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 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 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 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 which claims that PIMCO violated
the federal Commodity Exchange Act. PIMCO is a named defendant, and PIMCO Funds
has been added as a defendant, to the consolidated action. In July 2007, the
court granted class certification of a class consisting of those persons who
purchased futures contracts to offset short positions between May 9, 2005 and
June 30, 2005. In December 2007, the U.S. Court of Appeals for the Seventh
Circuit granted the petition of PIMCO and PIMCO Funds for leave to appeal the
class certification ruling. That appeal is now pending. 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. A Plan of Reorganization ("the
Plan") is currently under consideration by the Court in the underlying
bankruptcy case. If the Plan is approved, it is expected that the adversary
proceeding to which PIMCO and other funds managed by PIMCO ("PIMCO Entities")
are parties will be dismissed. It is not known at this time when the Plan
may be approved, if at all. In the meantime, the adversary proceeding is
stayed. This matter is not expected to have a material adverse effect on the
relevant PIMCO Entities.
