(File Nos. 33-10438 and 811-4919)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
MITCHELL HUTCHINS SERIES TRUST
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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MITCHELL HUTCHINS SERIES TRUST--
STRATEGIC FIXED INCOME PORTFOLIO
(800) ___-_____
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
MARCH 16, 2000
To the Contract Owners:
Notice is hereby given that a special meeting of shareholders of Strategic
Fixed Income Portfolio ("Fund"), a series of Mitchell Hutchins Series Trust,
will be held at 1285 Avenue of the Americas, 14th floor, New York, New York
10019-6114 on March 16, 2000 at 10:30 a.m., Eastern time, or as adjourned from
time to time ("Meeting"), for the following purposes:
I. To approve or disapprove a new investment sub-advisory contract
with Pacific Investment Management Company;
II. To approve or disapprove a policy to permit the Board of Trustees
("Board") to appoint and terminate sub-advisers, enter into
sub-advisory contracts, and approve amendments to sub-advisory
contracts on behalf of the Fund without further shareholder
approval; and
III. To transact such other business as may properly come before the
Meeting.
After careful consideration, the Board approved each of the proposals and
recommends that shareholders vote "FOR" each proposal.
The matters referred to above are discussed in detail in the proxy
statement attached to this notice. You are entitled to be present and give
voting instructions at the meeting and any adjournments thereof if you owned a
variable annuity contract that had all or part of its value attributable to
shares of the Fund at the close of business on January 21, 2000 ("Record Date").
Each share of the Fund is entitled to one vote with respect to proposals on
which the Fund's shareholders are entitled to vote, with fractional votes for
fractional shares.
Regardless of whether you plan to attend the Meeting, which you are
cordially invited to attend, PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE
ENCLOSED VOTING INSTRUCTION CARD IN THE ENVELOPE PROVIDED SO THAT YOU WILL BE
REPRESENTED AT THE MEETING. If you have returned a voting instruction card and
are present at the Meeting, you may change the voting instructions specified in
the voting instruction card at that time. However, attendance in person at the
Meeting, by itself, will not revoke a previously tendered voting instruction
card.
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By Order of the Board of Trustees,
------------------------------
Dianne E. O'Donnell
Secretary
51 West 52nd Street
New York, NY 10019-6114
February __, 2000
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. IF YOU
SIGN, DATE AND RETURN THE VOTING INSTRUCTION CARD BUT GIVE NO VOTING
INSTRUCTIONS, YOUR SHARES WILL BE VOTED "FOR" THE PROPOSALS NOTICED ABOVE. IN
ORDER TO AVOID THE UNNECESSARY EXPENSE OF FURTHER SOLICITATION, WE URGE YOU TO
INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED VOTING INSTRUCTION CARD.
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INSTRUCTIONS FOR SIGNING VOTING INSTRUCTION CARDS
The following general rules for signing voting instruction cards may be of
assistance to you and avoid the time and expense to the Fund involved in
validating your voting instructions if you fail to sign your voting instruction
card properly.
1. Individual Contract Owners: Sign your name exactly as it appears in the
registration on the voting instruction card.
2. Joint Contract Owners: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration on the
voting instruction card.
3. All Other Contract Owners: The capacity of the individual signing the
voting instruction card should be indicated unless it is reflected in the form
of registration. For example:
REGISTRATION VALID SIGNATURE
------------ ---------------
Corporate Accounts
(1) ABC Corp.......................... ABC Corp.
John Doe, Treasurer
(2) ABC Corp.......................... John Doe, Treasurer
(3) ABC Corp. c/o John Doe, Treasurer. John Doe
(4) ABC Corp. Profit Sharing Plan..... John Doe, Trustee
Partnership Accounts
(1) The XYZ Partnership............... Jane B. Smith, Partner
(2) Smith and Jones, Limited Partnership Jane B. Smith, General
Partner
Trust Accounts
(1) ABC Trust Account................. Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee u/t/d 12/28/78 Jane B. Doe
Custodial or Estate Accounts
(1) John B. Smith, Cust. f/b/o
John B. Smith, Jr., UGMA/UTMA..... John B. Smith
(2) Estate of John B. Smith........... John B. Smith, Jr.,
Executor
<PAGE>
PRELIMINARY PROXY MATERIALS FOR SEC USE ONLY
PROXY STATEMENT
MITCHELL HUTCHINS SERIES TRUST--
STRATEGIC FIXED INCOME PORTFOLIO
(800) ___-____
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
MARCH 16, 2000
This proxy statement and enclosed form of voting instruction card are
being furnished in connection with THE SOLICITATION OF PROXIES BY THE BOARD OF
TRUSTEES ("BOARD") OF MITCHELL HUTCHINS SERIES TRUST ("Trust") for use at a
special meeting of shareholders of STRATEGIC FIXED INCOME PORTFOLIO ("Fund"), a
series of the Trust, to be held at 1285 Avenue of the Americas, 14th floor, New
York, NY 10019 on March 16, 2000 at 10:30 a.m., Eastern time, or as adjourned
from time to time ("Meeting"), for the purposes set forth below. It is
anticipated that the first mailing of proxy statements to shareholders will be
on or about _______, 2000.
The Board is soliciting proxies from shareholders of the Fund with respect
to the following proposals:
I. To approve or disapprove a new investment sub-advisory contract
with Pacific Investment Management Company;
II. To approve or disapprove a policy to permit the Board to appoint and
terminate sub-advisers, enter into sub-advisory contracts, and
approve amendments to sub-advisory contracts on behalf of the Fund
without further shareholder approval; and
III. To transact such other business as may properly come before the
Meeting.
The Shares of beneficial interest ("Shares") of the Fund are currently
sold only to the separate accounts ("Separate Accounts") of PaineWebber Life
Insurance Company, American Republic Insurance Company and Keyport Benefit Life
Insurance Company (collectively, the "Companies") to fund the benefits under
variable annuity contracts ("Contracts") issued by the Companies. The Trust is a
registered, management investment company under the Investment Company Act of
1940, as amended ("1940 Act"), and is organized as a Massachusetts business
trust. In accordance with their view of applicable law, the Companies will
solicit voting instructions from the owners of Contracts relating to the Fund
("Contract Owners") with respect to the matters set forth in this Proxy
Statement. In connection with the solicitation of voting instructions, the
Companies will furnish a copy of this Proxy Statement to all Contract Owners.
Contract Owners will be entitled to be present at the Meeting and give
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voting instructions for Shares attributable to their Contracts as of the close
of business on January 21, 2000 ("Record Date"). There were _______ Shares of
the Fund outstanding and entitled to vote as of the Record Date. On the Record
Date, the Separate Accounts of PaineWebber Life Insurance Company, American
Republic Insurance Company and Keyport Benefit Life Insurance Company owned of
record ____%, ____% and ___%, respectively, of the outstanding Shares of the
Fund.
The Companies will vote Shares of the Fund held by the Separate Accounts
in accordance with voting instructions received by the Contract Owners. The
Companies will vote Shares of the Fund for which a voting instruction card is
returned signed and dated but with no specific instructions as to a proposal
"FOR" the proposal. The Companies will vote Shares of the Fund for which no
voting instruction cards are returned in the same proportion as Shares of the
Fund for which voting instruction cards have been returned. To the knowledge of
the Trust's management, as of the Record Date, there are no persons with the
ability to provide voting instructions with respect to more than 5% of the
outstanding Shares of the Fund. However, the proportionate voting by the
Companies of Shares for which no voting instruction cards are returned may
result in certain Contract Owners' instructions affecting the vote of 5% or more
of the outstanding Shares. To the knowledge of the Trust's management, as of the
Record Date, the trustees and executive officers of the Trust, as a group, had
the ability to provide voting instructions for less than 1% of the outstanding
Shares of the Fund.
The presence in person or by proxy of the holders of a majority of the
outstanding Shares of the Fund is required to constitute a quorum at the
Meeting. Abstentions will be counted as Shares present for purposes of
determining whether a quorum is present but will not be voted for or against any
adjournment or proposal. Thus, abstentions will have the same effect as a
negative vote on adjournment and on the proposals, which require the affirmative
vote of a specified portion of the Fund's outstanding Shares.
