<PAGE>
PIMCO
PIMCO VARIABLE INSURANCE TRUST
HIGH YIELD BOND PORTFOLIO
------------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
/1/ This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31,2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<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:
$151.0 million
Sector Breakdown:*
Corporate Bonds and Notes 90.7%
Short-Term Instruments 5.9%
Other 3.4%
Quality Breakdown:*
AAA 1.7%
AA 4.5%
A 1.2%
BBB 8.0%
BB 40.5%
B 44.1%
* % of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
High Yield
Bond Portfolio Lehman Intermediate
(Incep. 4/30/1998) BB rated Corp. Index
- --------------------------------------------------------------------------------
1 Year 3.01% 2.20%
Since Inception* 2.88% --
* Annualized
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
[GRAPH]
<TABLE>
<CAPTION>
Month High Yield Lehman
Bond Intermediate
Portfolio BB rated
Corp. Index
<S> <C> <C>
04/30/1998 10,000 10,000
05/31/1998 10,004 10,065
06/30/1998 10,101 10,126
07/31/1998 10,195 10,179
08/31/1998 9,722 9,898
09/30/1998 9,858 10,108
10/31/1998 9,760 9,979
11/30/1998 10,152 10,218
12/31/1998 10,180 10,282
01/31/1999 10,357 10,388
02/28/1999 10,279 10,311
03/31/1999 10,383 10,386
04/30/1999 10,539 10,492
05/31/1999 10,335 10,365
06/30/1999 10,331 10,341
07/31/1999 10,338 10,380
08/31/1999 10,288 10,315
09/30/1999 10,292 10,357
10/31/1999 10,277 10,322
11/30/1999 10,403 10,410
12/31/1999 10,486 10,508
</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 $10,000 on 5/01/1998, the first full month following the
Portfolio's 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
- --------------------------------------------------------------------------------
. 1999 marked the second consecutive year in which domestic high yield bonds
returned less than half of their average coupon, though European returns
were stronger.
. Even though defaults continued to rise (reaching 5.5% on an issuer basis),
spreads narrowed in 1999, with most of the tightening occurring in the
fourth quarter.
. Higher rates and Y2K concerns only put a slight damper on new issuance in
1999 as $100B of high yield dollar-denominated debt was issued, the third
highest in history.
. Cyclicals were the best-performing sectors in 1999, as a recovery in
commodity prices boosted sectors such as oil, natural gas, chemicals and
paper products.
. Telecommunications/technology, while volatile, produced solid returns given
robust merger and acquisition activity.
. Long-term acute healthcare in the U.S. was the worst performing sector
after significant cuts to government reimbursement rates.
. The Portfolio outperformed the benchmark Lehman Intermediate BB rated
Corporate Index 3.01% versus 2.20% for the year even as above-Index
duration, a residual of security selection in our high yield process,
detracted from returns as rates rose.
. Holdings of B-rated credits helped performance as Bs outperformed BBs due
to B's higher yields and BB's greater sensitivity to rising interest rates.
. Increased exposure to two of the top-performing sectors, chemicals and
paper, added to performance as capacity shrank and operations improved.
. Avoiding retail-related issues protected the Portfolio from the substantial
losses and numerous defaults in this sector where the 1999 default rate
exceeded 10%.
. While there was a neutral exposure to energy bonds, the Portfolio benefited
from the focus on the energy services sub-sector, which experienced strong
demand.
2
<PAGE>
Financial Highlights
High Yield Bond Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Selected Per Share Data for the Year Ended: 12/31/1999 12/31/1998(b)
---------- -------------
<S> <C> <C>
Net asset value beginning of period $ 9.67 $ 10.00
- ---------------------------------------------------------------------------- --------- -------------
Net investment income (a) 0.77 0.51
- ---------------------------------------------------------------------------- --------- -------------
Net realized / unrealized (loss) on investments (a) (0.49) (0.34)
- ---------------------------------------------------------------------------- --------- -------------
Total income from investment operations 0.28 0.17
- ---------------------------------------------------------------------------- --------- -------------
Dividends from net investment income (0.77) (0.50)
- ---------------------------------------------------------------------------- --------- -------------
Total distributions (0.77) (0.50)
- ---------------------------------------------------------------------------- --------- -------------
Net asset value end of period $ 9.18 $ 9.67
- ---------------------------------------------------------------------------- --------- -------------
Total return 3.01% 1.80%
- ---------------------------------------------------------------------------- --------- -------------
Net assets end of period (000s) $ 151,020 $ 49,761
- ---------------------------------------------------------------------------- --------- -------------
Ratio of net expenses to average net assets 0.75%(c) 0.75%*
- ---------------------------------------------------------------------------- --------- -------------
Ratio of net investment income to average net assets 8.25% 7.90%*
- ---------------------------------------------------------------------------- --------- -------------
Portfolio turnover rate 13% 13%
- ---------------------------------------------------------------------------- --------- -------------
</TABLE>
* Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on April 30, 1998.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.75% for the year
ended December 31, 1999.
Statement of Assets and Liabilities
High Yield Bond Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value $ 146,872
- -------------------------------------------------------------------------------------------- ----------
Cash and foreign currency 1
- -------------------------------------------------------------------------------------------- ----------
Receivable for Portfolio shares sold 1,298
- -------------------------------------------------------------------------------------------- ----------
Interest and dividends receivable 2,951
- -------------------------------------------------------------------------------------------- ----------
Manager reimbursement receivable 4
- -------------------------------------------------------------------------------------------- ----------
Other assets 4
- -------------------------------------------------------------------------------------------- ----------
151,130
============================================================================================ ==========
Liabilities:
Payable for investments and foreign currency purchased $ 9
- -------------------------------------------------------------------------------------------- ----------
Accrued investment advisory fee 67
- -------------------------------------------------------------------------------------------- ----------
Accrued administration fee 34
- -------------------------------------------------------------------------------------------- ----------
110
============================================================================================ ==========
Net Assets $ 151,020
============================================================================================ ==========
Net Assets Consist of:
Paid in capital $ 157,692
- -------------------------------------------------------------------------------------------- ----------
Undistributed net investment income 0
- -------------------------------------------------------------------------------------------- ----------
Accumulated undistributed net realized (loss) (1,073)
- -------------------------------------------------------------------------------------------- ----------
Net unrealized (depreciation) (5,599)
- -------------------------------------------------------------------------------------------- ----------
$ 151,020
============================================================================================ ==========
Shares Issued and Outstanding: 16,454
- -------------------------------------------------------------------------------------------- ----------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.18
- -------------------------------------------------------------------------------------------- ----------
Cost of Investments Owned $ 152,471
============================================================================================ ==========
</TABLE>
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
High Yield Bond Portfolio
For the year ended December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest $ 9,276
- -------------------------------------------------------------------------------------------- ---------
Dividends 120
- -------------------------------------------------------------------------------------------- ---------
Miscellaneous Income 7
- -------------------------------------------------------------------------------------------- ---------
Total Income 9,403
============================================================================================ =========
Expenses:
Investment advisory fees 520
- -------------------------------------------------------------------------------------------- ---------
Administration fees 260
- -------------------------------------------------------------------------------------------- ---------
Trustees' fees 8
- -------------------------------------------------------------------------------------------- ---------
Organization costs 1
- -------------------------------------------------------------------------------------------- ---------
Total expenses 789
- -------------------------------------------------------------------------------------------- ---------
Reimbursement by manager (4)
- -------------------------------------------------------------------------------------------- ---------
Net expenses 785
- -------------------------------------------------------------------------------------------- ---------
Net Investment Income (Loss) 8,618
============================================================================================ =========
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investments (986)
- -------------------------------------------------------------------------------------------- ---------
Net change in unrealized appreciation (depreciation) on investments (4,967)
- -------------------------------------------------------------------------------------------- ---------
Net Gain (Loss) (5,953)
- -------------------------------------------------------------------------------------------- ---------
Net Increase (Decrease) in Assets Resulting from Operations $ 2,665
============================================================================================ =========
</TABLE>
Statement of Changes in Net Assets
High Yield Bond Portfolio
December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
Year Ended Period from April 30, 1998
Increase (Decrease) in Net Assets from: December 31, 1999 to December 31, 1998
Operations:
<S> <C> <C>
Net investment income $ 8,618 $ 1,579
- -------------------------------------------------------------------- ----------------- --------------------------
Net realized gain (loss) (986) (87)
- -------------------------------------------------------------------- ----------------- --------------------------
Net change in unrealized appreciation (depreciation) (4,967) (632)
- -------------------------------------------------------------------- ----------------- --------------------------
Net increase (decrease) resulting from operations 2,665 860
==================================================================== ================= ==========================
Distributions to Shareholders:
From net investment income (8,620) (1,577)
- -------------------------------------------------------------------- ----------------- --------------------------
From net realized capital gains 0 0
- -------------------------------------------------------------------- ----------------- --------------------------
Total Distributions (8,620) (1,577)
==================================================================== ================= ==========================
Portfolio Share Transactions:
Receipts for shares sold 120,685 65,974
- -------------------------------------------------------------------- ----------------- --------------------------
Issued as reinvestment of distributions 9,322 1,577
- -------------------------------------------------------------------- ----------------- --------------------------
Cost of shares redeemed (22,793) (17,073)
- -------------------------------------------------------------------- ----------------- --------------------------
Net increase resulting from Portfolio share transactions 107,214 50,478
- -------------------------------------------------------------------- ----------------- --------------------------
Total Increase in Net Assets $ 101,259 $ 49,761
==================================================================== ================= ==========================
Net Assets:
Beginning of period 49,761 0
- -------------------------------------------------------------------- ----------------- --------------------------
End of period * $ 151,020 $ 49,761
- -------------------------------------------------------------------- ----------------- --------------------------
*Including net undistributed investment income of: $ 0 $ 2
- -------------------------------------------------------------------- ----------------- --------------------------
</TABLE>
4 See accompanying notes
<PAGE>
Schedule of Investments
High Yield Bond Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 88.2%
- --------------------------------------------------------------------------------
Banking & Finance 5.6%
AmeriCredit Corp.
9.875% due 04/15/2006 $ 500 $ 507
Bay View Capital Corp.
9.125% due 08/15/2007 750 641
Crown Castle International Corp.
13.250% due 11/15/2007 1,000 756
Forest City Enterprises
8.500% due 03/15/2008 850 795
Fuji Bank
9.870% due 12/31/2049 (b) 100 100
Host Marriott LP
8.375% due 02/15/2006 500 473
Imperial Credit Industries, Inc.
9.875% due 01/15/2007 450 353
Mercury Finance Co.
10.000% due 03/23/2001 800 764
10.670% due 03/23/2001 350 329
Nationwide Credit, Inc.
10.250% due 01/15/2008 200 121
Nextel Partners, Inc.
0.000% due 02/01/2009 (c) 750 506
Presidential Life Insurance Corp.
7.875% due 02/15/2009 500 456
Reliance Group Holdings
9.000% due 11/15/2000 1,200 1,086
Sumitomo
9.400% due 12/29/2049 (b) 100 100
Trizec Finance Ltd.
10.875% due 10/15/2005 750 771
Willis Corroon Corp.
9.000% due 02/01/2009 750 627
---------
8,385
Industrials 77.2%
Aaf-Mcquay, Inc.
8.875% due 02/15/2003 500 443
Abbey Healthcare Group
9.500% due 11/01/2002 200 198
Advanced Lighting
8.000% due 03/15/2008 1,150 983
AEI Holding Co.
10.500% due 12/15/2005 1,150 817
Agriculture Minerals & Chemicals
10.750% due 09/30/2003 500 353
Allied Waste North America, Inc.
7.625% due 01/01/2006 1,050 953
10.000% due 08/01/2009 1,000 900
American Axle & Manufacturing, Inc.
9.750% due 03/01/2009 1,000 1,013
American Standard, Inc.
7.375% due 02/01/2008 500 461
Amphenol Corp.
9.875% due 05/15/2007 850 888
Applied Power, Inc.
8.750% due 04/01/2009 700 689
Archibald Candy Corp.
10.250% due 07/01/2004 500 485
AT&T Canada, Inc.
10.750% due 11/01/2007 350 292
Ball Corp.
7.750% due 08/01/2006 250 245
8.250% due 08/01/2008 250 241
Beckman Instruments, Inc.
7.450% due 03/04/2008 2,500 2,294
Beverly Enterprises, Inc.
9.000% due 02/15/2006 600 555
Bresnan Communications
8.000% due 02/01/2009 500 506
Browning-Ferris Industries, Inc.
6.100% due 01/15/2003 1,250 1,134
Buckeye Technologies, Inc.
8.000% due 10/15/2010 800 745
Building Materials Corp.
7.750% due 07/15/2005 200 183
8.625% due 12/15/2006 250 238
8.000% due 10/15/2007 200 182
8.000% due 12/01/2008 500 455
Cadmus Communications Corp.
9.750% due 06/01/2009 750 743
Call-Net Enterprises, Inc.
8.000% due 08/15/2008 200 156
9.375% due 05/15/2009 500 414
Canadian Forest Oil Ltd.
8.750% due 09/15/2007 1,000 961
Century Communications Corp.
0.000% due 03/15/2003 400 288
8.750% due 10/01/2007 900 871
Charter Communications Holding, LLC
8.250% due 04/01/2007 700 649
Circus Circus Enterprises
6.750% due 07/15/2003 350 333
9.250% due 12/01/2005 200 204
Clark R & M, Inc.
8.375% due 11/15/2007 250 156
Clearnet Communications
0.000% due 05/01/2009 (c) 1,000 605
Coltec Industries, Inc.
7.500% due 04/15/2008 400 386
Columbia/HCA Healthcare
7.000% due 07/01/2007 700 619
Columbus McKinnon
8.500% due 04/01/2008 250 223
Comcast Corp.
9.500% due 01/15/2008 700 725
Consolidated Container Co.
10.125% due 07/15/2009 750 767
Container Corp. of America
11.250% due 05/01/2004 1,000 1,050
Cross Timbers Oil Co.
9.250% due 04/01/2007 250 246
8.750% due 11/01/2009 500 480
CSC Holdings, Inc.
9.875% due 02/15/2013 900 954
Cumberland Farms
10.500% due 10/01/2003 496 479
Dade International, Inc.
11.125% due 05/01/2006 1,250 1,225
Diamond Cable Communication Co.
13.250% due 09/30/2004 500 538
0.000% due 12/15/2005 (b)(c) 500 475
Dunlop Stand Aerospace Holdings
11.875% due 05/15/2009 500 517
Echostar Communications Corp.
9.250% due 02/01/2006 750 758
9.375% due 02/01/2009 375 379
Embotelladora Arica SA
9.875% due 03/15/2006 1,000 1,046
Emmis Communications Corp.
8.125% due 03/15/2009 700 669
Extended Stay America
9.150% due 03/15/2008 250 238
Extendicare Health Services
9.350% due 12/15/2007 350 209
Falcon Holding Group LP
0.000% due 04/15/2010 (c) 500 377
8.375% due 04/15/2010 500 507
Federal-Mogul Corp.
7.500% due 07/01/2004 150 142
7.750% due 07/01/2006 350 325
Ferrellgas Partners LP
9.375% due 06/15/2006 1,000 975
Fisher Scientific International
7.125% due 12/15/2005 500 456
9.000% due 02/01/2008 1,225 1,181
Forest Oil Corp.
10.500% due 01/15/2006 500 508
Fox/Liberty Networks LLC
0.000% due 08/15/2007 (c) 750 608
1999 Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments (Cont.)
High Yield Bond Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
Garden State Newspapers
8.750% due 10/01/2009 $ 850 $ 795
8.625% due 07/01/2011 250 230
Globalstar LP
11.375% due 02/15/2004 250 175
Golden Northwest Aluminum
12.000% due 12/15/2006 125 132
Grupo Televisa SA
11.375% due 05/15/2003 150 160
0.000% due 05/15/2008 (c) 275 251
Gulf Canada Resources
9.625% due 07/01/2005 350 359
Harnischfeger Industrial, Inc.
8.900% due 03/01/2022 (d) 400 162
Harrahs Operating Co., Inc.
7.875% due 12/15/2005 700 680
Henry Co.
10.000% due 04/15/2008 500 403
Hercules Trust VI
8.625% due 12/29/2000 (b) 1,250 1,250
HMH Properties, Inc.
7.875% due 08/01/2005 1,350 1,256
8.450% due 12/01/2008 150 140
Hollinger International Publishing
8.625% due 03/15/2005 650 639
9.250% due 02/01/2006 200 199
9.250% due 03/15/2007 650 647
Holmes Products Corp.
9.875% due 11/15/2007 500 368
Horseshoe Gaming Holding
8.625% due 05/15/2009 1,250 1,200
HS Resources, Inc.
9.250% due 11/15/2006 700 697
Huntsman Chemicals Corp.
10.125% due 07/01/2009 250 260
Huntsman Corp.
9.500% due 07/01/2007 450 429
Huntsman Packaging Corp.
9.125% due 10/01/2007 600 597
Impsat Corp.
12.375% due 06/15/2008 500 420
Insight Midwest/Insight Capital
9.750% due 10/01/2009 500 519
Intermedia Communications, Inc.
0.000% due 05/15/2006 (c) 500 440
International Game Technology
7.875% due 05/15/2004 400 389
8.375% due 05/15/2009 650 626
ISP Holdings, Inc.
9.750% due 02/15/2002 500 503
9.000% due 10/15/2003 200 196
J.Q. Hammons Hotels
8.875% due 02/15/2004 250 229
John Q Hammons Hotels LP
9.750% due 10/01/2005 100 93
Jones Intercable, Inc.
8.875% due 04/01/2007 250 256
Jupiters Ltd.
8.500% due 03/01/2006 600 576
K Mart Corp.
8.130% due 12/16/2003 500 491
9.780% due 01/05/2020 300 309
K-III Communications Co.
8.500% due 02/01/2006 1,250 1,231
KPNQWest BV
8.125% due 06/01/2009 1,250 1,206
L-3 Communications Corp.
10.375% due 05/01/2007 700 726
Level 3 Communications, Inc.
9.125% due 05/01/2008 650 616
Levi Strauss & Co.
6.800% due 11/01/2003 750 612
Lin Television Corp.
8.375% due 03/01/2008 500 468
Loral Space & Communication Ltd.
9.500% due 01/15/2006 500 453
Lyondell Chemical Co.
9.625% due 05/01/2007 1,000 1,028
Magnum Hunter Resources, Inc.
10.000% due 06/01/2007 250 234
Mail-Well Corp.
8.750% due 12/15/2008 875 836
Mark IV Industries, Inc.
7.500% due 09/01/2007 1,000 905
Market Hub Partners
8.250% due 03/01/2008 1,000 958
Marsh Supermarkets, Inc.
8.875% due 08/01/2007 1,000 975
McLeodUSA, Inc.
0.000% due 03/01/2007 (c) 1,585 1,308
8.375% due 03/15/2008 500 475
9.500% due 11/01/2008 250 254
8.125% due 02/15/2009 1,600 1,500
Metromedia Fiber Network, Inc.
10.000% due 11/15/2008 750 770
10.000% due 12/15/2009 600 618
Metronet Communications
0.000% due 06/15/2008 (c) 200 158
MGM Grand, Inc.
6.950% due 02/01/2005 750 698
MJD Communications, Inc.
9.500% due 05/01/2008 850 808
Navistar International Corp.
8.000% due 02/01/2008 500 478
Nextel Communications, Inc.
9.375% due 11/15/2009 1,750 1,724
Nextlink Communications, Inc.
10.750% due 06/01/2009 750 774
0.000% due 12/01/2009 (c) 1,500 881
10.500% due 12/01/2009 250 255
Nortek, Inc.
9.125% due 09/01/2007 500 486
8.875% due 08/01/2008 750 716
NTL, Inc.
0.000% due 02/01/2006 (c) 750 683
11.500% due 10/01/2008 400 436
Ocean Rig Norway
10.250% due 06/01/2008 120 100
Octel Developments PLC
10.000% due 05/01/2006 1,250 1,244
Orange PLC
9.000% due 06/01/2009 500 528
Orion Network Systems, Inc.
11.250% due 01/15/2007 400 302
0.000% due 01/15/2007 (c) 400 186
Owens-Illinois, Inc.
7.850% due 05/15/2004 400 387
P&L Coal Holdings
8.875% due 05/15/2008 1,400 1,376
Packaging Corp. of America
9.625% due 04/01/2009 400 411
Packard Bioscience Co.
9.375% due 03/01/2007 500 428
Perry-Judd
10.625% due 12/15/2007 450 407
Petroleos Mexicanos
8.799% due 07/15/2005 (b) 300 294
Pharmerica, Inc.
8.375% due 04/01/2008 1,500 1,061
Phar-Mor, Inc.
11.720% due 09/11/2002 150 145
Physician Sales and Service, Inc.
8.500% due 10/01/2007 375 362
Piedmont Aviation
10.250% due 03/28/2005 400 405
Pioneer National Resources
8.875% due 04/15/2005 250 250
8.250% due 08/15/2007 250 239
6.500% due 01/15/2008 650 552
6 See accompanying notes
<PAGE>
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
Polymer Group, Inc.
9.000% due 07/01/2007 $ 750 $ 731
8.750% due 03/01/2008 900 869
Pool Energy Co.
8.625% due 04/01/2008 850 861
Price Communications Wireless, Inc.
9.125% due 12/15/2006 250 254
Pride International, Inc.
9.375% due 05/01/2007 600 600
Qwest Communications International, Inc.
0.000% due 10/15/2007 (c) 800 652
0.000% due 02/01/2008 (c) 610 474
R & B Falcon Corp.
6.500% due 04/15/2003 500 464
R.H. Donnelly, Inc.
9.125% due 06/01/2008 125 123
Regal Cinemas, Inc.
8.875% due 12/15/2010 300 213
Renaissance Media Group
0.000% due 04/15/2008 (c) 100 71
Riviera Holdings Corp.
10.000% due 08/15/2004 150 139
Rogers Cantel Mobile Communications, Inc.
9.375% due 06/01/2008 1,000 1,045
Rogers Cantel, Inc.
8.300% due 10/01/2007 750 761
Safety-Kleen Services
9.250% due 06/01/2008 1,450 1,439
9.250% due 05/15/2009 250 243
Salem Communications
9.500% due 10/01/2007 1,500 1,508
SC International Services, Inc.
9.250% due 09/01/2007 800 756
Scotts Co.
8.625% due 01/15/2009 500 488
Sequa Corp.
9.000% due 08/01/2009 1,000 972
Silgan Holdings, Inc.
9.000% due 06/01/2009 1,250 1,205
Smithfield Foods
7.625% due 02/15/2008 275 248
Stater Brothers Holdings
10.750% due 08/15/2006 250 254
Station Casinos, Inc.
9.750% due 04/15/2007 550 555
8.875% due 12/01/2008 250 238
Stone Container Corp.
10.750% due 10/01/2002 750 780
Telewest Communications PLC
9.625% due 10/01/2006 400 409
0.000% due 10/01/2007 (b)(c) 1,000 937
9.250% due 04/15/2009 500 317
Tenet Healthcare Corp.
7.875% due 01/15/2003 500 487
8.625% due 12/01/2003 250 247
8.000% due 01/15/2005 250 241
TFM SA de CV
0.000% due 06/15/2009 (c) 200 130
Total Renal Care Holdings
7.000% due 05/15/2009 800 503
Trans-Resources, Inc.
10.750% due 03/15/2008 350 312
Triad Hospitals Holdings
11.000% due 05/15/2009 500 520
TV Guide, Inc.
8.125% due 03/01/2009 600 601
United Defense Industry, Inc.
8.750% due 11/15/2007 250 240
United Pan-Europe Communication NV
0.000% due 07/15/2008 (c) 750 499
0.000% due 02/01/2009 (c) 1,100 688
10.875% due 08/01/2009 1,250 1,272
United Refining Co.
10.750% due 06/15/2007 500 327
US Air, Inc.
9.625% due 09/01/2003 325 317
9.330% due 01/01/2006 136 141
Vectura Group, Inc.
10.250% due 06/30/2008 200 193
Vintage Petroleum
9.000% due 12/15/2005 500 500
Voicestream Wireless Corp.
10.375% due 11/15/2009 600 621
Western Gas Resources, Inc.
10.000% due 06/15/2009 750 771
Westpoint Stevens, Inc.
7.875% due 06/15/2005 300 276
7.875% due 06/15/2008 500 450
Williams Communications Group, Inc.
10.700% due 10/01/2007 1,300 1,369
10.875% due 10/01/2009 250 262
World Color Press, Inc.
8.375% due 11/15/2008 700 690
7.750% due 02/15/2009 250 238
Worldwide Fiber, Inc.
12.000% due 08/01/2009 500 517
Young Broadcasting, Inc.
9.000% due 01/15/2006 300 290
8.750% due 06/15/2007 550 523
---------
116,549
Utilities 5.4%
AES Corp.
10.250% due 07/15/2006 500 510
8.500% due 11/01/2007 100 94
9.500% due 06/01/2009 500 507
Avalon Cable of Michigan
9.375% due 12/01/2008 250 254
Calpine Corp.
10.500% due 05/15/2006 175 186
8.750% due 07/15/2007 300 292
7.875% due 04/01/2008 200 193
7.750% due 04/15/2009 200 190
CMS Energy
8.125% due 05/15/2002 500 495
Flag Ltd.
8.250% due 01/30/2008 1,450 1,356
ITC Deltacom, Inc.
8.875% due 03/01/2008 350 337
Niagara Mohawk Power
7.750% due 10/01/2008 250 250
North Atlantic Energy
9.050% due 06/01/2002 459 460
Orange PLC
8.000% due 08/01/2008 475 482
Philippine Long Distance Telephone Co.
10.500% due 04/15/2009 500 499
Qwest Communications International, Inc.
7.500% due 11/01/2008 500 493
Rural Cellular Corp.
9.625% due 05/15/2008 400 411
Sprint Spectrum LP
11.000% due 08/15/2006 500 552
Telekomunikacja Polska SA
7.750% due 12/10/2008 750 694
---------
8,255
---------
Total Corporate Bonds & Notes 133,189
(Cost $138,499) =========
1999 Annual Report See accompanying notes 7
<PAGE>
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
U.S TREASURY OBLIGATION 0.0%
- --------------------------------------------------------------------------------
U.S. Treasury Strips - Principal
0.000% due 08/15/2026 $ 200 $ 36
---------
Total U.S. Treasury Obligations 36
(Cost $43) =========
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 0.7%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 0.7%
Sasco Floating Rate Commercial Mortgage
7.031% due 04/25/2003 (b) 1,250 1,103
---------
Total Mortgage-Backed Securities 1,103
(Cost $1,120) =========
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 1.5%
- --------------------------------------------------------------------------------
Airplanes Pass Through Trust
10.875% due 03/15/2019 600 521
Conseco Finance
9.300% due 10/15/2030 1,300 1,292
Morgan Stanley Aircraft Finance
8.700% due 03/15/2023 500 423
---------
Total Asset-Backed Securities 2,236
(Cost $2,389) =========
- --------------------------------------------------------------------------------
PREFERRED STOCK 1.1%
- --------------------------------------------------------------------------------
Shares
CSC Holdings, Inc. Series M
11.125% due 12/31/2049 3,025 331
Fresenius Medical Care
7.875% due 02/01/2008 850 786
9.000% due 12/01/2006 500 491
---------
Total Preferred Stock 1,608
(Cost $1,720) =========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 5.8%
- --------------------------------------------------------------------------------
Principal
Amount
(000s)
Commercial Paper 4.9%
Banc One Financial Corp.
5.880% due 02/09/2000 $ 4,600 4,572
British Telecom PLC
5.890% due 02/15/2000 400 397
Deutsche Bank Financial
5.940% due 02/02/2000 1,500 1,493
Illinois Tool Works
6.190% due 01/31/2000 200 199
National Rural Utilities
6.090% due 02/25/2000 200 198
Swedish Bank, Inc.
5.820% due 02/18/2000 200 199
Texas Utilities Co.
5.240% due 01/21/2000 400 399
---------
7,457
Repurchase Agreement 0.9%
State Street Bank
4.000% due 01/03/2000 1,243 1,243
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
0.000% due 06/15/2000 valued at $1,269.
Repurchase proceeds are $1,243.)
---------
Total Short-Term Instruments 8,700
(Cost $8,700) =========
Value
(000s)
- --------------------------------------------------------------------------------
Total Investments (a) 97.3% $ 146,872
(Cost $152,471)
Other Assets and Liabilities (Net) 2.7% 4,148
---------
Net Assets 100.0% $ 151,020
=========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $152,471 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 845
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (6,444)
---------
Unrealized depreciation-net $ (5,599)
=========
(b) Variable rate security. The rate listed is as of December 31, 1999.
(c) Security becomes interest bearing at a future date.
(d) Security is in default.
8 See accompanying notes
<PAGE>
Notes to Financial Statements
December 31, 1999
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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
Stripped Mortgage-Backed Securities (SMBS). SMBS represent a participation in,
or are secured by and payable from, mortgage loans on real property, and may be
structured in classes with rights to receive varying proportions of principal
and interest. SMBS include interest-only securities (IOs), which receive all of
the interest, and principal-only securities (POs), which receive all of the
principal. If the underlying mortgage assets experience greater than anticipated
payments of principal, a Fund may fail to recoup some or all of its initial
investment in these securities. The market value of these securities is highly
sensitive to changes in interest rates.
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.
1999 Annual Report 9
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
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, for which it receives a
monthly advisory fee based on average daily net assets. 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.
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.
Organization Expense. Costs incurred in connection with the organization of the
Portfolio and its initial registration are amortized on a straight-line basis
over a five-year period from the Portfolio's commencement of operations.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
----------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
High Yield Bond Portfolio $ 0 $ 0 $ 109,122 $12,092
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
- --------------------------------------------------------------------------------
High Yield Bond Portfolio 1 97
5. Federal Income Tax Matters
As of December 31, 1999, High Yield Bond Portfolio had remaining capital loss
carryforwards that were realized during the current and prior years.
Additionally, the Portfolio realized $175,001 of capital losses during the
period November 1, 1999 through December 31, 1999 which the Fund elected to
defer to the following taxable year pursuant to income tax regulations.
