UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-09721
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Fixed Income SHares
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
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(Address of principal executive offices) (Zip code)
Lawrence G. Altadonna - , New York, New York 10105
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-739-3371
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Date of fiscal year end: October 31
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Date of reporting period: October 31
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
Item 1. Report to Shareholder
ANNUAL REPORT
10.31.04
FIXED INCOME SHARES - SERIES C, M, R
CONTENTS
Letter to Shareholders..............................1
Portfolio Review/Performance & Statistics.........2-7
Schedules of Investments.........................8-20
Statements of Assets and Liabilities...............21
Statements of Operations...........................22
Statements of Changes in Net Assets.............23-25
Financial Highlights............................26-27
Notes to Financial Statements...................28-39
Report of Independent Registered
Public Accounting Firm.............................40
Tax Information/Board of Trustees..................41
Privacy Policy/Proxy Voting Policies
& Procedures.......................................42
[PIMCO ADVISORS LOGO]
FIXED INCOME SHARES LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
December 14, 2004
Dear Shareholder:
I am pleased to provide you with the annual report of Fixed Income SHares-Series
C, Series M and Series R for the periods ended October 31, 2004. Series C,
Series M and Series R are used in conjunction with other assets to create the
PIMCO Total Return Investment Strategy for managed accounts.
I thank you for investing with us, we remain dedicated to serving your
investment needs.
Sincerely,
/s/ Brian S. Shlissel
Brian S. Shlissel
President, Chief Executive Officer
10.31.04 | Fixed Income SHares - Series C, M, R Annual Report 1
FIXED INCOME SHARES - SERIES C PORTFOLIO REVIEW
October 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
o The Portfolio outperformed the o An emphasis on high yield bonds
Lehman Brothers Credit index for was a strong positive as an
the fiscal year ended October 31, improving credit environment and
2004 strong investor demand continued
throughout the fiscal year
o At October 31, 2004 the Portfolio's
duration was 5.37 years, compared o An emphasis on mortgages added
to 7.53 years at October 31, 2003 to returns as low volatility and
strong bank demand supported
o Over the 12-month period, the these assets; mortgage security
Treasury yield curve flattened: selection also was positive for
3-month yields and 2-year yields returns
rose 95 and 73 basis points,
respectively, while 10 and 30-year o Real return bonds continued to
yields fell 27 and 34 basis points, outperform for the fiscal year,
respectively adding value versus likeduration
nominal bonds as real yields
o The Portfolio's duration was fell
generally positioned above
benchmark for the fiscal year; this o Emerging market bonds were a
enhanced returns as interest rates strong positive as the benign
fell rate environment and improving
economic fundamentals of
o The Portfolio was generally countries like Brazil and Russia
positioned for a steepening of the boosted demand
yield curve throughout the 12-month
period; this detracted from returns o Tactical exposure to European
as the yield curve flattened government bonds was positive;
the slower growth of that region
o An underweight to investment grade helped diversify interest rate
corporate bonds detracted from risk when U.S. rates rose on
returns as credit premiums strong economic data
narrowed; corporate security
selection added value
2 Fixed Income SHares - Series C, M, R Annual Report | 10.31.04
FIXED INCOME SHARES - SERIES C PERFORMANCE & STATISTICS
October 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
FXICX Intermediate maturity fixed 3/17/00
income securities
NET ASSETS:
$575.2 million
PORTFOLIO MANAGEMENT:
Managed by a team of
investment professionals
led by Bill Gross.
TOTAL RETURN(1):
- --------------------------------------------------------------------------------
Six Months 7.14%
1 Year 10.14%
3 Years 9.55%
Commencement of Operations (3/17/00) to 10/31/04 11.93%
- --------------------------------------------------------------------------------
Net Asset Value $12.06
- --------------------------------------------------------------------------------
Distribution Yield(2) 3.05%
- --------------------------------------------------------------------------------
Duration 5.37 years
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF $10,000 INVESTMENT IN SERIES C AND THE LEHMAN INTERMEDIATE
U.S. CREDIT INDEX
[CHART OMITTED]
Lehman Intermediates
Series C US Credit Index*
-------- --------------------
10,000 10,000
9,979 9,979
10,320 10,276
10,578 10,518
11,410 11,081
11,649 11,261
12,116 11,664
12,810 12,082
12,895 11,987
13,029 12,057
12,425 12,309
12,946 12,681
14,045 13,155
14,932 13,600
14,483 13,526
15,295 13,847
15,886 14,139
15,724 14,054
15,887 14,158
16,847 14,598
* The Lehman Intermediate U.S. Credit Index is an unmanaged index that is not
available for direct investment. Its performance is inclusive of reinvested
dividends.
** March 17, 2000
Assumes reinvestment of all dividends and distributions. Past performance is not
predictive of future performance.
MOODY'S RATINGS
(AS A % OF TOTAL INVESTMENTS)
[PIECHART OMITTED]
Aaa 37.3%
Aa 2.9%
A 9.8%
Baa 17.3%
Ba 4.2%
B 3.1%
Caa 0.1%
P 24.2%
NR 1.1%
(1) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
calculated by subtracting the value of an investment in the Portfolio at
the beginning of each specified period from the value at the end of the
period and dividing the remainder by the value of the investment at the
beginning of the period and expressing the result as a percentage. The
calculation assumes that all dividends and distributions have been
reinvested. Total return does not reflect broker commissions or "wrap fee"
charges. Total return for a period of less than one year is not annualized.
Total return for a period greater than one year represents the average
annual total return.
(2) Distribution yield is determined by dividing the annualized current monthly
per share dividend by the net asset value at October 31, 2004.
EXPENSE TABLE:
The Investment Manager has agreed irrevocably to waive all fees and pay or
reimburse all expenses of the Portfolio, except extraordinary expenses. The
financial statements reflect the fact that no fees or expenses are incurred by
the Portfolio due to this waiver and reimbursement. Consequently, no expense
table is included in the annual report. You should be aware, however, that the
Portfolio is an integral part of "wrap fee" programs sponsored by investment
advisers and broker-dealers unaffiliated with the Portfolio, the Investment
Manager or the Sub-Adviser. Participants on these programs pay a "wrap fee" to
the sponsor of the program. You should read carefully the wrap-fee brochure
provided to you by the program sponsor. The brochure is required to include
information about the fees charged to you by the sponsor and the fees paid by
the sponsor to the Investment Manager and its affiliates. You pay no additional
fees or expenses to purchase shares of the Portfolio.
AN INVESTMENT IN THE PORTFOLIO INVOLVES RISK, INCLUDING THE LOSS OF PRINCIPAL.
TOTAL RETURN, DISTRIBUTION YIELD, NET ASSET VALUE AND DURATION WILL FLUCTUATE
WITH CHANGES IN MARKET CONDITIONS. THIS DATA IS PROVIDED FOR INFORMATION ONLY
AND IS NOT INTENDED FOR TRADING PURPOSES. NET ASSET VALUE IS TOTAL ASSETS LESS
TOTAL LIABILITIES DIVIDED BY THE NUMBER OF SHARES OUTSTANDING. HOLDINGS ARE
SUBJECT TO CHANGE DAILY.
10.31.04 | Fixed Income SHares - Series C, M, R Annual Report 3
FIXED INCOME SHARES - SERIES M PORTFOLIO REVIEW
October 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
o The Portfolio outperformed the o Within coupon selection, an
Lehman Brothers Mortgage index for emphasis on lower coupons versus
the fiscal year ended October 31, higher coupons was positive as
2004 mortgage rates drifted lower and
the odds of a prepayment wave
o At October 31, 2004 the Portfolio's increased
duration was 5.51 years, compared
to 5.36 years at October 31, 2003 o Buying mortgages forward and
investing the purchase amount at
o Over the 12-month period, the relatively high short-term rates
Treasury yield curve flattened: added to returns
3-month yields and 2-year yields
rose 95 and 73 basis points, o Exposure to Treasuries detracted
respectively, while 10 and 30-year from performance as mortgages
yields fell 27 and 34 basis points, outperformed Treasuries for the
respectively fiscal year.
o Above-benchmark duration was o An emphasis on asset-backed
positive as long and intermediate securities was positive as these
maturity yields fell during the issues contributed incremental
year yield over the year
o Lower relative exposure to 30-year
conventional mortgages (Freddie Mac
and Fannie Mae) detracted from
returns, however an emphasis on
30-year 5% and 5.5% coupons added
to returns
4 Fixed Income SHares - Series C, M, R Annual Report | 10.31.04
FIXED INCOME SHARES - SERIES M PERFORMANCE & STATISTICS
October 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
FXIMX Intermediate maturity 3/17/00
mortgage-backed securities
NET ASSETS:
$569.7 million
PORTFOLIO MANAGEMENT:
Managed by a team of
investment professionals
led by Bill Gross.
TOTAL RETURN(1):
- --------------------------------------------------------------------------------
Six Months 6.20%
1 Year 9.17%
3 Years 8.81%
Commencement of Operations (3/17/00) to 10/31/04 11.87%
- --------------------------------------------------------------------------------
Net Asset Value $11.87
- --------------------------------------------------------------------------------
Distribution Yield(2) 3.14%
- --------------------------------------------------------------------------------
Duration 5.51 years
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SERIES M AND THE LEHMAN FIXED
RATE MORTGAGED- BACKED SECURITIES INDEX
[CHART OMITTED]
Lehman Fixed Rate
Mortgaged Backed
Series M Securities Index*
-------- --------------------
10,000 10,000
10,075 10,029
10,433 10,314
10,916 10,655
11,682 11,160
11,763 11,305
12,233 11,607
13,043 12,049
12,964 12,003
13,332 12,238
13,946 12,571
14,432 12,808
14,743 12,965
15,205 13,107
14,752 13,321
15,393 13,597
16,001 13,858
16,347 13,786
16,252 14,002
16,805 14,355
* The Lehman Fixed Rate Mortgage Backed Securities Index is an unmanaged
index that is not available for direct investment. Its performance is
inclusive of reinvested dividends.
** March 17, 2000
Assumes reinvestment of all dividends and distributions. Past performance is not
predictive of future performance.
MOODY'S RATINGS
(AS A % OF TOTAL INVESTMENTS)
[PIECHART OMITTED]
Aaa 86.3%
Aa 3.6%
A 0.4%
P-1 6.1%
NR 3.6%
(1) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
calculated by subtracting the value of an investment in the Portfolio at
the beginning of each specified period from the value at the end of the
period and dividing the remainder by the value of the investment at the
beginning of the period and expressing the result as a percentage. The
calculation assumes that all dividends and distributions have been
reinvested. Total return does not reflect broker commissions or Owrap feeO
charges. Total return for a period of less than one year is not annualized.
Total return for a period greater than one year represents the average
annual total return.
(2) Distribution yield is determined by dividing the annualized current monthly
per share dividend by the net asset value at October 31, 2004.
EXPENSE TABLE:
The Investment Manager has agreed irrevocably to waive all fees and pay or
reimburse all expenses of the Portfolio, except extraordinary expenses. The
financial statements reflect the fact that no fees or expenses are incurred by
the Portfolio due to this waiver and reimbursement. Consequently, no expense
table is included in the annual report. You should be aware, however, that the
Portfolio is an integral part of Owrap feeO programs sponsored by investment
advisers and broker-dealers unaffiliated with the Portfolio, the Investment
Manager or the Sub-Adviser. Participants on these programs pay a Owrap feeO to
the sponsor of the program. You should read carefully the wrap-fee brochure
provided to you by the program sponsor. The brochure is required to include
information about the fees charged to you by the sponsor and the fees paid by
the sponsor to the Investment Manager and its affiliates. You pay no additional
fees or expenses to purchase shares of the Portfolio.
AN INVESTMENT IN THE PORTFOLIO INVOLVES RISK, INCLUDING THE LOSS OF PRINCIPAL.
TOTAL RETURN, DISTRIBUTION YIELD, NET ASSET VALUE AND DURATION WILL FLUCTUATE
WITH CHANGES IN MARKET CONDITIONS. THIS DATA IS PROVIDED FOR INFORMATION ONLY
AND IS NOT INTENDED FOR TRADING PURPOSES. NET ASSET VALUE IS TOTAL ASSETS LESS
TOTAL LIABILITIES DIVIDED BY THE NUMBER OF SHARES OUTSTANDING. HOLDINGS ARE
SUBJECT TO CHANGE DAILY.
10.31.04 | Fixed Income SHares - Series C, M, R Annual Report 5
FIXED INCOME SHARES - SERIES R PORTFOLIO REVIEW
October 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
o From April 30, 2004 through October o Near benchmark duration from
31, 2004, the Portfolio returned TIPS during the first five
6.73%, outperforming the 6.82% months of the period was neutral
return of the Lehman Brothers to performance as real yields
Global Real: U.S. TIPS Index. fell across the period. An
increase in duration from TIPS
o For the six months, 10 year real in October was positive as real
yields fell by 0.48%, equal to the yields continued to fall.
0.48% reduction for conventional
U.S. Treasury issues of similar o The focus on intermediate
maturity. maturities was positive given
the reduction in real rates
o Breakeven inflation, defined as the along the intermediate portion
difference between a real yield on of the real yield curve.
TIPS and a nominal yield on a
Treasury of the same maturity, was o Short positions in nominal bonds
2.46% at October 31, 2004 for the were negative for performance as
10-year maturity. This equals the nominal yields fell over the
breakeven yield of 2.46% on April period. An increase in short
30, 2004. nominal positions in the last
three months of the period
o The effective duration of the detracted from overall
Portfolio was 5.92 years on October performance.
31, 2004, compared to duration of
6.30 years for the benchmark. o A small allocation to non-U.S.
exposure was slightly negative
to overall performance.
6 Fixed Income SHares - Series C, M, R Annual Report | 10.31.04
FIXED INCOME SHARES - SERIES R PERFORMANCE SUMMARY & STATISTICS
October 31, 2004 (unaudited)
- --------------------------------------------------------------------------------
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
FXIRX Intermediate maturity 4/15/04
Inflation-indexed fixed income
securities NET ASSETS:
$3.1 million
PORTFOLIO MANAGEMENT:
Managed by a team of
investment professionals
led by John Brynjolfsson.
TOTAL RETURN(1):
- --------------------------------------------------------------------------------
Six Months 6.73%
Commencement of Operations (4/15/04) to 10/31/04 6.41%
- --------------------------------------------------------------------------------
Net Asset Value $10.37
- --------------------------------------------------------------------------------
Distribution Yield(2) 2.32%
- --------------------------------------------------------------------------------
Duration 5.92 years
- --------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SERIES R AND THE U.S. TIPS INDEX
[CHART OMITTED]
FISH Lehman US
Series R Tips Index*
-------- -----------
10,000 10,000
9,970 9,515
10,132 9,686
10,115 9,690
10,244 9,780
10,495 10,042
10,518 10,062
10,641 10,162
* The Lehman U.S. Tips Index is an unmanaged index that is not available for
direct investment. The performance is inclusive of reinvested dividends.
** Inception 4/15/04
Assumes reinvestment of all dividends. Past performance is not of future
performance.
(1) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
calculated by subtracting the value of an investment in the Portfolio at
the beginning of each specified period from the value at the end of the
period and dividing the remainder by the value of the investment at the
beginning of the period and expressing the result as a percentage. The
calculation assumes that all dividends reinvested. Total return does not
reflect broker commissions or Owrap feeO charges. Total return for a period
of less than one year is not annualized.
(2) Distribution yield is determined by dividing the annualized current monthly
per share dividend by the net asset value at October 31, 2004.
EXPENSE TABLE:
The Investment Manager has agreed irrevocably to waive all fees and pay or
reimburse all expenses of the Portfolio, except extraordinary expenses. The
financial statements reflect the fact that no fees or expenses are incurred by
the Portfolio due to this waiver and reimbursement. Consequently, no expense
table is included in the annual report. You should be aware, however, that the
Portfolio is an integral part of "wrap fee" programs sponsored by investment
advisers and broker-dealers unaffiliated with the Portfolio, the Investment
Manager or the Sub-Adviser. Participants on these programs pay a "wrap fee" to
the sponsor of the program. You should read carefully the wrap-fee brochure
provided to you by the program sponsor. The brochure is required to include
information about the fees charged to you by the sponsor and the fees paid by
the sponsor to the Investment Manager and its affiliates. You pay no additional
fees or expenses to purchase shares of the Portfolio.
AN INVESTMENT IN THE PORTFOLIO INVOLVES RISK, INCLUDING THE LOSS OF PRINCIPAL.
TOTAL RETURN, DISTRIBUTION YIELD, NET ASSET VALUE AND DURATION WILL FLUCTUATE
WITH CHANGES IN MARKET CONDITIONS. THIS DATA IS PROVIDED FOR INFORMATION ONLY
AND IS NOT INTENDED FOR TRADING PURPOSES. NET ASSET VALUE IS TOTAL ASSETS LESS
TOTAL LIABILITIES DIVIDED BY THE NUMBER OF SHARES OUTSTANDING. HOLDINGS ARE
SUBJECT TO CHANGE DAILY.
