UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21238
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PIMCO Corporate Opportunity Fund
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
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(Address of principal executive offices) (Zip code)
Lawrence G. Altadonna - 1345 Avenue of the Americas, New York, New York 10105
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(Name and address of agent for service)
Registrant's telephone number, including area code: 212-739-3371
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Date of fiscal year end: November 30
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Date of reporting period: November 30
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORT TO SHAREHOLDERS
ANNUAL REPORT
11.30.04
PIMCO CORPORATE OPPORTUNITY FUND
[PTY LISTED NYSE THE NEW YORK STOCK EXCHANGE LOGO]
CONTENTS
Letter to Shareholders 1
Performance & Statistics 2
Schedule of Investments 3-10
Statement of Assets and Liabilities 11
Statement of Operations 12
Statement of Changes in Net Assets 13
Notes to Financial Statements 14-21
Financial Highlights 22
Report of Independent Registered Public Accounting Firm 23
Dividend Reinvestment Plan 24
Tax Information, Other Information, Annual Shareholder Meeting Results 25
Board of Trustees 26
Privacy Policy, Proxy Voting Policies & Procedures 27
[PIMCO ADVISORS LOGO]
PIMCO CORPORATE OPPORTUNITY FUND LETTER TO SHAREHOLDERS
January 14, 2005
Dear Shareholder:
We are pleased to provide you with the annual report of the PIMCO Corporate
Opportunity Fund (the "Fund") for the year ended November 30, 2004.
Please refer to the following page for specific Fund information. If you have
any questions regarding the information provided, please contact your financial
advisor or call our shareholder services area at 1-800-331-1710. Please note
that a wide range of information and resources can be accessed through our Web
site, www.pimcoadvisors.com.
Together with PA Fund Management LLC the Fund's investment manager and Pacific
Investment Management Company LLC, the Fund's sub-adviser, we thank you for
investing with us. We remain dedicated to serving your investment needs.
Sincerely,
/s/ Robert E. Connor /s/ Brian S. Shlissel
Robert E. Connor Brian S. Shlissel
CHAIRMAN PRESIDENT, CHIEF EXECUTIVE OFFICER
1
PIMCO CORPORATE OPPORTUNITY FUND PERFORMANCE & STATISTICS
November 30, 2004 (unaudited)
SYMBOL: PRIMARY INVESTMENTS: INCEPTION DATE:
PTY U.S. dollar-denominated December 27, 2002
corporate debt obligations
OBJECTIVE: of varying maturities TOTAL NET ASSETS(1):
Seeks maximum total return and other corporate $1,658.2 billion
through a combination of income-producing
current income and capital securities. PORTFOLIO MANAGERS:
appreciation. David Hinman
Mark Kiesel
TOTAL RETURN(2): MARKET PRICE NAV
--------------------------------------------------------------------------------------
Six Months ended 11/30/04 12.42% 10.59%
1 Year ended 11/30/04 13.29% 12.30%
Commencement of Operations (12/27/02) to 11/30/04 18.52% 21.62%
COMMON SHARE PRICE PERFORMANCE:
Commencement of Operations (12/27/02) to 11/30/04
[CHART]
AT NAV AT MARKET PRICE
12/27/2002 $ 14.30 $ 15.01
1/3/2003 $ 14.35 $ 15.04
1/10/2003 $ 14.70 $ 15.30
1/17/2003 $ 14.62 $ 15.34
1/24/2003 $ 14.59 $ 15.19
1/31/2003 $ 14.63 $ 15.29
2/7/2003 $ 14.63 $ 15.40
2/14/2003 $ 14.49 $ 15.62
2/21/2003 $ 14.51 $ 15.44
2/28/2003 $ 14.59 $ 15.44
3/7/2003 $ 14.78 $ 15.72
3/14/2003 $ 14.75 $ 15.61
3/21/2003 $ 14.64 $ 15.37
3/28/2003 $ 14.94 $ 15.49
4/4/2003 $ 15.26 $ 15.80
4/11/2003 $ 15.23 $ 15.56
4/18/2003 $ 15.56 $ 15.84
4/25/2003 $ 16.00 $ 15.84
5/2/2003 $ 16.47 $ 16.36
5/9/2003 $ 16.57 $ 16.50
5/16/2003 $ 16.50 $ 16.43
5/23/2003 $ 16.61 $ 16.50
5/30/2003 $ 16.59 $ 16.61
6/6/2003 $ 16.88 $ 16.86
6/13/2003 $ 17.06 $ 17.09
6/20/2003 $ 17.01 $ 16.82
6/27/2003 $ 16.85 $ 16.79
7/3/2003 $ 16.83 $ 17.02
7/11/2003 $ 16.78 $ 16.63
7/18/2003 $ 16.64 $ 16.30
7/25/2003 $ 16.50 $ 16.13
8/1/2003 $ 15.84 $ 15.38
8/8/2003 $ 15.91 $ 15.86
8/15/2003 $ 15.47 $ 15.45
8/22/2003 $ 15.94 $ 15.61
8/29/2003 $ 16.08 $ 15.79
9/5/2003 $ 16.33 $ 16.13
9/12/2003 $ 16.33 $ 16.32
9/19/2003 $ 16.60 $ 16.36
9/26/2003 $ 16.68 $ 16.29
10/3/2003 $ 16.68 $ 16.35
10/10/2003 $ 16.65 $ 16.18
10/17/2003 $ 16.77 $ 16.27
10/24/2003 $ 16.84 $ 16.35
10/31/2003 $ 16.86 $ 16.58
11/7/2003 $ 16.83 $ 16.64
11/14/2003 $ 17.06 $ 16.65
11/21/2003 $ 17.11 $ 16.62
11/28/2003 $ 17.08 $ 16.88
12/5/2003 $ 17.40 $ 16.99
12/12/2003 $ 17.31 $ 16.86
12/19/2003 $ 17.48 $ 17.29
12/26/2003 $ 17.19 $ 17.22
1/2/2004 $ 17.24 $ 17.17
1/9/2004 $ 17.71 $ 17.63
1/16/2004 $ 17.64 $ 17.55
1/23/2004 $ 17.68 $ 17.74
1/30/2004 $ 17.44 $ 16.88
2/6/2004 $ 17.32 $ 17.44
2/13/2004 $ 17.32 $ 17.23
2/20/2004 $ 17.27 $ 16.57
2/27/2004 $ 17.26 $ 16.80
3/5/2004 $ 17.43 $ 17.03
3/12/2004 $ 17.29 $ 16.99
3/19/2004 $ 17.23 $ 17.00
3/26/2004 $ 17.19 $ 17.02
4/2/2004 $ 17.11 $ 16.85
4/8/2004 $ 17.17 $ 16.70
4/16/2004 $ 16.87 $ 15.61
4/23/2004 $ 16.85 $ 15.85
4/30/2004 $ 16.70 $ 15.87
5/7/2004 $ 16.30 $ 15.29
5/14/2004 $ 15.92 $ 15.07
5/21/2004 $ 16.05 $ 15.33
5/28/2004 $ 16.20 $ 15.89
6/4/2004 $ 16.14 $ 15.96
6/10/2004 $ 16.06 $ 15.59
6/18/2004 $ 16.15 $ 15.49
6/25/2004 $ 16.19 $ 16.05
7/2/2004 $ 16.33 $ 16.40
7/9/2004 $ 16.41 $ 16.48
7/16/2004 $ 16.51 $ 16.50
7/23/2004 $ 16.45 $ 16.50
7/30/2004 $ 16.44 $ 16.57
8/6/2004 $ 16.63 $ 16.84
8/13/2004 $ 16.55 $ 16.96
8/20/2004 $ 16.64 $ 16.85
8/27/2004 $ 16.74 $ 16.96
9/3/2004 $ 16.77 $ 17.12
9/10/2004 $ 16.80 $ 17.17
9/17/2004 $ 16.93 $ 17.18
9/24/2004 $ 16.98 $ 17.30
10/1/2004 $ 16.92 $ 17.23
10/8/2004 $ 17.09 $ 17.56
10/15/2004 $ 17.03 $ 17.55
10/22/2004 $ 17.12 $ 17.34
10/29/2004 $ 17.26 $ 17.36
11/5/2004 $ 17.23 $ 17.29
11/12/2004 $ 17.08 $ 17.03
11/19/2004 $ 17.14 $ 17.08
11/26/2004 $ 17.14 $ 17.24
11/30/2004 $ 17.05 $ 17.01
NET ASSET VALUE/MARKET PRICE:
Market Price $ 17.01
--------------------------------------------
Net Asset Value $ 17.05
--------------------------------------------
Discount to Net Asset Value 0.23%
--------------------------------------------
Market Price Yield(3) 9.70%
--------------------------------------------
[CHART]
MOODY'S RATINGS AS A % OF TOTAL INVESTMENTS
Aaa 1.9%
Aa 0.7%
A 9.3%
Baa 30.1%
Ba 32.1%
B 14.6%
Caa 6.0%
Ca 1.4%
NR 3.9%
(1) Inclusive of net assets attributable to Preferred Shares outstanding.
(2) PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. Total return is
calculated by subtracting the value of an investment in the Fund at the
beginning of each specified period from the value at the end of the period and
dividing the remainder by the value of the investment at the beginning of the
period and expressing the result as a percentage. The calculation assumes that
all of the Fund's income dividends and capital gain distributions have been
reinvested at prices obtained under the dividend reinvestment plan. Total return
does not reflect broker commissions or sales charges. Total return for a period
more than one year represents the average annual total return. Total return for
a period of less than one year is not annualized.
An investment in the Fund involves risk, including the loss of principal. Total
return, price, yield and net asset value will fluctuate with changes in market
conditions. This data is provided for information only and is not intended for
trading purposes. Closed-end funds, unlike open-end funds, are not continuously
offered. There is a one-time public offering and once issued, shares of
closed-end funds are sold in the open market through a stock exchange. Net asset
value is total assets applicable to common shareholders less total liabilities
divided by the number of common shares outstanding. Holdings are subject to
change daily.
(3) Market Price Yield is determined by dividing the annualized current monthly
per share dividend to common shareholders by the market price per common share
at November 30, 2004.
