UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
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Investment Company Act file number |
811-10555 | |||||||
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PIMCO Corporate & Income Strategy Fund | ||||||||
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(Exact name of registrant as specified in charter) | ||||||||
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1633 Broadway, New York, New York |
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10019 | ||||||
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(Address of principal executive offices) |
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(Zip code) | ||||||
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Lawrence G. Altadonna - 1633 Broadway, New York, New York 10019 | ||||||||
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(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: |
212-739-3371 |
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Date of fiscal year end: |
October 31, 2014 |
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Date of reporting period: |
April 30, 2014 |
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Item 1. Report to Shareholders
Table of Contents
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2–3 |
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Letter from Chairman of the Board & President |
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4–5 |
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Fund Insights |
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6–7 |
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Performance & Statistics |
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8–46 |
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Schedules of Investments |
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47 |
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Statements of Assets and Liabilities |
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48 |
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Statements of Operations |
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49–50 |
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Statements of Changes in Net Assets |
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51 |
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Statement of Cash Flows |
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52–74 |
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Notes to Financial Statements |
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75–76 |
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Financial Highlights |
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77 |
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Annual Shareholder Meeting Results/Proxy Voting Policies & Procedures |
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78 |
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Changes in Investment Policy/Corporate Change |
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79–87 |
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Matters Relating to the Trustees’ Consideration of the Investment Management Agreement |
Letter from Chairman of the Board & President
Dear Shareholder:
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After three years of generally moderate growth, the US economy contracted toward the end of the six-month fiscal reporting period ended April 30, 2014. Despite this, US equities rallied sharply, while the US bond market was volatile and ultimately posted a modest gain.
For the six-month reporting period ended April 30, 2014:
n PIMCO Corporate & Income Strategy Fund advanced 7.34% on net asset value (“NAV”) and 7.42% on market price.
n PIMCO Income Opportunity Fund rose 5.32% on NAV and 6.52% on market price.
The economic expansion in the US economy continued, although severe winter weather in parts of the country appeared to have been a headwind as the reporting period progressed. Gross domestic product (“GDP”), the value of goods and services produced in the country, the broadest measure of economic activity and the principal indicator of economic performance, expanded at a 2.6% annual pace during the fourth quarter of 2013. According to the US Commerce Department’s second estimate, GDP contracted at an annual pace of 1.0% during the first quarter of 2014.
The Federal Reserve (the “Fed”) maintained an accommodative monetary policy during the reporting period. However, at its meeting in December 2013, the central bank announced that it would begin tapering its monthly asset purchase program beginning in January 2014. At its meetings in January, March and April 2014, the Fed announced that it would further taper its asset purchases. However, the Fed repeated that it would not raise interest rates in the near future, saying in April that it “likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
Outlook
The US economy has been resilient and, based on recent data, appears to have overcome the headwinds associated with higher taxes, rising interest rates and severe winter weather. We continue to expect US economic growth will be above-trend in 2014 due, in part, to the fact that |
Hans W. Kertess Chairman
Julian Sluyters President & CEO |
2 Semi-Annual Report | April 30, 2014
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fiscal policy will be less of a drag than it was last year. While we are prepared for the Fed to start raising benchmark interest rates in 2015, we think policymakers will remain behind the curve on monetary normalization. Several factors support this view, including: the modest pace of the labor recovery, the lack of inflation pressure, the need to support the deleveraging process, the risk of a bond market crash if rates were to normalize too quickly, and constrained fiscal policy and political pressure. |
Receive this report electronically and eliminate paper mailings. |
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To enroll, visit: us.allianzgi.com/edelivery. |
For specific information on the Funds and their performance, please review the following pages. If you have any questions regarding the information provided, we encourage you to contact your financial advisor or call the Funds’ shareholder servicing agent at (800) 254-5197. In addition, a wide range of information and resources is available on our website, us.allianzgi.com/closedendfunds.
Together with Allianz Global Investors Fund Management LLC, the Funds’ investment manager, and Pacific Investment Management Company LLC (“PIMCO”), the Funds’ sub-adviser, we thank you for investing with us.
We remain dedicated to serving your investment needs.
Sincerely,
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Hans W. Kertess |
Julian Sluyters |
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Chairman of the Board of Trustees |
President & Chief Executive Officer |
April 30, 2014 | Semi-Annual Report 3
Fund Insights
PIMCO Corporate & Income Strategy Fund
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
For the six-months ended April 30, 2014, PIMCO Corporate & Income Strategy Fund returned 7.34% on net asset value (“NAV”) and 7.42% on market price.
For the six-months ended April 30, 2014, PIMCO Income Opportunity Fund returned 5.32% on NAV and 6.52% on market price.
The US fixed income market experienced periods of volatility during the six-month reporting period ended April 30, 2014. This was triggered by a number of factors, including mixed economic data, Fed asset purchase tapering and numerous geopolitical issues. All told, both short- and long-term Treasury yields rose during the reporting period. That being said, Treasury yields fell from their peak as the reporting period progressed. This occurred as investor risk aversion increased due to concerns about moderating global growth and uncertainties regarding the situation in Ukraine. The benchmark 10-year Treasury bond began the fiscal period yielding 2.57% and ended the period at 2.67%.
Compared to the 1.74% return for the overall US fixed income market (as measured by the Barclays US Aggregate Index), high yield and investment grade bonds returned 4.72% and
3.60%, respectively (as measured by the Barclays US High Yield and Barclays US Credit Indices) for the six-month fiscal period.
Lower rated, higher yielding investment grade corporate bonds generally outperformed higher quality corporate bonds. For instance, AAA-, AA-, A and BBB-rated issues, as measured by the Barclays US Credit Index, returned 0.97%, 2.75%, 3.31%, and 4.73%, respectively, during the six-months ended April 30, 2014. Within the high yield market, BB-rated issues returned 4.50%, versus 4.36% for B-rated securities, as measured by the Barclays US High Yield Index.
PIMCO Corporate & Income Strategy
Sector and duration positioning drive results
Overweighting the airline and wirelines sectors contributed to results, as these issues outperformed the credit market as measured by the Fund’s benchmark, the 80% Barclays Credit/20% BofA Merrill Lynch BB/B Constrained Index (the “Index”),1 during the reporting period. An underweighting to the banking sector was positive for performance as it lagged the Index during the fiscal six-month reporting period.
1. The Barclays US Credit Index consists of publicly issued US corporate and specified foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. It includes both corporate and non-corporate sectors. The corporate sectors are Industrial, Utility, and Finance, which include both US and non-US corporations. The non-corporate sectors are Sovereign, Supranational, Foreign Agency, and Foreign Local Government. The BofA Merrill Lynch BB/B Constrained Index tracks the performance of BB-B Rated US dollar-denominated corporate bonds publicly issued in the US domestic market. Qualifying bonds are capitalization-weighted provided the total allocation to an individual issuer (defined by Bloomberg tickers) does not exceed 2%. Issuers that exceed the limit are reduced to 2% and the face value of each of their bonds is adjusted on a pro-rata basis. Similarly, the face value of bonds of all other issuers that fall below the 2% cap are increased on a pro-rata basis. It is not possible to invest directly in an unmanaged index.
On the downside, the Fund’s duration positioning detracted from results, as the Fund was targeted to have a longer duration than that of the Index and rates moved higher during the fiscal reporting period. From a sector perspective, an underweighting to independent exploration and production energy companies was negative for performance as they outperformed the Index. An overweighting to the automotive sector was also not rewarded, as the sector underperformed the Index.
PIMCO Income Opportunity
Sector positioning and duration positioning drive results
The Fund’s allocation to the financial sector was beneficial for results during the reporting period, as it outperformed the board credit market. Within the sector, the Fund’s exposure
to bank capital was additive for its results. Within the consumer products and pipelines sectors, the Fund’s security selection was rewarded, as these securities generally outperformed the broad credit market during the reporting period. An allocation to non-agency mortgage-backed securities was additive for results, as this asset class generally outperformed the broader market. Elsewhere, the Fund’s allocation to US dollar-denominated emerging market debt contributed to performance, as the asset class outperformed the broad credit market during the reporting period.
On the downside, duration positioning detracted from results, as the Fund had a focus on the intermediate part of the yield curve. This was a negative for performance as yields in that portion of the curve moved higher during the fiscal reporting period.
April 30, 2014 | Semi-Annual Report 5
Performance & Statistics
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited)
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Total Return(1): |
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Market Price |
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NAV |
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Six Month |
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7.42% |
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7.34% |
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1 Year |
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4.00% |
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9.79% |
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5 Year |
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27.03% |
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30.68% |
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10 Year |
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13.77% |
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12.77% |
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Commencement of Operations (12/21/01) to 4/30/14 |
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12.48% |
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12.81% |
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Market Price/NAV Performance: |
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Market Price/NAV | ||
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Commencement of Operations (12/21/01) to 4/30/14 |
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Market Price |
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$16.66 |
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NAV |
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$15.50 |
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Premium to NAV |
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7.48% |
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Market Price Yield(2) |
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8.10% |
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Leverage Ratio(3) |
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22.13% |
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NAV
Market Price
(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all dividends and distributions, if any, have been reinvested. Total return does not reflect broker commissions or sales charges in connection with the purchase or sale of Fund shares. Total return for a period of less than one year is not annualized. 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 typically reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about the Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends.
An investment in the Fund involves risk, including the loss of principal. Total return, market price, market price yield and NAV will fluctuate with changes in market conditions. This data is provided for information purposes only and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are traded in the open market through a stock exchange. NAV is equal to total assets attributable to common shareholders less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.
(2) Market Price Yield is determined by dividing the annualized current monthly dividend per common share (comprised of net investment income) by the market price per common share at April 30, 2014.
(3) Represents Preferred Shares (“Leverage”) outstanding, as a percentage of total managed assets. Total managed assets refer to the total assets (including assets attributable to Leverage) minus liabilities (other than liabilities representing Leverage).
Performance & Statistics
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
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Total Return(1): |
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Market Price |
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NAV |
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Six Month |
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6.52% |
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5.32% |
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1 Year |
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-1.29% |
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6.07% |
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5 Year |
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25.22% |
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25.37% |
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Commencement of Operations (11/30/07) to 4/30/14 |
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14.04% |
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14.68% |
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Market Price/NAV Performance: |
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Market Price/NAV: | ||
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Commencement of Operations (11/30/07) to 4/30/14 |
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Market Price |
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$28.95 |
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NAV |
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$28.40 |
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Premium to NAV |
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1.94% |
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Market Price Yield(2) |
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7.10% |
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Leverage Ratio(3) |
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37.85% |
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(1) Past performance is no guarantee of future results. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. The calculation assumes that all dividends and distributions, if any, have been reinvested. Total return does not reflect broker commissions or sales charges in connection with the purchase or sale of Fund shares. Total return for a period of less than one year is not annualized. 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 typically reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about the Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends.
An investment in the Fund involves risk, including the loss of principal. Total return, market price, market price yield and NAV will fluctuate with changes in market conditions. This data is provided for information purposes only and is not intended for trading purposes. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one time public offering and once issued, shares of closed-end funds are traded in the open market through a stock exchange. NAV is equal to total assets less total liabilities divided by the number of common shares outstanding. Holdings are subject to change daily.
(2) Market Price Yield is determined by dividing the annualized current monthly dividend per share (comprised of net investment income and short-term capital gains, if any) by the market price per share at April 30, 2014.
(3) Represents Reverse Repurchase Agreements (“Leverage”) outstanding, as a percentage of total managed assets. Total managed assets refer to the total assets (including assets attributable to Leverage) minus liabilities (other than liabilities representing Leverage).
April 30, 2014 | Semi-Annual Report 7
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited)
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Principal |
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Value |
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Mortgage-Backed Securities – 36.7% |
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$249 |
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American Home Mortgage Assets Trust, 0.384%, 9/25/46, CMO (h) |
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$16,081 |
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Banc of America Alternative Loan Trust, CMO, |
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8,995 |
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5.50%, 10/25/35 |
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8,219,023 |
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246 |
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6.00%, 1/25/36 |
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198,613 |
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Banc of America Funding Trust, CMO, |
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4,871 |
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6.00%, 3/25/37 |
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4,141,849 |
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638 |
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6.00%, 7/25/37 |
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491,792 |
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Banc of America Mortgage Trust, CMO, |
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4,700 |
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5.50%, 11/25/35 |
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4,576,623 |
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1,065 |
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6.00%, 3/25/37 |
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1,009,645 |
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388 |
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6.50%, 9/25/33 |
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401,878 |
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BCAP LLC Trust, CMO (a)(c), |
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2,500 |
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5.19%, 3/26/37 (h) |
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880,305 |
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1,904 |
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17.00%, 7/26/36 |
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1,967,140 |
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10,752 |
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Bear Stearns Adjustable Rate Mortgage Trust, 2.732%, 8/25/35, CMO (h) |
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9,357,322 |
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Bear Stearns ALT-A Trust, CMO (h), |
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2,420 |
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2.601%, 11/25/36 |
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1,702,821 |
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1,502 |
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2.71%, 8/25/36 |
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1,132,124 |
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1,516 |
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2.748%, 9/25/35 |
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1,242,591 |
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2,675 |
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Bear Stearns Mortgage Funding Trust, 7.00%, 8/25/36, CMO |
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2,204,838 |
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Chase Mortgage Finance Trust, CMO, |
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21 |
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2.527%, 12/25/35 (h) |
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19,739 |
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1,743 |
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6.00%, 7/25/37 |
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1,515,687 |
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2,833 |
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Citicorp Mortgage Securities Trust, 6.00%, 6/25/36, CMO |
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2,961,508 |
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Citigroup Mortgage Loan Trust, Inc., CMO (h), |
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1,561 |
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5.249%, 8/25/35 |
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1,545,731 |
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|
641 |
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5.455%, 4/25/37 |
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566,907 |
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7,912 |
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5.687%, 9/25/37 |
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6,526,563 |
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CitiMortgage Alternative Loan Trust, CMO, |
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8,453 |
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5.75%, 5/25/37 |
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7,484,094 |
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5,262 |
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6.00%, 1/25/37 |
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4,401,523 |
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4,616 |
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6.00%, 6/25/37 |
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3,947,578 |
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Countrywide Alternative Loan Trust, CMO, |
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647 |
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5.50%, 3/25/35 |
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576,254 |
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|
296 |
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5.50%, 3/25/36 |
|
238,451 |
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|
3,657 |
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5.50%, 5/25/36 |
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2,820,776 |
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|
812 |
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5.75%, 1/25/35 |
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820,796 |
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|
958 |
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5.75%, 2/25/35 |
|
924,494 |
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|
1,509 |
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5.75%, 3/25/37 |
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1,260,031 |
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|
1,991 |
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6.00%, 2/25/35 |
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2,095,655 |
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|
10,150 |
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6.00%, 4/25/36 |
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9,023,634 |
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|
9,795 |
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6.00%, 2/25/37 |
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7,645,100 |
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|
2,348 |
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6.00%, 4/25/37 |
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1,964,840 |
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|
3,439 |
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6.00%, 5/25/37 |
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2,755,434 |
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|
813 |
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6.00%, 7/25/37 |
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772,450 |
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Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
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Principal |
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|
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Value |
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$1,978 |
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6.00%, 8/25/37 |
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$1,564,531 |
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|
2,610 |
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6.25%, 12/25/36 (h) |
|
2,186,803 |
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|
912 |
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6.50%, 8/25/36 |
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677,095 |
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Countrywide Home Loan Mortgage Pass-Through Trust, CMO, |
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|
|
