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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Cambridge Series Trust
(Name of Registrant as Specified in Its Charter)
Cambridge Series Trust
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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 or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:1
4) Proposed maximum aggregate value of transaction:
[ ] 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:
1Set forth the amount on which the filing fee is calculated and state how it was
determined.
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2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
CAMBRIDGE SERIES TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 28, 1994
A Special Meeting of the shareholders of the Cambridge Government
Income Portfolio of Cambridge Series Trust will be held at the Trust's
principal offices at 901 East Byrd Street, Richmond, Virginia 23219, at
9:00 a.m., October 28, 1994, for the following purposes:
(1) To approve a new sub-advisory contract among the Trust,
Cambridge Investment Advisors, Inc. and Pacific Investment
Management Company with regard to the Cambridge Government
Income Portfolio; and
(2) To transact such further business as may properly come before
the meeting or any adjournment thereof.
The Board of Trustees has fixed September 8, 1994, as the record
date for determination of shareholders entitled to vote at the meeting.
By Order of the Trustees
Paul F. Costello
Secretary
September __, 1994
SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY TO AVOID ADDITIONAL EXPENSE
CAMBRIDGE SERIES TRUST
901 East Byrd Street
Richmond, Virginia 23219
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Trustees
(the "Board") of Cambridge Series Trust (the "Trust"), with respect to
the Cambridge Government Income Portfolio (the "Portfolio" or
"Government Income"). The proxy is revocable at any time before it is
voted by sending written notice of the revocation to the Trust,
attention Secretary, or by appearing personally at the special meeting
of shareholders ("Special Meeting"). The cost of preparing and mailing
the notice of meeting, proxy card, this proxy statement and any
additional proxy materials has been or is to be borne by Pacific
Investment Management Company ("PIMCO" or the "Subadviser").
On September 8, 1994, Government Income had outstanding
_____________ shares of beneficial interest, each share being entitled
to one vote. The total outstanding shares of Government Income by class
consisted of ______________ Class A shares and ___________ Class B
shares. Only shareholders of record at the close of business on that
date will be entitled to notice of and vote at the Special Meeting. A
majority of the outstanding shares of Government Income, represented in
person or by proxy, shall be required to constitute a quorum at the
Special Meeting.
The Trust's Annual Report, which includes audited financial
statements for the period ended September 30, 1993, has been previously
delivered to shareholders. The Trust's executive offices are located at
901 East Byrd Street, Richmond, Virginia 23219. The Board proposes to
mail the enclosed notice of meeting, proxy card and this proxy statement
on or about September __, 1994.
NEW SUB-ADVISORY CONTRACT
Background
PIMCO currently serves as subadviser to the Portfolio pursuant to a
Sub-Advisory Agreement with Cambridge Investment Advisors, Inc. (the
"Adviser"), the Portfolio's Investment Adviser. PIMCO is presently a
wholly owned subsidiary of Pacific Financial Asset Management
Corporation ("PFAMCo"), which is, in turn, a wholly owned subsidiary of
Pacific Mutual Life Insurance Company ("Pacific Mutual"). PFAMCo,
PIMCO, the Managing Directors of PIMCO (the "PIMCO Managing Directors")
and certain of their affiliates have entered into an Agreement and Plan
of Consolidation with Thomson Advisory Group L.P. ("TAG") and certain of
its control persons and affiliates (the "Consolidation Agreement")
providing for the consolidation of the investment advisory and related
businesses of PFAMCo and its affiliates (including PIMCO), and TAG (the
"Consolidation"). As described in more detail below, the Consolidation
would result in the transfer of the current investment advisory business
of PIMCO to a new entity organized as a general partnership, Pacific
Investment Management Company ("New PIMCO").
The Consolidation could be viewed as constituting a "change in
control" of PIMCO for purposes of the 1940 Act, and cause the
"assignment" and resulting termination of the current Sub-Advisory
Agreement between PIMCO and the Adviser. The Sub-Advisory Agreement
provides for its automatic termination in the event of its "assignment"
as that term is defined in the 1940 Act.
After considering various factors described below, the Trustees of
Cambridge Series Trust (the "Trust"), including a majority of the
Trustees who are not parties to the Sub- Advisory Agreement or
interested persons (as defined in the 1940 Act) of any such party (the
"Independent Trustees"), voting separately and as part of the full
Board, unanimously approved, subject to the required shareholder
approval described herein, a proposed new sub- advisory agreement (the
"New Sub-Advisory Agreement"), between the Adviser and New PIMCO, and
determined to recommend approval of the New Sub-Advisory Agreement to
the shareholders of the Portfolio.
The terms and conditions of the New Sub-Advisory Agreement are
identical in all material respects to those of the present Sub-Advisory
Agreement, with the exception of the identity of the service provider
and its effective date and termination date. New PIMCO will retain the
services of all of PIMCO's management personnel and employees, who
currently provide investment management services to the Portfolio, and
there will be no change in their current responsibilities with respect
to the Portfolio. No change is anticipated in the investment
philosophies and practices currently followed by the Portfolio.
The Consolidation Transaction
The Consolidation Agreement provides for the consolidation of
certain of the investment advisory and other businesses of PFAMCo and
its affiliates (including PIMCO), and TAG. The Consolidation
contemplates the transfer of the investment advisory businesses of PIMCO
and other PFAMCo affiliates to TAG in return for units of limited
partner and general partner interest of TAG. TAG would be renamed PIMCO
Advisors L.P. ("PIMCO Advisors").
The General Partner of PIMCO Advisors would become PIMCO Partners,
G.P. ("PIMCO G.P."), a general partnership in which PFAMCo would
indirectly hold an approximate 62.7% interest and the remainder would be
held indirectly by a group comprised of the PIMCO Managing Directors.
The investment advisory business of PIMCO would be transferred to New
PIMCO, a subsidiary partnership of PIMCO Advisors. Pursuant to a
separate transaction that may occur contemporaneously with the
Consolidation, PIMCO G.P., certain other affiliates of PFAMCo, and
certain stockholders of TAG Inc., the current general partner of TAG,
may cause PIMCO Advisors to register for public offering a portion of
the units of PIMCO Advisors issued in return for the PFAMCO advisory
businesses in the Consolidation. If all such units were sold, it is
presently contemplated that the joint interest of Pacific Mutual and its
affiliates, including the PIMCO Managing Directors, in PIMCO Advisors
would be approximately 70%, with the remaining units held by current
executives and affiliates of TAG and the public. Certain units received
by PFAMCo and the PIMCO Managing Directors will be effectively
restricted as to sale or other disposition until January 1, 1998. See
"Structural Aspects of the Consolidation."
The Consolidation provides for the continuity of management and
control of PIMCO through the creation of management boards on which the
PIMCO Managing Directors and representatives of PFAMCo hold a majority
of seats. The Consolidation further provides for the discretionary
award of stock options to key management employees of PIMCO and its
affiliates with respect to the purchase of additional units of PIMCO
Advisors. PIMCO believes that the Consolidation, in light of all
relevant circumstances, does not materially affect the current autonomy,
management or control of PIMCO. A description of the post-
Consolidation management boards of PIMCO Advisors appears in
"Information about the Subadviser" below.
PIMCO has elected to qualify for the "safe harbor" offered by
Section 15(f) of the 1940 Act to an adviser that may have received "any
amount or benefit" in connection with a sale of interests that
constitutes a "change in control" of the adviser. Section 15(f) is
available provided (1) for a three year period following the
Consolidation, the Trust maintains a Board of Trustees at least 75% of
whose members are not "interested persons" of the Subadviser (either
before or after the change in control), and (2) no "unfair burden" is
imposed on the Trust as a result of the Consolidation. Pacific Mutual
and PIMCO have committed to the Trust's Board that there is no present
intention to seek an increase in the Portfolio's advisory fee rates (not
including the impact of any fee waivers or expense reimbursements) for a
period of at least two years following the Consolidation.
