<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:
[_] Preliminary Proxy Statement [_] Confidential, for use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] 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:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
[_] Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
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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, Suite 300
Newport Beach, California 92660
January 12, 2000
Dear Shareholder:
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 9:00
a.m., Pacific time.
As discussed in more detail in the enclosed proxy statement, Pacific
Investment Management Company ("PIMCO"), the investment adviser for each series
of the Trust (the "Funds") and a subsidiary partnership of PIMCO Advisors L.P.
("PIMCO Advisors"), will undergo a "change in control" as a result of Allianz
of America, Inc. acquiring approximately 70% of the outstanding partnership
interests in PIMCO Advisors (the "Transaction"). At the meeting, you will be
asked to consider the following proposals:
. Election of Trustees to the Board of Trustees.
. Approval of a new investment advisory contract between the Trust and
PIMCO. The new investment advisory contract provides that, following the
Transaction, PIMCO will continue to provide investment advisory services
to each Fund 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.
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 card(s) promptly in order to avoid the expense of additional
mailing or having our proxy solicitor, D.F. King & Co., Inc. ("D.F. King")
telephone you. Alternatively, you may vote by telephone, facsimile or Internet,
as described in the proxy card(s). If you have any questions regarding the
proxy statement, please call D.F. King at 1-800-949-2583.
Thank you in advance for your participation in this important event.
Sincerely,
/s/ R. Wesley Burns
R. Wesley Burns
Managing Director
<PAGE>
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
For proxy information call:
(800) 949-2583
For account information call:
(800) 927-4648 (Institutional and Administrative Class Shares)
(800) 426-0107 (All Other Classes of Shares)
----------------
Money Market Fund
Short-Term Fund
Low Duration Fund
Low Duration Fund II
Low Duration Fund III
Low Duration Mortgage Fund
Moderate Duration Fund
Real Return Bond Fund
Total Return Fund
Total Return Fund II
Total Return Fund III
Total Return Mortgage Fund
High Yield Fund
Long-Term U.S. Government Fund
Short Duration Municipal Income Fund
Municipal Bond Fund
California Intermediate Municipal Bond Fund
New York Intermediate Municipal Bond Fund
Global Bond Fund
Global Bond Fund II
Foreign Bond Fund
Emerging Markets Bond Fund
Strategic Balanced Fund
Convertible Bond Fund
StocksPLUS Fund
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held March 3, 2000
----------------
To the Shareholders of PIMCO Funds: Pacific Investment Management Series:
Notice is hereby given that a special meeting of shareholders of the
currently operational series of the PIMCO Funds: Pacific Investment Management
Series (the "Trust") will be held at 800 Newport Center Drive, 6th Floor,
Newport Beach, California 92660 on March 3, 2000 at 9:00 a.m., Pacific time,
or as adjourned from time to time (the "Meeting"), for the purposes listed
below. This proxy statement relates to all currently active series of the
Trust, other than the PIMCO International Bond Fund and the PIMCO Emerging
Markets Bond Fund II (the "Funds"). Shares of the PIMCO International Bond
Fund and the PIMCO Emerging Markets Bond Fund II are offered only to private
account clients of Pacific Investment Management Company ("PIMCO"), and
proxies for these series 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;
<PAGE>
III. To approve changes to fundamental investment policies;
IV. To approve an Amended and Restated Declaration of Trust; and
V. 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
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, PLEASE COMPLETE,
SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD(S) 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
January 12, 2000
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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(S).
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<PAGE>
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
For proxy information call:
(800) 949-2583
For account information call:
(800) 927-4648 (Institutional and Administrative Class Shares)
(800) 426-0107 (All Other Classes of Shares)
----------------
PROXY STATEMENT
----------------
Special Meeting of Shareholders
To be held March 3, 2000
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Trustees (the "Board" or "Trustees") of the PIMCO
Funds: Pacific Investment Management Series (the "Trust") for use at a joint
special meeting of shareholders 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 9:00 a.m., Pacific time, or as adjourned
from time to time (the "Meeting"), for the purposes set forth below.
This proxy statement relates to all currently active series of the Trust,
other than the PIMCO International Bond Fund and the PIMCO Emerging Markets
Bond Fund II (the "Funds"). Shares of the PIMCO International Bond Fund and
the PIMCO Emerging Markets Bond Fund II are offered only to private account
clients of Pacific Investment Management Company ("PIMCO"), and proxies for
these series are being solicited separately. It is anticipated that the first
mailing of proxies and proxy statements to shareholders will be on or about
January 12, 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 appropriate
telephone number above.
The Board is soliciting proxies from shareholders of the 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; and
V. 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 election to
the Board. 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 or its investment adviser, PIMCO. To that end, at
the Meeting, two new Trustees who are not "interested persons" of the Trust or
PIMCO 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 and nomination of
candidates to serve as Trustees of the Trust. The Nominating Committee did not
meet during the fiscal year ended March 31, 1999.
<PAGE>
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 as Trustees, and 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 valuable
additions to the Board as independent Trustees. The Board noted that Mr.
Cannon currently serves on the board of another investment company managed by
affiliates of PIMCO. In addition, the Board 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 has the
background, experience and working knowledge of the Funds, as well as the
professional experience, to be an effective member of the Board.
If the Nominees are elected at the Meeting, there will be a total of eight
Trustees on the Board, six of whom will not be "interested persons" of the
Trust or PIMCO.
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
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>
Length of Principal Occupation(s)
Service Current Position During the Past Five
Name, Address and Age on the Board with the Trust Years
--------------------- ------------ ---------------- ------------------------
<C> <C> <C> <S>
Guilford C. Babcock............. 4/87-Present Trustee Associate Professor of
1500 Park Place Finance, University of
San Marino, California 91108 Southern California;
Age 68 Director, PIMCO
Commercial Mortgage
Securities Trust, Inc.;
Trustee, PIMCO Variable
Insurance Trust;
Director, Growth Fund of
America and Fundamental
Investors Fund of the
American Funds;
Director, Good Hope
Medical Foundation.
R. Wesley Burns*................ 11/97-Present President and Managing Director,
840 Newport Center Drive (since 2/94 as Trustee PIMCO; President and
Newport Beach, California 92660 President) Director, PIMCO
Age 40 Commercial Mortgage
Securities Trust, Inc.;
President and Trustee,
PIMCO Variable Insurance
Trust. Formerly
Executive Vice
President, PIMCO;
Executive Vice
President, PIMCO Funds:
Multi-Manager Series.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Length of Principal Occupation(s)
Service Current Position During the Past Five
Name, Address and Age on the Board with the Trust Years
--------------------- ------------ ---------------- ------------------------
<C> <C> <C> <S>
E. Philip Cannon............... Nominee None Proprietor, Cannon &
3838 Olympia Company, an affiliate of
Houston, Texas 77019 Inverness Management
Age 59 LLC, a private equity
investment firm; Trustee
of PIMCO Funds: Multi-
Manager Series.
Formerly, Headmaster,
St. John's School,
Houston, Texas; Trustee
of Cash Accumulation
Trust; General Partner,
J.B. Poindexter & Co.,
Houston, Texas, a
private equity
investment firm; 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.
Vern O. Curtis................. 4/87-3/93 and Trustee Private Investor;
14158 N.W. Bronson Creek Drive 2/95-Present Director, PIMCO
Portland, Oregon 97229 Commercial Mortgage
Age 65 Securities Trust, Inc.;
Trustee, PIMCO Variable
Insurance 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.
J. Michael Hagan............... Nominee None Retired from Furon
6 Merced Company (manufacturing)
San Clemente, California 92673 where he served as
Age 60 Chairman and CEO from
June 1991 to November
1999, and in other
capacities 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
(manufacturing), Freedom
Communications, and
Remedy Temp (staffing).
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>
3
<PAGE>
<TABLE>
<CAPTION>
Length of Principal Occupation(s)
Service Current Position During the Past Five
Name, Address and Age on the Board with the Trust Years
--------------------- ------------ ----------------- ------------------------
<C> <C> <C> <S>
Brent R. Harris*............... 2/92-Present Chairman of the Managing Director,
840 Newport Center Drive Board and Trustee PIMCO; Board of
Newport Beach, California 92660 Governors, Investment
Age 40 Company Institute;
Chairman and Director,
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Chairman
and Trustee, PIMCO
Variable Insurance
Trust.
Thomas P. Kemp................. 4/87-Present Trustee Private Investor;
141 Marine Drive Director, PIMCO
Laguna Beach, California 92651 Commercial Mortgage
Age 69 Securities Trust, Inc.;
Trustee, PIMCO Variable
Insurance Trust.
Formerly Co-Chairman,
U.S. Committee to Assist
Russian Reform;
Director, Union
Financial Corp. (savings
and loan); Senior
Consultant, World Cup
1994 Organizing
Committee.
William J. Popejoy............. 7/93-2/95 and Trustee President, Pacific
29 Chatham Court 8/95-Present Capital Investors;
Newport Beach, California 92660 Chairman, PacPro (vinyl
Age 61 assembly products;
formerly Western
Printing); Director,
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Trustee,
PIMCO Variable Insurance
Trust. Formerly
Director, California
State Lottery; Chief
Executive Officer,
Orange County,
California.
</TABLE>
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* Mr. Burns and Mr. Harris are "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.
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, except Mr. Harris, who
owned 154,104 shares (2.65%) of the Institutional Class Shares of the
Municipal Bond Fund. Messrs. Curtis and Hagan formerly held units issued by
PIMCO Advisors L.P., the parent of PIMCO.
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 accountant, submits a recommendation to the Board as to the selection
of an independent public accountant, 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.
4
<PAGE>
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 Trust, as a group, received compensation in the amount of
$234,297.
The following table sets forth the compensation paid to each of the current
Trustees of the Trust for the fiscal year ended March 31, 1999. Trustees who
are "interested persons" of the Trust do not receive any compensation from the
Trust.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name from Trust Trust and Fund Complex*
---- ---------------------- -----------------------
<S> <C> <C>
Guilford C. Babcock .......... $58,000 $78,750
Vern O. Curtis................ $60,297 $82,619
Thomas P. Kemp ............... $58,000 $78,750
William J. Popejoy............ $58,000 $78,750
</TABLE>
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* 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 as Directors of PIMCO Commercial
Mortgage Securities Trust, Inc., the Trustees listed above received an
annual retainer of $6,000 plus $1,000 for each Board of Directors
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 fiscal
year ended December 31, 1999, these Trustees, as a group, received
compensation in the amount of $42,786 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 Directors meeting attended in person ($250 for
each meeting attended telephonically), an annual retainer of $500 for a
Committee Chairmanship, plus reimbursement of related expenses. For the
fiscal year ended December 31, 1999, these Trustees, as a group,
received compensation in the amount of $41,786 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"), the
parent of PIMCO, and certain of its affiliates. Messrs. Burns and Harris, as
managing directors of PIMCO, the investment adviser and administrator of the
Funds, 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 of the Trust
since its inception on February 19, 1987. PIMCO currently serves as adviser of
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
5
<PAGE>
restated administration agreement adopted on February 24, 1998 (the
"Administration Agreement"). PIMCO Funds Distributors LLC, 2187 Atlantic
Street, Stamford, Connecticut 06902, a wholly-owned subsidiary of PIMCO
Advisors, serves as distributor of the Funds.
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 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 a new Administration Agreement. Forms
of the New Advisory Contract and Administration Agreement are attached as
Appendix A.
Information about PIMCO, its directors and principle executive officer, the
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 a subsidiary of Allianz of America with and into
PAH. In the merger, each of the outstanding limited partnership and general
partner units in PAH will be converted into the right to receive in cash an
amount per unit equal to $38.75, subject to a downward adjustment if the
aggregate annualized investment advisory and subadvisory fees for all accounts
managed by PIMCO Advisors and its subsidiaries, expressed as a "revenue run-
rate," declines (excluding market-based changes) below a specified level (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.
Following the merger, subsidiaries of Allianz of America will, in a series
of transactions, acquire for cash additional partnership interests in PIMCO
Advisors, bringing its ownership interest in PIMCO Advisors to approximately
70%, including the approximately 44% interest held through PAH. As part of the
Transaction, a subsidiary of Allianz of America will acquire Partners G.P.
through an acquisition of the managing general partner interest in Partners
G.P. from Partners LLC (the managing general partner of Partners G.P.) for
approximately $5.5 million and of the member interests in Partners G.P. that
are indirectly owned by Pacific Life. Pacific Life, which through subsidiaries
owns approximately a 30% interest in PIMCO Advisors, will retain an indirect
interest in PIMCO Advisors following the closing. As a result of the
Transaction, Allianz of America will control PIMCO Advisors, having acquired
approximately 70% of the outstanding partnership interests in PIMCO Advisors
for a total consideration of approximately $3.3 billion, while the remainder
will continue to be owned by Pacific Life.
6
<PAGE>
In connection with the closing, Allianz of America will enter into a
put/call arrangement for the possible disposition of Pacific Life's indirect
interest in PIMCO Advisors. The put option held by Pacific Life will allow it
to require Allianz of America, on the last business day of each calendar
quarter following the closing of the Transaction, to purchase at a formula-
based price all of the PIMCO Advisors units owned directly or indirectly by
Pacific Life. The call option held by Allianz of America will allow it,
beginning January 31, 2003 or upon a change in control of Pacific Life, to
require Pacific Life to sell or cause to be sold to Allianz of America, at the
same price, all of the PIMCO Advisors units owned directly or indirectly by
Pacific Life.
The Transaction is expected to be completed by the end of the first quarter
of 2000, although there is no assurance that the Transaction will be
completed. Completion of the Transaction is subject to a number of conditions,
including, among others, (i) the approval of the public unitholders of PAH,
(ii) the receipt of certain regulatory approvals, and (iii) PIMCO Advisors'
revenue run-rate (excluding market-based changes) for all accounts managed by
PIMCO Advisors and its subsidiaries being at least 75% of the September 30,
1999 revenue run-rate amount. Approval of the New Advisory Contract by the
shareholders of the Funds will help satisfy condition (iii) described in the
preceding sentence by maintaining PIMCO's advisory relationship with the
Funds. If the Transaction is 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. Allianz of America will control PIMCO Advisors through its
managing member interest in Pacific-Allianz Partners LLC ("PacPartners LLC"),
which will be the sole general partner of PIMCO Advisors following the
Transaction. While Allianz of America will control PacPartners LLC, Pacific
Life will hold a portion of its continuing interest in PIMCO Advisors through
an interest in PacPartners LLC. Allianz of America, through subsidiaries, will
be the managing member of PacPartners LLC and will have the full authority and
control over all actions taken by PacPartners LLC as the general partner of
PIMCO Advisors, provided that Pacific Life's consent is required for certain
extraordinary actions.
Operationally, PIMCO is expected to remain independent and to lead the
global fixed income investment efforts of Allianz AG. In this regard, PIMCO
will coordinate its activities with Allianz Asset Management ("AAM"), a
subsidiary of Allianz AG that coordinates global Allianz asset management
activities. To permit the provision of advisory services to non-U.S. clients
of Allianz AG, PIMCO personnel, including personnel with portfolio management
responsibility for certain of the Funds, may become affiliated with AAM or
other Allianz-controlled advisory firms. PIMCO also may call upon the research
capabilities and resources of Allianz AG and its advisory affiliates in
connection with providing investment advice to its clients. PIMCO is currently
expected to continue to operate in the United States under its existing name.
Both William S. Thompson, Jr., the current Chief Executive Officer of
PIMCO, and William H. Gross, the current Chief Investment Officer of PIMCO,
will have roles on the Executive Committee of AAM, with Mr. Thompson serving
as the Executive Committee's Deputy Chairman. Messrs. Thompson and Gross will
enter into employment contracts with a term of seven years following the
Transaction. Other key employees, 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 (a German
publicly-traded company) which, together with its subsidiaries, comprises the
world's second largest insurance group as measured by premium income. Allianz
AG is a leading provider of financial services, particularly in Europe, and is
represented in 68 countries world-wide through subsidiaries, branch and
representative offices, and other affiliated entities. The Allianz group
currently has assets under management of more than $390 billion, and in its
last fiscal year wrote approximately $50 billion in gross
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insurance premiums. After completion of the Transaction, PIMCO and the Allianz
group combined will have over $650 billion in assets under management. Allianz
AG's address is: Koniginstrasse 28, D-80802, Munich, Germany.
Significant institutional shareholders of Allianz AG currently include,
among others, Dresdner Bank AG, Deutsche Bank AG, Munich Reinsurance and
HypoVereinsbank. Following completion of the Transaction, Dresdner Bank AG and
Deutsche Bank AG, as well as certain broker-dealers that might be deemed to be
affiliated with these entities, such as Bankers Trust Company, BT Alex Brown,
Inc., Deutsche Bank Securities, Inc. and Dresdner Kleinwort Benson North
America LLC (collectively, the "Affiliated Brokers"), may be considered to be
affiliated persons of PIMCO. Once the Transaction is completed, absent an SEC
exemption or other relief, the 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 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.
