104th Amendment to Prospectus Dated 12/30/03

It is intended that this filing will become effective immediately upon filing in accordance with Section 8 of the Investment Company Act of 1940 and the rules thereunder.

This Amendment is filed by PIMCO Funds (the “Registrant”) pursuant to Section 8(b) of the Investment Company Act of 1940, as amended (the “1940 Act”), for the purpose of updating certain information and making other non-material changes to the Offering Memorandum and Offering Memorandum Supplement of the Private Account Portfolio Series filed on July 31, 2003.

The shares of beneficial interest in the Private Account Portfolio Series are not registered under the Securities Act of 1933 (the “1933 Act”) because such shares will be issued by Registrant solely in private placement transactions that do not involve any “public offering” within the meaning of the 1933 Act. Shares of the Private Account Portfolio Series may be purchased only by clients of Pacific Investment Management Company (“PIMCO”) who maintain separately managed private accounts, and who are also “accredited investors,” as defined in Regulation D under the 1933 Act, and either (i) “qualified purchasers,” as defined for purposes of Section 3(c)(7) of the 1940 Act, or (ii) “qualified institutional buyers,” as defined in Rule 144A(a)(1) under the 1933 Act. This Amendment is not an offer to sell, or a solicitation of any offer to buy, any security to the public within the meaning of the 1933 Act.

This Offering Memorandum describes the Private Account Portfolio Series, which consists of 15 separate portfolios of the PIMCO Funds: Pacific Investment Management Series (the “Trust”). Each Portfolio is registered under the Investment Company Act of 1940, as amended (the “1940 Act”).

Shares of the Portfolios have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state. Each Portfolio issues its shares only in private placement transactions in accordance with Regulation D or other applicable exemptions under the Securities Act. This Offering Memorandum is not an offer to sell, or a solicitation of any offer to buy, any security to the public within the meaning of the Securities Act.

Shares of the Portfolios may be purchased only by clients of Pacific Investment Management Company LLC (“PIMCO”) who maintain separately managed private accounts, and who are also “accredited investors,” as defined in Regulation D under the Securities Act, and either (i) “qualified purchasers,” as defined for purposes of Section 3(c)(7) of the 1940 Act, or (ii) “qualified institutional buyers,” as defined in Rule 144A(a)(1) of the Securities Act. Shares of the Private Account Portfolio Series may also be purchased by certain investors outside of the United States consistent with applicable regulatory requirements.

Shares of the Portfolios are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act. Shares may be redeemed in accordance with the procedures set forth in this Offering Memorandum.

This Offering Memorandum is intended for use only by the person to whom it has been issued. Reproduction of this Offering Memorandum is prohibited.

The Securities and Exchange Commission has not approved or disapproved these securities, or determined if this Offering Memorandum is truthful or complete. Any representation to the contrary is a criminal offense.

The Portfolios provide access to the professional investment advisory services offered by PIMCO. As of September 30, 2003, PIMCO managed approximately $356.6 billion in assets. You can call PIMCO at 1-800-927-4648 to find out more about the Portfolios.

Although the Portfolios may be similar to one or more other funds or accounts advised by PIMCO, each Portfolio is a separate sub-fund with its own investment objective, policies and expenses. Other funds and accounts advised by PIMCO will have different investment results, and information about those funds and accounts should not be assumed to apply to the Portfolios.

This Offering Memorandum explains what you should know about the Portfolios before you invest. Please read it carefully.

The table below compares certain investment characteristics of the Portfolios. Other important characteristics are described in “Investment Objectives and Strategies” following this “Summary Information” section. Following the table are key concepts that are used throughout this Offering Memorandum.

Consistent with each Portfolio’s investment policies, each Portfolio invests in “Fixed Income Instruments,” which as used in this Offering Memorandum includes:

Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury.

In this Offering Memorandum, references are made to credit ratings of debt securities that measure an issuer’s expected ability to pay principal and interest on time. Credit ratings are determined by rating organizations, such as S&P or Moody’s. The following terms are generally used to describe the credit quality of debt securities depending on the security’s credit rating or, if unrated, credit quality as determined by PIMCO:

For a further description of credit ratings, see “Appendix A—Description of Securities Ratings.”

The Portfolios provide a broad range of investment choices. The following Portfolio descriptions identify the investment objective and principal investments and strategies of each Portfolio. A detailed “Summary of Principal Risks” describing principal risks of investing in the Portfolios begins after this section.

An investment in a Portfolio is not a deposit of a bank and is not guaranteed or insured by the Federal Deposit Insurance Corporation or any other government agency.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

The Portfolio may purchase investments on an extended settlement basis. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income. The Portfolio may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls).

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio invests primarily in investment grade securities, but may invest up to 15% of its total assets in high yield securities (“junk bonds”) rated B or higher by Moody’s or S&P, or if unrated, determined by the PIMCO to be of comparable quality.

The Portfolio may invest up to 20% of its total assets in securities denominated in non-U.S. currencies, and may invest beyond this limit in U.S. dollar-denominated securities of non-U.S. issuers. The Portfolio will normally hedge its exposure to non-U.S. currencies to reduce the risk of loss due to fluctuations in exchange rates.

The Portfolio is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

The Portfolio may purchase instruments on an extended settlement basis. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income. The Portfolio may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls).

The Portfolio’s investment objective is maximum total return, consistent with prudent investment management. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 80% of its assets in a portfolio of Fixed Income Instruments of issuers that economically are tied to countries with emerging securities markets, which may be represented by options, futures contracts, swap agreements, or mortgage- or asset-backed securities. A security is economically tied to an emerging market country if it is principally traded on the country’s securities markets, or the issuer is organized or principally operates in the country, derives a majority of its income from its operations within the country, or has a majority of its assets in the country. These securities may be denominated in non-U.S. currencies or the U.S. dollar. The Portfolio may, but is not required to, hedge its exposure to non-U.S. currencies. Assets not invested in emerging markets securities may be invested in other types of Fixed Income Instruments.

PIMCO has broad discretion to identify and invest in countries that it considers to qualify as emerging securities markets. However, PIMCO generally considers an emerging securities market to be one located in any country that is defined as an emerging or developing economy by the World Bank or its related organizations, or the United Nations or its authorities. The Portfolio emphasizes countries with relatively low gross national product per capita and with the potential for rapid economic growth. PIMCO will select the Portfolio’s country and currency composition based on its evaluation of relative interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, and any other specific factors PIMCO believes to be relevant. The Portfolio likely will concentrate its investments in Asia, Africa, the Middle East, Latin America and the developing countries of Europe. The Portfolio may invest in securities whose return is based on the return of an emerging securities market, such as a derivative instrument, rather than investing directly in securities of issuers from emerging markets.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may invest substantially all of its assets in high yield securities (“junk bonds”) rated B or higher by Moody’s or S&P, or, if unrated, determined by PIMCO to be of comparable quality, subject to a maximum of 25% of its total assets in securities rated B. The Portfolio is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

PIMCO has broad discretion to identify and invest in countries that it considers to qualify as emerging markets. However, PIMCO generally considers an emerging market to be any country that is defined as an- emerging or developing economy by the World Bank or its related organizations, or the United Nations or its

authorities. PIMCO will select the Portfolio’s country and currency composition based on its evaluation of relative interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, and other specific factors PIMCO believes to be relevant. The Portfolio likely will concentrate its investments in Asia, Africa, the Middle East, Latin America and the developing countries of Europe. The Portfolio may invest in securities whose return is based on the return of an emerging securities market, such as a derivative instrument, rather than investing directly in securities of issuers from emerging markets.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may invest substantially all of its assets in high yield securities (“junk bonds”) rated Caa or higher by Moody’s or CCC by S&P, or, if unrated, determined by PIMCO to be of comparable quality, subject to a maximum of 10% of total assets in securities rated Caa. The Portfolio is non-diversified, which means it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

The Portfolio may purchase instruments on an extended settlement basis. The Portfolio may lend its portfolio securities to brokers, dealers, and other financial institutions to earn income. The Portfolio may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase or sale contracts or by using other investment techniques (such as buy backs or dollar rolls).

The Portfolio’s investment objective is maximum total return, consistent with prudent investment management. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 80% of its assets in a diversified portfolio of high yield securities (“junk bonds”) rated below investment grade but rated at least B by Moody’s or S&P, or, if unrated, determined by PIMCO to be of comparable quality. Assets not invested in high yield securities may be invested in investment grade Fixed Income Instruments.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may invest up to 15% of its total assets in euro-denominated securities and may invest without limit in U.S. dollar-denominated securities of foreign issuers. The Fund normally will hedge at least 75% of its exposure to the euro to reduce the risk of loss due to fluctuations in currency exchange rates.

The Portfolio may invest up to 25% of its total assets in options, futures contracts, and swap agreements, and may purchase instruments on an extended settlement basis. The Portfolio may invest all of its assets in mortgage- or asset-backed securities. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income. The Portfolio may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls).

The Portfolio’s investment objective is maximum total return, consistent with prudent investment management. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 80% of its net assets in a portfolio of Fixed Income Instruments of non-U.S. issuers, representing at least three non-U.S. countries or currencies, which may be represented by options, futures contracts, swap agreements, or mortgage- or asset-backed securities. These securities may be denominated in non-U.S. currencies, baskets of non-U.S. currencies (such as the euro), or the U.S. dollar. The Portfolio may invest up to 10% of its total assets in securities of issuers that economically are tied to countries with emerging securities markets. The Portfolio will normally hedge at least 75% of its exposure to non-U.S. currencies to reduce the risk of loss due to fluctuations in exchange rates. Assets not invested in non-U.S. fixed income securities may be invested in U.S. Fixed Income Instruments.

PIMCO selects the Portfolio’s non-U.S. country and currency compositions based on an evaluation of relative interest rates, exchange rates, monetary and fiscal policies, trade and current account balances, and any other factors PIMCO believes to be relevant.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may invest only in investment grade securities. The Portfolio is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

Assets not invested in corporate fixed income securities may be invested in other types of Fixed Income Instruments.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio invests primarily in investment grade debt securities. The Portfolio may invest in securities of non-U.S. issuers only if the securities are U.S. dollar-denominated and may only invest up to 5% of its total assets in securities of issuers that are economically tied to countries with emerging securities markets. The Portfolio is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

The Portfolio’s investment objective is maximum total return, consistent with prudent investment management. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 80% of its assets in a diversified portfolio of mortgage-related securities of varying maturities, which may be represented by options, futures contracts, swap agreements, or asset-backed securities. Assets not invested in mortgage-related securities may be invested in other types of Fixed Income Instruments. Generally, such investments will be used to cover forward exposure and have an aggregate duration that normally will not exceed one year.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may only invest up to 5% of its total assets in each issue of non-U.S. Government Securities and will not invest more than 10% of its total assets in any single issuer of such securities.

The Portfolio’s investment objective is maximum total return, consistent with prudent investment management. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 80% of its assets in a diversified portfolio of mortgage-related securities of varying maturities, which may be represented by options, futures contracts, swap agreements, or asset-backed securities. Assets not invested in mortgage-related securities may be invested in other types of Fixed Income Instruments. Generally, such investments will be used to cover forward exposure and have an aggregate duration that normally will not exceed one year.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may invest up to 20% of its total assets in securities denominated in non-U.S. currencies, and may invest beyond this limit in U.S. dollar-denominated securities of non-U.S. issuers. The Portfolio will normally hedge its exposure to non-U.S. currencies to reduce the risk of loss due to fluctuations in exchange rates.

The Portfolio’s investment objective is maximum total return, consistent with prudent investment management. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 80% of its assets in a portfolio of fixed income securities of varying maturities issued by or on behalf of states and local governments and their agencies, authorities and other instrumentalities (“Municipal Securities”), or in instruments that provide exposure to the Municipal Securities sector, such as options, futures contracts, or swap agreements. Assets not invested in Municipal Securities may be invested in other types of Fixed Income Instruments. The Portfolio may also invest in securities issued by entities whose underlying assets are Municipal Securities, including without limitation, residual interest bonds.

Although the Portfolio primarily invests in Municipal Securities or instruments providing exposure to Municipal Securities, the Portfolio does not seek to minimize taxable income and realized capital gains, and, consequently, the Portfolio may generate substantial taxable income and gains. The Portfolio may invest more than 25% of its total assets in bonds of issuers in California and New York.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program. The Portfolio will seek income that is high relative to prevailing rates from Municipal Securities. Capital appreciation, if any, generally arises from decreases in interest rates or improving credit fundamentals for a particular state, municipality or issuer.

The Por’tfolio may also invest in options, futures contracts, and swap agreements, and purchase instruments on an extended settlement basis. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income. The Portfolio may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls).

The Portfolio’s investment objective is maximum total return, consistent with prudent investment management. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 80% of its net assets in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations, which may be represented by options, futures contracts, or swap agreements. Assets not invested in inflation-indexed bonds may be invested in other types of Fixed Income Instruments.

Inflation-indexed bonds are fixed income securities that are structured to provide protection against inflation. The value of the bond’s principal or the interest rate paid on the bond is adjusted to track changes in an official inflation measure. The U.S. Treasury uses the Consumer Price Index for Urban Consumers as the inflation measure. Inflation-indexed bonds issued by governments other than the United States are generally adjusted to reflect a comparable inflation index, calculated by that government. “Real return” equals total return less the estimated cost of inflation, which is typically measured by the change in an official inflation measure.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may invest only in investment grade securities. The Portfolio may invest up to 20% of its total assets in securities denominated in non-U.S. currencies, and may invest beyond this limit in U.S. dollar denominated securities of non-U.S. issuers. The Portfolio may not invest in securities of issuers that are economically tied to countries with emerging securities markets. The Portfolio will normally hedge at least 75% of its exposure to non-U.S. currencies to reduce the risk of loss due to fluctuations in currency exchange rates. The Portfolio is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

The Portfolio’s investment objective is maximum total return, consistent with preservation of capital and daily liquidity. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities.

The average duration of the Portfolio will vary based on PIMCO’s forecast for interest rates and will normally not exceed one year. For point of reference, the dollar-weighted average maturity of the Portfolio is normally not expected to exceed three years.

The Portfolio may invest only in investment grade securities. The Portfolio may invest in securities of non-U.S. issuers only if the securities are U.S. dollar-denominated and may only invest up to 5% of its total assets in securities of issuers that are economically tied to countries with emerging securities markets.

The Portfolio may invest in options, futures contracts, swap agreements, or mortgage- or asset-backed securities, and purchase instruments on an extended settlement basis. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income. The Portfolio may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls).

The Portfolio invests primarily in investment grade securities, but may invest up to 15% of its total assets in high yield securities (“junk bonds”) rated B or higher by Moody’s or S&P, or, if unrated, determined by PIMCO to be of comparable quality.

The Portfolio may invest up to 20% of its total assets in securities denominated in non-U.S. currencies, and may invest beyond this limit in U.S. dollar-denominated securities of non-U.S. issuers. The Portfolio may invest up to 10% of its total assets in securities of issuers that economically are tied to countries with emerging securities markets. The Portfolio will normally hedge its exposure to non-U.S. currencies to reduce the risk of loss due to fluctuations in exchange rates.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio may invest only in investment grade securities. The Portfolio may invest in securities of non-U.S. issuers only if the securities are U.S. dollar-denominated. The Portfolio may not invest in securities of issuers that are economically tied to countries with emerging securities markets. The Portfolio is non-diversified, which means that it may concentrate its assets in a smaller number of issuers than a diversified Portfolio.

Corporation (“FHLMC”). 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 U. S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government.

The average duration of the Portfolio varies based on the strategy currently being used by PIMCO in managing the assets of the Portfolio within the overall PIMCO private account management program.

The Portfolio invests primarily in investment grade securities, but may invest up to 15% of its total assets in high yield securities (“junk bonds”) rated B or higher by Moody’s or by S&P, or, if unrated, determined by PIMCO to be of comparable quality.

Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA”), a wholly owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association (“FNMA”) and the Federal Home Loan Mortgage Corporation (“FHLMC”). 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 U. S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government.

The value of your investment in a Portfolio changes with the values of that Portfolio’s investments. Many factors can affect those values. The factors that are most likely to have a material effect on a particular Portfolio’s holdings as a whole are called “principal risks.” This section describes the principal risks of investing in each Portfolio. Each Portfolio may be subject to additional principal risks and risks other than those described below because the types of investments made by a Portfolio can change over time. Securities and investment

techniques mentioned in this summary are described in greater detail under “Characteristics and Risks of Securities and Investment Techniques.” That section and “Investment Objectives and Policies” in the Offering Memorandum Supplement also include more information about the Portfolios, their investments and the related risks. There is no guarantee that a Portfolio will be able to achieve its investment objective. It is possible to lose money by investing in a Portfolio.

As interest rates rise, the value of fixed income securities held by each Portfolio are likely to decrease. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations.

Each Portfolio could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivatives contract, repurchase agreement or a loan of portfolio securities, is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings. Municipal bonds are subject to the risk that litigation, legislation or other political events, local business or economic conditions, or the bankruptcy of the issuer could have a significant effect on an issuer’s ability to make payments of principal and/or interest.

Each Portfolio, except the Asset-Backed Securities, International, Investment Grade Corporate, Mortgage, Municipal Sector, Real Return, Short-Term, and U.S. Government Sector Portfolios, may invest in high yield securities and unrated securities of similar credit quality (commonly known as “junk bonds”). These Portfolios may be subject to greater levels of interest rate, credit and liquidity risk than Portfolios that do not invest in such securities. High yield securities are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments. An economic downturn or period of rising interest rates could adversely affect the market for high yield securities and reduce a Portfolio’s ability to sell its high yield securities (liquidity risk). If the issuer of a security is in default with respect to interest or principal payments, a Portfolio may lose its entire investment.

The market price of securities owned by a Portfolio may go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than fixed income securities.

The value of a security owned by each Portfolio may decline for a number of reasons which directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or services.

Liquidity risk exists when particular investments are difficult to purchase or sell. A Portfolio’s investments in illiquid securities may reduce the returns of the Portfolio because it may be unable to sell the illiquid securities at an advantageous time or price. Portfolios with principal investment strategies that involve non-U.S. securities, derivatives or securities with substantial market and/or credit risk tend to have the greatest exposure to liquidity risk.

Each Portfolio may invest some or all of its assets in derivatives, which are financial contracts whose value depends on, or is derived from, the value of an underlying asset, reference rate or index. The various derivative instruments that the Portfolios may use are referenced under “Characteristics and Risks of Securities and

Investment Techniques—Derivatives” in this Offering Memorandum and described in more detail under “Investment Objectives and Policies” in the Offering Memorandum Supplement. The Portfolios typically use derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. The Portfolios may also use derivatives under circumstances that may have the effect of creating leverage, although as a general matter such use would be consistent with the duration guidelines applicable to the investment strategy being used for a particular Portfolio, which would be compatible with duration guidelines applied to PIMCO private accounts overall.

A Portfolio’s use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of risks described elsewhere in this section, such as liquidity risk, interest rate risk, market risk, credit risk and management risk. They also involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index. Under certain circumstances, a Portfolio investing in a derivative instrument could lose more than the principal amount invested, although PIMCO will typically cover open derivatives positions by segregating liquid assets (or other economically appropriate covering positions) in an attempt to minimize this risk. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that a Portfolio will engage in these transactions to reduce exposure to other risks when that would be beneficial.

Each Portfolio may purchase mortgage-related securities, which are subject to certain additional risks. Rising interest rates tend to extend the duration of mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, a Portfolio that holds mortgage-related securities may exhibit additional volatility. This is known as extension risk. In addition, mortgage-related

securities are subject to prepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of a Portfolio because the Portfolio will have to reinvest that money at the lower prevailing interest rates.

Each Portfolio (except the Municipal Sector Portfolio) may invest in foreign securities, and, as a result, may experience more rapid and extreme changes in value than a Portfolio that invests exclusively in securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Additionally, issuers of foreign securities are usually not subject to the same degree of regulation as U.S. issuers. Reporting, accounting and auditing standards of foreign countries differ, in some cases significantly, from U.S. standards. Also, nationalization, expropriation or confiscatory taxation, currency blockage, political changes or diplomatic developments could adversely affect a Portfolio’s investments in a foreign country. In the event of nationalization, expropriation or other confiscation, a Portfolio could lose its entire investment in foreign securities. Adverse conditions in a certain region can adversely affect securities of other countries whose economies appear to be unrelated. To the extent that a Portfolio invests a significant portion of its assets in a concentrated geographic area like Eastern Europe or Asia, the Portfolio will generally have more exposure to regional economic risks associated with foreign investments.

Foreign investment risk may be particularly high to the extent that a Portfolio, particularly the Emerging Markets and the Emerging Markets Local Currency Bond Portfolios invest in emerging market securities of issuers based in countries with developing economies. These securities may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed foreign countries.

