PIMCO Corporate & Income Opportunity Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-21238

PIMCO Corporate & Income Opportunity

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, 2017

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.


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, 2017

 

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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

 

            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  

Statements of Cash Flows

        20  

Notes to Financial Statements

        69  

Glossary

        90  
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PIMCO Corporate & Income Opportunity Fund

     9        21  

PIMCO Corporate & Income Strategy Fund

     10        32  

PIMCO High Income Fund

     11        42  

PIMCO Income Strategy Fund

     12        51  

PIMCO Income Strategy Fund II

     13        60  


Letter from the Chairman of the Board & President

 

Dear Shareholder,

 

The global financial markets generated mixed results during the reporting period. Investor sentiment fluctuated as investors reacted to incoming economic data, shifting monetary policy, volatile commodity prices and numerous geopolitical issues.

 

For the six-month reporting period ended January 31, 2017

 

The U.S. economy continued to expand during the reporting period, although the pace was relatively modest. 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 0.9% annual pace during the second quarter of 2016. GDP grew at a 3.5% annual pace during the third quarter — the strongest reading in two years. Finally, the Commerce Department’s second reading showed that fourth-quarter 2016 GDP grew at an annual pace of 1.9%.

 

At its meeting in December 2015, the Federal Reserve (“Fed”) took its initial step toward normalizing monetary policy. In particular, the Fed raised interest rates from a range between 0% and 0.25% to a range between 0.25% and 0.50%. During its first seven meetings in 2016, the Fed remained on hold as it monitored incoming economic data, as well as several geopolitical events. Then, in a well-telegraphed move, the Fed again raised interest rates in December 2016 to a range between 0.50% and 0.75%. In its official statement following the Fed’s December 2016 meeting it 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. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

 

Economic activity outside the U.S. was generally tepid during the reporting period. In the eurozone, growth was modest and inflation remained lower than the European Central Bank’s (“ECB”) target. As a result, the ECB maintained its highly accommodative monetary policy and extended the duration of its bond-buying program through December 2017. In the aftermath of the United Kingdom’s decision to leave the European Union (“Brexit”), the Bank of England lowered rates in October 2016 from 0.50% to 0.25% — an all-time low. Elsewhere, uneven growth in Japan prompted the Bank of Japan to push the rate on current accounts that commercial banks hold to negative territory.

 

After weakness earlier in 2016, commodity prices generally stabilized and moved higher during the six months ended January 31, 2017. Crude oil rose from approximately $42 a barrel when the reporting period began, to roughly $53 at the end of January 2017. Finally, foreign exchange markets fluctuated given economic data, decoupling central bank policy, Brexit, and the surprise outcome from the U.S. November elections that propelled the U.S. dollar higher.

 

Outlook

 

PIMCO’s baseline view is for the aging U.S. economic expansion to continue during the remainder of 2017. PIMCO foresees U.S. GDP growth of 2%–2.5% in 2017, twice the annualized growth rate from the fourth quarter of 2015 through the second quarter of 2016, but below the 3.5% rate during the third quarter of 2016. PIMCO believes business investment will likely increase, helped by higher energy prices and, eventually, more clarity on corporate tax reform. In PIMCO’s view, consumer spending will be supported by a further decline in unemployment, rising wages and expectations of personal income tax cuts to be enacted by the end of 2017. Meanwhile, PIMCO expects headline Consumer Price Index (“CPI”) inflation to increase and to converge with core inflation above 2%, with the Fed raising interest rates two or three times during 2017 (with risks to the upside).

 

Overseas, PIMCO’s baseline view is for eurozone growth to be in a 1%–1.5% range as political uncertainty remains elevated ahead of crucial elections in France, Germany, the Netherlands and, potentially, in Italy. While PIMCO believes that headline inflation will rise above 1%, core inflation should make little headway toward the European

 

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Central Bank’s “below but close to 2%” objective. In the U.K., PIMCO’s baseline view is for growth to moderate into a 0.75%–1.5% range, reflecting fairly robust momentum so far, but also the ongoing uncertainty over the impact of Brexit. PIMCO’s baseline view in Japan is that fiscal stimulus and recent yen weakening will propel GDP growth into a 0.75%–1.25% range in 2017. However, PIMCO believes inflation will remain subdued and significantly below the Bank of Japan’s 2% target. Finally, for China, PIMCO’s baseline view is that the public sector credit bubble and its private sector capital outflows will likely remain under control and growth will slow into a 6%–6.5% range as policymakers prioritize financial stability over economic stimulus, ahead of the 19th National Party Congress in the fourth quarter of 2017.

 

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, 2017.

 

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, 2017   3


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 meetings on December 16, 2015 and December 14, 2016, raised interest rates for the first time since 2006. 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. For instance, in December 2015, the SEC proposed new regulations applicable to a mutual fund’s use of derivatives and related instruments. If adopted as proposed, these regulations could significantly limit or impact a Fund’s ability to invest in derivatives and other instruments, limit a Fund’s ability to employ certain strategies that use derivatives and adversely affect a Fund’s performance, efficiency in implementing its strategy, liquidity and ability to pursue its investment objectives and generate income.

 

Certain Funds’ monthly distributions may include, among other sources, payments and premiums (characterized as capital for financial accounting purposes and as ordinary income for tax purposes) generated by certain types of interest rate derivatives.

 

Strategies involving interest rate derivatives may attempt to capitalize on differences between short-term and long-term interest rates as part of a Fund’s duration and yield curve active management strategies. For instance, in the event that long-term interest rates are higher than short-term interest rates, a Fund may elect to pay a floating short-term interest rate and to receive a long-term fixed interest rate for a stipulated period of time, thereby generating payments as a function of the difference between current short-term interest rates and long-term interest rates, so long as the floating short-term interest rate (which may rise) is lower than the fixed long-term interest rate.

 

A Fund may also enter into opposite sides of multiple interest rate swaps or other derivatives with respect to the same underlying reference instrument (e.g., a 10-year U.S. treasury) that have different effective dates with respect to interest accrual time periods for the principal purpose of generating distributable gains (characterized as ordinary income for tax purposes) and that are not part of the Fund’s duration or yield curve management strategies (“paired swap transactions”). In a paired swap transaction, a Fund would generally enter into one or more interest rate swap agreements whereby the Fund agrees to make regular payments starting at the time the Fund enters into the agreements equal to a floating interest rate in return for payments equal to a fixed interest rate (the “initial leg”). The Fund would also enter into one or more interest rate swap agreements on the same underlying instrument, but take the opposite position (i.e., in this example, the Fund would make regular payments equal to a fixed interest rate in return for receiving payments equal to a floating interest rate) with respect to a contract whereby the payment obligations do

 

 

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not commence until a date following the commencement of the initial leg (the “forward leg”).

 

A Fund’s income- and gain-generating strategies may generate current income and gains taxable as ordinary income sufficient to support monthly distributions even in situations when the Fund has experienced a decline in net assets due to, for example, adverse changes in the broad U.S. or non-U.S. equity markets or the Fund’s debt investments, or arising from its use of derivatives. For instance, a significant portion of a Fund’s monthly distributions may be sourced from paired swap transactions utilized to produce current distributable ordinary income for tax purposes on the initial leg, with the expectation that the Fund will later realize a corresponding capital loss and potential decline in its net asset value with respect to the forward leg (to the extent there are not corresponding offsetting capital gains being generated from other sources). Because some or all of these transactions may generate capital losses without corresponding offsetting capital gains, portions of a Fund’s distributions recognized as ordinary income for tax purposes (such as from paired swap transactions) may be economically similar to a taxable return of capital when considered together with such capital losses.

 

The notional exposure of a Fund’s interest rate derivatives may represent a multiple of the Fund’s total net assets. There can be no assurance a Fund’s strategies involving interest rate derivatives will work as intended and such strategies are subject to the risks related to the use of derivatives generally, as discussed above (see also Notes 6 and 7 in the Notes to Financial Statements for further discussion on the use of derivative instruments and certain of the risks associated therewith).

 

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, 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

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   5


Important Information About the Funds (Cont.)

 

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 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. In June 2016, the United Kingdom approved a referendum to leave the European Union. Significant uncertainty remains in the market regarding the ramifications of that development, and the range and potential implications of possible political, regulatory, economic and market outcomes are difficult to predict.

 

As the use of technology has become more prevalent in the course of business, the Funds have become potentially more susceptible to operational risks through breaches in cyber security. A breach in cyber

 

 

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security refers to both intentional and unintentional cyber events that may cause a Fund to lose proprietary information, suffer data corruption, or lose operational capacity. Cyber security breaches may involve unauthorized access to a Fund’s digital information systems (e.g., through “hacking” or malicious software coding), but may also result from outside attacks such as denial-of-service attacks (i.e., efforts to make network services unavailable to intended users). In addition, cyber security breaches of a Fund’s third party service providers (including but not limited to advisers, sub-advisers, administrators, transfer agents, custodians, distributors and other third parties) or issuers that a Fund invests in can also subject a Fund to many of the same risks associated with direct cyber security breaches. Cyber security failures or breaches may result in financial losses to a Fund and its shareholders. These failures or breaches may also result in disruptions to business operations, potentially resulting in financial losses; interference with a Fund’s ability to calculate its net asset value, process shareholder transactions or otherwise transact business with shareholders; impediments to trading; violations of applicable privacy and other laws; regulatory fines; penalties; reputational damage; reimbursement or other compensation costs; or additional compliance costs. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. Like with operational risk in general, the Funds have established risk management systems designed to reduce the risks associated with cyber security. However, there is no guarantee that such efforts will succeed, especially since the Funds do not directly control the cyber security systems of issuers or third party service providers. The Funds and their shareholders could be negatively impacted as a result.

 

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.

 

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

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   7


Important Information About the Funds (Cont.)

 

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 shareholders 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, other than pursuant to any rights under federal or state law that cannot be waived. 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.

 

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.

 

 

8   PIMCO CLOSED-END FUNDS     


PIMCO Corporate & Income Opportunity Fund

 

  Symbol on NYSE - PTY

 

Allocation Breakdown as of 01/31/2017§

 

Corporate Bonds & Notes

    44.7%  

Non-Agency Mortgage-Backed Securities

    21.3%  

Asset-Backed Securities

    13.4%  

Short-Term Instruments

    6.7%  

Municipal Bonds & Notes

    5.5%  

Other

    8.4%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of January 31, 2017)(1)

 

Market Price

    $15.45  

NAV

    $13.81  

Premium/(Discount) to NAV

    11.88%  

Market Price Distribution Yield(2)

    10.10%  

NAV Distribution Yield(2)

    11.30%  

Total Effective Leverage(3)

    44%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2017  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(12/27/02)
 
Market Price     12.12%       33.85%       10.30%       12.97%       13.76%  
NAV     11.61%       23.49%       14.81%       14.21%       14.14%  

 

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 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 estimated 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 maximum total return through a combination of current income and capital appreciation.

 

Fund Insights at NAV

 

The following impacted performance during the reporting period:

 

»  

The Fund’s exposure to non-agency mortgage-backed securities contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to high yield corporate debt contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to U.S. dollar-denominated Brazilian corporate debt contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s selection of collateralized loan obligations (CLOs) contributed to performance, as select senior tranches outperformed the broader CLO sector.

 

»  

The Fund’s selection of agency collateralized mortgage obligations (CMOs) contributed to performance, as select floating-rate positions outperformed the broader agency CMO sector.

 

»  

The Fund’s exposure to U.S. duration detracted from performance, as U.S. interest rates increased.

 

»  

The Fund’s exposure to the middle of the U.K. yield curve modestly detracted from performance, as intermediate-term U.K. interest rates increased.

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   9


PIMCO Corporate & Income Strategy Fund

 

  Symbol on NYSE - PCN

 

Allocation Breakdown as of 01/31/2017§

 

Corporate Bonds & Notes

    47.7%  

Non-Agency Mortgage-Backed Securities

    22.7%  

Asset-Backed Securities

    15.0%  

Municipal Bonds & Notes

    3.5%  

Short-Term Instruments

    2.2%  

Other

    8.9%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of January 31, 2017)(1)

 

Market Price

    $15.61  

NAV

    $14.46  

Premium/(Discount) to NAV

    7.95%  

Market Price Distribution Yield(2)

    8.65%  

NAV Distribution Yield(2)

    9.34%  

Total Effective Leverage(3)

    20%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2017  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(12/21/01)
 
Market Price     9.04%       30.93%       10.29%       11.65%       11.87%  
NAV     9.23%       18.91%       13.84%       12.79%       12.13%  

 

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 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 estimated 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 capital preservation and appreciation as secondary objectives.

 

Fund Insights at NAV

 

The following impacted performance during the reporting period:

 

»  

The Fund’s exposure to non-agency mortgage-backed securities contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to high yield corporate bonds contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to U.S. dollar-denominated Brazilian corporate debt contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s selection of collateralized loan obligations (CLOs) contributed to performance, as select senior tranches outperformed the broader CLO sector.

 

»  

The Fund’s selection of investment grade banking issuers benefited performance, as select subordinated positions outperformed the broader banking sector.

 

»  

The Fund’s exposure to U.S. duration detracted from performance, as U.S. interest rates increased.

 

»  

The Fund’s exposure to the middle of the U.K. yield curve modestly detracted from performance, as intermediate-term U.K. interest rates increased.

 

10   PIMCO CLOSED-END FUNDS     


PIMCO High Income Fund

 

  Symbol on NYSE - PHK

 

Allocation Breakdown as of 01/31/2017†§

 

Corporate Bonds & Notes

    54.5%  

Non-Agency Mortgage-Backed Securities

    13.4%  

Asset-Backed Securities

    12.8%  

Short-Term Instruments

    8.1%  

Municipal Bonds & Notes

    6.1%  

Other

    5.1%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of January 31, 2017)(1)

 

Market Price

    $9.88  

NAV

    $6.57  

Premium/(Discount) to NAV

    50.38%  

Market Price Distribution Yield(2)

    12.57%  

NAV Distribution Yield(2)

    18.90%  

Total Effective Leverage(3)

    28%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2017  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(04/30/03)
 
Market Price     5.51%       44.74%       8.51%       9.96%       11.02%  
NAV     8.87%       21.80%       16.72%       11.01%       11.59%  

 

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 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 estimated 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 at NAV

 

The following impacted performance during the reporting period:

 

»  

The Fund’s exposure to non-agency mortgage-backed securities contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to high yield corporate bonds contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to U.S. dollar-denominated Brazilian corporate debt contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s selection of collateralized loan obligations (CLOs) contributed to performance, as select senior tranches outperformed the broader CLO sector.

 

»  

The Fund’s selection of investment grade financial issuers benefited performance, as select subordinated banking positions and senior brokerage positions outperformed the broader financial sector.

 

»  

The Fund’s exposure to U.S. duration detracted from performance, as U.S. interest rates increased.

 

»  

The Fund’s exposure to the middle of the U.K. yield curve modestly detracted from performance, as intermediate-term U.K. interest rates increased.

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   11


PIMCO Income Strategy Fund

 

  Symbol on NYSE - PFL

 

Allocation Breakdown as of 01/31/2017§

 

Corporate Bonds & Notes

    52.5%  

Asset-Backed Securities

    19.0%  

Non-Agency Mortgage-Backed Securities

    13.0%  

Short-Term Instruments

    4.0%  

Municipal Bonds & Notes

    4.0%  

Other

    7.5%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of January 31, 2017)(1)

 

Market Price

    $10.87  

NAV

    $10.97  

Premium/(Discount) to NAV

    (0.91)%  

Market Price Distribution Yield(2)

    9.94%  

NAV Distribution Yield(2)

    9.85%  

Total Effective Leverage(3)

    26%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2017

 
   

6 Month*

   

1 Year

   

5 Year

   

10 Year

   

Commencement
of Operations
(08/29/03)

 

Market Price

    9.12%       29.93%       10.27%       5.23%       6.15%  

NAV

    9.55%       20.75%       11.94%       6.41%       6.65%  

 

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 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 estimated 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 at NAV

 

The following impacted performance during the reporting period:

 

»  

The Fund’s exposure to non-agency mortgage-backed securities contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to high yield corporate bonds contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to U.S. dollar-denominated Brazilian corporate debt contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s selection of agency collateralized mortgage obligations (CMOs) contributed to performance, as select floating-rate positions outperformed the broader agency CMO sector.

 

»  

The Fund’s selection of investment grade banking issuers benefited performance, as select subordinated positions outperformed the broader banking sector.

 

»  

The Fund’s selection of collateralized loan obligations (CLOs) contributed to performance, as select senior tranches outperformed the broader CLO sector.

 

»  

The Fund’s exposure to U.S. duration detracted from performance, as U.S. interest rates increased.

 

»  

The Fund’s exposure to the middle of the U.K. yield curve modestly detracted from performance, as intermediate-term U.K. interest rates increased.

 

12   PIMCO CLOSED-END FUNDS     


PIMCO Income Strategy Fund II

 

  Symbol on NYSE - PFN

 

Allocation Breakdown as of 01/31/2017§

 

Corporate Bonds & Notes

    45.5%  

Non-Agency Mortgage-Backed Securities

    19.6%  

Asset-Backed Securities

    16.1%  

Municipal Bonds & Notes

    5.5%  

Short-Term Instruments

    5.0%  

Other

    8.3%  
   

% of Investments, at value.

 

  § 

Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any.

Fund Information (as of January 31, 2017)(1)

 

Market Price

    $9.79  

NAV

    $9.83  

Premium/(Discount) to NAV

    (0.41)%  

Market Price Distribution Yield(2)

    9.81%  

NAV Distribution Yield(2)

    9.77%  

Total Effective Leverage(3)

    24%  
 

 

Average Annual Total Return(1) for the period ended January 31, 2017  
    6 Month*     1 Year     5 Year     10 Year     Commencement
of Operations
(10/29/04)
 
Market Price     9.64%       29.13%       11.14%       4.70%       5.19%  
NAV     9.69%       19.58%       12.33%       5.15%       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 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 estimated 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 at NAV

 

The following impacted performance during the reporting period:

 

»  

The Fund’s exposure to non-agency mortgage-backed securities contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to high yield corporate bonds contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s exposure to U.S. dollar-denominated Brazilian corporate debt contributed to performance, as the asset class generated a positive return.

 

»  

The Fund’s selection of agency collateralized mortgage obligations (CMOs) contributed to performance, as select floating-rate positions outperformed the broader agency CMO sector.

 

»  

The Fund’s selection of investment grade banking issuers benefited performance, as select subordinated positions outperformed the broader banking sector.

 

»  

The Fund’s selection of collateralized loan obligations (CLOs) contributed to performance, as select senior tranches outperformed the broader CLO sector.

 

»  

The Fund’s exposure to U.S. duration detracted from performance, as U.S. interest rates increased.

 

»  

The Fund’s exposure to the middle of the U.K. yield curve modestly detracted from performance, as intermediate-term U.K. interest rates increased.

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   13


Financial Highlights

 

          Investment Operations           Less Distributions to Preferred
Shareholders(b)
          Less Distributions to Common Shareholders(b)  
                                                 
    Net Asset
Value
Beginning
of Year
or Period
    Net
Investment
Income(a)
    Net
Realized/
Unrealized
Gain (Loss)
           From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Net Increase
(Decrease) in
Net Assets
Applicable
to Common
Shareholders
Resulting
from
Operations
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Tax Basis
Return of
Capital
    Total  

PIMCO Corporate & Income Opportunity Fund

                     

08/01/2016 - 01/31/2017+

  $ 13.27     $ 0.60     $ 0.91             $ (0.02   $ 0.00     $ 1.49     $ (0.95   $ 0.00     $ 0.00     $ (0.95

07/31/2016

    14.23       1.30       (0.65             (0.02     0.00       0.63       (1.59     0.00       0.00       (1.59

12/01/2014 - 07/31/2015(g)

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

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

PIMCO Corporate & Income Strategy Fund

                     

08/01/2016 - 01/31/2017+

  $ 14.28     $ 0.55     $ 0.73             $ (0.00 )^    $ 0.00     $ 1.28     $ (1.10   $ 0.00     $ 0.00     $ (1.10

07/31/2016

    14.75       1.24       (0.84 )(k)              (0.01     0.00       0.39 (l)      (1.37     0.00       0.00       (1.37

11/01/2014 - 07/31/2015(h)

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

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

PIMCO High Income Fund

                     

08/01/2016 - 01/31/2017+

  $ 6.63     $ 0.34     $ 0.22             $ (0.00 )^    $ 0.00     $ 0.56     $ (0.62   $ 0.00     $ 0.00     $ (0.62

07/31/2016

    7.37       0.74       (0.48 )(k)              (0.00 )^      0.00       0.26 (l)      (1.18     0.00         (0.08     (1.26

04/01/2015 - 07/31/2015(i)

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

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

PIMCO Income Strategy Fund

                     

08/01/2016 - 01/31/2017+

  $   10.53     $   0.43     $ 0.57             $   (0.02   $ 0.00     $ 0.98     $   (0.54   $ 0.00     $ 0.00     $   (0.54

07/31/2016

    11.46       0.88         (0.70             (0.03     0.00       0.15       (1.08     0.00       0.00       (1.08

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

PIMCO Income Strategy Fund II

                     

08/01/2016 - 01/31/2017+

  $ 9.42     $   0.41     $ 0.49             $   (0.01   $   0.00     $   0.89     $   (0.48   $   0.00     $   0.00     $   (0.48

07/31/2016

      10.27       0.87         (0.67             (0.02     0.00       0.18       (1.03     0.00       0.00       (1.03

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

 

+ 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) 

The tax characterization of distributions is determined in accordance with federal income tax regulations. The actual tax characterization of distributions paid is determined at the end of the fiscal year. See Note 2 in the Notes to Financial Statements for more information.

(c) 

See Note 12 in the Notes to Financial Statements.

(d) 

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.

(e) 

Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders. The expense ratio and net investment income do not reflect the effects of dividend payments to preferred shareholders.

(f) 

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

(g) 

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

(h) 

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

(i) 

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

(j) 

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.

(k) 

The amount previously reported in the Funds’ Annual Report has been revised due to a misstatement. The misstatement was not considered material to the prior period Annual Report. In the Funds’ Annual Report, PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund reported amounts of (0.33) and (0.22), respectively.

(l) 

The amount previously reported in the Funds’ Annual Report has been revised due to a misstatement. The misstatement was not considered material to the prior period Annual Report. In the Funds’ Annual Report, PIMCO Corporate & Income Strategy Fund and PIMCO High Income Fund reported amounts of 0.90 and 0.52, respectively.

 

14   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

      Common Share           Ratios/Supplemental Data  
                                    Ratios to Average Net Assets              
    
    
Increase
Resulting from
Tender and
Repurchase of
Auction-Rate
Preferred
Shares(c)
    Net Asset
Value End of
Year or Period
    Market Price
End of Year or
Period
    Total
Investment
Return(d)
           Net Assets
Applicable to
Common
Shareholders
(000s)
    Expenses(e)(f)     Expenses
Excluding
Interest
Expense(e)
    Net Investment
Income(e)
    Preferred Shares
Asset Coverage
Per Share
    Portfolio
Turnover Rate
 
                   
$ 0.00     $ 13.81     $ 15.45       12.12             991,181       1.01 %*      0.85 %*      8.80 %*      129,122       22
  0.00       13.27       14.75       16.09               946,843       0.89       0.85       9.93       124,468       45  
  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     $ 14.46     $ 15.61       9.04             563,695       1.17 %*      0.94 %*      7.53 %*      278,772       23
  0.51       14.28       15.43       24.21               553,569       1.10       1.02       8.91       274,223       43  
  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     $ 6.57     $ 9.88       5.51             838,173       1.26 %*      0.90 %*      10.21 %*      230,459       18
  0.26       6.63       10.03       19.92               841,102       1.08       0.95       11.20       231,185       42  
  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     $   10.97     $   10.87       9.12             277,765       1.33 %*      1.18 %*      7.99 %*      160,384       22
  0.00       10.53       10.48       12.41               266,347       1.17       1.13       8.49       154,837       38  
  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     $ 9.83     $ 9.79       9.64             581,071       1.29 %*      1.12 %*      8.37 %*      182,094       15
  0.00       9.42       9.39       11.92               556,840       1.14       1.07       9.25       175,544       38  
  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  

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   15


Statements of Assets and Liabilities

 

January 31, 2017 (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*

  $ 1,326,021     $ 697,129     $ 1,161,940     $ 361,023     $ 733,372  

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    2,828       1,537       5,270       855       1,975  

Over the counter

    962       485       3,969       299       583  

Cash

    118       1       1       0       0  

Deposits with counterparty

    93,445       5,814       8,946       5,292       7,597  

Foreign currency, at value

    647       53       624       689       419  

Receivable for investments sold

    21,228       13,714       23,316       2,286       9,605  

Interest and/or dividends receivable

    12,781       6,344       12,584       3,820       6,570  

Other assets

    5       3       40       2       6  

Total Assets

    1,458,035       725,080       1,216,690       374,266       760,127  

Liabilities:

         

Borrowings & Other Financing Transactions

                                       

Payable for reverse repurchase agreements

  $ 149,643     $ 87,974     $ 226,859     $ 34,842     $ 63,539  

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    3,251       1,597       6,686       958       2,297  

Over the counter

    43,654       3,158       7,970       2,334       4,759  

Payable for investments purchased

    21,747       8,270       17,723       4,400       10,269  

Deposits from counterparty

    460       0       3,466       0       170  

Distributions payable to common shareholders

    9,328       4,386       13,195       2,278       4,728  

Distributions payable to preferred shareholders

    36       7       13       17       21  

Accrued management fees

    631       395       561       247       479  

Other liabilities

    154       73       69       150       344  

Total Liabilities

    228,904       105,860       276,542       45,226       86,606  

Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share)

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

Net Assets Applicable to Common Shareholders

  $ 991,181     $ 563,695     $ 838,173     $ 277,765     $ 581,071  

Net Assets Applicable to Common Shareholders Consist of:

         

Common Shares:

                                       

Par value ($0.00001 per share)

  $ 1     $ 0     $ 1     $ 0     $ 1  

Paid in capital in excess of par

    1,040,387       574,254       1,500,516       419,625       950,673  

Undistributed (overdistributed) net investment income

    (14,574     (12,540     (53,144     (2,039     1,392  

Accumulated undistributed net realized (loss)

    (197,904     (70,807     (545,039       (158,668       (416,174

Net unrealized appreciation (depreciation)

    163,271       72,788       (64,161     18,847       45,179  

Net Assets Applicable to Common Shareholders

  $ 991,181     $ 563,695     $ 838,173     $ 277,765     $ 581,071  

Net Asset Value Per Common Share

  $ 13.81     $ 14.46     $ 6.57     $ 10.97     $ 9.83  

Common Shares Issued and Outstanding

    71,750       38,990       127,534       25,313       59,103  

Preferred Shares Issued and Outstanding

    10       2       4       2       4  

Cost of investments in securities

  $   1,310,901     $   695,269     $   1,171,271     $ 362,115     $ 738,293  

Cost of foreign currency held

  $ 643     $ 53     $ 629     $ 686     $ 424  

Cost or premiums of financial derivative instruments, net

  $ (57,609   $ (1,210   $ (1,282   $ (801   $ (1,679

* Includes repurchase agreements of:

  $ 11,582     $ 8,056     $ 48,400     $ 2,581     $ 21,636  

 

 

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

 

16   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Statements of Operations

 

Six Months Ended January 31, 2017 (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*

  $ 47,360     $ 24,135     $ 48,122     $ 12,565     $ 27,032  

Dividends

    518       471       231       188       627  

Total Income

    47,878       24,606       48,353       12,753       27,659  

Expenses:

         

Management fees

    3,957       2,520       3,595       1,529       3,056  

Trustee fees and related expenses

    90       51       81       25       50  

Interest expense

    796       639       1,526       209       488  

Auction agent fees and commissions

    118       49       73       31       54  

Auction rate preferred shares related expenses

    12       27       22       21       22  

Total Expenses

    4,973       3,286       5,297       1,815       3,670  

Net Investment Income

    42,905       21,320       43,056       10,938       23,989  

Net Realized Gain (Loss):

         

Investments in securities

    (6,636     (2,977     7,450       (283     (2,139

Exchange-traded or centrally cleared financial derivative instruments

    19,121       4,903       91,164       19,805       46,966  

Over the counter financial derivative instruments

    12,447       7,993       18,233       4,121       7,706  

Foreign currency

    (64     (47     (84     (36     31  

Net Realized Gain

    24,868       9,872       116,763       23,607       52,564  

Net Change in Unrealized Appreciation (Depreciation):

         

Investments in securities

    27,234       23,390       21,007       9,242       17,885  

Exchange-traded or centrally cleared financial derivative instruments

    (957     (3,635       (109,184       (17,509       (39,508

Over the counter financial derivative instruments

    13,848       (1,201     (1,597     (894     (1,520

Foreign currency assets and liabilities

    (133     33       98       13       15  

Net Change in Unrealized Appreciation (Depreciation)

    39,992       18,587       (89,676     (9,148     (23,128

Net Increase in Net Assets Resulting from Operations

  $ 107,765     $ 49,779     $ 70,143     $ 25,397     $ 53,425  

Distributions on Preferred Shares from Net Investment Income

  $ (1,103   $ (193   $ (378   $ (458   $ (825

Net Increase in Net Assets Applicable to Common Shareholders Resulting from Operations

  $   106,662     $   49,586     $ 69,765     $ 24,939     $ 52,600  

* Foreign tax withholdings

  $ 0     $ 2     $ 7     $ 0     $ 0  

 

 

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

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   17


Statements of Changes in Net Assets

 

    PIMCO
Corporate & Income Opportunity Fund
    PIMCO
Corporate & Income Strategy Fund
 
(Amounts in thousands)   Six Months Ended
January 31, 2017
(Unaudited)
    Year Ended
July 31, 2016
    Six Months Ended
January 31, 2017
(Unaudited)
    Year Ended
July 31, 2016
 

Increase (Decrease) in Net Assets from:

       

Operations:

       

Net investment income

  $ 42,905     $ 92,254     $ 21,320     $ 47,966  

Net realized gain (loss)

    24,868       (89,368     9,872       (44,520

Net change in unrealized appreciation (depreciation)

    39,992       43,914       18,587       11,894  

Net Increase in Net Assets Resulting from Operations

    107,765       46,800       49,779       15,340  

Distributions on preferred shares from net investment income(a)

    (1,103     (1,253     (193     (275

Net Increase in Net Assets Applicable to Common Shareholders Resulting from Operations

    106,662       45,547       49,586       15,065  

Distributions to Common Shareholders:

       

From net investment income

    (67,984     (112,955     (42,564     (53,009

Tax basis return of capital

    0       0       0       0  

Total Distributions to Common Shareholders(a)

    (67,984     (112,955     (42,564     (53,009

Preferred Share Transactions:

       

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

    0       0       0       19,858  

Common Share Transactions**:

       

Issued as reinvestment of distributions

    5,660       7,767       3,104       1,533  

Total Increase (Decrease) in Net Assets

    44,338       (59,641     10,126       (16,553

Net Assets Applicable to Common Shareholders:

       

Beginning of period

      946,843         1,006,484       553,569       570,122  

End of period*

  $ 991,181     $ 946,843     $   563,695     $   553,569  

* Including undistributed (overdistributed) net investment income of:

  $ (14,574   $ 11,608     $ (12,540   $ 8,897  

** Common Share Transactions:

       

Shares issued as reinvestment of distributions

    411       583       215       110  

 

 

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

(a)

The tax characterization of distributions is determined in accordance with federal income tax regulations. The actual tax characterization of distributions paid is determined at the end of the fiscal year. See Note 2 in the Notes to Financial Statements for more information.

 

18   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

PIMCO
High Income Fund
    PIMCO
Income Strategy Fund
    PIMCO
Income Strategy Fund II
 
Six Months Ended
January 31, 2017
(Unaudited)
    Year Ended
July 31, 2016
    Six Months Ended
January 31, 2017
(Unaudited)
    Year Ended
July 31, 2016
    Six Months Ended
January 31, 2017
(Unaudited)
    Year Ended
July 31, 2016
 
         
         
$ 43,056     $ 93,715     $ 10,938     $ 22,312     $ 23,989     $ 51,163  
  116,763       42,044       23,607       (27,474     52,564       (66,963
  (89,676     (103,962     (9,148     9,720       (23,128     27,977  
  70,143       31,797       25,397       4,558       53,425       12,177  
  (378     (528     (458     (797     (825     (1,437

 

69,765

 

    31,269       24,939       3,761       52,600       10,740  
         
  (78,979     (149,487     (13,668     (27,324     (28,369     (60,876
  0       (9,562     0       0       0       0  
  (78,979       (159,049     (13,668     (27,324     (28,369     (60,876
         
  0       32,304       0       0       0       0  
         
  6,285       10,980       147       1       0       2  
  (2,929     (84,496     11,418       (23,562     24,231       (50,134
         
  841,102       925,598       266,347       289,909       556,840       606,974  
$   838,173     $ 841,102     $   277,765     $   266,347     $   581,071     $   556,840  
$ (53,144   $ (16,843   $ (2,039   $ 1,149     $ 1,392     $ 6,597  
         
  699       1,307       13       0       0       0  

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   19


Statements of Cash Flows

 

Six Months Ended January 31, 2017 (Unaudited)  
(Amounts in thousands)   PIMCO
Corporate &
Income
Strategy
Fund
    PIMCO High
Income Fund
 

Cash Flows Provided by (Used for) Operating Activities:

   

Net Increase in Net Assets Resulting from Operations

  $ 49,779     $ 70,143  

Adjustments to Reconcile Net Increase in Net Assets from Operations to Net Cash Provided by (Used for) Operating Activities:

   

Purchases of long-term securities

      (169,473)         (213,678)  

Proceeds from sales of long-term securities

    178,126       232,572  

(Purchases) Proceeds from sales of short-term portfolio investments, net

    4,726       (64,433

Decrease in deposits with counterparty

    2,825       12,524  

(Increase) decrease in receivable for investments sold

    4,402       (23,195

(Increase) decrease in interest and/or dividends receivable

    (212     288  

Proceeds from (Payments on) exchange-traded or centrally cleared financial derivative instruments

    1,319       (17,879

Proceeds from over the counter financial derivative instruments

    8,037       16,495  

Increase (decrease) in payable for investments purchased

    (3,752     10,095  

Increase (decrease) in deposits from counterparty

    (1,820     41  

(Decrease) in accrued management fees

    (18     (39

Proceeds from (Payments on) foreign currency transactions

    (14     14  

(Decrease) in other liabilities

    (97     (134

Net Realized (Gain) Loss

               

Investments in securities

    2,977       (7,450

Exchange-traded or centrally cleared financial derivative instruments

    (4,903     (91,164

Over the counter financial derivative instruments

    (7,993     (18,233

Foreign currency

    47       84  

Net Change in Unrealized (Appreciation) Depreciation

               

Investments in securities

    (23,390     (21,007

Exchange-traded or centrally cleared financial derivative instruments

    3,635       109,184  

Over the counter financial derivative instruments

    1,201       1,597  

Foreign currency assets and liabilities

    (33     (98

Net amortization (accretion) on investments

    (2,329     (3,319

Net Cash Provided by (Used for) Operating Activities

    43,040       (7,592

Cash Flows Received from (Used for) Financing Activities:

   

(Decrease) in overdraft due to custodian

    0       (23

Cash distributions paid to common shareholders*

    (39,436     (72,621

Cash distributions paid to preferred shareholders

    (191     (374

Proceeds from reverse repurchase agreements

    268,880       643,858  

Payments on reverse repurchase agreements

    (272,307     (562,879

Net Cash Received from (Used for) Financing Activities

    (43,054     7,961  

Net Increase (Decrease) in Cash and Foreign Currency

    (14     369  

Cash and Foreign Currency:

   

Beginning of period

    68       256  

End of period

  $ 54     $ 625  

* Reinvestment of distributions to common shareholders

  $ 3,104     $ 6,285  

Supplemental Disclosure of Cash Flow Information:

   

Interest expense paid during the period

  $ 358     $ 1,283  

 

 

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

 

20   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Schedule of Investments PIMCO Corporate & Income Opportunity Fund

 

January 31, 2017 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 133.8%  
BANK LOAN OBLIGATIONS 4.3%  

Avolon

 

TBD% due 07/20/2020

  $     80     $     81  

Avolon Holdings Ltd.

