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)
Bijal Y. Parikh
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: July 31, 2021
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).
PIMCO CLOSED-END FUNDS
Annual Report
July 31, 2021
PIMCO Corporate & Income Opportunity Fund | PTY | NYSE
PIMCO Corporate & Income Strategy Fund | PCN | NYSE
PIMCO High Income Fund | PHK | NYSE
PIMCO Income Strategy Fund | PFL | NYSE
PIMCO Income Strategy Fund II | PFN | NYSE
As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports are not sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports are made available on the Fund’s website, pimco.com/literature, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
You may elect to receive shareholder reports and other communications from the Fund electronically by visiting pimco.com/edelivery or by contacting your financial intermediary, such as a broker-dealer or bank, if you do not already.
You may elect to receive all future reports in paper free of charge. If you own these shares through a financial intermediary, such as a broker-dealer or bank, you may contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by calling 844.337.4626. Your election to receive reports in paper will apply to all funds held with the fund complex if you invest directly with the Fund or to all funds held in your account if you invest through a financial intermediary, such as a broker-dealer or bank.
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| Fund | Fund Summary |
Schedule of Investments |
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| Letter from the Chair of the Board & President |
Dear Shareholder,
We hope that you and your family are remaining safe and healthy during these challenging times. We continue to work tirelessly to navigate markets and manage the assets that you have entrusted with us. Following this letter is the PIMCO Closed-End Funds Annual Report, which covers the 12-month reporting period ended July 31, 2021. On the subsequent pages, you will find specific details regarding investment results and a discussion of the factors that most affected performance during the reporting period.
For the 12-month reporting period ended July 31, 2021
The global economy was severely impacted by the repercussions related to the COVID-19 pandemic (“COVID-19”). Looking back, second-quarter 2020 U.S. annualized gross domestic product (“GDP”) growth was -31.4%. This represented the steepest quarterly decline on record. With the economy reopening, third-quarter GDP growth was 33.4%, the largest quarterly increase on record. GDP growth in the U.S. was then 4.3% and 6.3% during the fourth quarter of 2020 and the first quarter of 2021, respectively. Finally, the Commerce Department’s initial estimate for second-quarter annualized GDP growth was 6.6%.
Despite improving economic data and inflationary concerns, the Federal Reserve (the “Fed”) maintained its accommodative monetary policy. This included keeping the federal funds rate at an all-time low of a range between 0.00% and 0.25%, as well as continuing to purchase at least $80 billion a month of Treasury securities and $40 billion a month of agency mortgage-backed securities. However, at its June 2021 meeting, the Fed pushed forward its forecast for the first rate hikes. The central bank now expects two interest rate increases by the end of 2023. In its March 2021 projections, the Fed anticipated no increases until at least 2024. In addition, while Fed Chair Jerome Powell said it would begin discussing a scaling back of bond purchases, he maintained his view on inflation, saying, “As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal.” He also said that any discussion of raising rates was “highly premature.”
Economies outside the U.S. also continued to be impacted by COVID-19. In its July 2021 World Economic Outlook Update, the International Monetary Fund (“IMF”) said it expects U.S. GDP growth to be 7.0% in 2021, compared to a 3.5% contraction in 2020. Elsewhere, the IMF expects 2021 GDP growth in the eurozone, U.K. and Japan will be 4.6%, 7.0% and 2.8%, respectively. For comparison purposes, the GDP of these economies was projected to be -6.5%, -9.8% and -4.7%, respectively, in 2020.
Central banks outside the U.S. also maintained their aggressive actions to support their economies. The European Central Bank (the “ECB”) kept rates at an all-time low. It also continued to purchase bonds and, in June 2021, vowed to increase its purchases at a significantly higher pace than earlier in the year. Finally, in July 2021, the ECB announced its first strategy review since 2003, which included a 2% inflation target over the medium term, versus its previous target for inflation that was below but close to 2%. Elsewhere, the Bank of England held its key lending rate at a record low of 0.10% and continued its bond-buying program. In June 2021, the central bank said it did not expect to raise rates until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving its 2% inflation target. Also of note, the U.K. and the European Union agreed to a long-awaited Brexit deal. Finally, the Bank of Japan maintained its short-term interest rate at -0.10%, while increasing the target for its holdings of corporate bonds. In June 2021, it extended the September deadline for its COVID-19 relief program by at least six months.
Both short- and long-term U.S. Treasury yields moved higher, albeit from very low levels, during the reporting period. The yield on the benchmark 10-year U.S. Treasury note was 1.24% at the end of the reporting period, versus 0.55% on July 31, 2020. The Bloomberg Barclays Global Treasury Index (USD Hedged), which tracks fixed-rate, local currency government debt of investment grade countries, including both developed and emerging markets, returned -0.65%. Meanwhile, the Bloomberg Barclays Global Aggregate Credit Index (USD Hedged), a widely used index of global investment grade credit bonds, returned 1.90%. Riskier fixed income asset classes, including high yield corporate
| 2 | PIMCO CLOSED-END FUNDS |
bonds and emerging market debt, produced stronger returns. The ICE BofAML Developed Markets High Yield Constrained Index (USD Hedged), a widely used index of below-investment-grade bonds, returned 10.78%, whereas emerging market external debt, as represented by the JPMorgan Emerging Markets Bond Index (EMBI) Global (USD Hedged), returned 3.57%. Emerging market local bonds, as represented by the JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged), returned 3.00%.
Despite the headwinds from COVID-19 and periods of volatility, global equities produced very strong results. All told, U.S. equities, as represented by the S&P 500 Index, returned 36.45%, fueled, in our view, by accommodative monetary and fiscal policy, the COVID-19 vaccine rollout, and improving corporate results. Global equities, as represented by the MSCI World Index, returned 35.07%, whereas emerging market equities, as measured by the MSCI Emerging Markets Index, returned 20.64%. Meanwhile, Japanese equities, as represented by the Nikkei 225 Index (in JPY), returned 27.72% and European equities, as represented by the MSCI Europe Index, returned 32.13%.
Commodity prices were volatile but generally produced positive results. When the reporting period began, Brent crude oil was approximately $43 a barrel, but ended the reporting period at roughly $76 a barrel. We believe oil prices rallied as producers reduced their output and then demand increased as global growth improved. Elsewhere, copper prices moved sharply higher, whereas gold prices declined.
Finally, there were also periods of volatility in the foreign exchange markets, in our view due to fluctuating economic growth, trade conflicts and changing central bank monetary policies, along with the U.S. election and several geopolitical events. The U.S. dollar weakened against several other major currencies. For example, the U.S. dollar returned -0.78% and -6.26% versus the euro and the British pound, respectively. However, the U.S. dollar rose 3.55% versus the Japanese yen.
Thank you for the assets you have placed with us. We deeply value your trust, and we will continue to work diligently to meet your broad investment needs. For any questions regarding your PIMCO Closed-End Funds investments, please contact your financial adviser or call the Funds’ shareholder servicing agent at (844) 33-PIMCO. We also invite you to visit our website at www.pimco.com to learn more about our global viewpoints.
Sincerely,
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| Deborah A. DeCotis | Eric D. Johnson | |
| Chair of the Board of Trustees | President | |
Past performance is no guarantee of future results. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Unless otherwise noted, index returns reflect the reinvestment of income distributions and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an unmanaged index.
| ANNUAL REPORT | | | JULY 31, 2021 | 3 |
| Important Information About the Funds |
| 4 | PIMCO CLOSED-END FUNDS |
The geographical classification of foreign (non-U.S.) securities in this report, if any, 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.
Beginning in January 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known as COVID-19. The outbreak of COVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects of COVID-19 have and may continue to adversely affect the global economy, the economies of certain nations and individual issuers, all of which may negatively impact the Funds’ performance. In addition, COVID-19 and governmental responses to COVID-19 may negatively impact the capabilities of the Funds’ service providers and disrupt the Funds’ operations.
The United States’ enforcement of restrictions on U.S. investments in certain issuers and tariffs on goods from other countries, each with a focus on China, has contributed to international trade tensions and may impact portfolio securities.
The United Kingdom’s withdrawal from the European Union may impact Fund returns. The withdrawal may cause substantial volatility in foreign exchange markets, lead to weakness in the exchange rate of the British pound, result in a sustained period of market uncertainty, and destabilize some or all of the other European Union member countries and/or the Eurozone.
The Funds may invest in certain instruments that rely in some fashion upon the London Interbank Offered Rate (“LIBOR”). LIBOR is an average interest rate, determined by the ICE Benchmark Administration, that banks charge one another for the use of short-term money. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced plans to ultimately phase out the use of LIBOR. The transition may result in a reduction in the value of certain instruments held by a Fund or a reduction in the effectiveness of related Fund transactions such as hedges. There remains uncertainty regarding future utilization of LIBOR and the nature of any replacement rate (e.g., the Secured Overnight Financing Rate, which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities). Any potential effects of the transition away from LIBOR on a Fund or on certain instruments in which a Fund invests can be difficult to ascertain, and they may vary depending on a variety of factors. The transition may also result in a reduction in the value of certain instruments held by a Fund or a reduction in the effectiveness of related Fund transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to a Fund.
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, such as the Funds, frequently trade at a discount from their NAV and may trade at a price that is less than the initial offering price and/or the NAV of such shares. Further, if a Fund’s shares trade at a price that is more than the initial offering price and/or the NAV 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 NAV thereafter.
On each applicable Fund Summary page in this Shareholder Report, the Average Annual Total Return table measures performance assuming that any 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. Historical NAV performance for a Fund may have been positively impacted by fee waivers or expense limitations in place during some or all of the periods shown, if applicable. Future performance (including total return or yield) and distributions may be negatively impacted by the expiration or reduction of any such fee waivers or expense limitations.
The dividend rate that a Fund pays on its common shares may vary as portfolio and market conditions change, and will depend on a number of factors, including without limit the amount of a Fund’s undistributed net investment income and net short- and long-term capital gains, as well as the costs of any leverage obtained by a Fund. As portfolio and market conditions change, the rate of distributions on the common shares and a Fund’s dividend policy could change. There can be no assurance that a change in market conditions or other factors will not result in a change in a Fund distribution rate or that the rate will be sustainable in the future.
| ANNUAL REPORT | | | JULY 31, 2021 | 5 |
| Important Information About the Funds | (Cont.) |
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 bank deposit 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 Pacific Investment Management Company LLC (“PIMCO”) 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 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 (including this report) 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.
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 then-current 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, as amended. 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 30th, are available without charge, upon request, by calling the Funds at (844) 33-PIMCO, on the Funds’ website at www.pimco.com, and on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
The Funds file portfolio holdings information with the SEC on Form N-PORT within 60 days of the end of each fiscal quarter. The Funds’ complete schedules of securities holdings as of the end of each fiscal quarter will be made available to the public on the SEC’s website at www.sec.gov and on PIMCO’s website at www.pimco.com, and will be made available, upon request, by calling PIMCO at (844) 33-PIMCO.
The SEC adopted a rule that allows shareholder reports to be delivered to investors by providing access to such reports online free of charge and by mailing a notice that the report is electronically available. Pursuant to the rule, investors may elect to receive all reports in paper free of charge by contacting their financial intermediary or, if invested directly with a Fund, investors can inform the Fund by calling (844) 33-PIMCO. Any election to receive reports in paper will apply to all funds held with the fund complex if invested directly with a Fund or to all funds held in the investor’s account if invested through a financial intermediary, such as a broker-dealer or bank.
In April 2020, the SEC adopted amended rules modifying the registration, communications, and offering processes for registered closed-end funds and interval funds. Among other things, the amendments will: (1) permit qualifying closed-end funds to use a short-form registration statement to offer securities in eligible transactions and certain funds to qualify as Well Known Seasoned Issuers; (2) permit interval funds to pay registration fees based on net issuance of shares in a manner similar to mutual funds; (3) require closed-end funds and interval funds to include additional disclosures in their annual reports; and (4) require certain information to be filed in interactive data format. The new rules have phased compliance and effective dates, with some requirements requiring compliance starting August 1, 2020 and others requiring compliance as late as February 1, 2023.
In October 2020, the SEC adopted a rule related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies that rescinds and withdraws the guidance of the SEC and its staff regarding asset segregation and cover transactions. Subject to certain exceptions, and after an eighteen-month transition period, the rule requires funds to trade derivatives and other transactions that create future payment or
| 6 | PIMCO CLOSED-END FUNDS |
delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to a value-at-risk leverage limit, certain derivatives risk management program and reporting requirements. These requirements may limit the ability of the Funds to use derivatives and reverse repurchase agreements and similar financing transactions as part of their investment strategies and may increase the cost of the Funds’ investments and cost of doing business, which could adversely affect investors.
In October 2020, the SEC adopted a rule regarding the ability of a fund to invest in other funds. The rule allows a fund to acquire shares of another fund in excess of certain limitations currently imposed by the Investment Company Act of 1940 (the “Act”) without obtaining individual exemptive relief from the SEC, subject to certain conditions. The rule also included the rescission of certain exemptive relief after a one-year transition period from the SEC and guidance from the SEC staff for funds to invest in other funds. The impact that these changes may have on the Funds is uncertain.
In December 2020, the SEC adopted a rule addressing fair valuation of fund investments. The new rule sets forth requirements for good faith determinations of fair value as well as for the performance of fair value determinations, including related oversight and reporting obligations. The new rule also defines “readily available market quotations” for purposes of the definition of “value” under the Act, and the SEC noted that this definition will apply in all contexts under the Act. The SEC adopted an eighteen-month transition period beginning from the effective date for both the new rule and the associated new recordkeeping requirements. The impact of the new rule on the Funds is uncertain at this time.
| ANNUAL REPORT | | | JULY 31, 2021 | 7 |
PIMCO Corporate & Income Opportunity Fund
Symbol on NYSE - PTY
Cumulative Returns(1) Through July 31, 2021
$10,000 invested at the end of the month when the Fund commenced operations.
Allocation Breakdown as of July 31, 2021†§
| Corporate Bonds & Notes |
50.5% | |||
| Loan Participations and Assignments |
21.5% | |||
| Asset-Backed Securities |
6.5% | |||
| Non-Agency Mortgage-Backed Securities |
5.9% | |||
| Preferred Securities |
3.3% | |||
| Short-Term Instruments |
3.3% | |||
| Sovereign Issues |
2.8% | |||
| U.S. Government Agencies |
1.4% | |||
| Municipal Bonds & Notes |
1.3% | |||
| Common Stocks |
1.2% | |||
| Real Estate Investment Trusts |
1.1% | |||
| Other |
1.2% | |||
| † | % of Investments, at value. |
| § | Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any. |
| Average Annual Total Return(1) for the period ended July 31, 2021 | ||||||||||||||||||
| 1 Year | 5 Year | 10 Year | Commencement of Operations (12/27/02) |
|||||||||||||||
|
Market Price | 46.75% | 18.25% | 13.55% | 14.65% | |||||||||||||
|
NAV | 29.92% | 14.06% | 12.93% | 13.86% | |||||||||||||
|
ICE BofAML US High Yield Index | 10.74% | 6.84% | 6.41% | 8.29% | ¨ | ||||||||||||
All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.
¨ Average annual total return since 12/31/2002.
It is not possible to invest directly in an unmanaged index.
| (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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares. |
| Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies. |
| (2) | Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or market price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (‘‘ROC’’) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, 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 provided to shareholders when such information is available. |
| (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). |
Fund Information as of July 31, 2021(1)
| Market Price |
$20.56 | |||
| NAV |
$14.40 | |||
| Premium/(Discount) to NAV |
42.78% | |||
| Market Price Distribution Rate(2) |
7.59% | |||
| NAV Distribution Rate(2) |
10.83% | |||
| Total Effective Leverage(3) |
47.24% | |||
Investment Objective and Strategy Overview
PIMCO Corporate & Income Opportunity Fund’s investment objective is to seek maximum total return through a combination of current income and capital appreciation.
Fund Insights at NAV
The following affected performance (on a gross basis) during the reporting period:
| » | Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns. |
| » | Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns. |
| » | Exposure to mortgage credit contributed to absolute performance, as the sector posted positive returns. |
| » | U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased. |
| 8 | PIMCO CLOSED-END FUNDS |
Market and Net Asset Value Information
The following table, presented in conformance with annual reporting requirements for funds that have filed a registration statement pursuant to General Instruction A.2 of Form N-2 (“Short Form N-2”), sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.
| Common share market price(1) |
Common share net asset value |
Premium (discount) as a % of net asset value |
||||||||||||||||||||||
| Quarter | High | Low | High | Low | High | Low | ||||||||||||||||||
| Quarter ended July 31, 2021 | $ | 20.59 | $ | 18.04 | $ | 14.52 | $ | 14.14 | 43.09% | 27.58% | ||||||||||||||
| Quarter ended April 30, 2021 | $ | 18.98 | $ | 17.78 | $ | 14.42 | $ | 14.04 | 32.63% | 25.17% | ||||||||||||||
| Quarter ended January 31, 2021 | $ | 18.05 | $ | 16.31 | $ | 14.22 | $ | 12.73 | 29.50% | 25.71% | ||||||||||||||
| Quarter ended October 31, 2020 | $ | 16.84 | $ | 15.35 | $ | 12.82 | $ | 12.43 | 31.36% | 23.49% | ||||||||||||||
| Quarter ended July 31, 2020 | $ | 16.36 | $ | 13.61 | $ | 12.42 | $ | 11.16 | 34.65% | 21.74% | ||||||||||||||
| Quarter ended April 30, 2020 | $ | 19.68 | $ | 10.44 | $ | 14.98 | $ | 10.58 | 32.23% | (8.98)% | ||||||||||||||
| Quarter ended January 31, 2020 | $ | 19.61 | $ | 18.35 | $ | 14.80 | $ | 14.07 | 32.50% | 28.70% | ||||||||||||||
| Quarter ended October 31, 2019 | $ | 18.73 | $ | 17.02 | $ | 14.64 | $ | 14.04 | 31.36% | 21.23% | ||||||||||||||
| Quarter ended July 31, 2019 | $ | 18.91 | $ | 17.48 | $ | 14.71 | $ | 14.40 | 30.13% | 21.22% | ||||||||||||||
| Quarter ended April 30, 2019 | $ | 17.94 | $ | 16.40 | $ | 14.62 | $ | 14.17 | 23.79% | 15.09% | ||||||||||||||
| Quarter ended January 31, 2019 | $ | 17.43 | $ | 13.92 | $ | 14.60 | $ | 13.74 | 19.38% | 0.80% | ||||||||||||||
| Quarter ended October 31, 2018 | $ | 18.22 | $ | 16.33 | $ | 14.80 | $ | 14.47 | 24.28% | 12.70% | ||||||||||||||
| 1 | Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. |
| ANNUAL REPORT | | | JULY 31, 2021 | 9 |
The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.
Summary of Fund Expenses
The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse repurchase agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 39.07% of the Fund’s total average managed assets (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.
Shareholder Transaction Expense
| Sales load (as a percentage of offering price)(1) |
[ ]% | |||||||
| Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2) |
[ ]% | |||||||
| Dividend Reinvestment Plan Fees(3) |
None | |||||||
| 1 | In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission. |
| 2 | The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price. |
| 3 | You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan. |
Annual Fund Operating Expenses
| Percentage of Net Assets Attributable to Common Shares (reflecting leverage attributable to ARPS and reverse repurchase agreements) |
||||||||
| Management Fees(1) |
0.74% | |||||||
| Dividend Cost on Preferred Shares(2) |
0.04% | |||||||
| Interest Payments on Borrowed Funds(3) |
0.30% | |||||||
| Other Expenses(4) |
0.01% | |||||||
| Total Annual Fund Operating Expenses(5) |
1.09% | |||||||
| 1. | Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.65% of the Fund’s average weekly total managed |
| assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee. |
| 2. | Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 8.64% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 0.15% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates. |
| 3. | Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 30.44% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.56%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results. |
| 4. | Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021. |
| 5. | “Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 0.75%. Excluding only distributions on Preferred Shares of 0.03%, Total Annual Fund Operating Expenses are 1.06%. |
Example
The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.09% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 39.07% of the Fund’s total managed assets) and (3) a 5% annual return(1):
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||||||
| Total Expenses Incurred |
$ | 11 | $ | 35 | $ | 60 | $ | 133 | ||||||||||||
| 1) | The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase. |
| 10 | PIMCO CLOSED-END FUNDS |
PIMCO Corporate & Income Strategy Fund
| Symbol on NYSE - PCN |
Cumulative Returns(1) Through July 31, 2021
$10,000 invested at the end of the month when the Fund commenced operations.
Allocation Breakdown as of July 31, 2021†§
| Corporate Bonds & Notes |
47.0% | |||
| Loan Participations and Assignments |
16.6% | |||
| Asset-Backed Securities |
8.1% | |||
| Non-Agency Mortgage-Backed Securities |
6.6% | |||
| Preferred Securities |
5.3% | |||
| Short-Term Instruments |
4.7% | |||
| Municipal Bonds & Notes |
3.0% | |||
| Sovereign Issues |
2.8% | |||
| Common Stocks |
1.6% | |||
| Real Estate Investment Trusts |
1.5% | |||
| U.S. Government Agencies |
1.4% | |||
| Warrants |
1.1% | |||
| Convertible Bonds & Notes |
0.3% | |||
| † | % of Investments, at value. |
| § | Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any. |
| Average Annual Total Return(1) for the period ended July 31, 2021 | ||||||||||||||||||
| 1 Year | 5 Year | 10 Year | Commencement of Operations (12/21/01) |
|||||||||||||||
|
|
Market Price | 34.41% | 14.16% | 12.11% | 12.27% | |||||||||||||
|
|
NAV | 25.69% | 11.13% | 11.10% | 11.70% | |||||||||||||
|
|
ICE BofAML US High Yield Index | 10.74% | 6.84% | 6.41% | 7.75%¨ | |||||||||||||
All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.
¨ Average annual total return since 12/31/2001.
It is not possible to invest directly in an unmanaged index.
| (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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares. |
| Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies. |
| (2) | Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or market price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (‘‘ROC’’) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, 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). |
Fund Information as of July 31, 2021(1)
| Market Price |
$18.93 | |||
| NAV |
$14.53 | |||
| Premium/(Discount) to NAV |
30.28% | |||
| Market Price Distribution Rate(2) |
7.13% | |||
| NAV Distribution Rate(2) |
9.29% | |||
| Total Effective Leverage(3) |
42.89% | |||
Investment Objective and Strategy Overview
PIMCO Corporate & Income Strategy Fund’s primary investment objective is to seek high current income, with a secondary objective of capital preservation and appreciation.
Fund Insights at NAV
The following affected performance (on a gross basis) during the reporting period:
| » | Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns. |
| » | Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns. |
| » | Exposure to mortgage credit contributed to absolute performance, as the sector posted positive returns. |
| » | U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased. |
| ANNUAL REPORT | | | JULY 31, 2021 | 11 |
| Market and Net Asset Value Information |
The following table, presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2, sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.
| Common share market price(1) |
Common share net asset value |
Premium (discount) as a % of net asset value |
||||||||||||||||||||||
| Quarter | High | Low | High | Low | High | Low | ||||||||||||||||||
| Quarter ended July 31, 2021 | $ | 18.99 | $ | 17.24 | $ | 14.56 | $ | 14.27 | 30.99% | 20.81% | ||||||||||||||
| Quarter ended April 30, 2021 | $ | 18.03 | $ | 16.93 | $ | 14.53 | $ | 14.22 | 24.86% | 18.64% | ||||||||||||||
| Quarter ended January 31, 2021 | $ | 17.36 | $ | 15.68 | $ | 14.39 | $ | 13.02 | 23.42% | 18.56% | ||||||||||||||
| Quarter ended October 31, 2020 | $ | 16.37 | $ | 15.22 | $ | 13.10 | $ | 12.75 | 27.76% | 16.99% | ||||||||||||||
| Quarter ended July 31, 2020 | $ | 16.74 | $ | 14.25 | $ | 12.74 | $ | 11.57 | 33.92% | 19.50% | ||||||||||||||
| Quarter ended April 30, 2020 | $ | 20.20 | $ | 9.98 | $ | 15.04 | $ | 11.01 | 35.12% | (16.35)% | ||||||||||||||
| Quarter ended January 31, 2020 | $ | 19.86 | $ | 18.58 | $ | 14.90 | $ | 14.40 | 35.33% | 26.44% | ||||||||||||||
| Quarter ended October 31, 2019 | $ | 19.10 | $ | 16.40 | $ | 14.95 | $ | 14.43 | 31.54% | 13.49% | ||||||||||||||
| Quarter ended July 31, 2019 | $ | 18.20 | $ | 16.91 | $ | 14.96 | $ | 14.47 | 23.81% | 14.83% | ||||||||||||||
| Quarter ended April 30, 2019 | $ | 17.29 | $ | 15.92 | $ | 14.63 | $ | 14.23 | 18.83% | 11.41% | ||||||||||||||
| Quarter ended January 31, 2019 | $ | 18.20 | $ | 13.83 | $ | 14.60 | $ | 13.88 | 24.74% | (0.65)% | ||||||||||||||
| Quarter ended October 31, 2018 | $ | 18.90 | $ | 16.66 | $ | 14.88 | $ | 14.53 | 28.66% | 14.34% | ||||||||||||||
| 1 | Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. |
| 12 | PIMCO CLOSED-END FUNDS |
The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.
Summary of Fund Expenses
The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse repurchase agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 33.30% of the Fund’s total average managed assets (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.
Shareholder Transaction Expense
| Sales load (as a percentage of offering price)(1) |
[ ]% | |||||||
| Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2) |
[ ]% | |||||||
| Dividend Reinvestment Plan Fees(3) |
None | |||||||
| 1 | In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission. |
| 2 | The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price. |
| 3 | You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan. |
Annual Fund Operating Expenses
| Percentage of Net Assets Attributable to Common Shares (reflecting leverage attributable to ARPS and reverse repurchase agreements) |
||||||||
| Management Fees(1) |
0.84% | |||||||
| Dividend Cost on Preferred Shares(2) |
0.02% | |||||||
| Interest Payments on Borrowed Funds(3) |
0.28% | |||||||
| Other Expenses(4) |
0.01% | |||||||
| Total Annual Fund Operating Expenses(5) |
1.15% | |||||||
| 1. | Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially |
| an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.81% of the Fund’s average weekly total managed assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee. |
| 2. | Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 2.78% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 0.14% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates. |
| 3. | Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 30.52% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.56%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results. |
| 4. | Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021. |
| 5. | “Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 0.85%. Excluding only distributions on Preferred Shares, Total Annual Fund Operating Expenses are 1.15%. |
Example
The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.15% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 33.30% of the Fund’s total managed assets) and (3) a 5% annual return(1):
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||||||
| Total Expenses Incurred |
$ | 12 | $ | 37 | $ | 63 | $ | 140 | ||||||||||||
| 1) | The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase. |
| ANNUAL REPORT | | | JULY 31, 2021 | 13 |
| Symbol on NYSE - PHK |
Cumulative Returns(1) Through July 31, 2021
$10,000 invested at the end of the month when the Fund commenced operations.
Allocation Breakdown as of July 31, 2021†§
| Corporate Bonds & Notes |
46.1% | |||
| Loan Participations and Assignments |
13.5% | |||
| Preferred Securities |
9.4% | |||
| Non-Agency Mortgage-Backed Securities |
7.1% | |||
| Asset-Backed Securities |
6.1% | |||
| Municipal Bonds & Notes |
5.9% | |||
| Short-Term Instruments |
2.7% | |||
| Sovereign Issues |
2.4% | |||
| Real Estate Investment Trusts |
2.0% | |||
| Common Stocks |
1.8% | |||
| U.S. Government Agencies |
1.6% | |||
| Warrants |
1.0% | |||
| Convertible Bonds & Notes |
0.4% | |||
| † | % of Investments, at value. |
| § | Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any. |
| Average Annual Total Return(1) for the period ended July 31, 2021 | ||||||||||||||||||
| 1 Year | 5 Year | 10 Year | Commencement of Operations (04/30/03) |
|||||||||||||||
|
|
Market Price | 47.82% | 4.34% | 6.46% | 9.15% | |||||||||||||
|
|
NAV | 31.21% | 12.06% | 12.58% | 11.54% | |||||||||||||
|
|
ICE BofAML US High Yield Index | 10.74% | 6.84% | 6.41% | 7.71% | |||||||||||||
All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.
It is not possible to invest directly in an unmanaged index.
| (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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares. |
| Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies. |
| (2) | Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or market price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (‘‘ROC’’) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, 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). |
Fund Information as of July 31, 2021(1)
| Market Price |
$6.95 | |||
| NAV |
$5.92 | |||
| Premium/(Discount) to NAV |
17.40% | |||
| Market Price Distribution Rate(2) |
8.29% | |||
| NAV Distribution Rate(2) |
9.73% | |||
| Total Effective Leverage(3) |
41.31% | |||
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 affected performance (on a gross basis) during the reporting period:
| » | Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns. |
| » | Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns. |
| » | Exposure to structured credit contributed to absolute performance, as the sector posted positive returns. |
| » | U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased. |
| 14 | PIMCO CLOSED-END FUNDS |
| Symbol on NYSE - PFL |
Cumulative Returns(1) Through July 31, 2021
$10,000 invested at the end of the month when the Fund commenced operations.
Allocation Breakdown as of July 31, 2021†§
| Corporate Bonds & Notes |
55.9% | |||
| Loan Participations and Assignments |
16.1% | |||
| Asset-Backed Securities |
6.5% | |||
| Preferred Securities |
4.5% | |||
| Non-Agency Mortgage-Backed Securities |
4.0% | |||
| Sovereign Issues |
2.9% | |||
| Municipal Bonds & Notes |
2.3% | |||
| Short-Term Instruments |
2.2% | |||
| Common Stocks |
1.5% | |||
| U.S. Government Agencies |
1.4% | |||
| Real Estate Investment Trusts |
1.3% | |||
| Warrants |
1.1% | |||
| Convertible Bonds & Notes |
0.3% | |||
| † | % of Investments, at value. |
| § | Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any. |
| Average Annual Total Return(1) for the period ended July 31, 2021 | ||||||||||||||||||
| 1 Year | 5 Year | 10 Year | Commencement of Operations (08/29/03) |
|||||||||||||||
|
|
Market Price | 38.31% | 14.32% | 10.76% | 8.02% | |||||||||||||
|
|
NAV | 25.43% | 10.93% | 10.08% | 7.48% | |||||||||||||
|
|
ICE BofAML US High Yield Index | 10.74% | 6.84% | 6.41% | 7.63%¨ | |||||||||||||
All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.
¨ Average annual total return since 8/31/2003.
It is not possible to invest directly in an unmanaged index.
| (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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares. |
| Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies. |
| (2) | Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or market price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (‘‘ROC’’) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, 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). |
Fund Information as of July 31, 2021(1)
| Market Price |
$12.47 | |||
| NAV |
$10.66 | |||
| Premium/(Discount) to NAV |
16.98% | |||
| Market Price Distribution Rate(2) |
8.66% | |||
| NAV Distribution Rate(2) |
10.13% | |||
| Total Effective Leverage(3) |
39.54% | |||
Investment Objective and Strategy Overview
PIMCO Income Strategy Fund’s investment objective is to seek high current income, consistent with the preservation of capital.
Fund Insights at NAV
The following affected performance (on a gross basis) during the reporting period:
| » | Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns. |
| » | Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns. |
| » | Exposure to emerging market debt contributed to absolute performance, as the sector posted positive returns. |
| » | U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased. |
| ANNUAL REPORT | | | JULY 31, 2021 | 15 |
| Market and Net Asset Value Information |
The following table, presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2, sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.
| Common share market price(1) |
Common share net asset value |
Premium (discount) as a % of net asset value |
||||||||||||||||||||||
| Quarter | High | Low | High | Low | High | Low | ||||||||||||||||||
| Quarter ended July 31, 2021 | $ | 12.94 | $ | 11.88 | $ | 10.72 | $ | 10.51 | 21.58% | 13.04% | ||||||||||||||
| Quarter ended April 30, 2021 | $ | 12.14 | $ | 11.55 | $ | 10.78 | $ | 10.49 | 14.46% | 8.65% | ||||||||||||||
| Quarter ended January 31, 2021 | $ | 11.57 | $ | 10.10 | $ | 10.66 | $ | 9.63 | 9.36% | 4.62% | ||||||||||||||
| Quarter ended October 31, 2020 | $ | 10.50 | $ | 9.99 | $ | 9.74 | $ | 9.45 | 8.36% | 3.31% | ||||||||||||||
| Quarter ended July 31, 2020 | $ | 10.33 | $ | 8.44 | $ | 9.44 | $ | 8.53 | 10.96% | (1.06)% | ||||||||||||||
| Quarter ended April 30, 2020 | $ | 12.37 | $ | 6.33 | $ | 11.08 | $ | 7.96 | 12.15% | (25.88)% | ||||||||||||||
| Quarter ended January 31, 2020 | $ | 12.05 | $ | 11.54 | $ | 10.97 | $ | 10.51 | 10.93% | 7.94% | ||||||||||||||
| Quarter ended October 31, 2019 | $ | 12.06 | $ | 11.09 | $ | 11.01 | $ | 10.57 | 11.64% | 4.72% | ||||||||||||||
| Quarter ended July 31, 2019 | $ | 12.03 | $ | 11.58 | $ | 11.03 | $ | 10.75 | 9.97% | 7.26% | ||||||||||||||
| Quarter ended April 30, 2019 | $ | 11.60 | $ | 11.31 | $ | 10.90 | $ | 10.59 | 8.35% | 5.64% | ||||||||||||||
| Quarter ended January 31, 2019 | $ | 11.38 | $ | 10.23 | $ | 10.84 | $ | 10.34 | 7.39% | (1.45)% | ||||||||||||||
| Quarter ended October 31, 2018 | $ | 12.24 | $ | 10.95 | $ | 11.12 | $ | 10.79 | 10.74% | 0.92% | ||||||||||||||
| 1 | Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. |
| 16 | PIMCO CLOSED-END FUNDS |
The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.
Summary of Fund Expenses
The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 34.59% of the Fund’s total average managed assets repurchase (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.
Shareholder Transaction Expense
| Sales load (as a percentage of offering price)(1) |
[ ]% | |||||||
| Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2) |
[ ]% | |||||||
| Dividend Reinvestment Plan Fees(3) |
None | |||||||
| 1 | In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission. |
| 2 | The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price. |
| 3 | You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan. |
Annual Fund Operating Expenses
| Percentage of Net Assets Attributable to Common Shares (reflecting leverage attributable to ARPS and reverse repurchase agreements) |
||||||||
| Management Fees(1) |
1.31% | |||||||
| Dividend Cost on Preferred Shares(2) |
0.24% | |||||||
| Interest Payments on Borrowed Funds(3) |
0.26% | |||||||
| Other Expenses(4) |
0.02% | |||||||
| Total Annual Fund Operating Expenses(5) |
1.83% | |||||||
| 1. | Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially |
| an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.86% of the Fund’s average weekly total managed assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee. |
| 2. | Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 8.67% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 1.60% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates. |
| 3. | Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 25.92% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.63%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results. |
| 4. | Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021. |
| 5. | “Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 1.33%. Excluding only distributions on Preferred Shares of 0.21%, Total Annual Fund Operating Expenses are 1.62%. |
Example
The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.83% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 34.59% of the Fund’s total managed assets) and (3) a 5% annual return(1):
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||||||
| Total Expenses Incurred |
$ | 19 | $ | 58 | $ | 99 | $ | 215 | ||||||||||||
| 1) | The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase. |
| ANNUAL REPORT | | | JULY 31, 2021 | 17 |
| Symbol on NYSE - PFN |
Cumulative Returns(1) Through July 31, 2021
$10,000 invested at the end of the month when the Fund commenced operations.
Allocation Breakdown as of July 31, 2021†§
| Corporate Bonds & Notes |
52.1% | |||
| Loan Participations and Assignments |
15.4% | |||
| Non-Agency Mortgage-Backed Securities |
7.4% | |||
| Asset-Backed Securities |
6.2% | |||
| Preferred Securities |
5.0% | |||
| Short-Term Instruments |
3.2% | |||
| Sovereign Issues |
2.5% | |||
| Municipal Bonds & Notes |
2.5% | |||
| Common Stocks |
1.5% | |||
| Real Estate Investment Trusts |
1.4% | |||
| U.S. Government Agencies |
1.3% | |||
| Warrants |
1.2% | |||
| Convertible Bonds & Notes |
0.3% | |||
| † | % of Investments, at value. |
| § | Allocation Breakdown and % of investments exclude securities sold short and financial derivative instruments, if any. |
| Average Annual Total Return(1) for the period ended July 31, 2021 | ||||||||||||||||||
| 1 Year | 5 Year | 10 Year | Commencement of Operations (10/29/04) |
|||||||||||||||
|
|
Market Price | 37.03% | 14.13% | 11.70% | 7.35% | |||||||||||||
|
|
NAV | 22.82% | 10.70% | 10.24% | 6.68% | |||||||||||||
|
|
ICE BofAML US High Yield Index | 10.74% | 6.84% | 6.41% | 7.14%¨ | |||||||||||||
All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.
¨ Average annual total return since 10/31/2004.
It is not possible to invest directly in an unmanaged index.
| (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. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares. |
| Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies. |
| (2) | Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or market price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (‘‘ROC’’) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, 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). |
Fund Information as of July 31, 2021(1)
| Market Price |
$11.01 | |||
| NAV |
$9.41 | |||
| Premium/(Discount) to NAV |
17.00% | |||
| Market Price Distribution Rate(2) |
8.72% | |||
| NAV Distribution Rate(2) |
10.20% | |||
| Total Effective Leverage(3) |
37.87% | |||
Investment Objective and Strategy Overview
PIMCO Income Strategy Fund II’s investment objective is to seek high current income, consistent with the preservation of capital.
Fund Insights at NAV
The following affected performance (on a gross basis) during the reporting period:
| » | Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns. |
| » | Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns. |
| » | Exposure to mortgage credit contributed to absolute performance, as the sector posted positive returns. |
| » | U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased. |
| 18 | PIMCO CLOSED-END FUNDS |
| Market and Net Asset Value Information |
The following table, presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2, sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.
| Common share market price(1) |
Common share net asset value |
Premium (discount) as a % of net asset value |
||||||||||||||||||||||
| Quarter | High | Low | High | Low | High | Low | ||||||||||||||||||
| Quarter ended July 31, 2021 | $ | 11.21 | $ | 10.20 | $ | 9.48 | $ | 9.28 | 19.64% | 9.80% | ||||||||||||||
| Quarter ended April 30, 2021 | $ | 10.47 | $ | 10.05 | $ | 9.55 | $ | 9.28 | 11.38% | 6.57% | ||||||||||||||
| Quarter ended January 31, 2021 | $ | 10.13 | $ | 9.06 | $ | 9.46 | $ | 8.62 | 8.47% | 4.39% | ||||||||||||||
| Quarter ended October 31, 2020 | $ | 9.38 | $ | 8.95 | $ | 8.74 | $ | 8.52 | 8.44% | 3.68% | ||||||||||||||
| Quarter ended July 31, 2020 | $ | 9.20 | $ | 7.54 | $ | 8.51 | $ | 7.72 | 9.52% | (2.33)% | ||||||||||||||
| Quarter ended April 30, 2020 | $ | 10.90 | $ | 5.87 | $ | 9.94 | $ | 7.23 | 9.99% | (24.36)% | ||||||||||||||
| Quarter ended January 31, 2020 | $ | 10.80 | $ | 10.42 | $ | 9.87 | $ | 9.46 | 12.12% | 7.67% | ||||||||||||||
| Quarter ended October 31, 2019 | $ | 10.78 | $ | 9.98 | $ | 9.91 | $ | 9.52 | 11.05% | 4.61% | ||||||||||||||
| Quarter ended July 31, 2019 | $ | 10.75 | $ | 10.28 | $ | 9.96 | $ | 9.68 | 8.63% | 5.76% | ||||||||||||||
| Quarter ended April 30, 2019 | $ | 10.52 | $ | 10.11 | $ | 9.82 | $ | 9.55 | 8.02% | 5.42% | ||||||||||||||
| Quarter ended January 31, 2019 | $ | 10.36 | $ | 9.00 | $ | 9.83 | $ | 9.29 | 5.39% | (3.54)% | ||||||||||||||
| Quarter ended October 31, 2018 | $ | 10.86 | $ | 9.83 | $ | 10.04 | $ | 9.79 | 9.15% | 0.00% | ||||||||||||||
| 1 | Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. |
| ANNUAL REPORT | | | JULY 31, 2021 | 19 |
The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.
Summary of Fund Expenses
The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse repurchase agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 33.46% of the Fund’s total average managed assets (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.
Shareholder Transaction Expense
| Sales load (as a percentage of offering price)(1) |
[ ]% | |||||||
| Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2) |
[ ]% | |||||||
| Dividend Reinvestment Plan Fees(3) |
None | |||||||
| 1 | In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission. |
| 2 | The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price. |
| 3 | You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan. |
Annual Fund Operating Expenses
| Percentage of Net Assets Attributable to Common Shares (reflecting leverage attributable to ARPS and reverse repurchase agreements) |
||||||||
| Management Fees(1) |
1.25% | |||||||
| Dividend Cost on Preferred Shares(2) |
0.23% | |||||||
| Interest Payments on Borrowed Funds(3) |
0.24% | |||||||
| Other Expenses(4) |
0.02% | |||||||
| Total Annual Fund Operating Expenses(5) |
1.74% | |||||||
| 1. | Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially |
| an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.83% of the Fund’s average weekly total managed assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee. |
| 2. | Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 8.53% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 1.60% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates. |
| 3. | Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 24.93% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.60%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results. |
| 4. | Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021. |
| 5. | “Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 1.27%. Excluding only distributions on Preferred Shares of 0.20%, Total Annual Fund Operating Expenses are 1.54%. |
Example
The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.74% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 33.46% of the Fund’s total managed assets) and (3) a 5% annual return(1):
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||||||
| Total Expenses Incurred |
$ | 18 | $ | 55 | $ | 94 | $ | 205 | ||||||||||||
| 1) | The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase. |
| 20 | PIMCO CLOSED-END FUNDS |
| Index Descriptions |
| Index* | Description | |
| ICE BofAML US High Yield Index | ICE BofAML U.S. High Yield Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of USD 100 million. Bonds must be rated below investment grade based on a composite of Moody’s and S&P. | |
* It is not possible to invest directly in an unmanaged index.
| ANNUAL REPORT | | | JULY 31, 2021 | 21 |
| Financial Highlights |
| Investment Operations | Less Distributions to ARPS(c) | Less Distributions to Common Shareholders(d) | ||||||||||||||||||||||||||||||||||||||
| Selected Per Share Data for the Year Ended^: | Net Asset Value Beginning of Year(a) |
Net Investment Income (Loss)(b) |
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 |
||||||||||||||||||||||||||||||||||||||||
| 07/31/2021 |
$ | 12.44 | $ | 1.32 | $ | 1.78 | $ | (0.00 | ) | $ | 0.00 | $ | 3.10 | $ | (1.22 | ) | $ | 0.00 | $ | (0.34 | ) | $ | (1.56 | ) | ||||||||||||||||
| 07/31/2020 |
14.66 | 1.36 | (2.41 | ) | (0.05 | ) | 0.00 | (1.10 | ) | (1.59 | ) | 0.00 | 0.00 | (1.59 | ) | |||||||||||||||||||||||||
| 07/31/2019 |
14.80 | (h) | 1.36 | 0.09 | (0.13 | ) | 0.00 | 1.32 | (1.63 | ) | 0.00 | 0.00 | (1.63 | ) | ||||||||||||||||||||||||||
| 07/31/2018 |
14.87 | 1.30 | 0.16 | (0.09 | ) | 0.00 | 1.37 | (1.56 | ) | 0.00 | 0.00 | (1.56 | ) | |||||||||||||||||||||||||||
| 07/31/2017 |
13.27 | 1.21 | 2.06 | (0.04 | ) | 0.00 | 3.23 | (1.59 | ) | 0.00 | (0.14 | ) | (1.73 | ) | ||||||||||||||||||||||||||
| PIMCO Corporate & Income Strategy Fund |
||||||||||||||||||||||||||||||||||||||||
| 07/31/2021 |
$ | 12.76 | $ | 1.24 | $ | 1.77 | $ | (0.00 | ) | $ | 0.00 | $ | 3.01 | $ | (1.35 | ) | $ | 0.00 | $ | 0.00 | $ | (1.35 | ) | |||||||||||||||||
| 07/31/2020 |
14.94 | 1.31 | (2.07 | ) | (0.01 | ) | 0.00 | (0.77 | ) | (1.41 | ) | 0.00 | 0.00 | (1.41 | ) | |||||||||||||||||||||||||
| 07/31/2019 |
14.90 | (h) | 1.22 | 0.20 | (0.05 | ) | 0.00 | 1.37 | (1.43 | ) | 0.00 | 0.00 | (1.43 | ) | ||||||||||||||||||||||||||
| 07/31/2018 |
15.32 | 1.20 | (0.24 | ) | (0.03 | ) | 0.00 | 0.93 | (1.35 | ) | 0.00 | 0.00 | (1.35 | ) | ||||||||||||||||||||||||||
| 07/31/2017 |
14.28 | 1.12 | 1.70 | (0.01 | ) | 0.00 | 2.81 | (1.75 | ) | 0.00 | (0.02 | ) | (1.77 | ) | ||||||||||||||||||||||||||
| PIMCO High Income Fund |
||||||||||||||||||||||||||||||||||||||||
| 07/31/2021 |
$ | 5.01 | $ | 0.56 | $ | 0.93 | $ | (0.00 | ) | $ | 0.00 | $ | 1.49 | $ | (0.44 | ) | $ | 0.00 | $ | (0.14 | ) | $ | (0.58 | ) | ||||||||||||||||
| 07/31/2020 |
6.38 | 0.65 | (1.30 | ) | (0.01 | ) | 0.00 | (0.66 | ) | (0.68 | ) | 0.00 | (0.03 | ) | (0.71 | ) | ||||||||||||||||||||||||
| 07/31/2019 |
6.54 | (h) | 0.61 | 0.11 | (0.03 | ) | 0.00 | 0.69 | (0.73 | ) | 0.00 | (0.16 | ) | (0.89 | ) | |||||||||||||||||||||||||
| 07/31/2018 |
6.90 | 0.62 | 0.01 | (0.02 | ) | 0.00 | 0.61 | (0.84 | ) | 0.00 | (0.13 | ) | (0.97 | ) | ||||||||||||||||||||||||||
| 07/31/2017 |
6.63 | 0.67 | 0.71 | (0.01 | ) | 0.00 | 1.37 | (0.91 | ) | 0.00 | (0.19 | ) | (1.10 | ) | ||||||||||||||||||||||||||
| PIMCO Income Strategy Fund |
||||||||||||||||||||||||||||||||||||||||
| 07/31/2021 |
$ | 9.46 | $ | 0.91 | $ | 1.32 | $ | (0.02 | ) | $ | 0.00 | $ | 2.21 | $ | (0.84 | ) | $ | 0.00 | $ | (0.24 | ) | $ | (1.08 | ) | ||||||||||||||||
| 07/31/2020 |
11.00 | 1.01 | (1.52 | ) | (0.04 | ) | 0.00 | (0.55 | ) | (0.97 | ) | 0.00 | (0.11 | ) | (1.08 | ) | ||||||||||||||||||||||||
| 07/31/2019 |
11.14 | (h) | 0.90 | 0.02 | (0.07 | ) | 0.00 | 0.85 | (0.99 | ) | 0.00 | (0.09 | ) | (1.08 | ) | |||||||||||||||||||||||||
| 07/31/2018 |
11.60 | 0.87 | (0.19 | ) | (0.06 | ) | 0.00 | 0.62 | (1.07 | ) | 0.00 | (0.01 | ) | (1.08 | ) | |||||||||||||||||||||||||
| 07/31/2017 |
10.53 | 0.88 | 1.31 | (0.04 | ) | 0.00 | 2.15 | (1.08 | ) | 0.00 | 0.00 | (1.08 | ) | |||||||||||||||||||||||||||
| PIMCO Income Strategy Fund II |
||||||||||||||||||||||||||||||||||||||||
| 07/31/2021 |
$ | 8.53 | $ | 0.78 | $ | 1.05 | $ | (0.02 | ) | $ | 0.00 | $ | 1.81 | $ | (0.75 | ) | $ | 0.00 | $ | (0.21 | ) | $ | (0.96 | ) | ||||||||||||||||
| 07/31/2020 |
9.91 | 0.86 | (1.32 | ) | (0.03 | ) | 0.00 | (0.49 | ) | (0.90 | ) | 0.00 | (0.06 | ) | (0.96 | ) | ||||||||||||||||||||||||
| 07/31/2019 |
10.07 | (h) | 0.83 | 0.04 | (0.05 | ) | 0.00 | 0.82 | (1.03 | ) | 0.00 | 0.00 | (1.03 | ) | ||||||||||||||||||||||||||
| 07/31/2018 |
10.33 | 0.79 | (0.05 | ) | (0.04 | ) | 0.00 | 0.70 | (0.96 | ) | 0.00 | 0.00 | (0.96 | ) | ||||||||||||||||||||||||||
| 07/31/2017 |
9.42 | 0.80 | 1.10 | (0.03 | ) | 0.00 | 1.87 | (0.96 | ) | 0.00 | 0.00 | (0.96 | ) | |||||||||||||||||||||||||||
| 22 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| Common Share | Ratios/Supplemental Data | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ratios to Average Net Assets(f) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Increase Resulting from Common Share Offering |
Offering Cost Charged to Paid in Capital |
Increase Resulting from Tender of ARPS(c) |
Net Asset Value End of Year(a) |
Market Price End of Year |
Total Investment Return(e) |
Net Assets Applicable to Common Shareholders (000s) |
Expenses(g) | Expenses Excluding Waivers(g) |
Expenses Excluding Interest Expense |
Expenses |
Net Investment Income (Loss) |
Portfolio Turnover Rate |
||||||||||||||||||||||||||||||||||||||
| |
|
|
||||||||||||||||||||||||||||||||||||||||||||||||
| $ | 0.42 | $ | 0.00 | $ | 0.00 | $ | 14.40 | $ | 20.56 | 46.75 | % | $ | 1,643,538 | 1.06 | % | 1.06 | % | 0.76 | % | 0.76 | % | 9.60 | % | 58 | % | |||||||||||||||||||||||||
| 0.47 | (0.00 | ) | 0.00 | 12.44 | 15.34 | (8.77 | ) | 1,248,837 | 1.30 | 1.30 | 0.82 | 0.82 | 10.20 | 34 | ||||||||||||||||||||||||||||||||||||
| 0.15 | 0.00 | 0.02 | 14.66 | 18.60 | 14.48 | 1,291,233 | 1.35 | 1.35 | 0.80 | 0.80 | 9.44 | 22 | ||||||||||||||||||||||||||||||||||||||
| 0.12 | 0.00 | 0.00 | 14.80 | (h) | 17.95 | 16.78 | 1,219,515 | 1.26 | 1.26 | 0.81 | 0.81 | 8.73 | 19 | |||||||||||||||||||||||||||||||||||||
| 0.10 | 0.00 | 0.00 | 14.87 | 16.92 | 29.18 | 1,140,768 | 1.08 | 1.08 | 0.83 | 0.83 | 8.68 | 39 | ||||||||||||||||||||||||||||||||||||||
| $ | 0.12 | $ | (0.00 | ) | $ | 0.00 | $ | 14.54 | $ | 18.93 | 34.41 | % | $ | 605,830 | 1.15 | % | 1.15 | % | 0.87 | % | 0.87 | % | 8.95 | % | 48 | % | ||||||||||||||||||||||||
| N/A | N/A | 0.00 | 12.76 | 15.29 | (7.72 | ) | 509,488 | 1.57 | 1.57 | 0.87 | 0.87 | 9.57 | 31 | |||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.10 | 14.94 | 18.08 | 9.20 | 591,931 | 1.60 | 1.60 | 0.94 | 0.94 | 8.39 | 18 | ||||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 14.90 | (h) | 18.09 | 9.61 | 586,592 | 1.36 | 1.36 | 0.94 | 0.94 | 7.97 | 20 | |||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 15.32 | 17.92 | 30.63 | 599,266 | 1.17 | 1.17 | 0.93 | 0.93 | 7.65 | 38 | ||||||||||||||||||||||||||||||||||||||
| $ | N/A | $ | N/A | $ | 0.00 | $ | 5.92 | $ | 6.95 | 47.82 | % | $ | 792,773 | 1.14 | % | 1.14 | % | 0.86 | % | 0.86 | % | 9.96 | % | 60 | % | |||||||||||||||||||||||||
| N/A | N/A | 0.00 | 5.01 | 5.18 | (27.55 | ) | 664,144 | 1.73 | 1.73 | 0.86 | 0.86 | 11.42 | 40 | |||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.04 | 6.38 | 8.03 | 3.57 | 835,988 | 1.86 | 1.86 | 0.91 | 0.91 | 9.74 | 20 | ||||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 6.54 | (h) | 8.67 | 13.13 | 847,052 | 1.48 | 1.48 | 0.90 | 0.90 | 9.30 | 27 | |||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 6.90 | 8.71 | (1.45 | ) | 884,912 | 1.25 | 1.25 | 0.90 | 0.90 | 10.08 | 32 | |||||||||||||||||||||||||||||||||||||
| $ | 0.07 | $ | 0.00 | $ | 0.00 | $ | 10.66 | $ | 12.47 | 38.31 | % | $ | 365,580 | 1.62 | % | 1.62 | % | 1.36 | % | 1.36 | % | 8.81 | % | 42 | % | |||||||||||||||||||||||||
| 0.09 | (0.00 | ) | 0.00 | 9.46 | 9.95 | (7.65 | ) | 295,167 | 1.69 | 1.69 | 1.21 | 1.21 | 10.03 | 21 | ||||||||||||||||||||||||||||||||||||
| 0.06 | 0.00 | 0.03 | 11.00 | 11.99 | 8.10 | 305,453 | 1.69 | 1.69 | 1.18 | 1.18 | 8.39 | 17 | ||||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 11.14 | (h) | 12.23 | 10.37 | 284,677 | 1.48 | 1.48 | 1.17 | 1.17 | 7.67 | 21 | |||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 11.60 | 12.17 | 28.11 | 294,525 | 1.35 | 1.35 | 1.17 | 1.17 | 8.01 | 40 | ||||||||||||||||||||||||||||||||||||||
| $ | 0.04 | $ | 0.00 | $ | 0.00 | $ | 9.42 | $ | 11.01 | 37.03 | % | $ | 723,617 | 1.54 | % | 1.54 | % | 1.29 | % | 1.29 | % | 8.58 | % | 38 | % | |||||||||||||||||||||||||
| 0.07 | (0.00 | ) | 0.00 | 8.53 | 8.88 | (7.75 | ) | 605,851 | 1.62 | 1.62 | 1.15 | 1.15 | 9.49 | 21 | ||||||||||||||||||||||||||||||||||||
| 0.04 | 0.00 | 0.01 | 9.91 | 10.70 | 11.03 | 632,927 | 1.66 | 1.66 | 1.12 | 1.12 | 8.57 | 17 | ||||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 10.07 | (h) | 10.70 | 9.19 | 600,890 | 1.41 | 1.41 | 1.10 | 1.10 | 7.79 | 18 | |||||||||||||||||||||||||||||||||||||
| N/A | N/A | 0.00 | 10.33 | 10.76 | 26.32 | 612,310 | 1.26 | 1.26 | 1.09 | 1.09 | 8.15 | 26 | ||||||||||||||||||||||||||||||||||||||
| ANNUAL REPORT | | | JULY 31, 2021 | 23 |
| Financial Highlights | (Cont.) |
| Ratios/Supplemental Data | ||||||||||||||||
| ARPS | ||||||||||||||||
| Selected Per Share Data for the Year or Period Ended^: | Total Amount Outstanding |
Asset Coverage per Preferred Share(1) |
Involuntary Liquidating Preference per Preferred Share(2) |
Average Market Value per ARPS(3) |
||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
||||||||||||||||
| 7/31/2021 | $ | 212,650,000 | $ | 218,218 | $ | 25,000 | N/A | |||||||||
| 7/31/2020 | 212,650,000 | 171,815 | 25,000 | N/A | ||||||||||||
| 7/31/2019 | 212,650,000 | 176,730 | 25,000 | N/A | ||||||||||||
| 7/31/2018 | 237,950,000 | 153,072 | 25,000 | N/A | ||||||||||||
| 7/31/2017 | 237,950,000 | 144,819 | 25,000 | N/A | ||||||||||||
| 7/31/2016+ | 237,950,000 | 124,468 | 25,000 | N/A | ||||||||||||
| 12/1/2014 - 7/31/2015+ | 237,950,000 | 130,743 | 25,000 | N/A | ||||||||||||
| 11/30/2014+ | 325,000,000 | 108,229 | 25,000 | N/A | ||||||||||||
| 11/30/2013+ | 325,000,000 | 113,443 | 25,000 | N/A | ||||||||||||
| 11/30/2012+ | 325,000,000 | 117,697 | 25,000 | N/A | ||||||||||||
| 11/30/2011+ | 325,000,000 | 99,399 | 25,000 | N/A | ||||||||||||
| PIMCO Corporate & Income Strategy Fund |
||||||||||||||||
| 7/31/2021 | $ | 23,525,000 | $ | 668,805 | $ | 25,000 | N/A | |||||||||
| 7/31/2020 | 23,525,000 | 566,423 | 25,000 | N/A | ||||||||||||
| 7/31/2019 | 23,525,000 | 653,838 | 25,000 | N/A | ||||||||||||
| 7/31/2018 | 55,525,000 | 289,023 | 25,000 | N/A | ||||||||||||
| 7/31/2017 | 55,525,000 | 294,755 | 25,000 | N/A | ||||||||||||
| 7/31/2016+ | 55,525,000 | 274,223 | 25,000 | N/A | ||||||||||||
| 11/1/2014 - 7/31/2015+ | 169,000,000 | 109,336 | 25,000 | N/A | ||||||||||||
| 10/31/2014+ | 169,000,000 | 113,753 | 25,000 | N/A | ||||||||||||
| 10/31/2013+ | 169,000,000 | 115,565 | 25,000 | N/A | ||||||||||||
| 10/31/2012+ | 169,000,000 | 114,270 | 25,000 | N/A | ||||||||||||
| 10/31/2011+ | 169,000,000 | 101,188 | 25,000 | N/A | ||||||||||||
| PIMCO High Income Fund |
||||||||||||||||
| 7/31/2021 | $ | 58,050,000 | $ | 366,413 | $ | 25,000 | N/A | |||||||||
| 7/31/2020 | 58,050,000 | 311,018 | 25,000 | N/A | ||||||||||||
| 7/31/2019 | 58,050,000 | 384,900 | 25,000 | N/A | ||||||||||||
| 7/31/2018 | 101,975,000 | 232,587 | 25,000 | N/A | ||||||||||||
| 7/31/2017 | 101,975,000 | 241,894 | 25,000 | N/A | ||||||||||||
| PIMCO Income Strategy Fund |
||||||||||||||||
| 7/31/2021 | $ | 45,200,000 | $ | 227,165 | $ | 25,000 | N/A | |||||||||
| 7/31/2020 | 45,200,000 | 188,225 | 25,000 | N/A | ||||||||||||
| 7/31/2019 | 45,200,000 | 193,873 | 25,000 | N/A | ||||||||||||
| 7/31/2018 | 51,275,000 | 163,725 | 25,000 | N/A | ||||||||||||
| 7/31/2017 | 51,275,000 | 168,552 | 25,000 | N/A | ||||||||||||
| 7/31/2016+ | 51,275,000 | 154,837 | 25,000 | N/A | ||||||||||||
| 7/31/2015+ | 51,275,000 | 166,328 | 25,000 | N/A | ||||||||||||
| 7/31/2014+ | 78,975,000 | 122,004 | 25,000 | N/A | ||||||||||||
| 7/31/2013+ | 78,975,000 | 118,058 | 25,000 | N/A | ||||||||||||
| 7/31/2012+ | 78,975,000 | 114,654 | 25,000 | N/A | ||||||||||||
| PIMCO Income Strategy Fund II |
||||||||||||||||
| 7/31/2021 | $ | 87,425,000 | $ | 231,880 | $ | 25,000 | N/A | |||||||||
| 7/31/2020 | 87,425,000 | 198,210 | 25,000 | N/A | ||||||||||||
| 7/31/2019 | 87,425,000 | 205,928 | 25,000 | N/A | ||||||||||||
| 7/31/2018 | 92,450,000 | 187,429 | 25,000 | N/A | ||||||||||||
| 7/31/2017 | 92,450,000 | 190,527 | 25,000 | N/A | ||||||||||||
| 7/31/2016+ | 92,450,000 | 175,544 | 25,000 | N/A | ||||||||||||
| 7/31/2015+ | 92,450,000 | 189,105 | 25,000 | N/A | ||||||||||||
| 7/31/2014+ | 161,000,000 | 124,695 | 25,000 | N/A | ||||||||||||
| 7/31/2013+ | 161,000,000 | 119,060 | 25,000 | N/A | ||||||||||||
| 7/31/2012+ | 161,000,000 | 117,792 | 25,000 | N/A | ||||||||||||
| 24 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| ^ | A zero balance may reflect actual amounts rounding to less than $0.01 or 0.01%. |
| + | Unaudited. Information is presented in conformance with annual reporting requirements for funds that have filed a registration statement pursuant to General Instruction A.2 of Form N-2 (“Short Form N-2”). |
| (a) | Includes adjustments required by U.S. GAAP and may differ from net asset values and performance reported elsewhere by the Funds. |
| (b) | Per share amounts based on average number of common shares outstanding during the year. |
| (c) | Auction-Rate Preferred Shareholders (“ARPS”) asset coverage per share is disclosed as the product of the asset coverage ratio as of period end and the current liquidation preference. See Note 14, Auction-Rate Preferred Shares, in the Notes to Financial Statements for more information. |
| (d) | The tax characterization of distributions is determined in accordance with Federal income tax regulations. See Note 2, Distributions — Common Shares, in the Notes to Financial Statements for more information. |
| (e) | 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 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. |
| (f) | 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. |
| (g) | Ratio includes interest expense which primarily relates to participation in borrowing and financing transactions. See Note 5, Borrowings and Other Financing Transactions, in the Notes to Financial Statements for more information. |
| (h) | The NAV presented may differ from the NAV reported for the same period in other Fund materials. |
| 1 | “Asset Coverage per Preferred Share” means the ratio that the value of the total assets of the Fund, less all liabilities and indebtedness not represented by ARPS, bears to the aggregate of the involuntary liquidation preference of ARPS, expressed as a dollar amount per ARPS. |
| 2 | “Involuntary Liquidating Preference” means the amount to which a holder of ARPS would be entitled upon the involuntary liquidation of the Fund in preference to the Common Shareholders, expressed as a dollar amount per Preferred Share. |
| 3 | The ARPS have no readily ascertainable market value. Auctions for the ARPS have failed since February 2008, there is currently no active trading market for the ARPS and the Fund is not able to reliably estimate what their value would be in a third-party market sale. The liquidation value of the ARPS represents its liquidation preference, which approximates fair value of the shares less any accumulated unpaid dividends. See Note 14, Auction-Rate Preferred Shares, in the notes to Financial Statements for more information. |
| ANNUAL REPORT | | | JULY 31, 2021 | 25 |
| Statements of Assets and Liabilities | July 31, 2021 |
| (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* |
$ | 2,953,946 | $ | 1,048,700 | $ | 1,304,543 | $ | 583,700 | $ | 1,142,727 | ||||||||||
| Financial Derivative Instruments |
||||||||||||||||||||
| Exchange-traded or centrally cleared |
3,726 | 1,951 | 5,404 | 1,036 | 2,272 | |||||||||||||||
| Over the counter |
4,195 | 861 | 975 | 759 | 1,455 | |||||||||||||||
| Cash |
469 | 296 | 82 | 138 | 0 | |||||||||||||||
| Deposits with counterparty |
50,581 | 18,556 | 32,349 | 11,682 | 23,688 | |||||||||||||||
| Foreign currency, at value |
6,094 | 1,265 | 2,353 | 565 | 1,437 | |||||||||||||||
| Receivable for investments sold |
60,189 | 23,897 | 24,695 | 31,079 | 18,576 | |||||||||||||||
| Receivable for TBA investments sold |
0 | 0 | 103 | 0 | 0 | |||||||||||||||
| Receivable for Fund shares sold |
0 | 424 | 0 | 0 | 0 | |||||||||||||||
| Interest and/or dividends receivable |
26,758 | 9,160 | 13,396 | 5,417 | 10,410 | |||||||||||||||
| Other assets |
656 | 509 | 10 | 491 | 341 | |||||||||||||||
| Total Assets |
3,106,614 | 1,105,619 | 1,383,910 | 634,867 | 1,200,906 | |||||||||||||||
| Liabilities: |
||||||||||||||||||||
| Borrowings & Other Financing Transactions |
||||||||||||||||||||
| Payable for reverse repurchase agreements |
$ | 1,012,822 | $ | 415,972 | $ | 479,064 | $ | 181,435 | $ | 326,550 | ||||||||||
| Financial Derivative Instruments |
||||||||||||||||||||
| Exchange-traded or centrally cleared |
4,691 | 1,863 | 5,412 | 1,019 | 2,109 | |||||||||||||||
| Over the counter |
8,121 | 533 | 546 | 460 | 835 | |||||||||||||||
| Payable for investments purchased |
161,739 | 44,906 | 31,598 | 29,228 | 42,064 | |||||||||||||||
| Payable for unfunded loan commitments |
34,957 | 4,169 | 4,616 | 6,174 | 5,939 | |||||||||||||||
| Payable for TBA investments purchased |
0 | 0 | 206 | 0 | 0 | |||||||||||||||
| Deposits from counterparty |
10,718 | 3,119 | 3,943 | 1,899 | 4,691 | |||||||||||||||
| Distributions payable to common shareholders |
14,834 | 4,675 | 6,428 | 3,086 | 6,149 | |||||||||||||||
| Distributions payable to auction rate preferred shareholders |
4 | 1 | 1 | 8 | 19 | |||||||||||||||
| Overdraft due to custodian |
0 | 0 | 0 | 0 | 62 | |||||||||||||||
| Accrued management fees |
1,056 | 444 | 565 | 428 | 817 | |||||||||||||||
| Accrued taxes payable |
1,301 | 468 | 624 | 312 | 572 | |||||||||||||||
| Other liabilities |
183 | 114 | 84 | 38 | 57 | |||||||||||||||
| Total Liabilities |
1,250,426 | 476,264 | 533,087 | 224,087 | 389,864 | |||||||||||||||
| Auction Rate Preferred Shares^ |
212,650 | 23,525 | 58,050 | 45,200 | 87,425 | |||||||||||||||
| Net Assets Applicable to Common Shareholders |
$ | 1,643,538 | $ | 605,830 | $ | 792,773 | $ | 365,580 | $ | 723,617 | ||||||||||
| Net Assets Applicable to Common Shareholders Consist of: |
||||||||||||||||||||
| Par value^^ |
$ | 1 | $ | 0 | $ | 1 | $ | 0 | $ | 1 | ||||||||||
| Paid in capital in excess of par |
1,714,584 | 622,932 | 975,860 | 377,950 | 764,031 | |||||||||||||||
| Distributable earnings (accumulated loss) |
(71,047 | ) | (17,102 | ) | (183,088 | ) | (12,370 | ) | (40,415 | ) | ||||||||||
| Net Assets Applicable to Common Shareholders |
$ | 1,643,538 | $ | 605,830 | $ | 792,773 | $ | 365,580 | $ | 723,617 | ||||||||||
| Net Asset Value Per Common Share(a) |
$ | 14.40 | $ | 14.54 | $ | 5.92 | $ | 10.66 | $ | 9.42 | ||||||||||
| Common Shares Outstanding |
114,110 | 41,677 | 133,904 | 34,281 | 76,856 | |||||||||||||||
| Auction Rate Preferred Shares Issued and Outstanding |
9 | 1 | 2 | 2 | 3 | |||||||||||||||
| Cost of investments in securities |
$ | 2,865,514 | $ | 1,006,586 | $ | 1,267,830 | $ | 561,552 | $ | 1,096,700 | ||||||||||
| Cost of foreign currency held |
$ | 6,285 | $ | 1,327 | $ | 2,409 | $ | 598 | $ | 1,505 | ||||||||||
| Cost or premiums of financial derivative instruments, net |
$ | (1,777 | ) | $ | 4,450 | $ | 119,760 | $ | 4,569 | $ | 9,416 | |||||||||
| * Includes repurchase agreements of: |
$ | 61,990 | $ | 30,423 | $ | 1,905 | $ | 1,546 | $ | 18,368 | ||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ^ | ($0.00001 par value and $25,000 liquidation preference per share) |
| ^^ | ($0.00001 per share) |
| (a) | Includes adjustments required by U.S. GAAP and may differ from net asset values and performance reported elsewhere by the Funds. |
| 26 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| Statements of Operations |
| Year Ended July 31, 2021 | ||||||||||||||||||||
| (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* |
$ | 158,270 | $ | 55,829 | $ | 79,807 | $ | 34,933 | $ | 67,568 | ||||||||||
| Dividends, net of foreign taxes** |
1,439 | 1,147 | 3,329 | 561 | 1,190 | |||||||||||||||
| Total Income |
159,709 | 56,976 | 83,136 | 35,494 | 68,758 | |||||||||||||||
| Expenses: |
||||||||||||||||||||
| Management fees |
11,105 | 4,754 | 6,132 | 4,485 | 8,503 | |||||||||||||||
| Trustee fees and related expenses |
219 | 75 | 102 | 50 | 101 | |||||||||||||||
| Interest expense |
4,563 | 1,570 | 2,105 | 894 | 1,666 | |||||||||||||||
| Auction agent fees and commissions |
202 | 67 | 103 | 60 | 110 | |||||||||||||||
| Auction rate preferred shares related expenses |
22 | 44 | 53 | 46 | 42 | |||||||||||||||
| Miscellaneous expense |
4 | 7 | 39 | 3 | 7 | |||||||||||||||
| Total Expenses |
16,115 | 6,517 | 8,534 | 5,538 | 10,429 | |||||||||||||||
| Net Investment Income (Loss) |
143,594 | 50,459 | 74,602 | 29,956 | 58,329 | |||||||||||||||
| Net Realized Gain (Loss): |
||||||||||||||||||||
| Investments in securities |
(47,962 | ) | (29,654 | ) | (36,543 | ) | (13,018 | ) | (30,366 | ) | ||||||||||
| Exchange-traded or centrally cleared financial derivative instruments |
19,429 | 11,179 | 20,784 | 5,656 | 13,123 | |||||||||||||||
| Over the counter financial derivative instruments |
511 | (5,382 | ) | (9,605 | ) | (3,777 | ) | (7,589 | ) | |||||||||||
| Foreign currency |
(2,590 | ) | (1,153 | ) | (938 | ) | (894 | ) | (1,677 | ) | ||||||||||
| Net Realized Gain (Loss) |
(30,612 | ) | (25,010 | ) | (26,302 | ) | (12,033 | ) | (26,509 | ) | ||||||||||
| Net Change in Unrealized Appreciation (Depreciation): |
||||||||||||||||||||
| Investments in securities |
214,649 | 96,365 | 154,862 | 55,133 | 102,772 | |||||||||||||||
| Exchange-traded or centrally cleared financial derivative instruments |
(12,348 | ) | (5,277 | ) | (11,693 | ) | (3,286 | ) | (6,932 | ) | ||||||||||
| Over the counter financial derivative instruments |
13,104 | 3,975 | 4,539 | 3,038 | 6,038 | |||||||||||||||
| Foreign currency assets and liabilities |
2,407 | 241 | 1,668 | 299 | 564 | |||||||||||||||
| Net Change in Unrealized Appreciation (Depreciation) |
217,812 | 95,304 | 149,376 | 55,184 | 102,442 | |||||||||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations |
$ | 330,794 | $ | 120,753 | $ | 197,676 | $ | 73,107 | $ | 134,262 | ||||||||||
| Distributions on Auction Rate Preferred Shares from Net Investment Income and/or Realized Capital Gains |
$ | (318 | ) | $ | (27 | ) | $ | (69 | ) | $ | (718 | ) | $ | (1,388 | ) | |||||
| Net Increase (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Operations |
$ | 330,476 | $ | 120,726 | $ | 198,198 | $ | 72,389 | $ | 132,874 | ||||||||||
| * Foreign tax withholdings - Interest |
$ | 71 | $ | 26 | $ | 34 | $ | 18 | $ | 33 | ||||||||||
| ** Foreign tax withholdings - Dividends |
$ | 41 | $ | 17 | $ | 19 | $ | 10 | $ | 61 | ||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ANNUAL REPORT | | | JULY 31, 2021 | 27 |
| Statements of Changes in Net Assets |
| PIMCO Corporate & Income Opportunity Fund |
PIMCO Corporate & Income Strategy Fund |
|||||||||||||||
| (Amounts in thousands†) | Year Ended July 31, 2021 |
Year Ended July 31, 2020 |
Year Ended July 31, 2021 |
Year Ended July 31, 2020 |
||||||||||||
| Increase (Decrease) in Net Assets from: |
||||||||||||||||
| Operations: |
||||||||||||||||
| Net investment income (loss) |
$ | 143,594 | $ | 128,584 | $ | 50,459 | $ | 52,161 | ||||||||
| Net realized gain (loss) |
(30,612 | ) | (192,954 | ) | (25,010 | ) | (72,741 | ) | ||||||||
| Net change in unrealized appreciation (depreciation) |
217,812 | (37,562 | ) | 95,304 | (10,212 | ) | ||||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations |
330,794 | (101,932 | ) | 120,753 | (30,792 | ) | ||||||||||
| Distributions on auction rate preferred shares from net investment income and/or realized capital gains |
(318 | ) | (4,901 | ) | (27 | ) | (408 | ) | ||||||||
| Net Increase (Decrease) in Net Assets Applicable to Common Shareholders Resulting from Operations |
330,476 | (106,833 | ) | 120,726 | (31,200 | ) | ||||||||||
| Distributions to Common Shareholders: |
||||||||||||||||
| From net investment income and/or net realized capital gains |
(133,020 | ) | (149,985 | ) | (54,756 | ) | (56,092 | ) | ||||||||
| Tax basis return of capital |
(36,889 | ) | 0 | 0 | 0 | |||||||||||
| Total Distributions to Common Shareholders(a) |
(169,909 | ) | (149,985 | ) | (54,756 | ) | (56,092 | ) | ||||||||
| Common Share Transactions*: |
||||||||||||||||
| Net proceeds from at-the-market offering |
213,794 | 198,642 | 25,618 | 0 | ||||||||||||
| Net at-the-market offering costs |
88 | (93 | ) | (46 | ) | 0 | ||||||||||
| Issued as reinvestment of distributions |
20,252 | 15,873 | 4,800 | 4,849 | ||||||||||||
| Total increase (decrease) resulting from common share transactions |
234,134 | 214,422 | 30,372 | 4,849 | ||||||||||||
| Total increase (decrease) in net assets applicable to common shareholders |
394,701 | (42,396 | ) | 96,342 | (82,443 | ) | ||||||||||
| Net Assets Applicable to Common Shareholders: |
||||||||||||||||
| Beginning of year |
1,248,837 | 1,291,233 | 509,488 | 591,931 | ||||||||||||
| End of year |
$ | 1,643,538 | $ | 1,248,837 | $ | 605,830 | $ | 509,488 | ||||||||
| * Common Share Transactions: |
||||||||||||||||
| Shares sold |
12,480 | 11,310 | 1,454 | 0 | ||||||||||||
| Shares issued as reinvestment of distributions |
1,205 | 1,006 | 297 | 297 | ||||||||||||
| Net increase (decrease) in common shares outstanding |
13,685 | 12,316 | 1,751 | 297 | ||||||||||||
| † | 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. See Note 2, Distributions — Common Shares, in the Notes to Financial Statements for more information. |
| 28 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| PIMCO High Income Fund |
PIMCO Income Strategy Fund |
PIMCO Income Strategy Fund II |
||||||||||||||||||||
| Year Ended July 31, 2021 |
Year Ended July 31, 2020 |
Year Ended July 31, 2021 |
Year Ended July 31, 2020 |
Year Ended July 31, 2021 |
Year Ended July 31, 2020 |
|||||||||||||||||
| $ | 74,602 | $ | 85,274 | $ | 29,956 | $ | 29,940 | $ | 58,329 | $ | 58,663 | |||||||||||
| (26,302 | ) | (216,826 | ) | (12,033 | ) | (40,842 | ) | (26,509 | ) | (100,069 | ) | |||||||||||
| 149,376 | 44,622 | 55,184 | (4,691 | ) | 102,442 | 8,859 | ||||||||||||||||
| 197,676 | (86,930 | ) | 73,107 | (15,593 | ) | 134,262 | (32,547 | ) | ||||||||||||||
|
|
(69 |
) |
(1,072 | ) | (718 | ) | (1,126 | ) | (1,388 | ) | (2,180 | ) | ||||||||||
| 197,607 | (88,002 | ) | 72,389 | (16,719 | ) | 132,874 | (34,727 | ) | ||||||||||||||
| (57,461 | ) | (89,285 | ) | (27,617 | ) | (28,689 | ) | (55,505 | ) | (61,121 | ) | |||||||||||
| (19,329 | ) | (4,178 | ) | (8,099 | ) | (3,398 | ) | (15,939 | ) | (4,395 | ) | |||||||||||
| (76,790 | ) | (93,463 | ) | (35,716 | ) | (32,087 | ) | (71,444 | ) | (65,516 | ) | |||||||||||
| 0 | 0 | 30,494 | 35,959 | 48,744 | 67,156 | |||||||||||||||||
| 0 | 0 | 60 | (39 | ) | 63 | (125 | ) | |||||||||||||||
| 7,812 | 9,621 | 3,186 | 2,600 | 7,529 | 6,136 | |||||||||||||||||
| 7,812 | 9,621 | 33,740 | 38,520 | 56,336 | 73,167 | |||||||||||||||||
| 129,220 | (171,844 | ) | 70,413 | (10,286 | ) | 117,766 | (27,076 | ) | ||||||||||||||
| 664,144 | 835,988 | 295,167 | 305,453 | 605,851 | 632,927 | |||||||||||||||||
| $ | 792,773 | $ | 664,144 | $ | 365,580 | $ | 295,167 | $ | 723,617 | $ | 605,851 | |||||||||||
| 0 | 0 | 2,766 | 3,197 | 4,997 | 6,557 | |||||||||||||||||
| 1,349 | 1,534 | 297 | 250 | 800 | 655 | |||||||||||||||||
| 1,349 | 1,534 | 3,063 | 3,447 | 5,797 | 7,212 | |||||||||||||||||
| ANNUAL REPORT | | | JULY 31, 2021 | 29 |
| Statements of Cash Flows |
| Year Ended July 31, 2021 | ||||||||||||||||||||
| (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 |
|||||||||||||||
| Cash Flows Provided by (Used for) Operating Activities: |
||||||||||||||||||||
| Net increase (decrease) in net assets resulting from operations |
$ | 330,794 | $ | 120,753 | $ | 197,676 | $ | 73,107 | $ | 134,262 | ||||||||||
| Adjustments to Reconcile Net Increase (Decrease) in Net Assets from Operations to Net Cash Provided by (Used for) Operating Activities: |
||||||||||||||||||||
| Purchases of long-term securities |
(2,406,758 | ) | (697,761 | ) | (960,924 | ) | (350,355 | ) | (632,208 | ) | ||||||||||
| Proceeds from sales of long-term securities |
1,629,310 | 480,584 | 723,648 | 247,407 | 456,982 | |||||||||||||||
| (Purchases) Proceeds from sales of short-term portfolio investments, net |
(18,186 | ) | (28,428 | ) | 18,163 | 3,927 | (10,648 | ) | ||||||||||||
| (Increase) decrease in deposits with counterparty |
(22,530 | ) | (8,761 | ) | (6,880 | ) | (5,752 | ) | (10,655 | ) | ||||||||||
| (Increase) decrease in receivable for investments sold |
(26,262 | ) | 966 | 77,054 | (25,263 | ) | 10,491 | |||||||||||||
| (Increase) decrease in interest and/or dividends receivable |
(8,367 | ) | (1,949 | ) | (2,886 | ) | (1,270 | ) | (2,068 | ) | ||||||||||
| Proceeds from (Payments on) exchange-traded or centrally cleared financial derivative instruments |
8,511 | 6,099 | 9,991 | 2,492 | 6,372 | |||||||||||||||
| Proceeds from (Payments on) over the counter financial derivative instruments |
(3,602 | ) | (5,355 | ) | (9,559 | ) | (3,710 | ) | (7,460 | ) | ||||||||||
| (Increase) decrease in other assets |
(260 | ) | (375 | ) | (2 | ) | (299 | ) | (142 | ) | ||||||||||
| Increase (decrease) in payable for investments purchased |
52,819 | (15,797 | ) | (95,824 | ) | 9,430 | (14,940 | ) | ||||||||||||
| Increase (decrease) in payable for unfunded loan commitments |
32,211 | 722 | 1,166 | 5,291 | 4,105 | |||||||||||||||
| Increase (decrease) in deposits from counterparty |
1,611 | (3,182 | ) | (923 | ) | 470 | (257 | ) | ||||||||||||
| Increase (decrease) in accrued management fees |
215 | 61 | 76 | 114 | 202 | |||||||||||||||
| Proceeds from (Payments on) foreign currency transactions |
(2,073 | ) | (1,147 | ) | (903 | ) | (724 | ) | (1,306 | ) | ||||||||||
| Increase (decrease) in other liabilities |
80 | (2 | ) | 5 | (35 | ) | (51 | ) | ||||||||||||
| Net Realized (Gain) Loss |
||||||||||||||||||||
| Investments in securities |
47,962 | 29,654 | 36,543 | 13,018 | 30,366 | |||||||||||||||
| Exchange-traded or centrally cleared financial derivative instruments |
(19,429 | ) | (11,179 | ) | (20,784 | ) | (5,656 | ) | (13,123 | ) | ||||||||||
| Over the counter financial derivative instruments |
(511 | ) | 5,382 | 9,605 | 3,777 | 7,589 | ||||||||||||||
| Foreign currency |
2,590 | 1,153 | 938 | 894 | 1,677 | |||||||||||||||
| Net Change in Unrealized (Appreciation) Depreciation |
||||||||||||||||||||
| Investments in securities |
(214,649 | ) | (96,365 | ) | (154,862 | ) | (55,133 | ) | (102,772 | ) | ||||||||||
| Exchange-traded or centrally cleared financial derivative instruments |
12,348 | 5,277 | 11,693 | 3,286 | 6,932 | |||||||||||||||
| Over the counter financial derivative instruments |
(13,104 | ) | (3,975 | ) | (4,539 | ) | (3,038 | ) | (6,038 | ) | ||||||||||
| Foreign currency assets and liabilities |
(2,407 | ) | (241 | ) | (1,668 | ) | (299 | ) | (564 | ) | ||||||||||
| Net amortization (accretion) on investments |
(10,869 | ) | (4,363 | ) | (5,031 | ) | (2,199 | ) | (5,036 | ) | ||||||||||
| Net Cash Provided by (Used for) Operating Activities |
(630,556 | ) | (228,229 | ) | (178,227 | ) | (90,520 | ) | (148,290 | ) | ||||||||||
| Cash Flows Received from (Used for) Financing Activities: |
||||||||||||||||||||
| Net proceeds from at-the-market offering |
213,794 | 25,194 | 0 | 30,563 | 48,744 | |||||||||||||||
| Net at-the-market offering cost |
88 | (46 | ) | 0 | 60 | 63 | ||||||||||||||
| Increase (decrease) in overdraft due to custodian |
(397 | ) | 0 | (299 | ) | (20 | ) | (106 | ) | |||||||||||
| Cash distributions paid to common shareholders* |
(147,813 | ) | (49,773 | ) | (68,913 | ) | (32,247 | ) | (63,445 | ) | ||||||||||
| Cash distributions paid to auction rate preferred shareholders |
(319 | ) | (26 | ) | (69 | ) | (718 | ) | (1,388 | ) | ||||||||||
| Proceeds from reverse repurchase agreements |
4,460,867 | 1,572,810 | 1,795,724 | 754,396 | 1,429,772 | |||||||||||||||
| Payments on reverse repurchase agreements |
(3,892,988 | ) | (1,320,373 | ) | (1,548,909 | ) | (661,725 | ) | (1,265,920 | ) | ||||||||||
| Net Cash Received from (Used for) Financing Activities |
633,232 | 227,786 | 177,534 | 90,309 | 147,720 | |||||||||||||||
| Net Increase (Decrease) in Cash and Foreign Currency |
2,676 | (443 | ) | (693 | ) | (211 | ) | (570 | ) | |||||||||||
| Cash and Foreign Currency: |
||||||||||||||||||||
| Beginning of year |
3,887 | 2,004 | 3,128 | 914 | 2,007 | |||||||||||||||
| End of year |
$ | 6,563 | $ | 1,561 | $ | 2,435 | $ | 703 | $ | 1,437 | ||||||||||
| * Reinvestment of distributions to common shareholders |
$ | 20,252 | $ | 4,800 | $ | 7,812 | $ | 3,186 | $ | 7,529 | ||||||||||
| Supplemental Disclosure of Cash Flow Information: |
||||||||||||||||||||
| Interest expense paid during the year |
$ | 4,428 | $ | 1,550 | $ | 2,095 | $ | 895 | $ | 1,629 | ||||||||||
| Non Cash Payment in Kind |
$ | 2,421 | $ | 1,203 | $ | 2,802 | $ | 769 | $ | 1,689 | ||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
A Statement of Cash Flows is presented when a Fund has a significant amount of borrowing during the year, based on the average total borrowing outstanding in relation to total assets or when substantially all of a Fund’s investments are not classified as Level 1 or 2 in the fair value hierarchy.
