PIMCO Income Strategy Fund
Table of Contents

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: 811-21374

PIMCO Income Strategy Fund

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

William G. Galipeau

Treasurer (Principal Financial & Accounting Officer)

650 Newport Center Drive

Newport Beach, CA 92660

(Name and address of agent for service)

Copies to:

David C. Sullivan

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

Registrant’s telephone number, including area code: (844) 337-4626

Date of fiscal year end: July 31

Date of reporting period: January 31, 2016

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. § 3507.


Table of Contents
Item 1. Reports to Shareholders.

The following is a copy of the report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1).


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PIMCO Closed-End Funds

 

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Semiannual Report

 

January 31, 2016

 

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PIMCO Corporate & Income Opportunity Fund

PIMCO Corporate & Income Strategy Fund

PIMCO High Income Fund

PIMCO Income Strategy Fund

PIMCO Income Strategy Fund II

 

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Table of Contents

Table of Contents

 

            Page  
     

Letter from the Chairman of the Board & President

        2   

Important Information About the Funds

        4   

Financial Highlights

        14   

Statements of Assets and Liabilities

        16   

Statements of Operations

        17   

Statements of Changes in Net Assets

        18   

Notes to Financial Statements

        63   

Glossary

        83   

Investment Strategy Updates

        84   
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PIMCO Corporate & Income Opportunity Fund

     9         20   

PIMCO Corporate & Income Strategy Fund

     10         29   

PIMCO High Income Fund

     11         37   

PIMCO Income Strategy Fund

     12         46   

PIMCO Income Strategy Fund II

     13         54   


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Letter from the Chairman of the Board & President

 

Dear Shareholder,

 

The financial markets experienced periods of volatility during the reporting period. Investor sentiment was challenged at times given mixed economic data, uncertainties surrounding future global monetary policy, falling commodity prices and geopolitical issues.

 

For the six-month reporting period ended January 31, 2016

 

The U.S. economy expanded during the reporting period, but the pace was uneven. Looking back, U.S. gross domestic product (“GDP”), which represents the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, expanded at a 3.9% annual pace during the second quarter of 2015. Economic activity then decelerated, as GDP grew at a 2.0% annual pace during the third quarter of 2015. Finally, the Commerce Department’s initial reading showed that fourth quarter 2015 GDP grew at an annual pace of 0.7%.

 

After nearly a decade of highly accommodative monetary policy, the Federal Reserve (“Fed”) raised interest rates at its meeting in mid-December 2015. The Fed’s action pushed rates from a range between 0% and 0.25% to a range between 0.25% and 0.50%. In its official statement following the meeting, the Fed said, “The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

 

Economic activity outside the U.S. was mixed during the reporting period. Anemic growth and concerns of deflation in the eurozone caused the European Central Bank (“ECB”) to announce that beginning in March 2015, it would start a 60 billion-a-month bond-buying program that was expected to run until at least September 2016. In December 2015, continued economic headwinds prompted the ECB to extend its monthly bond-buying program by six months, until at least March 2017.

 

Commodities and emerging markets dominated the news over the reporting period. Crude oil declined from $47 to $34 between July 2015 and January 2016, as OPEC continued pumping at close to full capacity even as U.S. production started to contract. In August 2015, China surprised the markets by allowing its currency to depreciate by nearly 2% against the U.S. dollar, and then spent over $180 billion in foreign reserves over the course of the fourth quarter to support its currency. Meanwhile, Chinese equity markets sold off sharply, casting a shadow on global risk assets. Elsewhere in emerging markets, the Brazilian political and economic situation continued to deteriorate, culminating in Standard & Poor’s and Fitch downgrading the Brazilian foreign currency debt rating to below investment grade in September 2015.

 

Outlook

 

PIMCO’s baseline view sees U.S. economic growth in the range of 2.0%-2.5% over the next four quarters — in line with the average growth rate of the U.S. economy during the current expansion — and headline CPI (Consumer Price Index) inflation in a range of 1.5%-2%. In PIMCO’s view, given moderate global recovery and the strong U.S. dollar, there will be little if any boost to aggregate demand from international trade. On the positive side of the ledger, PIMCO believes that the recent budget agreement between Congress and President Obama will provide the U.S. economy a modest fiscal boost from the increase in federal spending. In the Federal Open Market Committee’s recent announcement and minutes from January 26-27, 2016, the Committee appeared to continue signaling further tightening despite market volatility, although it has acknowledged a degree of softening in the economy. For example, the minutes pointed out that moderating oil companies and foreign countries’ investment have the “potential to further restrain domestic economic activity.” Therefore, low energy prices and disinflationary pressures from a stronger U.S. dollar may slow the pace of Fed hikes.

 

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Overseas, PIMCO’s baseline view for the eurozone is economic growth of around 1.5% over the next four quarters, with inflation from roughly zero in 2015 to about 1% in 2016. PIMCO believes that ECB quantitative easing will have a positive impact on loan growth. However, while net exports should benefit from the cumulative weakening of the euro, it is PIMCO’s belief that slower growth from the eurozone’s major trading partners may limit the contribution to growth from net exports in 2016. PIMCO sees the prospects of a modest pickup in Japanese growth to about 1% in 2016, versus an estimated 0.6% in 2015. In PIMCO’s view, headline inflation will remain positive in 2016, but at around 0.5-1%, it is well below the Bank of Japan’s target of 2%.

 

In the following pages of this PIMCO Closed-End Funds Semiannual Report, please find specific details regarding investment performance and a discussion of factors that most affected the Funds’ performance over the six months ended January 31, 2016.

 

Thank you for investing with us. We value your trust and will continue to work diligently to meet your investment needs. If you have questions regarding any of your PIMCO Closed-End Funds investments, please contact your financial advisor or call the Funds’ shareholder servicing agent at (844) 33-PIMCO or (844) 337-4626. We also invite you to visit our website at www.pimco.com to learn more about our views.

 

Sincerely,

 

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Hans W. Kertess   Peter G. Strelow
Chairman of the Board of Trustees   President

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   3


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Important Information About the Funds

 

We believe that bond funds have an important role to play in a well- diversified investment portfolio. It is important to note, however, that in an environment where interest rates trend upward, rising rates would negatively impact the performance of most bond funds, and fixed- income securities held by a Fund are likely to decrease in value. A number of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions, etc.). Accordingly, changes in interest rates can be sudden, and there is no guarantee that Fund Management will anticipate such movement.

 

As of the date of this report, interest rates in the U.S. are at or near historically low levels. As such, bond funds may currently face an increased exposure to the risks associated with rising interest rates. This is especially true since the Federal Reserve Board has concluded its quantitative easing program and, at its meeting on December 16, 2015, raised interest rates for the first time since 2006 from a target range of 0% to 0.25% to a target range of 0.25% to 0.50%. Further, while the U.S. bond market has steadily grown over the past three decades, dealer inventories of corporate bonds have remained relatively stagnant. As a result, there has been a significant reduction in the ability of dealers to “make markets” in corporate bonds. All of the factors mentioned above, individually or collectively, could lead to increased volatility and/or lower liquidity in the fixed income markets, which could result in increased losses to a Fund. Bond funds and individual bonds with a longer duration (a measure of the sensitivity of a security’s price to changes in interest rates) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities or funds with shorter durations. In addition, in the current low interest rate environment, the market price of the Funds’ common shares may be particularly sensitive to changes in interest rates or the perception that there will be a change in interest rates.

 

The use of derivatives may subject the Funds to greater volatility than investments in traditional securities. The Funds may use derivative instruments for hedging purposes or as part of an investment strategy. Use of these instruments may involve certain costs and risks such as liquidity risk, interest rate risk, market risk, call risk, credit risk, management risk and the risk that a Fund could not close out a position when it would be most advantageous to do so. Certain derivative transactions may have a leveraging effect on a Fund. For example, a small investment in a derivative instrument may have a significant impact on a Fund’s exposure to interest rates, currency exchange rates or other investments. As a result, a relatively small price movement in a derivative instrument may cause an immediate and substantial loss or gain, which translates into heightened volatility in a Fund’s net asset value “NAV”. A Fund may engage in such transactions regardless of whether the Fund owns the asset, instrument or components of the index underlying a derivative instrument. A Fund

may invest a significant portion of its assets in these types of instruments. If it does, a Fund’s investment exposure could far exceed the value of its portfolio securities and its investment performance could be primarily dependent upon securities it does not directly own. Changes in regulation relating to a mutual fund’s use of derivatives and related instruments could potentially limit or impact a Fund’s ability to invest in derivatives, limit a Fund’s ability to employ certain strategies that use derivatives and adversely affect the value or performance of derivatives and a Fund.

 

A Fund’s use of leverage creates the opportunity for increased income for the Fund’s common shareholders, but also creates special risks. Leverage is a speculative technique that may expose a Fund to greater risk and increased costs. If shorter-term interest rates rise relative to the rate of return on a Fund’s portfolio, the interest and other costs of leverage to the Fund could exceed the rate of return on the debt obligations and other investments held by the Fund, thereby reducing return to the Fund’s common shareholders. In addition, fees and expenses of any form of leverage used by a Fund will be borne entirely by its common shareholders (and not by preferred shareholders, if any) and will reduce the investment return of the Fund’s common shares. There can be no assurance that a Fund’s use of leverage will result in a higher yield on its common shares, and it may result in losses. Leverage creates several major types of risks for a Fund’s common shareholders, including: (1) the likelihood of greater volatility of net asset value and market price of the Fund’s common shares, and of the investment return to the Fund’s common shareholders, than a comparable portfolio without leverage; (2) the possibility either that the Fund’s common share dividends will fall if the interest and other costs of leverage rise, or that dividends paid on the Fund’s common shares will fluctuate because such costs vary over time; and (3) the effects of leverage in a declining market or a rising interest rate environment, as leverage is likely to cause a greater decline in the net asset value of the Fund’s common shares than if the Fund were not leveraged and may result in a greater decline in the market value of the Fund’s common shares.

 

A Fund’s investments in and exposure to foreign securities involve special risks. For example, the value of these investments may decline in response to unfavorable political and legal developments, unreliable or untimely information or economic and financial instability. Foreign securities may experience more rapid and extreme changes in value than investments in securities of U.S. issuers. The securities markets of certain foreign countries are relatively small, with a limited number of companies representing a small number of industries. Issuers of foreign securities are usually not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, auditing and custody standards of foreign countries differ, in some cases significantly, from U.S. standards. Also, nationalization, expropriation or other confiscation,

 

 

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currency blockage, political changes or diplomatic developments could adversely affect a Fund’s investments in foreign securities. In the event of nationalization, expropriation or other confiscation, a Fund could lose its entire investment in foreign securities. Risks associated with investing in foreign securities may be increased when a Fund invests in emerging markets. For example, if a Fund invests in emerging market debt, it may face increased exposure to interest rate, liquidity, volatility, and redemption risk due to the specific economic, political, geographical, or legal background of the emerging market.

 

Investments in loans are generally subject to risks similar to those of investments in other types of debt obligations, including, among others, credit risk, interest rate risk, variable and floating rate securities risk, and, as applicable, risks associated with mortgage-related securities. In addition, in many cases loans are subject to the risks associated with below-investment grade securities. In the case of a loan participation or assignment, a Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. In the event of the insolvency of the lender selling a loan participation, a Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. The Funds may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans or acting as an originator of loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, lender liability, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans. To the extent that a Fund originates a loan, it may be responsible for all or a substantial portion of the expenses associated with initiating the loan, irrespective of whether the loan transaction is ultimately consummated or closed. This may include significant legal and due diligence expenses, which will be indirectly borne by a Fund and its shareholders.

 

Mortgage-related and other asset-backed securities often involve risks that are different from or more acute than risks associated with other types of debt instruments. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, if a Fund holds mortgage-related securities, it may experience additional volatility since individual mortgage holders are less likely to exercise prepayment options, thereby putting additional downward pressure on the value of these securities and potentially causing the Fund to lose money. This is known as extension risk. Mortgage-backed securities can be highly sensitive to rising interest rates, such that even small movements can cause an investing Fund to

lose value. Mortgage-backed securities, and in particular those not backed by a government guarantee, are subject to credit risk. In addition, adjustable and fixed rate mortgage-related securities are subject to prepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of the Funds because the Funds may have to reinvest that money at the lower prevailing interest rates. The Funds’ investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets. Payment of principal and interest on asset-backed securities may be largely dependent upon the cash flows generated by the assets backing the securities, and asset-backed securities may not have the benefit of any security interest in the related assets.

 

High-yield bonds (commonly referred to as “junk bonds”) typically have a lower credit rating than other bonds. Lower-rated bonds generally involve a greater risk to principal than higher-rated bonds. Further, markets for lower-rated bonds are typically less liquid than for higher- rated bonds, and public information is usually less abundant in such markets. Thus, high yield investments increase the chance that a Fund will lose money on its investment. The Funds may also invest in bonds and other instruments that are not rated, but which PIMCO considers to be equivalent to high-yield investments. The Funds may hold defaulted securities that may involve special considerations including bankruptcy proceedings, other regulatory and legal restrictions affecting the Funds’ ability to trade, and the availability of prices from independent pricing services or dealer quotations. Defaulted securities are often illiquid and may not be actively traded. Sale of securities in bankrupt companies at an acceptable price may be difficult and differences compared to the value of the securities used by the Funds could be material.

 

Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When a Fund holds variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities and the NAV of the Funds’ shares.

 

The global economic crisis brought several small economies in Europe to the brink of bankruptcy and many other economies into recession and weakened the banking and financial sectors of many European

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   5


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Important Information About the Funds (Cont.)

 

countries. For example, the governments of Greece, Spain, Portugal, and the Republic of Ireland have all experienced large public budget deficits, the effects of which are still yet unknown and may slow the overall recovery of the European economies from the global economic crisis. In addition, due to large public deficits, some European countries may be dependent on assistance from other European governments and institutions or other central banks or supranational agencies such as the International Monetary Fund. Assistance may be dependent on a country’s implementation of reforms or reaching a certain level of performance. Failure to reach those objectives or an insufficient level of assistance could result in a deep economic downturn which could significantly affect the value of a Fund’s European investments. It is possible that one or more Economic and Monetary Union of the European Union (“EMU”) member countries could abandon the euro and return to a national currency and/or that the euro will cease to exist as a single currency in its current form. The exit of any country out of the euro may have an extremely destabilizing effect on other eurozone countries and their economies and a negative effect on the global economy as a whole. Such an exit by one country may also increase the possibility that additional countries may exit the euro should they face similar financial difficulties.

 

The Funds may invest in securities and instruments that are economically tied to Russia. Investments in Russia are subject to various risks such as political, economic, legal, market and currency risks. The risks include uncertain political and economic policies, short- term market volatility, poor accounting standards, corruption and crime, an inadequate regulatory system, and unpredictable taxation. Investments in Russia are particularly subject to the risk that economic sanctions may be imposed by the United States and/or other countries. Such sanctions — which may impact companies in many sectors, including energy, financial services and defense, among others — may negatively impact the Funds’ performance and/or ability to achieve their investment objectives. The Russian securities market is characterized by limited volume of trading, resulting in difficulty in obtaining accurate prices. The Russian securities market, as compared to U.S. markets, has significant price volatility, less liquidity, a smaller market capitalization and a smaller number of traded securities. There may be little publicly available information about issuers. Settlement, clearing and registration of securities transactions are subject to risks because of registration systems that may not be subject to effective government supervision. This may result in significant delays or problems in registering the transfer of securities. Russian securities laws may not recognize foreign nominee accounts held with a custodian bank, and therefore the custodian may be considered the ultimate owner of securities they hold for their clients. Ownership of securities issued by Russian companies is recorded by companies themselves and by registrars instead of through a central registration system. It is possible

that the ownership rights of the Funds could be lost through fraud or negligence. While applicable Russian regulations impose liability on registrars for losses resulting from their errors, it may be difficult for the Funds to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration. Adverse currency exchange rates are a risk and there may be a lack of available currency hedging instruments. Investments in Russia may be subject to the risk of nationalization or expropriation of assets. Oil, natural gas, metals, and timber account for a significant portion of Russia’s exports, leaving the country vulnerable to swings in world prices.

 

The common shares of the Funds trade on the New York Stock Exchange. As with any stock, the price of a Fund’s common shares will fluctuate with market conditions and other factors. If you sell your common shares of a Fund, the price received may be more or less than your original investment. Shares of closed-end management investment companies frequently trade at a discount from their net asset value. The common shares of a Fund may trade at a price that is less than the initial offering price and/or the net asset value of such shares. Further, if a Fund’s shares trade at a price that is more than the initial offering price and/or the net asset value of such shares, including at a substantial premium and/or for an extended period of time, there is no assurance that any such premium will be sustained for any period of time and will not decrease, or that the shares will not trade at a discount to net asset value thereafter.

 

Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. Differences between tax regulations and U.S. GAAP may cause timing differences between income and capital gain recognition. Further, the character of investment income and capital gains may be different for certain transactions under the two methods of accounting. As a result, income distributions and capital gain distributions declared during a fiscal period may differ significantly from the net investment income (loss) and realized gains (losses) reported on each Fund’s annual financial statements presented under U.S. GAAP.

 

If a Fund estimates that a portion of one of its dividend distributions may be comprised of amounts from sources other than net investment income, the Fund will notify shareholders of record of the estimated composition of such distribution through a Section 19 Notice. To determine the sources of a Fund’s distributions, the Fund references its accounting records at the time the distribution is paid. If, based on such accounting records, a particular distribution does not include capital gains or paid-in surplus or other capital sources, a Section 19 Notice generally will not be issued. It is important to note that differences exist between a Fund’s accounting entries maintained on a day-to-day basis, the Fund’s financial statements presented in accordance with U.S. GAAP, and accounting practices under income

 

 

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tax regulations. Examples of such differences may include the treatment of paydowns on mortgage-backed securities purchased at a discount and periodic payments under interest rate swap contracts. A Fund may not issue a Section 19 Notice in situations where the Fund’s financial statements prepared later and in accordance with U.S. GAAP or the final tax character of those distributions might later report that the sources of those distributions included capital gains and/or a return of capital. Please visit www.pimco.com for the most recent Section 19 Notice, if applicable, for additional information regarding the composition of distributions. Final determination of a distribution’s tax character will be reported on Form 1099 DIV sent to shareholders each January.

 

The Funds may be subject to various risks in addition to those described above. Some of these risks may include, but are not limited to, the following: asset allocation risk, credit risk, stressed securities risk, distressed and defaulted securities risk, corporate bond risk, market risk, issuer risk, liquidity risk, equity securities and related market risk, mortgage-related and other asset-backed securities risk, extension risk, prepayment risk, privately issued mortgage-related securities risk, mortgage market/ subprime risk, foreign (non-U.S.) investment risk, emerging markets risk, currency risk, redenomination risk, non- diversification risk, management risk, municipal bond risk, inflation-indexed security risk, senior debt risk, loans, participations and assignments risk, reinvestment risk, real estate risk, U.S. Government securities risk, foreign (non-U.S.) government securities risk, valuation risk, segregation and cover risk, focused investment risk, credit default swaps risk, event-linked securities risk, counterparty risk, preferred securities risk, confidential information access risk, other investment companies risk, private placements risk, inflation/deflation risk, regulatory risk, tax risk, recent economic conditions risk, market disruptions and geopolitical risk, potential conflicts of interest involving allocation of investment opportunities, repurchase agreements risk, securities lending risk, zero-coupon bond and payment-in-kind securities risk, portfolio turnover risk, smaller company risk, short sale risk and convertible securities risk. A description of certain of these risks is available in the Notes to Financial Statements of this Report.

 

On each Fund Summary page in this Shareholder Report, the Average Annual Total Return table measures performance assuming that all dividend and capital gain distributions were reinvested. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions. Total return for a period of more than one year represents the average annual total return. Performance at market price will differ from results at NAV. Although market price returns tend to reflect investment results over time, during shorter periods returns at market price can

also be influenced by factors such as changing views about a Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends. Performance shown is net of fees and expenses.

 

The following table discloses the commencement of operations and diversification status of each Fund:

 

Fund Name       Commencement
of Operations
    Diversification
Status
 

PIMCO Corporate & Income Opportunity Fund

      12/27/02        Diversified   

PIMCO Corporate & Income Strategy Fund

      12/21/01        Diversified   

PIMCO High Income Fund

      04/30/03        Diversified   

PIMCO Income Strategy Fund

      08/29/03        Diversified   

PIMCO Income Strategy Fund II

      10/29/04        Diversified   

 

An investment in a Fund is not a deposit of a bank and is not guaranteed or insured by the Federal Deposit Insurance Corporation or any other government agency. It is possible to lose money on investments in the Funds.

 

The Trustees are responsible generally for overseeing the management of the Funds. The Trustees authorize the Funds to enter into service agreements with the Investment Manager and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Funds. Shareholders are not parties to or third-party beneficiaries of such service agreements. Neither a Fund’s original or any subsequent prospectus or Statement of Additional Information (SAI), any press release or shareholder report, any contracts filed as exhibits to a Fund’s registration statement, nor any other communications, disclosure documents or regulatory filings from or on behalf of a Fund creates a contract between or among any shareholder of a Fund, on the one hand, and the Fund, a service provider to the Fund, and/or the Trustees or officers of the Fund, on the other hand. The Trustees (or the Funds and their officers, service providers or other delegates acting under authority of the Trustees) may amend its most recent or use a new prospectus or SAI with respect to a Fund, adopt and disclose new or amended policies and other changes in press releases and shareholder reports and/or amend, file and/or issue any other communications, disclosure documents or regulatory filings, and may amend or enter into any contracts to which a Fund is a party, and interpret the investment objective(s), policies, restrictions and contractual provisions applicable to any Fund, without shareholder input or approval, except in circumstances in which shareholder approval is specifically required by law (such as changes to fundamental investment policies) or where a shareholder approval requirement was specifically disclosed in a Fund’s prospectus, SAI or shareholder report and is otherwise still in effect.

 

 

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Important Information About the Funds (Cont.)

 

PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940. The Proxy Policy has been adopted by the Funds as the policies and procedures that PIMCO will use when voting proxies on behalf of the Funds. A description of the policies and procedures that PIMCO uses to vote proxies relating to portfolio securities of each Fund, and information about how each Fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, are available without charge, upon request, by calling the Funds at (844) 33-PIMCO (844-337-4626), on the Funds’ website at www.pimco.com, and on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.

 

Each Fund files a complete schedule of its portfolio holdings with the SEC for the first and third quarters of its fiscal year on Form N-Q. A

copy of each Fund’s Form N-Q is available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and is available without charge, upon request by calling the Funds at (844) 33-PIMCO (844-337-4626) and on the Funds’ website at www.pimco.com.

 

Updated portfolio holdings information about a Fund will be available at www.pimco.com approximately 15 calendar days after such Fund’s most recent fiscal quarter end, and will remain accessible until such Fund files a Form N-Q or a shareholder report for the period which includes the date of the information. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 

 

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PIMCO Corporate & Income Opportunity Fund

 

Symbol on NYSE - PTY

 

Allocation Breakdown

 

Corporate Bonds & Notes

    33.4%   

Non-Agency Mortgage-Backed Securities

    27.2%   

Asset-Backed Securities

    15.4%   

Short-Term Instruments

    8.1%   

Municipal Bonds & Notes

    7.3%   

Other

    8.6%   
   

% of Investments, at value as of 01/31/16. Financial derivative instruments, if any, are excluded.

 

Fund Information (as of January 31, 2016)(1)

 

Market Price

    $13.10   

NAV

    $12.75   

Premium/(Discount) to NAV

    2.75%   

Market Price Distribution Yield(2)

    11.91%   

NAV Distribution Yield(2)

    12.24%   

Total Effective Leverage(3)

    44%   
 

 

Average Annual Total Return(1) for the period ended January 31, 2016  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(12/27/02)
 
Market Price     (2.76)%        (12.76)%        6.38%        10.78%        12.36%   
NAV     (4.87)%        2.17%        10.84%        12.76%        13.46%   

 

All Fund returns are net of fees and expenses.

 

* Cumulative return

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

Distribution yields are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (ROC) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

»  

PIMCO Corporate & Income Opportunity Fund’s primary investment objective is to seek high current income, with capital preservation and capital appreciation as secondary objectives.

 

Fund Insights

 

»  

The Fund’s exposure to high yield corporate bonds was the primary detractor from returns, as the sector struggled against a backdrop of commodity weakness and capital outflows. Within high yield, exposure to banking and specialty finance, manufacturing, utilities, entertainment, media and raw materials companies was the main headwind for returns.

 

»  

The Fund’s emerging market holdings were major detractors from returns, due to exposure to local and hard currency-denominated Brazilian debt. Brazil was negatively impacted by slowing economic growth, high inflation and a political crisis. However, gains from holdings of Russian hard currency-denominated debt helped offset some of the negative impact.

 

»  

Additionally within corporate credit, the Fund’s exposure to investment grade corporate bonds was a significant detractor from returns as spreads widened, given abundant new supply and commodity price volatility.

 

»  

The Fund’s allocation to securitized credit detracted significantly from performance, as prices were generally lower during the period.

 

»  

Overall contribution from U.S. interest rate exposure was the primary positive factor for performance. This was due mainly to an emphasis on the intermediate portion of the curve, as it provided attractive carry, the rate of interest earned by holding the respective securities, and intermediate interest rates generally declined over the reporting period. Additionally, tactical exposure to U.K. rates contributed to performance.

 

»  

The Fund’s exposure to select taxable municipal bonds contributed modestly to returns, as these issues gained value during the period and were more insulated from underperformance experienced in corporate credit sectors.

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   9


Table of Contents

PIMCO Corporate & Income Strategy Fund

 

Symbol on NYSE - PCN

 

Allocation Breakdown

 

Corporate Bonds & Notes

    38.0%   

Non-Agency Mortgage-Backed Securities

    30.6%   

Asset-Backed Securities

    15.2%   

Municipal Bonds & Notes

    4.3%   

Short-Term Instruments

    2.1%   

Other

    9.8%   
   

% of Investments, at value as of 01/31/16. Financial derivative instruments, if any, are excluded.

Fund Information (as of January 31, 2016)(1)

 

Market Price

    $13.48   

NAV

    $13.78   

Premium/(Discount) to NAV

    (2.18)%   

Market Price Distribution Yield(2)

    10.01%   

NAV Distribution Yield(2)

    9.80%   

Total Effective Leverage(3)

    21%   
 

 

Average Annual Total Return(1) for the period ended January 31, 2016  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(12/21/01)
 
Market Price     3.44%        (3.53)%        7.11%        10.04%        10.62%   
NAV     (1.91)%        2.98%        10.08%        11.72%        11.67%   

 

All Fund returns are net of fees and expenses.

 

* Cumulative return

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

Distribution yields are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (ROC) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

»  

PIMCO Corporate & Income Strategy Fund’s primary investment objective is to seek high current income, with a secondary objective of capital preservation and appreciation.

 

Fund Insights

 

»  

The Fund’s exposure to high yield corporate bonds was the primary detractor from returns, as the sector struggled amid a backdrop of commodity weakness and capital outflows. Within high yield, exposure to banking and specialty finance, manufacturing, utilities, entertainment, media and raw materials companies was the main headwind for returns.

 

»  

The Fund’s emerging market holdings were major detractors from returns, due to exposure to local and hard currency-denominated Brazilian debt. Brazil was negatively impacted by slowing economic growth, high inflation and a political crisis.

 

»  

Additionally within corporate credit, the Fund’s exposure to investment grade corporate bonds was a significant detractor from returns as spreads widened, given abundant new supply and commodity price volatility.

 

»  

The Fund’s allocation to securitized credit detracted significantly from performance, as prices were generally lower during the period.

 

»  

Overall contribution from U.S. interest rate exposure was the primary positive factor for performance. This was due mainly to an emphasis on the intermediate portion of the curve, as it provided attractive carry, the rate of interest earned by holding the respective securities, and intermediate interest rates generally declined over the reporting period. Additionally, tactical exposure to U.K. rates contributed to performance.

 

»  

The Fund’s partial redemption of auction rate preferred shares had a major, one-time positive impact on returns, as the redemption was done below face value, which was accretive for common shareholders.

 

»  

The Fund’s exposure to select taxable municipal bonds contributed modestly to returns.

 

10   PIMCO CLOSED-END FUNDS     


Table of Contents

PIMCO High Income Fund

 

Symbol on NYSE - PHK

 

Allocation Breakdown

 

Corporate Bonds & Notes

    49.6%   

Non-Agency Mortgage-Backed Securities

    17.2%   

Asset-Backed Securities

    14.1%   

Municipal Bonds & Notes

    10.5%   

Short-Term Instruments

    2.3%   

Other

    6.3%   
   

% of Investments, at value as of 01/31/16. Financial derivative instruments, if any, are excluded.

 

Fund Information (as of January 31, 2016)(1)

 

Market Price

    $7.84   

NAV

    $6.53   

Premium/(Discount) to NAV

    20.06%   

Market Price Distribution Yield(2)

    15.84%   

NAV Distribution Yield(2)

    19.01%   

Total Effective Leverage(3)

    23%   
 

 

Average Annual Total Return(1) for the period ended January 31, 2016  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(04/30/03)
 
Market Price     (12.59)%        (25.41)%        2.34%        7.93%        8.74%   
NAV     (2.86)%        5.67%        11.17%        10.23%        10.83%   

 

All Fund returns are net of fees and expenses.

 

* Cumulative return

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

Distribution yields are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (ROC) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

»  

PIMCO High Income Fund’s primary investment objective is to seek high current income, with capital appreciation as a secondary objective.

 

Fund Insights

 

»  

The Fund’s exposure to high yield corporate bonds was the primary detractor from returns, as the sector struggled amid a backdrop of commodity weakness and capital outflows. Within high yield, exposure to banking and specialty finance, manufacturing, utilities, entertainment, media and energy companies was the main headwind for returns.

 

»  

The Fund’s emerging market holdings were major detractors from returns, due to exposure to hard currency-denominated Brazilian debt. Brazil was negatively impacted by slowing economic growth, high inflation and a political crisis.

 

»  

The Fund’s allocation to securitized credit also detracted significantly from performance due to negative security selection within non-agency residential mortgage-backed securities and exposure to structured credit vehicles (collateralized debt obligations/collateralized loan obligations).

 

»  

Additionally within corporate credit, the Fund’s exposure to investment grade corporate bonds detracted significantly from returns as spreads widened, given abundant new supply and commodity price volatility.

 

»  

Overall contribution from U.S. interest rate exposure was the primary positive factor for performance. This was due mainly to an emphasis on the intermediate portion of the curve, as it provided attractive carry, the rate of interest earned by holding the respective securities, and intermediate interest rates generally declined over the reporting period. Additionally, tactical exposure to U.K. rates contributed to performance.

 

»  

The Fund’s partial redemption of auction rate preferred shares had a significant, one-time positive impact on returns, as the redemption was done below face value, which was accretive for common shareholders.

 

»  

The Fund’s exposure to select taxable municipal bonds contributed modestly to returns.

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   11


Table of Contents

PIMCO Income Strategy Fund

 

Symbol on NYSE - PFL

 

Allocation Breakdown

 

Corporate Bonds & Notes

    44.2%   

Asset-Backed Securities

    21.6%   

Non-Agency Mortgage-Backed Securities

    16.4%   

Municipal Bonds & Notes

    5.2%   

Short-Term Instruments

    4.3%   

Other

    8.3%   
   

% of Investments, at value as of 01/31/16. Financial derivative instruments, if any, are excluded.

Fund Information (as of January 31, 2016)(1)

 

Market Price

    $9.29   

NAV

    $10.08   

Premium/(Discount) to NAV

    (7.84)%   

Market Price Distribution Yield(2)

    11.63%   

NAV Distribution Yield(2)

    10.71%   

Total Effective Leverage(3)

    23%   
 

 

Average Annual Total Return(1) for the period ended January 31, 2016  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(08/29/03)
 
Market Price     (5.59)%        (12.40)%        4.63%        4.71%        4.43%   
NAV     (7.55)%        (1.57)%        8.16%        5.41%        5.59%   

 

All Fund returns are net of fees and expenses.

 

* Cumulative return

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

Distribution yields are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (ROC) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

»  

PIMCO Income Strategy Fund’s primary investment objective is to seek high current income, consistent with the preservation of capital.

 

Fund Insights

 

»  

The Fund’s exposure to high yield corporate bonds was the primary detractor from returns, as the sector struggled amid a backdrop of commodity weakness and capital outflows. Within high yield, exposure to banking and specialty finance, manufacturing, utilities, entertainment, media and raw materials companies was the main headwind for returns.

 

»  

The Fund’s emerging market holdings were major detractors from returns, due to exposure to local and hard currency-denominated Brazilian debt. Brazil was negatively impacted by slowing economic growth, high inflation and a political crisis.

 

»  

Additionally within corporate credit, the Fund’s exposure to investment grade corporate bonds detracted significantly from returns as spreads widened, given abundant new supply and commodity price volatility.

 

»  

The Fund’s allocation to securitized credit detracted significantly from performance, as prices were generally lower during the period.

 

»  

Overall contribution from U.S. interest rate exposure was the primary positive factor for performance. This was due mainly to an emphasis on the intermediate portion of the curve, as it provided attractive carry, the rate of interest earned by holding the respective securities, and intermediate interest rates generally declined over the reporting period. Additionally, tactical exposure to U.K. rates contributed to performance.

 

»  

The Fund’s exposure to select taxable municipal bonds contributed modestly to returns.

 

12   PIMCO CLOSED-END FUNDS     


Table of Contents

PIMCO Income Strategy Fund II

 

Symbol on NYSE - PFN

 

Allocation Breakdown

 

Corporate Bonds & Notes

    41.3%   

Non-Agency Mortgage-Backed Securities

    23.1%   

Asset-Backed Securities

    15.8%   

Municipal Bonds & Notes

    7.3%   

Short-Term Instruments

    3.8%   

Other

    8.7%   
   

% of Investments, at value as of 01/31/16. Financial derivative instruments, if any, are excluded.

Fund Information (as of January 31, 2016)(1)

 

Market Price

    $8.41   

NAV

    $9.11   

Premium/(Discount) to NAV

    (7.68)%   

Market Price Distribution Yield(2)

    11.41%   

NAV Distribution Yield(2)

    10.54%   

Total Effective Leverage(3)

    23%   
 

 

Average Annual Total Return(1) for the period ended January 31, 2016  
    6 Month*     1 Year     5 Year     10 Year    

Commencement
of Operations

(10/29/04)

 
Market Price     (4.97)%        (8.69)%        6.31%        3.76%        3.29%   
NAV     (6.13)%        (0.10)%        8.58%        4.31%        4.43%   

 

All Fund returns are net of fees and expenses.

 

* Cumulative return

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Total return, market price, NAV, market price distribution yield, and NAV distribution yield will fluctuate with changes in market conditions. For performance current to the most recent month-end, visit www.pimco.com or call (844) 33-PIMCO.

 

(2) 

Distribution yields are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or Market Price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (ROC) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be made on Form 1099 DIV sent to shareholders each January.

 

(3) 

Represents total effective leverage outstanding, as a percentage of total managed assets. Total effective leverage consists of preferred shares, reverse repurchase agreements and other borrowings, credit default swap notional and floating rate notes issued in tender option bond transactions, as applicable (collectively “Total Effective Leverage”). The Fund may engage in other transactions not included in Total Effective Leverage disclosed above that may give rise to a form of leverage, including certain derivative transactions. For the purpose of calculating Total Effective Leverage outstanding as a percentage of total managed assets, total managed assets refer to total assets (including assets attributable to Total Effective Leverage that may be outstanding) minus accrued liabilities (other than liabilities representing Total Effective Leverage).

 

Investment Objective and Strategy Overview

 

»  

PIMCO Income Strategy Fund II’s primary investment objective is to seek high current income, consistent with the preservation of capital.

 

Fund Insights

 

»  

The Fund’s exposure to high yield corporate bonds was the primary detractor from returns, as the sector struggled amid a backdrop of commodity weakness and capital outflows. Within high yield, exposure to banking and specialty finance, manufacturing, utilities, entertainment, media and raw materials companies was the main headwind for returns.

 

»  

The Fund’s emerging market holdings were major detractors from returns, due to exposure to local and hard currency-denominated Brazilian debt. Brazil was negatively impacted by slowing economic growth, high inflation and a political crisis.

 

»  

Additionally within corporate credit, the Fund’s exposure to investment grade corporate bonds detracted significantly from returns as spreads widened, given abundant new supply and commodity price volatility.

 

»  

The Fund’s allocation to securitized credit also detracted significantly from performance, as prices were generally lower during the period.

 

»  

Overall contribution from U.S. interest rate exposure was the primary positive factor for performance. This was due mainly to an emphasis on the intermediate portion of the curve, as it provided attractive carry, the rate of interest earned by holding the respective securities, and intermediate interest rates generally declined over the reporting period. Additionally, tactical exposure to U.K. rates contributed to performance.

 

»  

The Fund’s exposure to select taxable municipal bonds contributed modestly to returns.

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   13


Table of Contents

Financial Highlights

 

         

Investment Operations

        Less Distributions to Common Shareholders  
    Net Asset Value
Beginning of
Year or
Period
    Net Investment
Income  (a)
    Net Realized/
Unrealized
Gain (Loss)
   

Distributions on
Preferred Shares
from Net
Investment
Income (b)

    Distributions on
Preferred Shares
from Realized
Gains (b)
    Total          From Net
Investment
Income  (b)
    From Net
Realized
Capital Gain (b)
    Tax Basis
Return of
Capital (b)
    Total  

PIMCO Corporate & Income Opportunity Fund

                     

08/01/2015 - 01/31/2016+

  $ 14.23      $ 0.53      $ (1.19   $ (0.01   $ 0.00      $ (0.67       $ (0.81   $ 0.00      $ 0.00      $ (0.81

12/01/2014 - 07/31/2015(f)

    15.41        0.68        (0.33     (0.00 )^      0.00        0.35            (1.69     0.00        0.00        (1.69 )(i) 

11/30/2014

    16.62        1.14        1.06        (0.00 )^      (0.01     2.19            (1.56     (1.84     0.00        (3.40

11/30/2013

    17.58        1.43        0.19        (0.00 )^      (0.00 )^      1.62            (1.82     (0.76     0.00        (2.58

11/30/2012

    14.22        1.68        3.87        (0.01     0.00        5.54            (2.18     0.00        0.00        (2.18

11/30/2011

    16.29        1.88        (1.87     (0.01     0.00        0.00            (2.07     0.00        0.00        (2.07

11/30/2010

    13.63        1.80        2.83        (0.01     0.00        4.62            (1.96     0.00        0.00        (1.96

PIMCO Corporate & Income Strategy Fund

                     

08/01/2015 - 01/31/2016+

  $ 14.75      $ 0.50      $ (1.28   $ (0.00 )^    $ 0.00      $ (0.78       $ (0.70   $ 0.00      $ 0.00      $ (0.70

11/01/2014 - 07/31/2015(g)

    15.60        0.73        (0.21     (0.00 )^      0.00        0.52            (1.37     0.00        0.00        (1.37 )(i) 

10/31/2014

    16.04        0.99        0.87        (0.00 )^        (0.00 )^      1.86            (1.35       (0.95     0.00        (2.30

10/31/2013

    15.90        1.28        0.44        (0.01     0.00        1.71            (1.57     0.00        0.00        (1.57

10/31/2012

    13.67        1.57        2.47        (0.01     0.00        4.03            (1.80     0.00        0.00        (1.80

10/31/2011

    15.51        1.72        (1.87     (0.01     0.00        (0.16         (1.68     0.00        0.00        (1.68

10/31/2010

    12.88        1.61        2.90        (0.01     0.00        4.50            (1.87     0.00        0.00        (1.87

PIMCO High Income Fund

                     

08/01/2015 - 01/31/2016+

  $ 7.37      $ 0.31      $ (0.77   $ (0.00 )^    $ 0.00      $ (0.46       $ (0.64   $ 0.00      $ 0.00      $   (0.64

04/01/2015 - 07/31/2015(h)

    7.59        0.21        0.06        (0.00 )^      0.00        0.27            (0.33     0.00        (0.16     (0.49 )(i) 

03/31/2015

    8.23        0.94        (0.12     (0.00 )^      0.00        0.82            (1.46     0.00        0.00        (1.46

03/31/2014

    8.65        0.84        0.20        (0.00 )^      0.00        1.04            (1.35     0.00          (0.11     (1.46

03/31/2013

    7.87        0.81        1.43        (0.00 )^      0.00        2.24            (1.42     0.00        (0.04     (1.46

03/31/2012

    9.42        0.96        (1.05     (0.00 )^      0.00        (0.09         (1.39     0.00        (0.07     (1.46

03/31/2011

    8.73        1.13        1.03        (0.01     0.00        2.15            (1.46     0.00        0.00        (1.46

PIMCO Income Strategy Fund

                     

08/01/2015 - 01/31/2016+

  $   11.46      $   0.38      $   (1.21   $   (0.01   $ 0.00      $   (0.84       $   (0.54   $ 0.00      $ 0.00      $ (0.54

07/31/2015

    12.15        0.79        (0.34     (0.03     0.00        0.42            (1.22     0.00        0.00        (1.22

07/31/2014

    11.70        0.79        0.78        (0.04     0.00        1.53            (1.08     0.00        0.00        (1.08

07/31/2013

    11.35        0.92        0.87        (0.04     0.00        1.75            (1.40     0.00        0.00        (1.40

07/31/2012

    11.39        1.16        (0.04     (0.05     0.00        1.07            (1.11     0.00        0.00        (1.11

07/31/2011

    10.62        1.24        0.79        (0.05     0.00        1.98            (1.21     0.00        0.00        (1.21

PIMCO Income Strategy Fund II

                     

08/01/2015 - 01/31/2016+

  $ 10.27      $ 0.46      $ (1.06   $ (0.01   $ 0.00      $ (0.61       $ (0.55   $ 0.00      $ 0.00      $ (0.55

07/31/2015

    10.88        0.70        (0.29     (0.03     0.00        0.38            (1.11     0.00        0.00        (1.11

07/31/2014

    10.29        0.72        0.87        (0.04     0.00        1.55            (0.96     0.00        0.00        (0.96

07/31/2013

    10.23        0.88        0.68        (0.04     0.00        1.52            (1.46     0.00        0.00        (1.46

07/31/2012

    10.04        1.03        0.03        (0.04     0.00        1.02            (0.83     0.00        0.00        (0.83

07/31/2011

    9.29        1.03        0.73        (0.04     0.00        1.72            (0.97     0.00        0.00        (0.97

 

+ Unaudited
* Annualized
^ Reflects an amount rounding to less than one cent.
(a) 

Per share amounts based on average number of common shares outstanding during the year or period.

