A word about risk:
Investors should carefully consider the fund’s investment objectives,
risks, charges and expenses before investing.
The fund’s shares do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository
institution, and are not insured by the FDIC, the Federal Reserve Board or
any other government agency. You may lose money by investing in the fund.
Certain risks associated with investing in the fund are summarized below.
Past performance is not a guarantee or a reliable indicator of future
results.
No Prior History
. The fund is a newly organized, non-diversified, limited term closed-end
management investment company with no history of operations and is designed
for long-term investors and not as a trading vehicle.
Market Discount Risk
. As with any stock, the price of the fund’s common shares will fluctuate
with market conditions and other factors. If you sell your common shares,
the price received may be more or less than your original investment. The
common shares are designed for long-term investors and should not be
treated as trading vehicles. Shares of closed-end management investment
companies frequently trade at a discount from their net asset value. The
common shares may trade at a price that is less than the initial offering
price. This risk may be greater for investors who sell their shares
relatively shortly after completion of the initial offering.
New/Small Fund Risk.
A new or smaller fund’s performance may not represent how the fund is
expected to or may perform in the long term if and when it becomes larger
and has fully implemented its investment strategies. Investment positions
may have a disproportionate impact (negative or positive) on performance in
a new and smaller fund, such as the fund. New and smaller funds may also
require a period of time before they are invested in securities that meet
their investment objectives and policies and achieve a representative
portfolio composition. Fund performance may be lower or higher during this
“ramp-up” period, and may also be more volatile, than would be the case
after the fund is fully invested. Similarly, a new or smaller fund’s
investment strategy may require a longer period of time to show returns
that are representative of the strategy.
Limited Term Risk.
Unless the limited term provision of the fund’s Amended and Restated
Agreement and Declaration of Trust (the “Declaration”) is amended by
shareholders in accordance with the Declaration, or unless the fund
completes an Eligible Tender Offer and converts to perpetual existence, the
fund will terminate on or about the Dissolution Date. The fund’s investment
objectives and policies are not designed to seek to return to investors
that purchase shares in this offering their initial investment of $20.00
per share on the Dissolution Date or in an Eligible Tender Offer, and such
investors and investors that purchase shares after the completion of this
offering may receive more or less than their original investment upon
dissolution or in an Eligible Tender Offer. Because the assets of the fund
will be liquidated in connection with the dissolution, the fund will incur
transaction costs in connection with dispositions of portfolio securities.
The fund does not limit its investments to securities having a maturity
date prior to the Dissolution Date and may be required to sell portfolio
securities when it otherwise would not, including at times when market
conditions are not favorable, which may cause the fund to lose money.
During the period beginning one year before the Dissolution Date (the
“Wind-Down Period”), the fund may begin liquidating all or a portion of the
fund’s portfolio, and the fund may deviate from its investment strategy and
may not achieve its investment objectives. As a result, during the Wind-
Down Period, the fund’s distributions may decrease, and such distributions
may include a return of capital. It is expected that common shareholders
will receive cash in any liquidating distribution from the fund, regardless
of their participation in the fund’s automatic dividend reinvestment plan.
The fund’s investment objectives and policies are not designed to seek to
return investors’ original investment upon termination of the fund, and
investors may receive more or less than their original investment upon
termination of the fund. As the assets of the fund will be liquidated in
connection with its termination, the fund may be required to sell portfolio
securities when it otherwise would not, including at times when market
conditions are not favorable, which may cause the fund to lose money. The
disposition of portfolio investments by the fund could also cause market
prices of such instruments, and hence the NAV and market price of the
common shares, to decline. In addition, disposition of portfolio
investments will cause the fund to incur increased brokerage and related
transaction expenses. If the fund conducts an Eligible Tender Offer, the
fund anticipates that funds to pay the aggregate purchase price of shares
accepted for purchase pursuant to the tender offer will be first derived
from any cash on hand and then from the proceeds from the sale of portfolio
investments held by the fund. In addition, the fund may be required to
dispose of portfolio investments in connection with any reduction in the
fund’s outstanding leverage necessary in order to maintain the fund’s
desired leverage ratios following a tender offer. The purchase of common
shares by the fund pursuant to a tender offer will have the effect of
increasing the proportionate interest in the fund of non-tendering common
shareholders. All common shareholders remaining after a tender offer may be
subject to proportionately higher expenses due to the reduction in the
fund’s total assets resulting from payment for the tendered common shares.
