<PAGE>
PIMCO
PIMCO VARIABLE INSURANCE TRUST
STOCKSPLUS GROWTH AND INCOME PORTFOLIO
------------------
SEMI-ANNUAL REPORT
June 30, 1999
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO Variable
Insurance Trust StocksPLUS Growth and Income Portfolio.
Treasury prices fell steadily and yields rose across the maturity spectrum as
fears of inflation dominated the fixed income marketplace during the first half
of the year. Strong economic growth in the U.S. throughout the period and signs
of recovery elsewhere in the world during the second quarter sparked concern
that the Federal Reserve would boost interest rates to keep inflation subdued.
The yield on the 30-year Treasury bond ended the period at 5.97%, up 0.88% and
yields on 10-year Treasuries climbed a more dramatic 1.14% finishing the period
at 5.79%. Despite difficulties in the bond market, the U.S. stock market
continued its ascent and started to broaden late in the period as
smaller-capitalization issues and lower valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the
six-month period and indicated that the move had been driven mainly by a return
to normalcy in U.S. and international financial markets after the global crisis
of the past year. The increase came as no surprise to the financial markets
since Fed officials had adopted a bias, their view on the likely next move in
rates, towards tightening at their May policymaking open market committee
meeting. However, the raise in rates was accompanied by the Fed announcement
that they were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about inflation.
After a surprise jump in the April consumer price index, led by higher energy
prices, the CPI was unchanged in May. A reduction in new home sales due to
higher borrowing costs suggested the economy might be slowing, reducing
inflationary pressure. Economic expansion kept labor markets tight, with
unemployment at a 29-year low, but growth in wage costs slowed. Workers were
generally willing to accept smaller wage pay increases with inflation subdued
and real incomes rising. With goods inflation relatively benign, Fed tightening
was aimed more at potential asset bubbles in housing and stock markets, where
price gains have lifted consumer confidence to record highs and stimulated
increases in consumption that fueled economic growth.
On the following pages you will find a more complete review of the stock and
bond markets and specific details about the composition and total return
investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to focus our
efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock investors. The third
quarter of 1998 saw the market correct as a result of concerns over an economic
down-turn in Asia that appeared to be spreading. In the fourth quarter, the
market rose as these fears began to abate, and the first quarter of 1999
continued the upward trend as the market hit record highs. However, many
industry analysts expressed concern over the narrowness of the market, in which
the largest of the large-cap growth stocks were responsible for much of this
performance. Their concerns proved to be short-lived: in the second quarter of
1999, the market finally broadened, as smaller-capitalization issues as well as
lower valuation issues showed strength.
The technology sector, particularly the Internet, was an important driver of
performance in the last quarter of 1998 as well as the first quarter of 1999.
However, these issues hit a speed bump early in the second quarter of 1999 as
interest rates began to rise.
Higher valuation growth stocks also had the same inverse relationship with
interest rates. They turned in a strong performance in the last quarter of 1998
and the first quarter of 1999, benefiting from the Federal Reserve's interest
rate cuts. Like technology stocks, they suffered in the second quarter as a
result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster performance in the
last quarter of 1998 and the first quarter of 1999. However, in the second
quarter of this year, they benefited not only from a rise in interest rates but
legitimate evidence of a global economic recovery, which resulted in increased
demand for basic materials.
The broadening of the market was welcomed by most analysts. It was largely
viewed as a healthy event, after a long period of domination by one segment of
the market. Looking ahead, we are cautiously optimistic that this broadening
will enable the market to continue its rise, and that more stocks will
participate in this ascent.
Bond Market
Bond Yields Move Higher
In our last report to shareholders we suggested that the historic 18-year bull
market for bonds had come to an end. The bond market seemed to agree as Treasury
prices fell throughout most of the first half of this year.
Inflation fears have dominated the fixed income marketplace in 1999. OPEC's cuts
in oil production sent gasoline prices climbing, which negatively affected
inflation reports for the month of April. The economy, fueled by stock market
gains, grew faster than expected, adding to speculation that higher inflation
was just around the corner. In addition, foreign economies, particularly in
Asia, began to recover, as synchronized global central-bank easings appeared to
be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in May and then
raised the fed funds rate by a quarter-point to 5.0% at the end of June. The
move capped a difficult period for the bond market as Treasury prices fell
steadily, with long-term yields rising over one percentage point, breaking above
6% for the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads. Deflationary
forces, including the glut of global capacity and strong productivity gains,
remain at work. However, reflationary forces, including central bank easings and
a tight U.S. labor market, are also in play. The Fed appears to share this view,
moving back to a neutral stance after its recent tightening, explaining that
productivity gains continued to offset the wage inflation pressures created by a
tight labor market.
We believe that these forces may well offset one another, creating an
environment where interest rates remain in a relatively narrow range of between
5% and 6 1/2%. The opposing forces will likely keep inflation subdued, between
2% and 3%. In periods where deflationary forces dominate, interest rates could
fall toward the lower end of the range and vice versa. In this environment of
lower interest rate volatility, securities that provide incremental yield will
become more attractive to bond investors.
2
<PAGE>
StocksPLUS Growth and Income Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Total return which exceeds that of the S&P 500 Index
Portfolio:
Primarily S&P 500 Index futures and short-term bonds
Duration:
0.50 years
Total Net Assets:
$151 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Short-Term Instruments 34.6%
Corporate Bonds and Notes 34.4%
Mortgage-Backed Securities 17.1%
Asset-Backed Securities 9.7%
Other 4.2%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 57.3%
AA 9.4%
A 18.5%
BBB 7.1%
BB 7.7%
*% of Total Investments as of June 30, 1999 1999 Semi-Annual Report
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended June 30, 1999
StocksPLUS Growth
and Income Portfolio
(Incep. 12/31/1997) S&P 500 Index
- --------------------------------------------------------------------------------
6 Months 11.39% 12.38%
1 Year 23.86% 22.76%
Since Inception* 28.16% --
*Annualized
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$5,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
StocksPLUS Growth S&P 500
MONTH and Income Portfolio Index
<S> <C> <C>
12/31/97 5,000,000 5,000,000
1/31/98 5,070,000 5,055,300
2/28/98 5,410,000 5,419,888
3/31/98 5,685,000 5,697,441
4/30/98 5,745,000 5,754,757
5/31/98 5,630,000 5,655,833
6/30/98 5,850,567 5,885,573
7/31/98 5,785,000 5,822,891
8/31/98 4,952,807 4,981,018
9/30/98 5,334,548 5,300,102
10/31/98 5,776,132 5,731,212
11/30/98 6,111,128 6,078,581
12/31/98 6,505,580 6,428,829
1/31/99 6,722,778 6,697,682
2/28/99 6,495,238 6,489,518
3/31/99 6,770,301 6,749,164
4/30/99 7,025,882 7,010,559
5/31/99 6,848,540 6,845,040
6/30/99 7,246,712 7,224,939
</TABLE>
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $5,000,000 on 1/01/1998, the first full month following the
Portfolio inception on 12/31/1997, compared to the S&P 500 Index, an unmanaged
market index. The Portfolio may invest in foreign securities which involve
potentially higher risks including foreign currency fluctuations and political
or economic uncertainty.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. The large-cap equity bull market continued in 1999 with the S&P 500 Index
returning 12.38% for the six months ended June 30, 1999. The StocksPLUS
Growth and Income Portfolio returned 11.39% over this same time period.
. As interest rates rose during the six-month period in the short end of the
yield curve, an extended portfolio duration (sensitivity to interest rates)
relative to the duration of the S&P 500 futures contracts hurt performance.
. Corporate securities, especially higher yielding issues, were positive for
performance due to the incremental yield provided and a narrowing of credit
premiums relative to Treasuries as confidence returned to the global
marketplace.
. Mortgage-backed securities were a slight positive for returns as higher
interest rates led to a reduction in prepayment fears.
. Emerging market holdings also enhanced performance for the six-month period
due to a combination of high relative yields and continued price recovery.
. Option strategies were an additional source of value added year-to-date.
. "StocksPLUS" is an enhanced index approach to equity investing in which
PIMCO uses S&P 500 Index futures and swaps contracts to obtain the price
performance of the S&P 500 Index and seeks excess returns by actively
managing the short-duration bond portfolio backing these contracts.
<PAGE>
Financial Highlights
StocksPLUS Growth and Income Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Selected Per Share Data for the Year Ended: 6/30/1999 12/31/1998(a)
---------------- ---------------
<S> <C> <C>
Net asset value beginning of period $ 12.58 $ 10.00
- ---------------------------------------------------------------------------------------------
Net investment income (b) 0.35 0.30
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (b) 1.07 2.68
- ---------------------------------------------------------------------------------------------
Total income from investment operations 1.42 2.98
- ---------------------------------------------------------------------------------------------
Dividends from net investment income (0.22) (0.29)
- ---------------------------------------------------------------------------------------------
Distributions from net realized capital gains 0.00 (0.11)
- ---------------------------------------------------------------------------------------------
Total distributions (0.22) (0.40)
- ---------------------------------------------------------------------------------------------
Net asset value end of period $ 13.78 $ 12.58
- ---------------------------------------------------------------------------------------------
Total return 11.39% 30.11%
- ---------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 150,898 $ 58,264
- ---------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.65%* 0.65%
- ---------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.56% 5.30%
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 11% 61%
- ---------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) Commenced operations on December 31, 1997.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
StocksPLUS Growth and Income Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share amounts
---------------
<S> <C>
Assets:
Investments, at value $ 146,516
- ---------------------------------------------------------------------------------------------
Cash and foreign currency 19
- ---------------------------------------------------------------------------------------------
Receivable for investments and foreign currency sold 625
- ---------------------------------------------------------------------------------------------
Variation margin receivable 2,616
- ---------------------------------------------------------------------------------------------
Interest and dividends receivable 1,222
- ---------------------------------------------------------------------------------------------
Other assets 5
- ---------------------------------------------------------------------------------------------
151,003
=============================================================================================
Liabilities:
Payable for investments and foreign currency purchased $ 1
- ---------------------------------------------------------------------------------------------
Written options outstanding 31
- ---------------------------------------------------------------------------------------------
Accrued investment advisory fee 43
- ---------------------------------------------------------------------------------------------
Accrued administration fee 27
- ---------------------------------------------------------------------------------------------
Recoupment payable to manager 3
- ---------------------------------------------------------------------------------------------
105
=============================================================================================
Net Assets $ 150,898
=============================================================================================
Net Assets Consist of:
Paid in capital $ 136,632
- ---------------------------------------------------------------------------------------------
Undistributed net investment income 785
- ---------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain 7,822
- ---------------------------------------------------------------------------------------------
Net unrealized appreciation 5,659
- ---------------------------------------------------------------------------------------------
$ 150,898
=============================================================================================
Shares Issued and Outstanding 10,949
- ---------------------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 13.78
- ---------------------------------------------------------------------------------------------
Cost of Investments Owned $ 146,875
=============================================================================================
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
StocksPLUS Growth and Income Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
---------------
<S> <C>
Investment Income:
Interest $ 3,040
- -------------------------------------------------------------------------------------------------------------------
Total Income 3,040
===================================================================================================================
- -------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 197
- -------------------------------------------------------------------------------------------------------------------
Administration fees 123
- -------------------------------------------------------------------------------------------------------------------
Recoupment of reimbursement 3
- -------------------------------------------------------------------------------------------------------------------
Total Expenses 323
- -------------------------------------------------------------------------------------------------------------------
Net Investment Income 2,717
===================================================================================================================
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (10)
- -------------------------------------------------------------------------------------------------------------------
Net realized gain on futures and written options contracts 5,831
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) on investments (492)
- -------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on futures
and written options contracts 3,512
- -------------------------------------------------------------------------------------------------------------------
Net Gain 8,841
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Assets Resulting from Operations $ 11,558
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Statements of Changes in Net Assets
StocksPLUS Growth and Income Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
------------------ -------------------
Six Months Ended Year Ended
Increase (Decrease) in Net Assets from: June 30, 1999 December 31, 1998
<S> <C> <C>
Operations:
Net investment income $ 2,717 $ 762
- -----------------------------------------------------------------------------------------------------------------------
Net realized gain 5,821 2,422
- -----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 3,020 2,639
- -----------------------------------------------------------------------------------------------------------------------
Net increase resulting from operations 11,558 5,823
=======================================================================================================================
Distributions to Shareholders:
From net investment income (1,946) (748)
- -----------------------------------------------------------------------------------------------------------------------
From net realized capital gains 0 (421)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions (1,946) (1,169)
=======================================================================================================================
Portfolio Share Transactions
Receipts for shares sold 97,563 64,713
- -----------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 1,946 1,169
- -----------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (16,487) (12,272)
- -----------------------------------------------------------------------------------------------------------------------
Net increase resulting from Portfolio share transactions 83,022 53,610
- -----------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 92,634 58,264
=======================================================================================================================
Net Assets
Beginning of period 58,264 0
- -----------------------------------------------------------------------------------------------------------------------
End of period * $ 150,898 $ 58,264
- -----------------------------------------------------------------------------------------------------------------------
*Including net undistributed (overdistributed) investment income of: $ 785 $ 14
- -----------------------------------------------------------------------------------------------------------------------
1999 Semi-Annual Report See accompanying notes 5
</TABLE>
<PAGE>
Schedule of Investments
StocksPLUS Growth and Income Portfolio
June 30, 1999 (Unaudited)
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 33.4%
- --------------------------------------------------------------------------------
Banking & Finance 20.9%
American General Corp.
6.050% due 07/02/2001 $ 300 $ 298
Banco de Inversion Y Comercial
9.375% due 12/27/2000 1,200 1,140
Caithness Coso Fund Corp.
6.800% due 12/15/2001 3,000 2,992
Chrysler Financial Co. LLC
5.030% due 06/11/2001 (d) 600 600
Edison Funding
6.050% due 12/17/1999 1,000 1,001
Finova Capital Corp.
5.250% due 06/18/2003 (d) 3,000 2,966
Ford Credit Canada
5.315% due 12/16/2002 (d) 300 299
General Motors Acceptance Corp.
5.530% due 12/17/2001 (d) 2,000 2,010
5.100% due 08/18/2003 (d) 3,000 2,981
5.246% due 04/05/2004 (d) 800 800
Goldman Sachs Group
5.430% due 01/16/2001 (d) 1,000 1,005
5.250% due 02/10/2004 1,300 1,277
Hyatt Equities LLC
6.800% due 05/15/2000 3,000 3,005
Lehman Brothers Holdings
6.375% due 05/07/2002 100 98
5.309% due 08/01/2003 (d) 2,000 1,969
5.813% due 11/30/2006 (d) 3,000 2,550
Merrill Lynch & Co.
5.530% due 11/20/2000 1,000 1,004
5.450% due 01/11/2002 (d) 2,200 2,211
5.370% due 02/01/2002 (d) 750 752
5.555% due 03/17/2004 (d) 200 202
Nacional Financiera
8.693% due 12/01/2000 (d) 1,000 1,010
Paine Webber Group, Inc.
7.700% due 02/11/2000 130 131
5.555% due 08/18/2004 (d) 1,000 978
Salomon, Smith Barney Holdings
5.220% due 04/01/2002 (d) 300 299
----------
31,578
Industrials 7.5%
Case Credit Corp.
5.209% due 05/05/2000 (d) 4,000 4,005
Champion International Corp.
9.700% due 05/01/2001 300 316
Limited, Inc.
5.928% due 05/22/2001 (d) 2,000 1,998
Norfolk Southern Corp.
6.700% due 05/01/2000 200 201
Petroleos Mexicanos
9.657% due 07/15/2005 (d) 500 468
Time Warner, Inc.
4.900% due 07/29/1999 1,000 999
U.S. West Capital Funding
5.546% due 06/15/2000 (d) 3,000 2,999
US Air, Inc.
9.625% due 09/01/2003 30 31
Williams Co., Inc.
5.950% due 02/15/2000 (d) 300 300
----------
11,317
Utilities 5.0%
Cleveland Electric/Toledo Edison
7.190% due 07/01/2000 3,000 3,010
Enron Corp.
5.778% due 03/30/2000 1,000 1,001
Florida Gas Transmission
8.140% due 11/01/1999 1,000 1,007
Noram Energy
7.500% due 08/01/2000 500 506
Texas Utilities Co.
6.500% due 05/01/2000 2,000 2,007
----------
7,531
----------
Total Corporate Bonds & Notes 50,426
(Cost $50,548) ==========
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 1.4%
- --------------------------------------------------------------------------------
Student Loan Marketing Assn.
5.355% due 01/25/2003 (d) 305 305
5.015% due 01/25/2007 (d) 965 963
5.187% due 04/25/2007 (d) 850 849
----------
Total U.S. Government Agencies 2,117
(Cost $2,111) ==========
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 2.0%
- --------------------------------------------------------------------------------
Treasury Inflation Protected Securities
3.625% due 07/15/2002 (d) 3,113 3,083
----------
Total U.S. Treasury Obligations 3,083
(Cost $3,084) ==========
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 16.6%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 15.6%
Countrywide Home Loans
6.500% due 03/25/2028 607 596
6.050% due 04/25/2029 400 395
Federal Home Loan Mortgage Corp.
4.825% due 05/18/2000 (d) 2,000 1,998
6.500% due 02/15/2024 900 902
Federal National Mortgage Association
7.000% due 06/25/2006 517 517
6.900% due 10/25/2020 1,000 1,004
GE Capital Mortgage Services, Inc.
6.500% due 12/25/2023 1,981 1,944
6.500% due 08/25/2024 4,990 5,005
Government National Mortgage Association
7.500% due 08/20/2021 394 396
Headlands Mortgage Securities, Inc.
7.250% due 11/25/2027 1,000 993
7.000% due 02/25/2028 723 725
Independent National Mortgage Corp.
8.350% due 06/25/2025 572 572
PNC Mortgage Securities Corp.
6.625% due 03/25/2028 787 776
Prudential Home Mortgage Securities
6.750% due 08/25/2008 361 361
Prudential-Bache CMO Trust
7.965% due 03/01/2019 1,493 1,495
Resecuritization Mortgage Trust
5.171% due 04/26/2021 (d) 692 670
Residential Asset Securitization Trust
7.750% due 04/25/2027 850 860
6.500% due 03/25/2029 353 343
Residential Funding Mortgage Securities, Inc.
6.500% due 07/25/2008 232 233
7.250% due 08/25/2027 381 382
7.250% due 10/25/2027 1,000 1,001
Structured Asset Securities Corp.
5.093% due 12/25/2000 (d) 131 130
Thrift Financing Corp.
11.250% due 01/01/2016 2,091 2,186
----------
23,484
Federal National Mortgage Association 0.8%
5.780% due 08/01/2031 (d) 74 73
5.892% due 08/01/2029 (d) 283 278
6.019% due 12/01/2028 (d) 404 397
6.500% due 05/01/2006 491 492
----------
1,240
6 See accompanying notes
<PAGE>
Principal
Amount Value
(000s) (000s)
- -------------------------------------------------------------------------------
Government National Mortgage Association 0.2%
6.625% due 08/20/2024 (d) $ 270 $ 274
----------
Total Mortgage-Backed Securities 24,998
(Cost $25,292) ==========
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 9.4%
- -------------------------------------------------------------------------------
Arcadia Automobile Receivables Trust
6.500% due 06/17/2002 800 806
Banc One Auto Grantor Trust
6.270% due 11/20/2003 1,074 1,081
Empire Funding Home Loan Owner Trust
7.160% due 05/25/2012 1,973 1,981
First Plus Home Loan Trust
6.450% due 02/10/2009 381 380
Green Tree Home Equity Loan Trust
6.000% due 06/15/2029 126 127
Money Store Home Equity Trust
6.550% due 09/15/2021 3,000 3,012
6.345% due 11/15/2021 (d) 355 356
Morgan Stanley Capital
5.143% due 07/25/2027 (d) 395 393
Saxon Asset Securities Trust
5.133% due 05/25/2029 (d) 4,857 4,857
WMC Mortgage Loan
5.234% due 03/20/2028 (d) 1,266 1,265
----------
Total Asset-Backed Securities 14,258
(Cost $14,252) ==========
- -------------------------------------------------------------------------------
SOVEREIGN ISSUES 0.7%
- -------------------------------------------------------------------------------
Republic of Korea
7.594% due 04/08/2000 (d) 1,000 1,004
----------
Total Sovereign Issues 1,004
(Cost $958) ==========
- -------------------------------------------------------------------------------
PURCHASED CALL OPTIONS 0.0%
- -------------------------------------------------------------------------------
U.S. Treasury Bond (CBOT)
8.000% due 06/30/1999
Strike @ 128.000 Exp. 08/21/1999 40 1
----------
Total Purchased Call Options 1
(Cost $1) ==========
- -------------------------------------------------------------------------------
PURCHASED PUT OPTIONS 0.0%
- -------------------------------------------------------------------------------
Eurodollar December Futures (CME)
Strike @ 92.000 Exp. 12/13/1999 27,000 0
Eurodollar September Futures (CME)
Strike @ 91.750 Exp. 09/13/1999 12,000 0
----------
Total Purchased Put Options 0
(Cost $0) ==========
- -------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 33.6%
- -------------------------------------------------------------------------------
Commercial Paper 24.0%
Abbott Laboratories
4.940% due 07/20/1999 2,000 1,995
Ameritech Corp.
4.920% due 07/07/1999 4,000 3,997
4.900% due 07/08/1999 900 899
BellSouth Telecommunications, Inc.
4.940% due 07/12/1999 4,400 4,393
Campbell Soup Co.
5.140% due 07/09/1999 2,700 2,697
Emerson Electric Co.
5.020% due 07/27/1999 1,900 1,893
Federal Home Loan Mortgage Corp.
4.810% due 07/08/1999 500 500
5.040% due 07/22/1999 200 199
Ford Motor Credit Corp.
4.790% due 07/19/1999 5,500 5,487
General Electric Capital Corp.
5.340% due 07/07/1999 1,700 1,698
4.990% due 07/07/1999 1,500 1,499
Kellogg Co.
5.000% due 07/19/1999 300 299
Pfizer, Inc.
4.970% due 07/07/1999 3,600 3,597
Procter & Gamble Co.
4.820% due 07/07/1999 1,000 999
4.940% due 07/15/1999 4,100 4,092
Williams Holdings
5.360% due 01/25/2000 2,000 1,938
----------
36,182
Repurchase Agreement 4.1%
Daiwa Securities
4.680% due 07/01/1999 2,000 2,000
(Dated 06/30/1999. Collateralized by
U.S. Treasury Note 7.500% 05/15/2002
valued at $2,056,247. Repurchase
proceeds are $2,000,260.)
State Street Bank
4.000% due 07/01/1999 4,220 4,220
(Dated 06/30/1999. Collateralized by
U.S. Treasury Bond 8.875% 08/15/2017
valued at $4,306,053. Repurchase
proceeds are $4,220,469.) ----------
6,220
==========
U.S. Treasury Bills (b)(c) 5.5%
4.000% due 08/19/1999-10/14/1999 8,295 8,227
----------
Total Short-Term Instruments 50,629
(Cost $50,629) ==========
Total Investments (a) 97.1% $ 146,516
(Cost $146,875)
Written Options (e) 0.0% (31)
(Premiums $34)
Other Assets and Liabilities (Net) 2.9% 4,413
----------
Net Assets 100.0% $ 150,898
==========
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $146,875 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost $ 178
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (537)
----------
Unrealized depreciation-net $ (359)
==========
1999 Semi Annual Report See accompanying notes 7
<PAGE>
Schedule of Investments (Cont.)
StocksPLUS Growth and Income Portfolio
June 30, 1999 (Unaudited)
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
(b) Securities with an aggregate market
value of $8,227 have been segregated
with the custodian to cover margin
requirements for the following open
futures contracts at June 30, 1999:
Unrealized
# of Appreciation/
Type Contracts (Depreciation)
- --------------------------------------------------------------------------------
S&P 500 Index (09/1999) 29 $ 422
S&P 500 Index (09/1999) 389 5,604
Mini S&P 500 Index (09/1999) 4 12
Eurodollar March Futures (03/2000) 1 (2)
Eurodollar March Futures (03/2000) 1 (2)
Eurodollar June Futures (06/2000) 1 (2)
Eurodollar June Futures (06/2000) 1 (3)
Eurodollar September Futures (09/2000) 1 (2)
Eurodollar September Futures (09/2000) 1 (3)
Eurodollar September Futures (09/2001) 3 (6)
Eurodollar December Futures (12/1999) 1 (2)
Eurodollar December Futures (12/1999) 1 (2)
----------------
$ 6,014
================
(c) Securities are grouped by range of coupons
and represent a range of maturities.
(d) Variable rate security. The rate listed is as of June 30, 1999.
(e) Premiums received on written options:
Type Par Premium Value
- --------------------------------------------------------------------------------
Call - CBOT U.S. Treasury Bond September Futures
Strike @ 128.000 Exp. 08/21/1999 $ 1,700 $ 8 $ 0
Put - CBOT U.S. Treasury Bond September Futures
Strike @ 114.000 Exp. 08/21/1999 3,300 12 (25)
Call - CBOT U.S. Treasury Bond September Futures
Strike @ 126.000 Exp. 08/21/1999 2,900 7 (1)
Call - CBOT U.S. Treasury Bond September Futures
Strike @ 120.000 Exp. 08/21/1999 1,900 7 (5)
-----------------------
$ 34 $ (31)
=======================
(f) Swap agreements outstanding at June 30, 1999:
Notional Unrealized
Type Amount Appreciation
- --------------------------------------------------------------------------------
Receive total return on S&P 500 Index and
pay floating rate based on 1 month LIBOR.
Broker: J.P. Morgan
Exp. 05/02/2000 $ 65,000,000 $ 167
8 See accompanying notes
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
1. Organization
The StocksPLUS Growth and Income Portfolio (the "Portfolio") is a series of the
PIMCO Variable Insurance Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end investment company
organized as a Delaware business trust on October 3, 1997. The Trust is designed
to be used as an investment vehicle by Separate Accounts of insurance companies
that fund variable annuity contracts and variable life insurance policies and by
qualified pension and retirement plans. The Portfolio commenced operations on
December 31, 1997.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. Portfolio securities and other financial instruments 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, the
mean between representative bid and asked quotations obtained from a quotation
reporting system or from established market makers. Short-term investments
having a maturity of 60 days or less are valued at amortized cost, which
approximates market value. Certain fixed income securities for which daily
market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed income
securities whose prices are more readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled a month or more after the trade date.
Realized gains and losses from securities sold are recorded on the identified
cost basis. Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have passed,
are recorded as soon as the Fund is informed of the ex-dividend date. Interest
income, adjusted for the accretion of discounts and amortization of premiums, is
recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period. Fluctuations in the value of these assets and liabilities
resulting from changes in exchange rates are recorded as unrealized foreign
currency gains (losses). Realized gains (losses) and unrealized appreciation
(depreciation) on investment securities and income and expenses are translated
on the respective dates of such transactions. The effect of changes in foreign
currency exchange rates on investments in securities are not segregated in the
Statement of Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or loss
on investment securities.
<PAGE>
Notes to Financial Statements (Cont.)