| 30 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | July 31, 2021 |
(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 31 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| 32 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 33 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| 34 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 35 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| 36 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
NOTES TO SCHEDULE OF INVESTMENTS:
| * | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ^ | Security is in default. |
| « | Security valued using significant unobservable inputs (Level 3). |
| µ | All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments. |
| ~ | Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description. |
| • | Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description. |
| þ | Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end. |
| (a) | Security is an Interest Only (“IO”) or IO Strip. |
| (b) | Principal only security. |
| (c) | When-issued security. |
| (d) | Payment in-kind security. |
| (e) | Security is not accruing income as of the date of this report. |
| (f) | Security did not produce income within the last twelve months. |
| (g) | Coupon represents a weighted average yield to maturity. |
| (h) | Zero coupon security. |
| (i) | Coupon represents a yield to maturity. |
| (j) | Perpetual maturity; date shown, if applicable, represents next contractual call date. |
| (k) | Contingent convertible security. |
(l) RESTRICTED SECURITIES:
| Issuer Description | Acquisition Date |
Cost | Market Value |
Market Value as Percentage of Net Assets Applicable to Common Shareholders |
||||||||||||
| Associated Materials Group, Inc. |
03/13/2020 | $ | 2,613 | $ | 2,913 | 0.18 | % | |||||||||
| Axis Energy Services ‘A’ |
03/13/2020 | 90 | 90 | 0.01 | ||||||||||||
| Deutsche Bank AG 3.035% due 05/28/2032 |
05/27/2021 - 06/16/2021 | 3,406 | 3,522 | 0.21 | ||||||||||||
| Neiman Marcus Group Ltd. LLC |
03/13/2020 | 4,911 | 16,777 | 1.02 | ||||||||||||
| Noble Corp. |
02/05/2021 - 02/27/2021 | 562 | 926 | 0.06 | ||||||||||||
| Oracle Corp. 3.650% due 03/25/2041 |
03/22/2021 | 2,781 | 3,045 | 0.19 | ||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 37 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| Issuer Description | Acquisition Date |
Cost | Market Value |
Market Value as Percentage of Net Assets Applicable to Common Shareholders |
||||||||||||
| Oracle Corp. 3.950% due 03/25/2051 |
03/22/2021 | $ | 2,396 | $ | 2,677 | 0.16 | % | |||||||||
| Oracle Corp. 4.100% due 03/25/2061 |
03/22/2021 - 08/02/2021 | 1,959 | 2,148 | 0.13 | ||||||||||||
| Stearns Holdings LLC ‘B’ |
03/13/2020 | 74 | 58 | 0.00 | ||||||||||||
| Westmoreland Mining Holdings LLC |
03/13/2020 | 1,172 | 0 | 0.00 | ||||||||||||
|
|
|
|
|
|
|
|||||||||||
| $ | 19,964 | $ | 32,156 | 1.96 | % | |||||||||||
|
|
|
|
|
|
|
|||||||||||
BORROWINGS AND OTHER FINANCING TRANSACTIONS
(m) 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) |
||||||||||||||||||||||
| BPS | 0.040 | % | 07/30/2021 | 08/02/2021 | $ | 53,600 | U.S. Treasury Inflation Protected Securities 0.250% due 02/15/2050 | $ | (54,634 | ) | $ | 53,600 | $ | 53,600 | ||||||||||||||||
| FICC | 0.000 | 07/30/2021 | 08/02/2021 | 8,390 | U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022 | (8,558 | ) | 8,390 | 8,390 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Repurchase Agreements |
|
$ | (63,192 | ) | $ | 61,990 | $ | 61,990 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
REVERSE REPURCHASE AGREEMENTS:
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount Borrowed(2) |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| BOS |
0.280 | % | 05/14/2021 | 08/16/2021 | (12,978 | ) | $ | (12,986 | ) | |||||||||||||||
| 0.280 | 07/06/2021 | 08/10/2021 | (25,832 | ) | (25,838 | ) | ||||||||||||||||||
| 0.280 | 07/21/2021 | 08/23/2021 | (536 | ) | (536 | ) | ||||||||||||||||||
| 0.280 | 07/30/2021 | 08/16/2021 | (591 | ) | (591 | ) | ||||||||||||||||||
| 0.290 | 05/17/2021 | 08/17/2021 | (1,905 | ) | (1,906 | ) | ||||||||||||||||||
| BPS |
(0.300 | ) | 06/24/2021 | 09/24/2021 | EUR | (4,502 | ) | (5,339 | ) | |||||||||||||||
| (0.300 | ) | 06/29/2021 | 09/24/2021 | (4,439 | ) | (5,264 | ) | |||||||||||||||||
| (0.280 | ) | 06/24/2021 | 09/24/2021 | (4,968 | ) | (5,891 | ) | |||||||||||||||||
| 0.150 | 02/08/2021 | TBD | (3) | $ | (1,214 | ) | (1,215 | ) | ||||||||||||||||
| 0.350 | 05/05/2021 | 08/09/2021 | (11,300 | ) | (11,310 | ) | ||||||||||||||||||
| 0.350 | 05/10/2021 | 08/12/2021 | (829 | ) | (829 | ) | ||||||||||||||||||
| 0.350 | 06/17/2021 | 08/27/2021 | (2,362 | ) | (2,363 | ) | ||||||||||||||||||
| 0.350 | 06/24/2021 | 09/24/2021 | GBP | (3,300 | ) | (4,589 | ) | |||||||||||||||||
| 0.500 | 07/22/2021 | 01/24/2022 | $ | (1,674 | ) | (1,674 | ) | |||||||||||||||||
| 0.540 | 07/09/2021 | 03/08/2022 | (867 | ) | (867 | ) | ||||||||||||||||||
| 0.550 | 04/19/2021 | 09/20/2021 | (5,479 | ) | (5,488 | ) | ||||||||||||||||||
| 0.550 | 04/20/2021 | 09/20/2021 | (3,529 | ) | (3,535 | ) | ||||||||||||||||||
| BRC |
(0.350 | ) | 07/26/2021 | 10/26/2021 | EUR | (7,728 | ) | (9,167 | ) | |||||||||||||||
| 0.250 | 11/09/2020 | TBD | (3) | (6,998 | ) | (7,010 | ) | |||||||||||||||||
| 0.300 | 07/09/2021 | 10/08/2021 | GBP | (5,524 | ) | (7,679 | ) | |||||||||||||||||
| 0.350 | 05/21/2021 | 08/24/2021 | $ | (15,644 | ) | (15,655 | ) | |||||||||||||||||
| 0.350 | 06/03/2021 | 09/03/2021 | (12,501 | ) | (12,508 | ) | ||||||||||||||||||
| 0.450 | 05/28/2021 | 08/31/2021 | (2,850 | ) | (2,852 | ) | ||||||||||||||||||
| 0.450 | 06/03/2021 | 09/03/2021 | (3,709 | ) | (3,712 | ) | ||||||||||||||||||
| 0.450 | 06/11/2021 | 09/03/2021 | (355 | ) | (355 | ) | ||||||||||||||||||
| 0.450 | 06/23/2021 | 09/24/2021 | (2,560 | ) | (2,562 | ) | ||||||||||||||||||
| 0.450 | 07/29/2021 | 09/03/2021 | (951 | ) | (951 | ) | ||||||||||||||||||
| 0.480 | 04/30/2021 | 08/03/2021 | (2,605 | ) | (2,609 | ) | ||||||||||||||||||
| 0.480 | 07/09/2021 | 08/06/2021 | (38,254 | ) | (38,266 | ) | ||||||||||||||||||
| 0.480 | 07/26/2021 | 08/06/2021 | (1,748 | ) | (1,748 | ) | ||||||||||||||||||
| 0.480 | 07/29/2021 | 08/06/2021 | (1,638 | ) | (1,638 | ) | ||||||||||||||||||
| 0.500 | 07/13/2021 | TBD | (3) | (17,070 | ) | (17,074 | ) | |||||||||||||||||
| 0.500 | 07/19/2021 | 01/19/2022 | (939 | ) | (939 | ) | ||||||||||||||||||
| 0.500 | 07/22/2021 | 01/24/2022 | (1,760 | ) | (1,761 | ) | ||||||||||||||||||
| 0.550 | 06/24/2021 | 03/10/2022 | (2,698 | ) | (2,700 | ) | ||||||||||||||||||
| 0.550 | 08/02/2021 | 03/10/2022 | (2,024 | ) | (2,024 | ) | ||||||||||||||||||
| 0.560 | 06/11/2021 | 09/10/2021 | (4,742 | ) | (4,746 | ) | ||||||||||||||||||
| BYR |
0.500 | 07/26/2021 | 01/26/2022 | (5,912 | ) | (5,912 | ) | |||||||||||||||||
| 0.650 | 03/31/2021 | 03/25/2022 | (35,965 | ) | (36,042 | ) | ||||||||||||||||||
| 0.650 | 04/19/2021 | 03/25/2022 | (4,461 | ) | (4,469 | ) | ||||||||||||||||||
| 38 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount Borrowed(2) |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| 0.650 | % | 07/30/2021 | 03/25/2022 | $ | (990 | ) | $ | (989 | ) | |||||||||||||||
| CDC |
0.300 | 05/18/2021 | 08/20/2021 | (2,720 | ) | (2,722 | ) | |||||||||||||||||
| 0.300 | 05/20/2021 | 08/23/2021 | (2,408 | ) | (2,409 | ) | ||||||||||||||||||
| 0.300 | 05/24/2021 | 08/27/2021 | (17,924 | ) | (17,935 | ) | ||||||||||||||||||
| 0.300 | 05/25/2021 | 08/27/2021 | (13,753 | ) | (13,761 | ) | ||||||||||||||||||
| 0.300 | 06/21/2021 | 09/20/2021 | (5,055 | ) | (5,056 | ) | ||||||||||||||||||
| 0.300 | 06/22/2021 | 09/23/2021 | (15,753 | ) | (15,759 | ) | ||||||||||||||||||
| 0.300 | 06/24/2021 | 09/22/2021 | (8,620 | ) | (8,623 | ) | ||||||||||||||||||
| 0.300 | 07/02/2021 | 10/01/2021 | (496 | ) | (496 | ) | ||||||||||||||||||
| 0.300 | 07/19/2021 | 09/22/2021 | (638 | ) | (638 | ) | ||||||||||||||||||
| 0.350 | 07/21/2021 | 01/21/2022 | (7,017 | ) | (7,017 | ) | ||||||||||||||||||
| 0.420 | 07/19/2021 | 08/19/2021 | (1,193 | ) | (1,194 | ) | ||||||||||||||||||
| 0.470 | 06/14/2021 | 09/14/2021 | (14,819 | ) | (14,829 | ) | ||||||||||||||||||
| 0.480 | 06/17/2021 | 09/15/2021 | (8,261 | ) | (8,266 | ) | ||||||||||||||||||
| 0.480 | 07/07/2021 | 10/07/2021 | (1,275 | ) | (1,275 | ) | ||||||||||||||||||
| 0.500 | 05/07/2021 | 08/09/2021 | (1,030 | ) | (1,031 | ) | ||||||||||||||||||
| 0.500 | 05/12/2021 | 08/03/2021 | (1,555 | ) | (1,556 | ) | ||||||||||||||||||
| 0.500 | 05/20/2021 | 08/23/2021 | (4,350 | ) | (4,355 | ) | ||||||||||||||||||
| 0.500 | 05/21/2021 | 08/24/2021 | (5,730 | ) | (5,736 | ) | ||||||||||||||||||
| 0.500 | 06/10/2021 | 08/24/2021 | (1,875 | ) | (1,877 | ) | ||||||||||||||||||
| CEW |
0.500 | 05/07/2021 | 02/01/2022 | (26,295 | ) | (26,327 | ) | |||||||||||||||||
| 0.500 | 07/08/2021 | 01/04/2022 | (26,872 | ) | (26,882 | ) | ||||||||||||||||||
| 0.500 | 07/09/2021 | 01/05/2022 | (6,969 | ) | (6,971 | ) | ||||||||||||||||||
| CIB |
0.500 | 07/07/2021 | 08/11/2021 | (442 | ) | (442 | ) | |||||||||||||||||
| CIW |
0.320 | 07/14/2021 | 09/14/2021 | (31,729 | ) | (31,734 | ) | |||||||||||||||||
| 0.400 | 07/21/2021 | 01/21/2022 | (5,643 | ) | (5,644 | ) | ||||||||||||||||||
| FOB |
0.250 | 04/15/2021 | TBD | (3) | (2,879 | ) | (2,881 | ) | ||||||||||||||||
| IND |
0.270 | 05/07/2021 | 08/03/2021 | (412 | ) | (413 | ) | |||||||||||||||||
| 0.290 | 07/30/2021 | 01/31/2022 | (298 | ) | (298 | ) | ||||||||||||||||||
| 0.290 | 08/03/2021 | 02/03/2022 | (431 | ) | (431 | ) | ||||||||||||||||||
| 0.300 | 06/09/2021 | 03/09/2022 | (8,674 | ) | (8,678 | ) | ||||||||||||||||||
| 0.300 | 07/21/2021 | 01/20/2022 | (17,998 | ) | (18,000 | ) | ||||||||||||||||||
| 0.300 | 07/26/2021 | 01/26/2022 | (3,651 | ) | (3,651 | ) | ||||||||||||||||||
| 0.330 | 06/09/2021 | 03/09/2022 | (402 | ) | (402 | ) | ||||||||||||||||||
| 0.330 | 06/23/2021 | 03/09/2022 | (775 | ) | (775 | ) | ||||||||||||||||||
| 0.380 | 05/14/2021 | 08/12/2021 | (7,460 | ) | (7,467 | ) | ||||||||||||||||||
| 0.420 | 07/26/2021 | 01/26/2022 | (15,876 | ) | (15,878 | ) | ||||||||||||||||||
| 0.430 | 07/26/2021 | 01/26/2022 | (941 | ) | (941 | ) | ||||||||||||||||||
| 0.450 | 07/26/2021 | 01/26/2022 | (6,296 | ) | (6,297 | ) | ||||||||||||||||||
| 0.540 | 07/26/2021 | 01/24/2022 | (1,688 | ) | (1,688 | ) | ||||||||||||||||||
| JML |
(0.450 | ) | 06/15/2021 | 09/15/2021 | EUR | (311 | ) | (368 | ) | |||||||||||||||
| (0.400 | ) | 06/15/2021 | 09/15/2021 | (2,613 | ) | (3,099 | ) | |||||||||||||||||
| (0.380 | ) | 06/15/2021 | 09/15/2021 | (5,158 | ) | (6,115 | ) | |||||||||||||||||
| (0.380 | ) | 06/16/2021 | 09/16/2021 | (5,628 | ) | (6,673 | ) | |||||||||||||||||
| (0.300 | ) | 07/14/2021 | 10/14/2021 | (2,277 | ) | (2,701 | ) | |||||||||||||||||
| (0.050 | ) | 07/08/2021 | TBD | (3) | $ | (752 | ) | (752 | ) | |||||||||||||||
| 0.200 | 06/15/2021 | 09/15/2021 | GBP | (772 | ) | (1,073 | ) | |||||||||||||||||
| 0.230 | 06/15/2021 | 09/15/2021 | (966 | ) | (1,343 | ) | ||||||||||||||||||
| 0.350 | 07/14/2021 | 10/14/2021 | (9,244 | ) | (12,852 | ) | ||||||||||||||||||
| 0.350 | 07/19/2021 | 10/19/2021 | (401 | ) | (557 | ) | ||||||||||||||||||
| 0.450 | 06/21/2021 | 09/20/2021 | $ | (8,368 | ) | (8,373 | ) | |||||||||||||||||
| 0.450 | 07/12/2021 | 09/20/2021 | (1,553 | ) | (1,553 | ) | ||||||||||||||||||
| 0.500 | 07/22/2021 | 01/24/2022 | (873 | ) | (874 | ) | ||||||||||||||||||
| MEI |
(0.200 | ) | 07/13/2021 | 10/11/2021 | EUR | (2,559 | ) | (3,035 | ) | |||||||||||||||
| NOM |
0.400 | 08/02/2021 | 09/02/2021 | $ | (11,685 | ) | (11,685 | ) | ||||||||||||||||
| 0.450 | 06/01/2021 | 08/02/2021 | (2,883 | ) | (2,885 | ) | ||||||||||||||||||
| 0.450 | 06/03/2021 | 08/02/2021 | (3,215 | ) | (3,218 | ) | ||||||||||||||||||
| 0.450 | 06/10/2021 | 08/02/2021 | (1,096 | ) | (1,097 | ) | ||||||||||||||||||
| 0.450 | 06/14/2021 | 08/02/2021 | (190 | ) | (190 | ) | ||||||||||||||||||
| 0.450 | 07/22/2021 | 08/02/2021 | (4,176 | ) | (4,177 | ) | ||||||||||||||||||
| SCX |
(0.370 | ) | 07/08/2021 | 10/08/2021 | EUR | (1,853 | ) | (2,198 | ) | |||||||||||||||
| SOG |
0.270 | 07/28/2021 | 08/30/2021 | $ | (6,134 | ) | (6,135 | ) | ||||||||||||||||
| 0.400 | 07/16/2021 | 01/18/2022 | (3,438 | ) | (3,439 | ) | ||||||||||||||||||
| 0.450 | 05/10/2021 | 08/13/2021 | (3,916 | ) | (3,920 | ) | ||||||||||||||||||
| 0.450 | 05/17/2021 | 08/20/2021 | (5,064 | ) | (5,069 | ) | ||||||||||||||||||
| 0.450 | 05/20/2021 | 08/17/2021 | (550 | ) | (551 | ) | ||||||||||||||||||
| 0.450 | 05/24/2021 | 08/25/2021 | (3,223 | ) | (3,226 | ) | ||||||||||||||||||
| 0.450 | 05/25/2021 | 08/27/2021 | (5,270 | ) | (5,275 | ) | ||||||||||||||||||
| 0.450 | 06/02/2021 | 09/02/2021 | (1,310 | ) | (1,311 | ) | ||||||||||||||||||
| 0.450 | 06/03/2021 | 09/07/2021 | (2,688 | ) | (2,690 | ) | ||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 39 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount Borrowed(2) |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| 0.450 | % | 06/14/2021 | 09/16/2021 | $ | (8,099 | ) | $ | (8,104 | ) | |||||||||||||||
| 0.450 | 06/15/2021 | 09/17/2021 | (8,405 | ) | (8,410 | ) | ||||||||||||||||||
| 0.450 | 06/16/2021 | 08/20/2021 | (1,442 | ) | (1,443 | ) | ||||||||||||||||||
| 0.450 | 06/17/2021 | 09/17/2021 | (1,945 | ) | (1,946 | ) | ||||||||||||||||||
| 0.450 | 06/18/2021 | 08/27/2021 | (576 | ) | (577 | ) | ||||||||||||||||||
| 0.450 | 06/25/2021 | 09/07/2021 | (8,788 | ) | (8,792 | ) | ||||||||||||||||||
| 0.450 | 06/28/2021 | 08/27/2021 | (1,389 | ) | (1,390 | ) | ||||||||||||||||||
| 0.450 | 06/28/2021 | 09/28/2021 | (1,426 | ) | (1,427 | ) | ||||||||||||||||||
| 0.450 | 07/02/2021 | 09/02/2021 | (3,722 | ) | (3,723 | ) | ||||||||||||||||||
| 0.450 | 07/19/2021 | 08/17/2021 | (6,868 | ) | (6,870 | ) | ||||||||||||||||||
| 0.500 | 07/07/2021 | 10/05/2021 | (4,438 | ) | (4,439 | ) | ||||||||||||||||||
| 0.500 | 07/16/2021 | 01/18/2022 | (24,255 | ) | (24,261 | ) | ||||||||||||||||||
| 0.500 | 07/20/2021 | 01/20/2022 | (3,116 | ) | (3,117 | ) | ||||||||||||||||||
| 0.550 | 06/02/2021 | 03/02/2022 | (15,355 | ) | (15,369 | ) | ||||||||||||||||||
| 0.550 | 06/07/2021 | 03/07/2022 | (16,662 | ) | (16,676 | ) | ||||||||||||||||||
| 0.550 | 06/10/2021 | 03/10/2022 | (739 | ) | (739 | ) | ||||||||||||||||||
| 0.550 | 06/16/2021 | 03/02/2022 | (2,679 | ) | (2,680 | ) | ||||||||||||||||||
| 0.550 | 06/24/2021 | 03/02/2022 | (4,516 | ) | (4,518 | ) | ||||||||||||||||||
| 0.550 | 06/28/2021 | 03/02/2022 | (5,188 | ) | (5,190 | ) | ||||||||||||||||||
| 0.550 | 06/30/2021 | 03/02/2022 | (4,137 | ) | (4,139 | ) | ||||||||||||||||||
| 0.550 | 07/01/2021 | 03/02/2022 | (3,517 | ) | (3,518 | ) | ||||||||||||||||||
| 0.550 | 07/07/2021 | 03/02/2022 | (3,975 | ) | (3,977 | ) | ||||||||||||||||||
| 0.550 | 07/09/2021 | 03/07/2022 | (6,707 | ) | (6,710 | ) | ||||||||||||||||||
| 0.550 | 07/27/2021 | 04/27/2022 | (1,289 | ) | (1,289 | ) | ||||||||||||||||||
| 0.550 | 07/30/2021 | 03/02/2022 | (1,020 | ) | (1,020 | ) | ||||||||||||||||||
| TDM |
0.220 | 06/03/2021 | TBD | (3) | (2,526 | ) | (2,527 | ) | ||||||||||||||||
| 0.220 | 06/07/2021 | TBD | (3) | (3,560 | ) | (3,561 | ) | |||||||||||||||||
| 0.250 | 02/24/2021 | TBD | (3) | (1,238 | ) | (1,239 | ) | |||||||||||||||||
| 0.250 | 04/16/2021 | TBD | (3) | (22,639 | ) | (22,656 | ) | |||||||||||||||||
| UBS |
(0.100 | ) | 05/12/2021 | 08/12/2021 | EUR | (1,918 | ) | (2,274 | ) | |||||||||||||||
| 0.350 | 07/08/2021 | 10/08/2021 | $ | (5,482 | ) | (5,484 | ) | |||||||||||||||||
| 0.400 | 07/23/2021 | 08/24/2021 | (47,785 | ) | (47,791 | ) | ||||||||||||||||||
| 0.400 | 07/27/2021 | 08/30/2021 | (6,338 | ) | (6,338 | ) | ||||||||||||||||||
| 0.400 | 07/30/2021 | 08/30/2021 | (40,546 | ) | (40,547 | ) | ||||||||||||||||||
| 0.430 | 06/07/2021 | 09/07/2021 | (6,602 | ) | (6,606 | ) | ||||||||||||||||||
| 0.430 | 07/20/2021 | 10/19/2021 | (3,748 | ) | (3,748 | ) | ||||||||||||||||||
| 0.450 | 05/19/2021 | 08/19/2021 | (5,560 | ) | (5,565 | ) | ||||||||||||||||||
| 0.450 | 06/02/2021 | 09/03/2021 | (48,160 | ) | (48,197 | ) | ||||||||||||||||||
| 0.500 | 05/12/2021 | 08/12/2021 | GBP | (4,727 | ) | (6,578 | ) | |||||||||||||||||
| 0.500 | 07/14/2021 | 01/12/2022 | $ | (9,027 | ) | (9,029 | ) | |||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total Reverse Repurchase Agreements |
|
$ | (1,012,822 | ) | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
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 July 31, 2021:
| Counterparty | Repurchase Agreement Proceeds to be Received(1) |
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 |
| |||||||||||||||||||||||
| BOS |
$ | 0 | $ | (41,857 | ) | $ | 0 | $ | (41,857 | ) | $ | 43,780 | $ | 1,923 | ||||||||||
| BPS |
53,600 | (48,364 | ) | 0 | 5,236 | (2 | ) | 5,234 | ||||||||||||||||
| BRC |
0 | (135,956 | ) | 0 | (135,956 | ) | 152,907 | 16,951 | ||||||||||||||||
| BYR |
0 | (47,412 | ) | 0 | (47,412 | ) | 56,697 | 9,285 | ||||||||||||||||
| CDC |
0 | (114,535 | ) | 0 | (114,535 | ) | 121,919 | 7,384 | ||||||||||||||||
| CEW |
0 | (60,180 | ) | 0 | (60,180 | ) | 71,968 | 11,788 | ||||||||||||||||
| CIB |
0 | (442 | ) | 0 | (442 | ) | 485 | 43 | ||||||||||||||||
| CIW |
0 | (37,378 | ) | 0 | (37,378 | ) | 38,920 | 1,542 | ||||||||||||||||
| FICC |
8,390 | 0 | 0 | 8,390 | (8,558 | ) | (168 | ) | ||||||||||||||||
| FOB |
0 | (2,881 | ) | 0 | (2,881 | ) | 3,193 | 312 | ||||||||||||||||
| IND |
0 | (64,919 | ) | 0 | (64,919 | ) | 70,955 | 6,036 | ||||||||||||||||
| JML |
0 | (46,333 | ) | 0 | (46,333 | ) | 52,868 | 6,535 | ||||||||||||||||
| MEI |
0 | (3,035 | ) | 0 | (3,035 | ) | 3,144 | 109 | ||||||||||||||||
| NOM |
0 | (23,252 | ) | 0 | (23,252 | ) | 12,471 | (10,781 | ) | |||||||||||||||
| SCX |
0 | (2,198 | ) | 0 | (2,198 | ) | 2,453 | 255 | ||||||||||||||||
| SOG |
0 | (171,940 | ) | 0 | (171,940 | ) | 200,354 | 28,414 | ||||||||||||||||
| TDM |
0 | (29,983 | ) | 0 | (29,983 | ) | 31,633 | 1,650 | ||||||||||||||||
| UBS |
0 | (182,157 | ) | 0 | (182,157 | ) | 213,021 | 30,864 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total Borrowings and Other Financing Transactions |
$ | 61,990 | $ | (1,012,822 | ) | $ | 0 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| 40 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
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 | $ | (329,570 | ) | $ | (305,931 | ) | $ | (331,224 | ) | $ | (966,725 | ) | ||||||
| Municipal Bonds & Notes |
0 | 0 | 0 | (17,075 | ) | (17,075 | ) | |||||||||||||
| U.S. Government Agencies |
0 | (442 | ) | 0 | 0 | (442 | ) | |||||||||||||
| Sovereign Issues |
0 | 0 | (10,199 | ) | (752 | ) | (10,951 | ) | ||||||||||||
| Preferred Securities |
0 | (2,274 | ) | 0 | (1,215 | ) | (3,489 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Borrowings |
$ | 0 | $ | (332,286 | ) | $ | (316,130 | ) | $ | (350,266 | ) | $ | (998,682 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Payable for reverse repurchase agreements(5) |
|
$ | (998,682 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||||
| (n) | Securities with an aggregate market value of $1,143,573 and cash of $150 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021. |
| (1) | Includes accrued interest. |
| (2) | The average amount of borrowings outstanding during the period ended July 31, 2021 was $(749,579) at a weighted average interest rate of 0.564%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period. |
| (3) | Open maturity reverse repurchase agreement. |
| (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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (5) | Unsettled reverse repurchase agreements liability of $(14,140) is outstanding at period end. |
(o) FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION(1)
| Reference Entity | Fixed Receive Rate |
Payment Frequency |
Maturity Date |
Implied Credit Spread at July 31, 2021(2) |
Notional Amount(3) |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value(4) |
Variation Margin | |||||||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||||||
| Atlantia SPA |
1.000 | % | Quarterly | 12/20/2025 | 1.071 | % | EUR | 1,000 | $ | (45 | ) | $ | 43 | $ | (2 | ) | $ | 0 | $ | 0 | ||||||||||||||||||||||||
| Atlantia SpA |
1.000 | Quarterly | 06/20/2026 | 1.141 | 4,500 | (155 | ) | 125 | (30 | ) | 1 | 0 | ||||||||||||||||||||||||||||||||
| Boeing Co. |
1.000 | Quarterly | 12/20/2021 | 0.443 | $ | 1,000 | (25 | ) | 28 | 3 | 0 | 0 | ||||||||||||||||||||||||||||||||
| Boeing Co. |
1.000 | Quarterly | 06/20/2026 | 1.109 | 12,700 | (231 | ) | 180 | (51 | ) | 0 | (1 | ) | |||||||||||||||||||||||||||||||
| Bombardier, Inc. |
5.000 | Quarterly | 06/20/2024 | 2.773 | 4,700 | (9 | ) | 326 | 317 | 7 | 0 | |||||||||||||||||||||||||||||||||
| Bombardier, Inc. |
5.000 | Quarterly | 12/20/2024 | 3.311 | 1,000 | (2 | ) | 62 | 60 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||
| Energy Transfer Operating LP |
1.000 | Quarterly | 06/20/2026 | 0.906 | 100 | (2 | ) | 3 | 1 | 0 | 0 | |||||||||||||||||||||||||||||||||
| Hess Corp. |
1.000 | Quarterly | 06/20/2026 | 1.152 | 100 | (3 | ) | 2 | (1 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||
| MGM Resorts International |
5.000 | Quarterly | 06/20/2026 | 2.229 | 11,800 | 1,619 | (54 | ) | 1,565 | 0 | (26 | ) | ||||||||||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 06/20/2025 | 2.108 | EUR | 1,900 | (362 | ) | 270 | (92 | ) | 2 | 0 | |||||||||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 12/20/2025 | 2.269 | 27,400 | (4,887 | ) | 3,185 | (1,702 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 06/20/2026 | 2.395 | 11,400 | (853 | ) | (8 | ) | (861 | ) | 5 | 0 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| $ | (4,955 | ) | $ | 4,162 | $ | (793 | ) | $ | 15 | $ | (28 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION(1)
| Index/Tranches | Fixed Receive Rate |
Payment Frequency |
Maturity Date |
Notional Amount(3) |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value(4) |
Variation Margin | ||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||
| CDX.HY-34 5-Year Index |
5.000 | % | Quarterly | 06/20/2025 | $ | 1,104 | $ | (7 | ) | $ | 115 | $ | 108 | $ | 0 | $ | (1 | ) | ||||||||||||||||||
| CDX.HY-35 5-Year Index |
5.000 | Quarterly | 12/20/2025 | 1,300 | 51 | 75 | 126 | 0 | (3 | ) | ||||||||||||||||||||||||||
| CDX.HY-36 5-Year Index |
5.000 | Quarterly | 06/20/2026 | 8,900 | 815 | 56 | 871 | 0 | (25 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
| $ | 859 | $ | 246 | $ | 1,105 | $ | 0 | $ | (29 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
INTEREST RATE SWAPS
| Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin | |||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | % | Annual | 09/15/2031 | GBP | 23,800 | $ | (20 | ) | $ | (507 | ) | $ | (527 | ) | $ | 0 | $ | (43 | ) | |||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | Annual | 09/15/2051 | 7,800 | 491 | (845 | ) | (354 | ) | 0 | (39 | ) | |||||||||||||||||||||||||||
| Receive(5) |
1-Day USD-Federal Funds Rate Compounded-OIS |
0.100 | Annual | 01/13/2023 | $ | 10,000 | (1 | ) | 4 | 3 | 0 | (1 | ) | |||||||||||||||||||||||||||
| Pay |
1-Year BRL-CDI |
4.640 | Maturity | 01/03/2022 | BRL | 827,500 | 60 | (580 | ) | (520 | ) | 0 | (67 | ) | ||||||||||||||||||||||||||
| Pay |
1-Year BRL-CDI |
6.170 | Maturity | 01/02/2023 | 168,900 | (31 | ) | (314 | ) | (345 | ) | 0 | (91 | ) | ||||||||||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 41 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin | |||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.250 | % | Semi-Annual | 12/18/2022 | $ | 78,000 | $ | 38 | $ | (127 | ) | $ | (89 | ) | $ | 0 | $ | (6 | ) | ||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.250 | Semi-Annual | 06/16/2024 | 10,000 | 27 | 26 | 53 | 0 | (6 | ) | |||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.750 | Semi-Annual | 06/17/2025 | 8,580 | 541 | 189 | 730 | 10 | 0 | ||||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 06/15/2026 | 44,400 | 2,099 | 1,173 | 3,272 | 68 | 0 | ||||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.500 | Semi-Annual | 06/16/2026 | 35,000 | 544 | (103 | ) | 441 | 0 | (45 | ) | ||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.500 | Semi-Annual | 12/20/2027 | 73,900 | 530 | 6,757 | 7,287 | 176 | 0 | ||||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.420 | Semi-Annual | 08/17/2028 | 47,100 | 0 | (1,196 | ) | (1,196 | ) | 0 | (124 | ) | |||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.380 | Semi-Annual | 08/24/2028 | 71,000 | 0 | (1,585 | ) | (1,585 | ) | 0 | (187 | ) | |||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.000 | Semi-Annual | 06/19/2029 | 263,700 | 13,372 | 25,555 | 38,927 | 925 | 0 | ||||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.000 | Semi-Annual | 12/16/2030 | 3,600 | (75 | ) | 144 | 69 | 0 | (14 | ) | ||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.160 | Semi-Annual | 04/12/2031 | 6,100 | 0 | 36 | 36 | 0 | (26 | ) | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.750 | Semi-Annual | 06/16/2031 | 154,000 | 12,493 | (5,300 | ) | 7,193 | 0 | (616 | ) | ||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 12/15/2031 | 97,600 | (1,547 | ) | (2,450 | ) | (3,997 | ) | 0 | (426 | ) | ||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.500 | Semi-Annual | 06/19/2044 | 305,100 | (9,953 | ) | 123,986 | 114,033 | 2,524 | 0 | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 12/11/2049 | 2,200 | (3 | ) | (302 | ) | (305 | ) | 0 | (17 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.000 | Semi-Annual | 01/15/2050 | 19,800 | (143 | ) | (1,388 | ) | (1,531 | ) | 0 | (143 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 01/22/2050 | 28,200 | (65 | ) | (420 | ) | (485 | ) | 0 | (191 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.875 | Semi-Annual | 02/07/2050 | 29,300 | (114 | ) | (1,505 | ) | (1,619 | ) | 0 | (205 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 03/12/2050 | 9,800 | (29 | ) | (1,395 | ) | (1,424 | ) | 0 | (75 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.150 | Semi-Annual | 12/11/2050 | 318,100 | 697 | 40,193 | 40,890 | 0 | (1,772 | ) | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.250 | Semi-Annual | 12/16/2050 | 17,000 | 1,650 | 120 | 1,770 | 0 | (98 | ) | |||||||||||||||||||||||||||||
| Pay |
6-Month AUD-BBR-BBSW |
3.500 | Semi-Annual | 06/17/2025 | AUD | 13,400 | 332 | 837 | 1,169 | 0 | 0 | |||||||||||||||||||||||||||||
| Pay |
6-Month CZK-PRIBOR |
1.800 | Annual | 05/17/2026 | CZK | 814,100 | 0 | 10 | 10 | 0 | (159 | ) | ||||||||||||||||||||||||||||
| Receive |
6-Month EUR-EURIBOR |
(0.150 | ) | Annual | 03/18/2030 | EUR | 21,400 | 392 | (427 | ) | (35 | ) | 0 | (31 | ) | |||||||||||||||||||||||||
| Receive(5) |
6-Month EUR-EURIBOR |
0.000 | Annual | 09/15/2031 | 19,500 | 321 | (447 | ) | (126 | ) | 0 | (37 | ) | |||||||||||||||||||||||||||
| Pay |
6-Month HUF-BBR |
2.121 | Annual | 05/17/2026 | HUF | 11,300,600 | 0 | (458 | ) | (458 | ) | 0 | (215 | ) | ||||||||||||||||||||||||||
| Pay |
28-Day MXN-TIIE |
4.550 | Lunar | 02/27/2023 | MXN | 117,300 | 14 | (120 | ) | (106 | ) | 3 | 0 | |||||||||||||||||||||||||||
| Pay |
28-Day MXN-TIIE |
4.500 | Lunar | 03/03/2023 | 218,400 | (8 | ) | (200 | ) | (208 | ) | 5 | 0 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| $ | 21,612 | $ | 179,361 | $ | 200,973 | $ | 3,711 | $ | (4,634 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total Swap Agreements |
|
$ | 17,516 | $ | 183,769 | $ | 201,285 | $ | 3,726 | $ | (4,691 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
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 July 31, 2021:
| 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 | $ | 3,726 | $ | 3,726 | $ | 0 | $ | 0 | $ | (4,691) | $ | (4,691) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| (p) | Securities with an aggregate market value of $22,851 and cash of $50,431 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (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 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 underlying referenced instrument’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
| (5) | This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information. |
| 42 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
(q) FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER
FORWARD FOREIGN CURRENCY CONTRACTS:
| Counterparty |
Settlement |
Currency
to |
Currency
to |
Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||
| BOA |
08/2021 | CHF | 799 | $ | 886 | $ | 3 | $ | 0 | |||||||||||||||
| 08/2021 | PEN | 1,044 | 268 | 11 | 0 | |||||||||||||||||||
| 08/2021 | $ | 8,154 | CAD | 9,838 | 0 | (268 | ) | |||||||||||||||||
| 08/2021 | 806 | RUB | 60,607 | 20 | 0 | |||||||||||||||||||
| 09/2021 | 1,596 | 116,457 | 0 | (17 | ) | |||||||||||||||||||
| 10/2021 | 268 | PEN | 1,044 | 0 | (10 | ) | ||||||||||||||||||
| BPS |
08/2021 | AUD | 285 | $ | 213 | 4 | 0 | |||||||||||||||||
| 08/2021 | EUR | 8,033 | 9,530 | 3 | (2 | ) | ||||||||||||||||||
| 08/2021 | HUF | 44,875 | 153 | 4 | 0 | |||||||||||||||||||
| 08/2021 | MXN | 3,296 | 155 | 0 | (11 | ) | ||||||||||||||||||
| 08/2021 | PEN | 2,700 | 731 | 66 | 0 | |||||||||||||||||||
| 11/2021 | $ | 513 | MXN | 10,362 | 0 | 0 | ||||||||||||||||||
| BRC |
08/2021 | EUR | 2,164 | $ | 2,575 | 8 | 0 | |||||||||||||||||
| 08/2021 | GBP | 11,640 | 16,128 | 0 | (52 | ) | ||||||||||||||||||
| 08/2021 | $ | 162 | HUF | 47,072 | 0 | (7 | ) | |||||||||||||||||
| CBK |
08/2021 | PEN | 7,736 | $ | 2,052 | 148 | 0 | |||||||||||||||||
| 08/2021 | $ | 2,945 | PEN | 11,667 | 0 | (72 | ) | |||||||||||||||||
| 08/2021 | 735 | RUB | 55,253 | 18 | 0 | |||||||||||||||||||
| 09/2021 | CLP | 116,610 | $ | 162 | 9 | 0 | ||||||||||||||||||
| 09/2021 | MXN | 2,565 | 128 | 0 | 0 | |||||||||||||||||||
| 09/2021 | PEN | 30,324 | 7,801 | 336 | 0 | |||||||||||||||||||
| 09/2021 | $ | 177 | CLP | 130,274 | 0 | (6 | ) | |||||||||||||||||
| 09/2021 | 8,824 | PEN | 33,811 | 0 | (500 | ) | ||||||||||||||||||
| 09/2021 | 4 | TRY | 37 | 0 | 0 | |||||||||||||||||||
| 09/2021 | 5,754 | ZAR | 79,141 | 0 | (382 | ) | ||||||||||||||||||
| 10/2021 | PEN | 3,112 | $ | 797 | 30 | 0 | ||||||||||||||||||
| 10/2021 | $ | 7,456 | PEN | 29,128 | 0 | (284 | ) | |||||||||||||||||
| 11/2021 | 5,929 | MXN | 120,969 | 59 | 0 | |||||||||||||||||||
| 12/2021 | 2,821 | INR | 216,258 | 45 | 0 | |||||||||||||||||||
| GLM |
08/2021 | HUF | 333,762 | $ | 1,161 | 57 | 0 | |||||||||||||||||
| 08/2021 | $ | 89,576 | GBP | 64,214 | 0 | (319 | ) | |||||||||||||||||
| 08/2021 | 1,254 | PEN | 4,984 | 0 | (27 | ) | ||||||||||||||||||
| 08/2021 | 1,030 | RUB | 77,184 | 22 | 0 | |||||||||||||||||||
| 09/2021 | GBP | 64,214 | $ | 89,583 | 319 | 0 | ||||||||||||||||||
| 09/2021 | $ | 2,028 | RUB | 148,665 | 0 | (12 | ) | |||||||||||||||||
| 09/2021 | 2,786 | ZAR | 38,351 | 0 | (183 | ) | ||||||||||||||||||
| 10/2021 | 1,543 | RUB | 116,316 | 25 | 0 | |||||||||||||||||||
| HUS |
08/2021 | EUR | 11,209 | $ | 13,274 | 0 | (22 | ) | ||||||||||||||||
| 08/2021 | GBP | 52,574 | 72,772 | 0 | (306 | ) | ||||||||||||||||||
| 08/2021 | $ | 1,656 | RUB | 124,684 | 44 | 0 | ||||||||||||||||||
| 09/2021 | 20,813 | CNH | 133,757 | 0 | (195 | ) | ||||||||||||||||||
| 09/2021 | 159 | PEN | 624 | 0 | (5 | ) | ||||||||||||||||||
| 09/2021 | 837 | RUB | 61,317 | 0 | (6 | ) | ||||||||||||||||||
| 10/2021 | PEN | 410 | $ | 111 | 10 | 0 | ||||||||||||||||||
| 10/2021 | $ | 9,357 | MXN | 189,579 | 65 | 0 | ||||||||||||||||||
| 10/2021 | 401 | RUB | 30,242 | 7 | 0 | |||||||||||||||||||
| 12/2021 | PEN | 384 | $ | 104 | 9 | 0 | ||||||||||||||||||
| 12/2021 | $ | 1,223 | INR | 94,145 | 24 | 0 | ||||||||||||||||||
| JPM |
08/2021 | CZK | 24,181 | $ | 1,160 | 36 | 0 | |||||||||||||||||
| 12/2021 | $ | 817 | INR | 61,626 | 0 | (1 | ) | |||||||||||||||||
| MYI |
08/2021 | BRL | 90,532 | $ | 17,360 | 0 | (23 | ) | ||||||||||||||||
| 08/2021 | $ | 17,902 | BRL | 90,532 | 0 | (520 | ) | |||||||||||||||||
| 08/2021 | 166 | MXN | 3,296 | 0 | 0 | |||||||||||||||||||
| 09/2021 | MXN | 3,296 | $ | 165 | 0 | 0 | ||||||||||||||||||
| 09/2021 | $ | 17,293 | BRL | 90,532 | 19 | 0 | ||||||||||||||||||
| 09/2021 | 65 | PEN | 258 | 0 | (1 | ) | ||||||||||||||||||
| SCX |
08/2021 | EUR | 113,799 | $ | 135,031 | 47 | (10 | ) | ||||||||||||||||
| 08/2021 | $ | 131 | CZK | 2,724 | 0 | (4 | ) | |||||||||||||||||
| 08/2021 | 1,861 | EUR | 1,576 | 9 | 0 | |||||||||||||||||||
| 09/2021 | EUR | 133,629 | $ | 158,548 | 0 | (61 | ) | |||||||||||||||||
| 09/2021 | PEN | 2,531 | 636 | 13 | 0 | |||||||||||||||||||
| 09/2021 | $ | 8,229 | IDR | 118,524,667 | 0 | (59 | ) | |||||||||||||||||
| 10/2021 | 1,979 | RUB | 148,938 | 30 | 0 | |||||||||||||||||||
| 12/2021 | PEN | 238 | $ | 64 | 6 | 0 | ||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 43 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| Counterparty |
Settlement |
Currency
to |
Currency
to |
Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||
| 12/2021 | $ | 3,276 | INR | 246,047 | $ | 0 | $ | (16 | ) | |||||||||||||||
| SOG |
08/2021 | 171 | CZK | 3,578 | 0 | (4 | ) | |||||||||||||||||
| 08/2021 | 919 | RUB | 69,290 | 26 | 0 | |||||||||||||||||||
| UAG |
08/2021 | SEK | 315 | $ | 38 | 1 | 0 | |||||||||||||||||
| 08/2021 | $ | 7,478 | NOK | 61,817 | 0 | (481 | ) | |||||||||||||||||
| 09/2021 | 826 | RUB | 60,579 | 0 | (4 | ) | ||||||||||||||||||
| 10/2021 | 1,215 | 91,522 | 20 | 0 | ||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total Forward Foreign Currency Contracts |
|
$ | 1,553 | $ | (3,870 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
WRITTEN OPTIONS:
CREDIT DEFAULT SWAPTIONS ON CREDIT INDICES
| Counterparty | Description | Buy/Sell Protection |
Exercise Rate |
Expiration Date |
Notional Amount(1) |
Premiums (Received) |
Market Value |
|||||||||||||||
| BOA |
Put - OTC CDX.HY-36 5-Year Index |
Sell | 101.000 | % | 10/20/2021 | 3,700 | $ | (17 | ) | $ | (10 | ) | ||||||||||
| BPS |
Put - OTC iTraxx Europe 35 5-Year Index |
Sell | 0.800 | 09/15/2021 | 7,800 | (10 | ) | (2 | ) | |||||||||||||
| BRC |
Put - OTC iTraxx Europe 35 5-Year Index |
Sell | 0.800 | 09/15/2021 | 17,200 | (23 | ) | (3 | ) | |||||||||||||
| Put - OTC iTraxx Europe 35 5-Year Index |
Sell | 0.850 | 10/20/2021 | 17,000 | (20 | ) | (7 | ) | ||||||||||||||
| DUB |
Put - OTC CDX.IG-36 5-Year Index |
Sell | 0.900 | 09/15/2021 | 51,300 | (52 | ) | (10 | ) | |||||||||||||
| FBF |
Put - OTC CDX.HY-36 5-Year Index |
Sell | 104.000 | 09/15/2021 | 3,500 | (20 | ) | (7 | ) | |||||||||||||
| Put - OTC CDX.IG-36 5-Year Index |
Sell | 0.750 | 08/18/2021 | 15,500 | (16 | ) | (1 | ) | ||||||||||||||
| Put - OTC CDX.IG-36 5-Year Index |
Sell | 0.900 | 09/15/2021 | 34,000 | (36 | ) | (6 | ) | ||||||||||||||
| GST |
Put - OTC CDX.IG-36 5-Year Index |
Sell | 0.850 | 10/20/2021 | 32,100 | (34 | ) | (16 | ) | |||||||||||||
| JPM |
Put - OTC iTraxx Europe 35 5-Year Index |
Sell | 0.850 | 10/20/2021 | 17,000 | (21 | ) | (7 | ) | |||||||||||||
|
|
|
|
|
|||||||||||||||||||
| Total Written Options |
$ | (249 | ) | $ | (69 | ) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE AND SOVEREIGN ISSUES - SELL PROTECTION(2)
| Counterparty |
Reference Entity |
Fixed |
Payment |
Maturity |
Implied Credit Spread at July 31, 2021(3) |
Notional Amount(4) |
Premiums |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value(5) |
|||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||
| BPS | Petrobras Global Finance BV |
1.000 | % | Quarterly | 12/20/2024 | 1.561 | % | $ | 1,800 | $ | (352 | ) | $ | 320 | $ | 0 | $ | (32 | ) | |||||||||||||||||
| BRC | Springleaf Finance Corp. |
5.000 | Quarterly | 12/20/2021 | 0.499 | 2,700 | (40 | ) | 104 | 64 | 0 | |||||||||||||||||||||||||
| Ukraine Government International Bond |
5.000 | Quarterly | 12/20/2022 | 3.320 | 16,900 | 1,036 | (549 | ) | 487 | 0 | ||||||||||||||||||||||||||
| GST | Petrobras Global Finance BV |
1.000 | Quarterly | 12/20/2024 | 1.561 | 2,400 | (476 | ) | 434 | 0 | (42 | ) | ||||||||||||||||||||||||
| Petroleos Mexicanos |
1.000 | Quarterly | 12/20/2021 | 1.456 | 100 | (5 | ) | 5 | 0 | 0 | ||||||||||||||||||||||||||
| HUS | Petrobras Global Finance BV |
1.000 | Quarterly | 12/20/2024 | 1.561 | 3,000 | (623 | ) | 571 | 0 | (52 | ) | ||||||||||||||||||||||||
| JPM | Springleaf Finance Corp. |
5.000 | Quarterly | 06/20/2022 | 0.675 | 6,570 | 620 | (326 | ) | 294 | 0 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| $ | 160 | $ | 559 | $ | 845 | $ | (126 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION(2)
| Counterparty |
Index/Tranches |
Fixed |
Payment |
Maturity |
Notional Amount(4) |
Premiums |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value(5) |
||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||
| BRC | ABX.HE.AAA.6-2 Index |
0.110 | % | Monthly | 05/25/2046 | $ 28,949 | $ | (6,111 | ) | $ | 5,198 | $ | 0 | $ | (913 | ) | ||||||||||||||||
| GST | ABX.HE.AA.6-1 Index |
0.320 | Monthly | 07/25/2045 | 13,018 | (618 | ) | (224 | ) | 0 | (842 | ) | ||||||||||||||||||||
| ABX.HE.AAA.6-2 Index |
0.110 | Monthly | 05/25/2046 | 2,449 | (516 | ) | 439 | 0 | (77 | ) | ||||||||||||||||||||||
| MEI | ABX.HE.AAA.6-2 Index |
0.110 | Monthly | 05/25/2046 | 33,741 | (7,042 | ) | 5,977 | 0 | (1,065 | ) | |||||||||||||||||||||
| MYC | ABX.HE.AAA.6-2 Index |
0.110 | Monthly | 05/25/2046 | 36,732 | (4,684 | ) | 3,525 | 0 | (1,159 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| $ | (18,971 | ) | $ | 14,915 | $ | 0 | $ | (4,056 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| 44 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
INTEREST RATE SWAPS
| Counterparty |
Pay/Receive |
Floating Rate Index |
Fixed Rate |
Payment |
Maturity |
Notional |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value |
|||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||
| MYC | Pay |
3-Month USD-LIBOR |
1.670 | % | Semi-Annual | 08/17/2028 | $ | 188,400 | $ | (134 | ) | $ | 860 | $ | 726 | $ | 0 | |||||||||||||||
| Pay |
3-Month USD-LIBOR |
1.630 | Semi-Annual | 08/24/2028 | 284,100 | (99 | ) | 1,167 | 1,068 | 0 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| $ | (233 | ) | $ | 2,027 | $ | 1,794 | $ | 0 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
TOTAL RETURN SWAPS ON INTEREST RATE INDICES
| Counterparty |
Pay/Receive(6) |
Underlying Reference |
# of Units |
Financing Rate |
Payment |
Maturity |
Notional |
Premiums |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value |
||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||
| BPS |
Receive |
iBoxx USD Liquid High Yield Index |
N/A | 0.135% (3-Month USD-LIBOR plus a specified spread) |
Maturity | 12/20/2021 | $ | 2,600 | $ | 0 | $ | 3 | $ | 3 | $ | 0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
| Total Swap Agreements |
|
$ | (19,044 | ) | $ | 17,504 | $ | 2,642 | $ | (4,182 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
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 July 31, 2021:
| Counterparty |
Financial Derivative Assets | Financial Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||
| 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(7) |
||||||||||||||||||||||||||||||||||||||
| BOA |
$ | 34 | $ | 0 | $ | 0 | $ | 34 | $ | (295 | ) | $ | (10 | ) | $ | 0 | $ | (305 | ) | $ | (271 | ) | $ | 303 | $ | 32 | ||||||||||||||||||||||
| BPS |
77 | 0 | 3 | 80 | (13 | ) | (2 | ) | (32 | ) | (47 | ) | 33 | 0 | 33 | |||||||||||||||||||||||||||||||||
| BRC |
8 | 0 | 551 | 559 | (59 | ) | (10 | ) | (913 | ) | (982 | ) | (423 | ) | 449 | 26 | ||||||||||||||||||||||||||||||||
| CBK |
645 | 0 | 0 | 645 | (1,244 | ) | 0 | 0 | (1,244 | ) | (599 | ) | 430 | (169 | ) | |||||||||||||||||||||||||||||||||
| DUB |
0 | 0 | 0 | 0 | 0 | (10 | ) | 0 | (10 | ) | (10 | ) | (10 | ) | (20 | ) | ||||||||||||||||||||||||||||||||
| FBF |
0 | 0 | 0 | 0 | 0 | (14 | ) | 0 | (14 | ) | (14 | ) | 41 | 27 | ||||||||||||||||||||||||||||||||||
| GLM |
423 | 0 | 0 | 423 | (541 | ) | 0 | 0 | (541 | ) | (118 | ) | 0 | (118 | ) | |||||||||||||||||||||||||||||||||
| GST |
0 | 0 | 0 | 0 | 0 | (16 | ) | (961 | ) | (977 | ) | (977 | ) | 1,228 | 251 | |||||||||||||||||||||||||||||||||
| HUS |
159 | 0 | 0 | 159 | (534 | ) | 0 | (52 | ) | (586 | ) | (427 | ) | 581 | 154 | |||||||||||||||||||||||||||||||||
| JPM |
36 | 0 | 294 | 330 | (1 | ) | (7 | ) | 0 | (8 | ) | 322 | (310 | ) | 12 | |||||||||||||||||||||||||||||||||
| MEI |
0 | 0 | 0 | 0 | 0 | 0 | (1,065 | ) | (1,065 | ) | (1,065 | ) | 1,147 | 82 | ||||||||||||||||||||||||||||||||||
| MYC |
0 | 0 | 1,794 | 1,794 | 0 | 0 | (1,159 | ) | (1,159 | ) | 635 | (870 | ) | (235 | ) | |||||||||||||||||||||||||||||||||
| MYI |
19 | 0 | 0 | 19 | (544 | ) | 0 | 0 | (544 | ) | (525 | ) | 26 | (499 | ) | |||||||||||||||||||||||||||||||||
| SCX |
105 | 0 | 0 | 105 | (150 | ) | 0 | 0 | (150 | ) | (45 | ) | 0 | (45 | ) | |||||||||||||||||||||||||||||||||
| SOG |
26 | 0 | 0 | 26 | (4 | ) | 0 | 0 | (4 | ) | 22 | 0 | 22 | |||||||||||||||||||||||||||||||||||
| UAG |
21 | 0 | 0 | 21 | (485 | ) | 0 | 0 | (485 | ) | (464 | ) | 542 | 78 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| Total Over the Counter |
$ | 1,553 | $ | 0 | $ | 2,642 | $ | 4,195 | $ | (3,870 | ) | $ | (69 | ) | $ | (4,182 | ) | $ | (8,121 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| (r) | Securities with an aggregate market value of $4,747 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of July 31, 2021. |
| (1) | Notional Amount represents the number of contracts. |
| (2) | 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. |
| (3) | 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. |
| (4) | 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. |
| (5) | The prices and resulting values for credit default swap agreements 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 underlying referenced instrument’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 | ANNUAL REPORT | | | JULY 31, 2021 | 45 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) |
| (6) | Receive represents that the Fund receives payments for any positive net return on the underlying reference. The Fund makes payments for any negative net return on such underlying reference. Pay represents that the Fund receives payments for any negative net return on the underlying reference. The Fund makes payments for any positive net return on such underlying reference. |
| (7) | 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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
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 and Other 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 July 31, 2021:
| 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 | $ | 15 | $ | 0 | $ | 0 | $ | 3,711 | $ | 3,726 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 1,553 | $ | 0 | $ | 1,553 | ||||||||||||
| Swap Agreements |
0 | 845 | 0 | 0 | 1,797 | 2,642 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 845 | $ | 0 | $ | 1,553 | $ | 1,797 | $ | 4,195 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 860 | $ | 0 | $ | 1,553 | $ | 5,508 | $ | 7,921 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Financial Derivative Instruments - Liabilities |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 57 | $ | 0 | $ | 0 | $ | 4,634 | $ | 4,691 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 3,870 | $ | 0 | $ | 3,870 | ||||||||||||
| Written Options |
0 | 69 | 0 | 0 | 0 | 69 | ||||||||||||||||||
| Swap Agreements |
0 | 4,182 | 0 | 0 | 0 | 4,182 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 4,251 | $ | 0 | $ | 3,870 | $ | 0 | $ | 8,121 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 4,308 | $ | 0 | $ | 3,870 | $ | 4,634 | $ | 12,812 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:
| 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 | $ | 1,614 | $ | 0 | $ | 0 | $ | 17,815 | $ | 19,429 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | (5,505 | ) | $ | 0 | $ | (5,505 | ) | ||||||||||
| Written Options |
0 | 43 | 0 | 0 | 0 | 43 | ||||||||||||||||||
| Swap Agreements |
0 | 6,807 | 0 | 0 | (834 | ) | 5,973 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 6,850 | $ | 0 | $ | (5,505 | ) | $ | (834 | ) | $ | 511 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 8,464 | $ | 0 | $ | (5,505 | ) | $ | 16,981 | $ | 19,940 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 5,615 | $ | 0 | $ | 0 | $ | (17,963 | ) | $ | (12,348 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 5,538 | $ | 0 | $ | 5,538 | ||||||||||||
| Written Options |
0 | 180 | 0 | 0 | 0 | 180 | ||||||||||||||||||
| Swap Agreements |
0 | 5,355 | 0 | 0 | 2,031 | 7,386 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 5,535 | $ | 0 | $ | 5,538 | $ | 2,031 | $ | 13,104 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 11,150 | $ | 0 | $ | 5,538 | $ | (15,932 | ) | $ | 756 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 46 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
FAIR VALUE MEASUREMENTS
The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:
| Category and Subcategory | Beginning Balance at 07/31/2020 |
Net Purchases |
Net Sales/ Settlements |
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 07/31/2021 |
Net Change
in Unrealized Appreciation/ (Depreciation) on Investments Held at 07/31/2021(1) |
||||||||||||||||||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||||||||||||||||||||||
| Loan Participations and Assignments |
$ | 45,887 | $ | 86,039 | $ | (55,548 | ) | $ | 129 | $ | (18,668 | ) | $ | 13,538 | $ | 792 | $ | (32 | ) | $ | 72,137 | $ | (791 | ) | ||||||||||||||||
| Corporate Bonds & Notes |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
0 | 1,985 | 0 | 0 | 0 | 14 | 0 | 0 | 1,999 | 14 | ||||||||||||||||||||||||||||||
| Convertible Bonds & Notes |
| |||||||||||||||||||||||||||||||||||||||
| Banking & Finance |
0 | 876 | 0 | 0 | 0 | 54 | 0 | 0 | 930 | 54 | ||||||||||||||||||||||||||||||
| U.S. Government Agencies |
8,599 | 0 | (188 | ) | 35 | 63 | 57 | 0 | 0 | 8,566 | 46 | |||||||||||||||||||||||||||||
| Non-Agency Mortgage-Backed Securities |
4,804 | 0 | 0 | 42 | 0 | 860 | 0 | (5,706 | ) | 0 | 0 | |||||||||||||||||||||||||||||
| Asset-Backed Securities |
43,762 | 0 | (22,977 | ) | 0 | (4,751 | ) | 1,540 | 1,873 | 0 | 19,447 | (3,930 | ) | |||||||||||||||||||||||||||
| Common Stocks |
| |||||||||||||||||||||||||||||||||||||||
| Communication Services |
7 | 4,276 | 0 | 0 | 0 | 684 | 0 | 0 | 4,967 | 684 | ||||||||||||||||||||||||||||||
| Energy |
0 | 90 | 0 | 0 | 0 | 0 | 0 | 0 | 90 | 0 | ||||||||||||||||||||||||||||||
| Financials |
0 | 2,812 | (125 | ) | 0 | 0 | 284 | 0 | 0 | 2,971 | 284 | |||||||||||||||||||||||||||||
| Industrials |
338 | 4,911 | 0 | 0 | 0 | 11,528 | 0 | 0 | 16,777 | 11,528 | ||||||||||||||||||||||||||||||
| Real Estate |
5,369 | 0 | 0 | 0 | 0 | 1,332 | 0 | (6,701 | ) | 0 | 0 | |||||||||||||||||||||||||||||
| Warrants |
| |||||||||||||||||||||||||||||||||||||||
| Financials |
0 | 26 | 0 | 0 | 0 | (2 | ) | 0 | 0 | 24 | (2 | ) | ||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 854 | 0 | 0 | 854 | 854 | ||||||||||||||||||||||||||||||
| Information Technology |
0 | 9,795 | 0 | 0 | 0 | 16,565 | 0 | 0 | 26,360 | 16,565 | ||||||||||||||||||||||||||||||
| Preferred Securities |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
25,801 | 5,586 | (8,181 | ) | 0 | 0 | 23,426 | 0 | 0 | 46,632 | 23,426 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Totals |
$ | 134,567 | $ | 116,396 | $ | (87,019 | ) | $ | 206 | $ | (23,356 | ) | $ | 70,734 | $ | 2,665 | $ | (12,439 | ) | $ | 201,754 | $ | 48,732 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 47 |
| Schedule of Investments | PIMCO Corporate & Income Opportunity Fund | (Cont.) | July 31, 2021 |
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 07/31/2021 |
Valuation Technique |
Unobservable Inputs |
Input Value(s) | Weighted Average |
|||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||
| Loan Participations and Assignments |
$ | 32,000 | Waterfall Recoverability | Recovery Value | % | 100.000 | — | |||||||||||||
| 9,989 | Reference Instrument | Yield | 5.738 | — | ||||||||||||||||
| 30,148 | Third Party Vendor | Broker Quote | 21.500-99.875 | 97.110 | ||||||||||||||||
| Corporate Bonds & Notes |
||||||||||||||||||||
| Industrials |
1,999 | Proxy Pricing | Base Price | 100.000 | — | |||||||||||||||
| Convertible Bonds & Notes |
||||||||||||||||||||
| Banking & Finance |
930 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| U.S. Government Agencies |
8,566 | Proxy Pricing | Base Price | 61.285 | — | |||||||||||||||
| Asset-Backed Securities |
19,447 | Proxy Pricing | Base Price | 14.800-98,000.000 | 54,843.723 | |||||||||||||||
| Common Stocks |
| |||||||||||||||||||
| Communication Services |
4,967 | Reference Instrument | Liquidity Discount | 10.000 | — | |||||||||||||||
| Energy |
90 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Financials |
2,971 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Industrials |
16,777 | Discounted Cash Flow | Discount Rate | 14.250 | — | |||||||||||||||
| Warrants |
| |||||||||||||||||||
| Financials |
24 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Industrials |
854 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Information Technology |
26,360 | Comparable Companies | EBITDA | x | 4.375 | — | ||||||||||||||
| Preferred Securities |
||||||||||||||||||||
| Industrials |
5,228 | Comparable Companies/ Discounted Cash Flow |
Book Value/ Discount Rate |
x/% | 0.210/20.150 | — | ||||||||||||||
| 41,404 | Comparable Companies | EBITDA | x/x | 11.700/9.200 | — | |||||||||||||||
|
|
|
|||||||||||||||||||
| Total |
$ | 201,754 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| (1) | Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 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. |
| 48 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| Schedule of Investments | PIMCO Corporate & Income Strategy Fund | July 31, 2021 |
(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 49 |
| Schedule of Investments | PIMCO Corporate & Income Strategy Fund | (Cont.) |
| 50 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 51 |
| Schedule of Investments | PIMCO Corporate & Income Strategy Fund | (Cont.) |
| 52 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
NOTES TO SCHEDULE OF INVESTMENTS:
| * | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ^ | Security is in default. |
| « | Security valued using significant unobservable inputs (Level 3). |
| µ | All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments. |
| ~ | Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description. |
| • | Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description. |
| þ | Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end. |
| (a) | Security is an Interest Only (“IO”) or IO Strip. |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 53 |
| Schedule of Investments | PIMCO Corporate & Income Strategy Fund | (Cont.) |
| (b) | Principal only security. |
| (c) | When-issued security. |
| (d) | Payment in-kind security. |
| (e) | Security is not accruing income as of the date of this report. |
| (f) | Security did not produce income within the last twelve months. |
| (g) | Coupon represents a weighted average yield to maturity. |
| (h) | Zero coupon security. |
| (i) | Coupon represents a yield to maturity. |
| (j) | Perpetual maturity; date shown, if applicable, represents next contractual call date. |
| (k) | Contingent convertible security. |
(l) RESTRICTED SECURITIES:
| Issuer Description | Acquisition Date |
Cost | Market Value |
Market Value as Percentage of Net Assets Applicable to Common Shareholders |
||||||||||||||||||||
| Associated Materials Group, Inc. |
08/24/2020 | $ 724 | $ | 807 | 0.13 | % | ||||||||||||||||||
| Axis Energy Services ‘A’ |
07/01/2021 | 16 | 16 | 0.00 | ||||||||||||||||||||
| Deutsche Bank AG 3.035% due 05/28/2032 |
05/25/2021 - 05/26/2021 | 901 | 932 | 0.16 | ||||||||||||||||||||
| Neiman Marcus Group Ltd. LLC |
09/25/2020 | 2,408 | 8,086 | 1.34 | ||||||||||||||||||||
| Noble Corp. |
02/05/2021 - 02/27/2021 | 273 | 442 | 0.07 | ||||||||||||||||||||
| Oracle Corp. 4.100% due 03/25/2061 |
06/17/2021 | 111 | 113 | 0.02 | ||||||||||||||||||||
| Westmoreland Mining Holdings LLC |
12/08/2014 - 10/19/2016 | 1,455 | 0 | 0.00 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| $ 5,888 | $ | 10,396 | 1.72 | % | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
BORROWINGS AND OTHER FINANCING TRANSACTIONS
(m) 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) |
||||||||||||||||||||||
| BPS | 0.040 | % | 07/30/2021 | 08/02/2021 | $ | 27,300 | U.S. Treasury Inflation Protected Securities 0.250% due 02/15/2050 | $ | (27,827 | ) | $ | 27,300 | $ | 27,300 | ||||||||||||||||
| FICC | 0.000 | 07/30/2021 | 08/02/2021 | 3,123 | U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022 | (3,186 | ) | 3,123 | 3,123 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Repurchase Agreements |
|
$ | (31,013 | ) | $ | 30,423 | $ | 30,423 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
REVERSE REPURCHASE AGREEMENTS:
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| BOS |
0.280 | % | 05/14/2021 | 08/16/2021 | $ | (1,901 | ) | $ | (1,902 | ) | ||||||||||||||
| 0.280 | 07/02/2021 | 08/06/2021 | (6,273 | ) | (6,275 | ) | ||||||||||||||||||
| 0.290 | 05/17/2021 | 08/17/2021 | (1,875 | ) | (1,876 | ) | ||||||||||||||||||
| BPS |
(0.400 | ) | 07/02/2021 | 08/19/2021 | EUR | (1,568) | (1,860 | ) | ||||||||||||||||
| (0.350 | ) | 07/02/2021 | 08/19/2021 | (2,125 | ) | (2,520 | ) | |||||||||||||||||
| (0.320 | ) | 07/02/2021 | 08/19/2021 | (3,723 | ) | (4,415 | ) | |||||||||||||||||
| (0.300 | ) | 07/23/2021 | 10/22/2021 | (2,774 | ) | (3,290 | ) | |||||||||||||||||
| 0.290 | 07/23/2021 | 10/22/2021 | GBP | (301 | ) | (418 | ) | |||||||||||||||||
| 0.320 | 07/08/2021 | 10/08/2021 | $ | (2,075 | ) | (2,075 | ) | |||||||||||||||||
| 0.380 | 04/30/2021 | 08/03/2021 | (749 | ) | (749 | ) | ||||||||||||||||||
| 0.500 | 04/30/2021 | 08/03/2021 | (4,603 | ) | (4,609 | ) | ||||||||||||||||||
| 0.500 | 06/01/2021 | 09/03/2021 | (6,135 | ) | (6,140 | ) | ||||||||||||||||||
| 0.500 | 07/30/2021 | 08/03/2021 | (531 | ) | (531 | ) | ||||||||||||||||||
| 0.550 | 07/23/2021 | 04/25/2022 | (5,089 | ) | (5,090 | ) | ||||||||||||||||||
| BRC |
0.350 | 05/21/2021 | 08/24/2021 | (5,970 | ) | (5,975 | ) | |||||||||||||||||
| 0.450 | 06/14/2021 | 09/17/2021 | (8,234 | ) | (8,239 | ) | ||||||||||||||||||
| 0.450 | 06/25/2021 | 09/03/2021 | (1,014 | ) | (1,014 | ) | ||||||||||||||||||
| 0.450 | 07/09/2021 | 09/07/2021 | (5,174 | ) | (5,176 | ) | ||||||||||||||||||
| 0.450 | 08/02/2021 | 09/03/2021 | (760 | ) | (760 | ) | ||||||||||||||||||
| 0.470 | 07/14/2021 | 09/17/2021 | (1,959 | ) | (1,959 | ) | ||||||||||||||||||
| 0.480 | 07/09/2021 | 08/06/2021 | (6,376 | ) | (6,378 | ) | ||||||||||||||||||
| 0.500 | 03/25/2020 | TBD | (3) | (125 | ) | (126 | ) | |||||||||||||||||
| 54 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| 0.500 | % | 07/13/2021 | TBD | (3) | $ | (15,824 | ) | $ | (15,828 | ) | ||||||||||||||
| 0.500 | 07/22/2021 | 01/24/2022 | (6,108 | ) | (6,109 | ) | ||||||||||||||||||
| 0.550 | 06/18/2021 | 03/10/2022 | (6,994 | ) | (6,999 | ) | ||||||||||||||||||
| 0.550 | 07/12/2021 | 03/10/2022 | (2,367 | ) | (2,368 | ) | ||||||||||||||||||
| 0.550 | 07/16/2021 | 03/10/2022 | (1,378 | ) | (1,378 | ) | ||||||||||||||||||
| 0.785 | 06/22/2021 | 08/09/2021 | (3,910 | ) | (3,914 | ) | ||||||||||||||||||
| BYR |
0.500 | 07/26/2021 | 01/26/2022 | (622 | ) | (622 | ) | |||||||||||||||||
| 0.650 | 03/31/2021 | 03/25/2022 | (4,833 | ) | (4,843 | ) | ||||||||||||||||||
| 0.650 | 06/24/2021 | 03/25/2022 | (2,546 | ) | (2,548 | ) | ||||||||||||||||||
| 0.650 | 06/30/2021 | 03/25/2022 | (446 | ) | (446 | ) | ||||||||||||||||||
| 0.650 | 07/29/2021 | 03/25/2022 | (178 | ) | (179 | ) | ||||||||||||||||||
| CDC |
0.250 | 03/22/2021 | TBD | (3) | (1,801 | ) | (1,802 | ) | ||||||||||||||||
| 0.260 | 07/21/2021 | 08/23/2021 | (1,704 | ) | (1,704 | ) | ||||||||||||||||||
| 0.260 | 08/02/2021 | 09/02/2021 | (7,621 | ) | (7,621 | ) | ||||||||||||||||||
| 0.300 | 05/24/2021 | 08/27/2021 | (7,657 | ) | (7,661 | ) | ||||||||||||||||||
| 0.300 | 05/25/2021 | 08/27/2021 | (5,123 | ) | (5,126 | ) | ||||||||||||||||||
| 0.300 | 05/27/2021 | 08/27/2021 | (3,189 | ) | (3,190 | ) | ||||||||||||||||||
| 0.300 | 06/02/2021 | 09/03/2021 | (259 | ) | (260 | ) | ||||||||||||||||||
| 0.300 | 06/21/2021 | 09/20/2021 | (664 | ) | (664 | ) | ||||||||||||||||||
| 0.300 | 07/01/2021 | 10/01/2021 | (308 | ) | (308 | ) | ||||||||||||||||||
| 0.300 | 07/15/2021 | 10/15/2021 | (2,314 | ) | (2,314 | ) | ||||||||||||||||||
| 0.300 | 07/19/2021 | 09/22/2021 | (310 | ) | (310 | ) | ||||||||||||||||||
| 0.330 | 05/03/2021 | 08/02/2021 | (6,044 | ) | (6,049 | ) | ||||||||||||||||||
| 0.330 | 06/09/2021 | 08/02/2021 | (1,321 | ) | (1,322 | ) | ||||||||||||||||||
| 0.350 | 07/15/2021 | 01/14/2022 | (1,322 | ) | (1,322 | ) | ||||||||||||||||||
| 0.350 | 07/21/2021 | 01/21/2022 | (1,565 | ) | (1,565 | ) | ||||||||||||||||||
| 0.480 | 06/21/2021 | 09/20/2021 | (6,520 | ) | (6,524 | ) | ||||||||||||||||||
| 0.480 | 07/09/2021 | 10/07/2021 | (1,619 | ) | (1,619 | ) | ||||||||||||||||||
| 0.490 | 07/01/2021 | 10/01/2021 | (10,953 | ) | (10,958 | ) | ||||||||||||||||||
| CEW |
(0.400 | ) | 07/23/2021 | 10/22/2021 | EUR | (1,243 | ) | (1,475 | ) | |||||||||||||||
| 0.180 | 07/23/2021 | 10/22/2021 | GBP | (3,953 | ) | (5,495 | ) | |||||||||||||||||
| 0.220 | 07/23/2021 | 10/22/2021 | (2,101 | ) | (2,921 | ) | ||||||||||||||||||
| 0.450 | 05/07/2021 | 08/09/2021 | $ | (1,574 | ) | (1,576 | ) | |||||||||||||||||
| 0.467 | 07/26/2021 | 01/26/2022 | (13,131 | ) | (13,132 | ) | ||||||||||||||||||
| 0.500 | 07/08/2021 | 01/04/2022 | (11,777 | ) | (11,781 | ) | ||||||||||||||||||
| CIB |
0.500 | 07/09/2021 | 08/13/2021 | (1,683 | ) | (1,684 | ) | |||||||||||||||||
| 0.530 | 06/30/2021 | 08/04/2021 | (349 | ) | (350 | ) | ||||||||||||||||||
| IND |
0.300 | 07/21/2021 | 01/20/2022 | (2,618 | ) | (2,618 | ) | |||||||||||||||||
| 0.300 | 07/23/2021 | 01/24/2022 | (4,488 | ) | (4,488 | ) | ||||||||||||||||||
| 0.420 | 07/21/2021 | 01/19/2022 | (6,811 | ) | (6,812 | ) | ||||||||||||||||||
| JML |
(0.450 | ) | 06/15/2021 | 09/15/2021 | EUR | (6,627 | ) | (7,857 | ) | |||||||||||||||
| (0.420 | ) | 07/23/2021 | 10/22/2021 | (2,495 | ) | (2,959 | ) | |||||||||||||||||
| (0.400 | ) | 07/08/2021 | 10/08/2021 | (3,500 | ) | (4,151 | ) | |||||||||||||||||
| (0.400 | ) | 07/23/2021 | 10/22/2021 | (2,156 | ) | (2,557 | ) | |||||||||||||||||
| (0.380 | ) | 06/15/2021 | 09/15/2021 | (190 | ) | (225 | ) | |||||||||||||||||
| (0.300 | ) | 07/14/2021 | 10/14/2021 | (2,052 | ) | (2,434 | ) | |||||||||||||||||
| (0.050 | ) | 07/08/2021 | TBD | (3) | $ | (376 | ) | (376 | ) | |||||||||||||||
| 0.200 | 06/15/2021 | 09/15/2021 | GBP | (3,918 | ) | (5,448 | ) | |||||||||||||||||
| 0.230 | 06/15/2021 | 09/15/2021 | (374 | ) | (520 | ) | ||||||||||||||||||
| 0.250 | 06/15/2021 | 09/15/2021 | (97 | ) | (135 | ) | ||||||||||||||||||
| 0.250 | 06/22/2021 | 09/15/2021 | (91 | ) | (126 | ) | ||||||||||||||||||
| 0.350 | 07/19/2021 | 10/19/2021 | (200 | ) | (279 | ) | ||||||||||||||||||
| 0.350 | 07/23/2021 | 10/22/2021 | (4,927 | ) | (6,850 | ) | ||||||||||||||||||
| 0.400 | 07/27/2021 | 08/27/2021 | $ | (4,983 | ) | (4,983 | ) | |||||||||||||||||
| SCX |
(0.400 | ) | 07/08/2021 | 10/08/2021 | EUR | (1,955 | ) | (2,319 | ) | |||||||||||||||
| 0.250 | 07/23/2021 | 10/22/2021 | GBP | (1,216 | ) | (1,690 | ) | |||||||||||||||||
| 0.450 | 05/21/2021 | 08/20/2021 | $ | (2,047 | ) | (2,049 | ) | |||||||||||||||||
| SOG |
0.270 | 07/28/2021 | 08/30/2021 | (2,300 | ) | (2,301 | ) | |||||||||||||||||
| 0.330 | 07/13/2021 | 10/14/2021 | (4,286 | ) | (4,287 | ) | ||||||||||||||||||
| 0.350 | 05/18/2021 | 08/20/2021 | (557 | ) | (557 | ) | ||||||||||||||||||
| 0.350 | 06/01/2021 | 09/01/2021 | (910 | ) | (910 | ) | ||||||||||||||||||
| 0.350 | 06/24/2021 | 09/24/2021 | (2,241 | ) | (2,242 | ) | ||||||||||||||||||
| 0.430 | 07/19/2021 | 10/08/2021 | (621 | ) | (621 | ) | ||||||||||||||||||
| 0.450 | 05/06/2021 | 08/09/2021 | (5,821 | ) | (5,827 | ) | ||||||||||||||||||
| 0.450 | 05/14/2021 | 08/17/2021 | (3,525 | ) | (3,528 | ) | ||||||||||||||||||
| 0.450 | 05/18/2021 | 08/16/2021 | (6,252 | ) | (6,258 | ) | ||||||||||||||||||
| 0.450 | 05/18/2021 | 08/20/2021 | (3,131 | ) | (3,134 | ) | ||||||||||||||||||
| 0.450 | 05/24/2021 | 08/25/2021 | (3,227 | ) | (3,230 | ) | ||||||||||||||||||
| 0.450 | 05/25/2021 | 08/27/2021 | (4,132 | ) | (4,135 | ) | ||||||||||||||||||
| 0.450 | 05/26/2021 | 08/30/2021 | (3,553 | ) | (3,556 | ) | ||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 55 |
| Schedule of Investments | PIMCO Corporate & Income Strategy Fund | (Cont.) |