(b) 

Determined in accordance with federal income tax regulations, see Note 2(c) in the Notes to Financial Statements for more information.

(c) 

Total investment return is calculated assuming a purchase of a common share at the market price on the first day and a sale of a common share at the market price on the last day of each year or period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Funds’ dividend reinvestment plan. Total investment return does not reflect brokerage commissions in connection with the purchase or sale of Fund shares.

(d) 

Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders.

(e) 

Interest expense primarily relates to participation in borrowing and financing transactions, see Note 5 in the Notes to Financial Statements for more information.

(f) 

Fiscal year end changed from November 30th to July 31st.

(g) 

Fiscal year end changed from October 31st to July 31st.

(h) 

Fiscal year end changed from March 31st to July 31st.

(i) 

Total distributions for the period ended July 31, 2015 may be lower than prior fiscal years due to fiscal year end changes resulting in a reduction of the amount of days in the period ended July 31, 2015.

(j) 

See Note 12 in the Notes to Financial Statements.

 

14   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents
Preferred Share
Transactions
        Common Share         Ratios/Supplemental Data  
                                      Ratios to Average Net Assets              
Increase Resulting
from Tender and
Repurchase
of  Auction-Rate
Preferred Shares (j)
         Net Asset
Value End of
Year or
Period
    Market Price
End of Year
or Period
    Total
Investment
Return  (c)
         Net Assets
Applicable
to Common
Shareholders
(000s)
    Expenses  (d)(e)     Expenses
Excluding
Interest
Expense (d)
    Net Investment
Income (d)
    Preferred
Shares Asset
Coverage
Per Share
    Portfolio
Turnover
Rate
 
                     
                     
$   0.00          $   12.75      $   13.10        (2.76 )%        $ 905,625        0.92 %*      0.87 %*      7.96 %*    $ 120,139        20
  0.16            14.23        14.31        (13.61           1,006,484        0.91     0.90     7.01       130,743        34   
  0.00            15.41        18.50        26.04            1,082,000        0.91        0.91        7.36        108,229        44   
  0.00            16.62        17.75        (0.15         1,149,779        0.91        0.91        8.49        113,443        118   
  0.00            17.58        20.37        36.86            1,205,090        1.05        0.93        10.63        117,697        29   
  0.00            14.22        16.78        9.24            967,195        1.09        0.94        11.76        99,399        53   
  0.00            16.29        17.30        40.36            1,098,920        1.02        0.93        11.98        109,530        70   
                     
                     
$ 0.51          $ 13.78      $ 13.48        3.44       $ 532,601        1.11 %*      1.08 %*      7.13 %*    $ 264,785        21
  0.00            14.75        13.71        (7.12         570,122        1.07     1.07     6.51     109,336        40   
  0.00            15.60        16.18        8.84            599,980        1.09        1.09        6.32        113,753        48   
  0.00            16.04        17.15        3.48            612,225        1.10        1.09        7.91        115,565        108   
  0.00            15.90        18.17        33.21            603,483        1.32        1.14        11.03        114,270        28   
  0.00            13.67        15.27        4.78            515,041        1.30        1.16        11.56        101,188        32   
  0.00            15.51        16.24        41.86            579,963        1.24        1.17        11.64        110,790        52   
                     
$ 0.26          $ 6.53      $ 7.84        (12.59 )%        $ 824,049        1.08 %*      1.02 %*      9.13 %*    $ 227,006        17
  0.00            7.37        9.71        (18.40         925,598        1.05     1.03     8.14     104,245        8   
  0.00            7.59        12.48        12.30            949,880        1.18        1.02        11.53        106,324        58   
  0.00            8.23        12.56        15.51            1,021,120        1.14        1.03        10.14        112,424        159   
  0.00            8.65        12.35        8.53            1,063,863        1.06        1.05        10.00        116,082        70   
  0.00            7.87        12.84        3.28            960,496        1.16        1.07        11.76        107,233        24   
  0.00            9.42        14.01        28.94            1,138,186        1.11        1.04        12.74        122,446        89   
                     
$ 0.00          $ 10.08      $ 9.29        (5.59 )%        $ 255,019        1.17 %*      1.13 %*      7.00 %*    $ 149,316        18
  0.11            11.46        10.39        (2.62         289,909        1.30        1.25        6.67        166,328        67   
  0.00            12.15        11.87        9.95            306,475        1.19        1.18        6.71        122,004        113   
  0.00            11.70        11.83        5.69            294,017        1.24        1.21        7.59        118,058        63   
  0.00            11.35        11.52        12.02            283,285        1.85        1.65        10.93        114,654        23   
  0.00            11.39        12.39        19.67            282,691        1.51        1.41        11.00        114,474        44   
                     
                     
$ 0.00          $ 9.11      $ 8.41        (4.97 )%        $ 538,403        1.14 %*      1.08 %*      9.54 %*    $ 170,561        17
  0.12            10.27        9.41        (0.12         606,974        1.16        1.13        6.58        189,105        63   
  0.00            10.88        10.50        12.39            642,119        1.14        1.14        6.79        124,695        119   
  0.00            10.29        10.24        6.80            605,843        1.16        1.14        8.20        119,060        71   
  0.00            10.23        10.96        16.33            597,683        1.48        1.37        10.87        117,792        17   
  0.00            10.04        10.27        12.53            584,351        1.24        1.21        10.34        115,720        42   

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   15


Table of Contents

Statements of Assets and Liabilities

 

January 31, 2016 (Unaudited)

 

(Amounts in thousands, except per share amounts)   PIMCO
Corporate &
Income
Opportunity
Fund
    PIMCO
Corporate &
Income
Strategy
Fund
    PIMCO High
Income Fund
    PIMCO Income
Strategy
Fund
    PIMCO Income
Strategy
Fund II
 

Assets:

         

Investments, at value

                                       

Investments in securities*

  $ 1,217,978      $ 634,534      $ 1,011,349      $ 320,649     $ 677,455   

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    4,597        2,681        8,457        1,414       3,309   

Over the counter

    10,781        5,315        28,748        3,154       6,924   

Cash

    78        447        0        60       3,436   

Deposits with counterparty

    14,098        4,812        11,575        3,529       5,142   

Foreign currency, at value

    821        302        201        222       514   

Receivable for investments sold

    4,528        17,937        12,559        2,402       8,616   

Interest and dividends receivable

    12,393        5,840        12,942        3,272       6,604   

Other assets

    12        13        85        2       5   

Total Assets

    1,265,286        671,881        1,085,916        334,704       712,005   

Liabilities:

         

Borrowings & Other Financing Transactions

                                       

Payable for reverse repurchase agreements

  $ 20,020      $ 51,083      $ 97,483      $ 9,754     $ 38,036   

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    4,703        2,287        8,255        1,314       3,139   

Over the counter

    76,183        5,780        9,198        3,494       7,328   

Payable for investments purchased

    8,540        15,381        6,199        8,324       20,931   

Deposits from counterparty

    2,161        4,381        24,916        2,889       6,118   

Distributions payable to common shareholders

    9,231        4,350        13,056        2,277       4,728   

Distributions payable to preferred shareholders

    24        4        8        9       21   

Overdraft due to custodian

    0        0        10        0       0   

Accrued management fees

    571        366        542        213       429   

Other liabilities

    278        123        225        136       422   

Total Liabilities

    121,711        83,755        159,892        28,410       81,152   

Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share applicable to an aggregate of 9,518, 2,221, 4,079, 2,051, 3,698 shares issued and outstanding, respectively)

    237,950        55,525        101,975        51,275       92,450   

Net Assets Applicable to Common Shareholders

  $ 905,625      $ 532,601      $ 824,049      $ 255,019     $ 538,403   

Composition of Net Assets Applicable to Common Shareholders:

         

Common Shares:

                                       

Par value ($0.00001 per share)

  $ 1      $ 0      $ 1      $ 0     $ 1   

Paid in capital in excess of par

      1,029,485        569,619          1,693,567        419,477       950,671   

(Overdistributed) net investment income

    (28,528     (12,037     (80,891     (6,504 )     (8,523

Accumulated undistributed net realized (loss)

    (110,500     (27,585     (850,056       (151,806 )       (402,094

Net unrealized appreciation (depreciation)

    15,167        2,604        61,428        (6,148 )     (1,652
    $ 905,625      $ 532,601      $ 824,049      $ 255,019     $ 538,403   

Common Shares Issued and Outstanding

    71,005        38,665        126,194        25,300       59,103   

Net Asset Value Per Common Share

  $ 12.75      $ 13.78      $ 6.53      $ 10.08     $ 9.11   

Cost of investments in securities

  $ 1,243,266      $   664,214      $ 1,069,807      $ 341,768     $   715,700   

Cost of foreign currency held

  $ 822      $ 304      $ 215      $ 225     $ 517   

Cost or premiums of financial derivative instruments, net

  $ (52,173   $ 755      $ 8,429      $ 279     $ 481   

* Includes repurchase agreements of:

  $ 35,311      $ 5,536      $ 11,451      $ 5,253     $ 16,400   

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

 

16   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

Statements of Operations

 

Six Months Ended January 31, 2016 (Unaudited)  
(Amounts in thousands)   PIMCO
Corporate &
Income
Opportunity
Fund
    PIMCO
Corporate &
Income
Strategy
Fund
    PIMCO High
Income Fund
    PIMCO Income
Strategy
Fund
    PIMCO Income
Strategy
Fund II
 

Investment Income:

         

Interest, net of foreign taxes*

  $ 40,527      $ 21,414      $ 43,333      $ 10,535      $ 29,293   

Dividends

    1,779        1,113        900        567        1,224   

Total Income

    42,306        22,527        44,233        11,102        30,517   

Expenses:

         

Management fees

    3,863        2,723        4,123        1,456        2,941   

Auction agent fees and commissions

    243        131        227        59        120   

Trustee fees and related expenses

    51        63        77        13        43   

Interest expense

    230        69        244        49        159   

Auction rate preferred shares related expenses

    21        31        11        19        8   

Total Expenses

    4,408        3,017        4,682        1,596        3,271   

Net Investment Income

    37,898        19,510        39,551        9,506        27,246   

Net Realized Gain (Loss):

         

Investments in securities

    (998     2,150        (2,172     (302     607   

Exchange-traded or centrally cleared financial derivative instruments

    (29,234     (12,966     (44,622     (6,006     (15,157

Over the counter financial derivative instruments

    9,953        743        16,619        389        (264

Foreign currency

    116        (122     7        (18     (5,841

Net Realized (Loss)

    (20,163     (10,195     (30,168     (5,937     (20,655

Net Change in Unrealized Appreciation (Depreciation):

         

Investments in securities

    (67,750       (50,509       (96,923     (28,910     (52,333

Exchange-traded or centrally cleared financial derivative instruments

    19,404        11,798        37,763        4,857        11,644   

Over the counter financial derivative instruments

    (15,748     (923     (8,736     (321     (1,266

Foreign currency assets and liabilities

    (104     (69     (153     (49     (27

Net Change in Unrealized (Depreciation)

    (64,198     (39,703     (68,049     (24,423     (41,982

Net (Decrease) in Net Assets Resulting from Operations

  $   (46,463   $ (30,388   $ (58,666   $ (20,854   $ (35,391

Distributions on Preferred Shares from Net Investment Income

  $ (366   $ (119   $ (224   $ (374   $ (674

Net (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Operations

  $ (46,829   $ (30,507   $ (58,890   $   (21,228   $   (36,065

* Foreign tax withholdings

  $ 0      $ 2      $ 6      $ 0      $ 0   

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   17


Table of Contents

Statements of Changes in Net Assets

 

    PIMCO
Corporate & Income Opportunity Fund
    PIMCO
Corporate & Income Strategy Fund
 
(Amounts in thousands)  

Six Months Ended
January 31, 2016
(Unaudited)

    Period from
December 1, 2014 to
July 31, 2015 (a)
    Year Ended
November 30, 2014
    Six Months Ended
January 31, 2016
(Unaudited)
   

Period from
November 1, 2014 to
July 31, 2015 (b)

    Year Ended
October 31, 2014
 

(Decrease) in Net Assets from:

           

Operations:

           

Net investment income

  $ 37,898      $ 47,744      $ 79,920      $ 19,510      $ 28,166      $ 37,968  

Net realized gain (loss)

    (20,163     (4,996     28,093        (10,195     3,953        17,611  

Net change in unrealized appreciation (depreciation)

    (64,198     (18,369     42,688        (39,703     (12,132     15,590  

Net increase (decrease) in net assets resulting from operations

    (46,463     24,379        150,701        (30,388     19,987        71,169  

Distributions on preferred shares from net investment income(d)

    (366     (313     (125     (119     (160     (41 )

Distributions on preferred shares from net realized gains(d)

    0        0        (296     0        0        (122 )

Net Increase (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Operations

    (46,829     24,066        150,280        (30,507     19,827        71,006  

Distributions to Common Shareholders:

           

From net investment income(d)

    (57,421     (119,032 )(e)      (109,083     (26,872     (52,644 )(e)      (51,774 )

From net realized capital gains(d)

    0        0        (127,359     0        0        (36,294 )

Tax basis return of capital(d)

    0        0        0        0        0        0  

Total Distributions to Common Shareholders

    (57,421     (119,032 )      (236,442     (26,872     (52,644 )      (88,068 )

Preferred Share Transactions:

           

Net Increase resulting from tender and repurchase of Auction-Rate Preferred Shares***

    0        11,317        0        19,858        0        0  

Common Share Transactions**:

           

Issued as reinvestment of distributions

    3,391        8,133        18,383        0        2,959        4,817  

Total (Decrease) in Net Assets

    (100,859     (75,516     (67,779     (37,521     (29,858     (12,245 )

Net Assets Applicable to Common Shareholders:

           

Beginning of year or period

      1,006,484        1,082,000        1,149,779        570,122        599,980        612,225  

End of year or period*

  $ 905,625      $   1,006,484      $   1,082,000      $   532,601      $   570,122      $   599,980  

* Including undistributed (overdistributed) net investment income of:

  $ (28,528   $ (8,639   $ 36,794      $ (12,037   $ (4,556   $ 11,115  

** Common Share Transactions:

           

Shares issued as reinvestment of distributions

    249        530        1,058        0        197        303  

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

(a) 

Fiscal Year end changed from November 30th to July 31st.

(b) 

Fiscal Year end changed from October 31st to July 31st.

(c) 

Fiscal year end changed from March 31st to July 31st.

(d) 

Determined in accordance with federal income tax regulations, see Note 2(c) in the Notes to Financial Statements for more information.

(e) 

Total distributions for the period ended July 31, 2015 may be lower than prior fiscal years due to fiscal year end changes resulting in a reduction of the amount of days in the period ended July 31, 2015.

*** 

See Note 12 in the Notes to Financial Statements.

 

18   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

PIMCO
High Income Fund
    PIMCO
Income Strategy Fund
    PIMCO
Income Strategy Fund II
 
Six Months Ended
January 31, 2016
(Unaudited)
   

Period from
April 1, 2015 to
July 31, 2015 (c)

    Year Ended
March 31, 2015
    Six Months Ended
January 31, 2016
(Unaudited)
    Year Ended
July 31, 2015
    Six Months Ended
January 31, 2016
(Unaudited)
    Year Ended
July 31, 2015
 
           
           
$ 39,551      $ 26,276      $ 117,468      $ 9,506      $ 19,896      $ 27,246      $ 41,101   
  (30,168     (29,322     (29,862     (5,937     (3,515     (20,655     (3,754
  (68,049     35,957        10,866        (24,423     (5,066     (41,982     (12,764
  (58,666     32,911        98,472        (20,854     11,315        (35,391     24,583   
  (224     (130     (356     (374     (815     (674     (1,538
  0        0        0        0        0        0        0   
 
 
    
(58,890
 
    32,781        98,116        (21,228     10,500        (36,065     23,045   
           
  (80,478     (41,672 )(e)      (182,280     (13,662     (30,835     (32,506     (65,838
  0        0        0        0        0        0        0   
  0        (19,452 )(e)      0        0        0        0        0   
  (80,478     (61,124 )      (182,280     (13,662     (30,835     (32,506     (65,838
           
 
 
    
32,304
 
  
    0        0        0        2,770        0        6,855   
           
  5,515        4,061        12,924        0        999        0        793   
    (101,549     (24,282     (71,240     (34,890     (16,566     (68,571     (35,145
           
  925,598        949,880          1,021,120        289,909        306,475        606,974        642,119   
$ 824,049      $   925,598      $ 949,880      $   255,019      $   289,909      $   538,403      $   606,974   
$ (80,891   $ (39,740   $ (32,887   $ (6,504   $ (1,974   $ (8,523   $ (2,589
           
  666        374        1,088        0        86        0        79   

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   19


Table of Contents

Schedule of Investments PIMCO Corporate & Income Opportunity Fund

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 134.5%   
BANK LOAN OBLIGATIONS 2.3%   

Fortescue Metals Group Ltd.

  

4.250% due 06/30/2019

  $     3,768      $     2,633   

Hellenic Republic

  

3.930% due 03/30/2016

  EUR     2,000          1,949   

iHeartCommunications, Inc.

  

7.178% due 01/30/2019

  $     8,198          5,464   

Sequa Corp.

  

5.250% due 06/19/2017

    8,793          5,913   

Westmoreland Coal Co.

  

7.500% due 12/16/2020

    7,401          4,441   
       

 

 

 

Total Bank Loan Obligations (Cost $28,090)

      20,400   
       

 

 

 
CORPORATE BONDS & NOTES 44.9%   
BANKING & FINANCE 23.6%   

AGFC Capital Trust

  

6.000% due 01/15/2067

    1,800          1,233   

Banco do Brasil S.A.

  

6.250% due 04/15/2024 (f)

    4,200          2,048   

9.000% due 06/18/2024 (f)

    9,298          5,625   

Banco Espirito Santo S.A.

  

2.625% due 05/08/2017 ^

  EUR     500          192   

4.000% due 01/21/2019 ^

    5,000          1,923   

4.750% due 01/15/2018 ^

    1,000          385   

Banco Santander S.A.

  

6.250% due 09/11/2021 (f)

    400          396   

Barclays Bank PLC

  

14.000% due 06/15/2019 (f)

  GBP     12,550          22,738   

BGC Partners, Inc.

  

5.375% due 12/09/2019

  $     10,780          11,134   

Blackstone CQP Holdco LP

  

9.296% due 03/19/2019

      4,400          4,413   

BNP Paribas S.A.

  

7.375% due 08/19/2025 (f)

    11,000          10,808   

Cantor Fitzgerald LP

  

6.500% due 06/17/2022

    14,000          14,669   

Co-operative Group Holdings Ltd.

  

6.875% due 07/08/2020

  GBP     400          612   

7.500% due 07/08/2026

    6,200          9,627   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023

  $     5,300          4,704   

Credit Agricole S.A.

  

7.500% due 06/23/2026 (f)

  GBP     300          406   

7.875% due 01/23/2024 (f)

  $     12,300          12,006   

Credit Suisse Group AG

  

7.500% due 12/11/2023 (f)

    2,936          3,021   

Fort Gordon Housing LLC

  

6.124% due 05/15/2051

    12,825          13,915   

GSPA Monetization Trust

  

6.422% due 10/09/2029

    9,240          10,500   

LBG Capital PLC

  

9.125% due 07/15/2020

  GBP     3,400          4,917   

12.750% due 08/10/2020

    400          574   

15.000% due 12/21/2019

    2,000          3,849   

15.000% due 12/21/2019

  EUR     7,800          11,784   

Lloyds Bank PLC

  

12.000% due 12/16/2024 (f)

  $     6,000          8,454   

Lloyds Banking Group PLC

  

7.625% due 06/27/2023 (f)

  GBP     2,100          3,011   

National Bank of Greece S.A.

  

3.875% due 10/07/2016

  EUR     2,550          2,704   

Nationwide Building Society

  

10.250% (f)

  GBP     19          3,510   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Navient Corp.

  

5.500% due 01/15/2019

  $     5,850      $     5,499   

5.625% due 08/01/2033

    230          152   

Novo Banco S.A.

  

5.000% due 04/04/2019

  EUR     371          319   

5.000% due 04/23/2019

    152          131   

5.000% due 05/14/2019

    315          271   

5.000% due 05/21/2019

    73          62   

5.000% due 05/23/2019

    213          182   

Royal Bank of Scotland Group PLC

  

7.500% due 08/10/2020 (f)

  $     300          305   

Sberbank of Russia Via SB Capital S.A.

  

6.125% due 02/07/2022

      500          510   

Tesco Property Finance PLC

  

5.411% due 07/13/2044

  GBP     8,599          10,104   

6.052% due 10/13/2039

      2,717          3,568   

TIG FinCo PLC

  

8.500% due 03/02/2020

      1,154          1,685   

8.750% due 04/02/2020 (i)

      6,539          8,082   

Vnesheconombank Via VEB Finance PLC

  

6.800% due 11/22/2025

  $     1,400          1,335   

Western Group Housing LP

  

6.750% due 03/15/2057

      10,600          12,408   
       

 

 

 
            213,771   
       

 

 

 
INDUSTRIALS 14.1%   

BMC Software Finance, Inc.

  

8.125% due 07/15/2021

      2,447          1,508   

Boxer Parent Co., Inc. (9.000% Cash or 9.750% PIK)

  

9.000% due 10/15/2019 (c)(i)

      8,810          5,055   

Caesars Entertainment Operating Co., Inc.

  

9.000% due 02/15/2020 ^

      27,145          20,237   

Centene Escrow Corp.

  

5.625% due 02/15/2021 (b)

      230          235   

6.125% due 02/15/2024 (b)

      230          235   

Chesapeake Energy Corp.

  

3.872% due 04/15/2019

      830          222   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019

      2,858          1,129   

Ford Motor Co.

  

7.700% due 05/15/2097 (i)

      31,901          36,440   

Hampton Roads PPV LLC

  

6.171% due 06/15/2053

      1,800          1,919   

Harvest Operations Corp.

  

6.875% due 10/01/2017

      7,420          5,231   

iHeartCommunications, Inc.

  

9.000% due 09/15/2022

      2,000          1,310   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021

      10,543          4,639   

8.125% due 06/01/2023

      439          183   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019

      12,290          9,586   

Numericable-SFR S.A.S.

  

6.250% due 05/15/2024

      14,000          13,720   

Scientific Games International, Inc.

  

10.000% due 12/01/2022

      5,600          3,920   

Sequa Corp.

  

7.000% due 12/15/2017

      13,090          3,436   

Tembec Industries, Inc.

  

9.000% due 12/15/2019

      1,500          956   

UAL Pass-Through Trust

  

7.336% due 01/02/2021

      1,979          2,081   

UCP, Inc.

  

8.500% due 10/21/2017

      10,900          10,937   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027

  GBP     3,243      $     4,587   
       

 

 

 
            127,566   
       

 

 

 
UTILITIES 7.2%   

Frontier Communications Corp.

  

8.875% due 09/15/2020

  $     720          725   

10.500% due 09/15/2022

      1,190          1,168   

11.000% due 09/15/2025

      1,190          1,151   

Gazprom OAO Via Gaz Capital S.A.

  

9.250% due 04/23/2019

      21,200          23,553   

Illinois Power Generating Co.

  

6.300% due 04/01/2020

      4,570          2,034   

7.000% due 04/15/2018 (i)

      8,855          4,782   

7.950% due 06/01/2032

      1,175          511   

Mountain States Telephone & Telegraph Co.

  

7.375% due 05/01/2030 (i)

      15,730          17,572   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022

      550          203   

Odebrecht Offshore Drilling Finance Ltd.

  

6.625% due 10/01/2023

      5,146          1,183   

6.750% due 10/01/2023

      4,820          1,084   

Petrobras Global Finance BV

  

2.750% due 01/15/2018

  EUR     790          712   

3.406% due 03/17/2020

  $     420          293   

4.250% due 10/02/2023

  EUR     1,200          850   

4.875% due 03/17/2020

  $     760          575   

5.750% due 01/20/2020

      360          284   

6.250% due 12/14/2026

  GBP     6,100          5,501   

6.625% due 01/16/2034

      800          703   

6.750% due 01/27/2041

  $     4,100          2,597   

7.875% due 03/15/2019

      100          87   
       

 

 

 
          65,568   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $446,098)

      406,905   
       

 

 

 
MUNICIPAL BONDS & NOTES 9.7%   
CALIFORNIA 6.1%   

Los Angeles Community Redevelopment Agency, California Tax Allocation Bonds, (NPFGC Insured), Series 2006

    

6.020% due 09/01/2021

      6,480          6,595   

Riverside County, California Redevelopment Successor Agency Tax Allocation Bonds, Series 2010

   

7.500% due 10/01/2030

      3,425          3,807   

San Diego Redevelopment Agency, California Tax Allocation Bonds, Series 2010

   

7.750% due 09/01/2040

      21,545          24,421   

Stockton Public Financing Authority, California Revenue Bonds, (BABs), Series 2009

   

7.942% due 10/01/2038

      18,500          20,973   
       

 

 

 
          55,796   
       

 

 

 
ILLINOIS 2.8%   

Chicago, Illinois General Obligation Bonds, (BABs), Series 2010

   

7.517% due 01/01/2040

      23,700          25,198   
       

 

 

 
       
VIRGINIA 0.1%   

Tobacco Settlement Financing Corp., Virginia Revenue Bonds, Series 2007

   

6.706% due 06/01/2046

      1,400          1,131   
       

 

 

 
       
 

 

20   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
WEST VIRGINIA 0.7%   

Tobacco Settlement Finance Authority, West Virginia Revenue Bonds, Series 2007

   

7.467% due 06/01/2047

  $     6,865      $     6,024   
       

 

 

 

Total Municipal Bonds & Notes
(Cost $80,899)

      88,149   
       

 

 

 
U.S. GOVERNMENT AGENCIES 4.9%   

Fannie Mae

  

3.000% due 01/25/2042 (a)

      1,751          153   

3.500% due 02/25/2033 (a)

      3,943          515   

5.674% due 07/25/2040 (a)

      2,194          363   

8.945% due 01/25/2042

      2,151          2,187   

Freddie Mac

  

2.563% due 11/25/2055

      14,849          8,361   

6.675% due 02/15/2034 (a)

      3,540          687   

7.977% due 12/25/2027

      5,900          5,339   

8.336% due 07/15/2039

      5,715          6,068   

9.556% due 03/15/2044

      2,308          2,895   

9.777% due 04/25/2028

      3,600          3,443   

10.860% due 02/15/2036

      7,552          8,341   

10.865% due 04/15/2044

      1,632          1,815   

10.927% due 05/25/2028

      965          941   

11.177% due 03/25/2025

      2,396          2,477   

Ginnie Mae

  

3.000% due 12/20/2042 (a)

      256          17   

3.500% due 09/16/2041 - 06/20/2042 (a)

      2,718          290   

6.324% due 01/20/2042 (a)

      3,566          574   
       

 

 

 

Total U.S. Government Agencies
(Cost $44,768)

    44,466   
       

 

 

 
U.S. TREASURY OBLIGATIONS 1.3%   

U.S. Treasury Floating Rate Notes

  

0.473% due 10/31/2017 (k)(m)

      12,086          12,085   
       

 

 

 

Total U.S. Treasury Obligations
(Cost $12,083)

    12,085   
       

 

 

 
       
NON-AGENCY MORTGAGE-BACKED SECURITIES 36.6%   

American Home Mortgage Assets Trust

  

6.250% due 06/25/2037

      5,292          3,838   

Banc of America Alternative Loan Trust

  

6.000% due 01/25/2036 ^

      316          269   

6.000% due 04/25/2036 ^

      4,999          4,287   

Banc of America Funding Trust

  

5.500% due 01/25/2036

      654          687   

6.000% due 03/25/2037 ^

      6,812          5,876   

6.000% due 07/25/2037 ^

      896          712   

BCAP LLC Trust

  

4.323% due 07/26/2037

      1,192          66   

5.283% due 03/26/2037

      2,787          808   

7.099% due 12/26/2036

      8,635          7,679   

9.742% due 10/26/2036

      6,063          5,748   

Bear Stearns ALT-A Trust

  

2.692% due 11/25/2036 ^

      1,090          762   

2.749% due 08/25/2046

      7,321          5,544   

2.859% due 11/25/2034

      615          535   

2.942% due 09/25/2035 ^

      2,144          1,759   

3.007% due 08/25/2036 ^

      4,737          3,547   

3.054% due 09/25/2035 ^

      3,197          2,403   

Bear Stearns Mortgage Funding Trust

  

7.000% due 08/25/2036

      3,460          3,287   

Chase Mortgage Finance Trust

  

2.679% due 12/25/2035 ^

      35          33   

6.000% due 02/25/2037 ^

      2,957          2,479   

6.000% due 03/25/2037 ^

      622          539   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

6.000% due 07/25/2037 ^

  $     2,315      $     1,933   

Citigroup Mortgage Loan Trust, Inc.

  

5.276% due 04/25/2037 ^

      6,327          5,514   

5.339% due 03/25/2037 ^

      1,807          1,634   

6.000% due 11/25/2036

      14,579          11,861   

6.000% due 02/25/2037

      9,413          7,605   

CitiMortgage Alternative Loan Trust

  

5.750% due 04/25/2037 ^

      2,882          2,485   

Countrywide Alternative Loan Resecuritization Trust

  

6.000% due 08/25/2037 ^

      3,293          2,829   

Countrywide Alternative Loan Trust

  

0.636% due 03/20/2046

      8,447          6,408   

0.697% due 08/25/2035

      124          82   

4.374% due 06/25/2047

      5,801          5,150   

4.824% due 04/25/2037 ^(a)

      34,524          5,133   

5.250% due 05/25/2021 ^

      32          31   

5.500% due 03/25/2035

      942          786   

5.500% due 09/25/2035 ^

      7,432          6,918   

5.500% due 03/25/2036 ^

      291          247   

5.750% due 01/25/2035

      1,109          1,122   

5.750% due 02/25/2035

      1,257          1,240   

6.000% due 02/25/2035

      1,084          1,126   

6.000% due 04/25/2036

      2,765          2,376   

6.000% due 05/25/2036 ^

      2,956          2,531   

6.000% due 01/25/2037 ^

      3,225          3,052   

6.000% due 02/25/2037

      3,642          3,159   

6.000% due 02/25/2037 ^

      967          755   

6.000% due 04/25/2037 ^

      10,367          8,100   

6.000% due 08/25/2037 ^

      26,751            22,238   

6.250% due 10/25/2036 ^

      4,062          3,751   

6.250% due 12/25/2036 ^

      5,040          4,083   

6.500% due 08/25/2036 ^

      1,296          980   

6.500% due 09/25/2036 ^

      702          614   

20.070% due 02/25/2036

      3,138          4,082   

Countrywide Home Loan Mortgage Pass-Through Trust

  

5.500% due 07/25/2037 ^

      1,227          1,088   

5.750% due 12/25/2035 ^

      620          582   

5.750% due 03/25/2037 ^

      4,356          4,002   

6.000% due 04/25/2036 ^

      969          923   

6.000% due 03/25/2037 ^

      3,751          3,417   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

5.750% due 04/25/2036 ^

      2,443          2,040   

6.000% due 02/25/2037 ^

      2,822          2,476   

6.750% due 08/25/2036 ^

      4,194          3,345   

Epic Drummond Ltd.

  

0.044% due 01/25/2022

  EUR     5,060          4,942   

First Horizon Alternative Mortgage Securities Trust

  

6.000% due 08/25/2036 ^

  $     3,691          3,016   

GSR Mortgage Loan Trust

  

2.779% due 11/25/2035 ^

      2,949          2,673   

2.788% due 03/25/2037 ^

      4,820          4,027   

5.500% due 05/25/2036 ^

      430          413   

6.000% due 07/25/2037 ^

      570          520   

IndyMac Mortgage Loan Trust

  

2.717% due 08/25/2035 ^

      4,930          4,055   

6.500% due 07/25/2037 ^

      7,698          4,911   

JPMorgan Alternative Loan Trust

  

2.529% due 03/25/2037

      16,800          13,679   

JPMorgan Mortgage Trust

  

2.653% due 01/25/2037 ^

      2,349          2,102   

2.684% due 10/25/2035

      89          87   

2.744% due 02/25/2036 ^

      3,974          3,477   

4.652% due 06/25/2036 ^

      1,700          1,473   

5.000% due 03/25/2037 ^

      3,645          3,087   

6.000% due 08/25/2037 ^

      713          629   

Lehman Mortgage Trust

  

6.000% due 07/25/2036 ^

      2,441          1,806   

6.000% due 07/25/2037 ^

      548          500   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

27.079% due 11/25/2035 ^

  $     427      $     684   

Lehman XS Trust

  

0.647% due 06/25/2047

      5,872          4,201   

MASTR Alternative Loan Trust

  

6.750% due 07/25/2036

      5,169          3,799   

Merrill Lynch Mortgage Investors Trust

  

2.720% due 03/25/2036 ^

      5,051          3,399   

RBSSP Resecuritization Trust

  

0.642% due 10/27/2036

      3,606          318   

0.662% due 08/27/2037

      8,000          1,361   

Residential Accredit Loans, Inc. Trust

  

0.617% due 08/25/2036

      790          619   

0.657% due 05/25/2037 ^

      667          166   

6.000% due 08/25/2036 ^

      1,156          953   

6.000% due 03/25/2037 ^

      4,501          3,894   

6.000% due 05/25/2037 ^

      3,733          3,164   

Residential Asset Securitization Trust

  

5.750% due 02/25/2036 ^

      617          493   

6.000% due 02/25/2037 ^

      2,876          2,186   

6.000% due 03/25/2037 ^

      4,154          2,917   

6.000% due 05/25/2037 ^

      4,769          4,112   

6.250% due 09/25/2037 ^

      6,180          4,420   

Residential Funding Mortgage Securities, Inc. Trust

  

3.369% due 02/25/2037

      5,019          4,040   

Structured Adjustable Rate Mortgage Loan Trust

  

2.676% due 11/25/2036 ^

      7,992          6,263   

2.724% due 01/25/2036 ^

      10,646          8,146   

2.744% due 07/25/2035 ^

      4,162          3,572   

4.148% due 07/25/2036 ^

      2,007          1,678   

4.688% due 03/25/2037 ^

      1,640          1,158   

Structured Asset Mortgage Investments Trust

  

0.547% due 08/25/2036

      282          214   

Suntrust Adjustable Rate Mortgage Loan Trust

  

2.771% due 04/25/2037 ^

      1,412          1,201   

2.818% due 02/25/2037 ^

      1,160          1,018   

6.004% due 02/25/2037 ^

      11,923          9,967   

WaMu Mortgage Pass-Through Certificates Trust

  

2.188% due 12/25/2036 ^

      740          661   

2.200% due 06/25/2037 ^

      3,473          3,022   

2.225% due 07/25/2037 ^

      1,333          1,141   

2.409% due 09/25/2036 ^

      886          804   

4.275% due 02/25/2037 ^

      1,843          1,705   

4.412% due 07/25/2037 ^

      3,310          3,058   

6.009% due 10/25/2036 ^

      2,613          2,177   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

1.125% due 05/25/2047 ^

      820          64   

6.000% due 10/25/2035 ^

      2,599          1,994   

6.000% due 03/25/2036 ^

      3,661          3,440   

Wells Fargo Mortgage-Backed Securities Trust

  

6.000% due 07/25/2037 ^

      1,215          1,199   
       

 

 

 

Total Non-Agency
Mortgage-Backed Securities
(Cost $317,219)

      331,161   
       

 

 

 
ASSET-BACKED SECURITIES 20.8%   

AMAC CDO Funding

  

1.727% due 11/23/2050

      5,030          4,592   

6.516% due 11/23/2050

      1,537          1,537   

Ameriquest Mortgage Securities, Inc. Asset-Backed Pass-Through Certificates

   

1.777% due 03/25/2033

      109          103   

Bear Stearns Asset-Backed Securities Trust

  

0.827% due 04/25/2037

      25,086          16,383   

CIFC Funding Ltd.

  

0.000% due 05/24/2026 (e)

      4,100          2,738   

0.000% due 07/22/2026 (e)

      3,000          1,628   
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   21


Table of Contents

Schedule of Investments PIMCO Corporate & Income Opportunity Fund (Cont.)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Citigroup Mortgage Loan Trust, Inc.

  

0.822% due 11/25/2046

 

$

    11,279      $     9,434   

Countrywide Asset-Backed Certificates

  

0.627% due 06/25/2047

      24,950            18,082   

0.737% due 09/25/2037 ^

      17,870          8,880   

5.040% due 10/25/2046 ^

      17,979          17,130   

Credit-Based Asset Servicing and Securitization LLC

  

4.136% due 12/25/2035 ^

      182          180   

First Franklin Mortgage Loan Trust

  

0.587% due 10/25/2036

      6,381          4,178   

Greenpoint Manufactured Housing

  

8.140% due 03/20/2030

      3,226          3,416   

8.300% due 10/15/2026

      8,300          8,734   

8.450% due 06/20/2031

      4,877          4,943   

IndyMac Home Equity Mortgage Loan
Asset-Backed Trust

   

0.587% due 07/25/2037

      3,979          2,445   

JPMorgan Mortgage Acquisition Trust

  

5.029% due 11/25/2036

      10,400          10,519   

5.830% due 07/25/2036 ^

      163          95   

Lehman XS Trust

  

6.290% due 06/24/2046

      5,309          4,416   

Mid-State Trust

  

6.340% due 10/15/2036

      2,559          2,736   

Morgan Stanley ABS Capital, Inc. Trust

  

0.577% due 10/25/2036

      8,544          5,085   

Morgan Stanley Mortgage Loan Trust

  

6.250% due 07/25/2047 ^

      1,723          1,243   

Renaissance Home Equity Loan Trust

  

5.612% due 04/25/2037

      11,951          6,210   

7.238% due 09/25/2037 ^

      10,173          5,949   

Residential Asset Securities Corp. Trust

  

1.002% due 08/25/2034

      12,488          9,558   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Taberna Preferred Funding Ltd.

  

0.694% due 12/05/2036

  $     916      $     715   

0.714% due 08/05/2036

      960          701   

0.714% due 08/05/2036 ^

      18,595          13,574   

0.734% due 02/05/2036

      12,208          9,400   

Tropic CDO Ltd.