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 manages more than $100 billion in assets. Integration of these
professionals and assets with PIMCO provides an excellent opportunity for
furthering PIMCO's global fixed income expertise.
. 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 proceed with the Transaction. The combined
entity will be the sixth largest investment manager in the world. The
Transaction will significantly increase assets under PIMCO's management,
and will offer the opportunity for continued growth in the future. Strong
relative investment results depend on a sound, disciplined investment
process and effective execution; size can be a benefit to both.
Section 15(f) of the 1940 Act. Section 15(f) provides a non-exclusive safe
harbor for an investment adviser to an investment company or any affiliated
persons to receive any amount or benefit in connection with a "change in
control" of the investment adviser 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
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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 in the 1940 Act) of the investment adviser (or predecessor or
successor adviser). Allianz of America 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 the
applicable time periods.
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. If the Transaction is not
consummated, PIMCO will continue to serve as adviser for all of the Funds
under the current Advisory Contract.
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.
The Advisory Contract may be terminated by a Fund without penalty upon 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 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 and administrative fee rates, and
aggregate investment advisory fees and administrative fees paid to PIMCO by
each Fund during the fiscal year ended March 31, 1999, 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. The New
Advisory Contract recognizes that PIMCO may, from time to time, seek research
assistance and rely on other investment management resources of its affiliated
companies, and the Funds will disclose that a portion of the advisory or
administrative fees received by PIMCO from the Funds may be paid to those
affiliates in return for such services
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provided. These arrangements will have no impact on PIMCO's continuing
responsibility for the management of the Funds and will not cause any increase
in the overall fees or expenses borne by 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 upon 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 with respect
to each Fund 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).
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.
In addition, affiliates of PIMCO provide or procure shareholder servicing and
distribution-related services for the Funds and will receive compensation in
connection with such activities with respect to the Funds.
The Administration Agreement may be terminated by a Fund without penalty
upon 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 60 days'
notice by PIMCO. The Administration Agreement terminates automatically in the
event of its "assignment" (as defined in the 1940 Act). A new Administration
Agreement, substantially identical to the current Administration Agreement,
will be implemented upon completion of this Transaction.
Interests of Certain Persons in the Transaction. The Managing Directors,
each of whom 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 advisers 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 PIMCO
Advisors Retention Plan for Executives 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 on 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.
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In addition to the foregoing, pursuant to 1994 Employment Termination
Agreements, PIMCO Holding LLC must pay to the current and two former Managing
Directors who are parties to those contracts noncompete payments equal to
distributions 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 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 Class A 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, based on a Unit
Transaction Price of $38.75. The Managing Directors, as well as certain
executive officers of PIMCO, will also participate in the Deferred
Compensation Plan, under which Class A 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. At the closing of the Transaction, 193,252 Class A units of PIMCO
Advisors, having a value of $7,488,515 based on a Unit Transaction Price of
$38.75, attributable to unvested subaccounts of the Managing Directors under
the Deferred Compensation Plan will vest.
Upon completion of the Transaction, Mr. Harris will enter into an
employment agreement with PIMCO for an initial term of five years, beginning
January 1, 2000, with automatic renewal for successive two-year periods. Mr.
Harris will receive an annual salary and bonus, and will be eligible to
participate in certain benefit plans and programs. In addition, pursuant to a
new PIMCO Advisors LP Transition and Retention Plan, Mr. Harris will receive a
retention payment of $6 million per year for five years, conditioned on
continued employment with PIMCO. Additionally, approximately 8,661 (as of
November 30, 1999) units of PIMCO Advisors ("PA Units") attributable to Mr.
Harris' unvested account balance with PIMCO Advisors Executive Deferred
Compensation Plan will fully vest and the PA Units owned by that Plan will be
exchanged for cash at the Unit Transaction Price (estimated to be $38.75) for
an aggregate payment of $335,614. Options for 230,000 PA Units previously
granted to Mr. Harris pursuant to PIMCO Advisors 1998 Unit Incentive Plan will
be converted into the right to receive cash for the difference between the
exercise price for these options (which is $13.53) and the Unit Transaction
Price (for an aggregate payment of approximately $5,800,600).
Upon completion of the Transaction, Mr. Burns will enter into an employment
agreement with PIMCO for an initial term of five years, beginning January 1,
2000, with automatic renewal for successive two-year periods. Mr. Burns will
receive an annual salary and bonus, and will be eligible to participate in
certain benefit plans and programs. In addition, pursuant to a new PIMCO
Advisors LP Transition and Retention Plan, Mr. Burns will receive a retention
payment of $700,000 per year for five years, conditioned on continued
employment with PIMCO. Additionally, approximately 4,474 (as of November 30,
1999) PA Units attributable to Mr. Burns' unvested account balance with PIMCO
Advisors Executive Deferred Compensation Plan will fully vest and the PA Units
owned by that Plan will be exchanged for cash at the Unit Transaction Price
(estimated to be $38.75) for an aggregate payment of $173,368. Options for
80,000 PA Units previously granted to Mr. Burns pursuant to PIMCO Advisors
1998 Unit Incentive Plan will be converted into the right to receive cash for
the difference
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between the exercise price for these options (which averages $27.2338), and
the Unit Transaction Price (for an aggregate payment of $921,300).
Separately, Messrs. Harris and Burns each has an interest of less than 6%
and 1%, respectively, in PIMCO Partners LLC, which owns 142,480 PA Units
(which would have in the aggregate a value of approximately $5,521,100 at the
Unit Transaction Price).
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 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, including information concerning compensation and
employment arrangements to be implemented in connection with the Transaction,
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) the compensation to be received by PIMCO under the New
Advisory Contract is the same as 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; (5) representations
made by PIMCO concerning the impact of affiliated 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
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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 its 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.
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. Each Fund's proposed 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
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 SEC or its staff, rather than the express terms of the
policies.
The Board believes that simplifying 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, the
proposed changes to 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 (All Funds). 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
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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, and, in the case of the Money
Market Fund, investments in securities or obligations of U.S. banks. With
respect to the Global Bond Fund II, the current policy notes the SEC staff's
position that certain non-U.S. government securities do not represent
investments in a separate industry. In addition, with respect to the Municipal
Bond Funds and the Global Bond Fund II, the current policy describes what
constitutes an industry for the purposes of the industry concentration
restriction.
The Board recommends that shareholders vote to replace the current
fundamental policy on concentration with the following fundamental policy:
A 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 (except that the PIMCO Money Market
Fund may concentrate its investments in securities or obligations issued by
U.S. banks).
While the 1940 Act does not define what constitutes "concentration" in an
industry, the staff of the SEC 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 an industry, or it may use standard classifications
promulgated by the SEC, 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.
The proposed concentration policy will retain the exception that excludes the
Money Market Fund's investment in securities or obligations issued by U.S.
banks, which is common among money market funds.
b. Diversification (Only the following Funds: Money Market, Short-Term, Low
Duration, Low Duration II, Low Duration III, Low Duration Mortgage, Moderate
Duration, Total Return, Total Return II, Total Return III, Total Return
Mortgage, High Yield, Long-Term U.S. Government, Long Duration, Short-Duration
Municipal Income, Municipal Bond, Strategic Balanced, Convertible Bond and
StocksPLUS (each a "Diversified Fund")). Under the current diversification
policy, each Diversified Fund, with respect to 75% of the value of its total
assets, may not purchase more than 10% of the voting securities of any one
issuer or invest more than 5% of the value of its total assets in the
securities of any one issuer, with an exception for investments in U.S.
Government securities.
Currently, the restrictions pertaining to diversification are contained in
two separate fundamental policies. The Board recommends that the Diversified
Funds' current fundamental policies on diversification be consolidated and
replaced with the following fundamental investment restriction:
A Fund may not, with respect to 75% of the Fund's total assets, purchase
the securities of any issuer, except securities issued or guaranteed by the
U.S. government or any of its agencies or instrumentalities, if, as a
result (i) more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (ii) the Fund would hold more than 10% of the
outstanding voting securities of that issuer.
The proposed diversification policy does not differ in substance from the
current diversification policies, but serves to simplify and combine the
Diversified Fund's current policies into a single uniform fundamental policy.
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c. Investments in Real Estate (Global Bond Fund II only). Under its current
fundamental investment policy regarding investments in real estate, the Global
Bond Fund II may not purchase or sell real estate, except that it is permitted
to purchase securities of issuers that deal in real estate, including
securities of real estate investment trusts, and may purchase securities that
are secured by interests in real estate. The Board recommends that the current
fundamental policy of the Global Bond Fund II be replaced with the following
fundamental investment policy:
A Fund may not purchase or sell real estate, although it may purchase
securities secured by real estate or interests therein, or securities
issued by companies which invest in real estate, or interests therein.
The proposed fundamental policy regarding investments in real estate is not
materially different from the current comparable policy except that the policy
has been reworded and clarified. The primary purpose of the Proposal is to
eliminate minor differences in the wording of the Global Bond Fund II's
current fundamental policy on investments in real estate to achieve greater
uniformity with the other Funds' fundamental policy with respect to
investments in real estate, and to avoid unintended limitations resulting from
different interpretations of the policy.
d. Margin (Total Return III, High Yield, and StocksPLUS Funds only). Under
its current fundamental policy on margin, each of the Total Return III, High
Yield, and StocksPLUS Funds 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, each of these Funds 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 each of the Total Return III, High Yield, and
StocksPLUS Funds. 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 the elimination of the fundamental
restriction and adoption of the non-fundamental restriction will provide these
Funds with greater investment flexibility and the ability to respond more
effectively to legal, regulatory and market developments.
e. Borrowing and Senior Securities (All Funds). Under its current
fundamental policy on borrowing and senior securities, each Fund, except the
Global Bond Fund II, 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
involving derivative instruments, including options, futures, or options on
futures. Under its fundamental policy on borrowing and senior securities, the
Global Bond Fund II may borrow money up to 10% of the value of its total
assets, but only from banks for temporary or emergency purposes. In addition,
the Global Bond Fund II may not pledge, hypothecate, or mortgage its
securities in excess of 10% of its total assets, and may do so only to secure
permitted borrowings.
To simplify and modernize each Fund's current fundamental policy on
borrowing and the issuance of senior securities, the Board recommends that
shareholders vote to approve the following fundamental policy:
A Fund may borrow money or issue any senior security, only 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 current
restrictions and conform them to the current regulatory requirements and the
evolving market environment. Reverse repurchase agreement
15
<PAGE>
transactions and transactions including derivative investments are currently
permitted under the 1940 Act, 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
emergency purposes, each Fund would nevertheless be subject to the 1940 Act's
asset 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 series of the Trust.
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 considered to be 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 to involve the issuance of
"senior securities" as long as certain conditions are satisfied. The Funds
currently engage, and would engage, in transactions that could be considered
to involve the issuance of "senior securities" only in accordance with
applicable regulatory requirements under the 1940 Act.
The proposed fundamental policy would permit the Global Bond Fund II to
borrow and issue senior securities in excess of 10% of the value of its total
assets, and therefore is less restrictive than its current fundamental policy.
However, if the proposed policy is approved, the Board will adopt a non-
fundamental policy that is substantially similar to the Global Bond Fund II's
current fundamental policy.
Adoption of the proposed policy is not expected to affect materially 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.
f. Loans (All Funds). The current fundamental policy on loans for each Fund
prohibits the making of loans, except loans of portfolio securities, the entry
into of repurchase agreements, and the purchase of debt obligations, to the
extent these transactions are consistent with the Fund's investment objectives
and policies. The Global Bond Fund II does not presently have a fundamental
policy regarding loans, but it has adopted a similar policy as a non-
fundamental policy. The Board recommends that the shareholders vote to replace
the Funds' current fundamental policies on loans with the following
fundamental investment policy:
A Fund may make loans only 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 Board also recommends that shareholders approve the adoption of the
proposed fundamental policy on loans for the Global Bond Fund II.
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 series of the Trust. 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.
g. Underwriting (Global Bond Fund II only). Under its current fundamental
policy on underwriting, the Global Bond Fund II may not underwrite securities
issued by other persons. The Global Bond Fund II, however, is not prohibited
from selling securities if, as a result of the sale, it would technically be
deemed to be an underwriter under the federal securities laws.
16
<PAGE>
The Board recommends that shareholders vote to replace the Global Bond Fund
II's current fundamental policy on underwriting with the following fundamental
policy:
A Fund may not act as an underwriter of securities of other issuers, except
to the extent that in connection with the disposition of portfolio
securities, it may be deemed to be an underwriter under the federal
securities laws.
The primary purpose of the Proposal is to eliminate minor differences in
the wording of the Global Bond Fund II's current fundamental policy on
underwriting to achieve uniformity with the fundamental policy of other Funds
and to avoid unintended limitations or interpretations.
h. Short Positions (All Funds). Under its current fundamental policy on
short positions, a Fund may not maintain a short position, or purchase, write
or sell puts, calls, straddles, spreads or combinations thereof, except as
specified in the Fund's Prospectus and Statement of Additional Information.
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.
i. Investments in Other Investment Companies (All Funds). 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 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"). While the
feeder funds incur their own expenses and bear their pro rata share of the
master fund's expenses, the master/feeder structure has the potential to
minimize administration and investment costs through achievement of economies
of scale and lowered transaction costs, and to 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 would permit this structure
in the event the Board determines to approve a master/feeder structure as
being the best interests of Fund shareholders. 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.
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<PAGE>
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, governs 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 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 reviewed the Current Declaration 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, marked to show changes
from the Current Declaration, as approved by the 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 Funds 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.
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.
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<PAGE>
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. Any new class or shares
created would bear costs and expenses attributable to it, as well as its share
of Fund-wide or Trust-wide costs and expenses. 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 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 to minimize administration
and investment costs through achievement of economies of scale and lowered
transaction costs, and to maximize the possibility of gaining a broader
investor base. Although none of the Funds currently intend 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 approve a master/feeder structure as being in the best interests
of Fund shareholders. This amendment would also give 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 consistent with
proposed changes to each Fund's fundamental investment policies that would
permit each Fund to operate within a master/feeder structure. See Proposal III
(i). 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 or class 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 or class, 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:
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<PAGE>
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 notice of a shareholder's
meeting, a dividend check, an annual report or other shareholder communication
to a shareholder if not required by applicable law or when such prior
communications have been returned to the Trust as undeliverable, as specified
in the Amended Declaration. 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
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
(i) 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 permissible, but not specifically addressed, 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
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<PAGE>
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 omissions 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, it does not expressly list
each of those activities. The Board believes that this amendment makes
explicit the Board's inherent authority to engage in these activities and 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. Separate 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. 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.
Litigation filed against the Trust. On October 12, 1999, a lawsuit was
filed against the Trust by Trans Texas Holdings Corporation in the United
States District Court for the Western District of Texas alleging patent
infringement (Texas Civil Action Number A 99CA658SS). The complaint names
PIMCO Advisors and PIMCO Funds as defendants. The complaint alleges, among
other things, infringement of United States Patent No. 5,832,461 ("461
Patent") by making, selling and/or offering for sale or use in the United
States mutual funds, including the PIMCO Real Return Bond Fund, embodying the
claimed invention in the 461 Patent and contributing to and/or inducing
infringement of the 461 Patent. The complaint seeks judgment, injunctive
relief, compensatory and exemplary damages, interest, costs, attorney fees and
such other and further relief as the Court deems just and proper. While the
ultimate outcome of this matter is not presently determinable, the Trust
intends to defend vigorously against the suit.
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<PAGE>
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 & Co., Inc. ("D.F. King") has been retained to assist with
proxy solicitation activities. 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 the Funds,
representing the corresponding number of votes, were outstanding:
<TABLE>
<CAPTION>
Number of Shares
Fund Outstanding (Votes)
---- -------------------
<S> <C>
Money Market Fund........................................ 518,302,717
Short-Term Fund.......................................... 71,667,835
Low Duration Fund........................................ 433,460,710
Low Duration Fund II..................................... 45,733,339
Low Duration Fund III.................................... 2,756,277
Low Duration Mortgage Fund............................... 425,377
Moderate Duration Fund................................... 37,520,682
Real Return Bond Fund.................................... 15,289,493
Total Return Fund........................................ 3,000,032,103
Total Return Fund II..................................... 124,140,060
Total Return Fund III.................................... 67,813,993
Total Return Mortgage Fund............................... 399,431
High Yield Fund.......................................... 326,747,001
Long-Term U.S. Government Fund........................... 42,122,193
Short Duration Municipal Income Fund..................... 1,060,122
Municipal Bond Fund...................................... 5,714,693
California Intermediate Municipal Bond Fund.............. 406,338
New York Intermediate Municipal Bond Fund................ 304,335
Global Bond Fund......................................... 27,605,492
Global Bond Fund II...................................... 6,658,180
Foreign Bond Fund........................................ 55,320,181
Emerging Markets Bond Fund............................... 3,544,497
Strategic Balanced Fund.................................. 11,998,296
Convertible Bond Fund.................................... 7,266,134
StocksPLUS Fund.......................................... 108,042,950
</TABLE>
As of December 15, 1999, the persons owning of record or beneficially 5% or
more of the Funds are set forth in Appendix F.