Each Portfolio, except the Asset-Backed Securities, Investment Grade Corporate, Mortgage, Municipal Sector, Short-Term, and U.S. Government Sector Portfolios, may invest directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign currencies. These Portfolios are subject to the risk that

those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged.

Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the U.S. or abroad. As a result, a Portfolio’s investments in foreign currency-denominated securities may reduce the returns of the Portfolio.

Concentration of investments in a small number of issuers, industries or foreign currencies increases risk. Each Portfolio, except for the High Yield, Mortgage, Mortgage II, Short-Term, and Short Term II Portfolios, is “non-diversified,” which means that it may invest a greater percentage of their assets in the securities of a single issuer than the diversified Portfolios. Portfolios that invest in a relatively small number of issuers are more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio might be. Some of those issuers also may present substantial credit or other risks. Similarly, a Portfolio may be more sensitive to adverse economic, business or political developments if it invests a substantial portion of its assets in the bonds of similar projects or from issuers in the same state.

Certain transactions may give rise to a form of leverage. Such transactions generally involve, in essence, the “rolling forward” of unsettled purchases of securities, using techniques such as when-issued, delayed delivery, forward commitment transactions or reverse repurchase agreements. The Portfolios may also make loans of their portfolio securities. The use of derivatives may create leveraging risk. To mitigate leveraging risk, PIMCO will segregate liquid assets or otherwise cover the transactions that may give rise to such risk. The occurrence of leverage may cause a Portfolio to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet segregation requirements. Leverage, including borrowing, may cause a Portfolio

to be more volatile than if the Portfolio had not been leveraged. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of a Portfolio’s securities. However, PIMCO’s intended exposures are generally equivalent to exposures that could be gained using fully settled non-leveraged investment positions. Furthermore, the occurrence of leverage would, as a general matter, be consistent with the duration guidelines applicable to the investment strategy being used for a particular Portfolio, which would be compatible with duration guidelines applied to PIMCO private accounts overall.

Each Portfolio is subject to management risk because it is an actively managed investment portfolio. PIMCO and its team of portfolio managers will apply investment techniques and risk analyses in making investment decisions for the Portfolios, but there can be no guarantee that these will produce the desired results.

Because the Municipal Sector Portfolio may concentrate its investments in California Municipal Securities, the Portfolio may be affected significantly by economic, regulatory or political developments affecting the ability of California issuers to pay interest or repay principal. Provisions of the California Constitution and State statutes which limit the taxing and spending authority of California governmental entities may impair the ability of California issuers to pay principal and/or interest on their obligations. While California’s economy is broad, it does have major concentrations in high technology, aerospace and defense-related manufacturing, trade, entertainment, real estate and financial services, and may be sensitive to economic problems affecting those industries. Future California political and economic developments, constitutional amendments, legislative measures, executive orders, administrative regulations, litigation and voter initiatives could have an adverse effect on the debt obligations of California issuers.

Because the Municipal Sector Portfolio may concentrate its investments in New York Municipal Securities, the Portfolio may be affected significantly by economic, regulatory or political developments affecting the ability of

New York issuers to pay interest or repay principal. Certain issuers of New York municipal bonds have experienced serious financial difficulties in the past and a reoccurrence of these difficulties may impair the ability of certain New York issuers to pay principal or interest on their obligations. The financial health of New York City affects that of the State, and when New York City experiences financial difficulty it may have an adverse affect on New York municipal bonds held by the Fund. The growth rate of New York has at times been somewhat slower than the nation overall. The economic and financial condition of New York also may be affected by various financial, social, economic and political factors.

The business affairs of the Portfolios are managed under the direction of the Trust’s Board of Trustees. Information about the Trustees and the Trust’s executive officers is included in the Offering Memorandum Supplement under the heading “Management of the Trust.”

PIMCO serves as the investment adviser and the administrator (serving in its capacity as administrator, the “Administrator”) for the Portfolios. Subject to the supervision of the Board of Trustees, PIMCO is responsible for managing the investment activities of the Portfolios and the Portfolios’ business affairs and other administrative matters. A team of PIMCO portfolio managers are responsible for the day-to-day management of the Portfolios.

PIMCO is located at 840 Newport Center Drive, Newport Beach, California 92660. Organized in 1971, PIMCO provides investment management and advisory services to private accounts of institutional and individual clients and to mutual funds. As of September 30, 2003, PIMCO had approximately $356.6 billion in assets under management.

Each Portfolio pays PIMCO an advisory fee in return for providing investment advisory services. Each Portfolio also pays PIMCO an administrative fee for the administrative services it requires under a fee structure that is essentially fixed. PIMCO, in turn, provides administrative services for each Portfolio’s shareholders and also bears the costs of various third-party services required by the Portfolios, including audit, custodial, portfolio accounting, legal, transfer agency and printing costs.

The tables below show the advisory and administrative fees for each Portfolio at an annual rate based upon the average daily net assets of the Portfolios. The Portfolios may incur additional fees and expenses including, but not limited to, interest expense incurred as a result of investment management activities, Trustees fees and organizational expenses. PIMCO has agreed to reduce its administrative fee, subject to potential future reimbursement, to the extent that a Portfolio’s total operating expenses exceed, due to organizational expenses and the payment by a Portfolio of its pro rata portion of the Trustees fees of the Trust, the Total Annual Portfolio Operating Expenses set forth in the tables below.

The following table and example describe the fees and expenses you may pay if you buy and hold shares of the Asset-Backed Securities, Asset-Backed Securities II, High Yield, Investment Grade Corporate, Mortgage, Mortgage II, Municipal Sector, Real Return, Short-Term, Short-Term II, U.S. Government Sector, or U.S. Government Sector II Portfolio:

Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets)

The Trust’s Distributor is PIMCO Advisors Distributors LLC, an indirect subsidiary of Allianz Dresdner Asset Management of America L.P. The Distributor, located at 2187 Atlantic Street, Stamford, CT 06902, is a broker-dealer registered with the Securities and Exchange Commission.

Shares of the Portfolios are restricted securities and are issued only in private placement transactions in accordance with Regulation D or other applicable exemptions under the Securities Act. This Offering Memorandum does not constitute an offer to sell, or the solicitation of any offer to buy, any “security” to the public within the meaning of the Securities Act.

Shares of the Portfolios are offered only to private account clients of PIMCO, who are “accredited investors,” within the meaning of Regulation D under the Securities Act, and either (i) “qualified purchasers,” as defined for purposes of Section 3(c)(7) of the 1940 Act, or (ii) “qualified institutional buyers,” as defined in Rule 144A(a)(1) of the Securities Act. Shares may be offered to PIMCO and its affiliates, and to the benefit

plans of PIMCO and its affiliates. Shares of the Portfolios may be purchased at the relevant net asset value (“NAV”) without a sales charge or other fee. Shares of the Private Account Portfolio Series may also be purchased by certain investors outside of the United States consistent with applicable regulatory requirements.

PIMCO, acting as agent for its private account clients, will effect all purchases of shares of the Portfolios for those clients.

• Timing of Purchase Orders and Share Price Calculations. A purchase order received by the Trust or its designee prior to the close of regular trading (normally 4:00 p.m., Eastern time) on the New York Stock Exchange (“NYSE”), on a day the Trust is open for business, will be effected at that day’s NAV. An order received after the close of regular trading on the NYSE will be effected at the NAV determined on the next business day. The Trust is “open for business” on each day the NYSE is open for trading, which excludes the following holidays: New Year’s Day, Martin Luther King, Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Purchase orders will be accepted only on days on which the Trust is open for business.

• Verification of Identity. To help the federal government combat the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify and record information that identifies each person that opens a new account, and to determine whether such person’s name appears on government lists of known or suspected terrorists and terrorist organizations. As a result, a Portfolio must obtain the following information for each person that opens a new account:

4. Social security number, taxpayer identification number, or other identifying number.

Federal law prohibits the Portfolios and other financial institutions from opening a new account unless they receive the minimum identifying information listed above.

Individuals may also be asked for a copy of their driver’s license, passport or other identifying document in order to verify their identity. In addition, it may be necessary to verify an individual’s identity by cross-referencing the identification information with a consumer report or other electronic database. Additional information may be required to open accounts for corporations and other entities.

After an account is opened, a Portfolio may restrict your ability to purchase additional shares until your identity is verified. A Portfolio also may close your account and redeem your shares or take other appropriate action if it is unable to verify your identity within a reasonable time.

• Other Purchase Information. Purchases of a Portfolio’s shares will be made in full and fractional shares. In the interest of economy and convenience, certificates for shares will not be issued.

The Trust and the Distributor each reserves the right, in its sole discretion, to suspend the offering of shares of the Portfolios or to reject any purchase order, in whole or in part, when, in the judgment of management, such suspension or rejection is in the best interests of the Trust.

Shares of the Portfolios are not registered or qualified for sale in the states. Shares of the Portfolios may not be offered or sold in any state unless an exemption from registration or qualification is available. Investors should inquire as to whether shares of a particular Portfolio are available for offer and sale in the investor’s state of residence.

Subject to the approval of the Trust, shares of a Portfolio may be purchased with liquid securities that are eligible for purchase by the Portfolio (consistent with the Portfolio’s investment policies and restrictions) and

that have a value that is readily ascertainable in accordance with the Trust’s valuation policies. These transactions will be effected only if PIMCO intends to retain the security in the Portfolio as an investment. Assets purchased by a Portfolio in such a transaction will be valued in generally the same manner as they would be valued for purposes of pricing the Portfolio’s shares, if such assets were included in the Portfolio’s assets at the time of purchase. The Trust reserves the right to amend or terminate this practice at any time.

As stated above, the Portfolios’ shares are restricted securities that may not be sold to investors other than “accredited investors” within the meaning of Regulation D under the Securities Act, unless sold pursuant to

another available exemption from the Securities Act. Shares of the Portfolios may not be assigned, resold or otherwise transferred without the written consent of the Trust and, if requested, an opinion of counsel acceptable to the Trust that an exemption from registration is available. Any attempt at a transfer to a third party in violation of this provision shall be void. The Trust may enforce the provisions of this paragraph, either directly or through its agents, by entering an appropriate stop-transfer order on its books or otherwise refusing to register or transfer or permit the registration or transfer on its books of any purported transfer not in accordance with these restrictions.

PIMCO, acting as agent for its private account clients, will effect all redemptions of shares of the Portfolios.

• Timing of Redemption Requests and Share Price Calculations. A redemption request received by the Trust or its designee prior to the close of regular trading on the NYSE (normally 4:00 p.m., Eastern time), on a day the Trust is open for business, is effective on that day. A redemption request received after that time becomes effective on the next business day. Redemption requests for Portfolio shares are effected at the NAV per share next determined after receipt of a redemption request by the Trust or its designee. The request must properly identify all relevant information such as account number, redemption amount (in dollars or shares), and the Portfolio name.

• Other Redemption Information. Redemption proceeds will ordinarily be wired within three business days after receipt of the redemption request, but may take up to seven business days. Redemptions of Portfolio shares may be suspended when trading on the NYSE is restricted or during an emergency which makes it impracticable for the Portfolios to dispose of their securities or to determine fairly the value of their net assets, or during any other period as permitted by the Securities and Exchange Commission for the protection of investors. Under these and other unusual circumstances, the Trust may suspend redemptions or postpone payment for more than seven days, as permitted by law.

For shareholder protection, a request to change information contained in an account registration (for example, a request to change the bank designated to receive wire redemption proceeds) must be received in writing, signed by the minimum number of persons designated on the completed application that are required to effect a redemption, and accompanied by a signature guarantee from any eligible guarantor institution, as determined in accordance with the Trust’s procedures. Shareholders should inquire as to whether a particular institution is an eligible guarantor institution. A signature guarantee cannot be provided by a notary public. In addition, corporations, trusts, and other institutional organizations are required to furnish evidence of the authority of the persons designated on the completed application to effect transactions for the organization.

The Trust agrees to redeem shares of each Portfolio solely in cash up to the lesser of $250,000 or 1% of the Portfolio’s net assets during any 90-day period for any one shareholder. In consideration of the best interests of the remaining shareholders, the Trust reserves the right to pay any redemption proceeds exceeding this amount in whole or in part by a distribution in kind of securities held by a Portfolio in lieu of cash. It is highly unlikely that shares would ever be redeemed in kind. When shares are redeemed in kind, the redeeming shareholder should expect to incur transaction costs upon the disposition of the securities received in the distribution.

Exchanges of shares of a Portfolio for shares of any other Portfolio will be based on the respective NAVs of the shares involved. Subject to compliance with applicable private placement restrictions and the investment restrictions of the Portfolios, shares of the Portfolios may be purchased by exchanging Institutional Class shares of another series of the Trust for shares of the Portfolios.

Shares may only be exchanged with respect to Portfolios that are registered in an investor’s state of residence or where an exemption from registration is available. An exchange order is treated the same for tax purposes as a redemption followed by a purchase and may result in a capital gain or loss, and special rules may apply in computing tax basis when determining gain or loss. See “Tax Consequences” in this Offering Memorandum and “Taxation” in the Offering Memorandum Supplement.

The NAV of a Portfolio’s shares is determined by dividing the total value of a Portfolio’s investments and other assets, less any liabilities, by the total number of shares outstanding.

For purposes of calculating NAV, portfolio securities and other assets for which market quotes are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established

market makers, or pricing services. Certain securities or investments for which daily market quotations are not readily available may be valued, pursuant to guidelines established by the Board of Trustees, with reference to other securities or indices. Short-term investments having a maturity of 60 days or less are generally valued at amortized cost. Exchange traded options, futures and options on futures are valued at the settlement price determined by the exchange. Other securities for which market quotes are not readily available are valued at fair value as determined in good faith by the Board of Trustees or persons acting at their direction.

Investments initially valued in currencies other than the U.S. dollar are converted to U.S. dollars using exchange rates obtained from pricing services. As a result, the NAV of a Portfolio’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the NYSE is closed and an investor is not able to purchase, redeem or exchange shares.

Portfolio shares are valued as of the close of regular trading (normally 4:00 p.m., Eastern time) (the “NYSE Close”) on each day that the NYSE is open. For purposes of calculating the NAV, the Portfolios normally use pricing data for domestic equity securities received shortly after the NYSE Close and do not normally take into account trading, clearances or settlements that take place after the NYSE Close. Domestic fixed income and foreign securities are normally priced using data reflecting the earlier closing of the principal markets for those securities. Information that becomes known to the Portfolios or their agents after the NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of a security or the NAV determined earlier that day.

In unusual circumstances, instead of valuing securities in the usual manner, the Portfolios may value securities at fair value or estimate their value as determined in good faith by the Board of Trustees, generally based upon recommendations provided by PIMCO. Fair valuation may also be used if significant events occur after the close of the relevant market but prior to the NYSE Close.

Each Portfolio distributes substantially all of its net investment income to shareholders in the form of dividends. A shareholder begins earning dividends on Portfolio shares the day after the Trust receives the purchase payment. Each Portfolio intends to declare and pay income dividends quarterly.

In addition, each Portfolio distributes any net capital gains it earns from the sale of portfolio securities to shareholders no less frequently than annually.

A Portfolio’s dividend and capital gain distributions will automatically be reinvested in additional shares of the Portfolio at NAV unless the shareholder elects to have the distributions paid in cash. Shareholders do not pay any sales charges on shares received through the reinvestment of Portfolio distributions.

The following information is meant as a general summary for U.S. taxpayers. Please see the Offering Memorandum Supplement for additional information. You should rely on your own tax adviser for advice about the particular federal, state and local tax consequences to you of investing in a Portfolio. Non-U.S. shareholders should also consider the tax consequences imposed by their domicile’s tax revenue authority.

• Portfolio Distributions. Each Portfolio will distribute substantially all of its income and gains to its shareholders every year, and shareholders will be taxed on distributions they receive, regardless of whether they are paid in cash or are reinvested in additional shares of the Portfolio. If a Portfolio declares a dividend in October, November or December but pays it in January, you may be taxed on the dividend as if you received it in the previous year.

You will receive a tax report each year, before February 1. The report will tell you which dividends and redemptions must be treated as taxable ordinary income, and which, if any, are short-term or long-term capital gains. If a Portfolio designates a dividend as a capital gains distribution (typically from gains from investments that a Portfolio owned for more than one year), you will be liable for tax on that dividend at the long-term capital gains tax rate, no matter how long you have held your shares of that Portfolio.

Portfolio distributions are taxable to shareholders even if they are paid from income or gains earned by a Portfolio prior to a shareholder’s investment and thus were included in the price paid for the shares. For example, a shareholder who purchases shares on or just before the record date of a Portfolio distribution will pay full price for the shares and may receive a portion of the investment back as a taxable distribution.

• Sales, Exchanges, and Redemptions of Portfolio Shares. You will generally have a capital gain or loss if you dispose of your Portfolio shares by redemption, exchange or sale. The amount of the gain or loss and the rate of tax will depend primarily upon how much you paid for the shares, how much you sell them for, and how long you hold them. When a shareholder exchanges shares of a Portfolio for shares of another Portfolio, the transaction will be treated as a sale of the exchanged Portfolio shares, and any gain on those shares will generally be subject to federal income tax.

• Returns of Capital. If a Portfolio’s distributions exceed its taxable income and capital gains realized during a taxable year, all or a portion of the distributions made in the same taxable year may be recharacterized as a return of capital to shareholders. A return of capital distribution will generally not be taxable, but will reduce each shareholder’s cost basis in the Portfolio and result in a higher reported capital gain or lower reported capital loss when those shares on which the distribution was received are sold.

• Backup Withholding. Each Portfolio may be required to withhold U.S. federal income tax on all taxable distributions payable to you if you fail to provide the Portfolio with your correct taxpayer identification number or to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against your U.S. federal income tax liability.

Each Portfolio’s investment objective as set forth in the “Investment Objectives and Strategies” section, together with the investment restrictions set forth below, are fundamental policies of the Portfolios and may not be changed with respect to a Portfolio without shareholder approval by vote of a majority of the outstanding shares of that Portfolio.

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 and commodities laws;

Notwithstanding the foregoing, it is a fundamental policy of each Portfolio that it may elect, in the future, to pursue its investment objective by investing in one or more underlying investment companies or vehicles that in turn invest in the securities described in the “Investment Objectives and Strategies” section and whose shares may be offered to other parties as well as the Portfolio.

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

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

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.

Investment decisions for the Trust and for the other investment advisory clients of PIMCO are made with a view to achieve the investment objectives of each Portfolio. Investment decisions are the product of many factors, including the suitability of the investment for the particular client involved (as well as the Trust). Some securities considered for investments by the Portfolios 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 Portfolio 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 Portfolio and clients in a manner deemed fair and reasonable by PIMCO.

PIMCO may aggregate orders for the Portfolios 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 such cases, each day’s transactions in the security are, insofar as possible, averaged as to price and allocated between PIMCO’s clients in an equitable manner and in accordance with the amount being purchased or sold by each client. There may be circumstances when purchases or sales of portfolio securities for one or more clients will have an adverse effect on other clients.

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

PIMCO places orders for the purchase and sale of portfolio investments for the Portfolios’ accounts with brokers or dealers selected by it in its discretion. In effecting purchases and sales of portfolio securities for the account of the Portfolios, PIMCO will seek the best price and execution of the Portfolios’ orders. In doing so, a Portfolio 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 may receive research services from 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 Portfolio. These services, which in some cases may be purchased for cash, include such matters as general economic and security market reviews, industry and company reviews, evaluations of securities and recommendations as to the purchase and sale of securities. Some of these services are of value to PIMCO in advising various of its clients (including the Trust), although not all of these services are necessarily useful and of value in managing the Trust. The management fee paid by the Trust would not be reduced in the event that PIMCO and its affiliates received such services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934, as amended, the Trust may pay a broker-dealer that provides “brokerage and research services” to PIMCO an amount of disclosed commission for effecting a securities transaction for the Trust in excess of the commission that another broker-dealer would have charged for effecting the same 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 reserch 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 selling group member will provide research credits at a rate that is higher than that which is available for secondary market transactions.

The length of time a Portfolio has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Portfolio is known as “portfolio turnover.” PIMCO manages the Portfolios without regard generally to restrictions on portfolio turnover. Each Portfolio may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements. The use of certain derivative instruments with relatively short maturities may tend to exaggerate the portfolio turnover rate for some of the Portfolios. 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 Portfolio, 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 Portfolio, the higher these transaction costs borne by the Portfolio 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 trading costs and tax effects associated with portfolio turnover may adversely effect the Portfolio’s performance.

The portfolio turnover rate of a Portfolio 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 Portfolio 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.

This section provides additional information about some of the principal investments and related risks of the Portfolios described under “Summary Information” and “Summary of Principal Risks” above. It also describes characteristics and risks of additional securities and investment techniques that may be used by the Portfolios from time to time. Most of these securities and investment techniques are discretionary, which means that PIMCO can decide whether to use them or not. This Offering Memorandum does not attempt to disclose all of the various types of securities and investment techniques that may be used by the Portfolios. As with any mutual fund, investors in the Portfolios rely on the professional investment judgement and skill of PIMCO and the portfolio managers. Please see “Investment Objectives and Policies” in the Offering Memorandum Supplement for more detailed information about the securities and investment techniques described in this section and about other strategies and techniques that may be used by the Portfolios.

