<PAGE>
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
PIMCO FUNDS
(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)(4) and 0-
11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] 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:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY
840 Newport Center Drive
Newport Beach, California 92660
January __, 2000
Dear Shareholders of PIMCO International Bond Fund and PIMCO Emerging Markets
Bond Fund II:
On behalf of the Board of Trustees of PIMCO Funds: Pacific Investment
Management Series (the "Trust"), we are pleased to invite you to a special
meeting of the shareholders of the Trust to be held at 800 Newport Center Drive,
6th Floor, Newport Beach, California, 92660 on [March 3], 2000 at [time],
Pacific Time.
As discussed in more detail in the enclosed proxy statement, Pacific
Investment Management Company ("PIMCO"), the Funds' investment adviser and a
subsidiary partnership of PIMCO Advisors, L.P., ("PIMCO Advisors"), will undergo
a "change in control" as a result of the consummation of an agreement entered
into by PIMCO Advisors, its two general partners, PIMCO Advisors Holdings L.P.
and PIMCO Partners, G.P., certain of their affiliates, Allianz of America, Inc.,
and certain other parties named pursuant to which Allianz of America will
acquire approximately 70% of the outstanding partnership interests in PIMCO
Advisors in a series of transactions (the "Transaction"). At the meeting, you
will be asked to consider the following proposals:
. Election of eight Trustees to the Board of Trustees.
. Approval of a new investment advisory agreement between the Trust
and PIMCO. The new investment advisory agreement provides that
following the Transaction, PIMCO will continue to provide
investment advisory services to each of the Funds on the same
terms and with the same compensation structure under which it
currently operates.
. Approval of changes to each Fund's fundamental investment
policies. The changes are intended to simplify and modernize each
Fund's fundamental investment policies to enhance management's
ability to manage the Fund's assets efficiently in changing
regulatory and investment environments.
. Approval of an Amended and Restated Declaration of Trust (the
"Amended Declaration"). The Amended Declaration would permit the
Trust to respond more quickly and favorably to changing markets
without going to the expense and delay of holding a shareholder's
meeting, and also would clarify the existing rights, privileges
and powers of the Board of Trustees and shareholders of the
Trust.
<PAGE>
. Approval of a Plan of Reorganization on behalf of the Funds,
under which each Fund will be reorganized as a separate series of
the "Private Account Portfolio Series" of the Trust. Each Private
Account Portfolio Series issues its shares in private placement
transactions, and shares may be purchased only by clients
maintaining separate managed private accounts with PIMCO. If the
Plans of Reorganization are approved by shareholders, each Fund
will enter into a new investment advisory contract on the
substantially similar terms to those under which it currently
operates, except that each Fund will pay lower investment
advisory fees and, generally, will be subject to lower Fund
expenses.
Your vote is important. After reviewing these proposals, your Board of
Trustees unanimously agreed that they are in the best interests of each Fund's
shareholders and voted to approve them, as more fully described in the
accompanying proxy statement. Now it is your turn to review the proposals and
vote. For more information about the issues requiring your vote, please refer
to the accompanying proxy statement.
No matter how many shares you own, your timely vote is important. If
you are not able to attend the meeting, then please complete, sign, date and
mail the enclosed proxy promptly in order to avoid the expense of additional
mailing or having our proxy solicitor, DF King & Co., Inc., telephone you.
Thank you in advance for your participation in this important event.
Sincerely,
[___________]
Executive Vice President
<PAGE>
PIMCO Funds
840 Newport Center Drive
Suite 300
Newport Beach, California 92660
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held
[March 3], 2000
To the Shareholders of PIMCO International Bond Fund and PIMCO Emerging Markets
Bond Fund II:
Notice is hereby given that a special meeting of shareholders of the
currently operational series of the PIMCO Funds (the "Trust") will be held at
800 Newport Center Drive, 6th Floor, Newport Beach, California, 92660 on [March
3], 2000 at [time], Pacific Time, or as adjourned from time to time (the
"Meeting") for the purposes listed below. This proxy statement relates to the
PIMCO International Bond Fund and the PIMCO Emerging Markets Bond Fund II (the
"Funds"), shares of which are offered only to private account clients of Pacific
Investment Management Company ("PIMCO"). The Trust includes additional series of
shares, proxies for which are being solicited separately. The Meeting will be
held:
I. To elect Trustees to the Board of Trustees of the Trust;
II. To approve a new investment advisory contract;
III. To approve changes to fundamental investment policies;
IV. To approve an Amended and Restated Declaration of Trust;
V. To approve a Plan of Reorganization on behalf of the Funds
under which they will be reorganized as separate series of the
Trust; and
VI. To transact such other business as may properly come before the
Meeting.
After careful consideration, the Trustees of the Trust unanimously
approved each of the proposals and recommend that shareholders vote "FOR" each
proposal.
The matters referred to above are discussed in detail in the proxy
statement attached to this notice. The Board of Trustees has fixed the close of
business on December 20, 1999 as the record date for determining shareholders
entitled to notice of and to vote at the Meeting. Each share of a Fund is
entitled to one vote with respect to proposals on which that Fund's
<PAGE>
shareholders are entitled to vote, with fractional votes for fractional shares.
If you held shares of more than one Fund on the record date, you will receive
separate proxy cards for each Fund.
Regardless of whether you plan to attend the Meeting, which you are
cordially invited to attend, PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED, SO THAT YOU WILL BE REPRESENTED AT
THE MEETING. If you have returned a proxy card and are present at the Meeting,
you may change the vote specified in the proxy at that time. However, attendance
in person at the Meeting, by itself, will not revoke a previously tendered
proxy.
By Order of the Board of Trustees
Garlin G. Flynn , Secretary
Newport Beach, California
_____, 2000
YOUR VOTE IS IMPORTANT NO MATTER HOW LARGE OR SMALL YOUR HOLDINGS MAY BE. IN
ORDER TO AVOID THE UNNECESSARY EXPENSE OF FURTHER SOLICITATION, WE URGE YOU TO
INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD.
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<PAGE>
PRELIMINARY PROXY MATERIALS FOR SEC USE ONLY
PROXY STATEMENT
PIMCO Funds
840 Newport Center Drive
Suite 300
Newport Beach, California 92660
Special Meeting of Shareholders
To be held
[March 3], 2000
This proxy statement and enclosed form of proxy are being furnished in
connection with the solicitation of proxies by the Board of Trustees (the
"Board" or "Trustees") of the PIMCO Funds (the "Trust") for use at a joint
special meeting of shareholders of the currently operational series of the
currently operational series of the Trust to be held at 800 Newport Center
Drive, 6th Floor, Newport Beach, California 92660 on [March 3], 2000 at [time],
Pacific Time, or as adjourned from time to time (the "Meeting"), for the
purposes set forth below.
This proxy statement relates to the PIMCO International Bond Fund and
the PIMCO Emerging Markets Bond Fund II (the "Funds"), shares of which are
offered only to private account clients of Pacific Investment Management Company
("PIMCO"). The Trust includes additional series of shares, proxies for which are
being solicited separately. It is anticipated that the first mailing of proxies
and proxy statements to shareholders will be on or about [January __], 2000.
Shareholder Reports. Shareholders can find important information about
the Funds in the annual report dated March 31, 1999 and the semi-annual report
dated September 30, 1999, each of which previously has been furnished to
shareholders. Shareholders may request another copy of these reports by writing
to the Trust at the above address, or by calling the telephone number above.
The Board is soliciting proxies from shareholders of Funds with
respect to the following proposals:
I. To elect Trustees to the Board of Trustees of the Trust;
II. To approve a new investment advisory contract;
III. To approve changes to fundamental investment policies;
IV. To approve an Amended and Restated Declaration of Trust;
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<PAGE>
V. To approve a Plan of Reorganization on behalf of the Funds
under which they will be reorganized as separate series of the
Trust; and
VI. To transact such other business as may properly come before the
Meeting.
I. ELECTION OF TRUSTEES
Each of the current Trustees of the Trust is being proposed for re-
election to the Board. In addition, in connection with the transaction described
below in Proposal II, the Board has concluded that it is in the best interests
of the Trust that at least 75% of the Board members be Trustees who are not
"interested persons," as that term is defined in the Investment Company Act of
1940, as amended (the "1940 Act"), of the Trust of its investment adviser,
PIMCO. To that end, at the Meeting, two new Trustees who are not "interested
persons" of the Trust are also proposed for election to the Board (together with
the current Trustees, the "Nominees").
The Nominating Committee, composed of independent Trustees Messrs.
Babcock, Curtis, Kemp and Popejoy, is responsible for the selection, nomination
for appointment, and election of candidates to serve as Trustees of the Fund.
The Nominating Committee did not meet during the fiscal year ended March 31,
1999.
The Nominating Committee, advised by special independent counsel, met on
December 1, 1999 to consider possible additional candidates to the Board. On
December 16, 1999, the Chairperson of the Nominating Committee reported to the
Board that the Nominating Committee had approved the nominations of Mr. E.
Philip Cannon and Mr. J. Michael Hagan; recommended to the Board that they be
elected; and that the nominations be submitted to shareholders for approval. The
Board also agreed that each of the current trustees should stand for re-election
and that these nominations should be submitted to shareholders for approval.
In evaluating the Nominees, the Board noted that Messrs. Cannon and Hagan
have significant experience and the background necessary to make them very
valuable additions to the Board as independent Trustees. The Board also noted
that each of the current Trustees, except Mr. Burns, previously had been elected
to, and served on, the Board, and that Mr. Burns has served on the Board since
November 1997. The Board therefore concluded that each of the current Trustees
have the background, experience and working knowledge of the Funds, as well as
the professional experience, to be effective members of the Board.
If the Nominees are elected at the Meeting, there will be a total of eight
Trustees on the Board, all of whom will have been elected by shareholders.
The Nominees have indicated their willingness to serve as Trustees. The
Board knows of no reason why the Nominees would be unable to serve, but in the
event of any such unavailability, the proxies received will be voted for such
substituted nominee as the Board may recommend.
The persons named as proxies on the enclosed proxy card will vote your
shares for the election of the Nominees unless you withhold authority to vote
for the Nominees in your proxy. If elected by shareholders, the Nominees will
continue to serve as Trustees of the Trust until the next meeting of
shareholders, if any, called for the purpose of electing Trustees, unless an
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<PAGE>
individual or individuals is sooner succeeded as provided in the Trust's
Declaration of Trust. It is proposed, and the Board recommends, that
shareholders elect the Nominees.
The following table sets forth certain information concerning the Nominees.
<TABLE>
<CAPTION>
Name and Age Length of Service Current Position Principal Occupation(s)
on the Board with the Trust During the Past Five Years
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Guilford C. Babcock 4/87 - Present Trustee Associate Professor of Finance,
1500 Park Place University of Southern California;
San Marino, California 91108 Director, PIMCO Commercial Mortgage
Age 68 Securities Trust, Inc.; Trustee, PIMCO
Variable Insurance Trust; Director,
Growth Fund of America and Fundamental
Investors Fund of the Capital Group;
Director, Good Hope Medical Foundation.
William J. Popejoy 7/93 - 2/95 and Trustee President, Pacific Capital Investors;
29 Chatham Court 8/95- Present Chairman, PacPro (vinyl assembly
Newport Beach, California 92660 products; formerly Western Printing);
Age 61 Director, PIMCO Commercial Mortgage
Securities Trust, Inc.; Trustee,
PIMCO Variable Insurance Trust,
Formerly Director, California State
Lottery; Chief Executive Officer,
Orange County, California.
R. Wesley Burns* 11/97 - Present President and Managing Director, Pacific Investment
840 Newport Center Drive Trustee Management Company; President and
Newport Beach, California 92660 Director, PIMCO Commercial Mortgage
Age 40 Securities Trust, Inc.; President and
Trustee, PIMCO Variable Insurance
Trust; Formerly Executive Vice
President, Pacific Investment
Management Company; Executive Vice
President, PIMCO Funds: Multi-Manager
Series.
Vern O. Curtis 4/87 - 3/93 and Trustee Private Investor; Director, PIMCO
14158 N.W. Bronson Creek Drive 2/95 - Present Commercial Mortgage Securities Trust,
Portland, Oregon 97229 Inc.; Trustee, PIMCO Variable Insurance
Age 65 Trust; Director, Public Storage
Business Parks, Inc., a Real Estate
Investment Trust; Director, Fresh
Choice, Inc. (restaurant company);
Formerly charitable work, The Church of
Jesus Christ of Latter-day Saints.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Length of Current Principal Occupation(s)
Name and Age Service on Position During the Past Five Years
the Board with the
Trust
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<S> <C> <C> <C>
E. Philip Cannon Nominee Trustee Proprietor, Cannon & Company, an
3838 Olympia affiliate of Inverness Management
Houston, Texas 77019 LLC, a private equity investment
Age 59 firm; and Trustee of PIMCO Funds:
Multi -Manager Series. Formerly,
Headmaster, St. John's School,
Houston, Texas; Trustee of Cash
Accumulation Trust ("CAT"); General
Partner, J.B. Poindexter & Co.,
Houston, Texas, a private
partnership; and Partner, Iberia
Petroleum Company, an oil and gas
production company. Mr. Cannon was a
director of WNS Inc., a retailing
company which filed a petition in
bankruptcy within the last five years.
J. Michael Hagan Nominee Trustee Retired from Furon Company where he
6 Merced served as Chairman and CEO from June
San Clemente, California 92673 1991 to 1999, and in other capacities
Age: 60 since 1967. He was previously
associated with Ross Laboratories and
Standard Oil of California. Mr.
Hagan serves on the Boards of
Directors for Ameron International,
Freedom Communications, Remedy Temp
and Saint-Gobain. He is also a
member of the Board of Regents at
Santa Clara University, the Board of
Taller San Jose, and the Board of
Trustees of the South Coast Repertory
Theater.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Length of Current Principal Occupation(s)
Name and Age Service on Position During the Past Five Years
the Board with the Trust
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brent R. Harris* 2/92 - Present Chairman of the Managing Director, PIMCO; Board of
840 Newport Center Drive Board and Trustee Governors, Investment Company
Newport Beach, California 92660 Institute; Chairman and Director, PIMCO
Age 40 Commercial Mortgage Securities Trust,
Inc.; Chairman and Trustee, PIMCO
Variable Insurance Trust.
Thomas P. Kemp 4/87 - Present Trustee Private Investor; Director, PIMCO
1141 Marine Drive Commercial Mortgage Securities Trust,
Laguna Beach, California 92651 Inc.; Trustee, PIMCO Variable Insurance
Age 69 Trust; Formerly Co-Chairman, U.S.
Committee to Assist Russian Reform;
Director, Union Financial Corp.; Senior
Consultant, World Cup 1994 Organizing
Committee.
</TABLE>
___________________
*Mr. Burns and Mr. Harris are an "interested persons" of the
Trust (as that term is defined in the 1940 Act) because of their affiliations
with PIMCO.
During the fiscal year ended March 31, 1999, there were six
meetings of the Board. There was 100% attendance by Trustees at the meetings
of the Board throughout the period.
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<PAGE>
As of December 15, 1999, the Trustees and officers of the Trust, as a
group, owned less than one percent of the outstanding shares of each Fund in the
aggregate, or of any class of shares of any Fund.
Board of Trustees - Committees. In addition to the Nominating Committee,
the Trust has a standing Audit Committee that currently consists of all of the
independent Trustees (Messrs. Babcock, Curtis, Kemp and Popejoy). The Audit
Committee reviews both the audit and non-audit work of the Trust's independent
public accountants, submits a recommendation to the Board as to the selection of
independent public accountants, and reviews generally the maintenance of the
Trust's records and the safekeeping arrangements of the Trust's custodian.
During the fiscal year ended March 31, 1999, the Audit Committee met three
times. Each member of the Audit Committee attended 100% of such meetings during
the period in which he was a member of the Audit Committee.
Remuneration of Trustees and Officers. The Trust pays each Trustee who is
not an "interested person" of the Trust an annual retainer of $45,000 plus
$3,000 for each Board meeting attended in person and $500 for each meeting
attended telephonically, plus reimbursement of related expenses. In addition, a
Trustee serving as a Committee Chair, other than those affiliated with PIMCO or
its affiliates, receives an additional annual retainer of $1,500. For the fiscal
year ended March 31, 1999, the Trustees who are not "interested persons" of the
Fund, as a group, received compensation in the amount of $233,500.
The following table sets forth the compensation paid to each of the current
Trustees of the Trust for the year ended March 31, 1999. Trustees who are
"interested persons" of the Trust do not receive any compensation from the
Funds.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Name Aggregate Compensation from Total Compensation from Trust and
- ---- --------------------------- --------------------------------
Trust Fund Complex*
------ -------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Guilford C. Babcock $58,000 $78,500
- -----------------------------------------------------------------------------------------------------------------
Vern O. Curtis $59,500 $81,000
- -----------------------------------------------------------------------------------------------------------------
Thomas P. Kemp $58,000 $78,500
- -----------------------------------------------------------------------------------------------------------------
William J. Popejoy $58,000 $78,500
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
___________________
* Fund complex includes the Trust, PIMCO Commercial Mortgage Securities
Trust, Inc., a registered closed-end management investment company,
and PIMCO Variable Insurance Trust, a registered open-end management
investment company. For their services to PIMCO Commercial Mortgage
Securities Trust, Inc., the Directors listed above received an annual
retainer of $6,000 plus $1,000 for each Board of Directors, committee,
or special meeting attended in person ($500 for each meeting attended
telephonically), an annual retainer of $500 for a Committee
Chairmanship, plus reimbursement of related expenses. For the one year
period
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<PAGE>
ended December 31, 1999, these Directors, as a group, received
compensation in the amount of $42,500 from PIMCO Commercial Mortgage
Securities Trust, Inc.
The Trustees listed above, for their services as Trustees of PIMCO
Variable Insurance Trust, receive an annual retainer of $4,000 plus
$1,500 for each Board of Trustees, committee, or special meeting
attended in person ($500 for each meeting attended telephonically), an
annual retainer of $500 for each Committee Chairmanship, plus
reimbursement of related expenses. For the one year period ended
December 31, 1999, these Trustees, as a group, received compensation
in the amount of $40,500 from PIMCO Variable Insurance Trust.
Material Interest of Trustees and Nominees. Messrs. Burns and Harris each
has a direct material interest in the Transaction described below in Proposal
II, pursuant to which Allianz of America, Inc. ("Allianz of America") will
acquire majority ownership of PIMCO Advisors, L.P. ("PIMCO Advisors") and
certain of its affiliates. Messrs. Burns and Harris, as managing directors of
PIMCO, will receive employment related compensation and other benefits as a
result of the transaction. For a complete discussion of the transaction, see
Proposal II.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE NOMINEES UNDER PROPOSAL I. UNMARKED PROXIES WILL BE SO VOTED.
II. APPROVAL OF A NEW INVESTMENT
ADVISORY CONTRACT
Introduction. PIMCO, located at 840 Newport Center Drive, Suite 300,
Newport Beach, California, 92660, has served as investment adviser to the Funds
since their inception on February 19, 1987. PIMCO currently serves as adviser to
the Funds pursuant to an investment advisory contract dated November 22, 1994
(the "Advisory Contract"). In addition, PIMCO serves as the administrator of the
Funds pursuant to an amended and restated administration services agreement
adopted on February 24, 1998 (the "Administration Agreement").
PIMCO is a subsidiary partnership of 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
(the "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 of 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.
PIMCO will undergo a "change in control" as a result of the consummation of
the transaction described below, resulting in the assignment, and therefore
automatic termination of
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<PAGE>
the Advisory Contract. It is proposed that PIMCO continue to serve as investment
adviser of the Funds following completion of the transaction. Therefore, in
connection with the transaction and as required by the 1940 Act, shareholders of
each Fund are being asked in Proposal II to approve a new Advisory Contract
between the Trust, on behalf of each Fund, and PIMCO which is substantially
identical to the current Advisory Contract (the "New Advisory Contract"). The
Board recommends that shareholders approve the New Advisory Contract. If the New
Advisory Contract is approved, PIMCO will continue to serve as administrator
under the Administration Agreement. Forms of the New Advisory Contract and
Administration Agreement are attached as Appendix A.
Information about PIMCO, its officers and directors, the executive officers
of the Trust, PIMCO's investment company clients, and PIMCO's brokerage policies
is presented in Appendix B.
Description of the Transaction. On October 31, 1999, PIMCO Advisors, PAH,
Partners G.P., certain of their affiliates, Allianz of America and certain other
parties named therein entered into an Implementation and Merger Agreement (the
"Merger Agreement") pursuant to which Allianz of America will acquire majority
ownership of PIMCO Advisors (the "Transaction").
The Merger Agreement provides for the acquisition of PAH by Allianz of
America through a merger of an indirect 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,
without interest, an amount in cash equal to $38.75 per unit, subject to a
potential downward adjustment if PIMCO Advisors' investment advisory revenue
base, expressed as a "revenue run rate," declines (excluding market-based
changes) below a specified level (the "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.
Immediately following the merger, subsidiaries of Allianz of America will,
in a series of transactions, acquire approximately 70% of the outstanding
partnership interests in PIMCO Advisors, including the approximately 44%
interest held by PAH. As part of the Transaction, a subsidiary of Allianz of
America will acquire Partners GP through an acquisition of the managing general
partner interest in Partners GP from Partners LLC (the managing general partner
of Partners GP) for approximately $5.5 million. Pacific Life, which through
subsidiaries owns approximately a 30% interest in PIMCO Advisors will retain an
indirect interest in PIMCO Advisors following the closing. 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 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 amount.
Approval of the New Advisory Contract by the shareholders of the Funds will
count toward satisfaction of condition (iii) described in the preceding
sentence. If the Transaction is
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<PAGE>
not completed for any reason, the Advisory Contract will remain in effect. In
the event the New Advisory Contract is not approved by the Funds' shareholders
and the Transaction is completed, the Board will consider appropriate action.
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, which, together with its subsidiaries, comprise the world's second
largest insurance group as measured by premium income. Allianz of America will
control PIMCO Advisors through its managing member interest in 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.
Operationally, PIMCO is expected to become a unit of Allianz Asset
Management ("AAM"), the division of Allianz AG that coordinates global Allianz
AG asset management activities. PIMCO is expected to remain operationally
independent, and to become the global fixed income investment management
division of Allianz AG, and is currently expected to continue to operate in the
United States under its existing name.
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. In the Transaction, Messrs. Thompson and
Gross will enter into employment contracts with a term of seven years following
the Transaction. Other key employees, 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 publicly traded German Aktiengesellschaft and which,
together with its subsidiaries, comprise 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: Allianz Aktiengesellschaft, Koniginstrasse
28, D-80802, Munich, Germany.
Significant institutional shareholders of Allianz currently include without
limitation Dresdner Bank AG, Deutsche Bank AG, Munich Reinsurance and
HypoVereinsbank. Dresdner Bank AG and Deutsche Bank AG, as well as certain
broker-dealers controlled by or affiliated with these entities, such as Bankers
Trust Company, BT Alex Brown, Inc., Morgan Grenfell and Kleinwort Benson
(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 Funds 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
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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 Funds, the Funds' ability to take advantage of market
opportunities, or the Funds' overall performance. Other series of the Trust for
which PIMCO (or an affiliate) does not serve as investment adviser would not, in
general, be subject to these same restrictions post-closing.
Anticipated Impact of the Transaction on Management of the Funds. 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, the Transaction should have no
immediate impact, other than as already noted above, on the management of the
Funds or PIMCO's capacity to provide the type, quality, or quantity of services
that it currently provides, and the Funds 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 advisory
services.
The Benefits of the Transaction. PIMCO anticipates that the Transaction
with Allianz AG will benefit PIMCO and the Funds in a variety of ways, including
the following:
. 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.
. Allianz AG has a team of fixed income professionals in place that currently
manage 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.
. 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.
. The combination will provide additional career opportunities for PIMCO
professionals, furthering PIMCO's ability to attract and retain the best
people.
. 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 go ahead 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.
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Section 15(f) of the 1940 Act. Section 15(f) provides a non-exclusive safe
harbor for an investment adviser or any affiliated persons to receive any amount
or benefit in connection with a "change in control" of the investment adviser to
an investment company as long as two conditions are satisfied. First, an "unfair
burden" must not be imposed on investment company clients of the adviser as a
result of the transaction, or any express or implied terms, conditions or
understandings applicable to the transaction. The term "unfair burden" (as
defined in the 1940 Act) includes any arrangement during the two-year period
after the transaction whereby the investment adviser (or predecessor or
successor adviser), or any "interested person" (as defined in the 1940 Act) of
any such adviser, receives or is entitled to receive any compensation, directly
or indirectly, from such an investment company or its security holders (other
than fees for bona fide investment advisory or other services) or from any other
person in connection with the purchase or sale of securities or other property
to, from or on behalf of such investment company. The Board has been advised
that PIMCO is aware of no circumstances arising from the Transaction that might
result in an unfair burden being imposed on the Trust. The second condition of
Section 15(f) is that during the three-year period after the transaction, at
least 75% of each such investment company's board of directors must not be
"interested persons" (as defined on the 1940 Act) of the investment adviser (or
predecessor or successor adviser). Allianz AG and each of the other parties to
the Agreement have agreed to use their reasonable best efforts to ensure
compliance with Section 15(f) as it applies to the Transaction during such two-
year period.