2
PIMCO CORPORATE OPPORTUNITY FUND SCHEDULE OF INVESTMENTS
November 30, 2004
PRINCIPAL
AMOUNT CREDIT RATING*
(000) (MOODY'S/S&P) VALUE
-------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS & NOTES - 79.5%
AIRLINES - 4.4%
Continental Airlines, Inc., pass thru certificates,
$ 4,339 6.70%, 6/15/21, Ser. 01-1 Baa3/A- $ 4,191,074
2,990 7.37%, 12/15/15, Ser. 01-1 Ba1/BBB 2,398,155
2,000 7.49%, 4/2/12, Ser. 00-2 Baa3/A 1,995,707
10,034 7.71%, 10/2/22, Ser. 00-2 Baa3/A- 9,832,387
Delta Air Lines, Inc., pass thru certificates,
5,000 7.57%, 11/18/10, Ser. 00-1 Ba1/BBB- 4,786,555
8,000 7.92%, 11/18/10, Ser. 00-1 B3/B- 5,728,992
Northwest Airlines Corp., pass thru certificates,
1,624 6.81%, 2/1/20, Ser. 99-1A Baa3/BBB- 1,492,021
12,500 6.84%, 4/1/11, Ser. 01-1 Baa3/BBB+ 12,514,038
5,551 7.58%, 3/1/19, Ser. 99-2A Baa2/A- 5,696,466
2,552 7.67%, 1/2/15, Ser. 91-1 Ba2/B 2,124,754
United Air Lines, Inc., pass thru certificates,
15,411 7.19%, 4/1/11, Ser. 00-2 NR/NR 13,374,609
9,997 7.73%, 7/1/10, Ser. 00-1 NR/NR 8,465,100
---------------
72,599,858
===============
AUTOMOTIVE - 1.5%
4,000 Auburn Hills Trust, 12.375%, 5/1/20 A3/BBB 6,136,548
6,000 Ford Motor Co., 9.98%, 2/15/47 Baa1/BBB- 7,398,702
10,000 General Motors Corp., 9.40%, 7/15/21 Baa2/BBB- 11,052,570
---------------
24,587,820
===============
BANKING - 1.8%
HSBC Capital Funding L.P.,
1,000 4.61%, 6/27/13, VRN (a) A1/A- 960,093
2,000 10.18%, 6/30/30, VRN A1/A- 3,066,482
625 NCNB, 9.375%, 9/15/09 Aa3/A 761,015
9,706 Riggs Capital Trust II, 8.875%, 3/15/27, Ser. C Ba2/CCC- 9,851,590
3,500 Royal Bank of Canada, 2.71%, 2/8/05, (b) Aa3/A+ 3,514,290
2,000 Royal Bank of Scotland Group, Inc., 7.65%, 9/30/31, VRN A1/A 2,410,006
8,000 Sumitomo Mitsui Banking, 8.15%, 8/1/08 A2/NR 8,634,408
---------------
29,197,884
===============
CHEMICALS - 0.6%
8,445 Equistar Chemical L.P., 10.125%, 9/1/08 B2/B+ 9,732,862
---------------
COMPUTER SERVICES - 0.5%
Electronic Data Systems Corp.,
4,000 6.50%, 8/1/13, Ser. B Ba1/BBB- 4,057,132
3,500 7.125%, 10/15/09 Ba1/BBB- 3,766,364
---------------
7,823,496
===============
DIVERSIFIED MANUFACTURING - 3.4%
5,000 Hutchison Whampoa Int'l Ltd., 7.45%, 11/24/33 (a)
Tyco International Group SA, A3/A- 5,315,085
EURO 15,000 5.50%, 11/19/08 Baa3/BBB 21,580,453
$ 26,785 6.375%-7.00%, 10/15/11-6/15/28 Baa3/BBB 29,679,275
---------------
56,574,813
===============
DRUGS & MEDICAL PRODUCTS - 0.5%
7,500 Wyeth, 5.50%, 2/1/14 Baa1/A 7,650,075
---------------
3
PRINCIPAL
AMOUNT CREDIT RATING*
(000) (MOODY'S/S&P) VALUE
-------------------------------------------------------------------------------------------------------------------
ELECTRONICS - 0.1%
$ 1,000 Arrow Electronics Inc., 6.875%, 6/1/18 Baa3/BBB- $ 1,053,142
---------------
ENERGY - 1.4%
7,000 Noram Energy Resources Corp., 6.50%, 2/1/08 Ba1/BBB 7,510,468
2,697 Salton Sea Funding, Inc., 8.30%, 5/30/11, Ser. E Ba1/BB+ 2,996,527
12,000 Sithe Independence Funding Corp., 9.00%, 12/30/13, Ser. A Ba1/BBB- 13,240,752
---------------
23,747,747
===============
FINANCIAL SERVICES - 0.3%
2,000 Goldman Sachs Group Inc., 2.43%, 1/24/05, (b) Aa3/A+ 2,005,340
2,500 Morgan Stanley, 2.56%, 1/18/05, (a) (b) Aa3/A+ 2,500,030
---------------
4,505,370
===============
FINANCING - 6.8%
5,000 AES Red Oak LLC., 9.20%, 11/30/29, Ser. B B2/B+ 5,775,000
1,000 Beaver Valley Funding Corp., 8.625%, 6/1/07 Baa3/BB+ 1,066,747
2,500 Canadian Oil Sands Trust, 4.80%, 8/10/09 (a) Baa2/BBB+ 2,512,645
8,362 Cedar Brakes II LLC., 9.875%, 9/1/13 Caa1/CCC+ 10,096,994
22,240 Ford Motor Credit Co., 7.75%-8.875%, 1/19/10-6/1/10 A3/BBB- 23,909,533
9,200 Fuji JGB Investment LLC., 9.87%, 6/30/08, VRN Baa1/BB 10,849,744
General Electric Capital Corp.,
1,100 8.50%, 7/24/08 Aaa/AAA 1,266,176
4,990 9.83%, 12/15/08 (f) NR/NR 6,076,698
General Motors Acceptance Corp.,
10,500 2.97%-3.19%, 1/18/05-2/18/05 (b) Baa1/BBB- 10,438,526
15,000 7.75%-8.875%, 1/19/10-11/1/31 Baa1/BBB- 16,082,825
12,455 Heller Financial Inc., 6.375%, 3/15/06 Aaa/AAA 12,941,281
2,110 IBJ Preferred Capital Co., LLC, 8.79%, 6/30/08, VRN (a) Baa1/BB 2,421,225
7,500 Pemex Project Funding Master Trust, 8.625%, 2/1/22 Baa1/BBB- 8,568,750
---------------
112,006,144
===============
FOOD SERVICES - 0.7%
7,500 Delhaize America Inc., 7.375%-8.125%, 4/15/06-4/15/11 Ba1/BB+ 8,412,815
1,500 Heinz (H.J.) Co., 6.19%, 12/1/05, VRN (a) (c) A3/NR 1,542,741
755 Tricon Global Restaurants, Inc., 8.50%, 4/15/06 Baa3/BBB- 806,408
---------------
10,761,964
===============
HEALTHCARE & HOSPITALS - 2.5%
9,310 Columbia HCA Healthcare Corp., 8.85%-9.00%, 1/1/07-12/15/14 Ba2/BB+ 10,155,991
19,000 HEALTHSOUTH Corp., 7.625%, 6/1/12 NR/NR 18,786,250
13,000 Tenet Healthcare Corp., 6.375%-7.375%, 12/1/11-2/1/13 B3/B- 12,265,000
---------------
41,207,241
===============
HOTELS & GAMING - 3.9%
1,000 Caesars Entertainment, Inc., 8.875%, 9/15/08 Ba2/BB- 1,136,250
7,730 Harrah's Operating Co., Inc., 5.50%-8.00%, 7/1/10-2/1/11 Baa3/BBB- 8,440,135
8,000 Hilton Hotels Corp., 7.625%, 12/1/12 Baa3/BBB- 9,281,328
11,900 ITT Corp., 7.375%-7.75%, 11/15/15-11/15/25 Ba1/BB+ 13,161,063
1,200 Mandalay Resort Group, 9.375%, 2/15/10 Ba3/BB- 1,395,000
2,500 MGM Mirage, Inc., 8.50%, 9/10/10 Ba1/BB+ 2,853,125
Park Place Entertainment,
900 8.50%, 11/15/06 Ba1/BB+ 978,750
4,875 9.375%, 2/15/07 Ba2/BB- 5,374,688
12,250 Starwood Hotels & Resorts, 7.875%, 5/1/12 Ba1/BB+ 14,087,500
6,689 Times Square Hotels Trust, 8.53%, 8/1/26 (a) (c) (f) Baa3/BB+ 7,959,673
---------------
64,667,512
===============
4
PRINCIPAL
AMOUNT CREDIT RATING*
(000) (MOODY'S/S&P) VALUE
-------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.1%
$ 1,000 Prudential Financial Inc., 4.10%, 11/15/06 A3/A- $ 1,010,751
---------------
MISCELLANEOUS - 1.7%
26,100 Morgan Stanley TRACERS, 5.89%, 3/1/07 (a) (c) (d) A3/NR 27,122,467
---------------
MULTI-MEDIA - 9.5%
35,250 AOL Time Warner Inc., 6.875%-8.375%, 8/15/07-7/15/33 Baa1/BBB+ 42,187,949
11,000 AT&T Broadband Corp., 8.375%, 3/15/13 Baa3/BBB 13,348,104
7,500 Comcast Cable Communications, 6.75%, 1/30/11 Baa3/BBB 8,329,350
5,025 Cox Communications Inc., 7.75%, 8/15/06 Baa3/BBB 5,356,846
CSC Holdings Inc.,
30,690 7.25%-7.875%, 7/15/08-7/15/18 B1/BB- 32,644,525
4,500 8.125%, 8/5/09, Ser. B B1/BB- 4,916,250
16,050 News America Holdings, Inc., 7.43%, 10/1/26 Baa3/BBB- 18,273,246
15,000 Rogers Cable Inc., 8.75%, 5/1/32 Ba3/BB+ 16,950,000
13,000 Shaw Communications Inc., 7.20%-8.25%, 4/11/10-12/15/11 Ba2/BB+ 14,666,250
---------------
156,672,520
===============
OIL & GAS - 8.0%
5,000 Centerpoint Energy Resources Corp., 7.875%, 4/1/13, Ser. B Ba1/BBB 5,886,045
28,200 Coastal Corp., 7.42%-7.625%, 9/1/08-2/15/37 Caa1/CCC+ 25,102,000
Columbia Energy Group,
1,043 7.32%, 11/28/10, Ser. E Baa2/BBB 1,078,392
3,800 7.42%, 11/28/15, Ser. F Baa2/BBB 4,010,558
1,500 Dynegy Holdings, Inc., 7.67%, 11/8/16, Ser. B Caa2/B 1,455,000
12,000 Gaz Capital, 8.625%, 4/28/34 Ba2/BB- 13,560,000
1,800 Gazprom, 9.625%, 3/1/13 (b) (c) NR/BB- 2,085,750
3,932 Occidental Petroleum Corp., 7.65%, 2/15/06 Baa1/BBB+ 4,134,695
3,664 Ras Laffan Liquified Natural Gas, 3.437%, 9/15/09 (c) Baa1/A- 3,598,326
23,000 Reliant Energy Corp., 7.75%, 2/15/11 Ba1/BBB 26,600,305
10,000 Southern Natural Gas Co., 8.875%, 3/15/10 B1/B- 11,325,000
10,000 Williams Cos., Inc., 7.375%, 11/15/06 (a) Ba1/BBB- 10,687,500
17,400 Williams Gas Pipelines, Inc., 7.875%, 9/1/21 B1/B+ 19,749,000
2,500 XTO Energy Inc., 6.25%, 4/15/13 Baa3/BBB- 2,714,020
---------------
131,986,591
===============
PAPER/PAPER PRODUCTS - 3.1%
33,500 Abitibi-Consolidated, Inc., 7.50%-8.50%, 4/1/28-8/1/29 Ba3/BB 30,615,000
Georgia-Pacific Corp.,
7,000 7.50%-7.75%, 5/15/06-11/15/29 Ba3/BB+ 7,627,500
9,750 8.875%, 2/1/10 Ba2/BB+ 11,431,875
2,000 Smurfit Capital Funding plc, 7.50%, 11/20/25 B1/BB- 2,000,000
---------------
51,674,375
===============
RETAIL - 0.9%
13,000 JC Penny Co., Inc., 8.125%, 4/1/27 Ba2/BB+ 14,202,500
---------------
TELECOMMUNICATIONS - 16.1%
35,000 AT&T Corp., 9.75% 11/15/31 Ba1/BB+ 40,731,250
1,283 Calpoint Receivables Structured Trust, 7.44%, 12/10/06 (a) Caa2/NR 1,296,059
6,000 Cincinnati Bell Inc., 6.33%, 12/30/05 (b) Ba2/NR 6,045,000
18,248 MCI Inc., 5.91%-6.69%, 5/1/07-5/1/09 NR/NR 18,462,350
20,000 Nextel Communications Inc., 5.25%-7.375%, 1/15/10-8/1/15 Ba3/BB 21,575,000
21,650 Panamsat Corp., 6.875%, 1/15/28 B1/BB+ 19,376,750
23,670 Qwest Capital Funding, Inc., 7.00%-7.90%, 8/3/09-8/15/10 Caa2/B 23,293,425
6,150 Qwest Corp., 9.125%, 3/15/12 (a) Ba3/B- 7,026,375
5
PRINCIPAL
AMOUNT CREDIT RATING*
(000) (MOODY'S/S&P) VALUE
-------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
$ 7,950 Quest Service Corp., 13.50%, 12/15/07 (a) Caa1/B $ 9,102,750
12,340 Rogers Cantel, Inc., 9.75%, 6/1/16 Ba3/BB 14,592,050
1,000 Rogers Wireless, Inc., 7.625%, 12/15/11 (a) (f) Ba3/BB 868,631
250 SBC Communications Inc., 4.125%, 9/15/09 A2/A 248,038
65,850 Sprint Capital Corp., (FON Group) 6.90%-9.25% 1/30/11-3/15/32 Baa3/BBB- 77,634,318
3,000 U.S. West Communication, Inc., 7.25%, 9/15/25 Ba3/BB- 2,805,000
19,000 Verizon Global Funding Corp., 6.875%-7.25%, 12/1/10-6/15/12 A2/A+ 21,684,236
---------------
264,741,232
===============
TRANSPORTATION - 0.0%
250 CSX Corp., 9.00%, 8/15/06 Baa2/BBB 271,999
---------------
UTILITIES - 11.7%
2,000 CMS Energy Corp., 8.90%, 7/15/08 B3/B+ 2,225,000
13,042 East Coast Power LLC, 6.74%-7.07%, 3/31/08-3/31/12, Ser. B Baa3/BBB- 13,790,341
4,900 Homer City Funding LLC., 8.147%, 10/1/19 Ba2/BB 5,475,750
2,950 Indianapolis Power & Light Co., 7.375%, 8/1/07 Baa2/BBB- 3,153,804
28,960 Ipalco Enterprises, Inc., 7.375%-7.625%, 11/14/08-11/14/11 Ba1/BB- 32,690,000
Midwest Generation LLC., pass thru certificates,