June 30, 1999 (Unaudited)
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, are declared and distributed to shareholders quarterly. All
dividends are reinvested in additional shares of the Portfolio. Net realized
capital gains earned by the Portfolio, if any, will be distributed no less
frequently than once each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for such items as wash sales, foreign currency transactions, net
operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified to paid
in capital. In addition, other amounts have been reclassified between
undistributed net investment income, accumulated undistributed net realized
gains or losses and paid in capital to more appropriately conform financial
accounting to tax characterizations of dividend distributions.
Federal Income Taxes. The Portfolio intends to qualify as a regulated investment
company and distribute all of its taxable income and net realized gains, if
applicable, to shareholders. Accordingly, no provision for Federal income taxes
has been made.
Financing Transactions. The Portfolio may enter into financing transactions
consisting of the sale by the Portfolio of securities, together with a
commitment to repurchase similar securities at a future date. The difference
between the selling price and the future purchase price is an adjustment to
interest income. If the counter-party to whom the Portfolio sells the security
becomes insolvent, the Portfolio's right to repurchase the security may be
restricted; the value of the security may change over the term of the financing
transaction; and the return earned by the Portfolio with the proceeds of a
financing transaction may not exceed transaction costs.
Futures and Options. The Portfolio is authorized to enter into futures contracts
and options. The Portfolio may use futures contracts to manage its exposure to
the markets or to movements in interest rates and currency values. The primary
risks associated with the use of futures contracts and options are imperfect
correlation between the change in market value of the securities held by a
Portfolio and the prices of futures contracts and options, the possibility of an
illiquid market, and the inability of the counterparty to meet the terms of the
contract. Futures contracts and purchased options are valued based upon their
quoted daily settlement prices. The premium received for a written option is
recorded as an asset with an equal liability which is marked to market based on
the option's quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, the Portfolio takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time. The market value of the collateral must be equal at
all times to the total amount of the repurchase obligations, including interest.
Generally, in the event of counterparty default, the Portfolio has the right to
use the collateral to offset losses incurred.
10
<PAGE>
Restricted Securities. The Portfolio is permitted to invest in securities that
are subject to legal or contractual restrictions on resale. These securities
generally may be resold in transactions exempt from registration or to the
public if the securities are registered. Disposal of these securities may
involve time-consuming negotiations and expense, and prompt sale at an
acceptable price may be difficult.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary partnership
of PIMCO Advisors L.P., serves as investment adviser (the "Adviser") to the
Trust, pursuant to an investment advisory contract. The Advisory Fee is charged
at an annual rate of 0.40%.
Administration Fee. PIMCO serves as administrator (the "Administrator"), and
provides administrative services to the Trust for which it receives a monthly
administrative fee based on average daily net assets. The Administration Fee is
charged at the annual rate of 0.25%.
Expenses. PIMCO pays for most of the expenses of the Portfolios, including
legal, audit, custody, transfer agency and certain other services, and is
responsible for the costs of registration of the Trust's shares and the printing
of prospectuses and shareholder reports for current shareholders or other
appropriate parties. The Portfolio is responsible for bearing certain expenses
associated with their operations that are not provided or procured by PIMCO.
PIMCO has voluntarily undertaken to waive and reimburse expenses of the
Portfolio to the extent necessary, to limit the expenses to 0.65% of average
daily net assets.
Under the Expense Limitation Agreement, PIMCO may recoup these waivers and
reimbursements in future periods, not exceeding three years, provided total
expenses, including any such recoupment, do not exceed the annual expense limit.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Administrator, all of whom receive renumeration for
their services to the Trust from the Administrator or its affiliates.
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a Committee Chair receives an
additional annual retainer of $500. These expenses are allocated to the
Portfolios of the Trust according to their respective net assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended June 30, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
- ------------------------------------------------------------
Purchases Sales Purchases Sales
- ------------------------------------------------------------
$ 11,924 $ 3,993 $ 71,287 $ 3,240
1999 Semi-Annual Report 11
<PAGE>
Notes to Financial Statements (Cont.)
June 30, 1999 (Unaudited)
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amounts in
thousands):
Premium
- --------------------------------------------------------------------------------
Balanced at 12/31/1998 $ 2
- --------------------------------------------------------------------------------
Sales 507
- --------------------------------------------------------------------------------
Closing Buys (14)
- --------------------------------------------------------------------------------
Expirations (460)
- --------------------------------------------------------------------------------
Exercised (1)
- --------------------------------------------------------------------------------
Balance at 06/30/1999 $ 34
================================================================================
6. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial interest
with a $.0001 par value. Changes in shares of beneficial interest were as
follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
Six Months Ended
06/30/1999 Year Ended 12/31/98
Shares Amount Shares Amount
- ------------------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Receipts for shares sold 7,470 $ 97,563 5,681 $ 64,713
- ------------------------------------------------------------------------------- ------------------------------
Issued as reinvestment of distributions 104 1,946 97 1,169
- ------------------------------------------------------------------------------- ------------------------------
Cost of shares redeemed (1,256) (16,487) (1,146) (12,272)
- ------------------------------------------------------------------------------- ------------------------------
Net increase resulting from
Portfolio share transactions 6,318 $ 83,022 4,632 $ 53,610
=============================================================================== ==============================
</TABLE>
The following schedule shows the number of shareholders each owning 5% or more
of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
Number % of Portfolio Held
- ---------------------------------------
4 100%
7. Federal Income Tax Matters
As of December 31, 1998 the Portfolio realized capital and/or foreign currency
losses during the period November 1, 1998 through December 31, 1998, which the
Portfolio has elected to defer to the following fiscal year pursuant to income
tax regulations. The amount deferred is $1,570.
12
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $172 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality service to mutual fund and institutional clients worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO VARIABLE INSURANCE TRUST
840 NEWPORT CENTER DRIVE, SUITE 300
NEWPORT BEACH, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders of the
PIMCO Variable Insurance Trust. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective prospectus
for the PIMCO Variable Insurance Trust, which contains information covering its
investment policies as well as other pertinent information.
PIMCO FUNDS DISTRIBUTORS LLC
2187 ATLANTIC STREET
STAMFORD, CT 06902
<PAGE>
P I M C O
PIMCO VARIABLE INSURANCE TRUST
HIGH YIELD BOND PORTFOLIO
------------------
SEMI-ANNUAL REPORT
June 30, 1999
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO Variable
Insurance Trust High Yield Bond Portfolio.
Treasury prices fell steadily and yields rose across the maturity spectrum as
fears of inflation dominated the fixed income marketplace during the first half
of the year. Strong economic growth in the U.S. throughout the period and signs
of recovery elsewhere in the world during the second quarter sparked concern
that the Federal Reserve would boost interest rates to keep inflation subdued.
The yield on the 30-year Treasury bond ended the period at 5.97%, up 0.88% and
yields on 10-year Treasuries climbed a more dramatic 1.14% finishing the period
at 5.79%. Despite difficulties in the bond market, the U.S. stock market
continued its ascent and started to broaden late in the period as
smaller-capitalization issues and lower valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the
six-month period and indicated that the move had been driven mainly by a return
to normalcy in U.S. and international financial markets after the global crisis
of the past year. The increase came as no surprise to the financial markets
since Fed officials had adopted a bias, their view on the likely next move in
rates, towards tightening at their May policymaking open market committee
meeting. However, the raise in rates was accompanied by the Fed announcement
that they were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about inflation.
After a surprise jump in the April consumer price index, led by higher energy
prices, the CPI was unchanged in May. A reduction in new home sales due to
higher borrowing costs suggested the economy might be slowing, reducing
inflationary pressure. Economic expansion kept labor markets tight, with
unemployment at a 29-year low, but growth in wage costs slowed. Workers were
generally willing to accept smaller wage pay increases with inflation subdued
and real incomes rising. With goods inflation relatively benign, Fed tightening
was aimed more at potential asset bubbles in housing and stock markets, where
price gains have lifted consumer confidence to record highs and stimulated
increases in consumption that fueled economic growth.
On the following pages you will find a more complete review of the stock and
bond markets and specific details about the composition and total return
investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to focus our
efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
1999 Semi-Annual Report 1
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock investors. The third
quarter of 1998 saw the market correct as a result of concerns over an economic
down-turn in Asia that appeared to be spreading. In the fourth quarter, the
market rose as these fears began to abate, and the first quarter of 1999
continued the upward trend as the market hit record highs. However, many
industry analysts expressed concern over the narrowness of the market, in which
the largest of the large-cap growth stocks were responsible for much of this
performance. Their concerns proved to be short-lived: in the second quarter of
1999, the market finally broadened, as smaller-capitalization issues as well as
lower valuation issues showed strength.
The technology sector, particularly the Internet, was an important driver of
performance in the last quarter of 1998 as well as the first quarter of 1999.
However, these issues hit a speed bump early in the second quarter of 1999 as
interest rates began to rise.
Higher valuation growth stocks also had the same inverse relationship with
interest rates. They turned in a strong performance in the last quarter of 1998
and the first quarter of 1999, benefiting from the Federal Reserve's interest
rate cuts. Like technology stocks, they suffered in the second quarter as a
result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster performance in the
last quarter of 1998 and the first quarter of 1999. However, in the second
quarter of this year, they benefited not only from a rise in interest rates but
legitimate evidence of a global economic recovery, which resulted in increased
demand for basic materials.
The broadening of the market was welcomed by most analysts. It was largely
viewed as a healthy event, after a long period of domination by one segment of
the market. Looking ahead, we are cautiously optimistic that this broadening
will enable the market to continue its rise, and that more stocks will
participate in this ascent.
Bond Market
Bond Yields Move Higher
In our last report to shareholders we suggested that the historic 18-year bull
market for bonds had come to an end. The bond market seemed to agree as Treasury
prices fell throughout most of the first half of this year.
Inflation fears have dominated the fixed income marketplace in 1999. OPEC's cuts
in oil production sent gasoline prices climbing, which negatively affected
inflation reports for the month of April. The economy, fueled by stock market
gains, grew faster than expected, adding to speculation that higher inflation
was just around the corner. In addition, foreign economies, particularly in
Asia, began to recover, as synchronized global central-bank easings appeared to
be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in May and then
raised the fed funds rate by a quarter-point to 5.0% at the end of June. The
move capped a difficult period for the bond market as Treasury prices fell
steadily, with long-term yields rising over one percentage point, breaking above
6% for the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads. Deflationary
forces, including the glut of global capacity and strong productivity gains,
remain at work. However, reflationary forces, including central bank easings and
a tight U.S. labor market, are also in play. The Fed appears to share this view,
moving back to a neutral stance after its recent tightening, explaining that
productivity gains continued to offset the wage inflation pressures created by a
tight labor market.
We believe that these forces may well offset one another, creating an
environment where interest rates remain in a relatively narrow range of between
5% and 6 1/2%. The opposing forces will likely keep inflation subdued, between
2% and 3%. In periods where deflationary forces dominate, interest rates could
fall toward the lower end of the range and vice versa. In this environment of
lower interest rate volatility, securities that provide incremental yield will
become more attractive to bond investors.
2
<PAGE>
High Yield Bond Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management
Portfolio:
Primarily high yield bonds
Duration:
4.70 years
Total Net Assets:
$108 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Corporate Bonds and Notes 91.3%
Short-Term Instruments 5.1%
Other 3.6%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 4.7%
AA 0.6%
A 0.5%
BBB 8.9%
BB 42.5%
B 42.8%
*% of Total Investments as of June 30, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended June 30, 1999
High Yield
Bond Portfolio Lehman Intermediate
(Incep. 4/30/1998) BB rated Corp. Index
- --------------------------------------------------------------------------------
6 Months 1.48% 0.57%
1 Year 2.28% 2.12%
Since Inception* 2.83% --
*Annualized
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$5,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
High Yield Lehman Intermediate
MONTH Bond Portfolio BB rated Corp.
Index
4/30/98 5,000,000 5,000,000
5/31/98 5,002,075 5,032,500
6/30/98 5,050,394 5,063,198
7/31/98 5,097,595 5,089,527
8/31/98 4,861,173 4,949,056
9/30/98 4,929,185 5,053,976
10/31/98 4,880,246 4,989,285
11/30/98 5,076,148 5,109,028
12/31/98 5,089,852 5,141,215
1/31/99 5,178,275 5,194,169
2/28/99 5,139,437 5,155,732
3/31/99 5,191,615 5,192,854
4/30/99 5,269,386 5,245,820
5/31/99 5,167,566 5,182,346
6/30/99 5,165,318 5,170,427
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $5,000,000 on 5/01/1998, the first full month following the
Portfolio inception on 4/30/1998, compared to the Lehman Intermediate BB rated
Corp. Index, an unmanaged market index. The investments made by the High Yield
Bond Portfolio may involve high risk and may have speculative characteristics.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. High yield bonds recovered substantially from their sell-off late last year
after the Asian induced crisis led to a widespread flight to quality; while
yield premiums over Treasuries narrowed, absolute yields are relatively
unchanged as Treasury rates have risen.
. The High Yield Bond Portfolio substantially outperformed the Lehman
Intermediate BB rated Corporate Index for the six-month period ended June 30,
1999, posting a six-month return of 1.48% versus 0.57% for the Index.
. Maintaining a duration, or sensitivity to changes in interest rates, higher
than that of the Index detracted from returns as interest rates rose on fears
of renewed commodity inflation, an Asian recovery and monetary policy
tightening by the Federal Reserve.
. Holdings of higher yielding single-B bonds aided performance as they
outperformed double-B rated securities given strong economic growth and a
reduced Asian crisis premium.
. Industry orientation substantially helped returns as our overweights in
energy and cable/pay TV led the market Index; energy benefited from a rise in
oil prices and waning capacity and cable/pay TV was boosted following strong
merger activity.
. Allocations to the healthcare sector, particularly long-term care and HMOs,
detracted from performance as investors became concerned about the
government's lower Medicare reimbursements and pending unfavorable healthcare
legislation.
. Holdings of certain cellular and satellite-related credits also hurt
performance as the market struggled to digest all of the new technologies and
contemplated which delivery platforms would ultimately become profitable.
1999 Semi-Annual Report 3
<PAGE>
Financial Highlights
High Yield Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Selected Per Share Data for the Year or Period Ended: 6/30/1999 12/31/1998(a)
------------- -------------
<S> <C> <C>
Net asset value beginning of period $ 9.67 $ 10.00
- ---------------------------------------------------------------------------------------
Net investment income (b) 0.38 0.51
- ---------------------------------------------------------------------------------------
Net realized and unrealized (loss) (b) (0.24) (0.34)
- ---------------------------------------------------------------------------------------
Total income from investment operations 0.14 0.17
- ---------------------------------------------------------------------------------------
Dividends from net investment income (0.37) (0.50)
- ---------------------------------------------------------------------------------------
Total distributions (0.37) (0.50)
- ---------------------------------------------------------------------------------------
Net asset value end of period $ 9.44 $ 9.67
- ---------------------------------------------------------------------------------------
Total return 1.48% 1.80%
- ---------------------------------------------------------------------------------------
Net assets end of period (000's) 107,514 49,761
- ---------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.75%* 0.75%*
- ---------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 7.97%* 7.90%*
- ---------------------------------------------------------------------------------------
Portfolio turnover rate 4% 13%
- ---------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) Commenced operations on April 30,1998.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
High Yield Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share amounts
-------------
<S> <C>
Assets:
Investments, at value $ 105,514
- ---------------------------------------------------------------------------------------
Cash and foreign currency 537
- ---------------------------------------------------------------------------------------
Receivable for investments and foreign currency sold 92
- ---------------------------------------------------------------------------------------
Receivable for Portfolio shares sold 1,509
- ---------------------------------------------------------------------------------------
Interest and dividends receivable 1,968
- ---------------------------------------------------------------------------------------
Other assets 4
- ---------------------------------------------------------------------------------------
109,624
=======================================================================================
Liabilities:
Payable for investments and foreign currency purchased $ 2,045
- ---------------------------------------------------------------------------------------
Accrued investment advisory fee 43
- ---------------------------------------------------------------------------------------
Accrued administration fee 21
- ---------------------------------------------------------------------------------------
Recoupment payable to manager 1
- ---------------------------------------------------------------------------------------
2,110
=======================================================================================
Net Assets $ 107,514
=======================================================================================
Net Assets Consist of:
Paid in capital $ 110,685
- ---------------------------------------------------------------------------------------
Overdistributed net investment income (2)
- ---------------------------------------------------------------------------------------
Accumulated undistributed net realized (loss) (691)
- ---------------------------------------------------------------------------------------
Net unrealized (depreciation) (2,478)
- ---------------------------------------------------------------------------------------
$ 107,514
=======================================================================================
Shares Issued and Outstanding 11,386
- ---------------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.44
- ---------------------------------------------------------------------------------------
Cost of Investments Owned $ 107,992
=======================================================================================
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
High Yield Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
--------------------
<S> <C>
Investment Income:
Interest $ 3,270
- ---------------------------------------------------------------------------------------------------------------------------
Dividends, net of foreign taxes 47
- ---------------------------------------------------------------------------------------------------------------------------
Total Income 3,317
===========================================================================================================================
Expenses:
Investment advisory fees 191
- ---------------------------------------------------------------------------------------------------------------------------
Administration fees 96
- ---------------------------------------------------------------------------------------------------------------------------
Organization costs 1
- ---------------------------------------------------------------------------------------------------------------------------
Recoupment of reimbursement 1
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses 289
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income 3,028
===========================================================================================================================
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (604)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) on investments (1,846)
- ---------------------------------------------------------------------------------------------------------------------------
Net (Loss) (2,450)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase in Assets Resulting from Operations $ 578
===========================================================================================================================
</TABLE>
Statements of Changes in Net Assets
High Yield Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
-------------------- --------------------
Period from
Six Months Ended April 30, 1998 to
Increase (Decrease) in Net Assets from: June 30, 1999 December 31, 1998
<S> <C> <C>
Operations:
Net investment income $ 3,028 $ 1,579
- ---------------------------------------------------------------------------------------------------------------------------
Net realized (loss) (604) (87)
- ---------------------------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) (1,846) (632)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase resulting from operations 578 860
===========================================================================================================================
Distributions to Shareholders:
From net investment income (3,032) (1,577)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (3,032) (1,577)
===========================================================================================================================
Portfolio Share Transactions:
Receipts for shares sold 65,286 65,974
- ---------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 3,031 1,577
- ---------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (8,110) (17,073)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase resulting from Portfolio share transactions 60,207 50,478
- ---------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 57,753 49,761
===========================================================================================================================
Net Assets:
Beginning of period 49,761 0
- ---------------------------------------------------------------------------------------------------------------------------
End of period * $ 107,514 $ 49,761
- ---------------------------------------------------------------------------------------------------------------------------
*Including net undistributed (overdistributed) investment income of: $ (2) $ 2
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1999 Semi-Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments
High Yield Bond Portfolio
June 30, 1999 (Unaudited)
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 89.6%
- --------------------------------------------------------------------------------
Banking & Finance 6.9%
Americredit Corp.
9.875% due 04/15/2006 $ 500 $ 515
Charter Commercial Holdings LLC
8.250% due 04/01/2007 700 674
Crown Castle International Corp.
0.000% due 11/15/2007 1,000 699
Forest City Enterprises
8.500% due 03/15/2008 550 531
Fuji Bank
9.870% due 12/31/2049 (c) 100 88
Helicon Group
11.000% due 11/01/2003 (c) 600 630
Imperial Credit Industries, Inc.
9.875% due 01/15/2007 300 245
Mercury Finance Co.
9.495% due 03/23/2001 350 329
10.000% due 03/23/2001 800 763
Nationwide Credit, Inc.
10.250% due 01/15/2008 200 139
Presidential Life Insurance Corp.
7.875% due 02/15/2009 500 486
Sumitomo
9.400% due 12/29/2049 (c) 100 98
TPSA Finance BV
7.750% due 12/10/2008 750 729
Trizec Finance Limited
10.875% due 10/15/2005 750 785
Willis Corroon Corp.
9.000% due 02/01/2009 750 727
----------
7,438
Industrials 76.6%
Aaf-Mcquay, Inc.
8.875% due 02/15/2003 500 478
Abbey Healthcare Group
9.500% due 11/01/2002 200 200
Advanced Lighting
8.000% due 03/15/2008 650 589
AEI Holding Co.
10.500% due 12/15/2005 900 882
Agriculture Minerals & Chemicals
10.750% due 09/30/2003 500 498
Allied Waste North America, Inc.
7.625% due 01/01/2006 750 702
American Axle & Manufacturing, Inc.
9.750% due 03/01/2009 500 503
American Standard
7.375% due 02/01/2008 500 485
Amphenol Corp.
9.875% due 05/15/2007 850 870
Applied Power, Inc.
8.750% due 04/01/2009 700 683
Avalon Cable
9.375% due 12/01/2008 250 255
Ball Corp.
7.750% due 08/01/2006 250 245
8.250% due 08/01/2008 250 248
Beckman Instruments, Inc.
7.450% due 03/04/2008 2,500 2,395
Beverly Enterprises, Inc.
9.000% due 02/15/2006 600 594
Bresnan Communications
8.000% due 02/01/2009 500 496
Buckeye Technologies, Inc.
8.000% due 10/15/2010 800 762
Building Materials Corp.
7.750% due 07/15/2005 200 188
8.625% due 12/15/2006 250 245
8.000% due 10/15/2007 200 188
8.000% due 12/01/2008 500 469
Cablevision SA
13.750% due 05/01/2009 125 114
Cadmus Comm Corp.
9.750% due 06/01/2009 750 756
Call-Net Enterprises, Inc.
8.000% due 08/15/2008 200 177
9.375% due 05/15/2009 500 479
Century Communications Corp.
0.000% due 03/15/2003 400 282
8.750% due 10/01/2007 400 399
Circus Circus Enterprises
6.750% due 07/15/2003 350 334
9.250% due 12/01/2005 200 205
Clark R&M Holdings
8.375% due 11/15/2007 250 230
Clearnet Communications
0.000% due 05/01/2009 1,000 575
Coltec Industries, Inc.
7.500% due 04/15/2008 400 397
Columbia/HCA Healthcare
7.000%due 07/01/2007 700 629
Columbus McKinnon
8.500% due 04/01/2008 250 241
Comcast Cellular
9.500% due 05/01/2007 450 506
Comcast Corp.
9.500% due 01/15/2008 700 737
Consolidated Container Co.
10.125% due 07/15/2009 500 508
Cross Timbers Oil Co.
9.250% due 04/01/2007 250 248
8.750% due 11/01/2009 250 242
CSC Holdings, Inc.
9.875% due 02/15/2013 500 540
Dade International, Inc.
11.125 due 05/01/2006 500 529
Dial Call Communications
10.250% due 12/15/2005 (c) 500 511
Diamond Cable Communication Co.
0.000% due 09/30/2004 (b) 500 521
0.000% due 12/15/2005 (b) 500 453
Dunlop Stand Aero Holdings
11.875% due 05/15/2009 500 503
Echostar DBS Corp.
9.250% due 02/01/2006 750 762
9.375% due 02/01/2009 375 383
Emmis Communications Corp.
8.125% due 03/15/2009 500 478
Extended Stay America
9.150% due 03/15/2008 250 238
Extendicare Health Services
9.350% due 12/15/2007 350 261
Falcon Holding Group LP
0.000% due 04/15/2010 (b) 500 353
8.375% due 04/15/2010 500 496
Federal-Mogul Corp.
7.500% due 07/01/2004 150 146
7.750% due 07/01/2006 350 335
Ferrellgas Partners LP
9.375% due 06/15/2006 1,000 1,004
Fisher Scientific
7.125% due 12/15/2005 500 463
9.000% due 02/01/2008 725 692
Fisher Scientific International
9.000% due 02/01/2008 500 475
Forest Oil Corp.
10.500% due 01/15/2006 500 521
Fox/Liberty Networks LLC
0.000% due 08/15/2007 (b) 750 589
Furon Co.
8.125% due 03/01/2008 650 614
Garden State Newspapers
8.750% due 10/01/2009 850 828
8.625% due 07/01/2011 250 239
Globalstar LP
11.375% due 02/15/2004 250 168
Golden Northwest Aluminum
12.000% due 12/15/2006 125 130
6 See accompanying notes
<PAGE>
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
Grupo Televisa SA
11.375% due 05/15/2003 $ 150 $ 154
0.000% due 05/15/2008 (b) 275 223
Gulf Canada Resources
9.625% due 07/01/2005 350 357
Harnischfeger Industrial, Inc.
8.900% due 03/01/2022 400 250
Harrahs Operating Co., Inc.
7.875% due 12/15/2005 700 681
Henry Co.
10.000% due 04/15/2008 500 458
HMH Properties, Inc.
7.875% due 08/01/2005 350 333
8.450% due 12/08/2006 150 143
Hollinger International Publishing
8.625% due 03/15/2005 150 152
9.250% due 03/15/2007 400 412
Holmes Products Corp.
9.875% due 11/15/2007 500 486
Horseshoe Gaming Holdings
8.625% due 05/15/2009 750 728
Host Marriott LP
8.375% due 02/15/2006 500 488
Huntsman Corp.
9.500% due 07/01/2007 450 428
Huntsman Packaging Corp.
9.125% due 10/01/2007 600 585
Impsat Corp.
12.375% due 06/15/2008 500 413
Integrated Health Services
9.500% due 09/15/2007 200 147
Intermedia Communications, Inc.
0.000% due 05/15/2006 (b) 500 418
9.500% due 03/01/2009 300 291
International Game Technology
7.875% due 05/15/2004 400 395
8.375% due 05/15/2009 350 345
ISP Holdings, Inc.
9.750% due 02/15/2002 500 511
9.000% due 10/15/2003 200 200
J.Q. Hammons Hotels
8.875% due 02/15/2004 250 232
John Q Hammons Hotels LP
9.750% due 10/01/2005 100 96
Jones Intercable, Inc.
8.875% due 04/01/2007 250 267
Jupiters Limited
8.500% due 03/01/2006 600 591
K Mart Corp.
8.130% due 12/16/2003 500 495
K-III Communications Co.
8.500% due 02/01/2006 650 653
KPNQWest BV
8.125% due 06/01/2009 1,000 980
L-3 Communications Corp.
10.375 due 05/01/2007 400 421
Level 3 Communications, Inc.
9.125% due 05/01/2008 650 639
Levi Strauss & Co.
6.800% due 11/01/2003 750 702
Lin Television Corp.
8.375% due 03/01/2008 500 480
Loral Space & Communication Limited
9.500% due 01/15/2006 500 436
Lyondell Chemical Co.
9.625% due 05/01/2007 1,000 1,032
Magnum Hunter Resources, Inc.
10.000% due 06/01/2007 250 234
Mail-Well Corp.
8.750% due 12/15/2008 625 609
Marsh Supermarkets, Inc.
8.875% due 08/01/2007 1,000 999
McLeodUSA, Inc.
0.000% due 03/01/2007 (b) 600 462
9.500% due 11/01/2008 250 249
Metromedia Fiber Network
10.000% due 11/15/2008 500 514
Metronet Communications
0.000% due 06/15/2008 (b) 200 148
MGM Grand, Inc.
6.950% due 02/01/2005 750 702
MJD Communications, Inc.