The Contracts. The Advisory Contract. PIMCO has served as investment
adviser to each Fund since each Fund's commencement of investment operations.
The Advisory Contract was last submitted for approval by shareholders of all
then-operational Funds at a meeting on October 17, 1994, for the purpose of
implementing the Fund's current service arrangements with respect to investment
advisory and administrative services.
Under the terms of the Advisory Contract, PIMCO is responsible for making
investment decisions and placing orders for the purchase and sale of each Fund's
investments directly with the issuers or with brokers or dealers selected by it
at its discretion. PIMCO also furnishes to the Board, which has overall
responsibility for the business and affairs of the Funds, periodic reports on
the investment performance of the Funds.
PIMCO is obligated to manage each Fund in accordance with applicable laws
and regulations. The investment advisory services of PIMCO to the Funds are not
exclusive under the terms of the Advisory Contract. PIMCO is free to, and does,
render investment advisory services to others.
Consistent with the requirements of the 1940 Act, the Advisory Contract
provides that PIMCO generally is not liable to the Funds for any mistake in
judgment, or otherwise, except by reason of willful misfeasance, bad faith or
gross negligence in the performance of PIMCO's duties or by reason of its
reckless disregard of its obligations and duties under the Advisory Contract.
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The Advisory Contract may be terminated by a Fund without penalty upon not
fewer than 60 days' notice by the Board or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
fewer than 60 days' notice by PIMCO. As noted above, the Advisory Contract
terminates automatically in the event of its "assignment" (as defined in the
1940 Act).
Information about investment advisory fees and administrative fees paid to
PIMCO, including aggregate investment advisory fees and administrative fees paid
by each Fund during its last fiscal year, is set forth in Appendix C.
The New Advisory Contract. The New Advisory Contract is substantially
identical to the Advisory Contract. As noted previously, PIMCO does not
anticipate that the Transaction will cause any reduction in the quality or types
of services now provided to the Funds or have any adverse effect on PIMCO's
ability to fulfill its obligations to the Funds. No change is anticipated in the
investment philosophies and practices currently followed by the Funds. There
will be no change in advisory fees for the Funds.
At the December 1, 1999 meeting of the Board, the New Advisory Contract was
approved unanimously by the Board, including all of the Trustees who are not
parties to the New Advisory Contract or "interested persons" (as defined in the
1940 Act) of any such party (other than as Trustees of the Trust). The New
Advisory Contract, as approved by the Board, is submitted for approval by the
shareholders of the Funds.
If the New Advisory Contract is approved by shareholders, it will take
effect immediately after the closing of the Transaction. The New 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 thereafter, 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 particular Fund, and, in either case, (ii) by a majority of
the Trustees who are not parties to the New Advisory Contract or interested
persons of any such party (other than as Trustees of the Trust).
If the shareholders of any Fund should fail to approve the New Advisory
Contract pertaining to that Fund, the Transaction may not be consummated. If
the Transaction is not consummated, PIMCO will continue to serve as adviser and
administrator for all of the Funds under the current Advisory Contract.
The Administration Agreement and Payments to PIMCO Affiliates. Under the
terms of the Administration Agreement, PIMCO provides administrative services to
each Fund, including administrative and clerical functions, certain shareholder
servicing functions and supervision of the services rendered to the Funds by
other persons, including the custodian and transfer agent. In approving the New
Advisory Contract, the Trustees considered that PIMCO receives fees for the
services it provides under the Administration Agreement.
The Administration Agreement may be terminated by a Fund without penalty
upon not fewer than 60 days' notice by the Board or by a vote of the holders of
a majority of the Fund's outstanding shares voting as a single class, or upon
not fewer than 60 days' notice by PIMCO.
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Interests of Certain Persons in the Transaction. The Managing Directors,
each of which is a member of Partners LLC, will receive new employment and
consulting agreements. The initial term of the employment agreements will be
five years from the closing of the Transaction (seven years for Messrs. Gross
and Thompson). Each Managing Director will receive an annual salary, and will be
entitled to participate in PIMCO's Non-Qualified Profit Sharing Plan and Class B
Unit Purchase Plan, as well as the PIMCO Advisors Retention Plan for Executives
of PIMCO.
Under PIMCO's current profit sharing plan, the Managing Directors and other
executive employees of PIMCO share in a pool equal to 45% of the adjusted net
profit of PIMCO. After the Transaction, the profit sharing plan will be amended
to reduce the profit sharing percentage from 45% to 30% of adjusted net profit
over a five-year period. Under the amended profit sharing plan, the pool from
which the profits are calculated will include profits from certain other fixed
income advisors owned by Allianz AG and its affiliates. For the first two years
after the Transaction, the profit sharing pool will be guaranteed at least $10
million per year from PIMCO's management of insurance assets from affiliates of
Allianz AG.
Under the Class B Unit Purchase Plan, participants will be able to purchase
Class B Units of PIMCO, which, in the aggregate, will entitle the holders to
distributions equal to 15% of the adjusted net profit of PIMCO. The Retention
Plan provides fixed and variable retention arrangements for each of the Managing
Directors and other key employees of PIMCO. The 14 managing directors of PIMCO
who were managing directors as of the date of the Merger Agreement will in the
aggregate receive retention payments of $85.8 million per year for each of the
five years following the Transaction, subject to continued employment.
In addition to the foregoing, pursuant to 1994 Employment Termination
Agreements, PIMCO Holding LLC must pay to the current and former Managing
Directors who are parties to those contracts noncompete payments equal to
distribution on, or sales proceeds of, an aggregate of 17,402,107 Class A units
of limited partnership in PIMCO Advisors. Eight of the current Managing
Directors--Messrs. Gross, Hague, Harris, Meiling, Muzzy, Podlich, Powers and
Thompson--have agreed to amend their 1994 Employment Termination Agreements.
Under the amendments, these eight Managing Directors will receive payments in
satisfaction of the noncompete payments due under the 1994 Employment
Termination Agreements. Payments will be made 84% in cash and 16% in stock of
Allianz AG, the parent of Allianz of America, with an assumed value of $273.99
per share, the average trading price for the stock of Allianz AG for the 30 days
prior to October 4, 1999, the date of public announcement of discussions between
Allianz AG and PIMCO Advisors. Two of the eight current Managing Directors, who
are not full-time employees of PIMCO but who will continue as consultants, will
receive their payments solely in cash. The aggregate payment at the closing of
the Transaction to the eight current Managing Directors whose 1994 Employment
Termination Agreements will be amended will have a value of $603.6 million
(based on 15,575,835 Advisors Class A Units and a price of $38.75 per unit).
Upon completion of the Transaction, all outstanding unit options under the
1998 Unit Incentive Plan, whether exercisable or not, will be cancelled and
terminated and will represent the right to receive a cash payment equal to the
excess of the Unit Transaction Price over the
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exercise price per unit of the option, together with interest on such amount at
8% per annum through the date such payment is made. The Managing Directors hold
unit option awards for an aggregate of 2,080,000 units of PIMCO Advisors, at an
average exercise price of $16.13 per unit, which will result in payments of
approximately $47 million in the aggregate at the closing of the Transaction.
The Managing Directors, as well as certain executive officers of PIMCO, will
also participate in the Deferred Compensation Plan, under which units of PIMCO
Advisors held in trust under the plan will be exchanged by the plan's trustee
for cash in an amount per unit equal to the Unit Transaction Price. Any unvested
account balances reflecting discount investment or reinvestment of deferred
compensation will vest.
Certain executive officers of PIMCO will also receive additional benefits
resulting from the Transaction. Any options for units of PIMCO Advisors held by
these persons will be converted to a right to receive the difference between the
exercise price for such options and the Unit Transaction Price, together with
interest on such amount at 8% per annum through the date such payment is made.
In addition, certain officers of the Trust who are executive officers of PIMCO
Advisors will be eligible to receive payments during the five year period
following the Transaction pursuant to employment retention plans.
As a result of the direct and indirect interests in the Transaction and in
PIMCO and its affiliates, including any employment arrangements with PIMCO and
its affiliates, each of the Managing Directors and executive officers of PIMCO
identified in Appendix B may be deemed to have a substantial interest in
shareholder approval of the New Advisory Contract.
Evaluation by the Board of Trustees. The Board, advised by special
independent counsel, has determined that in approving the New Advisory Contract
on behalf of the Funds, the Trust can best assure itself that the services
currently provided to the Funds by PIMCO, its officers, and employees, will
continue without interruption after the Transaction. The Board believes that,
like the Advisory Contract, the New Advisory Contract will enable the Funds to
obtain high quality services at a cost that is appropriate, reasonable, and in
the best interests of each Fund and its shareholders.
In determining whether or not it was appropriate to approve the New
Advisory Contract and to recommend approval to shareholders, the Board,
including the Trustees who are not parties to the New Advisory Contract or
interested persons of such parties, considered various materials and
representations provided by PIMCO and considered a report provided by Allianz
AG, and was advised by independent legal counsel with respect to these matters.
Information considered by the Trustees included, among other things, the
following: (1) PIMCO's representation that the same persons responsible for
management of the Funds currently are expected to continue to manage the Funds
under the New Advisory Contract, thus helping to ensure continuity of
management; (2) that the compensation to be received by PIMCO under the New
Advisory Contract is lower than the compensation paid under the 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
advisory fees paid by the Funds for a period of at least two years following the
Transaction; (4) the commonality of the terms and provisions of the New Advisory
Contract with the terms of the Advisory Contract (other than the fees); (5)
representations made by PIMCO concerning the potential impact of affiliated
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brokerage relationships on its ability to provide services to the Funds, and on
the Funds' ability to engage in portfolio transactions; (6) the representations
by PIMCO and Allianz AG that 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 Advisory Contract; (8) the
fairness of the compensation payable to PIMCO under the Advisory Contract; (9)
the results achieved by PIMCO for the Funds; and (10) the high 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
Advisory Contract, the Funds can best be assured that services from PIMCO will
be provided without interruption. The Board also determined that the New
Advisory Contract is in the best interests of each 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
Advisory Contract and voted to recommend their approval by each Fund's
shareholders.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE NEW INVESTMENT ADVISORY CONTRACT AS PROVIDED UNDER
PROPOSAL II. UNMARKED PROXIES WILL BE SO VOTED.
III. APPROVAL OF CHANGES TO
FUNDAMENTAL INVESTMENT POLICIES
The 1940 Act requires an investment company to adopt certain fundamental
investment policies that can be changed only by a shareholder vote. In the
past, fundamental policies were adopted by the Trust on behalf of the Funds in
order to reflect regulatory, business or industry conditions that were in effect
at the time the particular action was taken. In addition, as certain Funds have
been created or acquired over the years, these Funds have adopted substantially
similar fundamental restrictions that often have been phrased in slightly
different ways, resulting in minor but unintended differences in effect or
potentially creating unintended differences in interpretation. Because of the
opportunity afforded by this Meeting, the Board has reviewed each Fund's
fundamental policies with the goal of simplifying, modernizing and making
consistent to the extent possible the fundamental policies of the Funds.
This Proposal seeks shareholder approval of changes that are intended to
accomplish that goal as well as to modify the fundamental restrictions so as to
advance the reorganization of the Funds as described in Proposal V. The proposed
changes to each Fund's fundamental policies are discussed in detail below.
Except for the policy on borrowing, as discussed below, none of the proposed
policies materially differs from the respective Fund's current comparable
policy. The formulation of each proposed policy differs from the current policy
in the interest of uniformity and simplicity. Each Fund's policies with respect
to the concentration of investments, borrowing, the issuance of senior
securities, and lending differ from the current policies of each Fund in that
the requirements of the 1940 Act are not described in detail. Therefore, the new
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policies that govern each Fund would be determined by reference to the
provisions of the 1940 Act, the rules thereunder, and applicable interpretations
of the Securities and Exchange Commission (the "Commission") or its staff,
rather than the express terms of the policies.
The Board believes that eliminating the differences among the Funds'
fundamental restrictions will enhance management's ability to manage the Funds'
assets efficiently in changing regulatory and investment environments, and
permit management and the Board to review and monitor investment policies more
easily. In addition, standardizing the fundamental investment restrictions of
the Funds will assist the Funds in making required regulatory filings in a more
efficient and cost-effective manner. The proposed changes in fundamental
restrictions will allow each Fund greater investment flexibility to respond to
future investment opportunities. The Board does not anticipate, however, that
the changes, individually or in the aggregate, will result in a material change
in the level of investment risk associated with an investment in each Fund.
The text and a summary description of each proposed change to each Fund's
fundamental restrictions are set forth below. The Funds current fundamental
investment policies are set forth in Appendix D. If approved by the Funds'
shareholders at the Meeting, the proposed changes to the Funds' fundamental
restrictions will be adopted by each Fund. The Funds' Statement of Additional
Information will be revised to reflect those changes as soon as practicable
following the Meeting. If the shareholders of a Fund fail to approve any
proposed fundamental policy, the current policy (if any) will remain in effect.
Shareholders of each Fund will be asked to vote on each proposed
fundamental policy separately on the enclosed proxy card.
a. Concentration (Each Fund). The Funds' current policy on industry
concentration prohibits the purchase of securities if it would result in more
than 25% of the market value of a Fund's total assets being invested in
securities of one or more issuers having their principal business activities in
the same industry. The current policy does not apply to investments in U.S.
Government securities.
The Board recommends that shareholders vote to replace the current
fundamental policy on concentration with the following fundamental policy:
Each Fund may not concentrate its investments in a
particular industry, as that term is used in the
Investment Company Act of 1940, as amended, and as
interpreted, modified, or otherwise permitted by
regulatory authority having jurisdiction, from time to
time.
While the 1940 Act does not define what constitutes "concentration" in an
industry, the staff of the Commission takes the position that investment of more
than 25% of a Fund's assets in an industry constitutes concentration. If a
Fund's fundamental policy prohibits the Fund from concentrating in an industry,
the Fund may not invest more than 25% of its assets in the applicable industry
unless it discloses the specific conditions under which it will change its
concentration policy. Each Fund is permitted to adopt reasonable definitions of
what constitutes
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an industry, or it may use standard classifications promulgated by the
Commission, or some combination thereof. Because each Fund may create its own
reasonable industry classifications, the Board believes that it is not necessary
to include such matters in the fundamental policy of a Fund.
b. Margin (International Bond Fund only). Under its current fundamental
----
policy on margin, the International Bond Fund is not permitted to purchase
securities on margin, except for use of short-term credit necessary for
clearance of purchases and sales of portfolio securities. In addition, the
International Bond Fund is permitted to make margin deposits in connection with
transactions in options, futures, and options on futures. Margin purchases
involve the purchase of securities with money borrowed from a broker. "Margin"
is the cash or eligible securities that the borrower places with a broker as
collateral against the loan.
The Board recommends that shareholders vote to eliminate this fundamental
policy because, under the 1940 Act, a Fund is not required to adopt restrictions
on margin as a fundamental policy. If the Proposal is approved by shareholders,
the Board will adopt the current fundamental policy as a non-fundamental
restriction for the International Bond Fund. Non-fundamental policies may be
modified or eliminated by the Board at anytime without shareholder approval. The
Board does not anticipate that elimination of the current fundamental policy
will materially change the level of investment risk associated with an
investment in these Funds. The Board also believes that elimination of the
fundamental restriction and adoption of the non-fundamental restriction will
provide the Fund with greater investment flexibility and the ability to respond
more effectively to legal, regulatory and market developments.
c. Borrowing and Senior Securities (Each Fund). Under its current
fundamental policy on borrowing and senior securities, each Fund may not borrow
money, issue senior securities, or pledge, mortgage or hypothecate its assets,
except that the Fund may (i) borrow from banks or enter into reverse repurchase
agreements, provided that the Fund maintains asset coverage of 300%, and (ii)
enter into certain transactions on derivative instruments, including options,
futures, or options on futures.
To simplify and modernize each Fund's current fundamental policy on
borrowing and the issuance of senior securities, the Board recommends that the
shareholders vote to approve the following fundamental policy:
Each Fund may not borrow money or issue any senior
security, except as permitted under the Investment
Company Act of 1940, as amended, and as
interpreted, modified, or otherwise permitted by
regulatory authority having jurisdiction, from
time to time.
The primary purpose of the proposed change is to standardize the
restrictions and conform them to the current regulatory requirements and
evolving market environment. Reverse repurchase agreement transactions and
transactions including derivative investments are now permitted, and would be
permitted under the proposed policy. The 1940 Act requires borrowings to have
300% asset coverage, which requirement would, therefore, remain unchanged under
the proposed policy. Although each Fund would not be limited to borrowing for
temporary or
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emergency purposes, each Fund would nevertheless be subject to the 1940 Act's
coverage requirements. In addition, subject to the receipt of any necessary
regulatory approval and Board authorization, the Funds may borrow money directly
from certain of the other Funds.
The proposed policy will also allow each Fund to issue senior securities to
the full extent permitted under the 1940 Act. Although the definition of a
"senior security" involves complex statutory and regulatory concepts, a senior
security is generally an obligation of a Fund that has a claim to the Fund's
assets or earnings that takes precedence over the claims of the Fund's
shareholders. The 1940 Act generally prohibits mutual funds from issuing any
senior securities with limited exceptions; however, under current SEC staff
interpretations, mutual funds are permitted to engage in certain types of
transactions that might be considered "senior securities" as long as certain
conditions are satisfied. The Funds currently engage and would engage in
transactions that could be considered to involve "senior securities" only in
accordance with applicable regulatory requirements under the 1940 Act.
Adoption of the proposed policy is not expected to materially affect the
operation of the Funds, and the Board does not anticipate that the proposed
fundamental policy will change the level of investment risk associated with an
investment in the Funds. However, adoption of the proposed policies will allow
the Funds to respond to legal, regulatory and market developments that may make
the use of permissible borrowings and the issuance of senior securities
advantageous to the Funds and their shareholders.
d. Loans (Each Fund). The current fundamental policy on loans for each
Fund prohibits the making of loans, except loans of portfolio securities, entry
into repurchase agreements, and the purchase of debts obligations, to the extent
these transactions are consistent with the Fund's investment objectives and
policies. The Board recommends that the shareholders vote to replace the Funds'
current fundamental policies with the following fundamental investment policy:
Each Fund may not make loans, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted, modified, or otherwise
permitted by regulatory authority having jurisdiction, from time to time.
The proposed policy, unlike the current policy, does not specify the
particular types of lending in which each Fund is permitted to engage; instead,
the proposed policy permits each Fund to lend only in a manner and to an extent
in accordance with applicable law. Subject to the receipt of any necessary
regulatory approval and Board authorization, each Fund may enter into certain
lending arrangements that would benefit the Fund and its shareholders, including
interfund lending agreements under which the Funds could lend money directly to
the other Funds. The proposed policy would provide the Funds with greater
flexibility and maximize each Fund's lending capabilities, thereby allowing the
Funds to respond more effectively to regulatory, industry and market
developments.
e. Short Positions (Each Fund). Under its current fundamental policy on
short positions, each Fund may not maintain a short position, or purchase, write
or sell puts, calls, straddles, spreads or combinations thereof, except as
specified in the Prospectuses and Statement of Additional Information.
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The Board recommends that shareholders vote to eliminate the current
fundamental policy. If the Proposal is approved by shareholders, the Board will
adopt a non-fundamental policy for each Fund that is substantially similar, if
not identical to, the current fundamental policy on short positions. Non-
fundamental policies may be modified or eliminated by the Board at anytime
without shareholder approval. The Board does not anticipate that elimination of
the current fundamental policy will materially change the level of investment
risk associated with an investment in the Funds. Because the proposed non-
fundamental policy can be changed without shareholder approval, the Board
believes that elimination of the fundamental policy and adoption of the non-
fundamental restriction will permit the Funds to respond more effectively to
legal, regulatory and market developments.
f. Investments in other Investment Companies (Each Fund). The Board
recommends that shareholders vote to adopt the following fundamental investment
policy for each Fund:
Notwithstanding any other fundamental investment policy
or limitation, it is a fundamental policy of each Fund
that it may elect, in the future, to pursue its
investment objective by investing in one or more
underlying investment companies or vehicles that have
substantially similar investment objectives, policies and
limitations as the Fund.
The proposed fundamental policy will permit each Fund to adopt a
"master/feeder" structure whereby one or more funds (the "feeder funds") invest
all of their assets in another fund (the "master fund"). The master/feeder
structure has the potential, under certain circumstances, to minimize
administration costs and maximize the possibility of gaining a broader investor
base. Currently, none of the funds intend to establish a master/feeder
structure; however, the Board recommends that each Fund's shareholders adopt the
proposed policy that will permit this structure in the event the Board
determines to recommend the adoption of a master/feeder structure by a Fund.
The proposed fundamental policy would also give the each Fund flexibility to
invest in other investment companies to the extent permitted by the 1940 Act.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT SHAREHOLDERS OF
EACH FUND VOTE "FOR" EACH PROPOSED CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT
POLICIES AS SET FORTH IN THIS PROPOSAL III. UNMARKED PROXIES WILL BE SO VOTED.
IV. APPROVAL OF AMENDED AND
RESTATED DECLARATION OF TRUST
The Trust is a Massachusetts business trust created by a Declaration of
Trust dated February 19, 1987, which, with the Trust's By-laws, govern how the
Trust and each of its Funds will operate. The current Declaration of Trust (the
"Current Declaration") was first prepared and approved by the Board in February
1987. Since then, the mutual fund industry and the laws and regulations
applicable to mutual funds have evolved. In response to these developments,
many mutual funds have adopted a declarations of trust that permit them to be
more flexible in their operations to respond quickly and effectively to changing
market conditions. Because of the opportunity afforded by this Special Meeting,
the Board has reviewed the Current Declaration
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with the goal of modernizing its provisions to allow the Trust to respond more
quickly and favorably to changing markets without going to the expense and delay
of holding a shareholders' meeting. To this end, the Board has approved, subject
to shareholder approval, an Amended and Restated Declaration of Trust (the
"Amended Declaration"). In addition to providing the Trust with greater
flexibility, the Amended Declaration will also clarify existing rights,
privileges and powers of the Board and shareholders.
A summary description of the proposed amendments to the Current Declaration
is set forth below. A form of the Amended Declaration, as approved by Board, is
set forth in Appendix E, and qualifies in its entirety the following summary.
a. Establishment and Designation of Multiple Classes. The Board proposes
to amend the Current Declaration to clarify that the Board has the authority to
(i) issue the shares of the Trust in multiple classes, and (ii) fix and
determine the relative rights and preferences of each class. The Current
Declaration includes a general provision under which the Board may authorize the
issuance of multiple classes, but it does not specifically set forth the
procedures for establishing and designating each class or the rights and
preferences of such classes. Specifically, the Amended Declaration shall state
the following:
The Trustees, in their discretion, may authorize
the division of the Shares of the Trust, or, if
any Series be established, the Shares of any
Series, into two or more Classes, and the
different Classes shall be established and
designated, and the variations in the relative
rights and preferences as between the different
Classes shall be fixed and determined, by the
Trustees; provided, that all Shares of the Trust
or of any Series shall be identical to all other
Shares of the Trust or the same Series, as the
case may be, except that there may be variations
between different Classes as to allocation of
expenses, right of redemption, special and
relative rights as to dividends and on
liquidation, conversion rights, and conditions
under which the several Classes shall have
separate voting rights. All references to Shares
in this Declaration shall be deemed to be Shares
of any or all Classes as the context may require.
1. All provisions herein relating to the Trust,
or any Series of the Trust, shall apply equally to
each Class of Shares of the Trust or of any Series
of the Trust, except as the context requires
otherwise.
2. The number of Shares of each Class that may be
issued shall be unlimited. The Trustees may
classify or reclassify any Shares or any Series of
any Shares into one or more Classes that may be
established and designated from time to time. The
Trustees may hold as treasury Shares (of the same
or some other Class), reissue for such
consideration and on such terms as they may
determine, or cancel any Shares of any Class
reacquired by the Trust at their discretion from
time to time.