The Portfolios in this Offering Memorandum seek maximum total return. The total return sought by a Portfolio consists of both income earned on a Portfolio’s investments and capital appreciation, if any, arising from increases in the market value of a Portfolio’s holdings. Capital appreciation of fixed income securities generally results from decreases in market interest rates or improving credit fundamentals for a particular market sector or security.

In selecting securities for a Portfolio, PIMCO develops an outlook for interest rates, currency exchange rates and the economy; analyzes credit and call risks, and uses other security selection techniques. The proportion of a Portfolio’s assets committed to investment in securities with particular characteristics (such as quality, sector, interest rate or maturity) varies based on PIMCO’s outlook for the U.S. economy and the economies of other countries in the world, the financial markets and other factors.

U.S. Government Securities are obligations of, or guaranteed by, the U.S. Government, its agencies or government-sponsored enterprises. U.S. Government Securities are subject to market and interest rate risk, and may be subject to varying degrees of credit risk. U.S. Government Securities include zero coupon securities, which tend to be subject to greater market risk than interest-paying securities of similar maturities.

Municipal bonds are generally issued by states and local governments and their agencies, authorities and other instrumentalities. Municipal bonds are subject to interest rate, credit and market risk. The ability of an issuer to make payments could be affected by litigation, legislation or other political events or the bankruptcy of the issuer. Lower rated municipal bonds are subject to greater credit and market risk than higher quality municipal bonds. The types of municipal bonds in which the Portfolios may invest include municipal lease obligations. The Portfolios may also invest in securities issued by entities whose underlying assets are municipal bonds.

The Portfolios may invest, without limitation, in residual interest bonds, which are created by depositing municipal securities in a trust and dividing the income stream of an underlying municipal bond in two parts, one, a variable rate security and the other, a residual interest bond. The interest rate for the variable rate security is determined by an index or an auction process held approximately every 7 to 35 days, while the residual interest bond holder receives the balance of the income from the underlying municipal bond less an auction fee. The market prices of residual interest bonds may be highly sensitive to changes in market rates and may decrease significantly when market rates increase.

Each Portfolio may invest in mortgage- or other asset-backed securities. Mortgage-related securities include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (“SMBSs”) and other

securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property.

The value of some mortgage- or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose a Portfolio to a lower rate of return upon reinvestment of principal. When interest rates rise, the value of a mortgage-related security generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as other fixed income securities. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase. If unanticipated rates of prepayment on underlying mortgages increase the effective maturity of a mortgage-related security, the volatility of the security can be expected to increase. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.

One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or “IO” class), while the other class will receive all of the principal (the principal-only, or “PO” class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Portfolio’s yield to maturity from these securities. A Portfolio may not invest in any combination of mortgage-related or other asset-backed IO, PO, or inverse floater securities, except that the Asset-Backed Securities, Asset-Backed Securities II, Mortgage and Mortgage II Portfolios may invest up to 5% of their total assets in such securities.

Each Portfolio may invest in collateralized debt obligations (“CDOs”), which include 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. The Portfolios may invest in other asset-backed securities that have been offered to investors.

Certain Portfolios may invest in fixed- and floating-rate loans, which investments generally will be in the form of loan participations and assignments of portions of such loans. Participations and assignments involve special types of risk, including credit risk, interest rate risk, liquidity risk, and the risks of being a lender. If a Portfolio purchases a participation, it may only be able to enforce its rights through the lender, and may assume the credit risk of the lender in addition to the borrower.

Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the credit-worthiness of the issuer and general market liquidity. When interest rates rise, the value of corporate debt securities can be expected to decline. Debt securities with longer maturities tend to be more sensitive to interest rate movements than those with shorter maturities. Corporate debt securities may include forms of preferred stock, including dividend received deduction preferred stocks or other tax-advantaged securities.

Securities rated lower than Baa by Moody’s or lower than BBB by S&P are sometimes referred to as “high yield” or “junk” bonds. Investing in high yield securities involves special risks in addition to the risks associated with investments in higher-rated fixed income securities. While offering a greater potential opportunity for capital

appreciation and higher yields, high yield securities typically entail greater potential price volatility and may be less liquid than higher-rated securities. High yield securities may be regarded as predominately speculative with respect to the issuer’s continuing ability to meet principal and interest payments. They may also be more susceptible to real or perceived adverse economic and competitive industry conditions than higher-rated securities.

Variable and floating rate securities provide for a periodic adjustment in the interest rate paid on the obligations. Each Portfolio may invest in floating rate debt instruments (“floaters”) and engage in credit spread trades. While floaters provide a certain degree of protection against rises in interest rates, a Portfolio will participate in any declines in interest rates as well. The Asset-Backed Securities, Asset-Backed Securities II, Mortgage and Mortgage II Portfolios may invest in inverse floating rate debt instruments (“inverse floaters”). An inverse floater may exhibit greater price volatility than a fixed rate obligation of similar credit quality. The Asset-Backed Securities, Asset-Backed Securities II, Mortgage and Mortgage II Portfolios may invest up to 5% of their total assets in any combination of mortgage-related or other asset-backed IO, PO or inverse floater securities.

Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

The value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an inflation-indexed bond will be considered taxable ordinary income, even though investors do not receive their principal until maturity.

Each Portfolio 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 or losses that typically are contingent, or formulaically related to defined trigger events. Examples of trigger events include hurricanes, earthquakes, weather-related phenomena, or statistics relating to such events. Some event-linked bonds are commonly referred to as “catastrophe bonds.” If a trigger event occurs, a Portfolio may lose a portion or its entire principal invested in the bond or notional amount on a swap. Event-linked exposure often provides for an extension of maturity to process and audit loss claims where a trigger event has, or possibly has, occurred. An extension of maturity may increase volatility. Event-linked exposure may also expose a Portfolio to certain unanticipated risks including credit risk, counterparty risk, adverse regulatory or jurisdictional interpretations, and adverse tax consequences. Event-linked exposures may also be subject to liquidity risk.

Each Portfolio may invest in convertible securities. Convertible securities are generally preferred stocks and other securities, including fixed income securities and warrants, that are convertible into or exercisable for common stock at a stated price or rate. The price of a convertible security will normally vary in some proportion to changes in the price of the underlying common stock because of this conversion or exercise feature. However, the value of a convertible security may not increase or decrease as rapidly as the underlying common stock. A convertible security will normally also provide income and is subject to interest rate risk. Convertible securities may be lower-rated securities subject to greater levels of credit risk. A Portfolio may be forced to convert a

security before it would otherwise choose, which may have an adverse effect on the Portfolio’s ability to achieve its investment objective.

While the Portfolios intend to invest primarily in fixed income securities, each may invest in convertible securities or equity securities. While some countries or companies may be regarded as favorable investments, pure fixed income opportunities may be unattractive or limited due to insufficient supply, or legal or technical restrictions. In such cases, a Portfolio may consider equity securities or convertible securities to gain exposure to such investments.

Equity securities generally have greater price volatility than fixed income securities. The market price of equity securities owned by a Portfolio may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting equity securities markets generally or particular industries represented in those markets. The value of an equity security may also decline for a number of reasons which directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or services.

Certain Portfolios may invest in foreign securities. Investing in foreign securities involves special risks and considerations not typically associated with investing in U.S. securities. Shareholders should consider carefully the substantial risks involved for Portfolios that invest in securities issued by foreign companies and governments of foreign countries. These risks include: differences in accounting, auditing and financial reporting standards; generally higher commission rates on foreign portfolio transactions; the possibility of nationalization, expropriation or confiscatory taxation; adverse changes in investment or exchange control regulations; and political instability. Individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, capital reinvestment, resources, self-sufficiency and balance of payments position. The securities markets, values of securities, yields and risks associated with foreign securities markets may change independently of each other. Also, foreign securities and dividends and interest payable on those securities may be subject to foreign taxes, including taxes withheld from payments on those securities. Foreign securities often trade with less frequency and volume than domestic securities and therefore may exhibit greater price volatility. Investments in foreign securities may also involve higher custodial costs than domestic investments and additional transaction costs with respect to foreign currency conversions. Changes in foreign exchange rates also will affect the value of securities denominated or quoted in foreign currencies.

Certain Portfolios also may invest in sovereign debt issued by governments, their agencies or instrumentalities, or other government-related entities. Holders of sovereign debt may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. In addition, there is no bankruptcy proceeding by which defaulted sovereign debt may be collected.

• Emerging Market Securities. Certain of the Portfolios may invest in securities of issuers based in countries with developing (or “emerging market”) economies. A security is economically tied to an emerging market country if it is principally traded on the country’s securities markets, or the issuer is organized or principally operates in the country, derives a majority of its income from its operations within the country, or has a majority of its assets in the country. The adviser has broad discretion to identify and invest in countries that it considers to qualify as emerging securities markets. However, an emerging securities market is generally considered to be one located in any country that is defined as an emerging or developing economy by the World Bank or its related organizations, or the United Nations or its authorities. In making investments in emerging market securities, the Portfolios emphasize countries with relatively low gross national product per capita and with the potential for rapid economic growth. The adviser will select the country and currency composition based on its evaluation of relative interest rates, inflation rates,

exchange rates, monetary and fiscal policies, trade and current account balances, and any other specific factors it believes to be relevant.

Investing in emerging market securities imposes risks different from, or greater than, risks of investing in domestic securities or in foreign, developed countries. These risks include: smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; possible repatriation of investment income and capital. In addition, foreign investors may be required to register the proceeds of sales; future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies. The currencies of emerging market countries may experience significant declines against the U.S. dollar, and devaluation may occur subsequent to investments in these currencies by a Portfolio. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries.

Additional risks of emerging markets securities may include: greater social, economic and political uncertainty and instability; more substantial governmental involvement in the economy; less governmental supervision and regulation; unavailability of currency hedging techniques; companies that are newly organized and small; differences in auditing and financial reporting standards, which may result in unavailability of material information about issuers; and less developed legal systems. In addition, emerging securities markets may have different clearance and settlement procedures, which may be unable to keep pace with the volume of securities transactions or otherwise make it difficult to engage in such transactions. Settlement problems may cause a Portfolio to miss attractive investment opportunities, hold a portion of its assets in cash pending investment, or be delayed in disposing of a portfolio security. Such a delay could result in possible liability to a purchaser of the security.

Certain Portfolios may invest in Brady Bonds, which are securities created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with a debt restructuring. Investments in Brady Bonds may be viewed as speculative. Brady Bonds acquired by a Portfolio may be subject to restructuring arrangements or to requests for new credit, which may cause the Portfolio to suffer a loss of interest or principal on any of its holdings.

A Portfolio that invests directly in foreign (non-U.S.) currencies or in securities that trade in, or receive revenues in, foreign currencies will be subject to currency risk. Foreign currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or perceived changes in interest rates and other complex factors. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks, or by currency controls or political developments.

• Foreign Currency Transactions. Portfolios that invest in securities denominated in foreign currencies may engage in foreign currency transactions on a spot (cash) basis, and enter into forward foreign currency exchange contracts and invest in foreign currency futures contracts and options on foreign currencies and futures. A forward foreign currency exchange contract, which involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract, reduces a Portfolio’s exposure to changes in the value of the currency it will deliver and increases its exposure to changes in the value of the currency it will receive for the duration of the contract. The effect on the value of a Portfolio is similar to selling securities denominated in one currency and purchasing securities denominated in another currency. A contract to sell foreign currency would limit any potential gain which might be realized if the value of the hedged currency increases. A Portfolio may enter into these contracts to hedge against foreign exchange risk, to increase exposure to a foreign currency

or to shift exposure to foreign currency fluctuations from one currency to another. Suitable hedging transactions may not be available in all circumstances and there can be no assurance that a Portfolio will engage in such transactions at any given time or from time to time. Also, such transactions may not be successful and may eliminate any chance for a Portfolio to benefit from favorable fluctuations in relevant foreign currencies. A Portfolio may use one currency (or a basket of currencies) to hedge against adverse changes in the value of another currency (or a basket of currencies) when exchange rates between the two currencies are positively correlated. The Portfolio will segregate assets determined to be liquid by PIMCO to cover its obligations under forward foreign currency exchange contracts entered into for non-hedging purposes.

Each Portfolio may enter into repurchase agreements, in which the Portfolio purchases a security from a bank or broker-dealer and agrees to repurchase the security at the Portfolio’s cost plus interest within a specified time. If the party agreeing to repurchase should default, the Portfolio will seek to sell the securities which it holds. This could involve procedural costs or delays in addition to a loss on the securities if their value should fall below their repurchase price. Repurchase agreements maturing in more than seven days are considered illiquid securities.

Each Portfolio may enter into reverse repurchase agreements and dollar rolls, subject to a Portfolio’s limitations on borrowings. A reverse repurchase agreement or dollar roll involves the sale of a security by a Portfolio and its agreement to repurchase the instrument at a specified time and price, and may be considered a form of borrowing for some purposes. A Portfolio will segregate assets determined to be liquid by PIMCO or otherwise cover its obligations under reverse repurchase agreements, dollar rolls, and other borrowings. Reverse repurchase agreements, dollar rolls and other forms of borrowings may create leveraging risk for a Portfolio.

Each Portfolio may borrow money to the extent permitted under the 1940 Act. This means that, in general, a Portfolio may borrow money from banks for any purpose on a secured basis in an amount up to ¹/3 of the Portfolio’s total assets. A Portfolio may also borrow money for temporary administrative purposes on an unsecured basis in an amount not to exceed 5% of the Portfolio’s total assets.

Each Portfolio may, but is not required to, use derivative instruments for risk management purposes or as part of its investment strategies. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to stocks, bonds, interest rates, currencies or currency exchange rates, commodities, and related indexes. Examples of derivative instruments in which the Portfolios may invest include, but are not limited to, options contracts, futures contracts, options on futures contracts and swap agreements (including, but not limited to, credit default swaps). Each Portfolio may invest some or all of its assets in derivative instruments. The Portfolios may sometimes use derivatives as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk, or as a substitute for taking a position in the underlying asset. A portfolio manager may decide not to employ any of these strategies and there is no assurance that any derivatives strategy used by a Portfolio will succeed. A description of these and other derivative instruments that the Portfolios may use are described under “Investment Objectives and Policies” in the Offering Memorandum Supplement.

A Portfolio’s use of derivative instruments involves risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. Some of the important risk factors relating to derivative instruments that may be used by the Portfolios include liquidity risk, interest rate risk, market risk, credit risk, management risk and leverage risk, each of which is discussed in “Summary of Principal Risks.” A further description of various risks associated with particular derivative instruments is included in “Investment Objectives and Policies” in the Offering Memorandum Supplement. The following provides a more general discussion of important risk factors relating to all derivative instruments that may be used by the Portfolios.

Management Risk. Derivative products are highly specialized instruments that require investment techniques and risk analyses different from those associated with stocks and bonds. The use of a derivative requires an understanding not only of the underlying instrument but also of the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions.

Credit Risk. The use of a derivative instrument involves the risk that a loss may be sustained as a result of the failure of another party to the contract (usually referred to as a “counterparty”) to make required payments or otherwise comply with the contract’s terms. Additionally, credit default swaps could result in losses if a Portfolio does not correctly evaluate the creditworthiness of the company on which the credit default swap is based.

Liquidity Risk. Liquidity risk exists when a particular derivative instrument is difficult to purchase or sell. If a derivative transaction is particularly large or if the relevant market is illiquid (as is the case with many privately negotiated derivatives), it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price.

Leverage Risk. Because many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, reference rate or index can result in a loss substantially greater than the amount invested in the derivative itself. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. When a Portfolio uses derivatives for leverage, investments in that Portfolio will tend to be more volatile, resulting in larger gains or losses in response to market changes. To limit leverage risk, each Portfolio will segregate assets determined to be liquid by PIMCO in accordance with procedures established by the Board of Trustees (or, as permitted by applicable regulation, enter into certain offsetting positions) to cover its obligations under derivative instruments.

Lack of Availability. Because the markets for certain derivative instruments (including markets located in foreign countries) are relatively new and still developing, suitable derivatives transactions may not be available in all circumstances for risk management or other purposes. There is no assurance that a Portfolio will engage in derivatives transactions at any time or from time to time. A Portfolio’s ability to use derivatives may also be limited by certain regulatory and tax considerations.

Market and Other Risks. Like most other investments, derivative instruments are subject to the risk that the market value of the instrument will change in a way detrimental to a Portfolio’s interest. If a portfolio

manager incorrectly forecasts the values of securities, currencies or interest rates or other economic factors in using derivatives for a Portfolio, the Portfolio might have been in a better position if it had not entered into the transaction at all. While some strategies involving derivative instruments can reduce the risk of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in other Portfolio investments. A Portfolio may also have to buy or sell a security at a disadvantageous time or price because the Portfolio is legally required to maintain offsetting positions or asset coverage in connection with certain derivatives transactions.

Other risks in using derivatives include the risk of mispricing or improper valuation of derivatives and the inability of derivatives to correlate perfectly with underlying assets, rates and indexes. Many derivatives, in particular privately negotiated derivatives, are complex and often valued subjectively. Improper valuations can result in increased cash payment requirements to counterparties or a loss of value to a Portfolio. Also, the value of derivatives may not correlate perfectly, or at all, with the value of the assets, reference rates or indexes they are designed to closely track. In addition, a Portfolio’s use of derivatives may cause the Portfolio to realize higher amounts of short-term capital gains (generally taxed at ordinary income tax rates) than if the Portfolio had not used such instruments.

The Portfolios may also enter into, or acquire participations in, delayed funding loans and revolving credit facilities, in which a lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. These commitments may have the effect of requiring a Portfolio 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 Portfolio is committed to advance additional funds, it will segregate assets determined to be liquid by PIMCO in accordance with procedures established by the Board of Trustees in an amount sufficient to meet such commitments. Delayed funding loans and revolving credit facilities are subject to credit, interest rate and liquidity risk and the risks of being a lender.

Each Portfolio may purchase securities which it is eligible to purchase on a when-issued basis, may purchase and sell such securities for delayed delivery and may make contracts to purchase such securities for a fixed price at a future date beyond normal settlement time (forward commitments). When-issued transactions, delayed delivery purchases and forward commitments involve a risk of loss if the value of the securities declines prior to the settlement date. This risk is in addition to the risk that the Portfolio’s other assets will decline in the value. Therefore, these transactions may result in a form of leverage and increase a Portfolio’s overall investment exposure. Typically, no income accrues on securities a Portfolio has committed to purchase prior to the time delivery of the securities is made, although a Portfolio may earn income on securities it has segregated to cover these positions.

Each Portfolio may invest up to 10% of its total assets in securities of other investment companies, such as open-end or closed-end management investment companies, or in pooled accounts or other investment vehicles which invest in foreign markets; provided, however, that each Portfolio may invest in money market funds advised by PIMCO or its affiliates to the extent permitted by any regulatory authority having jurisdiction. As a shareholder of an investment company, a Portfolio may indirectly bear service and other fees which are in addition to the fees the Portfolio pays its service providers.

Subject to the restrictions and limitations of the 1940 Act, each Portfolio may, in the future, elect to pursue its investment objective by investing in one or more underlying investment vehicles or companies that have substantially similar investment objectives, policies and limitations as the Portfolio. The Portfolios may also invest in exchange traded funds, subject to the restrictions and limitations of the 1940 Act.

Each Portfolio may make short sales as part of its overall portfolio management strategies or to offset a potential decline in value of a security. A short sale involves the sale of a security that is borrowed from a broker or other institution to complete the sale. For these purposes, a Portfolio may also hold or have the right to acquire securities which, without the payment of any further consideration, are convertible into or exchangeable for the securities sold short. Short sales expose a Portfolio to the risk that it will be required to acquire, convert or exchange securities to replace the borrowed securities (also known as “covering” the short position) at a time when the securities sold short have appreciated in value, thus resulting in a loss to the Portfolio. A Portfolio making a short sale (other than a “short sale against the box”) must segregate assets determined to be liquid by PIMCO in accordance with procedures established by the Board of Trustees or otherwise cover its position in a permissible manner.

Each Portfolio may invest up to 15% of its net assets in illiquid securities. Certain illiquid securities may require pricing at fair value as determined in good faith under the supervision of the Board of Trustees. A portfolio manager may be subject to significant delays in disposing of illiquid securities, and transactions in illiquid securities may entail registration expenses and other transaction costs that are higher than those for transactions in liquid securities. The term “illiquid securities” for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which a Portfolio has valued

the securities. Restricted securities, i.e., securities subject to legal or contractual restrictions on resale, may be illiquid. However, some restricted securities (such as securities issued pursuant to Rule 144A under the Securities Act of 1933 and certain commercial paper) may be treated as liquid, although they may be less liquid than registered securities traded on established secondary markets.