The Portfolio will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards (amounts in
thousands):
Capital Loss Carryforwards
-----------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
High Yield Bond Portfolio $ 75,638 12/31/2006
821,912 12/31/2007
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. In January 2000, you will be
advised on IRS Form 1099-DIV as to the federal tax status of the dividends and
distributions received by you in calendar year 1999.
6. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
10
<PAGE>
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
High Yield Bond Portfolio
-------------------------------------------------------
Period from 04/30/1998
Year Ended 12/31/1999 to 12/31/1998
Shares Amount Shares Amount
-------------------------------------------------------
<S> <C> <C> <C> <C>
Receipts for shares sold 12,749 $120,685 6,763 $ 65,974
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 996 9,322 163 1,577
- -----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (2,437) (22,793) (1,780) (17,073)
- -----------------------------------------------------------------------------------------------------------
Net increase resulting from
Portfolio share transactions 11,308 $107,214 5,146 $ 50,478
- -----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholders of High Yield
Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of High Yield Bond Portfolio (a
Portfolio of PIMCO Variable Insurance Trust, hereafter referred to as the
"Trust") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
12
<PAGE>
Federal Income Tax Information (Unaudited)
As required by the Internal Revenue Code regulations, shareholders must be
notified within 60 days of the Trust's calendar year-end regarding the status of
the distributions made to the shareholders.
Dividend Received Deduction. For the benefit of corporate shareholders only, the
portion of dividends paid out of ordinary income earned during the Portfolio's
calendar year-end which qualify for the corporate dividend-received deduction is
as follows:
High Yield Bond Portfolio 1.40%
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. However, income received by
tax-exempt recipients need not be reported as taxable income. In January 2000,
you will be advised on IRS form 1099-DIV as to the federal tax status of the
dividends and distributions received by you in calendar year 1999.
13
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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
STOCKSPLUS GROWTH AND INCOME PORTFOLIO
-------------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<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:
0.60 years
Total Net Assets:
$230.4 million
Sector Breakdown:*
[CHART]
Corporate Bonds and Notes 35.8%
Short-Term Instruments 34.5%
Mortgage-Backed Securities 13.7%
U.S. Treasury Obligations 9.4%
Other 6.6%
Quality Breakdown:*
[CHART]
AAA 38.3%
AA 14.2%
A 19.4
BBB 19.9%
BB 6.0%
B 2.2%
*% of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
StocksPLUS Growth
and Income Portfolio
(Incep. 12/31/1997) S&P 500 Index
- --------------------------------------------------------------------------------
1 Year 19.85% 21.04%
Since Inception* 24.87% --
*Annualized
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
<TABLE>
<CAPTION>
Month StocksPLUS S&P 500
Growth and Income Index
Portfolio
<S> <C> <C>
12/31/1997 10,000 10,000
01/31/1998 10,140 10,111
02/28/1998 10,820 10,840
03/31/1998 11,370 11,395
04/30/1998 11,490 11,510
05/31/1998 11,260 11,312
06/30/1998 11,701 11,771
07/31/1998 11,570 11,646
08/31/1998 9,906 9,962
09/30/1998 10,669 10,600
10/31/1998 11,552 11,462
11/30/1998 12,222 12,157
12/31/1998 13,011 12,858
01/31/1999 13,446 13,395
02/28/1999 12,990 12,979
03/31/1999 13,541 13,498
04/30/1999 14,052 14,021
05/31/1999 13,697 13,690
06/30/1999 14,493 14,450
07/31/1999 14,031 13,999
08/31/1999 13,968 13,929
09/30/1999 13,663 13,548
10/31/1999 14,525 14,405
11/30/1999 14,759 14,698
12/31/1999 15,594 15,564
</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 $10,000 on 1/01/1998, the first full month following the
Portfolio's 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
- --------------------------------------------------------------------------------
. 1999 proved to be another year of remarkable returns for the domestic
equity market, especially technology stocks, with the S&P 500 Index
reaching a new high on December 31 and returning a total of 21.04% for the
year.
. In contrast to the equity market, 1999 proved to be a difficult year for
the bond market as the Federal Reserve increased the fed funds rate by a
total of 0.75% in response to inflation concerns and the market priced in
more tightening in the year 2000.
. The StocksPLUS Growth and Income Portfolio underperformed the S&P 500 Index
for the 12 months ended December 31, 1999, returning 19.85% for the period.
. The most significant negative factor affecting performance in 1999 was
rising interest rates.
. Liquidity concerns and other factors largely associated with Y2K also hurt
1999 performance.
. A longer duration relative to the duration of the S&P 500 futures contracts
was unfavorable for performance as short-term interest rates rose markedly.
. Mortgage, corporate and emerging market holdings in the Portfolio added to
returns due both to the significant premium over LIBOR provided by these
securities and an overall narrowing of yield premiums during the year.
Option writing strategies were also a significant positive for relative
performance.
2
<PAGE>
Financial Highlights
StocksPLUS Growth and Income Portfolio
December 31, 1999
Selected Per Share Data for the Year Ended: 12/31/1999 12/31/1998 (b)
---------------------------
Net asset value beginning of period $ 12.58 $ 10.00
- --------------------------------------------------------------------------------
Net investment income (a) 0.76 0.30
- --------------------------------------------------------------------------------
Net realized / unrealized gain on investments (a) 1.65 2.68
- --------------------------------------------------------------------------------
Total income from investment operations 2.41 2.98
- --------------------------------------------------------------------------------
Dividends from net investment income (0.61) (0.29)
- --------------------------------------------------------------------------------
Distributions from net realized capital gains (0.82) (0.11)
- --------------------------------------------------------------------------------
Total distributions (1.43) (0.40)
- --------------------------------------------------------------------------------
Net asset value end of period $ 13.56 $ 12.58
- --------------------------------------------------------------------------------
Total return 19.85 % 30.11%
- --------------------------------------------------------------------------------
Net assets end of period (000s) $ 230,412 $ 58,264
- --------------------------------------------------------------------------------
Ratio of net expenses to average net assets 0.65% (c) 0.65%
- --------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.69% 5.30%
- --------------------------------------------------------------------------------
Portfolio turnover rate 34% 61%
- --------------------------------------------------------------------------------
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on December 31, 1997.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.65% for the
period ended December 31, 1999.
Statement of Assets and Liabilities
StocksPLUS Growth and Income Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
-----------
Assets:
<S> <C>
Investments, at value $ 238,925
- ------------------------------------------------------------------------------------------
Cash and foreign currency 208
- ------------------------------------------------------------------------------------------
Receivable for investments sold and forward foreign currency contracts 3,474
- ------------------------------------------------------------------------------------------
Receivable for Portfolio shares sold 2,406
- ------------------------------------------------------------------------------------------
Interest and dividends receivable 1,889
- ------------------------------------------------------------------------------------------
Variation margin receivable 499
- ------------------------------------------------------------------------------------------
Other assets 20
- ------------------------------------------------------------------------------------------
247,421
==========================================================================================
Liabilities:
Payable for investments purchased and forward foreign currency contracts $ 24
- ------------------------------------------------------------------------------------------
Payable for financing transactions 16,416
- ------------------------------------------------------------------------------------------
Written options outstanding 443
- ------------------------------------------------------------------------------------------
Accrued investment advisory fee 76
- ------------------------------------------------------------------------------------------
Accrued administration fee 47
- ------------------------------------------------------------------------------------------
Accrued servicing fee 0
- ------------------------------------------------------------------------------------------
Recoupment payable to manager 3
- ------------------------------------------------------------------------------------------
Other liabilities 0
- ------------------------------------------------------------------------------------------
17,009
==========================================================================================
Net Assets $ 230,412
==========================================================================================
Net Assets Consist of:
Paid in capital $ 218,769
- ------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income 5,040
- ------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain (loss) (60)
- ------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) 6,663
- ------------------------------------------------------------------------------------------
$ 230,412
==========================================================================================
Shares Issued and Outstanding: 16,991
- ------------------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 13.56
- ------------------------------------------------------------------------------------------
Cost of Investments Owned $ 239,726
- ------------------------------------------------------------------------------------------
Cost of Foreign Currency Held $ 208
==========================================================================================
</TABLE>
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
StocksPLUS Growth and Income Portfolio
For the year ended December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest $ 8,959
- ----------------------------------------------------------------------------------------------------------------------------
Dividends 2
- ----------------------------------------------------------------------------------------------------------------------------
Miscellaneous Income 9
- ----------------------------------------------------------------------------------------------------------------------------
Total Income 8,970
============================================================================================================================
Expenses:
Investment advisory fees 563
- ----------------------------------------------------------------------------------------------------------------------------
Administration fees 352
- ----------------------------------------------------------------------------------------------------------------------------
Trustees' fees 11
- ----------------------------------------------------------------------------------------------------------------------------
Organization costs 1
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses 927
- ----------------------------------------------------------------------------------------------------------------------------
Reimbursement by manager (5)
- ----------------------------------------------------------------------------------------------------------------------------
Net expenses 922
- ----------------------------------------------------------------------------------------------------------------------------
Net Investment Income 8,048
============================================================================================================================
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 129
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on futures contracts and written options 14,692
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain on foreign currency transactions 64
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized (depreciation) on investments (936)
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on futures contracts and written options 4,804
- ----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation on translation of assets and liabilities denominated in foreign currencies 156
- ----------------------------------------------------------------------------------------------------------------------------
Net Gain 18,909
- ----------------------------------------------------------------------------------------------------------------------------
Net Increase in Assets Resulting from Operations $ 26,957
============================================================================================================================
</TABLE>
Statement of Changes in Net Assets
StocksPLUS Growth and Income Portfolio
December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
------------------ -------------------
Year Ended Year Ended
Increase (Decrease) in Net Assets from: December 31, 1999 December 31, 1998
Operations:
<S> <C> <C>
Net investment income $ 8,048 $ 762
- -----------------------------------------------------------------------------------------------------------
Net realized gain 14,885 2,422
- -----------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 4,024 2,639
- -----------------------------------------------------------------------------------------------------------
Net increase resulting from operations 26,957 5,823
===========================================================================================================
Distributions to Shareholders:
From net investment income (7,970) (748)
- -----------------------------------------------------------------------------------------------------------
From net realized capital gains (11,998) (421)
- -----------------------------------------------------------------------------------------------------------
Total Distributions (19,968) (1,169)
===========================================================================================================
Portfolio Share Transactions:
Receipts for shares sold 188,965 64,713
- -----------------------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 19,968 1,169
- -----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (43,774) (12,272)
- -----------------------------------------------------------------------------------------------------------
Net increase resulting from Portfolio share transactions 165,159 53,610
- -----------------------------------------------------------------------------------------------------------
Total Increase in Net Assets $ 172,148 $ 58,264
===========================================================================================================
Net Assets:
Beginning of period 58,264 0
- -----------------------------------------------------------------------------------------------------------
End of period * $ 230,412 $ 58,264
- -----------------------------------------------------------------------------------------------------------
*Including net undistributed (overdistributed) investment income of: $ 5,040 $ 14
- -----------------------------------------------------------------------------------------------------------
</TABLE>
4 See accompanying notes
<PAGE>
Schedule of Investments
StocksPLUS Growth and Income Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------
CORPORATE BONDS & NOTES 37.0%
- --------------------------------------------------------------
Banking & Finance 18.3%
American General Finance
6.050% due 07/02/2001 $ 300 $ 296
Banco de Inversion Y Comercial
9.375% due 12/27/2000 1,200 1,196
Caithness Coso Fund Corp.
6.800% due 12/15/2001 3,000 2,966
Chrysler Financial Co. LLC
6.493% due 06/11/2001 (d) 600 600
Finova Capital Corp.
6.390% due 06/18/2003 (d) 3,000 2,966
First Security Corp.
7.701% due 06/01/2005 (d) 5,000 5,000
Ford Motor Credit Corp.
6.446% due 07/16/2002 (d) 700 702
6.280% due 12/16/2002 (d) 300 299
General Motors Acceptance Corp.
5.400% due 04/09/2001 2,000 1,967
5.500% due 12/15/2001 3,500 3,401
6.515% due 12/17/2001 (d) 2,000 2,014
6.170% due 08/18/2003 (d) 3,000 2,983
6.604% due 04/05/2004 (d) 800 798
Goldman Sachs Group
6.604% due 01/16/2001 (d) 1,000 1,004
6.314% due 02/10/2004 (d) 1,300 1,281
Hyatt Equities LLC
6.800% due 05/15/2000 3,000 2,999
Lehman Brothers Holdings, Inc.
5.653% due 08/01/2003 (d) 1,100 1,089
5.824% due 11/30/2006 (d) 2,865 2,607
Merrill Lynch & Co.
6.604% due 11/20/2000 1,000 1,003
6.626% due 01/11/2002 (d) 2,200 2,206
6.580% due 02/01/2002 (d) 750 751
5.920% due 03/17/2004 (d) 200 202
Nacional Financiera
9.549% due 12/01/2000 (d) 1,000 995
Paine Webber Group, Inc.
7.700% due 02/11/2000 130 130
6.525% due 08/18/2004 (d) 1,000 977
Salomon, Smith Barney Holdings
6.304% due 04/02/2002 (d) 300 300
Tecnost International NV
5.316% due 06/23/2004 (d) EC 1,500 1,545
---------
42,277
Industrials 14.5%
Arrow Electronics, Inc.
6.852% due 11/24/2000 (d) $ 5,000 5,000
Case Credit Corp.
6.375% due 05/05/2000 (d) 4,000 4,003
Champion International Corp.
9.700% due 05/01/2001 300 309
DaimlerChrysler NA Holdings
6.371% due 08/23/2002 (d) 3,300 3,308
Florida Progress Corp.
2.180% due 01/02/2000 16 694
Limited, Inc.
7.004% due 05/22/2001 (d) 2,000 1,999
Norfolk Southern Corp.
6.700% due 05/01/2000 200 200
Petroleos Mexicanos
8.799% due 07/15/2005 (d) 3,500 3,434
Tyco International Group SA
6.821% due 03/05/2001 (d) 500 500
U.S. West Capital Funding
6.571% due 06/15/2000 (d) 3,000 2,999
US Air, Inc.
9.625% due 09/01/2003 30 29
Waste Management Inc
6.250% due 10/15/2000 5,735 5,605
Williams Holdings, Inc.
5.950% due 02/15/2000 (d) 300 300
6.680% due 06/13/2000 5,000 5,003
----------
33,383
Utilities 4.2%
Cleveland Electric/Toledo Edison
7.190% due 07/01/2000 3,000 2,997
Enron Corp.
5.959% due 03/30/2000 1,000 1,000
Noram Energy
7.500% due 08/01/2000 500 502
Sprint Capital Corp.
6.354% due 11/15/2001 (d) 3,200 3,203
Texas Utilities Co.
6.500% due 05/01/2000 2,000 2,000
----------
9,702
----------
Total Corporate Bonds & Notes 85,362
(Cost $85,388) ==========
- --------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS 9.8%
- --------------------------------------------------------------
Student Loan Marketing Assn.
5.483% due 01/25/2003 (d) 261 260
5.443% due 01/25/2007 (d) 841 837
5.544% due 04/25/2007 (d) 735 731
----------
Total U.S. Government Agencies 1,828
(Cost $1,830) ==========
- --------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 9.8%
- --------------------------------------------------------------
Treasury Inflation Protected Securities
3.625% due 07/15/2002 (h) 13,338 13,213
U.S. Treasury Notes
5.375% due 01/31/2000 (b) 5,645 5,647
5.500% due 03/31/2000 (b) 3,630 3,631
----------
Total U.S. Treasury Obligations 22,491
(Cost $22,512) ==========
- --------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 14.2%
- --------------------------------------------------------------
Collateralized Mortgage Obligations 10.2%
Countrywide Home Loans
6.500% due 03/25/2028 553 539
6.050% due 04/25/2029 400 393
DLJ Mortgage Acceptance Corp.
6.125% due 06/25/2026 (d) 1,131 1,120
Federal Home Loan Mortgage Corp.
5.278% due 05/18/2000 (d) 2,000 1,998
6.500% due 02/15/2024 660 658
Federal National Mortgage Assn.
7.000% due 06/25/2006 257 256
6.900% due 10/25/2020 1,000 982
General Electric Capital Mortgage
Services, Inc.
6.500% due 12/25/2023 1,636 1,591
6.500% due 08/25/2024 4,079 4,054
Government National Mortgage Assn.
7.500% due 08/20/2021 195 196
Headlands Mortgage Securities, Inc.
7.250% due 11/25/2027 1,000 975
7.000% due 02/25/2028 540 538
Housing Securities, Inc.
5.864% due 07/25/2032 (d) 1,353 1,353
Independent National Mortgage Corp.
8.350% due 06/25/2025 306 306
Morgan Stanley Capital
5.639% due 07/25/2027 (d) 239 238
Norwest Asset Securities Corp.
6.750% due 08/25/2029 994 986
PNC Mortgage Securities Corp.
6.625% due 03/25/2028 683 667
Prudential Home Mortgage Securities
6.750% due 08/25/2008 223 222
Prudential-Bache CMO Trust
7.965% due 03/01/2019 956 954
Resecuritization Mortgage Trust
6.731% due 04/26/2021 (d) 508 491
Residential Accredit Loans, Inc.
8.000% due 08/25/2026 510 514
1999 Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments (Cont.)
StocksPLUS Growth and Income Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------
Residential Asset Securitization Trust
7.750% due 04/25/2027 $ 850 $ 852
6.500% due 03/25/2029 300 288
Residential Funding Mortgage Securities, Inc.
6.500% due 07/25/2008 151 151
7.250% due 08/25/2027 117 117
7.250% due 10/25/2027 1,000 983
Structured Asset Securities Corp.
5.760% due 12/25/2000 (d) 106 106
Thrift Financing Corp.
11.250% due 01/01/2016 1,799 1,854
---------
23,382
Federal National Mortgage Association 0.3%
5.812% due 08/01/2029 (d) 262 256
5.848% due 08/01/2031 (d) 67 66
6.500% due 09/01/2005 433 428
---------
750
Government National Mortgage Association 3.6%
6.375% due 04/20/2027 (d) 8,017 8,073
6.750% due 08/20/2024 (d) 235 238
---------
8,311
Mortgage-Backed Securities 0.1%
CS First Boston Mortgage Securities
6.960% due 01/20/2004 293 291
---------
291
---------
Total Mortgage-Backed Securities 32,734
(Cost $33,135) =========
- --------------------------------------------------------------
ASSET-BACKED SECURITIES 4.1%
- --------------------------------------------------------------
Arcadia Automobile Receivables Trust
6.500% due 06/17/2002 656 657
Banc One Auto Grantor Trust
6.270% due 11/20/2003 746 745
Empire Funding Home Loan Owner Trust
7.160% due 05/25/2012 710 708
Money Store Home Equity Trust
6.550% due 09/15/2021 2,008 2,002
6.345% due 11/15/2021 (d) 205 203
Saxon Asset Securities Trust
6.711% due 05/25/2029 (d) 4,170 4,161
WMC Mortgage Loan
6.671% due 03/20/2028 (d) 947 948
---------
Total Asset-Backed Securities 9,424
(Cost $9,460) =========
- --------------------------------------------------------------
FOREIGN CURRENCY-DENOMINATED 1.3%
- --------------------------------------------------------------
Korea Development Bank
5.625% due 11/05/2002 FF 20,000 2,995
---------
Total Foreign Currency-Denominated 2,995
(Cost $3,224) =========
- --------------------------------------------------------------
PURCHASED PUT OPTIONS 0.0%
- --------------------------------------------------------------
Eurodollar March Futures (CME)
Strike @ 92.750 Exp. 03/13/2000 $ 765 4
S&P 500 Index Futures (CME)
Strike @ 875.000 Exp. 03/17/2000 10 3
---------
Total Purchased Put Options 7
(Cost $10) =========
- --------------------------------------------------------------
COMMON STOCKS 0.8%
- --------------------------------------------------------------
Shares
Utilities 0.8%
MCN Energy Group, Inc.
1.020% due 01/02/2000 (d) 51,800 1,230
Northeast Utilities
0.100% due 01/02/2000 32,400 666
---------
Total Common Stocks 1,896
(Cost $1,985)
Principal Value
Amount (000s)
(000s)
- --------------------------------------------------------------
SHORT-TERM INSTRUMENTS 35.7%
- --------------------------------------------------------------
Commercial Paper 25.4%
Alcoa
6.050% due 02/18/2000 1,000 992
Deutsche Bank Financial
5.940% due 02/02/2000 3,000 2,985
Eastman Kodak Co.
5.720% due 01/26/2000 4,000 3,985
General Electric Capital Corp.
6.400% due 01/25/2000 3,000 2,988
Heller Financial, Inc.
5.790% due 01/26/2000 2,700 2,690
5.790% due 02/09/2000 2,700 2,684
Houston Industries
6.500% due 01/19/2000 6,000 5,983
IBM Corp.
6.190% due 02/08/2000 1,200 1,193
Lockheed Martin Corp.
7.000% due 02/09/2000 5,000 4,964
National Australia Funding
5.750% due 01/26/2000 12,000 11,956
National Rural Utilities
6.240% due 02/24/2000 400 396
New York State Electric & Gas
6.144% due 11/14/2000 3,000 2,999
Swedish Bank, Inc.
5.820% due 02/18/2000 5,000 4,963
TRW, Inc.
6.220% due 02/09/2000 1,200 1,192
U.S. West Capital Funding
6.250% due 02/08/2000 5,000 4,970
6.610% due 03/24/2000 1,500 1,481
Williams Holdings
5.360% due 01/25/2000 2,000 1,993
---------
58,414
Repurchase Agreement 9.0%
State Street Bank
4.000% due 01/03/2000 20,786 20,786
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
0.000% due 06/15/2000 valued at $21,205.
Repurchase proceeds are $20,793.)
U.S. Treasury Bills (b) 1.3%
5.045% due 01/13/2000 2,990 2,988
---------
Total Short-Term Instruments 82,188
(Cost $82,182) =========
Total Investments (a) 103.7% $ 238,925
(Cost $239,726)
Written Options (c) (0.2%) (443)
(Premiums $253)
Other Assets and Liabilities (Net) (3.5%) (8,070)
---------
Net Assets 100.0% $ 230,412
=========
6 See accompanying notes
<PAGE>
- --------------------------------------------------------------------------------
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $239,726 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 251
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (1,052)
---------
Unrealized depreciation-net (801)
=========
(b) Securities with an aggregate market value of $12,266 have
been segregated with the custodian to cover margin requirements
for the following open futures contracts at December 31, 1999:
Unrealized
# of Appreciation/
Type Contracts (Depreciation)
- --------------------------------------------------------------------------------
S&P 500 Index (03/2000) 587 $ 7,509
Eurodollar September Futures (09/2000) 6 (11)
---------
$ 7,498
=========
(c) Premiums received on written options:
Type Par Premium Value
- --------------------------------------------------------------------------------
Put - CME Eurodollar December Futures
Strike @ 93.500 Exp. 12/18/2000 300,000 $ 253 $ (443)
(d) Variable rate security. The rate listed is as of December 31, 1999.
(e) Foreign forward currency contracts outstanding at December 31,1999:
Principal
Amount Unrealized
Covered by Settlement Appreciation/
Type Currency Contract Month (Depreciation)
- --------------------------------------------------------------------------------
Buy EC $ 700 01/2000 $ 0
Sell EC 5,641 01/2000 181
Buy PZ 4,200 01/2000 (24)
---------
$ 157
=========
(f) Principal amount denoted in indicated currency:
EC - Euro
PZ - Polish Zloty
FF - French Franc
(g) Swap agreements outstanding at December 31, 1999.
Notional Unrealized
Type Amount Appreciation
- --------------------------------------------------------------------------------
Receive total return on S&P 500 Index and
pay floating rate based on 1 month LIBOR plus 0.140%.
Broker: J.P. Morgan Securities, Inc.
Exp. 04/28/2000 $ 6,500 $ 0
(h) Principal amount of the security is adjusted for inflation.
1999 Annual Report See accompanying notes 7
<PAGE>
Notes to Financial Statements
December 31, 1999
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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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, of the Portfolio 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
at least 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.
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 the
Portfolio and the prices of futures contracts and options, the possibility of an
illiquid market, and the inability of the counterparty to meet
8
<PAGE>
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.
Forward Currency Transactions. The Portfolio is authorized to enter into forward
foreign exchange contracts for the purpose of hedging against foreign exchange
risk arising from the Portfolio's investment or anticipated investment in
securities denominated in foreign currencies. The Portfolio also may enter into
these contracts for purposes of increasing exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another. All
commitments are marked to market daily at the applicable translation rates and
any resulting unrealized gains or losses are recorded. Realized gains or losses
are recorded at the time the forward contract matures or by delivery of the
currency. Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
Swaps. The Portfolio is authorized to enter into interest rate, total return and
currency exchange swap agreements in order to obtain a desired return at a lower
cost than if the Portfolio had invested directly in the asset that yielded the
desired return. Swaps involve commitments to exchange components of income
(generally interest or returns) pegged to the underlying assets based on a
notional principal amount. Swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as unrealized
gains or losses in the Statements of Operations. The Portfolio bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a counterparty.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income securities
whose principal value is periodically adjusted to the rate of inflation. The
interest rate on these bonds is generally fixed at issuance at a rate lower than
typical bonds. Over the life of an inflation-indexed bond, however, interest
will be paid based on a principal value which is adjusted for inflation. Any
increase in the principal amount of an inflation-indexed bond will be considered
interest income, even though investors do not receive their principal until
maturity.
Stripped Mortgage-Backed Securities (SMBS). SMBS represent a participation in,
or are secured by and payable from, mortgage loans on real property, and may be
structured in classes with rights to receive varying proportions of principal
and interest. SMBS include interest-only securities (IOs), which receive all of
the interest, and principal-only securities (POs), which receive all of the
principal. If the underlying mortgage assets experience greater than anticipated
payments of principal, the Portfolio may fail to recoup some or all of its
initial investment in these securities. The market value of these securities is
highly sensitive to changes in interest rates.
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, for which it receives a
monthly advisory fee based on average daily net assets. 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%.
1999 Annual Report 9
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
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.
Organization Expense. Costs incurred in connection with the organization of the
Portfolio and its initial registration are amortized on a straight-line basis
over a five-year period from the Portfolio's commencement of operations.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
------------------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
StocksPLUS Growth
and Income Portfolio $ 11,924 $ 3,992 $ 71,287 $ 3,240
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amounts in
thousands):
StocksPLUS Growth and Income Portfolio
------------------------------------------------------
# of Contracts Premium
- --------------------------------------------------------------------------------
Balance at 12/31/1998 11 $ 2
Sales 1,596 1,272
Closing Buys (38) (54)
Expirations (1,156) (932)
Exercised (113) (35)
- --------------------------------------------------------------------------------
Balance at 12/31/1999 300 $ 253
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
StocksPLUS Growth and Income Portfolio 1 96
6. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
StocksPLUS Growth and Income Portfolio
---------------------------------------------
Year Ended 12/31/1999 Year Ended 12/31/1998
Shares Amount Shares Amount
---------------------------------------------
<S> <C> <C> <C> <C>
Receipts for shares sold 14,200 $188,965 5,681 $ 64,713
- -----------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 1,460 19,968 97 1,169
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (3,301) (43,774) (1,146) (12,272)
- -----------------------------------------------------------------------------------------------
Net increase resulting from
Portfolio share transactions 12,359 $165,159 4,632 $ 53,610
===============================================================================================
</TABLE>
10
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholders of
StocksPLUS Growth and Income Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations, of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of StocksPLUS
Growth and Income Portfolio (a Portfolio of PIMCO Variable Insurance Trust,
hereafter referred to as the "Trust") at December 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at December 31, 1999
by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
<PAGE>
Federal Income Tax Information (Unaudited)
As required by the Internal Revenue Code regulations, shareholders must be
notified within 60 days of the Trust's calendar year-end regarding the
status of the distributions made to the shareholders.
Dividend Received Deduction. For the benefit of corporate shareholders
only, the portion of dividends paid out of ordinary income earned during
the Portfolio's calendar year-end which qualify for the corporate
dividend-received deduction is as follows:
StocksPLUS Growth & Income Portfolio 0.01%
Capital Gain Distributions. Capital gains distributions paid during the
calendar year end, were in the amounts as follows:
Per Share Per Share
Long-Term Short-Term
Capital Gains Capital Gains
---------------------------------------------------------------------------
StocksPLUS Growth and Income Portfolio 0.09124 0.00000
Shareholders are advised to consult their own tax advisor with respect to
the tax consequences of their investment in the Trust. However, income
received by tax-exempt recipients need not be reported as taxable income.
In January 2000, you will be advised on IRS form 1099-DIV as to the federal
tax status of the dividends and distributions received by you in calendar
year 1999.
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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
TOTAL RETURN BOND PORTFOLIO
------------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<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:
4.34 years
Total Net Assets:
$3.9 million
Sector Breakdown:*
Mortgage-Backed Securities 47.1%
Corporate Bonds and Notes 30.5%
Short-Term Instruments 15.9%
Other 6.5%
Quality Breakdown:*
AAA 61.3%
AA 14.0%
A 17.4%
BBB 7.3%
*% of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Total Return
Bond Portfolio Lehman Brothers
(Incep. 12/31/1997) Aggregate Bond Index
- --------------------------------------------------------------------------------
1 Year -0.58% -0.82%
Since Inception* 3.91% --
*Annualized
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
[GRAPH]
<TABLE>
<CAPTION>
Month Total Return Lehman Brothers
Bond Portfolio Aggregate
Bond Index
<S> <C> <C>
12/31/1997 10,000 10,000
01/31/1998 10,102 10,128
02/28/1998 10,059 10,120
03/31/1998 10,081 10,156
04/30/1998 10,124 10,209
05/31/1998 10,222 10,305
06/30/1998 10,302 10,393
07/31/1998 10,355 10,415
08/31/1998 10,546 10,584
09/30/1998 10,861 10,832
10/31/1998 10,820 10,775
11/30/1998 10,806 10,836
12/31/1998 10,861 10,869
01/31/1999 10,907 10,946
02/28/1999 10,641 10,755
03/31/1999 10,769 10,815
04/30/1999 10,754 10,849
05/31/1999 10,660 10,754
06/30/1999 10,668 10,720
07/31/1999 10,611 10,674
08/31/1999 10,596 10,669
09/30/1999 10,755 10,793
10/31/1999 10,843 10,832
11/30/1999 10,829 10,832
12/31/1999 10,798 10,779
</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 $10,000 on 1/01/1998, the first full month following the
Portfolio's 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 -0.58% for the 12-month period
ended December 31, 1999, outperforming the benchmark Lehman Brothers
Aggregate Bond Index, which returned -0.82% during the period.