9.500% due 05/01/2008 850 846
Nextel Communications, Inc.
9.750% due 08/15/2004 750 767
0.000% due 02/15/2008 (b) 500 345
Nextel Partners, Inc.
0.000% due 02/01/2009 (b) 750 443
Nextlink Communications
10.750% due 06/01/2009 500 515
NTL Communications Corp.
11.500% due 10/01/2008 400 443
0.000% due 02/01/2006 (b) 750 657
Ocean Rig Norway
10.250% due 06/01/2008 120 87
Octel Developments PLC
10.000% due 05/01/2006 650 673
Optel, Inc.
11.500% due 07/01/2008 200 141
Orange PLC
9.000% due 06/01/2009 500 505
Orion Network Systems, Inc.
0.000% due 01/15/2007 (b) 400 222
11.250% due 01/15/2007 400 360
P&L Coal Holdings
8.875% due 05/15/2008 1,150 1,155
Packaging Corp. of America
9.625% due 04/01/2009 400 408
Packard Bioscience Co.
9.375% due 03/01/2007 150 142
Perry-Judd
10.625% due 12/15/2007 450 448
Petroleos Mexicanos
9.657% due 07/15/2005 (c) 300 281
Pharmerica, Inc.
8.375% due 04/01/2008 1,500 1,529
Phar-Mor, Inc.
11.720% due 09/11/2002 150 152
Physician Sales and Service, Inc.
8.500% due 10/01/2007 375 375
Piedmont Aviation
10.250% due 03/28/2005 400 419
Pioneer National Resources
8.250% due 08/15/2007 250 238
Pioneer National Resources
6.500% due 01/15/2008 650 556
Polymer Group, Inc.
8.750% due 03/01/2008 900 869
Pool Energy Co.
8.625% due 04/01/2008 350 348
Pride International, Inc.
9.375% due 05/01/2007 250 248
Qwest Communications International, Inc.
0.000% due 10/15/2007 (b) 800 628
0.000% due 02/01/2008 (b) 610 454
R & B Falcon Corp.
6.500% due 04/15/2003 500 426
R.H. Donnelly, Inc.
9.125% due 06/01/2008 125 126
Regal Cinemas, Inc.
9.500% due 06/01/2008 50 47
8.875% due 12/15/2010 400 370
Renaissance Media Group
0.000% due 04/15/2008 (b) 100 71
Revlon Consumer Products
8.125 due 02/01/2006 300 291
Riviera Holdings Corp.
10.000% due 08/15/2004 150 141
1999 Semi-Annual Report See accompanying notes 7
<PAGE>
Schedule of Investments (Cont.)
High Yield Bond Portfolio
June 30, 1999 (Unaudited)
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
Rogers Cantel Mobile Communications, Inc.
9.375% due 06/01/2008 $ 1,000 $ 1,042
Safety-Kleen Corp.
9.250% due 05/15/2009 250 253
Safety-Kleen Services
9.250% due 06/01/2008 950 979
SC International Services, Inc.
9.250% due 09/01/2007 800 816
Silgan Holdings, Inc.
9.000% due 06/01/2009 750 743
Smithfield Foods
7.625% due 02/15/2008 275 250
Stater Brothers Holdings
11.000% due 03/01/2001 250 255
Station Casinos, Inc.
9.750% due 04/15/2007 550 561
Stone Container
11.000% due 08/15/1999 500 502
Stone Container Corp.
10.750% due 10/01/2002 750 782
Synthetic Industries, Inc.
9.250% due 02/15/2007 800 824
Telewest Communications PLC
9.625% due 10/01/2006 400 412
0.000% due 10/01/2007 (b) 500 448
0.000% due 04/15/2009 (b) 500 336
Tenet Healthcare Corp.
7.875% due 01/15/2003 500 491
8.625% due 12/01/2003 250 252
8.000% due 01/15/2005 250 245
TFM SA de CV
0.000% due 06/15/2009 (b) 200 120
Total Renal Care Holdings
7.000% due 05/15/2009 800 657
Trans-Resources, Inc.
10.750% due 03/15/2008 350 340
TV Guide, Inc.
8.125% due 03/01/2009 600 571
United Defense Industry, Inc.
8.750% due 11/15/2007 250 244
United Refining Co.
10.750% due 06/15/2007 500 366
US Air, Inc.
9.625% due 09/01/2003 200 206
9.330% due 01/01/2006 143 144
Vectura Group, Inc.
10.250% due 06/30/2008 400 402
Vintage Petroleum
9.000% due 12/15/2005 500 499
Western Gas Resources
10.000% due 06/15/2009 500 512
Westpoint Stevens, Inc.
7.875% due 06/15/2005 300 296
7.875% due 06/15/2008 500 484
World Color Press, Inc.
8.375% due 11/15/2008 700 700
7.750% due 02/15/2009 250 236
Young Broadcasting, Inc.
9.000% due 01/15/2006 300 295
8.750% due 06/15/2007 550 536
----------
82,330
==========
Utilities 6.1%
AES Corp.
10.250% due 07/15/2006 500 513
8.500% due 11/01/2007 100 95
9.500% due 06/01/2009 500 516
Bridas Corp.
12.500% due 11/15/1999 300 306
Calpine Corp.
10.500% due 05/15/2006 175 187
8.750% due 07/15/2007 300 297
7.875% due 04/01/2008 200 190
7.750% due 04/15/2009 200 189
CMS Energy
8.125% due 05/15/2002 500 509
Flag Limited
8.250% due 01/30/2008 550 513
ITC Deltacom, Inc.
8.875% due 03/01/2008 350 348
Niagara Mohawk Power
7.750% due 10/01/2008 250 258
Orange PLC
8.000% due 08/01/2008 475 456
Philippine Long Distance Telephone
10.500% due 04/15/2009 500 502
Rural Cellular Corp.
9.625% due 05/15/2008 400 404
SK Telecom Co. Limited
7.750% due 04/29/2004 700 676
Sprint Spectrum LP
11.000% due 08/15/2006 500 573
----------
6,532
----------
Total Corporate Bonds & Notes 96,300
(Cost $98,642) ==========
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Strips
0.000% due 08/15/2026 200 39
----------
Total U.S. Treasury Obligations 39
(Cost $41) ==========
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 1.0%
- --------------------------------------------------------------------------------
Airplanes Pass Through Trust
10.875% due 03/15/2019 600 578
Morgan Stanley Aircraft Finance
8.700% due 03/15/2023 500 463
----------
Total Asset-Backed Securities 1,041
(Cost $1,106) ==========
- --------------------------------------------------------------------------------
SOVEREIGN ISSUES 1.0%
- --------------------------------------------------------------------------------
Embotelladora Arica SA
9.875% due 03/15/2006 1,000 1,015
Republic of Korea
8.875% due 04/15/2008 100 105
----------
Total Sovereign Issues 1,120
(Cost $1,087) ==========
- --------------------------------------------------------------------------------
PREFERRED STOCK 1.5%
- --------------------------------------------------------------------------------
Shares
CSC Holdings, Inc.
12.070% due 01/02/2000 2,866 313
Fresenius Medical Care
7.875% due 01/02/2000 850 792
9.000% due 12/01/2006 500 496
----------
Total Preferred Stock 1,601
(Cost $1,703) ==========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 5.0%
- --------------------------------------------------------------------------------
Principal
Amount
(000s)
Commercial Paper 3.0%
Ameritech Corp.
4.900% due 07/08/1999 $ 600 599
4.840% due 07/09/1999 900 899
General Electric Capital Corp.
4.990% due 07/07/1999 900 899
4.750% due 07/07/1999 500 500
Texas Utilities Co.
5.240% due 01/21/2000 400 388
----------
3,285
==========
8 See accompanying notes
<PAGE>
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
Repurchase Agreement 2.0%
Daiwa Securities
4.680% due 07/01/1999 $ 1,500 $ 1,500
(Dated 06/30/1999. Collateralized by
U.S. Treasury Bill 4.640% 12/02/1999
valued at $1,533,263. Repurchase
proceeds are $1,500,195.)
State Street Bank
4.000% due 07/01/1999 628 628
(Dated 06/30/1999. Collateralized by
U.S. Treasury Note 8.750% 08/15/2020
valued at $645,963. Repurchase ----------
proceeds are $628,070.) 2,128
----------
Total Short-Term Instruments 5,413
(Cost $5,413) ==========
Total Investments (a) 98.1% $ 105,514
(Cost $107,992)
Other Assets and Liabilities (Net) 1.9% 2,000
----------
Net Assets 100.0% $ 107,514
==========
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $107,992 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 586
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (3,064)
----------
Unrealized depreciation-net $ (2,478)
==========
(b) Security becomes interest bearing at a future date.
(c) Variable rate security. The rate listed is as of June 30, 1999.
1999 Semi-Annual Report See accompanying notes 9
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
1. Organization
The High Yield Bond Portfolio (the "Portfolio") is a series of the PIMCO
Variable Insurance Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end investment company
organized as a Delaware business trust on October 3, 1997. The Trust is designed
to be used as an investment vehicle by Separate Accounts of insurance companies
that fund variable annuity contracts and variable life insurance policies and by
qualified pension and retirement plans. The Portfolio commenced operations on
April 30, 1998.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. Portfolio securities and other financial instruments 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, the
mean between representative bid and asked quotations obtained from a quotation
reporting system or from established market makers. Short-term investments
having a maturity of 60 days or less are valued at amortized cost, which
approximates market value. Certain fixed income securities for which daily
market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed income
securities whose prices are more readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled a month or more after the trade date.
Realized gains and losses from securities sold are recorded on the identified
cost basis. Dividend income is recorded on the ex-dividend date, except certain
dividends from foreign securities where the ex-dividend date may have passed,
are recorded as soon as the Fund is informed of the ex-dividend date. Interest
income, adjusted for the accretion of discounts and amortization of premiums, is
recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets and
liabilities are translated into U.S. dollars at the exchange rates prevailing at
the end of the period. Fluctuations in the value of these assets and liabilities
resulting from changes in exchange rates are recorded as unrealized foreign
currency gains (losses). Realized gains (losses) and unrealized appreciation
(depreciation) on investment securities and income and expenses are translated
on the respective dates of such transactions. The effect of changes in foreign
currency exchange rates on investments in securities are not segregated in the
Statement of Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or loss
on investment securities.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, are declared on each day the Portfolio is open for business and
are distributed to shareholders monthly. All dividends are reinvested in
additional shares of the Portfolio. Net realized capital gains earned by the
Portfolio, if any, will be distributed no less frequently than once each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing
treatments for such items as wash sales, foreign currency transactions, net
operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified to paid
in capital. In addition, other amounts have been reclassified between
undistributed net investment income, accumulated undistributed net realized
gains or losses and paid in capital to more appropriately conform financial
accounting to tax characterizations of dividend distributions.
10
<PAGE>
Federal Income Taxes. The Portfolio intends to qualify as a regulated investment
company and distribute all of its taxable income and net realized gains, if
applicable, to shareholders. Accordingly, no provision for Federal income taxes
has been made.
Financing Transactions. The Portfolio may enter into financing transactions
consisting of the sale by the Portfolio of securities, together with a
commitment to repurchase similar securities at a future date. The difference
between the selling price and the future purchase price is an adjustment to
interest income. If the counter-party to whom the Portfolio sells the security
becomes insolvent, the Portfolio's right to repurchase the security may be
restricted; the value of the security may change over the term of the financing
transaction; and the return earned by the Portfolio with the proceeds of a
financing transaction may not exceed transaction costs.
Futures and Options. The Portfolio is authorized to enter into futures contracts
and options. The Portfolio may use futures contracts to manage its exposure to
the markets or to movements in interest rates and currency values. The primary
risks associated with the use of futures contracts and options are imperfect
correlation between the change in market value of the securities held by a
Portfolio and the prices of futures contracts and options, the possibility of an
illiquid market, and the inability of the counterparty to meet the terms of the
contract. Futures contracts and purchased options are valued based upon their
quoted daily settlement prices. The premium received for a written option is
recorded as an asset with an equal liability which is marked to market based on
the option's quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, the Portfolio takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time. The market value of the collateral must be equal at
all times to the total amount of the repurchase obligations, including interest.
Generally, in the event of counterparty default, the Portfolio has the right to
use the collateral to offset losses incurred.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary partnership
of PIMCO Advisors L.P., serves as investment adviser (the "Adviser") to the
Trust, pursuant to an investment advisory contract. The Advisory Fee is charged
at an annual rate of 0.50%.
Administration Fee. PIMCO serves as administrator (the "Administrator"), and
provides administrative services to the Trust for which it receives a monthly
administrative fee based on average daily net assets. The Administration Fee is
charged at the annual rate of 0.25%.
Expenses. PIMCO pays for most of the expenses of the Portfolios, including
legal, audit, custody, transfer agency and certain other services, and is
responsible for the costs of registration of the Trust's shares and the printing
of prospectuses and shareholder reports for current shareholders or other
appropriate parties. The Portfolio is responsible for bearing certain expenses
associated with their operations that are not provided or procured by PIMCO.
PIMCO has voluntarily undertaken to waive and reimburse expenses of the
Portfolio to the extent necessary, to limit the expenses to 0.75% of average
daily net assets.
1999 Semi-Annual Report 11
<PAGE>
Notes to Financial Statements (Cont.)
June 30, 1999
Under the Expense Limitation Agreement, PIMCO may recoup these waivers and
reimbursements in future periods, not exceeding three years, provided total
expenses, including any such recoupment, do not exceed the annual expense limit.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Administrator, all of whom receive renumeration for
their services to the Trust from the Administrator or its affiliates.
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a Committee Chair receives an
additional annual retainer of $500. These expenses are allocated to the
Portfolios of the Trust according to their respective net assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended June 30, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
- ----------------------------------------------------------------------
Purchases Sales Purchases Sales
- ----------------------------------------------------------------------
$ 0 $ 0 $ 59,191 $ 3,170
5. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial interest
with a $.0001 par value. Changes in shares of beneficial interest were as
follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
Six Months Period from 04/30/1998
Ended 06/30/1999 to 12/31/1998
Shares Amount Shares Amount
- ------------------------------------------- ------------------------ --------------------------
<S> <C> <C> <C> <C>
Receipts for shares sold 6,767 $ 65,286 6,763 $ 65,974
- -----------------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 315 3,031 163 1,577
- -----------------------------------------------------------------------------------------------------
Cost of shares redeemed (842) (8,110) (1,780) (17,073)
- -----------------------------------------------------------------------------------------------------
Net increase resulting from
Portfolio share transactions 6,240 $ 60,207 5,146 $ 50,478
=====================================================================================================
</TABLE>
The following schedule shows the number of shareholders each owning 5% or more
of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
Number % of Portfolio Held
- -------------------------------------
1 100%
6. Federal Income Tax Matters
As of December 31, 1998 the Portfolio listed in the table below had a capital
loss carryforward that was realized in the current year.
The Portfolio will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards.
Capital Loss Carryforwards (amounts in thousands)
- ---------------------------------------------------------
Realized Losses Expiration
- ---------------------------------------------------------
$ 75,638 12/31/2006
12
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $172 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality service to mutual fund and institutional clients worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
OppenheimerCapital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO VARIABLE INSURANCE TRUST
840 NEWPORT CENTER DRIVE, SUITE 300
NEWPORT BEACH, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders of the
PIMCO Variable Insurance Trust. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective prospectus
for the PIMCO Variable Insurance Trust, which contains information covering its
investment policies as well as other pertinent information.
PIMCO FUNDS DISTRIBUTORS LLC
2187 ATLANTIC STREET
STAMFORD, CT 06902
<PAGE>
PIMCO Variable Insurance Trust
Total Return Bond Portfolio
--------------
Semi-Annual Report
June 30, 1999
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO Variable
Insurance Trust Total Return Bond Portfolio.
Treasury prices fell steadily and yields rose across the maturity spectrum as
fears of inflation dominated the fixed income marketplace during the first half
of the year. Strong economic growth in the U.S. throughout the period and signs
of recovery elsewhere in the world during the second quarter sparked concern
that the Federal Reserve would boost interest rates to keep inflation subdued.
The yield on the 30-year Treasury bond ended the period at 5.97%, up 0.88% and
yields on 10-year Treasuries climbed a more dramatic 1.14% finishing the period
at 5.79%. Despite difficulties in the bond market, the U.S. stock market
continued its ascent and started to broaden late in the period as smaller-
capitalization issues and lower valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the six-
month period and indicated that the move had been driven mainly by a return to
normalcy in U.S. and international financial markets after the global crisis of
the past year. The increase came as no surprise to the financial markets since
Fed officials had adopted a bias, their view on the likely next move in rates,
towards tightening at their May policymaking open market committee meeting.
However, the raise in rates was accompanied by the Fed announcement that they
were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about inflation.
After a surprise jump in the April consumer price index, led by higher energy
prices, the CPI was unchanged in May. A reduction in new home sales due to
higher borrowing costs suggested the economy might be slowing, reducing
inflationary pressure. Economic expansion kept labor markets tight, with
unemployment at a 29-year low, but growth in wage costs slowed. Workers were
generally willing to accept smaller wage pay increases with inflation subdued
and real incomes rising. With goods inflation relatively benign, Fed tightening
was aimed more at potential asset bubbles in housing and stock markets, where
price gains have lifted consumer confidence to record highs and stimulated
increases in consumption that fueled economic growth.
On the following pages you will find a more complete review of the stock and
bond markets and specific details about the composition and total return
investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to focus our
efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
1999 Semi-Annual Report 1
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock
investors. The third quarter of 1998 saw the market correct as a
result of concerns over an economic down-turn in Asia that
appeared to be spreading. In the fourth quarter, the market rose
as these fears began to abate, and the first quarter of 1999
continued the upward trend as the market hit record highs.
However, many industry analysts expressed concern over the
narrowness of the market, in which the largest of the large-cap
growth stocks were responsible for much of this performance.
Their concerns proved to be short-lived: in the second quarter of
1999, the market finally broadened, as smaller-capitalization
issues as well as lower valuation issues showed strength.
The technology sector, particularly the Internet, was an
important driver of performance in the last quarter of 1998 as
well as the first quarter of 1999. However, these issues hit a
speed bump early in the second quarter of 1999 as interest rates
began to rise.
Higher valuation growth stocks also had the same inverse
relationship with interest rates. They turned in a strong
performance in the last quarter of 1998 and the first quarter of
1999, benefiting from the Federal Reserve's interest rate cuts.
Like technology stocks, they suffered in the second quarter as a
result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster
performance in the last quarter of 1998 and the first quarter of
1999. However, in the second quarter of this year, they benefited
not only from a rise in interest rates but legitimate evidence of
a global economic recovery, which resulted in increased demand
for basic materials.
The broadening of the market was welcomed by most analysts. It
was largely viewed as a healthy event, after a long period of
domination by one segment of the market. Looking ahead, we are
cautiously optimistic that this broadening will enable the market
to continue its rise, and that more stocks will participate in
this ascent.
Bond Market
Bond Yields Move Higher
In our last report to shareholders we suggested that the historic
18-year bull market for bonds had come to an end. The bond market
seemed to agree as Treasury prices fell throughout most of the
first half of this year.
Inflation fears have dominated the fixed income marketplace in
1999. OPEC's cuts in oil production sent gasoline prices
climbing, which negatively affected inflation reports for the
month of April. The economy, fueled by stock market gains, grew
faster than expected, adding to speculation that higher inflation
was just around the corner. In addition, foreign economies,
particularly in Asia, began to recover, as synchronized global
central-bank easings appeared to be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in
May and then raised the fed funds rate by a quarter-point to 5.0%
at the end of June. The move capped a difficult period for the
bond market as Treasury prices fell steadily, with long-term
yields rising over one percentage point, breaking above 6% for
the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads.
Deflationary forces, including the glut of global capacity and
strong productivity gains, remain at work. However, reflationary
forces, including central bank easings and a tight U.S. labor
market, are also in play. The Fed appears to share this view,
moving back to a neutral stance after its recent tightening,
explaining that productivity gains continued to offset the wage
inflation pressures created by a tight labor market.
We believe that these forces may well offset one another,
creating an environment where interest rates remain in a
relatively narrow range of between 5% and 6 1/2%. The opposing
forces will likely keep inflation subdued, between 2% and 3%. In
periods where deflationary forces dominate, interest rates could
fall toward the lower end of the range and vice versa. In this
environment of lower interest rate volatility, securities that
provide incremental yield will become more attractive to bond
investors.
2
<PAGE>
TOTAL RETURN BOND PORTFOLIO
Portfolio Characteristics
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management
Portfolio:
Primarily intermediate-term investment grade bonds
Duration:
4.36 years
Total Net Assets:
$3 million
<TABLE>
<CAPTION>
Sector Breakdown:*
<S> <C>
Corporate Bonds and Notes 50.0%
Mortgage-Backed Securities 44.4%
Other 5.6%
</TABLE>
<TABLE>
<CAPTION>
Quality Breakdown:*
<S> <C>
AAA 48.8%
AA 14.1%
A 24.0%
BBB 13.1%
</TABLE>
*% of Total Investments as of June 30, 1999
Performance
<TABLE>
<CAPTION>
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended June 30, 1999
Total Return
Bond Portfolio Lehman Brothers
(Incep. 12/31/1997) Aggregate Bond Index
- -----------------------------------------------------------------------------
<S> <C> <C>
6 Months -1.78% -1.37%
1 Year 3.55% 3.15%
Since Inception* 4.42% --
</TABLE>
*Annualized
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$3,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Total Return Lehman Brothers
MONTH Bond Portfolio Aggregate Bond
Index
<S> <C> <C>
12/31/97 3,000,000 3,000,000
01/31/98 3,030,463 3,038,515
02/28/98 3,017,562 3,036,091
03/31/98 3,024,232 3,046,660
04/30/98 3,037,237 3,062,562
05/31/98 3,066,480 3,091,613
06/30/98 3,090,526 3,117,833
07/31/98 3,106,468 3,124,465
08/31/98 3,163,946 3,175,314
09/30/98 3,258,266 3,249,667
10/31/98 3,246,127 3,232,485
11/30/98 3,241,676 3,250,831
12/31/98 3,258,449 3,260,605
01/31/99 3,272,125 3,283,877
02/28/99 3,192,247 3,226,550
03/31/99 3,230,823 3,244,431
04/30/99 3,226,132 3,254,709
05/31/99 3,198,116 3,226,201
06/30/99 3,200,374 3,215,923
</TABLE>
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $3,000,000 on 1/01/1998, the first full month following the
Portfolio inception on 12/31/1997, compared to the Lehman Brothers Aggregate
Bond Index, an unmanaged market index. The Portfolio may invest in foreign
securities which involve potentially higher risks including foreign currency
fluctuations and political or economic uncertainty.
Portfolio Insights
. The Total Return Bond Portfolio returned -1.78% for the six-month period from
December 31, 1998 through June 30, 1999, versus -1.37% for the Lehman
Brothers Aggregate Bond Index.
. Interest rates rose across maturities during the period as a strong U.S.
economy and signs of recovery elsewhere in the world prompted concern that
the Federal Reserve would tighten. Late in June, the Fed did raise the
federal funds rate by 0.25%.
. The Portfolio held its duration, or sensitivity to interest rate changes,
modestly below the benchmark for most of the period, which helped returns
in a rising rate environment.
. However, concentration in intermediate maturities detracted from returns as
these interest rates rose the most, with 5- to 10-year maturities climbing
more than 1.00%.
. An overweight to mortgages was generally positive for most of the period due
to these securities' relatively high yields. However, mortgages lagged
Treasuries in the last two months of the period as yield premiums widened
amid uncertainty about the direction of Fed policy.
. While corporate holdings outperformed Treasuries early in the period, they
gave back some of those gains later as non-Treasury bonds were adversely
affected by increased market volatility.
1999 Semi-Annual Report 3
<PAGE>
Financial Highlights
Total Return Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Selected Per Share Data for the Year or Period Ended: 6/30/1999 12/31/1998 (a)
----------- --------------
(Unaudited)
<S> <C> <C>
Net asset value beginning of period $ 10.09 $ 10.00
- ------------------------------------------------------------------------------------- ----------- --------------
Net investment income (b) 0.28 0.56
- ------------------------------------------------------------------------------------- ----------- --------------
Net realized and unrealized gain (loss) (b) (0.46) 0.28
- ------------------------------------------------------------------------------------- ----------- --------------
Total income (loss) from investment operations (0.18) 0.84
- ------------------------------------------------------------------------------------- ----------- --------------
Dividends from net investment income (0.28) (0.56)
- ------------------------------------------------------------------------------------- ----------- --------------
Distributions from net realized capital gains 0.00 (0.19)
- ------------------------------------------------------------------------------------- ----------- --------------
Total distributions (0.28) (0.75)
- ------------------------------------------------------------------------------------- ----------- --------------
Net asset value end of period $ 9.63 $ 10.09
- ------------------------------------------------------------------------------------- ----------- --------------
Total return (1.78)% 8.61%
- ------------------------------------------------------------------------------------- ----------- --------------
Net assets end of period (000's) $ 3,199 $ 3,259
- ------------------------------------------------------------------------------------- ----------- --------------
Ratio of expenses to average net assets 0.65 %* 0.65%
- ------------------------------------------------------------------------------------- ----------- --------------
Ratio of net investment income to average net assets 5.73 %* 5.55%
- ------------------------------------------------------------------------------------- ----------- --------------
Portfolio turnover rate 24 % 139%
- ------------------------------------------------------------------------------------- ----------- --------------
</TABLE>
*Annualized
(a) Commenced operations on December 31,1997.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
Total Return Bond Portfolio
June 30, 1999 (Unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
--------------
Assets:
<S> <C>
Investments, at value $ 3,121
- ----------------------------------------------------------------------------------------------------------------------------
Cash and foreign currency 1
- ----------------------------------------------------------------------------------------------------------------------------
Receivable for investments and foreign currency sold 4
- ----------------------------------------------------------------------------------------------------------------------------
Variation margin receivable 8
- ----------------------------------------------------------------------------------------------------------------------------
Interest and dividends receivable 62
- ----------------------------------------------------------------------------------------------------------------------------
Other assets 5
- ----------------------------------------------------------------------------------------------------------------------------
3,201
============================================================================================================================
Liabilities:
Accrued investment advisory fee $ 1
- ----------------------------------------------------------------------------------------------------------------------------
Accrued administration fee 1
- ----------------------------------------------------------------------------------------------------------------------------
2
============================================================================================================================
Net Assets $ 3,199
============================================================================================================================
Net Assets Consist of:
Paid in capital $ 3,324
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 0
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net realized (loss) (103)
- ----------------------------------------------------------------------------------------------------------------------------
Net unrealized (depreciation) (22)
- ----------------------------------------------------------------------------------------------------------------------------
$ 3,199
============================================================================================================================
Shares Issued and Outstanding 332
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.63
- ----------------------------------------------------------------------------------------------------------------------------
Cost of Investments Owned $ 3,141
============================================================================================================================
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
Total Return Bond Portfolio
June 30, 1999 (Unaudited)
Amounts in thousands
<TABLE>
--------------
<S> <C>
Investment Income:
Interest $ 102
- -------------------------------------------------------------------------------------------------------------
Total Income 102
=============================================================================================================
Expenses:
Investment advisory fees 6
- -------------------------------------------------------------------------------------------------------------
Administration fees 4
- -------------------------------------------------------------------------------------------------------------
Total expenses 10
- -------------------------------------------------------------------------------------------------------------
Net Investment Income 92
=============================================================================================================
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (35)
- -------------------------------------------------------------------------------------------------------------
Net realized (loss) on futures and written options contracts (72)
- -------------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) on investments (52)
- -------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on futures
and written options contracts 7
- -------------------------------------------------------------------------------------------------------------
Net (Loss) (152)
- -------------------------------------------------------------------------------------------------------------
Net (Decrease) in Assets Resulting from Operations $ (60)
=============================================================================================================
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
Total Return Bond Portfolio
June 30, 1999 (Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
----------------- --------------------
Six Months Ended Year Ended
June 30, 1999 December 31, 1998
Increase (Decease) in Net Assets from:
Operations:
<S> <C> <C>
Net investment income .................................... $ 92 $ 172
- ------------------------------------------------------------------ ----------------- --------------------
Net realized gain (loss) ................................. (107) 64
- ------------------------------------------------------------------ ----------------- --------------------
Net change in unrealized appreciation (depreciation) ..... (45) 23
- ------------------------------------------------------------------ ----------------- --------------------
Net increase (decrease) resulting from operations ........ (60) 259
=========================================================================================================================
Distributions to Shareholders:
From net investment income ............................... (92) (172)
- ------------------------------------------------------------------ ----------------- --------------------
From net realized capital gains .......................... 0 (60)
- ------------------------------------------------------------------ ----------------- --------------------
Total Distributions ...................................... (92) (232)
=========================================================================================================================
Portfolio Share Transactions:
Receipts for shares sold ................................. 0 2,900
- ------------------------------------------------------------------ ----------------- --------------------
Issued as reinvestment of distributions .................. 92 232
- ------------------------------------------------------------------ ----------------- --------------------
Cost of shares redeemed .................................. 0 0
- ------------------------------------------------------------------ ----------------- --------------------
Net increase resulting from Portfolio share transactions . 92 3,132
- ------------------------------------------------------------------ ----------------- --------------------
Total Increase (Decrease) in Net Assets .................. (60) 3,159
=========================================================================================================================
Net Assets:
Beginning of period ...................................... 3,259 100
- ------------------------------------------------------------------ ----------------- --------------------
End of period * .......................................... $ 3,199 $ 3,259
- ------------------------------------------------------------------ ----------------- --------------------
*Including net undistributed investment income of: ....... $ 0 $ 0
=========================================================================================================================
Semi-Annual Report See accompanying notes 5
</TABLE>
<PAGE>
Schedule of Investments
Total Return Bond Portfolio
June 30, 1999 (Unaudited)
Principal
Amount Value
(000s) (000s)
CORPORATE BONDS & NOTES 48.8%
Banking & Finance 20.0%
Associates Corp. of North America
6.450% due 10/15/2001 $ 100 $ 100
Dean Witter Discover
5.300% due 06/27/2000 (d) 100 100
Ford Motor Credit Corp.