-22-
<PAGE>
3. Liabilities, expenses, costs, charges and reserves
related to the distribution of, and other identified
expenses that should properly be allocated to, the Shares of
a particular Class may be charged to and borne solely by
such Class and the bearing of expenses solely by a Class of
Shares may be appropriately reflected in a manner determined
by the Trustees and cause differences in the net asset value
attributable to, and the dividend, redemption and
liquidation rights of, the Shares of different Classes. Each
allocation of liabilities, expenses, costs, charges and
reserves by the Trustees shall be conclusive and binding
upon the Shareholders of all Classes for all purposes.
4. The establishment and designation of any Class of Shares
shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Class, or as otherwise provided in such
instrument. The Trustees may, by an instrument executed by a
majority of their number, abolish any Class and the
establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an
amendment to this Declaration.
Because this amendment specifically sets forth the procedures for
establishing and designating each class of shares and the rights and preferences
of those classes, the Board believes that this amendment will better protect the
interests of all shareholders. This amendment will not affect the rights and
preferences of the shareholders of each existing class of the Funds.
b. Master/Feeder Arrangements. The Board proposes to amend the Current
Declaration to permit each Fund of the Trust to invest all or a portion of its
assets in one or more underlying investment companies or vehicles that have
substantially similar investment objectives, policies and limitations as the
Fund (i.e., to enter into a "master/feeder" structure). Specifically, the
----
Amended Declaration will state that the Board has the power to:
To invest, through a transfer of cash, securities and other
assets or otherwise, all or a portion of the Trust Property,
or to sell all or a portion of the Trust Property and invest
the proceeds of such sales, in another investment company
that is registered under the 1940 Act.
The master/feeder structure has the potential, under certain circumstances,
to minimize administration costs and maximize the possibility of gaining a
broader investor base. Although none of the Funds currently intends to
establish a master/feeder structure, this amendment would permit establishment
of this structure without further shareholder approval in the event the Board
determines to recommend the adoption of a master/feeder structure by a Fund.
This amendment would also give the each Fund flexibility to invest in other
investment companies to the extent permitted by the 1940 Act. The addition of
this provision to the Amended Declaration is
-23-
<PAGE>
consistent with proposed changes to the each Fund's fundamental investment
policies that would permit each Fund to operate within a master/feeder
structure. See Proposal III (f). The Current Declaration does not contain a
---
comparable provision.
c. Merger, Consolidation and Sale of Assets. The Board proposes to amend
the Current Declaration to permit a majority of the Board, by signed written
instrument, to reorganize the Trust or a Fund, or sell all or substantially all
of the assets of the Trust or a Fund, without submitting the reorganization or
sale to shareholder vote. Specifically, the Amended Declaration will state the
following:
The Trust or any Series thereof may merge or consolidate
with any other corporation, association, trust or other
organization or may sell, lease or exchange all or
substantially all of the Trust Property or the property of
any Series, including its good will, upon such terms and
conditions and for such consideration when and as authorized
by an instrument in writing signed by a majority of the
Trustees.
The Current Declaration provides that a merger, consolidation or sale of
assets be approved by two-thirds of the shares outstanding and entitled to vote
(or a majority of shareholders if the transaction is recommended by the
Trustees), or by such other vote as may be established by the Trustees. The
Board believes that this amendment would provide the Trust and each Fund with
greater flexibility should circumstances indicate that a merger, consolidation
or sale of assets is in the best interests of the Trust, each Fund, and the
shareholders, without having to incur the substantial delay and additional
expense of a shareholder meeting.
d. Shareholder Voting. The Board proposes to amend the Current
Declaration to provide that the Board may exercise all powers granted to them in
the Amended Declaration without shareholder approval, unless otherwise required
by the Amended Declaration or applicable federal and state laws. Specifically,
the Amended Declaration will state:
Except to the extent specifically provided to the contrary
in this Declaration, the Trustees may exercise each of the
powers granted to them in this Declaration without the vote,
approval or agreement of the Shareholders, unless such a
vote, approval or agreement is required by the 1940 Act or
applicable laws of the Commonwealth of Massachusetts.
This amendment does not affect the respective rights, preferences and
powers of either the shareholders or the Board, but rather clarifies those
circumstances under which the Board may act without shareholder vote. The
Current Declaration does not contain a comparable provision.
e. Notice and Reports. The Board proposes to amend the Current
Declaration to relieve the Trust of its obligation to deliver a notice of a
shareholder's meeting, a dividends check, an annual report or other shareholder
communication to a shareholder under certain conditions, as specified in the
Amended Declaration, when such prior communications have been
-24-
<PAGE>
returned to the Trust as undeliverable. Specifically, the Amended Declaration
will provide that a notice need not be sent to a shareholder.
(i) if an annual report and a proxy statement for two
consecutive shareholder meetings have been mailed to such
Shareholder's address and have been returned as
undeliverable, (ii) if all and at least two, checks (if sent
by first class mail) in payment of dividends on Shares
during a twelve-month period have been mailed to such
Shareholder's address and have been returned as
undeliverable or (iii) in any other case in which a proxy
statement concerning a meeting of security holders is not
required to be given pursuant to the Commission's proxy
rules as from time to time in effect under the Securities
and Exchange Act of 1934. However, delivery of such proxy
statements, annual reports and other communications shall
resume if and when such Shareholder delivers or causes to be
delivered to the Trust written notice setting forth such
Shareholder's then current address.
The Board has determined that this amendment is in the best interests of
all the shareholders. The Board believes that this amendment will reduce the
costs incurred by each Fund in mailing the foregoing shareholder communications
when circumstances evidence that the shareholder has not provided the Fund with
a current address. The Current Declaration does not contain a comparable
provision.
f. Termination of Trust. The Board proposes to amend the Current
Declaration to permit the Trust or any Fund of the Trust to be terminated by a
majority of the Trustees, by signed written instrument, or (ii) an affirmative
majority vote of the shareholders of the Trust or Fund entitled to vote. Under
the Current Declaration, a Trust or Fund can only be terminated by an
affirmative two-thirds vote of the shares outstanding and entitled to vote, or
by such other vote as may be established by the Board.
The Board has determined that permitting a majority of Trustees to
terminate the Trust or a Fund is in the best interests of all of the Trust's
shareholders. By requiring the Trustees to solicit shareholder votes, through a
proxy solicitation and special meeting of shareholders, the Current Declaration
restricts the Board's ability to act on decisions about the continued viability
of the Trust or a Fund. If the Board determines that continuation of the Trust
or a Fund is no longer advisable, it may not be in the best interest of the
shareholders to incur substantial additional expense of a shareholder meeting
when it is more important to preserve the remaining assets. The Amended
Declaration also reduces the percentage of affirmative shareholder votes needed
to terminate the Trust or a Fund from a two-thirds vote to a majority vote, but
under the Current Declaration, the Board has the authority to reduce that
percentage. If the proposal is approved, the Board will have the authority to
terminate the Trust or a Fund without further shareholder vote. The Board has
no present intention of liquidating the Trust or any of the Funds.
g. Powers of the Board. The Board proposes to amend the Current
Declaration to clarify that the Board is authorized to engage in the following
activities, each of which is
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<PAGE>
permissible under the Current Declaration: (i) invest in, hold for investment,
or reinvest in, shares of open-end investment companies; (ii) enter into
repurchase agreements and forward foreign currency exchange contracts, and to
purchase and sell futures and options contracts and to engage in all types of
hedging and risk management transactions; (iii) guarantee or become surety on
any or all obligations of corporations or other entities in which the Trust has
a direct or indirect interest; (iv) enter into a plan of distribution or related
agreement that is primarily intended to result in the sale of shares; (v)
purchase insurance policies insuring shareholders, Trustees, officers,
employees, and agents against claims arising from actions taken or omitted by
such persons, whether or not such actions or omission constitute negligence, or
whether or not the Trust would have the power to indemnify such persons against
such liability; and (vi) guarantee indebtedness or contractual obligations of
others.
Although the Current Declaration includes a general provision that empowers
the Board to conduct all the foregoing activities, its does not expressly list
each of those activities. The Board believes that this amendment will prevent
any misinterpretations of the Current Declaration regarding Board authority to
conduct these activities, each of which ultimately inures to the benefit of the
Trust and its shareholders.
h. Liabilities of Series. The Board recommends that shareholders vote to
amend the Current Declaration to clarify that the assets of a particular series
of the Trust may not be charged with the liabilities of any other series, and
that no shareholder or former shareholder of a particular series shall have a
claim against the assets belonging to any other series. Specifically, the
Amended Declaration will state that "The assets of a particular Series of the
Trust shall, under no circumstances, be charged with liabilities attributable to
any other Series of the Trust," and that "No Shareholder or former Shareholder
of any Series shall have any claim on or right to any assets allocated or
belonging to any other Series." The Board believes that this amendment will
protect each series of the Trust from having to pay any of the costs incurred by
other series of the Trust. The Current Declaration does not contain comparable
provisions.
i. Other Changes. The Board proposes to amend the Current Declaration to
effect such other changes as are necessary to make the remaining provisions
consistent with the proposed amendments, and to clarify the existing provisions
of the Current Declaration. The Board also proposes to add a provision that
would allow the Board to make any other changes in the Amended Declaration that
do not materially adversely affect the rights of shareholders. These amendments
will not materially adversely affect the current rights, preferences or powers
of the Board or the shareholders of the Trust.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMENDS THAT SHAREHOLDERS
OF EACH FUND VOTE "FOR" THE AMENDED DECLARATION AS SET FORTH IN THIS PROPOSAL
IV. UNMARKED PROXIES WILL BE SO VOTED.
V. TO APPROVE A PLAN OF REORGANIZATION OF THE FUNDS
AS SEPARATE SERIES OF THE TRUST
Introduction and Summary. Management has proposed, and the Board has
approved, a Plan of Reorganization (the "Plan") that is intended to effect a
reorganization ("Reorganization")
-26-
<PAGE>
of each Fund, after which it will only be available to private account clients
of PIMCO. Under the proposed Reorganizations, the Funds would be reorganized as
separate series of the "Private Account Portfolio Series" of the Trust (each a
"Successor Fund"). Accordingly, if the Plan is adopted, a Fund's assets would be
moved to the corresponding, newly-created Private Account Portfolio Series.
The Reorganizations are proposed to be accomplished pursuant to the Plan,
which provides for the transfer of all of the assets of the relevant Fund to the
corresponding Successor Fund in exchange for shares of the Successor Fund, as
described below, and for the assumption by the corresponding Successor Fund of
all of the liabilities of the Fund. The completion of these transactions will
result in the complete liquidation of each Reorganizing Fund. As a result of the
Reorganizations, shareholders of a Fund would become shareholders of the
corresponding Successor Fund and have the same proportionate interest in the
corresponding portfolio of assets as prior to the Reorganization. The Board
believes that the Reorganizations offer certain advantages specified below in
the section entitled "Basis for the Board's Recommendation."
In combination with the changes anticipated in Proposal III above, the
Reorganizations would align the Successor Funds in investment style and fee
structure with the other Private Account Portfolio Series of the Trust. If the
Reorganizations are approved by shareholders, each Successor Fund will enter
into a new investment advisory contract (the "Reorganization Advisory Contract")
that will be substantially identical to the New Advisory Contract, although the
fees to be paid to PIMCO under the Reorganization Advisory Contract will be
lower than the fees PIMCO currently receives under the Advisory Contract. In
addition, the administrative fees under the Administration Agreement also will
be reduced. Specifically, for the services provided under the New Advisory
Contract, PIMCO will receive, on an annual basis, an advisory fee equal to 0.02%
of the average daily net assets (as opposed to 0.25% under the Advisory
Contract). Fees paid to PIMCO for the services provided under the
Administration Agreement will be reduced, on an annual basis, from 0.25% of the
average daily net assets to 0.10%. By approving the Reorganization,
shareholders will also be approving the Reorganization Advisory Contract. The
following is a comparison of each Fund's pre-Reorganization and post-
Reorganization expenses:
<TABLE>
<CAPTION>
International Bond Fund Emerging Markets Fund II
Pre-Reorganization Post-Reorganization Pre-Reorganization Post-Reorganization
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advisory Fees 0.25% 0.02% 0.45% 0.02%
Other Expenses 0.25% 0.10% 0.40% 0.10%
Total Annual
Fund Operating 0.50% 0.12% 0.85% 0.12%
Expenses
</TABLE>
Private Account Portfolio Series. The Private Account Portfolio Series
currently comprise eleven separate series of the Trust whose shares have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any state. Each Private Account Portfolio
Series issues its shares only in private placement transactions in
-27-
<PAGE>
accordance with Regulation D or other applicable exemptions under the Securities
Act. Shares of the Private Account Portfolio Series may be purchased only by
clients maintaining separate managed private accounts with PIMCO, and who are
also "accredited investors," as defined in Regulation D under the Securities
Act, and either (i) "qualified purchasers," as defined for purposes of Section
3(c)(7) of the 1940 Act, or (ii) "qualified institutional buyers," as defined in
Rule 144A(a)(1) under the Securities Act.
While shares of each Private Account Portfolio Series are redeemable
consistent with the procedures set forth in the Private Account Portfolio Series
Offering Memorandum, they are subject to restrictions on transferability and
resale and may not be transferred or resold except as permitted under the
Securities Act.
The Plan. Each Reorganization is subject to a number of conditions,
including the approval of the shareholders of the relevant Fund. Accordingly,
shareholders of each Fund are being asked to vote upon the approval of the Plan.
The description of the Plan and the features of the proposed Reorganizations are
qualified in their entirety by reference to the form of the Plan, attached as
Appendix F.
The Plan provides, among other things, for the transfer of all of the
assets of a Fund to the corresponding Successor Fund in exchange for (1) the
assumption by the corresponding Successor Fund of all of the liabilities,
including all contingent, conditional or unmatured liabilities of such Fund,
which pertain to events, facts and circumstances of the Fund prior to and
including the Closing Date of the Reorganizations (the "Closing Date") (expected
to be ______, 2000), and (2) the issuance by a Successor Fund to the
corresponding Fund of shares of the Successor Fund's beneficial interest (the
"Successor Fund Shares").
On the Closing Date, a Successor Fund will deliver to the corresponding
Fund a number of Successor Fund Shares having an aggregate net asset value equal
to the value of the assets of the Fund transferred to the Successor Fund on the
Closing Date, less the value of the liabilities of the Fund assumed by the
Successor Fund. The number of Successor Fund Shares to be issued by the Trust on
behalf of a Successor Fund will be identical to the number of shares of
beneficial interest ("Shares") of the corresponding Fund outstanding on the
Closing Date. After receipt of the Successor Fund Shares, each Fund will cause
the Successor Fund Shares to be distributed to its shareholders, in complete
liquidation of the Fund. Each shareholder will be entitled to receive that
proportion of Successor Fund Shares which the number of Shares held by such
shareholder bears to the total number of Shares outstanding on such date. The
distribution of Successor Fund Shares will be accomplished by the establishment
of accounts on the share records of the corresponding Successor Fund in the
names of the Fund shareholders, each account representing the respective number
of full and fractional Successor Fund Shares due to such shareholder.
Certificates with respect to Successor Fund Shares will not be issue d.
The Plan may be terminated and a Reorganization abandoned at any time,
before or after approval by the shareholders of a Fund, if any condition set
forth in the Plan has not been fulfilled and has not been waived by the party
entitled to its benefits, or if a majority of the Board determines that it is
not in the best interest of a Fund or its shareholders to proceed with the
Reorganization.
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<PAGE>
Continuation of Shareholder Accounts and Plans. The Trust's transfer
agent will establish accounts for all current Fund shareholders containing the
appropriate number of Successor Fund Shares to be received by that shareholder
in accordance with the terms and provisions of the Plan. These accounts,
including account numbers, will be identical in all material respects to the
accounts currently maintained by each Fund on behalf of its shareholders.
Description of Successor Fund Shares. Successor Fund Shares will be issued
to each Fund's shareholders in accordance with the Plan, as discussed above. The
Successor Fund Shares will be authorized for issuance by the Board in accordance
with the Trust's Declaration of Trust and Massachusetts law. The Successor Funds
will have comparable purchase, redemption and exchange procedures as are
currently in effect for the Funds, as described in each Fund's current
prospectus and statement of additional information.
Election of Trustees; Approval of Advisory Agreements; Adoption of
Investment Policies; New Service Provider Agreements. Immediately after delivery
to the Funds of corresponding Successor Fund Shares, a duly authorized officer
of the Trust shall, to the extent required by applicable law, cause the
respective Reorganizing Fund, as the sole shareholder of the corresponding
Successor Fund, to: (i) elect the Trustees of the Trust; (ii) approve an
investment advisory agreement for the corresponding Successor Fund in
substantially the form as the investment advisory agreement in effect for the
corresponding Fund immediately prior to the closing of the Reorganization,
except for fee structure; and (iii) adopt investment objectives, investment
policies and investment restrictions which are substantially similar to those of
the Fund immediately prior to the closing of the Reorganization, including any
changes thereto approved by the shareholders of the Fund pursuant Proposal III
above.
In addition, on or prior to the Closing Date, the Trust shall, on behalf
of each of the Successor Funds, either enter into transfer agency, subtransfer
agency, custodian and subcustodian agreements, and any other agreement pursuant
to which services are rendered to the Funds, with appropriate terms or assume
each of the Fund's obligations under its existing, comparable agreements. The
Trust shall also adopt, on its own behalf or on behalf of each of the Successor
Funds, on or prior to the Closing Date, all policies and procedures in effect
with respect to each of the Funds as of the Closing Date.
Expenses of the Reorganizations. Each Fund will bear its own expenses
associated with the transactions contemplated by the Plan. In the event that a
Reorganization is completed, such expenses will be assumed by the corresponding
Successor Fund. The aggregate expenses of the Reorganizations will be allocated
ratably among the Funds.
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<PAGE>
Federal Income Tax Consequences. As a condition to each Fund's obligation
to consummate its Reorganization, the Fund will receive an opinion from Dechert
Price & Rhoads, legal counsel to the Trust, to the effect that, on the basis of
the existing provisions of the Internal Revenue Code, as amended, and current
administrative rules and court decisions, for federal income tax purposes, the
Reorganization will be a tax-free reorganization and that neither the Fund nor
its shareholders will recognize a gain or loss for federal income tax purposes.
The opinion will be based on certain factual certifications made by officers of
the Trust, and certain customary assumptions. Shareholders should consult their
tax advisors as to whether the Reorganization will affect their individual
circumstances and also as to state and local and other tax consequences, if any,
of the Reorganization.
Basis for the Board's Recommendation. The Board, including a majority of
the Independent Trustees, unanimously approved the Plan at a meeting held on
December 1, 1999. In approving the Plan, the Board determined that each proposed
Reorganization is appropriate and would be in the best interests of the relevant
Fund. Further, the Board determined that the interests of the shareholders would
not be diluted as a result of effecting the Reorganization.
The Board considered various factors in recommending that shareholders
approve the Reorganizations, including: (1) the investment objective, policies
and restrictions of each Fund are substantially identical to those of the
corresponding Successor Fund; (2) each Successor Fund would be managed by the
same personnel and in accordance with the same investment strategies and
techniques utilized in the management of the corresponding Fund immediately
prior to the Reorganization (subject to any change that may be approved at the
Meeting under Proposal III); (3) the operating expenses of each Successor Fund
are anticipated to be lower than the expenses of the corresponding Fund; and (4)
there would be no negative tax implications to shareholders as a result of the
Reorganizations. For these reasons, the Board believes that an investment in
shares of a Successor Fund will provide shareholders with an investment
opportunity substantially identical to that afforded by the corresponding Fund
immediately prior to the Reorganization, but at a lower cost.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, RECOMMEND THAT SHAREHOLDERS OF
EACH FUND VOTE "FOR" THE PLAN OF REORGANIZATION OF THE FUNDS AS SEPARATE SERIES
OF THE TRUST AS SET FORTH IN THIS PROPOSAL V. UNMARKED PROXIES WILL BE SO VOTED.
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<PAGE>
VI. OTHER BUSINESS
The Trustees do 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, proxies will be voted in accordance with the
judgment of the persons named in the accompanying proxy.
VOTING INFORMATION
Proxy Solicitation. The costs of the Meeting, including the solicitation of
proxies, will be paid by PIMCO Advisors and Allianz of America. The principal
solicitation will be by mail, but proxies also may be solicited by telephone,
telegraph, the internet or personal interview by officers or agents of the
Trust. [D.F. King] has been retained to assist with proxy solicitation
activities (including assembly and mailing of materials to shareholders). To
obtain the necessary representation at the Meeting, supplementary solicitations
may be made at a cost not expected to exceed $_____. The Trust will forward to
record owners proxy materials for any beneficial owners that such record owners
may represent.
Shareholder Voting. Shareholders of record at the close of business on
December 20, 1999 (the "Record Date") are entitled to notice of, and to vote at,
the Meeting. Each shareholder is entitled to one vote for each full share and
an appropriate fraction of a vote for each fractional share held.
As of the Record Date, the following number of shares of each Fund,
representing the corresponding number of votes, were outstanding:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Fund Number of Shares Outstanding Number of Votes
- ---- ------------------------------------ --------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
International Bond Fund
- ---------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond Fund II
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 15, 1999, the persons owning of record or beneficially 5% or
more of the indicated classes of shares of the Funds are set forth in Appendix
G.
Timely, properly executed proxies will be voted as instructed by
shareholders. A shareholder may revoke his or her proxy at any time prior to
its exercise by written notice addressed to the Secretary of the Funds at 840
Newport Center Drive, Suite 300, Newport Beach, California 92660 or by voting in
person at the Meeting. However, attendance in person at the Meeting, by itself,
will not revoke a previously tendered proxy.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of each Fund is required to constitute a quorum at the
Meeting. Shares held by shareholders present in person or represented by proxy
at the Meeting will be counted both for the purposes of determining the presence
of a quorum and for calculating the votes cast on the issues before the Meeting.
Abstentions will also be counted for quorum purposes.
Broker "non-votes" (that is, proxies from brokers or nominees indicating
that such persons have not received instructions from the beneficial owner or
other persons entitled to vote
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<PAGE>
shares on a particular matter with respect to which the brokers or nominees do
not have discretionary power) will have the same effect as abstentions in
determining whether an issue has received the requisite approval. Where the
broker or nominee has no discretion to vote the shares as to a proposal before
the Meeting, the non-voted shares will be excluded from the pool of shares voted
on the proposal. Thus, abstentions and non-votes will have the same effect as a
negative vote on issues requiring the affirmative vote of a specified portion of
the Trust's outstanding shares, but will not be considered votes cast and thus
will have no effect on matters requiring approval of a specified percentage of
votes cast.
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. If a quorum is
present, 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, even
though the Meeting is adjourned as to other proposals.
Required Vote. Shareholders of the Funds vote together on Proposals I and
IV, shareholders vote separately by Fund on Proposals II, III, and V and
shareholders will vote as necessary on any other Proposal. Approval of Proposal
I requires the vote of shareholders owning of record a plurality of the shares
of the Funds voting at the Meeting, if a quorum is present. Approval of
Proposals II and III each requires the vote of a "majority of the outstanding
voting securities" entitled to vote on the Proposal, as defined in the 1940 Act,
which means that the vote of 67% or more of the voting securities entitled to
vote on the Proposal that are present at the Meeting, if the holders of more
than 50% of the outstanding shares are present or represented by proxy, or the
vote of more than 50% of the outstanding voting securities entitled to vote on
the Proposal, whichever is less. Approval of Proposals IV and V each require
the vote of a majority of the shares outstanding and entitled to vote.
Shareholder Proposals. The Trust does not hold regular shareholders'
meetings. Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholders' meeting should send their written
proposals to the Secretary of the Trust at the address set forth on the cover of
this proxy statement.
Proposals must be received a reasonable time prior to the date of a meeting
of shareholders to be considered for inclusion in the proxy materials for a
meeting. Timely submission of a proposal does not, however, necessarily mean
that the proposal will be included. 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 proxy is requested. A self-addressed, postage-paid
envelope is enclosed for your convenience.
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<PAGE>
By Order of the Board of Trustees
____________________________
Garlin G. Flynn, Secretary
Newport Beach, California
__________, 2000
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<PAGE>
APPENDIX A
----------
FORM OF
INVESTMENT ADVISORY CONTRACT
PIMCO FUNDS
840 Newport Center Drive
Newport beach, California 92260
____________________, 2000
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, California 92260
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
Pacific Investment Management Company (the "Adviser") as follows:
1. The Trust is an open-end investment company which currently has forty-
one separate investment portfolios, all of which are subject to this agreement:
the Money Market Fund; the Short-Term Fund; the Low Duration Fund; the Low
Duration Fund II; the Low Duration Fund III; the Low Duration Mortgage Fund; the
Moderate Duration Fund; the Real Return Bond Fund; the Total Return Fund; the
Total Return Fund II; the Total Return Fund III; the Total Return Mortgage Fund;
the Commercial Mortgage Securities Fund; the High Yield Fund; the Long-Term U.S.
