UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-21311

PIMCO High Income Fund

(Exact name of registrant as specified in charter)

1633 Broadway, New York, NY 10019

(Address of principal executive offices)

Bijal Y. Parikh

Treasurer (Principal Financial & Accounting Officer)

650 Newport Center Drive, Newport Beach, CA 92660

(Name and address of agent for service)

Copies to:

David C. Sullivan

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

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

Date of fiscal year end: July 31

Date of reporting period: July 31, 2021

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.


Item 1.

Reports to Shareholders.

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

 


LOGO

 

PIMCO CLOSED-END FUNDS

Annual Report

 

July 31, 2021

 

PIMCO Corporate & Income Opportunity Fund | PTY | NYSE

 

PIMCO Corporate & Income Strategy Fund | PCN | NYSE

 

PIMCO High Income Fund | PHK | NYSE

 

PIMCO Income Strategy Fund | PFL | NYSE

 

PIMCO Income Strategy Fund II | PFN | NYSE

 

As permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports are not sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports are made available on the Fund’s website, pimco.com/literature, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

 

You may elect to receive shareholder reports and other communications from the Fund electronically by visiting pimco.com/edelivery or by contacting your financial intermediary, such as a broker-dealer or bank, if you do not already.

 

You may elect to receive all future reports in paper free of charge. If you own these shares through a financial intermediary, such as a broker-dealer or bank, you may contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can inform the Fund that you wish to continue receiving paper copies of your shareholder reports by calling 844.337.4626. Your election to receive reports in paper will apply to all funds held with the fund complex if you invest directly with the Fund or to all funds held in your account if you invest through a financial intermediary, such as a broker-dealer or bank.


Table of Contents

 

            Page  
     

Letter from the Chair of the Board & President

        2  

Important Information About the Funds

        4  

Index Descriptions

        21  

Financial Highlights

        22  

Statements of Assets and Liabilities

        26  

Statements of Operations

        27  

Statements of Changes in Net Assets

        28  

Statements of Cash Flows

        30  

Notes to Financial Statements

        99  

Report of Independent Registered Public Accounting Firm

        127  

Glossary

        128  

Federal Income Tax Information

        129  

Distribution Information

        130  

Shareholder Meeting Results

        131  

Changes to Boards of Trustees

        133  

Changes to Bylaws

        134  

Dividend Reinvestment Plan

        135  

Additional Information Regarding the Funds

        137  

Principal Investment Strategies

        139  

Principal Risks of the Funds

        156  

Risk Management Strategies

        181  

Effects of Leverage

        182  

Fundamental Investment Restrictions

        183  

Management of the Funds

        186  

Approval of Investment Management Agreement

        189  

Privacy Policy

        195  
     
Fund    Fund
Summary
     Schedule of
Investments
 
     

PIMCO Corporate & Income Opportunity Fund

     8        31  

PIMCO Corporate & Income Strategy Fund

     11        49  

PIMCO High Income Fund

     14        62  

PIMCO Income Strategy Fund

     15        74  

PIMCO Income Strategy Fund II

     18        86  


Letter from the Chair of the Board & President              

 

Dear Shareholder,

 

We hope that you and your family are remaining safe and healthy during these challenging times. We continue to work tirelessly to navigate markets and manage the assets that you have entrusted with us. Following this letter is the PIMCO Closed-End Funds Annual Report, which covers the 12-month reporting period ended July 31, 2021. On the subsequent pages, you will find specific details regarding investment results and a discussion of the factors that most affected performance during the reporting period.

 

For the 12-month reporting period ended July 31, 2021

 

The global economy was severely impacted by the repercussions related to the COVID-19 pandemic (“COVID-19”). Looking back, second-quarter 2020 U.S. annualized gross domestic product (“GDP”) growth was -31.4%. This represented the steepest quarterly decline on record. With the economy reopening, third-quarter GDP growth was 33.4%, the largest quarterly increase on record. GDP growth in the U.S. was then 4.3% and 6.3% during the fourth quarter of 2020 and the first quarter of 2021, respectively. Finally, the Commerce Department’s initial estimate for second-quarter annualized GDP growth was 6.6%.

 

Despite improving economic data and inflationary concerns, the Federal Reserve (the “Fed”) maintained its accommodative monetary policy. This included keeping the federal funds rate at an all-time low of a range between 0.00% and 0.25%, as well as continuing to purchase at least $80 billion a month of Treasury securities and $40 billion a month of agency mortgage-backed securities. However, at its June 2021 meeting, the Fed pushed forward its forecast for the first rate hikes. The central bank now expects two interest rate increases by the end of 2023. In its March 2021 projections, the Fed anticipated no increases until at least 2024. In addition, while Fed Chair Jerome Powell said it would begin discussing a scaling back of bond purchases, he maintained his view on inflation, saying, “As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal.” He also said that any discussion of raising rates was “highly premature.”

 

Economies outside the U.S. also continued to be impacted by COVID-19. In its July 2021 World Economic Outlook Update, the International Monetary Fund (“IMF”) said it expects U.S. GDP growth to be 7.0% in 2021, compared to a 3.5% contraction in 2020. Elsewhere, the IMF expects 2021 GDP growth in the eurozone, U.K. and Japan will be 4.6%, 7.0% and 2.8%, respectively. For comparison purposes, the GDP of these economies was projected to be -6.5%, -9.8% and -4.7%, respectively, in 2020.

 

Central banks outside the U.S. also maintained their aggressive actions to support their economies. The European Central Bank (the “ECB”) kept rates at an all-time low. It also continued to purchase bonds and, in June 2021, vowed to increase its purchases at a significantly higher pace than earlier in the year. Finally, in July 2021, the ECB announced its first strategy review since 2003, which included a 2% inflation target over the medium term, versus its previous target for inflation that was below but close to 2%. Elsewhere, the Bank of England held its key lending rate at a record low of 0.10% and continued its bond-buying program. In June 2021, the central bank said it did not expect to raise rates until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving its 2% inflation target. Also of note, the U.K. and the European Union agreed to a long-awaited Brexit deal. Finally, the Bank of Japan maintained its short-term interest rate at -0.10%, while increasing the target for its holdings of corporate bonds. In June 2021, it extended the September deadline for its COVID-19 relief program by at least six months.