5.150% due 10/15/2002 (d) 150 150
Merrill Lynch & Co.
5.110% due 05/08/2001 100 100
PNC Funding Corp.
6.125% due 09/01/2003 100 97
Westdeutsche Landesbank
6.050% due 01/15/2009 100 93
-------
640
Industrials 6.4%
International Paper Co.
9.050% due 02/08/2001 100 104
Philip Morris Cos., Inc.
7.250% due 09/15/2001 100 101
-------
205
Utilities 22.4%
Philadelphia Electric
6.500% due 05/01/2003 100 100
Sprint Corp.
8.125% due 07/15/2002 150 156
Texas Utilities Co.
7.375% due 08/01/2001 100 102
5.940% due 10/15/2001 100 99
United Telecom
9.500% due 06/06/2001 150 158
WorldCom, Inc.
6.125% due 08/15/2001 100 100
-------
715
-------
Total Corporate Bonds & Notes 1,560
(Cost $1,580) =======
U.S. TREASURY OBLIGATIONS 0.9%
U.S. Treasury Strips
0.000% due 02/15/2019 100 29
-------
Total U.S. Treasury Obligations 29
(Cost $28) =======
MORTGAGE-BACKED SECURITIES 43.4%
Federal Home Loan Mortgage Corporation 9.2%
8.500% due 08/01/2024 282 295
Federal Housing Administration 34.2%
7.430% due 01/25/2023 583 597
7.700% due 08/01/2028 480 495
-------
1,092
-------
Total Mortgage-Backed Securities 1,387
(Cost $1,388) =======
ASSET-BACKED SECURITIES 3.2%
Conti Mortgage Home Equity Loan Trust
7.580% due 08/15/2028 100 102
-------
Total Asset-Backed Securities 102
=======
(Cost $102)
SHORT-TERM INSTRUMENTS 1.3%
Repurchase Agreement 0.7%
State Street Bank
4.000% due 07/01/1999 23 23
(Dated 06/30/99. Collateralized by
U.S. Treasury Note 6.500% 08/31/2001
valued at $25,918. Repurchase
proceeds are $23,003.)
U.S. Treasury Bills (b)(c) 0.6%
4.000% due 09/16/1999 $ 20 $ 20
-------
Total Short-Term Instruments 43
=======
(Cost $43)
Total Investments (a) 97.6% $ 3,121
(Cost $3,141)
Other Assets and Liabilities (Net) 2.4% 78
-------
Net Assets 100.0% $ 3,199
-------
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $3,141 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 3
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (23)
-------
Unrealized depreciation-net $ (20)
=======
(b) Securities with an aggregate market value of $20
have been segregated with the custodian to cover margin
requirements for the following open futures contracts at
June 30, 1999:
Unrealized
# of Appreciation/
Type Contracts (Depreciation)
U.S. Treasury 10 Year Note (09/1999) 7 $ (3)
U.S. Treasury 30 Year Bond (09/1999) 2 2
------------
$ (1)
------------
(c) Securities are grouped by range of coupons and represent a range of
maturities.
(d) Variable rate security. The rate listed is as of June 30, 1999.
6 See accompanying notes
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
1. Organization
The Total Return Bond Portfolio (the "Portfolio") is a series of the
PIMCO Variable Insurance Trust (the "Trust"). The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end
investment company organized as a Delaware business trust on October
3, 1997. The Trust is designed to be used as an investment vehicle by
Separate Accounts of insurance companies that fund variable annuity
contracts and variable life insurance policies and by qualified
pension and retirement plans. On December 22, 1997 the Portfolio was
provided seed capital of $100,000 by the Adviser. The Portfolio
commenced operations on December 31, 1997.
2. Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Portfolio in the preparation of its
financial statements in conformity with generally accepted accounting
principles. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. Portfolio securities and other financial
instruments 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, the mean between
representative bid and asked quotations obtained from a quotation
reporting system or from established market makers. Short-term
investments having a maturity of 60 days or less are valued at
amortized cost, which approximates market value. Certain fixed income
securities for which daily market quotations are not readily available
may be valued, pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities whose prices are
more readily obtainable.
Securities Transactions and Investment Income. Securities transactions
are recorded as of the trade date. Securities purchased or sold on a
when-issued or delayed delivery basis may be settled a month or more
after the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded
on the ex-dividend date, except certain dividends from foreign
securities where the ex-dividend date may have passed, are recorded as
soon as the Fund is informed of the ex-dividend date. Interest income,
adjusted for the accretion of discounts and amortization of premiums,
is recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets
and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period. Fluctuations in the value of
these assets and liabilities resulting from changes in exchange rates
are recorded as unrealized foreign currency gains (losses). Realized
gains (losses) and unrealized appreciation (depreciation) on
investment securities and income and expenses are translated on the
respective dates of such transactions. The effect of changes in
foreign currency exchange rates on investments in securities are not
segregated in the Statement of Operations from the effects of changes
in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investment securities.
Dividends and Distributions to Shareholders. Dividends from net
investment income, if any, are declared on each day the Portfolio is
open for business and are distributed to shareholders monthly. All
dividends are reinvested in additional shares of the Portfolio. Net
realized capital gains earned by the Portfolio, if any, will be
distributed no less frequently than once each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified
to paid in capital. In addition, other amounts have been reclassified
between undistributed net investment income, accumulated undistributed
net realized gains or losses and paid in capital to more appropriately
conform financial accounting to tax characterizations of dividend
distributions.
1999 Semi-Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
June 30, 1999 (Unaudited)
Federal Income Taxes. The Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net
realized gains, if applicable, to shareholders. Accordingly, no
provision for Federal income taxes has been made.
Financing Transactions. The Portfolio may enter into financing
transactions consisting of the sale by the Portfolio of securities,
together with a commitment to repurchase similar securities at a
future date. The difference between the selling price and the future
purchase price is an adjustment to interest income. If the counter-
party to whom the Portfolio sells the security becomes insolvent, the
Portfolio's right to repurchase the security may be restricted; the
value of the security may change over the term of the financing
transaction; and the return earned by the Portfolio with the proceeds
of a financing transaction may not exceed transaction costs.
Futures and Options. The Portfolio is authorized to enter into futures
contracts and options. The Portfolio may use futures contracts to
manage its exposure to the markets or to movements in interest rates
and currency values. The primary risks associated with the use of
futures contracts and options are imperfect correlation between the
change in market value of the securities held by a Portfolio and the
prices of futures contracts and options, the possibility of an
illiquid market, and the inability of the counterparty to meet the
terms of the contract. Futures contracts and purchased options are
valued based upon their quoted daily settlement prices. The premium
received for a written option is recorded as an asset with an equal
liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are
recorded as unrealized appreciation (depreciation) until terminated,
at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase
transactions. Under the terms of a typical repurchase agreement, the
Portfolio takes possession of an underlying debt obligation subject to
an obligation of the seller to repurchase, and the Portfolio to
resell, the obligation at an agreed-upon price and time. The market
value of the collateral must be equal at all times to the total amount
of the repurchase obligations, including interest. Generally, in the
event of counterparty default, the Portfolio has the right to use the
collateral to offset losses incurred.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary
partnership of PIMCO Advisors L.P., serves as investment adviser (the
"Adviser") to the Trust, pursuant to an investment advisory contract.
The Advisory Fee is charged at an annual rate of 0.40%.
Administration Fee. PIMCO serves as administrator (the
"Administrator"), and provides administrative services to the Trust
for which it receives from each Portfolio a monthly administrative fee
based on average daily net assets. The Administration Fee is charged
at the annual rate of 0.25%.
Expenses. PIMCO pays for most of the expenses of the Portfolio,
including legal, audit, custody, transfer agency and certain other
services, and is responsible for the cost of registration of the
Trust's shares and the printing of prospectuses and shareholder
reports for current shareholders or other appropriate parties. The
Portfolio is responsible for bearing certain expenses associated with
its operations that are not provided or procured by PIMCO. PIMCO has
voluntarily undertaken to waive and reimburse expenses of each
Portfolio to the extent necessary, to limit the expenses to 0.65% of
average daily net assets. For the six months ended June 30, 1999,
expenses of the Portfolio have been reduced by $450.
Under the Expense Limitation Agreement, PIMCO may recoup these
waivers and reimbursements in future periods, not exceeding three
years, provided total expenses, including any such recoupment, do not
exceed the annual expense limit.
The Trust pays no compensation directly to any Trustee or any
other officer who is affiliated with the Administrator, all of whom
receive remuneration for their services to the Trust from the
Administrator or its affiliates.
8
<PAGE>
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a Committee Chair receives an
additional annual retainer of $500. These expenses are allocated to the
Portfolios of the Trust according to their respective net assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended June 30, 1999 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
- ---------------------------------------------------------------------
Purchase Sales Purchases Sales
- ---------------------------------------------------------------------
<S> <C> <C> <C>
$ 303 $ 574 $ 1,003 $ 147
</TABLE>
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Period ended June 30, 1999
- --------------------------------------------------------------------------------
<S> <C>
Balance at 12/31/1998 $ 0
- --------------------------------------------------------------------------------
Sales 5
- --------------------------------------------------------------------------------
Closing Buys 0
- --------------------------------------------------------------------------------
Expirations (5)
- --------------------------------------------------------------------------------
Exercised 0
- --------------------------------------------------------------------------------
Balance at 06/30/1999 $ 0
- --------------------------------------------------------------------------------
</TABLE>
6. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial interest
with a $.0001 par value. Changes in shares of beneficial interest were as
follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
Six Months Ended
06/30/1999 Year Ended 12/31/1998
Shares Amount Shares Amount
- ---------------------------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Receipts for shares sold 0 $ 0 290 $2,900
- ---------------------------------------- ---------------- ---------------------
Issued as reinvestment of distributions 9 92 23 232
- ---------------------------------------- ---------------- ---------------------
Cost of shares redeemed 0 0 0 0
- ---------------------------------------- ---------------- ---------------------
Net increase resulting from
Portfolio share transactions 9 $ 92 313 $3,132
- ---------------------------------------- ================ =====================
</TABLE>
The following schedule shows the number of shareholders each owning 5% or more
of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
<TABLE>
<CAPTION>
Number % of Portfolio Held
- ------------------------------
<S> <C>
1 100%
</TABLE>
7. Federal Income Tax Matters
As of December 31, 1998 the Portfolio realized capital and/or foreign currency
losses during the period November 1, 1998 through December 31, 1998, which the
Portfolio has elected to defer to the following fiscal year pursuant to income
tax regulations. The amount deferred is $5,914.
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $172 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality service to mutual fund and institutional clients worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders
of the PIMCO Variable Insurance Trust. It is not authorized for distribution
to prospective investors unless accompanied or preceded by an effective
prospectus for the PIMCO Variable Insurance Trust, which contains information
covering its investment policies as well as other pertinent information.
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
<PAGE>
PIMCO
PIMCO Variable Insurance Trust
Capital Appreciation Portfolio
__________________
Semi-Annual Report
June 30, 1999
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO
Variable Insurance Trust Capital Appreciation Portfolio.
Treasury prices fell steadily and yields rose across the maturity spectrum
as fears of inflation dominated the fixed income marketplace during the
first half of the year. Strong economic growth in the U.S. throughout the
period and signs of recovery elsewhere in the world during the second
quarter sparked concern that the Federal Reserve would boost interest rates
to keep inflation subdued. The yield on the 30-year Treasury bond ended the
period at 5.97%, up 0.88% and yields on 10-year Treasuries climbed a more
dramatic 1.14% finishing the period at 5.79%. Despite difficulties in the
bond market, the U.S. stock market continued its ascent and started to
broaden late in the period as smaller-capitalization issues and lower
valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the
six-month period and indicated that the move had been driven mainly by a
return to normalcy in U.S. and international financial markets after the
global crisis of the past year. The increase came as no surprise to the
financial markets since Fed officials had adopted a bias, their view on the
likely next move in rates, towards tightening at their May policymaking
open market committee meeting. However, the raise in rates was accompanied
by the Fed announcement that they were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about
inflation. After a surprise jump in the April consumer price index, led by
higher energy prices, the CPI was unchanged in May. A reduction in new home
sales due to higher borrowing costs suggested the economy might be slowing,
reducing inflationary pressure. Economic expansion kept labor markets
tight, with unemployment at a 29-year low, but growth in wage costs slowed.
Workers were generally willing to accept smaller wage pay increases with
inflation subdued and real incomes rising. With goods inflation relatively
benign, Fed tightening was aimed more at potential asset bubbles in housing
and stock markets, where price gains have lifted consumer confidence to
record highs and stimulated increases in consumption that fueled economic
growth.
On the following pages you will find a more complete review of the stock
and bond markets and specific details about the composition and total
return investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to
focus our efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
1999 Semi-Annual Report 1
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock investors. The
third quarter of 1998 saw the market correct as a result of concerns over
an economic down-turn in Asia that appeared to be spreading. In the fourth
quarter, the market rose as these fears began to abate, and the first
quarter of 1999 continued the upward trend as the market hit record highs.
However, many industry analysts expressed concern over the narrowness of
the market, in which the largest of the large-cap growth stocks were
responsible for much of this performance. Their concerns proved to be
short-lived: in the second quarter of 1999, the market finally broadened,
as smaller-capitalization issues as well as lower valuation issues showed
strength.
The technology sector, particularly the Internet, was an important driver
of performance in the last quarter of 1998 as well as the first quarter of
1999. However, these issues hit a speed bump early in the second quarter of
1999 as interest rates began to rise.
Higher valuation growth stocks also had the same inverse relationship with
interest rates. They turned in a strong performance in the last quarter of
1998 and the first quarter of 1999, benefiting from the Federal Reserve's
interest rate cuts. Like technology stocks, they suffered in the second
quarter as a result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster performance in
the last quarter of 1998 and the first quarter of 1999. However, in the
second quarter of this year, they benefited not only from a rise in
interest rates but legitimate evidence of a global economic recovery, which
resulted in increased demand for basic materials.
The broadening of the market was welcomed by most analysts. It was largely
viewed as a healthy event, after a long period of domination by one segment
of the market. Looking ahead, we are cautiously optimistic that this
broadening will enable the market to continue its rise, and that more
stocks will participate in this ascent.
Bond Market
Bond Yields Move Higher
Inflation fears have dominated the fixed income marketplace in 1999. OPEC's
cuts in oil production sent gasoline prices climbing, which negatively
affected inflation reports for the month of April. The economy, fueled by
stock market gains, grew faster than expected, adding to speculation that
higher inflation was just around the corner. In addition, foreign
economies, particularly in Asia, began to recover, as synchronized global
central-bank easings appeared to be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in May and then
raised the fed funds rate by a quarter-point to 5.0% at the end of June.
The move capped a difficult period for the bond market as Treasury prices
fell steadily, with long-term yields rising over one percentage point,
breaking above 6% for the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads.
Deflationary forces, including the glut of global capacity and strong
productivity gains, remain at work. However, reflationary forces, including
central bank easings and a tight U.S. labor market, are also in play. The
Fed appears to share this view, moving back to a neutral stance after its
recent tightening, explaining that productivity gains continued to offset
the wage inflation pressures created by a tight labor market.
We believe that these forces may well offset one another, creating an
environment where interest rates remain in a relatively narrow range of
between 5% and 6 1/2%. The opposing forces will likely keep inflation
subdued, between 2% and 3%. In periods where deflationary forces dominate,
interest rates could fall toward the lower end of the range and vice versa.
In this environment of lower interest rate volatility, securities that
provide incremental yield will become more attractive to bond investors.
2
<PAGE>
Capital Appreciation Portfolio
Portfolio Characteristics
Objective:
Growth of capital
Portfolio:
Primarily common stocks of companies with market capitalizations of at least $1
billion that have improving fundamentals and whose stock is reasonably valued by
the market
Total Net Assets:
$3 million
Top Ten Common Stocks:*
Company
- ------------------------------------------------------
Lucent Technologies, Inc. 2.1%
- ------------------------------------------------------
Microsoft Corp. 1.9%
- ------------------------------------------------------
Tellabs, Inc. 1.9%
- ------------------------------------------------------
Wal-Mart Stores, Inc. 1.8%
- ------------------------------------------------------
Tyco International Limited 1.7%
- ------------------------------------------------------
Johnson Controls, Inc. 1.5%
- ------------------------------------------------------
Honeywell, Inc. 1.4%
- ------------------------------------------------------
Home Depot, Inc. 1.4%
- ------------------------------------------------------
GTE Corp. 1.4%
- ------------------------------------------------------
AlliedSignal, Inc. 1.3%
- ------------------------------------------------------
Top Ten Total 16.4%
Industry Classifications:*
[PIE CHART APPEARS HERE]
Financial & Business Serivices 20.8%
Consumer Discretionary 15.7%
Technology 15.6%
Capital Goods 9.3%
Health Care 7.2%
Consumer Services 5.4%
Communications 5.1%
Energy 5.0%
Other 15.9%
*% of Total Investments as of June 30, 1999
Performance
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended June 30, 1999
<TABLE>
<CAPTION>
Capital Appreciation
Portfolio
(Incep. 5/28/1999) S&P 500 Index
- --------------------------------------------------------------------------------
<S> <C> <C>
Since Inception 6.50% --
</TABLE>
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$3,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
MONTH Capital Appreciation S&P 500
Porfolio Index
5/31/99 3,000,000 3,000,000
6/30/99 3,195,000 3,166,500
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $3,000,000 on 6/01/1999, the first full month following the
Portfolio inception on 5/28/1999, compared to the S&P 500 Index, an unmanaged
market index.
Portfolio Insights
. The PIMCO Capital Appreciation Portfolio is a recent addition to the PIMCO
Variable Insurance Trust product array. This portfolio seeks growth of
capital.
. Cadence Capital Management, an affiliate of PIMCO Advisors L.P., uses a time-
tested philosophy and investment process to identify larger capitalization
stocks that are growing rapidly, at price levels that don't yet reflect the
fundamental strength of the company.
. The investment process begins with a screening of the 1,000 largest market
cap stocks for a series of growth attributes balanced with a corresponding
measure of valuation. The screened universe is ranked and only the top decile
is considered for further qualitative analysis. The next step in the process
is to understand the source and sustainability of earnings growth. To become
a Portfolio holding, each stock is presented to the team for consideration.
Only 80-100 stocks populate the Portfolio at any time with equally-weighted
positions of approximately 1.2%, at the time of purchase.
. This bottom-up, growth-at-a-reasonable-price approach has produced a
Portfolio of domestic stocks focused primarily in the technology, financial
service and consumer discretionary sectors. Against the backdrop of general
strength in the economy and a perceived lack of inflation, the Portfolio's
top positions reflect opportunities in specialty retailers,
telecommunications infrastructure players, productivity enhancement
technology and industry consolidation across nearly all industry groups.
. Please see the prospectus for a more complete listing possible investments.
1999 Semi-Annual Report 3
<PAGE>
Financial Highlights
Capital Appreciation Portfolio
June 30,1999 (Unaudited)
Selected Per Share Data for the Year or Period Ended:
<TABLE>
<S> <C>
Net asset value beginning of period $ 10.00
- ----------------------------------------------------------- ------------
Net investment income (b) 0.01
- ----------------------------------------------------------- ------------
Net realized and unrealized gain (b) 0.64
- ----------------------------------------------------------- ------------
Total income (loss) from investment operations 0.65
- ----------------------------------------------------------- ------------
Dividends from net investment income 0.00
- ----------------------------------------------------------- ------------
Distributions from net realized capital gains 0.00
- ----------------------------------------------------------- ------------
Total distributions 0.00
- ----------------------------------------------------------- ------------
Net asset value end of period $ 10.65
- ----------------------------------------------------------- ------------
Total return 6.50%
- ----------------------------------------------------------- ------------
Net assets end of period (000's) $ 3,194
- ----------------------------------------------------------- ------------
Ratio of expenses to average net assets 0.85%*
- ----------------------------------------------------------- ------------
Ratio of net investment income to average net assets 0.84%*
- ----------------------------------------------------------- ------------
Portfolio turnover rate 11%
- ----------------------------------------------------------- ------------
</TABLE>
*Annualized
(a) Commenced operations on May 28, 1999.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
Capital Appreciation Portfolio
June 30,1999 (Unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<S> <C>
Assets:
Investments, at value $ 3,283
- ----------------------------------------------------------- ------------
Cash and foreign currency 37
- ----------------------------------------------------------- ------------
Interest and dividends receivable 2
- ----------------------------------------------------------- ------------
3,322
- ----------------------------------------------------------- ------------
Liabilities:
Payable for investments and foreign currency purchased $ 126
- ----------------------------------------------------------- ------------
Accrued investment advisory fee 1
- ----------------------------------------------------------- ------------
Accrued administration fee 1
- ----------------------------------------------------------- ------------
128
- ----------------------------------------------------------- ------------
Net Assets $ 3,194
- ----------------------------------------------------------- ------------
Net Assets Consist of:
Paid in capital $ 3,000
- ----------------------------------------------------------- ------------
Undistributed net investment income 2
- ----------------------------------------------------------- ------------
Accumulated undistributed net realized (loss) (9)
- ----------------------------------------------------------- ------------
Net unrealized appreciation 201
- ----------------------------------------------------------- ------------
$ 3,194
- ----------------------------------------------------------- ------------
Shares Issued and Outstanding 300
- ----------------------------------------------------------- ------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 10.65
- ----------------------------------------------------------- ------------
Cost of Investments Owned $ 3,082
- ----------------------------------------------------------- ------------
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
Capital Appreciation Portfolio
June 30,1999 (Unaudited)
Amounts in thousands
<TABLE>
<S> <C>
Investment Income:
Interest $ 2
- ----------------------------------------------------------- --------------
Dividends, net of foreign taxes 3
- ----------------------------------------------------------- --------------
Total Income 5
- ----------------------------------------------------------- --------------
Expenses:
Investment advisory fees 2
- ----------------------------------------------------------- --------------
Administration fees 1
- ----------------------------------------------------------- --------------
Total Expenses 3
- ----------------------------------------------------------- --------------
Net Investment Income 2
- ----------------------------------------------------------- --------------
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (9)
- ----------------------------------------------------------- --------------
Net change in unrealized appreciation on investments 201
- ----------------------------------------------------------- --------------
Net Gain 192
- ----------------------------------------------------------- --------------
Net Increase in Assets Resulting from Operations $ 194
- ----------------------------------------------------------- --------------
</TABLE>
Statement of Changes in Net Assets
Capital Appreciation Portfolio
June 30,1999 (Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
Increase (Decrease) in Net Assets from: Period from
May 28, 1999
to June 30, 1999
<S> <C>
Operations:
Net investment income $ 2
- ----------------------------------------------------------- ----------------
Net realized (loss) (9)
- ----------------------------------------------------------- ----------------
Net change in unrealized appreciation 201
- ----------------------------------------------------------- ----------------
Net increase resulting from operations 194
- ----------------------------------------------------------- ----------------
Distributions to Shareholders:
From net investment income 0
- ----------------------------------------------------------- ----------------
From net realized capital gains 0
- ----------------------------------------------------------- ----------------
Total Distributions 0
- ----------------------------------------------------------- ----------------
Portfolio Share Transaction:
Receipts for shares sold 3,000
- ----------------------------------------------------------- ----------------
Net increase resulting from Portfolio share transactions 3,000
- ----------------------------------------------------------- ----------------
Total Increase in Net Assets 3,194
- ----------------------------------------------------------- ----------------
Net Assets:
Beginning of period 0
- ----------------------------------------------------------- ----------------
End of period * $ 3,194
- ----------------------------------------------------------- ----------------
*Including net undistributed investment income of: $ 2
- ----------------------------------------------------------- ----------------
</TABLE>
1999 Semi-Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments
Capital Appreciation Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Value
Shares (000s)
<S> <C> <C>
COMMON STOCKS 95.1%
Building 1.8%
Centex Corp. 800 $ 30
Lafarge Corp. 800 28
------
58
Capital Goods 9.6%
AlliedSignal, Inc. 700 44
General Electric Co. 300 34
Honeywell, Inc. 400 46
Johnson Controls, Inc. 700 49
Textron, Inc. 400 33
Tyco International Limited 600 57
United Technologies Corp. 600 43
------
306
Communications 5.2%
ALLTEL Corp. 500 36
Ameritech Corp. 500 37
GTE Corp. 600 45
Qualcomm, Inc. (b) 100 14
SBC Communications, Inc. 600 35
------
167
Consumer Discretionary 16.1%
Cintas Corp. 500 33
Circuit City Stores 400 37
CVS Corp. 700 35
Dayton Hudson Corp. 500 33
Ford Motor Co. 500 28
Gap, Inc. 750 38
General Motors Corp. 400 26
Harley-Davidson, Inc. 700 38
Home Depot, Inc. 700 45
Lowe's Cos., Inc. 700 40
Mohawk Industries, Inc. (b) 900 27
Tandy Corp. 700 34
TJX Cos., Inc. 1,300 43
Wal-Mart Stores, Inc. 1,200 58
------
515
Consumer Services 5.6%
CBS Corp. 800 35
Gannett, Inc. 500 36
McGraw-Hill Companies, Inc. 700 38
New York Times Co. 1,000 37
Waste Management, Inc. 600 32
------
178
Consumer Staples 3.3%
Anheuser Busch Cos., Inc. 500 35
Kroger Co. (b) 1,200 34
Safeway, Inc. (b) 700 35
------
104
Energy 5.1%
Atlantic Richfield Co. 400 33
Energy East Corp. 1,100 29
Peco Energy Co. 800 34
Royal Dutch Petroleum Co. 600 36
Unicorn Corp. 800 31
------
163
Financial & Business Services 21.3%
Alliance Capital Management LP 900 29
American Express Co. 300 39
Associates First Capital Corp. 'A' 800 35
Bank of America Corp. 400 29
Bank of New York 1,000 37
Bank One Corp. 600 36
Capital One Financial Corp. 600 33
Chase Manhattan Corp. 400 35
Citigroup, Inc. 800 38
Comerica, Inc. 500 30
Countrywide Credit Industries, Inc. 600 26
Equity Residential Properties Trust 700 32
Federal Home Loan Mortgage Corp. 500 29
Federal National Mortgage Association 400 27
Fleet Financial Group, Inc. 800 36
Hartford Financial Services Group, Inc. 500 29
Lehman Brothers Holdings, Inc. 100 $ 6
Marsh & McLennan Cos. 400 30
Morgan Stanley, Dean Witter, Discover and Co. 200 21
Omnicom Group 500 40
Southtrust Corp. 800 31
Wells Fargo & Co. 800 34
------
682
Health Care 7.4%
Biogen, Inc. (b) 200 13
Boston Scientific Corp. (b) 800 35
Bristol-Myers Squibb Co. 500 35
CIGNA Corp. 400 36
Schering-Plough Corp. 300 16
United Healthcare Corp. 500 31
Warner-Lambert Co. 500 35
Wellpoint Health Networks, Inc. (b) 400 34
------
235
Materials & Processing 1.9%
Georgia-Pacific Corp. 600 28
Weyerhaeuser Co. 500 34
------
62
Technology 16.1%
Altera Corp. (b) 900 33
BMC Software, Inc. (b) 700 38
Cisco Systems, Inc. (b) 600 39
Computer Associates International, Inc. 500 27
Compuware Corp. (b) 900 29
International Business Machines Corp. 300 39
Lucent Technologies, Inc. 1,030 69
Microsoft Corp. (b) 700 63
Motorola, Inc. 400 38
Tellabs, Inc. (b) 900 61
Texas Instruments, Inc. 300 44
Uniphase Corp. (b) 200 33
------
513
Transportation 0.9%
Southwest Airlines Co. 900 28
Utilities 0.8%
Consolidated Edison, Inc. 600 27
------
Total Common Stocks 3,038
------
(Cost $2,837)
SHORT-TERM INSTRUMENTS 7.7%
<CAPTION>
Principal
Amount
(000s)
<S> <C> <C>
Repurchase Agreement 7.7%
State Street Bank
4.000% due 07/01/1999 $ 245 245
(Dated 06/30/1999. Collateralized by
U.S. Treasury Note 4.875% 03/31/2001
valued at $254,704. Repurchase
proceeds are $245,027.)
