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Roy's rant
(from the April 2005
Highlights and Commentary)
Roy's letter to his fund trustees

Fund directors fail to do their job -- again -- and this time it affects one of Roy's funds: My biggest personal fund holding is PIMCO RCM Global Technology (recently renamed Allianz RCM Global Technology), and the trustees (directors) of my fund have called a special shareholders meeting for later this month.....The official purpose of the meeting is to approve the elimination of one of the fund's fundamental investment restrictions, which always puts me on alert.....But a quick read between the lines of the proxy materials reveals that more is at stake than just some legalese in a prospectus: PIMCO is also proposing that Global Technology merge with PIMCO (now Allianz) RCM Innovation....If shareholders of my fund reject the change in the fundamental investment restriction, the merger won't go through, and PIMCO will either have to come up with another plan, or simply liquidate the dismal Innovation fund.

Given that the vote on the fundamental restriction is really a yes or no vote on the merger, it seems reasonable to expect that the directors of my fund would provide the information that I need to make an intelligent decision about the merger.....According to the proxy materials, I would derive only one economic benefit from the proposed merger: A fifteen basis point reduction in the new fund's expense ratio, which amounts to an annual saving of one cheap dinner ($15) for every $10,000 I have invested.....On the negative side, as my directors casually inform me, the merger would cause Global Technology to lose a substantial portion of its capital loss carryforward, which means that capital gains distributions from the fund, after the merger, would effectively be subject to a higher tax rate.

OK, so I'm looking at a benefit of $15 (per $10,000 invested) if I vote in favor of the merger, and the detriment is a reduction in my share of the fund's capital losses.....What's missing, of course, is some estimate of what that capital loss reduction will cost me, in dollar terms.....If the capital loss reduction will cost me (say) just $5 for each $10,000 invested, and I'll save $15 thanks to the cut in the expense ratio, I might be inclined to vote in favor of the merger.....But if the capital loss reduction will cost me (say) $25 for each $10,000 invested, and I'll only save $15 thanks to the cut in the expense ratio, the merger would make no economic sense, and I should vote against it.....How could my fund directors, who supposedly represent my interests as a shareholder, fail to provide me with the information that I need to quantify the capital loss reduction?.....How could my fund directors ask me to make a decision without knowing what it will cost, unless they are acting as lackeys for PIMCO, and simply trying to ram this proposal through?

I tried to contact my directors by phone but, of course, that was impossible, and the directors have no e-mail address.....There was, however, a snail mail address in the proxy materials, so I sent a letter to my directors on March 17, asking for more information about the capital loss carryforward.....As of April 1, I'm still waiting for an answer.....If my directors don't know enough, or care enough, to spell out both the benefits and detriments of a proposed merger, they shouldn't be in charge of my fund.....Or, to put it another way, I shouldn't be invested in a fund run by directors who aren't properly representing my financial interests, and who don't respond to my inquiries.....I'm voting "NO" on lifting the fundamental restriction (and the merger), and I urge other shareholders to do the same.....Aside from the proxy issue, I see no benefit, and quite a bit of downside, in my fund absorbing an additional $800 million of from Innovation (this would more than double the size of Global Technology, which currently has about $630 million of assets).....If the merger goes through, as I expect it will, I plan to sell Global Technology, and start looking for a new tech offering.....Since good tech mutual funds are scarce, I also plan to look at exchange-traded funds.


Roy's letter to the Trustees of
PIMCO (Allianz) RCM Global Technology


To the Board of Trustees of the PIMCO RCM Global Technology fund:

I am a shareholder in the PIMCO RCM Global Technology fund, and I recently received a proxy statement related to the proposed elimination of a fundamental investment restriction of this fund. The information provided in this proxy statement is not adequate for me to make an informed vote.

Specifically, here is my problem: It is clear that a "yes" vote on this proxy is, in effect, an approval of the merger between my fund and PIMCO Innovation, and a "no" vote is a vote against the merger. Therefore, it is necessary for me to understand the economic benefits and detriments of the proposed merger as they relate to me, as an individual shareholder, before I can make an informed vote.

As I see it, the only proposed economic benefit of the merger is a 15 basis point reduction in the expense ratio that I pay. The major economic detriment of the proposed merger is the partial loss of my prorata share of the fund's capital loss carryforward. It is easy to calculate the dollar amount of the economic benefit stemming from the reduction in the expense ratio: For each $10,000 invested, I will save $15. However, given the information provided in the proxy statement, it is impossible to calculate the dollar amount of economic detriment related to the potential loss of the capital loss carryforward.

I am requesting that you, as trustees representing my interests, provide me with the approximate per share dollar amount of capital loss that I will lose if this merger goes through. This is the only way I can determine the true economic detriment of the proposed merger, compare that detriment to the potential economic benefit, and cast an intelligent vote.

If you prefer to communicate by email, you can reach me at [ ]. My phone number is [ ].

Thank you in advance for your attention to this important matter.

Yours truly,


Roy Weitz