For the purpose of achieving income, each Portfolio may lend its portfolio securities to brokers, dealers, and other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized. Please see “Investment Objectives and Policies” in the Offering Memorandum Supplement for details. When a Portfolio lends portfolio securities, its investment performance will continue to reflect changes in the value of the securities loaned, and the Portfolio will also receive a fee or interest on the collateral. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent. A Portfolio may pay lending fees to a party arranging the loan.

For temporary or defensive purposes, each Portfolio may invest without limit in U.S. debt securities, including taxable securities and short-term money market securities, when PIMCO deems it appropriate to do so. When a Portfolio engages in such strategies, it may not achieve its investment objective.

The investment objective of each Portfolio is fundamental and may not be changed without shareholder approval. Unless otherwise stated, all other investment policies of the Portfolios may be changed by the Board of Trustees without shareholder approval.

Unless otherwise stated, all percentage limitations on Portfolio investments listed in this Offering Memorandum will apply at the time of investment. A Portfolio would not violate these limitations unless an excess or deficiency occurs or exists immediately after and as a result of an investment.

Rating agencies are private services that provide ratings of the credit quality of fixed income securities, including convertible securities. Appendix A to this Offering Memorandum describes the various ratings assigned to fixed income securities by Moody’s and S&P. Ratings assigned by a rating agency are not absolute standards of credit quality and do not evaluate market risks. Rating agencies may fail to make timely changes in credit ratings and an issuer’s current financial condition may be better or worse than a rating indicates. A Portfolio will not necessarily sell a security when its rating is reduced below its rating at the time of purchase. PIMCO does not rely solely on credit ratings, and develops its own analysis of issuer credit quality.

A Portfolio may purchase unrated securities (which are not rated by a rating agency) if PIMCO determines that the security is of comparable quality to a rated security that the Portfolio may purchase. Unrated securities may be less liquid than comparable rated securities and involve the risk that the portfolio manager may not accurately evaluate the security’s comparative credit rating. Analysis of the creditworthiness of issuers of high yield securities may be more complex than for issuers of higher-quality fixed income securities. To the extent that a Portfolio invests in high yield and/or unrated securities, the Portfolio’s success in achieving its investment objective may depend more heavily on the portfolio manager’s creditworthiness analysis than if the Portfolio invested exclusively in higher-quality and rated securities.

The Portfolios may invest in other types of securities and use a variety of investment techniques and strategies which are not described in this Offering Memorandum. These securities and techniques may subject the Portfolios to additional risks. Please see the Offering Memorandum Supplement for additional information about the securities and investment techniques described in this Offering Memorandum and about additional securities and techniques that may be used by the Portfolios.

A Portfolio’s investments may range in quality from securities rated in the lowest category in which the Portfolio is permitted to invest to securities rated in the highest category (as rated by Moody’s or S&P or, if unrated, determined by PIMCO to be of comparable quality). The percentage of a Portfolio’s assets invested in securities in a particular rating category will vary. The following terms are generally used to describe the credit quality of fixed income securities:

High Quality Debt Securities are those rated in one of the two highest rating categories (the highest category for commercial paper) or, if unrated, deemed comparable by PIMCO.

Investment Grade Debt Securities are those rated in one of the four highest rating categories or, if unrated, deemed comparable by PIMCO.

Below Investment Grade, High Yield Securities (“Junk Bonds”) are those rated lower than Baa by Moody’s or BBB by S&P and comparable securities. They are deemed predominately speculative with respect to the issuer’s ability to repay principal and interest.

Following is a description of Moody’s and S&P’s rating categories applicable to fixed income securities.

Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as “gilt edge.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present that make the long-term risks appear somewhat larger than with Aaa securities.

A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present that suggest a susceptibility to impairment sometime in the future.

Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

Ba: Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa: Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.

Ca: Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.

C: Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Moody’s applies numerical modifiers, 1, 2, and 3 in each generic rating classified from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.

Moody’s short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations which have an original maturity not exceeding one year. Obligations relying upon support mechanisms such as letters of credit and bonds of indemnity are excluded unless explicitly rated.

Moody’s employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers:

PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternate liquidity.

PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.

PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.

NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime rating categories.

There are three rating categories for short-term municipal bonds that define an investment grade situation, which are listed below. In the case of variable rate demand obligations (VRDOs), a two-component rating is assigned. The first element represents an evaluation of the degree of risk associated with scheduled principal and interest payments, and the other represents an evaluation of the degree of risk associated with the demand feature. The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1. MIG ratings terminate at the retirement of the obligation while VMIG rating expiration will be a function of each issue’s specific structural or credit features.

MIG 1/VMIG 1: This designation denotes superior quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2: This designation denotes strong quality. Margins of protection are ample although not so large as in the preceding group.

MIG 3/VMIG 3: This designation denotes acceptable quality. All security elements are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.

SG: This designation denotes speculative quality. Debt instruments in this category lack margins of protection.

AAA: Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.

AA: Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only in small degree.

A: Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions, or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories.

Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major exposures to adverse conditions.

BB: Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.

B: Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.

CCC: Debt rated CCC has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.

CC: The rating CC is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.

C: The rating C is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.

CI: The rating CI is reserved for income bonds on which no interest is being paid.

D: Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating will also be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.

Provisional ratings: The letter “p” indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.

r: The “r” is attached to highlight derivative, hybrid, and certain other obligations that S&P believes may experience high volatility or high variability in expected returns due to non-credit risks. Examples of such obligations are: securities whose principal or interest return is indexed to equities, commodities, or currencies; certain swaps and options; and interest only and principal only mortgage securities.

The absence of an “r” symbol should not be taken as an indication that an obligation will exhibit no volatility or variability in total return.

Debt obligations of issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties.

An S&P commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from A for the highest quality obligations to D for the lowest. These categories are as follows:

A-1: This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.

A-2: Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.

A-3: Issues carrying this designation have adequate capacity for timely payment. They are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.

B: Issues rated B are regarded as having only speculative capacity for timely payment.

C: This rating is assigned to short-term debt obligations with a doubtful capacity for payment.

D: Debt rated D is in payment default. The D rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period.

A commercial paper rating is not a recommendation to purchase, sell or hold a security inasmuch as it does not comment as to market price or suitability for a particular investor. The ratings are based on current information furnished to S&P by the issuer or obtained from other sources it considers reliable. S&P does not perform an audit in connection with any rating and may, on occasion, rely on unaudited financial information. The ratings may be changed, suspended, or withdrawn as a result of changes in or unavailability of such information.

The Trust’s Offering Memorandum Supplement to shareholders includes additional information about the Portfolios. The Offering Memorandum Supplement is incorporated by reference into this Offering Memorandum, which means it is part of this Offering Memorandum for legal purposes. Additional information about the Portfolios’ investments will be available in each Portfolio’s annual report and semi-annual report to shareholders. Each Portfolio’s annual report will discuss the market conditions and investment strategies that significantly affected each Portfolio’s performance during its fiscal year.

You may obtain free copies of any of these materials, request other information about a Portfolio, or make inquiries by writing to:

You may review and copy information about the Trust, including the Offering Memorandum Supplement, at the Securities and Exchange Commission’s public reference room in Washington, D.C. You may call the Commission at 1-202-942-8090 for information about the operation of the public reference room. You may also access reports and other information about the Trust on the Commission’s Web site at www.sec.gov. You may obtain copies of this information, with payment of a duplication fee, by writing the Public Reference Section of the Commission, Washington, D.C. 20549-0102, or by e-mailing your request to publicinfo@sec.gov.

The Portfolios issue shares only in accordance with Regulation D or other applicable exemptions under the Securities Act. This Offering Memorandum is not an offer to sell, or a solicitation of any offer to buy, any security to the public within the meaning of the Securities Act.


                                  PIMCO Funds:
                      Pacific Investment Management Series

                         Offering Memorandum Supplement:
                  PIMCO Funds: Private Account Portfolio Series
<R>
       This Offering Memorandum Supplement (the "Supplement") should be read in
conjunction with the Offering Memorandum of the Private Account Portfolios
Series of PIMCO Funds: Pacific Investment Management Series (the "Trust"), dated
December 31, 2003, as amended or supplemented from time to time. Each Portfolio
issues its shares only in private placement transactions in accordance with
Regulation D or other applicable exemptions under the Securities Act of 1933, as
amended (the "Securities Act"). This Supplement is not an offer to sell, or a
solicitation of any offer to buy, any security to the public within the meaning
of the Securities Act. </R>
<R>
       Shares of the Portfolios may be purchased only by clients of Pacific
Investment Management Company ("PIMCO") who maintain separately managed private
accounts, and who are also "accredited investors," as defined in Regulation D
under the Securities Act, and either (i) "qualified purchasers," as defined for
purposes of Section 3(c)(7), or (ii) "qualified institutional buyers," as
defined in Rule 144A(a)(1) of the Securities Act. Shares of the Private Account
Portfolio Series may also be purchased by certain investors outside of the
United States consistent with applicable regulatory requirements.  </R>


       Shares of the Portfolios are subject to restrictions on transferability
and resale and may not be transferred or resold except as permitted under the
Securities Act. Shares may be redeemed in accordance with the procedures set
forth in the Offering Memorandum.

       This Supplement is intended for use only by the person to whom it has
been issued. Reproduction of this Supplement is prohibited.
<R>
December 31, 2003  </R>

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 ........................................................... 12
Corporate Debt Securities ..................................................... 13
Borrowing ..................................................................... 13
Convertible Securities ........................................................ 15
High Yield Securities ("Junk Bonds") .......................................... 15
Variable and Floating Rate Securities ......................................... 16
Participation on Creditors Committees ......................................... 16
Foreign Securities ............................................................ 16
Foreign Currency Transactions ................................................. 18
Foreign Currency Exchange-Related Securities .................................. 19
Delayed Funding Loans and Revolving Credit Facilities ......................... 20
Loans of Portfolio Securities ................................................. 20
Short Sales ................................................................... 21
When-Issued, Delayed Delivery and Forward Commitment Transactions ............. 21
Derivative Instruments ........................................................ 22
Inflation-Indexed Bonds ....................................................... 29
Hybrid Instruments ............................................................ 30
Event-Linked Exposure ......................................................... 30
Warrants to Purchase Securities ............................................... 31
Illiquid Securities ........................................................... 31

INVESTMENT RESTRICTIONS ................................................................ 31

MANAGEMENT OF THE TRUST ................................................................ 33

Trustees and Officers ......................................................... 33
Standing Committees ........................................................... 38
Compensation Table ............................................................ 39
Investment Adviser ............................................................ 40
Advisory Agreement ............................................................ 40
Proxy Voting Policies and Procedures .......................................... 41
Portfolio Administrator ....................................................... 42

DISTRIBUTION OF TRUST SHARES ........................................................... 43

Distributor ................................................................... 43
Purchases, Redemptions and Exchanges .......................................... 43
Request for Multiple Copies of Shareholder Documents .......................... 44

NET ASSET VALUE ........................................................................ 44

TAXATION ............................................................................... 44

Distributions ................................................................. 46
Sales of Shares ............................................................... 47
Backup Withholding ............................................................ 47

Options, Futures and Forward Contracts, and Swap Agreements .................................... 47
Short Sales .................................................................................... 48
Passive Foreign Investment Companies ........................................................... 48
Foreign Currency Transactions .................................................................. 48
Foreign Taxation ............................................................................... 49
Original Issue Discount and Market Discount .................................................... 49
Constructive Sales ............................................................................. 50
Non-U.S. Shareholders .......................................................................... 50
Other Taxation ................................................................................. 51

OTHER INFORMATION ....................................................................................... 51

Capitalization ................................................................................. 51
Performance Information ........................................................................ 51
Calculation of Yield ........................................................................... 52
Calculation of Total Return .................................................................... 52
Voting Rights .................................................................................. 55
Control Persons and Principal Holders of Securities ............................................ 56
The Reorganization of PIMCO International Bond Fund and PIMCO Emerging Markets Bond Fund II .... 58
Code of Ethics ................................................................................. 58
Custodian, Transfer Agent and Dividend Disbursing Agent ........................................ 58
Independent Accountants ........................................................................ 58
Counsel ........................................................................................ 58
Financial Statements ........................................................................... 58


                                    THE TRUST
<R>
       PIMCO Funds ("the Trust") is an open-end management investment company
("mutual fund") currently consisting of separate investment portfolios (the
"Portfolios"), including: the PIMCO Asset-Backed Securities Portfolio; the PIMCO
Asset-Backed Securities Portfolio II; the PIMCO Emerging Markets Portfolio; the
PIMCO High Yield Portfolio; the PIMCO International Portfolio; the PIMCO
Investment Grade Corporate Portfolio; the PIMCO Mortgage Portfolio; the PIMCO
Mortgage Portfolio II; the PIMCO Municipal Sector Portfolio; the PIMCO Real
Return Bond Portfolio; the PIMCO Emerging Markets Local Currency Bond
Portfolio; the PIMCO Short-Term Portfolio; the PIMCO Short-Term Portfolio II;
the PIMCO U.S. Government Sector Portfolio; and the PIMCO U.S. Government Sector
Portfolio II. Each Portfolio is registered under the Investment Company Act of
1940, as amended (the "1940 Act").</R>

                       INVESTMENT OBJECTIVES AND POLICIES

       The investment objectives and general investment policies of each
Portfolio are described in the Offering Memorandum. Additional information
concerning the characteristics of certain of the Portfolios' investments is set
forth below.

Municipal Bonds

       Each Portfolio, particularly the PIMCO Municipal Sector Portfolio, may
invest in securities issued by states, municipalities and other political
subdivisions, agencies, authorities and instrumentalities of states and
multi-state agencies or authorities ("Municipal Bonds").

       The PIMCO Municipal Sector Portfolio may, from time to time, invest more
than 25% of its assets in Bonds of issuers in California and New York, and, if
so, will be subject to the California and New York State specific risk discussed
in the "Summary of Risks" section of the Offering Memorandum and in this
"Municipal Bonds" section of this Offering Memorandum Supplement, but the
Portfolio does not have any present intention to invest more than that amount in
any other 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 that the PIMCO Municipal
Sector Portfolio 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 PIMCO Municipal Sector Portfolio 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 PIMCO Municipal Sector
Portfolio will assess the financial condition of the borrower, the merits of the
project, the level of public support for the project, and the

                                       1


legislative history of lease financing in the state. These securities may be
less readily marketable than other municipals. The PIMCO Municipal Sector
Portfolio may also purchase unrated lease obligations if determined by the
Adviser to be of comparable quality to rated securities in which the Portfolio
is permitted to invest.

       The PIMCO Municipal Sector Portfolio may seek to enhance its 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. The PIMCO
Municipal Sector Portfolio 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, the PIMCO Municipal Sector Portfolio would
hold the longer-term security, which could experience substantially more
volatility.

       The PIMCO Municipal Sector Portfolio 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. The PIMCO Municipal Sector Portfolio 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. The PIMCO Municipal Sector
Portfolio will not invest more than 5% of its net assets in municipal warrants.

       The PIMCO Municipal Sector Portfolio 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 PIMCO Municipal Sector Portfolio 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 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 Portfolios when short-term interest rates
rise, and increase the interest paid to the Portfolios 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

                                       2


stable. Although volatile, Residual Interest Bonds typically offer the potential
for yields exceeding the yields available on fixed rate bonds with comparable
credit quality, coupon, call provisions and maturity.

       The PIMCO Municipal Sector Portfolio 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 PIMCO Municipal Sector Portfolio 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 PIMCO Municipal Sector Portfolio may purchase and sell portfolio
investments to take advantage of changes or anticipated changes in yield
relationships, markets or economic conditions. The PIMCO Municipal Sector
Portfolio may also sell Municipal Bonds due to changes in the Adviser's
evaluation of the issuer or cash needs resulting from redemption requests for
Portfolio 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 Portfolio'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 Portfolio 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 the Portfolio's Municipal Bonds in
the same manner. In particular, the PIMCO Municipal Sector Portfolio are subject
to the risks inherent in concentrating investment in a particular state or
region. The following summarizes information drawn from official statements, and
other public documents available relating to issues potentially affecting
securities offerings of 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 substantively different.

       California. The PIMCO Municipal Sector Portfolio may concentrate its
investments in California municipal bonds, the Portfolio 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

                                       3


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 Portfolios, and the Portfolios 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 PIMCO Municipal Sector Portfolio 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 PIMCO
Municipal Sector Portfolio may be impaired.

       Certain tax-exempt securities in which the PIMCO Municipal Sector
Portfolio 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

                                       4


by orders of the California Public Utilities 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 by Standard & Poor's Rating 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 PIMCO Municipal Sector
Portfolio invest.

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

       Constitutional and statutory amendments as well as budget developments
may affect the ability of California issuers to pay interest and principal on
their obligations. The overall effect may depend upon whether a particular
California tax-exempt security is a general or limited obligation bond and on
the type of security provided for the bond. It is possible that 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 PIMCO Municipal Sector Portfolio may concentrate
its investments in New York tax-exempt bonds, the Portfolio 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 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

                                       5


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. As a result, the downturn in stock
market performance prior to September 11, resulted in adverse effects on 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.

                                       6


       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 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 PIMCO Municipal
Sector Portfolio may invest.

       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 Portfolios 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

                                       7


unions and mortgage bankers. Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not
backed by the full faith and credit of the United States Government. FHLMC was
created by Congress in 1970 for the purpose of increasing the availability of
mortgage credit for residential housing. It is a government-sponsored
corporation formerly owned by the twelve Federal Home Loan Banks and now owned
entirely by private stockholders. FHLMC issues Participation Certificates
("PCs") which represent interests in conventional mortgages from FHLMC's
national portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, but PCs are not backed by the full faith and credit of
the United States Government.

       Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the 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
Portfolios 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 Portfolio 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 Portfolio's net assets will be illiquid.

       Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the
Portfolios' industry concentration restrictions, set forth below under
"Investment Restrictions" in the Offering Memorandum, by virtue of the exclusion
from that test available to all securities that are issued or guaranteed by the
U.S. Government, its agencies, or instrumentalities ("U.S. Government
Securities"). In the case of privately issued mortgage-related securities, the
Portfolios 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.

                                       8


       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 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

                                       9


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 the Mortgage and Mortgage
II Portfolios 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 Portfolio's limitations on investment in illiquid securities.

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

       SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Portfolio's yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Portfolio 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 Portfolio's limitations on investment in illiquid securities.

       Collateralized Debt Obligations. The Portfolios 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.

                                       10


       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 Portfolio 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 Portfolios 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 Offering Memorandum Supplement and the
Portfolios' Offering Memorandum (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 Portfolios 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 ReceivablesSM
("CARSSM"). CARSSM 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 CARSSM 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 CARSSM 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 Portfolio's investment objectives and policies, PIMCO
also may invest in other types of asset-backed securities.

Bank Obligations

       Bank obligations in which the Portfolios 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 Portfolio 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 would be invested in such deposits, repurchase agreements maturing in
more than seven days and other illiquid assets.

       The PIMCO Asset-Backed Securities, High Yield, Investment Grade
Corporate, Mortgage, Short-Term, and U.S. Government Sector Portfolios may
invest in the same types of bank obligations as the other Portfolios, but they
must be U.S. dollar-denominated. Subject to the Trust's limitation on
concentration of no more than 25% of its assets in the securities of issuers in
a particular industry, there is no limitation on the amount of a Portfolio's
assets that may be invested in obligations of foreign banks that 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

                                       11


obligations and that the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign banks may differ from those applicable to
United States banks. Foreign banks are not generally subject to examination by
any U.S. Government agency or instrumentality.

Loan Participations

       Each Portfolio (except the PIMCO Municipal Sector Portfolio) 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 Portfolios may participate in
such syndications, or can buy part of a loan, becoming a part lender. When
purchasing loan participations, a Portfolio 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 Portfolio 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 Portfolio has direct recourse against the corporate borrower,
the Portfolio 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 Portfolio were determined to
be subject to the claims of the agent bank's general creditors, the Portfolio
might incur certain costs and delays in realizing payment on a loan or loan
participation and could suffer a loss of principal and/or interest. In
situations involving other interposed financial institutions (e.g., an insurance
company or governmental agency) similar risks may arise.

       Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the corporate borrower for payment of
principal and interest. If a Portfolio does not receive scheduled interest or
principal payments on such indebtedness, the Portfolio's share price and yield
could be adversely affected. Loans that are fully secured offer a Portfolio 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 Portfolios 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 Portfolio bears
a substantial risk of losing the entire amount invested.

       Each Portfolio 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" in the Offering Memorandum). For purposes of these limits, a
Portfolio generally will treat the corporate borrower as the "issuer" of
indebtedness held by the Portfolio. In the case of loan participations where a
bank or other lending institution serves as a financial intermediary between a
Portfolio and the corporate borrower, if the participation does not shift to the
Portfolio the direct debtor-creditor relationship with the corporate borrower,
Securities and Exchange Commission ("SEC") interpretations require the Portfolio
to treat both the lending bank or other lending institution and the corporate
borrower as "issuers" for the purposes of determining the percentage of total
assets a Portfolio have invested in a single issuer. Treating a financial
intermediary as an issuer of indebtedness may restrict a Portfolios' 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.