  

1.522% due 04/15/2034

      25,000          13,375   
       

 

 

 

Total Asset-Backed Securities
(Cost $188,055)

      187,979   
       

 

 

 
SOVEREIGN ISSUES 0.6%   

Republic of Greece Government International Bond

  

3.800% due 08/08/2017

  JPY     695,000          4,994   

4.750% due 04/17/2019

  EUR     600          542   
       

 

 

 

Total Sovereign Issues (Cost $5,651)

    5,536   
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%   
FINANCIALS 0.1%   

TIG FinCo PLC (g)

      794,831          793   
       

 

 

 

Total Common Stocks (Cost $1,179)

    793   
       

 

 

 
PREFERRED SECURITIES 2.4%   
BANKING & FINANCE 2.4%   

Farm Credit Bank of Texas

  

10.000% due 12/15/2020 (f)

      12,300          15,398   

GMAC Capital Trust

  

8.125% due 02/15/2040

      251,318          6,396   
       

 

 

 

Total Preferred Securities
(Cost $20,514)

    21,794   
       

 

 

 
                  MARKET
VALUE
(000S)
 
SHORT-TERM INSTRUMENTS 10.9%   
REPURCHASE AGREEMENTS (h) 3.9%   
      $     35,311   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
SHORT-TERM NOTES 0.2%   

Federal Home Loan Bank

  

0.385% due 02/01/2016

  $     1,500          1,500   
       

 

 

 
U.S. TREASURY BILLS 6.8%   

0.210% due 02/04/2016 - 02/18/2016 (d)(m)

      61,904          61,899   
       

 

 

 
Total Short-Term Instruments
(Cost $98,710)
    98,710   
       

 

 

 
       
Total Investments in Securities
(Cost $1,243,266)
      1,217,978   
       
Total Investments 134.5%
(Cost $1,243,266)
      $     1,217,978   

Financial Derivative
Instruments (j)(l) (7.2%)

(Cost or Premiums, net $(52,173))

    (65,508

Preferred Shares (26.3%)

    (237,950
Other Assets and Liabilities, net (1.0%)     (8,895
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%       $       905,625   
       

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) When-issued security.
(c) Payment in-kind bond security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon bond.
(f) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(g)  RESTRICTED SECURITIES:

 

Issuer Description   Acquisition
Date
  Cost     Market
Value
    Market Value
as Percentage
of Net Assets
 

TIG FinCo PLC

  04/02/2015   $     1,179      $     793        0.09%   
   

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(h)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
  Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 

BCY

  0.540%     01/29/2016        02/01/2016      $ 600      U.S. Treasury Notes 1.625% due 06/30/2019   $ (613   $ 600      $ 600   

BPG

  0.550     01/29/2016        02/01/2016            24,900      U.S. Treasury Floating Rate Note 0.375% due 07/31/2016     (25,408     24,900        24,901   

DEU

  0.550     01/29/2016        02/01/2016        3,200      U.S. Treasury Bonds 3.750% due 11/15/2043     (3,272     3,200        3,200   

SOG

  0.320     01/29/2016        02/01/2016        4,100      U.S. Treasury Inflation Protected Securities
1.125% due 01/15/2021
    (4,192     4,100        4,100   

SSB

  0.010     01/29/2016        02/01/2016        2,511      U.S. Treasury Notes 2.250% due 07/31/2021     (2,563     2,511        2,511   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

        $     (36,048   $     35,311      $     35,312   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

22   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate
     Borrowing
Date
     Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 

BCY

    (1.250 %)       01/21/2016         02/01/2016        $    (2,641   $ (2,640
    (1.000      01/12/2016         02/01/2016        (1,177     (1,176
    (0.500      01/29/2016         TBD (2)      (4,029     (4,029

RDR

    (3.500      08/04/2015         TBD (2)      (1,017     (999
    (1.000      01/22/2016         TBD (2)      (462     (462

UBS

    0.900         01/11/2016         04/11/2016        (8,157     (8,161
    1.050         01/18/2016         02/18/2016        GBP    (1,791     (2,553
           

 

 

 

Total Reverse Repurchase Agreements

  

       $     (20,020
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended January 31, 2016 was $(63,578) at a weighted average interest rate of 0.590%.

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of January 31, 2016:

 

(i) Securities with an aggregate market value of $21,569 and cash of $356 have been pledged as collateral under the terms of the following master agreements as of January 31, 2016.

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
     Payable for
Reverse
Repurchase
Agreements
     Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
     Collateral
(Received)/Pledged
     Net Exposure  (4)  

Global/Master Repurchase Agreement

                

BCY

  $ 600       $ (7,845    $ 0       $ (7,245    $ 8,510       $     1,265   

BPG

    24,901         0         0         24,901             (25,408      (507

DEU

    3,200         0         0         3,200         (3,272      (72

RDR

    0         (1,461      0         (1,461      1,443         (18

SOG

    4,100         0         0         4,100         (4,192      (92

SSB

    2,511         0         0         2,511         (2,563      (52

UBS

    0         (10,714      0             (10,714      11,359         645   
 

 

 

    

 

 

    

 

 

          

Total Borrowings and Other Financing Transactions

  $     35,312       $     (20,020    $     0            
 

 

 

    

 

 

    

 

 

          

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

     Overnight and
Continuous
     Up to 30 days      31-90 days      Greater Than 90 days     Total  

Reverse Repurchase Agreements

            

Corporate Bonds & Notes

  $ (3,816    $ (2,553    $ (8,161    $ (5,490   $ (20,020
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Borrowings

  $     (3,816    $     (2,553    $     (8,161    $     (5,490   $     (20,020
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross amount of recognized liabilities for reverse repurchase agreements

             $ (20,020
            

 

 

 

 

(j)  FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION (1)

 

Index/Tranches          Fixed
Receive Rate
    Maturity
Date
     Notional
Amount  (2)
    Market
Value  (3)
     Unrealized
(Depreciation)
     Variation Margin  
                   Asset      Liability  

CDX.HY-24 5-Year Index

        5.000     06/20/2020       $ 15,543      $ 469       $ (728    $ 61       $ 0   

CDX.HY-25 5-Year Index

        5.000        12/20/2020             27,400        87         (181      107         0   

CDX.IG-23 5-Year Index

        1.000        12/20/2019         11,800        21         (170      4         0   

CDX.IG-24 5-Year Index

        1.000        06/20/2020         17,600        25         (287      10         0   

CDX.IG-25 5-Year Index

        1.000        12/20/2020         37,300        13         (224      23         0   
            

 

 

    

 

 

    

 

 

    

 

 

 
             $     615       $     (1,590    $     205       $     0   
            

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   23


Table of Contents

Schedule of Investments PIMCO Corporate & Income Opportunity Fund (Cont.)

 

(2) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

(3) 

The prices and resulting values for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced indices’ credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

INTEREST RATE SWAPS

 

Pay/Receive
Floating Rate
   Floating Rate Index    Fixed Rate     Maturity
Date
     Notional
Amount
    Market
Value
     Unrealized
Appreciation/
(Depreciation)
     Variation Margin  
                   Asset      Liability  

Pay

  

3-Month USD-LIBOR

     2.750     06/17/2025         $    145,380      $ 12,848       $ 3,654       $ 876       $ 0   

Pay

  

3-Month USD-LIBOR

     3.500        06/19/2044         305,100        80,638         90,591         3,497         0   

Receive

  

3-Month USD-LIBOR

     2.500        06/15/2046             467,900        (15,510      (39,132      0         (4,703

Pay

  

6-Month AUD-BBR-BBSW

     3.500        06/17/2025         AUD      13,400        637         305         19         0   
            

 

 

    

 

 

    

 

 

    

 

 

 
             $ 78,613       $ 55,418       $ 4,392       $ (4,703
            

 

 

    

 

 

    

 

 

    

 

 

 

Total Swap Agreements

             $     79,228       $     53,828       $     4,597       $     (4,703
            

 

 

    

 

 

    

 

 

    

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of January 31, 2016:

 

(k) Securities with an aggregate market value of $1,156 and cash of $13,742 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets         Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
              Market Value     Variation Margin
Liability
       
     Purchased
Options
    Futures     Swap
Agreements
    Total         Written
Options
    Futures     Swap
Agreements
    Total  

Total Exchange-Traded or Centrally Cleared

  $     0      $     0      $     4,597      $     4,597        $     0      $     0        $    (4,703     $    (4,703
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(l)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty    Settlement
Month
                  Unrealized Appreciation/
(Depreciation)
 
      Currency to
be Delivered
     Currency to
be Received
    Asset     Liability  

BOA

     06/2016         EUR        1,430       $          1,958      $ 403      $ 0   
     06/2016       $          84         EUR        62        0        (16
                

BPS

     02/2016           1,110           1,032        8        0   
                

BRC

     06/2016         EUR        268       $          368        77        0   
                

CBK

     02/2016         GBP        60,437           89,694            3,577        0   
     02/2016       $          1,671         EUR        1,537        0        (6
     03/2016         EUR        2,377       $          2,595        18        0   
                

DUB

     02/2016         BRL        23,865           5,903        0        (63
     02/2016       $          6,031         BRL        23,865        0        (64
     03/2016         BRL        2,186       $          538        0        (4
     06/2016         EUR        149           204        42        0   
                

GLM

     03/2016         MXN        9,514           555        32        0   
                

HUS

     02/2016         JPY        35,170           286        0        (5
     02/2016       $          84,746         GBP        59,659        263        0   
     03/2016         GBP        59,659       $          84,747        0               (264
     03/2016       $          711         MXN        13,166        13        0   
                

JPM

     02/2016         AUD        442       $          310        0        (2
     02/2016         BRL        46,900           11,242        0        (484
     02/2016         EUR        1,909           2,068        1        (2
     02/2016         JPY        40,976           333        0        (6
     02/2016       $          11,601         BRL        46,900        125        0   
     02/2016           7,206         EUR        6,612        8        (52
     03/2016           11,151         BRL        46,900        474        0   
                

MSB

     02/2016         BRL        23,035       $          5,698        0        (61
     02/2016         JPY        595,545           4,921        2        0   
     02/2016       $          5,665         BRL        23,035        94        0   
     06/2016         EUR        376       $          517        108        0   
                

 

24   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

Counterparty    Settlement
Month
                  Unrealized Appreciation/
(Depreciation)
 
      Currency to
be Delivered
     Currency to
be Received
    Asset     Liability  

NAB

     06/2016         EUR        818       $          1,123      $ 233      $ 0   
                

SCX

     02/2016         JPY        14,329           117        0        (1
     02/2016       $          5,030         JPY        595,544        0        (111
     03/2016         JPY        595,544       $          5,033        111        0   
                

UAG

     02/2016         EUR        25,438           27,806        249        0   
     02/2016       $          19,411         EUR        17,915        0        (4
     02/2016           1,100         GBP        778        8        0   
     03/2016         EUR        17,915       $          19,425        4        0   
              

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

            $     5,850      $     (1,145
              

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CORPORATE AND SOVEREIGN ISSUES - SELL PROTECTION (1)

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
January 31, 2016 (2)
    Notional
Amount  (3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Navient Corp.

    5.000     12/20/2020        7.104     $      5,000      $ (51   $ (324   $     0      $ (375
 

Novo Banco S.A.

    5.000        09/20/2020        13.533        EUR      3,000        (115     (609     0        (724
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        $      1,800        (352     (475     0        (827
                 
BRC  

Navient Corp.

    5.000        12/20/2020        7.104        3,000        12        (237     0        (225
                 
GST  

Navient Corp.

    5.000        12/20/2020        7.104        2,000        8        (158     0        (150
 

Petrobras Global Finance BV

    1.000        09/20/2020        11.018        20        (3     (4     0        (7
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        2,400        (476     (627     0        (1,103
                 
HUS  

Petrobras Global Finance BV

    1.000        09/20/2020        11.018        60        (8     (12     0        (20
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002        500        (41     (107     0        (148
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        3,000        (623     (756     0        (1,379
                 
JPM  

Navient Corp.

    5.000        12/20/2020        7.104        5,000        31        (406     0        (375
 

Novo Banco S.A.

    5.000        09/20/2020        13.533        EUR      5,000        (206     (1,000     0        (1,206
 

Russia Government International Bond

    1.000        06/20/2019        2.787        $    28,600        (1,957     353        0        (1,604
 

Russia Government International Bond

    1.000        12/20/2020        3.215        1,300        (149     23        0        (126
                 
MYC  

Chesapeake Energy Corp.

    5.000        09/20/2020        44.507        500        (51     (288     0        (339
 

Novo Banco S.A.

    5.000        09/20/2020        13.533        EUR      3,000        (28     (696     0        (724
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002        $    14,500        (1,342     (2,946     0        (4,288
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     (5,351   $     (8,269   $ 0      $     (13,620
           

 

 

   

 

 

   

 

 

   

 

 

 

 

CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION (1)

 

Counterparty   Index/Tranches   Fixed
Receive Rate
    Maturity
Date
    Notional
Amount  (3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements, at  Value (4)  
              Asset      Liability  
BOA  

ABX.HE.AAA.6-2 Index

    0.110     05/25/2046      $     68,758      $     (13,044   $ (528   $ 0       $ (13,572
                
BRC  

ABX.HE.AAA.6-2 Index

    0.110        05/25/2046        85,647        (16,962     56        0         (16,906
                
GST  

ABX.HE.AAA.6-2 Index

    0.110        05/25/2046        6,016        (1,199     11        0         (1,188
                
MEI  

ABX.HE.AAA.6-2 Index

    0.110        05/25/2046        74,301        (14,057     (610     0         (14,667
                
MYC  

ABX.HE.AAA.6-2 Index

    0.110        05/25/2046        21,487        (4,060     (181     0         (4,241
         

 

 

   

 

 

   

 

 

    

 

 

 
          $ (49,322   $     (1,252   $     0       $     (50,574
         

 

 

   

 

 

   

 

 

    

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

(4) 

The prices and resulting values for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced indices’ credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   25


Table of Contents

Schedule of Investments PIMCO Corporate & Income Opportunity Fund (Cont.)

 

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
BOA  

Pay

 

1-Year BRL-CDI

    11.500     01/04/2021        BRL        149,200      $ 125      $ (4,840   $ 0      $ (4,715
                   
CBK  

Pay

 

1-Year BRL-CDI

    11.500        01/04/2021          80,300        (77     (2,461     0        (2,538
 

Pay

 

3-Month USD-LIBOR

    2.900        02/18/2026      $          89,000        618        601        1,219        0   
                   
MYC  

Pay

 

3-Month USD-LIBOR

    2.350        02/18/2021          340,000        1,990        1,722        3,712        0   
                   
UAG  

Pay

 

1-Year BRL-CDI

    11.250        01/04/2021        BRL        105,000        (156     (3,435     0        (3,591
             

 

 

   

 

 

   

 

 

   

 

 

 
              $ 2,500      $ (8,413   $ 4,931      $ (10,844
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $     (52,173   $     (17,934   $     4,931      $     (75,038
             

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of January 31, 2016:

 

(m) Securities with an aggregate market value of $68,835 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2016.

 

    Financial Derivative Assets          Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
          Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (5)
 

BOA

  $ 403       $ 0       $ 0       $ 403         $ (16   $ 0       $ (18,287   $ (18,303   $ (17,900   $ 18,137      $ 237   

BPS

    8         0         0         8           0        0         (1,926     (1,926     (1,918     2,056        138   

BRC

    77         0         0         77           0        0         (17,131     (17,131     (17,054     17,067        13   

CBK

    3,595         0         1,219         4,814           (6     0         (2,538     (2,544     2,270        (860     1,410   

DUB

    42         0         0         42           (131     0         0        (131     (89     (210     (299

GLM

    32         0         0         32           0        0         0        0        32        0        32   

GST

    0         0         0         0           0        0         (2,448     (2,448     (2,448     2,498        50   

HUS

    276         0         0         276           (269     0         (1,547     (1,816     (1,540     1,495        (45

JPM

    608         0         0         608           (546     0         (3,311     (3,857     (3,249     3,493        244   

MEI

    0         0         0         0           0        0         (14,667     (14,667     (14,667     14,528        (139

MSB

    204         0         0         204           (61     0         0        (61     143        0        143   

MYC

    0         0         3,712         3,712           0        0         (9,592     (9,592     (5,880     5,788        (92

NAB

    233         0         0         233           0        0         0        0        233        (260     (27

SCX

    111         0         0         111           (112     0         0        (112     (1     0        (1

UAG

    261         0         0         261           (4     0         (3,591     (3,595     (3,334     3,605        271   
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $ 5,850       $ 0       $ 4,931       $ 10,781         $ (1,145   $ 0       $ (75,038   $ (76,183      
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

 

(5) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

The following is a summary of the fair valuation of the Fund’s derivative instruments categorized by risk exposure. See Note 7, Principal Risks, in the Notes to Financial Statements on risks of the Fund.

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
    Foreign
Exchange
Contracts
    Interest
Rate Contracts
    Total  

Financial Derivative Instruments - Assets

             

Exchange-traded or centrally cleared

             

Swap Agreements

  $     0       $          205       $     0      $ 0      $ 4,392      $ 4,597   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

             

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0      $     5,850      $ 0      $ 5,850   

Swap Agreements

    0         0         0        0              4,931        4,931   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0       $ 0       $ 0      $ 5,850      $ 4,931      $ 10,781   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0       $ 205       $ 0      $ 5,850      $ 9,323      $ 15,378   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

26   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
    Foreign
Exchange
Contracts
    Interest
Rate Contracts
    Total  

Financial Derivative Instruments - Liabilities

             

Exchange-traded or centrally cleared

             

Swap Agreements

  $ 0       $ 0       $ 0      $ 0      $ 4,703      $ 4,703   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

             

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0      $ 1,145      $ 0      $ 1,145   

Swap Agreements

    0         64,194         0        0        10,844        75,038   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0       $ 64,194       $ 0      $ 1,145      $ 10,844      $ 76,183   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
  $     0       $     64,194       $     0      $     1,145      $     15,547      $     80,886   
 

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Net Realized Gain (Loss) on Financial Derivative Instruments

  

     

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (128    $ 0       $ 0       $ (29,106    $ (29,234
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 6,429       $ 0       $ 6,429   

Swap Agreements

    0         (361      0         0         3,885         3,524   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (361    $ 0       $ 6,429       $ 3,885       $ 9,953   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (489    $ 0       $ 6,429       $     (25,221    $     (19,281
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized (Depreciation) on Financial Derivative Instruments

  

     

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (969    $ 0       $ 0       $ 20,373       $ 19,404   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 2,482       $ 0       $ 2,482   

Swap Agreements

    0         (8,973      0         0         (9,257      (18,230
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (8,973    $ 0       $ 2,482       $ (9,257    $ (15,748
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     (9,942    $     0       $     2,482       $ 11,116       $ 3,656   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Investments in Securities, at Value

       

Bank Loan Obligations

  $ 0      $ 14,010      $ 6,390      $ 20,400   

Corporate Bonds & Notes

       

Banking & Finance

    0        198,858        14,913        213,771   

Industrials

    0            116,629            10,937            127,566   

Utilities

    0        65,568        0        65,568   

Municipal Bonds & Notes

       

California

    0        55,796        0        55,796   

Illinois

    0        25,198        0        25,198   

Virginia

    0        1,131        0        1,131   

West Virginia

    0        6,024        0        6,024   

U.S. Government Agencies

    0        36,105        8,361        44,466   

U.S. Treasury Obligations

    0        12,085        0        12,085   

Non-Agency Mortgage-Backed Securities

    0        331,161        0        331,161   

Asset-Backed Securities

    0        187,979        0        187,979   

Sovereign Issues

    0        5,536        0        5,536   

Common Stocks

       

Financials

    0        0        793        793   

Preferred Securities

       

Banking & Finance

        6,396        15,398        0        21,794   
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Short-Term Instruments

       

Repurchase Agreements

  $ 0      $ 35,311      $ 0      $ 35,311   

Short-Term Notes

    0        1,500        0        1,500   

U.S. Treasury Bills

    0        61,899        0        61,899   

Total Investments

  $     6,396      $     1,170,188      $     41,394      $     1,217,978   

Financial Derivative Instruments - Assets

  

Exchange-traded or centrally cleared

    0        4,597        0        4,597   

Over the counter

    0        10,781        0        10,781   
  $ 0      $ 15,378      $ 0      $ 15,378   

Financial Derivative Instruments - Liabilities

  

Exchange-traded or centrally cleared

    0        (4,703     0        (4,703

Over the counter

    0        (76,183     0        (76,183
  $ 0      $ (80,886   $ 0      $ (80,886

Totals

  $ 6,396      $ 1,104,680      $ 41,394      $ 1,152,470   
 

 

There were no significant transfers between Levels 1 and 2 during the period ended January 31, 2016.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   27


Table of Contents

Schedule of Investments PIMCO Corporate & Income Opportunity Fund (Cont.)

 

January 31, 2016 (Unaudited)

 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended January 31, 2016:

 

Category and Subcategory   Beginning
Balance
at 07/31/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 01/31/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2016 (1)
 

Investments in Securities, at Value

  

             

Bank Loan Obligations

  $ 8,897      $ 130      $ (37   $ 51      $ 3      $ (2,654   $ 0      $ 0      $ 6,390      $ (2,600

Corporate Bonds & Notes

                   

Banking & Finance

    10,454        4,378        (121     3        1        198        0        0        14,913        214   

Industrials

    10,941        0        0        6        0        (10     0        0        10,937        (10

U.S. Government Agencies

    0        8,796        (52     12        21        (416     0        0        8,361        (416

Non Agency Mortgage-Backed Securities

    8,290        0        (8,338     0        47        1        0        0        0        0   

Common Stocks

                   

Financials

    832        0        0        0        0        (39     0        0        793        (39
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     39,414      $     13,304      $     (8,548   $     72      $     72      $     (2,920   $     0      $     0      $     41,394      $     (2,851
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:

 

Category and Subcategory   Ending
Balance
at 01/31/2016
     Valuation
Technique
   Unobservable
Inputs
   Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

          

Bank Loan Obligations

  $ 1,949       Proxy Pricing    Base Price      97.00   
    4,441       Third Party Vendor    Broker Quote      60.00   

Corporate Bonds & Notes

          

Banking & Finance

    4,413       Other Valuation Techniques (2)         —     
    10,500       Proxy Pricing    Base Price      113.30   

Industrials

    10,937       Proxy Pricing    Base Price      100.09   

U.S. Government Agencies

    8,361       Proxy Pricing    Base Price      56.31   

Common Stocks

          

Financials

    793       Other Valuation Techniques (2)         —     
 

 

 

          

Total

  $   41,394            
 

 

 

          

 

(1)

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2016 may be due to an investment no longer held or categorized as Level 3 at period end.

(2)

Includes valuation techniques not defined in the Notes to Financial Statements as securities valued using such techniques are not considered significant to the Fund.

 

28   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

Schedule of Investments PIMCO Corporate & Income Strategy Fund

 

January 31, 2016 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 119.1%   
BANK LOAN OBLIGATIONS 1.5%   

Hellenic Republic

  

3.930% due 03/30/2016

  EUR     1,000      $     975   

iHeartCommunications, Inc.

  

7.178% due 01/30/2019

  $     5,800          3,865   

Sequa Corp.

  

5.250% due 06/19/2017

      4,938          3,321   
       

 

 

 

Total Bank Loan Obligations
(Cost $11,048)

      8,161   
       

 

 

 
CORPORATE BONDS & NOTES 45.3%   
BANKING & FINANCE 25.1%   

AGFC Capital Trust

  

6.000% due 01/15/2067

      2,300          1,575   

AIG Life Holdings, Inc.

  

7.570% due 12/01/2045

      3,400          4,445   

American International Group, Inc.

  

6.250% due 03/15/2087

      1,826          1,981   

8.175% due 05/15/2068

      300          391   

Banco do Brasil S.A.

  

6.250% due 04/15/2024 (f)

      4,460          2,174   

9.000% due 06/18/2024 (f)

      3,827          2,315   

Banco Espirito Santo S.A.

  

2.625% due 05/08/2017 ^

  EUR     1,100          423   

4.000% due 01/21/2019 ^

      4,300          1,654   

4.750% due 01/15/2018 ^

      5,100          1,961   

Banco Santander S.A.

  

6.250% due 09/11/2021 (f)

      1,300          1,288   

Barclays PLC

  

7.875% due 09/15/2022 (f)

  GBP     3,757          5,138   

8.000% due 12/15/2020 (f)

  EUR     1,900          2,165   

BGC Partners, Inc.

  

5.375% due 12/09/2019 (h)

  $     5,960          6,156   

Blackstone CQP Holdco LP

  

2.324% due 03/19/2019

      2,600          2,608   

BNP Paribas S.A.

  

7.375% due 08/19/2025 (f)

      6,200          6,091   

Cantor Fitzgerald LP

  

6.500% due 06/17/2022 (i)

      8,000          8,382   

Co-operative Group Holdings Ltd.

  

7.500% due 07/08/2026

  GBP     6,000          9,317   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023

  $     3,100          2,751   

Credit Agricole S.A.

  

7.875% due 01/23/2024 (f)

      6,500          6,345   

Credit Suisse Group AG

  

7.500% due 12/11/2023 (f)

      7,725          7,948   

GSPA Monetization Trust

  

6.422% due 10/09/2029

      4,892          5,559   

LBG Capital PLC

  

9.125% due 07/15/2020

  GBP     3,100          4,483   

National Bank of Greece S.A.

  

3.875% due 10/07/2016

  EUR     1,050          1,114   

Nationwide Building Society

  

10.250% (f)

  GBP     11          2,014   

Navient Corp.

  

5.500% due 01/15/2019 (i)

  $     8,750          8,225   

5.625% due 08/01/2033

      2,648          1,748   

8.450% due 06/15/2018

      2,300          2,386   

Novo Banco S.A.

  

5.000% due 04/04/2019

  EUR     298          256   

5.000% due 04/23/2019

      608          524   

5.000% due 05/14/2019

      402          346   

5.000% due 05/21/2019

      225          192   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.000% due 05/23/2019

  EUR     224      $     192   

OneMain Financial Holdings, Inc.

  

7.250% due 12/15/2021

  $     2,796          2,775   

Preferred Term Securities Ltd.

  

0.892% due 09/23/2035

      487          375   

Royal Bank of Scotland Group PLC

  

7.500% due 08/10/2020 (f)

      200          203   

Sberbank of Russia Via SB Capital S.A.

  

5.717% due 06/16/2021 (i)

      8,300          8,356   

6.125% due 02/07/2022

      2,500          2,552   

Tesco Property Finance PLC

  

5.411% due 07/13/2044

  GBP     7,786          9,148   

6.052% due 10/13/2039

      1,889          2,481   

TIG FinCo PLC

  

8.500% due 03/02/2020

      252          368   

8.750% due 04/02/2020

      2,089          2,582   

Vnesheconombank Via VEB Finance PLC

  

6.902% due 07/09/2020

  $     2,600          2,600   
       

 

 

 
            133,587   
       

 

 

 
INDUSTRIALS 13.2%   

BMC Software Finance, Inc.

  

8.125% due 07/15/2021

      1,380          850   

Boxer Parent Co., Inc. (9.000% Cash or 9.750% PIK)

  

9.000% due 10/15/2019 (c)(i)

      4,650          2,668   

Caesars Entertainment Operating Co., Inc.

  

8.500% due 02/15/2020 ^

      3,300          2,491   

9.000% due 02/15/2020 ^

      1,885          1,414   

11.250% due 06/01/2017 ^

      8,170          5,954   

Centene Escrow Corp.

  

5.625% due 02/15/2021 (b)

      130          133   

6.125% due 02/15/2024 (b)

      130          133   

Chesapeake Energy Corp.

  

3.872% due 04/15/2019

      440          118   

Continental Airlines Pass-Through Trust

  

9.798% due 10/01/2022

      1,163          1,255   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019

      308          122   

Ford Motor Co.

  

7.700% due 05/15/2097 (i)

      7,830          8,944   

9.980% due 02/15/2047

      1,500          2,130   

Harvest Operations Corp.

  

6.875% due 10/01/2017

      5,592          3,942   

iHeartCommunications, Inc.

  

9.000% due 09/15/2022

      1,200          786   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021 (i)

      6,192          2,724   

8.125% due 06/01/2023

      251          105   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019

      7,070          5,515   

Pertamina Persero PT

  

6.450% due 05/30/2044

      5,033          4,349   

Russian Railways via RZD Capital PLC

  

7.487% due 03/25/2031

  GBP     1,000          1,314   

Sequa Corp.

  

7.000% due 12/15/2017

  $     7,480          1,964   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017

      2,100          2,055   

Tembec Industries, Inc.

  

9.000% due 12/15/2019

      1,900          1,211   

Times Square Hotel Trust

  

8.528% due 08/01/2026

      1,851          2,213   

UCP, Inc.

  

8.500% due 10/21/2017

      6,000          6,020   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027

  GBP     3,932      $     5,561   

6.542% due 03/30/2021

      2,021          2,980   

Westmoreland Coal Co.

  

8.750% due 01/01/2022

  $     5,955          3,484   
       

 

 

 
          70,435   
       

 

 

 
UTILITIES 7.0%   

AK Transneft OJSC Via TransCapitalInvest Ltd.

  

8.700% due 08/07/2018

      500          549   

FPL Energy Wind Funding LLC

  

6.876% due 06/27/2017

      333          328   

Gazprom Neft OAO Via GPN Capital S.A.

  

4.375% due 09/19/2022 (i)

      8,800          7,744   

4.375% due 09/19/2022

      280          246   

6.000% due 11/27/2023

      4,900          4,596   

Gazprom OAO Via Gaz Capital S.A.

  

6.510% due 03/07/2022

      1,050          1,064   

9.250% due 04/23/2019

      600          667   

Illinois Power Generating Co.

  

6.300% due 04/01/2020

      6,400          2,848   

7.000% due 04/15/2018

      1,900          1,026   

7.950% due 06/01/2032

      700          304   

Mountain States Telephone & Telegraph Co.

  

7.375% due 05/01/2030

      8,200          9,160   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022

      314          116   

Odebrecht Offshore Drilling Finance Ltd.

  

6.625% due 10/01/2023

      2,849          655   

6.750% due 10/01/2023

      3,035          683   

Petrobras Global Finance BV

  

2.750% due 01/15/2018

  EUR     450          406   

3.406% due 03/17/2020

  $     270          188   

4.875% due 03/17/2020

      420          318   

5.750% due 01/20/2020

      220          173   

6.250% due 12/14/2026

  GBP     4,800          4,329   

6.625% due 01/16/2034

      100          88   

6.750% due 01/27/2041

  $     2,300          1,457   

7.875% due 03/15/2019

      100          87   
       

 

 

 
          37,032   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $274,544)

   

        241,054   
       

 

 

 
MUNICIPAL BONDS & NOTES 5.1%   
CALIFORNIA 1.8%   

Riverside County, California Redevelopment Successor Agency Tax Allocation Bonds, Series 2010

   

7.750% due 10/01/2037

      1,220          1,340   

Stockton Public Financing Authority, California Revenue Bonds, (BABs), Series 2009

   

7.942% due 10/01/2038

      7,400          8,389   
       

 

 

 
          9,729   
       

 

 

 
ILLINOIS 2.6%   

Chicago, Illinois General Obligation Bonds, (BABs), Series 2010

   

7.517% due 01/01/2040

      12,700          13,503   
       

 

 

 
VIRGINIA 0.1%   

Tobacco Settlement Financing Corp., Virginia Revenue Bonds, Series 2007

   

6.706% due 06/01/2046

      785          635   
       

 

 

 
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   29


Table of Contents

Schedule of Investments PIMCO Corporate & Income Strategy Fund (Cont.)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
WEST VIRGINIA 0.6%   

Tobacco Settlement Finance Authority, West Virginia Revenue Bonds, Series 2007

   

7.467% due 06/01/2047

  $     3,730      $     3,273   
       

 

 

 

Total Municipal Bonds & Notes (Cost $25,347)

    27,140   
       

 

 

 
U.S. GOVERNMENT AGENCIES 4.9%   

Fannie Mae

  

3.000% due 02/25/2043 (a)

      73,523          14,092   

Freddie Mac

  

2.563% due 11/25/2055

      8,371          4,714   

7.977% due 12/25/2027

      4,500          4,072   

9.777% due 04/25/2028

      2,000          1,912   

10.927% due 05/25/2028

      570          556   

11.177% due 03/25/2025

      749          775   
       

 

 

 

Total U.S. Government Agencies (Cost $25,702)

      26,121   
       

 

 

 
U.S. TREASURY OBLIGATIONS 0.3%   

U.S. Treasury Floating Rate Notes

  

0.473% due 10/31/2017 (l)

      1,500          1,500   
       

 

 

 

Total U.S. Treasury Obligations (Cost $1,499)

   

      1,500   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 36.4%   

Banc of America Alternative Loan Trust

  

5.500% due 10/25/2035 ^

      6,703          5,958   

6.000% due 01/25/2036 ^

      170          145   

Banc of America Funding Trust

  

6.000% due 03/25/2037 ^

      3,522          3,038   

6.000% due 07/25/2037 ^

      464          368   

Banc of America Mortgage Trust

  

2.663% due 03/25/2035

      152          141   

5.500% due 11/25/2035 ^

      3,100          2,928   

6.000% due 03/25/2037 ^

      627          574   

6.500% due 09/25/2033

      269          270   

BCAP LLC Trust

  

2.932% due 08/28/2037

      6,455          4,825   

5.283% due 03/26/2037

      1,458          423   

10.662% due 07/26/2036

      1,764          1,814   

Bear Stearns Adjustable Rate Mortgage Trust

  

2.764% due 08/25/2035 ^

      8,194          7,383   

Bear Stearns ALT-A Trust

  

0.927% due 01/25/2036 ^

      1,940          1,560   

2.623% due 11/25/2035 ^

      9,884          7,958   

2.692% due 11/25/2036 ^

      5,565          3,893   

2.942% due 09/25/2035 ^

      1,109          910   

3.007% due 08/25/2036 ^

      1,329          995   

Bear Stearns Mortgage Funding Trust

  

7.000% due 08/25/2036

      1,863          1,770   

Chase Mortgage Finance Trust

  

2.679% due 12/25/2035 ^

      18          16   

6.000% due 07/25/2037 ^

      1,191          995   

Citigroup Mortgage Loan Trust, Inc.

  

5.061% due 09/25/2037 ^

      4,281          3,886   

5.276% due 04/25/2037 ^

      466          406   

Countrywide Alternative Loan Resecuritization Trust

  

6.000% due 08/25/2037 ^

      1,671          1,436   

Countrywide Alternative Loan Trust

  

5.500% due 03/25/2035

      485          405   

5.500% due 03/25/2036 ^

      233          198   

5.500% due 05/25/2036 ^

      2,882          2,201   

5.750% due 01/25/2035

      604          611   

5.750% due 02/25/2035

      681          672   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.750% due 03/25/2037 ^

  $     1,164      $     1,029   

6.000% due 02/25/2035

      1,522          1,581   

6.000% due 04/25/2036

      7,584          6,887   

6.000% due 02/25/2037 ^

      7,741          6,046   

6.000% due 04/25/2037 ^

      1,807          1,416   

6.000% due 07/25/2037 ^

      534          558   

6.250% due 12/25/2036 ^

      2,172          1,760   

6.500% due 08/25/2036 ^

      726          549   

Countrywide Home Loan Mortgage Pass-Through Trust

  

2.569% due 09/20/2036 ^

      450          389   

5.750% due 03/25/2037 ^

      1,130          1,039   

6.000% due 03/25/2037 ^

      682          643   

6.000% due 07/25/2037

      6,538          5,482   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

6.000% due 02/25/2037 ^

      733          643   

6.750% due 08/25/2036 ^

      2,218          1,769   

Epic Drummond Ltd.

  

0.044% due 01/25/2022

  EUR     2,956          2,887   

First Horizon Alternative Mortgage Securities Trust

  

6.000% due 08/25/2036 ^

  $     7,292          5,958   

GSR Mortgage Loan Trust

  

2.765% due 08/25/2034

      784          734   

5.500% due 05/25/2036 ^

      645          619   

6.000% due 02/25/2036 ^

      4,671          3,934   

HarborView Mortgage Loan Trust

  

0.666% due 01/19/2036 ^

      6,699          4,538   

3.338% due 06/19/2036 ^

      9,440          5,925   

IndyMac Mortgage Loan Trust

  

6.500% due 07/25/2037 ^

      3,959          2,526   

Jefferies Resecuritization Trust

  

6.000% due 05/26/2036

      17,068          14,010   

JPMorgan Alternative Loan Trust

  

2.620% due 03/25/2037 ^

      2,762          2,107   

6.000% due 12/25/2035 ^

      2,622          2,438   

JPMorgan Mortgage Trust

  

2.653% due 01/25/2037 ^

      1,221          1,093   

2.705% due 04/25/2037

      15          14   

2.744% due 02/25/2036 ^

      4,797          4,197   

5.000% due 03/25/2037 ^

      1,886          1,597   

6.000% due 08/25/2037 ^

      344          304   

Lehman Mortgage Trust

  

6.000% due 07/25/2036 ^

      1,331          985   

6.000% due 07/25/2037 ^

      376          344   

Lehman XS Trust

  

0.647% due 06/25/2047

      3,456          2,473   

MASTR Alternative Loan Trust

  

6.750% due 07/25/2036

      2,657          1,953   

Merrill Lynch Mortgage Investors Trust

  

2.720% due 03/25/2036 ^

      1,043          702   

Morgan Stanley Mortgage Loan Trust

  

6.000% due 02/25/2036 ^

      2,815          2,727   

Residential Accredit Loans, Inc. Trust

  

0.657% due 05/25/2037 ^

      330          82   

3.713% due 12/26/2034 ^

      3,038          2,511   

6.000% due 08/25/2036 ^

      555          457   

Residential Asset Mortgage Products Trust

  

6.500% due 12/25/2031

      894          928   

Residential Asset Securitization Trust

  

6.000% due 11/25/2036 ^

      3,426          2,303   

6.000% due 03/25/2037 ^

      2,089          1,467   

6.000% due 05/25/2037 ^

      2,449            2,112   

6.250% due 09/25/2037 ^

      3,196          2,286   

6.250% due 06/25/2046

      1,925          1,602   

Residential Funding Mortgage Securities, Inc. Trust

  

3.369% due 02/25/2037

      2,658          2,139   

6.500% due 03/25/2032

      273          285   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Sequoia Mortgage Trust

  

2.716% due 02/20/2047

  $     576      $     497   

4.826% due 07/20/2037 ^

      1,184          1,063   

Structured Adjustable Rate Mortgage Loan Trust

  

2.676% due 11/25/2036 ^

      4,178          3,274   

2.724% due 01/25/2036 ^

      3,351          2,564   

2.744% due 07/25/2035 ^

      1,437          1,233   

4.148% due 07/25/2036 ^

      1,060          885   

4.576% due 07/25/2036 ^

      9,065          5,912   

4.688% due 03/25/2037 ^

      4,861          3,431   

Suntrust Adjustable Rate Mortgage Loan Trust

  

2.771% due 04/25/2037 ^

      1,076          915   

2.818% due 02/25/2037 ^

      605          531   

WaMu Mortgage Pass-Through Certificates Trust

  

2.225% due 07/25/2037 ^

      698          597   

2.409% due 09/25/2036 ^

      473          430   

4.275% due 02/25/2037 ^

      922          852   

4.412% due 07/25/2037 ^

      1,756          1,623   

6.009% due 10/25/2036 ^

      3,483          2,902   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

1.125% due 05/25/2047 ^

      405          32   

6.000% due 10/25/2035 ^

      2,736          2,099   

Wells Fargo Mortgage-Backed Securities Trust

  

2.671% due 07/25/2036 ^

      694          655   

2.734% due 05/25/2036 ^

      137          130   

6.000% due 07/25/2037 ^

      643          635   
       

 

 

 

Total Non-Agency
Mortgage-Backed Securities
(Cost $187,816)

    

        194,067   
       

 

 

 
       
ASSET-BACKED SECURITIES 18.2%   

ACE Securities Corp. Home Equity Loan Trust

  

0.817% due 02/25/2036

      23,100          8,414   

Argent Securities Trust

  

0.617% due 03/25/2036

      3,211          1,539   

Bear Stearns Asset-Backed Securities Trust

  

0.567% due 10/25/2036 ^

      7,093          5,614   

6.500% due 10/25/2036 ^

      400          306   

CIFC Funding Ltd.

  

0.000% due 05/24/2026 (e)

      2,300          1,536   

0.000% due 07/22/2026 (e)

      1,500          814   

Countrywide Asset-Backed Certificates

  

1.147% due 01/25/2036

      4,000          2,974   

5.040% due 10/25/2046 ^

      10,086          9,610   

First Franklin Mortgage Loan Trust

  

1.057% due 09/25/2035

      3,949          1,583   

1.077% due 05/25/2036

      8,631          3,329   

Fremont Home Loan Trust

  

1.357% due 06/25/2035 ^

      6,000          4,283   

Greenpoint Manufactured Housing

  

8.140% due 03/20/2030

      1,712          1,812   

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

  

0.587% due 07/25/2037

      12,270          7,538   

JPMorgan Mortgage Acquisition Corp.

  

0.717% due 01/25/2036

      862          732   

JPMorgan Mortgage Acquisition Trust

  

0.582% due 11/25/2036

      5,758          4,096   

4.617% due 01/25/2037 ^

      7,527          5,052   

Lehman XS Trust

  

5.170% due 08/25/2035 ^

      644          613   

Long Beach Mortgage Loan Trust

  

0.727% due 01/25/2036

      5,000          2,827   

Mid-State Trust

  

6.340% due 10/15/2036

      1,303          1,393   
 

 

30   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Morgan Stanley ABS Capital, Inc. Trust

  

0.577% due 06/25/2036

  $     2,636      $     2,334   

Morgan Stanley Mortgage Loan Trust

  

6.250% due 07/25/2047 ^

      919          663   

Park Place Securities, Inc. Asset-Backed Pass-Through Certificates

   

0.947% due 08/25/2035

      5,000          3,242   

Residential Asset Mortgage Products Trust

  

1.517% due 12/25/2033

      251          232   

1.627% due 01/25/2035 ^

      3,082          1,995   

Soundview Home Loan Trust

  

0.677% due 08/25/2037

      2,000          1,381   

Taberna Preferred Funding Ltd.