TAG and its affiliates provide investment advisory and related
services to a wide range of institutional and individual clients. TAG
is a Delaware limited partnership organized in 1987. As of June 30,
1994, TAG managed approximately $9.4 billion in assets, primarily
through its Columbus Circle Investors division ("CCI"). Consummation of
the Consolidation is subject to several conditions, including regulatory
approvals and consents and approval by TAG's unitholders, as well as
approval of new investment advisory agreements (or consent to
continuation of current agreements) by clients and funds representing
90% of the aggregate investment advisory revenues of the parties to the
transaction for the 12-month period ending March 31, 1994. For a more
complete description of certain of the transactions contemplated by the
Agreement, see "Structural Aspects of the Consolidation" below.
The Present and New Sub-Advisory Agreement
The terms and conditions of the New Sub-Advisory Agreement (attached as
Exhibit 1) are identical in all material respects to those of the present
Sub-Advisory Agreement , with the exception of the identity of the service
provider and the effective date and termination date. The present Sub-Advisory
Agreement was approved by the Trustees and shareholders on February 15, 1994 and
April 26, 1994, respectively, and such Agreement took effect on April 26, 1994.
If the New Sub-Advisory Agreement is approved by the Portfolio's shareholders,
it will become effective upon consummation of the Consolidation, and will remain
in effect, unless earlier terminated, for an initial two year term, subject to
annual review and continuation thereafter.
Although approval of new advisory agreements or consent to
continuation of existing advisory agreements by a certain portion of the
clients of PFAMCo, PIMCO and TAG is a condition to the consummation of
the Consolidation, PFAMCo, PIMCO, and TAG may nevertheless proceed with
the Consolidation, even if the New Sub-Advisory Agreement is not
approved. In the event that the shareholders of the Portfolio do not
approve the New Sub-Advisory Agreement and the Consolidation is
consummated, subject to the approval of the Securities and Exchange
Commission, the Board of Trustees would seek to obtain for the Portfolio
interim advisory services either from New PIMCO or from another advisory
organization. Thereafter, the Board of Trustees would either negotiate
a new investment advisory agreement with an advisory organization
selected by the Board or make other appropriate arrangements, in either
event subject to approval by the shareholders of the Portfolio. In the
event the Consolidation is not consummated, PIMCO would continue to
serve as the Subadviser of the Portfolio pursuant to the terms of the
present Sub-Advisory Agreement.
The New Sub-Advisory Agreement provides that it will continue in
effect from year to year after its initial two-year term, subject to
annual approval by the Board of Trustees or by vote of the holders of a
majority of the outstanding shares of the Portfolio (as defined in the
1940 Act) and also, in either event, approval by a majority of the
Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval. For this purpose, the vote of the holders
of a majority of the outstanding shares of the Portfolio means the
lesser of either (A) the vote of 67% or more of the shares of the
Portfolio present at the meeting if the holders of more than 50% of the
outstanding Portfolio shares are present or represented by proxy or (B)
the vote of the holders of more than 50% of the outstanding shares of
the Portfolio. The New Sub-Advisory Agreement will terminate
automatically in the event of its assignment, and may be terminated with
respect to the Portfolio 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 Portfolio or by a vote of a majority
of the Trust's entire board of Trustees on 60 days' written notice to
New PIMCO or by New PIMCO on 60 days' written notice to the Trust.
Advisory Fees
The New Sub-Advisory Agreement provides that New PIMCO would
receive a monthly fee from the Adviser at an annual rate based on
average daily net assets of the Portfolio as follows:
Cambridge Government Income Portfolio Fee Rate
Annual rate of 0.30% of average daily
net assets on first $150 million;
0.25% of average daily net assets on
assets over $150 million paid
monthly.
This is the same fee as is currently received by PIMCO under the present
Sub-Advisory Agreement.
Information about the Subadviser
PIMCO is an investment management firm founded in 1971 and
currently has over $55 billion in assets under management. The address
of PIMCO is 840 Newport Center Drive, Suite 360, Newport Beach,
California, 92660. A balance sheet relating to PIMCO's last fiscal year
is attached as Exhibit 2.
PIMCO is currently a wholly owned subsidiary of PFAMCo, an indirect wholly
owned subsidiary of Pacific Mutual. The address of Pacific Mutual and PFAMCo is
700 Newport Center Drive, 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. Its directors and principal executive officers and their principal
occupations are shown below. The address of each director and officer is 840
Newport Center Drive, Suite 360, Newport Beach, California 92660.
Name Position and Principal Occupation
William D. Cvengros Chairman of the Board and Director,
(1986 to present) PIMCO; Chairman, Chief Executive
Officer and Director, PM Realty
Advisors, Inc. ("PMRA"), NFJ
Investment Group, Inc. and Pacific
Financial Asset Management
Corporation; Chairman and Director,
Cadence Capital Management
Corporation and Parametric Portfolio
Associates, Inc.; Director, Vice
Chairman and Chief Investment
Officer, Pacific Mutual; Vice
President and Trustee, Pacific Select
Fund.
David H. Edington Managing Director, PIMCO.
(1994 to present)
Walter B. Gerken
(1983 to present) Director, PIMCO; Chairman of the
Executive Committee, Pacific Mutual.
William H. Gross Managing Director and Director,
(1971 to present) PIMCO.
John L. Hague Managing Director, PIMCO.
(1993 to present)
Brent R. Harris Managing Director, PIMCO.
(1993 to present)
James F. McIntosh Director, PIMCO; Executive Director,
(1983 to present) Paul, Hastings, Janofsky & Walker.
Dean S. Meiling Managing Director, PIMCO.
(1987 to present)
James F. Muzzy Managing Director and Director,
(1971 to present) PIMCO.
William F. Podlich III Managing Director and Director,
(1971 to present) PIMCO.
Henry H. Porter, Jr. Director, PIMCO; independent investor
(1983 to present) and consultant.
William C. Powers Managing Director, PIMCO.
(1993 to present)
Frank B. Rabinovitch Managing Director, PIMCO.
(1993 to present)
Ernest L. Schmider Chief Administrative and Legal
(1994 to present) Officer, PIMCO.
Eduardo S. Schwartz Director, PIMCO; Professor of
(1992 to present) Finance, University of California at
Los Angeles Graduate School of
Management.
Thomas C. Sutton Director, PIMCO; Chairman of the
(1990 to present) Board, Director and Chief Executive
Officer, Pacific Mutual; Director,
Pacific Equities Network.
Ott Thompson II Director, PIMCO; Consultant, Pacific
(1972 to present) Mutual Realty Advisors, Inc.
William S. Thompson, Jr. Chief Executive Officer, Managing
(1993 to present) Director and Director, PIMCO.