In the absence of a quorum or in the event that a quorum is present at the
Meeting but sufficient votes to approve any proposal are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies or to obtain the vote required for
approval of one or more proposals. Any such adjournment will require the
affirmative vote of a majority of those Shares represented at the Meeting in
person or by proxy. The persons named as proxies will vote those proxies which
they are entitled to vote FOR the proposal in favor of such an adjournment and
will vote those proxies required to be voted AGAINST the proposal against any
such adjournment. A shareholder vote may be taken prior to any adjournment of
the Meeting on any proposal for which there are sufficient votes for approval
and it is otherwise appropriate, even though the Meeting is adjourned as to
other proposals.
You may revoke any voting instructions by giving another voting
instruction card or by letter or telegram revoking the initial voting
instructions. To be effective, your revocation must be received by the
appropriate Company prior to the Meeting and must indicate your name and account
number. In addition, if you attend the Meeting in person you may, if you wish,
provide voting instructions at the Meeting, thereby canceling any voting
instructions previously given. Attendance in person at the Meeting by itself,
however, will not revoke a previously tendered voting instruction card.
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Each full Share of the Fund is entitled to one vote and each fractional
Share is entitled to a proportionate Share of one vote with respect to each
matter voted upon by shareholders of the Fund. Information about the vote
necessary with respect to each proposal is discussed below in connection with
the proposal.
THE TRUST WILL FURNISH TO THE COMPANIES AND TO THE CONTRACT OWNERS WITHOUT
CHARGE, COPIES OF THE MOST RECENT ANNUAL REPORT AND MOST RECENT SEMI-ANNUAL
REPORT SUCCEEDING SUCH ANNUAL REPORT UPON REQUEST. CONTRACT OWNERS MAY REQUEST
THESE REPORTS BY WRITING TO ANNUITY ADMINISTRATION, 601 6TH AVENUE, DES MOINES,
IOWA OR BY CALLING [1-800-367-6058].
PROPOSAL I: TO APPROVE OR DISAPPROVE A NEW INVESTMENT SUB-ADVISORY
CONTRACT WITH PACIFIC INVESTMENT MANAGEMENT COMPANY
INTRODUCTION. Since September 1995, Pacific Investment Management Company
("PIMCO") has served as investment sub-adviser to the Fund pursuant to an
investment sub-advisory contract ("Current Sub-Advisory Contract"). PIMCO will
undergo a change of control as a result of the consummation of the transaction
described below, resulting in the assignment, and therefore automatic
termination, of the Current Sub-Advisory Contract. Upon completion of the
transaction, PIMCO Advisors, L.P. and its subsidiaries, including PIMCO, will be
controlled by Allianz of America, Inc. ("Allianz of America"). It is proposed
that PIMCO continue to serve as investment sub-adviser of the Fund following
completion of the transaction. Therefore, in connection with the transaction and
as required by the Investment Company Act of 1940, as amended ("1940 Act"),
shareholders of the Fund are being asked in Proposal I to approve a new
sub-advisory contract which is substantially similar to the Current Sub-Advisory
Contract ("New Sub-Advisory Contract") except as described herein. The Board of
the Trust recommends that shareholders approve the New Sub-Advisory Contract, a
form of which is attached as Appendix A.
PIMCO is a subsidiary partnership of PIMCO Advisors, L.P. ("PIMCO
Advisors"). The general partners of PIMCO Advisors are PIMCO Partners, G.P.
("Partners G.P.") and PIMCO Advisors Holdings L.P. ("PAH"). Partners G.P. is a
general partnership between PIMCO Holding LLC, a Delaware limited liability
company and an indirect wholly-owned subsidiary of Pacific Life Insurance
Company ("Pacific Life"), and PIMCO Partners LLC ("Partners LLC"), a California
limited liability company controlled by the current managing directors and two
former managing directors of PIMCO ("Managing Directors"). PAH is a publicly
traded Delaware limited partnership and its primary source of income is its
proportionate share of the net income of PIMCO Advisors. Partners G.P. is the
sole general partner of PAH. The address of all the above entities, with the
exception of Pacific Life, is 800 Newport Center Drive, Newport Beach,
California 92660. Pacific Life is located at 700 Newport Center Drive, Newport
Beach, California 92660.
DESCRIPTION OF THE TRANSACTION. On October 31, 1999, PIMCO Advisors, PAH,
Partners G.P., certain of their affiliates, Allianz of America and certain other
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parties named therein entered into an Implementation and Merger Agreement
("Merger Agreement") pursuant to which Allianz of America will acquire majority
ownership of PIMCO Advisors ("Transaction").
The Merger Agreement provides for the acquisition of PAH by Allianz of
America through a merger of a subsidiary of Allianz of America with and into
PAH. In the merger, each of the outstanding limited partnership and general
partner units in PAH will be converted into the right to receive in cash an
amount per unit equal to $38.75, subject to a downward adjustment if the
aggregate annualized investment advisory and sub-advisory fees for all accounts
managed by PIMCO Advisors and its subsidiaries, expressed as a "revenue
run-rate," declines (excluding market-based changes) below a specified level
("Unit Transaction Price"). In no event will the Unit Transaction Price be
reduced below $31.00 per unit. As a result of the merger, PAH will become an
indirect wholly-owned subsidiary of Allianz of America.
Following the merger, subsidiaries of Allianz of America will, in a series
of transactions, acquire for cash additional partnership interests in PIMCO
Advisors, bringing its ownership interest in PIMCO Advisors to approximately
70%, including the approximately 44% interest held through PAH. As part of the
Transaction, a subsidiary of Allianz of America will acquire Partners G.P.
through an acquisition of the managing general partner interest in Partners G.P.
from Partners LLC (the managing general partner of Partners G.P.) for
approximately $5.5 million and of the member interests in Partners G.P. that are
indirectly owned by Pacific Life. Pacific Life, which through subsidiaries owns
approximately a 30% interest in PIMCO Advisors, will retain an indirect interest
in PIMCO Advisors following the closing. As a result of the Transaction, Allianz
of America will control PIMCO Advisors, having acquired approximately 70% of the
outstanding partnership interests in PIMCO Advisors for a total consideration of
approximately $3.3 billion, while the remainder will continue to be owned by
Pacific Life.
In connection with the closing, Allianz of America will enter into a
put/call arrangement for the possible disposition of Pacific Life's indirect
interest in PIMCO Advisors. The put option held by Pacific Life will allow it to
require Allianz of America, on the last business day of each calendar quarter
following the closing of the Transaction, to purchase at a formula-based price
all of the PIMCO Advisors units owned directly or indirectly by Pacific Life.
The call option held by Allianz of America will allow it, beginning January 31,
2003 or upon a change in control of Pacific Life, to require Pacific Life to
sell or cause to be sold to Allianz of America, at the same price, all of the
PIMCO Advisors units owned directly or indirectly by Pacific Life.
The Transaction is expected to be completed by the end of the first
quarter of 2000, although there is no assurance that the Transaction will be
completed. Completion of the Transaction is subject to a number of conditions,
including, among others, (i) the approval of the public unitholders of PAH, (ii)
the receipt of certain regulatory approvals, and (iii) PIMCO Advisors' revenue
run-rate (excluding market-based changes) for all accounts managed by PIMCO
Advisors and its subsidiaries being at least 75% of the September 30, 1999
revenue run-rate amount. Approval of the New Sub-Advisory Contract by the
shareholders of the Fund will help satisfy condition (iii) described in the
preceding sentence by maintaining PIMCO's sub-advisory relationship with the
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Fund. If the Transaction is not completed for any reason, the Current
Sub-Advisory Contract will remain in effect. In the event the New Sub-Advisory
Contract is not approved by the Fund's shareholders and the Transaction is
completed, the Board will consider appropriate action.
Pursuant to the Merger Agreement, PIMCO Advisors and PIMCO will enter into
employment, retention and incentive arrangements with key employees of PIMCO
Advisors and PIMCO. These benefits include new employment agreements, retention
and incentive awards vesting over a term of years and restricted stock grants.
In addition, certain key employees of PIMCO Advisors' investment advisory
subsidiaries will receive payments in respect of previously existing
non-competition arrangements in connection with the acquisition by Allianz of
America of the PIMCO Advisors units on which such arrangements were based.
Allianz of America and each of the other parties to the Merger Agreement
have agreed to use reasonable best efforts to ensure compliance with Section
15(f) of the 1940 Act as it applies to the Transaction. Section 15(f) provides a
non-exclusive safe harbor for PIMCO or any affiliated persons to receive any
amount or benefit in connection the "change of control" if two conditions are
met. First, the Transaction must not impose any unfair burden on any investment
company client of the adviser, including the Fund. Second, during the three-year
period after the Transaction, at least 75% of the board of each investment
company client, including the Trust, must not be interested persons of PIMCO (or
any predecessor or successor adviser). Currently, no trustee of the Trust is an
interested person of PIMCO, and PIMCO has advised the Board that it is not aware
of any circumstances arising from the Transaction that would impose an unfair
burden on the Fund.