                                       12


       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 Portfolio's net asset value than if that value were based on
available market quotations, and could result in significant variations in the
Portfolio'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 Portfolios currently intend
to treat indebtedness for which there is no readily available market as illiquid
for purposes of the Portfolios' 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 Portfolios. For example, if a loan is foreclosed, a Portfolio 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 Portfolio
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
Portfolios rely on PIMCO's research in an attempt to avoid situations where
fraud or misrepresentation could adversely affect the Portfolios.

Corporate Debt Securities

       A Portfolio'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 Portfolio, or, if unrated, are in
PIMCO's opinion comparable in quality to corporate debt securities in which the
Portfolio 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 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.

Borrowing

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

       Specifically, provisions of the 1940 Act require a Portfolio 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 a Portfolio's total assets made
for temporary administrative purposes. Any borrowings for temporary
administrative purposes in excess of 5% of a Portfolio's total assets must
maintain

                                       13


continuous asset coverage. If the 300% asset coverage should decline as a result
of market fluctuations or other reasons, a Portfolio 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 Portfolio 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 a Portfolio. To the extent a Portfolio 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 a
Portfolio's commitment to repurchase, such an agreement will not be considered a
"senior security" by a Portfolio and therefore will not be subject to the 300%
asset coverage requirement otherwise applicable to borrowings by a Portfolio.
Borrowing will tend to exaggerate the effect on net asset value of any increase
or decrease in the market value of a Portfolio's portfolio. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. A Portfolio 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.

       A Portfolio 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 Portfolio, coupled with
its agreement to repurchase the instrument at a specified time and price. Under
a reverse repurchase agreement, a Portfolio continues to receive any principal
and interest payments on the underlying security during the term of the
agreement. A Portfolio 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 a Portfolio may decline below
the repurchase price of the securities sold by a Portfolio 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
a Portfolio's limitations on borrowings, which would, among other things,
restrict the aggregate of such transactions (plus any other borrowings) to 1/3
of a Portfolio's total assets.

       A "mortgage dollar roll" is similar to a reverse repurchase agreement in
certain respects. In a "dollar roll" transaction a Portfolio 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 Portfolio pledges a mortgage-related security to a dealer to obtain
cash. Unlike in the case of reverse repurchase agreements, the dealer with which
a Portfolio enters into a dollar roll transaction is not obligated to return the
same securities as those originally sold by a Portfolio, but only securities
which are "substantially identical." To be considered "substantially identical,"
the securities returned to a Portfolio 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 Portfolio'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 Portfolio. 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 a Portfolio's 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 Portfolio's overall limitations on investments in illiquid
securities.

       A Portfolio 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 a Portfolio's repurchase
of the underlying security. A Portfolio's obligations under a sale-

                                       14


buyback typically would be offset by liquid assets equal in value to the amount
of a Portfolio's forward commitment to repurchase the subject security.

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 Portfolio
is called for redemption, the Portfolio 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 Portfolio's ability to achieve its investment objective. A Portfolio
generally would invest in convertible securities for their favorable price
characteristics and total return potential and would normally not exercise an
option to convert.

High Yield Securities ("Junk Bonds")

       Investments in securities rated below investment grade that are eligible
for purchase by certain of the Portfolios, and in particular, by the PIMCO High
Yield Portfolio, 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 Portfolios 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
Portfolios 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

                                       15


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
Portfolios, 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
Portfolio, the Portfolio may retain the portfolio security if PIMCO deems it in
the best interest of shareholders.

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.

         Each Portfolio may invest in floating rate debt instruments
("floaters") and 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 Portfolio with a certain degree of protection
against rises in interest rates, a Portfolio 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 Portfolio may not invest in any combination of interest only,
principal only or inverse floating securities, except that the Asset-Backed
Securities, Asset-Backed Securities II, Mortgage and Mortgage II Portfolios may
invest up to 5% of their assets in such securities. 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.

Participation on Creditors Committees

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

Foreign Securities

         All Portfolios (except the PIMCO Municipal Sector Portfolio) 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 PIMCO High Yield Portfolio may invest only up to
15% of its assets in euro-denominated securities. The PIMCO Asset-Backed
Securities, Investment Grade

                                       16


Corporate, Mortgage, Short-Term, and U.S. Government Sector Portfolios may
invest in securities of foreign issuers only if they are U.S.
dollar-denominated.

         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 Portfolio's investments in
Eastern Europe will not also be expropriated, nationalized or otherwise
confiscated.

         Certain Portfolios (except the PIMCO Municipal Sector Portfolio) 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.

         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 Portfolios may invest will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Portfolios 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

                                       17


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 Portfolios) 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 Portfolio'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
Portfolio's income distributions to constitute returns of capital for tax
purposes or require the Portfolio to make distributions exceeding book income to
qualify as a regulated investment company for federal tax purposes.

         A Portfolio 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 Portfolios 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. Portfolios 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 Portfolios 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 Portfolio 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 Portfolio with a view to protecting the outlook, and
the Portfolios might be expected to enter into such contracts under the
following circumstances:

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

         Cross Hedge. If a particular currency is expected to decrease against
another currency, a Portfolio 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 Portfolio'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 Portfolio
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 Portfolio 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 Portfolio would hope to benefit
from an increase (if any) in value of the bond.

                                       18


         Proxy Hedge. PIMCO might choose to use a proxy hedge, which may be less
costly than a direct hedge. In this case, a Portfolio, 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 Portfolio 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 Portfolio 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 Portfolio's dividend
distribution and are not reflected in its yield. Instead such costs will, over
time, be reflected in a Portfolio's net asset value per share.

         Tax Consequences of Hedging. Under applicable tax law, the Portfolios
may be required to limit their gains from hedging in foreign currency forwards,
futures, and options. Although the Portfolios 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 Portfolios and could affect whether dividends paid by the Portfolios 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.
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

                                       19


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.

Delayed Funding Loans and Revolving Credit Facilities

         The Portfolios (except the PIMCO Municipal Sector Portfolio) may enter
into, or acquire participations in, delayed funding loans and revolving credit
facilities. Delayed funding loans and revolving credit facilities are borrowing
arrangements in which the lender agrees to make loans up to a maximum amount
upon demand by the borrower during a specified term. A revolving credit facility
differs from a delayed funding loan in that as the borrower repays the loan, an
amount equal to the repayment may be borrowed again during the term of the
revolving credit facility. Delayed funding loans and revolving credit facilities
usually provide for floating or variable rates of interest. These commitments
may have the effect of requiring a Portfolio 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 Portfolio 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 Portfolios 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 Portfolio may be unable to sell such investments at an opportune
time or may have to resell them at less than fair market value. The Portfolios
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
Portfolios' 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.

Loans of Portfolio Securities

         For the purpose of achieving income, each Portfolio 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

                                       20


loaned; (ii) the Portfolio may at any time call the loan and obtain the return
of the securities loaned; (iii) the Portfolio 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
Portfolio. Each Portfolio's performance will continue to reflect the receipt of
either interest through investment of cash collateral by the Portfolio 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 the recovery of the collateral should the borrower fail
to return the securities loaned or become insolvent. The Portfolios may pay
lending fees to the party arranging the loan.

Short Sales

         Certain of the Portfolios 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 Portfolio sells a security
it does not own in anticipation that the market price of that security will
decline.

         When a Portfolio 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 Portfolio 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 Portfolio replaces the borrowed security,
the Portfolio will incur a loss; conversely, if the price declines, the
Portfolio 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.

         To the extent that a Portfolio 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 Portfolio 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 Portfolio's net assets.
This percentage may be varied by action of the Trustees. A short sale is
"against the box" to the extent that the Portfolio contemporaneously owns, or
has the right to obtain at no added cost, securities identical to those sold
short. The Portfolios will engage in short selling to the extent permitted by
the 1940 Act and rules and interpretations thereunder.

When-Issued, Delayed Delivery and Forward Commitment Transactions

         Each of the Portfolios may purchase or sell securities on a
when-issued, delayed delivery, or forward commitment basis. When such purchases
are outstanding, the Portfolio 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 Portfolio has committed to purchase
prior to the time delivery of the securities is made, although a Portfolio may
earn income on securities it has segregated.

         When purchasing a security on a when-issued, delayed delivery, or
forward commitment basis, the Portfolio 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 Portfolio is not required to pay for the security until the delivery
date, these risks are in addition to the risks associated with the Portfolio's
other investments. If the Portfolio 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 Portfolio has sold a security on a when-issued, delayed
delivery, or forward commitment basis, the Portfolio 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 Portfolio could miss
a favorable price or yield opportunity or could suffer a loss. A Portfolio may
dispose of or renegotiate a transaction after it is entered into, and may sell
when-issued, delayed

                                       21


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 Portfolios may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis.

Derivative Instruments

         In pursuing their individual objectives the Portfolios may purchase and
sell (write) both put options and call options on securities, securities
indexes, and foreign currencies, and enter into interest rate, foreign currency
and index futures contracts and purchase and sell options on such futures
contracts ("futures options") for hedging purposes or as part of their overall
investment strategies, except that those Portfolios that may not invest in
foreign currency-denominated securities may not enter into transactions
involving currency futures or options. The Portfolios (except the PIMCO
Municipal Sector Portfolio) 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 Portfolios
also may enter into swap agreements with respect to foreign currencies, interest
rates and indexes of securities. The Portfolios 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 Portfolio may
also use those instruments, provided that the Trustees determine that their use
is consistent with the Portfolio's investment objective.

         The value of some derivative instruments in which the Portfolios invest
may be particularly sensitive to changes in prevailing interest rates, and, like
the other investments of the Portfolios, the ability of a Portfolio 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 Portfolios could be
exposed to the risk of loss.

         The Portfolios 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 Portfolio, the Portfolio 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 Portfolio 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 Portfolio is required to maintain
asset coverage or offsetting positions in connection with transactions in
derivative instruments, and the possible inability of a Portfolio to close out
or to liquidate its derivatives positions. In addition, a Portfolio's use of
such instruments may cause the Portfolio to realize higher amounts of short-term
capital gains (generally taxed at ordinary income tax rates) than if it had not
used such instruments. Under certain extreme circumstances, a Portfolio
investing in a derivative instrument could lose more than the principal amount
invested, although PIMCO will typically cover open derivatives positions by
segregating liquid assets (or other economically appropriate covering positions)
in an attempt to minimize this risk.

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

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

                                       22


         A Portfolio 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 Portfolio 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 Portfolio. For a call option on an
index, the option is covered if the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio
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 Portfolio 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
Portfolio 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 Portfolio expires unexercised, the Portfolio
realizes a capital gain equal to the premium received at the time the option was
written. If an option purchased by a Portfolio expires unexercised, the
Portfolio 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 Portfolio desires.

         A Portfolio 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 Portfolio 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 Portfolio 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 Portfolio will realize
a capital gain or, if it is less, the Portfolio 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 Portfolio is
an asset of the Portfolio. The premium received for an option written by a
Portfolio 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 Portfolios 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 Portfolios' immediate
obligations. The Portfolios 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 Portfolios 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

                                       23


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

         Foreign Currency Options. Portfolios that invest in foreign
currency-denominated securities may buy or sell put and call options on foreign
currencies. A Portfolio 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 Portfolio to reduce foreign currency risk using such
options. Over-the-counter options differ from traded options in that they are
two-party contracts with price and other terms negotiated between buyer and
seller, and generally do not have as much market liquidity as exchange-traded
options.

         Futures Contracts and Options on Futures Contracts. Each of the
Portfolios may invest in interest rate futures contracts and options thereon
("futures options"), and to the extent it may invest in foreign
currency-denominated securities, may also invest in foreign currency futures
contracts and options thereon.

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

         A Portfolio may purchase and write call and put futures options, as
specified for that Portfolio in the Offering Memorandum. 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.

                                       24


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 Portfolios avoid being deemed
a "commodity pool" or a "commodity pool operator," each Portfolio 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 Portfolio might use futures
contracts to hedge against anticipated changes in interest rates that might
adversely affect either the value of the Portfolio's securities or the price of
the securities which the Portfolio intends to purchase. A Portfolio'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 Portfolio's
exposure to interest rate fluctuations, the Portfolio may be able to hedge its
exposure more effectively and perhaps at a lower cost by using futures contracts
and futures options.

         A Portfolio 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 Portfolio,
the Portfolio 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 Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held by a Portfolio is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Portfolio
pays or receives cash, called "variation margin," equal to the daily change in
value of the futures contract. This process is known as "marking to market."
Variation margin does not represent a borrowing or loan by a Portfolio but is
instead a settlement between the Portfolio and the broker of the amount one
would owe the other if the futures contract expired. In computing daily net
asset value, each Portfolio will mark to market its open futures positions.

         A Portfolio 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 Portfolio.

         Although some futures contracts call for making or taking delivery of
the underlying securities, frequently these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Portfolio realizes a
capital gain, or if it is more, the Portfolio realizes a capital loss.
Conversely, if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less, the Portfolio
realizes a capital loss. The transaction costs must also be included in these
calculations.

         The Portfolios 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 Portfolios' immediate
obligations. A Portfolio 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 Portfolios 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. When purchasing a
futures contract, a Portfolio 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 Portfolio
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
Portfolio.

                                       25


         When selling a futures contract, a Portfolio 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 Portfolio 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
Portfolio to purchase the same futures contract at a price no higher than the
price of the contract written by the Portfolio (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 Portfolio 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 Portfolio 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 Portfolio to purchase the same futures contract at a price
not higher than the strike price of the call option sold by the Portfolio.

         When selling a put option on a futures contract, a Portfolio 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 Portfolio 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 Portfolio.

         To the extent that securities with maturities greater than one year are
used to segregate assets to cover a Portfolio'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 Portfolio'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 Portfolio's portfolio securities. Thus, the use of a longer-term
security may require a Portfolio to hold offsetting short-term securities to
balance the Portfolio's portfolio such that the Portfolio's duration does not
exceed the maximum permitted for the Portfolio in the Offering Memorandum.

         The requirements for qualification as a regulated investment company
also may limit the extent to which a Portfolio 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. Under extreme circumstances, purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract, even though PIMCO will typically cover open futures positions in an
attempt to minimize this risk. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the Portfolio
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 the PIMCO Municipal Sector Portfolio enters into such futures
contracts, the value of such futures will not vary in direct proportion to the
value of the Portfolio's holdings of Municipal Bonds. 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.

                                       26


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

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

         Swap Agreements and Options on Swap Agreements. Each Portfolio 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 Portfolio may
invest in foreign currency-denominated securities, it may also invest in
currency exchange rate swap agreements. A Portfolio may also enter into options
on swap agreements ("swap options").

         A Portfolio 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 Portfolio 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 Portfolio's investment objectives and general
investment polices, certain of the Portfolios 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 Portfolio will receive the
price appreciation of a commodity index, a portion of the index, or a single
commodity in exchange for paying an agreed-upon fee. If the commodity swap is
for one period, a Portfolio 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 Portfolio may

                                       27


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 Portfolio may be required to pay a higher fee at each swap reset
date.

         A Portfolio 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 Portfolio may
be either the buyer or seller in a credit default swap transaction. If a
Portfolio is a buyer and no event of default occurs, the Portfolio will lose its
investment and recover nothing. However, if an event of default occurs, the
Portfolio (if the buyer) will receive the full notional value of the reference
obligation that may have little or no value. As a seller, a Portfolio 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 Portfolio 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 Portfolio may
write (sell) and purchase put and call swap options.

         Most swap agreements entered into by the Portfolios would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Portfolio'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 Portfolio's current obligations under a swap
agreement will be accrued daily (offset against any amounts owed to the
Portfolio) 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 Portfolio's portfolio. Obligations under swap
agreements so covered will not be construed to be "senior securities" for
purposes of the Portfolio's investment restriction concerning senior securities.
Each Portfolio 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 Portfolio's total assets.

         Whether a Portfolio'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 Portfolio 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
Portfolios 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 Portfolios' repurchase
agreement guidelines). Certain restrictions imposed on the Portfolios by the
Internal Revenue Code may limit the Portfolios' 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 Portfolio'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 Portfolio
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 Portfolio 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 Portfolio writes a
swap option, upon exercise of the option the Portfolio 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

                                       28


or trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.

         This exemption is not exclusive, and participants may continue to rely
on existing exclusions for swaps, such as the Policy Statement issued in July
1989 which recognized a safe harbor for swap 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 Portfolio invests in these
securities, however, PIMCO analyzes these securities in its overall assessment
of the effective duration of the Portfolio's portfolio in an effort to monitor
the Portfolio's interest rate risk.

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 Portfolio 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 Portfolios 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.

                                       29


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

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

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

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 Portfolio to the credit risk of the issuer of the hybrids. These risks
may cause significant fluctuations in the net asset value of the Portfolio.

         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 Portfolios' 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.

Event-Linked Exposure
<R>
     Certain Portfolios 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 (such special purpose
entities are created to accomplish a narrow and well-defined objective, such as
the issuance of a note in connection with a reinsurance transaction). If a
trigger event causes losses exceeding a specific amount in the geographic region
and time period specified in a bond, a Portfolio investing in the bond may lose
a portion or all of its principal invested in the bond. If no trigger event
occurs, the Portfolio 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
</R>
                                       30


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 Portfolio 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 Portfolio may be forced to
liquidate positions when it would not be advantageous to do so. Event-linked
bonds are typically rated, and a Portfolio will only invest in catastrophe bonds
that meet the credit quality requirements for the Portfolio.

Warrants to Purchase Securities

         The Portfolios 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 Portfolio 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.
Warrants acquired in units or attached to securities will be deemed without
value for purposes of this restriction.

Illiquid Securities

         The Portfolios may invest up to 15% of their net assets in illiquid
securities. The term "illiquid securities" for this purpose means securities
that cannot be disposed of within seven days in the ordinary course of business
at approximately the amount at which a Portfolio 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.

                             INVESTMENT RESTRICTIONS
<R>
       In addition to the investment restrictions set forth in the Offering
Memorandum, the Portfolios have adopted a non-fundamental policy pursuant to
which each Portfolio that may invest in securities denominated in foreign
currencies, except the PIMCO Emerging Markets, High-Yield, International,
Emerging Markets, Real Return Bond, and Emerging Markets Local Currency Bond
Portfolios, will normally hedge its exposure to foreign currency using the
techniques described in the Offering Memorandum. The PIMCO High-Yield
International and Real Return Bond Portfolios will normally hedge at least 75%
of their exposure to foreign currency using the techniques described in the
Offering Memorandum. The PIMCO Emerging Markets and Emerging Markets Local
Currency Bond Portfolios may, but are not required to, hedge against exposure
to foreign currency. There can be no assurance that currency hedging techniques
will be successful.</R>

         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

                                       31


and is not extended or renewed. In addition to borrowing money to the extent
permitted under the 1940 Act, a Portfolio may borrow money for temporary
administrative purposes. To the extent that borrowings for temporary
administrative purposes exceed 5% of the total assets of a Portfolio, such
excess shall be subject to the 300% asset coverage requirement of that
restriction.

         To the extent a Portfolio 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 Portfolio's commitment to
repurchase, such an agreement will not be considered a "senior security" by the
Portfolio and therefore will not be subject to the 300% asset coverage
requirement otherwise applicable to borrowings by the Portfolio.

         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 Portfolios have adopted an
investment policy pursuant to which a Portfolio 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 Portfolio, (2) the
market value of the underlying securities covered by OTC call options currently
outstanding which were sold by the Portfolio and (3) margin deposits on the
Portfolio's existing OTC options on futures contracts, exceeds 15% of the net
assets of the Portfolio, taken at market value, together with all other assets
of the Portfolio which are illiquid or are otherwise not readily marketable.
However, if an OTC option is sold by the Portfolio to a primary U.S. Government
Securities dealer recognized by the Federal Reserve Bank of New York and if the
Portfolio has the unconditional contractual right to repurchase such OTC option
from the dealer at a predetermined price, then the Portfolio 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 Portfolios and may be amended by the Trustees without the approval
of shareholders. However, the Portfolios 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 Portfolio
investments (as stated above and elsewhere in this Supplement) 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 Portfolio assets invested in certain
securities or other instruments, or change in the average duration of a
Portfolio's investment portfolio, resulting from market fluctuations or other
changes in a Portfolio's total assets will not require a Portfolio to dispose of
an investment until PIMCO determines that it is practicable to sell or close out
the investment without undue market or tax consequences to the Portfolio. 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 Portfolios' investment policies and
restrictions (as stated in the Offering Memorandum and this Offering Memorandum
Supplement) swap agreements are generally valued by the Portfolios at market
value . In the case of a credit default swap sold by a Portfolio (i.e., where
the Portfolio is selling credit default protection), however, the Portfolio will
value the swap at its notional amount. The manner in which certain securities or
other instruments are valued by the Portfolio 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 Portfolios interpret their policies with respect to borrowing and
lending to permit such activities as may be lawful for the Portfolios, to the
full extent permitted by the 1940 Act or by exemption from the provisions
therefrom pursuant to exemptive order of the SEC. The Portfolios have filed an
application seeking an order from the SEC to permit the Portfolios to enter into
transactions among themselves with respect to the investment of daily cash
balances of the Portfolios in shares of the PIMCO Money Market Fund, a series of
the Trust, as well as the use of daily excess cash balances of the PIMCO Money
Market Fund in interfund lending transactions with the other Portfolios for
temporary cash management purposes. The interest paid by a Portfolio 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 PIMCO Money Market Fund could
otherwise earn as lender in such a transaction.

