HOW THE FUNDS VOTE PROXIES
The Funds' Investment Adviser votes proxies on behalf of the Funds pursuant to
written Proxy Policy Guidelines and Procedures ("Proxy Guidelines") adopted by
the Funds. A summary of the Proxy Guidelines is provided below. To obtain
information on how your Fund's securities were voted, please contact your
account representative at 1-800-551-8043.
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NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
PROXY VOTING SUMMARY
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REVISED 10/10/03
Nicholas-Applegate Capital Management takes seriously the responsibility of
voting proxies on behalf of our clients. Our policies and procedures are
designed to meet all applicable fiduciary standards and to protect the rights
and enhance the economic welfare of those to whom we owe a fiduciary duty.
A Proxy Committee, including executive, investment, sales, marketing, compliance
and operations personnel, is responsible for establishing our policies and
procedures. The Committee reviews these policies and procedures on a regular
basis and makes such changes as it believes are necessary. Our guidelines and
voting actions are to a large extent aligned with the voting recommendations of
Institutional Shareholder Services ("ISS"), a third-party proxy voting service
to which we subscribe.
We review all proxies for which we have voting responsibility, and vote all
proxies according to our written guidelines, taking into account ISS
recommendations and/or investment team input. Our guidelines address such
general areas as elections of directors and auditors, corporate defenses,
corporate governance, mergers and acquisitions, corporate restructuring, state
of incorporation, proxy contest issues, executive compensation, employee
considerations and social issue proposals.
The guidelines contained herein reflect our normal voting position on certain
issues, and will not apply in every situation. The guidelines are intended to
generally cover both U.S. and international proxy voting, although due to
country differences and requirements, international proxy voting may differ
depending on individual facts and circumstances. Some issues require a
case-by-case analysis prior to voting and, in those situations, input from our
investment team will normally be solicited. Even when our guidelines specify how
we normally vote on particular issues, we may change the vote if it is
reasonably determined to be in our clients best interest. In addition, on client
request, we may vote proxies for that client in a particular manner overall,
such as union or labor sensitive.
To ensure that voting responsibilities are met, the Committee has established
operational procedures to have client proxies reconciled against client
holdings. The procedures are also intended to ensure that proxies are voted
consistent with voting guidelines, that the best proxy analysis is used for each
issue, and all votes are recorded
and justified. Any variance from stated policy is carefully noted, including the
reason for the variance.
We maintain proxy voting records for all accounts and make these records
available to clients at their request.
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NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
PROXY VOTING GUIDELINES
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REVISED 10/10/03
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I EXTERNAL AUDITOR
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A. AUDITORS
VOTE FOR proposals to ratify auditors, unless there is a reason to believe the
auditing firm has a financial interest in or association with the company and
is, therefore, not independent; or there is reason to believe the auditor has
rendered an opinion that is neither accurate nor indicative of the company's
financial position.
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II BOARD OF DIRECTORS
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A. DIRECTOR NOMINEES
Votes on director nominees are normally voted in accordance with ISS
analysis and recommendation on each individual proposal. Evaluations are
based on the following criteria (and any others that may be deemed relevant
by ISS or Nicholas-Applegate):
o Long term corporate performance record based on increases in
shareholder wealth, earnings, financial strength
o Executive Compensation
o Director Compensation
o Corporate Governance Provisions and Takeover Activity
o Criminal Activity
o Investment in the Company
o Interlocking Directorships
o Inside, Outside, and Independent Directors
o Board Composition
o Number of Other Board Seats
o Any problems or issues that arose on Other Board assignments
o Support of majority-supported shareholder proposals.
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B. DIRECTOR INDEMNIFICATION AND LIABILITY PROTECTION
1. Proposals concerning director and officer indemnification and liability
protection are normally voted in accordance with ISS analysis and
recommendation on each individual proposal.
2. VOTE AGAINST proposals to limit or eliminate entirely the liability for
monetary damages of directors and officers for violating the duty of
care.
3. VOTE AGAINST indemnification proposals that would expand coverage beyond
just legal expenses to acts like negligence, that are more serious
violations of fiduciary obligation than mere carelessness.
4. VOTE FOR only those proposals providing such expanded coverage on cases
when a director's or officer's legal defense was unsuccessful if: (i)
the director was found to have acted in good faith and in a manner that
he reasonably believed was in the best interest of the company, and (ii)
if only the director's legal expenses would be covered.