POST-TRANSACTION STRUCTURE AND OPERATIONS. Upon completion of the
Transaction, PIMCO Advisors and its subsidiaries, including PIMCO, will be
controlled by Allianz of America. Allianz of America is a holding company that
owns several insurance and financial service companies and is a subsidiary of
Allianz AG. Allianz of America will control PIMCO Advisors through its managing
member interest in Pacific-Allianz Partners LLC ("PacPartners LLC"), which will
be the sole general partner of PIMCO Advisors following the Transaction. While
Allianz of America will control PacPartners LLC, Pacific Life will hold a
portion of its continuing interest in PIMCO Advisors through an interest in
PacPartners LLC. Allianz of America, through subsidiaries, will be the managing
member of PacPartners LLC and will have the full authority and control over all
actions taken by PacPartners LLC as the general partner of PIMCO Advisors,
provided that Pacific Life's consent is required for certain extraordinary
actions.
Operationally, PIMCO is expected to remain independent and to lead the
global fixed income investment efforts of Allianz AG. In this regard, PIMCO will
coordinate its activities with Allianz Asset Management ("AAM"), a subsidiary of
Allianz AG that coordinates global Allianz asset management activities. To
permit the provision of advisory services to non-U.S. clients of Allianz AG,
PIMCO personnel, including personnel with portfolio management responsibility
for the Fund, may become affiliated with AAM or other Allianz-controlled
advisory firms. PIMCO also may call upon the research capabilities and resources
of Allianz AG and its advisory affiliates in connection with providing
investment advice to its clients. PIMCO is currently expected to continue to
operate in the United States under its existing name.
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Both William S. Thompson, Jr., the current Chief Executive Officer of
PIMCO, and William H. Gross, the current Chief Investment Officer of PIMCO, will
have roles on the Executive Committee of AAM, with Mr. Thompson serving as the
Executive Committee's Deputy Chairman. Messrs. Thompson and Gross will enter
into employment contracts with a term of seven years following the Transaction.
Other key employees of PIMCO and PIMCO Advisors, including the Managing
Directors, have also contractually agreed to remain with PIMCO for significant
periods following the Transaction.
DESCRIPTION OF ALLIANZ AG AND ITS AFFILIATES. Allianz AG, the parent of
Allianz of America, is a German AKTIENGESELLSCHQFT (a German publicly-traded
company) which, together with its subsidiaries, comprises the world's second
largest insurance group as measured by premium income. Allianz AG is a leading
provider of financial services, particularly in Europe, and is represented in 68
countries world-wide through subsidiaries, branch and representative offices,
and other affiliated entities. The Allianz group currently has assets under
management of more than $390 billion, and in its last fiscal year wrote
approximately $50 billion in gross insurance premiums. After completion of the
Transaction, PIMCO and the Allianz group combined will have over $650 billion in
assets under management. Allianz AG's address is: Koniginstrasse 28, D-80802,
Munich, Germany.
Significant institutional shareholders of Allianz AG currently include,
among others, Dresdner Bank AG, Deutsche Bank AG, Munich Reinsurance and
HypoVereinsbank. Following completion of the Transaction, Dresdner Bank AG and
Deutsche Bank AG, as well as certain broker-dealers that might be deemed to be
affiliated with these entities, such as Bankers Trust Company, BT Alex Brown,
Inc., Deutsche Bank Securities, Inc. and Dresdner Kleinwort Benson North America
LLC (collectively, the "Affiliated Brokers"), may be considered to be affiliated
persons of PIMCO. Once the Transaction is completed, absent an SEC exemption or
other relief, the Fund generally would be precluded from effecting principal
transactions with the Affiliated Brokers, and their ability to purchase
securities being underwritten by an Affiliated Broker or to utilize the
Affiliated Brokers for agency transactions would be subject to restrictions.
PIMCO does not believe that applicable restrictions on transactions with the
Affiliated Brokers described above will materially adversely affect its ability,
post-closing, to provide services to the Fund, the Fund's ability to take
advantage of market opportunities, or the Fund's overall performance. Other
series of the Trust for which PIMCO (or an affiliate) does not serve as an
investment sub-adviser would not, in general, be subject to these same
restrictions post-closing.
ANTICIPATED IMPACT OF THE TRANSACTION ON MANAGEMENT OF THE FUND. PIMCO has
received structural and contractual protections as terms of the Transaction that
ensure PIMCO's operational autonomy and continuity of management. PIMCO is
confident that Allianz AG is committed to the people and process that have led
to PIMCO's success over the years. Accordingly, PIMCO has represented to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") and the Fund's
Board that the Transaction should have no immediate impact, other than as
already noted above, on the management of the Fund or PIMCO's capacity to
provide the type, quality, or quantity of services that it currently provides,
and the Fund should continue to receive the same high quality of service after
the Transaction. As discussed below, however, PIMCO believes that the
Transaction offers the potential to enhance significantly its future ability to
deliver quality investment sub-advisory services.
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THE BENEFITS OF THE TRANSACTION. PIMCO has represented to Mitchell
Hutchins that it anticipates that the Transaction with Allianz AG will benefit
PIMCO and the Fund in a variety of ways, including the following:
o PIMCO's investment expertise will be enhanced because of the business
experience and relationships that Allianz AG has built around the globe,
particularly in Europe. PIMCO's access to European markets and business
opportunities will be greatly enhanced by Allianz AG's experience and
relationships. The combined global resources of PIMCO and Allianz AG
will allow PIMCO to take advantage of the growth in international
markets and the explosive potential for premier money managers in the
global marketplace.
o Allianz AG has a team of fixed income professionals in place that
currently manages more than $100 billion in assets. Integration of these
professionals and assets with PIMCO provides an excellent opportunity
for furthering PIMCO's global fixed income expertise.
o The rotation of many of PIMCO's key investment professionals through
international offices and overseas personnel through PIMCO's offices
will result in more seasoned professionals with global experience.
o The combination will provide additional career opportunities for PIMCO
professionals, furthering PIMCO's ability to attract and retain the best
people.
o Allianz AG has a stated growth strategy to be among the top five
providers of its services in the world's key markets, which is a key
factor in PIMCO's decision to proceed with the Transaction. The combined
entity will be the sixth largest investment manager in the world. The
Transaction will significantly increase assets under PIMCO's management,
and will offer the opportunity for continued growth in the future.
Strong relative investment results depend on a sound, disciplined
investment process and effective execution; size can be a benefit to
both.
COMPARISON OF THE CURRENT AND NEW SUB-ADVISORY CONTRACTS. The provisions
of the Current Sub-Advisory Contract and the New Sub-Advisory Contract
(collectively, the "Sub-Advisory Contracts") are substantially similar.
The Current Sub-Advisory Contract, dated _________, 1995, was last
approved by the Board, including a majority of the Trustees who are not parties
to the Current Sub-Advisory Contract or interested persons (as defined by the
1940 Act) of the Trust (other than as Trustees of the Trust), Mitchell Hutchins
or PIMCO ("Independent Trustees"), at a meeting held on May 13, 1999. The
Current Sub-Advisory Contract was last submitted to shareholders for approval on
September 21, 1995, for the purpose of implementing the Fund's current service
arrangements with respect to sub-advisory services. If the Transaction is not
consummated, PIMCO will continue to serve as sub-adviser to the Fund under the
Current Sub-Advisory Contract.
PIMCO has advised the Fund that it currently anticipates that the same
persons responsible for management of the Fund under the Current Sub-Advisory
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Contract will continue to be responsible for management of the Fund under the
New Sub-Advisory Contract. PIMCO has advised the Trust that it does not
anticipate that the Transaction will cause any reduction in the quality or types
of services now provided to the Fund or have any adverse effect on PIMCO's
ability to fulfill its obligations to the Fund.