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.
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<PAGE>
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.
Proxies that reflect abstentions or broker "non-votes" (that is, shares
held by brokers or nominees as to which (a) instructions have not been
received from the beneficial owner or other persons entitled to vote and
(b) the brokers or nominees do not have discretionary voting power on a
particular matter) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. Assuming the
presence of a quorum, abstentions and broker non-votes have the effect of a
negative vote on each proposal. Pursuant to the rules and policies of the New
York Stock Exchange (the "Exchange"), members of the Exchange may vote on
certain of the proposals to be considered at the meeting without instructions
from the beneficial owners of the Fund's shares.
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 is
sufficient votes for approval, even though the Meeting is adjourned as to
other proposals.
Electronic Voting. Shareholders may give voting instructions via the
Internet or by touchtone telephone by following the instructions enclosed with
the proxy card.
Telephone Voting. Shareholders may also give voting instructions over the
telephone by calling 1-800-949-2583. A representative of D.F. King will answer
shareholders' calls. When receiving a shareholder's instructions by telephone,
the D.F. King representative is required to ask the shareholder's full name,
address, the last four digits of the shareholder's social security number or
employer identification number, title (if the shareholder giving the proxy is
authorized to act for an entity, such as a corporation), the name of the Funds
owned and to confirm that the shareholder has received the proxy statement in
the mail. If the information provided by the shareholder matches the
information provided to D.F. King by PIMCO, then the D.F. King representative
will explain the proxy process. D.F. King is not permitted to recommend to
shareholders how to vote, other than to read any recommendation included in
the proxy statement. Shareholder instructions will be recorded by D.F. King
and transmitted to the official tabulator.
Voting by Mail or Facsimile. In addition to voting via the Internet and by
telephone, shareholders may also sign and mail or fax the proxy card received
with the proxy statement or attend the Meeting in person.
As the Meeting date approaches, each shareholder may receive a call from a
representative of D.F. King if PIMCO has not yet received the shareholder's
vote. D.F. King may ask shareholders for authority, by telephone or by
electronically transmitted instructions, to permit D.F. King to sign a proxy
on their behalf. D.F. King will record all instructions it receives from
shareholders by telephone or electronically, and the proxies it signs in
accordance with those instructions, in accordance with the procedures set
forth above. The Trustees of the Trust believe those procedures are reasonably
designed to determine accurately the shareholder's identity and voting
instructions.
Required Vote. Shareholders of all Funds of the Trust vote together on
Proposals I and IV, shareholders vote separately by Fund on Proposals II and
III, and shareholders will vote as necessary on any other proposal. Election
of a person as Trustee (Proposal I) requires the vote of shareholders owning
of record a plurality of the
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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 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 Proposal IV requires 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 card(s) is requested. A self-addressed, postage-
paid envelope is enclosed for your convenience.
By Order of the Board of Trustees
Garlin G. Flynn, Secretary
Newport Beach, California
January 12, 2000
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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 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.
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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. The
Adviser may from time to time seek research assistance and rely on investment
management resources available to it through its affiliated companies, but in
no case shall such reliance relieve the Adviser of any of its obligations
hereunder, nor shall the Trust be responsible for any additional fees or
expenses hereunder as a result.
(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.
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.
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(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.
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 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
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estimate the contemplated includable expenses for the balance of that fiscal
year. If, as a result of that review and estimation, it appears 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.
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.
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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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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
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
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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 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
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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
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 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.
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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 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 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, to the extent this Agreement is a distribution plan: (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, to the extent this Agreement is an
agreement related to a distribution plan: (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.
A-9
<PAGE>
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 the Trust's independent public accountants;
(b) Expenses of the Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(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;
(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;
A-10
<PAGE>
(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
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.
A-11
<PAGE>
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.
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).
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:________________________________
President
_________________________________
Title
PACIFIC INVESTMENT MANAGEMENT
COMPANY
By:________________________________
Managing Director
_________________________________
Title
A-12
<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.
<TABLE>
<CAPTION>
Name
Length of Service with
PIMCO Position and Principal Occupation
---------------------- ---------------------------------
<C> <S>
William S. Thompson, Jr... Managing Director, Chief Executive Officer and
April 1993 to Present Executive Committee Member, PIMCO; Managing
Director, Chief Executive Officer and Director,
PIMCO Management, Inc.; Member of Management Board
and Executive Committee, PIMCO Advisors L.P.;
President, Chief Executive Officer and Member,
PIMCO Partners LLC.
William R. Benz, II....... Managing Director, PIMCO; Managing Director and
June 1986 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Robert Wesley Burns....... Managing Director and Executive Committee Member,
February 1987 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Member of PIMCO Partners LLC.
Chris P. Dialynas......... Managing Director, PIMCO; Managing Director and
July 1983 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Mohamed A. El-Erian....... Managing Director, PIMCO; Managing Director and
May 1999 to Present Director, PIMCO Management, Inc.
William H. Gross.......... Managing Director, PIMCO; Managing Director and
June 1971 to Present Director, PIMCO Management, Inc.; Director and Vice
President, StocksPLUS Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
John L. Hague............. Managing Director and Executive Committee Member,
September 1987 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Member of PIMCO Partners LLC.
Pasi M. Hamalainen........ Managing Director, PIMCO; Managing Director and
January 1994 to Present Director, PIMCO Management, Inc.
Brent R. Harris........... Managing Director and Executive Committee Member,
June 1985 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Director and Vice President,
StocksPLUS Management, Inc.; Member of Management
Board and Executive Committee, PIMCO Advisors L.P.;
Member of PIMCO Partners LLC.
Brent L. Holden........... Managing Director, PIMCO; Managing Director and
December 1989 to Present Director, PIMCO Management, Inc.
Margaret E. Isberg........ Managing Director, PIMCO; Managing Director and
August 1983 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
John S. Loftus............ Managing Director, PIMCO; Managing Director and
August 1986 to Present Director, PIMCO Management, Inc.
Dean S. Meiling........... Managing Director, PIMCO; Managing Director and
December 1976 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Name
Length of Service with
PIMCO Position and Principal Occupation
---------------------- ---------------------------------
<C> <S>
James F. Muzzy............ Managing Director and Executive Committee Member,
September 1971 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Director and Vice President,
StocksPLUS Management, Inc.; Member of PIMCO
Partners LLC.
William F. Podlich, III... Managing Director, PIMCO; Managing Director and
June 1966 to Present Director PIMCO Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
William C. Powers......... Managing Director, PIMCO; Managing Director and
January 1991 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Ernest L. Schmider........ Managing Director and Secretary, PIMCO; Managing
March 1994 to Present Director, Director, and Secretary, PIMCO
Management, Inc.; Director and Assistant Secretary,
StocksPLUS Management, Inc.; Senior Vice President,
PIMCO Advisors, L.P.; Secretary, PIMCO Partners
LLC.
Lee R. Thomas............. Managing Director, PIMCO; Managing Director and
April 1995 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Benjamin L. Trosky........ Managing Director, PIMCO; Managing Director and
October 1990 to Present Director, PIMCO Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
</TABLE>
B-2
<PAGE>
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>
Length of Principal Occupation(s)
Service with Position with During the Past Five
Name and Age the Trust the Trust Years
------------ ------------ --------------------- ------------------------
<C> <C> <C> <S>
Michael G. Dow........... 8/95-Present Senior Vice President Senior Vice President,
Age 36 PIMCO. Formerly Fixed
Income Specialist,
Salomon Brothers, Inc.;
Vice President
Operations, Citibank NA
Global Consumer Banking
Group.
William H. Gross......... 4/87-Present Senior Vice President Managing Director,
Age 55 PIMCO; Senior Vice
President, PIMCO
Variable Insurance
Trust.
Margaret Isberg.......... 4/87-Present Senior Vice President Managing Director,
Age 43 PIMCO.
Jeffrey M. Sargent....... 2/93-Present Senior Vice President Vice President and
Age 36 Manager of Investment
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 President Senior Vice President,
Age 47 PIMCO. Formerly Vice
President, PIMCO.
Raymond C. Hayes......... 2/95-Present Vice President Vice President, PIMCO.
Age 54 Formerly Marketing
Director, Pacific
Financial Asset
Management Corporation.
Thomas J. Kelleher, III.. 3/96-Present Vice President Vice President, PIMCO.
Age 49 Previously associated
with Delaware Trust,
Mellon Bank and Girard
Trust (bank trust
departments).
Henrik P. Larsen......... 2/99-Present Vice President Manager, Fund
Age 29 Administration, PIMCO;
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.
Age 41 Formerly Vice President,
Fidelity Investments;
Institutional Sales
Representative, CS First
Boston.
Andre Mallegol........... 3/97-Present Vice President Vice President, PIMCO.
Age 33 Formerly associated with
Fidelity Investments
Institutional Services
Company.
James F. Muzzy........... 4/87-Present Vice President Managing Director,
Age 60 PIMCO; Senior Vice
President, PIMCO
Variable Insurance
Trust.
Douglas J. Ongaro........ 8/95-Present Vice President Vice President, PIMCO.
Age 38 Formerly Regional
Marketing Manager,
Charles Schwab & Co.,
Inc.
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
Length of Principal Occupation(s)
Service with Position with During the Past Five
Name and Age the Trust the Trust Years
------------ ------------- ------------------- ------------------------
<C> <C> <C> <S>
David J. Pittman........... 7/97-Present Vice President Vice President, PIMCO.
Age 51 Formerly a senior
executive with Bank of
America, the Northern
Trust Co. and
NationsBank.
Mark A. Romano............. 11/97-Present Vice President Vice President, PIMCO.
Age 41 Previously 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
Age 54 and Managing Director,
PIMCO; Senior Vice
President, PIMCO
Variable Insurance
Trust; Vice President,
PIMCO Commercial
Mortgage Securities
Trust, Inc.
John P. Hardaway........... 8/90-Present Treasurer Senior Vice President
Age 42 and Manager of
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.
Garlin G. Flynn............ 8/95-Present Secretary Specialist, PIMCO;
Age 53 Secretary, PIMCO
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
Age 35 Manager of Financial
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 I. Brown
& Co.
Michael J. Willemsen....... 11/88-Present Assistant Secretary Manager, PIMCO;
Age 39 Assistant Secretary,
PIMCO Commercial
Mortgage Securities
Trust, Inc. and PIMCO
Variable Insurance
Trust. Formerly Project
Lead, PIMCO.
</TABLE>
B-4
<PAGE>
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.
<TABLE>
<CAPTION>
Approximate
Name of Fund Advisory Fee Rate Assets
------------ ----------------- -----------
<C> <S> <C>
PIMCO FUNDS:
PACIFIC INVESTMENT
MANAGEMENT SERIES
International Bond Fund... Annual rate of 0.25% of average
daily net assets $980,127,949
Emerging Markets Bond Annual rate of 0.45% of average
Fund II.................. daily net assets 217,093,611
PIMCO VARIABLE INSURANCE
TRUST
Money Market Portfolio.... Annual rate of 0.30% of average
daily net assets $ N/A
Short-Term Bond Annual rate of 0.35% of average
Portfolio................ daily net assets N/A
Low Duration Bond Annual rate of 0.40% of average
Portfolio................ daily net assets 5,098,362
Total Return Bond Annual rate of 0.40% of average
Portfolio................ daily net assets 3,208,009
High Yield Bond Annual rate of 0.50% of average
Portfolio................ daily net assets 131,180,580
Foreign Bond Portfolio.... Annual rate of 0.60% of average
daily net assets 5,031,932
StocksPLUS Growth & Income Annual rate of 0.40% of average
Portfolio................ daily net assets 524,872
Long-Term US Government Annual rate of 0.40% of average
Bond Portfolio........... daily net assets 6,906,274
Total Return II Annual rate of 0.40% of average
Portfolio................ daily net assets 5,099,211
Real Return Portfolio..... Annual rate of 0.40% of average
daily net assets N/A
FRANK RUSSELL INVESTMENT
MANAGEMENT COMPANY
Fixed Income I Fund....... Annual rate of 0.25% of net assets $158,880,504
based on the average of ending
monthly market values over 3 months,
paid in arrears
Diversified Bond Fund..... Annual rate of 0.25% of net assets 121,645,371
based on the average of ending
monthly market values over 3 months,
paid in arrears
Fixed Income III Fund..... Annual rate of 0.25% of net assets 158,140,598
based on the average of ending
monthly market values over 3 months,
paid in arrears
Multistrategy Bond Fund... Annual rate of 0.25% of net assets 193,102,561
based on the average of ending
monthly market values over 3 months,
paid in arrears
RUSSELL INSURANCE FUNDS
Core Bond Fund............ Annual rate of 0.25% of net assets $ 33,478,757
based on the average of ending
monthly market values over 3 months,
paid in arrears
THE HARBOR GROUP
Harbor Bond Fund ......... Annual rate of 0.50% of average $622,475,175
daily net assets on first
$25 million; 0.375% of average daily
net assets on next $25 million;
0.25% of average daily net assets
over $50 million
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
Approximate
Name of Fund Advisory Fee Rate Assets
------------ ----------------- -----------
<C> <S> <C>
PACIFIC SELECT FUND
Managed Bond Series....... Annual rate of 0.50% of average $1,053,024,408
daily net assets on first
$25 million; 0.375% on next $25
million; 0.25% on remaining assets
Government Securities Annual rate of 0.50% of average 397,265,729
Series................... daily net assets on first
$25 million; 0.375% on next $25
million; 0.25% on remaining assets
PRUDENTIAL SECURITIES
TARGET PORTFOLIO TRUST
Intermediate Term Bond Annual rate of 0.25% of average
Portfolio................ daily net assets $ 113,010,679
Total Return Bond Annual rate of 0.25% of average
Portfolio................ daily net assets 66,889,600
PIMCO COMMERCIAL MORTGAGE
SECURITIES TRUST, INC.
PIMCO Commercial Mortgage
Trust, Inc. ............. Annual rate of 0.725% of average $ 148,074,899
weekly net assets paid quarterly
AMERICAN SKANDIA TRUST
Total Return Bond Annual rate of 0.30% of average $1,035,861,299
Portfolio................ daily net assets on first $150
million; 0.25% of average daily
net assets on assets over $150
million paid monthly
Limited Maturity Bond
Portfolio................ Annual rate of 0.30% of average 421,807,622
daily net assets on first $150
million; 0.25% of average daily
net assets on assets over $150
million paid monthly
Master Trust Total Annual rate of 0.25% of average
Return................... daily net assets 170,012,653
FREMONT MUTUAL FUNDS, INC.