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| 0.450 | % | 06/01/2021 | 09/01/2021 | $ | (2,975 | ) | $ | (2,977 | ) | |||||||||||||||
| 0.450 | 06/11/2021 | 08/09/2021 | (1,396 | ) | (1,397 | ) | ||||||||||||||||||
| 0.450 | 06/11/2021 | 08/17/2021 | (893 | ) | (894 | ) | ||||||||||||||||||
| 0.450 | 06/15/2021 | 09/17/2021 | (4,998 | ) | (5,001 | ) | ||||||||||||||||||
| 0.450 | 06/17/2021 | 09/15/2021 | (903 | ) | (904 | ) | ||||||||||||||||||
| 0.450 | 06/18/2021 | 08/20/2021 | (246 | ) | (246 | ) | ||||||||||||||||||
| 0.450 | 06/23/2021 | 09/23/2021 | (733 | ) | (733 | ) | ||||||||||||||||||
| 0.450 | 06/25/2021 | 08/17/2021 | (510 | ) | (510 | ) | ||||||||||||||||||
| 0.450 | 07/02/2021 | 09/02/2021 | (4,455 | ) | (4,456 | ) | ||||||||||||||||||
| 0.450 | 07/19/2021 | 08/17/2021 | (2,459 | ) | (2,460 | ) | ||||||||||||||||||
| 0.450 | 07/29/2021 | 08/25/2021 | (977 | ) | (977 | ) | ||||||||||||||||||
| 0.500 | 07/15/2021 | 01/14/2022 | (9,926 | ) | (9,928 | ) | ||||||||||||||||||
| 0.500 | 07/20/2021 | 01/20/2022 | (4,245 | ) | (4,246 | ) | ||||||||||||||||||
| 0.500 | 07/27/2021 | 01/20/2022 | (1,012 | ) | (1,012 | ) | ||||||||||||||||||
| 0.550 | 06/07/2021 | 03/07/2022 | (1,739 | ) | (1,740 | ) | ||||||||||||||||||
| 0.550 | 07/22/2021 | 03/02/2022 | (596 | ) | (596 | ) | ||||||||||||||||||
| 0.550 | 07/27/2021 | 04/27/2022 | (7,433 | ) | (7,434 | ) | ||||||||||||||||||
| TDM |
0.220 | 06/14/2021 | TBD | (3) | (600 | ) | (601 | ) | ||||||||||||||||
| 0.250 | 04/01/2021 | TBD | (3) | (1,702 | ) | (1,703 | ) | |||||||||||||||||
| 0.250 | 04/16/2021 | TBD | (3) | (9,626 | ) | (9,633 | ) | |||||||||||||||||
| 0.250 | 06/09/2021 | TBD | (3) | (3 | ) | (3 | ) | |||||||||||||||||
| UBS |
0.350 | 06/01/2021 | 09/01/2021 | (203 | ) | (203 | ) | |||||||||||||||||
| 0.350 | 07/08/2021 | 10/08/2021 | (2,334 | ) | (2,335 | ) | ||||||||||||||||||
| 0.400 | 03/22/2021 | TBD | (3) | (2,589 | ) | (2,593 | ) | |||||||||||||||||
| 0.400 | 07/21/2021 | 08/23/2021 | (1,940 | ) | (1,941 | ) | ||||||||||||||||||
| 0.450 | 05/13/2021 | 08/13/2021 | (2,120 | ) | (2,122 | ) | ||||||||||||||||||
| 0.450 | 05/14/2021 | 08/13/2021 | (3,860 | ) | (3,864 | ) | ||||||||||||||||||
| 0.450 | 05/19/2021 | 08/19/2021 | (898 | ) | (898 | ) | ||||||||||||||||||
| 0.450 | 05/26/2021 | 08/24/2021 | (5,130 | ) | (5,134 | ) | ||||||||||||||||||
| 0.450 | 07/07/2021 | 10/05/2021 | (6,718 | ) | (6,721 | ) | ||||||||||||||||||
| 0.450 | 07/22/2021 | 09/01/2021 | (383 | ) | (383 | ) | ||||||||||||||||||
| 0.450 | 07/22/2021 | 09/02/2021 | (211 | ) | (211 | ) | ||||||||||||||||||
| 0.500 | 07/12/2021 | 01/10/2022 | (2,544 | ) | (2,545 | ) | ||||||||||||||||||
| 0.500 | 07/14/2021 | 01/12/2022 | (2,425 | ) | (2,426 | ) | ||||||||||||||||||
| 0.500 | 07/16/2021 | 01/14/2022 | (10,793 | ) | (10,795 | ) | ||||||||||||||||||
| 0.510 | 06/14/2021 | 01/14/2022 | (1,543 | ) | (1,544 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total Reverse Repurchase Agreements |
|
$ | (415,972 | ) | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
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 July 31, 2021:
| Counterparty | Repurchase Agreement Proceeds to be Received(1) |
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 |
| |||||||||||||||||||||||
| BOS |
$ | 0 | $ | (10,053 | ) | $ | 0 | $ | (10,053 | ) | $ | 10,544 | $ | 491 | ||||||||||
| BPS |
27,300 | (31,697 | ) | 0 | (4,397 | ) | 7,474 | 3,077 | ||||||||||||||||
| BRC |
0 | (66,223 | ) | 0 | (66,223 | ) | 75,942 | 9,719 | ||||||||||||||||
| BYR |
0 | (8,638 | ) | 0 | (8,638 | ) | 10,723 | 2,085 | ||||||||||||||||
| CDC |
0 | (60,319 | ) | 0 | (60,319 | ) | 56,570 | (3,749 | ) | |||||||||||||||
| CEW |
0 | (36,380 | ) | 0 | (36,380 | ) | 41,354 | 4,974 | ||||||||||||||||
| CIB |
0 | (2,034 | ) | 0 | (2,034 | ) | 2,424 | 390 | ||||||||||||||||
| FICC |
3,123 | 0 | 0 | 3,123 | (3,186 | ) | (63 | ) | ||||||||||||||||
| IND |
0 | (13,918 | ) | 0 | (13,918 | ) | 15,416 | 1,498 | ||||||||||||||||
| JML |
0 | (38,900 | ) | 0 | (38,900 | ) | 45,165 | 6,265 | ||||||||||||||||
| SCX |
0 | (6,058 | ) | 0 | (6,058 | ) | 6,719 | 661 | ||||||||||||||||
| SOG |
0 | (86,097 | ) | 0 | (86,097 | ) | 99,196 | 13,099 | ||||||||||||||||
| TDM |
0 | (11,940 | ) | 0 | (11,940 | ) | 12,537 | 597 | ||||||||||||||||
| UBS |
0 | (43,715 | ) | 0 | (43,715 | ) | 51,199 | 7,484 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total Borrowings and Other Financing Transactions |
$ | 30,423 | $ | (415,972 | ) | $ | 0 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| 56 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
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 | $ | (116,661 | ) | $ | (130,693 | ) | $ | (125,769 | ) | $ | (373,123 | ) | ||||||
| Municipal Bonds & Notes |
0 | 0 | 0 | (15,828 | ) | (15,828 | ) | |||||||||||||
| U.S. Government Agencies |
0 | (2,034 | ) | 0 | 0 | (2,034 | ) | |||||||||||||
| Asset-Backed Securities |
0 | (3,914 | ) | 0 | 0 | (3,914 | ) | |||||||||||||
| Sovereign Issues |
0 | (6,009 | ) | 0 | (5,634 | ) | (11,643 | ) | ||||||||||||
| Preferred Securities |
0 | (1,049 | ) | 0 | 0 | (1,049 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Borrowings |
$ | 0 | $ | (129,667 | ) | $ | (130,693 | ) | $ | (147,231 | ) | $ | (407,591 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Payable for reverse repurchase agreements(5) |
|
$ | (407,591 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||||
| (n) | Securities with an aggregate market value of $466,507 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021. |
| (1) | Includes accrued interest. |
| (2) | The average amount of borrowings outstanding during the period ended July 31, 2021 was $(258,605) at a weighted average interest rate of 0.560%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period. |
| (3) | Open maturity reverse repurchase agreement. |
| (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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (5) | Unsettled reverse repurchase agreements liability of $(8,381) is outstanding at period end. |
(o) FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION(1)
| Reference Entity | Fixed Receive Rate |
Payment Frequency |
Maturity Date |
Implied Credit Spread at July 31, 2021(2) |
Notional Amount(3) |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value(4) |
Variation Margin | |||||||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||||||
| Bombardier, Inc. |
5.000 | % | Quarterly | 06/20/2024 | 2.773 | % | $ | 600 | $ | (1 | ) | $ | 42 | $ | 41 | $ | 1 | $ | 0 | |||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 12/20/2025 | 2.269 | EUR | 10,600 | (1,305 | ) | 646 | (659 | ) | 0 | 0 | |||||||||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 06/20/2026 | 2.395 | 2,000 | (149 | ) | (2 | ) | (151 | ) | 1 | 0 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| $ | (1,455 | ) | $ | 686 | $ | (769 | ) | $ | 2 | $ | 0 | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
INTEREST RATE SWAPS
| Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin | |||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | % | Annual | 09/15/2031 | GBP | 10,500 | $ | (9 | ) | $ | (224 | ) | $ | (233 | ) | $ | 0 | $ | (19 | ) | |||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | Annual | 09/15/2051 | 3,000 | 189 | (325 | ) | (136 | ) | 0 | (15 | ) | |||||||||||||||||||||||||||
| Receive(5) |
1-Day USD-Federal Funds Rate Compounded-OIS |
0.100 | Annual | 01/13/2023 | $ | 1,000 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.750 | Semi-Annual | 12/19/2023 | 64,000 | (594 | ) | 4,456 | 3,862 | 32 | 0 | |||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.750 | Semi-Annual | 06/17/2025 | 75,590 | 4,664 | 1,768 | 6,432 | 91 | 0 | ||||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.250 | Semi-Annual | 12/15/2026 | 56,800 | (960 | ) | (47 | ) | (1,007 | ) | 0 | (86 | ) | ||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.500 | Semi-Annual | 12/20/2027 | 44,900 | 325 | 4,102 | 4,427 | 107 | 0 | ||||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.370 | Semi-Annual | 08/25/2028 | 16,898 | 0 | (365 | ) | (365 | ) | 0 | (44 | ) | |||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.000 | Semi-Annual | 06/19/2029 | 68,300 | 3,736 | 6,346 | 10,082 | 240 | 0 | ||||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.750 | Semi-Annual | 06/16/2031 | 57,200 | 4,175 | (1,406 | ) | 2,769 | 0 | (233 | ) | ||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 12/15/2031 | 36,100 | (572 | ) | (906 | ) | (1,478 | ) | 0 | (158 | ) | ||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.500 | Semi-Annual | 06/19/2044 | 169,400 | (5,526 | ) | 68,840 | 63,314 | 1,401 | 0 | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.000 | Semi-Annual | 01/15/2050 | 8,300 | (60 | ) | (582 | ) | (642 | ) | 0 | (60 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 01/22/2050 | 14,500 | (33 | ) | (216 | ) | (249 | ) | 0 | (98 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.875 | Semi-Annual | 02/07/2050 | 15,100 | (58 | ) | (776 | ) | (834 | ) | 0 | (105 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 03/12/2050 | 10,800 | (33 | ) | (1,536 | ) | (1,569 | ) | 0 | (83 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.150 | Semi-Annual | 12/11/2050 | 168,200 | (561 | ) | 22,182 | 21,621 | 0 | (937 | ) | ||||||||||||||||||||||||||||
| Pay(5) |
3-Month USD-LIBOR |
2.000 | Semi-Annual | 12/15/2051 | 10,900 | 798 | (1 | ) | 797 | 78 | 0 | |||||||||||||||||||||||||||||
| Pay |
6-Month AUD-BBR-BBSW |
3.500 | Semi-Annual | 06/17/2025 | AUD | 7,600 | 188 | 475 | 663 | 0 | 0 | |||||||||||||||||||||||||||||
| Receive |
6-Month EUR-EURIBOR |
(0.150 | ) | Annual | 03/18/2030 | EUR | 8,700 | 159 | (173 | ) | (14 | ) | 0 | (13 | ) | |||||||||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 57 |
| Schedule of Investments | PIMCO Corporate & Income Strategy Fund | (Cont.) |
| Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin | |||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Receive(5) |
6-Month EUR-EURIBOR |
0.000 | % | Annual | 09/15/2031 | EUR | 6,400 | $ | 105 | $ | (146 | ) | $ | (41 | ) | $ | 0 | $ | (12 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| $ | 5,933 | $ | 101,466 | $ | 107,399 | $ | 1,949 | $ | (1,863 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total Swap Agreements |
|
$ | 4,478 | $ | 102,152 | $ | 106,630 | $ | 1,951 | $ | (1,863 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
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 July 31, 2021:
| 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 | $ | 1,951 | $ | 1,951 | $ | 0 | $ | 0 | $ | (1,863 | ) | $ | (1,863 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| (p) | Securities with an aggregate market value of $4,882 and cash of $18,556 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (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 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 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 underlying referenced instrument’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
| (5) | This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information. |
(q) 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 |
08/2021 | $ | 8 | RUB | 637 | $ | 0 | $ | 0 | |||||||||||||||
| BPS |
08/2021 | EUR | 5,943 | $ | 7,044 | 0 | (6 | ) | ||||||||||||||||
| 08/2021 | PEN | 1,075 | 291 | 26 | 0 | |||||||||||||||||||
| BRC |
08/2021 | EUR | 651 | 775 | 2 | 0 | ||||||||||||||||||
| 08/2021 | GBP | 3,856 | 5,343 | 0 | (17 | ) | ||||||||||||||||||
| CBK |
08/2021 | PEN | 3,084 | 818 | 59 | 0 | ||||||||||||||||||
| 08/2021 | $ | 617 | PEN | 2,428 | 0 | (19 | ) | |||||||||||||||||
| 09/2021 | PEN | 2,604 | $ | 683 | 42 | 0 | ||||||||||||||||||
| 10/2021 | 1,238 | 317 | 12 | 0 | ||||||||||||||||||||
| 12/2021 | $ | 128 | PEN | 470 | 0 | (12 | ) | |||||||||||||||||
| GLM |
08/2021 | 18,455 | GBP | 13,230 | 0 | (66 | ) | |||||||||||||||||
| 08/2021 | 8 | RUB | 638 | 0 | 0 | |||||||||||||||||||
| 09/2021 | GBP | 13,230 | $ | 18,457 | 66 | 0 | ||||||||||||||||||
| 09/2021 | $ | 9 | RUB | 637 | 0 | 0 | ||||||||||||||||||
| HUS |
08/2021 | EUR | 4,087 | $ | 4,840 | 0 | (8 | ) | ||||||||||||||||
| 08/2021 | GBP | 21,130 | 29,248 | 0 | (123 | ) | ||||||||||||||||||
| 08/2021 | $ | 16,910 | GBP | 12,310 | 201 | 0 | ||||||||||||||||||
| 10/2021 | PEN | 165 | $ | 45 | 4 | 0 | ||||||||||||||||||
| 12/2021 | 153 | 41 | 4 | 0 | ||||||||||||||||||||
| 12/2021 | $ | 2,728 | PEN | 10,044 | 0 | (257 | ) | |||||||||||||||||
| JPM |
08/2021 | 10,079 | EUR | 8,565 | 82 | 0 | ||||||||||||||||||
| SCX |
08/2021 | EUR | 38,559 | $ | 45,748 | 16 | (7 | ) | ||||||||||||||||
| 08/2021 | $ | 8,775 | EUR | 7,416 | 23 | 0 | ||||||||||||||||||
| 58 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| Counterparty | Settlement Month |
Currency to be Delivered |
Currency to be Received |
Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||
| 09/2021 | EUR | 33,259 | $ | 39,461 | $ | 0 | $ | (15 | ) | |||||||||||||||
| 09/2021 | PEN | 5,031 | 1,281 | 42 | 0 | |||||||||||||||||||
| 12/2021 | 96 | 26 | 2 | 0 | ||||||||||||||||||||
| UAG |
08/2021 | GBP | 554 | 767 | 0 | (3 | ) | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total Forward Foreign Currency Contracts |
|
$ | 581 | $ | (533 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
SWAP AGREEMENTS:
INTEREST RATE SWAPS
| Counterparty | Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value |
|||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||
| MYC | Pay |
3-Month USD-LIBOR |
1.620% | Semi-Annual | 08/25/2028 | $ | 75,100 | $ | (28 | ) | $ | 308 | $ | 280 | $ | 0 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total Swap Agreements |
$ | (28 | ) | $ | 308 | $ | 280 | $ | 0 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
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 July 31, 2021:
| Financial Derivative Assets | Financial Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Counterparty | Forward Foreign Currency Contracts |
Purchased Options |
Swap Agreements |
Total Over the Counter |
Forward Foreign Currency Contracts |
Written Options |
Swap Agreements |
Total Over the Counter |
Net Market Value of OTC Derivatives |
Collateral (Received) |
Net Exposure(1) |
|||||||||||||||||||||||||||||||||||||
| BPS |
$ | 26 | $ | 0 | $ | 0 | $ | 26 | $ | (6 | ) | $ | 0 | $ | 0 | $ | (6 | ) | $ | 20 | $ | 0 | $ | 20 | ||||||||||||||||||||||||
| BRC |
2 | 0 | 0 | 2 | (17 | ) | 0 | 0 | (17 | ) | (15 | ) | 0 | (15 | ) | |||||||||||||||||||||||||||||||||
| CBK |
113 | 0 | 0 | 113 | (31 | ) | 0 | 0 | (31 | ) | 82 | 0 | 82 | |||||||||||||||||||||||||||||||||||
| GLM |
66 | 0 | 0 | 66 | (66 | ) | 0 | 0 | (66 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
| HUS |
209 | 0 | 0 | 209 | (388 | ) | 0 | 0 | (388 | ) | (179 | ) | 0 | (179 | ) | |||||||||||||||||||||||||||||||||
| JPM |
82 | 0 | 0 | 82 | 0 | 0 | 0 | 0 | 82 | 0 | 82 | |||||||||||||||||||||||||||||||||||||
| MYC |
0 | 0 | 280 | 280 | 0 | 0 | 0 | 0 | 280 | (260 | ) | 20 | ||||||||||||||||||||||||||||||||||||
| SCX |
83 | 0 | 0 | 83 | (22 | ) | 0 | 0 | (22 | ) | 61 | 0 | 61 | |||||||||||||||||||||||||||||||||||
| UAG |
0 | 0 | 0 | 0 | (3 | ) | 0 | 0 | (3 | ) | (3 | ) | 0 | (3 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| Total Over the Counter |
$ | 581 | $ | 0 | $ | 280 | $ | 861 | $ | (533 | ) | $ | 0 | $ | 0 | $ | (533 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| (1) | 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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
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 and Other 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 July 31, 2021:
| 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 | $ | 1,949 | $ | 1,951 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 581 | $ | 0 | $ | 581 | ||||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | 280 | 280 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 581 | $ | 280 | $ | 861 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 2 | $ | 0 | $ | 581 | $ | 2,229 | $ | 2,812 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Financial Derivative Instruments - Liabilities |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,863 | $ | 1,863 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 533 | $ | 0 | $ | 533 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 533 | $ | 1,863 | $ | 2,396 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 59 |
| Schedule of Investments | PIMCO Corporate & Income Strategy Fund | (Cont.) |
The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:
| 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 | $ | 91 | $ | 0 | $ | 0 | $ | 11,088 | $ | 11,179 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | (4,904 | ) | $ | 0 | $ | (4,904 | ) | ||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | (478 | ) | (478 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | (4,904 | ) | $ | (478 | ) | $ | (5,382 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 91 | $ | 0 | $ | (4,904 | ) | $ | 10,610 | $ | 5,797 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 815 | $ | 0 | $ | 0 | $ | (6,092 | ) | $ | (5,277 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 3,667 | $ | 0 | $ | 3,667 | ||||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | 308 | 308 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 3,667 | $ | 308 | $ | 3,975 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 815 | $ | 0 | $ | 3,667 | $ | (5,784 | ) | $ | (1,302 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
FAIR VALUE MEASUREMENTS
The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:
| 60 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:
| Category and Subcategory | Beginning Balance at 07/31/2020 |
Net Purchases |
Net Sales/ Settlements |
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 07/31/2021 |
Net Change in Unrealized Appreciation/ (Depreciation) on Investments Held at 07/31/2021(1) |
||||||||||||||||||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||||||||||||||||||||||
| Loan Participations and Assignments |
$ | 11,340 | $ | 18,518 | $ | (17,378 | ) | $ | 70 | $ | (7,291 | ) | $ | 5,424 | $ | 887 | $ | (14 | ) | $ | 11,556 | $ | 82 | |||||||||||||||||
| Corporate Bonds & Notes |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
0 | 715 | 0 | 0 | 0 | 5 | 0 | 0 | 720 | 5 | ||||||||||||||||||||||||||||||
| U.S. Government Agencies |
4,848 | 0 | (106 | ) | 15 | 36 | 36 | 0 | 0 | 4,829 | 30 | |||||||||||||||||||||||||||||
| Asset-Backed Securities |
15,550 | 0 | (5,912 | ) | 0 | 115 | (1,815 | ) | 1,042 | 0 | 8,980 | (1,807 | ) | |||||||||||||||||||||||||||
| Common Stocks |
| |||||||||||||||||||||||||||||||||||||||
| Communication Services |
3 | 2,065 | 0 | 0 | 0 | 213 | 0 | 0 | 2,281 | 213 | ||||||||||||||||||||||||||||||
| Energy |
0 | 16 | 0 | 0 | 0 | 0 | 0 | 0 | 16 | 0 | ||||||||||||||||||||||||||||||
| Financials |
0 | 724 | 0 | 0 | 0 | 83 | 0 | 0 | 807 | 83 | ||||||||||||||||||||||||||||||
| Industrials |
379 | 2,408 | 0 | 0 | 0 | 5,299 | 0 | 0 | 8,086 | 5,299 | ||||||||||||||||||||||||||||||
| Real Estate |
2,246 | 0 | 0 | 0 | 0 | 557 | 0 | (2,803 | ) | 0 | 0 | |||||||||||||||||||||||||||||
| Warrants |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 488 | 0 | 0 | 488 | 488 | ||||||||||||||||||||||||||||||
| Information Technology |
0 | 4,094 | 0 | 0 | 0 | 6,924 | 0 | 0 | 11,018 | 6,924 | ||||||||||||||||||||||||||||||
| Preferred Securities |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
14,742 | 1,956 | (4,673 | ) | 0 | 0 | 13,464 | 0 | 0 | 25,489 | 13,464 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Totals |
$ | 49,108 | $ | 30,496 | $ | (28,069 | ) | $ | 85 | $ | (7,140 | ) | $ | 30,678 | $ | 1,929 | $ | (2,817 | ) | $ | 74,270 | $ | 24,781 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
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 07/31/2021 |
Valuation Technique |
Unobservable Inputs |
Input Value(s) | Weighted Average |
|||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||
| Loan Participations and Assignments |
$ | 3,763 | Reference Instrument | Yield | % | 5.738 | — | |||||||||||||
| 7,793 | Third Party Vendor | Broker Quote | 21.500-100.313 | 91.006 | ||||||||||||||||
| Corporate Bonds & Notes |
| |||||||||||||||||||
| Industrials |
720 | Proxy Pricing | Base Price | 100.000 | — | |||||||||||||||
| U.S. Government Agencies |
4,829 | Proxy Pricing | Base Price | 61.285 | — | |||||||||||||||
| Asset-Backed Securities |
8,980 | Proxy Pricing | Base Price | 14.800-98,000.000 | 50,808.459 | |||||||||||||||
| Common Stocks |
| |||||||||||||||||||
| Communication Services |
2,281 | Reference Instrument | Liquidity Discount | 10.000 | — | |||||||||||||||
| Energy |
16 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Financials |
807 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Industrials |
8,086 | Discounted Cash Flow | Discount Rate | 14.250 | — | |||||||||||||||
| Warrants |
| |||||||||||||||||||
| Industrials |
488 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Information Technology |
11,018 | Comparable Companies | EBITDA | x | 4.375 | — | ||||||||||||||
| Preferred Securities |
| |||||||||||||||||||
| Industrials |
1,832 | Comparable Companies/Discounted Cash Flow | Book Value/Discount Rate | x/% | 0.210/20.150 | — | ||||||||||||||
| 23,657 | Comparable Companies | EBITDA | x/x | 11.700/9.200 | — | |||||||||||||||
|
|
|
|||||||||||||||||||
| Total |
$ | 74,270 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| (1) | Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 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 | ANNUAL REPORT | | | JULY 31, 2021 | 61 |
| Schedule of Investments | PIMCO High Income Fund |
(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)
| PRINCIPAL AMOUNT (000S) |
MARKET VALUE (000S) |
|||||||||||
| INVESTMENTS IN SECURITIES 164.5% |
| |||||||||||
| LOAN PARTICIPATIONS AND ASSIGNMENTS 22.1% |
| |||||||||||
| Alphabet Holding Co., Inc. |
| |||||||||||
| 3.592% (LIBOR03M + 3.500%) due 09/26/2024 ~ |
$ | 96 | $ | 96 | ||||||||
| Banijay Entertainment S.A.S |
| |||||||||||
| 3.851% (LIBOR03M + 3.750%) due 03/01/2025 ~ |
19 | 19 | ||||||||||
| BWAY Holding Co. |
| |||||||||||
| 3.342% (LIBOR03M + 3.250%) due 04/03/2024 ~ |
997 | 967 | ||||||||||
| Caesars Resort Collection LLC |
| |||||||||||
| 2.842% (LIBOR03M + 2.750%) due 12/23/2024 ~ |
6,612 | 6,543 | ||||||||||
| 4.592% (LIBOR03M + 4.500%) due 07/21/2025 ~ |
8,647 | 8,664 | ||||||||||
| Carnival Corp. |
| |||||||||||
| 3.750% (EUR003M + 3.750%) due 06/30/2025 ~ |
EUR | 2,500 | 2,972 | |||||||||
| Cengage Learning, Inc. |
| |||||||||||
| TBD% due 06/29/2026 |
$ | 6,213 | 6,216 | |||||||||
| Cimpress PLC |
| |||||||||||
| 4.000% (LIBOR03M + 3.500%) due 05/17/2028 ~ |
2,100 | 2,099 | ||||||||||
| CityCenter Holdings LLC |
| |||||||||||
| 3.000% (LIBOR03M + 2.250%) due 04/18/2024 ~ |
1,596 | 1,593 | ||||||||||
| Clear Channel Outdoor Holdings, Inc. |
| |||||||||||
| 3.607% - 3.629% (LIBOR03M + 3.500%) due 08/21/2026 ~ |
6,653 | 6,471 | ||||||||||
| Cornerstone Building Brands, Inc. |
| |||||||||||
| 3.750% (LIBOR03M + 3.250%) due 04/12/2028 ~ |
49 | 49 | ||||||||||
| Diamond Resorts Corp. |
| |||||||||||
| 4.750% - 6.000% (PRIME + 2.750%) due 09/02/2023 ~ |
1,252 | 1,252 | ||||||||||
| Emerald TopCo, Inc. |
| |||||||||||
| 3.592% - 3.629% (LIBOR03M + 3.500%) due 07/24/2026 ~ |
147 | 146 | ||||||||||
| Envision Healthcare Corp. |
| |||||||||||
| 3.842% (LIBOR03M + 3.750%) due 10/10/2025 ~ |
24,822 | 21,296 | ||||||||||
| First Student Bidco, Inc. |
| |||||||||||
| TBD% due 07/21/2028 |
7,105 | 7,061 | ||||||||||
| Fly Funding SARL |
| |||||||||||
| 7.000% (LIBOR03M + 6.000%) due 10/08/2025 ~ |
5,679 | 5,721 | ||||||||||
| Forbes Energy Services LLC |
| |||||||||||
| TBD% due 12/31/2021 « |
1,195 | 0 | ||||||||||
| Frontier Communications Corp. |
| |||||||||||
| 4.500% (LIBOR03M + 3.750%) due 05/01/2028 ~ |
10,424 | 10,437 | ||||||||||
| Hertz Corp. |
| |||||||||||
| 4.000% - 4.250% (LIBOR03M + 3.500%) due 06/14/2028 ~ |
3,058 | 3,044 | ||||||||||
| ICON Luxembourg SARL |
| |||||||||||
| 3.000% (LIBOR03M + 2.500%) due 07/03/2028 ~ |
8,100 | 8,092 | ||||||||||
| Intelsat Jackson Holdings S.A. |
| |||||||||||
| 3.600% - 6.500% (LIBOR03M + 5.500%) due 07/13/2022 ~ |
2,004 | 2,023 | ||||||||||
| IRB Holding Corp. |
| |||||||||||
| 2.964% - 3.750% (LIBOR03M + 2.750%) due 02/05/2025 ~ |
1,264 | 1,258 | ||||||||||
| Lealand Finance Company B.V. |
| |||||||||||
| 3.092% (LIBOR03M + 3.000%) due 06/30/2024 «~ |
105 | 68 | ||||||||||
| Lealand Finance Company B.V. (1.092% Cash and 3.000% PIK) |
| |||||||||||
| 4.092% (LIBOR03M + 1.000%) due 06/30/2025 ~(d) |
492 | 221 | ||||||||||
| MH Sub LLC |
| |||||||||||
| 3.592% (LIBOR03M + 3.500%) due 09/13/2024 ~ |
4,836 | 4,809 | ||||||||||
| PRINCIPAL AMOUNT (000S) |
MARKET VALUE (000S) |
|||||||||||
| Nascar Holdings, Inc. |
| |||||||||||
| 2.842% (LIBOR03M + 2.750%) due 10/19/2026 ~ |
$ | 78 | $ | 78 | ||||||||
| Padagis LLC |
| |||||||||||
| 5.250% (LIBOR03M + 4.750%) due 07/06/2028 «~ |
8,600 | 8,627 | ||||||||||
| Parexel International Corp. |
| |||||||||||
| 2.842% (LIBOR03M + 2.750%) due 09/27/2024 ~ |
3,628 | 3,620 | ||||||||||
| PUG LLC |
| |||||||||||
| 3.592% (LIBOR03M + 3.500%) due 02/12/2027 ~ |
1,984 | 1,944 | ||||||||||
| Sasol Ltd. |
| |||||||||||
| 0.500% - 1.746% (LIBOR03M + 1.600%) due 11/23/2022 «~µ |
5,328 | 5,059 | ||||||||||
| Stars Group Holdings BV |
| |||||||||||
| 2.397% - 3.647% (LIBOR03M + 2.250%) due 07/21/2026 ~ |
9,700 | 9,666 | ||||||||||
| Summer (BC) Holdco SARL |
| |||||||||||
| 4.884% (LIBOR03M + 4.750%) due 12/04/2026 ~ |
4,078 | 4,081 | ||||||||||
| Syniverse Holdings, Inc. |
| |||||||||||
| 6.000% (LIBOR03M + 5.000%) due 03/09/2023 ~ |
16,241 | 16,075 | ||||||||||
| Team Health Holdings, Inc. |
| |||||||||||
| 3.750% (LIBOR03M + 2.750%) due 02/06/2024 ~ |
9,567 | 9,272 | ||||||||||
| TK Elevator GmbH |
| |||||||||||
| TBD% due 07/31/2027 |
EUR | 7,500 | 8,906 | |||||||||
| U.S. Renal Care, Inc. |
| |||||||||||
| 5.125% (LIBOR03M + 5.000%) due 06/26/2026 ~ |
$ | 2,566 | 2,573 | |||||||||
| Westmoreland Coal Company (15.000% PIK) |
| |||||||||||
| 15.000% due 03/15/2029 «(d) |
7,213 | 1,551 | ||||||||||
| Westmoreland Mining Holdings LLC |
| |||||||||||
| 9.250% (LIBOR03M + 8.250%) due 03/15/2022 «~ |
429 | 414 | ||||||||||
| Windstream Services LLC |
| |||||||||||
| 7.250% (LIBOR03M + 6.250%) due 09/21/2027 ~ |
2,688 | 2,701 | ||||||||||
|
|
|
|||||||||||
| Total Loan Participations and Assignments (Cost $182,725) |
175,684 | |||||||||||
|
|
|
|||||||||||
| CORPORATE BONDS & NOTES 76.0% |
| |||||||||||
| BANKING & FINANCE 18.4% |
| |||||||||||
| Allied Universal Holdco LLC |
| |||||||||||
| 3.625% due 06/01/2028 |
EUR | 2,400 | 2,837 | |||||||||
| Ally Financial, Inc. |
| |||||||||||
| 8.000% due 11/01/2031 |
$ | 4 | 6 | |||||||||
| 8.000% due 11/01/2031 (n) |
1,270 | 1,819 | ||||||||||
| Apollo Commercial Real Estate Finance, Inc. |
| |||||||||||
| 4.625% due 06/15/2029 (n) |
5,200 | 5,109 | ||||||||||
| Atlantic Marine Corps Communities LLC |
| |||||||||||
| 5.383% due 02/15/2048 (n) |
4,327 | 4,672 | ||||||||||
| Banca Monte dei Paschi di Siena SpA |
| |||||||||||
| 1.875% due 01/09/2026 |
EUR | 1,200 | 1,440 | |||||||||
| 2.625% due 04/28/2025 (n) |
8,579 | 10,513 | ||||||||||
| 3.625% due 09/24/2024 (n) |
2,131 | 2,671 | ||||||||||
| Banco de Credito del Peru |
| |||||||||||
| 4.650% due 09/17/2024 |
PEN | 1,000 | 247 | |||||||||
| Barclays PLC |
| |||||||||||
| 5.875% due 09/15/2024 •(j)(k) |
GBP | 1,800 | 2,681 | |||||||||
| 6.125% due 12/15/2025 •(j)(k)(n) |
$ | 2,600 | 2,898 | |||||||||
| 6.375% due 12/15/2025 •(j)(k) |
GBP | 400 | 624 | |||||||||
| 7.125% due 06/15/2025 •(j)(k) |
1,600 | 2,538 | ||||||||||
| 7.875% due 09/15/2022 •(j)(k)(n) |
3,700 | 5,501 | ||||||||||
| BGC Partners, Inc. |
| |||||||||||
| 4.375% due 12/15/2025 (n) |
$ | 2,300 | 2,505 | |||||||||
| Claveau Re Ltd. |
| |||||||||||
| 17.291% (T-BILL 3MO + 17.250%) due 07/08/2028 ~ |
1,200 | 1,204 | ||||||||||
| Cosaint Re Pte Ltd. |
| |||||||||||
| 9.288% (T-BILL 1MO + 9.250%) due 04/03/2028 ~ |
1,000 | 1,019 | ||||||||||
| PRINCIPAL AMOUNT (000S) |
MARKET VALUE (000S) |
|||||||||||
| Credit Agricole S.A. |
| |||||||||||
| 7.875% due 01/23/2024 •(j)(k)(n) |
$ | 250 | $ | 282 | ||||||||
| Credit Suisse Group AG |
| |||||||||||
| 7.250% due 09/12/2025 •(j)(k) |
200 | 226 | ||||||||||
| 7.500% due 07/17/2023 •(j)(k)(n) |
400 | 434 | ||||||||||
| Doctors Co. An Interinsurance Exchange |
| |||||||||||
| 6.500% due 10/15/2023 (n) |
10,000 | 10,736 | ||||||||||
| Fairfax Financial Holdings Ltd. |
| |||||||||||
| 4.625% due 04/29/2030 (n) |
5,400 | 6,279 | ||||||||||
| Fortress Transportation & Infrastructure Investors LLC |
| |||||||||||
| 6.500% due 10/01/2025 (n) |
510 | 529 | ||||||||||
| General Shopping Finance Ltd. |
| |||||||||||
| 10.000% due 08/30/2021 (j)(n) |
5,300 | 3,475 | ||||||||||
| GSPA Monetization Trust |
| |||||||||||
| 6.422% due 10/09/2029 (n) |
4,960 | 5,387 | ||||||||||
| Howard Hughes Corp. |
| |||||||||||
| 4.125% due 02/01/2029 (n) |
300 | 298 | ||||||||||
| 4.375% due 02/01/2031 (n) |
200 | 200 | ||||||||||
| HSBC Holdings PLC |
| |||||||||||
| 5.875% due 09/28/2026 •(j)(k)(n) |
GBP | 600 | 936 | |||||||||
| 6.500% due 03/23/2028 •(j)(k) |
$ | 300 | 343 | |||||||||
| ING Groep NV |
| |||||||||||
| 5.750% due 11/16/2026 •(j)(k) |
500 | 553 | ||||||||||
| Kennedy Wilson Europe Real Estate Ltd. |
| |||||||||||
| 3.950% due 06/30/2022 |
GBP | 3,262 | 4,623 | |||||||||
| Ladder Capital Finance Holdings LLLP |
| |||||||||||
| 4.750% due 06/15/2029 (n) |
$ | 1,100 | 1,097 | |||||||||
| Lloyds Banking Group PLC |
| |||||||||||
| 6.750% due 06/27/2026 •(j)(k) |
1,625 | 1,870 | ||||||||||
| 7.875% due 06/27/2029 •(j)(k)(n) |
GBP | 3,115 | 5,561 | |||||||||
| MGM Growth Properties Operating Partnership LP |
| |||||||||||
| 3.875% due 02/15/2029 (n) |
$ | 6,900 | 7,087 | |||||||||
| 4.625% due 06/15/2025 (n) |
300 | 320 | ||||||||||
| Natwest Group PLC |
| |||||||||||
| 8.000% due 08/10/2025 •(j)(k)(n) |
2,000 | 2,368 | ||||||||||
| Navient Corp. |
| |||||||||||
| 5.625% due 08/01/2033 (n) |
8,064 | 7,843 | ||||||||||
| Newmark Group, Inc. |
| |||||||||||
| 6.125% due 11/15/2023 |
40 | 43 | ||||||||||
| Owl Rock Capital Corp. |
| |||||||||||
| 2.625% due 01/15/2027 (n) |
1,900 | 1,924 | ||||||||||
| PennyMac Financial Services, Inc. |
| |||||||||||
| 4.250% due 02/15/2029 (n) |
400 | 388 | ||||||||||
| PRA Group, Inc. |
| |||||||||||
| 7.375% due 09/01/2025 (n) |
4,100 | 4,433 | ||||||||||
| Sitka Holdings LLC |
| |||||||||||
| 5.250% due 07/06/2026 • |
562 | 566 | ||||||||||
| Societe Generale S.A. |
| |||||||||||
| 6.750% due 04/06/2028 •(j)(k) |
200 | 228 | ||||||||||
| 7.375% due 10/04/2023 •(j)(k)(n) |
900 | 980 | ||||||||||
| Starwood Property Trust, Inc. |
| |||||||||||
| 5.500% due 11/01/2023 (n) |
2,500 | 2,625 | ||||||||||
| UniCredit SpA |
| |||||||||||
| 7.830% due 12/04/2023 (n) |
3,300 | 3,813 | ||||||||||
| Uniti Group LP |
| |||||||||||
| 7.875% due 02/15/2025 (n) |
18,734 | 19,980 | ||||||||||
| Voyager Aviation Holdings LLC |
| |||||||||||
| 8.500% due 05/09/2026 |
2,186 | 2,011 | ||||||||||
|
|
|
|||||||||||
| 145,722 | ||||||||||||
|
|
|
|||||||||||
| INDUSTRIALS 47.1% |
| |||||||||||
| AA Bond Co. Ltd. |
| |||||||||||
| 5.500% due 07/31/2050 (n) |
GBP | 1,323 | 2,086 | |||||||||
| Alaska Airlines Pass-Through Trust |
| |||||||||||
| 4.800% due 02/15/2029 (n) |
$ | 1,729 | 1,925 | |||||||||
| American Airlines, Inc. |
| |||||||||||
| 5.500% due 04/20/2026 (n) |
300 | 314 | ||||||||||
| Associated Materials LLC |
| |||||||||||
| 9.000% due 09/01/2025 (n) |
425 | 452 | ||||||||||
| B.C. Unlimited Liability Co. |
| |||||||||||
| 3.875% due 01/15/2028 (n) |
5,600 | 5,655 | ||||||||||
| 62 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 63 |
| Schedule of Investments | PIMCO High Income Fund | (Cont.) |
| 64 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 65 |
| Schedule of Investments | PIMCO High Income Fund | (Cont.) |
| SHARES | MARKET VALUE (000S) |
|||||||||||
| REAL ESTATE INVESTMENT TRUSTS 3.3% |
| |||||||||||
| REAL ESTATE 3.3% |
| |||||||||||
| Uniti Group, Inc. |
261,443 | $ | 3,061 | |||||||||
| VICI Properties, Inc. |
734,782 | 22,918 | ||||||||||
|
|
|
|||||||||||
| Total Real Estate Investment Trusts (Cost $11,180) |
25,979 | |||||||||||
|
|
|
|||||||||||
| SHORT-TERM INSTRUMENTS 4.4% |
| |||||||||||
| REPURCHASE AGREEMENTS (m) 0.2% |
| |||||||||||
| 1,905 | ||||||||||||
|
|
|
|||||||||||
| PRINCIPAL AMOUNT (000S) |
||||||||||||
| ARGENTINA TREASURY BILLS 0.0% |
| |||||||||||
| 39.804% due 11/30/2021 (h)(i) |
ARS | 11,320 | 55 | |||||||||
|
|
|
|||||||||||
| PRINCIPAL AMOUNT (000S) |
MARKET VALUE (000S) |
|||||||||||
| U.S. TREASURY BILLS 4.2% |
| |||||||||||
| 0.040% due 08/03/2021 - 01/27/2022 (g)(h)(p) |
$ | 33,200 | $ | 33,198 | ||||||||
|
|
|
|||||||||||
| Total Short-Term Instruments (Cost $35,161) |
35,158 | |||||||||||
|
|
|
|||||||||||
| Total Investments in Securities (Cost $1,267,830) |
1,304,543 | |||||||||||
| Total Investments 164.5% (Cost $1,267,830) |
|
$ | 1,304,543 | |||||||||
| Financial Derivative (Cost or Premiums, net $119,760) |
|
421 | ||||||||||
| Auction Rate Preferred Shares (7.3)% |
|
(58,050 | ) | |||||||||
| Other Assets and Liabilities, net (57.3)% | (454,141 | ) | ||||||||||
|
|
|
|||||||||||
| Net Assets Applicable to Common Shareholders 100.0% |
|
$ | 792,773 | |||||||||
|
|
|
|||||||||||
NOTES TO SCHEDULE OF INVESTMENTS:
| * | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ^ | Security is in default. |
| « | Security valued using significant unobservable inputs (Level 3). |
| µ | All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments. |
| ~ | Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description. |
| • | Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description. |
| þ | Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end. |
| (a) | Security is an Interest Only (“IO”) or IO Strip. |
| (b) | Principal only security. |
| (c) | When-issued security. |
| (d) | Payment in-kind security. |
| (e) | Security is not accruing income as of the date of this report. |
| (f) | Security did not produce income within the last twelve months. |
| (g) | Coupon represents a weighted average yield to maturity. |
| (h) | Zero coupon security. |
| (i) | Coupon represents a yield to maturity. |
| (j) | Perpetual maturity; date shown, if applicable, represents next contractual call date. |
| (k) | Contingent convertible security. |
(l) RESTRICTED SECURITIES:
| Issuer Description | Acquisition Date |
Cost | Market Value |
Market Value as Percentage of Net Assets Applicable to Common Shareholders |
||||||||||||||||||||
| Associated Materials Group, Inc. |
08/24/2020 | $ 1,031 | $ | 1,150 | 0.14 | % | ||||||||||||||||||
| Axis Energy Services ‘A’ |
07/01/2021 | 91 | 91 | 0.01 | ||||||||||||||||||||
| Neiman Marcus Group Ltd. LLC |
09/25/2020 | 2,918 | 9,968 | 1.26 | ||||||||||||||||||||
| Noble Corp. |
02/05/2021 - 02/27/2021 | 1,838 | 2,553 | 0.32 | ||||||||||||||||||||
| Westmoreland Mining Holdings LLC |
07/11/2016 - 10/19/2016 | 2,160 | 0 | 0.00 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| $ 8,038 | $ | 13,762 | 1.73 | % | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| 66 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
BORROWINGS AND OTHER FINANCING TRANSACTIONS
(m) 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 |
||||||||||||||||||||||
| FICC | 0.000 | % | 07/30/2021 | 08/02/2021 | $ | 1,905 | U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022 | $ | (1,943 | ) | $ | 1,905 | $ | 1,905 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Repurchase Agreements |
|
$ | (1,943 | ) | $ | 1,905 | $ | 1,905 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
REVERSE REPURCHASE AGREEMENTS:
| Counterparty | Borrowing Rate(1) |
Settlement Date |
Maturity Date |
Amount Borrowed(1) |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||
| BOS |
0.280 | % | 05/14/2021 | 08/16/2021 | $ | (1,331 | ) | $ | (1,332 | ) | ||||||||||||
| BPS |
0.350 | 05/05/2021 | 08/09/2021 | (2,154 | ) | (2,156 | ) | |||||||||||||||
| 0.500 | 07/20/2021 | 01/20/2022 | (6,655 | ) | (6,657 | ) | ||||||||||||||||
| 0.540 | 06/09/2021 | 03/09/2022 | (1,922 | ) | (1,923 | ) | ||||||||||||||||
| 0.550 | 07/23/2021 | 04/25/2022 | (1,852 | ) | (1,853 | ) | ||||||||||||||||
| 0.600 | 07/20/2021 | 01/20/2022 | (3,630 | ) | (3,630 | ) | ||||||||||||||||
| BRC |
0.250 | 11/09/2020 | TBD | (2) | (1,239 | ) | (1,241 | ) | ||||||||||||||
| 0.300 | 07/09/2021 | 10/08/2021 | GBP | (3,124 | ) | (4,343 | ) | |||||||||||||||
| 0.350 | 05/21/2021 | 08/24/2021 | $ | (5,670 | ) | (5,675 | ) | |||||||||||||||
| 0.380 | 07/06/2021 | 08/06/2021 | (1,532 | ) | (1,532 | ) | ||||||||||||||||
| 0.450 | 05/03/2021 | 08/06/2021 | (2,880 | ) | (2,884 | ) | ||||||||||||||||
| 0.450 | 06/03/2021 | 09/03/2021 | (1,532 | ) | (1,533 | ) | ||||||||||||||||
| 0.450 | 06/25/2021 | 09/03/2021 | (1,267 | ) | (1,268 | ) | ||||||||||||||||
| 0.450 | 07/09/2021 | 10/08/2021 | GBP | (15,503 | ) | (21,555 | ) | |||||||||||||||
| 0.450 | 07/15/2021 | 09/07/2021 | $ | (900 | ) | (900 | ) | |||||||||||||||
| 0.450 | 08/02/2021 | 09/03/2021 | (929 | ) | (929 | ) | ||||||||||||||||
| 0.470 | 07/15/2021 | 09/17/2021 | (1,172 | ) | (1,173 | ) | ||||||||||||||||
| 0.480 | 07/07/2021 | 10/05/2021 | (6,516 | ) | (6,519 | ) | ||||||||||||||||
| 0.480 | 07/09/2021 | 08/06/2021 | (19,380 | ) | (19,386 | ) | ||||||||||||||||
| 0.480 | 07/12/2021 | 10/05/2021 | (1,472 | ) | (1,472 | ) | ||||||||||||||||
| 0.500 | 07/16/2021 | 01/18/2022 | (1,769 | ) | (1,770 | ) | ||||||||||||||||
| 0.550 | 06/18/2021 | 03/10/2022 | (1,463 | ) | (1,464 | ) | ||||||||||||||||
| 0.550 | 07/09/2021 | 03/10/2022 | (1,767 | ) | (1,767 | ) | ||||||||||||||||
| 0.897 | 06/30/2021 | 08/17/2021 | (6,441 | ) | (6,446 | ) | ||||||||||||||||
| BYR |
0.650 | 03/31/2021 | 03/25/2022 | (9,046 | ) | (9,066 | ) | |||||||||||||||
| 0.650 | 06/18/2021 | 03/25/2022 | (5,830 | ) | (5,835 | ) | ||||||||||||||||
| CDC |
0.250 | 07/29/2021 | 08/30/2021 | (6,755 | ) | (6,755 | ) | |||||||||||||||
| 0.260 | 08/02/2021 | 09/02/2021 | (2,196 | ) | (2,196 | ) | ||||||||||||||||
| 0.300 | 05/18/2021 | 08/20/2021 | (187 | ) | (187 | ) | ||||||||||||||||
| 0.300 | 05/24/2021 | 08/27/2021 | (10,669 | ) | (10,675 | ) | ||||||||||||||||
| 0.300 | 05/25/2021 | 08/27/2021 | (7,931 | ) | (7,936 | ) | ||||||||||||||||
| 0.300 | 06/21/2021 | 09/20/2021 | (5,182 | ) | (5,184 | ) | ||||||||||||||||
| 0.300 | 07/02/2021 | 10/01/2021 | (2,186 | ) | (2,186 | ) | ||||||||||||||||
| 0.330 | 05/03/2021 | 08/02/2021 | (2,081 | ) | (2,082 | ) | ||||||||||||||||
| 0.350 | 07/15/2021 | 01/14/2022 | (5,213 | ) | (5,214 | ) | ||||||||||||||||
| 0.350 | 07/21/2021 | 01/21/2022 | (2,117 | ) | (2,117 | ) | ||||||||||||||||
| 0.470 | 06/14/2021 | 09/14/2021 | (289 | ) | (290 | ) | ||||||||||||||||
| 0.480 | 06/01/2021 | 08/30/2021 | (3,764 | ) | (3,767 | ) | ||||||||||||||||
| 0.480 | 06/02/2021 | 08/31/2021 | (3,880 | ) | (3,883 | ) | ||||||||||||||||
| 0.480 | 06/17/2021 | 09/15/2021 | (5,251 | ) | (5,254 | ) | ||||||||||||||||
| 0.490 | 05/24/2021 | 08/27/2021 | (528 | ) | (528 | ) | ||||||||||||||||
| 0.490 | 06/02/2021 | 09/03/2021 | (5,082 | ) | (5,086 | ) | ||||||||||||||||
| 0.500 | 06/18/2021 | 08/03/2021 | (2,829 | ) | (2,831 | ) | ||||||||||||||||
| 0.500 | 06/24/2021 | 08/03/2021 | (2,840 | ) | (2,842 | ) | ||||||||||||||||
| 0.500 | 08/03/2021 | 02/03/2022 | (5,790 | ) | (5,790 | ) | ||||||||||||||||
| CEW |
0.180 | 07/23/2021 | 10/22/2021 | GBP | (1,453 | ) | (2,020 | ) | ||||||||||||||
| 0.300 | 07/23/2021 | 10/22/2021 | (3,396 | ) | (4,721 | ) | ||||||||||||||||
| 0.450 | 07/12/2021 | 01/11/2022 | $ | (11,748 | ) | (11,751 | ) | |||||||||||||||
| 0.500 | 05/07/2021 | 02/01/2022 | (4,130 | ) | (4,135 | ) | ||||||||||||||||
| 0.500 | 07/09/2021 | 01/05/2022 | (11,085 | ) | (11,089 | ) | ||||||||||||||||
| CIB |
0.500 | 07/09/2021 | 08/13/2021 | (2,431 | ) | (2,432 | ) | |||||||||||||||
| 0.500 | 07/23/2021 | 08/24/2021 | (395 | ) | (395 | ) | ||||||||||||||||
| 0.530 | 06/30/2021 | 08/04/2021 | (616 | ) | (616 | ) | ||||||||||||||||
| CIW |
0.310 | 06/03/2021 | 09/03/2021 | (1,987 | ) | (1,988 | ) | |||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 67 |
| Schedule of Investments | PIMCO High Income Fund | (Cont.) |
| Counterparty | Borrowing Rate(1) |
Settlement Date |
Maturity Date |
Amount Borrowed(1) |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||
| IND |
0.300 | % | 06/09/2021 | 03/09/2022 | $ | (10,870 | ) | $ | (10,875 | ) | ||||||||||||
| 0.420 | 08/02/2021 | 02/02/2022 | (6,469 | ) | (6,469 | ) | ||||||||||||||||
| 0.450 | 08/02/2021 | 02/02/2022 | (744 | ) | (744 | ) | ||||||||||||||||
| 0.480 | 06/22/2021 | 02/04/2022 | (1,106 | ) | (1,106 | ) | ||||||||||||||||
| JML |
(0.400 | ) | 07/21/2021 | 10/21/2021 | EUR | (7,462 | ) | (8,850 | ) | |||||||||||||
| (0.380 | ) | 07/21/2021 | 10/21/2021 | (913 | ) | (1,083 | ) | |||||||||||||||
| (0.300 | ) | 07/14/2021 | 10/14/2021 | (534 | ) | (633 | ) | |||||||||||||||
| (0.050 | ) | 07/08/2021 | TBD | (2) | $ | (374 | ) | (374 | ) | |||||||||||||
| 0.350 | 07/19/2021 | 10/19/2021 | GBP | (601 | ) | (836 | ) | |||||||||||||||
| 0.350 | 07/23/2021 | 10/22/2021 | (3,507 | ) | (4,875 | ) | ||||||||||||||||
| 0.400 | 07/27/2021 | 08/27/2021 | $ | (2,032 | ) | (2,032 | ) | |||||||||||||||
| NOM |
0.400 | 08/02/2021 | 09/02/2021 | (1,073 | ) | (1,073 | ) | |||||||||||||||
| 0.450 | 07/22/2021 | 08/02/2021 | (1,061 | ) | (1,061 | ) | ||||||||||||||||
| SOG |
0.270 | 07/28/2021 | 08/30/2021 | (3,067 | ) | (3,067 | ) | |||||||||||||||
| 0.330 | 07/06/2021 | 10/06/2021 | (1,846 | ) | (1,846 | ) | ||||||||||||||||
| 0.330 | 07/08/2021 | 10/06/2021 | (5,117 | ) | (5,119 | ) | ||||||||||||||||
| 0.350 | 06/24/2021 | 09/24/2021 | (7,143 | ) | (7,145 | ) | ||||||||||||||||
| 0.450 | 05/03/2021 | 08/06/2021 | (4,762 | ) | (4,768 | ) | ||||||||||||||||
| 0.450 | 05/14/2021 | 08/17/2021 | (2,090 | ) | (2,092 | ) | ||||||||||||||||
| 0.450 | 05/24/2021 | 08/25/2021 | (3,993 | ) | (3,996 | ) | ||||||||||||||||
| 0.450 | 05/25/2021 | 08/27/2021 | (4,080 | ) | (4,083 | ) | ||||||||||||||||
| 0.450 | 06/01/2021 | 09/01/2021 | (1,046 | ) | (1,047 | ) | ||||||||||||||||
| 0.450 | 06/03/2021 | 09/07/2021 | (4,475 | ) | (4,478 | ) | ||||||||||||||||
| 0.450 | 07/19/2021 | 08/17/2021 | (3,307 | ) | (3,308 | ) | ||||||||||||||||
| 0.480 | 04/30/2021 | 08/03/2021 | (3,577 | ) | (3,582 | ) | ||||||||||||||||
| 0.500 | 07/06/2021 | 01/04/2022 | (18,043 | ) | (18,050 | ) | ||||||||||||||||
| 0.500 | 07/15/2021 | 01/14/2022 | (5,921 | ) | (5,923 | ) | ||||||||||||||||
| 0.500 | 07/16/2021 | 01/14/2022 | (3,143 | ) | (3,144 | ) | ||||||||||||||||
| 0.500 | 07/20/2021 | 01/20/2022 | (13,810 | ) | (13,813 | ) | ||||||||||||||||
| 0.500 | 07/27/2021 | 01/20/2022 | (1,434 | ) | (1,434 | ) | ||||||||||||||||
| 0.550 | 06/09/2021 | 03/02/2022 | (254 | ) | (254 | ) | ||||||||||||||||
| 0.550 | 07/27/2021 | 04/27/2022 | (6,816 | ) | (6,816 | ) | ||||||||||||||||
| TDM |
0.220 | 06/09/2021 | TBD | (2) | (6,495 | ) | (6,497 | ) | ||||||||||||||
| 0.220 | 07/06/2021 | TBD | (2) | (4,638 | ) | (4,639 | ) | |||||||||||||||
| 0.250 | 04/01/2021 | TBD | (2) | (1,331 | ) | (1,332 | ) | |||||||||||||||
| 0.250 | 04/16/2021 | TBD | (2) | (7,316 | ) | (7,321 | ) | |||||||||||||||
| UBS |
0.350 | 06/01/2021 | 09/02/2021 | (5,177 | ) | (5,180 | ) | |||||||||||||||
| 0.350 | 07/14/2021 | 10/15/2021 | (9,807 | ) | (9,809 | ) | ||||||||||||||||
| 0.400 | 07/06/2021 | 08/06/2021 | (5,936 | ) | (5,938 | ) | ||||||||||||||||
| 0.400 | 07/27/2021 | 08/30/2021 | (9,256 | ) | (9,257 | ) | ||||||||||||||||
| 0.430 | 06/03/2021 | 09/03/2021 | (4,499 | ) | (4,502 | ) | ||||||||||||||||
| 0.450 | 05/14/2021 | 08/13/2021 | (3,355 | ) | (3,358 | ) | ||||||||||||||||
| 0.450 | 05/19/2021 | 08/19/2021 | (14,689 | ) | (14,703 | ) | ||||||||||||||||
| 0.450 | 06/01/2021 | 09/01/2021 | (4,606 | ) | (4,609 | ) | ||||||||||||||||
| 0.450 | 06/01/2021 | 09/02/2021 | (3,336 | ) | (3,339 | ) | ||||||||||||||||
| 0.450 | 06/02/2021 | 09/03/2021 | (5,128 | ) | (5,132 | ) | ||||||||||||||||
| 0.450 | 06/29/2021 | 09/29/2021 | (11,773 | ) | (11,778 | ) | ||||||||||||||||
| 0.450 | 07/06/2021 | 08/06/2021 | (1,161 | ) | (1,161 | ) | ||||||||||||||||
| 0.450 | 07/07/2021 | 10/05/2021 | (8,151 | ) | (8,154 | ) | ||||||||||||||||
| 0.450 | 07/14/2021 | 10/15/2021 | (213 | ) | (213 | ) | ||||||||||||||||
| 0.450 | 07/22/2021 | 09/02/2021 | (179 | ) | (179 | ) | ||||||||||||||||
| 0.500 | 07/12/2021 | 01/10/2022 | (2,987 | ) | (2,988 | ) | ||||||||||||||||
| 0.500 | 07/14/2021 | 01/12/2022 | (6,739 | ) | (6,740 | ) | ||||||||||||||||
|
|
|
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| Total Reverse Repurchase Agreements |
|
$ | (479,064 | ) | ||||||||||||||||||
|
|
|
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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 July 31, 2021:
| 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(3) | ||||||||||||||||||
| Global/Master Repurchase Agreement |
| |||||||||||||||||||||||
| BOS |
$ | 0 | $ | (1,332 | ) | $ | 0 | $ | (1,332 | ) | $ | 1,492 | $ | 160 | ||||||||||
| BPS |
0 | (16,219 | ) | 0 | (16,219 | ) | 21,922 | 5,703 | ||||||||||||||||
| BRC |
0 | (81,857 | ) | 0 | (81,857 | ) | 92,701 | 10,844 | ||||||||||||||||
| BYR |
0 | (14,901 | ) | 0 | (14,901 | ) | 17,613 | 2,712 | ||||||||||||||||
| CDC |
0 | (74,803 | ) | 0 | (74,803 | ) | 71,576 | (3,227 | ) | |||||||||||||||
| CEW |
0 | (33,716 | ) | 0 | (33,716 | ) | 39,396 | 5,680 | ||||||||||||||||
| 68 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| 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(3) | ||||||||||||||||||
| CIB |
$ | 0 | $ | (3,443 | ) | $ | 0 | $ | (3,443 | ) | $ | 4,074 | $ | 631 | ||||||||||
| CIW |
0 | (1,988 | ) | 0 | (1,988 | ) | 2,109 | 121 | ||||||||||||||||
| FICC |
1,905 | 0 | 0 | 1,905 | (1,943 | ) | (38 | ) | ||||||||||||||||
| IND |
0 | (19,194 | ) | 0 | (19,194 | ) | 21,345 | 2,151 | ||||||||||||||||
| JML |
0 | (18,683 | ) | 0 | (18,683 | ) | 21,672 | 2,989 | ||||||||||||||||
| NOM |
0 | (2,134 | ) | 0 | (2,134 | ) | 1,215 | (919 | ) | |||||||||||||||
| SOG |
0 | (93,965 | ) | 0 | (93,965 | ) | 107,115 | 13,150 | ||||||||||||||||
| TDM |
0 | (19,789 | ) | 0 | (19,789 | ) | 20,786 | 997 | ||||||||||||||||
| UBS |
0 | (97,040 | ) | 0 | (97,040 | ) | 113,700 | 16,660 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total Borrowings and Other Financing Transactions |
$ | 1,905 | $ | (479,064 | ) | $ | 0 | |||||||||||||||||
|
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|
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|
|
|
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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 | $ | (130,942 | ) | $ | (157,133 | ) | $ | (154,369 | ) | $ | (442,444 | ) | ||||||
| U.S. Government Agencies |
0 | (3,443 | ) | 0 | 0 | (3,443 | ) | |||||||||||||
| Non-Agency Mortgage-Backed Securities |
0 | (6,446 | ) | 0 | 0 | (6,446 | ) | |||||||||||||
| Sovereign Issues |
0 | (2,033 | ) | (1,047 | ) | (6,450 | ) | (9,530 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Borrowings |
$ | 0 | $ | (142,864 | ) | $ | (158,180 | ) | $ | (160,819 | ) | $ | (461,863 | ) | ||||||
|
|
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|
|
|
|
|
|
|
|||||||||||
| Payable for reverse repurchase agreements(4) |
|
$ | (461,863 | ) | ||||||||||||||||
|
|
|
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| (n) | Securities with an aggregate market value of $540,950 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021. |
| (1) | The average amount of borrowings outstanding during the period ended July 31, 2021 was $(310,593) at a weighted average interest rate of 0.592%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period. |
| (2) | Open maturity reverse repurchase agreement. |
| (3) | 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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (4) | Unsettled reverse repurchase agreements liability of $(17,201) is outstanding at period end. |
(o) FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION(1)
| Reference Entity |
Fixed Receive Rate |
Payment Frequency |
Maturity Date |
Implied Credit Spread at July 31, 2021(2) |
Notional Amount(3) |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value(4) |
Variation Margin | |||||||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||||||
| Bombardier, Inc. |
5.000 | % | Quarterly | 12/20/2024 | 3.311 | % | $ | 2,000 | $ | (8 | ) | $ | 128 | $ | 120 | $ | 0 | $ | (2 | ) | ||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 12/20/2025 | 2.269 | EUR | 15,900 | (1,924 | ) | 936 | (988 | ) | 0 | 0 | |||||||||||||||||||||||||||||||
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| $ | (1,932 | ) | $ | 1,064 | $ | (868 | ) | $ | 0 | $ | (2 | ) | ||||||||||||||||||||||||||||||||
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INTEREST RATE SWAPS
| Pay/Receive Floating Rate |
Floating Rate Index |
Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin |
|||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | % | Annual | 09/15/2031 | GBP | 20,400 | $ | (17 | ) | $ | (435 | ) | $ | (452 | ) | $ | 0 | $ | (37 | ) | |||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | Annual | 09/15/2051 | 1,700 | 107 | (184 | ) | (77 | ) | 0 | (8 | ) | |||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.000 | Semi-Annual | 06/17/2023 | $ | 17,400 | (376 | ) | 110 | (266 | ) | 0 | (4 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.250 | Semi-Annual | 06/16/2024 | 14,250 | 39 | 37 | 76 | 0 | (8 | ) | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
3.000 | Semi-Annual | 06/19/2024 | 1,900 | (32 | ) | (114 | ) | (146 | ) | 0 | (1 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.400 | Semi-Annual | 12/18/2024 | 72,000 | (205 | ) | 520 | 315 | 0 | (63 | ) | ||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.500 | Semi-Annual | 06/16/2026 | 68,500 | 1,264 | (402 | ) | 862 | 0 | (88 | ) | ||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.250 | Semi-Annual | 12/15/2026 | 152,200 | (2,540 | ) | (159 | ) | (2,699 | ) | 0 | (230 | ) | ||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.370 | Semi-Annual | 08/25/2028 | 27,135 | 0 | (586 | ) | (586 | ) | 0 | (71 | ) | |||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.000 | Semi-Annual | 06/19/2029 | 79,200 | 1,687 | 10,009 | 11,696 | 277 | 0 | ||||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.000 | Semi-Annual | 12/16/2030 | 127 | 1 | 2 | 3 | 0 | (1 | ) | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.750 | Semi-Annual | 06/16/2031 | 97,200 | 7,950 | (3,423 | ) | 4,527 | 0 | (389 | ) | ||||||||||||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 69 |
| Schedule of Investments | PIMCO High Income Fund | (Cont.) |
| Pay/Receive Floating Rate |
Floating Rate Index |
Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin |
|||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.750 | % | Semi-Annual | 12/15/2031 | $ | 52,600 | $ | (834 | ) | $ | (1,320 | ) | $ | (2,154 | ) | $ | 0 | $ | (230 | ) | |||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.500 | Semi-Annual | 06/19/2044 | 617,800 | 110,477 | 119,840 | 230,317 | 4,521 | 0 | ||||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.000 | Semi-Annual | 01/15/2050 | 35,600 | (256 | ) | (2,497 | ) | (2,753 | ) | 0 | (257 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 01/22/2050 | 55,100 | (127 | ) | (820 | ) | (947 | ) | 0 | (373 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.875 | Semi-Annual | 02/07/2050 | 42,480 | (165 | ) | (2,182 | ) | (2,347 | ) | 0 | (297 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.150 | Semi-Annual | 12/11/2050 | 491,800 | 1,785 | 61,433 | 63,218 | 0 | (2,740 | ) | |||||||||||||||||||||||||||||
| Pay(5) |
3-Month USD-LIBOR |
2.000 | Semi-Annual | 12/15/2051 | 29,200 | 2,124 | 10 | 2,134 | 210 | 0 | ||||||||||||||||||||||||||||||
| Receive |
6-Month EUR-EURIBOR |
0.270 | Annual | 09/11/2024 | EUR | 25,600 | 4 | (828 | ) | (824 | ) | 0 | (6 | ) | ||||||||||||||||||||||||||
| Pay |
6-Month EUR-EURIBOR |
0.650 | Annual | 02/26/2029 | 263,700 | 264 | 22,214 | 22,478 | 332 | 0 | ||||||||||||||||||||||||||||||
| Receive |
6-Month EUR-EURIBOR |
0.150 | Annual | 06/17/2030 | 24,100 | (1,059 | ) | 296 | (763 | ) | 0 | (38 | ) | |||||||||||||||||||||||||||
| Receive(5) |
6-Month EUR-EURIBOR |
0.000 | Annual | 09/15/2031 | 3,200 | 55 | (76 | ) | (21 | ) | 0 | (6 | ) | |||||||||||||||||||||||||||
| Receive |
6-Month EUR-EURIBOR |
1.250 | Annual | 08/19/2049 | 65,900 | 274 | (22,575 | ) | (22,301 | ) | 0 | (563 | ) | |||||||||||||||||||||||||||
| Pay |
6-Month EUR-EURIBOR |
0.500 | Annual | 06/17/2050 | 7,700 | 1,317 | (711 | ) | 606 | 64 | 0 | |||||||||||||||||||||||||||||
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| $ | 121,737 | $ | 178,159 | $ | 299,896 | $ | 5,404 | $ | (5,410 | ) | ||||||||||||||||||||||||||||||
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| Total Swap Agreements |
|
$ | 119,805 | $ | 179,223 | $ | 299,028 | $ | 5,404 | $ | (5,412 | ) | ||||||||||||||||||||||||||||
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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 July 31, 2021:
| 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 | $ | 5,404 | $ | 5,404 | $ | 0 | $ | 0 | $ | (5,412) | $ | (5,412) | ||||||||||||||||||||
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| (p) | Securities with an aggregate market value of $9,977 and cash of $32,349 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (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 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 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 underlying referenced instrument’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
| (5) | This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information. |
(q) 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 | |||||||||||||||||||||||
| BPS |
08/2021 | EUR | 6,317 | $ | 7,493 | $ | 4 | $ | (5 | ) | ||||||||||||||
| 08/2021 | $ | 1,286 | EUR | 1,084 | 0 | 0 | ||||||||||||||||||
| BRC |
08/2021 | GBP | 1,111 | $ | 1,539 | 0 | (5 | ) | ||||||||||||||||
| GLM |
08/2021 | $ | 50,614 | GBP | 36,284 | 0 | (180 | ) | ||||||||||||||||
| 09/2021 | GBP | 36,283 | $ | 50,618 | 180 | 0 | ||||||||||||||||||
| 11/2021 | $ | 963 | PEN | 3,610 | 0 | (74 | ) | |||||||||||||||||
| HUS |
08/2021 | GBP | 42,652 | $ | 59,039 | 0 | (248 | ) | ||||||||||||||||
| 08/2021 | $ | 8,810 | EUR | 7,481 | 64 | 0 | ||||||||||||||||||
| 08/2021 | 11,189 | GBP | 8,145 | 133 | 0 | |||||||||||||||||||
| 09/2021 | PEN | 4,729 | $ | 1,280 | 116 | 0 | ||||||||||||||||||
| SCX |
08/2021 | EUR | 59,505 | 70,608 | 25 | (5 | ) | |||||||||||||||||
| 08/2021 | $ | 619 | EUR | 525 | 4 | 0 | ||||||||||||||||||
| 09/2021 | EUR | 56,732 | $ | 67,311 | 0 | (26 | ) | |||||||||||||||||
| UAG |
08/2021 | GBP | 665 | 921 | 0 | (3 | ) | |||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total Forward Foreign Currency Contracts |
|
$ | 526 | $ | (546 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| 70 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
SWAP AGREEMENTS:
INTEREST RATE SWAPS
| Counterparty |
Pay/ Receive |
Floating Rate Index |
Fixed Rate |
Payment |
Maturity |
Notional |
Premiums |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value |
|||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||
| MYC | Pay |
3-Month USD-LIBOR |
1.620% | Semi-Annual | 08/25/2028 | $ | 120,600 | $ | (45 | ) | $ | 494 | $ | 449 | $ | 0 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Swap Agreements |
$ | (45 | ) | $ | 494 | $ | 449 | $ | 0 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
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 July 31, 2021:
| 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(1) |
|||||||||||||||||||||||||||||||||||||
| BPS |
$ | 4 | $ | 0 | $ | 0 | $ | 4 | $ | (5 | ) | $ | 0 | $ | 0 | $ | (5 | ) | $ | (1 | ) | $ | 0 | $ | (1 | ) | ||||||||||||||||||||||
| BRC |
0 | 0 | 0 | 0 | (5 | ) | 0 | 0 | (5 | ) | (5 | ) | 0 | (5 | ) | |||||||||||||||||||||||||||||||||
| GLM |
180 | 0 | 0 | 180 | (254 | ) | 0 | 0 | (254 | ) | (74 | ) | 0 | (74 | ) | |||||||||||||||||||||||||||||||||
| HUS |
313 | 0 | 0 | 313 | (248 | ) | 0 | 0 | (248 | ) | 65 | 0 | 65 | |||||||||||||||||||||||||||||||||||
| MYC |
0 | 0 | 449 | 449 | 0 | 0 | 0 | 0 | 449 | (260 | ) | 189 | ||||||||||||||||||||||||||||||||||||
| SCX |
29 | 0 | 0 | 29 | (31 | ) | 0 | 0 | (31 | ) | (2 | ) | 0 | (2 | ) | |||||||||||||||||||||||||||||||||
| UAG |
0 | 0 | 0 | 0 | (3 | ) | 0 | 0 | (3 | ) | (3 | ) | 0 | (3 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| Total Over the Counter |
$ | 526 | $ | 0 | $ | 449 | $ | 975 | $ | (546 | ) | $ | 0 | $ | 0 | $ | (546 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| (1) | 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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
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 and Other 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 July 31, 2021:
| 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 | $ | 5,404 | $ | 5,404 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 526 | $ | 0 | $ | 526 | ||||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | 449 | 449 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 526 | $ | 449 | $ | 975 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 526 | $ | 5,853 | $ | 6,379 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Financial Derivative Instruments - Liabilities |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 2 | $ | 0 | $ | 0 | $ | 5,410 | $ | 5,412 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 546 | $ | 0 | $ | 546 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 2 | $ | 0 | $ | 546 | $ | 5,410 | $ | 5,958 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 71 |
| Schedule of Investments | PIMCO High Income Fund | (Cont.) |
The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:
| 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 | $ | 195 | $ | 0 | $ | 0 | $ | 20,589 | $ | 20,784 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | (7,864 | ) | $ | 0 | $ | (7,864 | ) | ||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | (1,741 | ) | (1,741 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | (7,864 | ) | $ | (1,741 | ) | $ | (9,605 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 195 | $ | 0 | $ | (7,864 | ) | $ | 18,848 | $ | 11,179 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 1,514 | $ | 0 | $ | 0 | $ | (13,207 | ) | $ | (11,693 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 4,044 | $ | 0 | $ | 4,044 | ||||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | 495 | 495 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 4,044 | $ | 495 | $ | 4,539 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 1,514 | $ | 0 | $ | 4,044 | $ | (12,712 | ) | $ | (7,154 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
FAIR VALUE MEASUREMENTS
The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:
| Category and Subcategory | Level 1 | Level 2 | Level 3 | Fair Value at 07/31/2021 |
||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||
| Loan Participations and Assignments |
$ | 0 | $ | 159,965 | $ | 15,719 | $ | 175,684 | ||||||||
| Corporate Bonds & Notes |
| |||||||||||||||
| Banking & Finance |
0 | 145,722 | 0 | 145,722 | ||||||||||||
| Industrials |
0 | 373,294 | 0 | 373,294 | ||||||||||||
| Utilities |
0 | 83,086 | 0 | 83,086 | ||||||||||||
| Convertible Bonds & Notes |
| |||||||||||||||
| Industrials |
0 | 5,240 | 0 | 5,240 | ||||||||||||
| Municipal Bonds & Notes |
| |||||||||||||||
| California |
0 | 3,761 | 0 | 3,761 | ||||||||||||
| District of Columbia |
0 | 14,376 | 0 | 14,376 | ||||||||||||
| Illinois |
0 | 29,652 | 0 | 29,652 | ||||||||||||
| New York |
0 | 370 | 0 | 370 | ||||||||||||
| Puerto Rico |
0 | 7,951 | 0 | 7,951 | ||||||||||||
| Texas |
0 | 11,762 | 0 | 11,762 | ||||||||||||
| Virginia |
0 | 1,368 | 0 | 1,368 | ||||||||||||
| West Virginia |
0 | 7,524 | 0 | 7,524 | ||||||||||||
| U.S. Government Agencies |
0 | 12,191 | 8,336 | 20,527 | ||||||||||||
| Non-Agency Mortgage-Backed Securities |
0 | 93,025 | 0 | 93,025 | ||||||||||||
| Asset-Backed Securities |
0 | 73,167 | 5,870 | 79,037 | ||||||||||||
| Sovereign Issues |
0 | 31,476 | 0 | 31,476 | ||||||||||||
| Common Stocks |
| |||||||||||||||
| Communication Services |
6,621 | 0 | 3,223 | 9,844 | ||||||||||||
| Energy |
2,616 | 0 | 91 | 2,707 | ||||||||||||