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538 |
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2.55%, 9/20/36 (h) |
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395,118 |
|
|
1,064 |
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5.50%, 10/25/35 |
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1,030,125 |
|
|
1,648 |
|
5.75%, 3/25/37 |
|
1,494,765 |
|
|
1,061 |
|
6.00%, 2/25/37 |
|
995,252 |
|
|
1,011 |
|
6.00%, 3/25/37 |
|
926,223 |
|
|
320 |
|
6.00%, 4/25/37 |
|
293,960 |
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|
9,914 |
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6.00%, 7/25/37 |
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8,341,964 |
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Credit Suisse Mortgage Capital Certificates Mortgage-Backed Trust, CMO, |
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|
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1,005 |
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6.00%, 2/25/37 |
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884,060 |
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|
2,404 |
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6.00%, 6/25/37 |
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2,195,821 |
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|
2,550 |
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6.75%, 8/25/36 |
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2,004,625 |
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|
1,478 |
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Deutsche ALT-B Securities Mortgage Loan Trust, 5.945%, 2/25/36, CMO |
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1,206,499 |
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|
9,997 |
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First Horizon Alternative Mortgage Securities Trust, 6.00%, 8/25/36, CMO |
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8,551,246 |
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GSR Mortgage Loan Trust, CMO, |
|
|
|
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1,199 |
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2.563%, 8/25/34 (h) |
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1,117,967 |
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|
1,854 |
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5.021%, 11/25/35 (h) |
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1,839,162 |
|
|
1,169 |
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5.50%, 5/25/36 |
|
1,105,820 |
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|
6,347 |
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6.00%, 2/25/36 |
|
5,816,496 |
|
|
4,267 |
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IndyMac IMSC Mortgage Loan Trust, 6.50%, 7/25/37, CMO |
|
3,020,931 |
|
|
|
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JPMorgan Alternative Loan Trust, CMO, |
|
|
|
|
3,479 |
|
2.583%, 3/25/37 (h) |
|
2,698,938 |
|
|
3,592 |
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6.00%, 12/25/35 |
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3,239,841 |
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|
2,500 |
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6.31%, 8/25/36 |
|
2,027,000 |
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JPMorgan Mortgage Trust, CMO, |
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|
|
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1,518 |
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2.566%, 1/25/37 (h) |
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1,320,418 |
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|
6,719 |
|
2.616%, 2/25/36 (h) |
|
5,910,954 |
|
|
2,621 |
|
5.00%, 3/25/37 |
|
2,417,821 |
|
|
180 |
|
5.75%, 1/25/36 |
|
168,473 |
|
|
478 |
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6.00%, 8/25/37 |
|
427,439 |
|
|
|
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Lehman Mortgage Trust, CMO, |
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|
|
|
1,690 |
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6.00%, 7/25/36 |
|
1,348,239 |
|
|
532 |
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6.00%, 7/25/37 |
|
485,536 |
|
|
3,138 |
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MASTR Alternative Loans Trust, 6.75%, 7/25/36, CMO |
|
2,264,211 |
|
|
1,229 |
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Merrill Lynch Mortgage Investors Trust, 2.774%, 3/25/36, CMO (h) |
|
851,920 |
|
|
|
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Morgan Stanley Mortgage Loan Trust, CMO, |
|
|
|
|
4,753 |
|
4.971%, 5/25/36 (h) |
|
3,798,906 |
|
|
3,920 |
|
6.00%, 2/25/36 |
|
3,884,045 |
|
|
7,820 |
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New Century Alternative Mortgage Loan Trust, 6.173%, 7/25/36, CMO (h) |
|
5,728,754 |
|
|
|
|
Residential Accredit Loans, Inc., CMO, |
|
|
|
|
552 |
|
0.384%, 5/25/37 (h) |
|
141,429 |
|
|
4,357 |
|
3.432%, 12/26/34 (h) |
|
3,760,258 |
|
|
2,179 |
|
6.00%, 6/25/36 |
|
1,778,872 |
|
April 30, 2014 | Semi-Annual Report 9
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
$4,069 |
|
6.00%, 8/25/36 |
|
$3,289,617 |
|
|
3,472 |
|
6.00%, 9/25/36 |
|
2,517,989 |
|
|
4,379 |
|
6.00%, 12/25/36 |
|
3,445,426 |
|
|
1,481 |
|
Residential Asset Mortgage Products, Inc., 6.50%, 12/25/31, CMO |
|
1,507,921 |
|
|
|
|
Residential Asset Securitization Trust, CMO, |
|
|
|
|
2,838 |
|
5.078%, 6/25/46 (h) |
|
2,070,673 |
|
|
1,201 |
|
6.00%, 2/25/36 |
|
985,576 |
|
|
793 |
|
6.00%, 9/25/36 |
|
537,744 |
|
|
3,936 |
|
6.00%, 11/25/36 |
|
2,992,116 |
|
|
2,481 |
|
6.00%, 3/25/37 |
|
1,981,245 |
|
|
3,421 |
|
6.00%, 5/25/37 |
|
3,075,183 |
|
|
3,759 |
|
6.25%, 9/25/37 |
|
2,609,831 |
|
|
|
|
Residential Funding Mortgage Securities I, CMO, |
|
|
|
|
3,283 |
|
3.408%, 2/25/37 (h) |
|
2,608,440 |
|
|
1,559 |
|
6.00%, 1/25/37 |
|
1,449,797 |
|
|
2,021 |
|
6.25%, 8/25/36 |
|
1,838,360 |
|
|
310 |
|
6.50%, 3/25/32 |
|
326,966 |
|
|
|
|
Sequoia Mortgage Trust, CMO (h), |
|
|
|
|
734 |
|
2.382%, 2/20/47 |
|
636,846 |
|
|
1,498 |
|
5.119%, 7/20/37 |
|
1,357,452 |
|
|
|
|
Structured Adjustable Rate Mortgage Loan Trust, CMO (h), |
|
|
|
|
5,175 |
|
2.47%, 11/25/36 |
|
4,166,377 |
|
|
7,383 |
|
4.925%, 3/25/37 |
|
5,537,072 |
|
|
4,587 |
|
5.029%, 5/25/36 |
|
3,869,395 |
|
|
4,240 |
|
5.05%, 1/25/36 |
|
3,279,118 |
|
|
2,174 |
|
5.177%, 7/25/35 |
|
1,909,613 |
|
|
1,586 |
|
5.319%, 7/25/36 |
|
1,480,876 |
|
|
9,301 |
|
5.36%, 7/25/36 |
|
6,447,236 |
|
|
|
|
Suntrust Adjustable Rate Mortgage Loan Trust, CMO (h), |
|
|
|
|
771 |
|
2.756%, 2/25/37 |
|
659,579 |
|
|
1,404 |
|
2.852%, 4/25/37 |
|
1,193,137 |
|
|
8,932 |
|
WaMu Commercial Mortgage Securities Trust, 5.336%, 3/23/45, CMO (a)(c)(h) |
|
9,231,313 |
|
|
|
|
WaMu Mortgage Pass-Through Certificates, CMO (h), |
|
|
|
|
857 |
|
2.255%, 7/25/37 |
|
723,970 |
|
|
587 |
|
2.355%, 9/25/36 |
|
525,044 |
|
|
848 |
|
2.451%, 2/25/37 |
|
749,548 |
|
|
179 |
|
2.466%, 3/25/37 |
|
168,635 |
|
|
1,377 |
|
4.686%, 2/25/37 |
|
1,282,024 |
|
|
2,366 |
|
4.73%, 7/25/37 |
|
2,191,642 |
|
|
4,829 |
|
6.09%, 10/25/36 |
|
4,051,396 |
|
|
|
|
Washington Mutual Mortgage Pass-Through Certificates, CMO, |
|
|
|
|
156 |
|
0.893%, 4/25/47 (h) |
|
9,875 |
|
|
731 |
|
0.969%, 5/25/47 (h) |
|
74,777 |
|
|
3,550 |
|
6.00%, 10/25/35 |
|
2,719,825 |
|
|
1,577 |
|
Wells Fargo Alternative Loan Trust, 6.00%, 7/25/37, CMO |
|
1,432,699 |
|
10 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Wells Fargo Mortgage-Backed Securities Trust, CMO, |
|
|
|
|
$942 |
|
2.61%, 7/25/36 (h) |
|
$867,108 |
|
|
178 |
|
2.614%, 5/25/36 (h) |
|
166,446 |
|
|
443 |
|
2.616%, 4/25/36 (h) |
|
425,946 |
|
|
7,816 |
|
2.616%, 8/25/36 (h) |
|
7,432,796 |
|
|
1,007 |
|
5.629%, 10/25/36 (h) |
|
985,832 |
|
|
998 |
|
6.00%, 7/25/37 |
|
972,327 |
|
|
Total Mortgage-Backed Securities (cost-$266,050,424) |
|
281,096,195 |
| ||
|
Municipal Bonds – 21.7% |
|
|
| ||
|
|
|
California – 7.2% |
|
|
|
|
4,200 |
|
City & Cnty. of San Francisco, Capital Improvement Projects, CP, |
|
4,911,732 |
|
|
12,300 |
|
Infrastructure & Economic Dev. Bank Rev., 6.486%, 5/15/49 |
|
15,137,487 |
|
|
1,800 |
|
Long Beach Redev. Agcy., Tax Allocation, 8.36%, 8/1/40 |
|
1,908,702 |
|
|
20,300 |
|
Los Angeles Department of Water & Power Rev., 6.166%, 7/1/40 |
|
22,255,905 |
|
|
1,220 |
|
Riverside Cnty. Economic Dev. Agcy., Tax Allocation, 7.75%, 10/1/37, Ser. A-T |
|
1,300,191 |
|
|
2,000 |
|
State Univ. Rev., 6.484%, 11/1/41 |
|
2,470,880 |
|
|
7,400 |
|
Stockton Public Financing Auth. Rev., 7.942%, 10/1/38, Ser. B |
|
7,570,940 |
|
|
|
|
|
|
55,555,837 |
|
|
|
|
Georgia – 1.3% |
|
|
|
|
8,300 |
|
Municipal Electric Auth. of Georgia Rev., 6.655%, 4/1/57 |
|
9,607,831 |
|
|
|
|
Illinois – 5.3% |
|
|
|
|
12,700 |
|
Chicago, GO, 7.517%, 1/1/40, Ser. B |
|
14,958,060 |
|
|
23,200 |
|
Municipal Electric Agcy. Rev., 6.832%, 2/1/35 |
|
25,788,424 |
|
|
|
|
|
|
40,746,484 |
|
|
|
|
Louisiana – 0.2% |
|
|
|
|
|
|
New Orleans, Public Improvements, GO, Ser. A, |
|
|
|
|
800 |
|
8.30%, 12/1/29 |
|
944,216 |
|
|
820 |
|
8.55%, 12/1/34 |
|
968,518 |
|
|
|
|
|
|
1,912,734 |
|
|
|
|
Nebraska – 2.0% |
|
|
|
|
14,000 |
|
Public Power Generation Agcy. Rev., 7.242%, 1/1/41 |
|
15,550,080 |
|
|
|
|
Nevada – 1.5% |
|
|
|
|
10,485 |
|
Las Vegas Valley Water Dist., GO, 5.65%, 3/1/35, Ser. A |
|
11,566,213 |
|
|
|
|
New Jersey – 0.1% |
|
|
|
|
500 |
|
Tobacco Settlement Financing Corp. Rev., 5.00%, 6/1/41, Ser. 1-A |
|
395,980 |
|
|
|
|
Ohio – 2.0% |
|
|
|
|
10,300 |
|
American Municipal Power, Inc. Rev., Comb Hydroelectric Projects, |
|
15,205,993 |
|
|
|
|
Texas – 2.1% |
|
|
|
|
12,800 |
|
Dallas Convention Center Hotel Dev. Corp. Rev., 7.088%, 1/1/42 |
|
15,761,280 |
|
|
Total Municipal Bonds (cost-$151,665,707) |
|
166,302,432 |
| ||
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
Corporate Bonds & Notes – 18.9% |
|
|
| ||
|
|
|
Airlines – 0.7% |
|
|
|
|
$1,493 |
|
Continental Airlines Pass-Through Trust, 9.798%, 10/1/22 |
|
$1,716,678 |
|
|
3,099 |
|
United Air Lines Pass-Through Trust, 10.40%, 5/1/18 |
|
3,529,190 |
|
|
|
|
|
|
5,245,868 |
|
|
|
|
Auto Manufacturers – 1.2% |
|
|
|
|
|
|
Ford Motor Co., |
|
|
|
|
5,700 |
|
7.70%, 5/15/97 |
|
6,691,087 |
|
|
1,500 |
|
9.98%, 2/15/47 |
|
2,268,588 |
|
|
|
|
|
|
8,959,675 |
|
|
|
|
Banking – 7.1% |
|
|
|
|
2,000 |
|
Ally Financial, Inc., 8.30%, 2/12/15 |
|
2,112,500 |
|
|
1,750 |
|
Citigroup, Inc., 6.125%, 8/25/36 |
|
1,958,432 |
|
|
|
|
LBG Capital No. 1 PLC, |
|
|
|
|
€300 |
|
7.375%, 3/12/20 |
|
452,560 |
|
|
$3,120 |
|
8.00%, 6/15/20 (a)(c)(d) |
|
3,397,680 |
|
|
8,500 |
|
8.50%, 12/17/21 (a)(c)(d) |
|
9,238,123 |
|
|
|
|
LBG Capital No. 2 PLC, |
|
|
|
|
€400 |
|
8.875%, 2/7/20 |
|
627,859 |
|
|
£3,100 |
|
9.125%, 7/15/20 |
|
5,479,933 |
|
|
|
|
Lloyds Bank PLC (d), |
|
|
|
|
$4,949 |
|
7.50%, 6/27/24 |
|
5,184,077 |
|
|
2,600 |
|
12.00%, 12/16/24 (a)(b)(c)(f) |
|
3,705,000 |
|
|
3,600 |
|
Royal Bank of Scotland Group PLC, 7.648%, 9/30/31 (d) |
|
3,978,000 |
|
|
19,100 |
|
Wachovia Capital Trust III, 5.57%, 5/1/14 (d) |
|
18,479,250 |
|
|
|
|
|
|
54,613,414 |
|
|
|
|
Diversified Financial Services – 5.3% |
|
|
|
|
2,300 |
|
AGFC Capital Trust I, 6.00%, 1/15/67 (converts to FRN on 1/15/17) (a)(c) |
|
1,955,000 |
|
|
7,200 |
|
Army Hawaii Family Housing Trust Certificates, 5.524%, 6/15/50 (NPFGC) (a)(b)(c)(f) |
|
7,455,744 |
|
|
23,364 |
|
Ford Motor Credit Co. LLC, 3.875%, 1/15/15 |
|
23,907,470 |
|
|
1,900 |
|
General Electric Capital Corp., 6.375%, 11/15/67 |
|
2,118,500 |
|
|
5,094 |
|
GSPA Monetization Trust, 6.422%, 10/9/29 (a)(b)(c)(f) |
|
5,197,517 |
|
|
|
|
|
|
40,634,231 |
|
|
|
|
Electric Utilities – 0.4% |
|
|
|
|
2,526 |
|
Bruce Mansfield Unit, 6.85%, 6/1/34 |
|
2,747,564 |
|
|
632 |
|
FPL Energy Wind Funding LLC, 6.876%, 6/27/17 (a)(b)(c)(f) |
|
620,665 |
|
|
|
|
|
|
3,368,229 |
|
12 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Insurance – 0.8% |
|
|
|
|
$3,400 |
|
AIG Life Holdings, Inc., 7.57%, 12/1/45 (a)(b)(c)(f) |
|
$4,300,354 |
|
|
1,400 |
|
American International Group, Inc., 8.175%, 5/15/68 |
|
1,879,500 |
|
|
|
|
|
|
6,179,854 |
|
|
|
|
Lodging – 0.4% |
|
|
|
|
2,026 |
|
Times Square Hotel Trust, 8.528%, 8/1/26 (a)(c) |
|
2,639,706 |
|
|
|
|
Miscellaneous Manufacturing – 0.3% |
|
|
|
|
2,300 |
|
Bombardier, Inc., 4.25%, 1/15/16 (a)(c) |
|
2,400,625 |
|
|
|
|
Oil & Gas – 0.5% |
|
|
|
|
3,460 |
|
Anadarko Petroleum Corp., 7.00%, 11/15/27 |
|
3,994,387 |
|
|
|
|
Pipelines – 0.3% |
|
|
|
|
2,500 |
|
Enterprise Products Operating LLC, 5.60%, 10/15/14 |
|
2,556,305 |
|
|
|
|
Telecommunications – 1.9% |
|
|
|
|
8,200 |
|
Mountain States Telephone & Telegraph Co., 7.375%, 5/1/30 |
|
9,094,328 |
|
|
5,360 |
|
Qwest Corp., 7.20%, 11/10/26 |
|
5,413,830 |
|
|
|
|
|
|
14,508,158 |
|
|
Total Corporate Bonds & Notes (cost-$129,938,437) |
|
145,100,452 |
| ||
|
U.S. Government Agency Securities – 6.5% |
|
|
| ||
|
|
|
Fannie Mae, CMO, IO, |
|
|
|
|
85,855 |
|
3.00%, 2/25/43 |
|
16,528,132 |
|
|
22,627 |
|
3.50%, 3/25/42-2/25/43 |
|
4,249,117 |
|
|
3,288 |
|
6.446%, 4/25/41 (h) |
|
633,292 |
|
|
|
|
Freddie Mac, CMO, IO, |
|
|
|
|
76,740 |
|
3.00%, 2/15/33-12/15/42 |
|
13,381,433 |
|
|
6,571 |
|
3.50%, 9/15/42 |
|
1,176,140 |
|
|
8,582 |
|
4.50%, 10/15/42 |
|
1,547,065 |
|
|
4,678 |
|
5.845%, 8/15/42 (h) |
|
934,418 |
|
|
|
|
Ginnie Mae, CMO, |
|
|
|
|
10,708 |
|
4.00%, 5/16/42-8/16/42, IO |
|
2,052,600 |
|
|
8,200 |
|
8.591%, 8/20/39 (b)(h) |
|
9,139,262 |
|
|
Total U.S. Government Agency Securities (cost-$47,309,691) |
|
49,641,459 |
| ||
|
Asset-Backed Securities – 4.5% |
|
|
| ||
|
437 |
|
Bear Stearns Asset-Backed Securities Trust, 6.50%, 10/25/36 |
|
373,660 |
|
|
|
|
Countrywide Asset-Backed Certificates (h), |
|
|
|
|
10,598 |
|
5.357%, 10/25/46 |
|
9,135,471 |
|
|
3,242 |
|
5.378%, 7/25/36 |
|
3,216,009 |
|
|
1,992 |
|
Greenpoint Manufactured Housing, 8.14%, 3/20/30 (h) |
|
2,049,431 |
|
|
1,970 |
|
GSAA Home Equity Trust, 6.295%, 6/25/36 |
|
1,149,622 |
|
|
13,291 |
|
IndyMac Residential Asset-Backed Trust, 0.314%, 7/25/37 (h) |
|
8,279,684 |
|
|
8,381 |
|
JP Morgan Mortgage Acquisition Trust, 4.852%, 1/25/37 |
|
5,933,450 |
|
|
2,117 |
|
Mid-State Trust IV, 8.33%, 4/1/30 |
|
2,182,987 |
|
|
1,498 |
|
Mid-State Trust VII, 6.34%, 10/15/36 |
|
1,585,994 |
|
April 30, 2014 | Semi-Annual Report 13
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
$1,125 |
|
Morgan Stanley Mortgage Loan Trust, 6.25%, 7/25/47 (h) |
|
$858,069 |
|
|
Total Asset-Backed Securities (cost-$34,750,649) |
|
34,764,377 |
| ||
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Preferred Stock – 0.4% |
|
|
| ||
|
|
|
Diversified Financial Services – 0.4% |
|
|
|
|
120,000 |
|
Citigroup Capital XIII, 7.875%, 10/30/15 (g) (cost-$3,428,400) |
|
3,271,200 |
|
|
|
|
|
|
|
|
|
Principal |
|
|
|
|
|
|
Short-Term Investments – 11.3% |
|
|
| ||
|
|
|
Repurchase Agreements – 11.2% |
|
|
|
|
$12,500 |
|
Banc of America Securities LLC, |
|
12,500,000 |
|
|
12,000 |
|
Barclays Capital, Inc., |
|
12,000,000 |
|
|
8,300 |
|
Citigroup Global Markets, Inc., |
|
8,300,000 |
|
|
7,600 |
|
Credit Suisse Securities (USA) LLC, |
|
7,600,000 |
|
|
7,800 |
|
Deutsche Bank Securities, Inc., |
|
7,800,000 |
|
|
8,200 |
|
JPMorgan Chase, |
|
8,200,000 |
|
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Repurchase Agreements (continued) |
|
|
|
|
$11,100 |
|
Morgan Stanley & Co., Inc., |
|
$11,100,000 |
|
|
2,252 |
|
State Street Bank and Trust Co., |
|
2,252,000 |
|
|
16,200 |
|
TD Securities (USA) LLC, |
|
16,200,000 |
|
|
Total Repurchase Agreements (cost-$85,952,000) |
|
85,952,000 |
| ||
|
|
|
U.S. Treasury Obligations (e)(i) – 0.1% |
|
|
|
|
457 |
|
U.S. Treasury Bills, 0.073%-0.081%, 8/21/14-9/4/14 (cost-$456,892) |
|
456,962 |
|
|
Total Short-Term Investments (cost-$86,408,892) |
|
86,408,962 |
| ||
|
Total Investments (cost-$719,552,200) – 100.0% |
|
$766,585,077 |
| ||
Notes to Schedule of Investments:
|
(a) |
Private Placement–Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $52,989,172, representing 6.9% of total investments. |
|
|
|
|
(b) |
Illiquid. |
|
|
|
|
(c) |
144A–Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid. |
|
|
|
|
(d) |
Perpetual maturity. The date shown, if any, is the next call date. For Corporate Bonds & Notes the interest rate is fixed until the first call date and variable thereafter. |
|
|
|
|
(e) |
All or partial amount segregated for the benefit of the counterparty as collateral for derivatives. |
|
|
|
|
(f) |
Restricted. The aggregate acquisition cost of such securities is $20,177,866. The aggregate value is $21,279,280, representing 2.8% of total investments. |
|
|
|
|
(g) |
Dividend rate is fixed until the first call date and variable thereafter. |
|
|
|
|
(h) |
Variable or Floating Rate Security–Securities with an interest rate that changes periodically. The interest rate disclosed reflects the rate in effect on April 30, 2014. |
|
|
|
|
(i) |
Rates reflect the effective yields at purchase date. |
April 30, 2014 | Semi-Annual Report 15
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
(j) Interest rate swap agreements outstanding at April 30, 2014:
OTC swap agreements:
|
|
|
|
|
|
|
Rate Type |
|
|
|
|
|
|
| |||||
|
Swap |
|
Notional |
|
Termination |
|
Payments |
|
Payments |
|
Value |
|
Upfront |
|
Unrealized | ||||
|
Bank of America |
|
$620,100 |
|
7/15/19 |
|
3-Month USD-LIBOR |
|
2.10% |
|
$1,178,648 |
|
|
$366,355 |
|
|
$812,293 |
|
|
|
Nomura Global Financial Products, Inc. |
|
620,000 |
|
7/15/19 |
|
3-Month USD-LIBOR |
|
2.10% |
|
1,178,458 |
|
|
542,015 |
|
|
636,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$2,357,106 |
|
|
$908,370 |
|
|
$1,448,736 |
|
|
Centrally cleared swap agreements:
|
|
|
|
|
|
|
Rate Type |
|
|
| ||||||
|
Broker (Exchange) |
|
Notional |
|
Termination |
|
Payments |
|
Payments |
|
Value |
Unrealized | ||||
|
Goldman Sachs (CME) |
|
$66,600 |
|
|
6/18/44 |
|
3.50% |
|
3-Month USD-LIBOR |
|
$(394,091 |
) |
|
$(3,964,242 |
) |
|
Morgan Stanley (CME) |
|
209,000 |
|
|
6/18/43 |
|
3.75% |
|
3-Month USD-LIBOR |
|
(11,489,648 |
) |
|
(12,357,321 |
) |
|
Morgan Stanley (CME) |
|
209,000 |
|
|
6/19/44 |
|
3-Month - USD LIBOR |
|
3.50% |
|
4,749,767 |
|
|
11,567,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$(7,133,972 |
) |
|
$(4,753,669 |
) |
(k) Forward foreign currency contracts outstanding at April 30, 2014:
|
|
|
Counterparty |
|
U.S.$ Value on |
|
U.S.$ Value |
|
Unrealized | ||||
|
Purchased: |
|
|
|
|
|
|
|
|
|
| ||
|
755,580 Brazilian Real settling 5/5/14 |
|
Goldman Sachs |
|
$337,916 |
|
|
$338,863 |
|
|
|
$947 |
|
|
755,580 Brazilian Real settling 5/5/14 |
|
UBS |
|
339,739 |
|
|
338,863 |
|
|
|
(876 |
) |
|
3,340,000 British Pound settling 5/2/14 |
|
JPMorgan Chase |
|
5,606,190 |
|
|
5,639,253 |
|
|
|
33,063 |
|
|
327,000 Canadian Dollar settling 6/19/14 |
|
Citigroup |
|
294,587 |
|
|
298,001 |
|
|
|
3,414 |
|
|
761,000 Euro settling 5/2/14 |
|
Bank of America |
|
1,052,927 |
|
|
1,055,773 |
|
|
|
2,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
755,580 Brazilian Real settling 5/5/14 |
|
Goldman Sachs |
|
341,300 |
|
|
338,863 |
|
|
|
2,437 |
|
|
755,580 Brazilian Real settling 5/5/14 |
|
UBS |
|
337,916 |
|
|
338,863 |
|
|
|
(947 |
) |
|
755,580 Brazilian Real settling 6/3/14 |
|
UBS |
|
336,952 |
|
|
335,785 |
|
|
|
1,167 |
|
|
3,340,000 British Pound settling 6/3/14 |
|
JPMorgan Chase |
|
5,604,823 |
|
|
5,637,840 |
|
|
|
(33,017 |
) |
|
3,340,000 British Pound settling 5/2/14 |
|
Royal Bank of Scotland |
|
5,502,436 |
|
|
5,639,253 |
|
|
|
(136,817 |
) |
|
761,000 Euro settling 6/3/14 |
|
Bank of America |
|
1,052,844 |
|
|
1,055,702 |
|
|
|
(2,858 |
) |
|
761,000 Euro settling 5/2/14 |
|
Royal Bank of Scotland |
|
1,048,376 |
|
|
1,055,773 |
|
|
|
(7,397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$(138,038 |
) |
16 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
|
(l) |
At April 30, 2014, the Fund held $12,865,000 in cash as collateral and pledged cash collateral of $4,855,000 for derivative contracts. Cash collateral held may be invested in accordance with the Fund’s investment strategy. |
|
(m) |
Fair Value Measurements-See Note 1(b) in the Notes to Financial Statements. |
|
|
|
Level 1 – |
|
Level 2 – |
|
Level 3 – |
|
Value at | ||||
|
Investments in Securities – Assets |
|
|
|
|
|
|
|
|
| |||
|
Mortgage-Backed Securities |
|
$– |
|
|
$281,096,195 |
|
|
$– |
|
|
$281,096,195 |
|
|
Municipal Bonds |
|
– |
|
|
166,302,432 |
|
|
– |
|
|
166,302,432 |
|
|
Corporate Bonds & Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Airlines |
|
– |
|
|
– |
|
|
5,245,868 |
|
|
5,245,868 |
|
|
Diversified Financial Services |
|
– |
|
|
35,436,714 |
|
|
5,197,517 |
|
|
40,634,231 |
|
|
All Other |
|
– |
|
|
99,220,353 |
|
|
– |
|
|
99,220,353 |
|
|
U.S. Government Agency Securities |
|
– |
|
|
49,641,459 |
|
|
– |
|
|
49,641,459 |
|
|
Asset-Backed Securities |
|
– |
|
|
34,764,377 |
|
|
– |
|
|
34,764,377 |
|
|
Preferred Stock |
|
3,271,200 |
|
|
– |
|
|
– |
|
|
3,271,200 |
|
|
Short-Term Investments |
|
– |
|
|
86,408,962 |
|
|
– |
|
|
86,408,962 |
|
|
|
|
3,271,200 |
|
|
752,870,492 |
|
|
10,443,385 |
|
|
766,585,077 |
|
|
Other Financial Instruments* – Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
– |
|
|
43,874 |
|
|
– |
|
|
43,874 |
|
|
Interest Rate Contracts |
|
– |
|
|
13,016,630 |
|
|
– |
|
|
13,016,630 |
|
|
|
|
– |
|
|
13,060,504 |
|
|
– |
|
|
13,060,504 |
|
|
Other Financial Instruments* – Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts |
|
– |
|
|
(181,912 |
) |
|
– |
|
|
(181,912 |
) |
|
Interest Rate Contracts |
|
– |
|
|
(16,321,563 |
) |
|
– |
|
|
(16,321,563 |
) |
|
|
|
– |
|
|
(16,503,475 |
) |
|
– |
|
|
(16,503,475 |
) |
|
Totals |
|
$3,271,200 |
|
|
$749,427,521 |
|
|
$10,443,385 |
|
|
$763,142,106 |
|
At April 30, 2014, there were no transfers between Levels 1 and 2.
A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the six months ended April 30, 2014, was as follows:
|
|
|
Beginning |
|
Purchases |
|
Sales |
|
Accrued |
|
Net |
|
Net Change |
|
|
Transfers |
|
Transfers |
|
Ending | ||
|
Investments in Securities – Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Corporate Bonds & Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Airlines |
|
$5,905,974 |
|
– |
|
$(655,653 |
) |
|
$(23,487 |
) |
|
$(44,461 |
) |
$63,495 |
|
|
– |
|
– |
|
$5,245,868 |
|
Diversified Financial Services |
|
5,103,819 |
|
– |
|
(48,261 |
) |
|
1,102 |
|
|
567 |
|
140,290 |
|
|
– |
|
– |
|
5,197,517 |
|
Electric Utilities |
|
106,885 |
|
– |
|
(75,250 |
) |
|
– |
|
|
(1,689,215 |
) |
1,657,580 |
|
|
– |
|
– |
|
– |
|
Totals |
|
$11,116,678 |
|
– |
|
$(779,164 |
) |
|
$(22,385 |
) |
|
$(1,733,109 |
) |
$1,861,365 |
|
|
– |
|
– |
|
$10,443,385 |
April 30, 2014 | Semi-Annual Report 17
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 at April 30, 2014.
|
|
|
Ending Balance |
|
Valuation |
|
Unobservable |
|
Input |
|
Investments in Securities – Assets |
|
|
|
|
|
| ||
|
Corporate Bonds & Notes |
|
$10,443,385 |
|
Third-Party Pricing Vendor |
|
Single Broker Quote |
|
$102.04 – $115.00 |
* Other financial instruments are derivatives, such as swap agreements and forward foreign currency contracts, which are valued at the unrealized appreciation (depreciation) of the instrument.
The net change in unrealized appreciation/depreciation of Level 3 investments held at April 30, 2014, was $221,121. Net realized gain (loss) and net change in unrealized appreciation/depreciation are reflected on the Statement of Operations.
(n) The following is a summary of the derivative instruments categorized by risk exposure:
The effect of derivatives on the Statement of Assets and Liabilities at April 30, 2014:
|
Location |
|
Interest |
|
Foreign |
|
Total | |||
|
Asset derivatives: |
|
|
|
|
|
|
| ||
|
Unrealized appreciation of OTC swaps |
|
$1,448,736 |
|
|
$– |
|
|
$1,448,736 |
|
|
Unrealized appreciation of forward foreign currency contracts |
|
– |
|
|
43,874 |
|
|
43,874 |
|
|
Total asset derivatives |
|
$1,448,736 |
|
|
$43,874 |
|
|
$1,492,610 |
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
Payable for variation margin on centrally cleared swaps* |
|
$(430,181 |
) |
|
$– |
|
|
$(430,181 |
) |
|
Unrealized depreciation of forward foreign currency contracts |
|
– |
|
|
(181,912 |
) |
|
(181,912 |
) |
|
Total liability derivatives |
|
$(430,181 |
) |
|
$(181,912 |
) |
|
$(612,093 |
) |
* Included in net unrealized depreciation of $4,753,669 on centrally cleared swaps as reported in note (j) of the Notes to Schedule of Investments.
The effect of derivatives on the Statement of Operations for the six months ended April 30, 2014:
|
Location |
|
Interest |
|
Foreign |
|
Total | |||
|
Net realized gain (loss) on: |
|
|
|
|
|
| |||
|
Swaps |
|
$8,605,817 |
|
|
$– |
|
|
$8,605,817 |
|
|
Foreign currency transactions (forward foreign currency contracts) |
|
– |
|
|
(3,082,482 |
) |
|
(3,082,482 |
) |
|
Total net realized gain (loss) |
|
$8,605,817 |
|
|
$(3,082,482 |
) |
|
$5,523,335 |
|
|
Net change in unrealized appreciation/depreciation of: |
|
|
|
|
|
|
|
|
|
|
Swaps |
|
$(12,359,322 |
) |
|
$– |
|
|
$(12,359,322 |
) |
|
Foreign currency transactions (forward foreign currency contracts) |
|
– |
|
|
1,627,073 |
|
|
1,627,073 |
|
|
Total net change in unrealized appreciation/depreciation |
|
$(12,359,322 |
) |
|
$1,627,073 |
|
|
$(10,732,249 |
) |
18 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
The average volume (measured at each fiscal quarter-end) of derivative activity during the six months ended April 30, 2014:
|
|
Forward Foreign |
|
Interest Rate |
| ||
|
|
Purchased |
|
Sold |
|
Swap Agreements (2) |
|
|
|
$63,343,333 |
|
$82,389,254 |
|
$1,284,800 |
|
(1) U.S. $ Value on origination date
(2) Notional Amount (in thousands)
The following tables present by counterparty, the Fund’s derivative assets and liabilities net of related collateral held by the Fund at April 30, 2014 which has not been offset in the Statement of Assets and Liabilities, but would be available for offset to the extent of a default by the counterparty to the transaction.
Financial Assets and Derivative Assets, and Collateral Received at April 30, 2014:
|
Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||
|
Counterparty |
|
Gross |
|
Financial |
|
Cash |
|
Net Amount | ||||
|
Foreign Currency Exchange Contracts |
|
|
|
|
|
|
|
| ||||
|
Bank of America |
|
$2,846 |
|
|
$(2,846 |
) |
|
$– |
|
|
$– |
|
|
Goldman Sachs |
|
3,384 |
|
|
– |
|
|
– |
|
|
3,384 |
|
|
Citigroup |
|
3,414 |
|
|
– |
|
|
– |
|
|
3,414 |
|
|
JPMorgan Chase |
|
33,063 |
|
|
(33,017 |
) |
|
– |
|
|
46 |
|
|
UBS |
|
1,167 |
|
|
(1,167 |
) |
|
– |
|
|
– |
|
|
Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America |
|
812,293 |
|
|
(12 |
) |
|
(693,645 |
)†, # |
|
118,636 |
|
|
Nomura Global Financial Products, Inc. |
|
636,443 |
|
|
– |
|
|
542,015 |
# |
|
1,178,458 |
|
|
Totals |
|
$1,492,610 |
|
|
$(37,042 |
) |
|
$(151,630 |
) |
|
$1,303,938 |
|
|
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||
|
Counterparty |
|
Gross |
|
Financial |
|
Net Amount | |
|
Repurchase Agreements |
|
|
|
|
|
| |
|
Bank of America |
|
$12,500,000 |
|
|
$(12,500,000 |
)† |
– |
|
Barclays Bank |
|
12,000,000 |
|
|
(12,000,000 |
)† |
– |
|
Citigroup |
|
8,300,000 |
|
|
(8,300,000 |
)† |
– |
|
Credit Suisse First Boston |
|
7,600,000 |
|
|
(7,600,000 |
)† |
– |
|
Deutsche Bank |
|
7,800,000 |
|
|
(7,800,000 |
)† |
– |
|
JPMorgan Chase |
|
8,200,000 |
|
|
(8,200,000 |
)† |
– |
|
Morgan Stanley |
|
11,100,000 |
|
|
(11,100,000 |
)† |
– |
|
State Street Bank & Trust Co. |
|
2,252,000 |
|
|
(2,252,000 |
)† |
– |
|
TD Securities (USA) LLC |
|
16,200,000 |
|
|
(16,200,000 |
)† |
– |
|
Totals |
|
$85,952,000 |
|
|
$(85,952,000 |
) |
– |
April 30, 2014 | Semi-Annual Report 19
Schedule of Investments
PIMCO Corporate & Income Strategy Fund
April 30, 2014 (unaudited) (continued)
Financial Liabilities and Derivative Liabilities, and Collateral Pledged at April 30, 2014:
|
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||||||
|
Counterparty |
|
Gross |
|
Financial |
|
Cash |
|
Net Amount | |||
|
Foreign Currency Exchange Contracts |
|
|
|
|
|
|
|
| |||
|
Bank of America |
|
$2,858 |
|
|
$(2,858 |
) |
|
– |
|
$– |
|
|
JPMorgan Chase |
|
33,017 |
|
|
(33,017 |
) |
|
– |
|
– |
|
|
Royal Bank of Scotland |
|
144,214 |
|
|
– |
|
|
– |
|
144,214 |
|
|
UBS |
|
1,823 |
|
|
(1,167 |
) |
|
– |
|
656 |
|
|
Totals |
|
$181,912 |
|
|
$(37,042 |
) |
|
– |
|
$144,870 |
|
† The actual collateral received is greater than the amount shown here due to over collateralization.
