<PAGE>
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:
<PAGE>
Preliminary Proxy Materials
---------------------------
March 11, 1994
Dear Cambridge Government Income Portfolio Shareholder:
Enclosed is a notice about an upcoming special meeting of shareholders and
a proxy statement.
Please note that this special meeting will primarily concern the approval
of a new sub-advisory contract between Cambridge Investment Advisors, Inc. and
Pacific Investment Management Company (PIMCO). This contract replaces Federated
Advisers with PIMCO as the sub-advisor to the Cambridge Government Portfolio.
The fund's Board of Directors unanimously recommends that you approve the
new contract. For your convenience, a proxy card has been included. Please take
a moment to read the information, vote the card, and return it in the enclosed
self-addressed stamped envelope.
Thank you.
Peter J. Quinn, Jr.
PRESIDENT
<PAGE>
CAMBRIDGE SERIES TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 26, 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., April
26, 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 approve a change in the Cambridge Government Income Portfolio's
investment limitations to permit the Portfolio to invest up to 15% of
the value of its net assets in restricted securities.
(3) To transact such further business as may properly come before the
meeting or any adjournment thereof.
The Board of Trustees has fixed March 1, 1994, as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Trustees
Paul F. Costello
SECRETARY
March 14, 1994
SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY TO AVOID ADDITIONAL EXPENSE
YOU CAN HELP THE TRUST AVOID THE NECESSITY OF SENDING FOLLOW-UP LETTERS TO
ENSURE A QUORUM BY PROMPTLY RETURNING THE ENCLOSED PROXY. IF YOU ARE
UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE
SPECIAL MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
<PAGE>
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 the Trust.
On March 1, 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 March 14, 1994.
NEW SUB-ADVISORY CONTRACT
BACKGROUND
Since April 17, 1992, the investment sub-adviser to the Portfolio has been
Federated Advisers, which has served in that capacity pursuant to an investment
advisory agreement, dated April 17, 1992, which was approved by the initial
shareholder of the Trust.
Cambridge Investment Advisors, Inc. (the Adviser) is responsible for
overseeing the sub-advisers (the Sub-Advisers) for all of the portfolios (the
Portfolios) of the Trust. The Adviser's ongoing responsibilities include (i)
overseeing the relative performance and consistency of the Trust's Sub-Advisers;
(ii) ensuring that each of the Sub-Advisers adheres to the Portfolios' stated
investment objectives and philosophies; (iii) monitoring the financial strength
of each Sub-Adviser; and (iv) conducting periodic on-site visits to each
Sub-Adviser's headquarters to ensure the above responsibilities are being met.
In addition, the management agreement between the Trust and the Adviser requires
the Adviser to be responsible for ultimately recommending to the Board of the
Trust whether Sub-Advisers' contracts should be renewed, modified or terminated.
The Adviser provides reports to the Board of the Trust regarding the results of
its evaluation and monitoring functions.
In December 1993, the Adviser, in such capacity, reported to the Board of
the Trust that it had interviewed a number of possible replacements for
Federated Advisers and recommended that the sub-advisory agreement among the
Trust, the Adviser and Federated Advisers be terminated. The Adviser reported to
the Board that it had conducted an extensive search for a possible replacement
for Federated Advisers. After performing preliminary performance screens on the
universe of government managers, the Adviser conducted telephone interviews as
<PAGE>
well as in-person visits with four possible new sub-advisers. At this time, the
Adviser recommended that a new sub-advisory agreement be entered into with
Pacific Investment Management Company (PIMCO).
On December 20, 1993, the Board of the Trust met to discuss the proposal to
terminate the sub-advisory agreement with Federated Advisers for the Portfolio
and to consider approval of an interim sub-advisory agreement with PIMCO. A
representative of PIMCO was present at this meeting and discussed PIMCO's
background, organization, performance history and performance strategy with the
Board. At this meeting, the Board of the Trust voted to terminate the investment
advisory agreement among the Trust, the Adviser and Federated Advisers, and,
pending shareholder action with respect to the New Sub-Advisory Contract, the
Trust approved an interim sub-advisory agreement with PIMCO in accordance with
Rule 15a-4 under the Investment Company Act of 1940. The interim investment
advisory agreement with PIMCO is effective until the earlier of (i) 120 days
from January 24, 1994 (the date Federated Advisers ceased providing investment
advisory services to the Trust), or (ii) final adjournment of the Special
Meeting.