10.31.04 | Fixed Income SHares - Series C, M, R Annual Report 7
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- -----------------------------------------------------------------------------
Principal
Amount Credit Rating*
(000) (Moody's/S&P) Value
=======================================================================================================
CORPORATE BONDS & NOTES -- 26.0%
AIRLINES -- 0.6%
Continental Airlines, Inc., pass thru certificates,
$ 500 6.32%, 11/1/08, Ser. 98-3 (a) Baa3/A $ 487,876
900 7.92%, 5/1/10, Ser. 00-1 (a) Baa3/A- 888,872
United Air Lines, Inc., pass thru certificates,
1,767 7.19%, 4/1/11, Ser. 00-2 (a) NR/NR 1,514,684
650 7.73%, 7/1/10, Ser. 00-1 (a) NR/NR 536,987
100 10.125%, 3/22/15, Ser. 91-B2 (b)(c) NR/NR 50,436
-----------
3,478,855
-----------
AUTOMOTIVE -- 1.6%
DaimlerChrysler NA Holdings,
3,000 2.34%, 12/10/04, FRN(a) A3/BBB 3,004,443
200 7.30%, 1/15/12 (a). A3/BBB 229,418
100 Federal-Mogul Corp., 7.375%, 1/15/06 (b)(c)(d) NR/NR 29,250
4,000 General Motor Corp., 8.375%, 7/15/33 Baa2/BBB- 4,173,928
1,600 Hyundia Motor Manufacturing, Alabama LLC, 5.30%,
12/19/08 (a)(e) Ba1/BB+ 1,666,598
-----------
9,103,637
-----------
BANKING -- 2.7%
100 Banque Centrale de Tunisie, 7.375%, 4/25/12 (a) Baa2/BBB 115,000
3,400 HBOS plc, 5.375%, 11/1/13, VRN (a)(e) Aa3/A 3,490,382
HSBC Capital Funding LP,
1,300 4.61%, 6/27/13, VRN (a)(e) A1/A- 1,262,596
1,000 10.18%, 6/30/30, VRN (a)(e) A1/A- 1,557,854
500 KBC Bank Funding Trust III, 9.86%, 11/2/09, VRN, (b)(e) A2/A- 624,710
1,600 Royal Bank of Scotland Group plc, 9.12%, 3/31/49, Ser. 1 (a) A1/A 1,971,407
2,700 United Overseas Bank Ltd, 5.375%, 9/3/19 (a)(e) Aa3/A- 2,782,374
3,900 Washington Mutual, Inc., 1.97%, 11/3/04, FRN (a) A3/A- 3,908,003
-----------
15,712,326
-----------
DIVERSIFIED MANUFACTURING -- 0.1%
700 Tyco International Group SA, 6.375%, 2/15/06 (a) Baa3/BBB 731,004
-----------
FINANCIAL SERVICES -- 2.5%
2,200 Bear Stearns Cos., Inc., 2.23%, 1/18/05, FRN (a) A1/A 2,202,556
300 Citigroup, Inc., 3.50%, 2/1/08 (a) Aa1/AA- 301,556
Goldman Sachs Group, Inc.,
2,600 2.45%, 1/7/05 FRN (a) Aa3/A+ 2,599,870
3,500 4.125%-5.25%, 1/15/08-10/15/13 (a) Aa3/A+ 3,586,518
2,400 J.P. Morgan Chase & Co., 6.625%, 3/15/12 (a) A1/A 2,713,778
2,900 Morgan Stanley & Co., 4.75%, 4/1/14 (a) A1/A 2,846,260
-----------
14,250,538
-----------
8 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- -----------------------------------------------------------------------------
Principal
Amount Credit Rating*
(000) (Moody's/S&P) Value
=======================================================================================================
CORPORATE BONDS & NOTES (CONTINUED)
FINANCING -- 4.3%
$ 2,000 CIT Group, Inc., 2.13%, 12/20/04, FRN (a) A2/A $ 2,004,688
7,400 Ford Motor Credit Co., 6.875%-7.375%, 2/1/06-2/1/11 (a) A3/BBB- 7,862,620
5,300 General Motors Acceptance Corp., 6.875%-7.00%,
2/1/12-8/28/12, (a) A3/BBB- 5,539,007
1,000 Household Finance Corp., 7.00%, 5/15/12 (a) A1/A 1,157,021
467 Merrill Lynch Pilgrim America, 2.26%, 12/23/04 (b)(g) Aaa/AAA 463,578
1,200 Preferred Term Securities XIII Ltd., 2.44%, 12/24/04,
FRN (b)(e)(g) Aaa/AAA 1,192,296
4,400 Rabobank Capital Fund II, 5.25%-5.26%, 12/31/13-12/31/16,
VRN (a)(e) Aa2/AA 4,516,349
1,900 UFJ Finance Aruba AEC, 6.75%, 7/15/13 (a) Baa1/BBB 2,121,416
-----------
24,856,975
-----------
FOOD -- 0.5%
2,000 Kraft Foods, Inc., 6.25%, 6/1/12 (a) A3/BBB+ 2,204,596
400 Kroger Co., 6.20%, 6/15/12 (a) Baa2/BBB 438,898
-----------
2,643,494
-----------
HEALTHCARE & HOSPITALS -- 0.1%
700 HCA, Inc., 7.125%, 6/1/06 (a) Ba1/BB+ 734,537
-----------
HOTELS/GAMING -- 0.4%
Harrah's Operating Co., Inc.,
570 7.50%, 1/15/09 (a) Baa3/BBB- 641,336
1,000 7.875%, 12/15/05 (a) Ba1/BB+ 1,052,500
600 MGM Mirage, Inc., 6.00%, 10/1/09 (a) Ba1/BB+ 624,000
-----------
2,317,836
-----------
INSURANCE -- 0.1%
500 Prudential Financial Inc., 4.10%, 11/15/06 (a) A3/A- 509,427
-----------
MULTI-MEDIA -- 1.3%
2,975 AOL Time Warner, Inc., 6.125%-7.48%, 1/15/06-4/15/06 Baa1/BBB+ 3,172,660
1,530 British Sky Broadcasting Group plc, 8.20%, 7/15/09 (a) Baa3/BBB- 1,794,479
1,000 Continental Cablevision, Inc., 8.30%, 5/15/06 (a) Baa3/BBB 1,076,655
1,000 Lenfest Communications, Inc., 7.625%, 2/15/08 Baa3/BBB 1,119,070
600 Viacom, Inc., 5.625%-6.625%, 5/15/11-8/15/12 (a) A3/A- 665,685
-----------
7,828,549
-----------
OIL & GAS -- 5.1%
200 Devon Financing Corp., 6.875%, 9/30/11 (a) Baa2/BBB 229,327
4,250 El Paso Production Holdings Co., 7.75%, 6/1/13 (a) B3/B- 4,451,875
1,000 Enterprise Products Operating L.P., 6.65%, 10/15/34 (a)(e) Baa3/BB+ 1,022,914
1,000 Gazprom International SA., 7.20%, 2/1/20 (a) NR/NR 1,052,088
1,643 Kern River Funding Corp., 4.89%, 4/30/18 (a)(e) A3/A- 1,663,529
500 Kinder Morgan, Inc., 6.50%, 9/1/12 (a) Baa2/BBB 554,666
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 9
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- -----------------------------------------------------------------------------
Principal
Amount Credit Rating*
(000) (Moody's/S&P) Value
=======================================================================================================
CORPORATE BONDS & NOTES (CONTINUED)
OIL & GAS (CONTINUED)
$ 2,500 Panhandle Eastern Pipe Line Co., 6.05%, 8/15/13 (a) Baa3/BBB $ 2,698,552
3,100 Pemex Project Funding Master Trust, 7.375%-8.00%,
11/15/11-12/15/14 (a) Baa1/BBB- 3,476,150
7,950 Petroleos Mexicanos, 9.25%, 3/30/18 (a) Baa1/BBB- 9,679,125
1,250 Pioneer Natural Resources Co., 5.875%, 7/15/16 (a) Baa3/BBB- 1,330,490
25 Sonat, Inc., 7.625%, 7/15/11 (a) Caa1/CCC+ 25,687
400 Southern Natural Gas Co., 8.00%, 3/1/32 (a) B1/B- 424,000
2,000 William Cos, Inc., 7.625%, 7/15/19 (a) B3/B+ 2,260,000
-----------
28,868,403
-----------
PAPER PRODUCTS -- 0.4%
1,000 Boise Cascade Corp., 7.00%, 11/1/13 (a) Ba2/BB 1,175,000
600 International Paper Co., 6.75%, 9/1/11 (a) Baa2/BBB 675,328
500 Weyerhaeuser Co., 6.125%, 3/15/07 (a) Baa2/BBB 533,446
-----------
2,383,774
-----------
TELECOMMUNICATIONS -- 2.7%
350 AT&T Wireless Services, Inc.,7.50%, 5/1/07 (a) Baa2/BBB 386,028
1,400 British Telecommunications plc, 7.875%-8.375%,
12/15/05-12/15/10, VRN (a) Baa1/A- 1,495,112
[Euro]1,280 Deutsche Telekom International Finance, 8.25%, 5/29/12,
VRN (a) Baa1/BBB+ 2,038,988
France Telecom SA,
[Euro] 840 7.50%, 3/14/08, VRN (a) Baa2/BBB+ 1,196,436
$ 2,000 7.95%, 3/1/06, VRN (a) Baa2/BBB+ 2,128,362
750 Qwest Communications International Inc., 7.25%,
2/15/11 (a)(e) B3/B 748,125
740 Qwest Capital Funding, Inc.7.25%, 2/15/11(a) Caa2/B 693,750
SBC Communications, Inc.,
2,100 4.25%, 6/5/05, VRN (a)(e) A2/A 2,121,645
2,800 5.10%, 9/15/14 A2/A 2,824,903
600 Verizon Global Funding Inc., 4.00%, 1/15/08 (a) A2/A+ 611,078
900 Verizon New England, Inc., 6.50%, 9/15/11 (a) Aa3/A+ 1,002,223
100 Vodafone Group plc, 7.75%, 2/15/10 (a) A2/A 117,790
-----------
15,364,440
-----------
TOBACCO 0.2%
1,000 Philip Morris Cos., Inc., 6.375%, 2/1/06 (a) Baa2/BBB 1,032,585
-----------
UTILITIES -- 3.4%
1,000 Carolina Power & Light Co., 6.65%, 4/1/08 (a) Baa1/BBB 1,089,497
500 Cleveland Electric Illuminating Co., 6.86%, 10/1/08 (a) Baa2/BBB- 554,235
400 Columbus Southern Power Co., 5.50%, 3/1/13, Ser. C (a) A3/BBB 422,548
1,300 Constellation Energy Group, Inc., 7.00%, 4/1/12 (a) Baa1/BBB 1,489,251
1,300 Dayton Power & Light Co., 5.125%, 10/1/13 (a)(e) Baa3/BBB- 1,328,015
10 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Rating*
(000) (Moody's/S&P) Value
=======================================================================================================
CORPORATE BONDS & NOTES (CONTINUED)
UTILITIES (CONTINUED)
Entergy Gulf States, Inc.,
$ 1,200 2.81%, 12/20/04, FRN (a)(e) Baa3/BBB- $ 1,204,400
1,500 3.60%, 6/1/08 (a) Baa3/BBB 1,489,135
900 Entergy Mississippi, Inc., 4.35%, 4/1/08 (a) Baa2/A- 911,430
700 GC1C Funding Corp., 5.13%, 1/15/14 (b)(e) NR/BB- 712,055
200 Idaho Power Corp., 6.60%, 3/2/11 (a) A2/A 226,250
1,000 MidAmerican Energy Holdings Co., 5.875%, 10/1/12 (a) Baa3/BBB- 1,071,789
200 Niagara Mohawk Power Corp., 7.75%, 5/15/06 (a) A3/A+ 214,414
2,500 Ohio Edison Co., 4.00%-5.45%, 5/1/08-5/15/15 (a) Baa2/BB+ 2,531,599
300 Oncor Electric Delivery Co., 6.375%, 1/15/15 (a) Baa1/BBB 334,550
1,925 Pacific Gas & Electric Co., 2.72%, 1/3/05, FRN (a) Baa2/BBB 1,927,603
302 PNPP II Funding Corp., 8.51%, 11/30/06 (a) Baa2/BB+ 311,246
200 Progress Energy, Inc., 6.05%, 4/15/07 (a) Baa2/BBB- 212,136
500 PSE&G Power LLC, 7.75%, 4/15/11 (a) Baa1/BBB 584,474
1,000 Southern California Edison Co., 8.00%, 2/15/07 (a) A3/BBB 1,106,346
1,000 Tampa Electric Co., 6.875%, 6/15/12 (a) Baa2/BBB- 1,130,733
700 TXU Energy Co., 7.00%, 3/15/13 (a) Baa2/BBB 796,044
97 Waterford 3 Funding Corp., 8.09%, 1/2/17 (a) Baa2/BBB- 109,151
------------
19,756,901
------------
Total Corporate Bonds & Notes (cost--$144,908,787) 149,573,281
------------
SOVEREIGN DEBT OBLIGATIONS -- 18.8%
BRAZIL -- 2.0%
Republic of Brazil,
4,934 3.125%, 4/15/05, FRN (a) B1/BB- 4,666,793
6,509 8.00%-11.50%, 3/12/08-4/15/24 (a) B1/BB- 6,618,374
------------
11,285,167
------------
FRANCE -- 8.5%
[Euro]38,000 Republic of France
4.00%, 4/25/14 (f) Aaa2/AAA 48,805,401
------------
MEXICO -- 4.8%
United Mexican States,
$ 6,000 6.375%-8.00%, 1/16/13-9/24/22, Ser. A (a) Baa2/BBB- 6,730,000
18,300 7.50%-8.30%, 1/14/12-8/15/31 (a) Baa2/BBB- 20,990,550
------------
27,720,550
------------
PANAMA -- 1.3%
6,500 Republic of Panama, 9.625%, 2/8/11 (a) Ba1/BB 7,458,750
------------
PERU -- 1.1%
5,800 Republic of Peru, 9.125%, 2/21/12 (a) Ba3/BB- 6,525,000
------------
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 11
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Rating*
(000) (Moody's/S&P) Value
========================================================================================================
SOVEREIGN DEBT OBLIGATIONS (CONTINUED)
RUSSIA -- 0.6%
Republic of Russia,
$ 1,700 5.00%, 3/31/07, VRN (a) Baa3/BB+ $ 1,704,250
1,334 10.00%, 6/26/07 (a) Baa3/BB+ 1,530,038
------------
3,234,288
------------
SOUTH AFRICA -- 0.5%
2,505 Republic of South Africa, 6.50%-9.125%, 5/19/09-6/2/14 (a) Baa2/BBB 2,808,192
------------
Total Sovereign Debt Obligations (cost--$102,557,653) 107,837,348
------------
U.S. GOVERNMENT AGENCY SECURITIES -- 4.3%
FANNIE MAE -- 0.1%
72 3.125%-5.58%, 11/25/04-6/1/05, FRN, CMO (a) Aaa/AAA 72,822
596 4.00%-7.50%, 2/25/09-9/1/33, CMO (a) Aaa/AAA 619,487
------------
692,309
------------
FREDDIE MAC -- 0.0%
91 3.13%-3.27%, 11/1/04-7/1/05, FRN CMO (a) Aaa/AAA 93,334
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 3.8%
54 4.375%, 11/1/04, CMO (a) Aaa/AAA 53,992
10,828 5.50%-7.50%, 1/15/31-1/15/34, CMO (a) Aaa/AAA 11,057,771
10,500 5.50%, 11/30/34 (f) Aaa/AAA 10,742,813
------------
21,854,576
------------
OTHER GOVERNMENT AGENCIES -- 0.4%
1,960 Small Business Investment Companies, 4.50%, 2/1/14 (a) Aaa/AAA 1,968,554
------------
Total U.S. Government Agency Securities (cost--$24,552,190) 24,608,773
------------
MUNICIPAL BONDS & NOTES (a) -- 1.5%
8,555 Detroit City School District, GO, 5.00%, 5/1/33
(cost--$8,503,372) Aaa/AAA 8,781,280
------------
U.S. TREASURY NOTES (a) -- 1.1%
5,741 3.375%, 1/15/07 (h) (cost--$6,107,153) Aaa/AAA 6,154,131
------------
MORTGAGE-BACKED SECURITIES -- 1.1%
94 Bank of America Mortgage Securities, 5.60%, 10/20/32 (a) NR/AAA 95,482
3,000 Chase Commercial Mortgage Securities Corp., 6.28%, 11/1/04,
FRN (a)(e) Aaa/NR 3,344,475
981 CS First Boston Mortgage Securities Corp., 2.00%, 8/25/33,
FRN (e)(g) NR/NR 976,606
11 First Nationwide Trust, 8.50%, 9/25/31 (a) NR/AAA 11,221
37,857 Hilton Hotel Pool Trust, 0.62%, 11/1/04, FRN, IO (e) Aaa/AA 1,302,022
750 PNC Mortgage Acceptance Corp., 7.61%, 2/15/10 (a) Aaa/NR 866,761
------------
Total Mortgage-Backed Securities (cost--$6,254,353) 6,596,567
------------
ASSET-BACKED SECURITIES -- 0.2%
1,193 Keystone Owner Trust, 8.35%-8.50%, 12/25/24-1/25/29 (a)(e)
(cost--$1,207,074) Ba2/NR 1,189,821
------------
12 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Shares Credit Rating*
(000) (Moody's/S&P) Value
=================================================================================================