| Financials |
0 | 0 | 1,150 | 1,150 | ||||||||||||
| Industrials |
0 | 42 | 9,968 | 10,010 | ||||||||||||
| Warrants |
| |||||||||||||||
| Industrials |
0 | 0 | 1,131 | 1,131 | ||||||||||||
| Information Technology |
0 | 0 | 11,995 | 11,995 | ||||||||||||
| Category and Subcategory | Level 1 | Level 2 | Level 3 | Fair Value at 07/31/2021 |
||||||||||||
| Preferred Securities |
| |||||||||||||||
| Banking & Finance |
$ | 0 | $ | 65,630 | $ | 0 | $ | 65,630 | ||||||||
| Industrials |
0 | 367 | 56,717 | 57,084 | ||||||||||||
| Real Estate Investment Trusts |
| |||||||||||||||
| Real Estate |
25,979 | 0 | 0 | 25,979 | ||||||||||||
| Short-Term Instruments |
| |||||||||||||||
| Repurchase Agreements |
0 | 1,905 | 0 | 1,905 | ||||||||||||
| Argentina Treasury Bills |
0 | 55 | 0 | 55 | ||||||||||||
| U.S. Treasury Bills |
0 | 33,198 | 0 | 33,198 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Investments |
$ | 35,216 | $ | 1,155,127 | $ | 114,200 | $ | 1,304,543 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Financial Derivative Instruments - Assets |
| |||||||||||||||
| Exchange-traded or centrally cleared |
0 | 5,404 | 0 | 5,404 | ||||||||||||
| Over the counter |
0 | 975 | 0 | 975 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 0 | $ | 6,379 | $ | 0 | $ | 6,379 | |||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Financial Derivative Instruments - Liabilities |
| |||||||||||||||
| Exchange-traded or centrally cleared |
0 | (5,412 | ) | 0 | (5,412 | ) | ||||||||||
| Over the counter |
0 | (546 | ) | 0 | (546 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| $ | 0 | $ | (5,958 | ) | $ | 0 | $ | (5,958 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total Financial Derivative Instruments |
$ | 0 | $ | 421 | $ | 0 | $ | 421 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Totals |
$ | 35,216 | $ | 1,155,548 | $ | 114,200 | $ | 1,304,964 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 72 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:
| Category and Subcategory | Beginning Balance at 07/31/2020 |
Net Purchases |
Net Sales/ Settlements |
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 07/31/2021 |
Net Change in Unrealized Appreciation/ (Depreciation) on Investments Held at 07/31/2021(1) |
||||||||||||||||||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||||||||||||||||||||||
| Loan Participations and Assignments |
$ | 14,020 | $ | 23,891 | $ | (20,924 | ) | $ | 61 | $ | (9,246 | ) | $ | 6,385 | $ | 1,551 | $ | (19 | ) | $ | 15,719 | $ | (881 | ) | ||||||||||||||||
| U.S. Government Agencies |
8,368 | 0 | (183 | ) | 27 | 62 | 62 | 0 | 0 | 8,336 | 52 | |||||||||||||||||||||||||||||
| Non-Agency Mortgage-Backed Securities |
3,584 | 0 | 0 | 31 | 0 | 641 | 0 | (4,256 | ) | 0 | 0 | |||||||||||||||||||||||||||||
| Asset-Backed Securities |
12,433 | 345 | (3,121 | ) | 0 | (3,365 | ) | 2,448 | 0 | (2,870 | ) | 5,870 | (2,201 | ) | ||||||||||||||||||||||||||
| Common Stocks |
| |||||||||||||||||||||||||||||||||||||||
| Communication Services |
4 | 2,963 | 0 | 0 | 0 | 256 | 0 | 0 | 3,223 | 256 | ||||||||||||||||||||||||||||||
| Energy |
0 | 91 | 0 | 0 | 0 | 0 | 0 | 0 | 91 | 0 | ||||||||||||||||||||||||||||||
| Financials |
0 | 1,031 | 0 | 0 | 0 | 119 | 0 | 0 | 1,150 | 119 | ||||||||||||||||||||||||||||||
| Industrials |
662 | 2,918 | 0 | 0 | 0 | 6,388 | 0 | 0 | 9,968 | 6,388 | ||||||||||||||||||||||||||||||
| Real Estate |
2,453 | 0 | 0 | 0 | 0 | 608 | 0 | (3,061 | ) | 0 | 0 | |||||||||||||||||||||||||||||
| Warrants |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 1,131 | 0 | 0 | 1,131 | 1,131 | ||||||||||||||||||||||||||||||
| Information Technology |
0 | 4,455 | 0 | 0 | 0 | 7,540 | 0 | 0 | 11,995 | 7,540 | ||||||||||||||||||||||||||||||
| Preferred Securities |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
34,186 | 1,984 | (10,840 | ) | 0 | 0 | 31,387 | 0 | 0 | 56,717 | 31,387 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Totals |
$ | 75,710 | $ | 37,678 | $ | (35,068 | ) | $ | 119 | $ | (12,549 | ) | $ | 56,965 | $ | 1,551 | $ | (10,206 | ) | $ | 114,200 | $ | 43,791 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
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 07/31/2021 |
Valuation Technique |
Unobservable Inputs |
Input Value(s) | Weighted Average |
|||||||||||||||
| Investments in Securities, at Value |
|
|||||||||||||||||||
| Loan Participations and Assignments |
$ | 5,059 | Reference Instrument | Yield | % | 5.738 | — | |||||||||||||
| 10,660 | Third Party Vendor | Broker Quote | 21.500-100.313 | 88.472 | ||||||||||||||||
| U.S. Government Agencies |
8,336 | Proxy Pricing | Base Price | 61.285 | — | |||||||||||||||
| Asset-Backed Securities |
5,870 | Proxy Pricing | Base Price | 8,496.580-40,342.32 | 19,359.901 | |||||||||||||||
| Common Stocks |
||||||||||||||||||||
| Communication Services |
3,223 | Reference Instrument | Liquidity Discount | 10.000 | — | |||||||||||||||
| Energy |
91 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Financials |
1,150 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Industrials |
9,968 | Discounted Cash Flow | Discount Rate | 14.25 | — | |||||||||||||||
| Warrants |
||||||||||||||||||||
| Industrials |
1,131 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Information Technology |
11,995 | Comparable Companies | EBITDA | x | 4.375 | — | ||||||||||||||
| Preferred Securities |
||||||||||||||||||||
| Industrials |
1,857 | Comparable Companies/Discounted Cash Flow | Book Value/Discount Rate | x/% | 0.210/20.150 | — | ||||||||||||||
| 54,860 | Comparable Companies | EBITDA | x/x | 11.700/9.200 | — | |||||||||||||||
|
|
|
|||||||||||||||||||
| Total |
$ | 114,200 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| (1) | Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 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 | ANNUAL REPORT | | | JULY 31, 2021 | 73 |
| Schedule of Investments | PIMCO Income Strategy Fund |
(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)
| 74 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 75 |
| Schedule of Investments | PIMCO Income Strategy Fund | (Cont.) |
| 76 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| PRINCIPAL AMOUNT (000S) |
MARKET VALUE (000S) |
|||||||||||
| HarborView Mortgage Loan Trust |
| |||||||||||
| 0.809% due 01/19/2035 • |
$ | 53 | $ | 53 | ||||||||
| 2.680% due 07/19/2035 ^~ |
16 | 14 | ||||||||||
| IndyMac Mortgage Loan Trust |
| |||||||||||
| 6.500% due 07/25/2037 ^ |
1,627 | 842 | ||||||||||
| Jackson Park Trust |
| |||||||||||
| 3.242% due 10/14/2039 ~ |
1,033 | 990 | ||||||||||
| JP Morgan Alternative Loan Trust |
| |||||||||||
| 2.812% due 03/25/2036 ^~ |
516 | 460 | ||||||||||
| 3.266% due 03/25/2037 ^~ |
459 | 471 | ||||||||||
| JP Morgan Chase Commercial Mortgage Securities Trust |
| |||||||||||
| 5.623% due 05/12/2045 |
35 | 30 | ||||||||||
| JP Morgan Mortgage Trust |
| |||||||||||
| 2.685% due 02/25/2036 ^~ |
110 | 92 | ||||||||||
| 2.798% due 01/25/2037 ^~ |
113 | 102 | ||||||||||
| LB-UBS Commercial Mortgage Trust |
| |||||||||||
| 5.407% due 11/15/2038 ^ |
174 | 58 | ||||||||||
| 5.562% due 02/15/2040 ^~ |
108 | 47 | ||||||||||
| Lehman XS Trust |
| |||||||||||
| 0.309% due 06/25/2047 • |
582 | 559 | ||||||||||
| Merrill Lynch Mortgage Investors Trust |
| |||||||||||
| 2.732% due 03/25/2036 ^~ |
623 | 400 | ||||||||||
| Morgan Stanley Mortgage Loan Trust |
| |||||||||||
| 5.962% due 06/25/2036 ^~ |
2,253 | 946 | ||||||||||
| Motel 6 Trust |
| |||||||||||
| 7.020% due 08/15/2024 • |
158 | 155 | ||||||||||
| Natixis Commercial Mortgage Securities Trust |
| |||||||||||
| 2.343% due 11/15/2034 • |
1,065 | 1,065 | ||||||||||
| Residential Asset Securitization Trust |
| |||||||||||
| 5.750% due 02/25/2036 ^ |
406 | 252 | ||||||||||
| 6.000% due 07/25/2037 ^ |
639 | 368 | ||||||||||
| 6.250% due 09/25/2037 ^ |
1,201 | 697 | ||||||||||
| Residential Funding Mortgage Securities, Inc. Trust |
| |||||||||||
| 4.271% due 08/25/2036 ^~ |
228 | 210 | ||||||||||
| 6.000% due 09/25/2036 ^ |
65 | 62 | ||||||||||
| 6.000% due 06/25/2037 ^ |
775 | 768 | ||||||||||
| Structured Adjustable Rate Mortgage Loan Trust |
| |||||||||||
| 2.909% due 11/25/2036 ^~ |
496 | 479 | ||||||||||
| 2.982% due 01/25/2036 ^~ |
535 | 383 | ||||||||||
| SunTrust Adjustable Rate Mortgage Loan Trust |
| |||||||||||
| 2.316% due 04/25/2037 ^~ |
283 | 212 | ||||||||||
| 2.369% due 02/25/2037 ^~ |
66 | 62 | ||||||||||
| WaMu Mortgage Pass-Through Certificates Trust |
| |||||||||||
| 1.843% due 12/25/2046 • |
236 | 229 | ||||||||||
| 3.092% due 02/25/2037 ^~ |
173 | 172 | ||||||||||
| 3.267% due 10/25/2036 ^~ |
248 | 240 | ||||||||||
| Wells Fargo Mortgage-Backed Securities Trust |
| |||||||||||
| 6.000% due 06/25/2037 ^ |
23 | 24 | ||||||||||
|
|
|
|||||||||||
| Total Non-Agency Mortgage-Backed Securities (Cost $23,797) |
23,438 | |||||||||||
|
|
|
|||||||||||
| ASSET-BACKED SECURITIES 10.4% |
| |||||||||||
| Adagio CLO DAC |
| |||||||||||
| 0.000% due 04/30/2031 ~ |
EUR | 1,750 | 1,223 | |||||||||
| Apidos CLO |
| |||||||||||
| 0.000% due 01/20/2031 ~ |
$ | 2,200 | 1,259 | |||||||||
| Argent Securities Trust |
| |||||||||||
| 0.469% due 03/25/2036 • |
6,531 | 4,456 | ||||||||||
| Asset-Backed Funding Certificates Trust |
| |||||||||||
| 0.239% due 10/25/2036 • |
3,207 | 3,171 | ||||||||||
| Avoca CLO DAC |
| |||||||||||
| 0.000% due 07/15/2032 ~ |
EUR | 1,070 | 997 | |||||||||
| Bear Stearns Asset-Backed Securities Trust |
| |||||||||||
| 6.500% due 10/25/2036 ^ |
$ | 211 | 141 | |||||||||
| Belle Haven ABS CDO Ltd. |
| |||||||||||
| 0.526% due 07/05/2046 • |
85,896 | 226 | ||||||||||
| CIFC Funding Ltd. |
| |||||||||||
| 0.000% due 04/24/2030 ~ |
1,200 | 519 | ||||||||||
| 0.010% due 10/22/2031 ~ |
1,000 | 390 | ||||||||||
| Citigroup Mortgage Loan Trust |
| |||||||||||
| 0.239% due 12/25/2036 • |
3,032 | 1,586 | ||||||||||
| PRINCIPAL AMOUNT (000S) |
MARKET VALUE (000S) |
|||||||||||
| Dryden CLO Ltd. |
| |||||||||||
| 0.000% due 07/17/2031 ~ |
$ | 5,689 | $ | 4,215 | ||||||||
| Flagship Credit Auto Trust |
| |||||||||||
| 0.000% due 05/15/2025 «(h) |
4 | 356 | ||||||||||
| Grosvenor Place CLO BV |
| |||||||||||
| 0.000% due 04/30/2029 ~ |
EUR | 250 | 164 | |||||||||
| GSAMP Trust |
| |||||||||||
| 1.064% due 03/25/2035 ^• |
$ | 4,186 | 4,087 | |||||||||
| Jay Park CLO Ltd. |
| |||||||||||
| 0.000% due 10/20/2027 ~ |
2,700 | 1,424 | ||||||||||
| Lehman XS Trust |
| |||||||||||
| 6.790% due 06/24/2046 þ |
570 | 590 | ||||||||||
| Marlette Funding Trust |
| |||||||||||
| 0.000% due 07/16/2029 «(h) |
6 | 736 | ||||||||||
| 0.000% due 03/15/2030 «(h) |
3 | 581 | ||||||||||
| Merrill Lynch Mortgage Investors Trust |
| |||||||||||
| 0.409% due 04/25/2037 • |
219 | 148 | ||||||||||
| Morgan Stanley Mortgage Loan Trust |
| |||||||||||
| 0.329% due 04/25/2037 • |
2,875 | 1,204 | ||||||||||
| 6.250% due 02/25/2037 ^~ |
245 | 159 | ||||||||||
| Residential Asset Mortgage Products Trust |
| |||||||||||
| 0.649% due 09/25/2036 • |
160 | 157 | ||||||||||
| Securitized Asset-Backed Receivables LLC Trust |
| |||||||||||
| 0.369% due 05/25/2036 • |
4,650 | 3,169 | ||||||||||
| SLM Student Loan EDC Repackaging Trust |
| |||||||||||
| 0.000% due 10/28/2029 «(h) |
1 | 1,340 | ||||||||||
| SLM Student Loan Trust |
| |||||||||||
| 0.000% due 01/25/2042 «(h) |
2 | 862 | ||||||||||
| SoFi Professional Loan Program LLC |
| |||||||||||
| 0.000% due 05/25/2040 «(h) |
2,100 | 311 | ||||||||||
| 0.000% due 09/25/2040 «(h) |
846 | 200 | ||||||||||
| South Coast Funding Ltd. |
| |||||||||||
| 0.762% due 08/10/2038 • |
5,549 | 738 | ||||||||||
| Symphony CLO Ltd. |
| |||||||||||
| 4.733% due 07/14/2026 • |
1,000 | 996 | ||||||||||
| Taberna Preferred Funding Ltd. |
| |||||||||||
| 0.556% due 08/05/2036 • |
148 | 129 | ||||||||||
| 0.556% due 08/05/2036 ^• |
2,777 | 2,409 | ||||||||||
|
|
|
|||||||||||
| Total Asset-Backed Securities (Cost $48,041) |
37,943 | |||||||||||
|
|
|
|||||||||||
| SOVEREIGN ISSUES 4.7% |
| |||||||||||
| Argentina Government International Bond |
| |||||||||||
| 0.500% due 07/09/2030 þ |
1,927 | 655 | ||||||||||
| 1.000% due 07/09/2029 |
366 | 141 | ||||||||||
| 1.125% due 07/09/2035 þ |
2,099 | 661 | ||||||||||
| 1.125% due 07/09/2046 þ |
115 | 39 | ||||||||||
| 2.000% due 01/09/2038 þ |
6,188 | 2,450 | ||||||||||
| 2.500% due 07/09/2041 þ |
2,872 | 1,079 | ||||||||||
| 15.500% due 10/17/2026 |
ARS | 26,000 | 60 | |||||||||
| 34.119% (BADLARPP) due 10/04/2022 ~ |
28 | 0 | ||||||||||
| Dominican Republic International Bond |
| |||||||||||
| 4.875% due 09/23/2032 (n) |
$ | 1,700 | 1,768 | |||||||||
| Egypt Government International Bond |
| |||||||||||
| 5.875% due 02/16/2031 |
900 | 869 | ||||||||||
| 7.500% due 02/16/2061 |
900 | 841 | ||||||||||
| Ghana Government International Bond |
| |||||||||||
| 6.375% due 02/11/2027 |
300 | 296 | ||||||||||
| 7.875% due 02/11/2035 |
400 | 385 | ||||||||||
| 8.750% due 03/11/2061 |
200 | 190 | ||||||||||
| Ivory Coast Government International Bond |
| |||||||||||
| 4.875% due 01/30/2032 |
EUR | 2,000 | 2,400 | |||||||||
| 6.625% due 03/22/2048 |
400 | 506 | ||||||||||
| Panama Government International Bond |
| |||||||||||
| 4.500% due 04/16/2050 |
$ | 800 | 914 | |||||||||
| Provincia de Buenos Aires |
| |||||||||||
| 37.883% due 04/12/2025 (n) |
ARS | 201,514 | 964 | |||||||||
| 37.883% due 04/12/2025 |
15,800 | 76 | ||||||||||
| South Africa Government International Bond |
| |||||||||||
| 5.750% due 09/30/2049 |
$ | 600 | 610 | |||||||||
| Turkey Government International Bond |
| |||||||||||
| 5.600% due 11/14/2024 |
1,400 | 1,447 | ||||||||||
| PRINCIPAL AMOUNT (000S) |
MARKET VALUE (000S) |
|||||||||||
| Ukraine Government International Bond |
| |||||||||||
| 4.375% due 01/27/2030 |
EUR | 582 | $ | 645 | ||||||||
| Venezuela Government International Bond |
| |||||||||||
| 8.250% due 10/13/2024 ^(e) |
$ | 12 | 1 | |||||||||
| 9.250% due 09/15/2027 ^(e) |
151 | 16 | ||||||||||
|
|
|
|||||||||||
| Total Sovereign Issues (Cost $21,830) |
17,013 | |||||||||||
|
|
|
|||||||||||
| SHARES | ||||||||||||
| COMMON STOCKS 2.3% |
| |||||||||||
| COMMUNICATION SERVICES 0.9% |
| |||||||||||
| Clear Channel Outdoor Holdings, Inc. (f) |
261,329 | 695 | ||||||||||
| iHeartMedia, Inc. ‘A’ (f) |
62,317 | 1,611 | ||||||||||
| iHeartMedia, Inc. ‘B’ «(f) |
48,387 | 1,126 | ||||||||||
|
|
|
|||||||||||
| 3,432 | ||||||||||||
|
|
|
|||||||||||
| ENERGY 0.1% |
| |||||||||||
| Axis Energy Services ‘A’ «(f)(l) |
1,253 | 19 | ||||||||||
| Noble Corp. (f)(l) |
10,196 | 224 | ||||||||||
| Valaris Ltd. (f) |
1,183 | 32 | ||||||||||
|
|
|
|||||||||||
| 275 | ||||||||||||
|
|
|
|||||||||||
| FINANCIALS 0.1% |
| |||||||||||
| Associated Materials Group, Inc. «(f)(l) |
55,999 | 396 | ||||||||||
|
|
|
|||||||||||
| INDUSTRIALS 1.2% |
| |||||||||||
| Neiman Marcus Group Ltd. LLC «(f)(l) |
39,846 | 4,384 | ||||||||||
| Noble Corp. (f) |
781 | 17 | ||||||||||
| Voyager Aviation Holdings «(f) |
538 | 0 | ||||||||||
| Westmoreland Mining Holdings LLC «(f)(l) |
25,438 | 0 | ||||||||||
|
|
|
|||||||||||
| 4,401 | ||||||||||||
|
|
|
|||||||||||
| Total Common Stocks (Cost $6,435) |
8,504 | |||||||||||
|
|
|
|||||||||||
| WARRANTS 1.7% |
| |||||||||||
| INDUSTRIALS 0.1% |
| |||||||||||
| Sequa Corp. - Exp. 04/28/2024 « |
394,000 | 248 | ||||||||||
|
|
|
|||||||||||
| INFORMATION TECHNOLOGY 1.6% |
| |||||||||||
| Windstream Holdings LLC - Exp. 09/21/2055 « |
272,031 | 6,071 | ||||||||||
|
|
|
|||||||||||
| Total Warrants (Cost $2,252) |
6,319 | |||||||||||
|
|
|
|||||||||||
| PREFERRED SECURITIES 7.2% |
| |||||||||||
| BANKING & FINANCE 3.6% |
| |||||||||||
| Banco Santander S.A. |
| |||||||||||
| 6.250% due 09/11/2021 •(j)(k) |
200,000 | 239 | ||||||||||
| Brighthouse Holdings LLC |
| |||||||||||
| 6.500% due 07/27/2037 þ(j) |
35,000 | 32 | ||||||||||
| Nationwide Building Society |
| |||||||||||
| 10.250% ~ |
16,350 | 4,312 | ||||||||||
| Stichting AK Rabobank Certificaten |
| |||||||||||
| 2.188% due 12/29/2049 þ(j) |
5,118,000 | 8,413 | ||||||||||
|
|
|
|||||||||||
| 12,996 | ||||||||||||
|
|
|
|||||||||||
| INDUSTRIALS 3.6% |
| |||||||||||
| General Electric Co. |
| |||||||||||
| 3.449% (US0003M + 3.330%) due 09/15/2021 ~(j) |
127,000 | 125 | ||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 77 |
| Schedule of Investments | PIMCO Income Strategy Fund | (Cont.) |
NOTES TO SCHEDULE OF INVESTMENTS:
| * | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ^ | Security is in default. |
| « | Security valued using significant unobservable inputs (Level 3). |
| µ | All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments. |
| ~ | Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description. |
| • | Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description. |
| þ | Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end. |
| (a) | Security is an Interest Only (“IO”) or IO Strip. |
| (b) | Principal only security. |
| (c) | When-issued security. |
| (d) | Payment in-kind security. |
| (e) | Security is not accruing income as of the date of this report. |
| (f) | Security did not produce income within the last twelve months. |
| (g) | Coupon represents a weighted average yield to maturity. |
| (h) | Zero coupon security. |
| (i) | Coupon represents a yield to maturity. |
| (j) | Perpetual maturity; date shown, if applicable, represents next contractual call date. |
| (k) | Contingent convertible security. |
(l) RESTRICTED SECURITIES:
| Issuer Description | Acquisition Date |
Cost | Market Value |
Market Value Applicable to Common |
||||||||||||||||||||
| Associated Materials Group, Inc. |
08/24/2020 | $ | 355 | $ | 396 | 0.11 | % | |||||||||||||||||
| Axis Energy Services ‘A’ |
07/01/2021 | 19 | 19 | 0.00 | ||||||||||||||||||||
| Neiman Marcus Group Ltd. LLC |
09/25/2020 | 1,307 | 4,384 | 1.20 | ||||||||||||||||||||
| Noble Corp. |
02/05/2021 - 02/27/2021 | 136 | 224 | 0.06 | ||||||||||||||||||||
| Westmoreland Mining Holdings LLC |
12/08/2014 - 10/19/2016 | 733 | 0 | 0.00 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| $ | 2,550 | $ | 5,023 | 1.37 | % | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| 78 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
BORROWINGS AND OTHER FINANCING TRANSACTIONS
(m) 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 |
||||||||||||||||||||||
| FICC | 0.000 | % | 07/30/2021 | 08/02/2021 | $ | 1,546 | U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022 | $ | (1,577 | ) | $ | 1,546 | $ | 1,546 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Repurchase Agreements |
|
$ | (1,577 | ) | $ | 1,546 | $ | 1,546 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
REVERSE REPURCHASE AGREEMENTS:
| Counterparty | Borrowing Rate(1) |
Settlement Date |
Maturity Date |
Amount |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| BOS |
0.280 | % | 07/02/2021 | 08/06/2021 | $ | (4,622 | ) | $ | (4,623 | ) | ||||||||||||||
| BPS |
0.350 | 05/10/2021 | 08/12/2021 | (654 | ) | (655 | ) | |||||||||||||||||
| 0.350 | 05/28/2021 | 08/31/2021 | (4,804 | ) | (4,807 | ) | ||||||||||||||||||
| 0.350 | 06/23/2021 | 08/09/2021 | (434 | ) | (434 | ) | ||||||||||||||||||
| 0.500 | 06/01/2021 | 09/03/2021 | (1,608 | ) | (1,610 | ) | ||||||||||||||||||
| BRC |
0.400 | 08/03/2021 | 09/03/2021 | (4,092 | ) | (4,092 | ) | |||||||||||||||||
| 0.450 | 05/28/2021 | 08/31/2021 | (2,310 | ) | (2,312 | ) | ||||||||||||||||||
| 0.450 | 06/01/2021 | 09/03/2021 | (6,263 | ) | (6,268 | ) | ||||||||||||||||||
| 0.450 | 06/08/2021 | 09/03/2021 | (6,998 | ) | (7,003 | ) | ||||||||||||||||||
| 0.450 | 06/10/2021 | 09/03/2021 | (6,325 | ) | (6,329 | ) | ||||||||||||||||||
| 0.450 | 06/25/2021 | 09/03/2021 | (1,441 | ) | (1,441 | ) | ||||||||||||||||||
| 0.450 | 07/02/2021 | 09/24/2021 | (1,489 | ) | (1,489 | ) | ||||||||||||||||||
| 0.450 | 07/12/2021 | 09/03/2021 | (1,259 | ) | (1,259 | ) | ||||||||||||||||||
| 0.450 | 07/29/2021 | 09/03/2021 | (1,457 | ) | (1,457 | ) | ||||||||||||||||||
| 0.470 | 07/14/2021 | 09/17/2021 | (3,059 | ) | (3,060 | ) | ||||||||||||||||||
| 0.480 | 04/30/2021 | 08/03/2021 | (4,137 | ) | (4,142 | ) | ||||||||||||||||||
| 0.480 | 05/14/2021 | 08/06/2021 | (957 | ) | (958 | ) | ||||||||||||||||||
| 0.480 | 07/09/2021 | 08/06/2021 | (14,321 | ) | (14,326 | ) | ||||||||||||||||||
| 0.480 | 07/12/2021 | 10/05/2021 | (605 | ) | (605 | ) | ||||||||||||||||||
| 0.500 | 05/03/2021 | 08/06/2021 | (1,308 | ) | (1,310 | ) | ||||||||||||||||||
| 0.500 | 05/18/2021 | 08/06/2021 | (823 | ) | (824 | ) | ||||||||||||||||||
| 0.500 | 07/23/2021 | 01/24/2022 | (905 | ) | (905 | ) | ||||||||||||||||||
| 0.550 | 07/02/2021 | 03/10/2022 | (1,144 | ) | (1,145 | ) | ||||||||||||||||||
| 0.550 | 07/12/2021 | 03/10/2022 | (518 | ) | (518 | ) | ||||||||||||||||||
| 0.600 | 05/03/2021 | 08/06/2021 | (1,779 | ) | (1,781 | ) | ||||||||||||||||||
| BYR |
0.500 | 07/26/2021 | 01/26/2022 | (5,096 | ) | (5,096 | ) | |||||||||||||||||
| 0.500 | 07/30/2021 | 01/26/2022 | (3,201 | ) | (3,201 | ) | ||||||||||||||||||
| 0.650 | 03/31/2021 | 03/25/2022 | (3,806 | ) | (3,814 | ) | ||||||||||||||||||
| 0.650 | 07/22/2021 | 03/25/2022 | (1,397 | ) | (1,397 | ) | ||||||||||||||||||
| CDC |
0.250 | 07/29/2021 | 08/30/2021 | (4,800 | ) | (4,800 | ) | |||||||||||||||||
| 0.300 | 05/18/2021 | 08/20/2021 | (4,014 | ) | (4,016 | ) | ||||||||||||||||||
| 0.350 | 07/15/2021 | 01/14/2022 | (7,627 | ) | (7,628 | ) | ||||||||||||||||||
| 0.480 | 06/01/2021 | 08/30/2021 | (4,159 | ) | (4,162 | ) | ||||||||||||||||||
| 0.490 | 05/24/2021 | 08/27/2021 | (1,535 | ) | (1,536 | ) | ||||||||||||||||||
| 0.500 | 05/21/2021 | 08/24/2021 | (1,329 | ) | (1,331 | ) | ||||||||||||||||||
| CIW |
0.310 | 06/03/2021 | 09/03/2021 | (1,656 | ) | (1,657 | ) | |||||||||||||||||
| IND |
0.240 | 07/28/2021 | 08/30/2021 | (6,089 | ) | (6,090 | ) | |||||||||||||||||
| 0.300 | 07/29/2021 | 01/31/2022 | (2,642 | ) | (2,642 | ) | ||||||||||||||||||
| 0.420 | 08/02/2021 | 02/02/2022 | (10,479 | ) | (10,479 | ) | ||||||||||||||||||
| 0.430 | 08/02/2021 | 02/02/2022 | (2,943 | ) | (2,943 | ) | ||||||||||||||||||
| JML |
(0.300 | ) | 07/14/2021 | 10/14/2021 | EUR | (1,173 | ) | (1,391 | ) | |||||||||||||||
| (0.050 | ) | 07/08/2021 | TBD | (2) | $ | (376 | ) | (376 | ) | |||||||||||||||
| 0.350 | 07/19/2021 | 10/19/2021 | GBP | (200 | ) | (279 | ) | |||||||||||||||||
| NOM |
0.400 | 07/28/2021 | 08/27/2021 | $ | (1,620 | ) | (1,620 | ) | ||||||||||||||||
| 0.490 | 07/30/2021 | 08/27/2021 | (519 | ) | (519 | ) | ||||||||||||||||||
| SOG |
0.270 | 07/28/2021 | 08/30/2021 | (1,342 | ) | (1,342 | ) | |||||||||||||||||
| 0.350 | 05/26/2021 | 08/30/2021 | (5,491 | ) | (5,495 | ) | ||||||||||||||||||
| 0.350 | 06/24/2021 | 09/24/2021 | (4,804 | ) | (4,806 | ) | ||||||||||||||||||
| 0.430 | 07/15/2021 | 10/08/2021 | (976 | ) | (976 | ) | ||||||||||||||||||
| 0.450 | 05/06/2021 | 08/09/2021 | (3,736 | ) | (3,740 | ) | ||||||||||||||||||
| 0.450 | 05/26/2021 | 08/30/2021 | (3,926 | ) | (3,930 | ) | ||||||||||||||||||
| 0.450 | 06/03/2021 | 09/07/2021 | (5,897 | ) | (5,901 | ) | ||||||||||||||||||
| 0.450 | 06/10/2021 | 08/16/2021 | (1,073 | ) | (1,074 | ) | ||||||||||||||||||
| 0.450 | 07/15/2021 | 09/02/2021 | (3,935 | ) | (3,936 | ) | ||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 79 |
| Schedule of Investments | PIMCO Income Strategy Fund | (Cont.) |
| Counterparty | Borrowing Rate(1) |
Settlement Date |
Maturity Date |
Amount |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||||
| 0.450 | % | 07/22/2021 | 10/01/2021 | $ | (3,879 | ) | $ | (3,880 | ) | |||||||||||||||
| 0.500 | 07/21/2021 | 01/21/2022 | (849 | ) | (849 | ) | ||||||||||||||||||
| 0.550 | 06/10/2021 | 03/10/2022 | (1,705 | ) | (1,707 | ) | ||||||||||||||||||
| TDM |
0.220 | 06/02/2021 | TBD | (2) | (632 | ) | (632 | ) | ||||||||||||||||
| UBS |
0.450 | 05/19/2021 | 08/19/2021 | (507 | ) | (507 | ) | |||||||||||||||||
| 0.450 | 07/22/2021 | 09/02/2021 | (817 | ) | (817 | ) | ||||||||||||||||||
| 0.500 | 07/14/2021 | 01/12/2022 | (3,512 | ) | (3,513 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||||
| Total Reverse Repurchase Agreements |
|
$ | (181,435 | ) | ||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
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 July 31, 2021:
| 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(3) | ||||||||||||||||||
| Global/Master Repurchase Agreement |
| |||||||||||||||||||||||
| BOS |
$ | 0 | $ | (4,623 | ) | $ | 0 | $ | (4,623 | ) | $ | 4,887 | $ | 264 | ||||||||||
| BPS |
0 | (7,506 | ) | 0 | (7,506 | ) | 8,018 | 512 | ||||||||||||||||
| BRC |
0 | (61,224 | ) | 0 | (61,224 | ) | 66,768 | 5,544 | ||||||||||||||||
| BYR |
0 | (13,508 | ) | 0 | (13,508 | ) | 15,856 | 2,348 | ||||||||||||||||
| CDC |
0 | (23,473 | ) | 0 | (23,473 | ) | 25,720 | 2,247 | ||||||||||||||||
| CIW |
0 | (1,657 | ) | 0 | (1,657 | ) | 1,758 | 101 | ||||||||||||||||
| FICC |
1,546 | 0 | 0 | 1,546 | (1,577 | ) | (31 | ) | ||||||||||||||||
| IND |
0 | (22,154 | ) | 0 | (22,154 | ) | 24,188 | 2,034 | ||||||||||||||||
| JML |
0 | (2,046 | ) | 0 | (2,046 | ) | 2,131 | 85 | ||||||||||||||||
| NOM |
0 | (2,139 | ) | 0 | (2,139 | ) | 1,688 | (451 | ) | |||||||||||||||
| SOG |
0 | (37,636 | ) | 0 | (37,636 | ) | 42,713 | 5,077 | ||||||||||||||||
| TDM |
0 | (632 | ) | 0 | (632 | ) | 616 | (16 | ) | |||||||||||||||
| UBS |
0 | (4,837 | ) | 0 | (4,837 | ) | 6,368 | 1,531 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total Borrowings and Other Financing Transactions |
$ | 1,546 | $ | (181,435 | ) | $ | 0 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
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 | $ | (67,595 | ) | $ | (61,282 | ) | $ | (33,048 | ) | $ | (161,925 | ) | ||||||
| Sovereign Issues |
0 | (1,620 | ) | 0 | (376 | ) | (1,996 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Borrowings |
$ | 0 | $ | (69,215 | ) | $ | (61,282 | ) | $ | (33,424 | ) | $ | (163,921 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Payable for reverse repurchase agreements(4) |
|
$ | (163,921 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||||
| (n) | Securities with an aggregate market value of $202,969 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021. |
| (1) | The average amount of borrowings outstanding during the period ended July 31, 2021 was $(135,166) at a weighted average interest rate of 0.633%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period. |
| (2) | Open maturity reverse repurchase agreement. |
| (3) | 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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (4) | Unsettled reverse repurchase agreements liability of $(17,514) is outstanding at period end. |
| 80 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
(o) FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION(1)
| Reference Entity |
Fixed Receive Rate |
Payment Frequency |
Maturity Date |
Implied Credit Spread at July 31, 2021(2) |
Notional |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market |
Variation Margin | |||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Bombardier, Inc. |
5.000 | % | Quarterly | 06/20/2024 | 2.773 | % | $ | 300 | $ | (1 | ) | $ | 21 | $ | 20 | $ | 1 | $ | 0 | |||||||||||||||||||||
| Bombardier, Inc. |
5.000 | Quarterly | 12/20/2024 | 3.311 | 700 | (3 | ) | 45 | 42 | 0 | (1 | ) | ||||||||||||||||||||||||||||
| MGM Resorts International |
5.000 | Quarterly | 06/20/2026 | 2.229 | 1,000 | 141 | (8 | ) | 133 | 0 | (2 | ) | ||||||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 12/20/2025 | 2.269 | EUR | 7,100 | (868 | ) | 427 | (441 | ) | 0 | 0 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| $ | (731 | ) | $ | 485 | $ | (246 | ) | $ | 1 | $ | (3 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
INTEREST RATE SWAPS
| Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin | |||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | % | Annual | 09/15/2031 | GBP | 11,000 | $ | (9 | ) | $ | (235 | ) | $ | (244 | ) | $ | 0 | $ | (20 | ) | |||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.250 | Semi-Annual | 12/18/2022 | $ | 25,500 | 12 | (41 | ) | (29 | ) | 0 | (2 | ) | ||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.750 | Semi-Annual | 06/17/2025 | 43,420 | 2,555 | 1,140 | 3,695 | 53 | 0 | ||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 06/15/2026 | 15,300 | 723 | 405 | 1,128 | 23 | 0 | ||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.500 | Semi-Annual | 12/20/2027 | 28,100 | 200 | 2,570 | 2,770 | 67 | 0 | ||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.420 | Semi-Annual | 08/17/2028 | 15,100 | 0 | (383 | ) | (383 | ) | 0 | (40 | ) | |||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.380 | Semi-Annual | 08/24/2028 | 16,100 | 0 | (359 | ) | (359 | ) | 0 | (42 | ) | |||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.000 | Semi-Annual | 06/19/2029 | 49,900 | 2,148 | 5,218 | 7,366 | 175 | 0 | ||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.160 | Semi-Annual | 04/12/2031 | 1,400 | 0 | 8 | 8 | 0 | (6 | ) | |||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
1.380 | Semi-Annual | 04/12/2031 | 7,000 | (19 | ) | 126 | 107 | 30 | 0 | |||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.750 | Semi-Annual | 06/16/2031 | 36,300 | 3,000 | (1,316 | ) | 1,684 | 0 | (145 | ) | ||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 12/15/2031 | 20,100 | (319 | ) | (504 | ) | (823 | ) | 0 | (88 | ) | ||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.500 | Semi-Annual | 06/19/2044 | 83,100 | (2,711 | ) | 33,769 | 31,058 | 687 | 0 | |||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.000 | Semi-Annual | 01/15/2050 | 3,200 | (23 | ) | (224 | ) | (247 | ) | 0 | (23 | ) | ||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 01/22/2050 | 8,400 | (20 | ) | (124 | ) | (144 | ) | 0 | (57 | ) | ||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.875 | Semi-Annual | 02/07/2050 | 8,800 | (34 | ) | (452 | ) | (486 | ) | 0 | (61 | ) | ||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 03/12/2050 | 1,700 | (5 | ) | (242 | ) | (247 | ) | 0 | (13 | ) | ||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.150 | Semi-Annual | 12/11/2050 | 91,100 | 52 | 11,658 | 11,710 | 0 | (507 | ) | |||||||||||||||||||||||||||
| Pay |
6-Month AUD-BBR-BBSW |
3.500 | Semi-Annual | 06/17/2025 | AUD | 3,900 | 97 | 243 | 340 | 0 | 0 | |||||||||||||||||||||||||||
| Receive |
6-Month EUR-EURIBOR |
(0.150 | ) | Annual | 03/18/2030 | EUR | 3,400 | 62 | (68 | ) | (6 | ) | 0 | (5 | ) | |||||||||||||||||||||||
| Receive(5) |
6-Month EUR-EURIBOR |
0.000 | Annual | 09/15/2031 | 3,600 | 59 | (82 | ) | (23 | ) | 0 | (7 | ) | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| $ | 5,768 | $ | 51,107 | $ | 56,875 | $ | 1,035 | $ | (1,016 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Swap Agreements |
$ | 5,037 | $ | 51,592 | $ | 56,629 | $ | 1,036 | $ | (1,019 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
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 July 31, 2021:
| 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 | $ | 1,036 | $ | 1,036 | $ | 0 | $ | 0 | $ | (1,019) | $ | (1,019) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| (p) | Securities with an aggregate market value of $2,620 and cash of $11,682 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (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. |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 81 |
| Schedule of Investments | PIMCO Income Strategy Fund | (Cont.) |
| (4) | The prices and resulting values for credit default swap agreements 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 underlying referenced instrument’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
| (5) | This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information. |
(q) FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER
FORWARD FOREIGN CURRENCY CONTRACTS:
| Counterparty |
Settlement |
Currency
to |
Currency
to |
Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||
| BOA |
08/2021 | PEN | 366 | $ | 94 | $ | 4 | $ | 0 | |||||||||||||||
| 08/2021 | $ | 25 | RUB | 1,919 | 1 | 0 | ||||||||||||||||||
| 09/2021 | 5 | 361 | 0 | 0 | ||||||||||||||||||||
| 10/2021 | 94 | PEN | 366 | 0 | (4 | ) | ||||||||||||||||||
| BPS |
08/2021 | EUR | 2,541 | $ | 3,013 | 1 | (2 | ) | ||||||||||||||||
| 08/2021 | PEN | 705 | 191 | 17 | 0 | |||||||||||||||||||
| BRC |
08/2021 | EUR | 451 | 537 | 2 | 0 | ||||||||||||||||||
| CBK |
08/2021 | PEN | 4,249 | 1,114 | 68 | 0 | ||||||||||||||||||
| 08/2021 | $ | 129 | MXN | 2,689 | 6 | 0 | ||||||||||||||||||
| 08/2021 | 1,085 | PEN | 4,187 | 0 | (54 | ) | ||||||||||||||||||
| 09/2021 | PEN | 822 | $ | 222 | 20 | 0 | ||||||||||||||||||
| 10/2021 | 817 | 209 | 8 | 0 | ||||||||||||||||||||
| 10/2021 | $ | 251 | PEN | 991 | 0 | (7 | ) | |||||||||||||||||
| 12/2021 | 950 | 3,491 | 0 | (91 | ) | |||||||||||||||||||
| GLM |
08/2021 | MXN | 2,689 | $ | 134 | 0 | (1 | ) | ||||||||||||||||
| 08/2021 | $ | 32,351 | GBP | 23,191 | 0 | (115 | ) | |||||||||||||||||
| 08/2021 | 11 | RUB | 834 | 0 | 0 | |||||||||||||||||||
| 09/2021 | GBP | 23,191 | $ | 32,353 | 115 | 0 | ||||||||||||||||||
| 09/2021 | $ | 12 | RUB | 918 | 0 | 0 | ||||||||||||||||||
| 10/2021 | 133 | MXN | 2,689 | 1 | 0 | |||||||||||||||||||
| HUS |
08/2021 | GBP | 23,206 | $ | 32,120 | 0 | (136 | ) | ||||||||||||||||
| 08/2021 | $ | 4 | RUB | 268 | 0 | 0 | ||||||||||||||||||
| 09/2021 | 5 | 380 | 0 | 0 | ||||||||||||||||||||
| 10/2021 | PEN | 106 | $ | 29 | 3 | 0 | ||||||||||||||||||
| 12/2021 | 99 | 27 | 2 | 0 | ||||||||||||||||||||
| SCX |
08/2021 | EUR | 27,146 | 32,214 | 12 | 0 | ||||||||||||||||||
| 09/2021 | 30,138 | 35,758 | 0 | (14 | ) | |||||||||||||||||||
| 09/2021 | PEN | 2,081 | 534 | 21 | 0 | |||||||||||||||||||
| 12/2021 | 63 | 17 | 1 | 0 | ||||||||||||||||||||
| SOG |
08/2021 | $ | 4 | RUB | 297 | 0 | 0 | |||||||||||||||||
| SSB |
08/2021 | 401 | GBP | 291 | 3 | 0 | ||||||||||||||||||
| UAG |
08/2021 | GBP | 276 | $ | 382 | 0 | (1 | ) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total Forward Foreign Currency Contracts |
|
$ | 285 | $ | (425 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION(1)
| Counterparty | Reference Entity | Fixed Receive Rate |
Payment Frequency |
Maturity Date |
Implied Credit Spread at July 31, 2021(2) |
Notional Amount(3) |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value(4) |
|||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||
| BPS | Petrobras Global Finance BV |
1.000 | % | Quarterly | 12/20/2024 | 1.561 | % | $ | 500 | $ | (98 | ) | $ | 89 | $ | 0 | $ | (9 | ) | |||||||||||||||||
| GST | Petrobras Global Finance BV |
1.000 | Quarterly | 12/20/2024 | 1.561 | 700 | (139 | ) | 127 | 0 | (12 | ) | ||||||||||||||||||||||||
| HUS | Petrobras Global Finance BV |
1.000 | Quarterly | 12/20/2024 | 1.561 | 800 | (166 | ) | 152 | 0 | (14 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| $ | (403 | ) | $ | 368 | $ | 0 | $ | (35 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
INTEREST RATE SWAPS
| Counterparty | Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value |
|||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||
| MYC | Pay |
3-Month USD-LIBOR | 1.670 | % | Semi-Annual | 08/17/2028 | $ | 60,300 | $ | (43 | ) | $ | 276 | $ | 233 | $ | 0 | |||||||||||||||||||||
| Pay |
3-Month USD-LIBOR | 1.630 | Semi-Annual | 08/24/2028 | 64,200 | (22 | ) | 263 | 241 | 0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| $ | (65 | ) | $ | 539 | $ | 474 | $ | 0 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total Swap Agreements |
$ | (468 | ) | $ | 907 | $ | 474 | $ | (35 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| 82 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
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 July 31, 2021:
| 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 |
$ | 5 | $ | 0 | $ | 0 | $ | 5 | $ | (4 | ) | $ | 0 | $ | 0 | $ | (4 | ) | $ | 1 | $ | 0 | $ | 1 | ||||||||||||||||||||||||
| BPS |
18 | 0 | 0 | 18 | (2 | ) | 0 | (9 | ) | (11 | ) | 7 | 0 | 7 | ||||||||||||||||||||||||||||||||||
| BRC |
2 | 0 | 0 | 2 | 0 | 0 | 0 | 0 | 2 | 0 | 2 | |||||||||||||||||||||||||||||||||||||
| CBK |
102 | 0 | 0 | 102 | (152 | ) | 0 | 0 | (152 | ) | (50 | ) | 0 | (50 | ) | |||||||||||||||||||||||||||||||||
| GLM |
116 | 0 | 0 | 116 | (116 | ) | 0 | 0 | (116 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
| GST |
0 | 0 | 0 | 0 | 0 | 0 | (12 | ) | (12 | ) | (12 | ) | 76 | 64 | ||||||||||||||||||||||||||||||||||
| HUS |
5 | 0 | 0 | 5 | (136 | ) | 0 | (14 | ) | (150 | ) | (145 | ) | 311 | 166 | |||||||||||||||||||||||||||||||||
| MYC |
0 | 0 | 474 | 474 | 0 | 0 | 0 | 0 | 474 | (280 | ) | 194 | ||||||||||||||||||||||||||||||||||||
| SCX |
34 | 0 | 0 | 34 | (14 | ) | 0 | 0 | (14 | ) | 20 | 0 | 20 | |||||||||||||||||||||||||||||||||||
| SSB |
3 | 0 | 0 | 3 | 0 | 0 | 0 | 0 | 3 | 0 | 3 | |||||||||||||||||||||||||||||||||||||
| UAG |
0 | 0 | 0 | 0 | (1 | ) | 0 | 0 | (1 | ) | (1 | ) | 0 | (1 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| Total Over the Counter |
$ | 285 | $ | 0 | $ | 474 | $ | 759 | $ | (425 | ) | $ | 0 | $ | (35 | ) | $ | (460 | ) | |||||||||||||||||||||||||||||
|
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|
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|
|||||||||||||||||||||||||||||||||
| (r) | Securities with an aggregate market value of $387 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of July 31, 2021. |
| (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 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 underlying referenced instrument’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
| (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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
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 and Other 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 July 31, 2021:
| 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 | $ | 1,035 | $ | 1,036 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 285 | $ | 0 | $ | 285 | ||||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | 474 | 474 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 285 | $ | 474 | $ | 759 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 1 | $ | 0 | $ | 285 | $ | 1,509 | $ | 1,795 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Financial Derivative Instruments - Liabilities |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 3 | $ | 0 | $ | 0 | $ | 1,016 | $ | 1,019 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 425 | $ | 0 | $ | 425 | ||||||||||||
| Swap Agreements |
0 | 35 | 0 | 0 | 0 | 35 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 35 | $ | 0 | $ | 425 | $ | 0 | $ | 460 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 38 | $ | 0 | $ | 425 | $ | 1,016 | $ | 1,479 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 83 |
| Schedule of Investments | PIMCO Income Strategy Fund | (Cont.) |
The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:
| 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 | $ | 98 | $ | 0 | $ | 0 | $ | 5,558 | $ | 5,656 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | (3,563 | ) | $ | 0 | $ | (3,563 | ) | ||||||||||
| Swap Agreements |
0 | 20 | 0 | 0 | (234 | ) | (214 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 20 | $ | 0 | $ | (3,563 | ) | $ | (234 | ) | $ | (3,777 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 118 | $ | 0 | $ | (3,563 | ) | $ | 5,324 | $ | 1,879 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 707 | $ | 0 | $ | 0 | $ | (3,993 | ) | $ | (3,286 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 2,370 | $ | 0 | $ | 2,370 | ||||||||||||
| Swap Agreements |
0 | 129 | 0 | 0 | 539 | 668 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 129 | $ | 0 | $ | 2,370 | $ | 539 | $ | 3,038 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 836 | $ | 0 | $ | 2,370 | $ | (3,454 | ) | $ | (248 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
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|
|||||||||||||
FAIR VALUE MEASUREMENTS
The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:
| 84 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:
| Category and Subcategory | Beginning Balance at 07/31/2020 |
Net Purchases |
Net Sales/ Settlements |
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 07/31/2021 |
Net Change
in Unrealized Appreciation/ (Depreciation) on Investments Held at 07/31/2021(1) |
||||||||||||||||||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||||||||||||||||||||||
| Loan Participations and Assignments |
$ | 8,380 | $ | 19,585 | $ | (11,294 | ) | $ | 47 | $ | (4,245 | ) | $ | 3,101 | $ | 447 | $ | (8 | ) | $ | 16,013 | $ | 69 | |||||||||||||||||
| U.S. Government Agencies |
2,424 | 0 | (53 | ) | 9 | 18 | 17 | 0 | 0 | 2,415 | 14 | |||||||||||||||||||||||||||||
| Asset-Backed Securities |
8,532 | 0 | (4,094 | ) | 0 | (722 | ) | 159 | 511 | 0 | 4,386 | (701 | ) | |||||||||||||||||||||||||||
| Common Stocks |
||||||||||||||||||||||||||||||||||||||||
| Communication Services |
1 | 1,048 | 0 | 0 | 0 | 77 | 0 | 0 | 1,126 | 77 | ||||||||||||||||||||||||||||||
| Energy |
0 | 18 | 0 | 0 | 0 | 1 | 0 | 0 | 19 | 1 | ||||||||||||||||||||||||||||||
| Financials |
0 | 356 | 0 | 0 | 0 | 40 | 0 | 0 | 396 | 40 | ||||||||||||||||||||||||||||||
| Industrials |
191 | 1,306 | 0 | 0 | 0 | 2,887 | 0 | 0 | 4,384 | 2,887 | ||||||||||||||||||||||||||||||
| Real Estate |
1,251 | 0 | 0 | 0 | 0 | 310 | 0 | (1,561 | ) | 0 | 0 | |||||||||||||||||||||||||||||
| Warrants |
||||||||||||||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 248 | 0 | 0 | 248 | 248 | ||||||||||||||||||||||||||||||
| Information Technology |
0 | 2,252 | 0 | 0 | 0 | 3,819 | 0 | 0 | 6,071 | 3,819 | ||||||||||||||||||||||||||||||
| Preferred Securities |
||||||||||||||||||||||||||||||||||||||||
| Industrials |
7,496 | 1,058 | (2,377 | ) | 0 | 0 | 6,843 | 0 | 0 | 13,020 | 6,843 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
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|
|
|
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|
|
|
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|
|||||||||||||||||||||
| Totals |
$ | 28,275 | $ | 25,623 | $ | (17,818 | ) | $ | 56 | $ | (4,949 | ) | $ | 17,502 | $ | 958 | $ | (1,569 | ) | $ | 48,078 | $ | 13,297 | |||||||||||||||||
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
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 07/31/2021 |
Valuation Technique |
Unobservable Inputs |
Input Value(s) | Weighted Average |
|||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||
| Loan Participations and Assignments |
$ | 2,335 | Reference Instrument | Yield | % | 5.738 | — | |||||||||||||
| 9,078 | Third Party Vendor | Broker Quote | 21.500-100.313 | 95.831 | ||||||||||||||||
| 4,600 | Waterfall Recoverability | Recovery Value | 100.000 | — | ||||||||||||||||
| U.S. Government Agencies |
2,415 | Proxy Pricing | Base Price | 61.285 | — | |||||||||||||||
| Asset-Backed Securities |
4,386 | Proxy Pricing | Base Price | 14.800-98,000.000 | 43,848.453 | |||||||||||||||
| Common Stocks |
| |||||||||||||||||||
| Communication Services |
1,126 | Reference Instrument | Liquidity Discount | 10.000 | — | |||||||||||||||
| Energy |
19 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Financials |
396 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Industrials |
4,384 | Discounted Cash Flow | Discount Rate | 14.25 | — | |||||||||||||||
| Warrants |
| |||||||||||||||||||
| Industrials |
248 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Information Technology |
6,071 | Comparable Companies | EBITDA | x | 4.375 | — | ||||||||||||||
| Preferred Securities |
| |||||||||||||||||||
| Industrials |
990 | Comparable Companies/Discounted Cash Flow | Book Value/Discount Rate | x/% | 0.210/20.150 | — | ||||||||||||||
| 12,030 | Comparable Companies | EBITDA | x/x | 11.700/9.200 | — | |||||||||||||||
|
|
|
|||||||||||||||||||
| Total |
$ | 48,078 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| (1) | Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 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 | ANNUAL REPORT | | | JULY 31, 2021 | 85 |
| Schedule of Investments | PIMCO Income Strategy Fund II |
(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)
| 86 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 87 |
| Schedule of Investments | PIMCO Income Strategy Fund II | (Cont.) |
| 88 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 89 |
| Schedule of Investments | PIMCO Income Strategy Fund II | (Cont.) |
NOTES TO SCHEDULE OF INVESTMENTS:
| * | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ^ | Security is in default. |
| « | Security valued using significant unobservable inputs (Level 3). |
| µ | All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments. |
| ~ | Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description. |
| • | Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description. |
| þ | Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end. |
| (a) | Security is an Interest Only (“IO”) or IO Strip. |
| (b) | Principal only security. |
| (c) | When-issued security. |
| (d) | Payment in-kind security. |
| (e) | Security is not accruing income as of the date of this report. |
| (f) | Security did not produce income within the last twelve months. |
| (g) | Coupon represents a weighted average yield to maturity. |
| (h) | Zero coupon security. |
| (i) | Coupon represents a yield to maturity. |
| (j) | Perpetual maturity; date shown, if applicable, represents next contractual call date. |
| (k) | Contingent convertible security. |
| 90 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
(l) RESTRICTED SECURITIES:
| Issuer Description | Acquisition Date |
Cost | Market Value |
Market Value to Common Shareholders |
||||||||||||||||||||
| Associated Materials Group, Inc. |
08/24/2020 | $ | 737 | $ | 822 | 0.11 | % | |||||||||||||||||
| Axis Energy Services ‘A’ |
07/01/2021 | 30 | 30 | 0.00 | ||||||||||||||||||||
| Neiman Marcus Group Ltd. LLC |
09/25/2020 | 2,719 | 9,123 | 1.26 | ||||||||||||||||||||
| Noble Corp. |
02/05/2021 - 02/27/2021 | 285 | 466 | 0.06 | ||||||||||||||||||||
| Westmoreland Mining Holdings LLC |
12/08/2014 - 10/19/2016 | 1,535 | 0 | 0.00 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| $ | 5,306 | $ | 10,441 | 1.43 | % | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
BORROWINGS AND OTHER FINANCING TRANSACTIONS
(m) 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) |
||||||||||||||||||||||
| BPS | 0.040 | % | 07/30/2021 | 08/02/2021 | $ | 15,200 | U.S. Treasury Inflation Protected Securities 0.250% due 02/15/2050 | $ | (15,493 | ) | $ | 15,200 | $ | 15,200 | ||||||||||||||||
| FICC | 0.000 | 07/30/2021 | 08/02/2021 | 3,168 | U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022 | (3,232 | ) | 3,168 | 3,168 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total Repurchase Agreements |
|
$ | (18,725 | ) | $ | 18,368 | $ | 18,368 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||
REVERSE REPURCHASE AGREEMENTS:
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||
| BOS |
0.280 | % | 07/02/2021 | 08/06/2021 | $ | (9,504 | ) | $ | (9,506 | ) | ||||||||||||
| 0.280 | 07/06/2021 | 08/10/2021 | (4,386 | ) | (4,387 | ) | ||||||||||||||||
| BPS |
0.350 | 05/05/2021 | 08/09/2021 | (384 | ) | (385 | ) | |||||||||||||||
| 0.350 | 05/28/2021 | 08/31/2021 | (555 | ) | (556 | ) | ||||||||||||||||
| 0.350 | 07/20/2021 | 01/20/2022 | (8,280 | ) | (8,281 | ) | ||||||||||||||||
| 0.380 | 04/30/2021 | 08/03/2021 | (1,652 | ) | (1,653 | ) | ||||||||||||||||
| 0.500 | 04/30/2021 | 08/03/2021 | (1,626 | ) | (1,628 | ) | ||||||||||||||||
| 0.500 | 07/09/2021 | 01/05/2022 | (2,782 | ) | (2,783 | ) | ||||||||||||||||
| 0.500 | 07/20/2021 | 01/20/2022 | (8,960 | ) | (8,961 | ) | ||||||||||||||||
| BRC |
0.450 | 05/11/2021 | 08/11/2021 | (1,820 | ) | (1,822 | ) | |||||||||||||||
| 0.450 | 05/28/2021 | 08/31/2021 | (2,533 | ) | (2,535 | ) | ||||||||||||||||
| 0.450 | 06/08/2021 | 08/31/2021 | (6,671 | ) | (6,676 | ) | ||||||||||||||||
| 0.450 | 06/08/2021 | 09/03/2021 | (13,402 | ) | (13,412 | ) | ||||||||||||||||
| 0.450 | 06/10/2021 | 09/03/2021 | (613 | ) | (613 | ) | ||||||||||||||||
| 0.450 | 06/18/2021 | 09/03/2021 | (253 | ) | (253 | ) | ||||||||||||||||
| 0.450 | 06/22/2021 | 09/03/2021 | (3,077 | ) | (3,079 | ) | ||||||||||||||||
| 0.450 | 06/23/2021 | 09/24/2021 | (9,617 | ) | (9,621 | ) | ||||||||||||||||
| 0.450 | 06/24/2021 | 09/07/2021 | (1,966 | ) | (1,967 | ) | ||||||||||||||||
| 0.450 | 06/25/2021 | 09/03/2021 | (1,183 | ) | (1,183 | ) | ||||||||||||||||
| 0.450 | 06/28/2021 | 09/07/2021 | (2,188 | ) | (2,189 | ) | ||||||||||||||||
| 0.450 | 07/07/2021 | 09/03/2021 | (2,765 | ) | (2,766 | ) | ||||||||||||||||
| 0.450 | 07/14/2021 | 09/17/2021 | (2,235 | ) | (2,236 | ) | ||||||||||||||||
| 0.450 | 08/02/2021 | 09/03/2021 | (929 | ) | (929 | ) | ||||||||||||||||
| 0.470 | 07/14/2021 | 09/17/2021 | (3,872 | ) | (3,873 | ) | ||||||||||||||||
| 0.480 | 06/17/2021 | 08/06/2021 | (1,932 | ) | (1,933 | ) | ||||||||||||||||
| 0.480 | 06/25/2021 | 08/06/2021 | (99 | ) | (99 | ) | ||||||||||||||||
| 0.500 | 05/24/2021 | 08/06/2021 | (414 | ) | (414 | ) | ||||||||||||||||
| 0.500 | 07/19/2021 | 01/19/2022 | (585 | ) | (585 | ) | ||||||||||||||||
| 0.500 | 07/22/2021 | 01/24/2022 | (890 | ) | (891 | ) | ||||||||||||||||
| 0.550 | 06/22/2021 | 03/10/2022 | (1,866 | ) | (1,867 | ) | ||||||||||||||||
| 0.560 | 05/03/2021 | 09/10/2021 | (2,757 | ) | (2,761 | ) | ||||||||||||||||
| 0.560 | 05/06/2021 | 09/10/2021 | (2,690 | ) | (2,694 | ) | ||||||||||||||||
| 0.560 | 06/01/2021 | 09/10/2021 | (336 | ) | (337 | ) | ||||||||||||||||
| 0.576 | 06/09/2021 | 08/06/2021 | (2,566 | ) | (2,568 | ) | ||||||||||||||||
| 0.750 | 07/23/2021 | 02/03/2022 | (2,259 | ) | (2,259 | ) | ||||||||||||||||
| BYR |
0.500 | 07/26/2021 | 01/26/2022 | (5,466 | ) | (5,467 | ) | |||||||||||||||
| 0.500 | 07/30/2021 | 01/26/2022 | (4,277 | ) | (4,277 | ) | ||||||||||||||||
| 0.650 | 03/31/2021 | 03/25/2022 | (14,369 | ) | (14,400 | ) | ||||||||||||||||
| 0.650 | 06/22/2021 | 03/25/2022 | (1,307 | ) | (1,308 | ) | ||||||||||||||||
| 0.650 | 06/25/2021 | 03/25/2022 | (1,684 | ) | (1,685 | ) | ||||||||||||||||
| 0.650 | 07/09/2021 | 03/25/2022 | (1,539 | ) | (1,539 | ) | ||||||||||||||||
| 0.650 | 07/14/2021 | 03/25/2022 | (2,246 | ) | (2,247 | ) | ||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 91 |
| Schedule of Investments | PIMCO Income Strategy Fund II | (Cont.) |
| Counterparty | Borrowing Rate(2) |
Settlement Date |
Maturity Date |
Amount |
Payable for Reverse Repurchase Agreements |
|||||||||||||||||
| CDC |
0.250 | % | 03/22/2021 | TBD | (3) | $ | (5,025 | ) | $ | (5,029 | ) | |||||||||||
| 0.300 | 05/24/2021 | 08/27/2021 | (14,504 | ) | (14,512 | ) | ||||||||||||||||
| 0.300 | 05/27/2021 | 08/27/2021 | (2,537 | ) | (2,538 | ) | ||||||||||||||||
| 0.300 | 06/03/2021 | 09/03/2021 | (1,450 | ) | (1,451 | ) | ||||||||||||||||
| 0.300 | 07/01/2021 | 10/01/2021 | (5,473 | ) | (5,474 | ) | ||||||||||||||||
| 0.300 | 07/19/2021 | 09/22/2021 | (2,520 | ) | (2,520 | ) | ||||||||||||||||
| 0.500 | 05/21/2021 | 08/24/2021 | (1,517 | ) | (1,519 | ) | ||||||||||||||||
| CEW |
0.457 | 07/09/2021 | 01/07/2022 | (21,791 | ) | (21,798 | ) | |||||||||||||||
| CIW |
0.310 | 06/03/2021 | 09/03/2021 | (2,404 | ) | (2,406 | ) | |||||||||||||||
| IND |
0.300 | 06/09/2021 | 03/09/2022 | (17,063 | ) | (17,070 | ) | |||||||||||||||
| 0.420 | 07/26/2021 | 01/26/2022 | (10,779 | ) | (10,780 | ) | ||||||||||||||||
| 0.480 | 05/20/2021 | 02/04/2022 | (1,841 | ) | (1,843 | ) | ||||||||||||||||
| JML |
(0.300 | ) | 07/14/2021 | 10/14/2021 | EUR | (2,023 | ) | (2,400 | ) | |||||||||||||
| (0.070 | ) | 07/30/2021 | 08/27/2021 | $ | (520 | ) | (520 | ) | ||||||||||||||
| (0.050 | ) | 07/08/2021 | TBD | (3) | (752 | ) | (752 | ) | ||||||||||||||
| 0.350 | 07/19/2021 | 10/19/2021 | GBP | (200 | ) | (279 | ) | |||||||||||||||
| NOM |
0.400 | 08/02/2021 | 09/02/2021 | (2,216 | ) | (2,216 | ) | |||||||||||||||
| 0.450 | 06/03/2021 | 08/02/2021 | (2,182 | ) | (2,183 | ) | ||||||||||||||||
| SOG |
0.270 | 07/28/2021 | 08/30/2021 | (2,780 | ) | (2,780 | ) | |||||||||||||||
| 0.330 | 07/06/2021 | 10/06/2021 | (5,592 | ) | (5,594 | ) | ||||||||||||||||
| 0.350 | 06/01/2021 | 09/01/2021 | (6,596 | ) | (6,600 | ) | ||||||||||||||||
| 0.450 | 06/02/2021 | 09/02/2021 | (7,583 | ) | (7,589 | ) | ||||||||||||||||
| 0.450 | 06/04/2021 | 09/02/2021 | (3,163 | ) | (3,165 | ) | ||||||||||||||||
| 0.450 | 06/08/2021 | 08/13/2021 | (6,288 | ) | (6,292 | ) | ||||||||||||||||
| 0.450 | 06/23/2021 | 08/20/2021 | (1,299 | ) | (1,300 | ) | ||||||||||||||||
| 0.450 | 07/02/2021 | 09/02/2021 | (4,121 | ) | (4,122 | ) | ||||||||||||||||
| 0.450 | 07/09/2021 | 09/28/2021 | (9,215 | ) | (9,217 | ) | ||||||||||||||||
| 0.500 | 07/21/2021 | 01/21/2022 | (9,055 | ) | (9,057 | ) | ||||||||||||||||
| 0.500 | 07/29/2021 | 01/21/2022 | (1,567 | ) | (1,567 | ) | ||||||||||||||||
| 0.550 | 07/22/2021 | 03/02/2022 | (506 | ) | (507 | ) | ||||||||||||||||
| 0.550 | 07/27/2021 | 04/27/2022 | (6,468 | ) | (6,469 | ) | ||||||||||||||||
| 0.550 | 07/28/2021 | 04/27/2022 | (5,698 | ) | (5,698 | ) | ||||||||||||||||
| TDM |
0.220 | 06/02/2021 | TBD | (3) | (907 | ) | (908 | ) | ||||||||||||||
| 0.250 | 04/16/2021 | TBD | (3) | (4,118 | ) | (4,121 | ) | |||||||||||||||
| UBS |
0.450 | 05/19/2021 | 08/19/2021 | (1,051 | ) | (1,052 | ) | |||||||||||||||
| 0.450 | 05/25/2021 | 08/26/2021 | (7,540 | ) | (7,546 | ) | ||||||||||||||||
| 0.450 | 06/02/2021 | 09/02/2021 | (336 | ) | (336 | ) | ||||||||||||||||
| 0.450 | 07/22/2021 | 09/01/2021 | (639 | ) | (639 | ) | ||||||||||||||||
| 0.450 | 07/22/2021 | 09/02/2021 | (984 | ) | (984 | ) | ||||||||||||||||
| 0.500 | 07/14/2021 | 01/12/2022 | (4,622 | ) | (4,624 | ) | ||||||||||||||||
| 0.500 | 07/16/2021 | 01/14/2022 | (2,468 | ) | (2,468 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||||||
| Total Reverse Repurchase Agreements |
|
$ | (326,550 | ) | ||||||||||||||||||
|
|
|
|||||||||||||||||||||
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 July 31, 2021:
| Counterparty | Repurchase Agreement Proceeds to be Received(1) |
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 |
| |||||||||||||||||||||||
| BOS |
$ | 0 | $ | (13,893 | ) | $ | 0 | $ | (13,893 | ) | $ | 14,519 | $ | 626 | ||||||||||
| BPS |
15,200 | (24,247 | ) | 0 | (9,047 | ) | 11,327 | 2,280 | ||||||||||||||||
| BRC |
0 | (69,562 | ) | 0 | (69,562 | ) | 80,149 | 10,587 | ||||||||||||||||
| BYR |
0 | (30,923 | ) | 0 | (30,923 | ) | 36,551 | 5,628 | ||||||||||||||||
| CDC |
0 | (33,043 | ) | 0 | (33,043 | ) | 34,740 | 1,697 | ||||||||||||||||
| CEW |
0 | (21,798 | ) | 0 | (21,798 | ) | 25,259 | 3,461 | ||||||||||||||||
| CIW |
0 | (2,406 | ) | 0 | (2,406 | ) | 2,375 | (31 | ) | |||||||||||||||
| FICC |
3,168 | 0 | 0 | 3,168 | (3,232 | ) | (64 | ) | ||||||||||||||||
| IND |
0 | (29,693 | ) | 0 | (29,693 | ) | 32,224 | 2,531 | ||||||||||||||||
| JML |
0 | (3,951 | ) | 0 | (3,951 | ) | 4,100 | 149 | ||||||||||||||||
| NOM |
0 | (4,399 | ) | 0 | (4,399 | ) | 2,355 | (2,044 | ) | |||||||||||||||
| SOG |
0 | (69,957 | ) | 0 | (69,957 | ) | 79,634 | 9,677 | ||||||||||||||||
| TDM |
0 | (5,029 | ) | 0 | (5,029 | ) | 5,343 | 314 | ||||||||||||||||
| UBS |
0 | (17,649 | ) | 0 | (17,649 | ) | 21,372 | 3,723 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total Borrowings and Other Financing Transactions |
$ | 18,368 | $ | (326,550 | ) | $ | 0 | |||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| 92 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
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 | $ | (62,071 | ) | $ | (109,526 | ) | $ | (146,228 | ) | $ | (317,825 | ) | ||||||
| Non-Agency Mortgage-Backed Securities |
0 | (2,568 | ) | 0 | (2,259 | ) | (4,827 | ) | ||||||||||||
| Sovereign Issues |
0 | 0 | 0 | (753 | ) | (753 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Total Borrowings |
$ | 0 | $ | (64,639 | ) | $ | (109,526 | ) | $ | (149,240 | ) | $ | (323,405 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
| Payable for reverse repurchase agreements(5) |
|
$ | (323,405 | ) | ||||||||||||||||
|
|
|
|||||||||||||||||||
| (n) | Securities with an aggregate market value of $369,812 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021. |
| (1) | Includes accrued interest. |
| (2) | The average amount of borrowings outstanding during the period ended July 31, 2021 was $(255,439) at a weighted average interest rate of 0.597%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period. |
| (3) | Open maturity reverse repurchase agreement. |
| (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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (5) | Unsettled reverse repurchase agreements liability of $(3,145) is outstanding at period end. |
(o) FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION(1)
| Reference Entity |
Fixed |
Payment Frequency |
Maturity Date |
Implied Credit Spread at July 31, 2021(2) |
Notional Amount(3) |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market |
Variation Margin | |||||||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||||||
| Bombardier, Inc. |
5.000 | % | Quarterly | 06/20/2024 | 2.773 | % | $ | 2,300 | $ | (4 | ) | $ | 159 | $ | 155 | $ | 4 | $ | 0 | |||||||||||||||||||||||||
| Bombardier, Inc. |
5.000 | Quarterly | 12/20/2024 | 3.311 | 1,600 | (7 | ) | 103 | 96 | 0 | (1 | ) | ||||||||||||||||||||||||||||||||
| MGM Resorts International |
5.000 | Quarterly | 06/20/2026 | 2.229 | 2,000 | 280 | (15 | ) | 265 | 0 | (5 | ) | ||||||||||||||||||||||||||||||||
| Rolls-Royce PLC |
1.000 | Quarterly | 12/20/2025 | 2.269 | EUR | 14,400 | (1,757 | ) | 863 | (894 | ) | 0 | 0 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| $ | (1,488 | ) | $ | 1,110 | $ | (378 | ) | $ | 4 | $ | (6 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
INTEREST RATE SWAPS
| Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate | Payment Frequency |
Maturity Date |
Notional Amount |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Market Value |
Variation Margin | |||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | % | Annual | 09/15/2031 | GBP | 13,300 | $ | (11 | ) | $ | (284 | ) | $ | (295 | ) | $ | 0 | $ | (24 | ) | |||||||||||||||||||
| Receive(5) |
1-Day GBP-SONIO Compounded-OIS |
0.750 | Annual | 09/15/2051 | 3,200 | 201 | (346 | ) | (145 | ) | 0 | (16 | ) | |||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.250 | Semi-Annual | 12/18/2022 | $ | 150,500 | 73 | (244 | ) | (171 | ) | 0 | (12 | ) | ||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.750 | Semi-Annual | 06/17/2025 | 149,020 | 9,092 | 3,588 | 12,680 | 181 | 0 | ||||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 06/15/2026 | 26,800 | 1,267 | 708 | 1,975 | 41 | 0 | ||||||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
2.500 | Semi-Annual | 12/20/2027 | 49,000 | 343 | 4,487 | 4,830 | 116 | 0 | ||||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.420 | Semi-Annual | 08/17/2028 | 29,500 | 0 | (749 | ) | (749 | ) | 0 | (78 | ) | |||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.380 | Semi-Annual | 08/24/2028 | 32,500 | 0 | (726 | ) | (726 | ) | 0 | (86 | ) | |||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.000 | Semi-Annual | 06/19/2029 | 75,000 | 4,675 | 6,397 | 11,072 | 263 | 0 | ||||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.160 | Semi-Annual | 04/12/2031 | 2,800 | 0 | 17 | 17 | 0 | (12 | ) | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
0.750 | Semi-Annual | 06/16/2031 | 38,000 | 3,140 | (1,377 | ) | 1,763 | 0 | (151 | ) | ||||||||||||||||||||||||||||
| Receive(5) |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 12/15/2031 | 40,600 | (643 | ) | (1,020 | ) | (1,663 | ) | 0 | (177 | ) | ||||||||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
3.500 | Semi-Annual | 06/19/2044 | 201,500 | (6,573 | ) | 81,885 | 75,312 | 1,667 | 0 | |||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.000 | Semi-Annual | 01/15/2050 | 1,400 | (10 | ) | (98 | ) | (108 | ) | 0 | (10 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.750 | Semi-Annual | 01/22/2050 | 21,100 | (49 | ) | (314 | ) | (363 | ) | 0 | (143 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.875 | Semi-Annual | 02/07/2050 | 22,000 | (85 | ) | (1,131 | ) | (1,216 | ) | 0 | (154 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
2.250 | Semi-Annual | 03/12/2050 | 6,000 | (18 | ) | (854 | ) | (872 | ) | 0 | (46 | ) | ||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.150 | Semi-Annual | 12/11/2050 | 206,400 | (289 | ) | 26,820 | 26,531 | 0 | (1,150 | ) | ||||||||||||||||||||||||||||
| Receive |
3-Month USD-LIBOR |
1.250 | Semi-Annual | 12/16/2050 | 2,400 | 233 | 17 | 250 | 0 | (14 | ) | |||||||||||||||||||||||||||||