. The Portfolio's near-benchmark duration for much of the year helped protect
relative returns against rising interest rates as growth improved worldwide
and inflationary expectations increased.
. The Portfolio's emphasis on intermediate maturities was negative as rates
rose most in the middle of the yield curve.
. A mortgage overweight was a strong positive because mortgages outperformed
like-duration Treasuries amid a decline in market volatility and narrower
yield premiums.
. Slightly above-benchmark weightings of corporate issues was beneficial to
returns as better-than-expected profits and relatively high yields aided
the performance of high-grade corporates.
. Holdings of asset-backed securities was positive due to their relatively
high yields.
2
<PAGE>
Financial Highlights
Total Return Bond Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Selected Per Share Data for the Year Ended: 12/31/1999 12/31/1998 (c)
-----------------------------
<S> <C> <C>
Net asset value beginning of period $ 10.09 $ 10.00
- ---------------------------------------------------------------------------------------
Net investment income (a) 0.58 0.56
- ---------------------------------------------------------------------------------------
Net realized / unrealized gain (loss) on investments (a) (0.64) 0.28
- ---------------------------------------------------------------------------------------
Total income from investment operations (0.06) 0.84
- ---------------------------------------------------------------------------------------
Dividends from net investment income (0.58) (0.56)
- ---------------------------------------------------------------------------------------
Distributions from net realized capital gains 0 (0.19)
- ---------------------------------------------------------------------------------------
Total distributions (0.58) (0.75)
- ---------------------------------------------------------------------------------------
Net asset value end of period $ 9.45 $ 10.09
- ---------------------------------------------------------------------------------------
Total return (0.58)% 8.61%
- ---------------------------------------------------------------------------------------
Net assets end of period (000s) $ 3,877 $ 3,259
- ---------------------------------------------------------------------------------------
Ratio of net expenses to average net assets (b) 0.65% 0.65%
- ---------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.96% 5.55%
- ---------------------------------------------------------------------------------------
Portfolio turnover rate 102% 139%
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.69% for the period
ended December 31, 1999.
(c) Commenced operations on December 31, 1997.
Statement of Assets and Liabilities
Total Return Bond Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value $ 4,831
- ----------------------------------------------------------------------------------
Receivable for investments sold and forward foreign currency contracts 2
- ----------------------------------------------------------------------------------
Receivable for Portfolio shares sold 33
- ----------------------------------------------------------------------------------
Interest receivable 52
- ----------------------------------------------------------------------------------
Manager reimbursement receivable 1
- ----------------------------------------------------------------------------------
Other assets 5
- ----------------------------------------------------------------------------------
4,924
===================================================================================
Liabilities:
Payable for investments purchased and forward foreign currency
contracts $ 884
- ----------------------------------------------------------------------------------
Payable for financing transactions 155
- ----------------------------------------------------------------------------------
Written options outstanding 5
- ----------------------------------------------------------------------------------
Accrued investment advisory fee 1
- ----------------------------------------------------------------------------------
Accrued administration fee 1
- ----------------------------------------------------------------------------------
Variation margin payable 1
- ----------------------------------------------------------------------------------
1,047
==================================================================================
Net Assets $ 3,877
==================================================================================
Net Assets Consist of:
Paid in capital $ 4,061
- ----------------------------------------------------------------------------------
(Overdistributed) net investment income (12)
- ----------------------------------------------------------------------------------
Accumulated undistributed net realized (loss) (86)
- ----------------------------------------------------------------------------------
Net unrealized (depreciation) (86)
- ----------------------------------------------------------------------------------
$ 3,877
==================================================================================
Shares Issued and Outstanding: 410
- ----------------------------------------------------------------------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.45
- ----------------------------------------------------------------------------------
Cost of Investments Owned $ 4,909
==================================================================================
</TABLE>
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Total Return Bond Portfolio
For the year ended December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
Investment Income:
<S> <C>
Interest $ 213
- ---------------------------------------------------------------------------------
Total Income 213
=================================================================================
Expenses:
Investment advisory fees 13
- ---------------------------------------------------------------------------------
Administration fees 8
- ---------------------------------------------------------------------------------
Organization costs 1
- ---------------------------------------------------------------------------------
Total expenses 22
- ---------------------------------------------------------------------------------
Reimbursement by manager (1)
- ---------------------------------------------------------------------------------
Net expenses 21
- ---------------------------------------------------------------------------------
Net Investment Income (Loss) 192
=================================================================================
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (40)
- ---------------------------------------------------------------------------------
Net realized (loss) on futures contracts and written options (62)
- ---------------------------------------------------------------------------------
Net change in unrealized (depreciation) on investments (111)
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation on futures contracts and written 2
options
- ---------------------------------------------------------------------------------
Net (Loss) (211)
- ---------------------------------------------------------------------------------
Net (Decrease) in Assets Resulting from Operations $ (19)
=================================================================================
</TABLE>
Statement of Changes in Net Assets
Total Return Bond Portfolio
December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
----------------- -----------------
Year Ended Year Ended
Increase (Decrease) in Net Assets from: December 31, 1999 December 31, 1998
Operations:
<S> <C> <C>
Net investment income $ 192 $ 172
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) (102) 64
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (109) 23
- -----------------------------------------------------------------------------------------------
Net increase (decrease) resulting from operations (19) 259
===============================================================================================
Distributions to Shareholders:
From net investment income (192) (172)
- -----------------------------------------------------------------------------------------------
From net realized capital gains 0 (60)
- -----------------------------------------------------------------------------------------------
Total Distributions (192) (232)
===============================================================================================
Portfolio Share Transactions:
Receipts for shares sold 637 2,900
- -----------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 192 232
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed 0 0
- -----------------------------------------------------------------------------------------------
Net increase resulting from Portfolio share transactions 829 3,132
- -----------------------------------------------------------------------------------------------
Total Increase in Net Assets $ 618 $ 3,159
===============================================================================================
Net Assets:
Beginning of period 3,259 100
- -----------------------------------------------------------------------------------------------
End of period * $ 3,877 $ 3,259
- -----------------------------------------------------------------------------------------------
*Including net undistributed (overdistributed) investment
income of: $ (12) $ 0
- -----------------------------------------------------------------------------------------------
</TABLE>
4 See accompanying notes
<PAGE>
Schedule of Investments
Total Return Bond Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 37.9%
- --------------------------------------------------------------------------------
Banking & Finance 18.8%
Caterpillar Financial Service Corp.
6.875% due 08/01/2004 $ 100 $ 98
Dean Witter Discover
5.809% due 06/27/2000 (d) 100 100
Dresdner Funding Trust I
8.151% due 06/30/2031 100 94
Ford Motor Credit Corp.
6.328% due 10/15/2002 (d) 150 150
Merrill Lynch & Co.
6.243% due 05/08/2001 (d) 100 100
PNC Funding Corp.
6.125% due 09/01/2003 100 96
Westdeutsche Landesbank
6.050% due 01/15/2009 100 90
--------
728
Industrials 2.5%
Philip Morris Cos., Inc.
7.250% due 09/15/2001 100 99
--------
Utilities 16.6%
Philadelphia Electric
6.500% due 05/01/2003 100 97
Sprint Corp.
8.125% due 07/15/2002 150 154
Telekomunikacja Polska SA
7.125% due 12/10/2003 100 96
Texas Utilities Co.
7.375% due 08/01/2001 100 101
5.940% due 10/15/2001 100 98
WorldCom, Inc.
6.125% due 08/15/2001 100 99
--------
645
--------
Total Corporate Bonds & Notes 1,472
(Cost $1,506) --------
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 4.2%
- --------------------------------------------------------------------------------
Treasury Inflation Protected Securities
3.625% due 07/15/2002 (g)(h) 105 104
--------
U.S. Treasury Notes
5.500% due 02/29/2000 (b) 60 60
--------
Total U.S. Treasury Obligations 164
(Cost $164) --------
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 58.7%
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation 6.4%
8.500% due 08/01/2024 243 250
--------
Federal Housing Administration 49.9%
7.000% due 01/25/2030 900 869
7.430% due 01/25/2023 577 582
7.700% due 08/01/2028 478 482
--------
1,933
Government National Mortgage Association 2.4%
6.375% due 02/20/2027 (d) 92 93
--------
Total Mortgage-Backed Securities 2,276
(Cost $2,316) --------
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 2.6%
- --------------------------------------------------------------------------------
Contimortgage Home Equity Loan Trust
7.580% due 08/15/2028 100 99
--------
Total Asset-Backed Securities 99
(Cost $102) --------
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY-DENOMINATED (e)(f) 1.3%
- --------------------------------------------------------------------------------
Commonwealth of New Zealand
5.500% due 04/15/2003 (g) N$ 100 $ 50
--------
Total Foreign Currency-Denominated 50
(Cost $51) --------
- --------------------------------------------------------------------------------
SHORT - TERM INSTRUMENTS 19.9%
- --------------------------------------------------------------------------------
Commercial Paper 15.4%
ANZ, Inc.
5.990% due 02/04/2000 $ 100 $ 99
Electricite de France
6.500% due 01/20/2000 100 100
General Motors Acceptance Corp.
5.860% due 02/14/2000 100 99
Illinois Tool Works
6.190% due 01/31/2000 100 100
National Australia Funding
6.040% due 02/03/2000 100 99
Southwestern Public Service
6.240% due 02/09/2000 100 99
--------
596
--------
Repurchase Agreement 4.5%
State Street Bank
4.000% due 01/03/2000 174 174
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
6.400% due 12/21/2001 valued at $180.
--------
Repurchase proceeds are $174.)
174
--------
Total Short-Term Instruments 770
(Cost $770) --------
Total Investments (a) 124.6% $ 4,831
(Cost $4,909)
Written Options (c) (0.1%) (5)
(Premiums $4)
Other Assets and Liabilities (Net) (24.5%) (949)
--------
Net Assets 100.0% $ 3,877
--------
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $4,909 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 1
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (79)
--------
Unrealized depreciation-net $ (78)
--------
(b) Securities with an aggregate market value of $60
have been segregated with the custodian to cover margin
requirements for the following open futures contracts at
December 31, 1999:
# of Unrealized
Type Contracts (Depreciation)
- --------------------------------------------------------------------------------
Eurodollar September Futures (09/2000) 3 $ (4)
U.S. Treasury 30 Year Bond (03/2000) 1 (2)
--------
$ (6)
--------
1999 Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments (Cont.)
Total Return Bond Portfolio
December 31, 1999
(c) Premiums received on written options:
# of
Type Contracts Premium Value
- --------------------------------------------------------------------------------
Call - CBOT U.S. Treasury Bond March Futures
Strike @ 98.000 Exp. 02/19/2000 1 $ 0 $ 0
Put - CME U.S. Treasury Bond March Futures
Strike @ 88.000 Exp. 02/19/2000 1 0 1
Put - CME Eurodollar December Futures
Strike @ 93.500 Exp. 12/18/2000 3 4 4
----- -----
4 $ 5
----- -----
(d) Variable rate security. The rate listed is as of December 31, 1999.
(e) Foreign forward currency contracts outstanding at December 31, 1999:
Principal
Amount
Covered by Settlement Unrealized
Type Currency Contract Month (Depreciation)
- --------------------------------------------------------------------------------
Buy EC $ 20 01/2000 $ 0
Sell EC (5) 01/2000 0
$ 0
------
(f) Principal amount denoted in indicated currency:
EC - Euro
N$ - New Zealand Dollar
(g) Subject to financing transaction.
(h) Principal amount of the security is adjusted for inflation.
6 See accompanying notes
<PAGE>
Notes to Financial Statements
December 31, 1999
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 Total Return
Bond 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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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 counterparty 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.
1999 Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
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 the
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.
Forward Currency Transactions. The Portfolio is authorized to enter into forward
foreign exchange contracts for the purpose of hedging against foreign exchange
risk arising from the Portfolio's investment or anticipated investment in
securities denominated in foreign currencies. The Portfolio also may enter into
these contracts for purposes of increasing exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another. All
commitments are marked to market daily at the applicable translation rates and
any resulting unrealized gains or losses are recorded. Realized gains or losses
are recorded at the time the forward contract matures or by delivery of the
currency. Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income securities
whose principal value is periodically adjusted to the rate of inflation. The
interest rate on these bonds is generally fixed at issuance at a rate lower than
typical bonds. Over the life of an inflation-indexed bond, however, interest
will be paid based on a principal value which is adjusted for inflation. Any
increase in the principal amount of an inflation-indexed bond will be considered
interest income, even though investors do not receive their principal until
maturity.
Stripped Mortgage-Backed Securities (SMBS). SMBS represent a participation in,
or are secured by and payable from, mortgage loans on real property, and may be
structured in classes with rights to receive varying proportions of principal
and interest. SMBS include interest-only securities (IOs), which receive all of
the interest, and principal-only securities (POs), which receive all of the
principal. If the underlying mortgage assets experience greater than anticipated
payments of principal, the Portfolio may fail to recoup some or all of its
initial investment in these securities.
The market value of these securities is highly sensitive to changes in interest
rates.
Delayed Delivery Transactions. The Portfolio may purchase or sell securities on
a when-issued or delayed delivery basis. These transactions involve a commitment
by the Portfolio to purchase or sell securities for a predetermined price or
yield, with payment and delivery taking place beyond the customary settlement
period. When delayed delivery purchases are outstanding, the Portfolio will set
aside and maintain until the settlement date in a segregated account, liquid
assets in an amount sufficient to meet the purchase price. When purchasing a
security on a delayed delivery basis, the Portfolio assumes the rights and risks
of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its net
asset value. The Portfolio may dispose of or renegotiate a delayed delivery
transaction after it is entered into, and may sell when-issued securities before
they are delivered, which may result in a capital gain or loss. When the
Portfolio has sold a security on a delayed delivery basis, the Portfolio does
not participate in future gains and losses with respect to the security. Forward
sales commitments are accounted for by the Portfolio in the same manner as
forward currency contracts discussed above.
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, for which it receives a
monthly advisory fee based on average daily net assets. 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
8
<PAGE>
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.
Organization Expense. Costs incurred in connection with the organization of the
Portfolio and its initial registration are amortized on a straight-line basis
over a five-year period from the Portfolio's commencement or operations.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
-------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
Total Return Bond Portfolio $ 4,132 $ 2,798 $ 853 $ 509
5. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
6. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
7. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amounts in
thousands):
Total Return Bond Portfolio
------------------------------
# of Contracts Premium
- --------------------------------------------------------------------------------
Balance at 12/31/1998 0 $ 0
Sales 157 31
Closing Buys 0 0
Expirations (152) (27)
Exercised 0 0
- --------------------------------------------------------------------------------
Balance at 12/31/1999 5 $ 4
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Total Return Bond Portfolio 3 100
8. Federal Income Tax Matters
As of December 31, 1999, Total Return Bond Portfolio had remaining capital loss
carryforwards that were realized during the current year.
Additionally, the Portfolio realized $1,350 of capital losses and/or
foreign currency losses during the period November 1, 1999 through December 31,
1999 which the Fund elected to defer to the following taxable year pursuant to
income tax regulations. The Portfolio will resume capital gain distributions in
the future to the extent gains are realized in excess of the available
carryforwards (amounts in thousands):
Capital Loss Carryforwards
--------------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
Total Return Bond Portfolio $ 93,238 12/31/2007
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. In January 2000, you will be
advised on IRS Form 1099-DIV as to the federal tax status of the dividends and
distributions received by you in calendar year 1999.
<TABLE>
<CAPTION>
Total Return Bond Portfolio
---------------------------------------------
Year Ended 12/31/1999 Year Ended 12/31/1998
Shares Amount Shares Amount
---------------------------------------------
<S> <C> <C> <C> <C>
Receipts for shares sold 67 $ 637 290 $ 2,900
- -----------------------------------------------------------------------------------------------
Issued as reinvestment of distributions 20 192 23 232
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed 0 0 0 0
- -----------------------------------------------------------------------------------------------
Net increase resulting from
Portfolio share transactions 87 $ 829 313 $ 3,132
- -----------------------------------------------------------------------------------------------
</TABLE>
1999 Annual Report 9
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholders of Total
Return Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Total Return Bond Portfolio (a
Portfolio of PIMCO Variable Insurance Trust, hereafter referred to as the
"Trust") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
10
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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
TOTAL RETURN BOND PORTFOLIO II
---------------------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<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:
$5.1 million
Sector Breakdown:*
[CHART]
Mortgage Backed Securities 38.1%
Corporate Bonds and Notes 30.7%
Short-Term Instruments 17.4%
U.S. Treasury Obligations 10.5%
Other 3.3%
Quality Breakdown:*
[CHART]
AAA 62.9%
AA 7.1%
A 14.6%
BBB 15.4%
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Total Return
Bond Portfolio II Lehman Brothers
(Incep. 5/28/1999) Aggregate Bond Index
- --------------------------------------------------------------------------------
6 months 0.69% 0.56%
Since Inception 1.41% --
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
<TABLE>
<CAPTION>
Total Lehman
Return Brothers
Month Bond Aggregate
Portfolio II Bond
Index
<S> <C> <C>
05/31/1999 10,000 10,000
06/30/1999 10,071 9,968
07/31/1999 10,025 9,926
08/31/1999 10,001 9,921
09/30/1999 10,127 10,036
10/31/1999 10,134 10,073
11/30/1999 10,180 10,072
12/31/1999 10,141 10,024
</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 $10,000 on 6/01/1999, the first full month following the
Portfolio's 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 returned 0.69% for the past six months,
outperforming the benchmark Lehman Brothers Bond Aggregate Bond Index,
which returned 0.56% over the same period.
. The Portfolio's below-benchmark duration helped returns as interest rates
rose amid improved growth worldwide and increased inflationary
expectations.
. The Portfolio's emphasis on intermediate maturities was negative as rates
rose most in the middle of the yield curve.
. A mortgage overweight was a strong positive because mortgages outperformed
like-duration Treasuries amid a decline in market volatility and narrower
yield premiums.
. Below-benchmark weightings of corporate issues was negative as
better-than-expected profits and relatively high yields aided the
performance of high-grade corporates.
*% of Total Investments as of December 31, 1999
2
<PAGE>
Financial Highlights
Total Return Bond Portfolio II
December 31,1999
Selected Per Share Data for the Period Ended: 12/31/1999 (b)
--------------
Net asset value beginning of period $ 10.00
- --------------------------------------------------------------- --------------
Net investment income (a) 0.32
- --------------------------------------------------------------- --------------
Net realized / unrealized (loss) on investments (a) (0.18)
- --------------------------------------------------------------- --------------
Total income from investment operations 0.14
- --------------------------------------------------------------- --------------
Dividends from net investment income (0.32)
- --------------------------------------------------------------- --------------
Total distributions (0.32)
- --------------------------------------------------------------- --------------
Net asset value end of period $ 9.82
- --------------------------------------------------------------- --------------
Total return 1.41%
- --------------------------------------------------------------- --------------
Net assets end of period (000s) $ 5,128
- --------------------------------------------------------------- --------------
Ratio of net expenses to average net assets (c) 0.65%*
- --------------------------------------------------------------- --------------
Ratio of net investment income to average net assets 5.38%*
- --------------------------------------------------------------- --------------
Portfolio turnover rate 378%
- --------------------------------------------------------------- --------------
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on May 28, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.78%* for the
year ended December 31, 1999.
Statement of Assets and Liabilities
Total Return Bond Portfolio II
December 31,1999
Amounts in thousands, except per share amounts
--------------
Assets:
Investments, at value $ 7,368
- --------------------------------------------------------------- --------------
Cash and foreign currency 5
- --------------------------------------------------------------- --------------
Receivable for investments and foreign currency sold 169
- --------------------------------------------------------------- --------------
Interest and dividends receivable 53
- --------------------------------------------------------------- --------------
Manager reimbursement receivable 5
- --------------------------------------------------------------- --------------
7,600
=============================================================== ==============
Liabilities:
Payable for investments and foreign currency purchased $ 2,468
- --------------------------------------------------------------- --------------
Accrued investment advisory fee 2
- --------------------------------------------------------------- --------------
Accrued administration fee 1
- --------------------------------------------------------------- --------------
Variation margin payable 1
- --------------------------------------------------------------- --------------
2,472
=============================================================== ==============
Net Assets $ 5,128
=============================================================== ==============
Net Assets Consist of:
Paid in capital $ 5,221
- --------------------------------------------------------------- --------------
(Overdistributed) net investment income (1)
- --------------------------------------------------------------- --------------
Accumulated undistributed net realized (loss) (41)
- --------------------------------------------------------------- --------------
Net unrealized (depreciation) (51)
- --------------------------------------------------------------- --------------
$ 5,128
=============================================================== ==============
Shares Issued and Outstanding: 522
- --------------------------------------------------------------- --------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.82
- --------------------------------------------------------------- --------------
Cost of Investments Owned $ 7,414
=============================================================== ==============
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Total Return Bond Portfolio II
For the period ended December 31, 1999
Amounts in thousands
Investment Income:
<TABLE>
<CAPTION>
------------------------
Period from May 28, 1999
to December 31 ,1999
<S> <C>
Interest $ 185
- ---------------------------------------------------------------------------------- --------
Total Income 185
================================================================================== ========
Expenses:
Investment advisory fees 12
- ---------------------------------------------------------------------------------- --------
Administration fees 7
- ---------------------------------------------------------------------------------- --------
Organization costs 5
- ---------------------------------------------------------------------------------- --------
Total expenses 24
- ---------------------------------------------------------------------------------- --------
Reimbursement by manager (5)
- ---------------------------------------------------------------------------------- --------
Net expenses 19
- ---------------------------------------------------------------------------------- --------
Net Investment Income 166
================================================================================== ========
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (48)
- ---------------------------------------------------------------------------------- --------
Net realized gain on futures contracts and written options 6
- ---------------------------------------------------------------------------------- --------
Net change in unrealized (depreciation) on investments (46)
- ---------------------------------------------------------------------------------- --------
Net change in unrealized (depreciation) on futures contracts and written options (5)
- ---------------------------------------------------------------------------------- --------
Net (Loss) (93)
- ---------------------------------------------------------------------------------- --------
Net Increase in Assets Resulting from Operations $ 73
================================================================================== ========
</TABLE>
Statement of Changes in Net Assets
Total Return Bond Portfolio II
December 31, 1999
Amounts in thousands
Increase (Decrease) in Net Assets from:
<TABLE>
<CAPTION>
------------------------
Period from May 28, 1999
to December 31 ,1999
Operations:
<S> <C>
Net investment income $ 166
- ---------------------------------------------------------------------------------- --------
Net realized (loss) (42)
- ---------------------------------------------------------------------------------- --------
Net change in unrealized (depreciation) (51)
- ---------------------------------------------------------------------------------- --------
Net increase resulting from operations 73
================================================================================== ========
Distributions to Shareholders:
From net investment income (166)
- ---------------------------------------------------------------------------------- --------
Total Distributions (166)
================================================================================== ========
Portfolio Share Transactions:
Receipts for shares sold 10,106
- ---------------------------------------------------------------------------------- --------
Issued as reinvestment of distributions 151
- ---------------------------------------------------------------------------------- --------
Cost of shares redeemed (5,036)
- ---------------------------------------------------------------------------------- --------
Net increase resulting from Portfolio share transactions 5,221
- ---------------------------------------------------------------------------------- --------
Total Increase in Net Assets $ 5,128
================================================================================== ========
Net Assets:
Beginning of period 0
- ---------------------------------------------------------------------------------- --------
End of period * $ 5,128
- ---------------------------------------------------------------------------------- --------
*Including net undistributed (overdistributed) investment income of: $ (1)
- ---------------------------------------------------------------------------------- --------
</TABLE>
4 See accompanying notes
<PAGE>
Schedule of Investments
Total Return Bond Portfolio II
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES
- --------------------------------------------------------------------------------
Banking & Finance 17.0%
Bear Stearns Co., Inc.
6.580% due 08/01/2002 (d) $ 100 $ 100
Dresdner Funding Trust I
8.151% due 06/30/2031 100 94
First Security Corp.
7.701% due 06/01/2005 (d) 250 250
Ford Motor Credit Corp.
6.290% due 03/19/2002 (d) 180 180
Morgan Stanley, Dean Witter, Discover and Co.
6.328% due 04/15/2002 (d) 250 250
-------
874
Industrials 27.1%
Arrow Electronics, Inc.
6.852% due 11/24/2000 (d) 250 250
Case Credit Corp.
6.375% due 05/05/2000 (d) 250 250
Dillards, Inc.
6.080% due 08/01/2000 250 248
DTE Capital Corp.
8.350% due 11/15/2038 (d) 250 241
Norfolk Southern Corp.
6.700% due 05/01/2000 200 200
Whitman Corporation
6.250% due 05/01/2000 200 200
-------
1,389
-------
Total Corporate Bonds & Notes 2,263
(Cost $2,272) =======
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES
- --------------------------------------------------------------------------------
Federal National Mortgage Association
6.300% due 06/01/2004 250 243
-------
Total U.S. Government Agencies 243
(Cost $246) =======
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS
- --------------------------------------------------------------------------------
Treasury Inflation Protected Securities
3.625% due 07/15/2002 (c) 105 104
U.S. Treasury Bonds
12.000% due 08/15/2013 500 668
-------
Total U.S. Treasury Obligations 772
(Cost $789) =======
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 8.6%
Goldman Sachs Mortgage Corp.
8.000% due 09/20/2027 188 189
Morgan Stanley Capital
7.460% due 02/15/2020 250 249
-------
438
Federal Housing Administration 42.6%
6.500% due 01/25/2030 1,820 1,709
7.000% due 01/25/2030 180 174
8.000% due 01/25/2030 300 303
-------
2,186
Government National Mortgage Association 3.6%
6.375% due 02/20/2027 (d) 184 186
-------
Total Mortgage-Backed Securities 2,810
(Cost $2,827) =======
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS
- --------------------------------------------------------------------------------
Commercial Paper 23.3%
Alcoa, Inc.
5.800% due 02/11/2000 100 99
ANZ, Inc.
5.820% due 02/04/2000 100 99
5.810% due 02/17/2000 100 99
Deutsche Bank Financial
5.940% due 02/02/2000 200 199
Florida Power Corp.
5.950% due 02/09/2000 200 199
General Electric Capital Corp.
5.800% due 02/15/2000 200 199
General Motors Acceptance Corp.
5.960% due 02/14/2000 100 99
Norfolk Southern Corp.
6.300% due 01/26/2000 200 199
-------
1,192
Repurchase Agreement 1.5%
State Street Bank
4.000% due 01/03/2000 78 78
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
5.500% due 07/26/2000 valued at $82
Repurchase proceeds are $78.)
-------
78
-------
U.S. Treasury Bills 0.2%
4.980% due 02/17/2000 (b) 10 10
-------
Total Short-Term Instruments 1,280
(Cost $1,280) -------
Total Investments (a) 143.7% $ 7,368
(Cost $7,414)
Other Assets and Liabilities (Net) (43.7%) (2,240)
-------
Net Assets 100.0% $ 5,128
=======
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized
appreciation (depreciation) of investments based
on cost for federal income tax purposes of $7,414
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. (49)
-------
Unrealized depreciation-net $ (46)
=======
(b) Securities with an aggregate market value of $10
have been segregated with the custodian to cover margin
requirements for the following open futures contracts
at December 31, 1999:
# of Unrealized
Type Contracts (Depreciation)
- --------------------------------------------------------------------------------
U.S. Treasury 5 Year Note (03/2000) 5 $ (4)
(c) Principal amount of the security is adjusted for inflation.
(d) Variable rate security. The rate listed is as of December 31, 1999.
1999 Annual Report See accompanying notes 5
<PAGE>
Notes to Financial Statements
December 31, 1999
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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income securities
whose principal value is periodically adjusted to the rate of inflation. The
interest rate on these bonds is generally fixed at issuance at a rate lower than
typical bonds. Over the life of an inflation-indexed bond, however, interest
will be paid based on a principal value which is adjusted for inflation. Any
increase in the principal amount of an inflation-indexed bond will be considered
interest income, even though investors do not receive their principal until
maturity.
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 the
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
6
<PAGE>
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.
Delayed Delivery Transactions. The Portfolio may purchase or sell securities on
a when-issued or delayed delivery basis. These transactions involve a commitment
by the Portfolio to purchase or sell securities for a predetermined price or
yield, with payment and delivery taking place beyond the customary settlement
period. When delayed delivery purchases are outstanding, the Portfolio will set
aside and maintain until the settlement date in a segregated account, liquid
assets in an amount sufficient to meet the purchase price. When purchasing a
security on a delayed delivery basis, the Portfolio assumes the rights and risks
of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its net
asset value. The Portfolio may dispose of or renegotiate a delayed delivery
transaction after it is entered into, and may sell when-issued securities before
they are delivered, which may result in a capital gain or loss. When the
Portfolio has sold a security on a delayed delivery basis, the Portfolio does
not participate in future gains and losses with respect to the security. Forward
sales commitments are accounted for by the Portfolio in the same manner as
forward currency contracts discussed above.
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. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended December 31, 1999 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
-------------------------------------------------
Purchases Sales Purchases Sales
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Return Bond Portfolio II $ 14,528 $ 21,208 $ 12,903 $ 0
</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
- --------------------------------------------------------------------------------
Total Return Bond Portfolio II 2 100
4. Transactions in Written Call and Put Options Transactions in written call and
put options were as follows (amounts in thousands):
Total Return Bond Portfolio II
---------------------------------------
# of Contracts Premium
- --------------------------------------------------------------------------------
Balance at 5/28/1999 0 $ 0
Sales 100 5,859
Closing Buys 0 0
Expirations (100) (5,859)
Exercised 0 0
- --------------------------------------------------------------------------------
Balance at 12/31/1999 0 $ 0
- --------------------------------------------------------------------------------
5. Federal Income Tax Matters
As of December 31, 1999, Total Return Bond Portfolio II had remaining capital
loss carryforwards that were realized during the current year.