 

Both short- and long-term U.S. Treasury yields moved higher, albeit from very low levels, during the reporting period. The yield on the benchmark 10-year U.S. Treasury note was 1.24% at the end of the reporting period, versus 0.55% on July 31, 2020. The Bloomberg Barclays Global Treasury Index (USD Hedged), which tracks fixed-rate, local currency government debt of investment grade countries, including both developed and emerging markets, returned -0.65%. Meanwhile, the Bloomberg Barclays Global Aggregate Credit Index (USD Hedged), a widely used index of global investment grade credit bonds, returned 1.90%. Riskier fixed income asset classes, including high yield corporate

 

       
2   PIMCO CLOSED-END FUNDS            


        

 

bonds and emerging market debt, produced stronger returns. The ICE BofAML Developed Markets High Yield Constrained Index (USD Hedged), a widely used index of below-investment-grade bonds, returned 10.78%, whereas emerging market external debt, as represented by the JPMorgan Emerging Markets Bond Index (EMBI) Global (USD Hedged), returned 3.57%. Emerging market local bonds, as represented by the JPMorgan Government Bond Index-Emerging Markets Global Diversified Index (Unhedged), returned 3.00%.

 

Despite the headwinds from COVID-19 and periods of volatility, global equities produced very strong results. All told, U.S. equities, as represented by the S&P 500 Index, returned 36.45%, fueled, in our view, by accommodative monetary and fiscal policy, the COVID-19 vaccine rollout, and improving corporate results. Global equities, as represented by the MSCI World Index, returned 35.07%, whereas emerging market equities, as measured by the MSCI Emerging Markets Index, returned 20.64%. Meanwhile, Japanese equities, as represented by the Nikkei 225 Index (in JPY), returned 27.72% and European equities, as represented by the MSCI Europe Index, returned 32.13%.

 

Commodity prices were volatile but generally produced positive results. When the reporting period began, Brent crude oil was approximately $43 a barrel, but ended the reporting period at roughly $76 a barrel. We believe oil prices rallied as producers reduced their output and then demand increased as global growth improved. Elsewhere, copper prices moved sharply higher, whereas gold prices declined.

 

Finally, there were also periods of volatility in the foreign exchange markets, in our view due to fluctuating economic growth, trade conflicts and changing central bank monetary policies, along with the U.S. election and several geopolitical events. The U.S. dollar weakened against several other major currencies. For example, the U.S. dollar returned -0.78% and -6.26% versus the euro and the British pound, respectively. However, the U.S. dollar rose 3.55% versus the Japanese yen.

 

Thank you for the assets you have placed with us. We deeply value your trust, and we will continue to work diligently to meet your broad investment needs. For any questions regarding your PIMCO Closed-End Funds investments, please contact your financial adviser or call the Funds’ shareholder servicing agent at (844) 33-PIMCO. We also invite you to visit our website at www.pimco.com to learn more about our global viewpoints.

 

Sincerely,

 

LOGO   LOGO
LOGO   LOGO
Deborah A. DeCotis   Eric D. Johnson
Chair of the Board of Trustees   President

 

Past performance is no guarantee of future results. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Unless otherwise noted, index returns reflect the reinvestment of income distributions and capital gains, if any, but do not reflect fees, brokerage commissions or other expenses of investing. It is not possible to invest directly in an unmanaged index.

 

         ANNUAL REPORT     |     JULY 31, 2021     3
    


Important Information About the Funds              

 

Information regarding each Fund’s principal investment strategies, principal risks and risk management strategies, the effects of each Fund’s leverage, and each Fund’s fundamental investment restrictions, including a summary of certain changes thereto during the most recent fiscal year, can be found within the relevant sections of this report. Please refer to the Table of Contents for further information.

 

We believe that bond funds have an important role to play in a well-diversified investment portfolio. It is important to note, however, that in an environment where interest rates may trend upward, rising rates would negatively impact the performance of most bond funds, and fixed-income securities and other instruments held by a Fund are likely to decrease in value. A wide variety of factors can cause interest rates or yields of U.S. Treasury securities (or yields of other types of bonds) to rise (e.g., central bank monetary policies, inflation rates, general economic conditions). In addition, changes in interest rates can be sudden and unpredictable, and there is no guarantee that Fund management will anticipate such movement accurately. A Fund may lose money as a result of movements in interest rates.

 

As of the date of this report, interest rates in the United States and many parts of the world, including certain European countries, are at or near historically low levels. Thus, the Funds currently face a heightened level of risk associated with rising interest rates and/or bond yields. This could be driven by a variety of factors, including but not limited to central bank monetary policies, changing inflation or real growth rates, general economic conditions, increasing bond issuances or reduced market demand for low yielding investments. Further, while bond markets have steadily grown over the past three decades, dealer inventories of corporate bonds are near historic lows in relation to market size. As a result, there has been a significant reduction in the ability of dealers to “make markets.”

 

Bond funds and individual bonds with a longer duration (a measure used to determine the sensitivity of a security’s price to changes in interest rates) tend to be more sensitive to changes in interest rates, usually making them more volatile than securities or funds with shorter durations. All of the factors mentioned above, individually or collectively, could lead to increased volatility and/or lower liquidity in the fixed income markets or negatively impact a Fund’s performance or cause a Fund to incur losses.

 

A Fund may enter into opposite sides of multiple interest rate swaps or other derivatives with respect to the same underlying reference instrument (e.g., a 10-year U.S. treasury) that have different effective dates with respect to interest accrual time periods also for the principal purpose of generating distributable gains (characterized as ordinary income for tax purposes) that are not part of the Fund’s duration or yield curve management strategies. In such a “paired swap transaction”, a

Fund would generally enter into one or more interest rate swap agreements whereby the Fund agrees to make regular payments starting at the time the Fund enters into the agreements equal to a floating interest rate in return for payments equal to a fixed interest rate (the “initial leg”). The Fund would also enter into one or more interest rate swap agreements on the same underlying instrument, but take the opposite position (i.e., in this example, the Fund would make regular payments equal to a fixed interest rate in return for receiving payments equal to a floating interest rate) with respect to a contract whereby the payment obligations do not commence until a date following the commencement of the initial leg (the “forward leg”).