| Pay |
6-Month AUD-BBR-BBSW |
3.500 | Semi-Annual | 06/17/2025 | AUD | 8,100 | 201 | 506 | 707 | 0 | 0 | |||||||||||||||||||||||||||||
| Receive |
6-Month EUR-EURIBOR |
(0.150 | ) | Annual | 03/18/2030 | EUR | 8,300 | 152 | (166 | ) | (14 | ) | 0 | (12 | ) | |||||||||||||||||||||||||
| Receive(5) |
6-Month EUR-EURIBOR |
0.000 | Annual | 09/15/2031 | 9,800 | 161 | (224 | ) | (63 | ) | 0 | (18 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| $ | 11,860 | $ | 116,892 | $ | 128,752 | $ | 2,268 | $ | (2,103 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total Swap Agreements |
|
$ | 10,372 | $ | 118,002 | $ | 128,374 | $ | 2,272 | $ | (2,109 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 93 |
| Schedule of Investments | PIMCO Income Strategy Fund II | (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 July 31, 2021:
| 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 | $ | 2,272 | $ | 2,272 | $ | 0 | $ | 0 | $ | (2,109) | $ | (2,109) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| (p) | Securities with an aggregate market value of $4,361 and cash of $23,688 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| (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 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 underlying referenced instrument’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
| (5) | This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information. |
(q) FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER
FORWARD FOREIGN CURRENCY CONTRACTS:
| Counterparty |
Settlement |
Currency to |
Currency to |
Unrealized Appreciation/ (Depreciation) |
||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||
| BOA |
08/2021 | PEN | 3,389 | $ | 869 | $ | 34 | $ | 0 | |||||||||||||||
| 08/2021 | $ | 65 | RUB | 4,874 | 2 | 0 | ||||||||||||||||||
| 09/2021 | 25 | 1,835 | 0 | 0 | ||||||||||||||||||||
| 10/2021 | 868 | PEN | 3,389 | 0 | (34 | ) | ||||||||||||||||||
| BPS |
08/2021 | EUR | 5,319 | $ | 6,308 | 3 | (4 | ) | ||||||||||||||||
| 08/2021 | PEN | 1,285 | 348 | 32 | 0 | |||||||||||||||||||
| BRC |
08/2021 | EUR | 893 | 1,063 | 3 | 0 | ||||||||||||||||||
| CBK |
08/2021 | PEN | 5,793 | 1,512 | 86 | 0 | ||||||||||||||||||
| 08/2021 | $ | 266 | MXN | 5,571 | 13 | 0 | ||||||||||||||||||
| 08/2021 | 2,178 | PEN | 8,402 | 0 | (109 | ) | ||||||||||||||||||
| 08/2021 | 8 | RUB | 602 | 0 | 0 | |||||||||||||||||||
| 09/2021 | PEN | 1,500 | $ | 405 | 36 | 0 | ||||||||||||||||||
| 10/2021 | 1,482 | 379 | 14 | 0 | ||||||||||||||||||||
| 10/2021 | $ | 534 | PEN | 2,110 | 0 | (15 | ) | |||||||||||||||||
| 12/2021 | 1,494 | 5,492 | 0 | (143 | ) | |||||||||||||||||||
| GLM |
08/2021 | MXN | 5,571 | $ | 278 | 0 | (2 | ) | ||||||||||||||||
| 08/2021 | $ | 54,369 | GBP | 38,975 | 0 | (193 | ) | |||||||||||||||||
| 08/2021 | 11 | RUB | 841 | 0 | 0 | |||||||||||||||||||
| 09/2021 | GBP | 38,975 | $ | 54,373 | 194 | 0 | ||||||||||||||||||
| 09/2021 | $ | 19 | RUB | 1,412 | 0 | 0 | ||||||||||||||||||
| 10/2021 | 275 | MXN | 5,571 | 2 | 0 | |||||||||||||||||||
| HUS |
08/2021 | GBP | 38,744 | $ | 53,629 | 0 | (225 | ) | ||||||||||||||||
| 08/2021 | $ | 18 | RUB | 1,358 | 0 | 0 | ||||||||||||||||||
| 09/2021 | 13 | 966 | 0 | 0 | ||||||||||||||||||||
| 10/2021 | PEN | 198 | $ | 53 | 5 | 0 | ||||||||||||||||||
| 12/2021 | 183 | 49 | 4 | 0 | ||||||||||||||||||||
| MYI |
08/2021 | EUR | 704 | 829 | 0 | (6 | ) | |||||||||||||||||
| SCX |
08/2021 | 53,814 | 63,859 | 23 | 0 | |||||||||||||||||||
| 09/2021 | 60,730 | 72,055 | 0 | (28 | ) | |||||||||||||||||||
| 09/2021 | PEN | 6,018 | 1,532 | 51 | 0 | |||||||||||||||||||
| 12/2021 | 115 | 31 | 3 | 0 | ||||||||||||||||||||
| SOG |
08/2021 | $ | 10 | RUB | 755 | 0 | 0 | |||||||||||||||||
| SSB |
08/2021 | 747 | GBP | 542 | 7 | 0 | ||||||||||||||||||
| UAG |
08/2021 | GBP | 773 | $ | 1,071 | 0 | (4 | ) | ||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| Total Forward Foreign Currency Contracts |
|
$ | 512 | $ | (763 | ) | ||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
| 94 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
SWAP AGREEMENTS:
CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - SELL PROTECTION(1)
| Counterparty |
Reference Entity |
Fixed Receive Rate |
Payment |
Maturity Date |
Implied Credit Spread at July 31, 2021(2) |
Notional Amount(3) |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value(4) |
|||||||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||||||
| BPS | Petrobras Global Finance BV |
1.000 | % | Quarterly | 12/20/2024 | 1.561 | % | $ | 1,000 | $ | (195 | ) | $ | 177 | $ | 0 | $ | (18 | ) | |||||||||||||||||||||||
| GST | Petrobras Global Finance BV |
1.000 | Quarterly | 12/20/2024 | 1.561 | 1,400 | (278 | ) | 254 | 0 | (24 | ) | ||||||||||||||||||||||||||||||
| HUS | Petrobras Global Finance BV |
1.000 | Quarterly | 12/20/2024 | 1.561 | 1,700 | (353 | ) | 323 | 0 | (30 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
| $ | (826 | ) | $ | 754 | $ | 0 | $ | (72 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
INTEREST RATE SWAPS
| Counterparty |
Pay/ Receive |
Floating Rate Index |
Fixed Rate |
Payment |
Maturity |
Notional |
Premiums Paid/(Received) |
Unrealized Appreciation/ (Depreciation) |
Swap Agreements, at Value |
|||||||||||||||||||||||||||||
| Asset | Liability | |||||||||||||||||||||||||||||||||||||
| MYC | Pay |
3-Month USD-LIBOR |
1.670 | % | Semi-Annual | 08/17/2028 | $ | 118,100 | $ | (84 | ) | $ | 539 | $ | 455 | $ | 0 | |||||||||||||||||||||
| Pay |
3-Month USD-LIBOR |
1.630 | Semi-Annual | 08/24/2028 | 129,800 | (46 | ) | 534 | 488 | 0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| $ | (130 | ) | $ | 1,073 | $ | 943 | $ | 0 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
| Total Swap Agreements |
$ | (956 | ) | $ | 1,827 | $ | 943 | $ | (72 | ) | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||
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 July 31, 2021:
| 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 |
$ | 36 | $ | 0 | $ | 0 | $ | 36 | $ | (34 | ) | $ | 0 | $ | 0 | $ | (34 | ) | $ | 2 | $ | 0 | $ | 2 | ||||||||||||||||||||||||
| BPS |
35 | 0 | 0 | 35 | (4 | ) | 0 | (18 | ) | (22 | ) | 13 | 0 | 13 | ||||||||||||||||||||||||||||||||||
| BRC |
3 | 0 | 0 | 3 | 0 | 0 | 0 | 0 | 3 | 0 | 3 | |||||||||||||||||||||||||||||||||||||
| CBK |
149 | 0 | 0 | 149 | (267 | ) | 0 | 0 | (267 | ) | (118 | ) | 0 | (118 | ) | |||||||||||||||||||||||||||||||||
| GLM |
196 | 0 | 0 | 196 | (195 | ) | 0 | 0 | (195 | ) | 1 | 0 | 1 | |||||||||||||||||||||||||||||||||||
| GST |
0 | 0 | 0 | 0 | 0 | 0 | (24 | ) | (24 | ) | (24 | ) | 106 | 82 | ||||||||||||||||||||||||||||||||||
| HUS |
9 | 0 | 0 | 9 | (225 | ) | 0 | (30 | ) | (255 | ) | (246 | ) | 271 | 25 | |||||||||||||||||||||||||||||||||
| MYC |
0 | 0 | 943 | 943 | 0 | 0 | 0 | 0 | 943 | (680 | ) | 263 | ||||||||||||||||||||||||||||||||||||
| MYI |
0 | 0 | 0 | 0 | (6 | ) | 0 | 0 | (6 | ) | (6 | ) | 0 | (6 | ) | |||||||||||||||||||||||||||||||||
| SCX |
77 | 0 | 0 | 77 | (28 | ) | 0 | 0 | (28 | ) | 49 | 0 | 49 | |||||||||||||||||||||||||||||||||||
| SSB |
7 | 0 | 0 | 7 | 0 | 0 | 0 | 0 | 7 | 0 | 7 | |||||||||||||||||||||||||||||||||||||
| UAG |
0 | 0 | 0 | 0 | (4 | ) | 0 | 0 | (4 | ) | (4 | ) | 0 | (4 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| Total Over the Counter |
$ | 512 | $ | 0 | $ | 943 | $ | 1,455 | $ | (763 | ) | $ | 0 | $ | (72 | ) | $ | (835 | ) | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
| (r) | Securities with an aggregate market value of $377 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of July 31, 2021. |
| (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 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 underlying referenced instrument’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
| (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 8, Master Netting Arrangements, in the Notes to Financial Statements for more information. |
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 95 |
| Schedule of Investments | PIMCO Income Strategy Fund II | (Cont.) |
FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS
The following is a summary of the fair valuation of the Fund’s derivative instruments categorized by risk exposure. See Note 7, Principal and Other 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 July 31, 2021:
| 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 | $ | 4 | $ | 0 | $ | 0 | $ | 2,268 | $ | 2,272 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 512 | $ | 0 | $ | 512 | ||||||||||||
| Swap Agreements |
0 | 0 | 0 | 0 | 943 | 943 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 0 | $ | 0 | $ | 512 | $ | 943 | $ | 1,455 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 4 | $ | 0 | $ | 512 | $ | 3,211 | $ | 3,727 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Financial Derivative Instruments - Liabilities |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 6 | $ | 0 | $ | 0 | $ | 2,103 | $ | 2,109 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 763 | $ | 0 | $ | 763 | ||||||||||||
| Swap Agreements |
0 | 72 | 0 | 0 | 0 | 72 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 72 | $ | 0 | $ | 763 | $ | 0 | $ | 835 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 78 | $ | 0 | $ | 763 | $ | 2,103 | $ | 2,944 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:
| 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 | $ | 292 | $ | 0 | $ | 0 | $ | 12,831 | $ | 13,123 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | (7,065 | ) | $ | 0 | $ | (7,065 | ) | ||||||||||
| Swap Agreements |
0 | 41 | 0 | 0 | (565 | ) | (524 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 41 | $ | 0 | $ | (7,065 | ) | $ | (565 | ) | $ | (7,589 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 333 | $ | 0 | $ | (7,065 | ) | $ | 12,266 | $ | 5,534 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net Change in Unrealized Appreciation (Depreciation) on Financial Derivative Instruments |
| |||||||||||||||||||||||
| Exchange-traded or centrally cleared |
| |||||||||||||||||||||||
| Swap Agreements |
$ | 0 | $ | 1,965 | $ | 0 | $ | 0 | $ | (8,897 | ) | $ | (6,932 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Over the counter |
| |||||||||||||||||||||||
| Forward Foreign Currency Contracts |
$ | 0 | $ | 0 | $ | 0 | $ | 4,703 | $ | 0 | $ | 4,703 | ||||||||||||
| Swap Agreements |
0 | 263 | 0 | 0 | 1,072 | 1,335 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 263 | $ | 0 | $ | 4,703 | $ | 1,072 | $ | 6,038 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| $ | 0 | $ | 2,228 | $ | 0 | $ | 4,703 | $ | (7,825 | ) | $ | (894 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 96 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| July 31, 2021 |
FAIR VALUE MEASUREMENTS
The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:
| Category and Subcategory | Beginning Balance at 07/31/2020 |
Net Purchases |
Net Sales/ Settlements |
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 07/31/2021 |
Net Change in Unrealized Appreciation/ (Depreciation) on Investments Held at 07/31/2021(1) |
||||||||||||||||||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||||||||||||||||||||||
| Loan Participations and Assignments |
$ | 13,086 | $ | 28,304 | $ | (19,946 | ) | $ | 86 | $ | (8,769 | ) | $ | 6,487 | $ | 935 | $ | (16 | ) | $ | 20,167 | $ | 136 | |||||||||||||||||
| U.S. Government Agencies |
5,137 | 0 | (112 | ) | 20 | 38 | 34 | 0 | 0 | 5,117 | 28 | |||||||||||||||||||||||||||||
| Asset-Backed Securities |
17,699 | 0 | (8,460 | ) | 0 | (1,511 | ) | (439 | ) | 1,067 | 0 | 8,356 | (2,238 | ) | ||||||||||||||||||||||||||
| Common Stocks |
| |||||||||||||||||||||||||||||||||||||||
| Communication Services |
3 | 2,077 | 0 | 0 | 0 | 266 | 0 | 0 | 2,346 | 266 | ||||||||||||||||||||||||||||||
| Energy |
0 | 30 | 0 | 0 | 0 | 0 | 0 | 0 | 30 | 0 | ||||||||||||||||||||||||||||||
| Financials |
0 | 737 | 0 | 0 | 0 | 85 | 0 | 0 | 822 | 85 | ||||||||||||||||||||||||||||||
| Industrials |
400 | 2,719 | 0 | 0 | 0 | 6,004 | 0 | 0 | 9,123 | 6,004 | ||||||||||||||||||||||||||||||
| Real Estate |
2,573 | 0 | 0 | 0 | 0 | 638 | 0 | (3,211 | ) | 0 | 0 | |||||||||||||||||||||||||||||
| Warrants |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
0 | 0 | 0 | 0 | 0 | 516 | 0 | 0 | 516 | 516 | ||||||||||||||||||||||||||||||
| Information Technology |
0 | 4,690 | 0 | 0 | 0 | 7,934 | 0 | 0 | 12,624 | 7,934 | ||||||||||||||||||||||||||||||
| Preferred Securities |
| |||||||||||||||||||||||||||||||||||||||
| Industrials |
15,604 | 2,270 | (4,948 | ) | 0 | 0 | 14,240 | 0 | 0 | 27,166 | 14,240 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Totals |
$ | 54,502 | $ | 40,827 | $ | (33,466 | ) | $ | 106 | $ | (10,242 | ) | $ | 35,765 | $ | 2,002 | $ | (3,227 | ) | $ | 86,267 | $ | 26,971 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| See Accompanying Notes | ANNUAL REPORT | | | JULY 31, 2021 | 97 |
| Schedule of Investments | PIMCO Income Strategy Fund II | (Cont.) | July 31, 2021 |
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 07/31/2021 |
Valuation Technique |
Unobservable Inputs |
Input Value(s) | Weighted Average |
|||||||||||||||
| Investments in Securities, at Value |
| |||||||||||||||||||
| Loan Participations and Assignments |
$ | 4,540 | Reference Instrument | Yield | % | 5.738 | — | |||||||||||||
| 15,627 | Third Party Vendor | Broker Quote | 21.500-100.313 | 95.022 | ||||||||||||||||
| U.S. Government Agencies |
5,117 | Proxy Pricing | Base Price | 61.285 | — | |||||||||||||||
| Asset-Backed Securities |
8,356 | Proxy Pricing | Base Price | 14.800-98,000.000 | 35,178.280 | |||||||||||||||
| Common Stocks |
| |||||||||||||||||||
| Communication Services |
2,346 | Reference Instrument | Liquidity Discount | 10.000 | — | |||||||||||||||
| Energy |
30 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Financials |
822 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Industrials |
9,123 | Discounted Cash Flow | Discount Rate | 14.250 | — | |||||||||||||||
| Warrants |
| |||||||||||||||||||
| Industrials |
516 | Other Valuation Techniques(2) | — | — | — | |||||||||||||||
| Information Technology |
12,624 | Other Valuation Techniques(2) | EBITDA | x | 4.375 | — | ||||||||||||||
| Preferred Securities |
| |||||||||||||||||||
| Industrials |
2,125 | Comparable Companies/Discounted Cash Flow | Book Value/Discount Rate | x/% | 0.210/20.150 | — | ||||||||||||||
| 25,041 | Other Valuation Techniques(2) | EBITDA | x/x | 11.700/9.200 | — | |||||||||||||||
|
|
|
|||||||||||||||||||
| Total |
$ | 86,267 | ||||||||||||||||||
|
|
|
|||||||||||||||||||
| (1) | Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 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. |
| 98 | PIMCO CLOSED-END FUNDS | See Accompanying Notes |
| Notes to Financial Statements | July 31, 2021 |
| ANNUAL REPORT | | | JULY 31, 2021 | 99 |
| Notes to Financial Statements | (Cont.) |
(c) Distributions — Common Shares The following table shows the anticipated frequency of distributions from net investment income 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 | ||||||||||
Each Fund intends to distribute at least annually to its shareholders all or substantially all of its net tax-exempt interest and any investment company taxable income, and may distribute its net capital gain.
As of the end of the fiscal year, none of the Funds were in default on long-term debt or had any accumulated dividend in arrears.
A Fund may engage in investment strategies, including those that employ the use of derivatives, to, among other things, seek to generate current, distributable income without regard to possible declines in the Fund’s net asset value (“NAV”). A Fund’s income and gain generating strategies, including certain derivatives strategies, may generate current, distributable income, even if such strategies could potentially result in declines in the Fund’s 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, 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 on amounts that are effectively a taxable return of the shareholder’s investment in the Fund at a time when their investment in a Fund has declined in value, which may be taxed at ordinary income rates. The tax treatment of certain derivatives in which a Fund invests may be unclear and thus subject to recharacterization. Any recharacterization of payments made or received by a Fund pursuant to derivatives potentially could affect the amount, timing or character of Fund distributions. In addition, the tax treatment of such investment strategies may be changed by regulation or otherwise.
Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from U.S. GAAP. Differences between tax regulations and U.S. GAAP may cause timing differences between income and capital gain recognition. 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.
Separately, if a Fund determines that a portion of a distribution may be comprised of amounts from capital gains, paid in capital, or other capital sources in accordance with its policies, accounting records, and accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. For these purposes, a Fund determines 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 determined 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, a Fund’s financial statements presented in accordance with U.S. GAAP, and recordkeeping practices under income tax regulations. For instance, a 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 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 provided to shareholders when such information is available.
Distributions classified as a tax basis return of capital at a Fund’s fiscal year end, if any, are reflected on the Statements of Changes in Net Assets and have been recorded to paid in capital on the Statements of Assets and Liabilities. In addition, other amounts have been reclassified between distributable earnings (accumulated loss) and paid in capital on the Statements of Assets and Liabilities to more appropriately conform U.S. GAAP to tax characterizations of distributions.
| 100 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
(d) New Accounting Pronouncements and Regulatory Updates In March 2020, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”), ASU 2020-04, which provides optional guidance to ease the potential accounting burden associated with transitioning away from the London Interbank Offered Rate and other reference rates that are expected to be discontinued. The ASU is effective immediately upon release of the update on March 12, 2020 through December 31, 2022. At this time, management is evaluating implications of these changes on the financial statements.
In October 2020, the U.S. Securities and Exchange Commission (“SEC”) adopted a rule related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies that rescinds and withdraws the guidance of the SEC and its staff regarding asset segregation and cover transactions. Subject to certain exceptions, the rule requires funds to trade derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to a value-at-risk leverage limit, certain derivatives risk management program and reporting requirements. The rule went into effect on February 19, 2021 and funds will have an eighteen-month transition period to comply with the rule and related reporting requirements. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2020, the SEC adopted a rule regarding the ability of a fund to invest in other funds. The rule allows a fund to acquire shares of another fund in excess of certain limitations currently imposed by the Act without obtaining individual exemptive relief from the SEC, subject to certain conditions. The rule also included the rescission of certain exemptive relief from the SEC and guidance from the SEC staff for funds to invest in other funds. The rule went into effect on January 19, 2021 and funds will have a one-year transition period to comply with the rule and related reporting requirements. At this time, management is evaluating the implications of these changes on the financial statements.
In December 2020, the SEC adopted a rule addressing fair valuation of fund investments. The new rule sets forth requirements for good faith determinations of fair value as well as for the performance of fair value determinations, including related oversight and reporting obligations. The new rule also defines “readily available market quotations” for purposes of the definition of “value” under the Act, and the SEC noted that this definition would apply in all contexts under the Act. The effective date for the rule was March 8, 2021. The SEC adopted an eighteen-month transition period beginning from the effective date for both the new rule and the associated new recordkeeping requirements. 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, or each of its share classes as applicable, is determined by dividing the total value of portfolio investments and other assets, less any liabilities attributable to that Fund or class, 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 (normally 4:00 p.m., Eastern time) (“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. If regular trading on the NYSE closes earlier than scheduled, each Fund reserves the right to either (i) calculate its NAV as of the earlier closing time or (ii) calculate its NAV as of the normally scheduled close of regular trading on the NYSE for that day. Each Fund generally does not calculate its NAV on days during which the NYSE is closed. However, if the NYSE is closed on a day it would normally be open for business, each Fund reserves the right to calculate its NAV as of the normally scheduled close of regular trading on the NYSE for that day or such other time that the Fund may determine.
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. If market value pricing is used, 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 such data reflecting 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
| ANNUAL REPORT | | | JULY 31, 2021 | 101 |
| Notes to Financial Statements | (Cont.) |
| 102 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
| ANNUAL REPORT | | | JULY 31, 2021 | 103 |
| Notes to Financial Statements | (Cont.) |
| 104 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
The Discounted Cash Flow model is based on future cash flows generated by the investment and may be normalized based on expected investment performance. Future cash flows are discounted to present value using an appropriate rate of return, typically calibrated to the initial transaction date and adjusted based on Capital Asset Pricing Model and/or other market-based inputs. Significant changes in the unobservable inputs 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.
The Comparable Companies model is based on application of valuation multiples from publicly traded comparable companies to the financials of the subject company. Adjustments may be made to the market-derived valuation multiples based on differences between the comparable companies and the subject company. Significant changes in the unobservable inputs 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.
The Waterfall Recoverability model is based on liquidation or net asset value approaches. Typically this model would be used in distressed scenarios or when a business is worth more through the sale of individual assets than continuing as an operating business. Significant changes in the unobservable inputs 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.
Short-term debt instruments (such as commercial paper) having a remaining maturity of 60 days or less may be valued at amortized cost, so long as the amortized cost value of such short-term debt instruments is approximately the same as the fair value of the instrument as determined without the use of amortized cost valuation. These securities are categorized as Level 2 or Level 3 of the fair value hierarchy depending on the source of the base price.
4. SECURITIES AND OTHER INVESTMENTS
Investments in Securities
The Funds may utilize the investments and strategies described below to the extent permitted by each Fund’s respective investment policies.
Inflation-Indexed Bonds are fixed income securities whose principal value is periodically adjusted by the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond will be included as interest income on the Statements of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury Inflation-Protected Securities. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
Loans and Other Indebtedness, Loan Participations and Assignments are 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 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 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, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans.
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
| ANNUAL REPORT | | | JULY 31, 2021 | 105 |
| Notes to Financial Statements | (Cont.) |
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 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. Unfunded loan commitments, if any, are reflected as a liability on the Statements of Assets and Liabilities.
Mortgage-Related and Other Asset-Backed Securities 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 is guaranteed with the full faith and credit of the U.S. Government. Pools created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Many of the risks of investing in mortgage-related securities secured by commercial mortgage loans reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make lease payments, and the ability of a property to attract and retain tenants. These securities may be less liquid and may exhibit greater price volatility than other types of mortgage-related or other asset-backed securities. Other asset-backed securities are created from many types of assets, including, but not limited to, auto loans, accounts receivable, such as credit card receivables and hospital account receivables, home equity loans, student loans, boat loans, mobile home loans, recreational vehicle loans, manufactured housing loans, aircraft leases, computer leases and syndicated bank 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,
| 106 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
| ANNUAL REPORT | | | JULY 31, 2021 | 107 |
| Notes to Financial Statements | (Cont.) |
| 108 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
| ANNUAL REPORT | | | JULY 31, 2021 | 109 |
| Notes to Financial Statements | (Cont.) |
| 110 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
| ANNUAL REPORT | | | JULY 31, 2021 | 111 |
| Notes to Financial Statements | (Cont.) |
| 112 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
| ANNUAL REPORT | | | JULY 31, 2021 | 113 |
| Notes to Financial Statements | (Cont.) |
7. PRINCIPAL AND OTHER RISKS
(a) 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 the principal risks the Funds may be subject to, please see the Principal Risks of the Funds section of this report.
| PIMCO Corporate & Income Opportunity Fund (PTY) |
PIMCO Corporate & Income Strategy Fund (PCN) |
PIMCO High Income Fund (PHK) |
PIMCO Income Strategy Fund (PFL) |
PIMCO Income Strategy Fund II (PFN) | ||||||||||
| Call Risk |
X | X | X | X | X | |||||||||
| Collateralized Loan Obligations Risk |
X | X | X | X | X | |||||||||
| Contingent Convertible Securities Risk |
X | X | X | X | X | |||||||||
| Counterparty Risk |
X | X | X | X | X | |||||||||
| Credit Default Swaps Risk |
X | X | X | X | X | |||||||||
| Credit Risk |
X | X | X | X | X | |||||||||
| Derivatives Risk |
X | X | X | X | X | |||||||||
| Distressed and Defaulted Securities Risk |
X | X | X | X | X | |||||||||
| Distribution Rate Risk |
X | X | X | X | X | |||||||||
| Emerging Markets Risk |
X | X | X | X | X | |||||||||
| Equity Securities and Related Market Risk |
X | X | X | X | X | |||||||||
| High Yield Securities Risk |
X | X | X | X | X | |||||||||
| Inflation/Deflation Risk |
X | X | X | X | X | |||||||||
| Inflation-Indexed Security Risk |
X | X | X | X | X | |||||||||
| Interest Rate Risk |
X | X | X | X | X | |||||||||
| Issuer Risk |
X | X | X | X | X | |||||||||
| Leverage Risk |
X | X | X | X | X | |||||||||
| Liquidity Risk |
X | X | X | X | X | |||||||||
| Loans and Other Indebtedness; Loan Participations and Assignments Risk |
X | X | X | X | X | |||||||||
| Market Risk |
X | X | X | X | X | |||||||||
| Management Risk |
X | X | X | X | X | |||||||||
| Mortgage-Related and Other Asset-Backed Instruments Risk |
X | X | X | X | X | |||||||||
| Other Investment Companies Risk |
X | X | X | X | X | |||||||||
| Portfolio Turnover Risk |
X | X | X | X | X | |||||||||
| Preferred Securities Risk |
X | X | X | X | X | |||||||||
| Private Placements Risk |
X | X | X | X | X | |||||||||
| Privately-Issued Mortgage-Related Securities Risk |
X | X | X | X | X | |||||||||
| Reinvestment Risk |
X | X | X | X | X | |||||||||
| Repurchase Agreements Risk |
X | X | X | X | X | |||||||||
| Restricted Securities Risk |
X | X | X | X | X | |||||||||
| Segregation and Coverage Risk |
X | X | X | X | X | |||||||||
| Senior Debt Risk |
X | X | X | X | X | |||||||||
| Sovereign Debt Risk |
X | X | X | X | X | |||||||||
| Structured Investments Risk |
X | X | X | X | X | |||||||||
| Tax Risk |
X | X | X | X | X | |||||||||
| Valuation Risk |
X | X | X | X | X | |||||||||
Call Risk is the risk that an issuer may exercise its right to redeem a fixed income security earlier than expected (a call). Issuers may call outstanding securities prior to their maturity for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the issuer’s credit quality). If an issuer calls a security that the Fund has invested in, the Fund may not recoup the full amount
of its initial investment and may be forced to reinvest in lower-yielding securities, securities with greater credit risks or securities with other, less favorable features.
Collateral Loan Obligations Risk is the risk of investing in a trust typically collateralized by a pool of loans issued by banks, corporations
| 114 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
or any other public or private entity or person, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans and subordinate or mezzanine loans, including loans that may be rated below investment grade or equivalent unrated loans (“Collateralized Loan Obligations Risk”) or (“CLOs”). In addition to the normal risks associated with debt instruments (e.g., interest rate risk and credit risk), CLOs carry additional risks including, but not limited to: (i) the possibility that distributions from the collateral will not be adequate to make interest or other payments; (ii) the risk that the quality of the collateral may decline in value or default; (iii) the risk that the Fund may invest in CBOs, CLOs or other 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 others and may produce unexpected investment results.
Contingent Convertible Securities Risk is the risk of investing in contingent convertible securities, which includes the risk that interest payments will be cancelled by the issuer or a regulatory authority, the risk of ranking junior to other creditors in the event of a liquidation or other bankruptcy-related event as a result of holding subordinated debt, the risk of the Fund’s investment becoming further subordinated as a result of conversion from debt to equity, the risk that the principal amount due can be written down to a lesser amount, and the general risks applicable to fixed income investments, including interest rate risk, credit risk, market risk and liquidity risk, any of which could result in losses to the Fund.
Counterparty Risk is the risk that the Fund will be subject to credit risk with respect to the counterparties to the derivative contracts and other instruments entered into by the Fund or held by special purpose or structured vehicles in which the Fund invests. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery (including recovery of any collateral it has provided to the counterparty) in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding.
Credit Default Swaps Risk is the risk of investing in credit default swaps, including illiquidity risk, counterparty risk, leveraging risk and credit risk. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. When the Fund acts as a seller of a credit default swap, it is exposed to many of the same risks of leverage described herein since if an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation. In addition, selling credit default swaps may not be profitable for the Fund if no secondary
market exists or the Fund is otherwise unable to close out these transactions at advantageous times.
Credit Risk is the risk that the Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivative contract, repurchase agreement or a loan of portfolio securities, is unable or unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to meet its financial obligations.
Derivatives Risk is the risk of investing in derivative instruments (such as futures, swaps and structured securities), including leverage, liquidity, interest rate, market, credit and management risks and valuation complexity. Changes in the value of a derivative may not correlate perfectly with, and may be more sensitive to market events than, the underlying asset, rate or index, and the Fund could lose more than the initial amount invested. The Fund’s use of derivatives may result in losses to the Fund, a reduction in the Fund’s returns and/or increased volatility. Over-the-counter (“OTC”) derivatives are also subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations to the other party, as many of the protections afforded to centrally-cleared derivative transactions might not be available for OTC derivatives. The primary credit risk on derivatives that are exchange-traded or traded through a central clearing counterparty resides with the Fund’s clearing broker, or the clearinghouse itself.
Distressed and Defaulted Securities Risk is the risk of investing in the securities of financially distressed issuers, including the risk of default. These securities may fluctuate more in price, and are typically less liquid. The Fund also will be subject to significant uncertainty as to when, and in what manner, and for what value obligations evidenced by securities of financially distressed issuers will eventually be satisfied.
Distribution Rate Risk is the risk that, to the extent the Fund seeks to maintain a level distribution rate, the Fund’s distribution rate may be affected by numerous factors, including but not limited to changes in realized and projected market returns, fluctuations in market interest rates, Fund performance, and other factors. For instance, during periods of low or declining interest rates, the Fund’s distributable income and dividend levels may decline for many reasons. There can be no assurance that a change in market conditions or other factors will not result in a change in the Fund’s distribution rate or that the rate will be sustainable in the future.
Emerging Markets Risk is the risk of investing in emerging market securities, primarily increased foreign (non-U.S.) investment risk.
Equity Securities and Related Market Risk is the risk that the value of equity securities, such as common stocks and preferred securities, may
| ANNUAL REPORT | | | JULY 31, 2021 | 115 |
| Notes to Financial Statements | (Cont.) |
| 116 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
Mortgage-Related and Other Asset-Backed Securities Risk is the risk of investing in mortgage-related and other asset-backed securities, including interest rate risk, extension risk, prepayment risk and credit risk.
Other Investment Companies Risk is the risk that Common Shareholders may be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, these other investment companies may utilize leverage, in which case an investment would subject the Fund to additional risks associated with leverage.
Portfolio Turnover Risk is the risk that a high portfolio turnover will result in greater expenses to the 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 result in realization of taxable capital gains (including short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates when distributed net of short-term capital losses and net long-term capital losses), and may adversely affect the Fund’s after-tax returns.
Preferred Securities Risk is the risk that certain preferred securities contain provisions that allow an issuer under certain conditions to skip or defer distributions which may require the Fund to include the amount of the deferred distribution in its taxable income for tax purposes although it does not currently receive such amount in cash. Additionally, preferred securities are subordinated to bonds and other debt securities in an issuer’s capital structure in terms of priority for corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt securities. Preferred securities may trade less frequently and in a more limited volume and may be subject to more abrupt or erratic price movements than many other securities, such as common stocks, corporate debt securities and U.S. Government securities.
Private Placements Risk is the risk that securities received in a private placement may be subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise valuation risks.
Privately-Issued Mortgage-Related Securities Risk is the risk of nonpayment because there are no direct or indirect government or agency guarantees of payments in the pools created by non-governmental issuers.
Reinvestment Risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured,
traded or called debt obligations at market interest rates that are below the portfolio’s current earnings rate. The Fund also may choose to sell higher yielding portfolio securities and to purchase lower yielding securities to achieve greater portfolio diversification, because the portfolio managers believe the current holdings are overvalued or for other investment-related reasons.
Repurchase Agreements Risk is the risk that, if the party agreeing to repurchase a security should default, the Fund will seek to sell the securities which it holds, which could involve procedural costs or delays in addition to a loss on the securities if their value should fall below their repurchase price.
Restricted Securities Risk is the risk that the Fund’s investment in securities that have not been registered for public sale, but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act, may be relatively less liquid than registered securities traded on established securities markets.
Segregation and Coverage Risk is the risk that certain portfolio management techniques may be considered senior securities unless steps are taken to segregate the Fund’s assets or otherwise cover its obligations. To avoid having these instruments considered senior securities, the Fund may segregate liquid assets with a value equal (on a daily mark-to-market basis) to its obligations under these types of leveraged transactions, enter into offsetting transactions or otherwise cover such transactions. The Fund may be unable to use such segregated assets for certain other purposes, which could result in the Fund earning a lower return on its portfolio than it might otherwise earn if it did not have to segregate those assets in respect of, or otherwise cover, such portfolio positions. To the extent the Fund’s assets are segregated or committed as cover, it could limit the Fund’s investment flexibility.
Senior Debt Risk is the risk that the Fund may be subject to greater levels of credit risk than funds that do not invest in below investment grade senior debt. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in senior debt. Restrictions on transfers in loan agreements, a lack of publicly available information and other factors may, in certain instances, make senior debt more difficult to sell at an advantageous time or price than other types of securities or instruments.
Sovereign Debt Risk is the risk that investments in fixed income instruments issued by sovereign entities may decline in value as a result of default or other adverse credit event resulting from an issuer’s inability or unwillingness to make principal or interest payments in a timely fashion.
Structured Investments Risk is the risk that the Fund’s investment in structured products, including, structured notes, credit-linked notes and
| ANNUAL REPORT | | | JULY 31, 2021 | 117 |
| Notes to Financial Statements | (Cont.) |
| 118 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
| ANNUAL REPORT | | | JULY 31, 2021 | 119 |
| Notes to Financial Statements | (Cont.) |
| 120 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
“PIMCO Closed-End Funds”), as well as PIMCO Flexible Emerging Markets Income Fund, PIMCO Flexible Credit Income Fund and PIMCO Flexible Municipal Income Fund, each a closed end management investment company managed by PIMCO that is operated as an “interval fund” (the ”PIMCO Interval Funds”), and PIMCO Managed Accounts Trust, an open-end management 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 Interval Funds, the “PIMCO Managed Funds”). In addition, during the reporting period, each of the Independent Trustees (other than Mr. Kittredge and Ms. Vandecruze) also served as a trustee of certain funds for which Allianz Global Investors U.S. LLC (“AllianzGI”), an affiliate of PIMCO, served as investment manager. Effective February 1, 2021 (and February 26, 2021 with respect to Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund), Virtus Investment Advisers, Inc. became the primary investment adviser to all of those funds (the “Former Allianz-Managed Funds”), and therefore they are no longer included within the same fund complex as the PIMCO-Managed Funds. AllianzGI has been appointed to serve as sub-adviser to most of the remaining Former Allianz-Managed Funds.
The Funds pay no compensation directly to any Trustee or any other officer who is affiliated with the Manager, all of whom receive remuneration for their services to the Funds from the Manager or its affiliates.
10. RELATED PARTY TRANSACTIONS
The Manager is a related party. Fees payable to this party are disclosed in Note 9, Fees and Expenses, 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, or an affiliate of 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 under the Act.
Further, as defined under the procedures, each transaction is effected at the current market price. During the period ended July 31, 2021, the Funds below engaged in purchases and sales of securities pursuant to Rule 17a-7 under the Act (amounts in thousands†):
| Fund Name | Purchases | Sales | ||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 70,046 | $ | 294,975 | ||||||||
| PIMCO Corporate & Income Strategy Fund |
11,652 | 83,465 | ||||||||||
| PIMCO High Income Fund |
29,205 | 48,241 | ||||||||||
| PIMCO Income Strategy Fund |
17,149 | 45,485 | ||||||||||
| PIMCO Income Strategy Fund II |
22,111 | 103,696 | ||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
11. 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.
12. 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 may involve correspondingly greater transaction costs, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which are borne by the Fund. 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 when distributed to shareholders). The transaction costs 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 July 31, 2021, were as follows (amounts in thousands†):
| U.S. Government/Agency | All Other | |||||||||||||||||||
| Fund Name | Purchases | Sales | Purchases | Sales | ||||||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 285,857 | $ | 302,429 | $ | 2,131,203 | $ | 1,080,945 | ||||||||||||
| PIMCO Corporate & Income Strategy Fund |
74,896 | 83,144 | 626,436 | 312,522 | ||||||||||||||||
| PIMCO High Income Fund |
323,355 | 353,605 | 635,972 | 285,358 | ||||||||||||||||
| PIMCO Income Strategy Fund |
0 | 0 | 350,345 | 207,813 | ||||||||||||||||
| PIMCO Income Strategy Fund II |
0 | 0 | 631,981 | 369,855 | ||||||||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
| ANNUAL REPORT | | | JULY 31, 2021 | 121 |
| Notes to Financial Statements | (Cont.) |
The aggregate dollar amount of Common Shares registered under each Fund’s Shelf Registration Statement as of the end of the periods described below, as well as number of Common Shares sold and total amount of offering proceeds (net of offering costs, if any) received by each Fund under one or more Shelf Registration Statements during the Fund’s most recent and prior fiscal periods were as follows:
| PTY | PCN | PFL | ||||||||||||||||||||||||||||||||||
| Year Ended 07/31/2021 |
Year Ended 07/31/2020 |
Year Ended 07/31/2021 |
Year Ended 07/31/2020 |
Year Ended 07/31/2021 |
Year Ended 07/31/2020 |
|||||||||||||||||||||||||||||||
| Common Shares registered (aggregate $) |
$ | 600,000,000 | $ | 500,000,000 | $ | 200,000,000 | $ | 0 | $ | 200,000,000 | $ | 100,000,000 | ||||||||||||||||||||||||
| Common Shares sold |
12,480,419 | 11,309,630 | 1,453,643 | 0 | 2,765,940 | 3,197,447 | ||||||||||||||||||||||||||||||
| Offering proceeds (net of offering costs) |
$ | 213,881,835 | $ | 198,548,214 | $ | 25,572,479 | $ | 0 | $ | 30,554,383 | $ | 35,920,234 | ||||||||||||||||||||||||
| PFN | ||||||||||||
| Year Ended 07/31/2021 |
Year Ended 07/31/2020 |
|||||||||||
| Common Shares registered (aggregate $) |
$ | 250,000,000 | $ | 175,000,000 | ||||||||
| Common Shares sold |
4,996,511 | 6,557,002 | ||||||||||
| Offering proceeds (net of offering costs) |
$ | 48,806,626 | $ | 67,031,388 | ||||||||
For the period ended July 31, 2021, the annualized dividend rates on the ARPS ranged from:
| Fund Name | Shares Issued and Outstanding |
High | Low | As of July 31, 2021 |
||||||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
||||||||||||||||||||
| Series M |
1,748 | 0.240% | 0.060% | 0.100% | ||||||||||||||||
| Series T |
1,596 | 0.240% | 0.080% | 0.160% | ||||||||||||||||
| Series W |
1,634 | 0.200% | 0.080% | 0.160% | ||||||||||||||||
| Series TH |
1,786 | 0.240% | 0.080% | 0.160% | ||||||||||||||||
| Series F |
1,742 | 0.220% | 0.080% | 0.120% | ||||||||||||||||
| 122 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
| Fund Name | Shares Issued and Outstanding |
High | Low | As of July 31, 2021 |
||||||||||||||||
| PIMCO Corporate & Income Strategy Fund |
||||||||||||||||||||
| Series M |
242 | 0.180% | 0.048% | 0.080% | ||||||||||||||||
| Series T |
180 | 0.180% | 0.064% | 0.128% | ||||||||||||||||
| Series W |
214 | 0.150% | 0.064% | 0.128% | ||||||||||||||||
| Series TH |
138 | 0.180% | 0.064% | 0.128% | ||||||||||||||||
| Series F |
167 | 0.165% | 0.060% | 0.096% | ||||||||||||||||
| PIMCO High Income Fund |
||||||||||||||||||||
| Series M |
455 | 0.192% | 0.048% | 0.080% | ||||||||||||||||
| Series T |
526 | 0.192% | 0.064% | 0.128% | ||||||||||||||||
| Series W |
369 | 0.160% | 0.064% | 0.128% | ||||||||||||||||
| Series TH |
476 | 0.192% | 0.064% | 0.128% | ||||||||||||||||
| Series F |
496 | 0.176% | 0.064% | 0.096% | ||||||||||||||||
| PIMCO Income Strategy Fund |
||||||||||||||||||||
| Series T |
698 | 1.615% | 1.558% | 1.583% | ||||||||||||||||
| Series W |
636 | 1.622% | 1.560% | 1.584% | ||||||||||||||||
| Series TH |
474 | 1.617% | 1.558% | 1.587% | ||||||||||||||||
| PIMCO Income Strategy Fund II |
||||||||||||||||||||
| Series M |
671 | 1.612% | 1.560% | 1.584% | ||||||||||||||||
| Series T |
855 | 1.615% | 1.558% | 1.583% | ||||||||||||||||
| Series W |
627 | 1.622% | 1.560% | 1.584% | ||||||||||||||||
| Series TH |
706 | 1.617% | 1.558% | 1.587% | ||||||||||||||||
| Series F |
638 | 1.617% | 1.558% | 1.587% | ||||||||||||||||
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.
Auction Rate 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 for the Funds in the table below:
| Fund Name | Applicable % | Reference Rate | Maximum Rate(1) | |||||||||||||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
200% | x | 7-day “AA” Financial Composite Commercial Paper Rates |
= | Maximum Rate for PTY | |||||||||||||||||||||
| PIMCO Corporate & Income Strategy Fund |
160% | 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 |
The higher of | |
200% 1.50% |
|
|
x + |
|
7-Day USD LIBOR OR 7-Day USD LIBOR |
|
= = |
|
Maximum Rate for PFL | (2) | |||||||||||||
| PIMCO Income Strategy Fund II |
The higher of | |
200% 1.50% |
|
|
x + |
|
7-Day USD LIBOR OR 7-Day USD LIBOR |
|
= = |
|
Maximum Rate for PFN | (2) | |||||||||||||
| (1) | In any event, the Maximum Rate will not be lower than 0%. |
| (2) | For the avoidance of doubt, the Maximum Rate for PFL and PFN may be less than the Applicable %, but will not be lower than 0%. |
| ANNUAL REPORT | | | JULY 31, 2021 | 123 |
| Notes to Financial Statements | (Cont.) |
The maximum rate is a function of short-term interest rates and is typically but not necessarily, 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.
In May 2020, Fitch downgraded its rating of the ARPS of PIMCO Income Strategy Fund and PIMCO Strategy Fund II from “AAA” to “AA” and updated it’s applicable spread over reference rate from 1.25% to 1.50%, indicating the downgrades reflected recent extreme market volatility and reduced asset liquidity, which have quickly eroded asset coverage cushions for closed-end funds and challenged fund managers’ ability to deleverage.
Ratings agencies may change their methodologies for evaluating and providing ratings for shares of closed-end funds at any time and in their sole discretion, which may affect the rating (if any) of a Fund’s shares. Fitch Ratings published ratings criteria relating to closed-end funds on December 4, 2020, which effectively result in a rating cap of “AA” for debt and preferred stock issued by all closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The updated ratings criteria cap the credit ratings of each of the Funds’ ARPS at “A”. Accordingly, on April 30, 2021, Fitch Ratings announced that it had downgraded to “A” from “AA” the long-term ratings assigned to each of the Funds’ ARPS. The long-term rating actions were driven by changes in the updated ratings criteria for closed-end funds rather than by any fundamental changes to the Funds’ credit profiles. With respect to PCN, the April 2021 Fitch downgrade resulted in an increase in the multiple used to calculate the maximum applicable rate from 150% to 160%, thereby increasing the dividend rate payable to ARPS holders and increasing the expenses to Common Shareholders associated with the Fund’s leverage. With respect to each of PFL and PFN, the April 2021 Fitch downgrade resulted in an increase in the dividend rate multiplier from 1.50 to 2.00, which could increase the dividend rate payable to ARPS holders should the maximum dividend rate be determined via the multiplier in lieu of the spread noted in the table above (the maximum dividend rate is based on the greater of a multiple of or a spread plus a reference rate) and, thereby, increase the expenses to the each applicable Fund’s Common Shareholders associated with the Fund’s leverage.
There were no tender offers for the period ended July 31, 2021, and as such, the ARPS outstanding for each Fund as of July 31, 2021 remains consistent with those amounts presented in the funds’ Annual Report to Shareholders dated July 31, 2020.
15. 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.
The foregoing speaks only as of the date of this report.
16. 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.
A Fund may be subject to local withholding taxes, including those imposed on realized capital gains. Any applicable foreign capital gains tax is accrued daily based upon net unrealized gains, and may be payable following the sale of any applicable investments.
In accordance with U.S. GAAP, the Manager has reviewed the Funds’ tax positions for all open tax years. As of July 31, 2021, 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.
The Funds file U.S. federal, state, and local tax returns as required. The Funds’ tax returns are subject to examination by relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.
| 124 | PIMCO CLOSED-END FUNDS |
| July 31, 2021 |
As of July 31, 2021, the components of distributable taxable earnings are as follows (amounts in thousands†):
| Undistributed Ordinary Income(1) |
Undistributed Long-Term Capital Gains |
Net Tax Basis Unrealized Appreciation/ (Depreciation)(2) |
Other Book-to-Tax Accounting Differences(3) |
Accumulated Capital Losses(4) |
Qualified Late-Year Loss Deferral- Capital(5) |
Qualified Late-Year Loss Deferral- Ordinary(6) |
Total Components of Distributable Earnings |
|||||||||||||||||||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 0 | $ | 0 | $ | 274,306 | $ | (14,838 | ) | $ | (324,423 | ) | $ | 0 | $ | (6,092 | ) | $ | (71,047 | ) | ||||||||||||||||
| PIMCO Corporate & Income Strategy Fund |
0 | 0 | 132,115 | (4,677 | ) | (136,705 | ) | 0 | (7,835 | ) | (17,102 | ) | ||||||||||||||||||||||||
| PIMCO High Income Fund |
0 | 0 | 231,398 | (6,428 | ) | (397,617 | ) | 0 | (10,441 | ) | (183,088 | ) | ||||||||||||||||||||||||
| PIMCO Income Strategy Fund |
0 | 0 | 69,134 | (3,092 | ) | (74,740 | ) | 0 | (3,672 | ) | (12,370 | ) | ||||||||||||||||||||||||
| PIMCO Income Strategy Fund II |
0 | 0 | 159,811 | (6,167 | ) | (184,724 | ) | 0 | (9,335 | ) | (40,415 | ) | ||||||||||||||||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
| (1) | Includes undistributed short-term capital gains, if any. |
| (2) | Adjusted for open wash sale loss deferrals and accelerated recognition of unrealized gain or loss on certain forward contracts for federal income tax purposes. Also adjusted for differences between book and tax realized and unrealized gain/loss on swap contracts, defaulted securities, straddle loss deferrals, hyperinflationary adjustments, partnership adjustments, Grantor Trust adjustments, Passive Foreign Investment Companies (PFICs), and Real Estate Investment Trusts (REITs). |
| (3) | Represents differences in income tax regulations and financial accounting principles generally accepted in the United States of America, mainly for distributions payable at fiscal year-end. |
| (4) | Capital losses available to offset future net capital gains expire in varying amounts in the years shown below. |
| (5) | Capital losses realized during the period November 1, 2020 through July 31, 2021 which the Funds elected to defer to the following taxable year pursuant to income tax regulations. |
| (6) | Specified losses realized during the period November 1, 2020 through July 31, 2021 and Ordinary losses realized during the period January 1, 2021 through July 31, 2021, which the Funds elected to defer to the following taxable year pursuant to income tax regulations. |
Under the Regulated Investment Company Modernization Act of 2010, a fund is permitted to carry forward any new capital losses for an unlimited period. Additionally, such capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term under previous law.
As of July 31, 2021, the Funds had the following post-effective capital losses with no expiration (amounts in thousands†):
| Short-Term | Long-Term | |||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 179,096 | $ | 145,327 | ||||||||
| PIMCO Corporate & Income Strategy Fund |
71,483 | 65,222 | ||||||||||
| PIMCO High Income Fund |
180,744 | 216,873 | ||||||||||
| PIMCO Income Strategy Fund |
41,791 | 32,949 | ||||||||||
| PIMCO Income Strategy Fund II |
102,430 | 82,294 | ||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
As of July 31, 2021, 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 |
Unrealized Appreciation |
Unrealized (Depreciation) |
Net Unrealized Appreciation/ (Depreciation)(7) |
|||||||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 2,876,076 | $ | 433,089 | $ | (157,860 | ) | $ | 275,229 | |||||||||||
| PIMCO Corporate & Income Strategy Fund |
1,022,982 | 203,428 | (70,753 | ) | 132,675 | |||||||||||||||
| PIMCO High Income Fund |
1,371,549 | 384,015 | (150,974 | ) | 233,041 | |||||||||||||||
| PIMCO Income Strategy Fund |
571,149 | 105,101 | (35,620 | ) | 69,481 | |||||||||||||||
| PIMCO Income Strategy Fund II |
1,111,287 | 233,924 | (73,490 | ) | 160,434 | |||||||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
| (7) | Primary differences, if any, between book and tax net unrealized appreciation/(depreciation) on investments are attributable to open wash sale loss deferrals, straddle loss deferrals, unrealized gain or loss on certain forward contracts, defaulted securities, swaps, partnership adjustments, Grantor Trust Adjustments, hyperinflationary adjustments, Passive Foreign Investment Companies (PFICs), and Real Estate Investment Trusts (REITs) for federal income tax purposes. |
| ANNUAL REPORT | | | JULY 31, 2021 | 125 |
| Notes to Financial Statements | (Cont.) | July 31, 2021 |
For the fiscal years ended July 31, 2021 and July 31, 2020, respectively, the Funds made the following tax basis distributions (amounts in thousands†):
| July 31, 2021 | July 31, 2020 | |||||||||||||||||||||||||||
| Ordinary Income Distributions(8) |
Long-Term Capital Gain Distributions |
Return of Capital(9) |
Ordinary Income Distributions(8) |
Long-Term Capital Gain Distributions |
Return of Capital(9) |
|||||||||||||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 133,338 | $ | 0 | $ | 36,889 | $ | 154,886 | $ | 0 | $ | 0 | ||||||||||||||||
| PIMCO Corporate & Income Strategy Fund |
54,783 | 0 | 0 | 56,500 | 0 | 0 | ||||||||||||||||||||||
| PIMCO High Income Fund |
57,530 | 0 | 19,329 | 90,357 | 0 | 4,178 | ||||||||||||||||||||||
| PIMCO Income Strategy Fund |
28,335 | 0 | 8,099 | 29,815 | 0 | 3,398 | ||||||||||||||||||||||
| PIMCO Income Strategy Fund II |
56,893 | 0 | 15,939 | 63,301 | 0 | 4,395 | ||||||||||||||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
| (8) | Includes short-term capital gains, if any, distributed. |
| (9) | A portion of the distributions made represents a tax return of capital. Return of capital distributions have been reclassified from undistributed net investment income to paid-in capital to more appropriately conform financial accounting to tax accounting. |
17. 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 August 2, 2021, the following distributions were declared to common shareholders payable September 1, 2021 to shareholders of record on August 12, 2021:
| PIMCO Corporate & Income Opportunity Fund |
$ | 0.130000 per common share | ||||||
| PIMCO Corporate & Income Strategy Fund |
$ | 0.112500 per common share | ||||||
| PIMCO High Income Fund |
$ | 0.048000 per common share | ||||||
| PIMCO Income Strategy Fund |
$ | 0.090000 per common share | ||||||
| PIMCO Income Strategy Fund II |
$ | 0.080000 per common share | ||||||
On September 1, 2021, the following distributions were declared to common shareholders payable October 1, 2021 to shareholders of record on September 13, 2021:
| PIMCO Corporate & Income Opportunity Fund |
$ | 0.118800 per common share | ||||||
| PIMCO Corporate & Income Strategy Fund |
$ | 0.112500 per common share | ||||||
| PIMCO High Income Fund |
$ | 0.048000 per common share | ||||||
| PIMCO Income Strategy Fund |
$ | 0.081400 per common share | ||||||
| PIMCO Income Strategy Fund II |
$ | 0.071800 per common share | ||||||
There were no other subsequent events identified that require recognition or disclosure.
| 126 | PIMCO CLOSED-END FUNDS |
| Report of Independent Registered Public Accounting Firm |
To the Board of Trustees and 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
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, 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 (hereafter collectively referred to as the “Funds”) as of July 31, 2021, the related statements of operations and cash flows for the year ended July 31, 2021, the statements of changes in net assets for each of the two years in the period ended July 31, 2021, including the related notes, and the financial highlights for each of the five years in the period ended July 31, 2021 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of July 31, 2021, the results of each of their operations and each of their cash flows for the year then ended, the changes in each of their net assets for each of the two years in the period ended July 31, 2021 and each of the financial highlights for each of the five years in the period ended July 31, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinions
These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2021 by correspondence with the custodian, brokers and agent banks; when replies were not received from brokers or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.