New PIMCO
New PIMCO will be a general partnership whose partners will be
PIMCO Management Inc., a newly formed Delaware corporation, and PIMCO
Advisors. The address of PIMCO Advisors, PIMCO Management Inc. and New
PIMCO will be 840 Newport Center Drive, Newport Beach, CA 92660. PIMCO
Management Inc. will be wholly owned by PIMCO Advisors, which will also
hold 99.9% of the partnership interest in New PIMCO. Under the terms of
the general partnership agreement establishing New PIMCO, the day-to-day
management of New PIMCO is entrusted to its managing general partner,
which has delegated authority over the business and operations of New
PIMCO to New PIMCO's Managing Directors. The Managing Directors of New
PIMCO will be the same individuals who currently serve as Managing
Directors of PIMCO. The current Managing Directors of PIMCO who will
become Managing Directors of New PIMCO are: David H. Edington, William
H. Gross, John L. Hague, Brent R. Harris, Dean S. Meiling, James F.
Muzzy, William F. Podlich III, William C. Powers, Frank B. Rabinovitch
and William S. Thomson, Jr. PIMCO Advisors must give its prior approval
to certain extraordinary business transactions, contractual
arrangements, and other specified activities of New PIMCO. New PIMCO
will establish a profit sharing plan in which the Managing Directors and
certain designated employees may participate, with the amount allocated
for distribution equal to 45% of the taxable income of New PIMCO. Each
Managing Director of New PIMCO also will enter into an employment
agreement with New PIMCO providing for a base salary, the right to
participate in New PIMCO's profit sharing plan and other employee
benefit plans, and non-solicitation and confidentiality provisions.
PIMCO has informed the Trustees that the Consolidation will have no
material adverse impact on the operations it expects to carry on through
New PIMCO or on the ability of New PIMCO to provide services to the
Portfolio. See "Structural Aspects of the Consolidation" and
"Information About the Subadviser" for a more detailed discussion of the
relationship between New PIMCO and PIMCO Advisors.
PIMCO G.P. will delegate management and supervisory functions for
PIMCO Advisors to a twelve-person Equity Board, a twelve-person
Operating Board, and a three-person Operating Committee. The Operating
Board will have twelve members until a restructuring, and consist of 6
representatives designated by New PIMCO; 3 representatives designated by
the successor of Columbus Circle Investors ("New CCI"); one
representative designated by the remaining PFAMCo advisory entities
(Cadence Capital Management, NFJ Investment Group, Parametric Portfolio
Associates, and Blairlogie Capital Management); and the Chief Executive
Officer of PIMCO Advisors. Until any restructuring, the Equity Board
will consist of three representatives of New PIMCO; three
representatives of PFAMCo; two representatives of the preferred
stockholders of TAG Inc.; three independent directors; and the Chief
Executive Officer of PIMCO Advisors. Subject to delegation and review
by the Equity Board, the Operating Board will exercise all of the powers
of PIMCO G.P., the General Partner, and will delegate day-to-day
operational issues to the Operating Committee. The Equity Board has
reserved to itself the authority to approve certain transactions and
other material matters involving PIMCO Advisors. The Operating
Committee will initially be comprised of Messrs. Cvengros, W. Thompson, and
a representative of New CCI. Messrs. Cvengros, W. Thompson, Gross,
Gerken, Podlich and Sutton will initially serve on the Equity Board, and
Messrs. Cvengros, W. Thompson, Harris, Powers, Gross, Podlich, Muzzy and
Meiling will initially serve on the Operating Board of PIMCO Advisors.
After any restructuring of PIMCO Advisors, the members of the
Operating Board (other than the Chief Executive Officer of the
partnership, who will serve ex officio) will be selected by the advisory
subpartnerships based on the relative contributions to the net income of
the partnership, and the members of the Equity Board (other than the
Chairperson of the Operating Board and the Chief Executive Officer of
the partnership) will be selected by the existing members of the Equity
Board in a manner reasonably determined to most effectively represent
the proportionate interests of all direct and indirect beneficial
holders of units, including public unit holders, with at least three
members of the Equity Board being independent directors.
The Amended and Restated Partnership Agreement of PIMCO Advisors
provides that PIMCO G.P. may choose the form and timing of any
restructuring of PIMCO Advisors. A restructuring may occur on the date
on which the partnership's exemption from corporate income tax expires,
or on such earlier or later date as PIMCO G.P. may determine based on
certain factors, including certain tax considerations relating to
PFAMCo. A restructuring may involve the delisting of publicly traded
units of PIMCO Advisors.
Other Investment Company Clients
PIMCO serves as investment adviser or sub-adviser to the following
investment companies, at the fee rates set forth below, and which had
the following net assets at June 30, 1994. With respect to the Frank
Russell Investment Management Company, PIMCO serves as co-adviser and as
such provides fewer ancillary administrative services than it provides
to the other investment companies indicated. The PFAMCo Funds, which
are sponsored by PFAMCo, pay to PFAMCo a management fee of 0.50% of net
assets on an annual basis of the PFAMCo Funds' Balanced and Managed Bond
& Income Portfolios, out of which (among other expenses) it pays the
below stated fee to PIMCO to serve as sub-adviser to the Portfolios.
Name of Fund Fee Rate Assets at
June 30,
1994
Frank Russell
Investment Management Company For all accounts 75,012,116
Fixed Income I Fund (including separate 72,725,918
Diversified Bond Fund accounts) combined, 0.25% 51,747,286
Fixed Income III Fund of first $1 billion of 45,774,637
Multistrategy Bond Fund average daily net assets,
0.20% of average daily net
assets thereafter.
Pacific Select Fund
Managed Bond Series For each Series 50,928,673
Government Securities individually, 0.50% of 21,694,508
Series average daily net assets,
0.375% of next $25 million
of average daily net
assets, 0.25% of average
daily net assets
thereafter.
PIMCO Funds
Foreign Fund For each Fund 398,746,411
Global Fund individually: annual rate 57,026,993
High Yield Fund of 0.30% of average daily 276,696,377
International Fund net assets up to $150 184,435,763
Long-Term U.S. million, 0.25% of average
Government Fund daily net assets over $150 25,671,409
Low Duration Fund million. 2,200,115,762
Low Duration Fund II 137,185,635
Short-Term Fund 158,892,200
Total Return Fund 5,511,451,411
Total Return Fund III 94,404,152
Growth Stock Fund 22,373,883
StocksPLUS Fund 18,045,179
0.45% of average daily net
assets up to $150 million,
0.40% of average daily net
assets thereafter.
PFAMCo Funds
Managed Bond and Income For each Portfolio 355,146,188
Portfolio individually, 0.25% of 52,547,345
Balanced Portfolio average daily net assets.
Target Portfolio Trust
Intermediate-Term Bond For each Portfolio 72,529,926
Portfolio individually, 0.25% of 32,100,424
Total Return Bond average daily net assets.
Portfolio
PIMCO Commercial Mortgage Annual rate of 0.725% of 141,191,849
Securities Trust, Inc. average weekly net assets
paid quarterly.
American Skandia Trust 0.30% of average daily net 24,229,918
assets up to $150,000,000,
0.25% of average daily net
assets over $150,000,000.
Pacific Corinthian Variable Fund
Balanced Series Annual rate of 0.50% of 8,941,848
(Fixed-Income Segment) average daily net assets.
The Harbor Fund
Harbor Bond Fund 0.50% of average daily net 165,994,145
assets on first $25
million; 0.375% of average
daily net assets on next
$25 million; 0.35% of
average daily net assets
over $50 million.
Fremont Mutual Funds, Inc.
Fremont Bond Fund Annual rate of 0.25% of 33,514,015
average daily net assets
paid quarterly.
The Evaluation by the Board of Trustees
The Board of Trustees has determined that, by approving the New
Sub-Advisory Agreement on behalf of the Trust, the Trust can best assure
itself that services currently provided to the Portfolio by PIMCO and
its officers and employees will continue to be provided after the
Consolidation without interruption. The Board believes that, like the
present Sub-Advisory Agreement, the New Sub-Advisory Agreement will
enable the Portfolio to obtain services of high quality at costs deemed
appropriate, reasonable, and in the best interests of the Portfolio and
its shareholders.