 

TBD% due 01/13/2022

      610         619  

BJ’s Wholesale Club, Inc.

 

TBD% due 01/26/2024

      100         100  

BMC Software Finance, Inc.

 

5.000% due 09/10/2020

      980         979  

CH Hold Corp.

 

TBD% due 01/18/2024

      300         303  

Charter Communications Operating LLC

 

3.020% due 01/03/2021

      370         371  

Concordia International Corp.

 

5.250% due 10/21/2021

      2,487         1,960  

Fortescue Metals Group Ltd.

 

3.750% due 06/30/2019

      1,539         1,550  

iHeartCommunications, Inc.

 

7.528% due 01/30/2019

      8,198         6,892  

Lightstone Generation LLC

 

TBD% due 11/22/2023

      2,900         2,941  

Prestige Brands, Inc.

 

TBD% due 01/26/2024

      200         202  

Sequa Corp.

 

5.250% due 06/19/2017

      10,777         10,336  

Sprint Communications, Inc.

 

TBD% due 01/13/2024

      2,800         2,800  

Team Health Holdings, Inc.

 

TBD% due 01/17/2024

      600         600  

Vistra Operations Co. LLC

 

4.017% due 12/14/2023

      1,100         1,112  

Westmoreland Coal Co.

 

7.500% due 12/16/2020

      12,896         11,575  

Ziggo Secured Finance BV

 

TBD% due 04/23/2025

  EUR     150         164  
       

 

 

 

Total Bank Loan Obligations (Cost $43,663)

 

        42,585  
       

 

 

 
CORPORATE BONDS & NOTES 59.9%  
BANKING & FINANCE 24.9%  

AGFC Capital Trust

 

2.772% due 01/15/2067

  $     1,800         990  

Ally Financial, Inc.

 

8.000% due 11/01/2031

      8,291         9,887  

8.000% due 11/01/2031 (j)

      2,521         3,006  

Banco Bilbao Vizcaya Argentaria S.A.

 

6.750% due 02/18/2020 (g)

  EUR     3,400         3,508  

8.875% due 04/14/2021 (g)

      400         467  

Banco do Brasil S.A.

 

6.250% due 04/15/2024 (g)

  $     4,200         3,381  

9.000% due 06/18/2024 (g)(j)

      9,298         9,437  

Banco Espirito Santo S.A.

 

2.625% due 05/08/2017 ^

  EUR     500         173  

4.000% due 01/21/2019 ^

      5,000         1,727  

4.750% due 01/15/2018 ^

      1,000         345  

Banco Santander S.A.

 

6.250% due 09/11/2021 (g)

      400         415  

Barclays PLC

 

6.500% due 09/15/2019 (g)

      1,600         1,736  

8.000% due 12/15/2020 (g)

      200         234  

Blackstone CQP Holdco LP

 

9.296% due 03/19/2019

  $     16,393         16,536  

BNP Paribas S.A.

 

7.375% due 08/19/2025 (g)

      6,650         6,741  

Cantor Commercial Real Estate Co. LP

 

7.750% due 02/15/2018

      2,940         2,942  

Cantor Fitzgerald LP

 

6.500% due 06/17/2022 (j)

      10,000         10,890  

CBL & Associates LP

 

5.950% due 12/15/2026

      3,700         3,671  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Cooperatieve Rabobank UA

 

6.625% due 06/29/2021 (g)

  EUR     1,800     $     2,087  

Credit Agricole S.A.

 

7.500% due 06/23/2026 (g)

  GBP     670         859  

7.875% due 01/23/2024 (g)(j)

  $     11,400         11,640  

Credit Suisse Group AG

 

7.500% due 12/11/2023 (g)

      2,336         2,478  

Deutsche Bank AG

 

4.250% due 10/14/2021 (j)

      3,600         3,619  

EPR Properties

 

4.750% due 12/15/2026

      5,400         5,369  

Flagstar Bancorp, Inc.

 

6.125% due 07/15/2021

      6,000         6,407  

GSPA Monetization Trust

 

6.422% due 10/09/2029 (j)

      8,966         9,895  

Hexion U.S. Finance Corp.

 

10.375% due 02/01/2022 (b)

      124         127  

13.750% due 02/01/2022 (b)

      98         99  

HSBC Holdings PLC

 

6.000% due 09/29/2023 (g)

  EUR     4,977         5,678  

Jefferies Finance LLC

 

6.875% due 04/15/2022

  $     1,900         1,853  

7.375% due 04/01/2020

      3,525         3,578  

7.500% due 04/15/2021

      2,391         2,418  

Jefferies LoanCore LLC

 

6.875% due 06/01/2020 (j)

      10,500         10,237  

Lloyds Bank PLC

 

12.000% due 12/16/2024 (g)(j)

      4,270         5,668  

Lloyds Banking Group PLC

 

7.875% due 06/27/2029 (g)

  GBP     600         813  

MPT Operating Partnership LP

 

5.250% due 08/01/2026

  $     2,203         2,170  

Nationwide Building Society

 

10.250% due 06/29/2049 (g)

  GBP     21         3,624  

Navient Corp.

 

5.500% due 01/15/2019 (j)

  $     4,950         5,074  

5.625% due 08/01/2033

      228         181  

Neuberger Berman Group LLC

 

4.875% due 04/15/2045 (j)

      3,400         2,717  

Novo Banco S.A.

 

5.000% due 04/04/2019

  EUR     371         303  

5.000% due 04/23/2019

      152         125  

5.000% due 05/14/2019

      315         258  

5.000% due 05/21/2019

      73         60  

5.000% due 05/23/2019

      213         174  

Omega Healthcare Investors, Inc.

 

4.375% due 08/01/2023 (j)

  $     2,600         2,603  

OneMain Financial Holdings LLC

 

6.750% due 12/15/2019

      2,116         2,203  

PHH Corp.

 

6.375% due 08/15/2021

      3,580         3,634  

7.375% due 09/01/2019

      3,050         3,347  

Provident Funding Associates LP

 

6.750% due 06/15/2021

      4,750         4,821  

Rio Oil Finance Trust

 

9.250% due 07/06/2024

      6,097         6,021  

9.750% due 01/06/2027

      235         231  

Royal Bank of Scotland Group PLC

 

7.500% due 08/10/2020 (g)(j)

      6,840         6,652  

8.000% due 08/10/2025 (g)(j)

      10,735           10,561  

8.625% due 08/15/2021 (g)

      2,900         3,002  

Sberbank of Russia Via SB Capital S.A.

 

6.125% due 02/07/2022

      500         545  

Spirit Realty LP

 

4.450% due 09/15/2026 (j)

      2,600         2,497  

Springleaf Finance Corp.

 

5.250% due 12/15/2019

      2,680         2,700  

8.250% due 12/15/2020

      6,680         7,189  

Stearns Holdings LLC

 

9.375% due 08/15/2020

      600         606  

Tesco Property Finance PLC

 

6.052% due 10/13/2039

  GBP     1,342         1,806  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

TIG FinCo PLC

 

8.500% due 03/02/2020

  GBP     1,154     $     1,498  

8.750% due 04/02/2020 (j)

      14,604         17,729  

WP Carey, Inc.

 

4.250% due 10/01/2026 (j)

  $     5,000         4,932  
       

 

 

 
            246,174  
       

 

 

 
INDUSTRIALS 29.0%  

ADT Corp.

 

4.875% due 07/15/2032 (j)

      7,366         5,967  

Aeropuertos Argentina S.A.

 

6.875% due 02/01/2027 (b)

      800         810  

Altice Financing S.A.

 

7.500% due 05/15/2026 (j)

      6,700         7,089  

American Airlines Pass-Through Trust

 

4.950% due 08/15/2026

      3,400         3,460  

BCD Acquisition, Inc.

 

9.625% due 09/15/2023

      1,280         1,376  

BMC Software Finance, Inc.

 

8.125% due 07/15/2021

      3,031         2,940  

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

 

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

      8,226         8,020  

Caesars Entertainment Operating Co., Inc.

 

9.000% due 02/15/2020 ^

      26,699         29,809  

Carlson Travel, Inc.

 

6.750% due 12/15/2023

      300         312  

Cheniere Corpus Christi Holdings LLC

 

5.875% due 03/31/2025

      400         425  

Chesapeake Energy Corp.

 

4.272% due 04/15/2019

      157         157  

Concordia International Corp.

 

9.000% due 04/01/2022

      533         454  

Diamond Resorts International, Inc.

 

10.750% due 09/01/2024

      4,300         4,322  

DriveTime Automotive Group, Inc.

 

8.000% due 06/01/2021

      9,300         9,230  

Enterprise Inns PLC

 

6.375% due 09/26/2031

  GBP     1,000         1,300  

Forbes Energy Services Ltd.

 

9.000% due 06/15/2019 ^

  $     3,458         2,092  

Ford Motor Co.

 

7.700% due 05/15/2097 (j)

      31,901         37,225  

Fresh Market, Inc.

 

9.750% due 05/01/2023

      12,200         10,889  

Greene King Finance PLC

 

5.702% due 12/15/2034

  GBP     350         409  

Hampton Roads PPV LLC

 

6.171% due 06/15/2053

  $     1,800         1,847  

Harvest Operations Corp.

 

2.330% due 04/14/2021

      5,778         5,680  

HCA, Inc.

 

4.500% due 02/15/2027

      1,550         1,533  

7.500% due 11/15/2095

      4,800         4,620  

iHeartCommunications, Inc.

 

9.000% due 09/15/2022

      5,810         4,379  

Intelsat Jackson Holdings S.A.

 

7.250% due 04/01/2019

      3,700         3,198  

Intelsat Luxembourg S.A.

 

7.750% due 06/01/2021

      11,443         4,034  

8.125% due 06/01/2023

      1,939         654  

Intrepid Aviation Group Holdings LLC

 

6.875% due 02/15/2019

      12,290         11,245  

Kinder Morgan Energy Partners LP

 

6.375% due 03/01/2041 (j)

      800         894  

Kinder Morgan, Inc.

 

7.750% due 01/15/2032 (j)

      3,100         3,879  

7.800% due 08/01/2031 (j)

      6,000         7,529  

Kinetic Concepts, Inc.

 

9.625% due 10/01/2021

      11,600         12,450  

Koppers, Inc.

 

6.000% due 02/15/2025

      25         26  
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   21


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

 

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

Mallinckrodt International Finance S.A.

 

4.750% due 04/15/2023

  $     6,000     $     4,946  

5.500% due 04/15/2025

      1,560         1,351  

MDC Partners, Inc.

 

6.500% due 05/01/2024

      2,000         1,750  

N&W Global Vending SpA

 

7.000% due 10/15/2023

  EUR     1,360         1,549  

Park Aerospace Holdings Ltd.

 

5.250% due 08/15/2022 (b)

  $     470         482  

5.500% due 02/15/2024 (b)

      240         247  

Petroleos Mexicanos

 

5.375% due 03/13/2022

      100         102  

6.500% due 03/13/2027

      446         460  

Prime Security Services Borrower LLC

 

9.250% due 05/15/2023

      4,195         4,557  

QVC, Inc.

 

5.450% due 08/15/2034

      1,650         1,511  

Radiate Holdco LLC

 

6.625% due 02/15/2025 (b)

      108         108  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     1,500         2,220  

Sabine Pass Liquefaction LLC

 

5.875% due 06/30/2026

  $     4,300         4,795  

Safeway, Inc.

 

7.250% due 02/01/2031 (j)

      9,392         9,275  

Scientific Games International, Inc.

 

10.000% due 12/01/2022

      3,750         3,861  

Sequa Corp.

 

7.000% due 12/15/2017

      13,090         7,200  

SFR Group S.A.

 

6.250% due 05/15/2024 (j)

      12,500         12,625  

7.375% due 05/01/2026 (j)

      2,200         2,266  

Silversea Cruise Finance Ltd.

 

7.250% due 02/01/2025

      36         37  

Soho House Bond Ltd.

 

9.125% due 10/01/2018

  GBP     4,650         6,002  

Spanish Broadcasting System, Inc.

 

12.500% due 04/15/2017

  $     1,100         1,097  

Spirit Issuer PLC

 

3.067% due 12/28/2031

  GBP     1,855         2,198  

6.582% due 12/28/2027

      2,500         3,462  

Tech Data Corp.

 

3.700% due 02/15/2022

  $     60         60  

4.950% due 02/15/2027

      70         70  

Tembec Industries, Inc.

 

9.000% due 12/15/2019

      2,100         2,137  

Tennessee Merger Sub, Inc.

 

6.375% due 02/01/2025 (b)

      177         174  

Transocean, Inc.

 

9.000% due 07/15/2023

      1,193         1,276  

Trinidad Drilling Ltd.

 

6.625% due 02/15/2025 (b)

      56         57  

UAL Pass-Through Trust

 

7.336% due 01/02/2021

      1,795         1,887  

UCP, Inc.

 

8.500% due 10/21/2017

      10,900         10,842  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     6,961         9,375  

Virgin Media Secured Finance PLC

 

5.000% due 04/15/2027 (b)

      900         1,125  

Zayo Group LLC

 

5.750% due 01/15/2027

  $     57         58  
       

 

 

 
            287,416  
       

 

 

 
UTILITIES 6.0%  

Frontier Communications Corp.

 

11.000% due 09/15/2025

      940         954  

Gazprom OAO Via Gaz Capital S.A.

 

9.250% due 04/23/2019

      11,200         12,725  

Illinois Power Generating Co.

 

6.300% due 04/01/2020 ^

      4,570         1,714  

7.000% due 04/15/2018 ^

      8,855         3,321  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

7.950% due 06/01/2032 ^

  $     1,175     $     435  

Mountain States Telephone & Telegraph Co.

 

7.375% due 05/01/2030 (j)

      15,730         16,536  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 06/30/2022

      501         234  

Odebrecht Offshore Drilling Finance Ltd.

 

6.625% due 10/01/2023

      4,787         1,664  

6.750% due 10/01/2023

      4,542         1,544  

Petrobras Global Finance BV

 

6.125% due 01/17/2022

      308         319  

6.250% due 12/14/2026

  GBP     6,100         7,399  

6.625% due 01/16/2034

      800         911  

6.750% due 01/27/2041

  $     4,100         3,671  

7.375% due 01/17/2027

      380         397  

Sprint Capital Corp.

 

6.900% due 05/01/2019

      2,000         2,140  

Terraform Global Operating LLC

 

9.750% due 08/15/2022

      4,290         4,751  

TerraForm Power Operating LLC

 

6.375% due 02/01/2023

      1,075         1,110  
       

 

 

 
          59,825  
       

 

 

 

Total Corporate Bonds & Notes (Cost $589,109)

 

        593,415  
       

 

 

 
CONVERTIBLE BONDS & NOTES 0.7%  
INDUSTRIALS 0.7%  

DISH Network Corp.

 

3.375% due 08/15/2026

      5,900         6,921  
       

 

 

 

Total Convertible Bonds & Notes
(Cost $5,900)

 

      6,921  
       

 

 

 
MUNICIPAL BONDS & NOTES 7.3%  
CALIFORNIA 3.8%  

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

 

7.500% due 10/01/2030

      3,425         3,693  

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

 

7.750% due 09/01/2040

      21,545         24,602  

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

 

7.942% due 10/01/2038

      8,500         9,352  
       

 

 

 
          37,647  
       

 

 

 
ILLINOIS 2.5%  

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

 

7.517% due 01/01/2040

      23,700         24,229  

Chicago, Illinois General Obligation Bonds, Series 2017

 

7.045% due 01/01/2029 (b)

      200         204  
       

 

 

 
          24,433  
       

 

 

 
VIRGINIA 0.1%  

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

 

6.706% due 06/01/2046

      1,400         1,128  
       

 

 

 
WEST VIRGINIA 0.9%  

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

 

7.467% due 06/01/2047

      10,710         9,521  
       

 

 

 

Total Municipal Bonds & Notes (Cost $67,811)

 

      72,729  
       

 

 

 
U.S. GOVERNMENT AGENCIES 3.2%  

Fannie Mae

 

3.000% due 01/25/2042 (a)

      1,417         139  

3.500% due 02/25/2033 (a)

      3,385         487  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.021% due 01/25/2029

  $     800     $     849  

5.329% due 07/25/2040 (a)

      1,653         229  

Freddie Mac

 

2.563% due 11/25/2055

      14,708         8,274  

6.333% due 02/15/2034 (a)

      2,848         536  

7.534% due 07/15/2039

      3,126         3,392  

8.321% due 12/25/2027

      4,447         4,976  

8.697% due 03/15/2044

      1,485         1,714  

9.944% due 02/15/2036

      5,434         7,126  

9.954% due 04/15/2044

      373         451  

11.521% due 03/25/2025

      2,371         2,899  

Ginnie Mae

 

3.000% due 12/20/2042 (a)

      74         12  

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

      2,004         295  

5.973% due 01/20/2042 (a)

      3,054         407  
       

 

 

 

Total U.S. Government Agencies (Cost $29,673)

 

        31,786  
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 28.5%  

Banc of America Alternative Loan Trust

 

6.000% due 01/25/2036 ^

      263         225  

6.000% due 04/25/2036 ^

      4,697         4,157  

Banc of America Funding Trust

 

5.500% due 01/25/2036

      237         244  

6.000% due 07/25/2037 ^

      743         582  

BCAP LLC Trust

 

3.068% due 03/27/2036

      3,856         2,080  

4.242% due 07/26/2037

      671         23  

5.078% due 03/26/2037

      2,209         670  

7.000% due 12/26/2036

      6,766         5,898  

8.089% due 10/26/2036

      5,699         5,331  

Bear Stearns ALT-A Trust

 

3.110% due 11/25/2036 ^

      972         796  

3.200% due 08/25/2046

      6,367         4,954  

3.201% due 08/25/2036 ^

      4,289         3,176  

3.422% due 11/25/2034

      417         398  

3.477% due 09/25/2035 ^

      1,594         1,316  

Bear Stearns Asset-Backed Securities Trust

 

1.171% due 04/25/2037

      22,019         16,127  

Bear Stearns Commercial Mortgage Securities Trust

 

5.714% due 04/12/2038

      370         285  

Bear Stearns Mortgage Funding Trust

 

7.500% due 08/25/2036

      2,776         2,666  

Chase Mortgage Finance Trust

 

3.189% due 12/25/2035 ^

      29         28  

6.000% due 02/25/2037 ^

      2,478         2,013  

6.000% due 03/25/2037 ^

      530         454  

6.000% due 07/25/2037 ^

      1,971         1,637  

Chase Mortgage Trust

 

3.750% due 12/25/2045

      899         840  

Citigroup Mortgage Loan Trust, Inc.

 

3.174% due 04/25/2037 ^

      4,383         3,574  

3.842% due 11/25/2035

      18,164         10,331  

4.404% due 03/25/2037 ^

      1,376         1,186  

6.000% due 11/25/2036

      15,197         10,804  

Citigroup/Deutsche Bank Commercial Mortgage Trust

 

5.398% due 12/11/2049

      399         361  

CitiMortgage Alternative Loan Trust

 

5.750% due 04/25/2037 ^

      3,683         3,185  

Commercial Mortgage Loan Trust

 

6.096% due 12/10/2049

      3,476         2,204  

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 08/25/2037 ^

      2,781         2,170  

Countrywide Alternative Loan Trust

 

0.987% due 03/20/2046

      6,416         4,825  

1.041% due 08/25/2035

      402         263  

4.266% due 06/25/2047

      4,624         3,766  

4.479% due 04/25/2037 ^(a)

      29,896         4,638  

5.250% due 05/25/2021 ^

      23         22  

5.500% due 03/25/2035

      763         605  

5.500% due 09/25/2035 ^

      6,504         5,878  

5.500% due 03/25/2036 ^

      250         195  

5.750% due 01/25/2035

      891         898  

5.750% due 02/25/2035

      987         957  
 

 

22   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

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

6.000% due 02/25/2035

  $     898     $     918  

6.000% due 04/25/2036

      2,369         1,748  

6.000% due 05/25/2036 ^

      2,598         2,039  

6.000% due 02/25/2037 ^

      884         611  

6.000% due 02/25/2037

      3,253         2,578  

6.000% due 04/25/2037 ^

      8,988         6,378  

6.000% due 08/25/2037 ^

      23,749         18,752  

6.250% due 10/25/2036 ^

      3,481         2,742  

6.250% due 12/25/2036 ^

      4,363         3,222  

6.500% due 08/25/2036 ^

      1,130         764  

6.500% due 09/25/2036 ^

      585         493  

18.806% due 02/25/2036

      2,599         3,164  

Countrywide Home Loan Mortgage Pass-Through Trust

 

5.500% due 07/25/2037 ^

      962         805  

6.000% due 04/25/2036 ^

      754         682  

Credit Suisse Commercial Mortgage Trust

 

5.870% due 09/15/2040

      5,500         5,199  

Credit Suisse Mortgage Capital Mortgage-Backed Trust

 

5.750% due 04/25/2036 ^

      2,004         1,573  

Epic Drummond Ltd.

 

0.000% due 01/25/2022

  EUR     656         697  

Fannie Mae

 

4.316% due 07/25/2029

  $     2,210         2,247  

6.516% due 07/25/2029

      2,010         2,151  

First Horizon Alternative Mortgage Securities Trust

 

6.000% due 08/25/2036 ^

      2,975         2,521  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

      2,700         2,522  

GSR Mortgage Loan Trust

 

3.215% due 11/25/2035 ^

      2,313         2,124  

3.356% due 03/25/2037 ^

      4,393         3,818  

5.500% due 05/25/2036 ^

      362         344  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      7,045         4,312  

JPMorgan Alternative Loan Trust

 

2.939% due 03/25/2037

      13,879           11,433  

JPMorgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      2,873         2,477  

JPMorgan Mortgage Trust

 

3.069% due 06/25/2036 ^

      1,398         1,231  

3.111% due 10/25/2035

      77         74  

3.154% due 01/25/2037 ^

      1,827         1,638  

3.297% due 02/25/2036 ^

      3,158         2,814  

Lehman Mortgage Trust

 

6.000% due 07/25/2036 ^

      5,600         4,348  

6.000% due 07/25/2037 ^

      372         334  

25.184% due 11/25/2035 ^

      327         473  

Lehman XS Trust

 

0.991% due 06/25/2047

      5,246         4,049  

MASTR Alternative Loan Trust

 

6.750% due 07/25/2036

      4,163         2,935  

Merrill Lynch Mortgage Investors Trust

 

3.019% due 03/25/2036 ^

      4,444         3,069  

Mesdag Delta BV

 

0.094% due 01/25/2020

  EUR     2,135         2,181  

RBSSP Resecuritization Trust

 

0.976% due 10/27/2036

  $     3,609         312  

0.996% due 08/27/2037

      8,000         2,265  

Residential Accredit Loans, Inc. Trust

 

0.961% due 08/25/2036

      1,465         1,154  

1.001% due 05/25/2037 ^

      537         132  

6.000% due 08/25/2036 ^

      966         818  

6.000% due 05/25/2037 ^

      3,103         2,796  

Residential Asset Securitization Trust

 

5.750% due 02/25/2036 ^

      516         403  

6.000% due 02/25/2037 ^

      2,567         2,009  

6.250% due 09/25/2037 ^

      5,711         3,902  

Residential Funding Mortgage Securities, Inc. Trust

 

3.894% due 02/25/2037

      4,187         3,388  

Structured Adjustable Rate Mortgage Loan Trust

 

3.139% due 07/25/2035 ^

      3,144         2,718  

3.235% due 11/25/2036 ^

      7,047         5,444  

3.254% due 01/25/2036 ^

      9,194         6,983  

3.502% due 07/25/2036 ^

      1,602         1,272  

4.850% due 03/25/2037 ^

      1,288         900  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Structured Asset Mortgage Investments Trust

 

0.891% due 08/25/2036

  $     254     $     205  

Suntrust Adjustable Rate Mortgage Loan Trust

 

3.097% due 04/25/2037 ^

      1,132         964  

3.408% due 02/25/2037 ^

      978         873  

3.979% due 02/25/2037 ^

      10,326         8,780  

WaMu Mortgage Pass-Through Certificates Trust

 

2.616% due 07/25/2037 ^

      1,141         943  

3.627% due 02/25/2037 ^

      1,577         1,496  

4.326% due 07/25/2037 ^

      2,631         2,418  

5.972% due 10/25/2036 ^

      2,291         1,824  

Washington Mutual Mortgage Pass-Through Certificates Trust

 

1.436% due 05/25/2047 ^

      575         34  

6.000% due 10/25/2035 ^

      2,159         1,712  

6.000% due 03/25/2036 ^

      3,217         3,065  

6.000% due 02/25/2037

      7,755         6,777  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $277,063)

 

        282,809  
       

 

 

 
ASSET-BACKED SECURITIES 17.9%  

Airspeed Ltd.

 

1.037% due 06/15/2032

      5,838         4,594  

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

 

2.121% due 03/25/2033

      94         91  

BlueMountain CLO Ltd.

 

6.472% due 04/13/2027

      1,000         981  

CIFC Funding Ltd.

 

0.000% due 05/24/2026 (e)

      4,100         3,018  

0.000% due 07/22/2026

      3,000         1,844  

Citigroup Mortgage Loan Trust, Inc.

 

0.931% due 12/25/2036

      7,584         4,712  

1.171% due 11/25/2046

      8,862         7,612  

Cork Street CLO Designated Activity Co.

 

0.000% due 11/27/2028 (e)

  EUR     2,667         2,438  

3.600% due 11/27/2028

      1,197         1,296  

4.500% due 11/27/2028

      1,047         1,135  

6.200% due 11/27/2028

      1,296         1,409  

Countrywide Asset-Backed Certificates

 

0.941% due 03/25/2037

  $     4,990         4,655  

0.971% due 06/25/2047

      19,738         15,209  

1.081% due 09/25/2037 ^

      19,068         9,450  

3.246% due 08/25/2033

      307         249  

Credit-Based Asset Servicing and Securitization LLC

 

4.010% due 12/25/2035 ^

      127         125  

First Franklin Mortgage Loan Trust

 

0.931% due 10/25/2036

      5,785         4,181  

Fremont Home Loan Trust

 

0.921% due 01/25/2037

      7,591         4,034  

Glacier Funding CDO Ltd.

 

1.146% due 08/04/2035

      8,819         2,465  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029

  EUR     750         667  

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

 

0.931% due 07/25/2037

  $     3,760         2,339  

JPMorgan Mortgage Acquisition Trust

 

5.830% due 07/25/2036 ^

      150         83  

Lehman XS Trust

 

6.290% due 06/24/2046

      4,421         4,079  

Long Beach Mortgage Loan Trust

 

1.071% due 01/25/2036

      8,000         5,698  

Merrill Lynch Mortgage Investors Trust

 

4.063% due 03/25/2037

      7,779         2,588  

Morgan Stanley ABS Capital, Inc. Trust

 

0.921% due 10/25/2036

      8,438         5,286  

Morgan Stanley Mortgage Loan Trust

 

6.250% due 07/25/2047 ^

      1,563         1,116  

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

 

1.421% due 07/25/2035

      6,000         3,621  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Renaissance Home Equity Loan Trust

 

5.612% due 04/25/2037

  $     11,774     $     5,579  

7.238% due 09/25/2037 ^

      9,813         5,921  

Residential Asset Securities Corp. Trust

 

1.336% due 08/25/2034

      11,526         9,287  

Securitized Asset-Backed Receivables LLC Trust

 

1.051% due 03/25/2036

      12,150         6,197  

SLM Student Loan Trust

 

0.000% due 01/25/2042 (e)

      7         6,980  

0.000% due 10/28/2029 (e)

      8         7,453  

Sound Point CLO Ltd.

 

5.891% due 01/23/2027

      1,000         935  

South Coast Funding Ltd.

 

1.482% due 08/10/2038

      20,837         4,303  

Taberna Preferred Funding Ltd.

 

1.158% due 08/05/2036

      807         581  

1.158% due 08/05/2036 ^

      15,628         11,252  

1.241% due 12/05/2036

      495         356  

1.281% due 02/05/2036

      9,451         7,277  

Tropic CDO Ltd.

 

1.923% due 04/15/2034

      25,000         16,000  
       

 

 

 

Total Asset-Backed Securities
(Cost $179,517)

          177,096  
       

 

 

 
SOVEREIGN ISSUES 2.1%  

Argentine Government International Bond

 

2.260% due 12/31/2038

  EUR     300         191  

3.875% due 01/15/2022

      300         315  

5.000% due 01/15/2027

      1,200         1,185  

5.625% due 01/26/2022

  $     240         241  

6.875% due 01/26/2027

      420         416  

7.820% due 12/31/2033

  EUR     5,023         5,530  

Autonomous Community of Catalonia

 

4.900% due 09/15/2021

      2,650         3,026  

Republic of Greece Government International Bond

 

3.800% due 08/08/2017

  JPY     695,000         5,956  

4.750% due 04/17/2019

  EUR     600         598  

Saudi Government International Bond

 

3.250% due 10/26/2026

  $     400         382  

4.500% due 10/26/2046

      2,600         2,549  
       

 

 

 

Total Sovereign Issues (Cost $19,986)

 

      20,389  
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%  
FINANCIALS 0.1%  

TIG FinCo PLC (h)

      794,831         740  
       

 

 

 

Total Common Stocks (Cost $1,179)

 

      740  
       

 

 

 
PREFERRED SECURITIES 0.8%  
BANKING & FINANCE 0.8%  

Farm Credit Bank of Texas

 

10.000% due 12/15/2020 (g)

      6,945         8,351  

Morgan Stanley

 

5.850% due 04/15/2027 (g)

      2,950         74  
       

 

 

 

Total Preferred Securities (Cost $7,873)

 

      8,425  
       

 

 

 
SHORT-TERM INSTRUMENTS 9.0%  
REPURCHASE AGREEMENTS (i) 1.2%  
          11,582  
       

 

 

 
SHORT-TERM NOTES 0.3%  

Federal Home Loan Bank

 

0.492% due 02/13/2017 (f)

  $     3,000         3,000  
       

 

 

 
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   23


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

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
U.S. TREASURY BILLS 7.5%  

0.468% due 02/02/2017 - 03/16/2017 (d)(e)(l)(n)

  $     74,573     $     74,544  
       

 

 

 
Total Short-Term Instruments
(Cost $89,127)
        89,126  
       

 

 

 
       
Total Investments in Securities
(Cost $1,310,901)
        1,326,021  
       
Total Investments 133.8%
(Cost $1,310,901)
    $       1,326,021  

Financial Derivative Instruments (k)(m) (4.4)%

(Cost or Premiums, net $(57,609))

    (43,115
 

Preferred Shares (24.0)%

          (237,950
Other Assets and Liabilities, net (5.4)%         (53,775
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%     $     991,181  
       

 

 

 
 

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 security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon security.
(f) Coupon represents a yield to maturity.
(g) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(h)  RESTRICTED SECURITIES:

 

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

TIG FinCo PLC

       04/02/2015   $     1,179     $     740       0.07%  
        

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(i)  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)
 
JPS     0.620     01/31/2017       02/01/2017     $     3,800     U.S. Treasury Bonds 3.125% due 08/15/2044   $ (3,881   $ 3,800     $ 3,800  
    0.690       01/31/2017       02/01/2017       5,200     Ginnie Mae 3.000% due 01/20/2047     (5,393     5,200       5,200  
SSB     0.010       01/31/2017       02/01/2017       2,582     U.S. Treasury Bonds 1.000% due 08/15/2044(2)     (2,636     2,582       2,582  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

    $     (11,910   $     11,582     $     11,582  
           

 

 

   

 

 

   

 

 

 

 

(1) 

Includes accrued interest.

(2) 

Collateral is held in custody by the counterparty.