Total Return Fund......... Annual rate of 0.25% of average $ 187,068,687
daily net assets paid quarterly
Global Bond Fund.......... Annual rate of 0.30% of average 24,283,647
daily net assets paid quarterly
PAINEWEBBER MANAGED
INVESTMENTS TRUST
Low Duration US Government Annual rate of 0.25% of average
Income Fund.............. daily net assets $ 122,967,595
PAINEWEBBER SERIES TRUST
Strategic Fixed Income.... Annual rate of 0.25% of average
daily net assets $ 7,298,286
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
Approximate
Name of Fund Advisory Fee Rate Assets
------------ ----------------- -----------
<C> <S> <C>
PAINEWEBBER MANAGED
ACCOUNTS SERVICES
PORTFOLIO TRUST
PACE Government Securities Annual rate of 0.25% of average
Fixed Income............. daily net assets $197,767,164
PACE Strategic Fixed Annual rate of 0.25% of average
Income Investments....... daily net assets 230,222,525
JACKSON NATIONAL LIFE
SERIES TRUST
JNL/PIMCO Total Return
Bond Series.............. Annual rate of 0.25% of average $ 9,753,810
daily net assets excluding the value
of client contributed capital
FORWARD GLOBAL FUND
Forward Global Fund....... Annual rate of 0.35% of average $ 30,263,618
daily net assets on amounts under
$200 million and 0.30% on amounts
over $200 million
PRUDENTIAL INVESTMENTS
FUND MANAGEMENT LLC
Prudential Diversified
Moderate Growth.......... Annual rate of 0.25% of average $ 23,259,990
daily net assets computed daily and
paid monthly
Prudential Diversified
Conservative Growth...... Annual rate of 0.25% of average 28,956,072
daily net assets computed daily and
paid monthly
Prudential Diversified
Conservative Portfolio... Annual rate of 0.25% of average 29,627,910
daily net assets computed daily and
paid monthly
MANULIFE
Manulife Global Bond Annual rate of 0.375% on first $50 $161,197,318
Trust.................... 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
Manulife Total Return Annual rate of 0.30% on first $50 190,550,262
Trust.................... million; 0.30% on $50-150 million;
0.25% on $150-200 million; 0.25% on
$200-500 million and over of daily
net assets computed daily and paid
monthly
SALOMON SMITH
BARNEY/CONSULTING GROUPS
CAPITAL MARKET FUND
Intermediate Fixed Income
Investment Portfolio..... Annual rate of 0.25%, multiplied by $270,423,858
a fraction, the numerator of which
is the average daily value of
allocated assets and the denominator
of which is the average daily value
of the Portfolio's total assets
computed daily
</TABLE>
B-7
<PAGE>
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
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-8
<PAGE>
APPENDIX C
PIMCO currently receives a monthly investment advisory fee and
administrative 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 administrative fees paid by each
then-operational Fund was as follows:
<TABLE>
<CAPTION>
Administrative
Fee Rate--
Aggregate Administrative Institutional
Investment Investment Fee Rate-- & Aggregate
Advisory Advisory Classes A, B, Administrative Administrative Administrative
Fund Fee Rate Fees C Rate--Class D* Class Fees
---- ---------- ---------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Money Market Fund....... 0.15% $ 364,480 0.35% N/A 0.20% $ 731,013
Short-Term Fund......... 0.25% 1,163,042 0.35% 0.25% 0.20% 1,024,794
Low Duration Fund....... 0.25% 8,636,635 0.40% 0.25% 0.18% 6,841,437
Low Duration Fund II.... 0.25% 1,060,930 N/A N/A 0.25% 1,060,930
Low Duration Fund III... 0.25% 61,917 N/A N/A 0.25% 61,917
Low Duration Mortgage
Fund................... 0.25% 9,728 N/A N/A 0.25% 9,728
Moderate Duration Fund.. 0.25% 685,876 N/A N/A 0.20% 548,701
Real Return Bond Fund... 0.25% 37,011 0.40% 0.40% 0.25% 48,397
Total Return Fund....... 0.25% 55,229,968 0.40% 0.25% 0.18% 43,425,035
Total Return Fund II.... 0.25% 2,107,392 N/A N/A 0.25% 2,107,391
Total Return Fund III... 0.25% 1,045,573 N/A N/A 0.25% 1,045,572
Total Return Mortgage
Fund................... 0.25% 9,766 N/A 0.40% 0.25% 9,937
High Yield Fund......... 0.25% 6,323,956 0.40% 0.40% 0.25% 7,243,110
Long-Term U.S.
Government Fund........ 0.25% 419,981 0.40% N/A 0.25% 508,159
Long Duration Fund...... 0.25% N/A N/A N/A 0.25% N/A
Short Duration Municipal
Income Fund............ 0.20% N/A N/A N/A 0.19% N/A
Municipal Bond Fund..... 0.25% 107,083 0.35% 0.35% 0.25% 145,118
California Intermediate
Municipal Bond Fund.... 0.25% N/A N/A N/A 0.24% N/A
New York Intermediate
Municipal Bond Fund.... 0.25% N/A N/A N/A 0.24% N/A
Global Bond Fund........ 0.25% 666,901 N/A N/A 0.30% 800,281
Global Bond Fund II..... 0.25% 106,821 0.45% N/A 0.30% 151,390
Foreign Bond Fund....... 0.25% 1,325,590 0.45% 0.45% 0.25% 1,454,801
Emerging Markets Bond
Fund................... 0.45% 19,121 0.55% N/A 0.40% 18,034
Strategic Balanced
Fund................... 0.40% 201,742 0.40% 0.40% 0.25% 126,263
Convertible Bond Fund... 0.40% N/A 0.40% N/A 0.25% N/A
StocksPLUS Fund......... 0.40% 3,432,600 0.40% 0.40% 0.25% 2,757,948
</TABLE>
- --------
* Reflects the portion of the Administrative fee that does not constitute a
distribution and/or service fee paid under the Class D Distribution Plan.
C-1
<PAGE>
APPENDIX D
CURRENT FUNDAMENTAL INVESTMENT POLICIES
As a matter of fundamental policy, a Fund may not:
Concentration
(1) (a) 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,
or, in the case of the Municipal Funds, in industrial development revenue
bonds based, directly or indirectly, on the credit of private entities in
any one industry; except that this restriction does not apply (a) to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements with respect thereto) and (b)
with respect to the Money Market Fund, to securities or obligations issued
by U.S. banks. Investments of the Municipal Funds in utilities, gas,
electric, water and telephone companies will be considered as being in
separate industries;
(b) for the Global Bond Fund II, concentrate more than 25% of the value of
its total assets in any one industry (The SEC staff takes the position that
investments in government securities of a single foreign country (including
agencies and instrumentalities of such government, to the extent such
obligations are backed by the assets and revenues of such government)
represent investments in a separate industry for these purposes.);
Diversification
(2) with respect to 75% of its assets, invest in a security if, as a result of
such investment, more than 5% of its total assets (taken at market value
at the time of such investment) would be invested in the securities of any
one issuer, except that this restriction does not apply to securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (This investment restriction is not applicable to the
Real Return Bond, Commercial Mortgage Securities, Global Bond, Global Bond
II, Foreign Bond, Emerging Markets Bond, California Intermediate Municipal
Bond and New York Intermediate Municipal Bond Funds.). For the purpose of
this restriction, each state and each separate political subdivision,
agency, authority or instrumentality of such state, each multi-state
agency or authority, and each guarantor, if any, are treated as separate
issuers of Municipal Bonds;
(3) with respect to 75% of its assets, invest in a security if, as a result of
such investment, it would hold more than 10% (taken at the time of such
investment) of the outstanding voting securities of any one issuer (This
restriction is not applicable to the Real Return Bond, Commercial Mortgage
Securities, Global Bond, Global Bond II, Foreign Bond, Emerging Markets
Bond, California Intermediate Municipal Bond and New York Intermediate
Municipal Bond Funds.);
Investments in Real Estate
(4) (a) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein;
(b) for the Global Bond Fund II, purchase or sell real estate, although it
may purchase securities of issuers which deal in real estate, including
securities of real estate investment trusts, and may purchase securities
which are secured by interests in real estate;
Margin
(5) for the Total Return III, High Yield, and StocksPLUS Funds: 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;
D-1
<PAGE>
Borrowing and Senior Securities
(6) (a) 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 the
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);
(b) for the Global Bond Fund II, borrow money in excess of 10% of the value
(taken at the lower of cost or current value) of the Fund's total assets
(not including the amount borrowed) at the time the borrowing is made, and
then only from banks as a temporary measure to facilitate the meeting of
redemption requests (not for leverage) which might otherwise require the
untimely disposition of portfolio investments or for extraordinary or
emergency purposes (Such borrowings will be repaid before any additional
investments are purchased.); or pledge, hypothecate, mortgage or otherwise
encumber its assets in excess of 10% of the Fund's total assets (taken at
cost) and then only to secure borrowings permitted above (The deposit of
securities or cash or cash equivalents in escrow in connection with the
writing of covered call or put options, respectively, is not deemed to be
pledges or other encumbrances. For the purpose of this restriction,
collateral arrangements with respect to the writing of options, futures
contracts, options on futures contracts, and collateral arrangements with
respect to initial and variation margin are not deemed to be a pledge of
assets and neither such arrangements nor the purchase or sale of futures or
related options are deemed to be the issuance of a senior security.);
Loans
(7) 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 (This
restriction is not applicable to the Global Bond Fund II, but see non-
fundamental restriction "G".);
Underwriting
(8) (a) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under the federal securities laws;
(b) for the Global Bond Fund II, underwrite securities issued by other
persons except to the extent that, in connection with the disposition of its
portfolio investments, it may be deemed to be an underwriter under federal
securities laws; or
Short Positions
(9) (a) for the Total Return III, High Yield, and StocksPLUS Funds: maintain a
short position, or purchase, write or sell puts, calls, straddles, spreads
or combinations thereof, except as set forth in the Prospectuses and in
this Statement of Additional Information for transactions in options,
futures, options on futures, and transactions arising under swap
agreements or other derivative instruments;
(b) for the Money Market, Short-Term, Low Duration, Low Duration II, Low
Duration III, Low Duration Mortgage, Moderate Duration, Total Return, Total
Return II, Total Return Mortgage, Commercial Mortgage Securities, Long-Term
U.S. Government, Long Duration, Global Bond, Foreign Bond, Emerging Markets
Bond, Strategic Balanced, Convertible Bond and StocksPLUS Short Strategy
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 the Statement of Additional
Information.
D-2
<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................................................................ 3
Section 2.1. General Powers............................................ 3
Section 2.2. Investments. ............................................. 4
Section 2.3. Legal Title. ............................................. 5
Section 2.4. Issuance and Repurchase of Shares. ....................... 5
Section 2.5. Delegation; Committees. .................................. 5
Section 2.6. Collection and Payment. .................................. 5
Section 2.7. Expenses. ................................................ 6
Section 2.8. Manner of Acting; By-laws................................. 6
Section 2.9. Miscellaneous Powers...................................... 6
Section 2.10. Principal Transactions.................................... 6
Section 2.11. Number of Trustees........................................ 7
Section 2.12. Election and Term......................................... 7
Section 2.13. Resignation and Removal. ................................. 7
Section 2.14. Vacancies. ............................................... 7
Section 2.15. Delegation of Power to Other Trustees..................... 8
Section 2.16. Shareholder Vote, etc..................................... 8
ARTICLE III............................................................... 8
Section 3.1. Distribution Contract..................................... 8
Section 3.2. Advisory or Management Contract........................... 8
Section 3.3. Affiliations of Trustees or Officers, Etc. ............... 8
Section 3.4. Compliance with 1940 Act. ................................ 9
ARTICLE IV................................................................ 9
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc...... 9
Section 4.2. Non-Liability of Trustees, Etc. .......................... 9
Section 4.3. Mandatory Indemnification. ............................... 10
Section 4.4. No Bond Required of Trustees.............................. 11
Section 4.5. No Duty of Investigation; Notice in Trust Instruments,
Etc.................................................................... 11
Section 4.6. Reliance on Experts, Etc.................................. 11
ARTICLE V................................................................. 11
Section 5.1. Beneficial Interest....................................... 11
Section 5.2. Rights of Shareholders. .................................. 11
Section 5.3. Trust Only. .............................................. 12
Section 5.4. Issuance of Shares. ...................................... 12
Section 5.5. Register of Shares. ...................................... 12
Section 5.6. Transfer of Shares. ...................................... 12
Section 5.7. Notices, Reports.......................................... 13
Section 5.8. Treasury Shares. ......................................... 13
</TABLE>
E-i
<PAGE>
<TABLE>
<S> <C>
Section 5.9. Voting Powers. ............................................ 13
Section 5.10. Meetings of Shareholders. ................................. 13
Section 5.11. Series Designation. ....................................... 13
Section 5.12. Assent to Declaration of Trust............................. 15
Section 5.13. Class Designation.......................................... 15
ARTICLE VI................................................................. 16
Section 6.1. Redemption of Shares....................................... 16
Section 6.2. Price. .................................................... 16
Section 6.3. Payment.................................................... 16
Section 6.4. Effect of Suspension of Determination of Net Asset
Value. ................................................................. 16
Section 6.5. Repurchase by Agreement. .................................. 16
Section 6.6. Redemption of Shareholder's Interest. ..................... 16
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding. .................. 17
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. ........................................ 17
Section 6.9. Suspension of Right of Redemption. ........................ 17
ARTICLE VII................................................................ 18
Section 7.1. Net Asset Value. .......................................... 18
Section 7.2. Distributions to Shareholders. ............................ 18
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. ............................ 19
Section 7.4. Allocation Between Principal and Income. .................. 19
Section 7.5. Power to Modify Foregoing Procedures....................... 19
ARTICLE VIII............................................................... 19
Section 8.1. Duration. ................................................. 19
Section 8.2. Termination of Trust....................................... 20
Section 8.3. Amendment Procedure. ...................................... 20
Section 8.4. Merger, Consolidation and Sale of Assets. ................. 21
Section 8.5. Incorporation. ............................................ 21
ARTICLE IX................................................................. 21
ARTICLE X.................................................................. 21
Section 10.1. Filing..................................................... 21
Section 10.2. Governing Law. ............................................ 22
Section 10.3. Counterparts............................................... 22
Section 10.4. Reliance by Third Parties. ................................ 22
Section 10.5. Provisions in Conflict with Law or Regulations. ........... 22
</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
Section 1.
Section 1.1. 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".
Section 1.2. Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
1. "By-laws" means the By-laws referred to in Section 2.8 hereof, as
from time to time amended.
2. "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. 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. "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but
does not include a system for the central handling of securities
described in said Section 17(f).
5. "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. "Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
E-2
<PAGE>
7. "His" shall include the feminine and neuter, as well as the masculine
genders.
8. "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
9. "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. The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
11. "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. "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. "Shareholder" means a record owner of Outstanding Shares.
14. "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. "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. The "Trust" means PIMCO Funds.
17. 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. 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
Section 2.
Section 2.1. 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
E-3
<PAGE>
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.
Section 2.2. Investments.
The Trustees shall have the power:
1. 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. 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-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. 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. 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. 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. 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. 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.
E-4
<PAGE>
8. 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. 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.
10. 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.
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.
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.
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.
Section 2.6. Collection and Payment.
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.
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<PAGE>
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.
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.
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,
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.
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.
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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).
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.
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 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.
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.
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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.
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
CONTRACTS
III. Section 3.
Section 3.1. 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.
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.
Section 3.3. Affiliations of Trustees or Officers, Etc.
The fact that:
a. 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
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b. 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 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.
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
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.
Section 4.1. 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.
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 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.
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Section 4.3. Mandatory Indemnification.
1. 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. No indemnification shall be provided hereunder to a Trustee or
officer:
a. 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. 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. 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) by the court or other body approving the settlement or other
disposition; or
(2) 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 in office
act on the matter) or (y) written opinion of independent
legal counsel.
3. 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. 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. 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. 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.
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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.
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.
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 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.
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
Section 5.
Section 5.1. 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.
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
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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.
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 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.
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.
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.
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 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.
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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.
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.
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 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.
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.
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
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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 redemption, 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. All provisions herein relating to the Trust shall apply equally to each
Series of the Trust except as the context requires otherwise.
2. 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. 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 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. 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. 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.
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<PAGE>
6. 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 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.
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.
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. 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.
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.
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<PAGE>
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.
Section 6.1. 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.
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.
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.
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, 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.
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.
Section 6.6. Redemption of Shareholder's Interest.
1. 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
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<PAGE>
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.
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.
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.
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.
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<PAGE>
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.
Section 7.1. 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 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.
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.
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<PAGE>
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 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.
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.
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.
Section 8.
Section 8.1. Duration.
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
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<PAGE>
Section 8.2. Termination of Trust.
1. 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. the Trust or any Series shall carry on no business except for the
purpose of winding up its affairs;
b. 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. 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. 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.
Section 8.3. Amendment Procedure.
1. 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 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. 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.
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3. 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.
Section 8.4. Merger, Consolidation and Sale of Assets.
The Trust or any Series or class 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 or class, 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.
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 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
Section 9.
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
Section 10.
Section 10.1. 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
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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.
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.
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.
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.
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.
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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
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:
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APPENDIX F
As of December 15, 1999, the following persons owned of record or
beneficially 5% or more of the shares of the following Funds:
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ --------------- ----------
<S> <C> <C>
MONEY MARKET FUND
Combined Master Retirement Trust.................. 195,172,010.950 35.41%*
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240
SHORT-TERM FUND
Soka University of America........................ 9,219,244.717 12.80%
26800 W. Mulholland Highway
Attention: Arnold Kawasaki
Calabasas, California 91302
Charles Schwab & Co., Inc.**...................... 8,770,536.509 12.18%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
National Gallery of Art........................... 6,825,126.977 9.48%
4th & Constitution Avenue, N.W.
