Table of Contents

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

References herein to “we,” “us,” “our,” the “Company” and “PALCO” refer to PIMCO Asset-Based Lending Company LLC, or, where applicable, Series I and/or Series II (each as defined below). The term “Series I” refers to PIMCO Asset-Based Lending Company LLC - Series I, a registered series of the Company; the term “Series II” refers to PIMCO Asset-Based Lending Company LLC - Series II, a registered series of the Company; and the term “Series” refers collectively to Series I and Series II. Each of the terms “Anchor I Shares,” “Anchor I-B Shares,” “Anchor II Shares,” “Anchor II-B Shares,” “Anchor III Shares,” “Standard A Shares,” “Standard B Shares,” “E Shares” and “V Shares,” unless otherwise indicated, refers collectively to the applicable class of limited liability company interests (the “Shares”) of both Series I and Series II. Other than Anchor I-B and Anchor III Shares, which represent classes of limited liability company interests only in Series II, each class of Shares described herein represents the applicable class of limited liability company interest in each of Series I and Series II. The same class of each Series will have the same terms with respect to each Series unless otherwise indicated.

Some of the statements in this Annual Report on Form 10-K (this “Annual Report”) constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this Annual Report may include statements as to:

In addition, words such as “anticipate,” “believe,” “expect,” “plan,” “seek” and “intend” and similar words or variations thereof may indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this Annual Report involve risks and uncertainties, including factors outside of our control. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Item 1A. Risk Factors” and elsewhere in this Annual Report and in our other filings with the U.S. Securities and Exchange Commission (the “SEC”), including the Company’s latest registration statement on Form 10 under the Exchange Act. Other factors that could cause actual results to differ materially include, but are not limited to:

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Annual Report should not be regarded as a representation by us that our plans and objectives will be achieved. These forward-looking statements apply only as of the date of this Annual Report. Moreover, we assume no duty and do not undertake to update the forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by law.

Summary of Risk Factors

The following is only a summary of the principal risks that may materially adversely affect the Company’s business, financial condition, results of operations and cash flows. These are not the only risks the Company faces. You should carefully consider these summary risk factors, together with the risk factors set forth below under “Item 1A. Risk Factors” and elsewhere in this Annual Report and the other reports and documents filed by the Company with the SEC.

Risks Related to the Company and an Investment in the Shares

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Risks Related to Owning and Managing a Platform of Underlying Asset-Backed Instruments

Risks Related to Strategic Acquisitions in Securities and Other Asset-Backed Instruments

Additional Risks Related to the Operation of the Company Generally

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Tax Risks Related to the Company, the Shares and the Company’s Portfolio Assets

Risks Related to Regulatory Matters

Basis of Presentation

Part I

Item 1. Business

Business Overview

The Company is a lending platform engaging in asset-based finance in the U.S. and Europe. PIMCO, across its complex, defines asset-based finance as a platform that primarily intends to fund, finance and structure Asset-Backed Instruments outside the traditional corporate and commercial real estate lending markets. The term “Asset-Backed Instruments” refers to loans and other instruments that are collateralized by, or payable from a stream of payments generated by, a specified pool of real assets, financial assets, insurance assets or other assets.

Our objective is to build a diversified portfolio of Asset-Backed Instruments through our wholly or majority-owned subsidiaries. We intend to seek opportunities in Asset-Backed Instruments, focusing on assets outside the traditional corporate and commercial real estate lending markets. We believe that there is a robust opportunity set for private capital to engage asset-based lending markets where bank retrenchment and Basel III regulatory headwinds are prevalent as originators are struggling to provide liquidity—an issue exacerbated by factors, including (i) scarce capital when volatility emerges and (ii) continued changes to regulatory and accounting expectations for financial institutions, such as Basel I/II/III/IV and Current Expected Credit Losses (“CECL”), among others.

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The Company’s strategy is structured to offer access to differentiated Asset-Backed Instruments, including consumer loans (e.g., student loans, auto loans, credit card receivables and mortgages), non-consumer loans (e.g., nonperforming loan financing, trade financing, asset-based lending, royalties, small and medium-sized enterprise lending and risk transfer) and annuities and other insurance or reinsurance-related assets (collectively, the “Insurance Assets”), as well as select Platform Acquisitions (as defined below) of specialty lenders, servicers, insurers, or reinsurers. The Company acquires primarily private income-producing assets from the aforementioned areas. The Company principally seeks to acquire (or otherwise gain exposure to) individual income streams where risk of capital loss is deemed low or in pools of loans where returns adjusted for expected losses are attractive, even under stress scenarios. Over the long term, the returns of the Company’s strategy are expected to consist of a combination of capital gains and income. The Company commenced its operations in July 2025. For the next twelve months, the Company plans to continue to acquire Portfolio Assets using proceeds of subscriptions from the Shareholders, including the Seed Investor (as defined below). The term “Portfolio Assets” refers to any assets acquired by the Company.

In connection with its plan of operation, the Company has entered into an expense limitation and conditional reimbursement agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Reimbursement Agreement”) with the Operating Manager pursuant to which the Operating Manager may elect to pay certain of the Company’s expenses, including certain Organizational and Offering Expenses (as defined below) on the Company’s behalf (the “Expense Support”). To the extent an Expense Support is made, following any calendar month in which the Specified Expenses (as defined below) are below 0.75% of the Company’s net assets on an annualized basis, the Company shall reimburse the Operating Manager, fully or partially, for the Expense Support, but only if and to the extent that Specified Expenses plus any “Reimbursement Payments” (as defined below) do not exceed 0.75% of the Company’s net assets at the end of each calendar month on an annualized basis, until such time as all Expense Supports made by the Operating Manager to the Company within three years prior to the last business day of such calendar month have been reimbursed. Any payments required to be made by the Company in the prior sentence shall be referred to herein as a “Reimbursement Payment.” Accordingly, the Operating Manager has borne the expenses related to the Company’s operations and as the Company’s net asset value (“NAV”) grows, the Operating Manager intends to seek reimbursement pursuant to the Reimbursement Agreement.

“Specified Expenses” means all expenses incurred in the business of the Company with the exception of (i) the Management Fee (as defined below), (ii) the Performance Fee (as defined below), (iii) the combined annual distribution fees and shareholder servicing fees of the Company and the Related Acquisition Vehicles (as defined below), (iv) the Dealer Manager Fees (as defined below) (including selling commissions), (v) expenses related to any Portfolio Assets acquired by the Company and the Related Acquisition Vehicles, including, without limitation, brokerage costs or other acquisition-related out-of-pocket expenses (regardless of whether the transactions are consummated), (vi) ordinary corporate operating expenses of the Company and the Related Acquisition Vehicles, (vii) interest expenses, commitment fees, or other expenses related to any leverage incurred by the Company, (viii) taxes, (ix) certain insurance costs, (x) Organizational and Offering Expenses, (xi) certain non-routine items (as determined in the sole discretion of the Operating Manager) and (xii) extraordinary expenses (as determined in the sole discretion of the Operating Manager).

Shares are offered on a monthly basis at NAV per Share (generally measured as of the end of the month immediately preceding the date of the allocation of Shares to subscribing Shareholders), plus any applicable upfront commissions and fees (the “Dealer Manager Fees”) payable to the PIMCO Investments LLC (the “Dealer Manager”). For Series I, there are: Anchor I Shares, Anchor II Shares, Anchor II-B Shares, Standard A Shares, Standard B Shares, E Shares and V Shares (collectively, the “Series I Shares”). For Series II, there are: Anchor I Shares, Anchor I-B Shares, Anchor II Shares, Anchor II-B Shares, Anchor III Shares, Standard A Shares, Standard B Shares, E Shares and V Shares (collectively, the “Series II Shares”).

We formed two separate Series pursuant to the Delaware Limited Liability Company Act (as amended from time to time, the “LLC Act”) and although the U.S. Internal Revenue Service (“IRS”) has only issued proposed regulations relating to series entities, each Series is intended to be treated as a separate entity and have a different tax classification for U.S. federal income tax purposes. Under Delaware law, to the extent the records maintained for a Series account for the assets associated with such Series separately from the other assets of the Company or any other Series, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to such Series are segregated and enforceable only against the assets of such Series and not against the assets of the Company generally or any other Series. Series I and Series II are expected to acquire, directly or indirectly, the same

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portfolio of Portfolio Assets on a pro rata basis. Series I has elected to be treated as a corporation for U.S. federal income tax purposes and Series II has elected to be treated as a partnership for U.S. federal income tax purposes. The state tax treatment of a series limited liability company depends on the laws of each state, and it is possible that a particular state may treat Series I and Series II as a single entity for state tax purposes or may treat Series I or Series II as separate entities but classified differently than the IRS does for U.S. federal income tax purposes. The Series conduct the business of the Company jointly and although they have the ability and intention to contract in their own names, they do so jointly and in coordination with one another. Neither Series has directors, officers or employees, but each is overseen by the Board of Directors of the Company (the “Board”) and managed by the Operating Manager.

Business Strategy

The business strategy of the Company is to acquire loans, mortgages, leases, hard assets, royalties, Insurance Assets and other forms of credit provision or contractual cash flow. The Company primarily seeks to make acquisitions in individual income streams where risk of capital loss is deemed by it to be low or in pools of loans where we expect returns adjusted for expected losses to be attractive, even under stress scenarios. Over time, the returns of the strategy are expected to consist of a combination of capital gains and income.

The Company’s strategy is designed to facilitate the fluid deployment and redeployment of capital across a broad array of asset-backed instruments. We believe the breadth of opportunity across consumer and non-consumer categories allows PIMCO and the Company to exercise discipline, avoiding areas that are too competitive, while focusing instead where credit supply has temporarily retrenched, become dislocated or where barriers to entry exist. Our strategy is also characterized by flexibility with respect to financing of assets that may be higher in credit quality or in the capital structure, and where they are deemed to offer attractive risk/reward profiles. At the same time, the Company aims to focus its acquisition universe specifically on markets where we believe investors have limited to no exposure, namely in private debt markets outside of corporate and commercial real estate sectors.

Unless otherwise required by context, all references to the Company’s acquisition strategy or operations should be read to refer to the acquisition strategy or operations of the Company and/or of one or more special purpose vehicles (“SPVs”) which the Company holds. Other vehicles managed or sponsored by PIMCO or its affiliates may from time to time co-invest alongside the Company, in the Operating Manager’s sole discretion.

The Company may (but is not required to) hold a portion of its Portfolio Assets through one or more entities electing to be treated as real estate investment trusts (“REITs”) within the meaning of Section 856 of the Code (the “REIT Subsidiaries”), including a REIT Subsidiary managed and/or sponsored by PIMCO or its affiliates. The Company may also contribute any of its assets to subsequent securitizations, such as collateralized loan obligations (“CLOs”), collateralized debt obligations (“CDOs”) and RMBSs, or other structures, such as master limited partnerships, to be managed or advised by PIMCO, its affiliates and/or third-party collateral managers, either directly or through warehouse facilities, with the Company potentially holding some or all of the resulting tranches or interests. In addition, the Company may opportunistically obtain indirect exposure to such loans and assets, for example by acquiring Structured Instruments (as defined below), financing arrangements related to Structured Instruments or derivatives, including through acquisitions of one or more investment vehicles managed or sponsored by PIMCO or its affiliates.

The Company has acquired, and will continue to seek to acquire and hold, equity interests, and potentially controlling equity interests, in Platform Companies (as defined below) that originate, underwrite, and/or service the asset types that fall into its areas of focus. The Company may realize its equity interests in a Platform Company, in whole or in part, through sale of the Platform Company in any number of ways, including, for example, in an initial public offering, on the secondary market, and/or cross trades to affiliates, or a disposition of assets held by the Platform Company. There can be no assurance any such exits will be consummated or consummated in the manner detailed herein. The Company may also obtain primary or secondary positions in or otherwise gain exposure to the assets originated and/or serviced by the Platform Companies. For the avoidance of doubt, the Company may also acquire debt securities of the Platform Companies.

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The Company may also engage in certain equity acquisitions, and potentially controlling equity interests, with debt-like characteristics, including cash-flow-producing assets. In addition, the Company’s assets may convert to other types of assets after acquisition. For example, mortgage loans may convert to real estate holdings and corporate loans may convert to equity holdings.

The Company’s acquisitions may be newly created, and may be specifically designed for the Company, or existing and may be acquired on the secondary market or on a primary basis through the direct provision of capital such as through companies acquired, or created, and owned by or otherwise affiliated with the Company, other PIMCO Clients/funds or PIMCO. “PIMCO Clients” refers to the applicable fund, account, entity, vehicle, product and/or similar arrangement sponsored, managed or advised by PIMCO.

In addition to acquiring the asset classes described above, the Company has discretion to supplement its principal strategy by acquiring any other securities or assets within the asset-based finance or any other sector that the Operating Manager or the Board believe may offer attractive trading or acquisition opportunities, including public securities and other assets.

Moreover, the Company, in its sole discretion, may maintain a portion of the portfolio in tradable securities for liquidity management purposes. In this regard, the Company may acquire any public or private securities it deems appropriate. Without limiting the foregoing, the Company may invest in cash management vehicles managed by the Operating Manager or an affiliate thereof to seek to provide income, preservation of capital and liquidity (each, a “Cash Management Vehicle”).

The Company’s acquisition program is not restricted to acquisitions of any particular credit quality, and the Portfolio Assets could span the entire credit rating spectrum. The Company also may acquire or otherwise gain exposure to any tranche of securities or other instruments.

While the Company is focused on or otherwise gains exposure to U.S.- and European-based opportunities, the Company is not subject to any guidelines or limitations relating to geographical concentration and may make substantial acquisitions of non-U.S.- and/or non-European-based opportunities, including acquisitions of Latin America- and Asia-based opportunities.

Other investment vehicles managed by the Operating Manager of an affiliate thereof may from time to time invest in the Company, in the Operating Manager’s sole discretion.

Investors should be aware that, unless otherwise specified herein or in the LLC Agreement, the Company is not limited in its acquisition and trading activities. See “— Acquisition Guidelines” below.

Governance and Management

The Board’s corporate governance responsibilities are based on the LLC Agreement. The Board oversees the management of the Company and the performance of the Operating Manager. See “Item 10. Directors, Executive Officers and Corporate Governance.” Actual or potential conflicts of interest will arise from time to time between the Company, PIMCO and other PIMCO Clients. See “Item 13. Certain Relationships and Related Transactions, and Director Independence—Potential Conflicts of Interest” and “Item 13. Certain Relationships and Related Transactions, and Director Independence—Conflicts of Interest.” The Company has protocols for handling actual and potential conflicts of interest and our independent directors may be called upon from time to time to approve specific conflicts as members of the Audit Committee (the “Audit Committee”) or the conflict may be otherwise addressed in accordance with our LLC Agreement.

The Operating Manager

Pursuant to the terms of the second amended and restated operating agreement between the Operating Manager and the Company (as further amended, restated, supplemented or otherwise modified from time to time, the “Operating Agreement”), the Operating Manager is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), manages the Company on a day-to-day basis (subject to the directions of the Acquisition Committee (as defined below) and to the supervision of the Board). The Operating Manager provides certain management, administrative and advisory services to the Company related to funding, financing

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and/or structuring the Portfolio Assets (including the Asset-Backed Instruments); provided, however, that the Acquisition Committee (pursuant to a delegation of authority from the Board and, in certain instances, a committee of the Board, as applicable) is responsible for making capital allocation and acquisition decisions proposed by the Operating Manager.

Since its founding in 1971, PIMCO has provided discretionary investment management services to clients throughout the world. PIMCO began as a manager of fixed income portfolios and has evolved to include active management of equities, open-end funds, closed-end funds (exchange listed funds and interval funds), exchange traded funds, collective investment trusts, private investment funds (such as private equity-style funds and hedge funds) and structured products. PIMCO is a majority-owned indirect subsidiary of Allianz SE, a publicly traded European insurance and financial services company. As of December 31, 2025, PIMCO had approximately $2.26 trillion in assets under management (“AUM”), including $1.84 trillion in third-party client assets.

In order to enhance the value of its client’s assets, PIMCO aims to leverage its deep underwriting capabilities, long history of managing through a variety of market environments and macroeconomic and policy analysis track record. Given its history and scale underwriting credit risk across credit sectors and over economic cycles, PIMCO sources private income-producing assets from multiple channels including (i) extensive direct relationships with borrowers across the globe, (ii) established advisor, legal and accounting relationships, (iii) banks/broker-dealers for whom PIMCO is often a preferred counterparty, (iv) as a reliable and credible finance provider to sponsors, and (v) as a strategically important partner to capital-light operators. The depth of its relationships and the breadth of the strategy minimize the risk that PIMCO is captive to any particular channel for sourcing assets, should risk/reward profiles deteriorate. Asset-Backed Instruments sourced from these platforms that are pursued by PALCO are pursued at the recommendation of the Operating Manager in its discretion pursuant to its applicable policies and procedures, including its allocation process, and are subject to review and approval, consistent with the established process, of the Acquisition Committee (as defined below). None of PIMCO’s results can be attributed to the Company and there is no guarantee of similar results for the Company. The Company commenced its operations in July 2025 and, therefore, has limited operating history.

The Acquisition Committee

PIMCO has established the Company’s acquisition committee (the “Acquisition Committee”) to seek to incorporate cross-sector perspectives and relative value input with respect to PIMCO as a whole. The Acquisition Committee (pursuant to a delegation of authority from the Board and, in certain instances, a committee of the Board, as applicable) is responsible for making capital allocation and acquisition decisions proposed by the Operating Manager, as well as overseeing the ongoing performance of Portfolio Assets on a periodic basis. The composition, structure and/or operations of the Acquisition Committee may change from time to time (or the Company may cease to have the Acquisition Committee or a similar committee), each without the consent of or notice to the Shareholders.

Market Opportunity

Since the 2008-2009 Great Financial Crisis, the market for asset-backed instruments has grown significantly as banks and non-bank lenders have retrenched from traditional lending activities. In addition, bank failures have underscored the impact of the current economic cycle on the banking system, specifically on regional bank balance sheets, leading banks to de-risk and reduce credit lending appetite, which has created attractive opportunities for non-bank lenders to fill the gap.

Tighter bank regulation, higher capital charges, and changes to loan accounting have led banks to migrate out of various types of lending. Banks are increasingly focused on balance sheet and capital optimization, and we believe a void has been left in the market with commercial finance companies liquidating or converting into banking entities. We believe originators are struggling to provide liquidity, which is an issue exacerbated by factors, including (i) scarce capital when volatility emerges and (ii) continued changes to regulatory and accounting expectation for financial institutions, such as Basel I/II/III/IV and CECL, among others. Bank retrenchment has heightened on the back of the banking crisis, leaving a limited number of players in specialty finance sectors with the growth of the private debt universe largely oriented around corporate markets.

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In addition, the rapid increase in interest rates and the regional bank failures in early 2023 have accelerated banks’ focus on the balance sheet and capital optimization and related risks. These conditions have presented a meaningful opportunity to participate in the unwinding of these risk exposures, particularly risk with respect to asset sales and risk transfer opportunities.

The Operating Manager believes that an investment in the Company represents an attractive opportunity for a number of reasons including:

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In summary, the Company seeks to primarily focus on income-producing private assets with the ability to acquire Platform Companies (as defined below), ensuring alignment of incentives as well as additional sourcing and management benefits. It further seeks to deploy capital fluidly across Asset-Backed Instruments and over economic cycles.

Our Approach to Acquiring Portfolio Assets

The Acquisition Strategy

The Company’s strategy is structured to offer access to differentiated Asset-Backed Instruments, including consumer loans (e.g., student loans, auto loans, credit card receivables and mortgages) and non-consumer loans (e.g., nonperforming loan financing, trade financing, asset-based lending, royalties, small and medium-sized enterprise lending and risk transfer), as well as select Platform Acquisitions (as defined below) of specialty lenders, servicers, insurers, or reinsurers. The Company acquires primarily private income-producing assets from the aforementioned areas. The Company principally seeks to acquire (or otherwise gain exposure to) individual income streams where risk of capital loss is deemed low or in pools of loans where returns adjusted for expected losses are attractive, even under stress scenarios. Over the long term, the returns of the Company’s strategy are expected to consist of a combination of capital gains and income.

This opportunity set also includes residential loans, consumer loans, such as credit card receivables, automobile loans, student loans and unsecured consumer credit loans, commercial finance loans, such as small and medium-sized enterprise (“SME”) loans and trade financings, servicing, including servicing rights, or similar rights relating to such loans, including warrants or other equity kickers associated with loans, and/or other cash-flow or income-producing assets, including transportation and commercial equipment, leases, intellectual property royalties, and Insurance Assets, and other assets, such as non-performing loans and dividend-paying private company securities, as well as “platform” opportunities that are existing or expected to lead to the formation of future portfolio companies primarily engaged in the business of originating and/or servicing loans and other assets within the consumer and non-consumer categories, insurance, or reinsurance (each, a “Platform Company”). See “Item 1A. Risk Factors.”

An investor may lose all of its money invested in the Company. The Company expects to employ leverage for various purposes, including to facilitate acquiring assets, to fund repurchases and to otherwise support the strategy of the Company. See “Item 1. Business—Our Approach to Acquiring Portfolio Assets—Acquisition Guidelines” for more detail regarding the Company’s utilization of leverage.

There can be no assurance that the Company will execute on its strategy or not lose capital.

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Acquisition Sourcing

PIMCO and the Company believe that deal sourcing is and will continue to be a key component of the Company’s strategy, and that the experience of the Company’s acquisition team and the breadth of PIMCO’s investment professionals, including PIMCO’s substantial resources dedicated to the asset-based finance residential mortgage and specialty finance markets, support such sourcing efforts. In private residential credit, PIMCO has eleven portfolio managers globally. Through diligence of multiple non-bank mortgage originators and servicing platforms, the team has well-established relationships with over forty mortgage originators and servicers. The asset-based/specialty finance team includes over fifty portfolio managers globally who have deployed over $26 billion since 2014 into private specialty finance assets and $204 billion since 2014 across private residential loans. The team has established over eighty platform and servicing relationships across consumer, auto, student, aircraft leasing, data infrastructure and other consumer and non-consumer asset types. Additionally, the Company’s strategy is expected to benefit from PIMCO’s Capital Markets Team that includes a centralized origination team, focused on increasing deal flow for PIMCO strategies via deep relationships with banks, dealers and other third parties across markets. PIMCO believes that the Company benefits from the extensive and longstanding relationships that PIMCO has established with a wide variety of global financial institutions, companies and industry participants. In addition, PIMCO’s comprehensive platform provides sellers of risk with a multifaceted solution for assets across risk, return and liquidity. PIMCO believes the breadth of the platform offers a competitive advantage in partnering, sourcing and underwriting opportunities without relying on one single sourcing channel and/or approach.

PIMCO also believes that its ability to source and exit opportunities through public and private markets is a benefit to the Company. In particular, PIMCO may source opportunities through public securitizations by accessing the underlying assets and eventually migrating those opportunities into the private domain or acquiring private assets and exiting in the public market via securitizations. In certain cases, PIMCO may engage a joint venture or other partner to help source potential Company acquisitions and generally pay such partner fees or other compensation that typically is borne by the Company. PIMCO also believes that its reputation as a trusted partner should result in an ability to source a significant number of opportunities for the Company.

Acquisition Process

PIMCO seeks to implement a consistent, disciplined asset selection process centered on asset-level analysis of the intrinsic value of opportunities. PIMCO intends its acquisition process to focus on detailed asset-level and deal structure underwriting with an emphasis on loan level analysis, pricing and structuring, asset management and potential exit strategies. In addition, PIMCO believes that macroeconomic risks remain extremely important and, as a result, PIMCO believes that it can leverage the firm’s macro insights in connection with analyzing opportunities. Opportunities have been, and will continue to be, sourced and scrutinized by sector specialist teams before being reviewed by the Acquisition Committee. Opportunities are evaluated on a variety of parameters, including asset type, geography, position in the capital structure, liquidity, return potential and risks.

PIMCO has typically performed, and will continue to perform, significant analysis on the structuring and any embedded options of opportunities. This process typically entails a focus on credit-intensive security selection in the residential mortgage credit markets and other loan markets, including due diligence of collateral quality, structure risks, interest rate risks, regional housing economics and evaluation of origination and servicing risks. This process is also typically driven by an analysis of potential Portfolio Assets, with a special focus on loss expectation and loss timing. PIMCO employs a multi-disciplinary approach that combines quantitative models with a subjective approach. Research and relative-value analysis typically is generated using in-house expertise and analytical tools developed for the portfolio managers by sector specialists, securitization experts, prepayment modelers, and credit specialists and analysts. Loss expectations usually are determined by employing proprietary loan-level quantitative models, although model projections may also be adjusted based on analysis of qualitative factors, such as servicer practice or relevant regulatory or policy changes.

PIMCO generally evaluates asset-based opportunities through a detailed analysis of, among other things and to the extent relevant to a prospective opportunity, the value of prospective opportunities and any underlying collateral through the use of proprietary models, site visits, automated valuation model analyses, appraisals, broker opinions or otherwise; collateral quality; loss severities, loss timing, recoveries, cure rates, prepayment risk and other relevant factors; historical performance analysis including trend analysis on statistics such as delinquencies and losses; structural risks; servicing risks; loan servicing records; loan-level cash flow models; loss ratios to determine, among other things, the timing and the manner of loss distribution under different scenarios utilizing proprietary delinquency, default and loss curves based on historical patterns; state-specific liquidation timelines; review of local market rental and sales comparables; environmental, zoning and physical property condition reports and any qualitative factors that

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may alter loss expectations and cash flow timing with respect to potential assets, such as the regulatory and legislative environment and servicer practices. This process also often includes the review and assimilation of information from a variety of third-party sources, including any operating partners or special consultants retained by the Company, various statistical services and interaction with the management of certain portfolio companies. Finally, legal, tax and regulatory risks relevant to specific assets are typically considered as part the analysis.

While PIMCO expects to follow the analytical methodologies, strategies and processes discussed above, such methodologies, strategies and processes represent examples only, and do not constitute an exclusive list of methodologies, strategies and processes that may be employed by PIMCO. Not all of the foregoing methodologies, strategies and processes may be utilized at the same time or in the same proportions, and PIMCO may modify and/or implement additional methodologies, strategies or processes as appropriate for different Portfolio Assets or in response to changing market conditions. In addition, PIMCO may rely on limited or incomplete information when conducting due diligence, including with respect to opportunities with accelerated timelines. See “Item 1A. Risk Factors—Risks Related to Owning and Managing a Platform of Underlying Asset-Backed Instruments—Some Asset-Backed Instrument acquisitions occur on an expedited basis which may result in limited financial information being available, and limited time to conduct analysis.”

Acquisition Guidelines

Valuation of Portfolio Assets – Determination of Net Asset Value

The Company has adopted the Operating Manager’s valuation policy as the valuation policy of the Company. From time to time, the Company may make changes to the valuation policy. Any material changes will be made with the consent of the Board.

The Administrative Agent is responsible for the calculation of the NAV of each type in accordance with applicable law and the Company’s valuation policy, which may be amended from time to time.

The NAV of the Company is calculated by the Administrative Agent, its delegate or another independent Service Provider at the end of each month.

The following describes the Company’s valuation policy which may be changed from time to time. The NAV of the Company is calculated by taking the value of the Portfolio Assets and other assets of the Company and subtracting all liabilities, including accrued expenses, the Management Fee, the Performance Fee and any contingencies for which reserves are determined to be required. The Company’s assets are valued as follows:

As there is no single standard for determining fair values of assets that do not have a readily available market price, in many cases, such fair values may be best expressed as a range of fair values from which a single estimate may be derived in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each acquisition while employing a valuation process that is consistently followed. Determinations of fair value involve subjective judgments and estimates;

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The Company may also incorporate industry-accepted valuation methodologies, such as an income approach and market approach. The income approach derives fair value based on the present value of cash flows that a business or security is expected to generate in the future. The market approach relies upon valuations for comparable public companies, transactions or assets, and includes making judgments about which companies, transactions or assets are comparable. A blend of approaches may be used to determine an estimate of fair value;

Where valuations are not provided by an independent source, the Administrative Agent may consult with and may ultimately rely entirely on the Operating Manager or its affiliates in determining the value of Company’s assets, although the Administrative Agent is not required to do so. The Company may engage one or more independent valuation firms to provide assurance regarding the reasonableness of a valuation for an asset that does not have a readily-available market price as of the relevant measurement date. In cases where the Company engages an independent valuation firm to value or review valuations of assets, the cost of such valuation firm is expected to be borne by the Company.

Our Structure

The following is a summary chart of our corporate structure. This chart is a simplified version of our structure and does not include all legal entities in the structure.

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The Board of Directors, Executive Officers and Acquisition Committee

Overall responsibility for the Company’s oversight rests with the Board. To the extent permitted by applicable law, the Board may delegate any of its rights, powers and authority to, among others, any committee of the Board, the officers of the Company or the Operating Manager. As of the date of this Annual Report, the Board consists of six members, three of whom are independent directors, as such term is defined in Section 303A.02 of the New York Stock Exchange Listed Company Manual. See “Item 5. Directors, Executive Officers and Corporate Governance.”

The Company’s executive officers or the Acquisition Committee (in each case, through a delegation of authority from the Board) or, in certain cases, a committee of the Board, as applicable, are responsible for making capital allocation decisions proposed by the Operating Manager and overseeing the management of the Company.

Operating Agreement

The description below of the Operating Agreement is only a summary and is not necessarily complete. The description set forth below is qualified in its entirety by reference to the Operating Agreement which is filed as an exhibit to this Annual Report.

We have entered into the Operating Agreement pursuant to which the Operating Manager manages the Company on a day-to-day basis (subject to the directions of the Acquisition Committee and to the supervision of the Board). The Operating Manager provides certain management, administrative and advisory services to the Company related to funding, financing and/or structuring the Portfolio Assets (including the Asset-Backed Instruments); provided, however, that the Acquisition Committee (pursuant to a delegation of authority from the Board and, in certain instances, a committee of the Board, as applicable) is responsible for making capital allocation and acquisition decisions proposed by the Operating Manager.

Additionally, under the terms of the Operating Agreement, the Operating Manager is responsible for performing (or causing to be performed) such services and activities relating to the assets and operations of the Company, the Series and the Company’s subsidiaries (referred to in this section titled “Operating Agreement” as the “Subsidiaries”) as may be appropriate, including, without limitation;

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The Operating Manager’s services under the Operating Agreement are not exclusive, and the Operating Manager, or any affiliate thereof, is free to furnish similar services to other entities, and it intends to do so, so long as its services to the Company are not impaired. For the avoidance of doubt, the management, policies and operations of the Company and the Series shall be the ultimate responsibility of the Board acting pursuant to and in accordance with the LLC Agreement.

The term of the Operating Agreement will continue indefinitely unless terminated as described below. The Operating Agreement may be terminated upon the affirmative vote of all of our independent directors, based upon unsatisfactory performance by the Operating Manager that is materially detrimental to the Company generally, the Series and the Subsidiaries, taken as a whole. The Company will need to provide the Operating Manager 180 days’ written notice of any termination. The Company may also terminate the Operating Agreement “for cause,” as described in the Operating Agreement, subject to the terms thereof.

The Operating Manager may terminate the Operating Agreement if the Company becomes required to register as an investment company under the Investment Company Act, with such termination deemed to occur immediately prior to such event. The Operating Manager may also terminate the Operating Agreement by providing the Company with 180 days’ written notice. In addition, if the Company defaults in the performance or observance of any material term, condition or covenant contained in the Operating Agreement and the default continues for a period of 30 days after written notice to the Company requesting that the default be remedied within that period, the Operating Manager may terminate the Operating Agreement upon 60 days’ written notice.

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In addition, if the Operating Agreement is terminated, the Operating Agreement will obligate the Company to forfeit its voting securities or other controlling interest in any Asset-Backed Instrument, which would likely require the Company to register as an investment company under the Investment Company Act and adversely affect an investment in the Shares. The Operating Agreement requires the Company to redeem any E Shares and/or V Shares if the Operating Agreement is terminated, which could require the Company to liquidate Asset-Backed Instruments at unfavorable times or prices, which may adversely affect an investment in the Shares.

The Operating Agreement may not be terminated for any other reason, including if the Operating Manager experiences a change of control or due solely to the poor performance or under-performance of the Company’s operations or Asset-Backed Instruments, and the Operating Agreement continues in perpetuity, until terminated in accordance with its terms. Because the Operating Manager has a significant influence on the affairs of the Company, the Company may be unwilling to terminate the Operating Agreement, even in the case of a default. Even if the Operating Manager’s performance does not meet the expectations of Shareholders, and the Company is unable or unwilling to terminate the Operating Agreement, the Company is not entitled to terminate the Operating Agreement and the Company’s NAV per Share, which is computed separately for each Class of the Shares of each Series, could decline.