In considering approval of the New Sub-Advisory Agreement, the
Trustees, including the Independent Trustees, met on August 9, 1994. At
their meeting the Trustees requested, and were provided, information
they deemed necessary to enable them to consider whether the New
Sub-Advisory Agreement was in the best interest of the Portfolio and its
shareholders. The Trustees considered, among other factors,
representations by PIMCO that the Consolidation would not materially
affect the investment advisory operations of PIMCO or the level or
quality of advisory services provided to the Portfolio; that the same
personnel at PIMCO who currently provide services to the Portfolio would
continue to do so after the Consolidation; and that the Portfolio would
be unaffected in any other way by the Consolidation, including that the
Portfolio would not be subjected to any unfair burden as a result of the
transaction.
Based upon its review, the Board of Trustees concluded that the New
Sub-Advisory Agreement is reasonable, fair and in the best interests of
the Portfolio and its shareholders, and that the fees provided in the
New Sub-Advisory Agreement are fair and reasonable. In the Board's
view, retaining New PIMCO to serve as investment adviser of the
Portfolio, under the terms of the New Sub-Advisory Agreement, after the
Consolidation is desirable and in the best interests of the Portfolio
and its shareholders. Accordingly, after consideration of the above
factors, and such other factors and information as it deemed relevant,
the Board of Trustees, including all of the Independent Trustees,
unanimously approved the New Sub-Advisory Agreement and voted to
recommend its approval by the Portfolio's shareholders.
Structural Aspects of the Consolidation
The Consolidation Agreement provides that the PFAMCo investment
advisory businesses, including that of PIMCO, will be transferred to TAG
in return for 24,575,000 newly issued units of partner interest, of
which 400,000 will be units of general partner interest ("GP units") and
24,175,000 will be units of limited partner interest, divided into two
classes, Class A and Class B. Of this total, all of the general partner
units, 10,537,500 Class A units and 10,937,500 Class B units will
represent the contribution of the business of PIMCO to PIMCO Advisors.
In connection with its assuming the role of general partner of PIMCO
Advisors, PIMCO G.P. also will acquire common stock of TAG Inc., the
current general partner of TAG, for approximately $130 million. The
current common stockholders of TAG Inc. will retain economic interests
in TAG Inc. through preferred stock representing approximately 34% of
the Class A and Class B partnership units owned by TAG Inc. Class A
units will have the same rights as the currently outstanding public
units of TAG; Class B units will be subordinated to Class A units with
respect to certain distribution rights. In connection with the
Consolidation and recapitalization of TAG Inc., the Board of Directors
of TAG Inc. has approved a conversion ratio of 1 limited partner unit
and/or GP unit held by TAG Inc. for 1.4 Class B units. Effective
January 1, 1998, or earlier in the event of a restructuring of PIMCO
Advisors undertaken by PIMCO G.P. in connection with changes in the tax
status of PIMCO Advisors, it is anticipated that Class B units will
convert to Class A units. The average of the high and low prices for
TAG Class A units quoted on the New York Stock Exchange on August 10,
1994 was $39.375.
Giving effect to the Consolidation, but prior to any secondary
offering, PIMCO G.P. will own 400,000 GP units, 10,537,000 Class A units
and 10,937,500 Class B units (approximately 60.5% of all outstanding
units) of PIMCO Advisors. PFAMCo and its other affiliates will
separately own 1,350,000 Class A units and 1,350,000 Class B units
(approximately 7.4% of all outstanding units). TAG Inc. will own
2,950,295 Class A units and 4,130,413 Class B units (approximately 19.6%
of all outstanding units), and the public will own 4,339,410 Class A
units (approximately 12.2% of all outstanding units).
In connection with the Consolidation, PIMCO Advisors will adopt a
stock option plan to provide incentives and rewards to key employees of
PIMCO Advisors and its subpartnerships, which may include the officers
and directors of New PIMCO. The aggregate number of Class B units with
respect to which options may be granted under the plan is 2,800,000, and
the terms of the Consolidation Agreement provide for the grant of
options with respect to up to 2,675,000 units at the closing of the
Consolidation.
PIMCO Partners, L.P., a California limited partnership ("PIMCO
Partners"), will be the managing general partner of PIMCO G.P. Each
PIMCO Managing Director will have an interest in PIMCO Partners equal to
his approximate indirect ownership interest in PIMCO G.P. and PIMCO
Advisors. PIMCO Partners will have a profits interest of approximately
37.3% in PIMCO G.P. It is anticipated that each PIMCO Managing Director
will agree to maintain ownership of at least 50% of his aggregate
economic interest in PIMCO Advisors through December 31, 1998. As of the
Consolidation, but prior to any secondary offering of units that may be
made at or about that time, William H. Gross, a Managing Director of
PIMCO, will hold approximately 41.9% of the ownership interests in PIMCO
Partners (representing an indirect economic interest in approximately
15.6% of the units owned by PIMCO G.P., or approximately 12.5% of the
outstanding units of PIMCO Advisors after the Consolidation). Under the
terms of the Amended and Restated Agreement of Limited Partnership of
PIMCO Advisors, PIMCO Partners has the right to appoint two members to
the Equity Board of PIMCO Advisors, which is the ultimate management
control board of the partnership. See "Information About the
Subadviser."
Pursuant to a registration rights agreement among TAG Inc., certain
current stockholders of TAG Inc., certain individuals affiliated with
TAG and PFAMCo, PIMCO G.P., and PFAMCo and its advisory affiliates,
holders of rights may cause PIMCO Advisors to register Class A units
held by such individuals and entities for public sale under the
Securities Act of 1933. It is presently contemplated that approximately
4,000,000 Class A units may be registered and sold in this manner
contemporaneously with the closing of the Consolidation. If all such
units were sold, it is presently contemplated that the direct or
indirect holdings of PIMCO G.P. in PIMCO Advisors would represent
approximately 70% of the total outstanding units of PIMCO Advisors, and
the indirect interest of the PIMCO Managing Directors in PIMCO G.P.
would represent approximately 28%, with the interest of PFAMCo increased
to approximately 72% in that entity. The terms of any secondary
offering of units are subject to negotiation among the parties and
whether such offering will occur will depend on many factors, including
prevailing market conditions. It is not possible to predict whether
such an offering will occur. A secondary offering also may have the
effect of changing the relative percentage interests in PIMCO Partners
of the individual PIMCO Managing Directors.
The Amended and Restated Partnership Agreement of PIMCO Advisors
will provide that a person or group that owns more than 20% of the
combined voting power of the outstanding units of the partnership shall
have the right to vote not more than 20% of the outstanding units
entitled to vote, and the remaining units owned by such person or group
shall have no voting rights and shall not be counted for quorum or
unitholder approval purposes. These provisions do not apply to entities
controlled by Pacific Mutual, PFAMCo or the PIMCO Managing Directors, to
certain savings, profit-sharing, unit or stock bonus and employee
incentive or stock ownership plans established by PIMCO Advisors or
certain of its subsidiaries, or to other persons or groups approved by
PIMCO G.P. The intention of this provision is to reduce the possibility
that a future sale of units by a significant holder of units would cause
a "change in control" of PIMCO Advisors for purposes of the 1940 Act or
Investment Advisers Act of 1940.