 

A Fund may engage in investment strategies, including those that employ the use of paired swaps transactions, the use of interest rate swaps to seek to capitalize on differences between short-term and long-term interest rates and other derivatives transactions, to, among other things, seek to generate current, distributable income, even if such strategies could potentially result in declines in the Fund’s net asset value (“NAV”). A Fund’s income and gain-generating strategies, including certain derivatives strategies, may generate current income and gains taxable as ordinary income sufficient to support monthly distributions even in situations when the Fund has experienced a decline in net assets due to, for example, adverse changes in the broad U.S. or non-U.S. equity markets or the Fund’s debt investments, or arising from its use of derivatives. For instance, a portion of a Fund’s monthly distributions may be sourced from paired swap transactions utilized to produce current distributable ordinary income for tax purposes on the initial leg, with a substantial possibility that a Fund will later realize a corresponding capital loss and potential decline in its NAV with respect to the forward leg (to the extent there are not corresponding offsetting capital gains being generated from other sources). Because some or all of these transactions may generate capital losses without corresponding offsetting capital gains, portions of a Fund’s distributions recognized as ordinary income for tax purposes (such as from paired swap transactions) may be economically similar to a taxable return of capital when considered together with such capital losses.

 

Classifications of the Funds’ portfolio holdings in this report are made according to financial reporting standards. The classification of a particular portfolio holding as shown in the Allocation Breakdown and Schedule of Investments sections of this report may differ from the classification used for the Funds’ compliance calculations, including those used in the Funds’ prospectus, investment objectives, regulatory, and other investment limitations and policies, which may be based on different asset class, sector or geographical classifications. Each Fund is separately monitored for compliance with respect to prospectus and regulatory requirements.

 

 

       
4   PIMCO CLOSED-END FUNDS            


        

 

The geographical classification of foreign (non-U.S.) securities in this report, if any, are classified by the country of incorporation of a holding. In certain instances, a security’s country of incorporation may be different from its country of economic exposure.

 

Beginning in January 2020, global financial markets have experienced and may continue to experience significant volatility resulting from the spread of a novel coronavirus known as COVID-19. The outbreak of COVID-19 has resulted in travel and border restrictions, quarantines, supply chain disruptions, lower consumer demand and general market uncertainty. The effects of COVID-19 have and may continue to adversely affect the global economy, the economies of certain nations and individual issuers, all of which may negatively impact the Funds’ performance. In addition, COVID-19 and governmental responses to COVID-19 may negatively impact the capabilities of the Funds’ service providers and disrupt the Funds’ operations.

 

The United States’ enforcement of restrictions on U.S. investments in certain issuers and tariffs on goods from other countries, each with a focus on China, has contributed to international trade tensions and may impact portfolio securities.

 

The United Kingdom’s withdrawal from the European Union may impact Fund returns. The withdrawal may cause substantial volatility in foreign exchange markets, lead to weakness in the exchange rate of the British pound, result in a sustained period of market uncertainty, and destabilize some or all of the other European Union member countries and/or the Eurozone.

 

The Funds may invest in certain instruments that rely in some fashion upon the London Interbank Offered Rate (“LIBOR”). LIBOR is an average interest rate, determined by the ICE Benchmark Administration, that banks charge one another for the use of short-term money. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced plans to ultimately phase out the use of LIBOR. The transition may result in a reduction in the value of certain instruments held by a Fund or a reduction in the effectiveness of related Fund transactions such as hedges. There remains uncertainty regarding future utilization of LIBOR and the nature of any replacement rate (e.g., the Secured Overnight Financing Rate, which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities). Any potential effects of the transition away from LIBOR on a Fund or on certain instruments in which a Fund invests can be difficult to ascertain, and they may vary depending on a variety of factors. The transition may also result in a reduction in the value of certain instruments held by a Fund or a reduction in the effectiveness of related Fund transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to a Fund.

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

 

On each applicable Fund Summary page in this Shareholder Report, the Average Annual Total Return table measures performance assuming that any dividend and capital gain distributions were reinvested. Total return is calculated by determining the percentage change in NAV or market price (as applicable) in the specified period. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions. Total return for a period of more than one year represents the average annual total return. Performance at market price will differ from results at NAV. Although market price returns tend to reflect investment results over time, during shorter periods returns at market price can also be influenced by factors such as changing views about a Fund, market conditions, supply and demand for the Fund’s shares, or changes in the Fund’s dividends. Performance shown is net of fees and expenses. Historical NAV performance for a Fund may have been positively impacted by fee waivers or expense limitations in place during some or all of the periods shown, if applicable. Future performance (including total return or yield) and distributions may be negatively impacted by the expiration or reduction of any such fee waivers or expense limitations.

 

The dividend rate that a Fund pays on its common shares may vary as portfolio and market conditions change, and will depend on a number of factors, including without limit the amount of a Fund’s undistributed net investment income and net short- and long-term capital gains, as well as the costs of any leverage obtained by a Fund. As portfolio and market conditions change, the rate of distributions on the common shares and a Fund’s dividend policy could change. There can be no assurance that a change in market conditions or other factors will not result in a change in a Fund distribution rate or that the rate will be sustainable in the future.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     5
    


Important Information About the Funds   (Cont.)  

 

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

 

Fund Name         Commencement
of Operations
    Diversification
Status
 

PIMCO Corporate & Income Opportunity Fund

      12/27/02       Diversified  

PIMCO Corporate & Income Strategy Fund

      12/21/01       Diversified  

PIMCO High Income Fund

      04/30/03       Diversified  

PIMCO Income Strategy Fund

      08/29/03       Diversified  

PIMCO Income Strategy Fund II

      10/29/04       Diversified  

 

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

 

The Trustees are responsible generally for overseeing the management of the Funds. The Trustees authorize the Funds to enter into service agreements with Pacific Investment Management Company LLC (“PIMCO”) and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Funds. Shareholders are not parties to or third-party beneficiaries of such service agreements. Neither a Fund’s prospectus or Statement of Additional Information (“SAI”), any press release or shareholder report, any contracts filed as exhibits to a Fund’s registration statement, nor any other communications, disclosure documents or regulatory filings (including this report) from or on behalf of a Fund creates a contract between or among any shareholders of a Fund, on the one hand, and the Fund, a service provider to the Fund, and/or the Trustees or officers of the Fund, on the other hand.