Compensation of the Operating Manager

The compensation of the Operating Manager is described below. While the components used to calculate the Management Fee and the Performance Fee apply with respect to each Series and are the same for each Series unless otherwise indicated, the Management Fee rate and/or Performance Fee rate may differ among Classes of Shares within the Series, as indicated below.

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Management Fee

So long as the Operating Agreement has not been terminated, we will continue to pay the Operating Manager a management fee (the “Management Fee”) monthly in arrears in an amount equal to (i) 1.25% per annum of the month-end NAV attributable to the Standard A Shares and Standard B Shares, (ii) 0.75% per annum of the month-end NAV attributable to Anchor II Shares and Anchor II-B Shares and (iii) 0.50% per annum of the month-end NAV attributable to the Anchor I Shares, Anchor I-B Shares and Anchor III Shares; provided that the Management Fee is reduced by any applicable Special Fees (as defined below); provided, however, that the Management Fee is not reduced for any Other Fees (as defined below). In calculating the Management Fee, the Company uses its NAV before giving effect to accruals for the Management Fee, the Performance Fee, combined annual distribution fees and shareholder servicing fees or distributions payable on its Shares. The Operating Manager or an affiliate may rebate, waive or reduce the Management Fee charged to certain Shareholders at the sole discretion of the Operating Manager or such affiliate. Any such rebate, waiver or reduction may be affected either by way of purchase of additional Shares by the Operating Manager or such affiliate for the Shareholder or by way of rebate to the relevant Shareholder’s account. The Management Fee may alternatively, in the discretion of the Operating Manager, be paid in whole or in part by the Company’s subsidiaries, in which case it shall result in a change in the cash or retained earnings of such subsidiaries.

“Special Fees” mean net consulting or monitoring fees, Portfolio Asset directors’ fees, closing fees and advisory services fees and similar fees, whether in cash or in kind, including options, warrants and other non-cash consideration paid to the Operating Manager or any of its affiliates or any employees of the foregoing in connection with actual or contemplated acquisitions of or investments in Portfolio Assets (in each case allocable to the Company).

The Operating Manager may, in its discretion and without further notice to or consent of any Shareholder, afford particular Shareholders more favorable terms with respect to the Management Fee, and such more favorable terms may be set forth in a side letter or other similar written agreement with such Shareholder.

Performance Fee

So long as the Operating Agreement has not been terminated, the Operating Manager will continue to be entitled to receive a performance fee (the “Performance Fee”), promptly following the end of each Reference Period (as defined below), equal to (i) 12.5% of the Total Return (as defined below) with respect to Standard A Shares and Standard B Shares, (ii) 7.5% of the Total Return with respect to Anchor II Shares and Anchor II-B Shares and (iii) 5.0% of the Total Return with respect to Anchor I Shares, Anchor I-B Shares and Anchor III Shares, in each case subject to a 5.0% annual Hurdle Amount and a High Water Mark with a 100% Catch-Up (each as defined below).

Specifically, the Operating Manager is entitled to receive, promptly following the end of each Reference Period, Performance Fees equal to:

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“Total Return” with respect to any Shares for any period since the end of the prior Reference Period shall equal the sum of:

For the avoidance of doubt, the calculation of Total Return (i) includes any appreciation or depreciation in the NAV of any relevant Shares issued during the then-current Reference Period, (ii) excludes the proceeds from the initial issuance of such Shares, (iii) treats any withholding tax on distributions paid by or received by the Company generally or any Series as part of the distributions accrued or paid on Shares and (iv) excludes any taxes (whether paid, payable, accrued or otherwise) of any intermediate entities, and may be calculated without taking into account certain deferred tax liabilities of such intermediate entities, as determined in the good faith judgment of the Operating Manager.

“Hurdle Amount” for any period during a Reference Period means that amount that results in a 5.0% of annualized rate of return for such period on the NAV of the Investor Shares outstanding at the beginning of the then-current Reference Period and all Investor Shares (as defined below) issued since the beginning of the then-current Reference Period, calculated in accordance with recognized industry practices and taking into account the timing and amount of all distributions accrued or paid (without duplication) on all such Shares but excluding applicable expenses for the servicing fee. The ending NAV of Investor Shares used in calculating the annualized rate of return is calculated before giving effect to any allocation/accrual to the Performance Fees and applicable expenses for the servicing fee. For the avoidance of doubt, the calculation of the Hurdle Amount for any period excludes any Investor Shares repurchased during such period, which are subject to the Performance Fees upon repurchase. Except as described in the definition of “Loss Carryforward Amount” below, any amount by which the Total Return falls below the Hurdle Amount does not carry forward to subsequent periods. The Operating Manager or its affiliate, as applicable, is not obligated to return any portion of the Performance Fees paid due to the subsequent performance of the Company.

“Loss Carryforward Amount” was equal to zero as of December 31, 2025, and shall cumulatively increase by the absolute value(s) of any negative annual Total Returns and decrease by any positive annual Total Returns; provided, that the Loss Carryforward Amount shall at no time be less than zero; provided, further, that the calculation of the Loss Carryforward Amount excludes the Total Return related to any Shares repurchased during the applicable Reference Period, which Shares are subject to the Performance Fees upon repurchase as described above. For the avoidance of doubt, with respect to Shares repurchased during the applicable Reference Period, the Loss Carryforward Amount shall not include amounts that would have been attributable to such repurchased Shares had such Shares not been repurchased during the applicable Reference Period. The effect of the Loss Carryforward Amount is that the recoupment of past annual Total Return losses offsets the positive annual Total Return gain of the applicable Reference Period for purposes of the calculation of the Performance Fees. This is referred to as a “High Water Mark.”

“Reference Period” means each fiscal year commencing on January 1 and ending on December 31; provided, that the initial Reference Period shall be the period ending on December 31, 2025.

E Shares shall not be subject to the Performance Fee.

The Operating Manager may, in its discretion and without further notice to or consent of any Shareholder, afford particular Shareholders more favorable terms with respect to the Performance Fee, and such more favorable terms may be set forth in a side letter or other similar written agreement with such Shareholder.

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Other Fees

From time to time, the Operating Manager, certain vehicles or companies of the Operating Manager or PIMCO Clients or their affiliates (including Service Providers (as defined below) affiliated with PIMCO (including the Services Company (as defined below)) (collectively, “Affiliated Service Providers”)) will provide services to certain persons or entities, including the Company, the Series, and potential and existing Portfolio Assets (including with respect to the Company’s acquisition thereof). For example, an insurance company owned by a PIMCO Client and/or alternative investment vehicles could provide insurance products and services to the Company. Related fees payable by the Company, a Series or the Portfolio Assets, as applicable, are retained by, and for the benefit of, the Operating Manager and/or such affiliates and Affiliated Service Providers, and are not applied to reduce the Management Fee.

For the avoidance of doubt, a Portfolio Asset may, on such terms as such Portfolio Assets determines to be in its best interest, provide services to another Portfolio Assets or PIMCO Client (or receive services from another Portfolio Assets or PIMCO Client), and may pay or receive related compensation, without the approval of the Board or any investor of the Company. In certain cases, Affiliated Service Providers or personnel thereof will not be employees of the Operating Manager or its affiliates notwithstanding the fact that they will have attributes of “employees” of the Operating Manager or its affiliates (e.g., they may have dedicated offices at the Operating Manager or an affiliate thereof, use email addresses, telephone numbers and other contact information that are similar to those used by personnel of the Operating Manager or its affiliates, participate in general meetings and events for personnel of the Operating Manager or its affiliates, work on matters for the Operating Manager or its affiliates as their primary or sole business activity and/or be compensated on a weekly or monthly basis rather than on a project basis), and in other cases, such Affiliated Service Providers will be an employee of the Operating Manager or its affiliates with respect to certain activities, even though they are not considered Operating Manager employees, affiliates or personnel for purposes of certain provisions of this Registration Statement, the LLC Agreement and the Operating Agreement, including the portions thereof relating to expenses and fees (“Dual Service Providers”).

Dual Service Providers may have a variety of roles and titles with respect to their employment with the Operating Manager or its affiliates, and may include legal, paralegal, finance, tax, accounting, technology, compliance, valuation, operational and asset management professionals and employees, among others. Portfolio managers, analysts and other professionals of the Operating Manager or its affiliates may also serve as Dual Service Providers. The Operating Manager has formed PIMCO Aurora LLC, a subsidiary of the Operating Manager (the “Services Company”), to serve as a Service Provider in exchange for certain fees payable by the Company or the Portfolio Assets. Certain personnel of the Services Company are also employees of the Operating Manager or an indirect subsidiary thereof and these individuals will be providing services on behalf of both the entity that employs them and the Services Company. In the future, some individuals may be employed by and provide services exclusively on behalf of the Services Company, while others will continue to be dual personnel of the Services Company and the Operating Manager or an affiliate thereof. The Company may in the future use other Affiliated Service Providers.

“Other Fees” payable by the Company means:

(i) fees, costs and expenses that comprise or constitute Organizational and Offering Expenses or Operating Expenses (each as defined below);

(ii) salary, fees, expenses or other compensation of any nature paid by a Portfolio Asset to any individual (or to the Operating Manager or any of its affiliates with respect to such individual) who acts as an officer of, or in an active management role at, such Portfolio Asset (including industry executives, advisors, consultants (including operating consultants and sourcing consultants)), operating executives, subject matter experts or other persons acting in a similar capacity engaged or employed by PIMCO;

(iii) without limiting the foregoing items (i) and (ii), fees, costs or expenses paid to or in respect of PIMCO or any industry executives, advisors, consultants (including operating consultants and sourcing consultants), operating executives, subject matter experts or other persons acting in a similar capacity who provide services to the Company or its Portfolio Assets (including allocable overhead or other amounts or compensation of PIMCO, including all costs and expenses on account of compensation and benefits of its employees);

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(iv) payments, fees, costs, expenses and other liabilities, allocable overhead or other amounts or compensation (such as arranger, brokerage, placement, syndication, solicitation, underwriting, agency, origination, sourcing, group purchasing, structuring, collateral management, special purpose vehicle (including any special purpose vehicle of a Portfolio Asset), capital markets syndication and advisory fees (including underwriting and debt advisory fees) or subsidiary management or administration, operation, asset service, advisory, commitment, facility, float, insurance, reinsurance or other fees, discounts, retainers, spreads, commissions and concessions or other fees associated with the effectuation of any securities or financing transactions, but not merger and acquisition transaction advisory services fees related to the negotiation of the acquisition of a Portfolio Asset (including, for the avoidance of doubt, CLOs, CDOs, RMBSs (each as defined below), and other structures acquired by the Company) earned by or paid to (whether in cash or in kind) an Affiliated Service Provider, or another person with respect to services rendered by such Affiliated Service Provider or other person); provided that if such Affiliated Service Provider is engaged in the relevant activity or service on a for-profit basis, as determined by the Operating Manager in good faith, then, unless approved by the Board, the applicable fees paid to it for such services will be on terms as determined by the Operating Manager which the Operating Manager determines are not materially less favorable to the Company or the applicable Portfolio Asset than the fees that could be paid to a third party with commensurate skill, expertise or experience (to the extent applicable), in each case, as determined by the Operating Manager in good faith;

(v) amounts earned by or for the account of any PIMCO Client (directly or indirectly through an expense offset mechanism);

(vi) fees, costs and expenses for any and all services whatsoever (including merger and acquisition transaction advisory services fees related to the negotiation of the acquisition of an instrument) paid or otherwise borne by any Portfolio Asset or issuer of any securities or other financial instruments that constitute debt opportunities or opportunities with respect to which the Operating Manager does not exercise control with respect to the decision to engage the services giving rise to such fees, costs and expenses;

(vii) fees, costs and expenses or other amounts or compensation earned by any person or otherwise borne with respect to Portfolio Assets or transactions that are otherwise consented to or approved by a committee of the Board’s independent directors; it being understood that in connection with obtaining such consent or approval, the Operating Manager will furnish or make available to the Board all material information, then actually known and available to the Operating Manager, that the Operating Manager determines in good faith is reasonably necessary for the Board to provide such consent or approval on a reasonably informed basis;

(viii) any fees, costs or expenses paid to any Affiliated Service Provider, including where such fees, costs or expenses are structured as a performance fee;

(ix) fees, costs and expenses or other amounts or compensation (including management fees, operating expenses and performance fees) earned by any person or otherwise borne with respect to Portfolio Assets managed by the Operating Manager or any of its affiliates that are acquired by the Company in the secondary market; and

(x) any fees, costs or expenses determined by the Operating Manager in good faith to be similar in nature to any of the foregoing.

Fees paid to a Service Provider are determined in the Company’s commercially reasonable discretion in compliance with the LLC Agreement, taking into account the relevant facts and circumstances and consistent with the responsibilities of the Company and the Operating Manager. Any fees, costs, expenses and liabilities incurred through

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the use or engagement of Service Providers are, and will continue to be, borne (directly or indirectly) by the Company (regardless of whether the services rendered by the Service Providers benefit all or only some of the Shareholders) and will not offset fees payable to the Operating Manager, even though such amounts may be substantial. Compensation arrangements with Service Providers may be structured in various ways, including project-based fees, time-based (e.g., hourly, weekly or monthly) fees, asset-based fees, flat fees, fees calculated on a basis-point or percentage basis, origination fees, servicing fees, management promote, incentive fees and/or a profits or equity interest in a Portfolio Asset. Service Providers will not be required to provide services “at cost” and therefore are expected to earn a profit from providing services to the Company.

Any profit earned by Affiliated Service Providers (and, if applicable, indirectly, the Operating Manager, Allianz SE, their affiliates and/or their respective employees, consultants and other personnel) for services provided in respect of the Company is not expected to be shared with the Company or the Shareholders and will not offset fees payable to the Operating Manager.

“Service Providers” include consultants, advisors, transaction finders or sourcers, operating partners, loan and other servicers, loan and other originators, collateral managers, program managers, property and other asset managers, leasing agents, asset monitors and administrators (including copyright administrators), developers, development managers, project managers, investment bankers, brokers, accountants, valuation agents, waterfall agents, calculation agents, paying agents, transfer agents and intermediaries, billing and collection agents, trustees, master servicers, software providers, tax preparers and consultants, analytic service providers, data management and reporting providers, technology professionals, technology providers, investor subscription platform providers, transfer service providers, pricing/modeling service providers, insurance providers, legal counsel, appraisers, industry or sector experts, joint venture partners and development partners, regulatory and compliance service providers, contract employees, outside legal counsel and/or temporary employees (as well as secondees of any of the foregoing), other persons providing similar types of services, whether working onsite at PIMCO offices or offsite as well as Affiliated Service Providers. In addition, Service Providers may provide various technology platform services in connection with the Company’s ongoing operations, including in connection with the processing and completion of investor subscription materials, the administration and tracking of the Company’s obligations (such as investment limitations and/or side letter undertakings) and associated compliance efforts (including with respect to ongoing monitoring and/or notice obligations), and compliance matters relating to obligations of the Operating Manager and/or its affiliates under applicable law. Service Providers will provide services in respect of the Company, the Related Acquisition Vehicles, their parallel vehicles and/or Portfolio Assets.

Organizational and Offering Expenses

The Company has incurred organizational and offering expenses (the “Organizational and Offering Expenses”) in connection with the Company and Related Acquisition Vehicles, including legal, accounting, printing, distribution, mailing and filing fees and expenses, taxes, due diligence expenses of participating broker-dealers supported by detailed and itemized invoices, costs in connection with preparing sales materials, design, website and electronic database expenses, fees and expenses payable to State Street Bank and Trust Company (which serves as the Company’s custodian and transfer agent), or the then acting transfer agent, fees to attend retail seminars sponsored by participating broker-dealers and reimbursements for customary travel, lodging and meals and other similar fees, costs and expenses of the Company and Related Acquisition Vehicles (excluding upfront selling commissions, Dealer Manager Fees, the combined annual distribution fees and shareholder servicing fees).

Operating Expenses

Each Class of Shares pays or otherwise bears its proportionate portion of the payments, fees, costs, expenses and other liabilities (for the avoidance of doubt, including any applicable value-added tax) or obligations resulting from, related to, associated with, arising from or incurred in connection with the applicable Series and Class of Shares and, more generally, the Company’s and the Related Acquisition Vehicles’ operations (collectively, “Operating Expenses”), as such items are more fully described in the Operating Agreement.

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Reimbursement of Company Expenses Paid by the Operating Manager

Each Class of Shares pays or otherwise bears its proportionate portion of the payments, fees, costs, expenses and other liabilities incurred in connection with the applicable Series and Class of Shares and, more generally, the Company’s operations (including, without limitation, organizational, offering, distribution and operating expenses of the Company and Related Acquisition Vehicles (to the extent not paid by the applicable Related Acquisition Vehicles)).

The Operating Manager and its affiliates are entitled to reimbursement from the Company (or, if applicable, from a Series) for any Operating Expenses for Organizational and Offering Expenses paid or incurred by them on behalf of the Company.

The Company’s expenses incurred in connection with the offering of Shares to investors, whether borne by the Operating Manager or the Company, are capitalized and amortized over a 12-month period. The Company’s expenses in connection with the formation and organization of the Company are expensed as incurred.

Borrowings and Leverage

The Company may obtain one or more credit facilities in order to (i) make or leverage portfolio acquisitions, (ii) cover the Organizational and Offering Expenses and Operating Expenses (including Management Fees), (iii) to enable the Company, any special purchase vehicle, blocker entity, any alternative investment structure or any of their respective subsidiaries to issue or cause the issuance of letters of credit, or (iv) otherwise carry out the activities of the Company. There is no guarantee the Company will obtain any such credit facilities on favorable terms or at all. See “Item 1A. Risk Factors—Risks Related to Owning and Managing a Platform of Underlying Asset-Backed Instruments —The Company may need to incur financial leverage to be able to achieve its business objectives. The Company cannot guarantee the availability of such financing.” In addition, the Company may enter into an unsecured line of credit with PIMCO or one of its affiliates for such purposes. PIMCO or one of its affiliates may face conflicts of interest in connection with any borrowings or disputes under this unsecured line of credit.

The Company may borrow money from other PIMCO Clients or any affiliates or portfolio companies of PIMCO or any PIMCO Clients on an arm’s-length basis or on terms not materially less favorable than what could be obtained from an unaffiliated third party. See “Item 13. Certain Relationships and Related Transactions, and Director Independence—Potential Conflicts of Interest.”

It is currently expected that the Company will not directly borrow funds (on a recourse basis to the Company) from any person to the extent that such borrowing would cause the aggregate amount of direct borrowings by the Company, on a recourse basis, to exceed two times the Company’s NAV, as measured at or around the time such indebtedness is incurred; provided that any such calculation will exclude any Excluded Obligations (as defined below) as well as any financing provided or guaranteed by or eligible to be guaranteed by the Federal Deposit Insurance Corporation (the “FDIC”), the Federal Reserve Bank, any other government agency, Freddie Mac or Fannie Mae, and, for the avoidance of doubt, will also exclude any debt instruments issued by (or financing provided to the Company (including warehouse financing) with intent to securitize the underlying assets) a securitization vehicle in which the Company holds some or all of the other interests (whether residual, equity or otherwise). “Excluded Obligations” means (a) any financings provided to Platform Acquisitions and/or Structured Instruments and (b) guarantees of obligations of any subsidiary. The Company may incur additional leverage from time to time, including, without limitation, for investment purposes or during periods when the Company is experiencing unusual market volatility or other unexpected conditions.

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Hedging

The Company, the Related Acquisition Vehicles and/or subsidiaries thereof employ hedging in support of financing techniques or that is designed to reduce the risks of adverse movements in interest rates, securities prices, commodities prices and currency exchange rates, as well as other risks. While such transactions may reduce certain risks, such transactions themselves may entail certain other risks, including counterparty default, convergence and other related risks. Thus, while the Company and/or its subsidiaries may benefit from the use of these hedging mechanisms, unanticipated changes in interest rates, securities prices, commodities prices or currency exchange rates or other events related to hedging activities could result in a poorer overall performance for the Company and/or its subsidiaries than had they not entered into such hedging transactions.

Certain non-United States domiciled Feeder Entities entered, or intend to enter, into currency hedging arrangements in order to mitigate currency fluctuations from negatively affecting the value of such Feeder Entities’ investment in the Company. In connection with such currency hedging arrangements, the Company is expected to provide guarantees, issue letters of credit and/or provide other credit support in support of such Feeder Entities’ obligations under any such currency hedging arrangements of such Feeder Entities to the extent necessary. While gains and losses on the currency hedging transactions undertaken in connection with, and the expenses of, a Feeder Entity’s currency hedging arrangements are expected to be allocated to the applicable Feeder Entity only, the Company as a whole may be liable for obligations in connection with currency hedging transactions undertaken by a specific Feeder Entity.

Distributions

Beginning February 2026, we started paying distributions to our Shareholders. We intend to pay regular monthly distributions to Shareholders of record. We intend to declare, accrue and pay distributions monthly. However, there can be no guarantee that we will pay monthly distributions consistently and at a specific rate, or at all. While we expect to declare and pay regular monthly distributions, and accordingly, we are subject to Delaware distribution rules with respect to limited liability companies, we do not intend to adopt a written distribution policy. The ultimate decision to declare distributions will be a case-by-case determination by the Board. If the Company decides to adopt a distribution policy, it will provide appropriate disclosure in advance. Due to tax considerations and other factors, the amount of the distributions ultimately received by each Shareholder may differ. The record date for distributions will be the last calendar day of the month immediately preceding the distribution. See “Item 1A. Risk Factors—Risks Related to the Company and an Investment in the Shares—The amount of any distributions the Company may pay is uncertain. The Company may not be able to sustain the payment of distributions.”

Cash distributions to Shareholders will be automatically reinvested under the Company’s distribution reinvestment plan (the “DRIP”) in additional whole and fractional Shares attributable to the type of Shares that a Shareholder owns unless and until an election is made on behalf of such participating Shareholder to withdraw from the DRIP and receive distributions in cash. The number of Shares to be received when distributions are reinvested will be determined by dividing the amount of the distribution, net of any applicable withholding taxes, by the applicable NAV per share as of the end of the prior month. Shares will be distributed in proportion to the type of Shares held by the Shareholder under the DRIP. There will be no upfront commissions charged on Shares issued to a Shareholder under the DRIP.

Share Repurchases

We expect that the Company will conduct a quarterly Share Repurchase (each, a “Share Repurchase”) for up to 5.0% of the aggregate NAV (measured collectively across both Series) of our outstanding Shares at a price based on the NAV per Share as of the last calendar day of the calendar quarter prior to the commencement of the applicable Share Repurchase (the “Repurchase Plan”); provided that the Company may further limit the number of Shares subject to the quarterly repurchases of the Shares in accordance with the LLC Agreement and applicable securities law. The Company commenced its Share Repurchases beginning February 2026. In the event that the Company determines to repurchase some but not all of the Shares submitted for repurchase during any quarter, Shares submitted for repurchase during such quarter will be repurchased on a pro rata basis after the Company has repurchased all Shares for which repurchase has been requested due to death, disability, divorce, dissolution, bankruptcy, insolvency or adjudicated incompetence of the Shareholder and any minimum account repurchases made by the Company. All unsatisfied repurchase requests must be resubmitted in a later quarter.

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Under the Repurchase Plan, the Company may choose to, or choose not to, conduct repurchases for any particular quarter. To the extent the Company chooses to repurchase Shares in any particular quarter, the Company will only repurchase Shares during the repurchase window, which the Company expects (but does not guarantee and may change in its sole discretion) will open at least ten (10) business days before the publishing of the prior-quarter NAV during each quarter, and remain open until the later of (a) twenty (20) business days in total have elapsed since the opening of the repurchase window or (b) ten (10) business days have elapsed following the date on which NAV per Share as to each type of Share is made publicly available. To have Shares repurchased, a Shareholder’s repurchase request and required documentation must be received by the Company’s transfer agent in good order by 4:00 p.m. (Eastern time) no later than the last business day of the repurchase window (such last business day, the “Repurchase Date”). Repurchase requests received in good order by the Repurchase Date and processed by the Company’s transfer agent will be effected at a repurchase price equal to the transaction price on the applicable Repurchase Date (which will generally be equal to the applicable NAV per Share as of the last calendar day of the prior quarter), except that Anchor I Shares, Anchor I-B Shares, Anchor II Shares, Anchor II-B Shares and/or Anchor III Shares that have not been outstanding for at least 24 months after the date Investor Shares are first issued (the “Launch Date”) will be subject to the early repurchase fee (the “Early Repurchase Fee”) described below.

The Company expects settlements of Share repurchases to be made within three (3) to five (5) business days of the Repurchase Date. A Shareholder may withdraw its, his or her repurchase request by notifying the transfer agent directly or through the Shareholder’s financial intermediary. Repurchase requests must be cancelled (by notice to the Company) before 4:00 p.m. (Eastern time) on the applicable Repurchase Date. Certain broker-dealers require that their clients process repurchases through their broker-dealer, which may impact the time necessary to process such repurchase request, impose more restrictive deadlines than described under the Repurchase Plan, impact the timing of a Shareholder receiving repurchase proceeds and require different paperwork or process than described in the Repurchase Plan. Shareholders should contact their broker-dealer first if they want to request the repurchase of their Shares.

Due to differential fees (including accrued, but unpaid Performance Fees) and other factors, the NAV of each type of Shares will differ, but all NAV calculations are expected to be based on the joint underlying economic interests of the Company in the assets underlying its Portfolio Assets.

Since the commencement of operations, the Company received subscriptions of $26,835,125 from an affiliate of the Operating Manager (such investor, the “Seed Investor”) and, in return, issued Anchor II Shares of Series II, to assist the Company with initial operational and acquisition activities. In connection with the Seed Investor’s investment, the Company and the Seed Investor entered into a letter agreement pursuant to which in the event the Seed Investor’s aggregate economic interests in the Company equal or exceed seventeen percent (17%) of the total outstanding economic interest of the Company (the “Ownership Limitation”) on the last business day of the second month of any calendar quarter, the Company agreed that it shall, effective prior to the last business day of the applicable calendar quarter, repurchase Shares from the Seed Investor or its affiliates, without penalty, to the extent necessary such that their aggregate economic interests in the Company shall no longer equal or exceed the Ownership Limitation after giving effect to such Share repurchases. Such repurchases will not be subject to or counted towards the quarterly repurchase cap of 5.0% of the aggregate NAV (measured collectively across both Series) of the outstanding Shares.

Early Repurchase Fee

Until the 2^nd anniversary of the Launch Date, the Anchor I Shares, the Anchor I-B Shares, the Anchor II Shares, the Anchor II-B Shares and the Anchor III Shares requested to be repurchased shall be subject to an Early Repurchase Fee of 5.0% of the NAV of such Anchor I Shares, Anchor I-B Shares, Anchor II Shares, Anchor II-B Shares and Anchor III Shares repurchased.

Mandatory Repurchases

Subject to the LLC Agreement, the Board may cause the Company or a Series to repurchase from time to time all or some of the Shares of a Shareholder without the consent or action by such Shareholder or any other person, on 5 days’ prior written notice, if the Board determines that:

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Employees

We have been carrying out, and expect to continue to carry out, our business plans pursuant to efforts of our officers and other personnel, which may be supplied by the Operating Manager, or may be directly hired by the Company or one or more of its subsidiaries, in addition to the services of the Operating Manager. To the extent that an officer or other personnel spend time on the Company or its subsidiaries, we expect such PIMCO personnel to devote sufficient time to managing the Company or its subsidiaries and/or overseeing, managing and supporting our Portfolio Assets, so that the Company can carry out its proposed activities. We currently have no employees and are managed by the Operating Manager pursuant to the Operating Agreement. Each of our officers is an employee of the Operating Manager or its affiliates. The Operating Manager’s team includes senior PIMCO professionals who have significant experience in underwriting and structuring Portfolio Assets as well as managing other investments and private funds. Through the Company’s relationship with the Operating Manager, the Company has access to PIMCO’s platform for sourcing and evaluating Portfolio Assets.

Emerging Growth Company

We are and will remain an “emerging growth company” as defined in the JOBS Act until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the date of first sale of common equity securities pursuant to an effective registration statement under the Securities Act, (ii) in which we have total annual gross revenue of at least $1.235 billion or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our Shares that is held by non-affiliates exceeds $700 million as of the date of our most recently completed second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. For so long as we remain an “emerging growth company” we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). We cannot predict if investors will find our Shares less attractive because we may rely on some or all of these exemptions.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We will take advantage of the extended transition period for complying with new or revised accounting standards, which may make it more difficult for Shareholders and securities analysts to evaluate us since our financial statements may not be comparable to companies that comply with public company effective dates and may result in less investor confidence.

Private Offering of Shares

We intend to continue conducting a continuous private offering of our Shares to (i) “accredited investors” (as defined in Regulation D under the Securities Act) and (ii) in the case of Shares sold outside the United States, to persons that are not “U.S. persons” (as defined in Regulation S under the Securities Act) in reliance on exemptions from the registration requirements of the Securities Act (the “Private Offering”).

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Shares are offered on a monthly basis at NAV per Share (generally measured as of the end of the month immediately preceding the date of the allocation of Shares to subscribing Shareholders), plus any applicable upfront commissions and Dealer Manager Fees. The NAV per Share as of the date on which an investor makes a subscription request may be significantly different than the offering price such investor pays at the NAV per Share on the date of the allocation of Shares to such investor.

Shares are subject to different selling commissions, Dealer Manager Fees, servicing fees or distribution fees, as applicable, which will result in the dilution of Shares in proportion to the fees charged to different classes of Shares.

We may offer additional classes of Shares in the future.

In addition, we do not expect to make any public offering of any of our common equity, pursuant to the Securities Act or otherwise.

We expect investors to obtain Shares by subscription and obtain liquidity from the Company by having their Shares repurchased or redeemed by participating in the Repurchase Plan. In connection with each subscription or repurchase of Shares, a Shareholder will typically receive a number of Shares or cash, respectively, at a price that reflects the Company’s most recently calculated NAV (which generally will be the Company’s NAV as determined as of the last calendar day of the immediately preceding (i) calendar month for subscriptions and (ii) calendar quarter for repurchases).

The Company issues separate types of Shares for each of its two series: Series I and Series II. Each Series is a separate series under Delaware law and not a separate legal entity. Series I has elected to be treated as a corporation for U.S. tax purposes and Series II has elected to be treated as a partnership for U.S. tax purposes.

Feeder Entities

We have created, and may continue to create in the future, certain U.S. and non-U.S. partnerships or other entities that will serve as “feeder” entities (the “Feeder Entities”) or parallel entities, as well as other entities or structures through which investors will indirectly invest in or obtain exposure to the Company or some portion or all of its assets (collectively with Feeder Entities, “Related Acquisition Vehicles”).

Reporting Obligations

We make available on our websites our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after electronically filing such material, or furnishing it, to the SEC. The SEC also maintains a website (https://www.sec.gov) that contains such reports, proxy and information statements and other information. The Company’s websites at https://pimco.com/palcoseriesi for Series I and https://pimco.com/palcoseriesii for Series II, contain additional information about our business, but the contents of the websites are not incorporated by reference in or otherwise a part of this Annual Report. From time to time, we may use our websites as a distribution channel for material company information. Financial and other important information regarding us is accessible through and posted on the Company’s websites at https://pimco.com/palcoseriesi or https://pimco.com/palcoseriesii, as applicable.

Certain United States Federal Income Tax Considerations

The following is a general discussion of certain U.S. federal income tax considerations that may be relevant to Shareholders based upon the U.S. Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations promulgated thereunder and the court decisions and administrative rulings and guidance related thereto, any of which could be changed at any time, possibly with retroactive effect. This discussion is necessarily general and is not intended to be applicable to all categories of Shareholders, some of which, including, without limitation, dealers in securities or currencies, financial institutions or financial services entities, mutual funds, life insurance companies, persons that hold Shares as part of a straddle, hedge, constructive sale or conversion transaction with other investments, U.S. Shareholders whose functional currency is not the U.S. dollar, persons who have

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elected mark-to-market accounting, persons who hold Shares through a partnership or other entity treated as a pass-through entity for U.S. federal income tax purposes, persons who are liable for the alternative minimum tax, and certain U.S. expatriates or former long-term residents of the United States and other Shareholders that do not hold their Shares as capital assets, may be subject to special rules. Tax-exempt organizations (including tax-exempt accounts) and non-U.S. investors are addressed separately below.

The Company formed separate Series pursuant to the LLC Act, each of which is intended to be treated as a separate entity for U.S. federal income tax purposes. Series I has elected to be treated as a corporation for U.S. federal income tax purposes and Series II has elected to be treated as a partnership for U.S. federal income tax purposes.

