<PAGE>
As filed with the Securities and Exchange Commission on
March 17, 2000
Registration Nos. 333-92415
811-9721
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------
FORM N-1A/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 3 |X|
Post-Effective Amendment No. |_|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY |X|
ACT OF 1940
Amendment No. 3 |X|
(Check appropriate box or boxes)
Fixed Income SHares
(Exact name of registrant as specified in charter)
c/o PIMCO Advisory Services, 1345 Avenue of the Americas,
New York, New York 10105
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
(212) 739-3502
----------------------------------------
Stephen J. Treadway
PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, Connecticut 06902
(Name and address of agent for service)
----------------------------------------
Copy to:
J. B. Kittredge, Jr., Esquire
ROPES & GRAY
One International Place
Boston, Massachusetts 02110
----------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall hereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
Fixed Income SHares ("FISH") Prospectus
FISH: Series C This Prospectus explains what you should know about each
and FISH: Portfolio before you invest. Please read it carefully.
Series M
(each a The Securities and Exchange Commission has not approved or
"Portfolio") disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to
March 17, the contrary is a criminal offense.
2000
<PAGE>
Risk/Return Summary
The following summaries identify the investment objective,
principal investments and strategies, principal risks,
performance information and fees and expenses of each
Portfolio. A more detailed "Summary of Principal Risks"
describing principal risks of investing in a Portfolio
begins on p. 7.
It is possible to lose money on investments in a Portfolio.
An investment in a Portfolio is not a deposit of a bank and
is not guaranteed or insured by the Federal Deposit
Insurance Corporation or any other government agency.
-2-
<PAGE>
FISH: Series C
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Principal Investment Objective Portfolio Focus
Investments and Seeks maximum total return, Intermediate maturity fixed
Strategies consistent with preservation of income securities
capital and prudent investment
management Average Portfolio Duration
3-6 years
Credit Quality
B to Aaa; maximum 20% below Baa
Dividend Frequency
Declared daily and distributed monthly
The FISH: Series C seeks to achieve its investment objective
by investing in a portfolio of U.S. and foreign fixed income
instruments of the following types:
o corporate debt securities, including convertible
securities and corporate commercial paper;
o inflation-indexed bonds issued by corporations;
o structured notes, including hybrid or "indexed"
securities, catastrophe bonds and loan participations;
o delayed funding loans and revolving credit facilities;
o bank certificates of deposit, fixed time deposits and
bankers' acceptances;
o repurchase agreements and reverse repurchase agreements;
o debt securities issued by states or local governments and
their agencies, authorities and other instrumentalities;
o obligations of foreign governments and their subdivisions,
agencies and instrumentalities; and
o obligations of international agencies or supranational
entities.
The Portfolio may invest up to 20% of its assets in
high yield securities (commonly known as "junk bonds") rated
B or higher by Standard & Poor's Rating Service or Moody's
Investors Service, Inc. or, if unrated, determined by the
Portfolio's investment adviser or sub-adviser to be of
comparable quality. The Portfolio may invest up to 25% of
its assets in securities denominated in foreign currencies;
however, the Portfolio will normally hedge at least 75% of
its exposure to foreign currency to reduce the risk of loss
due to fluctuations in currency exchange rates through
forward foreign currency exchange contracts, foreign
currency futures contracts and options on foreign currencies
and foreign currency futures contracts.
The Portfolio may invest up to 35% of its assets in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
The Portfolio may invest in instruments of any
maturity, and the average portfolio duration of this
Portfolio normally varies within a three- to six-year time
frame based on the adviser's or sub-adviser's forecast for
interest rates. Duration is a measure of the expected life
of a fixed income security that is used to determine the
sensitivity of a security's price to changes in interest
rates. The longer a security's duration, the more sensitive
it will be to changes in interest rates. Similarly, a
portfolio with a longer average portfolio duration will be
more sensitive to changes in interest rates than a portfolio
with a shorter average portfolio duration.
The Portfolio may invest all of its assets in
derivative instruments, such as options, futures contracts
or swap agreements. The Portfolio may lend its portfolio
securities to brokers, dealers and other financial
institutions to earn income. Rather than investing directly
in the securities in which it primarily invests, the
Portfolio may use other investment techniques to gain
exposure to market movements related to such securities,
such as entering into a series of contracts to buy or sell
such securities. The "total return" sought by the Portfolio
consists of income earned on its investments, plus capital
appreciation, if any, which generally arises from decreases
in interest rates or improving credit fundamentals for a
particular sector or security.
-3-
<PAGE>
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Principal Risks Among the principal risks of investing in the Portfolio,
which could adversely affect its net asset value, yield and
total return, are:
o Interest Rate Risk o Derivatives Risk
o Credit Risk o Liquidity Risk
o Market Risk o Management Risk
o Foreign Investment Risk o Non-diversification Risk
o Currency Risk
o Leveraging Risk
o Issuer Risk
o High Yield Risk
o Emerging Market Risk
Please see "Summary of Principal Risks" for a description of
these and other principal risks of investing in the
Portfolio.
- --------------------------------------------------------------------------------
Performance No performance information is available for the Portfolio
Information because it has not yet been in operation for a full calendar
year. In the future, the Portfolio will disclose performance
information in a bar chart and performance table. Such
disclosure will give some indication of the risks of an
investment in the Portfolio by comparing the Portfolio's
performance with a broad measure of market performance and
by showing changes in the Portfolio's performance from year
to year.
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Fees and Expenses These tables describe the fees and expenses you may pay
Portfolio of the if you buy and hold shares of the Portfolio(1):
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum Sales Charge (Load) Maximum Contingent Deferred Sales Charge
Imposed on Purchases (as (Load) (as a percentage of original
a percentage of offering price) purchase price)
=============================================================================================
<S> <C> <C>
FISH: Series C 0% 0%
=============================================================================================
</TABLE>
Annual Portfolio Operating Expenses (expenses that are
deducted from Portfolio assets)
<TABLE>
<CAPTION>
Total
Annual
Portfolio
Distribution and/or Operating
Advisory Fees Service (12b-1) Fees Other Expenses Expenses
=============================================================================================
<S> <C> <C> <C> <C>
FISH: Series C 0% 0% 0% 0%
=============================================================================================
</TABLE>
Examples: The examples are intended to help you compare the
cost of investing in shares of the FISH: Series C with the
costs of investing in other mutual funds. The Examples
assume that you invest $10,000 in the shares of the
Portfolio for the time periods indicated, that your
investment has a 5% return each year, the reinvestment of
all dividends and distributions, and that the Portfolio's
operating expenses remain the same. Although your actual
costs may be higher or lower, the Examples show what your
costs would be based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you redeem your Example: Assuming you do not
shares at the end of each period redeem your shares
Year 1 Year 3 Year 1 Year 3
===========================================================================================
<S> <C> <C> <C> <C>
FISH: Series C $0 $0 $0 $0
===========================================================================================
</TABLE>
(1) The tables show fees and expenses of the Portfolio as 0%, reflecting the
fact that no fees or expenses are charged by the Portfolio. You should be
aware, however, that the Portfolio is an integral part of "wrap-fee" programs
sponsored by investment advisers unaffiliated with the Portfolio or PIMCO.
Typically, participants in these programs pay a "wrap" fee to their investment
adviser. You should read carefully the wrap-fee brochure provided to you by
your investment adviser. The brochure is required to include information about
the fees charged by your adviser and the fees paid by your adviser to PIMCO.
You pay no additional fees or expenses to purchase shares of the Portfolio.
-4-
<PAGE>
FISH: Series M
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Principal Investment Objective Portfolio Focus
Investments and Seeks maximum total return, Intermediate maturity fixed
Strategies consistent with preservation of income securities
capital and prudent investment
management Average Portfolio Duration
3-6 years
Credit Quality
B to Aaa; maximum 20% below Baa
Dividend Frequency
Declared daily and distributed monthly
The FISH: Series M seeks to achieve its investment objective
by investing primarily in a portfolio of mortgage and other
asset-backed securities, including:
o mortgage pass-through securities;
o collateralized mortgage obligations;
o commercial mortgage-backed securities;
o mortgage dollar rolls;
o stripped mortgage-backed securities;
o bank certificates of deposit, fixed time deposits and
bankers' acceptances; and
o other securities that directly or indirectly represent a
participation in, or are secured by and payable from,
mortgage loans on real property.
The Portfolio may invest in instruments of any
maturity, and the average portfolio duration of this
Portfolio normally varies within a three- to six-year time
frame based on the investment adviser's or sub-adviser's
forecast for interest rates.
The Portfolio may invest up to 20% of its assets in
high yield mortgage-backed securities (commonly known as
"junk bonds") rated B or higher by Standard & Poor's Rating
Service or Moody's Investors Service, Inc. or, if unrated,
determined by the Portfolio's investment adviser or
sub-adviser to be of comparable quality.
The Portfolio may invest all of its assets in
derivative instruments, such as options, futures contracts
or swap agreements. The Portfolio may lend its portfolio
securities to brokers, dealers and other financial
institutions to earn income. Rather than investing directly
in the securities in which it primarily invests, the
Portfolio may use other investment techniques to gain
exposure to market movements related to such securities,
such as entering into a series of contracts to buy or sell
such securities. The "total return" sought by the Portfolio
consists of income earned on its investments, plus capital
appreciation, if any, which generally arises from decreases
in interest rates or improving credit fundamentals for a
particular sector or security.
- --------------------------------------------------------------------------------
Principal Risks Among the principal risks of investing in the Portfolio,
which could adversely affect its net asset value, yield and
total return, are:
o Mortgage Risk o Derivatives Risk
o Interest Rate Risk o Liquidity Risk
o Credit Risk o Management Risk
o Market Risk o Non-diversification Risk
o Currency Risk
o Leveraging Risk
o Issuer Risk
o High Yield Risk
Please see "Summary of Principal Risks" for a description of
these and other principal risks of investing in the
Portfolio.
- --------------------------------------------------------------------------------
Performance No performance information is available for the Portfolio
Information because it has not yet been in operation for a full calendar
year. In the future, the Portfolio will disclose performance
information in a bar chart and performance table. Such
disclosure will give some indication of the risks of an
investment in the Portfolio by comparing the Portfolio's
performance with a broad measure of market performance and
by showing changes in the Portfolio's performance from year
to year.
-5-
<PAGE>
Fees and Expenses These tables describe the fees and expenses you may pay if
of the Portfolio you buy and hold shares of the Portfolio(2):
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Maximum Contingent Deferred
Maximum Sales Charge (Load) Sales Charge (Load)
Imposed on Purchases (as (as a percentage of original
a percentage of offering price) purchase price)
=============================================================================================
<S> <C> <C>
FISH: Series M 0% 0%
=============================================================================================
</TABLE>
Annual Portfolio Operating Expenses (expenses that are
deducted from Portfolio assets)
<TABLE>
<CAPTION>
Total
Annual
Portfolio
Distribution and/or Operating
Advisory Fees Service (12b-1) Fees Other Expenses Expenses
=============================================================================================================
<S> <C> <C> <C> <C>
FISH: Series M 0% 0% 0% 0%
=============================================================================================================
</TABLE>
Examples: The examples are intended to help you compare the
cost of investing in shares of the FISH: Series C with the
costs of investing in other mutual funds. The Examples
assume that you invest $10,000 in the shares of the
Portfolio for the time periods indicated, that your
investment has a 5% return each year, the reinvestment of
all dividends and distributions, and that the Portfolio's
operating expenses remain the same. Although your actual
costs may be higher or lower, the Examples show what your
costs would be based on these assumptions.
<TABLE>
<CAPTION>
Example: Assuming you redeem your Example: Assuming you do not
shares at the end of each period redeem your shares
Year 1 Year 3 Year 1 Year 3
=========================================================================================================
<S> <C> <C> <C> <C>
FISH: Series M $0 $0 $0 $0
=========================================================================================================
</TABLE>
(2) The tables show fees and expenses of the Portfolio as 0%, reflecting the
fact that no fees or expenses are charged by the Portfolio. You should be
aware, however, that the Portfolio is an integral part of "wrap-fee" programs
sponsored by investment advisers unaffiliated with the Portfolio or PIMCO.
Typically, participants in these programs pay a "wrap" fee to their investment
adviser. You should read carefully the wrap-fee brochure provided to you by
your investment adviser. The brochure is required to include information about
the fees charged by your adviser and the fees paid by your adviser to PIMCO.
You pay no additional fees or expenses to purchase shares of the Portfolio.
-6-
<PAGE>
Summary of Principal Risks
The value of your investment in a Portfolio changes with
the values of that Portfolio's investments. Many factors
can affect those values. The factors that are most likely
to have a material effect on a particular Portfolio's
portfolio as a whole are called "principal risks." The
principal risks of each Portfolio are identified in the
Portfolio Summaries and are summarized in this section.
Each Portfolio may be subject to additional principal risks
and risks other than those described below because the
types of investments made by a Portfolio can change over
time. Securities and investment techniques mentioned in
this summary and described in greater detail under
"Characteristics and Risks of Securities and Investment
Techniques" appear in bold type. That section and
"Investment Objectives and Policies" in the Statement of
Additional Information also include more information about
the Portfolios, their investments and the related risks.
There is no guarantee that a Portfolio will be able to
achieve its investment objective.
Interest Rate Risk As interest rates rise, the value of fixed income
securities in a Portfolio's portfolio are likely to
decrease. Securities with longer durations tend to be more
sensitive to changes in interest rates, usually making them
more volatile than securities with shorter durations.
Some investments give the issuer the option to call,
or redeem, these investments before their maturity date. If
an issuer "calls" its security during a time of declining
interest rates, a Portfolio might have to reinvest the
proceeds in an investment offering a lower yield, and
therefore might not benefit from any increase in value as a
result of declining interest rates.
Credit Risk A Portfolio could lose money if the issuer or guarantor of
a fixed income security, or the counterparty to a
derivatives contract, repurchase agreement or loan of
portfolio securities, is unable or unwilling to make timely
principal and/or interest payments, or to otherwise honor
its obligations. Securities are subject to varying degrees
of credit risk, which are often reflected in credit
ratings. Municipal bonds are subject to the risk that
litigation, legislation or other political events, local
business or economic conditions, or the bankruptcy of the
issuer could have a significant effect on an issuer's
ability to make payments of principal and/or interest.
High Yield Risk Each Portfolio, through its investments in high yield
securities and unrated securities of similar credit quality
(commonly known as "junk bonds"), may be subject to greater
levels of interest rate, credit and liquidity risk than
portfolios that do not invest in such securities. High
yield securities are considered predominantly speculative
with respect to the issuer's continuing ability to make
principal and interest payments. An economic downturn or
period of rising interest rates could adversely affect the
market for high yield securities and reduce the Portfolio's
ability to sell its high yield securities (liquidity risk).
Market Risk The market price of securities owned by a Portfolio may go
up or down, sometimes rapidly or unpredictably. Securities
may decline in value due to factors affecting securities
markets generally or particular industries represented in
the securities markets. The value of a security may decline
due to general market conditions which are not specifically
related to a particular company, such as real or perceived
adverse economic conditions, changes in the general outlook
for corporate earnings, changes in interest or currency
rates or adverse investor sentiment generally. They may
also decline due to factors which affect a particular
industry or industries, such as labor shortages or
increased production costs and competitive conditions
within an industry.
Issuer Risk The value of a security may decline for a number of reasons
which directly relate to the issuer, such as management
performance, financial leverage and reduced demand for the
issuer's goods and services.
Liquidity Risk Liquidity risk exists when particular investments are
difficult to purchase or sell, possibly preventing a
Portfolio from selling such illiquid securities at an
advantageous time or price. The FISH: Series C's
investments in foreign securities, and each of the
Portfolio's investments in derivatives or securities with
substantial market and/or credit risk, tend to have the
greatest exposure to liquidity risk.
Derivatives Risk Each Portfolio may use derivatives, which are financial
contracts whose value depends on, or is derived from, the
value of an underlying asset, reference rate or index. The
various derivative instruments that the Portfolios may use
are referenced under "Characteristics and Risks of
Securities and Investment Techniques--Derivatives" in this
Prospectus and described in more detail under "Investment
Objectives
-7-
<PAGE>
and Policies" in the Statement of Additional Information.
The Portfolios may sometimes use derivatives as part of a
strategy designed to reduce exposure to other risks, such
as interest rate or currency risk. The Portfolios may also
use derivatives for leverage, in which case their use would
involve leveraging risk. A Portfolio's use of derivative
instruments may involve risks different from, or greater
than, the risks associated with investing directly in
securities and other traditional investments. Derivatives
are subject to a number of risks described elsewhere in
this section, such as liquidity risk, interest rate risk,
market risk, credit risk and management risk. They also
involve the risk of mispricing or improper valuation and
the risk that changes in the value of the derivative may
not correlate perfectly with the underlying asset, rate or
index. A Portfolio investing in a derivative instrument
could lose more than the principal amount invested. Also,
suitable derivative transactions may not be available in
all circumstances and there can be no assurance that a
Portfolio will engage in these transactions to reduce
exposure to other risks when that would be beneficial. In
addition, a Portfolio's use of derivatives may increase the
taxes payable by shareholders.
Mortgage Risk The FISH: Series M, which purchases mortgage-related and
other asset-backed securities, is subject to certain
additional risks. Rising interest rates tend to extend the
duration of mortgage-related and other asset-backed
securities, making them more sensitive to changes in
interest rates. As a result, in a period of rising interest
rates, a Portfolio that holds mortgage-related and other
asset-backed securities may exhibit additional volatility.
This is known as extension risk. In addition,
mortgage-related securities are subject to prepayment risk.
When interest rates decline, borrowers may pay off their
mortgages sooner than expected. This can reduce the returns
of the Portfolio because it will have to reinvest that
money at the lower prevailing interest rates.
Foreign Investment The FISH: Series C, which invests in part in foreign fixed
Risk income securities, may experience more rapid and extreme
changes in value than a portfolio that invests exclusively
in fixed income securities of U.S. companies. The
securities markets of many foreign countries are relatively
small, with a limited number of companies representing a
small number of industries. Additionally, issuers of
foreign securities are usually not subject to the same
degree of regulation as U.S. issuers. Reporting, accounting
and auditing standards of foreign countries differ, in some
cases significantly, from U.S. standards. Also,
nationalization, expropriation or confiscatory taxation,
currency blockage, political changes or diplomatic
developments could adversely affect the Portfolio's
investments in a foreign country. In the event of
nationalization, expropriation or other confiscation, the
Portfolio could lose its entire investment in foreign
securities. Adverse conditions in a certain region can
adversely affect securities of other countries whose
economies appear to be unrelated. To the extent that the
Portfolio invests a significant portion of its assets in a
concentrated geographic area like Eastern Europe or Asia,
the Portfolio will generally have more exposure to regional
economic risks associated with foreign investments.
Emerging Markets Because the FISH: Series C may invest to a limited
Risk extent in emerging market fixed income securities of
issuers based in countries with developing economies,
foreign investment risk may be particularly high.
These securities may present market, credit, currency,
liquidity, legal, political and other risks different
from, or greater than, the risks of investing in
developed foreign countries.
Currency Risk Because the FISH: Series C invests directly in foreign
currencies or in securities that trade in, and receive
revenues in, foreign currencies, it is subject to the risk
that those currencies will decline in value relative to the
U.S. Dollar, or, in the case of hedging positions, that the
U.S. Dollar will decline in value relative to the currency
being hedged. Currency rates in foreign countries may
fluctuate significantly over short periods of time for a
number of reasons, including changes in interest rates,
intervention (or the failure to intervene) by U.S. or
foreign governments, central banks or supranational
entities such as the International Monetary Fund, and by
the imposition of currency controls or other political
developments in the U.S. or abroad.
Non-diversification Focusing investments in a small number of issuers
Risk increases risk. Each Portfolio is "non-diversified,"
which means that it may invest a greater percentage
of its assets in the securities of a single issuer
than "diversified" funds. Portfolios that invest in a
relatively small number of issuers are more susceptible
to risks associated with a single economic, political
or regulatory occurrence than a more diversified portfolio
might be. Some of those issuers also may present
substantial credit or other risks.
Leveraging Risk Each of the Portfolios may engage in transactions that give
rise to a form of leverage. Such transactions may include,
among others, reverse repurchase agreements, loans of
portfolio securities, and the use
-8-
<PAGE>
of when-issued, delayed delivery or forward commitment
transactions. The use of derivatives may also create
leveraging risk. To mitigate leveraging risk, PIMCO will
segregate liquid assets or otherwise cover the transactions
that may give rise to such risk. The use of leverage may
cause a Portfolio to liquidate portfolio positions when it
may not be advantageous to do so to satisfy its obligations
or to meet segregation requirements. Leverage, including
borrowing, will cause a Portfolio to be more volatile than
if the Portfolio had not been leveraged. This is because
leverage tends to exaggerate the effect of any increase or
decrease in the value of a Portfolio's securities.
Smaller Company The general risks associated with fixed income securities
Risk are particularly pronounced for securities issued by
companies with smaller market capitalizations. These
companies may have limited product lines, markets or
financial resources or may depend on a few key
employees. As a result, they may be subject to greater
levels of credit, market and issuer risk. Securities of
smaller companies may trade less frequently and in lesser
volumes than more widely held securities, and their values
may fluctuate more sharply than other securities. Companies
with medium-sized market capitalizations may have risks
similar to those of smaller companies.
Management Risk Each Portfolio is subject to management risk because it is
an actively managed investment portfolio. Each Portfolio's
sub-adviser and each individual portfolio manager will
apply investment techniques and risk analyses in making
investment decisions for the Portfolios, but there can be
no guarantee that these will produce the desired results.
Management of the Portfolios
Investment Adviser, PIMCO Advisors L.P. serves as the investment adviser for
Sub-adviser and the Portfolios. Pacific Investment Management Company
Administrator ("PIMCO") serves as the sub-adviser for the Portfolios.
PIMCO Advisory Services serves as the administrator and
sole trading desk for purchases and redemptions of
Portfolio shares. Subject to the supervision of the Board
of Trustees, PIMCO is responsible for managing the
investment activities of the Portfolios, PIMCO Advisors
L.P. is responsible for managing the Portfolios' business
affairs, and PIMCO Advisory Services, in its role as the
administrator, is responsible for other administrative
matters.
PIMCO Advisors L.P. is located at 800 Newport Center
Drive, Newport Beach, California 92660. Organized in 1987,
PIMCO Advisors L.P. provides investment management and
advisory services to private accounts of institutional and
individual clients and to mutual funds. As of December 31,
1999, PIMCO Advisors L.P. and its subsidiary partnerships
had more than $260 billion in assets under management.
PIMCO is located at 840 Newport Center Drive, Newport
Beach, California 92660. Organized in 1971, PIMCO provides
investment management and advisory services to private
accounts of institutional and individual clients and to
mutual funds. As of December 31, 1999, PIMCO had
approximately $186 billion in assets under management.
PIMCO Advisory Services is located at 1345 Avenue of
the Americas, New York, New York 10105.
Advisory Fees Neither Portfolio pays any advisory or other fees.
Individual A team of investment professionals, led by William H.
Portfolio Managers Gross, a founding partner of PIMCO, has had primary
responsibility for managing the Portfolios since their
inception. For the past five years, Mr. Gross has been
Managing Director and Chief Investment Officer of PIMCO.
Distributor The Portfolios' Distributor is PIMCO Funds Distributors
LLC, a wholly owned subsidiary of PIMCO Advisors. The
Distributor, located at 2187 Atlantic Street, Stamford,
Connecticut 06902, is a broker-dealer registered with the
SEC.
Purchases and Redemptions
-9-
<PAGE>
Purchasing Shares Investors may purchase Portfolio shares at the relevant net
asset value of that Portfolio without a sales charge or
other fee.
Shares of the Portfolios are offered exclusively to
registered investment advisers approved by PIMCO Advisory
Services.
o Timing of Purchase Orders and Share Price Calculations. A
purchase order received by PIMCO Advisory Services, in its
role as the trading desk, prior to 12:00 p.m., Eastern
time, on a day the Portfolios are open for business,
provided payment has been made by wiring federal funds to
State Street Bank and Trust Company, the Portfolio's
custodian, will be effected at that day's net asset value.
An order received after 12:00 p.m., Eastern time will be
effected at the net asset value determined on the next
business day. The Portfolios are "open for business" on
each day the New York Stock Exchange is open for trading.
Purchase orders will be accepted only on days on which the
Portfolios are open for business.
o Initial Investment. Registered investment advisers may
open an account by submitting an executed Client Agreement,
a copy of which is mailed to PIMCO Advisory Services at
1345 Avenue of the Americas, New York, New York 10105.
There are no maximum or minimum initial investment
requirements.
o Additional Investments. Registered investment advisers
may purchase additional shares of the Portfolios only by
calling PIMCO Advisory Services, in its role as trading
desk, or placing the order via pre-arranged electronic
transmission, and wiring federal funds to the transfer
agent.
o Other Purchase Information. Purchases of a Portfolio's
shares will be made only in full shares. Certificates for
shares will not be issued. The payment for shares to be
purchased shall be wired to the Portfolio's transfer agent.
Before wiring federal funds, the investor must place an
order via electronic transmission or by calling PIMCO
Advisory Services, in its role as trading desk, at
1-212-739-3535.
Each of the Portfolios, acting through PIMCO Advisory
Services, in its role as the administrator, reserves the
right, in its sole discretion, to suspend the offering of
shares of the Portfolios or to reject any purchase order,
in whole or in part, when, in the judgment of management,
such suspension or rejection is in the best interests of
the Portfolios.
An investor should invest in the Portfolios for
long-term investment purposes only. The Portfolios, acting
through PIMCO Advisory Services, in its role as the
administrator, each reserve the right to restrict purchases
of Portfolio shares when a pattern of frequent purchases
and sales made in response to short-term fluctuations in
share price appears evident. Notice of any such
restrictions, if any, will vary according to the particular
circumstances.
o Redemption by Telephone or Electronic Transmission.
Shares can be redeemed only through pre- arranged
electronic transmission or by calling PIMCO Advisory
Services, in its role as trading desk, at 1-212-739-3535.
Registered investment advisers should state the Portfolio
from which the shares are to be redeemed, the number or
amount of the shares to be redeemed and the account number.
Each registered investment adviser authorizes PIMCO
Advisory Services, in its role as trading desk, to act on
telephone instructions from any person representing himself
to be the registered investment adviser, and reasonably
believed by PIMCO Advisory Services to be genuine. Neither
the Portfolios nor PIMCO Advisory Services may be liable
for any loss, cost or expense for acting on instructions
believed by the party receiving such instructions to be
genuine and in accordance with the procedures described in
this Prospectus. Registered investment advisers should
realize that by electing the telephone redemption option,
they may be giving up a measure of security that they might
have if they were to redeem their shares via electronic
transmission.
There may be delays in exercising telephone redemption
privileges during periods of abnormal market activity.
During periods of volatile economic or market conditions,
registered investment advisers may wish to consider
transmitting redemption orders by electronic transmission.
o Other Redemption Information. Redemption requests for
Portfolio shares are effected at the net asset value per
share next determined after receipt of a redemption request
by PIMCO Advisory Services, in its role as the trading
desk. A redemption request received by the transfer agent
prior to 12:00 p.m., Eastern time, on a day the Portfolios
are open for business, is effected on that day. A
redemption request received
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after that time is effected on the next business day.
Redemption proceeds will be wired to the registered
investment adviser within one business day after the
redemption request, but may take up to three business days.
Redemption proceeds will be sent by wire only. The
Portfolios may suspend the right of redemption or postpone
the payment date at times when the New York Stock Exchange
is closed, or during certain other periods as permitted
under the federal securities laws.
Each Portfolio reserves the right to redeem shares
of any registered investment adviser at the then-current
value of such shares (which will be paid promptly to the
registered investment adviser) if the registered investment
adviser is no longer approved by PIMCO Advisory Services. A
registered investment adviser will receive advance notice
of any such mandatory redemption.
It is highly unlikely that shares would ever be
redeemed in kind. However, in consideration of the best
interests of the remaining investors, each Portfolio
reserves the right to pay any redemption proceeds exceeding
this amount in whole or in part by a distribution in kind
of securities held by the Portfolio in lieu of cash. Each
Portfolio agrees to redeem shares solely in cash up to the
lesser of $250,000 or 1% of the Portfolio's net assets
during any 90-day period for any one registered investment
adviser. When shares are redeemed in kind, the redeeming
registered investment adviser should expect to incur
transaction costs upon the disposition of the securities
received in the distribution.
How Portfolio Shares Are Priced
The net asset value of a Portfolio's shares is determined
by dividing the total value of a Portfolio's investments
and other assets attributable to that Portfolio, less any
liabilities, by the total number of shares outstanding of
that Portfolio.
For purposes of calculating net asset value,
portfolio securities and other assets for which market
quotes are available are stated at market value. Market
value is generally determined on the basis of last reported
sales prices or, if no sales are reported, based on quotes
obtained from a quotation reporting system, established
market makers, or pricing services. Certain securities or
investments for which daily market quotations are not
readily available may be valued, pursuant to guidelines
established by the Board of Trustees, with reference to
other securities or indices. Short-term investments having
a maturity of 60 days or less are generally valued at
amortized cost. Exchange traded options, futures and
options on futures are valued at the settlement price
determined by the exchange. Other securities for which
market quotes are not readily available are valued at fair
value as determined in good faith by the Board of Trustees
or persons acting at their direction.
Investments initially valued in foreign currencies
are converted to U.S. dollars using foreign exchange rates
obtained from pricing services. As a result, the net asset
value of a Portfolio's shares may be affected by changes in
the value of foreign currencies in relation to the U.S.
dollar. The value of securities traded in foreign markets
or denominated in foreign currencies may be affected
significantly on a day that the New York Stock Exchange is
closed and an investor is not able to buy or redeem shares.
Portfolio shares are valued at 12:00 p.m., Eastern
time on each day that the New York Stock Exchange and the
Portfolios are open. For purposes of calculating the net
asset value, information that becomes known to the
Portfolios or their agents after the net asset value has
been calculated on a particular day will not generally be
used to retroactively adjust the price of a security or the
net asset value determined earlier that day.
In unusual circumstances, instead of valuing
securities in the usual manner, the Portfolios may value
securities at fair value or estimate their value as
determined in good faith by the Board of Trustees,
generally based upon recommendations provided by PIMCO.
Fair valuation may also be used if extraordinary events
occur after the close of the relevant market but prior to
12:00 p.m. Eastern time.
Portfolio Distributions
Each Portfolio distributes substantially all of its net
investment income to shareholders investing in the
Portfolio in the form of dividends. An investment in
Portfolio shares begins earning dividends on the
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shares the day after the Portfolio receives the related
purchase payment. Dividends are paid monthly on the last
business day of the month.
In addition, each Portfolio distributes any net
capital gains it earns from the sale of portfolio
securities to shareholders investing in the Portfolio no
less frequently than annually. Net short-term capital gains
may be paid more frequently.
A Portfolio's dividend and capital gain distributions
will be paid only in cash. Dividends will not reinvest.
Tax Consequences
o Taxes on Portfolio Distributions. A shareholder subject
to U.S. federal income tax will be subject to tax on
Portfolio distributions. For federal income tax purposes,
Portfolio distributions will be taxable to the shareholder
as either ordinary income or capital gains.
Portfolio dividends (i.e., distributions of investment
income) are taxable to shareholders investing in the
Portfolio as ordinary income. Federal taxes on Portfolio
distributions of gains are determined by how long the
Portfolio owned the investments that generated the gains,
rather than how long a shareholder has owned the shares.
Distributions of gains from investments that a Portfolio
owned for more than 12 months will generally be taxable to
shareholders as capital gains. Distributions of gains from
investments that the Portfolio owned for 12 months or less
will generally be taxable as ordinary income.
Portfolio distributions are taxable to shareholders
even if they are paid from income or gains earned by a
Portfolio prior to the shareholder's investment and thus
were included in the price paid for the shares. For
example, a shareholder who purchases shares on or just
before the record date of a Portfolio distribution will pay
full price for the shares and may receive a portion of his
or her investment back as a taxable distribution.
A Portfolio's investment in certain debt obligations
(including obligations issued with market discount,
zero-coupon bonds, pay-in-kind securities, catastrophe
bonds, and metal-indexed notes) may cause the Portfolio to
recognize taxable income in excess of the cash generated by
such obligations. Thus, the Portfolio could be required at
times to liquidate other investments in order to distribute
all of its net income and gain annually.
The FISH: Series C's investment in foreign securities
may be subject to foreign withholding taxes. In that case,
the Portfolio's yield on these securities would be
decreased. Shareholders generally will not be entitled to
claim a credit or deduction with respect to foreign taxes.
In addition, the Portfolio's investment in foreign
securities or foreign currencies may increase or accelerate
the Portfolio's recognition of ordinary income and may
affect the timing or amount of the Portfolio's
distributions.
o Taxes on Redemption of Shares. Any gain resulting from
the sale of Portfolio shares will generally be subject to
federal income tax.
This section relates only to federal income tax; the
consequences under other tax laws may differ. Shareholders
should consult their tax advisors as to the possible
application of foreign, state and local income tax laws to
Portfolio dividends and capital distributions. Please see
the Statement of Additional Information for additional
information regarding the tax aspects of investing in the
Portfolios.
Characteristics and Risks of
Securities and Investment Techniques
This section provides additional information about some of
the principal investments and related risks of the
Portfolios described under "Summary Information" above. It
also describes characteristics and risks of additional
securities and investment techniques that may be used by
the Portfolios from time to time. Most of these securities
and investment techniques are discretionary, which means
that PIMCO can decide whether to use them or not. This
Prospectus does not attempt to disclose all of the various
types
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of securities and investment techniques that may be used by
the Portfolios. As with any portfolio, investors in the
Portfolios rely on the professional investment judgment and
skill of PIMCO and the individual portfolio managers.
Please see "Investment Objectives and Policies" in the
Statement of Additional Information for more detailed
information about the securities and investment techniques
described in this section and about other strategies and
techniques that may be used by the Portfolios.
Securities The total return sought by a Portfolio consists of both
Selection income earned on a Portfolio's investments and capital
appreciation, if any, arising from increases in the market
value of a Portfolio's holdings. Capital appreciation of
fixed income securities generally results from decreases in
market interest rates or improving credit fundamentals for
a particular market sector or security.
In determining what securities to buy or sell for a
Portfolio, PIMCO develops an outlook for interest rates,
foreign currency exchange rates and the economy, analyzes
credit and call risks, and uses other security selection
techniques. The proportion of a Portfolio's assets
committed to investment in securities with particular
characteristics (such as quality, sector, interest rate or
maturity) varies based on PIMCO's outlook for the U.S. and
foreign economies, the financial markets and other factors.
A Portfolio will sell a security when PIMCO believes the
Portfolio is more likely to achieve its objective by
investing the proceeds elsewhere.
PIMCO attempts to identify areas of the bond market
that are undervalued relative to the rest of the market.
PIMCO identifies these areas by grouping bonds into the
following sectors: money markets, governments, corporates,
mortgages, asset-backed and international. Sophisticated
proprietary software then assists in evaluating sectors and
pricing specific securities. Once investment opportunities
are identified, PIMCO will shift assets among sectors
depending upon changes in relative valuations and credit
spreads. There is no guarantee that PIMCO's security
selection techniques will produce the desired results.
U.S. Government U.S. Government securities are obligations of, or
Securities guaranteed by, the U.S. Government, its agencies or
instrumentalities. U.S. Government securities are subject
to market and interest rate risk, and may be subject to
varying degrees of credit risk. U.S. Government securities
include zero coupon securities, which tend to be subject to
greater market risk than interest-paying securities of
similar maturities.
Corporate Debt Corporate debt securities are subject to the risk of the
Securities issuer's inability to meet principal and interest payments
on the obligation and may also be subject to price
volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of
the issuer and general market liquidity. When interest
rates rise, the value of corporate debt securities can be
expected to decline. Debt securities with longer maturities
tend to be more sensitive to interest rate movements than
those with shorter maturities.
Variable and Variable and floating rate securities provide for a
Floating Rate periodic adjustment in the interest rate paid on the
Securities obligations. Each Portfolio may invest in floating rate
debt instruments and engage in credit spread trades. While
floating rate debt instruments provide a certain degree of
protection against rises in interest rates, a Portfolio
will participate in any declines in interest rates as well.
Each Portfolio may also invest in inverse floating rate
debt instruments. An inverse floating rate debt instrument
may exhibit greater price volatility than a fixed rate
obligation of similar credit quality. A Portfolio may not
invest more than 15% of its net assets in any combination
of inverse floating rate debt instruments, interest-only,
or principal-only securities.
Foreign Securities Investing in foreign securities involves special risks and
considerations not typically associated with investing in
U.S. securities. Registered investment advisers should
consider carefully the substantial risks involved for the
FISH: Series C, which invests in securities issued by
foreign companies and governments of foreign countries.
These risks include: differences in accounting, auditing
and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or
confiscatory taxation; adverse changes in investment or
exchange control regulations; and political instability.
Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rates of inflation,
capital reinvestment, resources, self-sufficiency and
balance of payments position. The securities markets,
values of securities, yields and risks associated with
foreign securities markets may change independently of each
other. Also, foreign securities and dividends and interest
payable on those securities may be subject to foreign
taxes, including taxes withheld from payments on those
securities. Foreign securities often trade with less
frequency and volume than domestic securities and therefore
may
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exhibit greater price volatility. Investments in foreign
securities may also involve higher custodial costs than
domestic investments and additional transaction costs with
respect to foreign currency conversions. Changes in foreign
exchange rates also will affect the value of securities
denominated or quoted in foreign currencies.
The FISH: Series M also may invest in sovereign debt
issued by governments, their agencies or instrumentalities,
or other government-related entities. Holders of sovereign
debt may be requested to participate in the rescheduling of
such debt and to extend further loans to governmental
entities. In addition, there is no bankruptcy proceeding by
which defaulted sovereign debt may be collected.
Emerging Market Securities. The FISH: Series C may
invest up to 15% of its assets in securities of issuers
based in developing (or "emerging market") countries.
Investing in emerging market securities imposes risks
different from, or greater than, risks of investing in
domestic securities or in foreign, developed countries.
These risks include: smaller market capitalization of
securities markets, which may suffer periods of relative
illiquidity; significant price volatility; restrictions on
foreign investment and possible repatriation of investment
income and capital. In addition, foreign investors may be
required to register the proceeds of sales; future economic
or political crises could lead to price controls, forced
mergers, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies. The
currencies of emerging market countries may experience
significant declines against the U.S. dollar, and
devaluation may occur subsequent to investments in these
currencies by a Portfolio. Inflation and rapid fluctuations
in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of
certain emerging market countries.
Additional risks of emerging markets securities may
include: greater social, economic and political uncertainty
and instability; more substantial governmental involvement
in the economy; less governmental supervision and
regulation; unavailability of currency hedging techniques;
companies that are newly organized and small; differences
in auditing and financial reporting standards, which may
result in unavailability of material information about
issuers; and less developed legal systems. In addition,
emerging securities markets may have different clearance
and settlement procedures, which may be unable to keep pace
with the volume of securities transactions or otherwise
make it difficult to engage in such transactions.
Settlement problems may cause a Portfolio to miss
attractive investment opportunities, hold a portion of its
assets in cash pending investment, or be delayed in
disposing of a portfolio security. Such a delay could
result in possible liability to a purchaser of the
security.
The FISH: Series C may invest in Brady Bonds, which
are securities created through the exchange of existing
commercial bank loans to sovereign entities for new
obligations in connection with a debt restructuring.
Investments in Brady Bonds may be viewed as speculative.
Brady Bonds acquired by the Portfolio may be subject to
restructuring arrangements or to requests for new credit,
which may cause the Portfolio to suffer a loss of interest
or principal on any of its holdings.
Foreign Currencies The FISH: Series C, which may invest directly in foreign
currencies or in securities that trade in, or receive
revenues in, foreign currencies, is subject to currency
risk. Foreign currency exchange rates may fluctuate
significantly over short periods of time. They generally
are determined by supply and demand in the foreign exchange
markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates
and other complex factors. Currency exchange rates also can
be affected unpredictably by intervention (or the failure
to intervene) by U.S. or foreign governments or central
banks, or by currency controls or political developments.
For example, significant uncertainty surrounds the recent
introduction of the euro (a common currency unit for the
European Union) in January 1999 and the effect it may have
on the value of securities denominated in local European
currencies. These and other currencies in which the
Portfolio's assets are denominated may be devalued against
the U.S. dollar, resulting in a loss to the Portfolio.
Foreign Currency Transactions. The FISH: Series C may
enter into forward foreign currency exchange contracts and
invest in foreign currency futures contracts and options on
foreign currencies and futures. A forward foreign currency
exchange contract, which involves an obligation to purchase
or sell a specific currency at a future date at a price set
at the time of the contract, reduces the Portfolio's
exposure to changes in the value of the currency it will
deliver and increases its exposure to changes in the value
of the currency it will receive for the duration of the
contract. The effect on the value of the Portfolio is
similar to selling securities denominated in one currency
and purchasing securities denominated in another currency.
A contract to sell foreign currency would limit any
potential gain which might be
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realized if the value of the hedged currency increases. The
Portfolio may enter into these contracts to hedge against
foreign exchange risk, to increase exposure to a foreign
currency or to shift exposure to foreign currency
fluctuations from one currency to another. Suitable hedging
transactions may not be available in all circumstances, and
there can be no assurance that the Portfolio will engage in
such transactions at any given time or from time to time.
Also, such transactions may not be successful and may
eliminate any chance for a Portfolio to benefit from
favorable fluctuations in relevant foreign currencies. The
Portfolio may use one currency (or a basket of currencies)
to hedge against adverse changes in the value of another
currency (or basket of currencies) when exchange rates
between the two currencies are positively correlated. The
Portfolio will segregate assets determined to be liquid by
PIMCO in accordance with procedures established by the
Board of Trustees to cover its obligations under forward
foreign currency exchange contracts entered into for
non-hedging purposes.
High Yield Securities rated lower than Baa by Moody's Investors
Securities Service, Inc. or lower than BBB by Standard & Poor's
Ratings Services are sometimes referred to as "high yield"
or "junk" bonds. Investing in high yield securities
involves special risks in addition to the risks associated
with investments in higher-rated fixed income securities.
While offering a greater potential opportunity for capital
appreciation and higher yields, high yield securities
typically entail greater potential price volatility and may
be less liquid than higher-rated securities. High yield
securities may be regarded as predominantly speculative
with respect to the issuer's continuing ability to meet
principal and interest payments. They may also be more
susceptible to real or perceived adverse economic and
competitive industry conditions than higher-rated
securities.
Credit Ratings and Unrated Securities. Rating agencies
are private services that provide ratings of the credit
quality of fixed income securities, including convertible
securities. Appendix A to the Prospectus describes the
various ratings assigned to fixed income securities by
Moody's and S&P. Ratings assigned by a rating agency are
not absolute standards of credit quality and do not
evaluate market risks. Rating agencies may fail to make
timely changes in credit ratings, and an issuer's current
financial condition may be better or worse than a rating
indicates. A Portfolio will not necessarily sell a security
when its rating is reduced below its rating at the time of
purchase. PIMCO does not rely solely on credit ratings, and
develops its own analysis of issuer credit quality.
A Portfolio may purchase unrated securities (which are
not rated by a rating agency) if its portfolio manager
determines that the security is of comparable quality to a
rated security that the Portfolio may purchase. Unrated
securities may be less liquid than comparable rated
securities and involve the risk that the portfolio manager
may not accurately evaluate the security's comparative
credit rating. Analysis of the creditworthiness of issuers
of high yield securities may be more complex than for
issuers of higher-quality fixed income securities. To the
extent that a Portfolio invests in high yield and/or
unrated securities, the Portfolio's success in achieving
its investment objective may depend more heavily on the
portfolio manager's creditworthiness analysis than if the
Portfolio invested exclusively in higher-quality and rated
securities.
Inflation-Indexed Inflation-indexed bonds are fixed income securities whose
Bonds principal value is periodically adjusted according to the
rate of inflation. If the index measuring inflation falls,
the principal value of inflation-indexed bonds will be
adjusted downward, and consequently the interest payable on
these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the
original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds. For bonds that do not provide a
similar guarantee, the adjusted principal value of the bond
repaid at maturity may be less than the original principal.
The value of inflation-indexed bonds is expected to change
in response to changes in real interest rates. Real
interest rates are tied to the relationship between nominal
interest rates and the rate of inflation. If nominal
interest rates increase at a faster rate than inflation,
real interest rates may rise, leading to a decrease in
value of inflation-indexed bonds. Short-term increases in
inflation may lead to a decline in value. Any increase in
the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors
do not receive their principal until maturity.
Derivatives Each Portfolio may, but is not required to, use derivative
instruments for risk management purposes or as part of its
investment strategies. Generally, derivatives are financial
contracts whose value depends upon or is derived from, the
value of an underlying asset, reference rate or index, and
may relate to stocks, bonds, interest rates, currencies or
currency exchange rates, commodities, and related indexes.
Examples of derivative instruments include options
contracts, futures contracts, options on futures contracts
and
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swap agreements. Each Portfolio may invest all of its
assets in derivative instruments, subject to the
Portfolio's objectives and policies. A portfolio manager
may decide not to employ any of these strategies, and there
is no assurance that any derivatives strategy used by a
Portfolio will succeed. A description of these and other
derivative instruments that the Portfolios may use are
described under "Investment Objectives and Policies" in the
Statement of Additional Information.
A Portfolio's use of derivative instruments involves
risks different from, or greater than, the risks associated
with investing directly in securities and other more
traditional investments. A description of various risks
associated with particular derivative instruments is
included in "Investment Objectives and Policies" in the
Statement of Additional Information. The following provides
a more general discussion of important risk factors
relating to all derivative instruments that may be used by
the Portfolios.
Management Risk. Derivative products are highly
specialized instruments that require investment techniques
and risk analyses different from those associated with
stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but
also of the derivative itself, without the benefit of
observing the performance of the derivative under all
possible market conditions.
Credit Risk. The use of a derivative instrument
involves the risk that a loss may be sustained as a result
of the failure of another party to the contract (usually
referred to as a "counterparty") to make required payments
or otherwise comply with the contract's terms.
Liquidity Risk. Liquidity risk exists when a
particular derivative instrument is difficult to purchase
or sell. If a derivative transaction is particularly large
or if the relevant market is illiquid (as is the case with
many privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a position
at an advantageous time or price.
Leverage Risk. Because many derivatives have a
leverage component, adverse changes in the value or level
of the underlying asset, reference rate or index can result
in a loss substantially greater than the amount invested in
the derivative itself. Certain derivatives have the
potential for unlimited loss, regardless of the size of the
initial investment. When a Portfolio uses derivatives for
leverage, investments in that Portfolio will tend to be
more volatile, resulting in larger gains or losses in
response to market changes. To limit leverage risk, each
Portfolio will segregate assets determined to be liquid by
PIMCO in accordance with procedures established by the
Board of Trustees (or, as permitted by applicable
regulation, enter into certain offsetting positions) to
cover its obligations under derivative instruments.
Lack of Availability. Because the markets for certain
derivative instruments (including markets located in
foreign countries) are relatively new and still developing,
suitable derivatives transactions may not be available in
all circumstances for risk management or other purposes.
There is no assurance that a Portfolio will engage in
derivatives transactions at any time or from time to time.
A Portfolio's ability to use derivatives may also be
limited by certain regulatory and tax considerations.
Market and Other Risks. Like most other investments,
derivative instruments are subject to the risk that the
market value of the instrument will change in a way
detrimental to a Portfolio's interest. If a portfolio
manager incorrectly forecasts the values of securities,
currencies or interest rates or other economic factors in
using derivatives for a Portfolio, the Portfolio might have
been in a better position if it had not entered into the
transaction at all. While some strategies involving
derivative instruments can reduce the risk of loss, they
can also reduce the opportunity for gain or even result in
losses by offsetting favorable price movements in other
Portfolio investments. A Portfolio may also have to buy or
sell a security at a disadvantageous time or price because
the Portfolio is legally required to maintain offsetting
positions or asset coverage in connection with certain
derivatives transactions.
Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the
inability of derivatives to correlate perfectly with
underlying assets, rates and indexes. Many derivatives, in
particular privately negotiated derivatives, are complex
and often valued subjectively. Improper valuations can
result in increased cash payment requirements to
counterparties or a loss of value to a Portfolio. Also, the
value of derivatives may not correlate perfectly, or at
all, with the value of the assets, reference rates or
indexes they are designed to closely track. In addition, a
Portfolio's use of derivatives may cause the Portfolio to
realize higher amounts of short-term capital gains (taxed
at
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ordinary income tax rates when distributed) than if the
Portfolio had not used such instruments.
Convertible Each Portfolio may invest in convertible securities.
Securities Convertible securities are generally preferred stocks and
other securities, including fixed income securities and
warrants, that are convertible into or exercisable for
common stock at a stated price or rate. The price of a
convertible security will normally vary in some proportion
to changes in the price of the underlying common stock
because of this conversion or exercise feature. However,
the value of a convertible security may not increase or
decrease as rapidly as the underlying common stock. A
convertible security will normally also provide income and
is subject to interest rate risk. Convertible securities
may be lower-rated securities subject to greater levels of
credit risk. A Portfolio may be forced to convert a
security before it would otherwise choose, which may have
an adverse effect on the Portfolio's ability to achieve its
investment objective.
While the Portfolios intend to invest primarily in
fixed income securities, each may invest in convertible
securities or equity securities. While some countries or
companies may be regarded as favorable investments, pure
fixed income opportunities may be unattractive or limited
due to insufficient supply, or legal or technical
restrictions. In such cases, a Portfolio may consider
equity securities or convertible securities to gain
exposure to such investments.
Mortgage-Related The FISH: Series M invests primarily in mortgage- or other
and Other asset-backed securities. Mortgage-related securities
Asset-Backed include mortgage pass-through securities, collateralized
Securities mortgage obligations, commercial mortgage-backed
securities, mortgage dollar rolls, stripped mortgage-backed
securities and other securities that directly or indirectly
represent a participation in, or are secured by and payable
from, mortgage loans on real property.
The value of some mortgage- or asset-backed securities
may be particularly sensitive to changes in prevailing
interest rates. Early repayment of principal on some
mortgage-related securities may expose the Portfolio to a
lower rate of return upon reinvestment of principal. When
interest rates rise, the value of a mortgage-related
security generally will decline; however, when interest
rates are declining, the value of mortgage-related
securities with prepayment features may not increase as
much as other fixed income securities. The rate of
prepayments on underlying mortgages will affect the price
and volatility of a mortgage-related security, and may
shorten or extend the effective maturity of the security
beyond what was anticipated at the time of purchase. If
unanticipated rates of prepayment on underlying mortgages
increase the effective maturity of a mortgage-related
security, the volatility of the security can be expected to
increase. The value of these securities may fluctuate in
response to the market's perception of the creditworthiness
of the issuers. Additionally, although mortgages and
mortgage-related securities are generally supported by some
form of government or private guarantee and/or insurance,
there is no assurance that private guarantors or insurers
will meet their obligations.
One type of stripped mortgage-backed security has one
class receiving all of the interest from the mortgage
assets (the interest-only class), while the other class
will receive all of the principal (the principal-only
class). The yield to maturity on an interest-only class is
extremely sensitive to the rate of principal payments
(including prepayments) on the underlying mortgage assets,
and a rapid rate of principal payments may have a material
adverse effect on the Portfolio's yield to maturity from
these securities. The Portfolio may not invest more than
15% of its net assets in any combination of interest-only,
principal-only, or inverse floating rate securities. The
Portfolio may invest in other asset-backed securities that
have been offered to investors.
Municipal Bonds Municipal bonds are generally issued by state and local
governments and their agencies, authorities and other
instrumentalities. Municipal bonds are subject to interest
rate, credit and market risk. The ability of an issuer to
make payments could be affected by litigation, legislation
or other political events or the bankruptcy of the issuer.
Lower rated municipal bonds are subject to greater credit
and market risk than higher quality municipal bonds.
Loan Participations The FISH: Series C may invest in fixed- and floating-rate
and Assignments loans, which investments generally will be in the form of
loan participations and assignments of portions of such
loans. Participations and assignments involve special types
of risk, including credit risk, interest rate risk,
liquidity risk, and the risks of being a lender. If the
Portfolio purchases a participation, it may only be able to
enforce its rights through the lender, and may assume the
credit risk of the lender in addition to the borrower.
Delayed Funding The FISH: Series C may also enter into, or acquire
participations in, delayed funding loans
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Loans and Revolving and revolving credit facilities, in which a lender agrees
Credit Facilities to make loans up to a maximum amount upon demand by the
borrower during a specified term. These commitments may
have the effect of requiring the Portfolio to increase its
investment in a company at a time when it might not
otherwise decide to do so (including at a time when the
company's financial condition makes it unlikely that such
amounts will be repaid). To the extent that the Portfolio
is committed to advance additional funds, it will segregate
assets determined to be liquid by PIMCO in accordance with
procedures established by the Board of Trustees in an
amount sufficient to meet such commitments. Delayed funding
loans and revolving credit facilities are subject to
credit, interest rate and liquidity risk and the risks of
being a lender.
Loans of Portfolio For the purpose of achieving income, each Portfolio may
Securities lend its portfolio securities to brokers, dealers, and
other financial institutions, provided that a number of
conditions are satisfied, including that the loan be fully
collateralized. Please see "Investment Objectives and
Policies" in the Statement of Additional Information for
details. When a Portfolio lends portfolio securities, its
investment performance will continue to reflect changes in
the value of the securities loaned, and the Portfolio will
also receive a fee or interest on the collateral.
Securities lending involves the risk of loss of rights in
the collateral or delay in recovery of the collateral if
the borrower fails to return the security loaned or becomes
insolvent. A Portfolio may pay lending fees to a party
arranging the loan.
Short Sales Each Portfolio may make short sales as part of its overall
portfolio management strategies or to offset a potential
decline in value of a security. A short sale involves the
sale of a security that is borrowed from a broker or other
institution to complete the sale. For these purposes, a
Portfolio may also hold or have the right to acquire
securities which, without the payment of any further
consideration, are convertible into or exchangeable for the
securities sold short. Short sales expose a Portfolio to
the risk that it will be required to acquire, convert or
exchange securities to replace the borrowed securities
(also known as "covering" the short position) at a time
when the securities sold short have appreciated in value,
thus resulting in a loss to the Portfolio. A Portfolio
making a short sale (other than a "short sale against the
box") must segregate assets determined to be liquid by
PIMCO in accordance with procedures established by the
Board of Trustees or otherwise cover its position in a
permissible manner.
When-Issued, Each Portfolio may purchase securities which it is eligible
Delayed Delivery to purchase on a when-issued basis, may purchase and sell
and Forward such securities for delayed delivery and may make contracts
Commitment to purchase such securities for a fixed price at a future
Transactions date beyond normal settlement time (forward commitments).
When-issued transactions, delayed delivery purchases and
forward commitments involve a risk of loss if the value of
the securities declines prior to the settlement date. This
risk is in addition to the risk that the Portfolio's other
assets will decline in value. Therefore, these transactions
may result in a form of leverage and increase a Portfolio's
overall investment exposure. Typically, no income accrues
on securities a Portfolio has committed to purchase prior
to the time delivery of the securities is made, although a
Portfolio may earn income on securities it has segregated
to cover these positions.
Repurchase Each Portfolio may enter into repurchase agreements, in
Agreements which the Portfolio purchases a security from a bank or
broker-dealer that agrees to repurchase the security at the
Portfolio's cost plus interest within a specified time. If
the party agreeing to repurchase should default, the
Portfolio will seek to sell the securities which it holds.
This could involve procedural costs or delays in addition
to a loss on the securities if their value should fall
below their repurchase price. Repurchase agreements
maturing in more than seven days are considered illiquid
securities.
Reverse Repurchase Each Portfolio may enter into reverse repurchase agreements
Agreements, Dollar and dollar rolls, subject to the Portfolio's limitations on
Rolls and Other borrowings. A reverse repurchase agreement or dollar roll
Borrowings involves the sale of a security by a Portfolio and its
agreement to repurchase the instrument at a specified time
and price, and may be considered a form of borrowing for
some purposes. A Portfolio will segregate assets determined
to be liquid by PIMCO in accordance with procedures
established by the Board of Trustees to cover its
obligations under reverse repurchase agreements. A
Portfolio also may borrow money for investment purposes
subject to any policies of the Portfolio currently
described in this Prospectus or in the Statement of
Additional Information. Reverse repurchase agreements,
dollar rolls and other forms of borrowings may create
leveraging risk for a Portfolio.
Catastrophe Bonds Each Portfolio may invest in "catastrophe bonds," which are
fixed income securities for which the return of principal
and payment of interest is contingent on the non-occurrence
of a specific "trigger" catastrophic event, such as a
hurricane or an earthquake. If a trigger event occurs, a
Portfolio may lose a portion or all of its principal
invested in the bond. Catastrophe bonds often provide for
an extension of
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maturity to process and audit loss claims where a trigger
event has, or possibly has, occurred. An extension of
maturity may increase volatility. Catastrophe bonds may
also expose the Portfolio to certain unanticipated risks
including credit risk, adverse regulatory or jurisdictional
interpretations, and adverse tax consequences. Catastrophe
bonds may also be subject to liquidity risk.