Such reduction in the fund’s total assets may result in less investment
flexibility, reduced diversification and greater volatility for the fund,
and may have an adverse effect on the fund’s investment performance. The
fund is not required to conduct an Eligible Tender Offer. If the fund
conducts an Eligible Tender Offer, there can be no assurance that the
number of tendered common shares would not result in the fund having
aggregate net assets below the Dissolution Threshold, in which case the
Eligible Tender Offer will be canceled, no common shares will be
repurchased pursuant to the Eligible Tender Offer and the fund will
dissolve on the Dissolution Date (subject to possible extensions).
Following the completion of an Eligible Tender Offer in which the number of
tendered common shares would result in the fund having aggregate net assets
greater than or equal to the Dissolution Threshold, the Board may, by a
vote of a majority of the Board and seventy-five percent (75%) of the
Continuing Trustees (as defined in the Declaration), eliminate the
Dissolution Date without shareholder approval. Thereafter, the fund will
have a perpetual existence. The Investment Manager may have a conflict of
interest in recommending to the Board that the Dissolution Date be
eliminated and the fund have a perpetual existence. The fund is not
required to conduct additional tender offers following an Eligible Tender
Offer and conversion to perpetual existence. Therefore, remaining common
shareholders may not have another opportunity to participate in a tender
offer. Shares of closed-end management investment companies frequently
trade at a discount from their NAV, and as a result remaining common
shareholders may only be able to sell their Shares at a discount to NAV.
Asset Allocation Risk.
The fund’s investment performance depends upon how its assets are allocated
and reallocated. A principal risk of investing in the fund is that PIMCO
may make less than optimal or poor asset allocation decisions. PIMCO will
employ an active approach to allocation among multiple fixed income
sectors, but there is no guarantee that such allocation techniques will
produce the desired results.
Management Risk.
The fund is subject to management risk because it is an actively managed
investment portfolio. PIMCO and each individual portfolio manager will
apply investment techniques and risk analysis in making investment
decisions for the fund, but there can be no guarantee that these decisions
will produce the desired results. Certain securities or other instruments
in which the fund seeks to invest may not be available in the quantities
desired. In addition, regulatory restrictions, actual or potential
conflicts of interest or other considerations may cause PIMCO to restrict
or prohibit participation in certain investments. Additionally,
legislative, regulatory, or tax restrictions, policies or developments may
affect the investment techniques available to PIMCO and each individual
portfolio manager in connection with managing the fund and may also
adversely affect the ability of the fund to achieve its investment
objectives. There also can be no assurance that all of the personnel of
PIMCO will continue to be associated with PIMCO for any length of time.
Interest Rate Risk.
Interest rate risk is the risk that fixed income securities and other
instruments in the fund’s portfolio will decline in value because of a
change in interest rates. Interest rate changes can be sudden and
unpredictable, and the fund may lose money as a result of movements in
interest rates.
Credit Risk.
The fund could lose money if the issuer or guarantor of a fixed income
security, or the counterparty to a derivatives contract, repurchase
agreement or a loan of portfolio securities is unable or unwilling, or is
perceived as unable or unwilling, to make timely principal and/or interest
payments or to otherwise honor its obligations. The downgrade of the credit
of a security held by the fund may decrease its value. Measures such as
average credit quality may not accurately reflect the true credit risk of
the fund. This is especially the case if the fund consists of securities
with widely varying credit ratings. This risk is greater to the extent the
fund uses leverage or derivatives in connection with the management of the
fund.
Mortgage-Related and Other Asset-Backed Instruments Risk.