If a partnership is a Shareholder, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership.

For purposes of this discussion, a “U.S. Person” is (i) an individual who is a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust that (a) is subject to the supervision of a court within the United States and the control of a U.S. person as described in Section 7701(a)(30) of the Code or (b) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. Person. A “U.S. Series I Shareholder” is a Series I Shareholder that is a U.S. Person, and a “U.S. Series II Shareholder” is a Series II Shareholder that is a U.S. Person. A “Non-U.S. Series I Shareholder” is a Series I Shareholder that is not a U.S. Person and a “Non-U.S. Series II Shareholder” is a Series II Shareholder that is not a U.S. Person.

Unless otherwise expressly provided herein, this discussion does not address possible state, local or non-U.S. tax consequences of the purchase, ownership or disposition of Shares, some or all of which may be material to particular Shareholders. This discussion also does not address the potential application of the U.S. federal alternative minimum tax to the Shareholders.

Treatment of the Series as Separate Entities

We formed two separate Series pursuant to the LLC Act, and although the IRS has only issued proposed regulations relating to series entities, each Series is intended to be treated as a separate entity and have a different tax classification for U.S. federal income tax purposes. Under Delaware law, to the extent the records maintained for a Series account for the assets associated with such Series separately from the other assets of the Company or any other Series, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to such Series are segregated and enforceable only against the assets of such Series and not against the assets of the Company generally or any other Series. Series I and Series II are expected to acquire, directly or indirectly, the same portfolio of Portfolio Assets on a pro rata basis. Series I has elected to be treated as a corporation for U.S. federal income tax purposes and Series II has elected to be treated as a partnership for U.S. federal income tax purposes. The state tax treatment of a series limited liability company depends on the laws of each state, and it is possible that a particular state may treat Series I and Series II as a single entity for state tax purposes or may treat Series I or Series II as separate entities but classified differently than the IRS does for U.S. federal income tax purposes. The Series conduct the business of the Company jointly and although they have the ability and intention to contract in their own names, they do so jointly and in coordination with one another. Neither Series has directors, officers or employees, but each is overseen by the Board and managed by the Operating Manager.

We intend to conduct our operations so that we are not required to register as an investment company under the Investment Company Act. See “Item 1A. Risk Factors—Risks Related to our Company and an Investment in our Shares—While we believe neither Series is or will be an investment company under the Investment Company Act, we cannot guarantee we will always be able to maintain our intended status under the Investment Company Act. We intend to conduct our operations so that neither Series I nor Series II would be defined as an investment company as that term is defined and used under the Investment Company Act.”

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Series I:

Corporate Status of Series I

Series I has elected to be classified as a corporation for U.S. federal income tax purposes. As such, tax attributes are not expected to flow between Series I and the Series I Shareholders. Instead, all income of the corporation is expected to be subject to corporate income tax, which may result in the Series I Shareholders bearing a greater tax burden than Series II Shareholders. U.S. Series I Shareholders that are tax-exempt are not expected to be treated as incurring unrelated business taxable income (“UBTI”) unless such U.S. Series I Shareholder’s investment is financed with leverage, and Non-U.S. Series I Shareholders are not expected to be treated as incurring income effectively connected with a U.S. trade or business unless ownership of the Series I Shares is associated with such Non-U.S. Series I Shareholder’s trade or business within the United States or unless Series I is a “United States real property holding corporation” as discussed below.

Distributions to Series I Shareholders

In the event that we make a distribution of cash or other property (other than certain pro rata distributions of our Shares) in respect of our Series I Shares, the distribution generally will be treated as a dividend for United States federal income tax purposes to the extent it is paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. Any portion of a distribution that exceeds our current and accumulated earnings and profits generally will be treated first as a tax-free return of capital, causing a reduction in the adjusted tax basis of a Series I Shareholder, and to the extent the amount of the distribution exceeds a Series I Shareholder’s adjusted tax basis in our Shares, the excess will be treated as gain from the disposition of Series I Shares (the tax treatment of which is discussed below under “Series I—Gain on Disposition of Series I Shares”). Series I Shareholders that reinvest any distributions pursuant to the DRIP may have tax liabilities that exceed cash distributions made to such Series I Shareholders, in which case such excess tax liability arising from the ownership of Series I Shares would need to be satisfied from a Series I Shareholder’s own funds.

Dividends paid to a Non-U.S. Series I Shareholder generally will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the Non-U.S. Series I Shareholder within the United States (and, if required by an applicable income tax treaty, are attributable to a United States permanent establishment) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to United States federal income tax on a net income basis generally in the same manner as if the Non-U.S. Series I Shareholder were a United States person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

A Non-U.S. Series I Shareholder who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends is required (a) to provide the applicable withholding agent with a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable form) certifying under penalty of perjury that such Series I Shareholder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if Series I Shares are held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain Non-U.S. Series I Shareholders that are pass-through entities rather than corporations or individuals.

A Non-U.S. Series I Shareholder eligible for a reduced rate of United States federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

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Gain on Disposition of Series I Shares

U.S. Series I Shareholders generally are subject to gain upon the sale or taxable disposition of Series I Shares in an amount equal to the excess of the amount realized over the Series I Shareholder’s adjusted basis in the Series I Shares, which gain would generally be characterized as capital gain. If the Series I Shares sold were held by the selling Series I Shareholder for more than one year, the gain on the sale would be long-term capital gain. Subject to the discussion of backup withholding below, any gain realized by a Non-U.S. Series I Shareholder on the sale or other disposition of Series I Shares generally will not be subject to United States federal income tax unless:

A Non-U.S. Series I Shareholder described in the first or third bullet points immediately above will be subject to tax on the gain derived from the sale or other disposition in the same manner as if the Non-U.S. Series I Shareholder were a United States person as defined under the Code. In addition, if any Non-U.S. Series I Shareholder described in the first bullet point immediately above is a foreign corporation, the gain realized by such Non-U.S. Series I Shareholder may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S. Series I Shareholder described in the second bullet point immediately above will be subject to a 30% (or such lower rate as may be specified by an applicable income tax treaty) tax on the gain derived from the sale or other disposition, which gain may be offset by United States source capital losses even though the individual is not considered a resident of the United States.

Generally, a corporation is a “United States real property holding corporation” if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for United States federal income tax purposes). We have not determined whether Series I is a “United States real property holding corporation” for United States federal income tax purposes. We do not presently expect Series I to be treated as a United States real property holding corporation, but depending on the composition and character of its assets it is possible that it is or may become a United States real property holding corporation.

Information Reporting and Backup Withholding

Distributions paid to Series I Shareholders will generally be reported to the IRS. Distributions paid to a Non-U.S. Series I Shareholder and the amount of any tax withheld with respect to such distributions generally will be reported to the IRS. Copies of the information returns reporting such distributions and any withholding may also be made available to the tax authorities in the country in which the Non-U.S. Series I Shareholder resides under the provisions of an applicable income tax treaty.

A Non-U.S. Series I Shareholder will not be subject to backup withholding on distributions received if such Series I Shareholder certifies under penalty of perjury that it is a Non-U.S. Series I Shareholder (and the payor does not have actual knowledge or reason to know that such Series I Shareholder is a United States person as defined under the Code), or such Series I Shareholder otherwise establishes an exemption.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale or other disposition of Series I Shares within the United States or conducted through certain United States-related financial intermediaries unless the beneficial owner certifies under penalty of perjury that it is a Non-U.S. Series I Shareholder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.

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Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a Non-U.S. Series I Shareholder’s United States federal income tax liability provided the required information is timely furnished to the IRS.

Foreign Account Tax Compliance

Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% United States federal withholding tax is imposed on any dividends paid on our Series I Shares to (i) a “foreign financial institution” (as specifically defined in the Code and whether such foreign financial institution is the beneficial owner or an intermediary) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the United States) in a manner which avoids withholding, or (ii) a “non-financial foreign entity” (as specifically defined in the Code and whether such non-financial foreign entity is the beneficial owner or an intermediary) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) adequate information regarding certain substantial United States beneficial owners of such entity (if any). If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “Series I—Distributions to Series I Shareholders,” an applicable withholding agent may credit the withholding under FATCA against, and therefore reduce, such other withholding tax. While withholding under FATCA would also have applied to payments of gross proceeds from the sale or other taxable disposition of our Series I Shares, proposed United States Treasury regulations (upon which taxpayers may rely until final regulations are issued) eliminate FATCA withholding on payments of gross proceeds entirely. Series I Shareholders should consult their own tax advisors regarding these requirements and whether they may be relevant to the Shareholders’ ownership and disposition of Series I Shares.

Series II:

Partnership Status of Series II

Series II has elected and is expected to be treated as a partnership for U.S. federal income tax purposes. An entity that is treated as a partnership for U.S. federal income tax purposes, subject to the discussion below in “—Information Returns and Audit Procedures,” generally incurs no U.S. federal income tax liability. Instead, each partner is generally required to take into account its allocable share of items of income, gain, loss, deduction or credit of the partnership in computing its U.S. federal income tax liability, regardless of whether cash distributions are made. Distributions of cash by a partnership to a partner generally are not taxable unless the amount of cash distributed to a partner is in excess of the partner’s adjusted basis in its partnership interest.

An entity that would otherwise be classified as a partnership, such as Series II, for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a “publicly traded partnership,” unless an exception applies. An exception, referred to as the “Qualifying Income Exception,” exists with respect to a publicly traded partnership if (i) at least 90% of such partnership’s gross income for every taxable year consists of “qualifying income” and (ii) the partnership would not be required to register under the Investment Company Act if it were a U.S. corporation. Qualifying income includes certain interest income, dividends, real property rents, gains from the sale or other disposition of real property and any gain from the sale or disposition of a capital asset or other property held for the production of income that otherwise constitutes qualifying income.

We intend to manage the affairs of Series II so that Series II will meet the Qualifying Income Exception in each taxable year. However, the portion of Series II’s income that is qualifying income may change from time to time, and there can be no assurance that at least 90% of its gross income in any year will constitute qualifying income. In the event that Series II does not meet the Qualifying Income Exception, there are other exceptions to the “publicly traded partnership” rules, including an exemption applicable to periodic redemptions, that may apply. Upon request, the Company counsel will provide an opinion, based on representations provided by Series II, that for U.S. federal income tax purposes (i) Series II will be treated as a partnership and not as an association taxable as a corporation and (ii) Series II will not be treated as a “publicly traded partnership” taxable as a corporation within the meaning of Section 7704 of the Code.

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No ruling has been or will be sought from the IRS, and the IRS has made no determination as to Series II’s status for U.S. federal income tax purposes or whether Series II’s operations meet the Qualifying Income Exception.

If Series II were to be recharacterized as a corporation for U.S. federal income tax purposes or were required to register under the Investment Company Act, it would be treated as if it had transferred all of its assets, subject to liabilities, to a newly formed corporation in return for stock in such corporation, and then distributed the stock to Series II Shareholders in liquidation. This deemed contribution and liquidation could result in the recognition of gain (but not loss) to U.S. Series II Shareholders. If, at the time of such deemed contribution, Series II were to have liabilities in excess of the tax basis of its assets, U.S. Series II Shareholders generally would recognize gain in respect of such excess liabilities upon the deemed transfer. Thereafter, Series II would be treated as a corporation for U.S. federal income tax purposes.

In addition, if Series II were treated as a corporation in any taxable year, its items of income, gain, loss, deduction or credit would be reflected only on Series II’s tax return, rather than being passed through to Series II Shareholders, and Series II would be subject to U.S. corporate income tax in a similar manner to Series I.

Based on the foregoing consequences, the treatment of Series II as a corporation could materially reduce a Series II Shareholder’s after-tax return and therefore could result in a substantial reduction of the value of our Series II Shares. The remainder of this summary assumes that Series II will be treated as a partnership for U.S. federal income tax purposes.

Investment Structure

Series II structures certain acquisitions through entities classified as corporations for U.S. federal income tax purposes. Such acquisitions will be structured as determined in the sole discretion of the Operating Manager generally to ensure that Series II is classified as a partnership and not a publicly traded partnership taxable as a corporation (as discussed above under “—Partnership Status of Series II”) and to provide simplified tax reporting for Series II Shareholders. Because Series II Shareholders are located in numerous taxing jurisdictions and subject to different tax rules, no assurance can be given that any such investment structure will benefit all Series II Shareholders to the same extent, including any structures or investments utilizing leverage. Any such investment structure may result in additional indirect tax liabilities for certain Series II Shareholders. As discussed below under “—Passive Foreign Investment Companies” and “—Controlled Foreign Corporations,” if any such entity were a non-U.S. corporation, it might be considered a PFIC or CFC (each as defined below). If any such entity were a U.S. corporation, it would be subject to U.S. federal net income tax on its income, including any gain recognized on the disposition of its investments. In addition, if an investment held through an entity classified as a corporation for U.S. federal income tax purposes were to involve U.S. real property, gain recognized on the disposition of the investment by a corporation generally would be subject to corporate-level tax, whether the corporation were a U.S. or a non-U.S. corporation.

Consequences to U.S. Series II Shareholders

Ownership of Series II Shares

Income and Loss. U.S. Series II Shareholders are required to take into account, as described below, their allocable share of Series II’s items of income, gain, loss, deduction and credit for each of Series II’s taxable years ending with or within such Series II Shareholder’s taxable year. Each item generally has the same character and source as though a Series II Shareholder had realized the item directly. Series II Shareholders must report such items without regard to whether any distribution has been or will be received from Series II. Series II intends to make cash distributions to all Series II Shareholders on a monthly basis. However, based upon each Series II Shareholder’s particular tax situation and depending upon whether they reinvest such distributions pursuant to the DRIP, their tax liability might exceed cash distributions made to Series II Shareholders, in which case such excess tax liabilities arising from the ownership of Series II Shares would need to be satisfied from a Series II Shareholder’s own funds.

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With respect to U.S. Series II Shareholders who are individuals, certain dividends paid by a corporation (including any “blocker” vehicle taxable as a corporation for U.S. federal income tax purposes and certain qualified foreign corporations) to Series II and that are allocable to such U.S. Series II Shareholders may qualify for reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of specified income tax treaties with the United States with respect to its shares that are readily tradable on an established securities market in the United States. Among other exceptions, U.S. Series II Shareholders who are individuals will not be eligible for reduced rates of taxation on any dividends if the payer is a “passive foreign investment company” (a “PFIC”) for the taxable year in which such dividends are paid or for the preceding taxable year. Dividends received by non-corporate U.S. Series II Shareholders may be subject to an additional Medicare tax on unearned income of 3.8% (see “—Medicare Tax” below). U.S. Series II Shareholders that are corporations may be entitled to a “dividends received deduction” in respect of dividends paid by U.S. corporations in which Series II owns stock. Prospective Series II Shareholders should consult their own tax adviser regarding the application of the foregoing rules in light of their particular circumstances.

For U.S. federal income tax purposes, a Series II Shareholder’s allocable share of Series II’s items of income, gain, loss, deduction or credit is governed by the LLC Agreement if such allocations have “substantial economic effect” or are determined to be in accordance with such Series II Shareholder’s interest in Series II. Series II believes that, for U.S. federal income tax purposes, such allocations should be given effect, and Series II intends to prepare and file tax returns based on such allocations. If the IRS were to successfully challenge the allocations made pursuant to the LLC Agreement, then the resulting allocations for U.S. federal income tax purposes might be less favorable than the allocations set forth therein.

Basis. In general, Series II Shareholders will have an initial tax basis in their Series II Shares equal to the sum of (i) the amount of cash paid for Shares and (ii) their share of Series II’s liabilities, if any. That basis will be increased by such Series II Shareholder’s share of Series II’s income and by increases in their share of Series II’s liabilities, if any. That basis will be decreased, but not below zero, by distributions received from Series II, by their share of Series II’s losses and by any decrease in their share of Series II’s liabilities. Under applicable U.S. federal income tax rules, a partner in a partnership has a single, or “unitary,” tax basis in their partnership interest. As a result, any amount paid to acquire additional Series II Shares (including through the DRIP) will be averaged with the adjusted tax basis of Series II Shares owned by such Series II Shareholder prior to the acquisition of such additional Series II Shares.

Limits on Deductions for Losses and Expenses. A Series II Shareholder’s deduction of their allocable share of Series II’s losses will be limited to their tax basis in Series II Shares and, if such Series II Shareholder is an individual or a corporate holder that is subject to the “at risk” rules, to the amount for which such Series II Shareholder is considered to be “at risk” with respect to Series II’s activities, if that is less than their tax basis. In general, a Series II Shareholder will be at risk to the extent of their tax basis in our Series II Shares, reduced by (i) the portion of that basis attributable to their share of Series II’s liabilities for which they will not be personally liable (excluding certain qualified non-recourse financing) and (ii) any amount of money borrowed to acquire or hold Series II Shares, if the lender of those borrowed funds owns an interest in Series II, is related to the Series II Shareholder, or can look only to such Series II Shareholder’s Series II Shares for repayment. A Series II Shareholder’s at-risk amount generally will increase by their allocable share of Series II’s income and gain and decrease by cash distributions received from Series II and their allocable share of losses and deductions. Series II Shareholders must recapture losses deducted in previous years to the extent that distributions cause their at-risk amount to be less than zero at the end of any taxable year. Losses disallowed or recaptured as a result of these limitations will carry forward and will be allowable to the extent that their tax basis or at risk amount, whichever is the limiting factor, subsequently increases. Upon the taxable disposition of Series II Shares, any gain recognized can be offset by losses that were previously suspended by the at-risk limitation, but may not be offset by losses suspended by the basis limitation. Any excess loss above the gain previously suspended by the at-risk or basis limitations may no longer be used. An additional limitation may apply to the deduction of certain “excess business losses” by non-corporate U.S. Series II Shareholders. Shareholders should consult their own tax adviser regarding the limitations on the deductibility of losses under the Code.

Individuals and certain estates and trusts are not permitted to claim miscellaneous itemized deductions. Such miscellaneous itemized deductions may include the operating expenses of Series II, including Series II’s allocable share of the Management Fee.

Limitations on Deductibility of Organizational and Offering Expenses and Syndication Fees. In general, neither Series II nor any U.S. Series II Shareholder may deduct organizational or syndication expenses. Syndication fees (which would include any sales or placement fees or commissions) must be capitalized and cannot be amortized or otherwise deducted.

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Limitations on Interest Deductions. While it is not presently expected, if Series II were to incur debt, it is possible that such indebtedness could give rise to UBTI to the extent such indebtedness is used or deemed to be used to acquire investments. In addition, a Series II Shareholder’s pro rata share of Series II’s interest expense, if any, is likely to be treated as “investment interest” expense. For a non-corporate U.S. Series II Shareholder, the deductibility of “investment interest” expense generally is limited to the amount of such Series II Shareholder’s “net investment income.” Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment. A Series II Shareholder’s share of Series II’s dividends and interest income will be treated as investment income, although “qualified dividend income” subject to reduced rates of tax in the hands of an individual will only be treated as investment income if such individual elects to treat such dividends as ordinary income not subject to reduced rates of tax. In addition, state and local tax laws may disallow deductions for their share of Series II’s interest expense. Under Section 163(j) of the Code, additional limitations may apply to a corporate U.S. Series II Shareholder’s share of Series II’s interest expense, if any.

Treatment of Distributions to Series II Shareholders

Distributions of cash by Series II generally will not be taxable to Series II Shareholders to the extent of their adjusted tax basis (described above) in their Series II Shares. Any cash distributions in excess of a Series II Shareholder’s adjusted tax basis generally will be considered to be gain from the sale or exchange of Series II Shares (described below). Such gain generally will be treated as capital gain and will be long-term capital gain if the holding period for such Series II Shares exceeds one year. A reduction in a Series II Shareholder’s allocable share of liabilities, and certain distributions of marketable securities by Series II, if any, will be treated similar to cash distributions for U.S. federal income tax purposes. Series II Shareholders that elect to participate in the DRIP may have tax liabilities that exceed cash distributions made to Series II Shareholders, in which case any tax liabilities arising from the ownership of Series II Shares would need to be satisfied from a Series II Shareholder’s own funds.

Sale or Exchange/Redemption of Series II Shares

Series II Shareholders will recognize gain or loss on the redemption, sale or taxable exchange of Series II Shares equal to the difference, if any, between the amount realized and their tax basis in the Series II Shares sold or exchanged. The amount realized will be measured by the sum of the cash or the fair market value of other property received plus the Series II Shareholder’s share of Series II’s liabilities, if any.

Gain or loss recognized upon the sale or exchange of Series II Shares generally will be taxable as capital gain or loss and will be long-term capital gain or loss if the Series II Shares were held for more than one year as of the date of such sale or exchange. Assuming Series II or, following the finalization of proposed U.S. Treasury regulations discussed below in “—Passive Foreign Investment Companies,” a Series II Shareholder has not elected to treat its share of Series II’s purchase of any PFIC as a “qualified electing fund,” gain attributable to such purchase of a PFIC would be taxable in the manner described below in “—Passive Foreign Investment Companies.” In addition, certain gain attributable to our purchase of a “controlled foreign corporation” (“CFC”) may be characterized as ordinary income, and certain gain attributable to “unrealized receivables” or “inventory items” could be characterized as ordinary income rather than capital gain. For example, if Series II were to hold debt acquired at a market discount, accrued market discount on such debt would be treated as “unrealized receivables.” The deductibility of capital losses is subject to limitations.

Each U.S. Series II Shareholder who acquires Series II Shares at different times (including through the DRIP) and intends to sell all or a portion of the Series II Shares within a year of the most recent purchase should consult its own tax adviser regarding the application of certain “split holding period” rules to such sale and the treatment of any gain or loss as long-term or short-term capital gain or loss.

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Medicare Tax

U.S. Series II Shareholders that are individuals, estates or trusts may be required to pay a 3.8% Medicare tax on the lesser of (i) the excess of such U.S. Series II Shareholders’ “modified adjusted gross income” (or “adjusted gross income” in the case of estates and trusts) over certain thresholds and (ii) such U.S. Series II Shareholders’ “net investment income” (or “undistributed net investment income” in the case of estates and trusts). Net investment income generally includes a Shareholder’s allocable share of Series II’s income, as well as gain realized from a sale of Series II Shares. Special rules relating to the 3.8% Medicare tax may apply to dividends and gain, if any, derived by such U.S. Series II Shareholders with respect to Series II’s interest in a PFIC or CFC. See “—Passive Foreign Investment Companies” and “—Controlled Foreign Corporations” below. Prospective Series II Shareholders should consult their own tax adviser regarding the implications of the 3.8% Medicare tax for their ownership and disposition of Series II Shares.

Foreign Tax Credit Limitations

A U.S. Series II Shareholder may be entitled to a foreign tax credit with respect to their allocable share of creditable foreign taxes paid on Series II’s income and gains. Complex rules may, depending on such Series II Shareholder’s particular circumstances, limit the availability or use of foreign tax credits. In particular, a U.S. Series II Shareholder generally is not entitled to an indirect foreign tax credit with respect to non-U.S. taxes paid by an entity in which Series II invests that is treated as a foreign corporation for U.S. federal income tax purposes. Gain from the sale of Series II’s investments may be treated as U.S.-source gain. Consequently, Series II Shareholders may not be able to use the foreign tax credit arising from any foreign taxes imposed on such gain unless the credit can be applied (subject to applicable limitations) against U.S. tax due on other income treated as derived from foreign sources. Certain losses that Series II incurs may be treated as foreign-source losses, which could reduce the amount of foreign tax credits otherwise available.

Deduction for Qualified Business Income

U.S. taxpayers who have domestic “qualified business income” from a partnership generally are entitled to deduct the lesser of such qualified business income or 20% of taxable income. A U.S. Series II Shareholder’s allocable share of Series II’s income is not expected to be treated as qualified business income or as qualified publicly traded partnership income. While no assurances can be provided, a portion of U.S. Series II Shareholder’s allocable share of Series II’s income may include “qualified REIT dividends.”

Foreign Currency Gain or Loss

Because investments may be made and realized in currencies other than U.S. dollars or debt securities denominated in currencies other than U.S. dollars, U.S. Series II Shareholders may recognize a foreign currency gain or loss (ordinary, not capital) when payment is received with respect to such debt securities or when such Shareholder or Series II disposes of foreign currency or such debt securities.

Passive Foreign Investment Companies

U.S. Series II Shareholders may be subject to special rules applicable to indirect investments in foreign corporations, including an investment through Series II in a PFIC. A PFIC is defined as any foreign corporation with respect to which (after applying certain look-through rules) either (i) 75% or more of its gross income for a taxable year is “passive income” or (ii) 50% or more of its assets in any taxable year produce or are held for the production of “passive income.” There are no minimum stock ownership requirements for PFICs. Based on our organizational structure, we believe that Series II is likely to own an interest in a PFIC. If Series II Shareholders in Series II indirectly hold an interest in a foreign corporation for any taxable year during which the corporation is classified as a PFIC with respect to such Series II Shareholder, then the corporation will continue to be classified as a PFIC with respect to such Series II Shareholder for any subsequent taxable year during which such Series II Shareholder continue to hold an interest in the corporation, even if the corporation’s income or assets would not cause it to be a PFIC in such subsequent taxable year, unless an exception applies.

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Subject to certain elections described below, any gain on the disposition of stock of a PFIC owned by a Shareholder indirectly through Series II, as well as income realized on certain “excess distributions” by such PFIC, would be treated as though realized ratably over the shorter of a Series II Shareholder’s holding period of Series II Shares or Series II’s holding period for the PFIC. Such gain or income generally would be taxable as ordinary income, and dividends paid by the PFIC would not be eligible for the preferential tax rates for dividends paid to non-corporate U.S. Series II Shareholders. In addition, an interest charge would apply, based on the tax deemed deferred from prior years. To the extent reasonably practicable and administratively feasible, we may structure investments in foreign corporations to avoid holding a PFIC. However, no assurances can be given that we will be able to structure investments to avoid holding any investment through an entity treated as a PFIC.

If Series II or Series II Shareholders were to elect to treat their share of Series II’s interest in a PFIC as a “qualified electing fund” (“QEF Election”) for the first year they were treated as holding such interest, then in lieu of the tax consequences described in the paragraph immediately above, Series II Shareholders would be required to include in income each year a portion of the ordinary earnings and net capital gains of the PFIC, even if not distributed to Series II or to such Series II Shareholder. Series II expects that certain acquisitions will be PFICs and generally intends that Series II will make a QEF Election with respect to such acquisitions, to the extent applicable. Recently proposed U.S. Treasury regulations would require that U.S. Series II Shareholders, rather than Series II, make the QEF Election. These proposed regulations would generally apply prospectively to taxable years beginning on or after the date the proposed regulations are finalized, and any pre-existing QEF Election made by Series II prior to that date would continue for any U.S. Series II Shareholder that owns an interest in a PFIC through Series II on the date the proposed regulations are finalized. A QEF Election must be made by Series II Shareholders on an entity-by-entity basis. To make a QEF Election, Series II Shareholders must, among other things, (i) obtain a PFIC annual information statement and (ii) prepare and submit IRS Form 8621 with the Shareholders’ annual income tax return. To the extent reasonably practicable, we intend to timely provide Shareholders with information related to the PFIC status of each entity we are able to identify as a PFIC, including information necessary to make a QEF Election with respect to such entity. Any such election should be made for the first year Series II holds an interest in such entity or for the first year in which the Shareholder holds Series II Shares, if later.

Once Series II Shareholders have made a QEF Election for an entity, such election applies to any additional shares of interest in such entity acquired directly or indirectly, including through additional Series II Shares acquired after the QEF Election is made (such as Series II Shares acquired under the DRIP). If Series II Shareholders were to make a QEF Election after the first year that Shareholders were treated as holding an interest in a PFIC, the adverse tax consequences relating to PFIC stock would continue to apply with respect to the pre-QEF Election period, unless such Series II Shareholders were to make a “purging election.” The purging election would create a deemed sale of such previously held share of Series II’s interests in a PFIC. The gain recognized by the purging election would be subject to the special tax and interest charge rules, which treat the gain as an excess distribution, as described above. As a result of the purging election, Series II Shareholders would have a new basis and holding period in their share of Series II’s interests in the PFIC. U.S. Series II Shareholders should consult their own tax advisers as to the manner in which such direct inclusions could affect their allocable share of Series II’s income and their tax basis in the Series II Shares and the advisability of making a QEF Election or a purging election.

Treasury regulations under Section 1411 of the Code contain special rules for applying the 3.8% Medicare tax (as described above under “—Medicare Tax”) to U.S. persons owning an interest in a PFIC. Under the special rules, a non-corporate U.S. Series II Shareholder that is subject to a QEF Election with respect to Series II’s interest in a PFIC is permitted to make a special election to treat their share of the ordinary earnings and net capital gains of the PFIC as net investment income for purposes of the 3.8% Medicare tax (the “NIIT Election”). Series II generally intends to make a QEF Election on behalf of all Series II Shareholders, to the extent applicable.

In the case of a PFIC that is a publicly traded foreign company, and in lieu of making a QEF Election, an election may be made to “mark to market” the stock of such publicly traded foreign company on an annual basis. Pursuant to such an election, Series II Shareholders would include in each year as ordinary income the excess, if any, of the fair market value of such stock over its adjusted basis at the end of the taxable year. We do not expect that any

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of our existing or future investments will qualify as PFICs that are publicly traded, and therefore we do not expect that a mark-to-market election will be available for any such entity. Prospective Series II Shareholders should consult their own tax adviser regarding the availability of the mark-to-market election with respect to any PFIC in which they are treated as owning an interest through Series II.

Subject to certain exceptions, a U.S. person who directly or indirectly owns an interest in a PFIC generally is required to file an annual report with the IRS, and the failure to file such report could result in the imposition of penalties on such U.S. person and in the extension of the statute of limitations with respect to federal income tax returns filed by such U.S. person. The application of the PFIC rules to U.S. Series II Shareholders is uncertain in certain respects. Prospective Series II Shareholders should consult their own tax adviser regarding the application of the PFIC rules, including the foregoing filing requirements and the impact of a QEF Election, a NIIT Election under the Treasury Regulations under Section 1411 of the Code, or a mark-to-market election, as applicable, with respect to any PFIC in which they are treated as owning an interest through Series II.

Controlled Foreign Corporations

A non-U.S. entity will be treated as a CFC if it is treated as a corporation for U.S. federal income tax purposes and more than 50% of (i) the total combined voting power of all classes of stock of the non-U.S. entity entitled to vote or (ii) the total value of the stock of the non-U.S. entity is owned by U.S. Shareholders on any day during the taxable year of such non-U.S. entity. For this purpose, a “U.S. CFC Shareholder” with respect to a non-U.S. entity means a U.S. person (including a U.S. partnership) that owns (directly, indirectly or constructively) 10% or more of the total combined voting power of all classes of stock of the non-U.S. entity entitled to vote or 10% or more of the total value of shares of all classes of stock of the non-U.S. entity.

Because Series II is a U.S. partnership for U.S. federal income tax purposes and is expected to own an interest in a CFC, then a U.S. Series II Shareholder who meets the ownership tests described above may be required to include in income its allocable share of the CFC’s “Subpart F” income. Subpart F income generally includes dividends, interest, net gain from the sale or disposition of securities, non-actively managed rents and certain other generally passive types of income. The aggregate Subpart F income inclusions in any taxable year relating to a particular CFC are limited to such CFC’s current earnings and profits. Such inclusions will be treated as ordinary income (whether or not attributable to net capital gains). Thus, a U.S. Series II Shareholder may be required to report as ordinary income its allocable share of the CFC’s Subpart F income without corresponding receipts of cash and may not benefit from capital gain treatment with respect to the portion of any earnings attributable to net capital gains of the CFC. Under Treasury regulations, only U.S. Series II Shareholders that are U.S. CFC Shareholders would be required to include in income their allocable shares of a CFC’s Subpart F income. In addition, such U.S. Series II Shareholders that are U.S. CFC Shareholders would be subject to current U.S. federal income tax on the “net CFC tested income” of the CFC, regardless of cash distributions from the CFC.

A Series II Shareholder’s tax basis in their Series II Shares will be increased to reflect any required Subpart F income or net CFC tested income. Such income will be treated as income from sources within the United States, for certain foreign tax credit purposes, to the extent derived by the CFC from U.S. sources. Subpart F income will not be eligible for the reduced rate of tax applicable to certain dividends paid by qualified foreign corporations to individual U.S. persons. See above under “Series II—Consequences to U.S. Series II Shareholders—Ownership of Series II Shares—Income and Loss.” Amounts included as Subpart F income or net CFC tested income with respect to direct and indirect investments generally will not be taxable again when actually distributed by the CFC.

