                       106

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------
    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         52,323,015.979          20.65%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                               20,146,293.067           7.95%
**  Morgan Stanley, Attn: Mutual Fund Operations, 3 Harborside Plaza, 6/th/ Floor, Jersey City,
    NJ 07311                                                                                         17,762,620.823           7.01%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                         86,693,689.211          27.22%
**  Citigroup Global Markets, Inc. Attn: Cindy Tempesta, 7/th/ Floor, 333 West 34/th/ Street,
    New York, NY 10001                                                                               23,845,861.534           7.49%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                      93,310,757.755          58.31%

    Class R
    First Trust Corp TTEE Piedmont Healthcare for Women PSP, P.O. Box 48529, Atlanta, GA 30362          199,478.833          32.28%
    Sam Marullo TTEE IBEW Local 527 Annuity Trust Fund Dtd. 09/05/78 FBO Strategies Account,
    6227 Broadway, Galveston, TX 77551                                                                  127,007.210          20.55%
    Reliance Trust Co. Cust. FBO Ward & Smith PA, P.O. Box 48529, Atlanta, GA 30362                      88,013.098          14.24%
    Security Trust Co. NA TTEE FBO Fletcher Machine Co. in Savings and Retirement Plan,
    2390 East Camelback Rd., Suite 240, Phoenix, AZ 85016                                                68,943.371          11.16%
    MCB Trust Services Cust. FBO Crittenden Health Systems 401k, 700 17/th/ Street, Suite 300,
    Denver, CO 80202                                                                                     38,705.087           6.26%

    Total Return Fund II
    --------------------
    Institutional Class
**  National Financial Services Corp. for Exclusive Benefit of our Customers,
    P.O. Box 3908, Church Street Station, New York, NY 10008                                         11,697,785.081           5.41%
**  MAC & Co, Mutual Fund Operations, P.O. Box 3198, Pittsburgh, PA 15230                            10,929,625.112           5.05%

    Administrative Class
    Structural Iron Workers Local 1 Annuity Plan - Investors Bank & Trust Trading Acct,
    7700 Industrial Dr, Forest Park, IL 60130                                                         2,069,016.613          15.61%
**  National Financial Services Corp for the Exclusive Benefit of our Customers,
    1 World Financial Center, 200 Liberty St., New York, NY 10281                                     1,793,805.202          13.54%
**  American Express Trust Company FBO American Express Trust RSP, P.O. Box 534, Minneapolis,
    MN 55440                                                                                          1,539,105.411          11.61%
    Celanese Americas Retirement Savings Plan, 86 Morris Ave., Summit, NJ 07901-3915                  1,493,903.687          11.27%
    T Rowe Price Trust Co FBO Western Digital, P.O. Box 17215, Baltimore, MD 21297                    1,159,890.091           8.75%
**  Mellon Bank as Agent/Omnibus, 135 Santilli Highway, Everett, MA 02149                               919,835.926           6.94%

    Total Return Fund III
    ---------------------
    Institutional Class
    The Roman Catholic Archbishop of Los Angeles - A Corp Sole, 3424 Wilshire Blvd.,
    Los Angeles, CA 90010                                                                             6,737,046.884           6.24%
    Bon Secours Health Systems Inc. Pension Master Trust, Director Treasury Services,
    1505 Marriottsville Rd., Marriottsville, MD 21104                                                 6,326,034.289           5.86%

                                       107

                                                                                                       Shares            Percent
                                                                                                 Beneficially Owned     of Class
                                                                                                 ------------------    -----------

    Administrative Class
    FIIOC as Agent for Certain EE Benefits Trans., 100 Magellan Way KW1C, Covington, KY 41015           237,352.363          44.60%
**  National Financial Services Corp for the Exclusive Benefit of our Cust,
    1 World Financial Center, 200 Liberty Street, New York, NY 10281                                    182,556.431          34.30%
    DBTCO RS, Trust Operations, P.O. Box 747, Dubuge, IA 52004                                           41,290.733           7.76%
**  Pershing LLC, Attn: Mutual Funds, P.O. Box 2052, Jersey City, NJ 07303                               28,464.737           5.35%

    Total Return Mortgage Fund
    --------------------------
    Institutional Class
    Bank of Namibia, Attn: Mr. Festus Hangula, P.O. Box 2882 Windhoek, 71 R Mugabe Ave,
    Windhoek Namibia 9000                                                                             2,340,425.898          34.02%
**  FOX & Co, P.O. Box 976, New York, NY 10268                                                        1,717,988.329          24.97%
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                         913,768.311          13.28%
    Security Trust Company as Co-Trustee FBO UA Local 467 DB Plan,
    2390 E Camelback Rd., Suite 240, Phoenix, AZ 85016                                                  464,755.016           6.75%

    Administrative Class
    Apostles of the Sacred Heart of Jesus, 265 Benham St., Hamden, CT 06514                             548,958.180          40.51%
    Apostles of the Sacred Heart of Jesus - Manor, 265 Benham St., Hamden, CT 06514                     541,204.058          39.94%
    Istituto Delle Apostle Del Sacro Cuore, C/O Apostles of the Sacred Heart of Jesus,
    265 Benham St., Hamden, CT 06514                                                                    241,298.630          17.81%

    Class A
**  CAN Trust Corp TTEE FBO JRB Omnibus, P.O. Box 5024, Costa Mesa, CA 92628                            444,686.657          13.21%
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            340,180.026          10.11%

    Class B
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            255,790.796          14.20%

    Class C
**  MLPF&S for the Sole Benefit of its Customers, 4800 Deer Lake Dr. E Fl 3, Jacksonville,
    FL 32246                                                                                            524,993.021          15.64%

    Class D
**  Charles Schwab & Co Inc Special Custody Acct for the Exclusive Benefit of our Cust,
    101 Montgomery St., San Francisco, CA 94104                                                       8,058,863.582*         65.30%

* Entity owned 25% or more of the outstanding  shares of beneficial  interest of
the Fund, and therefore may be presumed to "control" the Funds,  as that term is
defined in the 1940 Act.
** Shares are believed to be held only as nominee.