  

0.714% due 08/05/2036

      569          415   

0.714% due 08/05/2036 ^

      10,524          7,683   

1.083% due 07/05/2035

      10,668          8,001   

Tropic CDO Ltd.

  

0.942% due 07/15/2036

      10,089          6,709   
       

 

 

 

Total Asset-Backed Securities (Cost $98,126)

   

        96,720   
       

 

 

 
       
SOVEREIGN ISSUES 0.5%   

Athens Urban Transportation Organisation

  

4.851% due 09/19/2016

  EUR     200          197   

Republic of Greece Government International Bond

  

3.000% due 02/24/2023

      142          103   

3.000% due 02/24/2024

      142          101   

3.000% due 02/24/2025

      142          99   

3.000% due 02/24/2026

      142          97   

3.000% due 02/24/2027

      142          94   

3.000% due 02/24/2028

      142          92   

3.000% due 02/24/2029

      142          89   

3.000% due 02/24/2030

      142          88   

3.000% due 02/24/2031

      142          87   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

3.000% due 02/24/2032

  $     142      $     85   

3.000% due 02/24/2033

      142          84   

3.000% due 02/24/2034

      142          82   

3.000% due 02/24/2035

      142          81   

3.000% due 02/24/2036

      142          81   

3.000% due 02/24/2037

      142          80   

3.000% due 02/24/2038

      142          80   

3.000% due 02/24/2039

      142          80   

3.000% due 02/24/2040

      142          80   

3.000% due 02/24/2041

      142          80   

3.000% due 02/24/2042

      142          80   

3.800% due 08/08/2017

  JPY     47,000          338   

4.750% due 04/17/2019

  EUR     400          361   
       

 

 

 

Total Sovereign Issues (Cost $2,560)

  

      2,639   
       

 

 

 
        SHARES            
COMMON STOCKS 0.0%   
FINANCIALS 0.0%   

TIG FinCo PLC (g)

      182,606          182   
       

 

 

 

Total Common Stocks (Cost $271)

  

      182   
       

 

 

 
PREFERRED SECURITIES 4.4%   
BANKING & FINANCE 4.4%   

Citigroup Capital

  

6.983% due 10/30/2040

      120,000          3,069   

Farm Credit Bank of Texas

  

10.000% due 12/15/2020 (f)

      13,500          16,900   

GMAC Capital Trust

  

8.125% due 02/15/2040

      144,400          3,675   
       

 

 

 

Total Preferred Securities (Cost $23,995)

   

        23,644   
       

 

 

 
                  MARKET
VALUE
(000S)
 
SHORT-TERM INSTRUMENTS 2.5%   
REPURCHASE AGREEMENTS (h) 1.0%   
      $     5,536   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
SHORT-TERM NOTES 0.9%   

Federal Home Loan Bank

  

0.279% due 02/17/2016

  $     1,000          1,000   

0.294% due 02/19/2016

      900          900   

0.299% due 03/02/2016

      2,700          2,699   
       

 

 

 
          4,599   
       

 

 

 
U.S. TREASURY BILLS 0.6%   

0.243% due 02/18/2016 (d)(l)

    3,171          3,171   
       

 

 

 
Total Short-Term Instruments (Cost $13,306)           13,306   
       

 

 

 
       
Total Investments in Securities (Cost $664,214)           634,534   
       
Total Investments 119.1% (Cost $664,214)       $       634,534   

Financial Derivative Instruments (j)(k) 0.0%

(Cost or Premiums, net $755)

    (71
Preferred Shares (10.4%)          (55,525
Other Assets and Liabilities, net (8.7%)     (46,337
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%       $     532,601   
       

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) When-issued security.
(c) Payment in-kind bond security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon bond.
(f) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(g)  RESTRICTED SECURITIES:

 

Issuer Description   Acquisition
Date
  Cost     Market
Value
    Market Value
as Percentage
of Net Assets
 

TIG FinCo PLC

  04/02/2015   $     271      $     182        0.03%   
   

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(h)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
  Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 

SAL

  0.550%     01/29/2016        02/01/2016      $     5,100      U.S. Treasury Notes 1.625% due 07/31/2020   $ (5,177   $ 5,100      $ 5,100   

SSB

  0.010     01/29/2016        02/01/2016        436      U.S. Treasury Notes 2.250% due 07/31/2021     (447     436        436   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

        $     (5,624   $     5,536      $     5,536   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   31


Table of Contents

Schedule of Investments PIMCO Corporate & Income Strategy Fund (Cont.)

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate
     Borrowing
Date
     Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 

BCY

    (1.250 %)       01/21/2016         02/01/2016      $ (1,768   $ (1,767
    (0.500      01/29/2016         TBD  (2)      (1,850     (1,850

DEU

    1.150         12/04/2015         03/04/2016        (1,017     (1,019

JML

    1.250         01/19/2016         02/25/2016        (6,516     (6,519
    1.550         12/15/2015         02/12/2016        (5,924     (5,936

MSC

    1.000         02/01/2016         05/02/2016            (12,752     (12,752

RBC

    0.930         12/14/2015         02/23/2016        (7,066     (7,075

RDR

    0.760         11/17/2015         02/17/2016        (14,142     (14,165
           

 

 

 

Total Reverse Repurchase Agreements

  

       $     (51,083
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended January 31, 2016 was $(13,759) at a weighted average interest rate of 0.933%.

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of January 31, 2016:

 

(i) Securities with an aggregate market value of $58,588 have been pledged as collateral under the terms of the following master agreements as of January 31, 2016.

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
     Payable for
Reverse
Repurchase
Agreements
     Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
     Collateral
(Received)/Pledged
     Net Exposure  (4)  

Global/Master Repurchase Agreement

                

BCY

  $ 0       $ (3,617    $ 0       $ (3,617    $ 4,188       $ 571   

DEU

    0         (1,019      0         (1,019      1,297         278   

JML

    0         (12,455      0         (12,455      16,100             3,645   

MSC

    0         (12,752      0         (12,752      14,130         1,378   

RBC

    0         (7,075      0         (7,075      7,961         886   

RDR

    0         (14,165      0             (14,165      14,911         746   

SAL

    5,100         0         0         5,100             (5,177      (77

SSB

    436         0         0         436         (447      (11
 

 

 

    

 

 

    

 

 

          

Total Borrowings and Other Financing Transactions

  $     5,536       $     (51,083    $     0            
 

 

 

    

 

 

    

 

 

          

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

     Overnight and
Continuous
     Up to 30 days      31-90 days      Greater Than 90 days     Total  

Reverse Repurchase Agreements

            

Corporate Bonds & Notes

  $ (1,767    $ (33,695    $ (1,019    $ (1,850   $ (38,331
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Borrowings

  $     (1,767    $     (33,695    $     (1,019    $     (1,850   $     (38,331
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross amount of recognized liabilities for reverse repurchase agreements (5)

             $ (38,331
            

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(12,752) is outstanding at period end.

 

(j)  FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION (1)

 

Index/Tranches          Fixed
Receive Rate
    Maturity
Date
     Notional
Amount  (2)
    Market
Value  (3)
     Unrealized
(Depreciation)
     Variation Margin  
                   Asset      Liability  

CDX.HY-24 5-Year Index

        5.000     06/20/2020       $ 8,415      $ 255       $ (394    $ 33       $ 0   

CDX.HY-25 5-Year Index

        5.000        12/20/2020             14,500        46         (77      57         0   
            

 

 

    

 

 

    

 

 

    

 

 

 
             $     301       $     (471    $     90       $     0   
            

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

 

32   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

(2) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

(3) 

The prices and resulting values for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced indices’ credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

INTEREST RATE SWAPS

 

Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
     Notional
Amount
    Market
Value
     Unrealized
Appreciation/
(Depreciation)
    Variation Margin  
                Asset      Liability  

Pay

 

3-Month USD-LIBOR

    2.000     12/16/2020         $      59,300      $ 2,122       $ 576      $ 183       $ 0   

Pay

 

3-Month USD-LIBOR

    2.750        06/17/2025         75,590        6,680         2,017        455         0   

Pay

 

3-Month USD-LIBOR

    3.500        06/19/2044         169,400        44,772         50,299        1,942         0   

Receive

 

3-Month USD-LIBOR

    2.500        06/15/2046             227,500        (7,531      (19,027     0         (2,287

Pay

 

6-Month AUD-BBR-BBSW

    3.500        06/17/2025         AUD        7,600        362         173        11         0   
          

 

 

    

 

 

   

 

 

    

 

 

 
           $ 46,405       $ 34,038      $ 2,591       $ (2,287
          

 

 

    

 

 

   

 

 

    

 

 

 

Total Swap Agreements

  

     $     46,706       $     33,567      $     2,681       $     (2,287
          

 

 

    

 

 

   

 

 

    

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of January 31, 2016:

 

Cash of $4,812 has been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets         Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
              Market Value     Variation Margin
Liability
       
     Purchased
Options
    Futures     Swap
Agreements
    Total         Written
Options
    Futures     Swap
Agreements
    Total  

Total Exchange-Traded or Centrally Cleared

  $     0      $     0      $     2,681      $     2,681        $     0      $     0        $    (2,287     $    (2,287
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(k)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty    Settlement
Month
     Currency to
be Delivered
     Currency to
be Received
    Unrealized Appreciation/
(Depreciation)
 
           Asset     Liability  

BOA

     02/2016       $          51,522         GBP        36,143      $ 0      $ (22
     03/2016         GBP        36,143       $          51,523        21        0   
     06/2016         EUR        93           127        26        0   
     06/2016       $          5         EUR        4        0        (1
                

BRC

     03/2016         MXN        170       $          10        0        0   
     06/2016         EUR        17           23        5        0   
                

CBK

     02/2016         GBP        36,526           54,208        2,162        0   
     02/2016       $          601         EUR        553        0        (2
     03/2016         EUR        956       $          1,044        7        0   
                

DUB

     02/2016         BRL        11,930           2,951        0        (32
     02/2016       $          3,015         BRL        11,930        0        (32
     06/2016         EUR        10       $          14        3        0   
                

JPM

     02/2016         BRL        11,930           2,913        0        (70
     02/2016         EUR        1,548           1,677        1        (1
     02/2016         JPY        7,060           57        0        (1
     02/2016       $          2,951         BRL        11,930        32        0   
     02/2016           8,884         EUR        8,255        58        0   
     02/2016           568         GBP        383        0        (22
     03/2016           962         BRL        4,048        41        0   
                

MSB

     02/2016         JPY        33,100       $          273        0        0   
     06/2016         EUR        24           33        7        0   
                

NAB

     06/2016           53           73        15        0   
                

SCX

     02/2016       $          280         JPY        33,100        0        (6
     03/2016         JPY        33,100       $          280        6        0   
                

UAG

     02/2016         EUR        21,782           23,809        213        0   
     02/2016       $          15,574         EUR        14,373        0        (3
     03/2016         EUR        14,374       $          15,585        3        0   
              

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

  $     2,600      $     (192
              

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   33


Table of Contents

Schedule of Investments PIMCO Corporate & Income Strategy Fund (Cont.)

 

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CORPORATE AND SOVEREIGN ISSUES - SELL PROTECTION (1)

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
January 31, 2016 (2)
    Notional
Amount  (3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
      Swap Agreements, at Value    
                Asset     Liability  
BPS  

Petrobras International Finance Co.

    1.000     12/20/2019        11.002     $    2,400      $ (247   $ (463   $ 0      $ (710
                 
GST  

Petrobras Global Finance BV

    1.000        09/20/2020        11.018        10        (2     (1     0        (3
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002        8,900        (912     (1,720     0        (2,632
 

Russia Government International Bond

    1.000        06/20/2020        3.082        200        (27     10        0        (17
                 
HUS  

Petrobras Global Finance BV

    1.000        09/20/2020        11.018        40        (6     (7     0        (13
                 
MYC  

Chesapeake Energy Corp.

    5.000        09/20/2020        44.507        300        (30     (174     0        (204
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     (1,224   $     (2,355   $     0      $     (3,579
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Receive

  1-Year BRL-CDI     11.250     01/04/2021        BRL        28,850      $ 1,091      $ (104   $ 987      $ 0   
                   
CBK  

Pay

  3-Month USD-LIBOR     2.350        02/18/2021        $        96,300        561        490        1,051        0   
                   
DUB  

Receive

  1-Year BRL-CDI     15.900        01/04/2021        BRL        28,800        89        (125     0        (36
 

Pay

  3-Month USD-LIBOR     2.900        02/18/2026        $        49,400        324        353        677        0   
                   
UAG  

Pay

  1-Year BRL-CDI     11.250        01/04/2021        BRL        57,700        (86     (1,887     0        (1,973
             

 

 

   

 

 

   

 

 

   

 

 

 
              $     1,979      $ (1,273   $ 2,715      $ (2,009
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $ 755      $     (3,628   $     2,715      $     (5,588
             

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of January 31, 2016:

 

(l) Securities with an aggregate market value of $4,671 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2016.

 

    Financial Derivative Assets          Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
          Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (4)
 

BOA

  $ 47       $ 0       $ 0       $ 47         $ (23   $ 0       $ 0      $ (23   $ 24      $ 0      $ 24   

BPS

    0         0         987         987           0        0         (710     (710     277        (450     (173

BRC

    5         0         0         5           0        0         0        0        5        0        5   

CBK

    2,169         0         1,051         3,220           (2     0         0        (2     3,218        (2,710     508   

DUB

    3         0         677         680           (64     0         (36     (100     580        (740     (160

GST

    0         0         0         0           0        0         (2,652     (2,652     (2,652     2,559        (93

HUS

    0         0         0         0           0        0         (13     (13     (13     0        (13

JPM

    132         0         0         132           (94     0         0        (94     38        0        38   

MSB

    7         0         0         7           0        0         0        0        7        (10     (3

MYC

    0         0         0         0           0        0         (204     (204     (204     196        (8

NAB

    15         0         0         15           0        0         0        0        15        0        15   

SCX

    6         0         0         6           (6     0         0        (6     0        0        0   

UAG

    216         0         0         216           (3     0         (1,973     (1,976     (1,760     1,916        156   
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $ 2,600       $ 0       $ 2,715       $ 5,315           $(192   $ 0         $(5,588     $(5,780      
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

34   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

The following is a summary of the fair valuation of the Fund’s derivative instruments categorized by risk exposure. See Note 7, Principal Risks, in the Notes to Financial Statements on risks of the Fund.

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Financial Derivative Instruments - Assets

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 90       $ 0       $ 0       $ 2,591       $ 2,681   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 2,600       $ 0       $ 2,600   

Swap Agreements

    0         0         0         0         2,715         2,715   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 0       $ 0       $ 2,600       $ 2,715       $ 5,315   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 90       $ 0       $     2,600       $     5,306       $     7,996   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Derivative Instruments - Liabilities

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 0       $ 0       $ 0       $ 2,287       $ 2,287   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 192       $ 0       $ 192   

Swap Agreements

    0         3,579         0         0         2,009         5,588   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 3,579       $ 0       $ 192       $ 2,009       $ 5,780   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     3,579       $     0       $ 192       $ 4,296       $ 8,067   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Net Realized Gain (Loss) on Financial Derivative Instruments

  

              

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (267    $ 0       $ 0       $ (12,699    $ (12,966
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 3,251       $ 0       $ 3,251   

Swap Agreements

    0         182         0         0         (2,690      (2,508
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 182       $ 0       $ 3,251       $ (2,690    $ 743   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (85    $ 0       $ 3,251       $     (15,389    $     (12,223
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments

  

     

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (246    $ 0       $ 0       $ 12,044       $ 11,798   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 2,000       $ 0       $ 2000   

Swap Agreements

    0         (1,985      0         0         (938      (2,923
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     (1,985    $     0       $     2,000       $ (938    $ (923
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (2,231    $ 0       $ 2,000       $ 11,106       $ 10,875   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   35


Table of Contents

Schedule of Investments PIMCO Corporate & Income Strategy Fund (Cont.)

 

January 31, 2016 (Unaudited)

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Investments in Securities, at Value

       

Bank Loan Obligations

  $ 0      $ 7,186      $ 975      $ 8,161   

Corporate Bonds & Notes

       

Banking & Finance

    0        125,420        8,167        133,587   

Industrials

    0        64,415        6,020        70,435   

Utilities

    0        37,032        0        37,032   

Municipal Bonds & Notes

       

California

    0        9,729        0        9,729   

Illinois

    0        13,503        0        13,503   

Virginia

    0        635        0        635   

West Virginia

    0        3,273        0        3,273   

U.S. Government Agencies

    0        21,407            4,714        26,121   

U.S. Treasury Obligations

    0        1,500        0        1,500   

Non-Agency Mortgage-Backed Securities

    0            194,067        0            194,067   

Asset-Backed Securities

    0        96,720        0        96,720   

Sovereign Issues

    0        2,639        0        2,639   

Common Stocks

       

Financials

    0        0        182        182   

Preferred Securities

       

Banking & Finance

        6,744            16,900        0        23,644   
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Short-Term Instruments

       

Repurchase Agreements

  $ 0      $ 5,536      $ 0      $ 5,536   

Short-Term Notes

    0        4,599        0        4,599   

U.S. Treasury Bills

    0        3,171        0        3,171   

Total Investments

  $ 6,744      $ 607,732      $ 20,058      $ 634,534   

Financial Derivative Instruments - Assets

  

     

Exchange-traded or centrally cleared

    0        2,681        0        2,681   

Over the counter

    0        5,315        0        5,315   
  $ 0      $ 7,996      $ 0      $ 7,996   

Financial Derivative Instruments - Liabilities

  

     

Exchange-traded or centrally cleared

    0        (2,287     0        (2,287

Over the counter

    0        (5,780     0        (5,780
  $ 0      $ (8,067   $ 0      $ (8,067

Totals

  $     6,744      $     607,661      $     20,058      $     634,463   
 

 

There were no significant transfers between Levels 1 and 2 during the period ended January 31, 2016.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended January 31, 2016:

 

Category and Subcategory   Beginning
Balance
at 07/31/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 01/31/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2016 (1)
 

Investments in Securities, at Value

                   

Bank Loan Obligations

  $ 0      $ 1,039      $ 0      $ 2      $ 0      $ (66   $ 0      $ 0      $ 975      $ (67

Corporate Bonds & Notes

                   

Banking & Finance

    5,535        2,587        (64     1        1        107        0        0        8,167        116   

Industrials

    6,022        0        0        4        0        (6     0        0        6,020        (6

U.S. Government Agencies

    0        4,959        (29     7        12        (235     0        0        4,714        (234

Common Stocks

                   

Financials

    191        0        0        0        0        (9     0        0        182        (9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     11,748      $     8,585      $     (93   $     14      $     13      $     (209   $     0      $     0      $     20,058      $     (200
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:

 

Category and Subcategory   Ending
Balance
at 01/31/2016
    

Valuation

Technique

   Unobservable
Inputs
   Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

     

Bank Loan Obligations

  $ 975       Proxy Pricing    Base Price      97.00   

Corporate Bonds & Notes Banking & Finance

    2,608       Other Valuation Techniques (2)    —        —     
    5,559       Proxy Pricing    Base Price      113.30   

Industrials

    6,020       Proxy Pricing    Base Price      100.09   

U.S. Government Agencies

    4,714       Proxy Pricing    Base Price      56.31   

Common Stocks

          

Financials

    182       Other Valuation Techniques (2)    —        —     
 

 

 

          

Total

  $     20,058            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2016 may be due to an investment no longer held or categorized as Level 3 at period end.

(2) 

Includes valuation techniques not defined in the Notes to Financial Statements as securities valued using such techniques are not considered significant to the Fund.

 

36   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

Schedule of Investments PIMCO High Income Fund

 

January 31, 2016 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 122.7%   
BANK LOAN OBLIGATIONS 1.0%   

iHeartCommunications, Inc.

  

7.178% due 01/30/2019

  $     10,450      $     6,965   

Sequa Corp.

  

5.250% due 06/19/2017

      2,586          1,739   
       

 

 

 

Total Bank Loan Obligations (Cost $12,266)

      8,704   
       

 

 

 
CORPORATE BONDS & NOTES 60.9%   
BANKING & FINANCE 32.9%   

AGFC Capital Trust

  

6.000% due 01/15/2067

      27,410          18,776   

American International Group, Inc.

  

6.250% due 03/15/2087

      1,839          1,995   

Atlantic Marine Corps Communities LLC

  

5.383% due 02/15/2048

      4,664          4,602   

Banco do Brasil S.A.

  

6.250% due 04/15/2024 (e)

      7,350          3,583   

9.000% due 06/18/2024 (e)

      9,239          5,590   

Banco Espirito Santo S.A.

  

2.625% due 05/08/2017 ^

  EUR     1,900          731   

4.000% due 01/21/2019 ^

      5,800          2,230   

4.750% due 01/15/2018 ^

      6,400          2,461   

Banco Santander S.A.

  

6.250% due 09/11/2021 (e)

      2,300          2,278   

Barclays PLC

  

7.875% due 09/15/2022 (e)

  GBP     3,010          4,117   

8.000% due 12/15/2020 (e)

  EUR     7,140          8,136   

BGC Partners, Inc.

  

5.375% due 12/09/2019 (h)

  $     10,160          10,494   

Blackstone CQP Holdco LP

  

2.324% due 03/19/2019

      4,100          4,112   

BNP Paribas S.A.

  

7.375% due 08/19/2025 (e)

      10,000          9,825   

Cantor Fitzgerald LP

  

6.500% due 06/17/2022 (h)

      13,100            13,726   

Co-operative Group Holdings Ltd.

  

7.500% due 07/08/2026

  GBP     3,000          4,658   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023

  $     5,000          4,437   

Credit Agricole S.A.

  

7.500% due 06/23/2026 (e)

  GBP     400          541   

7.875% due 01/23/2024 (e)

  $     5,950          5,808   

7.875% due 01/23/2024 (e)(h)

      3,600          3,514   

Credit Suisse Group AG

  

7.500% due 12/11/2023 (e)

      2,736          2,815   

Doctors Co.

  

6.500% due 10/15/2023

      10,000          10,977   

GSPA Monetization Trust

  

6.422% due 10/09/2029

      8,153          9,265   

International Lease Finance Corp.

  

6.980% due 10/15/2018

      18,000          18,544   

LBG Capital PLC

  

9.000% due 12/15/2019

  GBP     284          409   

9.125% due 07/15/2020

      1,900          2,748   

Lloyds Bank PLC

  

12.000% due 12/16/2024 (e)

  $     27,700          39,031   

Midwest Family Housing LLC

  

6.631% due 01/01/2051

      4,931          4,040   

Nationwide Building Society

  

10.250% (e)

  GBP     17          3,141   

Navient Corp.

  

5.625% due 08/01/2033 (h)

  $     29,295          19,335   

Novo Banco S.A.

  

5.000% due 04/04/2019

  EUR     439          377   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.000% due 04/23/2019

  EUR     1,045      $     900   

5.000% due 05/14/2019

      792          682   

5.000% due 05/21/2019

      387          330   

5.000% due 05/23/2019

      384          329   

Preferred Term Securities Ltd.

  

0.892% due 09/23/2035

  $     786          605   

Rio Oil Finance Trust

  

9.250% due 07/06/2024

      28,300          16,449   

Royal Bank of Scotland Group PLC

  

7.500% due 08/10/2020 (e)

      300          305   

Sberbank of Russia Via SB Capital S.A.

  

5.717% due 06/16/2021 (h)

      10,100          10,168   

Tesco Property Finance PLC

  

5.411% due 07/13/2044

  GBP     4,463          5,244   

6.052% due 10/13/2039

      4,748          6,235   

TIG FinCo PLC

  

8.500% due 03/02/2020

      937          1,369   

8.750% due 04/02/2020

      4,815          5,952   
       

 

 

 
            270,864   
       

 

 

 
INDUSTRIALS 19.5%   

BMC Software Finance, Inc.

  

8.125% due 07/15/2021

  $     2,250          1,387   

Boxer Parent Co., Inc. (9.000% Cash or 9.750% PIK)

  

9.000% due 10/15/2019 (c)(h)

      8,709          4,997   

Caesars Entertainment Operating Co., Inc.

  

9.000% due 02/15/2020 ^

      19,100          14,325   

11.250% due
06/01/2017 ^

      10,700          7,798   

Centene Escrow Corp.

  

5.625% due 02/15/2021 (b)

      210          214   

6.125% due 02/15/2024 (b)

      210          215   

Chesapeake Energy Corp.

  

3.872% due 04/15/2019

      750          201   

Enterprise Inns PLC

  

6.875% due 05/09/2025

  GBP     5,000          7,231   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019 (h)

  $     1,977          781   

Ford Motor Co.

  

7.700% due 05/15/2097

      16,610          18,973   

General Shopping Finance Ltd.

  

10.000% due 02/29/2016 (e)

      5,300          2,760   

General Shopping Investments Ltd.

  

12.000% due 03/20/2017 ^(e)

      2,500          650   

Hampton Roads PPV LLC

  

6.621% due 06/15/2053

      20,529          19,311   

Harvest Operations Corp.

  

6.875% due 10/01/2017

      28,618          20,176   

Hellenic Railways Organization S.A.

  

4.028% due 03/17/2017

  EUR     300          294   

4.500% due 12/06/2016

  JPY     10,000          73   

iHeartCommunications, Inc.

  

9.000% due 09/15/2022

  $     5,500          3,602   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021

      4,815          2,119   

8.125% due 06/01/2023

      4,354          1,818   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019

      11,650          9,087   

Russian Railways via RZD Capital PLC

  

7.487% due 03/25/2031

  GBP     19,600          25,764   

Sequa Corp.

  

7.000% due 12/15/2017

  $     17,343          4,553   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017

      3,320          3,249   

Tembec Industries, Inc.

  

9.000% due 12/15/2019 (h)

      1,500          956   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

UCP, Inc.

  

8.500% due 10/21/2017

  $     10,300      $     10,335   

Warren Resources, Inc.

  

9.000% due 08/01/2022

      3,000          202   
       

 

 

 
            161,071   
       

 

 

 
UTILITIES 8.5%   

AK Transneft OJSC Via TransCapitalInvest Ltd.

  

8.700% due 08/07/2018

      4,400          4,830   

CenturyLink, Inc.

  

7.200% due 12/01/2025

      1,122          1,046   

Frontier Communications Corp.

  

8.875% due 09/15/2020

      650          654   

10.500% due 09/15/2022

      1,070          1,050   

11.000% due 09/15/2025

      1,070          1,035   

Gazprom Neft OAO Via GPN Capital S.A.

  

4.375% due 09/19/2022 (h)

      10,100          8,888   

6.000% due 11/27/2023 (h)

      8,500          7,973   

6.000% due 11/27/2023

      1,400          1,313   

Gazprom OAO Via Gaz Capital S.A.

  

5.999% due 01/23/2021

      360          360   

Illinois Power Generating Co.

  

7.000% due 04/15/2018 (h)

      16,800          9,072   

7.950% due 06/01/2032

      900          391   

Mountain States Telephone & Telegraph Co.

  

7.375% due 05/01/2030 (h)

      15,200          16,980   

NRG REMA LLC

  

9.237% due 07/02/2017

      175          174   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022

      5,024          1,859   

Odebrecht Offshore Drilling Finance Ltd.

  

6.625% due 10/01/2023

      5,376          1,237   

6.750% due 10/01/2023

      11,497          2,587   

Petrobras Global Finance BV

  

3.406% due 03/17/2020

      2,520          1,758   

6.250% due 12/14/2026

  GBP     8,600          7,755   

6.625% due 01/16/2034

      200          176   

7.875% due 03/15/2019

  $     700          609   
       

 

 

 
          69,747   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $566,431)

      501,682   
       

 

 

 
MUNICIPAL BONDS & NOTES 12.8%   
CALIFORNIA 2.5%   

Anaheim Redevelopment Agency, California Tax Allocation Bonds, (AGM Insured), Series 2007

   

6.506% due 02/01/2031

      2,000          2,371   

Sacramento County, California Revenue Bonds, Series 2013

   

7.250% due 08/01/2025

      1,500          1,750   

San Diego Redevelopment Agency, California Tax Allocation Bonds, Series 2010

   

7.625% due 09/01/2030

      7,500          8,882   

7.750% due 09/01/2040

      6,500          7,368   

San Diego Tobacco Settlement Funding Corp., California Revenue Bonds, Series 2006

   

7.125% due 06/01/2032

      290          333   
       

 

 

 
          20,704   
       

 

 

 
DISTRICT OF COLUMBIA 1.4%   

District of Columbia Revenue Bonds, Series 2011

  

7.625% due 10/01/2035

      9,740          11,073   
       

 

 

 
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   37


Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
ILLINOIS 2.5%   

Chicago, Illinois General Obligation Bonds, (BABs), Series 2010

   

6.257% due 01/01/2040

  $     11,000      $     10,355   

7.517% due 01/01/2040

      9,805          10,425   
       

 

 

 
          20,780   
       

 

 

 
NEW YORK 0.4%   

Erie Tobacco Asset Securitization Corp., New York Revenue Bonds, Series 2005

   

6.000% due 06/01/2028

      3,595          3,595   
       

 

 

 
PENNSYLVANIA 4.2%   

School District of Philadelphia, Pennsylvania General Obligation Bonds, (BABs), Series 2010

   

6.615% due 06/01/2030

      7,000          7,397   

6.765% due 06/01/2040

      24,760          26,714   
       

 

 

 
          34,111   
       

 

 

 
TEXAS 1.0%   

El Paso Downtown Development Corp., Texas Revenue Bonds, Series 2013

   

7.250% due 08/15/2043

      7,535          8,557   
       

 

 

 
VIRGINIA 0.1%   

Tobacco Settlement Financing Corp., Virginia Revenue Bonds, Series 2007

   

6.706% due 06/01/2046

      1,375          1,112   
       

 

 

 
WEST VIRGINIA 0.7%   

Tobacco Settlement Finance Authority, West Virginia Revenue Bonds, Series 2007

   

7.467% due 06/01/2047

      6,660          5,844   
       

 

 

 

Total Municipal Bonds & Notes
(Cost $98,074)

      105,776   
       

 

 

 
U.S. GOVERNMENT AGENCIES 3.6%   

Fannie Mae

  

3.500% due 09/25/2027 (a)

      715          86   

4.000% due 05/25/2020 (a)

      436          5   

6.244% due 10/25/2017 (a)(h)

      76,724          2,368   

9.147% due 10/25/2041 (h)

      1,279          1,385   

10.000% due 01/25/2034

      220          268   

14.294% due 05/25/2043 (h)

      2,533          2,768   

Freddie Mac

  

2.563% due 11/25/2055

      14,450          8,137   

4.000% due 08/15/2020 (a)

      805          47   

4.500% due 10/15/2037 (a)

      1,395          116   

5.000% due 06/15/2033 (a)

      2,462          369   

5.675% due 07/15/2035 (a)

      1,801          296   

5.775% due 02/15/2042 (a)

      3,003          485   

6.715% due 08/15/2036 (a)

      1,033          242   

9.627% due 10/25/2027

      4,349          4,759   

9.777% due 04/25/2028

      3,100          2,964   

10.860% due 12/15/2043 (h)

      1,527          1,652   

10.860% due 03/15/2044

      103          103   

10.927% due 05/25/2028

      900          877   

12.149% due 05/15/2033

      73          90   

Ginnie Mae

  

3.500% due 06/20/2042 - 03/20/2043 (a)(g)

   

 

5,553

  

      512   

4.500% due 07/20/2042 (a)

      364          58   

5.000% due 09/20/2042 (a)

      641          122   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.824% due
02/20/2042 (a)(h)

  $     19,327      $     1,902   
       

 

 

 

Total U.S. Government Agencies
(Cost $37,096)

      29,611   
       

 

 

 
U.S. TREASURY OBLIGATIONS 0.4%   

U.S. Treasury Floating Rate Notes

  

0.473% due 10/31/2017 (j)(l)

      3,261          3,261   
       

 

 

 

Total U.S. Treasury Obligations
(Cost $3,260)

    3,261   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 21.2%   

American Home Mortgage Assets Trust

  

6.250% due 06/25/2037

      1,117          810   

Banc of America Alternative Loan Trust

  

5.174% due 06/25/2046 ^(a)

      11,132          1,921   

6.000% due 03/25/2036 ^

      4,998          4,297   

6.000% due 06/25/2046 ^

      88          75   

Banc of America Funding Trust

  

6.000% due 07/25/2037 ^

      804          638   

6.250% due 10/26/2036

      13,524          10,499   

Banc of America Mortgage Trust

  

2.735% due 02/25/2036 ^

      36          32   

BCAP LLC Trust

  

5.283% due 03/26/2037

      2,741          795   

8.729% due 10/26/2036

      7,982          6,900   

9.512% due 09/26/2036

      7,878          7,101   

21.468% due 06/26/2036

      1,432          413   

Bear Stearns Adjustable Rate Mortgage Trust

  

2.796% due 05/25/2047 ^

      529          476   

2.896% due 11/25/2034

      159          153   

Bellemeade Re Ltd.

  

6.727% due 07/25/2025

      1,250          1,236   

Chase Mortgage Finance Trust

  

2.679% due 12/25/2035 ^

      36          34   

5.433% due 09/25/2036 ^

      195          173   

5.500% due 05/25/2036 ^

      10          9   

Citigroup Mortgage Loan Trust, Inc.

  

0.772% due 07/25/2036

      20          20   

2.621% due 07/25/2046 ^

      126          110   

2.774% due 07/25/2037 ^

      229          215   

2.802% due 08/25/2037 ^

      1,186          1,031   

6.500% due 09/25/2036

      4,731          3,537   

Countrywide Alternative Loan Trust

  

0.597% due 07/25/2046

      17,851          18,584   

0.677% due 12/25/2046

      2,945          1,830   

2.873% due 02/25/2037 ^

      480          433   

3.167% due 07/25/2046 ^

      1,221          998   

4.574% due 04/25/2035 (a)

      6,954          894   

4.614% due 07/25/2021 ^

      491          488   

5.500% due 03/25/2036 ^

      422          358   

6.000% due 11/25/2036 ^

      315          278   

6.000% due 02/25/2037 ^

      8,087          6,319   

6.000% due 05/25/2037 ^

      3,990          3,435   

6.250% due 12/25/2036 ^

      4,558          3,692   

6.250% due 08/25/2037 ^

      387          321   

6.500% due 06/25/2036 ^

      1,298          1,057   

Countrywide Home Loan Mortgage Pass-Through Trust

  

2.569% due 09/20/2036 ^

      795          686   

2.729% due 09/25/2047 ^

      87          79   

4.924% due 12/25/2036 (a)

      5,452          928   

Credit Suisse First Boston Mortgage Securities Corp.

  

6.000% due 01/25/2036

      3,051          2,365   

Epic Drummond Ltd.

  

0.044% due 01/25/2022

  EUR     4,710          4,600   

First Horizon Alternative Mortgage Securities Trust

  

6.000% due 05/25/2036 ^

  $     2,702          2,246   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Grifonas Finance PLC

  

0.319% due 08/28/2039

  EUR     6,265      $       4,729   

HarborView Mortgage Loan Trust

  

2.671% due 08/19/2036 ^

  $     671          499   

4.288% due 08/19/2036 ^

      45          41   

IndyMac Mortgage Loan Trust

  

2.962% due 05/25/2037 ^

      3,363          2,578   

JPMorgan Alternative Loan Trust

  

2.620% due 03/25/2037 ^

      10,846          8,277   

JPMorgan Mortgage Trust

  

6.194% due
01/25/2037 ^(a)

      27,084          6,648   

Lehman XS Trust

  

0.647% due 06/25/2047

      5,338          3,819   

Nomura Asset Acceptance Corp. Alternative Loan Trust

  

3.110% due 04/25/2036 ^

      6,593          4,712   

RBSSP Resecuritization Trust

  

9.362% due 06/26/2037

      5,975          3,613   

Residential Asset Securitization Trust

  

6.250% due 10/25/2036 ^

      764          641   

6.250% due 09/25/2037 ^

      6,031          4,313   

6.500% due 08/25/2036 ^

      1,026          666   

Structured Adjustable Rate Mortgage Loan Trust

  

2.703% due 04/25/2047

      1,074          841   

2.724% due 01/25/2036 ^

      267          204   

Structured Asset Mortgage Investments Trust

  

0.617% due 07/25/2046 ^

      18,241          12,317   

WaMu Mortgage Pass-Through Certificates Trust

  

1.973% due 01/25/2037 ^

      168          143   

1.978% due 04/25/2037 ^

      149          126   

2.155% due 05/25/2037 ^

      232          184   

2.175% due 11/25/2036 ^

      1,361          1,186   

2.188% due 12/25/2036 ^

      108          96   

2.319% due 02/25/2037 ^

      281          246   

2.362% due 02/25/2037 ^

      324          291   

Washington Mutual Mortgage Pass-Through Certificates Trust

   

6.000% due 07/25/2036 ^

      7,235          5,817   

6.000% due 06/25/2037 ^

      11,251          10,059   

6.254% due 04/25/2037 (a)

      16,160          5,559   

6.500% due 03/25/2036 ^

      9,497          6,838   
       

 

 

 

Total Non-Agency
Mortgage-Backed Securities
(Cost $161,153)

      174,509   
       

 

 

 
ASSET-BACKED SECURITIES 17.3%   

Apidos CLO

  

0.000% due 07/22/2026 (d)

      3,000          1,386   

Argent Securities Trust

  

0.617% due 03/25/2036

      4,941          2,368   

Argent Securities, Inc. Asset-Backed Pass-Through Certificates

   

0.657% due 01/25/2036

      12,686          9,571   

CIFC Funding Ltd.

  

0.000% due 05/24/2026 (d)

      4,000          2,671   

0.000% due 07/22/2026 (d)

      3,000          1,628   

Citigroup Mortgage Loan Trust, Inc.

  

0.527% due 12/25/2036

      14,872          8,821   

Countrywide Asset-Backed Certificates

  

4.945% due 07/25/2036

      13,700          11,075   

5.040% due 10/25/2046 ^

      16,262          15,495   

GSAA Trust

  

5.917% due 03/25/2037 ^

      3,201          1,395   

JPMorgan Mortgage Acquisition Trust

  

4.617% due 01/25/2037 ^

      3,498          2,348   

Morgan Stanley Mortgage Loan Trust

  

5.750% due 11/25/2036 ^

      953          472   

5.965% due 09/25/2046 ^

      10,156          6,623   
 

 

38   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

NovaStar Mortgage Funding Trust

  

0.587% due 10/25/2036

  $     40,391      $     19,849   

People’s Financial Realty Mortgage Securities Trust

  

0.587% due 09/25/2036

      23,726          6,858   

Renaissance Home Equity Loan Trust

  

5.812% due 11/25/2036

      9,825          5,221   

6.998% due 09/25/2037 ^

      8,530          4,991   

7.238% due 09/25/2037 ^

      7,193          4,207   

Sherwood Funding CDO Ltd.

  

0.783% due 11/06/2039

      36,352          10,331   

Taberna Preferred Funding Ltd.

  

0.714% due 08/05/2036

      853          623   

0.714% due 08/05/2036 ^

      16,711          12,199   

Trainer Wortham First Republic CBO Ltd

  

1.820% due 11/06/2038

      3,386          3,301   

Tropic CDO Ltd.