 

The Trustees (or the Funds and their officers, service providers or other delegates acting under authority of the Trustees) may amend its most recent or use a new prospectus or SAI with respect to a Fund, adopt and disclose new or amended policies and other changes in press releases and shareholder reports and/or amend, file and/or issue any other communications, disclosure documents or regulatory filings, and may amend or enter into any contracts to which a Fund is a party, and interpret the investment objective(s), policies, restrictions and contractual provisions applicable to any Fund, without shareholder input or approval, except in circumstances in which shareholder approval is specifically required by law (such as changes to fundamental investment policies) or where a shareholder approval requirement was specifically disclosed in a Fund’s then-current prospectus, SAI or shareholder report and is otherwise still in effect.

 

PIMCO has adopted written proxy voting policies and procedures (“Proxy Policy”) as required by Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended. The Proxy Policy has been adopted

by the Funds as the policies and procedures that PIMCO will use when voting proxies on behalf of the Funds. A description of the policies and procedures that PIMCO uses to vote proxies relating to portfolio securities of each Fund, and information about how each Fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30th, are available without charge, upon request, by calling the Funds at (844) 33-PIMCO, on the Funds’ website at www.pimco.com, and on the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.

 

The Funds file portfolio holdings information with the SEC on Form N-PORT within 60 days of the end of each fiscal quarter. The Funds’ complete schedules of securities holdings as of the end of each fiscal quarter will be made available to the public on the SEC’s website at www.sec.gov and on PIMCO’s website at www.pimco.com, and will be made available, upon request, by calling PIMCO at (844) 33-PIMCO.

 

The SEC adopted a rule that allows shareholder reports to be delivered to investors by providing access to such reports online free of charge and by mailing a notice that the report is electronically available. Pursuant to the rule, investors may elect to receive all reports in paper free of charge by contacting their financial intermediary or, if invested directly with a Fund, investors can inform the Fund by calling (844) 33-PIMCO. Any election to receive reports in paper will apply to all funds held with the fund complex if invested directly with a Fund or to all funds held in the investor’s account if invested through a financial intermediary, such as a broker-dealer or bank.

 

In April 2020, the SEC adopted amended rules modifying the registration, communications, and offering processes for registered closed-end funds and interval funds. Among other things, the amendments will: (1) permit qualifying closed-end funds to use a short-form registration statement to offer securities in eligible transactions and certain funds to qualify as Well Known Seasoned Issuers; (2) permit interval funds to pay registration fees based on net issuance of shares in a manner similar to mutual funds; (3) require closed-end funds and interval funds to include additional disclosures in their annual reports; and (4) require certain information to be filed in interactive data format. The new rules have phased compliance and effective dates, with some requirements requiring compliance starting August 1, 2020 and others requiring compliance as late as February 1, 2023.

 

In October 2020, the SEC adopted a rule related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies that rescinds and withdraws the guidance of the SEC and its staff regarding asset segregation and cover transactions. Subject to certain exceptions, and after an eighteen-month transition period, the rule requires funds to trade derivatives and other transactions that create future payment or

 

 

       
6   PIMCO CLOSED-END FUNDS            


        

 

delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to a value-at-risk leverage limit, certain derivatives risk management program and reporting requirements. These requirements may limit the ability of the Funds to use derivatives and reverse repurchase agreements and similar financing transactions as part of their investment strategies and may increase the cost of the Funds’ investments and cost of doing business, which could adversely affect investors.

 

In October 2020, the SEC adopted a rule regarding the ability of a fund to invest in other funds. The rule allows a fund to acquire shares of another fund in excess of certain limitations currently imposed by the Investment Company Act of 1940 (the “Act”) without obtaining individual exemptive relief from the SEC, subject to certain conditions. The rule also included the rescission of certain exemptive relief after a one-year transition period from the SEC and guidance from the SEC staff for funds to invest in other funds. The impact that these changes may have on the Funds is uncertain.

 

In December 2020, the SEC adopted a rule addressing fair valuation of fund investments. The new rule sets forth requirements for good faith determinations of fair value as well as for the performance of fair value determinations, including related oversight and reporting obligations. The new rule also defines “readily available market quotations” for purposes of the definition of “value” under the Act, and the SEC noted that this definition will apply in all contexts under the Act. The SEC adopted an eighteen-month transition period beginning from the effective date for both the new rule and the associated new recordkeeping requirements. The impact of the new rule on the Funds is uncertain at this time.

 

         ANNUAL REPORT     |     JULY 31, 2021     7
    


PIMCO Corporate & Income Opportunity Fund

 

Symbol on NYSE -  PTY

 

Cumulative Returns(1) Through July 31, 2021

 

LOGO

$10,000 invested at the end of the month when the Fund commenced operations.

Allocation Breakdown as of July 31, 2021§

 

Corporate Bonds & Notes

    50.5%  

Loan Participations and Assignments

    21.5%  

Asset-Backed Securities

    6.5%  

Non-Agency Mortgage-Backed Securities

    5.9%  

Preferred Securities

    3.3%  

Short-Term Instruments

    3.3%  

Sovereign Issues

    2.8%  

U.S. Government Agencies

    1.4%  

Municipal Bonds & Notes

    1.3%  

Common Stocks

    1.2%  

Real Estate Investment Trusts

    1.1%  

Other

    1.2%  
    

% of Investments, at value.

 

  § 

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

 

Average Annual Total Return(1) for the period ended July 31, 2021  
        1 Year     5 Year     10 Year     Commencement
of Operations
(12/27/02)
 
LOGO   Market Price     46.75%       18.25%       13.55%       14.65%  
LOGO   NAV     29.92%       14.06%       12.93%       13.86%  
LOGO   ICE BofAML US High Yield Index     10.74%       6.84%       6.41%       8.29% ¨ 

 

All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.