Government Fund; the Long Duration Fund; the Global Bond Fund; the Global Bond
Fund II; the Foreign Bond Fund; the International Bond Fund; the Emerging
Markets Bond Fund; the Emerging Markets Bond Fund II; the Short Duration
Municipal Income Fund; the Municipal Bond Fund; the California Intermediate
Municipal Bond Fund; the New York Intermediate Municipal Bond Fund; the
Strategic Balanced Fund; the Convertible Bond Fund; the StocksPLUS Fund; the
StocksPLUS Short Strategy Fund; the Short-Term Portfolio; the Short-Term
Portfolio II; the U.S. Government Sector Portfolio; the U.S. Government Sector
Portfolio II; the Mortgage Portfolio; the Mortgage Portfolio II; the Investment
Grade Corporate Portfolio; the High Yield Portfolio; the International
Portfolio; the Emerging Markets Portfolio; and the Real Return Bond Portfolio
(the "Funds"). Additional investment portfolios may be established in the
future. This Contract shall pertain to the Funds and to such additional
investment portfolios as shall be designated in Supplements to this Contract, as
further agreed between the Trust and the Adviser. Five separate classes of
shares of beneficial interest in the Trust are offered to investors in each
Fund. The Trust engages in the business of investing and reinvesting the assets
of each Fund in the manner and in accordance with the investment objective
A-1
<PAGE>
and restrictions applicable to that Fund as specified in the currently effective
Prospectus (the "Prospectus") for the Trust included in the registration
statement, as amended from time to time (the "Registration Statement"), filed by
the Trust under the Investment Company Act of 1940 (the "1940 Act") and the
Securities Act of 1933 ("1933 Act"). Copies of the documents referred to in the
preceding sentence have been furnished to the Adviser. Any amendments to those
documents shall be furnished to the Adviser promptly. Pursuant to a Distribution
Contract, as amended (the "Distribution Contract"), between the Trust and PIMCO
Advisors Distribution Company (the "Distributor"), the Fund has employed the
Distributor to serve as principal underwriter for the shares of beneficial
interest of the Trust. Pursuant to an Administration Agreement ("Administration
Agreement") between the Trust and the Adviser, the Trust has also retained the
Adviser to provide the Fund with administrative and other services.
2. The Trust hereby appoints the Adviser to provide the investment
advisory services specified in this Contract and the Adviser hereby accepts such
appointment.
3. (a) The Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this contract and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this Contract.
(b) The Trust shall be responsible for all of its expenses and
liabilities, including compensation of its Trustees who are not affiliated with
the Adviser, the Distributor or any of their affiliates; taxes and governmental
fees; interest charges; fees and expenses of the Trust's independent accountants
and legal counsel; trade association membership dues; fees and expenses of any
custodian (including maintenance of books and accounts and calculation of the
net asset value of shares of the Trust), transfer agent, registrar and dividend
disbursing agent of the Trust; expenses of issuing, selling, redeeming,
registering and qualifying for sale shares of beneficial interest in the Trust;
expenses of preparing and printing share certificates, prospectuses and reports
to shareholders, notices, proxy statements and reports to regulatory agencies;
the cost of office supplies, including stationery; travel expenses of all
officers, Trustees and employees; insurance premiums; brokerage and other
expenses of executing portfolio transactions; expenses of shareholders'
meetings; organizational expenses; and extraordinary expenses. Notwithstanding
the foregoing, the Trust may enter into a separate agreement, which shall be
controlling over this contract, as amended, pursuant to which some or all of the
foregoing expenses of this Section 3(b) shall be the responsibility of the other
party or parties to that agreement.
4. (a) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with the management of the Funds, including oral
and written research, analysis, advice, and statistical and economic data and
information.
Consistent with the investment objectives, policies and restrictions
applicable to the Trust and its Fund, the Adviser will determine the securities
and other assets to be purchased or sold by each Fund of the Trust and will
determine what portion of each Fund shall be invested in securities or other
assets, and what portion, if any, should be held uninvested.
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The Trust will have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to investment
advisory clients of the Adviser. It is understood that the Adviser will not use
any inside information pertinent to investment decisions undertaken in
connection with this Contract that may be in its possession or in the possession
of any of its affiliates, nor will the Adviser seek to obtain any such
information.
(b) The Adviser also shall provide to the officers of the Trust
administrative assistance in connection with the operation of the Trust and the
Funds, which shall include (i) compliance with all reasonable requests of the
Trust for information, including information required in connection with the
Trust's filings with the Securities and Exchange Commission and state securities
commissions, and (ii) such other services as the Adviser shall from time to time
determine to be necessary or useful to the administration of the Trust and the
Funds.
(c) As manager of the assets of the Funds, the Adviser shall make
investments for the account of the Funds in accordance with the Adviser's best
judgment and within the investment objectives, policies, and restrictions set
forth in the Prospectus, the 1940 Act and the provisions of the Internal Revenue
Code relating to regulated investment companies, subject to policy decisions
adopted by the Trust's Board of Trustees.
(d) The Adviser shall furnish to the Trust's Board of Trustees
periodic reports on the investment performance of the Trust and its Funds and on
the performance of its obligations under this Contract and shall supply such
additional reports and information as the Trust's officers or Board of Trustees
shall reasonably request.
(e) On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of a Fund as well as other of its clients,
the Adviser, to the extent permitted by applicable law, may aggregate the
securities to be so sold or purchased in order to obtain the best execution of
the order or lower brokerage commissions, if any. The Adviser may also on
occasion purchase or sell a particular security for one or more clients in
different amounts. On either occasion, and to the extent permitted by
applicable law and regulations, allocation of the securities so purchased or
sold, as well as the expenses incurred in the transaction, will be made by the
Adviser in the manner it considers to be the most equitable and consistent with
its fiduciary obligations to the Trust and to such other customers.
(f) The Adviser may cause a Fund to pay a broker which provides
brokerage and research services to the Adviser a commission for effecting a
securities transaction in excess of the amount another broker might have
charged. Such higher commissions may not be paid unless the Adviser determines
in good faith that the amount paid is reasonable in relation to the services
received in terms of the particular transaction or the Adviser's overall
responsibilities to the Trust and any other of the Adviser's clients.
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5. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this Contract. As an
inducement to the Adviser's undertaking to render these services, the Trust
agrees that the Adviser shall not be liable under this Contract for any mistake
in judgment or in any other event whatsoever, provided that nothing in this
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Contract shall be deemed to protect or purport to protect the Adviser against
any liability to the Trust or its shareholders to which the Adviser would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties under this Contract or by
reason of the Adviser's reckless disregard of its obligations and duties
hereunder.
6. In consideration of the services to be rendered by the Adviser under
this Contract, each Fund of the Trust shall pay the Adviser a monthly fee on the
first business day of each month, based upon the average daily value (as
determined on each business day at the time set forth in the Prospectus for
determining net asset value per share) of the net assets of the Fund during the
preceding month, at the following annual rates: Money Market Fund - 0.15%;
Short Duration Municipal Income Fund - 0.20%; Commercial Mortgage Securities
Fund, Strategic Balanced Fund, Convertible Bond Fund, StocksPLUS Fund, and
StocksPLUS Short Strategy Fund - 0.40%; Emerging Markets Bond Fund and Emerging
Markets Bond II Fund - 0.45%; Short-Term Portfolio, Short-Term Portfolio II,
U.S. Government Sector Portfolio, U.S. Government Sector Portfolio, Mortgage
Portfolio, Mortgage Portfolio II, Investment Grade Corporate Portfolio, High
Yield Portfolio, International Portfolio, Emerging Markets Portfolio, and the
Real Return Bond Portfolio - 0.02%; and all other Funds - 0.25%.
If the fees payable to the Adviser pursuant to this paragraph 6 begin
to accrue before the end of any month or if this Contract terminates before the
end of any month, the fees for the period from that date to the end of that
month or from the beginning of that month to the date of termination, as the
case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of each
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value. For purposes of this Contract, a "business day"
is any day the New York Stock Exchange is open for trading.
7. If the aggregate expenses of every character incurred by, or allocated
to, the Trust in any fiscal year, other than interest, taxes, brokerage
commissions and other portfolio transaction expenses, other expenditures which
are capitalized in accordance with generally accepted accounting principles and
any extraordinary expense (including, without limitation, litigation and
indemnification expense), but including the fees payable under this Contract
("includable expenses"), shall exceed the expense limitations applicable to the
Trust imposed by state securities laws or regulations thereunder, as these
limitations may be raised or lowered from time to time, the Adviser shall pay
the Trust an amount equal to that excess. With respect to portions of a fiscal
year in which this Contract shall be in effect, the foregoing limitations shall
be prorated according to the proportion which that portion of the fiscal year
bears to the full fiscal year. At the end of each month of the Trust's fiscal
year, the Adviser will review the includable expenses accrued during that fiscal
year to the end of the period and shall estimate the contemplated includable
expenses for the balance of that fiscal year. If, as a result of that review
and estimation, it appears
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likely that the includable expenses will exceed the limitations referred to in
this paragraph 7 for a fiscal year with respect to the Trust, the monthly fees
relating to the Trust payable to the Adviser under this Contract and under the
Administration Agreement for such month shall be reduced, subject to a later
reimbursement to reflect actual expenses, by an amount equal to a pro rata
portion (prorated on the basis of the remaining months of the fiscal year,
including the month just ended) of the amount by which the includable expenses
for the fiscal year (less an amount equal to the aggregate of actual reductions
made pursuant to this provision with respect to prior months of the fiscal year)
are expected to exceed the limitations provided in this paragraph 7. For
purposes of the foregoing, the value of the net assets of each Fund of the Trust
shall be computed in the manner specified in paragraph 6, and any payments
required to be made by the Adviser shall be made once a year promptly after the
end of the Trust's fiscal year.
8. (a) This Contract shall become effective with respect to the Funds on
________, 2000 (and, with respect to any amendment, or with respect to any
additional fund, the date of the amendment or Supplement hereto) and shall
continue in effect with respect to a Fund for a period of more than two years
from that date (or, with respect to any additional fund, the date of the
Supplement) only so long as the continuance is specifically approved at least
annually (i) by the vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Fund or by the Trust's Board of Trustees and
(ii) by the vote, cast in person at a meeting called for the purpose, of a
majority of the Trust's trustees who are not parties to this Contract or
"interested persons" (as defined in the 1940 Act) of any such party.
(b) This Contract may be terminated with respect to a Fund (or any
additional fund) at any time, without the payment of any penalty, by a vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Fund or by a vote of a majority of the Trust's entire Board of Trustees on
60 days' written notice to the Adviser or by the Adviser on 60 days' written
notice to the Trust. This Contract (or any Supplement hereto) shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, 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.
10. The investment management services of the Adviser to the Trust under
this contract are not to be deemed exclusive as to the Adviser and the Adviser
will be free to render similar services to others.
11. This Contract shall be construed in accordance with the laws of the
State of California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act.
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<PAGE>
12. The Declaration of Trust establishing the Trust, dated _____________,
a copy of which, together with all amendments thereto (the "Declaration"), is on
file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "PIMCO Funds" refers to the trustees under the
Declaration collectively as trustees and not as individuals or personally, and
that no shareholder, trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
If the foregoing correctly sets forth the agreement between the Trust and
the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS
By: ____________________
Title:
ACCEPTED:
PACIFIC INVESTMENT MANAGEMENT COMPANY
By: ________________
Title:
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<PAGE>
FORM OF SECOND AMENDED AND RESTATED
ADMINISTRATION AGREEMENT
SECOND AMENDED AND RESTATED ADMINISTRATION AGREEMENT, made this ____ day of
__________, 2000 amending and restating the Amended and Restated Administration
Agreement dated February 24, 1998, as amended to date, between PIMCO Funds (the
"Trust"), a Massachusetts business trust, and Pacific Investment Management
Company (the "Administrator" or "PIMCO").
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 each series of the Trust
issues its Shares in up to six classes: Class A, Class B, Class C, Class D, the
Institutional Class and the Administrative Class, with each such class
representing interests in the same portfolio of securities and other assets; and
WHEREAS, the Trust has established thirty series, which are designated as
the Money Market Fund; the Short-Term Fund; the Low Duration Fund; the Low
Duration Fund II; the Low Duration Fund III; the Low Duration Mortgage Fund; the
Moderate Duration Fund; the Real Return Bond Fund; the Total Return Fund; the
Total Return Fund II; the Total Return Fund III; the Total Return Mortgage Fund;
the Commercial Mortgage Securities Fund; the High Yield Fund; the Long-Term U.S.
Government Fund; the Long Duration Fund; the Global Bond Fund; the Global Bond
Fund II; the Foreign Bond Fund; the International Bond Fund; the Emerging
Markets Bond Fund; the Emerging Markets Bond Fund II; the Short Duration
Municipal Income Fund; the Municipal Bond Fund; the California Intermediate
Municipal Bond Fund; the New York Intermediate Municipal Bond Fund; the
Strategic Balanced Fund; the Convertible Bond Fund; the StocksPLUS Fund; and the
StocksPLUS Short Strategy Fund; such series, together with any other series
subsequently established by the Trust, with respect to which the Trust desires
to retain the Administrator to render administrative services hereunder, and
with respect to which the Administrator is willing to do so, being herein
collectively referred to also as the "Funds"; and
WHEREAS, pursuant to an Investment Advisory Contract dated ______, 2000,
between the Trust and PIMCO ("Investment Advisory Contract"), the Trust has
retained PIMCO to provide investment advisory services with respect to the Funds
in the manner and on the terms set forth therein; and
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<PAGE>
WHEREAS, the Trust wishes to retain PIMCO to provide or procure
administrative and other services to the Funds and their shareholders, including
services which may be deemed to constitute distribution-related services with
respect to Class D shares; and
WHEREAS, PIMCO is willing to furnish and/or to arrange for 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 PIMCO as the
-----------
Administrator to provide or procure the administrative and other services with
respect to the Funds 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 or
procure administrative and other services hereunder, it shall notify the
Administrator in writing. If the Administrator is willing to render or procure
such services it shall notify the Trust in writing, whereupon the portfolio
represented by such additional series shall become a Fund hereunder.
2. Duties. Subject to the general supervision of the Board of
------
Trustees, the Administrator shall provide or cause to be furnished all
administrative and other services reasonably necessary for the operation of the
Funds, including, in the case of Class D shares, certain shareholder and
distribution-related services, but not including the investment advisory
services provided pursuant to the Investment Advisory Contract with the Trust or
the distribution services provided by PIMCO Funds Distributors LLC ("PFD")
pursuant to its Distribution Contract with the Trust.
(a) Administrative Services. These services shall include the
-----------------------
following: (i) coordinating matters relating to the operation of the Funds,
including any necessary coordination among the adviser or advisers to the Funds,
the custodian, transfer agent, dividend disbursing agent, and recordkeeping
agent (including pricing and valuation of the Funds), accountants, attorneys,
and other parties performing services or operational functions for the Funds;
(ii) providing the Funds, at the Administrator's expense, 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 Funds; (iii) maintaining or supervising the maintenance by third parties of
such books and records of the Trust and the Funds as may be required by
applicable federal or state law, other than the records and ledgers maintained
under the Investment Advisory Contract; (iv) preparing or supervising the
preparation by third parties of all federal, state, and local tax returns and
reports of the Funds required by applicable law; (v) preparing, filing, and
arranging for the distribution of proxy materials and periodic reports to
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<PAGE>
shareholders of the Funds as required by applicable law; (vi) preparing and
arranging for the filing of such registration statements and other documents
with the SEC and other federal and state regulatory authorities as may be
required to register the shares of the Funds and qualify the Trust to do
business or as otherwise required by applicable law; (vii) taking such other
action with respect to the Funds, 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
Funds, at the Administrator's expense, with adequate personnel, office space,
communications facilities, and other facilities necessary for the Funds'
operations as contemplated in this Agreement.
(b) Other Services. The Administrator shall also procure on behalf
--------------
of the Trust and the Funds, and at the expense of the Administrator, the
following persons to provide services to the Funds: (i) a custodian or
custodians for the Funds to provide for the safekeeping of the Funds' assets;
(ii) a recordkeeping agent to maintain the portfolio accounting records for the
Funds; (iii) a transfer agent for the Funds; and (iv) a dividend disbursing
agent for the Funds. The Trust may be a party to any agreement with any of the
persons referred to in this Section 2(b).
(c) Retail Class Services. In addition to the Administrator's
---------------------
responsibilities as specified in Subsections (a) and (b) above, subject to the
approval or consent of the Board of Trustees, the Administrator, at its own
expense, also shall provide, directly or through persons selected by the
Administrator, to the Class A, Class B, Class C and Class D shares (the "Retail
Classes") of the Funds administrative, recordkeeping, and shareholder services
reasonably required by the Retail Classes of the Funds, which may include some
or all of the following services: (i) transfer agency services reasonably
necessary to meet the increased account activity associated with Retail Classes;
(ii) dividend disbursing services reasonably necessary to meet the increased
number of accounts associated with the Retail Classes; (iii) preparing and
arranging for the distribution of prospectuses, statements of additional
information, proxy materials, periodic reports to shareholders, and other
communications with Retail Class shareholders; and (iv) taking such other
actions and providing or procuring such other services with respect to the
Retail Classes as are reasonably necessary or desirable.
(d) Special Class D Services. The Administrator shall provide in
------------------------
respect of Class D shares (either directly or by procuring through other
entities, including various financial services firms such as broker-dealers and
registered investment advisors ("Service Organizations")) some or all of the
following services and facilities in connection with direct purchases by
shareholders or in connection with products, programs or accounts offered by
such Service Organizations: (i) facilities for placing orders directly for the
purchase of a Fund's shares and tendering a Fund's Class D shares for
redemption; (ii) advertising with respect to a Fund's Class D shares; (iii)
providing information about the Funds; (iv) providing facilities to answer
questions from prospective investors about the Funds; (v) receiving and
answering correspondence, including requests for prospectuses and statements of
additional information; (vi) preparing, printing and delivering prospectuses
and shareholder reports to prospective shareholders; (vii) assisting investors
in applying to purchase Class D shares and selecting
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<PAGE>
dividend and other account options; and (viii) shareholder services provided by
a Service Organization that may include, but are not limited to, the following
functions: receiving, aggregating and processing shareholder orders; furnishing
shareholder sub-accounting; providing and maintaining elective shareholder
services such as check writing and wire transfer services; providing and
maintaining pre-authorized investment plans; communicating periodically with
shareholders; acting as the sole shareholder of record and nominee for
shareholders; maintaining accounting records for shareholders; answering
questions and handling correspondence from shareholders about their accounts;
issuing confirmations for transactions by shareholders; performing similar
account administrative services; providing such shareholder communications and
recordkeeping services as may be required for any program for which the Service
Organization is a sponsor that relies on Rule 3a-4 under the 1940 Act; and
providing such other similar services as may reasonably be requested to the
extent the Service Organization is permitted to do so under applicable statutes,
rules, or regulations.
The Administrator shall not be required to provide directly hereunder
any of the foregoing services which may cause the Administrator to be engaged in
the business of effecting transactions in securities for the account of others,
or to induce or attempt to induce the purchase or sale of any security, but may
procure such services on behalf of the Trust from certain Service Organizations.
The parties hereto acknowledge that the Administrator has entered into an
agreement with its affiliate, PFD, the Trust's principal underwriter, under
which PFD is compensated for certain services contemplated by this Agreement,
including shareholder and distribution-related services, at the rate of 0.25%
per annum of all assets attributable to Class D shares sold through PFD (the
"PFD Fees").
The Administrator and the Trust understand that some or all of the
services described in this subparagraph (d) may be deemed to represent services
primarily intended to result in the sale of Class D shares ("Special Class D
Services"). The Administrator agrees to present reports as to out-of-pocket
expenditures and internal expense allocations of the Administrator and PFD at
least quarterly and in a manner that permits the Qualified Trustees (hereinafter
defined) to determine that portion of the fees hereunder which represents
reimbursements in respect of Special Class D Services.
(e) Personnel. 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 Funds and
services provided to the Funds under this agreement.
(f) Standards; Reports. 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
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Trust's Registration Statement filed an Form N-1A as supplemented or amended
from time to time;
(ii) will make available to the Trust, promptly upon request,
any of the Funds' 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, in addition to reports required by Section 2(d),
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 Funds 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 attorney, certificates and any and all
other documents relating to or filed in connection with the Registration
Statement described above.
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. As compensation for the services rendered under
------------
this Agreement, the Trust shall pay to the Administrator a monthly fee,
calculated as a percentage (on an annual basis) of the average daily value of
the net assets of each of the Funds during the preceding month. The fee rates
applicable to each Class of a Fund shall be set forth in a schedule to this
Agreement. The fees payable to the Administrator for all of the Funds shall be
computed and accrued daily and paid monthly. If the Administrator shall serve
for less than any whole month, the foregoing compensation shall be prorated.
Any portion of the fees paid hereunder in respect of Class D shares representing
reimbursement for the Administrator's and PFD's out-of-pocket expenditures and
internally allocated expenses in respect of Special Class D Services of any Fund
(as reviewed quarterly by the Trustees based on the reports described in Section
2(d) above) shall not exceed the rate of 0.25% per annum of the average daily
net assets of such Fund attributable to Class D shares. To the extent such out-
of-pocket expenditures and internally allocated expenses exceed such rate, such
excess shall be paid by the Administrator and/or PFD from their own resources
(which may include legitimate profits from serving as investment
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<PAGE>
adviser and/or administrator) and shall not be used as a basis for justifying or
evaluating fees paid hereunder to the Administrator in respect of services other
than the Special Class D Services.
6. Special Class D Services: Distribution Plan. To the extent that
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this Agreement relates to payments made in connection with the distribution of
the Funds' Class D shares (i.e., Special Class D Services), it shall also
----
constitute a "distribution plan" and a "related agreement" within the meaning of
Rule 12b-1 under the 1940 Act. As required by said Rule 12b-1 in respect of
distribution plans: (a) the term of this Agreement is as provided in Section 10
below; (b) the Administrator shall provide to the Trustees of the Trust, and all
such Trustees shall review, at least quarterly, a written report of the amounts
expended by the Trust for Special Class D Services and the purposes for which
such expenditures were made; and (c) this Agreement may be terminated as
provided in Section 10 (b) below. As required by said Rule 12b-1 in respect of
agreements related to distribution plans: (a) this Agreement may be terminated
as provided in Section 10 below; and (b) this Agreement may also terminate in
the circumstances described in Section 15(d) below. This Agreement may not be
amended to increase materially the maximum amount specified in Section 5 (i.e.,
the rate of 0.25% per annum) payable out of Class D assets for Special Class D
Services without approval by a majority of the outstanding Class D shares (as
defined in Section 2(a)(42) of the 1940 Act in respect of voting securities) of
a Fund. All material amendments to this Agreement (insofar as the relevant
provision constitutes a part of a distribution plan) must be approved by a
majority of the Qualified Trustees. Insofar as this Agreement constitutes a
distribution plan for Class D shares, its provisions are severable for that
Class.
It is acknowledged and agreed that classes of shares other than Class
D may have separately documented distribution plans and related agreements.
7. 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.
8. 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 assumed by the Funds under this
Agreement, and any expenses that are paid under the terms of the Investment
Advisory Contract. The Administrator assumes and shall pay for maintaining its
staff and personnel and shall, at its own expense provide the equipment, office
space, office supplies (including stationery), and facilities necessary to
perform its obligations under this Agreement. In addition, the Administrator
shall bear the following expenses under this Agreement:
(a) Expenses of all audits by Trust's independent public
accountants;
(b) Expenses of the Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
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(c) Expenses of the Trust's custodial services, including any
recordkeeping services provided by the custodian;
(d) Expenses of obtaining quotations for calculating the value
of each Fund's net assets;
(e) Expenses of obtaining Portfolio Activity Reports for each
Fund;
(f) Expenses of maintaining the Trust's tax records;
(g) Costs and/or fees, including legal fees, incident to
meetings of the Trust's shareholders, the preparation, printing and mailings of
prospectuses, notices and proxy statements 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 expense of
issuing, redeeming, registering and qualifying for sale, shares with federal and
state securities authorities;
(h) The Trust's ordinary legal fees, including the legal fees
that arise in the ordinary course of business for a Massachusetts business trust
registered as an open-end management investment company;
(i) Costs of printing 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 of Service Organizations rendered in respect of
Class D shares, to the extent and subject to the conditions set forth in
Sections 2(d), 5 and 6 hereof.