Portfolio Turnover The length of time a Portfolio has held a particular
security is not generally a consideration in investment
decisions. A change in the securities held by a Portfolio
is known as "portfolio turnover." Each Portfolio may engage
in frequent and active trading of portfolio securities to
achieve its investment objective, particularly during
periods of volatile market movements. High portfolio
turnover (e.g., over 100%) involves correspondingly greater
expenses to a Portfolio, including brokerage commissions or
dealer mark-ups and other transaction costs on the sale of
securities and reinvestments in other securities. Such
sales may also result in realization of taxable capital
gains, including short-term capital gains (which are taxed
at ordinary income tax rates when distributed). The trading
costs and tax effects associated with portfolio turnover
may adversely affect a Portfolio's performance.
Illiquid Securities Each Portfolio may invest up to 15% of its net assets in
illiquid securities. Certain illiquid securities may
require pricing at fair value as determined in good faith
under the supervision of the Board of Trustees. A portfolio
manager may be subject to significant delays in disposing
of illiquid securities, and transactions in illiquid
securities may entail registration expenses and other
transaction costs that are higher than those for
transactions in liquid securities. The term "illiquid
securities" for this purpose means securities that cannot
be disposed of within seven days in the ordinary course of
business at approximately the amount at which a Portfolio
has valued the securities. Restricted securities, i.e.,
securities subject to legal or contractual restrictions on
resale, may be illiquid. However, some restricted
securities (such as securities issued pursuant to Rule 144A
under the Securities Act of 1933 and certain commercial
paper) may be treated as liquid, although they may be less
liquid than registered securities traded on established
secondary markets.
Investment in Other Each Portfolio may invest up to 10% of its assets in
Investment securities of other investment companies, such as
Companies closed-end management investment companies, or in pooled
accounts or other investment vehicles which invest in
foreign markets. As a shareholder of an investment company,
a Portfolio may indirectly bear service and other fees
which are in addition to the fees the Portfolio pays its
service providers.
Temporary Defensive For temporary or defensive purposes, each Portfolio may
Strategies invest without limit in U.S. debt securities, including
short-term money market securities, when PIMCO deems it
appropriate to do so. When a Portfolio engages in such
strategies, it may not achieve its investment objective.
Changes in The investment objective of each Portfolio may be changed
Investment by the Board of Trustees without the approval of the
Objectives and registered investment advisers investing in the Portfolio.
Policies Unless otherwise stated, all other investment policies of
the Portfolios may be changed by the Board of Trustees
without the approval of the registered investment advisers
investing in the Portfolios.
Percentage Unless otherwise stated, all percentage limitations on
Investment Portfolio investments listed in this Prospectus will apply
Limitations at the time of investment. A Portfolio would not violate
these limitations unless an excess or deficiency were to
occur or exist immediately after and as a result of an
investment.
Other Investments The Portfolios may invest in other types of securities and
and Techniques use a variety of investment techniques and strategies which
are not described in this Prospectus. These securities and
techniques may subject the Portfolios to additional risks.
Please see the Statement of Additional Information for
additional information about the securities and investment
techniques described in this Prospectus and about
additional securities and techniques that may be used by
the Portfolios.
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<PAGE>
Appendix A A Portfolio's investments may range in quality from
Description of securities in the lowest category in which the Portfolio is
Securities Ratings permitted to invest to securities rated in the highest
category (as rated by Moody's or S&P or, if unrated,
determined by PIMCO to be of comparable quality). The
percentage of a Portfolio's assets invested in securities
in a particular rating category will vary. The following
terms are generally used to describe the credit quality of
fixed income securities.
High Quality Debt Securities are those rated in one of the
two highest rating categories (the highest category for
commercial paper) or, if unrated, deemed comparable by
PIMCO.
Investment Grade Debt Securities are those rated in one of
the four highest rating categories or, if unrated, deemed
comparable by PIMCO.
Below Investment Grade, High Yield Securities are those
rated lower than Baa by Moody's or BBB by S&P and
comparable securities. They are deemed predominately
speculative with respect to the issuer's ability to repay
principal and interest.
Following is a description of Moody's and S&P's rating
categories applicable to fixed income securities.
Moody's Investors Corporate and Municipal Bond Ratings
Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present that make
the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements
may be present that suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated Baa are considered as
medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as
well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this
class.
B: Bonds which are rated B generally lack characteristics
of a desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
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Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classified from Aa through B in its
corporate bond rating system. The modifier 1 indicates that
the security ranks in the higher end of its generic rating
category; the modifier 2 indicated a mid-range raking; and
the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
Corporate Short- Moody's short-term debt ratings are opinions of the ability
Term Debt Ratings of issuers to repay punctually senior debt obligations
which have an original maturity not exceeding one year.
Obligations relying upon support mechanisms such as letters
of credit and bonds of indemnity are excluded unless
explicitly rated.
Moody's employs the following three designations, all
judged to be investment grade, to indicate the relative
repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term
debt obligations. Prime-1 repayment ability will often be
evidenced by many of the following characteristics: leading
market positions in well-established industries, high rates
of return on funds employed; conservative capitalization
structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and
well-established access to a range of financial markets and
assured sources of alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-term
debt obligations. This will normally be evidenced by many
of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics,
while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior
short-term obligations. The effect of industry
characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection
measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any
of the Prime rating categories.
Standard & Poor's Corporate Municipal Bond Ratings
Ratings Services Investment Grade
AAA: Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely
strong.
AA: Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest
rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and
economic conditions that debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in
higher-rated categories.
Speculative Grade
Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to
capacity to pay interest and repay principal. BB indicates
the least degree of speculation and C the highest. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
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<PAGE>
BB: Debt rated BB has less near-term vulnerability to
default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and
principal payments. The BB rating category is also used for
debt subordinated to senior debt that is assigned an actual
or implied BBB-rating.
B: Debt rated B has a greater vulnerability to default but
currently has the capacity to meet interest payments and
principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B
rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or
BB-rating.
CCC: Debt rated CCC has a currently identifiable
vulnerability to default and is dependent upon favorable
business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the
event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is
assigned an actual or implied B or B-rating.
CC: The rating CC is typically applied to debt subordinated
to senior debt that is assigned an actual or implied CCC
rating.
C: The rating C is typically applied to debt subordinated
to senior debt that is assigned an actual or implied
CCC-debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but
debt service payments are continued.
CI: The rating CI is reserved for income bonds on which no
interest is being paid.
D: Debt rated D is in payment default. The D rating
category is used when interest payments or principal
payments are not made on the date due even if the
applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace
period. The D rating will also be used upon the filing of a
bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
Provisional ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the
debt being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the
successful and timely completion of the project. This
rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment
with respect to such likelihood and risk.
r: The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience
high volatility or high variability in expected returns due
to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and
options; and interest-only and principal-only mortgage
securities.
The absence of an "r" symbol should not be taken as an
indication that an obligation will exhibit no volatility or
variability in total return.
N.R.: Not rated.
Debt obligations of issuers outside the United States and
its territories are rated on the same basis as domestic
corporate and municipal issues. The ratings measure the
creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
Commercial Paper An S&P commercial paper rating is a current assessment of
Rating Definitions the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into
several categories, ranging from A for the highest quality
obligations to D for the lowest. These categories are as
follows:
A-1: This highest category indicates that the degree of
safety regarding timely payment is strong. Those
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<PAGE>
issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+)
designation.
A-2: Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree
of safety is not as high as for issues designated A-1.
A-3: Issues carrying this designation have adequate
capacity for timely payment. They are, however, more
vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher
designations.
B: Issues rated B are regarded as having only speculative
capacity for timely payment.
C: This rating is assigned to a short-term debt obligations
with a doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating
category is used when interest payments or principal
payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace
period.
A commercial paper rating is not a recommendation to
purchase, sell or hold a security inasmuch as it does not
comment as to market price or suitability for a particular
investor. The ratings are based on current information
furnished to S&P by the issuer or obtained from other
sources it considers reliable. S&P does not perform an
audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in
or unavailability of such information.
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<PAGE>
FISH: Series C and INVESTMENT ADVISER
FISH: Series M PIMCO Advisors L.P., 800 Newport Center Drive, Newport
Beach, CA 92660
INVESTMENT SUB-ADVISER
Pacific Investment Management Company, 840 Newport Center
Drive, Suite 300, Newport Beach, CA 92660
ADMINISTRATOR/TRADING DESK
PIMCO Advisory Services, 1345 Avenue of the Americas, New
York, NY 10105
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, MO
64105
LEGAL COUNSEL
Ropes & Gray, One International Place, Boston, MA 02110
The Portfolios' Statement of Additional Information ("SAI") includes additional
information about the Portfolios. The SAI is incorporated by reference into this
Prospectus, which means it is part of this Prospectus for legal purposes.
You may get free copies of the SAI, request other information about a Portfolio,
or make inquiries by calling PIMCO Advisory Services at 1-212-739-3535.
You may review and copy information about the Portfolios, including their SAI,
at the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. You may call the Commission at 1-202-942-8090 for information about the
operation of the Public Reference Room. You may also access reports and other
information about the Portfolios on the EDGAR Database on the Commission's
Internet site at http://www.sec.gov. You may get copies of this information,
with payment of a duplication fee, by electronic request at the following E-mail
address: [email protected], or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. You may need to refer to the
Portfolios' file number under the Investment Company Act, which is 811-9721.
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Fixed Income SHares
STATEMENT OF ADDITIONAL INFORMATION
March 17, 2000
This Statement of Additional Information is not a prospectus, and should
be read in conjunction with the prospectus of Fixed Income SHares (the "Trust"),
as supplemented from time to time. Through one Prospectus, dated March 17,
2000, the Trust offers two series of shares: FISH: Series C and FISH: Series M
(each a "Portfolio").
Copies of the Prospectus, which is incorporated by reference (legally a
part of) into this Statement of Additional Information, may be obtained free of
charge at the following address and telephone number:
PIMCO Advisory Services
1345 Avenue of the Americas
New York, New York 10105
1-212-739-3535
<PAGE>
TABLE OF CONTENTS
PAGE
----
THE TRUST....................................................................1
INVESTMENT OBJECTIVES AND POLICIES...........................................1
U.S. Government Securities.............................................1
Borrowing..............................................................1
Preferred Stock........................................................2
Corporate Debt Securities..............................................2
High Yield Securities ("Junk Bonds")...................................3
Loan Participations and Assignments....................................4
Participation on Creditors Committees..................................4
Variable and Floating Rate Securities..................................5
Mortgage-Related and Asset-Backed Securities...........................5
Convertible Securities.................................................9
Equity-Linked Securities...............................................9
Foreign Securities....................................................10
Foreign Currencies....................................................12
Bank Obligations......................................................12
Commercial Paper......................................................13
Money Market Instruments..............................................14
Derivative Instruments................................................14
When-Issued, Delayed Delivery and Forward Commitment Transactions.....21
Warrants to Purchase Securities.......................................22
Repurchase Agreements.................................................22
Securities Loans......................................................22
Stocks of Small and Medium Capitalization Companies...................23
Illiquid Securities...................................................23
Inflation-Indexed Bonds...............................................24
Delayed Funding Loans and Revolving Credit Facilities.................25
Catastrophe Bonds.....................................................25
Hybrid Instruments....................................................25
Precious Metals and Metal-Indexed Notes...............................26
INVESTMENT RESTRICTIONS.....................................................27
Fundamental Investment Restrictions...................................27
Non-Fundamental Investment Restrictions...............................28
MANAGEMENT OF THE TRUST.....................................................29
Trustees and Officers.................................................29
Trustees' Compensation................................................31
Investment Adviser....................................................32
Portfolio Management Agreements.......................................33
Portfolio Administrator...............................................33
DISTRIBUTION OF TRUST SHARES................................................34
Distributor...........................................................34
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................34
Investment Decisions and Portfolio Transactions.......................34
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PAGE
Brokerage and Research Services.......................................34
Portfolio Turnover....................................................35
NET ASSET VALUE.............................................................36
TAXATION....................................................................37
Distributions.........................................................37
Sales of Shares.......................................................38
Backup Withholding....................................................38
Options, Futures, Forward Contracts and Swap Agreements...............39
Foreign Currency Transactions.........................................39
Foreign Taxation......................................................39
Original Issue Discount and Pay-In-Kind Securities....................39
Other Taxation........................................................40
OTHER INFORMATION...........................................................40
Capitalization........................................................40
Performance Information...............................................40
Calculation of Yield..................................................41
Calculation of Total Return...........................................42
Potential College Cost Table..........................................48
Year 2000 Readiness Disclosure........................................50
Compliance Efforts Related to the Euro................................51
Voting Rights ........................................................51
Certain Ownership of Trust Shares.....................................51
Custodian.............................................................52
Independent Accountants...............................................52
Transfer Agent........................................................52
Legal Counsel.........................................................52
Registration Statement................................................52
Financial Statements and Report of Independent Accountants............52
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<PAGE>
THE TRUST
Fixed Income SHares (the "Trust"), is an open-end management investment
company ("mutual fund") that currently consists of two separate non-diversified
investment portfolios, the FISH: Series C and the FISH: Series M.
The Trust was organized as a Massachusetts business trust on November 3,
1999.
INVESTMENT OBJECTIVES AND POLICIES
In addition to the principal investment strategies and the principal risks
of the Portfolios described in the Prospectus, each Portfolio may employ other
investment practices and may be subject to additional risks which are described
below. Certain strategies and/or risks described below may not apply to each
Portfolio. Unless a strategy or policy described below is specifically
prohibited by the investment restrictions listed in the Prospectus, by the
investment restrictions under "Investment Restrictions" in this Statement of
Additional Information, or by applicable law, a Portfolio may engage in each of
the practices described below.
The Portfolios' sub-adviser, which is responsible for making investment
decisions for the Portfolios, is referred to in this section and the remainder
of this Statement of Additional Information as the "Sub-Adviser."
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Portfolios' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(e.g., STRIPs and CUBEs) are direct obligations of the U.S. Government.
Borrowing
Subject to the limitations described under "Investment Restrictions"
below, each Portfolio may be permitted to borrow for temporary purposes and/or
for investment purposes. Such a practice will result in leveraging of a
Portfolio's assets and may cause a Portfolio to liquidate positions when it
would not be advantageous to do so. This borrowing may be unsecured. Provisions
of the Investment Company Act of 1940, as amended ("1940 Act"), require a
Portfolio to maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed, with an exception for borrowings not in excess of 5% of the
Portfolio's total assets made for temporary administrative purposes. As noted
under "Investment Restrictions," the Portfolios are subject to limitations on
borrowings which are more strict than those imposed by the 1940 Act. Any
borrowings for temporary administrative purposes in excess of 5% of the
Portfolio's total assets will require the Portfolio to maintain continuous asset
coverage. If the 300% asset coverage should decline as a result of market
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fluctuations or other reasons, a Portfolio may be required to sell some of its
holdings within three days to reduce the debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
sell securities at that time. Borrowing will tend to exaggerate the effect on
net asset value of any increase or decrease in the market value of a Portfolio.
Money borrowed will be subject to interest costs which may or may not be
recovered by appreciation of the securities purchased. A Portfolio also may be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate.
From time to time, the Trust may enter into, and make borrowings for
temporary purposes related to the redemption of shares under, a credit agreement
with third-party lenders. Borrowings made under such a credit agreement will be
allocated between the Portfolios pursuant to guidelines approved by the Board of
Trustees.
In addition to borrowing for temporary purposes, a Portfolio may enter
into reverse repurchase agreements if permitted to do so under its investment
restrictions. A reverse repurchase agreement involves the sale of a
portfolio-eligible security by a Portfolio, coupled with its agreement to
repurchase the instrument at a specified time and price. The Portfolio will
segregate assets determined to be liquid by the Adviser or the Portfolio's
Sub-Adviser in accordance with procedures established by the Board of Trustees
and equal (on a daily mark-to-market basis) to its obligations under reverse
repurchase agreements with broker-dealers (but not banks). However, reverse
repurchase agreements involve the risk that the market value of securities
retained by the Portfolio may decline below the repurchase price of the
securities sold by the Portfolio which it is obligated to repurchase. Reverse
repurchase agreements will be subject to the Portfolios' limitations on
borrowings as specified under "Investment Restrictions" below.
Preferred Stock
Each Portfolio may invest in preferred stock. Preferred stock is a form of
equity ownership in a corporation. The dividend on a preferred stock is a fixed
payment which the corporation is not legally bound to pay. Certain classes of
preferred stock are convertible, meaning the preferred stock is convertible into
shares of common stock of the issuer. By holding convertible preferred stock, a
Portfolio can receive a steady stream of dividends and still have the option to
convert the preferred stock to common stock.
Corporate Debt Securities
Each Portfolio may invest in corporate debt securities and/or hold their
assets in these securities for cash management purposes. The investment return
of corporate debt securities reflects interest earnings and changes in the
market value of the security. The market value of a corporate debt obligation
may be expected to rise and fall inversely with interest rates generally. There
also exists the risk that the issuers of the securities may not be able to meet
their obligations on interest or principal payments at the time called for by an
instrument.
A Portfolio's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities) which meet the
minimum ratings criteria set forth for the Portfolio, or, if unrated, are deemed
to be comparable in quality to corporate debt securities in which the Portfolio
may invest. The rate of return or return of principal on some debt obligations
may be linked or indexed to the level of exchange rates between the U.S. dollar
and a foreign currency or currencies.
Among the corporate debt securities in which the Portfolios may invest are
convertible securities. A convertible debt security is a bond, debenture, note,
or other security that entitles the holder to acquire common stock or other
equity securities of the same or a different issuer. A convertible security
generally entitles the holder to receive interest paid or accrued until the
convertible security matures or is redeemed, converted or exchanged. Before
conversion, convertible securities have characteristics similar to
non-convertible debt securities. Convertible
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securities rank senior to common stock in a corporation's capital structure and,
therefore, generally entail less risk than the corporation's common stock.
A convertible security may be subject to redemption at the option of the
issuer at a predetermined price. If a convertible security held by a Portfolio
is called for redemption, the Portfolio would be required to permit the issuer
to redeem the security and convert it to underlying common stock, or would sell
the convertible security to a third party.
High Yield Securities ("Junk Bonds")
Each of the Portfolios may invest in debt/fixed income securities of
domestic or foreign issuers that meet minimum ratings criteria set forth for a
Portfolio, or, if unrated, are of comparable quality in the opinion of the
Portfolio's Sub-Adviser. A description of the ratings categories used is set
forth in the Prospectus.
A security is considered to be below "investment grade" quality if it is
either (1) not rated in one of the four highest rating categories by one of the
Nationally Recognized Statistical Rating Organizations ("NRSROs") (i.e., rated
Ba or below by Moody's Investors Service, Inc. ("Moody's") or BB or below by
Standard & Poor's Ratings Services ("S&P")) or (2) if unrated, determined by the
Sub-Adviser to be of comparable quality to obligations so rated.
Investment in high yield securities generally provides greater income and
increased opportunity for capital appreciation than investments in higher
quality securities, but it also typically entails greater price volatility as
well as principal and income risk. High yield securities are regarded as
predominantly speculative with respect to the issuer's continuing ability to
meet principal and interest payments. The market for these securities is
relatively new, and many of the outstanding high yield securities have not
endured a major business recession. A long-term track record on default rates,
such as that for investment grade corporate bonds, does not exist for this
market. Analysis of the creditworthiness of issuers of high yield securities may
be more complex than for issuers of higher quality debt/fixed income securities.
Each Portfolio of the Trust may continue to hold such securities following a
decline in their rating if in the opinion of the Adviser or the Sub-Adviser, as
the case may be, it would be advantageous to do so. Investments in high yield
securities that are eligible for purchase by the Portfolios are described as
"speculative" by both Moody's and S&P.
Investing in high yield securities involves special risks in addition to
the risks associated with investments in higher rated fixed income securities.
While offering a greater potential opportunity for capital appreciation and
higher yields than investments in higher rated debt securities, high yield
securities typically entail greater potential price volatility and may be less
liquid than investment grade debt. High yield securities may be regarded as
predominately speculative with respect to the issuer's continuing ability to
meet principal and interest payments. Analysis of the creditworthiness of
issuers of high yield securities may be more complex than for issuers of higher
quality debt securities, and achievement of a Portfolio's investment objective
may, to the extent of its investments in high yield securities, depend more
heavily on the Sub-Adviser's creditworthiness analysis than would be the case if
the Portfolio were investing in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of high yield securities are likely to be sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt/fixed income securities. If an issuer of high
yield securities defaults, in addition to risking payment of all or a portion of
interest and principal, the Portfolios investing in such securities may incur
additional expenses to seek recovery. In the case of high yield securities
structured as zero-coupon or pay-in-kind securities, their market prices are
affected to a greater extent by interest rate changes, and therefore tend to be
more volatile than securities which pay interest periodically and in cash. Even
though such securities do not pay current interest in cash, a Portfolio
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nonetheless is required to accrue interest income on these investments and to
distribute the interest income on a current basis. Thus, a Portfolio could be
required at times to liquidate other investments in order to satisfy its
distribution requirements.
Prices of high yield/high risk securities have been found to be less
sensitive to interest rate changes than more highly rated investments, but more
sensitive to economic downturns or individual corporate developments. The
secondary market on which high yield securities are traded may be less liquid
than the market for higher grade securities. Less liquidity in the secondary
trading market could adversely affect the price at which the Portfolios could
sell a high yield security, and could adversely affect the daily net asset value
of the shares. Lower liquidity in secondary markets could adversely affect the
value of high yield/high risk securities held by the Portfolios. While lower
rated securities typically are less sensitive to interest rate changes than
higher rated securities, the market prices of high yield/high risk securities
structured as "zero coupon" or "pay-in-kind" securities may be affected to a
greater extent by interest rate changes. See the Prospectus for further
information regarding high yield/high risk securities. For instance, adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield securities,
especially in a thinly traded market. When secondary markets for high yield
securities are less liquid than the market for higher grade securities, it may
be more difficult to value the securities because such valuation may require
more research, and elements of judgment may play a greater role in the valuation
because there is less reliable, objective data available.
Debt securities are purchased and sold principally in response to current
assessments of future changes in business conditions and the levels of interest
rates on debt/fixed income securities of varying maturities, the availability of
new investment opportunities at higher relative yields, and current evaluations
of an issuer's continuing ability to meet its obligations in the future. The
average maturity or duration of the debt/fixed income securities in a
Portfolio's portfolio may vary in response to anticipated changes in interest
rates and to other economic factors. Securities may be bought and sold in
anticipation of a decline or a rise in market interest rates. In addition, a
Portfolio may sell a security and purchase another of comparable quality and
maturity (usually, but not always, of a different issuer) at approximately the
same time to take advantage of what are believed to be short-term differentials
in values or yields.
Loan Participations and Assignments
Each Portfolio may invest in fixed- and floating-rate loans arranged
through private negotiations between an issuer of debt instruments and one or
more financial institutions ("lenders"). Generally, a Portfolio's investments in
loans are expected to take the form of loan participations and assignments of
portions of loans from third parties.
Large loans to corporations or governments may be shared or syndicated
among several lenders, usually banks. A Portfolio may participate in such
syndicates, or can buy part of a loan, becoming a direct lender. Participations
and assignments involve special types of risk, including liquidity risk and the
risks of being a lender. If a Portfolio purchases a participation, it may only
be able to enforce its rights through the lender, and may assume the credit risk
of the lender in addition to the borrower. In assignments, a Portfolio's rights
against the borrower may be more limited than those held by the original lender.
Participation on Creditors Committees
A Portfolio may from time to time participate on committees formed by
creditors to negotiate with the management of financially troubled issuers of
securities held by the Portfolio. Such participation may subject a Portfolio to
expenses such as legal fees and may make the Portfolio an "insider" of the
issuer for purposes of the federal securities laws, and therefore may restrict
the Portfolio's ability to trade in or acquire additional positions in a
particular security when it might otherwise desire to do so. Participation by a
Portfolio on such committees also may expose the Portfolio to potential
liabilities under the federal bankruptcy laws or other laws governing the rights
of creditors and debtors. A Portfolio would participate on such committees only
when the Adviser and the Sub-
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Adviser believe that such participation is necessary or desirable to enforce the
Portfolio's rights as a creditor or to protect the value of securities held by
the Portfolio.
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic adjustment in
the interest rate paid on the obligations. The terms of such obligations must
provide that interest rates are adjusted periodically based upon an interest
rate adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
The Portfolios may invest in floating rate debt instruments ("floaters").
The interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or U.S. Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide a Portfolio with a
certain degree of protection against rises in interest rates, but generally do
not allow the Portfolio to participate fully in appreciation resulting from any
general decline in interest rates.
Each Portfolio may also invest in inverse floating rate debt instruments
("inverse floaters"). The interest rate on an inverse floater resets in the
opposite direction from the market rate of interest to which the inverse floater
is indexed. An inverse floating rate security generally will exhibit greater
price volatility than a fixed rate obligation of similar credit quality. See
"Mortgage-Related and Asset-Backed Securities" below.
Mortgage-Related and Asset-Backed Securities
The Portfolios may invest in mortgage-related securities, and in other
asset-backed securities (unrelated to mortgage loans) that are offered to
investors currently or in the future. Mortgage-related securities are interests
in pools of residential or commercial mortgage loans, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private organizations.
The value of some mortgage- related or asset-backed securities in which the
Portfolios invest may be particularly sensitive to changes in prevailing
interest rates, and, like other fixed income investments, the ability of a
Portfolio to successfully utilize these instruments may depending part upon the
ability of the Sub-Adviser to forecast interest rates and other economic factors
correctly. See "Mortgage Pass-Through Securities" below. Certain debt securities
are also secured with collateral consisting of mortgage-related securities. See
"Collateralized Mortgage Obligations" below.
Mortgage Pass-Through Securities. Mortgage Pass-Through Securities are
securities representing interests in "pools" of mortgage loans secured by
residential or commercial real property. Interests in pools of mortgage- related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities provide a monthly
payment which consists of both interest and principal payments. In effect, these
payments are a "pass- through" of the monthly payments made by the individual
borrowers on their residential or commercial mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association ("GNMA")) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. Early repayment of principal on some mortgage-related
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Portfolio to a lower rate of return upon reinvestment of
principal. Also, if a
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security subject to prepayment has been purchased at a premium, the value of the
premium would be lost in the event of prepayment. Like other fixed income
securities, when interest rates rise, the value of a mortgage-related security
generally will decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not increase as much as
other fixed income securities. To the extent that unanticipated rates of
prepayment on underlying mortgages increase the effective maturity of a
mortgage-related security, the volatility of such security can be expected to
increase.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the GNMA) or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities guaranteed by the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"). The principal governmental guarantor of mortgage-related securities
is the GNMA. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of mortgages insured by the Federal Housing Administration
(the "FHA"), or guaranteed by the Department of Veterans Affairs (the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the U.S. Government) include the FNMA and the FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/services which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks, and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the U.S. Government. Instead, they are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the twelve Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. Government. Instead, they are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or services of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees, and the creditworthiness of the
issuers thereof, will be considered in determining whether a mortgage-related
security meets the Trust's investment quality standards. There can be no
assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. A Portfolio may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, the Sub-Adviser determines that the securities meet the Portfolio's
quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. A Portfolio will not purchase mortgage-related securities
or any other assets which in the Sub-Adviser's opinion are illiquid if, as a
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result, more than 15% of the value of the Portfolio's net assets (taken at
market value at the time of investment) will be invested in illiquid securities.
Mortgage-related securities that are issued or guaranteed by the U.S.
Government, its agencies or instru mentalities, are not subject to a Portfolio's
industry concentration restrictions, see "Investment Restrictions," by virtue of
the exclusion from that test available to all U.S. Government securities. In the
case of privately issued mortgage-related securities, the Portfolios take the
position that mortgage-related securities do not represent interests in any
particular "industry" or group of industries. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by GNMA,
FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn
be insured or guaranteed by the FHA or the VA. In the case of private issue
mortgage-related securities whose underlying assets are neither U.S. Government
securities nor U.S. Government-insured mortgages, to the extent that real
properties securing such assets may be located in the same geographical region,
the security may be subject to a greater risk of default than other comparable
securities in the event of adverse economic, political or business developments
that may affect such region and, ultimately, the ability of residential
homeowners to make payments of principal and interest on the underlying
mortgages.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semi- annually. CMOs may
be collateralized by whole mortgage loans, but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begin to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
CMOs that are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities will be considered U.S. Government securities by a
Portfolio, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying a Portfolio's diversification tests.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semi- annually, as opposed to monthly. The amount of principal payable on each
semi-annual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which in turn, is equal to approximately 100% of FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are
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allocated to the retirement of the individual classes of bonds in the order of
their stated maturities. Payment of principal on the mortgage loans in the
collateral pool in excess of the amount of FHLMC's minimum sinking fund
obligation for any payment date are paid to the holders of the CMOs as
additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semi-annual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCS. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
Commercial Mortgage-Backed Securities. Commercial Mortgage-Backed
Securities include securities that reflect an interest in, and are secured by,
mortgage loans on commercial real property. The market for commercial
mortgage-backed securities developed more recently and in terms of total
outstanding principal amount of issues is relatively small compared to the
market for residential single-family mortgage-backed securities. Many of the
risks of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage- or asset-backed securities.
Other Mortgage-Related Securities. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including stripped mortgage-backed securities. Other
mortgage-related securities may be equity or debt securities issued by agencies
or instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks, partnerships,
trusts and special purpose entities of the foregoing.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi- class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the "PO" class). The yield to
maturity on an IO class is extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal payments may have a material adverse effect on a Portfolio's
yield to maturity from these securities. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Portfolio may
fail to recoup some or all of its initial investment in these securities even if
the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were developed fairly recently. As a result, established trading markets have
not yet developed and, accordingly, these securities may be deemed "illiquid"
and subject to a Portfolio's limitations on investment in illiquid securities.
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Other Asset-Backed Securities. Similarly, the Adviser and Sub-Adviser
expect that other asset-backed securities (unrelated to mortgage loans) will be
offered to investors in the future and may be purchased by the Portfolios.
Several types of asset-backed securities have already been offered to investors,
including Certificates for Automobile ReceivablesSM ("CARSSM"). CARSSM represent
undivided fractional interests in a trust whose assets consist of a pool of
motor vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts. Payments of principal and interest on CARSSM
are passed through monthly to certificate holders, and are guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARSSM may be affected by early prepayment of principal
on the underlying vehicle sales contracts. If the letter of credit is exhausted,
the trust may be prevented from realizing the full amount due on a sales
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted.
Consistent with a Portfolio's investment objectives and policies, the
Adviser and Sub-Adviser also may invest in other types of asset-backed
securities.
Convertible Securities
Each Portfolio may invest in convertible securities. The Portfolios'
Sub-Adviser will select convertible securities to be purchased by the Portfolio
based primarily upon its evaluation of the fundamental investment
characteristics and growth prospects of the issuer of the security. As a fixed
income security, a convertible security tends to increase in market value when
interest rates decline and to decrease in value when interest rates rise. While
convertible securities generally offer lower interest or dividend yields than
non-convertible fixed income securities of similar quality, their value tends to
increase as the market value of the underlying stock increases and to decrease
when the value of the underlying stock decreases.
The Portfolios may invest in so-called "synthetic convertible securities,"
which are composed of two or more different securities whose investment
characteristics, taken together, resemble those of convertible securities. For
example, the Portfolios may purchase a non-convertible debt security and a
warrant or option. The synthetic convertible differs from the true convertible
security in several respects. Unlike a true convertible security, which is a
single security having a unitary market value, a synthetic convertible comprises
two or more separate securities, each with its own market value. Therefore, the
"market value" of a synthetic convertible is the sum of the values of its fixed
income component and its convertible component. For this reason, the values of a
synthetic convertible and a true convertible security may respond differently to
market fluctuations.
Equity-Linked Securities
Each Portfolio may invest up to 5% of its net assets in equity-linked
securities. Equity-linked securities are privately issued securities whose
investment results are designed to correspond generally to the performance of a
specified stock index or "basket" of stocks, or sometimes a single stock. To the
extent that a Portfolio invests in an equity-linked security whose return
corresponds to the performance of a foreign securities index or one or more
foreign stocks, investing in equity-linked securities will involve risks similar
to the risks of investing in foreign equity securities. See "Foreign Securities"
in this Statement of Additional Information. In addition, the Portfolios bear
the risk that the issuer of an equity-linked security may default on its
obligations under the security. Equity-linked securities may be considered
illiquid and thus subject to the Portfolios' restrictions on investments in
illiquid securities.
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Foreign Securities
The FISH: Series C may invest in U.S. dollar or foreign
currency-denominated corporate debt securities of foreign issuers; foreign
equity securities, including preferred securities of foreign issuers; certain
foreign bank obligations; and U.S. dollar- or foreign currency-denominated
obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies and supranational entities.
The FISH: Series C may invest in American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") or Global Depository Receipts ("GDRs").
ADRs are dollar-denominated receipts issued generally by domestic banks and
represent the deposit with the bank of a security of a foreign issuer. EDRs are
foreign currency-denominated receipts similar to ADRs and are issued and traded
in Europe, and are publicly traded on exchanges or over-the-counter in the
United States. GDRs may be offered privately in the United States and also trade
in public or private markets in other countries. ADRs, EDRs and GDRs may be
issued as sponsored or unsponsored programs. In sponsored programs, an issuer
has made arrangements to have its securities trade in the form of ADRs, EDRs or
GDRs. In unsponsored programs, the issuer may not be directly involved in the
creation of the program. Although regulatory requirements with respect to
sponsored and unsponsored programs are generally similar, in some cases it may
be easier to obtain financial information from an issuer that has participated
in the creation of a sponsored program.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. These
include: differences in accounting, auditing and financial reporting standards,
generally higher commission rates on foreign portfolio transactions, the
possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country), political instability which can
affect U.S. investments in foreign countries and potential restrictions on the
flow of international capital. In addition, foreign securities and dividends and
interest payable on those securities may be subject to foreign taxes, including
taxes withheld from payments on those securities. Foreign securities often trade
with less frequency and volume than domestic securities and therefore may
exhibit greater price volatility. Changes in foreign exchange rates will affect
the value of those securities which are denominated or quoted in currencies
other than the U.S. dollar.
The risks of investing in foreign securities are particularly high when
securities of issuers based in developing (or "emerging market") countries are
involved. Investing in emerging market countries involves certain risks not
typically associated with investing in U.S. securities, and imposes risks
greater than, or in addition to, risks of investing in foreign, developed
countries. These risks include: greater risks of nationalization or
expropriation of assets or confiscatory taxation; currency devaluations and
other currency exchange rate fluctuations; greater social, economic and
political uncertainty and instability (including the risk of war); more
substantial government involvement in the economy; less government supervision
and regulation of the securities markets and participants in those markets;
controls on foreign investment and limitations on repatriation of invested
capital and on the Portfolio's ability to exchange local currencies for U.S.
dollars; unavailability of currency hedging techniques in certain emerging
market countries; the fact that companies in emerging market countries may be
smaller, less seasoned and newly organized companies; the difference in, or lack
of, auditing and financial reporting standards, which may result in
unavailability of material information about issuers; the risk that it may be
more difficult to obtain and/or enforce a judgment in a court outside the United
States; and greater price volatility, substantially less liquidity and
significantly smaller market capitalization of securities markets. In addition,
a number of emerging market countries restrict, to various degrees, foreign
investment in securities, and high rates of inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative effects on the
economies and securities markets of certain emerging market countries. Also, any
change in the leadership or politics of emerging market countries, or the
countries that exercise a significant influence over those countries, may halt
the expansion of or reverse the liberalization of foreign investment policies
now occurring and adversely affect existing investment opportunities.
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The FISH: Series C's investments in foreign currency denominated debt
obligations and hedging activities will likely produce a difference between its
book income and its taxable income. This difference may cause a portion of the
Portfolio's income distributions to constitute returns of capital for tax
purposes or require the Portfolio to make distributions exceeding book income to
qualify as a regulated investment company for federal tax purposes.
Special Risks of Investing in Russian and Other Eastern European
Securities. The FISH: Series C may invest its assets in securities of issuers
located in Russia and in other Eastern European countries. The political, legal
and operational risks of investing in the securities of Russian and other
Eastern European issuers, and of having assets custodied within these countries,
may be particularly acute. Investments in Eastern European countries may involve
acute risks of nationalization, expropriation and confiscatory taxation. The
communist governments of a number of Eastern European countries expropriated
large amounts of private property in the past, in many cases without adequate
compensation, and there can be no assurance that such expropriation will not
occur in the future. Also, certain Eastern European countries, which do not have
market economies, are characterized by an absence of developed legal structures
governing private and foreign investments and private property.
In addition, governments in certain Eastern European countries may require
that a governmental or quasi-governmental authority act as custodian of a
Portfolio's assets invested in such country. To the extent such governmental or
quasi-governmental authorities do not satisfy the requirements of the 1940 Act
to act as foreign custodians of the Portfolio's cash and securities, the
Portfolio's investment in such countries may be limited or may be required to be
effected through intermediaries. The risk of loss through governmental
confiscation may be increased in such circumstances.
Investments in securities of Russian issuers may involve a particularly
high degree of risk and special considerations not typically associated with
investing in U.S. and other more developed markets, many of which stem from
Russia's continuing political and economic instability and the slow-paced
development of its market economy. Investments in Russian securities should be
considered highly speculative. Such risks and special considerations include:
(a) delays in settling portfolio transactions and the risk of loss arising out
of Russia's system of share registration and custody (see below); (b)
pervasiveness of corruption, insider trading, and crime in the Russian economic
system; (c) difficulties associated in obtaining accurate market valuations of
many Russian securities, based partly on the limited amount of publicly
available information; (d) the general financial condition of Russian companies,
which may involve particularly large amounts of inter-company debt; and (e) the
risk that the Russian tax system will not be reformed to prevent inconsistent,
retroactive and/or exorbitant taxation or, in the alternative, the risk that a
reformed tax system may result in the inconsistent and unpredictable enforcement
of the new tax laws. Also, there is the risk that the government of Russia or
other executive or legislative bodies may decide not to continue to support the
economic reform programs implemented since the dissolution of the Soviet Union
and could follow radically different political and/or economic policies to the
detriment of investors, including non-market-oriented policies such as the
support of certain industries at the expense of other sectors or investors, a
return to the centrally planned economy that existed prior to the dissolution of
the Soviet Union, or the nationalization of privatized enterprises.
A risk of particular note with respect to direct investment in Russian
securities is the way in which ownership of shares of companies is normally
recorded. Ownership of shares (except where shares are held through depositories
that meet the requirements of the 1940 Act) is defined according to entries in
the company's share register and normally evidenced by "share extracts" from the
register or, in certain limited circumstances, by formal share certificates.
However, there is no central registration system for shareholders and these
services are carried out by the companies themselves or by registrars located
throughout Russia. The share registrars are controlled by the issuer of the
securities, and investors are provided with few legal rights against such
registrars. These registrars are not necessarily subject to effective state
supervision nor are they licensed with any governmental entity. It is possible
for the Portfolio to lose its registration through fraud, negligence or even
mere oversight. While the Portfolio will endeavor to ensure that its interest
continues to be appropriately recorded, which may involve a custodian or other
agent inspecting the share register and obtaining extracts of share registers
through regular confirmations, these extracts have no legal enforceability and
it is possible that subsequent illegal amendment or other
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fraudulent act may deprive the Portfolio of its ownership rights or improperly
dilute its interests. In addition, while applicable Russian regulations impose
liability on registrars for losses resulting from their errors, it may be
difficult for the Portfolio to enforce any rights it may have against the
registrar or issuer of the securities in the event of loss of share
registration.
Also, although a Russian public enterprise with more than 500 shareholders
is required by law to contract out the maintenance of its shareholder register
to an independent entity that meets certain criteria, this regulation has not
always been strictly enforced in practice. Because of this lack of independence,
management of a company may be able to exert considerable influence over who can
purchase and sell the company's shares by illegally instructing the registrar to
refuse to record transactions in the share register. In addition, so-called
"financial-industrial groups" have emerged in recent years that seek to deter
outside investors from interfering in the management of companies they control.
These practices may prevent the Portfolio from investing in the securities of
certain Russian companies deemed suitable by the Portfolio's Sub-Adviser.
Further, this also could cause a delay in the sale of Russian securities held by
the Portfolio if a potential purchaser is deemed unsuitable, which may expose
the Portfolio to potential loss on the investment.
Foreign Currencies
The FISH: Series C may enter into forward foreign currency exchange
contracts to reduce the risks of adverse changes in foreign exchange rates. In
addition, the Portfolio may buy and sell foreign currency futures contracts and
options on foreign currencies and foreign currency futures.
A forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. By entering into a forward foreign
currency exchange contract, the Portfolio "locks in" the exchange rate between
the currency it will deliver and the currency it will receive for the duration
of the contract. As a result, the Portfolio reduces its exposure to changes in
the value of the currency it will deliver and increases its exposure to changes
in the value of the currency it will exchange into. Contracts to sell foreign
currencies would limit any potential gain which might be realized by the
Portfolio if the value of the hedged currency increases. The Portfolio may enter
into these contracts for the purpose of hedging against foreign exchange risks
arising from the Portfolios' investment or anticipated investment in securities
denominated in foreign currencies. Suitable hedging transactions may not be
available in all circumstances. Also, such hedging transactions may not be
successful and may eliminate any chance for the Portfolio to benefit from
favorable fluctuations in relevant foreign currencies.
The FISH: Series C may also enter into forward foreign currency exchange
contracts for purposes of increasing exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one currency to another. To the
extent that it does so, the Portfolio will be subject to the additional risk
that the relative value of currencies will be different than anticipated by the
Portfolio's Sub-Adviser. The Portfolio may use one currency (or a basket of
currencies) to hedge against adverse changes in the value of another currency
(or a basket of currencies) when exchange rates between the two currencies are
positively correlated. The Portfolio will segregate assets determined to be
liquid by the Adviser or the Sub-Adviser in accordance with procedures
established by the Board of Trustees to cover forward currency contracts entered
into for non-hedging purposes. The Portfolio may also use foreign currency
futures contracts and related options on currencies for the same reasons for
which forward foreign currency exchange contracts are used.
Bank Obligations
Bank obligations in which the Portfolios may invest include certificates
of deposit, bankers' acceptances, and fixed time deposits. Certificates of
deposit are negotiable certificates issued against funds deposited in a
commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by
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a bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor, but may be subject to
early withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Portfolio will not
invest in fixed time deposits which (1) are not subject to prepayment or (2)
provide for withdrawal penalties upon prepayment (other than overnight deposits)
if, in the aggregate, more than 15% of its net assets (taken at market value at
the time of investment) would be invested in such deposits, repurchase
agreements maturing in more than seven days and other illiquid assets. Each
Portfolio may also hold funds on deposit with its sub-custodian bank in an
interest-bearing account for temporary purposes.
Each Portfolio limits its investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A
Portfolio also may invest in certificates of deposit of savings and loan
associations (federally or state chartered and federally insured) having total
assets in excess of $1 billion.
The Portfolios limit their investments in foreign bank obligations to
obligations of foreign banks (including United States branches of foreign banks)
which at the time of investment (i) have more than $10 billion, or the
equivalent in other currencies, in total assets; (ii) are among the 75 largest
foreign banks in the world in terms of total assets; (iii) have branches or
agencies (limited purpose offices which do not offer all banking services) in
the United States; and (iv) in the opinion of the Sub-Adviser, are of an
investment quality comparable to obligations of United States banks in which the
Portfolios may invest. Subject to each Portfolio's limitation on concentration
of no more than 25% of its assets in the securities of issuers in a particular
industry, there is no limitation on the amount of a Portfolio's assets which may
be invested in obligations of foreign banks which meet the conditions set forth
above.
Obligations of foreign banks involve certain risks associated with
investing in foreign securities described under "Foreign Securities" above,
including the possibilities that their liquidity could be impaired because of
future political and economic developments, that their obligations may be less
marketable than comparable obligations of United States banks, that a foreign
jurisdiction might impose withholding taxes on interest income payable on those
obligations, that foreign deposits may be seized or nationalized, that foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal and interest on those obligations and
that the selection of those obligations may be more difficult because there may
be less publicly available information concerning foreign banks or the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
United States banks. Foreign banks are not generally subject to examination by
any U.S. Government agency or instrumentality.
Commercial Paper
Each Portfolio may invest in commercial paper. Commercial paper represents
short-term unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations and finance companies. The commercial paper
purchased by the Portfolios consists of U.S. dollar-denominated obligations of
domestic issuers, or foreign currency-denominated obligations of domestic or
foreign issuers which, at the time of investment, are (i) rated "P-1" or "P-2"
by Moody's or "A-1" or "A-2" or better by S&P, (ii) issued or guaranteed as to
principal and interest by issuers or guarantors having an existing debt security
rating of "A" or better by Moody's or "A" or better by S&P, or (iii) securities
which, if not rated, are, in the opinion of the Sub-Adviser, of an investment
quality comparable to rated commercial paper in which the Portfolio may invest.
The rate of return on commercial paper may be linked or indexed to the level of
exchange rates between the U.S. dollar and a foreign currency or currencies.
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Money Market Instruments
Each of the Portfolios may invest at least a portion of its assets in the
following kinds of money market instruments: (1) short-term U.S. Government
securities; (2) certificates of deposit, bankers' acceptances and other bank
obligations rated in the two highest rating categories by at least two NRSROs,
or, if rated by only one NRSRO, in such agency's two highest grades, or, if
unrated, determined to be of comparable quality by the Adviser or the
Sub-Adviser. Bank obligations must be those of a bank that has deposits in
excess of $2 billion or that is a member of the Federal Deposit Insurance
Corporation. A Portfolio may invest in obligations of U.S. branches or
subsidiaries of foreign banks ("Yankee dollar obligations") or foreign branches
of U.S. banks ("Eurodollar obligations"); (3) commercial paper rated in the two
highest rating categories by at least two NRSROs, or, if rated by only one
NRSRO, in such agency's two highest grades, or, if unrated, determined to be of
comparable quality by the Adviser or the Sub-Adviser; (4) corporate obligations
with a remaining maturity of 397 days or less whose issuers have outstanding
short-term debt obligations rated in the highest rating category by at least two
NRSROs, or, if rated by only one NRSRO, in such agency's highest grade, or, if
unrated, determined to be of comparable quality by the Adviser or the
Sub-Adviser; and (5) repurchase agreements with domestic commercial banks or
registered broker- dealers.
Derivative Instruments
The following describes certain derivative instruments and products in
which certain Portfolios may invest and risks associated therewith.
The Portfolios might not employ any of the strategies described below, and
no assurance can be given that any strategy used will succeed. Also, suitable
derivative and/or hedging transactions may not be available in all circumstances
and there can be no assurance that a Portfolio will be able to identify or
employ a desirable derivative and/or hedging transaction at any time or from
time to time.
Options on Securities and Indexes. As described under "Characteristics and
Risks of Securities and Investment Techniques--Derivatives" in the Prospectus,
the Portfolios may purchase and sell both put and call options on equity, fixed
income or other securities or indexes in standardized contracts traded on
foreign or domestic securi ties exchanges, boards of trade, or similar entities,
or quoted on National Association of Securities Dealers Automated Quotations
("NASDAQ") or on a regulated foreign over-the-counter market, and agreements,
sometimes called cash puts, which may accompany the purchase of a new issue of
bonds from a dealer. Among other reasons, a Portfolio may purchase put options
to protect holdings in an underlying or related security against a decline in
market value, and may purchase call options to protect against increases in the
prices of securities it intends to purchase pending its ability to invest in
such securities in an orderly manner.
An option on a security (or index) is a contract that gives the holder of
the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect features of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.)
A Portfolio will write call options and put options only if they are
"covered." In the case of a call option on a security, the option is "covered"
if the Portfolio owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or other assets
determined to be liquid by the Sub-Adviser in accordance with procedures
established by the Board of Trustees in such amount are segregated) upon
conversion or exchange of other securities held by the
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Portfolio. For a call option on an index, the option is covered if the Portfolio
segregates assets determined to be liquid by the Adviser or the Sub-Adviser in
accordance with procedures established by the Board of Trustees in an amount
equal to the contract value of the index. A call option is also covered if the
Portfolio holds a call on the same security or index as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written, or (ii) greater than the exercise price of the call
written, provided the difference is segregated by the Portfolio in assets
determined to be liquid by the Adviser or the Sub-Adviser in accordance with
procedures established by the Board of Trustees. A put option on a security or
an index is "covered" if the Portfolio segregates assets determined to be liquid
by the Sub-Adviser in accordance with procedures established by the Board of
Trustees equal to the exercise price. A put option is also covered if the
Portfolio holds a put on the same security or index as the put written where the
exercise price of the put held is (i) equal to or greater than the exercise
price of the put written, or (ii) less than the exercise price of the put
written, provided the difference is segregated by the Portfolio in assets
determined to be liquid by the Adviser or the Sub-Adviser in accordance with
procedures established by the Board of Trustees.
If an option written by a Portfolio expires unexercised, the Portfolio
realizes a capital gain equal to the premium received at the time the option was
written. If an option purchased by a Portfolio expires unexercised, the
Portfolio realizes a capital loss equal to the premium paid. Prior to the
earlier of exercise or expiration, an exchange-traded option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). In
addition, a Portfolio may sell put or call options it has previously purchased,
which could result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid on the put or call option which is sold. There can be no assurance,
however, that a closing purchase or sale transaction can be effected when the
Portfolio desires.
A Portfolio will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Portfolio will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Portfolio will realize a capital gain
or, if it is less, the Portfolio will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply and
demand, interest rates, the current market price of the underlying security or
index in relation to the exercise price of the option, the volatility of the
underlying security or index, and the time remaining until the expiration date.
The premium paid for a put or call option purchased by a Portfolio is an
asset of the Portfolio. The premium received for an option written by a
Portfolio is recorded as a deferred credit. The value of an option purchased or
written is marked to market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices.
OTC Options. The Portfolios may enter into over-the-counter ("OTC")
options transactions only with primary dealers in U.S. Government securities and
only pursuant to agreements that will assure that the relevant Portfolio will at
all times have the right to repurchase the option written by it from the dealer
at a specified formula price. Over-the-counter options in which the Portfolios
may invest differ from traded options in that they are two- party contracts,
with price and other terms negotiated between buyer and seller, and generally do
not have as much market liquidity as exchange-traded options. The Portfolios may
be required to treat as illiquid over-the-counter options purchased and
securities being used to cover certain written over-the-counter options, and
they will treat the amount by which such formula price exceeds the intrinsic
value of the option (i.e., the amount, if any, by which the market price of the
underlying security exceeds the exercise price of the option) as an illiquid
investment.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options on securities and on indexes. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise
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of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. If a Portfolio were unable to close out
an option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option may expire worthless. If a
Portfolio were unable to close out a covered call option that it had written on
a security, it would not be able to sell the underlying security unless the
option expired without exercise. As the writer of a covered call option, a
Portfolio forgoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call but, as long as its
obligation as a writer continues, has retained the risk of loss should the price
of the underlying security decline. The writer of an option has no control over
the time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying security at the exercise price. If a put
or call option purchased by the Portfolio is not sold when it has remaining
value, and if the market price of the underlying security remains equal to or
greater than the exercise price (in the case of a put), or remains less than or
equal to the exercise price (in the case of a call), the Portfolio will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security.
There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. Furthermore, if trading restrictions or
suspensions are imposed on the options markets, a Portfolio may be unable to
close out a position. Similarly, if restrictions on exercise were imposed, the
Portfolio might be unable to exercise an option it has purchased. Except to the
extent that a call option on an index written by the Portfolio is covered by an
option on the same index purchased by the Portfolio, movements in the index may
result in a loss to the Portfolio; however, such losses may be mitigated by
changes in the value of the Portfolio's securities during the period the option
was outstanding.
In the case of a written call option on a securities index, the Portfolio
will own corresponding securities whose historic volatility correlates with that
of the index.
Foreign Currency Options. The Portfolios may buy or sell put and call
options on foreign currencies as a hedge against changes in the value of the
U.S. dollar (or another currency) in relation to a foreign currency in which a
Portfolio's securities may be denominated. In addition, each of the Portfolios
may buy or sell put and call options on foreign currencies either on exchanges
or in the over-the-counter market. A put option on a foreign currency gives the
purchaser of the option the right to sell a foreign currency at the exercise
price until the option expires. A call option on a foreign currency gives the
purchaser of the option the right to purchase the currency at the exercise price
until the option expires. Currency options traded on U.S. or other exchanges may
be subject to position limits which may limit the ability of a Portfolio to
reduce foreign currency risk using such options.
Futures Contracts and Options on Futures Contracts. Each Portfolio may use
interest rate, foreign currency or index futures contracts. The Portfolios may
invest in foreign exchange futures contracts and options thereon ("futures
options") that are traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system as an adjunct to
their securities activities. In addition, each Portfolio may purchase and sell
futures contracts on various securities indexes ("Index Futures") and related
options for hedging purposes and for investment purposes. A Portfolio's purchase
and sale of Index Futures is limited to contracts and exchanges which have been
approved by the Commodity Futures Trading Commission ("CFTC"). Through the use
of Index Futures and related options, a Portfolio may diversify risk in its
portfolio without incurring the substantial brokerage costs which may be
associated with investment in the securities of multiple issuers. A Portfolio
may also avoid potential market and liquidity problems which may result from
increases in positions already held by the Portfolio.
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An interest rate, foreign currency or index futures contract provides for
the future sale by one party and purchase by another party of a specified
quantity of a financial instrument, foreign currency or the cash value of an
index at a specified price and time. An Index Future is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
the difference between the value of a securities index ("Index") at the close of
the last trading day of the contract and the price at which the index contract
was originally written. Although the value of an Index might be a function of
the value of certain specified securities, no physical delivery of these
securities is made. A unit is the value of the relevant Index from time to time.
Entering into a contract to buy units is commonly referred to as buying or
purchasing a contract or holding a long position in an Index. Index Futures
contracts can be traded through all major commodity brokers. A Portfolio's
purchase and sale of Index Futures is limited to contracts and exchanges which
have been approved by the CFTC. A Portfolio will ordinarily be able to close
open positions on the futures exchange on which Index Futures are then traded at
any time up to and including the expiration day. As described below, a Portfolio
will be required to segregate initial margin in the name of the futures broker
upon entering into an Index Future. Variation margin will be paid to and
received from the broker on a daily basis as the contracts are marked to market.
For example, when a Portfolio has purchased an Index Future and the price of the
relevant Index has risen, that position will have increased in value and the
Portfolio will receive from the broker a variation margin payment equal to that
increase in value. Conversely, when a Portfolio has purchased an Index Future
and the price of the relevant Index has declined, the position would be less
valuable and the Portfolio would be required to make a variation margin payment
to the broker.
A Portfolio may close open positions on the futures exchanges on which
Index Futures are traded at any time up to and including the expiration day. All
positions which remain open at the close of the last business day of the
contract's life are required to settle on the next business day (based upon the
value of the relevant index on the expiration day), with settlement made with
the appropriate clearing house. Because the specific procedures for trading
foreign stock Index Futures on futures exchanges are still under development,
additional or different margin requirements as well as settlement procedures may
be applicable to foreign stock Index Futures at the time a Portfolio purchases
such instruments. Positions in Index Futures may be closed out by a Portfolio
only on the futures exchanges upon which the Index Futures are then traded.
The following example illustrates generally the manner in which Index
Futures operate. The Standard & Poor's 100 Stock Index is composed of 100
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 100 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 100 Index, contracts are to buy or sell
100 units. Thus, if the value of the S&P 100 Index were $180, one contract would
be worth $18,000 (100 units x $180). The Index Future specifies that no delivery
of the actual stocks making up the Index will take place. Instead, settlement in
cash must occur upon the termination of the contract, with the settlement being
the difference between the contract price and the actual level of the Index at
the expiration of the contract. For example, if a Portfolio enters into a
futures contract to buy 100 units of the S&P 100 Index at a specified future
date at a contract price of $180 and the S&P 100 Index is at $184 on that future
date, the Portfolio will gain $400 (100 units x gain of $4). If the Portfolio
enters into a futures contract to sell 100 units of the Index at a specified
future date at a contract price of $180 and the S&P 100 Index is at $182 on that
future date, the Portfolio will lose $200 (100 units x loss of $2).
A public market exists in futures contracts covering a number of Indexes
as well as financial instruments and foreign currencies, including but not
limited to: the S&P 500; the S&P Midcap 400; the Nikkei 225; the NYSE composite;
U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit;
Eurodollar certificates of deposit; the Australian dollar; the Canadian dollar;
the British pound; the German mark; the Japanese yen; the French franc; the
Swiss franc; the Mexican peso; and certain multinational currencies, such as the
European Currency Unit ("ECU"). It is expected that other futures contracts in
which the Portfolios may invest will be developed and traded in the future.
Each of the Portfolios may purchase and write call and put futures
options. Futures options possess many of the same characteristics as options on
securities and indexes (discussed above). A futures option gives the holder
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the right, in return for the premium paid, to assume a long position (call) or
short position (put) in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the holder acquires a
short position and the writer is assigned the opposite long position.
A Portfolio will only enter into futures contracts and futures options
which are standardized and traded on a U.S. or foreign exchange, board of trade,
or similar entity, or in the case of futures options, for which an established
over-the-counter market exists.