C. DIRECTOR DUTIES AND STAKEHOLDER LAWS
VOTE AGAINST management or shareholder proposals to allow the board of
directors to consider the interests of "stakeholders" or "non-shareholder
constituents," unless these proposals make it clear that these interests are
to be considered in the context of the prevailing commitment to
shareholders.
D. DIRECTOR NOMINATIONS
VOTE FOR shareholder proposals asking that management allow large
shareholders equal access to management's proxy to discuss and evaluate
management's director nominees, and/or to nominate and discuss shareholder
nominees to the board.
E. INSIDE VERSUS INDEPENDENT DIRECTORS
1. Shareholder proposals asking that boards be comprised of a majority of
independent directors are normally voted in accordance with ISS analysis
and recommendation on each individual proposal.
2. VOTE FOR shareholder proposals asking that board audit, compensation
and/or nominating committees be comprised exclusively of independent
directors.
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F. STOCK OWNERSHIP REQUIREMENTS
VOTE AGAINST shareholder proposals requiring directors to own a minimum
amount of company stock in order to qualify as a director, or to remain on
the board.
G. TERM OF OFFICE
VOTE AGAINST proposals to limit the tenure of outside directors.
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III PROXY CONTESTS AND CORPORATE DEFENSES
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A. PROXY CONTESTS FOR BOARD SEATS
All votes in a contested election of directors are normally voted in
accordance with ISS analysis and recommendation on each individual proposal.
B. CLASSIFIED BOARDS
1. VOTE AGAINST proposals to classify the board.
2. VOTE FOR proposals to repeal a classified board, and to elect all
directors annually.
C. CUMULATIVE VOTING
1. VOTE FOR proposals to permit cumulative voting in the election of
directors.
2. VOTE AGAINST proposals to eliminate cumulative voting in the election of
directors.
D. DIRECTOR NOMINATIONS
VOTE AGAINST management proposals to limit shareholders' ability to nominate
directors.
E. SHAREHOLDERS' RIGHT TO CALL SPECIAL MEETINGS
1. VOTE AGAINST management proposals to restrict or prohibit shareholders'
ability to call special meetings.
2. VOTE FOR shareholder proposals that remove restrictions on the right of
shareholders to act independently of management.
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F. SHAREHOLDER ACTION BY WRITTEN CONSENT
1. VOTE AGAINST management proposals to restrict or prohibit shareholders'
ability to take action by written consent.
2. VOTE FOR shareholder proposals to allow or make easier shareholder
action by written consent.
G. SIZE OF THE BOARD
1. VOTE FOR proposals that seek to fix the size of the Board.
2. VOTE AGAINST management proposals that give management the ability to
alter the size of the Board without shareholder approval.
H. SHAREHOLDERS' ABILITY TO REMOVE DIRECTORS
1. VOTE AGAINST proposals that state directors may be removed only for
cause.
2. VOTE FOR proposals to restore shareholder ability to remove directors
with or without cause.
3. VOTE AGAINST proposals that provide that only continuing directors may
elect replacements to fill board vacancies.
4. VOTE FOR proposals that permit shareholders to elect directors to fill
board vacancies.
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IV TENDER OFFERS AND CORPORATE DEFENSES
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A. FAIR PRICE PROVISIONS
1. VOTE FOR management proposals to adopt a fair price provision, as long
as the shareholder vote requirement imbedded in the provision is no more
than a majority of the disinterested shares.
2. VOTE FOR shareholder proposals to lower the shareholder vote
requirements imbedded in existing fair price provisions.
B. GREENMAIL
1. VOTE FOR proposals to adopt anti-greenmail charter or bylaw amendments
or otherwise restrict a company's ability to make greenmail payments.
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2. Vote in accordance with ISS analysis and recommendation on each
individual proposal regarding anti-greenmail proposals when they are
bundled with other charter or bylaw amendments.
3. Vote on a CASE-BY-CASE basis regarding restructuring plans that involve
the payment of pale greenmail.
C. POISON PILLS
1. VOTE FOR shareholder proposals asking that a company submit its poison
pill for shareholder ratification.
2. Shareholder proposals to redeem a company's poison pill are normally
voted in accordance with ISS analysis and recommendation on each
individual proposal.
3. Management proposals to ratify a poison pill are normally voted in
accordance with ISS analysis and recommendation on each individual
proposal.
D. STAKEHOLDER PROVISIONS
VOTE AGAINST management proposals allowing the board to consider
stakeholders' (outside constituencies') interests when faced with a tender
offer.
