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 evelen 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 reedemed shares of the
various series of PIMCO Funds and Allianz Funds during specified
periods, or as derivative actions on behalf of the 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
dated January 14, 2005 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 removed 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 was 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 have been 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 of 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 asserted 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 sought to recover the payments made by
Xxxxxxxx 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.
PIMCO High Yield Fund and other non-agent lenders filed motions to dismiss
all claims pleaded against them in the amended complaint. On June 27, 2008,
the District Court Judge to whom the case was assigned issued an opinion
dismissing all claims against the non-agent lenders, including PIMCO
High Yield Fund. The Judge held that the plaintiff lacked standing to bring
the claims since all creditors of the debtor in the Adelphia bankruptcy were
paid in full. It is possible that the plaintiff could seek reconsideration
of the Judge's ruling or appeal the Judge's decision to a higher court.