 

¨ Average annual total return since 12/31/2002.

 

It is not possible to invest directly in an unmanaged index.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

  

Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies.

 

(2) 

Distribution rates are not performance and are calculated by annualizing the most recent distribution per share and dividing by the NAV or market price, as applicable, as of the reported date. Distributions may be comprised of ordinary income, net capital gains, and/or a return of capital (‘‘ROC’’) of your investment in the Fund. Because the distribution rate may include a ROC, it should not be confused with yield or income. If the Fund estimates that a portion of its distribution may be comprised of amounts from sources other than net investment income in accordance with its policies and good accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. Please refer to the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Please visit www.pimco.com for most recent Section 19 Notice, if applicable. Final determination of a distribution’s tax character will be provided to shareholders when such information is available.

 

(3) 

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

 

Fund Information as of July 31, 2021(1)

 

Market Price

    $20.56  

NAV

    $14.40  

Premium/(Discount) to NAV

    42.78%  

Market Price Distribution Rate(2)

    7.59%  

NAV Distribution Rate(2)

    10.83%  

Total Effective Leverage(3)

    47.24%  

 

Investment Objective and Strategy Overview

 

PIMCO Corporate & Income Opportunity Fund’s investment objective is to seek maximum total return through a combination of current income and capital appreciation.

 

Fund Insights at NAV

 

The following affected performance (on a gross basis) during the reporting period:

 

»  

Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns.

 

»  

Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns.

 

»  

Exposure to mortgage credit contributed to absolute performance, as the sector posted positive returns.

 

»  

U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased.

 

       
8   PIMCO CLOSED-END FUNDS            


Market and Net Asset Value Information

 

The following table, presented in conformance with annual reporting requirements for funds that have filed a registration statement pursuant to General Instruction A.2 of Form N-2 (“Short Form N-2”), sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.

 

    Common share
market price(1)
    Common share
net asset value
    Premium (discount) as
a % of net asset value
 
Quarter   High     Low     High     Low     High     Low  
Quarter ended July 31, 2021   $   20.59     $   18.04     $   14.52     $   14.14       43.09%       27.58%  
Quarter ended April 30, 2021   $ 18.98     $ 17.78     $ 14.42     $ 14.04       32.63%       25.17%  
Quarter ended January 31, 2021   $ 18.05     $ 16.31     $ 14.22     $ 12.73       29.50%       25.71%  
Quarter ended October 31, 2020   $ 16.84     $ 15.35     $ 12.82     $ 12.43       31.36%       23.49%  
Quarter ended July 31, 2020   $ 16.36     $ 13.61     $ 12.42     $ 11.16       34.65%       21.74%  
Quarter ended April 30, 2020   $ 19.68     $ 10.44     $ 14.98     $ 10.58       32.23%       (8.98)%  
Quarter ended January 31, 2020   $ 19.61     $ 18.35     $ 14.80     $ 14.07       32.50%       28.70%  
Quarter ended October 31, 2019   $ 18.73     $ 17.02     $ 14.64     $ 14.04       31.36%       21.23%  
Quarter ended July 31, 2019   $ 18.91     $ 17.48     $ 14.71     $ 14.40       30.13%       21.22%  
Quarter ended April 30, 2019   $ 17.94     $ 16.40     $ 14.62     $ 14.17       23.79%       15.09%  
Quarter ended January 31, 2019   $ 17.43     $ 13.92     $ 14.60     $ 13.74       19.38%       0.80%  
Quarter ended October 31, 2018   $ 18.22     $ 16.33     $ 14.80     $ 14.47       24.28%       12.70%  

 

1  

Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

         ANNUAL REPORT     |     JULY 31, 2021     9
    


The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.

 

Summary of Fund Expenses

The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse repurchase agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 39.07% of the Fund’s total average managed assets (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.

 

Shareholder Transaction Expense

 

Sales load (as a percentage of offering price)(1)

      [    ]%  

Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2)

      [    ]%  

Dividend Reinvestment Plan Fees(3)

      None  

 

1  

In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission.

2 

The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price.

3 

You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan.

 

Annual Fund Operating Expenses

 

           Percentage of
Net Assets Attributable to
Common Shares  (reflecting
leverage attributable to
ARPS and reverse
repurchase agreements)
 

Management Fees(1)

       0.74%  

Dividend Cost on Preferred Shares(2)

       0.04%  

Interest Payments on Borrowed Funds(3)

       0.30%  

Other Expenses(4)

       0.01%  

Total Annual Fund Operating Expenses(5)

       1.09%  

 

1.  

Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.65% of the Fund’s average weekly total managed

  assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee.
2. 

Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 8.64% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 0.15% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates.

3. 

Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 30.44% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.56%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results.

4. 

Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021.

5. 

“Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 0.75%. Excluding only distributions on Preferred Shares of 0.03%, Total Annual Fund Operating Expenses are 1.06%.

 

Example

The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.09% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 39.07% of the Fund’s total managed assets) and (3) a 5% annual return(1):

 

          1 Year     3 Years     5 Years     10 Years  

Total Expenses Incurred

    $   11     $   35     $   60     $   133  

 

1)  

The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase.

 

 

       
10   PIMCO CLOSED-END FUNDS            


PIMCO Corporate & Income Strategy Fund

 

  Symbol on NYSE - PCN

 

Cumulative Returns(1) Through July 31, 2021

 

LOGO

$10,000 invested at the end of the month when the Fund commenced operations.

Allocation Breakdown as of July 31, 2021§

 

Corporate Bonds & Notes

    47.0%  

Loan Participations and Assignments

    16.6%  

Asset-Backed Securities

    8.1%  

Non-Agency Mortgage-Backed Securities

    6.6%  

Preferred Securities

    5.3%  

Short-Term Instruments

    4.7%  

Municipal Bonds & Notes

    3.0%  

Sovereign Issues

    2.8%  

Common Stocks

    1.6%  

Real Estate Investment Trusts

    1.5%  

U.S. Government Agencies

    1.4%  

Warrants

    1.1%  

Convertible Bonds & Notes

    0.3%  
    

% of Investments, at value.