The Trust shall bear the following expenses:
(a) Salaries and other compensation or expenses, including
travel expenses, of any of the Trust's executive officers and employees, if any,
who are not officers, directors, stockholders, partners or employees of the
Administrator or its subsidiaries or affiliates;
(b) Taxes and governmental fees, if any, levied against the
Trust or any of its Funds;
(c) Brokerage fees and commissions, and other portfolio
transaction expenses incurred for any of the Funds;
A-13
<PAGE>
(d) Costs, including the interest expenses, of borrowing money;
(e) Fees and expenses, including travel expenses, and fees and
expenses of legal counsel retained for their benefit, of trustees who are not
officers, employees, partners or shareholders of PIMCO or its subsidiaries or
affiliates;
(f) Extraordinary expenses, including extraordinary legal
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;
(g) Organizational and offering expenses of the Trust and the
Funds, and any other expenses which are capitalized in accordance with generally
accepted accounting principles; and
(h) Any expenses allocated or allocable to a specific class of
shares, including fees paid in respect of classes other than Class D pursuant to
a separate administrative service or distribution plan.
9. 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 Funds as described
in Section 2(b), (c) or (d) of this Agreement.
10. Term and Continuation. This Amended and Restated Agreement shall
---------------------
take effect as of the date indicated above, and shall remain in effect, unless
sooner terminated as provided herein, for one year from such date, and shall
continue thereafter on an annual basis with respect to each Fund 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, and (b) 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
the Administrator, and who have no direct or indirect financial interest in the
operation of this agreement or any agreement related to Special Class D Services
("Qualified Trustees"), cast in person at a meeting called for the
A-14
<PAGE>
purpose of voting on such approval. Failure of the Qualified Trustees to renew
this Agreement and/or its termination by shareholder vote, assignment, or
otherwise, shall not preclude the Board of Trustees from approving a substitute
agreement in the manner provided under applicable law.
(a) Except as provided in Section 10(b) below, this Agreement may
be terminated:
(i) by the Trust at any time with respect to the services
provided by the Administrator, without the payment of any penalty, by vote of a
majority of the entire Board of Trustees of the Trust or by a vote of a majority
of the outstanding voting shares of the Trust or, with respect to a particular
Fund or class, by vote of a majority of the outstanding voting shares of such
Fund or class, on 60 days' written notice to the Administrator;
(ii) at the expiration of the one-year period commencing on
the date of this Amended and Restated Agreement, by the Administrator at any
time, without the payment of any penalty, upon 60 days' written notice to the
Trust.
(b) insofar as it relates to Class D shares of any Fund(s), at
any time, without the payment of any penalty, by a majority of the Qualified
Trustees or by vote of a majority of the outstanding Class D shares.
11. Use of Name. It is understood that the name "Pacific Investment
-----------
Management Company" or "PIMCO" or any derivative thereof or logo associated with
those names are the valuable property of PIMCO and its affiliates, and that the
right of the Trust and/or the Funds to use such names (or derivatives or logos)
shall be governed by the Investment Advisory Contract.
12. 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 840 Newport Center Drive, Newport Beach, California 92660,
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 840 Newport Center Drive, Newport Beach, California 92660, or to such other
address or to such individual as shall be specified by the Trust.
13. Trust Obligation. A copy of the Trust's 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 each Fund and shall not be binding upon any trustee, officer, or
shareholder of the Trust individually.
14. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original.
A-15
<PAGE>
15. Miscellaneous. (a) This Agreement shall be governed by the laws
-------------
of California, 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 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. This Agreement will
terminate with respect to the Class D shares in the event of its "assignment"
(as defined in the 1940 Act).
A-16
<PAGE>
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.
PIMCO FUNDS
By: _________________________
Title: President
PACIFIC INVESTMENT
MANAGEMENT COMPANY
By: _________________________
Title: Managing Director
A-17
<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 Managing Director, Chief Executive Officer and
April 1993 to Present Management Committee Member, PIMCO and PIMCO
Management, Inc.; Member of Management Board and
Executive Committee, PIMCO Advisors L.P.;
President and Chief Executive Officer, PIMCO
Partners G.P.; President, Chief Executive Officer
and Member, PIMCO Partners LLC.
- --------------------------------------------------------------------------------
William R. Benz, II Managing Director, PIMCO; Director and Managing
June 1986 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
- --------------------------------------------------------------------------------
Robert Wesley Burns Managing Director and Management Committee
February 1987 to Present Member, PIMCO. Managing Director, PIMCO
Management, Inc.
- --------------------------------------------------------------------------------
Chris P. Dialynas Managing Director, PIMCO and PIMCO Management,
March 1983 to Present Inc.
- --------------------------------------------------------------------------------
Mohamed A. El-Erian Managing Director, PIMCO and PIMCO Management,
December 1999 to Present Inc. [confirm]
- --------------------------------------------------------------------------------
William H. Gross Managing Director, PIMCO; Director and Managing
June 1971 to Present Director, PIMCO Management, Inc.; Director and
Vice President, StocksPLUS Management, Inc.;
Member of Management Board, PIMCO Advisors;
Member of PIMCO Partners LLC.
- --------------------------------------------------------------------------------
John L. Hague Managing Director and Management Committee
September 1987 to Present Member, PIMCO. Director and Managing Director,
PIMCO Management, Inc. Member of PIMCO Partners
LLC.
- --------------------------------------------------------------------------------
Pasi M. Hamalainen Managing Director, PIMCO and PIMCO Management,
December 1999 to Present Inc. [confirm]
- --------------------------------------------------------------------------------
Brent R. Harris Managing Director and Management Committee
June 1985 to Present Member, PIMCO. Director and Managing Director,
PIMCO Management, Inc.; Director
- --------------------------------------------------------------------------------
B-1
<PAGE>
- --------------------------------------------------------------------------------
Name Position and Principal Occupation
Length of Service
- --------------------------------------------------------------------------------
and Vice President, StocksPLUS Management, Inc.;
Member of Management Board and Executive
Committee, PIMCO Advisors; Member of PIMCO
Partners LLC.
- --------------------------------------------------------------------------------
Brent L. Holden Managing Director, PIMCO and PIMCO Management,
December 1999 to Present Inc. [confirm]
- --------------------------------------------------------------------------------
Margaret E. Isberg Managing Director, PIMCO and PIMCO Management,
August 1983 to Present Inc.
- --------------------------------------------------------------------------------
John S. Loftus Managing Director, PIMCO and PIMCO Management,
December 1999 to Present Inc. [confirm]
- --------------------------------------------------------------------------------
Dean S. Meiling Managing Director, PIMCO. Director and Managing
December 1976 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
- --------------------------------------------------------------------------------
James F. Muzzy Managing Director and Management Committee
September 1971 to Present Member, PIMCO; Director and Managing Director,
PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Member of
PIMCO Partners LLC.
- --------------------------------------------------------------------------------
William F. Podlich, III Managing Director, PIMCO; Director and Managing
June 1966 to Present Director, PIMCO Management, Inc.; Member of
Management Board, PIMCO Advisors; Member of PIMCO
Partners LLC.
- --------------------------------------------------------------------------------
William C. Powers Managing Director, PIMCO; Director and Managing
January 1991 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
- --------------------------------------------------------------------------------
Ernest L. Schmider Managing Director, PIMCO and PIMCO Management,
December 1999 to Present Inc. [confirm]
- --------------------------------------------------------------------------------
Lee R. Thomas Director and Managing Director, PIMCO and PIMCO
April 1995 to Present Management, Inc.; Member of PIMCO Partners LLC.
- --------------------------------------------------------------------------------
Benjamin L. Trosky Managing Director and Management Board Member,
October 1990 to Present PIMCO; Director and Managing Director, PIMCO
Management, Inc.; Member of Management Board,
PIMCO Advisors; Member of PIMCO Partners LLC.
- --------------------------------------------------------------------------------
The following are the executive officers of the Funds who are not Trustees,
their ages, positions with the Trust and principal occupations during the past
five years. The address of all officers is 840 Newport Center Drive, Suite 300,
Newport Beach, California, 92660.
<TABLE>
<CAPTION>
Name and Age Length of Service Position with the Principal Occupation(s)
Trust During the Past Five Years
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
Position with the Principal Occupation(s)
Name and Age Length of Service Trust During the Past Five Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michael G. Dow 8/95 - Present Senior Vice Senior Vice President, PIMCO. Formerly
Age 36 President Fixed Income Specialist, Salomon
Brothers, Inc.; Vice President
Operations, Citibank NA Global Consumer
Banking Group.
William H. Gross 4/87 - Present Senior Vice Managing Director, PIMCO; Senior Vice
Age 55 President President, PIMCO Variable Insurance
Trust.
Margaret Isberg 4/87 - Present Senior Vice Managing Director, PIMCO.
Age 43 President
Jeffrey M. Sargent 2/93 - Present Senior Vice Vice President and Manager of Investment
Age 36 President Operations Shareholder Services, PIMCO;
Senior Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc. and
PIMCO Variable Insurance Trust; Vice
President, PIMCO Funds: Multi-Manager
Series.
Leland T. Scholey 2/96 - Present Senior Vice Senior Vice President, PIMCO. Formerly
Age 47 President Vice President, PIMCO.
Raymond C. Hayes 2/95 - Present Vice President Vice President, PIMCO. Formerly
Age 54 Marketing Director, Pacific Financial
Asset Management Corporation.
Thomas J. Kelleher, III 3/96 - Present Vice President Vice President, PIMCO. Previously
Age 49 associated with Delaware Trust, Mellon
Bank and Girard Trust (bank trust
departments).
Henrik P. Larsen 2/99 - Present Vice President Manager, Fund Administration, PIMCO;
Age 29 Vice President, PIMCO Commercial
Mortgage Securities Trust, Inc. and
PIMCO Variable Insurance Trust. Formerly
Supervisor, PIMCO.
Daniel T. Ludwig 2/99 - Present Vice President Account Manager, PIMCO. Formerly Vice
Age 41 President, Fidelity Investments;
Institutional Sales Representative, CS
First Boston.
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
Length of Position with Principal Occupation (s)
Name and Age Service the Trust During the Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Andre Mallegol 3/97 - Present Vice President Vice President, PIMCO. Formerly
Age 33 associated with Fidelity Investments
Institutional Services Company.
James F. Muzzy 4/87 - Present Vice President Managing Director, PIMCO; Senior Vice
Age 60 President, PIMCO Variable Insurance
Trust.
Douglas J. Ongaro 8/95 - Present Vice President Vice President, PIMCO. Formerly
Age 38 Regional Marketing Manager, Charles
Schwab & Co., Inc.
David J. Pittman 7/97 - Present Vice President Vice President, PIMCO. Formerly a
Age 51 senior executive with Bank of America,
the Northern Trust Co. and NationsBank.
Mark A. Romano 11/97 - Present Vice President Vice President, PIMCO. Previously
Age 41 associated with Wells Fargo's
institutional money management group and
First Interstate's Pacifica family of
mutual funds.
William S. Thompson, Jr. 11/93 - Present Vice President Chief Executive Officer and Managing
Age 54 Director, PIMCO; Senior Vice President,
PIMCO Variable Insurance Trust; Vice
President, PIMCO Commercial Mortgage
Securities Trust, Inc. Formerly Managing
Director, Salomon Brothers, Inc.
John P. Hardaway 8/90 - Present Treasurer Senior Vice President and Manager of
Age 42 Investment Operations Accounting, PIMCO;
Treasurer, PIMCO Commercial Mortgage
Securities Trust, Inc., PIMCO Funds:
Multi-Manager Series and PIMCO Variable
Insurance Trust. Formerly Vice
President, PIMCO.
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
Length of Position with Principal Occupation(s)
Name and Age Service the Trust During the Past Five Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Garlin G. Flynn 8/95 - Present Secretary Specialist, PIMCO; Secretary, PIMCO
Age 53 Commercial Mortgage Securities Trust,
Inc. and PIMCO Variable Insurance Trust;
Assistant Secretary, PIMCO Funds:
Multi-Manager Series. Formerly Senior
Fund Administrator, PIMCO; Senior Mutual
Fund Analyst, PIMCO Advisors
Institutional Services.
Joseph D. Hattesohl 2/95 - Present Assistant Treasurer Vice President and Manager of Financial
Age 35 Reporting and Taxation, PIMCO; Assistant
Treasurer, PIMCO Funds: Multi-Manager
Series, PIMCO Commercial Mortgage
Securities Trust, Inc. and PIMCO
Variable Insurance Trust. Formerly,
Manager of Fund Taxation, PIMCO;
Director of Financial Reporting, Carl J.
Brown & Co.; Tax Manager, Price
Waterhouse LLP.
Michael J. Willemsen 11/88 - Present Assistant Secretary Manager, PIMCO; Assistant Secretary,
Age 39 PIMCO Commercial Mortgage Securities
Trust, Inc. and PIMCO Variable Insurance
Trust. Formerly Project Lead, PIMCO.
</TABLE>
Other Investment Company Clients
PIMCO also serves as investment adviser or subadviser to the following
investment companies, at the fee rates set forth below, which had the indicated
net assets at September 30, 1999.
B-5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PIMCO VARIABLE
INSURANCE TRUST
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Global Bond Portfolio Annual rate of 0.60% of average daily Not Open As of
net assets 9/30/99
- ------------------------------------------------------------------------------------------------
Foreign Bond Portfolio Annual rate of 0.60% of average daily 5,140,340
net assets
- ------------------------------------------------------------------------------------------------
Emerging Markets Bond Portfolio Annual rate of 0.65% of average daily Not Open As of
net assets 9/30/99
- ------------------------------------------------------------------------------------------------
FREMONT MUTUAL FUNDS, INC.
- ------------------------------------------------------------------------------------------------
Global Bond Fund Annual rate of 0.30% of average daily 24,283,647
net assets paid quarterly
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FORWARD GLOBAL FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Forward Global Fund Annual rate of 0.35% of average daily $ 30,263,618
nets assets on amounts under $200
million and 0.30% on amounts over
$200 million.
- ------------------------------------------------------------------------------------------------
MANULIFE
- ------------------------------------------------------------------------------------------------
Manulife Global Bond Trust Annual rate of 0.375% on first $50 $161,197,318
million; 0.35% on $50-200 million;
0.30% on $200-500 million; 0.25%
excess over $500 million of daily net
assets computed daily and paid
monthly
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
Brokerage Policies
PIMCO receives research services from many broker-dealers with which it
places portfolio transactions. Consistent with applicable law, PIMCO may cause
the Funds to pay a broker-dealer which provides brokerage and research services
to PIMCO an amount of disclosed commission for effecting a securities
transaction for the Funds in excess of the commission which another broker-
dealer would have charged for effecting that transaction. These research
B-6
<PAGE>
services, which in some cases also may be purchased for cash, include such items
as general economic and securities 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 PIMCO in advising various of
its clients (including the Funds), although not all of these services are
necessarily of value in managing the Funds. The management fees paid by the
Funds are not reduced because PIMCO and its affiliates receive such services.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Trustees may determine, PIMCO may also
consider sales of shares of the Funds as a factor in the selection of broker-
dealers to execute portfolio transactions for the Funds.
B-7
<PAGE>
APPENDIX C
----------
PIMCO currently receives a monthly investment advisory fee from each Fund
at an annual rate based on average daily net assets of the Fund, as set forth
below. For the fiscal year ended March 31, 1999, the aggregate amount of
advisory and administration fees paid by each then-operational Fund was as
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fee Aggregate Aggregate
Investment Advisory Administration
Fund Advisory Rate Fees Fees
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
International Bond Fund 0.25% 1,283,333 1,283,333
- --------------------------------------------------------------------------------
Emerging Markets Bond Fund II 0.45% 298,301 256,156
- --------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE>
APPENDIX D
----------
CURRENT FUNDAMENTAL INVESTMENT POLICIES
As a matter of fundamental policy, the Fund may not:
Concentration
- -------------
(1) 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);
Margin
- ------
(2) for the International Bond Fund: 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;
Borrowing and Senior Securities
- -------------------------------
(3) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund 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 there is asset coverage
of 300% and (ii) enter into transactions in options, futures, options
on futures, and other derivative instruments as described in the
Prospectuses 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, collateral arrangements with respect to
initial or variation margin deposits for futures contracts and
commitments entered into under swap agreements or other derivative
instruments, will not be deemed to be pledges of a Fund's assets);
Loans
- -----
(4) lend any funds or other assets, except that a Fund 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 (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 Securities and Exchange Commission and the Trustees
of the Trust;
Short Positions
- ---------------
(5) for the Funds: maintain a short position, or purchase, write or sell
puts, calls, straddles, spreads or combinations thereof, except on
such conditions as may be set forth in the Prospectuses and in this
Statement of Additional Information.
D-1
<PAGE>
APPENDIX E
----------
PIMCO FUNDS
-----------
FORM OF
-------
AMENDED AND RESTATED DECLARATION OF TRUST
--------------------
DATED ___________________, 2000
E-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I........................................................................................................... 2
Section 1.1. Name.............................................................................................. 2
-----------------
Section 1.2. Definitions....................................................................................... 2
------------------------
ARTICLE II.......................................................................................................... 4
- ----------
Section 2.1. General Powers.................................................................................... 4
---------------------------
Section 2.2. Investments....................................................................................... 4
------------------------
Section 2.3. Legal Title....................................................................................... 6
------------------------
Section 2.4. Issuance and Repurchase of Shares................................................................. 6
----------------------------------------------
Section 2.5. Delegation; Committees............................................................................ 6
-----------------------------------
Section 2.6. Collection and Payment............................................................................ 6
-----------------------------------
Section 2.7. Expenses.......................................................................................... 7
---------------------
Section 2.8. Manner of Acting; By-laws......................................................................... 7
--------------------------------------
Section 2.9. Miscellaneous Powers.............................................................................. 7
---------------------------------
Section 2.10. Principal Transactions........................................................................... 8
------------------------------------
Section 2.11. Number of Trustees............................................................................... 8
--------------------------------
Section 2.12. Election and Term................................................................................ 8
-------------------------------
Section 2.13. Resignation and Removal.......................................................................... 8
-------------------------------------
Section 2.14. Vacancies........................................................................................ 9
-----------------------
Section 2.15. Delegation of Power to Other Trustees............................................................ 9
---------------------------------------------------
Section 2.16. Shareholder Vote, etc............................................................................ 9
-----------------------------------
ARTICLE III......................................................................................................... 9
- -----------
Section 3.1. Distribution Contract............................................................................. 10
----------------------------------
Section 3.2. Advisory or Management Contract................................................................... 10
--------------------------------------------
Section 3.3. Affiliations of Trustees or Officers, Etc......................................................... 10
------------------------------------------------------
Section 3.4. Compliance with 1940 Act.......................................................................... 11
-------------------------------------
ARTICLE IV.......................................................................................................... 11
- ----------
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc.............................................. 11
-----------------------------------------------------------------
Section 4.2. Non-Liability of Trustees, Etc.................................................................... 11
-------------------------------------------
Section 4.3. Mandatory Indemnification......................................................................... 12
--------------------------------------
Section 4.4. No Bond Required of Trustees...................................................................... 13
-----------------------------------------
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc........................................ 13
-----------------------------------------------------------------------
Section 4.6. Reliance on Experts, Etc.......................................................................... 14
-------------------------------------
ARTICLE V........................................................................................................... 14
- ---------
Section 5.1. Beneficial Interest............................................................................... 14
--------------------------------
Section 5.2. Rights of Shareholders............................................................................ 14
-----------------------------------
Section 5.3. Trust Only........................................................................................ 14
-----------------------
Section 5.4. Issuance of Shares................................................................................ 15
-------------------------------
Section 5.5. Register of Shares................................................................................ 15
-------------------------------
Section 5.6. Transfer of Shares................................................................................ 15
-------------------------------
Section 5.7. Notices, Reports.................................................................................. 16
-----------------------------
Section 5.8. Treasury Shares................................................................................... 16
----------------------------
Section 5.9. Voting Powers..................................................................................... 16
--------------------------
</TABLE>
E-i
<PAGE>
<TABLE>
<S> <C>
Section 5.10. Meetings of Shareholders......................................................................... 17
--------------------------------------
Section 5.11. Series Designation............................................................................... 17
--------------------------------
Section 5.12. Assent to Declaration of Trust................................................................... 19
--------------------------------------------
Section 5.13. Class Designation................................................................................ 19
-------------------------------
ARTICLE VI.......................................................................................................... 20
- -----------
Section 6.1. Redemption of Shares.............................................................................. 20
---------------------------------
Section 6.2. Price............................................................................................. 20
------------------
Section 6.3. Payment........................................................................................... 20
--------------------
Section 6.4. Effect of Suspension of Determination of Net Asset Value.......................................... 20
---------------------------------------------------------------------
Section 6.5. Repurchase by Agreement........................................................................... 21
------------------------------------
Section 6.6. Redemption of Shareholder's Interest.............................................................. 21
-------------------------------------------------
Section 6.7. Redemption of Shares in Order to Qualify as Regulated Investment Company; Disclosure of Holding... 21
------------------------------------------------------------------------------------------------------------
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net Asset Value Formula.................... 21
-------------------------------------------------------------------------------------------
Section 6.9. Suspension of Right of Redemption................................................................. 22
----------------------------------------------
ARTICLE VII......................................................................................................... 22
- -----------
Section 7.1. Net Asset Value................................................................................... 22
----------------------------
Section 7.2. Distributions to Shareholders..................................................................... 23
------------------------------------------
Section 7.3. Determination of Net Income; Constant Net Asset Value; Reduction of Outstanding Shares............ 23
---------------------------------------------------------------------------------------------------
Section 7.4. Allocation Between Principal and Income........................................................... 24
----------------------------------------------------
Section 7.5. Power to Modify Foregoing Procedures.............................................................. 24
-------------------------------------------------
ARTICLE VIII........................................................................................................ 24
- ------------
Section 8.1. Duration.......................................................................................... 24
---------------------
Section 8.2. Termination of Trust.............................................................................. 24
---------------------------------
Section 8.3. Amendment Procedure............................................................................... 25
--------------------------------
Section 8.4. Merger, Consolidation and Sale of Assets.......................................................... 26
-----------------------------------------------------
Section 8.5. Incorporation..................................................................................... 26
--------------------------
ARTICLE IX.......................................................................................................... 27
- -----------
ARTICLE X........................................................................................................... 27
- ---------
Section 10.1. Filing........................................................................................... 27
--------------------
Section 10.2. Governing Law.................................................................................... 27
---------------------------
Section 10.3. Counterparts..................................................................................... 27
--------------------------
Section 10.4. Reliance by Third Parties........................................................................ 28
---------------------------------------
Section 10.5. Provisions in Conflict with Law or Regulations................................................... 28
------------------------------------------------------------
</TABLE>
E-ii
<PAGE>
FORM OF
-------
AMENDED AND RESTATED DECLARATION OF TRUST OF
--------------------------------------------
PIMCO FUNDS
-----------
DATED ____________, 2000
AMENDED AND RESTATED DECLARATION OF TRUST made __________ ____, 2000, by
the undersigned Trustees;
WHEREAS, pursuant to a Declaration of Trust dated February 19, 1987, the
Trustees established a Massachusetts business trust for the investment and
reinvestment of funds contributed thereto, the beneficial interest in which is
divided into transferable shares;
WHEREAS, the Trustees desire to amend and restate said Declaration of Trust
in its entirety;
NOW, THEREFORE, the Trustees restate the Declaration of Trust as follows:
ARTICLE I
---------
NAME AND DEFINITIONS
--------------------
I.
A. Name.
The name of the Trust created hereby, until and unless changed by the
Trustees as provided in Section 8.,3(a) hereof, is "PIMCO Funds".
B. Section 1.2. Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
1. (a) "By-laws" means the By-laws referred to in Section 2.8
------- -----------
hereof, as from time to time amended.
2. (b) "Class" means the two or more Classes as may be established
-----
and designated from time to time by the Trustees pursuant to
Section 5.13 hereof.
3. (c) The term "Commission" has the meaning given it in the
1940 Act. The term "Interested Person" has the meaning
given it in the 1940 Act, as modified by any applicable
order or orders of the Commission. Except as otherwise
defined by the Trustees in conjunction with the
establishment of any series of Shares, the term "vote of a
majority of the Shares outstanding and entitled to vote"
shall have the same meaning as the term "vote of a majority
of the outstanding voting securities" given it in the
1940 Act.
4. (d) "Custodian" means any Person other than the Trust who has
---------
custody of any Trust Property as required by Section 17(f)
of the 1940
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Act, but does not include a system for the central handling
of securities described in said Section 17(f).
5. (e) "Declaration" means this Amended and Restated Declaration
-----------
of Trust as further amended from time to time. Reference in
-------
this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this
Declaration rather than exclusively to the article or
section in which such words appear.
6. (f) "Distributor" means the party, other than the Trust, to the
-----------
contract described in Section 3.1 hereof.
7. (g) "His" shall include the feminine and neuter, as well as the
---
masculine genders.