  

0.942% due 07/15/2036

      16,001          10,641   

Washington Mutual Asset-Backed Certificates Trust

  

0.577% due 05/25/2036

      323          224   
       

 

 

 

Total Asset-Backed Securities
(Cost $146,868)

      142,298   
       

 

 

 
SOVEREIGN ISSUES 0.5%   

Athens Urban Transportation Organisation

  

4.851% due 09/19/2016

  EUR     800          789   

Republic of Greece Government International Bond

  

3.000% due 02/24/2023

      25          18   

3.000% due 02/24/2024

      25          18   

3.000% due 02/24/2025

      25          17   

3.000% due 02/24/2026

      25          17   

3.000% due 02/24/2027

      25          17   

3.000% due 02/24/2028

      25          16   

3.000% due 02/24/2029

      25          16   

3.000% due 02/24/2030

      25          16   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

3.000% due 02/24/2031

  EUR     25      $     15   

3.000% due 02/24/2032

      25          15   

3.000% due 02/24/2033

      25          15   

3.000% due 02/24/2034

      25          15   

3.000% due 02/24/2035

      25          14   

3.000% due 02/24/2036

      25          14   

3.000% due 02/24/2037

      25          14   

3.000% due 02/24/2038

      25          14   

3.000% due 02/24/2039

      25          14   

3.000% due 02/24/2040

      25          14   

3.000% due 02/24/2041

      25          14   

3.000% due 02/24/2042

      25          14   

4.500% due 11/08/2016

  JPY     50,000          388   

4.750% due 04/17/2019

  EUR     3,000          2,710   
       

 

 

 

Total Sovereign Issues (Cost $3,954)

    4,194   
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%   
FINANCIALS 0.1%   

TIG FinCo PLC (f)

      828,934          827   
       

 

 

 

Total Common Stocks (Cost $1,229)

    827   
       

 

 

 
PREFERRED SECURITIES 2.1%   
BANKING & FINANCE 2.1%   

Farm Credit Bank of Texas

  

10.000% due
12/15/2020 (e)

      13,600          17,025   
       

 

 

 

Total Preferred Securities
(Cost $16,014)

      17,025   
       

 

 

 
SHORT-TERM INSTRUMENTS 2.8%   
REPURCHASE AGREEMENTS (f) 1.4%   
          11,451   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
SHORT-TERM NOTES 1.0%   

Federal Home Loan Bank

  

0.264% due 02/10/2016

  $     1,200      $     1,200   

0.269% due 02/18/2016

      1,100          1,100   

0.274% due 02/19/2016

      3,700          3,699   

0.279% due 02/17/2016

      2,200          2,200   
       

 

 

 
          8,199   
       

 

 

 
U.S. TREASURY BILLS 0.4%   

0.259% due 02/18/2016 (l)

      3,812          3,812   
       

 

 

 
Total Short-Term Instruments
(Cost $23,462)
    23,462   
       

 

 

 
       
Total Investments in Securities
(Cost $1,069,807)
    1,011,349   
       
Total Investments 122.7%
(Cost $1,069,807)
      $       1,011,349   

Financial Derivative
Instruments (i)(k) 2.4%

(Cost or Premiums, net $8,429)

    19,752   
Preferred Shares (12.4%)     (101,975
Other Assets and Liabilities, net (12.7%)     (105,077
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%       $       824,049   
       

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) When-issued security.
(c) Payment in-kind bond security.
(d) Zero coupon bond.
(e) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(f)  RESTRICTED SECURITIES:

 

Issuer Description    Acquisition
Date
  Cost      Market
Value
     Market Value
as Percentage
of Net Assets
 

TIG FinCo PLC

     $     1,229       $     827         0.10%   
    

 

 

    

 

 

    

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(g)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
  Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 

SAL

  0.550%     01/29/2016        02/01/2016      $     5,500      U.S. Treasury Notes 1.625% due 07/31/2020   $ (5,583   $ 5,500      $ 5,500   

SSB

  0.010     01/29/2016        02/01/2016        5,951      U.S. Treasury Notes 2.250% due 07/31/2021     (6,072     5,951        5,951   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  

      $     (11,655   $     11,451      $     11,451   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   39


Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate
     Borrowing
Date
     Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 

BCY

    (1.500 %)       11/24/2015         TBD  (2)    $ (4,285   $ (4,273
    (1.500      12/03/2015         TBD  (2)      (1,714     (1,710
    (1.500      12/08/2015         TBD  (2)      (1,531     (1,527
    (1.000      12/11/2015         02/01/2016        (1,460     (1,458
    (1.000      12/31/2015         02/01/2016        (527     (527
    (1.000      01/12/2016         02/01/2016        (1,177     (1,176
    (0.500      01/29/2016         01/29/2018        (3,054     (3,054
    1.172         12/02/2015         03/02/2016        (2,626     (2,631

BPG

    1.269         01/26/2016         04/26/2016        (6,753     (6,754
    1.360         02/01/2016         04/11/2016        (3,117     (3,117

FOB

    (3.750      12/21/2015         TBD  (2)      (4,085     (4,067

JML

    1.250         01/19/2016         02/25/2016            (21,261     (21,271

MSC

    0.750         11/23/2015         02/23/2016        (10,190     (10,205
    1.000         01/08/2016         04/08/2016        (5,255     (5,258

RBC

    1.170         01/08/2016         04/08/2016        (6,347     (6,352

RDR

    (1.000      01/22/2016         TBD  (2)      (905     (905
    0.820         01/08/2016         02/10/2016        (23,185     (23,198
           

 

 

 

Total Reverse Repurchase Agreements

  

    $     (97,483
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended January 31, 2016 was $(64,065) at a weighted average interest rate of 0.189%.

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of January 31, 2016:

 

(h) Securities with an aggregate market value of $106,367 and cash of $1,581 have been pledged as collateral under the terms of the following master agreements as of January 31, 2016.

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
     Payable for
Reverse
Repurchase
Agreements
     Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
     Collateral
(Received)/Pledged
     Net Exposure  (4)  

Global/Master Repurchase Agreement

                

BCY

  $ 0       $ (16,356    $ 0       $     (16,356    $     16,099       $ (257

BPG

    0         (9,871      0         (9,871      11,733         1,862   

FOB

    0         (4,067      0         (4,067      4,008         (59

JML

    0         (21,271      0         (21,271      26,569         5,298   

MSC

    0         (15,463      0         (15,463      16,690         1,227   

RBC

    0         (6,352      0         (6,352      6,912         560   

RDR

    0         (24,103      0         (24,103      25,187             1,084   

SAL

    5,500         0         0         5,500         (5,583      (83

SSB

    5,951         0         0         5,951         (6,072      (121
 

 

 

    

 

 

    

 

 

          

Total Borrowings and Other Financing Transactions

  $     11,451       $     (97,483    $     0            
 

 

 

    

 

 

    

 

 

          

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

     Overnight and
Continuous
     Up to 30 days      31-90 days      Greater Than 90 days     Total  

Reverse Repurchase Agreements

            

Corporate Bonds & Notes

  $ 0       $ (48,796    $ (9,630    $ (15,536   $ (73,962

U.S. Treasury Obligations

    0         (9,038      (11,366      0        (20,404
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Borrowings

  $     0       $     (57,834    $     (20,996    $     (15,536   $     (94,366
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross amount of recognized liabilities for reverse repurchase agreements (5)

  

     $ (94,366
            

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(3,117) is outstanding at period end.

 

40   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

(i)  FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION (1)

 

Index/Tranches

         Fixed
Receive Rate
    Maturity
Date
     Notional
Amount  (2)
    Market
Value  (3)
     Unrealized
(Depreciation)
     Variation Margin  
                   Asset      Liability  

CDX.HY-24 5-Year Index

        5.000     06/20/2020       $ 7,029      $ 213       $ (329    $ 28       $ 0   

CDX.HY-25 5-Year Index

        5.000        12/20/2020             14,100        44         (84      55         0   
            

 

 

    

 

 

    

 

 

    

 

 

 
             $     257       $     (413    $     83       $     0   
            

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

(3) 

The prices and resulting values for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced indices’ credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

INTEREST RATE SWAPS

 

Pay/Receive
Floating Rate
   Floating Rate Index    Fixed Rate     Maturity
Date
     Notional
Amount
    Market
Value
     Unrealized
Appreciation/
(Depreciation)
     Variation Margin  
                   Asset      Liability  

Pay

  

3-Month USD-LIBOR

     2.750     06/17/2025       $     214,710      $ 18,974       $ 5,327       $ 1,293       $ 0   

Pay

  

3-Month USD-LIBOR

     3.500        06/19/2044         617,800        163,284         172,693         7,081         0   

Receive

  

3-Month USD-LIBOR

     2.500        06/15/2046         821,300        (27,126      (68,688      0         (8,255
            

 

 

    

 

 

    

 

 

    

 

 

 
             $ 155,132       $ 109,332       $ 8,374       $ (8,255
            

 

 

    

 

 

    

 

 

    

 

 

 

Total Swap Agreements

             $     155,389       $     108,919       $     8,457       $     (8,255
            

 

 

    

 

 

    

 

 

    

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of January 31, 2016:

 

(j) Securities with an aggregate market value of $2,143 and cash of $9,994 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets         Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
              Market Value     Variation Margin
Liability
       
     Purchased
Options
    Futures     Swap
Agreements
    Total         Written
Options
    Futures     Swap
Agreements
    Total  

Total Exchange-Traded or Centrally Cleared

  $     0      $     0      $     8,457      $     8,457        $     0      $     0      $     (8,255)      $     (8,255)   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(k)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty    Settlement
Month
     Currency to
be Delivered
     Currency to
be Received
    Unrealized Appreciation/
(Depreciation)
 
           Asset     Liability  

BOA

     06/2016         EUR        3,698       $          5,063      $     1,041      $ 0   
     06/2016       $          216         EUR        160        0              (42
                

BPS

     02/2016           424           394        3        0   
                

BRC

     06/2016         EUR        692       $          952        199        0   
                

CBK

     02/2016         GBP        55,676           82,628        3,295        0   
     02/2016       $          7,995         EUR        7,323        0        (62
                

DUB

     02/2016         EUR        6,750       $          9,083        1,771        0   
     03/2016         BRL        662           163        0        (1
     06/2016         EUR        386           528        109        0   
                

HUS

     02/2016       $          76,556         GBP        53,894        237        0   
     03/2016         GBP        53,894       $          76,558        0            (238
                

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   41


Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

Counterparty    Settlement
Month
     Currency to
be Delivered
     Currency to
be Received
    Unrealized Appreciation/
(Depreciation)
 
           Asset     Liability  

JPM

     02/2016         EUR        2,854       $          3,095      $ 5      $ (2
     02/2016         JPY        13,043           106        0        (2
     02/2016       $          12,762         EUR        11,685        4        (107
     03/2016         EUR        6,750       $          7,372        55        0   
                

MSB

     02/2016         JPY        41,400           342        0        0   
     02/2016       $          258         GBP        177        0        (6
     06/2016         EUR        971       $          1,335        279        0   
                

NAB

     06/2016           2,113           2,901        603        0   
     07/2016           268           364        72        0   
                

SCX

     02/2016         GBP        58           83        0        0   
     02/2016       $          350         JPY        41,400        0        (8
     03/2016         JPY        41,400       $          350        8        0   
                

UAG

     02/2016         EUR        31,049           33,939        303        0   
     02/2016       $          15,383         EUR        14,197        0        (3
     02/2016           2,352         GBP        1,663        18        0   
     03/2016         EUR        14,197       $          15,394        3        0   
              

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

            $     8,005      $     (471
              

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION (1)

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
January 31, 2016 (2)
    Notional
Amount  (3)
    Premiums
Paid/(Received)
    Unrealized
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Novo Banco S.A.

    5.000     09/20/2020        13.533     EUR        5,000      $ 0      $ (1,206   $ 0      $ (1,206
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        $        1,700        (332     (449     0        (781
                   
GST  

Petrobras International Finance Co.

    1.000        12/20/2024        10.555          2,200        (437     (574     0        (1,011
                   
HUS  

Petrobras International Finance Co.

    1.000        12/20/2019        11.002          400        (33     (85     0        (118
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555          2,800        (581     (706     0        (1,287
                   
MYC  

Chesapeake Energy Corp.

    5.000        09/20/2020        44.507          400        (40     (232     0        (272
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002          13,700        (1,268     (2,784     0        (4,052
             

 

 

   

 

 

   

 

 

   

 

 

 
              $     (2,691   $     (6,036   $     0      $     (8,727
             

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate issues as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
  Notional
Amount
    Premiums
Paid
    Unrealized
Appreciation
    Swap Agreements, at Value  
                Asset     Liability  
MYC  

Pay

  3-Month USD-LIBOR     2.350%      02/18/2021     $        1,900,000      $     11,120      $ 9,623      $ 20,743      $ 0   
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $ 8,429      $     3,587      $     20,743      $     (8,727
             

 

 

   

 

 

   

 

 

   

 

 

 

 

42   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of January 31, 2016:

 

(l) Securities with an aggregate market value of $4,199 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2016.

 

    Financial Derivative Assets          Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
          Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (4)
 

BOA

  $ 1,041       $ 0       $ 0       $ 1,041         $ (42   $ 0       $ 0      $ (42   $ 999      $ (950   $ 49   

BPS

    3         0         0         3           0        0         (1,987     (1,987     (1,984     1,869        (115

BRC

    199         0         0         199           0        0         0        0        199        (280     (81

CBK

    3,295         0         0         3,295           (62     0         0        (62     3,233        (2,540     693   

DUB

    1,880         0         0         1,880           (1     0         0        (1     1,879        (2,140     (261

GST

    0         0         0         0           0        0         (1,011     (1,011     (1,011     966        (45

HUS

    237         0         0         237           (238     0         (1,405     (1,643     (1,406     1,364        (42

JPM

    64         0         0         64           (111     0         0        (111     (47     0        (47

MSB

    279         0         0         279           (6     0         0        (6     273        (310     (37

MYC

    0         0         20,743         20,743           0        0         (4,324     (4,324     16,419        (16,450     (31

NAB

    675         0         0         675           0        0         0        0        675        (530     145   

SCX

    8         0         0         8           (8     0         0        (8     0        0        0   

UAG

    324         0         0         324           (3     0         0        (3     321        (20     301   
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $ 8,005       $ 0       $ 20,743       $ 28,748         $ (471   $ 0       $ (8,727   $ (9,198      
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

The following is a summary of the fair valuation of the Fund’s derivative instruments categorized by risk exposure. See Note 7, Principal Risks, in the Notes to Financial Statements on risks of the Fund.

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Financial Derivative Instruments - Assets

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 83       $ 0       $ 0       $ 8,374       $ 8,457   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 8,005       $ 0       $ 8,005   

Swap Agreements

    0         0         0         0         20,743         20,743   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 0       $ 0       $ 8,005       $ 20,743       $ 28,748   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 83       $ 0       $     8,005       $     29,117       $     37,205   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Derivative Instruments - Liabilities

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 0       $ 0       $ 0       $ 8,255       $ 8,255   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 471       $ 0       $ 471   

Swap Agreements

    0         8,727         0         0         0         8,727   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 8,727       $ 0       $ 471       $ 0       $ 9,198   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     8,727       $     0       $ 471       $ 8,255       $ 17,453   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   43


Table of Contents

Schedule of Investments PIMCO High Income Fund (Cont.)

 

 

The Effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Net Realized Gain (Loss) on Financial Derivative Instruments

  

              

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (44    $ 0       $ 0       $ (44,578    $ (44,622
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 5,329       $ 0       $ 5,329   

Purchased Options

    0         0         0         0         (3,171      (3,171

Swap Agreements

    0         185         0         0         14,276         14,461   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 185       $ 0       $ 5,329       $ 11,105       $ 16,619   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 141       $ 0       $ 5,329       $     (33,473    $     (28,003
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments

  

           

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (220    $ 0       $ 0       $ 37,983       $ 37,763   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 2,601       $ 0       $ 2,601   

Swap Agreements

    0         (4,777      0         0         (6,560      (11,337
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (4,777    $ 0       $ 2,601       $ (6,560    $ (8,736
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     (4,997    $     0       $     2,601       $ 31,423       $ 29,027   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Investments in Securities, at Value

  

     

Bank Loan Obligations

  $     0      $ 8,704      $ 0      $ 8,704   

Corporate Bonds & Notes

       

Banking & Finance

    0            252,885            17,979            270,864   

Industrials

    0        150,736        10,335        161,071   

Utilities

    0        69,747        0        69,747   

Municipal Bonds & Notes

       

California

    0        20,704        0        20,704   

District of Columbia

    0        11,073        0        11,073   

Illinois

    0        20,780        0        20,780   

New York

    0        3,595        0        3,595   

Pennsylvania

    0        34,111        0        34,111   

Texas

    0        8,557        0        8,557   

Virginia

    0        1,112        0        1,112   

West Virginia

    0        5,844        0        5,844   

U.S. Government Agencies

    0        19,106        10,505        29,611   

U.S. Treasury Obligations

    0        3,261        0        3,261   

Non-Agency Mortgage-Backed Securities

    0        173,273        1,236        174,509   

Asset-Backed Securities

    0        142,298        0        142,298   

Sovereign Issues

    0        4,194        0        4,194   

Common Stocks

       

Financials

    0        0        827        827   
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Preferred Securities

       

Banking & Finance

  $ 0      $ 17,025      $ 0      $ 17,025   

Short-Term Instruments

       

Repurchase Agreements

    0        11,451        0        11,451   

Short-Term Notes

    0        8,199        0        8,199   

U.S. Treasury Bills

    0        3,812        0        3,812   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 0      $ 970,467      $ 40,882      $ 1,011,349   

Financial Derivative Instruments - Assets

  

   

Exchange-traded or centrally cleared

    0        8,457        0        8,457   

Over the counter

    0        28,748        0        28,748   
  $ 0      $ 37,205      $ 0      $ 37,205   

Financial Derivative Instruments - Liabilities

  

   

Exchange-traded or centrally cleared

    0        (8,255     0        (8,255

Over the counter

    0        (9,198     0        (9,198
  $ 0      $ (17,453   $ 0      $ (17,453
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     0      $     990,219      $     40,882      $     1,031,101   
 

 

There were no significant transfers between Levels 1 and 2 during the period ended January 31, 2016.

 

44   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended January 31, 2016:

 

Category and Subcategory   Beginning
Balance
at 07/31/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 01/31/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2016 (1)
 

Investments in Securities, at Value

  

                 

Corporate Bonds & Notes

                   

Banking & Finance

  $ 9,224      $ 8,033      $ (107   $ 3      $ 2      $ 824      $ 0      $ 0      $ 17,979      $ 838   

Industrials

    10,339        0        0        6        0        (10     0        0        10,335        (10

U.S. Government Agencies

    5,491        8,560        (49     (2,924     20            (593     0        0        10,505            (593

Non-Agency Mortgage-Backed Securities

    3,427        0        (2,124     0        55        (122     0        0        1,236        (14

Common Stocks

                   

Financials

    867        0        0        0        0        (40     0        0        827        (41
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     29,348      $     16,593      $     (2,280   $     (2,915   $     77      $ 59      $     0      $     0      $     40,882      $ 180   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:

 

Category and Subcategory   Ending
Balance
at 01/31/2016
       Valuation
Technique
   Unobservable
Inputs
   Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

  

          

Corporate Bonds & Notes

            

Banking & Finance

  $ 4,113         Other Valuation Techniques (2)         —     
    13,866         Proxy Pricing    Base Price      96.47-113.30   

Industrials

    10,335         Proxy Pricing    Base Price      100.09   

U.S. Government Agencies

    8,137         Proxy Pricing    Base Price      56.31   
    2,368         Third Party Vendor    Broker Quote      3.09   

Non-Agency Mortgage-Backed Securities

    1,236         Proxy Pricing    Base Price      98.91   

Common Stocks

            

Financials

    827         Other Valuation Techniques (2)         —     
 

 

 

            

Total

  $     40,882              
 

 

 

            

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2016 may be due to an investment no longer held or categorized as Level 3 at period end.

(2) 

Includes valuation techniques not defined in the Notes to Financial Statements as securities valued using such techniques are not considered significant to the Fund.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   45


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 125.7%   
BANK LOAN OBLIGATIONS 1.9%   

Hellenic Republic

  

3.930% due 03/30/2016

  EUR     1,000      $     975   

iHeartCommunications, Inc.

  

7.178% due 01/30/2019

  $     3,100          2,066   

Sequa Corp.

  

5.250% due 06/19/2017

      2,534          1,704   
       

 

 

 

Total Bank Loan Obligations (Cost $6,298)

      4,745   
       

 

 

 
CORPORATE BONDS & NOTES 55.5%   
BANKING & FINANCE 31.4%   

American International Group, Inc.

  

6.250% due 03/15/2087

      5,476          5,941   

8.175% due 05/15/2068

      693          904   

Banco do Brasil S.A.

  

6.250% due 04/15/2024 (f)

      1,700          829   

9.000% due 06/18/2024 (f)

      2,219          1,343   

Banco Espirito Santo S.A.

  

2.625% due 05/08/2017 ^

  EUR     1,400          538   

4.000% due 01/21/2019 ^

      3,800          1,461   

4.750% due 01/15/2018 ^

      1,200          461   

Banco Santander S.A.

  

6.250% due 09/11/2021 (f)

      500          495   

Barclays Bank PLC

  

14.000% due 06/15/2019 (f)

  GBP     3,700          6,704   

BGC Partners, Inc.

  

5.375% due 12/09/2019

  $     3,040          3,140   

Blackstone CQP Holdco LP

  

2.324% due 03/19/2019

      1,300          1,304   

BNP Paribas S.A.

  

7.375% due 08/19/2025 (f)

      3,100          3,046   

Cantor Fitzgerald LP

  

6.500% due 06/17/2022

      4,000          4,191   

Co-operative Group Holdings Ltd.

  

7.500% due 07/08/2026

  GBP     3,050          4,736   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023

  $     1,500          1,331   

Credit Agricole S.A.

  

7.500% due 06/23/2026 (f)

  GBP     1,700          2,298   

7.875% due 01/23/2024 (f)

  $     800          781   

Credit Suisse Group AG

  

7.500% due 12/11/2023 (f)

      3,740          3,848   

GSPA Monetization Trust

  

6.422% due 10/09/2029

      2,355          2,676   

Jefferies Finance LLC

  

6.875% due 04/15/2022

      3,200          2,536   

LBG Capital PLC

  

9.125% due 07/15/2020

  GBP     1,134          1,640   

Lloyds Bank PLC

  

12.000% due 12/16/2024 (f)

  $     400          564   

Lloyds Banking Group PLC

  

7.625% due 06/27/2023 (f)

  GBP     3,300          4,732   

National Bank of Greece S.A.

  

3.875% due 10/07/2016

  EUR     500          530   

Nationwide Building Society

  

10.250% (f)

  GBP     5          924   

Navient Corp.

  

5.500% due 01/15/2019

  $     4,759          4,473   

5.625% due 08/01/2033

      100          66   

8.450% due 06/15/2018

      1,500          1,556   

Novo Banco S.A.

  

5.000% due 04/04/2019

  EUR     101          87   

5.000% due 04/23/2019

      311          268   

5.000% due 05/14/2019

      206          177   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.000% due 05/21/2019

  EUR     115      $     98   

5.000% due 05/23/2019

      115          98   

OneMain Financial Holdings, Inc.

  

7.250% due 12/15/2021

  $     1,512          1,501   

Rabobank Group

  

8.400% due 06/29/2017 (f)

      300          320   

Rio Oil Finance Trust

  

9.250% due 07/06/2024

      8,200          4,766   

Sberbank of Russia Via SB Capital S.A.

  

5.717% due 06/16/2021

      3,000          3,020   

Tesco Property Finance PLC

  

5.411% due 07/13/2044

  GBP     2,162          2,541   

6.052% due 10/13/2039

      1,278          1,678   

TIG FinCo PLC

  

8.500% due 03/02/2020

      111          163   

8.750% due 04/02/2020

      932          1,153   

Vnesheconombank Via VEB Finance PLC

  

6.902% due 07/09/2020

  $     1,200          1,200   
       

 

 

 
            80,118   
       

 

 

 
INDUSTRIALS 15.0%   

BMC Software Finance, Inc.

  

8.125% due 07/15/2021

      710          438   

Boxer Parent Co., Inc. (9.000% Cash or 9.750% PIK)

  

9.000% due 10/15/2019 (c)(i)

      2,360          1,354   

Caesars Entertainment Operating Co., Inc.

  

8.500% due 02/15/2020 ^

      600          453   

9.000% due 02/15/2020 ^

      3,855          2,891   

11.250% due 06/01/2017 ^

      1,989          1,449   

Centene Escrow Corp.

  

5.625% due 02/15/2021 (b)

      60          61   

6.125% due 02/15/2024 (b)

      60          61   

Chesapeake Energy Corp.

  

3.872% due 04/15/2019

      230          62   

Continental Airlines Pass-Through Trust

  

9.798% due 10/01/2022

      930          1,004   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019

      612          242   

Ford Motor Co.

  

7.700% due 05/15/2097 (i)

      9,030          10,315   

Harvest Operations Corp.

  

6.875% due 10/01/2017

      2,364          1,667   

iHeartCommunications, Inc.

  

9.000% due 09/15/2022

      600          393   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021

      3,029          1,333   

8.125% due 06/01/2023

      124          52   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019

      3,430          2,675   

Pertamina Persero PT

  

6.450% due 05/30/2044

      4,149          3,585   

Russian Railways via RZD Capital PLC

  

7.487% due 03/25/2031

  GBP     700          920   

Scientific Games International, Inc.

  

10.000% due 12/01/2022

  $     1,600          1,120   

Sequa Corp.

  

7.000% due 12/15/2017

      3,804          999   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017

      1,000          979   

Tembec Industries, Inc.

  

9.000% due 12/15/2019

      1,000          637   

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027

  GBP     2,018          2,854   

6.542% due 03/30/2021

      674          993   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Westmoreland Coal Co.

  

8.750% due 01/01/2022

  $     3,026      $     1,770   
       

 

 

 
            38,307   
       

 

 

 
UTILITIES 9.1%   

Frontier Communications Corp.

  

8.875% due 09/15/2020

      210          211   

10.500% due 09/15/2022

      340          334   

11.000% due 09/15/2025

      340          329   

Gazprom Neft OAO Via GPN Capital S.A.

  

6.000% due 11/27/2023

      7,400          6,941   

Gazprom OAO Via Gaz Capital S.A.

  

5.999% due 01/23/2021

      200          200   

Illinois Power Generating Co.

  

6.300% due 04/01/2020

      1,420          632   

7.000% due 04/15/2018

      2,600          1,404   

7.950% due 06/01/2032

      300          131   

Northwestern Bell Telephone

  

7.750% due 05/01/2030 (i)

      7,000          7,960   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022

      236          87   

Odebrecht Offshore Drilling Finance Ltd.

  

6.625% due 10/01/2023

      1,378          317   

6.750% due 10/01/2023

      2,008          452   

Petrobras Global Finance BV

  

2.750% due 01/15/2018

  EUR     230          207   

3.406% due 03/17/2020

  $     130          91   

4.875% due 03/17/2020

      210          159   

5.750% due 01/20/2020

      70          55   

6.625% due 01/16/2034

  GBP     100          88   

6.750% due 01/27/2041

  $     1,200          760   

7.875% due 03/15/2019

      3,200          2,784   
       

 

 

 
          23,142   
       

 

 

 

Total Corporate Bonds & Notes (Cost $165,217)

   

        141,567   
       

 

 

 
       
MUNICIPAL BONDS & NOTES 6.6%   
CALIFORNIA 1.9%   

Riverside County, California Redevelopment Successor Agency Tax Allocation Bonds, Series 2010

   

7.500% due 10/01/2030

      600          667   

Stockton Public Financing Authority, California Revenue Bonds, (BABs), Series 2009

   

7.942% due 10/01/2038

      3,600          4,081   
       

 

 

 
          4,748   
       

 

 

 
       
ILLINOIS 2.5%   

Chicago, Illinois General Obligation Bonds, (BABs), Series 2010

   

7.517% due 01/01/2040

      6,000          6,379   
       

 

 

 
       
VIRGINIA 0.1%   

Tobacco Settlement Financing Corp., Virginia Revenue Bonds, Series 2007

   

6.706% due 06/01/2046

      395          320   
       

 

 

 
       
WEST VIRGINIA 2.1%   

Tobacco Settlement Finance Authority, West Virginia Revenue Bonds, Series 2007

   

7.467% due 06/01/2047

      6,130          5,379   
       

 

 

 

Total Municipal Bonds & Notes (Cost $15,942)

   

      16,826   
       

 

 

 
       
 

 

46   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
U.S. GOVERNMENT AGENCIES 2.7%   

Fannie Mae

  

3.500% due 12/25/2032 (a)

  $     911      $     115   

4.000% due 11/25/2042 (a)

      3,235          467   

13.718% due 12/25/2040

      132          209   

Freddie Mac

  

2.563% due 11/25/2055

      4,186          2,357   

7.977% due 12/25/2027

      2,000          1,810   

9.145% due 11/15/2040

      339          378   

9.777% due 04/25/2028

      1,100          1,052   

10.927% due 05/25/2028

      275          268   

11.177% due 03/25/2025

      300          310   
       

 

 

 

Total U.S. Government Agencies (Cost $7,287)

   

        6,966   
       

 

 

 
       
U.S. TREASURY OBLIGATIONS 0.4%   

U.S. Treasury Floating Rate Notes

  

0.473% due 10/31/2017 (l)

      1,165          1,165   
       

 

 

 

Total U.S. Treasury Obligations (Cost $1,165)

   

      1,165   
       

 

 

 
       
NON-AGENCY MORTGAGE-BACKED SECURITIES 20.6%   

Banc of America Alternative Loan Trust

  

6.000% due 01/25/2036 ^

      73          62   

Banc of America Funding Trust

  

6.000% due 08/25/2036 ^

      2,720          2,678   

6.000% due 03/25/2037 ^

      1,437          1,239   

BCAP LLC Trust

  

5.283% due 03/26/2037

      700          203   

21.468% due 06/26/2036

      126          36   

Bear Stearns ALT-A Trust

  

0.747% due 06/25/2046 ^

      3,046          2,226   

2.692% due 11/25/2036 ^

      311          218   

2.942% due 09/25/2035 ^

      542          445   

Bear Stearns Mortgage Funding Trust

  

7.000% due 08/25/2036

      894          849   

Chase Mortgage Finance Trust

  

2.679% due 12/25/2035 ^

      8          7   

6.000% due 02/25/2037 ^

      739          620   

6.000% due 07/25/2037 ^

      463          387   

6.250% due 10/25/2036 ^

      1,495          1,295   

Citicorp Mortgage Securities Trust

  

5.500% due 04/25/2037

      95          95   

Citigroup Mortgage Loan Trust, Inc.

  

0.577% due 12/25/2036

      4,773          2,544   

Countrywide Alternative Loan Resecuritization Trust

  

6.000% due 05/25/2036 ^

      1,947          1,686   

6.000% due 08/25/2037 ^

      836          718   

Countrywide Alternative Loan Trust

  

5.274% due 04/25/2036 ^

      867          667   

5.500% due 03/25/2035

      243          202   

5.500% due 12/25/2035 ^

      2,693          2,364   

5.500% due 03/25/2036 ^

      117          99   

5.750% due 01/25/2035

      291          294   

6.000% due 02/25/2035

      275          285   

6.000% due 08/25/2036 ^

      140          130   

6.000% due 04/25/2037 ^

      904          708   

6.250% due 11/25/2036 ^

      583          550   

6.250% due 12/25/2036 ^

      1,320          1,070   

6.500% due 08/25/2036 ^

      363          274   

Countrywide Home Loan Mortgage Pass-Through Trust

  

2.725% due 02/20/2035

      48          48   

5.500% due 10/25/2035 ^

      619          581   

5.750% due 03/25/2037 ^

      455          418   

6.250% due 09/25/2036 ^

      496          455   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

6.000% due 02/25/2037 ^

  $     293      $     257   

6.750% due 08/25/2036 ^

      1,094          872   

Deutsche Mortgage Securities, Inc. Mortgage Loan Trust

   

1.727% due 06/25/2034

      2,030          1,469   

Epic Drummond Ltd.

  

0.044% due 01/25/2022

  EUR     1,453          1,419   

GSR Mortgage Loan Trust

  

5.500% due 05/25/2036 ^

  $     90          87   

6.000% due 02/25/2036 ^

      3,725          3,138   

HarborView Mortgage Loan Trust

  

1.146% due 01/19/2035

      308          276   

2.683% due 07/19/2035

      48          42   

IndyMac Mortgage Loan Trust

  

6.500% due 07/25/2037 ^

      1,935          1,235   

JPMorgan Alternative Loan Trust

  

2.620% due 03/25/2037 ^

      1,381          1,054   

2.870% due 03/25/2036 ^

      1,524          1,202   

JPMorgan Mortgage Trust

  

2.653% due 01/25/2037 ^

      470          420   

2.744% due 02/25/2036 ^

      426          373   

5.000% due 03/25/2037 ^

      754          639   

6.000% due 08/25/2037 ^

      197          174   

Lehman XS Trust

  

0.647% due 06/25/2047

      1,653          1,182   

Merrill Lynch Mortgage Investors Trust

  

2.720% due 03/25/2036 ^

      1,367          920   

Residential Asset Securitization Trust

  

5.750% due 02/25/2036 ^

      784          626   

6.000% due 03/25/2037 ^

      605          425   

6.000% due 05/25/2037 ^

      1,205          1,039   

6.000% due 07/25/2037 ^

      920          657   

6.250% due 09/25/2037 ^

      1,547          1,106   

Residential Funding Mortgage Securities, Inc. Trust

  

3.774% due 08/25/2036 ^

      1,567          1,385   

6.000% due 09/25/2036 ^

      189          173   

6.000% due 06/25/2037 ^

      2,509          2,218   

Structured Adjustable Rate Mortgage Loan Trust

  

2.676% due 11/25/2036 ^

      1,424          1,116   

2.724% due 01/25/2036 ^

      1,147          878   

4.148% due 07/25/2036 ^

      520          435   

4.688% due 03/25/2037 ^

      486          343   

Suntrust Adjustable Rate Mortgage Loan Trust

  

2.771% due 04/25/2037 ^

      1,524          1,296   

2.818% due 02/25/2037 ^

      252          221   

WaMu Mortgage Pass-Through Certificates Trust

  

2.149% due 12/25/2046

      402          370   

2.409% due 09/25/2036 ^

      184          167   

4.275% due 02/25/2037 ^

      461          426   

6.009% due 10/25/2036 ^

      666          555   

Wells Fargo Mortgage-Backed Securities Trust

  

2.671% due 07/25/2036 ^

      273          257   

5.750% due 03/25/2037 ^

      275          269   

6.000% due 06/25/2037 ^

      157          158   

6.000% due 07/25/2037 ^

      250          247   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities
(Cost $49,422)

    

        52,579   
       

 

 

 
       
ASSET-BACKED SECURITIES 27.2%   

Argent Securities Trust

  

0.617% due 03/25/2036

      7,936          3,804   

Asset-Backed Funding Certificates Trust

  

0.577% due 10/25/2036

      7,584          6,429   

Bear Stearns Asset-Backed Securities Trust

  

6.500% due 10/25/2036 ^

      250          191   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

CIFC Funding Ltd.

  

0.000% due 05/24/2026 (e)

  $     1,200      $     801   

0.000% due 07/22/2026 (e)

      1,000          543   

Countrywide Asset-Backed Certificates

  

0.627% due 06/25/2047

      7,178          5,202   

0.682% due 09/25/2046 ^

      2,924          1,901   

0.987% due 12/25/2035

      5,550          5,267   

Countrywide Asset-Backed Certificates Trust

  

5.104% due 08/25/2035

      3,000          2,957   

GSAMP Trust

  

0.687% due 02/25/2046

      5,099          3,775   

1.402% due 03/25/2035 ^

      8,403          5,347   

JPMorgan Mortgage Acquisition Corp.

  

0.717% due 01/25/2036

      431          366   

JPMorgan Mortgage Acquisition Trust

  

0.742% due 04/25/2036

      6,000          4,045   

Lehman XS Trust

  

6.290% due 06/24/2046

      2,973          2,473   

MASTR Asset-Backed Securities Trust

  

5.233% due 11/25/2035

      196          197   

Mid-State Trust

  

6.340% due 10/15/2036

      641          685   

Morgan Stanley ABS Capital, Inc. Trust

  

1.417% due 06/25/2035

      500          449   

Morgan Stanley Capital, Inc. Trust

  

0.717% due 01/25/2036

      4,077          3,677   

Morgan Stanley Mortgage Loan Trust

  

0.547% due 04/25/2037

      2,388          1,150   

6.250% due 07/25/2047 ^

      459          331   

Residential Asset Mortgage Products Trust

  

0.707% due 09/25/2036

      400          343   

Residential Asset Securities Corp. Trust

  

0.897% due 09/25/2035

      13,627          10,836   

Securitized Asset-Backed Receivables LLC Trust

  

0.567% due 05/25/2036

      6,382          3,517   

Taberna Preferred Funding Ltd.

  

0.714% due 08/05/2036

      284          208   

0.714% due 08/05/2036 ^

      5,333          3,893   

Trainer Wortham First Republic CBO Ltd

  

1.820% due 11/06/2038

      1,040          1,014   
       

 

 

 

Total Asset-Backed Securities
(Cost $69,349)

      69,401   
       

 

 

 
SOVEREIGN ISSUES 0.7%   

Republic of Greece Government International Bond

  

3.800% due 08/08/2017

  JPY     201,000          1,444   

4.750% due 04/17/2019

  EUR     300          271   
       

 

 

 

Total Sovereign Issues (Cost $1,749)

    1,715   
       

 

 

 
        SHARES            
COMMON STOCKS 0.0%   
FINANCIALS 0.0%   

TIG FinCo PLC (g)

      91,836          92   
       

 

 

 

Total Common Stocks (Cost $136)

    92   
       

 

 

 
PREFERRED SECURITIES 4.6%   
BANKING & FINANCE 4.6%   

Farm Credit Bank of Texas

  

10.000% due 12/15/2020 (f)

      5,200          6,510   

GMAC Capital Trust

  

8.125% due 02/15/2040

      207,100          5,270   
       

 

 

 

Total Preferred Securities (Cost $11,390)

    11,780   
       

 

 

 
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   47


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund (Cont.)

 

                  MARKET
VALUE
(000S)
 
SHORT-TERM INSTRUMENTS 5.5%   
REPURCHASE AGREEMENTS (h) 2.1%   
      $     5,253   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
SHORT-TERM NOTES 2.3%   

Federal Home Loan Bank

  

0.157% due 02/03/2016

  $     900          900   

0.269% due 02/12/2016

      600          600   

0.335% due 02/26/2016

      3,800          3,799   

0.345% due 02/02/2016

      100          100   

0.385% due 02/01/2016

      400          400   
       

 

 

 
            5,799   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
U.S. TREASURY BILLS 1.1%   

0.256% due 02/18/2016 (d)(l)

  $     2,761      $     2,761   
       

 

 

 

Total Short-Term Instruments

(Cost $13,813)

    13,813   
       

 

 

 
       
Total Investments in Securities
(Cost $341,768)
          320,649   
       
Total Investments 125.7%
(Cost $341,768)
      $     320,649   

Financial Derivative
Instruments (j)(k) (0.1%)

(Cost or Premiums, net $279)

    (240
Preferred Shares (20.1%)          (51,275
Other Assets and Liabilities, net (5.5%)     (14,115
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%       $       255,019   
       

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) When-issued security.
(c) Payment in-kind bond security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon bond.
(f) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(g)  RESTRICTED SECURITIES:

 

Issuer Description    Acquisition
Date
  Cost      Market
Value
    Market Value
as Percentage
of Net Assets
 

TIG FinCo PLC

   04/02/2015   $     136       $     92        0.04%   
    

 

 

    

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(h)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
  Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 

DEU

  0.550%     01/29/2016        02/01/2016      $     3,800      U.S. Treasury Bonds 3.750% due 11/15/2043   $ (3,886   $ 3,800      $ 3,800   

SSB

  0.010     01/29/2016        02/01/2016        1,453      U.S. Treasury Notes 2.250% due 07/31/2021     (1,484     1,453        1,453   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  $     (5,370   $     5,253      $     5,253   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate
     Borrowing
Date
     Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 

BCY

    (0.500 %)       01/29/2016         02/12/2016      $ (507   $ (507
    (1.000      12/31/2015         02/01/2016        (513     (512

MSC

    1.000         01/08/2016         04/08/2016            (5,408     (5,412

RDR

    (1.000      01/22/2016         TBD  (2)      (730     (730

UBS

    0.900         01/11/2016         04/11/2016        (2,592     (2,593
           

 

 

 

Total Reverse Repurchase Agreements

  

    $     (9,754
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

 

48   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

(3) 

The average amount of borrowings outstanding during the period ended January 31, 2016 was $(14,880) at a weighted average interest rate of 0.622%.

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of January 31, 2016:

 

(i) Securities with an aggregate market value of $10,810 have been pledged as collateral under the terms of the following master agreements as of January 31, 2016.

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
     Payable for
Reverse
Repurchase
Agreements
     Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
     Collateral
(Received)/Pledged
     Net Exposure  (4)  

Global/Master Repurchase Agreement

                

BCY

  $ 0       $ (1,019    $ 0       $     (1,019    $ 1,148       $     129   

DEU

    3,800         0         0         3,800             (3,886      (86

MSC

    0         (5,412      0         (5,412      5,995         583   

RDR

    0         (730      0         (730      780         50   

SSB

    1,453         0         0         1,453         (1,484      (31

UBS

    0         (2,593      0         (2,593      2,627         34   
 

 

 

    

 

 

    

 

 

          

Total Borrowings and Other Financing Transactions

  $     5,253       $     (9,754    $     0            
 

 

 

    

 

 

    

 

 

          

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

     Overnight and
Continuous
     Up to 30 days      31-90 days      Greater Than 90 days     Total  

Reverse Repurchase Agreements

            

Corporate Bonds & Notes

  $ (512    $ (507    $ (8,005    $ (730   $ (9,754
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Borrowings

  $     (512    $     (507    $     (8,005    $     (730   $ (9,754
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross amount of recognized liabilities for reverse repurchase agreements

  

     $     (9,754
            

 

 

 

 

(j)   FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION (1)

 

Index/Tranches          Fixed
Receive Rate
    Maturity
Date
     Notional
Amount  (2)
    Market
Value  (3)
     Unrealized
Appreciation/
(Depreciation)
     Variation Margin  
                   Asset      Liability  

CDX.HY-24 5-Year Index

        5.000     06/20/2020       $     4,455      $     135       $     (209    $     18       $     0   

CDX.HY-25 5-Year Index

        5.000        12/20/2020         2,900        9         22         11         0   
            

 

 

    

 

 

    

 

 

    

 

 

 
             $ 144       $ (187    $ 29       $ 0   
            

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

(3) 

The prices and resulting values for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced indices’ credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   49


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund (Cont.)