------
Total Short-Term Instruments 245
------
(Cost $245)
Total Investments (a) 102.8% $3,283
(Cost $3,082)
Other Assets and Liabilities (Net) (2.8%) (89)
------
Net Assets 100.0% $3,194
------
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $3,082 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 226
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (25)
------
Unrealized appreciation-net $ 201
------
(b) Non-income producing security.
</TABLE>
6 See accompanying notes
<PAGE>
Notes to Financial Statements
June 30, 1999
1. Organization
The Capital Appreciation Portfolio (the "Portfolio") is a series of the
PIMCO Variable Insurance Trust (the "Trust"). The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end investment
company organized as a Delaware business trust on October 3, 1997. The
Trust is designed to be used as an investment vehicle by Separate Accounts
of insurance companies that fund variable annuity contracts and variable
life insurance policies and by qualified pension and retirement plans. The
Portfolio commenced operations on May 28, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
Security Valuation. Portfolio securities and other financial instruments
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, the mean between representative bid and asked
quotations obtained from a quotation reporting system or from established
market makers. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, which approximates market value. Certain
fixed income securities for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities whose prices are more
readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-
issued or delayed delivery basis may be settled a month or more after the
trade date. Realized gains and losses from securities sold are recorded on
the identified cost basis. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the ex-
dividend date may have passed, are recorded as soon as the Fund is informed
of the ex-dividend date. Interest income, adjusted for the accretion of
discounts and amortization of premiums, is recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets and
liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period. Fluctuations in the value of these
assets and liabilities resulting from changes in exchange rates are
recorded as unrealized foreign currency gains (losses). Realized gains
(losses) and unrealized appreciation (depreciation) on investment
securities and income and expenses are translated on the respective dates
of such transactions. The effect of changes in foreign currency exchange
rates on investments in securities are not segregated in the Statement of
Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or
loss on investment securities.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, are declared on each day the Portfolio is open for business
and are distributed to shareholders monthly. All dividends are reinvested
in additional shares of the Portfolio. Net realized capital gains earned by
the Portfolio, if any, will be distributed no less frequently than once
each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified to
paid in capital. In addition, other amounts have been reclassified between
undistributed net investment income, accumulated undistributed net realized
gains or losses and paid in capital to more appropriately conform financial
accounting to tax characterizations of dividend distributions.
1999 Semi-Annual Report 7
<PAGE>
Notes to Financial Statements (cont.)
June 30, 1999 (Unaudited)
Federal Income Taxes. The Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net
realized gains, if applicable, to shareholders. Accordingly, no provision
for Federal income taxes has been made.
Futures and Options. The Portfolio is authorized to enter into futures
contracts and options. The Portfolio may use futures contracts to manage
its exposure to the markets or to movements in interest rates and currency
values. The primary risks associated with the use of futures contracts and
options are imperfect correlation between the change in market value of the
securities held by a Portfolio and the prices of futures contracts and
options, the possibility of an illiquid market, and the inability of the
counterparty to meet the terms of the contract. Futures contracts and
purchased options are valued based upon their quoted daily settlement
prices. The premium received for a written option is recorded as an asset
with an equal liability which is marked to market based on the option's
quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, the Portfolio takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time. The market value of the collateral must be
equal at all times to the total amount of the repurchase obligations,
including interest. Generally, in the event of counterparty default, the
Portfolio has the right to use the collateral to offset losses incurred.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary
partnership of PIMCO Advisors L.P., serves as investment adviser (the
"Adviser") to the Trust, pursuant to an investment advisory contract. The
Advisory Fee is charged at an annual rate of 0.60%.
Administration Fee. PIMCO serves as administrator (the "Administrator"),
and provides administrative services to the Trust for which it receives a
monthly administrative fee based on average daily net assets. The
Administration Fee is charged at the annual rate of 0.25%.
Expenses. PIMCO pays for most of the expenses of the Portfolio, including
legal, audit, custody, transfer agency and certain other services, and is
responsible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current shareholders
or other appropriate parties. The Portfolio is responsible for bearing
certain expenses associated with its operations that are not provided or
procured by PIMCO. PIMCO has voluntarily undertaken to waive and reimburse
expenses of the Portfolio to the extent necessary, to limit the expenses to
0.85% of average daily net assets.
Under the Expense Limitation Agreement, PIMCO may recoup these waivers
and reimbursements in future periods, not exceeding three years, provided
total expenses, including any such recoupment, do not exceed the annual
expense limit.
The Trust pays no compensation directly to any Trustee or any other
officer who is affiliated with the Administrator, all of whom receive
renumeration for their services to the Trust from the Administrator or its
affiliates.
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a Committee
Chair receives an additional annual retainer of $500. These expenses are
allocated to the Portfolios of the Trust according to their respective net
assets.
8
<PAGE>
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended June 30, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
- -------------------------------------------------------------------
Purchases Sales Purchases Sales
- -------------------------------------------------------------------
$0 $0 $3,182 $336
5. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial interest
with a $.0001 par value. Changes in shares of beneficial interest were as
follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
Period from 05/28/1999
to 06/30/1999
Shares Amount
- ------------------------------------------------------------------ ------------------------
<S> <C> <C>
Receipts for shares sold 300 $3,000
- ------------------------------------------------------------------ ------------------------
Issued as reinvestment of distributions 0 0
- ------------------------------------------------------------------ ------------------------
Cost of shares redeemed 0 0
- ------------------------------------------------------------------ ------------------------
Net increase resulting from
Portfolio share transactions 300 $3,000
- ------------------------------------------------------------------ ------------------------
</TABLE>
The following schedule shows the number of shareholders each owning 5% or more
of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
Number % of Portfolio Held
- -------------------------------
1 100%
1999 Semi-Annual Report 9
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $172 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality service to mutual fund and institutional clients worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser
PIMCO Advisers L.P.
800 Newport Center Drive
Newport Beach, California 92660
Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders of the
PIMCO Variable Insurance Trust. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective prospectus
for the PIMCO Variable Insurance Trust, which contains information covering its
investment policies as well as other pertinent information.
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
<PAGE>
PIMCO
PIMCO Variable Insurance Trust
Foreign Bond Portfolio
------------------
Semi-Annual Report
June 30, 1999
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO
Variable Insurance Trust Foreign Bond Portfolio.
Treasury prices fell steadily and yields rose across the maturity spectrum
as fears of inflation dominated the fixed income marketplace during the
first half of the year. Strong economic growth in the U.S. throughout the
period and signs of recovery elsewhere in the world during the second
quarter sparked concern that the Federal Reserve would boost interest rates
to keep inflation subdued. The yield on the 30-year Treasury bond ended the
period at 5.97%, up 0.88% and yields on 10-year Treasuries climbed a more
dramatic 1.14% finishing the period at 5.79%. Despite difficulties in the
bond market, the U.S. stock market continued its ascent and started to
broaden late in the period as smaller-capitalization issues and lower
valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the
six-month period and indicated that the move had been driven mainly by a
return to normalcy in U.S. and international financial markets after the
global crisis of the past year. The increase came as no surprise to the
financial markets since Fed officials had adopted a bias, their view on the
likely next move in rates, towards tightening at their May policymaking
open market committee meeting. However, the raise in rates was accompanied
by the Fed announcement that they were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about
inflation. After a surprise jump in the April consumer price index, led by
higher energy prices, the CPI was unchanged in May. A reduction in new home
sales due to higher borrowing costs suggested the economy might be slowing,
reducing inflationary pressure. Economic expansion kept labor markets
tight, with unemployment at a 29-year low, but growth in wage costs slowed.
Workers were generally willing to accept smaller wage pay increases with
inflation subdued and real incomes rising. With goods inflation relatively
benign, Fed tightening was aimed more at potential asset bubbles in housing
and stock markets, where price gains have lifted consumer confidence to
record highs and stimulated increases in consumption that fueled economic
growth.
On the following pages you will find a more complete review of the stock
and bond markets and specific details about the composition and total
return investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to
focus our efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
1999 Semi-Annual Report 1
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock investors. The
third quarter of 1998 saw the market correct as a result of concerns over
an economic down-turn in Asia that appeared to be spreading. In the fourth
quarter, the market rose as these fears began to abate, and the first
quarter of 1999 continued the upward trend as the market hit record highs.
However, many industry analysts expressed concern over the narrowness of
the market, in which the largest of the large-cap growth stocks were
responsible for much of this performance. Their concerns proved to be
short-lived: in the second quarter of 1999, the market finally broadened,
as smaller-capitalization issues as well as lower valuation issues showed
strength.
The technology sector, particularly the Internet, was an important driver
of performance in the last quarter of 1998 as well as the first quarter of
1999. However, these issues hit a speed bump early in the second quarter of
1999 as interest rates began to rise.
Higher valuation growth stocks also had the same inverse relationship with
interest rates. They turned in a strong performance in the last quarter of
1998 and the first quarter of 1999, benefiting from the Federal Reserve's
interest rate cuts. Like technology stocks, they suffered in the second
quarter as a result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster performance in
the last quarter of 1998 and the first quarter of 1999. However, in the
second quarter of this year, they benefited not only from a rise in
interest rates but legitimate evidence of a global economic recovery, which
resulted in increased demand for basic materials.
The broadening of the market was welcomed by most analysts. It was largely
viewed as a healthy event, after a long period of domination by one segment
of the market. Looking ahead, we are cautiously optimistic that this
broadening will enable the market to continue its rise, and that more
stocks will participate in this ascent.
Bond Market
Bond Yields Move Higher
Inflation fears have dominated the fixed income marketplace in 1999. OPEC's
cuts in oil production sent gasoline prices climbing, which negatively
affected inflation reports for the month of April. The economy, fueled by
stock market gains, grew faster than expected, adding to speculation that
higher inflation was just around the corner. In addition, foreign
economies, particularly in Asia, began to recover, as synchronized global
central-bank easings appeared to be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in May and then
raised the fed funds rate by a quarter-point to 5.0% at the end of June.
The move capped a difficult period for the bond market as Treasury prices
fell steadily, with long-term yields rising over one percentage point,
breaking above 6% for the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads.
Deflationary forces, including the glut of global capacity and strong
productivity gains, remain at work. However, reflationary forces, including
central bank easings and a tight U.S. labor market, are also in play. The
Fed appears to share this view, moving back to a neutral stance after its
recent tightening, explaining that productivity gains continued to offset
the wage inflation pressures created by a tight labor market.
We believe that these forces may well offset one another, creating an
environment where interest rates remain in a relatively narrow range of
between 5% and 6 1/2%. The opposing forces will likely keep inflation
subdued, between 2% and 3%. In periods where deflationary forces dominate,
interest rates could fall toward the lower end of the range and vice versa.
In this environment of lower interest rate volatility, securities that
provide incremental yield will become more attractive to bond investors.
2
<PAGE>
Foreign Bond Portfolio
Portfolio Characteristics
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management (non-U.S.)
Portfolio:
Primarily investment grade foreign bonds
Duration:
5.43 years
Total Net Assets:
$5 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Short-Term Instruments 20.5%
United States 13.3%
Japan 11.3%
United Kingdom 10.7%
Sweden 6.4%
Germany 6.2%
Denmark 5.2%
Other 26.5%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 65.3%
AA 21.7%
A 5.2%
BBB 5.7%
BB 2.0%
B 0.1%
*% of Total Investments as of June 30, 1999
Performance
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended June 30, 1999
Foreign
Bond Portfolio J.P. Morgan
(Incep. 2/16/1999) Non-U.S. Index (Hedged)
- -----------------------------------------------------------------------------
Since Inception -1.63% --
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$5,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
Foreign Bond J.P. Morgan
MONTH Porfolio Non-U.S. Index
(Hedged)
2/28/99 5,000,000 5,000,000
3/31/99 5,034,626 5,059,500
4/30/99 5,093,085 5,123,755
5/31/99 5,037,447 5,102,748
6/30/99 4,928,524 5,023,655
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $5,000,000 on 3/01/1999, the first full month following the
Portfolio inception on 2/16/1999, compared to the J.P. Morgan Non-U.S. Index
(Hedged), an unmanaged market index. The Portfolio may invest in foreign
securities which involve potentially higher risks including foreign currency
fluctuations and political or economic uncertainty.
Portfolio insights
. For the performance was three-month period -2.11%, ended June 30,
underperforming the 1999, the Foreign -0.71% return of its Bond Portfolio's
benchmark, the J.P. total return Morgan investment Non-U.S. Index (Hedged).
. Global yields concern about Federal emulated U.S. Reserve tightening. yields,
moving The Investment Adviser higher, as strong reduced the Fund's U.S.
economic duration, growth sparked or sensitivity to changes in interest rates,
which added to relative returns.
. Below-Index exposure to Japan slightly detracted from performance during the
early part of the year as Japanese governments bonds rallied, supported by
domestic buying. However, due to the mid-February inception date, not all of
the effects of this exposure were felt by the Portfolio.The below-Index
exposure added to returns by the second quarter as yields rose due to concern
that renewed growth would fuel inflation.
. Citing benign inflation and weak growth, the European Central Bank made its
first rate cut;however, rates failed to de-couple from the U.S. and longer-
term yields rose. The Portfolio's overweight position in Europe slightly aided
returns as European yields rose less than those in the U.S.
. An emphasis on second round EMU candidates detracted from returns after yield
spreads relative to Germany widened due to skepticism over convergence
prospects with core Europe.
. An overweight in Australia and New Zealand bonds detracted from returns as the
strength of these economies pushed yields up more than U.S. yields.
. Underweighting Japanese yen versus the Australian dollar enhanced returns as a
rebound in commodity prices strengthened the Australian dollar.
. Emerging market positions enhanced performance due to their relatively higher
yields.
199 Semi-Annual Report 3
<PAGE>
Financial Highlights
Foreign Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<S> <C>
Selected Per Share Data for the Period Ended: 6/30/1999
Net asset value beginning of period $ 10.00
- ---------------------------------------------------------- -------------
Net investment income (b) 0.14
- ---------------------------------------------------------- -------------
Net realized and unrealized (loss) (b) (0.30)
- ---------------------------------------------------------- -------------
Total income (loss) from investment operations (0.16)
- ---------------------------------------------------------- -------------
Dividends from net investment income (0.15)
- ---------------------------------------------------------- -------------
Total distributions (0.15)
- ---------------------------------------------------------- -------------
Net asset value end of period $ 9.69
- ---------------------------------------------------------- -------------
Total return (1.63)%
- ---------------------------------------------------------- -------------
Net assets end of period (000's) $ 4,935
- ---------------------------------------------------------- -------------
Ratio of expenses to average net assets 0.90%*
- ---------------------------------------------------------- -------------
Ratio of net investment income to average net assets 1.44%*
- ---------------------------------------------------------- -------------
Portfolio turnover rate 162%
- ---------------------------------------------------------- -------------
</TABLE>
*Annualized
(a) Commenced operations on February 16, 1999.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
Foreign Bond Portfolio
June 30, 1999 (Unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<S> <C>
Assets:
Investments, at value $ 8,484
- ---------------------------------------------------------- -------------
Receivable for investments and foreign currency sold 1,609
- ---------------------------------------------------------- -------------
Interest and dividends receivable 137
- ---------------------------------------------------------- -------------
Other assets 1
- ---------------------------------------------------------- -------------
10,231
- ---------------------------------------------------------- -------------
Liabilities:
Payable for investments and foreign currency purchased $ 1,338
- ---------------------------------------------------------- -------------
Payable for financing transactions 3,606
- ---------------------------------------------------------- -------------
Written options outstanding 2
- ---------------------------------------------------------- -------------
Accrued investment advisory fee 3
- ---------------------------------------------------------- -------------
Accrued administration fee 1
- ---------------------------------------------------------- -------------
Variation margin payable 0
- ---------------------------------------------------------- -------------
Other liabilities 346
- ---------------------------------------------------------- -------------
5,296
- ---------------------------------------------------------- -------------
Net Assets $ 4,935
- ---------------------------------------------------------- -------------
Net Assets Consist of:
Paid in capital $ 5,091
- ---------------------------------------------------------- -------------
Overdistributed net investment income (2)
- ---------------------------------------------------------- -------------
Accumulated undistributed net realized gain 80
- ---------------------------------------------------------- -------------
Net unrealized (depreciation) (234)
- ---------------------------------------------------------- -------------
$ 4,935
- ---------------------------------------------------------- -------------
- ---------------------------------------------------------- -------------
Shares Issued and Outstanding 509
- ---------------------------------------------------------- -------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.69
- ---------------------------------------------------------- -------------
Cost of Investments Owned $ 8,773
- ---------------------------------------------------------- -------------
Cost of Foreign Currency Held $ 9
- ---------------------------------------------------------- -------------
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
Foreign Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
Period from
February 16, 1999
to June 30, 1999
<S> <C>
Investment Income:
Interest $ 90
- ----------------------------------------------------------- ----------------
Total Income 90
- ----------------------------------------------------------- ----------------
Expenses:
Investment advisory fees 11
- ----------------------------------------------------------- ----------------
Administration fees 6
- ----------------------------------------------------------- ----------------
Total Expenses 17
- ----------------------------------------------------------- ----------------
Net Investment Income 73
- ----------------------------------------------------------- ----------------
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (16)
- ----------------------------------------------------------- ----------------
Net realized gain on futures and written options contracts 1
- ----------------------------------------------------------- ----------------
Net realized gain on foreign currency transactions 95
- ----------------------------------------------------------- ----------------
Net change in unrealized (depreciation) on investments (289)
- ----------------------------------------------------------- ----------------
Net change in unrealized (depreciation)
on futures and written options contracts (1)
- ----------------------------------------------------------- ----------------
Net change in unrealized appreciation on translation of
assets and liabilities denominated in foreign currencies 56
- ----------------------------------------------------------- ----------------
Net (Loss) (154)
- ----------------------------------------------------------- ----------------
Net (Decrease) in Assets Resulting from Operations $ (81)
- ----------------------------------------------------------- ----------------
</TABLE>
Statement of Changes in Net Assets
Foreign Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands
Period from
February 16, 1999
to June 30, 1999
<S> <C>
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 73
- ----------------------------------------------------------- ----------------
Net realized gain 80
- ----------------------------------------------------------- ----------------
Net change in unrealized (depreciation) (234)
- ----------------------------------------------------------- ----------------
Net (decrease) resulting from operations (81)
- ----------------------------------------------------------- ----------------
Distributions to Shareholders:
From net investment income (75)
- ----------------------------------------------------------- ----------------
Total Distributions (75)
- ----------------------------------------------------------- ----------------
Portfolio Share Transactions
Receipts for shares sold 5,015
- ----------------------------------------------------------- ----------------
Issued as reinvestment of distributions 76
- ----------------------------------------------------------- ----------------
Net increase resulting from Portfolio share transactions 5,091
- ----------------------------------------------------------- ----------------
Total Increase in Net Assets 4,935
- ----------------------------------------------------------- ----------------
Net Assets
Beginning of period 0
- ----------------------------------------------------------- ----------------
End of period * $ 4,935
- ----------------------------------------------------------- ----------------
*Including net undistributed (overdistributed)
investment income of: $ (2)
- ----------------------------------------------------------- ----------------
</TABLE>
1999 Semi-Annual Report See accompanying notes 5
<PAGE>
Statement of Cash Flows
Foreign Bond Portfolio
June 30, 1999 (Unaudited)
Amounts in thousands
<TABLE>
<S> <C>
Increase in Cash and Foreign Currency from:
Financing Activities:
Sales of Fund shares $ 5,015
- --------------------------------------------------------------- -----------
Redemptions of Fund shares 0
- --------------------------------------------------------------- -----------
Cash distributions paid 0
- --------------------------------------------------------------- -----------
Proceeds from financing transactions 2,888
- --------------------------------------------------------------- -----------
Net increase from financing activities 7,903
- --------------------------------------------------------------- -----------
Operating Activities:
Purchases of long-term securities and foreign currency (12,616)
- --------------------------------------------------------------- -----------
Proceeds from sales of long-term securities and foreign
currency 6,184
- --------------------------------------------------------------- -----------
Purchases of short-term securities (net) (1,738)
- --------------------------------------------------------------- -----------
Net investment income 73
- --------------------------------------------------------------- -----------
Change in other receivables/payables (net) 194
- --------------------------------------------------------------- -----------
Net (decrease) from operating activities (7,903)
- --------------------------------------------------------------- -----------
Net Increase in Cash and Foreign Currency 0
- --------------------------------------------------------------- -----------
Cash and Foreign Currency
Beginning of period 0
- --------------------------------------------------------------- -----------
End of period $ 0
- --------------------------------------------------------------- -----------
</TABLE>
6 See accompanying notes
<PAGE>
Schedule of Investments
Foreign Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
<S> <C> <C> <C>
ARGENTINA (g) 0.3%
Republic of Argentina
2.815% due 04/01/2007 AP 22 $ 14
-------
Total Argentina 14
-------
(Cost $14)
AUSTRALIA (f)(g) 3.8%
Australian Government
9.000% due 09/15/2004 (h) A$ 250 186
-------
Total Australia 186
-------
(Cost $187)
CANADA (f)(g) 6.0%
Beneficial Canada, Inc.
6.350% due 04/01/2002 C$ 30 21
Commonwealth of Canada
6.500% due 06/01/2004 (h) 110 77
6.625% due 10/03/2007 N$ 200 103
6.000% due 06/01/2008 C$ 140 98
-------
Total Canada 299
-------
(Cost $311)
CAYMAN ISLANDS (g) 1.1%
Capital Credit Card Corp.