# The amount includes upfront premiums Paid.
Glossary:
|
£ |
- |
British Pound |
|
CME |
- |
Chicago Mercantile Exchange |
|
CMO |
- |
Collateralized Mortgage Obligation |
|
CP |
- |
Certificates of Participation |
|
€ |
- |
Euro |
|
FRN |
- |
Floating Rate Note |
|
GO |
- |
General Obligation Bond |
|
IO |
- |
Interest Only |
|
LIBOR |
- |
London Inter-Bank Offered Rate |
|
NPFGC |
- |
insured by National Public Finance Guarantee Corp. |
|
OTC |
- |
Over-the-Counter |
20 Semi-Annual Report | April 30, 2014 | See accompanying Notes to Financial Statements
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
|
Principal |
|
|
|
Value |
|
|
Corporate Bonds & Notes – 53.6% |
|
|
| ||
|
|
|
Airlines – 2.9% |
|
|
|
|
|
|
Continental Airlines Pass-Through Trust (k), |
|
|
|
|
$1,039 |
|
7.707%, 10/2/22 |
|
$1,178,812 |
|
|
1,026 |
|
8.048%, 5/1/22 |
|
1,180,999 |
|
|
1,326 |
|
Delta Air Lines, Inc., 7.75%, 6/17/21 (k) |
|
1,550,029 |
|
|
4,391 |
|
Intrepid Aviation Group Holdings LLC, 6.875%, 2/15/19 (a)(d) |
|
4,566,640 |
|
|
|
|
United Air Lines Pass-Through Trust (k), |
|
|
|
|
1,803 |
|
9.75%, 7/15/18 |
|
2,073,364 |
|
|
1,388 |
|
10.40%, 5/1/18 |
|
1,580,234 |
|
|
|
|
|
|
12,130,078 |
|
|
|
|
Auto Components – 0.8% |
|
|
|
|
€100 |
|
Autodis S.A., 6.50%, 2/1/19 |
|
143,937 |
|
|
$2,517 |
|
Commercial Vehicle Group, Inc., 7.875%, 4/15/19 (k) |
|
2,617,680 |
|
|
600 |
|
Pittsburgh Glass Works LLC, 8.00%, 11/15/18 (a)(d)(k) |
|
657,000 |
|
|
|
|
|
|
3,418,617 |
|
|
|
|
Banking – 13.5% |
|
|
|
|
|
|
Ally Financial, Inc. (k), |
|
|
|
|
1,850 |
|
6.75%, 12/1/14 |
|
1,912,437 |
|
|
5,000 |
|
8.30%, 2/12/15 |
|
5,281,250 |
|
|
3,900 |
|
Banco Continental SAECA, 8.875%, 10/15/17 (a)(d)(k) |
|
4,192,500 |
|
|
|
|
Barclays Bank PLC, |
|
|
|
|
200 |
|
7.625%, 11/21/22 |
|
227,625 |
|
|
£2,170 |
|
14.00%, 6/15/19 (h)(k) |
|
5,024,022 |
|
|
|
|
BPCE S.A. (h)(k), |
|
|
|
|
€750 |
|
9.00%, 3/17/15 |
|
1,100,862 |
|
|
350 |
|
9.25%, 4/22/15 |
|
516,163 |
|
|
$700 |
|
Citigroup, Inc., 6.30%, 5/15/24 (h) |
|
700,298 |
|
|
|
|
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (k), |
|
|
|
|
€3,000 |
|
6.875%, 3/19/20 |
|
4,963,242 |
|
|
$4,865 |
|
11.00%, 6/30/19 (a)(d)(h) |
|
6,494,775 |
|
|
|
|
Credit Agricole S.A. (h)(k), |
|
|
|
|
1,100 |
|
7.875%, 1/23/24 (a)(d) |
|
1,184,865 |
|
|
£1,400 |
|
8.125%, 10/26/19 |
|
2,676,957 |
|
|
$3,200 |
|
Credit Suisse AG, 6.50%, 8/8/23 (a)(d)(k) |
|
3,580,128 |
|
|
£1,200 |
|
DnB NOR Bank ASA, 6.012%, 3/29/17 (h)(k) |
|
2,156,255 |
|
|
$700 |
|
Goldman Sachs Group, Inc., 5.70%, 5/10/19 (h) |
|
718,341 |
|
|
|
|
LBG Capital No. 1 PLC, |
|
|
|
|
£1,500 |
|
7.588%, 5/12/20 |
|
2,652,897 |
|
|
300 |
|
7.869%, 8/25/20 |
|
531,339 |
|
|
|
|
LBG Capital No. 2 PLC, |
|
|
|
|
€250 |
|
15.00%, 12/21/19 |
|
530,489 |
|
|
£3,043 |
|
15.00%, 12/21/19 (k) |
|
7,475,497 |
|
|
$1,300 |
|
Sberbank of Russia Via SB Capital S.A., 5.717%, 6/16/21 (k) |
|
1,248,813 |
|
|
2,500 |
|
UBS Preferred Funding Trust V, 6.243%, 5/15/16 (h)(k) |
|
2,659,500 |
|
|
1,300 |
|
Wells Fargo & Co., 5.90%, 6/15/24 (h)(k) |
|
1,337,437 |
|
|
|
|
|
|
57,165,692 |
|
April 30, 2014 | Semi-Annual Report 21
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Building Materials – 0.1% |
|
|
|
|
|
|
Corporacion GEO S.A.B. de C.V. (a)(d)(f), |
|
|
|
|
$200 |
|
8.875%, 3/27/22 |
|
$27,500 |
|
|
1,800 |
|
9.25%, 6/30/20 |
|
247,500 |
|
|
|
|
|
|
275,000 |
|
|
|
|
Capital Markets – 1.9% |
|
|
|
|
8,000 |
|
Blackstone CQP Holdco LP, 2.324%, 3/18/19 (a)(b)(d)(l) |
|
8,032,399 |
|
|
|
|
Coal – 0.8% |
|
|
|
|
2,100 |
|
Berau Coal Energy Tbk PT, 7.25%, 3/13/17 (a)(d)(k) |
|
2,079,000 |
|
|
|
|
Mongolian Mining Corp., |
|
|
|
|
2,100 |
|
8.875%, 3/29/17 |
|
1,270,500 |
|
|
300 |
|
8.875%, 3/29/17 (a)(d) |
|
181,500 |
|
|
87 |
|
Westmoreland Coal Co., 10.75%, 2/1/18 (a)(b)(d)(e)(l) |
|
95,483 |
|
|
|
|
|
|
3,626,483 |
|
|
|
|
Commercial Services – 0.0% |
|
|
|
|
12 |
|
ADT Corp., 4.875%, 7/15/42 |
|
9,945 |
|
|
|
|
Diversified Financial Services – 6.6% |
|
|
|
|
2,300 |
|
AGFC Capital Trust I, 6.00%, 1/15/67 (converts to FRN on 1/15/17) (a)(d)(k) |
|
1,955,000 |
|
|
3,400 |
|
Cantor Fitzgerald L.P., 7.875%, 10/15/19 (a)(d)(k) |
|
3,612,500 |
|
|
5,000 |
|
HSBC Finance Corp., 6.676%, 1/15/21 (k) |
|
5,921,035 |
|
|
1,552 |
|
Jefferies LoanCore LLC, 6.875%, 6/1/20 (a)(d)(k) |
|
1,571,400 |
|
|
|
|
SLM Corp. (k), |
|
|
|
|
1,000 |
|
8.00%, 3/25/20 |
|
1,158,750 |
|
|
4,700 |
|
8.45%, 6/15/18 |
|
5,557,750 |
|
|
|
|
Springleaf Finance Corp. (k), |
|
|
|
|
1,100 |
|
6.50%, 9/15/17 |
|
1,189,375 |
|
|
2,500 |
|
6.90%, 12/15/17 |
|
2,753,125 |
|
|
432 |
|
Stearns Holdings, Inc., 9.375%, 8/15/20 (a)(d)(k) |
|
453,600 |
|
|
18,610 |
|
Toll Road Investors Partnership II L.P., zero coupon, 2/15/45 (MBIA) (a)(b)(d)(l) |
|
3,801,935 |
|
|
|
|
|
|
27,974,470 |
|
|
|
|
Electric Utilities – 1.8% |
|
|
|
|
600 |
|
AES Andres Dominicana Ltd., 9.50%, 11/12/20 (a)(d)(k) |
|
642,000 |
|
|
1,893 |
|
Ameren Energy Generating Co., 7.95%, 6/1/32 (k) |
|
1,637,445 |
|
|
|
|
Energy Future Intermediate Holding Co. LLC (a)(d)(k), |
|
|
|
|
2,196 |
|
6.875%, 8/15/17 |
|
2,300,310 |
|
|
2,000 |
|
10.25%, 12/1/20 |
|
2,127,500 |
|
|
1,230 |
|
Illinois Power Generating Co., 6.30%, 4/1/20 (k) |
|
1,060,875 |
|
|
|
|
|
|
7,768,130 |
|
|
|
|
Engineering & Construction – 1.4% |
|
|
|
|
2,000 |
|
Aeropuertos Dominicanos Siglo XXI S.A., 9.25%, 11/13/19 (a)(d) |
|
1,772,500 |
|
|
4,052 |
|
Alion Science and Technology Corp., 12.00%, 11/1/14, PIK (k) |
|
4,054,739 |
|
|
|
|
|
|
5,827,239 |
|
22 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Food & Beverage – 0.3% |
|
|
|
|
$972 |
|
Carolina Beverage Group LLC, 10.625%, 8/1/18 (a)(d)(k) |
|
$1,047,330 |
|
|
250 |
|
Diamond Foods, Inc., 7.00%, 3/15/19 (a)(d)(k) |
|
259,375 |
|
|
|
|
|
|
1,306,705 |
|
|
|
|
Healthcare-Services – 0.9% |
|
|
|
|
3,000 |
|
HCA, Inc., 6.50%, 2/15/20 (k) |
|
3,352,500 |
|
|
500 |
|
MPH Acquisition Holdings LLC, 6.625%, 4/1/22 (a)(d)(k) |
|
518,750 |
|
|
|
|
|
|
3,871,250 |
|
|
|
|
Household Products/Wares – 1.5% |
|
|
|
|
5,940 |
|
Armored Autogroup, Inc., 9.25%, 11/1/18 (k) |
|
6,207,300 |
|
|
|
|
Insurance – 1.1% |
|
|
|
|
|
|
American International Group, Inc. (k), |
|
|
|
|
£546 |
|
6.765%, 11/15/17 |
|
1,058,661 |
|
|
$1,900 |
|
8.25%, 8/15/18 |
|
2,377,890 |
|
|
£550 |
|
8.625%, 5/22/68 (converts to FRN on 5/22/18) |
|
1,100,925 |
|
|
|
|
|
|
4,537,476 |
|
|
|
|
Lodging – 3.8% |
|
|
|
|
$10,700 |
|
Caesars Entertainment Operating Co., Inc., 8.50%, 2/15/20 (k) |
|
9,282,250 |
|
|
5,304 |
|
Times Square Hotel Trust, 8.528%, 8/1/26 (a)(d)(k) |
|
6,911,231 |
|
|
|
|
|
|
16,193,481 |
|
|
|
|
Machinery-Construction & Mining – 0.1% |
|
|
|
|
300 |
|
Vander Intermediate Holding II Corp., 9.75%, 2/1/19 (a)(d)(k) |
|
317,250 |
|
|
|
|
Media – 2.4% |
|
|
|
|
3,790 |
|
Clear Channel Communications, Inc., 9.00%, 3/1/21 (k) |
|
4,045,825 |
|
|
500 |
|
Numericable Group S.A., 6.00%, 5/15/22 (a)(d)(e) |
|
512,500 |
|
|
5,000 |
|
Spanish Broadcasting System, Inc., 12.50%, 4/15/17 (a)(d)(k) |
|
5,575,000 |
|
|
|
|
|
|
10,133,325 |
|
|
|
|
Metal Fabricate/Hardware – 0.3% |
|
|
|
|
1,200 |
|
Wise Metals Group LLC, 8.75%, 12/15/18 (a)(d)(k) |
|
1,278,000 |
|
|
|
|
Mining – 0.2% |
|
|
|
|
|
|
AngloGold Ashanti Holdings PLC (k), |
|
|
|
|
300 |
|
5.375%, 4/15/20 |
|
302,483 |
|
|
800 |
|
6.50%, 4/15/40 |
|
753,793 |
|
|
|
|
|
|
1,056,276 |
|
|
|
|
Miscellaneous Manufacturing – 0.4% |
|
|
|
|
1,600 |
|
Trinseo Materials Operating SCA, 8.75%, 2/1/19 (k) |
|
1,708,000 |
|
|
|
|
Oil & Gas – 4.2% |
|
|
|
|
926 |
|
Ecopetrol S.A., 7.375%, 9/18/43 (k) |
|
1,105,413 |
|
|
270 |
|
Forbes Energy Services Ltd., 9.00%, 6/15/19 (k) |
|
277,425 |
|
|
|
|
Gazprom OAO Via Gaz Capital S.A. (a)(d), |
|
|
|
|
181 |
|
5.999%, 1/23/21 |
|
178,285 |
|
|
6,600 |
|
6.51%, 3/7/22 (k) |
|
6,567,000 |
|
|
854 |
|
7.288%, 8/16/37 (k) |
|
840,336 |
|
|
1,081 |
|
8.625%, 4/28/34 (k) |
|
1,189,100 |
|
|
958 |
|
Global Geophysical Services, Inc., 10.50%, 5/1/17 (f) |
|
543,665 |
|
April 30, 2014 | Semi-Annual Report 23
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Oil & Gas (continued) |
|
|
|
|
$4,500 |
|
Odebrecht Drilling Norbe VIII/IX Ltd., 6.35%, 6/30/21 (a)(d)(k) |
|
$4,753,125 |
|
|
|
|
OGX Austria GmbH (a)(d)(f), |
|
|
|
|
3,300 |
|
8.375%, 4/1/22 (b)(l) (acquisition cost-$2,739,000; purchased 11/20/12) |
|
169,125 |
|
|
3,700 |
|
8.50%, 6/1/18 |
|
189,625 |
|
|
1,500 |
|
Petrobras International Finance Co. – Pifco, 7.875%, 3/15/19 (k) |
|
1,746,502 |
|
|
130 |
|
Petroleos de Venezuela S.A., 6.00%, 11/15/26 (a)(b)(d)(l) |
|
77,188 |
|
|
200 |
|
Sierra Hamilton LLC, 12.25%, 12/15/18 (a)(d) |
|
206,000 |
|
|
|
|
|
|
17,842,789 |
|
|
|
|
Paper & Forest Products – 0.5% |
|
|
|
|
2,155 |
|
Millar Western Forest Products Ltd., 8.50%, 4/1/21 (k) |
|
2,327,400 |
|
|
|
|
Pipelines – 1.6% |
|
|
|
|
400 |
|
AK Transneft OJSC Via TransCapitalInvest Ltd., 8.70%, 8/7/18 (a)(d) |
|
462,000 |
|
|
|
|
NGPL PipeCo LLC (a)(d), |
|
|
|
|
300 |
|
7.768%, 12/15/37 |
|
282,000 |
|
|
4,700 |
|
9.625%, 6/1/19 |
|
5,099,500 |
|
|
1,200 |
|
Rockies Express Pipeline LLC, 6.875%, 4/15/40 (a)(d)(k) |
|
1,122,000 |
|
|
|
|
|
|
6,965,500 |
|
|
|
|
Real Estate Investment Trust – 1.3% |
|
|
|
|
4,750 |
|
SL Green Realty Corp., 7.75%, 3/15/20 (k) |
|
5,656,029 |
|
|
|
|
Retail – 1.0% |
|
|
|
|
£500 |
|
Aston Martin Capital Ltd., 9.25%, 7/15/18 (k) |
|
913,846 |
|
|
$2,731 |
|
CVS Pass-Through Trust, 7.507%, 1/10/32 (a)(d)(k) |
|
3,385,795 |
|
|
£20 |
|
Enterprise Inns PLC, 6.875%, 5/9/25 |
|
34,612 |
|
|
|
|
|
|
4,334,253 |
|
|
|
|
Storage/Warehousing – 0.8% |
|
|
|
|
$3,100 |
|
Algeco Scotsman Global Finance PLC, 8.50%, 10/15/18 (a)(d)(k) |
|
3,348,000 |
|
|
|
|
Telecommunications – 3.3% |
|
|
|
|
300 |
|
Altice S.A., 7.75%, 5/15/22 (a)(d)(e) |
|
313,125 |
|
|
2,000 |
|
Frontier Communications Corp., 9.00%, 8/15/31 (k) |
|
2,080,000 |
|
|
4,181 |
|
GCI, Inc., 6.75%, 6/1/21 (k) |
|
4,241,102 |
|
|
|
|
Sprint Corp. (a)(d)(k), |
|
|
|
|
5,800 |
|
7.125%, 6/15/24 |
|
6,104,500 |
|
|
600 |
|
7.875%, 9/15/23 |
|
663,000 |
|
|
€300 |
|
Wind Acquisition Finance S.A., 7.00%, 4/23/21 (a)(b)(d)(l) |
|
431,292 |
|
|
|
|
|
|
13,833,019 |
|
|
|
|
Transportation – 0.1% |
|
|
|
|
$320 |
|
Western Express, Inc., 12.50%, 4/15/15 (a)(d) |
|
242,400 |
|
|
Total Corporate Bonds & Notes (cost-$215,200,752) |
|
227,386,506 |
| ||
|
Mortgage-Backed Securities – 46.2% |
|
|
| ||
|
319 |
|
Adjustable Rate Mortgage Trust, 2.701%, 1/25/36, CMO (n) |
|
279,631 |
|
|
£311 |
|
Auburn Securities 4 PLC, 0.883%, 10/1/41, CMO (n) |
|
514,124 |
|
|
$3,134 |
|
Banc of America Alternative Loan Trust, 16.601%, 9/25/35, CMO (b)(n) |
|
3,887,024 |
|
24 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Banc of America Funding Trust, CMO (n), |
|
|
|
|
$275 |
|
2.39%, 12/20/36 |
|
$277,436 |
|
|
1,973 |
|
2.632%, 3/20/36 |
|
1,711,937 |
|
|
1,635 |
|
2.70%, 12/20/34 |
|
1,354,727 |
|
|
988 |
|
2.737%, 10/20/46 |
|
739,074 |
|
|
465 |
|
2.823%, 12/20/34 |
|
273,325 |
|
|
|
|
Banc of America Mortgage Trust, CMO, |
|
|
|
|
184 |
|
2.622%, 10/20/46 (n) |
|
118,274 |
|
|
305 |
|
2.752%, 9/25/34 (n) |
|
305,869 |
|
|
733 |
|
5.75%, 8/25/34 (k) |
|
801,031 |
|
|
|
|
BCAP LLC Trust, CMO (a)(d)(n), |
|
|
|
|
1,192 |
|
0.337%, 11/26/37 |
|
1,196,610 |
|
|
550 |
|
4.996%, 3/26/36 |
|
566,269 |
|
|
|
|
Bear Stearns Adjustable Rate Mortgage Trust, CMO (n), |
|
|
|
|
161 |
|
2.464%, 9/25/34 |
|
144,763 |
|
|
1,359 |
|
2.644%, 10/25/36 |
|
1,171,735 |
|
|
495 |
|
2.659%, 1/25/35 |
|
506,969 |
|
|
611 |
|
2.684%, 8/25/47 |
|
467,536 |
|
|
579 |
|
5.054%, 6/25/47 |
|
524,682 |
|
|
952 |
|
5.196%, 3/25/35 |
|
954,119 |
|
|
208 |
|
5.237%, 9/25/34 |
|
204,430 |
|
|
|
|
Bear Stearns ALT-A Trust, CMO (n), |
|
|
|
|
5,594 |
|
0.314%, 6/25/46 |
|
3,697,474 |
|
|
1,413 |
|
0.854%, 1/25/35 (k) |
|
1,366,552 |
|
|
96 |
|
2.445%, 11/25/35 |
|
76,967 |
|
|
528 |
|
2.474%, 4/25/35 |
|
415,789 |
|
|
5,352 |
|
2.486%, 8/25/36 |
|
4,406,534 |
|
|
1,588 |
|
2.555%, 9/25/34 |
|
1,437,353 |
|
|
1,343 |
|
2.599%, 5/25/36 |
|
945,286 |
|
|
768 |
|
2.71%, 8/25/36 |
|
578,641 |
|
|
836 |
|
2.818%, 5/25/35 |
|
739,606 |
|
|
776 |
|
3.597%, 9/25/34 |
|
773,404 |
|
|
503 |
|
4.138%, 7/25/35 |
|
392,399 |
|
|
906 |
|
4.413%, 11/25/36 |
|
704,930 |
|
|
581 |
|
Bear Stearns Commercial Mortgage Securities Trust, 6.00%, 11/11/35 (a)(d) |
|
588,034 |
|
|
£488 |
|
Bluestone Securities PLC, 0.741%, 6/9/43, CMO (n) |
|
788,108 |
|
|
$3,117 |
|
CBA Commercial Small Balance Commercial Mortgage, 5.54%, 1/25/39, CMO (a)(d) |
|
2,075,155 |
|
|
€663 |
|
Celtic Residential Irish Mortgage Securitisation No. 9 PLC, 0.473%, 11/13/47, CMO (n) |
|
852,180 |
|
|
|
|
Chase Mortgage Finance Trust, CMO, |
|
|
|
|
$1,453 |
|
5.50%, 11/25/21 |
|
1,267,925 |
|
|
1,610 |
|
6.00%, 3/25/37 |
|
1,456,163 |
|
|
|
|
Citigroup Mortgage Loan Trust, Inc., CMO, |
|
|
|
|
3,527 |
|
2.73%, 3/25/37 (n) |
|
2,640,911 |
|
|
885 |
|
5.50%, 11/25/35 |
|
778,907 |
|
|
2,170 |
|
Commercial Mortgage Trust, 5.909%, 7/10/46, CMO (a)(d)(k)(n) |
|
2,372,264 |
|
April 30, 2014 | Semi-Annual Report 25
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Countrywide Alternative Loan Trust, CMO, |
|
|
|
|
$1,435 |
|
0.352%, 12/20/46 (n) |
|
$1,090,851 |
|
|
1,477 |
|
0.404%, 6/25/37 (n) |
|
930,596 |
|
|
3,408 |
|
0.487%, 11/20/35 (n) |
|
2,830,708 |
|
|
3,018 |
|
0.504%, 5/25/36 (n) |
|
1,868,861 |
|
|
2,669 |
|
0.504%, 6/25/36 (n) |
|
1,882,644 |
|
|
690 |
|
5.50%, 10/25/35 |
|
630,143 |
|
|
3,352 |
|
5.50%, 12/25/35 (k) |
|
3,073,674 |
|
|
534 |
|
5.75%, 5/25/36 |
|
452,034 |
|
|
538 |
|
6.00%, 11/25/35 |
|
293,824 |
|
|
582 |
|
6.00%, 4/25/36 |
|
505,420 |
|
|
1,021 |
|
6.00%, 4/25/37 |
|
794,624 |
|
|
4,942 |
|
6.00%, 5/25/37 |
|
4,019,038 |
|
|
591 |
|
6.25%, 8/25/37 |
|
488,924 |
|
|
693 |
|
6.50%, 9/25/32 |
|
677,691 |
|
|
1,492 |
|
6.50%, 7/25/35 |
|
864,284 |
|
|
825 |
|
6.50%, 6/25/36 |
|
659,616 |
|
|
|
|
Countrywide Home Loan Mortgage Pass-Through Trust, CMO, |
|
|
|
|
1,256 |
|
0.474%, 3/25/35 (n) |
|
1,118,559 |
|
|
185 |
|
2.587%, 8/20/35 (n) |
|
168,478 |
|
|
4,382 |
|
2.587%, 11/25/35 (k)(n) |
|
3,683,055 |
|
|
488 |
|
2.607%, 6/20/35 (n) |
|
422,164 |
|
|
117 |
|
2.854%, 8/25/34 (n) |
|
103,096 |
|
|
1,381 |
|
2.857%, 9/25/47 (n) |
|
1,212,957 |
|
|
1,707 |
|
2.955%, 3/25/37 (n) |
|
1,251,429 |
|
|
198 |
|
5.50%, 8/25/35 |
|
187,863 |
|
|
2,281 |
|
Credit Suisse First Boston Mortgage Securities Corp., 7.50%, 5/25/32, CMO (k) |
|
2,373,154 |
|
|
|
|
Credit Suisse Mortgage Capital Certificates Mortgage-Backed Trust, CMO, |
|
|
|
|
650 |
|
0.325%, 10/15/21 (a)(d)(k)(n) |
|
648,029 |
|
|
892 |
|
0.754%, 7/25/36 (n) |
|
474,381 |
|
|
730 |
|
5.896%, 4/25/36 |
|
618,657 |
|
|
587 |
|
6.50%, 5/25/36 |
|
410,846 |
|
|
621 |
|
6.50%, 7/26/36 |
|
367,866 |
|
|
972 |
|
Deutsche ALT-A Securities Mortgage Loan Trust, 0.304%, 2/25/47, CMO (n) |
|
705,202 |
|
|
191 |
|
Deutsche ALT-B Securities Mortgage Loan Trust, 6.25%, 7/25/36, CMO (n) |
|
139,474 |
|
|
405 |
|
Deutsche Mortgage Securities, Inc. Mortgage Loan Trust, 5.50%, 9/25/33, CMO (k) |
|
425,882 |
|
|
804 |
|
Downey Savings & Loan Assoc. Mortgage Loan Trust, 0.336%, 4/19/47, CMO (n) |
|
221,581 |
|
|
|
|
EMF-NL BV, CMO (n), |
|
|
|
|
€800 |
|
1.29%, 7/17/41 |
|
912,144 |
|
|
1,000 |
|
2.54%, 10/17/41 |
|
1,433,569 |
|
|
$1,183 |
|
Extended Stay America Trust, 7.625%, 12/5/19, CMO (a)(d) |
|
1,222,877 |
|
|
|
|
First Horizon Alternative Mortgage Securities Trust, CMO, |
|
|
|
|
2,268 |
|
2.185%, 11/25/36 (n) |
|
1,719,169 |
|
|
1,675 |
|
2.199%, 5/25/36 (n) |
|
1,402,196 |
|
|
378 |
|
2.221%, 2/25/36 (n) |
|
299,858 |
|
|
438 |
|
2.238%, 8/25/35 (n) |
|
126,387 |
|
26 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
$194 |
|
6.25%, 11/25/36 |
|
$167,681 |
|
|
|
|
First Horizon Mortgage Pass-Through Trust, CMO, |
|
|
|
|
1,899 |
|
2.548%, 1/25/37 (n) |
|
1,646,704 |
|
|
238 |
|
4.766%, 7/25/37 (n) |
|
202,647 |
|
|
344 |
|
5.50%, 8/25/35 |
|
308,221 |
|
|
50,467 |
|
FREMF Mortgage Trust, 0.10%, 5/25/20, CMO, IO |
|
217,010 |
|
|
|
|
GMACM Mortgage Loan Trust, CMO (n), |
|
|
|
|
294 |
|
2.966%, 6/25/34 |
|
280,082 |
|
|
160 |
|
3.108%, 7/19/35 |
|
148,665 |
|
|
420 |
|
3.345%, 6/25/34 |
|
403,710 |
|
|
1,789 |
|
Greenpoint Mortgage Funding Trust, 0.334%, 1/25/37, CMO (n) |
|
1,311,843 |
|
|
|
|
GS Mortgage Securities Trust, CMO (a)(d)(n), |
|
|
|
|
9,335 |
|
1.539%, 8/10/43, IO |
|
640,417 |
|
|
2,100 |
|
6.048%, 8/10/43 (k) |
|
2,295,581 |
|
|
|
|
GSR Mortgage Loan Trust, CMO, |
|
|
|
|
796 |
|
0.604%, 7/25/37 (n) |
|
582,761 |
|
|
2,627 |
|
2.622%, 1/25/36 (n) |
|
2,427,658 |
|
|
53 |
|
2.761%, 12/25/34 (n) |
|
47,365 |
|
|
166 |
|
6.00%, 9/25/34 |
|
166,465 |
|
|
|
|
Harborview Mortgage Loan Trust, CMO (n), |
|
|
|
|
2,866 |
|
0.346%, 2/19/46 |
|
2,537,272 |
|
|
5,116 |
|
0.366%, 11/19/36 |
|
3,814,253 |
|
|
426 |
|
0.476%, 1/19/35 |
|
382,822 |
|
|
416 |
|
0.716%, 6/19/34 |
|
394,311 |
|
|
407 |
|
2.547%, 8/19/36 |
|
302,480 |
|
|
1,945 |
|
5.075%, 6/19/36 |
|
1,390,214 |
|
|
643 |
|
HomeBanc Mortgage Trust, 0.404%, 3/25/35, CMO (n) |
|
550,955 |
|
|
€984 |
|
IM Pastor 4 Fondo de Titulizacion de Activos, 0.453%, 3/22/44, CMO (n) |
|
1,134,435 |
|
|
$521 |
|
Impac CMB Trust, 0.414%, 11/25/35, CMO (n) |
|
401,245 |
|
|
2,257 |
|
IndyMac INDA Mortgage Loan Trust, 2.623%, 12/25/36, CMO (n) |
|
1,980,765 |
|
|
|
|
IndyMac Index Mortgage Loan Trust, CMO (n), |
|
|
|
|
322 |
|
0.384%, 4/25/35 |
|
264,672 |
|
|
334 |
|
0.954%, 8/25/34 |
|
297,561 |
|
|
687 |
|
1.014%, 9/25/34 |
|
600,037 |
|
|
528 |
|
2.163%, 6/25/37 |
|
403,022 |
|
|
1,869 |
|
2.723%, 5/25/37 |
|
1,370,187 |
|
|
1,956 |
|
4.902%, 11/25/36 |
|
1,797,030 |
|
|
137 |
|
4.928%, 5/25/37 |
|
19,615 |
|
|
|
|
JPMorgan Alternative Loan Trust, CMO (n), |
|
|
|
|
741 |
|
2.944%, 5/25/36 |
|
584,613 |
|
|
7 |
|
5.50%, 11/25/36 |
|
7,246 |
|
|
4,000 |
|
JPMorgan Chase Commercial Mortgage Securities Trust, 5.648%, 3/18/51, CMO (a)(d)(k)(n) |
|
4,337,900 |
|
|
|
|
JPMorgan Mortgage Trust, CMO, |
|
|
|
|
97 |
|
2.568%, 10/25/36 (n) |
|
81,898 |
|
|
538 |
|
2.661%, 6/25/37 (n) |
|
455,069 |
|
April 30, 2014 | Semi-Annual Report 27
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
$257 |
|
2.671%, 7/25/35 (n) |
|
$256,867 |
|
|
1,412 |
|
2.729%, 5/25/36 (n) |
|
1,259,654 |
|
|
3,353 |
|
5.50%, 11/25/34 |
|
3,455,304 |
|
|
246 |
|
6.00%, 8/25/37 |
|
220,108 |
|
|
2,937 |
|
KGS Alpha SBA, 1.022%, 4/25/38, CMO, IO (a)(b)(d)(g)(l) |
|
138,811 |
|
|
|
|
Landmark Mortgage Securities PLC, CMO (n), |
|
|
|
|
€484 |
|
0.524%, 6/17/38 |
|
647,267 |
|
|
£1,269 |
|
0.741%, 6/17/38 |
|
2,085,041 |
|
|
|
|
Lehman Mortgage Trust, CMO, |
|
|
|
|
$2,685 |
|
5.50%, 11/25/35 |
|
2,562,351 |
|
|
3,068 |
|
6.00%, 5/25/37 |
|
2,968,049 |
|
|
660 |
|
6.258%, 4/25/36 (n) |
|
624,944 |
|
|
|
|
MASTR Adjustable Rate Mortgages Trust, CMO (n), |
|
|
|
|
1,372 |
|
0.364%, 4/25/46 |
|
1,040,740 |
|
|
696 |
|
0.869%, 1/25/47 |
|
437,905 |
|
|
1,104 |
|
3.087%, 10/25/34 |
|
997,660 |
|
|
|
|
Morgan Stanley Mortgage Loan Trust, CMO, |
|
|
|
|
3,256 |
|
2.58%, 7/25/35 (n) |
|
2,830,632 |
|
|
457 |
|
3.111%, 1/25/35 (n) |
|
26,783 |
|
|
848 |
|
5.75%, 12/25/35 |
|
819,374 |
|
|
593 |
|
6.00%, 8/25/37 |
|
544,898 |
|
|
2,975 |
|
Morgan Stanley Re-Remic Trust, zero coupon, 7/17/56, CMO, PO (a)(d)(k) |
|
2,949,796 |
|
|
|
|
Prime Mortgage Trust, CMO, |
|
|
|
|
5,711 |
|
0.504%, 6/25/36 (n) |
|
3,120,865 |
|
|
256 |
|
7.00%, 7/25/34 |
|
250,930 |
|
|
2,000 |
|
RBSCF Trust, 5.223%, 8/16/48, CMO (a)(d)(k)(n) |
|
2,130,944 |
|
|
35 |
|
Regal Trust IV, 2.284%, 9/29/31, CMO (a)(b)(d)(l)(n) |
|
33,361 |
|
|
|
|
Residential Accredit Loans, Inc., CMO, |
|
|
|
|
476 |
|
0.334%, 6/25/46 (n) |
|
212,193 |
|
|
3,032 |
|
0.364%, 6/25/37 (n) |
|
2,263,037 |
|
|
216 |
|
5.50%, 4/25/37 |
|
170,291 |
|
|
1,059 |
|
6.00%, 8/25/35 |
|
945,067 |
|
|
989 |
|
6.00%, 1/25/37 |
|
803,049 |
|
|
730 |
|
Residential Asset Securitization Trust, 6.00%, 3/25/37, CMO |
|
582,796 |
|
|
|
|
Residential Funding Mortgage Securities I, CMO, |
|
|
|
|
506 |
|
5.486%, 7/27/37 (n) |
|
465,199 |
|
|
942 |
|
6.00%, 6/25/37 |
|
838,310 |
|
|
|
|
Salomon Brothers Mortgage Securities VII, Inc., |
|
|
|
|
607 |
|
6.50%, 2/25/29, CMO |
|
617,188 |
|
|
1,400 |
|
8.20%, 7/18/33 (n) |
|
1,440,305 |
|
|
614 |
|
Sequoia Mortgage Trust, 2.69%, 1/20/38, CMO (n) |
|
524,745 |
|
|
|
|
Structured Adjustable Rate Mortgage Loan Trust, CMO (n), |
|
|
|
|
44 |
|
2.47%, 8/25/34 |
|
43,629 |
|
|
1,798 |
|
4.838%, 11/25/36 |
|
1,588,393 |
|
|
1,984 |
|
5.05%, 1/25/36 |
|
1,533,928 |
|
28 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
|
|
Structured Asset Mortgage Investments II Trust, CMO (n), |
|
|
|
|
$3,362 |
|
0.364%, 8/25/36 |
|
$2,533,173 |
|
|
263 |
|
0.384%, 5/25/45 |
|
234,993 |
|
|
822 |
|
Structured Asset Securities Corp. Mortgage Pass-Through Certificates, 2.388%, 1/25/34, CMO (n) |
|
813,179 |
|
|
595 |
|
Suntrust Adjustable Rate Mortgage Loan Trust, 5.575%, 10/25/37, CMO (n) |
|
552,415 |
|
|
€37 |
|
Talisman-7 Finance Ltd., 0.482%, 4/22/17, CMO (n) |
|
51,061 |
|
|
$507 |
|
TBW Mortgage-Backed Trust, 6.00%, 7/25/36, CMO |
|
333,106 |
|
|
5,000 |
|
WaMu Commercial Mortgage Securities Trust, 5.66%, 3/23/45, CMO (a)(d)(k)(n) |
|
5,246,328 |
|
|
|
|
WaMu Mortgage Pass-Through Certificates, CMO (n), |
|
|
|
|
58 |
|
0.444%, 10/25/45 |
|
54,096 |
|
|
570 |
|
2.035%, 11/25/36 |
|
477,222 |
|
|
975 |
|
2.08%, 3/25/37 |
|
797,328 |
|
|
159 |
|
2.117%, 3/25/33 |
|
160,316 |
|
|
2,799 |
|
2.197%, 6/25/37 |
|
2,385,834 |
|
|
3,170 |
|
2.284%, 7/25/46 (k) |
|
2,910,587 |
|
|
1,553 |
|
2.324%, 2/25/37 |
|
1,314,908 |
|
|
2,005 |
|
2.451%, 2/25/37 |
|
1,772,682 |
|
|
5,539 |
|
2.459%, 7/25/37 |
|
4,384,628 |
|
|
2,158 |
|
4.384%, 7/25/37 |
|
1,883,692 |
|
|
|
|
Washington Mutual Mortgage Pass-Through Certificates, CMO, |
|
|
|
|
892 |
|
0.979%, 10/25/46 (n) |
|
622,440 |
|
|
5,012 |
|
5.50%, 7/25/35 (k) |
|
4,674,638 |
|
|
69 |
|
Washington Mutual MSC Mortgage Pass-Through Certificates Trust, 1.60%, 6/25/33, CMO (n) |
|
66,606 |
|
|
|
|
Wells Fargo Mortgage-Backed Securities Trust, CMO, |
|
|
|
|
682 |
|
0.654%, 7/25/37 (n) |
|
576,316 |
|
|
56 |
|
2.615%, 9/25/36 (n) |
|
51,948 |
|
|
55 |
|
2.621%, 10/25/36 (n) |
|
51,805 |
|
|
132 |
|
2.624%, 4/25/36 (n) |
|
128,411 |
|
|
1,480 |
|
2.738%, 9/25/36 (n) |
|
1,394,790 |
|
|
41 |
|
5.50%, 1/25/36 |
|
11,002 |
|
|
Total Mortgage-Backed Securities (cost-$161,331,427) |
|
195,934,282 |
| ||
|
Asset-Backed Securities – 32.7% |
|
|
| ||
|
312 |
|
Access Financial Manufactured Housing Contract Trust, 7.65%, 5/15/21 |
|
245,679 |
|
|
|
|