 

 

INTEREST RATE SWAPS

 

Pay/Receive
Floating Rate
   Floating Rate Index    Fixed Rate     Maturity
Date
    Notional
Amount
    Market
Value
     Unrealized
Appreciation/
(Depreciation)
     Variation Margin  
                  Asset      Liability  

Pay

  

3-Month USD-LIBOR

     2.750     06/17/2025        $        70,420      $ 6,223       $ 1,987       $ 424       $ 0   

Pay

  

3-Month USD-LIBOR

     3.500        06/19/2044          83,100        21,962         24,674         952         0   

Receive

  

3-Month USD-LIBOR

     2.500        06/15/2046          130,700        (4,333      (10,931      0         (1,314

Pay

  

6-Month AUD-BBR-BBSW

     3.000        12/17/2019        AUD        6,200        122         28         3         0   

Pay

  

6-Month AUD-BBR-BBSW

     3.500        06/17/2025          3,900        186         89         6         0   
             

 

 

    

 

 

    

 

 

    

 

 

 
              $ 24,160       $ 15,847       $ 1,385       $ (1,314
             

 

 

    

 

 

    

 

 

    

 

 

 

Total Swap Agreements

              $     24,304       $     15,660       $     1,414       $     (1,314
             

 

 

    

 

 

    

 

 

    

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of January 31, 2016:

 

Cash of $3,529 has been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets         Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
              Market Value     Variation Margin
Liability
       
     Purchased
Options
    Futures     Swap
Agreements
    Total         Written
Options
    Futures     Swap
Agreements
    Total  

Total Exchange-Traded or Centrally Cleared

  $     0      $     0      $     1,414      $     1,414        $     0      $     0      $     (1,314)      $     (1,314)   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(k)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty    Settlement
Month
     Currency to
be Delivered
     Currency to
be Received
    Unrealized Appreciation/
(Depreciation)
 
           Asset     Liability  

BOA

     02/2016       $          32,962         GBP        23,115      $ 0      $ (26
     03/2016         GBP        22,747       $          32,426        13        0   
     06/2016         EUR        26           36        7        0   
     06/2016       $          1         EUR        1        0        0   
                

BRC

     06/2016         EUR        5       $          7        2        0   
                

CBK

     02/2016         GBP        23,805           35,329        1,409        0   
     02/2016       $          363         EUR        334        0        (1
     03/2016         EUR        956       $          1,044        7        0   
                

DUB

     02/2016         BRL        7,152           1,769        0        (19
     02/2016       $          1,807         BRL        7,152        0        (19
     06/2016         EUR        3       $          4        1        0   
                

HUS

     02/2016         JPY        10,084           82        0        (1
                

JPM

     02/2016         AUD        347           244        0        (2
     02/2016         BRL        7,152           1,750        0        (38
     02/2016         EUR        1,097           1,189        2        (1
     02/2016         JPY        7,179           58        0        (1
     02/2016       $          1,769         BRL        7,152        19        0   
     02/2016           5,341         EUR        4,887        0        (47
     03/2016           419         BRL        1,761        18        0   
                

MSB

     02/2016         JPY        168,500       $          1,392        1        0   
     02/2016       $          322         GBP        217        0        (13
     06/2016         EUR        7       $          10        2        0   
                

NAB

     06/2016           15           21        4        0   
                

SCX

     02/2016         JPY        5,266           43        0        (1
     02/2016       $          1,423         JPY        168,500        0        (31
     03/2016         JPY        168,500       $          1,424        32        0   
                

UAG

     02/2016         EUR        9,738           10,644        95        0   
     02/2016       $          6,057         EUR        5,590        0        (1
     02/2016           669         GBP        473        5        0   
     03/2016         EUR        5,590       $          6,061        1        0   
              

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

  $     1,618      $     (201
              

 

 

   

 

 

 

 

50   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION (1)

 

Counterparty

 

Reference Entity

 

Fixed
Receive Rate

   

Maturity
Date

   

Implied
Credit Spread at
January 31, 2016  (2)

   

Notional
Amount (3)

   

Premiums
(Received)

   

Unrealized
(Depreciation)

    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Petrobras International Finance Co.

    1.000     12/20/2024        10.555     $      500      $ (98   $ (132   $ 0      $ (230
                 
GST  

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        700        (139     (183     0        (322
                 
HUS  

Petrobras Global Finance BV

    1.000        09/20/2020        11.018        20        (3     (4     0        (7
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002        200        (16     (43     0        (59
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        800        (166     (202     0        (368
                 
MYC  

Chesapeake Energy Corp.

    5.000        09/20/2020        44.507        100        (10     (58     0        (68
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002            4,100        (379     (833     0        (1,212
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     (811   $     (1,455   $     0      $     (2,266
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate issues as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

INTEREST RATE SWAPS

 

Counterparty   Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Receive

  1-Year BRL-CDI     11.250     01/04/2021        BRL        14,750      $ 558      $ (53   $ 505      $ 0   
                   
CBK  

Pay

  3-Month USD-LIBOR     2.350        02/18/2021        $        61,500        358        313        671        0   
                   
DUB  

Receive

  1-Year BRL-CDI     15.900        01/04/2021        BRL        14,800        46        (64     0        (18
 

Pay

  3-Month USD-LIBOR     2.900        02/18/2026        $        26,300        172        188        360        0   
                   
UAG  

Pay

  1-Year BRL-CDI     11.250        01/04/2021        BRL        29,500        (44     (965     0        (1,009
             

 

 

   

 

 

   

 

 

   

 

 

 
              $     1,090      $ (581   $ 1,536      $ (1,027
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $ 279      $     (2,036   $     1,536      $     (3,293
             

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of January 31, 2016:

 

(l) Securities with an aggregate market value of $3,126 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2016.

 

    Financial Derivative Assets          Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
          Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (4)
 

BOA

  $ 20       $ 0       $ 0       $ 20         $ (26   $ 0       $ 0      $ (26   $ (6   $ 0      $ (6

BPS

    0         0         505         505           0        0         (230     (230     275        (350     (75

BRC

    2         0         0         2           0        0         0        0        2        (10     (8

CBK

    1,416         0         671         2,087           (1     0         0        (1     2,086        (1,880     206   

DUB

    1         0         360         361           (38     0         (18     (56     305        (388     (83

GST

    0         0         0         0           0        0         (322     (322     (322     264        (58

HUS

    0         0         0         0           (1     0         (434     (435     (435     659        224   

JPM

    39         0         0         39           (89     0         0        (89     (50     0        (50

MSB

    3         0         0         3           (13     0         0        (13     (10     0        (10

MYC

    0         0         0         0           0        0         (1,280     (1,280     (1,280     1,212        (68

NAB

    4         0         0         4           0        0         0        0        4        0        4   

SCX

    32         0         0         32           (32     0         0        (32     0        0        0   

UAG

    101         0         0         101           (1     0         (1,009     (1,010     (909     991        82   
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $ 1,618       $ 0       $ 1,536       $ 3,154         $ (201   $ 0       $ (3,293   $ (3,494      
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   51


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund (Cont.)

 

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

The following is a summary of the fair valuation of the Fund’s derivative instruments categorized by risk exposure. See Note 7, Principal Risks, in the Notes to Financial Statements on risks of the Fund.

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Financial Derivative Instruments - Assets

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 29       $ 0       $ 0       $ 1,385       $ 1,414   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 1,618       $ 0       $ 1,618   

Swap Agreements

    0         0         0         0         1,536         1,536   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 0       $ 0       $ 1,618       $ 1,536       $ 3,154   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 29       $ 0       $     1,618       $ 2,921       $ 4,568   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Derivative Instruments - Liabilities

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 0       $ 0       $ 0       $ 1,314       $ 1,314   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 201       $ 0       $ 201   

Swap Agreements

    0         2,266         0         0         1,027         3,293   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 2,266       $ 0       $ 201       $ 1,027       $ 3,494   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     2,266       $     0       $ 201       $     2,341       $     4,808   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Net Realized Gain (Loss) on Financial Derivative Instruments

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (122    $ 0       $ 0       $ (5,884    $ (6,006
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 1,987       $ 0       $ 1,987   

Swap Agreements

    0         34         0         0         (1,632      (1,598
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 34       $ 0       $ 1,987       $     (1,632    $ 389   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (88    $ 0       $ 1,987       $ (7,516    $     (5,617
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments

  

           

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (75    $ 0       $ 0       $ 4,932       $ 4,857   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 1,209       $ 0       $ 1,209   

Swap Agreements

    0         (1,072      0         0         (458      (1,530
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (1,072    $ 0       $ 1,209       $ (458    $ (321
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     (1,147    $     0       $     1,209       $ 4,474       $ 4,536   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

52   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Investments in Securities, at Value

       

Bank Loan Obligations

  $ 0      $ 3,770      $ 975      $ 4,745   

Corporate Bonds & Notes

       

Banking & Finance

    0        76,138            3,980            80,118   

Industrials

    0            38,307        0        38,307   

Utilities

    0        23,142        0        23,142   

Municipal Bonds & Notes

       

California

    0        4,748        0        4,748   

Illinois

    0        6,379        0        6,379   

Virginia

    0        320        0        320   

West Virginia

    0        5,379        0        5,379   

U.S. Government Agencies

    0        4,609        2,357        6,966   

U.S. Treasury Obligations

    0        1,165        0        1,165   

Non-Agency Mortgage-Backed Securities

    0        52,579        0        52,579   

Asset-Backed Securities

    0        69,401        0        69,401   

Sovereign Issues

    0        1,715        0        1,715   

Common Stocks

       

Financials

    0        0        92        92   

Preferred Securities

       

Banking & Finance

        5,270        6,510        0        11,780   
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2016
 

Short-Term Instruments

       

Repurchase Agreements

  $ 0      $ 5,253      $ 0      $ 5,253   

Short-Term Notes

    0        5,799        0        5,799   

U.S. Treasury Bills

    0        2,761        0        2,761   

Total Investments

  $ 5,270      $ 307,975      $ 7,404      $ 320,649   

Financial Derivative Instruments - Assets

  

   

Exchange-traded or centrally cleared

    0        1,414        0        1,414   

Over the counter

    0        3,154        0        3,154   
  $ 0      $ 4,568      $ 0      $ 4,568   

Financial Derivative Instruments - Liabilities

  

   

Exchange-traded or centrally cleared

    0        (1,314     0        (1,314

Over the counter

    0        (3,494     0        (3,494
  $ 0      $ (4,808   $ 0      $ (4,808

Totals

  $     5,270      $     307,735      $     7,404      $     320,409   
 

 

There were no significant transfers between Levels 1 and 2 during the period ended January 31, 2016.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended January 31, 2016:

 

Category and Subcategory   Beginning
Balance
at 07/31/2015
    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 01/31/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2016 (1)
 

Investments in Securities, at Value

                   

Bank Loan Obligations

  $ 0      $ 1,039      $ 0      $ 3      $ 0      $ (67   $ 0      $ 0      $ 975      $ (67

Corporate Bonds & Notes

                   

Banking & Finance

    2,665        1,293        (31     1        0        52        0        0        3,980        56   

U.S. Government Agencies

    0        2,479        (14     3        6        (117     0        0        2,357        (117

Common Stocks

                   

Financials

    96        0        0        0        0        (4     0        0        92        (4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     2,761      $     4,811      $     (45   $     7      $     6      $     (136   $     0      $     0      $     7,404      $     (132
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:

 

Category and Subcategory   Ending
Balance
at 01/31/2016
     Valuation
Technique
     Unobservable
Inputs
   Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

  

     

Bank Loan Obligations

  $ 975         Proxy Pricing       Base Price      97.00   

Corporate Bonds & Notes Banking & Finance

    1,304         Other Valuation Techniques (2)       —        —     
    2,676         Proxy Pricing       Base Price      113.30   

U.S. Government Agencies

    2,357         Proxy Pricing       Base Price      56.31   

Common Stocks

          

Financials

    92         Other Valuation Techniques  (2)     —        —     
 

 

 

          

Total

  $     7,404            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2016 may be due to an investment no longer held or categorized as Level 3 at period end.

(2) 

Includes valuation techniques not defined in the Notes to Financial Statements as securities valued using such techniques are not considered significant to the Fund.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   53


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund II

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 125.8%   
BANK LOAN OBLIGATIONS 1.5%   

iHeartCommunications, Inc.

  

7.178% due 01/30/2019

  $   6,800   $          4,532   

Sequa Corp.

       

5.250% due 06/19/2017

  5,276       3,548   
       

 

 

 

Total Bank Loan Obligations
(Cost $11,273)

        8,080   
       

 

 

 
CORPORATE BONDS & NOTES 52.0%   
BANKING & FINANCE 28.5%   

AGFC Capital Trust

  

6.000% due 01/15/2067

    1,800       1,233   

American International Group, Inc.

  

6.250% due 03/15/2087 (i)

    11,608       12,595   

8.175% due 05/15/2068

    300       391   

Banco do Brasil S.A.

  

6.250% due 04/15/2024 (f)

    3,700       1,804   

9.000% due 06/18/2024 (f)

    4,509       2,728   

Banco Espirito Santo S.A.

  

2.625% due 05/08/2017 ^

  EUR   3,000       1,154   

4.000% due 01/21/2019 ^

    8,100       3,115   

4.750% due 01/15/2018 ^

    2,300       885   

Banco Santander S.A.

  

6.250% due 09/11/2021 (f)

    1,600       1,585   

Barclays Bank PLC

  

7.625% due 11/21/2022

  $   2,200       2,463   

Barclays PLC

  

6.500% due 09/15/2019 (f)

  EUR   1,500       1,572   

8.000% due 12/15/2020 (f)

    3,900       4,444   

BGC Partners, Inc.

  

5.375% due 12/09/2019

  $   6,370       6,579   

Blackstone CQP Holdco LP

  

9.296% due 03/19/2019

    2,600       2,608   

BNP Paribas S.A.

  

7.375% due 08/19/2025 (f)

    6,600       6,484   

Cantor Fitzgerald LP

  

6.500% due 06/17/2022 (i)

    8,500       8,906   

Co-operative Group Holdings Ltd.

  

7.500% due 07/08/2026

  GBP   6,150       9,550   

Communications Sales & Leasing, Inc.

  

8.250% due 10/15/2023

  $   3,200       2,840   

Credit Agricole S.A.

  

7.500% due 06/23/2026 (f)

  GBP   3,600       4,867   

7.875% due 01/23/2024 (f)

  $   2,800       2,733   

Credit Suisse Group AG

  

7.500% due 12/11/2023 (f)

    7,863       8,090   

GSPA Monetization Trust

  

6.422% due 10/09/2029 (i)

    4,892       5,559   

Jefferies Finance LLC

  

6.875% due 04/15/2022

    6,850       5,429   

LBG Capital PLC

  

12.750% due 08/10/2020

  GBP   300       430   

15.000% due 12/21/2019

  EUR   1,100       1,662   

Lloyds Banking Group PLC

  

7.625% due 06/27/2023 (f)

  GBP   5,600       8,029   

National Bank of Greece S.A.

  

3.875% due 10/07/2016

  EUR   1,750       1,856   

Nationwide Building Society

  

10.250% (f)

  GBP   11       2,032   

Navient Corp.

  

5.500% due 01/15/2019

  $   9,808       9,220   

5.625% due 08/01/2033

    150       99   

8.450% due 06/15/2018

    3,400       3,528   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Novo Banco S.A.

  

5.000% due 04/04/2019

  EUR   311   $          267   

5.000% due 04/23/2019

    653       562   

5.000% due 05/14/2019

    431       371   

5.000% due 05/21/2019

    241       206   

5.000% due 05/23/2019

    240       205   

OneMain Financial Holdings, Inc.

  

7.250% due 12/15/2021

  $   3,020       2,997   

Rabobank Group

  

8.400% due 06/29/2017 (f)

    700       747   

Royal Bank of Scotland Group PLC

  

7.500% due 08/10/2020 (f)

    200       204   

Tesco Property Finance PLC

   

5.411% due 07/13/2044

  GBP   4,463       5,244   

6.052% due 10/13/2039

    2,674       3,511   

TIG FinCo PLC

       

8.500% due 03/02/2020

    687       1,003   

8.750% due 04/02/2020

    3,804       4,702   

Vnesheconombank Via VEB Finance PLC

  

6.902% due 07/09/2020

  $   2,600       2,600   

Western Group Housing LP

   

6.750% due 03/15/2057

    5,500       6,438   
       

 

 

 
            153,527   
       

 

 

 
INDUSTRIALS 13.6%        

BMC Software Finance, Inc.

   

8.125% due 07/15/2021

    1,470       906   

Boxer Parent Co., Inc. (9.000% Cash or 9.750% PIK)

  

9.000% due 10/15/2019 (c)(i)

    4,980       2,857   

Caesars Entertainment Operating Co., Inc.

  

8.500% due 02/15/2020 ^

    1,500       1,133   

9.000% due 02/15/2020 ^

    2,300       1,725   

11.250% due 06/01/2017 ^

  9,820       7,156   

Centene Escrow Corp.

  

5.625% due 02/15/2021 (b)

    140       143   

6.125% due 02/15/2024 (b)

    140       143   

Chesapeake Energy Corp.

  

3.872% due 04/15/2019

    480       128   

Forbes Energy Services Ltd.

  

9.000% due 06/15/2019

    1,164       460   

Ford Motor Co.

       

7.700% due 05/15/2097 (i)

  10,460       11,948   

Harvest Operations Corp.

  

6.875% due 10/01/2017

    4,353       3,069   

Hellenic Railways Organization S.A.

  

4.028% due 03/17/2017

  EUR   1,400       1,370   

iHeartCommunications, Inc.

   

9.000% due 09/15/2022

  $   1,200       786   

Intelsat Luxembourg S.A.

  

7.750% due 06/01/2021

    6,338       2,789   

8.125% due 06/01/2023

    255       106   

Intrepid Aviation Group Holdings LLC

  

6.875% due 02/15/2019

    7,420       5,788   

Pertamina Persero PT

       

6.450% due 05/30/2044

    8,654       7,478   

Russian Railways via RZD Capital PLC

  

7.487% due 03/25/2031

  GBP   1,300       1,709   

Scientific Games International, Inc.

  

10.000% due 12/01/2022

  $   3,300       2,310   

Sequa Corp.

  

7.000% due 12/15/2017

    7,918       2,079   

Spanish Broadcasting System, Inc.

  

12.500% due 04/15/2017

    2,100       2,055   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Spirit Issuer PLC

  

6.582% due 12/28/2027

  GBP   1,000   $          1,482   

Tembec Industries, Inc.

  

9.000% due 12/15/2019

  $   2,100       1,339   

UCP, Inc.

  

8.500% due 10/21/2017

    2,000       2,007   

Unique Pub Finance Co. PLC

  

5.659% due 06/30/2027

  GBP   4,141       5,856   

6.542% due 03/30/2021

    1,572       2,318   

Westmoreland Coal Co.

  

8.750% due 01/01/2022

  $   6,335       3,706   
       

 

 

 
          72,846   
       

 

 

 
UTILITIES 9.9%        

AK Transneft OJSC Via TransCapitalInvest Ltd.

  

8.700% due 08/07/2018

    2,800       3,073   

Frontier Communications Corp.

  

8.875% due 09/15/2020

    440       443   

10.500% due 09/15/2022

    720       706   

11.000% due 09/15/2025

    720       697   

Gazprom Neft OAO Via GPN Capital S.A.

  

4.375% due 09/19/2022 (i)

    6,100       5,368   

6.000% due 11/27/2023

    13,900       13,039   

Gazprom OAO Via Gaz Capital S.A.

  

5.999% due 01/23/2021

    300       300   

Illinois Power Generating Co.

  

6.300% due 04/01/2020

    3,035       1,351   

7.000% due 04/15/2018

    5,400       2,916   

7.950% due 06/01/2032

    700       305   

Northwestern Bell Telephone

  

7.750% due 05/01/2030

    12,625       14,357   

Odebrecht Drilling Norbe Ltd.

  

6.350% due 06/30/2022

    393       145   

Odebrecht Offshore Drilling Finance Ltd.

  

6.625% due 10/01/2023

  4,227       972   

6.750% due 10/01/2023

  4,557       1,025   

Petrobras Global Finance BV

  

2.750% due 01/15/2018

  EUR   470       424   

3.406% due 03/17/2020

  $   270       188   

4.875% due 03/17/2020

    450       340   

5.750% due 01/20/2020

    220       173   

6.625% due 01/16/2034

  GBP   100       88   

6.750% due 01/27/2041

  $   2,400       1,520   

7.875% due 03/15/2019

    6,900       6,003   
       

 

 

 
          53,433   
       

 

 

 

Total Corporate Bonds & Notes
(Cost $325,735)

   

      279,806   
       

 

 

 
MUNICIPAL BONDS & NOTES 9.2%   
CALIFORNIA 2.9%   

La Quinta Financing Authority, California Tax Allocation Bonds, Series 2011

   

8.070% due 09/01/2036

  3,000       3,404   

Riverside County, California Redevelopment Successor Agency Tax Allocation Bonds, Series 2010

   

7.500% due 10/01/2030

  1,200       1,334   

San Francisco, California City & County Redevelopment Agency Tax Allocation Bonds, Series 2009

   

8.406% due 08/01/2039

  1,650       2,130   

Stockton Public Financing Authority, California Revenue Bonds, (BABs), Series 2009

   

7.942% due 10/01/2038

    7,500       8,503   
       

 

 

 
          15,371   
       

 

 

 
 

 

54   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
ILLINOIS 0.1%   

Chicago, Illinois General Obligation Bonds, Series 2015

  

7.375% due 01/01/2033

  $   180   $          186   

7.750% due 01/01/2042

  330       337   
       

 

 

 
          523   
       

 

 

 
OHIO 4.0%   

Ohio State University Revenue Bonds, Series 2011

  

4.800% due 06/01/2111

  21,000       21,823   
       

 

 

 
VIRGINIA 0.1%   

Tobacco Settlement Financing Corp., Virginia Revenue Bonds, Series 2007

   

6.706% due 06/01/2046

  835       675   
       

 

 

 
WEST VIRGINIA 2.1%   

Tobacco Settlement Finance Authority, West Virginia Revenue Bonds, Series 2007

   

7.467% due 06/01/2047

  12,755       11,193   
       

 

 

 

Total Municipal Bonds & Notes
(Cost $43,743)

   

      49,585   
       

 

 

 
U.S. GOVERNMENT AGENCIES 2.9%   

Fannie Mae

  

3.500% due 02/25/2042 (a)

  1,438       173   

4.500% due 11/25/2042 (a)

  3,785       580   

5.824% due 01/25/2040 (a)

  554       109   

Freddie Mac

  

2.563% due 11/25/2055

  8,869       4,994   

3.000% due 02/15/2033 (a)

  3,083       370   

3.500% due 12/15/2032 (a)

  5,704       837   

7.977% due 12/25/2027

  3,900       3,529   

9.777% due 04/25/2028

  2,200       2,104   

10.860% due 09/15/2035

  1,337       1,436   

10.927% due 05/25/2028

    580       565   

11.177% due 03/25/2025

    749       775   

Ginnie Mae

       

3.500% due 06/20/2042 -
10/20/2042 (a)

  1,268       135   

4.000% due 10/16/2042 -
10/20/2042 (a)

  690       103   
       

 

 

 

Total U.S. Government Agencies
(Cost $16,516)

   

    15,710   
       

 

 

 
U.S. TREASURY OBLIGATIONS 0.9%   

U.S. Treasury Floating Rate Notes

  

0.473% due 10/31/2017 (k)(m)

  4,868       4,867   
       

 

 

 

Total U.S. Treasury Obligations
(Cost $4,867)

   

    4,867   
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 29.1%   

Banc of America Alternative Loan Trust

  

6.000% due 01/25/2036 ^

  170       145   

Banc of America Funding Corp.

  

6.000% due 01/25/2037

  9,449       6,877   

Banc of America Funding Trust

  

3.099% due 01/20/2047 ^

  50       42   

BCAP LLC Trust

  

2.866% due 08/26/2037

    14,339       8,468   

2.932% due 08/28/2037

    6,572       4,913   

3.150% due 05/26/2036

    239       5   

4.323% due 07/26/2037

    15,776       13,932   

5.283% due 03/26/2037

    1,458       423   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

6.090% due 12/26/2035

  $   5,229   $          4,201   

6.250% due 11/26/2036

    5,762       4,874   

10.446% due 05/26/2037

    1,260       512   

11.672% due 09/26/2036

    5,613       4,739   

21.468% due 06/26/2036

    252       73   

Bear Stearns ALT-A Trust

  

0.927% due 01/25/2036 ^

    1,963       1,579   

2.610% due 11/25/2035

    9,715       7,670   

2.692% due 11/25/2036 ^

    623       436   

2.942% due 09/25/2035 ^

    1,134       930   

Chase Mortgage Finance Trust

   

2.679% due 12/25/2035 ^

    16       15   

5.500% due 05/25/2036 ^

    60       57   

Citicorp Mortgage Securities Trust

   

5.500% due 04/25/2037

    190       189   

6.000% due 09/25/2037

    2,177       2,275   

Countrywide Alternative Loan Resecuritization Trust

  

6.000% due 05/25/2036 ^

    3,999       3,462   

6.000% due 08/25/2037 ^

    1,741       1,495   

Countrywide Alternative Loan Trust

  

5.274% due 04/25/2036 ^

    1,788       1,376   

5.500% due 03/25/2035

    499       417   

5.500% due 01/25/2036

    1,177         1,070   

5.500% due 03/25/2036 ^

    189       161   

5.750% due 01/25/2035

    604       611   

5.750% due 02/25/2035

    681       672   

5.750% due 12/25/2036 ^

    1,171       916   

6.000% due 02/25/2035

    572       594   

6.000% due 04/25/2036

    813       699   

6.000% due 04/25/2037 ^

    2,720       2,082   

6.250% due 11/25/2036 ^

    1,198       1,131   

6.250% due 12/25/2036 ^

    852       690   

6.500% due 08/25/2036 ^

    726       549   

Countrywide Home Loan Mortgage Pass-Through Trust

  

0.717% due 03/25/2035 ^

    7,190       5,921   

5.750% due 03/25/2037 ^

    951       874   

6.000% due 07/25/2037

    2,824       2,422   

6.250% due 09/25/2036 ^

    1,020       935   

Credit Suisse First Boston Mortgage Securities Corp.

  

6.000% due 11/25/2035 ^

    694       538   

Credit Suisse Mortgage Capital Mortgage-Backed Trust

  

5.750% due 04/25/2036 ^

    264       220   

6.750% due 08/25/2036 ^

    2,218       1,769   

Epic Drummond Ltd.

       

0.044% due 01/25/2022

  EUR   3,006       2,936   

First Horizon Alternative Mortgage Securities Trust

  

6.000% due 05/25/2036 ^

  $   1,227       1,020   

6.000% due 08/25/2036 ^

    1,981       1,618   

First Horizon Mortgage Pass-Through Trust

  

2.711% due 05/25/2037 ^

    617       493   

2.750% due 11/25/2035 ^

    1,244       1,011   

IndyMac Mortgage Loan Trust

  

6.500% due 07/25/2037 ^

    4,091       2,610   

JPMorgan Alternative Loan Trust

  

2.620% due 03/25/2037 ^

    1,899       1,449   

2.707% due 05/25/2036 ^

    2,996       2,448   

2.870% due 03/25/2036 ^

    3,217       2,537   

JPMorgan Mortgage Trust

  

2.684% due 10/25/2035

    464       452   

2.744% due 02/25/2036 ^

    738       646   

6.000% due 08/25/2037 ^

    344       304   

6.500% due 09/25/2035

    138       142   

Lehman Mortgage Trust

  

6.000% due 07/25/2036 ^

    1,331       985   

6.000% due 07/25/2037 ^

    2,133       1,948   

6.500% due 09/25/2037 ^

    4,276       3,286   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Lehman XS Trust

  

0.647% due 06/25/2047

  $   3,491   $          2,498   

MASTR Asset Securitization Trust

  

6.500% due 11/25/2037 ^

    729       593   

Merrill Lynch Mortgage Investors Trust

  

2.720% due 03/25/2036 ^

    2,665       1,793   

Nomura Asset Acceptance Corp. Alternative Loan Trust

  

4.976% due 05/25/2035 ^

    18       15   

RBSSP Resecuritization Trust

  

0.582% due 02/26/2047

    8,061       7,430   

Residential Accredit Loans, Inc. Trust

  

3.713% due 12/26/2034 ^

    1,826       1,509   

6.000% due 08/25/2036 ^

    555       457   

Residential Asset Securitization Trust

  

5.750% due 02/25/2036 ^

    1,622       1,295   

6.000% due 03/25/2037 ^

    2,199       1,544   

6.000% due 05/25/2037 ^

    2,513       2,167   

6.000% due 07/25/2037 ^

    1,955       1,396   

6.250% due 09/25/2037 ^

    3,299       2,360   

Residential Funding Mortgage Securities, Inc. Trust

  

3.512% due 09/25/2035

    2,578       2,238   

3.774% due 08/25/2036 ^

    2,726       2,409   

Structured Adjustable Rate Mortgage Loan Trust

  

2.676% due 11/25/2036 ^

    4,178       3,274   

2.724% due 01/25/2036 ^

    3,442       2,634   

4.148% due 07/25/2036 ^

    1,060       885   

Suntrust Adjustable Rate Mortgage Loan Trust

  

2.818% due 02/25/2037 ^

    505       443   

WaMu Mortgage Pass-Through Certificates Trust

  

4.275% due 02/25/2037 ^

    922       852   

4.412% due 07/25/2037 ^

    1,727       1,595   

4.439% due 05/25/2037 ^

    2,368       2,094   

6.009% due 10/25/2036 ^

    1,332       1,110   

Wells Fargo Mortgage-Backed Securities Trust

  

2.671% due 07/25/2036 ^

    570       538   

5.750% due 03/25/2037 ^

    550       539   
       

 

 

 

Total Non-Agency Mortgage-Backed Securities
(Cost $149,848)

        156,512   
       

 

 

 
ASSET-BACKED SECURITIES 19.9%   

Apidos CLO

  

0.000% due 07/22/2026 (e)

    1,500       693   

Argent Securities Trust

  

0.617% due 03/25/2036

    3,211       1,539   

Bear Stearns Asset-Backed Securities Trust

  

0.567% due 10/25/2036 ^

    7,564       5,986   

6.500% due 10/25/2036 ^

    400       306   

CIFC Funding Ltd.

  

0.000% due 05/24/2026 (e)

    2,400       1,603   

0.000% due 07/22/2026 (e)

    1,500       814   

Citigroup Mortgage Loan Trust, Inc.

  

0.577% due 12/25/2036

    20,151       10,743   

Countrywide Asset-Backed Certificates

  

0.567% due 12/25/2046

    22,833       17,987   

0.627% due 06/25/2047

    15,049       10,907   

Countrywide Asset-Backed Certificates Trust

  

1.177% due 11/25/2035

    4,008       2,778   

Fremont Home Loan Trust

  

0.577% due 01/25/2037

    17,181       8,660   

Greenpoint Manufactured Housing

  

8.140% due 03/20/2030

    1,646       1,743   

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

   

0.587% due 07/25/2037

    3,731       2,292   
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   55


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

JPMorgan Mortgage Acquisition Corp.

  

0.717% due 01/25/2036

  $   889   $          755   

Lehman XS Trust

  

6.290% due 06/24/2046

    5,013       4,170   

Long Beach Mortgage Loan Trust

  

0.727% due 01/25/2036

    5,000       2,827   

MASTR Asset-Backed Securities Trust

  

5.233% due 11/25/2035

    399       402   

Mid-State Trust

  

6.340% due 10/15/2036

    1,344       1,437   

Morgan Stanley Mortgage Loan Trust

  

6.250% due 07/25/2047 ^

    919       663   

Specialty Underwriting & Residential Finance Trust

  

0.927% due 09/25/2036

    14,080       9,084   

Taberna Preferred Funding Ltd.

  

0.694% due 12/05/2036

    10,108       7,884   

0.714% due 08/05/2036 ^

    11,804       8,617   

1.083% due 07/05/2035

    7,048       5,286   
       

 

 

 

Total Asset-Backed Securities
(Cost $108,855)

        107,176   
       

 

 

 
SOVEREIGN ISSUES 0.8%   

Autonomous Community of Valencia

  

2.289% due 09/03/2017

  EUR   2,500       2,730   
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Republic of Greece Government International Bond

  

3.800% due 08/08/2017

  JPY   204,000   $          1,466   

4.750% due 04/17/2019

  EUR   300       271   
       

 

 

 

Total Sovereign Issues (Cost $4,882)

      4,467   
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%   
FINANCIALS 0.1%   

TIG FinCo PLC (g)

  496,900       496   
       

 

 

 

Total Common Stocks (Cost $737)

      496   
       

 

 

 
PREFERRED SECURITIES 4.7%   
BANKING & FINANCE 4.7%   

Citigroup Capital

  

6.983% due 10/30/2040

    260,000       6,648   

Farm Credit Bank of Texas

  

10.000% due 12/15/2020 (f)

  14,900       18,653   
       

 

 

 

Total Preferred Securities
(Cost $23,789)

        25,301   
       

 

 

 
SHORT-TERM INSTRUMENTS 4.7%   
REPURCHASE AGREEMENTS (g) 3.0%   
            16,400   
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
SHORT-TERM NOTES 0.8%   

Federal Home Loan Bank

  

0.279% due 02/17/2016

  $   200   $          200   

0.335% due 02/26/2016

    3,900       3,899   
       

 

 

 
          4,099   
       

 

 

 
U.S. TREASURY BILLS 0.9%   

0.255% due 02/18/2016 (d)(m)

  4,957       4,956   
       

 

 

 
Total Short-Term Instruments
(Cost $25,455)
      25,455   
       

 

 

 
       
Total Investments in Securities
(Cost $715,700)
      677,455   
       

 

 

 
       
Total Investments 125.8%
(Cost $715,700)
  $          677,455   

Financial Derivative
Instruments (j)(l) 0.0%

(Cost or Premiums, net $481)

   

  

    (234

Preferred Shares (17.2%)

      (92,450
Other Assets and Liabilities, net (8.6%)        (46,368
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%   $            538,403   
       

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS (AMOUNTS IN THOUSANDS*):

 

* A zero balance may reflect actual amounts rounding to less than one thousand.
^ Security is in default.
(a) Interest only security.
(b) When-issued security.
(c) Payment in-kind bond security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon bond.
(f) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(g)  RESTRICTED SECURITIES:

 

Issuer Description    Acquisition
Date
  Cost      Market
Value
     Market Value
as Percentage
of Net Assets
 

TIG FinCo PLC

   04/02/2015   $     737       $     496         0.09%   
    

 

 

    

 

 

    

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(h)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
  Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received (1)
 

BCY

  0.540%     01/29/2016        02/01/2016      $ 600      U.S. Treasury Notes 1.625% due 06/30/2019   $ (613   $ 600      $ 600   

BPG

  0.550     01/29/2016        02/01/2016            12,600      U.S. Treasury Floating Rate Note 0.382% due 07/31/2017     (12,864     12,600        12,601   

DEU

  0.550     01/29/2016        02/01/2016        3,200      U.S. Treasury Bonds 3.750% due 11/15/2043     (3,272     3,200        3,200   
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

  $     (16,749   $     16,400      $     16,401   
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

 

56   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate
     Borrowing
Date
     Maturity
Date
    Amount
Borrowed  (3)
    Payable for
Reverse
Repurchase
Agreements
 

BCY

    (1.000 %)       12/31/2015         02/01/2016      $ (513   $ (512
    (0.500      01/29/2016         TBD (2)      (507     (507

JML

    1.250         01/22/2016         02/22/2016            (3,390     (3,391

MSC

    0.650         10/30/2015         02/01/2016        (5,076     (5,085
    1.000         02/01/2016         05/02/2016        (4,980     (4,980

RDR

    0.760         11/23/2015         02/23/2016        (8,630     (8,643
    1.000         01/22/2016         TBD (2)      (187     (187

SAL

    (0.500      01/14/2016         02/01/2016        (1,821     (1,820

UBS

    0.900         01/11/2016         04/11/2016        (7,889     (7,893
    1.440         01/04/2016         07/05/2016        (5,012     (5,018
           

 

 

 

Total Reverse Repurchase Agreements

  

       $     (38,036
           

 

 

 

 

(2) 

Open maturity reverse repurchase agreement.

(3) 

The average amount of borrowings outstanding during the period ended January 31, 2016 was $(43,276) at a weighted average interest rate of 0.686%.

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral (received)/pledged as of January 31, 2016:

 

(i) Securities with an aggregate market value of $41,573 have been pledged as collateral under the terms of the following master agreements as of January 31, 2016.

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
     Payable for
Reverse
Repurchase
Agreements
     Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
     Collateral
(Received)/Pledged
     Net Exposure  (4)  

Global/Master Repurchase Agreement

                

BCY

  $ 600       $ (1,019    $ 0       $ (419    $ 535       $ 116   

BPG

    12,601         0         0         12,601             (12,864      (263

DEU

    3,200         0         0         3,200         (3,272      (72

JML

    0         (3,391      0         (3,391      4,400         1,009   

MSC

    0         (10,065      0             (10,065      11,118         1,053   

RDR

    0         (8,830      0         (8,830      9,107         277   

SAL

    0         (1,820      0         (1,820      0             (1,820

SBI

    0         0         0         0         2,083         2,083   

UBS

    0         (12,911      0         (12,911      13,718         807   
 

 

 

    

 

 

    

 

 

          

Total Borrowings and Other Financing Transactions

  $     16,401       $     (38,036    $     0            
 

 

 

    

 

 

    

 

 

          

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

    

Overnight and

Continuous

     Up to 30 days      31-90 days      Greater Than 90 days     Total  

Reverse Repurchase Agreements

  

Corporate Bonds & Notes

  $ (7,417    $ (12,034    $ (7,893    $ (5,712   $ (33,056
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total Borrowings

  $     (7,417    $     (12,034    $     (7,893    $     (5,712   $ (33,056
 

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Gross amount of recognized liabilities for reverse repurchase agreements (5)

  

  $     (33,056
            

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(4,980) is outstanding at period end.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   57


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

 

(j)  FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION (1)

 

    

Fixed

Receive Rate

  

Maturity

Date

     Notional
Amount  (2)
    Market
Value  (3)
     Unrealized
(Depreciation)
     Variation Margin  
Index/Tranches                  Asset      Liability  

CDX.HY-24 5-Year Index

   5.000%      06/20/2020       $ 9,009      $ 272       $ (422    $ 35       $ 0   

CDX.HY-25 5-Year Index

   5.000      12/20/2020             12,300        39         (58      48         0   
          

 

 

    

 

 

    

 

 

    

 

 

 
           $     311       $     (480    $     83       $     0   
          

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

(3) 

The prices and resulting values for credit default swap agreements on credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced indices’ credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

INTEREST RATE SWAPS

 

Pay/Receive
Floating Rate

  

Floating Rate Index

  

Fixed Rate

   

Maturity

Date

    

Notional
Amount

   

Market
Value

     Unrealized
Appreciation/
(Depreciation)
     Variation Margin  
                   Asset      Liability  

Pay

  

3-Month USD-LIBOR

     2.750     06/17/2025         $    149,020      $ 13,169       $ 4,078       $ 897       $ 0   

Pay

  

3-Month USD-LIBOR

     3.500        06/19/2044         201,500        53,256         59,830         2,310         0   

Receive

  

3-Month USD-LIBOR

     2.500        06/15/2046         312,300        (10,370      (26,119      0         (3,139

Pay

  

6-Month AUD-BBR-BBSW

     3.000        12/17/2019         AUD      12,900        253         59         7         0   

Pay

  

6-Month AUD-BBR-BBSW

     3.500        06/17/2025         8,100        385         184         12         0   
            

 

 

    

 

 

    

 

 

    

 

 

 
             $ 56,693       $ 38,032       $ 3,226       $ (3,139
            

 

 

    

 

 

    

 

 

    

 

 

 

Total Swap Agreements

  

       $     57,004       $     37,552       $     3,309       $     (3,139
            

 

 

    

 

 

    

 

 

    

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of January 31, 2016:

 

(k) Securities with an aggregate market value of $3,233 and cash of $5,142 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2016. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

    Financial Derivative Assets         Financial Derivative Liabilities  
    Market Value     Variation Margin
Asset
              Market Value     Variation Margin
Liability
       
     Purchased
Options
    Futures     Swap
Agreements
    Total         Written
Options
    Futures     Swap
Agreements
    Total  

Total Exchange-Traded or Centrally Cleared

  $     0      $     0      $     3,309      $     3,309        $     0      $     0        $    (3,139)        $    (3,139)   
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(l)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty    Settlement
Month
     Currency to
be Delivered
     Currency to
be Received
    Unrealized  Appreciation/
(Depreciation)
 
           Asset     Liability  

BOA

     02/2016       $          53,808         GBP        37,731      $ 0      $ (46
     03/2016         GBP        37,004         $        52,750        21        0   
     06/2016         EUR        1,940           2,656        546        0   
     06/2016       $          113         EUR        84        0            (22
                

BRC

     06/2016         EUR        368         $        506        106        0   
                

CBK

     02/2016         GBP        38,696           57,428            2,290        0   
     02/2016       $          725         EUR        667        0        (3
     02/2016           691         GBP        463        0        (31
                

 

58   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

Counterparty    Settlement
Month
     Currency to
be Delivered
     Currency to
be Received
    Unrealized  Appreciation/
(Depreciation)
 
           Asset     Liability  

DUB

     02/2016         BRL        14,877         $        3,680      $ 0      $ (40
     02/2016       $          3,760         BRL        14,877        0        (40
     06/2016         EUR        205         $        281        58        0   
     06/2016       $          23         EUR        17        0        (4
                

HUS

     02/2016         JPY        14,142         $        115        0        (2
                

JPM

     02/2016         AUD        840           590        0        (4
     02/2016         BRL        14,878           3,642        0        (78
     02/2016         EUR        2,074           2,247        2        (2
     02/2016         JPY        10,530           86        0        (1
     02/2016       $          3,680         BRL        14,877        40        0   
     02/2016           11,147         EUR        10,199        0        (98
     03/2016           852         BRL        3,585        36        0   
                

MSB

     02/2016         JPY        167,800         $        1,387        1        0   
     06/2016         EUR        516           710        149        0   
                

NAB

     06/2016           1,123           1,542        320        0   
     07/2016           70           95        19        0   
                

SCX

     02/2016       $          1,417         JPY        167,800        0        (31
     03/2016         JPY        167,800         $        1,418        31        0   
                

UAG

     02/2016         EUR        28,645           31,311        280        0   
     02/2016       $          21,403         EUR        19,754        0        (4
     02/2016           1,365         GBP        965        10        0   
     03/2016         EUR        19,754         $        21,418        4        0   
              

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

  

  $     3,913      $     (406
              

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION (1)

 

Counterparty

 

Reference Entity

 

Fixed
Receive Rate

   

Maturity

Date

    Implied
Credit Spread at
January 31, 2016 (2)
   

Notional
Amount (3)

   

Premiums
(Received)

   

Unrealized
(Depreciation)

    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Petrobras International Finance Co.