When a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to segregate a specified amount of assets determined to be
liquid by the Adviser or the Sub-Adviser in accordance with procedures
established by the Board of Trustees ("initial margin"). The margin required for
a futures contract is set by the exchange on which the contract is traded and
may be modified during the term of the contract. Margin requirements on foreign
exchanges may be different than U.S. exchanges. The initial margin is in the
nature of a performance bond or good faith deposit on the futures contract which
is returned to the Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied. Each Portfolio expects to earn
interest income on its initial margin deposits. A futures contract held by a
Portfolio is valued daily at the official settlement price of the exchange on
which it is traded. Each day the Portfolio pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking to market." Variation margin does not
represent a borrowing or loan by a Portfolio but is instead a settlement between
the Portfolio and the broker of the amount one would owe the other if the
futures contract expired. In computing daily net asset value, each Portfolio
will mark to market its open futures positions.
A Portfolio is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Portfolio.
Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (i.e.,
with the same exchange, underlying security or index, and delivery month). If an
offsetting purchase price is less than the original sale price, the Portfolio
realizes a capital gain, or if it is more, the Portfolio realizes a capital
loss. Conversely, if an offsetting sale price is more than the original purchase
price, the Portfolio realizes a capital gain, or if it is less, the Portfolio
realizes a capital loss. Any transaction costs must also be included in these
calculations.
Limitations on Use of Futures and Futures Options. The Portfolios may only
enter into futures contracts or futures options which are standardized and
traded on a U.S. or foreign exchange or board of trade, or similar entity, or
quoted on an automated quotation system. The Portfolios may enter into positions
in futures contracts and related options for "bona fide hedging" purposes (as
such term is defined in applicable regulations of the CFTC), for example, to
hedge against changes in interest rates, foreign currency exchange rates or
securities prices. In addition, the Portfolios may utilize futures contracts for
investment purposes. With respect to positions in futures and related options
that do not constitute bona fide hedging positions, a Portfolio will not enter
into a futures contract or futures option contract if, immediately thereafter,
the aggregate initial margin deposits relating to such positions plus premiums
paid by it for open futures option positions, less the amount by which any such
options are "in-the- money," would exceed 5% of the Portfolio's net assets. A
call option is "in-the-money" if the value of the futures contract that is the
subject of the option exceeds the exercise price. A put option is "in-the-money"
if the exercise price exceeds the value of the futures contract that is the
subject of the option.
When purchasing a futures contract, a Portfolio will segregate (and
mark-to-market on a daily basis) assets determined to be liquid by the Adviser
or the Sub-Adviser in accordance with procedures established by the Board of
Trustees that, when added to the amounts deposited with a futures commission
merchant as margin, are equal to the total market value of the futures contract.
Alternatively, the Portfolio may "cover" its position by purchasing a
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put option on the same futures contract with a strike price as high or higher
than the price of the contract held by the Portfolio.
When selling a futures contract, a Portfolio will segregate (and
mark-to-market on a daily basis) assets determined to be liquid by the Adviser
or the Sub-Adviser in accordance with procedures established by the Board of
Trustees that are equal to the market value of the instruments underlying the
contract. Alternatively, the Portfolio may "cover" its position by owning the
instruments underlying the contract (or, in the case of an Index Future, a
portfolio with a volatility substantially similar to that of the Index on which
the futures contract is based), or by holding a call option permitting the
Portfolio to purchase the same futures contract at a price no higher than the
price of the contract written by the Portfolio (or at a higher price if the
difference is maintained in liquid assets with the Trust's custodian).
When selling a call option on a futures contract, a Portfolio will
segregate (and mark-to-market on a daily basis) assets determined to be liquid
by the Adviser or the Sub-Adviser in accordance with procedures established by
the Board of Trustees that, when added to the amounts deposited with a futures
commission merchant as margin, equal the total market value of the futures
contract underlying the call option. Alternatively, the Portfolio may cover its
position by entering into a long position in the same futures contract at a
price no higher than the strike price of the call option, by owning the
instruments underlying the futures contract, or by holding a separate call
option permitting the Portfolio to purchase the same futures contract at a price
not higher than the strike price of the call option sold by the Portfolio.
When selling a put option on a futures contract, a Portfolio will
segregate (and mark-to-market on a daily basis) assets determined to be liquid
by the Adviser or the Sub-Adviser in accordance with procedures established by
the Board of Trustees that equal the purchase price of the futures contract,
less any margin on deposit. Alternatively, the Portfolio may cover the position
either by entering into a short position in the same futures contract, or by
owning a separate put option permitting it to sell the same futures contract so
long as the strike price of the purchased put option is the same or higher than
the strike price of the put option sold by the Portfolio.
Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. Some of the risk may be
caused by an imperfect correlation between movements in the price of the futures
contract and the price of the security or other investment being hedged. The
hedge will not be fully effective where there is such imperfect correlation.
Also, an incorrect correlation could result in a loss on both the hedged
securities in a Portfolio and the hedging vehicle, so that the portfolio return
might have been greater had hedging not been attempted. For example, if the
price of the futures contract moves more than the price of the hedged security,
a Portfolio would experience either a loss or gain on the future which is not
completely offset by movements in the price of the hedged securities. In
addition, there are significant differences between the securities and futures
markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variations in speculative market
demand for futures and futures options on securities, including technical
influences in futures trading and futures options, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. To compensate for imperfect
correlations, a Portfolio may purchase or sell futures contracts in a greater
dollar amount than the hedged securities if the volatility of the hedged
securities is historically greater than the volatility of the futures contracts.
Conversely, a Portfolio may purchase or sell fewer contracts if the volatility
of the price of the hedged securities is historically less than that of the
futures contracts. The risk of imperfect correlation generally tends to diminish
as the maturity date of the futures contract approaches. A decision as to
whether, when and how to hedge involves the exercise of skill and judgment, and
even a well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected interest rate trends. Also, suitable hedging transactions
may not be available in all circumstances.
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Additionally, the price of Index Futures may not correlate perfectly with
movement in the relevant index due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the index and futures markets.
Second, the deposit requirements in the futures market are less onerous than
margin requirements in the securities market, and as a result, the futures
market may attract more speculators than does the securities market. Increased
participation by speculators in the futures market may also cause temporary
price distortions. In addition, trading hours for foreign stock Index Futures
may not correspond perfectly to hours of trading on the foreign exchange to
which a particular foreign stock Index Future relates. This may result in a
disparity between the price of Index Futures and the value of the relevant index
due to the lack of continuous arbitrage between the Index Futures price and the
value of the underlying index.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures or a futures option position, and that
Portfolio would remain obligated to meet margin requirements until the position
is closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.
Additional Risks of Options on Securities, Futures Contracts, Options on
Futures Contracts and Forward Currency Exchange Contracts and Options thereon.
Options on securities, futures contracts, options on futures contracts, and
options on currencies may be traded on foreign exchanges. Such transactions may
not be regulated as effectively as similar transactions in the United States;
may not involve a clearing mechanism and related guarantees; and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities. Some foreign exchanges may be principal markets so that no common
clearing facility exists and a trader may look only to the broker for
performance of the contract. The value of such positions also could be adversely
affected by (i) other complex foreign political, legal and economic factors,
(ii) lesser availability than in the United States of data on which to make
trading decisions, (iii) delays in the Trust's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iv) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States and (v) lesser
trading volume. In addition, unless a Portfolio hedges against fluctuations in
the exchange rate between the U.S. dollar and the currencies in which trading is
done on foreign exchanges, any profits that a Portfolio might realize in trading
could be eliminated by adverse changes in the exchange rate, or the Portfolio
could incur losses as a result of those changes. The value of some derivative
instruments in which the Portfolios may invest may be particularly sensitive to
changes in prevailing interest rates, and, like the other investments of the
Portfolios, the ability of a Portfolio to successfully utilize these instruments
may depend in part upon the ability of the Sub-Adviser to forecast interest
rates and other economic factors correctly. If the Sub-Adviser incorrectly
forecasts such factors and has taken positions in derivative instruments
contrary to prevailing market trends, the Portfolios could be exposed to risk of
loss. In addition, a Portfolio's use of such instruments may cause the Portfolio
to realize higher amounts of short-term capital gains (generally taxed to
shareholders at ordinary income tax rates) than if the Portfolio had not used
such instruments.
Swap Agreements. The Portfolios may enter into equity index swap
agreements for purposes of attempting to gain exposure to the stocks making up
an index of securities in a market without actually purchasing those stocks.
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Swap agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to more than one year. In a
standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which may be adjusted for an interest factor. The
gross returns to be exchanged or "swapped" between the parties are calculated
with respect to a "notional amount," i.e., the return on or increase in value of
a particular dollar amount invested at a particular interest rate, or in a
"basket" of securities representing a particular index.
Most swap agreements entered into by the Portfolios will calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Portfolio's current obligations (or rights) under a swap agreement will
generally be equal only to the net amount to be paid or received under the
agreement based on the relative values of the positions held by each party to
the agreement (the "net amount"). A Portfolio's current obligations under a swap
agreement will be accrued daily (offset against any amounts owing to the
Portfolio) and any accrued but unpaid net amounts owed to a swap counter party
will be covered by segregating assets determined to be liquid by the Adviser or
the Sub-Adviser in accordance with procedures established by the Board of
Trustees, to avoid any potential leveraging of the Portfolio's portfolio.
Obligations under swap agreements so covered will not be construed to be "senior
securities" for purposes of a Portfolio's investment restriction concerning
senior securities. A Portfolio will not enter into a swap agreement with any
single party if the net amount owed or to be received under existing contracts
with that party would exceed 5% of the Portfolio's assets.
Whether a Portfolio's use of swap agreements will be successful in
furthering its investment objective will depend on the Sub-Adviser's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, a Portfolio bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The Portfolios will
enter into swap agreements only with counter parties that meet certain standards
of creditworthiness (generally, such counter parties would have to be eligible
counter parties under the terms of the Portfolios' repurchase agreement
guidelines). The swaps market is a relatively new market and is largely
unregulated. It is possible that developments in the swaps market, including
potential government regulation, could adversely affect a Portfolio's ability to
terminate existing swap agreements or to realize amounts to be received under
such agreements.
When-Issued, Delayed Delivery and Forward Commitment Transactions
A 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 more than seven days in the future, or after a period
longer than the customary settlement period for that type of security. When
delayed delivery purchases are outstanding, the Portfolio will segregate until
the settlement date assets determined to be liquid by the Adviser or the
Sub-Adviser in accordance with procedures established by the Board of Trustees
in an amount sufficient to meet the purchase price. Typically, no income accrues
on securities purchased on a delayed delivery basis prior to the time delivery
of the securities is made, although a Portfolio may earn income on segregated
securities. 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. Because a Portfolio is not
required to pay for the security until the delivery date, these risks are in
addition to the risks associated with the Portfolio's other investments. If the
Portfolio remains substantially fully invested at a time when delayed delivery
purchases are outstanding, the delayed delivery purchases may result in a form
of leverage. When the Portfolio has sold a security on a delayed delivery basis,
the Portfolio does not participate in future gains or losses with respect to the
security. If the other party to a delayed delivery transaction fails to deliver
or pay for the securities, the Portfolio could miss a favorable price or yield
opportunity or could suffer a loss. A Portfolio may dispose of or renegotiate a
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. There is no percentage limitation on the extent to which the Portfolios
may purchase or sell securities on a delayed delivery basis.
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Each Portfolio may make contracts to purchase securities for a fixed price
at a future date beyond customary settlement time ("forward commitments") if the
Portfolio either (i) segregates until the settlement date assets determined to
be liquid by the Adviser or the Sub-Adviser in accordance with procedures
established by the Board of Trustees in an amount sufficient to meet the
purchase price or (ii) enters into an offsetting contract for the forward sale
of securities of equal value that it owns. Each Portfolio may enter into forward
commitments for the purchase or sale of foreign currencies. Forward commitments
may be considered securities in themselves. They involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the Portfolio's
other assets. A Portfolio may dispose of a commitment prior to settlement and
may realize short-term profits or losses upon such disposition.
Warrants to Purchase Securities
Each of the Portfolios may invest in warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity securities
have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional fixed income securities at
the same coupon rate. A decline in interest rates would permit a Portfolio to
buy additional bonds at the favorable rate or to sell the warrants at a profit.
If interest rates rise, the warrants would generally expire with no value.
Repurchase Agreements
For the purposes of maintaining liquidity and achieving income, each
Portfolio may enter into repurchase agreements with domestic commercial banks or
registered broker-dealers. A repurchase agreement is a contract under which a
Portfolio would acquire a security for a relatively short period (usually not
more than one week) subject to the obligation of the seller to repurchase and
the Portfolio to resell such security at a fixed time and price (representing
the Portfolio's cost plus interest). In the case of repurchase agreements with
broker-dealers, the value of the underlying securities (or collateral) will be
at least equal at all times to the total amount of the repurchase obligation,
including the interest factor. The Portfolio bears a risk of loss in the event
that the other party to a repurchase agreement defaults on its obligations and
the Portfolio is delayed or prevented from exercising its rights to dispose of
the collateral securities. This risk includes the risk of procedural costs or
delays in addition to a loss on the securities if their value should fall below
their repurchase price. The Adviser and the Sub-Adviser, as appropriate, will
monitor the creditworthiness of the counter parties.
Securities Loans
Subject to certain conditions described in the Prospectus and below, each
Portfolio may make secured loans of its portfolio securities to brokers, dealers
and other financial institutions amounting to no more than 331/3% of its total
assets. The risks in lending portfolio securities, as with other extensions of
credit, consist of possible delay in recovery of the securities or possible loss
of rights in the collateral should the borrower fail financially. However, such
loans will be made only to broker-dealers that are believed by the Adviser or
the Sub-Adviser to be of relatively high credit standing. Securities loans are
made to broker-dealers pursuant to agreements requiring that loans be
continuously secured by collateral consisting of U.S. Government securities,
cash or cash equivalents (negotiable certificates of deposit, bankers'
acceptances or letters of credit) maintained on a daily mark-to-market basis in
an amount at least equal at all times to the market value of the securities
lent. The borrower pays to the lending Portfolio an amount equal to any
dividends or interest received on the securities lent. The Portfolio may invest
only the cash collateral received in interest-bearing, short-term securities or
receive a fee from the borrower. In the case of cash collateral, the Portfolio
typically pays a rebate to the lender. Although voting rights or rights to
consent with respect to the loaned securities pass to the borrower, the
Portfolio retains the right to call the loans and obtain the return of the
securities loaned at any time on reasonable notice, and it will do so in order
that the securities may be voted by the Portfolio if the holders of such
securities are asked to vote upon or consent to matters materially affecting the
investment. The Portfolio may also call such loans in order to sell the
securities involved. Each Portfolio's performance will continue to reflect
changes in the value of the securities loaned and will also reflect the
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receipt of either interest, through investment of cash collateral by the
Portfolio in permissible investments, or a fee, if the collateral is U.S.
Government securities.
Stocks of Small and Medium Capitalization Companies
Each of the Portfolios may invest in common stock of companies with market
capitalizations that are small compared to those of other publicly traded
companies. Generally, small market capitalization is considered to be less than
$1.5 billion and large market capitalization is considered to be more than $5
billion. Investments in larger companies present certain advantages in that such
companies generally have greater financial resources, more extensive research
and development, manufacturing, marketing and service capabilities, and more
stability and greater depth of management and technical personnel. Investments
in smaller, less seasoned companies may present greater opportunities for growth
but also may involve greater risks than customarily are associated with more
established companies. The securities of smaller companies may be subject to
more abrupt or erratic market movements than larger, more established companies.
These companies may have limited product lines, markets or financial resources,
or they may be dependent upon a limited management group. Their securities may
be traded in the over-the-counter market or on a regional exchange, or may
otherwise have limited liquidity. As a result of owning large positions in this
type of security, a Portfolio is subject to the additional risk of possibly
having to sell portfolio securities at disadvantageous times and prices if
redemptions require the Portfolio to liquidate its securities positions. In
addition, it may be prudent for a Portfolio with a relatively large asset size
to limit the number of relatively small positions it holds in securities having
limited liquidity in order to minimize its exposure to such risks, to minimize
transaction costs, and to maximize the benefits of research. As a consequence,
as a Portfolio's asset size increases, the Portfolio may reduce its exposure to
illiquid small capitalization securities, which could adversely affect
performance.
Each Portfolio may also invest in stocks of companies with medium market
capitalizations. Whether a U.S. issuer's market capitalization is medium is
determined by reference to the capitalization for all issuers whose equity
securities are listed on a United States national securities exchange or which
are reported on NASDAQ. Issuers with market capitalizations within the range of
capitalization of companies included in the S&P Mid Cap 400 Index may be
regarded as being issuers with medium market capitalizations. Such investments
share some of the risk characteristics of investments in stocks of companies
with small market capitalizations described above, although such companies tend
to have longer operating histories, broader product lines and greater financial
resources, and their stocks tend to be more liquid and less volatile than those
of smaller capitalization issuers.
Illiquid Securities
Each Portfolio may invest in securities that are illiquid so long as no
more than 15% of the net assets of the Portfolio (taken at market value at the
time of investment) would be invested in such securities. Certain illiquid
securities may require pricing at fair value as determined in good faith under
the supervision of the Board of Trustees. The Sub-Adviser may be subject to
significant delays in disposing of illiquid securities, and transactions in
illiquid securities may entail registration expenses and other transaction costs
that are higher than those for transactions in liquid securities.
The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which a Portfolio has valued the securities.
Illiquid securities are considered to include, among other things, written
over-the-counter options, securities or other liquid assets being used as cover
for such options, repurchase agreements with maturities in excess of seven days,
certain loan participation interests, fixed time deposits which are not subject
to prepayment or provide for withdrawal penalties upon prepayment (other than
overnight deposits), securities that are subject to legal or contractual
restrictions on resale (such as privately placed debt securities), and other
securities which legally or in the Adviser's or the Sub-Adviser's opinion may be
deemed illiquid (not including securities issued pursuant to Rule 144A under the
Securities Act of 1933 and certain commercial paper that the Adviser or the
Sub-Adviser has determined to be liquid under procedures approved by the Board
of Trustees).
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Inflation-Indexed Bonds
The Portfolios may invest in inflation-indexed bonds, which are fixed
income securities whose value is periodically adjusted according to the rate of
inflation. Two structures are common. The U.S. Treasury and some other issuers
utilize a structure that accrues inflation into the principal value of the bond.
Most other issuers pay out the Consumer Price Index ("CPI") accruals as part of
a semiannual coupon.
Inflation-indexed securities issued by the U.S. Treasury have maturities
of approximately five, ten or thirty years, although it is possible that
securities with other maturities will be issued in the future. The U.S. Treasury
securities pay interest on a semi-annual basis equal to a fixed percentage of
the inflation-adjusted principal amount. For example, if a Portfolio purchased
an inflation-indexed bond with a par value of $1,000 and a 3% real rate of
return coupon (payable 1.5% semi-annually), and the rate of inflation over the
first six months was 1%, the mid-year par value of the bond would be $1,010 and
the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If
inflation during the second half of the year resulted in the whole year's
inflation equaling 3%, the end-of- year par value of the bond would be $1,030
and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed and will fluctuate. A Portfolio may
also invest in other inflation- related bonds which may or may not provide a
similar guarantee. If a guarantee of principal is not provided, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal amount.
The value of inflation-indexed bonds is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if the rate of inflation rises at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increase at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation
and energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity.
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<PAGE>
Delayed Funding Loans and Revolving Credit Facilities
The Portfolios may also enter into, or acquire participations in, delayed
funding loans and revolving credit facilities. Delayed funding loans and
revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower during a
specified term. A revolving credit facility differs from a delayed funding loan
in that as the borrower repays the loan, an amount equal to the repayment may be
borrowed again during the term of the revolving credit facility. These
commitments may have the effect of requiring a Portfolio to increase its
investment in a company at a time when it might not otherwise decide to do so
(including a time when the company's financial condition makes it unlikely that
such amounts will be repaid).
The Portfolios may acquire a participation interest in delayed funding
loans or revolving credit facilities from a bank or other financial institution.
See "Loan Participations and Assignments." The terms of the participation
require a Portfolio to make a pro rata share of all loans extended to the
borrower and entitle a Portfolio to a pro rata share of all payments made by
the borrower. Delayed funding loans and revolving credit facilities usually
provide for floating or variable rates of interest. To the extent that a
Portfolio is committed to advance additional funds, it will at all times
segregate assets, determined to be liquid by the Adviser or the Sub-Adviser in
accordance with procedures established by the Board of Trustees, in an amount
sufficient to meet such commitments.
Catastrophe Bonds
The Portfolios may invest in "catastrophe bonds." Catastrophe bonds are
fixed income securities, for which the return of principal and payment of
interest is contingent on the non-occurrence of a specific "trigger"
catastrophic event, such as a hurricane or an earthquake. They may be issued by
government agencies, insurance companies, reinsurers, special purpose
corporations or other on-shore or off-shore entities. If a trigger event causes
losses exceeding a specific amount in the geographic region and time period
specified in a bond, a Portfolio investing in the bond may lose a portion or all
of its principal invested in the bond. If no trigger event occurs, the Portfolio
will recover its principal plus interest. For some catastrophe bonds, the
trigger event or losses may be based on company wide losses, index-portfolio
losses, industry indices or readings of scientific instruments rather than
specified actual losses. Often the catastrophe bonds provide for extensions of
maturity that are mandatory, or optional at the discretion of the issuer, in
order to process and audit loss claims in those cases where a trigger event has,
or possibly has, occurred. In addition to the specified trigger events,
catastrophe bonds may also expose a Portfolio to certain unanticipated risks
including but not limited to issuer (credit) default, adverse regulatory or
jurisdictional interpretations and adverse tax consequences.
Catastrophe bonds are a relatively new type of financial instrument. As
such, there is no significant trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop. See
"Characteristics and Risks of Securities and Investment Techniques--Illiquid
Securities" in the Prospectus. Lack of a liquid market may impose the risk of
higher transaction costs and the possibility that a Portfolio may be forced to
liquidate positions when it would not be advantageous to do so. Catastrophe
bonds are typically rated, and the Portfolio will only invest in catastrophe
bonds that meet the credit quality requirements for the Portfolio.
Hybrid Instruments
The Portfolios may invest in "hybrid" or indexed securities. A hybrid
instrument can combine the characteristics of securities, futures, and options.
For example, the principal amount or interest rate of a hybrid could be tied
(positively or negatively) to the price of some commodity, currency or
securities index or another interest rate (each a "benchmark"). The interest
rate or (unlike most fixed income securities) the principal amount payable at
maturity of a hybrid security may be increased or decreased, depending on
changes in the value of the benchmark.
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<PAGE>
Hybrids can be used as an efficient means of pursuing a variety of
investment goals, including currency hedging, duration management, and increased
total return. Hybrids may not bear interest or pay dividends. The value of a
hybrid or its interest rate may be a multiple of a benchmark and, as a result,
may be leveraged and move (up or down) more steeply and rapidly than the
benchmark. These benchmarks may be sensitive to economic and political events,
such as commodity shortages and currency devaluations, which cannot be readily
foreseen by the purchaser of a hybrid. Under certain conditions, the redemption
value of a hybrid could be zero. Thus, an investment in a hybrid may entail
significant market risks that are not associated with a similar investment in a
traditional, U.S. dollar-denominated bond that has a fixed principal amount and
pays a fixed rate or floating rate of interest. The purchase of hybrids also
exposes a Portfolio to the credit risk of the issuer of the hybrids. These risks
may cause significant fluctuations in the net asset value of a Portfolio.
Accordingly, no Portfolio will invest more than 5% of its assets (taken at
market value at the time of investment) in hybrid instruments.
Certain issuers of structured products such as hybrid instruments may be
deemed to be investment companies as defined in the 1940 Act. As a result, a
Portfolio's investments in these products will be subject to limits applicable
to investments in investment companies and may be subject to restrictions
contained in the 1940 Act.
Precious Metals and Metal-Indexed Notes
The Portfolios may invest in notes, the principal amount or redemption
price of which is indexed to, and thus varies directly with, changes in the
market price of gold bullion or other precious metals ("Metal-Indexed Notes").
It is expected that the value of Metal-Indexed Notes will be as volatile as the
price of the underlying metal.
The Portfolios will only purchase Metal-Indexed Notes which are rated
investment grade or are issued by issuers that have outstanding debt obligations
rated investment grade or commercial paper rated in the top rating category by
any NRSRO, or Metal-Indexed Notes issued by issuers that the Sub-Adviser has
determined to be of similar creditworthiness. Debt obligations rated in the
fourth highest rating category by an NRSRO are considered to have some
speculative characteristics. The Metal-Indexed Notes might be backed by a bank
letter of credit, performance bond or might be otherwise secured, and any such
security, which would be held by the Portfolio's custodian, would be taken into
account in determining the creditworthiness of the securities. The Portfolios
might purchase unsecured Metal-Indexed Notes if the issuer thereof met the
Portfolio's credit standards without any such security. While the principal
amount or redemption price of Metal-Indexed Notes would vary with the price of
the resource, such securities would not be secured by a pledge of the resource
or any other security interest in or claim on the resource. In the case of
Metal-Indexed Notes not backed by a performance bond, letter of credit or
similar security, it is expected that such securities generally would not be
secured by any other specific assets.
The Portfolios anticipate that if Metal-Indexed senior securities were to
be purchased, such securities would be issued by precious metals or commodity
brokers or dealers, by mining companies, by commercial banks or by other
financial institutions. Such issuers would issue notes to hedge their
inventories and reserves of the resource, or to borrow money at a relatively low
cost (which would include the nominal rate of interest paid on Metal-Indexed
Notes, described below, and the cost of hedging the issuer's metals exposure).
The Portfolios would not purchase a Metal-Indexed Note issued by a broker or
dealer if as a result of such purchase more than 5% of the value of the
Portfolio's total assets would be invested in securities of such issuer. The
Portfolios might purchase Metal-Indexed Notes from brokers or dealers which are
not also securities brokers or dealers. Precious metals or commodity brokers or
dealers are not subject to supervision or regulation by any governmental
authority or self-regulatory organization in connection with the issuance of
Metal-Indexed Notes.
Until fairly recently, there were no Metal-Indexed Notes outstanding and
consequently there is no secondary trading market for such securities. Although
a limited secondary market might develop among institutional traders, there is
no assurance that such a market will develop. No public market is expected to
develop, since the Portfolios expect that Metal-Indexed Notes will not be
registered under the 1933 Act, and therefore disposition of such securities,
other than to the issuer thereof (as described below), would be dependent upon
the availability of an exemption from such registration.
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<PAGE>
Any Metal-Indexed Notes which the Portfolios might purchase generally will
have maturities of one year or less. Such notes, however, will be subject to
being called for redemption by the issuer on relatively short notice. In
addition, it is expected that the Metal-Indexed Notes will be subject to being
put by the Portfolios to the issuer or to a stand-by broker meeting the credit
standards set forth above, with payments being received by the Portfolios on no
more than seven days' notice. A stand-by broker might be a securities
broker-dealer, in which case the Portfolios' investment will be limited by
applicable regulations of the Securities and Exchange Commission (the "SEC").
The put feature of the Metal-Indexed Notes will ensure liquidity even in the
absence of a secondary trading market. The securities will be repurchased upon
exercise of the holder's put at the specified exercise price, less repurchase
fees, if any, which are not expected to exceed 1% of the redemption or
repurchase proceeds. Depending upon the terms of particular Metal-Indexed Notes,
there might be a period as long as five days between the date upon which a
Portfolio notifies the issuer of the exercise of the put and determination of
the sale price.
It is expected that any Metal-Indexed Notes which the Portfolios might
purchase will bear interest or pay preferred dividends at relatively nominal
rates under 2% per annum. A Portfolio's holdings of such senior securities
therefore would not generate appreciable current income, and the return from
such senior securities would be primarily from any profit on the sale or
maturity thereof at a time when the price of the relevant precious metal is
higher than it was when the senior securities were purchased.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The investment restrictions set forth below are fundamental policies of
each of the Portfolios and may not be changed with respect to either Portfolio
without shareholder approval by vote of a majority of the outstanding voting
securities of that Portfolio. Under these restrictions, neither of the
Portfolios may:
(1) borrow money in excess of 10% of the value (taken at the lower of cost
or current value) of such Portfolio's total assets (not including the amount
borrowed) at the time the borrowing is made, and then only from banks as a
temporary measure to facilitate the meeting of redemption requests (not for
leverage) which might otherwise require the untimely disposition of portfolio
investments or for extraordinary or emergency purposes. Such borrowings will be
repaid before any additional investments are purchased;
(2) invest in a security if, as a result of such investment, more than 25%
of its total assets (taken at market value at the time of such investment) would
be invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto);
(3) with respect to 50% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at market
value at the time of such investment) would be invested in the securities of any
one issuer, except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities;
(4) with respect to 50% of its assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any one issuer, except
that this restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
(5) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
in the real estate industry or which invest in real estate or interests therein;
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<PAGE>
(6) purchase or sell commodities or commodities contracts (which, for the
purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts or swap agreements), except that any such Portfolio
may engage in interest rate futures contracts, stock index futures contracts,
futures contracts based on other financial instruments or one or more groups of
instruments, and on options on such futures contracts;
(7) purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases and sales of portfolio securities, but it
may make margin deposits in connection with transactions in options, futures,
and options on futures, and except that effecting short sales will be deemed not
to constitute a margin purchase for purposes of this restriction;
(8) borrow money, or pledge, mortgage or hypothecate its assets, except
that a Portfolio may (i) borrow from banks or enter into reverse repurchase
agreements, or employ similar investment techniques, and pledge its assets in
connection therewith, but only if immediately after each borrowing and
continuing thereafter, there is asset coverage of 300% and (ii) enter into
reverse repurchase agreements and transactions in options, futures, options on
futures, and forward foreign currency contracts as described in the Prospectus
and in this Statement of Additional Information (the deposit of assets in escrow
in connection with the writing of covered put and call options and the purchase
of securities on a when-issued or delayed delivery basis and collateral
arrangements with respect to initial or variation margin deposits for futures
contracts, options on futures contracts, and forward foreign currency contracts
will not be deemed to be pledges of such Portfolio's assets);
(9) issue senior securities, except insofar as such Portfolio may be
deemed to have issued a senior security by reason of borrowing money in
accordance with the Portfolio's borrowing policies (for purposes of this
investment restriction, collateral, escrow, or margin or other deposits with
respect to the making of short sales, the purchase or sale of futures contracts
or related options, purchase or sale of forward foreign currency contracts, and
the writing of options on securities are not deemed to be an issuance of a
senior security);
(10) lend any funds or other assets, except that such Portfolio may,
consistent with its investment objective and policies: (a) invest in debt
obligations, including bonds, debentures, or other debt securities, bankers'
acceptances and commercial paper, even though the purchase of such obligations
may be deemed to be the making of loans, (b) enter into repurchase agreements
and reverse repurchase agreements, and (c) lend its portfolio securities in an
amount not to exceed one-third of the value of its total assets, provided such
loans are made in accordance with applicable guidelines established by the SEC
and the Trustees of the Trust; or
(11) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it may
be deemed to be an underwriter under the federal securities laws.
Non-Fundamental Investment Restrictions
Each Portfolio is also subject to the following non-fundamental
restriction (which may be changed without shareholder approval) and, unless
otherwise indicated, may not:
(1) invest more than 15% of the net assets of a Portfolio (taken at market
value at the time of the investment) in "illiquid securities," illiquid
securities being defined to include repurchase agreements maturing in more than
seven days, certain loan participation interests, fixed time deposits which are
not subject to prepayment or provide withdrawal penalties upon prepayment (other
than overnight deposits), or other securities which legally or in the Adviser's
or Sub-Adviser's opinion may be deemed illiquid (other than securities issued
pursuant to Rule 144A under the 1933 Act and certain commercial paper that the
Adviser or Sub-Adviser has determined to be liquid under procedures approved by
the Board of Trustees).
Unless otherwise indicated, all limitations applicable to a Portfolio's
investments apply only at the time a transaction is entered into. Any subsequent
change in a rating assigned by any rating service to a security, or change in
the percentage of a Portfolio's assets invested in certain securities or other
instruments resulting from market
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<PAGE>
fluctuations or other changes in a Portfolio's total assets, will not require
the Portfolio to dispose of an investment. In the event that ratings services
assign different ratings to the same security, the Adviser or Sub-Adviser will
determine which rating it believes best reflects the security's quality and risk
at that time, which may be the higher of the several assigned ratings.
The phrase "shareholder approval," as used in the Prospectus and this
Statement of Additional Information, and the phrase a "vote of a majority of the
outstanding voting securities," as used herein, mean the affirmative vote of the
lesser of (1) more than 50% of the outstanding shares of the Portfolio or the
Trust, as the case may be, or (2) 67% or more of the shares of the Portfolio or
the Trust, as the case may be, present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy.
MANAGEMENT OF THE TRUST
Trustees and Officers
The business of the Trust is managed under the direction of the Trust's
Board of Trustees. Subject to the provisions of the Trust's Declaration of
Trust, its By-Laws and Massachusetts law, the Trustees have all powers necessary
and convenient to carry out this responsibility, including the election and
removal of the Trust's officers.
The Trustees and officers of the Trust, their ages, and a description of
their principal occupations during the past five years are listed below. Except
as shown, each Trustee's and officer's principal occupation and business
experience for the last five years have been with the employer(s) indicated,
although in some cases the Trustee may have held different positions with such
employer(s). Unless otherwise indicated, the business address of the persons
listed below is c/o PIMCO Advisory Services, 1345 Avenue of the Americas, New
York, New York 10105.
<TABLE>
<CAPTION>
Position(s) With the Principal Occupation(s) During the Past Five
Name, Address and Age Trust Years
- --------------------- ----- -----
<S> <C> <C
Stephen J. Treadway* Chairman, Trustee Executive Vice President, PIMCO Advisors;
2187 Atlantic Street Chairman and President, PIMCO Funds
Stamford, CT 06902 Distributors LLC ("PFD"); Executive Vice
Age 52 President, Value Advisors LLC; Chairman,
Municipal Advantage Fund, Inc. and The Central
European Value Fund, Inc.; President, The
Emerging Markets Income Fund, Inc., The
Emerging Markets Income Fund II, Inc., The
Emerging Markets Floating Rate Fund, Inc.,
Global Partners Income Fund, Inc.,
Municipal Partners Fund, Inc. and
Municipal Partners Fund II, Inc.
Formerly, Trustee, President and Chief Executive
Officer of CAT; Executive Vice President, Smith
Barney Inc.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C
Paul Belica Trustee Manager, Whistler Fund, L.L.C., Xanthus Fund,
Age 78 L.L.C. and Wynstone Fund, L.L.C.; Director,
Student Loan Finance Corporation, Education
Loans, Inc., Goal Funding, Inc. and Surety Loan
Funding Company; Advisor, Smith Barney Co.;
Former Director, Central European Value Fund,
Inc., Deck House, Inc., a manufacturing company,
The Czech Republic Fund, Inc.; Director, Senior
Vice President and Managing Director, Smith
Barney, Harris Upham and Co.; Director and
Treasurer, Isabela Home Inc., Isabela Housing
Company Inc., and Isabela Nursing Home Inc.;
Director, Dreyfus Tax Exempt Bond Fund, Inc.,
Dreyfus New York State Tax Exempt Bond Fund,
Inc., and Union Dime Savings Bank; Executive
Director, New York State Housing Finance
Agency, New York State Medical Care Facilities
Finance Agency, New York State Municipal Bond
Bank Agency, New York State Project Finance
Agency and Chairman, State of New York
Mortgage Agency; President, Paul Belica and
Company, Inc., a financial advisory business;
Project Manager, Walsh Construction Company;
Member, Ministry of Foreign Affairs of
Czechoslovakia in Prague and Czechoslovak
Embassy in Vienna.
Robert E. Connor Trustee Public Relations Specialist, Smith Barney Inc.
Age 65
Newton B. Schott, Jr. Secretary Executive Vice President, Chief Administrative
Age 57 Officer, Secretary and General Counsel, PIMCO
Funds Distributors LLC; Senior Vice President
-- Mutual Fund Division, PIMCO Advisors L.P.
Elliot M. Weiss Assistant Secretary Vice President, OpCap Advisors.
Age 37
Brian Shlissel Treasurer Vice President, PIMCO Advisors L.P.; Treasurer,
Age 35 OCC Cash Reserves, Inc., OCC Accumulation
Trust, Inc., and Municipal Advantage Fund Inc.;
Assistant Treasurer, Central European Value
Fund.
Susan A. Murphy President, Chief President and Chief Executive Officer, PIMCO
Age 48 Executive Officer Trust Company; Chief Operating Officer, PIMCO
Advisory Services.
Angie Clark Executive Vice President National Marketing Director, Oppenheimer Capital;
Age 52 Board Member, Money Management Institute.
Robert B. Beel Senior Vice President Senior Vice President -- Marketing and Client
Age 49 Service, PIMCO Advisory Services.
Jonathan C. Hart Senior Vice President Senior Vice President -- Marketing and Client
Age 47 Service, PIMCO Advisory Services.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C
Sharon Highland Senior Vice President Director -- Separately Managed Account Group,
Age 37 PIMCO Advisory Services.
George "Pete" Peterson Senior Vice President Senior Vice President, PIMCO Advisory Services.
Age 65
Joni H. Rheingold Senior Vice President Senior Vice President -- Marketing and Client
Age 32 Service, PIMCO Advisory Services.
Richard P. Triolo Senior Vice President Senior Vice President -- Marketing and Client
Age 50 Service, PIMCO Advisory Services.
Christopher Casenhiser Vice President Vice President -- West Coast Business Development
Age 26 Team, PIMCO Advisory Services; Marketing
Specialist, Calamos Asset Management.
Thomas S. Gatto Vice President Vice President -- Marketing and Client Service,
Age 35 PIMCO Advisory Services; Financial Consultant,
Merrill Lynch; Financial Consultant, Prudential
Securities.
Raymond Harvier Vice President Vice President -- Marketing and Client Service,
Age 38 PIMCO Advisory Services; Financial Advisor,
American Express Financial Advisors; Sales Desk
Manager, Van Eck Global Securities.
Jessica McInnis Hill Vice President Vice President -- West Coast Business
Age 24 Development Team, PIMCO Advisory Services;
Internal Sales Associate, The Endeavor Group.
Leslie Kravetzky Vice President Vice President -- Marketing and Client Service,
Age 31 PIMCO Advisory Services; Marketing
Representative, Oppenheimer Capital's Quest For
Value mutual funds.
Scott Rymsa Vice President Vice President -- Marketing and Client Service,
Age 30 PIMCO Advisory Services; Supervisor -- Trading
Department, Oppenheimer Capital; Analyst --
Private Client Services Division, Goldman, Sachs
& Co.
</TABLE>
* Trustee is an "interested person" of the Trust (as defined in Section 2(a)(19)
of the 1940 Act).
Trustees' Compensation
Trustees, other than those affiliated with PIMCO Advisors, the
Sub-Adviser, or Pacific Investment Management, receive $500 for each Board of
Trustees meeting attended, whether attended in person or by telephone.
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<PAGE>
Trustees do not currently receive any pension or retirement benefits from the
Trust or the Fund Complex (see below).
The following table sets forth information regarding compensation expected
to be paid to those Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust for its first fiscal year by the Trust.
(1) (2) (3)
Total
Aggregate Compensation
Compensation from from Trust and
Name of Trustee Trust Fund Complex(1)
--------------- ----- ---------------
Paul Belica $2,000 $2,000
Robert E. Connor $2,000 $2,000
Investment Adviser
PIMCO Advisors L.P. serves as investment adviser to each of the Portfolios
pursuant to an investment advisory agreement ("Advisory Agreement") between
PIMCO Advisors and the Trust. PIMCO Advisors was organized as a limited
partnership under Delaware law in 1987. PIMCO Partners, G.P. ("PGP") and PIMCO
Advisors Holdings L.P. ("PAH") are the general partners of PIMCO Advisors. PGP
is a general partnership between PIMCO Holding LLC ("PH LLC"), a Delaware
limited liability company and an indirect wholly-owned subsidiary of Pacific
Life Insurance Company, and PIMCO Partners LLC, a California limited liability
company controlled by the current Managing Directors and two former Managing
Directors of Pacific Investment Management (collectively, the "Managing
Directors"). PGP is the sole general partner of PAH. PGP and PAH have equal
right, power and authority to manage and control the business and affairs of
PIMCO Advisors and to take any action deemed necessary or desirable by them in
connection with the business of PIMCO Advisors.
PGP and PAH have substantially delegated their management and control of
PIMCO Advisors to a Management Board. Pursuant to the terms of the delegation of
authority by PGP and PAH, the Management Board of PIMCO Advisors is composed of
(i) the Chief Executive Officer of PIMCO Advisors; (ii) six other persons
designated by PGP; (iii) three disinterested persons designated by
representatives of the Public General Partner or, if there is no Public General
Partner, PGP or its successor as general partner of PIMCO Advisors; (iv) the
Chief Executive Officer and one Managing Director of each of the two Investment
Managing Companies having the greatest total income, determined as of the date
of appointment; and (v) one Managing Director of each of two other Investment
Managing Companies designated from time to time by the Management Board upon the
recommendation of the Nominating Committee. PAH is a Public General Partner for
the purposes set forth above.
The Management Board has in turn delegated the authority to manage
day-to-day operations and policies to an Executive Committee. The Executive
Committee is composed of four members. The members of the Executive Committee
are William D. Cvengros, Brent R. Harris, Glenn S. Schafer and William S.
Thompson, Jr.
PIMCO Advisors, PGP and PAH are located at 800 Newport Center Drive,
Newport Beach, California 92660. PIMCO Advisors and its subsidiary partnerships
had approximately $260 billion of assets under management as of December 31,
1999.
PIMCO Advisors, subject to the supervision of the Board of Trustees, is
responsible for providing advice and guidance with respect to the Portfolios and
for managing, either directly or through others selected by the Adviser, the
investment of the Portfolios. PIMCO Advisors also furnishes to the Board of
Trustees periodic reports on the investment performance of each Portfolio. For
each of the Portfolios, PIMCO Advisors has engaged an affiliate to serve as the
Sub-Adviser. If the Sub-Adviser ceases to manage a Portfolio, PIMCO Advisors
will either assume full responsibility for the management of that Portfolio, or
retain a new Sub-Adviser subject to the approval of the Trustees and, if
required, the shareholders.
- ----------
(1) The listed Trustees do not serve on any other boards of investment
companies in the Fund Complex.
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<PAGE>
Under the terms of the Advisory Agreement, PIMCO Advisors is obligated to
manage the Portfolios in accordance with applicable laws and regulations. The
investment advisory services of PIMCO Advisors to the Trust are not exclusive
under the terms of the Advisory Agreement. PIMCO Advisors is free to, and does,
render investment advisory services to others.
The Advisory Agreement will continue in effect with respect to a Portfolio
for two years from its effective date, and thereafter on a yearly basis,
provided such continuance is approved annually (i) by the holders of a majority
of the outstanding voting securities of the Portfolio, or by the Board of
Trustees, and (ii) by a majority of the Trustees who are not "interested
persons" of the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the Advisory Agreement. The Advisory Agreement
may be terminated without penalty by vote of the Trustees or the shareholders of
the Trust, by the Adviser, on 60 days' written notice to the other party and
will terminate automatically in the event of its assignment, or by vote of a
majority of the Trustees who are not interested persons of PIMCO Advisors, on 60
days' written notice to PIMCO Advisors.
The Adviser receives no investment advisory or other fees from the
Portfolios.
Agreement with Allianz AG
On October 31, 1999, PIMCO Advisors, PAH and Allianz AG announced that
they have reached a definitive agreement for Allianz, a German insurance
company, to acquire majority ownership of PIMCO Advisors and its subsidiaries,
including Pacific Investment Management, Cadence, NJF and Parametric (the
"Allianz Transaction"). In the Allianz Transaction, Allianz will acquire all of
PAH, the publicly traded general partner of PIMCO Advisors. Pac Life will retain
an approximately 30% interest in PIMCO Advisors after the Allianz Transaction.
The consummation of the Allianz Transaction is subject to the approval of the
public unitholders of PAH, as well as to certain regulatory and client
approvals. The approval of the Board of Trustees of the Trust and the
shareholders of the Funds and Portfolios will be sought in connection with the
Allianz Transaction. The Allianz Transaction is expected to be completed by the
end of the first quarter of 2000.
This Statement of Additional Information will be supplemented or revised
if the Allianz Transaction does not occur substantially as set forth above.
Portfolio Management Agreements
PIMCO Advisors serves as the investment adviser for the Portfolios. The
Adviser employs Pacific Investment Management Company ("PIMCO") as the
Sub-Adviser to provide investment advisory services to each Portfolio pursuant
to portfolio management agreements (each a "Portfolio Management Agreement")
between the Adviser and the Portfolio's Sub-Adviser.
PIMCO is located at 840 Newport Center Drive, Newport Beach, California
92660. Organized in 1971, PIMCO provides investment management and advisory
services to private accounts of institutional and individual clients and to
mutual funds. As of December 31, 1999, PIMCO had approximately $186 billion in
assets under management.
Portfolio Administrator
PIMCO Advisory Services ("PAS") serves as administrator (and is referred
to in this capacity as the "Administrator") to the Portfolios pursuant to an
administration agreement (the "Administration Agreement") with the Trust. The
Administrator provides or procures administrative services to the Portfolios,
which include clerical help and accounting, bookkeeping, internal audit services
and certain other services they require, and preparation of reports to the
Trust's shareholders and regulatory filings. PAS may retain affiliates to
provide services as sub- administrators. In addition, the Administrator arranges
at its own expense for the provision of legal, audit, custody, transfer agency
and other services necessary for the ordinary operation of the Portfolios, and
is responsible for the costs of registration of the Trust's shares and the
printing of prospectuses and shareholder reports for current shareholders. 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.
The Administrator has also agreed to bear all costs of the Trust's
operations.
The Administration Agreement may be terminated by the Trust at any time by
vote of (1) a majority of the Trustees, (2) a majority of the outstanding voting
securities of the Trust, or (3) by a majority of the Trustees who are not
interested persons of the Trust or PIMCO Advisors, on 60 days' written notice to
PIMCO Advisors.
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DISTRIBUTION OF TRUST SHARES
Distributor
PIMCO Funds Distributors LLC (the "Distributor") serves as the principal
underwriter of each Portfolio of the Trust's shares pursuant to a distribution
contract with the Trust. The offering of the Trust's shares is continuous. The
Distributor is not obligated to sell any specific amount of the Trust's shares.
The Trust, on behalf of the Portfolios, pays the Distributor no fees.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Investment Decisions and Portfolio Transactions
Investment decisions for the Trust and for the other investment advisory
clients of the Adviser and the Sub- Adviser are made with a view to achieving
their respective investment objectives. Investment decisions are the product of
many factors in addition to basic suitability for the particular client involved
(including the Trust). Some securities considered for investment by the
Portfolios may also be appropriate for other clients served by the Adviser or
the Sub-Adviser. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. If a purchase or sale of securities consistent with the investment
policies of a Portfolio and one or more of these clients is considered at or
about the same time, transactions in such securities will be allocated among the
Portfolio and clients in a manner deemed fair and reasonable by the Adviser or
Sub-Adviser. Particularly when investing in less liquid or illiquid securities
of smaller capitalization companies, such allocation may take into account the
asset size of a Portfolio in determining whether the allocation of an investment
is suitable. As a result, larger Portfolios may become more concentrated in more
liquid securities than smaller Portfolios or private accounts of the Adviser or
the Sub-Adviser pursuing a small capitalization investment strategy, which could
adversely affect performance. The Adviser or the Sub-Adviser may aggregate
orders for the Portfolios with simultaneous transactions entered into on behalf
of its other clients so long as price and transaction expenses are averaged
either for the portfolio transaction or for that day. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling the security. In some instances, one client may sell a particular
security to another client. It also sometimes happens that two or more clients
simultaneously purchase or sell the same security, in which event each day's
transactions in such security are, insofar as possible, averaged as to price and
allocated between such clients in a manner which in the Adviser's or the
Sub-Adviser's opinion is equitable to each and in accordance with the amount
being purchased or sold by each. There may be circumstances when purchases or
sales of portfolio securities for one or more clients will have an adverse
effect on other clients.
Brokerage and Research Services
There is generally no stated commission in the case of fixed-income
securities, which are traded in the over- the-counter markets, but the price
paid by the Trust usually includes an undisclosed dealer commission or mark-up.
In underwritten offerings, the price paid by the Trust includes a disclosed,
fixed commission or discount retained by the underwriter or dealer. Transactions
on U.S. stock exchanges and other agency transactions involve the payment by the
Trust of negotiated brokerage commissions. Such commissions vary among different
brokers. Also, a particular broker may charge different commissions according to
such factors as the difficulty and size of the transaction. Transactions in
foreign securities generally involve the payment of fixed brokerage commissions,
which are generally higher than those in the United States.
The Adviser and/or the Sub-Adviser places orders for the purchase and sale
of portfolio securities, options and futures contracts and buys and sells such
securities, options and futures for the Trust through a substantial number of
brokers and dealers. In so doing, the Adviser or Sub-Adviser uses its best
efforts to obtain for the Trust the most favorable price and execution
available, except to the extent it may be permitted to pay higher brokerage
commissions as described below. In seeking the most favorable price and
execution, the Adviser or Sub-Adviser, having in mind the Trust's best
interests, considers all factors it deems relevant, including, by way of
illustration, price, the size of the transaction, the nature of the market for
the security, the amount of the commission, the timing of the transaction taking
into account market prices and trends, the reputation, experience and financial
stability of the broker-dealer involved and the quality of service rendered by
the broker-dealer in other transactions.
The Adviser or, pursuant to the portfolio management agreements, the
Sub-Adviser, places orders for the purchase and sale of portfolio investments
for a Portfolio's accounts with brokers or dealers selected by it in its
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discretion. In effecting purchases and sales of portfolio securities for the
accounts of the Portfolios, the Adviser and the Sub-Adviser will seek the best
price and execution of the Portfolios' orders. In doing so, a Portfolio may pay
higher commission rates than the lowest available when the Adviser or
Sub-Adviser believes it is reasonable to do so in light of the value of the
brokerage and research services provided by the broker effecting the
transaction, as discussed below. The Adviser and the Sub-Adviser also may
consider sales of shares of the Trust as a factor in the selection of
broker-dealers to execute portfolio transactions for the Trust.
It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research services from broker-dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser and the Sub-Adviser receive research services from many
broker-dealers with which the Adviser and the Sub-Adviser place the Trust's
portfolio transactions. These services, which in some cases may also be
purchased for cash, include such matters as general economic and security market
reviews, industry and company reviews, evaluations of securities and
recommendations as to the purchase and sale of securities. Some of these
services are of value to the Adviser and the Sub-Adviser in advising various of
their clients (including the Trust), although not all of these services are
necessarily useful and of value in managing the Trust. The advisory fees paid by
the Trust are not reduced because the Adviser and the Sub-Adviser receive such
services.
In reliance on the "safe harbor" provided by Section 28(e) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Adviser and
the Sub-Adviser may cause the Trust to pay broker-dealers which provide them
with "brokerage and research services" (as defined in the 1934 Act) an amount of
commission for effecting a securities transaction for the Trust in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the Rules of the NASD and subject to seeking the most
favorable price and execution available and such other policies as the Trustees
may determine, the Adviser or the Sub-Adviser may also consider sales of shares
of the Trust as a factor in the selection of broker-dealers to execute portfolio
transactions for the Trust.
The Adviser or the Sub-Adviser may place orders for the purchase and sale
of exchange-listed portfolio securities with a broker-dealer that is an
affiliate of the Adviser or Sub-Adviser where, in the judgment of the Adviser or
Sub-Adviser, such firm will be able to obtain a price and execution at least as
favorable as other qualified broker-dealers.
Pursuant to rules of the SEC, a broker-dealer that is an affiliate of the
Adviser or the Sub-Adviser may receive and retain compensation for effecting
portfolio transactions for a Portfolio on a national securities exchange of
which the broker-dealer is a member if the transaction is "executed" on the
floor of the exchange by another broker which is not an "associated person" of
the affiliated broker-dealer, and if there is in effect a written contract
between the Adviser or Sub-Adviser and the Trust expressly permitting the
affiliated broker-dealer to receive and retain such compensation.
SEC rules further require that commissions paid to such an affiliated
broker-dealer, the Adviser, or Sub- Adviser by a Portfolio on exchange
transactions not exceed "usual and customary brokerage commissions." The rules
define "usual and customary" commissions to include amounts which are
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time."
Portfolio Turnover
A change in the securities held by a Portfolio is known as "portfolio
turnover." The Sub-Adviser manages the Portfolios without regard generally to
restrictions on portfolio turnover. The use of futures contracts and other
derivative instruments with relatively short maturities may tend to exaggerate
the portfolio turnover rate for some of the Portfolios. Trading in fixed income
securities does not generally involve the payment of brokerage commissions, but
does involve indirect transaction costs. The use of futures contracts may
involve the payment of commissions to futures commission merchants. High
portfolio turnover (e.g., greater than 100%) involves correspondingly greater
expenses to a Portfolio, including brokerage commissions or dealer mark-ups and
other transaction costs on the sale of securities and reinvestments in other
securities. The higher the rate of portfolio turnover of a Portfolio, the higher
these transaction costs borne by the Portfolio generally will be. Such sales may
result in realization of taxable capital gains (including short-term capital
gains which are taxed when distributed to shareholders who are individuals at
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ordinary income tax rates). See "Taxation." Each Portfolio expects that its
portfolio turnover rate will not exceed 200% for its first fiscal year.
The portfolio turnover rate of a Portfolio is calculated by dividing (a)
the lesser of purchases or sales of portfolio securities for the particular
fiscal year by (b) the monthly average of the value of the portfolio securities
owned by the Portfolio during the particular fiscal year. In calculating the
rate of portfolio turnover, there is excluded from both (a) and (b) all
securities, including options, whose maturities or expiration dates at the time
of acquisition were one year or less. Proceeds from short sales and assets used
to cover short positions undertaken are included in the amounts of securities
sold and purchased, respectively, during the year.
NET ASSET VALUE
As indicated in the Prospectus under the heading "How Portfolio Shares are
Priced," the net asset value ("NAV") of a Portfolio's shares is determined by
dividing the total value of a Portfolio's portfolio investments and other assets
attributable to that Portfolio, less any liabilities, by the total number of
shares outstanding of that Portfolio.
For purposes of calculating the NAV, portfolio securities and other assets
for which market quotes are available are stated at market value. Market value
is generally determined on the basis of last reported sales prices, or if no
sales are reported, based on quotes obtained from a quotation reporting system,
established market makers, or pricing services. Certain securities or
investments for which daily market quotes are not readily available may be
valued, pursuant to guidelines established by the Board of Trustees, with
reference to other securities or indices. Short-term investments having a
maturity of 60 days or less are generally valued at amortized cost. Exchange
traded options, futures and options on futures are valued at the settlement
price determined by the exchange. Other securities for which market quotes are
not readily available are valued at fair value as determined in good faith by
the Board of Trustees or persons acting at their direction.
Investments initially valued in foreign currencies are converted to U.S.
dollars using foreign exchange rates obtained from pricing services. As a
result, the NAV of a Portfolio's shares may be affected by changes in the value
of foreign currencies in relation to the U.S. dollar. The value of securities
traded in foreign markets or denominated in foreign currencies may be affected
significantly on a day that the New York Stock Exchange is closed and an
investor is not able to buy, redeem or exchange shares. In particular,
calculation of the NAV may not take place contemporaneously with the
determination of the prices of foreign securities used in NAV calculations.
Portfolio shares are valued at 12:00 p.m., Eastern time ("Noon"), on each
day that the New York Stock Exchange is open. For purposes of calculating the
NAV, the Portfolios normally use pricing data for domestic equity securities
received shortly after Noon and do not normally take into account trading,
clearances or settlements that take place after Noon. Domestic fixed income and
foreign securities are normally priced using data reflecting the earlier closing
of the principal markets for those securities. Information that becomes known to
the Portfolios or their agents after the NAV has been calculated on a particular
day will not generally be used to retroactively adjust the price of the security
or the NAV determined earlier that day.
In unusual circumstances, instead of valuing securities in the usual
manner, the Portfolios may value securities at fair value or estimate their
value as determined in good faith by the Board of Trustees, generally based upon
recommendations provided by PIMCO Advisors or the Sub-Adviser. Fair valuation
may also be used by the Board of Trustees if extraordinary events occur after
the close of the relevant market but prior to Noon.
Each Portfolio's liabilities are allocated among its classes. The total of
such liabilities allocated to a class plus that class's distribution and/or
servicing fees and any other expenses specially allocated to that class are then
deducted from the class's proportionate interest in the Portfolio's assets, and
the resulting amount for each class is divided by the number of shares of that
class outstanding to produce the class's "net asset value" per share. Under
certain circumstances, the per share net asset value of classes of shares of the
Portfolios with higher service and/or distribution fees applicable to such
shares may be lower than the per share net asset value of the classes of shares
with lower or no service and/or distribution fees as a result of the higher
daily expense accruals of the service and/or distribution fees applicable to
such classes. Generally, for Portfolios that pay income dividends, those
dividends are expected to differ over time by approximately the amount of the
expense accrual differential between a particular Portfolio's classes.
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The Trust expects that the holidays upon which the Exchange will be closed
are as follows: New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
TAXATION
The following discussion is general in nature and should not be regarded
as an exhaustive presentation of all possible tax ramifications. You should
consult a qualified tax adviser regarding your investment in a Portfolio.
