Fixed Income SHares ("FISH")
December 11, 2000
Dear Shareholder:
We are pleased to submit our initial report for Fixed Income SHares ("FISH"),
covering the period from inception on March 17, 2000, through October 31, 2000.
FISH are sub-advised by PIMCO, one of the world's leading bond managers, and are
a key component of a client's separate account to create the PIMCO total return
investment strategy.
FISH was created as a tool for use in conjunction with other assets to create
the Total Return Portfolio for investors. The innovative FISH Series C and
Series M are, to our knowledge, the first publicly offered mutual funds with
expense ratios of 0%.
Since Series C and Series M provide diversification within a clients' account,
rather than being stand-alone products, they can be relatively narrowly focused
in the types of securities they own. In addition, both Series have the
flexibility of managing portfolio duration within a range of zero to eight
years, depending on PIMCO's overall duration target for the total return
account.
We believe both Series are well positioned with their current emphasis on
investment safety and quality. Since mid-summer, as predicted by Bill Gross,
head of our investment team, prices of many lower-quality bonds have come under
pressure due to concerns about the economic outlook and the likelihood of
additional corporate credit downgrades. Higher-quality issues, including
Treasuries and mortgage-backed securities, have generally performed well.
Both Series C and Series M are focused at this time on Ginnie Mae, Fannie Mae
and Freddie Mac mortgage-backed securities, which carry implicit AAA ratings and
recently were yielding significantly more than comparable Treasury securities.
In addition, Series C holds a limited number of corporate bonds chosen for their
attractive yields and underlying strong business fundamentals.
At October 31, 2000, Series C and Series M provided dividend yields of 7.01% and
6.80%, respectively. The weighted average maturity for Series C was 5.95 years
and for Series M, 8.10 years.
We are ever mindful of the trust you have placed in us and are committed to
warranting that trust through the quality of our services and a dedication to
serving your unique investment needs.
Sincerely,
Stephen J. Treadway
Chairman
Fixed Income SHares
<PAGE>
FISH SERIES C
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
FISH SERIES C AND THE LEHMAN INTERMEDIATE U.S. CREDIT INDEX*
MARCH 17, 2000 (INCEPTION) THROUGH OCTOBER 31, 2000
[CHART OMITTED]
LEHMAN INTERMEDIATE
FISH C US CREDIT INDEX
RETURN GROWTH $ RETURN GROWTH $
------- --------- -------- --------
10,000 10,000
03/17/00 0.00% 10,000 0.00% 10,000
03/31/00 0.54% 10,054 0.36% 10,036
04/30/00 -0.75% 9,979 -0.58% 9,978
05/31/00 -0.30% 9,949 -0.05% 9,973
06/30/00 2.48% 10,195 2.08% 10,180
07/31/00 1.22% 10,320 0.93% 10,275
08/31/00 1.62% 10,487 1.28% 10,406
09/30/00 0.11% 10,498 0.97% 10,507
10/31/00 0.76% 10,579 0.09% 10,518
Inception, 3.17.00
Past performance is not predictive of future performance.
Assumes reinvestment of all dividends and distributions.
*The Lehman Intermediate U.S. Credit Index is an unmanaged index that is
not available for direct investment. All interest is reinvested.