Generally, rising interest rates tend to extend the duration of fixed rate
mortgage-related assets, making them more sensitive to changes in interest
rates. As a result, in a period of rising interest rates, the fund may
exhibit additional volatility since individual mortgage holders are less
likely to exercise prepayment options, thereby putting additional downward
pressure on the value of these securities and potentially causing the fund
to lose money. The fund’s investments in other asset-backed instruments are
subject to risks similar to those associated with mortgage-related assets,
as well as additional risks associated with the nature of the assets and
the servicing of those assets. Payment of principal and interest on
asset-backed instruments may be largely dependent upon the cash flows
generated by the assets backing the instruments, and asset-backed
instruments may not have the benefit of any security interest in the
related assets. The fund expects that investments in subordinate
mortgage-backed and other asset-backed instruments will be subject to risks
arising from delinquencies and foreclosures, thereby exposing its
investment portfolio to potential losses. The mortgage markets in the
United States and in various foreign countries have experienced extreme
difficulties in the past that adversely affected the performance and market
value of certain mortgage-related investments. Delinquencies and losses on
residential and commercial mortgage loans (especially subprime and
second-lien mortgage loans) may increase, and a decline in or flattening of
housing and other real property values may exacerbate such delinquencies
and losses.
Privately-Issued Mortgage-Related Securities Risk.
There are no direct or indirect government or agency guarantees of payments
in pools created by non-governmental issuers. Privately-issued
mortgage-related securities are also not subject to the same underwriting
requirements for the underlying mortgages that are applicable to those
mortgage-related securities that have a government or government-sponsored
entity guarantee.
Privately-issued mortgage-related securities are not traded on an exchange
and there may be a limited market for the securities, especially when there
is a perceived weakness in the mortgage and real estate market sectors.
Without an active trading market, mortgage-related securities held in the
fund’s portfolio may be particularly difficult to value because of the
complexities involved in assessing the value of the underlying mortgage
loans.
High Yield Securities Risk
. In general, lower-rated debt securities carry a greater degree of risk
that the issuer will lose its ability to make interest and principal
payments, which could have a negative effect on the net asset value of the
fund’s common shares or common share dividends. Securities of
below-investment-grade quality, commonly referred to as “high yield”
securities or “junk bonds,” are regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. High yield securities involve a greater risk of default
and their prices are generally more volatile and sensitive to actual or
perceived negative developments than are the prices of higher grade
securities. Under adverse market or economic conditions, the secondary
market for below-investment-grade securities could contract further,
independent of any specific adverse changes in the condition of a
particular issuer. Due to the risks involved in investing in high-yield
securities, an investment in the fund should be considered speculative.
Distressed and Defaulted Securities Risk.
Investments in the securities of financially distressed issuers involve
substantial risks, including the risk of default. Such investments may be
in default at the time of investment. In addition, these securities may
fluctuate more in price, and are typically less liquid. The fund also will
be subject to significant uncertainty as to when, and in what manner, and
for what value obligations evidenced by securities of financially
distressed issuers will eventually be satisfied. Defaulted obligations
might be repaid only after lengthy workout or bankruptcy proceedings,
during which the issuer might not make any interest or other payments. In
any such proceeding relating to a defaulted obligation, the fund may lose
its entire investment or may be required to accept cash or securities with
a value substantially less than its original investment.
Issuer Risk.
The value of a security may decline for a number of reasons that directly
relate to the issuer, such as management performance, financial leverage
and reduced demand for the issuer’s goods or services, as well as the
historical and prospective earnings of the issuer and the value of its
assets. A change in the financial condition of a single issuer may affect
securities markets as a whole. These risks can apply to the common shares
issued by the fund and to the issuers of securities and other instruments
in which the fund invests.
Reinvestment Risk.
Income from the fund’s portfolio will decline if and when the fund invests
the proceeds from matured, traded or called debt obligations at market
interest rates that are below the portfolio’s current earnings rate. The
fund also may choose to sell higher yielding portfolio securities and to
purchase lower yielding securities to achieve greater portfolio
diversification, because the portfolio managers believe the current
holdings are overvalued or for other investment-related reasons. A decline
in income received by the fund from its investments is likely to have a
negative effect on dividend levels and the market price, NAV and/or overall
return of the common shares.
Call Risk.
Call risk refers to the possibility that an issuer may exercise its right
to redeem a fixed income security earlier than expected. Issuers may call
outstanding securities prior to their maturity for a number of reasons. If
an issuer calls a security in which the fund has invested, the fund may not
recoup the full amount of its initial investment and may be forced to
reinvest in lower-yielding securities, securities with greater credit risks
or securities with other, less favorable features.
Foreign (Non-U.S.) Investment Risk.