5.625% due 10/15/2004 DM 100 55
-------
Total Cayman Islands 55
-------
(Cost $54)
CHILE 0.4%
Republic of Chile
6.875% due 04/28/2009 $ 19 18
-------
Total Chile 18
-------
(Cost $19)
DENMARK (f)(g) 8.9%
Danske Kredit Mortgage
5.000% due 10/01/2029 DK 1,300 160
Nykredit Mortgage
5.000% due 10/01/2029 1,530 190
Realkredit Mortgage
5.000% due 10/01/2029 470 58
Unikredit Mortgage
5.000% due 10/01/2029 240 30
-------
Total Denmark 438
-------
(Cost $482)
GERMANY (f)(g) 10.7%
DePfa Deutsche Pfandbriefbank AG
2.964% due 03/26/2001 EC 140 144
Republic of Germany
5.250% due 01/04/2008 (h) 60 65
4.125% due 07/04/2008 (h) 100 126
6.500% due 07/04/2027 (h) 160 191
5.625% due 01/04/2028 (h) 0 0
-------
Total Germany 526
-------
(Cost $541)
ITALY (f)(g) 6.0%
Republic of Italy
6.500% due 11/01/2027 (h) 260 295
-------
Total Italy 295
-------
(Cost $347)
JAPAN (f)(g) 19.4%
Government of Japan
4.100% due 12/22/2003 (h) JY 32,500 $ 307
4.500% due 12/20/2004 (h) 10,300 100
3.400% due 06/20/2005 (h) 10,600 98
4.000% due 06/20/2005 (h) 10,600 102
3.300% due 06/20/2006 (h) 12,000 111
0.900% due 12/22/2008 (h) 20,500 154
2.000% due 03/20/2009 (h) 10,000 84
-------
Total Japan 956
-------
(Cost $968)
MEXICO 1.7%
Banco Nacional de Comercio Exterior
7.250% due 02/02/2004 $ 20 18
Petroleos Mexicanos
8.850% due 09/15/2007 20 18
9.375% due 12/02/2008 30 30
United Mexican States
6.520% due 06/27/2002 (d) 20 19
-------
Total Mexico 85
-------
(Cost $84)
NEW ZEALAND (f)(g) 4.8%
Commonwealth of New Zealand
10.000% due 03/15/2002 (h) N$ 130 76
4.500% due 02/15/2016 300 161
-------
Total New Zealand 237
-------
(Cost $242)
NORWAY (f)(g) 2.4%
Norwegian Government
5.500% due 05/15/2009 (h) NK 960 121
-------
Total Norway 121
-------
(Cost $131)
PHILIPPINES (f)(g) 0.4%
Republic of Philippines
8.000% due 09/17/2004 EC 20 22
-------
Total Philippines 22
-------
(Cost $22)
SINGAPORE (f)(g) 1.2%
Singapore Government
4.375% due 10/15/2005 S$ 100 59
-------
Total Singapore 59
-------
(Cost $59)
SOUTH KOREA (f)(g) 5.9%
Korea Development Bank
8.650% due 01/26/2000 $ 230 232
2.730% due 05/14/2001 (d) DM 50 26
1.875% due 02/13/2002 JY 4,000 33
-------
Total South Korea 291
-------
(Cost $292)
SPAIN (f)(g) 3.4%
Bonos y Oblig Del Estado
5.150% due 07/30/2009 (h) EC 160 169
-------
Total Spain 169
-------
(Cost $169)
1999 Semi-Annual Report See accompanying notes 7
</TABLE>
<PAGE>
Schedule of Investments (Cont.)
<TABLE>
<CAPTION>
Foreign Bond Portfolio
June 30, 1999 (Unaudited)
Principal
Amount Value
(000s) (000s)
<S> <C> <C> <C>
SUPRANATIONAL (f)(g) 7.4%
Eurofima
5.750% due 06/30/2000 DM 200 $ 108
Inter-American Development Bank
7.125% due 11/26/2004 BP 30 49
International Bank for Reconstruction
& Development
7.250% due 04/09/2001 N$ 388 210
-----------
Total Supranational 367
-----------
(Cost $376)
SWEDEN (f)(g) 11.0%
Kingdom of Sweden
8.625% due 02/22/2000 SP 61,000 392
6.500% due 05/05/2008 (h) SK 600 59
9.000% due 04/20/2009 (h) 600 92
-----------
Total Sweden 543
-----------
(Cost $604)
UNITED KINGDOM (f)(g) 18.4%
United Kingdom Gilt
8.000% due 06/10/2003 (h) BP 395 677
8.500% due 12/07/2005 (h) 75 138
9.000% due 10/13/2008 46 92
-----------
Total United Kingdom 907
-----------
(Cost $957)
UNITED STATES (f)(g) 22.8%
Asset-Backed Securities 0.4%
Equivantage Home Equity Loan Trust
5.108% due 11/25/2012 (d) $ 8 8
PSB Lending Home Loan Owner Trust
6.830% due 05/20/2018 10 10
-----------
18
Corporate Bonds & Notes 11.4%
AES Corp.
10.250% due 07/15/2006 2 2
Bancomext Trust Division
8.000% due 08/05/2003 10 10
Bear Stearns Co., Inc.
5.325% due 05/16/2003 (d) 100 100
Beckman Instruments, Inc.
7.100% due 03/04/2003 3 3
BMW US Capital Corp.
5.000% due 12/30/1999 DM 162 86
Buckeye Technologies, Inc.
8.000% due 10/15/2010 $ 2 2
Building Materials Corp.
7.750% due 07/15/2005 1 1
8.000% due 10/15/2007 1 1
Calpine Corp.
7.875% due 04/01/2008 3 3
Century Communications Corp.
0.000% due 03/15/2003 3 2
CMS Energy
8.125% due 05/15/2002 3 3
CSC Holdings, Inc.
9.875% due 04/01/2023 3 3
Echostar DBS Corp.
9.250% due 02/01/2006 3 3
Flag Limited
8.250% due 01/30/2008 3 3
Garden State Newspapers
8.750% due 10/01/2009 2 2
General Motors Acceptance Corp.
5.250% due 04/05/2004 (d) 100 100
Hollinger International Publishing
8.625% due 03/15/2005 2 2
Household Finance Corp.
5.125% due 06/24/2009 EC 100 101
Jones Intercable, Inc.
8.875% due 04/01/2007 $ 3 3
K Mart Corp.
9.350% due 01/02/2020 3 4
McLeodUSA, Inc.
8.125% due 02/15/2009 3 3
Navistar International Corp.
8.000% due 02/01/2008 2 2
Orange PLC
8.000% due 08/01/2008 2 2
Polymer Group, Inc.
9.000% due 07/01/2007 2 2
Rogers Cantel, Inc.
8.300% due 10/01/2007 3 3
Silgan Holdings, Inc.
9.000% due 06/01/2009 2 2
Sprint Capital Corp.
5.875% due 05/01/2004 10 10
Texas Utilities Co.
5.729% due 09/25/2001 100 100
TV Guide, Inc.
8.125% due 03/01/2009 2 2
Unisys Corp.
12.000% due 04/15/2003 3 3
World Color Press, Inc.
8.375% due 11/15/2008 1 1
-----------
564
Mortgage-Backed Securities 2.1%
Federal Home Loan Mortgage Corp.
6.500% due 08/15/2023 107 106
U.S. Treasury Obligations 8.9%
Treasury Inflation Protected Securities
3.625% due 07/15/2002 311 308
U.S. Treasury Notes
4.750% due 02/15/2004 (h) 50 48
6.125% due 08/15/2007 (h) 60 61
5.500% due 05/15/2009 (h) 20 20
-----------
437
-----------
Total United States 1,125
-----------
(Cost $1,131)
PURCHASED PUT OPTIONS (g) 0.7%
Japanese Yen vs. U.S. Dollar (OTC)
Strike @ 125.000 Exp. 11/29/1999 JY 240 2
U.S. Treasury Note (OTC)
5.250% due 05/31/2001
Strike @ 100.000 Exp. 09/15/1999 $ 1,000 6
U.S. Treasury Note (OTC)
5.625% due 05/15/2008
Strike @ 103.000 Exp. 09/15/1999 500 25
-----------
Total Purchased Put Options 33
-----------
(Cost $44)
SHORT-TERM INSTRUMENTS 35.2%
Certificates of Deposit 1.8%
Commercebank
6.200% due 05/10/2000 90 89
-----------
Commercial Paper 25.2%
Abbott Laboratories
4.940% due 07/20/1999 100 100
Emerson Electric Co.
5.020% due 07/27/1999 200 199
Federal Home Loan Mortgage Corp.
5.060% due 07/14/1999 100 100
4.940% due 07/14/1999 300 299
4.830% due 07/16/1999 200 200
4.860% due 07/22/1999 100 100
Ford Motor Credit Corp.
4.780% due 07/26/1999 200 199
U.S. West Communications
5.960% due 03/24/2000 50 48
-----------
1,245
-----------
</TABLE>
8 See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000's) (000's)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreement 7.4%
State Street Bank
4.000% due 07/01/1999 $ 364 $ 364
-------
(Dated 06/30/1999. Collateralized by
U.S. Treasury Note 5.500% 12/31/2000
valued at $374,238. Repurchase
proceeds are $364,040.)
U.S. Treasury Bills (b)(c) 0.8%
4.000% due 09/16/1999 40 40
-------
Total Short-Term Instruments 1,738
-------
(Cost $1,739)
Total Investments (a) 171.9% $ 8,484
(Cost $8,773)
Written Options (e) 0.0% (2)
(Premiums $1)
Other Assets and Liabilities (Net) (71.9%) (3,547)
-------
Net Assets 100.0% $ 4,935
-------
</TABLE>
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $8,773 was as follows:
<TABLE>
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 44
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (333)
-------
Unrealized depreciation-net $ (289)
-------
</TABLE>
(b) Securities with an aggregate market
value of $40 have been segregated with the custodian to
cover margin requirements for the following open futures
contracts at June 30, 1999:
<TABLE>
<CAPTION>
Unrealized
# of Appreciation/
Type Contracts (Depreciation)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 10 Year Note (09/1999) 1 $ 0
(c) Securities are grouped by range of coupons and represent a range of maturities.
(d) Variable rate security. The rate listed is as of June 30, 1999.
(e) Premiums received on written options:
</TABLE>
<TABLE>
<CAPTION>
Type Par Premium Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Put - CBOT U.S. Treasury Bond September Futures
Strike @ 116.000 Exp. 08/21/1999 $ 100 $ 0 $ 2
Call - CBOT U.S. Treasury Bond September Futures
Strike @ 128.000 Exp. 08/21/1999 100 1 0
-----------------
$ 1 $ 2
-----------------
</TABLE>
(f) Foreign forward currency contracts outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Principal
Amount Unrealized
Covered by Settlement Appreciation/
Type Currency Contract Month (Depreciation)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Buy A$ 480,815 07/1999 $ 4
Sell 150,000 07/1999 (2)
Sell 322,000 08/1999 (3)
Buy BP 112,082 07/1999 (3)
Sell 835,000 07/1999 29
Buy 329,000 08/1999 (13)
Sell 21,000 08/1999 0
Sell C$ 182,000 07/1999 1
Sell DK 691,000 07/1999 3
Buy 61,000 08/1999 0
Sell 1,765,000 08/1999 9
Sell 890,000 09/1999 3
Buy EC 808,954 07/1999 (13)
Sell 1,521,368 07/1999 41
Buy 387,000 08/1999 (5)
Sell 477,000 08/1999 3
Buy JY 13,396,000 07/1999 1
Sell 28,403,000 07/1999 (1)
Buy 10,028,000 08/1999 (1)
Sell N$ 493,000 07/1999 (3)
Sell 429,000 08/1999 1
Buy NK 43,000 07/1999 0
Sell S$ 104,000 07/1999 0
Buy SF 157,155 07/1999 0
Sell 157,000 07/1999 2
Buy SK 876,000 07/1999 1
Sell 813,000 07/1999 1
-------------
$ 55
-------------
</TABLE>
(g) Principal amount denoted in indicated currency:
A$ - Australian Dollar
AP - Argentine Peso
BP - British Pound
C$ - Canadian Dollar
DK - Danish Krone
DM - German Mark
EC - European Currency Unit
JY - Japanese Yen
N$ - New Zealand Dollar
NK - Norwegian Kron
S$ - Singapore Dollar
SF - Swiss Franc
SK - Swedish Krona
SP - Spanish Peseta
(h) Subject to a financing transaction.
(i) Swap agreements outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Notional Unrealized
Type Amount Depreciation
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Receive fixed rate equal to 4.925% and
pay floating rate based on 3 month TIBOR.
Broker: Deutsche Morgan Grenfell SEK 600,000 $ (1)
Exp. 06/07/2004
1999 Semi-Annual Report See accompanying notes 9
</TABLE>
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
1. Organization
The Foreign Bond Portfolio (the "Portfolio") is a series of the PIMCO
Variable Insurance Trust (the "Trust"). The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end
investment company organized as a Delaware business trust on October
3, 1997. The Trust is designed to be used as an investment vehicle by
Separate Accounts of insurance companies that fund variable annuity
contracts and variable life insurance policies and by qualified
pension and retirement plans. The Portfolio commenced operations on
February 16, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies
consistently followed by the Portfolio in the preparation of its
financial statements in conformity with generally accepted accounting
principles. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. Portfolio securities and other financial
instruments 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, the mean between
representative bid and asked quotations obtained from a quotation
reporting system or from established market makers. Short-term
investments having a maturity of 60 days or less are valued at
amortized cost, which approximates market value. Certain fixed income
securities for which daily market quotations are not readily available
may be valued, pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities whose prices are
more readily obtainable.
Securities Transactions and Investment Income. Securities transactions
are recorded as of the trade date. Securities purchased or sold on a
when-issued or delayed delivery basis may be settled a month or more
after the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income is recorded
on the ex-dividend date, except certain dividends from foreign
securities where the ex-dividend date may have passed, are recorded as
soon as the Fund is informed of the ex-dividend date. Interest income,
adjusted for the accretion of discounts and amortization of premiums,
is recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets
and liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period. Fluctuations in the value of
these assets and liabilities resulting from changes in exchange rates
are recorded as unrealized foreign currency gains (losses). Realized
gains (losses) and unrealized appreciation (depreciation) on
investment securities and income and expenses are translated on the
respective dates of such transactions. The effect of changes in
foreign currency exchange rates on investments in securities are not
segregated in the Statement of Operations from the effects of changes
in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investment securities.
Dividends and Distributions to Shareholders. Dividends from net
investment income, if any, are declared on each day the Portfolio is
open for business and are distributed to shareholders monthly. All
dividends are reinvested in additional shares of the Portfolio. Net
realized capital gains earned by the Portfolio, if any, will be
distributed no less frequently than once each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified
to paid in capital. In addition, other amounts have been reclassified
between undistributed net investment income, accumulated undistributed
net realized gains or losses and paid in capital to more appropriately
conform financial accounting to tax characterizations of dividend
distributions.
10
<PAGE>
Federal Income Taxes. The Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net
realized gains, if applicable, to shareholders. Accordingly, no
provision for Federal income taxes has been made.
Financing Transactions. The Portfolio may enter into financing
transactions consisting of the sale by the Portfolio of securities,
together with a commitment to repurchase similar securities at a
future date. The difference between the selling price and the future
purchase price is an adjustment to interest income. If the counter-
party to whom the Portfolio sells the security becomes insolvent, the
Portfolio's right to repurchase the security may be restricted; the
value of the security may change over the term of the financing
transaction; and the return earned by the Portfolio with the proceeds
of a financing transaction may not exceed transaction costs.
Futures and Options. The Portfolio is authorized to enter into futures
contracts and options. The Portfolio may use futures contracts to
manage its exposure to the markets or to movements in interest rates
and currency values. The primary risks associated with the use of
futures contracts and options are imperfect correlation between the
change in market value of the securities held by a Portfolio and the
prices of futures contracts and options, the possibility of an
illiquid market, and the inability of the counterparty to meet the
terms of the contract. Futures contracts and purchased options are
valued based upon their quoted daily settlement prices. The premium
received for a written option is recorded as an asset with an equal
liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are
recorded as unrealized appreciation (depreciation) until terminated,
at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase
transactions. Under the terms of a typical repurchase agreement, the
Portfolio takes possession of an underlying debt obligation subject to
an obligation of the seller to repurchase, and the Portfolio to
resell, the obligation at an agreed-upon price and time. The market
value of the collateral must be equal at all times to the total amount
of the repurchase obligations, including interest. Generally, in the
event of counterparty default, the Portfolio has the right to use the
collateral to offset losses incurred.
Restricted Securities. The Portfolio is permitted to invest in
securities that are subject to legal or contractual restrictions on
resale. These securities generally may be resold in transactions
exempt from registration or to the public if the securities are
registered. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at an acceptable price may
be difficult.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary
partnership of PIMCO Advisors L.P., serves as investment adviser (the
"Adviser") to the Trust, pursuant to an investment advisory contract.
The Advisory Fee is charged at an annual rate of 0.60%.
Administration Fee. PIMCO serves as administrator (the
"Administrator"), and provides administrative services to the Trust
for which it receives a monthly administrative fee based on average
daily net assets. The Administration Fee is charged at the annual rate
of 0.30%.
Expenses. PIMCO pays for most of the expenses of the Portfolio,
including legal, audit, custody, transfer agency and certain other
services, and is responsible for the costs of registration of the
Trust's shares and the printing of prospectuses and shareholder
reports for current shareholders or other appropriate parties. The
Portfolio is responsible for bearing certain expenses associated with
its operations that are not provided or procured by PIMCO. PIMCO has
voluntarily undertaken to waive and reimburse expenses of the
Portfolio to the extent necessary, to limit the expenses to 0.90% of
average daily net assets.
1999 Semi-Annual Report 11
<PAGE>
Notes to Financial Statements (Cont.)
June 30, 1999 (Unaudited)
Under the Expense Limitation Agreement, PIMCO may recoup these
waivers and reimbursements in future periods, not exceeding three
years, provided total expenses, including any such recoupment, do not
exceed the annual expense limit.
The Trust pays no compensation directly to any Trustee or any
other officer who is affiliated with the Administrator, all of whom
receive renumeration for their services to the Trust from the
Administrator or its affiliates.
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a
Committee Chair receives an additional annual retainer of $500. These
expenses are allocated to the Portfolios of the Trust according to
their respective net assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments)
for the period ended June 30, 1999 were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
----------------------------------------------------------------
Purchases Sales Purchases Sales
----------------------------------------------------------------
<S> <C> <C> <C>
$ 1,146 $ 1,018 $ $12,433 $ 4,593
</TABLE>
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amounts
in thousands):
<TABLE>
<CAPTION>
Premium
-----------------------------------------------------------------
<S> <C>
Balance at 02/16/1999 $ 0
-----------------------------------------------------------------
Sales 2
-----------------------------------------------------------------
Closing Buys 0
-----------------------------------------------------------------
Expirations 0
-----------------------------------------------------------------
Exercised (1)
-----------------------------------------------------------------
Balance at 06/30/1999 $ 1
-----------------------------------------------------------------
</TABLE>
6. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial
interest with a $.0001 par value. Changes in shares of beneficial
interest were as follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
Period from 02/16/1999
to 06/30/1999
Shares Amount
--------------------------------------- ----------------------
<S> <C> <C>
Receipts for shares sold 501 $5,015
--------------------------------------- ----------------------
Issued as reinvestment of distributions 8 76
--------------------------------------- ----------------------
Cost of shares redeemed 0 0
--------------------------------------- ----------------------
Net increase resulting from
Portfolio share transactions 509 $5,091
--------------------------------------- ----------------------
</TABLE>
The following schedule shows the number of shareholders each owning 5%
or more of a Portfolio and the total percentage of the Portfolio held
by such shareholders:
<TABLE>
<CAPTION>
Number % of Portfolio Held
-----------------------------
<S> <C>
3 100%
</TABLE>
12
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $172 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality service to mutual fund and institutional clients worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders of the
PIMCO Variable Insurance Trust. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective prospectus
for the PIMCO Variable Insurance Trust, which contains information covering its
investment policies as well as other pertinent information.
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
<PAGE>
PIMCO
PIMCO Variable Insurance Trust
Low Duration Bond Portfolio
------------------
Semi-Annual Report
June 30, 1999
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO
Variable Insurance Trust Low Duration Bond Portfolio.
Treasury prices fell steadily and yields rose across the maturity spectrum
as fears of inflation dominated the fixed income marketplace during the
first half of the year. Strong economic growth in the U.S. throughout the
period and signs of recovery elsewhere in the world during the second
quarter sparked concern that the Federal Reserve would boost interest rates
to keep inflation subdued. The yield on the 30-year Treasury bond ended the
period at 5.97%, up 0.88% and yields on 10-year Treasuries climbed a more
dramatic 1.14% finishing the period at 5.79%. Despite difficulties in the
bond market, the U.S. stock market continued its ascent and started to
broaden late in the period as smaller-capitalization issues and lower
valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the
six-month period and indicated that the move had been driven mainly by a
return to normalcy in U.S. and international financial markets after the
global crisis of the past year. The increase came as no surprise to the
financial markets since Fed officials had adopted a bias, their view on the
likely next move in rates, towards tightening at their May policymaking
open market committee meeting. However, the raise in rates was accompanied
by the Fed announcement that they were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about
inflation. After a surprise jump in the April consumer price index, led by
higher energy prices, the CPI was unchanged in May. A reduction in new home
sales due to higher borrowing costs suggested the economy might be slowing,
reducing inflationary pressure. Economic expansion kept labor markets
tight, with unemployment at a 29-year low, but growth in wage costs slowed.
Workers were generally willing to accept smaller wage pay increases with
inflation subdued and real incomes rising. With goods inflation relatively
benign, Fed tightening was aimed more at potential asset bubbles in housing
and stock markets, where price gains have lifted consumer confidence to
record highs and stimulated increases in consumption that fueled economic
growth.
On the following pages you will find a more complete review of the stock
and bond markets and specific details about the composition and total
return investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to
focus our efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
1999 Semi-Annual Report 1
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock investors. The
third quarter of 1998 saw the market correct as a result of concerns over
an economic down-turn in Asia that appeared to be spreading. In the fourth
quarter, the market rose as these fears began to abate, and the first
quarter of 1999 continued the upward trend as the market hit record highs.
However, many industry analysts expressed concern over the narrowness of
the market, in which the largest of the large-cap growth stocks were
responsible for much of this performance. Their concerns proved to be
short-lived: in the second quarter of 1999, the market finally broadened,
as smaller-capitalization issues as well as lower valuation issues showed
strength.
The technology sector, particularly the Internet, was an important driver
of performance in the last quarter of 1998 as well as the first quarter of
1999. However, these issues hit a speed bump early in the second quarter of
1999 as interest rates began to rise.
Higher valuation growth stocks also had the same inverse relationship with
interest rates. They turned in a strong performance in the last quarter of
1998 and the first quarter of 1999, benefiting from the Federal Reserve's
interest rate cuts. Like technology stocks, they suffered in the second
quarter as a result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster performance in
the last quarter of 1998 and the first quarter of 1999. However, in the
second quarter of this year, they benefited not only from a rise in
interest rates but legitimate evidence of a global economic recovery, which
resulted in increased demand for basic materials.
The broadening of the market was welcomed by most analysts. It was largely
viewed as a healthy event, after a long period of domination by one segment
of the market. Looking ahead, we are cautiously optimistic that this
broadening will enable the market to continue its rise, and that more
stocks will participate in this ascent.
Bond Market
Bond Yields Move Higher
Inflation fears have dominated the fixed income marketplace in 1999. OPEC's
cuts in oil production sent gasoline prices climbing, which negatively
affected inflation reports for the month of April. The economy, fueled by
stock market gains, grew faster than expected, adding to speculation that
higher inflation was just around the corner. In addition, foreign
economies, particularly in Asia, began to recover, as synchronized global
central-bank easings appeared to be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in May and then
raised the fed funds rate by a quarter-point to 5.0% at the end of June.
The move capped a difficult period for the bond market as Treasury prices
fell steadily, with long-term yields rising over one percentage point,
breaking above 6% for the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads.
Deflationary forces, including the glut of global capacity and strong
productivity gains, remain at work. However, reflationary forces, including
central bank easings and a tight U.S. labor market, are also in play. The
Fed appears to share this view, moving back to a neutral stance after its
recent tightening, explaining that productivity gains continued to offset
the wage inflation pressures created by a tight labor market.
We believe that these forces may well offset one another, creating an
environment where interest rates remain in a relatively narrow range of
between 5% and 6 1/2%. The opposing forces will likely keep inflation
subdued, between 2% and 3%. In periods where deflationary forces dominate,
interest rates could fall toward the lower end of the range and vice versa.
In this environment of lower interest rate volatility, securities that
provide incremental yield will become more attractive to bond investors.
2
<PAGE>
Low Duration Bond Portfolio
PORTFOLIO CHARACTERISTICS
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management
Portfolio:
Primarily shorter-term investment grade bonds
Duration:
2.20 years
Total Net Assets:
$5 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Mortgage-Backed Securities 43.0%
Corporate Bonds and Notes 38.7%
Short-Term Investments 18.2%
Other 0.1%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 58.7%
AA 2.7%
A 4.9%
BBB 24.8%
BB 8.9%
*% of Total Investments as of June 30, 1999
PERFORMANCE
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended June 30, 1999
Low Duration
Bond Portfolio Merrill Lynch
(Incep. 2/16/1999) 1-3 Year Treasury Index
- --------------------------------------------------------------------------------
Since Inception 1.28% --
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$5,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
Low Duration Merrill Lynch
MONTH Bond Portfolio 1-3 Year Treasury
Index
2/28/99 5,000,000 5,000,000
3/31/99 5,041,130 5,034,750
4/30/99 5,075,577 5,050,962
5/31/99 5,057,777 5,047,729
6/30/99 5,081,802 5,063,478
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $5,000,000 on 3/01/1999, the first full month following the
Portfolio inception on 2/16/1999, compared to the Merrill Lynch 1-3 Year
Treasury Bond Index, an unmanaged market index. The Portfolio may invest in
foreign securities which involve potentially higher risks including foreign
currency fluctuations and political or economic uncertainty.
PORTFOLIO INSIGHTS
. The Low Duration Bond Portfolio outperformed its benchmark, despite a
difficult bond market environment, returning 0.81% versus the Merrill Lynch
1-3 Year Treasury Index 0.57% for the three-month period ended June 30,
1999.
. An above-index duration, or sensitivity to interest rate changes,
negatively impacted returns as interest rates rose during the period.
. A concentration in longer maturities detracted from returns as these rates
rose the most.
. Holdings of mortgage-backed securities were positive because of the
Portfolio's focus on higher-coupon mortgages that delivered the best
returns in the sector.
. Investment-grade corporates helped returns due to the Portfolio's
concentration in BBB credits.
. High quality, below-investment-grade holdings helped performance as higher
relative yields offset widening yield premiums.