<PAGE>
FISH
SERIES C
SCHEDULE OF INVESTMENTS
October 31, 2000
Principal
Amount
(000) Value
---------- -----------
U.S. GOVERNMENT AGENCY SECURITIES - 99.6%
FEDERAL HOME LOAN BANK - 14.9%
$ 215 6.30%, 10/28/13 (c)........................... $ 195,326
1,250 6.575%, 3/11/09 (c)........................... 1,197,785
650 8.01%, 1/28/19 (a)/(c)........................ 158,439
----------
1,551,550
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 59.9%
3,000 6.625%, 9/15/09 (c)........................... 2,992,872
47 6.991%, 2/1/18, FRN (c)....................... 47,209
3,000 7.50%, 11/13/30, FRN (b)...................... 2,995,320
53 7.57%, 1/1/26, FRN (c)........................ 53,978
129 8.247%, 4/1/17, FRN (c)....................... 133,388
----------
6,222,767
----------
FREDDIE MAC - 23.1%
527 6.25%, 1/28/14-2/25/14 (c).................... 475,705
278 6.50%, 7/22/13 (c)............................ 255,912
200 6.656%, 6/1/30, FRN (c)....................... 196,536
58 6.625%, 12/1/18, FRN (c)...................... 57,239
1,400 6.875%, 1/15/05 (c)........................... 1,417,959
----------
2,403,351
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 1.7%
174 7.375%, 1/20/22, FRN (c)...................... 175,572
----------
Total U.S. Government Agency Securities
(cost-$10,315,357 )......................... 10,353,240
----------
CORPORATE BONDS & NOTES - 38.8%
AIRLINES - 2.3%
33 Continental Airlines, Inc.,
Pass thru certificates, Series 96-2D (c)
11.50%, 4/2/08 ............................. 33,272
100 United Airlines, Inc., Pass
thru certificates, Series 91-B2 (c)
10.125%, 3/22/15 ........................... 103,814
100 US Airways Inc., Pass thru
certificates, Series 2000-2G (c)
8.02%, 2/5/19 .............................. 101,480
----------
238,566
----------
BANKING - 3.0%
100 KBC Bank Funding Trust III, VRN (d)
9.86%, 11/29/49 ............................ 104,401
100 Royal Bank Scotland Group, Plc-GDR (c)
9.118%, 3/31/49 ............................ 104,851
100 Wells Fargo Co., (c)
7.25%, 8/24/05 ............................. 100,733
----------
309,985
----------
ELECTRIC - 1.8%
100 Cinergy Corp., (c)
6.125%, 4/15/04 ............................ 94,223
100 CMS Energy Corp., (c)
6.75%, 1/15/04 ............................. 92,273
----------
186,496
----------
FINANCIAL SERVICES - 3.8%
100 Associates Corp. North
America, (c)
6.875%, 11/15/08 ........................... 96,529
100 Bear Stearns & Co., Inc. (c)
6.20%, 3/30/03 ............................. 97,663
100 FleetBoston Financial Corp.,(c)
7.25%, 9/15/05 ............................. 100,505
100 Lehman Brothers Holdings, Inc., (c)
7.375%, 5/15/04 ............................ 99,851
----------
394,548
----------
See accompanying notes to financial statements.
<PAGE>
FISH
SERIES C
SCHEDULE OF INVESTMENTS
October 31, 2000
(continued)
Principal
Amount
(000) Value
--------- -----------
CORPORATE BONDS & NOTES (continued)
FINANCING - 7.6%
$ 150 Finova Capital Corp., FRN (c)
6.91%, 6/18/03.............................. $ 92,152
100 HSBC Capital Funding LP, VRN (d)
9.547%, 12/31/49............................ 106,235
100 PP&L Capital Funding, Inc., (c)
7.75%, 4/15/05.............................. 99,745
515 Residential Asset Securitization Trust (c)
7.00%, 1/25/28.............................. 494,536
----------
792,668
----------
FOOD - 1.0%
100 Conagra Foods, Inc., (c)
7.50%, 9/15/05.............................. 100,986
----------
HEALTHCARE & HOSPITALS - 2.9%
200 HCA-The Healthcare Co., FRN (c)
8.16%, 9/19/02.............................. 200,000
100 Tenet Healthcare Corp., (c)
8.625%, 12/1/03 ............................ 100,776
----------
300,776
----------
HOTELS - 5.7%
100 Harrahs Operating Co., Inc.(c)
7.875%, 12/15/05............................ 97,250
200 Hilton Hotels Corp., (c)
7.70%, 7/15/02.............................. 199,506
100 Mirage Resorts Inc. (c)
6.625%, 2/1/05.............................. 94,411
200 Park Place Entertainment Corp., (c)
7.95%, 8/1/03 .............................. 199,953
----------
591,120
----------
INDUSTRIAL - 1.2%
100 American Standard, Inc., (c)
7.125%, 2/15/03 ............................ 97,500
100 Federal-Mogul Co., (c)
7.375%, 1/15/06 ............................ 27,500
----------
125,000
----------
MEASURING INSTRUMENTS - 0.9%
100 Beckman Coulter Inc., (c)
7.10%, 3/4/03............................... 97,379
----------
MULTI-MEDIA - 1.3%
135 Time Warner, Inc., Pass thru certificates (d)
6.10%, 12/30/01 ............................ 133,008
----------
OIL/GAS - 1.9%
100 Gulf Canada Resources Ltd., (c)
9.25%, 1/15/04.............................. 101,500
100 Phillips Petroleum Co., (c)
6.65%, 3/1/03............................... 99,066
----------
200,566
----------
PAPER - 1.0%
100 International Paper Co., FRN (d)
7.6025%, 7/8/02............................. 100,267
----------
See accompanying notes to financial statements.
