EX-99.77E LEGAL 3 r77e.htm

Regulatory and Litigation Matters

On June 1, 2004, the Attorney General of the State of New Jersey announced that
it had dismissed PIMCO from a complaint filed by the New Jersey Attorney
General on February 17, 2004, and that it had entered into a settlement
agreement (the "New Jersey Settlement") with PIMCO's parent company, AGI,
PEA Capital LLC (an entity affiliated with PIMCO through common ownership)
("PEA") and Allianz Global Investors Distributors LLC ("AGID"), in connection
with the same matter. In the New Jersey Settlement, AGI, PEA and AGID neither
admitted nor denied the allegations or conclusions of law, but did agree to pay
New Jersey a civil fine of $15 million and $3 million for investigative costs
and further potential enforcement initiatives against unrelated parties. They
also undertook to implement certain governance changes. The complaint relating
to the New Jersey Settlement alleged, among other things, that AGI, PEA and AGID
had failed to disclose that they improperly allowed certain hedge funds to
engage in "market timing" in certain funds. The complaint sought injunctive
relief, civil monetary penalties, restitution and disgorgement of profits.

Since February 2004, PIMCO, AGI, PEA, AGID, and certain of their affiliates,
PIMCO Funds, and Allianz Funds, have been named as defendants in 14 lawsuits
filed in U.S. District Court in the Southern District of New York, the Central
District of California and the Districts of New Jersey and Connecticut. Ten of
those lawsuits concern "market timing," and they have been transferred to and
consolidated for pre-trial proceedings in the U.S. District Court for the
District of Maryland; four of those lawsuits concern "revenue sharing" and have
been consolidated into a single action in the U.S. District Court for the
District of Connecticut. The lawsuits have been commenced as putative class
actions on behalf of investors who purchased, held or redeemed shares of the
various series of the PIMCO Funds and the Allianz Funds during specified
periods, or as derivative actions on behalf of the PIMCO Funds and the Allianz
Funds.

The market timing actions in the District of Maryland generally allege that
certain hedge funds were allowed to engage in "market timing" in certain of the
PIMCO Funds and the Allianz Funds and this alleged activity was not disclosed.
Pursuant to tolling agreements entered into with the derivative and class
action plaintiffs, PIMCO, the Trustees of the PIMCO Funds, and certain employees
of PIMCO who were previously named as defendants have all been dropped as
defendants in the market timing actions; the plaintiffs continue to assert
claims on behalf of the shareholders of the PIMCO Funds or on behalf of the
PIMCO Funds themselves 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 them in a consolidated amended
complaint where the PIMCO Funds were named, in the complaint, as a nominal
defendant. The revenue sharing action in the District of Connecticut generally
alleges that fund assets were inappropriately used to pay brokers to promote
the PIMCO Funds or the Allianz Funds, including directing fund brokerage
transactions to such brokers, and that such alleged arrangements were not
fully disclosed to shareholders. On August 11, 2005, the U.S. District Court
for the District of Connecticut conducted a hearing on defendants' motion to
dismiss the consolidated amended complaint in the revenue sharing action but
has not yet ruled on the motion to dismiss. The market timing and revenue
sharing 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.

On April 11, 2005, the Attorney General of the State of West Virginia filed
a complaint in the Circuit Court of Marshall County, West Virginia (the
"West Virginia Complaint") against Allianz Global Investors Fund Management
LLC (formerly PA Fund Management LLC) ("AGIF"), PEA and AGID alleging, among
other things, that they improperly allowed broker-dealers, hedge funds and
investment advisers to engage in frequent trading of various open-end funds
advised or distributed by AGIF and certain of its affiliates in violation of
the funds' stated restrictions on "market timing." On May 31, 2005, AGIF,
PEA and AGID, along with the other mutual fund defendants in the action,
removed the action to the U.S. District Court for the District of West Virginia.
The West Virginia Complaint also names numerous other defendants unaffiliated
with AGIF in separate claims alleging improper market timing and/or late
trading of open-end management investment companies advised or distributed
by such other defendants. The West Virginia Complaint seeks injunctive relief,
civil monetary penalties, investigative costs and attorney's fees.

Under Section 9(a) of the Act, if the New Jersey Settlement or any of the
lawsuits described above were to result in a court injunction against AGI,
PEA, AGID and/or their affiliates, PIMCO could, in the absence of exemptive
relief granted by the SEC, be barred from serving as an investment adviser
to any registered investment company, including the Fund. In connection with
an inquiry from the SEC concerning the status of the New Jersey Settlement
under Section 9(a), PEA, AGID, AGI and certain of their affiliates (including
PIMCO) (together, the "Applicants") have sought exemptive relief from the SEC
under Section 9(c) of the Act. The SEC has granted the Applicants a temporary
exemption from the provisions of Section 9(a) with respect to the New Jersey
Settlement until the earlier of (i) September 13, 2006 and (ii) the date on
which the SEC takes final action on their application for a permanent order.
There is no assurance that the SEC will issue a permanent order. If the West
Virginia Complaint were to result in a court injunction against AGIF, PEA or
AGID, the Applicants would, in turn, seek exemptive relief under Section 9(c)
with respect to that matter, although there is no assurance that such
exemptive relief would be granted.

The foregoing speaks only as of the date of this report. None of the
aforementioned complaints alleges that any improper activity took place in
the Fund. PIMCO believes that these developments will not have a material
adverse effect on the Fund or on PIMCO's ability to perform its investment
advisory services on behalf of the Fund.