Whether or not any CFC has Subpart F income, any gain allocated to Series II Shareholders from our disposition of an equity interest in a CFC will be treated as dividend income (regardless of U.S. CFC Shareholder status) to the extent of their allocable share of the current and/or accumulated earnings and profits of the CFC. In this regard, earnings would not include any amounts previously taxed pursuant to the CFC rules. However, net losses (if any) of a CFC will not pass through to U.S. Series II Shareholders.

As described above under “—Passive Foreign Investment Companies,” Treasury regulations under Section 1411 of the Code contain special rules for applying the 3.8% Medicare tax to U.S. persons owning an interest in a PFIC. Similar rules apply to U.S. CFC Shareholders of a CFC. Prospective Series II Shareholders should consult their own tax adviser regarding the implications of these special rules.

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If a non-U.S. entity held by Series II is classified as both a CFC and a PFIC, then Series II Shareholders will be required to include amounts in income with respect to such non-U.S. entity either under the CFC rules described under this subheading, or under the PFIC rules described under “—Passive Foreign Investment Companies,” but not both. The interaction of these rules is complex, and prospective Series II Shareholders should consult their own tax adviser in this regard.

Based on our organizational structure, we believe that one or more of Series II’s investments in the future are likely to be classified as CFCs. We may in the future acquire certain assets or operating entities through one or more holding entities treated as corporations for U.S. federal income tax purposes, and such future holding entities or other companies may be treated as CFCs. A U.S. Series II Shareholder that is a U.S. CFC Shareholder based on the ownership tests described above may be required to include in income its allocable share of any CFC’s “Subpart F” income. The application of the CFC rules to U.S. Series II Shareholders is uncertain in certain respects. Prospective Series II Shareholders should consult their own tax adviser regarding the implications of the CFC rules for their ownership and disposition of Series II Shares.

REIT Subsidiaries

The following discussion summarizes certain U.S. federal income tax rules applicable REITs and certain U.S. federal income tax consequences to Shareholders with respect to investments held through one or more REIT Subsidiaries. Because of the complexity of the rules that apply to REITs, the discussion does not attempt to summarize all of the REIT rules that could potentially apply to REIT Subsidiaries, the Company, the Series and the Shareholders. Except as otherwise noted, the following discussion assumes that each REIT Subsidiary qualifies as a REIT for U.S. federal income tax purposes.

The REIT provisions of the Code apply to a domestic corporation, trust, or association (i) that is managed by one or more trustees or directors, (ii) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest, (iii) that properly elects to be taxed as a REIT, (iv) that is neither a financial institution nor an insurance company, (v) that uses a calendar year for U.S. federal income tax purposes, and (vi) that meets the additional requirements discussed below. Commencing with a REIT Subsidiary’s second taxable year, (i) the beneficial ownership of its stock must be held by 100 or more persons during at least 335 days of a 12-month taxable year (or during a proportionate part of a taxable year of less than 12 months) and (ii) at any time during the last half of each taxable year, no more than 50% in value of its stock may be owned, directly or indirectly, by or for five or fewer individuals, private foundations, trusts providing for the payment of supplemental unemployment compensation benefits, and/or portions of trusts permanently set aside or to be used exclusively for charitable purposes (the “5/50 Test”). A “qualified trust” described in Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code generally is not treated as an individual but, rather, shares held by it are treated as owned proportionately by its beneficiaries. For purposes of the 5/50 Test, stock ownership is determined by applying certain constructive ownership rules that treat the Shareholders as owning their proportionate shares of the applicable Series investment in any REIT. It generally is expected that the overall ownership will be sufficiently diverse (and each REIT Subsidiary will be organized in a manner that is expected) to satisfy the 5/50 Test, and that the LLC Agreement of the Company and organizational documents of each REIT Subsidiary will include restrictions on transfers intended to preserve compliance with the 5/50 Test; however, no assurances can be provided. The Company may cause each REIT Subsidiary to issue a relatively small amount of equity directly to at least 100 persons to satisfy the 100 shareholder requirement for each REIT Subsidiary.

In order to maintain qualification as a REIT, a REIT must annually satisfy two gross income requirements. First, at least 75% of a REIT’s gross income for each taxable year generally must be derived, directly or indirectly, from investments of a passive investment character relating to real property or mortgages on real property or from certain types of temporary investments. Qualifying income, excluding gross income from certain dealer sales referred to as “prohibited transactions” (discussed below) and certain hedging and foreign currency transactions, for purposes of this 75% gross income test generally includes: (i) rents from real property, (ii) interest on debt secured by mortgages on real property or on interests in real property, (iii) dividends or other distributions on, and gain from the sale of, shares in other REITs, (iv) gain from the sale of real estate assets, (v) income and gain derived from foreclosure property, and (vi) income from certain types of temporary investments. Second, at least 95% of a REIT’s gross income for each taxable year generally must be derived from the real property investments described above, from other types of dividends and interest, and from gain from the sale or disposition of stock or securities that are not dealer property.

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While rents from real property qualify for purposes of the foregoing gross income tests, rents from real property do not include “related party rents.” Related party rents are rents received from any tenant if the REIT owns, directly or indirectly, in the case of a corporate tenant, 10% or more of such tenant’s stock (by vote or value) or, in the case of a non-corporate tenant, an interest of 10% or more in the assets or net profits of such tenant. Certain constructive attribution rules apply for purposes of measuring such ownership, including attribution rules which could potentially treat the Company and/or a REIT Subsidiary as owning an interest in a tenant actually owned by a Shareholder (and not actually owned by the Company or such REIT Subsidiary). The LLC Agreement of the Company and the organizational documents of each REIT Subsidiary require Shareholders to provide certain information relating to their actual and constructive ownership of certain tenants to the Operating Manager upon request and include restrictions on transfers, in each case intended to avoid the recognition of related party rents. While the Operating Manager intends to use reasonable efforts to monitor the composition of the Company and each REIT Subsidiary’s tenants in order to avoid the recognition of related party rents and exclusion of any otherwise qualifying rents from real property, no assurances can be provided that a REIT Subsidiary will not recognize related party rents.

At the close of each quarter of its taxable year, a REIT also must satisfy five tests relating to the nature of its assets. First, real estate assets, cash and cash items, and government securities must represent at least 75% of the value of a REIT’s total assets. Second, securities (other than investments included in the 75% asset class) cannot represent more than 25% of the value of a REIT’s total assets. Third, of the investments that are not included in the 75% asset class and that are not securities of such REIT’s taxable REIT subsidiaries, (i) the value of any one issuer’s securities owned by a REIT may not exceed 5% of the value of its total assets and (ii) such REIT may not own more than 10% by vote or (with certain exceptions) by value of any one issuer’s outstanding securities. Fourth, securities of taxable REIT subsidiaries cannot represent more than 25% of the value of a REIT’s total assets. Fifth, nonqualified publicly offered REIT debt instruments cannot represent more than 25% of the value of a REIT’s total assets.

Use of a REIT generally eliminates (or substantially minimizes) corporate-level U.S. federal income tax by permitting the REIT to deduct dividends paid to shareholders in calculating its taxable income. Moreover, in order to qualify as a REIT, a REIT generally must distribute dividends (other than capital gain dividends) to its shareholders in an annual amount at least equal to 90% of its “REIT taxable income” (determined without regard to the dividends paid deduction and by excluding any net capital gain). For these purposes, dividend distributions include actual distributions and cashless “consent dividends.” The Company intends to cause any REIT Subsidiary within its control to make actual distributions or consent dividends as necessary to eliminate (or substantially minimize) material U.S. federal income tax and to comply with the REIT requirements. In order for a distribution by a REIT Subsidiary to be deductible against taxable income and to be counted toward satisfaction of the REIT minimum distribution requirements, the distribution generally may not constitute a “preferential dividend.” A dividend is not preferential if it is pro rata among all outstanding shares of stock within a class and is in accordance with the preferences among different classes of stock as set forth in the organizational documents of the REIT. In certain situations, the IRS has taken the view that charging different management fee rates to different investors results in preferential dividends. Existing IRS precedents do not consider the application of this preferential dividend rule to a REIT that is a subsidiary of a partnership that charges different management fees and/or incentive distributions to investors in the partnership. A REIT Subsidiary that is deemed to have paid preferential dividends could have additional undistributed taxable income that is subject to corporate level tax, and it might be subject to certain penalties and excise taxes or, depending on the circumstances, such REIT Subsidiary could fail to qualify as a REIT. Under certain circumstances, a REIT Subsidiary may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to shareholders in a later year, subject to an interest charge.

Net losses incurred by a REIT Subsidiary in any taxable year may not reduce the amounts of distributions in subsequent years that are treated as dividends (including capital gain dividends). As a result, Series II Shareholders may be taxable in respect of distributions from a REIT that exceed such Series II Shareholders economic gain. In such event, upon liquidation of the applicable REIT Subsidiary, Series II Shareholders may realize a capital loss, the use of which is subject to limitations.

A REIT Subsidiary’s qualification as a REIT for U.S. federal income tax purposes depends on whether it continues to meet the various requirements summarized above. Because of the complexity of such tests and the potential difficulties of complying with such tests, no assurance can be given that the actual results of a REIT Subsidiary’s operations would satisfy such requirements. In addition, because the relevant laws may change, compliance with one or more of the REIT requirements may become impossible or impracticable for the Company or

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any REIT Subsidiary. If a REIT Subsidiary fails to qualify for taxation as a REIT in any taxable year, it may be able to preserve its REIT status under certain savings provisions through the payment of certain penalty taxes (which may be substantial). If no relief provisions apply, a REIT Subsidiary generally would be subject to tax on its taxable income at regular corporate rates, would otherwise be treated as a regular taxable corporation and may be ineligible to elect REIT status again prior to the fifth taxable year following the first year in which it failed to qualify as a under the Code.

To the extent that a REIT Subsidiary does not distribute all of its net capital gain and REIT taxable income, it generally will be subject to tax on the undistributed amount at corporate tax rates and an additional 4% excise tax on certain undistributed amounts. Notwithstanding the foregoing, even if a REIT Subsidiary qualified for taxation as a REIT, it nonetheless could be subject to U.S. federal income tax in certain circumstances, including (without limitation) the following: (i) a REIT Subsidiary could be subject to tax at the highest corporate rate on certain income from “foreclosure property” acquired by reason of default on a lease or indebtedness held by such REIT Subsidiary; (ii) a REIT Subsidiary would be subject to a 100% U.S. federal income tax rate on net income from “prohibited transactions” (generally, certain sales or other dispositions of property (other than foreclosure property) held primarily for sale to customers in the ordinary course of business); and (iii) a REIT Subsidiary would be subject to a 100% tax on certain redetermined rents, redetermined deductions, redetermined service income and excess interest payments involving or attributable to a taxable REIT subsidiary of such REIT Subsidiary (generally arising if such REIT Subsidiary and a taxable REIT subsidiary enter into transactions with each other that are not arm’s length). As noted above, gains derived by a REIT from sales of property (other than foreclosure property) held primarily for sale to customers in the ordinary course of business are subject to the 100% tax on net income from such prohibited transactions. Under existing law, whether property is held as inventory or primarily for sale to customers in the ordinary course of a trade or business is a question of fact that depends on all the facts and circumstances surrounding the particular transaction. The Code provides a safe harbor pursuant to which sales of properties held for at least two years and meeting certain additional requirements will not be treated as prohibited transactions, but compliance with the safe harbor may not be practical. Given the absence of bright-line tests for determining when property is treated as held for sale and the potential difficulties in qualifying for the statutory safe harbor, the IRS may successfully contend that some or all of the sales made by any REIT Subsidiary are prohibited transactions and that gains from such sales are subject to the 100% tax.

Taxation of REIT Shareholders

Series II Shareholders will be allocated a portion of the income with respect to its indirect ownership of any REIT Subsidiary and will generally be taxed with respect to this allocated income in the same manner as if such Series II Shareholder held the REIT shares directly. For purposes of this discussion, Series I will generally be treated in the same manner as a Series II Shareholder with respect to a REIT Subsidiary.

Distributions made by a REIT to its taxable shareholders out of current or accumulated earnings and profits (and not designated as capital gain dividends) are generally taken into account by them as ordinary income and will not be eligible for the dividends-received deduction for corporations or the reduced capital gains rates that generally apply to distributions by non-REIT C corporations to certain non-corporate Series II Shareholders. Individual taxpayers may be allowed a 20% deduction for “qualified REIT dividends” (i.e., REIT ordinary dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income eligible for capital gain tax rates). The overall deduction is limited to 20% of the sum of the taxpayer’s taxable income (less net capital gain) and certain cooperative dividends, subject to further limitations based on taxable income. Distributions that a REIT designates as capital gain dividends will be taxed as long-term capital gains (to the extent they do not exceed the REIT’s actual net capital gain for the taxable year) without regard to the period for which the shareholder has held its shares. However, corporate Series II Shareholders may be required to treat up to 20% of certain capital gain dividends as ordinary income. Distributions in excess of current and accumulated earnings and profits are generally not taxable to a shareholder to the extent that they do not exceed the shareholder’s adjusted basis in its shares, but rather will reduce such adjusted basis. To the extent that such distributions exceed the adjusted basis of a shareholder’s shares they will be included in income as long-term capital gain (or short-term capital gain if the shares have been held for one year or less), assuming the shares are a capital asset in the hands of the shareholder.

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A REIT is treated as making a distribution that can count toward meeting its annual distribution requirement if it declares a “consent dividend.” A consent dividend is a hypothetical distribution (as distinguished from an actual distribution) that is treated for U.S. federal income tax purposes as if it were distributed in money by the REIT to its shareholders on the last day of the REIT’s taxable year, received by its shareholders on that day, and immediately contributed by the shareholders as paid-in capital to the REIT on that day. Each Series II Shareholder’s distributive share of the amount of any consent dividend will be treated as a dividend to such person in accordance with the rules governing dividends discussed above. The Company currently intends for each REIT Subsidiary to make actual distributions, rather than consent dividends, to meet its REIT distribution requirements, but shareholders of the REIT may be required to accept consent dividends. Shareholders may not include in their income tax returns any net operating losses or capital losses of a REIT.

Assuming the shares were a capital asset in the hands of the shareholder, a shareholder’s gain on the sale of its shares in a REIT will be taxed at long-term or short-term capital gain rates, depending on how long the shares were held. However, in general, any loss upon a sale or exchange of shares by a shareholder that has held such shares for six months or less (after applying certain holding period rules), will be treated as a long-term capital loss to the extent of previous distributions from a REIT to the shareholder that were required to be treated by such shareholder as long-term capital gain. Subject to certain requirements, distributions by a REIT to U.S. taxable investors in liquidation of such REIT will be treated as gain (or loss) from the sale or exchange of shares in the REIT.

U.S. Withholding Taxes

Although each U.S. Series II Shareholder is required to provide an IRS Form W-9, we nevertheless may be unable to accurately or timely determine the tax status of Series II Shareholders for purposes of determining whether U.S. withholding applies to payments made by Series II to some or all Series II Shareholders. In such a case, payments made by Series II to U.S. Series II Shareholders might be subject to U.S. “backup” withholding at the applicable rate or other U.S. withholding taxes. Series II Shareholders would be able to treat as a credit their allocable share of any U.S. withholding taxes paid in the taxable year in which such withholding taxes were paid and, as a result, might be entitled to a refund of such taxes from the IRS. In the event Series II Shareholders redeem, transfer or otherwise dispose of some or all of their Series II Shares, special rules might apply for purposes of determining whether such Series II Shareholders or the transferees of such Series II Shares were subject to U.S. withholding taxes in respect of income allocable to, or distributions made on account of, such Series II Shares or entitled to refunds of any such taxes withheld.

Consequences to Tax-Exempt U.S. Series II Shareholders

It is not presently expected that the activities of the Company will give rise to UBTI allocable to U.S. tax-exempt organizations (including tax-exempt accounts). Notwithstanding the foregoing, income recognized by a U.S. tax-exempt organization (including a tax-exempt account) is exempt from U.S. federal income tax except to the extent of the organization’s UBTI. UBTI is defined generally as any gross income derived by a tax-exempt organization (including a tax-exempt account) from an unrelated trade or business that it regularly carries on, less the deductions directly connected with that trade or business. In addition, income arising from a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) that holds operating assets or is otherwise engaged in a trade or business generally will constitute UBTI. Notwithstanding the foregoing, UBTI generally does not include any dividend income, interest income, certain other categories of passive income or capital gains realized by a tax-exempt organization (including a tax-exempt account), so long as such income is not “debt financed,” as discussed below. Series II believes that it should not be regarded as engaged in a trade or business, and anticipates that any operating assets held by Series II will be held through entities that are treated as corporations for U.S. federal income tax purposes.

The exclusion from UBTI does not apply to income from “debt-financed property,” which is treated as UBTI to the extent of the percentage of such income that the average acquisition indebtedness with respect to the property bears to the average tax basis of the property for the taxable year. If an entity treated as a flow-through for U.S. federal income tax purposes, such as Series II, incurs acquisition indebtedness, a tax-exempt partner in such flow-through entity (including one holding through a flow-through structure) will be deemed to have acquisition indebtedness equal to its allocable portion of such acquisition indebtedness. If any such indebtedness were used by Series II (or deemed to be used) to acquire property, such property generally would constitute debt-financed property, and any income from or gain from the disposition of such debt-financed property allocated to a tax-exempt organization (including a tax-exempt account) generally would constitute UBTI to such tax-exempt organization, subject to certain exceptions in

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cases where debt is paid off. In addition, even if such indebtedness were not used (or deemed to be used) by Series II to acquire property but were instead used to fund distributions to Series II Shareholders, if a tax-exempt organization (including a tax-exempt account) subject to taxation in the United States were to use such proceeds to make an investment outside Series II, the IRS might assert that such acquisition constitutes debt-financed property to such Series II Shareholder with the consequences noted above. It is not presently expected that Series II will incur indebtedness in a manner that generates UBTI attributable to debt-financed property.

Series II may (but is not required to) hold a portion of its investments through one or more REIT Subsidiaries. Dividends from a REIT Subsidiary will generally not be treated as UBTI to tax-exempt U.S. Series II Shareholders, even if the property held by the REIT Subsidiary is debt-financed, except to the extent of “acquisition indebtedness” with respect to the investment in the REIT Subsidiary. However, an investment in a “pension-held REIT” within the meaning of section 856(h)(3)(D) of the Code may give rise to UBTI.

Tax-exempt U.S. Series II Shareholders should consult their own tax advisers regarding the tax consequences of a purchase of Series II Shares.

Consequences to Non-U.S. Series II Shareholders

Series II may acquire the Portfolio Assets (other than the Portfolio Assets that are treated as corporations for U.S. federal income tax purposes) indirectly through entities that are treated as corporations for U.S. federal income tax purposes or REIT Subsidiaries (as discussed above under “—REIT Subsidiaries”), and as a result does not expect that any such acquisition will generate income treated as effectively connected with a U.S. trade or business (other than effectively connected income attributable to the sale of a United States real property interest). However, no assurance can be given that Series II Shareholders will not incur income treated as effectively connected with a U.S. trade or business. If, as anticipated, Series II is not treated as engaged in a U.S. trade or business or as deriving income which is treated as effectively connected with a U.S. trade or business, and provided that a Non-U.S. Series II Shareholder is not itself engaged in a U.S. trade or business, then such Non-U.S. Series II Shareholder generally will not be subject to U.S. tax return filing requirements solely as a result of owning Series II Shares and generally will not be subject to U.S. federal income tax on its allocable share of Series II’s interest and dividends from non-U.S. sources or gain from the sale or other disposition of securities or real property located outside of the United States.

However, there can be no assurance that the law will not change or that the IRS will not deem Series II to be engaged in a U.S. trade or business. If, contrary to our expectations, Series II is treated as engaged in a U.S. trade or business, then a Non-U.S. Series II Shareholder generally would be required to file a U.S. federal income tax return, even if no effectively connected income were allocable to it. If Series II were to have income treated as effectively connected with a U.S. trade or business, then a Non-U.S. Series II Shareholder would be required to report that income and would be subject to U.S. federal income tax at the regular graduated rates. In addition, Series II might be required to withhold U.S. federal income tax on such Non-U.S. Series II Shareholder’s distributive share of such income at the highest rate of income tax applicable to such Non-U.S. Series II Shareholder based on the status of such Non-U.S. Series II Shareholder. A corporate Non-U.S. Series II Shareholder might also be subject to branch profits tax at a rate of 30%, or at a lower treaty rate, if applicable. If, contrary to expectation, Series II were engaged in a U.S. trade or business, then gain or loss from the sale of Series II Shares by a Non-U.S. Series II Shareholder would be treated as effectively connected with such trade or business to the extent that such Non-U.S. Series II Shareholder would have had effectively connected gain or loss had Series II sold all of its assets at their fair market value as of the date of such sale. In such case, any such effectively connected gain generally would be taxable at the regular graduated U.S. federal income tax rates, and the amount realized from such sale generally would be subject to a 10% U.S. federal withholding tax.

Further, it is possible that Series II will recognize gain from the sale of a United States real property interest. Regardless of whether Series II’s activities constitute a trade or business giving rise to U.S. “effectively connected” income, under provisions added to the Code by the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), Non-U.S. Series II Shareholders (other than certain qualified foreign pension funds) are taxed on the gain derived from the dispositions of United States real property interests (including gain allocated to a Non-U.S. Series II Shareholder upon a sale of such property interests by Series II). A United States real property interest includes an interest in a United States real property holding corporation. Under FIRPTA, Non-U.S. Series II Shareholders treat gain or loss from dispositions of U.S. real property interests as if the gain or loss were “effectively connected” with a

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U.S. trade or business and, therefore, are required to pay U.S. taxes at regular U.S. rates on such gain or loss. As a result, Non-U.S. Series II Shareholders that receive income allocations from the sale of a United States real property interest (including distributions from a REIT Subsidiary to the extent attributable to the disposition by the REIT Subsidiary of a United States real property interest) may be required to file a United States federal income tax return and may be subject to United States federal income tax at regular U.S. rates on a sale, exchange or other disposition of such United States real property interest. Generally, with respect to gain attributable to Series II’s sale of a United States real property interest that is allocated to a Non-U.S. Series II Shareholder, Series II will be required to withhold at the highest rate of income tax applicable to each Non-U.S. Series II Shareholder based on the status of such Non-U.S. Series II Shareholder. Also, such gain may be subject to a 30% branch profits tax (as discussed above).

Upon a sale of a Non-U.S. Series II Shareholder’s Shares, if (i) 50% or more of Series II’s gross assets consist of U.S. real property interests and (ii) 90% or more of Series II’s gross assets consist of U.S. real property interests and cash or cash equivalents, a purchaser will be required to withhold tax pursuant to Section 1445 of the Code on the full amount of the purchase price. Regardless of whether Series II satisfies these requirements, gain attributable to its U.S. real property interests may be subject to U.S. federal income tax.

In general, even if Series II is not engaged in a U.S. trade or business, and assuming Series II Shareholders are not otherwise engaged in a U.S. trade or business, Non-U.S. Series II Shareholders will nonetheless be subject to a withholding tax of 30% on the gross amount of certain U.S.-source income which is not effectively connected with a U.S. trade or business. Income subjected to such a flat tax rate is income of a fixed or determinable annual or periodic nature, including dividends and certain interest income. Such withholding tax may be reduced or eliminated with respect to certain types of income under an applicable income tax treaty between the United States and a Series II Shareholder’s country of residence or under the “portfolio interest” rules or other provisions of the Code, provided that such Series II Shareholder provides proper certification as to their eligibility for such treatment. Notwithstanding the foregoing, and although each Non-U.S. Series II Shareholder is required to provide us with an IRS Form W-8, we nevertheless may be unable to accurately or timely determine the tax status of Series II Shareholders for purposes of establishing whether reduced rates of withholding apply to some or all Series II Shareholders. In such a case, a Series II Shareholder’s allocable share of distributions of U.S.-source dividend and interest income will be subject to U.S. withholding tax at a rate of 30%. Further, if such Series II Shareholder would not be subject to U.S. tax based on their tax status or otherwise were eligible for a reduced rate of U.S. withholding, such Series II Shareholder might need to take additional steps to receive a credit or refund of any excess withholding tax paid on their account, which could include the filing of a non-resident U.S. income tax return with the IRS. Among other limitations applicable to claiming treaty benefits, if a Series II Shareholder resides in a treaty jurisdiction which does not treat Series II as a pass-through entity, such Series II Shareholder might not be eligible to receive a refund or credit of excess U.S. withholding taxes paid on their account. In the event a Series II Shareholder elects to redeem, sell or exchange some or all of their Series II Shares, special rules may apply for purposes of determining whether such Series II Shareholder or the transferee of such Series II Shares are subject to U.S. withholding taxes in respect of income allocable to, or distributions made on account of, such Series II Shares or entitled to refunds of any such taxes withheld. See “Series II—Consequences to U.S. Series II Shareholders—Sale or Exchange/Redemption of Series II Shares.” Prospective Series II Shareholders should consult their own tax adviser regarding the treatment of U.S. withholding taxes.

Special rules may apply to any Non-U.S. Series II Shareholder (i) that has an office or fixed place of business in the United States; (ii) that is an individual present in the United States for 183 days or more in a taxable year, calculated taking into account a portion of the days such individual was present in the United States in the preceding two years; or (iii) that is (a) a former citizen or long-term resident of the United States, (b) a foreign insurance company that is treated as holding a partnership interest in Series II in connection with its U.S. business, (c) a PFIC, (d) a CFC or (e) a corporation that accumulates earnings to avoid U.S. federal income tax. Prospective Series II Shareholders should consult their own tax adviser regarding the application of these special rules.

Taxes in Other Jurisdictions

In addition to U.S. federal income tax consequences, a purchase of Series II Shares could subject Series II Shareholders to U.S. state and local taxes in the U.S. state or locality in which they are a resident for tax purposes. Series II Shareholders could also be subject to tax return filing obligations and income, franchise or other taxes, including withholding taxes, in non-U.S. jurisdictions in which Series II acquires investments. We will attempt, to the extent reasonably practicable, to structure our operations and acquisitions so as to avoid income tax filing

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obligations by U.S. Series II Shareholders in non-U.S. jurisdictions. However, there may be circumstances in which we are unable to do so. Income or gain from assets held by Series II may be subject to withholding or other taxes in jurisdictions outside the United States, except to the extent an income tax treaty applies. If Series II Shareholders wish to claim the benefit of an applicable income tax treaty, they might be required to submit information to tax authorities in such jurisdictions. Prospective Series II Shareholders should consult their own tax adviser regarding the U.S. state, local and non-U.S. tax consequences of a purchase of Series II Shares in Series II.

Information Returns and Audit Procedures

We have agreed to use commercially reasonable efforts to furnish Series II Shareholders U.S. tax information (including estimates of the taxable income or loss computed for U.S. tax purposes allocated to them within 90 calendar days of the end of the fiscal year). However, while delays are not expected, providing this U.S. tax information to Series II Shareholders could be subject to delay in the event of, among other reasons, evolving reporting and compliance requirements or other events. It is therefore expected that, in any taxable year, Series II Shareholders will need to apply for an extension of time to file the Shareholders’ tax returns. In preparing this U.S. tax information, we will use various accounting and reporting conventions, some of which have been mentioned in the previous discussion, to determine a Series II Shareholder’s share of income, gain, loss and deduction. The IRS may successfully contend that certain of these reporting conventions are impermissible, which could result in an adjustment to the Shareholders’ income or loss.

Series II may be audited by the IRS. Adjustments resulting from an IRS audit could require Series II Shareholders to adjust a prior year’s tax liability and result in an audit of their own tax return. Any audit of a Series II Shareholder’s tax return could result in adjustments not related to Series II’s tax returns, as well as those related to Series II’s tax returns. If the IRS makes an audit adjustment to our income tax returns, it may assess and collect any taxes (including penalties and interest) resulting from such audit adjustment directly from Series II instead of Series II Shareholders. We may be permitted to elect to have the Operating Manager and Series II Shareholders take such audit adjustment into account in accordance with their interests during the taxable year under audit. However, there can be no assurance that we will choose to make such election or that it will be available in all circumstances. If we do not make the election, and we pay taxes, penalties or interest as a result of an audit adjustment, then cash available for distribution to Series II Shareholders might be substantially reduced. As a result, current Series II Shareholders might bear some or all of the cost of the tax liability resulting from such audit adjustment, even if current Series II Shareholders did not own Series II Shares during the taxable year under audit.

Pursuant to the partnership audit rules, a “partnership representative” designated by Series II will have the sole authority to act on behalf of Series II in connection with any administrative or judicial review of Series II’s items of income, gain, loss, deduction or credit. In particular, the partnership representative will have the sole authority to bind both former and current Series II Shareholders and to make certain elections on behalf of Series II pursuant to the partnership audit rules. Prospective Series II Shareholders should consult their own tax adviser regarding the implications of the partnership audit rules for a purchase of Series II Shares.

Foreign Account Tax Compliance

Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% withholding tax is imposed on “withholdable payments” made to a “foreign financial institution” or a “non-financial foreign entity,” unless such financial institution or entity satisfies certain information reporting or other requirements. Withholdable payments include certain U.S.-source income, such as interest, dividends and other passive income. Proposed Treasury regulations eliminate the requirement to withhold tax under FATCA on gross proceeds from the sale or disposition of property that can produce U.S.-source interest or dividends. The IRS has announced that taxpayers are permitted to rely on the proposed regulations until final Treasury regulations are issued. We intend to comply with FATCA, so as to ensure that the 30% withholding tax does not apply to any withholdable payments received by the Company, or our assets. Nonetheless, the 30% withholding tax may also apply to such Series II Shareholder’s allocable share of distributions attributable to withholdable payments, unless they properly certify their FATCA status on IRS Form W-8 or IRS Form W-9 (as applicable) and satisfy any additional requirements under FATCA.

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In compliance with FATCA, information regarding certain Series II Shareholders’ ownership of Shares may be reported to the IRS or to a non-U.S. governmental authority. FATCA remains subject to modification by an applicable intergovernmental agreement between the United States and another country for cooperation to facilitate the implementation of FATCA, or by future Treasury regulations or guidance. Prospective Series II Shareholders should consult their own tax adviser regarding the consequences under FATCA of a purchase of Series II Shares.

Tax Shelter Regulations and Related Reporting Requirements

If Series II were to engage in a “reportable transaction,” we (and possibly Series II Shareholders) would be required to make a detailed disclosure of the transaction to the IRS in accordance with regulations governing tax shelters and other potentially tax-motivated transactions. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a “listed transaction” or “transaction of interest,” or that it produces certain kinds of losses exceeding certain thresholds. Any purchase of Series II Shares may be considered a “reportable transaction” if, for example, Series II were to recognize certain significant losses in the future. In certain circumstances, a Series II Shareholder who disposes of an interest in a transaction resulting in the recognition by such holder of significant losses in excess of certain threshold amounts may be obligated to disclose its participation in such transaction. Certain of these rules are unclear, and the scope of reportable transactions can change retroactively. Therefore, it is possible that the rules may apply to transactions other than significant loss transactions.

Moreover, if Series II were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed transaction, Series II Shareholders might be subject to significant accuracy-related penalties with a broad scope, for those persons otherwise entitled to deduct interest on federal tax deficiencies, non-deductibility of interest on any resulting tax liability, and in the case of a listed transaction, an extended statute of limitations. Series II does not intend to participate in any reportable transaction with a significant purpose to avoid or evade tax, nor does it intend to participate in any listed transactions. However, no assurance can be provided that the IRS will not assert that it has participated in such a transaction. Prospective Series II Shareholders should consult their own tax adviser concerning any possible disclosure obligation under the regulations governing tax shelters with respect to the disposition of Series II Shares.

Withholding and Backup Withholding

For each calendar year, Series II will report to the Shareholders and to the IRS the amount of distributions that we pay, and the amount of tax (if any) that we withhold on these distributions. The proper application to Series II of the rules for withholding under Sections 1441 through 1446 of the Code (applicable to certain dividends, interest and amounts treated as effectively connected with a U.S. trade or business, among other items) is unclear.

Under the backup withholding rules, Series II Shareholders may be subject to backup withholding tax with respect to distributions paid unless: (i) they are an exempt recipient and demonstrate this fact when required; or (ii) provide a taxpayer identification number, certify as to no loss of exemption from backup withholding tax, and otherwise comply with the applicable requirements of the backup withholding tax rules. A U.S. Series II Shareholder that is exempt should certify such status on a properly completed IRS Form W-9. A Non-U.S. Series II Shareholder may qualify as an exempt recipient by submitting a properly completed IRS Form W-8. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a Series II Shareholder will be allowed as a credit against their U.S. federal income tax liability and may entitle such Series II Shareholder to a refund from the IRS, provided they supply the required information to the IRS in a timely manner.