Accredited Mortgage Loan Trust (n), |
|
|
|
|
1,273 |
|
0.284%, 2/25/37 |
|
1,199,388 |
|
|
949 |
|
0.334%, 4/25/36 |
|
924,010 |
|
|
87 |
|
ACE Securities Corp. Home Equity Loan Trust, 0.554%, 8/25/45 (n) |
|
86,737 |
|
|
|
|
Ameriquest Mortgage Securities, Inc. Asset-Backed Pass-Through Certificates (n), |
|
|
|
|
708 |
|
0.664%, 10/25/35 |
|
545,619 |
|
|
154 |
|
1.304%, 5/25/34 |
|
108,605 |
|
|
1,836 |
|
3.004%, 8/25/32 |
|
1,731,273 |
|
|
|
|
Asset-Backed Funding Certificates (n), |
|
|
|
|
167 |
|
0.714%, 10/25/33 |
|
147,314 |
|
April 30, 2014 | Semi-Annual Report 29
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
$1,466 |
|
0.979%, 8/25/33 |
|
$1,419,510 |
|
|
1,643 |
|
Associates Manufactured Housing Pass-Through Certificates, 7.15%, 3/15/28 (k)(n) |
|
1,946,570 |
|
|
1,185 |
|
Bear Stearns Asset-Backed Securities I Trust, 0.654%, 9/25/34 (n) |
|
1,134,173 |
|
|
1,051 |
|
Bear Stearns Asset-Backed Securities Trust, 2.93%, 7/25/36 (n) |
|
488,551 |
|
|
3,703 |
|
Bombardier Capital Mortgage Securitization Corp. Trust, 7.83%, 6/15/30 (n) |
|
2,253,227 |
|
|
|
|
Conseco Finance Securitizations Corp., |
|
|
|
|
1,273 |
|
7.77%, 9/1/31 |
|
1,419,814 |
|
|
1,960 |
|
7.96%, 5/1/31 |
|
1,585,654 |
|
|
290 |
|
7.97%, 5/1/32 |
|
203,814 |
|
|
3,311 |
|
8.06%, 5/1/31 |
|
2,330,469 |
|
|
3,070 |
|
9.163%, 3/1/33 (n) |
|
2,833,791 |
|
|
|
|
Conseco Financial Corp., |
|
|
|
|
207 |
|
6.22%, 3/1/30 |
|
221,412 |
|
|
188 |
|
6.33%, 11/1/29 (n) |
|
195,849 |
|
|
1,731 |
|
6.53%, 2/1/31 (n) |
|
1,746,254 |
|
|
44 |
|
6.86%, 3/15/28 |
|
44,686 |
|
|
461 |
|
7.05%, 1/15/27 |
|
473,454 |
|
|
648 |
|
7.14%, 3/15/28 |
|
696,468 |
|
|
399 |
|
7.24%, 6/15/28 (n) |
|
420,440 |
|
|
163 |
|
7.40%, 6/15/27 |
|
165,618 |
|
|
|
|
Countrywide Asset-Backed Certificates (n), |
|
|
|
|
22 |
|
0.304%, 3/25/47 |
|
18,248 |
|
|
1,047 |
|
0.494%, 12/25/36 (a)(d) |
|
605,613 |
|
|
528 |
|
0.544%, 11/25/34 (k) |
|
515,198 |
|
|
640 |
|
0.714%, 8/25/32 |
|
529,878 |
|
|
3,750 |
|
1.004%, 2/25/35 |
|
3,295,459 |
|
|
179 |
|
1.127%, 2/25/34 |
|
165,687 |
|
|
119 |
|
4.693%, 10/25/35 |
|
119,062 |
|
|
3,522 |
|
Credit Suisse First Boston Mortgage Securities Corp., 1.204%, 2/25/31 (n) |
|
3,232,248 |
|
|
1,421 |
|
Credit-Based Asset Servicing and Securitization LLC, 1.474%, 12/25/35 (n) |
|
1,113,253 |
|
|
|
|
First Franklin Mortgage Loan Trust (n), |
|
|
|
|
10,000 |
|
0.604%, 11/25/36 (k) |
|
8,134,570 |
|
|
8,092 |
|
0.754%, 7/25/35 |
|
5,627,039 |
|
|
1,000 |
|
Greenpoint Manufactured Housing, 8.30%, 10/15/26 (n) |
|
1,086,032 |
|
|
3,012 |
|
GSAA Home Equity Trust, 5.772%, 11/25/36 (n) |
|
1,900,298 |
|
|
437 |
|
GSAMP Trust, 0.454%, 5/25/36 (a)(d)(k)(n) |
|
429,246 |
|
|
41 |
|
Home Equity Asset Trust, 2.554%, 10/25/33 (n) |
|
34,880 |
|
|
|
|
Home Equity Loan Trust (n), |
|
|
|
|
13,115 |
|
0.384%, 4/25/37 |
|
7,863,662 |
|
|
8,700 |
|
0.494%, 4/25/37 |
|
5,326,488 |
|
|
|
|
IndyMac Residential Asset-Backed Trust (n), |
|
|
|
|
18,750 |
|
0.394%, 4/25/47 |
|
10,852,725 |
|
|
6,500 |
|
0.474%, 4/25/47 |
|
4,126,037 |
|
|
|
|
JP Morgan Mortgage Acquisition Trust (n), |
|
|
|
|
11 |
|
0.234%, 8/25/36 |
|
4,325 |
|
|
1,849 |
|
0.344%, 3/25/47 |
|
1,003,810 |
|
30 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
$2,310 |
|
Legg Mason MTG Capital Corp., 7.11%, 3/10/21 (a)(b)(g)(l) |
|
$2,327,267 |
|
|
1,496 |
|
Legg Mason PT, 6.55%, 3/10/20 (a)(d)(g) |
|
1,497,202 |
|
|
|
|
Lehman ABS Mortgage Loan Trust (a)(d)(n), |
|
|
|
|
7,591 |
|
0.244%, 6/25/37 |
|
4,480,427 |
|
|
6,255 |
|
0.352%, 6/25/37 (b)(l) (acquisition cost-$3,800,137; purchased 4/29/14) |
|
3,750,851 |
|
|
|
|
Long Beach Mortgage Loan Trust (n), |
|
|
|
|
1,209 |
|
0.314%, 10/25/36 |
|
580,564 |
|
|
473 |
|
2.629%, 3/25/32 |
|
404,946 |
|
|
436 |
|
Loomis Sayles CLO I Ltd, 0.469%, 10/26/20, CDO (a)(d)(n) |
|
433,533 |
|
|
|
|
MASTR Asset-Backed Securities Trust, |
|
|
|
|
4,512 |
|
0.264%, 8/25/36 (n) |
|
2,302,023 |
|
|
303 |
|
5.233%, 11/25/35 |
|
305,700 |
|
|
6,738 |
|
Merrill Lynch First Franklin Mortgage Loan Trust, 0.394%, 5/25/37 (n) |
|
3,988,401 |
|
|
2,074 |
|
Merrill Lynch Mortgage Investors Trust, 0.654%, 6/25/36 (n) |
|
1,905,836 |
|
|
939 |
|
Morgan Stanley Dean Witter Capital I, Inc. Trust, 1.579%, 2/25/33 (n) |
|
892,927 |
|
|
4,445 |
|
Morgan Stanley Home Equity Loan Trust, 1.204%, 12/25/34 (n) |
|
3,649,234 |
|
|
1,792 |
|
NovaStar Mortgage Funding Trust, 0.324%, 11/25/36 (n) |
|
799,602 |
|
|
31 |
|
Oakwood Mortgage Investors, Inc., 0.385%, 6/15/32 (n) |
|
27,301 |
|
|
61 |
|
Option One Mortgage Loan Trust, 5.662%, 1/25/37 |
|
61,333 |
|
|
3,696 |
|
Origen Manufactured Housing Contract Trust, 7.65%, 3/15/32 |
|
3,935,611 |
|
|
3,114 |
|
Ownit Mortgage Loan Trust, 3.493%, 12/25/36 |
|
1,412,485 |
|
|
1,161 |
|
Park Place Securities, Inc. Asset-Backed Pass-Through Certificates, 2.029%, 10/25/34 (n) |
|
544,626 |
|
|
|
|
Residential Asset Mortgage Products, Inc., |
|
|
|
|
1,111 |
|
1.279%, 8/25/33 (n) |
|
982,444 |
|
|
3,239 |
|
1.879%, 9/25/34 (n) |
|
1,981,909 |
|
|
9 |
|
4.02%, 4/25/33 (n) |
|
8,887 |
|
|
356 |
|
5.22%, 7/25/34 (n) |
|
338,488 |
|
|
1,525 |
|
5.86%, 11/25/33 (k) |
|
1,640,382 |
|
|
|
|
Residential Asset Securities Corp. (n), |
|
|
|
|
5 |
|
0.344%, 3/25/36 |
|
5,200 |
|
|
3,526 |
|
0.594%, 10/25/35 |
|
2,468,362 |
|
|
19 |
|
4.47%, 3/25/32 |
|
19,007 |
|
|
816 |
|
Saxon Asset Securities Trust, 1.129%, 12/26/34 (n) |
|
637,477 |
|
|
|
|
Securitized Asset-Backed Receivables LLC Trust (n), |
|
|
|
|
476 |
|
0.384%, 2/25/37 |
|
265,834 |
|
|
82 |
|
0.829%, 1/25/35 |
|
74,597 |
|
|
|
|
South Coast Funding VII Ltd. (a)(d)(n), |
|
|
|
|
51,513 |
|
0.503%, 1/6/41, CDO |
|
12,569,187 |
|
|
1,865 |
|
0.503%, 1/6/41, CDO (b)(l) |
|
455,191 |
|
|
722 |
|
Structured Asset Securities Corp. Mortgage Loan Trust, 0.454%, 6/25/35 (n) |
|
624,218 |
|
|
2,265 |
|
Talon Funding Ltd., 0.725%, 6/5/35, CDO (a)(d)(n) |
|
1,326,810 |
|
|
741 |
|
UCFC Home Equity Loan Trust, 7.75%, 4/15/30 (n) |
|
720,674 |
|
|
497 |
|
Vanderbilt Acquisition Loan Trust, 7.33%, 5/7/32 (n) |
|
543,150 |
|
|
Total Asset-Backed Securities (cost-$124,660,683) |
|
138,513,823 |
| ||
April 30, 2014 | Semi-Annual Report 31
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
U.S. Government Agency Securities – 17.0% |
|
|
| ||
|
|
|
Fannie Mae, MBS, |
|
|
|
|
$25,000 |
|
3.00%, TBA, 30 Year (e) |
|
$24,359,375 |
|
|
15,000 |
|
3.50%, TBA, 30 Year (e) |
|
15,176,367 |
|
|
27,000 |
|
4.00%, TBA, 30 Year (e) |
|
28,295,155 |
|
|
121 |
|
4.00%, 11/1/33– 10/1/40 |
|
126,995 |
|
|
2,968 |
|
4.00%, 10/1/40– 7/1/41 (k) |
|
3,117,449 |
|
|
29,318 |
|
Freddie Mac, 0.624%, 10/25/20, CMO, IO (k)(n) |
|
1,175,378 |
|
|
Total U.S. Government Agency Securities (cost-$71,773,751) |
|
72,250,719 |
| ||
|
Sovereign Debt Obligations – 7.6% |
|
|
| ||
|
|
|
Brazil – 5.7% |
|
|
|
|
|
|
Brazil Notas do Tesouro Nacional, |
|
|
|
|
BRL10,000 |
|
6.00%, 5/15/45, Ser. B (i) |
|
10,132,351 |
|
|
12,600 |
|
6.00%, 8/15/50, Ser. B (i) |
|
12,709,649 |
|
|
3,106 |
|
10.00%, 1/1/17, Ser. F |
|
1,327,260 |
|
|
62 |
|
10.00%, 1/1/21, Ser. F |
|
24,961 |
|
|
62 |
|
10.00%, 1/1/23, Ser. F |
|
24,382 |
|
|
|
|
|
|
24,218,603 |
|
|
|
|
Costa Rica – 0.2% |
|
|
|
|
$700 |
|
Republic of Costa Rica, 7.00%, 4/4/44 (a)(d) |
|
698,250 |
|
|
|
|
Indonesia – 0.3% |
|
|
|
|
1,000 |
|
Indonesia Government International Bond, 6.75%, 1/15/44 (a)(d)(k) |
|
1,112,500 |
|
|
|
|
Philippines – 1.4% |
|
|
|
|
5,000 |
|
Power Sector Assets & Liabilities Management Corp., 7.25%, 5/27/19 (k) |
|
6,031,250 |
|
|
Total Sovereign Debt Obligations (cost-$29,785,275) |
|
32,060,603 |
| ||
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Convertible Preferred Stock – 4.1% |
|
|
| ||
|
|
|
Banking – 4.1% |
|
|
|
|
14,500 |
|
Wells Fargo & Co., 7.50%, Ser. L (h) (cost-$9,203,225) |
|
17,327,500 |
|
|
Preferred Stock – 1.7% |
|
|
| ||
|
|
|
Banking – 0.2% |
|
|
|
|
10,000 |
|
AgriBank FCB, 6.875%, 1/1/24 (a)(d)(h)(m) |
|
1,042,500 |
|
|
|
|
Diversified Financial Services – 1.5% |
|
|
|
|
50,000 |
|
Farm Credit Bank, 6.75%, 9/15/23 (a)(b)(d)(h)(l)(m) |
|
5,160,940 |
|
|
|
|
SLM Corp. CPI-Linked MTN, Ser. A, |
|
|
|
|
32,400 |
|
3.502%, 3/15/17 |
|
802,224 |
|
|
8,500 |
|
3.552%, 1/16/18 |
|
206,040 |
|
|
|
|
|
|
6,169,204 |
|
|
Total Preferred Stock (cost-$6,460,125) |
|
7,211,704 |
| ||
32 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
Convertible Bonds – 1.2% |
|
|
| ||
|
|
|
Real Estate Investment Trust – 1.2% |
|
|
|
|
$3,800 |
|
SL Green Operating Partnership L.P., 3.00%, 10/15/17 (a)(d) (cost-$3,785,174) |
|
$5,151,375 |
|
|
Senior Loans (a)(c) – 1.1% |
|
|
| ||
|
|
|
Aerospace & Defense – 0.1% |
|
|
|
|
499 |
|
Sequa Corp., 5.25%, 6/19/17, Term B |
|
490,259 |
|
|
|
|
Biotechnology – 0.0% |
|
|
|
|
100 |
|
Ikaria, Inc., 8.75%, 2/14/22 |
|
101,500 |
|
|
|
|
Hotels/Gaming – 0.2% |
|
|
|
|
750 |
|
Stockbridge SBE Holdings LLC, 13.00%, 5/2/17, Term B (b)(l) |
|
828,750 |
|
|
|
|
Media – 0.7% |
|
|
|
|
|
|
Clear Channel Communications, Inc., |
|
|
|
|
1,900 |
|
3.80%, 1/29/16, Term B |
|
1,886,008 |
|
|
500 |
|
6.90%, 1/30/19, Term D |
|
496,625 |
|
|
|
|
Numericable Finance & Co. S.C.A (e), |
|
|
|
|
253 |
|
3.75%, 3/17/20, Term B1 |
|
252,974 |
|
|
219 |
|
3.75%, 4/23/20, Term B2 |
|
218,857 |
|
|
€41 |
|
4.082%, 4/23/20, Term B |
|
56,864 |
|
|
|
|
|
|
2,911,328 |
|
|
|
|
Oil & Gas – 0.1% |
|
|
|
|
$249 |
|
OGX, 8.00%, 4/11/15, Term A (g) |
|
204,513 |
|
|
Total Senior Loans (cost-$4,420,896) |
|
4,536,350 |
| ||
|
Municipal Bonds – 0.6% |
|
|
| ||
|
|
|
California – 0.1% |
|
|
|
|
280 |
|
Statewide Communities Dev. Auth. Rev., Lancer Student Housing Project, |
|
280,426 |
|
|
|
|
West Virginia – 0.5% |
|
|
|
|
2,825 |
|
Tobacco Settlement Finance Auth. Rev., 7.467%, 6/1/47, Ser. A |
|
2,400,600 |
|
|
Total Municipal Bonds (cost-$2,990,724) |
|
2,681,026 |
| ||
|
U.S. Treasury Obligations – 0.4% |
|
|
| ||
|
1,800 |
|
U.S. Treasury Notes, 0.25%, 2/28/15 (j) (cost-$1,802,410) |
|
1,802,426 |
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Common Stock – 0.1% |
|
|
| ||
|
|
|
Media – 0.1% |
|
|
|
|
5,969 |
|
Tribune Co. (p) (cost-$340,187) |
|
464,090 |
|
|
|
|
|
|
|
|
|
Units |
|
|
|
|
|
|
Warrants – 0.0% |
|
|
| ||
|
|
|
Engineering & Construction – 0.0% |
|
|
|
|
3,575 |
|
Alion Science and Technology Corp., strike price $0.01, |
|
36 |
|
April 30, 2014 | Semi-Annual Report 33
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Principal |
|
|
|
Value |
|
|
Short-Term Investments – 3.7% |
|
|
| ||
|
|
|
U.S. Treasury Obligations (j)(k)(o) – 2.7% |
|
|
|
|
$11,378 |
|
U.S. Treasury Bills, 0.046%-0.082%, 8/14/14-10/30/14 (cost-$11,375,450) |
|
$11,376,721 |
|
|
|
|
U.S. Government Agency Securities (o) – 1.0% |
|
|
|
|
900 |
|
Fannie Mae Discount Notes, 0.122%, 9/24/14 |
|
899,854 |
|
|
|
|
Federal Home Loan Bank Discount Notes, |
|
|
|
|
1,300 |
|
0.056%, 6/18/14 |
|
1,299,905 |
|
|
500 |
|
0.079%, 10/24/14 |
|
499,902 |
|
|
1,300 |
|
Freddie Mac Discount Notes, 0.122%, 7/11/14 |
|
1,299,923 |
|
|
Total U.S. Government Agency Securities (cost-$3,998,968) |
|
3,999,584 |
| ||
|
|
|
Repurchase Agreements – 0.0% |
|
|
|
|
144 |
|
State Street Bank and Trust Co., |
|
144,000 |
|
|
Total Short-Term Investments (cost-$15,518,418) |
|
15,520,305 |
| ||
|
Total Investments, before securities sold short |
|
720,840,745 |
| ||
|
Securities Sold Short – (5.3)% |
|
|
| ||
|
|
|
U.S. Government Agency Securities – (5.3)% |
|
|
|
|
22,000 |
|
Fannie Mae, 3.50%, MBS, TBA, 30 Year (proceeds received-$22,245,781) |
|
(22,334,297 |
) |
|
Total Investments, net of securities sold short |
|
698,506,448 |
| ||
|
Other liabilities in excess of other assets – (64.7)% |
|
(274,509,391 |
) | ||
|
Net Assets – 100.0% |
|
$423,997,057 |
| ||
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
Notes to Schedule of Investments:
|
(a) |
Private Placement–Restricted as to resale and may not have a readily available market. Securities with an aggregate value of $173,638,521, representing 41.0% of net assets. |
|
|
|
|
(b) |
Illiquid. |
|
|
|
|
(c) |
These securities generally pay interest at rates which are periodically pre-determined by reference to a base lending rate plus a premium. These base lending rates are generally either the lending rate offered by one or more major European banks, such as the “LIBOR” or the prime rate offered by one or more major United States banks, or the certificate of deposit rate. These securities are generally considered to be restricted as the Fund is ordinarily contractually obligated to receive approval from the Agent bank and/or borrower prior to disposition. Remaining maturities of senior loans may be less than the stated maturities shown as a result of contractual or optional payments by the borrower. Such prepayments cannot be predicted with certainty. The interest rate disclosed reflects the rate in effect on April 30, 2014. |
|
|
|
|
(d) |
144A–Exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, typically only to qualified institutional buyers. Unless otherwise indicated, these securities are not considered to be illiquid. |
|
|
|
|
(e) |
When-issued or delayed-delivery. To be settled/delivered after April 30, 2014. |
|
|
|
|
(f) |
In default. |
|
|
|
|
(g) |
Fair-Valued–Securities with an aggregate value of $4,167,793, representing 1.0% of net assets. See Note 1(a) and Note 1(b) in the Notes to Financial Statements. |
|
|
|
|
(h) |
Perpetual maturity. The date shown, if any, is the next call date. For Corporate Bonds & Notes the interest rate is fixed until the first call date and variable thereafter. |
|
|
|
|
(i) |
Inflationary Bonds–Principal amount of security is adjusted for inflation/deflation. |
|
|
|
|
(j) |
All or partial amount segregated for the benefit of the counterparty as collateral for derivatives. |
|
|
|
|
(k) |
All or partial amount transferred for the benefit of the counterparty as collateral for reverse repurchase agreements. |
|
|
|
|
(l) |
Restricted. The aggregate acquisition cost of such securities is $26,871,313. The aggregate value is $25,302,593, representing 6.0% of net assets. |
|
|
|
|
(m) |
Dividend rate is fixed until the first call date and variable thereafter. |
|
|
|
|
(n) |
Variable or Floating Rate Security–Securities with an interest rate that changes periodically. The interest rate disclosed reflects the rate in effect on April 30, 2014. |
|
|
|
|
(o) |
Rates reflect the effective yields at purchase date. |
|
|
|
|
(p) |
Non-income producing. |
|
|
|
|
(q) |
Total return swap agreements on convertible securities outstanding at April 30, 2014: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Agreements, |
| ||||||
|
Swap |
|
Pay/ |
|
Underlying |
|
# of |
|
Financing |
|
Maturity |
|
Notional |
|
Upfront |
|
Unrealized |
|
Asset |
|
Liability |
| ||||
|
Deutsche Bank |
|
Receive |
|
OGX Petroleo e Gas |
|
881 |
|
Not Applicable, Fully Funded |
|
2/11/15 |
|
$368,065 |
|
$368,065 |
|
|
$163,850 |
|
|
$531,915 |
|
|
$– |
|
|
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
(r) Credit default swap agreements outstanding at April 30, 2014:
OTC sell protection swap agreements:
|
Swap |
|
Notional |
|
Credit |
|
Termination |
|
Payments |
|
Value (2) |
|
Upfront |
|
Unrealized |
| |
|
Bank of America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Republic of Indonesia Government International Bond |
|
$600 |
|
1.72% |
|
6/20/19 |
|
1.00% |
|
$(20,145 |
) |
$(20,164 |
) |
$19 |
|
|
|
Barclays Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gazprom |
|
1,250 |
|
3.10% |
|
12/20/17 |
|
1.90% |
|
(42,226 |
) |
– |
|
(42,226 |
) |
|
|
VTB Capital |
|
1,250 |
|
3.76% |
|
12/20/17 |
|
2.34% |
|
(48,455 |
) |
– |
|
(48,455 |
) |
|
|
Citigroup: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Majapahit Holding |
|
3,000 |
|
2.12% |
|
12/20/17 |
|
2.65% |
|
63,812 |
|
– |
|
63,812 |
|
|
|
Republic of Indonesia |
|
3,000 |
|
1.21% |
|
12/20/17 |
|
2.14% |
|
106,605 |
|
– |
|
106,605 |
|
|
|
Credit Suisse First Boston: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TNK |
|
1,500 |
|
3.10% |
|
12/20/17 |
|
3.15% |
|
20,079 |
|
– |
|
20,079 |
|
|
|
Deutsche Bank: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic of Indonesia Government International Bond |
|
1,200 |
|
1.72% |
|
6/20/19 |
|
1.00% |
|
(40,290 |
) |
(42,376 |
) |
2,086 |
|
|
|
JPMorgan Chase: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic of Indonesia Government International Bond |
|
1,200 |
|
1.72% |
|
6/20/19 |
|
1.00% |
|
(40,290 |
) |
(40,165 |
) |
(125 |
) |
|
|
Royal Bank of Scotland: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABX.HE AA 06-1 |
|
19,311 |
|
† |
|
7/25/45 |
|
0.32% |
|
(4,283,004 |
) |
(11,348,079 |
) |
7,065,075 |
|
|
|
ABX.HE AAA 07-1 |
|
7,494 |
|
† |
|
8/25/37 |
|
0.09% |
|
(1,797,886 |
) |
(3,709,569 |
) |
1,911,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$(6,081,800 |
) |
$(15,160,353 |
) |
$9,078,553 |
|
|
|
† |
Credit Spread not quoted for asset-backed securities. |
|
|
|
|
(1) |
This represents the maximum potential amount the Fund could be required to make available 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. |
|
|
|
|
(2) |
The quoted market prices and resulting values for credit default swap agreements serve as an indicator of the status at April 30, 2014 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 have been closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
36 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
(s) Interest rate swap agreements outstanding at April 30, 2014:
Centrally cleared swap agreements:
|
|
|
|
|
|
|
Rate Type |
|
|
|
| |||
|
Broker (Exchange) |
|
Notional |
|
Termination |
|
Payments |
|
Payments |
|
Value |
|
Unrealized | |
|
Barclays Bank (CME) |
|
$17,600 |
|
6/18/44 |
|
3.75% |
|
3-Month USD-LIBOR |
|
$(969,592 |
) |
$(1,406,072 |
) |
|
Barclays Bank (CME) |
|
8,000 |
|
6/18/44 |
|
3.75% |
|
3-Month USD-LIBOR |
|
(440,723 |
) |
(121,299 |
) |
|
Credit Suisse First Boston (CME) |
|
69,300 |
|
6/18/19 |
|
2.00% |
|
3-Month USD-LIBOR |
|
(530,897 |
) |
(593,267 |
) |
|
|
|
|
|
|
|
|
|
|
|
$(1,941,212 |
) |
$(2,120,638 |
) |
(t) Forward foreign currency contracts outstanding at April 30, 2014:
|
|
|
Counterparty |
|
U.S.$ Value on |
|
U.S.$ Value |
|
Unrealized |
| |
|
Purchased: |
|
|
|
|
|
|
|
|
|
|
|
20,002,479 Brazilian Real settling 5/5/14 |
|
Credit Suisse First Boston |
|
$8,945,652 |
|
$8,970,727 |
|
$25,075 |
|
|
|
6,090,560 Brazilian Real settling 6/3/14 |
|
Credit Suisse First Boston |
|
2,719,000 |
|
2,706,687 |
|
(12,313 |
) |
|
|
1,101,107 Brazilian Real settling 7/2/14 |
|
Credit Suisse First Boston |
|
487,000 |
|
485,558 |
|
(1,442 |
) |
|
|
9,561,798 Brazilian Real settling 6/3/14 |
|
Goldman Sachs |
|
4,266,604 |
|
4,249,329 |
|
(17,275 |
) |
|
|
12,507,806 Brazilian Real settling 5/5/14 |
|
JPMorgan Chase |
|
5,618,960 |
|
5,609,510 |
|
(9,450 |
) |
|
|
18,716,249 Brazilian Real settling 5/5/14 |
|
UBS |
|
8,415,580 |
|
8,393,878 |
|
(21,702 |
) |
|
|
3,600,000 British Pound settling 6/3/14 |
|
Barclays Bank |
|
6,068,531 |
|
6,076,714 |
|
8,183 |
|
|
|
9,571,958 British Pound settling 5/2/14 |
|
JPMorgan Chase |
|
16,066,531 |
|
16,161,286 |
|
94,755 |
|
|
|
5,105,594 Euro settling 5/2/14 |
|
Bank of America |
|
7,064,146 |
|
7,083,243 |
|
19,097 |
|
|
|
4,570,000 Euro settling 5/2/14 |
|
Deutsche Bank |
|
6,299,818 |
|
6,340,186 |
|
40,368 |
|
|
|
462,000 Euro settling 6/3/14 |
|
Goldman Sachs |
|
639,471 |
|
640,912 |
|
1,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold: |
|
|
|
|
|
|
|
|
|
|
|
20,002,479 Brazilian Real settling 5/5/14 |
|
Credit Suisse First Boston |
|
8,410,764 |
|
8,970,727 |
|
(559,963 |
) |
|
|
6,298,020 Brazilian Real settling 10/2/14 |
|
Credit Suisse First Boston |
|
2,719,000 |
|
2,706,216 |
|
12,784 |
|
|
|
1,158,963 Brazilian Real settling 1/5/15 |
|
Credit Suisse First Boston |
|
487,000 |
|
485,239 |
|
1,761 |
|
|
|
9,883,038 Brazilian Real settling 10/2/14 |
|
Goldman Sachs |
|
4,266,603 |
|
4,246,673 |
|
19,930 |
|
|
|
12,507,806 Brazilian Real settling 5/5/14 |
|
JPMorgan Chase |
|
5,561,749 |
|
5,609,510 |
|
(47,761 |
) |
|
|
12,507,806 Brazilian Real settling 6/3/14 |
|
JPMorgan Chase |
|
5,572,771 |
|
5,558,555 |
|
14,216 |
|
|
|
2,133,393 Brazilian Real settling 7/2/14 |
|
JPMorgan Chase |
|
880,731 |
|
940,768 |
|
(60,037 |
) |
|
|
16,480,376 Brazilian Real settling 6/3/14 |
|
Morgan Stanley |
|
6,837,989 |
|
7,323,992 |
|
(486,003 |
) |
|
|
2,171,643 Brazilian Real settling 7/2/14 |
|
Morgan Stanley |
|
900,387 |
|
957,635 |
|
(57,248 |
) |
|
|
18,716,249 Brazilian Real settling 5/5/14 |
|
UBS |
|
8,081,054 |
|
8,393,878 |
|
(312,824 |
) |
|
|
18,716,249 Brazilian Real settling 6/3/14 |
|
UBS |
|
8,346,525 |
|
8,317,629 |
|
28,896 |
|
|
|
2,496,000 British Pound settling 5/2/14 |
|
Bank of America |
|
4,151,272 |
|
4,214,244 |
|
(62,972 |
) |
|
|
25,046 British Pound settling 6/3/14 |
|
Bank of America |
|
42,000 |
|
42,277 |
|
(277 |
) |
|
|
100,000 British Pound settling 5/2/14 |
|
BNP Paribas |
|
167,669 |
|
168,840 |
|
(1,171 |
) |
|
|
2,857,000 British Pound settling 5/2/14 |
|
Citigroup |
|
4,751,234 |
|
4,823,756 |
|
(72,522 |
) |
|
April 30, 2014 | Semi-Annual Report 37
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
|
|
Counterparty |
|
U.S.$ Value on |
|
U.S.$ Value |
|
Unrealized |
| |
|
14,294 British Pound settling 6/3/14 |
|
Credit Suisse First Boston |
|
$24,001 |
|
$24,129 |
|
$(128 |
) |
|
|
9,571,958 British Pound settling 6/3/14 |
|
JPMorgan Chase |
|
16,062,617 |
|
16,157,237 |
|
(94,620 |
) |
|
|
4,118,958 British Pound settling 5/2/14 |
|
Royal Bank of Scotland |
|
6,785,719 |
|
6,954,445 |
|
(168,726 |
) |
|
|
287,000 Euro settling 5/2/14 |
|
Bank of America |
|
394,151 |
|
398,169 |
|
(4,018 |
) |
|
|
5,105,594 Euro settling 6/3/14 |
|
Bank of America |
|
7,063,590 |
|
7,082,765 |
|
(19,175 |
) |
|
|
4,866,000 Euro settling 5/2/14 |
|
Barclays Bank |
|
6,711,747 |
|
6,750,842 |
|
(39,095 |
) |
|
|
144,674 Euro settling 5/2/14 |
|
Goldman Sachs |
|
200,000 |
|
200,714 |
|
(714 |
) |
|
|
30,448 Euro settling 6/3/14 |
|
Goldman Sachs |
|
42,000 |
|
42,239 |
|
(239 |
) |
|
|
285,460 Euro settling 5/2/14 |
|
JPMorgan Chase |
|
394,020 |
|
396,033 |
|
(2,013 |
) |
|
|
4,092,460 Euro settling 5/2/14 |
|
Royal Bank of Scotland |
|
5,637,892 |
|
5,677,672 |
|
(39,780 |
) |
|
|
|
|
|
|
|
|
|
|
$(1,824,962 |
) |
|
(u) At April 30, 2014, the Fund held $815,000 in cash as collateral and pledged cash collateral of $16,000 for derivative contracts. Cash collateral held may be invested in accordance with the Fund’s investment strategy.