 

REVERSE REPURCHASE AGREEMENTS:

 

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

BCY

    0.000     12/16/2016       12/16/2017     $     (1,912   $     (1,912

BPS

    1.740       12/01/2016       03/02/2017       (2,030     (2,036
    1.780       12/08/2016       03/08/2017       (9,254     (9,279
    1.890       01/31/2017       05/01/2017       (1,375     (1,375

 

24   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

Counterparty   Borrowing
Rate(3)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(3)

    Payable for
Reverse
Repurchase
Agreements
 

MSC

    1.520     01/19/2017       04/19/2017       $       (8,988   $ (8,993

RDR

    1.330       11/28/2016       02/28/2017         (3,384     (3,392
    1.170       01/17/2017       02/13/2017         (5,112     (5,115
    1.350       01/20/2017       04/07/2017         (4,803     (4,805

SOG

    1.650       12/01/2016       02/27/2017         (16,662     (16,709
    1.600       01/27/2017       04/26/2017         (6,077     (6,078

UBS

    1.700       11/02/2016       02/02/2017         (7,358     (7,390
    1.100       11/18/2016       02/20/2017       GBP       (1,805     (2,276
    1.220       11/21/2016       02/22/2017       $       (10,250     (10,275
    1.300       11/22/2016       02/22/2017             (13,185     (13,219
    1.470       11/25/2016       02/27/2017         (2,540     (2,547
    1.520       11/25/2016       02/27/2017         (4,271     (4,283
    1.730       11/28/2016       02/28/2017         (4,945     (4,961
    1.650       12/15/2016       02/02/2017         (5,122     (5,133
    1.650       12/16/2016       02/02/2017         (5,862     (5,875
    1.850       12/28/2016       03/14/2017         (7,915     (7,929
    1.360       01/06/2017       04/07/2017         (7,578     (7,585
    1.780       02/02/2017       05/02/2017         (10,814     (10,814
    1.830       02/02/2017       05/02/2017         (7,662     (7,662
           

 

 

 

Total Reverse Repurchase Agreements

 

        $     (149,643
           

 

 

 

 

(3)

The average amount of borrowings outstanding during the period ended January 31, 2017 was $(113,437) at a weighted average interest rate of 1.341%. Average borrowings includes sale-buyback transactions, of which there were none open at period end.

 

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 pledged/(received) as of January 31, 2017:

 

(j) Securities with an aggregate market value of $170,233 have been pledged as collateral under the terms of the following master agreements as of January 31, 2017.

 

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

Global/Master Repurchase Agreement

 

BCY

  $ 0     $ (1,912   $ 0      $ (1,912   $ 2,205     $ 293  

BPS

    0       (12,690     0        (12,690     15,758       3,068  

JPS

    9,000       0       0        9,000           (9,138     (138

MSC

    0       (8,993     0        (8,993     9,875       882  

RDR

    0       (13,312     0        (13,312     13,811       499  

SOG

    0       (22,787     0        (22,787     24,682       1,895  

SSB

    2,582       0       0        2,582       (2,636     (54

UBS

    0       (89,949     0            (89,949         101,428           11,479  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     11,582     $     (149,643   $     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     $ (83,211   $ (46,044   $ (1,912   $ (131,167
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (83,211   $     (46,044   $     (1,912   $ (131,167
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

          $     (131,167
         

 

 

 

 

(5)

Unsettled reverse repurchase agreements liability of $(18,476) is outstanding at period end.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   25


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

 

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity

 

Fixed
Receive Rate

   

Maturity
Date

    Implied
Credit Spread at
January 31, 2017(2)
   

Notional
Amount(3)

   

Market
Value(4)

   

Unrealized
Appreciation

    Variation Margin  
              Asset     Liability  

Navient Corp.

    5.000     12/20/2021       4.278   $     15,900     $     579     $     609     $     66     $     0  
         

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Index/Tranches        Fixed
Receive Rate
    Maturity
Date
    Notional
Amount(3)
    Market
Value(4)
    Unrealized
Appreciation
    Variation Margin  
              Asset     Liability  

CDX.HY-26 5-Year Index

    5.000     06/20/2021     $ 2,772     $ 217     $ 90     $ 0     $ 0  

CDX.HY-27 5-Year Index

    5.000       12/20/2021           27,423       1,876       672       0       (68

CDX.IG-27 5-Year Index

    1.000       12/20/2021       25,800       428       109       0       (11
         

 

 

   

 

 

   

 

 

   

 

 

 
    $     2,521     $     871     $     0     $     (79
         

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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 indicators 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

 

1-Year BRL-CDI

    11.250     01/04/2021       BRL       105,000     $ (503   $ 777     $ 0     $ (5

Pay

 

1-Year BRL-CDI

    11.500       01/04/2021         22,400       (28     195       0       (1

Pay

 

3-Month USD-LIBOR

    2.750       06/17/2025       $       145,380       5,433       (3,760     381       0  

Pay

 

3-Month USD-LIBOR

    2.250       06/15/2026         44,400       (335     (2,434     130       0  

Pay

 

3-Month USD-LIBOR

    3.500       06/19/2044         305,100       52,417       62,370       2,213       0  

Receive

 

3-Month USD-LIBOR

    2.500       06/15/2046         469,700       12,475       74,457       0       (3,166

Pay

 

6-Month  AUD-BBR-BBSW

    3.500       06/17/2025       AUD       13,400       517       185       38       0  
           

 

 

   

 

 

   

 

 

   

 

 

 
            $ 69,976     $ 131,790     $ 2,762     $ (3,172
           

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

          $     73,076     $     133,270     $     2,828     $     (3,251
           

 

 

   

 

 

   

 

 

   

 

 

 

 

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, 2017:

 

(l) Securities with an aggregate market value of $26,399 and cash of $93,445 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2017. 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
   

Total

          Market Value     Variation Margin
Liability
   

Total

 
     Purchased
Options
    Futures     Swap
Agreements
            Written
Options
    Futures     Swap
Agreements
   

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     2,828     $     2,828       $     0     $     0     $     (3,251   $     (3,251
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

26   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

 

(m)  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

     02/2017     BRL     1,644     $     526     $ 4     $ 0  
     02/2017     EUR     36,379         37,887       0       (1,384
     02/2017     $     496     BRL     1,645       26       0  

BPS

     02/2017     EUR     93     $     100       0       (1
     02/2017     GBP     163         198       0       (7

CBK

     02/2017     EUR     1,447         1,556       0       (6
     02/2017     $     8,604     EUR     8,093       133       0  
     02/2017         9,693     GBP     7,725       25       0  
     02/2017         6,165     JPY     704,349       73       0  
     03/2017     EUR     293     $     314       0       (3
     03/2017     GBP     7,725         9,698       0       (25
     03/2017     JPY     704,349         6,171       0       (72

FBF

     02/2017     GBP     80         99       0       (2

GLM

     02/2017     BRL     629         198       0       (2
     02/2017     EUR     1,707         1,826       0       (17
     02/2017     GBP     1,333         1,633       0       (44
     02/2017     $     201     BRL     629       0       (1
     03/2017     GBP     878     $     1,092       0       (13

IND

     02/2017         42,372         51,910       0       (1,394

JPM

     02/2017     AUD     946         689       0       (28
     02/2017     BRL     640         198       0       (5
     02/2017     GBP     379         475       0       (2
     02/2017     JPY     704,349         5,999       0       (239
     02/2017     $     205     BRL     640       0       (2
     02/2017         34,444     EUR     32,206       322       0  
     03/2017     EUR     32,206     $     34,484       0       (318

MSB

     02/2017     GBP     323         393       0       (13

SCX

     02/2017     EUR     2,287         2,451       0       (17
     02/2017     GBP     1,354         1,703       0       0  

SOG

     02/2017         401         494       0       (10

TOR

     02/2017     EUR     93         98       0       (2
     02/2017     GBP     78         95       0       (3

UAG

     02/2017     $     48,587     GBP     38,758       170       0  
     03/2017     GBP     38,758     $     48,613       0       (168
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

  $     753     $     (3,778
            

 

 

   

 

 

 

 

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, 2017(2)
    Notional
Amount(3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BPS  

Banco Espirito Santo S.A.

    5.000     09/20/2020       17.421     EUR      3,000     $ (115   $ (716   $ 0     $ (831
 

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       $      1,800       (352     (6     0       (358
BRC  

Springleaf Finance Corp.

    5.000       12/20/2021       4.423       2,700       (40     121       81       0  
DUB  

Petroleos Mexicanos

    1.000       12/20/2021       3.026       100       (9     0       0       (9
GST  

Petrobras Global Finance BV

    1.000       09/20/2020       2.864       20       (3     2       0       (1
 

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       2,400       (476     (2     0       (478
HUS  

Petrobras Global Finance BV

    1.000       12/20/2019       2.314       500       (41     23       0       (18
 

Petrobras Global Finance BV

    1.000       09/20/2020       2.864       60       (8     4       0       (4
 

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       3,000       (623     25       0       (598
JPM  

Banco Espirito Santo S.A.

    5.000       09/20/2020       17.421       EUR      5,000       (207         (1,179     0       (1,386
 

Russia Government International Bond

    1.000       06/20/2019       0.86       $    28,600           (1,957     2,085       128       0  
 

Russia Government International Bond

    1.000       12/20/2020       1.422       1,300       (149     130       0       (19
MYC  

Banco Espirito Santo S.A.

    5.000       09/20/2020       17.421       EUR      3,000       (28     (803     0       (831
 

Petrobras Global Finance BV

    1.000       12/20/2019       2.314       $    14,500       (1,342     832       0       (510
           

 

 

   

 

 

   

 

 

   

 

 

 
            $     (5,350   $ 516     $     209     $     (5,043
           

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   27


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

 

 

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     $       63,515     $     (12,415   $ 4,324     $ 0     $ (8,091
BRC  

ABX.HE.AAA.6-2 Index

    0.110       05/25/2046         79,116       (16,147     6,068       0       (10,079
DUB  

CMBX.NA.BBB-.6 Index

    3.000       05/11/2063         2,900       (159     (20     0       (179
 

CMBX.NA.BBB-.8 Index

    3.000       10/17/2057         4,400       (507     (33     0       (540
 

CMBX.NA.BBB-.9 Index

    3.000       09/17/2058         2,600       (325     51       0       (274
GST  

ABX.HE.AAA.6-2 Index

    0.110       05/25/2046         5,558       (1,142     427       0       (715
 

CMBX.NA.BB.6 Index

    5.000       05/11/2063         2,900       (392     4       0       (388
 

CMBX.NA.BBB-.6 Index

    3.000       05/11/2063         6,500       (358     (42     0       (400
 

CMBX.NA.BBB-.7 Index

    3.000       01/17/2047         1,100       (56     (1     0       (57
 

CMBX.NA.BBB-.9 Index

    3.000       09/17/2058         6,400       (797     121       0       (676
MEI  

ABX.HE.AAA.6-2 Index

    0.110       05/25/2046         76,576       (15,080     5,325       0       (9,755
MYC  

ABX.HE.AAA.6-2 Index

    0.110       05/25/2046         19,849       (3,785     1,214       0       (2,571
 

CMBX.NA.BBB-.6 Index

    3.000       05/11/2063         9,500       (548     (37     0       (585
 

CMBX.NA.BBB-.7 Index

    3.000       01/17/2047         2,200       (97     (17     0       (114
 

CMBX.NA.BBB-.8 Index

    3.000       10/17/2057         1,100       (127     (8     0       (135
 

CMBX.NA.BBB-.9 Index

    3.000       09/17/2058         2,600       (324     50       0       (274
           

 

 

   

 

 

   

 

 

   

 

 

 
          $ (52,259   $ 17,426     $ 0     $ (34,833
           

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

    $     (57,609   $     17,942     $     209     $     (39,876
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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 indicators 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.

 

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 pledged/(received) as of January 31, 2017:

 

(n) Securities with an aggregate market value of $41,283 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2017.

 

    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
Pledged/
(Received)
     Net
Exposure(5)
 

BOA

  $ 30      $ 0      $ 0      $ 30       $ (1,384   $ 0      $ (8,091   $ (9,475   $   (9,445   $ 9,160      $ (285

BPS

    0        0        0        0         (8     0        (1,189     (1,197     (1,197     1,258        61  

BRC

    0        0        81        81         0       0          (10,079       (10,079     (9,998       10,276          278  

CBK

    231        0        0        231         (106     0        0       (106     125       0        125  

DUB

    0        0        0        0         0       0        (1,002     (1,002     (1,002     3        (999

FBF

    0        0        0        0         (2     0        0       (2     (2     0        (2

GLM

    0        0        0        0         (77     0        0       (77     (77     0        (77

GST

    0        0        0        0         0       0        (2,715     (2,715     (2,715     2,498        (217

HUS

    0        0        0        0         0       0        (620     (620     (620     750        130  

IND

    0        0        0        0           (1,394       0        0       (1,394     (1,394     1,132        (262

JPM

      322          0          128          450         (594     0        (1,405     (1,999     (1,549     1,447        (102

MEI

    0        0        0        0         0       0          (9,755     (9,755     (9,755     9,835        80  

MSB

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

MYC

    0        0        0        0         0       0        (5,020     (5,020     (5,020     4,426        (594

SCX

    0        0        0        0         (17     0        0       (17     (17     0        (17

SOG

    0        0        0        0         (10     0        0       (10     (10     0        (10

 

28   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

    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
Pledged/
(Received)
     Net
Exposure(5)
 

TOR

  $ 0      $ 0      $ 0      $ 0       $ (5   $ 0      $ 0     $ (5   $   (5   $   0      $   (5

UAG

    170        0        0        170         (168     0        0       (168     2       0        2  
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

Total Over the Counter

  $   753      $   0      $   209      $   962       $   (3,778   $   0      $   (39,876   $   (43,654       
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

 

(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, 2017:

 

    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     $ 66     $ 0     $ 0     $ 2,762     $ 2,828  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 753     $ 0     $ 753  

Swap Agreements

    0       209       0       0       0       209  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 209     $ 0     $ 753     $ 0     $ 962  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 275     $ 0     $ 753     $ 2,762     $ 3,790  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 79     $ 0     $ 0     $ 3,172     $ 3,251  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 3,778     $ 0     $ 3,778  

Swap Agreements

    0       39,876       0       0       0       39,876  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 39,876     $ 0     $ 3,778     $ 0     $ 43,654  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     39,955     $     0     $     3,778     $     3,172     $     46,905  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2017:

 

    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     $ 2,339     $ 0     $ 0     $     16,782     $ 19,121  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 12,404     $ 0     $ 12,404  

Swap Agreements

    0       2,504       0       0       (2,461     43  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 2,504     $ 0     $ 12,404     $ (2,461   $ 12,447  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 4,843     $ 0     $     12,404     $ 14,321     $ 31,568  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 603     $ 0     $ 0     $ (1,560   $ (957
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (3,136   $ 0     $ (3,136

Swap Agreements

    0       14,673       0       0       2,311       16,984  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 14,673     $ 0     $ (3,136   $ 2,311     $ 13,848  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     15,276     $     0     $ (3,136   $ 751     $     12,891  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   29


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

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2017 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Investments in Securities, at Value

 

Bank Loan Obligations

  $ 2,800     $ 27,907     $ 11,878     $ 42,585  

Corporate Bonds & Notes

 

Banking & Finance

    0       236,279       9,895       246,174  

Industrials

    0       276,574       10,842       287,416  

Utilities

    0       59,825       0       59,825  

Convertible Bonds & Notes

 

Industrials

    0       6,921       0       6,921  

Municipal Bonds & Notes

 

California

    0       37,647       0       37,647  

Illinois

    0       24,433       0       24,433  

Virginia

    0       1,128       0       1,128  

West Virginia

    0       9,521       0       9,521  

U.S. Government Agencies

    0       23,512       8,274       31,786  

Non-Agency Mortgage-Backed Securities

    0       282,809       0       282,809  

Asset-Backed Securities

    0       162,663       14,433       177,096  

Sovereign Issues

    0       20,389       0       20,389  

Common Stocks

 

Financials

    0       0       740       740  

Preferred Securities

 

Banking & Finance

    0       8,425       0       8,425  

Short-Term Instruments

 

Repurchase Agreements

    0       11,582       0       11,582  

Short-Term Notes

    0       3,000       0       3,000  

U.S. Treasury Bills

    0       74,544       0       74,544  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     2,800     $     1,267,159     $     56,062     $     1,326,021  
 

 

 

   

 

 

   

 

 

   

 

 

 
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

  $ 0     $ 2,828     $ 0     $ 2,828  

Over the counter

    0       962       0       962  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 3,790     $ 0     $ 3,790  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (3,251     0       (3,251

Over the counter

    0       (43,654     0       (43,654
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (46,905   $ 0     $ (46,905
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ (43,115   $ 0     $ (43,115
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     2,800     $     1,224,044     $     56,062     $     1,282,906  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers among Levels 1 and 2 during the period ended January 31, 2017.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended January 31, 2017:

 

Category and Subcategory   Beginning
Balance
at 07/31/2016
    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 01/31/2017
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held  at
01/31/2017(1)
 

Investments in Securities, at Value

 

Bank Loan Obligations

  $ 5,670     $ 4,752     $ (51   $ 123     $ 4     $ 1,380     $ 0     $ 0     $ 11,878     $ 1,506  

Corporate Bonds & Notes

                   

Banking & Finance

    10,421       0       (142     3       1       (388     0       0       9,895       (365

Industrials

    10,850       0       0       7       0       (15     0       0       10,842       (15

U.S. Government Agencies

    7,929       0       (71     32       29       355       0       0       8,274       350  

Asset-Backed Securities

    17,050       0       0       0       0       (2,617     0       0       14,433         (2,617

Common Stocks

                   

Financials

    505       0       0       0       0       235       0       0       740       235  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $   52,425     $   4,752     $   (264   $   165     $   34     $   (1,050   $   0     $   0     $   56,062     $ (906
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (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 01/31/2017
     Valuation
Technique
     Unobservable
Inputs
     Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

 

        

Bank Loan Obligations

  $ 11,878        Third Party Vendor        Broker Quote        89.750-101.000  

Corporate Bonds & Notes

          

Banking & Finance

    9,895        Proxy Pricing        Base Price        110.500  

Industrials

    10,842        Proxy Pricing        Base Price        99.500  

U.S. Government Agencies

    8,274        Proxy Pricing        Base Price        56.094  

Asset-Backed Securities

    14,433        Proxy Pricing        Base Price        89,450-99,920  

Common Stocks

          

Financials

    740        Other Valuation Techniques(2)               —    
 

 

 

          

Total

  $     56,062           
 

 

 

          

 

(1)

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2017 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, 2017   31


Schedule of Investments PIMCO Corporate & Income Strategy Fund

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 123.7%  
BANK LOAN OBLIGATIONS 2.7%  

Avolon

 

TBD% due 07/20/2020

  $     50     $     51  

Avolon Holdings Ltd.

 

TBD% due 01/13/2022

      350         355  

BMC Software Finance, Inc.

 

TBD% due 09/10/2020

      500         499  

iHeartCommunications, Inc.

 

7.528% due 01/30/2019

      5,800         4,876  

Sequa Corp.

 

5.250% due 06/19/2017

      6,074         5,826  

Sprint Communications, Inc.

 

TBD% due 01/13/2024

      1,600         1,600  

Team Health Holdings, Inc.

 

TBD% due 01/17/2024

      300         300  

Westmoreland Coal Co.

 

7.500% due 12/16/2020

      2,095         1,880  
       

 

 

 

Total Bank Loan Obligations (Cost $15,973)

      15,387  
       

 

 

 
CORPORATE BONDS & NOTES 58.9%  
BANKING & FINANCE 28.2%  

AGFC Capital Trust

 

2.772% due 01/15/2067

      2,300         1,265  

Ally Financial, Inc.

 

8.000% due 11/01/2031 (k)

      6,486         7,735  

Banco Bilbao Vizcaya Argentaria S.A.

 

6.750% due 02/18/2020 (h)

  EUR     600         619  

Banco do Brasil S.A.

 

6.250% due 04/15/2024 (h)

  $     4,460         3,590  

9.000% due 06/18/2024 (h)

      3,827         3,884  

Banco Espirito Santo S.A.

 

2.625% due 05/08/2017 ^

  EUR     1,100         380  

4.000% due 01/21/2019 ^

      4,300         1,485  

4.750% due 01/15/2018 ^

      5,100         1,762  

Banco Santander S.A.

 

6.250% due 09/11/2021 (h)

      1,300         1,348  

Barclays PLC

 

6.500% due 09/15/2019 (h)

      700         759  

8.000% due 12/15/2020 (h)

      2,100         2,453  

Blackstone CQP Holdco LP

 

9.296% due 03/19/2019

  $     9,620         9,704  

BNP Paribas S.A.

 

7.375% due 08/19/2025 (h)

      4,020         4,075  

Cantor Commercial Real Estate Co. LP

 

7.750% due 02/15/2018

      1,640         1,641  

Cantor Fitzgerald LP

 

6.500% due 06/17/2022 (k)

      8,000         8,712  

Credit Agricole S.A.

 

7.875% due 01/23/2024 (h)(k)

      7,530         7,689  

Credit Suisse Group AG

 

7.500% due 12/11/2023 (h)(k)

      7,105         7,537  

Deutsche Bank AG

 

4.250% due 10/14/2021 (k)

      2,000         2,011  

EPR Properties

 

4.750% due 12/15/2026 (k)

      3,100         3,082  

Flagstar Bancorp, Inc.

 

6.125% due 07/15/2021

      3,500         3,737  

GSPA Monetization Trust

 

6.422% due 10/09/2029 (k)

      4,747         5,239  

Hexion U.S. Finance Corp.

 

10.375% due 02/01/2022 (c)

      70         72  

13.750% due 02/01/2022 (c)

      56         57  

HSBC Holdings PLC

 

6.000% due 09/29/2023 (h)

  EUR     3,193         3,643  

Jefferies Finance LLC

 

6.875% due 04/15/2022

  $     1,000         975  

7.375% due 04/01/2020

      2,100         2,131  

7.500% due 04/15/2021

      1,444         1,460  

Jefferies LoanCore LLC

 

6.875% due 06/01/2020 (k)

      6,100         5,947  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Lloyds Banking Group PLC

 

7.625% due 06/27/2023 (h)

  GBP     2,166     $     2,907  

7.875% due 06/27/2029 (h)

      1,500         2,033  

MPT Operating Partnership LP

 

5.250% due 08/01/2026

  $     1,283         1,264  

Nationwide Building Society

 

10.250% due 06/29/2049 (h)

  GBP     12         2,096  

Navient Corp.

 

5.500% due 01/15/2019 (k)

  $     7,425         7,611  

5.625% due 08/01/2033

      2,339         1,860  

Novo Banco S.A.

 

5.000% due 04/04/2019

  EUR     298         244  

5.000% due 04/23/2019

      508         417  

5.000% due 05/14/2019

      402         329  

5.000% due 05/21/2019

      225         184  

5.000% due 05/23/2019

      224         183  

Omega Healthcare Investors, Inc.

 

4.375% due 08/01/2023 (k)

  $     1,500         1,502  

OneMain Financial Holdings LLC

 

6.750% due 12/15/2019

      1,349         1,405  

PHH Corp.

 

6.375% due 08/15/2021

      570         579  

7.375% due 09/01/2019

      700         768  

Rio Oil Finance Trust

 

9.250% due 07/06/2024

      4,137         4,085  

9.750% due 01/06/2027

      235         231  

Royal Bank of Scotland Group PLC

 

7.500% due 08/10/2020 (h)

      4,070         3,958  

8.000% due 08/10/2025 (h)

      6,390         6,286  

8.625% due 08/15/2021 (h)

      1,700         1,759  

Santander UK Group Holdings PLC

 

7.375% due 06/24/2022 (h)

  GBP     3,520         4,539  

Sberbank of Russia Via SB Capital S.A.

 

5.717% due 06/16/2021

  $     1,900         2,038  

6.125% due 02/07/2022

      1,500         1,636  

Spirit Realty LP

 

4.450% due 09/15/2026 (k)

      1,600         1,537  

Springleaf Finance Corp.

 

5.250% due 12/15/2019

      335         338  

8.250% due 12/15/2020

      2,700         2,906  

Tesco Property Finance PLC

 

7.623% due 07/13/2039

  GBP     422         632  

TIG FinCo PLC

 

8.500% due 03/02/2020

      252         327  

8.750% due 04/02/2020

      10,389         12,611  
       

 

 

 
            159,257  
       

 

 

 
INDUSTRIALS 23.3%  

ADT Corp.

 

4.875% due 07/15/2032

  $     1,722         1,395  

Aeropuertos Argentina S.A.

 

6.875% due 02/01/2027 (c)

      500         506  

Altice Financing S.A.

 

7.500% due 05/15/2026

      1,800         1,905  

BCD Acquisition, Inc.

 

9.625% due 09/15/2023

      780         839  

BMC Software Finance, Inc.

 

8.125% due 07/15/2021

      1,688         1,637  

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

 

9.000% due 10/15/2019 (d)(k)

      4,342         4,233  

Caesars Entertainment Operating Co., Inc.

 

8.500% due 02/15/2020 ^

      3,246         3,627  

9.000% due 02/15/2020 ^

      1,854         2,067  

11.250% due 06/01/2017 ^

      8,039         8,782  

Chesapeake Energy Corp.

 

4.272% due 04/15/2019

      115         115  

Concordia International Corp.

 

9.000% due 04/01/2022

      355         303  

Continental Airlines Pass-Through Trust

 

9.798% due 10/01/2022

      947         1,052  

DriveTime Automotive Group, Inc.

 

8.000% due 06/01/2021 (k)

      4,100         4,069  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Forbes Energy Services Ltd.

 

9.000% due 06/15/2019 ^

  $     608     $     368  

Ford Motor Co.

 

7.700% due 05/15/2097 (k)

      7,830         9,137  

Fresh Market, Inc.

 

9.750% due 05/01/2023

      5,650         5,043  

Harvest Operations Corp.

 

2.330% due 04/14/2021

      4,332         4,259  

HCA, Inc.

 

7.500% due 11/15/2095

      1,200         1,155  

iHeartCommunications, Inc.

 

9.000% due 09/15/2022

      3,440           2,593  

Intelsat Jackson Holdings S.A.

 

7.250% due 04/01/2019

      2,100         1,815  

Intelsat Luxembourg S.A.

 

7.750% due 06/01/2021

      6,692         2,359  

8.125% due 06/01/2023

      1,121         378  

Intrepid Aviation Group Holdings LLC

 

6.875% due 02/15/2019

      7,070         6,469  

Kinder Morgan Energy Partners LP

 

6.375% due 03/01/2041 (k)

      400         447  

Kinder Morgan, Inc.

 

7.800% due 08/01/2031 (k)

      3,580         4,493  

Kinetic Concepts, Inc.

 

9.625% due 10/01/2021

      6,800         7,298  

Koppers, Inc.

 

6.000% due 02/15/2025

      15         16  

Mallinckrodt International Finance S.A.

 

4.750% due 04/15/2023

      960         791  

5.500% due 04/15/2025

      770         667  

MDC Partners, Inc.

 

6.500% due 05/01/2024

      1,200         1,050  

N&W Global Vending SpA

 

7.000% due 10/15/2023

  EUR     880         1,003  

Park Aerospace Holdings Ltd.

 

5.250% due 08/15/2022 (c)

  $     270         277  

5.500% due 02/15/2024 (c)

      140         144  

Prime Security Services Borrower LLC

 

9.250% due 05/15/2023 (k)

      2,475         2,688  

QVC, Inc.

 

5.450% due 08/15/2034

      900         824  

5.950% due 03/15/2043

      1,600         1,463  

Radiate Holdco LLC

 

6.625% due 02/15/2025 (c)

      61         61  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     1,000         1,480  

Safeway, Inc.

 

7.250% due 02/01/2031

  $     1,345         1,328  

Sequa Corp.

 

7.000% due 12/15/2017

      7,480         4,114  

SFR Group S.A.

 

7.375% due 05/01/2026 (k)

      5,340         5,500  

Silversea Cruise Finance Ltd.

 

7.250% due 02/01/2025

      21         22  

Soho House Bond Ltd.

 

9.125% due 10/01/2018

  GBP     2,700         3,485  

Spanish Broadcasting System, Inc.

 

12.500% due 04/15/2017

  $     2,100         2,095  

Spirit Issuer PLC

 

3.067% due 12/28/2031

  GBP     1,000         1,185  

6.582% due 12/28/2027

      1,400         1,939  

Tech Data Corp.

 

3.700% due 02/15/2022

  $     30         30  

4.950% due 02/15/2027

      40         40  

Tembec Industries, Inc.

 

9.000% due 12/15/2019 (k)

      2,200         2,238  

Tennessee Merger Sub, Inc.

 

6.375% due 02/01/2025 (c)

      99         97  

Times Square Hotel Trust

 

8.528% due 08/01/2026

      1,738           2,055  

Transocean, Inc.

 

9.000% due 07/15/2023

      724         774  
 

 

32   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

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

Trinidad Drilling Ltd.

 

6.625% due 02/15/2025 (c)

  $     32     $     33  

UCP, Inc.

 

8.500% due 10/21/2017

      6,000         5,968  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     3,738         5,034  

6.542% due 03/30/2021

      1,687         2,296  

Virgin Media Secured Finance PLC

 

5.000% due 04/15/2027 (c)

      600         750  

Westmoreland Coal Co.

 

8.750% due 01/01/2022

  $     5,955         5,449  

Zayo Group LLC

 

5.750% due 01/15/2027

      30         31  
       

 

 

 
          131,271  
       

 

 

 
UTILITIES 7.4%  

Gazprom Neft OAO Via GPN Capital S.A.

 

4.375% due 09/19/2022 (k)

      8,800         8,799  

4.375% due 09/19/2022

      280         280  

6.000% due 11/27/2023 (k)

      4,900         5,255  

Illinois Power Generating Co.

 

6.300% due 04/01/2020 ^

      6,400         2,400  

7.000% due 04/15/2018 ^

      1,900         713  

7.950% due 06/01/2032 ^

      700         259  

Mountain States Telephone & Telegraph Co.

 

7.375% due 05/01/2030

      8,200         8,620  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 06/30/2022

      286         134  

Odebrecht Offshore Drilling Finance Ltd.

 

6.625% due 10/01/2023

      2,650         921  

6.750% due 10/01/2023

      2,860         972  

Petrobras Global Finance BV

 

6.125% due 01/17/2022

      175         181  

6.250% due 12/14/2026

  GBP     4,800         5,822  

6.625% due 01/16/2034

      100         114  

6.750% due 01/27/2041

  $     2,300         2,059  

7.375% due 01/17/2027

      220         230  

Sprint Capital Corp.

 

6.900% due 05/01/2019

      1,100         1,177  

Terraform Global Operating LLC

 

9.750% due 08/15/2022

      2,760         3,057  

TerraForm Power Operating LLC

 

6.375% due 02/01/2023

      625         645  
       

 

 

 
          41,638  
       

 

 

 

Total Corporate Bonds & Notes (Cost $336,125)

      332,166  
       

 

 

 
CONVERTIBLE BONDS & NOTES 0.7%  
INDUSTRIALS 0.7%  

DISH Network Corp.

 

3.375% due 08/15/2026

      3,400         3,989  
       

 

 

 

Total Convertible Bonds & Notes (Cost $3,400)

    3,989  
       

 

 

 
MUNICIPAL BONDS & NOTES 4.3%  
CALIFORNIA 0.9%  

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

 

7.750% due 10/01/2037

      1,220         1,302  

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

 

7.942% due 10/01/2038

      3,400         3,741  
       

 

 

 
          5,043  
       

 

 

 
ILLINOIS 2.3%  

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

 

7.517% due 01/01/2040

      12,700         12,984  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Chicago, Illinois General Obligation Bonds, Series 2017

 

7.045% due 01/01/2029 (c)

  $     110     $     112  
       

 

 

 
          13,096  
       

 

 

 
VIRGINIA 0.1%  

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

 

6.706% due 06/01/2046

      785         632  
       

 

 

 
WEST VIRGINIA 1.0%  

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

 

7.467% due 06/01/2047

      5,995         5,330  
       

 

 

 

Total Municipal Bonds & Notes (Cost $23,392)

    24,101  
       

 

 

 
U.S. GOVERNMENT AGENCIES 4.1%  

Fannie Mae

 

3.000% due 02/25/2043 (a)

      62,311         13,058  

5.021% due 01/25/2029

      400         424  

Freddie Mac

 

2.563% due 11/25/2055

      8,292         4,664  

8.321% due 12/25/2027

      3,298         3,690  

11.521% due 03/25/2025

      741         906  
       

 

 

 

Total U.S. Government Agencies (Cost $20,652)

      22,742  
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 28.1%  

Banc of America Alternative Loan Trust

 

5.500% due 10/25/2035 ^

      5,133         4,553  

6.000% due 01/25/2036 ^

      142         121  

Banc of America Funding Trust

 

6.000% due 07/25/2037 ^

      384         301  

Banc of America Mortgage Trust

 

3.117% due 03/25/2035

      125         113  

5.500% due 11/25/2035 ^

      2,295         2,247  

6.000% due 03/25/2037 ^

      487         444  

6.500% due 09/25/2033

      215         212  

BCAP LLC Trust

 

3.068% due 03/27/2036

      2,229         1,202  

3.259% due 08/28/2037

      6,643         5,230  

5.078% due 03/26/2037

      1,156         351  

8.419% due 07/26/2036

      1,687         1,664  

Bear Stearns ALT-A Trust

 

1.271% due 01/25/2036 ^

      1,695         1,518  

3.083% due 11/25/2035 ^

      7,805         7,102  

3.104% due 09/25/2047 ^

      7,633         5,450  

3.110% due 11/25/2036 ^

      4,963         4,065  

3.201% due 08/25/2036 ^

      1,196         885  

3.477% due 09/25/2035 ^

      825         681  

Bear Stearns Commercial Mortgage Securities Trust

 

5.714% due 04/12/2038

      210         162  

Bear Stearns Mortgage Funding Trust

 

7.500% due 08/25/2036

      1,495         1,435  

Chase Mortgage Finance Trust

 

3.189% due 12/25/2035 ^

      14         14  

6.000% due 07/25/2037 ^

      1,014         842  

Chase Mortgage Trust

 

3.750% due 12/25/2045

      539         504  

Citigroup Mortgage Loan Trust, Inc.

 

3.174% due 04/25/2037 ^

      323         264  

4.593% due 09/25/2037 ^

      3,398         2,773  

Citigroup/Deutsche Bank Commercial Mortgage Trust

 

5.398% due 12/11/2049

      227         205  

Commercial Mortgage Loan Trust

 

6.096% due 12/10/2049

      1,973         1,251  

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 08/25/2037 ^

      1,411         1,101  

Countrywide Alternative Loan Trust

 

5.500% due 03/25/2035

      393         311  

5.500% due 03/25/2036 ^

      200         156  

5.750% due 01/25/2035

      485         489  

5.750% due 02/25/2035

      535         519  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.750% due 03/25/2037 ^

  $     979     $     847  

6.000% due 02/25/2035

      1,262           1,289  

6.000% due 04/25/2036

      1,347         994  

6.000% due 02/25/2037 ^

      7,057         4,882  

6.000% due 04/25/2037 ^

      1,565         1,111  

6.000% due 07/25/2037 ^

      383         370  

6.250% due 12/25/2036 ^

      1,880         1,389  

6.500% due 08/25/2036 ^

      633         428  

Countrywide Home Loan Mortgage Pass-Through Trust

 

3.019% due 09/20/2036 ^

      387         311  

6.000% due 07/25/2037

      2,329         1,881  

Credit Suisse Commercial Mortgage Trust

 

5.870% due 09/15/2040

      3,200         3,025  

Credit Suisse Mortgage Capital Certificates

 

3.193% due 10/26/2036

      7,449         4,602  

Epic Drummond Ltd.