 

  § 

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

 

Average Annual Total Return(1) for the period ended July 31, 2021  
        1 Year     5 Year     10 Year     Commencement
of Operations
(12/21/01)
 
LOGO   Market Price     34.41%       14.16%       12.11%       12.27%  
LOGO   NAV     25.69%       11.13%       11.10%       11.70%  
LOGO   ICE BofAML US High Yield Index     10.74%       6.84%       6.41%       7.75%¨  

 

All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.

 

¨ Average annual total return since 12/31/2001.

 

It is not possible to invest directly in an unmanaged index.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

    

Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies.

 

(2) 

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

 

(3) 

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

 

Fund Information as of July 31, 2021(1)

 

Market Price

    $18.93  

NAV

    $14.53  

Premium/(Discount) to NAV

    30.28%  

Market Price Distribution Rate(2)

    7.13%  

NAV Distribution Rate(2)

    9.29%  

Total Effective Leverage(3)

    42.89%  

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance (on a gross basis) during the reporting period:

 

»  

Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns.

 

»  

Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns.

 

»  

Exposure to mortgage credit contributed to absolute performance, as the sector posted positive returns.

 

»  

U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased.

 

         ANNUAL REPORT     |     JULY 31, 2021     11
    


Market and Net Asset Value Information              

 

The following table, presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2, sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.

 

    Common share
market price(1)
    Common share
net asset value
    Premium (discount) as
a % of net asset value
 
Quarter   High     Low     High     Low     High     Low  
Quarter ended July 31, 2021   $   18.99     $   17.24     $   14.56     $   14.27       30.99%       20.81%  
Quarter ended April 30, 2021   $ 18.03     $ 16.93     $ 14.53     $ 14.22       24.86%       18.64%  
Quarter ended January 31, 2021   $ 17.36     $ 15.68     $ 14.39     $ 13.02       23.42%       18.56%  
Quarter ended October 31, 2020   $ 16.37     $ 15.22     $ 13.10     $ 12.75       27.76%       16.99%  
Quarter ended July 31, 2020   $ 16.74     $ 14.25     $ 12.74     $ 11.57       33.92%       19.50%  
Quarter ended April 30, 2020   $ 20.20     $ 9.98     $ 15.04     $ 11.01       35.12%       (16.35)%  
Quarter ended January 31, 2020   $ 19.86     $ 18.58     $ 14.90     $ 14.40       35.33%       26.44%  
Quarter ended October 31, 2019   $ 19.10     $ 16.40     $ 14.95     $ 14.43       31.54%       13.49%  
Quarter ended July 31, 2019   $ 18.20     $ 16.91     $ 14.96     $ 14.47       23.81%       14.83%  
Quarter ended April 30, 2019   $ 17.29     $ 15.92     $ 14.63     $ 14.23       18.83%       11.41%  
Quarter ended January 31, 2019   $ 18.20     $ 13.83     $ 14.60     $ 13.88       24.74%       (0.65)%  
Quarter ended October 31, 2018   $ 18.90     $ 16.66     $ 14.88     $ 14.53       28.66%       14.34%  

 

1  

Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

       
12   PIMCO CLOSED-END FUNDS            


        

 

The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.

 

Summary of Fund Expenses

The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse repurchase agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 33.30% of the Fund’s total average managed assets (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.

 

Shareholder Transaction Expense

 

Sales load (as a percentage of offering price)(1)

      [    ]%  

Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2)

      [    ]%  

Dividend Reinvestment Plan Fees(3)

      None  

 

1  

In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission.

2 

The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price.

3 

You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan.

 

Annual Fund Operating Expenses

 

           Percentage of
Net Assets Attributable to
Common Shares  (reflecting
leverage attributable to
ARPS and reverse
repurchase agreements)
 

Management Fees(1)

       0.84%  

Dividend Cost on Preferred Shares(2)

       0.02%

Interest Payments on Borrowed Funds(3)

       0.28%  

Other Expenses(4)

       0.01%  

Total Annual Fund Operating Expenses(5)

       1.15%  

 

1.  

Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially

  an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.81% of the Fund’s average weekly total managed assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee.
2. 

Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 2.78% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 0.14% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates.

3. 

Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 30.52% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.56%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results.

4. 

Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021.

5. 

“Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 0.85%. Excluding only distributions on Preferred Shares, Total Annual Fund Operating Expenses are 1.15%.

 

Example

The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.15% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 33.30% of the Fund’s total managed assets) and (3) a 5% annual return(1):

 

          1 Year     3 Years     5 Years     10 Years  

Total Expenses Incurred

    $   12     $   37     $   63     $   140  

 

1) 

The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     13
    


PIMCO High Income Fund

 

  Symbol on NYSE - PHK

 

Cumulative Returns(1) Through July 31, 2021

 

LOGO

$10,000 invested at the end of the month when the Fund commenced operations.

Allocation Breakdown as of July 31, 2021§

 

Corporate Bonds & Notes

    46.1%  

Loan Participations and Assignments

    13.5%  

Preferred Securities

    9.4%  

Non-Agency Mortgage-Backed Securities

    7.1%  

Asset-Backed Securities

    6.1%  

Municipal Bonds & Notes

    5.9%  

Short-Term Instruments

    2.7%  

Sovereign Issues

    2.4%  

Real Estate Investment Trusts

    2.0%  

Common Stocks

    1.8%  

U.S. Government Agencies

    1.6%  

Warrants

    1.0%  

Convertible Bonds & Notes

    0.4%  
    

% of Investments, at value.

 

  § 

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

 

Average Annual Total Return(1) for the period ended July 31, 2021  
        1 Year     5 Year     10 Year     Commencement
of Operations
(04/30/03)
 
LOGO   Market Price     47.82%       4.34%       6.46%       9.15%  
LOGO   NAV     31.21%       12.06%       12.58%       11.54%  
LOGO   ICE BofAML US High Yield Index     10.74%       6.84%       6.41%       7.71%  

 

All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.