                                       32


                             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 Center Drive, Newport Beach, California 92660.

Trustees of the Trust

                                                                                      Number of
                            Term of                                                   Funds in
                            Office                                                    Fund
Name, Age and               and                                                       Complex
Position Held with          Length of                                                 Overseen      Other Directorships
Trust*                      Time         Principal Occupation(s) During Past 5        by Trustee    Held by Trustee
                            Served+      Years
------------------------------------------------------------------------------------------------------------------------
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                          Trustee, PIMCO Variable Insurance Trust;
Board and Trustee                        Chairman, Director and President, PIMCO
                                         Strategic Global Government Fund, Inc.;
                                         Director, PIMCO 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      Variable Insurance Trust; Senior Vice
                            as           President, PIMCO Strategic Global
                            Trustee)     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.

-----------------
/*/ 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.

                                       33


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


E. Philip Cannon      03/2000 to   Proprietor, Cannon & Company, an                 114       None
(62)                  present      affiliate of Inverness Management LLC,
                                   (a private equity investment firm).
Trustee                            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.

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      03/2000 to   Private Investor and Business Consultant.        70        Director, Ameron
(63)                  present      Director, PIMCO Commercial Mortgage                        International
                                   Securities Trust, Inc.; Trustee, PIMCO                     (manufacturing); and
Trustee                            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    07/1993 to   Managing Member, Pacific Capital                 70        Director, New Century
(64)                  02/1995      Investors; Trustee, PIMCO Variable                         Financial Corporation
                      and          Insurance Trust; and Director, PIMCO                       (mortgage banking)
Trustee               08/1995 to   Commercial Mortgage Securities Trust,
                      present      Inc. Formerly, Director, California
                                   State Lottery.

                                       34

Executive Officers

Name, Age and Position Held Term of Office and Length
with Trust of 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,
(59) PIMCO.
Senior Vice President

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

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

Name, Age and Position Held with Term of Office and Length of
Trust Time Served Principal Occupation(s) During Past 5 Years
----------------------------------------------------------------------------------------------------------------------------
William S. Thompson, J. 11/1993 to present (since Managing Director and Chief Executive Officer,
(57) 02/2003 as Senior Vice PIMCO.
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,
(37) PIMCO.
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

Gail Mitchell 02/2003 to present Vice President, PIMCO. Formerly, Account Manager,
(53) PIMCO.
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


 Name, Age and Position Held with     Term of Office and Length of
 Trust                                Time Served                    Principal Occupation(s) During Past 5 Years
----------------------------------------------------------------------------------------------------------------------------
 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
 Assistant Treasurer                                                 LLC.

       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 Portfolios Overseen by
Name of Trustee or Nominee           Dollar Range of Equity Securities in         Trustee or Nominee in Family of
                                                the Portfolios                         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-
-----------------------------------------------------------------------------------------------------------------------

       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
                               Relationships to
     Name of Trustee or           Trustee or                                           Value of        Percent of
          Nominee                  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 Portfolios;

                                       37


. an officer of the Portfolios;

. 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 Portfolios
  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 Portfolios;

. 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
  Portfolios 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 Portfolios;

. the investment adviser or principal underwriter of the Portfolios;

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

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

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.

     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.

                                       38


Compensation Table

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

                          Aggregate         Total Compensation from
Name and Position        Compensation        Trust and Fund Complex
-----------------        from Trust/1/        Paid to Trustees/2/
                         -------------        -------------------

E. Philip Cannon              $74,289/3/                 $185,956/4/
Trustee

Vern O. Curtis                $74,314                    $ 92,314
Trustee

J. Michael Hagan              $72,500                    $ 90,500
Trustee

William J. Popejoy            $72,500                    $ 90,500
Trustee

/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.

                                       39


/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 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 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"). Allianz has significant holdings in
BASF AG, Bayer AG, Daimler Chrysler and Schering AG. 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
Portfolios 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 Portfolios,
the Portfolios' ability to take advantage of market opportunities, or the
Portfolios' 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 Portfolio.

        Under the terms of the Advisory Contract, PIMCO is obligated to manage
the Portfolios 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.

                                       40


        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.

        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 Portfolios and by comparable funds, the costs of providing these
services, and the profitability of PIMCO's relationship with the Portfolios. The
Trustees also considered the nature and quality of services provided under the
Advisory Contract, and the investment performance of the Portfolios 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 Portfolios 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 Portfolios. The
Trustees also considered PIMCO's representations concerning its staffing,
capabilities and methodologies applied in managing the Portfolios, 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
Portfolios, and approved the continuation of the Advisory Contract between the
Trust and PIMCO for one year.

        For the services it provides to the Portfolios, PIMCO currently receives
a monthly investment advisory fee from each Portfolio equal to 0.02%, at an
annual rate, of the average daily net assets of the Portfolio.

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.

                                       41


        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.

        Copies of the written Proxy Policy and the factors that PIMCO may
consider in determining how to vote proxies for the Funds are available by
calling the Trust at 1-800-927-4648 and on the SEC's website at www.sec.gov.

Portfolio Administrator
<R>
        PIMCO also serves as Administrator to the Portfolios pursuant to an
administration agreement (the "Administration Agreement") with the Trust. PIMCO
provides the Portfolios with certain administrative and shareholder services
necessary for Portfolio operations and is responsible for the supervision of
other Portfolio 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 Portfolios, including coordination of the services performed
by the Portfolios' transfer agent, custodian, legal counsel, independent
accountants, and others. PIMCO (or an affiliate of PIMCO) also furnishes the
Portfolios with office space facilities required for conducting the business of
the Portfolios, 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 Portfolios, and is responsible for the costs of
registration of the Trust's shares and the printing of Offering Memorandum and
shareholder reports for current shareholders. For the services it provides to
the PIMCO Asset-Backed Securities, Asset-Backed Securities II, High Yield,
Investment Grade Corporate, Mortgage, Mortgage II, Municipal Sector, Real Return
Bond, Short-Term, Short-Term II, U.S. Government Sector, and U.S. Government
Sector II Portfolios, PIMCO receives a monthly administration fee from each
Portfolio equal to 0.03%, at an annual rate, of the average daily net assets of
the Portfolio. For the services it provides to the PIMCO Emerging Markets,
International and Emerging Markets Local Currency Bond Portfolios, PIMCO
receives a monthly administration fee from each Portfolio equal to 0.10%, at an
annual rate of the average daily net assets of the Portfolio.</R>

        Except for the expenses paid by PIMCO, the Trust bears all costs of its
operations. The Portfolios 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.

        PIMCO has contractually agreed, for the Trust's current fiscal year, to
reduce total annual fund operating expenses for each Portfolio to the extent
they would exceed, due to the payment of organizational expenses and Trustees
fees, the total annual portfolio operating expenses specified in the then
current offering memorandum for the Portfolio, plus 0.049 basis points. Under
the Expense Limitation Agreement, PIMCO may recoup these waivers and
reimbursements in future periods, not exceeding three years, provided total
expenses, including such recoupment, do not exceed the annual expense limit.

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

        The Administration Agreement is subject to annual approval by the Board,
including a majority of the Trust's Independent Trustees (as that term is
defined in the 1940 Act). The current Administration Agreement, dated May 5,
2000, as supplemented from time to time, was last approved by the Board of
Trustees, including all of the Independent

                                       42


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 Portfolios and their shareholders; (2) the services to
be performed under the Agreement are services required for the operation of the
Portfolios; (3) PIMCO is able to provide, or to procure, services for the
Portfolios 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.

                          DISTRIBUTION OF TRUST SHARES

Distributor

        PIMCO Advisors Distributors LLC (the "Distributor") serves as the
principal underwriter of the Portfolios 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 Portfolio without penalty, at any time, by the Portfolio 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
Portfolio 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 or the
Administration Agreement 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 Portfolios, it may continue in effect with respect to any
Portfolio as to which it has not been terminated (or has been renewed).
<R>
         Shares of the Portfolios are offered only to clients of PIMCO who
maintain separately managed private accounts, and who are also "accredited
investors," as defined in Regulation D under the Securities Act, and either (i)
"qualified purchasers," as defined for purposes of Section 3(c)(7) of the 1940
Act, or (ii) "qualified institutional buyers," as defined in Rule 144A(a)(1) of
the Securities Act. Shares of the Private Account Portfolio Series may also be
purchased by certain investors outside of the United States consistent with
applicable regulatory requirements. </R>

<R>
Intermediary Agreements </R>
<R>
         The Fund may from time to time enter into agreements with
intermediaries, including affiliates of PIMCO, who provide information about the
Shares to investors outside of the United States, consistent with applicable
regulatory requirements. </R>


Purchases, Redemptions and Exchanges

        Purchases, redemptions and exchanges of shares of the Portfolios are
discussed in the Offering Memorandum under the headings "Purchasing Shares,"
"Redeeming Shares," and "Exchange Privilege." Each Portfolio issues its shares
only in private placement transactions in accordance with Regulation D or other
applicable exemptions under the Securities Act. This Supplement is not an offer
to sell, or a solicitation of any offer to buy, any security to the public
within the meaning of the Securities Act.

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

        Certain of the Portfolios are not qualified or registered for sale in
all states. Prospective investors should inquire as to whether shares of a
particular Portfolio are available for offer and sale in their state of domicile
or residence. Shares of a Portfolio 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.

        As described in the Offering Memorandum under the caption "Exchange
Privilege," shares of any Portfolio may be exchanged for shares of any other
Portfolio on the basis of their respective net asset values. In addition,
subject to compliance with applicable private placement restrictions and the
investment restrictions of the Portfolios, shares of the Portfolios may be
purchased by exchanging Institutional Class shares of another series of the
Trust for shares of the Portfolios.

                                       43


        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. 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 Portfolio not
reasonably practicable.

        The Trust is committed to paying in cash all requests for redemptions by
any shareholder of record of the Portfolios, 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 Portfolios' portfolios.

        The Trust has adopted procedures under which it may make
redemptions-in-kind to shareholders who are affiliated persons of a Portfolio.
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 Portfolio'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 Portfolio's net asset value; (3) the redemption
in-kind is consistent with the Portfolio's offering memorandum and offering
memorandum supplement; 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.

Request for Multiple Copies of Shareholder Documents

        To reduce expenses, it is intended that only one copy of the Portfolios'
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 1-800-426-0107.
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.

                                 NET ASSET VALUE

        Net Asset Value is determined as indicated under "How Portfolio Shares
are Priced" in the Offering Memorandum. 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 Portfolios 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.

                                       44


                                    TAXATION

        The following summarizes certain additional federal income tax
considerations generally affecting the Portfolios 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 Portfolios. 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 Portfolio
shares in whose hands such shares are capital assets within the meaning of
Section 1221 of the Code, and may not apply to certain types of beneficial
owners of shares (such as insurance companies, tax exempt organizations, and
broker-dealers) who may be subject to special rules. Persons who may be subject
to tax in more than one country should consult the provisions of any applicable
tax treaty to determine the potential tax consequences to them. Prospective
investors should consult their own tax advisers with regard to the federal tax
consequences of the purchase, ownership and disposition of Portfolio 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 Offering
Memorandum is not intended as a substitute for careful tax planning.

        Each Portfolio 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 Portfolio 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 Portfolio'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 Portfolio'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 Portfolio does not qualify as a
regulated investment company in any year, then such Portfolio 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 be taxed on distributions of earnings.

        As a regulated investment company, a Portfolio 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 Portfolio as capital gain dividends, if any, that it
distributes to shareholders on a timely basis. Each Portfolio intends to declare
and pay income dividends quarterly. In addition, each Portfolio distributes any
net capital gains it earns from the sale of portfolio securities to shareholders
no less frequently than annually. Amounts not distributed by a Portfolio 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 Portfolio 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
Portfolio in October, November, or December of that year to shareholders of
record on a date in such a month and paid by the Portfolio 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
Portfolio intends to make its distributions in accordance with the calendar year
distribution requirement.

                                       45


        The PIMCO Municipal Sector Portfolio 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 Portfolio 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 the PIMCO Municipal Sector Portfolio 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 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 Portfolio 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 Portfolio 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 the PIMCO Municipal
Sector Portfolio will not be deductible by the shareholder. The portion of
interest that is not deductible is equal to the total interest paid or accrued
on the indebtedness multiplied by the percentage of the Portfolio'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.

        The PIMCO Municipal Sector Portfolio may derive and distribute ordinary
income and/or capital gains including income from taxable investments,
securities loans and market discount on tax exempt securities.

        Shareholders of the PIMCO Municipal Sector Portfolio 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 Portfolio). 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 Portfolio 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 PIMCO Municipal
Sector Portfolio's expenses attributable to earning tax-exempt income do not
reduce such Portfolio's current earnings and profits, it is possible that
distributions, if any, in excess of such Portfolio net tax-exempt and taxable
income will be treated as taxable dividends to the extent of such Portfolio's
remaining earnings and profits (i.e., the amount of such expenses).

Distributions

        Except for exempt interest dividends paid by the PIMCO Municipal Sector
Portfolio, all dividends and distributions of a Portfolio, 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 Portfolio's investment
company taxable income (which includes any net short-term capital gains) 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.

        Dividends paid by the Portfolios generally are not expected to qualify
for the deduction for dividends received by corporations and/or the reduced
rates on certain qualifying dividends for individual taxpayers. Distributions of
net capital gains, if any, designated as capital gain dividends, are taxable as
long-term capital gains, regardless of how long

                                       46


the shareholder has held a Portfolio's shares and are not eligible for the
dividends received deduction. Any distributions that are not from a Portfolio's
investment company taxable income or net realized capital gains may be
characterized as a return of capital to shareholders or, in some cases, as
capital gain. The tax treatment of dividends and distributions will be the same
whether a shareholder reinvests them in additional shares or elects to receive
them in cash.

Sales of Shares

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

Backup Withholding

        A Portfolio may be required to withhold up to 28% of all taxable
distributions payable to shareholders who fail to provide the Portfolio 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 Portfolios 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 Portfolio 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 Portfolio, 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 Portfolio. In
addition, losses realized by a Portfolio 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 Portfolio are not entirely
clear. The transactions may increase the amount of short-term capital gain
realized by a Portfolio which is taxed as ordinary income when distributed to
shareholders.

        A Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If a Portfolio 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

                                       47


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
Portfolios 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 Portfolio 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 Portfolio to qualify
as a regulated investment company may limit the extent to which a Portfolio will
be able to engage in swap agreements.

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

Short Sales

        Certain Portfolios may make short sales of securities. Short sales may
increase the amount of short-term capital gain realized by a Portfolio, which is
taxed as ordinary income when distributed to shareholders. Short sales may also
be subject to the "Constructive Sales" rules, discussed below.

Passive Foreign Investment Companies

        Certain Portfolios 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
Portfolio receives a so-called "excess distribution" with respect to PFIC stock,
the Portfolio itself may be subject to tax on a portion of the excess
distribution, whether or not the corresponding income is distributed by the
Portfolio to stockholders. In general, under the PFIC rules, an excess
distribution is treated as having been realized ratably over the period during
which the Portfolio held the PFIC stock. A Portfolio 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 Portfolio may be eligible to elect alternative tax treatment with
respect to PFIC stock. Under an election that currently is available in some
circumstances, a Portfolio 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 Portfolio'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 Portfolio level
under the PFIC rules would generally be eliminated, but the Portfolio could, in
limited circumstances, incur nondeductible interest charges. A Portfolio'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
Portfolio 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

                                       48


        Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio 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
Portfolio's investment company taxable income to be distributed to its
shareholders as ordinary income.

Foreign Taxation
<R>
       Income received by the Portfolios 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 Portfolios 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 PIMCO International, Emerging Markets or
Emerging Markets Local Currency Bond Portfolios' total assets at the close of
their taxable year consists of securities of foreign corporations, such
Portfolio will be eligible to elect to "pass-through" to the Portfolio's
shareholders the amount of foreign income and similar taxes paid by the
Portfolio. 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
Portfolio, 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 Portfolio's taxable year whether the
foreign taxes paid by the Portfolio will "pass-through" for that year.</R>
<R>
       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 PIMCO International, Emerging Markets or Emerging
Markets Local Currency Bond Portfolios' income will flow through to shareholders
of the Trust. With respect to such Portfolios, 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 Portfolio. 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.</R>

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 Portfolio 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 Portfolio 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 Portfolio 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. The PIMCO Municipal Sector Portfolio may also
acquire securities at a market discount which could result in ordinary income
and/or capital gain distributions to shareholders.

                                       49


        Some debt securities (with a fixed maturity date of one year or less
from the date of issuance) that may be acquired by a Portfolio may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio. Cash to pay such dividends may be obtained from
sales proceeds of securities held by the Portfolio.

Constructive Sales

        Recently enacted rules may affect the timing and character of gain if a
Portfolio engages in transactions that reduce or eliminate its risk of loss with
respect to appreciated financial positions. If a Portfolio enters into certain
transactions in property while holding substantially identical property, the
Portfolio 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
Portfolio'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 Portfolio's holding period and the application of various
loss deferral provisions of the Code.

Non-U.S. Shareholders

        Withholding of Income Tax on Dividends: Dividends paid (including
distributions of any net short-term capital gains) on shares beneficially held
by a person who is a "foreign person" within the meaning of the Internal Revenue
Code of 1986, as amended, are, in general, subject to withholding of U.S.
federal income tax at a rate of 30% of the gross dividend, which may, in some
cases, be reduced by an applicable tax treaty. However, if a beneficial holder
who is a foreign person has a permanent establishment in the United States, and
the shares held by such beneficial holder are effectively connected with such
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 Portfolio'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

                                       50


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 Portfolio will provide information annually to
shareholders indicating the amount and percentage of a Portfolio'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 Portfolio.

                                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 Portfolio, each shareholder is entitled to receive his pro rata
share of the net assets of that Portfolio.

        Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by the Trust or the Trustees. The Declaration of Trust also provides
for indemnification out of Trust property for all loss and expense of any
shareholder held personally liable for the obligations of the Trust. The risk of
a shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which such disclaimer is inoperative or the Trust
itself is unable to meet its obligations, and thus should be considered remote.

Performance Information

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

        The total return of shares of all Portfolios may be included in sales
literature or other written materials provided to investors. When a Portfolio'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 Portfolio has been offered for a
period shorter than one, five or ten years, that period will be substituted)
since the establishment of the Portfolio, as more fully described below. Total
return is measured by comparing the value of an investment in the Portfolio at
the beginning of the relevant period to the redemption value of the investment
in the Portfolio 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.

                                       51


        The Portfolios 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 Portfolio 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
Portfolio has declared and paid to shareholders as of the end of a specified
period rather than the Portfolio's actual net investment income for that period.

        Each Portfolio may from time to time include in sales literature or
other written materials provided to investors, the ranking of the Portfolio's
performance figures relative to such figures for groups of mutual funds
categorized by Lipper Analytical Services as having the same investment
objectives. The Portfolios also may compute current distribution rates and use
this information in the Offering Memorandum and Supplement, in reports to
current shareholders, or in certain types of sales literature provided to
prospective investors.

Calculation of Yield

        Quotations of yield for the Portfolios 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.

        The yield of each such Portfolio will vary from time to time depending
upon market conditions, the composition of the Portfolio's portfolio and
operating expenses of the Trust allocated to the Portfolio. These factors and
possible differences in the methods used in calculating yield should be
considered when comparing a Portfolio'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 Portfolio's shares. These
yields do not take into account any applicable contingent deferred sales
charges.

        The Trust, in its sales literature or other written materials provided
to investors, 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 Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Portfolio over periods of one, five and ten years
(up to the life of the Portfolio), 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 Portfolio expenses on an annual basis, and assume

                                       52


that all dividends and distributions are reinvested when paid. The Portfolios
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.

        Current distribution information for a Portfolio will be based on
distributions for a specified period (i.e., total dividends from net investment
income), divided by Portfolio 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 Portfolio has
declared and paid to shareholders as of the end of a specified period rather
than the Portfolio'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 Portfolio should be evaluated in light of these
differences and in light of the Portfolio's total return figures, which will
always accompany any calculation of the rate of current distributions.