28,380 8.30%, 7/12/09, Ser. A B1/B 30,863,250
13,070 8.56%, 1/2/16, Ser. B B1/B 14,703,750
5,000 8.75%, 5/1/34 (b) B1/B- 5,693,750
1,000 Ohio Edison Co., 5.647%, 6/15/09 (a) (c) Baa2/BB+ 1,030,903
7,750 PPL Capital Fund Trust I, 7.29%, 5/18/06 Ba1/BB+ 8,115,971
44,500 PSE&G Energy Holdings LLC, 8.50%-10.00%, 10/1/09-6/15/11 Ba3/BB- 51,603,750
1,100 Public Services Electric & Gas Co., 4.00%, 11/1/08 A3/A- 1,096,934
10,986 South Point Energy Center LLC, 8.40% 5/30/12 (a) B2/B 9,543,821
10,500 Western Energy Inc., 7.875%, 5/1/07 Ba1/BBB- 11,504,829
---------------
191,491,853
===============
WASTE DISPOSAL - 0.0%
500 Allied Waste North America, 7.625%, 1/1/06, Ser. B B2/BB- 516,250
---------------
Total Corporate Bonds & Notes (cost-$1,174,727,248) 1,305,806,466
===============
SOVEREIGN DEBT OBLIGATIONS - 5.4%
BRAZIL - 1.9%
Federal Republic of Brazil,
6,618 3.125%, 4/15/05, (b) B1/BB- 6,219,791
24,041 8.00%-11.50%, 3/12/08-4/15/14 B1/BB- 25,709,061
---------------
31,928,852
===============
MEXICO - 1.2%
15,000 United Mexican States, 6.375%-11.375%, 1/14/11-9/24/22 Baa2/BBB- 18,930,000
---------------
PANAMA - 0.9%
12,000 Republic of Panama, 9.375%-10.75%, 7/23/12-5/15/20 Ba1/BB 14,340,000
---------------
PERU - 0.9%
13,000 Republic of Peru, 9.125%, 2/21/12 Ba3/BB 14,696,500
---------------
RUSSIA - 0.4%
6,294 Russian Federation, 5.00%, 3/1/30, Ser. REGS Baa3/BB+ 6,279,832
---------------
UKRAINE - 0.1%
1,467 Republic of Ukraine, 7.65%-11.00%, 3/15/07-6/11/13 B1/B+ 1,509,704
---------------
Total Sovereign Debt Obligations (cost-$76,148,245) 87,684,888
===============
6
PRINCIPAL
AMOUNT CREDIT RATING*
(000) (MOODY'S/S&P) VALUE
-------------------------------------------------------------------------------------------------------------------
SENIOR LOANS (e) - 2.1%
FINANCE - 0.2%
$ 2,925 Nextel Finance Co., 4.19%, 12/15/10, Term B $ 2,932,075
---------------
MULTI-MEDIA - 0.6%
9,975 Charter Communications Holdings, LLC, 5.29%-5.38%, 4/26/11, Term B 9,963,419
---------------
UTILITIES - 1.3%
1,429 AES Corp., 4.25%-4.42% 4/30/08, Term B 1,455,654
19,493 Reliant Resources Inc., 5.88%-6.07%, 3/15/07 19,911,264
---------------
21,366,918
---------------
Total Senior Loans (cost-$32,474,145) 34,262,412
===============
MORTGAGE-BACKED SECURITIES - 1.3%
7,942 GSMPS Mortgage Loan Trust, 7.50%, 12/21/26 (a) 8,371,353
2,129 PPM America High Yield CBO Ltd., 2.07%, 6/1/11 (a) (f) 1,687,588
6,694 Small Business Administration, 5.24%, 8/1/23 6,857,487
Small Business Administration, Certificate of Participation,
2,390 6.03%, 2/1/12 2,490,367
1,570 6.44%, 6/1/21, Ser. 20-f 1,692,430
---------------
Total Mortgage-Backed Securities (cost-$21,251,419) 21,099,225
===============
ASSET-BACKED SECURITIES - 0.9%
5,800 Greenpoint Manufactured Housing LLC, 8.30%, 10/15/26 Ca/NR 4,993,655
3,910 GSAMP Trust, 2.43%, 12/25/04, (b) Aaa/AAA 3,920,247
5,000 Long Beach Mortgage Loan Trust,
3.83%, 12/25/04, Ser 2001-4, (b) A2/NR 4,919,833
1,177 Morgan Stanley ABS Capital 2.34%, 1/25/34 NR/AAA 1,177,442
Nextcard Credit Card Trust
252 2.64%, 4/16/07 (a) (f) B3/B- 248,825
296 2.90%, 12/15/06 (a) B3/B- 297,216
---------------
Total Asset-Backed Securities (cost-$15,590,387) 15,557,218
===============
U.S. TREASURY NOTES (g) - 0.1%
1,300 3.875%, 5/15/09 (cost-$1,294,048) Aaa/AAA 1,314,219
---------------
SHORT-TERM INVESTMENTS - 11.1%
CORPORATE NOTES - 9.5%
AUTOMOTIVE - 0.9%
8,000 DaimlerChrysler Holdings Co., 2.75%, 12/29/04, (b) A3/BBB 8,039,392
6,000 Lear Corp., 7.96%, 5/15/05, Ser. B Baa3/BBB- 6,127,290
---------------
14,166,682
===============
COMPUTER SERVICES - 0.3%
5,000 Electronic Data Systems Corp., 7.125%, 5/15/05 (a) Ba1/BBB- 5,093,790
---------------
FINANCING - 3.4%
2,500 CIT Group, Inc. 2.56% 1/31/05, (b) A2/A 2,506,473
Ford Motor Credit Co.,
14,000 2.425%-2.51%, 12/30/04-1/18/05, (b) A3/BBB- 14,002,506
7
PRINCIPAL
AMOUNT CREDIT RATING*
(000) (MOODY'S/S&P) VALUE
-------------------------------------------------------------------------------------------------------------------
FINANCING (CONTINUED)
$ 10,000 7.60%, 8/1/05 (a) A3/BBB- $ 10,271,120
18,800 General Motors Acceptance Corp., 3.33%, 10/20/05 (a) Baa1/BBB- 18,878,471
5,800 General Motors Acceptance Corp., 7.50%-8.75%, 7/15/05 Baa1/BBB- 5,970,302
1,000 Household Finance Corp., 8.00%, 5/9/05 A1/A 1,023,297
2,758 Morgan Stanley, 3.75%, 12/29/04 (b) Aa3/A+ 2,773,547
---------------
55,425,716
===============
FOOD & BEVERAGE - 0.3%
5,000 Nabisco Inc., 6.85%, 6/15/05 A3/A- 5,102,270
---------------
HEALTHCARE & HOSPITALS - 0.3%
5,000 HCA Inc., 6.91%, 6/15/05 Ba2/BB+ 5,091,270
---------------
HOTELS & GAMING - 0.1%
1,000 La Quinta Corp., 7.40%, 9/15/05 Ba3/BB- 1,027,500
---------------
METALS & MINING - 0.2%
1,650 Alcan Inc., 2.10%, 12/8/04 (a) NR/A- 1,649,909
1,000 Rio Algom Ltd., 7.05%, 11/1/05 NR/NR 1,029,697
---------------
2,679,606
===============
MULTI-MEDIA - 1.2%
121 CBS Corp., 7.15%, 5/20/05 A3/A- 123,344
5,000 Continental Cablevision, 8.875%, 9/15/05 Baa3/BBB 5,221,510
7,100 Lenfest Communications Inc., 8.375%, 11/1/05 Baa3/BBB 7,430,825
5,551 TCI Communications Inc., 7.25%-8.00%, 8/1/05 Baa3/BBB 5,696,780
1,000 Viacom, Inc., 7.75%, 6/1/05 A3/A- 1,026,006
---------------
19,498,465
===============
OIL & GAS - 1.4%
1,399 Duke Capital LLC, 6.25%, 7/15/05, Ser. A Baa3/BBB- 1,426,432
7,500 Enterprise Products Operating LP, 8.25%, 3/15/05 Baa3/BB+ 7,600,005
3,000 Parker & Parsley Petroleum Co., 8.875%, 4/15/05 Baa3/BBB- 3,062,775
11,500 Reliant Energy Corp., 8.125%, 7/15/05, Ser. B Ba1/BBB 11,858,558
---------------
23,947,770
===============
PAPER/PAPER PRODUCTS - 0.1%
1,210 Champion International Paper Co., 7.10%, 9/1/05 Baa2/BBB 1,242,121
---------------
RETAIL - 0.3%
5,000 Safeway Inc., 2.50%, 11/1/05 Baa2/BBB 4,970,620
---------------
TELECOMMUNICATIONS - 0.0%
600 U.S. West Communications, Inc., 6.625%, 9/15/05 Ba3/BB- 615,000
---------------
TOBACCO - 0.1%
2,000 Altria Group Inc., 7.00%, 7/15/05 Baa2/BBB 2,041,020
---------------
TRANSPORTATION - 0.0%
400 Union Pacific Corp., 7.60%, 5/1/05 Baa2/BBB 407,748
---------------
UTILITIES - 0.9%
4,735 AES Corp., 10.00%, 7/15/05 Ba3/BB 4,758,814
6,400 Appalachian Power Co., 4.80%, 6/15/05, Ser. E Baa2/BBB 6,468,179
2,961 Niagara Mohawk Power Corp., 6.625%, 7/1/05 A3/A+ 3,027,534
1,000 Public Services Electric & Gas Co., 9.125%, 7/1/05, Ser. BB A3/A- 1,034,981
---------------
15,289,508
===============
Total Corporate Notes (cost-$156,298,336) 156,599,086
===============
8
PRINCIPAL
AMOUNT CREDIT RATING*
(000) (MOODY'S/S&P) VALUE
-------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY DISCOUNT NOTES - 0.5%
$ 7,500 Fannie Mae, 1.99%-2.22%, 1/26/05-2/23/05 (cost-$7,468,279) Aaa/AAA $ 7,467,844
---------------
U.S. TREASURY BILLS (g) - 0.3%
5,610 1.55%-1.73%, 12/16/04 (cost-$5,606,198) AAA/Aaa 5,606,198
---------------
REPURCHASE AGREEMENTS - 0.8%
8,000 Agreement with CS First Boston Corp.,
dated 11/30/04, 1.90%, due 12/1/04,
proceeds $8,000,422: collateralized by
U.S. Treasury Inflationary Notes, 1.875%, 7/15/13,
valued at $8,216,425 including accrued interest 8,000,000
5,159 Agreement with State Street Bank & Trust Co.,
dated 11/30/04, 1.65%, due 12/1/04,
proceeds $5,159,236: collateralized by
Freddie Mac, 2.875%, 9/15/05,
valued at $5,262,959 including accrued interest 5,159,000
---------------
Total Repurchase Agreements (cost-$13,159,000) 13,159,000
===============
Total Short-Term Investments (cost-$182,531,813) 182,832,128
===============
OPTIONS PURCHASED (h) - 0.1%
CONTRACTS
(000)
-----------
250,000 Hvol Credit Default, 1.325% strike price, expires 6/20/05 437,995
625,000 Hvol Credit Default 1.50% strike price, expires 6/20/05 645,049
---------------
Total Options Purchased (cost-$3,312,500) 1,083,044
===============
TOTAL INVESTMENTS, BEFORE OPTIONS WRITTEN (cost-$1,507,329,805) - 100.5% 1,649,639,600
===============
OPTIONS WRITTEN (h) - (0.5)%
(875,000) Hvol Credit Default, 1.15% strike price, expires 6/20/05 (6,341,446)
(16,050) News America Holdings, strike price $100, expires 10/1/06 (f) (1,494,143)
---------------
Total Options Written (premiums received-$3,312,500) (7,835,589)
===============
TOTAL INVESTMENTS, NET OF OPTIONS WRITTEN (cost-$1,504,017,305) - 100.0% $ 1,641,804,011
===============
9
NOTES TO SCHEDULE OF INVESTMENTS:
* Unaudited
(a) 144A Security -- Security exempt from registration, under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, typically only to qualified institutional
investors.
(b) Floating Rate Security -- Maturity date shown is date of next rate change
and the interest rate disclosed reflects the rate in effect on November 30,
2004.
(c) Illiquid security.
(d) Credit-linked trust certificate.
(e) These securities generally pay interest at rates which are periodically
pre-determined by reference to a base lending rate plus a premium. These
base lending rates are generally either the lending rate offered by one or
more major European banks, such as the London Inter-Bank Offered Rate
("LIBOR") or the prime rate offered by one or more major United States
banks, or the certificate of deposit rate. These securities are generally
considered to be restricted as the Fund is ordinarily contractually
obligated to receive approval from the Agent bank and/or borrower prior to
disposition. Remaining maturities of senior loans may be less than the
stated maturities shown as a result of contractual or optional payments by
the borrower. Such prepayments cannot be predicted with certainty.
(f) Fair-valued security.
(g) All or partial amount segregated as initial margin on futures contracts.
(h) Non-income producing security.