CONVERTIBLE PREFERRED STOCK (a) -- 0.4%
80 General Motors Corp.
6.25%, 7/15/33, Ser. C (cost--$2,000,000) $ 2,150,400
-----------
RIGHTS -- 0.0%
250 United Mexican States, Ser. C, expires 6/1/05 5,212
250 United Mexican States, Ser. D, expires 6/30/06 6,212
250 United Mexican States, Ser. E, expires 6/1/07 5,775
-----------
Total Rights (cost--$0) 17,199
-----------
SHORT-TERM INVESTMENTS -- 57.8%
Principal
Amount
(000)
- ----------
COMMERCIAL PAPER -- 23.6%
BANKING -- 9.3%
$ 2,400 ANZ National, Inc., 2.05%, 1/28/05 (a) P-1/A-1+ 2,387,424
2,500 ASB Bank Ltd., 1.85%, 12/15/04 (a) P-1/A-1 2,494,347
5,700 Bank of Ireland, 1.84%-1.86%, 12/17/04-12/21/04 (a) P-1/A-1 5,689,026
2,900 DNB NOR Bank ASA, 1.85%, 12/27/04 (a) P-1/A-1 2,891,655
1,100 HBOS Treasury Services plc, 1.58%-1.72%,
11/2/04-11/30/04 (a) P-1/A-1+ 1,099,068
300 Royal Bank of Scotland plc, 1.63%, 11/3/04 (a) P-1/A-1+ 299,973
14,200 Spintab AB, 1.62%-1.96%, 11/1/04-1/26/05 (a) P-1/A-1 14,188,758
11,500 Stadshypotek Delaware, Inc., 1.82%-1.86%,
12/6/04-12/14/04 (a) P-1/NR 11,476,572
10,900 Svenska Handelsbank Inc., 1.65%-1.80%, 11/22/04-12/15/04 (a) P-1/A-1 10,879,912
2,000 Westpac Capital Corp., 1.69%, 11/26/04 (a) P-1/A-1+ 1,997,653
----------
53,404,388
----------
CONGLOMERATES -- 2.5%
14,300 General Electric Capital Corp., 1.58%-1.80%,
11/1/04-12/15/04 (a) P-1/A-1+ 14,284,964
----------
FINANCING -- 11.0%
15,900 Barclay US Funding LLC, 1.86%-1.99%, 12/17/04-2/1/05 (a) P-1/A-1+ 15,845,569
800 CBA (Delaware) Finance, Inc., 1.64%, 11/16/04 (a) P-1/A-1+ 799,455
12,700 CDC Commercial Paper Corp., 2.02%, 2/7/05 (a) P-1/A-1+ 12,625,705
1,100 Danske Corp., 1.65%-1.79%, 11/19/04-12/20/04 (a) P-1/A-1+ 1,098,709
300 Fortis Funding LLC, 1.93%, 1/12/05 (a) P-1/A-1+ 298,485
1,500 General Motors Acceptance Corp., 2.36%, 3/21/05 (a) P-2/A-3 1,487,280
14,300 Rabobank USA Finance Corp., 1.96%, 1/28/05 (a) P-1/A-1+ 14,225,068
17,100 UBS Finance, Inc., 1.58%-1.94%, 11/1/04-1/25/05 (a) P-1/A-1+ 17,088,262
----------
63,468,533
----------
OIL & GAS -- 0.8%
4,500 TotalFinaElf Capital plc., 1.86%, 12/13/04 (a) P-1/A-1+ 4,490,235
----------
Total Commercial Paper (cost--$135,661,929) 135,648,120
-----------
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 13
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Rating*
(000) (Moody's/S&P) Value
=========================================================================================================
SHORT-TERM INVESTMENTS (CONTINUED)
U.S. GOVERNMENT AGENCY SECURITIES (a) -- 22.0%
$ 48,000 Fannie Mae, 1.56%-1.98%, 11/3/04-1/12/05 Aaa/AAA $ 47,941,344
22,300 Federal Home Loan Bank, 160%-1.968%, 11/12/04-1/21/05 Aaa/AAA 22,217,437
56,700 Freddie Mac, 1.57%-1.99%, 11/2/04-1/25/05 Aaa/AAA 56,527,772
------------
Total U.S. Government Agency Securities (cost--$126,704,162) 126,686,553
------------
CORPORATE NOTES -- 5.4%
AUTOMOTIVE -- 0.3%
1,600 DaimlerChrysler N.A. Holdings 7.40%, 1/20/05 (a) A3/BBB 1,617,022
------------
DIVERSIFIED MANUFACTURING -- 0.3%
1,500 Tyco International Group SA, 5.875%, 11/1/04 (a) Baa3/BBB 1,500,000
------------
FINANCING -- 2.4%
Ford Motor Credit Co.,
5,600 2.31%-2.51%, 1/18/05-1/28/05, FRN (a) A3/BBB- 5,595,354
5,000 7.50%-7.60%, 3/15/05-8/1/05 (a) A3/BBB- 5,138,501
3,000 General Motors Acceptance Corp., 3.82%, 12/6/04, FRN (a) Baa1/BBB- 3,012,960
100 PP&L Capital Funding, Inc., 7.75%, 4/15/05 (a) Baa3/BBB- 102,117
------------
13,848,932
------------
HOTELS/GAMING -- 0.4%
2,100 MGM Grand Inc., 6.95%, 2/1/05 (a) Ba1/BB+ 2,131,500
200 Mirage Resort, Inc., 6.625%, 2/1/05 (a) Ba1/BB+ 203,000
------------
2,334,500
------------
PAPER PRODUCTS -- 0.0%
235 Abitibi-Consolidated, Inc., 8.30%, 8/1/05 (a) Ba3/BB 243,519
------------
MULTI-MEDIA -- 0.4%
2,000 Continental Cablevision, Inc., 8.875%, 9/15/05 Baa3/BBB- 2,103,080
------------
OIL & GAS -- 0.1%
610 Halliburton Co., 3.57%, 1/17/05, FRN (a) Baa2/BBB 615,134
------------
TELECOMMUNICATIONS -- 1.1%
1,400 Deutsche Telekom International Finance, 8.25%,
6/15/05 (a) Baa1/BBB+ 1,448,216
3,000 Rogers Cablesystems Inc., 10.00%, 3/15/05, Ser. B (a) Ba2/BBB- 3,090,000
2,000 Sprint Capital Corp. FON Group, 7.90%, 3/15/05 (a) Baa3/BBB- 2,039,768
------------
6,577,984
------------
TOBACCO -- 0.4%
2,000 Philip Morris Cos., Inc., 7.00%, 7/15/05 (a) Baa2/BBB 2,049,384
------------
Total Corporate Notes (cost--$30,850,092) 30,889,555
------------
14 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Rating*
(000) (Moody's/S&P) Value
============================================================================================================
SHORT-TERM INVESTMENTS (CONTINUED)
CERTIFICATES OF DEPOSIT (a) -- 2.9%
FINANCIAL SERVICES -- 2.9%
$ 16,500 Citibank New York NA, 1.66%-2.03%, 11/23/04-1/24/05
(cost $16,500,000) P-1/A-1+ $ 16,500,000
------------
U.S. TREASURY BILLS (a) -- 0.7%
4,410 1.56%-1.67%, 12/2/04-12/16/04 (cost--$4,402,410) Aaa/AAA 4,402,410
------------
REPURCHASE AGREEMENTS (a) -- 3.2%
14,400 Agreement with Lehman Brothers, Inc., dated October 29, 2004,
1.78% due 11/1/04, proceeds: $14,402,136; collateralized by
U.S. Treasury Inflationary Bonds, 3.875% due 4/15/29, valued
at $14,772,125 14,400,000
4,312 Agreement with State Street Bank & Trust Co., dated
October 29, 2004, 1.40% due 11/1/04, proceeds: $4,312,503;
collateralized by Freddie Mac, 2.875%, 9/15/05 valued at
$4,402,425 4,312,000
------------
Total Repurchase Agreements (cost--$18,712,000) 18,712,000
------------
Total Short-Term Investments (cost--$332,830,593) 332,838,638
------------
TOTAL INVESTMENTS BEFORE OPTIONS WRITTEN (cost--$628,921,175) -- 111.2% 639,747,437
------------
CALL OPTIONS WRITTEN (d) -- (0.0)%
Contracts
(100) U.S Treasury Notes 10 yr Futures, Chicago Board of Trade,
Strike price $114, expires 11/4/04 (56,250)
(150) U.S Treasury Notes 10 yr Futures, Chicago Board of Trade,
Strike price $115, expires 11/4/04 (35,156)
(100) U.S Treasury Notes 10 yr Futures, Chicago Board of Trade,
Strike price $116, expires 11/4/04 (34,375)
------------
Total Call Options Written (premiums received-$164,313) (125,781)
------------
PUT OPTIONS WRITTEN (d) -- (0.0)%
(150) U.S Treasury Notes 10 yr Futures, Chicago Board of Trade
Strike price $110, expires 11/4/04 (7,031)
(100) U.S Treasury Notes 10 yr Futures, Chicago Board of Trade
Strike price $110, expires 5/21/04 (3,125)
------------
Total Put Options Written (premiums received--$145,937) (10,156)
------------
Total Options Written (premiums received--$310,250) (135,937)
------------
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN (cost--$628,610,925) 111.2% 639,611,500
Liabilities in excess of other assets (11.2) (64,436,268)
------ -------------
NET ASSETS 100.0% $ 575,175,232
------ --------------
- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10.31.04 Fixed Income SHares -- Series C, M, R Annual Report 15
FIXED INCOME SHARES -- SERIES M SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings*
(000) (Moody's/S&P) Value
=========================================================================================================
U.S. GOVERNMENT AGENCY SECURITIES -- 78.7%
FANNIE MAE -- 51.0%
$ 22,978 2.39%-7.91%, 11/1/04-9/1/05, FRN (a) Aaa/AAA $ 23,508,690
50,195 3.50%-7.50%, 2/25/09-8/1/34 (a) Aaa/AAA 50,493,699
650 6.50%, 7/18/27, PO (a) Aaa/AAA 674,612
213,250 5.00%-6.50%, 11/30/19-11/30/34 (f) Aaa/AAA 216,203,663
------------
290,880,664
------------
FREDDIE MAC -- 12.1%
8,596 2.32%-5.58%, 11/15/04-7/1/05, FRN (a) Aaa/AAA 8,819,212
49,000 5.00%-5.50%, 11/30/34 (f) Aaa/AAA 49,530,634
10,355 5.50%-7.50%, 7/1/08-8/15/30 (a) Aaa/AAA 10,815,604
------------
69,165,450
------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 15.6%
14,631 2.26%-5.75%, 11/1/04-10/1/05, FRN (a) Aaa/AAA 14,742,581
46,500 5.50%, 11/30/34 (f) Aaa/AAA 47,575,313
25,651 5.50%-7.50%, 5/15/23-3/15/34 (a) Aaa/AAA 26,300,778
------------
88,618,672
------------
Total U.S. Government Agency Securities (cost--$446,590,337) 448,664,786
------------
MORTGAGE-RELATED SECURITIES -- 14.7%
Bank of America Mortgage Securities, Inc.,
3,142 4.74%, 8/25/32 (a) Aa2/NR 3,138,589
2,394 4.74%, 8/25/32 (a) A2/NR 2,390,525
Bear Stearns Alt-A Trust,
8,225 2.21%, 11/25/04, FRN (a) Aaa/AAA 8,248,639
9,992 4.79%, 11/1//04, FRN (a) Aaa/AA+ 9,903,497
122 Bear Stearns Mortgage Securities, Inc., 6.80%, 11/25/04,
FRN (a) Aaa/NR 123,366
11,963 Carey Commercial Mortgage Trust, 5.97%, 9/20/19 (a)(e) Aaa/NR 12,461,114
92 Citicorp Mortgage Securities, Inc., 5.75%, 6/25/09 (a) Aaa/AAA 91,993
3,505 Commercial Capital Access One, Inc.,
7.68%, 11/1/04, FRN (a)(e) NR/NR 3,719,599
CS First Boston Mortgage Securities Corp.,
352 2.13%, 11/25/04, FRN (g) NR/NR 352,046
111 2.33%-2.48%, 11/25/04, FRN (a) Aaa/Aaa 111,470
1,265 6.75%, 6/25/31(a) Aaa/AAA 1,263,860
13 First Nationwide Trust, 8.00%, 10/25/30 (a) NR/AAA 12,989
851 GMAC Commercial Mortgage Securities Inc., 6.50%,
5/15/35 (a)(e) NR/BB+ 915,767
GS Mortgage Securities Corp. II,
1,500 6.62%, 2/14/16 (a)(e)(f) NR/AAA 1,672,406
3,000 6.62%, 5/3/18 (a)(e)(f) Aaa/AAA 3,384,860
37,857 Hilton Hotel Pool Trust, 0.62%, 11/1/04, FRN, IO (e) Aaa/AA 1,302,023
97 Impac Secured Assets Corp., 7.37%, 4/25/32 (a) Aaa/AAA 97,600
2,000 J.P. Morgan Chase Commercial Mortgage Sec. Corp., 6.47%,
11/15/35 (a) NR/AAA 2,252,088
16 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES M SCHEDULE OF INVESTMENTS
October 31, 2004
- -----------------------------------------------------------------------------
Principal
Amount Credit Ratings*
(000) (Moody's/S&P) Value
======================================================================================================
MORTGAGE-RELATED SECURITIES (CONTINUED)
$ 967 Mellon Residential Funding Corp., 2.40%, 11/1/04, FRN (a) NR/AAA $929,725
Merrill Lynch Credit Corp. Mortgage Investors, Inc.,
1,434 2.25%-2.27%, 11/15/04, FRN (a) Aa1/AAA 1,436,834
3,727 2.35%, 11/25/04, FRN (a) Aaa/AAA 3,728,086
1,833 Morgan Stanley Dean Witter Capital, 4.60%, 3/25/33 (a) Aaa/AAA 1,853,461
1,522 Mortgage Capital Funding, Inc., 7.29%, 2/20/27 (a) Aaa/NR 1,587,400
789 Residential Asset Securitization Trust, 5.50%, 7/25/33 (a) NR/AAA 796,970
Structured Asset Mortgage Investments II, Inc.,
2,000 2.24%, 11/19/04, FRN (a)(g) Aaa/NR 1,945,785
4,527 2.24%, 11/19/04, FRN (a) Aaa/AAA 4,537,023
129 Structured Asset Securities Corp., 3.25%, 11/1/04, FRN (a) Aaa/AAA 130,135
2,692 Vendee Mortgage Trust, 6.50%, 9/15/24 (a) NR/NR 2,802,730
Washington Mutual Mortgage Securities Corp.,
604 5.14%, 11/1/04, FRN (a) Aaa/AAA 612,259
6,172 5.14%, 11/1/04, FRN (a) Aaa/AA+ 6,225,327
4,769 5.14%, 11/1/04, FRN (a) Aa2/A+ 4,794,071
1,040 Wells Fargo Mortgage Backed Securities Trust, 5.00%,
6/25/18 (a) Aaa/AAA 1,048,355
----------
Total Mortgage-Related Securities (cost--$83,600,161) 83,870,592
----------
ASSET-BACKED SECURITIES -- 13.8%
Aegis Asset Backed Securities Trust,
2,909 2.33%, 11/25/04, FRN (a) Aaa/AAA 2,908,114
6,435 4.00%, 11/25/33, IO (b) Aaa/AAA 251,127
417 Amortizing Residential Collateral Trust, 2.20%, 11/25/04,
FRN (a) NR/AAA 417,340
369 Bayview Financial Acquistion Trust, 2.31%, 11/25/04,
FRN (a)(e) Aaa/AAA 368,568
Bear Stearns Asset Backed Securities, Inc.,
6,104 2.52%, 11/25/04, FRN (a) Aaa/AAA 6,157,845
10,940 5.00%, 3/25/07, IO (b) NR/Aaa 1,225,280
1,839 Beneficial Mortgage Corp., 1.96%, 11/28/04, FRN (a) Aaa/AAA 1,826,702
72 Cendant Mortgage Corp., 6.00%, 12/25/33 (a)(e) NR/AAA 74,215
800 Community Program Loan Trust, 4.50%, 4/1/29 (a) NR/AAA 759,817
1,178 Conseco Finance Securitization Co., 3.22%, 11/15/04, FRN (a) Aa2/AA 1,182,819
3,942 Countrywide Asset-Backed Certificates, Inc., 2.40%,
11/25/04, FRN (a)(e) Aaa/AAA 3,947,412
154 EMC Mortgage Loan Trust, 2.30%, 11/25/04, FRN (a)(e) Aaa/AAA 153,922
183 First Investor Auto Owner Trust, 3.46%, 12/15/08 (a)(e) Aaa/AAA 183,825
60 First Plus Home Loan Trust, 7.32%, 11/10/23 (a) NR/AA 59,733
251 Fremont Home Loan Owner Trust, 2.33%, 11/25/04, FRN (a) Aaa/AAA 251,414
1,156 Fremont Home Loan Trust, 2.30%, 11/25/04, FRN (a) Aaa/AAA 1,158,200
Green Tree Financial Corp.,
1,000 7.06%, 2/1/31 (a) NR/B 843,384
1,826 7.40%, 6/15/27 (a) Aa3/AA+ 1,987,144
611 7.55%, 1/15/29 (a) NR/AA 671,856
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 17
FIXED INCOME SHARES -- SERIES M SCHEDULE OF INVESTMENTS
October 31, 2004
- ------------------------------------------------------------------------------
Principal
Amount Credit Ratings*
(000) (Moody's/S&P) Value
=======================================================================================================
ASSET-BACKED SECURITIES (CONTINUED)
$ 2,515 Home Equity Mortgage Trust, 2.35%, 11/25/04, FRN (a) Aaa/AAA $2,522,464
317 Household Mortgage Loan Trust, 2.21%, 11/20/04, FRN (a) Aaa/AAA 318,127
2,466 Irwin Home Equity Trust, 2.45%, 11/25/04, FRN (a) Aaa/AAA 2,474,536
1,513 Merrill Lynch Mortgage Investor, Inc.,
2.29%, 11/25/04, FRN (a) Aaa/AAA 1,516,362
4,000 Metris Master Trust., 2.44%, 11/20/04, FRN (g) Aa2/AA 3,997,510
2,675 Mid-State Trust, 6.01%, 8/15/37 (a) Aaa/AAA 2,761,291
3,018 Morgan Stanley ABS Capital I, Inc., 2.27%, 11/25/04, FRN (a) Aaa/AAA 3,022,492
228 Nissan Auto Receivables Owner Trust, 4.28%, 10/16/06 (a) Aaa/AAA 229,710
2,168 Renaissance Home Equity Loan Trust, 2.13%,
11/25/04, FRN (a) Aaa/AAA 2,169,640
Residential Asset Mortgage Products, Inc.,
2,000 5.90%, 7/25/34 (a) Aaa/AAA 2,009,446
29 6.58%, 1/25/32 (a) Aaa/AAA 28,761
1,000 7.14%, 4/25/32 (a) A2/A 1,040,477
10,000 Residential Asset Securities Corp., 8.19%, 2/25/31 (a) NR/AAA 10,538,300
Salomon Brothers Mortgage Securities VII, Inc.
3,800 3.08%, 11/25/04, FRN (a) NR/AA+ 3,817,499
4,756 Saxon Asset Security Trust., 3.08%, 11/25/04, FRN (a) Aa2/NR 4,769,938
10,689 SLM Student Loan Trust, 2.36%, 11/25/04, FRN (a) Aaa/AAA 10,825,943
2,000 World Financial Network Credit Card Master Trust,
1.93%, 11/15/04, FRN (a) Aaa/AAA 1,999,062
-----------
Total Asset-Backed Securities (cost--$78,389,358) 78,470,275
-----------
MUNICIPAL BONDS (a) -- 1.8%
CALIFORNIA -- 0.9%
5,000 Los Angeles California Water & Power Rev., 5.00%, 7/01/30,
Ser. A Aa3/AA- 5,105,400
NEW YORK -- 0.9%
5,000 New York City Municipal Water Finance Auth. Rev., 5.00%,
6/15/35 Aa2/AA+ 5,126,400
-----------
Total Municipal Bonds (cost--$9,850,634) 10,231,800
-----------
SHORT-TERM INVESTMENTS -- 45.2%
U.S. GOVERNMENT AGENCY DISCOUNT NOTES (a) -- 33.0%
87,600 Fannie Mae 1.58%-1.78%, 11/3/04-12/15/04 Aaa/AAA 87,500,318
44,600 Federal Home Loan Bank, 1.65%-1.98%, 11/1/04-1/21/05 Aaa/AAA 44,415,900
56,300 Freddie Mac 1.54%-1.96%, 11/2/04-1/24/05 Aaa/AAA 56,113,265
-----------
Total U.S. Government Agency Discount Notes
(cost--$188,054,714) 188,029,483
-----------
CERTIFICATES OF DEPOSIT -- 6.6%
BANKING -- 3.8%
11,000 Bank of America N.A., 1.64%-2.00%, 11/10/04-2/1/05 P-1/A-1+ 11,000,000
11,000 Wells Fargo & Co., 1.78%-1.90%, 11/12/04-12/15/04 P-1/A-1+ 11,000,000
-----------
22,000,000
-----------
18 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES M SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings*
(000) (Moody's/S&P) Value
============================================================================================================
SHORT-TERM INVESTMENTS (CONTINUED)
FINANCIAL SERVICES -- 2.8%
$ 15,800 Citigroup, Inc. 1.65%-1.81%, 11/15/04-12/10/04 P-1/A-1+ $ 15,800,000
------------
Total Certificates of Deposit (cost--$37,800,000) 37,800,000
------------
COMMERCIAL PAPER -- 2.8%
CONGLOMERATES -- 2.8%
15,900 General Electric Capital Corp., 1.60%-1.72%, 11/9/04-12/2/04
(a) (cost--$15,888,929) P-1/A-1+ 15,888,929
------------
U.S. TREASURY BILLS (a) -- 0.5%
2,630 1.63%-1.67%, 12/16/04 (cost--$2,624,625) Aaa/AAA 2,624,625
------------
ASSET-BACKED SECURITIES -- 0.0%
2,000 NPF XII, Inc. 0.00%, 11/1/03, (b)(c)(d)(e)(g) (cost--$2,000,000) --
------------
REPURCHASE AGREEMENTS (a) -- 2.3%
200 Agreement with Lehman Securities, Inc., dated
October 31, 2004, 1.78% due 11/1/04 proceeds:
$200,030; collateralized by U.S. Treasury Inflationary Bonds
valued at $207,301 200,000
12,809 Agreement with State Street Bank & Trust Co., dated
October 31, 2004, 1.40% due 11/1/04 proceeds $12,810,494;
collateralized by Freddie Mac, 2.875% due 9/15/05, valued
at $13,066,237 12,809,000
------------
Total Repurchase Agreements (cost--$13,009,000) 13,009,000
------------
Total Short-Term Investments (cost--$259,377,268) 257,352,037
------------
TOTAL INVESTMENTS (cost--$877,807,758) 154.2 % 878,589,490
Liabilities in excess of other assets (54.2)% (308,897,574)
------- ------------
NET ASSETS 100.0% $569,691,916
------- ------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10.31.04 Fixed Income SHares -- Series C, M, R Annual Report 19
FIXED INCOME SHARES -- SERIES R SCHEDULE OF INVESTMENTS
October 31, 2004
- --------------------------------------------------------------------------------
Principal
Amount Credit Ratings*
(000) (Moody's/S&P) Value
============================================================================================================
U.S. TREASURY BONDS & NOTES (a)(h) -- 98.2% $ 2,672,927
$2,551 U.S. Treasury Notes 2.00%-3.625%, 1/15/09-7/15/14 -----------
288 U.S. Treasury Bonds 3.875%, 4/15/29 383,273
Total U.S. Treasury Bonds and Notes (cost--$2,945,108) -----------
SHORT-TERM INVESTMENTS -- 12.0% 3,056,200
U.S. TREASURY BILLS -- 3.8% -----------
120 1.63%, 12/16/04 (cost--$119,756)
REPURCHASE AGREEMENTS -- 8.2% Aaa/AAA 119,756
200 Agreement with Lehman Securities, Inc., dated October 31, 2004, -----------
1.78% due 11/1/04 proceeds: $200,030; collateralized by U.S.
Treasury Inflationary Bonds, 3.875% due 4/15/29, valued at
$207,301
55 Agreement with State Street Bank & Trust Co., dated 200,000
October 31, 2004, 1.40% due 11/1/04 proceeds: $55,006;
collateralized by Federal Home Loan Bank, 1.625% due 6/17/05,
valued at $60,121
Total Repurchase Agreements (cost--$255,000) 55,000
Total Short-Term Investments (cost--$374,756) -----------
TOTAL INVESTMENTS (cost--$3,319,865) 255,000
Liabilities in excess of other assets -----------
NET ASSETS 374,756
-----------
110.2% 3,430,956
(10.2) (316,701)
------- -----------
100.0% $3,114,255
------- -----------
- --------------------------------------------------------------------------------
NOTES TO SCHEDULES OF INVESTMENTS:
* Unaudited
(a) All or partial amount segregated as collateral for futures
contracts, when-issued or delayed-delivery securities.
(b) Security deemed illiquid.
(c) Security in default.
(d) Non-income producing security.
(e) 144A Security--Security exempt from registration under Rule 144A of
the Securities Act of 1933. These securities may be resold in
transactions exempt from registration, typically only to qualified
institutional investors.
(f) When-issued or delayed-delivery security. To be delivered/settled
after October 31, 2004.
(g) Fair-valued security.
(h) Inflationary Bonds--Principal amount of security is adjusted for
inflation.
- --------------------------------------------------------------------------------
GLOSSARY:
CMO -- Collateralized Mortgage Obligation
[Euro] -- Eurodollar
FRN -- Floating Rate Note, maturity date shown is date of next rate change
and the interest rate disclosed reflects the rate in effect on
October 31, 2004.
GO -- General Obligation Bond
IO -- Interest Only
NR -- Not Rated
PO -- Principal Only
VRN -- Variable Rate Note, maturity date shown is date of next rate change
and the interest rate disclosed reflects the rate in effect on
October 31, 2004.