Under both Sub-Advisory Contracts, PIMCO is responsible, subject to the
supervision of the Board and Mitchell Hutchins, for the actual investment
management of the Fund's assets, including placing purchase and sell orders for
investments and for other related transactions. Under those contracts, PIMCO
agrees to provide a continuous investment program for the Fund, including
investment research and management. In addition, both contracts provide that
PIMCO will manage the Fund's assets so that the Fund satisfies the
diversification requirements under Section 817(h) of the Code. The New
Sub-Advisory Contract provides that PIMCO may seek research assistance and rely
upon resources available to it through its affiliated companies to the extent
that such actions would not constitute an "assignment" for purposes of the 1940
Act. However, such assistance and/or reliance will not relieve PIMCO of its
obligations under the New Sub-Advisory Contract. In addition, the New
Sub-Advisory Contract provides that PIMCO will vote proxies of issuers of
securities held by the Fund. Both Sub-Advisory Contracts recognize that PIMCO
may, under certain circumstances, pay higher brokerage commissions by executing
portfolio transactions with brokers who provide PIMCO with research, analysis,
advice or similar services. Both Sub-Advisory Contracts also provide that PIMCO
will maintain all books and records required to be maintained by PIMCO pursuant
to the 1940 Act and the rules and regulations promulgated thereunder with
respect to transactions on behalf of the Fund. In addition, both Sub-Advisory
also provide that PIMCO will furnish the Board and Mitchell Hutchins with
economic and investment analyses and reports as the Board or Mitchell Hutchins
reasonably may request, will provide the Board and Mitchell Hutchins with
quarterly reports setting forth the Fund's performance, and will make available
to the Board and Mitchell Hutchins upon request any economic, statistical and
investment services normally available to other customers of PIMCO.
Both Sub-Advisory Contracts provide that PIMCO is entitled to receive from
Mitchell Hutchins, and not the Fund, a sub-advisory fee, calculated daily and
paid monthly, at an annual rate of 0.25% of the Fund's average daily net assets.
In addition, both Sub-Advisory Contracts state that for those periods in which
Mitchell Hutchins has agreed to waive all or a portion of its management fee,
Mitchell Hutchins may ask PIMCO to waive the same proportion of its fees, but
PIMCO is under no obligation to do so. PIMCO bears all expenses incurred by it
in connection with its services under each Sub-Advisory Contract. Neither the
Trust nor the Fund has any responsibility to pay sub-advisory fees to the PIMCO.
During the Fund's last fiscal year ended December 31, 1999, Mitchell Hutchins,
and not the Fund, paid PIMCO $_______ for sub-advisory services.
Both Sub-Advisory Contracts provide that PIMCO will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund, the
Trust, its shareholders or Mitchell Hutchins in connection with the matters to
which the Sub-Advisory Contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
Sub-Advisory Contract.
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Moreover, both Sub-Advisory Contracts provide for termination, without
payment of any penalty, by vote of the Board or by a vote of a majority of the
Fund's outstanding voting securities on 60 days' written notice to PIMCO.
Mitchell Hutchins may also terminate the Sub-Advisory Contracts, without payment
of any penalty: (1) on 120 days' written notice to PIMCO; (2) immediately upon
material breach by PIMCO of representations and warranties contained in the
Sub-Advisory Contracts; or (3) immediately if, in the reasonable judgment of
Mitchell Hutchins, PIMCO becomes unable to discharge its duties and obligations
under the Sub-Advisory Contract, including circumstances such as financial
insolvency of the PIMCO or other circumstances that could adversely affect the
Fund. In addition, PIMCO may terminate the Sub-Advisory Contracts, without
payment of any penalty, on 120 days' written notice to Mitchell Hutchins. The
Sub-Advisory Contracts terminate automatically in the event of "assignment" (as
defined in the 1940 Act).
The New Sub-Advisory Contract includes a few additional provisions. It
provides that neither PIMCO nor any of its affiliates will in any way refer
directly or indirectly to its relationship with the Trust, the Fund, Mitchell
Hutchins or any of their respective affiliates in offering, marketing or other
promotional materials without the express written consent of Mitchell Hutchins.
It also stipulates that PIMCO will notify Mitchell Hutchins if there is a death
or withdrawal of any of its partners, upon admission of any partners or upon any
other changes in its membership.
Mitchell Hutchins and the Trust have received an order of exemption from
the U.S. Securities and Exchange Commission ("SEC") that permits Mitchell
Hutchins not only to terminate the New Sub-Advisory Contract, but also to
appoint a new sub-adviser, subject to approval by the Board of the Trust but not
by the holders of a majority of the outstanding Shares of the Trust or the Fund,
once shareholders approve this policy. See Proposal II for more information.
At the November 11, 1999 Board meeting, the New Sub-Advisory Contract was
approved unanimously by the Board, including all of the Independent Trustees.
The New Sub-Advisory Contract, as approved by the Board, is submitted for
approval by the shareholders of the Fund.
If the New Sub-Advisory Contract is approved by the Fund's shareholders,
it will take effect immediately upon the closing of the Transaction. The New
Sub-Advisory Contract will remain in effect for two years from the date it takes
effect and, unless earlier terminated, will continue from year to year with
respect to the Fund, provided that each such continuance is approved annually,
with respect to the contract and Fund, (i) by the Board or by the vote of a
majority of the outstanding voting securities of the Fund, and, in either case,
(ii) by a majority of the Trustees who are not parties to the New Sub-Advisory
Contract or "interested persons" of any such party (other than as Trustees of
the Trust).
EVALUATION BY THE BOARD. The Board has determined that, by approving the
New Sub-Advisory Contract on behalf of the Fund, the Trust can best assure
itself that services currently provided to the Fund by PIMCO, its officers and
employees, will continue without interruption after the Transaction. The Board
believes that, like the Current Sub-Advisory Contract, the New Sub-Advisory
Contract will enable the Fund to obtain high quality services at a cost that is
appropriate, reasonable, and in the best interests of the Fund and its
shareholders.
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In determining whether it was appropriate to approve the New Sub-Advisory
Contract and to recommend approval to shareholders, the Board, including the
Independent Trustees, considered various materials and representations provided
by PIMCO, including information concerning compensation and employment
arrangements to be implemented in connection with the Transaction and considered
a report provided by Allianz AG.
Information considered by the Trustees included, among other things, the
following: (1) PIMCO's representation that the same persons responsible for
management of the Fund under the Current Sub-Advisory Contract are expected to
continue to manage the Fund under the New Sub-Advisory Contract, thus helping to
ensure continuity of management; (2) the compensation to be received by PIMCO
under the New Sub-Advisory Contract is the same as the compensation paid under
the Current Sub-Advisory Contract, which the Board previously has determined to
be fair and reasonable; (3) PIMCO's representation that it will not seek to
increase the rate of sub-advisory fees paid by the Fund for a period of at least
two years following the Transaction; (4) the substantial commonality of the
terms and provisions of the New Sub-Advisory Contract with the terms of the
Current Sub-Advisory Contract; (5) representations made by PIMCO concerning the
impact of affiliated brokerage relationships on its ability to provide services
to the Fund, and on the Fund's ability to engage in portfolio transactions; (6)
the representations by PIMCO and Allianz AG that the integration of Allianz AG's
and PIMCO's operations could produce benefits to shareholders through economies
of scale, expansion of PIMCO's investment expertise through the addition of
Allianz AG's fixed income investment business expertise and global
relationships, the expansion of PIMCO's investment research capabilities, and
the ability to enhance the quality of services provided to shareholders; (7) the
nature and quality of the services rendered by PIMCO under the Current
Sub-Advisory Contract; (8) the results achieved by PIMCO for the Fund; and (9)
the quality of the personnel, operations, financial condition, investment
management capabilities, methodologies, and performance of PIMCO.
Based upon its review, the Board determined that, by approving the New
Sub-Advisory Contract, the Fund can best be assured that services from PIMCO
will be provided without interruption. The Board also determined that the New
Sub-Advisory Contract is in the best interests of the Fund and its shareholders.
Accordingly, after consideration of the above factors, and such other factors
and information it considered relevant, the Board unanimously approved the New
Sub-Advisory Contract and voted to recommend its approval by the Fund's
shareholders.
REQUIRED VOTE. Approval of Proposal I requires the vote of a "majority of
the outstanding voting securities" of the Fund, as defined in the 1940 Act,
which means the vote of 67% or more of the voting securities of the Fund present
at the Meeting, if the holders of more than 50% of the outstanding Shares of the
Fund are present or represented by proxy, or the vote of more than 50% of the
outstanding voting securities of the Fund, whichever is less.
THE BOARD RECOMMENDS THAT CONTRACT OWNERS VOTE
"FOR" PROPOSAL I.