THE BOARD OF TRUSTEES RECOMMENDS APPROVAL OF A NEW
SUB-ADVISORY CONTRACT AMONG CAMBRIDGE SERIES TRUST,
CAMBRIDGE INVESTMENT ADVISORS, INC. AND PACIFIC
INVESTMENT MANAGEMENT COMPANY WITH REGARD
TO THE CAMBRIDGE GOVERNMENT INCOME
PORTFOLIO
__________
BROKERAGE
PIMCO agrees that it will place orders pursuant to its investment
determinations for Government Income either directly with the issuer or
with brokers or dealers selected by PIMCO in accordance with the
standards specified below. Until notified to the contrary by the
Adviser, PIMCO may place orders for Government Income with affiliates of
the Adviser in accordance with Section 11(a) of the Securities Exchange
Act of 1934 and Rule 11a2-2(T) thereunder, Section 17(e) of the
Investment Company Act of 1940 and Rule 17e-1 thereunder and other
applicable laws and regulations. PIMCO will identify to the Adviser in
writing any brokers or dealers which are affiliates of PIMCO. The
Adviser will identify to PIMCO in writing any brokers or dealers which
are affiliates of the Adviser and will forward to PIMCO information
provided by the other sub-advisers with respect to affiliated
broker-dealers of such sub-advisers.
When selecting brokers and dealers to handle the purchase and sale
of portfolio instruments, PIMCO will look for prompt execution of the
order at the best overall terms available. In working with dealers,
PIMCO will generally use those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to
meet these criteria, PIMCO may give consideration to those firms which
have sole or are willing to sell shares of the Portfolio. PIMCO will
make decisions on portfolio transactions and select brokers and dealers
subject to review by the Board.
Subject to the requirements descried above, in selecting brokers or
dealers to execute a particular transaction and in evaluating the best
overall terms available, the Adviser shall have the right to suggest in
writing to PIMCO that transactions giving rise to brokerage commissions
shall be executed by brokers and dealers that provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) to the Trust or will be of value to the
Trust in the management of its assets or the Adviser's performance of
its management services provided to the Trust. These services may be
furnished directly to the Portfolio or to PIMCO and may include:
(bullet) advice as to the advisability of investing in
securities;
(bullet) security analysis and reports;
(bullet) economic studies;
(bullet) receipt of quotations for portfolio evaluations; and
(bullet) similar services.
PIMCO will exercise reasonable judgment in selecting brokers who
offer brokerage and research services to execute securities
transactions. It will determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by PIMCO in
advising the Portfolio and other accounts. To the extent that receipt
of these services may supplant services for which PIMCO might otherwise
have been paid, it would tend to reduce its expenses, but it is not
expected that such reduction will be material.
In addition, subject to the requirements set forth above and the
applicable Rules of Fair Practice of the National Association of
Securities Dealers, Inc., the Trust shall have the right to suggest that
such transactions be executed by brokers and dealers by or through whom
sales of shares of the Trust are made.
During its last fiscal year, Government Income paid no brokerage
commissions.
For Government Income's fiscal year ended September 30, 1993, the
portfolio turnover rate was 102%. PIMCO anticipates an increase in this
rate for fiscal 1994 due to changes in portfolio investments by PIMCO,
but it is not anticipated that such turnover rates will exceed 175%.
Increased turnover may cause increased investment costs.
The underwriter for Government Income is Cambridge Distributors
Inc. Cambridge Distributors Inc. is a wholly-owned subsidiary of
Investment Management Group, Inc., which in turn is a wholly-owned
subsidiary of WFS Financial Corporation. A substantial portion
(20%-50%) of WFS Financial Corporation is owned by WFS ESOP. No person
other than WFS ESOP owns more than 5% of WFS Financial Corporation. No
person owns more than 5% of WFS ESOP. The address of Cambridge
Distributors Inc., Investment Management Group, Inc., WFS Financial
Corporation and WFS Financial ESOP is 901 E. Byrd Street, Richmond,
Virginia 23219.
OTHER MATTERS AND DISCRETION
OF ATTORNEYS NAMED IN THE PROXY
While the Special Meeting is called to act upon any other business
that may properly come before it, at the date of this proxy statement
the only business which the Board intends to present or knows that
others will present is the business mentioned in the notice of meeting.
If any other matters lawfully come before the Special Meeting, and as to
all procedural matters at the meeting, it is the intention that the
enclosed proxy shall be voted in accordance with the best judgment of
the attorneys named therein, or their substitutes, present and acting at
the Special Meeting.
In the event that at the time any session of the Special Meeting is
called to order, a quorum is not present in person or by proxy, the
persons named as proxies may vote those proxies which have been received
to adjourn the Special Meeting to a later date. In the event that a
quorum is present, but sufficient votes in favor of the proposal have
not been received, the persons named as proxies may propose one or more
adjournments of the Special Meeting to permit further solicitation of
proxies with respect to the proposal. All such adjournments will
require the affirmative vote of a majority of the Shares present in
person or by proxy at the session of the Special Meeting to be
adjourned. The persons named as proxies will vote those proxies which
they are entitled to vote in favor of the proposal, in favor of such an
adjournment, and will vote those proxies required to be voted against
the proposal, against any such adjournment.
To the best knowledge of the Trust, there were no beneficial owners
of more than 5% of the outstanding Shares of the Trust as of September
__, 1994.
If you do not expect to attend the Special Meeting, please sign
your proxy and return it in the enclosed envelope to avoid unnecessary
expense and delay. No postage is necessary.
By Order of the Trustees
Paul F. Costello
Secretary
September __, 1994
EXHIBIT 1
CAMBRIDGE SERIES TRUST
INVESTMENT ADVISORY AGREEMENT
Pacific Investment Management Company
840 Newport Center Drive
Suite 360
Newport Beach, CA 92660
Dear Sirs:
Under an agreement (the Management Agreement) between Cambridge Series
Trust, a Massachusetts business trust (the Trust ), and Cambridge Investment
Advisors, Inc., a Virginia corporation, (the Adviser ), the Adviser serves as
the Trust's investment adviser and has the responsibility of evaluating,
recommending, supervising and compensating investment advisors to each series of
the Trust.
The Adviser hereby confirms its agreement with Pacific Investment
Management Company (the Sub-Adviser ) and the Trust with respect to the
Sub-Adviser's serving as the sub-adviser of Cambridge Government Income
Portfolio (the Portfolio ), a series of the Trust, on an interim basis as
contemplated by Rule 15a-4 under the Investment Company Act of 1940, as amended
(the Act), as follows:
Section 1. Investment Description; Appointment
(a) The Trust desires to employ the Portfolio's capital by investing and
reinvesting in investments of the kind and in accordance with the investment
objectives, policies and limitations specified in the prospectus (the Prospectus
) and in the statement of additional information (the Statement of Additional
Information ) filed with the Securities and Exchange Commission (the SEC ) as
part of the Trust's Registration Statement on Form N-1A, as amended from time to
time (the Registration Statement ). The Adviser has herewith furnished the
Sub-Adviser copies of the Trust's Prospectus, Statement of Additional
Information, Declaration of Trust and By-Laws as currently in effect and agrees
during the continuance of the Agreement to furnish the Sub-Adviser copies of any
amendments or supplements thereto before or at the time the amendments or
supplements become effective. The Sub-Adviser will be entitled to rely on all
such documents furnished to it by the Adviser or the Trust.
(b) The Adviser, with the approval of the Trust, hereby appoints the
Sub-Adviser to act as investment adviser to the Portfolio for the periods and on
the terms set forth in this Agreement. The Sub-Adviser accepts such appointment
and agrees to furnish the services herein set forth for the compensation herein
provided.