        Performance information for a Portfolio 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 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 Portfolios, performance information
for the Portfolios 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 Portfolios or to PIMCO, should
be considered in light of the Portfolios' investment objectives and policies,
characteristics and quality of the Portfolios, 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.

        In its advertisements or 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:

               *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 Portfolios 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

                                       53


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 indices do not reflect past or future performance of any
of the Portfolios 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.

        Articles or reports that include information relating to performance,
rankings and other characteristics of the Portfolios 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
Portfolio Magazine, The New York Times,

                                       54


Kiplinger's Personal Finance, Fortune, Money Magazine, Morningstar's Mutual
Portfolio 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 Portfolios, 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 sales literature or other written materials provided to
investors.

        From time to time, the Trust may set forth in its sales literature or
other written materials information about the growth of a certain dollar-amount
invested in one or more of the Portfolios 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 Portfolios.

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.

                                       55


Control Persons and Principal Holders of Securities
<R>
As of December 15, 2003 the following persons owned of record or beneficially 5%
or more of the noted class of shares of the Portfolios: </R>

* Entity owned 25% or more of the outstanding shares of beneficial interest of
the Portfolio, and therefore may be presumed to "control" the Portfolios, as
that term is defined in the 1940 Act.

 <R>

                                                                                              Shares Beneficially        Percent of
                                                                                                     Owned                 Class
                                                                                              --------------------------------------
Asset-Backed Securities Portfolio
---------------------------------
Chase Manhattan Bank TTEE IBM Retirement Plan Global Securities Services,
3 Chase Metrotech Ctr 7th Fl, Brooklyn NY 11201                                                   2,460,273.811            12.70%
State Street Bank & Trust FBO IBM Tax Deferred Savings Plan
Master Trust Srv Division, PO Box 1992, Boston MA 02105                                           1,779,355.224             9.19%

High Yield Portfolio
--------------------
Equity TTEE LTD Global High Yield C/O State Street Australia LTD,
State Street Centre Level 7, 388 Pitt St., Sydney NSW 2000 Australia                              3,847,732.382            14.89%
Mac & Co, Mutual Fund Operations, PO Box 3198, Pittsburgh PA 15230-3198                           3,547,515.683            13.72%
Sentara Healthcare C/O State Street Bank, Global Investment Manager Services,
One Enterprise Dr, North Quincy MA 02171-2126                                                     2,996,586.799            11.59%
Bank of New York FBO Common Wealth Bank of Australia,
1 Wall St 3rd Floor/Window A, New York, NY 10286-0001                                             1,909,196.740             7.39%
Northern Trust Co FBO TNT-LDN-Illinois Tool Works, PO Box 92956, Chicago IL 60675                 1,828,283.624             7.07%
Mac & Co, Mutual Fund Operations, PO Box 3198, Pittsburgh PA 15230-3198                           1,682,885.965             6.51%
State Street Bank & Trust FBO: SSM Health Care Portfolio MGMT CO Master Trust
Services Division, PO Box 1992, Boston MA 02105-1992                                              1,481,088.172             5.73%
Northern Trust Company FBO The Moore Foundation, PO Box 92923, Chicago IL 60675-2923              1,470,073.541             5.69%

Investment Grade Corporate Portfolio
------------------------------------
Chase Manhattan Bank TTEE IBM Retirement Plan Global Securities Services,
3 Chase Metrotech Ctr 7th Fl, Brooklyn NY 11201                                                   9,503,515.769             5.70%

Mortgage Portfolio
------------------
Chase Manhattan Bank TTEE IBM Retirement Plan Global Securities Services,
3 Chase Metrotech Ctr 7th Fl, Brooklyn NY 11201                                                  24,939,728.756             6.18%

Municipal Sector Portfolio
--------------------------
Chase Manhattan Bank TTEE IBM Retirement Plan Global Securities Services,
3 Chase Metrotech Ctr 7th Fl, Brooklyn NY 11201                                                   1,904,506.062             7.32%
State Street Bank & Trust FBO IBM Tax Deferred Savings Plan Master Trust Srv
Division, PO Box 1992, Boston MA 02105                                                            1,684,156.345             6.47%

Real Return Portfolio
---------------------
Chase Manhattan Bank TTEE IBM Retirement Plan Global Securities Services,
3 Chase Metrotech Ctr 7th Fl, Brooklyn NY 11201                                                   9,032,057.932             7.35%
State Street Bank & Trust FBO IBM Tax Deferred Savings Plan Master Trust Srv
Division, PO Box 1992, Boston MA 02105                                                            7,083,549.790             5.76%

Short-Term Portfolio
--------------------
IBM Retirement Plan Long Duration II C/O Chase Manhattan Bank, Global Securities
Services, 3 Chase Metrotech Center 7th Fl, Brooklyn NY 11245                                     38,289,916.602             7.96%
State Street Bank & Trust FBO Staff Retirement Plan and Trust of the IBRD,
PO Box 1992, Boston MA 02105-1992                                                                28,507,557.821             5.92%
 </R>


                                       56


The Reorganization of PIMCO International Bond Fund and PIMCO Emerging Markets
Bond Fund II

       In March 2000, the PIMCO Emerging Markets Bond Fund II and the PIMCO
International Bond Fund, two former series of PIMCO Funds: Pacific Investment
Management Series, were reorganized as series of the "Private Account Portfolio
Series" of the Trust, and were renamed PIMCO Emerging Markets Portfolio and
PIMCO International Portfolio, respectively. All information presented for these
Portfolios prior to this date represents their operational history as series of
PIMCO Funds: Pacific Investment Management Series.

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 Portfolios.

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 Portfolios.
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 Portfolios will not occur, and shareholders bear the risk of losses arising
from these or other events.
<R>
       Boston Financial Data Services-Midwest, 330 W. 9th Street, 5th Floor,
Kansas City, Missouri 64105, serves as transfer agent and dividend disbursing
agent for the Portfolios.
</R>
Independent Accountants

       PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO 64105, serves
as independent public accountants for all Portfolios. PricewaterhouseCoopers LLP
provides audit services, tax return review and assistance and consultation in
connection with review of SEC filings.

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 acts as counsel to the Trust.

Financial Statements

       The Financial Statements and the Report of Independent Auditors contained
in the Portfolios' Annual Report dated May 27, 2003, are incorporated herein by
reference.

                                       58

Reference is made to Article IV of the Registrant’s Declaration of Trust, which was filed with the Registrant’s initial Registration Statement.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by trustees, officers or controlling persons of the Registrant in connection with the successful defense of any act, suit or proceeding) is asserted by such trustees, officers or controlling persons in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issues.

The directors and officers of PIMCO and their business and other connections are as follows:

The address of Allianz Dresdner Asset Management of America L.P. is 888 San Clemente Drive, Suite 100, Newport Beach, CA 92660.

The address of PIMCO Advisors Distributors LLC is 2187 Atlantic Street, Stamford, CT 06902.

The account books and other documents required to be maintained by Registrant pursuant to Section 22(a) of the Investment Company Act of 1940 and the Rules thereunder will be maintained at the offices of Pacific Investment Management Company, 840 Newport Center Drive, Newport Beach, California 92660, State Street Bank & Trust Co., 801 Pennsylvania, Kansas City, Missouri 64105, and Shareholder Services, Inc., P.O. Box 5866, Denver, Colorado 80217.

Pursuant to the requirements of the Securities Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington in the District of Columbia on the 31^st of December, 2003.

	Portfolio	Main Investments	Credit Quality⁽¹⁾	Non-U.S. Dollar Denominated Securities⁽²⁾

Short-Term Portfolios	Short-Term Portfolio	Money market instruments and short duration fixed income securities	Baa to Aaa	0%

	Short-Term Portfolio II	Money market instruments and short duration fixed income securities	B to Aaa; max 15% below Baa	0-20%

U.S. Government Portfolios	U.S. Government Sector Portfolio	U.S. Government securities	Baa to Aaa	0%

	U.S. Government Sector Portfolio II	U.S. Government securities	B to Aaa; max 15% below Baa	0-20%

Mortgage Portfolios	Mortgage Portfolio	Mortgage-related fixed income securities	Baa to Aaa	0%

	Mortgage Portfolio II	Mortgage-related fixed income securities	B to Aaa; max 15% below Baa	0-20%

Asset-Backed Portfolios	Asset-Backed Securities Portfolio	Asset-backed securities	Baa to Aaa	0%

	Asset-Backed Securities Portfolio II	Asset-backed securities	B to Aaa; max 15% below Baa	0-20%

Corporate Portfolios	Investment Grade Corporate Portfolio	Corporate fixed income securities	Baa to Aaa	0%

	High Yield Portfolio	Higher yielding fixed income securities	B to Aaa; min 80% below Baa	0-15%⁽³⁾

Municipal Portfolios	Municipal Sector Portfolio	Municipal securities	Baa to Aaa	0%

International Portfolios	International Portfolio	Non-U.S. fixed income securities	Baa to Aaa	³ 80%⁽⁴⁾

	Emerging Markets Portfolio	Emerging market fixed income securities	B to Aaa; max 25% below Ba	³ 80%⁽⁴⁾

	Emerging Markets Local Currency Bond Portfolio	Fixed income securities denominated in currencies of emerging market countries	Caa to Aaa; max 10% below B	³ 80%⁽⁵⁾

Specialty Portfolios	Real Return Portfolio	Inflation-indexed fixed income securities	Baa to Aaa	0-20%

Advisory Fee	Administrative Fee	Total Annual Portfolio Operating Expenses

0.02%	0.03%	0.05%

Example. The Example assumes that you invest $10,000 in the Asset-Backed Securities, Asset-Backed Securities II, High Yield, Investment Grade Corporate, Mortgage, Mortgage II, Municipal Sector, Real Return, Short-Term, Short-Term II, U.S. Government Sector, or U.S. Government Sector II Portfolio for the time periods indicated, and then redeem all your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year, the reinvestment of all dividends and distributions, and each Portfolio’s operating expenses remain the same. Although your actual costs may be higher or lower, the Example shows what your costs would be for each Portfolio based on these assumptions.
Year 1	Year 3	Year 5	Year 10

$5	$16	$28	$64

The following table and example describe the fees and expenses you may pay if you buy and hold shares of the Emerging Markets, International, or Emerging Markets Local Currency Bond Portfolio:
Shareholder Fees (fees paid directly from your investment)			None
Annual Portfolio Operating Expenses (expenses that are deducted from Portfolio assets)
Advisory Fee	Administrative Fee	Total Annual Portfolio Operating Expenses

0.02%	0.10%	0.12%

Example. The Example assumes that you invest $10,000 in the Emerging Markets, International, or Emerging Markets Local Currency Bond Portfolio for the time periods indicated, and then redeem all your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year, the reinvestment of all dividends and distributions, and each Portfolio’s operating expenses remain the same. Although your actual costs may be higher or lower, the Example shows what your costs would be for each Portfolio based on these assumptions.
Year 1	Year 3	Year 5	Year 10

$12	$39	$68	$154

Item 23.	Exhibits

(a)	(1)	Declaration of Trust of Registrant/7/

	(2)	Form of Amendment to Declaration of Trust/16/

	(3)	Form of Amended and Restated Declaration of Trust/21/

	(4)	Form of Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest/8/

	(5)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to Long Duration Fund/11/

	(6)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to Convertible Bond Fund/12/

	(7)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to Low Duration Municipal Bond, California Intermediate Municipal Bond and New York Intermediate Municipal Bond Funds/15/

	(8)	Form of Establishment and Designation of Classes J and Class K/16/

	(9)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to Loan Obligation Fund/16/

	(10)	Form of Amended Designation of Series Relating to Short Duration Municipal Income Fund/16/

	(11)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to the PIMCO Private Account Portfolios/17/

	(12)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to the Real Return Bond Portfolio/17/

	(13)	Form of Amended Designation of Series Relating to the U.S. Government Sector, U.S. Government Sector II, Mortgage, Mortgage II, Investment Grade Corporate, Select Investment, High Yield, International and Emerging Markets Portfolios/17/

	(14)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to Investment Grade Corporate Bond Fund/19/


	(15)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to PIMCO California Municipal Bond Fund and PIMCO Short-Term Emerging Markets Portfolio/20/

	(16)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to PIMCO European Convertible Fund/23/

	(17)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to PIMCO Asset-Backed Securities Portfolio and PIMCO Asset-Backed Securities Portfolio II/23/

	(18)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to the Real Return Fund II and Real Return Asset Fund/25/

	(19)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to the PIMCO All Asset Fund, PIMCO CommodityRealReturn Strategy Fund and PIMCO StocksPLUS Total Return Fund/28/

	(20)	Form of Establishment and Designation of Advisor Class and Class R/29/

	(21)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to the PIMCO All Asset Fund/30/

	(22)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to the PIMCO Diversified Income Fund/30/

	(23)	Form of Establishment and Designation of Additional Classes of Shares of Beneficial Interest Relating to the StocksPLUS Total Return Fund/31/

	(24)	Form of Establishment and Designation of Series of Shares of Beneficial Interest Relating to the PIMCO All Asset All Authority Fund, PIMCO European StocksPLUS TR Strategy Fund, PIMCO Far East (Ex-Japan) StocksPLUS TR Strategy Fund, PIMCO International StocksPLUS TR Strategy Fund, PIMCO Japanese StocksPLUS TR Strategy Fund, PIMCO RealEstateRealReturn Strategy Fund, PIMCO StocksPLUS Municipal-Backed Fund and PIMCO StocksPLUS Short Strategy Fund/32/

(b)	Form of By-laws of Registrant/7/

(c)	Not applicable

(d)	(1)	Form of Investment Advisory Contract/7/

	(2)	Form of Amendment to Investment Advisory Contract/7/


		(3)		Form of Supplement to Investment Advisory Contract Relating to StocksPLUS Short Strategy Fund/2/

		(4)		Form of Supplement to Investment Advisory Contract Relating to Balanced Fund/3/

		(5)		Form of Supplement to Investment Advisory Contract Relating to Global Bond Fund II/5/

		(6)		Form of Supplement to Investment Advisory Contract Relating to Real Return Bond Fund/5/

		(7)		Form of Supplement to Investment Advisory Contract Relating to Low Duration Mortgage Fund, Total Return Mortgage Fund, Emerging Markets Bond Fund, and Emerging Markets Bond Fund II/6/

		(8)		Form of Supplement to Investment Advisory Contract Relating to Municipal Bond Fund /9/

		(9)		Form of Supplement to Investment Advisory Contract Relating to Long Duration Fund/11/

		(10)		Form of Supplement to Investment Advisory Contract Relating to Convertible Fund/13/

		(11)		Form of Supplement to Investment Advisory Contract Relating to Low Duration Municipal Bond, California Intermediate Municipal Bond and New York Municipal Bond Funds/15/

		(12)		Form of Supplement to Investment Advisory Contract Relating to PIMCO Private Account Portfolios/17/

		(13)		Form of Investment Advisory Contract/20/

		(14)		Form of Supplement to Investment Advisory Contract Relating to PIMCO California Municipal Bond Fund and PIMCO Short-Term Emerging Markets Portfolio/20/

		(15)		Form of Supplement to Investment Advisory Contract Relating to Loan Obligation Fund/21/

		(16)		Form of Supplement to Investment Advisory Contract Relating to PIMCO European Convertible Fund/23/



SHORT TERM PORTFOLIOS
Short-Term Portfolio		Short-Term Portfolio II

US GOVERNMENT PORTFOLIOS
U.S. Government Sector Portfolio		U.S. Government Sector Portfolio II

MORTGAGE PORTFOLIOS
Mortgage Portfolio		Mortgage Portfolio II

ASSET-BACKED PORTFOLIOS
Asset-Backed Securities Portfolio		Asset-Backed Securities Portfolio II

CORPORATE PORTFOLIOS
Investment Grade Corporate Portfolio		High Yield Portfolio

MUNICIPAL PORTFOLIOS
Municipal Sector Portfolio

INTERNATIONAL PORTFOLIOS
International Portfolio Emerging Markets Portfolio		Emerging Markets Local Currency Bond Portfolio

SPECIALTY PORTFOLIOS
Real Return Portfolio
This cover is not part of the Offering Memorandum. The Portfolios issue shares only in private placement transactions in accordance with Regulation D or other applicable exemptions under the Securities Act of 1933, as amended (the ‘‘Securities Act’’). The enclosed Offering Memorandum is not an offer to sell, or a solicitation of any offer to buy, any security to the public within the meaning of the Securities Act.

Summary Information		3
Investment Objectives and Strategies		5
Asset-Backed Securities Portfolio		5
Asset-Backed Securities Portfolio II		5
Emerging Markets Portfolio		6
Emerging Markets Local Currency Bond Portfolio		6
High Yield Portfolio		7
International Portfolio		7
Investment Grade Corporate Portfolio		8
Mortgage Portfolio		8
Mortgage Portfolio II		9
Municipal Sector Portfolio		9
Real Return Portfolio		10
Short-Term Portfolio		10
Short-Term Portfolio II		11
U.S. Government Sector Portfolio		11
U.S. Government Sector Portfolio II		12
Summary of Principal Risks		12
Management of the Portfolios		16
Purchases, Redemptions and Exchanges		17
How Portfolio Shares Are Priced		20
Portfolio Distributions		21
Tax Consequences		21
Investment Restrictions		22
Portfolio Transactions and Brokerage		23
Characteristics and Risks of Securities and Investment Techniques		26
Appendix A—Description of Securities Ratings		A-1


	(8)	Form of Supplement to Distribution Contract Relating to PIMCO Asset-Backed Securities Portfolio and PIMCO Asset-Backed Securities Portfolio II/23/

	(9)	Form of Supplement to Distribution Contract Relating to the Real Return Fund II and Real Return Asset Fund /25/

	(10)	Form of Supplement to Distribution Contract Relating to the PIMCO All Asset Fund, PIMCO CommodityRealReturn Strategy Fund and PIMCO StocksPLUS Total Return Fund/28/

	(11)	Form of Distribution Contract/29/

	(12)	Form of Supplement to Distribution Contract Relating to the PIMCO Diversified Income Fund/30/

	(13)	Form of Supplement to Distribution Contract Relating to the PIMCO All Asset All Authority Fund, PIMCO European StocksPLUS TR Strategy Fund, PIMCO Far East (Ex-Japan) StocksPLUS TR Strategy Fund, PIMCO International StocksPLUS TR Strategy Fund, PIMCO Japanese StocksPLUS TR Strategy Fund, PIMCO RealEstateRealReturn Strategy Fund, PIMCO StocksPLUS Municipal-Backed Fund and PIMCO StocksPLUS Short Strategy Fund/32/

(f)	Not applicable

(g)	Form of Custody and Investment Accounting Agreement /14/

(h)	(1)	Form of Amended and Restated Administration Agreement /9/

	(2)	Form of Supplement to Amended and Restated Administration Agreement relating to Long Duration Fund/11/

	(3)	Form of Supplement to Amended and Restated Administration Agreement Relating to Convertible Bond Fund/13/

	(4)	Form of Supplement to Amended and Restated Administration Agreement Relating to Class J and Class K Shares/14/

	(5)	Form of Supplement to Amended and Restated Administration Agreement Relating to Low Duration Municipal Bond, California Intermediate Municipal Bond and New York Intermediate Municipal Bond Funds/15/

	(6)	Form of Supplement to Amended and Restated Administration Agreement Relating to PIMCO Private Account Portfolios/17/


	(7)	Form of Second Amended and Restated Administration Agreement/21/

	(8)	Form of Supplement to Second Amended and Restated Administration Agreement Relating to PIMCO California Municipal Bond Fund and PIMCO Short-Term Emerging Markets Portfolio/21/

	(9)	Form of Supplement to Second Amended and Restated Administration Agreement Relating to Loan Obligation Fund/21/

	(10)	Form of Supplement to Second Amended and Restated Administration Agreement Relating to PIMCO European Convertible Fund/23/

	(11)	Form of Supplement to Second Amended and Restated Administration Agreement Relating to PIMCO Asset-Backed Securities Portfolio and PIMCO Asset-Backed Securities Portfolio II/23/

	(12)	Form of Supplement to Second Amended and Restated Administration Agreement Relating to the Real Return Fund II and Real Return Asset Fund /25/

	(13)	Form of Supplement to Second Amended and Restated Administration Agreement Relating to the PIMCO All Asset Fund, PIMCO CommodityRealReturn Strategy Fund and PIMCO StocksPLUS Total Return Fund/28/

	(14)	Form of Supplement to Second Amended and Restated Administration Agreement Relating to the PIMCO Diversified Income Fund/30/

	(15)	Form of Second Amended and Restated Administration Agreement/32/

	(16)	Form of Shareholder Servicing Agreement/9/

	(17)	Form of Transfer Agency Agreement/7/

	(18)	Form of Transfer Agency Agreement with Shareholder Services, Inc./1/

(i)	Opinion and Consent of Counsel/31/

(j)	Consent of PricewaterhouseCoopers LLP/34/


(k)	Not applicable

(l)	Not applicable

(m)	(1)	Form of Distribution and Servicing Plan for Class A Shares/4/

	(2)	Form of Distribution and Servicing Plan for Class B Shares/4/

	(3)	Form of Distribution and Servicing Plan for Class C Shares/4/

	(4)	Form of Amended and Restated Distribution Plan for Administrative Class Shares/7/

	(5)	Form of Amended and Restated Administrative Services Plan for Administrative Class Shares/7/

	(6)	Form of Distribution and Servicing Plan for Class J Shares/14/

	(7)	Form of Distribution and Servicing Plan for Class K Shares/14/

	(8)	Form of Distribution and Servicing Plan for Class C Shares of the Short Duration Municipal Income Fund/27/

	(9)	Form of Administrative Services Plan for Advisor Class Shares/29/

	(10)	Form of Distribution Plan for Advisor Class Shares/29/

	(11)	Form of Distribution and Services Plan for Class R Shares/29/

(n)	(1)	Form of Amended and Restated Multi-Class Plan adopted pursuant to Rule 18f-3/14/

	(2)	Form of Second Amended and Restated Multi-Class Plan adopted pursuant to Rule 18f-3 /25/

	(3)	Form of Third Amended and Restated Multi-Class Plan adopted pursuant to Rule 18f-3 /29/

	(4)	Form of Fourth Amended and Restated Multi-Class Plan adopted pursuant to Rule 18f-3 /29/

(p)	(1)	Form of Code of Ethics for the Registrant/21/

	(2)	Form of Code of Ethics for PIMCO/21/

	(3)	Form of Code of Ethics for PIMCO Advisors Distributors LLC/22/

Name		Business and Other Connections

Ahto, Laura A.		Senior Vice President, PIMCO and PIMCO Europe Limited.