If Series II Shareholders do not timely provide Series II, or the applicable nominee, broker, clearing agent or other intermediary, with IRS Form W-9 or IRS Form W-8, as applicable, or such form is not properly completed, then Series II may become subject to U.S. backup withholding taxes in excess of what would have been imposed had Series II or the applicable intermediary received properly completed forms from all Series II Shareholders. For administrative reasons, and in order to maintain the fungibility of Shares, such excess U.S. backup withholding taxes, and if necessary similar items, may be treated by Series II as an expense that will be borne indirectly by all Shareholders on a pro rata basis (e.g., since it may be impractical for us to allocate any such excess withholding tax cost to the Series II Shareholders that failed to timely provide the proper U.S. tax forms).

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Information Reporting with Respect to Foreign Financial Assets

Under Treasury regulations, certain U.S. persons that own “specified foreign financial assets” with an aggregate fair market value exceeding either $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year generally are required to file an information report with respect to such assets with their tax returns. Significant penalties may apply to persons who fail to comply with these rules. Specified foreign financial assets include not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person, and any interest in a foreign entity. The failure to report information required under the current regulations could result in substantial penalties and in the extension of the statute of limitations with respect to federal income tax returns filed by such Series II Shareholder. Prospective Series II Shareholders should consult their own tax adviser regarding the possible implications of these Treasury regulations for a purchase of Series II Shares.

Other Tax Matters

Taxable Year

The Company uses the calendar year as its taxable year for U.S. federal income tax purposes. Under certain circumstances which we currently believe are unlikely to apply, a taxable year other than the calendar year may be required for Series II.

New Legislation or Administrative Judicial Action

The U.S. federal income tax treatment of Shareholders depends, in some instances, on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. Shareholders should be aware that the U.S. federal income tax rules are constantly under review (including currently) by the Congressional tax writing committees and other persons involved in the legislative process, the IRS, the U.S. Treasury Department and the courts, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations, any of which could adversely affect the value of Shares and be effective on a retroactive basis. For example, changes to the U.S. federal income tax laws and interpretations thereof could make it more difficult or impossible for Series II to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, change the character or treatment of portions of the Company’s income, reduce the net amount of distributions available to Shareholders, or otherwise affect the tax considerations of owning Shares. Such changes could also affect or cause the Company to change the way it conducts its activities and adversely affect the value of Shares.

The foregoing discussion is not intended as a substitute for careful tax planning. The tax matters relating to the Company and Shareholders are complex and are subject to varying interpretations. Moreover, the effect of existing income tax laws, the meaning and impact of which is uncertain, and of proposed changes in income tax laws will vary with the particular circumstances of each Shareholder, and in reviewing this Annual Report these matters should be considered. Each Shareholder should consult its own tax adviser with respect to the U.S. federal, state, local and other tax consequences of any purchase of Shares.

Certain ERISA Considerations

The following is a summary of certain considerations associated with an investment in the Company by (i) “employee benefit plans” within the meaning of Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) that are subject to Part 4 of Subtitle B of Title I of ERISA, (ii) plans, individual retirement accounts (“IRAs”) and other arrangements that are subject to Section 4975 of the Code or provisions under any other U.S. federal, state or local or non-U.S. or other laws or regulations that are similar to such provisions of ERISA or the Code (collectively, “Similar Laws”) and (iii) entities whose underlying assets are considered to include the assets of any of the foregoing described in clauses (i) and (ii) (each of the foregoing described in clauses (i), (ii) and (iii) referred to herein as a “Plan”).

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Fiduciary Duty of Investing Plans

ERISA and the Code impose certain duties on persons who are fiduciaries of a Plan which is a Benefit Plan Investor (as defined below) subject to Title I of ERISA or Section 4975 of the Code and prohibit certain transactions involving the assets of a Benefit Plan Investor and its fiduciaries or other interested parties. Under ERISA and the Code, any person who exercises any discretionary authority or control over the administration of a Benefit Plan Investor or the management or disposition of the assets of a Benefit Plan Investor, or who renders investment advice for a fee or other compensation to a Benefit Plan Investor, is generally considered to be a fiduciary of the Benefit Plan Investor.

In considering an investment in the Company of a portion of the assets of any Plan, a fiduciary should determine, particularly in light of the risks and lack of liquidity inherent in an investment in the Company, whether the investment is in accordance with the documents and instruments governing the Plan and the applicable provisions of ERISA, the Code or any Similar Law relating to a fiduciary’s duties to the Plan including the prudence, diversification, delegation of control and prohibited transaction provisions of ERISA, the Code and any other applicable Similar Laws.

Prohibited Transaction Issues

Section 406 of ERISA and Section 4975 of the Code prohibit Benefit Plan Investors from engaging in specified transactions involving plan assets with persons or entities who are “parties in interest,” within the meaning of ERISA, or “disqualified persons,” within the meaning of Section 4975 of the Code, unless an exemption is available. A party in interest or disqualified person who engaged in a non-exempt prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code. In addition, the fiduciary of the Benefit Plan Investor that engaged in such a non-exempt prohibited transaction may be subject to penalties and liabilities under ERISA and the Code. The fiduciary of a Benefit Plan Investor that proposes to purchase or hold any Shares should consider, among other things, whether such purchase and holding may involve the sale or exchange of any property between a Benefit Plan Investor and a party in interest or disqualified person, or the transfer to, or use by or for the benefit of, a party in interest or disqualified person, of any “plan assets.” Depending on the satisfaction of certain conditions which may include the identity of the fiduciary of the Benefit Plan Investor making the decision to acquire or hold Shares on behalf of a Benefit Plan Investor, Prohibited Transaction Class Exemption (“PTCE”) 91-38 (relating to investments by bank collective investment funds), PTCE 84-14 (relating to transactions effected by a “qualified professional asset manager”), PTCE 95-60 (relating to investments by an insurance company general account), PTCE 96-23 (relating to transactions directed by an in-house asset manager) or PTCE 90-1 (relating to investments by insurance company pooled separate accounts) could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. Each of the above-noted exemptions contains conditions and limitations on its application. It should be further noted that even if the conditions specific to one or more of these exemptions are satisfied, the scope of relief provided by these exemptions may not necessarily cover all acts involving the Shares that might be construed as prohibited transactions. Fiduciaries of Benefit Plan Investors considering acquiring and/or holding Shares in reliance on these or any other exemption should carefully review the exemption in consultation with its own legal advisors to assure it is applicable. There can be no assurance that all of the conditions of any such exemptions will be satisfied with respect to any particular transaction involving the Shares.

Plan Assets

Under ERISA and the regulations promulgated thereunder as modified by Section 3(42) of ERISA (the “Plan Asset Regulations”), when Benefit Plan Investor acquires an equity interest in an entity that is neither a “publicly-offered security” (within the meaning of the Plan Asset Regulations, as described below) nor a security issued by an investment company registered under the Investment Company Act, the Benefit Plan Investor’s assets include both the equity interest and an undivided interest in each of the underlying assets of the entity unless it is established either that less than 25% of the total value of each class of equity interest in the entity is held by Benefit Plan Investors (the “25% Test”) or that the entity is an “operating company” (each as defined in the Plan Asset Regulations). For purposes of the 25% Test, the assets of an entity will not be treated as “plan assets” if, immediately after the most recent acquisition of any equity interest in the entity, less than 25% of the total value of each class of equity interest in the entity is held by Benefit Plan Investors, excluding equity interests held by persons (other than Benefit Plan Investors) with discretionary authority or control over the assets of the entity or who provide investment advice for a fee

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(direct or indirect) with respect to such assets, and any affiliates thereof. The term “benefit plan investors” (“Benefit Plan Investors”) is generally defined to include “employee benefit plans” (within the meaning of Section 3(3) of ERISA) that are subject to Title I of ERISA, “plans” within the meaning of Section 4975 of the Code to which Section 4975 of the Code is applicable (including, without limitation, “Keogh” plans and IRAs), as well as any entity whose underlying assets include plan assets by reason of the investment in such entity by such an employee benefit plan or plan (e.g., an entity of which 25% or more of the total value of any class of equity interests is held by Benefit Plan Investors and which does not satisfy another exception under ERISA). The Company is not an investment company under the Investment Company Act. Thus, absent satisfaction of another exception under the Plan Asset Regulations, if 25% or more of the total value of any class of equity interests of the Company were held by Benefit Plan Investors, an undivided interest in each of the underlying assets of the Company would be deemed to be “plan assets” of any Benefit Plan Investor that invested in the Company.

Under the Plan Asset Regulations, a “publicly-offered security” is a security that is (a) “freely transferable,” (b) part of a class of securities that is “widely held” and (c) (i) sold to the Benefit Plan Investor as part of an offering of securities to the public pursuant to an effective registration under the Securities Act, and the class of securities to which such security is a part is registered under the Exchange Act within 120 days after the end of the fiscal year of the issuer during which the offering of such securities to the public has occurred, or (ii) is part of a class of securities that is registered under Section 12 of the Exchange Act.

To the extent any class of our Shares is not “publicly-offered” within the meaning of the Plan Asset Regulations, the Company intends to use reasonable efforts to satisfy another exception to the Plan Asset Regulations, including prohibiting investment from, Benefit Plan Investors in one or more classes of our Shares. However, there can be no assurance that, notwithstanding such efforts of the Operating Manager, the Company will satisfy the Plan Asset Regulations, or the underlying assets of the Company will not otherwise be deemed to include “plan assets” within the meaning of the ERISA.

Plan Asset Consequences

If the assets of the Company were deemed to be “plan assets” under ERISA, this would result, among other things, in (i) the application of the prudence and other fiduciary responsibility standards of ERISA to acquisitions made by the Company and (ii) the possibility that certain transactions in which the Company might seek to engage in could constitute “prohibited transactions” under ERISA and the Code. Fiduciaries of Benefit Plan Investors who decide to invest in the Company could, under certain circumstances, be liable for prohibited transactions or other violations as a result of their investment in the Company or as co-fiduciaries for actions taken by or on behalf of the Company. With respect to an IRA that invests in the Company, the occurrence of a prohibited transaction involving the individual who established the IRA, or his or her beneficiaries, would cause the IRA to lose its tax-exempt status.

The foregoing statements regarding the consequences under ERISA and the Code of an investment in the Company are based on the provisions of ERISA and the Code as currently in effect and the existing administrative and judicial interpretations thereunder. No assurance can be given that administrative, judicial or legislative changes that would make the foregoing statements incorrect or incomplete will not occur.

Reporting Obligations

Under ERISA’s general reporting and disclosure rules, certain Benefit Plan Investors subject to Title I of ERISA are required to file annual reports (Form 5500) with the DOL regarding their assets, liabilities and expenses. To facilitate compliance with these requirements it is noted that the descriptions contained in this Annual Report of fees and compensation, including the Management Fee and the Performance Fee payable to the Operating Manager, are intended to satisfy the disclosure requirements for “eligible indirect compensation” for which the alternative reporting option on Schedule C of Form 5500 may be available.

While Plans that are governmental plans, certain church plans and non-U.S. plans may not be subject to the fiduciary responsibility or prohibited transaction provisions of Title I of ERISA or Section 4975 of the Code, such Plans may nevertheless be subject to Similar Laws. Fiduciaries of any such Plans, in consultation with their advisors and legal counsel, should consider the impact of their respective laws and regulations on an investment in the Company and the considerations discussed above, if applicable.

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Important Notice for Plans

Each Plan proposing to invest in the Company will be deemed to make certain representations, including, but not limited to, that it is, and any fiduciaries responsible for the Plan’s investment are, professionally advised, aware of and understand the Company’s business objectives, policies and strategies and that the decision to invest plan assets in the Company was made with appropriate consideration of relevant investment factors with regard to the Plan and is consistent with the duties and responsibilities imposed upon fiduciaries with regard to their investment decisions under applicable law, including ERISA and applicable Similar Law. This Annual Report does not constitute an undertaking to provide impartial investment advice and it is not our intention to act in a fiduciary capacity with respect to any Plan. PIMCO, the Operating Manager and their respective affiliates (the “Relevant Entities”) have a financial interest in investors’ investment in the Shares on account of the fees and other compensation they expect to receive (as the case may be) from the Company and their other relationships with the Company as contemplated hereunder. Any such fees and compensation do not constitute fees or compensation rendered for the provision of investment advice to any Plan. Each Plan which acquires or holds any Shares will be deemed to represent and warrant that it is advised by a fiduciary that is (a) independent of the Relevant Entities; (b) capable of evaluating investment risks independently, both in general and with respect to particular transactions and investment strategies contemplated in this Annual Report; and (c) a fiduciary (under ERISA, Section 4975 of the Code or applicable Similar Law) with respect to the Plan’s investment in the Shares, who is responsible for exercising independent judgment in evaluating the Plan’s investment in the Shares and any related transactions.

The sale of Shares to a Plan is in no respect a representation by us or any other person associated with the offering of our Shares that such an investment meets all relevant legal requirements with respect to investments by Plans generally or any particular Plan, or that such an investment is appropriate for Plans generally or any particular Plan.

Each Benefit Plan Investor is advised to contact its own legal, financial advisor or other fiduciary unrelated to the relevant entities about whether an investment in our Shares, or any decision to continue to hold, transfer, vote or provide any consent with respect to any such Shares, may be appropriate for the Plan’s circumstances.

Item 1A. Risk Factors

An investment in the Company involves significant risks and other considerations and, therefore, should be undertaken only by prospective investors capable of evaluating and bearing such risks and other considerations. A Shareholder must have the ability to understand, the financial capacity and the willingness to accept, the extent of its exposure to the risks and lack of liquidity inherent in an investment in the Shares. Shareholders with any doubts as to the suitability of an investment in the Company should consult their professional advisors to assist them in conducting their own legal, tax, accounting and financial evaluation of the merits and risks of an investment in the Company in light of their own circumstances and financial condition. The Company cannot predict the performance of its Portfolio Assets and, accordingly, the Company is not suitable as the sole investment vehicle for a Shareholder. In addition, there will be occasions when the Operating Manager and its affiliates will encounter potential conflicts of interest in connection with the Company, as described below under “Item 13. Certain Relationships and Related Transactions, and Director Independence.” The following discussion enumerates certain risk factors that should be carefully evaluated before making a purchase of the Shares. This summary does not purport to be a complete discussion of all of the risks and other factors and considerations which relate to or might arise from investing in the Company or from the Company’s Portfolio Assets. As used herein, the term “Company” refers to PALCO and each Series thereof, as applicable. For the avoidance of doubt, the Company is a holding company operating through its subsidiaries, and risk factors that describe the Company’s assets mean assets held indirectly by the Company through such subsidiaries. For purposes of this “Item 1A. Risk Factors,” the term “Portfolio Asset” shall be deemed to include, at any time, then-current and potential Portfolio Assets, unless the context otherwise requires.

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Risks Related to the Company and an Investment in the Shares

The Company faces heightened risks because it is a recently formed entity with a limited operating history and record.

The Company is a recently formed entity. Accordingly, the Company has a limited performance history for a prospective shareholder to consider. The Company commenced its operations in July 2025 and, therefore, has limited operating history upon which prospective Shareholders can evaluate their performance. Prospective Shareholders should not construe, and should draw no conclusions from, the prior experience of the Operating Manager or the performance of any other investment entities associated with PIMCO, as providing any assurances regarding the performance of the Company.

The Company’s Portfolio Assets (including the Asset-Backed Instruments) may not achieve the Company’s business objectives or generate returns for Shareholders.

Shareholders rely on the ability of the Operating Manager to choose, acquire and dispose the Portfolio Assets, and there is no assurance that the Operating Manager will find attractive opportunities to meet the Company’s objectives or that the Company will be able to acquire and dispose the Portfolio Assets (including Asset-Backed Instrument) or other assets. The realizable value of a highly illiquid asset, at any given time, could be less than its intrinsic value. In addition, it is possible that certain Portfolio Assets held by the Company’s subsidiaries will require a substantial amount of time to liquidate. There can be no assurance that the Company will be able to generate returns for its Shareholders or that the returns will be commensurate with the risks of acquiring the type of companies and transactions described herein. There can be no assurance that any Shareholder will receive any distribution from the Company. The Company bears fees, costs and expenses incurred in developing, investigating, negotiating or structuring any acquisition of Portfolio Assets (including the Asset-Backed Instruments) in which the Company does not actually consummate (including any such fees, costs and expenses not borne by Co-Investors (as defined below)) and fees, costs and expenses associated with joint ventures or similar arrangements (“Joint Venture”) and portfolios of Asset-Backed Instruments which are part of the same acquisition strategy (“Programmatic Acquisition”).

In certain instances, the Company, through its subsidiaries, may acquire a Portfolio Asset (including an Asset-Backed Instrument) with the intent to subsequently sell or syndicate a portion of such Portfolio Asset to Co-Investors or other persons (including PIMCO or PIMCO Clients) prior to the closing of the acquisition of such Portfolio Asset. In such event, the Company will bear the risk that any or all of the excess portion of such Portfolio Asset will not be sold or will only be sold on unattractive terms and that, as a consequence, the Company will bear the entire portion of any fees, costs and expenses related to such Portfolio Asset, hold a larger than expected Portfolio Assets in the applicable asset class or could realize lower than expected returns from such Portfolio Assets (see also “—Additional Risks Related to the Operation of the Company Generally—The Company’s business may be affected by offering Co-Investments or opportunities to provide debt financing to any person” below). Any such sell down or syndication will not be deemed to be a cross trade or principal trade and, as such, will not require the approval of the Board, the Shareholders or any other person. Further, any “back-to-back” commitment or assignment of a commitment in connection with an acquisition similarly will not be deemed a cross trade or a principal trade. Accordingly, an investment in the Company should only be considered by prospective investors who do not require current income and can afford a loss of their entire investment.

The Company’s ability to achieve its business objectives depends on the Operating Manager because the Operating Manager has significant discretion as to the implementation of the Company’s objectives and policies.

The Company depends on the diligence, skill and business relationships of the employees of the Operating Manager. The Company is reliant on the Operating Manager. In particular, the Company’s performance will depend on the success of the Operating Manager’s acquisition and disposition of the Portfolio Assets. The Company depends on the Operating Manager’s assessment of appropriate economic terms when entering transactions to acquire or dispose the Portfolio Assets. Economic terms determined by the Operating Manager in respect of each acquisition will be based on the Operating Manager’s assessment of a variety of factors. Each of these factors involves subjective judgments and forward-looking determinations by the Operating Manager. In conducting such assessment, the Operating Manager expects to use publicly available information as well as private information, including from consultants and investment bankers. If the Operating Manager misprices an acquisition (for whatever reason) or due to unanticipated illiquidity, the actual returns on the acquisition could be less than anticipated at the time of acquisition or disposition and could result in a disposition at a price less than the acquisition price.

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In addition, the acquisition processes described herein are subject to change at any time without notice. There can be no assurance that (i) the acquisition processes identified herein will continue to be employed by the Company or the Operating Manager or (ii) members of the PALCO acquisition team identified herein will continue to be associated with or employed by PIMCO or any of its affiliates. Past performance of any PIMCO Client or acquisition utilizing any of the acquisition processes identified above is in no way indicative of future results.

The Company’s Shares are not registered under the Securities Act, so they are subject to heightened restrictions on transferability and resale.

The Shares are not registered under the Securities Act or the securities laws of any state or other jurisdiction and are being offered and sold in reliance on exemptions from the registration requirements of the Securities Act and such laws. It is not contemplated that the Shares will ever be registered under the Securities Act. The Shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act and other applicable securities laws. Shareholders’ Subscription Agreements and the LLC Agreement contain representations and impose restrictions on transferability designed to assure that the conditions of the exemptions from such registration requirements are met. Shareholders also may not be permitted to transfer all or any part of their Shares to a person which gives rise to CFIUS (as defined below) or national security considerations with respect to the Company, an existing or potential Portfolio Assets or any of their actual or potential underlying assets. See “—The Company could be subject to review and approval by CFIUS or other regulatory agencies resulting in limitations or restrictions on its acquisitions and Joint Ventures” below. Shareholders also may not be permitted to transfer all or any part of their Shares to a person that would require PALCO to register under the Investment Company Act.

There is no market for the Shares, and Shareholders bear the risks of owning Shares for an extended period of time due to limited repurchases.

The Shares have not been registered under the Securities Act, the securities laws of any state or the securities laws of any other jurisdiction and cannot be resold unless they are subsequently registered under the Securities Act and other applicable securities laws or an exemption from registration is available. There is no public market for the Shares and none is expected to develop. Accordingly, there are no quoted prices for the Shares. In addition, there are substantial restrictions upon the repurchase of Shares under the LLC Agreement and applicable securities laws, including that the Company may limit the number of Shares subject to Share Repurchases or may decide to not conduct Share Repurchases for certain periods. Consequently, Shareholders must be prepared to bear the risks of owning Shares for an extended period of time. See “Item 1. Business—Share Repurchases.”

Shareholders have limited liquidity and may be limited in their opportunity to have their Shares repurchased and may not receive a full return of their invested capital if they elect to have their Shares repurchased by the Company.

A purchase of the Company’s Shares requires a long-term commitment, with no certainty of return and should be viewed as an illiquid investment. Certain Portfolio Assets may be held for the long term. Since there is no established market for the Shares, and none is expected to develop, a Shareholder of the Company will be unable to sell or otherwise dispose its Portfolio Assets readily and may encounter difficulty ascertaining the market value of its Shares. Shares in the Company are subject to restrictions on resales under applicable securities laws. Repurchases of Shares by the Company will likely be the only way for a Shareholder to dispose of Shares. It is uncertain as to when profits, if any, will be realized by a Shareholder and if such Shareholder will realize profits from the Company prior to the Company repurchasing its Shares. Losses on dispositions of unsuccessful Portfolio Assets may be realized before gains on dispositions of successful Portfolio Assets are realized. Furthermore, the expenses of operating the Company (including any fees payable to the Operating Manager (or an affiliate thereof)) may exceed its income, thereby requiring that the difference be paid from the Company’s assets. The Company is not obligated to liquidate any instruments in order to meet repurchase requests under the Repurchase Plan and the Company may not have sufficient cash flow to meet repurchase requests at any given time. If the Operating Manager determines there is insufficient liquidity to meet repurchase requests, such requests will be delayed until the Operating Manager determines there is sufficient liquidity; such delay may be significant. The Company, through its subsidiaries, intends to primarily own Portfolio Assets for the long term. The number of potential purchasers and sellers is expected to be

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limited. This factor could have the effect of limiting the availability of Portfolio Assets for purchase by the Company and will also limit the ability of the Company to sell Portfolio Assets at their fair market value in response to changes in the economy or financial markets. Illiquidity could also result from legal or contractual restrictions on their resale.

The realizable value of a highly illiquid Portfolio Asset at any given time could be less than its intrinsic value. In addition, certain types of Portfolio Assets owned by the Company’s subsidiaries are likely to require a substantial length of time to liquidate. There can be no assurance that the Company will be able to dispose of its instruments at the price and at the time it wishes to do so. Such illiquidity may continue even if the underlying entities obtain listings on securities exchanges.

A purchase of the Company’s Shares is suitable only for sophisticated investors and an investor must have the financial ability to understand and the willingness to accept the extent of its exposure to the risks and lack of liquidity inherent in a purchase of the Company’s Shares. Shareholders should consult their professional advisors to assist them in making their own legal, tax, regulatory, accounting and financial evaluation of the merits and risks of a purchase of the Company’s Shares in light of their own circumstances and financial condition.

Certain acquisitions by the Company may be of securities that are or become publicly traded and are therefore subject to the risks inherent in holding public securities. Such holdings will involve economic, political, interest rate and other risks, any of which could result in an adverse change in the market price. In addition, in some cases the Company will be prohibited by contract or other limitations from selling such securities for a period of time so that the Company is unable to take advantage of favorable market prices. Such factors will be used in calculating monthly NAV, and the Company’s monthly NAV is not audited by its independent registered public accounting firm. The Company calculates and publishes the NAV of its Shares monthly solely for purposes of establishing the price at which the Company sells and repurchase its Shares, and for publishing the value of each Shareholder’s investment in the Company on such Shareholder’s customer account statement, and the Company’s monthly NAV should not be viewed as a measure of the Company’s historical or future financial condition or performance. The components and methodology used in calculating the Company’s monthly NAV may differ from those used by other companies now or in the future. Errors may occur in calculating the Company’s monthly NAV, which could impact the price at which the Company sells and repurchases its Shares.

There is no public trading market for the Shares; therefore, a Shareholder’s ability to dispose of its Shares will likely be limited to repurchase by the Company. If a Shareholder sells its Shares to the Company, the Shareholder may receive less than the price it paid.

There is no current public trading market for the Shares, and the Company does not expect that such a market will ever develop. Therefore, repurchase of Shares by the Company will likely be the only way for a Shareholder to dispose of its Shares. While the Company intends to continue to conduct quarterly Share Repurchases, there is no guarantee that the Company will elect to conduct a Share Repurchase. Moreover, even if the Company conducts a Share Repurchase, there is no guarantee that Shareholders will be able to sell all of the Shares that they desire to sell in any particular Share Repurchase. In the event that the Company repurchases Shares in any Share Repurchase, the Company expects to repurchase Shares at an applicable price equal to either the NAV per Share, or a discount to the NAV per Share, of the type of Shares being repurchased as of the last calendar day of the calendar quarter prior to the commencement of the Share Repurchase and not based on the price at which a Shareholder initially purchased its Shares. As a result, a Shareholder may receive less than the price it paid for its Shares when the Shareholder sells them to the Company pursuant to any Share Repurchase.

Economic events that may cause the Company’s Shareholders to request that the Company repurchase their Shares in connection with a Share Repurchase may materially and adversely affect the Company’s cash flows, its results of operations and its financial condition.

Economic events could cause the Company’s Shareholders to seek to sell their Shares to the Company pursuant to any Share Repurchase for up to 5.0% of the aggregate NAV (measured collectively across both Series) of the Company’s outstanding Shares at an applicable price based on the NAV per Share at a time when such events are adversely affecting the performance of the Company. Even if the Company decides to satisfy all resulting repurchase requests, its cash flow could be materially adversely affected. In addition, if the Company determines to sell Portfolio Assets to fund a Share Repurchase, the Company may not be able to meet future repurchase requests, take advantage of new acquisition opportunities or realize the return on such Portfolio Assets that the Company may have been able to achieve had it sold at a more favorable time, and the Company’s results of operations and financial condition could be materially adversely affected.

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The Company may require a Shareholder to have their Shares repurchased at any time in the Company’s sole discretion.

The Company may require a Shareholder to surrender and have all or any portion of its Shares repurchased at any time if the Company determines that it would be in its interest, in consultation with the Operating Manager, for the Company to repurchase the Shares or for certain other reasons enumerated in the LLC Agreement. To the extent that the Company requires the mandatory repurchase of any Shares of any Shareholder, such repurchase will not be subject to the repurchase limits on quarterly Share Repurchases, unless otherwise determined by the Company in its sole discretion.

The amount of any distributions the Company may pay is uncertain. The Company may not be able to sustain the payment of distributions.

Distributions to Shareholders will be made only if, as and when declared by the Board. Shareholders may or may not receive distributions. In addition, some of the Company’s distributions may include a return of capital. The Company cannot make assurances as to when or whether cash distributions will be made to Shareholders, the amount of any such distribution or the availability of cash for any such distribution, since the ability to make distributions will be dependent upon the cash flow, financial condition and other factors relating to the Portfolio Assets. Such factors include the ability to generate sufficient cash from operations to pay expenses, service debt and to satisfy other liabilities as they come due. Furthermore, the Operating Manager, in its sole discretion, may use or set aside cash for working capital purposes, or for the funding of present or future reserves for contingent liabilities, taxes, acquisition activities, or actual or anticipated Management Fees. If the Operating Manager determines that all or any portion of net capital event proceeds are not necessary for ongoing expenses (including debt payments and fees), anticipated acquisitions, capital expenditures and reserves, such amounts may be used to satisfy repurchase requests at the Board’s discretion in consultation with the Operating Manager. Accordingly, the payment of cash distributions is subject to the discretion of the Board, based on information provided by the Operating Manager.

The Operating Manager has the right to reinvest certain proceeds realized from Portfolio Assets by the Company. For all such purposes, proceeds realized by the Company will include amounts deemed distributed, but not actually distributed, to a Shareholder in respect of taxes (whether withheld from distributions to the Company or otherwise attributable to a Shareholder). Subject to oversight by the Board, the Operating Manager may elect to reinvest all such proceeds otherwise available for distribution to Shareholders.

There could be circumstances under which the Operating Manager elects to withhold distributions to, among other reasons, pay obligations such as indebtedness of the Company, or of any subsidiary or assets thereof, which could result in such amounts, and the retention and reuse thereof, not being subject to the terms and limitations of the LLC Agreement.

Neither the Operating Manager nor any of its affiliates is obligated to support or guarantee any level of distributions. In addition, because the Operating Manager does not charge a Management Fee on, and the Operating Manager does not receive a Performance Fee for, the E Shares, the per Share amount of distributions on the E Shares could be higher compared to the Shares.

The Company is subject to substantial fees and expenses, which could impact Shareholder returns.

The Company pays the Management Fee, Organizational and Offering Expenses and Operating Expenses whether or not it makes any profits, as set forth in the Operating Agreement and the LLC Agreement. If PIMCO pays such expenses on behalf of the Company or related to any Portfolio Assets, PIMCO will seek and obtain reimbursement from the Company or through such Portfolio Assets and, to the extent PIMCO incurred a cost of capital for the time period between payment of the expense and reimbursement by the Company or through such Portfolio Asset, PIMCO has the authority to include such amount in the amount reimbursed from the Company or through such

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Portfolio Assets (with PIMCO determining in its discretion whether to include (i) the calculation of the aggregate amount of the cost of capital and (ii) such amount as part of the reimbursement). This includes amounts payable to or in respect of any PIMCO personnel or engagement of consultants, operating partners, operating executives or similar persons. No such amounts will constitute Special Fees and, therefore, such amounts will not reduce Management Fees paid by the Company. It is difficult to predict the future expenses of the Company. Such expenses will be substantial, and neither the Company’s expenses nor its fees (other than the amount of Organizational and Offering Expenses that may be ultimately borne by the Company) is subject to any cap.

Payment by the Company of the Management Fee or Performance Fee in Shares will dilute a Shareholder’s interest in the Company.

At the Operating Manager’s election, the Company may pay the Operating Manager all or a portion of its Management Fees in the E Shares in lieu of paying the Operating Manager an equivalent amount of such Management Fee in cash, which will dilute the interests of Shares issued by the Company. In addition, the Company may pay PIMCO all or a portion of its Performance Fee in the E Shares in lieu of paying PIMCO an equivalent amount of such Performance Fee in cash, which will similarly dilute the interests of Shares issued by the Company.

The Company is responsible for the costs of its personnel and employees and for the costs of certain of the Operating Manager’s employees when used for the Company’s benefit.

PIMCO has in-house accounting, legal, compliance, tax, administrative, management, operational, finance, risk, reporting, technology, investor servicing and other types of personnel or employees that provide support to PIMCO Clients (including the Company and its Portfolio Assets) and their respective subsidiaries and potential and existing platforms on an ongoing basis. These employees assist with, among other things, the legal, compliance, tax, administrative, operational, finance, risk, reporting, technology, investor servicing and other functions of the Operating Manager, their affiliates and PIMCO Clients (including the formation of, and capital raising for, PIMCO Clients) and their respective acquisition, due diligence, holding, maintenance, financing, restructuring and disposition of investments, including, without limitation, mergers and acquisitions, financing and accounting, legal, tax and operational support and risk, litigation and regulatory management and compliance. The performance of such functions by PIMCO employees could be in addition to or as an alternative to the outsourcing of any such services to third party Service Providers at market rates, including entities and persons regularly used by PIMCO and its affiliates, PIMCO Clients and their respective potential and existing platforms.