Room 605
Washington, D.C. 20565-0001
Bankers Trust Company FBO:........................ 4,895,082.111 6.80%
Georgia-Pacific Corporation Master Trust for
Employee
648 Grassmere Business Park Rd.
Advisor Services Group, 2nd Floor
Nashville, Tennessee 37211
Trustees of Columbia University in the City of New
York............................................. 4,454,401.688 6.19%
Office of Investments
475 Riverside Dr., Suite 401
New York, New York 10115
LOW DURATION FUND
Charles Schwab & Co., Inc. Rein**................. 41,512,734.824 9.45%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
MLTC of America FBO............................... 24,965,661.376 5.68%
Conoco Thrift Plan
300 Davidson Ave.
Somerset, NJ 08873-4175
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ -------------- ----------
<S> <C> <C>
LOW DURATION FUND II
Sprint Retirement Savings Plan....................... 15,912,091.300 34.47%*
82 Devonshire Street--E1GA
Boston, Massachusetts 02109
American Bible Society............................... 5,096,490.288 11.04%
1865 Broadway
New York, New York 10023
Salt River Project Decom Trust....................... 4,135,666.611 8.96%
P.O. Box 52025
Phoenix, Arizona 85072
The Northern Trust Company FBO....................... 2,965,029.387 6.42%
Nestle USA Inc. Savings Plan Trust
P.O. Box 92956
Chicago, IL 60675-2956
University of Illinois Foundation.................... 2,413,274.035 5.23%
Pooled Short Term Funds
Manager of Accounting & Donor Records
Harker Hall 1305 W. Green Street
Urbana, Illinois 61801
LOW DURATION FUND III
Loyola Academy Endowment Fund........................ 1,023,874.554 37.15%*
135 S. LaSalle Street
P. O. Box 1443
Chicago, Illinois 60690
Sisters of St. Joseph/Michigan....................... 853,768.719 30.98%*
3427 Gull Road
P. O. Box 13
Nazareth, Michigan 49074
National Jewish Medical & Research Center............ 518,318.489 18.81%
1400 Jackson Street
Denver, CO 80206-2762
Charles Schwab & Co., Inc. Rein**.................... 343,611.591 12.47%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
LOW DURATION MORTGAGE FUND
Pacific Investment Management Company................ 383,738.791 90.17%*
840 Newport Center Drive
Newport Beach, California 92660
Charles Schwab & Co., Inc. Rein**.................... 41,638.898 9.78%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ ------------- ----------
<S> <C> <C>
MODERATE DURATION FUND
Columbus Circle Trust Co-SV**......................... 5,931,316.739 15.82%
1 Station Place Metro Center
Stamford, Connecticut 06902
Northern Trust Bank of Texas.......................... 3,111,786.058 8.30%
Custodian for John G. and Marie Stella Kenedy
Memorial Foundation, Acct. #2617646
P.O. Box 02056
Chicago, IL 60675
Sparrow Health System Pension......................... 3,106,855.665 8.29%
c/o Mac & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
Lakeland Regional Medical Center...................... 2,531,735.893 6.75%
c/o Wendel & Co.
The Bank of New York
Attn: Mutual Fund/Reorg. Dept.
P.O. Box 1066, Wall Street Station
New York, NY 10268-1066
The Children's Hospital Association................... 2,320,724.349 6.19%
1056 E. 19th Avenue B020
Denver, Colorado 80218
Samaritan Health System Retirement Income Plan........ 1,965,552.601 5.24%
300 S. Grand Ave. 40th Floor
Los Angeles, California 90071
REAL RETURN BOND FUND
National Financial Services Corporation**............. 4,195,506.208 28.00%*
1 World Financial Center
200 Liberty Street
New York, New York 10281
Charles Schwab & Co., Inc. Rein**..................... 2,044,733.837 13.65%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Schroder Wertheim & Co., Inc.......................... 1,677,494.996 11.20%
Mutual Fund Control Account
c/o Lewco Securities
34 Exchange Place 4th Fl
Jersey City, New Jersey 07311
Wake Forest University................................ 1,542,802.208 10.30%
P.O. Box 7354
Winston Salem, NC 27109-7354
MLPF&S For the Sole Benefit of its Customers**........ 1,430,185.829 9.55%
Attention: Fund Administration
4800 Deer Lake Drive E Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ --------------- ----------
<S> <C> <C>
TOTAL RETURN FUND
Charles Schwab & Co., Inc.**........................ 177,324,799.225 5.92%
Special Custody Accounts
FBO Customers
Attention: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
TOTAL RETURN FUND II
Catholic Archbishop of Chicago...................... 9,957,209.770 7.99%
155 East Superior Street
Chicago, IL 60611-2911
Charles Schwab & Co., Inc. Rein**................... 9,756,702.553 7.83%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
IUE AFL-CIO Pension Plan............................ 6,928,762.416 5.56%
1460 Broad Street
Blommfield, New Jersey 07003
TOTAL RETURN FUND III
Archdiocese of LA/Corp/Diocese Tucson............... 11,570,519.911 17.01%
3424 Wilshire Boulevard, 10th Floor
Los Angeles, California 90010-2241
Diocese of Orange................................... 6,745,531.508 9.92%
Wendel & Co.
c/o The Bank of New York
Attn: Mutual Fund/Reorg. Dept.
P.O. Box 1066, Wall Street Station
New York, NY 10268-1066
Sparrow Health System Pension....................... 4,001,215.709 5.88%
c/o Mac & Co Acct
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
TOTAL RETURN MORTGAGE FUND
Pacific Investment Management Company............... 381,825.012 95.66%*
840 Newport Center Drive
Newport Beach, California 92660
HIGH YIELD FUND
Charles Schwab & Co., Inc. Rein**................... 29,565,598.185 9.10%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
National Financial Services Corporation **.......... 23,760,620.499 7.32%
1 World Financial Center
200 Liberty Street
New York, New York 10281
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ ------------- ----------
<S> <C> <C>
LONG-TERM U.S. GOVERNMENT FUND
Chronicle Publishing................................. 6,308,791.886 14.94%
22 4th Street, Suite 1400
San Francisco, CA 94103
The St. Joe Company Salaried Pension Plan............ 5,391,213.730 12.77%
1650 Prudential Drive, Suite 400
Jacksonville, Florida 32207
FIIOC as Agent for Certain Employee Benefits Plan**.. 4,309,913.123 10.21%
100 Magellan KW1C
Covington, Kentucky 41015
Charles Schwab & Co. Inc............................. 3,564,605.269 8.44%
Reinvest Account
Attn: Mutual Funds Dept.
101 Montgomery Street
San Francisco, CA 94104-4122
Chicago Symphony Orchestra........................... 3,517,680.070 8.33%
220 South Michigan Avenue
Chicago, Illinois 60604
SHORT DURATION MUNICIPAL INCOME FUND
PIMCO Advisors L.P................................... 1,060,122.733 100.00%*
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660-6309
MUNICIPAL BOND FUND
MLPF&S For the Sole Benefit of its Customers**....... 955,661.844 16.43%
Attention: Fund Administration #97M
4800 Deer Lake Drive E. Floor 3
Jacksonville, Florida 32246-6484
CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND
PIMCO Advisors L.P. ................................. 302,034.131 74.44%*
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660-6309
Donaldson Lufkin Jenrette Securities Corp. Inc.**.... 38,896.798 9.59%
P.O. Box 2052
Jersey City, New Jersey 07303-2052
Bear Stearns Securities Corp. ....................... 25,065.390 6.18%
FBO 709-93145-23
1 MetroTech Center North
Brooklyn, New York 11201-3859
NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
PIMCO Advisors L.P................................... 302,740.390 99.67%
800 Newport Center Drive, 6th Floor
Newport Beach, California 92660-6309
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ -------------- ----------
<S> <C> <C>
GLOBAL BOND FUND
Walker Art Center, Inc. ............................ 3,140,901.591 11.39%
Vineland Place
Minneapolis, Minnesota 55403
University of Denver (Colorado Seminary)............ 2,435,522.690 8.83%
2199 South University Blvd
Denver, Colorado 80208
Kamehameha Schools.................................. 2,339,823.289 8.48%
P. O. Box 3466
Honolulu, Hawaii 96801
Blue Cross Blue Shield of Massachusetts Inc. ....... 1,750,717.036 6.35%
Managed Care
100 Summer Street, Treasury 01-06
Boston, MA 02110-2106
Worcester Polytechnic............................... 1,638,334.726 5.94%
100 Institute Road
Worcester, Massachusetts 01609
Hobart and William Smith Colleges................... 1,584,045.367 5.74%
337 Pulteney Street
Geneva, New York 14456
GLOBAL BOND FUND II
Citibank (Switzerland) Acting as Agent.............. 2,137,282.382 32.09%*
Attn: Securities Support Group Fund
Seestrasse 25
P.O. Box 3760
8021 Zurich, Switzerland
Cantebury/Uniform Code Council...................... 1,809,622.405 27.17%*
c/o Mac & Co
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
GMP & Employers Retiree Trust....................... 1,069,921.566 16.07%
MIDF965N032
Mutual Funds Operations
Pittsburgh, Pennsylvania 15230-3198
FOREIGN BOND FUND
Charles Schwab & Co., Inc. Rein**................... 25,687,423.957 46.77%*
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
Donaldson Lufkin Jenrette Securities Corp. Inc.**... 6,297,476.515 11.47%
P. O. Box 2052
Jersey City, New Jersey 07399
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ ------------- ----------
<S> <C> <C>
EMERGING MARKETS BOND FUND
Centurion Trust Company............................. 1,660,778.329 47.92%*
FBO Omnibus/Centurion Cap. Mgmt.
2425 EB Camelback Road, Suite 530
Phoenix, AZ 85016
State Street Bank & Trust FBO....................... 529,534.207 15.28%
Hallmark Master Trust
Master Trust Services Division
P.O. Box 1992
Boston, Massachusetts 02105-1992
Tenet Healthcare (AMI).............................. 516,908.301 14.91%
14001 Dallas Pkwy., Suite 105
Dallas, Texas 75240-4362
Charles Schwab & Co., Inc. Rein**................... 514,675.362 14.85%
The Schwab Building
101 Montgomery Street
San Francisco, California 94104
STRATEGIC BALANCED FUND
California Community Foundation..................... 5,248,275.002 45.34%*
606 South Olive Street, Suite 2400
Los Angeles, California 90014
Carpenters Health and Security Trust of Western
Washington......................................... 2,155,813.563 18.62%
P.O. Box 1929
Seattle, Washington 98111
CONVERTIBLE BOND FUND
State Street Bank & Trust........................... 1,149,773.071 16.05%
FBO: Pacific Gas & Electric Co.
Retirement Plan Master
1 Enterprise Drive
North Quincy, Massachusetts 02171-2126
GTE Services Corporate Bond Pension Fund............ 487,231.743 6.80%
C/O BT Services Tennessee Inc.
648 Grassmere Business Park Road
Advisor Services Group, 2nd Floor
Nashville, Tennessee 37211
Northern Trust Company FBO.......................... 442,869.796 6.18%
Lucent Technologies Inc. Master Pension Trust
P.O. Box 92923
Chicago, IL 60675
Phillip Morris Master Retirement Trust.............. 436,681.223 6.10%
c/o State Street Bank & Trust
P.O. Box 1992
Boston, Massachusetts 02105-1992
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Name of Fund Owned Fund
------------ ------------- ----------
<S> <C> <C>
Baptist Foundation of Texas........................... 358,088.814 5.00%
c/o Mac & Co.
Mutual Fund Operations
P.O. Box 3198
Pittsburgh, Pennsylvania 15230-3198
STOCKPLUS FUND
MLPF&S For the Sole Benefit of its Customers**........ 8,823,191.488 9.00%
Attention Fund Administration #97M34
4800 Deer Lake Drive E Floor 3
Jacksonville, Florida 32246-6484
</TABLE>
* 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.
F-8
<PAGE>
PIMS
<PAGE>
PLEASE VOTE YOUR PROXY TODAY
Prompt response will save the expense of additional solicitations
CHOOSE THE VOTING METHOD THAT IS MOST CONVENIENT FOR YOU.
1. VOTE BY MAIL: Sign and date your proxy card and return it in the enclosed
------------
postage paid envelope.
NOTE: Your proxy is not valid unless it is signed.
-------------------------------------------
2. VOTE BY TOUCH-TONE PHONE: Dial 1-888-221-0697, enter the CONTROL NUMBER
------------------------
printed on the upper portion of your proxy card and follow the simple
instructions. Telephone voting is available 24 hours a day, 7 days a week.
THE CALL IS TOLL-FREE. If you received more than one proxy card, you can vote
---------------------
each card during the call. Each card has a different control number.
3. VOTE VIA THE INTERNET: Log on to www.proxyweb.com, enter your CONTROL NUMBER
---------------------
and follow the instructions on the screen. If you received more than one
proxy card, you may vote them all during the same session. Each card has a
different control number.
4. VOTE VIA FAX: Sign and date your proxy card and fax BOTH THE FRONT AND THE
------------ ----------------------
BACK to 1-212-797-1052.
----
IF YOU VOTE BY PHONE, FAX OR INTERNET,
PLEASE DO NOT RETURN YOUR PROXY CARD.
MIS-PIMCO
VOTE TODAY BY MAIL,
TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE 1-888-221-0697
OR LOG ON TO WWW.PROXYWEB.COM
**** CONTROL NUMBER: 999 999 999 999 99 ****
Please fold and detach card at perforation before mailing
PIMCO FUNDS: PACIFIC INVESTMENT SPECIAL MEETING OF SHAREHOLDERS
MANAGEMENT SERIES on March 3, 2000
PIMCO FUND NAME PRINTS HERE
The undersigned hereby appoints R. Wesley Burns, Jeffrey M. Sargent, Henrik P.
Larsen and Garlin G. Flynn 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 above named 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 9:00 am, 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.
Receipt of the Notice of Special Meeting and Proxy Statement is hereby
acknowledged.
Dated _____________________, 2000
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.
PLEASE VOTE, SIGN AND DATE THIS PROXY
AND RETURN IT IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
<PAGE>
Please fold and detach card at perforation before mailing
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:
Please vote by filling in the appropriate boxes below.
<TABLE>
<S> <C> <C> <C>
FOR WITHHOLD FOR ALL
I. To elect trustees to the Board of Trustees of the Trust. (see pages 1-5 of the proxy statement) ALL AUTHORITY EXCEPT
[_] [_] [_]
(01) Guilford C. Babcock (02) R. Wesley Burns (03) E. Philip Cannon (04) Vern O. Curtis
(05) J. Michael Hagan (06) Brent R. Harris (07) Thomas P. Kemp (08) William J. Popejoy
To withhold authority to vote for any individual nominee, mark the "For All Except" and
print the name(s) of the Nominee(s) on the line below.
--------------------------------------------------------------------------------------- FOR AGAINST ABSTAIN
II. To approve a new investment advisory contract (see pages 5-13 of the proxy statement) [_] [_] [_]
III. To approve changes to fundamental investment policies: (see pages 13-17 of the proxy statement)
a. Concentration d. Margin g. Underwriting
b. Diversification e. Borrowing and h. Short Positions FOR AGAINST ABSTAIN
Senior Securities ALL ALL ALL
c. Investment in f. Loans i. Investments in other [_] [_] [_]
Real Estate Investment Companies
If you do not wish to approve a particular investment policy change applicable to your Fund,
write the letter(s) of the sub-proposal on the line below.
--------------------------------------------------------------------------------------- FOR AGAINST ABSTAIN
IV. To approve an Amended and Restated Declaration of Trust (see pages 18-21 of the proxy statement) [_] [_] [_]
V. To transact such other business as may properly come before the Meeting.
</TABLE>
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.
<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:
[_] Preliminary Proxy Statement [_] Confidential, for use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] 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:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
January 12, 2000
Dear Shareholder of PIMCO International Bond Fund and PIMCO Emerging Markets
Bond Fund II (the "Funds"):
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 9:00
a.m., 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 Allianz of America, Inc. acquiring
approximately 70% of the outstanding partnership interests in PIMCO Advisors
(the "Transaction"). At the meeting, you will be asked to consider the
following proposals:
. Election of Trustees to the Board of Trustees.
. Approval of a new investment advisory contract between the Trust and
PIMCO. The new investment advisory contract 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.
. 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 separately 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 card(s) promptly in order to avoid the expense of additional
mailing or having our proxy solicitor, D.F. King & Co., Inc. ("D.F. King")
telephone you. Alternatively, you may vote by telephone, facsimile or Internet,
as described in the proxy card(s). If you have any questions regarding the
proxy statement, please call D.F. King at 1-800-949-2583.
Thank you in advance for your participation in this important event.
Sincerely,
/s/ WESLEY BURNS
R. Wesley Burns
Managing Director
<PAGE>
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
For proxy information call:
(800) 949-2583
For account information call:
(800) 927-4648
----------------
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: Pacific Investment Management
Series (the "Trust") will be held at 800 Newport Center Drive, 6th floor,
Newport Beach, California 92660 on March 3, 2000 at 9:00 a.m., 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 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, PLEASE COMPLETE, SIGN,
DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD(S) 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
January 12, 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(S).
- -------------------------------------------------------------------------------
<PAGE>
PIMCO Funds: Pacific Investment Management Series
840 Newport Center Drive, Suite 300
Newport Beach, California 92660
For proxy information call:
(800) 949-2583
For account information call:
(800) 927-4648
----------------
PROXY STATEMENT
----------------
Special Meeting of Shareholders
To be held March 3, 2000
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Trustees (the "Board" or "Trustees") of the PIMCO
Funds: Pacific Investment Management Series (the "Trust") for use at a joint
special meeting of shareholders 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 9:00 a.m., 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 12,
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 the 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;
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 election to
the Board. 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 or its investment adviser, PIMCO. To that end, at
the Meeting, two new Trustees who are not "interested persons" of the Trust or
PIMCO 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 and nomination of
candidates to serve as Trustees of the Trust. The Nominating Committee did not
meet during the fiscal year ended March 31, 1999.
<PAGE>
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 as Trustees, and 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 valuable
additions to the Board as independent Trustees. The Board noted that Mr.