 

0.000% due 01/25/2022

  EUR     383         407  

Fannie Mae

 

4.316% due 07/25/2029

  $     1,260         1,281  

6.516% due 07/25/2029

      1,150         1,231  

First Horizon Alternative Mortgage Securities Trust

 

6.000% due 08/25/2036 ^

      5,877         4,980  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

      1,500         1,401  

GSR Mortgage Loan Trust

 

3.285% due 08/25/2034

      614         588  

5.500% due 05/25/2036 ^

      543         516  

6.000% due 02/25/2036 ^

      3,721         3,007  

HarborView Mortgage Loan Trust

 

1.009% due 01/19/2036 ^

      5,423         3,626  

3.367% due 06/19/2036 ^

      9,093         5,717  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      3,623         2,218  

Jefferies Resecuritization Trust

 

6.000% due 05/26/2036

      16,450         11,681  

JPMorgan Alternative Loan Trust

 

3.013% due 03/25/2037 ^

      2,274         2,031  

6.000% due 12/25/2035 ^

      2,307         2,105  

JPMorgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      1,654         1,426  

JPMorgan Mortgage Trust

 

3.154% due 01/25/2037 ^

      950         852  

3.176% due 04/25/2037

      13         12  

3.297% due 02/25/2036 ^

      3,812         3,396  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038

      917         708  

5.562% due 02/15/2040

      1,798         1,343  

Lehman Mortgage Trust

 

6.000% due 07/25/2036 ^

      1,184         920  

6.000% due 07/25/2037 ^

      256         229  

Lehman XS Trust

 

0.991% due 06/25/2047

      3,088         2,384  

MASTR Alternative Loan Trust

 

6.750% due 07/25/2036

      2,140         1,509  

Merrill Lynch Mortgage Investors Trust

 

3.019% due 03/25/2036 ^

      917         633  

Mesdag Delta BV

 

0.000% due 01/25/2020

  EUR     1,299         1,327  

Residential Accredit Loans, Inc. Trust

 

1.001% due 05/25/2037 ^

  $     265         65  

4.184% due 12/26/2034 ^

      2,473         1,965  

6.000% due 08/25/2036 ^

      463         393  

Residential Asset Mortgage Products Trust

 

6.500% due 12/25/2031

      709         719  

Residential Asset Securitization Trust

 

6.000% due 11/25/2036 ^

      3,144         2,171  

6.250% due 09/25/2037 ^

      2,954         2,018  

6.250% due 06/25/2046

      1,528         1,270  

Residential Funding Mortgage Securities, Inc. Trust

 

3.894% due 02/25/2037

      2,217         1,794  

6.500% due 03/25/2032

      230         240  

Sequoia Mortgage Trust

 

3.362% due 02/20/2047

      492         445  

4.724% due 07/20/2037 ^

      1,046         928  
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   33


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

 

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

Structured Adjustable Rate Mortgage Loan Trust

 

3.139% due 07/25/2035 ^

  $     1,086     $     938  

3.228% due 07/25/2036 ^

      8,406         5,833  

3.235% due 11/25/2036 ^

      3,684         2,846  

3.254% due 01/25/2036 ^

      2,893         2,198  

3.502% due 07/25/2036 ^

      845         671  

4.850% due 03/25/2037 ^

      3,817         2,666  

Suntrust Adjustable Rate Mortgage Loan Trust

 

3.097% due 04/25/2037 ^

      862         734  

3.408% due 02/25/2037 ^

      511         456  

WaMu Mortgage Pass-Through Certificates Trust

 

2.616% due 07/25/2037 ^

      598         494  

3.627% due 02/25/2037 ^

      788         748  

4.326% due 07/25/2037 ^

      1,396         1,283  

5.972% due 10/25/2036 ^

      3,054         2,432  

Washington Mutual Mortgage Pass-Through Certificates Trust

 

1.436% due 05/25/2047 ^

      284         17  

6.000% due 10/25/2035 ^

      2,273         1,802  

Wells Fargo Mortgage-Backed Securities Trust

 

2.997% due 07/25/2036 ^

      553         525  

3.090% due 05/25/2036 ^

      100         96  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $156,859)

      158,569  
       

 

 

 
ASSET-BACKED SECURITIES 18.6%  

ACE Securities Corp. Home Equity Loan Trust

 

1.161% due 02/25/2036

      29,616         11,299  

Airspeed Ltd.

 

1.037% due 06/15/2032

      3,366         2,649  

Argent Securities Trust

 

0.961% due 03/25/2036

      4,174         2,205  

Bear Stearns Asset-Backed Securities Trust

 

0.911% due 10/25/2036 ^

      6,046         5,579  

6.500% due 10/25/2036 ^

      381         292  

BlueMountain CLO Ltd.

 

6.472% due 04/13/2027

      1,000         981  

CIFC Funding Ltd.

 

0.000% due 05/24/2026 (f)

      2,300         1,693  

0.000% due 07/22/2026

      1,500         922  

Citigroup Mortgage Loan Trust, Inc.

 

0.931% due 12/25/2036

      4,457         2,769  

Countrywide Asset-Backed Certificates

 

0.911% due 06/25/2047 ^

      1,915         1,390  

0.941% due 03/25/2037

      2,947         2,749  

1.491% due 01/25/2036

      4,000         3,386  

First Franklin Mortgage Loan Trust

 

1.401% due 09/25/2035

      3,949         2,081  

1.746% due 05/25/2036

      7,817         3,474  

Fremont Home Loan Trust

 

1.701% due 06/25/2035 ^

      6,000         4,741  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029

  EUR     500         445  

Highbridge Loan Management Ltd.

 

6.331% due 05/05/2027

  $     500         489  

HSI Asset Securitization Corp. Trust

 

0.000% due 10/25/2036 (b)(f)

      3,522         1,592  

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

 

0.931% due 07/25/2037

      11,592         7,212  

JPMorgan Mortgage Acquisition Corp.

 

1.061% due 01/25/2036

      783         733  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

JPMorgan Mortgage Acquisition Trust

 

0.916% due 11/25/2036

  $     5,379     $     4,463  

4.805% due 10/25/2030 ^

      7,062         5,183  

Lehman XS Trust

 

5.170% due 08/25/2035 ^

      377         364  

Long Beach Mortgage Loan Trust

 

1.071% due 01/25/2036

      5,000         3,566  

Magnetite Ltd.

 

6.173% due 04/15/2027

      1,000         968  

Merrill Lynch Mortgage Investors Trust

 

0.916% due 04/25/2037

      597         336  

Morgan Stanley ABS Capital, Inc. Trust

 

0.921% due 06/25/2036

      1,785         1,547  

Morgan Stanley Mortgage Loan Trust

 

6.250% due 07/25/2047 ^

      834         595  

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

 

1.291% due 08/25/2035

      5,000         3,851  

2.541% due 10/25/2034

      573         506  

Residential Asset Mortgage Products Trust

 

1.851% due 12/25/2033

      221         205  

1.971% due 01/25/2035 ^

      2,920         2,077  

SLM Student Loan Trust

 

0.000% due 10/28/2029 (f)

      3         3,035  

0.000% due 01/25/2042 (f)

      4         3,989  

Soundview Home Loan Trust

 

1.021% due 08/25/2037

      2,000         1,467  

South Coast Funding Ltd.

 

1.482% due 08/10/2038

      10,593         2,188  

Taberna Preferred Funding Ltd.

 

1.158% due 08/05/2036

      478         344  

1.158% due 08/05/2036 ^

      8,845         6,368  

1.469% due 07/05/2035

      9,303         7,070  
       

 

 

 

Total Asset-Backed Securities
(Cost $103,489)

      104,803  
       

 

 

 
SOVEREIGN ISSUES 2.0%  

Argentine Government International Bond

 

2.260% due 12/31/2038

  EUR     150         94  

3.875% due 01/15/2022

      200         210  

5.000% due 01/15/2027

      700         691  

5.625% due 01/26/2022

  $     160         161  

6.875% due 01/26/2027

      280         277  

7.820% due 12/31/2033

  EUR     2,972         3,273  

Autonomous Community of Catalonia

 

4.900% due 09/15/2021

      1,500         1,713  

Republic of Greece Government International Bond

 

3.000% due 02/24/2023

      142         121  

3.000% due 02/24/2024

      142         119  

3.000% due 02/24/2025

      142         116  

3.000% due 02/24/2026

      142         114  

3.000% due 02/24/2027

      142         112  

3.000% due 02/24/2028

      142         107  

3.000% due 02/24/2029

      142         104  

3.000% due 02/24/2030

      142         101  

3.000% due 02/24/2031

      142         100  

3.000% due 02/24/2032

      142         98  

3.000% due 02/24/2033

      142         96  

3.000% due 02/24/2034

      142         94  

3.000% due 02/24/2035

      142         93  

3.000% due 02/24/2036

      142         92  

3.000% due 02/24/2037

      142         91  

3.000% due 02/24/2038

      142         90  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

3.000% due 02/24/2039

  EUR     142     $     90  

3.000% due 02/24/2040

      142         90  

3.000% due 02/24/2041

      142         90  

3.000% due 02/24/2042

      142         89  

3.800% due 08/08/2017

  JPY     47,000         403  

4.750% due 04/17/2019

  EUR     400         398  

Saudi Government International Bond

 

3.250% due 10/26/2026

  $     200         191  

4.500% due 10/26/2046

      1,600         1,568  
       

 

 

 

Total Sovereign Issues (Cost $10,688)

    10,986  
       

 

 

 
        SHARES            
COMMON STOCKS 0.0%  
FINANCIALS 0.0%  

TIG FinCo PLC (i)

      182,606         170  
       

 

 

 

Total Common Stocks (Cost $271)

    170  
       

 

 

 
PREFERRED SECURITIES 1.6%  
BANKING & FINANCE 1.6%  

Farm Credit Bank of Texas

 

10.000% due 12/15/2020 (h)

      7,450         8,959  

Morgan Stanley

 

5.850% due 04/15/2027 (h)

      1,675         42  
       

 

 

 

Total Preferred Securities (Cost $9,205)

    9,001  
       

 

 

 
SHORT-TERM INSTRUMENTS 2.7%  
REPURCHASE AGREEMENTS (j) 1.4%  
          8,056  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
SHORT-TERM NOTES 0.4%  

Federal Home Loan Bank

 

0.512% due 02/17/2017 (g)

  $     1,500         1,499  

0.533% due 03/10/2017 (f)(g)

      400         400  
       

 

 

 
          1,899  
       

 

 

 
U.S. TREASURY BILLS 0.9%  

0.478% due 02/23/2017 - 03/16/2017 (e)(f)(m)(o)

      5,262         5,260  
       

 

 

 
Total Short-Term Instruments (Cost $15,215)         15,215  
       

 

 

 
       
Total Investments in Securities (Cost $695,269)     697,129  
       
Total Investments 123.7% (Cost $695,269)     $     697,129  

Financial Derivative
Instruments (l)(n) (0.5)%

(Cost or Premiums, net $(1,210))

 

 

      (2,733
Preferred Shares (9.9)%           (55,525
Other Assets and Liabilities, net (13.3)%     (75,176
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%     $       563,695  
       

 

 

 
 

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) Principal only security.
(c) When-issued security.

 

34   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

(d) Payment in-kind security.
(e) Coupon represents a weighted average yield to maturity.
(f) Zero coupon security.
(g) Coupon represents a yield to maturity.
(h) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(i)  RESTRICTED SECURITIES:

 

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

TIG FinCo PLC

         04/02/2015       $    271     $     170       0.03%  
        

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(j)  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)
 
JPS     0.690     01/31/2017       02/01/2017     $     7,000     Ginnie Mae 3.000% due 01/20/2047   $ (7,260   $ 7,000     $ 7,000  
SSB     0.010       01/31/2017       02/01/2017       1,056     U.S. Treasury Notes
1.000% due 05/15/2018(2)
    (1,078     1,056       1,056  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

        $     (8,338   $     8,056     $     8,056  
           

 

 

   

 

 

   

 

 

 

 

(1)

Includes accrued interest.

(2)

Collateral is held in custody by the counterparty

 

REVERSE REPURCHASE AGREEMENTS:

 

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

BCY

    0.000     12/16/2016       12/16/2017     $ (529   $ (529

JML

    1.850       01/10/2017       02/08/2017           (11,284     (11,297

MSC

    1.400       11/02/2016       02/02/2017       (13,388     (13,435
    1.530       02/02/2017       05/02/2017       (12,600     (12,600

RBC

    1.880       08/25/2016       02/27/2017       (6,772     (6,829
    1.540       11/14/2016       02/14/2017       (1,322     (1,326

RDR

    1.390       12/27/2016       03/22/2017       (8,089     (8,100
    1.380       01/19/2017       04/12/2017       (6,368     (6,371

UBS

    1.730       11/14/2016       02/14/2017       (4,470     (4,487
    1.630       11/22/2016       02/03/2017       (1,898     (1,904
    1.300       11/22/2016       02/22/2017       (3,247     (3,255
    1.470       11/25/2016       02/27/2017       (2,035     (2,041
    1.730       12/01/2016       03/02/2017       (4,682     (4,696
    1.810       12/14/2016       03/14/2017       (3,907     (3,917
    1.710       12/15/2016       02/21/2017       (4,149     (4,158
    1.730       12/15/2016       03/02/2017       (419     (420
    1.890       01/20/2017       04/21/2017       (2,607     (2,609
         

 

 

 

Total Reverse Repurchase Agreements

 

        $     (87,974
         

 

 

 

 

(3)

The average amount of borrowings outstanding during the period ended January 31, 2017 was $(83,972) at a weighted average interest rate of 1.478%. Average borrowings includes sale-buyback transactions, of which there were none open at period end.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   35


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

 

 

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 pledged/(received) as of January 31, 2017:

 

(k) Securities with an aggregate market value of $98,598 have been pledged as collateral under the terms of the following master agreements as of January 31, 2017.

 

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

Global/Master Repurchase Agreement

 

BCY

  $ 0     $ (529   $ 0      $ (529   $ 379     $ (150

JML

    0       (11,297     0            (11,297         13,945           2,648  

JPS

    7,000       0       0        7,000       (7,260     (260

MSC

    0       (26,035     0        (26,035     27,326       1,291  

RBC

    0       (8,155     0        (8,155     9,098       943  

RDR

    0       (14,471     0        (14,471     14,775       304  

SSB

    1,056       0       0        1,056       (1,078     (22

UBS

    0       (27,487     0        (27,487     31,941       4,454  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     8,056     $     (87,974   $     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     $ (53,848   $ (20,997   $ (529   $ (75,374
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (53,848   $     (20,997   $     (529   $     (75,374
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

  $     (75,374
         

 

 

 

 

(5)

Unsettled reverse repurchase agreements liability of $(12,600) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
January 31, 2017(2)
    Notional
Amount(3)
    Market
Value(4)
    Unrealized
Appreciation/
(Depreciation)
    Variation Margin  
              Asset     Liability  

Navient Corp.

    5.000     12/20/2021       4.278   $     600     $     22     $     0     $     2     $     0  
         

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Index/Tranches

 

Fixed
Receive Rate

   

Maturity
Date

   

Notional
Amount(3)

   

Market
Value(4)

   

Unrealized
Appreciation

    Variation Margin  
            Asset     Liability  

CDX.HY-26 5-Year Index

    5.000     06/20/2021     $     1,386     $ 108     $ 45     $ 0     $ 0  

CDX.HY-27 5-Year Index

    5.000       12/20/2021       990       68       11       0       (3
       

 

 

   

 

 

   

 

 

   

 

 

 
  $     176     $     56     $     0     $     (3
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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.

 

36   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

(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 indicators 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     $ 418     $ (1,128   $ 49      $ 0  

Pay

 

3-Month USD-LIBOR

    2.000       06/15/2021         36,800       180       (1,068     37        0  

Pay

 

3-Month USD-LIBOR

    2.750       06/17/2025         75,590       2,825       (1,838     198        0  

Pay

 

3-Month USD-LIBOR

    3.500       06/19/2044         169,400       29,103       34,629       1,229        0  

Receive

 

3-Month USD-LIBOR

    2.250       12/21/2046         234,240       21,544       41,642       0        (1,594

Pay

 

6-Month  AUD-BBR-BBSW

    3.500       06/17/2025       AUD       7,600       293       105       22        0  
           

 

 

   

 

 

   

 

 

    

 

 

 
            $ 54,363     $ 72,342     $ 1,535      $ (1,594
           

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

 

  $     54,561     $     72,398     $     1,537      $     (1,597
           

 

 

   

 

 

   

 

 

    

 

 

 

 

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, 2017:

 

(m) Securities with an aggregate market value of $2,347 and cash of $5,814 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2017. 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
   

Total

          Market Value     Variation Margin
Liability
   

Total

 
     Purchased
Options
    Futures     Swap
Agreements
            Written
Options
    Futures     Swap
Agreements
   

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     1,537     $     1,537       $     0     $     0     $     (1,597)     $     (1,597)  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(n)  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

     02/2017     EUR     24,949     $     25,983     $ 0     $ (949
     02/2017     GBP     46         57       0       (1

BPS

     02/2017     EUR     107         112       0       (4
     02/2017     GBP     46         56       0       (2

CBK

     02/2017     EUR     935         1,005       0       (4
     02/2017     $     4,814     EUR     4,528       73       0  
     03/2017     EUR     195     $     209       0       (2

GLM

     02/2017         825         881       0       (10
     02/2017     GBP     4,659         5,691       0       (170
     02/2017     JPY     45,200         388       0       (12
     02/2017     $     784     GBP     637       17       0  
     03/2017     GBP     594     $     739       0       (9

IND

     02/2017         29,801         36,509       0       (980

JPM

     02/2017     AUD     194         141       0       (6
     02/2017     GBP     2,771         3,343       0       (143
     02/2017     $     24,671     EUR     23,068       231       0  
     03/2017     EUR     23,068     $     24,699       0       (228

MSB

     02/2017     GBP     229         279       0       (9

SCX

     02/2017     EUR     1,076         1,156       0       (5

SOG

     02/2017     GBP     182         224       0       (4

TOR

     02/2017     EUR     423         447       0       (10

UAG

     02/2017     GBP     227         279       0       (7
     02/2017     $     46,620     GBP     37,189       164       0  
     03/2017     GBP     37,189     $     46,645       0       (161
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

      $     485     $     (2,716
            

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   37


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

 

 

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, 2017(2)
    Notional
Amount(3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BPS  

Banco Espirito Santo S.A.

    5.000     12/20/2021       16.522     EUR       100     $ (28   $ (3   $ 0     $ (31
 

Petrobras Global Finance BV

    1.000       12/20/2019       2.314       $       2,400       (247     163       0       (84
GST  

Petrobras Global Finance BV

    1.000       12/20/2019       2.314         8,900       (912     599       0       (313
 

Petrobras Global Finance BV

    1.000       09/20/2020       2.864         10       (1     0       0       (1
 

Petrobras Global Finance BV

    1.000       12/20/2021       3.528         100       (16     5       0       (11
HUS  

Petrobras Global Finance BV

    1.000       09/20/2020       2.864         40       (6     4       0       (2
             

 

 

   

 

 

   

 

 

   

 

 

 
              $ (1,210   $ 768     $ 0     $     (442
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

            $     (1,210   $     768     $     0     $ (442
             

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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.

 

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 pledged/(received) as of January 31, 2017:

 

(o) Securities with an aggregate market value of $1,789 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2017.

 

    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
Pledged/
(Received)
     Net
Exposure(4)
 

BOA

  $ 0      $ 0      $ 0      $ 0       $ (950   $ 0      $ 0     $ (950   $  (950   $   594      $  (356

BPS

    0        0        0        0         (6     0        (115     (121     (121     0        (121

CBK

    73        0        0        73         (6     0        0       (6     67       0        67  

GLM

    17        0        0        17         (201     0        0       (201     (184     0        (184

GST

    0        0        0        0         0       0        (325     (325     (325     398        73  

HUS

    0        0        0        0         0       0        (2     (2     (2     0        (2

IND

    0        0        0        0         (980     0        0       (980     (980     798        (182

JPM

    231        0        0        231         (377     0        0       (377     (146     0        (146

MSB

    0        0        0        0         (9     0        0       (9     (9     0        (9

SCX

    0        0        0        0         (5     0        0       (5     (5     0        (5

SOG

    0        0        0        0         (4     0        0       (4     (4     0        (4

TOR

    0        0        0        0         (10     0        0       (10     (10     0        (10

UAG

    164        0        0        164         (168     0        0       (168     (4     0        (4
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

Total Over the Counter

  $  485      $  0      $  0      $  485       $  (2,716   $  0      $  (442   $  (3,158       
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

 

(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.

 

38   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (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, 2017:

 

    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     $ 2     $ 0     $ 0     $ 1,535     $ 1,537  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 485     $ 0     $ 485  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 2     $ 0     $ 485     $ 1,535     $ 2,022  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0     $ 3     $ 0     $ 0     $ 1,594     $ 1,597  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 2,716     $ 0     $ 2,716  

Swap Agreements

    0       442       0       0       0       442  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 442     $ 0     $ 2,716     $ 0     $ 3,158  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     445     $     0     $     2,716     $     1,594     $     4,755  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2017:

 

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

Net Realized Gain on Financial Derivative Instruments

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0     $ 1,216     $ 0     $ 0     $ 3,687     $ 4,903  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 7,935     $ 0     $ 7,935  

Swap Agreements

    0       58       0       0       0       58  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 58     $ 0     $ 7,935     $ 0     $ 7,993  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $     1,274     $ 0     $ 7,935     $ 3,687     $     12,896  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0     $ (523   $ 0     $ 0     $ (3,112   $ (3,635
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (2,176   $ 0     $ (2,176

Swap Agreements

    0       975       0       0       0       975  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 975     $ 0     $ (2,176   $ 0     $ (1,201
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $ 452     $     0     $     (2,176   $     (3,112   $ (4,836
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   39


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

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2017 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Investments in Securities, at Value

 

   

Bank Loan Obligations

  $     1,600     $ 11,907     $ 1,880     $ 15,387  

Corporate Bonds & Notes

 

Banking & Finance

    0       154,018       5,239       159,257  

Industrials

    0       125,303       5,968       131,271  

Utilities

    0       41,638       0       41,638  

Convertible Bonds & Notes

 

Industrials

    0       3,989       0       3,989  

Municipal Bonds & Notes

 

California

    0       5,043       0       5,043  

Illinois

    0       13,096       0       13,096  

Virginia

    0       632       0       632  

West Virginia

    0       5,330       0       5,330  

U.S. Government Agencies

    0       18,078       4,664       22,742  

Non-Agency Mortgage-Backed Securities

    0       158,569       0       158,569  

Asset-Backed Securities

    0       97,779       7,024       104,803  

Sovereign Issues

    0       10,986       0       10,986  

Common Stocks

 

Financials

    0       0       170       170  

Preferred Securities

 

Banking & Finance

    0       9,001       0       9,001  

Short-Term Instruments

 

Repurchase Agreements

    0       8,056       0       8,056  

Short-Term Notes

    0       1,899       0       1,899  

U.S. Treasury Bills

    0       5,260       0       5,260  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 1,600     $     670,584     $     24,945     $     697,129  
 

 

 

   

 

 

   

 

 

   

 

 

 
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

  $ 0     $ 1,537     $ 0     $ 1,537  

Over the counter

    0       485       0       485  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 2,022     $ 0     $ 2,022  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (1,597     0       (1,597

Over the counter

    0       (3,158     0       (3,158
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (4,755   $ 0     $ (4,755
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ (2,733   $ 0     $ (2,733
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     1,600     $     667,851     $     24,945     $     694,396  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers among Levels 1 and 2 during the period ended January 31, 2017.

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended January 31, 2017:

 

Category and Subcategory   Beginning
Balance
at 07/31/2016
    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 01/31/2017
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held  at
01/31/2017(1)
 

Investments in Securities, at Value

 

Bank Loan Obligations

  $ 0     $ 1,675     $ (5   $ 24     $ 1     $ 185     $ 0     $ 0     $ 1,880     $ 185  

Corporate Bonds & Notes

                   

Banking & Finance

    5,517       0       (75     1       1       (205     0       0       5,239       (193

Industrials

    5,973       0       0       4       0       (9     0       0       5,968       (9

U.S. Government Agencies

    4,470       0       (40     18       16       200       0       0       4,664       198  

Asset-Backed Securities

    8,165       0       0       0       0           (1,141     0       0       7,024           (1,141

Common Stocks

 

Financials

    116       0       0       0       0       54       0       0       170       54  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     24,241     $     1,675     $     (120   $     47     $     18     $ (916   $     0     $     0     $     24,945     $ (906
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

40   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (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 01/31/2017
     Valuation
Technique
   Unobservable
Inputs
   Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

 

Bank Loan Obligations

  $ 1,880      Third Party Vendor    Broker Quote      89.750  

Corporate Bonds & Notes

          

Banking & Finance

    5,239      Proxy Pricing    Base Price      110.500  

Industrials

    5,968      Proxy Pricing    Base Price      99.500  

U.S. Government Agencies

    4,664      Proxy Pricing    Base Price      56.094  

Asset-Backed Securities

    7,024      Proxy Pricing    Base Price      89,450-99,920  

Common Stocks

          

Financials

    170      Other Valuation Techniques(2)         —    
 

 

 

          

Total

  $     24,945           
 

 

 

          

 

(1)

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2017 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, 2017   41


Schedule of Investments PIMCO High Income Fund

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 138.6%  
BANK LOAN OBLIGATIONS 1.9%  

BJ’s Wholesale Club, Inc.

 

TBD% due 01/26/2024

  $     100     $     100  

iHeartCommunications, Inc.

 

7.528% due 01/30/2019

      10,450         8,786  

Sequa Corp.

 

5.250% due 06/19/2017

      3,457         3,316  

Vistra Operations Co. LLC

 

4.017% due 12/14/2023

      900         910  

Westmoreland Coal Co.

 

7.500% due 12/16/2020

      3,192         2,865  
       

 

 

 

Total Bank Loan Obligations (Cost $17,007)

      15,977  
       

 

 

 
CORPORATE BONDS & NOTES 75.6%  
BANKING & FINANCE 38.4%  

AGFC Capital Trust

 

2.772% due 01/15/2067

      27,410         15,075  

Ally Financial, Inc.

 

8.000% due 11/01/2031 (i)

      4,962         5,917  

Atlantic Marine Corps Communities LLC

 

5.383% due 02/15/2048 (i)

      4,610         4,374  

Banco Bilbao Vizcaya Argentaria S.A.

 

6.750% due 02/18/2020 (f)

  EUR     3,000         3,096  

Banco do Brasil S.A.

 

6.250% due 04/15/2024 (f)

  $     7,350         5,917  

9.000% due 06/18/2024 (f)

      9,239         9,378  

Banco Espirito Santo S.A.

 

2.625% due 05/08/2017 ^

  EUR     1,900         656  

4.000% due 01/21/2019 ^

      5,800         2,004  

4.750% due 01/15/2018 ^

      6,400         2,211  

Banco Santander S.A.

 

6.250% due 09/11/2021 (f)

      2,300         2,385  

Barclays PLC

 

6.500% due 09/15/2019 (f)

      600         651  

7.875% due 09/15/2022 (f)

  GBP     7,210         9,351  

8.000% due 12/15/2020 (f)

  EUR     7,340         8,574  

Blackstone CQP Holdco LP

 

9.296% due 03/19/2019

  $     8,248         8,320  

BNP Paribas S.A.

 

7.375% due 08/19/2025 (f)

      4,000         4,055  

Cantor Fitzgerald LP

 

6.500% due 06/17/2022 (i)

      13,100         14,265  

CBL & Associates LP

 

5.950% due 12/15/2026 (i)

      3,200         3,175  

Co-operative Group Holdings Ltd.

 

7.500% due 07/08/2026

  GBP     3,000         4,516  

Cooperatieve Rabobank UA

 

6.625% due 06/29/2021 (f)

  EUR     1,600         1,855  

Credit Agricole S.A.

 

7.500% due 06/23/2026 (f)

  GBP     400         513  

7.875% due 01/23/2024 (f)(i)

  $     2,750         2,808  

7.875% due 01/23/2024 (f)

      1,700         1,736  

Doctors Co.

 

6.500% due 10/15/2023 (i)

      10,000         10,965  

Flagstar Bancorp, Inc.

 

6.125% due 07/15/2021 (i)

      5,300         5,659  

GSPA Monetization Trust

 

6.422% due 10/09/2029 (i)

      7,911         8,731  

Hexion U.S. Finance Corp.

 

10.375% due 02/01/2022 (b)

      104         107  

13.750% due 02/01/2022 (b)

      83         84  

HSBC Holdings PLC

 

6.000% due 09/29/2023 (f)

  EUR     2,600         2,966  

International Lease Finance Corp.

 

6.980% due 10/15/2018

  $     18,000         18,758  

Jefferies Finance LLC

 

7.375% due 04/01/2020

      1,200         1,218  

Jefferies LoanCore LLC

 

6.875% due 06/01/2020 (i)

      17,000         16,575  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Lloyds Bank PLC

 

12.000% due 12/16/2024 (f)(i)

  $     19,040     $     25,276  

Lloyds Banking Group PLC

 

7.875% due 06/27/2029 (f)

  GBP     200         271  

Midwest Family Housing LLC

 

6.631% due 01/01/2051 (i)

  $     4,891         4,166  

MPT Operating Partnership LP

 

5.250% due 08/01/2026

      1,949         1,920  

Nationwide Building Society

 

10.250% due 06/29/2049 (f)

  GBP     19         3,250  

Navient Corp.

 

5.625% due 08/01/2033 (i)

  $     25,904         20,594  

Novo Banco S.A.

 

5.000% due 04/04/2019

  EUR     439         359  

5.000% due 04/23/2019

      745         612  

5.000% due 05/14/2019

      792         648  

5.000% due 05/21/2019

      387         316  

5.000% due 05/23/2019

      384         314  

Omega Healthcare Investors, Inc.

 

4.375% due 08/01/2023 (i)

  $     2,300         2,302  

PHH Corp.

 

6.375% due 08/15/2021 (i)

      3,350         3,400  

7.375% due 09/01/2019 (i)

      1,990         2,184  

Provident Funding Associates LP

 

6.750% due 06/15/2021

      1,300         1,319  

Rio Oil Finance Trust

 

9.250% due 07/06/2024

      25,729         25,408  

Royal Bank of Scotland Group PLC

 

7.500% due 08/10/2020 (f)(i)

      7,040         6,846  

8.000% due 08/10/2025 (f)(i)

      7,660         7,536  

8.625% due 08/15/2021 (f)

      2,500         2,587  

Santander UK Group Holdings PLC

 

7.375% due 06/24/2022 (f)

  GBP     6,363         8,205  

Spirit Realty LP

 

4.450% due 09/15/2026 (i)

  $     2,300         2,209  

Tesco Property Finance PLC

 

5.411% due 07/13/2044

  GBP     4,434         5,433  

6.052% due 10/13/2039

      4,653         6,260  

TIG FinCo PLC

 

8.500% due 03/02/2020

      987         1,282  

8.750% due 04/02/2020

      11,215         13,614  
       

 

 

 
            322,206  
       

 

 

 
INDUSTRIALS 31.6%  

ADT Corp.

 

4.875% due 07/15/2032

  $     2,656         2,151  

BCD Acquisition, Inc.

 

9.625% due 09/15/2023

      1,200         1,290  

BMC Software Finance, Inc.

 

8.125% due 07/15/2021 (i)

      2,827         2,742  

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

 

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

      8,132         7,929  

Caesars Entertainment Operating Co., Inc.

 

9.000% due 02/15/2020 ^

      18,786         20,946  

11.250% due 06/01/2017 ^

      10,528         11,502  

Chesapeake Energy Corp.

 

4.272% due 04/15/2019

      120         120  

Concordia International Corp.

 

9.000% due 04/01/2022

      444         379  

Diamond Resorts International, Inc.

 

10.750% due 09/01/2024 (i)

      3,800         3,819  

DriveTime Automotive Group, Inc.

 

8.000% due 06/01/2021 (i)

      11,130         11,047  

Enterprise Inns PLC

 

6.000% due 10/06/2023

  GBP     500         659  

6.875% due 05/09/2025

      6,600         8,862  

Forbes Energy Services Ltd.

 

9.000% due 06/15/2019 ^

  $     3,527         2,134  

Ford Motor Co.

 

7.700% due 05/15/2097 (i)

      16,610         19,382  

Fresh Market, Inc.

 

9.750% due 05/01/2023 (i)

      9,300         8,300  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

General Shopping Finance Ltd.

 

10.000% due 03/03/2017 (f)(i)

  $     5,300     $     3,880  

General Shopping Investments Ltd.

 

12.000% due 03/20/2017 ^(f)

      2,500         725  

Hampton Roads PPV LLC

 

6.621% due 06/15/2053

      20,354         18,264  

Harvest Operations Corp.

 

2.330% due 04/14/2021

      22,056         21,682  

HCA, Inc.

 

7.500% due 11/15/2095 (i)

      3,462         3,332  

Hellenic Railways Organization S.A.

 

4.028% due 03/17/2017

  EUR     300         321  

iHeartCommunications, Inc.

 

9.000% due 09/15/2022 (i)

  $     6,800         5,125  

Intelsat Luxembourg S.A.

 

7.750% due 06/01/2021

      5,615         1,979  

8.125% due 06/01/2023

      5,704         1,925  

Intrepid Aviation Group Holdings LLC

 

6.875% due 02/15/2019

      11,650         10,660  

Kinder Morgan Energy Partners LP

 

6.950% due 01/15/2038 (i)

      1,000         1,188  

Koppers, Inc.

 

6.000% due 02/15/2025

      25         26  

Mallinckrodt International Finance S.A.

 

4.750% due 04/15/2023

      400         330  

N&W Global Vending SpA

 

7.000% due 10/15/2023

  EUR     100         114  

Petroleos de Venezuela S.A.

 

8.500% due 11/02/2017

  $     33         29  

Prime Security Services Borrower LLC

 

9.250% due 05/15/2023 (i)

      3,600         3,910  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     18,100         26,783  

Safeway, Inc.