8. (h) "Investment Adviser" means the party, other than the Trust,
------------------
as the to the contract described in Section 3.2 hereof.
9. (i) "Municipal Bonds" means obligations issued by or on
---------------
behalf of states, territories of the United States and the
District of Columbia and their political subdivisions,
agencies and instrumentalities, or other issuers, the
interest from which is exempt from regular Federal income
tax.
10. (j) The "1940 Act" means the Investment Company Act of 1940, as
--------
amended from time to time.
11. (k) "Person" means and includes individuals, corporations,
------
partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and
agencies and political subdivisions thereof.
12. (l) "Series" individually or collectively means the two or more
------
Series as may be established and designated from time to
time by the Trustees pursuant to Section 5.11 hereof. Unless
the context otherwise requires, the term "Series" shall
include Classes into which shares of the Trust, or of a
Series, may be divided from time to time.
13. (m) "Shareholder" means a record owner of Outstanding Shares.
-----------
14. (n) "Shares" means the equal proportionate units of interest
------
into which the beneficial interest in the Trust shall be
divided from time to time, including the Shares of any and
all Series and Classes which may be established by the
Trustees and includes fractions of Shares as well as
whole Shares. "Outstanding Shares" means those Shares
shown as of a time and from time to time on the books of the
Trust or its Transfer Agent as then issued and outstanding,
but shall not include Shares which have been redeemed or
repurchased by the Trust and which are at the time held in
the Treasury of the Trust.
15. (o) "Transfer Agent" means any one or more Persons other than
--------------
the Trust who maintains the Shareholder records of the
Trust, such as the list of Shareholders, the number of
Shares credited to each account, and the like.
16. (p) The "Trust" means Scudder Cash Investment Trust.
-----
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17. (q) The "Trust Property" means any and all property, real or
--------------
personal, tangible or intangible, which is owned or held by
or for the account of the Trust or the Trustees.
18. (r) The "Trustees" means the person or persons who has or have
--------
signed this Declaration, so long as he or they shall
continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly
qualified and serving as Trustees in accordance with the
provisions of Article II hereof, and reference herein to a
Trustee or the Trustees shall refer to such person or
persons in this capacity or their capacities as trustees
hereunder.
ARTICLE II
----------
TRUSTEES
--------
II.
A. General Powers.
The Trustees shall have exclusive and absolute control over the Trust
Property and over the business of the Trust to the same extent as if the
Trustees were the sole owners of the Trust Property and business in their own
right, but with such powers of delegation as may be permitted by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
B. Section 2.2. Investments.
The Trustees shall have the power:
1. (a) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to
the conduct of such operations.
2. (b) To invest in, hold for investment, or reinvest in,
securities, including shares of open-end investment
companies; common and preferred stocks; warrants; bonds,
debentures, bills, time notes and all other evidences of
indebtedness; negotiable or non-negotiable instruments;
government securities, including securities of any state,
municipality or other political subdivision thereof, or any
governmental or quasi-
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governmental agency or instrumentality; and money market
instruments including bank certificates of deposit, finance
paper, commercial paper, bankers acceptances and all kinds
of repurchase agreements, of any corporation, company,
trust, association, firm or other business organization
however established, and of any country, state, municipality
or other political subdivision, or any governmental or
quasi-governmental agency or instrumentality.
3. (c) To acquire (by purchase, subscription or otherwise), to
hold, to trade in and deal in, to acquire any rights or
options to purchase or sell, to sell or otherwise dispose
of, to lend, and to pledge any such securities and to enter
into repurchase agreements and forward foreign currency
exchange contracts, to purchase and sell futures contracts
on securities, securities indices and foreign currencies, to
purchase or sell options on such contracts, foreign currency
contracts, and foreign currencies and to engage in all types
of hedging and risk management transactions.
4. (d) To exercise all rights, powers and privileges of
ownership or interest in all securities, repurchase
agreements, futures contracts and options and other assets
included in the Trust Property, including the right to vote
thereon and otherwise act with respect thereto and to do all
acts for the preservation, protection, improvement and
enhancement in value of all such assets.
5. (e) To acquire (by purchase, lease or otherwise) and to
hold, use, maintain, develop and dispose of (by sale or
otherwise) any property, real or personal, including cash,
and any interest therein.
6. (f) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by
mortgaging, pledging or otherwise subjecting as security the
Trust Property; to endorse, guarantee, or undertake the
performance of any obligation or engagement of any other
Person and to lend Trust Property.
7. (g) To aid by further investment any corporation, company,
trust, association or firm, any obligation of or interest in
which is included in the Trust Property or in the affairs of
which the Trustees have any direct or indirect interest; to
do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest,
and to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures and other
obligations of any such corporation, company, trust,
association or firm.
8. (h) To enter into a plan of distribution and any related
agreements whereby the Trust may finance directly or
indirectly any activity which is primarily intended to
result in the sale of Shares.
9. (i) To invest, through a transfer of cash, securities and
other assets or otherwise, all or a portion of the Trust
Property, or to sell all or a portion of the Trust Property
and invest the proceeds of such sales, in another investment
company that is registered under the 1940 Act.
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10. (j) In general to carry on any other business in connection
with or incidental to any of the foregoing powers, to do
everything necessary, suitable or proper for the
accomplishment of any purpose or the attainment of any
object or the furtherance of any power hereinbefore set
forth, either alone or in association with others, and to do
every other act or thing incidental or appurtenant to or
growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
C. Section 2.3. Legal Title.
Legal title to all the Trust Property, including the property of any Series
of the Trust, shall be vested in the Trustees as joint tenants except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the Trust,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is deemed
appropriately protected. The right, title and interest of the Trustees in the
Trust Property and the property of each Series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property or the property of any Series of the Trust, and the right, title
and interest of such Trustee in the Trust Property shall vest automatically in
the remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered.
D. Section 2.4. Issuance and Repurchase of Shares.
The Trustees shall have the power to issue, sell, repurchase, redeem,
retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and
otherwise deal in Shares and, subject to the provisions set forth in Articles VI
and VII and Section 5.11 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
particular Series of the Trust with respect to which such Shares are issued,
whether capital or surplus or otherwise, to the full extent now or hereafter
permitted by the laws of the Commonwealth of Massachusetts governing business
corporations.
E. Section 2.5. Delegation; Committees.
The Trustees shall have power to delegate from time to time to such of
their number or to officers, employees or agents of the Trust the doing of such
things and the execution of such instruments either in the name of the Trust or
the names of the Trustees or otherwise as the Trustees may deem expedient, to
the same extent as such delegation is permitted by the 1940 Act.
F. Section 2.6. Collection and Payment.
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The Trustees shall have power to collect all property due to the Trust; to
pay all claims, including taxes, against the Trust Property; to prosecute,
defend, compromise or abandon any claims relating to the Trust Property; to
foreclose any security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and
other instruments.
G. Section 2.7. Expenses.
The Trustees shall have the power to incur and pay any expenses which in
the opinion of the Trustees are necessary or incidental to carry out any of the
purposes of this Declaration, and to pay reasonable compensation from the funds
of the Trust to themselves as Trustees. The Trustees shall fix the compensation
of all officers, employees and Trustees.
H. Section 2.8. Manner of Acting; By-laws.
Except as otherwise provided herein or in the By-laws, any action to be
taken by the Trustees may be taken by a majority of the Trustees present at a
meeting of Trustees (a quorum being present), including any meeting held by
means of a conference telephone circuit or similar communications equipment by
means of which all persons participating in the meeting can hear each other, or
by written consents of the entire number of Trustees then in office. The
Trustees may adopt By-laws not inconsistent with this Declaration to provide for
the conduct of the business of the Trust and may amend or repeal such By-laws to
the extent such power is not reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of
less than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
I. Section 2.9. Miscellaneous Powers.
Subject to Section 5.11 hereof, the Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations ; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person in
such capacity , whether or not constituting negligence, or whether or not the
Trust would have the power to indemnify such Person against such liability; (e)
establish pension, profit-sharing, share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law,
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<PAGE>
indemnify any person with whom the Trust has dealings, including the Investment
Adviser, Distributor, Transfer Agent and selected dealers , to such extent as
the Trustees shall determine; (g) guarantee indebtedness or contractual
obligations of others; (h) determine and change the fiscal year of the Trust and
the method by which its accounts shall be kept; and (i) adopt a seal for the
Trust, but the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
J. Section 2.10. Principal Transactions.
Except in transactions not permitted by the 1940 Act or rules and
regulations adopted by the Commission, the Trustees may, on behalf of the Trust,
buy any securities from or sell any securities to, or lend any assets of the
Trust to, any Trustee or officer of the Trust or any firm of which any such
Trustee or officer is a member acting as principal, or have any such dealings
with the Investment Adviser, Distributor or Transfer Agent or with any
Interested Person of such Person; and the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, dealer,
legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian
upon customary terms.
K. Section 2.11. Number of Trustees.
The number of Trustees shall initially be one (1), and thereafter shall be
such number as shall be fixed from time to time by a written instrument signed
by a majority of the Trustees, provided, however, that the number of Trustees
shall in no event be more than fifteen (15).
L. Section 2.12. Election and Term.
Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 2.14 hereof, the Trustees shall be elected by the
Shareholders owning of record a plurality of the Shares voting at a meeting of
Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
Except in the event of resignation or removals pursuant to Section 2.13 hereof,
each Trustee shall hold office until such time as less than a majority of the
Trustees holding office have been elected by Shareholders, and thereafter until
the holding of a Shareholders' meeting as required by the next following
sentence. In such event the Trustees then in office will call a Shareholders'
meeting for the election of Trustees. Except for the foregoing circumstances,
the Trustees shall continue to hold office and may appoint successor Trustees.
M. Section 2.13. Resignation and Removal.
Any Trustee may resign his trust (without the need for any prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees and such resignation shall be effective upon such
delivery, or at a later date according to the terms of the instrument. Any of
the Trustees may be removed (provided the aggregate number of Trustees after
such removal shall not be less than one) with cause, by the action of two-thirds
of the remaining Trustees. Any Trustee may be removed at any meeting of
Shareholders by vote of two-thirds of the Outstanding Shares. The Trustees shall
promptly call a meeting of the Shareholders for the purpose of voting upon the
question of removal of any such Trustee or Trustees when requested in writing so
to do by the holders of not less than ten percent of the Outstanding Shares and,
in that connection, the Trustees will assist shareholder communications to the
extent provided for in Section 16(c) under the 1940 Act. Upon the resignation or
removal of a Trustee, or his
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otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust Property or property of any Series of
the Trust held in the name of the resigning or removed Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall execute and
deliver on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
N. Section 2.14. Vacancies.
The term of office of a Trustee shall terminate and a vacancy shall occur
in the event of the death, resignation, removal, bankruptcy, adjudicated
incompetence or other incapacity to perform the duties of the office of a
Trustee. No such vacancy shall operate to annul the Declaration or to revoke any
existing agency created pursuant to the terms of the Declaration. In the case of
an existing vacancy, including a vacancy existing by reason of an increase in
the number of Trustees , subject to the provisions of Section 16(a) of the 1940
Act, the remaining Trustees shall fill such vacancy by the appointment of such
other person as they in their discretion shall see fit, made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the person named in the
written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the Declaration.
An appointment of a Trustee may be made in anticipation of a vacancy to occur at
a later date by reason of retirement, resignation or increase in the number of
Trustees, provided that such appointment shall not become effective prior to
such retirement, resignation or increase in the number of Trustees. Whenever a
vacancy in the number of Trustees shall occur, until such vacancy is filled as
provided in this Section 2.14, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by the Declaration. A written
instrument certifying the existence of such vacancy signed by a majority of the
Trustees in office shall be conclusive evidence of the existence of such
vacancy.
O. Section 2.15. Delegation of Power to Other Trustees.
Any Trustee may, by power of attorney, delegate his power for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees;
provided that in no case shall less than two (2) Trustees personally exercise
the powers granted to the Trustees under this Declaration except as herein
otherwise expressly provided.
P. Section 2.16. Shareholder Vote, etc.
Not Required. Except to the extent specifically provided to the contrary in
this Declaration, the Trustees may exercise each of the powers granted to them
in this Declaration without the vote, approval or agreement of the Shareholders,
unless such a vote, approval or agreement is required by the 1940 Act or
applicable laws of the Commonwealth of Massachusetts.
ARTICLE III
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CONTRACTS
---------
III.
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A. Distribution Contract.
The Trustees may in their discretion from time to time enter into an
exclusive or non-exclusive underwriting contract or contracts providing for the
sale of the Shares at a price based on the net asset value of a Share, whereby
the Trustees may either agree to sell the Shares to the other party to the
contract or appoint such other party their sales agent for the Shares, and in
either case on such terms and conditions, if any, as may be prescribed in the
By-laws, and such further terms and conditions as the Trustees may in their
discretion determine not inconsistent with the provisions of this Article III or
of the By-laws; and such contract may also provide for the repurchase of the
Shares by such other party as agent of the Trustees.
B. Section 3.2. Advisory or Management Contract.
The Trustees may in their discretion from time to time enter into an
investment advisory or management contract or separate advisory contracts with
respect to one or more Series whereby the other party to such contract shall
undertake to furnish to the Trust such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine, including the grant of authority to such other party
to determine what securities shall be purchased or sold by the Trust and what
portion of its assets shall be uninvested, which authority shall include the
power to make changes in the investments of the Trust or any Series.
The Trustees may also employ, or authorize the Investment Adviser to
employ, one or more sub-advisers from time to time to perform such of the acts
and services of the Investment Adviser and upon such terms and conditions as may
be agreed upon between the Investment Adviser and such sub-advisers and approved
by the Trustees. Any reference in this Declaration to the Investment Adviser
shall be deemed to include such sub-advisers unless the context otherwise
requires.
C. Section 3.3. Affiliations of Trustees or Officers, Etc.
The fact that:
a. (i) any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee,
employee, manager, adviser or distributor of or for any
partnership, corporation, trust, association or other
organization or of or for any parent or affiliate of any
organization, with which a contract of the character
described in Sections 3.1 or 3.2 above or for services as
Custodian, Transfer Agent, accounting agent or disbursing
agent or for related services may have been or may hereafter
be made, or that any such organization, or any parent or
affiliate thereof, is a Shareholder of or has an interest in
the Trust, or that
b. (ii) any partnership, corporation, trust, association or
other organization with which a contract of the character
described in Sections 3.1 or 3.2 above or for services as
Custodian, Transfer Agent, accounting agent or disbursing
agent or for related services may have been or may hereafter
be made also has
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any one or more of such contracts with one or more other
partnerships, 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.
D. Section 3.4. Compliance with 1940 Act.
Any contract entered into pursuant to Sections 3.1 or 3.2 shall be
consistent with and subject to the requirements of Section 15 of the 1940 Act
(including any amendment thereof or other applicable act of Congress hereafter
enacted), as modified by any applicable order or orders of the Commission, with
respect to its continuance in effect, its termination and the method of
authorization and approval of such contract or renewal thereof.
ARTICLE IV
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LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
-----------------------------------------
TRUSTEES AND OTHERS
-------------------
IV.
A. No Personal Liability of Shareholders, Trustees, Etc.
No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever to any Person, other than to the Trust or
its Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability . The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of the one or more
Series of which the Shareholder who is entitled to indemnification or
reimbursement was a Shareholder at the time the act or event occurred which gave
rise to the claim against or liability of said Shareholder. The rights accruing
to a Shareholder under this Section 4.1 shall not impair any other right to
which such Shareholder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
herein.
B. Section 4.2. Non-Liability of Trustees, Etc.
No Trustee, officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee, or
agent thereof for any
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action or failure to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of trust) except for
his own bad faith, willful misfeasance, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
C. Section 4.3. Mandatory Indemnification.
1. (a) Subject to the exceptions and limitations contained in
paragraph (b) below:
a. (i) every person who is, or has been, a Trustee or officer
of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue
of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
b. (ii) the words "claim," "action," "suit," or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative or other, including
appeals), actual or threatened; and the words "liability"
and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines,
penalties and other liabilities.
2. (b) No indemnification shall be provided hereunder to a
Trustee or officer:
a. (i) against any liability to the Trust, a Series thereof,
or the Shareholders by reason of a final adjudication by a
court or other body before which a proceeding was brought
that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his office;
b. (ii) with respect to any matter as to which he shall have
been finally adjudicated not to have acted in good faith in
the reasonable belief that his action was in the best
interest of the Trust;
c. (iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph
(b)(i) or (b)(ii) resulting in a payment by a Trustee or
officer, unless there has been a determination that such
Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(1) (A) by the court or other body approving the
settlement or other disposition; or
(2) (B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested
Trustees then
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in office act on the matter) or (y) written opinion of
independent legal counsel.
3. (c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable,
shall not affect any other rights to which any Trustee or officer
may now or hereafter be entitled, shall continue as to a person
who has ceased to be such Trustee or officer and shall inure to
the benefit of the heirs, executors, administrators and assigns
of such a person. Nothing contained herein shall affect any
rights to indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by contract or
otherwise under law.
4. (d) Expenses of preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 4.3 may be advanced by the Trust
prior to final disposition thereof upon receipt of an undertaking
by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification
under this Section 4.3, provided that either:
a. (i) such undertaking is secured by a surety bond or some
other appropriate security provided by the recipient, or the
Trust shall be insured against losses arising out of any
such advances; or
b. (ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel
in a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an Interested Person of the Trust (including anyone who has been
exempted from being an Interested Person by any rule, regulation or order
of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
D. Section 4.4. No Bond Required of Trustees.
No Trustee shall be obligated to give any bond or other security for the
performance of any of his duties hereunder.
E. Section 4.5. No Duty of Investigation; Notice in Trust Instruments,
Etc.
No purchaser, lender, Transfer Agent or other Person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made by
the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned or delivered to or on the order of
the Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking
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made or issued by the Trustees may recite that the same is executed or made by
them not individually, but as Trustees under the Declaration, and that the
obligations of the Trust under any such instrument are not binding upon any of
the Trustees or Shareholders individually, but bind only the trust estate, and
may contain any further recital which they or he may deem appropriate, but the
omission of such recital shall not operate to bind the Trustees individually.
The Trustees shall at all times maintain insurance for the protection of the
Trust Property, its Shareholders, Trustees, officers, employees and agents in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
F. Section 4.6. Reliance on Experts, Etc.
Each Trustee and officer or employee of the Trust shall, in the performance
of his duties, be fully and completely justified and protected with regard to
any act or any failure to act resulting from reliance in good faith upon the
books of account or other records of the Trust, upon an opinion of counsel, or
upon reports made to the Trust by any of its officers or employees or by the
Investment Adviser, the Distributor, Transfer Agent, selected dealers,
accountants, appraisers or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
ARTICLE V
---------
SHARES OF BENEFICIAL INTEREST
-----------------------------
V.
A. Beneficial Interest.
The interest of the beneficiaries hereunder shall be divided into
transferable Shares of beneficial interest , all of one class, except as
provided in Section 5.11 and Section 5.13 hereof, par value $.01 per share. The
number of Shares of beneficial interest authorized hereunder is unlimited. All
Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
B. Section 5.2. Rights of Shareholders.
The ownership of the Trust Property and the property of each Series of the
Trust of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders shall
have no interest therein other than the beneficial interest conferred by their
Shares, and they shall have no right to call for any partition or division of
any property, profits, rights or interests of the Trust nor can they be called
upon to share or assume any losses of the Trust or suffer an assessment of any
kind by virtue of their ownership of Shares. The Shares shall be personal
property giving only the rights specifically set forth in this Declaration . The
Shares shall not entitle the holder to preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine with respect
to any Series of Shares.
C. Section 5.3. Trust Only.
It is the intention of the Trustees to create only the relationship of
Trustee and beneficiary between the Trustees and each Shareholder from time to
time. It is not the intention
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of the Trustees to create a general partnership, limited partnership, joint
stock association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in this Declaration shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
D. Section 5.4. Issuance of Shares.
The Trustees in their discretion may, from time to time without vote of the
Shareholders, issue Shares, in addition to the then issued and outstanding
Shares and Shares held in the treasury, to such party or parties and for such
amount and type of consideration, including cash or property, at such time or
times and on such terms as the Trustees may deem best, and may in such manner
acquire other assets (including the acquisition of assets subject to, and in
connection with the assumption of liabilities) and businesses. In connection
with any issuance of Shares, the Trustees may issue fractional Shares and Shares
held in the treasury . The Trustees may from time to time divide or combine
the Shares into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Trust . Contributions to the Trust
may be accepted for, and Shares shall be redeemed as, whole Shares and/or
1/1,000ths of a Share or integral multiples thereof.
E. Section 5.5. Register of Shares.
A register shall be kept at the principal office of the Trust or an
office of the Transfer Agent which shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a record of
all transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of Shareholders. No
Shareholder shall be entitled to receive payment of any dividend or
distribution, nor to have notice given to him as herein or in the By-laws
provided, until he has given his address to the Transfer Agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of share certificates and promulgate appropriate rules and regulations as to
their use.
F. Section 5.6. Transfer of Shares.
Except as otherwise provided by the Trustees, Shares shall be transferable
---------------------------------------------
on the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized , upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the register of Shares as the holder of such
Shares upon production of the proper evidence thereof to the Trustees or
the Transfer Agent, but until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes
hereunder
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<PAGE>
and neither the Trustees nor any Transfer Agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
G. Section 5.7. Notices, Reports.
Any and all notices to which any Shareholder may be entitled and any and
all communications shall be deemed duly served or given if mailed, postage
prepaid, addressed to any Shareholder of record at his last known address as
recorded on the register of the Trust. A notice of a meeting, an annual report
and any other communication to Shareholders need not be sent to a Shareholder
(i) if an annual report and a proxy statement for two consecutive shareholder
meetings have been mailed to such Shareholder's address and have been returned
as undeliverable, (ii) if all, and at least two, checks (if sent by first class
mail) in payment of dividends on Shares during a twelve-month period have been
mailed to such Shareholder's address and have been returned as undeliverable or
(iii) in any other case in which a proxy statement concerning a meeting of
security holders is not required to be given pursuant to the Commission's proxy
rules as from time to time in effect under the Securities Exchange Act of 1934.
However, delivery of such proxy statements, annual reports and other
communications shall resume if and when such Shareholder delivers or causes to
be delivered to the Trust written notice setting forth such Shareholder's then
current address.
H. Section 5.8. Treasury Shares.
Shares held in the treasury shall, until reissued pursuant to Section
5.4, not confer any voting rights on the Trustees, nor shall such Shares be
entitled to any dividends or other distributions declared with respect to the
Shares.
I. Section 5.9. Voting Powers.
The Shareholders shall have power to vote only (i) for the election of
Trustees as provided in Section 2.12; (ii) for the removal of Trustees as
provided in Section 2.13; (iii) with respect to termination of the Trust as
provided in Section 8.2; (iv) with respect to any amendment of this Declaration
to the extent and as provided in Section 8.3; (v) to the same extent as the
stockholders of 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 any Series or Class
thereof or the Shareholders (provided, however, that a Shareholder of a
particular Series or Class shall not be entitled to bring a derivative or class
action on behalf of any other Series or Class (or Shareholder of any other
Series or Class) of the Trust); and (vi) with respect to such additional matters
relating to the Trust as may be required by this Declaration, the By-laws or any
registration of the Trust as an investment company under the 1940 Act with the
Commission (or any successor agency) 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, except that the Trustees may, in conjunction with
the establishment of any Series or Class of Shares, establish or reserve the
right to establish conditions under which the several Series or Classes shall
have separate voting rights or, if a Series or Class would not, in the sole
judgment of the Trustees, be materially affected by a proposal, no voting
rights. There shall be no cumulative voting in the election of Trustees. Until
Shares are issued, the Trustees may exercise all rights of
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Shareholders and may take any action required by law, this Declaration or the
By-laws to be taken by Shareholders. The By-laws may include further provisions
for Shareholders' votes and meetings and related matters.
J. Section 5.10. Meetings of Shareholders.
A meeting of the Shareholders shall be called by the President and
Secretary at the request and in writing or by resolution of a majority of
Trustees and shall be held at such times, on such day and at such hour as the
Trustees may from time to time determine, either at the principal office of the
Trust, or at such other place as may be designated by the Trustees, for the
purposes specified in Section 2.12 or 2.13 and for such other purposes as may be
specified by the Trustees.
K. Section 5.11. Series Designation.
The Trustees, in their discretion, may authorize the division of Shares
into two or more Series, and the different Series shall be established and
designated, and the variations in the relative rights and preferences as between
the different Series shall be fixed and determined, by the Trustees; provided,
that all Shares shall be identical except that there may be variations so fixed
and determined between different Series as to investment objective, purchase
price, allocation of expenses, right of preferences special and relative rights
as to dividends and on liquidation, conversion rights, and conditions under
which the several Series shall have separate voting rights. All references to
Shares in this Declaration shall be deemed to be Shares of any or all Series as
the context may require.