<PAGE>
FISH
SERIES C
SCHEDULE OF INVESTMENTS
October 31, 2000
(continued)
Principal
Amount
(000) Value
--------- -----------
CORPORATE BONDS & NOTES (continued)
TELECOMMUNICATIONS - 4.4%
$ 200 Centurytel, Inc., Series I, VRN (c)
7.75%, 10/15/02............................. $ 199,725
100 Cox Communications, Inc., (c)
6.69%, 9/20/04 ............................. 97,803
100 Deutsche Telekom International Finance - GDR (c)
7.75%, 6/15/05.............................. 101,799
100 U.S. Cellular Corp., (c)
6.00%, 6/15/15 (a).......................... 60,625
----------
459,952
----------
Total Corporate Bonds & Notes
(cost-$4,060,738)........................... 4,031,317
----------
SOVEREIGN DEBT OBLIGATIONS- 1.9%
BRAZIL - 1.0%
116 Republic of Brazil, FRN (c)
7.375%, 4/15/06............................. 105,787
POLAND - 0.9%
150 Republic of Poland, (c)
3.50%, 10/27/24............................. 96,614
----------
Total Sovereign Debt Obligations
(cost-$201,321)............................. 202,401
----------
U.S. TREASURY NOTES - 1.6%
162 3.625%, 7/15/02 (cost-$161,515)............. 162,102
----------
SHORT-TERM INVESTMENTS - 11.2%
CORPORATE NOTES - 7.3%
AEROSPACE/DEFENSE - 2.9%
300 Raytheon Co., (c)
5.95%, 3/15/01 ............................. 298,170
ELECTRIC - 3.5%
256 Niagara Mohawk Power Corp., (c)
9.25%, 10/1/01.............................. 260,783
100 Public Service Enterprises Group, (c)
6.91%, 11/22/00............................. 99,998
FINANCING - 0.9%
100 Golden State Escrow Corp. (c)
6.75%, 8/1/01............................... 98,741
----------
Total Corporate Notes
(amortized cost-$758,135)................... 757,692
----------
COMMERCIAL PAPER - 2.9%
FINANCIAL SERVICES - 1.9%
100 Verizon Global Funding, Corp., (c)
6.50%, 12/19/00............................. 99,133
100 Washington Mutual Financial Corp., (c)
6.69%, 11/8/00.............................. 99,870
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.0%
100 Eastman Kodak Co., (c)
6.46%, 12/4/00 ............................. 99,408
----------
Total Commercial Paper
(amortized cost-$298,411).................... 298,411
----------
See accompanying notes to financial statements.
<PAGE>
FISH SERIES M
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
FISH SERIES M AND THE LEHMAN FIXED RATE MORTGAGE BACKED
SECURITIES INDEX*
MARCH 17, 2000 (INCEPTION) THROUGH OCTOBER 31, 2000
[CHART OMITTED]
LEHMAN FIXED RATE
MORTGAGED BACKED
FISH M SECURITIES INDEX*
RETURN GROWTH $ RETURN GROWTH $
------- --------- -------- --------
10,000 10,000
03/17/00 0.00% 10,000 0.00% 10,000
03/31/00 0.34% 10,034 0.22% 10,022
04/30/00 0.41% 10,075 0.07% 10,029
05/31/00 0.11% 10,086 0.05% 10,034
06/30/00 2.31% 10,319 2.14% 10,249
07/31/00 1.11% 10,434 0.64% 10,314
08/31/00 2.29% 10,673 1.52% 10,471
09/30/00 1.47% 10,830 1.04% 10,580
10/31/00 0.80% 10,916 0.72% 10,656
Inception, 3.17.00
Past performance is not predictive of future performance.