The Board of the Trust has also approved an investment advisory agreement
among PIMCO, the Adviser and the Trust (the New Sub-Advisory Contract). The New
Sub-Advisory Contract is subject to approval by the shareholders of the Trust.
In selecting PIMCO as a new sub-adviser for the Portfolio, the Board of the
Trust considered many factors. The most important of these factors was
consistency of PIMCO's long-term performance, its ongoing commitment to client
service, and the stability and quality of the organization as well as the
individuals that made up their investment team. In selecting PIMCO, the Board
recognized PIMCO's superior long-term performance. PIMCO is the investment
adviser to 25 mutual fund portfolios with approximately $12.0 billion of assets
and has a distinguished list of private account clients. The Board considered
the fact that the PIMCO Low Duration Fund and Total Return Fund, which have
investment objectives similar to the Portfolio, have the highest Morningstar
Ratings of 5 as of November 30, 1993. Also considered was the fact that the
investment performance records for these two funds were ranked Pound3 and
Pound1, respectively, in their representative bond fund categories for the five
year period ended December 31, 1993 by Lipper Analytical Services, Inc. These
consistent returns stem from PIMCO's investment philosophy and process. Also,
the Board believed that stability in the PIMCO organization creates a high
likelihood of extending their favorable record into the future. The Board was
informed by PIMCO that the portfolio manager for the Portfolio would be David H.
Edington. A Managing Director of PIMCO, Mr. Edington joined PIMCO in 1987. He
received a Bachelor's degree in Engineering from the California Polytechnic
State University and a Master's degree in Management from the Sloan School of
Management at M.I.T. PIMCO also emphasized, however, that it uses a team
approach to management, calling in sector specialists to provide execution.
The terms of the New Sub-Advisory Contract are summarized below.
NEW SUB-ADVISORY CONTRACT
A copy of the New Sub-Advisory Contract is attached as Exhibit 1.
Under the terms of the New Sub-Advisory Contract, subject to the
supervision of the Adviser and the Trust's Board of Trustees, PIMCO 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 where
appropriate) commodity futures contracts for the Portfolio.
2
<PAGE>
The New Sub-Advisory Contract provides that PIMCO shall pay all expenses
incurred by it and its staff in connection with the performance of its services
under the New Sub-Advisory Contract, including the payment of salaries of all
officers and employees who are employed by it. The Adviser pays PIMCO an annual
fee not to exceed .30% of Government Income's average daily net assets up to
$150 million and .25% of Government Income's average daily net assets in excess
of $150 million. Federated Advisers received .30% of Government Income's average
daily net assets without any breakpoints.(The Trust pays the Adviser an annual
fee not to exceed .60% of Government Income's average daily net assets.)
However, the New Sub-Advisory Contract also provides that PIMCO may from time to
time agree to reimburse the Trust for certain additional expenses incurred by it
or waive a portion or all of its fee, in the sole discretion of PIMCO.
The New Sub-Advisory Contract provides that PIMCO 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 the New Sub-Advisory
Contract relates, provided that nothing in the New Sub-Advisory Contract shall
be deemed to protect or purport to protect PIMCO against any liability to the
Adviser or the Trust to which PIMCO 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 PIMCO's reckless disregard of its
obligations and duties under the New Sub-Advisory Contract.
The New Sub-Advisory Contract will continue in effect for two years from
the date of its execution, unless terminated, and may be continued from year to
year thereafter by a majority of the Trustees, including a majority of the
Trustees who are not interested Trustees. The New Sub-Advisory Contract would
take effect upon the obtaining of shareholder approval.