 

7.250% due 02/01/2031 (i)

  $     5,348         5,281  

Sequa Corp.

 

7.000% due 12/15/2017

      17,343         9,539  

Silversea Cruise Finance Ltd.

 

7.250% due 02/01/2025

      31         32  

Spanish Broadcasting System, Inc.

 

12.500% due 04/15/2017

      4,220         4,209  

Tech Data Corp.

 

3.700% due 02/15/2022

      50         50  

4.950% due 02/15/2027

      60         60  

Tembec Industries, Inc.

 

9.000% due 12/15/2019 (i)

      21,675         22,054  

Tennessee Merger Sub, Inc.

 

6.375% due 02/01/2025 (b)

      149         146  

Transocean, Inc.

 

9.000% due 07/15/2023

      1,021         1,092  

Trinidad Drilling Ltd.

 

6.625% due 02/15/2025 (b)

      47         48  

UCP, Inc.

 

8.500% due 10/21/2017

      10,300         10,245  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     298         401  

Westmoreland Coal Co.

 

8.750% due 01/01/2022

  $     10,638         9,734  

Zayo Group LLC

 

5.750% due 01/15/2027

      45         46  
       

 

 

 
            264,472  
       

 

 

 
UTILITIES 5.6%  

CenturyLink, Inc.

 

7.200% due 12/01/2025

      1,122         1,083  

Frontier Communications Corp.

 

11.000% due 09/15/2025

      840         852  

Illinois Power Generating Co.

 

6.300% due 04/01/2020 ^

      30         11  

7.000% due 04/15/2018 ^

      16,800         6,300  

7.950% due 06/01/2032 ^

      900         333  
 

 

42   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

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

Mountain States Telephone & Telegraph Co.

 

7.375% due 05/01/2030

  $     15,200     $     15,979  

NRG REMA LLC

 

9.237% due 07/02/2017

      78         65  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 06/30/2022

      4,576         2,139  

Odebrecht Offshore Drilling Finance Ltd.

 

6.625% due 10/01/2023

      5,001         1,738  

6.750% due 10/01/2023

      10,835         3,684  

Petrobras Global Finance BV

 

6.250% due 12/14/2026

  GBP     8,600         10,432  

6.625% due 01/16/2034

      200         228  

7.375% due 01/17/2027

  $     320         334  

Terraform Global Operating LLC

 

9.750% due 08/15/2022 (i)

      3,200         3,544  
       

 

 

 
          46,722  
       

 

 

 

Total Corporate Bonds & Notes (Cost $642,389)

      633,400  
       

 

 

 
CONVERTIBLE BONDS & NOTES 0.7%  
INDUSTRIALS 0.7%  

DISH Network Corp.

 

3.375% due 08/15/2026

      5,100         5,983  
       

 

 

 

Total Convertible Bonds & Notes (Cost $5,100)

    5,983  
       

 

 

 
MUNICIPAL BONDS & NOTES 8.4%  
CALIFORNIA 2.4%  

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

 

6.506% due 02/01/2031

      2,000         2,284  

Sacramento County, California Revenue Bonds, Series 2013

 

7.250% due 08/01/2025

      1,500         1,747  

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

 

7.625% due 09/01/2030

      7,500         8,564  

7.750% due 09/01/2040

      6,500         7,422  

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

 

7.125% due 06/01/2032

      275         316  
       

 

 

 
          20,333  
       

 

 

 
DISTRICT OF COLUMBIA 1.2%  

District of Columbia Revenue Bonds, Series 2011

 

7.625% due 10/01/2035

      9,740         9,926  
       

 

 

 
ILLINOIS 2.4%  

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

 

6.257% due 01/01/2040

      11,000         9,587  

7.517% due 01/01/2040

      9,805         10,024  
       

 

 

 
          19,611  
       

 

 

 
NEW YORK 0.2%  

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

 

6.000% due 06/01/2028

      1,960         1,960  
       

 

 

 
TEXAS 1.0%  

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

 

7.250% due 08/15/2043

      7,535         8,546  
       

 

 

 
VIRGINIA 0.1%  

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

 

6.706% due 06/01/2046

      1,375         1,107  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
WEST VIRGINIA 1.1%  

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

 

7.467% due 06/01/2047

  $     10,080     $     8,961  
       

 

 

 

Total Municipal Bonds & Notes (Cost $68,258)

    70,444  
       

 

 

 
U.S. GOVERNMENT AGENCIES 2.3%  

Fannie Mae

 

3.500% due 09/25/2027 (a)

      589         69  

5.899% due 10/25/2017 -
01/25/2018 (a)

      13,208         93  

8.458% due 10/25/2041

      762         884  

10.000% due 01/25/2034

      219         254  

12.916% due 05/25/2043

      848         870  

Freddie Mac

 

2.563% due 11/25/2055

      14,313         8,051  

4.000% due 08/15/2020 (a)

      493         24  

4.500% due 10/15/2037 (a)

      1,087         109  

5.000% due 06/15/2033 (a)

      1,968         293  

5.333% due 07/15/2035 (a)

      1,432         179  

5.433% due 02/15/2042 (a)

      2,530         352  

6.373% due 08/15/2036 (a)

      907         195  

9.944% due 12/15/2043

      406         441  

9.971% due 10/25/2027

      4,342         5,295  

11.466% due 05/15/2033

      63         77  

Ginnie Mae

 

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

      3,857         547  

4.500% due 07/20/2042 (a)

      310         53  

5.000% due 09/20/2042 (a)

      545         104  

5.473% due 02/20/2042 (a)

      12,461         1,206  
       

 

 

 

Total U.S. Government Agencies (Cost $24,852)

      19,096  
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 18.6%  

Adjustable Rate Mortgage Trust

 

0.941% due 05/25/2036

      4,952         2,762  

Banc of America Alternative Loan Trust

 

4.829% due 06/25/2046 ^(a)

      8,668         1,215  

Banc of America Funding Trust

 

6.000% due 07/25/2037 ^

      666         522  

6.250% due 10/26/2036

      11,218         8,696  

Banc of America Mortgage Trust

 

3.211% due 02/25/2036 ^

      26         24  

BCAP LLC Trust

 

5.078% due 03/26/2037

      2,172         659  

6.000% due 05/26/2037

      7,074         4,631  

7.504% due 10/26/2036

      7,416         6,419  

8.076% due 09/26/2036

      7,073         6,293  

11.961% due 06/26/2036

      2,861         1,160  

Bear Stearns Adjustable Rate Mortgage Trust

 

3.293% due 11/25/2034

      107         101  

Bellemeade Re Ltd.

 

7.071% due 07/25/2025

      1,250         1,274  

Chase Mortgage Finance Trust

 

3.179% due 09/25/2036 ^

      157         141  

3.189% due 12/25/2035 ^

      30         29  

5.500% due 05/25/2036 ^

      8         7  

Citigroup Mortgage Loan Trust, Inc.

 

1.106% due 07/25/2036

      4         5  

3.161% due 07/25/2037 ^

      190         175  

3.292% due 08/25/2037 ^

      863         725  

3.842% due 11/25/2035

      16,621         9,453  

6.500% due 09/25/2036

      4,942         3,789  

Citigroup/Deutsche Bank Commercial Mortgage Trust

 

5.398% due 12/11/2049

      15,271         13,820  

Commercial Mortgage Loan Trust

 

6.096% due 12/10/2049

      2,051         1,300  

Countrywide Alternative Loan Trust

 

1.021% due 12/25/2046

      3,223         2,099  

3.175% due 07/25/2046 ^

      234         225  

3.490% due 02/25/2037 ^

      419         367  

4.229% due 04/25/2035 (a)

      5,480         605  

4.825% due 07/25/2021 ^

      366         345  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

5.500% due 03/25/2036 ^

  $     362     $     283  

6.000% due 02/25/2037 ^

      7,363         5,099  

6.250% due 12/25/2036 ^

      3,945         2,913  

6.500% due 06/25/2036 ^

      1,143         826  

Countrywide Home Loan Mortgage Pass-Through Trust

 

3.019% due 09/20/2036 ^

      683         549  

3.121% due 09/25/2047 ^

      74         69  

4.579% due 12/25/2036 (a)

      4,119         603  

Credit Suisse Commercial Mortgage Trust

 

5.683% due 02/15/2039

      1,000         932  

5.870% due 09/15/2040

      4,800         4,537  

Credit Suisse First Boston Mortgage Securities Corp.

 

6.000% due 01/25/2036

      2,373         1,805  

Epic Drummond Ltd.

 

0.000% due 01/25/2022

  EUR     611         649  

Grifonas Finance PLC

 

0.088% due 08/28/2039

      5,690         4,776  

HarborView Mortgage Loan Trust

 

3.007% due 08/19/2036 ^

  $     571         429  

3.353% due 08/19/2036 ^

      34         31  

IM Pastor Fondo de Titluzacion Hipotecaria

 

0.000% due 03/22/2043

  EUR     7,590         6,567  

JPMorgan Alternative Loan Trust

 

3.013% due 03/25/2037 ^

  $     8,929         7,977  

JPMorgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      2,437         2,102  

JPMorgan Mortgage Trust

 

5.849% due 01/25/2037 ^(a)

      23,398         6,045  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038

      1,411         1,090  

5.562% due 02/15/2040

      2,787         2,081  

Lehman XS Trust

 

0.991% due 06/25/2047

      4,770         3,682  

Nomura Asset Acceptance Corp. Alternative Loan Trust

 

3.501% due 04/25/2036 ^

      7,321         5,299  

RBSSP Resecuritization Trust

 

8.884% due 06/26/2037

      5,036         3,720  

Residential Asset Securitization Trust

 

6.250% due 10/25/2036 ^

      687         620  

6.250% due 09/25/2037 ^

      5,573         3,809  

6.500% due 08/25/2036 ^

      936         520  

Structured Adjustable Rate Mortgage Loan Trust

 

3.084% due 04/25/2047

      872         676  

3.254% due 01/25/2036 ^

      230         175  

Structured Asset Mortgage Investments Trust

 

0.961% due 07/25/2046 ^

      15,105         11,124  

WaMu Mortgage Pass-Through Certificates Trust

 

2.513% due 05/25/2037 ^

      195         157  

Washington Mutual Mortgage Pass-Through Certificates Trust

 

5.909% due 04/25/2037 (a)

      14,606         3,965  

6.500% due 03/25/2036 ^

      8,634         6,426  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $148,829)

      156,377  
       

 

 

 
ASSET-BACKED SECURITIES 17.7%  

ACE Securities Corp. Home Equity Loan Trust

 

0.911% due 07/25/2036

      5,318         3,661  

Airspeed Ltd.

 

1.037% due 06/15/2032

      4,944         3,890  

Apidos CLO

 

0.000% due 07/22/2026

      3,000         1,634  

Argent Securities Trust

 

0.961% due 03/25/2036

      6,439         3,402  

CIFC Funding Ltd.

 

0.000% due 05/24/2026 (e)

      4,000         2,944  

0.000% due 07/22/2026

      3,000         1,844  

Citigroup Mortgage Loan Trust, Inc.

 

0.871% due 12/25/2036

      11,620         7,164  

0.931% due 12/25/2036

      6,786         4,216  

Cork Street CLO Designated Activity Co.

 

0.000% due 11/27/2028 (e)

  EUR     2,667         2,438  

3.600% due 11/27/2028

      1,197         1,296  
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   43


Schedule of Investments PIMCO High Income Fund (Cont.)

 

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

4.500% due 11/27/2028

  EUR     1,047     $     1,135  

6.200% due 11/27/2028

      1,296         1,409  

Countrywide Asset-Backed Certificates

 

4.820% due 07/25/2036

  $     13,700         11,343  

Countrywide Asset-Backed Certificates Trust

 

1.026% due 09/25/2046

      15,000         7,050  

Duke Funding Ltd.

 

1.521% due 08/07/2033

      19,716         8,005  

Glacier Funding CDO Ltd.

 

1.146% due 08/04/2035

      7,769         2,171  

GLG Euro CLO

 

0.000% due 04/15/2028

  EUR     4,150         3,905  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029

      1,000         889  

Halcyon Loan Advisors European Funding BV

 

0.000% due 01/15/2027 (e)

      1,100         1,117  

Long Beach Mortgage Loan Trust

 

0.961% due 02/25/2036

  $     1,695         1,130  

Merrill Lynch Mortgage Investors Trust

 

0.916% due 04/25/2037

      994         560  

4.063% due 03/25/2037

      4,129         1,373  

Morgan Stanley Mortgage Loan Trust

 

2.568% due 11/25/2036 ^

      918         446  

5.965% due 09/25/2046 ^

      8,624         4,845  

NovaStar Mortgage Funding Trust

 

0.931% due 10/25/2036

      37,586         21,659  

People’s Financial Realty Mortgage Securities Trust

 

0.931% due 09/25/2036

      23,049         7,188  

Putnam Structured Product Funding Ltd.

 

9.092% due 02/25/2037

      717         728  

Renaissance Home Equity Loan Trust

 

5.812% due 11/25/2036

      9,568         5,562  

6.998% due 09/25/2037 ^

      8,228         4,967  

7.238% due 09/25/2037 ^

      6,938         4,187  

Sherwood Funding CDO Ltd.

 

1.067% due 11/06/2039

      34,624         9,044  

South Coast Funding Ltd.

 

1.482% due 08/10/2038

      27,555         5,690  

Taberna Preferred Funding Ltd.

 

1.158% due 08/05/2036

      717         516  

1.158% due 08/05/2036 ^

      14,045           10,112  

Trainer Wortham First Republic CBO Ltd.

 

2.081% due 11/06/2038

      888         881  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Washington Mutual Asset-Backed Certificates Trust

 

0.921% due 05/25/2036

  $     294     $     218  
       

 

 

 

Total Asset-Backed Securities (Cost $151,223)

      148,619  
       

 

 

 
SOVEREIGN ISSUES 1.8%  

Argentine Government International Bond

 

7.820% due 12/31/2033

  EUR     7,930         8,731  

Autonomous Community of Catalonia

 

4.900% due 09/15/2021

      2,350         2,683  

Republic of Greece Government International Bond

 

3.000% due 02/24/2023

      25         21  

3.000% due 02/24/2024

      25         21  

3.000% due 02/24/2025

      25         20  

3.000% due 02/24/2026

      25         20  

3.000% due 02/24/2027

      25         20  

3.000% due 02/24/2028

      25         19  

3.000% due 02/24/2029

      25         18  

3.000% due 02/24/2030

      25         18  

3.000% due 02/24/2031

      25         18  

3.000% due 02/24/2032

      25         17  

3.000% due 02/24/2033

      25         17  

3.000% due 02/24/2034

      25         17  

3.000% due 02/24/2035

      25         16  

3.000% due 02/24/2036

      25         16  

3.000% due 02/24/2037

      25         16  

3.000% due 02/24/2038

      25         16  

3.000% due 02/24/2039

      25         16  

3.000% due 02/24/2040

      25         16  

3.000% due 02/24/2041

      25         16  

3.000% due 02/24/2042

      25         16  

4.750% due 04/17/2019

      3,000         2,989  
       

 

 

 

Total Sovereign Issues (Cost $14,398)

      14,757  
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%  
FINANCIALS 0.1%  

TIG FinCo PLC (g)

      828,934         772  
       

 

 

 
UTILITIES 0.0%  

Warren Resources, Inc.

      23,043         84  
       

 

 

 

Total Common Stocks (Cost $2,839)

    856  
       

 

 

 
        SHARES         MARKET
VALUE
(000S)
 
PREFERRED SECURITIES 0.3%  
BANKING & FINANCE 0.3%  

Farm Credit Bank of Texas

 

10.000% due 12/15/2020 (f)

      2,190     $     2,633  

Morgan Stanley

 

5.850% due 04/15/2027 (f)

      2,500         63  
       

 

 

 

Total Preferred Securities (Cost $2,641)

    2,696  
       

 

 

 
SHORT-TERM INSTRUMENTS 11.2%  
REPURCHASE AGREEMENTS (h) 5.8%  
          48,400  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
U.S. TREASURY BILLS 5.4%  

0.461% due 02/02/2017 - 03/16/2017 (d)(e)(k)(m)

  $     45,347         45,335  
       

 

 

 
Total Short-Term Instruments (Cost $93,735)         93,735  
       

 

 

 
       
Total Investments in Securities (Cost $1,171,271)         1,161,940  
       
Total Investments 138.6% (Cost $1,171,271)     $       1,161,940  

Financial Derivative
Instruments (j)(l) (0.6)%

(Cost or Premiums, net $(1,282))

 

 

      (5,417
Preferred Shares (12.2)%         (101,975
Other Assets and Liabilities, net (25.8)%     (216,375
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%     $     838,173  
       

 

 

 
 

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 security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon security.
(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       $    1,229     $     772       0.09%  
        

 

 

   

 

 

   

 

 

 

 

44   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

 

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)
 
BPG     0.690     01/31/2017       02/01/2017     $     42,800     U.S. Treasury Inflation Protected Securities 0.125% due 01/15/2023   $ (43,759   $ 42,800     $ 42,801  
SSB     0.010       01/31/2017       02/01/2017       5,600     U.S. Treasury Notes 1.000% due 05/15/2018(2)     (5,714     5,600       5,600  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

        $     (49,473   $     48,400     $     48,401  
           

 

 

   

 

 

   

 

 

 

 

(1)

Includes accrued interest.

(2)

Collateral is held in custody by the counterparty.

 

REVERSE REPURCHASE AGREEMENTS:

 

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

BCY

    0.000     12/16/2016       12/16/2017     $ (3,504   $ (3,504

BPS

    1.670       11/15/2016       02/15/2017       (3,179     (3,190
    1.740       01/23/2017       03/02/2017       (241     (241
    1.780       01/23/2017       03/08/2017       (759     (759
    1.830       01/30/2017       02/03/2017       (22,751     (22,753
    1.830       02/03/2017       04/06/2017       (22,515     (22,515

DEU

    2.000       12/16/2016       03/16/2017       (5,581     (5,596

MSC

    1.400       11/29/2016       02/28/2017       (18,168     (18,213

RBC

    1.540       11/14/2016       02/14/2017       (6,695     (6,718
    1.590       11/14/2016       02/14/2017       (5,581     (5,600
    1.777       08/04/2016       02/06/2017       (12,578     (12,690
    1.940       12/07/2016       06/07/2017       (13,771     (13,813
    1.940       12/12/2016       06/07/2017       (2,859     (2,867
    1.970       12/15/2016       06/12/2017       (7,432     (7,452
    2.020       12/15/2016       06/12/2017       (3,109     (3,117
    2.020       01/09/2017       07/10/2017       (4,508     (4,514

RDR

    1.300       11/03/2016       02/03/2017       (18,043     (18,102
    1.380       01/19/2017       04/12/2017       (3,044     (3,045

RTA

    1.691       01/19/2017       04/21/2017       (8,107     (8,112
    1.691       01/20/2017       04/21/2017       (6,861     (6,865

UBS

    1.230       11/14/2016       02/14/2017       (3,303     (3,312
    1.320       11/25/2016       02/27/2017       (2,075     (2,080
    1.380       11/30/2016       03/02/2017       (6,968     (6,985
    1.390       12/02/2016       03/02/2017           (10,103     (10,127
    1.470       11/25/2016       02/27/2017       (2,783     (2,791
    1.730       11/28/2016       02/28/2017       (5,090     (5,106
    1.730       12/01/2016       03/02/2017       (8,207     (8,231
    1.730       12/16/2016       03/02/2017       (809     (811
    1.850       12/28/2016       03/14/2017       (17,718     (17,750
         

 

 

 

Total Reverse Repurchase Agreements

 

      $     (226,859
         

 

 

 

 

(3)

The average amount of borrowings outstanding during the period ended January 31, 2017 was $(196,972) at a weighted average interest rate of 1.502%.

 

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 pledged/(received) as of January 31, 2017:

 

(i) Securities with an aggregate market value of $260,240 and cash of $330 has been pledged as collateral under the terms of the following master agreements as of January 31, 2017.

 

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

Global/Master Repurchase Agreement

 

BCY

  $ 0     $ (3,504   $ 0      $ (3,504   $ 4,047     $ 543  

BPG

        42,801       0       0        42,801           (43,754     (953

BPS

    0           (49,458         0            (49,458     56,087           6,629  

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   45


Schedule of Investments PIMCO High Income Fund (Cont.)

 

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

DEU

  $ 0     $ (5,596   $ 0      $ (5,596   $ 7,080     $ 1,484  

MSC

    0       (18,213     0        (18,213     19,469       1,256  

RBC

    0       (56,771     0        (56,771     62,938       6,167  

RDR

    0       (21,147     0        (21,147     21,737       590  

RTA

    0       (14,977     0        (14,977     17,044       2,067  

SSB

    5,600       0       0        5,600       (5,714     (114

UBS

    0       (57,193     0            (57,193         65,661           8,468  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     48,401     $     (226,859   $     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     $ (126,950   $ (42,127   $ (35,267   $ (204,344
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (126,950   $     (42,127   $     (35,267   $     (204,344
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

  $ (204,344
         

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(22,515) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

    1.550     01/20/2022     $     660,000     $ (13,889   $ (13,888   $ 790      $ 0  

Receive*

 

3-Month USD-LIBOR

    1.500       06/21/2027       222,500       19,139       1,102       0        (687

Pay

 

3-Month USD-LIBOR

    3.500       06/19/2044       617,800       106,139       (77,930     4,480        0  

Receive

 

3-Month USD-LIBOR

    2.250       12/21/2046       68,300       5,633       11,835       0        (456

Receive*

 

3-Month USD-LIBOR

    1.750       06/21/2047       840,100       175,096       26,768       0        (5,543
         

 

 

   

 

 

   

 

 

    

 

 

 
          $ 292,118     $ (52,113   $ 5,270      $ (6,686
         

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

 

  $     292,118     $     (52,113   $     5,270      $     (6,686
         

 

 

   

 

 

   

 

 

    

 

 

 

 

* This instrument has a forward starting effective date. See Note 2(a) in the Notes to Financial Statements for further information.

 

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, 2017:

 

(k) Securities with an aggregate market value of $19,299 and cash of $8,616 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2017. 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     $     5,270     $     5,270       $     0     $     0     $     (6,686   $     (6,686
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

46   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

 

(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

     02/2017     BRL     797     $     243     $ 0     $ (10
     02/2017     EUR     54,143         56,388       0       (2,060
     02/2017     GBP     202         250       0       (4
     02/2017     $     255     BRL     797       0       (2

BPS

     02/2017     EUR     236     $     249       0       (6
     02/2017     GBP     206         251       0       (9

CBK

     02/2017         148         182       0       (4
     02/2017     $     4,113     EUR     3,858       52       0  
     02/2017         101,581     GBP     80,961       267       0  
     03/2017     EUR     8,169     $     8,751       0       (76
     03/2017     GBP     80,961         101,634       0       (263

FBF

     02/2017         67         83       0       (2

GLM

     02/2017     EUR     466         497       0       (6
     02/2017     GBP     270         331       0       (9

JPM

     02/2017     $     55,040     EUR     51,463       514       0  
     03/2017     EUR     51,463     $     55,103       0       (509

MSB

     02/2017     GBP     544         662       0       (22

SCX

     02/2017     EUR     236         250       0       (5

SOG

     02/2017     GBP     78,721         97,117       0       (1,913

TOR

     02/2017     EUR     627         663       0       (14
     02/2017     GBP     528         645       0       (19

UAG

     02/2017         275         338       0       (8
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

          $     833     $     (4,941
            

 

 

   

 

 

 

 

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, 2017(2)
    Notional
Amount(3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BPS  

Banco Espirito Santo S.A.

    5.000     09/20/2020       17.421     EUR       5,000     $ 0     $ (1,386   $ 0     $ (1,386
 

Banco Espirito Santo S.A.

    5.000       12/20/2021       16.522         100       (28     (3     0       (31
 

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       $       1,700       (332     (6     0       (338
GST  

Petrobras Global Finance BV

    1.000       12/20/2024       4.214         2,200       (437     (1     0       (438
HUS  

Petrobras Global Finance BV

    1.000       12/20/2024       4.214         2,800       (581     23       0       (558
JPM  

Banco Espirito Santo S.A.

    5.000       12/20/2021       16.522       EUR       200       (54     (8     0       (62
             

 

 

   

 

 

   

 

 

   

 

 

 
              $     (1,432   $     (1,381   $     0     $     (2,813
             

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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
    Swap Agreements, at Value  
                Asset     Liability  
DUB  

Pay

 

3-Month USD-LIBOR

    2.500     03/22/2022     $    1,000,000   $ 470     $ 2,666     $ 3,136     $ 0  
GLM  

Pay

 

3-Month USD-LIBOR

    2.300       04/26/2022     1,000,000     (320     104       0       (216
           

 

 

   

 

 

   

 

 

   

 

 

 
    $ 150     $ 2,770     $ 3,136     $ (216
           

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

  $     (1,282   $     1,389     $     3,136     $     (3,029
           

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   47


Schedule of Investments PIMCO High Income Fund (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 pledged/(received) as of January 31, 2017:

 

(m) Securities with an aggregate market value of $6,453 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2017.

 

    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
Pledged/
(Received)
    Net
Exposure(4)
 

BOA

  $ 0      $ 0      $ 0      $ 0       $ (2,076   $ 0      $ 0     $ (2,076   $ (2,076   $ 1,610     $ (466

BPS

    0        0        0        0         (15     0        (1,755     (1,770     (1,770     1,772       2  

CBK

    319        0        0        319         (343     0        0       (343     (24     0       (24

DUB

    0        0        3,136        3,136         0       0        0       0       3,136       (4,375         (1,239

FBF

    0        0        0        0         (2     0        0       (2     (2     0       (2

GLM

    0        0        0        0         (15     0        (216     (231     (231     768       537  

GST

    0        0        0        0         0       0        (438     (438     (438     454       16  

HUS

    0        0        0        0         0       0        (558     (558     (558     688       130  

JPM

    514        0        0        514         (509     0        (62     (571     (57     0       (57

MSB

    0        0        0        0         (22     0        0       (22     (22     0       (22

MYC

    0        0        0        0         0       0        0       0       0       (140     (140

SCX

    0        0        0        0         (5     0        0       (5     (5     0       (5

SOG

    0        0        0        0         (1,913     0        0       (1,913         (1,913         1,162       (751

TOR

    0        0        0        0         (33     0        0       (33     (33     0       (33

UAG

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

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $     833      $     0      $     3,136      $     3,969       $     (4,941   $     0      $     (3,029   $     (7,970      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

 

(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, 2017:

 

    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     $ 0     $ 0     $ 0     $ 5,270     $ 5,270  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 833     $ 0     $ 833  

Swap Agreements

    0       0       0       0       3,136       3,136  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 833     $ 3,136     $ 3,969  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 833     $ 8,406     $ 9,239  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 0     $ 0     $ 0     $ 6,686     $ 6,686  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 4,941     $ 0     $ 4,941  

Swap Agreements

    0       2,813       0       0       216       3,029  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 2,813     $ 0     $ 4,941     $ 216     $ 7,970  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     2,813     $     0     $     4,941     $     6,902     $     14,656  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

48   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2017:

 

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

Net Realized Gain on Financial Derivative Instruments

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 2,419     $ 0     $ 0     $ 88,745     $ 91,164  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 11,419     $ 0     $ 11,419  

Swap Agreements

    0       1,390       0       0       5,424       6,814  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1,390     $ 0     $ 11,419     $ 5,424     $ 18,233  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 3,809     $ 0     $ 11,419     $ 94,169     $ 109,397  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $     (1,570   $ 0     $ 0     $ (107,614   $ (109,184
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (3,899   $ 0     $ (3,899

Swap Agreements

    0       1,006       0       0       1,296       2,302  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1,006     $ 0     $ (3,899   $ 1,296     $ (1,597
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $ (564   $     0     $     (3,899   $     (106,318   $     (110,781
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2017 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Investments in Securities, at Value

 

     

Bank Loan Obligations

  $     0     $ 13,112     $ 2,865     $ 15,977  

Corporate Bonds & Notes

       

Banking & Finance

    0           313,475       8,731       322,206  

Industrials

    0       254,227           10,245           264,472  

Utilities

    0       46,722       0       46,722  

Convertible Bonds & Notes

       

Industrials

    0       5,983       0       5,983  

Municipal Bonds & Notes

       

California

    0       20,333       0       20,333  

District of Columbia

    0       9,926       0       9,926  

Illinois

    0       19,611       0       19,611  

New York

    0       1,960       0       1,960  

Texas

    0       8,546       0       8,546  

Virginia

    0       1,107       0       1,107  

West Virginia

    0       8,961       0       8,961  

U.S. Government Agencies

    0       11,045       8,051       19,096  

Non-Agency Mortgage-Backed Securities

    0       156,377       0       156,377  

Asset-Backed Securities

    0       148,619       0       148,619  

Sovereign Issues

    0       14,757       0       14,757  

Common Stocks

       

Financials

    0       0       772       772  

Utilities

    0       0       84       84  

Preferred Securities

       

Banking & Finance

    0       2,696       0       2,696  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Short-Term Instruments

       

Repurchase Agreements

  $ 0     $ 48,400     $ 0     $ 48,400  

U.S. Treasury Bills

    0       45,335       0       45,335  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     0     $     1,131,192     $     30,748     $     1,161,940  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

    0       5,270       0       5,270  

Over the counter

    0       3,969       0       3,969  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 9,239     $ 0     $ 9,239  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (6,686     0       (6,686

Over the counter

    0       (7,970     0       (7,970
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (14,656   $ 0     $ (14,656
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ (5,417   $ 0     $ (5,417
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     0     $     1,125,775     $     30,748     $     1,156,523  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers among Levels 1 and 2 during the period ended January 31, 2017.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   49


Schedule of Investments PIMCO High Income Fund (Cont.)

 

January 31, 2017 (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, 2017:

 

Category and Subcategory   Beginning
Balance
at 07/31/2016
    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 01/31/2017
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2017(1)
 

Investments in Securities, at Value

 

               

Bank Loan Obligations

  $ 0     $ 2,552     $ (8   $ 36     $ 2     $ 283     $ 0     $ 0     $ 2,865     $ 283  

Corporate Bonds & Notes

                   

Banking & Finance

    9,195       0       (125     2       1       (342     0       0       8,731       (322

Industrials

    10,253       0       0       7       0       (15     0       0       10,245       (15

U.S. Government Agencies

    7,716       0       (70     32       28       345       0       0       8,051       341  

Non-Agency Mortgage-Backed Securities

    1,235       0       0       0       0       39       0       (1,274     0       0  

Common Stocks

                   

Financials

    527       0       0       0       0       245       0       0       772       245  

Utilities

    0       1,610       0       0       0           (1,526     0       0       84           (1,526
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     28,926     $     4,162     $     (203   $     77     $     31     $ (971   $     0     $     (1,274   $     30,748     $ (994
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 01/31/2017
     Valuation
Technique
   Unobservable
Inputs
     Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

     

Bank Loan Obligations

  $ 2,865      Third Party Vendor      Broker Quote        89.750  

Corporate Bonds & Notes

          

Banking & Finance

    8,731      Proxy Pricing      Base Price        110.500  

Industrials

    10,245      Proxy Pricing      Base Price        99.500  

U.S. Government Agencies

    8,051      Proxy Pricing      Base Price        56.094  

Common Stocks

          

Financials

    772      Other Valuation Techniques(2)             —    

Utilities

    84      Other Valuation Techniques(2)             —    
 

 

 

          

Total

  $     30,748           
 

 

 

          

 

(1)

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2017 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.

 

50   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Schedule of Investments PIMCO Income Strategy Fund

 

January 31, 2017 (Unaudited)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 130.0%  
BANK LOAN OBLIGATIONS 3.2%  

Avolon

 

TBD% due 07/20/2020

  $     20     $     20  

Avolon Holdings Ltd.

 

TBD% due 01/13/2022

      170         172  

BMC Software Finance, Inc.

 

TBD% due 09/10/2020

      200         200  

iHeartCommunications, Inc.

 

7.528% due 01/30/2019

      3,100         2,606  

Save-A-Lot

 

7.000% due 12/05/2023

      1,100         1,097  

Sequa Corp.

 

5.250% due 06/19/2017

      3,106         2,980  

Sprint Communications, Inc.

 

TBD% due 01/13/2024

      800         800  

Team Health Holdings, Inc.

 

TBD% due 01/17/2024

      200         200  

Westmoreland Coal Co.

 

7.500% due 12/16/2020

      997         895  
       

 

 

 

Total Bank Loan Obligations (Cost $9,267)

 

        8,970  
       

 

 

 
CORPORATE BONDS & NOTES 68.3%  
BANKING & FINANCE 34.1%  

Ally Financial, Inc.

 

8.000% due 11/01/2031

      2,227         2,656  

Banco Bilbao Vizcaya Argentaria S.A.

 

6.750% due 02/18/2020 (g)

  EUR     1,000         1,032  

Banco do Brasil S.A.

 

6.250% due 04/15/2024 (g)

  $     1,700         1,368  

9.000% due 06/18/2024 (g)

      2,219         2,252  

Banco Espirito Santo S.A.

 

2.625% due 05/08/2017 ^

  EUR     1,400         484  

4.000% due 01/21/2019 ^

      3,800         1,313  

4.750% due 01/15/2018 ^

      1,200         415  

Banco Santander S.A.

 

6.250% due 09/11/2021 (g)

      500         519  

Barclays Bank PLC

 

14.000% due 06/15/2019 (g)

  GBP     3,700         5,731  

Barclays PLC

 

6.500% due 09/15/2019 (g)

  EUR     200         217  

Blackstone CQP Holdco LP

 

9.296% due 03/19/2019

  $     4,608         4,648  

BNP Paribas S.A.

 

7.375% due 08/19/2025 (g)(j)

      2,100         2,129  

Cantor Commercial Real Estate Co. LP

 

7.750% due 02/15/2018

      750         750  

Cantor Fitzgerald LP

 

6.500% due 06/17/2022 (j)

      3,000         3,267  

CBL & Associates LP

 

5.950% due 12/15/2026

      1,000         992  

Co-operative Group Holdings Ltd.

 

7.500% due 07/08/2026

  GBP     3,050         4,591  

Cooperatieve Rabobank UA

 

6.625% due 06/29/2021 (g)

  EUR     400         464  

Credit Agricole S.A.