E. SUPER-MAJORITY VOTE REQUIREMENT TO APPROVE MERGERS
1. VOTE FOR shareholder proposals to lower super-majority vote requirements
for mergers and other business combinations.
2. VOTE AGAINST management proposals to require a super-majority
shareholders' vote to approve mergers and other significant business
combinations.
F. SUPER-MAJORITY SHAREHOLDER VOTE REQUIREMENTS TO AMEND CHARTER OR BYLAWS
1. VOTE FOR shareholder proposals to lower super-majority vote requirements
to amend any bylaw or charter provision.
2. VOTE AGAINST management proposals to require a super-majority vote to
amend any bylaw or charter provision.
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G. UNEQUAL VOTING RIGHTS
VOTE AGAINST proposals for dual class exchange offers and dual class
recapitalizations.
H. EXISTING DUAL CLASS COMPANIES
1. VOTE FOR shareholder proposals asking that a company report to
shareholders on the financial impact of its dual class voting structure.
2. VOTE FOR shareholder proposals asking that a company submit its dual
class voting structure for shareholder ratification.
I. WHITE SQUIRE PLACEMENTS
VOTE FOR shareholder proposals to require approval of blank check preferred
stock issues for other than general corporation purposes. (e.g. raising
capital or making acquisitions in the normal course of business).
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V MISCELLANEOUS CORPORATE GOVERNANCE PROVISIONS
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A. ABSTENTION VOTES
VOTE FOR shareholder proposals recommending that votes to "abstain" not be
considered votes "cast" at an annual or special meeting, unless that
consideration is required by state law.
B. ANNUAL MEETINGS
1. VOTE AGAINST management proposals asking for authority to vote at the
meeting for "other matters".
2. VOTE AGAINST shareholder proposals to rotate the time or place of annual
meetings.
C. CONFIDENTIAL VOTING AND INDEPENDENT TABULATION AND INSPECTIONS
VOTE FOR proposals to adopt a policy that comprises both confidential voting
and the use of independent vote tabulators of elections.
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D. EQUAL ACCESS
VOTE FOR shareholder proposals to allow significant company shareholders
equal access to management's proxy material in order to evaluate and propose
voting recommendations on proxy proposals and director nominees, and/or to
nominate their own candidates to the board.
E. BUNDLED PROPOSALS
Bundled or "conditioned" proxy proposals are normally voted in accordance
with ISS analysis and recommendation on each individual proposal. (e.g.,
management proposals to provide shareholders a special dividend that are
bundled with other charter or bylaw changes).
F. SHAREHOLDER ADVISORY COMMITTEE
1. Shareholder proposals to establish shareholder advisory committees are
normally voted in accordance with ISS analysis and recommendation on
each individual proposal.
2. Decisions on whether or not to join a shareholder advisory committee are
normally voted in accordance with ISS analysis and recommendation on
each individual proposal.
G. DISCLOSURE PROPOSALS
Shareholder proposals requesting fuller disclosure of company policies,
plans or business practices are normally voted in accordance with ISS
analysis and recommendation on each individual proposal.
H. CONFLICT OF INTEREST
When facing conflicts between our interests and the interests of our
clients, Nicholas-Applegate will always act in the best interests of its
clients. In proxy voting matters, conflicts of interest can arise in many
ways. For example, a proxy issue could arise for one of our public clients
that we also own in one or more client accounts. Or, a potential client
battling a contentious shareholder proposal may ask for our vote in exchange
for granting us an investment mandate. In these cases and other potential
conflict scenarios, Nicholas-Applegate must exercise caution to ensure our
clients' interests are not compromised.
We believe a reasonable process to screen for potential conflicts that could
influence our proxy voting is as follows:
(i) identify any situation where we DO NOT intend to vote in accordance
with our normal policy on any issue;
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(ii) determine who is directing (portfolio manager, client, etc) us to
vote contrary to our normal policy;
(iii) review and analyze for potential conflict issues (e.g., may
require PM to disclose any relationship with the issuer via a
written questionnaire);
(iv) Proxy Committee to review request to vote contrary to policy, and
potential conflict if any, prior to voting, and will make final
decision.
(v) pursuant to the request of the Board of Trustees of the
Nicholas-Applegate Institutional Funds, NACM will report to the
Board any conflict of interest matter and how the Committee resolved
it.