The Board of the Trust, including the disinterested trustees, has concluded
that entry by Government Income into the New Sub-Advisory Contract would be in
the best interest of Government Income and Government Income's shareholders. The
Board of the Trust, including the disinterested Trustees, unanimously approved
the New Sub-Advisory Contract for Government Income and recommended such
contract for approval of the shareholders of Government Income at the meeting.
If the New Sub-Advisory Contract is not approved by the shareholders of
Government Income, it will terminate on the 120th day after its execution and
the Trustees will determine what steps to take. The Adviser may retain a
sub-adviser, which may be PIMCO, to provide investment advisory services for
Government Income at a rate equal to the lesser of cost or the fee otherwise
payable under the previous sub-advisory agreement with Federated Advisers.
Within 120 days thereafter, an advisory contract with such sub-adviser must be
presented to the shareholders of Government Income for their approval. In the
alternative, the Adviser may choose to provide both management and advisory
services to Government Income at its current advisory fee.
Approval of the New Sub-Advisory Contract requires the affirmative vote of:
(a) 67% or more of the shares of Government Income present at the Special
Meeting, if the holders of more than 50% of the outstanding shares of Government
Income are present or represented by proxy; or (b) more than 50% of the
outstanding shares of Government Income, whichever is less.
PACIFIC INVESTMENT MANAGEMENT COMPANY
PIMCO, established in 1971, provides investment advisory services to
investment companies, pension plans, foundations, endowments and other
institutions located both in the U.S. and abroad. As of November 30, 1993, PIMCO
had over $52.6 billion of assets under management, of which approximately $26.0
billion were invested in U.S. Government securities. PIMCO, a wholly owned
subsidiary of Pacific Mutual Life Insurance Company, is located at 840 Newport
Center Drive, Suite 360, Newport Beach, California 92660.
3
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PIMCO also serves as the investment adviser to the following investment
companies. The net assets of such investment companies and PIMCO's rate of
compensation from such investment companies are set forth below:
<TABLE>
<CAPTION>
NET ASSETS
NAME OF INVESTMENT COMPANY AS OF DECEMBER 31, 1993 MANAGEMENT FEE
<S> <C> <C>
PIMCO Funds
Total Return Fund $4,614,176,208 For each Fund
International Fund 3,072,418,090 individually: annual rate
Low Duration Fund 2,136,295,382 of 0.30% of average daily
Foreign Fund 545,600,626 net assets up to $150
High Yield Fund 154,320,806 million, 0.25% of average
Low Duration Fund II 136,770,094 daily net assets over $150
Total Return Fund III 77,689,112 million
Short-Term Fund 60,395,301
Growth Stock Fund 24,054,129
Long-Term US Gov't Fund 22,830,769
Global Fund 22,751,067
StocksPLUS Fund 11,073,023
Frank Russell Investment Management Company
Fixed Income I Fund 75,318,688 For each Fund individually:
Diversified Bond Fund 65,641,810 annual rate of 0.25% of
Fixed Income III Fund 35,740,188 net assets based on the
Multistrategy Bond Fund 27,441,609 average of ending monthly
market values over 3
months, paid in arrears
Harbor Fund
Harbor Bond Fund 172,423,762 Annual rate of 0.50% of
average 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
Pacific Select Fund
Managed Bond Series 43,222,998 For each Fund
Government Securities Series 23,662,009 individually: annual rate
of 0.50% of average daily
net assets
PFAMCO Funds
Managed Bond & Income Portfolio 374,255,020 For each Fund
Balanced Portfolio 53,283,306 individually: annual rate
of 0.25% of average daily
net assets
Prudential Securities TARGET
Portfolio Trust
Intermediate Term Bond Portfolio 60,071,030 For each Fund
Total Return Bond Portfolio 25,780,181 individually: annual rate
of 0.25% of average daily
net assets
PIMCO Commercial Mortgage Securities Trust, Inc. 156,884,445 Annual rate of average weekly
net assets paid quarterly
Pacific Corinthian Variable Annuity
Balanced Series 9,998,817 Annual rate of 0.55% of
average daily net assets
</TABLE>
4
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The names, addresses (if other than 840 Newport Center Drive, Suite 360,
Newport Beach, California 92660) and principal occupations of the principal
executive officers and directors of PIMCO are as follows:
<TABLE>
<CAPTION>
NAME AND ADDRESS PRINCIPAL OCCUPATION
<S> <C>
Ovengros, William David Chairman of the Board and Director; Chairman,
CEO and Director, PM Realty Advisors, Inc.
