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PIMCO Letter To Clients

February 19, 2004


The time has come for clients and PIMCO supporters to hear something from the top in addition to depositions and newspaper articles, and so Bill Thompson and I are putting our signatures to this personally written letter in an attempt to briefly explain our side of the story.  If you will permit me, I would like to start from the very top as we always do in our investment process, and work my way down to at least some of the facts at the bottom.

Societies have a balancing mechanism when things go too far.  That's why we've learned in the past year or two about Enron and WorldCom and why indictments and some convictions have been handed out.  It's why Martha Stewart is on trial even though I have no idea if she's guilty.  Societies deplore excess and especially so if they disadvantage the public.  I applaud that process and was applauding along with the rest of you when some of the rascals were rounded up and brought to trial.  I believe the SEC, Elliot Spitzer, and yes the attorneys general from New Jersey, California, and Massachusetts are performing a legitimate and valuable service, as are the press and the media in general.  They are just doing their jobs and in most cases doing it well.

Sometimes a cleansing process can go too far.  This does not imply strong medicine is good for everyone but PIMCO.  You see, Bill Thompson and I --as well as many of you-- know PIMCO through a different set of eyes. We know from our company's inception in the early 1970's that we have always tried to place the client first and the company second.  Perhaps there was ultimate self-interest there -- knowing that strategy would lead to a successful franchise, but nonetheless that has always been our priority.  I know that at the end of every trading day, my focus is not how many new accounts we brought in or even how much my personal portfolio went up, but how many basis points the portfolios managed to outperform the competition.  Check our track record---it works!  That same attitude defines the culture of our firm and while we don't always get it right, it is the strongest ethic we embody--THE CLIENT COMES FIRST.

Recent events call that into question.  "200 market timing trades"? "Sticky assets"? Is PIMCO -- the bond manager--really down there at the bottom of the barrel?  We shout an emphatic "NO!"  To the best of our knowledge, PIMCO has never had any arrangements pertaining to "sticky funds", late trading/stale pricing arbitrage, or improper dissemination of fund holdings.  Yes, unfortunately, Stern/Canary became an investor in our funds both with and without our knowledge.   The investments we knew about, clearly acknowledged as "timer" money, were made under an arrangement that did not violate the shareholder protection of our prospectuses, and which had monitoring provisions to prevent excessive trading.  It apparently worked.  To our knowledge, this Canary trading was infrequent, did not come close to violating the prospectuses and harmed no shareholders in the fund.  In perfect hindsight, we wish we had never attracted the name Canary/Stern among our many thousands of loyal fund shareholders.  But we can't change that and if any investor in our funds was disadvantaged by this arrangement, then we want to give assurance we will make it up--in full. 

You know, I am regularly asked for my opinion on the economy and the bond market and even sometimes the stock market---- and I don't even mind if the stock market proves me wrong for a period of time!!!  But on this one let us both tell you from the top of PIMCO:  allegations are different from facts and our representatives will work vigorously with regulators to make all of the facts understood.  In today's environment we also cannot rule out future legal developments.  We are not perfect and we are not above the law, but throughout my 30+ years at PIMCO, and for the past 10 for which Bill Thompson has been CEO, we have endeavored to build a franchise that we, our fellow professionals and associates, our family and friends, and you our clients can be proud to be a part of.  That attitude will continue to dominate our future behavior.  Should you have questions of either one of us please feel free to write or phone and we will get back to you as soon as possible.



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