/s/ PricewaterhouseCoopers LLP
Kansas City, Missouri
September 24, 2021
We have served as the auditor of one or more investment companies in PIMCO Taxable Closed-End Funds since 1995.
| ANNUAL REPORT | | | JULY 31, 2021 | 127 |
| Glossary: | (abbreviations that may be used in the preceding statements) | (Unaudited) |
| Counterparty Abbreviations: |
||||||||||
| BOA | Bank of America N.A. |
DUB | Deutsche Bank AG |
MEI | Merrill Lynch International | |||||
| BOS | BofA Securities, Inc. |
FBF | Credit Suisse International |
MYC | Morgan Stanley Capital Services LLC | |||||
| BPS | BNP Paribas S.A. |
FICC | Fixed Income Clearing Corporation |
MYI | Morgan Stanley & Co. International PLC | |||||
| BRC | Barclays Bank PLC |
FOB | Credit Suisse Securities (USA) LLC |
NOM | Nomura Securities International Inc. | |||||
| BYR | The Bank of Nova Scotia - Toronto |
GLM | Goldman Sachs Bank USA |
SCX | Standard Chartered Bank, London | |||||
| CBK | Citibank N.A. |
GST | Goldman Sachs International |
SOG | Societe Generale Paris | |||||
| CDC | Natixis Securities Americas LLC |
HUS | HSBC Bank USA N.A. |
SSB | State Street Bank and Trust Co. | |||||
| CEW | Canadian Imperial Bank of Commerce |
IND | Crédit Agricole Corporate and Investment Bank S.A. |
TDM | TD Securities (USA) LLC | |||||
| CIB | Canadian Imperial Bank of Commerce |
JML | JP Morgan Securities Plc |
UAG | UBS AG Stamford | |||||
| CIW | CIBC World Markets Corp. |
JPM | JP Morgan Chase Bank N.A. |
UBS | UBS Securities LLC | |||||
| Currency Abbreviations: |
||||||||||
| ARS | Argentine Peso |
CZK | Czech Koruna |
NOK | Norwegian Krone | |||||
| AUD | Australian Dollar |
EUR | Euro |
PEN | Peruvian New Sol | |||||
| BRL | Brazilian Real |
GBP | British Pound |
RUB | Russian Ruble | |||||
| CAD | Canadian Dollar |
HUF | Hungarian Forint |
SEK | Swedish Krona | |||||
| CHF | Swiss Franc |
IDR | Indonesian Rupiah |
TRY | Turkish New Lira | |||||
| CLP | Chilean Peso |
INR | Indian Rupee |
USD (or $) | United States Dollar | |||||
| CNH | Chinese Renminbi (Offshore) |
MXN | Mexican Peso |
ZAR | South African Rand | |||||
| Exchange Abbreviations: |
||||||||||
| OTC | Over the Counter |
|||||||||
| Index/Spread Abbreviations: |
||||||||||
| ABX.HE | Asset-Backed Securities Index - Home Equity |
CDX.IG | Credit Derivatives Index - Investment Grade |
PRIME | Daily US Prime Rate | |||||
| BADLARPP | Argentina Badlar Floating Rate Notes |
EUR003M | 3 Month EUR Swap Rate |
SONIO | Sterling Overnight Interbank Average Rate | |||||
| BP0003M | 3 Month GBP-LIBOR |
LIBOR03M | 3 Month USD-LIBOR |
US0003M | ICE 3-Month USD LIBOR | |||||
| CDX.HY | Credit Derivatives Index - High Yield |
|||||||||
| Municipal Bond or Agency Abbreviations: |
||||||||||
| AGM | Assured Guaranty Municipal |
|||||||||
| Other Abbreviations: |
||||||||||
| ABS | Asset-Backed Security |
CLO | Collateralized Loan Obligation |
PIK | Payment-in-Kind | |||||
| ALT | Alternate Loan Trust |
DAC | Designated Activity Company |
PRIBOR | Prague Interbank Offered Rate | |||||
| BABs | Build America Bonds |
EBITDA | Earnings before Interest, Taxes, Depreciation and Amoritization |
TBA | To-Be-Announced | |||||
| BBR | Bank Bill Rate |
EURIBOR | Euro Interbank Offered Rate |
TBD |
To-Be-Determined | |||||
| BBSW | Bank Bill Swap Reference Rate |
LIBOR | London Interbank Offered Rate |
TBD% | Interest rate to be determined when loan settles or at the time of funding | |||||
| CDI | Brazil Interbank Deposit Rate |
Lunar | Monthly payment based on 28-day periods. One year consists of 13 periods. |
TIIE | Tasa de Interés Interbancaria de Equilibrio “Equilibrium Interbank Interest Rate” | |||||
| CDO | Collateralized Debt Obligation |
OIS | Overnight Index Swap |
|||||||
| 128 | PIMCO CLOSED-END FUNDS |
| Federal Income Tax Information | (Unaudited) |
As required by the Internal Revenue Code (“Code”) and Treasury Regulations, if applicable, shareholders must be notified within 60 days of the Funds’ fiscal year end regarding the status of qualified dividend income and the dividend received deduction.
Dividend Received Deduction. Corporate shareholders are generally entitled to take the dividend received deduction on the portion of a Fund’s dividend distribution that qualifies under tax law. The percentage of the following Funds’ Fiscal 2021 ordinary income dividend that qualifies for the corporate dividend received deduction is set forth below:
Qualified Dividend Income. Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the following percentage of ordinary dividends paid during the calendar year was designated as “qualified dividend income”, as defined in the Jobs and Growth Tax Relief Reconciliation Act of 2003 subject to reduced tax rates in 2021:
Qualified Interest Income and Qualified Short-Term Capital Gain (for non-U.S. resident shareholders only). Under the American Jobs Creation Act of 2004, the following amounts of ordinary dividends paid during the fiscal year ended July 31, 2021 are considered to be derived from “qualified interest income,” as defined in Section 871(k)(1)(E) of the Code, and therefore are designated as interest-related dividends, as defined in Section 871(k)(1)(C) of the Code. Further, the following amounts of ordinary dividends paid during the fiscal year ended July 31, 2021 are considered to be derived from “qualified short-term capital gain,” as defined in Section 871(k)(2)(D) of the Code, and therefore are designated as qualified short-term gain dividends, as defined by Section 871(k)(2)(C) of the Code.
| Dividend Received Deduction % |
Qualified Dividend Income % |
Qualified Interest Income (000s† ) |
Qualified Short-Term Capital Gain (000s†) |
|||||||||||||||||
| PIMCO Corporate & Income Opportunity Fund |
0.00% | 0.00% | $ | 130,605 | $ | 0 | ||||||||||||||
| PIMCO Corporate & Income Strategy Fund |
0.00% | 0.00% | 54,783 | 0 | ||||||||||||||||
| PIMCO High Income Fund |
0.00% | 0.00% | 57,530 | 0 | ||||||||||||||||
| PIMCO Income Strategy Fund |
0.00% | 0.00% | 28,335 | 0 | ||||||||||||||||
| PIMCO Income Strategy Fund II |
0.00% | 0.00% | 56,893 | 0 | ||||||||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
Shareholders are advised to consult their own tax advisor with respect to the tax consequences of their investment in the Trust. In January 2022, you will be advised on IRS Form 1099-DIV as to the federal tax status of the dividends and distributions received by you in calendar year 2021.
Section 163(j) Interest Dividends. The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Proposed Treasury Section 1.163(j)-1(b). The 163(j) percentage of ordinary income distributions are as follows:
| 163 (j) Interest Dividends % |
||||||||
| PIMCO Corporate & Income Opportunity Fund |
0% | |||||||
| PIMCO Corporate & Income Strategy Fund |
0% | |||||||
| PIMCO High Income Fund |
0% | |||||||
| PIMCO Income Strategy Fund |
0% | |||||||
| PIMCO Income Strategy Fund II |
0% | |||||||
Section 199A Dividends. Non-corporate fund shareholders of the funds below meeting certain holding period requirements may be able to deduct up to 20 percent of qualified REIT dividends passed through and reported to the shareholders by the fund as Section 199A dividends. The Section 199A percentage of ordinary dividends are as follows:
| 199A Dividends % |
||||||||
| PIMCO Corporate & Income Opportunity Fund |
96.96% | |||||||
| PIMCO Corporate & Income Strategy Fund |
57.45% | |||||||
| PIMCO High Income Fund |
32.73% | |||||||
| PIMCO Income Strategy Fund |
58.45% | |||||||
| PIMCO Income Strategy Fund II |
57.54% | |||||||
| ANNUAL REPORT | | | JULY 31, 2021 | 129 |
| Distribution Information | (Unaudited) |
For purposes of Section 19 of the Investment Company Act of 1940 (the “Act”), the Fund estimated the periodic sources of any dividends paid during the period covered by this report in accordance with good accounting practice. Pursuant to Rule 19a-1(e) under the Act, the table below sets forth the actual source information for dividends paid during the six month period ended July 31, 2021 calculated as of the end of each distribution period pursuant to Section 19 of the Act. The information below is not provided for U.S. federal income tax reporting purposes. The tax character of all dividends and distributions is reported on Form 1099-DIV (for shareholders who receive U.S. federal tax reporting) at the end of each calendar year.
See the Financial Highlights section of this report for the tax characterization of distributions determined in accordance with federal income tax regulations for the fiscal year.
| PIMCO Corporate & Income Opp Fund | Net Investment Income* |
Net Realized Capital Gains* |
Paid-in Surplus or Other Capital Sources** |
Total (per common share) |
||||||||||||||||
| February 2021 |
$ | 0.1082 | $ | 0.0000 | $ | 0.0218 | $ | 0.1300 | ||||||||||||
| March 2021 |
$ | 0.1154 | $ | 0.0000 | $ | 0.0146 | $ | 0.1300 | ||||||||||||
| April 2021 |
$ | 0.1300 | $ | 0.0000 | $ | 0.0000 | $ | 0.1300 | ||||||||||||
| May 2021 |
$ | 0.1063 | $ | 0.0000 | $ | 0.0237 | $ | 0.1300 | ||||||||||||
| June 2021 |
$ | 0.1300 | $ | 0.0000 | $ | 0.0000 | $ | 0.1300 | ||||||||||||
| July 2021 |
$ | 0.1300 | $ | 0.0000 | $ | 0.0000 | $ | 0.1300 | ||||||||||||
| PIMCO Corporate & Income Strategy Fund | Net Investment Income* |
Net Realized Capital Gains* |
Paid-in Surplus or Other Capital Sources** |
Total (per common share) |
||||||||||||||||
| February 2021 |
$ | 0.1125 | $ | 0.0000 | $ | 0.0000 | $ | 0.1125 | ||||||||||||
| March 2021 |
$ | 0.1125 | $ | 0.0000 | $ | 0.0000 | $ | 0.1125 | ||||||||||||
| April 2021 |
$ | 0.1125 | $ | 0.0000 | $ | 0.0000 | $ | 0.1125 | ||||||||||||
| May 2021 |
$ | 0.1125 | $ | 0.0000 | $ | 0.0000 | $ | 0.1125 | ||||||||||||
| June 2021 |
$ | 0.1125 | $ | 0.0000 | $ | 0.0000 | $ | 0.1125 | ||||||||||||
| July 2021 |
$ | 0.1125 | $ | 0.0000 | $ | 0.0000 | $ | 0.1125 | ||||||||||||
| PIMCO High Income Fund | Net Investment Income* |
Net Realized Capital Gains* |
Paid-in Surplus or Other Capital Sources** |
Total (per common share) |
||||||||||||||||
| February 2021 |
$ | 0.0480 | $ | 0.0000 | $ | 0.0000 | $ | 0.0480 | ||||||||||||
| March 2021 |
$ | 0.0480 | $ | 0.0000 | $ | 0.0000 | $ | 0.0480 | ||||||||||||
| April 2021 |
$ | 0.0480 | $ | 0.0000 | $ | 0.0000 | $ | 0.0480 | ||||||||||||
| May 2021 |
$ | 0.0480 | $ | 0.0000 | $ | 0.0000 | $ | 0.0480 | ||||||||||||
| June 2021 |
$ | 0.0480 | $ | 0.0000 | $ | 0.0000 | $ | 0.0480 | ||||||||||||
| July 2021 |
$ | 0.0480 | $ | 0.0000 | $ | 0.0000 | $ | 0.0480 | ||||||||||||
| PIMCO Income Strategy Fund | Net Investment Income* |
Net Realized Capital Gains* |
Paid-in Surplus or Other Capital Sources** |
Total (per common share) |
||||||||||||||||
| February 2021 |
$ | 0.0732 | $ | 0.0000 | $ | 0.0168 | $ | 0.0900 | ||||||||||||
| March 2021 |
$ | 0.0798 | $ | 0.0000 | $ | 0.0102 | $ | 0.0900 | ||||||||||||
| April 2021 |
$ | 0.0869 | $ | 0.0000 | $ | 0.0031 | $ | 0.0900 | ||||||||||||
| May 2021 |
$ | 0.0732 | $ | 0.0000 | $ | 0.0168 | $ | 0.0900 | ||||||||||||
| June 2021 |
$ | 0.0900 | $ | 0.0000 | $ | 0.0000 | $ | 0.0900 | ||||||||||||
| July 2021 |
$ | 0.0900 | $ | 0.0000 | $ | 0.0000 | $ | 0.0900 | ||||||||||||
| PIMCO Income Strategy Fund II | Net Investment Income* |
Net Realized Capital Gains* |
Paid-in Surplus or Other Capital Sources** |
Total (per common share) |
||||||||||||||||
| February 2021 |
$ | 0.0679 | $ | 0.0000 | $ | 0.0121 | $ | 0.0800 | ||||||||||||
| March 2021 |
$ | 0.0753 | $ | 0.0000 | $ | 0.0047 | $ | 0.0800 | ||||||||||||
| April 2021 |
$ | 0.0737 | $ | 0.0000 | $ | 0.0063 | $ | 0.0800 | ||||||||||||
| May 2021 |
$ | 0.0761 | $ | 0.0000 | $ | 0.0039 | $ | 0.0800 | ||||||||||||
| June 2021 |
$ | 0.0800 | $ | 0.0000 | $ | 0.0000 | $ | 0.0800 | ||||||||||||
| July 2021 |
$ | 0.0770 | $ | 0.0000 | $ | 0.0030 | $ | 0.0800 | ||||||||||||
| * | The source of dividends provided in the table differs, in some respects, from information presented in this report prepared in accordance with generally accepted accounting principles, or U.S. GAAP. For example, net earnings from certain interest rate swap contracts are included as a source of net investment income for purposes of Section 19(a). Accordingly, the information in the table may differ from information in the accompanying financial statements that are presented on the basis of U.S. GAAP and may differ from tax information presented in the footnotes. Amounts shown may include accumulated, as well as fiscal period net income and net profits. |
| ** | Occurs when a fund distributes an amount greater than its accumulated net income and net profits. Amounts are not reflective of a fund’s net income, yield, earnings or investment performance. |
| 130 | PIMCO CLOSED-END FUNDS |
| Shareholder Meeting Results | (Unaudited) |
PIMCO Corporate & Income Opportunity Fund and PIMCO Corporate & Income Strategy Fund held their annual meetings of shareholders on April 26, 2021. Shareholders voted as indicated below:
PIMCO Corporate & Income Opportunity Fund
Common Shareholders voted as indicated below:
| Affirmative | Withheld Authority |
|||||||||||
| Re-election of Deborah A. DeCotis — Class III to serve until the annual meeting held during the 2024 fiscal year |
72,699,234 | 1,523,593 | ||||||||||
| Re-election of Hans W. Kertess — Class III to serve until the annual meeting held during the 2024 fiscal year |
71,818,314 | 2,404,513 | ||||||||||
| Re-election of Joseph B. Kittredge, Jr. — Class III to serve until the annual meeting held during the 2024 fiscal year |
72,723,607 | 1,499,220 | ||||||||||
The other members of the Board of Trustees at the time of the meeting, namely, Ms. Sarah E. Cogan and Messrs. David N. Fisher, John C. Maney, William B. Ogden, IV and Alan Rappaport continued to serve as Trustees of the Fund.
PIMCO Corporate & Income Strategy Fund
Common Shareholders voted as indicated below:
| Affirmative | Withheld Authority |
|||||||||||
| Re-election of Hans W. Kertess — Class I to serve until the annual meeting held during the 2024 fiscal year |
28,066,903 | 1,458,137 | ||||||||||
| Re-election of Joseph B. Kittredge, Jr.* — Class I to serve until the annual meeting held during the 2024 fiscal year |
420 | 505 | ||||||||||
The other members of the Board of Trustees at the time of the meeting, namely, Mses. Deborah A. DeCotis and Sarah E. Cogan and Messrs. David N. Fisher, John C. Maney, William B. Ogden, IV and Alan Rappaport continued to serve as Trustees of the Fund.
| * | Preferred Shares Trustee |
PIMCO High Income Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II held their annual meetings of shareholders on June 28, 2021. Shareholders voted as indicated below:
PIMCO High Income Fund
Common Shareholders voted as indicated below:
| Affirmative | Withheld Authority |
|||||||||||
| Re-election of Deborah A. DeCotis — Class III to serve until the annual meeting held during the 2024 fiscal year |
83,276,173 | 3,491,716 | ||||||||||
| Re-election of Hans W. Kertess — Class III to serve until the annual meeting held during the 2024 fiscal year |
83,055,072 | 3,712,817 | ||||||||||
| Re-election of Joseph B. Kittredge, Jr. — Class III to serve until the annual meeting held during the 2024 fiscal year |
83,577,672 | 3,190,217 | ||||||||||
The other members of the Board of Trustees at the time of the meeting, namely, Ms. Sarah E. Cogan and Messrs. David N. Fisher, John C. Maney, William B. Ogden, IV and Alan Rappaport continued to serve as Trustees of the Fund.
PIMCO Income Strategy Fund
Common Shareholders voted as indicated below:
| Affirmative | Withheld Authority |
|||||||||||
| Re-election of John C. Maney† — Class II to serve until the annual meeting held during the 2024 fiscal year |
23,946,323 | 474,186 | ||||||||||
| Re-election of Alan Rappaport* — Class II to serve until the annual meeting held during the 2024 fiscal year |
16 | 357 | ||||||||||
The other members of the Board of Trustees at the time of the meeting, namely, Mses. Deborah A. DeCotis and Sarah E. Cogan and Messrs. David N. Fisher, Hans W. Kertess, Joseph B. Kittredge, Jr. and William B. Ogden, IV continued to serve as Trustees of the Fund.
| † | Interested Trustee |
| * | Preferred Shares Trustee |
| ANNUAL REPORT | | | JULY 31, 2021 | 131 |
| Shareholder Meeting Results | (Cont.) | (Unaudited) |
PIMCO Income Strategy Fund II
Common Shareholders voted as indicated below:
| Affirmative | Withheld Authority |
|||||||||||
| Re-election of David N. Fisher† — Class I to serve until the annual meeting held during the 2024 fiscal year |
53,877,515 | 1,066,585 | ||||||||||
| Re-election of William B. Ogden, IV — Class I to serve until the annual meeting held during the 2024 fiscal year |
53,520,039 | 1,424,061 | ||||||||||
| Re-election of Alan Rappaport* — Class I to serve until the annual meeting held during the 2024 fiscal year |
17 | 1,453 | ||||||||||
The other members of the Board of Trustees at the time of the meeting, namely, Mses. Deborah A. DeCotis and Sarah E. Cogan and Messrs. Hans W. Kertess, Joseph B. Kittredge, Jr. and John C. Maney continued to serve as Trustees of the Fund.
| † | Interested Trustee |
| * | Preferred Shares Trustee |
| 132 | PIMCO CLOSED-END FUNDS |
| Changes to Boards of Trustees | (Unaudited) |
Effective June 29, 2021, the Board of Trustees appointed Ms. E. Grace Vandecruze to the Board as a Class I Trustee of PIMCO Corporate & Income Strategy Fund, Class II Trustee of PIMCO Corporate & Income Opportunity Fund, PIMCO Income Strategy Fund and PIMCO High Income Fund; and a Class II Trustee of PIMCO Income Strategy Fund II.
Effective December 31, 2020, James A. Jacobson resigned from his position as Trustee of each Fund.
| ANNUAL REPORT | | | JULY 31, 2021 | 133 |
| Changes to Bylaws | (Unaudited) |
There have been no changes to PIMCO Corporate & Income Opportunity Fund Bylaws.
Effective March 18, 2021, PIMCO Corporate & Income Strategy Fund adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.
Effective March 18, 2021, PIMCO High Income Fund adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.
Effective March 18, 2021, PIMCO Income Strategy Fund adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.
Effective March 18, 2021, PIMCO Income Strategy Fund II adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.
| 134 | PIMCO CLOSED-END FUNDS |
| Dividend Reinvestment Plan | (Unaudited) |
Each Fund has adopted a Dividend Reinvestment Plan (the “Plan”) which allows common shareholders to reinvest Fund distributions in additional common shares of the Fund. American Stock Transfer & Trust Company, LLC (the “Plan Agent”) serves as agent for common shareholders in administering the Plan. It is important to note that participation in the Plan and automatic reinvestment of Fund distributions does not ensure a profit, nor does it protect against losses in a declining market.
Automatic enrollment/voluntary participation Under the Plan, common shareholders whose shares are registered with the Plan Agent (“registered shareholders”) are automatically enrolled as participants in the Plan and will have all Fund distributions of income, capital gains and returns of capital (together, “distributions”) reinvested by the Plan Agent in additional common shares of a Fund, unless the shareholder elects to receive cash. Registered shareholders who elect not to participate in the Plan will receive all distributions in cash paid by check and mailed directly to the shareholder of record (or if the shares are held in street or other nominee name, to the nominee) by the Plan Agent. Participation in the Plan is voluntary. Participants may terminate or resume their enrollment in the Plan at any time without penalty by notifying the Plan Agent online at www.astfinancial.com, by calling (844) 33-PIMCO, by writing to the Plan Agent, American Stock Transfer & Trust Company, LLC, at P.O. Box 922, Wall Street Station, New York, NY 10269-0560, or, as applicable, by completing and returning the transaction form attached to a Plan statement. A proper notification will be effective immediately and apply to each Fund’s next distribution if received by the Plan Agent at least three (3) days prior to the record date for the distribution; otherwise, a notification will be effective shortly following the Fund’s next distribution and will apply to the Fund’s next succeeding distribution thereafter. If you withdraw from the Plan and so request, the Plan Agent will arrange for the sale of your shares and send you the proceeds, minus a transaction fee and brokerage commissions.
How shares are purchased under the Plan For each Fund distribution, the Plan Agent will acquire common shares for participants either (i) through receipt of newly issued common shares from each Fund (“newly issued shares”) or (ii) by purchasing common shares of the Fund on the open market (“open market purchases”). If, on a distribution payment date, the net asset value per common share of a Fund (“NAV”) is equal to or less than the market price per common share plus estimated brokerage commissions (often referred to as a “market premium”), the Plan Agent will invest the distribution amount on behalf of participants in newly issued shares at a price equal to the greater of (i) NAV or (ii) 95% of the market price per common share on the payment date. If the NAV is greater than the
market price per common shares plus estimated brokerage commissions (often referred to as a “market discount”) on a distribution payment date, the Plan agent will instead attempt to invest the distribution amount through open market purchases. If the Plan Agent is unable to invest the full distribution amount in open market purchases, or if the market discount shifts to a market premium during the purchase period, the Plan Agent will invest any un-invested portion of the distribution in newly issued shares at a price equal to the greater of (i) NAV or (ii) 95% of the market price per share as of the last business day immediately prior to the purchase date (which, in either case, may be a price greater or lesser than the NAV per common shares on the distribution payment date). No interest will be paid on distributions awaiting reinvestment. Under the Plan, the market price of common shares on a particular date is the last sales price on the exchange where the shares are listed on that date or, if there is no sale on the exchange on that date, the mean between the closing bid and asked quotations for the shares on the exchange on that date.
The NAV per common share on a particular date is the amount calculated on that date (normally at the close of regular trading on the New York Stock Exchange) in accordance with each Fund’s then current policies.
Fees and expenses No brokerage charges are imposed on reinvestments in newly issued shares under the Plan. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. There are currently no direct service charges imposed on participants in the Plan, although each Fund reserves the right to amend the Plan to include such charges. The Plan Agent imposes a transaction fee (in addition to brokerage commissions that are incurred) if it arranges for the sale of your common shares held under the Plan.
Shares held through nominees In the case of a registered shareholder such as a broker, bank or other nominee (together, a “nominee”) that holds common shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of common shares certified by the nominee/record shareholder as representing the total amount registered in such shareholder’s name and held for the account of beneficial owners who are to participate in the Plan. If your common shares are held through a nominee and are not registered with the Plan Agent, neither you nor the nominee will be participants in or have distributions reinvested under the Plan. If you are a beneficial owner of common shares and wish to participate in the Plan, and your nominee is unable or unwilling to become a registered shareholder and a Plan participant on your behalf, you may request that your nominee arrange to have all or a portion of your shares re-registered with the Plan Agent in your
| ANNUAL REPORT | | | JULY 31, 2021 | 135 |
| Dividend Reinvestment Plan | (Cont.) | (Unaudited) |
name so that you may be enrolled as a participant in the Plan. Please contact your nominee for details or for other possible alternatives. Participants whose shares are registered with the Plan Agent in the name of one nominee firm may not be able to transfer the shares to another firm and continue to participate in the Plan.
Tax consequences Automatically reinvested dividends and distributions are taxed in the same manner as cash dividends and distributions — i.e., automatic reinvestment in additional shares does not relieve shareholders of, or defer the need to pay, any income tax that may be payable (or that is required to be withheld) on Fund dividends and distributions. The Funds and the Plan Agent reserve the right to amend or terminate the Plan. Additional information about the Plan, as well as a copy of the full Plan itself, may be obtained from the Plan Agent, American Stock Transfer & Trust Company, LLC, at P.O. Box 922, Wall Street Station, New York, NY 10269-0560; telephone number: (844) 33-PIMCO; www.astfinancial.com.
| 136 | PIMCO CLOSED-END FUNDS |
| Additional Information Regarding the Funds | (Unaudited) |
CHANGES OCCURRING DURING THE REPORTING PERIOD
The following information in this annual report is a summary of certain changes during the period since the Funds’ last annual reports to shareholders were filed. This information may not reflect all of the changes that have occurred since you purchased shares of a Fund.
| 1. | Each Fund may invest in risk retention instruments. Related disclosure has been added to each Fund’s principal investment strategies and principal risks. Please see below for further details: |
With respect to investments in the lowest, first-loss tranch(es) of a commercial mortgage-backed securities (“CMBS”) or other eligible securitizations, the Fund may invest in risk retention tranches (“risk retention tranches”), which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act (the “U.S. Risk Retention Rules”). In the case of CMBS transactions, for example, the U.S. Risk Retention Rules permit all or a portion of the retained credit risk associated with certain securitizations (i.e., retained risk) to be held by an unaffiliated “third party purchaser,” such as the Fund, if, among other requirements, the third-party purchaser holds its retained interest, unhedged, for at least five year following the closing of the CMBS transaction, after which it is entitled to transfer its interest in the securitization to another person that meets the requirements for a third-party purchaser. Even after the required holding period has expired, due to the generally illiquid nature of such investments, no assurance can be given as to what, if any, exit strategies will ultimately be available for any given position.
In addition, there is limited guidance on the application of the Final U.S. Risk Retention Rules to specific securitization structures. There can be no assurance that the applicable federal agencies charged with the implementation of the Final U.S. Risk Retention Rules (the FDIC, the Comptroller of the Currency, the Federal Reserve Board, the SEC, the Department of Housing and Urban Development, and the Federal Housing Finance Agency) could not take positions in the future that differ from the interpretation of such rules taken or embodied in such securitizations, or that the Final U.S. Risk Retention Rules will not change.
Furthermore, in situations where the Fund invests in risk retention tranches of securitizations structured by third parties, the Fund may be required to execute one or more letters or other agreements, the exact form and nature of which will vary (each, a “Risk Retention Agreement”) under which it will make certain undertakings designed to ensure such securitization complies with the Final U.S. Risk Retention Rules. Such Risk Retention Agreements may include a variety of representations, warranties, covenants and other indemnities, each of which may run to various transaction parties. If the Fund breaches any undertakings in any Risk Retention Agreement, it will be exposed to claims by the other parties thereto, including for any losses incurred as a result of such breach.
| 2. | Disclosure with respect to the Funds has been updated to clarify the ability of the each Fund to invest in “covenant-lite” obligations, and “Covenant-Lite” Obligations Risk has been added as a principal risk of PIMCO Corporate & Income Opportunity Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II. |
| 3. | The following principal risk disclosure has been added with respect to the Funds: |
Subsidiary Risk To the extent the Fund invests through one or more of its subsidiaries, the Fund would be exposed to the risks associated with such subsidiary’s investments. Such subsidiaries would likely not be registered as investment companies under the Act and therefore would not be subject to all of the investor protections of the Act. Changes in the laws of the United States and/or the jurisdiction in which a subsidiary is organized could result in the inability of the Fund and/or the subsidiary to operate as intended and could adversely affect the Fund.
Special Purpose Acquisition Companies (“SPACs”) Risk The Fund may invest in stock, warrants, debt and other securities of SPACs or similar special purpose entities that pool funds to seek potential acquisition opportunities. Unless and until an acquisition is completed, a SPAC generally invests its assets (less a portion retained to cover expenses) in US government securities, money market securities or holds cash; if an acquisition that meets the requirements for the SPAC is not completed within a pre-established period of time, the invested funds are returned to the entity’s shareholders. Because SPACs and similar entities are in essence blank check companies without operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the ability of the entity’s management to identify and complete a profitable acquisition. A SPAC’s structure may result in significant dilution of a stockholder’s share value immediately upon the completion of a business combination due to, among other reasons, interests held by the SPAC sponsor, conversion of warrants into additional shares, shares issued in connection with a business combination and/or certain embedded costs. There is no guarantee that the SPACs in which the Fund invests will complete an acquisition or that any acquisitions that are completed will be profitable. Some SPACs may pursue acquisitions only within certain industries or regions, which may increase the volatility of their prices. In addition, these securities, which are typically traded in the over-the-counter market, may be considered illiquid and/or be subject to restrictions on resale.
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| Additional Information Regarding the Funds | (Cont.) | (Unaudited) |
The Funds do not believe that there are any material unresolved written comments, received 180 days or more before July 31, 2021 from the Staff of the SEC regarding any of the Funds’ periodic or current reports under the Securities Exchange Act or the Investment Company Act, or their
registration statements.
Portfolio Transactions
The aggregate amounts of brokerage commissions paid by the Funds during the fiscal year ended July 31, 2021 were as follows (amounts in thousands†)
| Fund Name | Total Commissions Paid | Commissions Paid to Affiliated Brokers |
||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 14 | $ | 0 | ||||||||
| PIMCO Corporate & Income Strategy Fund |
2 | 0 | ||||||||||
| PIMCO Income Strategy Fund |
1 | 0 | ||||||||||
| PIMCO Income Strategy Fund II |
4 | 0 | ||||||||||
| † | A zero balance may reflect actual amounts rounding to less than one thousand. |
| 138 | PIMCO CLOSED-END FUNDS |
| Principal Investment Strategies1 | (Unaudited) |
The term “invest” includes both direct investing and indirect investing and the term “investments” includes both direct investments and indirect investments. For example, a Fund may invest indirectly by investing in derivatives or through wholly-owned and/or controlled subsidiaries (“Subsidiaries”), if applicable. The allocation of a Fund’s assets to a Subsidiary, if applicable, will vary over time and will likely not include all of the different types of investments described herein at any given time.
PIMCO Corporate & Income Opportunity Fund
The Fund seeks to achieve its investment objective by utilizing a dynamic asset allocation strategy among multiple fixed income sectors in the global credit markets, including corporate debt (including, among other things, fixed-, variable- and floating-rate bonds, bank loans, convertible securities and stressed debt securities issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers), mortgage-related and other asset-backed securities, government and sovereign debt, taxable municipal bonds and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers, including emerging market issuers. The Fund may invest in investment grade debt securities and below investment grade debt securities (commonly referred to as “high yield” securities or “junk bonds”), including securities of stressed, distressed and defaulted issuers. The Fund cannot assure you that it will achieve its investment objective, and you could lose all of your investment in the Fund.
Portfolio Management Strategies
Dynamic Allocation Strategy. In managing the Fund, the Fund’s investment manager, Pacific Investment Management Company LLC (“PIMCO” or the “Investment Manager”), employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.
Investment Selection Strategies. Once the Fund’s top-down, portfolio positioning decisions have been made as described above,
PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.
PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.
Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.
Credit Quality. The Fund may invest in debt instruments that are, at the time of purchase, rated below investment grade, or that are unrated but determined by PIMCO to be of comparable quality. The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P Global Ratings (“S&P”) and Fitch, Inc. (“Fitch”) and Caa1 or lower by Moody’s Investors Services Inc. (“Moody’s”), or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. The Fund may also invest up to 5% of its total assets in defaulted bonds when PIMCO believes that the issuer’s potential revenues and prospects for recovery are favorable, except that the Fund may invest in mortgage-related and other asset-backed securities without regard to this limit, subject to the Fund’s other investment policies. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at
| ANNUAL REPORT | | | JULY 31, 2021 | 139 |
| Principal Investment Strategies1 | (Cont.) |
the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.
Independent Credit Analysis. PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in high yield securities and in securities of emerging market issuers.
Duration Management. It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.
Portfolio Contents
Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets plus borrowings for investment purposes in a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. Government securities, municipal securities and mortgage-backed and other asset-backed securities issued on a public or private basis (the “80% Policy”). The Fund’s investments in derivatives and other synthetic instruments that have economic characteristics similar to corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers will be counted toward satisfaction of this 80% Policy. The Fund will normally invest at least 25% of its total assets in corporate debt obligations and other corporate income-producing securities. Corporate income-producing securities include fixed-, variable- and floating-rate bonds, debentures, notes and other similar types of corporate debt instruments, such as preferred shares, convertible securities, bank loans and loan participations and assignments, payment-in-kind securities, step-ups, zero-coupon bonds, bank capital securities, bank certificates of deposit, fixed time deposits and bankers’ acceptances, stressed debt securities, structured notes and other hybrid instruments. Certain corporate income-producing securities, such as convertible bonds, also may include the right to participate in equity appreciation, and PIMCO will generally evaluate those instruments based primarily on their debt characteristics. In satisfying the Fund’s 80% Policy, the Fund may invest in mortgage-related securities, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, adjustable rate mortgage-backed securities, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, debt instruments, including, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; catastrophe bonds and other event-linked bonds; credit-linked notes; credit-linked trust certificates; structured credit products; bank loans (including, among others, senior loans, delayed
| 140 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the investment limitations described above, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities (including collateralized bond obligations, collateralized loan obligations and other collateralized debt obligations), including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable, and may move in the opposite direction to interest rates generally or the interest rate on another security or index (i.e., inverse floaters).
The Fund may invest up to 25% of its total assets (measured at the time of investment) in non-U.S. dollar denominated securities (of both developed and “emerging market” countries), including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises. The Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.
The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency
exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales.
The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers.
The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other open- and closed-end investment companies, including, without limit, exchange-traded funds (“ETFs”), and may invest in foreign ETFs. The Fund may invest in real estate investment trusts. The Fund may invest in securities of companies with any market capitalization, including small and medium capitalizations.
The Fund may invest up to 20% of its total assets in illiquid securities (i.e., securities that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the security).
The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.
The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.
There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.
The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements.
| ANNUAL REPORT | | | JULY 31, 2021 | 141 |
| Principal Investment Strategies1 | (Cont.) |
In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s imposes asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.
Temporary defensive investments. Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment objective and policies and invest some or all of its net assets in investments of non-corporate issuers, including high quality, short-term debt securities. The Fund may not achieve its investment objective when it does so.
Use of Leverage
The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities. The amount of leverage the Fund utilizes may vary, but the Fund will not incur leverage (including Preferred Shares and other forms of leverage) in an amount exceeding 50% of its total assets.
The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.
The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.
The Fund also may borrow money for temporary administrative purposes, to add leverage to the portfolio or for the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.
PIMCO Corporate & Income Strategy Fund
The Fund seeks to achieve its investment objectives by utilizing a dynamic asset allocation strategy among multiple fixed income sectors
in the global credit markets, including corporate debt (including, among other things, fixed-, variable- and floating-rate bonds, bank loans, convertible securities and stressed debt securities issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers), mortgage-related and other asset-backed securities, government and sovereign debt, taxable municipal bonds and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers, including emerging market issuers. The Fund may invest in investment grade debt securities and below investment grade debt securities (commonly referred to as “high yield” securities or “junk bonds”), including securities of stressed, distressed and defaulted issuers. The Fund cannot assure you that it will achieve its investment objectives, and you could lose all of your investment in the Fund.
Portfolio Management Strategies
Dynamic Allocation Strategy. In managing the Fund, the Fund’s investment manager, PIMCO employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. For example, subject to the Fund’s investment policies and limitations, the Fund may invest a substantial portion of its total assets in mortgage-related and other asset-backed securities, which investments PIMCO may choose to increase or decrease, or eliminate entirely, over time and from time to time. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.
Investment Selection Strategies. Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.
PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit
| 142 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.
Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.
Credit Quality. The Fund may invest in debt instruments that are, at the time of purchase, rated below investment grade, or that are unrated but determined by PIMCO to be of comparable quality. The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. The Fund may also invest up to 5% of its total assets in defaulted bonds when PIMCO believes that the issuer’s potential revenues and prospects for recovery are favorable, except that the Fund may invest in mortgage-related and other asset-backed securities without regard to this limit, subject to the Fund’s other investment policies. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging
purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.
Independent Credit Analysis. PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in high yield securities and in securities of emerging market issuers.
Duration Management. It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.
Portfolio Contents
Under normal market conditions, the Fund seeks to achieve its investment objectives by investing at least 80% of its net assets plus borrowings for investment purposes in a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. Government securities, municipal securities and mortgage-backed and other asset-backed securities issued on a public or private basis (the “80% Policy”). The Fund’s investments in derivatives and other synthetic instruments that have economic characteristics similar to corporate debt obligations of
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| Principal Investment Strategies1 | (Cont.) |
varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers will be counted toward satisfaction of this 80% Policy. The Fund will normally invest at least 25% of its total assets in corporate debt obligations and other corporate income-producing securities. Corporate income-producing securities include fixed-, variable- and floating-rate bonds, debentures, notes and other similar types of corporate debt instruments, such as preferred shares, convertible securities, bank loans and loan participations and assignments, payment-in-kind securities, step-ups, zero-coupon bonds, bank capital securities, bank certificates of deposit, fixed time deposits and bankers’ acceptances, stressed debt securities, structured notes and other hybrid instruments. Certain corporate income-producing securities, such as convertible bonds, also may include the right to participate in equity appreciation, and PIMCO will generally evaluate those instruments based primarily on their debt characteristics. In satisfying the Fund’s 80% Policy, the Fund may invest in mortgage-related securities, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, adjustable rate mortgage-backed securities, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, debt instruments, including, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; catastrophe bonds and other event-linked bonds; credit-linked notes; credit-linked trust certificates; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the investment limitations described above, at any given time and from time to time, substantially all of the Fund’s portfolio
may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities (including collateralized bond obligations, collateralized loan obligations and other collateralized debt obligations), including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable, and may move in the opposite direction to interest rates generally or the interest rate on another security or index (i.e., inverse floaters).
The Fund may invest up to 25% of its total assets (measured at the time of investment) in non-U.S. dollar denominated securities (of both developed and “emerging market” countries), including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises. The Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.
The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales.
The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security.
| 144 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
Common stocks include common shares and other common equity interest issued by public or private issuers.
The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other open- and closed-end investment companies, including, without limit, exchange-traded funds (“ETFs”), and may invest in foreign ETFs. The Fund may invest in real estate investment trusts. The Fund may invest in securities of companies with any market capitalization, including small and medium capitalizations.
The Fund may invest up to 15% of its total assets in illiquid investments (i.e., investments that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the security).
The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.
The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.
The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objectives, particularly during periods of volatile market movements.
There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.
In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.
Temporary defensive investments. Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment objectives and policies and invest some or all of its net assets in investments of
non-corporate issuers, including high quality, short-term debt securities. The Fund may not achieve its investment objectives when it does so.
Use of Leverage
The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities. The amount of leverage the Fund utilizes may vary but total leverage resulting from the issuance of Preferred Shares and senior securities representing indebtedness of the Fund will not exceed 50% of the Fund’s total assets less all liabilities and indebtedness not represented by senior securities.
The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.
The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.
The Fund also may borrow money for temporary administrative purposes, to add leverage to the portfolio or for the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.
PIMCO High Income Fund
The Fund seeks to achieve its investment objectives by utilizing a dynamic asset allocation strategy among multiple fixed income sectors in the global credit markets, which may include corporate debt (including, among other things, fixed-, variable- and floating-rate bonds, bank loans, convertible securities and stressed debt securities issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers), mortgage-related and other asset-backed securities, government and sovereign debt, taxable municipal bonds and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers, including emerging
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| Principal Investment Strategies1 | (Cont.) |
market issuers. Aiming to identify securities that provide high current income and/or capital appreciation, the Fund focuses on duration management, credit quality analysis, risk management techniques and broad diversification among issuers, industries and sectors as well as other risk management techniques designed to manage default risk. The Fund may invest in investment grade debt securities and below investment grade debt securities (commonly referred to as “high yield” securities or “junk bonds”), including securities of stressed, distressed and defaulted issuers. The Fund cannot assure you that it will achieve its investment objectives, and you could lose all of your investment in the Fund.
Portfolio Management Strategies
Dynamic Allocation Strategy. In managing the Fund, the Fund’s investment manager, PIMCO, employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. PIMCO may choose to focus on particular countries/regions , asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.
Investment Selection Strategies. Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.
PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.
Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment
of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.
Credit Quality. The Fund may invest in debt instruments that are, at the time of purchase, rated below investment grade, or that are unrated but determined by PIMCO to be of comparable quality. The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.
Independent Credit Analysis. PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit
| 146 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in high yield securities and in securities of emerging market issuers.
Duration Management. It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.
Portfolio Contents
Under normal market conditions, the Fund seeks to achieve its investment objectives by investing in, among other things, a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. Government securities, municipal securities and mortgage-backed and other asset-backed securities issued on a public or private basis. Corporate-income producing may include fixed-, variable- and floating-rate bonds, debentures, notes and other similar types of corporate debt instruments, such as preferred shares, convertible securities, bank loans and loan participations and assignments, payment-in-kind securities, step-ups, zero-coupon bonds, bank certificates of deposit, fixed time deposits and bankers’ acceptances, stressed debt securities, structured notes and other hybrid instruments. Certain corporate income-producing securities, such as convertible bonds, also may include the right to participate in equity appreciation, and PIMCO will generally evaluate those instruments based primarily on their debt characteristics. The Fund may invest in mortgage-related securities, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, adjustable rate mortgage-backed securities, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property,
debt instruments, including, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; catastrophe bonds and other event-linked bonds; credit-linked notes; credit-linked trust certificates; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the investment limitations described above, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities (including collateralized bond obligations, collateralized loan obligations and other collateralized debt obligations), including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable, and may move in the opposite direction to interest rates generally or the interest rate on another security or index (i.e., inverse floaters).
The Fund may invest up to 25% of its total assets (measured at the time of investment) in non-U.S. dollar denominated securities (of both developed and “emerging market” countries), including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises. The Fund may invest without limit
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| Principal Investment Strategies1 | (Cont.) |
in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.
The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales.
The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers. The Fund may invest up to 20% of its total assets in bank loans.
The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other open- and closed-end investment companies, including, without limit, exchange-traded funds (“ETFs”), and may invest in foreign ETFs. The Fund may invest in real estate investment trusts. The Fund may invest in securities of companies with any market capitalization, including small and medium capitalizations.
The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.
The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.
The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objectives, particularly during periods of volatile market movements.
In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.
Temporary defensive investments. Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment objectives and policies and invest some or all of its net assets in investments of non-corporate issuers, including high quality, short-term debt securities. The Fund may not achieve its investment objectives when it does so.
Use of Leverage
The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or credit facilities. The Fund will segregate liquid assets against or otherwise cover its future obligations under such transactions to the extent that, immediately after entering into such a transaction, the Fund’s future commitments that it has not segregated liquid assets against or otherwise covered, together with any outstanding Preferred Shares, would exceed 38% of the Fund’s total assets.
The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.
The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.
| 148 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
The Fund also may borrow money for temporary administrative purposes, to add leverage to the portfolio or for the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.
PIMCO Income Strategy Fund
The Fund seeks to achieve its objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund cannot assure you that it will achieve its investment objective, and you could lose all of your investment in the Fund.
Portfolio Management Strategies
Dynamic Allocation Strategy. In managing the Fund, the Fund’s investment manager, PIMCO employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. The Fund has the flexibility to allocate assets in varying proportions among floating- and fixed-rate debt instruments, as well as among investment-grade and non-investment grade securities. It may focus more heavily or exclusively on an asset class at any time, based on assessments of relative values, market conditions and other factors. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.
Investment Selection Strategies. Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class
represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.
PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.
Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.
Credit Quality. The Fund may invest without limit in debt securities that are, at the time of purchase, rated below investment grade or that are unrated but judged by PIMCO to be of comparable quality (commonly referred to as “high yield” securities or “junk bonds”). The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories and securities that are in default or the issuers of which are in bankruptcy). For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment
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| Principal Investment Strategies1 | (Cont.) |
grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.
Independent Credit Analysis. PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in floating rate loans, high yield securities and in securities of emerging market issuers.
Duration Management. It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.
Portfolio Contents
The Fund seeks to achieve its investment objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities
that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund also considers floating-rate assets to include securities with durations of less than or equal to one year and fixed-rate securities with respect to which the Fund has entered into derivative instruments to effectively convert the fixed-rate interest payments into floating-rate interest payments. The Fund also may invest in a wide variety of fixed-rate debt securities, including corporate bonds and mortgage-backed and other asset-backed securities issued on a public or private basis, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (“SMBSs”) and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. The Fund may make use of a variety of other instruments, including collateralized debt obligations, preferred securities, commercial paper, zero-coupon and inflation-indexed bonds, bank certificates of deposit, fixed time deposits and bankers’ acceptances, real estate investment trusts (“REITs”), bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; credit-linked notes; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. Certain debt instruments, such as convertible bonds, also may include the right to participate in equity appreciation. The principal and/or interest rate on some debt instruments may be determined by reference to the performance of a benchmark asset or market, such as an index of securities, or the differential performance of two assets or markets, such as the level of exchange rates between the U.S. dollar and a foreign currency or currencies. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the Fund’s investment
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| (Unaudited) |
limitations, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities, including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable.
The Fund invests predominantly in U.S. dollar-denominated debt securities, which may include those issued by foreign corporations or supra-national government agencies. The Fund may invest up to 25% of its total assets in securities denominated in foreign currencies, including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises, except that the Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.
The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers.
The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment
basis and may engage in short sales. The Fund may also seek to obtain market exposure to the securities in which it invests by entering into a series of purchase and sale contracts.
The Fund has a policy not to concentrate investments in any particular industry, but may (consistent with that policy) invest up to 25% of its assets in any particular industry, and may invest a substantial portion of its assets in companies in related sectors, such as those in the banking or financial services sectors, which may share common characteristics and are often subject to similar business risks and regulatory burdens.
The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other investment companies, including, without limit, exchange-traded funds. The Fund may invest in REITs. The Fund may invest in securities of companies of any market capitalization, including small and medium capitalizations.
The Fund may invest without limit in illiquid securities (i.e., securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities).
The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.
The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.
The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements.
There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.
In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred
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| Principal Investment Strategies1 | (Cont.) |
Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.
Temporary defensive investments. Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment strategy by investing some or all of its total assets in investments such as high grade debt securities, including high quality, short-term debt securities, and cash and cash equivalents. The Fund may not achieve its investment objective when it does so.
Use of Leverage
The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities.
The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.
The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.
The Fund also may borrow money in order to repurchase its shares or as a temporary measure for extraordinary or emergency purposes, including for the payment of dividends or the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.
PIMCO Income Strategy Fund II
The Fund seeks to achieve its objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and
other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund cannot assure you that it will achieve its investment objective, and you could lose all of your investment in the Fund.
Portfolio Management Strategies
Dynamic Allocation Strategy. In managing the Fund, the Fund’s investment manager, PIMCO employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. The Fund has the flexibility to allocate assets in varying proportions among floating- and fixed-rate debt instruments, as well as among investment-grade and non-investment grade securities. It may focus more heavily or exclusively on an asset class at any time, based on assessments of relative values, market conditions and other factors. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.
Investment Selection Strategies. Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.
PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.
Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to
| 152 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.
Credit Quality. The Fund may invest without limit in debt securities that are, at the time of purchase, rated below investment grade or that are unrated but judged by PIMCO to be of comparable quality (commonly referred to as “high yield” securities or “junk bonds”). The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories and securities that are in default or the issuers of which are in bankruptcy) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.
Independent Credit Analysis. PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on
rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in floating rate loans, high yield securities and in securities of emerging market issuers.
Duration Management. It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.
Portfolio Contents
The Fund seeks to achieve its investment objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund also considers floating-rate assets to include securities with durations of less than or equal to one year and fixed-rate securities with respect to which the Fund has entered into derivative instruments to effectively convert the fixed-rate interest payments into floating-rate interest payments. The Fund also may invest in a wide variety of fixed-rate debt securities, including corporate bonds and mortgage-backed and other asset-backed securities issued on a public or private basis, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”),
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| Principal Investment Strategies1 | (Cont.) |
commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. The Fund may make use of a variety of other instruments, including collateralized debt obligations, preferred securities, commercial paper, zero-coupon and inflation-indexed bonds, bank certificates of deposit, fixed time deposits and bankers’ acceptances, real estate investment trusts (“REITs”), bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; credit-linked notes; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. Certain debt instruments, such as convertible bonds, also may include the right to participate in equity appreciation. The principal and/or interest rate on some debt instruments may be determined by reference to the performance of a benchmark asset or market, such as an index of securities, or the differential performance of two assets or markets, such as the level of exchange rates between the U.S. dollar and a foreign currency or currencies. The Fund may invest in debt securities of stressed, distressed and defaulted issuers.
Subject to the Fund’s investment limitations, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities, including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such
securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable.
The Fund invests predominantly in U.S. dollar-denominated debt securities, which may include those issued by foreign corporations or supra-national government agencies. The Fund may invest up to 25% of its total assets in securities denominated in foreign currencies, including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises, except that the Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.
The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers.
The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales. The Fund may also seek to obtain market exposure to the securities in which it invests by entering into a series of purchase and sale contracts.
The Fund has a policy not to concentrate investments in any particular industry, but may (consistent with that policy) invest up to 25% of its assets in any particular industry, and may invest a substantial portion of its assets in companies in related sectors, such as those in the banking or financial services sectors, which may share common characteristics and are often subject to similar business risks and regulatory burdens. The Fund may invest in securities that have not
| 154 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other investment companies, including, without limit, exchange-traded funds. The Fund may invest in REITs. The Fund may invest in securities of companies of any market capitalization, including small and medium capitalizations.
The Fund may invest without limit in illiquid securities (i.e., securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities).
The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.
The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.
The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements.
There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.
In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.
Temporary defensive investments. Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment strategy by investing some or all of its total assets in investments such as high grade debt securities, including high quality, short-term debt securities, and cash and cash equivalents. The Fund may not achieve its investment objective when it does so.
Use of Leverage
The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities.
The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.
The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.
The Fund also may borrow money in order to repurchase its shares or as a temporary measure for extraordinary or emergency purposes, including for the payment of dividends or the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.
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| Principal Risks of the Funds1 |
The factors that are most likely to have a material effect on a particular Fund’s portfolio as a whole are called “principal risks.” Unless otherwise indicated, each Fund is subject to the principal risks indicated below, whether through direct investments, investments by a subsidiary (if applicable) or derivative positions. Each Fund may be subject to additional risks other than those described below because the types of investments made by a Fund can change over time.
Anti-Takeover Provisions
The Fund’s Amended and Restated Agreement and Declaration of Trust or Articles of Incorporation (collectively, the “Organizational Documents”), as applicable, includes provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status. These provisions in the Organizational Documents could have the effect of depriving the holders of the Fund’s common shares of beneficial interest (“Common Shares”) of opportunities to sell their Common Shares at a premium over the then-current market price of the Common Shares or at NAV.
Asset Allocation Risk
The Fund’s investment performance depends upon how its assets are allocated and reallocated. A principal risk of investing in the Fund is that PIMCO may make less than optimal or poor asset allocation decisions. PIMCO employs an active approach to allocation among multiple fixed-income sectors, but there is no guarantee that such allocation techniques will produce the desired results. It is possible that PIMCO will focus on an investment that performs poorly or underperforms other investments under various market conditions. You could lose money on your investment in the Fund as a result of these allocation decisions.
Call Risk
Call risk refers to the possibility that an issuer may exercise its right to redeem a fixed income security earlier than expected (a call). Issuers may call outstanding securities prior to their maturity for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the issuer’s credit quality). If an issuer calls a security in which the Fund has invested, the Fund may not recoup the full amount of its initial investment and may be forced to reinvest in lower-yielding securities, securities with greater credit risks or securities with other, less favorable features.
Certain Affiliations
Certain broker-dealers may be considered to be affiliated persons of the Fund and/or the Investment Manager due to their possible affiliations with Allianz SE, the ultimate parent of the Investment Manager. Absent an exemption from the SEC or other regulatory relief, the Fund is generally precluded from effecting certain principal transactions with affiliated brokers, and its ability to purchase securities being underwritten by an affiliated broker or a syndicate
including an affiliated broker, or to utilize affiliated brokers for agency transactions, is subject to restrictions. This could limit the Fund’s ability to engage in securities transactions and take advantage of market opportunities.
Collateralized Loan Obligations Risk
CLOs may charge management fees and administrative expenses. The cash flows from a CLO trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the equity tranche which generally bears losses in connection with the first defaults, if any, on the bonds or loans in the trust. A senior tranche from a CLO trust typically has higher credit ratings and lower yields than the underlying securities. CLO tranches, even senior ones, 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 CLO securities. The risks of an investment in a CLO depend largely on the type of the collateral securities and the class/tranche of the CLO in which the Fund invests. Normally, CLOs are privately offered and sold, and thus are not registered under the securities laws. Investments in CLOs may be or become illiquid. In addition to the normal risks associated with debt instruments (e.g., interest rate risk and credit risk), CLOs carry additional risks including, but not limited to: (i) the possibility that distributions from the collateral will not be adequate to make interest or other payments; (ii) the risk that the quality of the collateral may decline in value or default; (iii) the risk that the Fund may invest in CBOs, CLOs or other CDOs that are subordinate to other classes; and (iv) the risk that the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or others and may produce unexpected investment results.
Confidential Information Access Risk
In managing the Fund (and other PIMCO clients), PIMCO may from time to time have the opportunity to receive material, non-public information (“Confidential Information”) about the issuers of certain investments, including, without limitation, senior floating rate loans, other loans and related investments being considered for acquisition by the Fund or held in the Fund’s portfolio. For example, an issuer of privately placed loans considered by the Fund may offer to provide PIMCO with financial information and related documentation regarding the issuer that is not publicly available. Pursuant to applicable policies and procedures, PIMCO may (but is not required to) seek to avoid receipt of Confidential Information from the issuer so as to avoid possible restrictions on its ability to purchase and sell investments on behalf of the Fund and other clients to which such Confidential Information relates. In such circumstances, the Fund (and other PIMCO clients) may be disadvantaged in comparison to other investors, including with respect to the price the Fund pays or receives
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when it buys or sells an investment. Further, PIMCO’s and the Fund’s abilities to assess the desirability of proposed consents, waivers or amendments with respect to certain investments may be compromised if they are not privy to available Confidential Information. PIMCO may also determine to receive such Confidential Information in certain circumstances under its applicable policies and procedures. If PIMCO intentionally or unintentionally comes into possession of Confidential Information, it may be unable, potentially for a substantial period of time, to purchase or sell investments to which such Confidential Information relates.
Contingent Convertible Securities Risk
The risks of investing in CoCos include, without limit, the risk that interest payments will be cancelled by the issuer or a regulatory authority, the risk of ranking junior to other creditors in the event of a liquidation or other bankruptcy-related event as a result of holding subordinated debt, the risk of the Fund’s investment becoming further subordinated as a result of conversion from debt to equity, the risk that the principal amount due can be written down to a lesser amount, and the general risks applicable to fixed income investments, including interest rate risk, credit risk, market risk and liquidity risk, any of which could result in losses to the Fund. CoCos may experience a loss absorption mechanism trigger event, which would likely be the result of, or related to, the deterioration of the issuer’s financial condition (e.g., a decrease in the issuer’s capital ratio) and status as a going concern. In such a case, with respect to contingent convertible securities that provide for conversion into common stock upon the occurrence of the trigger event, the market price of the issuer’s common stock received by the Fund will have likely declined, perhaps substantially, and may continue to decline, which may adversely affect the Fund’s NAV.
Convertible Securities Risk
The market values of convertible securities may decline as interest rates increase and, conversely, may increase as interest rates decline. A convertible security’s market value, however, tends to reflect the market price of the common stock of the issuing company when that stock price approaches or is greater than the convertible security’s “conversion price.” The conversion price is defined as the predetermined price at which the convertible security could be exchanged for the associated stock. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities may be paid before the company’s common stockholders but after holders of any senior debt obligations of the company. Consequently, the issuer’s convertible securities
generally entail less risk than its common stock but more risk than its debt obligations. Convertible securities are often rated below investment grade or not rated.
Counterparty Risk
The Fund will be subject to credit risk with respect to the counterparties to the derivative contracts and other instruments entered into by the Fund or held by special purpose or structured vehicles in which the Fund invests. In the event that the Fund enters into a derivative transaction with a counterparty that subsequently becomes insolvent or becomes the subject of a bankruptcy case, the derivative transaction may be terminated in accordance with its terms and the Fund’s ability to realize its rights under the derivative instrument and its ability to distribute the proceeds could be adversely affected. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery (including recovery of any collateral it has provided to the counterparty) in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy or other analogous proceeding. In addition, in the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value. If the Fund is owed this fair market value in the termination of the derivative transaction and its claim is unsecured, the Fund will be treated as a general creditor of such counterparty and will not have any claim with respect to any underlying security or asset. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. While the Fund may seek to manage its counterparty risk by transacting with a number of counterparties, concerns about the solvency of, or a default by, one large market participant could lead to significant impairment of liquidity and other adverse consequences for other counterparties.
“Covenant-Lite” Obligations Risk
Covenant-lite obligations contain fewer maintenance covenants than other obligations, or no maintenance covenants, and may not include terms that allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached. Covenant-lite loans may carry more risk than traditional loans as they allow individuals and corporations to engage in activities that would otherwise be difficult or impossible under a covenant-heavy loan agreement. In the event of default, covenant-lite loans may exhibit diminished recovery values as the lender may not have the opportunity to negotiate with the borrower prior to default.
Credit Default Swaps Risk
Credit default swap agreements may involve greater risks than if the Fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to illiquidity
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risk, counterparty risk and credit risk. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller (if any), coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. When the Fund acts as a seller of a credit default swap, it is exposed to many of the same risks of leverage described herein since if an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation.
Although the Fund may seek to realize gains by selling credit default swaps that increase in value, to realize gains on selling credit default swaps, an active secondary market for such instruments must exist or the Fund must otherwise be able to close out these transactions at advantageous times. In addition to the risk of losses described above, if no such secondary market exists or the Fund is otherwise unable to close out these transactions at advantageous times, selling credit default swaps may not be profitable for the Fund.
The market for credit default swaps has become more volatile as the creditworthiness of certain counterparties has been questioned and/or downgraded. The Fund will be subject to credit risk with respect to the counterparties to the credit default swap contract (whether a clearing corporation or another third party). If a counterparty’s credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that the Fund may not receive adequate collateral. The Fund may exit its obligations under a credit default swap only by terminating the contract and paying applicable breakage fees, or by entering into an offsetting credit default swap position, which may cause the Fund to incur more losses.
Credit Risk
The Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivatives contract, repurchase agreement or a loan of portfolio securities is unable or unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments or to otherwise honor its obligations. The downgrade of the credit of a security held by the Fund may decrease its value. Measures such as average credit quality may not accurately reflect the true credit risk of the Fund. This is especially the case if the Fund consists of securities with widely varying credit ratings. This risk is greater to the extent the Fund uses leverage or derivatives in connection with the management of the Fund.
Currency Risk
Currency risk may be particularly high because the Fund may, at times or in general, have substantial exposure to emerging market currencies, and engage in foreign currency transactions that are
economically tied to emerging market countries. These currency transactions may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed foreign (non-U.S.) currencies or engaging in foreign currency transactions that are economically tied to developed foreign countries.
Investments denominated in foreign (non-U.S.) currencies or that trade in and receive revenues in, foreign (non-U.S.) currencies or derivatives that provide exposure to foreign (non-U.S.) currencies, are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged.
Currency rates in foreign (non-U.S.) countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, rates of inflation, balance of payments and governmental surpluses or deficits, intervention (or the failure to intervene) by U.S. or foreign (non-U.S.) 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. These fluctuations may have a significant adverse impact on the value of the Fund’s portfolio and/or the level of Fund distributions made to Common Shareholders. There is no assurance that a hedging strategy, if used, will be successful.
Moreover, currency hedging techniques may be unavailable with respect to emerging market currencies. As a result, the Fund’s investments in foreign currency-denominated, and especially emerging market-currency denominated, securities may reduce the returns of the Fund.
The local emerging market currencies in which the Fund may be invested from time to time may experience substantially greater volatility against the U.S. dollar than the major convertible currencies of developed countries. Some of the local currencies in which the Fund may invest are neither freely convertible into one of the major currencies nor internationally traded. The local currencies may be convertible into other currencies only inside the relevant emerging market where the limited availability of such other currencies may tend to inflate their values relative to the local currency in question. Such internal exchange markets can therefore be said to be neither liquid nor competitive. In addition, many of the currencies of emerging market countries in which the Fund may invest have experienced steady devaluation relative to freely convertible currencies.
Continuing uncertainty as to the status of the euro and the European Monetary Union (“EMU”) has created significant volatility in currency and financial markets generally. Any partial or complete dissolution of
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the EMU could have significant adverse effects on currency and financial markets, and on the values of the Fund’s portfolio investments. If one or more EMU countries were to stop using the euro as its primary currency, the Fund’s investments in such countries may be redenominated into a different or newly adopted currency. As a result, the value of those investments could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject to foreign currency risk, liquidity risk and valuation risk to a greater extent than similar investments currently denominated in euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or should the euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly difficult to value or dispose of. The Fund may incur additional expenses to the extent it is required to seek judicial or other clarification of the denomination or value of such securities.
There can be no assurance that if the Fund earns income or capital gains in a non-U.S. country or PIMCO otherwise seeks to withdraw the Fund’s investments from a given country, capital controls imposed by such country will not prevent, or cause significant expense in, doing so.
Cybersecurity Risk
As the use of technology has become more prevalent in the course of business, the Fund has become potentially more susceptible to operational and information security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber events that may, among other things, cause the Fund to lose proprietary information, suffer data corruption and/or destruction or lose operational capacity, result in the unauthorized release or other misuse of confidential information or otherwise disrupt normal business operations. Cyber security breaches may involve unauthorized access to the 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 involving the Fund’s third party service providers (including but not limited to advisers, administrators, transfer agents, custodians, distributors and other third parties), trading counterparties or issuers in which the Fund invests can also subject the Fund to many of the same risks associated with direct cyber security breaches. Moreover, cyber security breaches involving trading counterparties or issuers in which the Fund invests could adversely impact such counterparties or issuers and cause the Fund’s investments to lose value.
Cyber security failures or breaches may result in financial losses to the Fund and its shareholders. These failures or breaches may also result
in disruptions to business operations, potentially resulting in financial losses; interference with the Fund’s ability to calculate its NAV, 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; additional compliance and cyber security risk management costs and other adverse consequences. In addition, substantial costs may be incurred in an attempt to prevent any cyber incidents in the future.
Like with operational risk in general, the Fund has established risk management systems and business continuity plans designed to reduce the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain risks may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers in which the Fund may invest, trading counterparties or third party service providers to the Fund. There is also a risk that cyber security breaches may not be detected. The Fund and its shareholders could be negatively impacted as a result.
Debt Securities Risk
Debt securities are generally subject to the risks described below and further herein:
Issuer risk. The value of fixed income securities may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage, reduced demand for the issuer’s goods and services, historical and prospective earnings of the issuer and the value of the assets of the issuer.
Interest rate risk. The market value of debt securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of debt securities will increase as interest rates fall and decrease as interest rates rise, which would be reflected in the Fund’s NAV. The Fund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by the Fund’s management. Moreover, because rates on certain floating rate debt securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the NAV of the Fund to the extent that it invests in floating rate debt securities.
Prepayment risk. During periods of declining interest rates, borrowers may prepay principal. This may force the Fund to reinvest in lower yielding securities, resulting in a possible decline in the Fund’s income and distributions.
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| Principal Risks of the Funds1 | (Cont.) |
Credit risk. Credit risk is the risk that one or more debt securities in the Fund’s portfolio will decline in price or fail to pay interest or principal when due because the issuer of the security experiences a decline in its financial status. Credit risk is increased when a portfolio security is downgraded or the perceived creditworthiness of the issuer deteriorates.
Reinvestment risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called fixed income securities at market interest rates that are below the portfolio’s current earnings rate.
Duration and maturity risk. The Fund may seek to adjust the duration or maturity of its investments in debt securities based on its assessment of current and projected market conditions. The Fund may incur costs in seeking to adjust the average duration or maturity of its portfolio of debt securities. There can be no assurances that the Fund’s assessment of current and projected market conditions will be correct or that any strategy to adjust duration or maturity will be successful.
Derivatives Risk
The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of risks, such as liquidity risk (which may be heightened for highly customized derivatives), interest rate risk, market risk, credit risk, leveraging risk, counterparty risk, tax risk and management risk, as well as risks arising from changes in applicable requirements. They also involve the risk of mispricing, the risk of unfavorable or ambiguous documentation and the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index. By investing in a derivative instrument, it could lose more than the amount invested, and derivatives may increase the volatility of the Fund, especially in unusual or extreme market conditions. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial or that, if used, such strategies will be successful. In addition, the Fund’s use of derivatives may increase or accelerate the amount of taxes payable by Common Shareholders.
Over-the-counter (“OTC”) derivatives are also subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations to the other party, as many of the protections afforded to centrally cleared derivatives might not be available for OTC derivatives 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. The primary credit risk on derivatives
that are exchange-traded or traded through a central clearing counterparty resides with the Fund’s clearing broker, or the clearinghouse. Participation in the markets for derivative instruments involves investment risks and transaction costs to which the Fund may not be subject absent the use of these strategies. The skills needed to successfully execute derivative strategies may be different from those needed for other types of transactions. If the Fund incorrectly forecasts the value and/or creditworthiness of securities, currencies, interest rates, counterparties or other economic factors involved in a derivative transaction, the Fund might have been in a better position if the Fund had not entered into such derivative transaction. In evaluating the risks and contractual obligations associated with particular derivative instruments, it is important to consider that certain derivative transactions may be modified or terminated only by mutual consent of the Fund and its counterparty.
It may not be possible for the Fund to modify, terminate, or offset the Fund’s obligations or the Fund’s exposure to the risks associated with a derivative transaction prior to its scheduled termination or maturity date, which may create a possibility of increased volatility and/or decreased liquidity to the Fund. Hedges are sometimes subject to imperfect matching between the derivative and the underlying instrument, and there can be no assurance that the Fund’s hedging transactions will be effective. In such case, the Fund may lose money.
Because the markets for certain derivative instruments (including markets located in foreign countries) are relatively new and still developing, appropriate derivative transactions may not be available in all circumstances for risk management or other purposes. Upon the expiration of a particular contract, the Fund may wish to retain the Fund’s position in the derivative instrument by entering into a similar contract but may be unable to do so if the counterparty to the original contract is unwilling to enter into the new contract and no other appropriate counterparty can be found. When such markets are unavailable, the Fund will be subject to increased liquidity and investment risk. When a derivative is used as a hedge against a position that the Fund holds, any loss generated by the derivative generally should be substantially offset by gains on the hedged investment, and vice versa. Although hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching between the derivative and the underlying instrument, and there can be no assurance that the Fund’s hedging transactions will be effective.
The 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
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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 on amounts that are effectively a taxable return of the shareholder’s investment in the Fund, at a time when their investment in the Fund has declined in value, which tax may be at ordinary income rates. The tax treatment of certain derivatives in which the Fund invests may be unclear and thus subject to recharacterization. Any recharacterization of payments made or received by the 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.
The regulation of the derivatives markets has increased over the past several years, and additional future regulation of the derivatives markets may make derivatives more costly, may limit the availability or reduce the liquidity of derivatives, or may otherwise adversely affect the value or performance of derivatives. Any such adverse future developments could impair the effectiveness or raise the costs of the Fund’s derivative transactions, impede the employment of the Fund’s derivatives strategies, or adversely affect the Fund’s performance and cause the Fund to lose value. For instance, on October 28, 2020, the SEC adopted Rule 18f-4 under the 1940 Act providing for the regulation of a registered investment company’s use of derivatives and certain related instruments. Among other things, Rule 18f-4 limits a fund’s derivatives exposure through a value-at-risk test and requires the adoption and implementation of a derivatives risk management program for certain derivatives users. Subject to certain conditions, limited derivatives users (as defined in Rule 18f-4), however, would not be subject to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, the SEC also eliminated the asset segregation framework arising from prior SEC guidance for covering derivatives and certain financial instruments. Compliance with Rule 18f-4 will not be required until August 19, 2022. As the Fund comes into compliance, the Fund’s approach to asset segregation and coverage requirements will be impacted. In addition, Rule 18f-4 could restrict the Fund’s ability to engage in certain derivatives transactions and/or increase the costs of such derivatives transactions, which could adversely affect the value or performance of the Fund and the Common Shares and/or the Fund’s distribution rate.
Distressed and Defaulted Securities Risk
Investments in the securities of financially distressed issuers involve substantial risks, including the risk of default, or may be in default at the time of investment. In addition, these securities may fluctuate more in price, and are typically less liquid. The Fund also will be subject to significant uncertainty as to when, and in what manner, and
for what value obligations evidenced by securities of financially distressed issuers will eventually be satisfied. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. In any such proceeding relating to a defaulted obligation, the Fund may lose its entire investment or may be required to accept cash or securities with a value substantially less than its original investment. Moreover, any securities received by the Fund upon completion of a workout or bankruptcy proceeding may be less liquid, speculative or restricted as to resale. Similarly, if the Fund participates in negotiations with respect to any exchange offer or plan of reorganization with respect to the securities of a distressed issuer, the Fund may be restricted from disposing of such securities. To the extent that the Fund becomes involved in such proceedings, the Fund may have a more active participation in the affairs of the issuer than that assumed generally by an investor. The Fund may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings.
Also among the risks inherent in investments in a troubled issuer is that it frequently may be difficult to obtain information as to the true financial condition of such issuer. PIMCO’s judgments about the credit quality of a financially distressed issuer and the relative value of its securities may prove to be wrong.
Distribution Rate Risk
Although the Fund may seek to maintain level distributions, the Fund’s distribution rates may be affected by numerous factors, including but not limited to changes in realized and projected market returns, fluctuations in market interest rates, Fund performance, and other factors. There can be no assurance that a change in market conditions or other factors will not result in a change in the Fund’s distribution rate or that the rate will be sustainable in the future.
For instance, during periods of low or declining interest rates, the Fund’s distributable income and dividend levels may decline for many reasons. For example, the Fund may have to deploy uninvested assets (whether from purchases of Fund shares, proceeds from matured, traded or called debt obligations or other sources) in new, lower yielding instruments. Additionally, payments from certain instruments that may be held by the Fund (such as variable and floating rate securities) may be negatively impacted by declining interest rates, which may also lead to a decline in the Fund’s distributable income and dividend levels.
Emerging Markets Risk
Foreign investment risk may be particularly high to the extent that the Fund invests in securities of issuers based in or doing business in emerging market countries or invests in securities denominated in the
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| Principal Risks of the Funds1 | (Cont.) |
currencies of emerging market countries. Investing in securities of issuers based in or doing business in emerging markets entails all of the risks of investing in foreign securities noted above, but to a heightened degree.
Investments in emerging market countries pose a greater degree of systemic risk (i.e., the risk of a cascading collapse of multiple institutions within a country, and even multiple national economies). The inter-relatedness of economic and financial institutions within and among emerging market economies has deepened over the years, with the effect that institutional failures and/or economic difficulties that are of initially limited scope may spread throughout a country, a region or all or most emerging market countries. This may undermine any attempt by the Fund to reduce risk through geographic diversification of its portfolio.
There is a heightened possibility of imposition of withholding taxes on interest or dividend income generated from emerging market securities. Governments of emerging market countries may engage in confiscatory taxation or expropriation of income and/or assets to raise revenues or to pursue a domestic political agenda. In the past, emerging market countries have nationalized assets, companies and even entire sectors, including the assets of foreign investors, with inadequate or no compensation to the prior owners. There can be no assurance that the Fund will not suffer a loss of any or all of its investments, or interest or dividends thereon, due to adverse fiscal or other policy changes in emerging market countries.
There is also a greater risk that an emerging market government may take action that impedes or prevents the Fund from taking income and/or capital gains earned in the local currency and converting into U.S. dollars (i.e., “repatriating” local currency investments or profits). Certain emerging market countries have sought to maintain foreign exchange reserves and/or address the economic volatility and dislocations caused by the large international capital flows by controlling or restricting the conversion of the local currency into other currencies. This risk tends to become more acute when economic conditions otherwise worsen. There can be no assurance that if the Fund earns income or capital gains in an emerging market currency or PIMCO otherwise seeks to withdraw the Fund’s investments from a given emerging market country, capital controls imposed by such country will not prevent, or cause significant expense in, doing so.