                                       108

The Reorganization of the PIMCO Money Market and Total Return II Funds

     On November 1, 1995, the Money Market Fund and the PIMCO Managed Bond and
Income Fund, two former series of PIMCO Funds: Equity Advisors Series, were
reorganized as series of the Trust, and were renamed Money Market Fund and Total
Return Fund II, respectively. All information presented for these Funds prior to
this date represents their operational history as series of PIMCO Funds: Equity
Advisors Series. In connection with the Reorganization, the Funds changed their
fiscal year end from October 31 to March 31.

The Reorganization of the PIMCO Global Bond Fund II

     On January 17, 1997, the Global Income Fund, a former series of PIMCO
Advisors Funds, was reorganized as a series of the Trust, and was renamed the
Global Bond Fund II. All information presented for this Fund prior to that date
represents its operational history as a series of PIMCO Advisors Funds. In
connection with the Reorganization, the Fund changed its fiscal year end from
September 30 to March 31.

Trademark Rights

     The CommodityRealReturn Strategy Fund has trade name and trademark rights
to the designation "CommodityRealReturn Strategy." The StocksPLUS and StocksPLUS
Total Return Funds have trade name and trademark rights to the designation
"StocksPLUS."

Code of Ethics

     The Trust and PIMCO have each adopted a Code of Ethics pursuant to the
requirements of the 1940 Act. These Codes of Ethics permit personnel subject to
the Codes to invest in securities, including securities that may be purchased or
held by the Funds.

Custodian, Transfer Agent and Dividend Disbursing Agent

     State Street Bank and Trust Company ("State Street"), 801 Pennsylvania,
Kansas City, Missouri 64105 serves as custodian for assets of all Funds. Under
the custody agreement, State Street may hold the foreign securities at its
principal office at 225 Franklin Street, Boston. Massachusetts 02110, and at
State Street's branches, and subject to approval by the Board of Trustees, at a
foreign branch of a qualified U.S. bank, with an eligible foreign subcustodian,
or with an eligible foreign securities depository.

     Pursuant to rules adopted under the 1940 Act, the Trust may maintain
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. Selection of these foreign custodial institutions is
made by the Board of Trustees following a consideration of a number of factors,
including (but not limited to) the reliability and financial stability of the
institution; the ability of the institution to perform capably custodial
services for the Trust; the reputation of the institution in its national
market; the political and economic stability of the country in which the
institution is located; and further risks of potential nationalization or
expropriation of Trust assets. The Board of Trustees reviews annually the
continuance of foreign custodial arrangements for the Trust. No assurance can be
given that the Trustees' appraisal of the risks in connection with foreign
custodial arrangements will always be correct or that expropriation,
nationalization, freezes, or confiscation of assets that would impact assets of
the Funds will not occur, and shareholders bear the risk of losses arising from
these or other events.

     National Financial Data Services, 330 W. 9/th/ Street, 4/th/ Floor, Kansas
City, Missouri 64105 serves as transfer agent and dividend disbursing agent for
the Institutional Class, Advisor Class, Administrative Class, Class J, and Class
K shares of the Funds. PFPC Inc., P.O. Box 9688, Providence, Rhode Island
02940-9688 serves as transfer agent and dividend disbursing agent for the Class
A, Class B, Class C, Class D and Class R shares of the Funds.

Independent Accountants

     PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO 64105, serves as
independent public accountants for all Funds. PricewaterhouseCoopers LLP
provides audit services, tax return review and assistance and consultation in
connection with review of SEC filings. Prior to November 1, 1995, Deloitte &
Touche LLP served as independent accountants for the Money Market and Total
Return II Funds. See "The Reorganization of the PIMCO Money Market and Total
Return II Funds" for additional information.

                                       109

Counsel

     Dechert LLP, 1775 I Street, N.W., Washington, D.C. 20006, passes upon
certain legal matters in connection with the shares offered by the Trust, and
also act as counsel to the Trust.

Registration Statement

     This Statement of Additional Information and the Prospectuses do not
contain all of the information included in the Trust's registration statement
filed with the SEC under the 1933 Act with respect to the securities offered
hereby, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statement, including the exhibits filed
therewith, may be examined at the offices of the SEC in Washington, D.C.

     Statements contained herein and in the Prospectuses as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.

Financial Statements

     Financial statements for the Trust as of March 31, 2003 for its fiscal year
then ended, including notes thereto, and the reports of PricewaterhouseCoopers
LLP thereon dated May 27, 2003, are incorporated by reference from the Trust's
2003 Annual Reports. A copy of the Reports delivered with this Statement of
Additional Information should be retained for future reference.

                                      110