1. (a) All provisions herein relating to the Trust shall apply
equally to each Series of the Trust except as the context
requires otherwise.
2. (b) The number of authorized Shares and the number of Shares of
each Series that may be issued shall be unlimited. The Trustees
may classify or reclassify any unissued Shares or any Shares
previously issued and reacquired of any Series into one or more
Series that may be established and designated from time to time.
The Trustees may hold as treasury Shares (of the same or some
other Series), reissue for such consideration and on such terms
as they may determine, or cancel any Shares of any Series
reacquired by the Trust at their discretion from time to time.
3. (c) 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, including 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 of such Series and except as may
otherwise be required by applicable laws, and shall be so
recorded upon the books of account of the Trust. 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, the Trustees
shall allocate them among any one or more of the Series
established
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<PAGE>
and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all Series
for all purposes.
4. (d) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that
Series and with all expenses, costs, charges and reserves
attributable to that Series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular
Series shall be allocated and charged by the Trustees to and
among any one or more of the Series established and
designated from time to time in such manner and on such
basis as the Trustees in their sole discretion deem fair and
equitable . 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. The Trustees shall have full discretion, to the
extent not inconsistent with the 1940 Act, to determine
which items are capital; and each such determination and
allocation shall be conclusive and binding upon the
Shareholders. The assets of a particular Series of the Trust
shall, under no circumstances, be charged with liabilities
attributable to any other Series of the Trust. All persons
extending credit to, or contracting with or having any claim
against a particular Series of the Trust shall look only to
the assets of that particular Series for payment of such
credit, contract or claim. No Shareholder or former
Shareholder of any Series shall have any claim on or right
to any assets allocated or belonging to any other Series.
5. (e) Each Share of a Series of the Trust shall represent a
beneficial interest in the net assets of such Series. Each
holder of Shares of a Series shall be entitled to receive
his pro rata share of distributions of income and capital
gains made with respect to such Series, except as provided
in Section 5.13 hereof. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his
being or having been a Shareholder of a Series, such
Shareholder shall be paid solely out of the funds and
property of such Series of the Trust. Upon liquidation or
termination of a Series of the Trust, Shareholders of such
Series shall be entitled to receive a pro rata share of the
net assets of such Series, except as provided in Section
5.13 hereof. A Shareholder of a particular Series of the
Trust shall not be entitled to participate in a derivative
or class action on behalf of any other Series or the
Shareholders of any other Series of the Trust.
6. (f) The establishment and designation of any Series of
Shares shall be effective upon the execution by a majority
of the then Trustees of an instrument setting forth such
establishment and designation and the relative rights and
preferences of such Series, or as otherwise provided in such
instrument. The Trustees may by an instrument executed by a
majority of their number abolish any Series and the
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establishment and designation thereof. Except as otherwise
provided in this Article V, the Trustees shall have the
power to determine the designations, preferences,
privileges, limitations and rights, of each class and Series
of Shares. Each instrument referred to in this paragraph
shall have the status of an amendment to this Declaration.
L. Section 5.12. Assent to Declaration of Trust.
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.
M. Section 5.13. Class Designation.
The Trustees, in their discretion, may authorize the division of the Shares
of the Trust, or, if any Series be established, the Shares of any Series, into
two or more Classes, and the different Classes shall be established and
designated, and the variations in the relative rights and preferences as between
the different Classes shall be fixed and determined, by the Trustees; provided,
that all Shares of the Trust or of any Series shall be identical to all other
Shares of the Trust or the same Series, as the case may be, except that there
may be variations between different Classes as to allocation of expenses, right
of redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Classes shall have
separate voting rights. All references to Shares in this Declaration shall be
deemed to be Shares of any or all Classes as the context may require.
1. (a) All provisions herein relating to the Trust, or any
Series of the Trust, shall apply equally to each Class of Shares
of the Trust or of any Series of the Trust, except as the context
requires otherwise.
2. (b) The number of Shares of each Class that may be issued shall
be unlimited. The Trustees may classify or reclassify any Shares
or any Series of any Shares into one or more Classes that may be
established and designated from time to time. The Trustees may
hold as treasury Shares (of the same or some other Class),
reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any Class reacquired by the
Trust at their discretion from time to time.
3. (c) Liabilities, expenses, costs, charges and reserves related
to the distribution of, and other identified expenses that should
properly be allocated to, the Shares of a particular Class may be
charged to and borne solely by such Class and the bearing of
expenses solely by a Class of Shares may be appropriately
reflected (in a manner determined by the Trustees) and cause
differences in the net asset value attributable to, and the
dividend, redemption and liquidation rights of, the Shares of
different Classes. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive
and binding upon the Shareholders of all Classes for all
purposes.
4. (d) The establishment and designation of any Class of Shares
shall be effective upon the execution by a majority of the then
Trustees of an instrument setting forth such establishment and
designation and
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<PAGE>
the relative rights and preferences of such Class, or as
otherwise provided in such instrument. The Trustees may, by
an instrument executed by a majority of their number,
abolish any Class and the establishment and designation
thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
ARTICLE VI
----------
REDEMPTION AND REPURCHASE OF SHARES
-----------------------------------
VI.
A. Redemption of Shares.
All Shares of the Trust shall be redeemable, at the redemption price
determined in the manner set out in this Declaration. Redeemed or repurchased
Shares may be resold by the Trust.
The Trust shall redeem the Shares upon the appropriately verified written
application of the record holder thereof (or upon such other form of request as
the Trustees may determine) at such office or agency as may be designated from
time to time for that purpose in the Trust's then effective registration
statement under the Securities Act of 1933. The Trustees may from time to time
specify additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement under
the Securities Act of 1933.
B. Section 6.2. Price.
Shares shall be redeemed at their net asset value, determined as set forth
in Section 7.1 hereof as of such time as the Trustees shall have theretofore
prescribed by resolution. In the absence of such resolution, the redemption
price of Shares deposited shall be the net asset value of such Shares next
determined as set forth in Section 7.1 hereof after receipt of such application.
C. Section 6.3. Payment.
Payment for such Shares shall be made in cash or in property out of the
assets of the relevant Series of the Trust to the Shareholder of record at such
time and in the manner, not inconsistent with the 1940 Act or other applicable
laws, as may be specified from time to time in the Trust's then effective
registration statement under the Securities Act of 1933, subject to the
provisions of Section 6.4 hereof.
D. Section 6.4. Effect of Suspension of Determination of Net Asset
Value.
If, pursuant to Section 6.9 hereof, the Trustees shall declare a suspension
of the determination of net asset value, the rights of Shareholders (including
those who shall have applied for redemption pursuant to Section 6.1 hereof but
who shall not yet have received payment) to have Shares redeemed and paid for by
the Trust shall be suspended until the termination of such suspension is
declared. Any record holder who shall have his redemption right so suspended
may, during the period of such suspension, by appropriate written notice of
revocation at the office or agency where application was made, revoke any
application for redemption not honored and withdraw any certificates on deposit.
The redemption price of Shares for which redemption applications have not been
revoked shall be the net asset value of such Shares next determined as set forth
in Section 7.1 after the termination of such suspension,
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<PAGE>
and payment shall be made within seven (7) days after the date upon which the
application was made plus the period after such application during which the
determination of net asset value was suspended.
E. Section 6.5. Repurchase by Agreement.
The Trust may repurchase Shares directly, or through the Distributor or
another agent designated for the purpose, by agreement with the owner thereof at
a price not exceeding the net asset value per Share determined as of the time
when the purchase or contract of purchase is made or the net asset value as of
any time which may be later determined pursuant to Section 7.1 hereof, provided
payment is not made for the Shares prior to the time as of which such net asset
value is determined.
F. Section 6.6. Redemption of Shareholder's Interest.
1. (a) The Trust shall have the right at any time without prior
notice to the Shareholder to redeem Shares of any Shareholder for
their then current net asset value per Share if at such time the
Shareholder owns Shares having an aggregate net asset value of
less than an amount set from time to time by the Trustees subject
to such terms and conditions as the Trustees may approve, and
subject to the Trust's giving general notice to all Shareholders
of its intention to avail itself of such right, either by
publication in the Trust's registration statement, if any, or by
such other means as the Trustees may determine.
G. Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding.
If the Trustees shall, at any time and in good faith, be of the opinion
that direct or indirect ownership of Shares or other securities of the Trust has
or may become concentrated in any Person to an extent which would disqualify any
Series of the Trust as a regulated investment company under the Internal Revenue
Code, then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption by any such Person a number, or
principal amount, of Shares or other securities of the Trust sufficient to
maintain or bring the direct or indirect ownership of Shares or other securities
of the Trust into conformity with the requirements for such qualification and
(ii) to refuse to transfer or issue Shares or other securities of the Trust to
any Person whose acquisition of the Shares or other securities of the Trust in
question would result in such disqualification. The redemption shall be effected
at the redemption price and in the manner provided in Section 6.1.
The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
H. Section 6.8. Reductions in Number of Outstanding Shares Pursuant to
Net Asset Value Formula.
The Trust may also reduce the number of Outstanding Shares pursuant to the
provisions of Section 7.3.
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I. Section 6.9. Suspension of Right of Redemption.
The Trust may declare a suspension of the right of redemption or postpone
the date of payment or redemption for the whole or any part of any period (i)
during which the New York Stock Exchange is closed other than customary week-end
and holiday closings, (ii) during which trading on the New York Stock Exchange
is restricted, (iii) during which an emergency exists as a result of which
disposal by the Trust of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Trust fairly to determine the value of
its net assets, or (iv) during any other period when the Commission may for the
protection of Shareholders of the Trust by order permit suspension of the right
of redemption or postponement of the date of payment or redemption; provided
that applicable rules and regulations of the Commission shall govern as to
whether the conditions prescribed in (ii), (iii), or (iv) exist. Such suspension
shall take effect at such time as the Trust shall specify but not later than the
close of business on the business day next following the declaration of
suspension, and thereafter there shall be no right of redemption or payment on
redemption until the Trust shall declare the suspension at an end, except that
the suspension shall terminate in any event on the first day on which said stock
exchange shall have reopened or the period specified in (ii) or (iii) shall have
expired (as to which in the absence of an official ruling by the Commission, the
determination of the Trust shall be conclusive). In the case of a suspension of
the right of redemption, a Shareholder may either withdraw his request for
redemption or receive payment based on the net asset value existing after the
termination of the suspension.
ARTICLE VII
-----------
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
----------------------------
VII.
A. Net Asset Value.
The value of the assets of the Trust or any Series of the Trust shall be
determined by appraisal of the securities of the Trust or allocated to such
Series, such appraisal to be on the basis of such method as shall be deemed to
reflect the fair value thereof, determined in good faith by or under the
direction of the Trustees. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
the Trust or such Series or Class thereof which shall be deemed appropriate.
The net asset value of a Share shall be determined by dividing the net asset
value of the Class, or, if no Class has been established, of the Series, or, if
no Series has been established, of the Trust, by the number of Shares of that
Class, or Series, or of the Trust, as applicable, outstanding. The net asset
value of Shares of the Trust or any Class or Series of the Trust shall be
determined pursuant to the procedure and methods prescribed or approved by the
Trustees in their discretion and as set forth in the most recent Registration
Statement of the Trust as filed with the Securities and Exchange Commission
pursuant to the requirements of the Securities Act of 1933, as amended, the 1940
Act, as amended, and the Rules thereunder. The net asset value of the Shares
shall be determined at least once on each business day, as of the close of
trading on the New York
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Stock Exchange or as of such other time or times as the Trustees shall
determine. The power and duty to make the daily calculations may be delegated by
the Trustees to the Investment Adviser, the Custodian, the Transfer Agent or
such other Person as the Trustees may determine by resolution or by approving a
contract which delegates such duty to another Person. The Trustees may suspend
the daily determination of net asset value to the extent permitted by the 1940
Act.
B. Section 7.2. Distributions to Shareholders.
The Trustees shall from time to time distribute ratably among the
Shareholders of the Trust or a Series such proportion of the net profits,
surplus (including paid-in surplus), capital, or assets of the Trust or such
Series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of the Trust or such Series or any assets thereof), and the Trustees may
distribute ratably among the Shareholders additional Shares of the Trust or such
Series issuable hereunder in such manner, at such times, and on such terms as
the Trustees may deem proper. Such distributions may be among the Shareholders
of record at the time of declaring a distribution or among the Shareholders of
record at such other date or time or dates or times as the Trustees shall
determine. The Trustees may in their discretion determine that, solely for the
purposes of such distributions, Outstanding Shares shall exclude Shares for
which orders have been placed subsequent to a specified time on the date the
distribution is declared or on the next preceding day if the distribution is
declared as of a day on which Boston banks are not open for business, all as
described in the registration statement under the Securities Act of 1933. The
Trustees may always retain from the net profits such amount as they may deem
necessary to pay the debts or expenses of the Trust or the Series or to meet
obligations of the Trust or the Series, or as they may deem desirable to use in
the conduct of its affairs or to retain for future requirements or extensions of
the business. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans or related plans as the Trustees
shall deem appropriate. The above provisions may be modified to the extent
required by a plan adopted by the Trustees to establish Classes of Shares of the
Trust or of a Series.
Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the Series to avoid or reduce liability for taxes.
C. Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares.
Subject to Section 5.11 and Section 5.13 hereof, the net income of the Trust or
any Series shall be determined in such manner as the Trustees shall provide by
resolution. Expenses of the Trust or a Series, including the advisory or
management fee, shall be accrued each day. Such net income may be determined by
or under the direction of the Trustees as of the close of trading on the New
York Stock Exchange on each day on which such Exchange is open or as of such
other time or times as the Trustees shall determine, and, except as provided
herein, all the net income of the Trust or any Series, as so determined, may be
declared as a dividend on the Outstanding Shares of the Trust or such Series.
If, for any
E-23
<PAGE>
reason, the net income of the Trust or any Series, determined at any time is a
negative amount, the Trustees shall have the power with respect to the Trust or
such Series (i) to offset each Shareholder's pro rata share of such negative
amount from the accrued dividend account of such Shareholder, or (ii) to reduce
the number of Outstanding Shares of the Trust or such Series by reducing the
number of Shares in the account of such Shareholder by that number of full and
fractional Shares which represents the amount of such excess negative net
income, or (iii) to cause to be recorded on the books of the Trust or such
Series an asset account in the amount of such negative net income, which account
may be reduced by the amount, provided that the same shall thereupon become the
property of the Trust or such Series with respect to the Trust or such Series
and shall not be paid to any Shareholder, of dividends declared thereafter upon
the Outstanding Shares of the Trust or such Series on the day such negative net
income is experienced, until such asset account is reduced to zero; or (iv) to
combine the methods described in clauses (i) and (ii) and (iii) of this
sentence, in order to cause the net asset value per Share of the Trust or such
Series to remain at a constant amount per Outstanding Share immediately after
each such determination and declaration. The Trustees shall also have the power
to fail to declare a dividend out of net income for the purpose of causing the
net asset value per Share to be increased to a constant amount. The Trustees
shall not be required to adopt, but may at any time adopt, discontinue or amend
the practice of maintaining the net asset value per Share of the Trust or a
Series at a constant amount.
D. Section 7.4. Allocation Between Principal and Income.
The Trustees shall have full discretion to determine whether any cash or
property received shall be treated as income or as principal and whether any
item of expense shall be charged to the income or the principal account, and
their determination made in good faith shall be conclusive upon the
Shareholders. In the case of stock dividends received, the Trustees shall have
full discretion to determine, in the light of the particular circumstances, how
much if any of the value thereof shall be treated as income, the balance, if
any, to be treated as principal.
E. Section 7.5. Power to Modify Foregoing Procedures.
Notwithstanding any of the foregoing provisions of this Article VII, the
Trustees may prescribe, in their absolute discretion, such other bases and times
for determining the per Share net asset value or net income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable.
ARTICLE VIII
------------
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
------------------------
VIII.
A. Duration.
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
B. Section 8.2. Termination of Trust.
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<PAGE>
1. (a) The Trust or any Series of the Trust may be terminated by an
instrument in writing signed by a majority of the Trustees, or by
the affirmative vote of the holders of a majority of the Shares
of the Trust or Series outstanding and entitled to vote at any
meeting of Shareholders. Upon the termination of the Trust or
any Series,
a. (i) the Trust or any Series shall carry on no business
except for the purpose of winding up its affairs;
b. (ii) the Trustees shall proceed to wind up the affairs of
the Trust or Series and all of the powers of the Trustees
under this Declaration shall continue until the affairs of
the Trust or Series shall have been wound up, including the
power to fulfill or discharge the contracts of the Trust or
Series, collect its assets, sell, convey, assign, exchange,
transfer or otherwise dispose of all or any part of the
remaining Trust Property or property of the Series to one or
more persons at public or private sale for consideration
which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate
its business; and
c. (iii) after paying or adequately providing for the payment
of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary
for their protection, the Trustees may distribute the
remaining Trust Property or property of the Series, in cash
or in kind or partly each, among the Shareholders of the
Trust or Series according to their respective rights.
2. (b) After termination of the Trust or any Series and
distribution to the Shareholders as herein provided, a majority
of the Trustees shall execute and lodge among the records of the
Trust an instrument in writing setting forth the fact of such
termination, and the Trustees shall thereupon be discharged from
all further liabilities and duties hereunder, and the rights and
interests of all Shareholders of the Trust or Series shall
thereupon cease.
C. Section 8.3. Amendment Procedure.
1. (a) This Declaration may be amended by a vote of the holders of
a majority of the Shares outstanding and entitled to vote.
Amendments shall be effective upon the taking of action as
provided in this section or at such later time as shall be
specified in the applicable vote or instrument. The Trustees may
also amend this Declaration without the vote or consent of
Shareholders if they deem it necessary to conform this
Declaration to the requirements of applicable federal or state
laws or regulations or the requirements of the regulated
investment company provisions of the Internal Revenue Code
(including those provisions of such Code relating to the
retention of the exemption from federal income tax with respect
to dividends paid by the Trust out of interest income received on
Municipal Bonds), but the Trustees
E-25
<PAGE>
shall not be liable for failing so to do. The Trustees may also
amend this Declaration without the vote or consent of
Shareholders if they deem it necessary or desirable to change the
name of the Trust, to supply any omission, to cure, correct or
supplement any ambiguous, defective or inconsistent provision
hereof, or to make any other changes in the Declaration which do
not materially adversely affect the rights of Shareholders
hereunder.
2. (b) No amendment may be made under this Section 8.3 which would
change any rights with respect to any Shares of the Trust or
Series by reducing the amount payable thereon upon liquidation of
the Trust or Series or by diminishing or eliminating any voting
rights pertaining thereto, except with the vote or consent of the
holders of two-thirds of the Shares of the Trust or Series
outstanding and entitled to vote. Nothing contained in this
Declaration shall permit the amendment of this Declaration to
impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
3. (c) A certificate signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the
Shareholders or by the Trustees as aforesaid or a copy of the
Declaration, as amended, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
D. Section 8.4. Merger, Consolidation and Sale of Assets.
The Trust or any Series thereof may merge or consolidate with any other
corporation, association, trust or other organization or may sell, lease or
exchange all or substantially all of the Trust Property or the property of any
Series, including its good will, upon such terms and conditions and for such
consideration when and as authorized by an instrument in writing signed by a
majority of the Trustees.
E. Section 8.5. Incorporation.
When authorized by an instrument in writing signed by a majority of the
Trustees, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or the property of any Series or to carry on any business in
which the Trust or the Series shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property or the property of any
Series to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
or the Series holds or is about to acquire shares or any other interest. The
Trustees may also cause a merger or
E-26
<PAGE>
consolidation between the Trust or any Series or any successor thereto and any
such corporation, trust, partnership, association or other organization if and
to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
ARTICLE IX
----------
REPORTS TO SHAREHOLDERS
-----------------------
IX.
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus or
statement of additional information, of the transactions of the Trust, including
financial statements which shall at least annually be certified by independent
public accountants.
ARTICLE X
---------
MISCELLANEOUS
-------------
X.
A. Filing.
This Declaration and any amendment hereto shall be filed in the office of
the Secretary of the Commonwealth of Massachusetts and in such other places as
may be required under the laws of the Commonwealth of Massachusetts and may also
be filed or recorded in such other places as the Trustees deem appropriate.
Unless the amendment is embodied in an instrument signed by a majority of the
Trustees, each amendment filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein. A restated Declaration, integrating into a single instrument
all of the provisions of the Declaration which are then in effect and operative,
may be executed from time to time by a majority of the Trustees and shall, upon
filing with the Secretary of the Commonwealth of Massachusetts, be conclusive
evidence of all amendments contained therein and may hereafter be referred to in
lieu of the original Declaration and the various amendments thereto. The
restated Declaration may include any amendment which the Trustees are empowered
to adopt, whether or not such amendment has been adopted prior to the execution
of the restated Declaration.
B. Section 10.2. Governing Law.
This Declaration is executed by the Trustees and delivered in the
Commonwealth of Massachusetts and with reference to the internal laws thereof,
and the rights of all parties and the validity and construction of every
provision hereof shall be subject to and construed according to the internal
laws of said State without regard to the choice of law rules thereof.
C. Section 10.3. Counterparts.
This Declaration may be simultaneously executed in several counterparts,
each of which shall be deemed to be an original, and such counterparts,
together, shall constitute one and the same instrument, which shall be
sufficiently evidenced by any such original counterpart.
E-27
<PAGE>
D. Section 10.4. Reliance by Third Parties.
Any certificate executed by an individual who, according to the records of
the Trust appears to be a Trustee hereunder, certifying to: (a) the number or
identity of Trustees or Shareholders, (b) the due authorization of the execution
of any instrument or writing, (c) the form of any vote passed at a meeting of
Trustees or Shareholders, (d) the fact that the number of Trustees or
Shareholders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees and their successors.
E. Section 10.5. Provisions in Conflict with Law or Regulations.
The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
If any provision of this Declaration shall be held invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall attach only to
such provision in such jurisdiction and shall not in any manner affect such
provisions in any other jurisdiction or any other provision of this Declaration
in any jurisdiction.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
_______ day of _______________, 2000.
____________________________________
as Trustee and not Individually
____________________________________
as Trustee and not Individually
____________________________________
as Trustee and not Individually
____________________________________
as Trustee and not Individually
____________________________________
as Trustee and not Individually
____________________________________
as Trustee and not Individually
E-28
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
---------------------------------
County of Suffolk _____________ ____, 2000
Then personally appeared the above-named ___________________ who
acknowledged the foregoing instrument to be his/her free act and deed.
Before me,
______________________________
Notary Public
My commission expires: __________
E-29
<PAGE>
APPENDIX F
----------
PLAN OF REORGANIZATION
F-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. TRANSFER OF ASSETS OF EACH OF THE REORGANIZING FUNDS IN
EXCHANGE FOR ASSUMPTION OF CERTAIN LIABILITIES AND ISSUANCE OF
RESPECTIVE SUCCESSOR FUND SHARES.................................................... 1
1.1 Transaction.................................................................... 1
1.2 Assets Transferred............................................................. 2
1.3 Election of Trustees; Approval of Advisory Agreements; Adoption of Investment
Policies; New Service Provider Agreements...................................... 2
1.4 Distributions in Liquidation................................................... 2
1.5 Record of Ownership............................................................ 3
1.6 Transfer Taxes................................................................. 3
2. VALUATION........................................................................... 3
2.1 Determination of Reorganizing Fund Assets...................................... 3
2.2 Number of Successor Fund Shares Issued......................................... 3
2.3 Computing Net Asset Value...................................................... 3
3. CLOSING AND CLOSING DATE............................................................ 3
3.1 Closing........................................................................ 3
3.2 Notice to Custodian............................................................ 4
3.3 Transfer Agent Certificate; Delivery at Closing................................ 4
3.4 Examination of Portfolio Securities............................................ 4
4. CONDITIONS PRECEDENT................................................................ 4
4.1 Organization................................................................... 4
4.2 Registrations and Qualifications............................................... 5
4.3 Corporate Power, Authorization of Transaction.................................. 5
4.4 Noncontravention............................................................... 5
4.5 Tax Filings.................................................................... 5
4.6 Tax Status..................................................................... 5
4.7 Qualification under Subchapter M............................................... 6
4.8 Issuance of Reorganizing Fund Shares........................................... 6
4.9 Issuance of Successor Fund Shares.............................................. 6
4.10 Accuracy of Information........................................................ 6
4.11 Ownership of Assets............................................................ 6
4.12 Amendment of Declaration of Trust.............................................. 6
4.13 Acquisition of Successor Fund Shares........................................... 6
4.14 Documents Evidencing Transfer By Reorganizing Funds............................ 7
4.15 Documents Evidencing Transfer By Successor Funds............................... 7
</TABLE>
F-i
<PAGE>
<TABLE>
<S> <C>
4.16 Distribution of Earnings and Profits........................................... 7
4.17 Statement of Assets and Liabilities............................................ 7
4.18 Consummation................................................................... 7
4.19 Absence of Litigation.......................................................... 7
4.20 Approval by Shareholders....................................................... 8
4.21 Consents....................................................................... 8
4.22 Legal Opinion.................................................................. 8
5. FINANCIAL STATEMENTS................................................................ 8
6. BROKERAGE FEES AND EXPENSES......................................................... 8
6.1 Absence of Broker Fees......................................................... 8
6.2 Allocation of Expenses......................................................... 8
7. TERMINATION.................................................................... 9
7.l Failure to Meet Condition Precedent............................................ 9
7.2 Majority Vote.................................................................. 9
8. AMENDMENT...................................................................... 9
9. RECOURSE....................................................................... 9
</TABLE>
F-ii
<PAGE>
This PLAN OF REORGANIZATION dated as of _____________, 1999, pertains to
the International Bond Fund and Emerging Markets Bond Fund II, each a series of
PIMCO Funds: Pacific Investment Management Series (the "Reorganizing Funds").