Section 2. Portfolio Management Duties
(a) Subject to the supervision of the Adviser and the Trust's Board of
Trustees, the Sub-Adviser will (i) manage the Portfolio's assets in accordance
with the Portfolio's investment objectives, policies and limitations as stated
in the Trust's Prospectus and Statement of Additional Information; (ii) make
investment decisions for the Portfolio; and (iii) place orders to purchase and
sell securities (and options thereon) (and where appropriate) commodity futures
contracts (and options thereon) for the Portfolio.
(b) The Sub-Adviser will keep the Trust and the Adviser informed of
developments materially affecting the Portfolio and shall, on the Sub-Adviser's
own initiative and as reasonably requested by the Adviser or the Trust,
<PAGE>
furnish to the Trust and the Adviser from time to time whatever information the
Adviser reasonably believes appropriate for this purpose.
(c) The Sub-Adviser agrees that, in the performance of the duties required
of it by this Agreement, it will comply with the Act, and all rules and
regulations thereunder, all applicable federal and state laws and regulations
and with any applicable procedures adopted by the Trust's Board of Trustees and
identified in writing to the Sub-Adviser. The Adviser will provide to the
Sub-Adviser any specific procedures that must be followed in the performance of
Sub-Adviser's duties hereunder by reason of the affiliation of other
sub-advisers or service providers with the Trust.
Section 3. Brokerage
(a) The Sub-Adviser agrees that it will place orders pursuant to its
investment determinations for the Portfolio either directly with the issuer or
with brokers or dealers selected by the Sub-Adviser in accordance with the
standards specified in paragraphs (b) and (c) of this Section 3. Until notified
to the contrary by the Adviser, the Sub-Adviser may place orders for the
Portfolio with affiliates of the Adviser in accordance with Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, Section 17(e) of
the Act and Rule 17e-1 thereunder and other applicable laws and regulations. The
Sub-Adviser will identify to the Adviser in writing any brokers or dealers which
are affiliates of the Sub-Adviser. The Adviser will identify to the Sub-Adviser
in writing any brokers and dealers which are affiliates of the Adviser and will
forward to each Sub-Adviser information provided by the other Sub-Advisers with
respect to affiliated broker-dealers of such Sub-Advisers.
(b) In placing orders with brokers and dealers, the Sub-Adviser will seek
the best overall terms available. In assessing the best overall terms available
for any portfolio transaction, the Sub-Adviser will consider all factors it
deems relevant including, but not limited to, the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission for
the specific transaction and on a continuing basis.
(c) Subject to the requirements of subsections (a) and (b) above, in
selecting brokers or dealers to execute a particular transaction and in
evaluating the best overall terms available, the Adviser shall have the right to
request in writing that transactions giving rise to brokerage commissions shall
be executed by brokers and dealers that provide brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of
1934) to the Trust or will be of value to the Trust in the management of its
assets or the Adviser's performance of its management services provided to the
Trust. In addition, subject to the requirements of subsections (a) and (b) above
and the applicable Rules of Fair Practice of the National Association of
Securities Dealers, Inc., the Trust shall have the right to request that such
transactions be executed by brokers and dealers by or through whom sales of
shares of the Trust are made.
Section 4. Information Provided to the Adviser and the Trust
(a) The Sub-Adviser agrees that it will make available to the Adviser and
the Trust promptly upon their request copies of all of its investment records
and ledgers with respect to the Portfolio to assist the Adviser and the Trust in
monitoring compliance with the Act and the Investment Advisers Act of 1940, as
amended (the Advisers Act ), as well as other applicable laws. The Sub-Adviser
will furnish the Trust's Board of Trustees with respect to the Portfolio such
periodic and special reports as the Adviser and the Board of Trustees may
reasonably request.
(b) The Sub-Adviser agrees that it will immediately notify the Adviser and
the Trust, and the Adviser agrees that it will immediately notify the
Sub-Adviser, in the event that the Sub-Adviser or Adviser, respectively, or any
of its respective affiliates: (i) becomes subject to a statutory
disqualification that prevents the Sub-Adviser from
<PAGE>
serving as investment advisor pursuant to this Agreement; or (ii) is or expects
to become the subject of an administrative proceeding or enforcement action by
the SEC or other regulatory authority. The Sub-Adviser has provided the
information about itself set forth in the Registration Statement and
acknowledges that, as of the date hereof, it is true and correct and contains no
material misstatement or omission, and the Sub-Adviser further agrees to notify
the Adviser immediately of, (i) any material fact known to the Sub-Adviser
respecting or relating to the Sub-Adviser that is not contained in the
Prospectus or Statement of Additional Information of the Trust, or any amendment
or supplement thereto, if the omission of such would make such document
misleading, or (ii) any statement contained therein that becomes untrue in any
material respect.
(c) The Sub-Adviser represents that it is an investment adviser registered
under the Advisers Act and other applicable laws and that the statements
contained in the Sub-Adviser's registration under the Advisers Act on Form ADV,
as of the date hereof, are true and correct and do not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. The Sub-Adviser agrees to maintain the
completeness and accuracy of its registration on Form ADV in accordance with all
legal requirements relating to that Form. The Sub-Adviser acknowledges that it
is an investment advisor to the Portfolio within the meaning of the Act and the
Advisers Act.
(d) The Adviser and the Trust agree not to publish or use any document
naming or describing the Sub-Adviser in any way without (i) the prior consent of
the Sub-Adviser and (ii) with respect to sales, marketing or advertising
materials, appropriate regulatory filings and approvals. The Adviser and the
Trust agree to provide the Sub-Adviser with copies of all materials using its
name.
Section 5. Books and Records
In compliance with the requirements of Rule 31a-3 under the Act, the
Sub-Adviser hereby agrees that all records that it maintains for the Trust are
the property of the Trust and further agrees to surrender promptly to the Trust
copies of any such records upon the Trust's request. The Sub-Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the Act the
records with respect to the Sub-Adviser's duties hereunder required to be
maintained by Rule 31a-1 under the Act and to preserve the records required by
Rule 204-2 under the Advisers Act for the period specified in that Rule.
Section 6. Compensation
(a) In consideration of services rendered pursuant to this Agreement, the
Adviser will pay the Sub-Adviser a fee that is computed daily and paid monthly
at the annual rate of .30% for Portfolio assets up to and including $150 million
and .25% for Portfolio assets in excess of $150 million (the Portfolio Advisory
Fee ). From time to time the Sub-Adviser may agree to reimburse the Trust
additional expenses or waive a portion or all of its fee, in the sole discretion
of the Sub-Adviser.
(b) The Portfolio Advisory Fee for the period from the date that the
Portfolio commences investment operations to the end of the month during which
the Portfolio commences investment operations shall be prorated according to the
proportion that such period bears to the full monthly period. Upon any
termination of this Agreement before the end of a month, the fee for such part
of that month shall be prorated according to the proportion that such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
(c) For the purposes of determining fees payable to the Sub-Adviser, the
value of the Trust's net assets shall be computed at the times and in the manner
specified in the Trust's Prospectus and/or the Statement of Additional
Information.