Additionally, the Portfolio realized $7,155 of capital losses during the
period November 1, 1999 through December 31, 1999 which the Fund elected to
defer to the following taxable year pursuant to income tax regulations. The
Portfolio will resume capital gain distributions in the future to the extent
gains are realized in excess of the available carryforwards (amounts in
thousands):
Capital Loss Carryforwards
---------------------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
Total Return Bond Portfolio II $ 38,479 12/31/2007
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. In January 2000, you will be
advised on IRS Form 1099-DIV as to the federal tax status of the dividends and
distributions received by you in calendar year 1999.
6. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on
March 3, 2000.
1999 Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
7. 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, for which it receives a
monthly advisory fee based on average daily net assets. 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.
8. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
Total Return
Bond Portfolio II
------------------------
Period from
05/28/1999
to 12/31/1999
Shares Amount
------------------------
Receipts for shares sold 1,016 $ 10,106
- ---------------------------------------------------- -------------------------
Issued as reinvestment of distributions 15 151
- ---------------------------------------------------- -------------------------
Cost of shares redeemed (509) (5,036)
- ---------------------------------------------------- -------------------------
Net increase resulting from
Portfolio share transactions 522 $ 5,221
- ---------------------------------------------------- -------------------------
8
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholders of Total
Return Bond Portfolio II
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations, of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Total Return
Bond Portfolio II (a Portfolio of PIMCO Variable Insurance Trust, hereafter
referred to as the "Trust") at December 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for
the period indicated, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted
our audit of these financial statements in accordance with auditing
standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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
LOW DURATION BOND PORTFOLIO
---------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses./1/
/1/This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
We appreciate the trust you have placed in us, and we will
continue to focus our efforts to meet your investment needs.
/s/ Brent R. Harris
Brent R. Harris
Chairman
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<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:
2.25 years
Total Net Assets:
$5.1 million
Sector Breakdown:*
[CHART]
Corporate Bonds and Notes 52.6%
Mortgage Backed Securities 39.6%
Short-Term Instruments 7.8%
Quality Breakdown:*
[CHART]
AAA 41.2%
AA 11.2%
A 11.8%
BBB 26.2%
BB 9.6%
*% of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Low Duration
Bond Portfolio Merrill Lynch
(Incep. 2/16/1999) 1-3 Year Treasury Index
Since Inception 2.56% --
Cumulative Returns Through December 31, 1999
$10,000 invested at inception
[GRAPH]
<TABLE>
<CAPTION>
Month Low Merrill
Duration Lynch
Bond 1-3 Year
Portfolio Treasury
Index
<S> <C> <C>
02/28/1999 10,000 10,000
03/31/1999 10,082 10,070
04/30/1999 10,151 10,102
05/31/1999 10,116 10,095
06/30/1999 10,164 10,127
07/31/1999 10,165 10,159
08/31/1999 10,162 10,188
09/30/1999 10,243 10,255
10/31/1999 10,293 10,282
11/30/1999 10,303 10,301
12/31/1999 10,292 10,316
</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 $10,000 on 3/01/1999, the first full month following the
Portfolio's 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
challenging bond market environment, returning 2.92 % versus the 3.16%
posted by the Merrill Lynch 1-3 Year Treasury Index for the ten-month
period ended December 31, 1999.
. Maintaining an above-Index duration, or sensitivity to interest rate
changes, negatively impacted returns as interest rates rose during the
period.
. A concentration in longer-than-benchmark maturities detracted from returns
as these rates rose the most.
. Holdings of mortgage-backed securities were positive due to reduced price
volatility and greater investor demand for the sector.
. Investment-grade corporates aided returns due to the Portfolio's
concentration in BBB rated credits.
. High-quality, below-investment-grade holdings helped performance amid
continued strong domestic growth and improving global economies.
2
<PAGE>
Financial Highlights
Low Duration Bond Portfolio
December 31, 1999
Selected Per Share Data for the Period Ended: 12/31/1999 (b)
------------------
Net asset value beginning of period $ 10.00
- ----------------------------------------------------------- ------------------
Net investment income (a) 0.50
- ----------------------------------------------------------- ------------------
Net realized / unrealized (loss) on investments (a) (0.25)
- ----------------------------------------------------------- ------------------
Total income from investment operations 0.25
- ----------------------------------------------------------- ------------------
Dividends from net investment income (0.51)
- ----------------------------------------------------------- ------------------
Total distributions (0.51)
- ----------------------------------------------------------- ------------------
Net asset value end of period $ 9.74
- ----------------------------------------------------------- ------------------
Total return 2.56%
- ----------------------------------------------------------- ------------------
Net assets end of period (000s) $ 5,149
- ----------------------------------------------------------- ------------------
Ratio of net expenses to average net assets (c) 0.65%*
- ----------------------------------------------------------- ------------------
Ratio of net investment income to average net assets 5.74%*
- ----------------------------------------------------------- ------------------
Portfolio turnover rate 11%
- ----------------------------------------------------------- ------------------
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on February 16, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.78%* for the
period ended December 31, 1999.
Statement of Assets and Liabilities
Low Duration Bond Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
------------------
Assets:
Investments, at value $ 5,079
- ----------------------------------------------------------- ------------------
Cash 18
- ----------------------------------------------------------- ------------------
Interest receivable 49
- ----------------------------------------------------------- ------------------
Manager reimbursement receivable 6
- ----------------------------------------------------------- ------------------
5,152
=========================================================== ==================
Liabilities:
Accrued investment advisory fee $ 2
- ----------------------------------------------------------- ------------------
Accrued administration fee 1
- ----------------------------------------------------------- ------------------
3
=========================================================== ==================
Net Assets $ 5,149
=========================================================== ==================
Net Assets Consist of:
Paid in capital $ 5,284
- ----------------------------------------------------------- ------------------
Undistributed (overdistributed) net investment income 0
- ----------------------------------------------------------- ------------------
Accumulated undistributed net realized (loss) (11)
- ----------------------------------------------------------- ------------------
Net unrealized (depreciation) (124)
- ----------------------------------------------------------- ------------------
$ 5,149
=========================================================== ==================
Shares Issued and Outstanding: 529
- ----------------------------------------------------------- ------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.74
- ----------------------------------------------------------- ------------------
Cost of Investments Owned $ 5,203
=========================================================== ==================
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Low Duration Bond Portfolio
For the period ended December 31, 1999
Amounts in thousands
-----------------------------
Period from February 16, 1999
to December 31, 1999
Investment Income:
Interest $ 282
- ------------------------------------------------------------ ---------------
Miscellaneous income 2
- ------------------------------------------------------------ ---------------
Total Income 284
============================================================ ===============
Expenses:
Investment advisory fees 18
- ------------------------------------------------------------ ---------------
Administration fees 11
- ------------------------------------------------------------ ---------------
Organization costs 6
- ------------------------------------------------------------ ---------------
Total expenses 35
- ------------------------------------------------------------ ---------------
Reimbursement by manager (6)
- ------------------------------------------------------------ ---------------
Net expenses 29
- ------------------------------------------------------------ ---------------
Net Investment Income 255
============================================================ ===============
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (3)
- ------------------------------------------------------------ ---------------
Net change in unrealized (depreciation) on investments (124)
- ------------------------------------------------------------ ---------------
Net (Loss) (127)
- ------------------------------------------------------------ ---------------
Net Increase in Assets Resulting from Operations $ 128
============================================================ ===============
Statement of Changes in Net Assets
Low Duration Bond Portfolio
December 31, 1999
Amounts in thousands
-----------------------------
Period from February 16, 1999
Increase (Decrease) in Net Assets from: to December 31 ,1999
Operations:
Net investment income $ 255
- ------------------------------------------------------------ ---------------
Net realized (loss) (3)
- ------------------------------------------------------------ ---------------
Net change in unrealized (depreciation) (124)
- ------------------------------------------------------------ ---------------
Net increase resulting from operations 128
============================================================ ===============
Distributions to Shareholders:
From net investment income (263)
- ------------------------------------------------------------ ---------------
Total Distributions (263)
============================================================ ===============
Portfolio Share Transactions:
Receipts for shares sold 10,150
- ------------------------------------------------------------ ---------------
Issued as reinvestment of distributions 236
- ------------------------------------------------------------ ---------------
Cost of shares redeemed (5,102)
- ------------------------------------------------------------ ---------------
Net increase resulting from Portfolio share transactions 5,284
- ------------------------------------------------------------ ---------------
Total Increase in Net Assets $ 5,149
============================================================ ===============
Net Assets:
Beginning of period 0
- ------------------------------------------------------------ ---------------
End of period * $ 5,149
- ------------------------------------------------------------ ---------------
* Including net undistributed (overdistributed) investment
income of: $ 0
- ------------------------------------------------------------ ---------------
4 See accompanying notes
<PAGE>
Schedule of Investments
Low Duration Bond Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- -----------------------------------------------------------------------------
CORPORATE BONDS & NOTES
- -----------------------------------------------------------------------------
Banking & Finance 21.4%
Bear Stearns Co., Inc.
6.580% due 08/01/2002 (b) $ 100 $ 100
Case Credit Corp.
6.390% due 08/01/2001 (b) 250 250
First Security Corp.
7.701% due 06/01/2005 (b) 250 250
Ford Motor Credit Corp.
6.290% due 03/19/2002 (b) 250 251
Morgan Stanley, Dean Witter, Discover and Co.
6.328% due 04/15/2002 (b) 250 250
--------
1,101
Industrials 19.2%
Chesapeake Corp.
10.375% due 10/01/2000 250 256
Petroleos Mexicanos
8.799% due 07/15/2005 (b) 250 245
Time Warner, Inc.
6.100% due 12/30/2001 250 246
Witco Corp.
6.600% due 04/01/2003 250 241
--------
988
Utilities 11.5%
CMS Energy
8.125% due 05/15/2002 250 248
Telekomunikacja Polska SA
7.125% due 12/10/2003 100 96
Texas Utilities Co.
5.940% due 10/15/2001 250 246
--------
590
--------
Total Corporate Bonds & Notes 2,679
(Cost $2,705) ========
- --------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 10.7%
Federal National Mortgage Assn.
7.100% due 12/25/2023 249 234
General Electric Capital Mortgage Services, Inc.
6.500% due 03/25/2024 357 317
--------
551
Federal Housing Administration 28.1%
7.375% due 02/01/2022 865 845
7.430% due 10/01/2020 603 606
--------
1,451
--------
Total Mortgage-Backed Securities 2,002
(Cost $2,100) ========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS
- --------------------------------------------------------------------------------
Commercial Paper 5.8%
DaimlerChrysler AG
5.880% due 02/03/2000 200 199
Deutsche Bank Financial
5.940% due 02/02/2000 100 100
--------
299
Repurchase Agreement 1.9%
State Street Bank
4.000% due 01/03/2000 99 99
(Dated 12/31/1999. Collateralized by
Federal Home Loan Mortgage Corporation
6.680% due 12/28/2001 valued at $105.
Repurchase proceeds are $99.)
--------
Total Short-Term Instruments 398
(Cost $398) ========
Value
(000s)
================================================================================
Total Investments (a) 98.6% $ 5,079
(Cost $5,203)
Other Assets and Liabilities (Net) 1.4% 70
--------
Net Assets 100.0% $ 5,149
========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $5,203 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost. $ 4
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax
cost over value. (128)
--------
Unrealized depreciation-net $ (124)
========
(b) Variable rate security. The rate listed is as of December 31, 1999.
1999 Annual Report See accompanying notes 5
<PAGE>
Notes to Financial Statements
December 31, 1999
1. Organization
The Low Duration 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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
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, for which it receives a
monthly advisory fee based on average daily net assets. 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%.
6
<PAGE>
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 December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
--------------------------------------------
Purchases Sales Purchases Sales
- ------------------------------------------------------------------------
Low Duration Bond Portfolio $ 1,974 $ 22 $ 3,492 $ 435
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
- --------------------------------------------------------------------------
Low Duration Bond Portfolio 1 96
5. Federal Income Tax Matters
As of December 31, 1999, Low Duration Bond Portfolio had remaining capital loss
carryforwards that were realized during the current year.
Additionally, the Portfolio realized $10,676 of capital losses during the
period November 1, 1999 through December 31, 1999 which the Fund elected to
defer to the following taxable year pursuant to income tax regulations.
The Portfolio will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards.
Shareholders are advised to consult their own tax advisor with respect to
the tax consequences of their investment in the Trust. In January 2000, you will
be advised on IRS Form 1099-DIV as to the federal tax status of the dividends
and distributions received by you in calendar year 1999.
6. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
Low Duration
Bond Portfolio
----------------------
Period from 02/16/1999
to 12/31/1999
Shares Amount
----------------------
Receipts for shares sold 1,028 $ 10,150
- ------------------------------------------------------ ----------------------
Issued as reinvestment of distributions 24 236
- ------------------------------------------------------ ----------------------
Cost of shares redeemed (523) (5,102)
- ------------------------------------------------------ ----------------------
Net increase resulting from
Portfolio share transactions 529 $ 5,284
====================================================== ======================
1999 Annual Report 7
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholders of Low
Duration Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Low Duration Bond Portfolio (a
Portfolio of PIMCO Variable Insurance Trust, hereafter referred to as the
"Trust") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the period indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
8
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
801 Pennsylvania
Kansas City, Missouri 64105
Counsel
Dechert Price and 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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
LONG-TERM U.S. GOVERNMENT BOND PORTFOLIO
------------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000.
As a consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses. 1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market -- a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% -- a clear indication of
the dominant role the technology sector has played in the stock market's
tenacious bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<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:
8.96 years
Total Net Assets:
$7.2 million
Sector Breakdown:*
[CHART]
U.S. Treasury Obligations 53.6%
Short-Term Instruments 35.6%
U.S. Government Agencies 8.5%
Other 2.3%
Quality Breakdown:*
[CHART]
AAA 80.8%
AA 18.7%
BBB 0.5%
*% of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Long-Term U.S. Gov't.
Bond Portfolio Lehman Long-Term
(Incep. 4/30/1999) Treasury Index
- --------------------------------------------------------------------------------
Since Inception -4.28% --
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
<TABLE>
<CAPTION>
Month Long-Term Lehman
U.S. Gov't Brothers Int.
Bond & 20+Year
Portfolio Treasury
Index
<S> <C> <C>
04/30/1999 10,000 10,000
05/31/1999 9,882 9,843
06/30/1999 9,766 9,739
07/31/1999 9,730 9,692
08/31/1999 9,672 9,654
09/30/1999 9,758 9,726
10/31/1999 9,754 9,731
11/30/1999 9,686 9,665
12/31/1999 9,572 9,521
</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 $10,000 on 5/01/1999, the first full month following the
Portfolio's inception on 4/30/1999, compared to the Lehman Long-Term Treasury
Index, an unmanaged market index.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. The Long-Term U.S. Government Bond Portfolio was added in 1999 as an option
within the PIMCO Variable Insurance Trust and seeks to maximize total
return as its major objective, consistent with the preservation of capital
and prudent investment management.
. At least 65% of the Portfolio's net assets must be invested in U.S.
Government Securities and the benchmark for the Fund is the Lehman
Long-Term Treasury Index, consisting of all outstanding Treasury securities
with remaining maturities of 10 years or greater.
. The Portfolio will have an average credit quality between AAA and AA+, a
minimum A credit rating for each issue held in the Portfolio and will
invest only in securities of U.S. issuers.
. The Portfolio is expected to have greater interest rate sensitivity than
shorter maturity portfolios and is likely to be used by investors who have
a long-term investment horizon, seek to gain from expected yield decreases
or attempt to earn greater yield through maturity extension.
. Yields rose substantially on longer-term Treasuries (+1.8% for 10-year and
+1.4% for 30-year) during 1999 as investors reacted to Federal Reserve
tightening and increased inflation expectations.
. The Portfolio's total return performance was -4.28% since its inception on
April 30, 1999 through December, 31, 1999 versus a return of -4.79% for its
benchmark over the same period.
. The Portfolio outperformed its benchmark mostly by maintaining a
below-benchmark duration.
. Please see the prospectus for a more complete listing of possible
investments.
2
<PAGE>
Financial Highlights
Long-Term U.S. Government Bond Portfolio
December 31, 1999
12/31/1999 (b)
Selected Per Share Data for the Period Ended:
Net asset value beginning of period $ 10.00
- ------------------------------------------------------------ -----------------
Net investment income (a) 0.36
- ------------------------------------------------------------ -----------------
Net realized / unrealized (loss) on investments (a) (0.78)
- ------------------------------------------------------------ -----------------
Total income from investment operations (0.42)
- ------------------------------------------------------------ -----------------
Dividends from net investment income (0.36)
- ------------------------------------------------------------ -----------------
Total distributions (0.36)
- ------------------------------------------------------------ -----------------
Net asset value end of period $ 9.22
- ------------------------------------------------------------ -----------------
Total return (4.28)%
- ------------------------------------------------------------ -----------------
Net assets end of period (000s) $ 7,173
- ------------------------------------------------------------ -----------------
Ratio of net expenses to average net assets (c) 0.65%*
- ------------------------------------------------------------ -----------------
Ratio of net investment income to average net assets 5.55%*
- ------------------------------------------------------------ -----------------
Portfolio turnover rate 294%
- ------------------------------------------------------------ -----------------
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on April 30, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.71%* for the
period ended December 31, 1999.
Statement of Assets and Liabilities
Long-Term U.S. Government Bond Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
Assets:
Investments, at value $ 10,315
- ------------------------------------------------------------ -----------------
Interest receivable 158
- ------------------------------------------------------------ -----------------
Variation margin receivable 0
- ------------------------------------------------------------ -----------------
Manager reimbursement receivable 2
- ------------------------------------------------------------ -----------------
10,475
============================================================ =================
Liabilities:
Payable for financing transactions $ 3,294
- ------------------------------------------------------------ -----------------
Payable for Portfolio shares redeemed 1
- ------------------------------------------------------------ -----------------
Accrued investment advisory fee 2
- ------------------------------------------------------------ -----------------
Accrued administration fee 2
- ------------------------------------------------------------ -----------------
Other liabilities 3
- ------------------------------------------------------------ -----------------
3,302
============================================================ =================
Net Assets $ 7,173
============================================================ =================
Net Assets Consist of:
Paid in capital $ 7,672
- ------------------------------------------------------------ -----------------
Undistributed (overdistributed) net investment income 0
- ------------------------------------------------------------ -----------------
Accumulated undistributed net realized (loss) (159)
- ------------------------------------------------------------ -----------------
Net unrealized (depreciation) (340)
- ------------------------------------------------------------ -----------------
$ 7,173
============================================================ =================
Shares Issued and Outstanding: 778
- ------------------------------------------------------------ -----------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.22
- ------------------------------------------------------------ -----------------
Cost of Investments Owned $ 10,655
============================================================ =================
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Long-Term U.S. Government Bond Portfolio
For the year ended December 31, 1999
Amounts in thousands
Period from April 30,1999
to December 31, 1999
INVESTMENT INCOME:
Interest $ 277
- ------------------------------------------------------------ -----------------
Total Income 277
============================================================ =================
EXPENSES:
Investment advisory fees 18
- ------------------------------------------------------------ -----------------
Administration fees 11
- ------------------------------------------------------------ -----------------
Organization costs 2
- ------------------------------------------------------------ -----------------
Total expenses 31
- ------------------------------------------------------------ -----------------
Reimbursement by manager (2)
- ------------------------------------------------------------ -----------------
Net expenses 29
- ------------------------------------------------------------ -----------------
NET INVESTMENT INCOME (loss) 248
============================================================ =================
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized (loss) on investments (159)
- ------------------------------------------------------------ -----------------
Net change in unrealized (depreciation) on investments (340)
- ------------------------------------------------------------ -----------------
Net (Loss) (499)
- ------------------------------------------------------------ -----------------
Net (Decrease) in Assets Resulting from Operations $ (251)
============================================================ =================
Statement of Changes in Net Assets
Long-Term U.S. Government Bond Portfolio
December 31, 1999
Amounts in thousands
Period from April 30, 1999
to December 31, 1999
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 248
- ------------------------------------------------------------ -----------------
Net realized (loss) (159)
- ------------------------------------------------------------ -----------------
Net change in unrealized (depreciation) (340)
- ------------------------------------------------------------ -----------------
Net (decrease) resulting from operations (251)
============================================================ =================
Distributions to Shareholders:
From net investment income (248)
- ------------------------------------------------------------ -----------------
Total Distributions (248)
============================================================ =================
Portfolio Share Transactions:
Receipts for shares sold 12,755
- ------------------------------------------------------------ -----------------
Issued as reinvestment of distributions 234
- ------------------------------------------------------------ -----------------
Cost of shares redeemed (5,317)
- ------------------------------------------------------------ -----------------
Net increase resulting from Portfolio share transactions 7,672
- ------------------------------------------------------------ -----------------
Total Increase in Net Assets $ 7,173
============================================================ =================
Net Assets:
Beginning of period 0
- ------------------------------------------------------------ -----------------
End of period $ 7,173
- ------------------------------------------------------------ -----------------
4 See accompanying notes
<PAGE>
Statement of Cash Flows
Long-Term U.S. Government Bond Portfolio
December 31, 1999
Amounts in thousands
Period from April 30, 1999
to December 31, 1999
Increase (Decrease) in Cash from:
Financing Activities
Sales of Portfolio shares $ 12,755
- --------------------------------------------------------------- --------------
Redemptions of Portfolio shares (5,317)
- --------------------------------------------------------------- --------------
Cash distributions paid (14)
- --------------------------------------------------------------- --------------
Proceeds from financing transactions 3,294
- --------------------------------------------------------------- --------------
Net increase from financing activities 10,718
=============================================================== ==============
Operating Activities
Purchases of long-term securities (20,298)
- --------------------------------------------------------------- --------------
Proceeds from sales of long-term securities 13,154
- --------------------------------------------------------------- --------------
Purchases of short-term securities (net) (3,670)
- --------------------------------------------------------------- --------------
Net investment income 248
- --------------------------------------------------------------- --------------
Change in other receivables/payables (net) (152)
- --------------------------------------------------------------- --------------
Net (decrease) from operating activities (10,718)
=============================================================== ==============
Net Increase in Cash 0
=============================================================== ==============
Cash
Beginning of period 0
- --------------------------------------------------------------- --------------
End of period $ 0
- --------------------------------------------------------------- --------------
1999 Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments
Long-Term U.S. Government Bond Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 12.2%
- --------------------------------------------------------------------------------
Financing Corp.
10.700% due 10/06/2017 $ 650 $ 873
---------
Total U.S. Government Agencies 873
(Cost $954) =========
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 77.1%
- --------------------------------------------------------------------------------
U.S. Treasury Bonds
11.250% due 02/15/2015 500 707
10.625% due 08/15/2015 400 545
8.875% due 02/15/2019 (c) 1,700 2,068
8.125% due 08/15/2019 400 456
7.625% due 11/15/2022 (c) 1,600 1,755
---------
Total U.S. Treasury Obligations 5,531
(Cost $5,786) =========
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 3.4%
- --------------------------------------------------------------------------------
SMS Student Loan Trust
5.260% due 10/27/2025 (b) 250 241
---------
Total Asset-Backed Securities 241
(Cost $245) =========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 51.1%
- --------------------------------------------------------------------------------
Commercial Paper 36.7%
Alcoa, Inc.
5.960% due 01/26/2000 100 100
ANZ, Inc.
5.830% due 02/22/2000 300 298
Banc One Financial Corp.
5.880% due 02/09/2000 300 298
Deutsche Bank Financial
5.940% due 02/02/2000 300 299
Florida Power Corp.
5.950% due 02/09/2000 100 99
Gannett Co., Inc.
6.740% due 01/26/2000 100 100
General Electric Capital Corp.
5.830% due 02/23/2000 300 297
General Motors Acceptance Corp.
5.860% due 02/14/2000 300 298
MCI Worldcom, Inc.
5.360% due 01/27/2000 50 50
National Rural Utilities
5.800% due 02/24/2000 300 297
Procter & Gamble Co.
5.800% due 02/10/2000 200 199
Sara Lee Credit Corp.
5.890% due 01/24/2000 200 199
Textron Inc.
6.090% due 01/14/2000 100 100
---------
2,634
=========
Repurchase Agreement 14.4%
State Street Bank
4.000% due 01/03/2000 1,036 1,036
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
0.000% due 06/15/2000 valued at $1,060
Repurchase proceeds are $1,036.)
---------
1,036
---------
Total Short-Term Instruments 3,670
(Cost $3,670) =========
Total Investments (a) 143.8% $ 10,315
(Cost $10,655)
Other Assets and Liabilities (Net) (43.8%) (3,142)
---------
Net Assets 100.0% $ 7,173
=========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized
appreciation (depreciation) of investments
based on cost for federal income tax purposes
of $10,655 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 0
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (340)
---------
Unrealized depreciation-net $ (340)
=========
(b) Variable rate security. The rate listed is as of December 31, 1999.
(c) Subject to a financing transaction.
6 See accompanying notes
<PAGE>
Notes to Financial Statements
December 31, 1999
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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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. 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 Trust 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 at least 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.
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 counterparty 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.
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%.
1999 Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
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 December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
------------------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
Long-Term U.S. Gov't
Bond Portfolio $18,746 $12,563 $ 1,552 $ 585
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
- --------------------------------------------------------------------------------
Long-Term U.S. Government Bond Portfolio 3 100
5. Federal Income Tax Matters
As of December 31, 1999, Long-Term U.S. Government Bond Portfolio had remaining
capital loss carryforwards that were realized during the current year (amounts
in thousands):
Capital Loss Carryforwards
------------------------------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
Long-Term U.S. Government
Bond Portfolio $ 158,700 12/31/2007
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. In January 2000, you will be
advised on IRS Form 1099-DIV as to the federal tax status of the dividends and
distributions received by you in calendar year 1999.
6. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
8
<PAGE>
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
Long-Term U.S.
Government
Bond Portfolio
--------------------------------
Period from 04/30/1999
to 12/31/1999
Shares Amount
--------------------------------
Receipts for shares sold 1,319 $ 12,755
- --------------------------------------------- --------------------------------
Issued as reinvestment of distributions 25 234
- --------------------------------------------- --------------------------------
Cost of shares redeemed (566) (5,317)
- --------------------------------------------- --------------------------------
Net increase resulting from
Portfolio share transactions 778 $ 7,672
============================================= ================================
1999 Annual Report 9
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholders of
Long-Term U.S. Government Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations, of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Long-Term U.S.
Government Bond Portfolio (a Portfolio of PIMCO Variable Insurance Trust,
hereafter referred to as the "Trust") at December 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights
for the period indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with
auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at December 31, 1999
by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
10
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
FOREIGN BOND PORTFOLIO
--------------
ANNUAL REPORT
December 31, 1999
<PAGE>
- --------------------------------------------------------------------------------
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000.
As a consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses. 1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
- --------------------------------------------------------------------------------
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<PAGE>
Foreign Bond Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum total return, consistent with preservation of capital and prudent
investment management
Portfolio:
Primarily investment grade foreign (non-U.S.) bonds
Duration:
4.92 years
Total Net Assets:
$5.2 million
Country Allocation:*
[CHART]
United States 34.7%
Japan 18.7%
Germany 10.7%
Sweden 5.7%
Short-Term Instruments 15.9%
Other 14.3%
Quality Breakdown:*
[CHART]
AAA 62.2%
AA 22.4%
A 7.2%
BBB 5.6%
BB 2.1%
B 0.5%
*% of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Foreign
Bond Portfolio J.P. Morgan
(Incep. 2/16/1999) Non-U.S. Index (Hedged)
- --------------------------------------------------------------------------------
Since Inception -0.78% --
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
[CHART]
<TABLE>
<CAPTION>
Month Foreign J.P.
Bond Morgan
Portfolio Non-U.S.
Index
(Hedged)
<S> <C> <C>
02/28/1999 10,000 10,000
03/31/1999 10,069 10,119
04/30/1999 10,186 10,248
05/31/1999 10,075 10,205
06/30/1999 9,857 10,047
07/31/1999 9,787 10,021
08/31/1999 9,706 10,039
09/30/1999 9,693 10,077
10/31/1999 9,870 10,102
11/30/1999 9,868 10,160
12/31/1999 9,942 10,191
</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 $10,000 on 3/01/1999, the first full month following the
Portfolio's 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 ten-month period ended December 31, 1999, the Foreign Bond Portfolio's
total return investment performance was -0.58%, underperforming the 1.91%
return of its benchmark, the J.P. Morgan Non-U.S. Index (Hedged).
. As global growth improved and prospects for inflation increased by the second
half of 1999, major central banks began hiking rates, taking back some of the
134 rate cuts that followed the emerging market crises in the Fall of 1998.
The Investment Adviser reduced the Fund's duration, or sensitivity to interest
rates, which added to relative returns.
. Lower relative growth and inflation in core Europe allowed European bonds to
outperform their U.S. counterparts and caused the Euro to weaken 14% versus
the U.S. dollar in 1999. The Portfolio's overweight position in core Europe
added to returns while its underweight position in the Euro detracted from
returns.
. Japan had the best performing major bond market in 1999, up 5.01% for the
year, and was the only major bond market with a capital gain. Domestic bond
support, weak growth and lower inflationary prospects caused Japanese
government bonds to outperform. However, the Portfolio's underweight position
in Japanese bonds detracted from performance.
. Emerging markets outperformed developed markets as growth improved, fiscal
reform continued and commodity prices increased. A modest allocation to
emerging markets enhanced the Portfolio's performance.
. An overweight in 30-year German bonds versus an underweight in 30-year U.K.
bonds detracted from returns as domestic pension fund purchases supported the
U.K. bond market.
2
<PAGE>
Financial Highlights
Foreign Bond Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Selected Per Share Data for the Period Ended: 12/31/1999 (b)
--------------
<S> <C>
Net asset value beginning of period $ 10.00
- -------------------------------------------------------------------------------- --------------
Net investment income (a) 0.41
- -------------------------------------------------------------------------------- --------------
Net realized / unrealized (loss) on investments (a) (0.49)
- -------------------------------------------------------------------------------- --------------
Total income from investment operations (0.08)
- -------------------------------------------------------------------------------- --------------
Dividends from net investment income (0.41)
- -------------------------------------------------------------------------------- --------------
Distributions in excess of net realized capital gains (0.09)
- -------------------------------------------------------------------------------- --------------
Total distributions (0.50)
- -------------------------------------------------------------------------------- --------------
Net asset value end of period $ 9.42
- -------------------------------------------------------------------------------- --------------
Total return (0.78)%
- -------------------------------------------------------------------------------- --------------
Net assets end of period (000s) $ 5,215
- -------------------------------------------------------------------------------- --------------
Ratio of net expenses to average net assets (c)(d) 1.10%*
- -------------------------------------------------------------------------------- --------------
Ratio of net investment income to average net assets 4.83%*
- -------------------------------------------------------------------------------- --------------
Portfolio turnover rate 285%
- ------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on February 16, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 1.25%* for the year
ended December 31, 1999.