Cannon currently serves on the board of another investment company managed by
affiliates of PIMCO. In addition, the Board 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 has the
background, experience and working knowledge of the Funds, as well as the
professional experience, to be an effective member of the Board.
If the Nominees are elected at the Meeting, there will be a total of eight
Trustees on the Board, six of whom will not be "interested persons" of the
Trust or PIMCO.
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
sooner succeeded as provided in the Trust's Declaration of Trust. It is
proposed, and the Board recommends, that shareholders elect the Nominees.
2
<PAGE>
The following table sets forth certain information concerning the Nominees.
<TABLE>
<CAPTION>
Length of Principal Occupation(s)
Service on Current Position During the Past Five
Name, Address and Age the Board with the Trust Years
--------------------- ---------- ---------------- ------------------------
<C> <C> <C> <S>
Guilford C. Babcock......... 4/87-Present Trustee Associate Professor of
1500 Park Place Finance, University of
San Marino, California Southern California;
91108 Director, PIMCO
Age 68 Commercial Mortgage
Securities Trust, Inc.;
Trustee, PIMCO Variable
Insurance Trust;
Director, Growth Fund of
America and Fundamental
Investors Fund of the
American Funds;
Director, Good Hope
Medical Foundation.
R. Wesley Burns*............ 11/97-Present President Managing Director,
840 Newport Center Drive (since 2/94 and PIMCO; President and
Newport Beach, California as President) Trustee Director, PIMCO
92660 Commercial Mortgage
Age 40 Securities Trust, Inc.;
President and Trustee,
PIMCO Variable Insurance
Trust. Formerly
Executive Vice
President, PIMCO;
Executive Vice
President, PIMCO Funds:
Multi-Manager Series.
E. Philip Cannon............ Nominee None Proprietor, Cannon &
3838 Olympia Company, an affiliate of
Houston, Texas 77019 Inverness Management
Age 59 LLC, a private equity
investment firm; Trustee
of PIMCO Funds: Multi-
Manager Series.
Formerly, Headmaster,
St. John's School,
Houston, Texas; Trustee
of Cash Accumulation
Trust; General Partner,
J.B. Poindexter & Co.,
Houston, Texas, a
private equity
investment firm; 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.
Vern O. Curtis.............. 4/87-3/93 and Trustee Private Investor;
14158 N.W. Bronson Creek 2/95-Present Director, PIMCO
Drive Commercial Mortgage
Portland, Oregon 97229 Securities Trust, Inc.;
Age 65 Trustee, PIMCO Variable
Insurance 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.
J. Michael Hagan............ Nominee None Retired from Furon
6 Merced Company (manufacturing)
San Clemente, California where he served as
92673 Chairman and CEO from
Age 60 June 1991 to November
1999, and in other
capacities 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
(manufacturing), Freedom
Communications, and
Remedy Temp (staffing).
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>
3
<PAGE>
<TABLE>
<CAPTION>
Length of Principal Occupation(s)
Service on Current Position During the Past Five
Name, Address and Age the Board with the Trust Years
--------------------- ---------- ---------------- ------------------------
<C> <C> <C> <S>
Brent R. Harris*............ 2/92-Present Chairman Managing Director,
840 Newport Center Drive of the PIMCO; Board of
Newport Beach, California Board and Governors, Investment
92660 Trustee Company Institute;
Age 40 Chairman and Director,
PIMCO Commercial
Mortgage Securities
Trust, Inc.; Chairman
and Trustee, PIMCO
Variable Insurance
Trust.
Thomas P. Kemp.............. 4/87-Present Trustee Private Investor;
1141 Marine Drive Director, PIMCO
Laguna Beach, California Commercial Mortgage
92651 Securities Trust, Inc.;
Age 69 Trustee, PIMCO Variable
Insurance Trust;
Formerly Co-Chairman,
U.S. Committee to Assist
Russian Reform;
Director, Union
Financial Corp. (savings
& loan); Senior
Consultant, World Cup
1994 Organizing
Committee.
William J. Popejoy.......... 7/93-2/95 and Trustee President, Pacific
29 Chatham Court 8/95-Present Capital Investors;
Newport Beach, California Chairman, PacPro (vinyl
92660 assembly products;
Age 61 formerly Western
Printing);
Director, PIMCO
Commercial Mortgage
Securities Trust, Inc.;
Trustee, PIMCO Variable
Insurance Trust.
Formerly Director,
California State
Lottery; Chief Executive
Officer, Orange County,
California.
</TABLE>
- --------
* Mr. Burns and Mr. Harris are "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.
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. Messrs. Curtis and Hagan
formerly held units issued by PIMCO Advisors L.P., the parent of PIMCO.
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 accountant, submits a recommendation to the Board as to the selection
an independent public accountant, 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 Trust as a group received compensation in the amount of
$234,297.
4
<PAGE>
The following table sets forth the compensation paid to each of the current
Trustees of the Trust for the fiscal year ended March 31, 1999. Trustees who
are "interested persons" of the Trust do not receive any compensation from the
Trust.
<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from
Name from Trust Trust and Fund Complex*
---- ---------------------- -----------------------
<S> <C> <C>
Guilford C. Babcock........... $58,000 $78,750
Vern O. Curtis................ $60,297 $82,619
Thomas P. Kemp................ $58,000 $78,750
William J. Popejoy............ $58,000 $78,750
</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 as Directors of PIMCO Commercial Mortgage
Securities Trust, Inc., the Trustees listed above received an annual
retainer of $6,000 plus $1,000 for each Board of Directors 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 fiscal year ended December 31, 1999, these
Trustees, as a group, received compensation in the amount of $42,786 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 Directors meeting attended in person ($250 for each meeting
attended telephonically), an annual retainer of $500 for a committee
Chairmanship, plus reimbursement of related expenses. For the fiscal year
ended December 31, 1999, these Trustees, as a group, received compensation
in the amount of $41,786 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"), the
parent of PIMCO, and certain of its affiliates. Messrs. Burns and Harris, as
managing directors of PIMCO, the investment adviser and administrator of the
Funds, 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 of the Trust
since its inception on February 19, 1987. PIMCO currently serves as adviser of
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 agreement adopted
on February 24, 1998 (the "Administration Agreement"). PIMCO Funds
Distributors LLC, 2187 Atlantic Street, Stamford, Connecticut 06902, a wholly-
owned subsidiary of PIMCO Advisors, serves as the distributor of the Funds.
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
5
<PAGE>
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 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 a new Administration Agreement. Forms
of the New Advisory Contract and Administration Agreement are attached as
Appendix A.
Information about PIMCO, its directors and principal executive officer, the
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 a subsidiary of Allianz of America with and into
PAH. In the merger, each of the outstanding limited partnership and general
partner units in PAH will be converted into the right to receive in cash an
amount per unit equal to $38.75, subject to a downward adjustment if the
aggregate annualized investment advisory and subadvisory fees for all accounts
managed by PIMCO Advisors and its subsidiaries, expressed as a "revenue run-
rate," declines (excluding market-based changes) below a specified level (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.
Following the merger, subsidiaries of Allianz of America will, in a series
of transactions, acquire for cash additional partnership interests in PIMCO
Advisors, bringing its ownership interest in PIMCO Advisors to approximately
70%, including the approximately 44% interest held through PAH. As part of the
Transaction, a subsidiary of Allianz of America will acquire Partners G.P.
through an acquisition of the managing general partner interest in Partners
G.P. from Partners LLC (the managing general partner of Partners G.P.) for
approximately $5.5 million and of the member interests in Partners G.P. that
are indirectly owned by Pacific Life. Pacific Life, which through subsidiaries
owns approximately a 30% interest in PIMCO Advisors, will retain an indirect
interest in PIMCO Advisors following the closing. As a result of the
Transaction, Allianz of America will control PIMCO Advisors, having acquired
approximately 70% of the outstanding partnership interests in PIMCO Advisors
for a total consideration of approximately $3.3 billion, while the remainder
will continue to be owned by Pacific Life.
In connection with the closing, Allianz of America will enter into a
put/call arrangement for the possible disposition of Pacific Life's indirect
interest in PIMCO Advisors. The put option held by Pacific Life will allow it
to require Allianz of America, on the last business day of each calendar
quarter following the closing of the Transaction, to purchase at a formula-
based price all of the PIMCO Advisors units owned directly or indirectly by
Pacific Life. The call option held by Allianz of America will allow it,
beginning January 31, 2003 or upon a change in control of Pacific Life, to
require Pacific Life to sell or cause to be sold to Allianz of America, at the
same price, all of the PIMCO Advisors units owned directly or indirectly by
Pacific Life.
6
<PAGE>
The Transaction is expected to be completed by the end of the first quarter
of 2000, although there is no assurance that the Transaction will be
completed. Completion of the Transaction is subject to a number of conditions
including, among others, (i) the approval of the public unitholders of PAH,
(ii) the receipt of certain regulatory approvals, and (iii) PIMCO Advisors'
revenue run-rate (excluding market-based changes) for all accounts managed by
PIMCO Advisors and its subsidiaries being at least 75% of the September 30,
1999 revenue run-rate amount. Approval of the New Advisory Contract by the
shareholders of the Funds will help satisfy condition (iii) described in the
preceding sentence by maintaining PIMCO's advisory relationship with the
Funds. If the Transaction is 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. Allianz of America will control PIMCO Advisors through its
managing member interest in Pacific-Allianz Partners LLC ("PacPartners LLC"),
which will be the sole general partner of PIMCO Advisors following the
Transaction. While Allianz of America will control PacPartners LLC, Pacific
Life will hold a portion of its continuing interest in PIMCO Advisors through
an interest in PacPartners LLC. Allianz of America, through subsidiaries, will
be managing member of PacPartners LLC and will have the full authority and
control over all actions taken by PacPartners LLC as the general partner of
PIMCO Advisors, provided that Pacific Life's consent is required for certain
extraordinary actions.
Operationally, PIMCO is expected to remain independent and to lead the
global fixed income investment efforts of Allianz AG. In this regard, PIMCO
will coordinate its activities with Allianz Asset Management ("AAM"), a
subsidiary of Allianz AG that coordinates global Allianz asset management
activities. To permit the provision of advisory services to non-U.S. clients
of Allianz AG, PIMCO personnel, including personnel with portfolio management
responsibility for certain of the Funds, may become affiliated with AAM or
other Allianz-controlled advisory firms. PIMCO also may call upon the research
capabilities and resources of Allianz AG and its advisory affiliates in
connection with providing investment advice to its clients. PIMCO is currently
expected to continue to operate in the United States under its existing name.
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 (a German
publicly-traded company) which, together with its subsidiaries, comprises the
world's second largest insurance group as measured by premium income. Allianz
AG is a leading provider of financial services, particularly in Europe, and is
represented in 68 countries world-wide through subsidiaries, branch and
representative offices, and other affiliated entities. The Allianz group
currently has assets under management of more than $390 billion, and in its
last fiscal year wrote approximately $50 billion in gross insurance premiums.
After completion of the Transaction, PIMCO and the Allianz group combined will
have over $650 billion in assets under management. Allianz AG's address is:
Koniginstrasse 28, D-80802, Munich, Germany.
Significant institutional shareholders of Allianz AG currently include,
among others, Dresdner Bank AG, Deutsche Bank AG, Munich Reinsurance and
HypoVereinsbank. Following completion of the Transaction, Dresdner Bank AG and
Deutsche Bank AG, as well as certain broker-dealers that might be deemed to be
affiliated with these entities, such as Bankers Trust Company, BT Alex Brown,
Inc., Deutsche Bank Securities, Inc. and Dresdner Kleinwort Benson North
America LLC (collectively, the "Affiliated Brokers"), may be
7
<PAGE>
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 believe that the 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.
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 manages more than $100 billion in assets. Integration of these
professionals and assets with PIMCO provides an excellent opportunity for
furthering PIMCO's global fixed income expertise.
. 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 proceed with the Transaction. The combined
entity will be the sixth largest investment manager in the world. The
Transaction will significantly increase assets under PIMCO's management,
and will offer the opportunity for continued growth in the future. Strong
relative investment results depend on a sound, disciplined investment
process and effective execution; size can be a benefit to both.
Section 15(f) of the 1940 Act. Section 15(f) provides a non-exclusive safe
harbor for an investment adviser to an investment company or any affiliated
persons to receive any amount or benefit in connection with a "change in
control" of the investment adviser 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
8
<PAGE>
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 in
the 1940 Act) of the investment adviser (or predecessor or successor adviser).
Allianz of America and each of the other parties to the Agreement have agreed
to use reasonable best efforts to ensure compliance with Section 15(f) as it
applies to the Transaction during the applicable time periods.
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. If the Transaction is not
consummated, PIMCO will continue to serve as adviser for all of the Funds
under the current Advisory Contract.
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.
The Advisory Contract may be terminated by a Fund without penalty upon 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 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 and administrative fee rates and
aggregate investment advisory fees and administrative fees paid to PIMCO by
each Fund during the fiscal year ended March 31, 1999, 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. The New
Advisory Contract recognizes that PIMCO may, from time to time, seek research
assistance and rely on other investment management resources of its affiliated
companies, and the Funds will disclose that a portion of the advisory or
administrative fees received by PIMCO from the Funds may be paid to those
affiliates in return for such services provided. These arrangements will have
no impact on PIMCO's continuing responsibility for the management of the Funds
and will not cause any increase in the overall fees or expenses borne by 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.
9
<PAGE>
If the New Advisory Contract is approved by shareholders, it will take
effect immediately upon 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 with respect to
each Fund 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).
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.
In addition, affiliates of PIMCO provide or procure shareholder servicing and
distribution-related services for the Funds and will receive compensation in
connection with such activities with respect to the Funds.
The Administration Agreement may be terminated by a Fund without penalty
upon 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 60 days' notice
by PIMCO. The Administration Agreement terminates automatically in the event of
its "assignment" (as defined in the 1940 Act). A new Administration Agreement,
substantially identical to the current Administration Agreement, will be
implemented upon completion of the Transaction.
Interests of Certain Persons in the Transaction. The Managing Directors,
each of whom 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 advisers 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 PIMCO
Advisors Retention Plan for Executives 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 two former Managing
Directors who are parties to those contracts noncompete payments equal to
distributions 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
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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 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 Class A 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, based on a Unit
Transaction Price of $38.75. The Managing Directors, as well as certain
executive officers of PIMCO, will also participate in the Deferred
Compensation Plan, under which Class A 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. At the closing of the Transaction, 193,252 Class A units of PIMCO
Advisors, having a value of $7,488,515 based on a Unit Transaction Price of
$38.75, attributable to unvested subaccounts of the Managing Directors under
the Deferred Compensation Plan will vest.
Upon completion of the Transaction, Mr. Harris will enter into an
employment agreement with PIMCO for an initial term of five years, beginning
January 1, 2000, with automatic renewal for successive two-year periods. Mr.
Harris will receive an annual salary and bonus, and will be eligible to
participate in certain benefit plans and programs. In addition, pursuant to a
new PIMCO Advisors LP Transition and Retention Plan, Mr. Harris will receive a
retention payment of $6 million per year for five years, conditioned on
continued employment with PIMCO. Additionally, approximately 8,661 (as of
November 30, 1999) units of PIMCO Advisors ("PA Units") attributable to Mr.
Harris' unvested account balance with PIMCO Advisors Executive Deferred
Compensation Plan will fully vest and the PA Units owned by that Plan will be
exchanged for cash at the Unit Transaction Price (estimated to be $38.75) for
an aggregate payment of $335,614. Options for 230,000 PA Units previously
granted to Mr. Harris pursuant to PIMCO Advisors 1998 Unit Incentive Plan will
be converted into the right to receive cash for the difference between the
exercise price for these options (which is $13.53) and the Unit Transaction
Price (for an aggregate payment of approximately $5,800,600).
Upon completion of the Transaction, Mr. Burns will enter into an employment
agreement with PIMCO for an initial term of five years, beginning January 1,
2000, with automatic renewal for successive two-year periods. Mr. Burns will
receive an annual salary and bonus, and will be eligible to participate in
certain benefit plans and programs. In addition, pursuant to a new PIMCO
Advisors LP Transition and Retention Plan, Mr. Burns will receive a retention
payment of $700,000 per year for five years, conditioned on continued
employment with PIMCO. Additionally, approximately 4,474 (as of November 30,
1999) PA Units attributable to Mr. Burns' unvested account balance with PIMCO
Advisors Executive Deferred Compensation Plan will fully vest and the PA Units
owned by that Plan will be exchanged for cash at the Unit Transaction Price
(estimated to be $38.75) for an aggregate payment of $173,368. Options for
80,000 PA Units previously granted to Mr. Burns pursuant to PIMCO Advisors
1998 Unit Incentive Plan will be converted into the right to receive cash for
the difference between the exercise price for these options (which averages
$27.2338) and the Unit Transaction Price (for an aggregate payment of
$921,300).