PROPOSAL II: TO APPROVE A POLICY TO PERMIT THE BOARD OF TRUSTEES TO
APPOINT AND TERMINATE SUB-ADVISERS, TO ENTER INTO SUB-ADVISORY CONTRACTS
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AND TO APPROVE AMENDMENTS TO THE SUB-ADVISORY CONTRACTS, ON BEHALF OF THE
FUND WITHOUT FURTHER SHAREHOLDER APPROVAL.
SUMMARY. At the Board meeting on July 9, 1998, the Board approved, and
recommended that shareholders of the Fund approve, a policy to permit Mitchell
Hutchins, subject to the approval of the Board, to appoint and terminate
sub-advisers, to enter into sub-advisory contracts and to amend sub-advisory
contracts on behalf of the Fund without further shareholder approval
("Sub-Adviser Approval Policy").
THE SECTION 15 EXEMPTIVE ORDER. An application to exempt the Trust from
the provisions of Section 15(a) of the 1940 Act and Rule 18f-2 thereunder was
granted by the SEC on January 19, 1999. The provisions of the 1940 Act require
that shareholders of a mutual fund approve a new sub-advisory contract with the
sub-adviser as well as material amendments to an existing sub-advisory contract.
If shareholders approve this proposal, Mitchell Hutchins will be authorized,
subject to approval by the Board, to evaluate, select and retain new
sub-advisers for the Fund or modify the Fund's existing Sub-Advisory Contract
(including termination) without obtaining further approval of the Fund's
shareholders whenever Mitchell Hutchins and the Board believe these actions will
benefit the Fund and its shareholders. As explained below, shareholders would
receive detailed information regarding any change in sub-adviser or a material
change to the sub-advisory contract.
CURRENT SUB-ADVISER APPROVAL PROCESS. Currently, Mitchell Hutchins enters
into sub-advisory contracts pursuant to which the selected sub-adviser has
authority to provide the Fund with advice concerning the investment management
of all (or a portion) of the Fund's assets. The sub-adviser determines what
securities shall be purchased, what securities shall be sold and what portion of
the Fund's assets shall remain uninvested. For these sub-advisory services to
the Fund, Mitchell Hutchins pays the sub-adviser a monthly fee as specified in
the sub-advisory contract. The sub-adviser bears its own expenses of providing
sub-advisory services to the Fund. Neither the Trust nor the Fund has any
responsibility to pay sub-advisory fees to the sub-adviser. The Fund's
sub-advisory contracts are subject to approval by the Board, including the
Independent Trustees, and in the absence of exemptive relief from the SEC,
approval by the Fund's shareholders.
PROPOSED SUB-ADVISER APPROVAL POLICY. Approval of the Sub-Adviser Approval
Policy will not affect any of the requirements under the federal securities laws
that govern the Trust, the Fund, Mitchell Hutchins, any sub-adviser, or any
sub-advisory contract, other than the requirement to call a meeting of the
Fund's shareholders for the purpose of approving a sub-advisory contract. The
Board, including the Independent Trustees, will continue to evaluate and approve
all new sub-advisory contracts between Mitchell Hutchins and any sub-adviser as
well as all changes to existing sub-advisory contracts. In addition, the Trust
and Mitchell Hutchins will be subject to several conditions imposed by the SEC
to ensure that the interests of the Fund's shareholders (and Contract Owners)
are adequately protected whenever Mitchell Hutchins acts under the Sub-Adviser
Approval Policy. Furthermore, within 90 days of any change in sub-adviser or a
material change to a sub-advisory contract, the Trust will provide the Fund's
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shareholders with an information statement that contains substantially the same
relevant information about the sub-adviser, the sub-advisory contract and the
sub-advisory fee that would be required to be sent to the Fund's shareholders in
a proxy statement. This statement will inform the Fund's shareholders of the new
sub-advisory arrangements. If not satisfied, shareholders would be able to
exchange or redeem their Shares. The Companies would forward the information to
the Contract Owners so that the Contract Owners would be advised of the new
sub-advisory arrangements. If not satisfied, the Contract Owners could allocate
the portion of the value of their Contract invested in the Fund to another
investment.
Shareholder approval of this Proposal II will not result in an increase or
decrease in the total amount of investment advisory fees paid by the Fund to
Mitchell Hutchins. If the Trust implements the Sub-Adviser Approval Policy,
Mitchell Hutchins, pursuant to the Trust's Investment Advisory and
Administration Agreement, will continue to provide the same level of management
and administrative services to the Fund that it has always provided.
The Sub-Adviser Approval Policy permits Mitchell Hutchins to change
sub-advisers or sub-advisory arrangements in the following types of situations:
(1) the sub-adviser has a record of substandard performance; (2) the individual
employees responsible for portfolio management of the Fund move from the
sub-adviser to another investment advisory firm; (3) there is a change of
control of the sub-adviser; (4) Mitchell Hutchins decides to diversify the
Fund's management by adding another sub-adviser; (5) there is a change in
investment style of the Fund; and (6) Mitchell Hutchins negotiates a reduction
(or the sub-adviser negotiates an increase) in the portion of the advisory fee
that Mitchell Hutchins pays to the sub-adviser. Furthermore, where there is a
decrease in a sub-adviser's compensation paid by Mitchell Hutchins, the
concomitant increase in the compensation available for retention by Mitchell
Hutchins would not be deemed to be an increase in advisory compensation that
requires a shareholder meeting. The Sub-Adviser Approval Policy will not be used
to approve any sub-adviser that is affiliated with Mitchell Hutchins as that
term is used in the 1940 Act or materially amend any sub-advisory contract with
an affiliated sub-adviser.
REASONS FOR REQUESTING SECTION 15 EXEMPTIVE RELIEF. The Board believes
that providing Mitchell Hutchins with maximum flexibility to perform those
duties that shareholders expect Mitchell Hutchins to perform--selecting,
supervising and evaluating sub-advisers--without incurring the unnecessary delay
or expense of obtaining further shareholder approval is in the best interests of
the Fund's shareholders (and Contract Owners) because it will allow the Fund to
operate more efficiently. Currently, in order for Mitchell Hutchins to appoint a
sub-adviser or materially modify a sub-advisory contract, the Trust must call
and hold a shareholder meeting of the Fund, create and distribute proxy
materials, and arrange for the solicitation of voting instructions from the
Contract Owners. This process is time-intensive, slow and costly. These costs
are generally borne entirely by the Fund. Without the delay inherent in holding
shareholder meetings, the Board would be able to act more quickly and with less
expense to appoint a sub-adviser when the Board and Mitchell Hutchins feel that
the appointment would benefit the Fund and its shareholders (and Contract
Owners).
Also, the Board believes that it is appropriate to vest the selection,
supervision and evaluation of the sub-advisers in Mitchell Hutchins (subject to
review by the Board) in light of Mitchell Hutchins' significant experience and
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expertise in selecting sub-advisers and shareholders' expectation that Mitchell
Hutchins will utilize that expertise to select the most competent sub-advisers.
Mitchell Hutchins has demonstrated that it has the requisite expertise to
evaluate, select and supervise sub-advisers. The Board believes that many
investors choose to invest in the Fund because of Mitchell Hutchins' experience
in this respect.
Finally, the Board will provide sufficient oversight of the sub-adviser
selection process to ensure that shareholders' and Contract Owners' interests
are protected whenever Mitchell Hutchins selects a sub-adviser or modifies a
sub-advisory contract. The Board, including a majority of the Independent
Trustees, will continue to evaluate and approve all new sub-advisory contracts
as well as any modification to existing sub-advisory contracts. In each review,
the Board will analyze all factors that it considers to be relevant to the
determination, including the nature, quality and scope of services provided by
the sub-advisers. The Board will compare the investment performance of the
assets managed by the sub-adviser with other accounts with similar investment
objectives managed by other advisers and will review the sub-adviser's
compliance with federal securities laws and regulations. The Board believes that
its review will ensure that Mitchell Hutchins continues to act in the best
interests of the Fund and its shareholders (and Contract Owners). The
Sub-Advisory Contract will continue to be subject to all provisions of the 1940
Act for which relief was granted by the SEC.
REQUIRED VOTE. Approval of Proposal II requires the vote of a "majority of
the outstanding voting securities" of the Fund, as defined in the 1940 Act,
which means the vote of 67% or more of the voting securities of the Fund present
at the Meeting, if the holders of more than 50% of the outstanding Shares of the
Fund are present or represented by proxy, or the vote of more than 50% of the
outstanding voting securities of the Fund, whichever is less.