GLOSSARY:
EURO - Eurodollar
NR - Not Rated
TRACERS - Traded Custody Receipts
VRN - Variable Rate Note. Maturity date shown is date of next rate change and
the interest rate disclosed reflects the rate in effect on November 30,
2004.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
10
PIMCO CORPORATE OPPORTUNITY FUND STATEMENT OF ASSETS AND LIABILITIES
November 30, 2004
ASSETS:
Investments, at value (cost-$1,507,329,805) $ 1,649,639,600
----------------------------------------------------------------------------------- ---------------
Cash (including foreign currency of $1,096,859 with a cost of $1,004,841) 1,438,248
----------------------------------------------------------------------------------- ---------------
Interest receivable 28,393,559
----------------------------------------------------------------------------------- ---------------
Receivable for investment sold 469,307
----------------------------------------------------------------------------------- ---------------
Premium for swaps purchased 345,800
----------------------------------------------------------------------------------- ---------------
Receivable for variation margin on futures contracts 166,250
----------------------------------------------------------------------------------- ---------------
Unrealized appreciation on swaps 55,533
----------------------------------------------------------------------------------- ---------------
Prepaid expenses 35,214
----------------------------------------------------------------------------------- ---------------
Total Assets 1,680,543,511
=================================================================================== ===============
LIABILITIES:
Dividends payable to common and preferred shareholders 8,944,679
----------------------------------------------------------------------------------- ---------------
Call options written, at value (premium received $3,312,500) 7,835,589
----------------------------------------------------------------------------------- ---------------
Payable for investments purchased 1,542,741
----------------------------------------------------------------------------------- ---------------
Unrealized depreciation on swaps 1,712,830
----------------------------------------------------------------------------------- ---------------
Unrealized depreciation on forward foreign currency contracts 1,153,621
----------------------------------------------------------------------------------- ---------------
Investment management fee payable 818,896
----------------------------------------------------------------------------------- ---------------
Premium for swaps sold 69,114
----------------------------------------------------------------------------------- ---------------
Accrued expenses 247,118
----------------------------------------------------------------------------------- ---------------
Total Liabilities 22,324,588
----------------------------------------------------------------------------------- ---------------
PREFERRED SHARES ($0.00001 PAR VALUE AND $25,000 NET ASSET AND LIQUIDATION VALUE
PER SHARE APPLICABLE TO AN AGGREGATE OF 22,600 SHARES ISSUED AND OUTSTANDING) 565,000,000
----------------------------------------------------------------------------------- ---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 1,093,218,923
=================================================================================== ===============
COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Common stock:
Par value ($0.00001 per share, applicable to 64,122,189 shares issued and
outstanding) $ 641
----------------------------------------------------------------------------------- ---------------
Paid-in-capital in excess of par 912,387,529
----------------------------------------------------------------------------------- ---------------
Undistributed net investment income 1,366,298
----------------------------------------------------------------------------------- ---------------
Accumulated net realized gain 46,794,998
----------------------------------------------------------------------------------- ---------------
Net unrealized appreciation of investments, futures contracts, options written,
swaps and foreign currency transactions 132,669,457
----------------------------------------------------------------------------------- ---------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS $ 1,093,218,923
----------------------------------------------------------------------------------- ---------------
NET ASSET VALUE PER COMMON SHARE $ 17.05
=================================================================================== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
11
PIMCO CORPORATE OPPORTUNITY FUND STATEMENT OF OPERATIONS
Year ended November 30, 2004
INTEREST INCOME:
Interest $ 123,463,563
--------------------------------------------------------------------- ---------------
EXPENSES:
Investment management fees 9,863,712
--------------------------------------------------------------------- ---------------
Auction agent fees and commissions 1,443,470
--------------------------------------------------------------------- ---------------
Custodian and accounting agent fees 361,084
--------------------------------------------------------------------- ---------------
Reports to shareholders 188,148
--------------------------------------------------------------------- ---------------
Audit and tax services 96,743
--------------------------------------------------------------------- ---------------
New York Stock Exchange listing fees 67,639
--------------------------------------------------------------------- ---------------
Trustees' fees and expenses 63,316
--------------------------------------------------------------------- ---------------
Legal fees 53,234
--------------------------------------------------------------------- ---------------
Transfer agent fees 33,822
--------------------------------------------------------------------- ---------------
Insurance expense 30,110
--------------------------------------------------------------------- ---------------
Investor relations 15,594
--------------------------------------------------------------------- ---------------
Miscellaneous 16,965
--------------------------------------------------------------------- ---------------
Total expenses 12,233,837
--------------------------------------------------------------------- ---------------
Less: custody credits earned on cash balances (10,279)
--------------------------------------------------------------------- ---------------
Net expenses 12,223,558
--------------------------------------------------------------------- ---------------
NET INVESTMENT INCOME 111,240,005
===================================================================== ===============
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on:
---------------------------------------------------------------------
Investments 52,383,439
--------------------------------------------------------------------- ---------------
Futures contracts 87,000
--------------------------------------------------------------------- ---------------
Options written (437,000)
--------------------------------------------------------------------- ---------------
Swaps (5,855,072)
--------------------------------------------------------------------- ---------------
Foreign currency transactions 977,682
--------------------------------------------------------------------- ---------------
Net change in unrealized appreciation/(depreciation) of:
---------------------------------------------------------------------
Investments (19,619,415)
--------------------------------------------------------------------- ---------------
Futures contacts (2,078,750)
--------------------------------------------------------------------- ---------------
Options written (3,523,736)
--------------------------------------------------------------------- ---------------
Swaps (298,543)
--------------------------------------------------------------------- ---------------
Foreign curency transactions 1,055,213
--------------------------------------------------------------------- ---------------
Net realized and unrealized gain on investments, futures contracts,
options written, swaps and foreign currency transactions 22,690,818
--------------------------------------------------------------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM INVESTMENT OPERATIONS 133,930,823
===================================================================== ===============
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (8,246,983)
===================================================================== ===============
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM INVESTMENT OPERATIONS $ 125,683,840
===================================================================== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
12
PIMCO CORPORATE OPPORTUNITY FUND STATEMENT OF CHANGES IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
FOR THE PERIOD
DECEMBER 27, 2002*
YEAR ENDED THROUGH
NOVEMBER 30, 2004 NOVEMBER 30, 2003
------------------- ------------------
INVESTMENT OPERATIONS:
Net investment income $ 111,240,005 $ 103,443,018
---------------------------------------------------------------------------- ------------------ ------------------
Net realized gain on investments, futures contracts, options
written, swaps and foreign currency transactions 47,156,049 14,768,810
---------------------------------------------------------------------------- ------------------ ------------------
Net change in unrealized appreciation/depreciation of investments,
futures contracts, options written, swaps and foreign currency
transactions (24,465,231) 157,134,688
---------------------------------------------------------------------------- ------------------ ------------------
Net increase in net assets resulting from investment operations 133,930,823 275,346,516
---------------------------------------------------------------------------- ------------------ ------------------
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (8,246,983) (5,272,280)
---------------------------------------------------------------------------- ------------------ ------------------
Net increase in net assets applicable to common shareholders
resulting from investment operations 125,683,840 270,074,236
---------------------------------------------------------------------------- ------------------ ------------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (110,462,266) (87,470,321)
---------------------------------------------------------------------------- ------------------ ------------------
Net realized gains (17,015,966) --
---------------------------------------------------------------------------- ------------------ ------------------
Total dividends and distributions to common shareholders (127,478,232) (87,470,321)
---------------------------------------------------------------------------- ------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the sale of common stock -- 905,769,750
---------------------------------------------------------------------------- ------------------ ------------------
Preferred shares underwriting discount charged to paid-in capital
in excess of par -- (5,650,000)
---------------------------------------------------------------------------- ------------------ ------------------
Common stock and preferred shares offering costs charged to
paid-in capital in excess of par -- (2,096,436)
---------------------------------------------------------------------------- ------------------ ------------------
Reinvestment of dividends and distributions 6,585,600 7,700,483
---------------------------------------------------------------------------- ------------------ ------------------
Net increase in capital share transactions 6,585,600 905,723,797
---------------------------------------------------------------------------- ------------------ ------------------
Total increase in net assets applicable to common shareholders 4,791,208 1,088,327,712
============================================================================ ================== ==================
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
Beginning of period 1,088,427,715 100,003
---------------------------------------------------------------------------- ------------------ ------------------
End of period (including undistributed net investment income of
$1,366,298 and $8,157,119, respectively $ 1,093,218,923 $ 1,088,427,715
============================================================================ ================== ==================
COMMON SHARES ISSUED AND REINVESTED:
Issued -- 63,230,000
---------------------------------------------------------------------------- ------------------ ------------------
Issued in reinvestment of dividends and distributions 391,980 493,228
---------------------------------------------------------------------------- ------------------ ------------------
Net Increase 391,980 63,723,228
============================================================================ ================== ==================
* Commencement of operations
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
13
PIMCO CORPORATE OPPORTUNITY FUND NOTES TO FINANCIAL STATEMENTS
November 30, 2004
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
PIMCO Corporate Opportunity Fund (the "Fund"), was organized as a Massachusetts
business trust on September 13, 2002. Prior to commencing operations on December
27, 2002, the Fund had no operations other than matters relating to its
organization and registration as a diversified, closed-end management investment
company registered under the Investment Company Act of 1940 and the rules and
regulations thereunder, as amended. PA Fund Management LLC (the "Investment
Manager"), serves as the Fund's Investment Manager and is an indirect
wholly-owned subsidiary of Allianz Global Investors of America L.P. ("AGI"),
formerly Allianz Dresdner Asset Management of America L.P. AGI is an indirect,
majority-owned subsidiary of Allianz AG. The Fund has an unlimited amount of
$0.00001 par value common stock authorized.
The Fund seeks to maximize total return through a combination of current income
and capital appreciation in a diversified portfolio of U.S. dollar denominated
corporate debt obligations of varying maturities and other income producing
securities.
The preparation of the financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
these estimates.
In the normal course of business the Fund enters into contracts that contain a
variety of representations which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet been asserted.
However, the Fund expects the risk of any loss to be remote.
The following is a summary of significant accounting policies followed by the
Fund:
(a) VALUATION OF INVESTMENTS
Portfolio securities and other financial instruments for which market
quotations are readily available are stated at market value. Portfolio
securities and other financial instruments for which market quotations are
not readily available or if a development/event occurs that may impact the
value of the security, may be fair valued pursuant in good faith under
procedures established by the Board of Trustees, including certain fixed
income securities which may be valued with reference to securities whose
prices are more readily available. The Fund's investments are valued daily by
an independent pricing service, dealer quotations, or are valued at the last
sale price on the exchange that is the primary market for such securities, or
the last quoted bid price for those securities for which the over-the-counter
market is the primary market or for listed securities in which there were no
sales. The independent pricing service uses information provided by market
makers or estimates of market value obtained from yield data relating to
investments or securities with similar characteristics. Senior Loans, for
which a secondary market does not exist, are valued at fair value by Pacific
Investment Management Company LLC (the "Sub-Adviser"), pursuant to procedures
approved by the Board of Trustees. Such procedures may include consideration
and evaluation of: (1) the creditworthiness of the borrower and any
intermediate participants; (2) the term of the Senior Loan; (3) recent prices
in the market for similar loans, if any; (4) recent prices in the market for
loans of similar quality, coupon rate, and period until next interest rate
reset and maturity; and (5) general economic and market conditions affecting
the fair value of the Senior Loan. Exchange traded options, futures and
options on futures are valued at the settlement price determined by the
relevant exchange. Short-term investments maturing in 60 days or less are
valued at amortized cost, if their original maturity was 60 days or less, or
by amortizing their value on the 61st day prior to maturity, if the original
term to maturity exceeded 60 days. The prices used by the Fund to value
securities may differ from the value that would be realized if the securities
were sold and the differences could be material to the financial statements.
The Fund's net asset value is determined daily at the close of regular
trading (normally, 4:00 p.m. Eastern time) on the New York Stock Exchange.
(b) INVESTMENT TRANSACTIONS AND INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains and
losses on investments are determined on the identified cost basis. Interest
income is recorded on an accrual basis. Discounts or premiums on debt securities
purchased are accreted or amortized to interest income over the lives of the
respective securities using the effective interest method.
(c) FEDERAL INCOME TAXES
The Fund intends to distribute all of its taxable income and to comply with the
other requirements of the U.S. Internal Revenue Code of 1986, as amended,
applicable to regulated investment companies. Accordingly, no provision for U.S.
federal income taxes is required. In addition, by distributing substantially all
of its ordinary income and long-term capital gains, if any, during each calendar
year the Fund intends not to be subject to U.S. federal excise tax.
14
(d) DIVIDENDS AND DISTRIBUTIONS -- COMMON STOCK
The Fund declares dividends from net investment income monthly to common
shareholders. Distributions of net realized capital gains, if any, are paid at
least annually. The Fund records dividends and distributions to its shareholders
on the ex-dividend date. The amount of dividends and distributions from net
investment income and net realized capital gains are determined in accordance
with federal income tax regulations, which may differ from generally accepted
accounting principles. These "book-tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the capital accounts based on
their income tax treatment; temporary differences do not require
reclassification. For the year ended November 30, 2004, the permanent
differences are primarily attributable to foreign currency transactions and
accounting for swap payments. To the extent dividends and/or distributions
exceed current and accumulated earnings and profits for federal income tax
purposes, they are reported as dividends and/or distributions of paid-in capital
in excess of par.
(e) FUTURES CONTRACTS
A futures contract is an agreement between two parties to buy and sell a
financial instrument at a set price on a future date. Upon entering into such a
contract, the Fund is required to pledge to the broker an amount of cash or
securities equal to the minimum "initial margin" requirements of the exchange.