Each Portfolio intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). To qualify as a regulated investment company,
each Portfolio generally must, among other things, (a) derive in each taxable
year at least 90% of its gross income from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stock, securities or foreign currencies, or other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
("Qualifying Income Test") and (b) diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the value of the
Portfolio's total assets is represented by cash, cash items (including
receivables), U.S. Government securities, securities of other regulated
investment companies and other securities, with such other securities of any one
issuer limited for the purposes of this calculation to an amount not greater
than 5% of the value of the Portfolio's total assets and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities (other than U.S. Government
securities or the securities of other regulated investment companies) of any one
issuer or of two or more issuers which the Portfolio controls and which are
engaged in the same, similar or related trades or businesses. In order to
qualify for the special tax treatment accorded regulated investment companies,
each Portfolio must distribute each taxable year an amount at least equal to the
sum of (i) 90% of its investment company taxable income (which includes
dividends, interest and net short-term capital gains in excess of any net
long-term capital losses) and (ii) 90% of its tax-exempt interest, net of
expenses allocable thereto. For purposes of the Qualifying Income Test, the
Treasury Department is authorized to promulgate regulations under which gains
from foreign currencies (and options, futures, and forward contracts on foreign
currency) would not constitute qualifying income if such gains are not directly
related to investing in securities (or options and futures with respect to stock
or securities). To date, such regulations have not been issued.
In years when a Portfolio distributes amounts in excess of its earnings
and profits, such distributions may be treated in part as a return of capital. A
return of capital is not taxable to a shareholder and has the effect of reducing
the shareholder's basis in the shares.
The proper tax treatment of income or loss realized by the retirement or
sale of certain Metal-Indexed Notes and catastrophe bonds is unclear. The
Portfolios will report such income or loss as capital or ordinary income or loss
in a manner consistent with any Internal Revenue Service position on the subject
following the publication of such a position. Gain or loss from the sale or
exchange of preferred stock indexed to the price of a natural resource is
expected to be capital gain or loss to the Portfolios.
Distributions
As a regulated investment company, each Portfolio generally will not be
subject to U.S. federal income tax on its investment company taxable income and
on its net capital gains (that is, any net long-term capital gains in excess of
the sum of net short-term capital losses and capital loss carryovers from prior
years) designated by the Portfolio as capital gain dividends, if any, that it
distributes to the shareholders on a timely basis. Each Portfolio intends to
distribute to its shareholders, at least annually, substantially all of its
investment company taxable income and any net capital gains. In addition,
amounts not distributed by a Portfolio on a timely basis in accordance with a
calendar year distribution requirement are subject to a nondeductible 4% excise
tax. To avoid the tax, each Portfolio must distribute during each calendar year
an amount at least equal to the sum of (1) 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) 98%
of its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous years
that were not distributed during such years. A distribution will be treated as
paid on December 31 of the calendar year if it is declared by a Portfolio in
October, November or December of that year to shareholders of record on a date
in such a month and paid by the Portfolio during January of the following year.
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Shareholders subject to U.S. federal income tax will be subject to tax on
dividends received from a Portfolio, regardless of whether received in cash or
reinvested in additional shares. Such distributions will be taxable to
Shareholders (other than those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To avoid application of the excise
tax, each Portfolio intends to make its distributions in accordance with the
calendar year distribution requirement.
Distributions received by tax-exempt shareholders generally will not be
subject to federal income tax to the extent permitted under applicable tax law.
All shareholders must treat dividends, other than capital gain dividends,
exempt-interest dividends, if any, and dividends that represent a return of
capital to shareholders, as ordinary income. In particular, distributions
derived from short-term gains will be treated as ordinary income. Dividends, if
any, derived from interest on certain U.S. Government securities may be exempt
from state and local taxes, although interest on mortgage-backed U.S. Government
securities is generally not so exempt.
Dividends designated by a Portfolio as capital gain dividends derived from
the Portfolio's net capital gains are taxable to shareholders as long-term
capital gains except as provided by an applicable tax exemption. Any
distributions that are not from a Portfolio's net investment income or net
capital gains may be characterized as a return of capital to shareholders or, in
some cases, as capital gain. Each Portfolio will advise shareholders annually of
the amount and nature of the dividends paid to them.
The tax status of each Portfolio and the distributions which it may make
are summarized in the Prospectus under the captions "Portfolio Distributions"
and "Tax Consequences." All dividends and distributions of a Portfolio, whether
received in shares or cash, are taxable and must be reported on each
shareholder's federal income tax return.
Distributions of net capital gains, if any, designated as capital gain
dividends, are taxable as long-term capital gains, regardless of how long the
shareholder has held a Portfolio's shares and are not eligible for the dividends
received deduction. Any distributions that are not from a Portfolio's investment
company taxable income or net capital gains may be characterized as a return of
capital to shareholders or, in some cases, as capital gain. The tax treatment of
dividends and distributions will be the same whether a shareholder reinvests
them in additional shares or elects to receive them in cash. In addition,
Portfolios that invest in other investment companies will not be able to offset
gains realized by one underlying investment company against losses realized by
another underlying investment company. A Portfolio's investment in other
investment companies could therefore affect the amount, timing and character of
distributions to its shareholders.
Taxable shareholders should note that the timing of their investment or
redemptions could have undesirable tax consequences. Dividends and distributions
on shares of a Portfolio are generally subject to federal income tax as
described herein to the extent they do not exceed the Portfolio's realized
income and gains, even though such dividends and distributions may economically
represent a return of a particular shareholder's investment. Such distributions
are likely to occur in respect of shares purchased at a time when the net asset
value of a Portfolio reflects gains that are either unrealized, or realized but
not distributed. Such realized gains may be required to be distributed even when
a Portfolio's net asset value also reflects unrealized losses.
Sales of Shares
Upon the disposition of shares of a Portfolio (whether by redemption, sale
or exchange), a shareholder will realize a gain or loss. Such gain or loss will
be capital gain or loss if the shares are capital assets in the shareholder's
hands, and will be long-term or short-term generally depending upon the
shareholder's holding period for the shares. Long-term capital gains will
generally be taxed at a federal income tax rate of 20% to shareholders who are
individuals. Any loss realized on a disposition will be disallowed to the extent
the shares disposed of are replaced within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized by a shareholder on a disposition of shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of capital gain dividends received by the
shareholder with respect to such shares.
Backup Withholding
A Portfolio may be required to withhold 31% of all taxable distributions
payable to shareholders who fail to provide the Portfolio with their correct
taxpayer identification number or to make required certifications, or who have
been notified by the Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other shareholders specified in
the Code generally are exempt from such backup
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withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. federal tax liability.
Options, Futures, Forward Contracts and Swap Agreements
To the extent such investments are permissible for a Portfolio, the
Portfolio's transactions in options, futures contracts, hedging transactions,
forward contracts, straddles and foreign currencies will be subject to special
tax rules (including mark-to-market, constructive sale, straddle, wash sale and
short sale rules), the effect of which may be to accelerate income to the
Portfolio, defer losses to the Portfolio, cause adjustments in the holding
periods of the Portfolio's securities, convert long-term capital gains into
short-term capital gains and convert short-term capital losses into long-term
capital losses. These rules could therefore affect the amount, timing and
character of distributions to shareholders, including the Portfolios.
Foreign Currency Transactions
A Portfolio's transactions in foreign currencies, foreign
currency-denominated debt securities and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from
fluctuations in the value of the foreign currency concerned.
Foreign Taxation
Income received by the Portfolios from sources within foreign countries
may be subject to withholding and other taxes imposed by such countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Adviser and the Sub-Adviser intend to manage the
Portfolios with the intention of minimizing foreign taxation in cases where it
is deemed prudent to do so.
Original Issue Discount and Pay-In-Kind Securities
Current federal tax law requires the holder of a U.S. Treasury or other
fixed income zero coupon security to accrue as income each year a portion of the
discount at which the security was purchased, even though the holder receives no
interest payment in cash on the security during the year. In addition,
pay-in-kind securities will give rise to income which is required to be
distributed and is taxable even though the Portfolio holding the security
receives no interest payment in cash on the security during the year.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Portfolio may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount ("OID") is treated as interest income
and is included in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. A portion of the OID includable in income with respect to
certain high-yield corporate debt securities (including certain pay-in-kind
securities) may be treated as a dividend for U.S. federal income tax purposes.
Some of the debt securities (with a fixed maturity date of more than one
year from the date of issuance) that may be acquired by a Portfolio in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. A Portfolio may make one or more of the elections applicable to
debt securities having market discount, which could affect the character and
timing of recognition of income.
Some debt securities (with a fixed maturity date of one year or less from
the date of issuance) that may be acquired by a Portfolio may be treated as
having acquisition discount, or OID in the case of certain types of debt
securities. Generally, the Portfolio will be required to include the acquisition
discount, or OID, in income over the term of the debt security, even though
payment of that amount is not received until a later time, usually when the debt
security matures. The Portfolio may make one or more of the elections applicable
to debt securities having acquisition discount, or OID, which could affect the
character and timing of recognition of income.
Each Portfolio that holds the foregoing kinds of securities may be
required to pay out as an income distribution each year an amount which is
greater than the total amount of cash interest the Portfolio actually received.
Such distributions may be made from the cash assets of the Portfolio or by
liquidation of portfolio
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securities, if necessary. The Portfolio may realize gains or losses from such
liquidations. In the event the Portfolio realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain distribution,
if any, than they would in the absence of such transactions.
Other Taxation
Distributions also may be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Under the laws of
various states, distributions of investment company taxable income generally are
taxable to shareholders even though all or a substantial portion of such
distributions may be derived from interest on certain federal obligations which,
if the interest were received directly by a resident of such state, would be
exempt from such state's income tax ("qualifying federal obligations"). However,
some states may exempt all or a portion of such distributions from income tax to
the extent the shareholder is able to establish that the distribution is derived
from qualifying federal obligations. Moreover, for state income tax purposes,
interest on some federal obligations generally is not exempt from taxation,
whether received directly by a shareholder or through distributions of
investment company taxable income (for example, interest on FNMA Certificates
and GNMA Certificates). Each Portfolio will provide information annually to
shareholders indicating the amount and percentage of its dividend distribution
which is attributable to interest on federal obligations, and will indicate to
the extent possible from what types of federal obligations such dividends are
derived. The Trust is organized as a Massachusetts business trust. Under current
law, so long as each Portfolio qualifies for the federal income tax treatment
described above, it is believed that neither the Trust nor any Portfolio will be
liable for any income or franchise tax imposed by Massachusetts. Shareholders,
in any event, are advised to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Portfolio.
OTHER INFORMATION
Capitalization
The Trust is a Massachusetts business trust established under an Agreement
and Declaration of Trust dated November 3, 1999. The capitalization of the Trust
consists solely of an unlimited number of shares of beneficial interest. The
Board of Trustees may establish additional series (with different investment
objectives and fundamental policies) at any time in the future. Establishment
and offering of additional series will not alter the rights of the Trust's
shareholders. When issued, shares are fully paid, non-assessable, redeemable and
freely transferable. Shares do not have preemptive rights or subscription
rights. In liquidation of a Portfolio, each shareholder is entitled to receive
his pro rata share of the net assets of that Portfolio.
Shares begin earning dividends on Portfolio shares the day after the Trust
receives the purchase payment from the shareholder. Net investment income from
interest and dividends, if any, will be declared daily and distributed monthly
to shareholders of record by the Portfolio. Any net capital gains from the sale
of portfolio securities will be distributed no less frequently than once
annually. Net short-term capital gains may be paid more frequently. A
Portfolio's dividend and capital gain distributions will be paid only in cash.
Dividends will not reinvest.
Under Massachusetts law, shareholders could, under certain circumstances,
be held liable for the obligations of the Trust. However, the Agreement and
Declaration of Trust (the "Declaration of Trust") of the Trust disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
also provides for indemnification out of a Portfolio's property for all loss and
expense of any shareholder investing in that Portfolio held liable on account of
being or having been such a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which such disclaimer is inoperative or the Portfolio of which
he or she is or was a shareholder is unable to meet its obligations, and thus
should be considered remote.
Performance Information
From time to time the Trust may make available certain information about
the performance of one or both of the Portfolios. Information about a
Portfolio's performance is based on that Portfolio's record to a recent date and
is not intended to indicate future performance.
The total return and yield of the shares of the Portfolios may be included
in advertisements or other written material. When a Portfolio's total return is
advertised, it will be calculated for the past year, the past five years, and
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<PAGE>
the past ten years (or if the Portfolio has been offered for a period shorter
than one, five or ten years, that period will be substituted) since the
establishment of the Portfolio, as more fully described below. Total return for
each Portfolio is measured by comparing the value of an investment in the
Portfolio at the beginning of the relevant period to the redemption value of the
investment in the Portfolio at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions at net asset
value). Total return may be advertised using alternative methods that reflect
all elements of return, but that may be adjusted to reflect the cumulative
impact of alternative fee and expense structures.
The Portfolios may also provide current distribution information to the
shareholders in reports or other communications, or in certain types of sales
literature provided to prospective investors. Current distribution information
for a particular Portfolio will be based on distributions for a specified period
(i.e., total dividends from net investment income), divided by the relevant net
asset value per share on the last day of the period and annualized. The rate of
current distributions does not reflect deductions for unrealized losses from
transactions in derivative instruments such as options and futures, which may
reduce total return. Current distribution rates differ from standardized yield
rates in that they represent what a Portfolio has declared and paid to
shareholders as of the end of a specified period rather than the Portfolio's
actual net investment income for that period.
Performance information is computed separately for each Portfolio. Each
Portfolio may from time to time include in advertisements or in information
furnished to present or prospective shareholders the yield of its shares, the
total return of its shares, and the ranking of those performance figures
relative to such figures for groups of mutual funds categorized by Lipper
Analytical Services as having the same investment objectives. Information
provided to any newspaper or similar listing of the Portfolio's net asset values
and public offering prices will separately present each class of shares. The
Portfolios also may compute current distribution rates and use this information
in their Prospectus and Statement of Additional Information, in reports to
current shareholders, or in certain types of sales literature provided to
prospective investors.
Investment results of the Portfolios will fluctuate over time, and any
representation of the Portfolio's total return or yield for any prior period
should not be considered as a representation of what an investor's total return
or yield may be in any future period. The Trust's Annual and Semi-Annual Reports
contain additional performance information for the Portfolios and are available
upon request, without charge, by calling the telephone numbers listed on the
cover of this Statement of Additional Information.
Calculation of Yield
Quotations of yield for certain of the Portfolios will be based on all
investment income per share (as defined by the SEC) during a particular 30-day
(or one month) period (including dividends and interest), less expenses accrued
during the period ("net investment income"), and are computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:
YIELD = 2[( a-b + 1)6 -1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
The yield of a Portfolio will vary from time to time depending upon market
conditions, the composition of its portfolio and operating expenses of the Trust
allocated to the Portfolio. These factors, possible differences in the methods
used in calculating yield should be considered when comparing a Portfolio's
yield to yields published for other investment companies and other investment
vehicles. Yield should also be considered relative to changes in the value of a
Portfolio's shares. These yields do not take into account any applicable
contingent deferred sales charges.
The Trust, in its advertisements, may refer to pending legislation from
time to time and the possible impact of such legislation on investors,
investment strategy and related matters. This would include any tax proposals
and their effect on marginal tax rates and tax-equivalent yields. At any time in
the future, yields and total return may be higher or lower than past yields and
there can be no assurance that any historical results will continue.
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Calculation of Total Return
Quotations of average annual total return for a Portfolio will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Portfolio over periods of one, five, and ten
years (up to the life of the Portfolio), calculated pursuant to the following
formula: P (1 + T)n = ERV (where P = a hypothetical initial payment of $1,000, T
= the average annual total return, n = the number of years, and ERV = the ending
redeemable value of a hypothetical $1,000 payment made at the beginning of the
period). Except as noted below, all total return figures assume that all
dividends and distributions are reinvested when paid. Quotations of total return
may also be shown for other periods. The Portfolios may also, with respect to
certain periods of less than one year, provide total return information for that
period that is unannualized. Under applicable regulations, any such information
is required to be accompanied by standardized total return information.
Performance information for a Portfolio may also be compared to: (i) the
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Morgan Stanley Capital International EAFE (Europe, Australia, Far
East) Index, the Morgan Stanley Capital International Emerging Markets Free
Index, the International Finance Corporation Emerging Markets Index, the Baring
Emerging Markets Index, or other unmanaged indexes that measure performance of a
pertinent group of securities; (ii) other groups of mutual funds tracked by
Lipper Analytical Services ("Lipper"), a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank mutual funds on overall performance or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Portfolios. Unmanaged indexes (i.e., other than
Lipper) generally do not reflect deductions for administrative and management
costs or expenses. The Adviser and the Sub-Adviser may also report to
shareholders or to the public in advertisements concerning the performance of
the Adviser and/or the Sub-Adviser as advisers to clients other than the Trust,
and on the comparative performance or standing of the Adviser and/or the
Sub-Adviser in relation to other money managers. Such comparative information
may be compiled or provided by independent ratings services or by news
organizations. Any performance information, whether related to the Portfolios,
the Adviser or the Sub-Adviser, should be considered in light of the Portfolios'
investment objectives and policies, characteristics and quality, and the market
conditions during the time period indicated, and should not be considered to be
representative of what may be achieved in the future.
The total return of each series may be used to compare the performance of
a Portfolio's shares against certain widely acknowledged standards or indexes
for stock and bond market performance, against interest rates on certificates of
deposit and bank accounts, against the yield on money market funds, against the
cost of living (inflation) index, and against hypothetical results based on a
fixed rate of return.
The S&P's Composite Index of 500 Stocks (the "S&P 500") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 stocks relative to the base period 1941-43. The S&P 500 is composed
almost entirely of common stocks of companies listed on the New York Stock
Exchange, although the common stocks of a few companies listed on the American
Stock Exchange or traded over-the-counter are included. The 500 companies
represented include 380 industrial, 10 transportation, 39 utilities and 71
financial services concerns. The S&P 500 represents about 73% of the market
value of all issues traded on the New York Stock Exchange.
The S&P's 400 Mid-Cap Index (the "S&P 400 Mid-Cap Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 400 stocks of companies whose capitalization range from $100 million to
over $5 billion and which represent a wide range of industries. As of February
26, 1999, approximately 25% of the 400 stocks were stocks listed on the National
Association of Securities Dealers Automated Quotations ("NASDAQ") system, 73%
were stocks listed on the New York Stock Exchange and 2% were stocks listed on
the American Stock Exchange. The Standard & Poor's Midcap 400 Index P/TR
consists of 400 domestic stocks chosen for market size (median market
capitalization of $1.54 billion), liquidity and industry group representation.
It is a market value-weighted index (stock price times shares outstanding), with
each stock affecting the index in proportion to its market value. The index is
comprised of industrials, utilities, financials and transportation, in size
order.
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market value-weighted
and unmanaged index showing the changes in the aggregate market value of
approximately 3,500 stocks relative to the base measure of 100.00 on February 5,
1971. The NASDAQ Index is composed entirely of common stocks of companies traded
over-the-counter and often through the NASDAQ system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
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<PAGE>
The Russell 2000 Small Stock Index is an unmanaged index of the 2000
smallest securities in the Russell 3000 Index, representing approximately 7% of
the Russell 3000 Index. The Russell 3000 Index represents approximately 98% of
the U.S. equity market by capitalization. The Russell 1000 Index is composed of
the 1,000 largest companies in the Russell 3000 Index. The Russell 1000 Index
represents the universe of stocks from which most active money managers
typically select. This large cap index is highly correlated with the S&P 500.
The Russell 1000 Value Index contains stocks from the Russell 1000 Index with a
less-than-average growth orientation. It represents the universe of stocks from
which value managers typically select.
The Lehman Government Bond Index (the "SL Government Index") is a measure
of the market value of all public obligations of the U.S. Treasury; all
publicly-issued debt of all agencies of the U.S. Government and all quasi-
federal corporations; and all corporate debt guaranteed by the U.S. Government.
Mortgage-backed securities, flower bonds and foreign targeted issues are not
included in the SL Government Index.
The Lehman Government/Corporate Bond Index (the "SL Government/Corporate
Index") is a measure of the market value of approximately 5,000 bonds. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher by an NRSRO.
BanXquote Money Market, a service of Masterfund Inc., provides the average
rate of return paid on 3-month certificates of deposit offered by major banks
and the average rate paid by major banks on bank money market funds. The
Donoghue Organization, Inc., a subsidiary of IBC USA Inc., publishes the Money
Fund Report which lists the 7-day average yield paid on money market funds.
From time to time, the Trust may use, in its advertisements or information
furnished to present or prospective shareholders, data concerning the
performance and ranking of certain countries' stock markets, including
performance and ranking data based on annualized returns over one-, three-,
five- and ten-year periods. The Trust may also use data about the portion of
world equity capitalization represented by U.S. securities. As of December 31,
1998, the U.S. equity market capitalization represented approximately 40% of the
equity market capitalization of all the world's markets. This compares with 52%
in 1980 and 70% in 1972.
From time to time, the Trust may use, in its advertisements and other
information relating to certain of the Portfolios, data concerning the
performance of stocks relative to that of fixed income investments and relative
to the cost of living over various periods of time. The table below sets forth
the annual returns for each calendar year from 1973 through 1998 (as well as a
cumulative return and average annual return for this period) for the S&P 500 and
Treasury bills (using the formula set forth after the table) as well as the
rates of inflation (based on the Consumer Price Index) during such periods.
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<PAGE>
Consumer Price
Period S&P 500 Treasury Bills Index
- ------ ------- -------------- --------------
1973 -14.7 6.9 8.8
1974 -26.5 8.0 12.2
1975 37.2 5.8 7.0
1976 23.8 5.0 4.8
1977 -7.2 5.1 6.8
1978 6.5 7.2 9.0
1979 18.4 10.4 13.3
1980 32.4 11.2 12.4
1981 -4.9 14.7 8.9
1982 21.4 10.5 3.8
1983 22.5 8.8 3.8
1984 6.3 9.9 3.9
1985 32.2 7.7 3.8
1986 18.5 6.1 1.1
1987 5.2 5.5 4.4
1988 16.8 6.3 4.4
1989 31.5 8.4 4.6
1990 -3.2 7.8 6.1
1991 30.5 5.6 3.1
1992 7.7 3.5 2.9
1993 10.1 2.9 2.7
1994 1.3 3.9 2.7
1995 37.4 5.6 2.7
1996 23.1 5.2 3.3
1997 33.4 5.3 1.7
1998 28.6 4.9 1.6
- --------------------------------------------------------------------------------
Cumulative Return
1973-1998 2,667.2% 478.0% 285.6%
Average Annual Return
1973-1998 13.6% 7.0% 5.3%
- ------------------------------------------------------------------------------
The average returns for Treasury bills were computed using the following
method. For each month during a period, the Treasury bill having the shortest
remaining maturity (but not less than one month) was selected. (Only the
remaining maturity was considered; the bill's original maturity was not
considered). The return for the selected Treasury bill was computed based on the
price of the bill as of the last trading day of the previous month and the price
on the last trading day of the current month. The price of the bill (P) at each
time (t) is given by:
P(t) = [ 1- r]
--
[ 36]
where,
r = decimal yield on the bill at time t (the average of
bid and ask quotes); and
d = the number of days to maturity as of time t.
Advertisements and information relating to the Portfolios may use data
comparing the performance of stocks of medium-sized companies to that of other
companies. The following table sets forth the annual returns for each year from
March 1981 (inception of Mid-Cap Index) through December 31, 1998 (as well as a
cumulative return and average annual return for this period) for stocks of
medium-sized companies (based on the Standard & Poor's Mid- Cap Index), stocks
of small companies (based on the Russell 2000 Index) and stocks of larger
companies (based on the S&P 500).
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<PAGE>
Small Mid-Size Large
Period Companies Companies Companies
- ------ --------- --------- ---------
1981 (2/28 -12/31) 1.8 10.6 -2.5
1982 25.0 22.7 21.4
1983 29.1 26.1 22.5
1984 -7.3 1.2 6.3
1985 31.1 36.0 32.2
1986 5.7 16.2 18.5
1987 -8.8 -2.0 5.2
1988 24.9 20.9 16.8
1989 16.2 35.6 31.5
1990 -19.5 -5.1 -3.2
1991 46.1 50.1 30.5
1992 18.4 11.9 7.7
1993 18.9 14.0 10.1
1994 -1.8 -3.6 1.3
1995 28.4 30.9 37.6
1996 16.5 19.2 22.9
1997 22.8 32.3 33.4
1998 -2.6 19.1 28.6
Cumulative Return
2/28/81-12/31/98 710.5% 1,784.5% 1,616.9%
Average Annual Return
2/28/81-12/31/98 12.4% 17.9% 17.3%
From time to time, the Trust may use, in its advertisements and other
information relating to the Portfolios, data concerning the relevant performance
and volatility of portfolios consisting of all stocks, portfolios consisting of
all bonds and portfolios consisting of stocks and bonds blended with stocks of
companies engaged in the extraction, processing, distribution or marketing of
gold and other precious metals. The following table shows the annual returns for
each calendar year from 1988 through 1998 (as well as cumulative return and
average annual return for this period) for an all-stock portfolio (using the S&P
500), an all-bond portfolio (using the Ibbotson's Long-Term Corporate Bond
Index), and for a hypothetical portfolio with 45% of its assets in stocks
comprising the S&P 500, 45% in bonds comprising the Ibbotson's Long-Term
Corporate Bond Index and 10% in stocks comprising the Philadelphia Gold & Silver
Index.
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<PAGE>
Return and Cumulative Values of Stocks, Bonds, Savings Rates
vs. Balanced Portfolio (Assuming Rebalancing at Year-Ends)
ANNUAL RETURNS
Small Co. S&P 500 LT. Corp.
Stocks Stocks Bonds T-Bills Gold Index Balanced*
------ ------ ----- ------- ---------- --------
1988 22.87% 16.81% 10.70% 6.35% -20.70% 9.03%
1989 10.18% 31.49% 16.23% 8.37% 37.83% 26.43%
1990 -21.56% -3.17% 6.78% 7.83% -19.09% -0.97%
1991 44.63% 30.55% 19.89% 5.59% -16.75% 21.71%
1992 23.35% 7.67% 9.39% 3.51% -11.75% 5.07%
1993 20.98% 9.99% 13.17% 2.89% 85.01% 23.46%
1994 3.11% 1.31% -5.76% 3.90% -17.12% -3.12%
1995 34.46% 37.43% 27.20% 5.60% 10.14% 29.01%
1996 17.62% 23.07% 1.40% 5.21% -3.05% 10.46%
1997 22.78% 33.36% 12.95% 5.26% -36.45% 17.19%
1998 -7.31% 28.58% 10.76% 4.86% -12.43% 16.46%
Standard
Deviation 17.80% 13.34% 8.37% 1.60% 32.69% 10.35%
88-98
Cumulative
88-98 325.3% 575.6% 210.2% 78.0% -40.8% 349.5%
Annualized
88-98 19.0% 17.8% 10.8% 5.4% -4.7% 12.4%
- ---------------------------------
*Balanced:
--------
Stocks 45%
Bonds 45%
Gold 10%
Small Co. 0%
T-Bills 0%
From time to time, the Trust may use, in its advertisements and other
information, data concerning the average price-to-earnings ("P/E") ratios of
"Value Stocks" and "Growth Stocks." For these purposes, the P/E ratios of Value
Stocks are measured by the P/E ratios of the stocks comprising the Russell 1000
Value Index, and the P/E ratios of Growth Stocks are measured by the P/E ratios
of the stocks comprising the Russell 1000 Growth Index. Both the Russell 1000
Value Index and Russell 1000 Growth Index are unmanaged indexes, and it is not
possible to invest directly in either index. The table below sets forth the
average P/E ratio of Value Stocks and the Average P/E ratio of Growth Stocks for
the period beginning December 31, 1992 and ending March 31, 1999.
Average P/E ratio
Period
Ending Growth Stocks Value Stocks
- ------ ------------- ------------
12/31/92 21.76 21.40
3/31/93 21.59 22.36
6/30/93 20.86 21.41
9/30/93 20.25 21.05
12/31/93 18.33 17.84
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3/31/94 18.07 17.69
6/30/94 16.70 16.31
9/30/94 15.98 15.28
12/31/94 15.98 14.97
3/31/95 15.80 14.62
6/30/95 16.50 14.87
9/30/95 17.85 16.17
12/31/95 17.91 15.82
3/31/96 18.24 16.07
6/30/96 18.57 15.93
9/30/96 18.88 15.80
12/31/96 20.45 17.03
3/31/97 20.28 16.78
6/30/97 22.85 18.44
9/30/97 23.80 19.60
12/31/97 22.93 19.06
3/31/98 26.46 21.32
6/30/98 26.55 20.69
9/30/98 25.77 19.31
12/31/98 31.31 22.92
3/31/99 39.46 24.33
Advertisements and information relating to the Portfolios may use data
comparing the performance of a hypothetical investment in Growth Stocks, Value
Stocks, "Bonds" and "Savings Accounts." For these purposes, the performance of
an investment in "Bonds" is measured by the Lehman Aggregate Bond Index, an
unmanaged index representative of the U.S. taxable fixed income universe. It is
not possible to invest in this index. The performance of an investment in
"Savings Accounts" is measured by the return on 3-month U.S. Treasury bills.
Similarly, advertisements and information relating to the Portfolios may use
data comparing the performance of a hypothetical investment in "Stocks," Bonds
and Savings Accounts. For these purposes, the performance of the investment in
"Stocks" is measured by the S&P 500, while the performance of Bonds and Savings
Accounts is measured as discussed above. The table below sets forth the value at
March 31, 1999 of a hypothetical $10,000 investment in Stocks, Growth Stocks,
Value Stocks, Bonds and Savings Accounts made at March 31, 1979.
March 31, 1999 Value of $10,000
Asset Category Investment made at March 31, 1979
- -------------- ---------------------------------
Growth Stocks $247,076
Value Stocks $231,697
Stocks $126,624
Bonds $ 67,584
Savings Accounts $ 39,985
From time to time, the Trust may use, in its advertisements and other
information, data comparing the average annual total return of "Small-Caps,"
which are stocks represented by the Ibbotson's Small Company Stock Total Return
Index, and "Large-Caps," which are stocks represented by the Ibbotson's Large
Company Stock Total Return Index. Both indexes are unmanaged indexes, and it is
not possible to invest directly in either index. For example, for the period
from December 31, 1925 through December 31, 1998, the average annual total
return of Small-Caps was 12.4%, and for Large-Caps was 11.2%.
Advertisements and other information relating to the Portfolios may list
the annual total returns of certain asset classes during specified years. In
such advertisements, the return of "Small Company Stocks" will be measured by
the Russell 2000 Index of small company stocks, the returns of "Large Company
Stocks" will be measured by the S&P 500, and the return of "Intermediate-Term
Government Bonds" will be measured by a one-bond portfolio with a 5-year
maturity as measured by Ibbotson Associates. The following table sets for the
average return of these asset classes for the specified years.
Domestic Asset Class Annual Total Return
-------------------- -------------------
1990 Intermediate-Term Government Bonds +9.7%
1991 Small Company Stocks +22.9%
1992 Small Company Stocks +31.5%
1993 Small Company Stocks +21.0%
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1994 U.S. Treasury Bills +3.9%
1995 Large Company Stocks +37.4%
1996 Large Company Stocks +23.0%
1997 Large Company Stocks +33.4%
1998 Large Company Stocks +28.6%
The Trust may use, in its advertisements and other information, data
concerning the projected cost of a college education in future years based on
1997/1998 costs of college (using tuition and fees only) and an assumed rate of
increase for such costs. For example, the table below sets forth the projected
cost of four years of college at a public college and a private college assuming
a steady increase in both cases of 3% per year. In presenting this information,
the Trust is making no prediction regarding what will be the actual growth rate
in the cost of a college education, which may be greater or less than 3% per
year and may vary significantly from year to year. The Trust makes no
representation that an investment in any of the Portfolios will grow at or above
the rate of growth of the cost of a college education.
Potential College Cost Table
Start Public Private Start Public Private
Year College College Year College College
- ---- ------- ------- ---- ------- -------
1997 $13,015 $57,165 2005 $16,487 $72,415
1998 $13,406 $58,880 2006 $16,982 $74,587
1999 $13,808 $60,646 2007 $17,491 $76,825
2000 $14,222 $62,466 2008 $18,016 $79,130
2001 $14,649 $64,340 2009 $18,557 $81,504
2002 $15,088 $66,270 2010 $19,113 $83,949
2003 $15,541 $68,258 2011 $19,687 $86,467
2004 $16,007 $70,306 2012 $20,278 $89,061
Costs assume a steady increase in the annual cost of college of 3% per year from
a 1996-97 base year amount. Actual rates of increase may be more or less than 3%
and may vary.
In its advertisements and other materials, the Trust may compare the
returns over periods of time of investments in stocks, bonds and treasury bills
to each other and to the general rate of inflation. For example, the average
annual return of each category* during the period from 1974 through 1998 was:
Stocks: 14.9%
Bonds: 9.9%
T-Bills: 7.0%
Inflation: 5.2%
* Returns of unmanaged indexes do not reflect past or future performance
of the Fixed Income SHares. Stocks are represented by Ibbotson's Large
Company Stock Total Return Index. Bonds are represented by Ibbotson's
Long-term Corporate Bond Index. Treasury bills are represented by
Ibbotson's Treasury Bill Index and Inflation is represented by the Cost of
Living Index. These are all unmanaged indexes, which can not be invested
in directly. While Treasury bills are insured and offer a fixed rate of
return, both the principal and yield of investment securities will
fluctuate with changes in market conditions. Source: Ibbotson, Roger G.,
and Rex A. Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989,
updated in Stocks, Bonds, Bills and Inflation 1999 Yearbook, Ibbotson
Associates, Chicago. All rights reserved.
The Trust may also compare the relative historic returns and range of
returns for an investment in each of common stocks, bonds and treasury bills to
a portfolio that blends all three investments. For example, over the 20 years
from 1979 through 1998, the average annual return of stocks comprising the
Ibbotson's Large Company Stock Total Return Index ranged from -4.91% to 37.4%
while the annual return of a hypothetical portfolio comprised 40% of such common
stocks, 40% of bonds comprising the Ibbotson's Long-term Corporate bond Index
and 20% of Treasury bills comprising the Ibbottson's Treasury Bill Index (a
"mixed portfolio") would have ranged from -1.0% to 28.2% over the same period.
The average annual returns of each investment category* for each of the years
from 1979 through 1998 is set forth in the following table.
MIXED
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<PAGE>
YEAR STOCKS BONDS T-BILLS INFLATION PORTFOLIO
- ----- ------ ----- ------- --------- ---------
1979 18.44% -4.18% 10.38% 13.31% 7.78%
1980 32.42% 2.61% 11.24% 12.40% 14.17%
1981 -4.91% -0.96% 14.71% 8.94% 0.59%
1982 21.41% 43.79% 10.54% 3.87% 28.19%
1983 22.51% 4.70% 8.80% 3.80% 12.64%
1984 6.27% 16.39% 9.85% 3.95% 11.03%
1985 32.16% 30.90% 7.72% 3.77% 26.77%
1986 18.47% 19.85% 6.16% 1.13% 16.56%
1987 5.23% -0.27% 5.46% 4.41% 3.08%
1988 16.81% 10.70% 6.35% 4.42% 12.28%
1989 31.49% 16.23% 8.37% 4.65% 20.76%
1990 -3.17% 6.87% 7.52% 6.11% 2.98%
1991 30.55% 19.79% 5.88% 3.06% 21.31%
1992 7.67% 9.39% 3.51% 2.90% 7.53%
1993 10.06% 13.17% 2.89% 2.75% 9.84%
1994 1.31% -5.76% 3.90% 2.67% -1.00%
1995 37.40% 27.20% 5.60% 2.70% 26.90%
1996 23.10% 1.40% 5.20% 3.30% 10.84%
1997 33.40% 12.90% 7.10% 1.70% 19.94%
1998 28.58% 10.76% 4.86% 1.61% 16.70%
* Returns of unmanaged indexes do not reflect past or future performance
of the Fixed Income SHares. Stocks are represented by Ibbotson's Large
Company Stock Total Return Index. Bonds are represented by Ibbotson's
Long-term Corporate Bond Index. Treasury bills are represented by
Ibbotson's Treasury Bill Index and Inflation is represented by the Cost of
Living Index. Treasury bills are all unmanaged indexes, which can not be
invested in directly. While Treasury bills are insured and offer a fixed
rate of return, both the principal and yield of investment securities will
fluctuate with changes in market conditions. Source: Ibbotson, Roger G.,
and Rex A. Sinquefiled, Stocks, Bonds, Bill and Inflation (SBBI), 1989,
updated in Stocks, Bonds, Bills and Inflation 1999 Yearbook, Ibbotson
Associates, Chicago. All rights reserved.
The Trust may use in its advertisements and other materials examples
designed to demonstrate the effect of compounding when an investment is
maintained over several or many years. For example, the following table shows
the annual and total contributions necessary to accumulate $200,000 of savings
(assuming a fixed rate of return) over various periods of time:
Investment Annual Total Total
Period Contribution Contribution Saved
------ ------------ ------------ -----
30 Years $ 1,979 $ 59,370 $200,000
25 Years $ 2,955 $ 73,875 $200,000
20 Years $ 4,559 $ 91,180 $200,000
15 Years $ 7,438 $111,570 $200,000
10 Years $13,529 $135,290 $200,000
This hypothetical example assumes a fixed 7% return compounded annually
and a guaranteed return of principal. The example is intended to show the
benefits of a long-term, regular investment program, and is in no way
representative of any past or future performance of the Fixed Income
SHares. There can be no guarantee that you will be able to find an
investment that would provide such a return at the times you invest and an
investor in the Fixed Income SHares should be aware that the Portfolios of
Fixed Income SHares may experience in the future periods of negative
growth.
The Trust may set forth in its advertisements and other materials
information regarding the relative reliance in recent years on personal savings
for retirement income versus reliance on Social Security benefits and company
sponsored retirement plans. For example, the following table offers such
information for 1998:
-49-
<PAGE>
% of Income for Individuals
Aged 65 Years and Older in 1997*
-------------------------------
Social Security
Year and Pension Plans Other
---- ----------------- -----
1997 43% 57%
* For individuals with an annual income of at least $51,000. Other
includes personal savings, earnings and other undisclosed sources of
income. Source: Social Security Administration.
Articles or reports which include information relating to performance,
rankings and other characteristics of the Portfolios may appear in various
national publications and services including, but not limited to: The Wall
Street Journal, Barron's, Pensions and Investments, Forbes, Smart Money, Mutual
Fund Magazine, The New York Times, Kiplinger's Personal Finance, Fortune, Money
Magazine, Morningstar's Mutual Fund Values, CDA Investment Technologies and The
Donoghue Organization. Some or all of these publications or reports may publish
their own rankings or performance reviews of mutual funds, including the
Portfolios, and may provide information relating to the Adviser and the
Sub-Adviser, including descriptions of assets under management and client base,
and opinions of the author(s) regarding the skills of personnel and employees of
the Adviser or the Sub-Adviser who have portfolio management responsibility.
>From time to time, the Trust may include references to or reprints of such
publications or reports in its advertisements and other information relating to
the Portfolios.
From time to time, the Trust may set forth in its advertisements and other
materials information about the growth of a certain dollar-amount invested in
one or more of the Portfolios over a specified period of time and may use charts
and graphs to display that growth.
From time to time, the Trust may set forth in its advertisements and other
materials the names of and additional information regarding investment analysts
employed by the Sub-Adviser who assist with portfolio management and research
activities on behalf of the Portfolios.
Ibbotson Associates ("Ibbotson") may analyze the risk and returns of the
Portfolios and relevant benchmark market indexes in a variety of market
conditions. Based on its independent research and analysis, Ibbotson may
develop, from time to time, model portfolios of the Portfolios which indicate
how, in Ibbotson's opinion, a hypothetical investor with a 5+ year investment
horizon might allocate his or her assets among the Portfolios. Ibbotson bases
its model portfolios on five levels of investor risk tolerance which it
developed and defines as ranging from "Very Conservative" (low volatility;
emphasis on capital preservation, with some growth potential) to "Very
Aggressive" (high volatility; emphasis on long-term growth potential). However,
neither Ibbotson nor the Trust offers Ibbotson's model portfolios as
investments. Moreover, neither the Trust, the Adviser, the Sub-Adviser nor
Ibbotson represent or guarantee that investors who allocate their assets
according to Ibbotson's models will achieve their desired investment results.
Year 2000 Readiness Disclosure
Many of the world's computer systems may be unable to correctly recognize,
interpret or use dates beyond the year 1999 (the "Year 2000 Problem"). This
inability might lead to significant business disruptions. PIMCO Advisors is
taking steps to ensure that its computer systems will function properly. PIMCO
Advisors has designated a team of information and business professionals (the
"Year 2000 Team") to address the Year 2000 Problem and has developed a written
"Year 2000 Plan."
The Year 2000 Plan consists of five general phases: Awareness, Assessment,
Remediation, Testing and Implementation. The Year 2000 Plan and budget were
prepared and approved by PIMCO Advisors' Management Board on July 21, 1998.
During the Awareness phase, the Year 2000 Team informed the employees of the
Adviser and its subsidiaries, including their highest levels of management,
about the Year 2000 Problem. During the Assessment phase, the Year 2000 Team
prepared an inventory of information technology ("IT") and non-IT systems used
by the Adviser, its subsidiaries and Pacific Investment Management. Systems were
classified as software, hardware or embedded chips. Separately, systems were
also classified as mission critical or non-mission critical. As the inventory
was compiled and verified, each system was preliminarily assessed for Year 2000
compliance. This preliminary assessment was made by obtaining manufacturers'
representations that a given product is Year 2000 compliant or other evidence of
compliance. Systems for which no such evidence can be obtained were identified
as candidates for correction or replacement ("Remediation"). During the
Remediation phase, software, hardware and
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<PAGE>
embedded chips identified during the Assessment phase to be non-Year 2000
compliant are corrected or replaced. During the Testing phase, the Adviser
performs internal testing, point-to-point testing and industry testing programs.
Testing generally will be performed in order of criticality, with
mission-critical systems receiving the highest priority. PIMCO Advisors does not
plan to test non-mission critical systems that are not used in its business
(e.g., software applications incidently installed on PCs). During the
Implementation phase, systems that have been tested and identified as being Year
2000 compliant are put into normal business operation and contingency plans are
finalized.
As with all investment advisers, the business operations of the Adviser,
its investment advisory subsidiaries and Pacific Investment Management are
heavily dependent upon a complete worldwide network of financial systems that
utilize date fields. The ability of the Adviser, its investment advisory
subsidiaries and Pacific Investment Management to endure any adverse effects of
the transition to the Year 2000 are highly dependent upon the efforts of third
parties, particularly issuers, brokers, dealers and custodians. The failure of
third party organizations to resolve their own processing issues with respect to
the Year 2000 Problem in a timely manner could have a material adverse effect on
the Adviser's business. As of the date of this Statement of Additional
Information, the management of each of the Adviser, its investment advisory
subsidiaries and Pacific Investment Management believes that the transition to
the Year 2000 has not had a material adverse effect on its business or
operations. However, complications as yet unidentified may arise in internal or
external systems or with data providers, other securities firms or institutions,
issuers, counterparties or other entities or even with general economic
conditions related to the Year 2000 Problem. The Year 2000 problem may be
particularly acute with respect to foreign markets and securities of foreign
issuers in which the Portfolios invest due to a potential lack of Year 2000
compliance efforts in foreign markets or by foreign companies. Although the
Adviser's efforts and expenditures in connection with the Year 2000 Problem are
substantial, there can be no assurances that shareholders will not suffer from
disruptions or adverse results arising as a consequence of the Year 2000
Problem.
Compliance Efforts Related to the Euro
Another potential computer system problem may arise in conjunction with
the recent introduction of the euro. Whether introducing the euro to financial
companies' systems will be problematic is not fully known; however, the cost
associated with making systems recognize the euro is not currently expected to
be material.
Voting Rights
Under the Declaration of Trust, the Trust is not required to hold annual
meetings of Trust shareholders to elect Trustees or for other purposes. It is
not anticipated that the Trust will hold shareholders' meetings unless required
by law or the Declaration of Trust. In this regard, the Trust will be required
to hold a meeting to elect Trustees to fill any existing vacancies on the Board
if, at any time, fewer than a majority of the Trustees have been elected by the
shareholders of the Trust. Shareholders may remove a person serving as Trustee
either by declaration in writing or at a meeting called for such purpose. The
Trustees are required to call a meeting for the purpose of considering the
removal of a person serving as Trustee if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust. In the
event that such a request was made, the Trust has represented that it would
assist with any necessary shareholder communications. Shareholders of a class of
shares have different voting rights with respect to matters that affect only
that class.
Shares entitle their holders to one vote per share (with proportionate
voting for fractional shares). Each Portfolio has identical voting rights except
that each Portfolio has exclusive voting rights on any matter submitted to
shareholders that relates solely to that Portfolio, and has separate voting
rights on any matter submitted to shareholders in which the interests of one
Portfolio differ from the interests of any other Portfolio. Each Portfolio has
exclusive voting rights with respect to matters pertaining to any distribution
or servicing plan or agreement applicable to that Portfolio. These shares are
entitled to vote at meetings of shareholders. Matters submitted to shareholder
vote must be approved by each Portfolio separately except (i) when required by
the 1940 Act shares shall be voted together and (ii) when the Trustees have
determined that the matter does not affect Portfolios, then only shareholders of
the Portfolio(s) affected shall be entitled to vote on the matter. The shares of
the Portfolios will vote together except when the vote of a single Portfolio is
required as specified above or otherwise by the 1940 Act.
The Trust's shares do not have cumulative voting rights. Therefore, the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Certain Ownership of Trust Shares
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<PAGE>
As of March 17, 2000, the Trust believes that the Trustees and
officers of the Trust, as a group, owned less than 1 percent of each class of
each Portfolio and of the Trust as a whole.
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as custodian of the assets of each Portfolio.
Independent Accountants
PricewaterhouseCoopers LLP, 1055 Broadway, Kansas City, Missouri 64105,
serves as the independent public accountants for the Portfolios.
PricewaterhouseCoopers LLP provides audit services, accounting assistance, and
consultation in connection with SEC filings.
Transfer Agent
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110
Legal Counsel
Ropes & Gray, One International Place, Boston, Massachusetts 02110 serves
as legal counsel to the Trust.
Registration Statement
This Statement of Additional Information and the Prospectus do not contain
all of the information included in the Trust's registration statements filed
with the SEC under the 1933 Act with respect to the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. The registration statements, including the exhibits
filed therewith, may be examined at the offices of the SEC in Washington, D.C.
Statements contained herein and in the Prospectus as to the contents of
any contract or other documents referred to are not necessarily complete, and,
in each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the relevant registration statement, each such
statement being qualified in all respects by such reference.
Financial Statements and Report of Independent Accountants
Report of Independent Accountants.
To the Shareholder and Board
of Trustees of Fixed Income SHares - Series C and Series M:
In our opinion, the accompanying statements of assets and liabilities present
fairly, in all material respects, the financial position of Fixed Income SHares
- - Series C and Series M (the "Funds") at March 10, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Funds' 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 provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
March 10, 2000
Statements of Assets and Liabilities.
FISH: Series C
Statement of Assets and Liabilities
March 10, 2000
Assets:
Cash $50,000
-------
Total Assets 50,000
Liabilities:
Total Liabilities 0
-------
Net Assets (5,000 shares of $.001 shares of beneficial interest issued
and outstanding; unlimited shares authorized) $50,000
-------
-------
Net asset value per share $10.00
-------
-------
See Notes to Statements of Assets and Liabilities
FISH: Series M
Statement of Assets and Liabilities
March 10, 2000
Assets:
Cash $50,000
-------
Total Assets 50,000
Liabilities:
Total Liabilities 0
-------
Net Assets (5,000 shares of $.001 shares of beneficial interest issued
and outstanding; unlimited shares authorized) $50,000
-------
-------
Net asset value per share $10.00
-------
-------
See Notes to Statements of Assets and Liabilities
Notes to Statements of Assets and Liabilities.
Note 1. Organization
The Trust was organized as a Massachusetts Business Trust on November 3,
1999 and offers two series of shares: FISH: Series C and FISH: Series M. The
Trust has had no operations to date 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 5,000 shares of beneficial interest of
each series of shares of the Trust at an aggregate purchase price of $100,000.
Note 2. Related Parties
The Trust has entered into an investment advisory agreement with PIMCO
Advisors L.P. under which PIMCO Advisors L.P. serves as the investment adviser
to the Trust.
The Trust has entered into an administration agreement with PIMCO Advisory
Services under which PIMCO Advisory Services provides administration, custody
and transfer agency services to the Trust.
The Trust has entered into a distribution contract with PIMCO Funds
Distributors LLC, a wholly-owned subsidiary of PIMCO Advisors L.P., under which
PIMCO Funds Distributors LLC serves as the distributor of the Trust's shares.
-52-
PART C. OTHER INFORMATION
Item 23. Exhibits.
The letter of each exhibit relates to the exhibit designation in Form
N-1A:
(a) Form of Agreement and Declaration of Trust, filed herewith.
(b) Form of By-Laws, filed herewith.
(c) Article III (Shares) and Article V (Shareholders' Voting Powers and
Meetings) of the Agreement and Declaration of Trust, filed herewith.
(d) (1) Form of Investment Advisory Agreement, filed herewith.
(2) Form of Portfolio Management Agreement with Pacific Investment
Management Company, filed herewith.
(e) Form of Distribution Contract, filed herewith.
(f) Not applicable.
(g) Form of Custody and Investment Accounting Agreement with State
Street Bank and Trust Company, filed herewith.
(h)
(1) Form of Administration Agreement between the Trust and PIMCO
Advisory Services, filed herewith.
(2) Form of Transfer Agency Agreement, filed herewith.
(i) Form of Opinion and Consent of Counsel, filed herewith.
(j) Form of Consent of Independent Accountants, filed herewith.
(k) Not applicable.
(l) Form of Initial Capital Agreement, filed herewith.
(m) Not applicable.
(n) Not applicable.
(p) Not applicable.
(q) Form of Power of Attorney, filed herewith.
Item 24. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 25. Indemnification.
Reference is made to Article VIII, Section 1, of the Registrant's
Agreement and Declaration of Trust, which is incorporated by reference herein.
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to the Trust's
Agreement and Declaration of Trust, its By-Laws or otherwise, the Registrant is
aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and, therefore,
is unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by trustees, officers or controlling persons of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustees, officers or controlling persons in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 26. Business and Other Connections of Investment Adviser and Portfolio
Managers.
Unless otherwise stated, the principal business address of each
organization listed in 800 Newport Center Drive, Newport Beach, CA 92660.
PIMCO Advisors L.P.
Name Position with Adviser Other Affiliates
- ---- --------------------- ----------------
Walter E. Auch, Sr. Board Member of Management Management Consultant;
Director, Fort Dearborn
Fund, Shearson VIP Fund,
Shearson Advisors Fund,
Shearson TRAK Fund,
Banyan Land Trust, Banyan
Land Fund II, Banyan
Mortgage Fund, Allied
Healthcare Products,
Inc., First Western Inc.,
DHR Group and Geotech
Industries.
William R. Benz Member of Management Board See Pacific Investment
Management Company.
David B. Breen Member of Management Board Director, Managing
Director and Chief
Executive Officer,
Cadence Capital
Management, Inc.,;
Managing Director and
Chief Executive Officer,
Cadence Capital
Management.
Donald A. Chiboucas Member of Management Board Director, Columbus Circle
Investors Management,
Inc.; Managing Director,
Columbus Circle
Investors.
Kenneth W. Corba Member of Management Board. None.
Managing Director and Chief
Investment Officer of PIMCO
Equity Advisors.
William D. Cvengros Chief Executive Officer Trustee and Chairman of
and President, Member of the Trust; Director,
Management Board PIMCO Funds Distributors
LLC, Chief Executive
Officer and President,
Value Advisors LLC;
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<PAGE>
Director, PIMCO Funds
Advertising Agency;
Director, President and
Chief Executive Officer,
Thomson Advisory Group,
Inc.
Walter B. Gerken Chairman and Member of Director and Managing
Management Board Director, PIMCO
Management, Inc.;
Managing Director,
Pacific Investment
Management Company;
Senior Vice President,
PIMCO Funds: Pacific
Investment Management
Series, PIMCO Variable
Insurance Trust; Director
and Vice President,
StocksPLUS Management,
Inc.; Member of PIMCO
Partners LLC.
Brent R. Harris Member of Management Board Director and Managing
Director, PIMCO
Management, Inc.;
Managing Director,
Pacific Investment
Management Company;
Director and Vice
President, StocksPLUS
Management, Inc.;
Chairman of the Board and
Trustee, PIMCO Funds:
Pacific Investment
Management Series, PIMCO
Variable Insurance Trust
and PIMCO Commercial
Mortgage Securities
Trust, Inc.; Member of
PIMCO Partners LLC.
Donald R. Kurtz Member of Management Board Donald R. Kurt Member of
Management Board.
Formerly, Vice President
of Internal Asset
Management, General
Motors Investment Corp.;
Director, Thomson
Advisory Group L.P.
George A. Long Member of Management Board Chairman and Chief
Executive Officer of
Oppenheimer Capital.
James McCaughan Member of Management Board Chief Executive Officer,
Oppenheimer Capital.
James F. McIntosh Member of Management Board Executive Director, Allen
Matkins, Leck, Gamble &
Mallory LLP. Formerly,
Director, Pacific
Investment Management
Company.
Kenneth H. Mortenson Member of Management Board Managing Director of
Oppenheimer Capital.
William F. Podlich, III Member of Management Board Director and Managing
Director, PIMCO
Management, Inc.;
Managing
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<PAGE>
Director, Pacific
Investment Management
Company; Vice President,
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Member of
PIMCO Partners LLC.
William C. Powers Member of Management Board See Pacific Investment
Management Company.
Glenn W. Schafer Member of Management Board Board President and
Director, Pacific Mutual
Holding Company, Pacific
LifeCorp, Pacific Life
Insurance Company,
Pacific Financial Asset
Management Corp.,
PMRealty Advisors, Inc.;
Director, Pacific Mutual
Distributors, Inc.,
Mutual Distributors,
Inc., Mutual Service
Corporation,
UnitedPlanners' Group,
Inc., Thomson Advisory
Group.
Thomas C. Sutton Member of Management Board Chairman, Chief
Executive Officer and
Director, Pacific
William S. Thomson, Jr.
Mutual Holding Company,
Pacific LifeCorp,
Pacific Life Insurance
Company, Pacific
Financial Asset
Management Corp.;
Director, Pacific Mutual
Distributors, Inc.,
Mutual Service
Corporation, United
Planners' Group, Inc.,
PMRealty Advisors, Inc.
William S. Thomson, Jr. Member of Management Board; Director, Managing
Chairman, Executive Committee Director and Chief
Executive Committee
Fitzgerald Officer,
PIMCO Management, Inc.;
Chief Executive Officer
and Managing Director,
Pacific Investment
Management Company;
Member, President and
Chief Executive Officer,
PIMCO Partners LLC;
Director and President,
StocksPLUS Management,
Inc.; Vice President,
PIMCO Variable Insurance
Trust, PIMCO Funds:
Pacific Investment
Management Series, and
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Director,
Thomson Advisory Group,
Inc.
Robert M. Fitzgerald Senior Vice President and Chief Financial Officer
Chief Financial Officer and Treasurer, PIMCO
Funds Distributors, LLC,
Columbus Circle
Investors, Columbus
Circle Investors
Management, Inc.,
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<PAGE>
Cadence Capital
Management, Inc., NFJ
Investment Group, NFJ
Management, Inc.,
Parametric Portfolio
Associates, Parametric
Management, Inc., PIMCO
Management, Inc.,
Pacific Investment
Management Company, and
StocksPLUS Management,
Inc.; Chief Financial
Officer and Assistant
Treasurer, Cadence
Capital Management;
Senior Vice President
and Chief Financial
Officer, Value Advisors
LLC; Chief Financial
Officer, Columbus Circle
Trust Company; Chief
Financial Officer and
Treasurer, PIMCO Funds
Advertising Agency;
Senior Vice President,
Chief Financial Officer
and Treasurer, Thomson
Advisory Group, Inc.
Benjamin L. Trosky Member of Management Board Managing Director,
Pacific Investment
Management Company;
Director and Managing
Director, PIMCO
Management, Inc.; Senior
Vice President, PIMCO
Commercial Mortgage
Securities Trust, Inc.,;
Member of PIMCO Partners
LLC.
Bradley W. Paulson Vice President Vice President and
Secretary, PIMCO Global
Advisors (Europe)
Limited, PIMCO Global
Advisors (Japan)
Limited; Vice President,
Pacific Investment
Management Company.
Kenneth M. Poovey Chief Operating Officer Executive Vice President
and General Counsel and General Counsel,
Value Advisors LLC and
Thomson Advisory Group,
Inc.
Stephen J. Treadway Executive Vice President Chairman, President, and
Chief Executive Officer,
PIMCO Funds Advertising
Agency, Inc., PIMCO
Funds Distributors LLC,
and Trustee, President
and Chief Executive
Officer of the Trust;
Executive Vice
President, Value
Advisors LLC.
Robert S. Venable Vice President None.