Foreign (non-U.S.) securities may experience more rapid and extreme changes
in value than securities of U.S. companies. The securities markets of many
foreign countries are relatively small, with a limited number of companies
representing a small number of industries. Additionally, issuers of foreign
(non-U.S.) securities are usually not subject to the same degree of
regulation as U.S. issuers. Global economies and financial markets are
becoming increasingly interconnected, and conditions and events in one
country, region or financial market may adversely impact issuers in a
different country, region or financial market. Also, nationalization,
expropriation or confiscatory taxation, currency blockage, political
changes or diplomatic developments could adversely affect the fund’s
investments in a foreign country. The fund may face potential risks
associated with the United Kingdom’s departure from the European Union
(“EU”). The departure may result in substantial volatility in financial and
foreign exchange markets and a sustained weakness in the British pound, the
euro and other currencies, which may impact fund returns. It may also
destabilize some or all of the other EU member countries and/or the
Eurozone. These developments could result in losses to the fund, as there
may be negative effects on the value of the fund’s investments and/or on
the fund’s ability to enter into certain transactions or value certain
investments, and these developments may make it more difficult for the fund
to exit certain investments at an advantageous time or price. The fund may
invest in securities and instruments that are economically tied to Russia.
Investments in Russia are particularly subject to the risk that economic
sanctions may be imposed by the United States and/ or other countries. Such
sanctions—which may impact companies in many sectors, including energy,
financial services and defense, among others— may negatively impact the
fund’s performance and/or ability to achieve its investment objectives.
Emerging Markets Risk.
Foreign investment risk may be particularly high to the extent that the
fund invests in securities of issuers based in or doing business in
emerging market countries or invests in securities denominated in the
currencies of emerging market countries. Investing in securities of issuers
based in or doing business in emerging markets entails all of the risks of
investing in foreign securities noted above, but to a heightened degree.
U.S. Government Securities Risk.
Certain U.S. Government Securities, such as U.S. Treasury bills, notes,
bonds, and mortgage-related securities guaranteed by the Government
National Mortgage Association, are supported by the full faith and credit
of the United States; others, such as those of the Federal Home Loan Banks
(“FHLBs”) or the Federal Home Loan Mortgage Corporation (“FHLMC”), are
supported by the right of the issuer to borrow from the U.S. Treasury;
others, such as those of the Federal National Mortgage Association
(“FNMA”), are supported by the discretionary authority of the U.S.
Government to purchase the agency’s obligations; and still others are
supported only by the credit of the agency, instrumentality or corporation.
Although legislation has been enacted to support certain government
sponsored entities, including the FHLBs, FHLMC and FNMA, there is no
assurance that the obligations of such entities will be satisfied in full,
or that such obligations will not decrease in value or default.
Convertible Securities Risk.
The market values of convertible securities may decline as interest rates
increase and, conversely, may increase as interest rates decline. A
convertible security’s market value, however, tends to reflect the market
price of the common stock of the issuing company when that stock price
approaches or is greater than the convertible security’s “conversion
price.” The conversion price is defined as the predetermined price at which
the convertible security could be exchanged for the associated stock. As
the market price of the underlying common stock declines, the price of the
convertible security tends to be influenced more by the yield of the
convertible security. Thus, it may not decline in price to the same extent
as the underlying common stock.
Contingent Convertible Securities Risk (“CoCos”).
The risks of investing in CoCos include, without limit, the risk that
interest payments will be cancelled by the issuer or a regulatory
authority, the risk of ranking junior to other creditors in the event of a
liquidation or other bankruptcy-related event as a result of holding
subordinated debt, the risk of the fund’s investment becoming further
subordinated as a result of conversion from debt to equity, the risk that
the principal amount due can be written down to a lesser amount, and the
general risks applicable to fixed income investments, including interest
rate risk, credit risk, market risk and liquidity risk, any of which could
result in losses to the fund.
Leverage Risk.
The fund’s use of leverage, if any, creates the opportunity for increased
common share net income, but also creates special risks for common
shareholders. To the extent used, there is no assurance that the fund’s
leveraging strategies will be successful. Leverage is a speculative
technique that may expose the fund to greater risk and increased costs. The
fund’s assets attributable to leverage, if any, will be invested in
accordance with the fund’s investment objectives and policies. Interest
expense payable by the fund with respect to derivatives and other forms of
leverage, and dividends payable with respect to preferred shares
outstanding, if any, will generally be based on shorter-term interest rates
that would be periodically reset.
