Federal securities law claims asserted against the Bond Fund and company defendants in the same case remain pending. The company is preparing for a May 10, 2010 trial date and continues to believe it has strong defenses, especially in view of the global credit crisis, the fact that depressed market valuations and illiquidity were not limited to mortgage-backed securities and impacted other asset classes held by the Bond Fund to the same or an even greater extent, and the fact that the Bond Fund's holdings in mortgage-backed securities were widely disclosed, consistent with regulatory requirements and industry standards. Nevertheless, litigation and jury trials in particular are inherently unpredictable, and an adverse judgment could result in material liability to the company of as much as $890 million, the amount of damages plaintiffs have asserted relating to their federal securities law claims. The company has participated in several rounds of mediation with plaintiffs; at this time, however, the company is unable to determine whether further discussions with plaintiffs could result in a settlement before trial. At present, the company is unable to predict the outcome of proceedings on plaintiffs' federal securities law claims and therefore has not established a reserve for any potential liabilities in connection therewith. If a liability were incurred, in view of claims to date under applicable insurance policies, it is likely that such a liability would exceed available coverage.