Pursuant to the contracts, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in the value of the contracts.
Such receipts or payments are known as "variation margin" and are recorded by
the Fund as unrealized appreciation or depreciation. When the contracts are
closed, the Fund records a realized gain or loss equal to the difference between
the value of the contracts at the time they were opened and the value at the
time they were closed. Any unrealized appreciation or depreciation recorded is
simultaneously reversed. The use of futures transactions involves the risk of an
imperfect correlation in the movements in the price of futures contracts,
interest rates and the underlying hedged assets, and the possible inability of
counterparties to meet the terms of their contracts.
(f) OPTION TRANSACTIONS
The Fund may purchase and write (sell) put and call options for hedging and/or
risk management purposes or as a part of its investment strategy. The risk
associated with purchasing an option is that the Fund pays a premium whether or
not the option is exercised. Additionally, the Fund bears the risk of loss of
premium and change in market value should the counterparty not perform under the
contract. Put and call options purchased are accounted for in the same manner as
portfolio securities. The cost of securities acquired through the exercise of
call options is increased by the premiums paid. The proceeds from the securities
sold through the exercise of put options is decreased by the premiums paid.
When an option is written, the premium received is recorded as a liability and
is subsequently marked to market to reflect the current market value of the
option written. These liabilities are reflected as options written in the
Statements of Assets and Liabilities. Premiums received from writing options
which expire unexercised are recorded on the expiration date as a realized gain.
The difference between the premium received and the amount paid on effecting a
closing purchase transaction, including brokerage commissions, is also treated
as a realized gain, or if the premium is less than the amount paid for the
closing purchase transactions, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security in determining whether there has been a realized gain or loss. If a put
option is exercised, the premium reduces the cost basis of the security. In
writing an option, the Fund bears the market risk of an unfavorable change in
the price of the security underlying the written option. Exercise of an written
option could result in the Fund purchasing a security at a price different from
the current market.
(g) INTEREST RATE/CREDIT DEFAULT SWAPS
The Fund enters into interest rate and credit default swap contracts ("swaps")
for investment purposes, to manage its interest rate and credit risk or to add
leverage.
As a seller in the credit default swap contract, the Fund would be required to
pay the par or other agreed-upon value of a referenced debt obligation to the
counterparty in the event of a default by a third party, such as a U.S. or
foreign corporate issuer, on the referenced debt obligation. In return, the Fund
would receive from the counterparty a periodic stream of payments over the term
of the contract provided that no event of default has occurred. If no default
occurs, the Fund would keep the stream of payments and would have no payment
obligations. Such periodic payments are accrued daily and recorded as realized
gain (loss).
15
The Fund may also purchase credit default swap contracts in order to hedge
against the risk of default of debt securities held, in which case the Fund
would function as the counterparty referenced in the preceding paragraph. As a
purchaser of a credit default swap contract, the Fund would receive the par or
other agreed upon value of a referenced debt obligation from the counterparty in
the event of default by a third party, such as a U.S. or foreign corporate
issuer on the referenced debt obligation. In return, the Fund would make
periodic payments to the counterparty over the term of the contract provided no
event of default has occurred. Such periodic payments are accrued daily and
recorded as realized gain (loss).
Interest rate swap agreements involve the exchange by the Fund with a
counterparty of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. Net periodic payments received by the Fund are
included as part of realized gain (loss) and or change in unrealized
appreciation/depreciation on the Statement of Operations.
Swaps are marked to market daily by the Fund's Sub-Adviser based upon quotations
from market makers and the change in value, if any, is recorded as unrealized
appreciation or depreciation in the Fund's Statement of Operations. For a credit
default swap sold by the Fund, payment of the agreed upon amount made by the
Fund in the event of default of the referenced debt obligation is recorded as
the cost of the referenced debt obligation purchased/received. For a credit
default swap purchased by the Fund, the agreed upon amount received by the Fund
in the event of default of the referenced debt obligation is recorded as
proceeds from sale/delivery of the referenced debt obligation and the resulting
gain or loss realized on the referenced debt obligation is recorded as such by
the Fund.
Entering into swaps involves, to varying degrees, elements of credit, market and
documentation risk in excess of the amounts recognized on the Statement of
Assets and Liabilities. Such risks involve the possibility that there will be no
liquid market for these agreements, that the counterparty to the agreements may
default on its obligation to perform or disagree as to the meaning of the
contractual terms in the agreements, and that there may be unfavorable changes
in net interest rates.
(h) FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may enter into forward foreign currency contracts for the purpose of
hedging against foreign currency risk arising from the investment or anticipated
investment in securities denominated in foreign currencies. The Fund may also
enter into these contracts for purposes of increasing exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one country
to another. A forward foreign currency contract is an agreement between two
parties to buy and sell a currency at a set exchange rate on a future date. The
market value of a forward foreign currency contract fluctuates with changes in
forward currency exchange rates. All commitments are marked to market daily at
the applicable exchange rates and any resulting unrealized appreciation or
depreciation is recorded. Realized gains or losses are recorded at the time the
forward contract matures or by delivery of the currency. Risks may arise upon
entering these contracts from the potential inability of counterparties to meet
the terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
(i) SENIOR LOANS
The Fund purchases assignments of Senior Loans originated, negotiated and
structured by a U.S. or foreign commercial bank, insurance company, finance
company or other financial institution (the "Agent") for a lending syndicate of
financial institutions (the "Lender"). When purchasing an assignment, the Fund
succeeds all the rights and obligations under the loan agreement with the same
rights and obligations as the assigning Lender. Assignments may, however, be
arranged through private negotiations between potential assignees and potential
assignors, and the rights and obligations acquired by the purchaser of an
assignment may differ from, and be more limited than, those held by the
assigning Lender.
(j) CREDIT-LINKED TRUST CERTIFICATES
Credit-linked trust certificates are investments in a limited purpose trust or
other vehicle formed under state law which, in turn, invests in a basket of
derivative instruments, such as credit default swaps, interest rate swaps and
other securities, in order to provide exposure to the high yield or another
fixed income market.
Similar to an investment in a bond, investments in these credit-linked trust
certificates represent the right to receive periodic income payments (in the
form of distributions) and payment of principal at the end of the term of the
certificate. However, these payments are conditioned on the trust's receipt of
payments from, and the trust's potential obligations to, the counterparties to
the derivative instruments and other securities in which the trust invests.
16
(k) REPURCHASE AGREEMENTS
The Fund enters into transactions with its custodian bank or securities
brokerage firms approved by the Board of Trustees whereby it purchases
securities under agreements to resell at an agreed upon price and date
("repurchase agreements"). Such agreements are carried at the contract amount in
the financial statements. Collateral pledged (the securities received), which
consists primarily of U.S. government obligations and asset-backed securities,
are held by the custodian bank until maturity of the repurchase agreement.
Provisions of the repurchase agreements and the procedures adopted by the Fund
require that the market value of the collateral, including accrued interest
thereon, is sufficient in the event of default by the counterparty. If the
counterparty defaults and the value of the collateral declines or if the
counterparty enters an insolvency proceeding, realization of the collateral by
the Fund may be delayed or limited.
(l) CUSTODY CREDITS ON CASH BALANCES
The Fund benefits from an expense offset arrangement with its custodian bank
whereby uninvested cash balances earn credits which reduce monthly custodian and
accounting agent expenses. Had these cash balances been invested in income
producing securities, they would have generated income for the Fund.
2. INVESTMENT MANAGER AND SUB-ADVISER
The Fund has entered into an Investment Management Agreement (the "Agreement")
with the Investment Manager. Subject to the supervision of the Fund's Board of
Trustees, the Investment Manager is responsible for managing, either directly or
through others selected by it, the Fund's investment activities, business
affairs and administrative matters. Pursuant to the Agreement, the Investment
Manager receives an annual fee, payable monthly, at an annual rate of 0.60% of
the Fund's average daily net assets, including net assets attributable to any
preferred shares that may be outstanding.
The Investment Manager has retained its affiliate, Pacific Investment Management
Company LLC (the "Sub-Adviser"), to manage the Fund's investments. Subject to
the supervision of the Investment Manager, the Sub-Adviser makes all the Fund's
investment decisions. The Investment Manager, and not the Fund pays a portion of
the fees it receives to the Sub-Adviser in return for its services, at the
maximum annual rate of 0.39% of the Fund's average daily net assets, inclusive
of net assets attributable to any preferred shares that may be outstanding, for
the period from commencement of operations through December 31, 2007, and at the
maximum annual rate of 0.55% of average daily net assets inclusive of net assets
attributable to any preferred shares that may be outstanding thereafter while
the Agreement remains in effect, provided that the fee will be reduced to 0.325%
during the first five years of operations and 0.45% thereafter while the
Agreement remains in effect. The Investment Manager informed the Fund that it
paid the Sub-Adviser $6,411,413 in connection with its sub-advisory services for
the year ended November 30, 2004.
3. INVESTMENTS IN SECURITIES
For the year ended November 30, 2004, purchases and sales of investments, other
than short-term securities, were $1,022,788,333 and $1,168,699,853,
respectively.
(a) Futures contracts outstanding at November 30, 2004:
NOTIONAL
AMOUNT EXPIRATION UNREALIZED
TYPE (000) DATE DEPRECIATION
--------------------------------------------------------------------------------
Long: Financial Future Euro-90 day $ 4,750 6/13/05 $ 2,398,750
------------
(b) Transactions in options written for the year ended November 30, 2004:
CONTRACTS
(000) PREMIUMS
--------------------------------------------------------------------------------
Options outstanding, November 30, 2003 16,050 $ --
Options written 1,879,000 6,360,500
Options terminated in closing transactions (500,000) (2,145,000)
Options expired (504,000) (903,000)
--------- ------------
Options outstanding, November 30, 2004 891,050 $ 3,312,500
--------- ------------
17
(c) Credit default swap contracts outstanding at November 30, 2004:
NOTIONAL
SWAP AMOUNT FIXED
COUNTERPARTY/ PAYABLE ON PAYMENTS UNREALIZED
REFERENCED DEBT DEFAULT RECEIVED (PAID) APPRECIATION
OBLIGATION (000) TERMINATION DATE BY FUND (DEPRECIATION)
----------------------------------------------------------------------------------------
Bear Stearns
Russian Federation
5.00%, 3/31/30 $ 3,000 3/17/2005 1.00% $ 8,670
Credit Suisse
Dow Jones CDX
.NA.IG.HVol.3 45,000 3/20/2015 (0.70)% (389,461)
Credit Suisse
Echostar DBS Corp.
5.75%, 10/1/08 5,000 12/20/2004 1.40% 17,246
Goldman Sachs
Amerada Hess
7.375%, 10/1/09 5,000 12/20/2004 0.65% 8,313
Goldman Sachs
Russian Federation
5.00%, 3/31/30 2,000 3/6/2005 1.06% 6,783
Lehman Brothers
Electronic Data
Systems Corp.
6.00%, 8/1/13 3,000 12/20/2004 1.90% 14,521
Morgan Stanley
Dow Jones CDX
.NA.IG.HVol.3 25,000 3/20/2010 (1.05)% (159,571)
Wachovia
Dow Jones CDX
.NA.IG.HVol.3 32,000 3/20/2010 (1.05)% (204,249)
-----------
$ (697,748)
-----------
(d) Interest rate swap contracts outstanding at November 30, 2004:
RATE TYPE
NOTIONAL -------------------------------------
SWAP AMOUNT TERMINATION PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED
COUNTERPARTY (000) DATE BY FUND BY FUND DEPRECIATION
-------------------------------------------------------------------------------------------------------
Lehman Brothers $ 16,050 10/1/2006 7.43% 3 month LIBOR Plus 1.15% $ 959,549
---------
LIBOR - London Interbank Offered Rate
The Fund received $7,723,000 par value in U.S. Treasury Bills as collateral for
swap contracts written.
(e) Forward foreign currency contracts outstanding at November 30, 2004:
U.S.$ VALUE U.S.$ VALUE UNREALIZED
SOLD: ORIGINATION DATE NOVEMBER 30, 2004 DEPRECIATION
----------------------------------------------------------------------------------------
EURO 16,404,000 settling 12/9/04 $ 20,648,781 $ 21,802,402 $ 1,153,621
-----------
18
4. INCOME TAX INFORMATION
The tax character of dividends and distributions paid was:
FOR THE PERIOD
DECEMBER 27, 2002
YEAR ENDED THROUGH
NOVEMBER 30, 2004 NOVEMBER 30, 2003
------------------------------------------------------------------------------------------
Ordinary Income $ 135,725,215 $ 92,742,601
At November 30, 2004, the tax character of distributable earnings of $44,517,360
was comprised entirely of long-term capital gains.
The cost basis of portfolio securities for federal income tax purposes is
$1,507,450,918. Aggregated gross unrealized appreciation for securities in which
there is an excess value over tax cost is $149,779,738, aggregate gross
unrealized depreciation for securities in which there is an excess of tax cost
over value is $7,591,056, unrealized appreciation for federal income tax
purposes is $142,188,682.