James G. Ward Senior Vice President, Senior Vice President,
Human Resources Human Resources, Value
Advisors LLC; Senior
Vice President, Thomson
Advisory Group, Inc.
-5-
<PAGE>
Richard M. Weil Senior Vice President - Senior Vice President,
Legal, Secretary Assistant Secretary,
PIMCO Management, Inc.;
Secretary , Cadence
Capital Management,
Inc., NFJ Investment
Group, NFJ Management,
Inc., Parametric
Portfolio Associates,
Parametric Management,
Inc., and StocksPLUS
Management, Inc.;
Assistant Secretary,
Columbus Circle
Investors, Columbus
Circle Investors
Management, Inc.;
Cadence Capital
Management, PIMCO Funds
Advertising Agency, Inc.
and Pacific Management
Investment Company;
Senior Vice President,
Legal, Secretary Value
Advisors LLC, Thomson
Advisors LLC, Thomson
Advisory Group, Inc.,
and Vice President of
the Trust.
Frank C. Poli Vice President, Director Compliance Officer,
of Compliance PIMCO Funds Distributors
LLC.
Vinh T. Nguyen Vice President, Controller Vice President,
Controller, Columbus
Circle Investors
Management, Inc.,
Cadence Capital
Management, Inc., NFJ
Management, Inc.,
Parametric Management,
Inc., StocksPLUS
Management, Inc., PIMCO
Funds Advertising
Agency, Inc., PIMCO
Funds Distributors LLC,
and Value Advisors LLC;
Controller, Pacific
Investment Management
Company and PIMCO
Management, Inc.
Timothy R. Clark Vice President, Mutual Senior Vice President,
Funds Division PIMCO Funds Distributors
LLC.
Newton B. Schott, Jr. Senior Vice President, Director, Executive Vice
Mutual Funds Division President, Chief
Administrative Officer,
General Counsel and
Secretary, PIMCO Funds
Distributors LLC and
PIMCO Funds Advertising
Agency, Inc.; Chief
Legal Officer and
Secretary, Columbus
Circle Investors,
Columbus Circle
Investors Management,
Inc.; Senior Vice
President, Mutual Fund
Division; General
Counsel and Secretary,
Columbus Circle Trust
Company; Vice President
and Secretary, the
Trust; Senior Vice
President, Value
Advisors LLC.
-6-
<PAGE>
Diane P. Dubois Vice President, Finance None.
Ernest L. Schmider Senior Vice President See Pacific Investment
Management Company.
Pacific Investment Management Company ("PIMCO")
Name Position with Portfolio Manager Other Affiliations
- ---- ------------------------------- ------------------
George C. Allan Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Tamara J. Arnold Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Michael R. Assay Vice President Vice President, PIMCO
Management, Inc.
Leslie A. Barbi Senior Vice President Senior Vice President,
PIMCO Management, Inc.
William R. Benz, II Managing Director Director and Managing
Director, PIMCO
Management, Inc.;
Member of PIMCO
Partners LLC. Member
of Management Board,
PIMCO Advisors L.P.
Gregory A. Bishop Vice President None.
Andrew Brick Senior Vice President Senior Vice President,
PIMCO Management, Inc.
John B. Brynjolfsson Vice President Vice President, PIMCO
Management, Inc.
R. Wesley Burns Managing Director Executive Vice
President, PIMCO
Management, Inc. and
the Trust; President,
PIMCO Funds: Pacific
Investment Management
Series; President and
Director, PIMCO
Commercial Mortgage
Securities Trust,
Inc.; President and
Trustee, PIMCO
Variable Insurance
Trust; Director, PIMCO
Global Advisors
(Ireland) Limited and
PIMCO Advisors Funds
plc.
Carl J. Cohen Vice President Vice President, PIMCO
Management, Inc.
-7-
<PAGE>
Jerry L. Coleman Vice President Vice President, PIMCO
Management, Inc.
Doug Cummings Vice President Vice President, PIMCO
Management, Inc.
Wendy W. Cupps Vice President Vice President, PIMCO
Management, Inc.
Chris Dialynas Director Managing Director,
PIMCO Management, Inc.
David J. Dorff Vice President
Michael Dow Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
Anita Dunn Vice President Senior Vice President,
PIMCO Management, Inc.
A. Benjamin Ehlert Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Robert A. Ettl Senior Vice President Vice President, PIMCO
and Chief Operations Officer Management, Inc.
Anthony L. Faillace Vice President Vice President, PIMCO
Management, Inc.
Robert M. Fitzgerald Chief Financial Officer See PIMCO Advisors
and Treasurer L.P.
Ursula T. Frisch Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
William H. Gross Managing Director See PIMCO Advisors
L.P.
John L. Hague Managing Director Director, PIMCO
Management, Inc.,
Member of PIMCO
Partners LLC.
Gordon C. Hally Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Pasi M. Hamalainen Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
John P. Hardaway Senior Vice President Vice President, PIMCO
Management, Inc.;
Treasurer of the
Trust, PIMCO Funds:
Pacific Investment
Management Series,
PIMCO Commercial
Mortgage Securities
-8-
<PAGE>
Trust, Inc., and PIMCO
Variable Insurance
Trust.
Brent R. Harris Managing Director See PIMCO Advisors
L.P.
Joseph Hattesohl Vice President and Manager Vice President, PIMCO
of Fund Taxation Management, Inc.;
Assistant Treasurer,
the Trust, PIMCO
Funds: Pacific
Investment Management
Series, PIMCO Variable
Insurance Trust, and
PIMCO Commercial
Mortgage Securities
Trust, Inc.
Raymond C. Hayes Vice President Vice President, PIMCO
Management, Inc.
Robert G. Herin Vice President Vice President, PIMCO
Management, Inc.
David C. Hinman Vice President Vice President, PIMCO
Management, Inc.
Liza Hocson Vice President Vice President, PIMCO
Management, Inc.
Douglas M. Hodge Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Brent L. Holden Executive Vice President Executive Vice
President, PIMCO
Management, Inc.
Dwight F. Holloway, Jr. Vice President Vice President, PIMCO
Management, Inc.
Jane T. Howe Vice President Vice President, PIMCO
Management, Inc.
Mark Hudoff Vice President Vice President, PIMCO
Management, Inc.
Margaret E. Isberg Executive Vice President Executive Vice
President, PIMCO
Management, Inc.;
Senior Vice President,
PIMCO Funds: Pacific
Investment Management
Series.
James M. Keller Vice President Vice President, PIMCO
Management, Inc.
Sharon K. Kilmer Executive Vice President None.
Thomas J. Kelleher Vice President Vice President, PIMCO
Management, Inc.
-9-
<PAGE>
Raymond G. Kennedy Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Mark R. Kiesel Vice President Vice President, PIMCO
Management, Inc.
Steven P. Kirkbaumer Vice President None.
John S. Loftus Executive Vice President Executive Vice
President, PIMCO
Management, Inc.; Vice
President and
Assistant Secretary,
StocksPLUS Management,
Inc.
David Lown Vice President Vice President, PIMCO
Management, Inc.
Andre J. Mallegol Vice President Vice President, PIMCO
Management, Inc.
Michael E. Martini Vice President Vice President, PIMCO
Management, Inc.
Dean S. Meiling Managing Director Director and Managing
Director, PIMCO
Management, Inc.; Vice
President, PIMCO
Funds: Pacific
Investment Management
Series and PIMCO
Commercial Mortgage
Securities Trust,
Inc.; Member of PIMCO
Partners LLC.
Joseph V. McDevitt Executive Vice President Vice President, PIMCO
Management, Inc.
James F. Muzzy Managing Director Director and Managing
Director, PIMCO
Management, Inc.; Vice
President, PIMCO
Funds: Pacific
Investment Management
Series; Director and
Vice President,
StocksPLUS Management,
Inc.; Member of PIMCO
Partners LLC.
Doris S. Nakamura Vice President
Vinh T. Nguyen Controller See PIMCO Advisors
L.P.
Douglas J. Ongaro Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Series.
Thomas J. Otterbein Vice President Vice President, PIMCO
Management, Inc.
-10-
<PAGE>
Victoria M. Paradis Vice President Vice President, PIMCO
Management, Inc.
Bradley W. Paulson Vice President Vice President and
Secretary, Vice
President PIMCO Global
Advisors (Europe)
Limited, PIMCO Global
Advisors (Japan)
Limited.
Elizabeth M. Philipp Vice President Vice President, PIMCO
Management, Inc.
David J. Pittman Vice President None.
William F. Podlich, III Managing Director See PIMCO Advisors
L.P.
William C. Powers Managing Director Director and Managing
Director, PIMCO
Management, Inc.;
Senior Vice President
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Member of
PIMCO Partners LLC.
Member of Management
Board, PIMCO Advisors
L.P.
Edward P. Rennie Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Terry A. Randall Vice President
Scott L. Roney Vice President Vice President, PIMCO
Management, Inc.
Michael J. Rosborough Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Seth R. Ruthen Vice President Vice President, PIMCO
Management, Inc.
Jeffrey M. Sargent Vice President and Manager Vice President of the
Shareholder Services and Trust, PIMCO
Fund Administration Management, Inc.;
Senior Vice President,
PIMCO Funds: Pacific
Investment Management
Series, PIMCO Variable
Insurance Trust, and
PIMCO Commercial
Mortgage Securities
Trust, Inc.
Ernest L. Schmider Executive Vice President, Executive Vice
Secretary, Chief Administrative President, Secretary,
and Legal Officer Chief Administrative
and Legal Officer,
PIMCO Management,
Inc.; Director,
Assistant Secretary,
Assistant Treasurer,
StocksPLUS Management,
Inc.; Secretary, PIMCO
Partners LLC.
-11-
<PAGE>
Leland T. Scholey Senior Vice President Senior Vice President,
PIMCO Management,
Inc., and PIMCO Funds:
Pacific Investment
Management Series.
Richard W. Selby Senior Vice President and None.
Chief Technology Officer
Denise C. Seliga Vice President Vice President, PIMCO
Management, Inc.
Rita J. Seymour Vice President Vice President, PIMCO
Management, Inc.
Christopher Sullivan Vice President Vice President, PIMCO
Management, Inc.
Cheryl L. Sylwester Vice President Vice President, PIMCO
Management, Inc.
Lee R. Thomas, III Managing Director Director and Managing
Director, PIMCO
Management, Inc.;
Member of PIMCO
Partners LLC.
William S. Thomson, Jr. Director, Managing Director, See PIMCO Advisors
Chief Executive Officer L.P.
Benjamin L. Trosky Managing Director See PIMCO Advisors
L.P.
Richard E. Tyson Vice President Vice President, PIMCO
Management, Inc.
Peter A. Van de Zilver Vice President Vice President, PIMCO
Management, Inc.
Marilyn Wegener Vice President Vice President, PIMCO
Management, Inc.
Richard M. Weil Assistant Secretary See PIMCO Advisors
L.P.
Paul C. Westhead Vice President Vice President, PIMCO
Management, Inc.
Kristen M. Wilsey Vice President Vice President, PIMCO
Management, Inc. and
PIMCO Funds: Pacific
Investment Management
Series.
George H. Wood Senior Vice President Senior Vice President,
PIMCO Management, Inc.
Michael A. Yetter Vice President Vice President, PIMCO
Management, Inc.
-12-
<PAGE>
David Young Vice President Vice President, PIMCO
Management, Inc.
Item 27. Principal Underwriters.
(a) PIMCO Funds Distributors LLC (the "Distributor") serves as
Distributor of shares for the Registrant and also of PIMCO Funds:
Multi-Manager Series and PIMCO Funds: Pacific Investment Management
Series. The Distributor is a wholly owned subsidiary of PIMCO
Advisors L.P., the Registrant's Adviser.
(b)
Name and Principal Positions and Officers with Positions and Offices
- ------------------ --------------------------- ---------------------
Business Address* Underwriter with Registrant
- ----------------- ----------- ---------------
Jeffrey L. Booth Vice President Vice President, PIMCO
Funds Advertising
Agency, Inc.
James D. Bosch Regional Vice President None.
Deborah P. Brennan Vice President None.
Timothy R. Clark Senior Vice President None.
Jonathan P. Fessel Vice President None.
Robert M. Fitzgerald Chief Financial Officer None.
and Treasurer
Michael J. Gallagher Vice President None.
David S. Goldsmith Vice President None.
Ronald H. Gray Vice President None.
John B. Hussey Vice President None.
Edward W. Janeczek Senior Vice President None.
Stephen R. Jobe Vice President Vice President, PIMCO
Funds Advertising
Agency, Inc.
Jonathan C. Jones Vice President None.
Raymond Lazcano Vice President None.
William E. Lynch Senior Vice President None.
Kevin D. Maloney Compliance Officer None.
Jacqueline A. McCarthy Vice President None.
-13-
<PAGE>
Andrew J. Meyers Executive Vice President Executive Vice
President, PIMCO Funds
Advertising Agency,
Inc.
Fiora N. Moyer Regional Vice President None.
Philip J. Neugebauer Vice President Vice President,
Director of
Compliance, PIMCO
Advisors L.P.
Vinh T. Nguyen Vice President, Controller None.
Joffrey H. Pearlman Regional Vice President None.
Glynne P. Pisapia Regional Vice President None.
Francis C. Poli Compliance Officer Vice President,
Director of
Compliance, PIMCO
Advisors L.P.
Mark J. Porterfield Vice President, Vice President,
Compliance Officer Compliance Officer,
PIMCO Advisors L.P.
Newton B. Schott, Jr. Executive Vice President, Vice President and
Chief Administrative Secretary.
Officer, General
Counsel and Secretary
Robert M. Smith Vice President None.
Ellen Z. Spear Vice President Vice President, PIMCO
Funds Advertising
Agency, Inc.
Daniel W. Sullivan Vice President None.
William H. Thomas, Jr. Regional Vice President None.
Stephen J. Treadway Chairman, President and Chief Executive Vice
Executive Officer President, PIMCO
Advisors L.P. and
Trustee.
Paul H. Troyer Senior Vice President None.
Brian F. Trumbore Executive Vice President None.
Richard M. Weil Assistant Secretary None.
- ----------------------
The principal business address for all individuals listed is 2187 Atlantic
Street, Stamford, CT 06902, except for Messrs. Fitzgerald, Maloney, Nguyen, Poli
and Weil, for whom the address is 800 Newport Center Drive, Newport Beach, CA
92660.
-14-
<PAGE>
(c) The Registrant has no principal underwriter that is not an
affiliated person of the Registrant or an affiliated person of such
an affiliated person.
Item 28. Location of Accounts and Records.
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of State Street Bank and
Trust Company, 801 Pennsylvania Avenue, Kansas City, Missouri 64105.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
-15-
<PAGE>
NOTICE
A copy of the Agreement and Declaration of Trust of Fixed Income SHares
(the "Trust"), together with all amendments thereto, is on file with the
Secretary of State of The Commonwealth of Massachusetts and notice is hereby
given that this instrument is executed on behalf of the Trust by an officer of
the Trust as an officer and not individually and that the obligations of or
arising out of this instrument are not binding upon any of the Trustees of the
Trust or shareholders of any series of the Trust individually but are binding
only upon the assets and property of the Trust or the respective series.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, and the State of New York on the 17th
day of March, 2000.
FIXED INCOME SHARES
By:/s/ SUSAN A. MURPHY
_____________________________________
Susan A. Murphy,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ SUSAN A. MURPHY President and Chief Executive March 17, 2000
_______________________ Officer (principal executive
Susan A. Murphy officer)
/s/ BRIAN SHLISSEL Treasurer (principal financial March 17, 2000
_______________________ officer and principal accounting
Brian Shlissel officer)
/s/ PAUL BELICA* Trustee March 17, 2000
_______________________
Paul Belica
/s/ ROBERT E. CONNOR* Trustee March 17, 2000
_______________________
Robert E. Connor
/s/ STEPHEN J. TREADWAY Trustee March 17, 2000
_______________________
Stephen J. Treadway
*By Susan A. Murphy, pursuant to Power of Attorney filed herewith.
-16-
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Name
- ----------- ------------
(a) Form of Agreement and Declaration of Trust.
(b) Form of By-Laws.
(c) Article III (Shares) and Article V (Shareholders' Voting
Powers and Meetings) of the Agreement and Declaration of
Trust.
(d)(1) Form of Investment Advisory Agreement.
(d)(2) Form of Portfolio Management Agreement with Pacific Investment
Management Company.
(e) Form of Distribution Contract.
(g) Form of Custody and Investment Accounting Agreement with State
Street Bank and Trust Company.
(h)(1) Form of Administration Agreement between the Trust and PIMCO
Advisory Services.
(h)(2) Form of Transfer Agency Agreement.
(i) Form of Opinion and Consent of Counsel.
(j) Form of Consent of Independent Accountants.
(l) Form of Initial Capital Agreement.
(q) Form of Power of Attorney.
-17-
<PAGE>
Fixed Income SHares
AGREEMENT AND DECLARATION OF TRUST
THIS AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts this
3rd day of November, 1999 by the Trustees hereunder and the holders of shares of
beneficial interest issued hereunder and to be issued hereunder as hereinafter
provided:
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed, effective upon execution of this
Agreement and Declaration of Trust by the second of the two initial Trustees
named on the signature page hereof, to manage all property coming into their
hands as trustees of a Massachusetts voluntary association with transferable
shares in accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustee hereunder, IN TRUST to manage and dispose of the same upon the
following terms and conditions for the benefit of the holders from time to time
of shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Section 1. This Trust shall be known as "Fixed Income SHares" and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
(a) "Trust" refers to the Massachusetts business trust established by this
Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustees of the Trust named in Article IV
hereof or elected in accordance with such Article;
<PAGE>
(c) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust or in the Trust property belonging to any
Series of the Trust or in any class of Shares of the Trust (as the context may
require) shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) "1940 Act" refers to the Investment Company Act of 1940 and the Rules
and Regulations thereunder, all as amended from time to time;
(f) The terms "Commission" and "principal underwriter" shall have the
meanings given them in the 1940 Act;
(g) "Declaration of Trust" or "Declaration" shall mean this Agreement and
Declaration of Trust, as amended or restated from time to time;
(h) "By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time;
(i) "Series Company" refers to the form of registered open-end investment
company described in Section 18(f)(2) of the 1940 Act or in any successor
statutory provision;
(j) "Series" refers to Series of Shares established and designated under
or in accordance with the provisions of Article III;
(k) "Multi-Class Series" refers to Series of Shares established and
designated as Multi-Class Series under or in accordance with the provisions of
Article III, Section 6; and
(l) The terms "class" and "class of Shares" refer to each class of Shares
into which the Shares of any Multi-Class Series may from time to time be divided
in accordance with the provisions of Article III.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed investment
primarily in government securities, mortgage-backed securities, and corporate
bonds.
-2-
<PAGE>
ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares, without
par value. Subject to the provisions of Section 6 of this Article III, each
Share shall have voting rights as provided in Article V hereof, and holders of
the Shares of any Series or class shall be entitled to receive dividends, when
and as declared with respect thereto in the manner provided in Article VI,
Section 1 hereof. Except as otherwise provided in Section 6 of this Article III
with respect to Shares of Multi-Class Series, no Share shall have any priority
or preference over any other Share of the same Series with respect to dividends
or distributions upon termination of the Trust or of such Series made pursuant
to Article VIII, Section 4 hereof. Except as otherwise provided in Section 6 of
this Article III with respect to Shares of Multi-Class Series, all dividends and
distributions shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the number of
Shares of such Series held of record by such Shareholders on the record date for
any dividend or distribution or on the date of termination, as the case may be.
Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust. The Trustees may from
time to time divide or combine the Shares of any particular Series or class into
a greater or lesser number of Shares of that Series or class without thereby
changing the proportionate beneficial interest of the Shares of that Series or
class in the assets belonging to that Series or attributable to that class or in
any way affecting the rights of Shares of any other Series or class.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series and class. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
class and similar matters. The record books of the Trust as kept by the Trust or
any transfer or similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each Series and class and as to the number of Shares of
each Series and class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept investments
in the Trust from such persons and on such terms and for such consideration as
they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder
-3-
<PAGE>
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
entitles such representative only to the rights of said deceased Shareholder
under this Trust. Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust property or right to call for
a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust, shall have any
power to bind personally any Shareholders, nor except as specifically provided
herein to call upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust for the purpose of (i) responding
to or complying with any regulations, orders, rulings or interpretations of any
governmental agency or any laws, now or hereafter applicable to the Trust, or
(ii) designating and establishing Series or classes in addition to those
established in Section 6 of this Article III; provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Shareholders. The
establishment and designation of any Series of Shares in addition to the Series
established and designated in Section 6 of this Article III shall be effective
upon the execution by a majority of the then Trustees of an amendment to this
Declaration of Trust, taking the form of a complete restatement or otherwise,
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
establishment and designation of any class of Shares shall be effective upon
either the execution by a majority of the then Trustees of an amendment to this
Declaration of Trust or the adoption by vote or written consent of a majority of
the then Trustees of a resolution setting forth such establishment and
designation and the relative rights and preferences of such class and such
eligibility requirements for investment therein as the Trustees may determine,
or as otherwise provided in such amendment or resolution.
Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or classes of Shares (in addition to any
Series or classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine and reclassify any or all
-4-
<PAGE>
outstanding Shares as shares of particular Series or classes in accordance with
such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (j) of
Section 6 of this Article III;
(c) combine one or more Series or classes of Shares into a single Series
or class on such terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series or class, including without limitation the power to provide
for the issue of Shares of any Series or class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(e) change the designation of any Series or class of Shares;
(f) change the method of allocating dividends among the various Series and
classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series or
classes of Shares; and
(h) specifically allocate assets to any or all Series of Shares or create
one or more additional Series of Shares which are preferred over all other
Series of Shares in respect of assets specifically allocated thereto or any
dividends paid by the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so allocated or
otherwise and provide for any special voting or other rights with respect to
such Series or any classes of Shares thereof.
Section 6. Establishment and Designation of Series and Classes. Without
limiting the authority of the Trustees set forth in Section 5, inter alia, to
establish and designate any further Series or classes or to modify the rights
and preferences of any Series or class, the following Series shall be, and are
hereby, established and designated: "FISH: Series C" and "FISH: Series M."
Shares of each Series established in this Section 6 shall have the
following rights and preferences relative to Shares of each other Series, and
Shares of each class of a Multi-Class Series shall have such rights and
preferences relative to other classes of the same Series as are set forth below,
together with such other rights and preferences relative to such other classes
as are set forth in any resolution of the Trustees establishing and designating
such class of Shares:
-5-
<PAGE>
(a) Assets belonging to Series. Subject to the provisions of paragraph (c)
of this Section 6:
All consideration received by the Trust for the issue or sale of Shares of
a particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits and proceeds thereof from
whatever source derived, including, without limitation, any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in whatever
form the same may be, are herein referred to as "assets belonging to" that
Series. In the event that there are any assets, income, earnings, profits and
proceeds thereof, funds or payments which are not readily identifiable as
belonging to any particular Series (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable, and any
General Asset so allocated to a particular Series shall belong to that Series.
Each such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. Subject to the provisions of
paragraph (c) of this Section 6:
The assets belonging to each particular Series shall be charged solely
with the liabilities of the Trust in respect to that Series, the expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as belonging to any
particular Series but which are allocated and charged by the Trustees to and
among any one or more of the Series established and designated from time to time
in a manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges and reserves so charged
to a Series are herein referred to as "liabilities belonging to" that Series.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(c) Apportionment of Assets etc. in Case of Multi-Class Series. In the
case of any Multi-Class Series, to the extent necessary or appropriate to give
effect to the relative rights and preferences of any classes of Shares of such
Series, (i) any assets, income, earnings, profits, proceeds, liabilities,
expenses, charges, costs and reserves belonging or attributable to that Series
may be allocated or attributed to a particular class of Shares of that Series or
apportioned among two or more classes of Shares of that Series; and (ii) Shares
of any class of
-6-
<PAGE>
such Series may have priority or preference over shares of other classes of such
Series with respect to dividends or distributions upon termination of the Trust
or of such Series or class or otherwise, provided that no Share shall have any
priority or preference over any other Shares of the same class and that all
dividends and distributions to Shareholders of a particular class shall be made
ratably among all Shareholders of such class according to the number of Shares
of such class held of record by such Shareholders on the record date for any
dividend or distribution or on the date of termination, as the case may be.
(d) Dividends, Distributions, Redemptions and Repurchases. Notwithstanding
any other provisions of this Declaration, including, without limitation, Article
VI, no dividend or distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series or class) with respect to,
nor any redemption or repurchase of, the Shares of any Series or class shall be
effected by the Trust other than from the assets belonging to such Series or
attributable to such class, nor shall any Shareholder of any particular Series
or class otherwise have any right or claim against the assets belonging to any
other Series or attributable to any other class except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder of such other
Series or class.
(e) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series or class shall not be entitled to vote on
any matters as to which such Series or class is not affected. On any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall, except as otherwise provided in the By-Laws, be voted in the
aggregate as a single class without regard to Series or class of Shares, except
that (1) when required by the 1940 Act or when the Trustees shall have
determined that the matter affects one or more Series or classes of Shares
materially differently, Shares shall be voted by individual Series or class and
(2) when the matter affects only the interests of one or more Series or classes,
only Shareholders of such Series or classes shall be entitled to vote thereon.
There shall be no cumulative voting in the election of Trustees.
(f) Equality. Except to the extent necessary or appropriate to give effect
to the relative rights and preferences of any classes of Shares of a Multi-Class
Series, all the Shares of each particular Series shall represent an equal
proportionate interest in the assets belonging to that Series (subject to the
liabilities belonging to that Series), and each Share of any particular Series
shall be equal to each other Share of that Series. All the Shares of each
particular class of Shares within a Multi-Class Series shall represent an equal
proportionate interest in the assets belonging to such Series that are
attributable to such class (subject to the liabilities attributable to such
class), and each Share of any particular class within a Multi-Class Series shall
be equal to each other Share of such class.
(g) Fractions. Any fractional Share of a Series or class shall carry
proportionately all the rights and obligations of a whole Share of that Series
or class, including rights with
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respect to voting, receipt of dividends and distributions, redemption of Shares
and termination of the Trust.
(h) Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any Series or class shall have the right to
exchange said Shares for Shares of one or more other Series or classes of Shares
in accordance with such requirements and procedures as may be established by the
Trustees.
(i) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or class
unless otherwise required by applicable law, to combine the assets and
liabilities belonging to any two or more Series or attributable to any class
into assets and liabilities belonging to a single Series or attributable to a
single class.
(j) Elimination of Series or Class. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that Series and to
rescind the establishment and designation thereof, such amendment to be effected
in the manner provided in Section 5 of this Article III for the establishment
and designation of Series. At any time that there are no Shares outstanding of
any particular class previously established and designated of a Multi-Series
Class, the Trustees may abolish that class and rescind the establishment and
designation thereof, either by amending this Declaration of Trust in the manner
provided in Section 5 of this Article III for the establishment and designation
of classes (if such class was established and designated by an amendment to this
Declaration of Trust), or by vote or written consent of a majority of the then
Trustees (if such class was established and designated by Trustee vote or
written consent).
Section 7. Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder of the Trust or of a particular Series
or class and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets of the Series (or attributable to the class) of which he or she is
a Shareholder or former Shareholder to be held harmless from and indemnified
against all loss and expense arising from such liability.
Section 8. No Preemptive Rights. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust.
Section 9. Derivative Claims. No Shareholder shall have the right to bring
or maintain any court action, proceeding or claim on behalf of the Trust or any
Series without first making demand on the Trustees requesting the Trustees to
bring or maintain such action, proceeding or
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claim. Such demand shall be excused only when the plaintiff makes a specific
showing that irreparable injury to the Trust or Series would otherwise result.
Such demand shall be mailed to the Secretary of the Trust at the Trust's
principal office and shall set forth in reasonable detail the nature of the
proposed court action, proceeding or claim and the essential facts relied upon
by the Shareholder to support the allegations made in the demand. The Trustees
shall consider such demand within 45 days of its receipt by the Trust. In their
sole discretion, the Trustees may submit the matter to a vote of Shareholders of
the Trust or Series, as appropriate. Any decision by the Trustees to bring,
maintain or settle (or not to bring, maintain or settle) such court action,
proceeding or claim, or to submit the matter to a vote of Shareholders, shall be
made by the Trustees in their business judgment and shall be binding upon the
Shareholders. Any decision by the Trustees to bring or maintain a court action,
proceeding or suit on behalf of the Trust or a Series shall be subject to the
right of the Shareholders under Article V, Section 1 hereof to vote on whether
or not such court action, proceeding or suit should or should not be brought or
maintained.
ARTICLE IV
The Trustees
Section 1. Election and Tenure. The two initial Trustees shall be Stephen
J. Treadway and Brian D. McCabe. The Trustees may fix the number of Trustees,
fill vacancies in the Trustees, including vacancies arising from an increase in
the number of Trustees, or remove Trustees with or without cause. Each Trustee
shall serve during the continued lifetime of the Trust until he or she dies,
resigns or is removed, or, if sooner, until the next meeting of Shareholders
called for the purpose of electing Trustees and until the election and
qualification of his or her successor. Any Trustee may resign at any time by
written instrument signed by him or her and delivered to any officer of the
Trust or to a meeting of the Trustees. Such resignation shall be effective upon
receipt unless specified to be effective at some other time. Except to the
extent expressly provided in a written agreement with the Trust, no Trustee
resigning and no Trustee removed shall have any right to any compensation for
any period following his or her resignation or removal, or any right to damages
on account of such removal. The Shareholders may fix the number of Trustees and
elect Trustees at any meeting of Shareholders called by the Trustees for that
purpose and to the extent required by applicable law, including paragraphs (a)
and (b) of Section 16 of the 1940 Act.
Section 2. Effect of Death, Resignation, etc. of a Trustee. The death,
declination, resignation, retirement, removal or incapacity of the Trustees, or
any of them, shall not operate to annul the Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust.
Section 3. Powers. Subject to the provisions of this Declaration of Trust,
the business of the Trust shall be managed by the Trustees, and they shall have
all powers necessary or
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convenient to carry out that responsibility including the power to engage in
securities transactions of all kinds on behalf of the Trust. Without limiting
the foregoing, the Trustees may adopt By-Laws not inconsistent with this
Declaration of Trust providing for the regulation and management of the affairs
of the Trust and may amend and repeal them to the extent that such By-Laws do
not reserve that right to the Shareholders; they may elect and remove such
officers and appoint and terminate such agents as they consider appropriate;
they may appoint from their own number and terminate one or more committees
consisting of one or more Trustees which may exercise the powers and authority
of the Trustees to the extent that the Trustees determine; they may employ one
or more custodians of the assets of the Trust and may authorize such custodians
to employ subcustodians and to deposit all or any part of such assets in a
system or systems for the central handling of securities or with a Federal
Reserve Bank, retain a transfer agent or a shareholder servicing agent, or both,
provide for the distribution of Shares by the Trust, through one or more
principal underwriters or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, write
options with respect to or otherwise deal in any property rights relating to any
or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
proxies or powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in its own name or
in the name of a custodian or subcustodian or a nominee or nominees or
otherwise;
(f) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer of any security which is
held in the Trust; to consent to any contract, lease, mortgage, purchase or sale
of property by such corporation or issuer; and to pay calls or subscriptions
with respect to any security held in the Trust;
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(g) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit any
security with, or transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority with relation to any
security (whether or not so deposited or transferred) as the Trustees shall deem
proper, and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees shall deem
proper;
(h) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust or any matter in controversy, including but not limited to
claims for taxes;
(i) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(j) To borrow funds or other property;
(k) To endorse or guarantee the payment of any notes or other obligations
of any person; and to make contracts of guaranty or suretyship, or otherwise
assume liability for payment of such notes or other obligations;
(l) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the business of the
Trust, including, without limitation, insurance policies insuring the assets of
the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, investment advisers, principal underwriters or
independent contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or having held
any such office or position, or by reason of any action alleged to have been
taken or omitted by any such person as Trustee, officer, employee, agent,
investment adviser, principal underwriter or independent contractor, including
any action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person against
liability; and
(m) To pay pensions as deemed appropriate by the Trustees and to adopt,
establish and carry out pension, profit-sharing, share bonus, share purchase,
savings, thrift and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. The Trustees shall
not be required to obtain any court order to deal with any assets of the Trust
or take any other action hereunder.
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Section 4. Payment of Expenses by the Trust. The Trustees are authorized
to pay or cause to be paid out of the principal or income of the Trust, or
partly out of principal and partly out of income, as they deem fair, all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with the Trust, or in connection with the management thereof, including but not
limited to, the Trustees' compensation and such expenses and charges for the
services of the Trust's officers, employees, administrators, investment advisers
or managers, principal underwriter, auditor, counsel, custodian, transfer agent,
shareholder servicing agent, and such other agents or independent contractors,
and such other expenses and charges, as the Trustees may deem necessary or
proper to incur.
Section 5. Payment of Expenses by Shareholders. The Trustees shall have
the power, as frequently as they may determine, to cause each Shareholder, or
each Shareholder of any particular Series or class, to pay directly, in advance
or arrears, for charges of the Trust's custodian or transfer, shareholder
servicing or similar agent, an amount fixed from time to time by the Trustees,
by setting off such charges due from such Shareholder from declared but unpaid
dividends owed such Shareholder and/or by reducing the number of Shares in the
account of such Shareholder by that number of full and/or fractional Shares
which represents the outstanding amount of such charges due from such
Shareholder.
Section 6. Ownership of Assets of the Trust. Title to all of the assets of
the Trust shall at all times be considered as vested in the Trustees.
Section 7. Advisory, Management and Distribution Contracts. Subject to
such requirements and restrictions as may be set forth in the By-Laws, the
Trustees may, at any time and from time to time, contract for exclusive or
nonexclusive advisory and/or management services for the Trust or for any Series
or class with any corporation, trust, association or other organization (the
"Manager"); and any such contract may contain such other terms as the Trustees
may determine, including without limitation, authority for a Manager to
determine from time to time without prior consultation with the Trustees what
investments shall be purchased, held, sold or exchanged and what portion, if
any, of the assets of the Trust shall be held uninvested and to make changes in
the Trust's investments. The Trustees may also, at any time and from time to
time, contract with the Manager or any other corporation, trust, association or
other organization, appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to comply with such
requirements and restrictions as may be set forth in the By-Laws; and any such
contract may contain such other terms as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter, distributor or affiliate or agent of or
for any corporation, trust, association or other organization, or of or
for any parent or affiliate of any organization, with which an
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advisory or management contract, or principal underwriter's or
distributor's contract or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made, or that any such
organization, or any parent or affiliate thereof, is a Shareholder or has
an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, shareholder servicing or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract
or transfer, shareholder servicing or other agency contract with one or
more other corporations, trusts, associations or other organizations, or
has other business or interests
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article IV, Section 1, (ii) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article VIII, Section 8, (iii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iv) with respect to the termination of the Trust or any Series or class to the
extent and as provided in Article VIII, Section 4, (v) to remove Trustees from
office to the extent and as provided in Article V, Section 7 and (vi) with
respect to such additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. At any time when no Shares of a
Series or class are outstanding the Trustees may exercise all rights of
Shareholders of that Series or class with respect to matters affecting that
Series or class and
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may with respect to that Series or class take any action required by law, this
Declaration of Trust or the By-Laws to be taken by the Shareholders thereof.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Notice of any meeting of Shareholders, stating the time and place of
the meeting, shall be given or caused to be given by the Trustees to each
Shareholder by mailing such notice, postage prepaid, at least seven days before
such meeting, at the Shareholder's address as it appears on the records of the
Trust, or by facsimile or other electronic transmission, at least seven days
before such meeting, to the telephone or facsimile number or e-mail or other
electronic address most recently furnished to the Trust (or its agent) by the
Shareholder. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a written waiver
thereof, executed before or after the meeting by such Shareholder or his
attorney thereunto authorized and filed with the records of the meeting, shall
be deemed equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, by the By-Laws or by this Declaration of Trust, 40% of the
Shares entitled to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series or classes is to vote as a single class separate
from any other Shares which are to vote on the same matters as a separate class
or classes, 40% of the Shares of each such class entitled to vote shall
constitute a quorum at a Shareholders' meeting of that class. Any meeting of
Shareholders may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned within a reasonable time after the date set for
the original meeting without further notice. When a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by law. If any question
on which the Shareholders are entitled to vote would adversely affect the rights
of any Series or class of Shares, the vote of a majority (or such larger vote as
is required as aforesaid) of the Shares of such Series or class which are
entitled to vote, voting separately, shall also be required to decide such
question.
Section 4. Action by Written Consent. Any action taken by Shareholders may
be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series or class entitled to vote separately on the matter consent
to the action in writing and such written consents are filed with the records of
the meetings of
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Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the Shareholders
of any Series or class who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time, which shall
be not more than 90 days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series or class having the
right to notice of and to vote at such meeting and any adjournment thereof, and
in such case only Shareholders of record on such record date shall have such
right, notwithstanding any transfer of Shares on the books of the Trust after
the record date. For the purpose of determining the Shareholders of any Series
or class who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a date, which shall be on
or before the date for the payment of such dividend or such other payment, as
the record date for determining the Shareholders of such Series or class having
the right to receive such dividend or distribution. Without fixing a record date
the Trustees may for voting and/or distribution purposes close the register or
transfer books for one or more Series or classes for all or any part of the
period prior to a meeting of Shareholders or the payment of a distribution.
Nothing in this Section shall be construed as precluding the Trustees from
setting different record dates for different Series or classes.
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
Section 7. Removal of Trustees. No natural person shall serve as Trustee
after the holders of record of not less than two-thirds of the outstanding
Shares have declared that such Trustee be removed from that office either by
declaration in writing filed with the Trust's custodian or by votes cast in
person or by proxy at a meeting called for the purpose. The Trustees shall
promptly call a meeting of Shareholders for the purpose of voting upon the
question of removal of any Trustee when requested in writing so to do by the
record holders of not less than 10 per centum of the outstanding Shares.
Whenever ten or more Shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate Shares having a net asset value of at least 1 per centum of the
outstanding Shares, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to a request for a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (a) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded on the books of the Trust; or (b) inform such applicants as to the
approximate number of Shareholders of record, and the approximate cost of
transmitting to them the proposed communication and form of request. If the
Trustees elect to follow the course specified in clause (b), the Trustees, upon
the written request of such applicants, accompanied by a tender of the material
to be transmitted and of the
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reasonable expenses of transmittal, shall, with reasonable promptness, transmit
such material to all Shareholders of record at their addresses as recorded on
the books of the Trust (or at the telephone or facsimile number or e-mail or
other electronic address most recently furnished to the Trust (or its agent) by
the Shareholder), unless within five business days after such tender the
Trustees shall transmit to such applicants and file with the Commission,
together with a copy of the material proposed to be transmitted, a written
statement signed by at least a majority of the Trustees to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. If the Commission shall enter an order refusing to sustain any
of the objections specified in the written statement so filed, or if, after the
entry of an order sustaining one or more of such objections, the Commission
shall find, after notice and opportunity for hearing, that all objections so
sustained have been met, and shall enter an order so declaring, the Trustees
shall transmit copies of such material to all Shareholders with reasonable
promptness after the entry of such order and the renewal of such tender.
ARTICLE VI
Net Income, Distributions, and Redemptions and Repurchases
Section 1. Distributions of Net Income. The Trustees shall each year, or
more frequently if they so determine in their sole discretion, distribute to the
Shareholders of each Series, in Shares of that Series, cash or otherwise, an
amount approximately equal to the net income attributable to the assets
belonging to such Series and may from time to time distribute to the
Shareholders of each Series, in Shares of that Series, cash or otherwise, such
additional amounts, but only from the assets belonging to such Series, as they
may authorize. Except as otherwise permitted by paragraph (c) of Section 6 of
Article III in the case of Multi-Class Series, all dividends and distributions
on Shares of a particular Series shall be distributed pro rata to the holders of
that Series in proportion to the number of Shares of that Series held by such
holders and recorded on the books of the Trust at the date and time of record
established for the payment of such dividend or distributions.
The manner of determining net income, income, asset values, capital gains,
expenses, liabilities and reserves of any Series or class may from time to time
be altered as necessary or desirable in the judgment of the Trustees to conform
such manner of determination to any other method prescribed or permitted by
applicable law. Net income shall be determined by the Trustees or by such person
as they may authorize at the times and in the manner provided in the By-Laws.
Determinations of net income of any Series or class and determinations of
income, asset value, capital gains, expenses and liabilities made by the
Trustees, or by such person as they may authorize, in good faith, shall be
binding on all parties concerned. The foregoing sentence shall not be construed
to protect any Trustee, officer or agent of the Trust against any liability to
the Trust or its security holders to which he or she would otherwise be
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subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
If, for any reason, the net income of any Series or class determined at
any time is a negative amount, the pro rata share of such negative amount
allocable to each Shareholder of such Series or class shall constitute a
liability of such Shareholder to that Series or class which shall be paid out of
such Shareholder's account at such times and in such manner as the Trustees may
from time to time determine (x) out of the accrued dividend account of such
Shareholder, (y) by reducing the number of Shares of that Series or class in the
account of such Shareholder or (z) otherwise.
Section 2. Redemptions and Repurchases. The Trust shall purchase such
Shares as are offered by any Shareholder for redemption, upon the presentation
of a proper instrument of transfer together with a request directed to the Trust
or a person designated by the Trust that the Trust purchase such Shares or in
accordance with such other procedures for redemption as the Trustees may from
time to time authorize; and the Trust will pay therefor the net asset value
thereof, as determined in accordance with the By-Laws, next determined. Payment
for said Shares shall be made by the Trust to the Shareholder within seven days
after the date on which the request is made. The obligation set forth in this
Section 2 is subject to the provision that in the event that any time the New
York Stock Exchange is closed for other than weekends or holidays, or if
permitted by the rules of the Commission during periods when trading on the New
York Stock Exchange is restricted or during any emergency which makes it
impracticable for the Trust to dispose of the investments of the applicable
Series or to determine fairly the value of the net assets belonging to such
Series or attributable to any class thereof or during any other period permitted
by order of the Commission for the protection of investors, such obligations may
be suspended or postponed by the Trustees. The Trust may also purchase or
repurchase Shares at a price not exceeding the net asset value of such Shares in
effect when the purchase or repurchase or any contract to purchase or repurchase
is made.
The redemption price may in any case or cases be paid wholly or partly in
kind if the Trustees determine that such payment is advisable in the interest of
the remaining Shareholders of the Series the Shares of which are being redeemed.
In making any such payment wholly or partly in kind, the Trust shall, so far as
may be practicable, deliver assets which approximate the diversification of all
of the assets belonging at the time to the Series the Shares of which are being
redeemed. Subject to the foregoing, the fair value, selection and quantity of
securities or other property so paid or delivered as all or part of the
redemption price may be determined by or under authority of the Trustees. In no
case shall the Trust be liable for any delay of any corporation or other person
in transferring securities selected for delivery as all or part of any payment
in kind.
Section 3. Redemptions at the Option of the Trust. The Trust shall have
the right at its option and at any time to redeem Shares of any Shareholder at
the net asset value thereof as described in Section 1 of this Article VI: (i) if
at such time such Shareholder owns Shares of
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any Series or class having an aggregate net asset value of less than an amount
determined from time to time by the Trustees; or (ii) to the extent that such
Shareholder owns Shares equal to or in excess of a percentage determined from
time to time by the Trustees of the outstanding Shares of the Trust or of any
Series or class.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Section 1. Compensation. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the employment of any
Trustee for advisory, management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Section 2. Limitation of Liability. The Trustees shall not be responsible
or liable in any event for any neglect or wrong-doing of any officer, agent,
employee, Manager or principal underwriter of the Trust, nor shall any Trustee
be responsible for the act or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Every note, bond, contract, instrument, certificate or undertaking and
every other act or thing whatsoever issued, executed or done by or on behalf of
the Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been issued, executed or done only in or with
respect to their or his or her capacity as Trustees or Trustee, and such
Trustees or Trustee shall not be personally liable thereon.
ARTICLE VIII
Miscellaneous
Section 1. Trustees, Shareholders, etc. Not Personally Liable; Notice. All
persons extending credit to, contracting with or having any claim against the
Trust or any Series or class shall look only to the assets of the Trust, or, to
the extent that the liability of the Trust may have been expressly limited by
contract to the assets of a particular Series or attributable to a particular
class, only to the assets belonging to the relevant Series or attributable to
the relevant class, for payment under such credit, contract or claim; and
neither the Shareholders nor the Trustees, nor any of the Trust's officers,
employees or agents, whether past, present or future, shall be personally liable
therefor. Nothing in this Declaration of Trust shall protect any Trustee against
any liability to which such Trustee would otherwise be subject by reason of
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willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued on behalf of the Trust by the Trustees, by any officer or officers or
otherwise shall give notice that this Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts and shall recite that the same
was executed or made by or on behalf of the Trust or by them as Trustee or
Trustees or as officer or officers or otherwise and not individually and that
the obligations of such instrument are not binding upon any of them or the
Shareholders individually but are binding only upon the assets and property of
the Trust or upon the assets belonging to the Series or attributable to the
class for the benefit of which the Trustees have caused the note, bond,
contract, instrument, certificate or undertaking to be made or issued, and may
contain such further recital as he or she or they may deem appropriate, but the
omission of any such recital shall not operate to bind any Trustee or Trustees
or officer or officers or Shareholders or any other person individually.
Section 2. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his or her own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and shall be under no liability for
any act or omission in accordance with such advice or for failing to follow such
advice. The Trustees shall not be required to give any bond as such, nor any
surety if a bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Termination of Trust, Series or Class. Unless terminated as
provided herein, the Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of at least 66-2/3% of the Shares of each
Series entitled to vote and voting separately by Series, or by the Trustees by
written notice to the Shareholders. Any Series or class may be terminated at any
time by vote of at least 66-2/3% of the Shares of that Series or class, or by
the Trustees by written notice to the Shareholders of that Series or class.
Upon termination of the Trust (or any Series or class, as the case may
be), after paying or otherwise providing for all charges, taxes, expenses and
liabilities belonging, severally, to each Series (or the applicable Series or
attributable to the particular class, as the case may be), whether due or
accrued or anticipated as may be determined by the Trustees, the Trust shall, in
accordance with such procedures as the Trustees consider appropriate, reduce the
remaining
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assets belonging, severally, to each Series (or the applicable Series or
attributable to the particular class, as the case may be), to distributable form
in cash or shares or other securities, or any combination thereof, and
distribute the proceeds belonging to each Series (or the applicable Series or
attributable to the particular class, as the case may be), to the Shareholders
of that Series (or class, as the case may be), as a Series (or class, as the
case may be), ratably according to the number of Shares of that Series (or
class, as the case may be) held by the several Shareholders on the date of
termination.
Section 5. Merger and Consolidation. The Trustees may cause the Trust to
be merged into or consolidated with another trust or company or its shares
exchanged under or pursuant to any state or federal statute, if any, or
otherwise to the extent permitted by law, if such merger or consolidation or
share exchange has been authorized by vote of a majority of the outstanding
Shares; provided that in all respects not governed by statute or applicable law,
the Trustees shall have power to prescribe the procedure necessary or
appropriate to accomplish a sale of assets, merger or consolidation.
Section 6. Filing of Copies, Reference, Headings. The original or a copy
of this instrument and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment hereto shall be filed by the Trust with the
Secretary of the Commonwealth of Massachusetts and with any other governmental
office where such filing may from time to time be required. Anyone dealing with
the Trust may rely on a certificate by an officer of the Trust as to whether or
not any such amendments have been made and as to any matters in connection with
the Trust hereunder; and, with the same effect as if it were the original, may
rely on a copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in any such
amendment, references to this instrument, and all expressions like "herein,"
"hereof" and "hereunder," shall be deemed to refer to this instrument as amended
or affected by any such amendments. Headings are placed herein for convenience
of reference only and shall not be taken as a part hereof or to control or
affect the meaning, construction or effect of this instrument. This instrument
may be executed in any number of counterparts each of which shall be deemed an
original.
Section 7. Applicable Law. This Declaration of Trust is made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a Massachusetts business trust, and,
without limiting the provisions hereof, the Trust may exercise all powers which
are ordinarily exercised by such a trust.
Section 8. Amendments. This Declaration of Trust may be amended at any
time by an instrument in writing signed by a majority of the then Trustees when
authorized so to do by vote of a majority of the Shares entitled to vote with
respect to such amendment, except that amendments described in Article III,
Section 5 or Article III, Section 6 hereof or having the purpose of changing the
name of the Trust or of any Series or class of Shares or of supplying
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any omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.
Section 9. Addresses. The address of the Trust is c/o PIMCO Advisory
Services, 1345 Avenue of the Americas, New York, New York, 10105. The address of
the Trustees is c/o PIMCO Advisory Services, 1345 Avenue of the Americas, New
York, New York, 10105.
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IN WITNESS WHEREOF, the undersigned has hereunto set his hands and seal
for himself and for his successors and assigns this 2nd day of November, 1999.
/s/ STEPHEN J. TREADWAY
_________________________
Stephen J. Treadway
Trustee
IN WITNESS WHEREOF, the undersigned has hereunto set his hands and seal
for himself and for his successors and assigns this 3rd day of November, 1999.
/s/ BRIAN D. McCABE
_________________________
Brian D. McCabe
Trustee
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, November 3, 1999
Then personally appeared the above named Brian D. McCabe and acknowledged
the foregoing instrument to be his free act and deed, before me.
/s/ CHRISTINA B. WHEELER
_________________________
Notary Public
My Commission Expires: July 3, 2003
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<PAGE>
BY-LAWS
OF
Fixed Income SHares
ARTICLE 1
Agreement and Declaration
of Trust and Principal Office
1.1 Agreement and Declaration of Trust. These By-Laws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Fixed Income SHares (the "Trust"), the Massachusetts
business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Boston, Massachusetts.
ARTICLE 2
Meetings of Trustees
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call
or notice at such places and at such times as the Trustees may from time to time
determine, provided that notice of the first regular meeting following any such
determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time
and at any place designated in the call of the meeting, when called by the
Chairman of the Board, if any, the President or the Treasurer or by two or more
Trustees, sufficient notice thereof being given to each Trustee by the Clerk or
an Assistant Clerk or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to
send notice by mail or courier at least forty-eight hours or by telegram at
least twenty-four hours before the meeting addressed to the Trustee at his or
her usual or last known business or residence address or to give notice to him
or her in person or by telephone at least twenty-four hours before the meeting.
Notice of a meeting need not be given to any Trustee if a written waiver of
notice, executed by him or her before or after the meeting, is filed with the
records of the meeting, or to any Trustee who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him or
her. Except as required by law, neither notice of a meeting nor a waiver of a
notice need specify the purposes of the meeting.
<PAGE>
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in
office shall constitute a quorum. Any meeting may be adjourned from time to time
by a majority of the votes cast upon the question, whether or not a quorum is
present, and the meeting may be held as adjourned without further notice to any
Trustee who was present at the time of such adjournment; notice of the time and
place of any adjourned session of such meeting shall, however, be given in the
manner provided in Section 2.3 of these By-Laws to each Trustee who was not
present at the time of such adjournment.
2.5 Action by Vote. When a quorum is present at any meeting, a majority of
Trustees present may take any action, except when a larger vote is expressly
required by law, by the Declaration of Trust or by these By-Laws.
2.6 Action by Writing. Except as required by law, any action required or
permitted to be taken at any meeting of the Trustees may be taken without a
meeting if a majority of the Trustees (or such larger proportion thereof as
shall be required by any express provision of the Declaration of Trust or these
By-Laws) consent to the action in writing and such written consents are filed
with the records of the meetings of the Trustees. Such consent shall be treated
for all purposes as a vote taken at a meeting of Trustees.
2.7 Presence through Communications Equipment. Except as required by law, the
Trustees may participate in a meeting of Trustees by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other at the same time, and
participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
Officers
3.1 Enumeration; Qualification. The officers of the Trust shall be a Chairman of
the Board, a President, a Treasurer, a Clerk and such other officers, if any, as
the Trustees from time to time may in their discretion elect. The Trust may
also have such agents as the Trustees from time to time may in their discretion
appoint. Any officer may but need not be a Trustee or Shareholder. Any two or
more offices may be held by the same person.
3.2 Election and Tenure. The Chairman of the Board, the President, the
Treasurer, the Clerk and such other officers as the Trustees may in their
discretion from time to time elect shall each be elected by the Trustees to
serve until his or her successor is elected or qualified, or until he or she
sooner dies, resigns, is removed or becomes disqualified. Each officer shall
hold office and each agent shall retain authority at the pleasure of the
Trustees.
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<PAGE>
3.3 Powers. Subject to the other provisions of these By-Laws, each officer shall
have, in addition to the duties and powers herein and in the Declaration of
Trust set forth, such duties and powers as are commonly incident to the office
occupied by him or her as if the Trust were organized as a Massachusetts
business corporation and such other duties and powers as the Trustees may from
time to time designate.
3.4 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he
shall have the duties and powers specified in these By-Laws and shall have such
other duties and powers as may be determined by the Trustees.
3.5 President and Vice Presidents. The President shall have the duties and
powers specified in these By-Laws and shall have such other duties and powers
as may be determined by the Trustees.
Any Vice Presidents shall have such duties and powers as shall be designated
from time to time by the Trustees.
3.6 Chief Executive Officer. The Chief Executive Officer of the Trust shall be
the Chairman of the Board, the President or such other officer as is designated
by the Trustees and shall, subject to the control of the Trustees, have general
charge and supervision of the business of the Trust and, except as the Trustees
shall otherwise determine, preside at all meetings of the Shareholders and of
the Trustees. If no such designation is made, the Chairman of the Board shall be
the Chief Executive Officer.
3.7 Treasurer. The Treasurer shall be the chief financial and accounting officer
of the Trust, and shall, subject to the provisions of the Declaration of Trust
and to any arrangement made by the Trustees with a custodian, investment adviser
or manager, administrator or transfer, shareholder servicing or similar agent,
be in charge of the valuable papers, books of account and accounting records of
the Trust, and shall have such other duties and powers as may be designated from
time to time by the Trustees or by the President.
3.8 Clerk. The Clerk shall record all proceedings of the Shareholders and the
Trustees in books to be kept therefor, which books or a copy thereof shall be
kept at the principal office of the Trust. In the absence of the Clerk from any
meeting of the Shareholders or Trustees, an assistant Clerk, or if there be none
or if he or she is absent, a temporary clerk chosen at such meeting shall record
the proceedings thereof in the aforesaid books.
3.9 Resignations and Removals. Any officer may resign at any time by written
instrument signed by him or her and delivered to the President or the Clerk or
to a meeting of the Trustees. Such resignation shall be effective upon receipt
unless specified to be effective at some other time. The Trustees may remove any
officer with or without cause. Except to the extent expressly provided in a
written agreement with the Trust, no officer resigning and no
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<PAGE>
officer removed shall have any right to any compensation for any period
following his or her resignation or removal, or any right to damages on account
of such removal.
ARTICLE 4
Indemnification
4.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as directors,
officers or trustees of another organization in which the Trust has any interest
as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered
Person") against all liabilities and expenses, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of any alleged act or
omission as a Trustee or officer or by reason of his or her being or having
been such a Trustee or officer, except with respect to any matter as to which
such Covered Person shall have been finally adjudicated in any such action,
suit or other proceeding not to have acted in good faith in the reasonable
belief that such Covered Person's action was in the best interest of the Trust
and except that no Covered Person shall be indemnified against any liability to
the Trust or its Shareholders to which such Covered Person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Covered
Person's office. Expenses, including counsel fees so incurred by any such
Covered Person, may be paid from time to time by the Trust in advance of the
final disposition of any such action, suit or proceeding on the condition that
the amounts so paid shall be repaid to the Trust if it is ultimately determined
that indemnification of such expenses is not authorized under this Article;
provided, however, that (1) such Covered Person shall provide a security for
his undertaking to repay the advance if it is ultimately determined that
indemnification is not authorized under this Article, (2) the Trust shall be
insured against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of disinterested, non-party directors of the Trust, or an
independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts, that there is reason to believe that such
Covered Person ultimately will be found entitled to indemnification under this
Article. In the case of such an opinion, the relevant disinterested, non-party
directors or independent legal counsel, as the case may be, shall afford the
Covered Person a rebuttable presumption that he has not engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
4.2 Compromise Payment. As to any matter disposed of by a compromise payment by
any such Covered Person referred to in Section 4.1 above, pursuant to a consent
decree or otherwise, no such indemnification either for said payment or for any
other expenses shall be provided unless such compromise shall be approved as in
the best interests of the Trust, after notice that it involved such
indemnification, (a) by a disinterested majority of the Trustees then in office;
or (b) by a majority of the disinterested Trustees then in office; or (c) by any
disinterested person or persons to whom the question may be referred by the
Trustees, provided that in the case of approval pursuant to clause (b) or (c)
there has been obtained an opinion in writing of independent legal counsel to
the effect that such Covered Person appears to have acted in good faith in the
reasonable belief that his or her action was in the best interests of the Trust
and that such indemnification would not protect such person against any
liability to the Trust or its Shareholders to which such person would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties
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<PAGE>
involved in the conduct of office; or (d) by vote of Shareholders holding a
majority of the Shares entitled to vote thereon, exclusive of any Shares
beneficially owned by any interested Covered Person. Approval by the Trustees
pursuant to clause (a) or (b) or by any disinterested person or persons pursuant
to clause (c) of this Section shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in accordance with any of such
clauses as indemnification if such Covered Person is subsequently adjudicated by
a court of competent jurisdiction not to have acted in good faith in the
reasonable belief that such Covered Person's action was in the best interests of
the Trust or to have been liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
4.3 Indemnification Not Exclusive. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which any such Covered
Person may be entitled. As used in this Article 4, the term "Covered Person"
shall include such person's heirs, executors and administrators; an "interested
Covered Person" is one against whom the action, suit or other proceeding in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending; and a "disinterested Trustee" or
"disinterested person" is a Trustee or a person against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
ARTICLE 5
Reports
5.1 General. The Trustees and officers shall render reports at the time and in
the manner required by the Declaration of Trust or any applicable law. Officers
shall render such additional reports as they may deem desirable or as may from
time to time be required by the Trustees.
