Since February 2004, PIMCO, Allianz Global Investors of America L.P. ("AGI")
(formerly known as Allianz Dresdner Asset Management of America L.P.)
(PIMCO's parent company), and certain of their affiliates, including PIMCO
Funds (a complex of mutual funds managed by PIMCO) and Allianz Funds (formerly
known as PIMCO Funds: Multi-Manager Series) (a complex of mutual funds
managed by affiliates of PIMCO), certain trustees of PIMCO Funds, and certain
employees of PIMCO have been named as defendants in eleven lawsuits filed in
various jurisdictions. These lawsuits concern "market timing", and
they have been transferred to and consolidated for pre-trial proceedings in a
multi-district litigation proceeding in the U.S. District Court for the
District of Maryland. The lawsuits have been commenced as putative
class actions on behalf of investors who purchased, held or redeemed shares
of the various series of PIMCO Funds and Allianz Funds during specified
periods, or as derivative actions on behalf of PIMCO Funds and Allianz
Funds. These 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.
These actions generally allege that certain hedge funds were allowed to
engage in "market timing" in certain funds of PIMCO Funds and Allianz Funds
and this alleged activity was not disclosed.Pursuant to tolling agreements
entered into with the derivative and class action plaintiffs, PIMCO,
certain trustees of PIMCO Funds, and certain employees of PIMCO who were
previously named as defendants have all been dropped as defendants in the
market timing actions; however, the plaintiffs continue to assert claims
on behalf of the shareholders of PIMCO Funds or on behalf of PIMCO Funds
itself against other defendants. By order dated November 3, 2005,
the U.S. District Court for the District of Maryland granted PIMCO Funds'
motion to dismiss claims asserted against it in a consolidated amended
complaint where PIMCO Funds were named, in the complaint, as a nominal
defendant. Thus, at present PIMCO Funds is not a party to any "market timing"
lawsuit.
Two nearly identical class action civil complaints were filed in August
2005, in the Northern District of Illinois Eastern Division, alleging that
the plaintiffs each purchased and sold a 10-year Treasury note futures
contract and suffered damages from an alleged shortage when PIMCO held both
physical and futures positions in 10-year Treasury notes for its client
accounts. The two actions have been consolidated into one action, and the two
separate complaints have been replaced by a consolidated complaint. PIMCO is
a named defendant, and PIMCO Funds has been added as a defendant, to the
consolidated action. PIMCO and PIMCO Funds strongly believe the complaint is
without merit and intend to vigorously defend themselves.
In April 2006, certain registered investment companies and other funds managed
by PIMCO were served in an adversary proceeding brought by the Official
Committee of Asbestos Claimants of G-I Holdings, Inc. in G-I Holdings, Inc.'s
bankruptcy in the District of New Jersey. In July 2004, PIMCO was named in this
lawsuit and remains a defendant. The plaintiff seeks to recover for the
bankruptcy estate assets that were transferred by the predecessor entity of G-I
Holdings, Inc. to a wholly-owned subsidiary in 1994. The subsidiary has since
issued notes, of which certain registered investment companies and other funds
managed by PIMCO are alleged to be holders. The complaint alleges that in 2000,
more than two hundred noteholders - including certain registered investment
companies and other funds managed by PIMCO - were granted a second priority lien
on the assets of the subsidiary in exchange for their consent to a refinancing
transaction and the granting of a first priority lien to the lending banks. The
plaintiff is seeking invalidation of the lien in favor of the noteholders
and/or the value of the lien. On June 21, 2006, the District of New Jersey
overturned the Bankruptcy Court's decision granting permission to file the
adversary proceeding and remanded the matter to the Bankruptcy Court for
further proceedings. Following a motion to reconsider, the District Court
upheld its remand on August 7, 2006, and instructed the Bankruptcy Court
to conduct a "cost-benefit" analysis of the Committee's claims, including the
claims against the noteholders. The Bankruptcy Court held a status conference
on October 25, 2006 and set a briefing schedule relating to this cost-benefit
analysis. To date, no briefs have been filed. This matter is not expected
to have a material adverse effect on either the relevant registered investment
companies and other funds or PIMCO.
In October 2007 the PIMCO High Yield Fund, a series of PIMCO Funds, was named in
an amended complaint filed in connection with an adversary proceeding brought by
the Adelphia Recovery Trust relating to the bankruptcy of Adelphia
Communications Corporation ("Adelphia") in the Southern District of New York.
The plaintiff alleges that investment banks and agent banks were instrumental
in developing a form of financing for Adelphia and its affiliates, known as co-
borrowing facilities. According to the amended complaint, the co-borrowing
facilities facilitated Xxxxxxxx's fraud and concealed its corporate looting,
and the banks who structured or made the loans knew that Xxxxxxxx was
misappropriating and misusing a significant portion of the proceeds.
The amended complaint asserts that such bank loans were tainted and that the
purchasers of bank debt, such as the PIMCO High Yield Fund, who received
payments from Adelphia on account of the bank debt, received voidable
payments subject to the infirmities caused by the conduct of their transferors.
The amended complaint seeks to recover the payments made by Adelphia or its
affiliates to the defendants, including the PIMCO High Yield Fund, by reason of
the co-borrowing facilities and the disgorgement of the consideration paid to
the bank debt under the Adelphia plan of reorganization. No wrongdoing is
alleged against the PIMCO High Yield Fund.
The foregoing speaks only as of the date of this report. It is possible that
these matters and/or other developments resulting from these matters could
result in increased fund redemptions or other adverse consequences to the Funds.
However, PIMCO and AGID believe that these matters are not likely to have a
material adverse effect on the Funds or on PIMCO's or AGID's ability to perform
their respective investment advisory or distribution services relating to the
Funds.