Assumes reinvestment of all dividends and distributions.
*The Lehman Fixed Rate Mortgage Backed Securities Index is an unmanaged index
that is not available for direct investment.
All interest is reinvested.
<PAGE>
FISH
SERIES C
SCHEDULE OF INVESTMENTS
October 31, 2000
(concluded)
Principal
Amount
(000) Value
--------- -----------
SHORT-TERM INVESTMENTS (continued)
REPURCHASE AGREEMENT - 1.0%
$ 111 Agreement with State Street Bank & Trust Co.,
dated October 31, 2000,
5.25% due 11/1/00, proceeds: $111,016
collateralized by Federal National
Mortgage Association, valued at $117,921;
(amortized cost-$111,000)................... $ 111,000
---------
Total Short-Term Investments
(amortized cost-$1,167,546)............... 1,167,103
----------
Total Investments
(cost-$15,906,477)................. 153.1% $15,916,163
Liabilities in excess of other
assets ............................ (53.1) (5,519,969)
------ -----------
Net Assets......................... 100.0% $10,396,194
===== ===========
--------------------
(a) Zero coupon bond; stated interest rate represents yield to maturity.
(b) When-issued or delayed-delivery security. To be delivered/settled after
October 31, 2000.
(c) Segregated as collateral for when-issued or delayed-delivery security.
(d) Security exempt from registration under Rule 144a of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, typically to qualified institutional investors.
At October 31, 2000, these securities amounted to $443,911 or 4.3%
of net assets.
Glossary:
--------
FRN - Floating Rate Note, interest rate shown is the current rate at
October 31, 2000
GDR - Global Depositary Receipts
VRN - Variable Rate Note, interest rate shown is the current rate at
October 31, 2000
Forward Currency Purchase-Contracts:
Value at Current
Type Settlement Date Value Depreciation
---- --------------- ------- ------------
Euro Currency,
expiring
11/13/00 $166,659 $161,333 $5,326
Euro Currency,
expiring
11/20/00 87,094 84,940 2,154
-------
$7,480
=======
See accompanying notes to financial statements.
<PAGE>
FISH
SERIES M
SCHEDULE OF INVESTMENTS
October 31, 2000
Principal
Amount
(000) Value
---------- -----------
U.S. GOVERNMENT AGENCY SECURITIES - 185.8%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 108.2%
$ 2,560 7.50%, 7/1/29-9/1/29 (a).................... $2,558,256
4,500 7.50%, 11/13/30 (b)......................... 4,492,980
4,358 8.00%, 4/1/30 (a)........................... 4,413,760
----------
11,464,996
----------
FREDDIE MAC - 28.4%
3,065 7.00%, 4/1/29-6/1/30 (a).................... 3,007,619
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 49.2%
5,200 7.50%, 11/20/30 (b)........................ 5,217,888
----------
Total U.S. Government Agency Securities
(cost-$19,583,088)........................ 19,690,503
----------
CORPORATE BOND - 0.0%
FINANCIAL SERVICES - 0.0%
- Green Tree Financial Corp. (a)
5.907%, 12/15/24 (cost-$106)................ 107
----------
MORTGAGE-RELATED SECURITIES- 2.0%
129 GMAC Mortgage Corp. Loan Trust (a)
6.75%, 8/25/29.............................. 117,034
100 Prudential Home Mortgage Securities (a)
6.75%, 11/25/25............................. 93,890
----------
Total Mortgage-Related Securities
(cost-$210,042)........................... 210,924
----------
SHORT-TERM INVESTMENTS - 1.9%
COMMERCIAL PAPER - 1.9%
100 Associates Corp. North America, (a)
6.55%, 1/24/01.............................. 98,391
100 AT&T Corp., (a)
6.47%, 11/29/00............................. 98,257
----------
Total Short-Term Investments (amortized
(cost-$196,728)........................... 196,648
----------
Total Investments
(cost-$19,989,964)............... 189.7% $ 20,098,182
Liabilities in excess of other
assets .......................... (89.7) (9,501,276)
------ ------------
Net Assets ..................... 100.0% $ 10,596,906
===== ============
----------------
(a) Segregated as collateral for when-issed or delayed-delivery security.