Anderson, Joshua M.		Vice President, PIMCO.

Andrews, David S.		Senior Vice President, PIMCO.

Name		Business and Other Connections

Arnold, Tamara J.		Executive Vice President, PIMCO.

Asay, Michael R.		Executive Vice President, PIMCO.

Baker, Brian P.		Senior Vice President, PIMCO and PIMCO Asia PTE Limited.

Banno, Denise C.		Senior Vice President, PIMCO.

Beaumont, Stephen B.		Senior Vice President, PIMCO.

Benz II, William R.		Managing Director and Executive Committee Member, PIMCO.

Beyer, Nicolette		Vice President, PIMCO and PIMCO Europe Limited.

Bhansali, Vineer		Executive Vice President, PIMCO.

Bishop, Gregory A.		Senior Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Borneleit, Adam		Vice President, PIMCO.

Brittain, W.H. Bruce		Senior Vice President, PIMCO.

Brown, Erik C.		Vice President, PIMCO; Assistant Treasurer, the Trust, PIMCO Variable Insurance Trust, PIMCO Commercial Mortgage Securities Trust, Inc., PIMCO Funds: Multi-Manager Series, and PIMCO Strategic Global Government Fund, Inc.

Brynjolfsson, John B.		Managing Director, PIMCO.

Burns, R. Wesley		Director, PIMCO; President and Trustee of the Trust and PIMCO Variable Insurance Trust; President and Director of PIMCO Commercial Mortgage Securities Trust, Inc.; Director, PIMCO Funds: Global Investors Series plc and PIMCO Global Advisors (Ireland) Limited; Senior Vice President, PIMCO Strategic Global Government Fund, Inc.

Burton, Kirsten		Vice President, PIMCO.

Callin, Sabrina C.		Senior Vice President, PIMCO; Vice President, StocksPLUS Management, Inc.

Name		Business and Other Connections

Chipp, William		Vice President, PIMCO.

Clark, Marcia K.		Vice President, PIMCO.

Conseil, Cyrille		Senior Vice President, PIMCO.

Cullinan, William E.		Vice President, PIMCO.

Cummings, Doug		Vice President, PIMCO.

Cummings, John B.		Vice President, PIMCO.

Cupps, Wendy W.		Executive Vice President, PIMCO.

Dada, Suhail		SeniorVice President, PIMCO.

Danielson, Brigitte		Vice President, PIMCO.

Dawson, Craig A.		Senior Vice President, PIMCO.

Dialynas, Chris P.		Managing Director, PIMCO.

Dorff, David J.		Senior Vice President, PIMCO.

Dunn, Anita		Vice President, PIMCO.

Durham, Jennifer E.		Vice President, PIMCO.

Easterday, Jeri A.		Vice President, PIMCO.

Eberhardt, Michael		Vice President, PIMCO and PIMCO Europe Limited.

El-Erian, Mohamed A.		Managing Director, PIMCO; Senior Vice President, PIMCO Strategic Global Government Fund, Inc.

Ellis, Edward L.		Vice President, PIMCO.

Estep, Bret W.		Vice President, PIMCO.

Evans, Stephanie D.		Vice President, PIMCO.

Name		Business and Other Connections

Fields, Robert A.		Vice President, PIMCO.

Fisher, Marcellus M.		Senior Vice President, PIMCO.

Foss, Kristine L.		Vice President, PIMCO.

Fournier, Joseph A.		Vice President, PIMCO and PIMCO Asia PTE Limited.

Foxall, Julian		Vice President, PIMCO and PIMCO Australia Pty Limited.

Frisch, Ursula T.		Senior Vice President, PIMCO.

Fulford III, Richard F.		Vice President, PIMCO.

Gagne, Darius		Vice President, PIMCO.

Garbuzov, Yuri P.		Senior Vice President, PIMCO.

Gleason, G. Steven		Senior Vice President, PIMCO.

Goldman, Stephen S.		Senior Vice President, PIMCO and PIMCO Europe Limited.

Gomez, Michael A.		Vice President, PIMCO.

Gore, Gregory T.		Vice President, PIMCO.

Graber, Gregory S.		Vice President, PIMCO.

Greer, Robert J.		Vice President, PIMCO

Gross, William H.		Managing Director and Executive Committee Member, PIMCO; Director and Vice President, StocksPLUS Management, Inc.; Senior Vice President of the Trust and PIMCO Variable Insurance Trust.

Gupta, Shailesh		Vice President, PIMCO and PIMCO Europe Limited.

Hague, John L.		Managing Director, PIMCO.

Hally, Gordon C.		Executive Vice President, PIMCO.

Name		Business and Other Connections

Hamalainen, Pasi M.		Managing Director, PIMCO; Senior Vice President, PIMCO Strategic Global Government Fund, Inc.

Hardaway, John P.		Senior Vice President, PIMCO; Vice President, StocksPLUS Management, Inc.; Treasurer, the Trust, PIMCO Commercial Mortgage Securities Trust, Inc., PIMCO Variable Insurance Trust, PIMCO Funds: Multi-Manager Series and PIMCO Strategic Global Government Fund, Inc.

Harris, Brent R.		Managing Director and Executive Committee Member, PIMCO; Director and Vice President, StocksPLUS Management, Inc.; Trustee and Chairman of the Trust and PIMCO Variable Insurance Trust; Director and Chairman, PIMCO Commercial Mortgage Securities Trust, Inc.; Chairman and President, PIMCO Strategic Global Government Fund, Inc.

Harrison, Paul		Vice President, PIMCO and PIMCO Australia Pty. Ltd.

Harumi, Kazunori		Vice President, PIMCO and PIMCO Japan Limited.

Hastings, Arthur J.		Vice President, PIMCO.

Hayes, Ray C.		Senior Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Hinman, David C.		Executive Vice President, PIMCO.

Hodge, Douglas M.		Managing Director, PIMCO and PIMCO Asia Pacific.

Holden, Brent L.		Managing Director, PIMCO.

Holloway, Dwight F., Jr.		Executive Vice President, PIMCO and PIMCO Europe Limited.

Horsington, Simon		Vice President, PIMCO and PIMCO Europe Limited.

Hsu, Lori C.		Vice President, PIMCO.

Hudoff, Mark T.		Executive Vice President, PIMCO and PIMCO Europe Limited.

Hudson, James		Vice President, PIMCO and PIMCO Europe Limited.

Name		Business and Other Connections

Isberg, Margaret E.		Managing Director, PIMCO; Senior Vice President, the Trust and PIMCO Variable Insurance Trust.

Ishida, Koji		Vice President, PIMCO and PIMCO Japan Limited.

Ivascyn, Daniel J.		Senior Vice President, PIMCO, PIMCO Commercial Mortgage Securities Trust, Inc., and PIMCO Strategic Global Government Fund, Inc.

Jacobs IV, Lew W.		Executive Vice President, PIMCO.

Johnson, Elissa M.		Vice President, PIMCO and PIMCO Europe Limited.

Johnson, Kelly		Vice President, PIMCO.

Johnstone, Jim		Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Katz, Joshua		Vice President, PIMCO.

Kawamura, Kenji		Vice President, PIMCO and PIMCO Japan Limited.

Kelleher III, Thomas J.		Vice President, PIMCO.

Keller, James M.		Managing Director, PIMCO.

Kelly, Benjamin M.		Vice President, PIMCO.

Kennedy, Raymond G., Jr.		Managing Director, PIMCO.

Kido, Masahiro		Vice President, PIMCO and PIMCO Japan Limited.

Kiesel, Mark R.		Executive Vice President, PIMCO.

King, J. Stephen, Jr.		Vice President, PIMCO and StocksPLUS Management, Inc.

King, Stephanie L.		Vice President, PIMCO.

Kirkbaumer, Steven P.		Senior Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Kondo, Tetsuro		Vice President, PIMCO and PIMCO Japan Limited.

Name		Business and Other Connections

Kuhner, Kevin D.		Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Lackey, W. M.		Vice President, PIMCO.

Larsen, Henrik P.		Vice President, PIMCO, the Trust, PIMCO Commercial Mortgage Securities Trust, Inc., PIMCO Variable Insurance Trust, PIMCO Funds: Multi-Manager Series, and PIMCO Strategic Global Government Fund, Inc.

Lehavi, Yanay		Vice President, PIMCO.

Lindgren, Peter L.		Senior Vice President, PIMCO and PIMCO Europe Limited.

Loftus, John S.		Managing Director, PIMCO; Senior Vice President, the Trust and PIMCO Variable Insurance Trust; Vice President and Assistant Secretary, StocksPLUS Management, Inc.

Low, Aaron		Vice President, PIMCO and PIMCO Asia PTE Limited.

Lown, David C.		Executive Vice President, PIMCO.

Ludwig, Jeffrey T.		Senior Vice President, PIMCO.

Makinoda, Naoto		Vice President, PIMCO and PIMCO Japan Limited.

Mallegol, Andre J.		Senior Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Mariappa, Sudesh N.		Managing Director, PIMCO.

Maronilla, Ramon		Vice President, PIMCO and PIMCO Asia Pte.

Martin, Scott W.		Vice President, PIMCO.

Martini, Michael E.		Senior Vice President, PIMCO.

Masanao, Tomoya		Senior Vice President, PIMCO and PIMCO Japan Limited.

Mather, Scott A.		Executive Vice President, PIMCO.

Name		Business and Other Connections

Matsuhisa, Robert L.		Vice President, PIMCO.

Matsui, Akinori		Senior Vice President, PIMCO and PIMCO Japan Limited.

Mayuzumi, Sugako		Vice President, PIMCO and PIMCO Japan Limited.

McCann, Patrick Murphy		Vice President, PIMCO.

McCray, Mark V.		Executive Vice President, PIMCO.

McCulley, Paul A.		Managing Director, PIMCO.

McDevitt, Joseph E.		Executive Vice President, PIMCO; Director and Chief Executive Officer, PIMCO Europe Limited; Director, PIMCO Funds: Global Investors Series plc and PIMCO Global Advisors (Ireland) Limited.

Meehan, James P., Jr.		Senior Vice President, PIMCO.

Meiling, Dean S.		Managing Director, PIMCO.

Metsch, Mark E.		Vice President, PIMCO.

Mewbourne, Curtis A.		Executive Vice President, PIMCO.

Miller, John M.		Senior Vice President, PIMCO.

Miller, Kendall P., Jr.		Vice President, PIMCO.

Millimet, Scott A.		Senior Vice President, PIMCO.

Mitchell, Gail		Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Moll, Jonathan D.		Executive Vice President, PIMCO.

Monson, Kirsten S.		Executive Vice President, PIMCO.

Moriguchi, Masabumi		Vice President, PIMCO and PIMCO Japan Limited.

Murata, Alfred T.		Vice President, PIMCO.

Name		Business and Other Connections

Muzzy, James F.		Managing Director, PIMCO; Chairman and Director, PIMCO Funds: Global Investors Series plc and PIMCO Global Advisors (Ireland) Limited; Director and Vice President, StocksPLUS Management, Inc.; Senior Vice President, the Trust and PIMCO Variable Insurance Trust.

Nercessian, Terence Y.		Vice President, PIMCO.

Nieves, Roger O.		Vice President, PIMCO.

Norris, John F.		Vice President, PIMCO.

Nguyen, Vinh T.		Controller, PIMCO; Vice President and Controller, Allianz Dresdner Asset Management of America L.P., Cadence Capital Management LLC, Cadence Capital Management, Inc., NFJ Investment Group L.P., NFJ Management, Inc., StocksPLUS Management, Inc., PIMCO Advisors Distributors LLC, PIMCO Advisors Advertising Agency, Inc., Oppenheimer Group, Inc., PIMCO Global Advisors LLC, PIMCO Equity Advisors LLC, PIMCO Equity Partners LLC, Nicholas Applegate Holdings LLC, Oppenheimer Capital LLC, OCC Distributors LLC, OpCap Advisors LLC, Allianz Hedge Fund Partners L.P., PIMCO Advisors Managed Accounts LLC, and Allianz Private Client Services LLC.

O’Connell, Gillian		Vice President, PIMCO and PIMCO Europe Limited.

Okamura, Shigeki		Senior Vice President, PIMCO and PIMCO Japan Limited.

Okun, Ric		Vice President, PIMCO.

Ongaro, Douglas J.		Senior Vice President, PIMCO; Senior Vice President, the Trust and PIMCO Variable Insurance Trust.

Otterbein, Thomas J.		Executive Vice President, PIMCO.

Palghat, Kumar N.		Senior Vice President, PIMCO and PIMCO Australia Pty Limited.

Palmer, Richard H.		Vice President, PIMCO.

Pan, Evan T.		Vice President, PIMCO and PIMCO Japan Limited.

Name		Business and Other Connections

Pardi, Peter Paul		Senior Vice President, PIMCO and PIMCO Europe Limited.

Parikh, Saumil H.		Vice President, PIMCO.

Paulson, Bradley W.		Senior Vice President, PIMCO.

Perez, Keith		Senior Vice President, PIMCO.

Pflug, Bruce		Senior Vice President, PIMCO; Vice President, the Trust and PIMCO Variable Insurance Trust.

Phansalkar, Mohan V.		Executive Vice President, Chief Legal Officer and Assistant Secretary, PIMCO; Secretary, StocksPLUS Management, Inc.

Philipp, Elizabeth M.		Executive Vice President, PIMCO.

Pittman, David J.		Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Plein, Jeffrey L.		Vice President, PIMCO and PIMCO Japan Limited.

Podlich III, William F.		Managing Director, PIMCO.

Porterfield, Mark		Senior Vice President, PIMCO.

Powers, William C.		Managing Director and Executive Committee Member, PIMCO; Senior Vice President, PIMCO Commercial Mortgage Securities Trust, Inc.

Prince, Jennifer L.		Vice President, PIMCO.

Qu, Wendong		Vice President, PIMCO.

Ramsey, James		Senior Vice President, PIMCO.

Ravano, Emanuele		Executive Vice President, PIMCO and PIMCO Europe Limited.

Reimer, Danelle J.		Vice President, PIMCO.

Reimer, Ronald M.		Vice President, PIMCO.

Name		Business and Other Connections

Reisz, Paul W.		Vice President, PIMCO.

Repoulis, Yiannis		Vice President, PIMCO and PIMCO Europe Limited.

Rodgerson, Carol E.		Vice President, PIMCO.

Rodosky, Stephen A.		Vice President, PIMCO.

Rollins, Melody		Vice President, PIMCO.

Romano, Mark A.		Senior Vice President, PIMCO; Senior Vice President, the Trust and PIMCO Variable Insurance Trust.

Roney, Scott L.		Senior Vice President, PIMCO.

Rosiak, Jason R.		Vice President, PIMCO.

Rowe, Cathy T.		Vice President, PIMCO.

Ruthen, Seth R.		Executive Vice President, PIMCO.

Sargent, Jeffrey M.		Senior Vice President, PIMCO, the Trust, PIMCO Commercial Mortgage Securities Trust, Inc., PIMCO Variable Insurance Trust, PIMCO Funds: Multi-Manager Series, and PIMCO Strategic Global Government Fund, Inc.

Schmider, Ernest L.		Managing Director and Secretary, PIMCO; Director and Assistant Secretary, StocksPLUS Management, Inc.

Scholey, Leland T.		Senior Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Schucking, Ivor E.		Senior Vice President, PIMCO.

Schulist, Stephen O.		Senior Vice President, PIMCO.

Scibisz, Iwona E.		Vice President, PIMCO.

Seliga, Denise C.		Senior Vice President, PIMCO.

Sellers, Devin L.		Vice President, PIMCO.

Name		Business and Other Connections

Shaler, Timothy L.		Vice President, PIMCO.

Sharp, William E.		Vice President, PIMCO.

Sheehy, Erica H.		Vice President, PIMCO.

Simon, W. Scott		Executive Vice President, PIMCO.

Spalding, Scott M.		Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Stauffer, Christina		Vice President, PIMCO, the Trust and PIMCO Variable Insurance Trust.

Strelow, Peter G.		Vice President, PIMCO.

Stuttard, Jamie		Vice President, PIMCO and PIMCO Europe Limited.

Takano, Makoto		Executive Vice President, PIMCO and PIMCO Japan Limited.

Takechi, Yoichi		Vice President, PIMCO and PIMCO Japan Limited.

Telish, Christine M.		Vice President, PIMCO.

Theodore, Kyle J., Jr.		Senior Vice President, PIMCO.

Thomas, Lee R.		Managing Director, PIMCO; Member, PIMCO Partners LLC.

Thompson, William S.		Chief Executive Officer, Managing Director and Executive Committee Member, PIMCO; Director and President, StocksPLUS Management, Inc.; Senior Vice President, the Trust, PIMCO Commercial Mortgage Securities Trust, Inc. and PIMCO Variable Insurance Trust.

Thurston, Powell C.		Vice President, PIMCO.

Tyson, Richard E.		Senior Vice President, PIMCO.

Vallarta-Jordal, Maria-Theresa F.		Vice President, PIMCO.

Van de Zilver, Peter A.		Vice President, PIMCO.

Name		Business and Other Connections

van Heel, Marc		Senior Vice President, PIMCO and PIMCO Europe Limited.

Weil, Richard M.		Managing Director and Chief Operating Officer, PIMCO.

Willemsen, Michael J.		Vice President, PIMCO, the Trust, PIMCO Variable Insurance Trust, PIMCO Commercial Mortgage Securities Trust, Inc., and PIMCO Strategic Global Government Fund, Inc.

Wilson, Barry L.		Vice President, PIMCO.

Wilson, John F.		Executive Vice President, PIMCO and PIMCO Australia Pty Limited.

Wilson, Susan L.		Executive Vice President, PIMCO.

Witham, Tamara L.		Vice President, PIMCO.

Wood, George H.		Executive Vice President, PIMCO.

Worah, Mihir P.		Vice President, PIMCO.

Wyman, Charles C.		Executive Vice President, PIMCO.

Young, David		Senior Vice President, PIMCO and PIMCO Europe Limited.

Yu, Cheng-Yuan		Senior Vice President, PIMCO.

Yu, Walter		Vice President, PIMCO.

Zhu, Changhong		Executive Vice President, PIMCO.

Name and Principal Business Address*	Positions and Offices with Underwriter	Positions and Offices with Registrant

Aarts, Erik M.	Senior Vice President, Portfolio Specialist—Fixed Income Product Manager	None

Andresen, Kiley	Vice President, Senior National Accounts Manager	None

Baca, Lincoln	Senior Vice President, Manager RIA—Equity Sales	None

Barnes, Donna E.	Compliance Officer	None

Bowry, Tom	Vice President	None

Brannan, Mike	Senior Vice President	None

Brennan, Deborah P.	Vice President, Compliance Officer	None

Brown, Matt	Senior Vice President	None

Bruce, Fred	Vice President	None

Burke, Martin	Senior Vice President	None

Cahill, Paul	Vice President	None

Colombo, Cindy	Vice President, Retirement Plans	None

Cotton, Lesley	Vice President, Senior Marketing Writer	None

		PIMCO FUNDS
		(Registrant)

By:
		R. Wesley Burns*
		President

*By:		/s/ Robert W. Helm
		Robert W. Helm, as attorney-in-fact