(d) Ratio of net expenses to average net assets excluding interest expense is
0.90%.
Statement of Assets and Liabilities
Foreign Bond Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Amounts in thousands, except per share amounts
Assets:
<S> <C>
Investments, at value $ 8,257
- -------------------------------------------------------------------------------- --------------
Cash and foreign currency 70
- -------------------------------------------------------------------------------- --------------
Receivable for investments sold and forward foreign currency contracts 186
- -------------------------------------------------------------------------------- --------------
Interest and dividends receivable 169
- -------------------------------------------------------------------------------- --------------
Manager Reimbursement Receivable 6
- -------------------------------------------------------------------------------- --------------
8,688
================================================================================ ==============
Liabilities:
Payable for investments purchased and foreign forward currency contracts $ 100
- -------------------------------------------------------------------------------- --------------
Payable for financing transactions 3,332
- -------------------------------------------------------------------------------- --------------
Accrued investment advisory fee 3
- -------------------------------------------------------------------------------- --------------
Accrued administration fee 1
- -------------------------------------------------------------------------------- --------------
Variation margin payable 1
- -------------------------------------------------------------------------------- --------------
Other liabilities 36
- -------------------------------------------------------------------------------- --------------
3,473
================================================================================ ==============
Net Assets $ 5,215
================================================================================ ==============
Net Assets Consist of:
Paid in capital $ 5,515
- -------------------------------------------------------------------------------- --------------
Undistributed (overdistributed) net investment income (76)
- -------------------------------------------------------------------------------- --------------
Accumulated undistributed net realized gain (loss) (143)
- -------------------------------------------------------------------------------- --------------
Net unrealized appreciation (depreciation) (81)
- -------------------------------------------------------------------------------- --------------
$ 5,215
================================================================================ ==============
Shares Issued and Outstanding: 554
- -------------------------------------------------------------------------------- --------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.42
- -------------------------------------------------------------------------------- --------------
Cost of Investments Owned $ 8,378
================================================================================ ==============
Cost of Foreign Currency Held $ 69
================================================================================ ==============
</TABLE>
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Foreign Bond Portfolio
For the period ended December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
-----------------------------
Period from February 16, 1999
Investment Income: to December 31, 1999
<S> <C>
Interest $ 262
- ---------------------------------------------------------------------- ---------------
Total Income 262
====================================================================== ===============
Expenses:
Investment advisory fees 26
- ---------------------------------------------------------------------- ---------------
Administration fees 13
- ---------------------------------------------------------------------- ---------------
Organization costs 6
- ---------------------------------------------------------------------- ---------------
Interest expense 9
- ---------------------------------------------------------------------- ---------------
Total expenses 54
- ---------------------------------------------------------------------- ---------------
Reimbursement by manager (6)
- ---------------------------------------------------------------------- ---------------
Net expenses 48
- ---------------------------------------------------------------------- ---------------
Net Investment Income (Loss) 214
====================================================================== ===============
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (132)
- ---------------------------------------------------------------------- ---------------
Net realized (loss) on futures contracts and written options (18)
- ---------------------------------------------------------------------- ---------------
Net realized (loss) on foreign currency transactions (19)
- ---------------------------------------------------------------------- ---------------
Net change in unrealized (depreciation) on investments (121)
- ---------------------------------------------------------------------- ---------------
Net change in unrealized appreciation on translation of assets
and liabilities denominated in foreign currencies 40
- ---------------------------------------------------------------------- ---------------
Net (Loss) (250)
- ---------------------------------------------------------------------- ---------------
Net (Decrease) in Assets Resulting from Operations $ (36)
====================================================================== ===============
</TABLE>
Statement of Changes in Net Assets
Foreign Bond Portfolio
December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
-----------------------------
Period from February 16, 1999
Increase (Decrease) in Net Assets from: to December 31, 1999
Operations:
<S> <C>
Net investment income $ 214
- ---------------------------------------------------------------------- ---------------
Net realized (loss) (169)
- ---------------------------------------------------------------------- ---------------
Net change in unrealized (depreciation) (81)
- ---------------------------------------------------------------------- ---------------
Net (decrease) resulting from operations (36)
====================================================================== ===============
Distributions to Shareholders:
From net investment income (214)
- ---------------------------------------------------------------------- ---------------
From net realized capital gains (50)
- ---------------------------------------------------------------------- ---------------
Total Distributions (264)
====================================================================== ===============
Portfolio Share Transactions:
Receipts for shares sold 10,240
- ---------------------------------------------------------------------- ---------------
Issued as reinvestment of distributions 235
- ---------------------------------------------------------------------- ---------------
Cost of shares redeemed (4,960)
- ---------------------------------------------------------------------- ---------------
Net increase resulting from Portfolio share transactions 5,515
- ---------------------------------------------------------------------- ---------------
Total Increase in Net Assets $ 5,215
====================================================================== ===============
Net Assets:
Beginning of period 0
- ---------------------------------------------------------------------- ---------------
End of period * $ 5,215
- ---------------------------------------------------------------------- ---------------
*Including net (overdistributed) investment income of: $ (76)
- ---------------------------------------------------------------------- ---------------
</TABLE>
4 See accompanying notes
<PAGE>
Statement of Cash Flows
Foreign Bond Portfolio
December 31, 1999
Amounts in thousands
Increase in Cash and Foreign Currency from:
<TABLE>
<CAPTION>
Financing Activities
<S> <C>
Sales of Portfolio shares $ 10,240
- ------------------------------------------------------------------------ ---------------
Redemptions of Portfolio shares (4,960)
- ------------------------------------------------------------------------ ---------------
Cash distributions paid (29)
- ------------------------------------------------------------------------ ---------------
Proceeds from financing transactions 3,339
- ------------------------------------------------------------------------ ---------------
Net increase from financing activities 8,590
======================================================================== ===============
Operating Activities
Purchases of long-term securities and foreign currency (27,139)
- ------------------------------------------------------------------------ ---------------
Proceeds from sales of long-term securities and foreign currency 19,856
- ------------------------------------------------------------------------ ---------------
Purchases of short-term securities (net) (1,315)
- ------------------------------------------------------------------------ ---------------
Net investment income 214
- ------------------------------------------------------------------------ ---------------
Change in other receivables/payables (net) (136)
- ------------------------------------------------------------------------ ---------------
Net (decrease) from operating activities (8,520)
======================================================================== ===============
Net Increase in Cash and Foreign Currency 70
======================================================================== ===============
Cash and Foreign Currency
Beginning of period 0
- ------------------------------------------------------------------------ ---------------
End of period $ 70
- ------------------------------------------------------------------------ ---------------
</TABLE>
1999 Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments
Foreign Bond Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
- ---------------------------------------------------------------------------------------
AUSTRALIA (e)(f) 2.1%
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commonwealth of Australia
9.000% due 09/15/2004 (g) A$ 20 $ 14
8.750% due 08/15/2008 130 95
----------
Total Australia 109
(Cost $110) ==========
- ---------------------------------------------------------------------------------------
BULGARIA 0.7%
- ---------------------------------------------------------------------------------------
Government of Bulgaria
2.500% due 07/28/2012 (d) $ 29 21
Republic of Bulgaria
6.500% due 07/28/2024 (d) 20 16
----------
Total Bulgaria 37
(Cost $34) ==========
- ---------------------------------------------------------------------------------------
CANADA (e)(f) 5.3%'
- ---------------------------------------------------------------------------------------
Beneficial Canada, Inc.
6.350% due 04/01/2002 C$ 30 21
Commonwealth of Canada
9.000% due 12/01/2004 (g) 40 31
6.625% due 10/03/2007 N$ 200 98
6.000% due 06/01/2008 (g) C$ 190 129
----------
Total Canada 279
(Cost $297) ==========
- ---------------------------------------------------------------------------------------
CAYMAN ISLANDS (f) 1.0%
- ---------------------------------------------------------------------------------------
Capital Credit Card Corp.
5.625% due 10/15/2004 DM 100 52
----------
Total Cayman Islands 52
(Cost $54) ==========
- ---------------------------------------------------------------------------------------
CHILE 0.3%
- ---------------------------------------------------------------------------------------
Republic of Chile
6.875% due 04/28/2009 $ 19 18
----------
Total Chile 18
(Cost $19) ==========
- ---------------------------------------------------------------------------------------
COLOMBIA 0.2%
- ---------------------------------------------------------------------------------------
Republic of Colombia
9.750% due 04/23/2009 $ 10 10
----------
Total Colombia 10
(Cost $9) ==========
- ---------------------------------------------------------------------------------------
DENMARK (e)(f) 2.4%
- ---------------------------------------------------------------------------------------
Danske Kredit Mortgage
5.000% due 10/01/2029 DK 1,075 126
Realkredit Danmark Mortgage
5.000% due 10/01/2029 1 0
Unikredit Realkredit
5.000% due 10/01/2029 5 1
----------
Total Denmark 127
(Cost $145) ==========
- ---------------------------------------------------------------------------------------
GERMANY (e)(f) 16.9%
- ---------------------------------------------------------------------------------------
Depfa Pfandbriefbank
5.500% due 01/15/2010 (g) EC 150 149
Hypothekenbank in Essen AG
4.750% due 08/11/2008 (g) 20 19
4.250% due 07/06/2009 70 63
Republic of Germany
4.125% due 07/04/2008 (g) 63 58
4.500% due 07/04/2009 (g) 62 59
5.375% due 01/04/2010 (g) EC 244 246
6.500% due 07/04/2027 (g) 160 172
Rheinische Hypothekenbank AG
4.000% due 09/15/2006 EC 60 56
5.000% due 04/16/2008 (g) 40 39
Treuhandanstalt
7.500% due 09/09/2004 (g) 20 22
----------
Total Germany 883
(Cost $980) ==========
- ---------------------------------------------------------------------------------------
ITALY (e)(f) 5.1%
- ---------------------------------------------------------------------------------------
Republic of Italy
4.250% due 11/01/2009 (g) EC 180 164
6.500% due 11/01/2027 (g) 95 100
----------
Total Italy 264
(Cost $295) ==========
- ---------------------------------------------------------------------------------------
JAPAN (e)(f) 29.5%
- ---------------------------------------------------------------------------------------
Government of Japan
4.100% due 12/22/2003 (g) JY 32,500 357
4.500% due 12/20/2004 (g) 10,300 117
3.400% due 06/20/2005 (g) 24,300 265
4.000% due 06/20/2005 (g) 13,700 153
3.000% due 09/20/2005 (g) 27,000 289
3.300% due 06/20/2006 (g) 12,000 131
2.900% due 12/20/2006 (g) 2,000 21
0.900% due 12/22/2008 (g) 9,500 86
1.100% due 12/22/2008 6,000 55
1.400% due 06/22/2009 (g) 7,000 65
----------
Total Japan 1,539
(Cost $1,402) ==========
- ---------------------------------------------------------------------------------------
MEXICO 1.7%
- ---------------------------------------------------------------------------------------
Banco Nacional de Comercio Exterior
7.250% due 02/02/2004 $ 20 19
Petroleos Mexicanos
8.850% due 09/15/2007 20 19
9.375% due 12/02/2008 30 31
United Mexican States
7.439% due 06/27/2002 (d) 20 20
----------
Total Mexico 89
(Cost $85) ==========
- ---------------------------------------------------------------------------------------
NEW ZEALAND (e)(f) 4.1%
- ---------------------------------------------------------------------------------------
Commonwealth of New Zealand
10.000% due 03/15/2002 (g) N$ 97 54
7.000% due 07/15/2009 (g) 11 6
4.500% due 02/15/2016 (h) 300 155
----------
Total New Zealand 215
(Cost $227) ==========
- ---------------------------------------------------------------------------------------
PHILIPPINES (e)(f) 0.6%
- ---------------------------------------------------------------------------------------
Republic of Philippines
8.000% due 09/17/2004 EC 20 21
6.875% due 12/01/2009 (d) $ 8 8
----------
Total Philippines 29
(Cost $29) ==========
- ---------------------------------------------------------------------------------------
POLAND 0.1%
- ---------------------------------------------------------------------------------------
Republic of Poland
3.500% due 10/27/2024 (d) $ 5 3
----------
Total Poland 3
(Cost $3) ==========
</TABLE>
6 See accompanying notes
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
- ----------------------------------------------------------------------------------------------------
PORTUGAL (e)(f) 3.4%
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Portugal Government
3.950% due 07/15/2009 (g) EC 200 $ 178
---------
Total Portugal 178
(Cost $186) =========
- ----------------------------------------------------------------------------------------------------
SOUTH KOREA (e)(f) 5.6%
- ----------------------------------------------------------------------------------------------------
Korea Development Bank
8.650% due 01/26/2000 $ 230 230
3.610% due 05/14/2001 (d) DM 50 25
1.875% due 02/13/2002 JY 4,000 39
---------
Total South Korea 294
(Cost $290) =========
- ----------------------------------------------------------------------------------------------------
SPAIN (e)(f) 3.9%
- ----------------------------------------------------------------------------------------------------
Kingdom of Spain
5.150% due 07/30/2009 (g) EC 200 196
6.000% due 01/31/2029 (g) 10 10
---------
Total Spain 206
(Cost $220) =========
- ----------------------------------------------------------------------------------------------------
SUPRANATIONAL (e)(f) 6.9%
- ----------------------------------------------------------------------------------------------------
Eurofima
5.750% due 06/30/2000 DM 200 104
Inter-American Development Bank
7.125% due 11/26/2004 BP 30 49
International Bank for Reconstruction & Development
7.250% due 04/09/2001 N$ 388 204
---------
Total Supranational 357
(Cost $372) =========
- ----------------------------------------------------------------------------------------------------
SWEDEN (f) 9.0%
- ----------------------------------------------------------------------------------------------------
Kingdom of Sweden
8.625% due 02/22/2000 SP 61,000 371
5.000% due 01/15/2004 (g) SK 600 70
9.000% due 04/20/2009 (g) 200 29
---------
Total Sweden 470
(Cost $515) =========
- ----------------------------------------------------------------------------------------------------
UNITED KINGDOM (e)(f) 1.7%
- ----------------------------------------------------------------------------------------------------
United Kingdom Gilt
9.000% due 10/13/2008 BP 46 91
---------
Total United Kingdom 91
(Cost $97) =========
- ----------------------------------------------------------------------------------------------------
UNITED STATES 29.9%
- ----------------------------------------------------------------------------------------------------
Asset-Backed Securities 3.1%
Amresco Residential Securities Mortgage Loan Trust
5.876% due 06/25/2029 (d) $ 49 50
MLCC Mortgage Investors, Inc.
6.843% due 01/01/2025 (d) 100 100
PSB Lending Home Loan Owner Trust
6.830% due 05/20/2018 10 10
---------
160
Corporate Bonds & Notes 14.1%
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.
6.396% due 05/16/2003 (d) 100 100
Beckman Instruments, Inc.
7.100% due 03/04/2003 3 3
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
DaimlerChrysler NA Holdings
6.371% due 08/23/2002 (d) 30 30
Echostar Communications Corp.
9.250% due 02/01/2006 3 3
Flag Ltd.
8.250% due 01/30/2008 3 3
Garden State Newspapers
8.750% due 10/01/2009 2 2
General Motors Acceptance Corp.
0.340% due 07/26/2002 (d) JY 4,000 39
6.335% due 04/05/2004 (d) $ 80 80
6.875% due 09/09/2004 BP 100 160
1.250% due 12/20/2004 JY 5,000 49
Hollinger International Publishing
8.625% due 03/15/2005 2 2
Household Finance Corp.
5.125% due 06/24/2009 EC 100 92
J.P. Morgan & Co.
3.356% due 02/15/2012 (d) $ 10 9
Jones Intercable, Inc.
8.875% due 04/01/2007 3 3
K Mart Corp.
9.350% due 01/02/2020 3 3
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 Corp.
5.875% due 05/01/2004 10 9
Texas Utilities Co.
6.725% due 06/25/2001 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
---------
734
Mortgage-Backed Securities 6.0%
Crusade Global Trust
5.774% due 02/15/2030 (d) 100 100
Federal Home Loan Mortgage Corp.
6.500% due 08/15/2023 91 89
General Electric Capital Corp.
5.125% due 01/12/2004 BP 80 121
310
U.S. Treasury Obligations 6.7%
Treasury Inflation Protected Securities
3.625% due 07/15/2002 (h) $ 315 312
U.S. Treasury Notes
5.500% due 02/29/2000 (b) 40 40
---------
352
---------
Total United States 1,556
(Cost $1,568) =========
</TABLE>
1999 Annual Report See accompanying notes 7
<PAGE>
Schedule of Investments (Cont.)
Foreign Bond Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Principal
Amount Value
(000s) (000s)
- -----------------------------------------------------------------------------------------------
PURCHASED CALL OPTIONS 0.3%
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Republic of Germany (OTC)
4.750% due 07/04/2028
Strike @ 65.000 Exp. 01/18/2000 EC 80 $ 15
-----------
Total Purchased Call Options 15
(Cost $16) ===========
- -----------------------------------------------------------------------------------------------
PURCHASED PUT OPTIONS 2.4%
- -----------------------------------------------------------------------------------------------
U.S. Treasury Note (OTC)
5.250% due 05/31/2001
Strike @ 101.063 Exp. 01/06/2000$ $ 1,000 23
U.S. Treasury Note (OTC)
5.625% due 05/15/2008
Strike @ 105.906 Exp. 01/06/2000 700 83
United Kingdom Gilt (OTC)
8.000% due 06/07/2021
Strike @ 170.000 Exp. 01/18/2000 BP 40 17
-----------
Total Purchased Put Options 123
(Cost $110) ===========
- -----------------------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 25.2%
- -----------------------------------------------------------------------------------------------
Certificates of Deposit 1.7%
Commerzbank AG
6.200% due 05/10/2000 $ 90 88
Commercial Paper 16.2%
ANZ, Inc.
5.810% due 02/17/2000 100 99
Bayerishche Landesbank
6.010% due 02/22/2000 100 99
British Telecom PLC
5.810% due 02/16/2000 100 99
KFW International Financial
5.820% due 02/17/2000 200 199
National Australia Funding
5.960% due 02/02/2000 100 100
Oesterreich Kontrollbank
6.090% due 01/18/2000 100 100
Southwestern Public Service
6.190% due 02/09/2000 100 99
U.S. West Communications
5.960% due 03/24/2000 50 49
-----------
844
Repurchase Agreement 7.3%
State Street Bank
4.000% due 01/03/2000 381 381
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
6.400% due 12/21/2001 valued at $390
Repurchase proceeds are $381.)
-----------
Total Short-Term Instruments 1,313
(Cost $1,315) ===========
Total Investments (a) 158.3% $ 8,257
(Cost $8,378)
Other Assets and Liabilities (Net) (58.3%) (3,042)
-----------
Net Assets 100.0% $ 5,215
===========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $8,389 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 172
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (304)
-----------
Unrealized depreciation-net $ (132)
===========
</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 December 31, 1999:
<TABLE>
<CAPTION>
# of Unrealized
Type Contracts (Depreciation)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury 5 Year Note (03/2000) 2 $ 0
</TABLE>
(c) Swap agreements outstanding at December 31,1999.
<TABLE>
<CAPTION>
Unrealized
Notional Appreciation/
Type Amount (Depreciation)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Receive fixed rate equal to 6.949% and pay floating
rate based on 6 month LIBOR.
Broker: Merrill Lynch BP 200 $ 0
Exp. 08/06/2003
Receive floating rate based on 3 month Canadian Bank Bill
and pay fixed rate equal to 6.4325%.
Broker: Deutsche Bank C$ 300 2
Exp. 11/03/2005
Receive fixed rate equal to 6.400% and pay floating rate
based on 3 month Canadian Bank Bill.
Broker: Deutsche Bank C$ 600 (2)
-----------
Exp. 11/03/2002 $ 0
</TABLE>
(d) Variable rate security. The rate listed is as of December 31, 1999.
8 See accompanying notes
<PAGE>
(e) Foreign forward currency contracts outstanding at December 31, 1999:
Principal
Amount Unrealized
Covered by Settlement Appreciation/
Type Currency Contract Month (Depreciation)
- ----------------------------------------------------------------------
Sell A$ 148 01/2000 $ (1)
Buy 40 02/2000 0
Sell 54 02/2000 0
Buy 11 03/2000 0
Sell C$ 36 01/2000 0
Buy DK 783 01/2000 (7)
Sell 1,384 01/2000 12
Buy 604 02/2000 (3)
Sell 1,026 02/2000 4
Buy EC 396 01/2000 (8)
Sell 1,121 01/2000 49
Sell 27 02/2000 2
Sell 5 03/2000 0
Buy BP 81 01/2000 0
Sell 395 01/2000 12
Buy H$ 250 02/2000 0
Sell 1,750 02/2000 (1)
Sell 1,072 09/2000 (1)
Sell 530 10/2000 0
Buy JY 5,600 01/2000 0
Sell 5,600 01/2000 1
Buy 11,634 02/2000 0
Sell 25,250 02/2000 (8)
Buy MP 60 10/2000 0
Sell 60 10/2000 0
Buy 50 04/2000 0
Sell 50 04/2000 0
Buy NK 43 02/2000 0
Sell 38 02/2000 0
Sell N$ 429 01/2000 (4)
Sell 424 02/2000 (5)
Buy PZ 200 02/2000 (2)
Buy 50 03/2000 0
Buy 10 04/2000 0
Buy S$ 196 02/2000 (1)
Sell 201 02/2000 (2)
------
$ 37
(f) 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 - Euro
FF - French Franc
GD - Greek Drachma
H$ - Hong Kong Dollar
JY - Japanese Yen
MP - Mexican Peso
N$ - New Zealand Dollar
NK - Norwegian Kron
PZ - Polish Zloty
S$ - Singapore Dollar
SP - Spanish Peseta
SK - Swedish Krona
SF - Swiss Franc
(g) Subject to a financing transaction.
(h) Principal amount of the security is adjusted for inflation.
1999 Annual Report See accompanying notes 9
<PAGE>
Notes to Financial Statements
December 31, 1999
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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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 counterparty 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.
10
<PAGE>
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 the
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.
Forward Currency Transactions. The Portfolio is authorized to enter into forward
foreign exchange contracts for the purpose of hedging against foreign exchange
risk arising from the Portfolio's investment or anticipated investment in
securities denominated in foreign currencies. The Portfolio also may enter into
these contracts for purposes of increasing exposure to a foreign currency or to
shift exposure to foreign currency fluctuations from one country to another. All
commitments are marked to market daily at the applicable translation rates and
any resulting unrealized gains or losses are recorded. Realized gains or losses
are recorded at the time the forward contract matures or by delivery of the
currency. Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
Swaps. The Portfolio is authorized to enter into interest rate, total return and
currency exchange swap agreements in order to obtain a desired return at a lower
cost than if the Portfolio had invested directly in the asset that yielded the
desired return. Swaps involve commitments to exchange components of income
(generally interest or returns) pegged to the underlying assets based on a
notional principal amount. Swaps are marked to market daily based upon
quotations from market makers and the change, if any, is recorded as unrealized
gains or losses in the Statement of Operations. The Portfolio bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a counterparty.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income securities
whose principal value is periodically adjusted to the rate of inflation. The
interest rate on these bonds is generally fixed at issuance at a rate lower than
typical bonds. Over the life of an inflation-indexed bond, however, interest
will be paid based on a principal value which is adjusted for inflation. Any
increase in the principal amount of an inflation-indexed bond will be considered
interest income, even though investors do not receive their principal until
maturity.
Delayed Delivery Transactions. The Portfolio may purchase or sell securities on
a when-issued or delayed delivery basis. These transactions involve a commitment
by the Portfolio to purchase or sell securities for a predetermined price or
yield, with payment and delivery taking place beyond the customary settlement
period. When delayed delivery purchases are outstanding, the Portfolio will set
aside and maintain until the settlement date in a segregated account, liquid
assets in an amount sufficient to meet the purchase price. When purchasing a
security on a delayed delivery basis, the Portfolio assumes the rights and risks
of ownership of the security, including the risk of price and yield
fluctuations, and takes such fluctuations into account when determining its net
asset value. The Portfolio may dispose of or renegotiate a delayed delivery
transaction after it is entered into, and may sell when-issued securities before
they are delivered, which may result in a capital gain or loss. When the
Portfolio has sold a security on a delayed delivery basis, the Portfolio does
not participate in future gains and losses with respect to the security. Forward
sales commitments are accounted for by the Portfolio in the same manner as
forward currency contracts discussed above.
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.
1999 Annual Report 11
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
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, for which it receives a
monthly advisory fee based on average daily net assets. 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. The Portfolio is responsible for the following expenses: (i) salaries
and other compensation of any of the Trust's executive officers and employees
who are not officers, directors, stockholders or employees of PIMCO or its
subsidiaries or affiliates; (ii) taxes and governmental fees; (iii) brokerage
fees and commissions and other portfolio transaction expenses; (iv) the costs of
borrowing money, including interest expense; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and any counsel
retained exclusively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses and (vii) expenses, such as
organizational expenses. The ratio of expenses to average net assets, as
disclosed in Financial Highlights, may differ from the annual fund operating
expenses as disclosed in the Prospectus for the reasons set forth above.
PIMCO has agreed to waive a portion of its administrative fees to the
extent that the payment of each Portfolio's pro rata share of Trustee fees and
organizational expenses cause the actual expense ratios to rise above the rates
disclosed in the prospectus. PIMCO may be reimbursed for these waived amounts in
future periods, to limit the expenses to 0.90% 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 December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
--------------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
Foreign Bond Portfolio $ 7,446 $ 7,307 $19,623 $12,694
5. Transactions in Written Call and Put Options
Transactions in written call and put options were as follows (amounts in
thousands):
Foreign Bond Portfolio
------------------------------------
# of contracts Premium
- --------------------------------------------------------------------------------
Balance at 02/16/1999 0 $ 0
Sales 1,600 5
Closing Buys 0 0
Expirations (1,599) (4)
Exercised (1) (1)
- --------------------------------------------------------------------------------
Balance at 12/31/1999 0 $ 0
================================================================================
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
- --------------------------------------------------------------------------------
Foreign Bond Portfolio 1 92
6. Federal Income Tax Matters
As of December 31, 1999, Foreign Bond Portfolio had remaining capital loss
carryforwards that were realized during the current year.
Additionally, the Portfolio realized $49,398 of capital losses and/or
foreign currency losses during the period November 1, 1999 through December 31,
1999 which the Fund elected to defer to the following taxable year pursuant to
income tax regulations.
The Portfolio will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards (amounts in
thousands):
Capital Loss Carryforwards
----------------------------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
Foreign Bond Portfolio $ 74,591 12/31/2007
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. In January 2000, you will be
advised on IRS Form 1099-DIV as to the federal tax status of the dividends and
distributions received by you in calendar year 1999.
12
<PAGE>
7. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
8. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
Foreign Bond
Portfolio
-------------------------------
Period from 02/16/1999
to 12/31/1999
Shares Amount
-------------------------------
Receipts for shares sold 1,057 $ 10,240
- --------------------------------------------- -------------------------------
Issued as reinvestment of distributions 24 235
- --------------------------------------------- -------------------------------
Cost of shares redeemed (527) (4,960)
- --------------------------------------------- -------------------------------
Net increase resulting from
Portfolio share transactions 554 $ 5,515
============================================= ===============================
Federal Income Tax Information (Unaudited)
As required by the Internal Revenue Code regulations, shareholders must be
notified within 60 days of the Trust's calendar year-end regarding the
status of the distributions made to the shareholders.
Capital Gain Distributions. Capital gains distributions paid during the
calendar year end, were in the amounts as follows:
Per Share Per Share
Long-Term Short-Term
Capital Gains Capital Gains
---------------------------------------------------------------------------
Foreign Bond Portfolio 0.33145 0.48764
Shareholders are advised to consult their own tax advisor with respect to
the tax consequences of their investment in the Trust. However, income
received by tax-exempt recipients need not be reported as taxable income.
In January 2000, you will be advised on IRS form 1099-DIV as to the federal
tax status of the dividends and distributions received by you in calendar
year 1999.
1999 Annual Report 13
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholder of the
Foreign Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations, of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Foreign Bond
Portfolio (a Portfolio of PIMCO Variable Insurance Trust, hereafter
referred to as the "Trust") at December 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for
the period indicated, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted
our audit of these financial statements in accordance with auditing
standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
14
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
CAPITAL APPRECIATION PORTFOLIO
----------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses. 1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<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:
$3.6 million
- --------------------------------------------------------------------------------
TOP 10 COMMON STOCKS*
- --------------------------------------------------------------------------------
Company
- --------------------------------------------------------------------------------
Cisco Systems, Inc. 2.3%
- --------------------------------------------------------------------------------
Oracle Corp. 2.1%
- --------------------------------------------------------------------------------
Home Depot, Inc. 2.0%
- --------------------------------------------------------------------------------
Wal-Mart Stores, Inc. 1.9%
- --------------------------------------------------------------------------------
JDS Uniphase Corp. 1.8%
- --------------------------------------------------------------------------------
Applied Materials, Inc. 1.7%
- --------------------------------------------------------------------------------
General Electric Co. 1.7%
- --------------------------------------------------------------------------------
Honeywell International, Inc. 1.7%
- --------------------------------------------------------------------------------
Teradyne, Inc. 1.6%
- --------------------------------------------------------------------------------
Motorola, Inc. 1.6%
- --------------------------------------------------------------------------------
Top Ten Total 18.4%
- --------------------------------------------------------------------------------
Industry Classifications:*
[CHART]
Technology 37.4%
- --------------------------------------------------------------------------------
Financial and Business Services 12.3%
- --------------------------------------------------------------------------------
Consumer Discretionary 10.2%
- --------------------------------------------------------------------------------
Capital Goods 5.8%
- --------------------------------------------------------------------------------
Health Care 5.7%
- --------------------------------------------------------------------------------
Energy 4.6%
- --------------------------------------------------------------------------------
Communications 4.4%
- --------------------------------------------------------------------------------
Materials and Processing 4.1%
- --------------------------------------------------------------------------------
Other 7.8%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Capital Appreciation
Portfolio
(Incep. 5/28/1999) S&P 500 Index
- --------------------------------------------------------------------------------
Since Inception 19.70% --
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
[GRAPH]
<TABLE>
<CAPTION>
Month Capital S&P
Appreciation Bond 500
Portfolio Index
<S> <C> <C>
05/31/1999 10,000 10,000
06/30/1999 10,650 10,555
07/31/1999 10,270 10,225
08/31/1999 10,090 10,175
09/30/1999 9,850 9,896
10/31/1999 10,510 10,522
11/30/1999 10,970 10,736
12/31/1999 11,970 11,368
</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 $10,000 on 6/01/1999, the first full month following the
Portfolio's inception on 5/28/1999, compared to the S&P 500 Index, an unmanaged
market index.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. The narrow market during the first half of the year caused an early
relative performance shortfall. During that time stock prices had little to
do with company earnings. This phenomenon peaked in March and the
environment began to improve thereafter.