(b) When-issued or delayed-delivery security. To be delivered/settled after
October 31, 2000.
See accompanying notes to financial statments.
<PAGE>
FISH
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2000
ASSETS: SERIES C SERIES M
------------ -----------
Investments, at value
(cost-$15,906,477 and $19,989,964,
respectively) ............................... $15,916,163 $20,098,182
Cash .......................................... -- 114,936
Receivable for investments sold ............... 4,795,401 40,641,498
Interest receivable ........................... 202,776 64,221
------------ -----------
Total Assets............................... 20,914,340 60,918,837
------------ -----------
LIABILITIES:
Due to custodian .............................. 46,893 --
Payable for investments purchased.............. 10,463,773 50,321,931
Payable for Forward currency contracts......... 7,480 --
------------ -----------
Total Liabilities.......................... 10,518,146 50,321,931
------------ -----------
Net Assets................................ $10,396,194 $10,596,906
============ ============
COMPOSITION OF NET ASSETS:
Beneficial interest shares of $0.001 par value
(unlimited number authorized)................. 1,027 1,014
Paid-in-capital in excess of par............... 10,306,369 10,306,382
Undistributed net investment income............ 7,480 473
Accumulated net realized gain.................. 79,134 180,819
Net unrealized apppreciation of investments and
foreign currency transactions................. 2,184 108,218
------------ -----------
Net Assets
$10,396,194 $10,596,906
============ ===========
Shares outstanding............................. 1,027,209 1,013,709
------------ -----------
Net asset value, offering price and redemption
price per share............................... $10.12 $10.45
====== ======
See accompanying notes to financial statements.
<PAGE>
FISH
STATEMENTS OF OPERATIONS
For the period March 17, 2000* through October 31, 2000
INVESTMENT INCOME: SERIES C SERIES M
------------ -----------
Interest......................................$ 261,510 $ 264,170
EXPENSES....................................... -- --
------------ -----------
Net investment income........................ 261,510 264,170
------------ -----------
REALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS,
OPTIONS WRITTEN AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain (loss) on:
Investments................................ 88,558 146,772
Futures contracts.......................... 13,655 34,047
Options written............................ 1,342 --
Foreign currency transactions.............. (16,941) --
Net unrealized appreciation of investments
and other assets and liabilities
denominated in foreign currency........... 2,184 108,218
------------ -----------
Net realized gain on investments, futures
contracts and options written.............. 88,798 289,037
------------ -----------
Net increase in net assets resulting from
investment operations......................$ 350,308 $ 553,207
============ ===========
========================================================================
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 17, 2000* THROUGH OCTOBER 31, 2000
INVESTMENT OPERATIONS: SERIES C SERIES M
------------ -----------
Investment income..............................$ 261,510 $ 264,170
Net realized gain on investments............... 86,614 180,819
Net unrealized appreciation of investments
and foreign currency transactions............. 2,184 108,218
------------ -----------
Net increase in net assets resulting from
investments operations...................... 350,308 553,207
------------ -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income......................... (261,510) (263,697)
------------ -----------
SHARE TRANSACTIONS:
Net proceeds from the sale of shares........... 10,257,396 10,257,396
------------ -----------
Total increase in net assets................ 10,346,194 10,546,906
NET ASSETS:
Beginning of period............................ 50,000 50,000
------------ -----------
End of period (includes undistributed net
investment income of $7,480
and $473 for Series C and Series M,
respectively)..............................$ 10,396,194 $10,596,906
============ ===========
SHARES ISSUED AND REDEEMED:
Issued......................................... 1,022,209 1,008,709
Redemmed....................................... -- --
------------ -----------
Net increase................................. 1,022,209 1,008,709
============ ===========
---------------------------
* Commencement of operations
See accompanying notes to financial statements.
