Form 497 PIMCO ETF Trust
Secured Bonds, Secured Loan Obligations and Other Secured Debt Obligations. Certain Sub-Funds may invest in each of bonds secured by bonds (“CBOs”), bonds secured by loans (“CLOs”), other secured debt securities (“CDOs”) and other similarly structured securities. CBOs, CLOs and
other CDOs are types of asset-backed securities. A CBO is a trust that is often backed by a diversified pool of senior risk, lower than higher quality fixed income securities. Collateral can come from many different types of fixed income securities securities such as high yield debt, residential mortgage securities issued by the private sector, commercial securities issued by the private sector mortgage-backed securities, trust preferred securities and emerging market debt. A CLO is a trust generally secured by a pool of loans, which may include, among others, domestic and foreign senior secured loans, unsecured loans and subordinated corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. Other CDOs are trusts backed by other types of assets representing bonds of various evenings. CBOs, CLOs and other CDOs may charge management fees and administrative fees.
For CBOs, CLOs and other CDOs, the cash flows of the trust are divided into two or more parts, called tranches, varying in risk and return. The riskiest tranche is the “equity” tranche, which bears most of the defaults of bonds or loans in the trust and serves to protect other more senior tranches from default in all but the most serious circumstances. Being partially protected against defaults, the senior tranches of a CBO trust, a CLO trust or trust of another CDO generally have higher ratings and lower yields than their underlying securities, and may be rated investment grade. Despite the protection of the equity tranche, the CBO, CLO or other CDO tranches may suffer substantial losses due to actual defects, increased susceptibility to defects due to warranty default and disappearance of tranche protection, market anticipation of defaults, as well as aversion to CBO, CLO or other CDO securities as classroom.
The risks of investing in a CBO, CLO or other CDO largely depend on the type of collateral and the class of instrument in which a Sub-Fund invests. Normally, CBOs, CLOs and other CDOs are offered privately and sold and, therefore, are not registered under securities laws. Please refer to the “Illiquid Investments” section below for more information. discussion of regulatory considerations and investment liquidity constraints. In addition to the normal risks associated with fixed income securities referred to elsewhere in this statement additional information and funds Prospectus (e.g. prepayment risk, credit risk, liquidity risk, market risk, structural risk, legal risk and interest rate risk (which may be exacerbated if the interest rate payable on structured finance changes based on multiples of changes in interest rates or conversely to changes in interest rates)), CBOs, CLOs and other CDOs involve additional risks including, but not limited to: (i) the possibility that distributions of collateral securities will not be sufficient to make interest or other payments; (ii) the quality of the collateral may decline in value or fail; (iii) the risk that a The Fund may invest in CBOs, CLOs or other CDOs which are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the time of investment and may result in disputes with the issuer or unexpected investment results.
Asset-backed securities. Asset-backed securities (“ABS”) are bonds backed by loan pools or other receivables. ABS are created from many types of assets, including but not limited to car loans, accounts receivable such as credit card receivables and hospital accounts receivable, home equity loans, student loans, boat loans, home loans, recreational vehicle loans, manufactured housing loans, aircraft rentals, computer rentals and syndicated loans bank loans. ABS are issued through special purpose entities whose bankruptcy is remote from the issuer of the asset. collateral. The credit quality of an ABS transaction depends on the performance of the underlying assets. Protect ABS investors of the possibility that some borrowers may miss payments or even default on their loans, ABS include various forms of credit enhancement.
Certain ABS, particularly home equity lending transactions, are subject to interest rate risk and prepayment risk. A a change in interest rates may affect the timing of repayments of the underlying loans, which in turn affects the total return on the titles. ABS also carry credit or default risk. If many borrowers on the underlying loans default, losses could exceed the level of credit enhancement and result in losses for investors in an ABS transaction. Additionally, the value of ABS is subject to risks associated with the performance of repairers. In certain circumstances, the opinion of a repairer or shipper mismanagement of documentation related to the underlying security (for example, failure to properly document a collateral in the underlying collateral) may affect the rights of securityholders in the underlying collateral. To finish, ABS are structurally risky due to a unique characteristic known as prepayment or prepayment risk. Built in the structure of most ABS are prepayment triggers, designed to protect investors against losses. These triggers are specific to each transaction and may include: a sharp increase in defaults on the underlying loans, a sharp decline in credit