20 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
FIXED INCOME SHARES -- SERIES C, M, R STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2004
- --------------------------------------------------------------------------------
SERIES C SERIES M SERIES R
----------------- ----------------- -------------
ASSETS:
Investments, at value (cost--$628,921,175, $877,807,758
and $3,319,865, respectively) $639,747,437 $878,589,490 $3,430,956
- ----------------------------------------------------------- ------------- ------------- ----------
Cash (including foreign currency on Series C of
$876,882 with a cost of $880,600 and on Series R of
$7,857 with a cost of $7,881) 876,882 -- 7,905
- ----------------------------------------------------------- ------------- ------------- ----------
Receivable for investments sold 20,935,563 16,565,238 --
- ----------------------------------------------------------- ------------- ------------- ----------
Unrealized appreciation on swaps 8,004,753 -- --
- ----------------------------------------------------------- ------------- ------------- ----------
Receivable for shares of beneficial interest sold 5,660,592 5,714,247 --
- ----------------------------------------------------------- ------------- ------------- ----------
Interest receivable 4,942,142 1,420,332 18,000
- ----------------------------------------------------------- ------------- ------------- ----------
Swap premiums paid 1,591,439 1,158,760 4,164
- ----------------------------------------------------------- ------------- ------------- ----------
Unrealized appreciation on forward foreign currency
contracts 525,554 -- --
- ----------------------------------------------------------- ------------- ------------- ----------
Receivable for variation margin on futures contracts 166,821 515,250 552
- ----------------------------------------------------------- ------------- ------------- ----------
Total Assets 682,451,183 903,963,317 3,461,577
- ----------------------------------------------------------- ------------- ------------- ----------
LIABILITIES:
Due to custodian 2,189 507,883 --
- ----------------------------------------------------------- ------------- ------------- ----------
Payable for investments purchased 80,310,974 331,977,109 327,355
- ----------------------------------------------------------- ------------- ------------- ----------
Payable for short sales (cost--$20,929,219) 20,974,062 -- --
- ----------------------------------------------------------- ------------- ------------- ----------
Swap premiums received 3,020,704 -- 2,644
- ----------------------------------------------------------- ------------- ------------- ----------
Dividends payable 1,447,763 1,476,531 6,130
- ----------------------------------------------------------- ------------- ------------- ----------
Unrealized depreciation on swaps 1,178,218 127,424 11,141
- ----------------------------------------------------------- ------------- ------------- ----------
Payable for shares of beneficial interest redeemed 192,948 182,454 --
- ----------------------------------------------------------- ------------- ------------- ----------
Options written, at value (premiums received on
Series C--$310,250) 135,937 -- --
- ----------------------------------------------------------- ------------- ------------- ----------
Unrealized depreciation on forward foreign currency
contracts 13,156 -- 52
- ----------------------------------------------------------- ------------- ------------- ----------
Total Liabilities 107,275,951 334,271,401 347,322
- ----------------------------------------------------------- ------------- ------------- ----------
NET ASSETS $575,175,232 $569,691,916 $3,114,255
- ----------------------------------------------------------- ------------- ------------- ----------
NET ASSETS CONSIST OF:
Beneficial interest shares of $0.001 par value (unlimited
number authorized) 47,686 48,003 300
- ----------------------------------------------------------- ------------- ------------- ----------
Paid-in-capital in excess of par 535,251,341 546,388,256 3,001,697
- ----------------------------------------------------------- ------------- ------------- ----------
Undistributed (dividends in excess of) net investment
income 2,363,837 46,428 (70)
- ----------------------------------------------------------- ------------- ------------- ----------
Accumulated net realized gain 19,177,668 18,514,902 6,325
- ----------------------------------------------------------- ------------- ------------- ----------
Net unrealized appreciation of investments, futures
contracts, options written, swaps and other assets
and liabilities denominated in foreign currency 18,334,700 4,694,327 106,003
- ----------------------------------------------------------- ------------- ------------- ----------
NET ASSETS $575,175,232 $569,691,916 $3,114,255
- ----------------------------------------------------------- ------------- ------------- ----------
Shares Outstanding 47,685,961 48,002,627 300,194
- ----------------------------------------------------------- ------------- ------------- ----------
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE $12.06 $11.87 $10.37
- ----------------------------------------------------------- ------------- ------------- ----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10.31.04 Fixed Income SHares -- Series C, M, R Annual Report 21
FIXED INCOME SHARES -- SERIES C, M, R STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the period
April 15, 2004*
For the year through
ended October 31, 2004 October 31, 2004
------------------------------- -----------------
SERIES C SERIES M SERIES R
-------------- -------------- -----------------
INVESTMENT INCOME:
Interest $19,513,135 $15,072,861 $78,421
- -------------------------------------------------------- ------------ ----------- ---------
Dividends 135,470 -- --
- -------------------------------------------------------- ------------ ----------- ---------
Total Investment Income 19,648,605 15,072,861 78,421
- -------------------------------------------------------- ------------ ----------- ---------
EXPENSES:
Interest expense -- 31,087 --
- -------------------------------------------------------- ------------ ----------- ---------
NET INVESTMENT INCOME 19,648,605 15,041,774 78,421
- -------------------------------------------------------- ------------ ----------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on:
Investments 10,380,796 19,536,019 4,644
- -------------------------------------------------------- ------------ ----------- ---------
Futures contracts 3,319,580 1,200,783 1,502
- -------------------------------------------------------- ------------ ----------- ---------
Options written 726,564 109,500 --
- -------------------------------------------------------- ------------ ----------- ---------
Swaps 7,366,147 -- --
- -------------------------------------------------------- ------------ ----------- ---------
Foreign currency transactions 677,651 -- 109
- -------------------------------------------------------- ------------ ----------- ---------
Net change in unrealized appreciation/depreciation of:
Investments (1,900,657) 1,411,868 111,091
- -------------------------------------------------------- ------------ ----------- ---------
Futures 291,584 4,040,019 6,083
- -------------------------------------------------------- ------------ ----------- ---------
Options written (87,383) (109,425) --
- -------------------------------------------------------- ------------ ----------- ---------
Swaps 6,397,148 (127,424) (11,141)
- -------------------------------------------------------- ------------ ----------- ---------
Foreign currency transactions (391,286) -- (30)
- -------------------------------------------------------- ------------ ----------- ---------
Net realized and unrealized gain on investments,
futures contracts, options written, swaps and foreign
currency transactions 26,780,144 26,061,340 112,258
- -------------------------------------------------------- ------------ ----------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM
INVESTMENT OPERATIONS $46,428,749 $41,103,114 $190,679
- -------------------------------------------------------- ------------ ----------- ---------
*Commencement of operations.
22 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
FIXED INCOME SHARES -- SERIES C STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year ended Year ended
October 31, October 31,
2004 2003
---------------- --------------
INVESTMENT OPERATIONS:
Net investment income $19,648,605 $17,916,616
- ---------------------------------------------------------------------- -------------- -------------
Net realized gain on investments, futures contracts, options written,
swaps and foreign currency transactions 22,470,738 5,788,785
- ---------------------------------------------------------------------- -------------- -------------
Net change in unrealized appreciation/depreciation of investments,
futures contracts, options written, swaps and foreign currency
transactions 4,309,406 19,286,409
- ---------------------------------------------------------------------- -------------- -------------
Net increase in net assets resulting from investment operations 46,428,749 42,991,810
- ---------------------------------------------------------------------- -------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (20,334,474) (17,916,616)
- ---------------------------------------------------------------------- -------------- -------------
Net realized gains (6,332,601) (988,226)
- ---------------------------------------------------------------------- -------------- -------------
Total dividends and distributions to shareholders (26,667,075) (18,904,842)
- ---------------------------------------------------------------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of shares 313,314,630 228,757,401
- ---------------------------------------------------------------------- -------------- -------------
Cost of shares redeemed (131,998,376) (84,627,908)
- ---------------------------------------------------------------------- -------------- -------------
Net increase in net assets from capital share transactions 181,316,254 144,129,493
- ---------------------------------------------------------------------- -------------- -------------
TOTAL INCREASE IN NET ASSETS 201,077,928 168,216,461
- ---------------------------------------------------------------------- -------------- -------------
NET ASSETS:
Beginning of year 374,097,304 205,880,843
- ---------------------------------------------------------------------- -------------- -------------
End of year (including undistributed net investment income of
$2,363,837 and $544,502, respectively) $575,175,232 $374,097,304
- ---------------------------------------------------------------------- -------------- -------------
SHARES ISSUED AND REDEEMED:
Issued 26,819,713 20,015,740
- ---------------------------------------------------------------------- -------------- -------------
Redeemed (11,331,491) (7,407,399)
- ---------------------------------------------------------------------- -------------- -------------
NET INCREASE 15,488,222 12,608,341
- ---------------------------------------------------------------------- -------------- -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10.31.04 Fixed Income SHares -- Series C, M, R Annual Report 23
FIXED INCOME SHARES -- SERIES M STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year ended Year ended
October 31, October 31,
2004 2003
---------------- ----------------
INVESTMENT OPERATIONS:
Net investment income $15,041,774 $12,712,575
- ------------------------------------------------------------------- -------------- -------------
Net realized gain on investments, futures contracts and options
written 20,846,302 6,804,067
- ------------------------------------------------------------------- -------------- -------------
Net change in unrealized appreciation/depreciation of investments,
futures contracts, options written and swaps 5,215,038 (2,296,012)
- ------------------------------------------------------------------- -------------- -------------
Net increase in net assets resulting from investment operations 41,103,114 17,220,630
- ------------------------------------------------------------------- -------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (17,215,884) (12,712,575)
- ------------------------------------------------------------------- -------------- -------------
Net realized gains (6,930,696) (9,607,094)
- ------------------------------------------------------------------- -------------- -------------
Total dividends and distributions to shareholders (24,146,580) (22,319,669)
- ------------------------------------------------------------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of shares 314,000,613 231,926,326
- ------------------------------------------------------------------- -------------- -------------
Cost of shares redeemed (129,877,295) (74,018,447)
- ------------------------------------------------------------------- -------------- -------------
Net increase in net assets from capital share transactions 184,123,318 157,907,879
- ------------------------------------------------------------------- -------------- -------------
Total increase in net assets 201,079,852 152,808,840
- ------------------------------------------------------------------- -------------- -------------
NET ASSETS:
Beginning of year 368,612,064 215,803,224
- ------------------------------------------------------------------- -------------- -------------
End of year (including undistributed net investment income of
$46,428 for the year ended October 31, 2004) $569,691,916 $368,612,064
- ------------------------------------------------------------------- -------------- -------------
SHARES ISSUED AND REDEEMED:
Issued 27,163,063 20,174,077
- ------------------------------------------------------------------- -------------- -------------
Redeemed (11,263,112) (6,441,644)
- ------------------------------------------------------------------- -------------- -------------
NET INCREASE 15,899,951 13,732,433
- ------------------------------------------------------------------- -------------- -------------
24 Fixed Income SHares -- Series C, M, R Annual Report
10.31.04 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
FIXED INCOME SHARES -- SERIES R STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period
April 15, 2004*
through
October 31, 2004
-----------------
INVESTMENT OPERATIONS:
Net investment income $ 78,421
- --------------------------------------------------------------------------------- ----------
Net realized gain on investments, futures contracts and foreign currency
transactions 6,255
- -------------------------------------------------------------------------------- ----------
Net change in unrealized appreciation of investments, futures contracts, swaps
and foreign currency transactions 106,003
- --------------------------------------------------------------------------------- ----------
Net increase in net assets resulting from investment operations 190,679
- --------------------------------------------------------------------------------- ----------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT INCOME: (78,421)
- --------------------------------------------------------------------------------- ----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of shares 3,001,997
- --------------------------------------------------------------------------------- ----------
TOTAL INCREASE IN NET ASSETS 3,114,255
- --------------------------------------------------------------------------------- ----------
NET ASSETS:
Beginning of period (including dividends in excess of net investment income of
$70) --
- --------------------------------------------------------------------------------- ----------
End of period $3,114,255
- --------------------------------------------------------------------------------- ----------
SHARES ISSUED AND REDEEMED:
Issued 300,194
- --------------------------------------------------------------------------------- ----------
Redeemed --
- --------------------------------------------------------------------------------- ----------
NET INCREASE 300,194
- --------------------------------------------------------------------------------- ----------
*Commencement of operations.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10.31.04 Fixed Income SHares -- Series C, M, R Annual Report 25
FIXED INCOME SHARES -- SERIES C, M FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For a share outstanding throughout each period:
Year ended For the Period
----------------------------------------------------------------- March 17, 2000*
October 31, October 31, October 31, October 31, through
2004 2003 2002 2001 October 31, 2000
SERIES C: ----------------- ----------------- -------------- -------------- -----------------
Net asset value, beginning of period $ 11.62 $ 10.51 $ 11.35 $ 10.12 $ 10.00
- ------------------------------------------ --------- --------- ------- ------- --------
INVESTMENT OPERATIONS:
Net investment income 0.49 0.71 0.73 0.75 0.45
- ------------------------------------------ --------- --------- ------- ------- --------
Net realized and unrealized gain (loss)
on investments, futures contracts,
options written, swaps and foreign
currency transactions 0.64 1.16 ( 0.62) 1.31 0.12
- ------------------------------------------ --------- --------- -------- ------- --------
Total from investment operations 1.13 1.87 0.11 2.06 0.57
- ------------------------------------------ --------- --------- -------- ------- --------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ( 0.51) ( 0.71) ( 0.72) ( 0.75) ( 0.45)
- ------------------------------------------ --------- --------- -------- ------- --------
Net realized gains ( 0.18) ( 0.05) ( 0.23) ( 0.08) --
- ------------------------------------------ --------- --------- -------- ------- --------
Total dividends and distributions to
shareholders ( 0.69) ( 0.76) ( 0.95) ( 0.83) ( 0.45)
- ------------------------------------------ --------- --------- -------- ------- --------
Net asset value, end of period $ 12.06 $ 11.62 $ 10.51 $ 11.35 $ 10.12
- ------------------------------------------ --------- --------- -------- ------- --------
TOTAL INVESTMENT RETURN (1) 10.14% 18.16% 1.06% 21.09% 5.79%
- ------------------------------------------ --------- --------- -------- ------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 575,175 $ 374,097 $205,881 $51,541 $ 10,396
- ------------------------------------------ --------- --------- -------- ------- --------
Ratio of operating expenses to average
net assets (4) 0.00% 0.00% 0.00% 0.00% 0.00%(2)
- ------------------------------------------ --------- --------- -------- ------- -----------
Ratio of net investment income to
average net assets (4) 4.16% 6.11% 6.78% 6.53% 7.04%(2)
- ------------------------------------------ --------- --------- -------- ------- -----------
Portfolio Turnover 180% 297% 332% 605% 547%
- ------------------------------------------ --------- --------- -------- ------- -----------
- ---------------------------------------------------------------------------------------------------------------------------------
SERIES M:
- ------------------------------------------
Net asset value, beginning of period $ 11.48 $ 11.75 $ 11.53 $ 10.45 $ 10.00
- ------------------------------------------ --------- --------- -------- ------- -----------
INVESTMENT OPERATIONS:
Net investment income 0.37 0.51 0.52 0.69 0.45
- ------------------------------------------ --------- --------- -------- ------- -----------
Net realized and unrealized gain on
investments, futures contracts and option
written 0.65 0.23 0.62 1.26 0.45
- ------------------------------------------ --------- --------- -------- ------- -----------
Total income from investment operations 1.02 0.74 1.14 1.95 0.90
- ------------------------------------------ --------- --------- -------- ------- -----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income ( 0.43) ( 0.51) ( 0.52) ( 0.69) ( 0.45)
- ------------------------------------------ --------- --------- -------- ------- -----------
Net realized gains ( 0.20) ( 0.50) ( 0.40) ( 0.18) --
- ------------------------------------------ --------- --------- -------- ------- -----------
Total dividends and distributions to
shareholders ( 0.63) ( 1.01) ( 0.92) ( 0.87) ( 0.45)
- ------------------------------------------ --------- --------- -------- ------- -----------
Net asset value, end of period $ 11.87 $ 11.48 $ 11.75 $ 11.53 $ 10.45
- ------------------------------------------ --------- --------- -------- ------- -----------
TOTAL INVESTMENT RETURN (1) 9.17% 6.67% 10.65% 19.49% 9.16%
- ------------------------------------------ --------- --------- -------- ------- -----------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $ 569,692 $ 368,612 $215,803 $51,574 $ 10,597
- ------------------------------------------ --------- --------- -------- ------- -----------
Ratio of operating expenses to average
net assets (4) 0.00%(3) 0.00%(3) 0.00% 0.00% 0.00%(2)
- ------------------------------------------ --------- --------- -------- ------- -----------
Ratio of net investment income to
average net assets (4) 3.21% 4.43% 4.54% 5.65% 7.00%(2)
- ------------------------------------------ --------- --------- -------- ------- -----------
Portfolio Turnover 894% 750% 722% 870% 930%
- ------------------------------------------ --------- --------- -------- ------- -----------
* Commencement of operations.
(1) Assumes reinvestment of all dividends and distributions. Total return for
a period of less than one year is not annualized.
(2) Annualized.
(3) If interest expense were included, the ratio of operating expenses to
average net assets would be 0.01%.
(4) Reflects the fact that no fees or expenses are incurred. The Portfolio is
an integral part of "wrap-fee" programs sponsored by investment advisers
and/or broker-dealers unaffiliated with the Portfolio, the Investment
Manager or the Sub-Adviser. Participants in these programs pay a "wrap"
fee to the sponsor of the program.
26 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
FIXED INCOME SHARES -- SERIES R FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------
For a share outstanding throughout the period:
For the Period
April 15, 2004*
through
October 31, 2004
SERIES R: ------------------
Net asset value, beginning of period $ 10.00
- ------------------------------------------------------------------------------ ------------------
INVESTMENT OPERATIONS:
Net investment income 0.26
- ------------------------------------------------------------------------------ ------------------
Net realized and unrealized gain on investments, futures contracts, swaps and
foreign currency transactions 0.37
- ------------------------------------------------------------------------------ ------------------
Total income from investment operations 0.63
- ------------------------------------------------------------------------------ ------------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income (0.26)
- ------------------------------------------------------------------------------ ------------------
Net asset value, end of period $ 10.37
- ------------------------------------------------------------------------------ ------------------
TOTAL INVESTMENT RETURN (1) 6.41%
- ------------------------------------------------------------------------------ ------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $3,114
- ------------------------------------------------------------------------------ ------------------
Ratio of operating expenses to average net assets (2)(3) 0.00%
- ------------------------------------------------------------------------------ ------------------
Ratio of net investment income to average net assets (2)(3) 4.72%
- ------------------------------------------------------------------------------ ------------------
Portfolio Turnover 23%
- ------------------------------------------------------------------------------ ------------------
* Commencement of operations.
(1) Assumes reinvestment of all dividends. Total return for a period of less
than one year is not annualized.
(2) Annualized.
(3) Reflects the fact that no fees or expenses are incurred. The Portfolio is
an integral part of "wrap-fee" programs sponsored by investment advisers
and/or broker-dealers unaffiliated with the Portfolio, the Investment
Manager or the Sub-Adviser. Participants in these programs pay a "wrap"
fee to the sponsor of the program.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
10.31.04 Fixed Income SHares -- Series C, M, R Annual Report 27
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Fixed Income SHares (the "Trust"), was organized as a Massachusetts business
trust on November 3, 1999. The Trust is comprised of Series C, Series M, Series
R (the "Portfolios"), and the Allianz Dresdner Daily Asset Fund. These
financial statements relate to Series C, Series M and Series R. The financial
statements for Allianz Dresdner Daily Asset Fund are provided separately. Prior
to commencing operations on March 17, 2000, the Trust had no operations other
than matters relating to its organization and registration as a
non-diversified, open-end investment company under the Investment Company Act
of 1940, as amended. PA Fund Management LLC (the "Investment Manager") serves
as the Portfolio's Investment Manager and is an indirect, wholly-owned
subsidiary of Allianz Global Investments of America L.P. ("AGI"), formerly
Allianz Dresdner Asset Management of America, L.P. AGI is an indirect,
majority-owned subsidiary of Allianz AG. The Portfolios are authorized to issue
an unlimited number of shares of beneficial interest at $0.001 par value.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
Under the Trust's organizational documents, the Portfolios' officers, trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Portfolios. Additionally, in the
normal course of business, the Portfolios enter into contracts that contain a
variety of representations which provide general indemnifications. The
Portfolios maximum exposure under these arrangements is unknown as such
exposure would involve claims that may be made against the Portfolios that have
not yet been asserted. However, the Portfolios expect the risk of any loss to
be remote.