<PAGE>
FISH
FINANCIAL HIGHLIGHTS
FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING FOR THE PERIOD
MARCH 17, 2000* THROUGH OCTOBER 31, 2000
SERIES C SERIES M
------------ -----------
Net asset value, beginning of period...........$ 10.00 $ 10.00
------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... 0.45 0.45
Net realized and unrealized gain on
investments.................................. 0.12 0.45
------------ -----------
Total income from investment operations....... 0.57 0.90
------------ -----------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income.......................... (0.45) (0.45)
------------ -----------
Net asset value, end of period.................$ 10.12 $ 10.45
============ ===========
TOTAL RETURN (1)............................... 5.79% 9.16%
------------ -----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's)..............$ 10,396 $ 10,597
Ratio of expenses to average net assets (2).... 0.00% 0.00%
Ratio of net investment income to average net
assets (2)................................... 7.04% 7.00%
Portfolio Turnover............................. 547% 930%
-----------------
* Commencement of operations
(1) Assumes reinvestment of all dividends. Total return for a period
of less than one year is not annualized.
(2) Annualized.
See accompanying notes to financial statements.
<PAGE>
FISH
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Fixed Income SHares ("FISH" or the "Trust"), was organized as a Massachusetts
Business Trust on November 3, 1999 and offers two series of shares: Series C and
Series M (the "Portfolios"). Prior to commencing operations on March 17, 2000,
the Trust had no operations other than matters relating to its organization and
registration as a non-diversified, open-end investment company under the
Investment Company Act of 1940, as amended, and the sale and issuance to PIMCO
Advisory Services of 10,000 shares of beneficial interest at an aggregate
purchase price of $100,000. The Portfolios are authorized to issue an unlimited
number of shares of beneficial interest at $0.001 par value.
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.
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements:
(A) SECURITY VALUATION
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 sale price, or if no sale is 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. Fixed income securities, including those to be
purchased under firm commitment agreements, are normally valued on the basis of
quotes obtained from brokers and dealers or pricing services. Short-term
investments which mature in 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.
(B) SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on 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 for certain dividends from foreign securities which are
recorded as soon after the ex-dividend date, as the Portfolios, using reasonable
diligence, become aware of such dividends. Interest income, adjusted for the
accretion of discounts and amortization of premiums, is recorded on an accrual
basis.
(C) FEDERAL INCOME TAXES
The Portfolios intend to distribute all of their taxable income and comply with
the other requirements of the U.S. Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies. Accordingly, no provision for U.S.
federal income taxes is required. In addition, by distributing substantially all
of its ordinary income and long-term capital gains, if any, during each calendar
year, the Portfolios intend not to be subject to U.S. federal excise tax.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid at
least annually.
The Portfolios record dividends and distributions to shareholders on the
ex-dividend date. The amount of dividends and distributions are determined in
accordance with federal income tax regulations, which may differ from generally
accepted accounting principles. These "book-tax" differences are considered
either temporary or permanent in nature. To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts
based on their federal income tax treatment; temporary differences do not
require reclassification.
<PAGE>
FISH
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
(CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(E) FOREIGN CURRENCY TRANSLATION - SERIES C
The books and records of Series C are maintained in U.S. dollars as follows: (1)
the foreign currency market value of investments and other assets and
liabilities denominated in foreign currency are translated at the prevailing
exchange rate at the end of the period; and (2) purchases and sales, income and
expenses are translated at the prevailing exchange rate on the respective dates
of such transactions. The resulting net foreign currency gain or loss is
included in the Statement of Operations.
Series C does not generally isolate that portion of the results of operations
arising as a result of changes in the foreign currency exchange rates from the
fluctuations arising from changes in the market prices of securities.