All fees, costs and expenses incurred by PIMCO (including allocable compensation (such as salary, bonus and payroll taxes) and benefits (such as health insurance and compensation for vacation time and sick time) of such personnel or employees and other related overhead otherwise payable by PIMCO in connection with their employment, such as rent, property taxes and utilities allocable to workspaces) in connection with services performed by personnel or employees of the Operating Manager or their affiliates that constitute services for or in respect of the Company, its subsidiaries and its existing and potential Portfolio Assets, are allocable to and borne by the Company. Without prejudice to the above, in relation to the Operating Manager, the overhead allocation could also specifically include fees, costs and/or expenses relating to services connected to the valuation function, the risk management function and the finance function (as well as the supervision and oversight of the central administration function). Such allocations to the Company will be based on any of the following methodologies (or any combination thereof), among others: (i) requiring personnel to periodically allocate their historical time spent with respect to the Company, other PIMCO Clients or the Operating Manager, approximating the proportion of certain personnel’s time spent with respect to the Company (which is anticipated to be tracked on a regular, but not necessarily weekly or biweekly or similar basis), and, in each case, either allocating their compensation and allocable overhead based on such approximations of time spent, or charging such approximations of time spent at market rates, (ii) the assessment of an overall dollar amount (based on a fixed fee or percentage of AUM) that the Operating Manager determines in good faith represents a fair recoupment of expenses and a market rate for such services or (iii) any other methodology determined by the Operating Manager in good faith to be appropriate and practicable under the circumstances. Such methodologies take into account an employee’s aggregate compensation without any deduction for compensation allocable to vacation time, sick time, weekend time, break time, overnight hours, time spent in training or other administrative tasks or any other hours during a year when an employee is not working on PIMCO or PIMCO Client matters. This means, for example, that allocable compensation and benefits attributable to an employee that is on vacation for one week out of a month will still be based on the full amount of compensation paid to the employee for such month, without any deduction for the vacation week.

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The methodology described above utilized for one personnel group could be different from the methodology utilized by another personnel group, and different methodologies may be utilized, including within a single personnel group, at different times or in determining different types of allocations (such as allocations among PIMCO Clients, on the one hand, and allocations as between PIMCO Clients and PIMCO affiliates, on the other hand). Determining such charges based on approximate allocations, rather than time recorded on an hourly or similar basis (which will not be undertaken), could result in the Company being charged a different amount (including relative to another PIMCO Client), which could be higher or lower, than would be the case under a different methodology. Any methodology (including the choice thereof), as well as the application of any approximations it entails, involves inherent conflicts between the interests of the Company, on the one hand, and any other PIMCO Client or PIMCO affiliate to which all or a portion of the relevant personnel’s time would otherwise be charged, on the other hand, and could result in incurrence of greater expenses by the Company and its subsidiaries and potential and existing Portfolio Assets than would be the case if such services were provided by third parties at market rates. Further, there could be PIMCO Clients whose governing documents restrict or preclude the allocation of any of the foregoing amounts to such PIMCO Clients, in which case such PIMCO Clients could bear a lesser amount of such expenses relative to the Company or any other PIMCO Client or not bear any such expenses at all.

Valuations of the Company’s assets are estimates of fair value and may not necessarily correspond to realizable value.

Within the parameters of the Company’s valuation policies and procedures, the valuation methodologies used to value the Company’s instruments involve subjective judgments and projections and that ultimately may not materialize. Ultimate realization of the value of an instrument depends to a great extent on economic, market and other conditions beyond the Company’s control and the control of the Operating Manager. Rapidly changing market conditions or material events may not be immediately reflected in the Company’s NAV.

Among the Company’s important features are the provisions relating to the purchase and repurchase of Shares. The valuation of Shares upon purchase (including any reinvestment of cash distributions in additional Shares), the amount payable to investors upon repurchase and certain other valuations are generally based upon the Company’s NAV per Share as of the last calendar day of the immediately preceding calendar quarter. The Company relies on the Operating Manager and its affiliates for valuation of the Company’s assets and liabilities.

The values of the Company’s assets are established in accordance with the Company’s valuation policies and procedures approved by the Board. The valuation policies and procedures can be modified by the Board. The Company primarily holds and will continue to primarily hold Portfolio Assets and other assets that do not have readily assessable market values. The Operating Manager determines the estimated values of the Company’s Portfolio Assets and the Company uses the estimated values provided as well as inputs from other sources in computing the Company’s monthly NAV per Share.

The monthly valuations performed by the Operating Manager may vary from similar valuations performed by any independent third parties for similar types of assets. The valuation of illiquid assets is inherently subjective and subject to increased risk that the information utilized to value such assets or to create the pricing models may be inaccurate or subject to other error. In addition, valuations rely on a variety of assumptions, including assumptions about projected cash flows for the remaining holding periods for the assets, market conditions at the time of such valuations and/or any anticipated disposition of the assets, legal and contractual restrictions on transfers that may limit liquidity, and any transaction costs related to, and the timing and manner of, any anticipated disposition of the assets, all of which may materially differ from the assumptions and circumstances on which the valuations are based. The value of the Company’s assets may also be affected by any changes in tax rates, accounting standards, policies or practices as well as general economic, political, regulatory and market conditions, global equity market conditions, changes in credit markets and interest rates, foreign exchange rates, commodity prices, natural or man-made disasters or catastrophes and the actual operations of the Portfolio Assets, which are not predictable and can have a material impact on the reliability and accuracy of such valuations. Shareholders that redeem will not benefit from any such changes after their redemption, and conversely, Shareholders that do not redeem may be burdened by the impact of any such changes, including with respect to the impact of any such changes on the portion of any asset attributable to

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redeemed Shareholders. As such, the carrying value of an asset may not reflect the price at which the asset could be sold in the market, since market prices of assets can only be determined by negotiation between a willing buyer and seller, and the difference between carrying value and the ultimate sales price could be material. Further, any volatility smoothing biases in the Company’s valuation process, generally, may lower the volatility of the Company’s NAV and cause the Company’s NAV to not accurately reflect the actual value of Portfolio Assets. Accordingly, such values may not accurately reflect the actual market values of the assets, and, thus, Shareholders will likely make decisions as to whether to purchase Shares or submit Shares for repurchase without complete and accurate valuation information.

Determining the impact of these factors on the valuation of Portfolio Assets involves a significant degree of judgment. Because valuations, and in particular valuations of assets for which market quotations are not readily available, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, the Operating Manager’s fair value determinations may differ materially from the values that would have resulted if a ready market had existed.

During periods of market uncertainty and volatility, accurate valuations may be even more difficult to obtain. This is particularly true during periods of low transaction volume because there are fewer market transactions that can be considered in the context of a valuation. Changes in credit markets can also impact valuations and may have offsetting results when using discounted cash flow analysis for Portfolio Assets that do not have readily observable market prices. For example, if applicable interest rates rise, then the assumed cost of capital would be expected to increase under the discounted cash flow analysis, and this effect would negatively impact their valuations if not offset by other factors. Rising U.S. interest rates may also negatively impact certain foreign currencies that depend on foreign capital flows.

In addition, Shareholders would be adversely affected by higher Management Fees and by higher Performance Fees if the Company’s NAV is overstated. Due to a wide variety of market factors and the nature of certain instruments to be held by the Company, there is no guarantee that the value determined by the Company will represent the value that will be realized by the Company on a realization of the instruments or that would, in fact, be realized upon an immediate disposition of the instruments.

The Operating Manager may benefit by the Company retaining ownership of the Company’s instruments at times when the Shareholders may be better served by the sale or disposition of the Company’s instruments in order to avoid a reduction in the Company’s NAV. If the Company’s NAV is calculated in a way that is not reflective of its actual NAV, then the purchase price of the Shares or the price paid for the repurchase of the Shares on a given date may not accurately reflect the value of the Company’s holdings, and Shares may be worth less than the purchase price or more than the repurchase price.

Further, in connection with each subscription or repurchase of Shares, a Shareholder will receive a number of Shares or cash, respectively, at a price that reflects the Company’s most recently calculated NAV (which generally will be the Company’s NAV as determined as of the last calendar day of the immediately preceding (i) calendar month for subscriptions and (ii) calendar quarter for repurchases). There is no requirement, and it is not anticipated, that a new valuation will be made in connection with any such purchase and related issuance of Shares and, as a result, the price paid for Shares may not accurately reflect the current NAV at the time of issuance.

Any discrepancy between the NAV of the Company used in connection with the repurchase or issuance and the actual NAV of the Company as of the date of such repurchase or issuance may have an adverse effect on the Shareholder from whom Shares are repurchased, the Shareholder to whom Shares are issued or the Company as a whole, as applicable. Any such discrepancy may also lead the Company to dispose of more instruments than necessary, and potentially at less advantageous prices. By way of example, in the event the Company were to liquidate instruments in order to satisfy repurchase requests based on a determination of NAV of the Company used in connection with the repurchase that in retrospect turns out to be higher than the actual NAV of the Company as of the repurchase date, a Shareholder requesting the repurchase of a certain percentage of its Shares may receive a greater amount of repurchase proceeds than the repurchase proceeds it should have received in respect of such repurchase, thereby adversely affecting remaining Shareholders and the ability of the Company to employ the excess amounts paid out for the instruments of the Company or other cash needs. If the Company were to borrow amounts to satisfy such repurchase request, the amounts borrowed might be higher than the amounts the Company would have borrowed had the correct or lower NAV been used to calculate repurchase proceeds, and such higher borrowing may have an adverse effect on the remaining Shareholders. In addition, if a new purchase of Shares by a new Shareholder is made based on such erroneously high or temporarily elevated NAV, the number of Shares issued to such new Shareholder will be lower than the number of Shares it should have received.

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Monthly NAV calculations are not governed by governmental or independent securities, financial or accounting rules or standards.

The methods the Company uses to calculate its monthly NAV, which is the basis for the offering price for the Shares, the investment value published in customer account statements for the Shareholders, and amounts paid to Shareholders under the Repurchase Plan, are not prescribed by the rules of the SEC or any other regulatory agency. Further, there are no accounting rules or standards that prescribe which components should be used in calculating monthly NAV, and, while the Company may consult with its auditors or other independent valuation agents when valuing certain of its Portfolio Assets or other, the Company’s monthly NAV is not audited by its independent registered public accounting firm. The components and methodology used in calculating the Company’s monthly NAV may differ from those used by other companies now or in the future. The Company’s monthly NAV should not be viewed as a measure of the Company’s historical or future financial condition or performance. Errors may occur in calculating the Company’s monthly NAV, which could impact the price at which the Company sells and repurchases its Shares. The Company and the Operating Manager cannot provide assurance that it will be able to choose, make or realize returns in any particular Portfolio Assets. There can be no assurance that the Company will be able to generate returns for the Shareholders or that the returns will be commensurate with the risks of owning the type of Portfolio Assets described herein. There can be no assurance that any Shareholder will receive any distribution from the Company or liquid assets with respect to the repurchase of its Shares. Accordingly, a purchase of the Company’s Shares should only be considered by persons who can afford a loss of their entire investment.

Shareholders do not have control or influence over Company policies, operations or acquisitions or the decision to conduct Share repurchases or the selection of Service Providers. Further, under certain circumstances, the Company may amend the LLC Agreement without Shareholder approval and Shareholders are not entitled to vote for the election of directors.

Shareholders are not able to make decisions about acquisitions or any other decisions concerning the management of the Company. The management, financing and disposition policies of the Company are determined by the Board and implemented with the assistance of the Operating Manager and the Board. These policies may be changed from time to time at the discretion of the Board without a vote of the Shareholders, although the Board has no present intention to make any such changes. Any such changes could be detrimental to the value of the Company. Shareholders have no right to participate in the day-to-day operation of the Company, including, acquisition and disposition decisions and decisions regarding the selection of Service Providers (including Affiliated Service Providers) and the operation and financing of its acquisitions. The Shareholders also have no opportunity to evaluate any economic, financial or other information that is utilized by the Operating Manager in the performance of its obligations under the Operating Agreement, nor will Shareholders receive all financial information with respect to any acquisition that is available to the Company or the Operating Manager. Shareholders do not have an opportunity to evaluate for themselves or to approve any Portfolio Assets. Shareholders therefore rely on the ability of the Operating Manager to select Portfolio Assets to be acquired by the Company. Finally, as further discussed in “—Potential Conflicts of Interest; Other Activities of the Operating Manager,” the Board, with the assistance of the Operating Manager, will select the Service Providers (which include Affiliated Service Providers) and determine the compensation of such providers without the review by or consent or approval of the Shareholders or any other independent party, except as may otherwise be provided in the LLC Agreement. The Shareholders must therefore rely on the ability of the Board and the Company’s officers, with the assistance of the Operating Manager, to select and compensate Service Providers in a manner beneficial to the Company and to make and manage acquisitions and dispose of such acquisitions. The success of the Company depends on the ability of the Company’s management, with the assistance of the Operating Manager, to identify suitable acquisitions, to negotiate and arrange the closing of appropriate transactions and to arrange the timely disposition of acquisitions. The Operating Manager may be unable to find a sufficient number of suitable attractive opportunities to meet the Company’s businesses strategy. No person should purchase a Share unless such person is willing to entrust all aspects of the management of the Company to the Board and the Operating Manager.

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The Board may cause the Company to repurchase Shares from time to time or assign this right to PIMCO or its affiliates. The Board may use its own discretion, free of fiduciary duty restrictions, in determining whether to cause the Company to exercise this right. As a result, Shareholders may have their Shares repurchased at an undesirable time or price. For additional information, see the LLC Agreement which has been filed with the SEC.

Further, the LLC Agreement can be amended from time to time generally by the Board with the consent of the Members holding a majority of the V Shares, which are currently and are expected going forward to be held solely by PIMCO GP LXXXII, LLC and/or its affiliates, and without the consent of the Shareholders as set forth in the LLC Agreement. The LLC Agreement sets forth certain other procedures for its amendment, including provisions allowing the amendment of the LLC Agreement without the consent of the Shareholders in certain circumstances. In addition, lenders to the Company will, under the terms of financing arrangements put in place with them, require the Company to seek lender approval of certain amendments to the LLC Agreement prior to the Board adopting any such amendment. The Company will file a Form 8-K with the SEC disclosing any amendments made to its LLC Agreement.

The Shares do not have voting power, which is instead vested exclusively in the Members. PIMCO GP LXXXII, LLC and/or its affiliates own and are expected to continue to own all of the Company’s outstanding V Shares and have the sole ability to elect directors of the Company. Shareholders have no opportunity to control either larger strategic goals or the day-to-day operations, including acquisition and disposition decisions, of the Company. Shareholders must rely entirely on the Board, the Operating Manager, PIMCO and their affiliates to conduct and manage the affairs of the Company and its Portfolio Assets (including the Asset-Backed Instruments).

Prospective Shareholders will not know the NAV per Share of their investment until after the investment has been accepted.

Prospective Shareholders will not know the NAV per Share of their investment until after their subscription has been accepted. Prospective Shareholders will be required to subscribe for a dollar amount, and the number of Shares that such Shareholder receives will subsequently be determined based on our NAV per Share as of the end of the month immediately before such prospective Shareholder’s subscription is accepted by the Company (e.g., a subscription for Shares accepted by the Company on September 1 of a calendar year will be based upon the Company’s NAV as of August 31 of that year, which NAV will generally not be available until after September 1 of that year). Prospective Shareholders will learn of such NAV and the corresponding number of Shares represented by their subscription after the Company publishes the NAV per Share.

If the Company’s series limited liability company structure is not respected, then Shareholders may have to share any liabilities of the Company and the other Series with all Shareholders and not just those who hold Shares of the same Series as them.

The Company is structured as a Delaware limited liability company that issues separate types of Shares for each Series. Each Series is a separate series under Delaware law and not a separate legal entity. Under the LLC Act, if certain conditions (as set forth in Sections 18-215(b) or 18-218(c) of the LLC Act, depending on whether such series is established as a “protected series” under Section 18-215(b) of the LLC Act or a “registered Series” under Section 18-218 of the LLC Act) are met, the debts, liabilities, obligations and expenses of one Series are segregated from the debts, liabilities, obligations and expenses of the other Series and the assets of one Series are not available to satisfy the debts, liabilities, obligations or expenses of the other Series. Although this limitation of liability is recognized by Delaware, there is no guarantee that if challenged in the courts of another U.S. state or a foreign jurisdiction or in a U.S. federal court, such courts will uphold this statutory segregation of liabilities. If the Company’s series limited liability company structure is not respected, then the assets of a Series may be subject to the liabilities of another Series, of the Company, generally, and not just of that particular Series. Furthermore, while the Company intends to maintain separate and distinct records for each Series and account for them separately and otherwise meet the requirements of the LLC Act, it is possible a court could conclude that the methods used did not satisfy Section 18-215(b) or Section 18-218(c) of the LLC Act, as applicable, and thus potentially expose the assets of a Series to the liabilities of another Series or of the Company generally. The consequence of this is that Shareholders may have to bear higher than anticipated expenses which would adversely affect the value of their Shares of the applicable Series or the likelihood of any distributions being made by a particular Series to its Shareholders, and the Series could be treated as a single entity for U.S. federal tax purposes with different consequences to Shareholders. The state tax treatment of a series limited liability company depends on the laws of each state, and it is possible that a particular

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state may treat Series I and Series II as a single entity for state tax purposes or may treat Series I or Series II as separate entities but classified differently than the IRS does for U.S. federal income tax purposes. In addition, the Company is not aware of any court case that has tested the limitations on inter-series liability provided by Section 18-215(b) or Section 18-218 of the LLC Act in federal bankruptcy courts and it is possible that a bankruptcy court could determine that the assets of one Series should be applied to meet the liabilities of the other Series or the liabilities of the Company generally where the assets of such other Series or of the Company generally are insufficient to meet its liabilities.

While the Company believes neither Series nor the Company is or will be an investment company under the Investment Company Act, the Company cannot guarantee it will always be able to maintain its intended status under the Investment Company Act.

The Company seeks to conduct its operations directly and through wholly or majority-owned subsidiaries in a manner such that the Company and each of its Series do not fall within, or are excluded from, the definition of an “investment company” under the Investment Company Act.

The Investment Company Act contains two relevant definitions for the term “investment company.” Under Section 3(a)(1)(A) of the Investment Company Act, a company is deemed to be an “investment company” if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities. The Company refers to this as the “Subjective Test.” Under Section 3(a)(1)(C) of the Investment Company Act, a company is deemed to be an “investment company” if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities, and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis. The Company refers to this as the “Objective Test.” Excluded from the term “investment securities,” as that term is used under the Objective Test, are U.S. Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of “investment company” set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

The Company does not believe either Series or the Company is or will become an “investment company” under either definition. The Company does not engage primarily or hold itself out as proposing to become engaged primarily in the business of investing, reinvesting, or trading in securities. Each Series is a holding company that will primarily engage in the business of their jointly held subsidiaries that are primarily engaged in non-investment company businesses.

The Company believes neither Series nor the Company is an investment company under the Objective Test because more than 60% of the value of each Series’ assets, exclusive of cash and government securities, will be assets that are not “investment securities,” as that term is defined and used under the Investment Company Act. The Company expects most of its wholly owned and majority-owned subsidiaries to primarily be outside the definitions of “investment company” found under the Subjective Test and the Objective Test, or as further explained below, to rely on an exception from the definition of “investment company” other than the exceptions under Section 3(c)(1) and Section 3(c)(7) of the Investment Company Act. Consequently, the Series’ interests in these subsidiaries (which are expected to constitute most of the Company’s assets collectively) generally will not constitute “investment securities.” Accordingly, the Company believes it is not and will continue to not be considered an investment company under the Objective Test.

Some of the Company’s majority-owned subsidiaries rely on the exceptions from the definition of investment company under Section 3(c)(5)(A) or (B) of the Investment Company Act, which except from the definition of investment company, respectively, (i) any person who is primarily engaged in the business of purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable and other obligations representing part or all of the sales price of merchandise, insurance and services; or (ii) any person that is primarily engaged in the business of making loans to manufacturers, wholesalers and retailers of, and to prospective purchasers of, specified merchandise, insurance and services. The SEC staff has issued no-action letters interpreting Section 3(c)(5)(A) and (B) pursuant to which it has taken the position that these exceptions are available to a company with at least 55% of its assets consisting of eligible loans and receivables of the type specified in Section 3(c)(5)(A) and (B). The SEC staff has indicated that the single most important factor in determining whether an issuer may rely on Section 3(c)(5)(A) and/or Section 3(c)(5)(B) is the strength of the connection between the obligations held by the issuer and the specific merchandise,

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insurance, services purchased and sold. In that connection, the SEC staff has taken the position that loans and receivables for the sale of a broad array of merchandise, insurance and services are within the scope of Section 3(c)(5)(A) and/or (B), including (i) loans and notes evidencing loans to project companies or managing members of project companies for generating, transmitting, and distributing energy and related services, (ii) loans to finance the purchase of electric generating transmission, and distribution facilities, equipment, and machinery, (iii) loans to finance public works projects, and (iv) student loans to finance the purchase of education services. Notably, the SEC staff has refused to grant no-action relief when a company’s loans have not related to the sale of specific merchandise, insurance or services. For example, the staff has refused to grant no-action relief to entities holding general commercial loans. In recognition of the fact that eligible loans or notes evidencing loans under Section 3(c)(5)(A) and/or (B) must be used for purchasing specific merchandise or services, the Company’s subsidiaries that intend to rely on Section 3(c)(5)(A) and/or (B) will (i) not issue redeemable securities and (ii) will be primarily engaged in a business of the type specified in the Section. Accordingly, the Company expects that at least 55% of the assets of such Company subsidiaries will consist of loans and notes evidencing loans in which the use of proceeds is specifically tied to the financing of, among other things, consumer products and hard assets. However, no assurance can be given that the SEC or the SEC staff will concur with this position. In addition, the SEC or the SEC staff may, in the future, issue further guidance that may require the Company to reclassify its assets for purposes of qualifying with this exclusion. A change in the value of the Company’s assets could cause it or one or more of the Company’s wholly or majority-owned subsidiaries, including those relying on Section 3(c)(5)(A) or (B), to fall within the definition of “investment company,” and negatively affect the Company’s ability to not fall within the definition of “investment company” under the Investment Company Act.

Certain of the Company’s subsidiaries rely on the exception from the definition of investment company under Section 3(c)(5)(C) of the Investment Company Act, which excepts from the definition of investment company any entity primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. The SEC staff has taken the position that this exception, in addition to prohibiting the issuance of certain types of securities, generally requires that at least 55% of an entity’s assets must be comprised of mortgages and other liens on and interests in real estate, also known as “qualifying assets,” and at least another 25% of the entity’s assets must be comprised of additional qualifying assets or a broader category of assets that the Company refers to as “real estate-related assets” under the Investment Company Act (and no more than 20% of the entity’s assets may be comprised of miscellaneous assets). “Qualifying assets” for this purpose include senior loans, certain B-Notes and certain mezzanine loans that satisfy various conditions as set forth in SEC staff no-action letters and other guidance, and other assets that the SEC staff in various no-action letters and other guidance has determined are the functional equivalent of senior loans for the purposes of the Investment Company Act. The Company treats as real estate-related assets B-Notes and mezzanine loans that do not satisfy the conditions set forth in the relevant SEC staff no-action letters and other guidance, and debt and equity securities of companies primarily engaged in real estate businesses. Unless a relevant SEC staff no-action letter or other guidance applies, the Company expects to treat preferred equity interests as real estate-related assets. These no-action positions are based on specific factual situations that may be substantially different from the factual situations the Company and its subsidiaries may face, and a number of these no-action positions were issued more than twenty years ago. There may be no guidance from the SEC staff that applies directly to the Company’s factual situations and as a result the Company may have to apply SEC staff guidance that relates to other factual situations by analogy. No assurance can be given that the SEC or its staff will concur with the Company’s classification of its assets. In addition, the SEC or its staff may, in the future, issue further guidance that may require the Company to re-classify its assets for purposes of the Investment Company Act, including for purposes of the Company’s subsidiaries’ compliance with the exclusion provided in Section 3(c)(5)(C) of the Investment Company Act.

Certain of the Company’s subsidiaries may rely on the exception from the definition of investment company under Section 3(c)(3) of the Investment Company Act, which excepts from the definition of investment company any domestic entity regulated as an insurance company. Certain other of the Company’s subsidiaries may rely on the exception under Rule 3a-6 under the Investment Company Act for any company organized and regulated as a foreign insurance company which is engaged primarily and predominantly in the reinsurance of risks on insurance agreements. With respect to foreign insurance companies, the law in this area is subjective and there is a lack of guidance as to the meaning of “primarily and predominantly” under the relevant exception to the Investment Company Act. For example, there is no standard for the amount of premiums that need to be written relative to the level of a company’s capital in order to qualify for the exception. There is no guarantee that the Company will be able to ensure that any foreign insurance or reinsurance subsidiaries maintain an exclusion from registration under the Investment Company Act and any adjustment in the Company’s strategy or assets could have a material adverse effect on the Company.

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Although the Company expects to operate in a manner such that it does not meet the definition of an investment company under Section 3(a)(1), the Company may also seek to rely on Section 3(c)(6) of the Investment Company Act, which excepts from the definition of investment company any holding company primarily engaged, directly or through majority-owned subsidiaries, in one or more businesses described in Sections 3(c)(3), 3(c)(4), and 3(c)(5) (from which not less than 25% of the holding company’s gross income during its last fiscal year was derived) together with an additional business or businesses other than investing, reinvesting, owning, holding, or trading in securities. The SEC has indicated that Section 3(c)(6) requires a company to hold at least 55% of its assets in, and derive 55% of its income from, subsidiaries engaged in businesses described in Sections 3(c)(3), 3(c)(4), and 3(c)(5). The staff of the SEC has issued little additional interpretive guidance with respect to Section 3(c)(6). To the extent that the Company sought to rely on Section 3(c)(6) as opposed to Section 3(a)(1), the Company would monitor the assets and income of its subsidiaries that rely on Sections 3(c)(5)(A), 3(c)(5)(B), or 3(c)(5)(C) to determine compliance with the Section 3(c)(6) exclusion. In order to rely on Section 3(c)(6), the Company would need to ensure that it was primarily engaged in businesses described in Sections 3(c)(3), 3(c)(4), and 3(c)(5), which would potentially limit the ability of the Company to pursue other business opportunities that fall outside of Sections 3(c)(3), 3(c)(4), and 3(c)(5) of the Investment Company Act.

Notwithstanding the Company’s intentions and expected efforts, there can be no assurance that each Series and the Company will avoid being deemed an investment company under the Investment Company Act.

The Company may take actions or forgo potential opportunities to ensure that it is not deemed an investment company and there is no guarantee that the Company will be able to adjust its assets in the manner required to maintain an exclusion from registration under the Investment Company Act and any adjustment in the Company’s strategy or assets could have a material adverse effect on the Company.

As stated above, the Company seeks to continue to conduct its operations so that neither Series nor the Company would fall within the definition of an investment company under the Investment Company Act. When determining whether to acquire any additional assets, the Company analyzes both (i) the status of the potential asset under the Investment Company Act and (ii) the potential effect of such asset on the status of the Company, Series I and Series II. Additionally, the Company analyzes the Investment Company Act status of its wholly owned and majority-owned subsidiaries on an ongoing basis to make sure that the Company satisfies the Objective Test.

To ensure that neither Series nor the Company is deemed to be an investment company, the Company may be required to materially restrict or limit the scope of its operations or plans. A change in the value of the Company’s assets could cause either Series to fall within the definition of “investment company” inadvertently, and negatively affect the Company’s ability to avoid being defined as an investment company under the Investment Company Act. As described above, in such a situation the Company would seek to rely on the exception from the definition of investment company set out in Section 3(c)(6) of the Investment Company Act.

To avoid being deemed an investment company under the Investment Company Act, the Company may be unable to sell assets it would otherwise want to sell, or the Company may need to sell assets it would otherwise wish to retain. In addition, the Company may have to forgo opportunities to acquire interests in companies that it would otherwise want to acquire and that would otherwise be additive to the Company’s business strategy (particularly if the Company were to rely on Section 3(c)(6) of the Investment Company Act).

If either Series or the Company became defined as an investment company that is required to register but failed to do so, such Series would be prohibited from engaging in any business, and criminal and civil actions could be brought against that Series or the Company.

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The Company may have control positions in certain portfolio companies, which may expose the Company to additional liabilities and other legal risks and burdens.

The Company may have controlling interests in certain companies (including any Platform Companies) (because of its equity ownership, representation on the board of directors and/or contractual rights), either on its own or, in certain cases, with another financial partner or vehicle. The exercise of control over a company may impose additional risks of liability for environmental damage, product defects, failure to supervise management, pension and other fringe benefits, violation of governmental regulations (including securities laws, anticorruption laws, anti-money laundering, and economic sanctions) or other types of related liability in which the limited liability characteristics of the Company may be ignored, particularly when the such company operates in a regulated industry. If these liabilities were to arise, the Company might suffer a significant loss. In addition, it is possible that employees of the Operating Manager will serve as directors of certain of such companies, including public companies, and as such, will have duties to persons other than the Company.

To the extent that the Company owns a controlling stake in or is deemed to be an affiliate of a particular company, it may also be subject to certain additional bankruptcy or securities law risks and restrictions that could affect the liquidity of the Company’s interest, the Company’s potential liability and the Company’s ability to liquidate its interest without materially and adversely impacting the price thereof, including control person liability under applicable securities laws, insider trading restrictions, the affiliate sale restrictions of Rule 144 of the Securities Act and the disclosure requirements of Sections 13 and 16 of the Exchange Act. Further, to the extent that affiliates of the Company or the Operating Manager are subject to such restrictions, the Company, by virtue of its affiliation with such entities, may be similarly restricted, regardless of whether the Company stands to benefit from such affiliate’s ownership.

If the Company, alone, in some cases together with other PIMCO Clients or as part of a group acting together for certain purposes, becomes the beneficial owner of more than 10% of a registered class of equity securities of a U.S. public company, or an employee of PIMCO or its affiliates serves on the board of directors of such a company or otherwise seeks to or has the effect of controlling the company, the Company likely would be subject to certain additional reporting requirements under Sections 13 and 16 of the Exchange Act and to liability for short-swing profits under Section 16 of the Exchange Act, which may have the effect of limiting liquidity of the Company’s interest and/or preventing the Company from acquiring additional securities. Furthermore, the Company may also be subject to similar reporting requirements and other limitations in non-U.S. jurisdictions where it holds significant positions in companies in such jurisdictions.

The exercise of control over a company, depending upon the amount and type of securities owned by the Company, contractual arrangements between the company and the Company, employees of the Company and or the Operating Manager or its affiliates serving as directors or officers of a company, and other relevant factual circumstances, could result in bankruptcy law risks, including an extension to one year of the general 90-day bankruptcy preference period with respect to payments made to the Company. See “—The Company’s instruments are subject to fraudulent conveyance and preference considerations and thus involve heightened risk of loss” below. The exercise of control over a company and other relevant factual circumstances may also provide grounds for challenges to the priority and enforceability of Portfolio Assets or other claims the Company may have against the company, including under doctrines of debt recharacterization and equitable subordination, if the company is subject to a bankruptcy case or other insolvency proceeding. See “—The Company may be subject to claims under lender liability, equitable subordination and debt recharacterization theories” below.

Risks Related to Owning and Managing a Platform of Underlying Asset-Backed Instruments

The Company faces heightened risks relating to owning and managing Asset-Backed Instruments.

All acquisitions involve risks, including the risk that the entire amount deployed may be lost. No guarantee or representation is made that the Company’s objectives will be achieved. The Company is subject to the risks involved with indirectly owning and managing asset-based finance instruments-related assets. See “—Risks Related to Owning and Managing a Platform of Underlying Asset-Backed Instruments.” In addition, the Company may utilize various techniques, such as leverage and derivatives (including swaps), which can in certain circumstances increase the adverse impact to which the Company’s assets may be subject. See “—The availability of capital is generally a

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function of capital market conditions that are beyond the control of the Company or any Asset-Backed Instrument and this may increase the exposure of such Asset-Backed Instrument to adverse economic factors or unfavorable financing terms, which may subject the Company to risks or adversely affect its business” below. In the event of the insolvency of the issuer of securities directly or indirectly owned by the Company, or a related event such as a bail-in under which creditors of the issuer (including bondholders) are required to accept a write-off of amounts owed, some or all of the amount deployed is likely to be lost.

The Company’s lending platform manages a significant amount of asset-based securities in a range of asset classes that subject them to further risks, including, among others, credit risk, liquidity risk, interest rate and other market risk, operational risk, structural risk, sponsor risk, monoline wrapper risk and other legal risk.

The characteristics of ABS differ from traditional debt securities. Among the major differences are that interest and principal payments are made more frequently, usually monthly, and that the principal may be prepaid at any time because the underlying loans or other assets generally may be prepaid at any time. ABS are not secured by an interest in the related collateral. Credit card receivables, for example, are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer loan laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of ABS backed by automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related ABS. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the ABS may not have a proper security interest in all of the obligations backing such ABS. Therefore, there is a possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. The risk of acquiring ABS is ultimately dependent upon payment of underling loans by the debtor.

The collateral supporting ABS is of shorter maturity than certain other types of loans and is less likely to experience substantial prepayments. ABS are often backed by pools of any variety of assets, including, for example, real property leases, mobile home loans and aircraft leases, which represent the obligations of a number of different parties and use credit enhancement techniques such as letters of credit, guarantees or preference rights. The value of an ABS is affected by changes in the market’s perception of the asset backing the security and the creditworthiness of the servicing agent for the loan pool, the originator of the loans or the financial institution providing any credit enhancement, as well as by the expiration or removal of any credit enhancement.