5. AUCTION PREFERRED SHARES
The Fund has issued 4,520 shares of Preferred Shares Series M, 4,520 shares of
Preferred Shares Series T, 4,520 shares of Preferred Shares Series W, 4,520
shares of Preferred Shares Series TH, and 4,520 shares of Preferred Shares
Series F each with a net asset and liquidation value of $25,000 per share plus
accrued dividends.
Dividends and distributions of net realized capital gains, if any, are
accumulated daily at an annual rate set through auction procedures.
For the year ended November 30, 2004, the annualized dividend rate ranged from:
HIGH LOW AT NOVEMBER 30, 2004
--------------------------------------------------------------------------------------
Series M 2.11% 1.06% 2.11%
Series T 2.07% 1.10% 2.05%
Series W 2.07% 1.08% 2.07%
Series TH 2.07% 1.10% 2.07%
Series F 2.07% 1.05% 2.07%
The Fund is subject to certain limitations and restrictions while Preferred
Shares are outstanding. Failure to comply with these limitations and
restrictions could preclude the Fund from declaring any dividends or
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of Preferred Shares at their liquidation value.
Preferred Shares, which are entitled to one vote per share, generally vote
together with the common stock but vote separately as a class to elect two
Trustees and on any matters affecting the rights of the Preferred Shares.
6. SUBSEQUENT COMMON DIVIDEND AND DISTRIBUTION DECLARATIONS
On December 1, 2004, a dividend of $0.1375 per share was declared to common
shareholders payable December 31, 2004 to shareholders of record on December 17,
2004.
On December 20, 2004, a long-term capital gain distribution of $0.64293 per
share was declared to common shareholders payable January 14, 2005 to
shareholders of record on December 30, 2004.
On January 3, 2005, a dividend of $0.1375 per share was declared to common
shareholders payable February 1, 2005 to shareholders of record on January 14,
2005.
7. LEGAL PROCEEDINGS
On September 13, 2004, the Securities and Exchange Commission (the "Commission")
announced that the Investment Manager and certain of its affiliates had agreed
to a settlement of charges that they and certain of their officers had, among
other things, violated various antifraud provisions of the federal securities
laws in connection with an alleged market-timing arrangement involving trading
of shares of various open-end investment companies ("open-end" funds) advised or
distributed by the Investment Manager and certain of its affiliates. In their
settlement with the Commission, the Investment Manager and their affiliates
consented to the entry of an order by the Commission and, without
19
admitting or denying the findings contained in the order, agreed to implement
certain compliance and governance changes and consented to cease-and-desist
orders and censures. In addition, the Investment Manager and its affiliates
agreed to pay civil money penalties in the aggregate amount $40 million and to
pay disgorgement in the amount of $10 million, for an aggregate payment of $50
million. In connection with the settlement, the Investment Manager and its
affiliates have been dismissed from the related complaint the Commission filed
on May 6, 2004 in the U.S. District Court in the Southern District of New York.
Neither the complaint nor the order alleges any inappropriate activity took
place with respect to the Fund. The NJAG dismissed claims against the
Sub-Adviser, which had been part of the same complaint.
In a related action on June 1, 2004, the Attorney General of the State of New
Jersey announced that it had entered into a settlement agreement with AGI and
certain other affiliates of the Investment Manager, in connection with a
complaint filed by the New Jersey Attorney General ("NJAG") on February 17,
2004. The NJAG dismissed claims against the Sub-Adviser, which had been part of
the same complaint. In the settlement, AGI and other named affiliates neither
admitted nor denied the allegations or conclusions of law, but did agree to pay
New Jersey a civil fine of $15 million and $3 million for investigative costs
and further potential enforcement initiatives against unrelated parties. They
also undertook to implement certain governance changes. The complaint relating
to the settlement contained allegations arising out of the same matters that
were subject of the Commission order regarding market timing described above.
On September 15, 2004, the Commission announced that the Investment Manager and
certain of its affiliates agreed to settle an enforcement action in connection
with charges that they violated various antifraud and other provisions of
federal securities laws as a result of, among other things, their failure to
disclose to the board of trustees and shareholders of various open-end funds
advised or distributed by the Investment Manager and its affiliates material
facts and conflicts of interest that arose from their use of brokerage
commissions on portfolio transactions to pay for so-called "shelf space"
arrangements with certain broker-dealers. In the settlement, the Investment
Manager and its affiliates consented to the entry of an order by the Commission
without admitting or denying the findings contained in the order. In connection
with the settlement, the Investment Manager and its affiliates agreed to
undertake certain compliance and disclosure reforms and consented to
cease-and-desist orders and censures. In addition, the Manager and these
affiliates agreed to jointly pay a civil money penalty of $5 million and to pay
disgorgement of $6.6 million based upon the amount of brokerage commissions
alleged to have been paid by such open-end funds in connection with these
arrangements (and related interest). In a related action, the California
Attorney General announced on September 15, 2004 that it had entered an
agreement with an affiliate of the Investment Manager in resolution of an
investigation into matters that are similar to those discussed in the
Commission's order. The settlement agreement resolves matters described in the
complaint filed by the California Attorney General in the Superior Court of the
State of California alleging, among other things, that this affiliate violated
certain antifraud provisions of California law by failing to disclose matters
related to the shelf-space arrangements described above. In the settlement
agreement, the affiliate did not admit to any liability but agreed to pay $5
million in civil penalties and $4 million in recognition of the California
Attorney General's fees and costs associated with the investigation and related
matters. Neither the Commission's order nor the California Attorney General's
complaint alleges any inappropriate activity took place with respect to the
Fund.
Since February 2004, the Investment Manager, the Sub-Adviser and certain of
their affiliates have been named as defendants in 14 lawsuits filed in U.S.
District Court in the Southern District of New York, the Central District of
California and the Districts of New Jersey and Connecticut. Ten of those
lawsuits concern "market timing," and they have been transferred to and
consolidated for pre-trial proceedings in the U.S. District Court for the
District of Maryland; the remaining four lawsuits concern "revenue sharing" with
brokers offering "shelf space" and have been consolidated into a single action
in the U.S. District Court for the District of Connecticut. The lawsuits have
been commenced as putative class actions on behalf of investors who purchased,
held or redeemed shares of affiliated funds during specified periods or as
derivative actions on behalf of the funds. The lawsuits generally relate to the
same facts that are the subject of the regulatory proceedings discussed above.
The lawsuits seek, among other things, unspecified compensatory damages plus
interest and, in some cases, punitive damages, the rescission of investment
advisory contracts, the return of fees paid under those contracts and
restitution. The Investment Manager and the Sub-Adviser believe that other
similar lawsuits may be filed in U.S. federal or state courts naming as
defendants the Investment Manager, the Sub-Adviser, AGI, the Fund, other open-
and closed-end funds advised or distributed by the Investment Manager, the
SubAdviser and/or their affiliates, the boards of trustees of those funds,
and/or other affiliates and their employees.
20
Under Section 9(a) of the Investment Company Act of 1940, if any of the various
regulatory proceedings or lawsuits were to result in a court injunction against
the Investment Manager, the Sub-Adviser, AGI and/or their affiliates, they and
their affiliates would, in the absence of exemptive relief granted by the
Commission, be barred from serving as an investment adviser/sub-adviser or
principal underwriter for any registered investment company, including the Fund.
In connection with an inquiry from the Commission concerning the status of the
New Jersey settlement described above under Section 9(a), the Investment
Manager, the Sub-Adviser, and certain of their affiliates (together, the
"Applicants") have sought exemptive relief from the Commission under Section
9(c) of the Investment Company Act of 1940. The Commission has granted the
Applicants a temporary exemption from the provisions of Section 9(a) with
respect to the New Jersey settlement until the earlier of (i) September 13, 2006
and (ii) the date on which the Commission takes final action on their
application for a permanent order. There is no assurance that the Commission
will issue a permanent order.
It is possible that these matters and/or other developments resulting from these
matters could lead to a decrease in the market price of the Fund's shares or
other adverse consequences to the Fund and its shareholders. However, the
Investment Manager and the Sub-Adviser believe that these matters are not likely
to have a material adverse effect on the Fund or on the Investment Manager's or
the Sub-Adviser's ability to perform its respective investment advisory services
relating to the Fund.
8. CORPORATE CHANGES
On July 29, 2004, Stephen Treadway resigned as the Fund's Chairman. On September
14, 2004, David C. Flattum was appointed to the Board of Trustees and Youse Guia
was named as the Fund's Chief Compliance Officer. On October 5, 2004, the Board
of Trustees elected Robert E. Connor as Chairman. On December 14, 2004, Thomas
J. Fuccillo was appointed as the Fund's Secretary.
21
PIMCO CORPORATE OPPORTUNITY FUND FINANCIAL HIGHLIGHTS
For a share of common stock outstanding throughout each period:
FOR THE PERIOD
DECEMBER 27, 2002*
YEAR ENDED THROUGH
NOVEMBER 30, 2004 NOVEMBER 30, 2003
----------------- ------------------
Net asset value, beginning of period $ 17.08 $ 14.33**
------------------------------------------------------------------------ ---------------- --------------
INVESTMENT OPERATIONS:
Net investment income 1.74 1.62
------------------------------------------------------------------------ ---------------- --------------
Net realized and unrealized gain on investments, futures contracts,
options written, swaps and foreign currency transactions 0.36 2.71
------------------------------------------------------------------------ ---------------- --------------
Total from investment operations 2.10 4.33
------------------------------------------------------------------------ ---------------- --------------
DIVIDENDS ON PREFERRED SHARES FROM NET INVESTMENT INCOME (0.13) (0.08)
------------------------------------------------------------------------ ---------------- --------------
Net increase in net assets applicable to common shares resulting from
investment operations 1.97 4.25
------------------------------------------------------------------------ ---------------- --------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (1.73) (1.38)
------------------------------------------------------------------------ ---------------- --------------
Net realized gains (0.27) -
------------------------------------------------------------------------ ---------------- --------------
Total dividends and distributions to common shareholders (2.00) (1.38)
------------------------------------------------------------------------ ---------------- --------------
CAPITAL SHARE TRANSACTIONS:
Common stock offering costs charged to paid-in capital in excess of par - (0.02)
------------------------------------------------------------------------ ---------------- --------------
Preferred shares offering costs/underwriting discount charged to paid-in
capital in excess of par - (0.10)
------------------------------------------------------------------------ ---------------- --------------
Total capital share transactions - (0.12)
------------------------------------------------------------------------ ---------------- --------------
Net asset value, end of period $ 17.05 $ 17.08
------------------------------------------------------------------------ ---------------- --------------
Market price, end of period $ 17.01 $ 16.88
------------------------------------------------------------------------ ---------------- --------------
TOTAL INVESTMENT RETURN (1) 13.29% 22.50%
------------------------------------------------------------------------ ---------------- --------------
RATIOS/SUPPLEMENTAL DATA:
Net assets applicable to common shareholders, end of period (000) $ 1,093,219 $ 1,088,428
-------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (2)(3) 1.13% 1.07%(4)
------------------------------------------------------------------------ ---------------- --------------
Ratio of net investment income to average net assets (2) 10.31% 11.13%(4)
------------------------------------------------------------------------ ---------------- --------------
Preferred shares asset coverage per share $ 73,362 $ 73,145
------------------------------------------------------------------------ ---------------- --------------
Portfolio turnover 64% 26%
------------------------------------------------------------------------ ---------------- --------------
* Commencement of operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $0.675 per share.
(1) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and
distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Fund's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions or sales
charges. Total investment return for a period of less than one year is not
annualized.
(2) Calculated on the basis of income and expenses applicable to both common
and preferred shares relative to the average net assets of common
shareholders.
(3) Inclusive of expenses offset by custody credits earned on cash balances at
the custodian bank. (See note 1(l) in Notes to Financial Statements).
(4) Annualized.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
PIMCO CORPORATE OPPORTUNITY FUND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF PIMCO CORPORATE OPPORTUNITY FUND
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets applicable to common shareholders and the financial
highlights present fairly, in all material respects, the financial position of
PIMCO Corporate Opportunity Fund (the "Fund") at November 30, 2004, the results
of its operations for the year then ended and the changes in its net assets
applicable to common shareholders and the financial highlights for the year then
ended and for the period December 27, 2002 (commencement of operations) through
November 30, 2003, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 20, 2005
23
PIMCO CORPORATE OPPORTUNITY FUND DIVIDEND REINVESTMENT PLAN (unaudited)
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
dividends, including any capital gain dividends, reinvested automatically in
additional Common Shares by PFPC Inc., as agent for the Common Shareholders (the
"Plan Agent"), unless the shareholder elects to receive cash. An election to
receive cash may be revoked or reinstated at the option of the shareholder. In
the case of record shareholders such as banks, brokers or other nominees that
hold Common Shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholder as representing the total amount
registered in such shareholder's name and held for the account of beneficial
owners who are to participate in the Plan. Shareholders whose shares are held in
the name of a bank, broker or nominee should contact the bank, broker or nominee
for details. All distributions to investors who elect not to participate in the
Plan (or whose broker or nominee elects not to participate on the investor's
behalf), will be paid cash by check mailed, in the case of direct shareholder,
to the record holder by PFPC Inc., as the Fund's dividend disbursement agent.