(v) Open reverse repurchase agreements at April 30, 2014:
|
Counterparty |
|
Rate |
|
Trade Date |
|
Due Date |
|
Principal & Interest |
|
Principal |
|
|
Barclays Bank |
|
(0.75 |
)% |
3/31/14 |
|
3/28/16 |
|
$1,159,251 |
|
$1,160,000 |
|
|
|
|
0.35 |
|
4/21/14 |
|
5/5/14 |
|
988,096 |
|
988,000 |
|
|
|
|
0.40 |
|
4/1/14 |
|
5/2/14 |
|
6,270,089 |
|
6,268,000 |
|
|
|
|
0.40 |
|
4/9/14 |
|
7/9/14 |
|
1,024,251 |
|
1,024,000 |
|
|
|
|
0.40 |
|
4/25/14 |
|
5/30/14 |
|
1,415,094 |
|
1,415,000 |
|
|
|
|
0.40 |
|
4/30/14 |
|
6/2/14 |
|
6,309,000 |
|
6,309,000 |
|
|
|
|
0.45 |
|
2/13/14 |
|
5/13/14 |
|
5,563,350 |
|
5,558,000 |
|
|
|
|
0.45 |
|
4/8/14 |
|
7/9/14 |
|
768,354 |
|
768,133 |
|
|
|
|
0.45 |
|
4/9/14 |
|
7/9/14 |
|
878,117 |
|
877,867 |
|
|
|
|
0.45 |
|
4/25/14 |
|
5/30/14 |
|
5,860,440 |
|
5,860,000 |
|
|
|
|
0.45 |
|
4/30/14 |
|
6/2/14 |
|
8,013,009 |
|
8,013,000 |
|
|
|
|
0.50 |
|
4/1/14 |
|
5/2/14 |
|
2,117,882 |
|
2,117,000 |
|
|
|
|
0.55 |
|
4/3/14 |
|
5/8/14 |
|
3,986,705 |
|
3,985,000 |
|
|
|
|
0.55 |
|
4/8/14 |
|
5/9/14 |
|
1,989,699 |
|
1,989,000 |
|
|
|
|
0.55 |
|
4/14/14 |
|
5/16/14 |
|
893,232 |
|
893,000 |
|
|
|
|
0.55 |
|
4/23/14 |
|
5/23/14 |
|
5,580,682 |
|
5,580,000 |
|
|
|
|
0.55 |
|
4/25/14 |
|
5/30/14 |
|
2,312,212 |
|
2,312,000 |
|
|
|
|
0.55 |
|
4/30/14 |
|
6/2/14 |
|
6,108,061 |
|
6,108,000 |
|
|
|
|
0.60 |
|
2/13/14 |
|
5/13/14 |
|
2,292,939 |
|
2,290,000 |
|
|
|
|
0.60 |
|
2/26/14 |
|
8/26/14 |
|
2,061,196 |
|
2,059,000 |
|
|
|
|
0.60 |
|
4/1/14 |
|
5/2/14 |
|
288,144 |
|
288,000 |
|
|
|
|
0.60 |
|
4/30/14 |
|
6/2/14 |
|
291,000 |
|
291,000 |
|
|
|
|
0.625 |
|
2/26/14 |
|
8/26/14 |
|
4,439,928 |
|
4,435,000 |
|
|
|
|
0.65 |
|
2/3/14 |
|
5/2/14 |
|
3,707,815 |
|
3,702,000 |
|
|
|
|
0.65 |
|
2/5/14 |
|
5/5/14 |
|
1,727,647 |
|
1,725,000 |
|
|
|
|
0.65 |
|
3/7/14 |
|
6/10/14 |
|
2,333,315 |
|
2,331,000 |
|
38 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Counterparty |
|
Rate |
|
Trade Date |
|
Due Date |
|
Principal & Interest |
|
Principal |
|
|
|
|
0.65 |
% |
3/14/14 |
|
6/16/14 |
|
$5,381,660 |
|
$5,377,000 |
|
|
|
|
0.65 |
|
4/2/14 |
|
5/5/14 |
|
880,501 |
|
880,000 |
|
|
|
|
0.65 |
|
4/9/14 |
|
7/9/14 |
|
3,943,566 |
|
3,942,000 |
|
|
|
|
0.65 |
|
4/21/14 |
|
7/21/14 |
|
1,763,318 |
|
1,763,000 |
|
|
|
|
0.65 |
|
4/30/14 |
|
8/4/14 |
|
3,928,000 |
|
3,928,000 |
|
|
|
|
0.71 |
|
2/26/14 |
|
8/26/14 |
|
1,935,440 |
|
1,933,000 |
|
|
|
|
0.75 |
|
2/4/14 |
|
5/6/14 |
|
1,030,689 |
|
1,028,897 |
|
|
|
|
0.75 |
|
4/30/14 |
|
7/15/14 |
|
1,029,623 |
|
1,029,623 |
|
|
|
|
0.95 |
|
2/4/14 |
|
5/6/14 |
|
4,168,333 |
|
4,159,155 |
|
|
|
|
0.95 |
|
4/30/14 |
|
7/23/14 |
|
2,340,893 |
|
2,340,893 |
|
|
|
|
1.052 |
|
4/25/14 |
|
5/30/14 |
|
1,907,334 |
|
1,907,000 |
|
|
|
|
1.133 |
|
3/31/14 |
|
7/1/14 |
|
5,039,912 |
|
5,035,000 |
|
|
|
|
1.135 |
|
3/17/14 |
|
6/17/14 |
|
1,119,586 |
|
1,118,000 |
|
|
|
|
1.153 |
|
4/7/14 |
|
5/7/14 |
|
3,529,711 |
|
3,527,000 |
|
|
|
|
1.373 |
|
4/30/14 |
|
8/5/14 |
|
3,028,000 |
|
3,028,000 |
|
|
Credit Suisse First Boston |
|
0.00 |
|
12/20/12 |
|
12/19/14 |
|
1,791,000 |
|
1,791,000 |
|
|
|
|
0.75 |
|
2/4/14 |
|
5/2/14 |
|
437,786 |
|
437,025 |
|
|
|
|
0.75 |
|
2/4/14 |
|
12/31/14 |
|
4,292,193 |
|
4,290,222 |
|
|
|
|
0.75 |
|
4/30/14 |
|
6/2/14 |
|
6,079,351 |
|
6,079,351 |
|
|
|
|
0.75 |
|
4/30/14 |
|
7/16/14 |
|
427,672 |
|
427,672 |
|
|
|
|
0.75 |
|
4/30/14 |
|
12/31/14 |
|
4,490,551 |
|
4,490,551 |
|
|
|
|
0.85 |
|
2/4/14 |
|
5/2/14 |
|
840,453 |
|
838,797 |
|
|
|
|
0.90 |
|
4/30/14 |
|
7/15/14 |
|
1,859,941 |
|
1,859,941 |
|
|
|
|
0.90 |
|
4/30/14 |
|
7/16/14 |
|
858,058 |
|
858,058 |
|
|
Deutsche Bank |
|
0.55 |
|
4/30/14 |
|
5/30/14 |
|
3,105,047 |
|
3,105,000 |
|
|
|
|
0.59 |
|
2/5/14 |
|
5/5/14 |
|
5,958,289 |
|
5,950,000 |
|
|
|
|
0.59 |
|
2/14/14 |
|
5/15/14 |
|
8,708,834 |
|
8,698,000 |
|
|
|
|
0.59 |
|
3/12/14 |
|
6/12/14 |
|
5,840,782 |
|
5,836,000 |
|
|
|
|
0.59 |
|
3/14/14 |
|
6/16/14 |
|
5,424,264 |
|
5,420,000 |
|
|
|
|
0.59 |
|
3/31/14 |
|
7/1/14 |
|
4,183,124 |
|
4,181,000 |
|
|
|
|
0.59 |
|
4/15/14 |
|
5/2/14 |
|
803,211 |
|
803,000 |
|
|
|
|
0.59 |
|
4/30/14 |
|
5/5/14 |
|
1,240,000 |
|
1,240,000 |
|
|
|
|
0.59 |
|
4/30/14 |
|
5/15/14 |
|
2,593,000 |
|
2,593,000 |
|
|
|
|
0.59 |
|
4/30/14 |
|
7/7/14 |
|
602,000 |
|
602,000 |
|
|
Goldman Sachs |
|
0.18 |
|
4/10/14 |
|
5/12/14 |
|
3,000,315 |
|
3,000,000 |
|
|
Morgan Stanley |
|
0.40 |
|
4/3/14 |
|
5/2/14 |
|
1,581,112 |
|
1,580,622 |
|
|
|
|
0.40 |
|
4/30/14 |
|
7/23/14 |
|
1,565,619 |
|
1,565,619 |
|
|
|
|
0.48 |
|
4/30/14 |
|
5/30/14 |
|
4,256,057 |
|
4,256,000 |
|
|
|
|
0.50 |
|
4/3/14 |
|
5/2/14 |
|
4,761,687 |
|
4,759,843 |
|
|
|
|
0.50 |
|
4/30/14 |
|
7/23/14 |
|
4,721,011 |
|
4,721,011 |
|
|
|
|
1.15 |
|
3/19/14 |
|
6/18/14 |
|
3,701,077 |
|
3,696,000 |
|
|
|
|
1.15 |
|
4/14/14 |
|
5/15/14 |
|
1,339,727 |
|
1,339,000 |
|
|
|
|
1.20 |
|
3/19/14 |
|
6/18/14 |
|
2,598,720 |
|
2,595,000 |
|
|
|
|
1.20 |
|
3/31/14 |
|
7/1/14 |
|
3,123,224 |
|
3,120,000 |
|
|
Royal Bank of Canada |
|
0.45 |
|
2/13/14 |
|
5/13/14 |
|
2,339,249 |
|
2,337,000 |
|
April 30, 2014 | Semi-Annual Report 39
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
|
Counterparty |
|
Rate |
|
Trade Date |
|
Due Date |
|
Principal & Interest |
|
Principal |
|
|
|
|
0.48 |
% |
2/13/14 |
|
5/13/14 |
|
$869,892 |
|
$869,000 |
|
|
|
|
0.48 |
|
3/3/14 |
|
6/3/14 |
|
3,589,822 |
|
3,587,000 |
|
|
|
|
0.55 |
|
4/29/14 |
|
7/29/14 |
|
558,017 |
|
558,000 |
|
|
|
|
1.15 |
|
4/30/14 |
|
6/3/14 |
|
3,507,000 |
|
3,507,000 |
|
|
|
|
1.32 |
|
4/15/14 |
|
10/15/14 |
|
7,484,388 |
|
7,480,000 |
|
|
Royal Bank of Scotland |
|
0.977 |
|
4/10/14 |
|
7/10/14 |
|
1,919,093 |
|
1,918,000 |
|
|
UBS |
|
0.45 |
|
4/15/14 |
|
5/19/14 |
|
3,397,679 |
|
3,397,000 |
|
|
|
|
0.45 |
|
4/22/14 |
|
7/22/14 |
|
1,250,141 |
|
1,250,000 |
|
|
|
|
0.47 |
|
4/11/14 |
|
5/16/14 |
|
1,172,306 |
|
1,172,000 |
|
|
|
|
0.47 |
|
4/15/14 |
|
5/19/14 |
|
1,195,250 |
|
1,195,000 |
|
|
|
|
0.47 |
|
4/15/14 |
|
5/20/14 |
|
594,124 |
|
594,000 |
|
|
|
|
0.47 |
|
4/16/14 |
|
5/20/14 |
|
6,325,238 |
|
6,324,000 |
|
|
|
|
0.47 |
|
4/21/14 |
|
5/22/14 |
|
976,127 |
|
976,000 |
|
|
|
|
0.47 |
|
4/22/14 |
|
5/22/14 |
|
1,063,125 |
|
1,063,000 |
|
|
|
|
0.48 |
|
4/15/14 |
|
5/19/14 |
|
2,100,448 |
|
2,100,000 |
|
|
|
|
0.50 |
|
4/25/14 |
|
5/30/14 |
|
507,042 |
|
507,000 |
|
|
|
|
0.53 |
|
4/25/14 |
|
5/30/14 |
|
596,053 |
|
596,000 |
|
|
|
|
0.54 |
|
4/11/14 |
|
5/16/14 |
|
2,443,733 |
|
2,443,000 |
|
|
|
|
0.54 |
|
4/15/14 |
|
5/20/14 |
|
1,736,417 |
|
1,736,000 |
|
|
|
|
0.54 |
|
4/21/14 |
|
5/22/14 |
|
1,947,292 |
|
1,947,000 |
|
|
|
|
0.54 |
|
4/22/14 |
|
5/22/14 |
|
1,215,164 |
|
1,215,000 |
|
|
|
|
0.90 |
|
2/4/14 |
|
5/6/14 |
|
972,622 |
|
970,593 |
|
|
|
|
0.90 |
|
4/30/14 |
|
7/15/14 |
|
992,230 |
|
992,230 |
|
|
|
|
|
|
|
|
|
|
|
|
$258,210,103 |
|
(w) The weighted average daily balance of reverse repurchase agreements during the six months ended April 30, 2014 was $148,761,837, at a weighted average interest rate of 0.58%. Total value of underlying collateral (refer to the Schedule of Investments for positions transferred for the benefit of the counterparty as collateral) for open reverse repurchase agreements at April 30, 2014 was $286,948,286.
At April 30, 2014, the Fund held U.S. Treasury Obligations valued at $874,642. Cash collateral held may be invested in accordance with the Fund’s investment strategy. Securities held as collateral will not be pledged and are not reflected in the Schedule of Investments.
(x) At April 30, 2014, the Fund had the following unfunded loan commitments which could be extended at the option of the borrower:
|
Borrower |
|
Principal |
|
|
Ortho-Clinical Diagnostics |
|
$400,000 |
|
40 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
(y) Fair Value Measurements-See Note 1(b) in the Notes to Financial Statements.
|
|
|
Level 1 |
|
Level 2 – |
|
Level 3 – |
|
Value at |
|
|
Investments in Securities – Assets |
|
|
|
|
|
|
|
|
|
|
Corporate Bonds & Notes: |
|
|
|
|
|
|
|
|
|
|
Airlines |
|
$– |
|
$4,566,640 |
|
$7,563,438 |
|
$12,130,078 |
|
|
All Other |
|
– |
|
215,256,428 |
|
– |
|
215,256,428 |
|
|
Mortgage-Backed Securities |
|
– |
|
192,845,675 |
|
3,088,607 |
|
195,934,282 |
|
|
Asset-Backed Securities |
|
– |
|
134,689,354 |
|
3,824,469 |
|
138,513,823 |
|
|
U.S. Government Agency Securities |
|
– |
|
72,250,719 |
|
– |
|
72,250,719 |
|
|
Sovereign Debt Obligations |
|
– |
|
32,060,603 |
|
– |
|
32,060,603 |
|
|
Convertible Preferred Stock |
|
17,327,500 |
|
– |
|
– |
|
17,327,500 |
|
|
Preferred Stock: |
|
|
|
|
|
|
|
|
|
|
Banking |
|
– |
|
1,042,500 |
|
– |
|
1,042,500 |
|
|
Diversified Financial Services |
|
1,008,264 |
|
5,160,940 |
|
– |
|
6,169,204 |
|
|
Convertible Bonds |
|
– |
|
5,151,375 |
|
– |
|
5,151,375 |
|
|
Senior Loans: |
|
|
|
|
|
|
|
|
|
|
Hotels/Gaming |
|
– |
|
– |
|
828,750 |
|
828,750 |
|
|
Oil & Gas |
|
– |
|
– |
|
204,513 |
|
204,513 |
|
|
All Other |
|
– |
|
3,503,087 |
|
– |
|
3,503,087 |
|
|
Municipal Bonds |
|
– |
|
2,681,026 |
|
– |
|
2,681,026 |
|
|
U.S. Treasury Obligations |
|
– |
|
1,802,426 |
|
– |
|
1,802,426 |
|
|
Common Stock |
|
464,090 |
|
– |
|
– |
|
464,090 |
|
|
Warrants |
|
– |
|
36 |
|
– |
|
36 |
|
|
Short-Term Investments |
|
– |
|
15,520,305 |
|
– |
|
15,520,305 |
|
|
|
|
18,799,854 |
|
686,531,114 |
|
15,509,777 |
|
720,840,745 |
|
|
Investment in Securities – Liabilities |
|
|
|
|
|
|
|
|
|
|
Securities Sold Short, at value |
|
– |
|
(22,334,297) |
|
– |
|
(22,334,297 |
) |
|
Other Financial Instruments* – Assets |
|
|
|
|
|
|
|
|
|
|
Credit Contracts |
|
– |
|
9,169,359 |
|
163,850 |
|
9,333,209 |
|
|
Foreign Exchange Contracts |
|
– |
|
266,506 |
|
– |
|
266,506 |
|
|
|
|
– |
|
9,435,865 |
|
163,850 |
|
9,599,715 |
|
|
Other Financial Instruments* – Liabilities |
|
|
|
|
|
|
|
|
|
|
Credit Contracts |
|
– |
|
(90,806) |
|
– |
|
(90,806 |
) |
|
Foreign Exchange Contracts |
|
– |
|
(2,091,468) |
|
– |
|
(2,091,468 |
) |
|
Interest Rate Contracts |
|
– |
|
(2,120,638) |
|
– |
|
(2,120,638 |
) |
|
|
|
– |
|
(4,302,912) |
|
– |
|
(4,302,912 |
) |
|
Totals |
|
$18,799,854 |
|
$669,329,770 |
|
$15,673,627 |
|
$703,803,251 |
|
April 30, 2014 | Semi-Annual Report 41
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
At April 30, 2014, a security valued at $1,042,500 was transferred from Level 1 to Level 2 due to the unavailability of an exchange-traded closing price.
A roll forward of fair value measurements using significant unobservable inputs (Level 3) for the six months ended April 30, 2014, was as follows:
|
|
|
Beginning |
|
Purchases |
|
Sales |
|
Accrued |
|
Net |
|
Net |
|
Transfers |
|
Transfers |
|
Ending |
|
|
Investments in Securities – Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Corporate Bonds & Notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airlines |
|
$8,143,481 |
|
$– |
|
$(562,358 |
) |
$9,002 |
|
$3,958 |
|
$(30,645 |
) |
– |
|
$– |
|
$7,563,438 |
|
|
Mortgage-Backed Securities |
|
5,409,249 |
|
565,487 |
|
(2,595,165 |
) |
(3,050 |
) |
17,100 |
|
(88,004 |
) |
– |
|
(217,010 |
) |
3,088,607 |
|
|
Asset-Backed Securities |
|
3,946,668 |
|
– |
|
(120,046 |
) |
4,936 |
|
2,613 |
|
(9,702 |
) |
– |
|
– |
|
3,824,469 |
|
|
Senior Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels/ Gaming |
|
1,368,750 |
|
– |
|
(500,000 |
) |
2,997 |
|
16,318 |
|
(59,315 |
) |
– |
|
– |
|
828,750 |
|
|
Oil & Gas |
|
– |
|
204,529 |
|
– |
|
2,108 |
|
– |
|
(2,124 |
) |
– |
|
– |
|
204,513 |
|
|
|
|
18,868,148 |
|
770,016 |
|
(3,777,569 |
) |
15,993 |
|
39,989 |
|
(189,790 |
) |
– |
|
(217,010 |
) |
15,509,777 |
|
|
Other Financial Instruments * – Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
Credit Contracts |
|
– |
|
– |
|
– |
|
– |
|
– |
|
163,850 |
|
– |
|
– |
|
163,850 |
|
|
Totals |
|
$18,868,148 |
|
$770,016 |
|
$(3,777,569 |
) |
$15,993 |
|
$39,989 |
|
$(25,940 |
) |
– |
|
$(217,010 |
) |
$15,673,627 |
|
The following table presents additional information about valuation techniques and inputs used for investments that are measured at fair value and categorized within Level 3 at April 30, 2014.
|
|
|
Ending Balance |
|
Valuation |
|
Unobservable |
|
Input Values |
|
|
Investments in Securities – Assets |
|
|
|
|
|
|
| ||
|
Corporate Bonds & Notes |
|
$7,563,438 |
|
Third-Party Pricing Vendor |
|
Single Broker Quote |
|
$113.50 – $116.875 |
|
|
Mortgage-Backed Securities |
|
2,949,796 |
|
Third-Party Pricing Vendor |
|
Single Broker Quote |
|
$99.15 |
|
|
|
|
138,811 |
|
Interest Only Weighted Average Life Model |
|
Security Price Reset |
|
$4.73 |
|
|
Asset-Backed Securities |
|
3,824,469 |
|
Benchmark Pricing |
|
Security Price Reset |
|
$100.07 – $100.76 |
|
|
Senior Loans |
|
828,750 |
|
Third-Party Pricing Vendor |
|
Single Broker Quote |
|
$110.50 |
|
|
|
|
204,513 |
|
Benchmark Pricing |
|
Security Price Reset |
|
$81.99 |
|
|
Other Financial Instruments * – Assets |
|
|
|
|
|
|
| ||
|
Credit Contracts |
|
163,850 |
|
Third-Party Pricing Vendor |
|
Single Broker Quote |
|
$144.52 |
|
* Other financial instruments are derivatives, such as swap agreements and forward foreign currency contracts, which are valued at the unrealized appreciation (depreciation) of the instrument.
** Transferred out of Level 3 into Level 2 because an evaluated price with observable inputs from a third-party vendor became available.
42 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
The net change in unrealized appreciation/depreciation of Level 3 investments held at April 30, 2014, was $263,401. Net realized gain (loss) and net change in unrealized appreciation/depreciation are reflected on the Statement of Operations.
(z) The following is a summary of the derivative instruments categorized by risk exposure:
The effect of derivatives on the Statement of Assets and Liabilities at April 30, 2014:
|
Location |
|
Interest |
|
Credit |
|
Foreign |
|
Total |
|
|
Asset derivatives: |
|
|
|
|
|
|
|
|
|
|
Unrealized appreciation of OTC swaps |
|
– |
|
$9,333,209 |
|
$– |
|
$9,333,209 |
|
|
Unrealized appreciation of forward foreign currency contracts |
|
– |
|
– |
|
266,506 |
|
266,506 |
|
|
Total asset derivatives |
|
– |
|
$9,333,209 |
|
$266,506 |
|
$9,599,715 |
|
|
Liability derivatives: |
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation of OTC swaps |
|
$– |
|
$(90,806 |
) |
$– |
|
$(90,806 |
) |
|
Payable for variation margin on centrally cleared swaps* |
|
(347,968 |
) |
– |
|
– |
|
(347,968 |
) |
|
Unrealized depreciation of forward foreign currency contracts |
|
– |
|
– |
|
(2,091,468 |
) |
(2,091,468 |
) |
|
Total liability derivatives |
|
$(347,968 |
) |
$(90,806 |
) |
$(2,091,468 |
) |
$(2,530,242 |
) |
* Included in net unrealized depreciation of $2,120,638 on centrally cleared swaps as reported in note (s) of the Notes to Schedule of Investments.
The effect of derivatives on the Statement of Operations for the six months ended April 30, 2014:
|
Location |
|
Interest |
|
Credit |
|
Foreign |
|
Total |
|
|
Net realized gain (loss) on: |
|
|
|
|
|
|
|
|
|
|
Swaps |
|
$3,145,657 |
|
$573,108 |
|
$– |
|
$3,718,765 |
|
|
Foreign currency transactions (forward foreign currency contracts) |
|
– |
|
– |
|
(535,868 |
) |
(535,868 |
) |
|
Total net realized gain (loss) |
|
$3,145,657 |
|
$573,108 |
|
$(535,868 |
) |
$3,182,897 |
|
|
Net change in unrealized appreciation/depreciation of: |
|
|
|
|
|
|
|
|
|
|
Swaps |
|
$(4,687,361 |
) |
$1,248,993 |
|
$– |
|
$(3,438,368 |
) |
|
Foreign currency transactions (forward foreign currency contracts) |
|
– |
|
– |
|
(1,504,370 |
) |
(1,504,370 |
) |
|
Total net change in unrealized appreciation/depreciation |
|
$(4,687,361 |
) |
$1,248,993 |
|
$(1,504,370 |
) |
$(4,942,738 |
) |
April 30, 2014 | Semi-Annual Report 43
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
The average volume (measured at each fiscal quarter-end) of derivative activity during the six months ended April 30, 2014:
|
|
Forward Foreign |
|
Credit Default |
|
Interest |
|
Total |
| ||||
|
|
Purchased |
|
Sold |
|
Buy |
|
Sell |
|
Agreements (2) |
|
Agreements (2) |
|
|
|
$50,151,385 |
|
$87,495,288 |
|
$1,900 |
|
$45,822 |
|
$44,600 |
|
$123 |
|
(1) U.S. $ Value on origination date
(2) Notional Amount (in thousands)
The following tables present by counterparty, the Fund’s derivative assets and liabilities net of related collateral held by the Fund at April 30, 2014 which has not been offset in the Statement of Assets and Liabilities, but would be available for offset to the extent of a default by the counterparty to the transaction.
Financial Assets and Derivative Assets, and Collateral Received at April 30, 2014:
Gross Amounts Not Offset in the Statement of Assets and Liabilities
|
Counterparty |
|
Gross Asset Derivatives |
|
Financial |
|
Cash |
|
Net Amount |
| ||
|
Foreign Currency Exchange Contracts |
|
|
|
|
|
|
|
| |||
|
Bank of America |
|
$19,097 |
|
|
$(19,097 |
) |
$– |
|
$– |
|
|
|
Barclays Bank |
|
8,183 |
|
|
(8,183 |
) |
– |
|
– |
|
|
|
Credit Suisse First Boston |
|
39,620 |
|
|
(39,620 |
) |
– |
|
– |
|
|
|
Deutsche Bank |
|
40,368 |
|
|
– |
|
(40,368 |
)† |
– |
|
|
|
Goldman Sachs |
|
21,371 |
|
|
(18,228 |
) |
– |
|
3,143 |
|
|
|
JPMorgan Chase |
|
108,971 |
|
|
(108,971 |
) |
– |
|
– |
|
|
|
UBS |
|
28,896 |
|
|
(28,896 |
) |
– |
|
– |
|
|
|
Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America |
|
19 |
|
|
(19 |
) |
– |
|
– |
|
|
|
Citigroup |
|
170,417 |
|
|
(72,522 |
) |
– |
|
97,895 |
|
|
|
Credit Suisse First Boston |
|
20,079 |
|
|
(20,079 |
) |
– |
|
– |
|
|
|
Deutsche Bank |
|
165,936 |
|
|
– |
|
(165,936 |
)† |
– |
|
|
|
Royal Bank of Scotland |
|
8,976,758 |
|
|
5,964,037 |
|
(14,940,795 |
)# |
– |
|
|
|
Totals |
|
$9,599,715 |
|
|
$5,648,422 |
|
$(15,147,099 |
) |
$101,038 |
|
|
|
Gross Amounts Not Offset in the Statement of Assets and Liabilities | |||||||
|
Counterparty |
|
Gross Financial Assets |
|
Financial |
|
Net Amount | |
|
Repurchase Agreement |
|
|
|
|
|
|
|
|
State Street Bank & Trust Co. |
|
$144,000 |
|
$(144,000 |
)† |
|
– |
|
Totals |
|
$144,000 |
|
$(144,000 |
) |
|
– |
44 Semi-Annual Report | April 30, 2014
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
Financial Liabilities and Derivative Liabilities, and Collateral Pledged at April 30, 2014:
|
Gross Amounts Not Offset in the Statement of Assets and Liabilities |
| ||||||||||
|
Counterparty |
|
Gross Liability Derivatives |
|
Financial |
|
Cash |
|
Net Amount |
| ||
|
Foreign Currency Exchange Contracts |
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America |
|
$86,442 |
|
|
$(19,116 |
) |
– |
|
$67,326 |
|
|
|
Barclays Bank |
|
39,095 |
|
|
(8,183 |
) |
– |
|
30,912 |
|
|
|
BNP Paribas |
|
1,171 |
|
|
– |
|
– |
|
1,171 |
|
|
|
Citigroup |
|
72,522 |
|
|
(72,522 |
) |
– |
|
– |
|
|
|
Credit Suisse First Boston |
|
573,846 |
|
|
(573,846 |
)†† |
– |
|
– |
|
|
|
Goldman Sachs |
|
18,228 |
|
|
(18,228 |
) |
– |
|
– |
|
|
|
JPMorgan Chase |
|
213,881 |
|
|
(213,881 |
)†† |
– |
|
– |
|
|
|
Morgan Stanley |
|
543,251 |
|
|
(543,251 |
)†† |
– |
|
– |
|
|
|
Royal Bank of Scotland |
|
208,506 |
|
|
(208,506 |
) |
– |
|
– |
|
|
|
UBS |
|
334,526 |
|
|
(334,526 |
)†† |
– |
|
– |
|
|
|
Swaps |
|
|
|
|
|
|
|
|
|
|
|
|
Barclays Bank |
|
90,681 |
|
|
– |
|
– |
|
90,681 |
|
|
|
JPMorgan Chase |
|
125 |
|
|
(125 |
)†† |
– |
|
– |
|
|
|
Totals |
|
$2,182,274 |
|
|
$(1,992,184 |
) |
– |
|
$190,090 |
|
|
Gross Amounts Not Offset in the Statement of Assets and Liabilities
|
Counterparty |
|
Gross Financial Liability |
|
Financial |
|
Cash |
|
Net Amount |
| |
|
Reverse Repurchase Agreements |
|
|
|
|
|
|
|
|
|
|
|
Barclays Bank |
|
$119,406,074 |
††† |
|
$(119,406,074 |
)†† |
– |
|
– |
|
|
Credit Suisse First Boston |
|
21,077,005 |
††† |
|
(21,077,005 |
)†† |
– |
|
– |
|
|
Deutsche Bank |
|
38,458,551 |
††† |
|
(38,458,551 |
)†† |
– |
|
– |
|
|
Goldman Sachs |
|
3,000,315 |
††† |
|
(3,000,315 |
)†† |
– |
|
– |
|
|
Morgan Stanley |
|
27,648,234 |
††† |
|
(27,648,234 |
)†† |
– |
|
– |
|
|
Royal Bank of Canada |
|
18,348,368 |
††† |
|
(18,348,368 |
)†† |
– |
|
– |
|
|
Royal Bank of Scotland |
|
1,919,093 |
††† |
|
(1,919,093 |
)†† |
– |
|
– |
|
|
UBS |
|
28,484,991 |
††† |
|
(28,484,991 |
)†† |
– |
|
– |
|
|
Totals |
|
$258,342,631 |
|
|
$(258,342,631 |
) |
– |
|
– |
|
† The actual collateral received is greater than the amount shown here due to over collateralization.