Separately, Messrs. Harris and Burns each has an interest of less than 6%
and 1%, respectively, in PIMCO Partners LLC, which owns 142,480 PA Units
(which would have in the aggregate a value of approximately $5,521,100 at the
Unit Transaction Price).
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
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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 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, including information concerning compensation and
employment arrangements to be implemented in connection with the Transaction,
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) 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 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 its 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.
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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. Each Fund's proposed 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
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 SEC or its staff, rather than the express terms of the
policies.
The Board believes that simplifying 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, the
proposed changes to 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 Fund's 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:
A 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.
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While the 1940 Act does not define what constitutes "concentration" in an
industry, the staff of the SEC 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 an industry, or it may use standard classifications
promulgated by the SEC, 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 the 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 involving 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
shareholders vote to approve the following fundamental policy:
A Fund may borrow money or issue any senior security, only 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 current
restrictions and conform them to the current regulatory requirements and the
evolving market environment. Reverse repurchase agreement transactions and
transactions including derivative investments are currently permitted under
the 1940 Act, 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 emergency purposes, each
Fund would nevertheless be subject to the 1940 Act's asset 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 series of the Trust.
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 considered to be 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 to
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involve the issuance of "senior securities" as long as certain conditions are
satisfied. The Funds currently engage, and would engage, in transactions that
could be considered to involve the issuance of "senior securities" only in
accordance with applicable regulatory requirements under the 1940 Act.
Adoption of the proposed policy is not expected to affect materially 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, the entry
into of repurchase agreements, and the purchase of debt 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 on loans with the following fundamental
investment policy:
A Fund may make loans only 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 series of the Trust. 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, a Fund may not maintain a short position, or purchase, write
or sell puts, calls, straddles, spreads or combinations thereof, except as
specified in the Fund's Prospectus and Statement of Additional Information.
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 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"). While feeder
funds incur their own expenses and bear their pro rata share of the master
fund's expenses, the master/feeder structure has the potential to minimize
administration and investment costs through achievement of economies of scale
and lowered transaction costs, and to maximize the possibility of gaining a
broader investor base.
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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 would permit this structure in the event the Board determines to
approve a master/feeder structure as being in the best interests of Fund
shareholders. 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, governs 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 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 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 marked to show changes
from the Current Declaration, as approved by the 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 Funds 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
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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. 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. Any new class of shares
created would bear costs and expenses attributable to it, as well as its share
of Fund-wide or Trust-wide costs and expenses. 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 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 to minimize administration
and investment costs through achievement of economies of scale and lowered
transaction costs, and to maximize the possibility of gaining a broader
investor base. Although none of the Funds currently intend 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 approve a master/feeder structure as being in the best interests
of Fund shareholders. This amendment would also give 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 consistent with
proposed changes to 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 or class 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 or class, 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.
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<PAGE>
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 notice of a shareholder's
meeting, a dividend check, an annual report or other shareholder communication
to a shareholder if not required by applicable law or when such prior
communications have been returned to the Trust as undeliverable, as specified
in the Amended Declaration. 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
(i) 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
18
<PAGE>
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 permissible, but not specifically addressed, 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 omissions 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, it does not expressly list
each of those activities. The Board believes that this amendment makes
explicit the Board's inherent authority to engage in these activities and 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. Separate 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.
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<PAGE>
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") of each Fund, after which it will be
available only to private account clients of PIMCO. Under the proposed
Reorganizations, each Fund would be reorganized as a 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% and 0.45% under the Advisory Contract for the International
Bond Fund and Emerging Markets Bond Fund II, respectively). Fees paid to PIMCO
for the services provided under the Administration Agreement will be reduced,
on an annual basis, from 0.25% and 0.40% of the average daily net assets of
the International Bond Fund and Emerging Markets Bond Fund II, respectively,
to 0.10%. By approving the Reorganization, shareholders also, in effect, will
be approving the Reorganization Advisory Contract, as discussed below. 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 Expenses..... 0.50% 0.12% 0.85% 0.12%
</TABLE>
Private Account Portfolio Series. The Private Account Portfolio Series is
currently comprised of 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
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.
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<PAGE>
Shares of each Private Account Portfolio Series may not be assigned, resold or
otherwise transferred without the written consent of the Trust and, if
requested, an opinion of counsel acceptable to the Trust that an exemption
from registration is available. Any attempt at a transfer to a third party in
violation of this restriction shall be void. The Trust may enforce these
restrictions, either directly or through its agents, by entering an
appropriate stop-transfer order on its books or otherwise refusing to register
or transfer or permit the registration or transfer on its books of any
purported transfer not in accordance with these restrictions. Exchanges of
shares of a Successor Fund for shares of any other Private Account Portfolio
Series will be based on the respective net asset values of the shares
involved. Subject to compliance with applicable private placement restrictions
and the investment restrictions of the Private Account Portfolio Series,
shares of the Funds may be purchased by exchanging Institutional Class shares
of another series of the Trust for shares of the Successor Funds.
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"), 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
issued.
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.
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, albeit with respect to
the Private Account Portfolio Series of the Trust, shares of which are offered
only to separate account clients of PIMCO that meet certain minimum investment
criteria.
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<PAGE>
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 vote to: (i) approve the Reorganization Advisory Contract 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 its fee structure; and (ii)
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 to 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.
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
Reorganizations will affect their individual circumstances and also as to
state and local and other tax consequences, if any, of the Reorganizations.
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; (4)
there would be no negative tax implications to shareholders as a result of the
Reorganizations; and (5) the Fund's shareholders are sophisticated investors
for whom a privately placed fund is an appropriate investment. 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.
Litigation filed against the Trust. On October 12, 1999, a lawsuit was
filed against the Trust by Trans Texas Holdings Corporation in the United
States District Court for the Western District of Texas alleging patent
infringement (Texas Civil Action Number A 99CA658SS). The complaint names
PIMCO Advisors, L.P. and PIMCO Funds as defendants. The complaint alleges,
among other things, infringement of United States Patent No. 5,832,461 ("461
Patent") by making, selling and/or offering for sale or use in the United
States mutual funds, including the PIMCO Real Return Bond Fund, embodying the
claimed invention in the 461 Patent and contributing to and/or inducing
infringement of the 461 Patent. The complaint seeks judgment, injunctive
relief, compensatory and exemplary damages, interest, costs, attorney fees and
such other and further relief as the Court deems just and proper. While the
ultimate outcome of this matter is not presently determinable, the Trust
intends to defend vigorously against the suit.
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 & Co., Inc. ("D.F. King") has been retained to assist with
proxy solicitation activities.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>
Number of
Shares
Outstanding
Fund (Votes)
---- -----------
<S> <C>
International Bond Fund.......................................... 142,619,915
Emerging Markets Bond Fund II.................................... 30,377,688
</TABLE>
As of December 15, 1999, the persons owning of record or beneficially 5% or
more 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.
23
<PAGE>
Proxies that reflect abstentions or broker "non-votes" (that is, shares
held by brokers or nominees as to which (a) instructions have not been
received from the beneficial owner or other persons entitled to vote and
(b) the brokers or nominees do not have discretionary voting power on a
particular matter) will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. Assuming the
presence of a quorum, abstentions and broker non-votes have the effect of a
negative vote on each proposal. Pursuant to the rules and policies of the New
York Stock Exchange (the "Exchange"), members of the Exchange may vote on
certain of the proposals to be considered at the meeting without instructions
from the beneficial owners of the Fund's shares.
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 is
sufficient votes for approval, even though the Meeting is adjourned as to
other proposals.
Electronic Voting. Shareholders may give voting instructions via the
Internet or by touchtone telephone by following the instructions enclosed with
the proxy card.
Telephone Voting. Shareholders may also give voting instructions over the
telephone by calling 1-800-949-2583. A representative of D.F. King will answer
shareholders' calls. When receiving a shareholder's instructions by telephone,
the D.F. King representative is required to ask the shareholder's full name,
address, the last four digits of the shareholder's social security number or
employer identification number, title (if the shareholder giving the proxy is
authorized to act for an entity, such as a corporation), the name of the Funds
owned and to confirm that the shareholder has received the proxy statement in
the mail. If the information provided by the shareholder matches the
information provided to D.F. King by PIMCO, then the D.F. King representative
will explain the proxy process. D.F. King is not permitted to recommend to
shareholders how to vote, other than to read any recommendation included in
the proxy statement. Shareholder instructions will be recorded by D.F. King
and transmitted to the official tabulator.
Voting by Mail or Facsimile. In addition to voting via the Internet and by
telephone, shareholders may also sign and mail or fax the proxy card received
with the proxy statement or attend the Meeting in person.
As the Meeting date approaches, each shareholder may receive a call from a
representative of D.F. King if PIMCO has not yet received the shareholder's
vote. D.F. King may ask shareholders for authority, by telephone or by
electronically transmitted instructions, to permit D.F. King to sign a proxy
on their behalf. D.F. King will record all instructions it receives from
shareholders by telephone or electronically, and the proxies it signs in
accordance with those instructions, in accordance with the procedures set
forth above. The Trustees of the Trust believe those procedures are reasonably
designed to determine accurately the shareholder's identity and voting
instructions.
Required Vote. Shareholders of all Funds of the Trust 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. Election
of a person as Trustee (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 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.
24
<PAGE>
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 card(s) is requested. A self-addressed, postage-
paid envelope is enclosed for your convenience.
By Order of the Board of Trustees
Garlin G. Flynn, Secretary
Newport Beach, California
January 12, 2000
25
<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 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. The
Adviser may from time to time seek
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research assistance and rely on investment management resources available to
it through its affiliated companies, but in no case shall such reliance
relieve the Adviser of any of its obligations hereunder, nor shall the Trust
be responsible for any additional fees or expenses hereunder as a result.
(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.
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
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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.
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 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 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
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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.
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.
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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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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
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.
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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 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
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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 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 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.
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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 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 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, to the extent this Agreement is a distribution plan: (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, to the extent this Agreement is an
agreement related to a distribution plan: (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
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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 the Trust's independent public accountants;
(b) Expenses of the Trust's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(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;
(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.
A-10
<PAGE>
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
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
A-11
<PAGE>
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.
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).
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-12
<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.
<TABLE>
<CAPTION>
Name
Length of Service
with PIMCO Position and Principal Occupation
----------------- ---------------------------------
<C> <S>
William S. Thompson, Jr. .. Managing Director, Chief Executive Officer and
April 1993 to Present Executive Committee Member, PIMCO; Managing
Director, Chief Executive Officer and Director,
PIMCO Management, Inc.; Member of Management Board
and Executive Committee, PIMCO Advisors L.P.;
President, Chief Executive Officer and Member,
PIMCO Partners LLC.
William R. Benz, II........ Managing Director, PIMCO; Managing Director and
June 1986 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Robert Wesley Burns........ Managing Director and Executive Committee Member,
February 1987 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Member of PIMCO Partners LLC.
Chris P. Dialynas.......... Managing Director, PIMCO; Managing Director and
July 1983 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Mohamed A. El-Erian........ Managing Director, PIMCO; Managing Director and
May 1999 to Present Director, PIMCO Management, Inc.
William H. Gross........... Managing Director, PIMCO; Managing Director and
June 1971 to Present Director, PIMCO Management, Inc.; Director and
Vice President, StocksPLUS Management, Inc.;
Member of Management Board, PIMCO Advisors L.P.;
Member of PIMCO Partners LLC.
John L. Hague.............. Managing Director and Executive Committee Member,
September 1987 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Member of PIMCO Partners LLC.
Pasi M. Hamalainen......... Managing Director, PIMCO; Managing Director and
January 1994 to Present Director, PIMCO Management, Inc.
Brent R. Harris............ Managing Director and Executive Committee Member,
June 1985 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Director and Vice President,
StocksPLUS Management, Inc.; Member of Management
Board and Executive Committee, PIMCO Advisors
L.P.; Member of PIMCO Partners LLC.
Brent L. Holden............ Managing Director, PIMCO; Managing Director and
December 1989 to Present Director, PIMCO Management, Inc.
Margaret E. Isberg......... Managing Director, PIMCO; Managing Director and
August 1983 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
John S. Loftus............. Managing Director, PIMCO; Managing Director and
August 1986 to Present Director, PIMCO Management, Inc.
</TABLE>
B-1
<PAGE>
<TABLE>
<CAPTION>
Name
Length of Service
with PIMCO Position and Principal Occupation
----------------- ---------------------------------
<C> <S>
Dean S. Meiling........... Managing Director, PIMCO; Managing Director and
December 1976 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
James F. Muzzy............ Managing Director and Executive Committee Member,
September 1971 to Present PIMCO; Managing Director and Director, PIMCO
Management, Inc.; Director and Vice President,
StocksPLUS Management, Inc.; Member of PIMCO
Partners LLC.
William F. Podlich, III... Managing Director, PIMCO; Managing Director and
June 1966 to Present Director, PIMCO Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
William C. Powers......... Managing Director, PIMCO; Managing Director and
January 1991 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Ernest L. Schmider........ Managing Director and Secretary, PIMCO; Managing
March 1994 to Present Director, Director and Secretary, PIMCO Management,
Inc; Director and Assistant Secretary, StocksPLUS
Management, Inc.; Senior Vice President, PIMCO
Advisors L.P.; Secretary, PIMCO Partners LLC.
Lee R. Thomas............. Managing Director, PIMCO; Managing Director and
April 1995 to Present Director, PIMCO Management, Inc.; Member of PIMCO
Partners LLC.
Benjamin L. Trosky........ Managing Director, PIMCO; Managing Director and
October 1990 to Present Director, PIMCO Management, Inc.; Member of
Management Board, PIMCO Advisors L.P.; Member of
PIMCO Partners LLC.
</TABLE>
The following are the 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>
Length of Principal Occupation(s)
Service with Position with During the Past Five
Name and Age the Trust the Trust Years
------------ ------------ --------------------- -----------------------
<C> <C> <C> <S>
Michael G. Dow...... 8/95-Present Senior Vice President Senior Vice President,
Age 36 PIMCO. Formerly Fixed
Income Specialist,
Salomon Brothers, Inc.;
Vice President
Operations, Citibank NA
Global Consumer Banking
Group.
William H. Gross.... 4/87-Present Senior Vice President Managing Director,
Age 55 PIMCO; Senior Vice
President, PIMCO
Variable Insurance
Trust.
Margaret Isberg..... 4/87-Present Senior Vice President Managing Director,
Age 43 PIMCO.
Jeffrey M. Sargent.. 2/93-Present Senior Vice President Vice President and
Age 36 Manager of Investment
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 President Senior Vice President,
Age 47 PIMCO. Formerly Vice
President, PIMCO.
Raymond C. Hayes.... 2/95-Present Vice President Vice President, PIMCO.
Age 54 Formerly Marketing
Director, Pacific
Financial Asset
Management Corporation.
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
Length of Principal Occupation(s)
Service with Position with During the Past Five
Name and Age the Trust the Trust Years
------------ ------------- -------------- ------------------------
<C> <C> <C> <S>
Thomas J. Kelleher, III.... 3/96-Present Vice President Vice President, PIMCO.
Age 49 Previously associated
with Delaware Trust,
Mellon Bank and Girard
Trust (bank trust
departments).
Henrik P. Larsen........... 2/99-Present Vice President Manager, Fund
Age 29 Administration, PIMCO;
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.
Age 41 Formerly Vice President,
Fidelity Investments;
Institutional Sales
Representative, CS First
Boston.
Andre Mallegol............. 3/97-Present Vice President Vice President, PIMCO.
Age 33 Formerly associated with
Fidelity Investments
Institutional Services
Company.
James F. Muzzy............. 4/87-Present Vice President Managing Director,
Age 60 PIMCO; Senior Vice
President, PIMCO
Variable Insurance
Trust.
Douglas J. Ongaro.......... 8/95-Present Vice President Vice President, PIMCO.
Age 38 Formerly Regional
Marketing Manager,
Charles Schwab & Co.,
Inc.
David J. Pittman........... 7/97-Present Vice President Vice President, PIMCO.
Age 51 Formerly a senior
executive with Bank of
America, the Northern
Trust Co. and
NationsBank.
Mark A. Romano............. 11/97-Present Vice President Vice President, PIMCO.
Age 41 Previously 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
Age 54 and Managing Director,
PIMCO; Senior Vice
President, PIMCO
Variable Insurance
Trust; Vice President,
PIMCO Commercial
Mortgage Securities
Trust, Inc.
John P. Hardaway........... 8/90-Present Treasurer Senior Vice President
Age 42 and Manager of
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.
Garlin G. Flynn............ 8/95-Present Secretary Specialist, PIMCO;
Age 53 Secretary, PIMCO
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.
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
Length of Principal Occupation(s)
Service with Position with During the Past Five
Name and Age the Trust the Trust Years
------------ ------------- ------------------- ------------------------
<C> <C> <C> <S>
Joseph D. Hattesohl... 2/95-Present Assistant Treasurer Vice President and
Age 35 Manager of Financial
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 I. Brown
& Co.