Unless you (or your broker or nominee) elect not to participate in the Plan, the
number of Common Shares you will receive will be determined as follows:
(1) If Common Shares are trading at or above net asset value on the payment
date, the Fund will issue new shares at the greater of (i) the net asset
value per Common Share on the payment date or (ii) 95% of the market price
per Common Share on the payment date; or
(2) If Common Shares are trading below net asset value (minus estimated
brokerage commissions that would be incurred upon the purchase of Common
Shares on the open market) on the payment date, the Plan Agent will receive
the dividend or distribution in cash and will purchase Common Shares in the
open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. It is possible that the market price for the Common
Shares may increase before the Plan Agent has completed its purchases.
Therefore, the average purchase price per share paid by the Plan Agent may
exceed the market price on the payment date, resulting in the purchase of
fewer shares than if the dividend or distribution had been paid in Common
Shares issued by the Fund. The Plan Agent will use all dividends and
distributions received in cash to purchase Common Shares in the open market
on or shortly after the payment date, but in no event later than the
ex-dividend date for the next distribution. Interest will not be paid on
any uninvested cash payments.
You may withdraw from the Plan at any time by giving notice to the Plan Agent.
If you withdraw or the Plan is terminated, you will receive a certificate for
each whole share in your account under the Plan and you will receive a cash
payment for any fraction of a share in your account. If you wish, the Plan Agent
will sell your shares and send you the proceeds, minus brokerage commissions.
The Plan Agent maintains all shareholders' accounts in the Plan and gives
written confirmation of all transactions in the accounts, including information
you may need for tax records. The Plan Agent will also furnish each person who
buys Common Shares with written instructions detailing the procedures for
electing not to participate in the Plan and to instead receive distributions in
cash. Common Shares in your account will be held by the Plan Agent in
non-certificated form. Any proxy you receive will include all Common Shares you
have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions
in Common Shares. However, all participants will pay a pro rata share of
brokerage commissions incurred by the Plan Agent when it makes open market
purchases.
Automatically reinvested dividends and distributions are taxed in the same
manner as cash dividends and distributions.
The Fund and the Plan Agent reserve the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the Fund
reserves the right to amend the Plan to include a service charge payable by the
participants. Additional information about the Plan may be obtained from the
Fund's transfer agent, PFPC Inc., P.O. Box 43027, Providence, RI 02940-3027,
telephone number 1-800-331-1710.
24
PIMCO CORPORATE OPPORTUNITY FUND TAX INFORMATION, OTHER INFORMATION, ANNUAL
SHAREHOLDER MEETING RESULTS (unaudited)
TAX INFORMATION:
Subchapter M of the Internal Revenue Code of 1986, as amended, requires the Fund
to advise shareholders within 60 days of the Fund's tax year-end (November 30,
2004) as to the federal tax status of dividends and distributions received by
shareholders during such tax year. Per share dividends for the tax year ended
November 30, 2004 were as follows:
Dividends to common shareholders from ordinary income $ 1.997
Dividends to preferred shareholders from ordinary income $ 364.911
Since the Fund's tax year is not the calendar year, another notification will be
sent with respect to calendar year 2004. In January 2005, shareholders will be
advised on IRS Form 1099 DIV as to the federal tax status of the dividends and
distributions received during calendar 2004. The amount that will be reported,
will be the amount to use on your 2004 federal income tax return and may differ
from the amount which must be reported in connection with the Fund's tax year
ended November 30, 2004. Shareholders are advised to consult their tax advisers
as to the federal, state and local tax status of the dividend income received
from the Fund.
OTHER INFORMATION:
Since November 30, 2003, there have been no: (i) material changes in the Fund's
investment objectives or policies; (ii) changes to the Fund's charter or
by-laws; (iii) material changes in the principal risk factors associated with
investment in the Fund; or (iv) change in the persons primarily responsible for
the day-to-day management of the Fund's portfolio.
ANNUAL SHAREHOLDERS MEETING RESULTS:
The Fund held its annual meeting of shareholders on September 14, 2004.
Common/Preferred shareholders voted to re-elect Hans W. Kertess as a Class I
Trustee to serve until 2007 and R. Peter Sullivan III as a Class II Trustee to
serve until 2005. Preferred shareholders voted to re-elect Robert E. Connor as a
Class I Trustee to serve until 2007.
The resulting vote count is indicated below:
WITHHOLD
AFFIRMATIVE AUTHORITY
--------------------------------------------------------------------------------
Election of Robert E. Connor 11,884 23
Election of Hans W. Kertess 51,346,205 519,461
Election of R. Peter Sullivan III 51,347,188 518,478
Paul Belica, John J. Dalessandro II* and David C. Flattum, continue to serve as
Trustees of the Fund.
----------
* Preferred Shares Trustee
25
PIMCO CORPORATE OPPORTUNITY FUND BOARD OF TRUSTEES (unaudited)
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS:
----------------------------------------------------------------------------------------------------------------------------------
ROBERT E. CONNOR Corporate Affairs Consultant; Formerly, Senior Vice President,
1345 Avenue of the Americas Corporate Office, Smith Barney Inc.
New York, NY 10105
Age: 69
CHAIRMAN OF THE BOARD OF TRUSTEES SINCE: 2004
TRUSTEE SINCE: 2002
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2007 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE/DIRECTOR OF 21 FUNDS IN FUND COMPLEX
TRUSTEE/DIRECTOR OF NO FUNDS OUTSIDE OF FUND COMPLEX
PAUL BELICA Director, Student Loan Finance Corp., Education Loans, Inc., Goal
1345 Avenue of the Americas Funding I, Goal Funding II, Inc. Surety Loan Funding, Inc.; Formerly
New York, NY 10105 senior executive and member of the Board of Smith Barney, Harris
Age: 83 Upham & Co. and CEO of five State of New York Agencies Inc.
TRUSTEE SINCE: 2002
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2006 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE/DIRECTOR OF 21 FUNDS IN FUND COMPLEX
TRUSTEE/DIRECTOR OF NO FUNDS OUTSIDE OF FUND COMPLEX
JOHN J. DALESSANDRO II Formerly, President and Director, J.J. Dalessandro II Ltd,
1345 Avenue of the Americas registered broker-dealer and member of the New York Stock Exchange; L.P.
New York, NY 10105
Age: 67
TRUSTEE SINCE: 2002
TRUSTEE OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2005 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE OF 16 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
DAVID C. FLATTUM Managing Director, Chief Operating Officer, General Counsel and
888 San Clemente Drive, Suite 100 member of Management Board, Allianz Global Investors of America, L.P.;
Newport Beach, CA 92660 Formerly, Partner, Latham & Watkins LLP (1998-2001).
Age: 40
TRUSTEE SINCE: 2004
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2005 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE OF 52 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
HANS W. KERTESS President, H Kertess & Co.; L.P. Formerly, Managing Director, Royal
1345 Avenue of the Americas Bank of Canada Capital Markets.
New York, NY 10105
Age: 65
TRUSTEE SINCE: 2003
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2007 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE OF 16 FUNDS IN FUND COMPLEX;
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
R. PETER SULLIVAN III Formerly, Managing Partner, Bear Wagner Specialists LLC (formerly,
1345 Avenue of the Americas Wagner Stott Mercator LLC), specialist firm on the New York Stock
New York, NY 10105 Exchange.
Age: 63
TRUSTEE SINCE: 2004
TERM OF OFFICE: EXPECTED TO STAND FOR RE-ELECTION
AT 2005 ANNUAL MEETING OF SHAREHOLDERS.
TRUSTEE OF 15 FUNDS IN FUND COMPLEX
TRUSTEE OF NO FUNDS OUTSIDE OF FUND COMPLEX
26
PIMCO CORPORATE OPPORTUNITY FUND PRIVACY POLICY, PROXY VOTING POLICIES &
PROCEDURES (unaudited)
PRIVACY POLICY:
OUR COMMITMENT TO YOU
We consider customer privacy to be a fundamental aspect of our relationship with
clients. We are committed to maintaining the confidentiality, integrity, and
security of our current, prospective and former clients' personal information.
We have developed policies designed to protect this confidentiality, while
allowing client needs to be served.
OBTAINING PERSONAL INFORMATION
In the course of providing you with products and services, we may obtain
non-public personal information about you. This information may come from
sources such as account applications and other forms, from other written,
electronic or verbal correspondence, from your transactions, from your brokerage
or financial advisory firm, financial adviser or consultant, and/or from
information captured on our internet web sites.
RESPECTING YOUR PRIVACY
We do not disclose any personal or account information provided by you or
gathered by us to non-affiliated third parties, except as required or permitted
by law. As is common in the industry, non-affiliated companies may from time to
time be used to provide certain services, such as preparing and mailing
prospectuses, reports, account statements and other information, conducting
research on client satisfaction, and gathering shareholder proxies. We may also
retain non-affiliated companies to market our products and enter in joint
marketing agreements with other companies. These companies may have access to
your personal and account information, but are permitted to use the information
solely to provide the specific service or as otherwise permitted by law. We may
also provide your personal and account information to your brokerage or
financial advisory firm and/or to your financial adviser or consultant.
SHARING INFORMATION WITH THIRD PARTIES
We do reserve the right to disclose or report personal information to
non-affiliated third parties in limited circumstances where we believe in good
faith that disclosure is required under law, to cooperate with regulators or law
enforcement authorities, to protect our rights or property, or upon reasonable
request by any mutual fund in which you have chosen to invest. In addition, we
may disclose information about you or your accounts to a non-affiliated third
party at your request or if you consent in writing to the disclosure.
SHARING INFORMATION WITH AFFILIATES
We may share client information with our affiliates in connection with servicing
your account or to provide you with information about products and services that
we believe may be of interest to you. The information we share may include, for
example, your participation in our mutual funds or other investment programs,
your ownership of certain types of accounts (such as IRAs), or other data about
your accounts. Our affiliates, in turn, are not permitted to share your
information with non-affiliated entities, except as required or permitted by
law.
IMPLEMENTATION OF PROCEDURES
We take seriously the obligation to safeguard your non-public personal
information. We have implemented procedures designed to restrict access to your
non-public personal information to our personnel who need to know that
information to provide products or services to you. To guard your non-public
personal information, physical, electronic, and procedural safeguards are in
place.
PROXY VOTING POLICIES & PROCEDURES:
A description of the policies and procedures that the Fund has adopted to
determine how to vote proxies relating to portfolio securities and information
about how the Fund voted proxies relating to portfolio securities held during
the twelve months ended June 30, 2004 is available (i) without charge, upon
request, by calling the Fund's transfer agent at (800) 331-1710; (ii) on the
Fund's website at www.pimcoadvisors.com; and (iii) on the Securities and
Exchange Commission's website at www.sec.gov.
27
TRUSTEES AND PRINCIPAL OFFICERS
Robert E. Connor
Chairman of the Board of Trustees
Paul Belica
Trustee
John J. Dalessandro II
Trustee
David C. Flattum
Trustee
Hans W. Kertess
Trustee
R. Peter Sullivan III
Trustee
Brian S. Shlissel
President & Chief Executive Officer
Newton B. Schott, Jr.
Vice President
David C. Hinman
Vice President
Mark R. Kiesel
Vice President
Lawrence G. Altadonna
Treasurer, Principal Financial & Accounting Officer
Thomas J. Fuccillo
Secretary
Youse Guia
Chief Compliance Officer
Jennifer A. Patula
Assistant Secretary
INVESTMENT MANAGER
PA Fund Management LLC
1345 Avenue of the Americas
New York, NY 10105
SUB-ADVISER
Pacific Investment Management Company LLC
840 Newport Center Drive
Newport Beach, CA 92660
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
LEGAL COUNSEL
Ropes & Gray LLP
One International Place
Boston, MA 02210-2624
This report, including the financial information herein, is transmitted to the
shareholders of PIMCO Corporate Opportunity Fund for their information. It is
not a prospectus, circular or representation intended for use in the purchase of
shares of the Fund or any securities mentioned in this report.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
The Funds files its complete schedule of portfolio holdings with the Securities
and Exchange commission (the "Commission") for the first and third quarter of
its fiscal year on Form N-Q. Form N-Q is available (i) on the Fund's website at
www.pimcoadvisors.com (ii) on the Commission's website at www.sec.gov, and (iii)
at the Commission's Public reference Room which is located at the Commission's
headquarters' office at 450 5th Street N.W. Room 1200, Washington, D.C. 20459,
(202) 942-8090.
On October 21, 2004, the Fund submitted a CEO annual cetification to the New
York Stock Exchange ("NYSE") on which the Fund's principal executive officer
certified that he was not aware, as of that date, of any violation by the Fund
of the NYSE's Corporate Governance listing standards. In addition, as required
by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the
Fund's principal executive and principal financial officers have made quarterly
certifications, included in filings with the SEC on Forms N-CSR and N-Q,
relating to, among other things, the Fund's disclosure controls and procedures
and internal control over financial reporting, as applicable.