Bankruptcy law and creditor reorganization processes may differ substantially from those in the United States, resulting in greater uncertainty as to the rights of creditors, the enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims. In certain emerging market countries, although bankruptcy laws have been enacted, the process for reorganization
remains highly uncertain. In addition, it may be impossible to seek legal redress against an issuer that is a sovereign state.
Emerging market countries typically have less established legal, accounting and financial reporting systems than those in more developed markets, which may reduce the scope or quality of financial information available to investors. Governments in emerging market countries are often less stable and more likely to take extra-legal action with respect to companies, industries, assets, or foreign ownership than those in more developed markets. Moreover, it can be more difficult for investors to bring litigation or enforce judgments against issuers in emerging markets or for U.S. regulators to bring enforcement actions against such issuers. The Fund may also be subject to Emerging Markets Risk if it invests in derivatives or other securities or instruments whose value or return are related to the value or returns of emerging markets securities.
Other heightened risks associated with emerging markets investments include without limit (i) risks due to less social, political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict the Fund’s investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests and requirements that government approval be obtained prior to investment by foreign persons; (iv) certain national policies that may restrict the Fund’s repatriation of investment income, capital or the proceeds of sales of securities, including temporary restrictions on foreign capital remittances; (v) the lack of uniform accounting and auditing standards and/or standards that may be significantly different from the standards required in the United States; (vi) less publicly available financial and other information regarding issuers; (vii) potential difficulties in enforcing contractual obligations; and (viii) higher rates of inflation, higher interest rates and other economic concerns. The Fund may invest to a substantial extent in emerging market securities that are denominated in local currencies, subjecting the Fund to a greater degree of foreign currency risk. Also, investing in emerging market countries may entail purchases of securities of issuers that are insolvent, bankrupt or otherwise of questionable ability to satisfy their payment obligations as they become due, subjecting the Fund to a greater amount of credit risk and/or high yield risk. The economy of some emerging markets may be particularly exposed to or affected by a certain industry or sector, and therefore issuers and/or securities of such emerging markets may be more affected by the performance of such industries or sectors.
Equity Securities and Related Market Risk
The market price of common stocks and other equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may
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decline in value due to factors affecting equity securities markets generally, particular industries represented in those markets, or the issuer itself. The values of equity securities may decline due to real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to labor shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than bonds and other debt securities.
Different types of equity securities provide different voting and dividend rights and priority in the event of the bankruptcy and/or insolvency of the issuer. In addition to common stock, equity securities may include preferred securities, convertible securities and warrants. Equity securities other than common stock are subject to many of the same risks as common stock, although possibly to different degrees. The risks of equity securities are generally magnified in the case of equity investments in distressed companies.
Focused Investment Risk
To the extent that the Fund focuses its investments in a particular sector, it may be susceptible to loss due to adverse developments affecting that sector, including (but not limited to): governmental regulation; inflation; rising interest rates; cost increases in raw materials, fuel and other operating expenses; technological innovations that may render existing products and equipment obsolete; competition from new entrants; high research and development costs; increased costs associated with compliance with environmental or other governmental regulations; and other economic, business or political developments specific to that sector. Furthermore, the Fund may invest a substantial portion of its assets in companies in related sectors that may share common characteristics, are often subject to similar business risks and regulatory burdens, and whose securities may react similarly to the types of developments described above, which will subject the Fund to greater risk. The Fund also will be subject to focused investment risk to the extent that it invests a substantial portion of its assets in a particular issuer, market, asset class, country or geographic region.
Foreign (Non-U.S.) Investment Risk
Foreign (non-U.S.) securities may experience more rapid and extreme changes in value than securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Additionally, issuers of foreign (non-U.S.) 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. Global economies and financial markets are becoming increasingly interconnected, and
conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. Also, nationalization, expropriation or confiscatory taxation, currency blockage, political changes or diplomatic developments could adversely affect the Fund’s investments in a foreign country. In the event of nationalization, expropriation or other confiscation, the Fund could lose its entire investment in foreign (non-U.S.) securities. Adverse conditions in a certain region can adversely affect securities of other countries whose economies appear to be unrelated. To the extent that the Fund invests a significant portion of its assets in a specific geographic region, the Fund will generally have more exposure to regional economic risks associated with foreign (non-U.S.) investments. Foreign (non-U.S.) securities may also be less liquid and more difficult to value than securities of U.S. issuers.
The Fund may face potential risks associated with the United Kingdom’s departure from the European Union (“EU”). The departure may result in substantial volatility in financial and foreign exchange markets and a sustained weakness in the British pound, the euro and other currencies, which may impact Fund returns. It may also destabilize some or all of the other EU member countries and/or the Eurozone. These developments could result in losses to the Fund, as there may be negative effects on the value of the Fund’s investments and/or on the Fund’s ability to enter into certain transactions or value certain investments, and these developments may make it more difficult for the Fund to exit certain investments at an advantageous time or price. Adverse events triggered by the departure, as well as an exit or expulsion of an EU member state other than the United Kingdom from the EU, could negatively impact Fund returns.
The Fund 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 Fund’s performance and/or ability to achieve its 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
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| Principal Risks of the Funds1 | (Cont.) |
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 Fund 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 Fund 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.
High Yield Securities Risk
To the extent that the Fund invests in high yield securities and unrated securities of similar credit quality (commonly known as “high yield securities” or “junk bonds”), the Fund may be subject to greater levels of credit risk, call risk and liquidity risk than funds that do not invest in such securities, which could have a negative effect on the NAV and market price of the Fund’s Common Shares or Common Share dividends. These securities are considered predominantly speculative with respect to an issuer’s continuing ability to make principal and interest payments, and may be more volatile than other types of securities. An economic downturn or individual corporate developments could adversely affect the market for these securities and reduce the Fund’s ability to sell these securities at an advantageous time or price. The Fund may purchase distressed securities that are in default or the issuers of which are in bankruptcy, which involve heightened risks.
Issuers of high yield securities may have the right to “call” or redeem the issue prior to maturity, which may result in the Fund having to reinvest the proceeds in other high yield securities or similar instruments that may pay lower interest rates. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in high yield securities. Consequently, transactions in high yield securities may involve greater costs than transactions in more actively traded securities. These factors may result in the Fund being unable to realize full value for these securities and/or may result in the Fund not receiving the proceeds from a sale of a high yield security for an extended period after such sale, each of which could result in losses to
the Fund. Because of the risks involved in investing in high yield securities, an investment in the Fund should be considered speculative. To the extent that the Fund invests in high yield securities and unrated securities of similar credit quality (commonly known as “high yield securities” or “junk bonds”), the Fund may be subject to greater levels of credit risk, call risk and liquidity risk than funds that do not invest in such securities, which could have a negative effect on the NAV and market price of the Fund’s Common Shares or Common Share dividends. These securities are considered predominantly speculative with respect to an issuer’s continuing ability to make principal and interest payments, and may be more volatile than other types of securities. An economic downturn or individual corporate developments could adversely affect the market for these securities and reduce the Fund’s ability to sell these securities at an advantageous time or price. The Fund may purchase distressed securities that are in default or the issuers of which are in bankruptcy, which involve heightened risks.
Issuers of high yield securities may have the right to “call” or redeem the issue prior to maturity, which may result in the Fund having to reinvest the proceeds in other high yield securities or similar instruments that may pay lower interest rates. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in high yield securities. Consequently, transactions in high yield securities may involve greater costs than transactions in more actively traded securities. These factors may result in the Fund being unable to realize full value for these securities and/or may result in the Fund not receiving the proceeds from a sale of a high yield security for an extended period after such sale, each of which could result in losses to the Fund. Because of the risks involved in investing in high yield securities, an investment in the Fund should be considered speculative.
In general, lower rated debt securities carry a greater degree of risk that the issuer will lose its ability to make interest and principal payments, which could have a negative effect on the Fund. Securities of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal and are commonly referred to as “high yield” securities or “junk bonds.” High yield securities involve a greater risk of default and their prices are generally more volatile and sensitive to actual or perceived negative developments. Debt securities in the lowest investment grade category also may be considered to possess some speculative characteristics by certain rating agencies. The Fund may purchase stressed or distressed securities that are in default or the issuers of which are in bankruptcy, which involve heightened risks. An economic downturn could severely affect the ability of issuers (particularly those that are highly leveraged) to service or repay their debt obligations. Lower-rated securities are generally
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| (Unaudited) |
less liquid than higher-rated securities, which may have an adverse effect on the Fund’s ability to dispose of them. For example, under adverse market or economic conditions, the secondary market for below investment grade securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and certain securities in the Fund’s portfolio may become illiquid or less liquid. As a result, the Fund could find it more difficult to sell these securities or may be able to sell these securities only at prices lower than if such securities were widely traded. To the extent the Fund focuses on below investment grade debt obligations, PIMCO’s capabilities in analyzing credit quality and associated risks will be particularly important, and there can be no assurance that PIMCO will be successful in this regard. Due to the risks involved in investing in high yield securities, an investment in the Fund should be considered speculative. The Fund’s credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security in the event that a rating agency or PIMCO downgrades its assessment of the credit characteristics of a particular issue. Analysis of creditworthiness may be more complex for issuers of high yield securities than for issuers of higher quality debt securities. Analysis of creditworthiness may be more complex for issuers of high yield securities than for issuers of higher quality debt securities.
Inflation/Deflation Risk
Inflation risk is the risk that the value of assets or income from the Fund’s investments will be worth less in the future as inflation decreases the value of payments at future dates. As inflation increases, the real value of the Fund’s portfolio could decline. Deflation risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio and Common Shares.
Inflation-Indexed Security Risk
Inflation-indexed debt securities are subject to the effects of changes in market interest rates caused by factors other than inflation (real interest rates). In general, the value of an inflation-indexed security, including Treasury Inflation-Protected Securities (“TIPS”), tends to decrease when real interest rates increase and can increase when real interest rates decrease. Thus generally, during periods of rising inflation, the value of inflation-indexed securities will tend to increase and during periods of deflation, their value will tend to decrease. Interest payments on inflation-indexed securities are unpredictable and will fluctuate as the principal and interest are adjusted for inflation. There can be no assurance that the inflation index used (i.e., the Consumer Price Index (“CPI”)) will accurately measure the real rate of inflation. Increases in the principal value of TIPS due to inflation are considered taxable ordinary income. Any increase in the principal
amount of an inflation-indexed debt security will be considered taxable ordinary income, even though the Fund will not receive the principal until maturity. Additionally, a CPI swap can potentially lose value if the realized rate of inflation over the life of the swap is less than the fixed market implied inflation rate (fixed breakeven rate) that the investor agrees to pay at the initiation of the swap. With municipal inflation-indexed securities, the inflation adjustment is integrated into the coupon payment, which is federally tax exempt (and may be state tax exempt). For municipal inflation-indexed securities, there is no adjustment to the principal value. Because municipal inflation-indexed securities are a small component of the municipal bond market, they may be less liquid than conventional municipal bonds.
Interest Rate Risk
Interest rate risk is the risk that fixed income securities and other instruments in the Fund’s portfolio will decline in value because of a change in interest rates. As nominal interest rates rise, the value of certain fixed income securities held by the 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 the Fund may lose money as a result of movements in interest rates. The Fund may not be able to effectively hedge against changes in interest rates or may choose not to do so for cost or other reasons.
A wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions). This risk may be particularly acute in the current market environment because market interest rates are currently near historically low levels. Thus, the Fund currently faces a heightened level of interest rate risk.
Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile. 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 eight years would generally be expected to decline by approximately 8% if interest rates rose by one percentage point.
Variable and floating rate securities may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in
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| Principal Risks of the Funds1 | (Cont.) |
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 the 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 Fund’s shares.
During periods of very low or negative interest rates, the Fund may be unable to maintain positive returns. Interest rates in the United States and many parts of the world are at or near historically low levels. Very low or negative interest rates may magnify interest rate risk. 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 the Fund is exposed to such interest rates.
Measures such as average duration may not accurately reflect the true interest rate sensitivity of the Fund. This is especially the case if the Fund consists of securities with widely varying durations. Therefore, if the Fund has an average duration that suggests a certain level of interest rate risk, the Fund may in fact be subject to greater interest rate risk than the average would suggest. This risk is greater to the extent the Fund uses leverage or derivatives in connection with the management of the Fund.
Convexity is an additional measure used to understand a security’s or Fund’s interest rate sensitivity. Convexity measures the rate of change of duration in response to changes in interest rates. With respect to a security’s price, a larger convexity (positive or negative) may imply more dramatic price changes in response to changing interest rates. Convexity may be positive or negative. Negative convexity implies that interest rate increases result in increased duration, meaning increased sensitivity in prices in response to rising interest rates. Thus, securities with negative convexity, which may include bonds with traditional call features and certain mortgage-backed securities, may experience greater losses in periods of rising interest rates. Accordingly, if the Fund holds such securities, the Fund may be subject to a greater risk of losses in periods of rising interest rates.
Rising interest rates may result in a decline in value of the 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, a 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 the Fund to lose value.
Issuer Risk
The value of a security may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or services, as well as the historical and prospective earnings of the issuer and the value of its assets. A change in the financial condition of a single issuer may affect securities markets as a whole. These risks can apply to the Common Shares issued by the Fund and to the issuers of securities and other instruments in which the Fund invests.
Leverage Risk
The Fund’s use of leverage, if any, creates the opportunity for increased Common Share net income, but also creates special risks for Common Shareholders. To the extent used, there is no assurance that the Fund’s leveraging strategies will be successful. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. The Fund’s assets attributable to leverage, if any, will be invested in accordance with the Fund’s investment objectives and policies. Interest expense payable by the Fund with respect to derivatives and other forms of leverage, and dividends payable with respect to any preferred shares outstanding, if any, will generally be based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio investments provide a higher rate of return (net of applicable Fund expenses) than the interest expenses and other costs to the Fund of such leverage, the investment of the proceeds thereof will generate more income than will be needed to pay the costs of the leverage. If so, and all other things being equal, the excess may be used to pay higher dividends to Common Shareholders than if the Fund were not so leveraged. If, however, shorter-term interest rates rise relative to the rate of return on the Fund’s portfolio, the interest and other costs to the Fund of leverage could exceed the rate of return on the debt obligations and other investments held by the Fund, thereby reducing return to Common Shareholders. In addition, fees and expenses of any form of leverage used by the Fund will be borne entirely by the Common Shareholders (and not by preferred shareholders, if any) and will reduce the investment return of the Common Shares. Therefore, there can be no assurance that the Fund’s use of leverage will result in a higher yield on the Common Shares, and it may result in losses. In addition, any preferred shares issued by the Fund are expected to pay cumulative
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dividends, which may tend to increase leverage risk. Leverage creates several major types of risks for Common Shareholders, including:
| ∎ | the likelihood of greater volatility of NAV and market price of Common Shares, and of the investment return to Common Shareholders, than a comparable portfolio without leverage; |
| ∎ | the possibility either that Common Share dividends will fall if the interest and other costs of leverage rise, or that dividends paid on Common Shares will fluctuate because such costs vary over time; and |
| ∎ | 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 NAV of the Common Shares than if the Fund were not leveraged and may result in a greater decline in the market value of the Common Shares. |
In addition, the counterparties to the Fund’s leveraging transactions and any preferred shareholders of the Fund will have priority of payment over the Fund’s Common Shareholders.
Reverse repurchase agreements involve the risks that the interest income earned on the investment of the proceeds will be less than the interest expense and Fund expenses associated with the repurchase agreement, that the market value of the securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase such securities and that the securities may not be returned to the Fund. There is no assurance that reverse repurchase agreements can be successfully employed. Dollar roll transactions involve the risk that the market value of the securities the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. Successful use of dollar rolls may depend upon the Investment Manager’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully employed. In connection with reverse repurchase agreements and dollar rolls, the Fund will also be subject to counterparty risk with respect to the purchaser of the securities. If the broker/dealer to whom the Fund sells securities becomes insolvent, the Fund’s right to purchase or repurchase securities may be restricted.
The Fund may engage in total return swaps, reverse repurchases, loans of portfolio securities, short sales and when-issued, delayed delivery and forward commitment transactions, credit default swaps, basis swaps and other swap agreements, purchases or sales of futures and forward contracts (including foreign currency exchange contracts), call and put options or other derivatives. The Fund’s use of such transactions gives rise to associated leverage risks described above, and may adversely affect the Fund’s income, distributions and total returns to Common Shareholders. To the extent that any offsetting
positions do not behave in relation to one another as expected, the Fund may perform as if it is leveraged through use of these derivative strategies.
Any total return swaps, reverse repurchases, loans of portfolio securities, short sales and when-issued, delayed delivery and forward commitment transactions, credit default swaps, basis swaps and other swap agreements, purchases or sales of futures and forward contracts (including foreign currency exchange contracts), call and put options or other derivatives by the Fund or counterparties to the Fund’s other leveraging transactions, if any, would have seniority over the Fund’s Common Shares.
On October 28, 2020, the SEC adopted Rule 18f-4 under the Act providing for the regulation of a registered investment company’s use of derivatives and certain related instruments. Among other things, Rule 18f-4 limits a fund’s derivatives exposure through a value-at-risk test and requires the adoption and implementation of a derivatives risk management program for certain derivatives users. Subject to certain conditions, limited derivatives users (as defined in Rule 18f-4), however, would not be subject to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, the SEC also eliminated the asset segregation framework arising from prior SEC guidance for covering derivatives and certain financial instruments. Compliance with Rule 18f-4 will not be required until August 19, 2022. As the Fund comes into compliance, the Fund’s approach to asset segregation and coverage requirements will be impacted. In addition, Rule 18f-4 could restrict the Fund’s ability to engage in certain derivatives transactions and/or increase the costs of such derivatives transactions, which could adversely affect the value or performance of the Fund and the Common Shares and/or the Fund’s distribution rate.
Because the fees received by the Investment Manager may increase depending on the types of leverage utilized by the Fund,1 the Investment Manager has a financial incentive for the Fund to use certain forms of leverage, which may create a conflict of interest between the Investment Manager, on the one hand, and the Common Shareholders, on the other hand.
Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. Illiquid investments are investments that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. Illiquid investments may become harder to value, especially in changing markets. The Fund’s investments in illiquid investments may reduce the returns of the Fund because it may be unable to sell the illiquid investments at an advantageous time or price or possibly
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| Principal Risks of the Funds1 | (Cont.) |
require the Fund to dispose of other investments at unfavorable times or prices in order to satisfy its obligations, which could prevent the Fund from taking advantage of other investment opportunities. Additionally, the market for certain investments may become illiquid under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer. Bond markets have consistently grown over the past three decades while the capacity for traditional dealer counterparties to engage in fixed income trading has not kept pace and in some cases has decreased. As a result, dealer inventories of corporate bonds, 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 seek to 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. In such cases, the Fund, due to limitations on investments in illiquid investments and the difficulty in purchasing and selling such securities or instruments, may be unable to achieve its desired level of exposure to a certain sector. To the extent that the Fund invests in securities of companies with smaller market capitalizations, foreign (non-U.S.) securities, Rule 144A securities, illiquid sectors of fixed income securities, derivatives or securities with substantial market and/or credit risk, the Fund will tend to have greater exposure to liquidity risk.
Further, fixed income securities with longer durations until maturity face heightened levels of liquidity risk as compared to fixed income securities with shorter durations until maturity. The risks associated with illiquid instruments may be particularly acute in situations in which the Fund’s operations require cash (such as in connection with repurchase offers) and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid instruments. It may also be the case that other market participants may be attempting to liquidate fixed income holdings at the same time as the Fund, causing increased supply in the market and contributing to liquidity risk and downward pricing pressure.
Loans and Other Indebtedness; Loan Participations and Assignments Risk
Loan interests may take the form of direct interests acquired during a primary distribution and may also take the form of assignments of, novations of or participations in all or a portion of a loan acquired in secondary markets. In addition to credit risk and interest rate risk, the Fund’s exposure to loan interests may be subject to additional risks. For example, purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of principal and interest. Loans are subject to the risk that scheduled interest or principal payments will not be made
in a timely manner or at all, either of which may adversely affect the values of the loans. If the Fund does not receive scheduled interest or principal payments on such indebtedness, the Fund’s share price and yield could be adversely affected. The collateral underlying a loan may be unavailable or insufficient to satisfy a borrower’s obligation, and the Fund could become part owner of any collateral if a loan is foreclosed, subjecting the Fund to costs associated with owning and disposing of the collateral.
Investments in loans through a purchase of a loan or a direct assignment of a financial institution’s interests with respect to a loan may involve additional risks to the Fund. For example, if a loan is foreclosed, the Fund could become owner, in whole or in part, of any collateral, which could include, among other assets, real or personal property, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that the Fund could be held liable as co-lender. It is unclear whether loans and other forms of direct indebtedness offer securities law protections against fraud and misrepresentation. In the absence of definitive regulatory guidance, the Fund will rely on PIMCO’s research in an attempt to avoid situations where fraud or misrepresentation could adversely affect the Fund. The purchaser of an assignment typically succeeds to all the rights and obligations under the loan agreement with the same rights and obligations as the assigning lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender.
In connection with purchasing loan participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the loan in which it has purchased the loan participation. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, the 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. Certain loan participations may be structured in a manner designed to prevent purchasers of participations from being subject to the credit risk of the lender, but even under such a structure, in the event of the lender’s insolvency, the lender’s servicing of the participation may be delayed and the assignability of the participation impaired.
The Fund may have difficulty disposing of loans and loan participations because to do so it will have to assign or sell such securities to a third
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party. Because there is no liquid market for many such securities, the Fund anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such securities and the Fund’s ability to dispose of particular loans and loan participations when that would be desirable, including in response to a specific economic event such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for loans and loan participations also may make it more difficult for the Fund to assign a value to these securities for purposes of valuing the Fund’s portfolio.
To the extent the Fund invests in loans, including bank loans, the Fund may be subject to greater levels of credit risk, call risk, settlement risk and liquidity risk. These instruments are considered predominantly speculative with respect to an issuer’s continuing ability to make principal and interest payments and may be more volatile than other types of securities. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in loans. In addition, the loans in which the Fund invests may not be listed on any exchange and a secondary market for such loans may be comparatively illiquid relative to markets for other more liquid fixed income securities. Consequently, transactions in loans may involve greater costs than transactions in more actively traded securities. Restrictions on transfers in loan agreements, a lack of publicly available information, irregular trading activity and wide bid/ask spreads, among other factors, may, in certain circumstances, make loans more difficult to sell at an advantageous time or price than other types of securities or instruments. These factors may result in the Fund being unable to realize full value for the loans and/or may result in the Fund not receiving the proceeds from a sale of a loan for an extended period after such sale, each of which could result in losses to the Fund. Some loans may have extended trade settlement periods, including settlement periods of greater than seven days, which may result in cash not being immediately available to the Fund. If an issuer of a loan prepays or redeems the loan prior to maturity, the Fund may have to reinvest the proceeds in other loans or similar instruments that may pay lower interest rates. Because of the risks involved in investing in loans, an investment in the Fund should be considered speculative.
The Fund’s investments in subordinated and unsecured loans generally are subject to similar risks as those associated with investments in secured loans. Subordinated or unsecured loans are lower in priority of payment to secured loans and are subject to the additional risk that the cash flow of the borrower and property securing the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. This risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Subordinated and unsecured loans generally have greater price volatility than secured
loans and may be less liquid. There is also a possibility that originators will not be able to sell participations in subordinated or unsecured loans, which would create greater credit risk exposure for the holders of such loans. Subordinate and unsecured loans share the same risks as other below investment grade securities.
There may be less readily available information about most loans and the underlying borrowers than is the case for many other types of securities. Loans may be issued by companies that are not subject to SEC reporting requirements and therefore may not be required to file reports with the SEC or may file reports that are not required to comply with SEC form requirements. In addition, such companies may be subject to a less stringent liability disclosure regime than companies subject to SEC reporting requirements. Loans may not be considered “securities,” and purchasers, such as the Fund, therefore may not be entitled to rely on the anti-fraud protections of the federal securities laws. Because there is limited public information available regarding loan investments, the Fund is particularly dependent on the analytical abilities of the Fund’s portfolio managers.
Economic exposure to loan interests through the use of derivative transactions may involve greater risks than if the Fund had invested in the loan interest directly during a primary distribution or through assignments of, novations of or participations in a loan acquired in secondary markets since, in addition to the risks described above, certain derivative transactions may be subject to leverage risk and greater illiquidity risk, counterparty risk, valuation risk and other risks.
Management Risk
The Fund is subject to management risk because it is an actively managed investment portfolio. PIMCO and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Fund, but there can be no guarantee that these decisions will produce the desired results. Certain securities or other instruments in which the Fund seeks to invest may not be available in the quantities desired. In addition, regulatory restrictions, actual or potential conflicts of interest or other considerations may cause PIMCO to restrict or prohibit participation in certain investments. In such circumstances, PIMCO or the individual portfolio managers may determine to purchase other securities or instruments as substitutes. Such substitute securities or instruments may not perform as intended, which could result in losses to the Fund. To the extent the Fund employs strategies targeting perceived pricing inefficiencies, arbitrage strategies or similar strategies, it is subject to the risk that the pricing or valuation of the securities and instruments involved in such strategies may change unexpectedly, which may result in reduced returns or losses to the Fund. The Fund is also subject to the risk that deficiencies in the internal systems or controls of PIMCO or another service provider will cause losses for the Fund or hinder
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| Principal Risks of the Funds1 | (Cont.) |
Fund operations. For example, trading delays or errors (both human and systematic) could prevent the Fund from purchasing a security expected to appreciate in value. Additionally, actual or potential conflicts of interest, legislative, regulatory, or tax restrictions, policies or developments may affect the investment techniques available to PIMCO and each individual portfolio manager in connection with managing the Fund and may also adversely affect the ability of the Fund to achieve its investment objectives. There also can be no assurance that all of the personnel of PIMCO will continue to be associated with PIMCO for any length of time. The loss of the services of one or more key employees of PIMCO could have an adverse impact on the Fund’s ability to realize its investment objectives.
In addition, the Fund may rely on various third-party sources to calculate its NAV. As a result, the Fund is subject to certain operational risks associated with reliance on service providers and service providers’ data sources. In particular, errors or systems failures and other technological issues may adversely impact the Fund’s calculations of its NAV, and such NAV calculation issues may result in inaccurately calculated NAVs, delays in NAV calculation and/or the inability to calculate NAVs over extended periods. The Fund may be unable to recover any losses associated with such failures.
Market Discount Risk
The price of the Fund’s Common Shares will fluctuate with market conditions and other factors. If you sell your Common Shares, the price received may be more or less than your original investment. The Common Shares are designed for long-term investors and should not be treated as trading vehicles. Shares of closed-end management investment companies frequently trade at a discount from their NAV.
Market Disruptions Risk
The Fund is subject to investment and operational risks associated with financial, economic and other global market developments and disruptions, including those arising from war, terrorism, market manipulation, government interventions, defaults and shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters, which can all negatively impact the securities markets, interest rates, secondary trading, ratings, credit risk, inflation, deflation, other factors relating to the Fund’s investments or the Investment Manager’s operations and the value of an investment in the Fund, its distributions and its returns. These events can also impair the technology and other operational systems upon which the Fund’s service providers, including PIMCO as the Fund’s investment adviser, rely, and could otherwise disrupt the Fund’s service providers’ ability to fulfill their obligations to the Fund.
The U.S. Federal Reserve has made emergency interest-rate cuts, moving short-term rates to near zero, issued forward guidance that
rates will remain low until the economy weathers the COVID-19 crisis, and resumed quantitative easing. Additionally, Congress has approved stimulus to offset the severity and duration the adverse economic effects of COVID-19-and related disruptions in economic and business activity. Dozens of central banks across Europe, Asia, and elsewhere have announced and/or adopted similar economic relief packages. The introduction and adoption of these packages could cause market disruptions and volatility. In addition, the end of any such program could cause market downturns, disruptions and volatility, particularly if markets view the ending as premature.
Market Risk
The market price of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, adverse changes to credit markets or adverse investor sentiment generally. The value of a security may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value simultaneously. Equity securities generally have greater price volatility than fixed income securities. Credit ratings downgrades may also negatively affect securities held by the Fund. Even when markets perform well, there is no assurance that the investments held by the Fund will increase in value along with the broader market. In addition, market risk includes the risk that geopolitical and other events will disrupt the economy on a national or global level. For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters can all negatively impact the securities markets, which could cause the Fund to lose value. These events could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and significantly adversely impact the economy. The current contentious domestic political environment, as well as political and diplomatic events within the United States and abroad, such as presidential elections in the U.S. or abroad or the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, has in the past resulted, and may in the future result, in a government shutdown or otherwise adversely affect the U.S. regulatory landscape, the general market environment and/or investor sentiment, which could have an adverse impact on the Fund’s
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| (Unaudited) |
investments and operations. Additional and/or prolonged U.S. federal government shutdowns may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Governmental and quasi-governmental authorities and regulators throughout the world have previously responded to serious economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets, which could adversely affect the Fund’s investments. Any market disruptions could also prevent the Fund from executing advantageous investment decisions in a timely manner. Funds that have focused their investments in a region enduring geopolitical market disruption will face higher risks of loss. Thus, investors should closely monitor current market conditions to determine whether the Fund meets their individual financial needs and tolerance for risk.
Current market conditions may pose heightened risks with respect to the Fund’s investment in fixed income securities. Interest rates in the U.S. are near historically low levels. Any interest rate increases in the future could cause the value of any Fund that invests in fixed income securities to decrease. As such, fixed income securities markets may experience heightened levels of interest rate, volatility and liquidity risk.
Exchanges and securities markets may close early, close late or issue trading halts on specific securities, which may result in, among other things, the Fund being unable to buy or sell certain securities or financial instruments at an advantageous time or accurately price its portfolio investments.
Mortgage-Related and Other Asset-Backed Instruments Risk
Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related assets, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, the Fund may exhibit 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 the Fund to lose value. Mortgage-backed securities, and in particular those not backed by a government guarantee, are subject to credit risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of the Fund because the Fund may have to reinvest that money at the lower prevailing interest rates. The Fund’s investments in other asset-backed instruments are subject
to risks similar to those associated with mortgage-related assets, 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 instruments may be largely dependent upon the cash flows generated by the assets backing the instruments, and asset-backed instruments may not have the benefit of any security interest in the related assets.
Subordinate mortgage-backed or asset-backed instruments are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payment on subordinate mortgage-backed or asset-backed instruments will not be fully paid.
There are multiple tranches of mortgage-backed and asset-backed instruments, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity or “first loss,” according to their degree of risk. The most senior tranche of a mortgage-backed or asset-backed instrument has the greatest collateralization and pays the lowest interest rate. If there are defaults or the collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. Lower tranches represent lower degrees of credit quality and pay higher interest rates intended to compensate for the attendant risks. The return on the lower tranches is especially sensitive to the rate of defaults in the collateral pool. The lowest tranche (i.e., the “equity” or “residual” tranche) specifically receives the residual interest payments (i.e., money that is left over after the higher tranches have been paid and expenses of the issuing entities have been paid) rather than a fixed interest rate. The Fund expects that investments in the lowest tranche of or subordinate mortgage-backed and other asset-backed instruments will be subject to the greatest risks of losing part or all of their values, which could arise from delinquencies and foreclosures, thereby exposing the Fund’s investment portfolio to potential losses. Subordinate securities of mortgage-backed and other asset-backed instruments are also subject to greater credit risk than those mortgage-backed or other asset-backed instruments that are more highly rated.
The mortgage markets in the United States and in various foreign countries have experienced extreme difficulties in the past that adversely affected the performance and market value of certain of the Fund’s mortgage-related investments. Delinquencies and losses on residential and commercial mortgage loans (especially subprime and second-lien mortgage loans) may increase, and a decline in or flattening of housing and other real property values may exacerbate
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| Principal Risks of the Funds1 | (Cont.) |
such delinquencies and losses. In addition, reduced investor demand for mortgage loans and mortgage-related securities and increased investor yield requirements have caused limited liquidity in the secondary market for mortgage-related securities, which can adversely affect the market value of mortgage-related securities. It is possible that such limited liquidity in such secondary markets could continue or worsen.
Mortgage-Related Derivative Instruments Risk
The Fund may engage in derivative transactions related to mortgage-backed securities, including purchasing and selling exchange-listed and OTC put and call options, futures and forwards on mortgages and mortgage-backed securities. The Fund may also invest in mortgage-backed securities credit default swaps, which include swaps the reference obligation for which is a mortgage-backed security or related index, such as the CMBX Index (a tradeable index referencing a basket of commercial mortgage-backed securities), the TRX Index (a tradeable index referencing total return swaps based on commercial mortgage-backed securities) or the ABX (a tradeable index referencing a basket of sub-prime mortgage-backed securities). The Fund may invest in newly developed mortgage related derivatives that may hereafter become available.
Derivative mortgage-backed securities (such as principal-only (“POs”), interest-only (“IOs”) or inverse floating rate securities) are particularly exposed to call and extension risks. Small changes in mortgage prepayments can significantly impact the cash flows and the market value of these derivative instruments. In general, the risk of faster than anticipated prepayments adversely affects IOs, super floaters and premium priced mortgage-backed securities. The risk of slower than anticipated prepayments generally affects POs, floating-rate securities subject to interest rate caps, support tranches and discount priced mortgage-backed securities. In addition, particular derivative instruments may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magnified.
Mortgage-related derivative instruments involve risks associated with mortgage-related and other asset-backed instruments, privately-issued mortgage-related securities, the mortgage market, the real estate industry, derivatives and credit default swaps.
Operational Risk
An investment in the Fund, like any fund, can involve operational risks arising from factors such as processing errors, human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel and errors caused by third-party service providers. The occurrence of any of these failures, errors or breaches could result in a loss of information, regulatory scrutiny, reputational damage or other events, any of which could have a
material adverse effect on the Fund. While the Fund seeks to minimize such events through controls and oversight, there may still be failures that could cause losses to the Fund.
Other Investment Companies Risk
When investing in an investment company, the Fund will bear its ratable share of that investment company’s expenses and would remain subject to payment of the Fund’s management fees and other expenses with respect to assets so invested. Common Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to same leverage risks.
Platform Risk
If the Fund purchases Alt Lending ABS on an alternative lending platform, the Fund will have the right to receive principal and interest payments due on loans underlying the Alt Lending ABS only if the platform servicing the loans receives the borrower’s payments on such loans and passes such payments through to the Fund. If a borrower is unable or fails to make payments on a loan for any reason, the Fund may be greatly limited in its ability to recover any outstanding principal or interest due, as (among other reasons) the Fund may not have direct recourse against the borrower or may otherwise be limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan was originated, the loan may be unsecured or under-collateralized and/or it may be impracticable to commence a legal proceeding against the defaulting borrower.
The Fund may have limited knowledge about the underlying loans and is dependent upon the platform for information regarding underlying loans. Although the Fund may conduct diligence on the platforms, the Fund generally does not have the ability to independently verify the information provided by the platforms, other than payment information regarding loans and other alternative lending-related instruments owned by the Fund, which the Fund observes directly as payments are received. With respect to alternative lending instruments that the Fund purchases in the secondary market (i.e., not directly from an alternative lending platform), the Fund may not perform the same level of diligence on such platform or at all. The Fund may not review the particular characteristics of the loans collateralizing an Alt Lending ABS, but rather negotiate in advance with platforms the general criteria of the underlying loans. As a result, the Fund is dependent on the platforms’ ability to collect, verify and provide information to the Fund about each loan and borrower.
The Fund relies on the borrower’s credit information, which is provided by the platforms. However, such information may be out of date, incomplete or inaccurate and may, therefore, not accurately reflect the
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| (Unaudited) |
borrower’s actual creditworthiness. Platforms may not have an obligation to update borrower information, and, therefore, the Fund may not be aware of any impairment in a borrower’s creditworthiness subsequent to the making of a particular loan. The platforms’ credit decisions and scoring models may be based on algorithms that could potentially contain programming or other errors or prove to be ineffective or otherwise flawed. This could adversely affect loan pricing data and approval processes and could cause loans to be mispriced or misclassified, which could ultimately have a negative impact on the Fund’s performance.
In addition, the underlying loans, in some cases, may be affected by the success of the platforms through which they are facilitated.
Therefore, disruptions in the businesses of such platforms may also negatively impact the value of the Fund’s investments. In addition, disruption in the business of a platform could limit or eliminate the ability of the Fund to invest in loans originated by that platform, and therefore the Fund could lose some or all of the benefit of its diligence effort with respect to that platform.
Platforms are for-profit businesses that, as a general matter, generate revenue by collecting fees on funded loans from borrowers and by assessing a loan servicing fee on investors, which may be a fixed annual amount or a percentage of the loan or amounts collected. This business could be disrupted in multiple ways; for example, a platform could file for bankruptcy or a platform might suffer reputational harm from negative publicity about the platform or alternative lending more generally and the loss of investor confidence in the event that a loan facilitated through the platform is not repaid and the investor loses money on its investment. Many platforms and/or their affiliates have incurred operating losses since their inception and may continue to incur net losses in the future, particularly as their businesses grow and they incur additional operating expenses. Platforms may also be forced to defend legal action taken by regulators or governmental bodies. Alternative lending is a newer industry operating in an evolving legal environment. Platforms may be subject to risk of litigation alleging violations of law and/or regulations, including, for example, consumer protection laws, whether in the U.S. or in foreign jurisdictions. Platforms may be unsuccessful in defending against such lawsuits or other actions and, in addition to the costs incurred in fighting any such actions, platforms may be required to pay money in connection with the judgments, settlements or fines or may be forced to modify the terms of its borrower loans, which could cause the platform to realize a loss or receive a lower return on a loan than originally anticipated. Platforms may also be parties to litigation or other legal action in an attempt to protect or enforce their rights or those of affiliates, including intellectual property rights, and may incur similar costs in connection with any such efforts.
The Fund’s investments in Alt Lending ABS may expose the Fund to the credit risk of the issuer. Generally, such instruments are unsecured obligations of the issuer; an issuer that becomes subject to bankruptcy proceedings may be unable to make full and timely payments on its obligations to the Fund, even if the payments on the underlying loan or loans continue to be made timely and in full. In addition, when the Fund owns Alt Lending ABS, the Fund and its custodian generally does not have a contractual relationship with, or personally identifiable information regarding, individual borrowers, so the Fund will not be able to enforce underlying loans directly against borrowers and may not be able to appoint an alternative servicing agent in the event that a platform or third-party servicer, as applicable, ceases to service the underlying loans. Therefore, the Fund is more dependent on the platform for servicing than if the Fund had owned whole loans through the platform. Where such interests are secured, the Fund relies on the platform to perfect the Fund’s security interest. In addition, there may be a delay between the time the Fund commits to purchase an instrument issued by a platform, its affiliate or a special purpose entity sponsored by the platform or its affiliate and the issuance of such instrument and, during such delay, the funds committed to such an investment will not earn interest on the investment nor will they be available for investment in other alternative lending-related instruments, which will reduce the effective rate of return on the investment.
Portfolio Turnover Risk
The Investment Manager manages the Fund without regard generally to restrictions on portfolio turnover. The use of futures contracts and other derivative instruments with relatively short maturities may tend to exaggerate the portfolio turnover rate for the Fund. Trading in fixed income securities does not generally involve the payment of brokerage commissions but does involve indirect transaction costs. The use of futures contracts and other derivative instruments may involve the payment of commissions to futures commission merchants or other intermediaries. Higher portfolio turnover involves correspondingly greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. The higher the rate of portfolio turnover of the Fund, the higher these transaction costs borne by the Fund generally will be. Such sales may result in realization of taxable capital gains (including short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates when distributed net of short-term capital losses and net long-term capital losses) and may adversely impact the Fund’s after-tax returns.
Potential Conflicts of Interest Risk — Allocation of Investment Opportunities
The Investment Manager is involved worldwide with a broad spectrum of financial services and asset management activities and may engage
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| Principal Risks of the Funds1 | (Cont.) |
in the ordinary course of business in activities in which their interests or the interests of their clients may conflict with those of the Fund. The Investment Manager may provide investment management services to other funds and discretionary managed accounts that follow an investment program similar to that of the Fund. Subject to the requirements of the Act, the Investment Manager intends to engage in such activities and may receive compensation from third parties for its services. The results of the Fund’s investment activities may differ from those of the Fund’s affiliates, or another account managed by the Fund’s affiliates, and it is possible that the Fund could sustain losses during periods in which one or more of the Fund’s affiliates and/or other accounts managed by the Investment Manager or its affiliates, including proprietary accounts, achieve profits on their trading.
Preferred Securities Risk
In addition to equity securities risk, credit risk and possibly high yield risk, investment in preferred securities involves certain other risks. Certain preferred securities contain provisions that allow an issuer under certain conditions to skip or defer distributions. If the Fund owns a preferred security that is deferring its distribution, the Fund may be required to include the amount of the deferred distribution in its taxable income for tax purposes although it does not currently receive such amount in cash. In order to receive the special treatment accorded to regulated investment companies and their shareholders under the Code and to avoid U.S. federal income and/or excise taxes at the Fund level, the Fund may be required to distribute this income to shareholders in the tax year in which the income is recognized (without a corresponding receipt of cash). Therefore, the Fund may be required to pay out as an income distribution in any such tax year an amount greater than the total amount of cash income the Fund actually received and to sell portfolio securities, including at potentially disadvantageous times or prices, to obtain cash needed for these income distributions. Preferred securities often are subject to legal provisions that allow for redemption in the event of certain tax or legal changes or at the issuer’s call. In the event of redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred securities are subordinated to bonds and other debt securities in an issuer’s capital structure in terms of priority for corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt securities. Preferred securities may trade less frequently and in a more limited volume and may be subject to more abrupt or erratic price movements than many other securities.
Additional Risks Associated with the Fund’s Preferred Shares
Although the Fund’s ARPS ordinarily would pay dividends at rates set at periodic auctions, the weekly auctions for the ARPS (and auctions for similar preferred shares issued by closed-end funds in the U.S.) have failed since 2008. The dividend rates on the ARPS since that time
have been paid, and the Fund expects that they will continue to be paid for the foreseeable future, at the “maximum applicable rate” under the Fund’s Bylaws (i.e., the greater of a multiple of or a spread plus a reference rate). An increase in market interest rates generally, therefore, could increase substantially the dividend rate required to be paid by the Fund to the holders of ARPS, which would increase the costs associated with the Fund’s leverage and reduce the Fund’s net income available for distribution to Common Shareholders. In addition, the multiple or spread used to calculate the maximum applicable rate is based in part on the credit rating assigned to the ARPS by the applicable rating agency(ies), with the multiple or spread generally increasing as the rating declines. The Fund’s ARPS rating has previously been downgraded and the ARPS could be subject to further ratings downgrades in the future, possibly resulting in further increases to the maximum applicable rate.
Therefore, it is possible that a substantial rise in market interest rates and/or further ratings downgrades of the ARPS could, by reducing income available for distribution to the Common Shareholders and otherwise detracting from the Fund’s investment performance, make the Fund’s continued use of Preferred Shares for leverage purposes less attractive than such use is currently considered to be. In such case, the Fund may elect to redeem some or all of the Preferred Shares outstanding, which may require it to dispose of investments at inopportune times and to incur losses on such dispositions. Such dispositions may adversely affect the Fund’s investment performance generally, and the resultant loss of leverage may materially and adversely affect the Fund’s investment returns to Common Shareholders. The Fund has previously been required to redeem a portion of its ARPS due to market dislocations that caused the value of the Fund’s portfolio securities and related asset coverage to decline and could be required to do so again in the future.
The Fund is also subject to certain asset coverage tests associated with the rating agencies that rate the ARPS. Failure by the Fund to maintain the asset coverages (or to cure such failure in a timely manner) may require the Fund to redeem ARPS. Failure to satisfy ratings agency asset coverage tests or other guidelines could also result in the applicable ratings agency downgrading its then-current ratings on the ARPS, as described above. Moreover, the rating agency guidelines impose restrictions or limitations on the Fund’s use of certain financial instruments or investment techniques that the Fund might otherwise utilize in order to achieve its investment objective, which may adversely affect the Fund’s investment performance. Rating agency guidelines may be modified by the rating agencies in the future and such modifications may make such guidelines substantially more restrictive or otherwise result in downgrades, which could further negatively affect the Fund’s investment performance.
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| (Unaudited) |
As discussed further in “Notes to Financial Statements — Auction-Rate Preferred Shares”, on December 4, 2020, Fitch published revised ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “A” for the Fund. Following the close of business on April 30, 2021, Fitch downgraded its rating of the Fund’s ARPS from “AA” to “A” pursuant to the revised ratings methodology and related new rating caps. With respect to PIMCO Corporate & Income Strategy Fund, under the Fund’s Bylaws, the April 2021 Fitch downgrade resulted in an increase in the multiple used to calculate the maximum applicable rate from 150% to 160%, thereby increasing the dividend rate payable to the Fund’s ARPS holders and increasing the expenses to the Common Shareholders associated with the Fund’s leverage. With respect to each of PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II, under each Fund’s Bylaws, the April 2021 Fitch downgrade resulted in an increase in the dividend rate multiplier from 1.50 to 2.00, which could increase the dividend rate payable to each Fund’s ARPS holders should the maximum dividend rate be determined via the multiplier in lieu of the spread noted above (the maximum dividend rate is based on the greater of a multiple of or a spread plus a reference rate) and, thereby, increase the expenses to Common Shareholders associated with the Fund’s leverage.
Privacy and Data Security Risk
The Fund generally does not intend to obtain or hold borrowers’ non-public personal information, and the Fund intends to implement procedures designed to prevent the disclosure of borrowers’ non-public personal information to the Fund. However, service providers to the Fund or its direct or indirect fully owned subsidiaries, including their custodians and the platforms acting as loan servicers for the Fund or its direct or indirect fully-owned subsidiaries, may obtain, hold or process such information. The Fund cannot guarantee the security of non-public personal information in the possession of such a service provider and cannot guarantee that service providers have been and will continue to comply with the Gramm-Leach-Bliley Act (“GLBA”), other data security and privacy laws and any other related regulatory requirements. Violations of GLBA and other laws could subject the Fund to litigation and/or fines, penalties or other regulatory action, which, individually or in the aggregate, could have an adverse effect on the Fund. The Fund may also face regulations related to privacy and data security in the other jurisdictions in which the Fund invests.
Private Placements Risk
A private placement involves the sale of securities that have not been registered under the 1933 Act, or relevant provisions of applicable non-U.S. law, to certain institutional and qualified individual purchasers, such as the Fund. In addition to the general risks to which all securities are subject, securities received in a private placement
generally are subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise valuation risks.
Privately Issued Mortgage-Related Securities Risk
There are no direct or indirect government or agency guarantees of payments in pools created by non-governmental issuers. Privately issued mortgage-related securities are also not subject to the same underwriting requirements for the underlying mortgages that are applicable to those mortgage-related securities that have a government or government-sponsored entity guarantee.
Privately issued mortgage-related securities are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, mortgage-related securities held in the Fund’s portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans.
Real Estate Risk
To the extent that the Fund invests in real estate related investments, including REITs, real estate-related loans or real-estate linked derivative instruments, it will be subject to the risks associated with owning real estate and with the real estate industry generally. These include difficulties in valuing and disposing of real estate, the possibility of declines in the value of real estate, risks related to general and local economic conditions, the possibility of adverse changes in the climate for real estate, environmental liability risks, the risk of increases in property taxes and operating expenses, possible adverse changes in zoning laws, the risk of casualty or condemnation losses, limitations on rents, the possibility of adverse changes in interest rates and in the credit markets and the possibility of borrowers paying off mortgages sooner than expected, which may lead to reinvestment of assets at lower prevailing interest rates. To the extent that the Fund invests in REITs, it will also be subject to the risk that a REIT may default on its obligations or go bankrupt. By investing in REITs indirectly through the Fund, a shareholder will indirectly bear his or her proportionate share of the expenses of the REITs. The Fund’s investments in REITs could cause the Fund to recognize income in excess of cash received from those securities and, as a result, the Fund may be required to sell portfolio securities, including when it is not advantageous to do so, in order to make distributions. An investment in a REIT or a real estate-linked derivative instrument that is linked to the value of a REIT is subject to additional risks, such as poor performance by the manager of the REIT, adverse changes to the tax laws or failure by the REIT to qualify for favorable tax treatment under
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| Principal Risks of the Funds1 | (Cont.) |
the Code. In addition, some REITs have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a single type of property. Also, the organizational documents of a REIT may contain provisions that make changes in control of the REIT difficult and time-consuming. Finally, private REITs are not traded on a national securities exchange. As such, these products are generally illiquid. This reduces the ability of the Fund to redeem its investment early. Private REITs are also generally harder to value and may bear higher fees than public REITs.
Regulatory Changes Risk
Financial entities, such as investment companies and investment advisers, are generally subject to extensive government regulation and intervention. Government regulation and/or intervention may change the way the Fund is regulated, affect the expenses incurred directly by the Fund and the value of its investments, and limit and /or preclude the Fund’s ability to achieve its investment objective. Government regulation may change frequently and may have significant adverse consequences. The Fund and the Investment Manager have historically been eligible for exemptions from certain regulations. However, there is no assurance that the Fund and the Investment Manager will continue to be eligible for such exemptions. Actions by governmental entities may also impact certain instruments in which the Fund invests.
Moreover, government regulation may have unpredictable and unintended effects. Legislative or regulatory actions to address perceived liquidity or other issues in fixed income markets generally, or in particular markets such as the municipal securities market, may alter or impair the Fund’s ability to pursue its investment objectives or utilize certain investment strategies and techniques.
Current rules related to credit risk retention requirements for asset-backed securities may increase the cost to originators, securitizers and, in certain cases, asset managers of securitization vehicles in which the Fund may invest. The impact of the risk retention rules on the securitization markets is uncertain. These requirements may increase the costs to originators, securitizers, and, in certain cases, collateral managers of securitization vehicles in which the Fund may invest, which costs could be passed along to such Fund as an investor in such vehicles. In addition, the costs imposed by the risk retention rules on originators, securitizers and/or collateral managers may result in a reduction of the number of new offerings of asset-backed securities and thus in fewer investment opportunities for the Fund. A reduction in the number of new securitizations could also reduce liquidity in the markets for certain types of financial assets, which in turn could negatively affect the returns on the Fund’s investment.
Regulatory Risk — Commodity Pool Operator
The CFTC has adopted regulations that subject registered investment companies and their investment advisers to regulation by the CFTC if
the registered investment company invests more than a prescribed level of its liquidation value in futures, options on futures or commodities, swaps, or other financial instruments regulated under the CEA and the rules thereunder (“commodity interests”), or if the Fund markets itself as providing investment exposure to such instruments.
Regulatory Risk — LIBOR
The Fund’s investments (including, but not limited to, repurchase agreements, collateralized loan obligations and mortgage-backed securities), payment obligations and financing terms may rely in some fashion on LIBOR. LIBOR is an average interest rate, determined by the ICE Benchmark Administration, that banks charge one another for the use of short-term money. The United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced plans to phase out the use of LIBOR by the end of 2021. On July 27, 2017, the Chief Executive of the FCA announced that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. On March 5, 2021, the ICE Benchmark Administration (“IBA”), the administrator of LIBOR, announced that it will cease publication of many of its LIBOR settings after December 31, 2021, and that it will cease publication of certain commonly used tenors of U.S. dollar LIBOR after June 30, 2023. While the FCA may consult on the issue of requiring the IBA to produce certain LIBOR tenors on a synthetic basis, it has announced that all 35 LIBOR settings will either cease to be provided by any administrator or will no longer be representative as of the dates published by the IBA. The Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation have issued guidance encouraging market participants to adopt alternatives to LIBOR in new contracts as soon as practicable and no later than December 31, 2021. Although the transition process away from LIBOR has become increasingly well-defined in advance of the anticipated discontinuation date, there remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate (e.g., the Secured Overnight Financing Rate, which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities). Any potential effects of the transition away from LIBOR on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending on factors that include, but are not limited to: (i) existing fallback or termination provisions in individual contracts and (ii) whether, how, and when industry participants develop and adopt new reference rates and fallbacks for both legacy and new products and instruments. For example, certain of the Fund’s investments may involve individual contracts that have no existing fallback provision or language that contemplates the discontinuation
| 176 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
of LIBOR, and those investments could experience increased volatility or illiquidity as a result of the transition process. In addition, interest rate provisions included in such contracts, or in contracts or other arrangements entered into by the Fund, may need to be renegotiated. The transition may also result in a reduction in the value of certain instruments held by the Fund, a change in the cost of borrowing or the dividend rate for any preferred shares that may be issued by the Fund, or a reduction in the effectiveness of related Fund transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the Fund.
Reinvestment Risk
Income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called debt obligations at market interest rates that are below the portfolio’s current earnings rate. For instance, during periods of declining interest rates, an issuer of debt obligations may exercise an option to redeem securities prior to maturity, forcing the Fund to invest in lower-yielding securities. The Fund also may choose to sell higher yielding portfolio securities and to purchase lower yielding securities to achieve greater portfolio diversification, because the portfolio managers believe the current holdings are overvalued or for other investment-related reasons. A decline in income received by the Fund from its investments is likely to have a negative effect on dividend levels and the market price, NAV and/or overall return of the Common Shares.
Repurchase Agreements Risk
The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer, which agrees to repurchase the security at the Fund’s cost plus interest within a specified time. If the party agreeing to repurchase should default, the Fund would seek to sell the securities which it holds. This could involve procedural costs or delays in addition to a loss on the securities if their value should fall below their repurchase price. Repurchase agreements may be or become illiquid. These events could also trigger adverse tax consequences for the Fund.
Restricted Securities Risk
A private placement involves the sale of securities that have not been registered under the Securities Act or relevant provisions of applicable non-U.S. law to certain institutional and qualified individual purchasers, such as the Fund. In addition to the general risks to which all securities are subject, securities received in a private placement generally are subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise valuation risks. Restricted securities are often purchased at a discount from the market price of unrestricted
securities of the same issuer reflecting the fact that such securities may not be readily marketable without some time delay. Such securities are often more difficult to value, and the sale of such securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of liquid securities trading on national securities exchanges or in the over-the-counter markets. Until the Fund can sell such securities into the public markets, its holdings will be less liquid, and any sales will need to be made pursuant to an exemption under the Securities Act.
Securities Lending Risk
For the purpose of achieving income, the Fund may lend its portfolio securities to brokers, dealers, and other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized. When the Fund lends portfolio securities, its investment performance will continue to reflect changes in the value of the securities loaned, and the Fund will also receive a fee or interest on the collateral. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent. The Fund may pay lending fees to a party arranging the loan. Cash collateral received by the Fund in securities lending transactions may be invested in short-term liquid fixed income instruments or in money market or short-term mutual funds, or similar investment vehicles, including affiliated money market or short-term mutual funds. The Fund bears the risk of such investments.
Segregation and Coverage Risk
Certain portfolio management techniques, such as, among other things, entering into reverse repurchase agreement transactions, swap agreements, futures contracts or other derivative transactions, purchasing securities on a when-issued or delayed delivery basis or engaging in short sales may be considered senior securities unless steps are taken to segregate the Fund’s assets or otherwise cover its obligations. To avoid having these instruments considered senior securities, the Fund may segregate liquid assets with a value equal (on a daily mark-to-market basis) to its obligations under these types of leveraged transactions, enter into offsetting transactions or otherwise cover such transactions. At times, all or a substantial portion of the Fund’s liquid assets may be segregated for purposes of various portfolio transactions. The Fund may be unable to use such segregated assets for certain other purposes, which could result in the Fund earning a lower return on its portfolio than it might otherwise earn if it did not have to segregate those assets in respect of, or otherwise cover, such portfolio positions. To the extent the Fund’s assets are segregated or committed as cover, it could limit the Fund’s investment flexibility. Segregating assets and covering positions will not limit or offset losses on related positions.
| ANNUAL REPORT | | | JULY 31, 2021 | 177 |
| Principal Risks of the Funds1 | (Cont.) |
Senior Debt Risk
The Fund may be subject to greater levels of credit risk than funds that do not invest in below investment grade senior debt. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in senior debt. Restrictions on transfers in loan agreements, a lack of publicly available information and other factors may, in certain instances, make senior debt more difficult to sell at an advantageous time or price than other types of securities or instruments. Additionally, if the issuer of senior debt prepays, the Fund will have to consider reinvesting the proceeds in other senior debt or similar instruments that may pay lower interest rates.
Short Exposure Risk
The Fund’s short sales, if any, are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. The Fund may also enter into a short position through a forward commitment or a short derivative position through a futures contract or swap agreement. If the price of the security or derivative has increased during this time, then the Fund will incur a loss equal to the increase in price from the time that the short sale was entered into plus any transaction costs (i.e., premiums and interest) paid to the broker-dealer to borrow securities. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the investment. By contrast, a loss on a long position arises from decreases in the value of the security and is limited by the fact that a security’s value cannot decrease below zero.
By investing the proceeds received from selling securities short, the Fund could be deemed to be employing a form of leverage, which creates special risks. The use of leverage may increase the Fund’s exposure to long security positions and make any change in the Fund’s NAV greater than it would be without the use of leverage. This could result in increased volatility of returns. There is no guarantee that any leveraging strategy the Fund employs will be successful during any period in which it is employed.
In times of unusual or adverse market, economic, regulatory or political conditions, the Fund may not be able, fully or partially, to implement its short selling strategy. Periods of unusual or adverse market, economic, regulatory or political conditions generally may exist for long periods of time. Also, there is the risk that the third party to the short sale will not fulfill its contractual obligations, causing a loss to the Fund.
Special Purpose Acquisition Companies (“SPACs”) Risk See “Additional Information Regarding the Funds—Changes Occurring During the Reporting Period” for a description of this principal risk.
Smaller Company Risk. The general risks associated with debt instruments or equity securities are particularly pronounced for securities issued by companies with small market capitalizations. Small capitalization companies involve certain special risks. They are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. They may also have limited liquidity. These securities may therefore be more vulnerable to adverse developments than securities of larger companies, and the Fund may have difficulty purchasing or selling securities positions in smaller companies at prevailing market prices. Also, there may be less publicly available information about smaller companies or less market interest in their securities as compared to larger companies. Companies with medium-sized market capitalizations may have risks similar to those of smaller companies.
Sovereign Debt Risk
In addition to the other risks applicable to debt investments, sovereign debt may decline in value as a result of default or other adverse credit event resulting from an issuer’s inability or unwillingness to make principal or interest payments in a timely fashion. A sovereign entity’s failure to make timely payments on its debt can result from many factors, including, without limitation, insufficient foreign currency reserves or an inability to sufficiently manage fluctuations in relative currency valuations, an inability or unwillingness to satisfy the demands of creditors and/or relevant supranational entities regarding debt service or economic reforms, the size of the debt burden relative to economic output and tax revenues, cash flow difficulties, and other political and social considerations. The risk of loss to the Fund in the event of a sovereign debt default or other adverse credit event is heightened by the unlikelihood of any formal recourse or means to enforce its rights as a holder of the sovereign debt. In addition, sovereign debt restructurings, which may be shaped by entities and factors beyond the Fund’s control, may result in a loss in value of the Fund’s sovereign debt holdings.
Structured Investments Risk
Holders of structured products, including structured notes, credit-linked notes and other types of structured products, bear the risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured products enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured products generally pay their share of the
| 178 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
structured product’s administrative and other expenses. Although it is difficult to predict whether the prices of indices and securities underlying structured products will rise or fall, these prices (and, therefore, the prices of structured products) are generally influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. If the issuer of a structured product uses shorter term financing to purchase longer term securities, the issuer may be forced to sell its securities at below market prices if it experiences difficulty in obtaining such financing, which may adversely affect the value of the structured products owned by the Fund. Structured products generally entail risks associated with derivative instruments.
Subprime Risk
Loans, and debt instruments collateralized by loans, acquired by the Fund may be subprime in quality, or may become subprime in quality. Although there is no specific legal or market definition of “subprime,” subprime loans are generally understood to refer to loans made to borrowers that display poor credit histories and other characteristics that correlate with a higher default risk. Accordingly, subprime loans, and debt instruments secured by such loans, have speculative characteristics and are subject to heightened risks, including the risk of nonpayment of interest or repayment of principal, and the risks associated with investments in high yield securities. In addition, these instruments could be subject to increased regulatory scrutiny. The Fund is not restricted by any particular borrower credit criteria when acquiring loans or debt instruments collateralized by loans.
Subsidiary Risk
See “Additional Information Regarding the Funds—Changes Occurring During the Reporting Period” for a description of this principal risk.
Synthetic Convertible Securities Risk
The values of synthetic convertible securities will respond differently to market fluctuations than a traditional convertible security because a synthetic convertible is composed of two or more separate securities or instruments, each with its own market value. Synthetic convertible securities are also subject to the risks associated with derivatives. In addition, if the value of the underlying common stock or the level of the index involved in the convertible element falls below the strike price of the warrant or option, the warrant or option may lose all value.
Tax Risk
The Fund has elected to be treated as a “regulated investment company” (a “RIC”) under the Code and intends each year to qualify and be eligible to be treated as such, so that it generally will not be subject to U.S. federal income tax on its net investment income or net short-term or long-term capital gains, that are distributed (or deemed distributed, as described below) to shareholders. In order to qualify
and be eligible for such treatment, the Fund must meet certain asset diversification tests, derive at least 90% of its gross income for such year from certain types of qualifying income, and distribute to its shareholders at least 90% of its “investment company taxable income” as that term is defined in the Code (which includes, among other things, dividends, taxable interest and the excess of any net short-term capital gains over net long-term capital losses, as reduced by certain deductible expenses).
The Fund’s investment strategy will potentially be limited by its intention to continue qualifying for treatment as a RIC, and can limit the Fund’s ability to continue qualifying as such. The tax treatment of certain of the Fund’s investments under one or more of the qualification or distribution tests applicable to regulated investment companies is uncertain. An adverse determination or future guidance by the IRS or a change in law might affect the Fund’s ability to qualify or be eligible for such treatment.
If, in any year, the Fund were to fail to qualify for treatment as a RIC under the Code and were ineligible to or did not otherwise cure such failure, the Fund would be subject to tax on its taxable income at corporate rates and, when such income is distributed, shareholders would be subject to further tax on such distributions to the extent of the Fund’s current or accumulated earnings and profits.
U.S. Government Securities Risk
Certain U.S. Government Securities such as U.S. Treasury bills, notes and bonds and mortgage-related securities guaranteed by the GNMA, are supported by the full faith and credit of the United States; others, such as those of Federal Home Loan Banks (“FHLBs”) or the Federal Home Loan Mortgage Corporation (“FHLMC”), are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the FNMA, are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations; and still others are supported only by the credit of the agency, instrumentality or corporation. Although legislation has been enacted to support certain government sponsored entities, including the FHLBs, FHLMC and FNMA, there is no assurance that the obligations of such entities will be satisfied in full, or that such obligations will not decrease in value or default. It is difficult, if not impossible, to predict the future political, regulatory or economic changes that could impact the government sponsored entities and the values of their related securities or obligations. In addition, certain governmental entities, including FNMA and FHLMC, have been subject to regulatory scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality, availability or investment character of securities issued by these entities. Yields available from U.S. Government debt securities are
| ANNUAL REPORT | | | JULY 31, 2021 | 179 |
| Principal Risks of the Funds1 | (Cont.) | (Unaudited) |
generally lower than the yields available from such other securities. The values of U.S. Government Securities change as interest rates fluctuate.
Valuation Risk
Certain securities in which the Fund invests may be less liquid and more difficult to value than other types of securities. When market quotations or pricing service prices are not readily available or are deemed to be unreliable, the Fund values its investments at fair value as determined in good faith pursuant to policies and procedures approved by the Board. Fair value pricing may require subjective determinations about the value of a security or other asset. As a result, there can be no assurance that fair value pricing will result in adjustments to the prices of securities or other assets or that fair value pricing will reflect actual market value, and it is possible that the fair value determined for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that actually could be or is realized upon the sale of that security or other asset.
Zero-Coupon Bond, Step-Ups and Payment-in-Kind Securities Risk
The market prices of zero-coupon, step-ups and payment-in-kind securities are generally are more volatile than the prices of securities that pay interest periodically and in cash and are likely to respond to changes in interest rates to a greater degree than other types of debt securities with similar maturities and credit quality. Because zero-coupon securities bear no interest, their prices are especially volatile. And because zero-coupon bondholders do not receive interest payments, the prices of zero-coupon securities generally fall more dramatically than those of bonds that pay interest on a current basis when interest rates rise. The market for zero-coupon and payment-in-kind securities may suffer decreased liquidity. In addition, as these securities may not pay cash interest, the Fund’s investment exposure to these securities and their risks, including credit risk, will increase during the time these securities are held in the Fund’s portfolio. Further, to maintain its qualification for treatment as a RIC and to avoid Fund-level U.S. federal income and/or excise taxes, the Fund is required to distribute to its shareholders any income it is deemed to have received in respect of such investments, notwithstanding that cash has not been received currently, and the value of paid-in-kind interest. Consequently, the Fund may have to dispose of portfolio securities under disadvantageous circumstances to generate the cash or may have to leverage itself by borrowing the cash to satisfy this distribution requirement. The required distributions, if any, would result in an increase in the Fund’s exposure to these securities. Zero coupon bonds, step-ups and payment-in-kind securities allow an issuer to avoid or delay the need to generate cash
to meet current interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The Fund would be required to distribute the income on these instruments as it accrues, even though the Fund will not receive the income on a current basis or in cash. Thus, the Fund may sell other investments, including when it may not be advisable to do so, to make income distributions to its shareholders.
1 Defined terms used and not otherwise defined in this section have the meanings set forth in the Principal Investment Strategies and Principal Risks of the Funds sections.
| 180 | PIMCO CLOSED-END FUNDS |
| Risk Management Strategies | (Unaudited) |
A Fund may (but is not required to) use various investment strategies to attempt to hedge exposure to reduce the risk of price fluctuations of its portfolio securities, the risk of loss, and to preserve capital. Derivatives strategies and instruments that a Fund may use include, among others, reverse repurchase agreements; interest rate swaps; total return swaps; credit default swaps; basis swaps; other types of swap agreements or options thereon; dollar rolls; futures and forward contracts (including foreign currency exchange contracts); short sales; options on financial futures; options based on either an index of municipal securities or taxable debt securities whose prices, PIMCO believes, correlate with the prices of the Fund’s investments; other derivative transactions; loans of portfolio securities and when-issued, delayed delivery and forward commitment transactions. Income earned by a Fund from its hedging and related transactions may be subject to one or more special U.S. federal income tax rules that can affect the amount, timing and/or character of distributions to holders of the Fund’s Common Shares. For instance, many hedging activities will be treated as capital gain and, if not offset by net realized capital loss, will be distributed to shareholders in taxable distributions. If effectively used, hedging strategies will offset in varying percentages losses incurred on a Fund’s investments due to adverse interest rate changes. There is no assurance that these hedging strategies will be available at any time or that PIMCO will determine to use them for a Fund or, if used, that the strategies will be successful. PIMCO may determine not to engage in hedging strategies or to do so only in unusual circumstances or market conditions. In addition, a Fund may be subject to certain restrictions on its use of hedging strategies imposed by guidelines of one or more ratings agencies that may issue ratings on any preferred shares issued by the Fund.
A Fund may take certain actions if short-term interest rates increase or market conditions otherwise change (or the Fund anticipates such an increase or change) and the Fund’s leverage begins (or is expected) to adversely affect holders of its Common Shares. In order to attempt to offset such a negative impact of leverage on holders of Common Shares, a Fund may shorten the average maturity or duration of its investment portfolio (by investing in short-term, high quality securities or implementing certain hedging strategies). Should a Fund issue preferred shares, the Fund also may attempt to reduce leverage by redeeming or otherwise purchasing preferred shares or by reducing any holdings in other instruments that create leverage. The success of any such attempt to limit leverage risk depends on PIMCO’s ability to accurately predict interest rate or other market changes. Because of the difficulty of making such predictions, a Fund may not be successful in managing its interest rate exposure in the manner described above.
In addition, each Fund has adopted certain investment limitations designed to limit investment risk. See “Fundamental Investment Restrictions” below for a description of these limitations.
1 Defined terms used and not otherwise defined in this section have the meanings set forth in the Principal Investment Strategies and Principal Risks of the Funds sections.
| ANNUAL REPORT | | | JULY 31, 2021 | 181 |
| Effects of Leverage1 | (Unaudited) |
The following table is furnished in response to requirements of the SEC. It is designed to, among other things, illustrate the effects of leverage through the use of senior securities, as that term is defined under Section 18 of the Act, on Common Share total return, assuming investment portfolio total returns (consisting of income and changes in the value of investments held in a Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. The table below reflects each Fund’s continued use of Preferred Shares and reverse repurchase agreements, as applicable, as of July 31, 2021 as a percentage of total managed assets (including assets attributable to such leverage), the estimated annual effective Preferred Share dividend rate and interest expense rate payable by the Fund on such instruments (based on market conditions as of July 31, 2021), and the annual return that the Fund’s portfolio must experience (net of expenses) in order to cover such costs. The information below
does not reflect any Fund’s use of certain other forms of economic leverage achieved through the use of other instruments or transactions not considered to be senior securities under the Act, such as covered credit default swaps or other derivative instruments.
The assumed investment portfolio returns in the table below are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. Your actual returns may be greater or less than those appearing below. In addition, actual borrowing expenses associated with reverse repurchase agreements (or dollar rolls or borrowings, if any) used by the Fund may vary frequently and may be significantly higher or lower than the rate used for the example below.
| PIMCO Corporate & Income Opportunity Fund (PTY) |
PIMCO Corporate & Income Strategy Fund (PCN) |
PIMCO High Income Fund (PHK) |
PIMCO Income Strategy Fund (PFL) |
PIMCO Income Strategy Fund II (PFN) |
||||||||||||||||||||
| Preferred Shares as a Percentage of Total Managed Assets (Including Assets Attributable to Preferred Shares and Reverse Repurchase Agreements) |
7.41 | % | 2.25 | % | 4.37 | % | 7.63 | % | 7.69 | % | ||||||||||||||
| Estimated Annual Effective Preferred Share Dividend Rate |
0.14 | % | 0.11 | % | 0.11 | % | 1.58 | % | 1.59 | % | ||||||||||||||
| Reverse Repurchase Agreements as a Percentage of Total Managed Assets (Including Assets Attributable to Preferred Shares and Reverse Repurchase Agreements) |
35.30 | % | 39.79 | % | 36.02 | % | 30.64 | % | 28.71 | % | ||||||||||||||
| Estimated Annual Effective Interest Expense Rate Payable by Fund on Reverse Repurchase Agreements |
0.56 | % | 0.56 | % | 0.59 | % | 0.63 | % | 0.60 | % | ||||||||||||||
| Annual Return Fund Portfolio Must Experience (net of expenses) to Cover Estimated Annual Effective Preferred Share Dividend Rate and Interest Expense Rate on Reverse Repurchase Agreements |
0.21 | % | 0.23 | % | 0.22 | % | 0.31 | % | 0.29 | % | ||||||||||||||
| Common Share Total Return for (10.00)% Assumed Portfolio Total Return |
(17.82 | )% | (17.64 | )% | (17.14 | )% | (16.71 | )% | (16.18 | )% | ||||||||||||||
| Common Share Total Return for (5.00)% Assumed Portfolio Total Return |
(9.09 | )% | (9.02 | )% | (8.75 | )% | (8.61 | )% | (8.32 | )% | ||||||||||||||
| Common Share Total Return for 0.00% Assumed Portfolio Total Return |
(0.37 | )% | (0.39 | )% | (0.37 | )% | (0.51 | )% | (0.46 | )% | ||||||||||||||
| Common Share Total Return for 5.00% Assumed Portfolio Total Return |
8.36 | % | 8.24 | % | 8.02 | % | 7.59 | % | 7.40 | % | ||||||||||||||
| Common Share Total Return for 10.00% Assumed Portfolio Total Return |
17.09 | % | 16.87 | % | 16.41 | % | 15.69 | % | 15.26 | % | ||||||||||||||
Common Share total return is composed of two elements — the distributions paid by a Fund to holders of Common Shares (the amount of which is largely determined by the net investment income of the Fund after paying dividend payments on any preferred shares issued by the Fund and expenses on any forms of leverage outstanding) and gains or losses on the value of the securities and other instruments the Fund owns. As required by SEC rules, the table assumes that a Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, a Fund must assume that the income it receives on its investments is entirely offset by losses in the value of those investments. This table reflects hypothetical performance of a Fund’s portfolio and not the actual performance of the Fund’s Common Shares, the value of which is determined by market forces and other factors.
Should a Fund elect to add additional leverage to its portfolio, any benefits of such additional leverage cannot be fully achieved until the proceeds resulting from the use of such leverage have been received by the Fund and invested in accordance with the Fund’s investment objectives and policies. As noted above, a Fund’s willingness to use additional leverage, and the extent to which leverage is used at any time, will depend on many factors, including, among other things, PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors.