THE BOARD RECOMMENDS THAT CONTRACT OWNERS
VOTE "FOR" PROPOSAL II
III. OTHER BUSINESS
Management does not know of any matters to be presented at the Meeting
other than those set forth in this proxy statement. If other business should
properly come before the Meeting, the proxies will vote thereon in accordance
with their best judgment in the interests of the Fund.
PROXY SOLICITATION
PROXY SOLICITATION. The costs of the Meeting, including the costs of
preparing solicitation materials, will be borne by PIMCO. The principal
solicitation will be by mail, but proxies also may be solicited by telephone,
telegraph, the Internet or personal interview by regular employees of
PaineWebber Incorporated ("PaineWebber") and Mitchell Hutchins, who will not
receive any compensation from the Fund for doing so. MIS Corporation has been
retained to assist with solicitation activities and will be paid fees and
expenses of approximately $____. The Trust will forward to record owners proxy
materials for any beneficial owners that such record owners may represent.
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ADDITIONAL INFORMATION
ADDITIONAL INFORMATION ABOUT MITCHELL HUTCHINS
Mitchell Hutchins, a Delaware corporation and the Fund's investment
adviser and administrator, is a wholly-owned asset management subsidiary of
PaineWebber, a wholly-owned subsidiary of Paine Webber Group Inc. ("PW Group"),
a publicly held corporation. The principal business offices of Mitchell
Hutchins, PaineWebber and PW Group are located at 51 West 52nd Street, New York,
New York 10019-6114. In addition, Mitchell Hutchins serves as the distributor of
the Fund's Shares under separate distribution contracts with respect to each
class of the Fund's Shares that require Mitchell Hutchins to use its best
efforts consistent with its other businesses to sell the Fund's Shares. During
its fiscal year ended December 31, 1999, the Fund did not pay commissions to any
broker that was affiliated with the Fund, Mitchell Hutchins or PIMCO.
As of December 31, 1999, Mitchell Hutchins served as adviser or
sub-adviser to ___ investment companies with an aggregate of ___ separate
portfolios and aggregate assets under management of approximately $____ billion.
ADDITIONAL INFORMATION ABOUT PIMCO
As of December 31, 1999, PIMCO has over $___ in assets under management.
Information concerning PIMCO, its principal executive officer and directors is
included in Appendix B. Information regarding advisory fees paid by other
investment companies advised by PIMCO with investment objectives similar to the
Fund also is included in Appendix B.
SHAREHOLDER PROPOSALS
As a general matter, the Trust does not hold regular annual or other
meetings of shareholders. Any shareholder who wishes to submit proposals to be
considered at a special meeting of the Fund's shareholders should send such
proposals to the Fund at 51 West 52nd Street, New York, New York, 10019-6114,
attn: Dianne E. O'Donnell, Secretary. Proposals must be received a reasonable
period of time prior to any meeting to be included in the proxy materials.
Moreover, inclusion of such proposals is subject to limitations under the
federal securities laws. Persons named as proxies for any subsequent
shareholders' meeting will vote in their discretion with respect to proposals
submitted on an untimely basis.
TO ENSURE THE PRESENCE OF A QUORUM AT THE MEETING, PROMPT EXECUTION AND
RETURN OF THE ENCLOSED VOTING INSTRUCTION CARD IS REQUESTED. A SELF-ADDRESSED,
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
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By Order of the Board of Trustees,
---------------------------
Dianne E. O'Donnell
Secretary
February ___, 2000
51 West 52nd Street
New York, NY 10019-6114
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APPENDIX A
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FORM OF SUB-INVESTMENT ADVISORY AGREEMENT
-----------------------------------------
Agreement made as of __________, 2000 between MITCHELL HUTCHINS ASSET
MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation, and PACIFIC
INVESTMENT MANAGEMENT COMPANY ("Sub-Adviser"), a Delaware general partnership
(hereinafter referred to as the "Agreement").
RECITALS
(1) Mitchell Hutchins has entered into an Investment Advisory and
Administration Contract dated April 21, 1988, as supplemented by an Investment
Advisory and Administration Fee Agreement dated May 1, 1989, ("Advisory
Contract") with Mitchell Hutchins Series Trust (formerly named PaineWebber
Series Trust) ("Trust"), an open-end management investment company registered
under the Investment Company Act of 1940, as amended ("1940 Act");
(2) The Trust offers for public sale distinct series of shares of
beneficial interest, including a series of shares of the Trust known as
Strategic Fixed Income Portfolio (formerly named "Government Portfolio")
("Portfolio");
(3) Under the Advisory Contract, Mitchell Hutchins has agreed to provide
certain investment advisory and administrative services to the Portfolio;
(4) The Advisory Contract permits Mitchell Hutchins to delegate certain
of its duties as investment adviser thereunder to a sub-adviser;
(5) Mitchell Hutchins wishes to retain the Sub-Adviser to furnish
certain investment advisory services to Mitchell Hutchins and the Portfolio; and
(6) The Sub-Adviser is willing to furnish those services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, Mitchell Hutchins and the Sub-Adviser agree as follows:
1. APPOINTMENT. Mitchell Hutchins hereby appoints the Sub-Adviser as an
investment sub-adviser with respect to the Portfolio for the period and on the
terms set forth in this Agreement. The Sub-Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. DUTIES AS SUB-ADVISER.
(a) Subject to the supervision and direction of the Trust's Board of
Trustees ("Board") and review by Mitchell Hutchins, and any written guidelines
adopted by the Board or Mitchell Hutchins, the Sub-Adviser will provide a
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continuous investment program for the Portfolio, including investment research
and management. The Sub-Adviser may from time to time seek research assistance
or rely upon resources available to it through its affiliated companies to the
extent such actions will not constitute an "assignment" for purposes of the 1940
Act but in no case shall such assistance and/or reliance relieve the Sub-Adviser
of any of its obligations hereunder, nor shall the Portfolio or Mitchell
Hutchins be responsible for any additional fees or expenses hereunder as a
result. The Sub-Adviser will determine from time to time what investments will
be purchased, retained or sold by the Portfolio. The Sub-Adviser will be
responsible for placing purchase and sell orders for investments and for other
related transactions. The Sub-Adviser will be responsible for voting proxies of
issuers of securities held by the Portfolio. The Sub-Adviser understands that
the Portfolio's assets need to be managed so as to permit the Portfolio to
qualify or to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, as amended ("Code"). The Sub-Adviser
will provide services under this Agreement in accordance with the Portfolio's
investment objective, policies and restrictions as stated in the Trust's
currently effective registration statement under the 1940 Act, and any
amendments or supplements thereto ("Registration Statement").
(b) The Sub-Adviser agrees that, in placing orders with brokers, it will
obtain the best net result in terms of price and execution; provided that, on
behalf of the Portfolio, the Sub-Adviser may, in its discretion, use brokers who
provide the Sub-Adviser with research, analysis, advice and similar services to
execute portfolio transactions on behalf of the Portfolio, and the Sub-Adviser
may pay to those brokers in return for brokerage and research services a higher
commission than may be charged by other brokers, subject to the Sub-Adviser's
determination in good faith that such commission is reasonable in terms either
of the particular transaction or of the overall responsibility of the
Sub-Adviser to the Portfolio and its other clients and that the total
commissions paid by the Portfolio will be reasonable in relation to the benefits
to the Portfolio over the long term. In no instance will portfolio securities be
purchased from or sold to Mitchell Hutchins or the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder. The Sub-Adviser may aggregate sales
and purchase orders with respect to the assets of the portfolio with similar
orders being made simultaneously for other accounts advised by the Sub-Adviser
or its affiliates. Whenever the Sub-Adviser simultaneously places orders to
purchase or sell the same security on behalf of the Portfolio and one or more
other accounts advised by the Sub-Adviser, the orders will be allocated as to
price and amount among all such accounts in a manner believed to be equitable
over time to each account. Mitchell Hutchins recognizes that in some cases this
procedure may adversely affect the results obtained for the Portfolio.