(PMRA), Cadence Capital Management
Corporation, NFJ Investment Group, Inc.,
Parametric Portfolio Associates, Inc.,
Pacific Financial Asset Management
Corporation; Director and Executive Vice
President, Pacific Mutual; Vice President
and Trustee, Pacific Select Fund
Gerken, Walter B. Director; Chairman of the Executive
Committee, Pacific Financial Companies;
Director, PMRA
Gross, William Hunt Managing Director and Director
McIntosh, James Fred Director; Executive Director, Paul, Hastings,
Janofsky & Walker
Muzzy, James Frederick Managing Director and Director
Podlich, William Frederick III Co-Chief Executive Officer, Managing Director
and Director
Porter, Henry Homes Jr. Director; Independent investor and consultant
Schwartz, Eduardo S. Director; Professor of Finance, UCLA Graduate
School of Management
Sutton, Thomas C. Director; Chairman of the Board and Chief
Executive Officer of Pacific Mutual;
Director, Pacific Equities Network
Thompson, Ott II Director; Consultant PMRA
Thompson, William S. Jr. Co-Chief Executive Officer, Managing Director
and Director
</TABLE>
An audited balance sheet of PIMCO is attached to this proxy statement as
Exhibit 2.
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.
5
<PAGE>
CHANGE IN INVESTMENT LIMITATION
PIMCO has advised the Adviser and the Board of Trustees of the Trust that
it recommends several changes in the investment policies and limitations of the
Portfolio, including a change to permit the Portfolio to invest up to 15% of the
value of its net assets in restricted securities. Currently the Portfolio may so
invest up to 10% of its net assets.
This increase in the Portfolio's capacity to invest in restricted
securities is consistent with guidelines of the Securities and Exchange
Commission (the Commission) relating to open-end investment companies like the
Trust. The Commission in 1992 had changed its guidelines to increase such
investment companies' capacity to invest in illiquid securities from 10% to 15%
of net assets and since that date many investment companies, including the
Portfolio, have given themselves such increased flexibility. The Trust desires
to increase the Portfolio's capacity to invest in restricted securities to be
consistent with the illiquid securities guidelines. The Adviser and the Board of
Trustees recommends that this change be made for the Portfolio.
If shareholders do not approve the change to permit the Portfolio to invest
up to 15% of the value of its net assets in restricted securities, the
Portfolio's capacity to invest in restricted securities will continue to be
limited to 10% of the value of its net assets.
PIMCO has also recommended three changes to the Portfolio's investment
policies that do not require shareholder approval permitting the Portfolio (1)
to invest up to 20% of its net assets in bonds issued by governments of
industrialized foreign countries the Sub-Adviser determines are of comparable
quality to bonds rated AAA by Standard & Poor's Corporation (S&P) or Aaa by
Moody's Investors Service, Inc. (Moody's ); (2) to invest in private issue
collateralized mortgage obligations rated A or higher by S&P or Moody's; and (3)
to invest in corporate debt securities rated BBB or higher by S&P or Baa or
higher by Moody's. These policies are consistent with other PIMCO-advised mutual
funds. The Board of Trustees has approved these changes. Previously the
Portfolio was not able to make any of such investments.
There is no change in the Portfolio's investment objective of providing
current income and pursuing this objective by investing primarily in securities
which are either issued or guaranteed as to payment of principal and interest by
the U.S. Government or its agencies or instrumentalities.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS APPROVAL OF A CHANGE IN THE
PORTFOLIO'S INVESTMENT LIMITATIONS TO PERMIT THE PORTFOLIO TO INVEST UP TO 15%
OF THE VALUE OF ITS NET ASSETS IN RESTRICTED SECURITIES.
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.