The Proxy Committee will be responsible for implementing and following the
above process, and has the flexibility to use its reasonable judgment in
determining which steps are necessary under each set of circumstances.
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VI CAPITAL STRUCTURE
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A. COMMON STOCK AUTHORIZATION
1. Proposals to increase the number of shares of common stock the board is
authorized to issue are normally voted in accordance with ISS analysis
and recommendation on each individual proposal.
2. Proposals to increase the number of shares of common stock authorized
for issue are normally voted in accordance with ISS analysis and
recommendation on each individual proposal.
3. VOTE AGAINST proposed common share authorizations that increase existing
authorization by more than 100 percent unless a clear need for the
excess shares is presented by the company.
B. STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
VOTE FOR management proposals to increase common share authorization for a
stock split, provided that the increase in authorized shares following the
split is not greater than 100 percent of existing authorized shares.
C. REVERSE STOCK SPLITS
VOTE FOR management proposals to implement a reverse stock split that also
reduce the number of authorized common shares to a level that does not
represent an increase of more than 100 percent of existing authorized common
shares.
D. BLANK CHECK PREFERRED STOCK
1. VOTE AGAINST management proposals authorizing the creation of new
classes of preferred stock which have unspecified rights including
voting, conversion or dividend distribution rights.
2. Management proposals to increase the number of authorized blank check
preferred shares are normally voted in accordance with ISS analysis and
recommendation on each individual proposal.
3. VOTE FOR shareholder proposals asking that any placement of blank check
preferred stock be first approved by shareholders, unless the placement
is for ordinary business purposes.
4. VOTE FOR proposals to create "blank check" preferred stock in cases when
the company expressly states that the stock will not be used as a
takeover defense or carry superior voting rights.
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E. ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
VOTE FOR management proposals to reduce the par value of common stock.
F. PREEMPTIVE RIGHTS
Proposals to provide shareholders with preemptive rights are normally voted
in accordance with ISS analysis and recommendation on each individual
proposal.
G. DEBT RESTRUCTURING
Proposals to increase common and/or preferred shares and to issue shares as
part of a debt restructuring plan are normally voted in accordance with ISS
analysis and recommendation on each individual proposal.
H. SHARE REPURCHASE PROGRAMS
VOTE FOR management proposals to institute open-market share repurchase
plans in which all shareholders may participate on equal terms.
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VII EXECUTIVE COMPENSATION/EMPLOYEE CONSIDERATION
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A. INCENTIVE PLANS
All proposals on incentive compensation plans (including option plans) for
executives and directors are normally voted in accordance with ISS analysis
and recommendation on each individual proposal. The evaluation is based on
the following criteria (and any other that may be deemed relevant by ISS or
Nicholas-Applegate):
o Necessity
o Reasonableness Test
o Participation
o Dilution
o Shares Available
o Exercise and Payment Terms
o Change-in-Control Provisions
o Types of Awards
o Company specific dilution cap calculated
o Present Value of all incentives, derivative awards, cash/bonus
compensation
o Shareholder wealth transfer (dollar amount of shareholders'
equity paid it's executives)
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o Voting power dilution - Potential percent reduction in relative
voting power
o Criteria for awarding grants
o Process for determining pay levels
B. SHAREHOLDER PROPOSALS TO LIMIT EXECUTIVE AND DIRECTOR COMPENSATION
1. Generally, VOTE FOR shareholder proposals that seek additional
disclosure of executive and director compensation information.
2. All other shareholder proposals that seek to limit executive and
director compensation are normally voted in accordance with ISS analysis
and recommendation on each individual proposal.
C. GOLDEN PARACHUTES
1. VOTE FOR shareholder proposals to have golden and tin parachutes
submitted for shareholder ratification.
2. Proposals to ratify or cancel golden or tin parachutes are normally
voted in accordance with ISS analysis and recommendation on each
individual proposal.
D. EMPLOYEE STOCK OWNERSHIP PLANS (ESOP)
1. VOTE FOR proposals requesting shareholder approval to implement Employee
Stock Ownership Plans, or increase authorized shares for existing
Employee Stock Ownership Plans except when the number of shares
allocated to the ESOP is excessive (i.e. greater than 5% of outstanding
shares).