1 Defined terms used and not otherwise defined in this section have the meanings set forth in the Principal Investment Strategies and Principal Risks of the Funds sections.
| 182 | PIMCO CLOSED-END FUNDS |
| Fundamental Investment Restrictions1 | (Unaudited) |
PIMCO Corporate & Income Opportunity Fund
The investment restrictions set forth below are each a fundamental policy of the Fund that may not be changed without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class. The Fund may not:
| (1) | Concentrate its investments in a particular “industry,” as that term is used in the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (2) | With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each obligor, if any, is treated as a separate issuer of municipal bonds. |
| (3) | Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein. |
| (4) | Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws. |
| (5) | Borrow money or issue any senior security, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (6) | Make loans, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (7) | Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws. |
PIMCO Corporate & Income Strategy Fund
Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class:
| (1) | Concentrate its investments in a particular “industry,” as that term is used in the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (2) | With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each guarantor, if any, are treated as separate issuers of municipal bonds. |
| (3) | Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein. |
| (4) | Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws. |
| (5) | Borrow money or issue any senior security, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| ANNUAL REPORT | | | JULY 31, 2021 | 183 |
| Fundamental Investment Restrictions1 | (Cont.) |
| (6) | Make loans, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (7) | Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws. |
PIMCO High Income Fund
Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest of the Fund (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest of the Fund (including the Preferred Shares) voting as a separate class:
| (1) | Concentrate its investments in a particular “industry,” as that term is used in the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (2) | With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each obligor, if any, is treated as a separate issuer of municipal bonds. |
| (3) | Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein. |
| (4) | Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws. |
| (5) | Borrow money or issue any senior security, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (6) | Make loans, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (7) | Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws. |
PIMCO Income Strategy Fund
The investment restrictions set forth below are each a fundamental policy of the Fund that may not be changed without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class. The Fund may not:
| (1) | Concentrate its investments in a particular “industry,” as that term is used in the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (2) | With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. |
| (3) | Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein. |
| (4) | Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws. |
| 184 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
| (5) | Borrow money or issue any senior security, except to the extent permitted under the 1940 Act and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (6) | Make loans, except to the extent permitted under the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (7) | Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws. |
PIMCO Income Strategy Fund II
The investment restrictions set forth below are each a fundamental policy of the Fund that may not be changed without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class. The Fund may not:
| (1) | Concentrate its investments in a particular “industry,” as that term is used in the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time. |
| (2) | With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. |
| (3) | Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein. |
| (4) | Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws |
| ANNUAL REPORT | | | JULY 31, 2021 | 185 |
| Management of the Funds |
The chart below identifies Trustees/Directors and Officers of the Funds. Unless otherwise indicated, the address of all persons below is c/o Pacific Investment Management Company LLC, 1633 Broadway, New York, New York 10019.
A list of officers and trustees of PIMCO containing information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years is included in the most recent Form ADV filed by PIMCO pursuant to the Investment Advisers Act of 1940.
The Funds’ Statement of Additional Information, if available, includes more information about the Trustees/Directors and Officers. To request a free copy, call PIMCO at (844) 33-PIMCO.
Trustees/Directors
| Name and Year of Birth |
Position(s) Held with the Funds |
Term of Office and Length of Time Served |
Principal Occupation(s) During the Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Trustee/ Director |
Other Directorships Held by Trustee/ Director During the Past 5 Years | |||||
| Independent Trustees | ||||||||||
| Deborah A. DeCotis 1952 |
Chair of the Board, Trustee/Director | Trustee of each Fund since 2011, expected to stand for re-election at the annual meeting of shareholders held during the 2021- 2022 fiscal year for PFL, PFN and PCN and the 2023-2024 fiscal year for PHK and PTY. | Advisory Director, Morgan Stanley & Co., Inc. (since 1996); Member, Circle Financial Group (since 2009); Member, Council on Foreign Relations (since 2013); Trustee, Smith College (since 2017); and Director, Watford Re (since 2017). Formerly, Co-Chair Special Projects Committee, Memorial Sloan Kettering (2005-2015); Trustee, Stanford University (2010- 2015); Principal, LaLoop LLC, a retail accessories company (1999-2014); Director, Helena Rubenstein Foundation (1997-2010); and Director, Armor Holdings (2002-2010). | 30 | Trustee, Allianz Funds (2011-2021); Trustee, Virtus Funds (2021-Present). | |||||
| Sarah E. Cogan 1956 |
Trustee/Director | Trustee of each Fund since 2019, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PHK, PFL and PTY and the 2021-2022 fiscal year for PFN and PCN. | Retired Partner, Simpson Thacher & Bartlett LLP (law firm); Director, Girl Scouts of Greater New York, Inc. (since 2016); and Trustee, Natural Resources Defense Council, Inc. (since 2013). Formerly, Partner, Simpson Thacher & Bartlett LLP (1989-2018). | 30 | Trustee, Allianz Funds (2019-2021); Trustee, Virtus Funds (2021-Present). | |||||
| Hans W. Kertess 1939 |
Trustee/Director |
Trustee of PCN since 2002, Trustee of PHK, PFL and PTY since 2003 and Trustee of PFN since 2004, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PFL and PFN and the 2023-2024 fiscal year for PHK, PCN and PTY. | President, H. Kertess & Co., a financial advisory company; and Senior Adviser (formerly, Managing Director), Royal Bank of Canada Capital Markets (since 2004). | 30 | Trustee, Allianz Funds (2004-2021); Trustee, Virtus AllianzGI Closed-End Funds (2021-Present) | |||||
| Joseph B. Kittredge, Jr. 1954 |
Trustee/Director |
Trustee of each Fund since 2020, expected to stand for re-election at the annual meeting of shareholders held during the 2021-2022 fiscal year for PFL and PFN and the 2023-2024 fiscal year for PHK, PTY and PCN. | Trustee, Vermont Law School (since 2019); Director and Treasurer, Center for Reproductive Rights (since 2015). Formerly, Director (2013 to 2020) and Chair (2018 to 2020), ACLU of Massachusetts; General Counsel, Grantham, Mayo, Van Otterloo & Co. LLC (2005-2018) and Partner (2007-2018); President, GMO Trust (institutional mutual funds) (2009-2018); Chief Executive Officer, GMO Trust (2009-2015); President and Chief Executive Officer, GMO Series Trust (platform based mutual funds) (2011-2013). | 30 | Trustee, GMO Trust (2010-2018); Chairman of the Board of Trustees, GMO Series Trust (2011-2018). | |||||
| William B. Ogden, IV 1945 |
Trustee/Director |
Trustee of each Fund since 2006, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PFL and PCN, the 2023-2024 fiscal year for PFN and the 2021-2022 fiscal year for PHK and PTY. | Retired. Formerly, Asset Management Industry Consultant; and Managing Director, Investment Banking Division of Citigroup Global Markets Inc. | 30 | Trustee, Allianz Funds (2006-2021); Trustee, Virtus AllianzGI Closed-End Funds (2021-Present). | |||||
| 186 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
| Name and Year of Birth |
Position(s) Held with the Funds |
Term of Office and Length of Time Served |
Principal Occupation(s) During the Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Trustee/ Director |
Other Directorships Held by Trustee/ Director During the Past 5 Years | |||||
| Alan Rappaport 1953 |
Trustee | Trustee of PHK, PCN and PTY since 2010, Trustee of PFL since 2014 and Trustee of PFN since 2012, expected to stand for re-election at the annual meeting of shareholders held during the 2023-2024 fiscal year for PFL and PFN, the 2022-2023 fiscal year for PCN and the 2021-2022 fiscal year for PHK and PTY. | Adjunct Professor, New York University Stern School of Business (since 2011); Lecturer, Stanford University Graduate School of Business (since 2013); and Director, Victory Capital Holdings, Inc., an asset management firm (since 2013). Formerly, Advisory Director (formerly, Vice Chairman), Roundtable Investment Partners (2009-2018); Member of Board of Overseers, NYU Langone Medical Center (2015-2016); Trustee, American Museum of Natural History (2005-2015); Trustee, NYU Langone Medical Center (2007-2015); and Vice Chairman (formerly, Chairman and President), U.S. Trust (formerly, Private Bank of Bank of America, the predecessor entity of U.S. Trust) (2001-2008). | 30 | Trustee, Allianz Funds (2010-2021); Trustee, Virtus AllianzGI Closed-End Funds (2021-Present) | |||||
| E. Grace Vandecruze 1963 |
Trustee | Trustee of the Funds since 2021, expected to stand for election at the annual meeting of shareholders held during the 2021-2022 fiscal year end for each Fund. | Founder and Managing Director, Grace Global Capital LLC, a strategic advisory firm to the insurance industry (since 2006); Director and Member of the Audit Committee and the Wealth Solutions Advisory Committee, M Financial Group, a life insurance company (since 2015); Director, The Doctors Company, a medical malpractice insurance company (since 2020); Chief Financial Officer, Athena Technology Acquisition Corp, a special purpose acquisition company (since 2021); Director, Link Logistic REIT, a real estate company (since 2021); Director and Member of the Investment & Risk Committee, Resolution Life Group Holdings, a global life insurance group (since 2021); and Director, Wharton Graduate Executive Board. Formerly, Director, Resolution Holdings (2015-2019). Formerly, Director, SBLI USA, a life insurance company (2015-2018). | 30 | None | |||||
| Interested Trustees* | ||||||||||
| David N. Fisher 1968 |
Trustee | Trustee of each Fund since January 2019, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PHK, PCN and PTY, the 2023-2024 fiscal year for PFN and the 2021-2022 fiscal year for PFL. | Managing Director and Co-Head of U.S. Global Wealth Management Strategic Accounts, PIMCO (since 2021); Managing Director and Head of Traditional Product Strategies, PIMCO (2015-2021); and Director, Court Appointed Special Advocates (CASA) of Orange County, a non-profit organization (since 2015). Formerly, Global Bond Strategist, PIMCO (2008-2015); and Managing Director and Head of Global Fixed Income, HSBC Global Asset Management (2005-2008). | 30 | None | |||||
| John C. Maney** 1959 |
Trustee | Trustee of each Fund since 2006, expected to stand for re-election at the annual meeting of shareholders held during the 2023-2024 fiscal year for PFL, the 2022-2023 fiscal year for PFN and the 2021-2022 fiscal year for PHK, PCN and PTY. | Consultant to PIMCO since January 2020; Non-Executive Director and a member of the Compensation Committee of PIMCO Europe Ltd (since December 2017). Formerly, Managing Director of Allianz Asset Management of America L.P. (2005-2019); member of the Management Board and Chief Operating Officer of Allianz Asset Management of America L.P (2006-2019); Member of the Management Board of Allianz Global Investors Fund Management LLC (2007-2014) and Managing Director of Allianz Global Investors Fund Management LLC (2011-2014). | 30 | None | |||||
| * | The Trustee/Director is an “interested person” of the Fund, as defined in Section 2(a)(19) of the 1940 Act, due to their affiliations with PIMCO and its affiliates. |
| ** | Mr. Maney’s address is 650 Newport Center Drive, Newport Beach, Califorinia 92660. |
| ANNUAL REPORT | | | JULY 31, 2021 | 187 |
| Management of the Funds | (Cont.) | (Unaudited) |
Officers
| Name, Address and Year of Birth |
Position(s) Held with Funds |
Term of Office and Length of Time Served |
Principal Occupation(s) During the Past 5 Years | |||
| Eric D. Johnson1 1970 |
President | Since 2019 | Executive Vice President and Head of Funds Business Group Americas, PIMCO. President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Keisha Audain-Pressley 1975 |
Chief Compliance Officer | Since 2018 | Executive Vice President and Deputy Chief Compliance Officer, PIMCO. Chief Compliance Officer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Ryan G. Leshaw1 1980 |
Chief Legal Officer | Since 2019 | Executive Vice President and Senior Counsel, PIMCO. Chief Legal Officer, PIMCO-Managed Funds. Chief Legal Officer and Secretary, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Associate, Willkie Farr & Gallagher LLP. | |||
| Joshua D. Ratner 1976 |
Senior Vice President | Since 2019 | Executive Vice President and Head of Americas Operations, PIMCO. Senior Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Peter G. Strelow1 1970 |
Senior Vice President | Since 2019 | Managing Director and Co-Chief Operating Officer, PIMCO. Senior Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Chief Administrative Officer, PIMCO. | |||
| Wu-Kwan Kit1 1981 |
Vice President, Senior Counsel and Secretary | Since 2018 | Senior Vice President and Senior Counsel, PIMCO. Vice President, Senior Counsel and Secretary, PIMCO-Managed Funds. Assistant Secretary, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Assistant General Counsel, VanEck Associates Corp. | |||
| Jeffrey A. Byer1 1976 |
Vice President | Since 2020 | Executive Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Elizabeth A. Duggan1 1964 |
Vice President | Since March 2021 | Executive Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Mark A. Jelic1 1981 |
Vice President | Since September 2021 | Senior Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Brian J. Pittluck1 1977 |
Vice President | Since 2020 | Senior Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Bijal Parikh1 1978 |
Treasurer | Since January 2021 | Senior Vice President, PIMCO. Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Colleen Miller 1980 |
Deputy Treasurer | Since 2020 | Senior Vice President, PIMCO. Deputy Treasurer, PIMCO-Managed Funds. Assistant Treasurer, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Erik C. Brown2 1967 |
Assistant Treasurer | Since 2015 | Executive Vice President, PIMCO. Assistant Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Brandon T. Evans1 1982 |
Assistant Treasurer | Since 2019 | Vice President, PIMCO. Assistant Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| Jason J. Nagler2 1982 |
Assistant Treasurer | Since 2015 | Senior Vice President, PIMCO. Assistant Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. | |||
| 1 | The address of these officers is Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, California 92660. |
| 2 | The address of these officers is Pacific Investment Management Company LLC, 401 Congress Ave., Austin, Texas 78701. |
| 188 | PIMCO CLOSED-END FUNDS |
| Approval of Investment Management Agreement | (Unaudited) |
PTY, PCN, PHK, PFL, PFN
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the Board of Trustees (the “Board” or the “Trustees”), including a majority of the Trustees who are not “interested persons,” as that term is defined in the 1940 Act (the “Independent Trustees”), of PIMCO Corporate & Income Opportunity Fund (“PTY”), PIMCO Corporate & Income Strategy Fund (“PCN”), PIMCO High Income Fund (“PHK”), PIMCO Income Strategy Fund (“PFL”), and PIMCO Income Strategy Fund II (“PFN”) (each, a “Fund” and, collectively, the “Funds”), voting separately, annually approve the continuation of the Investment Management Agreement between each Fund and Pacific Investment Management Company LLC (“PIMCO”) (each, an “Agreement” and, collectively, the “Agreements”). At a meeting held by videoconference1 on June 29-30, 2021 (the “Approval Meeting”), the Board, including the Independent Trustees, considered and unanimously approved the continuation of each Agreement for an additional one-year period commencing on August 1, 2021.
In addition to the Approval Meeting, the annual contract review process with respect to the Agreements involved multiple discussions and meetings with members of the Contracts Committee of the Board (the “Committee”) and the full Committee (the Approval Meeting, together with such discussions and meetings, the “Contract Renewal Meetings”). Throughout the process, the Independent Trustees received legal advice from independent legal counsel that is experienced in 1940 Act matters and independent of PIMCO (“Independent Counsel”), and with whom they met separately from PIMCO during the Contract Renewal Meetings. Representatives from Fund management attended portions of the Contract Renewal Meetings and responded to questions from the Independent Trustees. The Committee also received and reviewed a memorandum from Independent Counsel regarding the Trustees’ responsibilities in considering each Agreement and the fees paid thereunder.
In connection with their deliberations regarding the proposed continuation of the Agreement for each Fund, the Board, including the Independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to reasonably be necessary to evaluate the terms of the Agreements. The Trustees also considered the nature, quality and extent of the various investment management, administrative and other services performed by PIMCO under the Agreements.
In evaluating each Agreement, the Board, including the Independent Trustees, reviewed extensive materials provided by PIMCO in response to questions, inclusive of follow-up inquiries, submitted by the Independent Trustees and Independent Counsel. It also met with senior representatives of PIMCO regarding its personnel, operations, and estimated profitability as they relate to the Funds.
The Trustees also considered the broad range of information relevant to the annual contract review that is provided to the Board (including its various standing committees) at meetings throughout the year, including reports on investment performance based on net asset value (“NAV”), market value (both absolute and compared against its Broadridge Performance Universe (as defined below)) and distribution yield, use of leverage (if applicable), information regarding share price premiums and/or discounts, risks, and other portfolio information, including the use of derivatives if used as part of the Fund’s strategy, as well as periodic reports on, among other matters, pricing and valuation, quality and cost of portfolio trade execution, compliance, and shareholder and other services provided by PIMCO and its affiliates. To assist with their review, the Trustees reviewed summaries prepared by PIMCO that analyzed each Fund based on a number of factors, including fees/expenses, performance, distribution yield, and risk-based factors, as of December 31, 2020. Additionally, the Trustees considered the impact of significant market volatility that occurred before, during, and after the period for which information was requested in conducting its evaluation of PIMCO. They also considered, among other information, performance based on NAV and market value, investment objective and strategy, portfolio managers, assets under management, outstanding leverage, share price premium and/or discount information, annual fund operating expenses, total expense ratio and management fee comparisons between each Fund and its Broadridge Expense Group (as defined below), and estimated profitability to PIMCO from its relationship with each Fund. In considering the Broadridge Performance Universe and Broadridge Expense Group, the Trustees requested that PIMCO comment on whether the Broadridge peer funds selected for each Fund provided an appropriate comparison, and if not, whether PIMCO believes another peer group would provide a more appropriate comparison.
The Trustees’ conclusions as to the continuation of each Agreement were based on a comprehensive consideration of all information provided to the Trustees during the Contract Renewal Meetings and throughout the year and were not the result of any single factor. Some
| 1 | The Board, including a majority of the Independent Trustees, determined to rely on the relief granted by a temporary exemptive order issued by the U.S. Securities and Exchange Commission (the “SEC”) under the 1940 Act that permits fund boards of trustees to approve advisory contracts at a meeting held by remote communications that allows participating trustees to hear one another simultaneously, rather than in-person, in light of the impact of the COVID-19 pandemic and restrictions on travel and in-person gatherings. The Board determined that reliance on the exemptive order was necessary and appropriate due to circumstances related to current or potential effects of the COVID-19 pandemic and government-mandated restrictions, and prior to commencing the approval meeting, the Board confirmed that all Board members could hear each other simultaneously during the meeting. The Board noted that it would ratify any actions taken at this meeting pursuant to the SEC relief at its next in-person meeting. |
| ANNUAL REPORT | | | JULY 31, 2021 | 189 |
| Approval of Investment Management Agreement | (Cont.) |
of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, attributing different weights to various factors. The Trustees evaluated information available to them on a Fund-by-Fund basis, and their determinations were made separately in respect of each Fund.
Nature, Extent and Quality of Services
As part of their review, the Trustees received and considered descriptions of various functions performed by PIMCO for the Funds, such as portfolio management, compliance monitoring, portfolio trading practices, and oversight of third-party service providers. They also considered information regarding the overall organization and business functions of PIMCO, including, without limitation, information regarding senior management, portfolio managers and other personnel providing or proposed to provide investment management, administrative, and/or other services, and corporate ownership and business operations unrelated to the Funds. The Trustees examined PIMCO’s abilities to provide high-quality investment management and other services to the Funds, noting PIMCO’s long history and experience in managing closed-end funds, such as the Funds, including experience monitoring and assessing discounts and premiums and complying with New York Stock Exchange (NYSE) requirements. Among other information, the Trustees considered the investment philosophy and research and decision-making processes of PIMCO; the breadth of each Fund’s investment universe; the experience of key advisory personnel of PIMCO responsible for portfolio management of the Funds; information regarding the Funds’ use of leverage; the ability of PIMCO to attract and retain capable personnel; the background and capabilities of the senior management and staff of PIMCO; the general process or philosophy for determining employee compensation; and the operational infrastructure, including technology and systems, of PIMCO. The Trustees also considered actions taken by PIMCO to manage the impact on each Fund and its portfolio holdings of market volatility during the time periods for which information was provided.
In addition, the Trustees noted the extensive range of services that PIMCO provides to the Funds beyond investment management services. In this regard, the Trustees reviewed the extent and quality of PIMCO’s services with respect to regulatory compliance and its ability to comply with the investment policies of the Funds; the compliance programs and risk controls of PIMCO (including the implementation of new policies and programs); the specific contractual obligations of PIMCO pursuant to the Agreements; the nature, extent, and quality of the supervisory and administrative services PIMCO is responsible for providing to the Funds; PIMCO’s risk management function; the time and resources PIMCO expends monitoring the leverage employed by the Funds, including the covenants and restrictions imposed by certain
forms of leverage such as the Funds’ preferred shares; and conditions that might affect PIMCO’s ability to provide high-quality services to the Funds in the future under the Agreements, including, but not limited to, PIMCO’s financial condition and operational stability. The Trustees also took into account the entrepreneurial and business risk that PIMCO has undertaken as investment manager and sponsor of the Funds. Specifically, the Trustees considered that PIMCO’s responsibilities include continual management of investment, operational, enterprise, legal, regulatory, and compliance risks as they relate to the Funds. The Trustees also noted PIMCO’s activities under its contractual obligation to coordinate, oversee, and supervise the Funds’ various outside service providers, including its negotiation of certain service providers’ fees and its due diligence and evaluation of service providers’ infrastructure, cybersecurity programs, compliance programs, and business continuity programs, among other matters. The Trustees also considered PIMCO’s ongoing development of its own infrastructure and information technology, including its proprietary software and applications, to support the Funds through, among other things, cybersecurity, business continuity planning, and risk management. The Trustees also considered PIMCO’s effective operation and successful implementation of its business continuity plan in response to the COVID-19 pandemic and its oversight of the service providers’ business continuity during this period.
The Trustees concluded that PIMCO’s investment process, research capabilities and philosophy were well suited to each Fund given its investment objective and policies, that PIMCO would be able to continue to meet any reasonably foreseeable obligations under each Agreement, and that PIMCO would otherwise be able to continue to provide investment and non-investment services to each Fund of an appropriate extent and quality.
Fee and Expense Information
In assessing the reasonableness of each Fund’s fees and expenses under the Agreement, the Trustees considered, among other information, the Fund’s management fee and its total expenses as a percentage of average net assets attributable to common shares and as a percentage of average total managed assets (including assets attributable both to common shares and specified leverage outstanding), in comparison to information about other peer funds as determined by Broadridge Financial Solutions, Inc. (“Broadridge”), including the management fees and other expenses of a smaller sample of peer funds with different investment advisers identified by Broadridge (for each Fund, its “Broadridge Expense Group”) as well as of a larger sample of peer funds identified by Broadridge (for each Fund, its “Broadridge Expense Universe”). In each case, the total expense ratio information was provided both inclusive and exclusive of interest and borrowing expenses. The Fund-specific fee and expense
| 190 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
results discussed below were prepared and provided by Broadridge and were not independently verified by the Trustees. The Trustees noted that only leveraged closed-end funds were considered for inclusion in the Broadridge Expense Groups and Broadridge Expense Universes.
The Trustees considered information regarding the investment performance and fees for other funds and accounts managed by PIMCO, if any, including funds and accounts with comparable investment programs and/or principal investment strategies to those of the Funds, as well as certain other funds requested by the Trustees with broadly similar strategies and/or investment types. The Trustees considered information provided by PIMCO indicating that, in comparison to certain other products managed by PIMCO, including open-end funds and exchange-traded funds, there are additional portfolio management challenges in managing closed-end funds such as the Funds. For example, the challenges associated with managing closed-end funds may include investing in less liquid and complex holdings, a greater use of leverage, issues relating to trading on a national securities exchange and managing the funds’ dividend practices. In addition, the Independent Trustees considered information provided by PIMCO as to the generally broader and more extensive services provided to the Funds in comparison to those provided to private funds or institutional or separate accounts; the higher demands placed on PIMCO to provide considerable shareholder services due to the volume of investors; the greater entrepreneurial, enterprise, and reputational risk in managing registered closed-end funds; and the impact on PIMCO and expenses associated with the more extensive regulatory and compliance requirements to which the Funds are subject in comparison to private funds or institutional or separate accounts. The Trustees were advised by PIMCO that, in light of these additional challenges and additional services, different pricing structures between closed-end funds and other products managed by PIMCO are to be expected, and that comparisons of pricing structures across these products may not always be apt comparisons, even where other products have comparable investment objectives and strategies to those of the Funds.
The Trustees also took into account that the Funds have preferred shares outstanding and use other forms of leverage, such as by the use of reverse repurchase agreements, which increases the amount of management fees payable by each Fund under the Agreement (because each Fund’s fees are calculated either based on net assets, including assets attributable to preferred shares outstanding, or based on total managed assets, including assets attributable to preferred shares and certain other forms of leverage outstanding). In this regard, the Trustees took into account that PIMCO has a financial incentive for the Funds to use or continue to use leverage on which management fees are charged, which may create a conflict of interest between PIMCO, on one hand, and the Funds’ common shareholders, on the other.
Therefore, the Trustees noted that the total fees paid by each Fund to PIMCO under the Fund’s unitary fee arrangement would therefore vary more with increases and decreases in leverage than under a non-unitary fee arrangement, all other things being equal. The Trustees considered information provided by PIMCO and related presentations as to why each Fund’s use of leverage continues to be appropriate and in the best interests of the respective Fund under current market conditions. The Trustees noted that they receive each quarter information from PIMCO comparing the recent, historical and projected costs of each Fund’s existing leverage arrangements against other available financing options, as well as information relating to PIMCO’s views regarding economic or other risks of maintaining those leverage arrangements and/or replacing them with alternate forms of financing. The Trustees also considered PIMCO’s representation that it will use leverage for the Funds solely as it determines to be in the best interests of the Funds from an investment perspective and without regard to the level of compensation PIMCO receives.
The Trustees noted that, for each of PTY and PHK, the contractual and actual management fee rates for the Fund under its unitary fee arrangement were below the median contractual and actual management fees of the other funds in its Broadridge Expense Group, calculated both on average net assets and on average total managed assets. For each of PCN, PFL and PFN, the contractual management fee rate for the Fund under its unitary fee arrangement was above the median contractual management fees of the other funds in its Broadridge Expense Group calculated on average net assets and above the median actual management fees of the other funds in its Broadridge Expense Group calculated on average total managed assets, while the actual management fee rate for the Fund under its unitary fee arrangement was below the median actual management fees of the other funds in its Broadridge Expense Group calculated on average net assets and above the median actual management fees of the other funds in its Broadridge Expense Group calculated on average total managed assets. In this regard, the Trustees took into account that each Fund’s unitary fee arrangement covers substantially all of the Fund’s operating fees and expenses (“Operating Expenses”), and therefore, all other things being equal, would tend to be higher than the contractual management fee rates of other funds in the Broadridge Expense Group, which generally do not have a unitary fee structure and instead incur Operating Expenses directly and in addition to the management fee. The Trustees determined that a comparison of each Fund’s total expense ratio with the total expense ratios of its Broadridge Expense Group would generally provide more meaningful comparisons than comparing contractual and actual management fee rates in isolation.
In this regard, the Trustees noted PIMCO’s view that the unitary fee arrangements have benefited and will continue to benefit common
| ANNUAL REPORT | | | JULY 31, 2021 | 191 |
| Approval of Investment Management Agreement | (Cont.) |
shareholders because they provide an expense structure (including Operating Expenses) that is essentially fixed for the duration of the contractual period as a percentage of either NAV, including daily net assets attributable to outstanding preferred shares of the fund (as in case of PTY, PCN, and PHK), or total managed assets, including any assets attributable to any outstanding preferred shares or other forms of leverage of the Fund minus accrued liabilities other than liabilities representing leverage (as in case of PFL and PFN), as applicable, making it more predictable under ordinary circumstances in comparison to other fee and expense structures, under which the Funds’ Operating Expenses (including certain third-party fees and expenses) could vary significantly over time. The Trustees also considered that the unitary fee arrangements generally insulate the Funds and common shareholders from increases in applicable third-party and certain other expenses because PIMCO, rather than the Funds, would bear the risk of such increases (though the Trustees also noted that PIMCO would benefit from any reductions in such expenses).
Performance Information
Fund-specific comparative performance results for the Funds reviewed by the Trustees are discussed below. With respect to investment performance, the Trustees considered information regarding each Fund’s performance based on NAV and market value, as applicable, net of the Fund’s fees and expenses, both on an absolute basis and relative to the performance of its Broadridge Performance Universe (as defined below). The Trustees considered information provided by Broadridge for the Funds regarding the investment performance of a group of funds with investment classifications/objectives that Broadridge determined are comparable to those of each Fund (for each Fund, its “Broadridge Performance Universe”). The comparative performance information was prepared and provided by Broadridge and was not independently verified by the Trustees. The Trustees also considered information regarding the Funds’ comparative yields and risk-adjusted returns. The Trustees recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. They further acknowledged that long-term performance could be impacted by even one period of significant outperformance or underperformance. The Trustees considered information from PIMCO regarding the risks undertaken by each Fund, including the use of leverage, and PIMCO’s management and oversight of the Fund’s risk profile, including in instances where the Fund outperformed its Broadridge Performance Universe.
In addition, the Trustees considered matters bearing on the Funds and their advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting (by both the Board and its Performance Committee).
Profitability, Economies of Scale, and Fall-out Benefits
The Trustees considered estimated profitability analyses provided by PIMCO, which included, among other information, (i) PIMCO’s estimated pre- and post-distribution operating margin for each Fund, as well as PIMCO’s estimated pre- and post-distribution operating margin for all of the closed-end funds advised by PIMCO, including the Funds (collectively, the “Estimated Margins”), in each case for the one-year period ended December 31, 2020; (ii) a year-over-year comparison of PIMCO’s Estimated Margins for the one-year periods ended December 31, 2020 and December 31, 2019; and (iii) an overview of PIMCO’s average fee rates with respect to all of the closed-end funds advised by PIMCO, including the Funds, compared to PIMCO’s average fee rates with respect to its other clients, including PIMCO-advised separate accounts, open-end funds, hedge funds and private equity funds. The Trustees also took into account explanations from PIMCO regarding how certain of PIMCO’s corporate and shared expenses were allocated among the Funds and other funds and accounts managed by PIMCO for purposes of developing profitability estimates. Based on the profitability analyses provided by PIMCO, the Trustees determined, taking into account the various assumptions made, that such profitability did not appear to be excessive.
The Trustees also considered information regarding possible economies of scale in the operation of the Funds, including in connection with at-the-market offerings conducted by PFL, PFN, PTY and PCN. The Trustees noted that the Funds do not currently have any breakpoints in their management fees. The Trustees considered that, as closed-end investment companies, the Funds do not continually offer new shares to raise additional assets (as does a typical open-end investment company), but may raise additional assets through follow-on offerings (including at-the-market offerings with respect to PFL, PFN, PTY and PCN) and dividend reinvestments and may also experience asset growth through investment performance and/or the increased use of leverage. The Trustees noted PIMCO’s assertion that it may share the benefits of potential economies of scale, if any, with the Funds and their shareholders in a number of ways, including investing in portfolio and trade operations management, firm technology, middle and back office support, legal and compliance, and fund administration logistics; senior management supervision and governance of those services; and the enhancement of services provided to the Funds in return for fees paid. The Trustees also considered that the unitary fee arrangements provide inherent economies of scale because a Fund maintains competitive fixed unitary fees even if the particular Fund’s assets decline and/or operating costs increase. The Trustees further considered that, in contrast, breakpoints may be used as a proxy for charging higher fees on lower asset levels and that when a fund’s assets decline, breakpoints may reverse, which causes expense ratios to increase. The
| 192 | PIMCO CLOSED-END FUNDS |
| (Unaudited) |
Trustees also considered that, unlike the Funds’ unitary fee arrangements, funds with “pass through” administrative fee structures may experience increased expense ratios when fixed dollar fees are charged against declining fund assets. The Trustees also considered that the unitary fee arrangements protect shareholders, during the contractual period, from a rise in operating costs that may result from, among other things, PIMCO’s investments in various business enhancements and infrastructure. The Trustees noted that PIMCO has made extensive investments in these areas.
Additionally, the Trustees considered so-called “fall-out benefits” to PIMCO, such as reputational value derived from serving as investment manager to the Funds and research, statistical and quotation services that PIMCO may receive from broker-dealers executing the Funds’ portfolio transactions on an agency basis.
Fund-by-Fund Performance and Fee/Expense Analysis
With regard to the investment performance of each Fund and the fees charged to each Fund, the Board considered the following information. With respect to performance quintile rankings for a Fund compared to its Broadridge Performance Universe, the first quintile represents the highest (best) performance and the fifth quintile represents the lowest performance. The Board considered each Fund’s performance and fees in light of the limitations inherent in the methodology for determining such comparative groups.
PTY
With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consists of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had second quintile performance for the one-year period and first quintile performance for the three-, five- and ten-year periods ended December 31, 2020.
The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (including interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe.
PCN
With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consists of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had third quintile performance for the one-year period and first quintile performance for the three-, five- and ten-year periods ended December 31, 2020.
The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Group. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe.
PHK
With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, consisting of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had third quintile performance for the one-year period and first quintile performance for the three-, five- and ten-year periods ended December 31, 2020.
The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and
| ANNUAL REPORT | | | JULY 31, 2021 | 193 |
| Approval of Investment Management Agreement | (Cont.) | (Unaudited) |
borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Group. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe.
PFL
With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consisted of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had first quintile performance for the one-, three- and five-year periods and third quintile performance for the ten-year period ended December 31, 2020.
The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (including interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) was above the median total expense ratio (excluding interest and borrowing expenses) calculated on average total managed assets and at the median total expense ratio (excluding interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) was above the median total expense ratio (excluding interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (excluding interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Group.
PFN
With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consisted of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had second quintile performance for the one-year period, first quintile performance for the three- and five-year periods and second quintile performance for the ten-year period ended December 31, 2020.
The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (including interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) was at the median total expense ratio (excluding interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (excluding interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe.
Conclusion
After reviewing these and other factors described herein, the Trustees concluded, with respect to each Fund, within the context of their overall conclusions regarding the Agreements, and based on the information provided and related representations made by management, and in their business judgment, that they were satisfied with PIMCO’s responses and efforts relating to the investment performance of the Funds. The Trustees also concluded that the fees payable under the Agreements represent reasonable compensation in light of the nature, extent, and quality of services provided by PIMCO. Based on their evaluation of factors that they deemed to be material, including, but not limited to, those factors described above, the Trustees, including the Independent Trustees, unanimously concluded that the continuation of the Agreements was in the interests of each Fund and its shareholders, and should be approved.
| 194 | PIMCO CLOSED-END FUNDS |
| Privacy Policy1 | (Unaudited) |
The Funds2,3 consider customer privacy to be a fundamental aspect of their relationships with shareholders and are committed to maintaining the confidentiality, integrity and security of their current, prospective and former shareholders’ non-public personal information. The Funds have developed policies that are designed to protect this confidentiality, while allowing shareholder needs to be served.
OBTAINING NON-PUBLIC PERSONAL INFORMATION
In the course of providing shareholders with products and services, the Funds and certain service providers to the Funds, such as the Funds’ investment advisers or sub-advisers (“Advisers”), may obtain non-public personal information about shareholders, which may come from sources such as account applications and other forms, from other written, electronic or verbal correspondence, from shareholder transactions, from a shareholder’s brokerage or financial advisory firm, financial professional or consultant, and/or from information captured on applicable websites.
RESPECTING YOUR PRIVACY
As a matter of policy, the Funds do not disclose any non-public personal information provided by shareholders or gathered by the Funds to non-affiliated third parties, except as required or permitted by law or as necessary for such third parties to perform their agreements with respect to the Funds. As is common in the industry, non-affiliated companies may from time to time be used to provide certain services, such as preparing and mailing prospectuses, reports, account statements and other information, conducting research on shareholder satisfaction and gathering shareholder proxies. The Funds or their affiliates may also retain non-affiliated companies to market Fund shares or products which use Fund shares and enter into joint marketing arrangements with them and other companies. These companies may have access to a shareholder’s personal and account information, but are permitted to use this information solely to provide the specific service or as otherwise permitted by law. In most cases, the shareholders will be clients of a third party, but the Funds may also provide a shareholder’s personal and account information to the shareholder’s respective brokerage or financial advisory firm and/or financial professional or consultant.
SHARING INFORMATION WITH THIRD PARTIES
The Funds reserve the right to disclose or report personal or account information to non-affiliated third parties in limited circumstances where the Funds believe in good faith that disclosure is required under law, to cooperate with regulators or law enforcement authorities, to protect their rights or property, or upon reasonable request by any Fund in which a shareholder has invested. In addition, the Funds may disclose information about a shareholder or a shareholder’s accounts to a non-affiliated third party at the shareholder’s request or with the consent of the shareholder.
SHARING INFORMATION WITH AFFILIATES
The Funds may share shareholder information with their affiliates in connection with servicing shareholders’ accounts, and subject to applicable law may provide shareholders with information about products and services that the Funds or their Advisers, distributors or their affiliates (“Service Affiliates”) believe may be of interest to such shareholders. The information that the Funds may share may include, for example, a shareholder’s participation in the Funds or in other investment programs sponsored by a Service Affiliate, a shareholder’s ownership of certain types of accounts (such as IRAs), information about the Funds’ experiences or transactions with a shareholder, information captured on applicable websites, or other data about a shareholder’s accounts, subject to applicable law. The Funds’ Service Affiliates, in turn, are not permitted to share shareholder information with non-affiliated entities, except as required or permitted by law.
PROCEDURES TO SAFEGUARD PRIVATE INFORMATION
The Funds take seriously the obligation to safeguard shareholder non-public personal information. In addition to this policy, the Funds have implemented procedures that are designed to restrict access to a shareholder’s non-public personal information to internal personnel who need to know that information to perform their jobs, such as servicing shareholder accounts or notifying shareholders of new products or services. Physical, electronic and procedural safeguards are in place to guard a shareholder’s non-public personal information.
INFORMATION COLLECTED FROM WEBSITES
The Funds or their service providers and partners may collect information from shareholders via websites they maintain. The information collected via websites maintained by the Funds or their service providers includes client non-public personal information.
CHANGES TO THE PRIVACY POLICY
From time to time, the Funds may update or revise this privacy policy. If there are changes to the terms of this privacy policy, documents containing the revised policy on the relevant website will be updated.
1 Amended as of June 25, 2020.
2 PIMCO Investments LLC (“PI”) serves as the Funds’ distributor and does not provide brokerage services or any financial advice to investors in the Funds solely because it distributes the Funds. This Privacy Policy applies to the activities of PI to the extent that PI regularly effects or engages in transactions with or for a shareholder of a series of a Trust who is the record owner of such shares. For purposes of this Privacy Policy, references to “the Funds” shall include PI when acting in this capacity.
3 When distributing this Policy, a Fund may combine the distribution with any similar distribution of its investment adviser’s privacy policy. The distributed, combined, policy may be written in the first person (i.e. by using “we” instead of “the Funds”).
| ANNUAL REPORT | | | JULY 31, 2021 | 195 |
General Information
Investment Manager
Pacific Investment Management Company LLC
650 Newport Center Drive
Newport Beach, CA 92660
Custodian
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, MO 64105
Transfer Agent, Dividend Paying Agent and Registrar for Common Shares
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Auction Agent, Transfer Agent, Dividend Paying Agent and Registrar for Auction Rate Preferred Shares
Deustsche Bank Company Americas
1 Columbus Circle
New York, NY 10019
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 the Funds listed on the Report cover.
CEF3011AR_073121
| Item 2. | Code of Ethics. |
As of the end of the period covered by this report, the Registrant has adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer and principal financial officer. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the principal executive officer or principal financial officer during the period covered by this report.
A copy of the Code is included as an exhibit to this report.
| Item 3. | Audit Committee Financial Expert. |
The Board of Trustees has determined that Joseph B. Kittredge, Jr., who serves on the Board’s Audit Oversight Committee, qualifies as an “audit committee financial expert” as such term is defined in the instructions to this Item 3. The Board has also determined that Mr. Kittredge is “independent” as such term is interpreted under this Item 3.
| Item 4. | Principal Accountant Fees and Services. |
| (a) | Fiscal Year Ended | Audit Fees | ||||
| July 31, 2021 July 31, 2020 |
$ 98,037 $ 90,110 |
|||||
| (b) | Fiscal Year Ended | Audit-Related Fees |
||||
| July 31, 2021 July 31, 2020 |
$ 49,500 $ 84,500 |
|||||
| (c) | Fiscal Year Ended | Tax Fees (1) |
||||
| July 31, 2021 July 31, 2020 |
$ — $ — |
|||||
| (d) | Fiscal Year Ended | All Other Fees (2) |
||||
| July 31, 2021 July 31, 2020 |
$ — $ — |
|||||
“Audit Fees” represents fees billed for each of the last two fiscal years for professional services rendered for the audit and review of the Registrant’s annual financial statements for those fiscal years or services that are normally provided by the accountant in connection with statutory or regulatory filings or engagements for those fiscal years.
“Audit-Related Fees” represents fees billed for each of the last two fiscal years for assurance and related services that are reasonably related to the performance of the audit or review of the Registrant’s financial statements, but not reported under “Audit Fees” above, and that include accounting consultations, agreed-upon procedure reports (inclusive of annual review of basic maintenance testing associated with the Preferred Shares), attestation reports and comfort letters for those fiscal years.
“Tax Fees” represents fees billed for each of the last two fiscal years for professional services related to tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, and tax distribution and analysis reviews.
“All Other Fees” represents fees, if any, billed for other products and services rendered by the principal accountant to the Registrant other than those reported above under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” for the last two fiscal years.
(1) There were no “Tax Fees” for the last two fiscal years.
(2) There were no “All Other Fees” for the last two fiscal years.
| (e) | Pre-approval policies and procedures |
(1) The Registrant’s Audit Oversight Committee has adopted pre-approval policies and procedures (the “Procedures”) to govern the Audit Oversight Committee’s pre-approval of (i) all audit services and permissible non-audit services to be provided to the Registrant by its independent accountant, and (ii) all permissible non-audit services to be provided by such independent accountant to the Registrant’s investment adviser and to any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant (collectively, the “Service Affiliates”) if the services provided directly relate to the Registrant’s operations and financial reporting. In accordance with the Procedures, the Audit Oversight Committee is responsible for the engagement of the independent accountant to certify the Registrant’s financial statements for each fiscal year. With respect to the pre-approval of non-audit services provided to the Registrant and its Service Affiliates, the Procedures provide that the Audit Oversight Committee may annually pre-approve a list of types or categories of non-audit services that may be provided to the Registrant or its Service Affiliates, or the Audit Oversight Committee may pre-approve such services on a project-by-project basis as they arise. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Oversight Committee if it is to be provided by the independent accountant. The Procedures also permit the Audit Oversight Committee to delegate authority to one or more of its members to pre-approve any proposed non-audit services that have not been previously pre-approved by the Audit Oversight Committee, subject to the ratification by the full Audit Oversight Committee no later than its next scheduled meeting.
(2) With respect to the services described in paragraphs (b) through (d) of this Item 4, no amount was approved by the Audit Oversight Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
| (f) | Not applicable. |
| (g) |
| Aggregate Non-Audit Fees Billed to Entity | ||||||||||||
| Entity |
July 31, 2021 | July 31, 2020 | ||||||||||
| PIMCO Corporate & Income Opportunity Fund |
$ | 49,500 | $ | 84,500 | ||||||||
| Pacific Investment Management Company LLC (“PIMCO”) |
15,487,493 | 18,863,643 | ||||||||||
|
|
|
|
|
|||||||||
| Totals |
$ | 15,536,993 | $ | 18,948,143 | ||||||||
|
|
|
|
|
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| (h) | The Registrant’s Audit Oversight Committee has considered whether the provision of non-audit services that were rendered to the Registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant which were not pre-approved (not requiring pre-approval) is compatible with maintaining the principal accountant’s independence. |
| (i) | Not applicable. |
| (j) | Not applicable. |
| Item 5. | Audit Committee of Listed Registrants. |
The Registrant has a separately-designated standing audit committee (known as the Audit Oversight Committee) established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Oversight Committee is comprised of:
T. Matthew Buffington
Sarah E. Cogan
Deborah A. DeCotis
Hans W. Kertess
William B. Ogden, IV
Alan Rappaport
E. Grace Vandercruze
| Item 6. | Schedule of Investments. |
The information required by this Item 6 is included as part of the annual report to shareholders filed under Item 1 of this Form N-CSR.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Policy Statement: PIMCO adopted a written proxy voting policy (“Proxy Policy”) as required by Rule 206(4)-6 under the Advisers Act. The Proxy Policy is intended to foster PIMCO’s compliance with its fiduciary obligations and applicable law. The Proxy Policy applies to any voting or consent rights with respect to securities held in accounts over which PIMCO has discretionary voting authority. The Proxy Policy is designed in a manner reasonably expected to ensure that voting and consent rights are exercised in the best interests of PIMCO’s clients.
Overview: As a general matter, PIMCO will adhere to its fiduciary obligations for any proxies it has the authority to vote on behalf of its clients. Each proxy is voted on a case-by-case basis, taking into account relevant facts and circumstances. When considering client proxies1, PIMCO may determine not to vote a proxy in limited circumstances.
Equity Securities.2 PIMCO has retained an Industry Service Provider (“ISP”)3 to provide research and voting recommendations for proxies relating to Equity Securities in accordance with the ISP’s guidelines. By following the guidelines of an independent third party, PIMCO seeks to mitigate potential conflicts of interest PIMCO may have with respect to proxies covered by the ISP. PIMCO will follow the recommendations of the ISP unless: (i) the ISP does not provide a voting recommendation; or (ii) a PM/Analyst decides to override the ISP’s voting recommendation. In each case as described above, the Legal and Compliance department will review the proxy to determine whether an actual or potential conflict of interest exists. When the ISP does not provide a voting recommendation, the relevant PM/Analyst will make a determination regarding how, or if, the proxy will be voted by completing required documentation.
Fixed Income Securities. Fixed income securities can be processed as proxy ballots or corporate action-consents4 at the discretion of the issuer/ custodian. When processed as proxy ballots, the ISP generally does not provide a voting recommendation and their role is limited to election processing and recordkeeping. In such instances, any elections would follow the standard process discussed above for Equity Securities. When processed as corporate action-consents, the Legal and Compliance department will review all election forms to determine whether an actual or potential conflict of interest exists with respect to the PM’s consent election. PIMCO’s Credit Research and Portfolio Management Groups are responsible for issuing recommendations on how to vote proxy ballots and corporation action-consents with respect to fixed income securities.
Resolution of potential/identified conflicts of interest. The Proxy Policy permits PIMCO to seek to resolve material conflicts of interest by pursuing any one of several courses of action. With respect to material conflicts of interest between PIMCO and a client account, the Proxy Policy permits PIMCO to either: (i) convene a working group to assess and resolve the conflict (the “Proxy Working Group”); or (ii) vote in accordance with protocols previously established by the Proxy Policy, the Proxy Working Group and/or other relevant procedures approved by PIMCO’s Legal and Compliance department or PIMCO’s Conflict Committee with respect to specific types of conflicts.
PIMCO will supervise and periodically review its proxy voting activities and the implementation of the Proxy Policy. PIMCO’s Proxy Policy, and information about how PIMCO voted a client’s proxies, is available upon request.
ISP Oversight: Consistent with its fiduciary obligations, PIMCO will perform periodic due diligence and oversight of ISP’s engaged to provide PIMCO with proxy voting research and recommendations. PIMCO’s due diligence and oversight process includes, but is not limited to, the evaluation of: the ISP’s capacity and competency to provide proxy voting research and recommendations5 and the ISP’s compliance program.
Sub-Adviser Engagement: As an investment manager, PIMCO may exercise its discretion to engage a Sub-Adviser to provide portfolio management services to certain PIMCO-affiliated Funds. Consistent with its management responsibilities, the Sub-Adviser will assume the authority for voting proxies on behalf of PIMCO for these Funds. Sub-Advisers may utilize third parties to perform certain services related to their portfolio management responsibilities. As a fiduciary, PIMCO will maintain
oversight of the investment management responsibilities (which may include proxy voting) performed by the Sub-Adviser and contracted third parties.
1 Proxies generally describe corporate action consent rights (relative to fixed income securities) and proxy voting ballots (relative to fixed income or equity securities) as determined by the issuer or custodian.
2 The term “Equity Securities” means common and preferred stock, including common and preferred shares issued by investment companies; it does not include debt securities convertible into equity securities.
3 The ISP for Equity Securities proxy voting is Institutional Shareholder Services (“ISS”), Inc., 1177 Avenue of the Americas 2nd Floor, New York NY 10036.
4 Voting or consent rights shall not include matters which are primarily decisions to buy or sell investments, such as tender offers, exchange offers, conversions, put options, redemptions, and Dutch auctions.
5 This includes the adequacy and quality of the ISP’s operational infrastructure as it relates to its process for seeking timely input from issuers and its voting methodologies.
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
(a)(1)
As of September 29, 2021, the following individuals have primary responsibility for the day-to-day management of the PIMCO Corporate & Income Opportunity Fund (the “Fund”):
Daniel J. Ivascyn - Mr. Ivascyn has been the lead portfolio manager of the Fund since its inception in May 2012. Mr. Ivascyn is Group Chief Investment Officer and a managing director in the Newport Beach office. Prior to joining PIMCO in 1998, he worked at Bear Stearns in the asset-backed securities group, as well as T. Rowe Price and Fidelity Investments.
Joshua Anderson - Mr. Anderson has been a portfolio manager of the Fund since its inception in May 2012. Mr. Anderson is a managing director and portfolio manager in the London office, where he leads the European structured product group. He also oversees global structured credit investments. Previously, he was a structured product portfolio manager in the Newport Beach office. Prior to joining PIMCO in 2003, he was an analyst at Merrill Lynch covering both the residential ABS and collateralized debt obligation sectors and was ranked as one of the top analysts by Institutional Investor magazine. He was previously a portfolio manager at Merrill Lynch Investment Managers.
Alfred T. Murata - Mr. Murata has been a portfolio manager of the Fund since its inception in May 2012. Mr. Murata is a managing director in the Newport Beach office and a portfolio manager on the mortgage credit team. Prior to joining PIMCO in 2001, he researched and implemented exotic equity and interest rate derivatives at Nikko Financial Technologies.
(a)(2)
The following summarizes information regarding each of the accounts, excluding the Fund, managed by the Portfolio Managers as of July 31, 2021, including accounts managed by a team, committee, or other group that includes a Portfolio Manager. Unless mentioned otherwise, the advisory fee charged for managing each of the accounts listed below is not based on performance.
| Registered Investment Companies | Other Pooled Investment Vehicles |
Other Accounts | ||||||||||
|
Portfolio Manager |
# | AUM($million) | # | AUM($million) | # | AUM($million) | ||||||
| Daniel J. Ivascyn1
|
20
|
$185,826.73
|
17
|
$96,030.53
|
7
|
$2,358.66
| ||||||
| Joshua Anderson2
|
6
|
$152,578.49
|
11
|
$16,491.65
|
1
|
$0.11
| ||||||
| Alfred T. Murata3
|
21
|
$187,779.10
|
15
|
$40,397.18
|
6
|
$1,955.75
| ||||||
1 Of these Other Pooled Investment Vehicles, 6 accounts totaling $12,002.72 million in assets pay an advisory fee that is based in part on the performance of the accounts. Of these Other Accounts, 1 account totaling $271.10 million in assets pays an advisory fee that is based in part on the performance of the accounts.
2 Of these Other Pooled Investment Vehicles, 5 accounts totaling $10,304.84 million in assets pay an advisory fee that is based in part on the performance of the accounts.
3 Of these Other Pooled Investment Vehicles, 2 accounts totaling $2,162.92 million in assets pay an advisory fee that is based in part on the performance of the accounts.
From time to time, potential and actual conflicts of interest may arise between a portfolio manager’s management of the investments of a Fund, on the one hand, and the management of other accounts, on the other. Potential and actual conflicts of interest may also arise as a result of PIMCO’s other business activities and PIMCO’s possession of material non-public information (“MNPI”) about an issuer. Other accounts managed by a portfolio manager might have similar investment objectives or strategies as the Funds, track the same index a Fund tracks or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Funds. The other accounts might also have different investment objectives or strategies than the Funds. Potential and actual conflicts of interest may also arise as a result of PIMCO serving as investment adviser to accounts that invest in the Funds. In this case, such conflicts of interest could in theory give rise to incentives for PIMCO to, among other things, vote proxies of a Fund in a manner beneficial to the investing account but detrimental to the Fund. Conversely, PIMCO’s duties to the Funds, as well as regulatory or other limitations applicable to the Funds, may affect the courses of action available to PIMCO-advised accounts (including certain Funds) that invest in the Funds in a manner that is detrimental to such investing accounts. In addition, regulatory restrictions, actual or potential conflicts of interest or other considerations may cause PIMCO to restrict or prohibit participation in certain investments.
Because PIMCO is affiliated with Allianz SE, a large multi-national financial institution (together with its affiliates, “Allianz”), conflicts similar to those described below may occur between the Funds or other accounts managed by PIMCO and PIMCO’s affiliates or accounts managed by those affiliates. Those affiliates (or their clients), which generally operate autonomously from PIMCO, may take actions that are adverse to the Funds or other accounts managed by PIMCO. In many cases, PIMCO will not be in a position to mitigate those actions or address those conflicts, which could adversely affect the performance of the Funds or other accounts managed by PIMCO (each, a “Client,” and collectively, the “Clients”). In addition, because certain Clients are affiliates of PIMCO or have investors who are affiliates or employees of PIMCO, PIMCO may have incentives to resolve conflicts of interest in favor of these Clients over other Clients.
Knowledge and Timing of Fund Trades. A potential conflict of interest may arise as a result of a portfolio manager’s day-to-day management of a Fund. Because of their positions with the Funds, the portfolio managers know the size, timing and possible market impact of a Fund’s trades. It is theoretically possible that the portfolio managers could use this information to the advantage of other accounts they manage and to the possible detriment of a Fund.
Cross Trades. A potential conflict of interest may arise in instances where a Fund buys an instrument from a Client or sells an instrument to a Client (each, a “cross trade”). Such conflicts of interest may arise, among other reasons, as a result of PIMCO representing the interests of both the buying party and the selling party in the cross trade or because the price at which the instrument is bought or sold through a cross trade may not be as favorable as the price that might have been obtained had the trade been executed in the open market. PIMCO effects cross trades when appropriate pursuant to procedures adopted under applicable rules and SEC guidance. Among other things, such procedures require that the cross trade is consistent with the respective investment policies and investment restrictions of both parties and is in the best interests of both the buying and selling accounts.
Investment Opportunities. A potential conflict of interest may arise as a result of a portfolio manager’s management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for one or more Clients, but may not be available in sufficient quantities for all accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a Fund and another Client. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.
PIMCO seeks to allocate orders across eligible Client accounts with similar investment guidelines and investment styles fairly and equitably, taking into consideration relevant factors including, among others, applicable investment restrictions and guidelines, regulatory requirements, risk tolerances and available cash. As part of PIMCO’s trade allocation process, portions of new fixed income investment opportunities are distributed among Client account categories where the relevant portfolio managers seek to participate in the investment. Those portions are then further allocated among the Client accounts within such categories pursuant to PIMCO’s trade allocation policy. Portfolio managers managing quantitative strategies and specialized accounts, such as those focused on international securities, mortgage-backed securities, bank loans, or other specialized asset classes, will likely receive an increased distribution of new fixed income investment opportunities where the investment involves a quantitative strategy or specialized asset class that matches the investment objective or focus of the Client account category.
Any particular allocation decision among Client accounts may be more or less advantageous to any one Client or group of Clients, and certain allocations will, to the extent consistent with PIMCO’s fiduciary obligations, deviate from a pro rata basis among Clients in order to address for example, differences in legal, tax, regulatory, risk management, concentration, exposure, Client guideline limitations and/or mandate or strategy considerations for the relevant Clients. PIMCO may determine that an investment opportunity or particular purchases or sales are appropriate for one or more Clients, but not appropriate for other Clients, or are appropriate or suitable for, or available to, Clients but in different sizes, terms, or timing than is appropriate or suitable for other Clients. For example, some Clients have higher risk tolerances than other Clients, such as private funds, which, in turn, allows PIMCO to allocate a wider variety and/or greater percentage of certain types of investments (which may or may not outperform other types of investments) to such Clients. Those Clients receiving an increased allocation as a result of the effect of their respective risk tolerance may be Clients that pay higher investment management fees or that pay incentive fees. In addition, certain Client account categories focusing on certain types of investments or asset classes will be given priority in new issue distribution and allocation with respect to the investments or asset classes that are the focus of their investment mandate. Legal, contractual, or regulatory issues and/or related expenses applicable to PIMCO or one or more Clients may result in certain Clients not receiving securities that may otherwise be appropriate for them or may result in PIMCO selling securities out of Client accounts even if it might otherwise be beneficial to continue to hold them. Additional factors that are taken into account in the distribution and allocation of investment opportunities to Client accounts include, without limitation: ability to utilize leverage and risk tolerance of the Client account; the amount of discretion and trade authority given to PIMCO by the Client; availability of other similar investment opportunities; the Client account’s investment horizon and objectives; hedging, cash and liquidity needs of the portfolio; minimum increments and lot sizes; and underlying benchmark factors. Given all of the foregoing factors, the amount, timing, structuring, or terms of an investment by a Client, including a Fund, may differ from, and performance may be lower than, investments and performance of other Clients, including those that may provide greater fees or other compensation (including performance-based fees or allocations) to PIMCO. PIMCO has also adopted additional procedures to complement the general trade allocation policy that are designed to address potential conflicts of interest due to the side-by-side management of the Funds and certain pooled investment vehicles, including investment opportunity allocation issues.
From time to time, PIMCO may take an investment position or action for one or more Clients that may be different from, or inconsistent with, an action or position taken for one or more other Clients having similar or differing investment objectives. These positions and actions may adversely impact, or in some instances may benefit, one or more affected Clients (including Clients that are PIMCO affiliates) in which PIMCO has an interest, or which pays PIMCO higher fees or a performance fee. For example, a Client may buy a security and another Client may establish a short position in that same security. The subsequent short sale may result in a decrease in the price of the security that the other Client holds. Similarly, transactions or investments by one or more Clients may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of another Client.
When PIMCO implements for one Client a portfolio decision or strategy ahead of, or contemporaneously with, similar portfolio decisions or strategies of another Client, market impact, liquidity constraints or other factors could result in one or more Clients receiving less favorable trading results, the costs of implementing such portfolio decisions or strategies could be increased or such Clients could otherwise be disadvantaged. On the other hand, potential conflicts may also arise because portfolio decisions regarding a Client may benefit other Clients. For example, the sale of a long position or establishment of a short position for a Client may decrease the price of the same security sold short by (and therefore benefit) other Clients, and the purchase of a security or covering of a short position in a security for a Client may increase the price of the same security held by (and therefore benefit) other Clients.
Under certain circumstances, a Client may invest in a transaction in which one or more other Clients are expected to participate, or already have made or will seek to make, an investment. Such Clients (or groups of Clients) may have conflicting interests and objectives in connection with such investments, including with respect to views on the operations or activities of the issuer involved, the targeted returns from the investment and the timeframe for, and method of, exiting the investment. When making such investments, PIMCO may do so in a way that favors one Client over another Client, even if both Clients are investing in the same security at the same time. Certain Clients may invest on a “parallel” basis (i.e., proportionately in all transactions at substantially the same time and on substantially the same terms and conditions). In addition, other accounts may expect to invest in many of the same types of investments as another account. However, there may be investments in which one or more of such accounts does not invest (or invests on different terms or on a non-pro rata basis) due to factors such as legal, tax, regulatory, business, contractual or other similar considerations or due to the provisions of a Client’s governing documents. Decisions as to the allocation of investment opportunities among such Clients present numerous conflicts of interest, which may not be resolved in a manner that is favorable to a Client’s interests. To the extent
an investment is not allocated pro rata among such entities, a Client could incur a disproportionate amount of income or loss related to such investment relative to such other Client.
In addition, Clients may invest alongside one another in the same underlying investments or otherwise pursuant to a substantially similar investment strategy as one or more other Clients. In such cases, certain Clients may have preferential liquidity and information rights relative to other Clients holding the same investments, with the result that such Clients will be able to withdraw their interests in underlying investments in priority to Clients who may have more limited access to information or more restrictive withdrawal rights. Clients with more limited information rights or more restrictive liquidity may therefore be adversely affected in the event of a downturn in the markets.
Further, potential conflicts may be inherent in PIMCO’s use of multiple strategies. For example, conflicts will arise in cases where different Clients invest in different parts of an issuer’s capital structure, including circumstances in which one or more Clients may own private securities or obligations of an issuer and other Clients may own or seek to acquire private securities of the same issuer. For example, a Client may acquire a loan, loan participation or a loan assignment of a particular borrower in which one or more other Clients have an equity investment, or may invest in senior debt obligations of an issuer for one Client and junior debt obligations or equity of the same issuer for another Client.
Certain service providers to the Fund are expected to be owned by or otherwise related to or affiliated with the Fund or other account managed by PIMCO and in certain cases, such service providers are expected to be, or are owned by, employed by, or otherwise related to, PIMCO, Allianz, their affiliates and/or their respective employees, consultants and other personnel. PIMCO may, in its sole discretion, determine to provide, or engage or recommend an affiliate of PIMCO to provide, certain services to the Fund, instead of engaging or recommending one or more third parties to provide such services. Subject to the governance requirements of the Fund and applicable law, PIMCO or its affiliates, as applicable, will receive compensation in connection with the provision of such services. As a result, PIMCO faces a conflict of interest when selecting or recommending service providers for the Fund. Fees paid to an affiliated service provider will be determined in PIMCO’s commercially reasonable discretion, taking into account the relevant facts and circumstances, and consistent with PIMCO’s responsibilities. Although PIMCO has adopted various policies and procedures intended to mitigate or otherwise manage conflicts of interest with respect to affiliated service providers, there can be no guarantee that such policies and procedures (which may be modified or terminated at any time in PIMCO’s sole discretion) will be successful.
PIMCO may also, for example, direct a Client to invest in a tranche of a structured finance vehicle, such as a CLO or CDO, where PIMCO is also, at the same or different time, directing another Client to make investments in a different tranche of the same vehicle, which tranche’s interests may be adverse to other tranches. PIMCO may also cause a Client to purchase from, or sell assets to, an entity, such as a structured finance vehicle, in which other Clients may have an interest, potentially in a manner that will have an adverse effect on the other Clients. There may also be conflicts where, for example, a Client holds certain debt or equity securities of an issuer, and that same issuer has issued other debt, equity or other instruments that are owned by other Clients or by an entity, such as a structured finance vehicle, in which other Clients have an interest. In addition, to the extent permitted by applicable law, a Client may also engage in investment transactions that may result in other Clients being relieved of obligations, or that may cause other Clients to divest certain investments (e.g., a Client may make a loan to, or directly or indirectly acquire securities or indebtedness of, a company that uses the proceeds to refinance or reorganize its capital structure, which could result in repayment of debt held by another Client).
In each of the situations described above, PIMCO may take actions with respect to the assets held by one Client that are adverse to the other Clients, for example, by foreclosing on loans, by putting an issuer into default, or by exercising rights to purchase or sell to an issuer, causing an issuer to take actions adverse to certain classes of securities, or otherwise. In negotiating the terms and conditions of any such investments, or any subsequent amendments or waivers or taking any other actions, PIMCO may find that the interests of a Client and the interests of one or more other Clients could conflict. In these situations, decisions over items such as whether to make the investment or take an action, proxy voting, corporate reorganization, how to exit an investment, or bankruptcy or similar matters (including, for example, whether to trigger an event of default or the terms of any workout) may result in conflicts of interest. Similarly, if an issuer in which a Client and one or more other Clients directly or indirectly hold different classes of securities (or other assets, instruments or obligations issued by such issuer or underlying investments of such issuer) encounters financial problems, decisions over the terms of any workout will raise conflicts of interests (including, for example, conflicts over proposed waivers and amendments to debt covenants). For example, a debt holder may be better served by a liquidation of the issuer in which it may be paid in full, whereas an equity or junior bond holder might prefer a reorganization that holds the potential to create value for the equity holders. In some cases PIMCO may refrain from taking certain actions or making certain investments on behalf of Clients in order to avoid or mitigate certain conflicts of interest or to prevent adverse regulatory or other effects on PIMCO, or may sell investments for certain Clients (in each case potentially disadvantaging the Clients on whose behalf the actions are not taken,
investments not made, or investments sold). In other cases, PIMCO may not refrain from taking actions or making investments on behalf of certain Clients that have the potential to disadvantage other Clients. In addition, PIMCO may take actions or refrain from taking actions in order to mitigate legal risks to PIMCO or its affiliates or its Clients even if disadvantageous to a Client’s account. Moreover, a Client may invest in a transaction in which one or more other Clients are expected to participate, or already have made or will seek to make, an investment.
Additionally, certain conflicts may exist with respect to portfolio managers who make investment decisions on behalf of several different types of Clients. Such portfolio managers may have an incentive to allocate trades, time or resources to certain Clients, including those Clients who pay higher investment management fees or that pay incentive fees or allocations, over other Clients. These conflicts may be heightened with respect to portfolio managers who are eligible to receive a performance allocation under certain circumstances as part of their compensation.
From time to time, PIMCO personnel may come into possession of MNPI which, if disclosed, might affect an investor’s decision to buy, sell or hold a security. Should a PIMCO employee come into possession of MNPI with respect to an issuer, he or she generally will be prohibited from communicating such information to, or using such information for the benefit of, Clients, which could limit the ability of Clients to buy, sell or hold certain investments, thereby limiting the investment opportunities or exit strategies available to Clients. In addition, holdings in the securities or other instruments of an issuer by PIMCO or its affiliates may affect the ability of a Client to make certain acquisitions of or enter into certain transactions with such issuer. PIMCO has no obligation or responsibility to disclose such information to, or use such information for the benefit of, any person (including Clients).
PIMCO maintains one or more restricted lists of companies whose securities are subject to certain trading prohibitions due to PIMCO’s business activities. PIMCO may restrict trading in an issuer’s securities if the issuer is on a restricted list or if PIMCO has MNPI about that issuer. In some situations, PIMCO may restrict Clients from trading in a particular issuer’s securities in order to allow PIMCO to receive MNPI on behalf of other Clients. A Client may be unable to buy or sell certain securities until the restriction is lifted, which could disadvantage the Client. PIMCO may also be restricted from making (or divesting of) investments in respect of some Clients but not others. In some cases PIMCO may not initiate or recommend certain types of transactions, or may otherwise restrict or limit its advice relating to certain securities if a security is restricted due to MNPI or if PIMCO is seeking to limit receipt of MNPI.
PIMCO may conduct litigation or engage in other legal actions on behalf of one or more Clients. In such cases, Clients may be required to bear certain fees, costs, expenses and liabilities associated with the litigation. Other Clients that are or were investors in, or otherwise involved with, the subject investments may or may not (depending on the circumstances) be parties to such litigation actions, with the result that certain Clients may participate in litigation actions in which not all Clients with similar investments may participate, and such non-participating Clients may benefit from the results of such litigation actions without bearing or otherwise being subject to the associated fees, costs, expenses and liabilities. PIMCO, for example, typically does not pursue legal claims on behalf of its separate accounts. Furthermore, in certain situations, litigation or other legal actions pursued by PIMCO on behalf of a Client may be brought against or be otherwise adverse to a portfolio company or other investment held by a Client.
The foregoing is not a complete list of conflicts to which PIMCO or Clients may be subject. PIMCO seeks to review conflicts on a case-by-case basis as they arise. Any review will take into consideration the interests of the relevant Clients, the circumstances giving rise to the conflict, applicable PIMCO policies and procedures, and applicable laws. Clients (and investors in Funds) should be aware that conflicts will not necessarily be resolved in favor of their interests and may in fact be resolved in a manner adverse to their interests. PIMCO will attempt to resolve such matters fairly, but even so, matters may be resolved in favor of other Clients which pay PIMCO higher fees or performance fees or in which PIMCO or its affiliates have a significant proprietary interest. There can be no assurance that any actual or potential conflicts of interest will not result in a particular Client or group of Clients receiving less favorable investment terms in or returns from certain investments than if such conflicts of interest did not exist.
Conflicts like those described above may also occur between Clients, on the one hand, and PIMCO or its affiliates, on the other. These conflicts will not always be resolved in favor of the Client. In addition, because PIMCO is affiliated with Allianz, a large multi-national financial institution, conflicts similar to those described above may occur between clients of PIMCO and PIMCO’s affiliates or accounts managed by those affiliates. Those affiliates (or their clients), which generally operate autonomously from PIMCO, may take actions that are adverse to PIMCO’s Clients. In many cases PIMCO will have limited or no ability to mitigate those actions or address those conflicts, which could adversely affect Client performance. In addition, certain regulatory or internal restrictions may prohibit PIMCO from using certain brokers or investing in certain companies (even if such companies are not affiliated with Allianz) because of the applicability of certain laws and regulations
or internal Allianz policies applicable to PIMCO, Allianz SE or their affiliates. An account’s willingness to negotiate terms or take actions with respect to an investment may also be, directly or indirectly, constrained or otherwise impacted to the extent Allianz SE, PIMCO, and/or their affiliates, directors, partners, managers, members, officers or personnel are also invested therein or otherwise have a connection to the subject investment (e.g., serving as a trustee or board member thereof).
Performance Fees. A portfolio manager may advise certain accounts with respect to which the management fee is based entirely or partially on performance. Performance fee arrangements may create a conflict of interest for the portfolio manager in that the portfolio manager may have an incentive to allocate the investment opportunities that he or she believes might be the most profitable to such other accounts instead of allocating them to a Fund. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities between the Funds and such other accounts on a fair and equitable basis over time.
(a)(3)
As of July 31, 2021, the following explains the compensation structure of the individuals who have primary responsibility for day-to-day portfolio management of the Fund:
Portfolio Manager Compensation
PIMCO’s approach to compensation seeks to provide professionals with a Total Compensation Plan and process that is driven by PIMCO’s mission and values. Key Principles on Compensation Philosophy include:
| • |
PIMCO’s pay practices are designed to attract and retain high performers; |
| • |
PIMCO’s pay philosophy embraces a corporate culture of rewarding strong performance, a strong work ethic, and meritocracy; |
| • |
PIMCO’s goal is to ensure key professionals are aligned to PIMCO’s long-term success through equity participation; and |
| • |
PIMCO’s “Discern and Differentiate” discipline guides total compensation levels. |
The Total Compensation Plan consists of three components. The compensation program for portfolio managers is designed to align with clients’ interests, emphasizing each portfolio manager’s ability to generate long-term investment success for PIMCO’s clients. A portfolio manager’s compensation is not based solely on the performance of any Fund or any other account managed by that portfolio manager:
Base Salary – Base salary is determined based on core job responsibilities, positions/levels and market factors. Base salary levels are reviewed annually, when there is a significant change in job responsibilities or position, or a significant change in market levels.
Performance Bonus – Performance bonuses are designed to reward risk-adjusted performance and contributions to PIMCO’s broader investment process. The compensation process is not formulaic and the following non-exhaustive list of qualitative and quantitative criteria are considered when determining the total compensation for portfolio managers:
| • |
Performance measured over a variety of longer- and shorter-term periods, including 5-year, 4-year, 3-year, 2-year and 1-year dollar-weighted and account-weighted, pre-tax total and risk-adjusted investment performance as judged against the applicable benchmarks (which may include internal investment performance-related benchmarks) for each account managed by a portfolio manager (including the Funds) and relative to applicable industry peer groups; greatest emphasis is placed on 5-year and 3-year performance, followed by 1-year performance; |
| • |
Consistency of investment performance across portfolios of similar mandate and guidelines, rewarding low dispersion and consistency of outperformance; |
| • |
Appropriate risk positioning and risk management mindset which includes consistency with PIMCO’s investment philosophy, the Investment Committee’s positioning guidance, absence of defaults, and appropriate alignment with client objectives; |
| • |
Contributions to mentoring, coaching and/or supervising members of team; |
| • |
Collaboration, idea generation, and contribution of investment ideas in the context of PIMCO’s investment process, Investment Committee meetings, and day-to-day management of portfolios; |
| • |
With much lesser importance than the aforementioned factors: amount and nature of assets managed by the portfolio manager, contributions to asset retention, and client satisfaction. |
PIMCO’s partnership culture further rewards strong long term risk adjusted returns with promotion decisions almost entirely tied to long term contributions to the investment process. 10-year performance can also be considered, though not explicitly as part of the compensation process.
Deferred Compensation – The Long Term Incentive Plan (“LTIP”) is awarded to key professionals. Employees who reach a total compensation threshold are delivered their annual compensation in a mix of cash and/or deferred compensation. PIMCO incorporates a progressive allocation of deferred compensation as a percentage of total compensation, which is in line with market practices.
| • |
The LTIP provides participants with deferred cash awards that appreciate or depreciate based on PIMCO’s operating earnings over a rolling three-year period. The plan provides a link between longer term company performance and participant pay, further motivating participants to make a long term commitment to PIMCO’s success. |
Eligibility to participate in LTIP program is contingent upon continued employment at PIMCO and all other applicable eligibility requirements.
Profit Sharing Plan. Portfolio managers who are Managing Directors of PIMCO receive compensation from a non-qualified profit sharing plan consisting of a portion of PIMCO’s net profits. Portfolio managers who are Managing Directors receive an amount determined by the Compensation Committee, based upon an individual’s overall contribution to the firm.
(a)(4)
The following summarizes the dollar range of securities of the Fund the Portfolio Managers beneficially owned as of July 31, 2021:
|
Portfolio Manager |
Dollar Range of Equity Securities of the Fund Owned as
| |
| Daniel J. Ivascyn |
over $1,000,000 | |
| Joshua Anderson |
$100,001-$500,000 | |
| Alfred T. Murata |
$100,001-$500,000 |
| 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 as of a date within 90 days of the filing date of this report, based on their evaluation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act), that the design of such procedures is effective to provide reasonable assurance that material information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. |
| (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 (17 CFR 270.30a-3(d))) that occurred during the last 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. |
Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
None.
| Item 13. |
Exhibits. |
| (a)(1) |
Exhibit 99.CODE—Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002. |
| (a)(2) |
Exhibit 99.CERT—Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| (a)(3) |
None. |
| (a)(4) |
There was no change in the registrant’s independent public accountant for the period covered by the report. |
| (b) |
Exhibit 99.906CERT—Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| (c) |
Exhibit 99.CONSENT—Consent of Independent Registered Public Accounting Firm |
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/ Eric D. Johnson | |
| Eric D. Johnson | ||
| President (Principal Executive Officer) | ||
Date: September 29, 2021
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/ Eric D. Johnson | |
| Eric D. Johnson | ||
| President (Principal Executive Officer) | ||
Date: September 29, 2021
| By: | /s/ Bijal Y. Parikh | |
| Bijal Y. Parikh | ||
| Treasurer (Principal Financial & Accounting Officer) | ||
Date: September 29, 2021