    1.000     12/20/2024        10.555     $  1,000      $ (195   $ (265   $ 0      $ (460
                 
GST  

Petrobras Global Finance BV

    1.000        09/20/2020        11.018        10        (1     (2     0        (3
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        1,400        (278     (365     0        (643
                 
HUS  

Petrobras Global Finance BV

    1.000        09/20/2020        11.018        40        (6     (7     0        (13
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002        300        (25     (64     0        (89
 

Petrobras International Finance Co.

    1.000        12/20/2024        10.555        1,700        (353     (428     0        (781
                 
MYC  

Chesapeake Energy Corp.

    5.000        09/20/2020        44.507        300        (30     (174     0        (204
 

Petrobras International Finance Co.

    1.000        12/20/2019        11.002        8,700        (805     (1,768     0        (2,573
           

 

 

   

 

 

   

 

 

   

 

 

 
        $     (1,693   $     (3,073   $     0      $     (4,766
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.

(2) 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate issues as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

(3) 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

INTEREST RATE SWAPS

 

Counterparty

  Pay/Receive
Floating Rate
  Floating Rate Index   Fixed Rate     Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements, at Value  
                Asset     Liability  
BPS  

Receive

 

1-Year BRL-CDI

    11.250     01/04/2021        BRL        30,900      $ 1,168      $ (111   $ 1,057      $ 0   
                   
CBK  

Pay

 

3-Month USD-LIBOR

    2.350        02/18/2021      $          111,600        650        568        1,218        0   
                   
DUB  

Receive

 

1-Year BRL-CDI

    15.900        01/04/2021        BRL        31,000        96        (135     0        (39
 

Pay

 

3-Month USD-LIBOR

    2.900        02/18/2026      $          53,700        352        384        736        0   
                   
UAG  

Pay

 

1-Year BRL-CDI

    11.250        01/04/2021        BRL        61,900        (92         (2,025     0            (2,117
             

 

 

   

 

 

   

 

 

   

 

 

 
  $     2,174      $ (1,319   $ 3,011      $ (2,156
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

  

  $ 481      $ (4,392   $     3,011      $ (6,922
             

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   59


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral (received)/pledged as of January 31, 2016:

 

(m) Securities with an aggregate market value of $6,290 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2016.

 

    Financial Derivative Assets          Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
          Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
(Received)/
Pledged
    Net
Exposure  (4)
 

BOA

  $ 567       $ 0       $ 0       $ 567         $ (68   $ 0       $ 0      $ (68   $ 499      $ (500   $ (1

BPS

    0         0         1,057         1,057           0        0         (460     (460     597        (760     (163

BRC

    106         0         0         106           0        0         0        0        106        0        106   

CBK

    2,290         0         1,218         3,508           (34     0         0        (34     3,474        (2,946     528   

DUB

    58         0         736         794           (84     0         (39     (123     671        (840     (169

GST

    0         0         0         0           0        0         (646     (646     (646     538        (108

HUS

    0         0         0         0           (2     0         (883     (885     (885     864        (21

JPM

    78         0         0         78           (183     0         0        (183     (105     0        (105

MSB

    150         0         0         150           0        0         0        0        150        (140     10   

MYC

    0         0         0         0           0        0         (2,777     (2,777     (2,777     2,752        (25

NAB

    339         0         0         339           0        0         0        0        339        (270     69   

SCX

    31         0         0         31           (31     0         0        (31     0        0        0   

UAG

    294         0         0         294           (4     0         (2,117     (2,121     (1,827     1,967        140   
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $ 3,913       $ 0       $ 3,011       $ 6,924         $ (406   $ 0       $ (6,922   $ (7,328      
 

 

 

    

 

 

    

 

 

    

 

 

      

 

 

   

 

 

    

 

 

   

 

 

       

 

(4) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 7, Principal Risks, in the Notes to Financial Statements for more information regarding master netting arrangements.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

The following is a summary of the fair valuation of the Fund’s derivative instruments categorized by risk exposure. See Note 7, Principal Risks, in the Notes to Financial Statements on risks of the Fund.

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Financial Derivative Instruments - Assets

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 83       $ 0       $ 0       $ 3,226       $ 3,309   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $     3,913       $ 0       $ 3,913   

Swap Agreements

    0         0         0         0         3,011         3,011   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 0       $ 0       $ 3,913       $ 3,011       $ 6,924   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 83       $ 0       $ 3,913       $     6,237       $ 10,233   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial Derivative Instruments - Liabilities

                

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ 0       $ 0       $ 0       $ 3,139       $ 3,139   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 406       $ 0       $ 406   

Swap Agreements

    0         4,766         0         0         2,156         6,922   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 4,766       $ 0       $ 406       $ 2,156       $ 7,328   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     4,766       $     0       $ 406       $ 5,295       $     10,467   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

60   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2016:

 

    Derivatives not accounted for as hedging instruments  
     Commodity
Contracts
     Credit
Contracts
     Equity
Contracts
     Foreign
Exchange
Contracts
     Interest
Rate Contracts
     Total  

Net Realized Gain (Loss) on Financial Derivative Instruments

  

              

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (127    $ 0       $ 0       $ (15,030    $ (15,157
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 3,240       $ 0       $ 3,240   

Swap Agreements

    0         72         0         0         (3,576      (3,504
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ 72       $ 0       $ 3,240       $ (3,576    $ (264
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (55    $ 0       $ 3,240       $ (18,606    $ (15,421
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments

  

        

Exchange-traded or centrally cleared

                

Swap Agreements

  $ 0       $ (243    $ 0       $ 0       $ 11,887       $ 11,644   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Over the counter

                

Forward Foreign Currency Contracts

  $ 0       $ 0       $ 0       $ 1,900       $ 0       $ 1,900   

Swap Agreements

    0         (2,281      0         0         (885      (3,166
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $ 0       $ (2,281    $ 0       $ 1,900       $ (885    $ (1,266
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  $     0       $     (2,524    $     0       $     1,900       $     11,002       $     10,378   
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2016 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3    

Fair

Value at

01/31/2016

 

Investments in Securities, at Value

  

   

Bank Loan Obligations

  $ 0      $ 8,080      $ 0      $ 8,080   

Corporate Bonds & Notes

       

Banking & Finance

    0            145,360        8,167            153,527   

Industrials

    0        70,839        2,007        72,846   

Utilities

    0        53,433        0        53,433   

Municipal Bonds & Notes

       

California

    0        15,371        0        15,371   

Illinois

    0        523        0        523   

Ohio

    0        21,823        0        21,823   

Virginia

    0        675        0        675   

West Virginia

    0        11,193        0        11,193   

U.S. Government Agencies

    0        10,716            4,994        15,710   

U.S. Treasury Obligations

    0        4,867        0        4,867   

Non-Agency Mortgage-Backed Securities

    0        156,512        0        156,512   

Asset-Backed Securities

    0        107,176        0        107,176   

Sovereign Issues

    0        4,467        0        4,467   

Common Stocks

       

Financials

    0        0        496        496   

Preferred Securities

       

Banking & Finance

        6,648        18,653        0        25,301   
Category and Subcategory   Level 1     Level 2     Level 3    

Fair

Value at

01/31/2016

 

Short-Term Instruments

       

Repurchase Agreements

  $ 0      $ 16,400      $ 0      $ 16,400   

Short-Term Notes

    0        4,099        0        4,099   

U.S. Treasury Bills

    0        4,956        0        4,956   

Total Investments

  $ 6,648      $ 655,143      $ 15,664      $ 677,455   

Financial Derivative Instruments - Assets

  

     

Exchange-traded or centrally cleared

    0        3,309        0        3,309   

Over the counter

    0        6,924        0        6,924   
  $ 0      $ 10,233      $ 0      $ 10,233   

Financial Derivative Instruments - Liabilities

  

Exchange-traded or centrally cleared

    0        (3,139     0        (3,139

Over the counter

    0        (7,328     0        (7,328
  $ 0      $ (10,467   $ 0      $ (10,467

Totals

  $     6,648      $     654,909      $     15,664      $     677,221   
 

 

There were no significant transfers between Levels 1 and 2 during the period ended January 31, 2016.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended January 31, 2016:

 

Category and Subcategory  

Beginning
Balance

at 07/31/2015

    Net
Purchases
    Net
Sales
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation) (1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 01/31/2016
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2016 (1)
 

Investments in Securities, at Value

  

                 

Corporate Bonds & Notes

                   

Banking & Finance

  $ 5,535      $ 2,587      $ (64   $ 1      $ 1      $ 107      $ 0      $ 0      $ 8,167      $ 115   

Industrials

    2,007        0        0        1        0        (1     0        0        2,007        (2

U.S. Government Agencies

    0        5,254        (31     13        12        (254     0        0        4,994        (254

Common Stocks

                   

Financials

    520        0        0        0        0        (24     0        0        496        (24
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     8,062      $     7,841      $     (95   $     15      $     13      $     (172   $     0      $     0      $     15,664      $     (165
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2016   61


Table of Contents

Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

January 31, 2016 (Unaudited)

 

 

The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:

 

Category and Subcategory   Ending
Balance
at 01/31/2016
     Valuation
Technique
   Unobservable
Inputs
   Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

  

        

Corporate Bonds & Notes

          

Banking & Finance

  $ 2,608       Other Valuation Techniques (2)    —        —     
    5,559       Proxy Pricing    Base Price      113.30   

Industrials

    2,007       Proxy Pricing    Base Price      100.09   

U.S. Government Agencies

    4,994       Proxy Pricing    Base Price      56.31   

Common Stocks

          

Financials

    496       Other Valuation Techniques (2)    —        —     
 

 

 

          

Total

  $     15,664            
 

 

 

          

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2016 may be due to an investment no longer held or categorized as Level 3 at period end.

(2) 

Includes valuation techniques not defined in the Notes to Financial Statements as securities valued using such techniques are not considered significant to the Fund.

 

62   PIMCO CLOSED-END FUNDS        See Accompanying Notes   


Table of Contents

Notes to Financial Statements

 

January 31, 2016 (Unaudited)

 

1. ORGANIZATION

 

PIMCO Corporate & Income Opportunity Fund, PIMCO Corporate & Income Strategy Fund, PIMCO High Income Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II (each a “Fund” and collectively the “Funds”) are organized as closed-end management investment companies registered under the Investment Company Act of 1940, as amended (the “Act”), and the rules and regulations thereunder. PIMCO Corporate & Income Opportunity Fund, PIMCO Corporate & Income Strategy Fund, PIMCO High Income Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II were organized as Massachusetts business trusts on the dates shown in the table below. Pacific Investment Management Company LLC (“PIMCO” or the “Manager”) serves as the Funds’ investment manager.

 

Fund Name       Formation Date  

PIMCO Corporate & Income Opportunity Fund

      September 13, 2002   

PIMCO Corporate & Income Strategy Fund

      October 17, 2001   

PIMCO High Income Fund

      February 18, 2003   

PIMCO Income Strategy Fund

      June 19, 2003   

PIMCO Income Strategy Fund II

      June 30, 2004   

 

Each Fund has authorized an unlimited number of Common Shares at a par value of $0.00001 per share.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Each Fund is treated as an investment company under the reporting requirements of U.S. GAAP. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

(a) Securities Transactions and Investment Income  Securities transactions are recorded as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed- delivery basis may be settled 15 days or more after the trade date. Realized gains and losses from securities sold are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex- dividend date may have passed, which are recorded as soon as a Fund is informed of the ex-dividend date. Interest income, adjusted for the accretion of discounts and amortization of premiums, is recorded on the accrual basis from settlement date. For convertible securities,

premiums attributable to the conversion feature are not amortized. Estimated tax liabilities on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized appreciation/depreciation on investments on the Statements of Operations, as appropriate. Tax liabilities realized as a result of such security sales are reflected as a component of net realized gain/loss on investments on the Statements of Operations. Paydown gains and losses on mortgage-related and other asset-backed securities are recorded as components of interest income on the Statements of Operations. Income or short-term capital gain distributions received from underlying funds are recorded as dividend income. Long-term capital gain distributions received from underlying funds are recorded as realized gains.

 

Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is probable.

 

(b) Cash and Foreign Currency  The functional and reporting currency for the Funds is the U.S. dollar. The market values of foreign securities, currency holdings and other assets and liabilities are translated into U.S. dollars based on the current exchange rates each business day. Purchases and sales of securities and income and expense items denominated in foreign currencies, if any, are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Funds do not separately report the effects of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and net changes in unrealized appreciation (depreciation) from investments on the Statements of Operations. The Funds may invest in foreign currency-denominated securities and may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through a forward foreign currency contract (see Financial Derivative Instruments). Realized foreign exchange gains or losses arising from sales of spot foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid are included in net realized gain (loss) on foreign currency transactions on the Statements of Operations. Net unrealized foreign exchange gains and losses arising from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period are included in net change in unrealized appreciation or depreciation on foreign currency assets and liabilities on the Statements of Operations.

 

 

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Notes to Financial Statements (Cont.)

 

 

(c) Distributions — Common Shares  The Funds intend to declare distributions from net investment income and gains from the sale of portfolio securities and other sources to common shareholders monthly. Net realized capital gains earned by each Fund, if any, will be distributed no less frequently than once each year. A Fund may engage in investment strategies, including the use of derivatives, to, among other things, generate current, distributable income without regard to possible declines in the Fund’s net asset value. A Fund’s income and gain-generating strategies, including certain derivatives strategies, may generate current income and gains for monthly distributions even in situations when the Fund has experienced a decline in net assets, including losses due to adverse changes in securities markets or the Fund’s portfolio of investments, including derivatives. Consequently, common shareholders may receive distributions and owe tax at a time when their investment in a Fund has declined in value, which tax may be at ordinary income rates. Also, the tax treatment of certain derivatives may be open to different interpretations. Any recharacterization of payments made or received by a Fund pursuant to derivatives potentially could affect the amount, timing or character of Fund distributions. In addition, the tax treatment of such investment strategies may be changed by regulation or otherwise.

 

Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. Differences between tax regulations and U.S. GAAP may cause timing differences between income and capital gain recognition. Examples of events that give rise to timing differences include wash sales, straddles and capital loss carryforwards. Further, the character of investment income and capital gains may be different for certain transactions under the two methods of accounting. Examples of characterization differences include the treatment of paydowns on mortgage-backed securities, swaps, foreign currency transactions and contingent debt instruments. As a result, income distributions and capital gain distributions declared during a fiscal period may differ significantly from the net investment income (loss) and realized gains (losses) reported on each Fund’s annual financial statements presented under U.S. GAAP.

 

Distributions classified as a tax basis return of capital, if any, are reflected on the Statements of Changes in Net Assets and have been recorded to paid in capital. In addition, other amounts have been reclassified between undistributed (overdistributed) net investment income (loss), accumulated undistributed (overdistributed) net realized gains (losses) and/or paid in capital to more appropriately conform financial accounting to tax characterizations of distributions.

 

(d) New Accounting Pronouncements  In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-11 that expanded secured borrowing accounting

for certain repurchase agreements. The ASU also sets forth additional disclosure requirements for certain transactions accounted for as sales in order to provide financial statement users with information to compare to similar transactions accounted for as secured borrowings. The ASU became effective prospectively for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. The Funds have adopted the ASU. The financial statements have been modified to provide enhanced disclosures surrounding secured borrowing transactions. See the Notes to Schedule of Investments for additional details.

 

In August 2014, the FASB issued ASU 2014-15 requiring management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern. The ASU is effective prospectively for annual periods ending after December 15, 2016, and interim periods thereafter. At this time, management is evaluating the implications of these changes on the financial statements.

 

In May 2015, the FASB issued ASU 2015-07 which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The ASU also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. At this time, management is evaluating the implications of these changes on the financial statements.

 

3. INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

 

(a) Investment Valuation Policies  The net asset value (“NAV”) of a Fund’s shares is determined by dividing the total value of portfolio investments and other assets attributable to that Fund, less any liabilities, by the total number of shares outstanding of that Fund.

 

On each day that the New York Stock Exchange (“NYSE”) is open, Fund shares are ordinarily valued as of the close of regular trading (“NYSE Close”). Information that becomes known to the Funds or their agents after the time as of which NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of a security or the NAV determined earlier that day. Each Fund reserves the right to change the time as of which its respective NAV is calculated if the Fund closes earlier, or as permitted by the SEC.

 

For purposes of calculating NAV, portfolio securities and other assets for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of official

 

 

64   PIMCO CLOSED-END FUNDS     


Table of Contents

 

January 31, 2016 (Unaudited)

 

closing prices or the last reported sales prices, or if no sales are reported, based on quotes obtained from established market makers or prices (including evaluated prices) supplied by the Funds’ approved pricing services, quotation reporting systems and other third-party sources (together, “Pricing Services”). The Funds will normally use pricing data for domestic equity securities received shortly after the NYSE Close and do not normally take into account trading, clearances or settlements that take place after the NYSE Close. A foreign (non-U.S.) equity security traded on a foreign exchange or on more than one exchange is typically valued using pricing information from the exchange considered by PIMCO to be the primary exchange. A foreign (non-U.S.) equity security will be valued as of the close of trading on the foreign exchange, or the NYSE Close, if the NYSE Close occurs before the end of trading on the foreign exchange. Domestic and foreign (non-U.S.) fixed income securities, non-exchange traded derivatives, and equity options are normally valued on the basis of quotes obtained from brokers and dealers or Pricing Services using data reflecting the earlier closing of the principal markets for those securities. Prices obtained from Pricing Services may be based on, among other things, information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Certain fixed income securities purchased on a delayed-delivery basis are marked to market daily until settlement at the forward settlement date. Exchange-traded options, except equity options, futures and options on futures are valued at the settlement price determined by the relevant exchange. Swap agreements are valued on the basis of bid quotes obtained from brokers and dealers or market-based prices supplied by Pricing Services or other pricing sources. With respect to any portion of a Fund’s assets that are invested in one or more open-end management investment companies (other than exchange-traded funds (“ETFs”)), a Fund’s NAV will be calculated based upon the NAVs of such investments.

 

If a foreign (non-U.S.) equity security’s value has materially changed after the close of the security’s primary exchange or principal market but before the NYSE Close, the security may be valued at fair value based on procedures established and approved by the Board of Trustees (the “Board”). Foreign (non-U.S.) equity securities that do not trade when the NYSE is open are also valued at fair value. With respect to foreign (non-U.S.) equity securities, a Fund may determine the fair value of investments based on information provided by Pricing Services and other third-party vendors, which may recommend fair value or adjustments with reference to other securities, indices or assets. In considering whether fair valuation is required and in determining fair values, a Fund may, among other things, consider significant events (which may be considered to include changes in the value of U.S. securities or securities indices) that occur after the close of the relevant market and before the NYSE Close. A Fund may utilize modeling tools provided by third-party vendors to determine fair values of non-U.S.

securities. Foreign (non-U.S.) exchanges may permit trading in foreign (non-U.S.) equity securities on days when a Fund is not open for business, which may result in a Fund’s portfolio investments being affected when shareholders are unable to buy or sell shares.

 

Senior secured floating rate loans for which an active secondary market exists to a reliable degree will be valued at the mean of the last available bid/ask prices in the market for such loans, as provided by a Pricing Service. Senior secured floating rate loans for which an active secondary market does not exist to a reliable degree will be valued at fair value, which is intended to approximate market value. In valuing a senior secured floating rate loan at fair value, the factors considered may include, but are not limited to, the following: (a) the creditworthiness of the borrower and any intermediate participants, (b) the terms of the loan, (c) recent prices in the market for similar loans, if any, and (d) recent prices in the market for instruments of similar quality, rate, period until next interest rate reset and maturity.

 

Investments valued in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates obtained from Pricing Services. As a result, the value of such investments and, in turn, the NAV of the Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that a Fund is not open for business. As a result, to the extent that a Fund holds foreign (non-U.S.) investments, the value of those investments may change at times when shareholders are unable to buy or sell shares and the value of such investments will be reflected in the Fund’s next calculated NAV.

 

Investments for which market quotes or market-based valuations are not readily available are valued at fair value as determined in good faith by the Board or persons acting at their direction. The Board has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available, and has delegated to PIMCO the responsibility for applying the fair valuation methods. In the event that market quotes or market-based valuations are not readily available, and the security or asset cannot be valued pursuant to a Board approved valuation method, the value of the security or asset will be determined in good faith by the Valuation Oversight Committee of the Board (“Valuation Oversight Committee”), generally based on recommendations provided by the Manager. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, indicative market quotations (“Broker Quotes”), Pricing Services’ prices), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of a Fund’s securities or assets. In addition,

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   65


Table of Contents

Notes to Financial Statements (Cont.)

 

market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available. The Board has delegated to the Manager the responsibility for monitoring significant events that may materially affect the values of a Fund’s securities or assets and for determining whether the value of the applicable securities or assets should be reevaluated in light of such significant events.

 

When a Fund uses fair valuation to determine the value of a portfolio security or other asset for purposes of calculating its NAV, such investments will not be priced on the basis of quotes from the primary market in which they are traded, but rather may be priced by another method that the Board of Trustees or persons acting at their direction believe reflects fair value. Fair valuation may require subjective determinations about the value of a security. While the Funds’ policy is intended to result in a calculation of a Fund’s NAV that fairly reflects security values as of the time of pricing, the Funds cannot ensure that fair values determined by the Board of Trustees or persons acting at their direction would accurately reflect the price that a Fund could obtain for a security if it were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Fund may differ from the value that would be realized if the securities were sold.

 

(b) Fair Value Hierarchy  U.S. GAAP describes fair value as the price that a Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that prioritizes inputs to valuation methods and requires disclosure of the fair value hierarchy, separately for each major category of assets and liabilities, that segregates fair value measurements into levels (Level 1, 2, or 3). The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Levels 1, 2, and 3 of the fair value hierarchy are defined as follows:

 

n   

Level 1 — Inputs using (unadjusted) quoted prices in active markets or exchanges for identical assets and liabilities.

 

n   

Level 2 — Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

 

n   

Level 3 — Significant unobservable inputs based on the best information available in the circumstances, to the extent observable

   

inputs are not available, which may include assumptions made by the Board or persons acting at their direction that are used in determining the fair value of investments.

 

In accordance with the requirements of U.S. GAAP, the amounts of transfers between Levels 1 and 2 and transfers in and out of Level 3, if material, are disclosed in the Notes to Schedules of Investments of each respective Fund.

 

For fair valuations using significant unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to realized gain (loss), unrealized appreciation (depreciation), purchases and sales, accrued discounts (premiums), and transfers in and out of the Level 3 category during the period. The end of period timing recognition is used for the transfers between Levels of a Fund’s assets and liabilities. Additionally, U.S. GAAP requires quantitative information regarding the significant unobservable inputs used in the determination of fair value of assets or liabilities categorized as Level 3 in the fair value hierarchy. In accordance with the requirements of U.S. GAAP, a fair value hierarchy, and if material, a Level 3 reconciliation and details of significant unobservable inputs, have been included in the Notes to Schedules of Investments for each respective Fund.

 

(c) Valuation Techniques and the Fair Value Hierarchy

Level 1 and Level 2 trading assets and trading liabilities, at fair value  The valuation methods (or “techniques”) and significant inputs used in determining the fair values of portfolio securities or other assets and liabilities categorized as Level 1 and Level 2 of the fair value hierarchy are as follows:

 

Fixed income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. treasury obligations, sovereign issues, bank loans, convertible preferred securities and non-U.S. bonds are normally valued on the basis of quotes obtained from brokers and dealers or Pricing Services that use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models. The Pricing Services’ internal models use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Fixed income securities purchased on a delayed-delivery basis or as a repurchase commitment in a sale-buyback transaction are marked to market daily until settlement at the forward settlement date and are categorized as Level 2 of the fair value hierarchy.

 

 

66   PIMCO CLOSED-END FUNDS     


Table of Contents

 

January 31, 2016 (Unaudited)

 

 

Mortgage-related and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by Pricing Services that use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, current market data, estimated cash flows and market-based yield spreads for each tranche, and incorporate deal collateral performance, as available. Mortgage-related and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Common stocks, ETFs, exchange-traded notes and financial derivative instruments, such as futures contracts or options on futures that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy.

 

Investments valued (denominated) in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates (currency spot and forward rates) obtained from Pricing Services. As a result, the NAV of a Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that a Fund is not open for business. Valuation adjustments may be applied to certain securities that are solely traded on a foreign exchange to account for the market movement between the close of the foreign market and the NYSE Close. These securities are valued using Pricing Services that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments. Securities using these valuation adjustments are categorized as Level 2 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are also categorized as Level 2 of the fair value hierarchy.

 

Short-term debt instruments (such as commercial paper) having a remaining maturity of 60 days or less may be valued at amortized cost, so long as the amortized cost of such short-term debt instrument is approximately the same as the fair value of the instrument as determined without the use of amortized cost valuation. Prior to July 31, 2015, short-term investments having a maturity of 60 days or less and repurchase agreements were generally valued at amortized cost which approximates fair value. Short-term debt instruments having a remaining maturity of 60 days or less are categorized as Level 2 of the fair value hierarchy.

 

Equity exchange-traded options and over the counter financial derivative instruments, such as foreign currency contracts, options

contracts, or swap agreements, derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. Other than swap agreements, which are valued using a broker-dealer bid quotation or on market-based prices provided by Pricing Services or other pricing sources, these contracts are normally valued on the basis of quotes obtained from a quotation reporting system, established market makers or Pricing Services (normally determined as of the NYSE Close). Depending on the product and the terms of the transaction, financial derivative instruments can be valued by Pricing Services using a series of techniques, including simulation pricing models. The pricing models use inputs that are observed from actively quoted markets such as quoted prices, issuer details, indices, bid/ask spreads, interest rates, implied volatilities, yield curves, dividends and exchange rates. Financial derivative instruments that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Centrally cleared swaps listed or traded on a multilateral or trade facility platform, such as a registered exchange, are valued at the daily settlement price determined by the respective exchange (if available). For centrally cleared credit default swaps the clearing facility requires its members to provide actionable price levels across complete term structures. These levels, along with external third-party prices, are used to produce daily settlement prices. These securities are categorized as Level 2 of the fair value hierarchy. Centrally cleared interest rate swaps are valued using a pricing model that references the underlying rates including the overnight index swap rate and London Interbank Offered Rate (“LIBOR”) forward rate to produce the daily settlement price. These securities are categorized as Level 2 of the fair value hierarchy.

 

Level 3 trading assets and trading liabilities, at fair value  When a fair valuation method is applied by PIMCO that uses significant unobservable inputs, investments will be priced by a method that the Board or persons acting at their direction believe reflects fair value and are categorized as Level 3 of the fair value hierarchy. The valuation techniques and significant inputs used in determining the fair values of portfolio assets and liabilities categorized as Level 3 of the fair value hierarchy are as follows:

 

Proxy pricing procedures set the base price of a fixed income security and subsequently adjust the price proportionally to market value changes of a pre-determined security deemed to be comparable in duration, generally a U.S. Treasury or sovereign note based on country of issuance. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by the Valuation Oversight Committee. Significant changes in the unobservable inputs of the proxy pricing process (the base price) would result in direct and

 

 

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Table of Contents

Notes to Financial Statements (Cont.)

 

proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy.

 

If third-party evaluated vendor pricing is not available or not deemed to be indicative of fair value, the Manager may elect to obtain indicative market quotations (“broker quotes”) directly from the broker-dealer or passed through from a third-party vendor. In the event that fair value is based upon a single sourced broker quote, these securities are categorized as Level 3 of the fair value hierarchy. Broker quotes are typically received from established market participants. Although independently received, the Manager does not have the transparency to view the underlying inputs which support the market quotation. Significant changes in the broker quote would have direct and proportional changes in the fair value of the security.

 

The validity of the fair value is reviewed by the Manager on a periodic basis and may be amended in accordance with the Funds’ valuation procedures.

 

4. SECURITIES AND OTHER INVESTMENTS

 

(a) Investments in Securities

Loan Participations, Assignments and Originations  Certain Funds may invest in direct debt instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers. A Fund’s investments in loans may be in the form of direct investments, participations in loans or assignments of all or a portion of loans from third parties or investments in or originations of loans by a Fund or Funds. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. A Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement.

 

In the event of the insolvency of the lender selling a participation, a Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. When a Fund purchases assignments from lenders it acquires direct rights against the borrowers of the loans. These loans may include participations in bridge loans, which are loans taken out by borrowers for a short period (typically less than one year) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high yield bonds issued for the purpose of acquisitions.

 

Investments in loans are generally subject to risks similar to those of investments in other types of debt obligations, including, among

others, credit risk, interest rate risk, variable and floating rate securities risk, and risks associated with mortgage-related securities. In addition, in many cases loans are subject to the risks associated with below- investment grade securities. The Funds may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans or acting as an originator of loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, lender liability, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans. To the extent that a Fund originates a loan, it may be responsible for all or a substantial portion of the expenses associated with initiating the loan. This may include significant legal and due diligence expenses, which will be indirectly borne by the Fund and its shareholders. A Fund may pay fees and expenses associated with originating a loan, including significant legal and due diligence expenses, irrespective of whether the loan transaction is ultimately consummated or closed.

 

The types of loans and related investments in which the Funds may invest include, among others, senior loans, subordinated loans (including second lien loans, B-Notes and mezzanine loans), whole loans, commercial real estate and other commercial loans and structured loans. The Funds may originate loans or acquire direct interests in loans through primary loan distributions and/or in private transactions. In the case of subordinated loans, there may be significant indebtedness ranking ahead of the borrower’s obligation to the holder of such a loan, including in the event of the borrower’s insolvency. Mezzanine loans are typically secured by a pledge of an equity interest in the mortgage borrower that owns the real estate rather than an interest in a mortgage.

 

Investments in loans may include unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate a Fund to supply additional cash to the borrower on demand. Unfunded loan commitments represent a future obligation in full, even though a percentage of the committed amount may not be utilized by the borrower. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt of payments by the lender from the borrower. A Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan. In certain circumstances, a Fund may receive a penalty fee upon the prepayment of a loan by a borrower. Fees earned or paid are recorded as a component of interest income or interest expense, respectively, on the Statements of Operations. As of January 31, 2016, the Funds had no unfunded loan commitments outstanding.

 

 

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Mortgage-Related and Other Asset-Backed Securities  Certain Funds may invest in mortgage-related and other asset-backed securities that directly or indirectly represent a participation in, or are secured by and payable from, loans on real property. Mortgage-related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. These securities provide a monthly payment which consists of both interest and principal. Interest may be determined by fixed or adjustable rates. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. The timely payment of principal and interest of certain mortgage-related securities is guaranteed with the full faith and credit of the U.S. Government. Pools created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Many of the risks of investing in mortgage-related securities secured by commercial mortgage loans reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make lease payments, and the ability of a property to attract and retain tenants. These securities may be less liquid and may exhibit greater price volatility than other types of mortgage-related or other asset-backed securities. Other asset-backed securities are created from many types of assets, including auto loans, credit card receivables, home equity loans, and student loans.

 

Collateralized Mortgage Obligations (“CMOs”)  are debt obligations of a legal entity that are collateralized by whole mortgage loans or private mortgage bonds and divided into classes. CMOs are structured into multiple classes, often referred to as “tranches,” with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. CMOs may be less liquid and may exhibit greater price volatility than other types of mortgage-related or asset-backed securities.

 

As CMOs have evolved, some classes of CMO bonds have become more common. For example, a Fund may invest in parallel-pay and planned amortization class (“PAC”) CMOs and multi-class pass-through certificates. Parallel-pay CMOs and multi-class pass-through certificates are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO and multi- class pass-through structures, must be retired by its stated maturity date or final distribution date but may be retired earlier. PACs generally

require payments of a specified amount of principal on each payment date. PACs are parallel-pay CMOs with the required principal amount on such securities having the highest priority after interest has been paid to all classes. Any CMO or multi-class pass through structure that includes PAC securities must also have support tranches — known as support bonds, companion bonds or non-PAC bonds — which lend or absorb principal cash flows to allow the PAC securities to maintain their stated maturities and final distribution dates within a range of actual prepayment experience. These support tranches are subject to a higher level of maturity risk compared to other mortgage-related securities, and usually provide a higher yield to compensate investors. If principal cash flows are received in amounts outside a pre-determined range such that the support bonds cannot lend or absorb sufficient cash flows to the PAC securities as intended, the PAC securities are subject to heightened maturity risk. A Fund may invest in various tranches of CMO bonds, including support bonds.

 

Collateralized Debt Obligations (“CDOs”)  include Collateralized Bond Obligations (“CBOs”), Collateralized Loan Obligations (“CLOs”) and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust which is typically backed by a diversified pool of high risk, below investment grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. For both CBOs and CLOs, the cash flows from the trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche which bears the bulk of defaults from the bonds or loans in the trust and serves to protect the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults, a senior tranche from a CBO trust or CLO trust typically has higher ratings and lower yields than the underlying securities, and can be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults and aversion to CBO or CLO securities as a class. The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. CDOs carry additional risks including, but not limited to, (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments, (ii) the collateral may decline in value or default, (iii) a Fund may invest in CDOs that are subordinate to other classes, and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

 

 

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Stripped Mortgage-Backed Securities (“SMBS”)  are derivative multi- class mortgage securities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. An SMBS will have one class that will receive all of the interest (the interest-only or “IO” class), while the other class will receive the entire principal (the principal-only or “PO” class). IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund’s yield to maturity from these securities. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Funds may fail to recoup some or all of its initial investment in these securities even if the security is in one of the highest rating categories. Payments received for IOs are included in interest income on the Statements of Operations. Because no principal will be received at the maturity of an IO, adjustments are made to the cost of the security on a monthly basis until maturity. These adjustments are included in interest income on the Statements of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.

 

Payment In-Kind Securities  Certain Funds may invest in payment in-kind securities (“PIKs”). PIKs may give the issuer the option at each interest payment date of making interest payments in either cash or additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro rata adjustment from the unrealized appreciation or depreciation on investments to interest receivable on the Statements of Assets and Liabilities.

 

Restricted Securities  Certain Funds may invest in securities that are subject to legal or contractual restrictions on resale. These securities may be sold privately, but are required to be registered or exempted from such registration before being sold to the public. Private placement securities are generally considered to be restricted except for those securities traded between qualified institutional investors under the provisions of Rule 144A of the Securities Act of 1933. Disposal of restricted securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult to

achieve. Restricted securities outstanding at January 31, 2016 are disclosed in the Notes to Schedules of Investments.

 

U.S. Government Agencies or Government-Sponsored Enterprises  Certain Funds may invest in securities of U.S. Government agencies or government-sponsored enterprises. U.S. Government securities are obligations of and, in certain cases, guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds, and securities guaranteed by the Government National Mortgage Association (“GNMA” or “Ginnie Mae”), are supported by the full faith and credit of the U.S. Government; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Department of the Treasury (the “U.S. Treasury”); and others, such as those of the Federal National Mortgage Association (“FNMA” or “Fannie Mae”), are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations. U.S. Government securities may include zero coupon securities. Zero coupon securities do not distribute interest on a current basis and tend to be subject to a greater risk than interest-paying securities.

 

Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). FNMA is a government-sponsored corporation. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC issues Participation Certificates (“PCs”), which are pass-through securities, each representing an undivided interest in a pool of residential mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. Government.

 

When-Issued Transactions  Certain Funds may purchase or sell securities on a when-issued basis. These transactions are made conditionally because a security, although authorized, has not yet been issued in the market. A commitment is made by a Fund to purchase or sell these securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. A Fund may sell when-issued securities before they are delivered, which may result in a realized gain or loss.

 

 

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5. BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

The following disclosures contain information on a Fund’s ability to lend or borrow cash or securities to the extent permitted under the Act, which may be viewed as borrowing or financing transactions by a Fund. The location of these instruments is described below. For a detailed description of credit and counterparty risks that can be associated with borrowings and other financing transactions, please see Note 7, Principal Risks.

 

(a) Repurchase Agreements  Certain Funds may engage in repurchase agreements. Under the terms of a typical repurchase agreement, a Fund takes possession of an underlying debt obligation (collateral) subject to an obligation of the seller to repurchase, and a Fund to resell, the obligation at an agreed-upon price and time. The underlying securities for all repurchase agreements are held in safekeeping at the Fund’s custodian or designated subcustodians under tri-party repurchase agreements. The market value of the collateral must be equal to or exceed the total amount of the repurchase obligations, including interest. Repurchase agreements, including accrued interest, are included on the Statements of Assets and Liabilities. Interest earned is recorded as a component of interest income on the Statements of Operations. In periods of increased demand for collateral, a Fund may pay a fee for the receipt of collateral, which may result in interest expense to the Fund.

 

(b) Reverse Repurchase Agreements  Certain Funds may enter into reverse repurchase agreements. In a reverse repurchase agreement, a Fund delivers a security in exchange for cash to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. A Fund is entitled to receive principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by a Fund to counterparties are reflected as a liability on the Statements of Assets and Liabilities. Interest payments made by a Fund to counterparties are recorded as a component of interest expense on the Statements of Operations. In periods of increased demand for the security, a Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund’s use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to repurchase the securities. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities to be repurchased may decline below the repurchase price (see Note 7, Principal Risks).

6. FINANCIAL DERIVATIVE INSTRUMENTS

 

The following disclosures contain information on how and why the Funds may use financial derivative instruments, the credit-risk-related contingent features in certain financial derivative instruments, and how financial derivative instruments affect the Funds’ financial position, results of operations and cash flows. The location and fair value amounts of these instruments on the Statements of Assets and Liabilities and the realized and changes in unrealized appreciation (depreciation) on the Statements of Operations, each categorized by type of financial derivative contract and related risk exposure, are included in a table in the Notes to Schedules of Investments. The financial derivative instruments outstanding as of period end and the amounts of realized and changes in unrealized appreciation (depreciation) on financial derivative instruments during the period, as disclosed in the Notes to Schedules of Investments, serve as indicators of the volume of financial derivative activity for the Funds.