 

It is not possible to invest directly in an unmanaged index.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

    

Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies.

 

(2) 

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

 

(3) 

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

 

Fund Information as of July 31, 2021(1)

 

Market Price

    $6.95  

NAV

    $5.92  

Premium/(Discount) to NAV

    17.40%  

Market Price Distribution Rate(2)

    8.29%  

NAV Distribution Rate(2)

    9.73%  

Total Effective Leverage(3)

    41.31%  

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance (on a gross basis) during the reporting period:

 

»  

Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns.

 

»  

Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns.

 

»  

Exposure to structured credit contributed to absolute performance, as the sector posted positive returns.

 

»  

U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased.

 

       
14   PIMCO CLOSED-END FUNDS            


PIMCO Income Strategy Fund

 

  Symbol on NYSE - PFL

 

Cumulative Returns(1) Through July 31, 2021

 

LOGO

$10,000 invested at the end of the month when the Fund commenced operations.

Allocation Breakdown as of July 31, 2021§

 

Corporate Bonds & Notes

    55.9%  

Loan Participations and Assignments

    16.1%  

Asset-Backed Securities

    6.5%  

Preferred Securities

    4.5%  

Non-Agency Mortgage-Backed Securities

    4.0%  

Sovereign Issues

    2.9%  

Municipal Bonds & Notes

    2.3%  

Short-Term Instruments

    2.2%  

Common Stocks

    1.5%  

U.S. Government Agencies

    1.4%  

Real Estate Investment Trusts

    1.3%  

Warrants

    1.1%  

Convertible Bonds & Notes

    0.3%  
    

% of Investments, at value.

 

  § 

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

 

Average Annual Total Return(1) for the period ended July 31, 2021  
        1 Year     5 Year     10 Year     Commencement
of Operations
(08/29/03)
 
LOGO   Market Price     38.31%       14.32%       10.76%       8.02%  
LOGO   NAV     25.43%       10.93%       10.08%       7.48%  
LOGO   ICE BofAML US High Yield Index     10.74%       6.84%       6.41%       7.63%¨  

 

All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.

 

¨ Average annual total return since 8/31/2003.

 

It is not possible to invest directly in an unmanaged index.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

  

Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies.

 

(2) 

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

 

(3) 

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

 

Fund Information as of July 31, 2021(1)

 

Market Price

    $12.47  

NAV

    $10.66  

Premium/(Discount) to NAV

    16.98%  

Market Price Distribution Rate(2)

    8.66%  

NAV Distribution Rate(2)

    10.13%  

Total Effective Leverage(3)

    39.54%  

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance (on a gross basis) during the reporting period:

 

»  

Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns.

 

»  

Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns.

 

»  

Exposure to emerging market debt contributed to absolute performance, as the sector posted positive returns.

 

»  

U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased.

 

         ANNUAL REPORT     |     JULY 31, 2021     15
    


  Market and Net Asset Value Information       

 

The following table, presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2, sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.

 

    Common share
market price(1)
    Common share
net asset value
    Premium (discount) as
a % of net asset value
 
Quarter   High     Low     High     Low     High     Low  
Quarter ended July 31, 2021   $   12.94     $   11.88     $   10.72     $   10.51       21.58%       13.04%  
Quarter ended April 30, 2021   $ 12.14     $ 11.55     $ 10.78     $ 10.49       14.46%       8.65%  
Quarter ended January 31, 2021   $ 11.57     $ 10.10     $ 10.66     $ 9.63       9.36%       4.62%  
Quarter ended October 31, 2020   $ 10.50     $ 9.99     $ 9.74     $ 9.45       8.36%       3.31%  
Quarter ended July 31, 2020   $ 10.33     $ 8.44     $ 9.44     $ 8.53       10.96%       (1.06)%  
Quarter ended April 30, 2020   $ 12.37     $ 6.33     $ 11.08     $ 7.96       12.15%       (25.88)%  
Quarter ended January 31, 2020   $ 12.05     $ 11.54     $ 10.97     $ 10.51       10.93%       7.94%  
Quarter ended October 31, 2019   $ 12.06     $ 11.09     $ 11.01     $ 10.57       11.64%       4.72%  
Quarter ended July 31, 2019   $ 12.03     $ 11.58     $ 11.03     $ 10.75       9.97%       7.26%  
Quarter ended April 30, 2019   $ 11.60     $ 11.31     $ 10.90     $ 10.59       8.35%       5.64%  
Quarter ended January 31, 2019   $ 11.38     $ 10.23     $ 10.84     $ 10.34       7.39%       (1.45)%  
Quarter ended October 31, 2018   $ 12.24     $ 10.95     $ 11.12     $ 10.79       10.74%       0.92%  

 

1  

Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

       
16   PIMCO CLOSED-END FUNDS            


        

 

The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.

 

Summary of Fund Expenses

The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 34.59% of the Fund’s total average managed assets repurchase (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.

 

Shareholder Transaction Expense

 

Sales load (as a percentage of offering price)(1)

      [    ]%  

Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2)

      [    ]%  

Dividend Reinvestment Plan Fees(3)

      None  

 

1  

In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission.

2 

The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price.

3 

You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan.

 

Annual Fund Operating Expenses

 

           Percentage of
Net Assets Attributable to
Common Shares  (reflecting
leverage attributable to
ARPS and reverse
repurchase agreements)
 

Management Fees(1)

       1.31%  

Dividend Cost on Preferred Shares(2)

       0.24%

Interest Payments on Borrowed Funds(3)

       0.26%  

Other Expenses(4)

       0.02%  

Total Annual Fund Operating Expenses(5)

       1.83%  

 

1.  

Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially

  an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.86% of the Fund’s average weekly total managed assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee.
2. 

Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 8.67% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 1.60% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates.

3. 

Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 25.92% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.63%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results.

4. 

Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021.

5. 

“Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 1.33%. Excluding only distributions on Preferred Shares of 0.21%, Total Annual Fund Operating Expenses are 1.62%.