The following is a summary of significant accounting policies followed by the
Portfolios:
(A) VALUATION OF INVESTMENTS
Portfolio securities and other financial instruments for which market
quotations are readily available are stated at market value. Portfolio
securities and other financial instruments for which market quotations are not
readily available or if a development/event occurs that may impact the value of
the security may be fair-valued pursuant to procedures established by the Board
of Trustees, including certain fixed income securities which may be valued with
reference to securities whose prices are more readily available. The
Portfolios' investments are valued daily by an independent pricing service,
dealers quotations, or are valued at the last sale price on the exchange that
is the primary market for such securities, or the last quoted bid price for
those securities for which the over-the-counter market is the primary market or
for listed securities in which there were no sales. Prices obtained from an
independent pricing service use information provided by market makers or
estimates of market values obtained from yield data relating to investments or
securities with similar characteristics. Short-term investments maturing in 60
days or less are valued at amortized cost, if their original maturity was 60
days or less, or by amortizing their value on the 61st day prior to maturity,
if the original term to maturity exceeded 60 days. Exchange traded options,
futures and options on futures are valued at the settlement price determined by
the relevant exchange. The prices used by the Portfolios to value securities
may differ from the value that would be realized if the securities were sold
and the differences could be material to the financial statements. The
Portfolios' net asset value is determined daily at the close of regular trading
(normally 4:00 p.m. Eastern time) on the New York Stock Exchange.
(B) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Securities
purchased or sold on a when-issued or delayed-delivery basis may be settled a
month or more after the trade date. Realized gains and losses on investments
are determined on the identified cost basis. Dividend income is recorded on the
ex-dividend date, except for certain dividends from foreign securities which
are recorded as soon after the ex-dividend date, as the Portfolios, using
reasonable diligence, become aware of such dividends. Interest income, adjusted
for the accretion of discounts and amortization of premiums, is recorded on an
accrual basis. Paydown gains and losses on mortgage- and asset- backed
securities are recorded as adjustments to interest income in the Statements of
Operations.
28 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) FEDERAL INCOME TAXES
The Portfolios intend to distribute all of their taxable income and comply with
the other requirements of the U.S. Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies. Accordingly, no provision for
U.S. federal income taxes is required. In addition, by distributing
substantially all of its ordinary income and long-term capital gains, if any,
during each calendar year, the Portfolios intend not to be subject to U.S.
federal excise tax.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid
annually.
The Portfolios record dividends and distributions to shareholders on the
ex-dividend date. The amount of dividends and distributions are determined in
accordance with federal income tax regulations, which may differ from
accounting principles generally accepted in the United States of America. These
"book-tax" differences are considered either temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal income tax
treatment; temporary differences do not require reclassification.
(E) FOREIGN CURRENCY TRANSLATION
Accounting records are maintained in U.S. dollars as follows: (1) the foreign
currency market value of investments and other assets and liabilities
denominated in foreign currency are translated at the prevailing exchange rate
at the end of the period; and (2) purchases and sales, income and expenses are
translated at the prevailing exchange rate on the respective dates of such
transactions. The resulting net foreign currency gain or loss is included in
the Statement of Operations.
The Portfolios do not generally isolate that portion of the results of
operations arising as a result of changes in the foreign currency exchange
rates from the fluctuations arising from changes in the market prices of
securities. Accordingly, such foreign currency gain (loss) is included in net
realized and unrealized gain (loss) on investments. However, the Portfolios do
isolate the effect of fluctuations in foreign currency exchange rates when
determining the gain or loss upon the sale or maturity of foreign currency
denominated debt obligations pursuant to U.S. federal income tax regulations;
such amount is categorized as foreign currency gain or loss for both financial
reporting and income tax reporting purposes.
(F) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
financial instrument at a set price on a future date. Upon entering into such a
contract, the Portfolios are required to pledge to the broker an amount of cash
or securities equal to the minimum "initial margin" requirements of the
exchange. Pursuant to the contracts, the Portfolios agree to receive from or
pay to the broker an amount of cash equal to the daily fluctuation in the value
of the contracts. Such receipts of payments are known as "variation margin" and
are recorded by the Portfolios as unrealized appreciation or depreciation. When
the contracts are closed, the Portfolios record a realized gain or loss equal
to the difference between the value of the contracts at the time they were
opened and the value at the time they were closed. Any unrealized appreciation
or depreciation recorded is simultaneously reversed. The use of futures
transactions involves the risk of an imperfect correlation in the movements in
the price of futures contracts, interest rates and the underlying hedged
assets, and the possible inability of counterparties to meet the terms of their
contracts.
(G) OPTION TRANSACTIONS
The Portfolios may purchase and write (sell) put and call options for hedging
and/or risk management purposes or as part of its investment strategy. The risk
associated with purchasing an option is that the Portfolios pay a premium
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 29
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
whether or not the option is exercised. Additionally, the Portfolios bears the
risk of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by the premiums paid. The
proceeds from the securities sold through the exercise of put options is
decreased by the premiums paid.
When an option is written, the premium received is recorded as a liability and
is subsequently marked to market to reflect the current market value of the
option written. These liabilities are reflected as options written in the
Statement of Assets and Liabilities. Premiums received from writing options
which expire unexercised are recorded on the expiration date as a realized
gain. The difference between the premium received and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transactions, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security in determining whether there has been a realized gain or loss. If a
put option is exercised, the premium reduces the cost basis of the security. In
writing an option, a Portfolios bears the market risk of an unfavorable change
in the price of the security or currency underlying the written option.
Exercise of a option written could result in the Portfolios purchasing a
security or currency at a price different from the current market value.
(H) INTEREST RATE/CREDIT DEFAULT SWAPS
The Portfolios enters into interest rate and credit default swap contracts
("swaps") for investment purposes, to manage its interest rate and credit risk
or to add leverage.
As a seller in a credit default swap contract, the Portfolios would be required
to pay the notional or other agreed-upon value to the counterparty in the event
of a default by a third party, such as a U.S. or foreign corporate issuer, on
the referenced debt obligation. In return, the Portfolios would receive from
the counterparty a periodic stream of payments over the term of the contract
provided that no event of default has occurred. If no default occurs, the
Portfolios would keep the stream of payments and would have no payment
obligations. Such periodic payments are accrued daily and charged to realized
gain (loss).
The Portfolios may also purchase credit default swap contracts in order to
hedge against the risk of default of debt securities held, in which case the
Portfolios would function as the counterparty referenced in the preceding
paragraph. As a purchaser of a credit default swap contract, the Portfolios
would receive the notional or other agreed upon value from the counterparty in
the event of a default by a third party, such as a U.S. or foreign corporate
issuer on the referenced debt obligation. In return, the Portfolios would make
periodic payments to the counterparty over the term of the contract provided no
event of default has occurred. Such periodic payments are accrued daily and
charged to realized gain (loss).
Interest rate swap agreements involve the exchange by the Portfolios with a
counterparty of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. Net periodic payments received by the Portfolios
are included as part of net realized gain (loss) on the Statement of
Operations.
Swaps are marked to market daily by the Portfolio's Sub-Adviser based upon
quotations from market makers and the change in value, if any, is recorded as
unrealized appreciation or depreciation in the Portfolios' Statement of
Operations. Payments received or made at the beginning of the measurement
period are reflected on the Statement of Assets and Liabilities. For a credit
default swap sold by the Portfolios payment of the agreed upon amount made by
the Portfolios in the event of default of the referenced debt obligation is
recorded as the cost of the referenced debt obligation purchased/received. For
a credit default swap purchased by the Portfolios, the agreed upon amount
received by the Portfolios in the event of default of the referenced debt
obligation is recorded as proceeds from sale/delivery of the referenced debt
obligation and the resulting gain or loss realized on the referenced debt
obligation is recorded as such by the Portfolio.
30 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Entering into swaps involves, to varying degrees, elements of credit, market
and documentation risk in excess of the amounts recognized on the Statement of
Assets and Liabilities. Such risks involve the possibility that there will be
no liquid market for these agreements, that the counterparty to the agreements
may default on its obligation to perform or disagree as to the meaning of the
contractual terms in the agreements, and that there will be unfavorable changes
in net interest rates.
Periodic payments made or accrued under interest rate swap agreements were
previously included within interest income but, as a result of a recent FASB
Emerging Issues Task Force consensus and subsequent related Securities and
Exchange Commission staff guidance, are now shown as a component of either
realized gain (loss) or change in unrealized appreciation/depreciation in the
Statement of Operations. This change does not affect the calculation of net
asset value per share. The impact of this change on prior years' net investment
income and realized and unrealized gain/(loss) in the Statement of Changes in
Net Assets and net investment income and realized gain/(loss) per share amounts
and ratios in the financial highlights is less than $0.01 per share.
(I) FORWARD FOREIGN CURRENCY CONTRACTS -- SERIES C, SERIES R
Series C and Series R enter into forward foreign currency contracts for the
purpose of hedging against foreign currency risk arising from the investment or
anticipated investment in securities denominated in foreign currencies. Series
C and Series R may also enter these contracts for purposes of increasing
exposure to a foreign currency or to shift exposure to foreign currency
fluctuations from one country to another. All commitments are marked to market
daily at the applicable foreign exchange rates and any resulting unrealized
gains and losses are recorded. Realized gains or losses are recorded at the
time the forward foreign currency contract matures or by delivery of the
currency. Risks may arise upon entering these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar. In addition these contracts may involve market risk in excess of the
unrealized gain or loss reflected in the Portfolios' Statements of Assets and
Liabilities.
(J) INFLATION-INDEXED BONDS
Inflation-indexed bonds are fixed income securities whose principal value is
periodically adjusted to the rate of inflation. The interest rate on these
bonds is generally fixed at issuance at a rate lower than typical bonds. Over
the life of an inflation-indexed bond, however, interest will be paid based on
a principal value, which is adjusted for inflation. Any increase in the
principal amount of an inflation-indexed bond will be considered interest
income in the Statement of Operations, even though investors do not receive
principal until maturity.
(K) STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS")
SMBS represent a participation in, or are secured by and payable from, mortgage
loans on real property, and may be structured in classes with rights to receive
varying proportions of principal and interest. SMBS include interest-only
securities (IOs), which receive all of the interest, and principal-only
securities (POs), which receive all of the principal. If the underlying
mortgage assets experience greater than anticipated payments of principal, the
Portfolio may fail to recoup some or all of its initial investment in these
securities. The market value of these securities is highly sensitive to changes
in interest rates.
(L) REPURCHASE AGREEMENTS
The Portfolios enters into transactions with its custodian bank or securities
brokerage firms approved by the Board of Trustees whereby it purchases
securities under agreements to resell at an agreed upon price and date
("repurchase agreements"). Such agreements are carried at the contract amount
in the financial statements. Collateral pledged (the securities received),
which consists of primarily of U.S. government obligations and asset backed
securities, are held by the custodian bank until maturity of the repurchase
agreement. Provisions of the repurchase agreements and the procedures adopted
by the Portfolios require that the market value of the collateral,
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 31
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
including accrued interest thereon, is sufficient in the event of default by
the counterparty. If the counterparty defaults and the value of the collateral
declines or if the counterparty enters an insolvency proceeding, realization of
the collateral by the Portfolios may be delayed or limited.
(M) REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Portfolio sells securities to a bank or
broker-dealer and agrees to repurchase the securities at a mutually agreed date
and price. Generally, the effect of such a transaction is that the Portfolio
can recover and reinvest all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement and
still be entitled to the returns associated with those portfolio securities.
Such transactions are advantageous if the interest cost to the Portfolio of the
reverse repurchase transaction is less than the returns it obtains on
investments purchased with the cash. Unless the Portfolio covers its positions
in reverse repurchase agreements (by segregating liquid assets at least equal
in amount to the forward purchase commitment), its obligations under the
agreements will be subject to the Portfolio's limitations on borrowings.
Reverse repurchase agreements involve leverage risk and also the risk that the
market value of the securities that the Portfolio is obligated to repurchase
under the agreement may decline below the repurchase price. In the event the
buyer of securities under a reverse repurchase agreement files for bankruptcy
or becomes insolvent, the Portfolio's use of the proceeds of the agreement may
be restricted pending determination by the other party, or its trustee or
receiver, whether to enforce the Portfolio's obligation to repurchase the
securities. The weighted average daily balance of reverse repurchase agreements
outstanding for Series M during the year ended October 31, 2004 was $14,260,000
at a weighted average interest rate of 1.09%. Series C and Series R did not
engage in reverse repurchase agreement transactions during the period.
(N) WHEN-ISSUED/DELAYED-DELIVERY TRANSACTIONS
The Portfolios may purchase or sell securities on a when-issued or
delayed-delivery basis. These transactions involve a commitment to purchase or
sell securities for a predetermined price or yield, with payment and delivery
taking place beyond the customary settlement period. When delayed-delivery
purchases are outstanding, the Portfolio will set aside and maintain until the
settlement date in a designated account, liquid assets in an amount sufficient
to meet the purchase price. When purchasing a security on a delayed-delivery
basis, a Portfolio assumes the rights and risks of ownership of the security,
including the risk of price and yield fluctuations, and takes such fluctuations
into account when determining its net asset value. A Portfolio may dispose of
or renegotiate a delayed-delivery transaction after it is entered into, and may
sell when-issued securities before they are delivered, which may result in a
realized gain or loss. When a Portfolio sells a security on a delayed-delivery
basis, the Portfolio does not participate in future gains and losses with
respect to the security.
(O) RESTRICTED SECURITIES
The Portfolios are permitted to invest in securities that are subject to legal
or contractual restrictions on resale. These securities generally may be resold
in transactions exempt from registration or to the public if the securities are
registered. Disposal of these securities may involve time-consuming
negotiations and expenses, and prompt sale at an acceptable price may be
difficult.
(P) SHORT SALES
Series C and Series M entered into short sales transactions during the fiscal
year. A short sale is a transaction in which a Portfolio sells securities it
does not own in anticipation of a decline in the market price of the
securities. The Portfolio is obligated to deliver securities at the market
price at the time the short position is closed. Possible losses from short
sales may be limited, whereas losses from purchases cannot exceed the total
amount invested.
(2) INVESTMENT MANAGER/SUB-ADVISER/ADMINISTRATOR & DISTRIBUTOR
(A) INVESTMENT MANAGER/SUB-ADVISER
The Investment Manager serves in its capacity pursuant to an Investment
Management Agreement with the Trust. Pursuant to a Portfolio Management
Agreement, the Investment Manager employs Pacific Investment Management
32 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(2) INVESTMENT MANAGER/SUB-ADVISER/ADMINISTRATOR & DISTRIBUTOR (CONTINUED)
Company LLC ("PIMCO" or the "Sub-Adviser"), an affiliate of the Investment
Manager, to serve as sub-adviser and provide investment advisory services to
the Portfolios. The Investment Manager receives no investment management or
other fees from the Portfolios and at its own expense pays the fees of the
Sub-Adviser. The financial statements reflect the fact that no fees or expenses
are incurred by the Portfolios. It should be understood, however, that the
Portfolios are an integral part of "wrap-fee" programs sponsored by investment
advisers unaffiliated with the Portfolios, the Investment Manager or the
Sub-Adviser. Typically, participants in these programs pay a "wrap fee" to
their investment adviser. Although the Portfolios do not compensate the
Investment Manager or Sub-Adviser directly for their services under the
Investment Management Agreement or Portfolio Management Agreement,
respectively, the Investment Manager and Sub-Adviser may benefit from their
relationship with the sponsors of wrap fee programs for which the Trust is an
investment option.
(B) ADMINISTRATOR
The Investment Manager also serves as administrator to the Portfolios pursuant
to an administration agreement ("Administration Agreement") with the Trust. The
administrator's responsibilities include providing or procuring certain
administrative services to the Portfolios as well as arranging at its own
expense for the provision of legal, audit, custody, transfer agency and other
services required for the ordinary operation of the Portfolios, and is
responsible for printing, trustees fees, and other costs of the Portfolios.
Under the Administration Agreement, the Investment Manager has agreed to
provide or procure these services, and to bear these expenses at no charge to
the Portfolios.
(C) DISTRIBUTOR
PA Distributors LLC ("the Distributor"), an affiliate of the Investment
Manager, serves as the distributor of the Trust's shares. Pursuant to a
distribution agreement with the Trust, the Investment Manager on behalf of the
Portfolios pays the Distributor.
(3) CAPITAL STOCK
At October 31, 2004, 99.9% of the outstanding shares of the Series R Portfolio
was owned by an affiliate of the Investment Manager. Investment activity by
this affiliate could have a material impact on the Portfolio.
(4) INVESTMENTS IN SECURITIES
(a) Purchases and sales of securities (excluding short-term investments)
for the year ended October 31, 2004, were:
U.S. Government Agency All Other
----------------------------------- ---------------------------------
Purchases Sales Purchases Sales
---------------- ---------------- --------------- ---------------
Series C: $ 237,478,748 $ 294,911,965 $378,381,910 $343,283,138
Series M: 6,465,751,407 6,611,246,193 127,739,684 57,440,140
Series R: 3,543,801 646,758 -- --
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 33
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(4) INVESTMENTS IN SECURITIES (CONTINUED)
(b) Futures contracts outstanding at October 31, 2004 were:
Series C: # of Expiration Unrealized
Type Contracts Date Appreciation
- ---------------------------------------------- -------------------------------------------
Long: Financial Future Euro-Bobl 5 year Eux 92 12/31/04 $ 143,892
Financial Future Euro-Bobl 5 year Eux 88 12/31/04 117,322
Eurodollar Futures 3 3/14/05 1,950
Eurodollar Futures 80 6/13/05 31,000
Eurodollar Futures 471 9/19/05 211,950
U.S. Treasury 10 Year Notes 293 12/20/04 448,323
-------------
$ 954,437
=============
Series M:
Long: U.S. Treasury 10 Year Notes 1,374 12/20/04 $ 4,040,019
=============
Series R:
Long: Financial Future Euro-Bund 10 Year Eux 1 12/8/04 $ 3,017
Eurodollar Futures 2 6/13/05 738
U.S. Treasury 10 Year Notes 1 12/20/04 2,328
-------------
$ 6,083
=============
(c) Options written for the year ended October 31, 2004:
Series C:
Contracts Premiums
---------- --------
Options outstanding, October 31, 2003 6,200,193 $339,646
Options written 1,451 962,680
Options terminated in closing purchase transactions (3,200,814) (288,728)
Options expired (3,000,230) (703,348)
---------- --------
Options outstanding, October 31, 2004 600 $310,250
========== ========
Series M:
Options outstanding, October 31, 2003 3,000,000 $109,500
Options terminated in closing purchase transactions (3,000,000) (109,500)
---------- --------
Options outstanding, October 31, 2004 -- --
========== ========
Series R: There were no written options outstanding at October 31, 2004.