 

7.875% due 01/23/2024 (g)

  $     1,600         1,634  

Credit Suisse Group AG

 

7.500% due 12/11/2023 (g)

      3,540         3,755  

Deutsche Bank AG

 

4.250% due 10/14/2021 (j)

      3,700         3,720  

EPR Properties

 

4.750% due 12/15/2026

      1,500         1,491  

Flagstar Bancorp, Inc.

 

6.125% due 07/15/2021

      1,700         1,815  

GSPA Monetization Trust

 

6.422% due 10/09/2029

      2,286         2,522  

Hexion U.S. Finance Corp.

 

10.375% due 02/01/2022 (b)

      35         36  

13.750% due 02/01/2022 (b)

      28         28  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

HSBC Holdings PLC

 

6.000% due 09/29/2023 (g)

  EUR     1,800     $     2,053  

Jefferies Finance LLC

 

6.875% due 04/15/2022

  $     3,800         3,705  

7.375% due 04/01/2020

      200         203  

7.500% due 04/15/2021

      200         202  

Lloyds Bank PLC

 

12.000% due 12/16/2024 (g)

      300         398  

MPT Operating Partnership LP

 

5.250% due 08/01/2026

      618         609  

Nationwide Building Society

 

10.250% due 06/29/2049 (g)

  GBP     6         950  

Navient Corp.

 

4.875% due 06/17/2019

  $     200         202  

5.500% due 01/15/2019 (j)

      4,030         4,131  

5.625% due 08/01/2033

      100         80  

Novo Banco S.A.

 

5.000% due 04/04/2019

  EUR     101         83  

5.000% due 04/23/2019

      311         256  

5.000% due 05/14/2019

      206         168  

5.000% due 05/21/2019

      115         94  

5.000% due 05/23/2019

      115         94  

Omega Healthcare Investors, Inc.

 

4.375% due 08/01/2023

  $     700         701  

OneMain Financial Holdings LLC

 

6.750% due 12/15/2019

      544         566  

7.250% due 12/15/2021

      25         26  

PHH Corp.

 

6.375% due 08/15/2021

      1,080         1,096  

7.375% due 09/01/2019

      300         329  

Rio Oil Finance Trust

 

9.250% due 07/06/2024

      4,182         4,130  

Royal Bank of Scotland Group PLC

 

7.500% due 08/10/2020 (g)(j)

      1,600         1,556  

8.000% due 08/10/2025 (g)(j)

      3,000         2,951  

8.625% due 08/15/2021 (g)

      800         828  

Santander UK Group Holdings PLC

 

7.375% due 06/24/2022 (g)

  GBP     1,800         2,321  

Spirit Realty LP

 

4.450% due 09/15/2026

  $     700         672  

Springleaf Finance Corp.

 

5.250% due 12/15/2019

      2,627         2,647  

8.250% due 12/15/2020

      4,060         4,370  

Tesco Property Finance PLC

 

5.411% due 07/13/2044

  GBP     2,143         2,626  

6.052% due 10/13/2039

      1,253         1,685  

TIG FinCo PLC

 

8.500% due 03/02/2020

      111         145  

8.750% due 04/02/2020

      4,532         5,502  

WP Carey, Inc.

 

4.250% due 10/01/2026 (j)

  $     1,400         1,381  
       

 

 

 
            94,589  
       

 

 

 
INDUSTRIALS 26.3%  

ADT Corp.

 

4.875% due 07/15/2032

      661         535  

Aeropuertos Argentina S.A.

 

6.875% due 02/01/2027 (b)

      300         304  

Altice Financing S.A.

 

7.500% due 05/15/2026

      1,700         1,799  

BCD Acquisition, Inc.

 

9.625% due 09/15/2023

      480         516  

BMC Software Finance, Inc.

 

8.125% due 07/15/2021

      866         840  

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

 

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

      2,204         2,149  

Caesars Entertainment Operating Co., Inc.

 

8.500% due 02/15/2020 ^

      590         660  

9.000% due 02/15/2020 ^

      3,792         4,227  

11.250% due 06/01/2017 ^

      1,957         2,138  

Cheniere Corpus Christi Holdings LLC

 

5.875% due 03/31/2025

      100         106  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Chesapeake Energy Corp.

 

4.272% due 04/15/2019

  $     62     $     62  

Concordia International Corp.

 

9.000% due 04/01/2022

      89         76  

Continental Airlines Pass-Through Trust

 

9.798% due 10/01/2022

      758         841  

Diamond Resorts International, Inc.

 

10.750% due 09/01/2024

      1,200         1,206  

Enterprise Inns PLC

 

6.875% due 02/15/2021

  GBP     2,360         3,242  

Forbes Energy Services Ltd.

 

9.000% due 06/15/2019 ^

  $     712         431  

Ford Motor Co.

 

7.700% due 05/15/2097 (j)

      9,030           10,537  

Fresh Market, Inc.

 

9.750% due 05/01/2023

      3,313         2,957  

Harvest Operations Corp.

 

2.330% due 04/14/2021

      1,827         1,796  

HCA, Inc.

 

4.500% due 02/15/2027

      400         396  

7.500% due 11/15/2095

      1,050         1,011  

iHeartCommunications, Inc.

 

9.000% due 09/15/2022

      1,000         754  

Intelsat Jackson Holdings S.A.

 

7.250% due 04/01/2019

      1,000         864  

Intelsat Luxembourg S.A.

 

7.750% due 06/01/2021

      3,279         1,156  

8.125% due 06/01/2023

      524         177  

Intrepid Aviation Group Holdings LLC

 

6.875% due 02/15/2019

      3,430         3,138  

Kinder Morgan Energy Partners LP

 

6.375% due 03/01/2041

      200         224  

Kinder Morgan, Inc.

 

7.750% due 01/15/2032 (j)

      800         1,001  

7.800% due 08/01/2031 (j)

      1,600         2,008  

Kinetic Concepts, Inc.

 

9.625% due 10/01/2021

      3,300         3,542  

Koppers, Inc.

 

6.000% due 02/15/2025

      10         10  

Mallinckrodt International Finance S.A.

 

4.750% due 04/15/2023

      480         396  

5.500% due 04/15/2025

      380         329  

MDC Partners, Inc.

 

6.500% due 05/01/2024

      600         525  

N&W Global Vending SpA

 

7.000% due 10/15/2023

  EUR     430         490  

Park Aerospace Holdings Ltd.

 

5.250% due 08/15/2022 (b)

  $     130         133  

5.500% due 02/15/2024 (b)

      70         72  

Petroleos Mexicanos

 

5.375% due 03/13/2022

      40         41  

6.500% due 03/13/2027

      124         128  

Prime Security Services Borrower LLC

 

9.250% due 05/15/2023

      1,240         1,347  

Radiate Holdco LLC

 

6.625% due 02/15/2025 (b)

      30         30  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     700         1,036  

Sabine Pass Liquefaction LLC

 

5.875% due 06/30/2026

  $     1,200         1,338  

Safeway, Inc.

 

7.250% due 02/01/2031

      470         464  

Scientific Games International, Inc.

 

10.000% due 12/01/2022

      1,030         1,061  

Sequa Corp.

 

7.000% due 12/15/2017

      3,804         2,092  

SFR Group S.A.

 

7.375% due 05/01/2026

      2,558         2,635  

Silversea Cruise Finance Ltd.

 

7.250% due 02/01/2025

      10         10  

Soho House Bond Ltd.

 

9.125% due 10/01/2018

  GBP     1,300         1,678  
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   51


Schedule of Investments PIMCO Income Strategy Fund (Cont.)

 

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

Spanish Broadcasting System, Inc.

 

12.500% due 04/15/2017

  $     1,000     $     998  

Spirit Issuer PLC

 

3.067% due 12/28/2031

  GBP     500         592  

6.582% due 12/28/2027

      700         969  

Tech Data Corp.

 

3.700% due 02/15/2022

  $     20         20  

4.950% due 02/15/2027

      20         20  

Tembec Industries, Inc.

 

9.000% due 12/15/2019

      1,100         1,119  

Tennessee Merger Sub, Inc.

 

6.375% due 02/01/2025 (b)

      49         48  

Transocean, Inc.

 

9.000% due 07/15/2023

      248         265  

Trinidad Drilling Ltd.

 

6.625% due 02/15/2025 (b)

      16         16  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     1,917         2,583  

6.542% due 03/30/2021

      562         765  

Virgin Media Secured Finance PLC

 

5.000% due 04/15/2027 (b)

      300         375  

Westmoreland Coal Co.

 

8.750% due 01/01/2022

  $     3,026         2,769  

Zayo Group LLC

 

5.750% due 01/15/2027

      15         15  
       

 

 

 
          73,062  
       

 

 

 
UTILITIES 7.9%  

Frontier Communications Corp.

 

11.000% due 09/15/2025

      340         345  

Gazprom Neft OAO Via GPN Capital S.A.

 

6.000% due 11/27/2023 (j)

      6,600         7,078  

6.000% due 11/27/2023

      800         858  

Illinois Power Generating Co.

 

6.300% due 04/01/2020 ^

      1,420         533  

7.000% due 04/15/2018 ^

      2,600         975  

7.950% due 06/01/2032 ^

      300         111  

Northwestern Bell Telephone

 

7.750% due 05/01/2030

      7,000         7,671  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 06/30/2022

      215         100  

Odebrecht Offshore Drilling Finance Ltd.

 

6.625% due 10/01/2023

      1,282         446  

6.750% due 10/01/2023

      1,893         643  

Petrobras Global Finance BV

 

6.125% due 01/17/2022

      86         89  

6.625% due 01/16/2034

  GBP     100         114  

6.750% due 01/27/2041

  $     1,200         1,074  

7.375% due 01/17/2027

      100         104  

Sprint Capital Corp.

 

6.900% due 05/01/2019

      600         642  

Terraform Global Operating LLC

 

9.750% due 08/15/2022

      750         831  

TerraForm Power Operating LLC

 

6.375% due 02/01/2023

      300         310  
       

 

 

 
          21,924  
       

 

 

 

Total Corporate Bonds & Notes
(Cost $194,876)

      189,575  
       

 

 

 
CONVERTIBLE BONDS & NOTES 0.7%  
INDUSTRIALS 0.7%  

DISH Network Corp.

 

3.375% due 08/15/2026

      1,600         1,877  
       

 

 

 

Total Convertible Bonds & Notes
(Cost $1,600)

 

      1,877  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
MUNICIPAL BONDS & NOTES 5.1%  
CALIFORNIA 0.9%  

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

 

7.500% due 10/01/2030

  $     600     $     647  

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

 

7.942% due 10/01/2038

      1,600         1,761  
       

 

 

 
          2,408  
       

 

 

 
ILLINOIS 2.2%  

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

 

7.517% due 01/01/2040

      6,000         6,134  

Chicago, Illinois General Obligation Bonds, Series 2017

 

7.045% due 01/01/2029 (b)

      60         61  
       

 

 

 
          6,195  
       

 

 

 
VIRGINIA 0.1%  

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

 

6.706% due 06/01/2046

      395         318  
       

 

 

 
WEST VIRGINIA 1.9%  

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

 

7.467% due 06/01/2047

      6,025         5,356  
       

 

 

 

Total Municipal Bonds & Notes (Cost $13,892)

            14,277  
       

 

 

 
U.S. GOVERNMENT AGENCIES 2.0%  

Fannie Mae

 

3.500% due 12/25/2032 (a)

      776         106  

4.000% due 11/25/2042 (a)

      2,775         473  

5.021% due 01/25/2029

      200         212  

12.687% due 12/25/2040

      132         192  

Freddie Mac

 

2.563% due 11/25/2055

      4,146         2,332  

8.321% due 12/25/2027

      1,499         1,677  

8.458% due 11/15/2040

      231         227  

11.521% due 03/25/2025

      296         363  
       

 

 

 

Total U.S. Government Agencies (Cost $5,378)

          5,582  
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 16.8%  

Banc of America Alternative Loan Trust

 

6.000% due 01/25/2036 ^

      61         52  

Banc of America Funding Trust

 

6.000% due 08/25/2036 ^

      2,020         1,974  

BCAP LLC Trust

 

3.068% due 03/27/2036

      1,045         564  

5.078% due 03/26/2037

      555         168  

11.961% due 06/26/2036

      252         102  

Bear Stearns ALT-A Trust

 

1.091% due 06/25/2046 ^

      2,593         2,239  

3.104% due 09/25/2047 ^

      3,647         2,604  

3.110% due 11/25/2036 ^

      278         227  

3.477% due 09/25/2035 ^

      403         333  

Bear Stearns Commercial Mortgage Securities Trust

 

5.714% due 04/12/2038

      100         77  

Bear Stearns Mortgage Funding Trust

 

7.500% due 08/25/2036

      717         688  

Chase Mortgage Finance Trust

 

3.189% due 12/25/2035 ^

      6         6  

6.000% due 02/25/2037 ^

      619         503  

6.000% due 07/25/2037 ^

      394         327  

6.250% due 10/25/2036 ^

      1,176         977  

Chase Mortgage Trust

 

3.750% due 12/25/2045

      270         252  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Citicorp Mortgage Securities Trust

 

5.500% due 04/25/2037

  $     75     $     74  

Citigroup/Deutsche Bank Commercial Mortgage Trust

 

5.398% due 12/11/2049

      109         99  

Commercial Mortgage Loan Trust

 

6.096% due 12/10/2049

      939         596  

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 05/25/2036 ^

      1,654         1,386  

6.000% due 08/25/2037 ^

      706         551  

Countrywide Alternative Loan Trust

 

1.121% due 05/25/2037 ^

      257         138  

2.953% due 04/25/2036 ^

      712         491  

5.500% due 03/25/2035

      196         156  

5.500% due 12/25/2035 ^

      2,153         1,793  

5.500% due 03/25/2036 ^

      100         78  

5.750% due 01/25/2035

      234         235  

6.000% due 02/25/2035

      228         233  

6.000% due 08/25/2036 ^

      306         268  

6.000% due 04/25/2037 ^

      783         556  

6.250% due 11/25/2036 ^

      494         436  

6.250% due 12/25/2036 ^

      1,143         844  

6.500% due 08/25/2036 ^

      317         214  

Countrywide Home Loan Mortgage Pass-Through Trust

 

3.299% due 02/20/2035

      36         36  

5.500% due 10/25/2035 ^

      483         433  

6.250% due 09/25/2036 ^

      389         329  

Credit Suisse Commercial Mortgage Trust

 

5.870% due 09/15/2040

      1,500           1,418  

Deutsche Mortgage Securities, Inc. Mortgage Loan Trust

 

2.706% due 06/25/2034

      2,030         1,512  

Epic Drummond Ltd.

 

0.000% due 01/25/2022

  EUR     188         200  

Fannie Mae

 

4.316% due 07/25/2029

  $     620         630  

6.516% due 07/25/2029

      570         610  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

      700         654  

GSR Mortgage Loan Trust

 

5.500% due 05/25/2036 ^

      76         72  

6.000% due 02/25/2036 ^

      2,968         2,398  

HarborView Mortgage Loan Trust

 

1.489% due 01/19/2035

      223         207  

3.213% due 07/19/2035

      38         34  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      1,771         1,084  

JPMorgan Alternative Loan Trust

 

3.013% due 03/25/2037 ^

      1,137         1,016  

3.194% due 03/25/2036 ^

      1,269         1,007  

JPMorgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      783         676  

JPMorgan Mortgage Trust

 

3.154% due 01/25/2037 ^

      365         328  

3.297% due 02/25/2036 ^

      338         301  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038

      439         339  

5.562% due 02/15/2040

      809         604  

Lehman XS Trust

 

0.991% due 06/25/2047

      1,477         1,140  

Merrill Lynch Mortgage Investors Trust

 

3.019% due 03/25/2036 ^

      1,203         831  

Morgan Stanley Mortgage Loan Trust

 

5.962% due 06/25/2036

      2,828         1,387  

Residential Asset Securitization Trust

 

5.750% due 02/25/2036 ^

      656         512  

6.000% due 07/25/2037 ^

      842         580  

6.250% due 09/25/2037 ^

      1,429         977  

Residential Funding Mortgage Securities, Inc. Trust

 

4.190% due 08/25/2036 ^

      1,155         1,023  

6.000% due 09/25/2036 ^

      151         141  

6.000% due 06/25/2037 ^

      1,980         1,815  

Structured Adjustable Rate Mortgage Loan Trust

 

3.235% due 11/25/2036 ^

      1,255         970  

3.254% due 01/25/2036 ^

      991         753  
 

 

52   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


January 31, 2017 (Unaudited)

 

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

3.502% due 07/25/2036 ^

  $     415     $     330  

4.850% due 03/25/2037 ^

      382         267  

Suntrust Adjustable Rate Mortgage Loan Trust

 

3.097% due 04/25/2037 ^

      1,222         1,040  

3.408% due 02/25/2037 ^

      213         190  

WaMu Mortgage Pass-Through Certificates Trust

 

2.098% due 12/25/2046

      343         333  

3.627% due 02/25/2037 ^

      394         374  

5.972% due 10/25/2036 ^

      584         465  

Wells Fargo Mortgage-Backed Securities Trust

 

2.997% due 07/25/2036 ^

      217         206  

5.750% due 03/25/2037 ^

      202         199  

6.000% due 06/25/2037 ^

      114         114  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $44,435)

      46,776  
       

 

 

 
ASSET-BACKED SECURITIES 24.7%  

Airspeed Ltd.

 

1.037% due 06/15/2032

      1,630         1,283  

Argent Securities Trust

 

0.961% due 03/25/2036

      8,169         4,316  

Asset-Backed Funding Certificates Trust

 

0.921% due 10/25/2036

      7,189         6,243  

Bear Stearns Asset-Backed Securities Trust

 

6.500% due 10/25/2036 ^

      238         183  

BlueMountain CLO Ltd.

 

6.472% due 04/13/2027

      1,000         981  

CIFC Funding Ltd.

 

0.000% due 05/24/2026 (e)

      1,200         883  

0.000% due 07/22/2026

      1,000         615  

Citigroup Mortgage Loan Trust, Inc.

 

0.921% due 12/25/2036

      3,953         2,112  

0.931% due 12/25/2036

      2,129         1,323  

Countrywide Asset-Backed Certificates

 

0.911% due 06/25/2047 ^

      898         652  

0.971% due 06/25/2047

      5,679         4,376  

1.016% due 09/25/2046 ^

      3,189         2,650  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029

  EUR     250         222  

GSAMP Trust

 

1.031% due 02/25/2046

  $     4,584         3,808  

1.746% due 03/25/2035 ^

      7,497         5,037  

Highbridge Loan Management Ltd.

 

6.331% due 05/05/2027

      1,000         977  

JPMorgan Mortgage Acquisition Corp.

 

1.061% due 01/25/2036

      391         367  

JPMorgan Mortgage Acquisition Trust

 

1.076% due 04/25/2036

      6,000         4,511  

Lehman XS Trust

 

6.290% due 06/24/2046

      2,476         2,284  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

MASTR Asset-Backed Securities Trust

 

5.233% due 11/25/2035

  $     51     $     51  

Merrill Lynch Mortgage Investors Trust

 

0.916% due 04/25/2037

      298         168  

Morgan Stanley Mortgage Loan Trust

 

0.891% due 04/25/2037

      4,038         1,921  

6.250% due 07/25/2047 ^

      417         298  

Residential Asset Mortgage Products Trust

 

1.051% due 09/25/2036

      365         322  

Residential Asset Securities Corp. Trust

 

1.241% due 09/25/2035

      13,627         11,301  

Securitized Asset-Backed Receivables LLC Trust

 

0.911% due 05/25/2036

      5,997         3,577  

SLM Student Loan Trust

 

0.000% due 10/28/2029 (e)

      1         1,214  

0.000% due 01/25/2042 (e)

      2         1,994  

South Coast Funding Ltd.

 

1.482% due 08/10/2038

      6,017         1,242  

Taberna Preferred Funding Ltd.

 

1.158% due 08/05/2036

      239         172  

1.158% due 08/05/2036 ^

      4,482         3,227  

Trainer Wortham First Republic CBO Ltd.

 

2.081% due 11/06/2038

      273         271  
       

 

 

 

Total Asset-Backed Securities
(Cost $67,391)

          68,581  
       

 

 

 
SOVEREIGN ISSUES 2.9%  

Argentine Government International Bond

 

2.260% due 12/31/2038

  EUR     150         96  

5.000% due 01/15/2027

      200         197  

5.625% due 01/26/2022

  $     180         181  

6.875% due 01/26/2027

      140         139  

7.820% due 12/31/2033

  EUR     1,514         1,667  

Autonomous Community of Catalonia

 

4.750% due 06/04/2018

      1,700         1,921  

4.900% due 09/15/2021

      700         799  

Republic of Greece Government International Bond

 

3.800% due 08/08/2017

  JPY     201,000         1,722  

4.750% due 04/17/2019

  EUR     300         299  

Saudi Government International Bond

 

3.250% due 10/26/2026

  $     200         191  

4.500% due 10/26/2046

      800         784  
       

 

 

 

Total Sovereign Issues (Cost $7,899)

 

      7,996  
       

 

 

 
        SHARES            
COMMON STOCKS 0.0%  
FINANCIALS 0.0%  

TIG FinCo PLC (h)

      91,836         86  
       

 

 

 

Total Common Stocks (Cost $136)

 

      86  
       

 

 

 
        SHARES         MARKET
VALUE
(000S)
 
PREFERRED SECURITIES 1.1%  
BANKING & FINANCE 1.1%  

Farm Credit Bank of Texas

 

10.000% due 12/15/2020 (g)

      2,465     $     2,964  

Morgan Stanley

 

5.850% due 04/15/2027 (g)

      825         21  
       

 

 

 

Total Preferred Securities (Cost $2,923)

 

      2,985  
       

 

 

 
SHORT-TERM INSTRUMENTS 5.2%  
       
REPURCHASE AGREEMENTS (i) 0.9%  
          2,581  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
SHORT-TERM NOTES 3.3%  

Federal Home Loan Bank

 

0.507% due 02/14/2017 (f)

  $     2,500         2,500  

0.517% due 02/10/2017 (f)

      1,300         1,300  

0.528% due 02/01/2017 (f)

      400         400  

0.528% due 03/08/2017 (e)(f)

      1,300         1,299  

0.533% due 03/10/2017 - 03/14/2017 (e)(f)

      1,000         999  

0.538% due 03/31/2017 (e)(f)

      2,600         2,598  
       

 

 

 
          9,096  
       

 

 

 
U.S. TREASURY BILLS 1.0%  

0.471% due 02/09/2017 - 03/16/2017 (d)(e)(m)

      2,642         2,641  
       

 

 

 
Total Short-Term Instruments
(Cost $14,318)
        14,318  
       

 

 

 
       
Total Investments in Securities
(Cost $362,115)
        361,023  
       
Total Investments 130.0%
(Cost $362,115)
    $       361,023  

Financial Derivative
Instruments (k)(l) (0.8)%

(Cost or Premiums, net $(801))

    (2,138

Preferred Shares (18.5)%

          (51,275
Other Assets and Liabilities, net (10.7)%         (29,845
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%     $     277,765  
       

 

 

 
 

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 security.
(d) Coupon represents a weighted average yield to maturity.
(e) Zero coupon security.
(f) Coupon represents a yield to maturity.
(g) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   53


Schedule of Investments PIMCO Income Strategy Fund (Cont.)

 

 

(h)  RESTRICTED SECURITIES:

 

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

TIG FinCo PLC

         04/02/2015       $    136     $     86       0.03%  
        

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(i)  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)
 
JPS     0.690     01/31/2017       02/01/2017     $     1,100     Ginnie Mae 3.000% due 01/20/2047   $ (1,141   $ 1,100     $ 1,100  
SSB     0.010       01/31/2017       02/01/2017       1,481     U.S. Treasury Notes 1.000% due 05/15/2018(2)     (1,513     1,481       1,481  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

        $     (2,654   $     2,581     $     2,581  
           

 

 

   

 

 

   

 

 

 

 

(1)

Includes accrued interest.

(2)

Collateral is held in custody by the counterparty.

 

REVERSE REPURCHASE AGREEMENTS:

 

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

BCY

    0.000     12/16/2016       12/16/2017     $ (651   $ (651

JML

    1.850       01/10/2017       02/08/2017       (5,663     (5,669

RBC

    1.910       11/02/2016       05/01/2017       (3,710     (3,728

RDR

    1.300       11/03/2016       02/03/2017       (5,070     (5,087
    1.370       12/13/2016       03/13/2017           (5,734     (5,745
    1.450       02/03/2017       05/02/2017       (1,898     (1,898

UBS

    1.730       11/28/2016       02/28/2017       (1,157     (1,161
    1.380       11/30/2016       03/02/2017       (4,217     (4,227
    1.850       12/28/2016       03/14/2017       (2,343     (2,347
    1.750       01/06/2017       02/22/2017       (1,856     (1,858
    1.360       01/06/2017       04/07/2017       (2,469     (2,471
         

 

 

 

Total Reverse Repurchase Agreements

 

      $     (34,842
         

 

 

 

 

(3)

The average amount of borrowings outstanding during the period ended January 31, 2017 was $(29,550) at a weighted average interest rate of 1.355%.

 

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 pledged/(received) as of January 31, 2017:

 

(j) Securities with an aggregate market value of $38,749 have been pledged as collateral under the terms of the following master agreements as of January 31, 2017.

 

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

Global/Master Repurchase Agreement

 

BCY

  $ 0     $ (651   $ 0      $ (651   $ 506     $ (145

JML

    0       (5,669     0        (5,669     7,029           1,360  

JPS

    1,100       0       0        1,100       (1,135     (41

RBC

    0       (3,728     0        (3,728     4,191       463  

RDR

    0       (12,730     0            (12,730         13,219       489  

SSB

    1,481       0       0        1,481       (1,514     (33

UBS

    0       (12,064     0        (12,064     13,076       1,012  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     2,581     $     (34,842   $     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.

 

54   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


January 31, 2017 (Unaudited)

 

 

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     $ (18,002   $ (14,291   $ (651   $ (32,944
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (18,002   $     (14,291   $     (651   $     (32,944
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

  $ (32,944
         

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(1,898) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
January 31, 2017(2)
    Notional
Amount(3)
    Market
Value(4)
    Unrealized
Appreciation/
(Depreciation)
    Variation Margin  
              Asset     Liability  

Navient Corp.

    5.000     12/20/2021       4.278   $       300     $     11     $     0     $     1     $     0  
           

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Index/Tranches   Fixed
Receive Rate
    Maturity
Date
    Notional
Amount(3)
    Market
Value(4)
    Unrealized
Appreciation
    Variation Margin  
            Asset     Liability  

CDX.HY-24 5-Year Index

    5.000     06/20/2020     $     4,365     $ 369     $ 29     $ 0     $ (1

CDX.HY-25 5-Year Index

    5.000       12/20/2020       1,666       140       146       0       (2

CDX.HY-26 5-Year Index

    5.000       06/20/2021       396       31       13       0       0  

CDX.HY-27 5-Year Index

    5.000       12/20/2021       772       41       5       0       (2
       

 

 

   

 

 

   

 

 

   

 

 

 
        $     581     $     193     $     0     $     (5
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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 indicators 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       $       70,420     $ 2,632     $ (1,605   $ 185      $ 0  

Pay

 

3-Month USD-LIBOR

    2.250       06/15/2026         15,300       (115     (839     45        0  

Pay

 

3-Month USD-LIBOR

    3.500       06/19/2044         83,100       14,277       16,989       603        0  

Receive

 

3-Month USD-LIBOR

    2.250       12/21/2046         12,600       1,039       2,185       0        (84

Receive*

 

3-Month USD-LIBOR

    1.750       06/21/2047             131,700       27,449       4,197       0        (869

Pay

 

6-Month AUD-BBR-BBSW

    3.000       12/17/2019       AUD       6,200       105       12       10        0  

Pay

 

6-Month AUD-BBR-BBSW

    3.500       06/17/2025         3,900       150       54       11        0  
           

 

 

   

 

 

   

 

 

    

 

 

 
            $ 45,537     $ 20,993     $ 854      $ (953
           

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

          $     46,129     $     21,186     $     855      $     (958
           

 

 

   

 

 

   

 

 

    

 

 

 

 

* This instrument has a forward starting effective date. See Note 2(a) in the Notes to Financial Statements for further information.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   55


Schedule of Investments PIMCO Income Strategy Fund (Cont.)

 

 

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, 2017:

 

Cash of $5,292 has been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2017. 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
   

Total

          Market Value     Variation Margin
Liability
   

Total

 
     Purchased
Options
    Futures     Swap
Agreements
            Written
Options
    Futures     Swap
Agreements
   

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     855     $     855       $     0     $     0     $     (958)     $     (958)  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(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  

AZD

     02/2017     AUD     37     $     27     $ 0     $ (1

BOA

     02/2017     BRL     354         108       0       (4
     02/2017     EUR     12,925         13,461       0       (492
     02/2017     GBP     68         84       0       (1
     02/2017     $     113     BRL     354       0       (1

BPS

     02/2017     EUR     26     $     28       0       0  
     02/2017     GBP     46         56       0       (2

CBK

     02/2017     EUR     395         425       0       (2
     02/2017     GBP     45         55       0       (1
     02/2017     $     2,197     EUR     2,066       33       0  
     02/2017         1,775     JPY     202,842       21       0  
     03/2017     JPY     202,842     $     1,777       0       (21

FBF

     02/2017     GBP     22         27       0       (1

GLM

     02/2017     EUR     190         203       0       (2
     02/2017     GBP     375         456       0       (16
     03/2017         230         286       0       (3

IND

     02/2017         27,274         33,413       0       (897

JPM

     02/2017     AUD     290         211       0       (8
     02/2017     JPY     202,842         1,728       0       (69
     02/2017     $     12,949     EUR     12,107       121       0  
     03/2017     EUR     12,107     $     12,963       0       (120

MSB

     02/2017     GBP     90         110       0       (4

SCX

     02/2017     EUR     566         608       0       (3

SOG

     02/2017     GBP     90         111       0       (2

TOR

     02/2017     EUR     261         276       0       (6
     02/2017     GBP     132         161       0       (5

UAG

     02/2017     $     35,279     GBP     28,142       124       0  
     03/2017     GBP     28,142     $     35,298       0       (122
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

  $     299     $     (1,783
            

 

 

   

 

 

 

 

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, 2017(2)
    Notional
Amount(3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BPS  

Petrobras Global Finance BV

    1.000     12/20/2024       4.214     $    500     $ (98   $ (2   $ 0     $ (100
GST  

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       700       (139         (1         0           (140
HUS  

Petrobras Global Finance BV

    1.000       12/20/2019       2.314       200       (16     9       0       (7
 

Petrobras Global Finance BV

    1.000       09/20/2020       2.864       20       (3     2       0       (1
 

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       800           (166     7       0       (159

 

56   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Maturity
Date
    Implied
Credit Spread at
January 31, 2017(2)
    Notional
Amount(3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
MYC  

Petrobras Global Finance BV

    1.000     12/20/2019       2.314     $    4,100     $ (379   $ 235     $ 0     $ (144
           

 

 

   

 

 

   

 

 

   

 

 

 
          $ (801   $ 250     $ 0     $ (551
           

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

    $     (801   $     250     $     0     $     (551
           

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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.

 

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 pledged as of January 31, 2017:

 

(m) Securities with an aggregate market value of $1,900 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2017.

 

    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
Pledged
     Net
Exposure(4)
 

AZD

  $ 0      $ 0      $ 0      $ 0       $ (1   $ 0      $ 0     $ (1   $ (1   $ 0      $ (1

BOA

    0        0        0        0         (498     0        0       (498         (498         292            (206

BPS

    0        0        0        0         (2     0        (100     (102     (102     0        (102

CBK

    54        0        0        54         (24     0        0       (24     30       0        30  

FBF

    0        0        0        0         (1     0        0       (1     (1     0        (1

GLM

    0        0        0        0         (21     0        0       (21     (21     0        (21

GST

    0        0        0        0         0       0        (140     (140     (140     267        127  

HUS

    0        0        0        0         0       0        (167     (167     (167     401        234  

IND

    0        0        0        0         (897     0        0       (897     (897     726        (171

JPM

    121        0        0        121         (197     0        0       (197     (76     0        (76

MSB

    0        0        0        0         (4     0        0       (4     (4     0        (4

MYC

    0        0        0        0         0       0        (144     (144     (144     215        71  

SCX

    0        0        0        0         (3     0        0       (3     (3     0        (3

SOG

    0        0        0        0         (2     0        0       (2     (2     0        (2

TOR

    0        0        0        0         (11     0        0       (11     (11     0        (11

UAG

    124        0        0        124         (122     0        0       (122     2       0        2  
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

Total Over the Counter

  $     299      $     0      $     0      $     299       $     (1,783   $     0      $     (551   $     (2,334       
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

 

(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, 2017:

 

    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     $     1     $     0     $ 0     $ 854     $ 855  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $     299     $ 0     $ 299  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1     $ 0     $ 299     $     854     $     1,154  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   57


Schedule of Investments PIMCO Income Strategy Fund (Cont.)

 

    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     $ 5     $ 0     $ 0     $ 953     $ 958  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 1,783     $ 0     $ 1,783  

Swap Agreements

    0       551       0       0       0       551  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 551     $ 0     $ 1,783     $ 0     $ 2,334  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $     556     $     0     $     1,783     $     953     $     3,292  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2017:

 

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

Net Realized Gain on Financial Derivative Instruments

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 229     $ 0     $ 0     $ 19,576     $ 19,805  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 4,089     $ 0     $ 4,089  

Swap Agreements

    0       32       0       0       0       32  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 32     $ 0     $ 4,089     $ 0     $ 4,121  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 261     $ 0     $ 4,089     $ 19,576     $ 23,926  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 77     $ 0     $ 0     $ (17,586   $ (17,509
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (1,498   $ 0     $ (1,498

Swap Agreements

    0       604       0       0       0       604  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 604     $ 0     $ (1,498   $ 0     $ (894
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     681     $     0     $     (1,498   $     (17,586   $     (18,403
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2017 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Investments in Securities, at Value

 

Bank Loan Obligations

  $     800     $ 7,275     $ 895     $ 8,970  

Corporate Bonds & Notes

 

Banking & Finance

    0           92,067           2,522           94,589  

Industrials

    0       73,062       0       73,062  

Utilities

    0       21,924       0       21,924  

Convertible Bonds & Notes

 

Industrials

    0       1,877       0       1,877  

Municipal Bonds & Notes

 

California

    0       2,408       0       2,408  

Illinois

    0       6,195       0       6,195  

Virginia

    0       318       0       318  

West Virginia

    0       5,356       0       5,356  

U.S. Government Agencies

    0       3,250       2,332       5,582  

Non-Agency Mortgage-Backed Securities

    0       46,776       0       46,776  

Asset-Backed Securities

    0       65,373       3,208       68,581  

Sovereign Issues

    0       7,996       0       7,996  

Common Stocks

 

Financials

    0       0       86       86  

Preferred Securities

 

Banking & Finance

    0       2,985       0       2,985  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Short-Term Instruments

 

Repurchase Agreements

  $ 0     $ 2,581     $ 0     $ 2,581  

Short-Term Notes

    0       9,096       0       9,096  

U.S. Treasury Bills

    0       2,641       0       2,641  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     800     $     351,180     $     9,043     $     361,023  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

    0       855       0       855  

Over the counter

    0       299       0       299  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1,154     $ 0     $ 1,154  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (958     0       (958

Over the counter

    0       (2,334     0       (2,334
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (3,292   $ 0     $ (3,292
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ (2,138   $ 0     $ (2,138
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $ 800     $ 349,042     $ 9,043     $ 358,885  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers among Levels 1 and 2 during the period ended January 31, 2017.