Derivatives Risk.
The use of derivative instruments involves risks different from, or
possibly greater than, the risks associated with investing directly in
securities and other traditional investments. Derivatives are subject to a
number of risks, such as liquidity risk, interest rate risk, market risk,
credit risk, leveraging risk, counterparty risk, tax risk and management
risk, as well as risks arising from changes in applicable requirements. The
fund’s use of derivatives may increase or accelerate the amount of taxes
payable by common shareholders. The regulation of the derivatives markets
has increased over the past several years, and additional future regulation
of the derivatives markets may make derivatives more costly, may limit the
availability or reduce the liquidity of derivatives or may otherwise
adversely affect the value or performance of derivatives.
Counterparty Risk.
The fund will be subject to credit risk with respect to the counterparties
to the derivative contracts and other instruments entered into by the fund
or held by special purpose or structured vehicles in which the fund
invests.
Credit Default Swaps Risk.
Credit default swap agreements may involve greater risks than if the fund
had invested in the reference obligation directly since, in addition to
general market risks, credit default swaps are subject to illiquidity risk,
counterparty risk and credit risk.
Liquidity Risk.
Liquidity risk exists when particular investments are difficult to purchase
or sell. Illiquid investments are investments that the fund reasonably
expects cannot be sold or disposed of in current market conditions in seven
calendar days or less without the sale or disposition significantly
changing the market value of the investment. Illiquid investments may
become harder to value, especially in changing markets. The fund’s
investments in illiquid securities may reduce the returns of the fund
because it may be unable to sell the illiquid investments at an
advantageous time or price or possibly require the fund to dispose of other
investments at unfavorable times or prices in order to satisfy its
obligations, which could prevent the fund from taking advantage of other
investment opportunities.
Valuation Risk.
Certain securities in which the fund invests may be less liquid and more
difficult to value than other types of securities. When market quotations
or pricing service prices are not readily available or are deemed to be
unreliable, the fund values its investments at fair value as determined in
good faith pursuant to policies and procedures approved by the Board.
Non-Diversification Risk.
The fund is “non-diversified,” which means that the fund may invest a
significant portion of its assets in the securities of a smaller number of
issuers than a diversified fund. Focusing investments in a small number of
issuers increases risk. A fund that invests in a relatively smaller number
of issuers is more susceptible to risks associated with a single economic,
political or regulatory occurrence than a diversified fund might be.
Privacy and Data Security Risk.
The fund generally does not intend to obtain or hold borrowers’ non-public
personal information, and the fund intends to implement procedures designed
to prevent the disclosure of borrowers’ non-public personal information to
the fund. However, service providers to the fund or its direct or indirect
fully-owned subsidiaries, including their custodians and the platforms
acting as loan servicers for the fund or its direct or indirect fully-owned
subsidiaries, may obtain, hold or process such information. The fund cannot
guarantee the security of non-public personal information in the possession
of such a service provider and cannot guarantee that service providers have
been and will continue to comply with the Gramm-Leach Bliley Act (“GLBA”),
other data security and privacy laws and any other related regulatory
requirements.
Certain Other Risks and Considerations.
An investment in the fund is subject to other risks and considerations,
including Inflation-Indexed Security Risk, Senior Debt Risk, Real Estate
Risk, Segregation and Coverage Risk, Equity Securities and Related Market
Risk, Preferred Securities Risk, Confidential Information Access Risk,
Other Investment Companies Risk, Private Placements and Restricted
Securities Risk, Inflation/Deflation Risk, Regulatory Changes Risk,
Regulatory Risk – London Interbank Offered Rate, Regulatory Risk –
Commodity Pool Operator, Tax Risk, Market Disruptions Risk, Potential
Conflicts of Interest Risk – Allocation of Investment Opportunities,
Repurchase Agreements Risk, Zero-Coupon Bond, Step-Ups and Payment-in-Kind
Securities Risk, Portfolio Turnover Risk, Subsidiary Risk, Operational
Risk, Cybersecurity Risk, Structured Investments Risk, Collateralized Loan
Obligations Risk, the risk of certain affiliations with the underwriting
syndicate, risks associated with the anti-takeover provisions of the
Declaration and risks relating to the fund’s distribution rates.