34 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(4) INVESTMENTS IN SECURITIES (CONTINUED)
(d) Forward foreign currency contracts outstanding at October 31, 2004:
Series C:
Unrealized
U.S. $ Value on U.S. $ Value Appreciation/
Broker Origination Date Origination Date (Depreciation)
- -------------------------------------------------------------------------------------------------------------------------
Purchased:
Brazilian Real, settling 11/23/04 Goldman Sachs $ 89,842 $ 95,341 $ 5,499
Brazilian Real, settling 12/17/04 Morgan Stanley Co. 89,478 92,154 2,676
Brazilian Real, settling 1/24/05 Goldman Sachs 89,458 89,789 331
Chilean Peso, settling 11/04/04 J.P. Morgan Chase & Co. 27,102 28,318 1,216
Chilean Peso, settling 11/18/04 Morgan Stanley Co. 85,735 88,956 3,221
Chilean Peso, settling 12/17/04 Morgan Stanley Co. 88,628 88,496 (132)
Great Britain Pounds, settling 12/14/04 Morgan Stanley Co. 878,040 876,477 (1,563)
Hong Kong Dollar, settling 11/24/04 Citibank N.A. 92,958 93,038 80
Hong Kong Dollar, settling 12/20/04 Citibank N.A. 89,915 90,117 202
Hong Kong Dollar, settling 1/26/05 HSBC Securities Inc. 90,300 90,425 125
Indian Rupee, settling 12/21/04 Citibank N.A. 88,957 89,327 370
Indian Rupee, settling 12/21/04 J.P. Morgan Chase & Co. 88,822 89,328 506
Japanese Yen, settling 1/27/05 CS First Boston 39,127,835 39,598,773 470,938
Mexican Peso, settling 11/29/04 Goldman Sachs 86,491 86,101 (390)
Mexican Peso, settling 12/20/04 Morgan Stanley Co. 172,719 173,308 589
Mexican Peso, settling 12/21/04 Goldman Sachs 86,814 86,653 (161)
Peruvian Nouvian Sol, settling 11/23/04 J.P. Morgan Chase & Co. 48,089 49,128 1,039
Peruvian Nouvian Sol, settling 11/23/04 Citibank N.A. 44,140 45,076 936
Peruvian Nouvian Sol, settling 12/17/04 Citibank N.A. 93,103 94,030 927
Russian Ruble, settling 11/19/04 Citibank N.A. 89,485 92,264 2,779
Russian Ruble, settling 12/22/04 J.P. Morgan Chase & Co. 93,059 95,494 2,435
Russian Ruble, settling 1/26/05 J.P. Morgan Chase & Co. 90,389 90,199 (190)
Singapore Dollar, settling 11/24/04 HSBC Securities Inc. 91,926 94,464 2,538
Singapore Dollar, settling 12/20/04 Citibank N.A. 90,920 92,232 1,312
Singapore Dollar, settling 1/26/04 Citibank N.A. 90,928 91,419 491
Slovakian Koruna settling 11/26/04 Citibank N.A. 89,934 94,297 4,363
Slovakian Koruna settling 12/22/04 Citibank N.A. 92,164 95,584 3,420
Polish Zloty, settling 11/22/04 Morgan Stanley Co. 90,482 95,109 4,627
Polish Zloty, settling 12/21/04 Citibank N.A. 90,000 94,576 4,576
South Korean Won, settling 11/24/04 Citibank N.A. 93,200 96,622 3,422
South Korean Won, settling 12/20/04 Citibank N.A. 92,308 94,631 2,323
South Korean Won, settling 1/28/05 Citibank N.A. 91,136 92,966 1,828
Taiwan Dollar, settling 11/24/04 Citibank N.A. 90,590 92,265 1,675
Taiwan Dollar, settling 12/20/04 Citibank N.A. 88,495 89,605 1,110
Sold:
Euro, settling 12/9/04 Merrill Lynch 1,024,635 1,035,355 (10,720)
---------
$ 512,398
=========
Series R:
U.S.$ Value on U.S.$ Value Unrealized
Origination Date October 31, 2004 Appreciation
------------------ ------------------ -------------
Sold:
Euro, settling 12/9/04 $5,035 $5,087 $52
===
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R
ANNUAL REPORT 35
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(4) INVESTMENTS IN SECURITIES (CONTINUED)
(e) Interest rate swap agreements outstanding at October 31, 2004:
Series C:
Rate Type
-----------------------------------
Notional Payment Payment Unrealized
Amount Termination made by received by Appreciation
Swap Counterparty (000) Date the Portfolio the Portfolio (Depreciation)
- --------------------------------------------------------------------------------------------------------------
Goldman Sachs $ 2,500 12/15/06 3 Month LIBOR 4.00% $ 26,783
Goldman Sachs $ 1,000 12/15/14 5.00% 3 Month LIBOR (81,300)
Goldman Sachs $ 321,000 6/15/06 3 Month LIBOR 3.00% 1,723,224
Goldman Sachs Euro 46,000 6/17/10 6 Month EURIBOR 4.00% 1,932,870
Goldman Sachs Euro 13,500 3/15/16 6 Month LIBOR 6.50% 885,614
Goldman Sachs GBP 8,000 3/15/16 5.50% 6 Month LIBOR (211,955)
Lehman Securities $ 1,600 12/15/14 5.00% 3 Month LIBOR (124,655)
Lehman Securities $ 111,400 12/15/09 4.00% 3 Month LIBOR (715,455)
Merrill Lynch $ 700 12/15/24 6.00% 3 Month LIBOR (44,853)
Merrill Lynch Euro 218,000 12/21/07 6 Month LIBOR 4.00% 3,111,989
Morgan Stanley SEK$1,386,000 12/15/07 3 Month LIBOR 4.00% 324,273
----------
$6,826,535
==========
Series M:
Rate Type
-----------------------------------
Notional Payment Payment
Amount Termination made by received by Unrealized
Swap Counterparty (000) Date the Portfolio the Portfolio Depreciation
- --------------------------------------------------------------------------------------------------------------
Goldman Sachs $ 98,200 12/15/09 3 Month LIBOR 4.00% $127,424
========
Series R:
Rate Type
-----------------------------------
Notional Payment Payment
Amount Termination made by received by Unrealized
Swap Counterparty (000) Date the Portfolio the Portfolio Depreciation
- --------------------------------------------------------------------------------------------------------------
Goldman Sachs $ 200 12/15/14 5.00% 3 Month LIBOR $ 5,488
Goldman Sachs 200 12/18/33 6.00% 3 Month LIBOR 5,653
-------
$11,141
=======
- ----------------
GBP -- Great Britain Pounds
EURIBOR -- European Union Interbank Offered Rate
LIBOR -- London Interbank Offered Rate
(f) Short sales outstanding at October 31, 2004 were:
Series C:
Type Coupon Maturity Par Proceeds Value
- -------------------------------------------- ---------- ---------- -------------- -------------- --------------
Governmental National Mortgage Association 5.50% 11/30/34 $20,500,000 $20,929,219 $20,974,062
===========
36 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(5) INCOME TAX INFORMATION
Series C:
The tax character of dividends and distributions paid for the periods were:
Year Ended Year Ended
October 31, 2004 October 31, 2003
------------------ -----------------
Ordinary Income $26,667,075 $18,867,217
Long-Term Capital Gains $ -- $ 37,625
At October 31, 2004, the tax basis of distributable earnings of $23,167,566 was
comprised of $13,377,742 of ordinary income and $9,789,824 of long-term capital
gains.
Series M:
The tax character of dividends and distributions paid for the periods were:
Year Ended Year Ended
October 31, 2004 October 31, 2003
------------------ -----------------
Ordinary Income $24,146,580 $22,062,464
Long-Term Capital Gains $ -- $ 257,205
At October 31, 2004, the tax basis of distributable earnings of $22,612,179 was
comprised of $21,485,609 of ordinary income and $1,126,570 of long-term capital
gains.
Series R:
The tax character of dividends paid for the periods were:
For the Period
April 15, 2004
(commencement of operations)
through October 31, 2004
-----------------------------
Ordinary Income $78,421
At October 31, 2004, the tax basis of distributable earnings of $12,390 was
comprised of $9,542 of ordinary income and $2,848 of long-term gain.
The cost of investments for federal income tax purposes and gross unrealized
appreciation and gross unrealized depreciation of investments at October 31,
2004 were:
Gross Gross Net
Cost of Unrealized Unrealized Unrealized
Investments Appreciation Depreciation Appreciation
- ------------------------------------------------------------------------------------
Series C $628,937,059 $ 11,275,244 $ 464,866 $ 10,810,378
Series M 877,818,586 4,426,151 3,655,247 770,904
Series R 3,319,865 111,091 -- 111,091
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 37
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(6) LEGAL PROCEEDINGS
On September 13, 2004, the Securities and Exchange Commission (the
"Commission") announced that the Investment Manager, the Distributor and
certain of their affiliates had agreed to a settlement of charges that they and
certain of their officers had, among other things, violated various antifraud
provisions of the federal securities laws in connection with an alleged
market-timing arrangement involving trading of shares of various open-end
investment companies ("open-end funds") advised or distributed by the
Investment Manager, the Distributor and certain of their affiliates. In their
settlement with the Commission, the Investment Manager and their affiliates
consented to the entry of an order by the Commission and, without admitting or
denying the findings contained in the order, agreed to implement certain
compliance and governance changes and consented to cease-and-desist orders and
censures. In addition, the Investment Manager and its affiliates agreed to pay
civil money penalties in the aggregate amount of $40 million and to pay
disgorgement in the amount of $10 million, for an aggregate payment of $50
million. In connection with the settlement, the Investment Manager and its
affiliates have been dismissed from the related complaint the Commission filed
on May 6, 2004 in the U.S. District Court in the Southern District of New York.
Neither the complaint nor the order alleges any inappropriate activity took
place with respect to the Portfolios.
In a related action on June 1, 2004, the Attorney General of the State of New
Jersey announced that it had entered into a settlement agreement with AGI and
certain other affiliates of the Investment Manager, in connection with a
complaint filed by the New Jersey Attorney General ("NJAG") on February 17,
2004. The NJAG dismissed claims against the Sub-Adviser, which had been part of
the same complaint. In the settlement, AGI and other named affiliates neither
admitted nor denied the allegations or conclusions of law, but did agree to pay
New Jersey a civil fine of $15 million and $3 million for investigative costs
and further potential enforcement initiatives against unrelated parties. They
also undertook to implement certain governance changes. The complaint relating
to the settlement contained allegations arising out of the same matters that
were subject of the Commission order regarding market timing described above.
On September 15, 2004, the Commission announced that the Investment Manager,
the Distributor and certain of their affiliates agreed to settle an enforcement
action in connection with charges that they violated various antifraud and
other provisions of federal securities laws as a result of, among other things,
their failure to disclose to the board of trustees and shareholders of various
open-end funds advised or distributed by the Investment Manager, the
Distributor and their affiliates material facts and conflicts of interest that
arose from their use of brokerage commissions on portfolio transactions to pay
for so-called "shelf space" arrangements with certain broker-dealers. In the
settlement, the Investment Manager and its affiliates consented to the entry of
an order by the Commission without admitting or denying the findings contained
in the order. In connection with the settlement, the Investment Manager, the
Distributor and their affiliates agreed to undertake certain compliance and
disclosure reforms and consented to cease-and-desist orders and censures. In
addition, the Investment Manager and these affiliates agreed to pay a civil
money penalty of $5 million and to pay disgorgement of $6.6 million based upon
the amount of brokerage commissions alleged to have been paid by such open-end
funds in connection with these arrangements (and related interest). In a
related action, the California Attorney General announced on September 15, 2004
that it had entered an agreement with the Distributor in resolution of an
investigation into matters that are similar to those discussed in the
Commission's order. The settlement agreement resolves matters described in the
compliant filed by the California Attorney General in the Superior Court of the
State of California alleging, among other things, that the Distributor violated
certain antifraud provisions of California law by failing to disclose matters
related to the shelf-space arrangements described above. In the settlement
agreement, the Distributor did not admit to any liability but agreed to pay $5
million in civil penalties and $4 million in recognition of the California
Attorney General's fees and costs associated with the investigation and related
matters. Neither the Commission's order nor the California Attorney General's
complaint alleges any inappropriate activity took place with respect to the
Portfolios.
Since February 2004, the Investment Manager, the Sub-Adviser, the Distributor
and certain of their affiliates have been named as defendants in 14 lawsuits
filed in U.S. District Court in the Southern District of New York, the Central
38 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C, M, R NOTES TO FINANCIAL STATEMENTS
October 31, 2004
- --------------------------------------------------------------------------------
(6) LEGAL PROCEEDINGS (CONTINUED)
District of California and the Districts of New Jersey and Connecticut. Ten of
those lawsuits concern "market timing," and they have been transferred to and
consolidated for pre-trial proceedings in the U.S. District Court for the
District of Maryland; the remaining four lawsuits concern "revenue sharing"
with brokers offering "shelf space" and have been consolidated into a single
action in the U.S. District Court for the District of Connecticut. The lawsuits
have been commenced as putative class actions on behalf of investors who
purchased, held or redeemed shares of affiliated funds during specified periods
or as derivative actions on behalf of the funds. The lawsuits generally relate
to the same facts that are the subject of the regulatory proceedings discussed
above. The lawsuits seek, among other things, unspecified compensatory damages
plus interest and, in some cases, punitive damages, the rescission of
investment advisory contracts, the return of fees paid under those contracts
and restitution. The Trust has been named in three of the lawsuits concerning
market timing. The Investment Manager and the Sub-Adviser believe that other
similar lawsuits may be filed in U.S. federal or state courts naming as
defendants the Investment Manager, the Sub-Adviser, AGI, the Trust, other open-
and closed-end funds advised or distributed by the Investment Manager, the
Sub-Adviser, the Distributor and/or their affiliates, the boards of trustees of
those funds, and/or other affiliates and their employees.
Under Section 9(a) of the Investment Company Act of 1940, if any of the various
regulatory proceedings or lawsuits were to result in a court injunction against
the Investment Manager, the Sub-Adviser, AGI and/or their affiliates, they and
their affiliates would, in the absence of exemptive relief granted by the
Commission, be barred from serving as an investment adviser/sub-adviser or
principal underwriter for any registered investment company, including the
Portfolios. In connection with an inquiry from the Commission concerning the
status of the New Jersey settlement described above under Section 9(a), the
Investment Manager, the Sub-Adviser, and certain of their affiliates (together,
the "Applicants") have sought exemptive relief from the Commission under
Section 9(c) of the Investment Company Act of 1940. The Commission has granted
the Applicants a temporary exemption from the provisions of Section 9(a) with
respect to the New Jersey settlement until the earlier of (i) September 13,
2006 and (ii) the date on which the Commission takes final action on their
application for a permanent order. There is no assurance that the Commission
will issue a permanent order.
The Investment Manager and the Sub-Adviser believe that these matters are not
likely to have a material adverse effect on the Portfolios or on the Investment
Manager's or the Sub-Adviser's ability to perform its respective investment
advisory services relating to the Portfolios.
(7) CORPORATE CHANGES
On July 29, 2004, Stephen Treadway resigned as the Portfolios' Chairman. On
December 14, 2004, Thomas J. Fuccillo was appointed as the Portfolios'
Secretary.
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 39
FIXED INCOME SHARES -- SERIES C, M, R REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of Fixed Income SHares -- Series C,
M, R
In our opinion, the accompanying statements of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Fixed Income
SHares: Series C, Fixed Income SHares: Series M and Fixed Income SHares: Series
R (each a portfolio of Fixed Income SHares, hereafter referred to as the
"Funds") at October 31, 2004, the results of each of their operations, the
changes in each of their net assets and the financial highlights for each of
the periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). These 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 2004 by correspondence with the
custodian and counterparties, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Kansas City, MO
December 23, 2004
40 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
FIXED INCOME SHARES -- SERIES C, M, R TAX INFORMATION/BOARD OF TRUSTEES
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
Subchapter M of the Internal Revenue Code of 1986, as amended, requires the
Portfolios to advise shareholders within 60 days of the Portfolios fiscal
year-end (October 31, 2004) as to the federal tax status of dividends and
distributions received by shareholders during such tax year. Accordingly,
during the tax year ended October 31, 2004, per share dividends were comprised
entirely of ordinary income of:
SERIES C $ 0.69460
SERIES M $ 0.62913
SERIES R $ 0.26139
Since the Portfolios' tax year is not the calendar year, another notification
will be sent with respect to calendar year 2004. In January 2005, shareholders
will be advised on IRS Form 1099 DIV as to the federal tax status of dividends
and distributions received during calendar year 2004. The amount that will be
reported, will be the amount to be used on your 2004 federal income tax return
and may differ from the amount which must be reported in connection with the
Trust's tax year ended October 31, 2004. Shareholders are advised to consult
with their tax advisors as to the federal, state and local tax status of the
income received by the Trust.
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES
Name, Age and
Address Principal Occupation(s) During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------------
ROBERT E. CONNOR, Director/Trustee of twenty one open and closed-end
1345 Avenue of the Americas management investment companies affiliated with Allianz
New York, NY 10105 Global Investors of America L.P.; Corporate Affairs
Age: 70 Consultant. Formerly, Senior Vice President, Corporate
Trustee since: 2000 Office, Smith Barney Inc.
Term of Office: Perpetual
Director/Trustee of 21 funds in Fund Complex
Director/Trustee of no funds outside of Fund Complex
PAUL BELICA, Director/Trustee of twenty open and closed-end management
1345 Avenue of the Americas investment compnies affiliated with Allianz Global Investors
New York, NY 10105 of America L.P.; Manager, Stratigos Fund, L.L.C., Whistler
Age: 83 Fund, L.L.C., Xanthus Fund, L.L.C. and Wynstone Fund,
Trustee since: 2000 L.L.C.; Director, Student Loan Finance Corp., Education
Term of Office: Perpetual Loans, Inc., Goal Funding, Inc. and Surety Loan Funding,
Director/Trustee of 20 funds in Fund Complex Inc. Formerly, Advisor, Salomon Smith Barney Inc.; Director,
Director/Trustee of 2 funds outside of Central European Value Fund, Inc., Deck House, Inc.
Fund Complex
10.31.04 FIXED INCOME SHARES -- SERIES C, M, R ANNUAL REPORT 41
FIXED INCOME SHARES -- SERIES C, M, R PRIVACY POLICY/PROXY VOTING
POLICIES & PROCEDURES
- --------------------------------------------------------------------------------
OUR COMMITMENT TO YOU
We consider customer privacy to be a fundamental aspect of our relationship
with clients. We are committed to maintaining the confidentiality, integrity,
and security of our current, prospective and former clients' personal
information. We have developed policies designed to protect this
confidentiality, while allowing client needs to be served.
OBTAINING PERSONAL INFORMATION
In the course of providing you with products and services, we may obtain
non-public personal information about you. This information may come from
sources such as account applications and other forms, from other written,
electronic or verbal correspondence, from your transactions, from your
brokerage or financial advisory firm, financial adviser or consultant, and/or
from information captured on our internet web sites.
RESPECTING YOUR PRIVACY
We do not disclose any personal or account information provided by you or
gathered by us to non-affiliated third parties, except as required or permitted
by law. As is common in the industry, non-affiliated companies may from time to
time be used to provide certain services, such as preparing and mailing
prospectuses, reports, account statements and other information, conducting
research on client satisfaction, and gathering shareholder proxies. We may also
retain non-affiliated companies to market our products and enter in joint
marketing agreements with other companies. These companies may have access to
your personal and account information, but are permitted to use the information
solely to provide the specific service or as otherwise permitted by law. We may
also provide your personal and account information to your brokerage or
financial advisory firm and/or to your financial adviser or consultant.
SHARING INFORMATION WITH THIRD PARTIES
We do reserve the right to disclose or report personal information to
non-affiliated third parties in limited circumstances where we believe in good
faith that disclosure is required under law, to cooperate with regulators or
law enforcement authorities, to protect our rights or property, or upon
reasonable request by any mutual fund in which you have chosen to invest. In
addition, we may disclose information about you or your accounts to a
non-affiliated third party at your request or if you consent in writing to the
disclosure.
SHARING INFORMATION WITH AFFILIATES
We may share client information with our affiliates in connection with
servicing your account or to provide you with information about products and
services that we believe may be of interest to you. The information we share
may include, for example, your participation in our mutual funds or other
investment programs, your ownership of certain types of accounts (such as
IRAs), or other data about your accounts. Our affiliates, in turn, are not
permitted to share your information with non-affiliated entities, except as
required or permitted by law.
IMPLEMENTATION OF PROCEDURES
We take seriously the obligation to safeguard your non-public personal
information. We have implemented procedures designed to restrict access to your
non-public personal information to our personnel who need to know that
information to provide products or services to you. To guard your non-public
personal information, physical, electronic, and procedural safeguards are in
place.
- --------------------------------------------------------------------------------
PROXY VOTING POLICIES & PROCEDURES
A description of the policies and procedures that the Portfolios have adopted
to determine how to vote proxies relating to portfolio securities and
information regarding how the Portfolios voted proxies relating to portfolio
securities held during the twelve months ended June 30, 2004 is available (i)
without charge, upon request, by calling the Trust at 1-800-462-9727; (ii) on
the Trust's website at www.pimcoadvisors.com and (iii) on the Securities and
Exchange Commission's website at www.sec.gov.