†† The actual collateral pledged is greater than the amount shown here due to over collateralization.
††† The amount includes interest payable for Reverse Repurchase Agreements.
# The amount includes upfront premiums received.
April 30, 2014 | Semi-Annual Report 45
Schedule of Investments
PIMCO Income Opportunity Fund
April 30, 2014 (unaudited) (continued)
Glossary:
|
ABX.HE |
– Asset-Backed Securities Index Home Equity |
|
BRL |
– Brazilian Real |
|
£ |
– British Pound |
|
CDO |
– Collateralized Debt Obligation |
|
CLO |
– Collateralized Loan Obligation |
|
CME |
– Chicago Mercantile Exchange |
|
CMO |
– Collateralized Mortgage Obligation |
|
CPI |
– Consumer Price Index |
|
€ |
– Euro |
|
FRN |
– Floating Rate Note |
|
IO |
– Interest Only |
|
LIBOR |
– London Inter-Bank Offered Rate |
|
MBIA |
– insured by MBIA Insurance Corp. |
|
MBS |
– Mortgage-Backed Securities |
|
MTN |
– Medium Term Note |
|
OTC |
– Over-the-Counter |
|
PIK |
– Payment-in-Kind |
|
PO |
– Principal Only |
|
TBA |
– To Be Announced |
46 Semi-Annual Report | April 30, 2014 | See accompanying Notes to Financial Statements
Statements of Assets and Liabilities
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
|
|
|
Corporate & |
|
|
Income |
|
|
Assets: |
|
|
|
|
|
|
|
Investments, at value (cost-$633,600,200 and $647,129,083, respectively) |
|
$680,633,077 |
|
|
$720,696,745 |
|
|
Repurchase agreements, at value and cost |
|
85,952,000 |
|
|
144,000 |
|
|
Cash |
|
253,419 |
|
|
13,013 |
|
|
Foreign currency, at value (cost-$138,582 and $719,871, respectively) |
|
138,931 |
|
|
720,758 |
|
|
Interest receivable |
|
7,777,884 |
|
|
6,211,170 |
|
|
Deposits with brokers for derivatives collateral |
|
4,855,000 |
|
|
16,000 |
|
|
Unrealized appreciation of OTC swaps |
|
1,448,736 |
|
|
9,333,209 |
|
|
Swap premiums paid |
|
908,370 |
|
|
368,065 |
|
|
Receivable from broker |
|
54,038 |
|
|
– |
|
|
Unrealized appreciation of forward foreign currency contracts |
|
43,874 |
|
|
266,506 |
|
|
Receivable for investments sold |
|
– |
|
|
94,977,648 |
|
|
Receivable for principal paydowns |
|
– |
|
|
241 |
|
|
Unsettled reverse repurchase agreements |
|
– |
|
|
55,280,948 |
|
|
Unrealized appreciation of unfunded loan commitments |
|
– |
|
|
593 |
|
|
Prepaid expenses and other assets |
|
85,558 |
|
|
20,620 |
|
|
Total Assets |
|
782,150,887 |
|
|
888,049,516 |
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
Payable for investments purchased |
|
– |
|
|
161,328,910 |
|
|
Payable for reverse repurchase agreements |
|
– |
|
|
258,210,103 |
|
|
Payable to brokers for cash collateral received |
|
12,865,000 |
|
|
815,000 |
|
|
Payable for variation margin on centrally cleared swaps |
|
430,181 |
|
|
347,968 |
|
|
Payable for terminated swaps |
|
– |
|
|
25,764 |
|
|
Dividends payable to common and preferred shareholders |
|
4,318,563 |
|
|
2,836,885 |
|
|
Investment management fees payable |
|
468,504 |
|
|
505,305 |
|
|
Unrealized depreciation of forward foreign currency contracts |
|
181,912 |
|
|
2,091,468 |
|
|
Swap premiums received |
|
– |
|
|
15,160,353 |
|
|
Securities sold short, at value (proceeds received-$0 and $22,245,781, respectively) |
|
– |
|
|
22,334,297 |
|
|
Unrealized depreciation of OTC swaps |
|
– |
|
|
90,806 |
|
|
Interest payable for reverse repurchase agreements |
|
– |
|
|
132,528 |
|
|
Accrued expenses and other liabilities |
|
301,196 |
|
|
173,072 |
|
|
Total Liabilities |
|
18,565,356 |
|
|
464,052,459 |
|
|
Preferred Shares ($0.00001 par value and $25,000 liquidation preference per share applicable to an aggregate of 6,760 and 0 shares issued and outstanding, respectively) |
|
169,000,000 |
|
|
– |
|
|
Net Assets Applicable to Common Shareholders |
|
$594,585,531 |
|
|
$423,997,057 |
|
|
|
|
|
|
|
|
|
|
Composition of Net Assets Applicable to Common Shareholders: |
|
|
|
|
|
|
|
Common Shares: |
|
|
|
|
|
|
|
Par value ($0.00001 per share) |
|
$384 |
|
|
$149 |
|
|
Paid-in-capital in excess of par |
|
545,269,727 |
|
|
342,276,069 |
|
|
Undistributed (dividends in excess of) net investment income |
|
(604,445 |
) |
|
1,432,239 |
|
|
Accumulated net realized gain |
|
6,314,167 |
|
|
1,793,322 |
|
|
Net unrealized appreciation |
|
43,605,698 |
|
|
78,495,278 |
|
|
Net Assets Applicable to Common Shareholders |
|
$594,585,531 |
|
|
$423,997,057 |
|
|
Common Shares Issued and Outstanding |
|
38,371,674 |
|
|
14,930,973 |
|
|
Net Asset Value Per Common Share |
|
$15.50 |
|
|
$28.40 |
|
See accompanying Notes to Financial Statements | April 30, 2014 | Semi-Annual Report 47
Statements of Operations
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
Six Months ended April 30, 2014 (unaudited)
|
|
|
Corporate & |
|
|
Income |
|
|
Investment Income: |
|
|
|
|
|
|
|
Interest |
|
$33,661,280 |
|
|
$22,389,189 |
|
|
Dividends |
|
118,125 |
|
|
757,752 |
|
|
Miscellaneous |
|
– |
|
|
95,164 |
|
|
Total Investment Income |
|
33,779,405 |
|
|
23,242,105 |
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
Investment management |
|
2,838,598 |
|
|
2,846,002 |
|
|
Custodian and accounting agent |
|
144,947 |
|
|
91,668 |
|
|
Auction agent and commissions |
|
88,802 |
|
|
– |
|
|
Audit and tax services |
|
60,062 |
|
|
45,551 |
|
|
Shareholder communications |
|
45,990 |
|
|
38,742 |
|
|
Trustees |
|
21,139 |
|
|
12,008 |
|
|
Insurance |
|
14,000 |
|
|
9,304 |
|
|
Transfer agent |
|
12,478 |
|
|
13,137 |
|
|
New York Stock Exchange listing |
|
11,905 |
|
|
8,334 |
|
|
Legal |
|
3,964 |
|
|
9,269 |
|
|
Interest |
|
2,137 |
|
|
434,880 |
|
|
Miscellaneous |
|
15,206 |
|
|
3,049 |
|
|
Total Expenses |
|
3,259,228 |
|
|
3,511,944 |
|
|
|
|
|
|
|
|
|
|
Net Investment Income |
|
30,520,177 |
|
|
19,730,161 |
|
|
|
|
|
|
|
|
|
|
Realized and Change in Unrealized Gain (Loss): |
|
|
|
|
|
|
|
Net realized gain (loss) on: |
|
|
|
|
|
|
|
Investments |
|
463,647 |
|
|
5,660,257 |
|
|
Swaps |
|
8,605,817 |
|
|
3,718,765 |
|
|
Foreign currency transactions |
|
(3,071,672 |
) |
|
(833,881 |
) |
|
Net change in unrealized appreciation/depreciation of: |
|
|
|
|
|
|
|
Investments |
|
15,512,270 |
|
|
(1,064,416 |
) |
|
Securities sold short |
|
– |
|
|
(88,516 |
) |
|
Swaps |
|
(12,359,322 |
) |
|
(3,438,368 |
) |
|
Unfunded loan commitments |
|
– |
|
|
593 |
|
|
Foreign currency transactions |
|
1,603,588 |
|
|
(1,804,645 |
) |
|
Net realized and change in unrealized gain |
|
10,754,328 |
|
|
2,149,789 |
|
|
Net Increase in Net Assets Resulting from Investment Operations |
|
41,274,505 |
|
|
21,879,950 |
|
|
Dividends on Preferred Shares from Net Investment Income |
|
(70,658 |
) |
|
– |
|
|
Distributions on Preferred Shares from Capital Gains |
|
(122,405 |
) |
|
– |
|
|
|
|
|
|
|
|
|
|
Net Increase in Net Assets Applicable to Common Shareholders Resulting from Investment Operations |
|
$41,081,442 |
|
|
$21,879,950 |
|
48 Semi-Annual Report | April 30, 2014 | See accompanying Notes to Financial Statements
Statements of Changes in Net Assets Applicable to Common Shareholders
PIMCO Corporate & Income Strategy Fund
|
|
|
Six Months ended |
|
|
Year ended |
|
|
Investment Operations: |
|
|
|
|
|
|
|
Net investment income |
|
$30,520,177 |
|
|
$48,374,999 |
|
|
Net realized gain |
|
5,997,792 |
|
|
93,576,630 |
|
|
Net change in unrealized appreciation/depreciation |
|
4,756,536 |
|
|
(76,826,071 |
) |
|
Net increase in net assets resulting from investment operations |
|
41,274,505 |
|
|
65,125,558 |
|
|
|
|
|
|
|
|
|
|
Dividends on Preferred Shares from: |
|
|
|
|
|
|
|
Net investment income |
|
(70,658 |
) |
|
(200,918 |
) |
|
Net realized gains |
|
(122,405 |
) |
|
– |
|
|
Total dividends and distributions on preferred shares |
|
(193,063 |
) |
|
(200,918 |
) |
|
Net increase in net assets applicable to common shareholders resulting from investment operations |
|
41,081,442 |
|
|
64,924,640 |
|
|
|
|
|
|
|
|
|
|
Dividends and Distributions to Common Shareholders from: |
|
|
|
|
|
|
|
Net investment income |
|
(25,835,585 |
) |
|
(59,573,976 |
) |
|
Net realized gains |
|
(36,172,081 |
) |
|
– |
|
|
Total dividends and distributions to common shareholders |
|
(62,007,666 |
) |
|
(59,573,976 |
) |
|
|
|
|
|
|
|
|
|
Common Share Transactions: |
|
|
|
|
|
|
|
Reinvestment of dividends and distributions |
|
3,286,811 |
|
|
3,391,026 |
|
|
Total increase (decrease) in net assets applicable to common shareholders |
|
(17,639,413 |
) |
|
8,741,690 |
|
|
|
|
|
|
|
|
|
|
Net Assets Applicable to Common Shareholders: |
|
|
|
|
|
|
|
Beginning of period |
|
612,224,944 |
|
|
603,483,254 |
|
|
End of period* |
|
$594,585,531 |
|
|
$612,224,944 |
|
|
* Including dividends in excess of net investment income of: |
|
$(604,445 |
) |
|
$(5,218,379 |
) |
|
|
|
|
|
|
|
|
|
Common Shares Issued in Reinvestment of Dividends and Distributions |
|
206,714 |
|
|
198,980 |
|
See accompanying Notes to Financial Statements | April 30, 2014 | Semi-Annual Report 49
Statements of Changes in Net Assets
PIMCO Income Opportunity Fund
|
|
|
Six Months ended |
|
|
Year ended |
|
|
Investment Operations: |
|
|
|
|
|
|
|
Net investment income |
|
$19,730,161 |
|
|
$42,569,114 |
|
|
Net realized gain |
|
8,545,141 |
|
|
11,346,400 |
|
|
Net change in unrealized appreciation/depreciation |
|
(6,395,352 |
) |
|
33,226 |
|
|
Net increase in net assets resulting from investment operations |
|
21,879,950 |
|
|
53,948,740 |
|
|
|
|
|
|
|
|
|
|
Dividends to Shareholders from Net Investment Income |
|
(25,927,009 |
) |
|
(42,005,856 |
) |
|
|
|
|
|
|
|
|
|
Share Transactions: |
|
|
|
|
|
|
|
Reinvestment of dividends |
|
1,483,450 |
|
|
2,642,134 |
|
|
Total increase (decrease) in net assets |
|
(2,563,609 |
) |
|
14,585,018 |
|
|
|
|
|
|
|
|
|
|
Net Assets: |
|
|
|
|
|
|
|
Beginning of period |
|
426,560,666 |
|
|
411,975,648 |
|
|
End of period* |
|
$423,997,057 |
|
|
$426,560,666 |
|
|
* Including undistributed net investment income of: |
|
$1,432,239 |
|
|
$7,629,087 |
|
|
|
|
|
|
|
|
|
|
Shares Issued in Reinvestment of Dividends |
|
52,555 |
|
|
91,068 |
|
50 Semi-Annual Report | April 30, 2014 | See accompanying Notes to Financial Statements
Statement of Cash Flows†
PIMCO Income Opportunity Fund
Six Months ended April 30, 2014 (unaudited)
|
Decrease in Cash and Foreign Currency from: |
|
|
|
|
|
|
|
|
|
Cash Flows used for Operating Activities: |
|
|
|
|
Net increase in net assets resulting from investment operations |
|
$21,879,950 |
|
|
|
|
|
|
|
Adjustments to Reconcile Net Increase in Net Assets Resulting from Investment Operations to Net Cash used for Operating Activities: |
|
|
|
|
Purchases of long-term investments |
|
(745,630,380 |
) |
|
Proceeds from sales of long-term investments |
|
641,479,503 |
|
|
Sales of short-term portfolio investments, net |
|
1,260,691 |
|
|
Net change in unrealized appreciation/depreciation |
|
6,395,352 |
|
|
Net realized gain |
|
(8,545,141 |
) |
|
Net amortization/accretion on investments |
|
(2,115,402 |
) |
|
Proceeds for securities sold short |
|
22,245,781 |
|
|
Decrease in receivable for investments sold |
|
73,610,810 |
|
|
Increase in interest receivable |
|
(1,032,298 |
) |
|
Increase in receivable for principal paydowns |
|
(241 |
) |
|
Decrease in deposits with brokers for derivatives collateral |
|
1,500,000 |
|
|
Increase in prepaid expenses |
|
(5,383 |
) |
|
Decrease in payable for investments purchased |
|
(59,234,505 |
) |
|
Decrease in payable to brokers for cash collateral received |
|
(165,000 |
) |
|
Net cash used for swap transactions |
|
(2,662,152 |
) |
|
Net cash used for foreign currency transactions |
|
(1,134,155 |
) |
|
Increase in interest payable for reverse repurchase agreements |
|
31,045 |
|
|
Increase in investment management fees payable |
|
17,290 |
|
|
Increase in accrued expenses and other liabilities |
|
9,155 |
|
|
Net cash used for operating activities* |
|
(52,095,080 |
) |
|
|
|
|
|
|
Cash Flows provided by Financing Activities: |
|
|
|
|
Payments for reverse repurchase agreements |
|
(446,871,855 |
) |
|
Proceeds on reverse repurchase agreements |
|
566,299,958 |
|
|
Increase in unsettled reverse repurchase agreements |
|
(43,016,948 |
) |
|
Cash dividends paid (excluding reinvestment of dividends and distributions of $1,483,450) |
|
(24,433,573 |
) |
|
Net cash provided by financing activities |
|
51,977,582 |
|
|
Net decrease in cash and foreign currency |
|
(117,498 |
) |
|
Cash and foreign currency, at beginning of period |
|
851,269 |
|
|
Cash and foreign currency, at end of period |
|
$733,771 |
|
* Cash paid for interest primarily related to participation in reverse repurchase agreement transactions was $403,828.
† A Statement of Cash Flows is not required for Corporate & Income Strategy.
See accompanying Notes to Financial Statements | April 30, 2014 | Semi-Annual Report 51
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies
PIMCO Corporate & Income Strategy Fund (“Corporate & Income Strategy”) and PIMCO Income Opportunity Fund (“Income Opportunity”), (each a “Fund” and collectively the “Funds”), were organized as Massachusetts business trusts on October 17, 2001 and September 12, 2007, respectively. Prior to commencing operations on December 21, 2001 and November 30, 2007, respectively, the Funds had no operations other than matters relating to their organization and registration as diversified and non-diversified, respectively, closed-end management investment companies registered under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. Allianz Global Investors Fund Management LLC (“AGIFM” or the “Investment Manager”) and Pacific Investment Management Company LLC (“PIMCO” or the “Sub-Adviser”) serve as the Funds’ investment manager and sub-adviser, respectively, and are both indirect, wholly-owned subsidiaries of Allianz Asset Management of America L.P. (“AAM”). AAM is an indirect, wholly-owned subsidiary of Allianz SE, a publicly traded European insurance and financial services company. Each Fund has authorized an unlimited amount of common shares with $0.00001 par value.
Corporate & Income Strategy’s primary investment objective is to seek high current income with capital preservation and capital appreciation as secondary objectives by investing at least 80% of its total assets 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.
Income Opportunity’s primary investment objective is to seek current income as a primary focus and also capital appreciation. Under normal market conditions, Income Opportunity will seek to achieve its objective by investing in a global portfolio of corporate debt, government and sovereign debt, mortgage-backed and other asset-backed securities, bank loans and related instruments, convertible securities and income-producing securities of U.S. and foreign issuers, including emerging market issuers.
There can be no assurance that the Funds will meet their stated objectives.
The preparation of the Funds’ financial statements in accordance with accounting principles generally accepted in the United States of America requires the Funds’ management to make estimates and assumptions that affect the reported amounts and disclosures in each Fund’s financial statements. Actual results could differ from those estimates.
In the normal course of business, the Funds enter into contracts that contain a variety of representations that provide general indemnifications. 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.
52 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
The following is a summary of significant accounting policies consistently followed by the Funds:
(a) Valuation of Investments
Portfolio securities and other financial instruments for which market quotations are readily available are stated at market value. Market value is generally determined on the basis of last reported sales prices, or if no sales are reported, on the basis of quotes obtained from a quotation reporting system, established market makers, or independent pricing services. The Funds’ investments are valued daily using prices supplied by an independent pricing service or dealer quotations, or by using the last sale price on the exchange that is the primary market for such securities, or the mean between the last quoted bid and ask price. Independent pricing services use information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Centrally cleared swaps are valued at the price determined by the relevant exchange. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily until settlement at the forward settlement date.
The Board of Trustees (the “Board”) has adopted procedures for valuing portfolio securities and other financial instruments in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Investment Manager and Sub-Adviser. The Funds’ Valuation Committee was established by the Board to oversee the implementation of the Funds’ valuation methods and to make fair value determinations on behalf of the Board, as instructed. The Sub-Adviser monitors the continued appropriateness of methods applied and determines if adjustments should be made in light of market changes, events affecting the issuer, or other factors. If the Sub-Adviser determines that a valuation method may no longer be appropriate, another valuation method may be selected, or the Valuation Committee will be convened to consider the matter and take any appropriate action in accordance with procedures set forth by the Board. The Board shall review the appropriateness of the valuation methods and these methods may be amended or supplemented from time to time by the Valuation Committee.
Benchmark pricing procedures are used as the basis for setting the base price of a fixed-income security and for subsequently adjusting the price proportionally to market value changes of a pre-determined security deemed to be comparable in duration, generally a U.S. Treasury or sovereign note based on country of issuance. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by the Valuation Committee. The validity of the fair value is reviewed by the Sub-Adviser on a periodic basis and may be amended as the availability of market data indicates a material change.
April 30, 2014 | Semi-Annual Report 53
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
Short-term securities maturing in 60 days or less are valued at amortized cost, if their original term to maturity was 60 days or less, or by amortizing premium or discount based on their value on the 61st day prior to maturity, if the original term to maturity exceeded 60 days.
Investments initially valued in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates obtained from pricing services. As a result, the net asset value (“NAV”) of each Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of securities traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that the New York Stock Exchange (“NYSE”) is closed.
The prices used by the Funds to value investments may differ from the value that would be realized if the investments were sold, and these differences could be material to the Funds’ financial statements. Each Fund’s NAV is normally determined as of the close of regular trading (normally, 4:00 p.m. Eastern time) on the NYSE on each day the NYSE is open for business.
(b) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The three levels of the fair value hierarchy are described below:
|
¡ |
Level 1 – quoted prices in active markets for identical investments that the Funds have the ability to access |
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|
|
|
¡ |
Level 2 – valuations based on other significant observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates or other market corroborated inputs |
|
|
|
|
¡ |
Level 3 – valuations based on significant unobservable inputs (including the Sub-Adviser’s or Valuation Committee’s own assumptions and securities whose price was determined by using a single broker’s quote) |
The valuation techniques used by the Funds to measure fair value during the six months ended April 30, 2014 were intended to maximize the use of observable inputs and to minimize the use of unobservable inputs.
The Funds’ policy is to recognize transfers between levels at the end of the reporting period. An investment asset’s or liability’s level within the fair value hierarchy is based on the lowest level input, individually or in aggregate, that is significant to the fair value measurement. The objective of fair value measurement remains the same even when there is a significant decrease in the volume and level of activity for an asset or liability and regardless of the valuation techniques used. Investments categorized as Level 1 or 2 as of period end may have been transferred between Levels 1 and 2 since the prior period due to changes in the valuation method utilized in valuing the investments.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those
54 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
securities. The following are certain inputs and techniques that the Funds generally use to evaluate how to classify each major category of assets and liabilities for Level 2 and Level 3, in accordance with Generally Accepted Accounting Principles (“GAAP”).
Equity Securities (Common and Preferred Stock) – Equity securities traded in inactive markets are valued using inputs which include broker-dealer quotes, recently executed transactions adjusted for changes in the benchmark index, or evaluated price quotes received from independent pricing services that take into account the integrity of the market sector and issuer, the individual characteristics of the security, and information received from broker-dealers and other market sources pertaining to the issuer or security. To the extent that these inputs are observable, the values of equity securities are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
U.S. Treasury Obligations – U.S. Treasury obligations are valued by independent pricing services based on pricing models that evaluate the mean between the most recently quoted bid and ask price. The models also take into consideration data received from active market makers and broker-dealers, yield curves, and the spread over comparable U.S. Treasury issues. The spreads change daily in response to market conditions and are generally obtained from the new issue market and broker-dealer sources. To the extent that these inputs are observable, the values of U.S. Treasury obligations are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Government Sponsored Enterprise and Mortgage-Backed Securities – Government sponsored enterprise and mortgage-backed securities are valued by independent pricing services using pricing models based on inputs that include issuer type, coupon, cash flows, mortgage prepayment projection tables and Adjustable Rate Mortgage evaluations that incorporate index data, periodic life caps and the next coupon reset date. To the extent that these inputs are observable, the values of government sponsored enterprise and mortgage-backed securities are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Municipal Bonds – Municipal bonds are valued by independent pricing services based on pricing models that take into account, among other factors, information received from market makers and broker-dealers, current trades, bid-want lists, offerings, market movements, the callability of the bond, state of issuance, benchmark yield curves, and bond insurance. To the extent that these inputs are observable, the values of municipal bonds are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Sovereign Debt Obligations – Sovereign debt obligations are valued by independent pricing services based on discounted cash flow models that incorporate option adjusted spreads along with benchmark curves and credit spreads. In addition, international bond markets are monitored regularly for information pertaining to the issuer and/or the
April 30, 2014 | Semi-Annual Report 55
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
specific issue. To the extent that these inputs are observable, the values of sovereign debt obligations are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Corporate Bonds & Notes – Corporate bonds & notes are generally comprised of two main categories: investment grade bonds and high yield bonds. Investment grade bonds are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, live trading levels, recently executed transactions in securities of the issuer or comparable issuers, and option adjusted spread models that include base curve and spread curve inputs. Adjustments to individual bonds can be applied to recognize trading differences compared to other bonds issued by the same issuer. High yield bonds are valued by independent pricing services based primarily on broker-dealer quotations from relevant market makers and recently executed transactions in securities of the issuer or comparable issuers. The broker-dealer quotations received are supported by credit analysis of the issuer that takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds and sector-specific trends. To the extent that these inputs are observable, the values of corporate bonds & notes are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Convertible Bonds – Convertible bonds are valued by independent pricing services based on various inputs and techniques, which include broker-dealer quotations from relevant market makers and recently executed transactions in securities of the issuer or comparable issuers. The broker-dealer quotations received are supported by credit analysis of the issuer that takes into consideration credit quality assessments, daily trading activity, and the activity of the underlying equities, listed bonds and sector-specific trends. To the extent that these inputs are observable, the values of convertible bonds are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Asset-Backed Securities and Collateralized Mortgage Obligations – Asset-backed securities and collateralized mortgage obligations are valued by independent pricing services using pricing models based on a security’s average life volatility. The models also take into account tranche characteristics such as coupon, average life, collateral types, ratings, the issuer and tranche type, underlying collateral and performance of the collateral, and discount margin for certain floating rate issues. To the extent that these inputs are observable, the values of asset-backed securities and collateralized mortgage obligations are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Senior Loans – Senior Loans are valued by independent pricing services based on the average of quoted prices received from multiple dealers or valued relative to other benchmark securities when broker-dealer quotes are unavailable. These quoted prices are based on interest rates, yield curves, option adjusted spreads and credit spreads. To the
56 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
extent that these inputs are observable, the values of Senior Loans are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Forward Foreign Currency Contracts – Forward foreign currency contracts are valued by independent pricing services using various inputs and techniques, which include broker-dealer quotations, actual trading information and foreign currency exchange rates gathered from leading market makers and foreign currency exchange trading centers throughout the world. To the extent that these inputs are observable, the values of forward foreign currency contracts are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Credit Default Swaps – Credit default swaps traded over-the-counter (“OTC”) are valued by independent pricing services using pricing models that take into account, among other factors, information received from market makers and broker-dealers, default probabilities from index specific credit spread curves, recovery rates, and cash flows. To the extent that these inputs are observable, the values of credit default swaps are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Interest Rate Swaps – OTC interest rate swaps are valued by independent pricing services using pricing models that are based on real-time intraday snapshots of relevant interest rate curves that are built using the most actively traded securities for a given maturity. The pricing models also incorporate cash and money market rates. In addition, market data pertaining to interest rate swaps is monitored regularly to ensure that interest rates are properly depicting the current market rate. Centrally cleared interest rate swaps are valued at the price determined by the relevant exchange. To the extent that these inputs are observable, the values of interest rate swaps are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
Total Return Swaps – OTC total return swaps are valued by independent pricing services using pricing models that take into account among other factors, index spread curves, nominal values, modified duration values and cash flows. To the extent that these inputs are observable, the values of OTC total return swaps are categorized as Level 2. To the extent that these inputs are unobservable, the values are categorized as Level 3.
(c) Investment Transactions and Investment Income
Investment transactions are accounted for on the trade date. Securities purchased and sold on a when-issued or delayed-delivery basis may be settled a month or more after the trade date. Realized gains and losses on investments are determined on an identified cost basis. Interest income adjusted for the accretion of discount and amortization of premiums is recorded on an accrual basis. Discounts or premiums on debt securities purchased are accreted or amortized, respectively, to interest income. Dividend income is recorded on the ex-dividend date. Facility fees and other fees (such as origination fees) received at the
April 30, 2014 | Semi-Annual Report 57
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
settlement date are amortized as income over the expected term of the senior loan. Facility fees and other fees (such as origination fees) received after the settlement date relating to senior loans, consent fees relating to corporate actions and commitment fees received relating to unfunded purchase commitments are recorded as miscellaneous income upon receipt. Paydown gains and losses are netted and recorded as interest income on the Statements of Operations.
(d) Federal Income Taxes
The Funds intend to distribute all of their taxable income and to comply with the other requirements of Subchapter M of the U.S. Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, no provision for U.S. federal income taxes is required.
Accounting for uncertainty in income taxes establishes for all entities, including pass-through entities such as the Funds, a minimum threshold for financial statement recognition of the benefit of positions taken in filing tax returns (including whether an entity is taxable in a particular jurisdiction), and requires certain expanded tax disclosures. In accordance with provisions set forth under U.S. GAAP, the Investment Manager has reviewed the Funds’ tax positions for all open tax years. As of April 30, 2014, the Funds have recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions they have taken. The Funds’ federal income tax returns for the prior three years remain subject to examination by the Internal Revenue Service.