. Technology stocks led all sectors for the past year. Several positive
trends emerged. The perception that "Y2K" would cause corporate spending
freezes started to change. In fact, most companies began to predict that
the turn of the century would be of little importance.
. Businesses of all types raced to create an e-strategy. Earnings estimates
and stock prices for software and services firms that assist companies with
their Internet strategies climbed.
. The increased demand for wireless products and broadband access benefited
many companies that provided the infrastructure for these products.
. During the third quarter, the confluence of these events translated into
rising earnings estimates for companies in these businesses.
. The Portfolio's holdings in the technology sector have increased during the
past year. The Investment Adviser took advantage of the many opportunities
to buy good growth companies at relatively inexpensive price levels.
. Price actions during the fourth quarter pushed technology stocks much
higher, while other sectors benefited less.
. While many stocks still appear relatively overvalued, the Investment
Adviser is encouraged by the reconnection to fundamental performance. The
economic backdrop remains very healthy and this should allow a broader
array of companies in other sectors, to produce strong earnings and price
gains.
* % of Total Investments as of December 31, 1999
2
<PAGE>
Financial Highlights
Capital Appreciation Portfolio
December 31,1999
Selected Per Share Data for the Period Ended: 12/31/1999 (b)
--------------
Net asset value beginning of period $ 10.00
- --------------------------------------------------------------- --------------
Net investment income (a) 0.03
- --------------------------------------------------------------- --------------
Net realized / unrealized gain on investments (a) 1.94
- --------------------------------------------------------------- --------------
Total income from investment operations 1.97
- --------------------------------------------------------------- --------------
Dividends from net investment income (0.03)
- --------------------------------------------------------------- --------------
Total distributions (0.03)
- --------------------------------------------------------------- --------------
Net asset value end of period $ 11.94
- --------------------------------------------------------------- --------------
Total return 19.70%
- --------------------------------------------------------------- --------------
Net assets end of period (000s) $ 3,591
- --------------------------------------------------------------- --------------
Ratio of net expenses to average net assets (c) 0.85%*
- --------------------------------------------------------------- --------------
Ratio of net investment income to average net assets 0.46%*
- --------------------------------------------------------------- --------------
Portfolio turnover rate 63%
- --------------------------------------------------------------- --------------
* Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on May 28, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.96%* for the
period ended December 31, 1999.
Statement of Assets and Liabilities
Capital Appreciation Portfolio
December 31,1999
Amounts in thousands, except per share amounts
--------------
Assets:
Investments, at value $ 3,670
- --------------------------------------------------------------- --------------
Receivable for investments sold 14
- --------------------------------------------------------------- --------------
Interest and dividends receivable 2
- --------------------------------------------------------------- --------------
Manager reimbursement receivable 2
- --------------------------------------------------------------- --------------
3,688
=============================================================== ==============
Liabilities:
Payable for investments purchased $ 94
- --------------------------------------------------------------- --------------
Accrued investment advisory fee 2
- --------------------------------------------------------------- --------------
Accrued administration fee 1
- --------------------------------------------------------------- --------------
97
=============================================================== ==============
Net Assets $ 3,591
=============================================================== ==============
Net Assets Consist of:
Paid in capital $ 3,009
- --------------------------------------------------------------- --------------
Undistributed net investment income 0
- --------------------------------------------------------------- --------------
Accumulated undistributed net realized (loss) (129)
- --------------------------------------------------------------- --------------
Net unrealized appreciation 711
- --------------------------------------------------------------- --------------
$ 3,591
=============================================================== ==============
Shares Issued and Outstanding: 301
- --------------------------------------------------------------- --------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 11.94
- --------------------------------------------------------------- --------------
Cost of Investments Owned $ 2,959
=============================================================== ==============
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Capital Appreciation Portfolio
For the period ended December 31,1999
Amounts in thousands
-------------------------
Period from May 28, 1999
to December 31, 1999
Investment Income:
Interest $ 8
- --------------------------------------------------------------- --------------
Dividends 17
- --------------------------------------------------------------- --------------
Total Income 25
=============================================================== ==============
Expenses:
Investment advisory fees 11
- --------------------------------------------------------------- --------------
Administration fees 5
- --------------------------------------------------------------- --------------
Organization costs 2
- --------------------------------------------------------------- --------------
Total expenses 18
- --------------------------------------------------------------- --------------
Reimbursement by manager (2)
- --------------------------------------------------------------- --------------
Net Expenses 16
- --------------------------------------------------------------- --------------
Net Investment Income 9
=============================================================== ==============
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (129)
- --------------------------------------------------------------- --------------
Net change in unrealized appreciation on investments 711
- --------------------------------------------------------------- --------------
Net Income 582
- --------------------------------------------------------------------------------
Net Increase in Assets Resulting from Operations $ 591
=============================================================== ==============
Statement of Changes in Net Assets
Capital Appreciation Portfolio
December 31, 1999
Amounts in thousands
------------------------
Increase (Decrease) in Net Assets from: Period from May 28, 1999
to December 31, 1999
Operations:
Net investment income $ 9
- --------------------------------------------------------------- --------------
Net realized (loss) (129)
- --------------------------------------------------------------- --------------
Net change in unrealized appreciation 711
- --------------------------------------------------------------- --------------
Net increase resulting from operations 591
=============================================================== ==============
Distributions to Shareholders:
From net investment income (9)
- --------------------------------------------------------------- --------------
From net realized capital gains 0
- --------------------------------------------------------------- --------------
Total Distributions (9)
=============================================================== ==============
Portfolio Share Transactions:
Receipts for shares sold 3,000
- --------------------------------------------------------------- --------------
Issued as reinvestment of distributions 9
- --------------------------------------------------------------- --------------
Cost of shares redeemed 0
- --------------------------------------------------------------- --------------
Net increase resulting from Portfolio share transactions 3,009
- --------------------------------------------------------------- --------------
Total Increase in Net Assets $ 3,591
=============================================================== ==============
Net Assets:
Beginning of period 0
- --------------------------------------------------------------- --------------
End of period * $ 3,591
- --------------------------------------------------------------- --------------
* Including net undistributed investment income of: $ 0
- --------------------------------------------------------------- --------------
4 See accompanying notes
<PAGE>
Schedule of Investments
Capital Appreciation Portfolio
December 31, 1999
Value
Shares (000s)
- --------------------------------------------------------------------------------
COMMON STOCKS 94.3%
- --------------------------------------------------------------------------------
Aerospace 1.7%
Honeywell International, Inc. 1,075 $ 62
--------
Capital Goods 5.9%
General Electric Co. 400 63
Tyco International Ltd. 1,200 47
United Technologies Corp. 600 39
TRW, Inc. 600 31
Textron, Inc. 400 31
--------
211
Communications 4.4%
ALLTEL Corp. 500 41
AT&T Corp. 800 41
MCI WorldCom, Inc. (b) 750 40
GTE Corp. 500 36
--------
158
Consumer Discretionary 10.5%
Home Depot, Inc. 1,050 72
Wal-Mart Stores, Inc. 1,000 69
CVS Corp. 1,200 48
McGraw-Hill Companies, Inc. 700 43
Lowe's Cos., Inc. 700 42
Dayton Hudson Corp. 500 37
Harley-Davidson, Inc. 500 32
Circuit City Stores 400 18
General Motors Corp. 200 15
--------
376
Consumer Services 3.9%
CBS Corp. 800 51
New York Times Co. 1,000 49
Gannett, Inc. 500 41
--------
141
Consumer Staples 2.4%
Safeway, Inc. (b) 1,200 43
Anheuser Busch Cos., Inc. 600 43
--------
86
Energy 4.7%
Royal Dutch Petroleum Co. 900 54
Vastar Resources, Inc. 700 41
USX Marathon Group 1,500 37
Atlantic Richfield Co. 400 35
--------
167
Financial & Business Services 12.6%
Omnicom Group 500 50
American Express Co. 300 50
Citigroup, Inc. 800 44
MGIC Investment Corp. 700 42
Capital One Financial Corp. 800 39
Marsh & McLennan Cos 400 38
Fleet Boston Financial Corp. 1,000 35
Firstar Corp. 1,600 35
Lehman Brothers Holdings, Inc. 400 34
Wells Fargo Co. 800 32
Morgan Stanley, Dean Witter, Discover and Co. 200 29
Morgan, J.P. & Co., Inc. 200 25
--------
453
Health Care 5.8%
Immunex Corp. (b) 500 55
Genentech, Inc. (b) 300 41
Warner-Lambert Co. 500 41
Bristol-Myers Squibb Co. 600 39
Schering-Plough Corp. 800 34
--------
210
Materials & Processing 4.1%
Alcoa, Inc. 500 42
Champion International Corp. 600 37
Weyerhaeuser Co. 500 36
International Paper Co. 700 34
--------
149
Technology 38.3%
Cisco Systems, Inc. (b) 800 86
Oracle Corp. (b) 700 78
JDS Uniphase Corp. (b) 400 65
Applied Materials, Inc. (b) 500 63
Teradyne, Inc. (b) 900 59
Motorola, Inc. 400 59
Siebel Systems, Inc. (b) 700 59
Veritas Software Corp. (b) 400 57
Conexant Systems, Inc. (b) 800 53
Corning, Inc. 400 52
Texas Instruments, Inc. 500 48
Solectron Corp. (b) 500 48
Lucent Technologies, Inc. 630 47
Microsoft Corp. (b) 400 47
Sun Microsystems, Inc. (b) 600 46
Tellabs, Inc. (b) 700 45
Compuware Corp. (b) 1,200 45
EMC Corp. (b) 400 44
Computer Associates International, Inc. 600 42
Amdocs Ltd. (b) 1,200 41
BMC Software, Inc. (b) 500 40
Altera Corp. (b) 800 40
Xilinx, Inc. (b) 800 36
National Semiconductor Corp. (b) 800 34
Scientific-Atlanta, Inc. 600 33
Computer Sciences Corp. (b) 300 28
Broadcom Corp. (b) 100 27
Lexmark International Group, Inc. `A' (b) 300 27
Citrix Systems, Inc. (b) 200 25
--------
1,374
--------
Total Common Stocks 3,387
(Cost $2,676) ========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 7.9%
- --------------------------------------------------------------------------------
Principal
Amount
(000s)
Repurchase Agreement 7.9%
State Street Bank
4.000% due 01/03/2000 $ 283 283
(Dated 12/31/1999. Collateralized by
Federal Home Loan Bank
5.400% due 11/17/2003 valued at $291.
Repurchase proceeds are $283.)
--------
Total Short-Term Instruments 283
(Cost $283) ========
Total Investments (a) 102.2% $ 3,670
(Cost $2,959)
Other Assets and Liabilities (Net) (2.2%) (79)
--------
Net Assets 100.0% $ 3,591
========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized
appreciation (depreciation) of investments
based on cost for federal income tax purposes
of $2,959 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 775
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (64)
--------
Unrealized appreciation-net $ 711
========
(b) Non-income producing security.
1999 Annual Report See accompanying notes 5
<PAGE>
Notes to Financial Statements
December 31, 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 Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
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, for which it receives a
monthly advisory fee based on average daily net assets. 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%.
6
<PAGE>
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 0.85% 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.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended December 31, 1999 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
U.S. Government/Agency All Other
---------------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio $ 0 $ 0 $4,664 $1,859
</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
- --------------------------------------------------------------------------------
Capital Appreciation Portfolio 1 100
5. Federal Income Tax Matters
As of December 31, 1999, Capital Appreciation Portfolio had remaining capital
loss carryforwards that were realized during the current year.
Additionally, the Portfolio realized $14,799 of capital
losses during the period November 1, 1999 through December 31, 1999 which the
Fund elected to defer to the following taxable year pursuant to income tax
regulations.
The Portfolio will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards (amounts in
thousands):
Capital Loss Carryforwards
-----------------------------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
Capital Appreciation Portfolio $ 114,134 12/31/2007
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. In January 2000, you will be
advised on IRS Form 1099-DIV as to the federal tax status of the dividends and
distributions received by you in calendar year 1999.
6. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
Capital
Appreciation
Portfolio
-----------------------
Period from 05/28/1999
to 12/31/1999
Shares Amount
-----------------------
Receipts for shares sold 300 $3,000
- ------------------------------------------------------ -----------------------
Issued as reinvestment of distributions 1 9
- ------------------------------------------------------ -----------------------
Cost of shares redeemed 0 0
- ------------------------------------------------------ -----------------------
Net increase resulting from
Portfolio share transactions 301 $3,009
- ------------------------------------------------------ -----------------------
1999 Annual Report 7
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholder of
Capital Appreciation Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations, of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Capital
Appreciation Portfolio (a Portfolio of PIMCO Variable Insurance Trust,
hereafter referred to as the "Trust") at December 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights
for the period indicated, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Trust's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with
auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audit, which included confirmation of securities at December 31, 1999
by correspondence with the custodian and brokers, provides a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
8
<PAGE>
Federal Income Tax Information (Unaudited)
As required by the Internal Revenue Code regulations, shareholders must be
notified within 60 days of the Trust's calendar year-end regarding the
status of the distributions made to the shareholders.
Dividend Received Deduction. For the benefit of corporate shareholders
only, the portion of dividends paid out of ordinary income earned during
the Portfolio's calendar year-end which qualify for the corporate
dividend-received deduction is as follows:
Capital Appreciation Portfolio 100%
Shareholders are advised to consult their own tax advisor with respect to
the tax consequences of their investment in the Trust. However, income
received by tax-exempt recipients need not be reported as taxable income.
In January 2000, you will be advised on IRS form 1099-DIV as to the federal
tax status of the dividends and distributions received by you in calendar
year 1999.
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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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 Advisors L.P.
800 Newport Center Drive
Newport Beach, CA 92660
Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
MONEY MARKET PORTFOLIO
---------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000.
As a consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
199 Annual Report 1
<PAGE>
Money Market Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum current income, consistent with preservation of capital and daily
liquidity
Portfolio:
Primarily money market instruments
Duration:
26 days
Total Net Assets:
$3.6 million
Quality Breakdown:*
[CHART]
AAA 55.2%
AA 44.8%
*% of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Money Market
Portfolio Salomon 3 Month
(Incep. 9/30/1999) Treasury Bill Index
- --------------------------------------------------------------------------------
Since Inception 1.30% 1.25%
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
[CHART]
<TABLE>
<CAPTION>
Money Market Salomon
MONTH Portfolio 3 Month Treasury
Bill Index
<S> <C> <C>
09/30/1999 10,000 10,000
10/31/1999 10,041 10,041
11/30/1999 10,082 10,081
12/31/1999 10,130 10,125
</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 $10,000 on 10/01/1999, the first full month following the
Portfolio's inception on 9/30/1999, compared to the Salomon 3 Month Treasury
Bill Index, an unmanaged market index. An investment in the Money Market
Portfolio is neither insured or guaranteed by the Federal Deposit Insurance
Corporation or any other U.S. Government Agency. Although the Portfolio seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Portfolio. If there is a material difference between
the quoted total return and the quoted current yield, the yield quotation more
closely reflects the current earnings of the Money Market Portfolio than the
total return quotation.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. The total return performance of the Money Market Portfolio was 1.30% for the
three-month period ended December 31, 1999, versus a return of 1.25% for the
benchmark Salomon Brothers 3-Month Treasury Bill Index.
. U.S. interest rates rose substantially in the fourth quarter and throughout
1999 as the Federal Reserve raised the fed funds rate by 0.75% in three
separate actions, indicating its concern about increasing inflation due to
strong U.S. economic growth and a historically low unemployment rate.
. Short-term commercial paper yields increased throughout the year, finishing
an average 0.80% greater than the yields prevailing at the beginning of 1999.
. The Portfolio's average duration was maintained at about one-month, providing
for ample liquidity and limiting the price effects from increasing yields.
. U.S.-issued high quality (A1/P1) commercial paper was emphasized due to
attractive yields, limited interest rate sensitivity and low credit
exposures.
. The 7-day and 30-day yields (after fees) at December 31, 1999 were 5.38% and
5.47%, respectively.
2
<PAGE>
Financial Highlights
Money Market Portfolio
December 31, 1999
<TABLE>
<CAPTION>
12/31/1999 (b)
--------------
Selected Per Share Data for the Period Ended:
<S> <C>
Net asset value beginning of period $ 1.00
- ------------------------------------------------------------------ --------------
Net investment income (a) 0.01
- ------------------------------------------------------------------ --------------
Total income from investment operations 0.01
- ------------------------------------------------------------------ --------------
Dividends from net investment income (0.01)
- ------------------------------------------------------------------ --------------
Total distributions (0.01)
- ------------------------------------------------------------------ --------------
Net asset value end of period $ 1.00
- ------------------------------------------------------------------ --------------
Total return 1.30%
- ------------------------------------------------------------------ --------------
Net assets end of period (000s) $ 3,605
- ------------------------------------------------------------------ --------------
Ratio of net expenses to average net assets (c) 0.50%*
- ------------------------------------------------------------------ --------------
Ratio of net investment income to average net assets 5.14%*
- ------------------------------------------------------------------ --------------
Portfolio turnover rate N/A
- ------------------------------------------------------------------ --------------
</TABLE>
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operations on September 30, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 1.27%* for the
period ended December 31, 1999.
Statement of Assets and Liabilities
Money Market Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value $3,599
- ------------------------------------------------------------------ --------------
Cash 1
- ------------------------------------------------------------------ --------------
Manager reimbursement receivable 7
- ------------------------------------------------------------------ --------------
3,607
================================================================== ==============
Liabilities:
Accrued investment advisory fee $ 1
- ------------------------------------------------------------------ --------------
Accrued administration fee 1
- ------------------------------------------------------------------ --------------
2
================================================================== ==============
Net Assets $3,605
================================================================== ==============
Net Assets Consist of:
Paid in capital $3,605
- ------------------------------------------------------------------ --------------
Undistributed (overdistributed) net investment income 0
- ------------------------------------------------------------------ --------------
Accumulated undistributed net realized gain (loss) 0
- ------------------------------------------------------------------ --------------
Net unrealized appreciation (depreciation) 0
- ------------------------------------------------------------------ --------------
$3,605
================================================================== ==============
Shares Issued and Outstanding: 3,605
- ------------------------------------------------------------------ --------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 1.00
- ------------------------------------------------------------------ --------------
Cost of Investments Owned $3,599
================================================================== ==============
</TABLE>
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Money Market Portfolio
For the period ended December 31, 1999
Amounts in thousands
Period from September 30,1999
to December 31, 1999
Investment Income:
Interest $ 45
- ------------------------------------------------------------------ ------------
Total Income 45
================================================================== ============
Expenses:
Investment advisory fees 2
- ------------------------------------------------------------------ ------------
Administration fees 2
- ------------------------------------------------------------------ ------------
Organization costs 6
- ------------------------------------------------------------------ ------------
Total expenses 10
- ------------------------------------------------------------------ ------------
Reimbursement by manager (6)
- ------------------------------------------------------------------ ------------
Net Expenses 4
- ------------------------------------------------------------------ ------------
Net Investment Income (Loss) 41
================================================================== ============
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) on investments 0
- ------------------------------------------------------------------ ------------
Net change in unrealized appreciation (depreciation) on investments 0
- ------------------------------------------------------------------ ------------
Net Gain (Loss) 0
- ------------------------------------------------------------------ ------------
Net Increase (Decrease) in Assets Resulting from Operations $ 41
================================================================== ============
Statement of Changes in Net Assets
Money Market Portfolio
December 31, 1999
Amounts in thousands
Period from September 30, 1999
Increase (Decrease) in Net Assets from: to December 31, 1998
Operations:
Net investment income $ 41
- ------------------------------------------------------------------ ------------
Net realized gain (loss) 0
- ------------------------------------------------------------------ ------------
Net change in unrealized appreciation (depreciation) 0
- ------------------------------------------------------------------ ------------
Net increase (decrease) resulting from operations 41
================================================================== ============
Distributions to Shareholders:
From net investment income (41)
- ------------------------------------------------------------------ ------------
From net realized capital gains 0
- ------------------------------------------------------------------ ------------
Total Distributions (41)
================================================================== ============
Portfolio Share Transactions:
Receipts for shares sold 6,784
- ------------------------------------------------------------------ ------------
Issued as reinvestment of distributions 28
- ------------------------------------------------------------------ ------------
Cost of shares redeemed (3,207)
- ------------------------------------------------------------------ ------------
Net increase resulting from Portfolio share transactions 3,605
- ------------------------------------------------------------------ ------------
Total Increase in Net Assets $ 3,605
================================================================== ============
Net Assets:
Beginning of period 0
- ------------------------------------------------------------------ ------------
End of period * $ 3,605
- ------------------------------------------------------------------ ------------
*Including net undistributed (overdistributed) investment
income of: $ 0
- ------------------------------------------------------------------ ------------
4 See accompanying notes
<PAGE>
Schedule of Investments
Money Market Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 99.8%
- --------------------------------------------------------------------------
Commercial Paper 82.7%
Alcoa, Inc.
5.960% due 01/26/2000 $ 100 $ 100
American Express
5.890% due 02/09/2000 100 99
ANZ, Inc.
5.830% due 02/22/2000 100 99
Bayerishche Landesbank
6.010% due 02/22/2000 100 99
Becton Dickinson & Co.
5.820% due 02/28/2000 100 99
British Telecom PLC
5.830% due 02/22/2000 100 100
CBA Finance
6.540% due 01/27/2000 100 99
Coca Cola Co.
5.800% due 02/08/2000 100 99
Consolidation Natural Gas
6.140% due 02/23/2000 100 99
DaimlerChrysler AG
5.880% due 02/03/2000 100 99
Deutsche Bank Financial
6.040% due 02/02/2000 100 99
Electricite de France
6.500% due 01/20/2000 100 100
Florida Power Corp.
5.970% due 02/09/2000 100 99
Gannett Co., Inc.
6.740% due 01/26/2000 100 100
General Electric Capital Corp.
5.830% due 02/23/2000 100 99
General Motors Acceptance Corp.
5.990% due 02/10/2000 100 99
IBM Corp.
6.190% due 02/08/2000 100 99
Illinois Tool Works
5.910% due 01/31/2000 100 100
KFW International Financial
5.820% due 02/17/2000 100 99
Motorola, Inc.
5.940% due 01/28/2000 100 100
National Australia Funding
5.950% due 02/03/2000 100 99
National Rural Utilities
5.800% due 02/24/2000 100 100
Oesterreich Kontrollbank
5.930% due 01/18/2000 100 100
Procter & Gamble Co.
5.890% due 02/10/2000 100 99
Reseau Ferre De France
5.800% due 02/24/2000 100 100
Sara Lee Credit Corp.
5.890% due 01/24/2000 100 100
Shell Finance
6.490% due 01/31/2000 100 99
Southwestern Public Service
6.240% due 02/09/2000 100 99
Swedish Bank, Inc.
5.820% due 02/18/2000 100 100
Textron Inc.
6.090% due 01/14/2000 100 100
--------
2,982
Repurchase Agreement 17.1%
State Street Bank
4.000% due 01/03/2000 617 617
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
0.000% due 06/15/2000 valued at $632.
Repurchase proceeds are $617.)
--------
617
--------
Total Short-Term Instruments 3,599
========
(Cost $3,599)
Total Investments 99.8% $ 3,599
(Cost $3,599)
Other Assets and Liabilities (Net) 0.2% 6
--------
Net Assets 100.0% $ 3,605
========
1999 Annual Report See accompanying notes 5
<PAGE>
Notes to Financial Statements
December 31, 1999
1. Organization
The Money Market 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 September
30, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
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, for which it receives a
monthly advisory fee based on average daily net assets. The Advisory Fee is
charged at an annual rate of 0.30%.
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 0.20%.
6
<PAGE>
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 0.50% 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 remuneration 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.
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
- --------------------------------------------------------------------------------
Money Market Portfolio 2 100
5. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
6. Federal Income Tax Matters
As of December 31, 1999, Low Duration Bond Portfolio had remaining capital loss
carryforwards that were realized during the current year.
Additionally, the Portfolio realized $155 of capital
losses during the period November 1, 1999 through December 31, 1999 which the
Fund elected to defer to the following taxable year pursuant to income tax
regulations.
The Portfolio will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards.
Shareholders are advised to consult their own tax advisor with respect to
the tax consequences of their investment in the Trust. In January 2000, you will
be advised on IRS Form 1099-DIV as to the federal tax status of the dividends
and distributions received by you in calendar year 1999.
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Money Market
Portfolio
----------------------
Period from 09/30/1999
to 12/31/1999
Shares Amount
----------------------
<S> <C> <C>
Receipts for shares sold 6,784 $ 6,784
- -------------------------------------------------------- ----------------------
Issued as reinvestment of distributions 28 28
- -------------------------------------------------------- ----------------------
Cost of shares redeemed (3,207) (3,207)
- -------------------------------------------------------- ----------------------
Net increase resulting from
Portfolio share transactions 3,605 $ 3,605
================================================================================
</TABLE>
1999 Annual Report 7
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholders of Money
Market Portfolio
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations, of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Money Market
Portfolio (a Portfolio of PIMCO Variable Insurance Trust, hereafter
referred to as the "Trust") at December 31, 1999, the results of its
operations, the changes in its net assets and the financial highlights for
the period indicated, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted
our audit of these financial statements in accordance with auditing
standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
8
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
SHORT-TERM BOND PORTFOLIO
--------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000. As a
consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<PAGE>
Short-Term Bond Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum current income, consistent with preservation of capital and daily
liquidity
Portfolio:
Primarily short-term investment grade bonds
Duration:
0.11 years
Total Net Assets:
$3.0 million
Sector Breakdown:*
[CHART]
Short-Term Instruments 90.9%
Asset-Backed Securities 9.1%
Quality Breakdown:*
[CHART]
AAA 61.4%
AA 28.8%
A 3.3%
BBB 6.5%
*% of Total Investments as of December 31, 1999
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
TOTAL RETURN INVESTMENT PERFORMANCE For the Period Ended December 31, 1999
Short-Term
Bond Portfolio Salomon 3 Month
(Incep. 9/30/1999) Treasury Bill Index
- --------------------------------------------------------------------------------
Since Inception 1.32% 1.25%
CUMULATIVE RETURNS THROUGH DECEMBER 31, 1999
$10,000 invested at inception
[CHART]
<TABLE>
<CAPTION>
Short-Term Salomon
MONTH Bond Portfolio 3 Month Treasury
Bill Index
<S> <C> <C>
09/30/1999 10,000 10,000
10/31/1999 10,042 10,041
11/30/1999 10,081 10,081
12/31/1999 10,132 10,125
</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 $10,000 on 10/01/1999, the first full month following the
Portfolio's inception on 9/30/1999, compared to the Salomon 3 Month Treasury
Bill Index, an unmanaged market index. Whereas money market funds attempt to
maintain a stable share price, the Short-Term Bond Portfolio's share price will
fluctuate in response to market conditions. 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 three-month period ended December 31, 1999, the Short-Term Bond
Portfolio total return was 1.32%, outperforming the 1.25% return posted by the
benchmark Salomon Brothers 3-Month Treasury Bill Index.
. The Portfolio's longer portfolio duration hurt performance as rates increased
significantly during the period.
. Mortgages added to returns due to higher relative yields and reduced market
volatility.
. Investment-grade corporates, especially higher yielding issues, enhanced
performance as credit spreads narrowed amid strong growth and a reduction in
new issuance.
. Asset-backed holdings were positive for relative returns due to the extra
yield provided by these securities.
. Below-investment grade holdings boosted performance as corporate profitability
improved.
. Emerging market bonds delivered strong returns as yield premiums narrowed on
improved growth prospects.
2
<PAGE>
Financial Highlights
Short-Term Bond Portfolio
December 31, 1999
<TABLE>
<CAPTION>
Selected Per Share Data for the Period Ended: 12/31/1999 (b)
<S> <C>
Net asset value beginning of period $ 10.00
- ---------------------------------------------------------------------------------------------------------- ----------------
Net investment income (a) 0.13
- ---------------------------------------------------------------------------------------------------------- ----------------
Net realized / unrealized (loss) on investments (a) 0.00
- ---------------------------------------------------------------------------------------------------------- ----------------
Total income from investment operations 0.13
- ---------------------------------------------------------------------------------------------------------- ----------------
Dividends from net investment income (0.13)
- ---------------------------------------------------------------------------------------------------------- ----------------
Total distributions (0.13)
- ---------------------------------------------------------------------------------------------------------- ----------------
Net asset value end of period 10.00
- ---------------------------------------------------------------------------------------------------------- ----------------
Total return 1.32%
- ---------------------------------------------------------------------------------------------------------- ----------------
Net assets end of period (000s) $ 3,040
- ---------------------------------------------------------------------------------------------------------- ----------------
Ratio of net expenses to average net assets (c) 0.60%*
- ---------------------------------------------------------------------------------------------------------- ----------------
Ratio of net investment income to average net assets 5.17%*
- ---------------------------------------------------------------------------------------------------------- ----------------
Portfolio turnover rate N/A
- ---------------------------------------------------------------------------------------------------------- ----------------
</TABLE>
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operation on September 30, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 1.42%* for the year
ended December 31, 1999.