42 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
This page intentionally left blank.
10.31.04 Fixed Income SHares -- Series C, M, R Annual Report 43
This page intentionally left blank.
44 Fixed Income SHares -- Series C, M, R Annual Report 10.31.04
TRUSTEES AND PRINCIPAL OFFICERS
Paul Belica, Trustee
Robert E. Connor--Trustee
Brian S. Shlissel, President & Chief Executive Officer
Newton B. Schott, Jr., Vice President
Lawrence G. Altadonna, Treasurer
Thomas J. Fuccillo, Secretary
Youse Guia, Chief Compliance Officer
Jennifer A. Patula, Assistant Secretary
INVESTMENT MANAGER/ADMINISTRATOR
PA Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105
SUB-ADVISER
Pacific Investment Management Company LLC
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
DISTRIBUTOR
PA Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
CUSTODIAN & ACCOUNTING AGENT
State Street Corp.
801 Pennsylvania Avenue
Kansas City, MO 64105
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
Boston Financial Data Services
330 West 9th Street
Kansas City, MO 64105
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, MO 64105
LEGAL COUNSEL
Ropes & Gray LLP
One International Place
Boston, MA 02110
This report, including the financial information herein, is transmitted to the
shareholders of Fixed Income SHares Inc.--Series C, Series M and Series R for
their information. It is not a prospectus, circular or representation intended
for use in the purchase of shares of the Portfolios or any securities mentioned
in this report.
The Portfolios file their complete schedules of portfolio holdings with the
Securities and Exchange Commission (the "Commission") for the first and third
quarters of its fiscal year on Form N-Q. Form N-Q is available (i) on the
Trust's website at www.pimcoadvisors.com (ii) on the Commission's website at
www.sec.gov and (iii) at the Commission's Public Reference Room which is
located at the Commission's headquarter's office, 450 5th Street N.W. Room
1200, Washington, D.C. 20549, (202) 942-8090.
PIMCO
ADVISORS
1345 Avenue of the Americas
New York, NY 10105-4800
#532785
[PIMCO ADVISORS LOGO]
1345 Avenue of the Americas
New York, NY 10105-4800
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
ANNUAL REPORT
OCTOBER 31, 2004
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
ANNUAL REPORT
OCTOBER 31, 2004
Fixed Income SHares - Allianz Dresdner Daily Asset Fund LETTER TO SHAREHOLDER
December 22, 2004
Dear Shareholder:
We are pleased to provide you with the initial annual report of Fixed Income
SHares-Allianz Dresdner Daily Asset Fund (the "Fund") for the fiscal period
ended October 31, 2004.
When Federal Reserve Chairman Greenspan speaks, we listen, the Federal Reserve
Chairman has made it very clear that interest rates are going up. With that
information, we will keep the duration of the portfolio very short.
At October 31, 2004 in excess of 73% of the Fund was invested in floating rate
securities based on the following indexes: LIBOR (both one and three month
LIBOR), and Fed funds. The remaining balances of the Fund were invested in
short-term commercial paper. The Fund purchased one piece of commercial paper
into early next year, which priced in a 25 basis point rate increase at each
Federal Reserve board meeting and 2.50% over year-end.
The weighted average duration of the Fund at the end of the period was 20 days.
We anticipate maintaining the duration short for the foreseeable future or until
we get a clear signal from the Fed that they are finished raising rates.
We thank you for investing with us and remain dedicated to serving your
investment needs.
Sincerely,
/s/ Charles H. Dedekind /s/ John Bilello
Charles H. Dedekind, Portfolio Manager John Bilello, Portfolio Manager
Dresdner Advisors LLC Dresdner Advisors LLC
Fixed Income SHares-Allianz Dresdner Daily Assets Fund
PERFORMANCE SUMMARY & STATISTICS
- --------------------------------------------------------------------------------
PRIMARY INVESTMENTS: INCEPTION DATE:
Money Market Instruments 3/24/04
NET ASSETS:
$205.1 million
PORTFOLIO MANAGERS:
John Bilello and Charles Dedekind
TOTAL RETURN (1):
- --------------------------------------------------------------------------------
Six Months 0.68%
Commencement of Operations (3/24/04) to 10/31/04 0.79%
SEVEN DAY & THIRTY-DAY YIELDS:
- --------------------------------------------------------------------------------
7 day yield 1.83%
7 day compounded yield 1.85%
30 day yield 1.75%
30 day compounded yield 1.77%
ASSET ALLOCATION (% OF NET ASSETS)
- --------------------------------------------------------------------------------
[PIE CHAR OMITTED]
Corporate Notes 41.4%
Commercial Paper 30.6%
Asset-Backed Securities 9.3%
Certificates of Deposits 4.6%
Master Notes 4.6%
Collateralized Mortgage Obligation 4.6%
Time Deposits 4.7%
Repurchase Agreement 0.2%
SHAREHOLDER EXPENSE EXAMPLE:
As a Shareholder of the Fund you incur two types of costs: (1) transaction
costs, and (2) ongoing costs, including Management fees and other Fund expenses.
This example is intended to help you understand your ongoing costs (in dollars)
of investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (March 24, 2004 to October 31, 2004).
ACTUAL EXPENSES:
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by number in
the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES:
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account value and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare this 5% hypothetical examples
that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing cost only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs only, and will not
help you determine the relative total costs of owning different funds,
- -------------------------------------------------------------------------------------------------------------------------
Annualized
Expense Ratio based on Expenses Paid during
the Period the Period**
March 24, 2004* March 24, 2004
Beginning Account Value Ending Account Value through through
March 24, 2004* October 31, 2004 October 31, 2004 October 31, 2004
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000 $1,004.50 0.05% $0.30
- -------------------------------------------------------------------------------------------------------------------------
Hypothetical $1,000 $1,030.10 0.05% $0.31
- -------------------------------------------------------------------------------------------------------------------------
* Commencement of operations.
** Expenses are equal to the Fund's annualized expense ratio of 0.05%;
multiplied by the average account value over the period, multiplied by 222/365
(to reflect the # of days in the period).
(1) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return assumes
reinvestment of all dividends and distributions. Total return for a period of
less than one year is not annualized. An investment in the Fund involves risk,
including the loss of principal. Total return and yield will fluctuate with
changes in market conditions. This data is provided for information only and is
not intended for trading purposes. Net asset value is total assets less total
liabilities divided by the number of shares outstanding. Holdings are subject to
change daily.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2004
PRINCIPAL
AMOUNT
(000) VALUE
----- -----
CORPORATE NOTES - 43.4%
$ 12,000 American Express Credit Corp., 1.97%, 11/19/04, FRN ............ $12,010,370
10,000 Bank One Corp., 1.90%, 11/3/04, FRN ............................ 10,013,877
10,000 Bayerische Landesbank Girozentrale, 1.92%, 11/24/04, FRN ....... 10,000,000
10,000 CIT Group, Inc., 2.56%, 1/31/05, FRN ........................... 10,030,099
5,000 Credit Suisse First Boston Corp., 1.73%, 11/10/04, FRN ... 4,999,802
10,000 Irish Life & Permanent plc., 0.05%, 1/21/05, FRN ............... 9,998,314
10,000 Morgan Stanley, 1.87%, 11/15/04, FRN ........................... 10,000,000
12,000 Natexis Banque Populaires, 1.80%, 11/9/04, FRN ................. 11,996,542
10,000 Sigma Finance, Inc., 1.80%-1.98%, 11/1/04-12/17/04, FRN ........ 10,000,255
-----------
Total Corporate Notes (cost-$89,049,259) ....................... 89,049,259
-----------
COMMERCIAL PAPER - 32.0%
10,000 Bavaria Trust Corp., 1.88%, 11/12/04 ........................... 9,994,256
4,375 Compass Securitization, 1.79%, 11/9/04 ......................... 4,373,260
10,000 Dorada Corp., 1.78%, 11/10/04 .................................. 9,995,550
10,000 Giro Funding U.S. Corp., 1.86%, 11/22/04 ....................... 9,989,150
10,000 Lakeside Funding LLC., 1.91%, 11/8/04 .......................... 9,999,980
7,444 Sheffield Receivables Corp., 1.79%, 11/8/04-11/10/04 ........... 7,440,926
10,000 Sierra Madre Funding de Corp., 2.09%, 1/19/05 .................. 9,954,136
4,000 UBS Finance Delaware LLC., 1.84%, 11/1/04 ...................... 4,000,000
-----------
Total Commercial Paper (cost-$65,747,258) ...................... 65,747,258
-----------
ASSET-BACKED SECURITIES - 9.7%
10,000 Cheyne High Grade ABS CDO, Ltd., 2.28%, 11/10/04, FRN (a) ...... 10,000,000
10,000 Whitehawk CDO Funding Ltd., 1.81%, 12/15/04, FRN (a) ........... 10,000,000
-----------
Total Asset-Backed Securities (cost- $20,000,000) .............. 20,000,000
-----------
CERTIFICATES OF DEPOSIT - 4.9%
10,000 Goldman Sachs Group, Inc., 1.39%, 7/29/05 (cost-$10,000,000) ... 10,000,000
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS - 4.9%
10,000 Permanent Financing PLC, 1.84%, 11/10/04, FRN (cost-$10,000,000) 10,000,000
-----------
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2004
PRINCIPAL
AMOUNT
(000) VALUE
----- -----
MASTER NOTE - 4.9%
$ 10,000 Citigroup Master Note, 1.95%, 11/1/04, FRN (cost-$10,000,000) $ 10,000,000
------------
TIME DEPOSITS - 4.9%
10,000 Fortis Bank NY., 1.85%, 11/1/04 (cost-$10,000,000) 10,000,000
------------
REPURCHASE AGREEMENT - 0.2%
450 Agreement with State Street Bank & Trust Co., dated October 29, 2004,
1.40% due 11/1/04, proceeds: $450,053; collateralized by Freddie Mac,
2.875% due 9/15/05, valued at $463,413; (cost-$450,000) 450,000
------------
Total Investments (cost-$215,246,517) - 104.9% 215,246,517
Liabilities in excess of other assets - (4.9)% (10,122,707)
------------
Net Assets - 100.0% $205,123,810
============
- -----------------------------------
NOTES TO SCHEDULE OF INVESTMENTS:
(a) 144a Security - Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transaction
exempt from registration, typically only to qualified institutional
investors.
GLOSSARY:
- ---------
CDO - Collateralized Debt Obligation
FRN - Floating Rate Note, maturity date shown is date of next rate change and
the interest rate disclosed reflects the rate in effect on October 31,
2004.
See accompanying notes to financial statements.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2004
ASSETS:
Investments, at value (cost-$215,246,517) $ 215,246,517
Cash 15,622
Interest receivable 196,143
Prepaid expenses 3,735
-------------
Total Assets 215,462,017
-------------
LIABILITIES:
Payable for investments purchased 10,000,000
Dividends payable 300,764
Accrued expenses 37,443
-------------
Total Liabilities 10,338,207
-------------
Net Assets $ 205,123,810
=============
NET ASSETS CONSIST OF:
Paid-in-capital (no par value, unlimited number of shares authorized;
205,122,713 shares outstanding) $ 205,122,713
Accumulated net realized gain on investments 1,097
-------------
Net Assets $ 205,123,810
=============
NET ASSET VALUE PER SHARE $1.00
=============
See accompanying notes to financial statements.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 24, 2004* THROUGH OCTOBER 31, 2004
INVESTMENT INCOME:
Interest $ 1,697,803
------------
EXPENSES:
Administration fees 37,648
Investment advisory fees 21,961
Custodian and accounting agent fees 20,370
Audit and tax services fees 16,452
Transfer agent fees 6,828
Insurance expense 3,472
Reports to shareholders 1,291
Registration fees 1,290
Trustees' fees 499
Legal fees 476
Miscellaneous 768
------------
Total expenses 111,055
Less: Investment advisory fees waived (21,961)
Expense reimbursed by Investment Adviser (22,096)
Custody credits earned on cash balances (512)
------------
Net expenses 66,486
------------
Net investment income 1,631,317
------------
Net realized gain on investments 1,330
------------
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS $ 1,632,647
============
- -----------------------------------------------------
* Commencement of operations.
See accompanying notes to financial statements.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD MARCH 24, 2004* THROUGH OCTOBER 31, 2004
INVESTMENT OPERATIONS:
Net investment income $1,631,317
Net realized gain on investments 1,330
-------------
Net increase in net assets resulting from investment operations 1,632,647
-------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investments income (1,631,317)
Net realized gains (233)
-------------
Total dividends and distributions to shareholders (1,631,550)
-------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of shares 287,885,520
Cost of shares redeemed (82,762,807)
-------------
Net increase in net assets from capital share transactions 205,122,713
-------------
Total increase in net assets 205,123,810
NET ASSETS:
Beginning of period -
-------------
End of period $205,123,810
=============
SHARES ISSUED AND REDEEMED:
Issued 287,885,520
Redeemed (82,762,807)
-------------
Net increase 205,122,713
=============
- -----------------------------------------------------
* Commencement of operations.
See accompanying notes to financial statements.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
FINANCIAL HIGHLIGHTS
FOR A SHARE OF OUTSTANDING FOR THE PERIOD MARCH 24, 2004*
THROUGH OCTOBER 31, 2004:
Net asset value, beginning of period $1.00
-----------
INVESTMENT OPERATIONS:
Net investment income 0.01
Net realized gain on investments 0.00 **
-----------
Total from investment operations 0.01
-----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.01)**
Net realized gain 0.00 **
-----------
Total dividends and distributions to shareholders (0.01)
-----------
Net asset value, end of period $1.00
===========
TOTAL RETURN (1) 0.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) $205,124
Ratio of expenses to average net assets (2)(3)(4) 0.05%
Ratio of net investment income to average net assets (3)(4) 1.30%
- ---------------------------------
* Commencement of operations.
** Less than $0.005 per share.
(1) Assumes reinvestment of all dividends and distributions. Total return for a
period of less than one year is not annualized.
(2) Inclusive of expenses offset by custody credits earned on cash balances at
the custodian bank (See (1)(F) in Notes to Financial Statements).
(3) During the fiscal period indicated above, the Investment Adviser waived all
of its fee and assumed a portion of the Fund's operating expenses. If such
waiver and assumption had not been in effect, the ratio of expenses to
average net assets and the ratio of net investment income to average net
assets would have been 0.09% (annualized) and 1.26% (annualized),
respectively.
(4) Annualized.
See accompanying notes to financial statements.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2004
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Fixed Income SHares (the "Trust"), was organized as a Massachusetts business
trust on November 3, 1999. The Trust is comprised of Series C, Series M, Series
R (the "Portfolios") and the Allianz Dresdner Daily Asset Fund (the "Fund").
These financial statements relate to the Fund. The financial statements for the
Portfolios are provided separately. The Fund is registered under the Investment
Company Act of 1940 ("1940 Act") as an open-end Investment Company. The Fund is
authorized to issue an unlimited number of shares of beneficial interest at
$.001 par value.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures in
the financial statements. Actual results could differ from those estimates.
Under the Trust's organizational documents the Fund's officers trustees,
employees and agents are indemnified against certain liabilities that may arise
out of performance of their duties to the Fund. Additionally, in the normal
course of business, the Fund enters into contracts that contain a variety of
representations which provide general indemnifications. The Fund's maximum
exposure under these arrangements is unknown as such exposure would involve
claims that may be made against the Fund that have not yet been asserted.
However, the Fund expects the risk of any loss to be remote.
The following is a summary of significant accounting policies followed by the
Fund:
(A) VALUATION OF INVESTMENTS
The Fund values its investments on the basis of amortized cost which
approximates market value. The amortized cost method involves valuing a security
at cost on the date of purchase and thereafter assuming a constant dollar
amortization to maturity of the difference between the principal amount due at
maturity and the initial cost of the security. The use of amortized cost is
subject to compliance with the Fund's amortized cost procedures and certain
conditions under Rule 2a-7 of the 1940 Act.
(B) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Interest
income, adjusted for the accretion of discounts and amortization of premiums, is
recorded on an accrual basis.
(C) FEDERAL INCOME TAXES
The Fund intends to distribute all of its taxable income and comply with the
other requirements of the U.S. Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies. Accordingly, no provision for U.S.
federal income taxes is required. In addition, by distributing substantially all
of its ordinary income and capital gains, if any, during each calendar year, the
Fund intends not to be subject to U.S. federal excise tax.
(D) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions from net realized capital gains, if any, are declared and paid
annually.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2004
(CONTINUED)
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Fund records dividends and distributions to shareholders on the ex-dividend
date. The amount of dividends and distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States of America. These "book-tax" differences
are considered either temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within the
capital accounts based on their federal income tax treatment; temporary
differences do not require reclassification.
(E) REPURCHASE AGREEMENTS
The Fund may enter into transactions with its custodian bank or securities
brokerage firms approved by the Board of Trustees whereby it purchases
securities under agreements to resell at an agreed upon price and date
("repurchase agreements"). Such agreements are carried at the contract amount in
the financial statements. Collateral pledged (the securities received), which
consists primarily of U.S. government obligations and asset backed securities,
are held by the custodian bank until maturity of the repurchase agreement.
Provisions of the repurchase agreements and the procedures adopted by the Fund
require that the market value of the collateral, including accrued interest
thereon, is sufficient in the event of default by the counterparty. If the
counterparty defaults and the value of the collateral declines or if the
counterparty enters an insolvency proceeding, realization of the collateral by
the Fund may be delayed or limited.
(F) CUSTODY CREDITS EARNED ON CASH BALANCES
The Fund benefits from an expense offset arrangement with its custodian bank
whereby uninvested cash balances earn credits which reduce monthly custodian
expenses. Had these cash balances been invested in income producing securities,
they would have generated income for the Fund.
(2) INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
(A) INVESTMENT ADVISER
Dresdner Advisors LLC ("Dresdner Advisors" or the "Investment Adviser"), a
wholly-owned subsidiary of Dresdner Bank AG, serves as the Fund's investment
adviser. Subject to the supervision of the Board of Trustees, the Investment
Adviser is responsible for managing the Fund's investment activities. Pursuant
to an investment advisory agreement with the Fund, the Investment Adviser
receives an annual fee, payable monthly, at the annual rate of 0.0175% of the
Fund's average daily net assets. The Investment Adviser has contractually
agreed, for the period March 24, 2004 through March 23, 2005, to waive its
investment advisory fee or pay all or a portion of the Fund's other operating
expenses so that the Fund's net operating expenses do not exceed 0.053% (net of
any expense offset) of the Fund's average daily net assets.
(B) ADMINISTRATOR
PA Fund Management LLC ("the Administrator"), an affiliate of the Investment
Adviser, and formerly PIMCO Advisors Fund Management LLC, an indirect
wholly-owned subsidiary of Allianz Global Investors of America L.P., ("AGI"),
formerly, Allianz Dresdner Asset Management of America, L.P., serves as the
Fund's administrator and is responsible for managing the Fund's business affairs
and other administrative matters. Pursuant to an administration agreement with
the Fund, the Administrator receives an annual fee, payable monthly, at an
annual rate of 0.03% of the Fund's average daily net assets.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2004
(CONTINUED)
(2) INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR (CONTINUED)
(C) DISTRIBUTOR
PA Distributors LLC (the "Distributor"), an indirect wholly-owned subsidiary of
AGI, serves as the distributor of the Fund's shares. Pursuant to a distribution
agreement with the Trust, the Investment Adviser on behalf of the Fund pays the
Distributor.
(3) CAPITAL STOCK
At October 31, 2004, 73.1% of the Fund's outstanding shares were owned by an
affiliate of the Investment Adviser and 24.4% were owned by the State of Florida
Public Employee Retirement System. Investment activity by these shareholders
could have a material impact on the Fund.
(4) INCOME TAX INFORMATION
At October 31, 2004, the tax character of distributable earnings of $1,631,550
was comprised entirely from ordinary income.
