The top-down investment process begins with PIMCO's annual secular forum at which the firm develops a 3- to 5-year outlook for the global economy and interest rates. This helps set the basic portfolio parameters, including duration, yield-curve positioning, sector weightings and credit quality. Our municipal bond team seeks to add value in a number of ways, including capturing competitive risk-adjusted yields for shareholders though a combination of risk adjustment analysis and relative value assessments. Duration management between the 0- to 3-year range is one tool used to gain greater yield than municipal money market funds. In seeking to maximize yield, however, we consider a number of other factors, including call, credit and tax liability risks. In addition, we employ an expanded set of portfolio strategies to add value and to control return volatility relative to the benchmark. The manager may at times use futures to replicate bond positions.** This strategy can offer the opportunity to outperform physical bond securities due to the relative pricing of the futures contracts and PIMCO’s active management of the collateral backing the futures.
** Futures may also be used to manage the Fund portfolio's overall duration and sector exposure.
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