6
<PAGE>
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 sold 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 described 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:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
receipt of quotations for portfolio evaluations; and
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.
7
<PAGE>
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 March 1, 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
March 14, 1994
8
<PAGE>
EXHIBIT 1
CAMBRIDGE SERIES TRUST
INVESTMENT ADVISORY AGREEMENT
April 24, 1994
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>
EXHIBIT 2
INDEPENDENT AUDITORS' REPORT
Pacific Investment Management Company and Subsidiaries:
We have audited the accompanying consolidated statements of financial
position of Pacific Investment Management Company and its subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
operations, stockholder's equity, and cash flow for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respeccts, the financial position of Pacific Investment Management
Company and its subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flow for the years then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE
February 25, 1994
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1992
<S> <C> <C>
ASSETS
Current Assets:
Cash.................................................................. $ 3,443,875 $ 225,104
Accounts receivable................................................... 29,354,628 19,831,462
Notes receivable...................................................... 859,900 1,403,384
Tax receivable from affiliate......................................... 2,961,544 6,217,920
Investment in mutual fund............................................. 8,459,350
Prepaid expenses...................................................... 201,347 139,829
Total Current Assets............................................... 45,280,644 27,817,699
Investment in limited partnership....................................... 2,083,306 5,225,979
Investments in securities............................................... 652,587 557,385
Property, net........................................................... 3,655,808 3,135,606
TOTAL ASSETS............................................................ $ 51,672,345 $ 36,736,669
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accrued liabilities................................................... $ 14,611,994 6,550,486
Payable to affiliates, net............................................ 16,210,498 8,769,503
Total Current Liabilities.......................................... 30,822,492 15,319,989
Other liabilities....................................................... 5,444,869 8,589,490
Total Liabilities.................................................. 36,267,361 23,909,479
Stockholder's Equity:
Common stock -- $1 par value; 25,000 shares
authorized; 1,000 shares issued and outstanding.................... 1,000 1,000
Paid-in capital....................................................... 397,869 397,869
Retained earnings..................................................... 15,006,115 12,428,321
Total Stockholder's Equity......................................... 15,404,984 12,827,190
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.............................. $ 51,672,345 $ 36,736,669
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 financial statements include 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 and a 1.0 percent interest
in, and is the general partner of, StocksPLUS, L.P., as of December 31, 1993
and 1992, respectively. StocksPLUS, L.P., is 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 and 1992.
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 financial statements.
DEPRECIATION AND AMORTIZATION
Property is recorded at cost and is depreciated or amortized using the
straight-line method over the estimated useful lives of the individual
items.
Leasehold improvements are amortized using the straight-line method
over the shorter of the lease terms or the useful lives of the improvements.
REVENUES AND EXPENSES
Investment management fees are recorded as revenues during the period
such services are performed. Expenses are charged to operations as incurred.
F-2
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES -- Continued
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1993
financial statement presentation.
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
The components of property are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
1993 1992
Furniture and equipment........................................................ $ 2,294,956 $ 1,878,024
Computer equipment............................................................. 2,428,838 1,869,958
Leasehold improvements......................................................... 989,509 954,071
Computer software costs........................................................ 371,074 111,350
Total property................................................................. 6,084,377 4,813,403
Less accumulated depreciation and amortization................................. (2,428,569) (1,677,797)
Property, net.................................................................. $ 3,655,808 $ 3,135,606
</TABLE>
4. PAYABLE TO AFFILIATES, NET
During 1992, PIMCO entered into a credit agreement with PFHC which
provides for borrowings up to $20,000,000. The balance outstanding as of
December 31, 1993 and 1992 totaled $18,000,000 and $8,000,000, respectively,
with a rate of interest as defined in the agreement. At December 31, 1993
and 1992 the applicable interest rate was 3.43% and 4.75%, respectively. 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 statements of financial position are net intercompany
receivables of $1,789,502 and net intercompany payables of $769,503 as of
December 31, 1993 and 1992, respectively.