1999 Semi-Annual Report 3
<PAGE>
Financial Highlights
Low Duration Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<S> <C>
Selected Per Share Data for the Year or Period Ended: 6/30/1999 (a)
-----------------
Net asset value beginning of period $ 10.00
- ----------------------------------------------------- -----------------
Net investment income (b) 0.20
- ----------------------------------------------------- -----------------
Net realized and unrealized (loss) (b) (0.07)
- ----------------------------------------------------- -----------------
Total income (loss) from investment operations 0.13
- ----------------------------------------------------- -----------------
Dividends from net investment income (0.20)
- ----------------------------------------------------- -----------------
Total distributions (0.20)
- ----------------------------------------------------- -----------------
Net asset value end of period $ 9.93
- ----------------------------------------------------- -----------------
Total return 1.28%
- ----------------------------------------------------- -----------------
Net assets end of period (000's) $ 5,085
- ----------------------------------------------------- -----------------
Ratio of expenses to average net assets 0.65%*
- ----------------------------------------------------- -----------------
Ratio of net investment income to average net assets 1.99%*
- ----------------------------------------------------- -----------------
Portfolio turnover rate 0%
- ----------------------------------------------------- -----------------
</TABLE>
*Annualized
(a) Commenced operations on February 16, 1999.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
Low Duration Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share amounts
Assets:
-----------------
<S> <C>
Investments, at value $ 5,031
- ---------------------------------------------------- -----------------
Cash and foreign currency 1
- ---------------------------------------------------- -----------------
Interest and dividends receivable 56
- ---------------------------------------------------- -----------------
5,088
==================================================== =================
Liabilities:
Accrued investment advisory fee $ 2
- ---------------------------------------------------- -----------------
Accrued administration fee 1
- ---------------------------------------------------- -----------------
3
==================================================== =================
Net Assets $ 5,085
==================================================== =================
Net Assets Consist of:
Paid in capital $ 5,120
- ---------------------------------------------------- -----------------
Overdistributed net investment income (1)
- ---------------------------------------------------- -----------------
Accumulated undistributed net realized gain 6
- ---------------------------------------------------- -----------------
Net unrealized (depreciation) (40)
- ---------------------------------------------------- -----------------
$ 5,085
==================================================== =================
Shares Issued and Outstanding 512
- ---------------------------------------------------- -----------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.93
- ---------------------------------------------------- -----------------
Cost of Investments Owned $ 5,071
==================================================== =================
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
Low Duration Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
-----------------
Amounts in thousands Period from
February 16, 1999
to June 30, 1999
<S> <C>
Investment Income:
Interest $ 111
- ------------------------------------------------------------- -----------------
Total Income 111
============================================================= =================
Expenses:
Investment advisory fees 7
- ------------------------------------------------------------- -----------------
Administration fees 5
- ------------------------------------------------------------- -----------------
Total Expenses 12
============================================================= =================
Net Investment Income 99
============================================================= =================
Net Realized and Unrealized Gain (Loss):
- ------------------------------------------------------------- -----------------
Net realized gain on investments 6
- ------------------------------------------------------------- -----------------
Net change in unrealized (depreciation) on investments (40)
- ------------------------------------------------------------- -----------------
Net (Loss) (34)
- ------------------------------------------------------------- -----------------
Net Increase in Assets Resulting from Operations $ 65
============================================================= =================
</TABLE>
Statement of Changes in Net Assets
Low Duration Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
-----------------
Amounts in thousands Period from
February 16, 1999
Increase (Decrease) in Net Assets from: to June 30, 1999
<S> <C>
Operations:
Net investment income $ 99
- ------------------------------------------------------------- -----------------
Net realized gain 6
- ------------------------------------------------------------- -----------------
Net change in unrealized (depreciation) (40)
- ------------------------------------------------------------- -----------------
Net increase resulting from operations 65
============================================================= =================
Distributions to Shareholders:
From net investment income (100)
- ------------------------------------------------------------- -----------------
Total Distributions (100)
============================================================= =================
Portfolio Share Transactions:
Receipts for shares sold 5,020
- ------------------------------------------------------------- -----------------
Issued as reinvestment of distributions 100
- ------------------------------------------------------------- -----------------
Net increase resulting from Portfolio share transactions 5,120
- ------------------------------------------------------------- -----------------
Total Increase in Net Assets 5,085
============================================================= =================
Net Assets:
Beginning of period 0
- ------------------------------------------------------------- -----------------
End of period * $ 5,085
- ------------------------------------------------------------- -----------------
*Including net overdistributed investment income of: $ (1)
- ------------------------------------------------------------- -----------------
</TABLE>
1999 Semi-Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments
Low Duration Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
CORPORATE BONDS & NOTES 38.3%
<S> <C> <C>
Banking & Finance 4.9%
Case Credit Corp.
5.183% due 08/01/2001 (b) $ 250 $ 249
Industrials 23.5%
Chesapeake Corp.
10.375% due 10/01/2000 250 262
Columbia/HCA Healthcare
6.125% due 12/15/2000 200 194
Eastman Chemical Co.
6.375% due 01/15/2004 250 246
Time Warner, Inc.
6.100% due 12/30/2001 250 248
Witco Corp.
6.600% due 04/01/2003 250 247
--------
1,197
Utilities 9.9%
CMS Energy
8.125% due 05/15/2002 250 255
Texas Utilities Co.
5.940% due 10/15/2001 250 248
--------
503
--------
Total Corporate Bonds & Notes 1,949
--------
(Cost $1,963)
MORTGAGE-BACKED SECURITIES 42.6%
Collateralized Mortgage Obligations 12.2%
Federal National Mortgage Association
7.100% due 12/25/2023 249 249
6.500% due 01/25/2029 60 52
GE Capital Mortgage Services, Inc.
6.500% due 03/25/2024 344 318
--------
619
Federal Housing Administration 30.4%
7.375% due 02/01/2022 873 890
7.430% due 10/01/2020 640 655
--------
1,545
--------
Total Mortgage-Backed Securities 2,164
--------
(Cost $2,190)
SHORT-TERM INSTRUMENTS 18.0%
Commercial Paper 15.7%
Ameritech Corp.
4.920% due 07/07/1999 200 200
Federal Home Loan Mortgage Corp.
4.940% due 07/14/1999 100 100
4.830% due 07/16/1999 300 299
4.780% due 07/16/1999 100 100
4.860% due 07/22/1999 100 100
--------
799
Repurchase Agreement 2.3%
State Street Bank
4.000% due 07/01/1999 119 119
(Dated 06/30/1999. Collateralized by
U.S. Treasury Bond 8.750% 08/15/2020
valued at $123,973. Repurchase
proceeds are $119,013.)
--------
Total Short-Term Instruments 918
--------
(Cost $918)
Total Investments (a) 98.9% $ 5,031
(Cost $5,071)
Other Assets and Liabilities (Net) 1.1% 54
--------
Net Assets 100.0% $ 5,085
--------
</TABLE>
<TABLE>
<S> <C>
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $5,071 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 5
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (45)
--------
Unrealized depreciation-net $ (40)
========
</TABLE>
(b) Variable rate security. The rate listed is as of June 30, 1999.
6 See accompanying notes
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
1. Organization
The Low Duration Bond Portfolio (the "Portfolio") is a series of the PIMCO
Variable Insurance Trust (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end investment
company organized as a Delaware business trust on October 3, 1997. The
Trust is designed to be used as an investment vehicle by Separate Accounts
of insurance companies that fund variable annuity contracts and variable
life insurance policies and by qualified pension and retirement plans. The
Portfolio commenced operations on February 16, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
Security Valuation. Portfolio securities and other financial instruments
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, the mean between representative bid and asked
quotations obtained from a quotation reporting system or from established
market makers. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, which approximates market value. Certain
fixed income securities for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities whose prices are more
readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-
issued or delayed delivery basis may be settled a month or more after the
trade date. Realized gains and losses from securities sold are recorded on
the identified cost basis. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the ex-
dividend date may have passed, are recorded as soon as the Fund is informed
of the ex-dividend date. Interest income, adjusted for the accretion of
discounts and amortization of premiums, is recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets and
liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period. Fluctuations in the value of these
assets and liabilities resulting from changes in exchange rates are
recorded as unrealized foreign currency gains (losses). Realized gains
(losses) and unrealized appreciation (depreciation) on investment
securities and income and expenses are translated on the respective dates
of such transactions. The effect of changes in foreign currency exchange
rates on investments in securities are not segregated in the Statement of
Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or
loss on investment securities.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, are declared on each day the Portfolio is open for business
and are distributed to shareholders monthly. All dividends are reinvested
in additional shares of the Portfolio. Net realized capital gains earned by
the Portfolio, if any, will be distributed no less frequently than once
each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified to
paid in capital. In addition, other amounts have been reclassified between
undistributed net investment income, accumulated undistributed net realized
gains or losses and paid in capital to more appropriately conform financial
accounting to tax characterizations of dividend distributions.
1999 Semi-Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
June 30, 1999 (Unaudited)
Federal Income Taxes. The Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net
realized gains, if applicable, to shareholders. Accordingly, no provision
for Federal income taxes has been made.
Financing Transactions. The Portfolio may enter into financing transactions
consisting of the sale by the Portfolio of securities, together with a
commitment to repurchase similar securities at a future date. The
difference between the selling price and the future purchase price is an
adjustment to interest income. If the counter-party to whom the Portfolio
sells the security becomes insolvent, the Portfolio's right to repurchase
the security may be restricted; the value of the security may change over
the term of the financing transaction; and the return earned by the
Portfolio with the proceeds of a financing transaction may not exceed
transaction costs.
Futures and Options. The Portfolio is authorized to enter into futures
contracts and options. The Portfolio may use futures contracts to manage
its exposure to the markets or to movements in interest rates and currency
values. The primary risks associated with the use of futures contracts and
options are imperfect correlation between the change in market value of the
securities held by a Portfolio and the prices of futures contracts and
options, the possibility of an illiquid market, and the inability of the
counterparty to meet the terms of the contract. Futures contracts and
purchased options are valued based upon their quoted daily settlement
prices. The premium received for a written option is recorded as an asset
with an equal liability which is marked to market based on the option's
quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, the Portfolio takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time. The market value of the collateral must be
equal at all times to the total amount of the repurchase obligations,
including interest. Generally, in the event of counterparty default, the
Portfolio has the right to use the collateral to offset losses incurred.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary
partnership of PIMCO Advisors L.P., serves as investment adviser (the
"Adviser") to the Trust, pursuant to an investment advisory contract. The
Advisory Fee is charged at an annual rate of 0.40%.
Administration Fee. PIMCO serves as administrator (the "Administrator"),
and provides administrative services to the Trust for which it receives a
monthly administrative fee based on average daily net assets. The
Administration Fee is charged at the annual rate of 0.25%.
Expenses. PIMCO pays for most of the expenses of the Portfolio, including
legal, audit, custody, transfer agency and certain other services, and is
responsible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current shareholders
or other appropriate parties. The Portfolio is responsible for bearing
certain expenses associated with its operations that are not provided or
procured by PIMCO. PIMCO has voluntarily undertaken to waive and reimburse
expenses of the Portfolio to the extent necessary, to limit the expenses to
0.65% of average daily net assets.
<PAGE>
Under the Expense Limitation Agreement, PIMCO may recoup these waivers
and reimbursements in future periods, not exceeding three years, provided
total expenses, including any such recoupment, do not exceed the annual
expense limit.
The Trust pays no compensation directly to any Trustee or any other
officer who is affiliated with the Administrator, all of whom receive
renumeration for their services to the Trust from the Administrator or its
affiliates.
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a Committee
Chair receives an additional annual retainer of $500. These expenses are
allocated to the Portfolios of the Trust according to their respective net
assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for
the period ended June 30, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
-------------------------------------------------------
Purchases Sales Purchases Sales
-------------------------------------------------------
$ 1,546 $ 0 $ 2,727 $ 0
5. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial
interest with a $.0001 par value. Changes in shares of beneficial interest
were as follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
Period from 02/16/1999
to 06/30/1999
Shares Amount
---------------------------------------------------------------------------
<S> <C> <C>
Receipts for shares sold 502 $5,020
---------------------------------------------------------------------------
Issued as reinvestment of distributions 10 100
---------------------------------------------------------------------------
Cost of shares redeemed 0 0
---------------------------------------------------------------------------
Net increase resulting from
Portfolio share transactions 512 $5,120
===========================================================================
</TABLE>
The following schedule shows the number of shareholders each owning 5% or
more of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
Number % of Portfolio Held
---------------------------------------
2 100%
1999 Semi-Annual 9
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971,
Pacific Investment Management Company currently manages assets in excess of
$172 billion on behalf of mutual fund and institutional clients located
around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance
and high-quality service to mutual fund and institutional clients
worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange
under the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders of
the PIMCO Variable Insurance Trust. It is not authorized for distribution
to prospective investors unless accompanied or preceded by an effective
prospectus for the PIMCO Variable Insurance Trust, which contains
information covering its investment policies as well as other pertinent
information.
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
<PAGE>
PIMCO
PIMCO Variable Insurance Trust
Long-Term U.S. Government Bond Portfolio
------------------
Semi-Annual Report
June 30, 1999
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO
Variable Insurance Trust Long-Term U.S. Government Bond Portfolio.
Treasury prices fell steadily and yields rose across the maturity spectrum
as fears of inflation dominated the fixed income marketplace during the
first half of the year. Strong economic growth in the U.S. throughout the
period and signs of recovery elsewhere in the world during the second
quarter sparked concern that the Federal Reserve would boost interest rates
to keep inflation subdued. The yield on the 30-year Treasury bond ended the
period at 5.97%, up 0.88% and yields on 10-year Treasuries climbed a more
dramatic 1.14% finishing the period at 5.79%. Despite difficulties in the
bond market, the U.S. stock market continued its ascent and started to
broaden late in the period as smaller-capitalization issues and lower
valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the
six-month period and indicated that the move had been driven mainly by a
return to normalcy in U.S. and international financial markets after the
global crisis of the past year. The increase came as no surprise to the
financial markets since Fed officials had adopted a bias, their view on the
likely next move in rates, towards tightening at their May policymaking
open market committee meeting. However, the raise in rates was accompanied
by the Fed announcement that they were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about
inflation. After a surprise jump in the April consumer price index, led by
higher energy prices, the CPI was unchanged in May. A reduction in new home
sales due to higher borrowing costs suggested the economy might be slowing,
reducing inflationary pressure. Economic expansion kept labor markets
tight, with unemployment at a 29-year low, but growth in wage costs slowed.
Workers were generally willing to accept smaller wage pay increases with
inflation subdued and real incomes rising. With goods inflation relatively
benign, Fed tightening was aimed more at potential asset bubbles in housing
and stock markets, where price gains have lifted consumer confidence to
record highs and stimulated increases in consumption that fueled economic
growth.
On the following pages you will find a more complete review of the stock
and bond markets and specific details about the composition and total
return investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to
focus our efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
1999 Semi-Annual Report
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock investors. The
third quarter of 1998 saw the market correct as a result of concerns over
an economic down-turn in Asia that appeared to be spreading. In the fourth
quarter, the market rose as these fears began to abate, and the first
quarter of 1999 continued the upward trend as the market hit record highs.
However, many industry analysts expressed concern over the narrowness of
the market, in which the largest of the large-cap growth stocks were
responsible for much of this performance. Their concerns proved to be
short-lived: in the second quarter of 1999, the market finally broadened,
as smaller-capitalization issues as well as lower valuation issues showed
strength.
The technology sector, particularly the Internet, was an important driver
of performance in the last quarter of 1998 as well as the first quarter of
1999. However, these issues hit a speed bump early in the second quarter of
1999 as interest rates began to rise.
Higher valuation growth stocks also had the same inverse relationship with
interest rates. They turned in a strong performance in the last quarter of
1998 and the first quarter of 1999, benefiting from the Federal Reserve's
interest rate cuts. Like technology stocks, they suffered in the second
quarter as a result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster performance in
the last quarter of 1998 and the first quarter of 1999. However, in the
second quarter of this year, they benefited not only from a rise in
interest rates but legitimate evidence of a global economic recovery, which
resulted in increased demand for basic materials.
The broadening of the market was welcomed by most analysts. It was largely
viewed as a healthy event, after a long period of domination by one segment
of the market. Looking ahead, we are cautiously optimistic that this
broadening will enable the market to continue its rise, and that more
stocks will participate in this ascent.
Bond Market
Bond Yields Move Higher
Inflation fears have dominated the fixed income marketplace in 1999. OPEC's
cuts in oil production sent gasoline prices climbing, which negatively
affected inflation reports for the month of April. The economy, fueled by
stock market gains, grew faster than expected, adding to speculation that
higher inflation was just around the corner. In addition, foreign
economies, particularly in Asia, began to recover, as synchronized global
central-bank easings appeared to be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in May and then
raised the fed funds rate by a quarter-point to 5.0% at the end of June.
The move capped a difficult period for the bond market as Treasury prices
fell steadily, with long-term yields rising over one percentage point,
breaking above 6% for the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads.
Deflationary forces, including the glut of global capacity and strong
productivity gains, remain at work. However, reflationary forces, including
central bank easings and a tight U.S. labor market, are also in play. The
Fed appears to share this view, moving back to a neutral stance after its
recent tightening, explaining that productivity gains continued to offset
the wage inflation pressures created by a tight labor market.
We believe that these forces may well offset one another, creating an
environment where interest rates remain in a relatively narrow range of
between 5% and 61/2%. The opposing forces will likely keep inflation
subdued, between 2% and 3%. In periods where deflationary forces dominate,
interest rates could fall toward the lower end of the range and vice versa.
In this environment of lower interest rate volatility, securities that
provide incremental yield will become more attractive to bond investors.
2
<PAGE>
Long-Term U.S. Government Bond Portfolio
PORTFOLIO CHARACTERISTICS
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management
Portfolio:
Primarily longer-term U.S. government bonds
Duration:
9.59 years
Total Net Assets:
$7 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Short-Term Instruments 45.9%
U.S. Treasury Obligations 43.2%
U.S. Government Agencies 8.7%
Other 2.2%
</TABLE>
Quality Breakdown:*
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
AAA 98.0%
AA 1.6%
BBB 0.4%
</TABLE>
*% of Total Investments as of June 30, 1999
PERFORMANCE
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended June 30, 1999
<TABLE>
<CAPTION>
Long-Term U.S. Gov't.
Bond Portfolio Lehman Brothers Int.
(Incep. 4/30/1999) & 20+ Year Treasury Index
- --------------------------------------------------------------------------------
<S> <C> <C>
Since Inception -2.34% --
</TABLE>
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$5,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
Long-Term U.S Lehman Borthers
Government Bond Int. & 20+ Year
MONTH Portofolio Treasury Index
4/30/99 5,000,000 5,000,000
5/31/99 4,940,831 4,930,543
6/30/99 4,883,065 4,884,823
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $5,000,000 on 5/01/1999, the first full month following the
Portfolio inception on 4/30/1999, compared to the Lehman Brothers Int. & 20+
Year Treasury Index, an unmanaged market index.
PORTFOLIO INSIGHTS
. The Long-Term U.S. Government Bond Portfolio, a long maturity bond
portfolio, was recently added on April 30, 1999 to the PIMCO Variable
Insurance Trust product line. The investment objective of the Portfolio is
to seek maximum total return, consistent with preservation of capital and
prudent investment management.
. The Portfolio maintains a minimum duration of eight years and an average
duration of approximately ten years.
. The Portfolio is actively managed to seek returns exceeding those of a
combination of the Lehman Brothers 20+ Year Treasury and Intermediate
Treasury Indexes blended to achieve a 10-year duration.
. Investments are made primarily in fixed income obligations backed by the
U.S. Government but can also include corporate debt securities, and
mortgage and other asset-backed securities.
. Please see the prospectus for a more complete listing of possible
investments.
1999 Semi-Annual Report 3
<PAGE>
Financial Highlights
Long-Term U.S. Government Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Selected Per Share Data for the Period Ended: 6/30/1999 (a)
------------------
<S> <C>
Net asset value beginning of period $ 10.00
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (b) 0.08
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized (loss) (b) (0.31)
- -------------------------------------------------------------------------------------------------------------------------------
Total (loss) from investment operations (0.23)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.09)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.09)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value end of period $ 9.68
- -------------------------------------------------------------------------------------------------------------------------------
Total return (2.34)%
- -------------------------------------------------------------------------------------------------------------------------------
Net assets end of period (000's) $ 6,545
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 0.65%*
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.28%*
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 43%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) Commenced operations on April 30,1999.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
Long-Term U.S. Government Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share amounts
<S> <C>
------------------
Assets:
- -------------------------------------------------------------------------------------------------------------------------------
Investments, at value $10,790
- -------------------------------------------------------------------------------------------------------------------------------
Receivable for Portfolio shares sold 3
- -------------------------------------------------------------------------------------------------------------------------------
Interest and dividends receivable 101
- -------------------------------------------------------------------------------------------------------------------------------
10,894
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Payable for financing transactions $ 4,190
- -------------------------------------------------------------------------------------------------------------------------------
Payable for Fund shares redeemed 153
- -------------------------------------------------------------------------------------------------------------------------------
Accrued investment advisory fee 2
- -------------------------------------------------------------------------------------------------------------------------------
Accrued administration fee 1
- -------------------------------------------------------------------------------------------------------------------------------
Other liabilities 3
- -------------------------------------------------------------------------------------------------------------------------------
4,349
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets $ 6,545
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets Consist of:
Paid in capital $ 6,701
- -------------------------------------------------------------------------------------------------------------------------------
Overdistributed net investment income (1)
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated undistributed net realized (loss) (39)
- -------------------------------------------------------------------------------------------------------------------------------
Net unrealized (depreciation) (116)
- -------------------------------------------------------------------------------------------------------------------------------
$ 6,545
- -------------------------------------------------------------------------------------------------------------------------------
Shares Issued and Outstanding 676
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.68
- -------------------------------------------------------------------------------------------------------------------------------
Cost of Investments Owned $10,906
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
Long-Term U.S. Government Bond Portfolio
June 30, 1999 (Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
<S> <C>
------------------
Investment Income:
- -------------------------------------------------------------------------------------------------------------------------------
Interest $ 54
- -------------------------------------------------------------------------------------------------------------------------------
Total Income 54
- -------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory fees 3
- -------------------------------------------------------------------------------------------------------------------------------
Administration fees 2
- -------------------------------------------------------------------------------------------------------------------------------
Total Expenses 5
- -------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 49
- -------------------------------------------------------------------------------------------------------------------------------
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (39)
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) on investments (116)
- -------------------------------------------------------------------------------------------------------------------------------
Net (Loss) (155)
- -------------------------------------------------------------------------------------------------------------------------------
Net (Decrease) in Assets Resulting from Operations $ (106)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Statement of Changes in Net Assets
Long-Term U.S. Government Bond Portfolio
June 30, 1999 (Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
----------------------------
Increase (Decrease) in Net Assets from: Period from April 30, 1999
to June 30, 1999
<S> <C>
Operations:
Net investment income $ 49
- -------------------------------------------------------------------------------------------------------------------------------
Net realized (loss) (39)
- -------------------------------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) (116)
- -------------------------------------------------------------------------------------------------------------------------------
Net (decrease) resulting from operations (106)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
From net investment income (50)
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions (50)
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio Share Transactions:
Receipts for shares sold 7,899
- -------------------------------------------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 49
- -------------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,247)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase resulting from Portfolio share transactions 6,701
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 6,545
- -------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of period 0
- -------------------------------------------------------------------------------------------------------------------------------
End of period * $ 6,545
- -------------------------------------------------------------------------------------------------------------------------------
*Including net undistributed (overdistributed) investment income of: $ (1)
- -------------------------------------------------------------------------------------------------------------------------------
1999 Semi-Annual Report See accompanying notes 5
</TABLE>
<PAGE>
Schedule of Investments
Long-Term U.S. Government Bond Portfolio
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
U.S. GOVERNMENT AGENCIES 14.3%
<S> <C> <C>
Financing Corp.
10.700% due 10/06/2017 $ 650 $ 935
-------
Total U.S. Government Agencies 935
-------
(Cost $959)
</TABLE>
U.S. TREASURY OBLIGATIONS 71.2%
<TABLE>
<S> <C> <C>
U.S. Treasury Bond
7.500% due 11/15/2016 (b) 2,000 2,249
7.250% due 08/15/2022 (b) 1,700 1,900
U.S. Treasury Strips
0.000% due 08/15/2019 1,800 509
-----
Total U.S. Treasury Obligations 4,658
=====
</TABLE>
(Cost $4,748)
ASSET-BACKED SECURITIES 3.7%
<TABLE>
<S> <C> <C>
SMS Student Loan Trust
5.110% due 10/27/2025 (c) 250 244
----
Total Asset-Backed Securities 244
====
</TABLE>
(Cost $245)
SHORT-TERM INSTRUMENTS 75.7%
<TABLE>
<S> <C> <C>
Commercial Paper 73.1%
BellSouth Telecommunications, Inc.
4.940% due 07/12/1999 200 199
Federal Home Loan Mortgage Corp.
4.940% due 07/14/1999 200 200
4.880% due 07/14/1999 100 100
4.830% due 07/16/1999 100 100
4.910% due 07/22/1999 2,000 1,994
5.030% due 07/23/1999 1,000 997
Federal National Mortgage Assn.
5.060% due 08/11/1999 1,151 1,144
MCI Worldcom, Inc.
5.360% due 01/27/2000 50 48
--------
4,782
========
Repurchase Agreement 2.6%
State Street Bank
4.000% due 07/01/1999 171 171
(Dated 06/30/1999. Collateralized by
U.S. Treasury Note 4.875% 03/31/2001
valued at $174,797. Repurchase
proceeds are $171,019.)
--------
Total Short-Term Instruments 4,953
========
(Cost $4,954)
Total Investments (a) 164.9% $ 10,790
(Cost $10,906)
Other Assets and Liabilities (Net) (64.9%) (4,245)
--------
Net Assets 100.0% $ 6,545
========
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $10,906 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 19
--------
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (135)
--------
Unrealized depreciation-net $ (116)
========
</TABLE>
(b) Subject to a financing transaction.
(c) Variable rate security. The rate listed is as of June 30, 1999.
6 See accompanying notes
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
1. Organization
The Long-Term U.S. Government Portfolio (the "Portfolio") is a series of
the PIMCO Variable Insurance Trust (the "Trust"). The Trust is registered
under the Investment Company Act of 1940, as amended, as an open-end
investment company organized as a Delaware business trust on October 3,
1997. The Trust is designed to be used as an investment vehicle by Separate
Accounts of insurance companies that fund variable annuity contracts and
variable life insurance policies and by qualified pension and retirement
plans. The Portfolio commenced operations on April 30, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
Security Valuation. Portfolio securities and other financial instruments
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, the mean between representative bid and asked
quotations obtained from a quotation reporting system or from established
market makers. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, which approximates market value. Certain
fixed income securities for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities whose prices are more
readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-
issued or delayed delivery basis may be settled a month or more after the
trade date. Realized gains and losses from securities sold are recorded on
the identified cost basis. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the ex-
dividend date may have passed, are recorded as soon as the Fund is informed
of the ex-dividend date. Interest income, adjusted for the accretion of
discounts and amortization of premiums, is recorded on the accrual basis.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, are declared on each day the Portfolio is open for business
and are distributed to shareholders monthly. All dividends are reinvested
in additional shares of the Portfolio. Net realized capital gains earned by
the Portfolio, if any, will be distributed no less frequently than once
each year.
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified to
paid in capital. In addition, other amounts have been reclassified between
undistributed net investment income, accumulated undistributed net realized
gains or losses and paid in capital to more appropriately conform financial
accounting to tax characterizations of dividend distributions.
1999 Semi-Annual Report 7
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
Federal Income Taxes. The Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net
realized gains, if applicable, to shareholders. Accordingly, no provision
for Federal income taxes has been made.
Financing Transactions. The Portfolio may enter into financing transactions
consisting of the sale by the Portfolio of securities, together with a
commitment to repurchase similar securities at a future date. The
difference between the selling price and the future purchase price is an
adjustment to interest income. If the counter-party to whom the Portfolio
sells the security becomes insolvent, the Portfolio's right to repurchase
the security may be restricted; the value of the security may change over
the term of the financing transaction; and the return earned by the
Portfolio with the proceeds of a financing transaction may not exceed
transaction costs.
Futures and Options. The Portfolio is authorized to enter into futures
contracts and options. The Portfolio may use futures contracts to manage
its exposure to the markets or to movements in interest rates and currency
values. The primary risks associated with the use of futures contracts and
options are imperfect correlation between the change in market value of the
securities held by a Portfolio and the prices of futures contracts and
options, the possibility of an illiquid market, and the inability of the
counterparty to meet the terms of the contract. Futures contracts and
purchased options are valued based upon their quoted daily settlement
prices. The premium received for a written option is recorded as an asset
with an equal liability which is marked to market based on the option's
quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, the Portfolio takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time. The market value of the collateral must be
equal at all times to the total amount of the repurchase obligations,
including interest. Generally, in the event of counterparty default, the
Portfolio has the right to use the collateral to offset losses incurred.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary
partnership of PIMCO Advisors L.P., serves as investment adviser (the
"Adviser") to the Trust, pursuant to an investment advisory contract. The
Advisory Fee is charged at an annual rate of 0.40%.
