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PIMCO Income Opportunity Fund Announces Change to Leverage Policy

NEW YORK, January 27, 2010 (BUSINESS WIRE) – PIMCO Income Opportunity Fund (NYSE:PKO) (the “Fund”), announced that, effective today, the Fund’s maximum 38% aggregate leverage policy has been revised to permit the Fund to utilize reverse repurchase agreements up to 50% of the Fund’s total assets and to utilize other forms of leverage covered by the prior policy up to the maximum extent permitted by the Investment Company Act of 1940 (the “1940 Act”).

The Board of Trustees approved this policy change based on a recommendation from AGIFM and the Fund’s sub-adviser, Pacific Investment Management Company LLC (“PIMCO”), that the new policy would give the Fund greater flexibility to pursue income for the Fund’s common shareholders, and potentially at favorable financing rates that may be offered by reverse repurchase agreements in comparison to other forms of leverage under various market conditions. The extent of the Fund’s use of leverage under the new policy may vary over time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors.

The Fund’s prior policy provided that it would limit its use of leverage from reverse repurchase agreements (whether or not these instruments are covered in accordance with 1940 Act standards), borrowings, any other senior securities representing indebtedness and any future issuance of preferred shares such that the proceeds therefrom to the Fund would not exceed 38% of the Fund’s total assets (including the amounts of leverage obtained through the use of such instruments) at the time utilized.

That policy has been rescinded and replaced in its entirely with the following policy:

The Fund will limit its use of leverage from reverse repurchase agreements (whether or not these instruments are covered in accordance with 1940 Act standards) such that the proceeds therefrom to the Fund will not exceed 50% of the Fund’s total assets (including the amounts of leverage obtained through the use of such instruments) at the time utilized.

The 1940 Act generally limits the extent to which the Fund may utilize uncovered reverse repurchase agreements and other borrowings, together with any other senior securities representing indebtedness, to 33 1/3% of the Fund’s total assets at the time utilized. Also, under the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the value of the Fund’s total net assets is at least 200% of the liquidation value of the outstanding preferred shares plus the aggregate amount of any senior securities representing indebtedness (as defined in the 1940 Act) held by the Fund (i.e., such liquidation value plus the aggregate amount of senior securities representing indebtedness may not exceed 50% of the Fund’s total net assets).

It should be noted that, while the Fund’s use of leverage creates the opportunity for increased net income for the Fund, it also creates special risks, and 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. If shorter-term interest rates rise relative to the rate of return on the Fund’s portfolio, the interest and other costs to the Fund of leverage (including interest expenses on reverse repurchase agreements) could exceed the rate of return on the debt obligations and other investments held by the Fund, thereby reducing return to common shareholders. The use of leverage also increases the likelihood of greater volatility of net asset value and market price of the Fund’s common shares. The use by the Fund of reverse repurchase agreements to obtain leverage also involves special risks. For instance, the market value of the securities that the Fund is obligated to repurchase under a reverse repurchase agreement may decline below the repurchase price and the securities may not be returned to the Fund. Also, because the fees received by AGIFM and by PIMCO from the Fund are based on the total managed assets of the Fund (including assets attributable to any reverse repurchase agreements, borrowings and preferred shares that are outstanding), AGIFM and PIMCO have a financial incentive for the Fund to use reverse repurchase agreements, borrowings and preferred shares, which may create a conflict of interest between AGIFM/PIMCO and the Fund’s common shareholders.

The Fund’s investment objective is to seek current income as a primary focus and also capital appreciation. There can be no assurance that the Fund will achieve its stated objectives.

Allianz Global Investors Fund Management LLC, an indirect, wholly-owned subsidiary of Allianz Global Investors of America L.P., serves as the Fund’s investment manager and is a member of Munich-based Allianz Group (NYSE:AZ). PIMCO, an Allianz Global Investors Fund Management affiliate, serves as the Fund’s sub-adviser.

The Fund’s daily New York Stock Exchange closing prices and net asset values per share are available by calling the Fund’s shareholder servicing agent at (800) 254-5197. This information, as well as updated portfolio statistics and performance, is available at http://www.allianzinvestors.com.

Statements made in this release that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such risks and uncertainties include, without limitation, the adverse effect from further declines in the securities markets and in the Fund’s performance, a general downturn in the economy, inability to obtain leverage, competition from other companies, changes in government policy or regulation, inability to attract or retain key employees, inability to implement its operating strategy and/or acquisition strategy, and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. The Fund’s ability to maintain leverage and to pay dividends to common shareholders is subject to the restrictions in its registration statement and other governing documents as well as the Investment Company Act of 1940.