<PAGE>
Section 7. Costs and Expenses
During the term of this Agreement, the Sub-Adviser will pay all expenses
incurred by it and its staff in connection with the performance of its services
under this Agreement, including the payment of salaries of all officers and
employees who are employed by it, but not including expenses to be paid by the
Trust or the Adviser such as brokerage fees and commissions and custodian
charges. The Trust shall assume and pay any expenses for services rendered by a
custodian for the safekeeping of the Trust's securities or other property, for
keeping its books of account, for any other charges of the custodian, and for
calculating the net asset value of the Trust as provided in the prospectus of
the Trust. The Sub-Adviser shall not be required to pay and the Trust (or the
Adviser) shall assume and pay the charges and expenses of the Trust's
operations, including compensation of the trustees, charges and expenses of
independent auditors, of legal counsel, of any transfer or dividend disbursing
agent, and of any registrar of the Trust, costs of acquiring and disposing of
portfolio securities, commodity futures transaction costs, interest, if any, on
obligations incurred by the Trust, costs of share certificates and of reports,
membership dues in the Investment Company Institute or any similar organization,
costs of reports and notices to shareholders, other like miscellaneous expenses
and all taxes and fees payable to federal, state or other governmental agencies
on account of the registration of securities issued by the Trust, filing of
trust documents or otherwise.
Section 8. Standard of Care
The Sub-Adviser shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Adviser or the Trust in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect the Sub-Adviser against any
liability to the Adviser or the Trust to which the Sub-Adviser would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence on
its part in the performance of its duties or by reason of the Sub-Adviser's
reckless disregard of its obligations and duties under this Agreement.
Section 9. Services to Other Companies or Accounts
(a) Except as otherwise agreed between the Adviser and the Sub-Adviser, it
is understood that the services of the Sub-Adviser are not exclusive, and
nothing in this Agreement shall prevent the Sub-Adviser from providing similar
services to other investment companies (whether or not their investment
objectives and policies are similar to those of the Trust) or from engaging in
other activities.
(b) When the Sub-Adviser recommends the purchase or sale of a security for
other investment companies and other clients, and at the same time the
Sub-Adviser recommends the purchase or sale of the same security for the Trust,
it is understood that in light of its fiduciary duty to the Trust, such
transactions will be executed on a basis that it is fair and equitable to the
Trust.
(c) The Trust and the Adviser understand and acknowledge that the persons
employed by the Sub-Adviser to assist in the performance of its duties under
this Agreement will not devote their full time to that service; nothing
contained in this Agreement will be deemed to limit or restrict the right of the
Sub-Adviser or any affiliate of the Sub-Adviser to engage in and devote time and
attention to other businesses or to render services of whatever kind or nature,
except as otherwise agreed between the Adviser and the Sub-Adviser.
Section 10. Duration and Termination
(a) The Trust represents that this Agreement has been approved by the
Trust's Board of Trustees and shareholders pursuant to Section 15 of the Act.
This Agreement shall become effective on the date hereof and shall continue for
two years from that date, such continuance, to the extent required by the Act,
being subject to approval of this Agreement by the Trust's shareholders at the
first meeting of such shareholders following such date, and thereafter shall
continue automatically for successive annual periods, provided such continuance
is
<PAGE>
specifically approved at least annually by (i) the Trust's Board of Trustees or
(ii) a vote of a majority of the Portfolio's outstanding voting securities (as
defined in the Act), provided that the continuance is also approved by a
majority of the Trustees who are not interested persons (as defined in the Act)
of the Trust, by vote cast in person at a meeting called for the purpose of
voting on such approval.
(b) Notwithstanding the foregoing, this Agreement may be terminated (i) by
the Adviser at any time without penalty, upon 60 days' written notice to the
Sub-Adviser and the Trust, (ii) at any time without penalty by the Trust, upon
the vote of a majority of the Trust's Trustees or by vote of the majority of the
Trust's outstanding voting securities, upon 60 days' written notice to the
Sub-Adviser and the Adviser, or (iii) by the Sub-Adviser at any time without
penalty, upon 60 days' written notice to the Adviser and the Trust.
(c) This Agreement will terminate automatically in the event of its
assignment (as defined in the Act and in rules adopted under the Act).
Section 11. Amendments
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought, and no amendment of this Agreement shall be effective until approved in
accordance with applicable law.
Section 12. Limitations of Liability of Trustees, Officers, Employees,
Agents and shareholders of the Trust
The Sub-Adviser is expressly put on notice of the limitation of liability
as set forth in the Declaration of Trust and agrees that the obligations assumed
by the Trust pursuant to this Agreement shall be limited in any case to the
Trust and its assets and that the Sub-Adviser shall not seek satisfaction of any
such obligations from the shareholders of the Trust, the Trustees, officers,
employees or agents of the Trust, or any of them.
Section 13. Miscellaneous
(a) This Agreement shall be governed by the laws of the Commonwealth of
Virginia, provided that nothing herein shall be construed in a manner
inconsistent with the Act, the Advisers Act, or rules or orders of the SEC
thereunder.
(b) The captions of this Agreement are included for convenience only and in
no way define or limit any of the provisions hereof or otherwise affect their
construction or effect.
(c) If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(d) Nothing herein shall be construed as constituting the Sub-Adviser as an
agent of the Trust or the Adviser.
(e) For purposes of any notices to be provided pursuant to this Agreement,
the following are the addresses to be used unless or until the parties notify
each other of any changes thereto in writing:
If to Pacific Investment Management Company:
P.O. Box 9000
840 Newport Center Drive
Newport Beach, CA 92658-9030
Attention: William R. Benz
<PAGE>
If to Cambridge Investment Advisors, Inc.:
Riverfront Plaza, West Tower
901 East Byrd Street
Richmond, VA 23219
Attention: Peter J. Quinn, Jr.
If to Cambridge Series Trust:
Riverfront Plaza, West Tower
901 East Byrd Street
Richmond, VA 23219
Attention: Peter J. Quinn, Jr.
If the terms and conditions described above are in accordance with your
understanding, kindly indicate your acceptance of this Agreement by signing and
returning to us the enclosed copy of this Agreement.
CAMBRIDGE INVESTMENT ADVISORS, INC.
By:
Name:
Title:
CAMBRIDGE SERIES TRUST
By:
Name:
Title:
Accepted:
PACIFIC INVESTMENT MANAGEMENT COMPANY
By:
Name:
Title:
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY
Balance Sheet
<PAGE>
EXHIBIT 2
INDEPENDENT AUDITORS' REPORT
Pacific Investment Management Company and Subsidiaries:
We have audited the accompanying consolidated statement of financial
position of Pacific Investment Management Company and its subsidiaries as of
December 31, 1993. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial position is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial position.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
financial position presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, such consolidated statement of financial position presents
fairly, in all material respects, the financial position of Pacific Investment
Management Company and its subsidiaries as of December 31, 1993 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE
February 25, 1994, except for Note 11,
as to which the date is July 11, 1994
Costa Mesa, California
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
DECEMBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets:
Cash........................................................................ $ 3,443,875
Accounts receivable......................................................... 29,354,628
Notes receivable............................................................ 859,900
Tax receivable from affiliate............................................... 2,961,544
Investment in mutual funds.................................................. 8,459,350
Prepaid expenses............................................................ 201,347
Total Current Assets..................................................... 45,280,644
Investment in limited partnership............................................. 2,083,306
Investments in securities..................................................... 652,587
Property, net................................................................. 3,655,808
TOTAL ASSETS.................................................................. $ 51,672,345
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accrued liabilities......................................................... $ 14,611,994
Payable to affiliates, net.................................................. 16,210,498
Total Current Liabilities................................................ 30,822,492
Other liabilities............................................................. 5,444,869
Total Liabilities........................................................ 36,267,361
Stockholder's Equity:
Common stock -- $1 par value; 25,000 shares
authorized; 1,000 shares issued and outstanding.......................... 1,000
Paid-in capital............................................................. 397,869
Retained earnings........................................................... 15,006,115
Total Stockholder's Equity............................................... 15,404,984
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................................... $ 51,672,345
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Pacific Investment Management Company (PIMCO) is a wholly-owned,
third-tier subsidiary of Pacific Mutual Life Insurance Company (PM). The
intermediate companies are Pacific Financial Holding Company (PFHC) and
Pacific Financial Asset Management Corporation. The accompanying
consolidated statement includes the accounts of PIMCO and its wholly-owned
subsidiaries, StocksPLUS Management, Inc. (StocksPLUS) and Pacific
Investment Administrative Services Company (Services Co.). PIMCO provides
investment management services to its clients using various analytical
techniques. All significant intercompany items have been eliminated.
