SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities
Exchange Act of 1934
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PIMCO FUNDS
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PIMCO Funds
840 Newport Center Drive
Post Office Box 6430
Newport Beach, CA 92658
Tel: 800 927-4648
P I M C O
February 25, 2000
Laura Kuperman
Mutual Fund Analyst
Institutional Shareholder Services
1455 Research Boulevard
Rockville, MD 20850
Re: Proxy Analysis of PIMCO Funds: Pacific Investment
Management Series (the "Trust")
Dear Ms. Kuperman:
We understand that Institutional Shareholder Services ("ISS")
has issued an analysis of the Trust's recent proxy statement with respect to a
March 3, 2000 meeting of its Shareholders (the "Proxy Analysis"). We have
reviewed the Proxy Analysis and would like to offer our clarification of several
misperceptions that you may have concerning that portion of the Proxy Analysis
discussing proposed amendments to the Trust's Declaration of Trust (the
"Amendments"). We believe that the Proxy Analysis in particular misstates the
impact of the proposed Amendments in light of both current terms of the existing
Declaration of Trust and of the regulatory and disclosure regime imposed on the
Trust by the Investment Company Act of 1940 (the "1940 Act").
The principal purpose of the proposed Amendments is to provide
clarification of certain matters under the Trust's current trust instrument, and
to provide the Trust with greater flexibility in responding to changing market
conditions. The Proxy Analysis fails to convey that this increased flexibility
has the potential both to enhance the operating efficiency of each series of the
Trust (a "Fund") and to reduce certain operating costs, both of which we believe
benefit shareholders. In particular, the proposed Amendments would permit the
Funds to engage in certain specified activities, consistent with other
applicable legal requirements, without incurring the substantial costs and time
delay involved in holding a meeting of shareholders. As the costs of preparing
for and holding a shareholders' meeting are substantial and are paid out of Fund
assets under normal circumstances, any cost savings would benefit the Funds and
their shareholders. It is important to note, however, that the Funds remain
fully subject to the disclosure obligations and substantive legal restrictions
applicable to all investment companies registered under the 1940 Act and
therefore no action would ever be taken by a Fund without appropriate advance
notice and disclosure to shareholders.
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Moreover, the Proxy Analysis inaccurately implies that the
Amendments would permit a Fund to raise its investment advisory fees without the
approval of shareholders. Section 15 of the 1940 Act prohibits a Fund from
increasing investment advisory fees unless such a change is first approved by
shareholders of the Fund. None of the proposed changes described in the proxy
statement state or imply that a Fund would be able to increase investment
advisory fees without shareholder approval.
The Proxy Analysis also states that, under the Amendments,
"shareholders would not be consulted before the domicile of the trust is
changed, or the trust is terminated." First, under the current Declaration of
Trust it is arguably within the power of the Trustees to terminate the Trust
without shareholder approval. The Amendments therefore do not restrict existing
shareholder rights in the regard. Second, the Trust was organized as a
Massachusetts business trust in 1987, has operated as such since that time, and
has no intention of changing its domicile, nor can the Trustees or management
articulate at present any reason that the Trust might later do so. Moreover, as
noted above, any proposed reorganization or termination of the Trust or a Fund
would be subject to disclosure requirements under the federal securities laws.
Accordingly, the Trust would disclose the details of any such transaction to its
shareholders prior to the consummation of the transaction to the full extent
required by applicable law. In addition, they would have the opportunity, as
they do currently, to request the redemption of their shares of any Fund at its
then-current net asset value if they objected to any proposed transaction.
Therefore, shareholders would, in fact, be consulted prior to the proposed
reorganization or termination of a Fund and would have the opportunity to
liquidate their investments in the Fund if they should object to the proposed
changes.
Further, the Proxy Analysis mistakenly asserts that the
Amendments would provide the Board of Trustees with "unlimited reign over the
management of the fund's assets and the charter document and state laws that
govern such management." As an initial observation, the Board already has
substantial authority to manage the Funds' assets, subject to fiduciary
obligations imposed under state law and the 1940 Act. Moreover, under the
Amendments, the authority of the Board and management to manage a Fund's assets
would continue to be limited by federal and state laws, the terms of the
Declaration of Trust, and the fiduciary obligations of the Trustees and
management. The Amendments do not, and could not, deny shareholders the rights
and protections granted to them under applicable federal and state laws, and
they in no way lessen applicable fiduciary obligations to shareholders.
The Proxy Analysis implies that the Amendments grant the
Trustees wide-ranging authority to amend the Declaration of Trust, and
incorrectly states that the current Declaration of Trust requires a shareholder
vote for any amendment to the Declaration of Trust. The Amendments would in fact
permit the Board to make subsequent changes to the Declaration of Trust only in
limited circumstances, such as to conform the Declaration of Trust to federal or
state laws, or to make any other change that does not materially adversely
effect the rights of shareholders (Section 8.3 of the proposed Declaration of
Trust). This is consistent with the current Declaration of Trust, which allows
the Board to amend the Declaration of Trust, provided that the amendment does
not materially adversely effect the rights of shareholders.
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We further note that the independent Trustees of the Trust,
who currently constitute a majority of the Board, provide a significant control
on management of the Trust. Such independent members of the Trust's Board of
Trustees are statutorily-mandated representatives of the interests of
shareholders. In the proxy statement, it is proposed that shareholders elect
additional independent members to the Board, so that independent Trustees will
comprise a "super-majority" of the Board. We believe that the proposed
Amendments -- which in our view would principally (i) clarify existing
ambiguities in the current Declaration of Trust and (ii) otherwise permit ease
of Trust operations -- also should be considered in light of this further
enhancement of the Board's independence from management.
In light of the foregoing, the Trust asks ISS to reconsider
its recommendation and either (i) publish a revised ISS proxy analysis noting
that the ISS recommendation on the proposal has changed, (ii) forward a copy of
this letter to the institutional shareholders to whom ISS has provided the Proxy
Analysis either by mail or electronic means, or (iii) provide the Trust with the
names and address of these institutional shareholders so that the Trust can
forward a copy of this letter to the institutional shareholders directly. If you
have any questions or concerns regarding the issues discussed in this letter,
please contact me directly at 949-720-6519.
Sincerely yours,
/s/ Jeffrey M. Sargent
Jeffrey M. Sargent
Senior Vice President