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
F-3
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. PROFIT-SHARING PLAN AND LONG-TERM INCENTIVE PLAN -- Continued
end of each year, and are payable by March 15 of the following year, unless
subject to deferral whereby awards are paid upon vesting. Profit-sharing
awards are included in employee compensation and benefits in the
accompanying consolidated statements of operations.
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 statements 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, which ranges from 5% to 11% of an
individual's base compensation, amounted to $1,035,094 and $1,070,299 for
the years ended December 31, 1993 and 1992, respectively.
7. LEASES
PIMCO leases office space and certain office equipment under operating
lease agreements expiring at various dates through 1998. Rent expense in
connection with these agreements was approximately $986,041 and $843,134 for
the years ended December 31, 1993 and 1992, respectively. 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. RELATED PARTY TRANSACTIONS
PIMCO and Services Co. provide investment advisory and administrative
management services to PIMCO Funds, an open-end investment company, and
affiliates. Approximately $38,669,000 and
F-4
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. RELATED PARTY TRANSACTIONS -- Continued
$18,614,000 of such investment advisory and administrative management fees
were earned for the years ended December 31, 1993 and 1992, respectively.
During 1992, the name Pacific Investment Management Institutional Trust
was changed to PIMCO Funds. Certain of PIMCO's officers also serve as
officers and directors of PIMCO Funds.
PM provides certain support services to PIMCO and its subsidiaries.
Charges for these services amounted to $883,247 and $813,518 for the years
ended December 31, 1993 and 1992, respectively.
9. 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
statements of financial position includes $141,085 and $5,654,523 of current
taxes as of December 31, 1993 and 1992, respectively. 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.
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 StocksPLUS,
L.P. under the equity method. The underlying investments of StocksPLUS,
L.P. are carried at market value. The effect of such accounting does not
have a material effect on PIMCO's consolidated financial statements.
StocksPLUS, L.P. has made its investments with the intent to have its
performance equivalent to the S&P 500 index.
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 statements of financial position are used as necessary for
deposits made in connection with the positions.
Approximate condensed financial information for StocksPLUS, L.P. is as
follows:
F-5
<PAGE>
PACIFIC INVESTMENT MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INVESTMENT IN LIMITED PARTNERSHIP -- Continued
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
1993 1992
SUMMARY OF FINANCIAL POSITION
Assets:
Investments -- at market value.............................................. $931,764,000 $523,534,000
Other assets................................................................ 16,362,000 5,943,000
Total Assets................................................................ $948,126,000 $529,477,000
Liabilities and Equities:
Liabilities................................................................. $ 50,463,000 $ 10,146,000
StocksPLUS's equity......................................................... 2,083,000 5,226,000
Limited partners' equity.................................................... 895,580,000 514,105,000
Total Liabilities and Equities.............................................. $948,126,000 $529,477,000
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C> <C>
1993 1992
SUMMARY OF OPERATIONS
Trading gains on futures.................................................... $ 43,074,000 $ 19,931,000
Net loss on market value of securities...................................... (1,401,000) (1,724,000)
Interest income............................................................. 43,320,000 27,079,000
Fees and commissions........................................................ (3,299,000) (2,261,000)
Net income.................................................................. $ 81,694,000 $ 43,025,000
</TABLE>
<PAGE>
COMMON STOCK
PROXY
CAMBRIDGE SERIES TRUST
901 EAST BYRD STREET
RICHMOND, VA 23219
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES:
The undersigned hereby
appoints , and each
of them, with full power of substitution to each, Proxies to vote all Common
Stock of the undersigned in Cambridge Series Trust (the Trust), at a special
meeting to be held on April 26, 1994, and at any and all adjournments thereof.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR PROPOSALS 1-2.
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.
( ) FOR ( ) AGAINST ( ) ABSTAIN
2. To approve a change in the Cambridge Government Income Portfolio's
investment limitations to permit the Portfolio to invest up to 15% of the
value of its net assets in restricted securities.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(Continued and to be signed on the reverse side)
<PAGE>
(continued from other side)
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.
THE PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign.
When signing as attorney, as executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person. PLEASE SIGN AND RETURN, WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING.
, 1994
Date
Signature
F-6