ARTICLE 6
Fiscal Year
6.1 General. Except as from time to time otherwise provided by the Trustees, the
fiscal year of the Trust shall end on December 31 in each year.
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ARTICLE 7
Seal
7.1 General. The seal of the Trust shall consist of a flat-faced die with the
word "Massachusetts," together with the name of the Trust and the year of its
organization cut or engraved thereon, but, unless otherwise required by the
Trustees, the seal shall not be necessary to be placed on, and its absence shall
not impair the validity of, any document, instrument or other paper executed and
delivered by or on behalf of the Trust.
ARTICLE 8
Execution of Papers
8.1 General. Except as the Trustees may generally or in particular cases
authorize the execution thereof in some other manner, all checks, notes, drafts
and other obligations and all registration statements and amendments thereto and
all applications and amendments thereto to the Securities and Exchange
Commission shall be signed by the Chairman, if any, the President, any Vice
President or the Treasurer or any of such other officers or agents as shall be
designated for that purpose by a vote of the Trustees.
ARTICLE 9
Provisions Relating to the
Conduct of the Trust's Business
9.1 Determination of Net Asset Value. The Trustees or any officer or officers or
agent or agents of the Trust designated from time to time for this purpose by
the Trustees shall determine at least once daily the net income and the value of
all the assets belonging to any Series or attributable to any class of Shares of
the Trust on each day upon which the New York Stock Exchange is open for
unrestricted trading and at such other times as the Trustees shall designate. In
determining asset values, all securities for which representative market
quotations are readily available shall be valued at market value, and all
securities and other assets for which representative market quotations are not
readily available shall be valued at fair value, all as determined in good faith
by the Trustees or an officer or officers or agent or agents, as aforesaid, in
accordance with accounting principles generally accepted at the time.
Notwithstanding the foregoing, the assets belonging to any Series or
attributable to any class of Shares of the Trust may, if so authorized by the
Trustees, be valued in accordance with the amortized cost method, and the asset
value so determined, subject to the power of the Trustees to alter the asset
value so determined, less total liabilities belonging to that Series or
attributable to any class of Shares (exclusive of capital stock and surplus)
shall be the net asset value until a new asset value is determined by the
Trustees or such officers or agents. In determining the net asset value the
Trustees or such officers or agents may include in liabilities
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such reserves for taxes, estimated accrued expenses and contingencies in
accordance with accounting principles generally accepted at the time as the
Trustees or such officers or agents may in their best judgment deem fair and
reasonable under the circumstances. The manner of determining net asset value
may from time to time be altered as necessary or desirable in the judgment of
the Trustees to conform it to any other method prescribed or permitted by
applicable law or regulation. Determinations of net asset value made by the
Trust or such officers or agents in good faith shall be binding on all parties
concerned. The foregoing sentence shall not be construed to protect any Trustee,
officer or agent of the Trust against any liability to the Trust or its security
holders to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
ARTICLE 10
Amendments to the By-Laws
10.1 General. These By-Laws may be amended or repealed, in whole or in part, by
a majority of the Trustees then in office at any meeting of the Trustees, or by
written consent in lieu thereof.
ARTICLE 11
11.1 Proxy Instructions Transmitted by Telephonic or Electronic Means. The
placing of a Shareholder's name on a proxy pursuant to telephonic or
electronically transmitted instructions obtained pursuant to procedures
reasonably designed to verify that such instructions have been authorized by
such Shareholder shall constitute execution of such proxy by or on behalf of
such Shareholder.
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ARTICLE III
Shares
Section 1. Division of Beneficial Interest. The beneficial interest in the
Trust shall at all times be divided into an unlimited number of Shares, without
par value. Subject to the provisions of Section 6 of this Article III, each
Share shall have voting rights as provided in Article V hereof, and holders of
the Shares of any Series or class shall be entitled to receive dividends, when
and as declared with respect thereto in the manner provided in Article VI,
Section 1 hereof. Except as otherwise provided in Section 6 of this Article III
with respect to Shares of Multi-Class Series, no Share shall have any priority
or preference over any other Share of the same Series with respect to dividends
or distributions upon termination of the Trust or of such Series made pursuant
to Article VIII, Section 4 hereof. Except as otherwise provided in Section 6 of
this Article III with respect to Shares of Multi-Class Series, all dividends and
distributions shall be made ratably among all Shareholders of a particular
Series from the assets belonging to such Series according to the number of
Shares of such Series held of record by such Shareholders on the record date for
any dividend or distribution or on the date of termination, as the case may be.
Shareholders shall have no preemptive or other right to subscribe to any
additional Shares or other securities issued by the Trust. The Trustees may from
time to time divide or combine the Shares of any particular Series or class into
a greater or lesser number of Shares of that Series or class without thereby
changing the proportionate beneficial interest of the Shares of that Series or
class in the assets belonging to that Series or attributable to that class or in
any way affecting the rights of Shares of any other Series or class.
Section 2. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust or a transfer or similar agent for the Trust, which
books shall be maintained separately for the Shares of each Series and class. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the transfer of Shares of each Series and
class and similar matters. The record books of the Trust as kept by the Trust or
any transfer or similar agent, as the case may be, shall be conclusive as to who
are the Shareholders of each Series and class and as to the number of Shares of
each Series and class held from time to time by each.
Section 3. Investments in the Trust. The Trustees shall accept investments
in the Trust from such persons and on such terms and for such consideration as
they from time to time authorize.
Section 4. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms hereof and to have
become a party hereto. The death of a Shareholder
<PAGE>
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
entitles such representative only to the rights of said deceased Shareholder
under this Trust. Ownership of Shares shall not entitle the Shareholder to any
title in or to the whole or any part of the Trust property or right to call for
a partition or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the Trust, shall have any
power to bind personally any Shareholders, nor except as specifically provided
herein to call upon any Shareholder for the payment of any sum of money or
assessment whatsoever other than such as the Shareholder may at any time
personally agree to pay.
Section 5. Power of Trustees to Change Provisions Relating to Shares.
Notwithstanding any other provisions of this Declaration of Trust and without
limiting the power of the Trustees to amend the Declaration of Trust as provided
elsewhere herein, the Trustees shall have the power to amend this Declaration of
Trust, at any time and from time to time, in such manner as the Trustees may
determine in their sole discretion, without the need for Shareholder action, so
as to add to, delete, replace or otherwise modify any provisions relating to the
Shares contained in this Declaration of Trust for the purpose of (i) responding
to or complying with any regulations, orders, rulings or interpretations of any
governmental agency or any laws, now or hereafter applicable to the Trust, or
(ii) designating and establishing Series or classes in addition to those
established in Section 6 of this Article III; provided that before adopting any
such amendment without Shareholder approval the Trustees shall determine that it
is consistent with the fair and equitable treatment of all Shareholders. The
establishment and designation of any Series of Shares in addition to the Series
established and designated in Section 6 of this Article III shall be effective
upon the execution by a majority of the then Trustees of an amendment to this
Declaration of Trust, taking the form of a complete restatement or otherwise,
setting forth such establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such instrument. The
establishment and designation of any class of Shares shall be effective upon
either the execution by a majority of the then Trustees of an amendment to this
Declaration of Trust or the adoption by vote or written consent of a majority of
the then Trustees of a resolution setting forth such establishment and
designation and the relative rights and preferences of such class and such
eligibility requirements for investment therein as the Trustees may determine,
or as otherwise provided in such amendment or resolution.
Without limiting the generality of the foregoing, the Trustees may, for
the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series or classes of Shares (in addition to any
Series or classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine and reclassify any or all
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outstanding Shares as shares of particular Series or classes in accordance with
such eligibility requirements;
(b) amend any of the provisions set forth in paragraphs (a) through (j) of
Section 6 of this Article III;
(c) combine one or more Series or classes of Shares into a single Series
or class on such terms and conditions as the Trustees shall determine;
(d) change or eliminate any eligibility requirements for investment in
Shares of any Series or class, including without limitation the power to provide
for the issue of Shares of any Series or class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;
(e) change the designation of any Series or class of Shares;
(f) change the method of allocating dividends among the various Series and
classes of Shares;
(g) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series or
classes of Shares; and
(h) specifically allocate assets to any or all Series of Shares or create
one or more additional Series of Shares which are preferred over all other
Series of Shares in respect of assets specifically allocated thereto or any
dividends paid by the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so allocated or
otherwise and provide for any special voting or other rights with respect to
such Series or any classes of Shares thereof.
Section 6. Establishment and Designation of Series and Classes. Without
limiting the authority of the Trustees set forth in Section 5, inter alia, to
establish and designate any further Series or classes or to modify the rights
and preferences of any Series or class, the following Series shall be, and are
hereby, established and designated: "FISH: Series C" and "FISH: Series M."
Shares of each Series established in this Section 6 shall have the
following rights and preferences relative to Shares of each other Series, and
Shares of each class of a Multi-Class Series shall have such rights and
preferences relative to other classes of the same Series as are set forth below,
together with such other rights and preferences relative to such other classes
as are set forth in any resolution of the Trustees establishing and designating
such class of Shares:
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(a) Assets belonging to Series. Subject to the provisions of paragraph (c)
of this Section 6:
All consideration received by the Trust for the issue or sale of Shares of
a particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits and proceeds thereof from
whatever source derived, including, without limitation, any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall irrevocably belong to that Series for all purposes, subject only to the
rights of creditors, and shall be so recorded upon the books of account of the
Trust. Such consideration, assets, income, earnings, profits and proceeds
thereof, from whatever source derived, including, without limitation, any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in whatever
form the same may be, are herein referred to as "assets belonging to" that
Series. In the event that there are any assets, income, earnings, profits and
proceeds thereof, funds or payments which are not readily identifiable as
belonging to any particular Series (collectively "General Assets"), the Trustees
shall allocate such General Assets to, between or among any one or more of the
Series established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable, and any
General Asset so allocated to a particular Series shall belong to that Series.
Each such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series for all purposes.
(b) Liabilities Belonging to Series. Subject to the provisions of
paragraph (c) of this Section 6:
The assets belonging to each particular Series shall be charged solely
with the liabilities of the Trust in respect to that Series, the expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities of the Trust which are not readily identifiable as belonging to any
particular Series but which are allocated and charged by the Trustees to and
among any one or more of the Series established and designated from time to time
in a manner and on such basis as the Trustees in their sole discretion deem fair
and equitable. The liabilities, expenses, costs, charges and reserves so charged
to a Series are herein referred to as "liabilities belonging to" that Series.
Each allocation of liabilities, expenses, costs, charges and reserves by the
Trustees shall be conclusive and binding upon the Shareholders of all Series for
all purposes.
(c) Apportionment of Assets etc. in Case of Multi-Class Series. In the
case of any Multi-Class Series, to the extent necessary or appropriate to give
effect to the relative rights and preferences of any classes of Shares of such
Series, (i) any assets, income, earnings, profits, proceeds, liabilities,
expenses, charges, costs and reserves belonging or attributable to that Series
may be allocated or attributed to a particular class of Shares of that Series or
apportioned among two or more classes of Shares of that Series; and (ii) Shares
of any class of
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such Series may have priority or preference over shares of other classes of such
Series with respect to dividends or distributions upon termination of the Trust
or of such Series or class or otherwise, provided that no Share shall have any
priority or preference over any other Shares of the same class and that all
dividends and distributions to Shareholders of a particular class shall be made
ratably among all Shareholders of such class according to the number of Shares
of such class held of record by such Shareholders on the record date for any
dividend or distribution or on the date of termination, as the case may be.
(d) Dividends, Distributions, Redemptions and Repurchases. Notwithstanding
any other provisions of this Declaration, including, without limitation, Article
VI, no dividend or distribution (including, without limitation, any distribution
paid upon termination of the Trust or of any Series or class) with respect to,
nor any redemption or repurchase of, the Shares of any Series or class shall be
effected by the Trust other than from the assets belonging to such Series or
attributable to such class, nor shall any Shareholder of any particular Series
or class otherwise have any right or claim against the assets belonging to any
other Series or attributable to any other class except to the extent that such
Shareholder has such a right or claim hereunder as a Shareholder of such other
Series or class.
(e) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article V, the
Shareholders of any particular Series or class shall not be entitled to vote on
any matters as to which such Series or class is not affected. On any matter
submitted to a vote of Shareholders, all Shares of the Trust then entitled to
vote shall, except as otherwise provided in the By-Laws, be voted in the
aggregate as a single class without regard to Series or class of Shares, except
that (1) when required by the 1940 Act or when the Trustees shall have
determined that the matter affects one or more Series or classes of Shares
materially differently, Shares shall be voted by individual Series or class and
(2) when the matter affects only the interests of one or more Series or classes,
only Shareholders of such Series or classes shall be entitled to vote thereon.
There shall be no cumulative voting in the election of Trustees.
(f) Equality. Except to the extent necessary or appropriate to give effect
to the relative rights and preferences of any classes of Shares of a Multi-Class
Series, all the Shares of each particular Series shall represent an equal
proportionate interest in the assets belonging to that Series (subject to the
liabilities belonging to that Series), and each Share of any particular Series
shall be equal to each other Share of that Series. All the Shares of each
particular class of Shares within a Multi-Class Series shall represent an equal
proportionate interest in the assets belonging to such Series that are
attributable to such class (subject to the liabilities attributable to such
class), and each Share of any particular class within a Multi-Class Series shall
be equal to each other Share of such class.
(g) Fractions. Any fractional Share of a Series or class shall carry
proportionately all the rights and obligations of a whole Share of that Series
or class, including rights with
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respect to voting, receipt of dividends and distributions, redemption of Shares
and termination of the Trust.
(h) Exchange Privilege. The Trustees shall have the authority to provide
that the holders of Shares of any Series or class shall have the right to
exchange said Shares for Shares of one or more other Series or classes of Shares
in accordance with such requirements and procedures as may be established by the
Trustees.
(i) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or class
unless otherwise required by applicable law, to combine the assets and
liabilities belonging to any two or more Series or attributable to any class
into assets and liabilities belonging to a single Series or attributable to a
single class.
(j) Elimination of Series or Class. At any time that there are no Shares
outstanding of any particular Series previously established and designated, the
Trustees may amend this Declaration of Trust to abolish that Series and to
rescind the establishment and designation thereof, such amendment to be effected
in the manner provided in Section 5 of this Article III for the establishment
and designation of Series. At any time that there are no Shares outstanding of
any particular class previously established and designated of a Multi-Series
Class, the Trustees may abolish that class and rescind the establishment and
designation thereof, either by amending this Declaration of Trust in the manner
provided in Section 5 of this Article III for the establishment and designation
of classes (if such class was established and designated by an amendment to this
Declaration of Trust), or by vote or written consent of a majority of the then
Trustees (if such class was established and designated by Trustee vote or
written consent).
Section 7. Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by reason of his
or her being or having been a Shareholder of the Trust or of a particular Series
or class and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets of the Series (or attributable to the class) of which he or she is
a Shareholder or former Shareholder to be held harmless from and indemnified
against all loss and expense arising from such liability.
Section 8. No Preemptive Rights. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust.
Section 9. Derivative Claims. No Shareholder shall have the right to bring
or maintain any court action, proceeding or claim on behalf of the Trust or any
Series without first making demand on the Trustees requesting the Trustees to
bring or maintain such action, proceeding or
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claim. Such demand shall be excused only when the plaintiff makes a specific
showing that irreparable injury to the Trust or Series would otherwise result.
Such demand shall be mailed to the Secretary of the Trust at the Trust's
principal office and shall set forth in reasonable detail the nature of the
proposed court action, proceeding or claim and the essential facts relied upon
by the Shareholder to support the allegations made in the demand. The Trustees
shall consider such demand within 45 days of its receipt by the Trust. In their
sole discretion, the Trustees may submit the matter to a vote of Shareholders of
the Trust or Series, as appropriate. Any decision by the Trustees to bring,
maintain or settle (or not to bring, maintain or settle) such court action,
proceeding or claim, or to submit the matter to a vote of Shareholders, shall be
made by the Trustees in their business judgment and shall be binding upon the
Shareholders. Any decision by the Trustees to bring or maintain a court action,
proceeding or suit on behalf of the Trust or a Series shall be subject to the
right of the Shareholders under Article V, Section 1 hereof to vote on whether
or not such court action, proceeding or suit should or should not be brought or
maintained.
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<PAGE>
ARTICLE V
Shareholders' Voting Powers and Meetings
Section 1. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article IV, Section 1, (ii) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article VIII, Section 8, (iii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the Shareholders,
(iv) with respect to the termination of the Trust or any Series or class to the
extent and as provided in Article VIII, Section 4, (v) to remove Trustees from
office to the extent and as provided in Article V, Section 7 and (vi) with
respect to such additional matters relating to the Trust as may be required by
this Declaration of Trust, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each whole Share shall be entitled to one vote
as to any matter on which it is entitled to vote and each fractional Share shall
be entitled to a proportionate fractional vote. There shall be no cumulative
voting in the election of Trustees. Shares may be voted in person or by proxy. A
proxy with respect to Shares held in the name of two or more persons shall be
valid if executed by any one of them unless at or prior to exercise of the proxy
the Trust receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and the burden of
proving invalidity shall rest on the challenger. At any time when no Shares of a
Series or class are outstanding the Trustees may exercise all rights of
Shareholders of that Series or class with respect to matters affecting that
Series or class and may with respect to that Series or class take any action
required by law, this Declaration of Trust or the By-Laws to be taken by the
Shareholders thereof.
Section 2. Voting Power and Meetings. Meetings of the Shareholders may be
called by the Trustees for the purpose of electing Trustees as provided in
Article IV, Section 1 and for such other purposes as may be prescribed by law,
by this Declaration of Trust or by the By-Laws. Meetings of the Shareholders may
also be called by the Trustees from time to time for the purpose of taking
action upon any other matter deemed by the Trustees to be necessary or
desirable. A meeting of Shareholders may be held at any place designated by the
Trustees. Notice of any meeting of Shareholders, stating the time and place of
the meeting, shall be given or caused to be given by the Trustees to each
Shareholder by mailing such notice, postage prepaid, at least seven days before
such meeting, at the Shareholder's address as it appears on the records of the
Trust, or by facsimile or other electronic transmission, at least seven days
before such meeting, to the telephone or facsimile number or e-mail or other
electronic address most recently furnished to the Trust (or its agent) by the
Shareholder. Whenever notice of a meeting is required to be given to a
Shareholder under this Declaration of Trust or the By-Laws, a written waiver
thereof, executed before or after the meeting by
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<PAGE>
such Shareholder or his attorney thereunto authorized and filed with the records
of the meeting, shall be deemed equivalent to such notice.
Section 3. Quorum and Required Vote. Except when a larger quorum is
required by law, by the By-Laws or by this Declaration of Trust, 40% of the
Shares entitled to vote shall constitute a quorum at a Shareholders' meeting.
When any one or more Series or classes is to vote as a single class separate
from any other Shares which are to vote on the same matters as a separate class
or classes, 40% of the Shares of each such class entitled to vote shall
constitute a quorum at a Shareholders' meeting of that class. Any meeting of
Shareholders may be adjourned from time to time by a majority of the votes
properly cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned within a reasonable time after the date set for
the original meeting without further notice. When a quorum is present at any
meeting, a majority of the Shares voted shall decide any questions and a
plurality shall elect a Trustee, except when a larger vote is required by any
provision of this Declaration of Trust or the By-Laws or by law. If any question
on which the Shareholders are entitled to vote would adversely affect the rights
of any Series or class of Shares, the vote of a majority (or such larger vote as
is required as aforesaid) of the Shares of such Series or class which are
entitled to vote, voting separately, shall also be required to decide such
question.
Section 4. Action by Written Consent. Any action taken by Shareholders may
be taken without a meeting if Shareholders holding a majority of the Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by any express provision of this Declaration of Trust or by the
By-Laws) and holding a majority (or such larger proportion as aforesaid) of the
Shares of any Series or class entitled to vote separately on the matter consent
to the action in writing and such written consents are filed with the records of
the meetings of Shareholders. Such consent shall be treated for all purposes as
a vote taken at a meeting of Shareholders.
Section 5. Record Dates. For the purpose of determining the Shareholders
of any Series or class who are entitled to vote or act at any meeting or any
adjournment thereof, the Trustees may from time to time fix a time, which shall
be not more than 90 days before the date of any meeting of Shareholders, as the
record date for determining the Shareholders of such Series or class having the
right to notice of and to vote at such meeting and any adjournment thereof, and
in such case only Shareholders of record on such record date shall have such
right, notwithstanding any transfer of Shares on the books of the Trust after
the record date. For the purpose of determining the Shareholders of any Series
or class who are entitled to receive payment of any dividend or of any other
distribution, the Trustees may from time to time fix a date, which shall be on
or before the date for the payment of such dividend or such other payment, as
the record date for determining the Shareholders of such Series or class having
the right to receive such dividend or distribution. Without fixing a record date
the Trustees may for voting and/or distribution purposes close the register or
transfer books for one or more Series or classes for all or any part of the
period prior to a meeting of
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<PAGE>
Shareholders or the payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series or classes.
Section 6. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters.
Section 7. Removal of Trustees. No natural person shall serve as Trustee
after the holders of record of not less than two-thirds of the outstanding
Shares have declared that such Trustee be removed from that office either by
declaration in writing filed with the Trust's custodian or by votes cast in
person or by proxy at a meeting called for the purpose. The Trustees shall
promptly call a meeting of Shareholders for the purpose of voting upon the
question of removal of any Trustee when requested in writing so to do by the
record holders of not less than 10 per centum of the outstanding Shares.
Whenever ten or more Shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate Shares having a net asset value of at least 1 per centum of the
outstanding Shares, shall apply to the Trustees in writing, stating that they
wish to communicate with other Shareholders with a view to obtaining signatures
to a request for a meeting pursuant to this Section and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either (a) afford to such
applicants access to a list of the names and addresses of all Shareholders as
recorded on the books of the Trust; or (b) inform such applicants as to the
approximate number of Shareholders of record, and the approximate cost of
transmitting to them the proposed communication and form of request. If the
Trustees elect to follow the course specified in clause (b), the Trustees, upon
the written request of such applicants, accompanied by a tender of the material
to be transmitted and of the reasonable expenses of transmittal, shall, with
reasonable promptness, transmit such material to all Shareholders of record at
their addresses as recorded on the books of the Trust (or at the telephone or
facsimile number or e-mail or other electronic address most recently furnished
to the Trust (or its agent) by the Shareholder), unless within five business
days after such tender the Trustees shall transmit to such applicants and file
with the Commission, together with a copy of the material proposed to be
transmitted, a written statement signed by at least a majority of the Trustees
to the effect that in their opinion either such material contains untrue
statements of fact or omits to state facts necessary to make the statements
contained therein not misleading, or would be in violation of applicable law,
and specifying the basis of such opinion. If the Commission shall enter an order
refusing to sustain any of the objections specified in the written statement so
filed, or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall transmit copies of such material to all
Shareholders with reasonable promptness after the entry of such order and the
renewal of such tender.
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INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made the _____ day of March, 2000 between Fixed Income SHares
("Trust"), a Massachusetts business trust, and PIMCO Advisors L.P. ("Adviser"),
a limited partnership.
WHEREAS, the Trust is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series with each such series representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Trust has established multiple series, including operational
series or series that are expected to be operational that are designated as the
FISH: Series C and FISH: Series M, such series together with any other series
subsequently established by the Trust, with respect to which the Trust desires
to retain the Adviser to render investment advisory services hereunder, and
with respect to which the Adviser is willing to do so, being herein
collectively referred to also as the "Portfolios"; and
WHEREAS, the Adviser is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940; and
WHEREAS, the Adviser is the parent company or an affiliate of other companies
that render investment advisory services and are registered as investment
advisers under the Investment Advisers Act of 1940; and
WHEREAS, the Trust desires to retain the Adviser so that it and its
subsidiaries and affiliates will render investment advisory services to the
Portfolios in the manner and on the terms hereinafter set forth; and
WHEREAS, the Adviser is willing to render such services and engage its
subsidiaries, affiliates, and others to render such services to the Trust;
NOW THEREFORE, in consideration of the premises, the promises, and mutual
covenants herein contained, it is agreed between the parties as follows:
1. Appointment. The Trust hereby appoints the Adviser to provide investment
advisor services to the Trust with respect to the Portfolios for the period and
on the terms set forth in this Agreement. The Adviser accepts such appointment
and agrees to render the services herein set forth for the compensation herein
provided.
In the event the Trust establishes and designates additional series with
respect to which it desires to retain the Adviser to render investment advisory
services hereunder, it shall notify the Adviser in writing. If the Adviser is
willing to render such services it shall notify the Trust in writing, whereupon
such additional series shall become a Portfolio hereunder.
2. Duties. Subject to the general supervision of the Board of Trustees, the
Adviser shall provide general, overall advice and guidance with respect to the
Portfolios and provide advice and guidance to the Trust's Trustees. In
discharging these duties the Adviser shall, either directly or indirectly
through others ("Portfolio Managers") engaged by it pursuant to Section 3 of
this Agreement, provide continuous investment program for each Portfolio and
determine the composition of the assets of each Portfolio, including
determination of the purchase, retention, or sale of the securities, cash, and
other investments for the Portfolio. The Adviser (or Portfolio Manager) will
provide investment research and analysis, which may consist of a computerized
investment methodology, and will conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolio assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Portfolio, when these transactions should be
executed, and what portion of the assets of the Portfolio should be held in the
various securities and other investments in which it may invest, and the
Adviser (or Portfolio Manager) is hereby authorized to execute and perform such
services on behalf of the Portfolio. To the extent permitted by the investment
policies of the Portfolio, the Adviser (or Portfolio Manager) shall make
decisions for the Portfolio as to foreign currency matters and make
determinations as to the retention or disposition of foreign currencies or
securities or other instruments denominated in foreign currencies or derivative
instruments based upon foreign currencies, including forward foreign currency
contracts and options and futures on foreign currencies, and shall execute and
perform the same. The Adviser (or Portfolio Manager) will provide the services
under this Agreement for each Portfolio in accordance with the Portfolio's
investment objective or objectives, investment policies, and investment
restrictions as stated in the Trust's Registration Statement filed on Form N-1A
with the SEC as supplemented or amended from time to time.
In performing these duties, the Adviser, either directly or indirectly through
others selected by the Adviser:
(a) Shall conform with the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and regulations, with
any applicable procedures adopted by the Trust's Board of Trustees, and with
the provisions of the Trust's Registration Statement filed on Form N-1A as
supplemented or amended from time to time.
(b) Shall use reasonable efforts to manage each Portfolio so that it
qualifies as a regulated investment company under Subchapter M of the Internal
Revenue Code.
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(c) Is responsible, in connection with its responsibilities under this
Section 2, for decisions to buy and sell securities and other investments for
the Portfolios, for broker-dealer and futures commission merchant ("FCM")
selection, and for negotiation of commission rates. The Adviser's (or
Portfolio Manager's) primary consideration in effecting a security or other
transaction will be to obtain the best execution for the Portfolio, taking into
account the factors specified in the Prospectus and Statement of Additional
Information for the Trust, as they may be amended or supplemented from time to
time. Subject to such policies as the Board of Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Adviser (or Portfolio Manager) shall not be deemed to have acted unlawfully or
to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Portfolio to pay a broker or dealer, acting as
agent, for effecting a portfolio transaction at a price in excess of the amount
of commission another broker or dealer would have charged for effecting that
transaction, if the Adviser (or Portfolio Manager) determines in good faith
that such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Adviser's (or Portfolio
Manager's) overall responsibilities with respect to the Portfolio and to their
other clients as to which they exercise investment discretion. To the extent
consistent with these standards, and in accordance with Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-(T) thereunder, and subject to
any other applicable laws and regulations, the Adviser (or Portfolio Manager)
is further authorized to allocate the orders placed by it on behalf of the
Portfolio to the Adviser (or Portfolio Manager) if it is registered as a broker
or dealer with the SEC, to its affiliate that is registered as a broker or
dealer with the SEC, or to such brokers and dealers that also provide research
or statistical research and material, or other services to the Portfolio or the
Adviser (or Portfolio Manager). Such allocation shall be in such amounts and
proportions as the Adviser shall determine consistent with the above standards,
and, upon request, the Adviser will report on said allocation regularly to the
Board of Trustees of the Trust indicating the broker-dealers to which such
allocations have been made and the basis therefor.
(d) May, on occasions when the purchase or sale of a security is deemed to
be in the best interest of a Portfolio as well as any other investment advisory
clients, to the extent permitted by applicable laws and regulations, but shall
not be obligated to, aggregate the securities to be so sold or purchased with
those of its other clients where such aggregation is not inconsistent with the
policies set forth in the Registration Statement. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in the
transaction, will be made by the Adviser (or Portfolio Manager) in a manner
that is fair and equitable in the judgment of the Adviser (or Portfolio
Manager) in the exercise of its fiduciary obligations to the Trust and to such
other clients.
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(e) Will, in connection with the purchase and sale of securities for each
Portfolio, arrange for the transmission to the custodian for the Trust on a
daily basis, such confirmation, trade tickets, and other documents and
information, including, but not limited to, Cusip, Sedol, or other numbers that
identify securities to be purchased or sold on behalf of the Portfolio, as may
be reasonably necessary to enable the custodian to perform its administrative
and recordkeeping responsibilities with respect to the Portfolio, and, with
respect to portfolio securities to be purchased or sold through the Depository
Trust Company, will arrange for the automatic transmission of the confirmation
of such trades to the Trust's custodian.
(f) Will make available to the Trust, promptly upon request, any of the
Portfolios' investment records and ledgers as are necessary to assist the Trust
to comply with requirements of the 1940 Act and the Investment Advisers Act of
1940, as well as other applicable laws, and will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with such services which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
(g) Will regularly report to the Trust's Board of Trustees on the
investment program for each Portfolio and the issuers and securities
represented in each Portfolio's portfolio, and will furnish the Trust's Board
of Trustees with respect to the Portfolios such periodic and special reports as
the Trustees may reasonably request.
3. Appointment of Portfolio Managers. The Adviser may, at its expense and
subject to its supervision, engage one or more persons, including, but not
limited to, subsidiaries and affiliated persons of the Adviser, to render any
or all of the investment advisory services that the Adviser is obligated to
render under this Agreement including, for one or more of the Portfolios and,
to the extent required by applicable law, subject to the approval of the
Trust's Board of Trustees and/or the shareholders of one or more of the
Portfolios, a person to render investment advisory services including the
provision of a continuous investment program and the determination of the
composition of the securities and other assets of such Portfolio or Portfolios.
4. Documentation. The Trust has delivered copies of each of the following
documents to the Adviser and will deliver to it all future amendments and
supplements thereto, if any:
(a) the Trust's Registration Statement as filed with the SEC and any
amendments thereto; and
(b) exhibits, powers of attorneys, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
The Adviser has delivered to the Trust copies of the Adviser's and the
Portfolio Manager's Uniform Application for Investment Adviser Registration on
Form ADV, as filed with
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the SEC. The Adviser agrees to provide the Trust with current copies of the
Adviser's and the Portfolio Manager's Forms ADV, and any supplements or
amendments thereto, as filed with the SEC.
5. Records. The Adviser agrees to maintain and to preserve for the periods
prescribed under the 1940 Act any such records as are required to be maintained
by the Adviser with respect to the Portfolios by the 1940 Act. The Adviser
further agrees that all records which it maintains for the Portfolios are the
property of the Trust and it will promptly surrender any of such records upon
request.
6. Expenses. During the term of this Agreement, the Adviser will pay all
expenses incurred by it in connection with its obligations under this
Agreement, except such expenses as are assumed by the Portfolios under this
Agreement and any expenses that are paid by a party other than the Trust under
the terms of any other agreement to which the Trust is a party or a third-party
beneficiary. The Adviser further agrees to pay or cause its subsidiaries or
affiliates to pay all salaries, fees, and expenses of any officer or Trustee of
the Trust who is an officer, director, or employee of the Adviser or a
subsidiary or affiliate of the Adviser. The adviser assumes and shall pay for
maintaining its staff and personnel and shall, at its own expense provide the
equipment, office space, and facilities necessary to perform its obligations
under this Agreement. The Adviser shall not, under the terms of this
Agreement, bear the following expenses (although the Adviser or an affiliate
may bear some or all of these expenses under one or more other agreements):
(a) Expenses of all audits by Trust's independent public accountants;
(b) Expenses of the Trust's transfer agent(s), registrar, dividend
disbursing agent(s), and shareholder recordkeeping services;
(c) Expenses of the Trust's custodial services, including recordkeeping
services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value of each
Portfolio's net assets;
(e) Expenses of obtaining Portfolio Activity Reports for each Portfolio;
(f) Expenses of maintaining the Trust's tax records;
(g) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Adviser, its subsidiaries or affiliates, or any Portfolio
Manager of the Trust;
(h) Taxes, if any, levied against the Trust or any of its Portfolios;
- -5-
(i) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for any of the Portfolios;
(j) Costs, including the interest expenses, of borrowing money;
(k) Costs and/or fees incident to meetings of the Trust's shareholders,
the preparation and mailings of Prospectuses and reports of the Trust to is
shareholders, the filing of reports with regulatory bodies, the maintenance of
the Trust's existence and qualification to do business, and the registration of
shares with federal and state securities authorities;
(l) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(m) Costs of printing certificates representing shares of the Trust;
(n) Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Adviser, its subsidiaries or affiliates, or
any Portfolio Manager of the Trust;
(o) The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
(p) Association membership dues;
(q) Extraordinary expenses as may arise, including expenses incurred in
connection with litigation, proceedings, other claims and the legal obligations
of the Trust to indemnify its trustees, officers, employees, shareholders,
distributors, and agents with respect thereto; and
(r) Organizational and offering expenses and, if applicable, reimbursement
(with interest) of underwriting discounts and commissions.
7. Liability. The Adviser shall give the Trust the benefit of the Adviser's
best judgment and efforts in rendering services under this Agreement. The
Adviser may rely on information reasonably believed by it to be accurate and
reliable. As an inducement for the Adviser's undertaking to render services
under this Agreement, the Trust agrees that neither the Adviser nor its
stockholders, partners, limited partners, officers, directors, employees, or
agents shall be subject to any liability for, or any damages, expenses or
losses incurred in connection with, any act or omission or mistake in judgment
connected with or arising out of any services rendered under this Agreement,
except by reason of willful misfeasance, bad faith, or gross
- -6-
negligence in performance of the Adviser's duties, or by reason of reckless
disregard of the Adviser's investment advisory obligations and duties under
this Agreement.
8. Independent Contractor. The Adviser shall for all purposes herein be deemed
to be an independent contractor and shall, unless otherwise expressly provided
herein or authorized by the Board of Trustees of the Trust from time to time,
have no authority to act for or represent the Trust in any way or otherwise be
deemed its agent.
9. Compensation. The Adviser shall receive no investment advisory or other fee
from the Trust for the services provided under this Agreement.
10. Non-Exclusivity. It is understood that the services of the Adviser
hereunder are not exclusive, and the Adviser shall be free to render similar
services to other investment companies and other clients whether or not their
investment objectives are similar to those of any of the Portfolios.
11. Term and Continuation. This Agreement shall take effect as of the date
hereof, and shall remain in effect, unless sooner terminated as provided
herein, with respect to a Portfolio for a period of two years following the
date set forth on the attached Schedule. This Agreement shall continue
thereafter on an annual basis with respect to a Portfolio provided that such
continuance is specifically approved at least annually (a) by the vote of a
majority of the Board of Trustees of the Trust, or (b) by vote of a majority of
the outstanding voting shares of the Portfolio, and provided continuance is
also approved by the vote of a majority of the Board of Trustees of the Trust
who are not parties to this Agreement of "interested persons" (as defined in
the 1940 Act) of the Trust, or the Adviser, cast in person at a meeting called
for the purpose of voting on such approval. This Agreement may not be
materially amended without a majority vote of the outstanding voting shares (as
defined in the 1940 Act) of the pertinent Portfolio or Portfolios.
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a particular Portfolio shall
be effective to continue this Agreement with respect to such Portfolio
notwithstanding (a) that this Agreement has not been approved by the holders of
a majority of the outstanding shares of any other Portfolio or (b) that this
Agreement has not been approved by the vote of a majority of the outstanding
shares of the Trust, unless such approval shall be required by any other
applicable law or otherwise. This Agreement will terminate automatically with
respect to the services provided by the Adviser in event of its assignment, as
that term is defined in the 1940 Act, by the Adviser.
This Agreement may be terminated:
(a) by the Trust at any time with respect to the services provided by the
Adviser, without the payment of any penalty, by vote of a majority of the Board
of Trustees of the Trust or by vote of a majority of the outstanding voting
shares of the Trust
- -7-
or, with respect to a particular Portfolio, by vote of a majority of the
outstanding voting shares of such Portfolio, on 60 days' written notice to the
Adviser or, by a vote of a majority of the Trustees of the Trust who are not
"interested persons" (as such term is defined in the 1940 Act) of the Trust;
(b) by the Adviser at any time, without the payment of any penalty, upon
60 days' written notice to the Trust.
12. Use of Name. It is understood that the name "PIMCO Advisory Services" or
"PIMCO" or any derivative thereof or logo associated with those names are the
valuable property of the Adviser and its affiliates, and that the Trust and/or
the Portfolios have the right to use such names (or derivatives or logos) only
so long as this Agreement shall continue with respect to such Trust and/or
Portfolios. Upon termination of this Agreement, the Trust (or Portfolio) shall
forthwith cease to use such names (or derivatives or logos) and, in the case of
the Trust, shall promptly amend its Declaration of Trust to change its name.
13. Notices. Notices of any kind to be given to the Adviser by the Trust shall
be in writing and shall be duly given if mailed or delivered to the Adviser at
2187 Atlantic Street, Stamford, Connecticut, 06902, or to such other address or
to such individual as shall be specified by the Adviser. Notices of any kind
to be given to the Trust by the Adviser shall be in writing and shall be duly
given if mailed or delivered to 1345 Avenue of the Americas, New York, New
York, 10105, or to such other address or to such individual as shall be
specified by the Trust.
14. Portfolio Obligation. A copy of the Trust's Agreement and Declaration of
Trust is on file with the Secretary of the Commonwealth of Massachusetts and
notice is hereby given that the Agreement has been executed on behalf of the
Trust by a trustee of the Trust in his or her capacity as trustee and not
individually. The obligations of this Agreement shall only be binding upon the
assets and property of the Trust and shall not be binding upon any trustee,
officer, or shareholder of the Trust individually.
15. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original.
16. Miscellaneous. (a) This Agreement shall be governed by the laws of
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rule or order of the SEC thereunder.
(b) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected hereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise with regard to any party hereunder, such provisions with respect
to other parties hereto shall not be affected thereby.
- -8-
(c) The captions in this Agreement are included for convenience only and
in no way define any of the provisions hereof or otherwise affect their
construction or effect.
- -9-
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
FIXED INCOME SHARES
By: ________________________________
Title:
PIMCO ADVISORS L.P.
Attest: ___________________________ By: ________________________________
Title: Sr. Fund Administrator Title: Executive Vice President
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<PAGE>
Fixed Income SHares
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this ___ day of March, 2000 between PIMCO Advisors L.P.
("Adviser"), a limited partnership, and Pacific Investment Management Company
(the "Portfolio Manager"), a partnership.
WHEREAS, Fixed Income SHares (the "Trust") is registered with the Securities
and Exchange Commission ("SEC") as an open-end, management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series, with each such series representing interests in
a separate portfolio; and
WHEREAS, the Trust has established multiple series, including operational
series or series that are expected to be operational that are designated as the
FISH: Series C and FISH: Series M, such series together with any other series
subsequently established by the Trust, being collectively referred to
hereinafter as the "Series"; and
WHEREAS, the Portfolio Manager is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940 ("Advisers Act"); and
WHEREAS, the Trust has retained the Adviser to render management services to
the Portfolios (as defined below) pursuant to an Investment Advisory Agreement
dated as of March ___, 2000, as from time to time amended, supplemented or
modified, and such Agreement authorizes the Adviser to engage Portfolio
Managers to discharge the Adviser's responsibilities with respect to the
management of the Series; and
WHEREAS, the Adviser desires to retain the Portfolio Manager to furnish
investment advisory services to one or more of the Series of the Trust, and the
Portfolio Manager is willing to furnish such services to such Series and the
Adviser in the manner and on the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the promises and mutual
covenants herein contained, it is agreed between the Adviser and the Portfolio
Manager as follows:
1. Appointment. The Adviser hereby appoints Pacific Investment Management
Company to act as Portfolio Manager to the FISH: Series C and FISH: Series M
(the "Portfolios") for the periods and on the terms set forth in this
Agreement. The Portfolio Manager accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
In the event the Adviser wishes to retain the Portfolio Manager to render
investment advisory services to one or more Series other than the Portfolios,
the Adviser shall notify the Portfolio Manager in writing. If the Portfolio
Manager is willing to render such services, it shall notify the Adviser in
writing.
2. Portfolio Management Duties. Subject to the supervision of the Trust's
Board of Trustees and the Adviser, the Portfolio Manager will provide a
continuous investment program for the Portfolios and determine the composition
of the assets of the Portfolios, including determination of the purchase,
retention, or sale of the securities, cash, and other investments for the
Portfolios. The Portfolio Manager will provide investment research and
analysis, which may consist of computerized investment methodology, and will
conduct a continuous program of evaluation, investment, sales, and reinvestment
of the Portfolios' assets by determining the securities and other investments
that shall be purchased, entered into, sold, closed, or exchanged for the
Portfolios, when these transactions should be executed, and what portion of the
assets of the Portfolios should be held in the various securities and other
investments in which they may invest, and the Portfolio Manager is hereby
authorized to execute and perform such services on behalf of the Portfolios. To
the extent permitted by the investment policies of the Portfolios, the
Portfolio Manager shall make decisions for the Portfolios as to foreign
currency matters and make determinations as to the retention or disposition of
foreign currencies or securities or other instruments denominated in foreign
currencies, or derivative instruments based upon foreign currencies, including
forward foreign currency contracts and options and futures on foreign
currencies and shall execute and perform the same on behalf of the Portfolios.
The Portfolio Manager will provide the services under this Agreement in
accordance with the Portfolios' investment objective or objectives, investment
policies, and investment restrictions as stated in the Trust's Registration
Statement filed on Form N-1A with the SEC, as supplemented or amended from time
to time, copies of which shall be sent to the Portfolio Manager by the Adviser.
In performing these duties, the Portfolio Manager:
a. Shall conform with the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and regulations, with
any applicable procedures adopted by the Trust's Board of Trustees, and with
the provisions of the Trust's Registration Statement filed on Form N-1A, as
supplemented or amended from time to time.
b. Shall use reasonable efforts to manage each Portfolio so that it
qualifies as a regulated investment company under Subchapter M of the Internal
Revenue Code.
- -2-
c. Is responsible, in connection with its responsibilities under this
Section 2, for decisions to buy and sell securities and other investments for
the Portfolios, for broker-dealer and futures commission merchant ("FCM")
selection, and for negotiation of commission rates. The Portfolio Manager's
primary consideration in effecting a security or other transaction will be to
obtain the best execution for the Portfolios, taking into account the factors
specified in the Prospectus and Statement of Additional Information for the
Trust, as they may be amended or supplemented from time to time. Subject to
such policies as the Board of Trustees may determine and consistent with
Section 28(e) of the Securities Act of 1934, the Portfolio Manager shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Portfolios to
pay a broker or dealer, acting as agent, for effecting a portfolio transaction
at a price in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Portfolio Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Portfolio Manager's overall responsibilities with respect to the Portfolios and
to its other clients as to which it exercises investment discretion. To the
extent consistent with these standards, and in accordance with Section 11(a) of
the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and subject
to any other applicable laws and regulations, the Portfolio Manager is further
authorized to allocate the orders placed by it on behalf of the Portfolios to
the Portfolio Manager if it is registered as a broker or dealer with the SEC,
to its affiliate that is registered as a broker or dealer with the SEC, or to
such brokers and dealers that also provide research or statistical research and
material, or other services to the Portfolios or the Portfolio Manager. Such
allocation shall be in such amounts and proportions as the Portfolio Manager
shall determine consistent with the above standards, and, upon request, the
Portfolio Manager will report on said allocation to the Adviser and Board of
Trustees of the Trust, indicating the brokers or dealers to which such
allocations have been made and the basis therefor.
d. May, on occasions when the purchase or sale of a security is deemed
to be in the best interest of the Portfolios as well as any other investment
advisory clients, to the extent permitted by applicable laws and regulations,
but shall not be obligated to, aggregate the securities to be so sold or
purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Registration Statement. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Portfolio Manager in
a manner that is fair and
- -3-
equitable in the judgment of the Portfolio Manager in the exercise of its
fiduciary obligations to the Trust and to such other clients.
e. Will, in connection with the purchase and sale of securities for the
Portfolios, arrange for the transmission to the custodian for the Trust on a
daily basis, such confirmation, trade tickets, and other documents and
information, including, but not limited to, Cusip, Sedol, or other numbers that
identify securities to be purchased or sold on behalf of the Portfolios, as may
be reasonably necessary to enable the custodian to perform its administrative
and recordkeeping responsibilities with respect to the Portfolios, and, with
respect to portfolio securities to be purchased or sold through the Depository
Trust Company, will arrange for the automatic transmission of the confirmation
of such trades to the Trust's custodian.
f. Will assist the custodian and recordkeeping agent(s) for the Trust in
determining or confirming, consistent with the procedures and policies stated
in the Registration Statement for the Trust, the value of any portfolio
securities or other assets of the Portfolios for which the custodian and
recordkeeping agent(s) seek assistance from the Portfolio Manager or identify
for review by the Portfolio Manager.
g. Will make available to the Trust and Adviser, promptly upon request,
the Portfolios' investment records and ledgers as are necessary to assist the
Trust to comply with the requirements of the 1940 Act and the Advisers Act, as
well as other applicable laws, and will furnish to regulatory authorities
having the requisite authority any information or reports in connection with
such services which may be requested in order to ascertain whether the
operations of the Trust are being conducted in a manner consistent with
applicable laws and regulations.
h. Will regularly report to the Trust's Board of Trustees on the
investment program for the Portfolios and the issuers and securities
represented in the Portfolios' portfolio, and will furnish the Trust's Board of
Trustees with respect to the Portfolios such periodic and special reports as
the Trustees may reasonably request.
i. Shall be responsible for making reasonable inquiries and for
reasonably ensuring that any employee of the Portfolio Manager has not, to the
best of the Portfolio Manager's knowledge:
i. been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising out of
such person's conduct as an underwriter, broker, dealer,
- -4-
investment adviser, municipal securities dealer, government securities broker,
government securities dealer, transfer agent, or entity or person required to
be registered under the Commodity Exchange Act, or as an affiliated person,
salesman, or employee of any investment company, bank, insurance company, or
entity or person required to be registered under the Commodity Exchange Act; or
ii. been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent
jurisdiction from acting as an underwriter, broker, dealer, investment adviser,
municipal securities dealer, government securities broker, government
securities dealer, transfer agent, or entity or person required to be
registered under the Commodity Exchange Act, or as an affiliated person,
salesman or employee of any investment company, bank, insurance company, or
entity or person required to be registered under the Commodity Exchange Act, or
from engaging in or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any security.
3. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed the
Registration Statement for the Trust filed with the SEC and represents and
warrants that, with respect to the disclosure about the Portfolio Manager or
information relating, directly or indirectly, to the Portfolio Manager, such
Registration Statement contains, as of the date hereof, no untrue statement of
any material fact and does not omit any statement of a material fact which was
required to be stated therein or necessary to make the statements contained
therein not misleading. The Portfolio Manager further represents and warrants
that it is a duly registered investment adviser under the Advisers Act and a
duly registered investment adviser in all states in which the Portfolio Manager
is required to be registered. The Adviser has received a current copy of the
Portfolio Manager's Uniform Application for Investment Adviser Registration on
Form ADV, as filed with the SEC. The Portfolio Manager agrees to provide the
Adviser with current copies of the Portfolio Manager's Form ADV, and any
supplements or amendments thereto, as filed with the SEC.
4. Expenses. During the term of this Agreement, the Portfolio Manager will
pay all expenses incurred by it and its staff and for their activities in
connection with its services under this Agreement. The Portfolio Manager shall
not be responsible for any of the following:
a. Expenses of all audits by the Trust's independent public accountants;
b. Expenses of the Trust's transfer agent(s), registrar, dividend
disbursing agent(s), and shareholder recordkeeping services;
- -5-
c. Expenses of the Trust's custodial services, including recordkeeping
services provided by the custodian;
d. Expenses of obtaining quotations for calculating the value of the
Portfolios' net assets;
e. Expenses of obtaining Portfolio Activity Reports for the Portfolios;
f. Expenses of maintaining the Trust's tax records;
g. Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of Adviser, its subsidiaries or affiliates, or any Portfolio
Manager of the Trust;
h. Taxes, if any, levied against the Trust or any of its Series;
i. Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Portfolios;
j. Costs, including the interest expenses, of borrowing money;
k. Costs and/or fees incident to meetings of the Trust's shareholders,
the preparation and mailings of prospectuses and reports of the Trust to its
shareholders, the filing of reports with regulatory bodies, the maintenance of
the Trust's existence, and the registration of shares with federal and state
securities or insurance authorities;
l. The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
m. Costs of printing stock certificates representing shares of the Trust;
n. Trustees' fees and expenses to trustees who are not officers,
employees, or stockholders of the Portfolio Manager or any affiliate thereof;
o. The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
p. Association membership dues;
- -6-
q. Extraordinary expenses of the Trust as may arise, including expenses
incurred in connection with litigation, proceedings and other claims and the
legal obligations of the Trust to indemnify its trustees, officers, employees,
shareholders, distributors, and agents with respect thereto; and
r. Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
5. Seed Money. The Adviser agrees that the Portfolio Manager shall not be
responsible for providing money for the initial capitalization of the Trust or
Portfolios.
6. Compliance.
a. The Portfolio Manager agrees that it shall immediately notify the
Adviser and the Trust in the event (i) that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, and (ii) upon having a reasonable basis for believing that a Portfolio
has ceased to qualify or might not qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code. The Portfolio Manager further
agrees to notify the Adviser and the Trust immediately of any material fact
known to the Portfolio Manager that is not contained in the Registration
Statement or prospectus for the Trust, or any amendment or supplement thereto,
or of any statement contained therein that becomes untrue in any material
respect.
b. The Adviser agrees that it shall immediately notify the Portfolio
Manager in the event (i) that the SEC has censured the Adviser or the Trust;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Adviser's registration as an investment adviser; or
has commenced proceedings or an investigation that may result in any of these
actions, and (ii) upon having a reasonable basis for believing that a Portfolio
has ceased to qualify or might not qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code.
7. Independent Contractor. The Portfolio Manager shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Adviser from time to time, have
no authority to act for or represent the Adviser in any way or otherwise be
deemed its agent. The Portfolio Manager understands that unless expressly
provided herein or authorized from time to time by the Trust, the Portfolio
Manager shall have no authority to act for or represent the Trust in any way or
otherwise be deemed the Trust's agent.
- -7-
8. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Portfolios are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon the Trust's
or the Adviser's request, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. The Portfolio Manager further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
9. Cooperation. Each party to this Agreement agrees to cooperate with each
other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC) in connection
with any investigation or inquiry relating to this Agreement or the Trust.
10. Services Not Exclusive. It is understood that the services of the
Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not their
investment objectives and policies are similar to those of the Portfolios) or
from engaging in other activities.
11. Liability. Except as provided in Section 12 and as may otherwise be
required by the 1940 Act or the rules thereunder or other applicable law, the
Adviser agrees that the Portfolio Manager, any affiliated person of the
Portfolio Manager, and each person, if any, who, within the meaning of Section
15 of the Securities Act of 1933 (the "1933 Act") controls the Portfolio
Manager shall not be liable for, or subject to any damages, expenses, or losses
in connection with, any act or omission connected with or arising out of any
services rendered under this Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of the Portfolio
Manager's duties, or by reason of reckless disregard of the Portfolio Manager's
obligations and duties under this Agreement.
12. Indemnification. The Portfolio Manager agrees to indemnify and hold
harmless the Adviser, any affiliated person within the meaning of Section
2(a)(3) of the 1940 Act ("affiliated person") of the Adviser and each person,
if any, who, within the meaning of Section 15 of the 1933 Act, controls
("controlling person") the Adviser (collectively, "Adviser Indemnified
Persons") against any and all losses, claims, damages, liabilities or
litigation (including legal and other expenses), to which the Adviser or such
affiliated person or controlling person may become subject under the 1933 Act,
1940 Act, the Advisers Act, under any other statute, at common law or
otherwise, arising out of the Portfolio Manager's responsibilities to the Trust
which (i) may be based upon any misfeasance, malfeasance, or nonfeasance by the
Portfolio
- -8-
Manager, any of its employees or representatives, or any affiliate of or any
person acting on behalf of the Portfolio Manager (other than an Adviser
Indemnified Person), or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement or
prospectus covering the Shares of the Trust, the Portfolios or any Series, or
any amendment thereof or any supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such a statement or
omission was made in reliance upon information furnished to the Adviser, the
Trust, or any affiliated person of the Trust by the Portfolio Manager or any
affiliated person of the Portfolio Manager (other than an Adviser Indemnified
Person); provided, however, that in no case is the Portfolio Manager's
indemnity in favor of the Adviser or any affiliated person or controlling
person of the Adviser deemed to protect such person against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties,
or by reason of his reckless disregard of obligations and duties under this
Agreement.
The Adviser agrees to indemnify and hold harmless the Portfolio Manager, any
affiliated person within the meaning of Section 2(a)(3) of the 1940 Act of the
Portfolio Manager and each controlling person of the Portfolio Manager
(collectively, "Pacific Investment Management Company Indemnified Persons")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which the Portfolio Manager or such
affiliated person or controlling person may become subject under the 1933 Act,
the 1940 Act, the Advisers Act, under any other statute, at common law or
otherwise, arising out of the Adviser's responsibilities as adviser of the
Trust which (i) may be based upon any misfeasance, malfeasance, or nonfeasance
by the Adviser, any of its employees or representatives or any affiliate of or
any person acting on behalf of the Adviser (other than a Pacific Investment
Management Company Indemnified Person) or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares of the Trust, the
Portfolios or any Series, or any amendment thereof or any supplement thereto,
or the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement therein not misleading,
unless such statement or omission was made in reliance upon written information
furnished to the Adviser or any affiliated person of the Adviser by the
Portfolio Manager or any affiliated person of the Portfolio Manager (other than
a Pacific Investment Management Company Indemnified Person); provided however,
that in no case is the indemnity of the Adviser in favor of the Portfolio
Manager, or any affiliated person or controlling person of the Portfolio
Manager deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties, or by reason of his
reckless disregard of obligations and duties under this Agreement.
- -9-
13. Duration and Termination. This Agreement shall take effect as of the
date hereof. This Agreement shall remain in effect for two years from such date
and continue thereafter on an annual basis with respect to the Portfolios;
provided that such annual continuance is specifically approved at least
annually (a) by the vote of a majority of the Board of Trustees of the Trust or
(b) by the vote of a majority of the outstanding voting shares of the
Portfolios, and provided that continuance is also approved by the vote of a
majority of the Board of Trustees of the Trust who are not parties to this
Agreement or "interested persons" (as such term is defined in the 1940 Act) of
the Trust, the Adviser, or the Portfolio Manager, cast in person at a meeting
called for the purpose of voting on such approval. This Agreement may not be
materially amended without (1) a majority vote of the outstanding shares (as
defined in the 1940 Act) of the Portfolios, except to the extent permitted by
any exemption or exemptions that may be granted upon application made to the
SEC or by any applicable SEC rule, and (2) the prior written consent of the
Portfolio Manager and the Adviser. This Agreement may be terminated:
a. by the Trust at any time with respect to the services provided by the
Portfolio Manager, without the payment of any penalty, by vote of (1) a
majority of the Trustees of the Trust; (2) a majority of the Trustees of the
Trust who are not parties to this Agreement or "interested persons" (as such
term is defined in the 1940 Act) of the Trust, the Adviser or the Portfolio
Manager; or (3) a majority of the outstanding voting shares of the Portfolios,
on 60 days' written notice to the Portfolio Manager;
b. by the Portfolio Manager at any time, without the payment of any
penalty, upon 60 days' written notice to the Trust; or
c. by the Adviser at any time, without the payment of any penalty, upon
60 days' written notice to the Portfolio Manager.