This Plan is intended to be and is adopted by PIMCO Funds: Pacific
Investment Management Series (the "Trust"), on behalf of the International Bond
and Emerging Markets Bond Funds, as a plan of reorganization within the meaning
of Section 368(a)(1) of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), and is intended to effect the reorganization (a "Reorganization") of
each of the Reorganizing Funds as corresponding new PIMCO Funds: Private Account
Portfolios series of the Trust (each, a "Successor Fund" and, together with the
Reorganizing Funds, the "Funds"). The Reorganization will include the transfer
of substantially all of the assets of each of the Reorganizing Funds to its
respective Successor Fund solely in exchange for (1) the assumption by the
corresponding Successor Fund of all liabilities, including all contingent,
conditional or unmatured liabilities, of such Reorganizing Fund, which pertain
to events, facts and circumstances of the Reorganizing Fund prior to and
including the Closing Date, and (2) the issuance to the corresponding
Reorganizing Fund of shares of beneficial interest of the corresponding
Successor Fund. The aggregate number of shares of a Successor Fund (the
"Successor Fund Shares") issued to a Reorganizing Fund will be equal to the
number of shares of beneficial interest ("Shares") of the corresponding
Reorganizing Fund outstanding immediately before the Reorganization. These
transactions will be immediately followed by a pro rata distribution by each of
the Reorganizing Funds of the Successor Fund Shares it receives in the exchange
described above to the holders of corresponding Reorganizing Fund Shares in
exchange for those Successor Fund Shares, in liquidation of the respective
Reorganizing Fund, all upon the terms and conditions hereinafter set forth in
this Plan.
1. TRANSFER OF ASSETS OF EACH OF THE REORGANIZING FUNDS IN EXCHANGE FOR
ASSUMPTION OF ALL LIABILITIES AND ISSUANCE OF RESPECTIVE SUCCESSOR FUND
SHARES
1.1 Transaction.
-----------
Subject to the terms and conditions set forth herein and on the basis of
the representations and warranties contained herein, each of the Reorganizing
Funds agrees to transfer substantially all of its assets (as described in
paragraph 1.2) and to assign and transfer all of its liabilities, including all
contingent, conditional or unmatured liabilities, to the corresponding Successor
Fund, which is organized solely for the purpose of acquiring substantially all
of the assets and assuming all liabilities of such Reorganizing Fund. In
exchange for substantially all of the assets of the Reorganizing Funds (1) the
corresponding Successor Fund shall assume all liabilities whether or not
contingent, conditional or unmatured, costs, expenses, charges and reserves,
which pertain to events, facts and circumstances of the Reorganizing Fund prior
to and including the Closing Date, as defined in paragraph 3.1, in accordance
with generally accepted accounting principles consistently applied from the
prior audited period, and (2) the Trust shall issue Successor Fund Shares to the
corresponding Reorganizing Fund. The number of Successor Fund Shares to be
issued by the Trust on behalf of the Successor Fund will be identical to the
number of Shares of the Reorganizing Fund outstanding on the Closing Date
provided for in paragraph 3.1. Such transactions shall take place at the Closing
provided for in paragraph 3.1.
F-2
<PAGE>
1.2 Assets Transferred.
------------------
The assets of each Reorganizing Fund to be acquired by the corresponding
Successor Fund shall include, without limitation, all cash, cash equivalents,
securities, receivables (including interest and dividends receivable), any
claims or rights of action or rights to register shares under applicable
securities laws, any books or records of such Reorganizing Fund and other
property owned by such Reorganizing Fund and any deferred or prepaid expenses
shown as assets on the books of such Reorganizing Fund on the Closing Date
provided for in paragraph 3.1.
1.3 Election of Trustees; Approval of Advisory Agreements; Adoption of
------------------------------------------------------------------
Investment Policies; New Service Provider Agreements.
----------------------------------------------------
Immediately after delivery to the Reorganizing Funds of corresponding
Successor Fund Shares, a duly authorized officer of each of the Reorganizing
Funds shall, to the extent required by applicable law, cause its respective
Reorganizing Fund, as the sole shareholder of the corresponding Successor Fund,
to: (i) elect the Trustees of the Trust; (ii) approve an investment advisory
agreement for the corresponding Successor Fund in substantially the form as the
investment advisory agreement in effect for the corresponding Reorganizing Fund
immediately prior to the Closing of the Reorganization (with such changes as
approved by the shareholders of the corresponding Reorganizing Fund); and (iii)
adopt investment objectives, investment policies and investment restrictions
which are substantially similar to those of the Reorganizing Fund immediately
prior to the Closing of the Reorganization, including any changes thereto
approved by the shareholders of the Reorganizing Fund at the meeting of
shareholders to be held on March 3, 2000. On or prior to the Closing Date, the
Trust shall, on behalf of each of the Successor Funds, either enter into
transfer agency, subtransfer agency, custodian and subcustodian agreements, and
any other agreement pursuant to which services are rendered to the Reorganizing
Funds with appropriate terms or assume each of the Reorganizing Fund's
obligations under its existing, comparable agreements. The Trust shall also
adopt, on its own behalf or on behalf of each of the Successor Funds, on or
prior to the Closing Date, all policies and procedures in effect with respect to
each of the Reorganizing Funds as of the Closing Date.
1.4 Distributions in Liquidation.
----------------------------
On the Closing Date each of the Reorganizing Funds will distribute in
liquidation the respective Successor Fund Shares each Reorganizing Fund has
received to each shareholder of record, determined as of the close of business
on the Closing Date, pro rata in proportion to such shareholder's beneficial
interest in that Reorganizing Fund and in exchange for that shareholder's
Shares. Such distribution will be accomplished by the transfer of the Successor
Fund Shares then credited to the account of each Reorganizing Fund on its share
records to open accounts on those records in the names of Reorganizing Fund
Shareholders and representing the respective pro rata number of each class of
the Successor Fund Shares received from the Successor Fund which is due to such
Reorganizing Fund Shareholders. Fractional Successor Fund Shares shall be
rounded to the third place after the decimal point.
F-3
<PAGE>
1.5 Record of Ownership.
-------------------
Ownership of the Successor Fund Shares by each Successor Fund Shareholder
shall be recorded separately on the books of the Trust's transfer agent.
1.6 Transfer Taxes.
--------------
Any transfer taxes payable upon the issuance of Successor Fund Shares in a
name other than the registered holder of the Reorganizing Fund Shares on the
books of a Reorganizing Fund shall be paid by the person to whom such Successor
Fund Shares are to be distributed as a condition of such transfer.
2. VALUATION
2.1 Determination of Reorganizing Fund Assets.
-----------------------------------------
The value of each of the Reorganizing Fund's net assets to be acquired by
the Trust on behalf of each of the Successor Funds hereunder shall be the net
asset value computed as of the valuation time provided in each of the
Reorganizing Fund's prospectus on the Closing Date using the valuation
procedures set forth in the Reorganizing Fund's current prospectus and statement
of additional information.
2.2 Number of Successor Fund Shares Issued.
--------------------------------------
The number of the corresponding Successor Fund Shares issued shall equal
the number of full and fractional corresponding Reorganizing Fund Shares
outstanding on the Closing Date.
2.3 Computing Net Asset Value.
-------------------------
All computations of value shall be made by the custodian for each of the
Reorganizing Funds and the Trust, or the Reorganizing Funds' investment adviser,
in each case as required by any valuation procedures adopted by the Reorganizing
Funds.
3. CLOSING AND CLOSING DATE
3.1 Closing.
-------
The transfer of a Reorganizing Fund's assets in exchange for the assumption
by the corresponding Successor Fund of such Reorganizing Fund's liabilities and
the issuance of Successor Fund Shares to such Reorganizing Fund, as described
above, together with related acts necessary to consummate such acts (the
"Closing"), shall occur at the offices of the Trust, 840 Newport Center Drive,
Suite 300, Newport Beach, California on _________, 2000 ("Closing Date"). All
acts taking place at the Closing shall be deemed to take place simultaneously as
of the last daily determination of the net asset value of the Reorganizing Funds
or at such other time and or place as the parties may agree.
F-4
<PAGE>
3.2 Notice to Custodian.
-------------------
An authorized officer shall notify the custodian for the Trust of each
Reorganizing Fund's reorganization as a series of the Trust.
3.3 Transfer Agent Certificate; Delivery at Closing.
-----------------------------------------------
The transfer agent for each Reorganizing Fund, shall deliver at the Closing
a certificate evidencing the conversion on its books and records of each
Reorganizing Fund Shareholder account to a corresponding Successor Fund
Shareholder account. The Trust shall issue and deliver to each Reorganizing Fund
a confirmation evidencing the crediting of Successor Fund Shares to the
appropriate shareholder accounts on the Closing Date or provide other evidence
satisfactory to each Reorganizing Fund that such Successor Fund Shares have been
credited to the corresponding Reorganizing Fund's account on the books of the
Trust. At the Closing, the Trust shall deliver such bills of sale, checks,
assignments, stock certificates, receipts or other documents as are deemed
necessary or appropriate.
3.4 Examination of Portfolio Securities.
-----------------------------------
Portfolio securities that are not held in book-entry form in the name of
the custodian as record holder for a Reorganizing Fund shall be presented by the
Reorganizing Fund to the custodian for examination no later than five business
days preceding the Closing Date. Portfolio securities which are not held in
book-entry form shall be delivered by a Reorganizing Fund to the custodian for
the account of the Successor Fund on the Closing Date, duly endorsed in proper
form for transfer, in such condition as to constitute good delivery thereof in
accordance with the custom of brokers, and shall be accompanied by all necessary
federal and state stock transfer stamps or a check for the appropriate purchase
price thereof. Portfolio securities held of record by the custodian in book-
entry form on behalf of a Reorganizing Fund shall be delivered to the
corresponding Successor Fund by the custodian by recording the transfer of
beneficial ownership thereof on its records. The cash delivered shall be in the
form of currency or by the custodian crediting the corresponding Successor
Fund's account maintained with the custodian with immediately available funds.
4. CONDITIONS PRECEDENT
Consummation of the transactions provided for herein shall be subject to
the following further conditions:
4.1 Organization.
------------
Each Fund shall be a series of the Trust, which shall be duly organized,
validly existing and in good standing under the laws of the State of
Massachusetts, and shall have the power to own all of its properties and assets
and, subject to any necessary approval by the shareholders, to perform its
obligations under this Plan. Neither any Fund nor the Trust shall be required
to qualify to do business in any jurisdiction in which it is not so qualified or
where failure to qualify would not subject it to any material liability or
disability. Each Fund has all necessary federal,
F-5
<PAGE>
state and local authorizations to own all of its properties and assets and to
carry its business as now being conducted.
4.2 Registrations and Qualifications.
--------------------------------
The Trust shall be a registered investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), shall be
in full force and effect.
4.3 Corporate Power, Authorization of Transaction.
---------------------------------------------
The performance of this Plan shall have been duly authorized prior to the
Closing Date by all necessary action on the part of each Fund.
4.4 Noncontravention.
----------------
The Trust shall not be, and the execution, delivery and performance of this
Agreement shall not result, in violation of any provision of its Declaration of
Trust or By-laws, or any agreement, indenture, instrument, contract, lease or
other undertaking to which the Trust is a party or by which it is bound.
4.5 Tax Filings.
-----------
At the Closing Date, all federal, state and other tax returns and reports,
including information returns and payee statements, of each Reorganizing Fund
required by law to have been filed or furnished by such dates shall have been
filed or furnished and all federal, state and other taxes, interest and
penalties shall have been paid so far as due or provision shall have been made
for the payment thereof and no such return shall be under audit and no
assessment shall have been asserted with respect to any of such returns or
reports.
4.6 Tax Status.
----------
Each Reorganizing Fund shall have satisfied the requirements of Section
851(b)(3) (relating to diversification of assets) of the Code. Each Reorganizing
Fund shall have distributed to its shareholders all of its current and
accumulated earnings and profits as computed for federal income tax purposes,
including, without limitation, any earnings and profits accruing up to and
including the date of the Closing or as a result of the Reorganization. Not more
than 25 percent of the value of the Reorganizing Fund's total assets shall have
been invested in the stock and securities of any one issuer and not more than 50
percent of the value of its total assets shall have been invested in the stock
and securities of 5 or fewer issuers. For purposes of the foregoing
representation: (i) all members of a controlled group of corporations (within
the meaning of Section 1563(a) of the Code) shall be treated as one issuer, and
(ii) a person holding stock in a regulated investment company, a real estate
investment trust, or an investment company (as defined in Section 368(a)(2)(F)
of the Code) shall be treated as holding its proportionate share of the assets
held by such company or trust. Immediately after the Closing, Successor Fund
Shares
F-6
<PAGE>
will be owned by substantially by the same persons in the same proportions as
the ownership of the Shares of the corresponding Reorganizing Fund.
4.7 Qualification under Subchapter M.
--------------------------------
The Trust shall have caused each Successor Fund to qualify as a regulated
investment company under Subsection M of the Code since such Successor Fund's
inception, including the taxable year in which the Closing occurs.
4.8 Issuance of Reorganizing Fund Shares.
------------------------------------
All Shares of the Reorganizing Fund at the Closing Date shall be duly and
validly issued and outstanding, fully paid and non-assessable by the Trust. The
Reorganizing Fund shall not have outstanding any options, warrants or other
rights to subscribe for or purchase any shares of beneficial interest (other
than dividend reinvestment rights), nor shall there be outstanding any security
convertible into any of such shares.
4.9 Issuance of Successor Fund Shares.
---------------------------------
Prior to the Closing Date, there shall be no issued and outstanding
Successor Fund Shares or any other securities of each Successor Fund. Successor
Fund Shares issued in connection with the transactions contemplated herein will
be duly and validly issued and outstanding and fully paid and non-assessable by
the Trust.
4.10 Accuracy of Information.
-----------------------
The information furnished for use in applications for orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete and shall comply in all material respects with federal securities and
other laws and regulations thereunder applicable thereto.
4.11 Ownership of Assets.
-------------------
At the Closing Date, each Reorganizing Fund will have good and marketable
title to the assets to be transferred to the corresponding Successor Fund, and
will have full right, power and authority to sell, assign, transfer and deliver
such assets hereunder. Upon delivery and in payment for such assets, the Trust,
on behalf of the corresponding Successor Fund, will acquire good and marketable
title thereto subject to no restrictions on the full transfer thereof, including
such restrictions as might arise under the Securities Act of 1933, as amended
(the "1933 Act").
4.12. Amendment of Declaration of Trust.
---------------------------------
Any necessary amendment to the Trust's Declaration of Trust shall have been
filed with the Secretary of State of the Commonwealth of Massachusetts.
4.13 Acquisition of Successor Fund Shares.
------------------------------------
F-7
<PAGE>
Each of the Reorganizing Funds, to the extent determined to be appropriate,
shall have made any necessary covenants that the Successor Fund Shares it
acquires are not being acquired for the purpose of making any distribution
thereof, other than in accordance with the terms of this Agreement.
4.14 Documents Evidencing Transfer By Reorganizing Funds.
---------------------------------------------------
The Trust, on behalf of each Reorganizing Fund, shall have executed and
delivered, or caused to be executed and delivered, all such assignments and
other instruments, and shall have taken or caused to be taken such further
action, as the Trust may deem necessary or desirable in order to vest in the
Trust, on behalf of the corresponding Successor Fund, title to, and possession
of, all the assets of the respective Reorganizing Fund to be sold, assigned,
transferred and delivered to the Successor Fund hereunder and otherwise to carry
out the intent and purpose of this Plan.
4.15 Documents Evidencing Transfer By Successor Funds.
------------------------------------------------
The Trust, on behalf of each Successor Fund, shall have executed and
delivered or caused to be executed and delivered all such assignments and other
instruments, and shall have taken or caused to be taken such further action, as
the Trust may deem necessary or desirable in order to vest in the Trust, on
behalf of the corresponding Reorganizing Fund, title to, and possession of, the
Successor Fund Shares issued, sold, assigned, transferred and delivered
hereunder to the Reorganizing Fund and otherwise to carry out the intent and
purpose of this Plan.
4.16 Distribution of Earnings and Profits.
------------------------------------
On or before the Closing, each Reorganizing Fund shall have distributed to
its shareholders all of its current and accumulated earnings and profits as
computed for federal income tax purposes, including, without limitation, all
earnings and profits accruing up to and including the date of the Closing or as
a result of the Reorganizations.
4.17 Statement of Assets and Liabilities.
-----------------------------------
Each of the Reorganizing Funds shall have delivered on the Closing Date a
statement of the assets and liabilities, prepared in accordance with generally
accepted accounting principles consistently applied, together with a certificate
of the Treasurer of the Trust as to the Reorganizing Fund's securities and
federal income tax basis and holding period as of the Closing Date.
4.18 Consummation.
------------
Subject to the provisions of this Plan, the Trust shall have taken, or
caused to be taken, all action and will have done or caused to be done all
things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Plan.
4.19 Absence of Litigation.
---------------------
F-8
<PAGE>
On the Closing Date, no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with the
transactions contemplated hereby.
4.20 Approval by Shareholders.
------------------------
This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of each of the Reorganizing Fund's shareholders,
to the extent required by applicable law.
4.21 Consents.
--------
All consents of other parties and all other consents, approvals,
authorization orders and permits of federal, state and local courts and
regulatory authorities (including those of the Securities and Exchange
Commission and of state securities authorities) deemed necessary by the Trust to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Trust, the Reorganizing Funds or the
Successor Funds.
4.22 Legal Opinion.
-------------
The Reorganizing Funds and the Trust shall have received on or before the
Closing Date an opinion of Dechert Price & Rhoads, in a form reasonably
satisfactory to the Trust, regarding the treatment, for federal income tax
purposes, of the Reorganizations contemplated herein.
Each of the foregoing conditions precedent to the obligations of a Fund,
except for receipt of the opinion of Dechert Price & Rhoads set forth in
paragraph 4.22, may be waived by the Trust.
5. FINANCIAL STATEMENTS.
As promptly as practicable, but in any event within 60 days after the
Closing Date, the Trust shall prepare a statement of any capital loss carryovers
and other items that will be carried over to each Successor Fund as a result of
Section 381 of the Code. Such statement shall be certified by the President or
Treasurer of the Trust.
6. BROKERAGE FEES AND EXPENSES
6.1 Absence of Broker Fees.
----------------------
The Trust, on behalf of the Successor Funds and the Reorganizing Funds,
shall not pay a broker's or finder's fee in connection with the transactions
contemplated hereby.
6.2 Allocation of Expenses.
----------------------
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<PAGE>
Each of the Reorganizing Funds and the Successor Funds shall be liable for
any expenses incurred by it in connection with entering into and carrying out
the provisions of this Plan whether or not the transactions contemplated hereby
are consummated.
7. TERMINATION
The Trust may, at its option, terminate this Plan at or prior to the
Closing Date because:
7.l Failure to Meet Condition Precedent.
-----------------------------------
A condition expressed precedent to the obligations of the Funds has not
been met, and it reasonably appears that it will not or cannot be met.
7.2 Majority Vote.
-------------
A majority of the members of the Board of Trustees determines that it is
not in the best interest of a Fund or its shareholders to proceed with the
transactions contemplated by this Plan.
8. AMENDMENT
This Plan may be amended, modified or supplemented; provided, however, that
following the approval of this Plan by shareholders of either Reorganizing Fund,
no such amendment may have the effect of changing the provisions for determining
the number of Successor Fund Shares to be paid to a Reorganizing Fund's
shareholders under this Plan to the detriment of such Reorganizing Fund
shareholders without their further approval.
9. RECOURSE
All persons dealing with the Trust, any Reorganizing Fund or any Successor
Fund must look solely to the property of the Trust, the Reorganizing Funds or
the Successor Funds, respectively, for the enforcement of any claims against the
Trust, the Reorganizing Funds or the Successor Funds, as neither the Trustees,
officers, agents nor shareholders of the Trust or the Reorganizing Funds or the
Successor Funds assume any personal liability for obligations entered into on
behalf of the Trust, or the Reorganizing Funds, or the Successor Funds,
respectively.
F-10
<PAGE>
APPENDIX G
----------
As of December 15, 1999, the following persons owned of record or
beneficially 5% or more of the shares of the noted class of shares of the
following Funds:
Shares Percent
Beneficially of
Owned Fund
-----------------------------
International Bond Fund
- -----------------------
Emerging Markets Bond Fund II
- -----------------------------
* Entity owned 25% or more of the outstanding shares of beneficial interest of
the Fund, and therefore may be presumed to "control" the Fund, as that term is
defined in the 1940 Act.
** Shares are believed to be held only as nominee.
G-1
<PAGE>
PROXY
[Name of Fund]
SPECIAL MEETING OF SHAREHOLDERS
_________, 2000
The undersigned hereby appoints ____________ and ___________ and each of
them, as his/her attorneys and proxies with full power of substitution to vote
and act with respect to all shares of the ______ Fund held by the undersigned at
the Special Meeting of Shareholders of the Fund to be held at 800 Newport Center
Drive, 6th Floor, Newport Beach, California, 92660, on [March 3], 2000 at
[time], Pacific Time, or as adjourned from time to time (the "Meeting"), and
instructs them to vote as indicated on the matters referred to in the Proxy
Statement for the Meeting, receipt of which is hereby acknowledged, with
discretionary power to vote upon such other business as may properly come before
the Meeting.
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES OF THE TRUST. The Board of
Trustees recommends that you vote FOR each of the Nominees and FOR each of the
following proposals:
I. To elect Trustees to the Board of Trustees of the Trust
[ ] FOR ALL [ ] AGAINST ALL [ ] ABSTAIN
[ ] FOR ALL EXCEPT___________________________________
(Only use to withhold authority to vote on individual Nominees)
II. To approve a new investment advisory contract
[ ] FOR [ ] AGAINST [ ] ABSTAIN
III. To approve changes to fundamental investment policies:
a. Concentration
[ ] FOR [ ] AGAINST [ ] ABSTAIN
b. Margin [International Bond Fund]
[ ] FOR [ ] AGAINST [ ] ABSTAIN
c. Borrowing and Senior Securities
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
d. Loans
[ ] FOR [ ] AGAINST [ ] ABSTAIN
e. Short Positions
[ ] FOR [ ] AGAINST [ ] ABSTAIN
f. Investments in other Investment Companies
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[ ] FOR ALL EXCEPT________________________
IV. To approve an Amended and Restated Declaration of Trust
[ ] FOR [ ] AGAINST [ ] ABSTAIN
V. To approve a Plan of Reorganization of the Fund as a separate Trust
series of the Trust
[ ] FOR [ ] AGAINST [ ] ABSTAIN
VI. To transact such other business as may properly come before the
Meeting
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy will be voted as specified. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR ALL OF THE NOMINEES AND FOR ALL OF THE PROPOSALS.
Receipt of the Notice of Special Meeting and Proxy Statement is hereby
acknowledged.
Dated _________________________, 2000
______________________________________________
Name of Shareholder(s) -- Please print or type
______________________________________________
Signature(s) of Shareholder(s)
______________________________________________
Signature(s) of Shareholder(s)
This proxy must be signed by the beneficial owner of Fund shares. If
signing as attorney, executor, guardian or in some representative capacity or as
an officer of a corporation, please add title as such.
-2-
<PAGE>
PLEASE VOTE, SIGN AND DATE THIS PROXY AND RETURN IT IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
-3-
