77E
On April 8, 2004, Xxxxxx Management entered into agreements with
the Securities and Exchange Commission and the Massachusetts
Securities Division representing a final settlement of all
charges brought against Xxxxxx Management by those agencies on
October 28, 2003 in connection with excessive short-term trading
by Xxxxxx employees and, in the case of the charges brought by
the Massachusetts Securities Division, by participants in some
Xxxxxx-administered 401(k) plans. The settlement with the SEC
requires Xxxxxx Management to pay $5 million in disgorgement
plus a civil monetary penalty of $50 million, and the settlement
with the Massachusetts Securities Division requires Xxxxxx
Management to pay $5 million in restitution and an
administrative fine of $50 million. The settlements also leave
intact the process established under an earlier partial
settlement with the SEC under which Xxxxxx Management agreed to
pay the amount of restitution determined by an independent
consultant, which may exceed the disgorgement and restitution
amounts specified above, pursuant to a plan to be developed by
the independent consultant.
Xxxxxx Management, and not the investors in any Xxxxxx fund,
will bear all costs, including restitution, civil penalties and
associated legal fees stemming from both of these proceedings.
The SECs and Massachusetts Securities Divisions allegations and
related matters also serve as the general basis for numerous
lawsuits, including purported class action lawsuits filed
against Xxxxxx Management and certain related parties, including
certain Xxxxxx funds. Xxxxxx Management has agreed to bear any
costs incurred by Xxxxxx funds in connection with these
lawsuits. Based on currently available information, Xxxxxx
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a
material adverse financial impact on the fund is remote, and the
pending actions are not likely to materially affect its ability
to provide investment management services to its clients,
including the Xxxxxx funds.
The fund may experience increased redemptions as a result of
these matters, which could result in increased transaction costs
and operating expenses.
