Strategy. The Portfolio seeks to achieve its objective by investing in municipal securities to generate income exempt from U.S. federal income tax. The Portfolio normally invests at least 80% of its net assets (plus borrowings made for investment purposes) in a portfolio of U.S. fixed income instruments comprised of debt securities whose interest is, in the opinion of bond counsel for the issuer at the time of issuance, exempt from federal income tax ( i.e. , excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax (AMT)) (the 80% Tax Exempt Policy), including (but not limited to): municipal debt securities issued by states and their agencies, authorities and other instrumentalities which are … Show more… The Portfolio seeks to achieve its objective by investing in municipal securities to generate income exempt from U.S. federal income tax. The Portfolio normally invests at least 80% of its net assets (plus borrowings made for investment purposes) in a portfolio of U.S. fixed income instruments comprised of debt securities whose interest is, in the opinion of bond counsel for the issuer at the time of issuance, exempt from federal income tax ( i.e. , excluded from gross income for federal income tax purposes but not necessarily exempt from the federal alternative minimum tax (AMT)) (the 80% Tax Exempt Policy), including (but not limited to): municipal debt securities issued by states and their agencies, authorities and other instrumentalities which are exempt from federal income tax; municipal debt securities issued by local governments and their agencies, authorities and other instrumentalities which are exempt from federal income tax; and tax-exempt structured notes, which may contain embedded derivatives. The Portfolio may invest without limit in bonds whose interest is a tax-preference item for purposes of the federal AMT. The Portfolio may invest in instruments of any maturity. The average portfolio duration of the Portfolio is expected to vary and may range anywhere from relatively short ( e.g. , less than two years) to relatively long (e.g., more than ten years) based on PIMCOs forecast for interest rates. The Portfolio may invest without limit in U.S. dollar denominated securities. The Portfolio may invest without limit in U.S. Government securities, money market instruments and/or private activity bonds. Distributions derived from private activity bonds may be subject to the federal AMT. The Portfolio may invest more than 25% of its total assets in bonds of issuers in either California or New York, or both. To the extent that the Portfolio focuses its investments in California or New York, it will be particularly subject to California or New York state-specific risks, as applicable. The Portfolio may invest up to 80% of its total assets in high yield securities (junk bonds) rated below Baa3 by Moody's Ratings (Moodys), or equivalently rated by Standard & Poors (S&P) or Fitch Ratings, Inc. (Fitch) or, if unrated, determined by PIMCO to be of comparable quality. In the event that ratings services assign different ratings to the same security, PIMCO will use the highest rating as the credit rating for that security. Subject to the 80% Tax Exempt Policy noted above, the Portfolio may invest the remainder of its assets in fixed income securities that generate income that is not exempt from federal income tax (for example, Build America Bonds). The Portfolio may invest in derivative instruments, such as options, futures contracts or swap agreements, which may relate to fixed income securities, interest rates, currencies or currency exchange rates, commodities, real estate and other assets, and related indices. Although the Portfolio did not invest significantly in derivative instruments as of the most recent fiscal year end, it may do so at any time. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income. The Portfolio may also invest in securities issued by entities, such as trusts, whose underlying assets are municipal bonds, including, without limitation, inverse floating rate debt securities (inverse floaters). The Portfolio may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). The Portfolio will not change the 80% Tax Exempt Policy unless the Portfolio provides shareholders with the notice required by Rule 35d-1 under the Investment Company Act of 1940, as it may be amended or interpreted by the Securities and Exchange Commission (the SEC) from time to time (the 1940 Act). Show less