Information on the Fund is available at www.pimcoadvisors.com or by calling the
Fund's transfer agent at 1-800-331-1710.
[PIMCO ADVISORS LOGO]
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, the registrant
has adopted a code of ethics (the "Section 406 Standards for Investment
Companies -- Ethical Standards for Principal Executive and Financial
Officers") that applies to the registrant's Principal Executive Officer
and Principal Financial Officer; the registrant's Principal Financial
Officer also serves as the Principal Accounting Officer. The registrant
undertakes to provide a copy of such code of ethics to any person upon
request, without charge, by calling the Fund's transfer agent at
1-800-331-1710.
(b) During the period covered by this report, there were not any amendments
to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT The registrant's Board has determined
that Mr. Paul Belica, a member of the Board's Audit Oversight Committee is an
"audit committee financial expert," and that he is "independent," for purposes
of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
a) Audit fees. The aggregate fees billed for each of the last two fiscal years
(the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant (the "Auditor") for the audit of the
Registrant's annual financial statements, or services that are normally
provided by the Auditor in connection with the statutory and regulatory
filings or engagements for the Reporting Periods, were $68,250 in 2003
and $75,000 in 2004.
b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods
for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit registrant's financial
statements and are not reported under paragraph (e) of this Item were
$14,000 in 2003 and $26,275 in 2004. These services consist of accounting
consultations, agreed upon procedure reports (inclusive of annual review
of basic maintenance testing associated with the Preferred Shares),
attestation reports and comfort letters.
c) Tax Fees. The aggregate fees billed in the Reporting Periods for
professional services rendered by the Auditor for tax compliance,
tax service and tax planning ("Tax Services") were $8,800 in 2003 and
$9,900 in 2004. These services consisted of review or preparation of U.S.
federal, state, local and excise tax returns.
d) All Other Fees. There were no other fees billed in the Reporting Periods
for products and services provided by the Auditor to the Registrant.
e) 1. Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and procedures for
pre-approval of all audit and permissible non-audit services by the
Auditor for the Registrant, as well as the Auditor's engagements for
non-audit services to the when the engagement relates directly to the
operations and financial reporting of the Registrant. The Registrant's
policy is stated below.
PIMCO Corporate Opportunity Fund (THE "FUND")
AUDIT OVERSIGHT COMMITTEE POLICY FOR PRE-APPROVAL OF SERVICES PROVIDED BY THE
INDEPENDENT ACCOUNTANTS
The Funds' Audit Oversight Committee ("Committee") is charged with the oversight
of the Funds' financial reporting policies and practices and their internal
controls. As part of this responsibility, the Committee must pre-approve any
independent accounting firm's engagement to render audit and/or permissible
non-audit services, as required by law. In evaluating a proposed engagement by
the independent accountants, the Committee will assess the effect that the
engagement might reasonably be expected to have on the accountant's
independence. The Committee's evaluation will be based on:
a review of the nature of the professional services expected to provided,
the fees to be charged in connection with the services expected to be
provided,
a review of the safeguards put into place by the accounting firm to
safeguard independence, and
periodic meetings with the accounting firm.
POLICY FOR AUDIT AND NON-AUDIT SERVICES TO BE PROVIDED TO THE FUNDS
On an annual basis, the Funds' Committee will review and pre-approve the scope
of the audits of the Funds and proposed audit fees and permitted non-audit
(including audit-related) services that may be performed by the Funds'
independent accountants. At least annually, the Committee will receive a report
of all audit and non-audit services that were rendered in the previous calendar
year pursuant to this Policy. In addition to the Committee's
pre-approval of services pursuant to this Policy, the engagement of the
independent accounting firm for any permitted non-audit service provided to the
Funds will also require the separate written pre-approval of the President of
the Funds, who will confirm, independently, that the accounting firm's
engagement will not adversely affect the firm's independence. All non-audit
services performed by the independent accounting firm will be disclosed, as
required, in filings with the Securities and Exchange Commission.
AUDIT SERVICES
The categories of audit services and related fees to be reviewed and
pre-approved annually by the Committee are:
Annual Fund financial statement audits
Seed audits (related to new product filings, as required)
SEC and regulatory filings and consents
Semiannual financial statement reviews
AUDIT-RELATED SERVICES
The following categories of audit-related services are considered to be
consistent with the role of the Fund's independent accountants and services
falling under one of these categories will be pre-approved by the Committee on
an annual basis if the Committee deems those services to be consistent with the
accounting firm's independence:
Accounting consultations
Fund merger support services
Agreed upon procedure reports (inclusive of quarterly review of Basic
Maintenance testing associated with issuance of Preferred Shares and
semiannual report review)
Other attestation reports
Comfort letters
Other internal control reports
Individual audit-related services that fall within one of these categories and
are not presented to the Committee as part of the annual pre-approval process
described above, may be pre-approved, if deemed consistent with the accounting
firm's independence, by the Committee Chair (or any other Committee member who
is a disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
TAX SERVICES
The following categories of tax services are considered to be consistent with
the role of the Funds' independent accountants and services falling under one of
these categories will be pre-approved by the Committee on an annual basis if the
Committee deems those services to be consistent with the accounting firm's
independence:
Tax compliance services related to the filing or amendment of the
following:
Federal, state and local income tax compliance; and, sales and use tax
compliance
Timely RIC qualification reviews
Tax distribution analysis and planning
Tax authority examination services
Tax appeals support services
Accounting methods studies
Fund merger support service
Other tax consulting services and related projects
Individual tax services that fall within one of these categories and are not
presented to the Committee as part of the annual pre-approval process described
above, may be pre-approved, if deemed consistent with the accounting firm's
independence, by the Committee Chairman (or any other Committee member who is a
disinterested trustee under the Investment Company Act to whom this
responsibility has been delegated) so long as the estimated fee for those
services does not exceed $75,000. Any such pre-approval shall be reported to the
full Committee at its next regularly scheduled meeting.
PROSCRIBED SERVICES
The Funds' independent accountants will not render services in the following
categories of non-audit services:
Bookkeeping or other services related to the accounting records or
financial statements of the Funds
Financial information systems design and implementation
Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
Actuarial services
Internal audit outsourcing services
Management functions or human resources
Broker or dealer, investment adviser or investment banking services
Legal services and expert services unrelated to the audit
Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible
PRE-APPROVAL OF NON-AUDIT SERVICES PROVIDED TO OTHER ENTITIES WITHIN THE FUND
COMPLEX
The Committee will pre-approve annually any permitted non-audit services to be
provided to PA Fund Management LLC (Formerly, PIMCO Advisors Fund Management
LLC) or any other investment manager to the Funds (but not including any
sub-adviser whose role is primarily portfolio management and is sub-contracted
by the investment manager) (the "Investment Manager") and any entity
controlling, controlled by, or under common control with the Investment Manager
that provides ongoing services to the Funds (including affiliated sub-advisers
to the Funds), provided, in each case, that the engagement relates directly to
the operations and financial reporting of the Funds (such entities, including
the Investment Manager, shall be referred to herein as the "Accounting
Affiliates"). Individual projects that are not presented to the Committee as
part of the annual pre-approval process, may be pre-approved, if deemed
consistent with the accounting firm's independence, by the Committee Chairman
(or any other Committee member who is a disinterested trustee under the
Investment Company Act to whom this responsibility has been delegated) so long
as the estimated fee for those services does not exceed $100,000. Any such
pre-approval shall be reported to the full Committee at its next regularly
scheduled meeting.
Although the Committee will not pre-approve all services provided to the
Investment Manager and its affiliates, the Committee will receive an annual
report from the Funds' independent accounting firm showing the aggregate fees
for all services provided to the Investment Manager and its affiliates.
DE MINIMUS EXCEPTION TO REQUIREMENT OF PRE-APPROVAL OF NON-AUDIT SERVICES
With respect to the provision of permitted non-audit services to a Fund or
Accounting Affiliates, the pre-approval requirement is waived if:
(1) The aggregate amount of all such permitted non-audit services
provided constitutes no more than (i) with respect to such
services provided to the Fund, five percent (5%) of the total
amount of revenues paid by the Fund to its independent accountant
during the fiscal year in which the services are provided, and
(ii) with respect to such services provided to Accounting
Affiliates, five percent (5%) of the total amount of revenues
paid to the Fund's independent accountant by the Fund and the
Accounting Affiliates during the fiscal year in which the
services are provided;
(2) Such services were not recognized by the Fund at the time of the
engagement for such services to be non-audit services; and
(3) Such services are promptly brought to the attention of the
Committee and approved prior to the completion of the audit by
the Committee or by the Committee Chairman (or any other
Committee member who is a disinterested trustee under the
Investment Company Act to whom this Committee Chairman or other
delegate shall be reported to the full Committee at its next
regularly scheduled meeting.
e) 2. No services were approved pursuant to the procedures
contained in paragraph (C) (7) (i) (C) of Rule 2-01 of Registration
S-X.
f) Not applicable
g) Non-audit fees. The aggregate non-audit fees billed by the
Auditor for services rendered to the Registrant, and rendered to the
Adviser, for the 2003 Reporting Period was $3,446,983 and the 2004
Reporting Period was $2,424,702.
h) Auditor Independence. The Registrant's Audit Oversight
Committee has considered whether the provision of non-audit services
that were rendered to the Adviser which were not pre-approved is
compatible with maintaining the Auditor's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT
The Fund has a separately designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
audit committee of the Fund is comprised of Robert E. Connor, Paul Belica, John
J. Dalessandro II, Hans W. Kertess and R. Peter Sullivan III.
ITEM 6. SCHEDULE OF INVESTMENTS Schedule of Investments is included as part of
the report to shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
The registrant has delegated the voting of proxies relating to its voting
securities to its sub-adviser, Pacific Investment Management Co. (the
"Sub-Adviser"). The Proxy Voting Policies and Procedures of the Sub-Adviser are
included as an Exhibit 99.PROXYPOL hereto.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED COMPANIES
Total Number
Of Shares Purchased Maximum Number of
Total Number Average As Part Of Publicly Shares That May Yet Be
Of Shares Price Paid Announced Plans Or Purchased Under The Plans
Period Purchased Per Share Programs Or Programs
December 2003 N/A N/A N/A N/A
January 2004 N/A N/A N/A N/A
February 2004 N/A N/A N/A N/A
March 2004 N/A N/A N/A N/A
April 2004 N/A 17.23 65,870 N/A
May 2004 N/A N/A N/A N/A
June 2004 N/A N/A N/A N/A
July 2004 N/A 16.23 66,144 N/A
August 2004 N/A 16.44 70,394 N/A
September 2004 N/A 16.84 63,782 N/A
October 2004 N/A 16.92 63,607 N/A
November 2004 N/A 17.20 62,183 N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In January 2004, the Registrant's Board of Trustees adopted a Nominating
Committee Charter governing the affairs of the Nominating Committee of the
Board, which is posted on the PIMCO Advisors website at
www.pimcoadvisors.com. Appendix B to the Nominating Committee Charter
includes "Procedures for Shareholders to Submit Nominee Candidates, "which
sets forth the procedures by which shareholders may recommend nominees to the
Registrant's Board of Trustees. Among other requirements, the procedures
provide that the recommending shareholder must submit any recommendation in
writing to the Registrant to the attention of the Registrant's Secretary, at
the address of the principal executive offices of the Registrant and that
such submission must be received at such offices not less than 45 days nor
more than 75 days prior to the date of the Board or shareholder meeting at which
the nominee would be elected. Any recommendation must include certain
biographical and other information regarding the candidate and the recommending
shareholder, and must include a written and signed consent of the candidate to
be named as a nominee and to serve as a Trustee if elected. The foregoing
description of the requirements is only a summary and is qualified in its
entirety by reference to Appendix B of the Nominating Committee Charter.
ITEM 10. CONTROLS AND PROCEDURES
(a) The registrant's President and Chief Executive Officer and Principal
Financial Officer have concluded that the registrant's disclosure controls
and procedures (as defined in Rule 30a-2(c) under the Investment Company Act
of 1940, as amended are effective based on their evaluation of these
controls and procedures as of a date within 90 days of the filing date of
this document.
(b) There were no significant changes in the registrant's internal controls or
in factors that could affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 11. EXHIBITS
(a) Exhibit 99.302 Cert. - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Exhibit 99.906 Cert. - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(c) Exhibit 99.PROXYPOL - Proxy Voting Policies and Procedures
(d) Exhibit 99.CODE ETH - Code of Ethics
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) PIMCO CORPORATE OPPORTUNITY FUND
By /s/ Brian S. Shlissel
------------------------
President and Chief Executive Officer
Date February 7, 2005
---------------------
By /s/ Lawrence G. Altadonna
----------------------------
Treasurer, Principal Financial & Accounting Officer
Date February 7, 2005
---------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ Brian S. Shlissel
------------------------
President and Chief Executive Officer
Date February 7, 2005
---------------------
By /s/ Lawrence G. Altadonna
----------------------------
Treasurer, Principal Financial & Accounting Officer
Date February 7, 2005
---------------------