2. Votes directly pertaining to the approval of an ESOP or a leveraged ESOP
are normally voted in accordance with ISS analysis and recommendation on
each individual proposal. Our evaluation is based on the following
criteria (and any other that may be deemed relevant):
o Reasonableness Test
o Participation
o Administration
o Shares Available
o Exercise and Payment Terms
o Change-in-Control Provisions
o Types of Awards
o Dilution
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E. 401(K) EMPLOYEE BENEFIT PLANS
VOTE FOR proposals to implement a 401(k) savings plan for employees.
F. DISCOUNTED OPTIONS/RESTRICTED STOCK
VOTE AGAINST discounted options and restricted stock without performance
criteria (except restricted stock in U.S.-style stock option plans, which
are normally voted in accordance with ISS analysis and recommendation on
each individual proposal.)
G. PENSION FUND CREDITS
VOTE FOR proposals that EXCLUDE pension fund credits from earnings when
calculating executive compensation. In addition, VOTE AGAINST proposals that
INCLUDE pension fund credits in earnings when calculating executive
compensation.
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VIII STATE OF INCORPORATION
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A. RE-INCORPORATION PROPOSALS
Proposals to change a corporation's state of incorporation are normally
voted in accordance with ISS analysis and recommendation on each individual
proposal.
B. STATE TAKEOVER STATUTES
Proposals to opt in or opt out of state takeover statutes are normally voted
in accordance with ISS analysis and recommendation on each individual
proposal.
C. STATE FAIR PRICE PROVISIONS
Proposals to opt out of S.F.P's are normally voted in accordance with ISS
analysis and recommendation on each individual proposal.
D. STAKEHOLDER LAWS
VOTE FOR proposals to opt out of stakeholder laws (allowing directors to
weigh the interest of constituencies other than shareholders in the process
of corporate decision making).
E. DISGORGEMENT PROVISIONS
Proposals to opt out of disgorgement provisions are normally voted in
accordance with ISS analysis and recommendation on each individual proposal.
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IX MERGERS AND CORPORATE RESTRUCTURINGS
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A. MERGERS AND ACQUISITIONS
Votes on mergers and acquisitions are normally voted in accordance with ISS
analysis and recommendation on each individual proposal. The voting decision
depends on a number of factors, including:
o Anticipated financial and operating benefits
o Offer price (cost vs. premium)
o Prospects of the combined companies
o How the deal was negotiated
o Changes in corporate governance and their impact on shareholder
rights
o Other pertinent factors discussed below.
B. CORPORATE RESTRUCTURINGS
Votes on corporate restructuring proposals, including minority squeezeouts,
leveraged buyouts, spin-offs, liquidations and asset sales, are normally
voted in accordance with ISS analysis and recommendation on each individual
proposal.
C. SPIN-OFFS
Votes on spin-offs are normally voted in accordance with ISS analysis and
recommendation on each individual proposal, considering
o The tax and regulatory advantages
o Planned use of the sale proceeds
o Market focus
o Managerial incentives.
D. ASSET SALES
Votes on asset sales are normally voted in accordance with ISS analysis and
recommendation on each individual proposal, considering
o The impact on the balance sheet/working capital
o The value received for the asset
o The potential elimination of diseconomies.
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E. LIQUIDATIONS
Votes on liquidations normally voted in accordance with ISS analysis and
recommendation on each individual proposal, after reviewing
o Management's efforts to pursue other alternatives
o The appraisal value of the assets
o The compensation plan for executives managing the liquidation.
F. RIGHTS OF APPRAISAL
VOTE FOR shareholder proposals to provide rights of appraisal to dissenting
shareholders.
G. CHANGING CORPORATE NAME
VOTE FOR changing the corporate name.
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X SOCIAL ISSUES PROPOSALS
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A. SOCIAL ISSUES PROPOSALS
Vote to ABSTAIN on social issue proposals, unless the proposal is likely to
affect shareholder value. If so, the issue is normally voted in accordance
with ISS analysis and recommendation on each individual proposal, which is
based on expected effect on shareholder value, and then voted accordingly.
Generally, VOTE FOR disclosure reports that seek additional information.
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XI PROXIES NOT VOTED
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A. SHARES OUT ON LOAN
Proxies are not available to be voted when shares are out on loan through
client securities lending programs with their custodians.
B. SHARE-BLOCKING
Proxies are not voted for countries with "share-blocking", generally, voting
would restrict ability to sell shares. A list of countries with
"share-blocking" is available upon request.
C. OTHER
There may be circumstances, such as costs or other factors, where
Nicholas-Applegate would in its reasonable discretion refrain from voting
proxy shares.
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