(5) LEGAL PROCEEDINGS
On September 13, 2004, the Securities and Exchange Commission (the "Commission")
announced that the Administrator, the Distributor and an investment advisory
affiliate had agreed to a settlement of charges that they and certain of their
officers had, among other things, violated various antifraud provisions of the
federal securities laws in connection with an alleged market-timing arrangement
involving trading of shares of various open-end investment Companies advised or
distributed by the Administrator, the Distributor or certain of their
affiliates. In their settlement with the Commission, the Administrator, the
Distributor and the investment advisory affiliate consented to the entry of an
order by the Commission and, without admitting or denying the findings contained
in the order, agreed to implement certain compliance and governance changes and
consented to cease-and-desist orders and censures. In addition, the
Administrator, the Distributor and their affiliate agreed to pay civil money
penalties in the amount of $40 million and to pay disgorgement in the amount of
$10 million, for an aggregate payment of $50 million. In connection with the
settlement, the Administrator, the Distributor and their affiliate have been
dismissed from the related complaint the Commission filed by the Commission on
May 6, 2004 in the U.S. District Court in the Southern District of New York.
Neither the complaint nor the order alleges any inappropriate activity took
place with respect to the Fund.
In a related action on June 1, 2004, the Attorney General of the State of New
Jersey (the "NJAG") announced that it had entered into a settlement agreement
with AGI, the Distributor and certain of their affiliates in connection with a
complaint filed by the NJAG on February 17, 2004. In the settlement, AGI, the
Distributor and the other named affiliates neither admitted nor denied the
allegations or conclusions of law, but did agree to pay New Jersey a civil fine
of $15 million and $3 million for investigative costs and further potential
enforcement initiatives against unrelated parties. They also undertook to
implement certain governance changes. The complaint relating to the settlement
contained allegations arising out of the same matters that were the subject of
the Commission order regarding market-timing described above.
On September 15, 2004, the Commission announced that the Administrator, the
Distributor and an investment advisory affiliate had agreed to settle an
enforcement action in connection with charges that they violated various
antifraud and other provisions of federal securities laws as a result of, among
other things, their failure to disclose to the board of trustees and
shareholders of various open-end funds advised
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2004
(CONTINUED)
(5) LEGAL PROCEEDINGS (CONTINUED)
or distributed by the Administrator, the Distributor and their affiliate
material facts and conflicts of interest that arose from their use of brokerage
commissions on portfolio transactions to pay for so-called "shelf space"
arrangements with certain broker-dealers. In the settlement, the Administrator,
the Distributor and their affiliate consented to the entry of an order by the
Commission without admitting or denying the findings contained in the order. In
connection with the settlement, the Administrator, the Distributor and their
affiliate agreed to undertake certain compliance and disclosure reforms and
consented to cease-and-desist orders and censures. In addition, the
Administrator, the Distributor and their affiliate agreed to pay a civil money
penalty of $5 million and to pay disgorgement of $6.6 million based upon the
aggregate amount of brokerage commissions alleged to have been paid by such
open-end funds in connection with these shelf-space arrangements (and related
interest). In a related action, the California Attorney General announced on
September 15, 2004 that it had entered into an agreement with the Distributor in
resolution of an investigation into matters that are similar to those discussed
in the Commission's order. The settlement agreement resolves matters described
in the complaint filed by the California Attorney General in the Superior Court
of the State of California alleging, among other things, that the Distributor
violated certain antifraud provisions of California law by failing to disclose
matters related to the shelf-space arrangements described above. In the
settlement agreement, the Distributor did not admit to any liability but agreed
to pay $5 million in civil penalties and $4 million in recognition of the
California Attorney General's fees and costs associated with the investigation
and related matters. Neither the Commission's order nor the California Attorney
General's complaint alleges any inappropriate activity took place with respect
to the Fund.
Since February 2004, the Administrator, the Distributor and certain of their
affiliates and employees have been named as defendants in 14 lawsuits filed in
U.S. District Court in the Southern District of New York, the Central District
of California and the Districts of New Jersey and Connecticut. Ten of those
lawsuits concern "market timing," and they have been transferred to and
consolidated for pre-trial proceedings in the U.S. District Court for the
District of Maryland; the remaining four lawsuits concern "revenue sharing" with
brokers offering "shelf space" and have been consolidated into a single action
in the U.S. District Court for the District of Connecticut. The lawsuits have
been commenced as putative class actions on behalf of investors who purchased,
held or redeemed shares of affiliated funds during specified periods or as
derivative actions on behalf of the funds. The lawsuits generally relate to the
same facts that are the subject of the regulatory proceedings discussed above.
The lawsuits seek, among other things, unspecified compensatory damages plus
interest and, in some cases, punitive damages, the rescission of investment
advisory contracts, the return of fees paid under those contracts and
restitution. The Fund is a series of Fixed Income SHares, also referred to
herein as the Trust which has been named in four of the market timing class
actions. The Administrator and the Distributor believe that other similar
lawsuits may be filed in federal or state courts naming as defendants the
Administrator, the Distributor, AGI, the Trust, other open- and closed-end funds
advised or distributed by the Administrator, the Distributor and/or their
affiliates, the boards of trustees of those funds, and/or other affiliates and
their employees.
Under Section 9(a) of the 1940 Act, if any of the various regulatory proceedings
or lawsuits were to result in a court injunction against the Administrator, the
Distributor, AGI and/or their affiliates, they and their affiliates (including
Dresdner Advisors) would, in the absence of exemptive relief granted by the
Commission, be barred from serving as an investment adviser/sub-adviser or
principal underwriter for any registered investment company, including the Fund.
In connection with an inquiry from the Commission concerning the status of the
New Jersey settlement described above under Section 9(a), the Administrator, the
Distributor, the Investment Adviser and certain of their affiliates (together,
the "Applicants") have sought exemptive relief from the Commission under Section
9(c) of the Investment Company Act of 1940.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2004
(CONTINUED)
(5) LEGAL PROCEEDINGS (CONTINUED)
The Commission has granted the Applicants a temporary exemption from the
provisions of Section 9(a) with respect to the New Jersey settlement until the
earlier of (i) September 13, 2006 and (ii) the date on which the Commission
takes final action on their application for a permanent order. There is no
assurance that the Commission will issue a permanent order. It is possible that
these matters and/or other developments resulting from these matters could lead
to increased Fund redemptions or other adverse consequences to the Fund and its
shareholders. However, the Investment Adviser, the Administrator and the
Distributor believe that these matters are not likely to have a material adverse
effect on the Fund or on the Administrator's, Investment Adviser or the
Distributor's ability to perform their respective, investment advisory,
administration or distribution services relating to the Fund.
(6) CORPORATE CHANGES
On July 29, 2004, Stephen Treadway resigned as the Fund's Chairman. On December
14, 2004, Thomas J. Fuccillo was appointed as the Fund's Secretary.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Fixed Income SHares - Allianz
Dresdner Daily Asset Fund
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Fixed Income SHares: Allianz
Dresdner Daily Asset Fund (a fund of Fixed Income Shares, hereafter referred to
as the "Fund") at October 31, 2004, the results of its operations, the changes
in its net assets and the financial highlights for the period indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 2004 by
correspondence with the custodian and counterparties, provides a reasonable
basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
KANSAS CITY, MO
DECEMBER 23, 2004
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
Subchapter M of the Internal Revenue Code of 1986, as amended, requires the Fund
to advise shareholders within 60 days of the Fund's fiscal year-end (October 31,
2004) as to the federal tax status of dividends and distributions received by
shareholders during such tax year. Accordingly, during the tax year ended
October 31, 2004, per share dividends of $0.00787 were comprised entirely from
ordinary income and the tax character of distributable earnings of $1,097 was
comprised entirely of ordinary income.
Since the Fund's tax year is not the calendar year, another notification will be
sent with respect to calendar year 2004. In January 2005, shareholders will be
advised on IRS Form 1099 DIV as to the federal tax status of the dividends and
distributions received during calendar year 2004. The amount that will be
reported, will be the amount to be used on your 2004 federal income tax return
and may differ from the amount which must be reported in connection with the
Fund's tax year ended October 31, 2004. Shareholders are advised to consult with
their tax advisors as to the federal, state and local tax status of the income
received by the Fund.
FIXED INCOME SHARES
ALLIANZ DRESDNER DAILY ASSET
BOARD OF TRUSTEES
- --------------------------------------------------------------------------------
PAUL BELICA
1345 Avenue of the Americas
New York, NY 10105
Age: 83
Trustee since: 2000
Term of Office: Perpetual
Trustee/Director of 21 funds in Fund Complex
Trustee/Director of no funds outside of Fund Complex
Director, Student Loan Finance Corp., Education Loans, Inc., Goal Funding I,
Inc., Goal Funding II, Inc., and Surety Loan Financing, Inc.; Formerly senior
executive and member of the board of Smith Barney, Harris Upham & Co..; and the
CEO of five New York agencies.
- --------------------------------------------------------------------------------
ROBERT E. CONNOR
1345 Avenue of the Americas
New York, NY 10105
Age: 70
Trustee since: 2000
Term of office: Perpetual
Trustee/Director of 21 funds in Fund Complex
Trustee/Director of no funds outside of Fund Complex
Corporate Affairs Consultant. Formerly, Senior Vice-President, Corporate Office,
Smith Barney, Inc.
TRUSTEES AND PRINCIPAL OFFICERS
Paul Belica Trustee
Robert E. Connor Trustee
Brian S. Shlissel President & Chief Executive Officer
Newton B. Schott, Jr. Vice President
Lawrence G. Altadonna Treasurer
Thomas J. Fuccillo Secretary
Jennifer A. Patula Assistant Secretary
Youse Guia Chief Compliance Officer
INVESTMENT ADVISER
Dresdner Advisors LLC
1301 Avenue of the Americas
New York, NY 10019
ADMINISTRATOR
PA Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105
DISTRIBUTOR
PA Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
CUSTODIAN AND ACCOUNTING AGENT
State Street Corp.
801 Pennsylvania Avenue
Kansas City, MO 64105
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
Boston Financial Data Services
330 West 9th Street
Kansas City, MO 64105
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
1055 Broadway
Kansas City, MO 64105
LEGAL COUNSEL
Ropes & Gray LLP
One International Place
Boston, MA 02110
This report, including the financial information herein, is transmitted to the
shareholders of Fixed Income SHares Inc.-Allianz Dresdner Daily Asset Fund for
their information. It is not a prospectus, circular or representation intended
for use in the purchase of shares of the Fund or any securities mentioned in
this report.
Proxy Voting - since the Fund invests exclusively in non-voting securities, the
Fund does not have proxy policies and procedures.
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (the "Commission") for the first and third quarters of
it's fiscal year on Form N-Q which is available (i) on the Commission's website
at www.sec.gov, and (ii) at the Commission's Public Reference Room which is
located at the Commission's headquarter's office, 450 5th Street N.W. Room 1200,
Washington, DC 20549, telephone number (202) 942-8090.
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, the registrant has
adopted a code of ethics (the "Section 406 Standards for Investment
Companies -- Ethical Standards for Principal Executive and Financial
Officers") that applies to the registrant's Principal Executive
Officer and Principal Financial Officer; the registrant's Principal
Financial Officer also serves as the Principal Accounting Officer. The
registrant undertakes to provide a copy of such code of ethics to any
person upon request, without charge, by calling 1-800-331-1710.
(b) During the period covered by this report, there were not any
amendments to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in
2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The registrant's Board has determined
that Mr. Paul Belica, a member of the Board's Audit Oversight Committee is an
"audit committee financial expert," and that he is "independent," for purposes
of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit fees. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by
the Registrant's principal accountant (the "Auditor")for the audit of
the Registrant's annual financial statements, or services that are
normally provided by the Auditor in connection with the statutory and
regulatory filings or engagements for the Reporting Periods, were
$34,324 in 2003 and $50,875 in 2004.
b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods
for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit registrant's
financial statements and are not reported under paragraph (e) of this
Item were $10,230 in 2003 and $23,000 in 2004. These services consist
of accounting consultations, agreed upon procedure reports (inclusive
of annual review of basic maintenance testing associated with the
Preferred Shares), attestation reports and comfort letters.
c) Tax Fees. The aggregate fees billed in the Reporting Periods for
professional services rendered by the Auditor for tax compliance, tax
service and tax planning ("Tax Services") were $5,000 in 2003 and
$14,400 in 2004. These services consisted of review or preparation of
U.S. federal, state, local and excise tax returns.
d) All Other Fees. There were no other fees billed in the Reporting
Periods for products and services provided by the Auditor to the
Registrant.
e) 1. Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and procedures
for pre-approval of all audit and permissible non-audit services by
the Auditor for the Registrant, as well as the Auditor's engagements
for non-audit services to the when the engagement relates directly to
the operations and financial reporting of the Registrant. The
Registrant's policy is stated below.
Fixed Income Shares: Series C, Series M, Series R and the Allianz
Dresdner Daily Asset Fund (THE "TRUST")
AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL OF SERVICES PROVIDED BY THE
INDEPENDENT ACCOUNTANTS
The Trust's Audit Oversight Committee ("Committee") is charged with the
oversight of the Trust's financial reporting policies and practices and their
internal controls. As part of this responsibility, the Committee must
pre-approve any independent accounting firm's engagement to render audit and/or
permissible non-audit services, as required by law. In evaluating a proposed
engagement by the independent accountants, the Committee will assess the effect
that the engagement might reasonably be expected to have on the accountant's
independence. The Committee's evaluation will be based on:
a review of the nature of the professional services expected to provided,
the fees to be charged in connection with the services expected to be
provided,
a review of the safeguards put into place by the accounting firm to
safeguard independence, and
periodic meetings with the accounting firm.
POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED TO THE FUNDS
On an annual basis, the Trust's Committee will review and pre-approve the scope
of the audits of the Trusts and proposed audit fees and permitted non-audit
(including audit-related) services that may be performed by the Funds'
independent accountants. At least annually, the Committee will receive a report
of all audit and non-audit services that were rendered in the previous calendar
year pursuant to this Policy. In addition to the Committee's pre-approval of
services pursuant to this Policy, the engagement of the independent accounting
firm for any permitted non-audit service provided to the Trusts will also
require the separate written pre-approval of the President of the Trusts, who
will confirm, independently, that the accounting firms's engagement will not
adversely affect the firm's independence. All non-audit services performed by
the independent accounting firm will be disclosed, as required, in filings with
the Securities and Exchange Commission.
AUDIT SERVICES
The categories of audit services and related fees to be reviewed and
pre-approved annually by the Committee are:
Annual Fund financial statement audits
Seed audits (related to new product filings, as required)
SEC and regulatory filings and consents
Semiannual financial statement reviews
AUDIT-RELATED SERVICES
The following categories of audit-related services are considered to be
consistent with the role of the Fund's independent accountants and services
falling under one of these categories will be pre-approved by the Committee on
an annual basis if the Committee deems those services to be consistent with the
accounting firm's independence:
Accounting consultations
Fund merger support services
Agreed upon procedure reports (inclusive of quarterly review of Basic
Maintenance testing associated with issuance of Preferred Shares and
semiannual report review)
Other attestation reports
Comfort letters
Other internal control reports
Individual audit-related services that fall within one of these categories and
are not presented to the Committee as part of the annual pre-approval process
described above, may be pre-approved, if deemed consistent with the accounting
firm's independence, by the Committee Chair (or any other Committee member who
is a disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
TAX SERVICES
The following categories of tax services are considered to be consistent with
the role of the Trusts independent accountants and services falling under one of
these categories will be pre-approved by the Committee on an annual basis if the
Committee deems those services to be consistent with the accounting firm's
independence:
Tax compliance services related to the filing or amendment of the following:
Federal, state and local income tax compliance; and, sales and use tax
compliance
Timely RIC qualification reviews
Tax distribution analysis and planning
Tax authority examination services
Tax appeals support services
Accounting methods studies
Fund merger support service
Other tax consulting services and related projects
Individual tax services that fall within one of these categories and are not
presented to the Committee as part of the annual pre-approval process described
above, may be pre-approved, if deemed consistent with the accounting firm's
independence, by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
PROSCRIBED SERVICES
The Trusts' independent accountants will not render services in the following
categories of non-audit services:
Bookkeeping or other services related to the accounting records or financial
statements of the Funds
Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser or investment banking services
Legal services and expert services unrelated to the audit
Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible
PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER ENTITIES WITHIN THE TRUST
COMPLEX
The Committee will pre-approve annually any permitted non-audit services to be
provided to PA Fund Management LLC (Formerly, PIMCO Advisors Fund Management
LLC) or any other investment manager to the Funds (but not including any
sub-adviser whose role is primarily portfolio management and is sub-contracted
by the investment manager) (the "Investment Manager") and any entity
controlling, controlled by, or under common control with the Investment Manager
that provides ongoing services to the Funds (including affiliated sub-advisers
to the Funds), provided, in each case, that the engagement relates directly to
the operations and financial reporting of the Funds (such entities, including
the Investment Manager, shall be referred to herein as the "Accounting
Affiliates"). Individual projects that are not presented to the Committee as
part of the annual pre-approval process, may be pre-approved, if deemed
consistent with the accounting firm's independence, by the Committee Chairman
(or any other Committee member who is a disinterested trustee under the
Investment Company Act to whom this responsibility has been delegated) so long
as the estimated fee for those services does not exceed $100,000. Any such
pre-approval shall be reported to the full Committee at its next regularly
scheduled meeting.
Although the Committee will not pre-approve all services provided to the
Investment Manager and its affiliates, the Committee will receive an annual
report from the Funds' independent accounting firm showing the aggregate fees
for all services provided to the Investment Manager and its affiliates.
DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL OF NON-AUDIT SERVICES
With respect to the provision of permitted non-audit services to a Trust or
Accounting Affiliates, the pre-approval requirement is waived if:
(1) The aggregate amount of all such permitted non-audit services provided
constitutes no more than (i) with respect to such services provided to
the Trust, five percent (5%) of the total amount of revenues paid by
the Trust to its independent accountant during the fiscal year in which
the services are provided, and(ii) with respect to such services
provided to Accounting Affiliates, five percent (5%)of the total
amount of revenues paid to the Trusts independent accountant by the
Trust and the Accounting Affiliates during the fiscal year in which
the services are provided;
(2) Such services were not recognized by the Trust at the time of the
engagement for such services to be non-audit services; and
(3) Such services are promptly brought to the attention of the Committee
and approved prior to the completion of the audit by the Committee or
by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
Committee Chairman or other delegate shall be reported to the full
Committee at its next regularly scheduled meeting.
e) 2. No services were approved pursuant to the procedures contained
in paragraph (C) (7) (i) (C) of Rule 2-01 of Registration S-X.
f) Not applicable
g) Non-audit fees. The aggregate non-audit fees billed by the
Auditor for services rendered to the Registrant, and rendered to
the Adviser, for the 2003 Reporting Period was $3,595,480 and for
the 2004 Reporting Period was $3,066,509.
h) Auditor Independence. The Registrant's Audit Oversight Committee
has considered whether the provision of non-audit services that
were rendered to the Adviser which were not pre-approved is
compatible with maintaining the Auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT Disclosure not required for
open-end management investment companies.
ITEM 6. SCHEDULE OF INVESTMENTS Schedule of Investments is included as part of
the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. Disclosure not required for open-end Management
investment companies.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED COMPANIES. Disclosure not required for open-end
Management investment companies.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no
materials to the procedures by which shareholders may recommended nominees to
the registrant's board of directors, where implemented after the registrants
last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(6)
of Schedule 14A (17CFR 2-10. 14a-101).
ITEM 10. CONTROLS AND PROCEDURES
(a) The registrant's President and Chief Executive Officer and Principal
Financial Officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company Act of
1940, as amended are effective based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant's internal controls or
in factors that could affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 11. EXHIBITS
(a)(1) Exhibit 99.CODE ETH- Code of Ethics
(a)(2) Exhibit 99.CERT - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906CERT - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Fixed Income SHares
By /s/ Brian S. Shlissel
Brian S. Shlissel, President & Chief Executive Officer
Date: January 10, 2005
By /s/ Lawrence G. Altadonna
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: January 10, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Brian S. Shlissel
- ------------------------
Brian S. Shlissel, President & Chief Executive Officer
Date: January 10, 2005
By /s/ Lawrence G. Altadonna
Lawrence G. Altadonna, Treasurer, Principal Financial & Accounting Officer
Date: January 10, 2005