(c) The Sub-Adviser will maintain all books and records required to be
maintained pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to actions by the Sub-Adviser on behalf of the
Portfolio, and will furnish the Board and Mitchell Hutchins with such periodic
and special reports as the Board or Mitchell Hutchins reasonably may request. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Sub-Adviser hereby agrees that all records that it maintains for the Portfolio
are the property of the Trust, agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act any records that it maintains for the Trust and
that are required to be maintained by Rule 31a-1 under the 1940 Act, and further
agrees to surrender promptly to the Trust any records which it maintains for the
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Portfolio upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board or
Mitchell Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins
with economic and investment analyses and reports as well as quarterly reports
setting forth the Portfolio's performance and make available to the Board and
Mitchell Hutchins any economic, statistical and investment services that the
Sub-Adviser normally makes available to its institutional or other customers.
(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair valuation
of all portfolio securities and will use its reasonable efforts to arrange for
the provision of a price(s) from a party(ies) independent of the Sub-Adviser for
each portfolio security for which the custodian does not obtain prices in the
ordinary course of business from an automated pricing service.
3. FURTHER DUTIES. In all matters relating to the performance of this
Agreement, the Sub-Adviser will act in conformity with the Trust's Declaration
of Trust, By-Laws and Registration Statement and with the written instructions
and written directions of the Board and Mitchell Hutchins; and will comply with
the requirements of the 1940 Act, and the Investment Advisers Act of 1940, as
amended ("Advisers Act") and the rules under each, Subchapter M of the Code as
applicable to regulated investment companies, the diversifications requirements
applicable to the Portfolio under Section 817(h) of the Code and all other
federal and state laws and regulations applicable to the Trust and the
Portfolio. Mitchell Hutchins agrees to provide to the Sub-Adviser copies of the
Trust's Declaration of Trust, By-Laws, Registration Statement, written
instructions and directions of the Board and Mitchell Hutchins, and any
amendments or supplements to any of these materials as soon as practicable after
such materials become available; provided however that the Sub-Adviser's duty
under this Agreement to act in conformity with any document, instruction, or
guidelines produced by the Trust or Mitchell Hutchins shall not arise until it
has been delivered to the Sub-Adviser. Any changes to the objectives, policies
or restrictions will make due allowance for the time within which the
Sub-Adviser shall have to come into compliance.
4. EXPENSES. During the term of this Agreement, the Sub-Adviser will
bear all expenses incurred by it in connection with its services under this
Agreement. The Sub-Adviser shall not be responsible for any expenses incurred by
the Trust, the Portfolio or Mitchell Hutchins.
5. COMPENSATION.
(a) For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, Mitchell Hutchins, and not the Portfolio, will pay
to the Sub-Adviser a fee, computed daily and payable monthly, at an annual rate
of 0.25% of the Portfolio's average daily net assets (computed in the manner
specified in the Advisory Contract), and will provide the Sub-Adviser with a
schedule showing the manner in which the fee was computed.
(b) The fee shall be accrued daily and payable monthly to the Sub-Adviser
on or before the last business day of the next succeeding calendar month.
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(c) For those periods in which Mitchell Hutchins has agreed to waive all
or a portion of its management fee, Mitchell Hutchins may ask the Sub-Adviser to
waive the same proportion of its fees, but the Sub-Adviser is under no
obligation to do so.
(d) If this Agreement becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be pro-rated according to the proportion that such period
bears to the full month in which such effectiveness or termination occurs.
6. LIMITATION OF LIABILITY. The Sub-Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Portfolio,
the Trust or its shareholders or by Mitchell Hutchins in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement. Nothing in this paragraph shall be deemed a limitation or waiver of
any obligation or duty that may not by law be limited or waived.
7. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants
and agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this Agreement
remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act
from performing the services contemplated by this Agreement; (iii) has met, and
will seek to continue to meet for so long as this Agreement remains in effect,
any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell
Hutchins and the Board with a copy of such code of ethics, together with
evidence of its adoption. Within fifteen days of the end of the last calendar
quarter of each year that this Agreement is in effect, the president or a
vice-president of the Sub-Adviser shall certify to Mitchell Hutchins that the
Sub-Adviser has complied with the requirements of Rule 17j-1 during the previous
year and that there has been no violation of the Sub- Adviser's code of ethics
or, if such a violation has occurred, that appropriate action was taken in
response to such violation. Upon the written request of Mitchell Hutchins, the
Sub-Adviser shall permit Mitchell Hutchins, its employees or its agents to
examine the reports required to be made to the Sub-Adviser by Rule 17j-1(c)(1)
and all other records relevant to the Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its Form
ADV, as most recently filed with the Securities and Exchange Commission ("SEC"),
A-4
<PAGE>
and promptly will furnish a copy of all amendments to Mitchell Hutchins at least
annually.
(d) The Sub-Adviser shall provide notice to Mitchell Hutchins within a
reasonable time after being informed or learning of the death or withdrawal of
any of its partners, upon the admission of any new partners or upon any other
change in its membership.
(e) The Sub-Adviser will notify Mitchell Hutchins of any change of control
of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Portfolio or senior management of the
Sub-Adviser, in each case prior to, or promptly after, such change.
(f) The Sub-Adviser agrees that neither it, nor any of its affiliates,
will in any way refer directly or indirectly to its relationship with the Trust,
the Portfolio, Mitchell Hutchins or any of their respective affiliates in
offering, marketing or other promotional materials without the express written
consent of Mitchell Hutchins.
8. SERVICES NOT EXCLUSIVE. The Sub-Adviser may act as an investment
adviser to any other person, firm or corporation, and may perform management and
any other services for any other person, association, corporation, firm or other
entity pursuant to any contract or otherwise, and take any action or do anything
in connection therewith or related thereto, except as prohibited by applicable
law; and no such performance of management or other services or taking of any
such action or doing of any such thing shall be in any manner restricted or
otherwise affected by any aspect of any relationship of the Sub-Adviser to or
with the Trust, Portfolio or Mitchell Hutchins or deemed to violate or give rise
to any duty or obligation of the Sub-Adviser to the Trust, Portfolio or Mitchell
Hutchins except as otherwise imposed by law or by this Agreement.
9. DURATION AND TERMINATION.
(a) This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least annually: (i) by a vote of a majority of those trustees of the Trust
who are not parties to this Agreement or interested persons of any such party,
cast in person at a meeting called for the purpose of voting on such approval,
and (ii) by the Board or by vote of a majority of the outstanding voting
securities of the Portfolio.
(c) Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on 60 days'
written notice to the Sub-Adviser. This Agreement may also be terminated,
A-5
<PAGE>
without the payment of any penalty, by Mitchell Hutchins: (i) upon 120 days'
written notice to the Sub-Adviser; (ii) immediately upon material breach by the
Sub-Adviser of any of the representations and warranties set forth in Paragraph
7 of this Agreement; or (iii) immediately if, in the reasonable judgment of
Mitchell Hutchins, the Sub-Adviser becomes unable to discharge its duties and
obligations under this Agreement, including circumstances such as financial
insolvency of the Sub-Adviser or other circumstances that could adversely affect
the Portfolio. The Sub-Adviser may terminate this Agreement at any time, without
the payment of any penalty, on 120 days' written notice to Mitchell Hutchins.
This Agreement will terminate automatically in the event of its assignment or
upon termination of the Advisory Contract as it relates to the Portfolio.
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective until approved (i) by a vote of a majority of those trustees of the
Trust who are not parties to this Agreement or interested persons of any such
party, and (ii) by a vote of a majority of the Portfolio's outstanding voting
securities (unless in the case of (ii), the Trust receives an SEC order or
no-action letter permitting it to modify the Agreement without such vote).
11. GOVERNING LAW. This Agreement shall be construed in accordance with
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof. To the extent that the applicable laws of
the State of Delaware conflict with the applicable provisions of the 1940 Act,
the latter shall control.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. 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. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell" and "security" shall have the same
meaning as such terms have in the 1940 Act, subject to such exemption as may be
granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. This Agreement may be
signed in counterpart.
14. NOTICES. Any written notice herein required to be given to the
Sub-Adviser or Mitchell Hutchins shall be deemed to have been given upon receipt
of the same at their respective addresses set forth below. All written notices
required or permitted to be given under this Agreement will be delivered by
personal service, by postage mail - return receipt requested or by facsimile
machine or a similar means of same day delivery which provides evidence of
receipt (with a confirming copy by mail as set forth herein). All notices
provided to Mitchell Hutchins will be sent to the attention of Victoria E.
Schonfeld, General Counsel. All notices provided to the Sub-Adviser will be sent
to the attention of ______________, compliance officer.