Statement of Assets and Liabilities
Short-Term Bond Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investments, at value $ 3,035
- ---------------------------------------------------------------------------------------------------------- ----------------
Cash 1
- ---------------------------------------------------------------------------------------------------------- ----------------
Manager reimbursement receivable 6
- ---------------------------------------------------------------------------------------------------------- ----------------
$ 3,042
========================================================================================================== ================
Liabilities:
Accrued investment advisory fee $ 1
- ---------------------------------------------------------------------------------------------------------- ----------------
Accrued administration fee 1
- ---------------------------------------------------------------------------------------------------------- ----------------
2
========================================================================================================== ================
Net Assets $ 3,040
========================================================================================================== ================
Net Assets Consist of:
Paid in capital $ 3,040
- ---------------------------------------------------------------------------------------------------------- ----------------
Undistributed (overdistributed) net investment income 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Accumulated undistributed net realized gain (loss) 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Net unrealized appreciation (depreciation) 0
- ---------------------------------------------------------------------------------------------------------- ----------------
$ 3,040
========================================================================================================== ================
Shares Issued and Outstanding: 304
- ---------------------------------------------------------------------------------------------------------- ----------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 10.00
- ---------------------------------------------------------------------------------------------------------- ----------------
Cost of Investments Owned $ 3,035
========================================================================================================== ================
</TABLE>
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Short-Term Bond Portfolio
For the period ended December 31, 1999
Amounts in thousands
<TABLE>
<CAPTION>
Period from September 30,1999
to December 31, 1999
Investment Income:
<S> <C>
Interest $ 44
- ---------------------------------------------------------------------------------------------------------- ----------------
Miscellaneous Income 1
- ---------------------------------------------------------------------------------------------------------- ----------------
Total Income 45
========================================================================================================== ================
Expenses:
Investment advisory fees 3
- ---------------------------------------------------------------------------------------------------------- ----------------
Administration fees 2
- ---------------------------------------------------------------------------------------------------------- ----------------
Organization costs 6
- ---------------------------------------------------------------------------------------------------------- ----------------
Total expenses 11
- ---------------------------------------------------------------------------------------------------------- ----------------
Reimbursement by manager (6)
- ---------------------------------------------------------------------------------------------------------- ----------------
Net expenses 5
- ---------------------------------------------------------------------------------------------------------- ----------------
Net Investment Income 40
========================================================================================================== ================
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Net change in unrealized appreciation on investments 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Net Gain 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Net Increase in Assets Resulting from Operations $ 40
========================================================================================================== ================
</TABLE>
Statement of Changes in Net Assets
Short-Term Bond Portfolio
December 31, 1999>
Amounts in thousands
<TABLE>
<CAPTION>
Period from September 30, 1999
to December 31, 1999
Increase (Decrease) in Net Assets from:
Operations:
<S> <C>
Net investment income $ 40
- ---------------------------------------------------------------------------------------------------------- ----------------
Net realized gain 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Net change in unrealized appreciation 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Net increase resulting from operations 40
========================================================================================================== ================
Distributions to Shareholders:
From net investment income (40)
- ---------------------------------------------------------------------------------------------------------- ----------------
From net realized capital gains 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Total Distributions (40)
========================================================================================================== ================
Portfolio Share Transactions:
Receipts for shares sold 3,000
- ---------------------------------------------------------------------------------------------------------- ----------------
Issued as reinvestment of distributions 40
- ---------------------------------------------------------------------------------------------------------- ----------------
Cost of shares redeemed 0
- ---------------------------------------------------------------------------------------------------------- ----------------
Net increase resulting from Portfolio share transactions 3,040
- ---------------------------------------------------------------------------------------------------------- ----------------
Total Increase in Net Assets $ 3,040
========================================================================================================== ================
Net Assets:
Beginning of period 0
- ---------------------------------------------------------------------------------------------------------- ----------------
End of period * $ 3,040
- ---------------------------------------------------------------------------------------------------------- ----------------
*Including net undistributed (overdistributed) investment income of: $ 0
- ---------------------------------------------------------------------------------------------------------- ----------------
</TABLE>
4 See accompanying notes
<PAGE>
Schedule of Investments
Short-Term Bond Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 9.0%
- --------------------------------------------------------------------------------
Chase Manhattan Grantor Trust
5.200% due 02/15/2002 $ 129 $ 129
Onyx Acceptance Auto Trust
5.500% due 10/15/2002 147 146
-----------
Total Asset-Backed Securities 275
(Cost $275) ===========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 90.8%
- --------------------------------------------------------------------------------
Commercial Paper 85.0%
American Express
5.890% due 02/09/2000 100 99
American Home
5.940% due 01/26/2000 100 100
ANZ, Inc.
5.830% due 02/22/2000 100 99
Bayerishche Landesbank
6.010% due 02/22/2000 100 99
5.800% due 02/22/2000 100 99
Becton Dickinson & Co.
5.820% due 02/28/2000 100 99
British Telecom PLC
5.830% due 02/22/2000 100 99
Coca Cola Co.
5.800% due 02/08/2000 100 99
Crown Cork & Seal Co., Inc.
6.350% due 03/03/2000 100 99
DaimlerChrysler AG
5.880% due 02/03/2000 100 99
Deutsche Bank Financial
5.940% due 02/02/2000 100 100
Florida Power Corp.
5.950% due 01/31/2000 100 100
Gannett Co., Inc.
5.990% due 01/26/2000 100 100
General Electric Capital Corp.
5.830% due 02/23/2000 100 99
KFW International Financial
5.850% due 03/06/2000 100 99
National Australia Funding
5.950% due 02/03/2000 100 99
National Rural Utilities
5.800% due 02/24/2000 100 99
Norfolk Southern Corp.
6.300% due 01/26/2000 100 100
Oesterreich Kontrollbank
5.930% due 01/18/2000 100 100
Procter & Gamble Co.
5.890% due 02/10/2000 100 99
Reseau Ferre De France
5.800% due 02/24/2000 100 99
Sara Lee Credit Corp.
5.890% due 01/24/2000 100 100
Shell Finance
5.820% due 01/31/2000 100 100
Swedish Bank, Inc.
5.820% due 02/18/2000 100 99
Textron Inc.
6.090% due 01/14/2000 100 100
Williams Holdings
6.740% due 01/25/2000 100 100
-----------
2,584
Repurchase Agreement 5.8%
State Street Bank
4.000% due 01/03/2000 176 176
(Dated 12/31/1999. Collateralized by
Federal Home Loan Bank
5.875% due 09/17/2001 valued at $181.
Repurchase proceeds are $176.)
-----------
176
-----------
Total Short-Term Instruments 2,760
(Cost $2,760) ===========
Total Investments (a) 99.8% $ 3,035
(Cost $3,035)
Other Assets and Liabilities (Net) 0.2% 5
-----------
Net Assets 100.0% $ 3,040
===========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $3,035 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 0
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. 0
-----------
Unrealized appreciation-net $ 0
===========
1999 Annual Report See accompanying notes 5
<PAGE>
Notes to Financial Statements
December 31, 1999
1. Organization
The Short-Term 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
September 30, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
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, for which it receives a
monthly advisory fee based on average daily net assets. The Advisory Fee is
charged at an annual rate of 0.35%.
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%.
6
<PAGE>
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 0.60% 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 December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
-------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
Short-Term Bond Portfolio $ 0 $ 0 $ 290 $ 0
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
- --------------------------------------------------------------------------------
Short-Term Bond Portfolio 1 100
5. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on
March 3, 2000.
6. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Short-Term
Bond Portfolio
----------------------
Period from 09/30/1999
to 12/31/1999
Shares Amount
----------------------
<S> <C> <C>
Receipts for shares sold 300 $ 3,000
- ------------------------------------------------------------------------------------------------- ----------------------
Issued as reinvestment of distributions 4 40
- ------------------------------------------------------------------------------------------------- ----------------------
Cost of shares redeemed 0 0
- ------------------------------------------------------------------------------------------------- ----------------------
Net increase resulting from
Portfolio share transactions 304 $ 3,040
================================================================================================= ======================
</TABLE>
1999 Annual Report 7
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholder of Short-Term
Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Short-Term Bond Portfolio (a
Portfolio of PIMCO Variable Insurance Trust, hereafter referred to as the
"Trust") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the period indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian,
provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
8
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
REAL RETURN BOND PORTFOLIO
---------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000.
As a consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<PAGE>
Real Return Bond Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Maximum real return, consistent with preservation of real capital and prudent
investment management
Portfolio:
Primarily inflation-indexed bonds
Duration:
2.28 years
Total Net Assets:
$3.0 million
Sector Breakdown:*
[CHART]
U.S. Treasury Obligations 49.8%
U.S. Government Agencies 20.1%
Corporate Bond and Notes 13.8%
Mortgage-Backed Securities 12.6%
Other 3.7%
Quality Breakdown:*
[CHART]
AAA 88.9%
AA 2.2%
A 8.9%
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
Total Return Investment Performance For the Period Ended December 31, 1999
Real Return Lehman Brothers
Bond Portfolio Inflation Linked
(Incep. 9/30/1999) Treasury Index
- --------------------------------------------------------------------------------
Since Inception -0.03% 0.81%
Cumulative Returns Through December31, 1999
$10,000 invested at inception
[CHART]
<TABLE>
<CAPTION>
Real Return Lehman Brothers
MONTH Bond Portfolio Inflation Linked Treasury
Index
<S> <C> <C>
09/30/1999 10,000 10,000
10/31/1999 10,013 10,020
11/30/1999 10,090 10,081
12/31/1999 9,997 10,081
</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 $10,000 on 10/01/1999, the first full month following the
Portfolio's inception on 9/30/1999, compared to the Lehman Brothers Inflation
Linked Treasury 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 uncertainly.
- --------------------------------------------------------------------------------
Portfolio insights
- --------------------------------------------------------------------------------
. The Real Return Bond Portfolio is a recent addition to the PIMCO Variable
Insurance Trust and seeks as its major objective the maximization of real
return, consistent with the preservation of real capital and prudent
investment management.
. At least 65% of the Fund's net assets must be invested in inflation-indexed
bonds. The benchmark for the Fund is the Lehman Inflation Linked Index,
consisting of all outstanding Treasury Inflation Protection Securities
(TIPS).
. Inflation-indexed securities generally pay a "real yield" and a monthly
inflation adjustment, which is tied to a designated inflation index, such
as the Consumer Price Index All Urban Consumers (CPI-U) that is used for
U.S.-issued inflation-indexed securities.
. Real yields have displayed less volatility than conventional, or
non-inflation-adjusted, yields. For example, in 1999, the 10-year TIPS
yield rose by 0.5% while the conventional 10-year Treasury yield increased
by 1.8%.
. Less yield volatility for inflation-indexed bonds implies that TIPS
effective durations are much less than similar maturity Treasuries. The
total return of the Lehman Inflation Linked Index (average maturity of
about 13 years) was +2.4% for 1999 versus -5.3% for the Lehman 7-10 Year
Treasury Index.
. For the three-month period ended December 31, 1999, the total return
performance of the Real Return Bond Portfolio was -0.03%, versus a return
of 0.81% for its benchmark over the same period.
. Real yields on TIPS were on average 4.25% at the end of 1999, representing
some of the highest real yields across the world.
. Please see the prospectus for a more complete listing of possible
investments.
*% of Total Investments as of December 31, 1999
2
<PAGE>
Financial Highlights
Real Return Bond Portfolio
December 31, 1999
12/31/1999 (b)
Selected Per Share Data for the Period Ended:
Net asset value beginning of period $ 10.00
- ------------------------------------------------------------- ------------
Net investment income (a) 0.20
- ------------------------------------------------------------- ------------
Net realized / unrealized (loss) on investments (a) (0.20)
- ------------------------------------------------------------- ------------
Total income from investment operations 0.00
- ------------------------------------------------------------- ------------
Dividends from net investment income (0.20)
- ------------------------------------------------------------- ------------
Total distributions (0.20)
- ------------------------------------------------------------- ------------
Net asset value end of period $ 9.80
- ------------------------------------------------------------- ------------
Total return (0.03)%
- ------------------------------------------------------------- ------------
Net assets end of period (000s) $ 3,000
- ------------------------------------------------------------- ------------
Ratio of net expenses to average net assets (c) 0.65%*
- ------------------------------------------------------------- ------------
Ratio of net investment income to average net assets 7.72%*
- ------------------------------------------------------------- ------------
Portfolio turnover rate 23%
- ------------------------------------------------------------- ------------
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operation on September 30, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.92%* for the
period ended December 31, 1999.
Statement of Assets and Liabilities
Real Return Bond Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
Assets:
Investments, at value $ 5,938
- ------------------------------------------------------------- ------------
Cash 1
- ------------------------------------------------------------- ------------
Receivable for investments sold 101
- ------------------------------------------------------------- ------------
Interest receivable 46
- ------------------------------------------------------------- ------------
Manager reimbursement receivable 2
- ------------------------------------------------------------- ------------
Other assets 5
- ------------------------------------------------------------- ------------
6,093
============================================================= ============
Liabilities:
Payable for financing transactions $ 3,091
- ------------------------------------------------------------- ------------
Accrued investment advisory fee 1
- ------------------------------------------------------------- ------------
Accrued administration fee 1
- ------------------------------------------------------------- ------------
3,093
============================================================= ============
Net Assets 3,000
============================================================= ============
Net Assets Consist of:
Paid in capital $ 3,060
- ------------------------------------------------------------- ------------
Undistributed (overdistributed) net investment income 0
- ------------------------------------------------------------- ------------
Accumulated undistributed net realized gain (loss) (5)
- ------------------------------------------------------------- ------------
Net unrealized appreciation (depreciation) (55)
- ------------------------------------------------------------- ------------
$ 3,000
============================================================= ============
Shares Issued and Outstanding: 306
- ------------------------------------------------------------- ------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.80
- ------------------------------------------------------------- ------------
Cost of Investments Owned $ 5,993
============================================================= ============
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Real Return Bond Portfolio
For the period ended December 31, 1999
Amounts in thousands
Period from September 30,1999
to December 31, 1999
Investment Income:
Interest $ 65
- ------------------------------------------------------------- ------------
Total Income 65
============================================================= ============
Expenses:
Investment advisory fees 3
- ------------------------------------------------------------- ------------
Administration fees 2
- ------------------------------------------------------------- ------------
Organization costs 2
- ------------------------------------------------------------- ------------
Total expenses 7
- ------------------------------------------------------------- ------------
Reimbursement by manager (2)
- ------------------------------------------------------------- ------------
Net expenses 5
- ------------------------------------------------------------- ------------
Net Investment Income (Loss) 60
============================================================= ===========
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (5)
- ------------------------------------------------------------- ------------
Net change in unrealized (depreciation) on investments (55)
- ------------------------------------------------------------- ------------
Net (Loss) (60)
- ------------------------------------------------------------- ------------
Net Increase in Assets Resulting from Operations $ 0
============================================================= ============
Statement of Changes in Net Assets
Real Return Bond Portfolio
December 31, 1999
Amounts in thousands
Period from September 30, 1999
to December 31, 1999
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 60
- ------------------------------------------------------------- ------------
Net realized (loss) (5)
- ------------------------------------------------------------- ------------
Net change in unrealized (depreciation) (55)
- ------------------------------------------------------------- ------------
Net increase resulting from operations 0
============================================================= ============
Distributions to Shareholders:
From net investment income (60)
- ------------------------------------------------------------- ------------
Total Distributions (60)
============================================================= ============
Portfolio Share Transactions:
Receipts for shares sold 6,000
- ------------------------------------------------------------- ------------
Issued as reinvestment of distributions 44
- ------------------------------------------------------------- ------------
Cost of shares redeemed (2,984)
- ------------------------------------------------------------- ------------
Net increase resulting from Portfolio share transactions 3,060
- ------------------------------------------------------------- ------------
Total Increase in Net Assets $ 3,000
============================================================= ============
Net Assets:
Beginning of period 0
- ------------------------------------------------------------- ------------
End of period * $ 3,000
- ------------------------------------------------------------- ------------
4 See accompanying notes
<PAGE>
Statement of Cash Flows
Real Return Bond Portfolio
December 31, 1999
Amounts in thousands
Period from September 30,1999
to December 31, 1999
Increase (Decrease) in Cash and Foreign Currency from:
Financing Activities
Sales of Portfolio shares $ 6,000
- ------------------------------------------------------------- ------------
Redemptions of Portfolio shares (2,984)
- ------------------------------------------------------------- ------------
Cash distributions paid (16)
- ------------------------------------------------------------- ------------
Proceeds from financing transactions 3,091
- ------------------------------------------------------------- ------------
Net increase from financing activities 6,091
============================================================= ============
Operating Activities
Purchases of long-term securities and foreign currency (6,824)
- ------------------------------------------------------------- ------------
Proceeds from sales of long-term securities and foreign currency 940
- ------------------------------------------------------------- ------------
Purchases of short-term securities (net) (215)
- ------------------------------------------------------------- ------------
Net investment income 60
- ------------------------------------------------------------- ------------
Change in other receivables/payables (net) (51)
- ------------------------------------------------------------- ------------
Net (decrease) from operating activities (6,090)
============================================================= ============
Net Increase in Cash and Foreign Currency 1
============================================================= ============
Cash and Foreign Currency
Beginning of period 0
- ------------------------------------------------------------- ------------
End of period $ 1
- ------------------------------------------------------------- ------------
1999 Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments
Real Return Bond Portfolio
December 31, 1999
Principal
Amount Value
(000s) (000s)
- --------------------------------------------------------------------------------
CORPORATE BONDS & NOTES 27.3%
- --------------------------------------------------------------------------------
Banking & Finance 9.3%
General Motors Acceptance Corp.
6.320% due 12/09/2002 (d $ 150 $ 150
J.P. Morgan & Co.
3.356% due 02/15/2012 (d) 150 130
--------
280
Industrials 5.0%
Arrow Electronics, Inc.
6.852% due 11/24/2000 (d) 150 150
--------
Utilities 13.0%
Edison Mission Energy
6.790% due 06/15/2001 (d) 100 100
Tennessee Valley Authority
3.375% due 01/15/2007 318 290
--------
390
--------
Total Corporate Bonds & Notes 820
(Cost $825) ========
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 39.7%
- --------------------------------------------------------------------------------
Federal Home Loan Bank
5.918% due 02/15/2002 (d) 500 487
Student Loan Marketing Assn.
5.685% due 10/25/2005 (d) 708 705
--------
Total U.S. Government Agencies 1,192
(Cost $1,192) ========
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 98.7%
- --------------------------------------------------------------------------------
Treasury Inflation Protected Securities
3.375% due 01/15/2007 (b)(c) 2,548 2,402
3.625% due 04/15/2028 (b)(c) 624 558
-------
Total U.S. Treasury Obligations 2,960
(Cost $3,016) =======
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 25.0%
- --------------------------------------------------------------------------------
Collateralized Mortgage Obligations 13.8%
Federal Home Loan Mortgage Corp.
6.750% due 05/15/2021 415 415
Federal National Mortgage Association 11.2%
7.559% due 11/01/2024 (d) 328 336
-------
Total Mortgage-Backed Securities 751
(Cost $745) =======
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 7.2%
- --------------------------------------------------------------------------------
Commercial Paper 3.3%
Procter & Gamble Co.
5.890% due 02/10/2000 100 99
-------
Repurchase Agreement 3.9%
State Street Bank
4.000% due 01/03/2000 116 116
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
6.000% due 09/24/2001 valued at $121.
Repurchase proceeds are $116.)
-------
116
-------
Total Short-Term Instruments 215
(Cost $215) =======
Total Investments (a) 197.9% $5,938
(Cost $5,993)
Other Assets and Liabilities (Net) (97.9%) (2,938)
-------
Net Assets 100.0% $3,000
-------
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation (depreciation) of
investments based on cost for federal income tax purposes of $5,993 was as
follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 8
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (63)
-------
Unrealized depreciation-net $ (55)
=======
(b) Principal amount of the security is adjusted for inflation.
(c) Subject to a financing transaction.
(d) Variable rate security. The rate listed is as of December 31, 1999.
6 See accompanying notes
<PAGE>
Notes to Financial Statements
December 31, 1999
1. Organization
The Real 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. The Portfolio commenced operations on
September 30, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
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 counterparty 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.
Inflation-Indexed Bonds. Inflation-indexed bonds are fixed income securities
whose principal value is periodically adjusted to the rate of inflation. The
interest rate on these bonds is generally fixed at issuance at a rate lower than
typical bonds. Over the life of an inflation-indexed bond, however, interest
will be paid based on a principal value which is adjusted for inflation. Any
increase in the principal amount of an inflation-indexed bond will be considered
interest income, even though investors do not receive their principal until
maturity.
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.
1999 Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
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, for which it receives a
monthly advisory fee based on average daily net assets. 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 December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
------------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
Real Return Bond Portfolio $ 6,000 $ 1,058 $ 824 $ 0
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
- --------------------------------------------------------------------------------
Real Return Bond Portfolio 1 100
5. Federal Income Tax Matters
As of December 31, 1999, Real Return Bond Portfolio had remaining capital loss
carryforwards that were realized during the current year.
Additionally, the Portfolio realized $4,937 of capital losses during the
period November 1, 1999 through December 31, 1999 which the Fund elected to
defer to the following taxable year pursuant to income tax regulations.
The Portfolio will resume capital gain distributions in the future to the
extent gains are realized in excess of the available carryforwards.
Shareholders are advised to consult their own tax advisor with respect to
the tax consequences of their investment in the Trust. In January 2000, you will
be advised on IRS Form 1099-DIV as to the federal tax status of the dividends
and distributions received by you in calendar year 1999.
6. Acquisition by Allianz
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
8
<PAGE>
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
Real Return
Bond Portfolio
---------------------------
Period from 09/30/1999
to 12/31/1999
Shares Amount
---------------------------
Receipts for shares sold 606 $ 6,000
- ------------------------------------------------- ---------------------------
Issued as reinvestment of distributions 4 44
- ------------------------------------------------- ---------------------------
Cost of shares redeemed (304) (2,984)
- ------------------------------------------------- ---------------------------
Net increase resulting from
Portfolio share transactions 306 $ 3,060
================================================= ===========================
1999 Annual Report 9
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholder of Real Return
Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Real Return Bond Portfolio (a
Portfolio of PIMCO Variable Insurance Trust, hereafter referred to as the
"Trust") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the period indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
10
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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
MID-CAP GROWTH PORTFOLIO
---------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000.
As a consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses.1
1 This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder: Last year was a banner year for
the stock market - a fitting conclusion to a century of unprecedented economic
expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<PAGE>
Mid-Cap Growth Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Growth of capital
Portfolio:
Primarily common stocks of companies with medium capitalizations that have
improving fundamentals and whose stock is reasonably valued
Total Net Assets:
$3.7 million
- --------------------------------------------------------------------------------
TOP 10 COMMON STOCKS*
- --------------------------------------------------------------------------------
Company
- --------------------------------------------------------------------------------
Medimmune, Inc. 2.2%
- --------------------------------------------------------------------------------
Veritas Software Corp. 2.1%
- --------------------------------------------------------------------------------
Lam Research Corp. 2.1%
- --------------------------------------------------------------------------------
BEA Systems, Inc. 2.1%
- --------------------------------------------------------------------------------
Citrix Systems, Inc. 2.0%
- --------------------------------------------------------------------------------
Comverse Technology, Inc. 1.9%
- --------------------------------------------------------------------------------
KLA-Tencor Corp. 1.8%
- --------------------------------------------------------------------------------
Network Appliance, Inc. 1.8%
- --------------------------------------------------------------------------------
JDS Uniphase Corp. 1.7%
- --------------------------------------------------------------------------------
Symbol Technologies, Inc. 1.7%
- --------------------------------------------------------------------------------
Top Ten Total 19.4%
- --------------------------------------------------------------------------------
Industry Classifications:*
[CHART]
Technology 45.0%
Financial and Business Services 12.9%
Consumer Discretionary 8.0%
Health Care 7.8%
Materials and Processing 6.2%
Other 12.6%
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
Total Return Investment Performance For the Period Ended December 31, 1999
Mid-Cap Growth Russell 2000
Portfolio Mid-Cap
(Incep. 9/30/1999) Index
- --------------------------------------------------------------------------------
Since Inception 24.01% --
Cumulative Returns Through December 31, 1999
$10,000 invested at inception
[CHART]
<TABLE>
<CAPTION>
Mid-Cap Growth Russell 2000
MONTH Portfolio Mid-Cap Index
<S> <C> <C>
09/30/1999 10,000 10,000
10/31/1999 10,480 10,474
11/30/1999 11,070 10,776
12/31/1999 12,401 11,724
</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 $10,000 on 10/01/1999, the first full month following the
Portfolio's inception on 9/30/1999, compared to the Russell 2000 Mid-Cap Index,
an unmanaged market index.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. The PIMCO Mid-Cap Growth 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 their
time-tested philosophy and investment process to identify
middle-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 stocks with market
capitalizations in excess of $500 million 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 of possible
investments.
*% of Total Investments as of December 31, 1999
2
<PAGE>
Financial Highlights
Mid-Cap Growth Portfolio
December 31, 1999
Selected Per Share Data for the Period Ended: 12/31/1999 (b)
---------------------
Net asset value beginning of period $ 10.00
- ------------------------------------------------------- ---------------------
Net investment income (a) 0.01
- ------------------------------------------------------- ---------------------
Net realized / unrealized (loss) on investments (a) 2.39
- ------------------------------------------------------- ---------------------
Total income from investment operations 2.40
- ------------------------------------------------------- ---------------------
Dividends from net investment income (0.01)
- ------------------------------------------------------- ---------------------
Total distributions (0.01)
- ------------------------------------------------------- ---------------------
Net asset value end of period $ 12.39
- ------------------------------------------------------- ---------------------
Total return 24.01%
- ------------------------------------------------------- ---------------------
Net assets end of period (000s) $ 3,720
- ------------------------------------------------------- ---------------------
Ratio of net expenses to average net assets (c) 0.85%*
- ------------------------------------------------------- ---------------------
Ratio of net investment income to average net assets 0.37%*
- ------------------------------------------------------- ---------------------
Portfolio turnover rate 39%
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operation on September 30, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 1.11%* for the
year ended December 31, 1999.