 

PIMCO Corporate & Income Opportunity Fund is subject to regulation as a commodity pool under the Commodity Exchange Act pursuant to recent rule changes by the Commodity Futures Trading Commission (the “CFTC”). The Manager has registered with the CFTC as a Commodity Pool Operator and a Commodity Trading Adviser with respect to the Fund, and is a member of the National Futures Association. As a result, additional CFTC-mandated disclosure, reporting and recordkeeping obligations apply to PIMCO Corporate & Income Opportunity Fund. Compliance with the CFTC’s regulatory requirements could increase PIMCO Corporate & Income Opportunity Fund’s expenses, adversely affecting its total return.

 

(a) Forward Foreign Currency Contracts  Certain Funds may enter into forward foreign currency contracts in connection with settling planned purchases or sales of securities, to hedge the currency exposure associated with some or all of a Fund’s securities or as a part of an investment strategy. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked to market daily, and the change in value is recorded by a Fund as an unrealized gain or loss. Realized gains or losses are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed and are recorded upon delivery or receipt of the currency. The contractual obligations of a buyer or seller of a forward foreign currency contract may generally be satisfied by taking or making physical delivery of the underlying currency, establishing an opposite position in the contract and recognizing the profit or loss on both positions simultaneously on the delivery date or, in some instances, paying a cash settlement before the designated date of delivery. These

 

 

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contracts may involve market risk in excess of the unrealized gain or loss reflected on the Statements of Assets and Liabilities. Although forwards may be intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. In addition, a Fund could be exposed to risk if the counterparties are unable to meet the terms of the contracts or if the value of the currency changes unfavorably to the U.S. dollar. To mitigate such risk, cash or securities may be exchanged as collateral pursuant to the terms of the underlying contracts.

 

(b) Swap Agreements  Certain Funds may invest in swap agreements. Swap agreements are bilaterally negotiated agreements between a Fund and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap agreements may be privately negotiated in the over the counter market (“OTC swaps”) or may be cleared through a third party, known as a central counterparty or derivatives clearing organization (“Centrally Cleared Swaps”). A Fund may enter into asset, credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements to manage its exposure to credit, currency, interest rate, commodity, equity and inflation risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency.

 

Centrally Cleared Swaps are marked to market daily based upon valuations as determined from the underlying contract or in accordance with the requirements of the central counterparty or derivatives clearing organization. Changes in market value, if any, are reflected as a component of net change in unrealized appreciation/(depreciation) on the Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a variation margin on the Statements of Assets and Liabilities. OTC swap payments received or paid at the beginning of the measurement period are included on the Statements of Assets and Liabilities and represent premiums paid or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). Upfront premiums received (paid) are initially recorded as liabilities (assets) and subsequently marked to market to reflect the current value of the swap. These upfront premiums are recorded as realized gains or losses on the Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss on the Statements of Operations. Net periodic payments received or paid by a Fund are included as part of realized gains or losses on the Statements of Operations.

For purposes of applying a Fund’s investment policies and restrictions, swap agreements are generally valued by a Fund at market value. In the case of a credit default swap (see below), however, in applying certain of a Fund’s investment policies and restrictions, the Funds will value the credit default swap at its notional value or its full exposure value (i.e., the sum of the notional amount for the contract plus the market value), but may value the credit default swap at market value for purposes of applying certain of a Fund’s other investment policies and restrictions. For example, a Fund may value credit default swaps at full exposure value for purposes of a Fund’s credit quality guidelines (if any) because such value reflects a Fund’s actual economic exposure during the term of the credit default swap agreement. In this context, both the notional amount and the market value may be positive or negative depending on whether a Fund is selling or buying protection through the credit default swap. The manner in which certain securities or other instruments are valued by a Fund for purposes of applying investment policies and restrictions may differ from the manner in which those investments are valued by other types of investors.

 

Entering into these agreements involves, to varying degrees, elements of interest, credit, market and documentation risk in excess of the amounts recognized on the Statements 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 contractual terms in the agreements and that there may be unfavorable changes in interest rates.

 

A Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s remaining life, to the extent that amount is positive. The risk is mitigated by having a master netting arrangement between a Fund and the counterparty and by the posting of collateral to a Fund to cover a Fund’s exposure to the counterparty.

 

Credit Default Swap Agreements  A Fund may use credit default swaps on corporate, loan, sovereign, U.S. municipal or U.S. Treasury issues to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where a Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. Credit default swap agreements involve one party making a stream of payments (referred to as the buyer of protection) to another party (the seller of protection) in exchange for the right to receive a specified return in the event that the referenced entity, obligation or index, as specified in the agreement, undergoes a certain credit event. As a seller of protection on credit default swap agreements, a Fund will generally receive from the buyer of protection a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Fund would effectively add leverage to its portfolio because, in addition to its

 

 

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total net assets, a Fund would be subject to investment exposure on the notional amount of the swap.

 

If a Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If a Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Recovery values are estimated by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value.

 

Credit default swap agreements on corporate or sovereign issues involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit event. If a credit event occurs and cash settlement is not elected, a variety of other deliverable obligations may be delivered in lieu of the specific referenced obligation. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protection’s right to choose the deliverable obligation with the lowest value following a credit event).

 

Credit default swap agreements on credit indices involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the credit default swap market-based on the sector of the index. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset-backed securities, emerging markets, and/or various credit ratings within each

sector. Credit indices are traded using credit default swaps with standardized terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, and if there is a default, the credit event is settled based on that name’s weight in the index. The composition of the indices changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. Credit default swaps on credit indices may be used to hedge a portfolio of credit default swaps or bonds, which is less expensive than it would be to buy many credit default swaps to achieve a similar effect or to take an active long or short position with respect to the likelihood of a particular referenced obligation’s default. Credit default swaps on indices are instruments often used to attempt to protect investors owning bonds against default, and traders use them to speculate on changes in credit quality.

 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end are disclosed in the Notes to Schedules of Investments. They serve as an indicator of the current status of payment/performance risk and represent the likelihood or risk of default for the reference entity. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/ performance risk. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

The maximum potential amount of future payments (undiscounted) that a Fund as a seller of protection could be required to make under a credit default swap agreement equals the notional amount of the agreement. Notional amounts of each individual credit default swap agreement outstanding as of period end for which a Fund is the seller of protection are disclosed in the Notes to Schedules of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by a Fund for the same referenced entity or entities.

 

Interest Rate Swap Agreements  Certain Funds are subject to interest rate risk exposure in the normal course of pursuing their investment

 

 

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objectives. If a Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, a Fund may enter into interest rate swap agreements. Interest rate swap agreements involve the exchange by a Fund with another party for their respective commitment to pay or receive interest on the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”, (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the buyer pays an upfront fee in consideration for the right to early terminate the swap transaction in whole, at zero cost and at a predetermined date and time prior to the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can exchange variable interest rates based on different segments of money markets.

 

Asset Segregation  Certain of the transactions described above can be viewed as constituting a form of borrowing or financing transaction by the Fund. In such event, a Fund may, but is not required to cover its commitment under such transactions by segregating or “earmarking” assets in accordance with procedures adopted by the Board of Trustees, in which case such transactions will not be considered “senior securities” by the Fund. With respect to forwards, futures contracts, options and swaps that are contractually permitted or required to cash settle (i.e., where physical delivery of the underlying reference asset is not required), a Fund is permitted to segregate or earmark liquid assets equal to the Fund’s daily marked-to-market net obligation under the derivative instrument, if any, rather than the derivative’s full notional value. By segregating or earmarking liquid assets equal to only its net marked-to-market obligation under derivatives that are required to cash settle, a Fund will have the ability to employ leverage to a greater extent than if a Fund were to segregate or earmark liquid assets equal to the full notional value of the derivative.

 

7. PRINCIPAL RISKS

 

In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to such things as changes in the market (market risk) or failure or inability of the other party to a transaction to perform (credit and counterparty risk). See below for a detailed description of select principal

risks. For a more comprehensive list of potential risks the Funds may be subject to, please see the Important Information About the Funds.

 

Market Risks  A Fund’s investments in financial derivatives and other financial instruments expose the Fund to various risks such as, but not limited to, interest rate, foreign currency, equity and commodity risks.

 

Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the value of certain fixed income securities held by a Fund is likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Interest rate changes can be sudden and unpredictable, and a Fund may lose money if these changes are not anticipated by the Fund’s management. A Fund may not be able to hedge against changes in interest rates or may choose not to do so for cost or other reasons. In addition, any hedges may not work as intended.

 

Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e. yield) movements. A wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions).

 

At present, the U.S. is experiencing historically low interest rates. The Funds may be subject to heightened interest rate risk because the Fed has ended its quantitative easing program and has begun, and may continue, to raise interest rates. Further, while U.S. bond markets have steadily grown over the past three decades, dealer “market making” ability has remained relatively stagnant. Given the importance of intermediary “market making” in creating a robust and active market, fixed income securities may face increased volatility and liquidity risks. All of these factors, collectively and/or individually, could cause a Fund to lose value.

 

Foreign (non-U.S.) securities in this report are classified by the country of incorporation of a holding. In certain instances, a security’s country of incorporation may be different from its country of economic exposure.

 

If a Fund invests directly in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, foreign (non-U.S.) currencies, or in financial derivatives that provide exposure to foreign (non-U.S.) currencies, it will be subject to the risk that those currencies will decline in value relative to the base currency of the Fund, or, in the case of hedging positions, that the Fund’s base currency will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks

 

 

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or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. As a result, a Fund’s investments in foreign currency denominated securities may reduce the Fund’s returns.

 

The market values of a Fund’s investments may decline due to general market conditions which are not specifically related to a particular company or issuer, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities and equity related investments generally have greater market price volatility than fixed income securities, although under certain market conditions fixed income securities may have comparable or greater price volatility. Credit ratings downgrades may also negatively affect securities held by a Fund. Even when markets perform well, there is no assurance that the investments held by a Fund will increase in value along with the broader market. In addition, market risk includes the risk that geopolitical events will disrupt the economy on a national or global level.

 

Credit and Counterparty Risks  A Fund will be exposed to credit risk to parties with whom it trades and will also bear the risk of settlement default. A Fund seeks to minimize concentrations of credit risk by undertaking transactions with a large number of counterparties on recognized and reputable exchanges, where applicable. A Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a financial derivatives contract, repurchase agreement or a loan of portfolio securities, is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings.

 

Similar to credit risk, a Fund may be exposed to counterparty risk, or the risk that an institution or other entity with which a Fund has unsettled or open transactions will default. PIMCO, as Manager, seeks to minimize counterparty risks to a Fund in a number of ways. Prior to entering into transactions with a new counterparty, the PIMCO Counterparty Risk Committee conducts an extensive credit review of such counterparty and must approve the use of such counterparty. Furthermore, pursuant to the terms of the underlying contract, to the extent that unpaid amounts owed to a Fund exceed a predetermined threshold, such counterparty is required to advance collateral to a Fund in the form of cash or securities equal in value to the unpaid amount owed to a Fund. A Fund may invest such collateral in securities or other instruments and will typically pay interest to the counterparty on the collateral received. If the unpaid amount owed to the Fund subsequently decreases, a Fund would be required to return to the counterparty all or a portion of the collateral previously advanced to a Fund.

All transactions in listed securities are settled/paid for upon delivery using approved counterparties. The risk of default is considered minimal, as delivery of securities sold is only made once a Fund has received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.

 

Master Netting Arrangements  The Funds may be subject to various netting arrangements with select counterparties (“Master Agreements”). Master Agreements govern the terms of certain transactions, and are intended to reduce the counterparty risk associated with relevant transactions by specifying credit protection mechanisms and providing standardization that is intended to improve legal certainty. Each type of Master Agreement governs certain types of transactions. Different types of transactions may be traded out of different legal entities or affiliates of a particular organization, resulting in the need for multiple agreements with a single counterparty. As the Master Agreements are specific to unique operations of different asset types, they allow a Fund to close out and net its total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single Master Agreement with a counterparty. For financial reporting purposes the Statements of Assets and Liabilities generally present derivative assets and liabilities on a gross basis, which reflects the full risks and exposures prior to netting.

 

Master Agreements can also help limit counterparty risk by specifying collateral posting arrangements at pre-arranged exposure levels. Under the Master Agreements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Agreement with a counterparty in a given account exceeds a specified threshold, which typically ranges from zero to $250,000 depending on the counterparty and the type of Master Agreement. United States Treasury Bills and U.S. dollar cash are generally the preferred forms of collateral, although other forms of AAA rated paper or sovereign securities may be used. Securities and cash pledged as collateral are reflected as assets on the Statements of Assets and Liabilities as either a component of Investments at value (securities) or Deposits with counterparty (cash). Cash collateral received is typically not held in a segregated account and as such is reflected as a liability on the Statements of Assets and Liabilities as Deposits from counterparty. The market value of any securities received as collateral is not reflected as a component of NAV. A Fund’s overall exposure to counterparty risk can change substantially within a short period, as it is affected by each transaction subject to the relevant Master Agreement.

 

Master Repurchase Agreements and Global Master Repurchase Agreements (individually and collectively “Master Repo Agreements”) govern repurchase, reverse repurchase, and sale-buyback transactions between the Funds and select counterparties. Master Repo Agreements

 

 

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maintain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral. The market value of transactions under the Master Repo Agreement, collateral pledged or received, and the net exposure by counterparty as of period end are disclosed in the Notes to Schedules of Investments.

 

Master Securities Forward Transaction Agreements (“Master Forward Agreements”) govern the considerations and factors surrounding the settlement of certain forward settling transactions, such as To-Be- Announced securities, delayed-delivery or sale-buyback transactions by and between a Fund and select counterparties. The Master Forward Agreements maintain provisions for, among other things, initiation and confirmation, payment and transfer, events of default, termination, and maintenance of collateral. The market value of forward settling transactions, collateral pledged or received, and the net exposure by counterparty as of period end is disclosed in the Notes to Schedules of Investments.

 

Customer Account Agreements and related addendums govern cleared derivatives transactions such as futures, options on futures, and cleared Over the Counter (“OTC”) derivatives. Cleared derivatives transactions require posting of initial margin as determined by each relevant clearing agency which is segregated at a broker account registered with the CFTC, or the applicable regulator. In the United States, counterparty risk is significantly reduced as creditors of a futures broker do not have a claim to Fund assets in the segregated account. Additionally, portability of exposure in the event of default further reduces risk to the Funds. Variation margin, or changes in market value, are exchanged daily, but may not be netted between futures and cleared OTC derivatives. The market value or accumulated unrealized appreciation or depreciation, initial margin posted, and any unsettled variation margin as of period end is disclosed in the Notes to Schedule of Investments.

 

International Swaps and Derivatives Association, Inc. Master Agreements and Credit Support Annexes (“ISDA Master Agreements”) govern OTC financial derivative transactions entered into by a Fund and select counterparties. ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements. In limited circumstances, the ISDA Master Agreement may contain additional provisions that add counterparty protection beyond coverage of existing daily exposure if the counterparty has a decline in credit quality below a predefined level. These amounts, if any, may be segregated with a third-party custodian. The market value of OTC financial derivative instruments, collateral

received or pledged, and net exposure by counterparty as of period end are disclosed in the Notes to Schedules of Investments.

 

8. FEES AND EXPENSES

 

(a) Management Fee  Pursuant to the Investment Management Agreement with PIMCO (the “Agreement”), subject to the supervision of the Board, PIMCO is responsible for providing to each Fund investment guidance and policy direction in connection with the management of the Fund, including oral and written research, analysis, advice, and statistical and economic data and information. In addition, pursuant to the Agreement and subject to the general supervision of the Board, PIMCO, at its expense, provides or causes to be furnished most other supervisory and administrative services the Funds require, including but not limited to, expenses of most third-party service providers (e.g., audit, custodial, legal, transfer agency, printing) and other expenses, such as those associated with insurance, proxy solicitations and mailings for shareholder meetings, New York Stock Exchange listing and related fees, tax services, valuation services and other services the Funds require for their daily operations.

 

Pursuant to the Agreement, PIMCO receives an annual fee, payable monthly, at the annual rates shown in the table below:

 

Fund Name        Annual
Rate
 

PIMCO Corporate & Income Opportunity Fund

       0.65% (1) 

PIMCO Corporate & Income Strategy Fund

       0.81% (1) 

PIMCO High Income Fund

       0.76% (1) 

PIMCO Income Strategy Fund

       0.86% (2) 

PIMCO Income Strategy Fund II

       0.83% (2) 

 

(1)

Management fees calculated based on the Fund’s average daily net asset value (including daily net assets attributable to any preferred shares of the Fund that may be outstanding).

(2) 

Management fees calculated based on the Fund’s average weekly “total managed assets”. Total managed assets includes total assets of each Fund (including any assets attributable to any preferred shares or other forms of leverage that may be outstanding) minus accrued liabilities (other than liabilities representing leverage).

 

(b) Fund Expenses  Each Fund bears other expenses which may vary and affect the total level of expenses paid by shareholders, such as (i) salaries and other compensation or expenses, including travel expenses of any of the Fund’s executive officers and employees, if any, who are not officers, directors, shareholders, members, partners or employees of PIMCO or its subsidiaries or affiliates; (ii) taxes and governmental fees, if any, levied against the Fund; (iii) brokerage fees and commissions and other portfolio transaction expenses incurred by or for the Fund (including, without limitation, fees and expenses of outside legal counsel or third-party consultants retained in connection with reviewing, negotiating and structuring specialized loan and other investments made by the Fund, subject to specific or general authorization by the Fund’s Board); (iv) expenses of the Fund’s securities lending (if any), including any securities lending agent fees,

 

 

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as governed by a separate securities lending agreement; (v) costs, including interest expense, of borrowing money or engaging in other types of leverage financing, including, without limitation, through the use by the Fund of reverse repurchase agreements, tender option bonds, bank borrowings and credit facilities; (vi) costs, including dividend and/or interest expenses and other costs (including, without limitation, offering and related legal costs, fees to brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares, commercial paper or other senior securities for the purpose of incurring leverage; (vii) fees and expenses of any underlying funds or other pooled investment vehicles in which the Fund invests; (viii) dividend and interest expenses on short positions taken by the Fund; (ix) fees and expenses, including travel expenses, and fees and expenses of legal counsel retained for their benefit, of Trustees who are not officers, employees, partners, shareholders or members of PIMCO or its subsidiaries or affiliates; (x) extraordinary expenses, including extraordinary legal expenses, as may arise, including expenses incurred in connection with litigation, proceedings, other claims, and the legal obligations of the Fund to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; (xi) organizational and offering expenses of the Fund, including with respect to share offerings, such as rights offerings and shelf offerings, following the Fund’s initial offering, and expenses associated with tender offers and other share repurchases and redemptions; and (xii) expenses of the Fund which are capitalized in accordance with U.S. GAAP.

 

Each of the Trustees of the Funds who is not an “interested person” under Section 2(a)(19) of the Act, (the “Independent Trustees”) also serves as a trustee of a number of other closed- end funds for which PIMCO serves as investment manager (together with the Funds, the “PIMCO Closed-End Funds”), as well as PIMCO Managed Accounts Trust, an open-end investment company with multiple series for which PIMCO serves as investment manager (“PMAT” and, together with the PIMCO Closed-End Funds, the “PIMCO-Managed Funds”). In addition, each of the Independent Trustees also serves as a trustee of certain investment companies (together, the “Allianz-Managed Funds”), for which Allianz Global Investors Fund Management (“AGIFM”), an affiliate of PIMCO that served as the investment manager of the PIMCO Managed Funds prior to the close of business on September 5, 2014, serves as investment adviser.

 

Each Independent Trustee currently receives annual compensation of $225,000 for his or her service on the Boards of the PIMCO-Managed

Funds, payable quarterly. The Independent Chairman of the Boards receives an additional $75,000 per year, payable quarterly. The Audit Oversight Committee Chairman receives an additional $50,000 annually, payable quarterly. Trustees are also reimbursed for meeting-related expenses.

 

Each Trustee’s compensation for his or her service as a Trustee on the Boards of the PIMCO-Managed Funds and other costs in connection with joint meetings of such Funds are allocated among the PIMCO-Managed Funds, as applicable, on the basis of fixed percentages as between PMAT and the PIMCO Closed-End Funds. Trustee compensation and other costs will then be further allocated pro rata among the individual PIMCO-Managed Funds within each grouping based on each such PIMCO-Managed Fund’s relative net assets.

 

9. RELATED PARTY TRANSACTIONS

 

The Manager is a related party. Fees payable to this party are disclosed in Note 8 and the accrued related party fee amounts are disclosed on the Statements of Assets and Liabilities.

 

Certain Funds are permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of securities by the Funds from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the Act. Further, as defined under the procedures, each transaction is effected at the current market price. During the period ended January 31, 2016, as indicated below, the Funds below engaged in purchases and sales of securities pursuant to Rule 17a-7 of the Act (amounts in thousands):

 

Fund Name       Purchases     Sales  

PIMCO Corporate & Income Opportunity Fund

    $     26,209      $     62,925   

PIMCO Corporate & Income Strategy Fund

      15,617        33,726   

PIMCO High Income Fund

      34,491        111,134   

PIMCO Income Strategy Fund

      4,636        13,802   

PIMCO Income Strategy Fund II

      10,988        23,052   

 

10. GUARANTEES AND INDEMNIFICATIONS

 

Under each Fund’s organizational documents, each Trustee and officer is indemnified, to the extent permitted by the Act, against certain liabilities that may arise out of performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts.

 

 

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11. PURCHASES AND SALES OF SECURITIES

 

The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as “portfolio turnover.” Each Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements. High portfolio turnover involves correspondingly greater transaction costs to a Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. Such sales may also result in realization of taxable capital gains, including short-term capital gains (which are generally taxed at ordinary income tax rates). The transaction costs and tax effects associated with portfolio turnover may adversely affect a Fund’s performance. The portfolio turnover rates are reported in the Financial Highlights.

 

Purchases and sales of securities (excluding short-term investments) for the period ended January 31, 2016, as indicated below, were as follows (amounts in thousands):

 

        U.S. Government/Agency     All Other  
Fund Name       Purchases     Sales     Purchases     Sales  

PIMCO Corporate & Income Opportunity Fund

    $   33,276      $   24,451      $   205,438      $ 214,466   

PIMCO Corporate & Income Strategy Fund

      8,258        1,798        185,816        132,124   

PIMCO High Income Fund

      15,958        5,365        173,645          282,195   

PIMCO Income Strategy Fund

      4,844        1,199        61,577        56,640   

PIMCO Income Strategy Fund II

      15,019        4,894        138,014        112,151   
         

 

12. AUCTION-RATE PREFERRED SHARES

 

Each series of Auction-Rate Preferred Shares (“ARPS”) outstanding of each Fund has a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends. Dividends are accumulated daily at an annual rate that is typically re-set every seven days through auction procedures (or through default procedures in the event of failed auctions). Distributions of net realized capital gains, if any, are paid annually.

 

For the reporting period ended January 31, 2016, the annualized dividend rates on the ARPS ranged from:

 

Fund Name       Shares
Issued and
Outstanding
    High     Low     As of
January 31, 2016
 

PIMCO Corporate & Income Opportunity Fund

         

Series M

      1,884        0.722%        0.160%        0.722%   

Series T

      1,770        0.722%        0.160%        0.722%   

Series W

      1,847        0.762%        0.140%        0.762%   

Series TH

      2,033        0.762%        0.120%        0.762%   

Series F

      1,984        0.722%        0.160%        0.722%   

PIMCO Corporate & Income Strategy Fund

         

Series M

      406        0.542%        0.120%        0.542%   

Series T

      449        0.542%        0.120%        0.542%   

Series W

      473        0.572%        0.105%        0.572%   

Series TH

      434        0.572%        0.090%        0.572%   

Series F

      459        0.542%        0.120%        0.542%   

PIMCO High Income Fund

         

Series M

      688        0.578%        0.128%        0.578%   

Series T

      958        0.578%        0.128%        0.578%   

Series W

      738        0.610%        0.112%        0.610%   

Series TH

      757        0.610%        0.096%        0.610%   

Series F

      938        0.578%        0.128%        0.578%   

PIMCO Income Strategy Fund

         

Series T

      766        1.640%        1.400%        1.638%   

Series W

      699        1.640%        1.400%        1.640%   

Series TH

      586        1.642%        1.397%        1.641%   

 

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January 31, 2016 (Unaudited)

 

Fund Name       Shares
Issued and
Outstanding
    High     Low     As of
January 31, 2016
 

PIMCO Income Strategy Fund II

         

Series M

      721        1.640%        1.399%        1.639%   

Series T

      881        1.640%        1.400%        1.638%   

Series W

      671        1.640%        1.400%        1.640%   

Series TH

      753        1.642%        1.397%        1.641%   

Series F

      672        1.642%        1.399%        1.636%   
         

 

Each Fund is subject to certain limitations and restrictions while ARPS are outstanding. Failure to comply with these limitations and restrictions could preclude a Fund from declaring or paying any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of ARPS at their liquidation preference plus any accumulated, unpaid dividends.

 

Preferred shareholders of each Fund, who are entitled to one vote per share, generally vote together with the common shareholders of the Fund but vote separately as a class to elect two Trustees of the Fund and on certain matters adversely affecting the rights of the ARPS.

 

Since mid-February 2008, holders of ARPS issued by the Funds have been directly impacted by a lack of liquidity, which has similarly affected ARPS holders in many of the nation’s closed-end funds. Since then, regularly scheduled auctions for ARPS issued by the Funds have consistently “failed” because of insufficient demand (bids to buy shares) to meet the supply (shares offered for sale) at each auction. In a failed auction, ARPS holders cannot sell all, and may not be able to sell any, of their shares tendered for sale. While repeated auction failures have affected the liquidity for ARPS, they do not constitute a default or automatically alter the credit quality of the ARPS, and ARPS holders have continued to receive dividends at the defined “maximum rate,” as defined in the table below:

 

Fund Name            Applicable %               Reference Rate            Maximum Rate  

PIMCO Corporate & Income Opportunity Fund

           200%         x       7-day “AA” Financial Composite
Commercial Paper Rates
     =         Maximum Rate for PTY   

PIMCO Corporate & Income Strategy Fund

           150%         x       7-day “AA” Financial Composite
Commercial Paper Rates
     =         Maximum Rate for PCN   

PIMCO High Income Fund

           160%         x       7-day “AA” Financial Composite
Commercial Paper Rates
     =         Maximum Rate for PHK   

PIMCO Income Strategy Fund (1)

 

The higher of

      

 

150%

 

1.25%

  

  

    

 

x

 

+

  

  

   7-Day USD LIBOR

OR

7-Day USD LIBOR

    

 

=

 

=

  

  

     Maximum Rate for PFL   

PIMCO Income Strategy Fund II (1)

 

The higher of

      

 

150%

 

1.25%

  

  

    

 

x

 

+

  

  

   7-Day USD LIBOR

OR

7-Day USD LIBOR

    

 

=

 

=

  

  

     Maximum Rate for PFN   
(1)

The Maximum Rate is the higher of a) the product of the Applicable % and Reference Rate or b) 1.25% plus the Reference Rate.

 

The maximum rate is a function of short-term interest rates and is typically higher than the rate that would have otherwise been set through a successful auction. If the Funds’ ARPS auctions continue to fail and the “maximum rate” payable on the ARPS rises as a result of changes in short-term interest rates, returns for the Fund’s common shareholders could be adversely affected.

 

On October 16, 2015, PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund each commenced a voluntary tender offer for up to 100% of its outstanding ARPS at a price equal to a percentage of the ARPS’ per share liquidation preference and any unpaid dividends accrued through the expiration of the tender offers (each, a “Tender Offer” and, together, the “Tender Offers”). The price and per share liquidation preference for PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund can be found in the table below.

 

On November 20, 2015 PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund, announced the expiration and results of the Tender Offers. PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund accepted for payment 4,539 and 7,601 ARPS, respectively, which represented approximately 67% and 65%, respectively, of their outstanding ARPS. The ARPS of PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund that were not tendered remain outstanding.

 

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Details of the ARPS tendered and not withdrawn per series for the period ended January 31, 2016 are provided in the table below:

 

Fund Name       Liquidation
Preference
Per Share
    Tender offer Price
Per Share
    Price
Percentage
    Cash Exchanged
for ARPS
Tendered
    ARPS Outstanding
as of 7/31/2015
    ARPS Tendered     ARPS Outstanding
after Tender Offer
as of 1/31/2016
 

PIMCO Corporate & Income Strategy Fund

               

Series M

    $ 25,000      $ 20,625        82.5   $ 19,511,250        1,352        946        406   

Series T

      25,000        20,625        82.5        18,624,375        1,352        903        449   

Series W

      25,000        20,625        82.5        18,129,375        1,352        879        473   

Series TH

      25,000        20,625        82.5        18,933,750        1,352        918        434   

Series F

      25,000        20,625        82.5        18,418,125        1,352        893        459   
                                93,616,875        6,760        4,539        2,221   

PIMCO High Income Fund

               

Series M

    $ 25,000      $ 20,750        83.0   $ 34,196,000        2,336        1,648        688   

Series T

      25,000        20,750        83.0        28,593,500        2,336        1,378        958   

Series W

      25,000        20,750        83.0        33,158,500        2,336        1,598        738   

Series TH

      25,000        20,750        83.0        32,764,250        2,336        1,579        757   

Series F

      25,000        20,750        83.0        29,008,500        2,336        1,398        938   
                                157,720,750        11,680        7,601        4,079   

 

13. REGULATORY AND LITIGATION MATTERS

 

The Funds are not named as defendants in any material litigation or arbitration proceedings and are not aware of any material litigation or claim pending or threatened against them.

 

PIMCO has received a Wells Notice from the staff of the U.S. Securities and Exchange Commission (“SEC”) that relates to the PIMCO Total Return Active Exchange-Traded Fund (“BOND”), a series of PIMCO ETF Trust. The notice indicates the staff’s preliminary determination to recommend that the SEC commence a civil action against PIMCO stemming from a nonpublic investigation relating to BOND. A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any law was violated.

 

This matter principally pertains to the valuation of smaller sized positions in non-agency mortgage-backed securities purchased by BOND between its inception on February 29, 2012 and June 30, 2012, BOND’s performance disclosures for that period, and PIMCO’s compliance policies and procedures related to these matters.

 

The Wells process provides PIMCO with the opportunity to demonstrate to the SEC staff why it believes its conduct was appropriate, in keeping with industry standards, and that no action should be taken. PIMCO believes that this matter is unlikely to have a material adverse effect on any Fund or on PIMCO’s ability to provide investment management services to any Fund.

 

The foregoing speaks only as of the date of this report.

14. FEDERAL INCOME TAX MATTERS

 

Each Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code (the “Code”) and distribute all of its taxable income and net realized gains, if applicable, to shareholders. Accordingly, no provision for Federal income taxes has been made.

 

The Funds may be subject to local withholding taxes, including those imposed on realized capital gains. Any applicable foreign capital gains tax is accrued daily based upon net unrealized gains, and may be payable following the sale of any applicable investments.

 

In accordance with U.S. GAAP, the Manager has reviewed the Funds’ tax positions for all open tax years. As of July 31, 2015, the Funds have recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions they have taken or expect to take in future tax returns.

 

Each Fund files U.S. tax returns. While the statute of limitations remains open to examine the Funds’ U.S. tax returns filed for the fiscal years from 2012-2014, no examinations are in progress or anticipated at this time. No Fund is aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

 

80   PIMCO CLOSED-END FUNDS     


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January 31, 2016 (Unaudited)

 

 

As of July 31, 2015, the Funds had accumulated capital losses expiring in the following years (amounts in thousands). The Funds will resume capital gain distributions in the future to the extent gains are realized in excess of accumulated capital losses.

 

         Expiration of Accumulated Capital Losses  
         07/31/2016      07/31/2017      07/31/2018      07/31/2019  

PIMCO Corporate & Income Opportunity Fund

     $ —         $ —         $ —         $   —     

PIMCO Corporate & Income Strategy Fund

       —           —           —           —     

PIMCO High Income Fund

         195,114           488,807         —           —     

PIMCO Income Strategy Fund

       —           21,867           106,315         —     

PIMCO Income Strategy Fund II

       —           67,542         277,492         —     

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

 

Under the Regulated Investment Company Modernization Act of 2010, a fund is permitted to carry forward any new capital losses for an unlimited period. Additionally, such capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term under previous law.

 

As of July 31, 2015, the Funds had the following post-effective capital losses with no expiration:

 

        Short-Term     Long-Term  

PIMCO Corporate & Income Opportunity Fund

    $ 90,028      $   —     

PIMCO Corporate & Income Strategy Fund

      17,636        —     

PIMCO High Income Fund

        135,621        —     

PIMCO Income Strategy Fund

      7,676        —     

PIMCO Income Strategy Fund II

      9,149        —     

 

 

A zero balance may reflect actual amounts rounding to less than one thousand.

 

As of January 31, 2016, the aggregate cost and the net unrealized appreciation (depreciation) of investments for federal income tax purposes are as follows (amounts in thousands):

 

Fund Name       

Federal Tax

Cost

    

Aggregate
Gross

Unrealized

Appreciation

    

Aggregate
Gross

Unrealized

(Depreciation)

    

Net Unrealized

Appreciation

(Depreciation) (1)

 

PIMCO Corporate & Income Opportunity Fund

     $ 1,243,266       $   44,870       $ (70,158    $   (25,288

PIMCO Corporate & Income Strategy Fund

       664,214         19,673         (49,353      (29,680

PIMCO High Income Fund Fund

         1,069,807         61,815           (120,273      (58,458

PIMCO Income Strategy Fund

       341,775         8,199         (29,325      (21,126

PIMCO Income Strategy Fund II

       715,700         21,444         (59,689      (38,245

 

(1) 

Primary differences, if any, between book and tax net unrealized appreciation (depreciation) are attributable to wash sale loss deferrals for federal income tax purposes.

 

15. SUBSEQUENT EVENTS

 

In preparing these financial statements, the Funds’ management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

 

On February 1, 2016, the following distributions were declared to common shareholders payable March 1, 2016 to shareholders of record on February 11, 2016:

 

PIMCO Corporate & Income Opportunity Fund

    $ 0.130000 per common share   

PIMCO Corporate & Income Strategy Fund

    $ 0.112500 per common share   

PIMCO High Income Fund

    $ 0.103460 per common share   

PIMCO Income Strategy Fund

    $   0.090000 per common share   

PIMCO Income Strategy Fund II

    $ 0.080000 per common share   

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   81


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Notes to Financial Statements (Cont.)

 

January 31, 2016 (Unaudited)

 

On March 1, 2016, the following distributions were declared to common shareholders payable April 1, 2016 to shareholders of record on March 11, 2016:

 

PIMCO Corporate & Income Opportunity Fund

    $ 0.130000 per common share   

PIMCO Corporate & Income Strategy Fund

    $ 0.112500 per common share   

PIMCO High Income Fund

    $ 0.103460 per common share   

PIMCO Income Strategy Fund

    $ 0.090000 per common share   

PIMCO Income Strategy Fund II

    $ 0.080000 per common share   

 

There were no other subsequent events identified that require recognition or disclosure.

 

82   PIMCO CLOSED-END FUNDS     


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Glossary: (abbreviations that may be used in the preceding statements)

 

(Unaudited)

 

Counterparty Abbreviations:                
BCY  

Barclays Capital, Inc.

  GST  

Goldman Sachs International

  RBC  

Royal Bank of Canada

BOA  

Bank of America N.A.

  HUS  

HSBC Bank USA N.A.

  RDR  

RBC Capital Markets

BPG  

BNP Paribas Securities Corp.

  JML  

JP Morgan Securities Plc

  SAL  

Citigroup Global Markets, Inc.

BPS  

BNP Paribas S.A.

  JPM  

JPMorgan Chase Bank N.A.

  SBI  

Citigroup Global Markets Ltd.

BRC  

Barclays Bank PLC

  MEI  

Merrill Lynch International

  SCX  

Standard Chartered Bank

CBK  

Citibank N.A.

  MSB  

Morgan Stanley Bank, N.A

  SOG  

Societe Generale

DEU  

Deutsche Bank Securities, Inc.

  MSC  

Morgan Stanley & Co., Inc.

  SSB  

State Street Bank and Trust Co.

DUB  

Deutsche Bank AG

  MYC  

Morgan Stanley Capital Services, Inc.

  UAG  

UBS AG Stamford

FOB  

Credit Suisse Securities (USA) LLC

  NAB  

National Australia Bank Ltd.

  UBS  

UBS Securities LLC

GLM  

Goldman Sachs Bank USA

       
Currency Abbreviations:                
AUD  

Australian Dollar

  GBP  

British Pound

  MXN  

Mexican Peso

BRL  

Brazilian Real

  JPY  

Japanese Yen

  USD (or $)  

United States Dollar

EUR  

Euro

       
Index/Spread Abbreviations:                
ABX.HE  

Asset-Backed Securities Index - Home Equity

  CDX.HY  

Credit Derivatives Index - High Yield

  CDX.IG  

Credit Derivatives Index - Investment Grade

Municipal Bond or Agency Abbreviations:                
AGM  

Assured Guaranty Municipal

  NPFGC  

National Public Finance Guarantee Corp.

   
Other Abbreviations:                
ABS  

Asset-Backed Security

  BBSW  

Bank Bill Swap Reference Rate

  CLO  

Collateralized Loan Obligation

ALT  

Alternate Loan Trust

  CBO  

Collateralized Bond Obligation

  LIBOR  

London Interbank Offered Rate

BABs  

Build America Bonds

  CDI  

Brazil Interbank Deposit Rate

  PIK  

Payment-in-Kind

BBR  

Bank Bill Rate

  CDO  

Collateralized Debt Obligation

   

 

  SEMIANNUAL REPORT   JANUARY 31, 2016   83


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Investment Strategy Updates

 

 

(Unaudited)

 

Effective October 6, 2015, each Fund adopted the following non-fundamental investment policy:

 

The staff of the SEC has taken the position that purchased OTC options and the assets used as cover for written OTC options should generally be treated as illiquid. However, the staff of the SEC has also taken the position that the determination of whether a particular instrument is liquid should be made under guidelines and standards established by a fund’s board of trustees/directors. The SEC staff has provided examples of factors that may be taken into account in determining whether a

particular instrument should be treated as liquid. Pursuant to policies adopted by the Fund’s Board of Trustees, purchased OTC options and the assets used as cover for OTC options written by a Fund may be treated as liquid under certain circumstances, such as when PIMCO has the contractual right to terminate or close out the OTC option on behalf of a Fund within seven days. These policies are not fundamental policies of the Funds and may be changed or modified by the Board of Trustees without the approval of shareholders, provided that any such change or modification will be consistent with applicable positions of the SEC staff.

 

 

84   PIMCO CLOSED-END FUNDS     


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General Information

 

Investment Manager

Pacific Investment Management Company LLC

1633 Broadway

New York, NY 10019

 

Custodian

State Street Bank and Trust Company

801 Pennsylvania Avenue

Kansas City, MO 64105

 

Transfer Agent, Dividend Paying Agent and Registrar

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

 

Legal Counsel

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

 

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

1100 Walnut Street, Suite 1300

Kansas City, MO 64106

 

This report is submitted for the general information of the shareholders of PIMCO Corporate & Income Opportunity Fund, PIMCO Corporate & Income Strategy Fund, PIMCO High Income Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II.


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LOGO

 

CEF4011SAR_013116


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Item 2. Code of Ethics.

The information required by this Item 2 is only required in an annual report on this Form N-CSR.

 

Item 3. Audit Committee Financial Expert.

The information required by this Item 3 is only required in an annual report on this Form N-CSR.

 

Item 4. Principal Accountant Fees and Services.

The information required by this Item 4 is only required in an annual report on this Form N-CSR.

 

Item 5. Audit Committee of Listed Registrants.

The information required by this Item 5 is only required in an annual report on this Form N-CSR.

 

Item 6. Schedule of Investments.

The Schedule of Investments is included as part of the reports to shareholders under Item 1.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

The information required by this Item 7 is only required in an annual report on this Form N-CSR.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

None.

 

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Trustees since the Fund last provided disclosure in response to this item.

 

Item 11. Controls and Procedures.

 

  (a) The principal executive officer and principal financial & accounting officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act) provide reasonable assurances that material information relating to the Registrant is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.

 

  (b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

Item 12. Exhibits.

 

  (a)(1) Exhibit 99.CODE— Code of Ethics is not applicable for semiannual reports.

 

  (a)(2) Exhibit 99.CERT—Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

  (b) Exhibit 99.906CERT—Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


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Signatures

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.

 

PIMCO Income Strategy Fund
By:  

/s/   PETER G. STRELOW

     

 

 

Peter G. Strelow

  President (Principal Executive Officer)
Date:   March 28, 2016

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/   PETER G. STRELOW

     

 

 

Peter G. Strelow

  President (Principal Executive Officer)
Date:   March 28, 2016
By:  

/s/   WILLIAM G. GALIPEAU

     

 

 

William G. Galipeau

  Treasurer (Principal Financial & Accounting Officer)
Date:   March 28, 2016