(e) Dividends and Distributions – Common Shares
Corporate & Income Strategy declares dividends from net investment income to common shareholders monthly. Distributions of net realized capital gains, if any, are paid at least annually. Income Opportunity declares dividends from net investment income and net short-term capital gains from the sale of portfolio securities, if any, to common shareholders monthly. Distributions of net long-term realized capital gains, if any, are paid at least annually. The Funds record dividends and distributions to their respective shareholders on the ex-dividend date. The amount of dividends from net investment income and distributions from net realized capital gains is determined in accordance with federal income tax regulations, which may differ from GAAP. These “book-tax” differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal income tax treatment; temporary differences do not require reclassification. To the extent dividends and/or distributions exceed current and accumulated earnings and profits for federal income tax purposes, they are reported as dividends and/or distributions to shareholders from return of capital. A Fund may engage in investment strategies, including the use of derivatives, to, among other things, generate current, distributable income without regard to possible declines in the Fund’s net asset
58 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
value. A Fund’s income and gain-generating strategies, including certain derivatives strategies, may generate current income and gains for distributions even in situations when the Fund has experienced a decline in net assets, including losses due to adverse changes in securities markets or the Fund’s portfolio of investments, including derivatives.
(f) Foreign Currency Translation
The Funds’ accounting records are maintained in U.S. dollars as follows: (1) the foreign currency market value of investments and other assets and liabilities denominated in foreign currencies are translated at the prevailing exchange rate at the end of the period; and (2) purchases and sales, income and expenses are translated at the prevailing exchange rate on the respective dates of such transactions. The resulting net foreign currency gain (loss) is included in the Funds’ Statements of Operations.
The Funds do not generally isolate that portion of the results of operations arising as a result of changes in foreign currency exchange rates from the fluctuations arising from changes in the market prices of securities. Accordingly, such foreign currency gain (loss) is included in net realized and unrealized gain (loss) on investments. However, the Funds do isolate the effect of fluctuations in foreign currency exchange rates when determining the gain (loss) upon the sale or maturity of foreign currency denominated debt obligations pursuant to U.S. federal income tax regulations; such amount is categorized as foreign currency gain (loss) for both financial reporting and income tax reporting purposes.
(g) Senior Loans
The Funds may purchase assignments of, and participations in, Senior Loans originated, negotiated and structured by a U.S. or foreign commercial bank, insurance company, finance company or other financial institution (the “Agent”) for a lending syndicate of financial institutions (the “Lender”). When purchasing an assignment, the Funds succeed 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. The Funds may also enter into unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate the Funds to supply additional cash to the borrower on demand. Unfunded loan commitments represent a future obligation in full, even though a percentage of the principal amounts may never be utilized by the borrower.
(h) Repurchase Agreements
The Funds are parties to Master Repurchase Agreements (“Master Repo Agreements”) with select counterparties. The Master Repo Agreements maintain provisions for initiation, income payments, events of default, and maintenance of collateral.
April 30, 2014 | Semi-Annual Report 59
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
The Funds enter into transactions, under the terms of the Master Repo Agreements, with their custodian bank or securities brokerage firms whereby they purchase securities under agreements to resell such securities at an agreed upon price and date (“repurchase agreements”). The Funds, through their custodian, take possession of securities collateralizing the repurchase agreement. Such agreements are carried at the contract amount in the financial statements, which is considered to represent fair value. Collateral pledged (the securities received), which consists primarily of U.S. government obligations and asset-backed securities, is held by the custodian bank for the benefit of the Funds until maturity of the repurchase agreement. Provisions of the repurchase agreements and the procedures adopted by the Funds require that the market value of the collateral, including accrued interest thereon, be sufficient in the event of default by the counterparty. If the counterparty defaults under the Master Repo Agreements, and the value of the collateral declines or if the counterparty enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited.
(i) Reverse Repurchase Agreements
In a reverse repurchase agreement, the Funds sell securities to a bank or broker-dealer and agree to repurchase the securities at a mutually agreed upon date and price. Generally, the effect of such a transaction is that the Funds can recover and reinvest all or most of the cash invested in portfolio securities involved during the term of the reverse repurchase agreement and still be entitled to the returns associated with those portfolio securities. Such transactions are advantageous if the interest cost to the Funds of the reverse repurchase transaction is less than the returns the Funds obtain on investments purchased with the cash. To the extent the Funds do not cover their positions in reverse repurchase agreements (by segregating liquid assets at least equal in amount to the forward purchase commitment), the Funds’ uncovered obligations under the agreements will be subject to the Funds’ limitations on borrowings. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities that the Funds are obligated to repurchase under the agreements may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds’ use of the proceeds of the agreement may be restricted pending determination by the other party, or its trustee or receiver, whether to enforce the Funds’ obligation to repurchase the securities.
(j) When-Issued/Delayed-Delivery Transactions
When-issued or delayed-delivery transactions involve a commitment to purchase or sell securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. When delayed-delivery purchases are outstanding, the Funds will set aside and maintain until the settlement date in a designated account, liquid assets in an amount sufficient to meet the purchase price. When purchasing a security on a delayed-delivery
60 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
basis, the Funds assume the rights and risks of ownership of the security, including the risk of price and yield fluctuations; consequently, such fluctuations are taken into account when determining the NAV. The Funds may dispose of or renegotiate a delayed-delivery transaction after it is entered into, and may sell when-issued securities before they are delivered, which may result in a realized gain or loss. When a security is sold on a delayed-delivery basis, the Funds do not participate in future gains and losses with respect to the security.
(k) Securities Traded on To-Be-Announced Basis
The Funds may from time to time purchase securities on a to-be-announced (“TBA”) basis. In a TBA transaction, the Funds commit to purchasing or selling securities for which all specific information is not yet known at the time of the trade, particularly the face amount and maturity date of the underlying security transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Funds, normally 15 to 45 days later. Beginning on the date the Funds enter into a TBA transaction, cash, U.S. government securities or other liquid securities are segregated in an amount equal in value to the purchase price of the TBA security. These transactions are subject to market fluctuations, and their current value is determined in the same manner as for other securities.
(l) Mortgage-Related and Other Asset-Backed Securities
Investments in mortgage-related or other asset-backed securities include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial 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 value of some mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Funds to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. The decline in liquidity and prices of these types of securities may make it more difficult to determine fair market value. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
SMBSs are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. SMBSs will have one class that will receive all of the interest (the interest-only or “IO” class), while the other class will receive the entire principal (the principal-only or “PO” class). Payments received for IOs are included in interest income on the Statements of Operations. Because no principal will be received at the maturity of an IO, adjustments are made to the cost of the security on a monthly basis until maturity. These adjustments are included in interest income
April 30, 2014 | Semi-Annual Report 61
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
on the Statements of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.
(m) U.S. Government Agencies or Government-Sponsored Enterprises
Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA” or “Ginnie Mae”), a wholly-owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors not backed by the full faith and credit of the U.S. Government include the Federal National Mortgage Association (“FNMA” or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government.
(n) Warrants
The Funds may receive warrants. Warrants are securities that are usually issued together with a debt security or preferred stock and that give the holder the right to buy a proportionate amount of common stock at a specified price. Warrants may be freely transferable and are often traded on major exchanges. Warrants normally have a life that is measured in years and entitle the holder to buy common stock of a company at a price that is usually higher than the market price at the time the warrant is issued. Warrants may entail greater risks than certain other types of investments. Generally, warrants do not carry the right to receive dividends or exercise voting rights with respect to the underlying securities, and they do not represent any rights in the assets of the issuer. In addition, their value does not necessarily change with the value of the underlying securities, and they cease to have value if they are not exercised on or before their expiration date. If the market price of the underlying stock does not exceed the exercise price during the life of the warrant, the warrant will expire worthless. Warrants may increase the potential profit or loss to be realized from the investment as compared with investing the same amount in the underlying securities. Similarly, the percentage increase or decrease in the value of an equity security warrant may be greater than the percentage increase or decrease in the value of the underlying common stock. Warrants may relate to the purchase of equity or debt securities. Debt obligations with warrants attached to purchase equity securities have many characteristics of convertible securities and their prices may, to some degree, reflect the performance of the underlying stock. Debt obligations also may be issued with warrants attached to purchase additional debt securities at the same coupon rate. A decline in interest rates would permit a Fund to sell such
62 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
1. Organization and Significant Accounting Policies (continued)
warrants at a profit. If interest rates rise, these warrants would generally expire with no value.
(o) Short Sales
Short sale transactions involve the Funds selling securities they do not own in anticipation of a decline in the market price of the securities. The Funds are obligated to deliver securities at the market price at the time the short position is closed. Possible losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested.
(p) Restricted Securities
The Funds are permitted to invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult.
(q) Interest Expense
Interest expense primarily relates to the Funds’ participation in reverse repurchase agreement transactions. Interest expense is recorded as it is incurred.
(r) Custody Credits on Cash Balances
The Funds may benefit from an expense offset arrangement with their custodian bank, whereby uninvested cash balances may earn credits that reduce monthly custodian and accounting agent expenses. Had these cash balances been invested in income-producing securities, they would have generated income for the Funds. Cash overdraft charges, if any, are included in custodian and accounting agent fees.
2. 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, among other things, changes in the market (market risk) or failure of the other party to a transaction to perform (counterparty risk). The Funds are also exposed to other risks such as, but not limited to, interest rate, foreign currency, credit and leverage risks.
Interest rate risk is the risk that fixed income securities will decline in value because of changes in interest rates. As nominal interest rates rise, the values of certain fixed income securities held by the Funds are likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Duration is used primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e. yield) movements. Interest rate changes can be sudden and unpredictable, and the Funds may lose money as a result of movements in interest rates. The Funds may not be able to hedge against changes in interest rates or may choose not to do so for cost or other reasons. In addition, any hedges may not work as intended.
Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates
April 30, 2014 | Semi-Annual Report 63
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
2. Principal Risks (continued)
in general. Conversely, floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When a Fund holds variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities and the NAV of the Fund’s shares.
Mortgage-related and other asset-backed securities often involve risks that are different from or more acute than risks associated with other types of debt instruments. Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related securities, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, mortgage-related securities, it 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 an investing Fund to lose value. Mortgage-backed securities, and in particular those not backed by a government guarantee, are subject to credit risk. In addition, adjustable and fixed rate mortgage-related securities are subject to prepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of the Funds because the Funds may have to reinvest that money at the lower prevailing interest rates. The Funds’ investments in other asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated with the nature of the assets and the servicing of those assets. Payment of principal and interest on asset-backed securities may be largely dependent upon the cash flows generated by the assets backing the securities, and asset-backed securities may not have the benefit of any security interest in the related assets.
The Funds are exposed to credit risk, which is the risk of losing money if the issuer or guarantor of a fixed income security 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. Securities are subject to varying degrees of credit risk, which are often reflected in credit ratings.
To the extent the Funds directly invest in foreign currencies or in securities that trade in, and receive revenues in, foreign currencies, or in derivatives that provide exposure to foreign currencies, they will be 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 countries may fluctuate significantly over short periods of time for a number of reasons, including economic growth, inflation, changes in
64 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
2. Principal Risks (continued)
interest rates, intervention (or the failure to intervene) by U.S. or foreign governments, central banks or supranational entities such as the International Monetary Fund, or the imposition of currency controls or other political developments in the United States or abroad. As a result, the Funds’ investments in foreign currency-denominated securities may reduce the returns of the Funds.
The Funds are subject to elements of risk not typically associated with investments in the U.S., due to concentrated investments in foreign issuers located in a specific country or region. Such concentrations will subject the Funds to additional risks resulting from future political or economic conditions in such country or region and the possible imposition of adverse governmental laws or currency exchange restrictions affecting such country or region, which could cause the securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies.
The market values of securities may decline due to general market conditions (market risk) which 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. They 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. Equity securities and equity-related investments generally have greater market price volatility than fixed income securities, although under certain market conditions fixed income securities may have comparable or greater price volatility. Credit ratings downgrades may also negatively affect securities held by the Funds. Even when markets perform well, there is no assurance that the investments held by the Funds will increase in value along with the broader market. In addition, market risk includes the risk that geopolitical events will disrupt the economy on a national or global level.
The Funds are exposed to counterparty risk, or the risk that an institution or other entity with which the Funds have unsettled or open transactions will default. The potential loss to the Funds could exceed the value of the financial assets recorded in the Funds’ financial statements. Financial assets, which potentially expose the Funds to counterparty risk, consist principally of cash due from counterparties and investments. The Sub-Adviser seeks to minimize the Funds’ counterparty risk by performing reviews of each counterparty and by minimizing concentration of counterparty risk by undertaking transactions with multiple customers and counterparties on recognized and reputable exchanges. Delivery of securities sold is only made once the Funds have received payment. Payment is made on a purchase once the securities have been delivered by the counterparty. The trade will fail if either party fails to meet its obligation.
The Funds are exposed to risks associated with leverage. Leverage may cause the value of the Funds’ shares to be more volatile than if the Funds did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Funds’ portfolio securities. The Funds may engage in
April 30, 2014 | Semi-Annual Report 65
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
2. Principal Risks (continued)
transactions or purchase instruments that give rise to forms of leverage. Obligations to settle reverse repurchase agreements may be detrimental to the Funds’ performance. In addition, to the extent the Funds employ leverage, dividend and interest costs may not be recovered by any appreciation of the securities purchased with the leverage proceeds and could exceed the Funds’ investment returns, resulting in greater losses.
Income Opportunity holds defaulted securities that may involve special considerations including bankruptcy proceedings, other regulatory and legal restrictions affecting the Funds’ ability to trade, and the availability of prices from independent pricing services or dealer quotations. Defaulted securities are often illiquid and may not be actively traded. Sale of securities in bankrupt companies at an acceptable price may be difficult and differences compared to the value of the securities used by the Funds could be material. A Fund may incur additional expenses to the extent it is required to seek recovery upon a portfolio security’s default in the payment of principal or interest. In any bankruptcy proceeding relating to a defaulted investment, a Fund may lose its entire investment or may be required to accept cash or securities with a value substantially less than its original investment.
The Funds are party to International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreements”) with select counterparties that govern transactions, over-the-counter derivatives and foreign exchange contracts entered into by the Funds and those counterparties. The ISDA Master Agreements contain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements of the Funds.
The considerations and factors surrounding the settlement of certain purchases and sales made on a delayed-delivery basis are governed by Master Securities Forward Transaction Agreements (“Master Forward Agreements”) between the Funds and select counterparties. The Master Forward Agreements maintain provisions for, among other things, initiation and confirmation, payment and transfer, events of default, termination, and maintenance of collateral.
The counterparty risk associated with certain contracts may be reduced by master netting arrangements to the extent that if an event of default occurs, all amounts with the counterparty are terminated and settled on a net basis. The Funds’ overall exposure to counterparty risk with respect to transactions subject to master netting arrangements can change substantially within a short period, as it is affected by each transaction subject to the arrangement.
Corporate & Income Strategy had security transactions outstanding with Lehman Brothers entities as the counterparty at the time the relevant Lehman Brothers entity filed for bankruptcy protection or was placed in administration. The security transactions associated with Lehman Brothers, Inc. (“SLH”)
66 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
2. Principal Risks (continued)
as counterparty were written down to their estimated recoverable values. Adjustments to anticipated losses for security transactions associated with SLH have been incorporated as net realized gain (loss) on the Fund’s Statement of Operations. The remaining balances due, if any, from SLH are included in receivable from broker on the Fund’s Statement of Assets and Liabilities. The estimated recoverable value of receivables is determined by independent broker quotes.
3. Financial Derivative Instruments
Disclosure about derivatives and hedging activities requires qualitative disclosure regarding objectives and strategies for using derivatives, quantitative disclosure about fair value amounts of gains and losses on derivatives, and disclosure about credit-risk-related contingent features in derivative agreements. The disclosure requirements distinguish between derivatives, which are accounted for as “hedges,” and those that do not qualify for such accounting. Although the Funds at times use derivatives for hedging purposes, the Funds reflect derivatives at fair value and recognize changes in fair value through the Funds’ Statements of Operations, and such derivatives do not qualify for hedge accounting treatment.
(a) Swap Agreements
Swap agreements are bilaterally negotiated agreements between the Funds and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market or event-linked returns at specified, future intervals. Swap agreements may be privately negotiated in the over-the-counter market (“OTC swaps”) or may be executed in a multilateral or other trade facility platform, such as a registered commodities exchange (“centrally cleared swaps”). The Funds may enter into credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements in order to, among other things, to manage their exposure to credit, currency and interest rate risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency.
OTC swap payments received or made at the beginning of the measurement period, if any, are reflected as such on the Funds’ Statements of Assets and Liabilities and represent payments made or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). These upfront payments are recorded as realized gains or losses on the Funds’ Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain or loss on the Funds’ Statements of Operations. Net periodic payments received or paid by the Funds are included as part of realized gains or losses on the Funds’ Statements of Operations. Changes in market value, if any, are reflected as a component of net changes in unrealized appreciation/depreciation on the Funds’ Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as a receivable or payable, as
April 30, 2014 | Semi-Annual Report 67
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
3. Financial Derivative Instruments (continued)
applicable, for variation margin on centrally cleared swaps on the Funds’ Statements of Assets and Liabilities.
Entering into these agreements involves, to varying degrees, elements of credit, legal, market and documentation risk in excess of the amounts recognized on the Funds’ Statements of Assets and Liabilities. Such risks include the possibility that there will be no liquid market for these agreements, that the counterparties to the agreements may default on their obligation to perform or disagree as to the meaning of contractual terms in the agreements and that there may be unfavorable changes in interest rates.
Credit Default Swap Agreements – Credit default swap agreements involve one party (referred to as the buyer of protection) making a stream of payments to another party (the seller of protection) in exchange for the right to receive a specified return in the event of a default or other credit event for the referenced entity, obligation or index. As the sellers of protection on credit default swap agreements, the Funds will generally receive from the buyer of protection a fixed rate of income throughout the term of the swap provided that there is no credit event. As the sellers, the Funds would effectively add leverage to their investment portfolios because, in addition to their total net assets, the Funds would be subject to investment exposure on the notional amount of the swap.
If the Funds are sellers of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If the Funds are buyers of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Recovery values are assumed by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value.
Credit default swap agreements on corporate or sovereign issues involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit event. If a credit event occurs and cash settlement is not elected, a variety of other deliverable obligations may be delivered in lieu
68 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
3. Financial Derivative Instruments (continued)
of the specific referenced obligation. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protection’s right to choose the deliverable obligation with the lowest value following a credit event). The Funds use credit default swaps on corporate or sovereign issues to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where the Funds own or have exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuer’s default.
Credit default swap agreements on asset-backed securities involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit events. Unlike credit default swaps on corporate or sovereign issues, deliverable obligations in most instances would be limited to the specific referenced obligation as performance for asset-backed securities can vary across deals. Prepayments, principal paydowns, and other writedown or loss events on the underlying mortgage loans will reduce the outstanding principal balance of the referenced obligation. These reductions may be temporary or permanent as defined under the terms of the swap agreement and the notional amount of the swap agreement will be adjusted by corresponding amounts. The Funds use credit default swaps on asset-backed securities to provide a measure of protection against defaults of the referenced obligation or to take an active long or short position with respect to the likelihood of a particular referenced obligation’s default.
Credit default swap agreements on credit indices involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the credit default swap market based on the sector of the index. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset backed securities, emerging markets, and/or various credit ratings within each sector. Credit indices are traded using credit default swaps with standardized terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, and if there is a default, the credit event is settled based on that name’s weight in the index, or in the case of a tranched index credit default swap, the credit event is settled based on the name’s weight in the index that falls within the tranche for which the Funds bear exposure. The composition of the indices changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. The Funds use credit default swaps on credit indices to hedge a portfolio of credit default swaps or bonds, which is less expensive than it would be to buy many credit default swaps to achieve a similar effect. Credit-default swaps on indices are benchmarks for protecting investors owning
April 30, 2014 | Semi-Annual Report 69
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
3. Financial Derivative Instruments (continued)
bonds against default, and traders use them to speculate on changes in credit quality.
Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate or sovereign issues as of period end are disclosed in the Notes to Schedules of Investments, serve as an indicator of the current status of the payment/performance risk, and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Wider credit spreads and increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.
The maximum potential amount of future payments (undiscounted) that the Funds as sellers of protection could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding as of April 30, 2014 for which the Funds are sellers of protection are disclosed in the Notes to Schedules of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Funds for the same referenced entity or entities.
Interest Rate Swap Agreements – Interest rate swap agreements involve the exchange by the Funds with a counterparty of their respective commitments to pay or receive interest, e.g., an exchange of floating rate payments for fixed rate payments, with respect to the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap,” (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor,” (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the counterparty may terminate the swap transaction in whole at zero cost by a predetermined date and time prior to the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can exchange variable interest rates based on different money markets.
70 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
3. Financial Derivative Instruments (continued)
Total Return Swap Agreements – Total return swap agreements involve commitments to pay interest in exchange for a market-linked return, both based on notional amounts. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Funds will receive a payment from or make a payment to the counterparty.
(b) Forward Foreign Currency Contracts
A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. The Funds enter into forward foreign currency contracts for the purpose of hedging against foreign currency risk arising from the investment or anticipated investment in securities denominated in foreign currencies. The Funds also enter into these contracts for purposes of increasing exposure to a foreign currency or shifting exposure to foreign currency fluctuations from one country to another. The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. All commitments are marked to market daily at the applicable exchange rates and any resulting unrealized appreciation or depreciation is recorded. Realized gains or losses are recorded at the time the forward contract matures or by delivery of the currency. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. In addition, these contracts may involve market risk in excess of the unrealized appreciation (depreciation) reflected in the Funds’ Statements of Assets and Liabilities.
4. Investment Manager/Sub-Adviser
Each Fund has an Investment Management Agreement (each an “Agreement”) with the Investment Manager. Subject to the supervision of each Fund’s Board, the Investment Manager is responsible for managing, either directly or through others selected by it, the Funds’ investment activities, business affairs and administrative matters. Pursuant to each Agreement, the Investment Manager receives an annual fee, payable monthly, at an annual rate of 0.75% of Corporate & Income Strategy’s average daily net assets, inclusive of net assets attributable to any Preferred Shares outstanding, and 1.00% of Income Opportunity’s average daily total managed assets. For Income Opportunity, total managed assets refers to total assets (including any assets attributable to any borrowings that may be outstanding) minus accrued liabilities (other than liabilities representing reverse repurchase agreements and borrowings). For these purposes, “borrowings” includes amounts of leverage attributable to such instruments as reverse repurchase agreements.
The Investment Manager has retained the Sub-Adviser to manage the Funds’ investments. Subject to the supervision of the Investment Manager, the Sub-Adviser is responsible for making all of the Funds’ investment decisions. The Investment Manager, not the Funds, pays a portion of the fees it receives as Investment Manager to the Sub-Adviser in return for its services.
On March 10-11, 2014, the Board approved, subject to the approval of the Funds’
April 30, 2014 | Semi-Annual Report 71
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
4. Investment Manager/Sub-Adviser (continued)
shareholders, a new investment management agreement (the “Agreement”) between the Funds and PIMCO, pursuant to which PIMCO would replace AGIFM as the investment manager to the Funds. Under the Agreement, PIMCO would continue to provide the day-today portfolio management services it currently provides to the Funds as their sub-adviser and would also assume responsibility for the supervisory and administrative services currently provided by AGIFM to the Funds as their investment manager. If the Agreement is approved by the Funds’ shareholders, the same investment professionals that are currently responsible for managing the Funds’ portfolio will continue to do so following the proposed transition, and PIMCO personnel will replace AGIFM personnel as Fund officers and in other roles to provide and oversee the administrative, accounting/financial reporting, compliance, legal, marketing, transfer agency, shareholder servicing and other services required for the daily operations of the Funds. A definitive proxy statement relating to the Agreement was filed with the Securities and Exchange Commission and distributed to shareholders of the Funds on April 21, 2014.
The special meeting of shareholders of the Funds to consider the Agreement was convened as scheduled on June 9, 2014. However, because sufficient votes in favor of the Agreement had not been received at the time of the special meeting, the shareholders present voted to adjourn the special meeting to July 10, 2014 to permit further solicitation of proxies.
5. Investments in Securities
For the six months ended April 30, 2014, purchases and sales of investments, other than short-term securities were:
|
|
|
U.S. Government Obligations |
|
All Other |
| ||||
|
|
|
Purchases |
|
Sales |
|
Purchases |
|
Sales |
|
|
Corporate & Income Strategy |
|
$9,020,000 |
|
$8,368,049 |
|
$50,860,316 |
|
$155,343,849 |
|
|
Income Opportunity |
|
574,433,576 |
|
551,089,499 |
|
170,839,176 |
|
93,904,560 |
|
6. Income Tax Information
At April 30, 2014, the aggregate cost basis and the net unrealized appreciation of investments (before securities sold short) for federal income tax purposes were:
|
|
|
Federal Tax |
|
Unrealized |
|
Unrealized |
|
Net Unrealized |
|
|
Corporate & Income Strategy |
|
$719,808,397 |
|
$49,245,594 |
|
$2,468,914 |
|
$46,776,680 |
|
|
Income Opportunity |
|
647,498,670 |
|
85,596,791 |
|
12,254,716 |
|
73,342,075 |
|
Differences, if any, between book and tax cost basis were attributable to differing treatment of bond premium amortization/accretion.
7. Auction-Rate Preferred Shares – Corporate & Income Strategy
Corporate & Income Strategy has 1,352 shares of Preferred Shares Series M, 1,352 shares of Preferred Shares Series T, 1,352 shares of Preferred Shares Series W, 1,352 shares of Preferred Shares Series TH and 1,352 shares of Preferred Shares Series F outstanding, each
72 Semi-Annual Report | April 30, 2014
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
7. Auction-Rate Preferred Shares – Corporate & Income Strategy (continued)
with a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends.
Dividends are accumulated daily at an annual rate that is typically re-set every seven days. Distributions of net realized capital gains, if any, are paid annually.
For the six months ended April 30, 2014, the annualized dividend rates ranged from:
|
|
|
High |
|
Low |
|
At April 30, 2014 |
|
Series M |
|
0.150% |
|
0.045% |
|
0.090% |
|
Series T |
|
0.120% |
|
0.060% |
|
0.090% |
|
Series W |
|
0.180% |
|
0.045% |
|
0.105% |
|
Series TH |
|
0.180% |
|
0.060% |
|
0.105% |
|
Series F |
|
0.150% |
|
0.045% |
|
0.090% |
The Fund is subject to certain limitations and restrictions while Preferred Shares are outstanding. Failure to comply with these limitations and restrictions could preclude the Fund from declaring or paying any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of Preferred Shares at their liquidation preference plus any accumulated, unpaid dividends.
Preferred shareholders, who are entitled to one vote per share, generally vote together with the common shareholders but vote separately as a class to elect two Trustees and on certain matters adversely affecting the rights of the Preferred Shares.
Since mid-February 2008, holders of auction-rate preferred shares (“ARPS”) issued by the Fund 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 Fund 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,” the 7-day “AA” Financial Composite Commercial Paper Rate multiplied by a minimum of 150%, depending on the credit rating of the ARPS (which is a function of short-term interest rates). As of April 30, 2014, the current multiplier for calculating the maximum rate is 150%. If the Fund’s 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.
April 30, 2014 | Semi-Annual Report 73
Notes to Financial Statements
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
April 30, 2014 (unaudited)
8. 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 May 1, 2014, the following dividends were declared to common shareholders payable June 2, 2014 to shareholders of record on May 12, 2014.
|
|
Corporate & Income Strategy |
$0.1125 per common share |
|
|
Income Opportunity |
$0.19 per common share |
On June 2, 2014, the following dividends were declared to common shareholders payable July 1, 2014 to shareholders of record on June 12, 2014.
|
|
Corporate & Income Strategy |
$0.1125 per common share |
|
|
Income Opportunity |
$0.19 per common share |
There were no other subsequent events identified that require recognition or disclosure.