 

58   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (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, 2017:

 

Category and Subcategory   Beginning
Balance
at 07/31/2016
    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 01/31/2017
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2017(1)
 

Investments in Securities, at Value

 

Bank Loan Obligations

  $ 0     $ 798     $ (3   $ 11     $ 1     $ 88     $ 0     $ 0     $ 895     $ 88  

Corporate Bonds & Notes

 

Banking & Finance

    2,656       0       (36     1       0       (99     0       0       2,522       (93

U.S. Government Agencies

    2,235       0       (20     9       8       100       0       0       2,332       99  

Asset-Backed Securities

    3,692       0       0       0       0       (484     0       0       3,208       (483

Common Stocks

 

Financials

    58       0       0       0       1       27       0       0       86       27  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     8,641     $     798     $     (59   $     21     $     10     $     (368   $     0     $     0     $     9,043     $     (362
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 01/31/2017
     Valuation
Technique
   Unobservable
Inputs
   Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

 

Bank Loan Obligations

  $ 895      Third Party Vendor    Broker Quote      89.750  

Corporate Bonds & Notes

 

Banking & Finance

    2,522      Proxy Pricing    Base Price      110.500  

U.S. Government Agencies

    2,332      Proxy Pricing    Base Price      56.094  

Asset-Backed Securities

    3,208      Proxy Pricing    Base Price      89,450-99,920  

Common Stocks

 

Financials

    86      Other Valuation Techniques(2)         —    
 

 

 

          

Total

  $     9,043           
 

 

 

          

 

(1)

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2017 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, 2017   59


Schedule of Investments PIMCO Income Strategy Fund II

 

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 126.2%  
BANK LOAN OBLIGATIONS 2.9%  

iHeartCommunications, Inc.

       

7.528% due 01/30/2019

  $     6,800     $     5,717  

Lightstone Generation LLC

 

TBD% due 11/22/2023

      2,000         2,027  

Sequa Corp.

 

5.250% due 06/19/2017

      6,459         6,195  

Team Health Holdings, Inc.

 

TBD% due 01/17/2024

      400         400  

Vistra Operations Co. LLC

 

4.017% due 12/14/2023

      600         607  

Westmoreland Coal Co.

 

7.500% due 12/16/2020

      2,095         1,880  
       

 

 

 

Total Bank Loan Obligations (Cost $17,479)

      16,826  
       

 

 

 
CORPORATE BONDS & NOTES 57.4%  
BANKING & FINANCE 28.3%  

AGFC Capital Trust

 

2.772% due 01/15/2067

      1,800         990  

Ally Financial, Inc.

 

8.000% due 11/01/2031

      4,610         5,497  

Banco Bilbao Vizcaya Argentaria S.A.

 

6.750% due 02/18/2020 (h)

  EUR     1,600         1,651  

Banco do Brasil S.A.

 

6.250% due 04/15/2024 (h)

  $     3,700         2,978  

9.000% due 06/18/2024 (h)

      4,509         4,577  

Banco Espirito Santo S.A.

 

2.625% due 05/08/2017 ^

  EUR     3,000         1,036  

4.000% due 01/21/2019 ^

      8,100         2,798  

4.750% due 01/15/2018 ^

      2,300         795  

Banco Santander S.A.

 

6.250% due 09/11/2021 (h)

      1,600         1,659  

Barclays Bank PLC

 

7.625% due 11/21/2022

  $     4,400         4,826  

Barclays PLC

 

6.500% due 09/15/2019 (h)

  EUR     1,900         2,061  

7.875% due 09/15/2022 (h)

  GBP     415         538  

8.000% due 12/15/2020 (h)

  EUR     4,100         4,789  

Blackstone CQP Holdco LP

 

9.296% due 03/19/2019

  $     5,413         5,461  

BNP Paribas S.A.

 

7.375% due 08/19/2025 (h)(k)

      4,110         4,167  

Cantor Commercial Real Estate Co. LP

 

7.750% due 02/15/2018

      1,650         1,651  

Cantor Fitzgerald LP

 

6.500% due 06/17/2022

      8,500         9,256  

CBL & Associates LP

 

5.950% due 12/15/2026

      2,200         2,183  

Co-operative Group Holdings Ltd.

 

7.500% due 07/08/2026

  GBP     6,150         9,257  

Cooperatieve Rabobank UA

 

6.625% due 06/29/2021 (h)

  EUR     1,200         1,391  

Credit Agricole S.A.

 

7.875% due 01/23/2024 (h)

  $     3,500         3,573  

Credit Suisse Group AG

 

7.500% due 12/11/2023 (h)

      7,243         7,683  

Flagstar Bancorp, Inc.

 

6.125% due 07/15/2021

      3,500         3,737  

GSPA Monetization Trust

 

6.422% due 10/09/2029 (k)

      4,747         5,239  

Hexion U.S. Finance Corp.

 

10.375% due 02/01/2022 (c)

      73         75  

13.750% due 02/01/2022 (c)

      58         59  

HSBC Holdings PLC

 

6.000% due 09/29/2023 (h)

  EUR     3,530         4,027  

Jefferies Finance LLC

 

6.875% due 04/15/2022 (k)

  $     6,850         6,679  

7.375% due 04/01/2020

      400         406  

7.500% due 04/15/2021

      347         351  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Jefferies LoanCore LLC

 

6.875% due 06/01/2020

  $     200     $     195  

Lloyds Banking Group PLC

 

7.625% due 06/27/2023 (h)

  GBP     2,300         3,087  

MPT Operating Partnership LP

 

5.250% due 08/01/2026

  $     1,292         1,273  

Nationwide Building Society

 

10.250% due 06/29/2049 (h)

  GBP     13         2,130  

Navient Corp.

 

4.875% due 06/17/2019

  $     500         505  

5.500% due 01/15/2019

      8,300         8,508  

5.625% due 08/01/2033

      148         118  

Novo Banco S.A.

 

5.000% due 04/04/2019

  EUR     311         254  

5.000% due 04/23/2019

      653         537  

5.000% due 05/14/2019

      431         352  

5.000% due 05/21/2019

      241         197  

5.000% due 05/23/2019

      240         196  

Omega Healthcare Investors, Inc.

 

4.375% due 08/01/2023 (k)

  $     1,500         1,502  

OneMain Financial Holdings LLC

 

6.750% due 12/15/2019

      1,353         1,409  

PHH Corp.

 

6.375% due 08/15/2021

      570         579  

7.375% due 09/01/2019

      700         768  

Rio Oil Finance Trust

 

9.250% due 07/06/2024

      1,500         1,482  

Royal Bank of Scotland Group PLC

 

7.500% due 08/10/2020 (h)(k)

      4,080         3,968  

8.000% due 08/10/2025 (h)(k)

      5,190         5,106  

8.625% due 08/15/2021 (h)

      1,700         1,759  

Santander UK Group Holdings PLC

 

7.375% due 06/24/2022 (h)

  GBP     4,100         5,287  

Spirit Realty LP

 

4.450% due 09/15/2026 (k)

  $     1,500         1,441  

Springleaf Finance Corp.

 

5.250% due 12/15/2019

      675         680  

8.250% due 12/15/2020

      3,100         3,336  

Tesco Property Finance PLC

 

5.411% due 07/13/2044

  GBP     4,434         5,433  

6.052% due 10/13/2039

      2,622         3,527  

TIG FinCo PLC

 

8.500% due 03/02/2020

      687         891  

8.750% due 04/02/2020

      8,604         10,445  
       

 

 

 
            164,355  
       

 

 

 
INDUSTRIALS 22.3%  

ADT Corp.

 

4.875% due 07/15/2032

  $     662         536  

Aeropuertos Argentina S.A.

 

6.875% due 02/01/2027 (c)

      500         506  

Altice Financing S.A.

 

7.500% due 05/15/2026

      3,600         3,809  

BCD Acquisition, Inc.

 

9.625% due 09/15/2023

      780         839  

BMC Software Finance, Inc.

 

8.125% due 07/15/2021

      1,800         1,746  

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

 

9.000% due 10/15/2019 (d)(k)

      4,650         4,534  

Caesars Entertainment Operating Co., Inc.

 

8.500% due 02/15/2020 ^

      1,475         1,649  

9.000% due 02/15/2020 ^

      2,262         2,522  

11.250% due 06/01/2017 ^

      9,662         10,556  

Chesapeake Energy Corp.

 

4.272% due 04/15/2019

      134         134  

Concordia International Corp.

 

9.000% due 04/01/2022

      355         303  

Diamond Resorts International, Inc.

 

10.750% due 09/01/2024

      2,500         2,512  

DriveTime Automotive Group, Inc.

 

8.000% due 06/01/2021

      800         794  

Forbes Energy Services Ltd.

 

9.000% due 06/15/2019 ^

      1,164         704  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Ford Motor Co.

 

7.700% due 05/15/2097 (k)

  $     10,460     $       12,206  

Fresh Market, Inc.

 

9.750% due 05/01/2023

      8,000         7,140  

Harvest Operations Corp.

 

2.330% due 04/14/2021

      3,317         3,261  

HCA, Inc.

 

4.500% due 02/15/2027

      940         929  

7.500% due 11/15/2095

      1,200         1,155  

Hellenic Railways Organization S.A.

 

4.028% due 03/17/2017

  EUR     1,400         1,496  

iHeartCommunications, Inc.

 

9.000% due 09/15/2022

  $     3,450         2,600  

Intelsat Luxembourg S.A.

 

7.750% due 06/01/2021

      6,888         2,428  

8.125% due 06/01/2023

      1,135         383  

Intrepid Aviation Group Holdings LLC

 

6.875% due 02/15/2019

      7,420         6,789  

Kinder Morgan Energy Partners LP

 

6.375% due 03/01/2041 (k)

      400         447  

Kinder Morgan, Inc.

 

7.800% due 08/01/2031 (k)

      3,500         4,392  

Kinetic Concepts, Inc.

 

9.625% due 10/01/2021

      6,800         7,298  

Koppers, Inc.

 

6.000% due 02/15/2025

      16         17  

Mallinckrodt International Finance S.A.

 

4.750% due 04/15/2023

      300         247  

N&W Global Vending SpA

 

7.000% due 10/15/2023

  EUR     880         1,003  

Petroleos Mexicanos

 

5.375% due 03/13/2022

  $     90         92  

6.500% due 03/13/2027

      256         264  

Prime Security Services Borrower LLC

 

9.250% due 05/15/2023 (k)

      2,445         2,656  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     1,300         1,924  

Sabine Pass Liquefaction LLC

 

5.875% due 06/30/2026 (k)

  $     2,500         2,787  

Safeway, Inc.

 

7.250% due 02/01/2031

      245         242  

Scientific Games International, Inc.

 

10.000% due 12/01/2022

      2,150         2,214  

Sequa Corp.

 

7.000% due 12/15/2017

      7,918         4,355  

SFR Group S.A.

 

7.375% due 05/01/2026 (k)

      5,564         5,731  

Silversea Cruise Finance Ltd.

 

7.250% due 02/01/2025

      21         22  

Soho House Bond Ltd.

 

9.125% due 10/01/2018

  GBP     2,700         3,485  

Spanish Broadcasting System, Inc.

 

12.500% due 04/15/2017

  $     2,100         2,095  

Spirit Issuer PLC

 

3.067% due 12/28/2031

  GBP     1,000         1,185  

6.582% due 12/28/2027

      1,000         1,385  

Tech Data Corp.

 

3.700% due 02/15/2022

  $     30         30  

4.950% due 02/15/2027

      40         40  

Tembec Industries, Inc.

 

9.000% due 12/15/2019

      2,400         2,442  

Tennessee Merger Sub, Inc.

 

6.375% due 02/01/2025 (c)

      106         104  

Transocean, Inc.

 

9.000% due 07/15/2023

      734         785  

Trinidad Drilling Ltd.

 

6.625% due 02/15/2025 (c)

      33         34  

UCP, Inc.

 

8.500% due 10/21/2017

      2,000         1,989  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     3,935         5,300  

6.542% due 03/30/2021

      1,312         1,786  
 

 

60   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

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

Westmoreland Coal Co.

 

8.750% due 01/01/2022

  $     6,335     $     5,797  

Zayo Group LLC

 

5.750% due 01/15/2027

      34         35  
       

 

 

 
          129,714  
       

 

 

 
UTILITIES 6.8%  

Frontier Communications Corp.

 

11.000% due 09/15/2025

      570         579  

Gazprom Neft OAO Via GPN Capital S.A.

 

6.000% due 11/27/2023 (k)

      13,900         14,907  

Illinois Power Generating Co.

 

6.300% due 04/01/2020 ^

      3,035         1,138  

7.000% due 04/15/2018 ^

      5,400         2,025  

7.950% due 06/01/2032 ^

      700         259  

Northwestern Bell Telephone

 

7.750% due 05/01/2030

      12,625         13,835  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 06/30/2022

      358         167  

Odebrecht Offshore Drilling Finance Ltd.

 

6.625% due 10/01/2023

      3,932         1,366  

6.750% due 10/01/2023

      4,294         1,460  

Petrobras Global Finance BV

 

6.125% due 01/17/2022

      181         188  

6.625% due 01/16/2034

  GBP     100         114  

6.750% due 01/27/2041

  $     2,400         2,149  

7.375% due 01/17/2027

      220         229  

Sprint Capital Corp.

 

6.900% due 05/01/2019

      1,100         1,177  
       

 

 

 
          39,593  
       

 

 

 

Total Corporate Bonds & Notes (Cost $348,107)

      333,662  
       

 

 

 
       
CONVERTIBLE BONDS & NOTES 0.7%  
INDUSTRIALS 0.7%  

DISH Network Corp.

 

3.375% due 08/15/2026

      3,400         3,989  
       

 

 

 

Total Convertible Bonds & Notes (Cost $3,400)

    3,989  
       

 

 

 
MUNICIPAL BONDS & NOTES 6.9%  
CALIFORNIA 1.2%  

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

 

7.500% due 10/01/2030

      1,200         1,294  

San Francisco, California City & County Redevelopment Agency Tax Allocation Bonds, Series 2009

 

8.406% due 08/01/2039

      1,650         2,108  

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

 

7.942% due 10/01/2038

      3,500         3,851  
       

 

 

 
          7,253  
       

 

 

 
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         335  
       

 

 

 
          521  
       

 

 

 
OHIO 3.6%  

Ohio State University Revenue Bonds, Series 2011

 

4.800% due 06/01/2111

      21,000         20,690  
       

 

 

 
VIRGINIA 0.1%  

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

 

6.706% due 06/01/2046

      835         673  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
WEST VIRGINIA 1.9%  

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

 

7.467% due 06/01/2047

  $     12,535     $       11,144  
       

 

 

 

Total Municipal Bonds & Notes (Cost $36,514)

      40,281  
       

 

 

 
U.S. GOVERNMENT AGENCIES 2.2%  

Fannie Mae

 

3.500% due 02/25/2042 (a)

      1,228         164  

4.500% due 11/25/2042 (a)

      3,224         594  

5.021% due 01/25/2029

      400         424  

5.479% due 01/25/2040 (a)

      454         82  

Freddie Mac

 

2.563% due 11/25/2055

      8,785         4,942  

3.000% due 02/15/2033 (a)

      2,632         316  

3.500% due 12/15/2032 (a)

      4,448         672  

8.321% due 12/25/2027

      2,898         3,243  

9.944% due 09/15/2035

      844         1,262  

11.521% due 03/25/2025

      741         906  

Ginnie Mae

 

3.500% due 06/20/2042 - 10/20/2042 (a)

      966         140  

4.000% due 10/16/2042 - 10/20/2042 (a)

      587         82  
       

 

 

 

Total U.S. Government Agencies (Cost $12,134)

    12,827  
       

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 24.7%  

Banc of America Alternative Loan Trust

 

6.000% due 01/25/2036 ^

      142         121  

Banc of America Funding Corp.

 

6.000% due 01/25/2037

      8,613         6,648  

Banc of America Funding Trust

 

3.734% due 01/20/2047 ^

      1,653         1,409  

BCAP LLC Trust

 

1.897% due 08/26/2037

      14,150         9,028  

3.218% due 05/26/2037

      1,971         645  

3.259% due 08/28/2037

      6,763         5,325  

3.728% due 05/26/2036

      116         2  

4.242% due 07/26/2037

      12,775         11,015  

4.625% due 09/26/2036

      5,391         4,399  

5.078% due 03/26/2037

      1,156         351  

5.750% due 12/26/2035

      5,141         4,273  

6.250% due 11/26/2036

      5,490         4,777  

11.961% due 06/26/2036

      504         204  

Bear Stearns ALT-A Trust

 

1.271% due 01/25/2036 ^

      1,716         1,536  

3.104% due 09/25/2047 ^

      7,708         5,504  

3.110% due 11/25/2036 ^

      555         455  

3.195% due 11/25/2035

      8,834         7,665  

3.477% due 09/25/2035 ^

      843         696  

Chase Mortgage Finance Trust

 

3.189% due 12/25/2035 ^

      13         12  

5.500% due 05/25/2036 ^

      52         45  

Chase Mortgage Trust

 

3.750% due 12/25/2045

      539         504  

Citicorp Mortgage Securities Trust

 

5.500% due 04/25/2037

      150         149  

6.000% due 09/25/2037

      1,501         1,558  

Commercial Mortgage Loan Trust

 

6.096% due 12/10/2049

      2,161         1,370  

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 05/25/2036 ^

      3,397         2,847  

6.000% due 08/25/2037 ^

      1,470         1,147  

Countrywide Alternative Loan Trust

 

2.953% due 04/25/2036 ^

      1,470         1,013  

5.500% due 03/25/2035

      404         321  

5.500% due 01/25/2036

      958         802  

5.500% due 03/25/2036 ^

      162         127  

5.750% due 01/25/2035

      485         489  

5.750% due 02/25/2035

      535         518  

5.750% due 12/25/2036 ^

      1,014         720  

6.000% due 02/25/2035

      474         484  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

6.000% due 04/25/2036

  $     697     $     514  

6.000% due 04/25/2037 ^

      2,362         1,650  

6.250% due 11/25/2036 ^

      1,016         896  

6.250% due 12/25/2036 ^

      737         544  

6.500% due 08/25/2036 ^

      633         428  

Countrywide Home Loan Mortgage Pass-Through Trust

 

1.351% due 03/25/2035 ^

      6,058           4,571  

6.000% due 07/25/2037

      2,450         1,978  

6.250% due 09/25/2036 ^

      801         676  

Credit Suisse First Boston Mortgage Securities Corp.

 

6.000% due 11/25/2035 ^

      637         514  

Credit Suisse Mortgage Capital Certificates

 

3.193% due 10/26/2036

      7,496         4,631  

Credit Suisse Mortgage Capital Mortgage-Backed Trust

 

5.750% due 04/25/2036 ^

      216         170  

Epic Drummond Ltd.

 

0.000% due 01/25/2022

  EUR     390         414  

First Horizon Alternative Mortgage Securities Trust

 

6.000% due 08/25/2036 ^

  $     1,596         1,353  

First Horizon Mortgage Pass-Through Trust

 

3.000% due 11/25/2035 ^

      487         402  

3.122% due 05/25/2037 ^

      532         441  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

      1,600         1,494  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      3,744         2,292  

JPMorgan Alternative Loan Trust

 

3.013% due 03/25/2037 ^

      1,563         1,396  

3.182% due 05/25/2036 ^

      2,519         1,954  

3.194% due 03/25/2036 ^

      2,680         2,127  

JPMorgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      1,741         1,501  

JPMorgan Mortgage Trust

 

3.111% due 10/25/2035

      398         384  

3.297% due 02/25/2036 ^

      586         522  

6.500% due 09/25/2035

      132         130  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038

      927         716  

5.562% due 02/15/2040

      1,888         1,410  

Lehman Mortgage Trust

 

6.000% due 07/25/2036 ^

      1,184         920  

6.000% due 07/25/2037 ^

      1,448         1,299  

6.500% due 09/25/2037 ^

      3,435         2,568  

Lehman XS Trust

 

0.991% due 06/25/2047

      3,119         2,408  

MASTR Asset Securitization Trust

 

6.500% due 11/25/2037 ^

      620         478  

Merrill Lynch Mortgage Investors Trust

 

3.019% due 03/25/2036 ^

      2,344         1,619  

Nomura Asset Acceptance Corp. Alternative Loan Trust

 

4.976% due 05/25/2035 ^

      15         12  

RBSSP Resecuritization Trust

 

0.916% due 02/26/2047

      4,682         4,516  

Residential Accredit Loans, Inc. Trust

 

4.184% due 12/26/2034 ^

      1,486         1,181  

6.000% due 08/25/2036 ^

      463         393  

Residential Asset Securitization Trust

 

5.750% due 02/25/2036 ^

      1,356         1,060  

6.000% due 07/25/2037 ^

      1,789         1,233  

6.250% due 09/25/2037 ^

      3,049         2,083  

Residential Funding Mortgage Securities, Inc. Trust

 

4.020% due 09/25/2035

      1,515         1,342  

4.190% due 08/25/2036 ^

      2,008         1,778  

Structured Adjustable Rate Mortgage Loan Trust

 

3.235% due 11/25/2036 ^

      3,684         2,846  

3.254% due 01/25/2036 ^

      2,972         2,258  

3.502% due 07/25/2036 ^

      845         671  

Suntrust Adjustable Rate Mortgage Loan Trust

 

3.408% due 02/25/2037 ^

      425         380  

WaMu Mortgage Pass-Through Certificates Trust

 

3.627% due 02/25/2037 ^

      788         748  

4.242% due 05/25/2037 ^

      1,795         1,653  

4.326% due 07/25/2037 ^

      1,373         1,262  

5.972% due 10/25/2036 ^

      1,168         930  
 

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   61


Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

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

Wells Fargo Mortgage-Backed Securities Trust

 

2.997% due 07/25/2036 ^

  $     454     $     431  

5.750% due 03/25/2037 ^

      404         399  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities
(Cost $138,588)

      143,735  
       

 

 

 
ASSET-BACKED SECURITIES 20.3%  

Airspeed Ltd.

 

1.037% due 06/15/2032

      3,418         2,690  

Apidos CLO

 

0.000% due 07/22/2026

      1,500         817  

Argent Securities Trust

 

0.961% due 03/25/2036

      4,204         2,221  

Bear Stearns Asset-Backed Securities Trust

 

0.911% due 10/25/2036 ^

      6,446         5,949  

6.500% due 10/25/2036 ^

      381         292  

CIFC Funding Ltd.

 

0.000% due 05/24/2026 (f)

      2,400         1,766  

0.000% due 07/22/2026

      1,500         922  

Citigroup Mortgage Loan Trust, Inc.

 

0.921% due 12/25/2036

      16,692         8,918  

0.931% due 12/25/2036

      4,491         2,790  

Cork Street CLO Designated Activity Co.

 

0.000% due 11/27/2028 (f)

  EUR     2,366         2,163  

3.600% due 11/27/2028

      1,062         1,149  

4.500% due 11/27/2028

      929         1,007  

6.200% due 11/27/2028

      1,150         1,250  

Countrywide Asset-Backed Certificates

 

0.911% due 12/25/2046

  $     17,114         12,430  

0.911% due 06/25/2047 ^

      1,915         1,390  

0.941% due 03/25/2037

      2,947         2,749  

0.971% due 06/25/2047

      11,905         9,174  

Countrywide Asset-Backed Certificates Trust

 

1.521% due 11/25/2035

      4,008         3,103  

Fremont Home Loan Trust

 

0.921% due 01/25/2037

      16,035         8,520  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029

  EUR     500         445  

HSI Asset Securitization Corp. Trust

 

0.000% due 10/25/2036 (b)(f)

  $     3,522         1,592  

IndyMac Home Equity Mortgage Loan Asset-Backed Trust

 

0.931% due 07/25/2037

      3,525         2,193  

JPMorgan Mortgage Acquisition Corp.

 

1.061% due 01/25/2036

      807         756  

Lehman XS Trust

 

6.290% due 06/24/2046

      4,175         3,852  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Long Beach Mortgage Loan Trust

 

1.071% due 01/25/2036

  $     5,000     $     3,566  

MASTR Asset-Backed Securities Trust

 

5.233% due 11/25/2035

      104         104  

Merrill Lynch Mortgage Investors Trust

 

0.916% due 04/25/2037

      597         336  

Morgan Stanley Mortgage Loan Trust

 

6.250% due 07/25/2047 ^

      834         595  

SLM Student Loan Trust

 

0.000% due 10/28/2029 (f)

      1         1,290  

0.000% due 01/25/2042 (f)

      4         3,989  

South Coast Funding Ltd.

 

1.482% due 08/10/2038

      12,754         2,634  

Specialty Underwriting & Residential Finance Trust

 

1.271% due 09/25/2036

      14,080         11,353  

Taberna Preferred Funding Ltd.

 

1.158% due 08/05/2036

      478         344  

1.158% due 08/05/2036 ^

      9,443         6,799  

1.241% due 12/05/2036

      5,463         3,933  

1.469% due 07/05/2035

      6,146         4,671  
       

 

 

 

Total Asset-Backed Securities (Cost $117,431)

      117,752  
       

 

 

 
SOVEREIGN ISSUES 2.4%  

Argentine Government International Bond

 

7.820% due 12/31/2033

  EUR     5,033         5,542  

Autonomous Community of Catalonia

 

4.900% due 09/15/2021

      1,500         1,713  

Autonomous Community of Valencia

 

2.057% due 09/03/2017

      2,500         2,721  

Republic of Greece Government International Bond

 

3.800% due 08/08/2017

  JPY     204,000         1,748  

4.750% due 04/17/2019

  EUR     300         299  

Saudi Government International Bond

 

3.250% due 10/26/2026

  $     200         191  

4.500% due 10/26/2046

      1,600         1,568  
       

 

 

 

Total Sovereign Issues (Cost $14,121)

    13,782  
       

 

 

 
        SHARES            
COMMON STOCKS 0.1%  
FINANCIALS 0.1%  

TIG FinCo PLC (i)

      496,900         462  
       

 

 

 

Total Common Stocks (Cost $737)

    462  
       

 

 

 
       

SHARES

        MARKET
VALUE
(000S)
 
PREFERRED SECURITIES 2.3%  
BANKING & FINANCE 2.3%  

Farm Credit Bank of Texas

 

10.000% due 12/15/2020 (h)

      10,950     $     13,168  

Morgan Stanley

 

5.850% due 04/15/2027 (h)

      1,725         43  
       

 

 

 

Total Preferred Securities (Cost $12,937)

    13,211  
       

 

 

 
SHORT-TERM INSTRUMENTS 6.3%  
       
REPURCHASE AGREEMENTS (j) 3.7%  
          21,636  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
SHORT-TERM NOTES 0.8%  

Federal Home Loan Bank

 

0.477% due 02/28/2017 (g)

  $     1,200         1,200  

0.503% due 02/23/2017 (g)

      1,900         1,899  

0.517% due 02/10/2017 (g)

      1,600         1,600  
       

 

 

 
          4,699  
       

 

 

 
U.S. TREASURY BILLS 1.8%  

0.462% due 02/02/2017 - 03/16/2017 (e)(f)(m)(o)

      10,514         10,510  
       

 

 

 
Total Short-Term Instruments
(Cost $36,845)
          36,845  
       

 

 

 
       
Total Investments in Securities
(Cost $738,293)
          733,372  
       

 

 

 
       
Total Investments 126.2%
(Cost $738,293)
      $       733,372  

Financial Derivative
Instruments (l)(n) (0.8)%

(Cost or Premiums, net $(1,679))

    (4,498

Preferred Shares (15.9)%

          (92,450
Other Assets and Liabilities, net (9.5)%         (55,353
       

 

 

 
Net Assets Applicable to Common Shareholders 100.0%     $     581,071  
       

 

 

 
 

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) Principal only security.
(c) When-issued security.
(d) Payment in-kind security.
(e) Coupon represents a weighted average yield to maturity.
(f) Zero coupon security.
(g) Coupon represents a yield to maturity.
(h) Perpetual maturity; date shown, if applicable, represents next contractual call date.

 

(i)  RESTRICTED SECURITIES:

 

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

TIG FinCo PLC

         04/02/2015       $    737     $     462       0.08%  
        

 

 

   

 

 

   

 

 

 

 

62   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(j)  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     0.690     01/31/2017       02/01/2017     $     18,000     U.S. Treasury Bonds 3.125% due 02/15/2043   $ (18,577   $ 18,000     $ 18,000  
SSB     0.010       01/31/2017       02/01/2017       3,636     U.S. Treasury Notes 1.000% due 05/15/2018(2)     (3,709     3,636       3,636  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

        $     (22,286   $     21,636     $     21,636  
           

 

 

   

 

 

   

 

 

 

 

(1)

Includes accrued interest.

(2)

Collateral is held in custody by the counterparty.

 

REVERSE REPURCHASE AGREEMENTS:

 

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

BCY

    0.000     12/16/2016       12/16/2017     $ (814   $ (814

JML

    1.850       01/10/2017       02/08/2017           (8,580     (8,590

MSC

    1.400       11/02/2016       02/02/2017       (4,889     (4,906
    1.530       02/02/2017       05/02/2017       (4,758     (4,758

RBC

    1.810       08/05/2016       02/06/2017       (5,279     (5,327
    1.810       09/02/2016       02/06/2017       (2,272     (2,289
    1.950       12/16/2016       06/12/2017       (1,932     (1,937
    2.020       01/09/2017       07/10/2017       (5,300     (5,307

RDR

    1.300       11/03/2016       02/03/2017       (4,194     (4,208
    1.450       02/03/2017       05/02/2017       (4,152     (4,152

UBS

    1.300       11/22/2016       02/22/2017       (3,156     (3,164
    1.730       11/28/2016       02/28/2017       (2,950     (2,959
    1.750       12/09/2016       02/22/2017       (3,536     (3,545
    1.850       12/28/2016       03/14/2017       (4,053     (4,060
    1.360       01/06/2017       04/07/2017       (7,515     (7,523
         

 

 

 

Total Reverse Repurchase Agreements

 

      $     (63,539
         

 

 

 

 

(3)

The average amount of borrowings outstanding during the period ended January 31, 2017 was $(67,099) at a weighted average interest rate of 1.397%. Average borrowings includes reverse repurchase agreements and sale-buyback transactions, of which there were none open at period end.

 

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 pledged/(received) as of January 31, 2017:

 

(k) Securities with an aggregate market value of $71,354 have been pledged as collateral under the terms of the following master agreements as of January 31, 2017.

 

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

Global/Master Repurchase Agreement

 

BCY

  $ 0     $ (814   $ 0      $ (814   $ 938     $ 124  

DEU

    18,000       0       0        18,000           (18,057     (57

JML

    0       (8,590     0        (8,590     10,650           2,060  

MSC

    0       (9,664     0        (9,664     9,824       160  

RBC

    0       (14,860     0        (14,860     16,504       1,644  

RDR

    0       (8,360     0        (8,360     8,659       299  

SSB

    3,636       0       0        3,636       (3,709     (73

UBS

    0       (21,251     0            (21,251     23,360       2,109  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     21,636     $     (63,539   $     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.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   63


Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

 

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     $ (34,988   $ (11,583   $ (8,058   $ (54,629
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (34,988   $     (11,583   $     (8,058   $ (54,629
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

  $     (54,629
 

 

 

 

 

(5) 

Unsettled reverse repurchase agreements liability of $(8,910) is outstanding at period end.

 

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

 

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

 

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

CDX.HY-24 5-Year Index

    5.000     06/20/2020     $     8,827     $ 747     $ 59     $ 0     $ (1

CDX.HY-25 5-Year Index

    5.000       12/20/2020       7,860       649       639       0       (12

CDX.HY-26 5-Year Index

    5.000       06/20/2021       1,287       101       42       0       0  

CDX.HY-27 5-Year Index

    5.000       12/20/2021       2,673       135       14       0       (5
       

 

 

   

 

 

   

 

 

   

 

 

 
        $     1,632     $     754     $     0     $     (18
       

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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     $ 5,569     $ (3,522   $ 390      $ 0  

Pay

 

3-Month USD-LIBOR

    2.250       06/15/2026         26,800       (202     (1,469     79        0  

Pay

 

3-Month USD-LIBOR

    3.500       06/19/2044         201,500       34,618       41,191       1,461        0  

Receive

 

3-Month USD-LIBOR

    2.250       12/21/2046         31,900       2,631       5,533       0        (213

Receive*

 

3-Month USD-LIBOR

    1.750       06/21/2047             313,100       65,257       9,976       0        (2,066

Pay

 

6-Month  AUD-BBR-BBSW

    3.000       12/17/2019       AUD       12,900       219       26       22        0  

Pay

 

6-Month  AUD-BBR-BBSW

    3.500       06/17/2025         8,100       313       112       23        0  
           

 

 

   

 

 

   

 

 

    

 

 

 
            $ 108,405     $ 51,847     $ 1,975      $ (2,279
           

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

          $     110,037     $     52,601     $     1,975      $     (2,297
           

 

 

   

 

 

   

 

 

    

 

 

 

 

* This instrument has a forward starting effective date. See Note 2(a) in the Notes to Financial Statements for further information.