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a particular Portfolio shall
be effective to continue this Agreement with respect to such Portfolio
notwithstanding (a) that this Agreement has not been approved by the holders of
a majority of the outstanding shares of any other Portfolio or (b) that this
Agreement has not been approved by the vote of a majority of the outstanding
shares of the Trust, unless such approval shall be required by any other
applicable law or otherwise. This Agreement will terminate automatically with
respect to the services provided by the Portfolio Manager in event of its
assignment, as that term is defined in the 1940 Act, by the Portfolio Manager.
14. Agreement and Declaration of Trust. A copy of the Agreement and
Declaration of Trust for the Trust is on file with the Secretary of the
Commonwealth of
- -10-
Massachusetts. The Agreement and Declaration of Trust has been executed on
behalf of the Trust by a Trustee of the Trust in his capacity as Trustee of the
Trust and not individually. The obligations of this Agreement shall be binding
upon the assets and property of the Trust and shall not be binding upon any
Trustee, officer, or shareholder of the Trust individually.
15. Miscellaneous.
a. This Agreement shall be governed by the laws of Massachusetts,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder.
b. The captions of this Agreement are included for convenience only and
in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
c. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise with regard to any party hereunder, such provisions with respect
to other parties hereto shall not be affected thereby.
d. The parties hereto acknowledge and agree that the Trust is an express
third party beneficiary to this Agreement. Except as provided in the preceding
sentence, the parties agree that this Agreement is not intended to benefit, or
create any right or cause of action in or on behalf of, any other person or
entity.
e. With respect to any actions brought by the Adviser or the Trust
against the Portfolio Manager, the Portfolio Manager: (i) consents to the
subject matter and in personam jurisdiction and venue in the United States
District Court for the District of Massachusetts; (ii) waives the right to
contest the subject matter and in personam jurisdiction and venue in the United
States District Court for the District of Massachusetts on any ground; and
(iii) agrees that service of process upon it can be made either in person or by
certified or registered mail, return receipt requested,
_________________________, or any other address designated by the Adviser as
the address to which notices pursuant to this Agreement should be sent. The
Portfolio Manager agrees that service to such address shall be deemed to
constitute sufficient service of process under both the federal and state rules
of civil procedure wherever the case is filed. In the event it is determined
that the United States District Court for the District of Massachusetts should
lack subject matter jurisdiction for any reason, the
- -11-
Portfolio Manager consents to the subject matter and in personam jurisdiction
and venue in a Massachusetts State court of competent jurisdiction in Suffolk
County.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
PIMCO ADVISORS L.P.
_______________________________ By:___________________________
Attest: Title:
Title:
PACIFIC INVESTMENT MANAGEMENT
COMPANY
________________________________ By:____________________________
Attest: Title:
Title:
- -12-
<PAGE>
DISTRIBUTION CONTRACT
Fixed Income SHares
1345 Avenue of the Americas
New York, New York 10105
March ___, 2000
PIMCO Funds Distributors LLC
2187 Atlantic Avenue
Stamford, Connecticut 06902
Ladies and Gentlemen:
This will confirm the agreement between the undersigned (the "Trust") and you
(the "Distributor") as follows:
1. Description of Trust. The Trust, Fixed Income SHares ("FISH"), is an
open-end management investment company which presently has the following two
investment portfolios: FISH: Series C and FISH: Series M (each a "Portfolio").
Additional investment portfolios may be established in the future. This
Contract shall pertain to the Portfolios and to such additional investment
portfolios as shall be designated in Supplements to this Contract, as further
agreed between the Trust and the Distributor. The Trust engages in the
business of investing and reinvesting the assets of the Portfolios in the
manner and in accordance with the investment objectives and restrictions
specified in the Trust's currently effective Prospectus or Prospectuses and
Statement of Additional Information (together, the "Prospectus") relating to
the Portfolios included in the Trust's Registration Statement, as amended from
time to time (the "Registration Statement"), as filed by the Trust under the
Investment Company Act of 1940, as amended (together with the rules and
regulations thereunder, the "1940 Act") and the Securities Act of 1933, as
amended (together with the rules and regulations thereunder,
the "1933 Act"). Copies of the documents referred to in the preceding sentence
have been furnished to the Distributor. Any amendments to those documents
shall be furnished to the Distributor promptly.
2. Appointment and Acceptance. The Trust hereby appoints the Distributor as a
distributor of shares of beneficial interest in the Trust (the "shares") which
may from time to time be registered under the 1933 Act and as servicing agent
of shareholders and shareholder accounts of the Trust, and the Distributor
hereby accepts such appointment in accordance with the terms and conditions set
forth herein. As the Trust's agent, the Distributor shall, except to the
extent provided in Section 4 hereof, be the exclusive distributor for the
unsold portion of the shares.
3. Sale of Shares to Distributor and Sales by Distributor. The Distributor
will have the right, as agent, to publicly sell shares of the Portfolios to
registered investment advisors approved by PIMCO Advisory Services ("RIAs")
against orders therefor. The price for shares shall be net asset value.
The Trust shall sell through the Distributor, as the Trust's agent, shares to
RIAs as described in the Prospectus. All orders through the Distributor shall
be subject to acceptance and confirmation by the Trust. The Trust shall have
the right, at its election, to deliver either shares issued upon original issue
or treasury shares.
Prior to the time of transfer of any shares by the Trust to, or on the order
of, the Distributor or any RIA, the Distributor shall pay or cause to be paid
to the Trust or to its order an amount in New York clearing house funds equal
to the applicable net asset value of the shares. Upon receipt of registration
instructions in proper form, the Distributor will transmit or cause to be
transmitted such instructions to the Trust or its agent for registration of the
shares purchased.
On every sale, the Trust shall receive the net asset value of the shares. The
net asset value of shares shall be determined in the manner provided in the
Declaration of Trust and By-laws of the Trust as then in effect.
4. Sales of Shares by the Trust. In addition to sales by the Distributor, the
Trust reserves the right to issue shares at any time directly to its
shareholders as a stock dividend or stock split or to sell shares to its
shareholders or other persons at not less than net asset value to the extent
that the Trust, its officers, or other persons associated with the Trust
participate in the sale, or to the extent that the Trust or the transfer agent
for its shares receive purchase requests for shares.
5. Fees. The Trust, on behalf of the Portfolios, shall pay the Distributor no
fees.
- -2-
6. Reservation of Right Not to Sell. The Trust reserves the right to refuse at
any time or times to sell any of its shares for any reason deemed adequate by
it.
7. Use of Sub-Agents; Non-exclusivity. The Distributor may employ such
sub-agents, for the purposes of selling shares of the Trust as the Distributor,
in its sole discretion, shall deem advisable or desirable. The Distributor may
enter into similar arrangements with other issuers and, except to the extent
necessary to perform its obligations hereunder, nothing herein shall be deemed
to limit or restrict the right of the Distributor, or any affiliate of the
Distributor, or any employee of the Distributor, to engage in any other
business or to devote time and attention to the management or other aspects of
any other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, firm, individual or association.
8. Basis of Purchases and Sales of Shares. The Distributor's obligation to
sell shares hereunder shall be on a best efforts basis only and the Distributor
shall not be obligated to sell any specific number of shares. Shares will be
sold by the Distributor only against orders therefor.
The Distributor will not purchase shares from anyone other than the Trust and
will not take "long" or "short" positions in shares contrary to any applicable
provisions of the Declaration of Trust of the Trust, as amended.
9. Rules of Securities Associations, etc. As the Trust's agent, the
Distributor may sell and distribute shares in such manner not inconsistent with
the provisions hereof and the Trust's Prospectus as the Distributor may
determine from time to time. In this connection, the Distributor shall comply
with all laws, rules and regulations applicable to it, including, without
limiting the generality of the foregoing, all applicable rules or regulations
under the 1940 Act and of any securities association registered under the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "1934 Act"). The Distributor will conform to the
Conduct Rules of the National Association of Securities Dealers, Inc. and the
securities laws of any jurisdiction in which it sells, directly or indirectly,
any shares. The Distributor also agrees to furnish to the Trust sufficient
copies of any agreement or plan it intends to use in connection with any sales
of shares in adequate time for the Trust to file and clear them with the proper
authorities before they are put in use, and not to use them until so filed and
cleared.
10. Independent Contractor. The Distributor shall be an independent contractor
and neither the Distributor nor any of its officers or employees as such, is or
shall be an employee of the Trust. The Distributor is responsible for its own
conduct and the employment, control and conduct of its agents and employees and
for injury to such agents or employees or to others through its agents or
employees. The Distributor assumes full responsibility for its agents and
employees under applicable statutes and agrees to pay all employer taxes
thereunder.
- -3-
11. Registration and Qualification of Shares. The Trust agrees to execute such
papers and to do such acts and things as shall from time to time be reasonably
requested by the Distributor for the purpose of qualifying and maintaining
qualification of the shares for sale under the so-called Blue Sky Laws of any
state or for maintaining the registration of each Portfolio of the Trust and
the Trust under the 1933 Act and the 1940 Act, to the end that there will be
available for sale from time to time such number of shares as the Distributor
may reasonably be expected to sell. The Trust shall advise the Distributor
promptly of (a) any action of the Securities and Exchange Commission or any
authorities of any state or territory, of which it may be advised, affecting
registration or qualification of the Trust, a Portfolio or the shares thereof,
or rights to offer such shares for sale and (b) the happening of any event
which makes untrue any statement or which requires the making of any change in
the registration statement or Prospectus in order to make the statements
therein not misleading.
12. Securities Transactions. The Trust agrees that the Distributor may effect
a transaction on any national securities exchange of which it is a member for
the account of the Trust and any Portfolio of the Trust which is permitted by
Section 11(a) of the 1934 Act.
13. Expenses.
(a) The Distributor shall from time to time employ or associate with it
such persons as it believes necessary to assist it in carrying out its
obligations under this Contract. The compensation of such persons shall be
paid by the Distributor.
(b) The Distributor shall pay all expenses incurred in connection with
its qualification as a dealer or broker under Federal or state law.
(c) The Trust may enter into arrangements with affiliates of the
Distributor providing for the payment by such affiliates of some or all
expenses of preparing, printing and distributing advertising and sales
literature.
(d) The Trust shall pay or cause to be paid all expenses incurred in
connection with (i) the preparation, printing and distribution to shareholders
of the Prospectus and reports and other communications to existing
shareholders, (ii) future registrations of shares under the 1933 Act and the
1940 Act, (iii) amendments of the Registration Statement subsequent to the
initial public offering of shares, (iv) qualification of shares for sale in
jurisdictions designated by the Distributor, including under the securities or
so-called "Blue Sky" laws of any State, (v) qualification of the Trust as a
dealer or broker under the laws of jurisdictions designated by the Distributor,
(vi) qualification of the Trust as a foreign corporation authorized to do
business in any jurisdiction if the Distributor determines that such
qualification is necessary or desirable for the purpose of facilitating sales
of shares, (vii) maintaining facilities for the issue and transfer of shares,
and (viii) supplying information, prices and other data to be furnished by the
Trust under this Contract.
- -4-
(e) The Trust shall pay any original issue taxes or transfer taxes
applicable to the sale or delivery of shares or certificates therefor.
14. Indemnification of Distributor. The Trust shall prepare and furnish to the
Distributor from time to time such number of copies of the most recent form of
the Prospectus filed with the SEC as the Distributor may reasonably request.
The Trust authorizes the Distributor to use the Prospectus, in the form
furnished to the Distributor from time to time, in connection with the sale of
shares. The Trust shall indemnify, defend and hold harmless the Distributor,
its officers and trustees and any person who controls the Distributor within
the meaning of the 1933 Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributor, its officers and trustees or any such
controlling person may incur under the 1933 Act, the 1940 Act, the common law
or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either or necessary to make the statements in either
not misleading. This Contract shall not be construed to protect the
Distributor against any liability to the Trust or its shareholders to which the
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under this Contract. This
indemnity agreement is expressly conditioned upon the Trust being notified of
any action brought against the Distributor, its officers or directors or any
such controlling person, which notification shall be given by letter or by
telegram addressed to the Trust at its principal office in New York, New York,
and sent to the Trust by the person against whom such action is brought within
10 days after the summons or other first legal process shall have been served.
The failure to notify the Trust of any such action shall not relieve the Trust
from any liability which it may have to the person against whom such action is
brought by reason of any such alleged untrue statement or omission otherwise
than on account of the indemnity agreement contained in this Section 14. The
Trust shall be entitled to assume the defense of any suit brought to enforce
any such claim, demand or liability, but, in such case, the defense shall be
conducted by counsel chosen by the Trust and approved by the Distributor. If
the Trust elects to assume the defense of any such suit and retain counsel
approved by the Distributor, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them,
but in case the Trust does not elect to assume the defense of any such suit, or
in the case the Distributor does not approve of counsel chosen by the Trust,
the Trust will reimburse the Distributor, its officers and directors or the
controlling person or persons named as defendant or defendants in such suit,
for the fees and expenses of any counsel retained by the Distributor or them.
In addition, the Distributor shall have the right to employ counsel to
represent it, its officers and directors and any such controlling person who
may be subject to liability arising out of any claim in respect of which
indemnity may be sought by the Distributor against the Trust hereunder if in
the reasonable judgment of the Distributor it is advisable for the Distributor,
its officers and directors or such controlling person to be represented by
separate counsel, in which event the
- -5-
fees and expense of such separate counsel shall be borne by the Trust. This
indemnity agreement and the Trust's representations and warranties in this
Contract shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, its officers and
directors or any such controlling person. This indemnity agreement shall inure
exclusively to the benefit of the Distributor and its successors, the
Distributor's officers and directors and their respective estates and any such
controlling persons and their successors and estates. The Trust shall promptly
notify the Distributor of the commencement of any litigation or proceedings
against it in connection with the issue and sale of any shares.
15. Indemnification of Trust. The Distributor agrees to indemnify, defend and
hold harmless the Trust, its officers and Trustees and any person who controls
the Trust within the meaning of the 1933 Act, from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which the Trust, its officers or Trustees or any such
controlling person, may incur under the 1933 Act, the 1940 Act, the common law
or otherwise, but only to the extent that such liability or expense incurred by
the Trust, its officers or Trustees or such controlling person resulting from
such claims or demands shall arise out of or be based upon (a) any alleged
untrue statement of a material fact contained in information furnished in
writing by the Distributor to the Trust specifically for use in the
Registration Statement or the Prospectus or shall arise out of or be based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or the
Prospectus or necessary to make such information not misleading, (b) any
alleged act or omission on the Distributor's part as the Trust's agent that has
not been expressly authorized by the Trust in writing, and (c) any claim,
action, suit or proceeding which arises out of or is alleged to arise out of
the Distributor's failure to exercise reasonable care and diligence with
respect to its services rendered in connection with investment, reinvestment,
employee benefit and other plans for shares. The foregoing rights of
indemnification shall be in addition to any other rights to which the Trust or
a trustee may be entitled as a matter of law. This indemnity agreement is
expressly conditioned upon the Distributor being notified of any action brought
against the Trust, its officers or Trustees or any such controlling person,
which notification shall be given by letter or telegram addressed to the
Distributor at its principal office in Stamford, Connecticut, and sent to the
Distributor by the person against whom such action is brought, within 10 days
after the summons or other first legal process shall have been served. The
failure to notify the Distributor of any such action shall not relieve the
Distributor from any liability which it may have to the Trust, its officers or
Trustees or such controlling person by reason of any alleged misstatement,
omission, act or failure on the Distributor's part otherwise than on account of
the indemnity agreement contained in this Section 15. The Distributor shall
have a right to control the defense of such action with counsel of its own
choosing and approved by the Trust if such action is based solely upon such
alleged misstatement, omission, act or failure on the Distributor's part, and
in any other event the Trust, its officers and Trustees or such controlling
person shall each have the right to participate in the defense or preparation
of the
- -6-
defense of any such action at their own expense. If the Distributor elects to
assume the defense of any such suit and retain counsel approved by the Trust,
the defendant or defendants in such suit shall bear the fees and expenses of
any additional counsel retained by any of them, but in case the Distributor
does not elect to assume the defense of any such suit, or in the case the Trust
does not approve of counsel chosen by the Distributor, the Distributor will
reimburse the Trust, its officers and Trustees or the controlling person or
persons named as defendant or defendants in such suit, for the fees and
expenses of any counsel retained by the Trust or them. In addition, the Trust
shall have the right to employ counsel to represent it, its officers and
Trustees and any such controlling person who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Trust against the Distributor hereunder if in the reasonable judgment of the
Trust it is advisable for the Trust, its officers and Trustees or such
controlling person to be represented by separate counsel, in which event the
fees and expense of such separate counsel shall be borne by the Distributor.
This indemnity agreement and the Distributor's representations and warranties
in this Contract shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Trust, its officers and
Trustees or any such controlling person. This indemnity agreement shall inure
exclusively to the benefit of the Trust and its successors, the Trust's
officers and Trustees and their respective estates and any such controlling
persons and their successors and estates. The Distributor shall promptly
notify the Trust of the commencement of any litigation or proceedings against
it in connection with the issue and sale of any shares.
16. Assignment Terminates this Contract; Amendments of this Contract. This
Contract shall automatically terminate, without the payment of any penalty, in
the event of its assignment. This Contract may be amended only if such
amendment be approved either by action of the Trustees of the Trust or at a
meeting of the shareholders of the Trust by the affirmative vote of a majority
of the outstanding shares of the Trust, and by a majority of the Trustees of
the Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plans or this Contract by
vote cast in person at a meeting called for the purpose of voting on such
approval.
17. Effective Period and Termination of this Contact. This Contract shall take
effect upon the date first above written and shall remain in full force and
effect continuously as to a Portfolio (unless terminated automatically as set
forth in Section 16 hereof) until terminated:
(a) Either by such Portfolio or the Distributor by not more than sixty
(60) days' nor less than thirty (30) days' written notice delivered or mailed
by registered mail, postage prepaid, to the other party; or
(b) Automatically as to any Portfolio at the close of business one year
from the date hereof, or upon the expiration of one year from the effective
date of the last continuance of this Contract, whichever is later, if the
continuance of this Contract is not specifically approved at least annually by
the Trustees of the Trust or the shareholders of such Portfolio by the
affirmative vote of a majority of the outstanding
- -7-
shares of such Portfolio, and by a majority of the Trustees of the Trust who
are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plans or this Contract by vote cast
in person at a meeting called for the purpose of voting on such approval.
Action by a Portfolio under (a) above may be taken either (i) by vote of the
Trustees of the Trust, or (ii) by the affirmative vote of a majority of the
outstanding shares of such Portfolio. The requirement under (b) above that the
continuance of this Contract be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder.
Termination of this Contract pursuant to this Section 17 shall be without the
payment of any penalty.
If this Contract is terminated or not renewed with respect to one or more
Portfolios, it may continue in effect with respect to any Portfolio as to which
it has not been terminated (or has been renewed).
18. Certain Definitions. For the purposes of this Contract, the "affirmative
vote of a majority of the outstanding shares" means the affirmative vote, at a
duly called and held meeting of shareholders, (a) of the holders of 67% or more
of the shares of the Trust or Portfolio, as the case may be, present (in person
or by proxy) and entitled to vote at such meeting, if the holders of more than
50% of the outstanding shares of the Trust or Portfolio, as the case may be,
entitled to vote at such meeting are present in person or by proxy, or (b) of
the holders of more than 50% of the outstanding shares of the Trust or
Portfolio, as the case may be, entitled to vote at such meeting, whichever is
less.
For the purposes of this Contract, the terms "interested persons" and
"assignment" shall have the meanings defined in the 1940 Act, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act. Certain other items used herein that are not otherwise defined
have the meaning given in the Trust's Prospectus or constituent agreements or
documents of the Trust.
The Declaration of Trust establishing the Trust, a copy of which, together with
all amendments thereto (the "Declaration"), is on file in the Office of the
Secretary of State of the Commonwealth of Massachusetts, was filed on November
8, 1999. Under Massachusetts law, shareholders of a "Massachusetts business
trust" could, under certain circumstances, be held personally liable for the
obligations of the trust. However, the Declaration of Trust of FISH disclaims
shareholder liability for acts or obligations of FISH on behalf of its
Portfolios and requires that notice of such disclaimer be given in each
agreement, obligation, or instrument entered into or executed by FISH. The
Declaration of Trust provides for indemnification out of the property of the
relevant Portfolio for all loss and expense of any shareholder of that
Portfolio held personally liable for the obligations of FISH solely by reason
of his being or
- -8-
having been a shareholder of FISH. Thus, the risk of a shareholder's incurring
financial loss on account of such shareholder liability is limited to
circumstances in which the Portfolio itself would be unable to meet its
obligations.
If the foregoing correctly sets forth the agreement between the Trust and the
Distributor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
FIXED INCOME SHARES
By: ______________________________
Title:
ACCEPTED:
PIMCO FUNDS DISTRIBUTORS LLC
By: ______________________________
Title:
- -9-
<PAGE>
CUSTODY AND INVESTMENT ACCOUNTING AGREEMENT
THIS AGREEMENT is made effective the ___ day of _________, 2000 by and between
STATE STREET BANK AND TRUST COMPANY, a trust company chartered under the laws
of the Commonwealth of Massachusetts, having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 ("State Street"),
Fixed Income SHares, a Massachusetts business trust having its principal office
and place of business at 1345 Avenue of the Americas, New York, New York 10105
("Fund"), and PIMCO Advisory Services ("PIMCO"), a division of PIMCO Advisors
L.P., a ________________ partnership having its principal office and place of
business at 800 Newport Center Drive, Newport Beach, California 92660, acting
as administrator for the Fund.
WITNESSETH:
WHEREAS, PIMCO administers all of the operations of the Fund, a Massachusetts
business trust that is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company, pursuant to an
Administration Agreement between the Fund and PIMCO, and procures or provides
for the procurement on behalf of the Fund at PIMCO's expense certain services,
including custody services; and
WHEREAS, PIMCO desires to appoint State Street as custodian of the assets of
the Fund's investment portfolio or portfolios (each a "Portfolio", and
collectively the "Portfolios") and as the Fund's agent to perform certain
investment accounting and recordkeeping functions; and
WHEREAS, State Street is willing to accept such appointment on the terms and
conditions hereinafter set forth;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant
and agree as follows:
1. APPOINTMENT OF CUSTODIAN AND AGENT. PIMCO hereby constitutes and appoints
State Street as:
A. Custodian of the investment securities, interests in loans and other
non-cash investment property, and monies at any time owned by each of the
Portfolios and delivered to State Street as custodian hereunder ("Assets"); and
B. Agent to perform certain accounting and recordkeeping functions
relating to portfolio transactions required of a duly registered investment
company under Rule 31a of the Investment Company Act of 1940, as amended (the
"1940 Act") and to calculate the net asset value of the Portfolios.
2. REPRESENTATIONS AND WARRANTIES.
A. Fund hereby represents, warrants and acknowledges to State Street:
1
1. That it is a trust duly organized and existing and in good
standing under the laws of its state of organization, and that it is registered
under the 1940 Act; and
2. That it has the requisite power and authority under applicable
law and its articles of incorporation and its bylaws or its trust instrument,
as the case may be, to enter into this Agreement; that it has taken all
requisite action necessary to appoint State Street as custodian and investment
accounting and recordkeeping agent, that this Agreement has been duly executed
and delivered by Fund; and that this Agreement constitutes a legal, valid and
binding obligation of Fund, enforceable in accordance with its terms, except
that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally,
and general principles of equity.
B. State Street hereby represents, warrants and acknowledges to Fund and
to PIMCO:
1. That it is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts; and
2. That it has the requisite power and authority under applicable
law, its charter and its bylaws to enter into and perform this Agreement; that
this Agreement has been duly executed and delivered by State Street; and that
this Agreement constitutes a legal, valid and binding obligation of State
Street, enforceable in accordance with its terms, except that such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, and general
principles of equity.
C. PIMCO hereby represents, warrants and acknowledges to State Street:
1. That it is a division of PIMCO Advisors L.P., a partnership
duly organized and existing and in good standing under the laws of the state
of its organization; and
2. That it has the requisite power and authority under applicable
law and its articles of incorporation or partnership agreement to enter into
and perform this Agreement; that this Agreement has been duly executed and
delivered by PIMCO; and that this Agreement constitutes a legal, valid and
binding obligation of PIMCO, enforceable in accordance with its terms, except
that such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally,
and general principles of equity.
3. DUTIES AND RESPONSIBILITIES OF THE PARTIES.
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A. Delivery of Assets. Except as permitted by the 1940 Act, PIMCO will
deliver or cause to be delivered to State Street on the effective date hereof,
or as soon thereafter as practicable, and from time to time thereafter, all
Assets acquired by, owned by or from time to time coming into the possession of
each of the Portfolios during the term hereof. State Street has no
responsibility or liability whatsoever for or on account of assets not so
delivered.
B. Delivery of Accounts and Records. PIMCO will turn over or cause to
be turned over to State Street all accounts and records needed by State Street
to fully and properly perform its duties and responsibilities hereunder. State
Street may rely conclusively on the completeness and correctness of such
accounts and records.
C. Delivery of Assets to Third Parties. State Street will receive
delivery of and keep safely the Assets of each Portfolio segregated in a
separate account. State Street will not deliver, assign, pledge or hypothecate
any such Assets to any person except as permitted by the provisions hereof or
any agreement executed according to the terms of Section 3.P hereof. Upon
delivery of any such Assets to a subcustodian appointed pursuant hereto
(hereinafter referred to as "Subcustodian"), State Street will create and
maintain records identifying such Assets as belonging to the applicable
Portfolio. State Street is responsible for the safekeeping of the Assets only
until they have been transmitted to and received by other persons as permitted
under the terms hereof, except for Assets transmitted to Subcustodians, for
which State Street remains responsible to the extent provided herein. State
Street may participate directly or indirectly through a subcustodian in the
Depository Trust Company (DTC), Treasury/Federal Reserve Book Entry System (Fed
System), Participant Trust Company (PTC) or other depository approved by Fund
(as such entities are defined at 17 CFR Section 270.17f-4(b)) (each a
"Depository" and collectively the "Depositories"). State Street will be
responsible to Fund for any loss, damage or expense suffered or incurred by
Fund resulting from the actions or omissions of any Depository only to the same
extent such Depository is responsible to State Street. State Street shall be
liable to the Fund for any loss or damage resulting from the use of a
Depository arising by reason of any negligence, willful misconduct or bad faith
on the part of State Street or any of its officers, employees or agents.
D. Registration. State Street will at all times hold registered Assets
in the name of State Street as custodian, the applicable Portfolio, or a
nominee of either of them, unless specifically directed by Instructions, as
hereinafter defined, to hold such registered Assets in so-called "street name;"
provided that, in any event, State Street will hold all such Assets in an
account of State Street as custodian containing only Assets of the applicable
Portfolio, or only assets held by State Street as a fiduciary or custodian for
customers; and provided further, State Street's records will at all times
indicate the Portfolio or other customer for which such Assets are held and the
respective interests therein. If, however, PIMCO directs State Street to
maintain Assets in "street name", notwithstanding anything contained herein to
the contrary, State Street will be obligated only to utilize its best efforts
to timely collect income due the
3
Portfolio on such Assets and to notify the Portfolio of relevant information,
such as maturities and pendency of calls, and corporate actions including,
without limitation, calls for redemption, tender or exchange offers,
declaration, record and payment dates and amounts of any dividends or income,
reorganization, recapitalization, merger, consolidation, split-up of shares,
change of par value, or conversion ("Corporate Actions"). All Assets and the
ownership thereof by a Portfolio will at all times be identifiable on the
records of State Street. PIMCO agrees to hold State Street and its nominee
harmless for any liability as a shareholder of record of securities held in
custody.
E. Exchange. Upon receipt of Instructions, State Street will exchange,
or cause to be exchanged, Assets held for the account of a Portfolio for other
Assets issued or paid in connection with any Corporate Action or otherwise, and
will deposit any such Assets in accordance with the terms of any such Corporate
Action. Without Instructions, State Street is authorized to exchange Assets in
temporary form for Assets in definitive form, to effect an exchange of shares
when the par value of stock is changed, and, upon receiving payment therefor,
to surrender bonds or other Assets at maturity or when advised of earlier call
for redemption, except that State Street will receive Instruction prior to
surrendering any convertible security.
F. Purchases of Investments -- Other Than Options and Futures. On each
business day on which a Portfolio makes a purchase of Assets other than options
and futures, PIMCO will deliver to State Street Instructions specifying with
respect to each such purchase:
1. If applicable, the name of the Portfolio making such purchase;
2. The name of the issuer and description of the Asset;
3. The number of shares and the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase;
8. The name of the person from whom or the broker or dealer through
whom the purchase was made; and
9. Whether the Asset is to be received in certificated form or via
a specified Depository.
In accordance with such Instructions, State Street will pay for out
of monies held for the purchasing Portfolio, but only insofar as such monies
are available for such purpose, and receive the Assets so purchased by or for
the account of such Portfolio, except that State Street, or a Subcustodian, may
in its sole discretion advance funds to such Portfolio which may result in an
overdraft because the monies held on behalf of such Portfolio are insufficient
to pay the total amount payable upon such purchase.
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Except as otherwise instructed by PIMCO, State Street will make such payment
only upon receipt of Assets: (a) by State Street; (b) by a clearing
corporation of a national exchange of which State Street is a member; or (c) by
a Depository. Notwithstanding the foregoing, (i) State Street may release
funds to a Depository prior to the receipt of advice from the Depository that
the Assets underlying a repurchase agreement have been transferred by
book-entry into the account maintained with such Depository by State Street on
behalf of its customers; provided that State Street's instructions to the
Depository require that the Depository make payment of such funds only upon
transfer by book-entry of the Assets underlying the repurchase agreement in
such account; (ii) State Street may make payment for time deposits, call
account deposits, currency deposits and other deposits, foreign exchange
transactions, futures contracts or options, before receipt of an advice or
confirmation evidencing said deposit or entry into such transaction; and (iii)
State Street may make, or cause a Subcustodian to make, payment for the
purchase of Assets the settlement of which occurs outside of the United States
of America in accordance with generally accepted local custom and market
practice.
G. Sales and Deliveries of Investments -- Other Than Options and
Futures. On each business day on which a Portfolio makes a sale of Assets other
than options and futures, PIMCO will deliver to State Street Instructions
specifying with respect to each such sale:
1. If applicable, the name of the Portfolio making such sale;
2. The name of the issuer and description of the Asset;
3. The number of shares and principal amount sold, and accrued
interest, if any;
4. The date on which the Assets sold were purchased or other
information identifying the Assets sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by the Portfolio upon such sale;
and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
State Street will deliver or cause to be delivered the Assets thus
designated as sold for the account of the selling Portfolio as specified in the
Instructions. Except as otherwise instructed by PIMCO, State Street will make
such delivery upon receipt of: (a) payment therefor in such form as is
satisfactory to State Street; (b) credit to the account of State Street with a
clearing corporation of a national securities exchange of which State Street is
a member; or (c) credit to the account maintained by State Street on behalf of
its customers with a Depository. Notwithstanding the foregoing: (i) State
Street will deliver Assets held in physical form in accordance with "street
delivery custom" to a broker or its clearing agent; or (ii) State Street may
make, or cause a Subcustodian to make, delivery of Assets the settlement of
which
5
occurs outside of the United States of America upon payment therefor in
accordance with generally accepted local custom and market practice.
H. Purchases or Sales of Options and Futures. On each business day on
which a Portfolio makes a purchase or sale of the options and/or futures listed
below, PIMCO will deliver to State Street Instructions specifying with respect
to each such purchase or sale:
1. If applicable, the name of the Portfolio making such purchase or
sale;
2. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded; and
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased; and
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. In the case of security index futures contracts:
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
Instructions,
6
and if not already in the possession of State Street, PIMCO
will deliver a substantially complete and executed
custodial safekeeping account and procedural agreement,
incorporated herein by this reference); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Assets Pledged or Loaned. If specifically allowed for in the
prospectus or registration statement of a Portfolio, and subject to such
additional terms and conditions as State Street may require:
1. Upon receipt of Instructions, State Street will release or cause
to be released Assets to the designated pledgee by way of pledge or
hypothecation to secure any loan incurred by a Portfolio; provided, however,
that State Street will release Assets only upon payment to State Street of the
monies borrowed, except that in cases where additional collateral is required
to secure a borrowing already made, further Assets may be released or caused to
be released for that purpose. Upon receipt of Instructions, State Street will
pay, but only from funds available for such purpose, any such loan upon
redelivery to it of the Assets pledged or hypothecated therefor and upon
surrender of the note or notes evidencing such loan.
2. Upon receipt of Instructions, State Street will release Assets
to the designated borrower; provided, however, that the Assets will be released
only upon deposit with State Street of full cash collateral as specified in
such Instructions, and that the lending Portfolio will retain the right to any
dividends, interest or distribution on such loaned Assets. Upon receipt of
Instructions and the loaned Assets, State Street will release the cash
collateral to the borrower.
J. Routine Matters. State Street will, in general, attend to all
routine and mechanical matters in connection with the sale, exchange,
substitution, purchase, transfer, or
7
other dealings with the Assets except as may be otherwise provided herein or
upon Instruction from PIMCO.
K. Deposit Accounts. State Street will open and maintain one or more
special purpose deposit accounts for each Portfolio in the name of State Street
in such banks or trust companies (including, without limitation, affiliates of
State Street) as may be designated by it or PIMCO in writing ("Accounts"),
subject only to draft or order by State Street upon receipt of Instructions.
State Street will deposit all monies received by State Street from or for the
account of a Portfolio in an Account maintained for such Portfolio. Subject to
Section 5.K hereof, State Street agrees:
1. To make Fed Funds available to the applicable Portfolio at 9:00
a.m., Kansas City time, on the second business day after deposit of any check
into an Account, in the amount of the check;
2. To make funds available immediately upon a deposit made by
Federal Reserve wire; and
3. To make funds available on the next business day after deposit
of ACH wires.
L. Income and Other Payments. State Street will:
1. Collect, claim and receive and deposit for the account of the
applicable Portfolio all income (including income from the Accounts) and other
payments which become due and payable on or after the effective date hereof
with respect to the Assets, and credit the account of such Portfolio in
accordance with the schedule attached hereto as Exhibit A. If, for any reason,
a Portfolio is credited with income that is not subsequently collected, State
Street may reverse that credited amount. If monies are collected after such
reversal, State Street will credit the Portfolio in that amount;
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the collection of bond
and note coupons; and
3. Take such other action as may be necessary or proper in
connection with (a) the collection, receipt and deposit of such income and
other payments, including but not limited to the presentation for payment of
all coupons and other income items requiring presentation; and all other Assets
which may mature or be called, redeemed, retired or otherwise become payable
and regarding which State Street has actual knowledge, or should reasonably be
expected to have knowledge; and (b) the endorsement for collection, in the name
of Fund or a Portfolio, of all checks, drafts or other negotiable instruments.
8
State Street, however, will not be required to institute suit or take other
extraordinary action to enforce collection except upon receipt of Instructions
and upon being indemnified to its satisfaction against the costs and expenses
of such suit or other actions. State Street will receive, claim and collect
all stock dividends, rights and other similar items and will deal with the same
pursuant to Instructions.
M. Proxies and Notices. State Street will promptly deliver or mail or
have delivered or mailed to PIMCO all proxies properly signed, all notices of
meetings, all proxy statements and other notices, requests or announcements
affecting or relating to Assets and will, upon receipt of Instructions, execute
and deliver or mail (or cause its nominee to execute and deliver or mail) such
proxies or other authorizations as may be required. Except as provided herein
or pursuant to Instructions hereafter received by State Street, neither it nor
its nominee will exercise any power inherent in any such Assets, including any
power to vote the same, or execute any proxy, power of attorney, or other
similar instrument voting any of such Assets, or give any consent, approval or
waiver with respect thereto, or take any other similar action.
N. Disbursements. State Street will pay or cause to be paid, insofar as
funds are available for the purpose, bills, statements and other obligations of
each Portfolio (including but not limited to obligations in connection with the
conversion, exchange or surrender of Assets, interest charges, dividend
disbursements, taxes, management fees, custodian fees, legal fees, auditors'
fees, transfer agents' fees, brokerage commissions, compensation to personnel,
and other operating expenses of such Portfolio) pursuant to Instructions
setting forth the name of the person to whom payment is to be made, and the
amount and purpose of the payment.
O. Daily Statement of Accounts. State Street will, within a reasonable
time, render to PIMCO a detailed statement of the amounts received or paid and
of Assets received or delivered for the account of each Portfolio during each
business day. State Street will maintain such books and records as are
necessary to enable it to render, from time to time upon request by PIMCO, a
detailed statement of the Assets. State Street will permit, and upon
Instruction will cause any Subcustodian to permit, such persons as are
authorized by the Fund, including Fund's independent public accountants,
reasonable access to such records or will provide reasonable confirmation of
the contents of such records, and if demanded, State Street will permit, and
will cause any Subcustodian to permit, federal and state regulatory agencies
to examine the Assets, books and records of any Portfolio.
P. Appointment of Subcustodians. Notwithstanding any other provisions
hereof:
1. All or any of the Assets may be held in State Street's own
custody or in the custody of one or more other banks or trust companies
(including, without limitation, affiliates of State Street) acting as
Subcustodians as may be selected by State Street. Any such Subcustodian
selected by State Street must have the qualifications required for a custodian
under the 1940 Act.
9
State Street will be responsible to the applicable Portfolio for any loss,
damage or expense suffered or incurred by such Portfolio resulting from the
actions or omissions of any Subcustodians selected and appointed by State
Street (except Subcustodians appointed at the request of PIMCO and as provided
in Subsection 2 below) to the same extent State Street would be responsible to
Fund hereunder if it committed the act or omission itself.
2. Upon request of PIMCO, State Street will contract with other
Subcustodians reasonably acceptable to State Street for purposes of (a)
effecting third-party repurchase transactions with banks, brokers, dealers, or
other entities through the use of a common custodian or subcustodian, or (b)
providing depository and clearing agency services with respect to certain
variable rate demand note securities, or (c) for other reasonable purposes
specified by PIMCO; provided, however, that State Street will be responsible to
PIMCO for any loss, damage or expense suffered or incurred by Fund resulting
from the actions or omissions of any such Subcustodian only to the same extent
such Subcustodian is responsible to State Street. PIMCO may review State
Street's contracts with such Subcustodians.
Q. Foreign Custody Manager.
1. Definitions. Capitalized terms in this Section Q have the
following meanings:
"Country Risk" means all factors reasonably related to the
systemic risk of holding Foreign Assets in a particular country including, but
not limited to, such country's political environment; financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
(but not Eligible Foreign Custodians) operating in the country); prevailing
custody and settlement practices; and laws and regulations applicable to the
safekeeping and recovery of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in
Section (a)(1) of Rule 17f-5, except that the term does not include Mandatory
Securities Depositories.
"Foreign Assets" means any of the Portfolios' investments
(including foreign currencies) for which the primary market is outside the
United States and such cash and cash equivalents in amounts deemed by PIMCO to
be reasonably necessary to effect the Portfolios' transactions in such
investments.
"Foreign Custody Manager" or "FCM" has the meaning set forth in
Section (a)(2) of Rule 17f-5.
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"Mandatory Securities Depository" means a foreign securities
depository or clearing agency that, either as a legal or practical matter, must
be used if the manager of a Portfolio determines to place Foreign Assets in a
country outside the United States (i) because required by law or regulation;
(ii) because securities cannot be withdrawn from such foreign securities
depository or clearing agency; or (iii) because maintaining or effecting trades
in securities outside the foreign securities depository or clearing agency is
not consistent with prevailing or developing custodial or market practices.
2. Delegation to State Street as FCM. Fund, pursuant to
resolution adopted by its Board of Trustees or Directors ("Board"), hereby
delegates to State Street, subject to Section (b) of Rule 17f-5, the
responsibilities set forth in this Section Q with respect to Foreign Assets
held outside the United States, and State Street hereby accepts such
delegation, as FCM of each Portfolio.
3. Countries Covered. The FCM is responsible for performing the
delegated responsibilities defined below only with respect to the countries and
custody arrangements for each such country listed on Exhibit D hereto , which
may be amended from time to time by the FCM. The FCM will list on Exhibit D
the Eligible Foreign Custodians selected by the FCM to maintain the assets of
each Portfolio. Mandatory Securities Depositories are listed on Exhibit E
hereto, which Exhibit E may be amended from time to time by the FCM. The FCM
will provide amended versions of Exhibits D and E in accordance with subsection
7 of this Section Q.
Upon the receipt by the FCM of Instructions to open an account,
or to place or maintain Foreign Assets, in a country listed on Exhibit D, and
the fulfillment by PIMCO of the applicable account opening requirements for
such country, the FCM is deemed to have been delegated by the Board
responsibility as FCM with respect to that country and to have accepted such
delegation. Following the receipt of Instructions directing the FCM to close
the account of a Portfolio with the Eligible Foreign Custodian selected by the
FCM in a designated country, the delegation by the Board to State Street as FCM
for that country is deemed to have been withdrawn and State Street will
immediately cease to be the FCM of the Portfolio with respect to that country
unless a substitute Eligible Foreign Custodian is identified and added to
Exhibit D.
The FCM may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to
PIMCO. Commencing sixty (60) days (or such longer period as to which the
parties agree in writing) after receipt of any such notice by PIMCO, State
Street will have no further responsibility as FCM to a Portfolio with respect
to the country as to which State Street's acceptance of delegation is withdrawn.
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4. Scope of Delegated Responsibilities.
a. Selection of Eligible Foreign Custodians. Subject to the
provisions of this Section Q, the FCM may place and maintain the Foreign Assets
in the care of the Eligible Foreign Custodian selected by the FCM in each
country listed on Exhibit D, as amended from time to time.
In performing its delegated responsibilities as FCM to
place or maintain Foreign Assets with an Eligible Foreign Custodian, the FCM
will determine that the Foreign Assets will be subject to reasonable care,
based on the standards applicable to custodians in the country in which the
Foreign Assets will be held by that Eligible Foreign Custodian, after
considering all factors relevant to the safekeeping of such assets, including,
without limitation, those set forth in Rule 17f-5(c)(1)(i) through (iv).
b. Contracts With Eligible Foreign Custodians. The FCM will
determine that the contract (or the rules or established practices or
procedures in the case of an Eligible Foreign Custodian that is a foreign
securities depository or clearing agency) governing the foreign custody
arrangements with each Eligible Foreign Custodian selected by the FCM will
provide reasonable care for the Foreign Assets held by that Eligible Foreign
Custodian based on the standards applicable to custodians in the particular
country and referred to in the second paragraph of Section 4.a. Each such
contract will include the provisions set forth in Rule 17f-5(c)(2)(i)(A)
through (F), or, in lieu of any or all of the provisions set forth in said (A)
through (F), such other provisions that the FCM determines will provide, in
their entirety, the same or greater level of care and protection for the
Foreign Assets as the provisions set forth in said (A) through (F) in their
entirety.
c. Monitoring. In each case in which the FCM maintains
Foreign Assets with an Eligible Foreign Custodian selected by the FCM, the FCM
will establish a system to monitor (a) the appropriateness of maintaining the
Foreign Assets with such Eligible Foreign Custodian as provided in Section 4.a.
and (b) the contract governing the custody arrangements established by the FCM
with the Eligible Foreign Custodian as provided in Section 4.b. In the event
the FCM determines that the custody arrangements with an Eligible Foreign
Custodian it has selected are no longer appropriate, the FCM will notify the
Board in accordance with subsection 7 of this Section Q.
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5. Guidelines for the Exercise of Delegated Authority. For
purposes of this Section Q, the Board will be solely responsible for
considering and determining to accept such Country Risk as is incurred by
placing and maintaining the Foreign Assets in each country for which State
Street is serving as FCM of a Portfolio, and the Board will be solely
responsible for monitoring on a continuing basis such Country Risk to the
extent that the Board considers necessary or appropriate. PIMCO, on behalf of
the Fund, and State Street each expressly acknowledge that the FCM will not be
delegated any responsibilities under this Section Q with respect to Mandatory
Securities Depositories.
6. Standard of Care as FCM of a Portfolio. In performing the
responsibilities delegated to it, the FCM agrees to exercise reasonable care,
prudence and diligence such as a person having responsibility for the
safekeeping of assets of management investment companies registered under the
1940 Act would exercise.
7. Reporting Requirements. The FCM will report the withdrawal of
the Foreign Assets from an Eligible Foreign Custodian and the placement of such
Foreign Assets with another Eligible Foreign Custodian by providing to the
Board amended Exhibits D and E at the end of the calendar quarter in which an
amendment to either Exhibit has occurred. The FCM will make written reports
notifying the Board of any other material change in the foreign custody
arrangements of a Portfolio described in this Section Q promptly following
after the occurrence of the material change.
8. Representations with Respect to Rule 17f-5. The FCM represents
to PIMCO that it is a U.S. Bank as defined in Section (a)(7) of Rule 17f-5.
PIMCO, on behalf of Fund, represents to State Street that the
Board has determined that it is reasonable for it to rely on State Street to
perform the responsibilities delegated pursuant to this Agreement to State
Street as the FCM of each Portfolio.
Each party represents that it will in good faith negotiate
revised terms for this Agreement to reflect future guidance from the SEC staff
or regulatory amendments affecting Rule 17f-5.
9. Effective Date and Termination of State Street as FCM. The
Board's delegation to State Street as FCM of a Portfolio will be effective as
of the effective date of the 1997 Amendments to Rule 17f-5 and will remain in
effect until terminated at any time, without penalty, by written notice from
the terminating party to the non-terminating party. Termination will become
effective thirty days after receipt by the non-terminating party of such
notice. The provisions of subsection 3 of this Section Q govern the delegation
to and termination of State Street as FCM of Fund with respect to designated
countries.
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R. Accounts and Records. State Street will prepare and maintain, with
the direction and as interpreted by PIMCO, a Fund's or a Portfolio's
accountants and/or other advisors, in complete, accurate and current form all
accounts and records: (1) required to be maintained by a Fund with respect to
portfolio transactions under Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder; (2) required to be maintained
as a basis for calculation of each Portfolio's net asset value; and (3) as
otherwise agreed upon by the parties. PIMCO will advise State Street in
writing of all applicable record retention requirements, other than those set
forth in the 1940 Act or the regulations thereunder. State Street will
preserve such accounts and records in the manner and for the periods prescribed
in the 1940 Act or the regulations thereunder or for such longer period as is
agreed upon by the parties. PIMCO will furnish, in writing or its electronic
or digital equivalent, accurate and timely information needed by State Street
to complete such accounts and records, including Corporate Actions, when such
information is not readily available from generally accepted securities
industry services or publications.
S. Accounts and Records Property of Fund. State Street acknowledges
that all of the accounts and records maintained by State Street pursuant hereto
are the property of the Fund, and will be made available to the Fund and PIMCO
on behalf of Fund for inspection or reproduction within a reasonable period of
time, upon demand. State Street will assist Fund's independent auditors, or
upon approval of PIMCO, or upon demand, any regulatory body, in any requested
review of Fund's accounts and records but PIMCO will reimburse State Street for
all expenses and employee time invested in any such review outside of routine
and normal periodic reviews. Upon receipt from PIMCO of the necessary
information or instructions, State Street will supply information from the
books and records it maintains for Fund that Fund needs for tax returns,
questionnaires, periodic reports to shareholders and such other reports and
information requests as PIMCO and State Street agree upon from time to time.
T. Adoption of Procedures. State Street and PIMCO, on behalf of Fund,
hereby adopt the Funds Transfer Operating Guidelines attached hereto as Exhibit
B. State Street and PIMCO may from time to time adopt such additional
procedures as they agree upon, and State Street may conclusively assume that no
procedure approved or directed by PIMCO, Fund's or any Portfolio's accountants
or other advisors conflicts with or violates any requirements of the prospectus
or registration statement, articles of incorporation and bylaws or trust
instrument, any applicable law, rule or regulation, or any order, decree or
agreement by which the Fund may be bound. PIMCO will be responsible for
notifying State Street of any changes in statutes, regulations, rules,
requirements or policies which may impact State Street's performance of its
responsibilities hereunder or its related operational policies and procedures
as they relate to the Fund in a manner different from or in addition to
requirements applicable to investment companies registered under the 1940 Act
in general.
14
U. Calculation of Net Asset Value. PIMCO, on behalf of Fund, will give
Instructions to State Street specifying the outside pricing sources to be
utilized as sources of Asset prices ("Pricing Sources"). In the event that
PIMCO specifies Reuters America, Inc., it will enter into the Agreement
attached hereto as Exhibit C. State Street will calculate each Portfolio's net
asset value, in accordance with the Portfolio's prospectus or registration
statement. State Street will price the Assets, including foreign currency
holdings, of each Portfolio for which market quotations are available from the
Pricing Sources; all other Assets will be priced in accordance with PIMCO's
Instructions.
V. Advances. Fund will cause each Portfolio to pay on demand any
advance of cash or securities made by State Street or any Subcustodian, in its
sole discretion, for any purpose (including but not limited to securities
settlements, purchase or sale of foreign exchange or foreign exchange contracts
and assumed settlement) for the benefit of any Portfolio. Any such cash
advance will be subject to an overdraft charge at the rate set forth in the
then-current fee schedule from the date advanced until the date repaid. As
security for each such advance, Fund hereby grants State Street and such
Subcustodian a lien on and security interest in all of Fund's Assets at any
time held for the account of the applicable Portfolio, including without
limitation all Assets acquired with the amount advanced. Should the
applicable Portfolio fail to promptly repay the advance, the Fund agrees that
State Street and such Subcustodian may utilize available cash and dispose of
such Portfolio's Assets pursuant to applicable law to the extent necessary to
obtain reimbursement of the amount advanced and any related overdraft charges;
provided, however, that prior to such utilization and disposition, (i) State
Street or Subcustodian has given PIMCO 2 days' notice of the amount due and of
its intent to so utilize and dispose of custodied Assets; and (ii) the
applicable Portfolio shall not have satisfied the obligation. During such 2
day notice period, PIMCO shall have the option to direct State Street or such
Subcustodian by written notice regarding which and in what priority order
custodied Assets are to be utilized and disposed of.
W. Exercise of Rights; Tender Offers. Upon receipt of Instructions,
State Street will: (1) deliver warrants, puts, calls, rights or similar
securities to the issuer or trustee thereof, or to the agent of such issuer or
trustee, for the purpose of exercise or sale, provided that the new Assets, if
any, are to be delivered to State Street; and (2) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to State Street or the tendered
securities are to be returned to State Street.
X. Fund Shares.
1. PIMCO will deliver to State Street Instructions with respect to
the declaration and payment of any dividend or other distribution on the shares
of capital stock or beneficial interest, as the case may be, of a Portfolio
("Fund Shares") by a Portfolio. On the date specified in such Instruction,
State Street will pay
15
out of the monies held for the account of the Portfolio, insofar as it is
available for such purposes, and credit to the account of the Dividend
Disbursing Agent for the Portfolio, the amount specified in such Instructions.
2. Whenever Fund Shares are repurchased or redeemed by a Portfolio,
PIMCO on behalf of such Portfolio or its agent will give State Street
Instructions regarding the aggregate dollar amount to be paid for such shares.
Upon receipt of such Instruction, State Street will charge such aggregate
dollar amount to the account of the Portfolio and either deposit the same in
the account maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with such
Instruction. State Street has no duty or responsibility to determine that Fund
Shares have been removed from the proper shareholder accounts or that the
proper number of Fund Shares have been canceled and removed from the
shareholder records.
3. Whenever Fund Shares are purchased from a Portfolio, PIMCO will
deposit or cause to be deposited with State Street the amount received for such
shares. State Street has no duty or responsibility to determine that Fund
Shares purchased from a Portfolio have been added to the proper shareholder
account or that the proper number of such shares have been added to the
shareholder records.
4. INSTRUCTIONS.
A. The term "Instructions", as used herein, means written (including
telecopied, telexed, or electronically transmitted) or oral instructions which
State Street reasonably believes were given by a designated representative of
PIMCO. PIMCO will deliver to State Street, prior to delivery of any Assets to
State Street and thereafter from time to time as changes therein are necessary,
written Instructions naming one or more designated representatives to give
Instructions in the name and on behalf of Fund, which Instructions may be
received and accepted by State Street as conclusive evidence of the authority
of any designated representative to act for the Fund and may be considered to
be in full force and effect until receipt by State Street of notice to the
contrary. Unless such written Instructions delegating authority to any person
to give Instructions specifically limit such authority to specific matters or
require that the approval of anyone else will first have been obtained, State
Street will be under no obligation to inquire into the right of such person,
acting alone, to give any Instructions whatsoever. If PIMCO fails to provide
State Street any such Instructions naming designated representatives, any
Instructions received by State Street from a person reasonably believed to be
an appropriate representative of PIMCO will constitute valid and proper
Instructions hereunder. "Designated representatives" may include a Fund's or a
Portfolio's employees and agents, including investment managers and their
employees.
16
B. No later than the next business day immediately following each oral
Instruction, PIMCO will send State Street written confirmation of such oral
Instruction. At State Street's sole discretion, State Street may record on
tape, or otherwise, any oral Instruction whether given in person or via
telephone, each such recording identifying the date and the time of the
beginning and ending of such oral Instruction.
C. PIMCO will provide, upon State Street's request, a certificate signed
by an officer or designated representative of PIMCO, as conclusive proof of any
fact or matter required to be ascertained from PIMCO hereunder. PIMCO will
also provide State Street Instructions with respect to any matter concerning
this Agreement requested by State Street. If State Street reasonably believes
that it could not prudently act according to the Instructions, or the
instruction or advice of Fund's or a Portfolio's accountants or counsel, it may
in its discretion, with notice to PIMCO and Fund, not act according to such
Instructions.
5. LIMITATION OF LIABILITY OF STATE STREET.
A. State Street shall at all times use reasonable care and due diligence
and act in good faith in performing its duties under this Agreement. Neither
PIMCO nor Fund is responsible or liable for, and State Street will indemnify
and hold PIMCO and Fund harmless from and against, any and all costs, expenses,
losses, damages, charges, counsel fees, payments and liabilities which may be
asserted against or incurred by PIMCO or Fund or for which PIMCO or Fund may be
held to be liable, arising out of or attributable to State Street's failure to
comply with the terms of this Agreement or arising out of State Street's (or
its agents' or delegees') negligence, willful misconduct, or bad faith.
B. State Street is not responsible or liable for, and PIMCO will
indemnify and hold State Street harmless from and against, any and all costs,
expenses, losses, damages, charges, counsel fees, payments and liabilities
which may be asserted against or incurred by State Street or for which State
Street may be held to be liable, arising out of or attributable to:
1. State Street's action or omission to act pursuant hereto;
provided that State Street has acted or failed to act in good faith and with
due diligence and reasonable care; and provided further, that neither party is
liable to the other for consequential, special, or punitive damages in any
event.
2. State Street's payment of money as requested by PIMCO, or the
taking of any action which might make it or its nominee liable for payment of
monies or in any other way; provided, however, that nothing herein obligates
State Street to take any such action or expend its own monies in its sole
discretion.
3. State Street's action or omission to act hereunder in reasonable
reliance upon any Instructions, advice, notice, request, consent, certificate
or other
17
instrument or paper appearing to it to be genuine and to have been properly
executed, including any Instructions, communications, data or other information
received by State Street by means of the Systems, as hereinafter defined, or
any electronic system of communication.
4. State Street's action or omission to act in good faith reliance
on the advice or opinion of counsel for PIMCO or of its own counsel with
respect to questions or matters of law, which advice or opinion may be obtained
by State Street from counsel for PIMCO at the expense of PIMCO or from State
Street's counsel at its own expense, or on the Instructions, advice or
statements of any officer or employee of PIMCO, or the Fund's accountants or
other authorized individuals, and other persons believed by it in good faith to
be expert in matters upon which they are consulted.
5. The purchase or sale of any securities or foreign currency
positions. Without limiting the generality of the foregoing, State Street is
under no duty or obligation to inquire into:
a. The validity of the issue of any securities purchased by or
for any Portfolio, or the legality of the purchase thereof or of foreign
currency positions, or evidence of ownership required by PIMCO to be received
by State Street, or the propriety of the decision to purchase or the amount
paid therefor;
b. The legality of the sale of any securities or foreign
currency positions by or for any Portfolio, or the propriety of the amount for
which the same are sold; or
c. The legality of the issue or sale of any Fund Shares, or
the sufficiency of the amount to be received therefor, the legality of the
repurchase or redemption of any Fund Shares, or the propriety of the amount to
be paid therefor, or the legality of the declaration of any dividend by either
Fund, or the legality of the issue of any Fund Shares in payment of any stock
dividend.
6. Any error, omission, inaccuracy or other deficiency in any
Portfolio's accounts and records or other information provided by or on behalf
of a Portfolio to State Street, including the accuracy of the prices quoted by
the Pricing Sources or for the information supplied by PIMCO to price the
Assets, or the failure of PIMCO to provide, or provide in a timely manner, any
accounts, records, or information needed by State Street to perform hereunder.
7. PIMCO's or Fund's refusal or failure to comply with the terms
hereof
18
(including without limitation PIMCO's or Fund's failure to pay or reimburse
State Street under Section 5 or 6 hereof), PIMCO's or Fund's negligence or
willful misconduct, or the failure of any representation or warranty of PIMCO
or Fund hereunder to be and remain true and correct in all respects at all
times.
8. The use or misuse, whether authorized or unauthorized, of the
Systems or any electronic system of communication used hereunder, by PIMCO or
by any person who acquires access to the Systems or such other systems through
the terminal device, passwords, access instructions or other means of access to
such Systems or such other system which are utilized by, assigned to or
otherwise made exclusively available to PIMCO, except to the extent
attributable to any negligence or willful misconduct by State Street.