A-6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
51 West 52nd Street
New York, New York 10019-6114
By:_____________________________ By:_________________________________
Name: Keith A. Weller Name: Dianne E. O'Donnell
Title: First Vice President Title: Senior Vice President
Attest: PACIFIC INVESTMENT MANAGEMENT COMPANY
840 Newport Center Drive, Suite 380
Newport Beach, California 92660
By:_________________________________
Name:
Title: Managing Director
A-7
<PAGE>
APPENDIX B
----------
INFORMATION ABOUT PIMCO
The address of PIMCO is 840 Newport Center Drive, Suite 300, Newport
Beach, California 92660. PIMCO is registered as an investment adviser under the
Investment Advisers Act of 1940 and is registered as a commodity trading advisor
with the Commodity Futures Trading Commission.
PIMCO's directors and principal executive officer, their principal
occupations and dates of service are shown below. The address of each director
and officer is 840 Newport Center Drive, Suite 300, Newport Beach, California
92660.
- --------------------------------------------------------------------------------
NAME POSITION AND PRINCIPAL OCCUPATION
LENGTH OF SERVICE
William S. Thompson, Jr. Managing Director, Chief Executive Officer and
April 1993 to Present Executive Committee Member, PIMCO; Managing Director,
Chief Executive Officer and Director, PIMCO
Management, Inc.; Member of Management Board and
Executive Committee, PIMCO Advisors L.P.; President,
Chief Executive officer and Member, PIMCO Partners
LLC.
William R. Benz, II Managing Director, PIMCO; Managing Director and
June 1986 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Robert Wesley Burns Managing Director and Executive Committee Member, to
February 1987 to Present to PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Member of PIMCO Partners LLC.
Chris P. Dialynas Managing Director, PIMCO; Managing Director and
July 1983 to Present Director PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Mohamed A. El-Erian Managing Director, PIMCO; Managing director and
May 1999 to Present Director, PIMCO Management, Inc.
William H. Gross Managing Director, PIMCO; Managing Director and
June 1971 to Present Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
John L. Hague Managing Director and Executive Committee Member,
September 1987 to PIMCO. Managing Director and Director, PIMCO
Present Management, Inc. Member of PIMCO Partners LLC.
Pasi M. Hamalainen Managing Director, PIMCO; Managing Director and
January 1994 to Present Director, PIMCO Management, Inc.
Brent R. Harris Managing Director and Executive Committee Member,
- --------------------------------------------------------------------------------
B-1
<PAGE>
- --------------------------------------------------------------------------------
NAME POSITION AND PRINCIPAL OCCUPATION
LENGTH OF SERVICE
June 1985 to Present PIMCO. Managing Director and Director, PIMCO
Management, Inc.; Director and Vice President,
StocksPLUS Management, Inc.; Member of Management
Board and Executive Committee, PIMCO Advisors L.P.;
Member of PIMCO Partners LLC.
Brent L. Holden Managing Director, PIMCO; Managing Director and
December 1989 to Director, PIMCO Management, Inc.
Present
Margaret E. Isberg Managing Director, PIMCO; Managing Director and
August 1983 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
John S. Loftus Managing Director, PIMCO; Managing Director and
August 1986 to Present Director, PIMCO Management, Inc.
Dean S. Meiling Managing Director, PIMCO; Managing Director and
December 1976 to Director, PIMCO Management, Inc.; Member of PIMCO
Present Partners LLC.
James F. Muzzy Managing Director and Executive Committee Member,
September 1971 to PIMCO; Managing Director and Director, PIMCO
Present Management, Inc.; Director and Vice President,
StocksPLUS Management, Inc.; Member of PIMCO
Partners LLC.
William F. Podlich, III Managing Director, PIMCO; Managing Director and
June 1966 to Present Director, PIMCO Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
William C. Powers Managing Director, PIMCO; Managing Director and
January 1991 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Ernest L. Schmider Managing Director and Secretary, PIMCO; Managing
March 1994 to Present Director and Secretary, PIMCO Management, Inc.;
Director and Assistant Secretary, StocksPLUS
Management, Inc.; Senior Vice President, PIMCO
Advisors L.P.; Secretary, PIMCO Partners LLC.
Lee R. Thomas Managing Director, PIMCO; Managing Director and
April 1995 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Benjamin L. Trosky Managing Director, PIMCO; Managing Director and
October 1990 to Present Director, PIMCO Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member oF
PIMCO Partners LLC.
- --------------------------------------------------------------------------------
OTHER INVESTMENT COMPANY CLIENTS
PIMCO also serves as investment adviser or sub-adviser to the following
investment companies, which have similar investment objectives to the Fund's, at
the fee rates set forth below. These investment companies had the indicated net
assets as of September 30, 1999.
B-2
<PAGE>
- --------------------------------------------------------------------------------
NAME OF FUND ADVISORY FEE RATE APPROXIMATE ASSETS
- --------------------------------------------------------------------------------
PIMCO FUNDS:
PACIFIC INVESTMENT MANAGEMENT
SERIES
- --------------------------------------------------------------------------------
Total Return Fund Annual rate of 0.25% of 29,253,953,837
average daily net assets
- --------------------------------------------------------------------------------
Total Return Fund III Annual rate of 0.25% of 593,041,215
average daily net assets
- --------------------------------------------------------------------------------
Total Return Mortgage Fund Annual rate of 0.25% of 4,011,669
average daily net assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- --------------------------------------------------------------------------------
Total Return Bond Portfolio Annual rate of 0.40% of 3,208,009
average daily net assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PAINEWEBBER MANAGED ACCOUNTS
SERVICES PORTFOLIO TRUST
- --------------------------------------------------------------------------------
PACE Strategic Fixed Income Annual rate of 0.25% of 230,222,525
Investments average daily net assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANULIFE
- --------------------------------------------------------------------------------
Manulife Total Return Trust Annual rate of 0.30% on 190,550,262
first $50 million; 0.30% on
$50-150 million; 0.25% on
$150-200 million; 0.25% on
$200-500 million and over
of daily net assets
computed daily and paid
monthly
- --------------------------------------------------------------------------------
B-3
<PAGE>
MITCHELL HUTCHINS SERIES TRUST
STRATEGIC FIXED INCOME PORTFOLIO
SPECIAL MEETING OF SHAREHOLDERS
MARCH 16, 2000
This voting instruction card is being solicited on behalf of the Board of
Trustees of Mitchell Hutchins Series ("Trust") and relates to the proposals with
respect to Strategic Fixed Income Portfolio ("Fund") indicated below. The
undersigned hereby appoints as proxies ANDREW NOVAK and JENNIFER LANGE and each
of them (with the power of substitution) to represent and direct the voting
interest of the undersigned held as of the record date in the Fund at the
Special Meeting of Shareholders to be held at 10:30 a.m., Eastern time, on March
16, 2000, at the offices of the Fund, 1285 Avenue of the Americas, 14th Floor,
New York, New York 10019, and any adjournment thereof ("Meeting"), with all the
power the undersigned would have if personally present. The voting interest
represented by this card will be voted as instructed. Unless indicated to the
contrary, this proxy shall be deemed to grant authority to vote "FOR" all
proposals relating to the Fund with discretionary power to vote upon such other
business as may properly come before the meeting.
YOUR VOTE IS IMPORTANT.
Please date and sign the reverse side and return it promptly in the
enclosed envelope. This proxy will not be voted unless the voting instruction
card is dated and signed exactly as instructed.
When properly signed, the voting interest represented by this card will be
directed as instructed below. If no instruction is given for a proposal, voting
will be directed "FOR" that proposal.
The Board recommends that you vote "FOR" each of the following proposals:
FOR AGAINST ABSTAIN
1. Approve a new Sub-Advisory
Contract between Mitchell
Hutchins Asset Management Inc.
and Pacific Investment
Management Company ("PIMCO").
2. Approve a policy to permit
the Board of Trustees to
appoint and terminate
sub-advisers, to enter into
sub-advisory contracts and to
amend sub-advisory contracts,
on behalf of the Fund without
further shareholder approval.
PLEASE DATE AND SIGN THE BACK OF THIS CARD
<PAGE>
For individual Contract Owners, sign your name exactly as it appears on
this card. For joint Contract Owners, either party may sign, but the name of the
party signing should conform exactly to the name shown on this card. For all
other Contract Owners, the name and the capacity of the individual signing
should be indicated, unless it is reflected in the form of registration.
Sign exactly as name appears hereon.
______________________________________
Signature
______________________________________
Signature (Joint)
______________________________________
Date