Accordingly, such foreign currency gain (loss) is included in net realized and
unrealized gain (loss) on investments. However, Series C does isolate the effect
of fluctuations in foreign currency exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. federal income tax regulations; such amount is categorized as
foreign currency gain or loss for both financial reporting and income tax
reporting purposes.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
financial instrument at a set price on a future date. Upon entering into such a
contract, the Portfolio is required to pledge to the broker an amount of cash or
securities equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contracts, the Portfolio agrees to receive from or pay to the
broker an amount of cash equal to the daily fluctuation in the value of the
contracts. Such receipts or payments are known as "variation margin" and are
recorded by the Portfolio as unrealized appreciation or depreciation. When the
contracts are closed, the Portfolio records a realized gain or loss equal to the
difference between the value of the contracts at the time they were opened and
the value at the time they were closed. Any unrealized appreciation or
depreciation recorded is simultaneously reversed. The Portfolios invest in
futures contracts for both hedging and investment purposes. The use of futures
transactions involves the risk of an imperfect correlation in the movements in
the price of futures contracts, interest rates and the underlying hedged
assests, and the possible inability of counterparties to meet the terms of their
contracts.
(G) OPTION TRANSACTIONS
For hedging purposes, each Portfolio may purchase and write (sell) put and call
options on equity, fixed income or other securities or indexes in standardized
contracts traded on foreign or domestic securities exchanges, boards of trade,
or similar entities. The risk associated with purchasing an option is that the
Portfolio pays a premium whether or not the option is exercised. Additionally,
the Portfolio bears the risk of loss of premium and change in market value
should the counterparty not perform under the contract. Put and call options
purchased are accounted for in the same manner as portfolio securities. The cost
of securities acquired through the exercise of call options is increased by the
premiums paid. The proceeds from securities sold through the exercise of put
options is decreased by the premiums paid.
When an option is written, the premium received is recorded as an asset with an
equal liability which is subsequently adjusted to the current market value of
the option written. Premiums received from writing options which expire
unexercised are recorded on the expiration date as a realized gain. The
difference between the premium received and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase transactions, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security in determining whether there has been a realized gain or loss. If a put
option is exercised, the premium reduces the cost basis of the security. In
writing an option, a Portfolio bears the market risk of an unfavorable change in
the price of the security or currency underlying the written option. Exercise of
an option written could result in a Portfolio purchasing a security or currency
at a price different from the current market value.
<PAGE>
FISH
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
(CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(H) FORWARD CURRENCY TRANSACTIONS - SERIES C
Series C enters into forward foreign exchange contracts for the purpose of
hedging against foreign exchange risk arising from the investment or anticipated
investment in securities denominated in foreign currencies. Series C may also
enter 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 and 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 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
relatve to the U.S. dollar.
(I) 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.
(J) DELAYED-DELIVERY TRANSACTIONS
The Portfolios may purchase or sell securities on a when-issued or
delayed-delivery basis. These transactions involve a commitment 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, a 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. A 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
realized gain or loss. When a Portfolio sells a security on a delayed-delivery
basis, the Portfolio does not participate in future gains and losses with
respect to the security.
(K) REPURCHASE AGREEMENTS
The Portfolios' custodian takes possession of the collateral pledged for
investments in repurchase agreements. The underlying collateral is valued daily
on a mark-to-market basis to ensure that the value, including accrued interest,
is at least equal to the repurchase price. In the event of default of the
obligation to repurchase, the Portfolio has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligations. Under
certain circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral may be subject
to legal proceedings.
(L) RESTRICTED SECURITIES
The Portfolios are 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.