9. Any money represented by any check, draft, wire transfer,
clearinghouse funds, uncollected funds, or instrument for the payment of money
to be received by State Street on behalf of a Portfolio until actually
received; provided, however, that State Street will advise PIMCO promptly if it
fails to receive any such money in the ordinary course of business and will
cooperate with PIMCO toward the end that such money is received.
10. Except as provided in Section 3.P hereof, and subject to
Section 5.B.1 hereof, loss occasioned by the acts, neglects, defaults or
insolvency of any broker, bank, trust company, or any other person with whom
State Street may deal.
11. The failure or delay in performance of its obligations
hereunder, or those of any entity for which it is responsible hereunder,
arising out of or caused, directly or indirectly, by circumstances beyond the
affected entity's reasonable control or ability to take preemptive measures
against, including, without limitation: any interruption, loss or malfunction
of any utility, transportation, computer (hardware or software) or
communication service; inability to obtain labor, material, equipment or
transportation, or a delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike, riot, emergency,
civil disturbance, terrorism, vandalism, explosions, labor disputes, freezes,
floods, fires, tornadoes, acts of God or public enemy, revolutions, or
insurrection.
6. COMPENSATION. In consideration for its services hereunder, State Street
will be paid the compensation set forth in a separate fee schedule,
incorporated herein by this reference, to be agreed to by Fund, PIMCO and
State Street from time to time, and reimbursement for State Street's cash
disbursements and reasonable out-of-pocket costs and expenses, including
attorney's fees, incurred by State Street in connection with the performance of
services hereunder, on demand. State Street, subject to Section 10 hereof, may
charge such compensation against monies held by it for the accounts of the
Portfolios following notice to PIMCO. State Street will, subject to Section
10 hereof, be entitled to charge against any
19
monies held by it for the accounts of the Portfolios the amount of any loss,
damage, liability, advance, overdraft or expense for which it is entitled to
reimbursement from PIMCO. State Street will be entitled to reimbursement by
the Fund or PIMCO for the losses, damages, liabilities, advances, overdrafts
and expenses of Subcustodians only to the extent that (a) State Street would
have been entitled to reimbursement hereunder if it had incurred the same
itself directly, and (b) State Street is obligated to reimburse the
Subcustodian therefor. As between the Fund and PIMCO, it is agreed that the
compensation due State Street hereunder shall be paid by PIMCO.
7. TERM AND TERMINATION. The initial term of this Agreement is for a period
of one (1) year. Thereafter, PIMCO or State Street may terminate the same by
notice in writing, delivered or mailed, postage prepaid, to the other party and
received not less than sixty (60) days prior to the date upon which such
termination will take effect. Upon termination hereof:
A. PIMCO will pay State Street its fees and compensation due hereunder
and its reimbursable disbursements, costs and expenses paid or incurred to such
date;
B. PIMCO will designate a successor investment accounting and
recordkeeping agent (which may be PIMCO or Fund) by Instruction to State
Street;
C. PIMCO will designate a successor custodian by Instruction to State
Street. In the event no such Instruction has been delivered to State Street on
or before the date when such termination becomes effective, then State Street
may, at its option, (i) choose as successor custodian a bank or trust company
meeting the qualifications for custodian set forth in the 1940 Act and having
not less than Two Million Dollars ($2,000,000) aggregate capital, surplus and
undivided profits, as shown by its last published report, or (ii) apply to a
court of competent jurisdiction for the appointment of a successor or other
proper relief, or take any other lawful action under the circumstances;
provided, however, that PIMCO will reimburse State Street for its costs and
expenses, including reasonable attorney's fees, incurred in connection
therewith; and
D. State Street will, upon payment of all sums due to State Street from
PIMCO hereunder, deliver at State Street's office (i) all accounts and records
to the successor investment accounting and recordkeeping agent or, if none, to
PIMCO; and (ii) all Assets, duly endorsed and in form for transfer, to the
successor custodian, or as specified by the court. State Street will cooperate
in effecting changes in book-entries at all Depositories. Upon delivery to a
successor or as specified by the court, State Street will have no further
obligations or liabilities hereunder. Thereafter such successor will be the
successor hereunder and will be entitled to reasonable compensation for its
services.
In the event that accounts, records or Assets remain in the possession of
State Street after the date of termination hereof for any reason other than
State Street's failure to deliver the same,
20
State Street is entitled to compensation as provided in the then-current fee
schedule for its services during such period, and the provisions hereof
relating to the duties and obligations of State Street will remain in full
force and effect.
8. NOTICES. Notices, requests, instructions and other writings addressed to
PIMCO or Fund at the address set forth above, or at such other address as PIMCO
or Fund may have designated to State Street in writing, will be deemed to have
been properly given to PIMCO or Fund hereunder. Notices, requests,
Instructions and other writings addressed to State Street at 801 Pennsylvania
Avenue, Kansas City, Missouri 64105, Attention: Custody Department, or to such
other address as it may have designated to PIMCO and the Fund in writing, will
be deemed to have been properly given to State Street hereunder.
9. THE SYSTEMS; CONFIDENTIALITY.
A. If State Street provides PIMCO direct access to the computerized
investment portfolio custody, recordkeeping and accounting systems used by
State Street ("Systems") or if State Street and PIMCO agree to utilize any
electronic system of communication, PIMCO agrees to implement and enforce
appropriate security policies and procedures to prevent unauthorized or
improper access to or use of the Systems or such other system.
B. PIMCO will preserve the confidentiality of the Systems and the tapes,
books, reference manuals, instructions, records, programs, documentation and
information of, and other materials relevant to, the Systems and the business
of State Street ("Confidential Information"). PIMCO agrees that it will not
voluntarily disclose any such Confidential Information to any other person
other than its own employees who reasonably have a need to know such
information pursuant hereto. PIMCO will return all such Confidential
Information to State Street upon termination or expiration hereof.
C. PIMCO has been informed that the Systems are licensed for use by
State Street from one or more third parties ("Licensors"), and PIMCO
acknowledges that State Street and Licensors have proprietary rights in and to
the Systems and all other State Street or Licensor programs, code, techniques,
know-how, data bases, supporting documentation, data formats, and procedures,
including without limitation any changes or modifications made at the request
or expense or both of PIMCO (collectively, the "Protected Information"). PIMCO
acknowledges that the Protected Information constitutes confidential material
and trade secrets of State Street and Licensors. PIMCO will preserve the
confidentiality of the Protected Information, and PIMCO hereby acknowledges
that any unauthorized use, misuse, disclosure or taking of Protected
Information, residing or existing internal or external to a computer, computer
system, or computer network, or the knowing and unauthorized accessing or
causing to be accessed of any computer, computer system, or computer network,
may be subject to civil liabilities and criminal penalties under applicable
law. PIMCO will so inform employees and agents who have access to the
Protected
21
Information or to any computer equipment capable of accessing the same.
Licensors are intended to be and are third party beneficiaries of PIMCO's
obligations and undertakings contained in this Section.
D. PIMCO hereby represents and warrants to State Street that it has
determined to its satisfaction that the Systems are appropriate and suitable
for its use. THE SYSTEMS ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. State
Street EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
E. State Street agrees to defend any claim or action brought against
PIMCO or Fund on the issue of infringement of any United States patent,
copyright, trade secret or trademark by the Systems as used within the scope of
this Agreement, and to indemnify PIMCO and Fund against all damages and costs,
subject to the provisions of Section 5 hereof, which may be assessed against
them under any such claim or action.
10. MULTIPLE PORTFOLIOS. If a Fund is comprised of more than one Portfolio:
A. Each Portfolio will be regarded for all purposes hereunder as a
separate party apart from each other Portfolio. Unless the context otherwise
requires, with respect to every transaction covered hereby, every reference
herein to a Portfolio is deemed to relate solely to the particular Portfolio to
which such transaction relates. Under no circumstances will the rights,
obligations or remedies with respect to a particular Portfolio constitute a
right, obligation or remedy applicable to any other Portfolio. The use of this
single document to memorialize the separate agreement of each Portfolio is
understood to be for clerical convenience only and will not constitute any
basis for joining the Portfolios for any reason.
B. PIMCO may appoint State Street as its custodian and investment
accounting and recordkeeping agent for additional Portfolios from time to time
by written notice, provided that State Street consents to such addition. Rates
or charges for each additional Portfolio will be as agreed upon by State Street
and PIMCO in writing.
11. MISCELLANEOUS.
A. This Agreement will be construed according to, and the rights and
liabilities of the parties hereto will be governed by, the laws of the
Commonwealth of Massachusetts without reference to the choice of laws
principles thereof.
B. All terms and provisions hereof will be binding upon, inure to the
benefit of and be enforceable by the parties hereto and their respective
successors and permitted assigns.
22
C. The representations and warranties, the indemnifications extended
hereunder, and the provisions of Section 9 hereof are intended to and will
continue after and survive the expiration, termination or cancellation hereof.
D. No provisions hereof may be amended or modified in any manner except
by a written agreement properly authorized and executed by each party hereto.
E. The failure of any party to insist upon the performance of any terms
or conditions hereof or to enforce any rights resulting from any breach of any
of the terms or conditions hereof, including the payment of damages, will not
be construed as a continuing or permanent waiver of any such terms, conditions,
rights or privileges, but the same will continue and remain in full force and
effect as if no such forbearance or waiver had occurred. No waiver, release or
discharge of any party's rights hereunder will be effective unless contained in
a written instrument signed by the party sought to be charged.
F. The captions herein are included for convenience of reference only,
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
G. This Agreement may be executed in two or more counterparts, each of
which is deemed an original but all of which together constitute one and the
same instrument.
H. If any provision hereof is determined to be invalid, illegal, in
conflict with any law or otherwise unenforceable, the remaining provisions
hereof will be considered severable and will not be affected thereby, and every
remaining provision hereof will remain in full force and effect and will remain
enforceable to the fullest extent permitted by applicable law.
I. This Agreement may not be assigned by either party hereto without the
prior written consent of the other party.
J. Neither the execution nor performance hereof will be deemed to create
a partnership or joint venture by and between State Street, PIMCO and/or Fund
or any Portfolio.
K. Except as specifically provided herein, this Agreement does not in
any way affect any other agreements entered into among the parties hereto and
any actions taken or omitted by any party hereunder will not affect any rights
or obligations of the other parties hereunder.
L. If a Fund is a Trust, notice is hereby given that this Agreement has
been executed on behalf of Fund by the undersigned duly authorized
representative of Fund in his/her capacity as such and not individually; and
that the obligations of this Agreement are binding only upon the assets and
property of Fund and not upon any trustee, officer
23
of shareholder of Fund individually.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective duly authorized officers.
STATE STREET BANK AND TRUST COMPANY
By: __________________________________
Title: __________________________________
FIXED INCOME SHARES
By: __________________________________
Title: __________________________________
PIMCO ADVISORY SERVICES
By: __________________________________
Title: __________________________________
24
EXHIBIT A -- INCOME AVAILABILITY SCHEDULE
Foreign--Income will be credited contractually on pay day in the markets noted
with Contractual Income Policy. The markets noted with Actual income policy
will be credited income when it is received.
<TABLE>
<CAPTION>
Market Income Policy Market Income Policy Market Income Policy
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argentina Actual Hong Kong Contractual Poland Actual
Australia Contractual Hungary Actual Portugal Contractual
Austria Contractual India Actual Russia Actual
Bahrain Actual Indonesia Actual Singapore Contractual
Bangladesh Actual Ireland Actual Slovak Republic Actual
Belgium Contractual Israel Actual South Africa Actual
Bermuda Actual Italy Contractual South Korea Actual
* Bolivia Actual Ivory Coast Actual Spain Contractual
Botswana Actual * Jamaica Actual Sri Lanka Actual
Brazil Actual Japan Contractual Swaziland Actual
Canada Contractual Jordan Actual Sweden Contractual
Chile Actual Kenya Actual Switzerland Contractual
China Actual Lebanon Actual Taiwan Actual
Colombia Actual Luxembourg Actual Thailand Actual
Cyprus Actual Malaysia Actual * Trinidad & Tobago Actual
Czech Republic Actual Mauritius Actual * Tunisia Actual
Denmark Contractual Mexico Actual Turkey Actual
Ecuador Actual Morocco Actual United Kingdom Contractual
Egypt Actual Namibia Actual United States See Attached
**Euroclear Contractual/Actual Netherlands Contractual Uruguay Actual
Euro CDs Actual New Zealand Contractual Venezuela Actual
Finland Contractual Norway Contractual Zambia Actual
France Contractual Oman Actual Zimbabwe Actual
Germany Contractual Pakistan Actual
Ghana Actual Peru Actual
Greece Actual Philippines Actual
</TABLE>
25
* Market is not 17F-5 eligible
** For Euroclear, contractual income paid only in markets listed with Income
Policy of Contractual.
United States--
<TABLE>
<CAPTION>
Income Type DTC FED PTC Physical
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividends Contractual N/A N/A Actual
Fixed Rate Interest Contractual Contractual N/A Actual
Variable Rate Interest Contractual Contractual N/A Actual
GNMA I N/A N/A Contractual PD +1 N/A
GNMA II N/A N/A Contractual PD *** N/A
Mortgages Actual Contractual Contractual Actual
Maturities Actual Contractual N/A Actual
</TABLE>
Exceptions to the above Contractual Income Policy include securities that are:
> Involved in a trade whose settlement either failed, or is pending over the
record date, (excluding the United States);
> On loan under a self directed securities lending program other than State
Street's own vendor lending program;
> Known to be in a condition of default, or suspected to present a risk of
default or payment delay;
> In the asset categories, without limitation, of Private Placements,
Derivatives, Options, Futures, CMOs, and Zero Coupon Bonds.
> Securities whose amount of income and redemption cannot be calculated in
advance of payable date, or determined in advance of actual collection,
examples include ADRs;
> Payments received as the result of a corporate action, not limited to, bond
calls, mandatory or optional puts, and tender offers.
*** For GNMA II securities, if the 19th day of the month is a business day,
Payable/Distribution Date is the next business day. If the 19th is not a
business day, but the 20th is a business day, Payable/Distribution date is the
first business day after the 20th. If both the 19th and 20th are not business
days, Payable/Distribution will be the next business day thereafter.
26
EXHIBIT B -- FUNDS TRANSFER OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit
Fund's ("Client's") account(s) upon the receipt of a payment order in
compliance with any of the Security Procedures chosen by the Client, from those
offered on the attached selection form (and any updated selection forms
hereafter executed by the Client), for funds transfers and in the amount of
money that State Street has been instructed to transfer. State Street is
hereby instructed to accept funds transfer instructions only via the delivery
methods and Security Procedures indicated on the attached selection form (and
any update executed by the Client). The Client agrees that the Security
Procedures are reasonable and adequate for its wire transfer transactions and
agrees to be bound by any payment orders, amendments and cancellations, whether
or not authorized, issued in its name and accepted by State Street after being
confirmed by any of the selected Security Procedures. The Client also agrees
to be bound by any other valid and authorized payment order accepted by State
Street. State Street shall execute payment orders in compliance with the
selected Security Procedures and with the Client's/Investment Manager's
instructions on the execution date provided that such payment order is received
by the customary deadline for processing such a request, unless the payment
order specifies a later time. State Street will use reasonable efforts to
execute on the execution date payment orders received after the customary
deadline, but if it is unable to execute any such payment order on the
execution date, such payment order will be deemed to have been received on the
next business day.
2. SECURITY PROCEDURES: The Client acknowledges that the selected Security
Procedures were selected by the Client from Security Procedures offered by
State Street. The Client shall restrict access to confidential information
relating to the Security Procedures to authorized persons as communicated in
writing to State Street. The Client must notify State Street immediately if it
has reason to believe unauthorized persons may have obtained access to such
information or of any change in the Client's authorized personnel. State
Street shall verify the authenticity of all instructions according to the
selected Security Procedures.
3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis
of the account number contained in the payment order. In the event of a
discrepancy between any name indicated on the payment order and the account
number, the account number shall take precedence and govern. Financial
institutions that receive payment orders initiated by State Street at the
instruction of the Client may also process payment orders on the basis of
account numbers, regardless of any name included in the payment order. State
Street will also rely on any financial institution identification numbers
included in any payment order, regardless of any financial institution name
included in the payment order.
4. REJECTION: State Street reserves the right to decline to process or delay
the processing of a payment order which (a) is in excess of the collected
balance in the account to be charged at the time of State Street's receipt of
such payment order; (b) if initiating such payment order would cause State
Street, in State Street's sole judgment, to exceed any applicable volume,
aggregate dollar, network, time, credit or similar limits upon wire transfers;
or (c) if State Street, in good faith, is unable to satisfy itself that the
transaction has been properly authorized.
27
5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act
on all authorized requests to cancel or amend payment orders received in
compliance with the selected Security Procedures provided that such requests
are received in sufficient time to afford State Street a reasonable opportunity
to act prior to executing the payment order. However, State Street assumes no
liability if the request for amendment or cancellation cannot be satisfied by
State Street's reasonable efforts.
6. ERRORS: State Street shall assume no responsibility for failure to detect
any erroneous payment order provided that State Street complies with the
payment order instructions as received and State Street complies with the
selected Security Procedures. The Security Procedures are established for the
purpose of authenticating payment orders only and not for the detection of
errors in payment orders.
7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility
for lost interest with respect to the refundable amount of any unauthorized
payment order, unless State Street is notified of the unauthorized payment
order within thirty (30) days of notification by State Street of the acceptance
of such payment order. In no event (including but not limited to failure to
execute a payment order) shall State Street be liable for special, indirect or
consequential damages, even if advised of the possibility of such damages.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When
the Client initiates or receives ACH credit and debit entries pursuant to these
Guidelines and the rules of the National Automated Clearing House Association
and the Mid-America Payment Exchange or other similar body, State Street or its
agent will act as an Originating Depository Financial Institution and/or
Receiving Depository Financial Institution, as the case may be, with respect to
such entries. Credits given with respect to an ACH credit entry are
provisional until final settlement for such entry is received from the Federal
Reserve Bank. If such final settlement is not received, the Client agrees to
promptly refund the amount credited to the Client in connection with such
entry, and the party making payment to the Client via such entry shall not be
deemed to have paid the amount of the entry.
9. CONFIRMATIONS: Confirmation of State Street's execution of payment orders
shall ordinarily be provided within 24 hours. Notice may be delivered through
State Street's account statements, advices, information systems, or by
facsimile or callback. The Client must report any objections to the execution
of a payment order within 30 days.
10. MISCELLANEOUS: State Street may use the Federal Reserve System Fedwire to
execute payment orders, and any payment order carried in whole or in part
through Fedwire will be subject to applicable Federal Reserve Board rules and
regulations. State Street and the Client agree to cooperate to attempt to
recover any funds erroneously paid to wrong parties, regardless of any fault of
State Street or the Client, but the party responsible for the erroneous payment
shall bear all costs and expenses incurred in trying to effect such recovery.
These Guidelines may not be amended except by a written agreement signed by the
parties.
28
SECURITY PROCEDURES SELECTION FORM
Please select one or more of the funds transfer security procedures indicated
below.
[] SWIFT SWIFT (Society for Worldwide Interbank Financial
Telecommunication) is a cooperative society owned and operated by member
financial institutions that provides telecommunication services for its
membership. Participation is limited to securities brokers and dealers,
clearing and depository institutions, recognized exchanges for securities, and
investment management institutions. SWIFT provides a number of security
features through encryption and authentication to protect against unauthorized
access, loss or wrong delivery of messages, transmission errors, loss of
confidentiality and fraudulent changes to messages. Selection of this security
procedure would be most appropriate for existing SWIFT members.
[] REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via
Computer-to-Computer (CPU-CPU) data communications between the Client and/or
its agent and State Street and/or its agent. Security procedures include
encryption and/or the use of a test key by those individuals authorized as
Automated Batch Verifiers or a callback procedure to those individuals.
Clients selecting this option should have an existing facility for completing
CPU-CPU transmissions. This delivery mechanism is typically used for
high-volume business such as shareholder redemptions and dividend payments.
[] TELEPHONE CONFIRMATION (CALL BACK) This procedure requires Clients to
designate individuals as authorized initiators and authorized verifiers. State
Street will verify that the instruction contains the signature of an authorized
person and prior to execution of the payment order, will contact someone other
than the originator at the Client's location to authenticate the instruction.
Selection of this alternative is appropriate for Clients who do not have the
capability to use other security procedures.
[] TEST KEY Test Key confirmation will be used to verify all non-repetitive
funds transfer instructions received via facsimile or phone. State Street
will provide test keys if this option is chosen. State Street will verify that
the instruction contains the signature of an authorized person and prior to
execution of the payment order, will authenticate the test key provided with
the corresponding test key at State Street. Selection of this alternative is
appropriate for Clients who do not have the capability to use other security
procedures.
[] REPETITIVE WIRES For situations where funds are transferred periodically
from an existing authorized account to the same payee (destination bank and
account number) and only the date and currency amount are variable, a
repetitive wire may be implemented. Repetitive wires will be subject to a $10
million limit. If the payment order exceeds the $10 million limit, the
instruction will be confirmed by telephone or test key prior to execution.
Repetitive wire instructions must be reconfirmed annually. Clients may
establish Repetitive Wires by following the agreed upon security procedures for
as described by Telephone Confirmation (Call Back) or Test Key. This
alternative is recommended whenever funds are frequently transferred between
the same two accounts.
29
[] STANDING INSTRUCTIONS Funds are transferred by State Street to a counter
party on the Client's established list of authorized counter parties. Only the
date and the dollar amount are variable. Clients may establish Standby
Instructions by following the agreed upon security procedures for
Non-Repetitive Wire Transfers as described by Telephone Confirmation (Call
Back) or Test Key. This option is used for transactions that include but are
not limited to Foreign Exchange Contracts, Time Deposits and Tri-Party
Repurchase Agreements.
[] AUTOMATED CLEARING HOUSE (ACH) State Street or its agent receives an
automated transmission from a Client for the initiation of payment (credit) or
collection (debit) transactions through the ACH network. The transactions
contained on each transmission or tape must be authenticated by the Client. The
transmission is sent from the Client's or its agent's system to State Street's
or its agent's system with encryption.
KEY CONTACT INFORMATION
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT
John P. Hardaway Jeff Sargent
- ------------------------- --------------------------
Name Name
- ------------------------- --------------------------
Address Address
- ------------------------- --------------------------
City/State/Zip Code City/State/Zip Code
(949) 760-4465 (949) 760-4743
- ------------------------- --------------------------
Telephone Number Telephone Number
- -------------------------
Facsimile Number
- -------------------------
SWIFT Number
30
EXHIBIT C--REUTERS DATA SERVICE AGREEMENT
The undersigned acknowledges and agrees that some of the data being provided in
the service by State Street to either Fund contains information supplied to
State Street by Reuters America Inc. ("Reuters") (the "Data"). Such Fund
agrees that:
(i) although Reuters makes every effort to ensure the accuracy and
reliability of the Data, the Fund acknowledges that Reuters, its employees,
agents, contractors, subcontractors, contributors and third party providers
will not be liable for any loss, cost or damage suffered or incurred by the
Fund arising out of any fault, interruption or delays in the Data or out of any
inaccuracies, errors or omissions in the Data however such faults,
interruptions, delays, inaccuracies, errors or omissions arise, unless due to
the gross negligence or willful misconduct of Reuters;
(ii) it will not transfer, transmit, recirculate by digital or analogue
means, republish or resell all or part of the Data; and
(iii) certain parts of the Data are proprietary and unique to Reuters.
The undersigned further agrees that the benefit of this clause will inure to
the benefit of Reuters.
___________________________________
By: _______________________________
Title: ______________________________
Date: ______________________________
____________________________________
By: _______________________________
Title: ______________________________
Date: ______________________________
31
EXHIBIT D
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Optional Depositories
<S> <C> <C>
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der Oesterreichischen --
Sparkassen AG
Bahrain The British Bank of the Middle East (as delegate of the --
Hongkong and Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale de Banque --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano S.A. --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's The Hongkong and Shanghai Banking Corporation --
Republic of Limited, Shanghai and Shenzhen branches
China
Colombia Cititrust Colombia S.A.Sociedad Fiduciaria --
Costa Rica Banco BCT S.A. --
Croatia Privredana Banka Zagreb d.d --
Cyprus Barclays Bank Plc. Cyprus Offshore Banking Unit --
Czech Ceskoslovenska Obchodni Banka, A.S. --
Republic
</TABLE>
32
EXHIBIT D
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Optional Depositories
<S> <C> <C>
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece,
System for Monitoring Transactions in
Securities in Book-Entry Form
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
Iceland Icebank Ltd. --
India Deutsche Bank AG; The Hongkong and Shanghai --
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques en Cote d'Ivoire --
Jamaica Scotiabank Jamaica Trust and Merchant Bank, Ltd. --
Japan The Daiwa Bank, Limited; The Fuji Bank Limited Japan Securities Depository
</TABLE>
33
EXHIBIT D
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Optional Depositories
<S> <C> <C>
Jordan British Bank of the Middle East (as delegate of The --
Hongkong and Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of The Hongkong and Shanghai Banking --
Korea Corporation Limited
Latvia JSC Hansabank-Latvija --
Lebanon British Bank of the Middle East --
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank Malaysia Berhad --
Mauritius The Hongkong and Shanghai Banking --
Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa --
Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group (New Zealand) Limited --
Norway Christiania Bank og Kreditkasse --
Oman The British Bank of the Middle East (as delegate of The --
Hongkong and Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
</TABLE>
34
EXHIBIT D
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Optional Depositories
<S> <C> <C>
Poland Citibank (Poland) S.A. --
Bank Polska Kasa Opieki S.A.
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, AO, Moscow --
(as delegate of Credit Suisse First Boston, Zurich)
Singapore The Development Bank of Singapore Ltd. --
Slovak Ceskoslovenska Obchodna Banka A.S. --
Republic
Slovenia Banka Austria d.d. --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai Banking Corporation Limited --
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland UBS AS --
Taiwan - Central Trust of China --
R.O.C.
Thailand Standard Chartered Bank --
Trinidad Republic Bank Ltd. --
& Tobago
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A.; Ottoman Bank --
Ukraine ING Bank, Ukraine --
</TABLE>
35
EXHIBIT D
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL DEPOSITORIES
<TABLE>
<CAPTION>
Country Subcustodian Optional Depositories
<S> <C> <C>
United State Street Bank and Trust Company, --
Kingdom London Branch
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)/State Street London Limited
Cedel, S.A. (Cedel Bank, societe anonyme)/State Street London Limited
INTERSETTLE (for EASDAQ Securities)
</TABLE>
36
EXHIBIT E
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Argentina -Caja de Valores S.A.
Australia -Austraclear Limited;
-Reserve Bank Information andTransfer System
Austria -Oesterreichische Kontrollbank AG (Wertpapiersammelbank
Division)
Belgium -Caisse Interprofessionnelle de Depot et de Virement de
Titres S.A.;
-Banque Nationale de Belgique
Brazil -Companhia Brasileira de Liquidacao e
-Custodia (CBLC)
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use CBLC
-Central de Custodia e de Liquidacao Financeira de Titulos
Bulgaria -Central Depository AD
-Bulgarian National Bank
Canada -The Canadian Depositoryfor Securities Limited
People's -Shanghai Securities Central Clearing and Registration
Republic Corporation;
of China -Shenzhen Securities Central Clearing Co., Ltd.
Costa Rica -Central de Valores S.A. (CEVAL)
Croatia Ministry of Finance; - National Bank of Croatia
Czech Republic --Stredisko cennych papiru;
-Czech National Bank
Denmark -Vaerdipapircentralen (The Danish Securities Center)
Egypt -Misr Company for Clearing, Settlement, and Central Depository
Estonia -Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities Depository
France -Societe Interprofessionnelle pour la Compensation des Valeurs
Mobilieres (SICOVAM)
37
EXHIBIT E
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Germany -The Deutscher Borse Clearing AG
Greece -The Central Securities Depository (Apothetirion Titlon AE)
Hong Kong -The Central Clearing and Settlement System;
-Central Money Markets Unit
Hungary -The Central Depository and Clearing House (Budapest) Ltd.
(KELER) [Mandatory for Gov't Bonds only; SSB does not use for
other securities]
India -The National Securities Depository Limited
Indonesia -Bank Indonesia
Ireland -The Central Bank of Ireland, Securities Settlement Office
Israel -The Tel Aviv Stock Exchange Clearing House Ltd.;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Jamaica -The Jamaican Central Securities Depository
Japan -Bank of Japan Net System
Kenya -Central Bank of Kenya
Republic of -Korea Securities Depository Corporation
Korea
Latvia -The Latvian Central Depository
Lebanon -The Custodian and Clearing Center of Financial Instruments for
Lebanon and the Middle East (MIDCLEAR) S.A.L.; - The Central
Bank of Lebanon
Lithuania -The Central Securities Depository of Lithuania
Malaysia -The Malaysian Central Depository Sdn. Bhd.;
-Bank Negara Malaysia, Scripless Securities Trading and
Safekeeping Systems
Mauritius -The Central Depository & Settlement Co. Ltd.
38
EXHIBIT E
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Mexico -S.D. INDEVAL, S.A. de C.V.(Instituto para el Deposito de
Valores);
Morocco -Maroclear
The Netherlands -Nederlands Centraal Instituut voor Giraal Effectenverkeer
B.V. (NECIGEF)
-De Nederlandsche Bank N.V.
New Zealand -New Zealand Central Securities Depository Limited
Norway -Verdipapirsentralen (the Norwegian Registry of Securities)
Oman -Muscat Securities Market
Pakistan -Central Depository Company of Pakistan Limited
Peru -Caja de Valores y Liquidaciones S.A. (CAVALI)
Philippines -The Philippines Central Depository Inc.
-The Registry of Scripless Securities (ROSS) of the Bureau of
the Treasury
Poland -The National Depository of Securities (Krajowy Depozyt
Papierow Wartos'ciowych);
-Central Treasury Bills Registrar
Portugal -Central de Valores Mobiliarios (Central)
Romania -National Securities Clearing, Settlement and Depository Co.;
-Bucharest Stock Exchange Registry Division;
Singapore -The Central Depository (Pte)Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
Slovenia -Klirinsko Depotna Druzba d.d.
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y Liquidacion de Valores, S.A.;
-Banco de Espana; Central de Anotaciones en Cuenta
39
EXHIBIT E
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
Country Mandatory Depositories (Includes entities for which use is
mandatory as a matter of law or effectively mandatory as a
matter of market practice)
Sri Lanka -Central Depository System (Pvt) Limited
Sweden -Vardepapperscentralen AB (the Swedish Central Securities
Depository)
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central Depository Company, Ltd.
Thailand -Thailand Securities Depository Company Limited
Tunisia - Societe Tunisienne Interprofessionelle de Compensation et de
Depot de Valeurs Mobilieres
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S. (TAKASBANK)
-Central Bank of Turkey
Ukraine -The National Bank of Ukraine
United Kingdom -The Bank of England, The Central Gilts Office; The Central
Moneymarkets Office
Uruguay -Central Bank of Uruguay
Venezuela -Central Bank of Venezuela
Zambia -Lusaka Central Depository Limited
-Bank of Zambia
40
<PAGE>
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, made this ___ day of March, 2000 between Fixed
Income SHares (the "Trust"), a Massachusetts business trust, and PIMCO Advisory
Services (the "Administrator" or "PAS").
WHEREAS, the Trust is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment Company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust is authorized to issue shares of beneficial interest
("Shares") in separate series, with each such series representing interests in
a separate portfolio of securities and other assets; and
WHEREAS, the Trust has established multiple series, including FISH: Series C
and FISH: Series M (each a "Portfolio"); and
WHEREAS, the Trust wishes to retain PAS to provide administrative and other
services to the Trust with respect to the Portfolios in the manner and on the
terms hereinafter set forth; and
WHEREAS, PAS is willing to furnish such services in the manner and on the terms
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties agree as follows:
1. Appointment. The Trust hereby appoints PAS as Administrator to provide the
administrative and other services with respect to the Portfolios for the period
and on the terms set forth in this Agreement. The Administrator accepts such
appointment and agrees during such period to render the services herein set
forth for the compensation herein provided.
In the event the Trust establishes and designates additional series with
respect to which it desires to retain the Administrator to render
administrative and other services hereunder, it shall notify the Administrator
in writing. If the Administrator is willing to render such services, it shall
notify the Trust in writing, whereupon such additional series shall become a
Portfolio hereunder.
2. Duties. Subject to the general supervision of the Board of Trustees, the
Administrator shall provide all organizational, administrative and other
services reasonably necessary for the operation of the Portfolios other than
the investment advisory services
provided by PIMCO Advisors L.P. pursuant to its Investment Advisory Agreement
with the Trust.
(a) Administrative Services. Subject to the approval or consent of the
Board of Trustees, the Administrator shall provide or procure, at the
Administrator's expense, services to include the following: (i) coordinating
matters relating to the operation of the Portfolios, including any necessary
coordination among the adviser or advisers to the Portfolios, the custodian(s),
transfer agent(s), dividend disbursing agent(s), and recordkeeping agent(s)
(including pricing and valuation of the Portfolios), accountants, attorneys,
and other parties performing services or operational functions for the
Portfolios; (ii) providing the Portfolios with the services of a sufficient
number of persons competent to perform such administrative and clerical
functions as are necessary to ensure compliance with federal securities laws,
as well as other applicable laws, and to provide effective administration of
the Portfolios; (iii) maintaining, or supervising the maintenance by third
parties, of such books and records of the Trust and the Portfolios as may be
required by applicable federal or state law other than the records and ledgers
maintained under the Investment Advisory Agreement; (iv) preparing or
supervising the preparation by third parties of all federal, state, and local
tax returns and reports of the Portfolios required by applicable law; (v)
preparing, filing, and arranging for the distribution of proxy materials and
periodic reports to financial intermediaries investing in the Portfolios as
required by applicable law; (vi) preparing and arranging for the filing of such
registration statement and other documents with the SEC and other federal and
state regulatory authorities as may be required to register the shares of the
Portfolios and qualify the Trust to do business or as otherwise required by
applicable law; (vii) taking such other action with respect to the Portfolios
as may be required by applicable law, including, without limitation, the rules
and regulations of the SEC and of state securities commissions and other
regulatory agencies; and (viii) providing the Portfolios with adequate
personnel, office space, communications facilities, and other facilities
necessary for the Portfolios' operations as contemplated in this Agreement.
(b) Other Services. Subject to the approval or consent of the Board of
Trustees, the Administrator shall also provide or procure on behalf of the
Trust and the Portfolios, and at the expense of the Administrator, the
following services to the Portfolios: (i) custodian services to provide for
the safekeeping of the Portfolios' assets; (ii) recordkeeping services to
maintain the portfolio accounting records for the Portfolios; (iii) transfer
agency services to maintain the portfolio accounting records for the
Portfolios; and (iv) dividend disbursing services for the Portfolios. The
services to be provided under (iii) and (iv) of this Section 2(b) shall be
commensurate with the level of services reasonably necessary for institutional
investors. The Trust may be a party to any agreement with any person or
persons engaged to provide the services referred to in this Section 2(b).
- -2-
(c) Organizational Services. The Administrator shall provide the Trust
and the Portfolios, at the Administrator's expense, with the services necessary
to organize any Portfolios that commence operations on or after the date of
this Agreement so that such Portfolios can conduct business as described in the
Trust's Registration Statement.
(d) The Administrator shall also make its officers and employees available
to the Board of Trustees and officers of the Trust for consultation and
discussions regarding the administration of the Portfolios and services
provided to the Portfolios under this agreement.
(e) In performing these services, the Administrator:
(i) Shall conform with the 1940 Act and all rules and regulations
thereunder, all other applicable federal and state laws and regulations, with
any applicable procedures adopted by the Trust's Board of Trustees, and with
the provisions of the Trust's Registration Statement filed on Form N-1A as
supplemented or amended from time to time.
(ii) Will make available to the Trust, promptly upon request, any of
the Portfolios' books and records as are maintained under this Agreement, and
will furnish to regulatory authorities having the requisite authority any such
books and records and any information or reports in connection with the
Administrator's services under this Agreement that may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
(iii) Will regularly report to the Trust's Board of Trustees on the
services provided under this Agreement and will furnish the Trust's Board of
Trustees with respect to the Portfolios such periodic and special reports as
the Trustees may reasonably request.
3. Documentation. The Trust has delivered copies of each of the following
documents to the Administrator and will deliver to it all future amendments and
supplements thereto, if any:
(a) the Trust's Registration Statement as filed with the SEC and any
amendments thereto; and
(b) exhibits, powers of attorneys, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
- -3-
4. Independent Contractor. The Administrator shall for all purposes herein be
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees of the Trust from time
to time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent.
5. Compensation. The Trust shall pay no compensation to the Administrator for
the services rendered under this Agreement.
6. Non-Exclusivity. It is understood that the services of the Administrator
hereunder are not exclusive, and the Administrator shall be free to render
similar services to other investment companies and other clients.
7. Expenses. During the term of this Agreement, the Administrator will pay all
expenses incurred by it in connection with its obligations under this
Agreement, except such expenses as are those of the Portfolios under this
Agreement. The Administrator shall pay for maintaining its staff and personnel
and shall, at its own expense provide the equipment, office space, and
facilities necessary to perform its obligations under this Agreement. In
addition, the Administrator shall, at its expense, furnish to the Trust:
(a) Services by the Trust's independent public accountants to perform all
audits;
(b) Services of the Trust's transfer agent(s), registrar, dividend
disbursing agent(s), and shareholder recordkeeping services;
(c) Services of the Trust's custodian, including any recordkeeping
services provided by the custodian;
(d) Services of obtaining quotations for calculating the value of each
Portfolio's net assets;
(e) Services of obtaining Portfolio Activity Reports for each Portfolio;
(f) Services of maintaining the Trust's tax records;
(g) Services, including procurement of legal services, incident to
meetings of the Trust's shareholders, the preparation and mailing of
prospectuses and reports of the Trust to its shareholders, the filing of
reports with regulatory bodies, the maintenance of the Trust's existence and
qualification to do business, and the registration of shares with federal and
state securities authorities (except as described in subsection (f) below);
- -4-
(h) Procurement of ordinary legal services, including the services that
arise in the ordinary course of business for a Massachusetts business trust
registered as an open-end management investment company;
(i) Certificates representing shares of the Trust;
(j) The Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
(k) Association membership dues; and
(l) Services to organize and offer shares of the Trust and the Portfolios.
The Trust shall bear the following expenses:
(a) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Administrator or its subsidiaries or affiliates;
(b) Taxes, if any, levied against the Trust or any of its Portfolios;
(c) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for any of the Portfolios;
(d) Costs, including the interest expenses, of borrowing money;
(e) Fees and expenses of trustees who are not officers, employees, or
stockholders of PAS or its subsidiaries or affiliates, and the fees and
expenses of any counsel, accountants, or any other persons engaged by such
trustees in connection with the duties of their office with the Trust;
(f) Extraordinary expenses, including extraordinary legal expenses and
federal and state securities registration fees and expenses to the extent
authorized by the Trust's Board of Trustees, as may arise, including expenses
incurred in connection with litigation, proceedings, other claims and the legal
obligations of the Trust to indemnify its trustees, officers, employees,
shareholders, distributors, and agents with respect thereto;
(g) Organizational and offering expenses of the Trust and the Portfolios
to the extent authorized by the Trust's Board of Trustees, and any other
expenses which are capitalized in accordance with generally accepted accounting
principles; and
- -5-
(h) Any expenses allocated or allocable to a specific Portfolio,
including fees paid pursuant to an administrative services or distribution plan.
8. Liability. The Administrator shall give the Trust the benefit of the
Administrator's best efforts in rendering services under this Agreement. The
Administrator may rely on information reasonably believed by it to be accurate
and reliable. As an inducement for the Administrator's undertaking to render
services under this Agreement, the Trust agrees that neither the Administrator
nor its stockholders, officers, directors, or employees shall be subject to any
liability for, or any damages, expenses or losses incurred in connection with,
any act or omission or mistake in judgment connected with or arising out of any
services rendered under this Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in performance of the
Administrator's duties, or by reason of reckless disregard of the
Administrator's obligations and duties under this Agreement. This provision
shall govern only the liability to the Trust of the Administrator and that of
its stockholders, officers, directors, and employees, and shall in no way
govern the liability to the Trust or the Administrator or provide a defense for
any other person, including persons that provide services for the Portfolios as
described in Section 2(b) or (c) of this Agreement.
9. Term and Continuation. This Agreement shall take effect as of the date
hereof, and shall remain in effect, unless sooner terminated as provided
herein, until two years from the date of this Agreement, and shall continue
thereafter on an annual basis with respect to each Portfolio, provided that
such continuance is specifically approved at least annually (a) by the vote of
a majority of the Board of Trustees of the Trust, or (b) by vote of a majority
of the outstanding voting shares of the Portfolios, and provided continuance is
also approved by the vote of a majority of the Board of Trustees of the Trust
who are not parties to this Agreement or "interested persons" (as defined in
the 1940 Act) of the Trust, or PAS, cast in person at a meeting called for the
purpose of voting on such approval.
This Agreement may be terminated:
(a) by the Trust at any time with respect to the services provided by the
Administrator by vote of (1) a majority of the Trustees of the Trust; (2) a
majority of the Trustees of the Trust who are not "interested persons" (as such
term is defined in the 1940 Act) of the Trust or PAS; or (3) a majority of the
outstanding voting shares of the Trust or, with respect to a particular
Portfolio, by vote of a majority of the outstanding voting shares of such
Portfolio, on 60 days' written notice to the Administrator; and
(b) by the Administrator at any time, without the payment of any penalty,
upon 60 days' written notice to the Trust.
- -6-
10. Use of Name. It is understood that the name "PIMCO Advisory Services" or
"PAS" or any derivative thereof or logo associated with those names are the
valuable property of PAS and its affiliates.
11. Notices. Notices of any kind to be given to the Administrator by the Trust
shall be in writing and shall be duly given if mailed or delivered to the
Administrator at 1345 Avenue of the Americas, New York, New York 10105, or to
such other address or to such individual as shall be specified by the
Administrator. Notices of any kind to be given to the Trust by the
Administrator shall be in writing and shall be duly given if mailed or
delivered to 1345 Avenue of the Americas, New York, New York 10105, or to such
other address or to such individual as shall be specified by the Trust.
12. Trust Obligation. A copy of the Trust's Agreement and Declaration of
Trust, as amended, is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that the Agreement has been executed
on behalf of the Trust by a trustee of the Trust in his or her capacity as
trustee and not individually. The obligations of this Agreement shall only be
binding upon the assets and property of the Trust and shall not be binding upon
any trustee, officer, or shareholder of the Trust individually.
13. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original.
14. Miscellaneous.
(a) This Agreement shall be governed by the laws of Massachusetts,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act or any rule or order of the SEC thereunder.
(b) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise with regard to any party hereunder, such provisions with respect
to other parties hereto shall not be affected thereby.
(c) The captions in this Agreement are included for convenience only and
in no way define any of the provisions hereof or otherwise affect their
construction or effect.
(d) This Agreement may not be assigned by the Trust or the Administrator
without the consent of the other party.
- -7-
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below on the day and year first above
written.
FIXED INCOME SHARES
By: _________________________________
Title: Executive Vice President
PIMCO ADVISORY SERVICES
By: _________________________________
Title: Chief Executive Officer
- -8-
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ___ day of April, 2000, by and between Fixed Income
SHares, a Massachusetts business trust, having its principal office and place
of business at ________________ (the "Fund"), and State Street Bank and Trust
Company, a Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Fund intends to initially offer shares in two series, FISH:
Series C and FISH: Series M (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 10, being herein referred to as a "Portfolio", and
collectively as the "Portfolios"); and
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as
its transfer agent, dividend disbursing agent and agent in connection with
certain other activities, and the Bank desires to accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolios, hereby employs and appoints the Bank to act as,
and the Bank agrees to act as its transfer agent for the Fund's authorized and
issued shares of beneficial interest, $ 0.001 par value, ("Shares"), dividend
disbursing agent and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of each of the respective Portfolios
of the Fund ("Shareholders") and set out in the currently effective prospectus
and statement of additional information ("prospectus") of the Fund on behalf of
the applicable Portfolio, including without limitation any periodic investment
plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to the Custodian
of
the Fund authorized pursuant to the Agreement and Declaration of Trust of the
Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with broker-dealers
authorized by the Fund who shall thereby be deemed to be acting on behalf of
the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as instructed by the redeeming
Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Reserved;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number of shares of the
Fund which are authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Bank shall also provide the Fund on a regular
basis with the total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the issuance of
shares, to monitor the issuance of such shares or to take cognizance of any
laws relating to the issue or sale of such Shares, which functions shall be the
sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting
2
lists, mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky reporting for
each State and (ii) verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the daily activity for
each State. The responsibility of the Bank for the Fund's blue sky State
registration status is solely limited to the initial establishment of
transactions subject to blue sky compliance by the Fund and the reporting of
such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank may at times perform only a portion of these services and
the Fund or its agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between the
Fund and the Bank.
2. COMPENSATION OF THE BANK
The Bank shall be entitled to reasonable compensation for its services and
expenses as transfer agent, dividend disbursing agent and agent hereunder, as
agreed from time to time between the Bank and the Fund's administrator
(hereinafter sometimes referred to as the "Administrator"). In connection
therewith, the Fund hereby guaranties full payment and punctual performance and
fulfillment to the Bank of all liabilities, obligations and undertakings of the
Administrator to the Custodian, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising or
acquired, under any fee schedule regarding any service provided by the Bank for
the benefit of the Fund or any cost, expense or disbursement relative thereto,
and all present or future agreements arising from, or relative to, the subject
matter thereof. The guaranty contained herein shall survive the termination of
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Fund that:
3
3.1 It is a trust company duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Agreement and Declaration
of Trust and By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Agreement and Declaration of
Trust and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of the Fund being offered for
sale.
4
5. DATA ACCESS AND PROPRIETARY INFORMATION
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to the Bank and further agrees that it
shall not divulge any Proprietary Information to any person or organization
except as may be provided hereunder. Without limiting the foregoing, the Fund
agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained, to
inform in a timely manner of such fact and dispose of such information in
accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other location, except
with the prior written consent of the Bank;
(e)that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary Information at
common law, under federal copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user documentation
for such services, the Bank shall endeavor in a timely manner to correct such
failure. Organizations from which the Bank may obtain certain data included in
the Data Access Services are solely responsible for the contents of such data
and the Fund agrees to make no claim against the Bank arising out of the
contents of such third-party data, including, but not limited to, the accuracy
thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS
5
AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS
IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT
THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or other
information, then in such event the Bank shall be entitled to rely on the
validity and authenticity of such instruction without undertaking any further
inquiry as long as such instruction is undertaken in conformity with security
procedures established by the Bank from time to time.
6. INDEMNIFICATION
6.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions of the Bank or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by the Bank
or its agents or subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or regulations of
any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
(f) The negotiation and processing by the Bank of checks not made payable
to the order of the Bank, the Fund, the Fund's management company, transfer
agent or distributor or the retirement account custodian or trustee for a plan
account
6
investing in Shares, which checks are tendered to the Bank for the purchase of
Shares (i.e., checks made payable to prospective or existing Shareholders, such
checks are commonly known as "third party checks").
6.2 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable
and shall be indemnified by the Fund on behalf of the applicable Portfolio for
any action taken or omitted by it in reliance upon such instructions or upon
the opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document, reasonably
believed to be genuine and to have been signed by the proper person or persons,
or upon any instruction, information, data, records or documents provided the
Bank or its agents or subcontractors by machine readable input, telex, CRT data
entry or other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person, until receipt of written
notice thereof from the Fund. The Bank, its agents and subcontractors shall
also be protected and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures of the
officers of the Fund, and the proper countersignature of any former transfer
agent or former registrar, or of a co-transfer agent or co-registrar.
6.3 In order that the indemnification provisions contained in this Section 6
shall apply, upon the assertion of a claim for which the Fund may be required
to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against said claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim
or make any compromise in any case in which the Fund may be required to
indemnify the Bank except with the Fund's prior written consent.
7. STANDARD OF CARE
The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but assumes no responsibility and shall not be
liable for loss or damage due to errors unless said errors are caused by its
negligence, bad faith, or willful misconduct or that of its employees.
7
8. COVENANTS OF THE FUND AND THE BANK
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Agreement and Declaration of Trust and By-Laws of the
Fund and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
8.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such inspection.
The Bank reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by its counsel that it may be held liable for the
failure to exhibit the Shareholder records to such person.
9. TERMINATION OF AGREEMENT
9.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank
reserves the right to charge for any other
8
reasonable expenses associated with such termination and/or a charge equivalent
to the average of three (3) months' fees.
10. ADDITIONAL FUNDS
In the event that the Fund establishes one or more series of Shares in addition
to FISH: Series C and FISH: Series M with respect to which it desires to have
the Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
11. ASSIGNMENT
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc., a
Massachusetts corporation ("BFDS") which is duly registered as a transfer agent
pursuant to Section 17A(c)(2) of the Securities Exchange Act of 1934, as
amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly registered as a
transfer agent pursuant to Section 17A(c)(2) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
12. AMENDMENT
This Agreement may be amended or modified by a written agreement executed by
both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
13. MASSACHUSETTS LAW TO APPLY
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of The Commonwealth of Massachusetts.
9
14. FORCE MAJEURE
In the event either party is unable to perform its obligations under the terms
of this Agreement because of acts of God, strikes, equipment or transmission
failure or damage reasonably beyond its control, or other causes reasonably
beyond its control, such party shall not be liable for damages to the other for
any damages resulting from such failure to perform or otherwise from such
causes.
15. CONSEQUENTIAL DAMAGES
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
16. MERGER OF AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto and
supersedes any prior agreement with respect to the subject matter hereof
whether oral or written.
17. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS
A copy of the Agreement and Declaration of Trust of the Fund is on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Fund as
Trustees and not individually and that the obligations of this instrument are
not binding upon any of the Trustees or Shareholders individually but are
binding only upon the assets and property of the Fund.
18. COUNTERPARTS
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
19. REPRODUCTION OF DOCUMENTS
This Agreement and all schedules, exhibits, attachments and amendments hereto
may be reproduced by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process. The parties hereto all/each
agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not
the original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
10
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
11
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
Attest: FIXED INCOME SHARES
_____________________________________ By: ___________________________________
Name: Name:
Title: Title:
Attest: STATE STREET BANK AND TRUST COMPANY
_____________________________________ By: ___________________________________
Stephanie L. Poster, Vice President Ronald E. Logue, Vice Chairman
The Administrator hereby acknowledges
and agrees that it shall comply at all times
with the provisions of Section 2 set forth above.
PIMCO ADVISORY SERVICES Attest:
By: _________________________________ ___________________________________
Name: Name:
Title: Title:
SERVICE RESPONSIBILITY SCHEDULE
SERVICE* RESPONSIBILITY
BANK FUND
1. Receives orders for the purchase X
of Shares.
2. Issue Shares and hold Shares in X
Shareholders accounts.
3. Receive redemption requests. X
4. Effect transactions 1-3 above N/A
directly with broker-dealers.
5. Pay over monies to redeeming X
Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X
and distributions.
8. Reporting of abandoned property. X
9. Maintain records of account. X
10. Maintain and keep a current and N/A
accurate control book for each
issue of securities.
11. Mail proxies. X
12. Mail Shareholder reports. X
13. Mail prospectuses to current X
Shareholders.
14. Withhold taxes on U.S. resident X
and non-resident alien accounts.
SERVICE* RESPONSIBILITY
BANK FUND
15. Prepare and file U.S. Treasury X
Department forms.
16. Prepare and mail account and X
confirmation statements for
Shareholders.
17. Provide Shareholder account X
information.
18. Blue sky reporting. N/A
* Such services are more fully described in Section 1.2 (a), (b) and (c) of
the Agreement.
Attest: FIXED INCOME SHARES
_____________________________________ By: ___________________________________
Name:
Title:
Attest: STATE STREET BANK AND TRUST COMPANY
_____________________________________ By: ___________________________________
Stephanie L. Poster, Vice President Ronald E. Logue, Vice Chairman
ACKNOWLEDGED AND AGREED:
PIMCO ADVISORY SERVICES Attest:
By: _________________________________ ___________________________________
Name: Name:
Title: Title:
<PAGE>
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
(617) 951-7000
Fax: (617) 951-7050
March 15, 2000
Fixed Income SHares
c/o PIMCO Advisory Services
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of shares of common stock of the Series C and Series M (each
a "Portfolio") of Fixed Income SHares ("FISH"), we have examined such matters
as we have deemed necessary, as we are of the opinion that:
i. FISH is a trust duly organized and existing under the laws of The
Commonwealth of Massachusetts;
ii. The authorized capital of FISH consists of an unlimited number of
shares of beneficial interest of each Portfolio, no par value (the "Shares");
and
iii. Assuming that FISH or its agent receives consideration for such
Shares in accordance with the provisions of its Agreement and Declaration of
Trust, the Shares will be legally and validly issued, will be fully paid, and
will be non-assessable by FISH.
We point out that under Massachusetts law, shareholders of a "Massachusetts
business trust" could, under certain circumstances, be held personally liable
for the obligations of the trust. However, the Declaration of Trust of Fixed
Income SHares disclaims shareholder liability for acts or obligations of Fixed
Income SHares on behalf of its Portfolios and requires that notice of such
disclaimer be given in each agreement, obligation, or instrument entered into
or executed by Fixed Income SHares. The Declaration of Trust provides for
indemnification out of the property of the relevant Portfolio for all loss and
expense of any shareholder of that Portfolio held personally liable for the
obligations of Fixed Income SHares solely by reason of his being or having been
a shareholder of Fixed Income SHares. Thus, the risk of a shareholder's
incurring financial loss on account of such shareholder liability is limited
to circumstances in which Fixed Income SHares itself would be unable to meet
its obligations.
We hereby consent to the use of this opinion as an exhibit to FISH's
Registration Statement on Form N-1A filed with the Securities and Exchange
Commission (File No. 333-92415) for the registration under the Securities Act
of 1933 of an indefinite number of FISH's Shares, and to the use of our name
in the prospectus and statement of additional information contained therein,
and any amendments thereto.
We express no opinion as to the laws of any jurisdiction other than The
Commonwealth of Massachusetts and the United States of America. Further, we
express no opinion as to the state securities or blue sky laws of any
jurisdiction, including The Commonwealth of Massachusetts.
Very truly yours,
/s/ ROPES & GRAY
______________________________
Ropes & Gray
<PAGE>
[PRICEWATERHOUSECOOPERS LLP Letterhead]
Consent of Independent Accountants
We hereby consent to the inclusion in this Pre-Effective Amendment to the
Registration Statement of the Fixed Income SHares on Form N1-A of our report
dated March 10, 2000, on our audits of the financial statements of Series M
Fund and Series C Fund (each a Fund of Fixed Income SHares) which are included
in the Registration Statement. We also consent to the reference in the Statement
of Additional Information to our Firm under the caption, "Independent
Accountants."
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Kansas City, Missouri
March 10, 2000
<PAGE>
PIMCO Advisors L.P.
800 Newport Center Drive
Newport Beach, California 92660
INITIAL CAPITAL AGREEMENT
March ___, 2000
Fixed Income SHares
c/o PIMCO Advisory Services
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
It is our understanding that Fixed Income SHares ("FISH") proposes to sell
shares of beneficial interest (the "Shares") of the various investment
portfolios (the "Portfolios") of FISH pursuant to a registration statement on
Form N-1A filed with the Securities and Exchange Commission. In order to
provide FISH with a net worth of at least $100,000 as required by Section 14 of
the Investment Company Act of 1940, as amended, we hereby offer to purchase the
number of Shares of each Portfolio as indicated below at the price per share
indicated ("Initial Capital").
Portfolio No. of Shares Price Per Share
- --------- ------------- ---------------
FISH: Series C 5,000 $10
FISH: Series M 5,000 $10
We represent and warrant to FISH that the Shares are being acquired by us for
investment and not with a view to the resale or further distribution thereof
and that we have no present intention to redeem or dispose of any Shares. We
hereby agree that any redemption of these Shares will be reduced by a pro rata
portion of any then unamortized organization expenses of FISH. This proration
will be calculated by dividing the number of Shares to be redeemed by the
aggregate number of Shares held which represent the Initial Capital of FISH.
Please confirm that the foregoing correctly sets forth our agreement with FISH.
Very truly yours,
PIMCO ADVISORS L.P.
By:_____________________________________
Name:
Title:
Confirmed, as of the date
first above mentioned
FIXED INCOME SHARES
By:_______________________________
Name:
Title:
- -2-
<PAGE>
POWER OF ATTORNEY
We, the undersigned Trustees of Fixed Income SHares, hereby severally
constitute and appoint Susan A. Murphy and Stephen J. Treadway, our true and
lawful attorneys, with full power to each of them to sign for us, and in our
name and in the capacities indicated below, any and all amendments (including
pre- and post-effective amendments) to the Registration Statement of Fixed
Income SHares on Form N-1A and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of said attorneys full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney lawfully could
do or cause to be done by virtue hereof.
Name: Capacity: Date:
/s/ PAUL BELICA Trustee February 8, 2000
_________________________
Paul Belica
/s/ ROBERT E. CONNOR Trustee February 11, 2000
_________________________
Robert E. Connor