Administration Fee. PIMCO serves as administrator (the "Administrator"),
and provides administrative services to the Trust for which it receives a
monthly administrative fee based on average daily net assets. The
Administration Fee is charged at the annual rate of 0.25%.
Expenses. PIMCO pays for most of the expenses of the Portfolios, including
legal, audit, custody, transfer agency and certain other services, and is
responsible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current shareholders
or other appropriate parties. The Portfolio is responsible for bearing
certain expenses associated with their operations that are not provided or
procured by PIMCO. PIMCO has voluntarily undertaken to waive and reimburse
expenses of the Portfolio to the extent necessary, to limit the expenses to
0.65% of average daily net assets.
8
<PAGE>
Under the Expense Limitation Agreement, PIMCO may recoup these waivers and
reimbursements in future periods, not exceeding three years, provided total
expenses, including any such recoupment, do not exceed the annual expense limit.
The Trust pays no compensation directly to any Trustee or any other officer
who is affiliated with the Administrator, all of whom receive renumeration for
their services to the Trust from the Administrator or its affiliates.
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a Committee Chair receives an
additional annual retainer of $500. These expenses are allocated to the
Portfolios of the Trust according to their respective net assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended June 30, 1999 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
- ----------------------------------------------------------------------------
Purchases Sales Purchases Sales
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
$ 6,650 $ 1,660 $ 1,552 $ 592
</TABLE>
5. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial interest
with a $.0001 par value. Changes in shares of beneficial interest were as
follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
----------------------
Period from 04/30/1999
to 06/30/1999
Shares Amount
<S> <C> <C>
- ------------------------------------------ ----------------------
Receipts for shares sold 801 $ 7,899
- ------------------------------------------ ----------------------
Issued as reinvestment of distributions 5 49
- ------------------------------------------ ----------------------
Cost of shares redeemed (130) (1,247)
- ------------------------------------------ ----------------------
Net increase resulting from
Portfolio share transactions 676 $ 6,701
========================================== ======================
</TABLE>
The following schedule shows the number of shareholders each owning 5% or more
of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
5% or Greater Shareholders
- --------------------------------
Number % of Portfolio Held
- --------------------------------
4 100%
1999 Semi-Annual Report 9
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $172 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality service to mutual fund and institutional clients worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders of the
PIMCO Variable Insurance Trust. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective prospectus
for the PIMCO Variable Insurance Trust, which contains information covering its
investment policies as well as other pertinent information.
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
<PAGE>
P I M C O
PIMCO Variable Insurance Trust
Total Return Bond Portfolio II
------------------
Semi-Annual Report
June 30, 1999
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
We are pleased to present you with this semi-annual report for PIMCO
Variable Insurance Trust Total Return Bond Portfolio II.
Treasury prices fell steadily and yields rose across the maturity spectrum
as fears of inflation dominated the fixed income marketplace during the
first half of the year. Strong economic growth in the U.S. throughout the
period and signs of recovery elsewhere in the world during the second
quarter sparked concern that the Federal Reserve would boost interest rates
to keep inflation subdued. The yield on the 30-year Treasury bond ended the
period at 5.97%, up 0.88% and yields on 10-year Treasuries climbed a more
dramatic 1.14% finishing the period at 5.79%. Despite difficulties in the
bond market, the U.S. stock market continued its ascent and started to
broaden late in the period as smaller-capitalization issues and lower
valuation issues showed strength.
The Fed raised the federal funds rate by 0.25% to 5.00% at the end of the
six-month period and indicated that the move had been driven mainly by a
return to normalcy in U.S. and international financial markets after the
global crisis of the past year. The increase came as no surprise to the
financial markets since Fed officials had adopted a bias, their view on the
likely next move in rates, towards tightening at their May policymaking
open market committee meeting. However, the raise in rates was accompanied
by the Fed announcement that they were shifting their bias back to neutral.
Removal of the Fed's tightening bias came amid encouraging news about
inflation. After a surprise jump in the April consumer price index, led by
higher energy prices, the CPI was unchanged in May. A reduction in new home
sales due to higher borrowing costs suggested the economy might be slowing,
reducing inflationary pressure. Economic expansion kept labor markets
tight, with unemployment at a 29-year low, but growth in wage costs slowed.
Workers were generally willing to accept smaller wage pay increases with
inflation subdued and real incomes rising. With goods inflation relatively
benign, Fed tightening was aimed more at potential asset bubbles in housing
and stock markets, where price gains have lifted consumer confidence to
record highs and stimulated increases in consumption that fueled economic
growth.
On the following pages you will find a more complete review of the stock
and bond markets and specific details about the composition and total
return investment performance of the Portfolio.
We appreciate the trust you have placed in us, and we will continue to
focus our efforts to meet your investment needs.
Sincerely,
/s/ Brent R. Harris
Brent R. Harris
Chairman
July 30, 1999
1999 Semi-Annual Report 1
<PAGE>
Market Review
Stock Market
A Broadened Stock Market Continues Its Ascent
This fiscal year certainly was an eventful one for stock investors. The
third quarter of 1998 saw the market correct as a result of concerns over
an economic down-turn in Asia that appeared to be spreading. In the fourth
quarter, the market rose as these fears began to abate, and the first
quarter of 1999 continued the upward trend as the market hit record highs.
However, many industry analysts expressed concern over the narrowness of
the market, in which the largest of the large-cap growth stocks were
responsible for much of this performance. Their concerns proved to be
short-lived: in the second quarter of 1999, the market finally broadened,
as smaller-capitalization issues as well as lower valuation issues showed
strength.
The technology sector, particularly the Internet, was an important driver
of performance in the last quarter of 1998 as well as the first quarter of
1999. However, these issues hit a speed bump early in the second quarter of
1999 as interest rates began to rise.
Higher valuation growth stocks also had the same inverse relationship with
interest rates. They turned in a strong performance in the last quarter of
1998 and the first quarter of 1999, benefiting from the Federal Reserve's
interest rate cuts. Like technology stocks, they suffered in the second
quarter as a result of rising interest rates.
In contrast, cyclical and industrial issues saw lackluster performance in
the last quarter of 1998 and the first quarter of 1999. However, in the
second quarter of this year, they benefited not only from a rise in
interest rates but legitimate evidence of a global economic recovery, which
resulted in increased demand for basic materials.
The broadening of the market was welcomed by most analysts. It was largely
viewed as a healthy event, after a long period of domination by one segment
of the market. Looking ahead, we are cautiously optimistic that this
broadening will enable the market to continue its rise, and that more
stocks will participate in this ascent.
Bond Market
Bond Yields Move Higher
Inflation fears have dominated the fixed income marketplace in 1999. OPEC's
cuts in oil production sent gasoline prices climbing, which negatively
affected inflation reports for the month of April. The economy, fueled by
stock market gains, grew faster than expected, adding to speculation that
higher inflation was just around the corner. In addition, foreign
economies, particularly in Asia, began to recover, as synchronized global
central-bank easings appeared to be having a positive impact.
As a result, the Federal Reserve moved to a tightening bias in May and then
raised the fed funds rate by a quarter-point to 5.0% at the end of June.
The move capped a difficult period for the bond market as Treasury prices
fell steadily, with long-term yields rising over one percentage point,
breaking above 6% for the first time since early 1998.
Looking ahead, it appears the economy has come to a crossroads.
Deflationary forces, including the glut of global capacity and strong
productivity gains, remain at work. However, reflationary forces, including
central bank easings and a tight U.S. labor market, are also in play. The
Fed appears to share this view, moving back to a neutral stance after its
recent tightening, explaining that productivity gains continued to offset
the wage inflation pressures created by a tight labor market.
We believe that these forces may well offset one another, creating an
environment where interest rates remain in a relatively narrow range of
between 5% and 6 1/2%. The opposing forces will likely keep inflation
subdued, between 2% and 3%. In periods where deflationary forces dominate,
interest rates could fall toward the lower end of the range and vice versa.
In this environment of lower interest rate volatility, securities that
provide incremental yield will become more attractive to bond investors.
2
<PAGE>
Total Return Bond Portfolio II
Portfolio Characteristics
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management
Portfolio:
Primarily intermediate-term investment grade bonds with quality and foreign
issuer restrictions
Duration:
4.71 years
Total Net Assets:
$5 million
Sector Breakdown:*
[PIE CHART APPEARS HERE]
Mortgage-Backed Securities 35.1%
U.S. Treasury Obligations 35.0%
Short-Term Instruments 22.6%
Corporate Bonds and Notes 7.3%
Quality Breakdown:*
[PIE CHART APPEARS HERE]
AAA 85.3%
AA 11.1%
BBB 3.6%
*% of Total Investments as of June 30, 1999
Performance
Total Return Investment Performance For the Period Ended June 30, 1999
Total Return
Bond Portfolio II Lehman Brothers
(Incep. 05/28/1999) Aggregate Bond Index
- ------------------------------------------------------------------------------
Since Inception 0.71% --
CUMULATIVE RETURNS THROUGH JUNE 30, 1999
$5,000,000 invested at inception
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Total Return II Lehman Brothers
MONTH Bond Portfolio Aggregate Bond
Index
<S> <C> <C>
5/31/99 5,000,000 5,000,000
6/30/99 5,035,686 4,984,070
</TABLE>
Past performance is not an indication of future results. Investment return and
principal value will fluctuate so that portfolio shares, when redeemed, may be
worth more or less than their original cost. The line graph above assumes the
investment of $5,000,000 on 6/01/1999, the first full month following the
Portfolio inception on 5/28/1999, compared to the Lehman Brothers Aggregate Bond
Index, an unmanaged market index.
Portfolio insights
. The Total Return Bond Portfolio II is a broad market bond fund and was
launched on May 28, 1999. The Portfolio's investment objective is to seek
maximum total return, consistent with preservation of capital and prudent
investment management.
. The Portfolio's investments in fixed income instruments are limited to those
of U.S. dollar-denominated securities of domestic (U.S.) issuers.
. Holdings are concentrated in areas of the bond market that appear to be
undervalued based on quality, sector, coupon or maturity.
. The Portfolio normally invests primarily in investment grade bonds,
debentures, and other fixed income securities, including U.S. Government
securities, corporate bonds, mortgage-related securities, and money market
instruments. All corporate securities are rated investment grade or higher at
the time of purchase.
. The average duration of the Portfolio is between three and six years and
normally within one and a half years of the average duration of the bond
market as a whole as measured by the Lehman Brothers Aggregate Bond Index.
. Please see the prospectus for a more complete listing of possible
investments.
1999 Semi-Annual Report 3
<PAGE>
Financial Highlights
Total Return Bond Portfolio II
<TABLE>
<S> <C>
Selected Per Share Data for the Period Ended: 6/30/1999 (a)
Net asset value beginning of period $ 10.00
- -------------------------------------------------------------------------------------------------- --------------
Net investment income (b) 0.04
- -------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain (b) 0.03
- -------------------------------------------------------------------------------------------------- --------------
Total income from investment operations 0.07
- -------------------------------------------------------------------------------------------------- --------------
Dividends from net investment income (0.04)
- -------------------------------------------------------------------------------------------------- --------------
Total distributions (0.04)
- -------------------------------------------------------------------------------------------------- --------------
Net asset value end of period $ 10.03
- -------------------------------------------------------------------------------------------------- --------------
Total return 0.71%
- -------------------------------------------------------------------------------------------------- --------------
Net assets end of period (000's) $ 5,094
- -------------------------------------------------------------------------------------------------- --------------
Ratio of expenses to average net assets 0.65%*
- -------------------------------------------------------------------------------------------------- --------------
Ratio of net investment income to average net assets 5.02%*
- -------------------------------------------------------------------------------------------------- --------------
Portfolio turnover rate 126%
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
*Annualized
(a) Commenced operations on May 28,1999.(b) Per share amounts based on average
number of shares outstanding during the period.
(b) Per share amounts based on average number of shares outstanding during the
period.
Statement of Assets and Liabilities
Total Return Bond Portfolio II
June 30,1999 (Unaudited)
Amounts in thousands, except per share amounts
<TABLE>
<S> <C>
Assets:
Investments, at value $ 6,948
- -------------------------------------------------------------------------------------------------- --------------
Interest and dividends receivable 61
- -------------------------------------------------------------------------------------------------- --------------
7,009
- -------------------------------------------------------------------------------------------------- --------------
Liabilities:
Payable for investments and foreign currency purchased $ 1,912
- -------------------------------------------------------------------------------------------------- --------------
Accrued administration fee 3
- -------------------------------------------------------------------------------------------------- --------------
1,915
- -------------------------------------------------------------------------------------------------- --------------
Net Assets $ 5,094
- -------------------------------------------------------------------------------------------------- --------------
Net Assets Consist of:
Paid in capital $ 5,081
- -------------------------------------------------------------------------------------------------- --------------
Undistributed net investment income 0
- -------------------------------------------------------------------------------------------------- --------------
Accumulated undistributed net realized (loss) (15)
- -------------------------------------------------------------------------------------------------- --------------
Net unrealized appreciation 28
- -------------------------------------------------------------------------------------------------- --------------
$ 5,094
- -------------------------------------------------------------------------------------------------- --------------
Shares Issued and Outstanding 508
- -------------------------------------------------------------------------------------------------- --------------
Net Asset Value and Redemption Price Per Share (Net Assets Per Share Outstanding) $ 10.03
- -------------------------------------------------------------------------------------------------- --------------
Cost of Investments Owned $ 6,920
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Operations
Total Return Bond Portfolio II
June 30,1999 (Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
Period from May 28, 1999
to June 30, 1999
<S> <C>
Investment Income:
Interest $ 26
- --------------------------------------------------------------------------------------- ------------------------
Total Income 26
- --------------------------------------------------------------------------------------- ------------------------
Expenses:
Investment advisory fees 2
- --------------------------------------------------------------------------------------- ------------------------
Administration fees 1
- --------------------------------------------------------------------------------------- ------------------------
Total Expenses 3
- --------------------------------------------------------------------------------------- ------------------------
Net Investment Income 23
- --------------------------------------------------------------------------------------- ------------------------
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (15)
- --------------------------------------------------------------------------------------- ------------------------
Net change in unrealized appreciation on investments 28
- --------------------------------------------------------------------------------------- ------------------------
Net Gain 13
- --------------------------------------------------------------------------------------- ------------------------
Net Increase in Assets Resulting from Operations $ 36
- --------------------------------------------------------------------------------------- ------------------------
</TABLE>
Statement of Changes in Net Assets
Total Return Bond Portfolio II
June 30,1999 (Unaudited)
Amounts in thousands
<TABLE>
<CAPTION>
Period from May 28, 1999
Increase (Decrease) in Net Assets from: to June 30, 1999
<S> <C>
Operations:
Net investment income $ 23
- --------------------------------------------------------------------------------------- ------------------------
Net realized (loss) (15)
- --------------------------------------------------------------------------------------- ------------------------
Net change in unrealized appreciation 28
- --------------------------------------------------------------------------------------- ------------------------
Net increase resulting from operations 36
- --------------------------------------------------------------------------------------- ------------------------
Distributions to Shareholders:
From net investment income (23)
- --------------------------------------------------------------------------------------- ------------------------
Total Distributions (23)
- --------------------------------------------------------------------------------------- ------------------------
Portfolio Share Transactions:
Receipts for shares sold 6,958
- --------------------------------------------------------------------------------------- ------------------------
Issued as reinvestment of distributions 23
- --------------------------------------------------------------------------------------- ------------------------
Cost of shares redeemed (1,900)
- --------------------------------------------------------------------------------------- ------------------------
Net increase resulting from Portfolio share transactions 5,081
- --------------------------------------------------------------------------------------- ------------------------
Total Increase in Net Assets $ 5,094
- --------------------------------------------------------------------------------------- ------------------------
Net Assets:
Beginning of period 0
- --------------------------------------------------------------------------------------- ------------------------
End of period * $ 5,094
- --------------------------------------------------------------------------------------- ------------------------
*Including net undistributed (overdistributed) investment income of: $ 0
- --------------------------------------------------------------------------------------- ------------------------
</TABLE>
1999 Semi-Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments
Total Return Bond Portfolio II
June 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
<S> <C> <C>
CORPORATE BONDS & NOTES 9.9%
Banking & Finance 5.0%
Morgan Stanley Capital
7.460% due 02/15/2020 $ 250 $ 255
Industrials 4.9%
DTE Capital Corp.
8.350% due 11/15/2003 (b) 250 252
-------
Total Corporate Bonds & Notes 507
-------
(Cost $503)
U.S. TREASURY OBLIGATIONS 47.7%
U.S. Treasury Notes
7.500% due 02/15/2005 1,800 1,939
5.250% due 05/15/2004 500 491
-------
Total U.S. Treasury Obligations 2,430
-------
(Cost $2,419)
MORTGAGE-BACKED SECURITIES 47.9%
Collateralized Mortgage Obligations 10.1%
Goldman Sachs Mortgage Securities Corp.
8.000% due 09/20/2027 500 515
-------
Government National Mortgage Association 37.8%
6.500% due 07/21/2028 2,000 1,924
-------
Total Mortgage-Backed Securities 2,439
-------
(Cost $2,426)
SHORT-TERM INSTRUMENTS 30.9%
Commercial Paper 27.4%
American Express
5.000% due 07/23/1999 300 299
Florida Power Corp.
4.940% due 07/06/1999 200 200
Ford Motor Credit Corp.
5.040% due 07/12/1999 300 300
Kellogg Co.
5.000% due 07/19/1999 300 299
Procter & Gamble Co.
4.980% due 07/19/1999 300 299
-------
1,397
Repurchase Agreement 3.5%
State Street Bank
4.000% due 07/01/1999 175 175
(Dated 06/30/1999. Collateralized by
U.S. Treasury Bond 8.750% 08/15/2020
valued at $182,697. Repurchase
proceeds are $175,019.)
-------
Total Short-Term Instruments 1,572
-------
(Cost $1,572)
Total Investments (a) 136.4% $ 6,948
(Cost $6,920)
Other Assets and Liabilities (Net) (36.4%) (1,854)
-------
Net Assets 100.0% $ 5,094
-------
</TABLE>
<TABLE>
<CAPTION>
Value
(000s)
- -----------------------------------------------------------------------------------------------
<S> <C>
Notes to Schedule of Investments (amounts in thousands):
(a) At June 30, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $6,920 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 28
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. 0
-------
Unrealized appreciation-net $ 28
-------
</TABLE>
(b) Variable rate security. The rate listed is as of June 30, 1999.
<PAGE>
Notes to Financial Statements
June 30, 1999 (Unaudited)
1. Organization
The Total Return Bond Portfolio II (the "Portfolio") is a series of the
PIMCO Variable Insurance Trust (the "Trust"). The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end investment
company organized as a Delaware business trust on October 3, 1997. The
Trust is designed to be used as an investment vehicle by Separate Accounts
of insurance companies that fund variable annuity contracts and variable
life insurance policies and by qualified pension and retirement plans. The
Portfolio commenced operations on May 28, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
Security Valuation. Portfolio securities and other financial instruments
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, the mean between representative bid and asked
quotations obtained from a quotation reporting system or from established
market makers. Short-term investments having a maturity of 60 days or less
are valued at amortized cost, which approximates market value. Certain
fixed income securities for which daily market quotations are not readily
available may be valued, pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities whose prices are more
readily obtainable.
Securities Transactions and Investment Income. Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-
issued or delayed delivery basis may be settled a month or more after the
trade date. Realized gains and losses from securities sold are recorded on
the identified cost basis. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the ex-
dividend date may have passed, are recorded as soon as the Fund is informed
of the ex-dividend date. Interest income, adjusted for the accretion of
discounts and amortization of premiums, is recorded on the accrual basis.
Foreign Currency. Foreign currencies, investments, and other assets and
liabilities are translated into U.S. dollars at the exchange rates
prevailing at the end of the period. Fluctuations in the value of these
assets and liabilities resulting from changes in exchange rates are
recorded as unrealized foreign currency gains (losses). Realized gains
(losses) and unrealized appreciation (depreciation) on investment
securities and income and expenses are translated on the respective dates
of such transactions. The effect of changes in foreign currency exchange
rates on investments in securities are not segregated in the Statement of
Operations from the effects of changes in market prices of those
securities, but are included with the net realized and unrealized gain or
loss on investment securities.
Dividends and Distributions to Shareholders. Dividends from net investment
income, if any, are declared on each day the Portfolio is open for business
and are distributed to shareholders monthly. All dividends are reinvested
in additional shares of the Portfolio. Net realized capital gains earned by
the Portfolio, if any, will be distributed no less frequently than once
each year.
1999 Semi-Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
June 30, 1999 (Unaudited)
Income dividends and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for such items as wash sales, foreign currency
transactions, net operating losses and capital loss carryforwards.
Distributions reflected as a tax basis return of capital in the
accompanying Statement of Changes in Net Assets have been reclassified to
paid in capital. In addition, other amounts have been reclassified between
undistributed net investment income, accumulated undistributed net realized
gains or losses and paid in capital to more appropriately conform financial
accounting to tax characterizations of dividend distributions.
Federal Income Taxes. The Portfolio intends to qualify as a regulated
investment company and distribute all of its taxable income and net
realized gains, if applicable, to shareholders. Accordingly, no provision
for Federal income taxes has been made.
Financing Transactions. The Portfolio may enter into financing transactions
consisting of the sale by the Portfolio of securities, together with a
commitment to repurchase similar securities at a future date. The
difference between the selling price and the future purchase price is an
adjustment to interest income. If the counter-party to whom the Portfolio
sells the security becomes insolvent, the Portfolio's right to repurchase
the security may be restricted; the value of the security may change over
the term of the financing transaction; and the return earned by the
Portfolio with the proceeds of a financing transaction may not exceed
transaction costs.
Futures and Options. The Portfolio is authorized to enter into futures
contracts and options. The Portfolio may use futures contracts to manage
its exposure to the markets or to movements in interest rates and currency
values. The primary risks associated with the use of futures contracts and
options are imperfect correlation between the change in market value of the
securities held by a Portfolio and the prices of futures contracts and
options, the possibility of an illiquid market, and the inability of the
counterparty to meet the terms of the contract. Futures contracts and
purchased options are valued based upon their quoted daily settlement
prices. The premium received for a written option is recorded as an asset
with an equal liability which is marked to market based on the option's
quoted daily settlement price. Fluctuations in the value of such
instruments are recorded as unrealized appreciation (depreciation) until
terminated, at which time realized gains and losses are recognized.
Repurchase Agreements. The Portfolio may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, the Portfolio takes
possession of an underlying debt obligation subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time. The market value of the collateral must be
equal at all times to the total amount of the repurchase obligations,
including interest. Generally, in the event of counterparty default, the
Portfolio has the right to use the collateral to offset losses incurred.
3. Fees, Expenses, and Related Party Transactions
Investment Advisory Fee. PIMCO, which is a wholly owned subsidiary
partnership of PIMCO Advisors L.P., serves as investment adviser (the
"Adviser") to the Trust, pursuant to an investment advisory contract. The
Advisory Fee is charged at an annual rate of 0.40%.
Administration Fee. PIMCO serves as administrator (the "Administrator"),
and provides administrative services to the Trust for which it receives a
monthly administrative fee based on average daily net assets. The
Administration Fee is charged at the annual rate of 0.25%.
8
<PAGE>
Expenses. PIMCO pays for most of the expenses of the Portfolio, including
legal, audit, custody, transfer agency and certain other services, and is
responsible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current shareholders
or other appropriate parties. The Portfolio is responsible for bearing
certain expenses associated with its operations that are not provided or
procured by PIMCO. PIMCO has voluntarily undertaken to waive and reimburse
expenses of the Portfolio to the extent necessary, to limit the expenses to
0.65% of average daily net assets.
Under the Expense Limitation Agreement, PIMCO may recoup these waivers
and reimbursements in future periods, not exceeding three years, provided
total expenses, including any such recoupment, do not exceed the annual
expense limit.
The Trust pays no compensation directly to any Trustee or any other
officer who is affiliated with the Administrator, all of whom receive
renumeration for their services to the Trust from the Administrator or its
affiliates.
Each unaffiliated Trustee receives 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, an unaffiliated Trustee who serves as a Committee
Chair receives an additional annual retainer of $500. These expenses are
allocated to the Portfolios of the Trust according to their respective net
assets.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for
the period ended June 30, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
----------------------------------------------------
Purchases Sales Purchases Sales
----------------------------------------------------
$ 1,017 $ 6,548 $ 10,880 $ 0
5. Shares of Beneficial Interest
The Portfolio may issue an unlimited number of shares of beneficial
interest with a $.0001 par value. Changes in shares of beneficial interest
were as follows (shares and amounts in thousands):
<TABLE>
<CAPTION>
Period from 05/28/1999
to 06/30/1999
Shares Amount
----------------------------------------------- ----------------------
<S> <C>
Receipts for shares sold 697 $ 6,958
----------------------------------------------- ----------------------
Issued as reinvestment of distributions 2 23
----------------------------------------------- ----------------------
Cost of shares redeemed (191) (1,900)
----------------------------------------------- ----------------------
Net increase resulting from
Portfolio share transactions 508 $ 5,081
----------------------------------------------- ----------------------
</TABLE>
The following schedule shows the number of shareholders each owning 5% or
more of a Portfolio and the total percentage of the Portfolio held by such
shareholders:
Number % of Portfolio Held
---------------------------
2 100%
199 Semi-Annual Report 9
<PAGE>
Pacific Investment Management Company is responsible for the management and
administration of the PIMCO Variable Insurance Trust. Founded in 1971, Pacific
Investment Management Company currently manages assets in excess of $172 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's third largest publicly traded
investment management firm with assets under management in excess of $254
billion. PIMCO Advisors is recognized for providing consistent performance and
high-quality service to mutual fund and institutional clients worldwide.
Its investment firms are:
Pacific Investment Management Company/Newport Beach, California
Oppenheimer Capital/New York, New York
Cadence Capital Management/Boston, Massachusetts
NFJ Investment Group/Dallas, Texas
Parametric Portfolio Associates/Seattle, Washington
PIMCO Equity Advisors/New York, New York, a division of PIMCO Advisors L.P.
Units of PIMCO Advisors Holdings L.P. trade on the New York Stock Exchange under
the ticker symbol "PA."
Trustees and Officers
Brent R. Harris, Chairman and Trustee
R. Wesley Burns, President and Trustee
Guilford C. Babcock, Trustee
Vern O. Curtis, Trustee
Thomas P. Kemp, Sr., Trustee
William J. Popejoy, Trustee
Garlin G. Flynn, Secretary
John P. Hardaway, Treasurer
Investment Adviser and Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent and Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Independent Accountants
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, Missouri 64105
<PAGE>
PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
888.746.2688
This report is submitted for the general information of the shareholders of the
PIMCO Variable Insurance Trust. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective prospectus
for the PIMCO Variable Insurance Trust, which contains information covering its
investment policies as well as other pertinent information.
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