StocksPLUS owns approximately a 0.2 percent interest in, and is the
general partner of, StocksPLUS, L.P., a Delaware limited partnership which
provides investment and administrative management services on behalf of its
clients (Note 10).
INVESTMENTS
Investments in mutual funds and securities are carried at the lower of
cost or market value, with cost approximating market value at December 31,
1993.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115). SFAS No. 115 is
effective for years beginning after December 15, 1993 and addresses
accounting and reporting for investments in certain equity securities and
for all investments in debt securities. PIMCO will adopt SFAS No. 115 on
January 1, 1994. SFAS No. 115 requires investments which are within the
scope of this pronouncement to be classified into specific categories.
PIMCO's investments in mutual funds will be categorized as trading with
market fluctuations recorded in operations. PIMCO does not expect SFAS No.
115 to have a significant effect on its consolidated statement of financial
position.
2. NOTES RECEIVABLE
PIMCO has granted loans to certain employees as part of programs
designed to ensure the long-term retention of key executives. These loans
are primarily noninterest bearing and are generally due within one year of
issuance.
3. PROPERTY
Property is recorded at cost and is depreciated or amortized using the
straight-line method over the estimated useful lives of the individual
assets.
Leasehold improvements are amortized using the straight-line method
over the shorter of the lease terms or the useful lives of the improvements.
F-2
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
3. PROPERTY -- Continued
The components of property as of December 31, 1993 are as follows:
<TABLE>
<S> <C>
Furniture and equipment........................................................................ $ 2,294,956
Computer equipment............................................................................. 2,428,838
Leasehold improvements......................................................................... 989,509
Computer software costs........................................................................ 371,074
Total property................................................................................. 6,084,377
Less accumulated depreciation and amortization................................................. (2,428,569)
Property, net.................................................................................. $ 3,655,808
</TABLE>
4. PAYABLE TO AFFILIATES, NET
PIMCO has a credit agreement with PFHC which provides for borrowings up
to $20,000,000. The balance outstanding as of December 31, 1993 totaled
$18,000,000 and bears a rate of interest as defined in the agreement. At
December 31, 1993 the applicable interest rate was 3.43%. The agreement
expires December, 1994 and automatically renews for successive one-year
terms unless either party terminates the agreement, as defined.
Also included in payable to affiliates, net, on the accompanying
consolidated statement of financial position are net intercompany
receivables of $1,789,502.
5. PROFIT-SHARING PLAN AND LONG-TERM INCENTIVE PLAN
PIMCO has a nonqualified profit-sharing plan (the Profit-Sharing Plan)
covering certain key employees (Key Employees) and other employees. The
Profit-Sharing Plan provides for awards based upon the profitability of
PIMCO, as defined in the employment agreements. Profit-sharing awards fully
vest as of the end of each year, and are payable by March 15 of the
following year, unless subject to deferral whereby awards are paid upon
vesting.
In addition, Key Employees participate in a Long-Term Incentive Plan
that provides compensation under the Profit-Sharing Plan for a specified
period of time subsequent to their termination of employment. Compensation
under this plan is determined based upon the profitability of PIMCO in
future years and will be expensed as incurred. The plan requires, among
other things, that Key Employees comply with a covenant not-to-compete with
PIMCO.
Other liabilities on the accompanying consolidated statement of
financial position include notes payable to certain officers issued in
connection with the deferred compensation plan discussed above. As defined
in the agreements, the notes payable will be paid on specified dates and are
subject to cancellation upon the occurrence of certain events.
6. OTHER EMPLOYEE BENEFIT PLANS
PIMCO has defined contribution employee benefit plans covering
substantially all employees. PIMCO's contribution ranges from 5% to 11% of
an individual's base compensation.
F-3
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
7. LEASES
PIMCO leases office space and certain office equipment under operating
lease agreements expiring at various dates through 1998. Future aggregate
minimum rent payments on noncancelable leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31:
<S> <C>
1994.......................................................................... $ 796,068
1995.......................................................................... 796,068
1996.......................................................................... 768,588
1997.......................................................................... 754,848
1998.......................................................................... 188,712
$3,304,284
</TABLE>
8. INCOME TAXES
PIMCO's operations and those of its subsidiaries are included in the
consolidated Federal income tax return of PM and the combined California
franchise tax return of PFHC. PIMCO and its subsidiaries are allocated an
expense based principally on the effect of including their operations in the
consolidated tax provision. Such expense consists primarily of current
taxes.
Tax receivable from affiliate on the accompanying consolidated
statement of financial position includes $141,085 of current taxes as of
December 31, 1993. Also included in tax receivable from affiliate are
deferred tax assets resulting primarily from differences between book and
tax accounting for certain profit-sharing plans.
9. RELATED PARTY TRANSACTIONS
PIMCO and Services Co. provide investment advisory and administrative
management services to PIMCO Funds, an open-end investment company, and
affiliates.
PM provides certain support services to PIMCO and its subsidiaries
included in payable to affiliates, net, on the accompanying consolidated
statement of financial position.
10. INVESTMENT IN LIMITED PARTNERSHIP
Because StocksPLUS is the general partner in, and exercises
significant influence over the operating and financial policies of
StocksPLUS, L.P. (Note 1), it accounts for its investment in the
partnership under the equity method. The underlying investments of
StocksPLUS, L.P. are carried at market value. StocksPLUS, L.P. has made its
investments with the intent to have its performance equivalent to the S&P
500 index.
F-4
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
10. INVESTMENT IN LIMITED PARTNERSHIP -- Continued
StocksPLUS has hedged its pro rata investment in StocksPLUS, L.P.'s
investments through short futures positions. Gains and losses related to
these positions are settled daily. Securities shown on the accompanying
consolidated statement of financial position are used as necessary for
deposits made in connection with the positions.
Approximate condensed financial information for StocksPLUS, L.P. as of
December 31, 1993 is as follows:
<TABLE>
<S> <C>
SUMMARY OF FINANCIAL POSITION
Assets:
Investments -- at market value............................................................... $931,764,000
Other assets................................................................................. 16,362,000
Total Assets................................................................................. $948,126,000
Liabilities and Equities:
Liabilities.................................................................................. $ 50,463,000
StocksPLUS's equity.......................................................................... 2,083,000
Limited partners' equity..................................................................... 895,580,000
Total Liabilities and Equities............................................................... $948,126,000
</TABLE>
F-5
11. SUSEQUENT EVENT
On July 11, 1994, PFAMCo and Thompson Advisory Group L.P., a Delaware
limited partnership with units traded on the New York Stock Exchange,
entered into a definitive agreement and plan of consolidation to merge the
two entities into a newly capitalized partnership named PIMCO Advisors L.P.
PFAMCo and certain subsidiaries, including PIMCO, will contribute
substantially all of their operations into PIMCO Advisors L.P. in exchange
for the issuance of newly issued partnership units. The transaction is
subject to approval by a majority of the publicly traded limited
partnership units, as well as certain regulatory and other approvals.