In addition, exposure to subordinated ABS involve greater credit risk of default than the senior classes of the issue or series. Default risks may be further pronounced in the case of ABS secured by, or evidencing an interest in, a relatively small or less diverse pool of underlying loans. Certain subordinated securities absorb all losses from default before any other class of securities is at risk, particularly if such securities have been issued with little or no credit enhancement equity. Such securities, therefore, possess some of the attributes typically associated with equity holdings.

There may also be no established, liquid secondary market for many of the ABS the Company may purchase. The lack of such an established, liquid secondary market could have an adverse effect on the market value of such ABS and the Company’s ability to sell them. Further, ABS may be subject to certain transfer restrictions that may further restrict liquidity. Finally, the Company may engage in enforcement actions, litigation and settlement discussions that may expose the Company to additional expenses, legal proceedings and restrict its trading activities. There is no assurance that any of these enforcement actions or other activist efforts by the Company will prove successful.

The Company faces heightened risk because its strategy concentrates its assets in Asset-Backed Instruments. Because a significant amount of the Company’s aggregate capital could be invested in a single Asset-Backed Instrument, a loss with respect to such Asset-Backed Instrument could have a significant adverse impact on the Company’s capital.

While diversification is an objective of the Company’s business strategy, there is no assurance as to the degree of diversification that will actually be achieved in the Company’s Portfolio Assets. Because a significant amount of the Company’s aggregate capital may be invested in a single Asset-Backed Instrument

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(and also a significant amount in connection with a financing transaction (including loan guarantees) intended to be repaid within 12 months or less entered into between the Company and an Asset-Backed Instrument on an interim basis pending the expected refinancing, satisfaction or sale of such financing to another person or entity in connection with, or in order to facilitate, the consummation of the Company’s acquisition of such Asset-Backed Instrument or with cost overruns) a loss with respect to such Asset-Backed Instrument could have a significant adverse impact on the Company’s capital. To the extent that the Company acquires more than one Asset-Backed Instrument partnering with a single operational management team or other acquisition of an Asset-Backed Instrument consisting of multiple assets or operating businesses, a series of related transactions, Joint Ventures or similar arrangements in one or more Asset-Backed Instruments which is both (i) designated as a Programmatic Acquisition for purposes of the LLC Agreement by the Operating Manager, either at the time of the applicable acquisition or thereafter in connection with a subsequent acquisition that will comprise part of such Programmatic Acquisition; and (ii) made in connection with a programmatic Joint Venture, platform Joint Venture, series Joint Venture, asset acquisition/build up strategy and/or other operating platform, arrangement, company or business established in connection with developing, sourcing or operating opportunities. For the avoidance of doubt, Programmatic Acquisitions may include: (a) multiple ventures or platforms investing in the same asset-backed finance industry segment, (b) portfolios of Asset-Backed Instruments that are related or in the same asset-backed finance industry segment, (c) multiple ventures or platforms with the same operating or developer partner investing in different asset-backed finance industry segments and (d) portfolios of Asset-Backed Instruments which are part of the same investment strategy, such concentration will be more pronounced.

Because the Operating Manager has developed expertise in certain core industries, the Company’s assets could be concentrated in one or more of such industries. Moreover, the Company’s assets and the acquisitions are and will continue to be concentrated within the asset-backed finance sector. Concentration of acquisitions in an industry, sector, security or geographic region make the Company’s holdings more susceptible to fluctuations in value resulting from adverse economic and business conditions in those industries, sectors, securities or geographic regions. The risk of loss on the Company’s assets is likely to be increased as a result of such concentration. If the Company co-invests with private equity, credit or real asset funds, including other PIMCO Clients, a Shareholder invested in such other vehicle could have exposure to an Asset-Backed Instrument through more than one vehicle. Further, the Operating Manager may determine that there are exceptions to the aforementioned limitations (i) for payments made under, or required by, any non-recourse carve out guarantees, completion guarantees, equity commitment letters, environmental indemnities, hedging guarantees or guarantees made in order to facilitate or finance acquisitions, including in respect of customary key principal, “bad acts” or other performance-related matters, or (ii) in the event the Company has procured the binding commitment of one or more persons, including other PIMCO Clients and/or Co-Investors, to acquire a portion of the Company’s interest.

To the extent there is a downturn affecting a country, region or asset type in which the Company’s holdings are concentrated, this could increase the risk of defaults, reduce the amount of payments the Company receives on its assets and, consequently, could have an adverse impact on the Company’s financial condition and results and its ability to make distributions. It is not reasonable to expect all of the Company’s assets to perform well or even return capital; accordingly, for the Company to achieve above-average returns, at least one or a few of its assets must significantly exceed performance expectations. There are no assurances that such performance returns will be achieved.

The Company will be able to make acquisitions in the most junior levels of an Asset-Backed Instrument’s capital structure and, therefore, relative to other investors in the Asset-Backed Instrument, may be subject to the greatest risk of loss, including, in certain circumstances, as a result of events not related directly to the Asset-Backed Instrument itself. Further, in circumstances where the Operating Manager intends to refinance all or a portion of the capital in a future acquisition, there will be a risk that such refinancing may not be completed, which could lead to increased risk as a result of the Company having an unintended long-term interest as to a portion of the amount invested and/or reduced diversification.

The Company’s holdings could include Asset-Backed Instruments based in, or companies that conduct all or a large portion of their operations in, countries outside North America and Europe, and such countries could have a short history as market economies. Loans to companies or acquisitions of assets or companies in such countries could entail a higher risk than loans to companies or acquisitions of assets or companies with operations or assets wholly or substantially within North America or Europe. Particular risks associated with assets based in, or companies that conduct all or a large portion of their operations in countries outside, North America and Europe include changes in

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exchange control regulations, political and social instability, government expropriation, imposition of unanticipated taxes, illiquid markets and limited information, high transaction costs, limited government supervision of exchanges, brokers and companies, complex or undeveloped insolvency laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.

The Company’s Portfolio Assets may also be impacted by interest rate fluctuations which may be beyond the control of the Company.

General fluctuations in the market prices of securities and interest rates may affect the value of the assets held by the Company. Volatility and instability in the securities markets may also increase the risks inherent in the Company’s assets. The ability of companies, businesses, Asset-Backed Instruments or other assets in which the Company may acquire to refinance debt securities and/or other financial instruments may depend on their ability to sell new securities and/or debt instruments in the high-yield debt or bank financing markets, which may be difficult to access at favorable rates. Interest rate changes may affect the value of a debt instrument indirectly (especially in the case of fixed-rate securities) and directly (especially in the case of instruments whose rates are adjustable). In general, rising interest rates will negatively impact the price of a fixed rate debt instrument and falling interest rates will have a positive effect on price. Adjustable rate instruments also react to interest rate changes in a similar manner although generally to a lesser degree (depending, however, on the characteristics of the reset terms, including the index chosen, frequency of reset and reset caps or floors, among other factors). Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules. The Company may experience increased interest rate risk to the extent it acquires, if at all, lower-rated instruments, debt instruments with longer maturities, debt instruments paying no interest (such as zero coupon debt instruments) or debt instruments paying non-cash interest in the form of other debt instruments.

The Company faces risks by originating loans if then unable to sell, assign or close a transaction for such loan.

The Company’s strategy may include the origination of loans, including secured and unsecured notes, senior and second lien loans, mezzanine loans and other similar instruments. From time to time, the Company may offer participations in and/or assignments or sales of loans (or interests therein) to other PIMCO Clients or sales of loans (or interests therein) to third parties, in either case that the Company has originated or purchased; provided that there is no assurance that the Company will complete the sale of such an instrument. See also “—Risks Related to the Company and an Investment in the Shares—The Company’s Portfolio Assets (including the Asset-Backed Instruments) may not achieve the Company’s business objectives or generate returns for Shareholders” and “—The Company’s business may be affected by offering Co-Investments or opportunities to provide debt financing to any person” herein. In the event of such an offer to other PIMCO Clients, the price of the participation, assignment or sale will not be set by the Operating Manager or the Company, but rather will be established based on third-party valuations. Further, the decision by any PIMCO Client to accept or reject the offer may be made by a party independent of the Operating Manager, such as an independent third-party valuation firm or the independent directors of such PIMCO Client, if any, or an advisory or credit committee composed of individuals who are not affiliated with PIMCO. In determining the target amount to allocate to a particular loan origination, the Company may take into consideration the fact that it may sell, assign or offer participations in such acquisition to third parties as described above. If the Company is unable to sell, assign or successfully close transactions for the loans that it originates, the Company will be forced to hold its interest in such loans until such time as it can be disposed. This could result in the Company’s assets being over-concentrated in certain borrowers. Loan origination presents special tax considerations for the Company and its Shareholders, including potentially generating ECI for non-U.S. Series II Shareholders that are ECI-sensitive. Series II Shareholders are expected to hold originated loans through a “blocker” vehicle taxable as a corporation for U.S. federal income tax purposes. See “—The Company’s business may be affected by offering Co-Investments or opportunities to provide debt financing to any person” and “—Certain United States Federal Income Tax Considerations.”

Being a control person in a company may give rise to increased risk of liability for the Company and the Operating Manager, which could adversely affect a portion of the Company’s assets.

The Company has and will continue to have controlling interests in a number of its Portfolio Assets. The fact that the Company or the Operating Manager exercises control or exerts influence (or merely has the ability to exercise control or exert influence) over an issues may give rise to risks of liability (including under various theories of parental

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liability and piercing the corporate veil doctrines) for, among other things, personal injury and/or property or environmental damage claims arising from an accident or other unforeseen event, product defects, employee benefits (including pension and other fringe benefits), failure to supervise management, violation of laws and governmental regulations (including securities laws, anti-trust laws, employment laws, insurance laws, anti-bribery (and other anti-corruption laws)) and other types of liability for which the limited liability characteristic of business ownership and the Company itself (and the limited liability structures that may be utilized by the Company in connection with its ownership of Portfolio Assets or otherwise) may be ignored or pierced, as if such limited liability characteristics or structures did not exist for purposes of the application of such laws, rules, regulations and court decisions. These risks of liability may arise pursuant to U.S. and non-U.S. laws, rules, regulations, court decisions or otherwise (including the laws, rules, regulations and court decisions that apply in jurisdictions in which an issuer or its subsidiaries are organized, headquartered or conduct business). Such liabilities may also arise to the extent that any such laws, rules, regulations or court decisions are interpreted or applied in a manner that imposes liability on all persons that stand to economically benefit (directly or indirectly) from ownership of Portfolio Assets, even if such persons do not exercise control or otherwise exert influence over such issuers (e.g., Shareholders). Lawmakers, regulators and plaintiffs have recently made (and may continue to make) claims along the lines of the foregoing, some of which have been successful. If these liabilities were to arise with respect to the Company or its Portfolio Assets, the Company might suffer significant losses and incur significant liabilities and obligations. The having or exercise of control or influence over an issuer could expose the assets of the Company, its Shareholders, the Operating Manager and their respective affiliates to claims by such issuer, its security holders and creditors and regulatory authorities or other bodies. While the Operating Manager seeks to manage the Company to minimize exposure to these risks, the possibility of successful claims cannot be precluded, nor can there be any assurance as to whether such laws, rules, regulations or court decisions will be expanded or otherwise applied in a manner that is adverse to the Portfolio Assets, the Company, and its Shareholders. Moreover, it is possible that, when evaluating a potential asset, the Operating Manager may choose not to pursue or consummate the acquisition of such asset, if any of the foregoing risks may create liabilities or other obligations for any of the Company, the Operating Manager or any of their respective affiliates, the Portfolio Assets, partners or employees.

There is no restriction on credit quality for Company acquisitions of debt instruments and the amount and timing of payments with respect to loans are not guaranteed, which may cause losses.

The Company may, in certain circumstances, acquire Asset-Backed Instruments, other debt instruments or convertible debt securities in connection with acquisitions in equity or equity-related securities (including as additional acquisitions) or may make debt acquisitions, which could take into account leverage incurred in connection with such acquisitions, comparable to equity or equity-related securities. Such debt may be unsecured and structurally or contractually subordinated to substantial amounts of senior indebtedness, all or a significant portion of which may be secured. Moreover, such debt acquisitions may not be protected by financial covenants or limitations upon additional indebtedness and there is no minimum credit rating for such debt acquisitions. Other factors may materially and adversely affect the market price and yield of such debt acquisitions, including investor demand, changes in the financial condition of the applicable issuer, government fiscal policy and domestic or worldwide economic conditions. Certain debt instruments which the Company may acquire may have speculative characteristics. A secured debt acquisition is subject to the same risks as the underlying asset securing the debt.

There are no restrictions on the credit quality of the acquisitions of the Company. Rating agencies rate debt securities based upon their assessment of the likelihood of the receipt of principal and interest payments. Rating agencies do not consider the risks of fluctuations in market value or other factors that may influence the value of debt securities. Therefore, the credit rating assigned to a particular instrument may not fully reflect the true risks of an acquisition in such instrument. Credit rating agencies may change their methods of evaluating credit risk and determining ratings. These changes may occur quickly and often. While the Company may give some consideration to ratings, ratings may not be indicative of the actual credit risk of the Company’s assets in rated instruments.

Generally, acquisitions in speculative securities offer a higher return potential than higher-rated securities, but involve greater volatility of price and greater risk of loss of income and principal. The issuers of such instruments (including sovereign issuers) may face significant ongoing uncertainties and exposure to adverse conditions that may undermine the issuer’s ability to make timely payment of interest and principal. Such instruments are regarded as predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations and involve major risk exposure to adverse conditions. In addition, an economic recession could severely disrupt the market for most of these instruments and may have an adverse impact on the value of such instruments. It also is likely that any such economic downturn could adversely affect the ability of the issuers of such instruments to repay principal and pay interest thereon and increase the incidence of default for such instruments.

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The Company’s portfolio, held indirectly through its subsidiaries, includes and will continue to include loans, which may be non-performing and possibly in default. Furthermore, the obligor and/or relevant guarantor may also be in bankruptcy or liquidation. There can be no assurance as to the amount and timing of payments with respect to such loans. Although the Operating Manager seeks to manage these risks, there can be no assurance that these acquisitions will increase in value or that the Company will not incur significant losses. The Operating Manager anticipates that several of the Company’s assets will incur losses.

Acquiring Asset-Backed Instruments puts the Company at risk of any adverse changes of those assets.

The Asset-Backed Instruments which the Company acquires could deteriorate as a result of, among other factors, an adverse development in their business, a change in their competitive environment, or an economic downturn. As a result, Asset-Backed Instruments that the Company may have expected to be stable may operate at a loss or have significant variations in operating results, may require substantial additional capital to support their operations or to maintain their competitive positions or may otherwise have a weak financial condition or be experiencing financial distress. In some cases, the success of the Company’s strategy and approach depends, in part, on the ability of the Company to effect improvements in the operations of the Asset-Backed Instruments and/or recapitalize their balance sheets. The activity of identifying and implementing operating improvements and/or recapitalization programs at the Asset-Backed Instruments entails a high degree of uncertainty. There can be no assurance that the Company will be able to successfully identify and implement such operating improvements and/or recapitalization programs. In addition, the Company may cause its Asset-Backed Instruments to bear certain fees, costs and expenses that the Company would otherwise bear, including the fees, costs and expenses incurred in developing, investigating, negotiating, structuring or consummating the Company’s or any other acquisitions of such Asset-Backed Instruments. For example, the Operating Manager may cause such Asset-Backed Instruments to bear the fees, costs and expenses that are incurred in connection and concurrently with the acquisition of such Asset-Backed Instruments and such other fees, costs and expenses that may otherwise be treated as Operating Expenses.

The payment of such fees, costs and expenses by such Asset-Backed Instruments may reduce the amount of cash that the Asset-Backed Instruments have on hand.

The Company faces risks associated with opportunities in loans secured by real estate.

The Company acquires (indirectly through its subsidiaries) loans secured by real estate, and may, as a result of default, foreclosure or otherwise, hold real estate assets it was not otherwise expecting to hold. Real estate historically has experienced significant fluctuations and cycles in performance that may result in reductions in the value of the Company’s opportunities. The Company may be subject to the varying degrees of risk generally incident to ownership and operations of the properties to which the Company will be exposed and which collateralize or support its assets. Of particular concern may be those environmental risks provided by mortgaged properties that are, or have been, the site of manufacturing, industrial or disposal activity. Such environmental risks may give rise to a diminution in the value of property (including real property securing any platform) or liability for cleanup costs or other remedial actions, which liability could exceed the value of such property or the principal balance of the related Portfolio Assets of the Company. In certain circumstances, a lender may choose not to foreclose on contaminated property rather than risk incurring liability for remedial actions.

The ultimate performance and value of the Company’s real estate-related instruments depend upon, in large part, the Company’s ability to operate each such instrument so that it provides sufficient cash flows necessary to pay the Company’s equity acquisition and a return on such acquisition, or to pay interest and principal due to the Company or a lender. Revenues and cash flows may be adversely affected by:

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In the event that any of the Company’s Portfolio Assets experience any of the foregoing events or occurrences, the value of, and return on, such acquisition would be negatively impacted.

The Company faces risks associated with acquiring residential mortgage-backed securities.

The Company, through its subsidiaries, may acquire certain of its assets in residential mortgage-backed securities (“RMBS”) and become holders of RMBS. Holders of RMBS bear various risks, including credit, market, interest rate, structural and legal risks. RMBS represent interests in pools of residential mortgage loans secured by residential mortgage loans. Such loans may be prepaid at any time. Residential mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity, although such loans may be securitized and the securities issued in such securitization may be guaranteed or credit enhanced. The rate of defaults and losses on residential mortgage loans will be affected by a number of factors, including general economic conditions and those in the area where the related mortgaged property is located, the borrower’s equity in the mortgaged property and the financial circumstances of the borrower. If a residential mortgage loan is in default, foreclosure of such residential mortgage loan may be a lengthy and difficult process, and may involve significant expenses. Furthermore, the market for defaulted residential mortgage loans or foreclosed properties may be very limited.

At any one time, a portfolio of RMBS may be backed by residential mortgage loans with disproportionately large aggregate principal amounts secured by properties in only a few states or regions. As a result, the residential mortgage loans may be more susceptible to geographic risks relating to such areas, such as adverse economic conditions, adverse events affecting industries located in such areas and natural hazards affecting such areas, than would be the case for a pool of mortgage loans having more diverse property locations. In addition, the residential mortgage loans may include so-called “Jumbo” mortgage loans, having original principal balances that are higher than is generally the case for residential mortgage loans. As a result, such a portfolio of RMBS could experience increased losses.

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Each underlying residential mortgage loan in an issue of RMBS may have a balloon payment due on its maturity date. Balloon residential mortgage loans involve a greater risk to a lender than self-amortizing loans, because the ability of a borrower to pay such amount will normally depend on its ability to obtain refinancing of the related mortgage loan or sell the related mortgaged property at a price sufficient to permit the borrower to make the balloon payment, which will depend on a number of factors prevailing at the time such refinancing or sale is required, including the strength of the residential real estate markets, tax laws, the financial situation and operating history of the underlying property, interest rates and general economic conditions. If the borrower is unable to make such balloon payment, the related issue of RMBS may experience losses.

Prepayments on the underlying residential mortgage loans in an issue of RMBS will be influenced by the prepayment provisions of the related mortgage notes and may also be affected by a variety of economic, geographic and other factors, including the difference between the interest rates on the underlying residential mortgage loans (giving consideration to the cost of refinancing) and prevailing mortgage rates and the availability of refinancing. In general, if prevailing interest rates fall significantly below the interest rates on the related residential mortgage loans, the rate of prepayment on the underlying residential mortgage loans would be expected to increase. Conversely, if prevailing interest rates rise to a level significantly above the interest rates on the related mortgages, the rate of prepayment would be expected to decrease. Prepayments could reduce the yield received on the related issue of RMBS.

Residential mortgage loans in an issue of RMBS may be subject to various federal and state laws, public policies and principles of equity that protect consumers, which among other things may regulate interest rates and other charges, require certain disclosures, require licensing of originators, prohibit discriminatory lending practices, regulate the use of consumer credit information and regulate debt collection practices. Violation of certain provisions of these laws, public policies and principles may limit the servicer’s ability to collect all or part of the principal of or interest on a residential mortgage loan, entitle the borrower to a refund of amounts previously paid by it, or subject the servicer to damages and sanctions. Any such violation could result also in cash flow delays and losses on the related issue of RMBS.

RMBS may have structural characteristics that distinguish them from other asset-based securities. The rate of interest payable on RMBS may be set or effectively capped at the weighted average net coupon of the underlying mortgage loans themselves. As a result of this cap, the return to investors is dependent on the relative timing and rate of delinquencies and prepayments of mortgage loans bearing a higher rate of interest. In general, early prepayments will have a greater impact on the yield to investors. Federal and state law may also affect the return to investors by capping the interest rates payable by certain mortgagors. The Servicemembers Civil Relief Act of 2003 provides relief for soldiers and members of the reserve called to active duty by capping the interest rates on their mortgage loans at 6% per annum. Certain RMBS may provide for the payment of only interest for a stated period of time.

In addition, structural and legal risks of RMBS include the possibility that, in a bankruptcy or similar proceeding involving the originator or the servicer (often the same entity or affiliates), the assets of the issuer could be treated as never having been truly sold by the originator to the issuer and could be substantively consolidated with those of the originator, or the transfer of such assets to the issuer could be voided as a fraudulent transfer. Challenges based on such doctrines could result also in cash flow delays and losses on the related issue of RMBS.

Bankruptcy-related reorganizations can be contentious and adversarial. It is by no means unusual for participants to use the threat of, as well as actual, litigation as a negotiating technique. The Operating Manager anticipates that during the term of the Company, the Operating Manager and the Company may be named as defendants in civil proceedings. The expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments would generally be borne by the Company or the relevant assets and would reduce net assets.

It is not expected that RMBS will be guaranteed or insured by any governmental agency or instrumentality or by any other person, although the Company will be permitted to acquire direct obligations of, or that are fully guaranteed as to principal and interest by, the United States or certain instrumentalities thereof. Distributions on RMBS will depend solely upon the amount and timing of payments and other collections on the related underlying mortgage loans.

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The Company may face risks associated with purchasing participation interests in debt instruments.

The Company may purchase participation interests in debt instruments which do not entitle the holder thereof to direct rights against the obligor. Participations held by the Company’s subsidiaries in a seller’s portion of a debt instrument typically result in a contractual relationship only with such seller, not with the obligor. The Company has the right to receive payments of principal, interest and any fees to which it is entitled only from the seller and only upon receipt by such seller of such payments from the obligor. In connection with purchasing participations, the Company generally has no right to enforce compliance by the obligor with the terms of the related loan agreement, nor any rights of set-off against the obligor and the Company may not directly benefit from the collateral supporting the debt instrument in which it has purchased the participation. As a result, the Company assumes the credit risk of both the obligor and the seller selling the participation. In the event of the insolvency of such seller, the Company may be treated as a general creditor of such seller and may not benefit from any set-off between such seller and the obligor. When the Company holds a participation in a debt instrument, it may not have the right to vote to waive enforcement of any restrictive covenant breached by an obligor or, if the Company does not vote as requested by the seller, it may be subject to repurchase of the participation at par. Sellers voting in connection with a potential waiver of a restrictive covenant may have interests different from those of the Company, and such selling institutions may not consider the interests of the Company in connection with their votes.

The Company’s business may be affected by prepayment risk.

The frequency at which prepayments (including voluntary prepayments by obligors and accelerations due to defaults) occur on bonds and loans will be affected by a variety of factors, including the prevailing level of interest rates and spreads, as well as economic, demographic, tax, social, legal and other factors. Generally, obligors tend to prepay their fixed-rate obligations when prevailing interest rates fall below the coupon rates on their obligations. Similarly, floating rate issuers and borrowers tend to prepay their obligations when spreads narrow.

In general, “premium” securities (securities whose market values exceed their principal or par amounts) are adversely affected by faster than anticipated prepayments. Since many fixed-rate obligations will be premium instruments when interest rates and/or spreads are low, such debt instruments and Asset-Backed Instruments may be adversely affected by changes in prepayments in any interest rate environment.

The adverse effects of prepayments may impact the Company’s holdings in two ways. First, particular instruments may experience outright losses, as in the case of an interest-only instrument in an environment of faster actual or anticipated prepayments. Second, particular instruments may underperform relative to hedges that the Operating Manager may have constructed for these assets, resulting in a loss to the Company’s overall portfolio. In particular, prepayments (at par) may limit the potential upside of many instruments to their principal or par amounts, whereas their corresponding hedges often have the potential for unlimited loss.

If a REIT Subsidiary does not qualify as a REIT, it will be subject to tax as a regular corporation and could face a substantial tax liability.

The Company may (but is not required to) hold a portion of its Portfolio Assets through one or more affiliated entities electing to be treated as REIT. However, qualification as a REIT involves the application of highly technical and complex Code provisions for which only a limited number of judicial or administrative interpretations exist. Notwithstanding the availability of cure provisions in the Code, various compliance requirements could be failed and could jeopardize the REIT status of any REIT Subsidiary. Furthermore, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for a REIT Subsidiary to qualify as a REIT. If a REIT Subsidiary fails to qualify as a REIT in any tax year, then:

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The Company may face risks associated with REITs.

In the event that the Company chooses to acquire or form a REIT Subsidiary in the future, such event could subject the Company to numerous risks. If a REIT Subsidiary does not qualify as a REIT or certain REIT Subsidiary assets are held through taxable REIT Subsidiaries, it will be subject to tax as a regular corporation and could face a substantial tax liability or other restrictions in its acquisition activities. In addition, for a REIT Subsidiary to maintain its REIT status, it may have to borrow funds on a short-term basis during unfavorable market conditions, which would adversely affect the Company’s (and in turn the Shares’) performance.

Due to different accounting and other standards, the Company may be presented with information that is less reliable and less sophisticated than GAAP principles would allow for, which would adversely affect the Company’s business.

Accounting, financial, auditing and other reporting standards, practices and disclosure requirements that are not equivalent to GAAP, may differ in fundamental ways. Accordingly, information available to the Company that is not consistent with GAAP, including both general economic and commercial information and information concerning specific Portfolio Assets, may be less reliable and less detailed than information available in more financially sophisticated countries, which could adversely impact, among other things, the Company’s due diligence and reporting activities. Assets and profits appearing on the financial statements of a Portfolio Asset may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with GAAP. Even for financial statements prepared in accordance with GAAP, the accounting entries and adjustments may not reflect economic reality and actual value.

Furthermore, for a Portfolio Asset that keeps accounting records in a currency other than U.S. dollars, inflation accounting rules in certain markets require, for both tax and accounting purposes, that certain assets and liabilities be restated on the Portfolio Asset’s balance sheet in order to express items in terms of a currency of constant purchasing power. As a result, financial data of acquisition targets may be materially affected by restatements for inflation and may not accurately reflect actual value. Accordingly, the Company’s ability to conduct due diligence in connection with an acquisition and to monitor acquired assets may be adversely affected by these factors.

Some Asset-Backed Instrument acquisitions occur on an expedited basis which may result in limited financial information being available, and limited time to conduct analysis.

Investment analyses and recommendations by the Operating Manager and investment decisions by the Acquisition Committee will often be undertaken on an expedited basis in order for the Company to take advantage of acquisition opportunities. In such cases, the information available to the Operating Manager and/or the Acquisition Committee at the time of an acquisition-related recommendation and/or decision, respectively, may be limited, and one or both of them may not have access to the detailed information necessary for a full evaluation of the opportunity. In addition, the financial information available to the Operating Manager and/or the Acquisition Committee may not be accurate or provided based upon accepted accounting methods. The Acquisition Committee will rely upon consultants or advisors in connection with the evaluation of proposed acquisitions. There can be no assurance that these consultants or advisors will accurately evaluate such acquisitions.

The Company may need to incur financial leverage to be able to achieve its business objectives. The Company cannot guarantee the availability of such financing.

Borrowing money to partially or wholly purchase Portfolio Assets could provide the Company with the opportunity for greater capital appreciation but, at the same time, will increase the Company’s exposure to capital and interest rate risk and higher expenses. The terms and cost of such borrowing will be dependent on market conditions

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and could involve one or more types of financing, including without limitation, asset-based financing, repurchase agreements, securities lending, and/or prime brokerage financing, including margin lending. See “—The availability of capital is generally a function of capital market conditions that are beyond the control of the Company or any Portfolio Asset and this may increase the exposure of such Portfolio Asset to adverse economic factors or unfavorable financing terms, which may subject the Company to risks or adversely affect its business” below. If the assets of the Company are not sufficient to pay the principal of, and interest on, the debt when due, or if the Company breaches any covenant or any other obligation with respect to such borrowing, then the Company could sustain a total loss of its Portfolio Assets.

The success of the Company depends on its ability to navigate the acquisitions and competition of the market. It is possible that competition for appropriate acquisition opportunities may increase, thus reducing the number of opportunities available to the Company and adversely affecting the terms, including pricing, upon which Asset-Backed Instruments can be acquired.

There is currently, and will continue to be, competition for acquisition opportunities by vehicles, with objectives and strategies similar to the Company’s objectives and strategies, as well as by private equity funds, business development companies, strategic investors, hedge funds and others. See “—Due to conflicts between PIMCO or its affiliates and the Company regarding allocation of acquisition opportunities, there is no guarantee that the Company will participate in specific PIMCO opportunities, which may harm the Company’s performance.” Some of these competitors may have more relevant experience, greater financial, technical, marketing and other resources, more personnel, higher risk tolerances, different risk assessments, lower return thresholds, lower cost of capital, access to funding sources unavailable to the Company and a greater ability to achieve synergistic cost savings in respect of an investment other than the Company, the Operating Manager, PIMCO and each of their respective affiliates. It is possible that competition for appropriate acquisition opportunities may increase, thus reducing the number of opportunities available to the Company and adversely affecting the terms, including pricing, upon which acquisition of Asset-Backed Instruments can be made. Such competition is particularly acute with respect to participation by the Company in auction proceedings. To the extent that the Company encounters competition for acquisitions, returns to Shareholders may decrease, including as a result of significant fees and expenses identifying, investigating and attempting to acquire potential assets that the Company does not ultimately acquire, including fees and expenses relating to due diligence, travel and related expenses.

Based on the foregoing, there can be no assurance that the Company will be able to identify or consummate acquisitions that satisfy the Company’s rate of return objectives or realize upon their values, or that the Company will be able to deploy fully its committed capital. The success of the Company depends on the Operating Manager’s ability to identify suitable acquisitions, to negotiate and arrange the closing of appropriate transactions and to arrange the timely disposition of Asset-Backed Instruments.

Credit facilities may impose limitations on the Company’s business, such as caps on borrowings, or result in the Company being liable for borrowings of another party to a transaction.

As described in “Item 1. Business—Borrowings and Leverage,” the Company and/or the Series are expected to obtain one or more credit facilities in order to (i) facilitate acquisitions, financings or dispositions by the Company and Portfolio Assets, (ii) fund Organizational and Offering Expenses, Operating Expenses, Management Fees, placement fees or other obligations of the Company (including to facilitate the making of distributions, including Performance Fee distributions) or Portfolio Assets, (iii) to conduct Share Repurchases under the Repurchase Plan or (iv) otherwise carry out the activities of the Company. There is no guarantee the Company will obtain any such credit facilities on favorable terms or at all. If the Company obtains a credit facility, it is generally expected that the Company’s interim capital needs would be satisfied through borrowings by the Company under the credit facility, including those used to pay interest on credit facilities. Credit facilities are utilized by operating companies for various purposes, including to bridge the time between the closing of an acquisition and the receipt of proceeds from periodic subscriptions, to make distributions and for broader cash management purposes. From the Shareholders’ perspective, such facilities can smooth cash flows. In addition, such facilities permit the Company to have ready access to cash in the event short-term funding obligations (e.g., margin requirements) arise, which allows for efficient cash management (as opposed to holding larger cash reserves).

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Borrowings by the Company or its operating entities or other subsidiaries also may, in whole or in part, be directly or indirectly secured by the Company’s assets.

For the avoidance of doubt, neither the foregoing restrictions pertaining to borrowings and guarantees nor the Company’s acquisition limitations, if any, will apply to, or prevent the Company from entering into (a) any non-recourse asset-based financing or (b) agreements to indemnify or provide funds in the event of breaches of contractual provisions by the Company, its subsidiaries or its acquisitions (whether such agreement to provide funds is described as a guarantee, performance undertaking or otherwise). Any funded guarantees of indebtedness or other obligations of Portfolio Assets or such other entities will only be included with the interests of the Company in the relevant acquisition for purposes of measuring the Company’s limitations, if any, to the extent determined by the Operating Manager.