 

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, 2017:

 

(m) Securities with an aggregate market value of $3,985 and cash of $7,597 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of January 31, 2017. 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     $     1,975     $     1,975       $     0     $     0     $     (2,297)     $     (2,297)  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

64   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

 

(n)  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

     02/2017     BRL     884     $     267     $ 0     $ (14
     02/2017     EUR     34,815         36,258       0       (1,325
     02/2017     GBP     94         116       0       (2
     02/2017     $     283     BRL     884       0       (2

BPS

     02/2017     EUR     109     $     117       0       (1
     02/2017     GBP     95         115       0       (4

CBK

     02/2017         79         97       0       (2
     02/2017     $     1,218     EUR     1,135       7       0  
     02/2017         1,788     JPY     204,255       21       0  
     03/2017     EUR     3,910     $     4,189       0       (36
     03/2017     JPY     204,255         1,789       0       (21

FBF

     02/2017     GBP     94         116       0       (2

GLM

     02/2017     EUR     273         290       0       (5
     02/2017     GBP     3,631         4,431       0       (137

HUS

     02/2017     BRL     884         283       2       0  
     02/2017     $     278     BRL     884       2       0  
     03/2017     BRL     884     $     276       0       (2

IND

     02/2017     GBP     38,203         46,802       0       (1,257

JPM

     02/2017     AUD     1,326         966       0       (39
     02/2017     GBP     2,382         2,873       0       (123
     02/2017     JPY     204,255         1,740       0       (69
     02/2017     $     36,759     EUR     34,371           344       0  
     03/2017     EUR     34,371     $     36,802       0       (340

MSB

     02/2017     GBP     142         173       0       (6

SCX

     02/2017     EUR     218         227       0       (8
     02/2017     $     308     EUR     293       9       0  

SOG

     02/2017     GBP     141     $     174       0       (4

TOR

     02/2017     EUR     492         520       0       (11
     02/2017     GBP     184         225       0       (7

UAG

     02/2017     $     56,468     GBP     45,045       198       0  
     03/2017     GBP     45,045     $     56,499       0       (195
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

        $ 583     $     (3,612
            

 

 

   

 

 

 

 

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, 2017(2)
    Notional
Amount(3)
    Premiums
(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
                Asset     Liability  
BPS  

Petrobras Global Finance BV

    1.000     12/20/2024       4.214     $    1,000     $ (195   $ (4   $ 0     $ (199
GST  

Petrobras Global Finance BV

    1.000       09/20/2020       2.864       10       (1     0       0       (1
 

Petrobras Global Finance BV

    1.000       12/20/2021       3.528       100       (16     5       0       (11
 

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       1,400       (278     (1     0       (279
HUS  

Petrobras Global Finance BV

    1.000       12/20/2019       4.214       300       (25     15       0       (10
 

Petrobras Global Finance BV

    1.000       09/20/2020       4.214       40       (6     4       0       (2
 

Petrobras Global Finance BV

    1.000       12/20/2024       4.214       1,700       (353     14       0       (339
MYC  

Petrobras Global Finance BV

    1.000       12/20/2019       4.214       8,700       (805     499       0       (306
           

 

 

   

 

 

   

 

 

   

 

 

 
          $ (1,679   $ 532     $ 0     $ (1,147
         

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

    $     (1,679   $     532     $     0     $     (1,147
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(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, securities or other deliverable obligations 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 indicators 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.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   65


Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

(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.

 

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 pledged/(received) as of January 31, 2017:

 

(o) Securities with an aggregate market value of $3,070 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of January 31, 2017.

 

    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
Pledged/
(Received)
     Net
Exposure(4)
 

BOA

  $ 0      $ 0      $ 0      $ 0       $ (1,343   $ 0      $ 0     $ (1,343   $  (1,343   $  1,059      $  (284

BPS

    0        0        0        0         (5     0        (199     (204     (204     0        (204

CBK

    28        0        0        28         (59     0        0       (59     (31     0        (31

FBF

    0        0        0        0         (2     0        0       (2     (2     0        (2

GLM

    0        0        0        0         (142     0        0       (142     (142     0        (142

GST

    0        0        0        0         0       0        (291     (291     (291     292        1  

HUS

    4        0        0        4         (2     0        (351     (353     (349     358        9  

IND

    0        0        0        0         (1,257     0        0       (1,257     (1,257     1,022        (235

JPM

    344        0        0        344         (571     0        0       (571     (227     0        (227

MSB

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

MYC

    0        0        0        0         0       0        (306     (306     (306     170        (136

SCX

    9        0        0        9         (8     0        0       (8     1       0        1  

SOG

    0        0        0        0         (4     0        0       (4     (4     0        (4

TOR

    0        0        0        0         (18     0        0       (18     (18     0        (18

UAG

    198        0        0        198         (195     0        0       (195     3       0        3  
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

Total Over the Counter

  $  583      $  0      $  0      $  583       $  (3,612   $  0      $  (1,147   $  (4,759       
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

        

 

(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, 2017:

 

    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     $ 0     $ 0     $ 0     $ 1,975     $ 1,975  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 583     $ 0     $ 583  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 583     $ 1,975     $ 2,558  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0     $ 18     $ 0     $ 0     $ 2,279     $ 2,297  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 3,612     $ 0     $ 3,612  

Swap Agreements

    0       1,147       0       0       0       1,147  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1,147     $ 0     $ 3,612     $ 0     $ 4,759  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     1,165     $     0     $     3,612     $     2,279     $     7,056  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

66   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


 

January 31, 2017 (Unaudited)

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended January 31, 2017:

 

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

Net Realized Gain on Financial Derivative Instruments

           

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0     $ 639     $ 0     $ 0     $ 46,327     $ 46,966  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 7,553     $ 0     $ 7,553  

Swap Agreements

    0       153       0       0       0       153  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 153     $ 0     $ 7,553     $ 0     $ 7,706  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 792     $ 0     $ 7,553     $ 46,327     $ 54,672  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

     

Exchange-traded or centrally cleared

           

Swap Agreements

  $ 0     $ 265     $ 0     $ 0     $ (39,773   $ (39,508
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

           

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (2,780   $ 0     $ (2,780

Swap Agreements

    0       1,260       0       0       0       1,260  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1,260     $ 0     $ (2,780   $ 0     $ (1,520
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     1,525     $     0     $     (2,780   $     (39,773   $     (41,028
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of January 31, 2017 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Investments in Securities, at Value

 

   

Bank Loan Obligations

  $     0     $ 14,946     $ 1,880     $ 16,826  

Corporate Bonds & Notes

 

Banking & Finance

    0           159,116           5,239           164,355  

Industrials

    0       127,725       1,989       129,714  

Utilities

    0       39,593       0       39,593  

Convertible Bonds & Notes

 

Industrials

    0       3,989       0       3,989  

Municipal Bonds & Notes

 

California

    0       7,253       0       7,253  

Illinois

    0       521       0       521  

Ohio

    0       20,690       0       20,690  

Virginia

    0       673       0       673  

West Virginia

    0       11,144       0       11,144  

U.S. Government Agencies

    0       7,885       4,942       12,827  

Non-Agency Mortgage-Backed Securities

    0       143,735       0       143,735  

Asset-Backed Securities

    0       112,473       5,279       117,752  

Sovereign Issues

    0       13,782       0       13,782  

Common Stocks

 

Financials

    0       0       462       462  

Preferred Securities

 

Banking & Finance

    0       13,211       0       13,211  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
01/31/2017
 

Short-Term Instruments

 

Repurchase Agreements

  $ 0     $ 21,636     $ 0     $ 21,636  

Short-Term Notes

    0       4,699       0       4,699  

U.S. Treasury Bills

    0       10,510       0       10,510  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     0     $     713,581     $     19,791     $     733,372  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

 

Exchange-traded or centrally cleared

    0       1,975       0       1,975  

Over the counter

    0       583       0       583  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 2,558     $ 0     $ 2,558  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (2,297     0       (2,297

Over the counter

    0       (4,759     0       (4,759
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (7,056   $ 0     $ (7,056
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ (4,498   $ 0     $ (4,498
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     0     $     709,083     $ 19,791     $ 728,874  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

There were no significant transfers among Levels 1 and 2 during the period ended January 31, 2017.

 

See Accompanying Notes   SEMIANNUAL REPORT   JANUARY 31, 2017   67


Schedule of Investments PIMCO Income Strategy Fund II (Cont.)

 

January 31, 2017 (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, 2017:

 

Category and Subcategory   Beginning
Balance
at 07/31/2016
    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 01/31/2017
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
01/31/2017(1)
 

Investments in Securities, at Value

 

               

Bank Loan Obligations

  $ 0     $ 1,675     $ (5   $ 24     $ 1     $ 185     $ 0     $ 0     $ 1,880     $ 186  

Corporate Bonds & Notes

                   

Banking & Finance

    5,517       0       (75     1       1       (205     0       0       5,239       (193

Industrials

    1,991       0       0       1       0       (3     0       0       1,989       (3

U.S. Government Agencies

    4,736       0       (44     20       17       213       0       0       4,942       209  

Asset-Backed Securities

    5,917       0       0       0       0       (638     0       0       5,279       (639

Common Stocks

                   

Financials

    316       0       0       0       0       146       0       0       462       146  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     18,477     $     1,675     $     (124   $     46     $     19     $     (302   $     0     $     0     $     19,791     $     (294
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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 01/31/2017
     Valuation
Technique
     Unobservable
Inputs
     Input Value(s)
(% Unless
Noted
Otherwise)
 

Investments in Securities, at Value

 

        

Bank Loan Obligations

  $ 1,880        Third Party Vendor        Broker Quote        89.750  

Corporate Bonds & Notes

          

Banking & Finance

    5,239        Proxy Pricing        Base Price        110.500  

Industrials

    1,989        Proxy Pricing        Base Price        99.500  

U.S. Government Agencies

    4,942        Proxy Pricing        Base Price        56.094  

Asset-Backed Securities

    5,279        Proxy Pricing        Base Price        89,450-99,920  

Common Stocks

          

Financials

    462        Other Valuation Techniques(2)               —    
 

 

 

          

Total

  $     19,791           
 

 

 

          

 

(1)

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at January 31, 2017 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.

 

68   PIMCO CLOSED-END FUNDS        See Accompanying Notes  


Notes to Financial Statements

 

January 31, 2017 (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, and the rules and regulations thereunder (the “Act”). Each Fund was organized as a Massachusetts business trust 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 beyond a standard settlement period for the security after the trade date. Realized gains (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, with the exception of securities with a forward starting effective date, where interest income is recorded on the accrual basis

from effective 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 (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 denominated in foreign currencies 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 Note 6, Financial Derivative Instruments). Realized foreign exchange gains (losses) arising from sales of spot foreign currencies, currency gains (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 (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

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   69


Notes to Financial Statements (Cont.)

 

period are included in net change in unrealized appreciation or depreciation on foreign currency assets and liabilities on the Statements of Operations.

 

(c) Distributions — Common Shares  The following table shows the anticipated frequency of distributions from net investment income and gains from the sale of portfolio securities and other sources to common shareholders.

 

          Distribution Frequency  
Fund Name         Declared     Distributed  

PIMCO Corporate & Income Opportunity Fund

      Monthly       Monthly  

PIMCO Corporate & Income Strategy Fund

      Monthly       Monthly  

PIMCO High Income Fund

      Monthly       Monthly  

PIMCO Income Strategy Fund

      Monthly       Monthly  

PIMCO Income Strategy Fund II

      Monthly       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 even if such strategies could potentially result in declines in the Fund’s net asset value (“NAV”). A Fund’s income and gain-generating strategies, including certain derivatives strategies, may generate current income and gains taxable as ordinary income sufficient to support monthly distributions even in situations when the Fund has experienced a decline in net assets due to, for example, adverse changes in the broad U.S. or non-U.S. equity markets or the Fund’s debt investments, or arising from its use of derivatives. A Fund may enter into opposite sides of interest rate swap and other derivatives for the principal purpose of generating distributable gains on the one side (characterized as ordinary income for tax purposes) that are not part of the Fund’s duration or yield curve management strategies (“paired swap transactions”), and with a substantial possibility that the Fund will experience a corresponding capital loss and decline in NAV with respect to the opposite side transaction (to the extent it does not have corresponding offsetting capital gains). 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, and which may be economically similar to a taxable return of capital. 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 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 income, the Fund will notify shareholders of record of the estimated composition of such distribution through a Section 19 Notice. For these purposes, a Fund estimates the source or sources from which a distribution is paid, to the close of the period as of which it is paid, in reference to its internal accounting records and related accounting practices. If, based on such accounting records and practices, it is estimated that a particular distribution does not include capital gains or paid-in surplus or other capital sources, a Section 19 Notice generally would not be issued. It is important to note that differences exist between a Fund’s daily internal accounting records and practices, the Fund’s financial statements presented in accordance with U.S. GAAP, and recordkeeping practices under income tax regulations. For instance, the Fund’s internal accounting records and practices may take into account, among other factors, tax-related characteristics of certain sources of distributions that differ from treatment under U.S. GAAP. Examples of such differences may include, among others, the treatment of paydowns on mortgage-backed securities purchased at a discount and periodic payments under interest rate swap contracts. Accordingly, among other consequences, it is possible that 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 and/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 estimated composition of distributions. Final determination of a distribution’s tax character will be reported on Form 1099 DIV sent to shareholders each January.

 

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 U.S. GAAP to tax characterizations of distributions.

 

(d) New Accounting Pronouncements  In August 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2014-15 requiring management to evaluate whether

 

 

70   PIMCO CLOSED-END FUNDS     


 

January 31, 2017 (Unaudited)

 

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. The Funds have adopted the ASU. The ASU did not have an impact on the Funds’ 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 NAV 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 NAV per share practical expedient. The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. The ASU did not have an impact on the Funds’ financial statements.

 

In August 2016, the FASB issued ASU 2016-15 which amends ASC 230 to clarify guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. At this time, management is evaluating the implications of these changes on the financial statements.

 

In October 2016, the U.S. Securities and Exchange Commission (“SEC”) adopted new rules and forms, and amendments to certain current rules and forms, to modernize reporting and disclosure of information by registered investment companies. The amendments to Regulation S-X will require standardized, enhanced disclosure about derivatives in investment company financial statements, and will also change the rules governing the form and content of such financial statements. The amendments to Regulation S-X take effect on August 1, 2017. At this time, management is assessing the anticipated impact of these regulatory developments.

 

In November 2016, the FASB issued ASU 2016-18 which amends ASC 230 to provide guidance on the classification and presentation of changes in restricted cash and restricted cash equivalents on the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2017, 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 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 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. A Fund’s investments in open-end management investment companies, other than exchange-traded funds (“ETFs”), are valued at 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

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   71


Notes to Financial Statements (Cont.)

 

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 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 a 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, 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 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 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

 

 

72   PIMCO CLOSED-END FUNDS     


 

January 31, 2017 (Unaudited)

 

securities. Levels 1, 2, and 3 of the fair value hierarchy are defined as follows:

 

   

Level 1 — Quoted prices in active markets or exchanges for identical assets and liabilities.

 

   

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.

 

   

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.

 

Assets or liabilities categorized as Level 2 or 3 as of period end have been transferred between Levels 2 and 3 since the prior period due to changes in the method utilized in valuing the investments. Transfers from Level 3 to Level 2 are a result of the availability of current and reliable market-based data provided by Pricing Services or other valuation techniques which utilize significant observable inputs. In accordance with the requirements of U.S. GAAP, the amounts of transfers between Levels 1 and 2 and transfers into and out of Level 3, if material, are disclosed in the Notes to Schedule 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 into and out of the Level 3 category during the period. The end of period value 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 Schedule 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.

 

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, rights and warrants, 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.

 

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,

 

 

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Notes to Financial Statements (Cont.)

 

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. 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 and options contracts, derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. 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 and over the counter swaps derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. They are valued using a broker-dealer bid quotation or on market-based prices provided by Pricing Services or other pricing sources (normally determined as of the NYSE close). Centrally cleared swaps and over the counter swaps can be valued by Pricing Services using a series of techniques, including simulation pricing models. The pricing models may use inputs that are observed from actively quoted markets such as the overnight index swap rate (“OIS”), London Interbank Offered Rate (“LIBOR”) forward rate, interest rates, yield curves and credit spreads. 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 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 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 a Fund’s 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 exposure to investments in or originations of loans through investments in a mutual fund or other pooled investment vehicle. A loan is often administered by a bank or other financial institution (the “agent”) 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 agent that is selling the loan agreement.

 

In the event of the insolvency of the agent selling a participation, a Fund may be treated as a general creditor of the agent and may not benefit from any set-off between the agent and the borrower. When a Fund purchases assignments from agents 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

 

 

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January 31, 2017 (Unaudited)

 

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 a 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.

 

Additionally, because loans are not ordinarily registered with the SEC or any state securities commission or listed on any securities exchange, there is usually less publicly available information about such instruments. In addition, loans may not be considered “securities” for purposes of the anti-fraud provisions under the federal securities laws and, as a result, as a purchaser of these instruments, a Fund may not be entitled to the anti-fraud protections of the federal securities laws. In the course of investing in such instruments, a Fund may come into possession of material nonpublic information and, because of prohibitions on trading in securities of issuers while in possession of such information, the Fund may be unable to enter into a transaction in a publicly-traded security of that issuer when it would otherwise be advantageous for the Fund to do so. Alternatively, a Fund may choose not to receive material nonpublic information about an issuer of such loans, with the result that the Fund may have less information about such issuers than other investors who transact in such assets.

 

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 agent selling the loan agreement and only upon receipt of payments by the agent from the borrower. Because investing in unfunded loan commitments creates a future obligation for a Fund to provide funding to a borrower upon demand in exchange for a fee, the Fund will segregate or earmark liquid assets with the Fund’s custodian in amounts sufficient to satisfy any such future obligations. 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, 2017, the Funds had no unfunded loan commitments outstanding.

 

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 typically provide a monthly payment which consists of both principal and interest. Interest may be determined by fixed or adjustable rates. In times of declining interest rates, there is a greater likelihood that a Fund’s higher yielding securities will be pre-paid with the Fund being unable to reinvest the proceeds in an investment with as great a yield. 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. Interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment assumptions about those investments. The timely payment of principal and interest of certain mortgage-related securities

 

 

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Notes to Financial Statements (Cont.)

 

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 (“CMBS”) 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 without limitation, auto loans, credit card receivables, home equity loans, and student loans. The Funds may invest in any level of the capital structure of an issuer of mortgage-backed or asset-backed securities, including the equity or “first loss” tranche.

 

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.

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 and equity or “first loss” tranches (see “Collateralized Debt Obligations” above).

 

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

 

 

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January 31, 2017 (Unaudited)

 

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 generally 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 held by the Funds at January 31, 2017 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. Transactions to purchase or sell securities on a when-issued basis involve a commitment 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 (loss).

 

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 in each Fund’s financial statements 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

 

 

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Notes to Financial Statements (Cont.)

 

purchases 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 by a 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, if any, 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. In an open maturity reverse repurchase agreement, there is no pre-determined repurchase date and the agreement can be terminated by the Fund or counterparty at any time. 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).

 

(c) Sale-Buybacks  Certain Funds may enter into financing transactions referred to as ‘sale-buybacks’. A sale-buyback transaction consists of a sale of a security by a Fund 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 not entitled to receive principal and interest payments, if any, made on the security sold to the counterparty during the term of the agreement. The agreed-upon proceeds for securities to be repurchased by a Fund are reflected as a liability on the Statements of Assets and Liabilities. A

Fund will recognize net income represented by the price differential between the price received for the transferred security and the agreed-upon repurchase price. This is commonly referred to as the ‘price drop’. A price drop consists of (i) the foregone interest and inflationary income adjustments, if any, a Fund would have otherwise received had the security not been sold and (ii) the negotiated financing terms between a Fund and counterparty. Foregone interest and inflationary income adjustments, if any, are recorded as components of interest income on the Statements of Operations. Interest payments based upon negotiated financing terms 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 a Fund. Sale-buybacks 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 of the realized appreciation (depreciation) and changes in unrealized appreciation (depreciation) related to such instruments 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.

 

 

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January 31, 2017 (Unaudited)

 

 

(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 (loss).

 

Realized gains (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 contracts may involve market risk in excess of the unrealized gain (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 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 (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 (loss) on the Statements of Operations. Net periodic payments received or paid by a Fund are included as part of realized gains (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, 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 swap 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 or the asset upon which the swap is based.

 

 

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Notes to Financial Statements (Cont.)

 

 

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 may be 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 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. 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 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, but may also be used for speculative purposes.

 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate, sovereign or U.S. municipal 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

 

 

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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 undiscounted amount of future payments 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 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 a 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, 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 (other than PTY) 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. For PTY, with respect to forwards and futures contracts and interest rate swaps that are contractually required to cash settle (i.e., where physical delivery of the underlying reference asset is not permitted or physical settlement is not otherwise involved), the 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, but will segregate full notional value, as applicable, with respect to other derivative instruments (including written credit default swaps, written total return swaps and written options) that contractually require or permit physical delivery of securities or other underlying assets.

 

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 and other instruments held by a Fund will decline in value because of changes in interest rates. As nominal interest rates rise, the value of certain fixed

 

 

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Notes to Financial Statements (Cont.)

 

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 Fund 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 a measure used to determine the sensitivity of a security’s price to changes in interest rates that incorporates a security’s yield, coupon, final maturity and call features, among other characteristics. 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. All other things remaining equal, for each one percentage point increase in interest rates, the value of a portfolio of fixed income investments would generally be expected to decline by one percent for every year of the portfolio’s average duration above zero. For example, the value of a portfolio of fixed income securities with an average duration of three years would generally be expected to decline by approximately 3% if interest rates rose by one percentage point. Convexity is an additional measure used to understand a security’s interest rate sensitivity. Convexity measures the rate of change of duration in response to changes in interest rates and may be positive or negative Securities with negative convexity may experience greater losses during periods of rising interest rates, and accordingly Funds holding such securities may be subject to a greater risk of losses in periods of rising interest rates. 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. This, combined with recent economic recovery, the Federal Reserve Board’s conclusion of its quantitative easing program, and recent increases in interest rates for the first time since 2006, could potentially increase the probability of an upward interest rate environment in the near future. During periods of very low or negative interest rates, a Fund may be unable to maintain positive returns. Changing interest rates, including rates that fall below zero, may have unpredictable effects on markets, may result in heightened market volatility and may detract from Fund performance to the extent a Fund is exposed to such interest rates. Rising interest rates may result in a decline in value of a Fund’s fixed-income investments and in periods of volatility. Further, while U.S. bond markets have steadily grown over the past three decades, dealer “market making” ability has remained relatively stagnant. As a result, dealer inventories of certain types of bonds and similar instruments, which provide a core indication of the ability of financial intermediaries to “make markets,” are at or near historic lows in relation to market

size. Because market makers provide stability to a market through their intermediary services, the significant reduction in dealer inventories could potentially lead to decreased liquidity and increased volatility in the fixed income markets. Such issues may be exacerbated during periods of economic uncertainty. 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 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. 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. Over the counter (“OTC”) derivative transactions are subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations

 

 

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January 31, 2017 (Unaudited)

 

to the other party, as many of the protections afforded to centrally cleared derivative transactions might not be available for OTC derivative transactions. For derivatives traded on an exchange or through a central counterparty, credit risk resides with the Fund’s clearing broker, or the clearinghouse itself, rather than with a counterparty in an OTC derivative transaction. 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 the 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 a Fund subsequently decreases, the Fund would be required to return to the counterparty all or a portion of the collateral previously advanced to the Fund. PIMCO’s attempts to minimize counterparty risk may, however, be unsuccessful.

 

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.

 

To the extent a Fund has a policy to limit the net amount owed to or to be received from a single counterparty under existing swap agreements, such limitation only applies to counterparties to OTC swaps and does not apply to centrally cleared swaps where the counterparty is a central counterparty or derivatives clearing organization.

 

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 maintain provisions for, among other things, transaction 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 TBA securities, delayed-delivery or sale-buyback transactions by and

 

 

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Notes to Financial Statements (Cont.)

 

between a Fund and select counterparties. The Master Forward Agreements maintain provisions for, among other things, transaction 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 addenda govern cleared derivatives transactions such as futures, options on futures, and cleared 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 may be reduced as creditors of a futures broker do not have a claim to Fund assets in the segregated account. Portability of exposure 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 unless the parties have agreed to a separate arrangement in respect of portfolio margining. The market value or accumulated unrealized appreciation (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 posting 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”), and 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 NAV (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, 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

 

 

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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, that 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 Flexible Credit Income Fund, a closed end management investment company managed by PIMCO that is operated as an “interval fund” (the “PIMCO-Managed Interval Fund”), PIMCO Managed Accounts Trust, an open-end investment company with multiple series for which PIMCO serves as investment adviser and administrator (“PMAT” and, together with the PIMCO Closed-End Funds and the PIMCO-Managed Interval Fund, 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 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, 2017, as indicated below, the Funds below engaged in purchases and sales of securities pursuant to Rule 17a-7 of the Act (amounts in thousands):

 

          Purchases     Sales  

PIMCO Corporate & Income Opportunity Fund

    $   30,803     $   78,572  

PIMCO Corporate & Income Strategy Fund

      14,509       50,016  

PIMCO High Income Fund

      14,537       54,842  

PIMCO Income Strategy Fund

      11,184       10,564  

PIMCO Income Strategy Fund II

      9,262       16,152  

 

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.

 

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

 

 

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Notes to Financial Statements (Cont.)

 

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, 2017, 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

    $   7,020     $   4,875     $   384,695     $   264,146  

PIMCO Corporate & Income Strategy Fund

      4,110       2,348       165,364       153,449  

PIMCO High Income Fund

      0       5,685       200,257       186,507  

PIMCO Income Strategy Fund

      1,990       1,124       93,861       72,865  

PIMCO Income Strategy Fund II

      1,700       3,231       126,394       98,802  
         

 

 

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

 

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 reset 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 period ended January 31, 2017, the annualized dividend rates on the ARPS ranged from:

 

Fund Name         Shares
Issued and
Outstanding
    High     Low     As of
January 31, 2017
 

PIMCO Corporate & Income Opportunity Fund

         

Series M

      1,884       1.342%       0.662%       1.342%  

Series T

      1,770       1.342%       0.722%       1.342%  

Series W

      1,847       1.342%       0.622%       1.342%  

Series TH

      2,033       1.342%       0.682%       1.342%  

Series F

      1,984       1.342%       0.582%       1.342%  

PIMCO Corporate & Income Strategy Fund

         

Series M

      406       1.007%       0.497%       1.007%  

Series T

      449       1.007%       0.542%       1.007%  

Series W

      473       1.007%       0.467%       1.007%  

Series TH

      434       1.007%       0.512%       1.007%  

Series F

      459       1.007%       0.437%       1.007%  

PIMCO High Income Fund

         

Series M

      688       1.074%       0.530%       1.074%  

Series T

      958       1.074%       0.578%       1.074%  

Series W

      738       1.074%       0.498%       1.074%  

Series TH

      757       1.074%       0.546%       1.074%  

Series F

      938       1.074%       0.466%       1.074%  

PIMCO Income Strategy Fund

         

Series T

      766       1.973%       1.689%       1.972%  

Series W

      699       1.973%       1.689%       1.973%  

Series TH

      586       1.974%       1.689%       1.973%  

PIMCO Income Strategy Fund II

         

Series M

      721       1.973%       1.687%       1.970%  

Series T

      881       1.973%       1.689%       1.972%  

Series W

      671       1.973%       1.689%       1.973%  

Series TH

      753       1.974%       1.689%       1.973%  

Series F

      672       1.974%       1.691%       1.972%  

 

86   PIMCO CLOSED-END FUNDS     


 

January 31, 2017 (Unaudited)

 

 

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.

 

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, the investment manager of the PIMCO Total Return Active Exchange-Traded Fund (“BOND”), has entered into a settlement agreement with the SEC that relates to BOND.

 

The settlement relates to disclosures regarding BOND’s performance attribution during the first four months of its existence in 2012 and the valuation of 43 smaller-sized positions of non-agency mortgage-backed securities using third-party vendor prices, as well as PIMCO’s policies and procedures related to these matters.

 

The settlement resolves the SEC’s investigation of BOND

 

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 January 31, 2017, 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.

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   87


Notes to Financial Statements (Cont.)

 

 

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 2013-2016, no examinations are in progress or anticipated at this time. The Funds are not 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.

 

As of their last fiscal year ended July 31, 2016, the Funds had accumulated capital losses expiring in the following years (amounts in thousands):

 

          Expiration of Accumulated Capital Losses  
          07/31/2017     07/31/2018     07/31/2019  

PIMCO Corporate & Income Opportunity Fund

    $ 0     $ 0     $   0  

PIMCO Corporate & Income Strategy Fund

      0       0       0  

PIMCO High Income Fund

        488,807       0       0  

PIMCO Income Strategy Fund

      21,867         106,315       0  

PIMCO Income Strategy Fund II

      67,542       277,492       0  

 

 

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 their last fiscal year ended July 31, 2016, the Funds had the following post-effective capital losses with no expiration (amounts in thousands):

 

          Short-Term     Long-Term  

PIMCO Corporate & Income Opportunity Fund

    $   221,288     $   0  

PIMCO Corporate & Income Strategy Fund

      80,651       0  

PIMCO High Income Fund

      174,485       0  

PIMCO Income Strategy Fund

      54,139       0  

PIMCO Income Strategy Fund II

      123,808       0  

 

 

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

 

As of January 31, 2017 the aggregate cost and the net unrealized appreciation (depreciation) of investments for Federal income tax purposes are as follows (amounts in thousands):

 

          Federal Tax
Cost
    Aggregate
Gross
Unrealized
Appreciation
    Aggregate
Gross
Unrealized
(Depreciation)
    Net Unrealized
Appreciation
(Depreciation)(1)
 

PIMCO Corporate & Income Opportunity Fund

    $   1,310,901     $   64,002     $   (48,882   $   15,120  

PIMCO Corporate & Income Strategy Fund

      695,269       35,094       (33,234     1,860  

PIMCO High Income Fund

      1,171,271       70,498       (79,829     (9,331

PIMCO Income Strategy Fund

      362,122       15,457       (16,556     (1,099

PIMCO Income Strategy Fund II

      738,293       35,681       (40,602     (4,921

 

(1) 

Primary differences, if any, between book and tax net unrealized appreciation/(depreciation) on investments are attributable to open wash sale loss deferrals, sale/buyback transactions, treasury inflation-protected securities (TIPS), security litigation payments, and Lehman securities for federal income 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, 2017, the following distributions were declared to common shareholders payable March 1, 2017 to shareholders of record on February 13, 2017:

PIMCO Corporate & Income Opportunity Fund

    $   0.130000 per common share  

PIMCO Corporate & Income Strategy Fund

    $ 0.112500 per common share  

PIMCO High Income Fund

    $ 0.080699 per common share  

PIMCO Income Strategy Fund

    $ 0.090000 per common share  

PIMCO Income Strategy Fund II

    $ 0.080000 per common share  
 

 

88   PIMCO CLOSED-END FUNDS     


 

January 31, 2017 (Unaudited)

 

 

On March 1, 2017, the following distributions were declared to common shareholders payable April 3, 2017 to shareholders of record on March 13, 2017:

 

PIMCO Corporate & Income Opportunity Fund

    $   0.130000 per common share  

PIMCO Corporate & Income Strategy Fund

    $ 0.112500 per common share  

PIMCO High Income Fund

    $ 0.080699 per common share  

PIMCO Income Strategy Fund

    $ 0.090000 per common share  

PIMCO Income Strategy Fund II

    $ 0.080000 per common share  

 

On March 23, 2017, the Securities and Exchange Commission declared effective a registration statement filed using the “shelf” registration process for PIMCO Corporate & Income Opportunity Fund (for purposes

of this paragraph, the “Fund”). Pursuant to its shelf registration, the Fund may offer, from time to time, in one or more offerings, up to 14,500,000 common shares. The Fund may not sell any of its common shares at a price below the net asset value of such common shares at the time of each sale, exclusive of any distribution commission or discount. Any proceeds from the Fund’s offering of its common shares will be invested in accordance with its investment objective and policies as set forth in its effective registration statement.

 

There were no other subsequent events identified that require recognition or disclosure.

 

 

  SEMIANNUAL REPORT   JANUARY 31, 2017   89


Glossary: (abbreviations that may be used in the preceding statements)

 

(Unaudited)

 

Counterparty Abbreviations:

AZD  

Australia and New Zealand Banking Group

  GLM  

Goldman Sachs Bank USA

 

MYC

 

Morgan Stanley Capital Services, Inc.

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.

  IND  

Crédit Agricole Corporate and Investment Bank S.A.

 

RTA

 

Bank of New York Mellon Corp.

BPS  

BNP Paribas S.A.

  JML  

JP Morgan Securities Plc

 

SCX

 

Standard Chartered Bank

BRC  

Barclays Bank PLC

  JPM  

JPMorgan Chase Bank N.A.

 

SOG

 

Societe Generale

CBK  

Citibank N.A.

  JPS  

JPMorgan Securities, Inc.

 

SSB

 

State Street Bank and Trust Co.

DEU  

Deutsche Bank Securities, Inc.

  MEI  

Merrill Lynch International

 

TOR

 

Toronto Dominion Bank

DUB  

Deutsche Bank AG

  MSB  

Morgan Stanley Bank, N.A

 

UAG

 

UBS AG Stamford

FBF  

Credit Suisse International

  MSC  

Morgan Stanley & Co., Inc.

 

UBS

 

UBS Securities LLC

Currency Abbreviations:

       
AUD  

Australian Dollar

  EUR  

Euro

 

JPY

 

Japanese Yen

BRL  

Brazilian Real

  GBP  

British Pound

 

USD (or $)

 

United States Dollar

Exchange Abbreviations:

         
OTC  

Over the Counter

       

Index/Spread Abbreviations:

ABX.HE  

Asset-Backed Securities Index—Home Equity

  CDX.IG  

Credit Derivatives Index—Investment Grade

 

CMBX

 

Commercial Mortgage-Backed Index

CDX.HY  

Credit Derivatives Index—High Yield

       

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

   

 

90   PIMCO CLOSED-END FUNDS     


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.


LOGO

 

CEF4011SAR_013117


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 Investment Company Act of 1940, as amended (the “1940 Act”) provide reasonable assurances that material information relating to the Registrant is made known to them by 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.


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 Corporate & Income Opportunity Fund
By:   

/s/    PETER G. STRELOW

     

  Peter G. Strelow
  President (Principal Executive Officer)
Date: March 29, 2017

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 29, 2017
By:   

/s/    WILLIAM G. GALIPEAU

     

  William G. Galipeau
  Treasurer (Principal Financial & Accounting Officer)
Date: March 29, 2017