Statement of Assets and Liabilities
Mid-Cap Growth Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
Assets:
Investments, at value $ 3,748
- ------------------------------------------------------- ---------------------
Receivable for investments sold 27
- ------------------------------------------------------- ---------------------
Interest and dividends receivable 3
- ------------------------------------------------------- ---------------------
Manager reimbursement receivable 2
- ------------------------------------------------------- ---------------------
3,780
- ------------------------------------------------------- ---------------------
Liabilities:
Payable for investments purchased $ 57
- ------------------------------------------------------- ---------------------
Accrued investment advisory fee 2
- ------------------------------------------------------- ---------------------
Accrued administration fee 1
- ------------------------------------------------------- ---------------------
60
- ------------------------------------------------------- ---------------------
Net Assets $ 3,720
- ------------------------------------------------------- ---------------------
Net Assets Consist of:
Paid in capital $ 3,003
- ------------------------------------------------------- ---------------------
Undistributed (overdistributed) net investment income 0
- ------------------------------------------------------- ---------------------
Accumulated undistributed net realized (loss) (28)
- ------------------------------------------------------- ---------------------
Net unrealized appreciation (depreciation) 745
- ------------------------------------------------------- ---------------------
$ 3,720
- ------------------------------------------------------- ---------------------
Shares Issued and Outstanding: 300
- ------------------------------------------------------- ---------------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 12.39
- ------------------------------------------------------- ---------------------
Cost of Investments Owned $ 3,003
- ------------------------------------------------------- ---------------------
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Mid-Cap Growth Portfolio
For the period ended December 31, 1999
Amounts in thousands
---------------------
Period from
September 30,1999
to December 31, 1999
Investment Income:
Interest $ 4
- ------------------------------------------------------- ---------------------
Dividends 6
- ------------------------------------------------------- ---------------------
Total Income 10
- ------------------------------------------------------- ---------------------
Expenses:
Investment advisory fees 5
- ------------------------------------------------------- ---------------------
Administration fees 2
- ------------------------------------------------------- ---------------------
Organization cost 2
- ------------------------------------------------------- ---------------------
Total expenses 9
- ------------------------------------------------------- ---------------------
Reimbursement by manager (2)
- ------------------------------------------------------- ---------------------
Net expenses 7
- ------------------------------------------------------- ---------------------
Net Investment Income (Loss) 3
- ------------------------------------------------------- ---------------------
Net Realized and Unrealized Gain (Loss):
Net realized (loss) on investments (28)
- ------------------------------------------------------- ---------------------
Net change in unrealized appreciation (depreciation)
on investments 745
- ------------------------------------------------------- ---------------------
Net Gain 717
- ------------------------------------------------------- ---------------------
Net Increase (Decrease) in Assets Resulting from
Operations $ 720
- ------------------------------------------------------- ---------------------
Statement of Changes in Net Assets
Mid-Cap Growth Portfolio
December 31, 1999
Amounts in thousands
- ------------------------------------------------------- ---------------------
Period from
September 30, 1999
to December 31, 1999
Increase (Decrease) in Net Assets from:
Operations
Net investment income (loss) $ 3
- ------------------------------------------------------- ---------------------
Net realized gain (loss) (28)
- ------------------------------------------------------- ---------------------
Net change in unrealized appreciation (depreciation) 745
- ------------------------------------------------------- ---------------------
Net increase (decrease) resulting from operations 720
- ------------------------------------------------------- ---------------------
Distributions to Shareholders:
From net investment income (3)
- ------------------------------------------------------- ---------------------
Total Distributions (3)
- ------------------------------------------------------- ---------------------
Fund Share Transactions:
Receipts for shares sold 3,000
- ------------------------------------------------------- ---------------------
Issued as reinvestment of distributions 3
- ------------------------------------------------------- ---------------------
Net increase (decrease) resulting from Fund share
transactions 3,003
- ------------------------------------------------------- ---------------------
Total Increase (Decrease) in Net Assets 3,720
- ------------------------------------------------------- ---------------------
Net Assets:
Beginning of period 0
- ------------------------------------------------------- ---------------------
End of period * $ 3,720
- ------------------------------------------------------- ---------------------
*Including net undistributed (overdistributed)
investment income of: $ 0
- ------------------------------------------------------- ---------------------
4 See accompanying notes
<PAGE>
Schedule of Investments
Mid-Cap Growth Portfolio
December 31, 1999
Value
Shares (000s)
- --------------------------------------------------------------------------------
COMMON STOCKS 93.2%
- --------------------------------------------------------------------------------
Capital Goods 2.3%
Waters Corp. (b) 800 $ 42
TRW, Inc. 800 42
-----------
84
Communications 2.3%
CenturyTel, Inc. 1,000 47
Westwood One, Inc. 500 38
-----------
85
Consumer Discretionary 8.0%
Tiffany & Co. 600 54
Dollar Tree Stores, Inc. 1,000 48
B.J.'s Wholesale Club, Inc. (b) 1,200 44
Intimate Brands, Inc. 1,000 43
Bed, Bath & Beyond, Inc. (b) 1,100 38
Furniture Brands International, Inc. (b) 1,700 37
MGM Grand, Inc. (b) 700 35
-----------
299
Consumer Services 1.1%
Times Mirror Co. `A' 600 40
-----------
Consumer Staples 3.0%
Dean Foods Co. 1,000 40
SUPERVALU, Inc. 1,800 36
McCormick & Co. 1,200 36
-----------
112
Energy 3.6%
Kerr McGee Corp. 700 43
Occidental Petroleum Corp. 2,000 43
Dynegy, Inc. 1,700 41
Apache Corp. 100 4
Anadarko Petroleum Corp. 100 3
-----------
134
Financial & Business Services 13.0%
USWeb Corp. 1,100 49
Valassis Communications, Inc. (b) 1,000 42
Zions Bancorporation 700 41
Ambac Financial Group, Inc. 700 37
Providian Financial Corp. 400 36
Liberty Property Trust 1,500 36
Apartment Investment & Management Co. `A' (b) 900 36
Bank United Corp. `A' 1,300 35
PMI Group, Inc. 700 34
Capital One Financial Corp. 700 34
Profit Recovery Group International, Inc. (b) 1,200 32
Golden State Bancorp, Inc. (b) 1,600 28
Peoples Heritage Financial Group 1,700 26
Ace Ltd. 1,000 17
-----------
483
Health Care 7.8%
Medimmune, Inc. (b) 500 83
IDEC Pharmaceuticals Corp. (b) 600 59
Allergan, Inc. 900 45
Bausch & Lomb, Inc. 600 41
C.R. Bard, Inc. 600 32
Forest Laboratories `A' (b) 500 31
-----------
291
Materials & Processing 6.3%
Boise Cascade Corp. 1,100 45
Millipore Corp. 1,100 42
Willamette Industries 900 42
Temple-Inland, Inc. 600 40
Martin Marietta Materials, Inc. 800 33
Pall Corp. 1,500 32
-----------
234
Technology 45.3%
Veritas Software Corp. (b) 550 79
Lam Research Corp. (b) 700 78
BEA Systems, Inc. (b) 1,100 77
Citrix Systems, Inc. (b) 600 74
Comverse Technology, Inc. (b) 500 72
KLA-Tencor Corp. (b) 600 67
Network Appliance, Inc. (b) 800 66
JDS Uniphase Corp. (b) 400 65
Symbol Technologies, Inc. 1,000 64
CSG Systems International, Inc. (b) 1,300 52
Applied Micro Circuits Corp. (b) 400 51
Sierra Semiconductor Corp. (b) 300 48
QLogic Corp. (b) 300 48
Xilinx, Inc. (b) 1,000 45
CTS Corp. 600 45
Adaptec, Inc. (b) 900 45
Dendrite International, Inc. (b) 1,300 44
Network Solutions, Inc. (b) 200 44
Tektronix, Inc. 1,100 43
ISS Group, Inc. (b) 600 43
Entrust Technologies, Inc. (b) 700 42
Amdocs Ltd. (b) 1,200 41
RF Micro Devices, Inc. (b) 600 41
Compuware Corp. (b) 1,100 41
Adobe Systems, Inc. 600 40
Harmonic Lightwaves, Inc. (b) 400 38
Integrated Device Technology, Inc. (b) 1,300 38
General Dynamics Corp. 700 37
Jabil Circuit, Inc. (b) 500 36
Legato Systems, Inc. (b) 500 34
Rational Software Corp. (b) 700 34
LSI Logic Corp. (b) 500 34
Cypress Semiconductor Corp. (b) 800 26
SDL, Inc. (b) 100 22
Amkor Technology, Inc. (b) 600 17
Vishay Intertechnology, Inc. (b) 500 16
-----------
1,687
Utilities 0.5%
Florida Progress Corp. 400 17
-----------
Total Common Stocks 3,466
(Cost $2,721) ===========
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 7.6%
- --------------------------------------------------------------------------------
Principal
Amount
(000s)
Repurchase Agreement 7.6%
State Street Bank
4.000% due 01/03/2000 $ 282 282
(Dated 12/31/1999. Collateralized by
Federal National Mortgage Association
0.000% due 08/31/2000 valued at 288.
Repurchase proceeds are $282.
-----------
Total Short-Term Instruments 282
(Cost $282) ===========
Total Investments (a) 100.8% $ 3,748
(Cost $3,003)
Other Assets and Liabilities (Net) (0.8%) (28)
-----------
Net Assets 100.0% $ 3,720
===========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal
income tax purposes of $3,003 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 804
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (59)
-----------
Unrealized appreciation-net $ 745
===========
(b) Non-income producing security.
1999 Annual Report See accompanying notes 5
<PAGE>
Notes to Financial Statements
December 31, 1999
1. Organization
The Mid-Cap Growth 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
September 30, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
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, for which it receives a
monthly advisory fee based on average daily net assets. 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%.
6
<PAGE>
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 0.85% 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.
4. Purchases and Sales of Securities
Purchases and sales of securities (excluding short-term investments) for the
period ended December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
--------------------------------------------
Purchases Sales Purchases Sales
- --------------------------------------------------------------------------------
Mid-Cap Growth Portfolio $ 0 $ 0 $ 3,963 $ 1,215
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
- --------------------------------------------------------------------------------
Mid-Cap Growth Portfolio 1 100
5. Federal Income Tax Matters
As of December 31, 1999, Mid-Cap Growth Portfolio had remaining capital loss
carryforwards that were realized during the current year (amounts in thousands):
Capital Loss Carryforwards
--------------------------------
Realized Losses Expiration
- --------------------------------------------------------------------------------
Mid-Cap Growth Portfolio $ 27,869 12/31/2007
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. In January 2000, you will be
advised on IRS Form 1099-DIV as to the federal tax status of the dividends and
distributions received by you in calendar year 1999.
6. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on
March 3, 2000.
7. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Mid-Cap Growth
Portfolio
----------------------
Period from 09/30/1999
to 12/31/1999
Shares Amount
----------------------
<S> <C> <C>
Receipts for shares sold 300 $ 3,000
- --------------------------------------------------------------------------------------------------- ----------------------
Issued as reinvestment of distributions 0 3
- --------------------------------------------------------------------------------------------------- ----------------------
Net increase resulting from
Fund share transactions 300 $ 3,003
=================================================================================================== ======================
</TABLE>
1999 Annual Report 7
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholder of Mid-Cap
Growth Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Mid-Cap Growth Portfolio (a
Portfolio of PIMCO Variable Insurance Trust, hereafter referred to as the
"Trust") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the period indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1999 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
8
<PAGE>
Federal Income Tax Information (Unaudited)
As required by the Internal Revenue Code regulations, shareholders must be
notified within 60 days of the Trust's calendar year-end regarding the status of
the distributions made to the shareholders.
Dividend Received Deduction. For the benefit of corporate shareholders only, the
portion of dividends paid out of ordinary income earned during the Portfolio's
calendar year-end which qualify for the corporate dividend-received deduction is
as follows:
Mid-Cap Growth Portfolio 100%
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. However, income received by
tax-exempt recipients need not be reported as taxable income. In January 2000,
you will be advised on IRS form 1099-DIV as to the federal tax status of the
dividends and distributions received by you in calendar year 1999.
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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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 Advisors L.P.
800 Newport Center Drive
Newport Beach, CA 92660
Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust
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>
[LOGO OF PIMCO]
PIMCO VARIABLE INSURANCE TRUST
SMALL-CAP VALUE PORTFOLIO
-------------
ANNUAL REPORT
December 31, 1999
<PAGE>
A Word About the Year 2000
We at PIMCO spent significant time and resources preparing for Year 2000.
As a consequence, we are pleased to report that we made it through the Year 2000
transition period successfully, and that all our systems and processes continue
to function normally. While we expect that the great majority of the risk from
this event is now behind us, it is still possible that the "Year 2000 bug" might
result in system failures. In this regard, we would like to remind you that
while we are dedicated to avoiding problems arising from Year 2000, we cannot
guarantee investment performance or that Year 2000 will not result in losses./1/
/1/ This is a Year 2000 Readiness Disclosure dated January 31, 2000.
<PAGE>
Chairman's Letter
Dear PIMCO Variable Insurance Trust Shareholder:
Last year was a banner year for the stock market - a fitting conclusion to a
century of unprecedented economic expansion.
All the major stock indices experienced exceptional growth in 1999, despite some
dips along the way. The Dow Jones Industrial Average was up 27%, the S&P 500
rose 21% and the NASDAQ Index climbed a stunning 86% - a clear indication of the
dominant role the technology sector has played in the stock market's tenacious
bull run of the past year.
In marked contrast to the stock market's performance, the bond market
experienced a difficult year with less than favorable performance across most
segments. Many bond sectors reacted negatively to the continued strength of the
economy and to rising interest rates. U.S. Treasury yields increased across the
maturity range with the yield on the benchmark 30-year Treasury increasing by
1.39% to finish the year at 6.48%. These increases came as robust economic
expansion in the U.S. and accelerating growth in Europe and Asia boosted demand
for capital worldwide and caused inflation to rise from lows reached in the
previous year.
In an effort to temper the economy and combat the prospect of rising inflation,
the Federal Reserve raised the fed funds rate on three separate occasions to
5.5%. The increases took back all three of the Fed's rate cuts from 1998 when
market participants were preoccupied with the threat of global deflation and
reduced liquidity in financial markets. The Fed left rates unchanged in December
because of market uncertainties surrounding Y2K. Still, investors remained
concerned that the combination of rapid growth and a dwindling pool of workers
would increase wage pressures and force the Fed to tighten further in 2000.
An upward revision of third quarter growth to 5.7%, the fastest pace in almost a
year, as well as surging consumer confidence heading into the holiday season did
nothing to ease those concerns. Even so, there were signs that higher interest
rates had begun to moderate the expansion somewhat. Investment in new housing
fell and mortgage re-financings continued to decline as mortgage rates hovered
near 8%. Moreover, actual inflation remained relatively subdued, held in check
by productivity gains and intense price competition in industries such as autos
and apparel.
On the following pages you will find a more complete review of the stock and
bond markets as well as specific details about the total return investment
performance of the Portfolio. I encourage you to review the information and
commentary carefully.
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
January 31, 2000
PIMCO Advisors Holdings L.P. (NYSE:PA), its operating subsidiary PIMCO Advisors
L.P. and Allianz AG (EURO:ALV) announced that they have reached a definitive
agreement for Allianz AG to acquire majority ownership of PIMCO Advisors,
including all of the interests held at PIMCO Advisors Holdings L.P. Under the
terms of the agreement, at the closing the units of PA Holdings will be
exchanged by way of a merger and there will be no further public ownership of
PIMCO Advisors. Additionally, key employees at each of PIMCO Advisors'
investment units, including PIMCO's Bill Gross, have significant profit-sharing
and retention arrangements to ensure continuity of the investment process and
staff.
1999 Annual Report 1
<PAGE>
Small-Cap Value Portfolio
- --------------------------------------------------------------------------------
PORTFOLIO CHARACTERISTICS
- --------------------------------------------------------------------------------
Objective:
Long-term growth of capital and income
Portfolio:
Primarily common stocks of companies with small-sized capitalizations and
below-average price-to-earnings ratios relative to their industry groups
Total Net Assets:
$2.9 million
- --------------------------------------------------------------------------------
TOP TEN COMMON STOCKS*
- --------------------------------------------------------------------------------
Company
- --------------------------------------------------------------------------------
Harman International Industries, Inc. 1.3%
- --------------------------------------------------------------------------------
Intermet Corp. 1.3%
- --------------------------------------------------------------------------------
Russ Berrie & Co., Inc. 1.3%
- --------------------------------------------------------------------------------
Jostens, Inc. 1.2%
- --------------------------------------------------------------------------------
C&D Technologies, Inc. 1.2%
- --------------------------------------------------------------------------------
Commercial Metals Co. 1.2%
- --------------------------------------------------------------------------------
Rollins Truck Leasing Co. 1.1%
- --------------------------------------------------------------------------------
Cordant Technologies, Inc. 1.1%
- --------------------------------------------------------------------------------
Arrow International, Inc. 1.1%
- --------------------------------------------------------------------------------
Dallas Semiconductor Corp. 1.1%
- --------------------------------------------------------------------------------
Top Ten Total 11.9%
- --------------------------------------------------------------------------------
Industry Classifications:*
[CHART]
Financial and Business Services 23.8%
Consumer Discretionary 12.9%
Capital Goods 12.5%
Utilities 9.3%
Materials and Processing 9.2%
Energy 5.3%
Building 4.8%
Consumer Staples 4.7%
Aerospace 4.1%
Health Care 4.0%
Other 4.9%
- --------------------------------------------------------------------------------
PERFORMANCE
- --------------------------------------------------------------------------------
Total Return Investment Performance For the Period Ended December 31, 1999
Small-Cap Value Russell
Portfolio 2000
(Incep. 9/30/1999) Index
- --------------------------------------------------------------------------------
Since Inception -3.00% 18.43%
Cumulative Returns Through December31, 1999
$10,000 invested at inception
[CHART]
<TABLE>
<CAPTION>
Small-Cap Value Russell 2000
MONTH Portfolio Index
<S> <C> <C>
09/30/1999 10,000 10,000
10/31/1999 9,830 10,040
11/30/1999 9,770 10,639
12/31/1999 9,700 11,843
</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 $10,000 on 10/01/1999, the first full month following the
Portfolio's inception on 9/30/1999, compared to the Russell 2000 Index, an
unmanaged market index.
- --------------------------------------------------------------------------------
PORTFOLIO INSIGHTS
- --------------------------------------------------------------------------------
. For the three-month period ended December 31, 1999, the Small-Cap Value
Portfolio returned -3.00% versus 18.43% for the Russell 2000 Index.
. The underperformance of the Portfolio versus that of the Index can be
attributed to the Portfolio's consistent underweighting of technology
issues. Technology issues had been underweighted by the Portfolio due to
their high valuations as compared to historic and customary measurements.
. The attractiveness of many of the Portfolio's holdings on a fundamental
valuation basis were exemplified by a series of takeouts, whereby the
company's security was purchased by another company or by management.
. The Portfolio experienced no style drift during the year, continuing to
maintain a higher dividend yield and a lower P/E ratio than those of the
Russell 2000 Value and Russell 2000 Indices.
. The Portfolio ended the year with a P/E ratio under 10 and a dividend yield
greater than 3.7%.
. Turnover and risk measures of the Portfolio's holdings continued to be low.
*% of Total Investments as of December 31, 1999
2
<PAGE>
Financial Highlights
Small-Cap Value
Portfolio December 31, 1999
Selected Per Share Data for the Period Ended: 12/31/1999 (b)
---------------
Net asset value beginning of period $ 10.00
- --------------------------------------------------------- ---------------
Net investment income (a) 0.07
- --------------------------------------------------------- ---------------
Net realized / unrealized (loss) on investments (a) (0.37)
- --------------------------------------------------------- ---------------
Total income from investment operations (0.30)
- --------------------------------------------------------- ---------------
Dividends from net investment income (0.07)
- --------------------------------------------------------- ---------------
Total distributions (0.07)
- --------------------------------------------------------- ---------------
Net asset value end of period $ 9.63
- --------------------------------------------------------- ---------------
Total return (3.00)%
- --------------------------------------------------------- ---------------
Net assets end of period (000s) $ 2,911
- --------------------------------------------------------- ---------------
Ratio of net expenses to average net assets (c) 0.95%*
- --------------------------------------------------------- ---------------
Ratio of net investment income to average net assets 2.93%*
- --------------------------------------------------------- ---------------
Portfolio turnover rate 9%
- --------------------------------------------------------- ---------------
*Annualized
(a) Per share amounts based on average number of shares outstanding during the
period.
(b) Commenced operation on September 30, 1999.
(c) If the investment manager had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 1.26%* for the
period ended December 31, 1999.
Statement of Assets and Liabilities
Small-Cap Value Portfolio
December 31, 1999
Amounts in thousands, except per share amounts
---------------
Assets:
Investments, at value $ 2,902
- --------------------------------------------------------- ---------------
Interest and dividends receivable 9
- --------------------------------------------------------- ---------------
Manager reimbursement receivable 3
- --------------------------------------------------------- ---------------
2,914
========================================================= ===============
Liabilities:
Accrued investment advisory fee $ 2
- --------------------------------------------------------- ---------------
Accrued administration fee 1
- --------------------------------------------------------- ---------------
3
- --------------------------------------------------------- ---------------
Net Assets $ 2,911
========================================================= ===============
Net Assets Consist of:
Paid in capital $ 3,021
- --------------------------------------------------------- ---------------
Undistributed (overdistributed) net investment income 9
- --------------------------------------------------------- ---------------
Accumulated undistributed net realized gain (loss) (1)
- --------------------------------------------------------- ---------------
Net unrealized appreciation (depreciation) (118)
- --------------------------------------------------------- ---------------
$ 2,911
========================================================= ===============
Shares Issued and Outstanding: 302
- --------------------------------------------------------- ---------------
Net Asset Value and Redemption Price Per Share
(Net Assets Per Share Outstanding) $ 9.63
- --------------------------------------------------------- ---------------
Cost of Investments Owned $ 3,020
========================================================= ===============
1999 Annual Report See accompanying notes 3
<PAGE>
Statement of Operations
Small-Cap Value Portfolio
For the year ended December 31,1999
Amounts in thousands
--------------------
Period from
September 30, 1999
to December 31, 1999
Investment Income:
Interest $ 4
- -------------------------------------------------------- --------------------
Dividends 25
- -------------------------------------------------------- --------------------
Total Income 29
=============================================== ====================
Expenses:
Investment advisory fees 5
- -------------------------------------------------------- --------------------
Administration fees 3
- -------------------------------------------------------- --------------------
Organization costs 2
- -------------------------------------------------------- --------------------
Total expenses 10
- -------------------------------------------------------- --------------------
Reimbursement by manager (3)
- -------------------------------------------------------- --------------------
Net expenses 7
- -------------------------------------------------------- --------------------
Net Investment Income 22
=============================================== ====================
Net Realized and Unrealized Gain (Loss):
Net realized gain on investments 8
- -------------------------------------------------------- --------------------
Net change in unrealized (depreciation) on investments (118)
- -------------------------------------------------------- --------------------
Net (Loss) (110)
- -------------------------------------------------------- --------------------
Net (Decrease) in Assets Resulting from Operations $ (88)
======================================================== ====================
Statement of Changes in Net Assets
Small-Cap Value Portfolio
December 31, 1999
Amounts in thousands
- -------------------------------------------------------- --------------------
Period from
September 30, 1999
to December 31, 1999
Increase (Decrease) in Net Assets from:
Operations:
Net investment income $ 22
- -------------------------------------------------------- --------------------
Net realized gain 8
- -------------------------------------------------------- --------------------
Net change in unrealized (depreciation) (118)
- -------------------------------------------------------- --------------------
Net (decrease) resulting from operations (88)
======================================================== ====================
Distributions to Shareholders:
From net investment income (22)
- -------------------------------------------------------- --------------------
Total Distributions (22)
======================================================== ====================
Fund Share Transactions:
Receipts for shares sold 3,000
- -------------------------------------------------------- --------------------
Issued as reinvestment of distributions 21
- -------------------------------------------------------- --------------------
Net increase resulting from Fund share transactions 3,021
- -------------------------------------------------------- --------------------
Total Increase in Net Assets 2,911
======================================================== ====================
Net Assets:
Beginning of period 0
- -------------------------------------------------------- --------------------
End of period * $ 2,911
- -------------------------------------------------------- --------------------
*Including net undistributed investment income of: $ 9
- -------------------------------------------------------- --------------------
4 See accompanying notes
<PAGE>
Schedule of Investments
Small-Cap Value Portfolio
December 31, 1999
Value
Shares (000s)
- --------------------------------------------------------------------------------
COMMON STOCKS 95.2%
- --------------------------------------------------------------------------------
Aerospace 4.1%
Cordant Technologies, Inc. 1,000 $ 33
AAR Corp. 1,700 30
Kaman Corp. 2,300 30
Newport News Shipbuilding, Inc. 900 25
-----
118
Building 4.8%
Centex Construction Products, Inc. 800 31
MDC Holdings, Inc. 1,800 28
Hughes Supply, Inc. 1,300 28
Hussmann International, Inc. 1,800 27
Butler Manufacturing Co. 1,100 25
-----
139
Capital Goods 12.4%
Intermet Corp. 3,200 37
C&D Technologies, Inc. 800 34
Trinity Industries, Inc. 1,000 28
Westinghouse Air Brake Co. 1,600 28
Arvin Industries, Inc. 1,000 28
Borg-Warner Automotive, Inc. 700 28
Tecumseh Products Co. `A' 600 28
Gleason Corp. 1,175 27
Meritor Automotive, Inc. 1,400 27
Precision Castparts Corp. 1,000 26
GenCorp, Inc. 2,600 26
Barnes Group, Inc. 1,400 23
MTS Systems Corp. 2,800 22
-----
362
Consumer Discretionary 12.8%
Harman International Industries, Inc. 700 38
Russ Berrie & Co., Inc. 1,400 37
Jostens, Inc. 1,500 36
Burlington Coat Factory Warehouse Corp. 2,165 30
Lancaster Colony Corp. 900 30
Claire's Stores, Inc. 1,300 29
Sturm Ruger & Co., Inc. 3,200 28
Banta Corp. 1,200 27
Kimball International `B' 1,600 26
Ennis Business Forms 3,300 26
Haverty Furniture Cos., Inc. 1,900 24
Brown Shoe Co., Inc. 1,600 23
Enesco Group, Inc. 1,700 19
-----
373
Consumer Services 1.9%
Chemed Corp. 1,000 29
Lubys Cafeterias, Inc. 2,400 27
-----
56
Consumer Staples 4.7%
Corn Products International, Inc. 900 29
Universal Foods 1,400 29
Michael Foods, Inc. 1,100 27
Nash Finch Co. 4,000 26
Universal Corp. 1,100 25
-----
136
Energy 5.3%
UGI Corp. 1,300 27
Mitchell Energy & Development Corp. `B' 1,200 26
Santa Fe Snyder Corp. (b) 3,200 26
Cross Timbers Oil Co. 2,500 23
World Fuel Services Corp. 2,800 21
St. Mary Land & Exploration 700 17
Berry Petroleum Co. 1,000 15
-----
155
Financial & Business Services 23.7%
Rollins Truck Leasing Co. 2,800 33
Arthur J. Gallagher & Co. 500 32
AmerUs Life Holdings, Inc. `A' 1,400 32
Presidential Life Corp. 1,700 31
Franchise Finance Corp. of America 1,300 31
McGrath Rentcorp 1,700 30
UST Corp. 900 29
Susquehanna Bancshares, Inc. 1,800 29
Raymond James Financial, Inc. 1,500 28
Health Care Property Investors, Inc. 1,170 28
Dain Rauscher Corp. 600 28
Shurgard Storage Centers, Inc. 1,200 28
Cabot Industrial Trust 1,500 28
Innkeepers USA Trust 3,300 27
Commercial Federal Corp. 1,500 27
United Dominion Realty Trust 2,700 27
Hudson United Bancorp 1,030 26
Selective Insurance Group 1,500 26
Glimcher Realty Trust 2,000 26
National Golf Properties, Inc. 1,300 26
Washington Federal, Inc. 1,300 26
New Plan Excel Realty Trust 1,600 25
Kelly Services, Inc. `A' 1,000 25
Wallace Computer Services, Inc. 1,300 22
BankAtlantic Bancorp, Inc. `A' 5,200 21
-----
691
Health Care 4.0%
Arrow International, Inc. 1,100 32
Invacare Corp. 1,500 30
Dentsply International, Inc. 1,200 28
Owens & Minor, Inc. 2,900 26
-----
116
Materials & Processing 9.2%
Commercial Metals Co. 1,000 34
Universal Forest Products, Inc. 2,100 31
Hanna (M.A.) Co. 2,800 31
Lincoln Electric Holdings, Inc. 1,400 29
Caraustar Industries, Inc. 1,200 29
Wausau-Mosinee Paper Corp. 2,400 28
Cleveland-Cliffs, Inc. 900 28
CLARCOR, Inc. 1,500 27
Ethyl Corp. 6,300 25
Omnova Solutions, Inc. 700 5
-----
267
Technology 1.1%
Dallas Semiconductor Corp. 500 32
-----
Transportation 1.9%
USFreightways Corp. 600 29
Sea Containers Ltd. `A' 1,000 27
-----
56
Utilities 9.3%
United Illuminating Co. 600 31
CMP Group, Inc. 1,100 30
Washington Gas Light Co. 1,100 30
National Fuel Gas Co. 600 28
Peoples Energy Corp. 800 27
Avista Corp. 1,700 26
Public Service Co. of New Mexico 1,600 26
Energen Corp. 1,400 25
RGS Energy Group, Inc. 1,200 25
Hawaiian Electric Industries, Inc. 800 23
-----
271
-----
Total Common Stocks 2,772
=====
(Cost $2,890)
- --------------------------------------------------------------------------------
SHORT-TERM INSTRUMENTS 4.5%
- --------------------------------------------------------------------------------
Principal
Amount
(000s)
Repurchase Agreement 4.5%
State Street Bank
4.000% due 01/03/2000 $ 130 130
(Dated 12/31/1999. Collateralized by
Federal Farm Credit Bank
0.000% due 02/17/2000 valued at $133.
Repurchase proceeds are $130.)
-----
Total Short-Term Instruments 130
(Cost $130) =====
1999 Annual Report See accompanying notes 5
<PAGE>
Schedule of Investments (Cont.)
Small-Cap Value Portfolio
December 31, 1999
Value
(000s)
- --------------------------------------------------------------------------------
Total Investments (a) 99.7% $ 2,902
(Cost $3,020)
Other Assets and Liabilities (Net) 0.3% 9
--------
Net Assets 100.0% $ 2,911
========
Notes to Schedule of Investments (amounts in thousands):
(a) At December 31, 1999, the net unrealized appreciation
(depreciation) of investments based on cost for federal income
tax purposes of $3,020 was as follows:
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost. $ 103
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value. (221)
--------
Unrealized depreciation-net $ (118)
========
(b) Non-income producing security.
6 See accompanying notes
<PAGE>
Notes to Financial Statements
December 31, 1999
1. Organization
The Small-Cap Value 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
September 30, 1999.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements in
conformity with generally accepted accounting principles. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could differ
from those estimates.
Security Valuation. 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 Trust 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 at least 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.
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, for which it receives a
monthly advisory fee based on average daily net assets. The Advisory Fee is
charged at an annual rate of 0.70%.
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%.
1999 Annual Report 7
<PAGE>
Notes to Financial Statements (Cont.)
December 31, 1999
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 0.95% 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 December 31, 1999 were as follows (amounts in thousands):
U.S. Government/Agency All Other
---------------------------------------
Purchases Sales Purchases Sales
- ----------------------------------------------------------------------------
Small-Cap Value Portfolio $ 0 $ 0 $ 3,139 $ 257
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
- --------------------------------------------------------------------------------
Small-Cap Value Portfolio 1 100
5. Acquisition by Allianz AG
The Allianz AG acquisition of majority ownership of PIMCO Advisors has been
approved by the Boards of Allianz AG and PIMCO on October 31, 1999, subject to
regulatory review and approval, as well as the vote of the shareholders on March
3, 2000.
6. Shares of Beneficial Interest
The Trust may issue an unlimited number of shares of beneficial interest with a
$.0001 par value. Changes in shares of beneficial interest were as follows
(amounts in thousands):
Small-Cap Value
Portfolio
-----------------------
Period from 09/30/1999
to 12/31/1999
Shares Amount
----------------------
Receipts for shares sold 300 3,000
- ------------------------------------------------------ ----------------------
Issued as reinvestment of distributions 2 21
- ------------------------------------------------------ ----------------------
Net increase resulting from
Fund share transactions 302 3,021
====================================================== ======================
8
<PAGE>
Report of Independent Accountants
To the Trustees of PIMCO Variable Insurance Trust and Shareholder of Small-Cap
Value Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Small-Cap Value Portfolio (a
Portfolio of PIMCO Variable Insurance Trust, hereafter referred to as the
"Trust") at December 31, 1999, the results of its operations, the changes in its
net assets and the financial highlights for the period indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at December 31, 1999 by correspondence with the custodian and
brokers, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Kansas City, Missouri
February 15, 2000
1999 Annual Report 9
<PAGE>
Federal Income Tax Information (Unaudited)
As required by the Internal Revenue Code regulations, shareholders must be
notified within 60 days of the Trust's calendar year-end regarding the status of
the distributions made to the shareholders.
Dividend Received Deduction. For the benefit of corporate shareholders only, the
portion of dividends paid out of ordinary income earned during the Portfolio's
calendar year-end which qualify for the corporate dividend-received deduction is
as follows:
Small-Cap Value Portfolio 76.22%
Shareholders are advised to consult their own tax advisor with respect to the
tax consequences of their investment in the Trust. However, income received by
tax-exempt recipients need not be reported as taxable income. In January 2000,
you will be advised on IRS form 1099-DIV as to the federal tax status of the
dividends and distributions received by you in calendar year 1999.
10
<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 $186 billion
on behalf of mutual fund and institutional clients located around the world.
PIMCO Advisors Holdings L.P. is the nation's fourth largest publicly traded
investment management firm with assets under management in excess of $260
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 Advisors L.P.
800 Newport Center Drive
Newport Beach, CA 92660
Administrator
Pacific Investment Management Company
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
Transfer Agent
National Financial Data Services
330 W. 9th Street, 4th Floor
Kansas City, Missouri 64105
Custodian
State Street Bank & Trust Co.
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