Michael J. Willemsen.. 11/88-Present Assistant Secretary Manager, PIMCO;
Age 39 Assistant Secretary,
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.
<TABLE>
<CAPTION>
Approximate
Name of Fund Advisory Fee Rate Assets
------------ ----------------- -----------
<C> <S> <C>
PIMCO VARIABLE INSURANCE
TRUST
Foreign Bond Portfolio...... Annual rate of 0.60% of average
daily net assets $ 5,031,932
FREMONT MUTUAL FUNDS, INC.
Global Bond Fund............ Annual rate of 0.30% of average $ 24,283,647
daily net assets paid quarterly
FORWARD GLOBAL FUND
Forward Global Fund......... Annual rate of 0.35% of average $ 30,263,618
daily 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 $161,197,318
$50 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
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.
B-4
<PAGE>
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-5
<PAGE>
APPENDIX C
PIMCO currently receives a monthly investment advisory fee and
administrative 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 administrative fees paid by each
then-operational Fund was as follows:
<TABLE>
<CAPTION>
Investment Aggregate Aggregate
Advisory Advisory Administrative Administrative
Fund Fee Rate Fees Fee Rate Fees
---- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
International Bond Fund... 0.25% $1,283,333 0.25% $1,283,333
Emerging Markets Bond Fund
II....................... 0.45% 298,301 0.40% 256,156
</TABLE>
C-1
<PAGE>
APPENDIX D
CURRENT FUNDAMENTAL INVESTMENT POLICIES
As a matter of fundamental policy, a 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 the 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 the 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................................................................... 3
Section 2.1. General Powers............................................... 3
Section 2.2. Investments. ................................................ 4
Section 2.3. Legal Title. ................................................ 5
Section 2.4. Issuance and Repurchase of Shares. .......................... 5
Section 2.5. Delegation; Committees. ..................................... 5
Section 2.6. Collection and Payment. ..................................... 5
Section 2.7. Expenses. ................................................... 6
Section 2.8. Manner of Acting; By-laws.................................... 6
Section 2.9. Miscellaneous Powers......................................... 6
Section 2.10. Principal Transactions....................................... 6
Section 2.11. Number of Trustees........................................... 7
Section 2.12. Election and Term............................................ 7
Section 2.13. Resignation and Removal. .................................... 7
Section 2.14. Vacancies. .................................................. 7
Section 2.15. Delegation of Power to Other Trustees........................ 8
Section 2.16. Shareholder Vote, etc........................................ 8
ARTICLE III.................................................................. 8
Section 3.1. Distribution Contract........................................ 8
Section 3.2. Advisory or Management Contract.............................. 8
Section 3.3. Affiliations of Trustees or Officers, Etc. .................. 8
Section 3.4. Compliance with 1940 Act. ................................... 9
ARTICLE IV................................................................... 9
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc......... 9
Section 4.2. Non-Liability of Trustees, Etc. ............................. 9
Section 4.3. Mandatory Indemnification. ................................. 10
Section 4.4. No Bond Required of Trustees................................. 11
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc... 11
Section 4.6. Reliance on Experts, Etc..................................... 11
ARTICLE V.................................................................... 11
Section 5.1. Beneficial Interest.......................................... 11
Section 5.2. Rights of Shareholders. ..................................... 11
Section 5.3. Trust Only. ................................................. 12
Section 5.4. Issuance of Shares. ......................................... 12
Section 5.5. Register of Shares. ......................................... 12
Section 5.6. Transfer of Shares. ......................................... 12
Section 5.7. Notices, Reports............................................. 13
Section 5.8. Treasury Shares. ............................................ 13
</TABLE>
E-i
<PAGE>
<TABLE>
<S> <C>
Section 5.9. Voting Powers.............................................. 13
Section 5.10. Meetings of Shareholders. ................................. 13
Section 5.11. Series Designation......................................... 13
Section 5.12. Assent to Declaration of Trust............................. 15
Section 5.13. Class Designation.......................................... 15
ARTICLE VI................................................................. 16
Section 6.1. Redemption of Shares....................................... 16
Section 6.2. Price...................................................... 16
Section 6.3. Payment.................................................... 16
Section 6.4. Effect of Suspension of Determination of Net Asset
Value..................................................... 16
Section 6.5. Repurchase by Agreement.................................... 16
Section 6.6. Redemption of Shareholder's Interest. ..................... 16
Section 6.7. Redemption of Shares in Order to Qualify as Regulated
Investment Company; Disclosure of Holding................. 17
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula....................................... 17
Section 6.9. Suspension of Right of Redemption. ........................ 17
ARTICLE VII................................................................ 18
Section 7.1. Net Asset Value............................................ 18
Section 7.2. Distributions to Shareholders. ............................ 18
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares........................... 19
Section 7.4. Allocation Between Principal and Income.................... 19
Section 7.5. Power to Modify Foregoing Procedures....................... 19
ARTICLE VIII............................................................... 19
Section 8.1. Duration................................................... 19
Section 8.2. Termination of Trust....................................... 20
Section 8.3. Amendment Procedure. ...................................... 20
Section 8.4. Merger, Consolidation and Sale of Assets. ................. 21
Section 8.5. Incorporation.............................................. 21
ARTICLE IX................................................................. 21
ARTICLE X.................................................................. 21
Section 10.1. Filing..................................................... 21
Section 10.2. Governing Law.............................................. 22
Section 10.3. Counterparts............................................... 22
Section 10.4. Reliance by Third Parties. ................................ 22
Section 10.5. Provisions in Conflict with Law or Regulations. ........... 22
</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
Section 1.
Section 1.1. 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".
Section 1.2. Definitions.
Wherever they are used herein, the following terms have the following
respective meanings:
1."By-laws" means the By-laws referred to in Section 2.8 hereof, as
from time to time amended.
2."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.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."Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by Section 17(f) of the 1940 Act, but
does not include a system for the central handling of securities
described in said Section 17(f).
5."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."Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
E-2
<PAGE>
7."His" shall include the feminine and neuter, as well as the masculine
genders.
8."Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
9."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.The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
11."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."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."Shareholder" means a record owner of Outstanding Shares.
14."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."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.The "Trust" means PIMCO Funds.
17.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.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
Section 2.
Section 2.1. 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
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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.
Section 2.2. Investments.
The Trustees shall have the power:
1. 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. 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-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. 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. 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. 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. 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. 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.
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8. 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. 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.
10. 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.
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.
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.
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.
Section 2.6. Collection and Payment.
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.
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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.
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.
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,
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.
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.
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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).
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.
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 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.
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.
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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.
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
CONTRACTS
III.Section 3.
Section 3.1. 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.
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.
Section 3.3. Affiliations of Trustees or Officers, Etc.
The fact that:
a. 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
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b. 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 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.
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
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.
Section 4.1. 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.
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 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.
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Section 4.3. Mandatory Indemnification.
1. 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. No indemnification shall be provided hereunder to a Trustee or
officer:
a. 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. 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. 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) by the court or other body approving the settlement or
other disposition; or
(2) 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 in office
act on the matter) or (y) written opinion of independent
legal counsel.
3. 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. 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. 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. 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.
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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.
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.
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 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.
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
Section 5.
Section 5.1. 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.
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
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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.
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 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.
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.
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.
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 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.
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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.
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.
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 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.
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.
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
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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 redemption, 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. All provisions herein relating to the Trust shall apply equally to each
Series of the Trust except as the context requires otherwise.
2. 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. 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 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. 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. 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.
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6. 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 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.
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.
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. 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.
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.
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ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.
Section 6.1. 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.
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.
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.
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, 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.
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.
Section 6.6. Redemption of Shareholder's Interest.
1. 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
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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.
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.
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.
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.
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ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.
Section 7.1. 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 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.
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.
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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 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.
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.
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.
Section 8.
Section 8.1. Duration.
The Trust shall continue without limitation of time but subject to the
provisions of this Article VIII.
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Section 8.2. Termination of Trust.
1. 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. the Trust or any Series shall carry on no business except for the
purpose of winding up its affairs;
b. 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. 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. 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.
Section 8.3. Amendment Procedure.
1. 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 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. 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.
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<PAGE>
3. 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.
Section 8.4. Merger, Consolidation and Sale of Assets.
The Trust or any Series or class 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 or class, 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.
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 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
Section 9.
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
Section 10.
Section 10.1. 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
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<PAGE>
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.
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.
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.
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.
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.
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<PAGE>
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
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:
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<PAGE>
APPENDIX F
FORM OF
PLAN OF REORGANIZATION
F-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<C> <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............................................... F-2
1.1 Transaction.................................................... F-2
1.2 Assets Transferred............................................. F-2
1.3 Election of Trustees; Approval of Advisory Agreements; Adoption
of Investment Policies; New Service Provider Agreements. ..... F-2
1.4 Distributions in Liquidation................................... F-3
1.5 Record of Ownership. .......................................... F-3
1.6 Transfer Taxes. ............................................... F-3
2. VALUATION........................................................... F-3
2.1 Determination of Reorganizing Fund Assets...................... F-3
2.2 Number of Successor Fund Shares Issued. ....................... F-3
2.3 Computing Net Asset Value. .................................... F-3
3. CLOSING AND CLOSING DATE............................................ F-4
3.1 Closing........................................................ F-4
3.2 Notice to Custodian. .......................................... F-4
3.3 Transfer Agent Certificate; Delivery at Closing. .............. F-4
3.4 Examination of Portfolio Securities. .......................... F-4
4. CONDITIONS PRECEDENT................................................ F-4
4.1 Organization................................................... F-4
4.2 Registrations and Qualifications............................... F-5
4.3 Corporate Power, Authorization of Transaction.................. F-5
4.4 Noncontravention. ............................................. F-5
4.5 Tax Filing. ................................................... F-5
4.6 Tax Status. ................................................... F-5
4.7 Qualification under Subchapter M. ............................. F-5
4.8 Issuance of Reorganizing Fund Shares........................... F-5
4.9 Issuance of Successor Fund Shares. ............................ F-5
4.10 Accuracy of Information........................................ F-6
4.11 Ownership of Assets............................................ F-6
4.12 Amendment of Declaration of Trust. ............................ F-6
4.13 Acquisition of Successor Fund Shares. ......................... F-6
4.14 Documents Evidencing Transfer By Reorganizing Funds. .......... F-6
4.15 Documents Evidencing Transfer By Successor Funds............... F-6
4.16 Distribution of Earnings and Profits. ......................... F-6
4.17 Statement of Assets and Liabilities. .......................... F-6
4.18 Consummation. ................................................. F-7
4.19 Absence of Litigation. ........................................ F-7
4.20 Approval by Shareholders....................................... F-7
4.21 Consents. ..................................................... F-7
4.22 Legal Opinion. ................................................ F-7
5. FINANCIAL STATEMENTS. .............................................. F-7
</TABLE>
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<TABLE>
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<C> <S> <C>
6. BROKERAGE FEES AND EXPENSES.......................................... F-7
6.1 Absence of Broker Fees. ........................................ F-7
6.2 Allocation of Expenses. ........................................ F-7
7. TERMINATION.......................................................... F-7
7.1 Failure to Meet Condition Precedent. ........................... F-7
7.2 Majority Vote. ................................................. F-8
8. AMENDMENT............................................................ F-8
9. RECOURSE............................................................. F-8
</TABLE>
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<PAGE>
This PLAN OF REORGANIZATION dated as of , 2000, 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.
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
F-2
<PAGE>
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.
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.
F-3
<PAGE>
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.
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, state and local
authorizations to own all of its properties and assets and to carry its
business as now being conducted.
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<PAGE>
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 Filing
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 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.
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<PAGE>
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.
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.
F-6
<PAGE>
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.
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.
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.
F-7
<PAGE>
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-8
<PAGE>
APPENDIX G
As of December 15, 1999, the following persons owned of record or
beneficially 5% or more of the shares of the following Funds:
<TABLE>
<CAPTION>
Shares
Beneficially Percent of
Owned Fund
------------ ----------
<S> <C> <C>
INTERNATIONAL BOND FUND
Bell Atlantic........................................ 13,171,805.266 9.21%
c/o Bost & Co.
Mutual Funds Operations
P.O. Box 3198
Pittsburgh, PA 15230-3198
EMERGING MARKETS BOND FUND II
Northeast Utilities.................................. 2,163,661.736 7.22%
IT Division
20 Cabot Road
Medford, Massachusetts 02155-5160
Northern Trust Company FBO:.......................... 1,755,196.220 5.86%
Deluxe Corporation
P.O. Box 92923
Chicago, Illinois 60675
Northern Trust Company FBO........................... 1,705,018.158 5.69%
Lucent Technologies Inc. Master Pension Trust
P.O. Box 92956
Chicago, Illinois 60675-2956
Nebraska Public Employees Retirement System.......... 1,554,445.779 5.19%
P.O. Box 1992
Boston, Massachusetts 02105-1992
</TABLE>
G-1
<PAGE>
MINI
<PAGE>
PLEASE VOTE YOUR PROXY TODAY
Prompt response will save the expense of additional solicitations
CHOOSE THE VOTING METHOD THAT IS MOST CONVENIENT FOR YOU.
1. VOTE BY MAIL: Sign and date your proxy card and return it in the enclosed
------------
postage paid envelope. NOTE: Your proxy is not valid unless it is signed.
2. VOTE BY TOUCH-TONE PHONE: Dial 1-888-221-0697, enter the CONTROL NUMBER
------------------------
printed on the upper portion of your proxy card and follow the simple
instructions. Telephone voting is available 24 hours a day, 7 days a week.
THE CALL IS TOLL-FREE. If you received more than one proxy card, you can
---------------------
vote each card during the call. Each card has a different control number.
3. VOTE VIA THE INTERNET: Log on to www.proxyweb.com, enter your CONTROL NUMBER
---------------------
and follow the instructions on the screen. If you received more than one
proxy card, you may vote them all during the same session. Each card has a
different control number.
4. VOTE VIA FAX: Sign and date your proxy card and fax BOTH THE FRONT AND THE
------------
BACK to 1-212-797-1062.
IF YOU VOTE BY PHONE, FAX OR INTERNET,
PLEASE DO NOT RETURN YOUR PROXY CARD.
VOTE TODAY BY MAIL,
TOUCH-TONE PHONE OR THE INTERNET
CALL TOLL-FREE 1-888-221-0697
OR LOG ON TO WWW.PROXYWEB.COM
**** CONTROL NUMBER: 999 999 999 999 99 ****
Please fold and detach card at perforation before mailing
PIMCO FUNDS: PACIFIC INVESTMENT SPECIAL MEETING OF SHAREHOLDERS
MANAGEMENT SERIES on March 3, 2000
PIMCO FUND NAME PRINTS HERE
The undersigned hereby appoints R. Wesley Burns, Jeffrey M. Sargent, Henrik P.
Larsen and Garlin G. Flynn 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 above named 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 9:00 am, Pacific time, or
as adjourned from time to time (the "Meeting"), and instruct 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.
Receipt of the Notice of Special Meeting and Proxy Statement is hereby
acknowledged.
Dated ________________, 2000
_______________________________
_______________________________
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.
PLEASE VOTE, SIGN AND DATE THIS PROXY
AND RETURN IT IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
<PAGE>
Please fold and detach card at perforation before mailing
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:
Please vote by filling in the appropriate boxes below.
<TABLE>
<S> <C> <C> <C>
I. To elect trustees to the Board of Trustees of the Trust. (see pages 1-5 of FOR WITHHOLD FOR ALL
the proxy statement) ALL AUTHORITY EXCEPT
(01) Guilford C. Babcock (02) R. Wesley Burns (03) E. Philip Cannon [_] [_] [_]
(04) Vern O. Curtis (05) J. Michael Hagan (06) Brent R. Harris
(07) Thomas P. Kemp (08) William J. Popejoy
To withhold authority to vote for any individual nominee, mark the
"For All Except" and print the name(s) of the Nominee(s) on the line
below.
-------------------------------------------------------------------------- FOR AGAINST ABSTAIN
II. To approve a new investment advisory contract (see pages 5-12 of the proxy statement) [_] [_] [_]
III. To approve changes to fundamental investment policies: FOR AGAINST ABSTAIN
(see pages 13-16 of the proxy statement) ALL ALL ALL
a. Concentration d. Loans [_] [_] [_]
b. Margin e. Short Positions
c. Borrowing and f. Investments in other
Senior Securities Investment Companies
If you do not wish to approve a particular investment policy change applicable to your Fund,
write the letter(s) of the sub-proposal on the line below.
--------------------------------------------------------------------------
FOR AGAINST ABSTAIN
IV. To approve an Amended and Restated Declaration of Trust [_] [_] [_]
(see pages 16-18) of the proxy statement)
V. To approve a Plan of Reorganization of the Fund as a separate series of [_] [_] [_]
the Trust (see pages 20-22 of the proxy statement)
VI. To transact such other business as may properly come before the Meeting.
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.
</TABLE>