74 Semi-Annual Report | April 30, 2014
Financial Highlights
PIMCO Corporate & Income Strategy Fund
For a common share outstanding throughout each period:
|
|
|
Six Months |
Year ended October 31, | |||||||||||||||
|
|
|
(unaudited) |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
2009 | ||||||
|
Net asset value, beginning of period |
|
$16.04 |
|
|
$15.90 |
|
|
$13.67 |
|
|
$15.51 |
|
|
$12.88 |
|
|
$8.47 |
|
|
Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.80 |
|
|
1.28 |
|
|
1.57 |
|
|
1.72 |
|
|
1.61 |
|
|
1.42 |
|
|
Net realized and change in unrealized gain (loss) |
|
0.29 |
|
|
0.44 |
|
|
2.47 |
|
|
(1.87 |
) |
|
2.90 |
|
|
4.29 |
|
|
Total from investment operations |
|
1.09 |
|
|
1.72 |
|
|
4.04 |
|
|
(0.15 |
) |
|
4.51 |
|
|
5.71 |
|
|
Dividends and Distributions on Preferred Shares from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
– |
† |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.02 |
) |
|
Net realized gains |
|
– |
† |
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
Total dividends and distributions on preferred shares |
|
– |
† |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.02 |
) |
|
Net increase (decrease) in net assets applicable to common shareholders resulting from investment operations |
|
1.09 |
|
|
1.71 |
|
|
4.03 |
|
|
(0.16 |
) |
|
4.50 |
|
|
5.69 |
|
|
Dividends and Distributions to Common Shareholders from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
(0.68) |
|
|
(1.57 |
) |
|
(1.80 |
) |
|
(1.68 |
) |
|
(1.87 |
) |
|
(1.28 |
) |
|
Net realized gains |
|
(0.95 |
) |
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
Total dividends and distributions to common shareholders |
|
(1.63 |
) |
|
(1.57 |
) |
|
(1.80 |
) |
|
(1.68 |
) |
|
(1.87 |
) |
|
(1.28 |
) |
|
Net asset value, end of period |
|
$15.50 |
|
|
$16.04 |
|
|
$15.90 |
|
|
$13.67 |
|
|
$15.51 |
|
|
$12.88 |
|
|
Market price, end of period |
|
$16.66 |
|
|
$17.15 |
|
|
$18.17 |
|
|
$15.27 |
|
|
$16.24 |
|
|
$13.06 |
|
|
Total Investment Return (1) |
|
7.42 |
% |
|
3.48 |
% |
|
33.21 |
% |
|
4.78 |
% |
|
41.86 |
% |
|
48.69 |
% |
|
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, applicable to common shareholders, end of period (000s) |
|
$594,586 |
|
|
$612,225 |
|
|
$603,483 |
|
|
$515,041 |
|
|
$579,963 |
|
|
$477,195 |
|
|
Ratio of expenses to average net assets, including interest expense (2) |
|
1.11 |
%(5) |
|
1.10 |
%(4) |
|
1.32 |
%(4) |
|
1.30 |
%(4) |
|
1.24 |
%(3)(4) |
|
1.52 |
%(3)(4) |
|
Ratio of expenses to average net assets, excluding interest expense (2) |
|
1.11 |
%(5) |
|
1.09 |
% |
|
1.14 |
% |
|
1.16 |
% |
|
1.17 |
%(3) |
|
1.48 |
%(3) |
|
Ratio of net investment income to average net assets (2) |
|
10.36 |
%(5) |
|
7.91 |
% |
|
11.03 |
% |
|
11.56 |
% |
|
11.64 |
%(3) |
|
15.34 |
%(3) |
|
Preferred shares asset coverage per share |
|
$112,956 |
|
|
$115,565 |
|
|
$114,270 |
|
|
$101,188 |
|
|
$110,790 |
|
|
$95,590 |
|
|
Portfolio turnover rate |
|
9 |
% |
|
108 |
% |
|
28 |
% |
|
32 |
% |
|
52 |
% |
|
117 |
% |
|
† |
Less than $(0.005) per common share. |
|
(1) |
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 period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized. |
|
(2) |
Calculated on the basis of income and expenses applicable to both common and preferred shares relative to the average net assets of common shareholders. |
|
(3) |
During the periods indicated above, the Investment Manager waived a portion of its investment management fee. The effect of such waiver relative to the average net assets of common shareholders was 0.01% and 0.10% for the years ended October 31, 2010 and October 31, 2009, respectively. |
|
(4) |
Interest expense primarily relates to participation in reverse repurchase agreement transactions. |
|
(5) |
Annualized. |
See accompanying Notes to Financial Statements | April 30, 2014 | Semi-Annual Report 75
Financial Highlights
PIMCO Income Opportunity Fund
For a share outstanding throughout each period:
|
|
|
Six Months |
|
Year ended October 31, | ||||||||||||||
|
|
|
(unaudited) |
|
2013 |
|
2012 |
|
2011 |
|
2010 |
|
2009 | ||||||
|
Net asset value, beginning of period |
|
$28.67 |
|
|
$27.86 |
|
|
$24.62 |
|
|
$26.97 |
|
|
$21.40 |
|
|
$17.90 |
|
|
Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
1.32 |
|
|
2.87 |
|
|
2.61 |
|
|
3.24 |
|
|
3.11 |
|
|
2.11 |
|
|
Net realized and change in unrealized gain (loss) |
|
0.15 |
|
|
0.77 |
|
|
3.69 |
|
|
(2.20 |
) |
|
4.58 |
|
|
3.51 |
|
|
Total from investment operations |
|
1.47 |
|
|
3.64 |
|
|
6.30 |
|
|
1.04 |
|
|
7.69 |
|
|
5.62 |
|
|
Dividends and Distributions to Shareholders from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
(1.74 |
) |
|
(2.83 |
) |
|
(3.06 |
) |
|
(3.39 |
) |
|
(2.12 |
) |
|
(1.21 |
) |
|
Return of capital |
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
– |
|
|
(0.91 |
) |
|
Total dividends and distributions to shareholders |
|
(1.74 |
) |
|
(2.83 |
) |
|
(3.06 |
) |
|
(3.39 |
) |
|
(2.12 |
) |
|
(2.12 |
) |
|
Net asset value, end of period |
|
$28.40 |
|
|
$28.67 |
|
|
$27.86 |
|
|
$24.62 |
|
|
$26.97 |
|
|
$21.40 |
|
|
Market price, end of period |
|
$28.95 |
|
|
$28.90 |
|
|
$29.85 |
|
|
$26.45 |
|
|
$26.92 |
|
|
$21.08 |
|
|
Total Investment Return (1) |
|
6.52 |
% |
|
6.81 |
% |
|
26.98 |
% |
|
11.68 |
% |
|
39.51 |
% |
|
31.54 |
% |
|
RATIOS/SUPPLEMENTAL DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000s) |
|
$423,997 |
|
|
$426,561 |
|
|
$411,976 |
|
|
$359,909 |
|
|
$391,730 |
|
|
$307,679 |
|
|
Ratio of expenses to average net assets, including interest expense (2) |
|
1.68 |
%(3) |
|
1.93 |
% |
|
2.29 |
% |
|
2.44 |
% |
|
2.36 |
% |
|
1.78 |
% |
|
Ratio of expenses to average net assets, excluding interest expense (2) |
|
1.47 |
%(3) |
|
1.66 |
% |
|
1.86 |
% |
|
1.93 |
% |
|
1.86 |
% |
|
1.42 |
% |
|
Ratio of net investment income to average net assets |
|
9.44 |
%(3) |
|
10.03 |
% |
|
10.38 |
% |
|
12.40 |
% |
|
13.07 |
% |
|
12.04 |
% |
|
Portfolio turnover rate |
|
105 |
% |
|
65 |
% |
|
57 |
% |
|
194 |
% |
|
77 |
% |
|
292 |
% |
|
(1) |
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 period reported. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Total investment return does not reflect brokerage commissions or sales charges in connection with the purchase or sale of Fund shares. Total investment return for a period of less than one year is not annualized. |
|
(2) |
Interest expense primarily relates to participation in reverse repurchase agreement transactions. |
|
(3) |
Annualized. |
76 Semi-Annual Report | April 30, 2014 | See accompanying Notes to Financial Statements
Annual Shareholder Meeting Results/Proxy Voting Policies & Procedures (unaudited)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
Annual Shareholder Meeting Results:
The Funds held their joint annual meetings of shareholders on April 30, 2014. Common/Preferred shareholders for Corporate Income & Strategy and Common shareholders for Income Opportunity voted as indicated below:
Corporate & Income Strategy:
|
|
|
Affirmative |
|
Withheld |
|
|
Re-election of Bradford K. Gallagher – Class III to serve until the annual meeting for the 2016-2017 fiscal year |
|
32,860,945 |
|
1,348,429 |
|
|
|
|
|
|
|
|
|
Re-election of John C. Maney† – Class III to serve until the annual meeting for the 2016-2017 fiscal year |
|
32,895,667 |
|
1,313,707 |
|
The other members of the Board of Trustees at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. James A. Jacobson*, Hans W. Kertess*, William B. Ogden, IV, and Alan Rappaport continued to serve as Trustees.
Income Opportunity:
|
|
|
Affirmative |
|
Withheld |
|
|
Re-election of Bradford K. Gallagher – Class III to serve until the annual meeting for the 2016-2017 fiscal year |
|
13,012,979 |
|
343,432 |
|
|
|
|
|
|
|
|
|
Re-election of Alan Rappaport – Class III to serve until the annual meeting for the 2016-2017 fiscal year |
|
13,011,100 |
|
345,311 |
|
The other members of the Board of Trustees at the time of the meeting, namely, Ms. Deborah A. DeCotis and Messrs. James A. Jacobson, Hans W. Kertess, John C. Maney† and William B. Ogden, IV, continued to serve as Trustees.
* Preferred Shares Trustee
† Interested Trustee
Proxy Voting Policies & Procedures:
A description of the policies and procedures that the Funds have adopted to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to portfolio securities held during the most recent twelve month period ended June 30 is available (i) without charge, upon request, by calling the Funds’ shareholder servicing agent at (800) 254-5197; (ii) on the Funds’ website at us.allianzgi.com/closedendfunds; and (iii) on the Securities and Exchange Commission website at www.sec.gov.
April 30, 2014 | Semi-Annual Report 77
Changes in Investment Policy/Corporate Change (unaudited)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
Changes in Investment Policy – Corporate & Income Strategy:
Corporate & Income Strategy has adopted the following investment policy:
Corporate & Income Strategy may hold 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.
The following risks are associated with the policy described above:
The market price of common stocks and other equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may 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 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 or adverse investor sentiment generally. They may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than bonds and other debt securities.
Corporate Change:
On March 14, 2014, Julian Sluyters became President and Chief Executive Officer of each Fund.
78 Semi-Annual Report | April 30, 2014
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
At a meeting of the Board of Trustees of each Fund (the “Board” or the “Trustees”) on December 10, 2013, the Board received a preliminary presentation from PIMCO regarding the proposed transition of the Funds’ investment management and administrative services from AGIFM to PIMCO and agreed that PIMCO should prepare materials regarding the proposed investment management agreement between PIMCO and the Funds (the “Proposed Agreement”) and related arrangements for formal consideration at the Board’s next regularly scheduled meeting. On February 4, 2014, the Board held a special in-person meeting with members of PIMCO’s senior management and other PIMCO personnel proposed to serve as officers of the Funds to discuss the proposed transition. On February 25, 2014, the non-interested Trustees (the “Independent Trustees”) met separately via conference call with their counsel to discuss materials provided by PIMCO regarding the Proposed Agreement and related arrangements, and representatives from PIMCO attended a portion of that meeting to respond to questions from the Independent Trustees and to field requests for supplemental information regarding the proposed arrangements. The Board then held an in-person meeting with management on March 10-11, 2014 to consider approval of the Proposed Agreement and related arrangements (the meetings of the Board discussed herein collectively referred to as the “Meetings”). Following careful consideration of the matter as described in more detail herein, the Board of each Fund, including all of the Independent Trustees, approved the Proposed Agreement for the Fund for an initial one-year term, subject to approval of the Proposed Agreement for the Fund by its shareholders. The information, material factors and conclusions that formed the basis for the Board’s approvals for each Fund are described below. As noted, the Independent Trustees were assisted in their evaluation of the Proposed Agreement by independent legal counsel, from whom they received separate legal advice and with whom they met separately from Fund management during the Meetings.
In connection with their deliberations regarding the approval of the Proposed Agreement, the Trustees, 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 be relevant. As described below, the Trustees considered the nature, quality and extent of the various investment management, administrative and other services to be provided to each Fund by PIMCO under the Proposed Agreement.
In connection with the Meetings, the Trustees received and relied upon materials provided by PIMCO (or AGIFM, as applicable) which included, among other items: (i) information provided by Lipper Inc. (“Lipper”), an independent third party, on the total return investment performance (based on net assets) of the Funds for various time periods, the investment performance of a group of funds with investment classifications/objectives comparable to those of the Funds identified by Lipper (the “Lipper performance universe”) and the performance of an applicable benchmark index, (ii) information provided by Lipper on the Funds’ management fees under the investment management agreement
April 30, 2014 | Semi-Annual Report 79
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
between each Fund and AGIFM (the “Current Agreements”) and other expenses and the management fees and other expenses of comparable funds identified by Lipper, (iii) information provided by PIMCO on the Funds’ proposed management fee rates and total expense ratios under the Proposed Agreement in comparison to data provided by Lipper on the management fees and total expense ratios of comparable funds identified by Lipper, (iv) information on the aggregate management fees and total expenses paid by each Fund under its Current Agreement during calendar year 2013 and the pro forma aggregate management fees and total expenses that would have been paid by each Fund under the Proposed Agreement during calendar year 2013, (v) with respect to Corporate & Income Strategy, information regarding the investment performance and fees for other funds managed by PIMCO with similar investment strategies to those of Corporate & Income Strategy and, with respect to Income Opportunity, information regarding the investment performance and fees for other funds managed by PIMCO with strategies that have similarities (but are not substantially similar) to those of Income Opportunity, (vi) the estimated profitability to AGIFM as investment manager to the Funds for the one-year period ended December 31, 2012, and to PIMCO as sub-adviser to the Funds for the one-year periods ended December 31, 2012 and 2013, (vii) estimates of what the profitability to PIMCO would have been under the Proposed Agreement for the one-year period ended December 31, 2013 and what the profitability to PIMCO under the Proposed Agreement is estimated to be for the calendar years ending December 31, 2014, 2015 and 2016, (viii) information provided by PIMCO on each Fund’s risk-adjusted returns, total returns and yield over various time periods, (ix) descriptions of various functions and services to be performed or procured by PIMCO for the Funds under the Proposed Agreement, such as portfolio management, compliance monitoring, portfolio trading, custody, transfer agency, dividend disbursement, recordkeeping, tax, legal, audit, valuation and other administrative and shareholder services and (x) information regarding the overall organization of PIMCO, including information regarding senior management, portfolio managers and other personnel who will provide investment management, administrative and other services to the Funds under the Proposed Agreement.
The Trustees’ conclusions as to the approval of the Proposed Agreement for each Fund were based on a comprehensive consideration of all information provided to the Trustees and were not the result of any single factor. Some 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.
As part of their review, the Trustees examined PIMCO’s ability to provide high quality investment management and other services to the Funds. Among other information, the Trustees considered the investment philosophy and research and decision-making processes of PIMCO; the experience of key advisory personnel of PIMCO responsible for portfolio management of the Funds; the ability
80 Semi-Annual Report | April 30, 2014
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
of PIMCO to attract and retain capable personnel; and the capability of the senior management and staff of PIMCO. In addition, the Trustees reviewed the quality of PIMCO’s services with respect to regulatory compliance and compliance with the investment policies of the Funds and conditions that might affect PIMCO’s ability to provide high quality services to the Funds in the future under the Proposed Agreement, including PIMCO’s financial condition and operational stability. The Trustees took into account their familiarity and experience with PIMCO as the sub-adviser and portfolio manager for each Fund to date, and noted that the same investment professionals who are currently responsible for managing each Fund’s portfolio will continue to do so following the proposed transition. They further noted that each Fund will continue to have the same investment objective(s) and policies following the proposed transition.
The Trustees also considered the nature of certain supervisory and administrative services that PIMCO would be responsible for providing to the Funds under the Proposed Agreement. The Trustees noted PIMCO’s belief that a number of operational and administrative efficiencies are expected to result from the arrangements under the Proposed Agreement. The Trustees considered PIMCO’s representation that it could offer the Funds an integrated set of high-quality investment management, administrative and distribution/aftermarket support services under a single platform, which PIMCO believes will allow for greater efficiencies and enhanced coordination among various investment management and administrative functions. The Trustees also took into account that the fund administration group at PIMCO, then comprised of approximately 140 professionals worldwide, provided administrative services for approximately $860 billion in assets under management globally (as of October 31, 2013), including over 150 PIMCO open-end funds and ETFs which, like the Funds, are U.S. registered investment companies, and that PIMCO has substantial prior experience in the administration of U.S. registered closed-end funds. The Trustees also considered PIMCO’s representation that the PIMCO fund administration group is well integrated with all critical functions related to the PIMCO funds business, including portfolio management, compliance, legal, accounting and tax, account management, marketing, shareholder communications/services and technology, and noted PIMCO’s belief that the Funds and their shareholders will benefit by having all such services provided “under one roof” by the highly experienced team at PIMCO. Moreover, the Trustees noted that the proposed PIMCO-only management structure for the Funds aligns with the “two pillar” approach adopted by Allianz SE with respect to other PIMCO and Allianz Global Investors products globally, and considered PIMCO’s view that the change will facilitate clearer branding and marketing of the Funds and will help to avoid potential confusion among intermediaries, analysts and investors as to whether the Funds are PIMCO and/or Allianz Global Investors products. Based on the foregoing, the Trustees concluded that PIMCO’s investment process, research capabilities and philosophy were well suited to each Fund given its investment objective and policies, and that PIMCO would be able to provide high quality supervisory and
April 30, 2014 | Semi-Annual Report 81
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
administrative services to the Funds and meet any reasonably foreseeable obligations under the Proposed Agreement.
In assessing the reasonableness of each Fund’s proposed unified management fee rate under the Proposed Agreement, the Trustees considered, among other information, (i) each Fund’s current and proposed contractual management fee rate, (ii) each Fund’s total expense ratio under its Current Agreement and under the Proposed Agreement calculated on average net assets and on average managed assets, taking into account the effects of the Fund’s leverage outstanding for calendar year 2013, and (iii) the aggregate management fees and estimated total expenses paid by each Fund under its Current Agreement during calendar year 2013 and estimates of the pro forma aggregate management fees and total expenses that would have been paid by each Fund under the Proposed Agreement if it had been in place during calendar year 2013. In this regard, the Trustees noted that, although the proposed management fee rate to be paid to PIMCO by each Fund under the Proposed Agreement is higher than the management fee rate imposed under the corresponding Current Agreement, the proposed unified fee arrangement under the Proposed Agreement covers the Fund’s portfolio management and administrative services covered under the Current Agreement and also requires PIMCO, at its expense, to procure most other supervisory and administrative services required by the Funds that are currently paid for or incurred by the Funds directly outside of the Current Agreements (such fees and expenses, “Operating Expenses”).
In addition, the Trustees took into account PIMCO’s explanation that, in determining the proposed unified management fee rate to be paid to PIMCO by each Fund under the Proposed Agreement, PIMCO reviewed the Fund’s total expenses, including its current contractual management fee and other expenses currently borne by the Fund outside of the applicable Current Agreement, and the Fund’s leverage outstanding during calendar year 2013, and proposed a management fee rate that PIMCO estimated would result in the Fund’s total expenses paid by common shareholders being lower under the Proposed Agreement than under the corresponding Current Agreement (based on calendar year 2013 expenses). The Trustees noted that PIMCO estimated that the proposed new arrangement would result in an overall savings to common shareholders of each Fund under ordinary circumstances. The Trustees further considered PIMCO’s explanation that, in developing the proposed unified fee structure for each Fund, PIMCO, after discussions with the Board, determined a 20% reduction to the Fund’s actual Operating Expenses for calendar year 2013, converted that amount to basis points and rounded to the next lowest half or whole basis point in arriving at a proposed unified fee rate for the Fund. The Board considered PIMCO’s statement that the proposed unified fee rates are designed to allow the Funds and their common shareholders to share up front in operational efficiencies PIMCO will attempt to realize with respect to the Funds’ Operating Expenses as a result of the proposed transition.
The Trustees also took into account other expected benefits to shareholders of the
82 Semi-Annual Report | April 30, 2014
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
proposed unified fee structure under the Proposed Agreement. In this regard, the Trustees noted PIMCO’s view that the proposed new unified fee structure would be beneficial for common shareholders because it provides a management fee (including Operating Expenses) structure that is essentially fixed as a percentage of managed assets, making it more predictable under ordinary circumstances in comparison to the current fee and expense structure, under which the Funds’ Operating Expenses (including certain third-party fees and expenses) not covered by the Current Agreements can vary over time. The Trustees also considered that the proposed unified fee structure generally insulates 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).
The Trustees also considered the management fees charged by PIMCO to other funds with similar strategies to those of Corporate & Income Strategy, including open-end funds advised by PIMCO. With respect to Income Opportunity, the Trustees were advised that the Sub-Adviser does not manage any funds or accounts, including institutional or separate accounts, with investment strategies or return profiles similar to those of the Fund. However, the Trustees considered the management fees charged by the Sub-Adviser to other funds with strategies that have similarities (but are not substantially similar) to those of Income Opportunity, including open-end funds advised by the Sub-Adviser. The Trustees noted that the management fees proposed to be paid by the Funds are generally higher than the fees paid by the open-end funds offered for comparison, but were advised by PIMCO that there are additional portfolio management challenges in managing closed-end funds such as the Funds, such as those associated with the use of leverage and attempting to meet a regular dividend. The Trustees were advised that PIMCO does not manage any institutional or separate accounts which have an investment strategy or return profile bearing any reasonable similarity to the Funds.
The Trustees also took into account that Corporate & Income Strategy has preferred shares outstanding, which increases the amount of management fees payable by that Fund under both its Current Agreement and the Proposed Agreement (because the Fund’s fees are calculated, and under the Proposed Agreement would continue to be calculated, based on the Fund’s net assets, including any assets attributable to preferred shares outstanding). They also took into account that the use of other forms of leverage by Income Opportunity, such as through the use of reverse repurchase agreements, increases the amount of management fees payable by that Fund under both its Current Agreement and the Proposed Agreement (because the Fund’s fees are calculated, and under the Proposed Agreement would continue to be calculated, based on total managed assets, including assets attributable to certain forms of leverage). The Trustees took into account that, under both the Current Agreements and the Proposed Agreement, PIMCO has a financial incentive for the Funds to have preferred
April 30, 2014 | Semi-Annual Report 83
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
shares and/or other forms of leverage outstanding, which may create a conflict of interest between PIMCO, on the one hand, and the Funds’ common shareholders, on the other. The Trustees further noted that this incentive will be greater under the Proposed Agreement in comparison to the Current Agreements because the contractual management fee rates under the Proposed Agreement are higher for each Fund than under its Current Agreement, and the total fees paid to PIMCO under the Proposed Agreement will therefore vary more with increases and decreases in applicable leverage incurred by a Fund than under the Current Agreements. In this regard, 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 also reviewed information provided by PIMCO relating to the estimated impact on Income Opportunity’s management fees and Operating Expenses of increasing such Fund’s leverage to the maximum practical level that could be attained without further Board approval, as calculated under both its Current Agreement (pursuant to which the Fund would pay management fees to PIMCO and separately pay Operating Expenses) and the Proposed Agreement (pursuant to which the Fund would pay the unified fee to PIMCO, which includes Operating Expenses), and noted the increase in Income Opportunity’s net expenses under the Proposed Agreement under these circumstances was not substantial. 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.
With respect to each Fund, the Trustees reviewed, among other information, comparative information showing the proposed unified fee rate of the Fund under the Proposed Agreement, calculated both on average net assets and on average managed assets, against its Lipper expense group and the Fund’s estimated total expense ratio (excluding interest expense) calculated on average net assets and average managed assets under the Proposed Agreement against its Lipper expense group. It was noted that the total expense ratio comparisons reflect the effect of expense waivers/reimbursements (although none were proposed for the Funds). The Trustees noted that only leveraged closed-end funds were considered for inclusion in the Lipper expense groups presented for comparison with the Funds.
The Trustees noted that, for each Fund the proposed unified fee rate for the Fund was above the median management fee of the other funds in its expense group provided by Lipper, considered both calculated on average net assets and on average managed assets. However, in this regard, the Trustees took into account that each Fund’s proposed unified management fee rate covers substantially all of the Fund’s Operating Expenses and therefore would tend to be higher than the management fee rates of other funds in the expense groups provided by Lipper, which generally do not have a unified fee structure and bear Operating Expenses separately in addition to the management fee. The Trustees
84 Semi-Annual Report | April 30, 2014
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
determined that a review of each Fund’s total expense ratio with the total expense ratios of peer funds would generally provide more meaningful comparisons than considering contractual management fee rates in isolation.
The Trustees also reviewed, among other information, comparative information showing the total return performance of common shares of each Fund (based on net asset value) against its Lipper performance universe for the one-year, three-year, five-year and ten-year periods ended December 31, 2013 (to the extent such Fund had been in existence). Fund-specific performance results for the Funds reviewed by the Trustees are discussed below.
The following summarizes comparative performance and fee and expense information considered for each Fund. The comparative performance information was prepared and provided by Lipper and was not independently verified by the Trustees. Due to the passage of time, these performance results may differ from the performance results for more recent periods.
The comparative expense information reviewed by the Trustees was based on information provided by PIMCO with respect to the Funds and information provided by Lipper with respect to the other funds in the expense groups. The total expense ratio information for each Fund discussed below was estimated by PIMCO assuming that the Proposed Agreement had been in effect for the 2013 calendar year, taking into account the effects of the Fund’s leverage outstanding for calendar year 2013. The fee and expense information was prepared and provided by Lipper or PIMCO (as noted) and was not independently verified by the Trustees.
Corporate & Income Strategy
With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, the Trustees noted that the Fund had second quintile performance for the one-year period, first quintile performance for the three-year and five year-periods and second quintile performance for the ten-year period ended December 31, 2013.
The Trustees noted that the expense group for the Fund provided by Lipper consisted of a total of ten closed-end funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $243.8 million to $1.956 billion, and that three of the funds in the group were larger in asset size than the Fund. With respect to the Fund’s estimated total expense ratio (excluding interest expense) calculated on average net assets, the Trustees noted that the Fund’s estimated total expense ratio was above the median total expense ratio of the group of funds presented for comparison.
Income Opportunity
With respect to the Fund’s common share total return performance (based on net asset value) relative to its respective Lipper performance universe, the Trustees noted that the Fund had first quintile performance for the one-year, three-year and five-year periods ended December 31, 2013.
The Trustees noted that the expense group for the Fund provided by Lipper consisted of a
April 30, 2014 | Semi-Annual Report 85
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
total of five closed-end funds, including the Fund. The Trustees also noted that the average net assets of the common shares of the funds in the group ranged from $122.4 million to $370.2 million, and that no funds in the group were larger in asset size than the Fund. With respect to the Fund’s estimated total expense ratio (excluding interest expense) calculated on average net assets, the Trustees noted that the Fund’s estimated total expense ratio was above the median total expense ratio of the group of funds presented for comparison.
In addition to their review of Fund performance based on net asset value, the Trustees also considered the market value performance of each Fund’s common shares and related share price premium and/or discount information based on the materials provided by Lipper and PIMCO.
The Trustees also considered profitability analyses provided by PIMCO, which included the estimated profitability to AGIFM as investment manager to the Funds for the one-year period ended December 31, 2012 (such estimate having been prepared by AGIFM); estimated profitability to PIMCO as sub-adviser to the Funds for the one-year periods ended December 31, 2012 and 2013; pro forma estimated profitability to PIMCO for the one-year period ended December 31, 2013 assuming the Proposed Agreement had been in effect; and pro forma estimated profitability to PIMCO under the Proposed Agreement for the calendar years ending December 31, 2014, 2015 and 2016. PIMCO provided profitability estimates under the Proposed Agreement reflecting a range of assumptions as to the allocation of internal expenses to its management of the Funds versus other types of products and services, and also estimated profitability both reflecting and not reflecting the amortization of the initial structuring fee payments and/or ongoing shareholder servicing and support payments PIMCO has made or will make to third parties with respect to the Funds. 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 took into account that, as closed-end Funds, the Funds do not currently intend to raise additional assets, so the assets of the Funds will grow (if at all) principally through the investment performance of each Fund. Therefore, the Trustees did not consider potential economies of scale as a principal factor in assessing the fee rates payable by each Fund under the Proposed Agreement, although they did take into account that the proposed unified fee rates reflect estimated reductions in Operating Expenses designed to allow the Funds to share up front in operational efficiencies PIMCO will attempt to realize as a result of the proposed transition.
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 PIMCO may receive from broker-dealers executing the Funds’ portfolio transactions on an agency basis.
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 Proposed Agreement and based upon the
86 Semi-Annual Report | April 30, 2014
Matters Relating to the Trustees’ Consideration of the Investment Management Agreement (unaudited) (continued)
PIMCO Corporate & Income Strategy Fund/PIMCO Income Opportunity Fund
information provided and related representations made by PIMCO, that they were satisfied with PIMCO’s responses and efforts relating to the investment management and performance of the Fund. They also concluded that they were satisfied with PIMCO’s information and responses as to its resources and capabilities to serve as investment manager and administrator of each Fund under the Proposed Agreement following the transition. The Trustees also concluded that the fees payable by each Fund under the Proposed Agreement represent reasonable compensation in light of the nature, extent and quality of services to be provided or procured by PIMCO under the Proposed Agreement. Based on their evaluation of factors that they deemed to be material, including those factors described above, the Trustees, including the Independent Trustees, unanimously concluded that the approval of the Proposed Agreement was in the interests of each Fund and its shareholders, and determined to recommend the same for approval by shareholders.
April 30, 2014 | Semi-Annual Report 87
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Trustees Hans W. Kertess Deborah A. DeCotis Bradford K. Gallagher James A. Jacobson John C. Maney William B. Ogden, IV Alan Rappaport
Fund Officers Julian Sluyters Lawrence G. Altadonna Thomas J. Fuccillo Scott Whisten Richard J. Cochran Orhan Dzemaili Thomas L. Harter Lagan Srivastava |
Investment Manager Allianz Global Investors Fund Management LLC
Sub-Adviser Pacific Investment Management Company LLC
Custodian & Accounting Agent State Street Bank & Trust Co.
Transfer Agent, Dividend Paying Agent and Registrar American Stock Transfer & Trust Company, LLC
Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP
Legal Counsel Ropes & Gray LLP |
This report, including the financial information herein, is transmitted to the shareholders of PIMCO Corporate & Income Strategy Fund and PIMCO Income Opportunity Fund for their information. It is not a prospectus, circular or representation intended for use in the purchase of shares of the Funds or any securities mentioned in this report.
The financial information included herein is taken from the records of the Funds without examination by an independent registered public accounting firm, who did not express an opinion herein.
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Funds may purchase their common shares in the open market.
The Funds file their complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of their fiscal year on Form N-Q. Each Fund’s Form N-Q is available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The information on Form N-Q is also available on the Funds’ website at us.allianzgi.com/closedendfunds.
Information on the Funds is available at us.allianzgi.com/closedendfunds or by calling the Funds’ shareholder servicing agent at (800) 254-5197.
us.allianzgi.com
Receive this report electronically and eliminate paper mailings.
To enroll, go to us.allianzgi.com/edelivery.
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©2014 Allianz Global Investors Distributors U.S. LLC |
AZ608SA_043014 |
AGI-2014-05-06-9673
ITEM 2. CODE OF ETHICS
Not required in this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not required in this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not required in this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANT
Not required in this filing.
ITEM 6. SCHEDULE OF INVESTMENTS
(a) The registrant’s Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this form.
(b) Not applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not required in this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not required in this filing.
ITEM 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Companies
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 registrant’s President and Chief Executive Officer and Treasurer, Principal Financial & Accounting Officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act (17 CFR 270.30a-3(c))), are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
ITEM 12. EXHIBITS
(a) (1) Not required in this filing.
(a) (2) Exhibit 99.302 — Cert. — Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
(a) (3) Not applicable
(b) Exhibit 99.906 Cert. - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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(Registrant) PIMCO Corporate & Income Strategy Fund |
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By |
/s/ Julian Sluyters |
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Julian Sluyters, President & Chief Executive Officer |
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Date: June 30, 2014 |
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By |
/s/ Lawrence G. Altadonna |
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Lawrence G. Altadonna, Treasurer, Principal |
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Date: June 30, 2014 |
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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.
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By |
/s/ Julian Sluyters |
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Julian Sluyters, President & Chief Executive Officer |
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Date: June 30, 2014 |
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By |
/s/ Lawrence G. Altadonna |
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Lawrence G. Altadonna, Treasurer, Principal |
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Date: June 30, 2014 |
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