There are no limitations under the LLC Agreement on the time any borrowings or guarantees by the Company under a credit facility may remain outstanding, and the interest expense and other fees, costs and expenses of or related to any borrowings or guarantees by the Company will be Operating Expenses and, accordingly, will decrease net returns of the Company.

As the Operating Manager determines, in its discretion, lenders or other providers of financing to the Company or its existing or potential assets, operating entities or other subsidiaries can include PIMCO, PIMCO Clients or any of their respective affiliates or existing or potential Portfolio Assets, and could take the form of stapled or seller financing to Portfolio Assets that are the subject of a disposition. Any such transactions will give rise to conflicts of interest between PIMCO or the relevant financing provider, on the one hand, and the Company, on the other hand; however, subject to the Operating Manager’s policies and procedures then in effect and the terms of the LLC Agreement, such transactions generally will not require the approval of the Board or consent of the Shareholders and as described in “—Potential Conflicts of Interest—Other Activities of the Operating Manager” below.

It is possible that a counterparty, lender or other unaffiliated participant in credit facilities (or otherwise in connection with the acquisition of Portfolio Assets) requires or desires to face only one entity or group of entities, which may result in (i) the Company and/or a Portfolio Asset being solely liable with respect to such third party for such other entities’ share of the applicable obligation or (ii) the Company or such Portfolio Asset being jointly and severally liable for the full amount of such applicable obligation. Such arrangements may result in the Company and such third party or third parties (which could include PIMCO, its affiliates or other PIMCO Clients) entering into, participating in or applying a back-to-back or other similar reimbursement arrangement (and in most circumstances, especially where there are back-to-back or other similar reimbursement obligations, the Company and/or such third parties, as applicable, would not be compensated (or provide compensation to the other) for being primarily liable to, contributing amounts in excess of its pro rata share to or otherwise directly contracting with such counterparty, lender or other unaffiliated participant) which also could include provisions intended to mitigate certain impacts that may arise with respect to the primary obligor, which could be the Company or PIMCO, its affiliates or another PIMCO Client (e.g., any reduction in the borrowing base of the Company, as the primary obligor attributable to credit support attributable to PIMCO, its affiliates or one or more other PIMCO Clients that are indirect obligors) relating to a reduction in its borrowing base under a credit facility. If the Company enters into any such arrangements with PIMCO, its affiliates or one or more other PIMCO Clients, it will be subject to the counterparty risk of PIMCO, its affiliates or the other PIMCO Clients involved, including, without limitation, the risk of a default or delay in the performance of PIMCO, its affiliates or such other PIMCO Client’s obligations. The foregoing arrangements will arise in connection with Co-Investments, in particular where a counterparty transacts with a single entity resulting in the Company having to enter into back-to-back arrangements with Co-Investors or a co-investment vehicle. Although the Operating Manager will, in good faith, allocate the related repayment obligations and other related liabilities arising out of such credit facilities among the foregoing (to the extent applicable), the alternative investment vehicles of the Company will, in such circumstance, be subject to each other’s credit risk, as well as the credit risk of such Portfolio Assets. In such situations it is not expected that the Company and/or such Portfolio Asset would be compensated (or provide compensation to the other) for being primarily liable vis-à-vis such third-party counterparty, and even where the Company incurs primary liability and PIMCO, its affiliates or other PIMCO Clients participate in such obligation by virtue of sharing arrangements, a portion of any guarantee or other similar fees paid to the Company likely would be shared with PIMCO, its affiliates or the applicable other PIMCO Client(s), despite the incremental risk taken on by the Company.

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The Operating Manager may be subject to conflicts of interest in allocating such repayment obligations and other related liabilities. As stated above, the Company is authorized to make permanent borrowings utilizing a credit facility or other forms of leverage, whereby the Company borrows money with no intention at the time of the borrowing to repay it using capital contributions for any purpose, including the making of equity, debt or other assets, even if the asset is initially being permanently levered using a credit facility but ultimately replaced in whole or in part with other forms of permanent financing. Such forms of permanent leverage could be used in addition to or in lieu of asset-level financing in connection with the acquisition, financing or realization (in whole or in part) of an asset. This could result in the capital structures of Portfolio Asset being structured or managed in a way that utilizes permanent forms of financing (such as permanent borrowings under a credit facility) where such forms of financing are not necessarily required in connection with the acquisition or other activity with respect to the Portfolio Asset. The Operating Manager will, in its discretion, determine whether and to what extent a borrowing is “recourse” to the applicable Series (and could determine to count such borrowing or indebtedness for purposes of such cap only to the extent that it is so secured), and will be subject to conflicts of interest in making such determination given that, among other things, if a borrowing is not deemed to be recourse to such Series, then it will not count towards the aforementioned cap on borrowings at such Series level or be subject to certain of the limitations applicable to certain assets across the capital structure (including in different levels thereof) of Portfolio Assets. Furthermore, it is possible that an Affiliated Service Provider could earn Other Fees in connection with the structuring, placement or syndication of any such credit facility or other fund-level financing.

At any time, the Operating Manager has the ability to cause the Company and/or related entities, including subsidiaries and intermediate entities or SPVs that have been or will be formed for the purpose of holding one or more Portfolio Assets, including newly formed entities, to enter into “NAV” facilities or similar financing arrangements the effect of which, among other things, could accelerate the receipt of distributions, including Performance Fee, to PIMCO. The provider of any such financing can be any person that is permitted to provide financing to the Company. In connection with such transactions, the Operating Manager has the ability to pledge the Company’s assets, including on a cross-collateralized basis. Such financing arrangements will not be considered borrowings by the Company for purposes of the limitations on borrowings (or any limits on issuing additional interests) by the Company and will be excluded from the calculation of applicable acquisition limitations of the Company, if any.

Industry and Sector Specific Risks

Risks Related to Strategic Investments in Securities and Other Asset-Backed Instruments

The Company’s acquisition of Asset-Backed Instruments may involve risks that differ from or are greater than risks associated with other types of instruments. Such risks include, among others, credit risk, liquidity risk, interest rate and other market risk, operational risk, structural risk, sponsor risk and other legal risk.

An ABS is a fixed income security that predominantly derives its creditworthiness from cash flows relating to a pool of assets. These securities include securities backed by many types of assets, including pools of automobile loans, residential mortgages, educational loans, home equity loans, credit card receivables and secured or unsecured bonds issued by corporate or sovereign obligors, unsecured loans made to a variety of industrial loan customers of one or more lending banks or a combination of those bonds and loans (i.e., CLOs or CDOs).

Payment of interest and repayment of principal on ABSs largely depends on the cash flows generated by the underlying assets backing the securities and, in certain cases, may be supported by letters of credit, surety bonds or other credit enhancements. The amount of market risk associated with ABSs depends on many factors, including the deal structure, such as determinations as to the required amount of underlying assets or other support needed to produce the cash flows necessary to service interest and principal payments, the quality of the underlying assets, the level of credit support, if any, provided for the securities, and the credit quality of the credit-support provider, if any. ABSs involve risk of loss of principal if obligors of the underlying obligations default and the defaulted amounts exceed the securities’ credit support. Principal repayment could be materially slowed depending on the cash flows generated by the underlying assets and/or principal losses may materially reduce payments received by a holder. Payments may be affected by changes in prepayment and delinquency rates, loss severity, ability of bond insurers to honor obligations, future levels of interest rates, the structure of legal contracts and assumptions made by the Operating Manager.

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The obligations underlying ABSs, in particular mortgage-backed securities (“MBSs”), also are subject to unscheduled prepayment and the Company may be unable to redeploy prepayments at as high a yield as the ABS. Further, early payment may cause these securities to experience significantly greater price and yield volatility than traditional fixed income securities. If the life of an ABS is inaccurately predicted, the Company may not be able to realize the rate of return it expected.

MBSs are subject to varying degrees of credit risk, depending on whether they are issued by agencies or instrumentalities of the U.S. government, including those whose securities are neither guaranteed nor insured by the U.S. government, or by U.S. governments or non-governmental issuers. In addition, MBSs are subject to the risk of loss of principal if the obligors of the underlying obligations default in their payment obligations, and to certain other risks. A mortgage pool may issue securities subject to various levels of subordination; the risk of non-payment affects securities at each level, although the risk is greater in the case of more highly subordinated securities. For example, if the Company purchases MBSs that are “subordinated” to other interests in the same mortgage pool, the Company as a holder of those securities may only receive payments after the pool’s obligations to other holders have been satisfied. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may limit substantially the pool’s ability to make payments of principal or interest to the Company as a holder of such subordinated securities, reducing the market values of those securities or in some cases rendering them worthless; the risk of such defaults is generally higher in the case of mortgage pools that include so-called “sub-prime” mortgages. An unexpectedly high or low rate of prepayments on a pool’s underlying mortgages may have a similar effect on subordinated securities.

Government actions and proposals affecting the terms of underlying home and consumer loans, changes in demand for products, such as automobiles, financed by those loans and the inability of borrowers to refinance existing loans, such as subprime mortgages, have had, and may continue to have, adverse valuation and liquidity effects on ABSs. In addition, the SEC has proposed certain disclosure requirements for issuers of ABSs and the effect of these proposals on the market for ABSs is currently unknown and may be significant and adverse.

In addition, many agency MBSs are purchased in forward-settling transactions conducted in the TBA market. The parties to such transactions bear counterparty risk, particularly if the transactions are uncleared and the parties did not agree to post-collateral or margin. The Federal Reserve Bank of New York’s Treasury Market Practices Group has recommended introducing margin requirements for all forward-settling agency MBSs, which historically have not been collateralized. Further, in early 2014, FINRA proposed amendments to the FINRA rules that would establish mandatory margin requirements for the TBA market, including TBA transactions, certain MBS and ABS pool transactions and certain transactions in collateralized mortgage obligations (“CMOs”), in each case for which the difference between the trade date and the contractual settlement date is greater than three (3) business days, with limited exceptions. The collateralization of TBA trades is intended to mitigate counterparty credit risk between trade and settlement, but imposes added operational complexity.

The value of ABSs also may be affected by other factors, such as the availability of information concerning the pool and its structure, the creditworthiness of the servicing agent for the pool and its ability to service the underlying collateral, the originator of the underlying assets or the entities providing the credit enhancement. In addition, the value of ABSs is subject to risks associated with the servicers’ performance. In some circumstances, a servicer’s or originator’s mishandling of documentation related to the underlying collateral, such as failure to properly document a security interest in the underlying collateral, may affect the rights of the security holders in and to the underlying collateral. A single financial institution may serve as a trustee for multiple ABSs. As a result, a disruption in that institution’s business may have a material impact on multiple ABSs. In addition, the insolvency of entities that generate receivables or that utilize the underlying assets may result in a decline in the value of the underlying assets as well as costs and delays.

Certain types of ABSs may not have the benefit of a security interest in the related assets. In addition, the Company may acquire securities backed by pools of corporate or sovereign bonds, bank loans made to corporations or a combination of those bonds and loans, many of which may be unsecured. In other instances, the holders of the receivables underlying an ABS may not have a proper security interest or even when security interests are present, the ability of an issuer of certain types of ABSs to enforce those interests may be more limited than that of an issuer of MBSs. In addition, certain types of ABSs may experience losses on the underlying assets as a result of certain rights provided to consumer debtors under federal and state law.

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As with MBSs, ABSs are subject to the risks associated with the loans or other underlying assets.

Positions in smaller and middle-market companies can involve heightened risks due to, among other factors, lack of resources, wider price fluctuations and reduced liquidity from lower frequency and volume of trading in the company’s securities.

While smaller and middle-market companies generally have potential for rapid growth, they often involve higher risks, including because they may lack the management experience, financial resources, product diversification, competitive strength or access to capital of larger companies. In addition, in many instances, the frequency and volume of the trading of securities for such companies may be substantially less than is typical of larger companies. As a result, the securities of smaller and middle-market companies may be subject to wider price fluctuations. When liquidating positions in smaller and middle-market companies, the Company may have to sell portfolio holdings at discounts from quoted prices or may have to make a series of small transactions over an extended period of time. In addition, positions in such companies may also be particularly difficult to analyze due to, among other factors, limited attention from analysts and large institutional investors and, in certain cases, limited publicly available financial information. With respect to the Company’s position in small- and medium-size enterprise loans and similar loans, the Company may receive less borrower information, receive less collateral and be subject to heightened default risk as compared to loans made to other types of entities. These factors related to positions in smaller and middle-market companies may materially and adversely affect the Company’s business, results of operations, financial condition and net worth.

Positions in stressed and distressed assets are speculative in nature and may incur significant or total losses for the Company.

The Company is expected to take positions, on an active or opportunistic basis, in bonds, loans, notes and other obligations and securities, including derivatives relating to any of the foregoing, of issuers experiencing, or expected to experience, financial stress or distress, which may include supporting and/or participating in the provision of debtor-in-possession or rescue loans. Such Portfolio Assets may trade significantly below par, are considered speculative and entail substantial inherent risks, which are generally significantly higher than the risks involved in investing in other companies. In particular, defaulted obligations might be repaid, if at all, only after lengthy workout or bankruptcy proceedings, during which the issuer might not receive, or even accrue, any interest or other payments; the amount of any recovery may be affected by the relative security of the Company’s position in the issuer’s capital structure, and the recovery could be in the form of instruments or interests different from the instrument or interest providing the basis for the claim and on terms that may differ from prevailing market terms for similar instruments or interests. In addition, such Portfolio Assets are more likely to be challenged as fraudulent conveyances, and amounts paid on the Portfolio Assets may be subject to avoidance as a preference under certain circumstances. See “—The Company’s instruments are subject to fraudulent conveyance and preference considerations and thus involve heightened risk of loss.” and “—Bankruptcy and insolvency cases involve many significant risks and may lead to material or total losses on the Company’s positions” below.

Bankruptcy and insolvency cases involve many significant risks and may lead to material or total losses on the Company’s positions.

If any issuers of debt or equity held by the Company or any counterparties to the derivatives transactions and other transactions entered into by the Company, or any custodians of the Company’s assets or any obligors in connection with Portfolio Assets, are involved in bankruptcy proceedings, the Company will be subject to certain risks inherent in bankruptcy proceedings, including the duration, administrative costs and impact of a bankruptcy case on the value of assets administered in bankruptcy or on a company’s or asset’s value, including that a bankruptcy case may damage or diminish a company’s relationship with its employees, customers and/or suppliers. Many of the events within a bankruptcy or insolvency case are adversarial and often beyond the control of the debtor’s management, creditors, equityholders and other interested parties. In a bankruptcy case, while creditors and other interested parties generally are afforded an opportunity to object to significant actions, or to demand that certain actions take place, there can be no assurance that a court would not approve actions or inaction which may be contrary to the interests of the Company.

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Generally, the duration of a bankruptcy or insolvency case can only be roughly estimated. The reorganization of a company can involve substantial legal, professional and administrative costs to the company and to the Company; it is subject to unpredictable and lengthy delays, and during the process the company’s competitive position may erode, key management and employees may depart and the company may not have access to capital to make expenditures necessary to preserve the value of its business. In some cases, the company may not be able to reorganize and may be required to liquidate assets on an expedited basis. The debt of companies in bankruptcy proceedings may, in some cases, not pay current interest and other charges, may not accrue interest and other charges during pendency of the bankruptcy case, may not be entitled to payment of pre-payment premiums and may be adversely affected by an erosion of the issuer’s fundamental value. In addition, the priority and enforceability of debt against a company in bankruptcy may be subject to challenge in a bankruptcy proceeding, including with respect to fees that may have been paid prior to the commencement of the bankruptcy proceeding and any original issue discount on the price of the debt at the time of issuance. The status and priority of debt may be challenged in bankruptcy under the doctrines of debt recharacterization and equitable subordination. Further, a debtor seeking to reorganize under U.S. federal bankruptcy law will frequently obtain relief from the bankruptcy court limiting trading in claims against, and shares of, the debtor in order to maximize the debtor’s ability to utilize tax attributes, such as net operating losses, following a reorganization. This relief may limit the Company’s ability to buy or sell debt and equity positions.

During the pendency of a bankruptcy case, an automatic stay put in place by the applicable bankruptcy court will, unless lifted by the court, generally prevent creditors from taking action against the debtor to foreclose on collateral or otherwise to collect on amounts owed to such creditors. Unless a creditor’s claim in such case is secured by assets having a value in excess of such claim, or the bankruptcy estate is determined to be solvent, no interest on debt claims will accrue during the pendency of the bankruptcy case. Moreover, even under circumstances where interest may accrue during the pendency of the bankruptcy case, a court may limit the amount of such interest, including preventing the collection of default interest or penalties that the debtor might otherwise be liable for. Therefore, even in a successful bankruptcy reorganization, a creditor’s return can be adversely affected by the passage of time during which a plan of reorganization or liquidation of the debtor is being developed and negotiated, approved by the applicable creditors and holders of interests and confirmed by the bankruptcy court.

The priority of valid and perfected liens held by secured creditors as of the commencement of the bankruptcy case is typically recognized in a bankruptcy case, unless avoided as a preference or fraudulent transfer. However, under certain circumstances, a court may allow a debtor-in-possession to obtain post-petition financing by granting liens that are pari passu or senior to preexisting, valid liens. Under certain circumstances, such post-petition financing can also include pre-existing debt that is rolled into such pari passu or senior post-petition financing. In addition, under certain circumstances, a court may allow a debtor-in-possession to sell assets subject to a valid and perfected lien, with such lien attaching to the proceeds of such sale. Although a secured creditor with valid and perfected liens on such assets usually has the ability to “credit bid” on such assets up to the full value of the debt secured by such assets, under certain circumstances a court can prevent or restrict this ability to credit bid.

The administrative costs in connection with a bankruptcy case, including any post-petition financing, are frequently high and will generally be satisfied from assets of the debtor’s estate prior to any distributions to creditors, other than out of assets or proceeds thereof which are subject to valid and enforceable liens and other security interests, and equityholders. In addition, certain types of unsecured claims have legal priority to bankruptcy estate distributions over the claims of other general unsecured creditors, for example, claims arising post-petition and certain claims for wages and taxes.

U.S. bankruptcy law generally does not permit the separate classification of “substantially similar” claims in determining the classification of claims in a reorganization for the purpose of voting on a plan of reorganization. However, because the standard for classification is vague, there exists a significant risk that the Company’s bankruptcy plan voting rights with respect to a class of debt or equity can be diminished by the inflation of the number and the amount of claims in, or other gerrymandering of, bankruptcy plan voting classes.

Although a claimant is not typically compelled to release direct claims it may have against non-debtor third parties, in certain circumstances a court may compel such release in the context of a plan of reorganization or liquidation.

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Claims in bankruptcy cases often recover less than the full allowed amount of such claims, and, depending on the debtor’s assets and liabilities, there may be no recovery at all for some classes of creditors. The claims of even over-secured creditors are sometimes paid out over time and may receive, as bankruptcy plan consideration, debt instruments that will trade below par. At the outset of a bankruptcy case, only the debtor may file a proposed plan of reorganization or liquidation. While the U.S. Bankruptcy Code permits other parties-in-interest to file proposed plans of reorganization or liquidation after the debtors’ “exclusive period” to do so ends, bankruptcy courts typically extend the debtor’s exclusive period, which effectively permits only the debtor to file a proposed reorganization or liquidation plan. While impaired creditors and equityholders can vote on the plan of reorganization or liquidation, the unanimous consent of all creditor and equityholder classes is often not required for the bankruptcy court to confirm a proposed plan. Therefore, subject to certain provisions of the U.S. Bankruptcy Code, a proposed plan may be “crammed down” on dissenting classes of creditors and equityholders upon the acceptance of that plan by at least one impaired accepting creditor class. Moreover, minority members of a class may be deemed to be members of an accepting class if the requisite majority of that class votes to accept the proposed plan.

Even if a class of claims is entitled to a recovery in a reorganization or liquidation proceeding, such recovery could be in the form of instruments or interests different from the form of instrument or interest which formed the basis for the original claims, including debt securities, equity securities, convertible securities, warrants, options, cash, interests in litigation claims or trusts formed to pursue such litigation claims, interests in liquidation trusts or other property or interests, any of which could be illiquid and/or difficult to value. Furthermore, the terms of instruments or interests distributed in a bankruptcy or insolvency proceeding may differ from prevailing market terms for similar instruments or interests, and may have a market value of less than par.

The Company may be presented with the opportunity to take new positions in connection with the reorganization or liquidation of an issuer of Portfolio Assets, including through a post-petition financing, equity or equity rights offering, litigation financing, bridge financing or other exit financing. The Company may take such positions as part of an in-court or out-of-court restructuring of an issuer of Portfolio Assets, and any such position will be subject to the same risks as other Portfolio Assets of the Company and others associated with past bankruptcy entities.

Contractual subordination provisions are generally enforceable when a company is in bankruptcy, as are most inter-creditor agreement terms. However, there are instances where creditors and equityholders may lose their ranking and priority when they take over management and functional operating control of a debtor. In those cases where the Company, by virtue of such action, is found to exercise “domination and control” of a debtor, the Company may lose its priority if the debtor or other creditors can demonstrate that the debtor’s business was adversely impacted or other creditors and/or equityholders were harmed by improper or unfair actions of the Company, whether or not the Company is found to be a controlling party of the debtor. In addition, debt extended to a financially distressed company by an entity that owns an equity interest in the borrower may be recharacterized as having been an equity capital contribution, rather than a debt obligation.

Notwithstanding the corporate structure of various debtor entities, such as special purpose entities created to hold assets and to structure for bankruptcy remoteness, such entities may, in certain cases, be consolidated in bankruptcy proceedings, which can affect the outcome of such proceedings and the amounts ultimately received by creditors. In addition, if a claim can be asserted against only a corporate holding entity, such claim may be structurally subordinated to direct claims against an affiliated entity that owns assets directly.

Any one or more of the above factors could materially and adversely affect the value of, and return on, the Company’s assets.

Changes in bankruptcy and insolvency laws may increase the risk of losses on the Company’s positions.

The U.S. Bankruptcy Code and other laws and regulations affecting debtors’ and creditors’ rights are subject to change, including by way of legislative action or judicial interpretation. By way of example, in 2021, legislation was proposed (S. 3022, the Stop Wall Street Looting Act of 2021) that could impose additional risks of liability for the Company or its positions. As proposed, this legislation could make the Company jointly and severally liable for all liabilities of an asset, including debt, legal judgments, WARN Act violations and pension-related obligations and impose a statutory presumption that fraudulent transfers have occurred with respect to certain “change in control

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transactions” undertaken in the eight years before a bankruptcy filing. In addition, governmental actors have shown a willingness to intervene in bankruptcy-related matters, for example, the U.S. government’s bailouts of General Motors and Chrysler, which may increase uncertainty regarding the enforcement of creditors’ rights and the bankruptcy process generally. Any such actions could alter the expected outcome or timeline, or introduce greater uncertainty regarding the expected outcome of an asset of the Company, which may adversely affect such asset or the Company’s program.

Non-U.S. bankruptcy and insolvency laws may increase the risk of losses on the Company’s positions.

Portfolio Assets may include securities or obligations collateralized by assets located outside of the United States, or of issuers or guarantors organized under the laws of jurisdictions other than the United States. Similarly, issuers or guarantors of securities constituting Portfolio Assets may have a principal place of business, establishment or substantial assets or personnel located outside of the United States. As a result, such securities or obligations may be subject to bankruptcy or insolvency laws of non-U.S. jurisdictions. These laws may be substantially less favorable to creditors than the U.S. Bankruptcy Code, which may materially and adversely affect the Company’s business, results of operations, financial condition and net worth.

The Company faces risks arising from providing debtor-in-possession and rescue financing and could incur partial or total losses if the debtor fails to successfully restructure or reorganize or due to insufficient collateral or otherwise.

The Company may support and/or participate in the provision of debtor-in-possession (“DIP”) or rescue loans in implementing its strategy. A DIP or rescue loan may be needed to enable a financially distressed company to operate during a bankruptcy case or pending approval or completion of an acquisition or restructuring. A DIP loan is made to a debtor in bankruptcy and requires the approval of the bankruptcy court in which the case is pending. In the context of a DIP or rescue loan, the Company generally will obtain a secured and/or a priority claim against the debtor’s assets that would permit the Company to foreclose on its collateral if the debtor fails to restructure or reorganize. In addition, if the Company wished to participate in the restructured or reorganized entity, it could agree to convert its loan into debt or equity interests issued in connection with the restructuring or reorganization. If the debtor fails to successfully restructure or reorganize, or if the assets pledged or charged as collateral for the Company’s DIP or rescue loan are insufficient, the Company may not be able to recover the full amount lent to the debtor and may lose money.

The Company may be subject to claims under lender liability, equitable subordination and debt recharacterization theories.

Some judicial decisions in the United States have upheld the right of borrowers or their creditors to sue lending institutions on the basis of various evolving legal theories (collectively termed “lender liability”). Generally, lender liability is founded upon the premise that a lender has violated a duty, whether implied or contractual, owed to the borrower or has assumed a degree of control over the borrower resulting in creation of a fiduciary duty owed to the borrower or its other creditors or shareholders. In addition, courts have in some cases applied the doctrine of equitable subordination to subordinate a creditor’s claim against a borrower to claims of other creditors of the borrower when the creditor is found to have engaged in unfair, inequitable or fraudulent conduct. There can be no assurance as to whether any fund, lending institution or other party from which the Company may directly or indirectly acquire such claims engaged in any such conduct and, if it did, as to whether the Company would be subject to claims that the Portfolio Assets should be equitably subordinated based on such conduct. Because of the nature of certain of the Portfolio Assets, the Company could be subject to allegations of lender liability or to claims that the Portfolio Assets should be equitably subordinated.

In addition, claims of creditors can be recharacterized as equity if a court determines that the terms of the debt or the creditor’s actions in failing to enforce the debt evidence an intention to treat the debt as equity. Debt recharacterization is often based on multi-factor tests derived from tax court cases that afford a bankruptcy court considerable discretion to recharacterize and alter the status and enforceability of debt. Debt recharacterization is a greater risk in situations where a creditor, such as the Company, owns both equity and debt of an entity. Recharacterization could materially and adversely affect the value of the Company’s assets.

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The Company’s instruments are subject to fraudulent conveyance and preference considerations and thus involve heightened risk of loss.

Various federal and state laws enacted for the protection of creditors may apply to the purchase of the Portfolio Assets, transfers, payments or liens related thereto, by virtue of the Company’s role as a creditor with respect to the borrowers under such Portfolio Assets. If a court, in a lawsuit brought by an unpaid creditor, a debtor-in-possession, a trustee in bankruptcy or their respective representatives, were to find that the debtor either (i) took any action to intentionally delay or frustrate exercise of creditor rights or (ii) (a) did not receive fair consideration or reasonably equivalent value for incurring indebtedness or the grant of any security interest or other lien securing such indebtedness and, (b) after giving effect to such indebtedness and/or grant of any security interest or other lien, the debtor (1) was insolvent, (2) was engaged in a business for which the remaining assets of such issuer constituted unreasonably small capital or (3) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature, such court could, under certain circumstances, invalidate, in whole or in part, such indebtedness and such security interest or other lien as fraudulent conveyances, could subordinate such indebtedness to existing or future creditors of the debtor and could allow the debtor to recover amounts previously paid by the debtor to the creditor, including to the Company, in satisfaction of such indebtedness or proceeds of such security interest or other lien previously applied in satisfaction of such indebtedness.

The measure of insolvency for purposes of the foregoing will vary. Generally, an issuer or obligor would be considered insolvent at a particular time if the sum of its debts were then greater than all of its property at a fair valuation, or if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liabilities on its existing debts as they became absolute and matured. There can be no assurance as to what standard a court would apply in order to determine whether the issuer or obligor was “insolvent” after giving effect to the incurrence of the indebtedness and/or the granting of any security interest or other lien or that, regardless of the method of valuation, a court would not determine that the issuer was “insolvent” upon giving effect to such incurrence of indebtedness and/or grant of security interests or other lien.

The Company may acquire bank debt or other indebtedness issued by a debtor which is guaranteed by other entities within the debtor’s corporate family. In such circumstances, the debtor entity may own few or no assets other than the equity of its subsidiaries and, as a result, any recovery may be available only, if at all, from the entities that guaranteed the indebtedness. There is a risk, however, that the obligations of such guarantors and any security interests or other liens issued by the guarantors to secure such obligations may be avoided as fraudulent conveyances in the event that a court were to determine that such guarantors were financially impaired or insolvent and did not receive reasonably equivalent value in exchange for the issuance of the guarantees and for the security interests or other liens granted by the guarantors. A court could determine that the guarantors did not receive reasonably equivalent value or fair consideration in incurring the obligations or granting the security interests or other liens despite the existence of “indirect” benefits to the guarantors, such as the strengthening of the corporate enterprise in the transaction. In addition, provisions in guarantees and other similar documents governing similar obligations by which fraudulent conveyance exposure is sought to be reduced or eliminated, such as so-called “savings clauses,” may not be enforceable. As a result, the Portfolio Asset in corporate bank debt or other indebtedness guaranteed by subsidiaries of a borrower could be subject to avoidance as a fraudulent conveyance.

If a transaction is found to have been a fraudulent conveyance, the transferee may be compelled to return the value of the assets transferred as of the time of the transfer, even if the then current value of the assets is substantially less. In addition, unless the transferee is deemed to be a “good faith” transferee, the return of the asset value may not even provide for reductions based on value provided by the transferee to the transferor.

In addition, in the event of the insolvency, as determined by a court based on the law of the jurisdiction which is being applied, of an issuer of a Portfolio Asset, payments made on the Portfolio Asset, management or similar fees paid to the Company or new liens granted, could be subject to avoidance as a “preference” if made within a certain period of time, which may be as long as one year, before a bankruptcy filing depending on a number of factors.

In general, if payments on a Portfolio Asset are avoidable, whether as a fraudulent conveyance or preference, such payments can be recaptured either from the initial recipient, such as the Company, or from subsequent transferees of such payments, potentially including Shareholders. In addition, if the grant of a security interest or other lien is avoidable, whether as a fraudulent conveyance or preference, the value of the security interest or other lien can be recovered from the initial transferee or the entity for whose benefit such transfer was made, such as the Company, and such recovery could include the diminution in value of the property which was subject to the security interest or other lien from the date of transfer.

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There can be no assurance that a successful cause of action for fraudulent conveyance or preference will not occur, or as to whether any fund, lending institution or other party from which the Company may directly or indirectly acquire a Portfolio Asset engaged in any conduct to give rise to such causes of action, and if it did, as to whether such causes of action could be asserted against the Company.

The Company faces portfolio company risk, especially with respect to those assets which are stressed, distressed, in special situations or otherwise experiencing financial difficulties.

The Company’s Portfolio Assets, some of which are expected to be in stressed and distressed companies or represent “special situations”, may involve a high degree of business and financial risk. See “—Positions in stressed and distressed assets are speculative in nature and may incur significant or total losses for the Company.” and “—The Company may acquire or take positions in “special situations”, which typically involve elevated risk due to, among other things, incomplete information and asymmetric risks.” Portfolio companies, including any Platform Company, may be in early stages of development, may have operating losses or significant variations in operating results and may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence. Portfolio companies, including any Platform Companies, will also include companies that are experiencing or are expected to experience financial difficulties, which may never be overcome. In addition, many of them will have weak financial conditions and may require substantial additional capital to support their operations, to finance expansion or to maintain their competitive positions. Portfolio companies, including any Platform Companies, may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing and other capabilities and a larger number of qualified managerial and technical personnel. In addition, portfolio companies, including any Platform Companies, in which the Company expects to acquire may be required to comply with numerous U.S. and non-U.S. statutory and regulatory standards. A portfolio company, including any Platform Company, in which the Company acquires could be materially and adversely affected as a result of statutory or regulatory changes or changes in judicial or administrative interpretations of existing laws and regulations that impose more comprehensive or stringent requirements on such company, the markets in which such company operates or such company’s industry generally.

There can be no assurance that a portfolio company’s management team, including a Platform Company’s management team, will be able to operate such company successfully. In addition, instances of fraud or other illegal practices committed by the management team of a portfolio company may undermine the Company’s position in such portfolio company, or Platform Company, as applicable, and the Company may suffer losses. In addition, portfolio companies, including any Platform Companies, need to attract, retain and develop executives and members of their management teams. There can be no assurance that a portfolio company, including any Platform Company, will be able to attract, retain and develop suitable members of its management team, which may adversely and materially affect the Company.

The Company may incur contingent liabilities in connection with its acquisitions, which would involve a higher risk of loss.