<PAGE>
FISH
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
(CONTINUED)
(2) INVESTMENT TRANSACTIONS
(A) COST OF INVESTMENTS
At October 31, 2000, the Portfolios' cost of investments for federal income tax
purposes was $15,908,235 for Series C and $19,990,558 for Series M. Accordingly,
the Portfolios' composition of net unrealized appreciation were as follows:
Net
Gross Gross Unrealized
Appreciation Depreciation Appreciation
--------------------- --------------------- -------------
Series C $82,326 $74,398 $7,928
Series M $107,705 $81 $107,624
(B) PURCHASE AND SALES OF INVESTMENTS
For the period ended October 31, 2000, purchases and sales of investments, other
than short-term securities, were as follows:
Purchases Sales
------------------ -------------------
Series C $49,516,454 $34,121,773
Series M $113,521,742 $93,624,466
(C) WRITTEN OPTION TRANSACTIONS
Series C - Transactions in options written during the period ended October 31,
2000 were as follows:
Number of Premiums
Contracts Received
--------------- -------------
Options outstanding at beginning of period..... -- --
Options written................................ 280,000 $1,442
Options expired................................ (280,000) (1,442)
---------------- -------------
Options outstanding at October 31, 2000........ -- --
================ =============
Series M did not have any written option transactions during the period ended
October 31, 2000.
(3) CAPITAL STOCK
The following schedule details shareholders owning 5% or more of the Portfolios
and the percentage of each Portfolio held by such shareholder:
% Ownership of Portfolio
------------------------
SERIES C:
PIMCO Advisory Services 92.2
Barbara Sinatra Childrens Center 7.8
SERIES M:
PIMCO Advisory Services 92.2
Barbara Sinatra Childrens Center 7.8
(4) RELATED PARTY TRANSACTIONS
(A) INVESTMENT ADVISER/SUB-ADVISER
PIMCO Advisors L.P. (the "Adviser") serves as the investment adviser to the
Portfolios pursuant to an Investment Advisory agreement between the Adviser and
the Trust. Pursuant to a Portfolio Management Agreement, the Adviser employs
Pacific Investment Management Company LLC ("PIMCO" or the "Sub-Adviser"), an
affiliate of the Adviser, to serve as sub-adviser and provide investment
advisory services to the Portfolios. The Adviser receives no investment advisory
or other fees from the Portfolios and at its own expense pays the fees of the
Sub-Adviser.
<PAGE>
FISH
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
(CONCLUDED)
(4) RELATED PARTY TRANSACTIONS (CONTINUED)
(B) ADMINISTRATOR
PIMCO Advisory Services (the "Administrator") serves as administrator to the
Portfolios pursuant to an administration agreement ("Administration Agreement")
with the Trust. The Administrator provides or procures certain administrative
services to the Portfolios. In addition, the Administrator arranges at its own
expense for the provision of legal, audit, custody, transfer agency and other
services required for the ordinary operation of the Portfolios, and is
responsible for printing, trustees fees, and other portfolio costs. Under the
Administration Agreement, the Administrator has agreed to provide or procure
these services, and to bear these expenses at no charge to the Portfolios.
(C) DISTRIBUTOR
PIMCO Funds Distributors LLC, ("the Distributor"), a wholly-owned subsidiary of
the Adviser, serves as the distributor of the Trust's shares. Pursuant to a
distribution agreement with the Trust, the Trust on behalf of the Portfolios
pays the Distributor.
(5) ACQUISITION BY ALLIANZ AG
On May 5, 2000, Allianz AG completed the acquisition of approximately 70% of the
outstanding partnership interests of the Adviser of which the Sub-Adviser is a
subsidiary partnership. As a result of this transaction, the Adviser and its
subsidiares, are now controlled by Allianz AG, a leading provider of financial
services, particularly in Europe. The Adviser/Sub-Adviser remain operationally
independent, and continue to operate under their existing names, and PIMCO now
leads the global fixed income efforts of Allianz AG. Certain key employees,
including PIMCO's Bill Gross, have signed long-term employment contracts and
have significant profit-sharing and retention arrangements to ensure continuity
of the investment process and staff. With the addition of the Adviser, the
Allianz Group manages assets of approximately US$650 billion, including more
than 300 mutual funds for retail and institutional clients around the world.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Trustees
of Fixed Income SHares
In our opinion, the accompanying statements of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Fixed Income SHares at October 31,
2000. These financial statements and financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Portfolios' 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 of
America, 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 includes confirmation of securities at October 31, 2000 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Kansas City, Missouri
December 8, 2000