 

Example

The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.83% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 34.59% of the Fund’s total managed assets) and (3) a 5% annual return(1):

 

          1 Year     3 Years     5 Years     10 Years  

Total Expenses Incurred

    $   19     $   58     $   99     $   215  

 

1)  

The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     17
    


PIMCO Income Strategy Fund II

 

  Symbol on NYSE - PFN

 

Cumulative Returns(1) Through July 31, 2021

 

LOGO

$10,000 invested at the end of the month when the Fund commenced operations.

Allocation Breakdown as of July 31, 2021§

 

Corporate Bonds & Notes

    52.1%  

Loan Participations and Assignments

    15.4%  

Non-Agency Mortgage-Backed Securities

    7.4%  

Asset-Backed Securities

    6.2%  

Preferred Securities

    5.0%  

Short-Term Instruments

    3.2%  

Sovereign Issues

    2.5%  

Municipal Bonds & Notes

    2.5%  

Common Stocks

    1.5%  

Real Estate Investment Trusts

    1.4%  

U.S. Government Agencies

    1.3%  

Warrants

    1.2%  

Convertible Bonds & Notes

    0.3%  
    

% of Investments, at value.

 

  § 

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

 

Average Annual Total Return(1) for the period ended July 31, 2021  
        1 Year     5 Year     10 Year     Commencement
of Operations
(10/29/04)
 
LOGO   Market Price     37.03%       14.13%       11.70%       7.35%  
LOGO   NAV     22.82%       10.70%       10.24%       6.68%  
LOGO   ICE BofAML US High Yield Index     10.74%       6.84%       6.41%       7.14%¨  

 

All Fund returns are net of fees and expenses and include applicable fee waivers and/or expense limitations. Absent any applicable fee waivers and/or expense limitations, performance would have been lower and there can be no assurance that any such waivers or limitations will continue in the future.

 

¨ Average annual total return since 10/31/2004.

 

It is not possible to invest directly in an unmanaged index.

 

(1) 

Performance quoted represents past performance. Past performance is not a guarantee or a reliable indicator of future results. Current performance may be lower or higher than performance shown. Investment return and the principal value of an investment will fluctuate. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the sale of Fund shares. Total return, market price, NAV, market price distribution rate, and NAV distribution rate will fluctuate with changes in market conditions. The NAV presented may differ from the NAV reported for the same period in other Fund materials. Performance current to the most recent month-end is available at www.pimco.com or via (844) 33-PIMCO. Performance is calculated assuming all dividends and distributions are reinvested at prices obtained under the Fund’s dividend reinvestment plan. Performance does not reflect any brokerage commissions in connection with the purchase or sale of Fund shares.

 

  

Performance of an index is shown in light of a requirement by the Securities and Exchange Commission that the performance of an appropriate broad-based securities market index be disclosed. However, the Fund is not managed to an index nor should the index be viewed as a “benchmark” for the Fund’s performance. The index is not intended to be indicative of the Fund’s investment strategies, portfolio components or past or future performance. Please see Additional Information Regarding the Funds for a description of the Fund’s principal investment strategies.

 

(2) 

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

 

(3) 

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

 

Fund Information as of July 31, 2021(1)

 

Market Price

    $11.01  

NAV

    $9.41  

Premium/(Discount) to NAV

    17.00%  

Market Price Distribution Rate(2)

    8.72%  

NAV Distribution Rate(2)

    10.20%  

Total Effective Leverage(3)

    37.87%  

 

Investment Objective and Strategy Overview

 

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

 

Fund Insights at NAV

 

The following affected performance (on a gross basis) during the reporting period:

 

»  

Exposure to corporate credit contributed to absolute performance, as the sector posted positive returns.

 

»  

Exposure to corporate special situation investments, which include companies undergoing stress, distress, challenges or significant transition, contributed to absolute performance as the positions posted positive returns.

 

»  

Exposure to mortgage credit contributed to absolute performance, as the sector posted positive returns.

 

»  

U.S. duration positioning in the intermediate to long end of the yield curve detracted from performance, as rates increased.

 

       
18   PIMCO CLOSED-END FUNDS            


  Market and Net Asset Value Information       

 

The following table, presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2, sets forth, for each of the periods indicated, the high and low closing market prices of the Fund’s Common Shares on the NYSE, the high and low NAV per Common Share and the high and low premium/discount to NAV per Common Share. See Note 3, Investment Valuation and Fair Value Measurements in the Notes to Financial Statements for information as to how the Fund’s NAV is determined.

 

    Common share
market price(1)
    Common share
net asset value
    Premium (discount) as
a % of net asset value
 
Quarter   High     Low     High     Low     High     Low  
Quarter ended July 31, 2021   $   11.21     $   10.20     $ 9.48     $   9.28       19.64%       9.80%  
Quarter ended April 30, 2021   $ 10.47     $ 10.05     $ 9.55     $ 9.28       11.38%       6.57%  
Quarter ended January 31, 2021   $ 10.13     $ 9.06     $ 9.46     $ 8.62       8.47%       4.39%  
Quarter ended October 31, 2020   $ 9.38     $ 8.95     $ 8.74     $ 8.52       8.44%       3.68%  
Quarter ended July 31, 2020   $ 9.20     $ 7.54     $ 8.51     $ 7.72       9.52%       (2.33)%  
Quarter ended April 30, 2020   $ 10.90     $ 5.87     $ 9.94     $ 7.23       9.99%       (24.36)%  
Quarter ended January 31, 2020   $ 10.80     $ 10.42     $ 9.87     $ 9.46       12.12%       7.67%  
Quarter ended October 31, 2019   $ 10.78     $ 9.98     $ 9.91     $ 9.52       11.05%       4.61%  
Quarter ended July 31, 2019   $ 10.75     $ 10.28     $ 9.96     $ 9.68       8.63%       5.76%  
Quarter ended April 30, 2019   $ 10.52     $ 10.11     $ 9.82     $ 9.55       8.02%       5.42%  
Quarter ended January 31, 2019   $ 10.36     $ 9.00     $ 9.83     $ 9.29       5.39%       (3.54)%  
Quarter ended October 31, 2018   $ 10.86     $ 9.83     $   10.04     $ 9.79       9.15%       0.00%  

 

1  

Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

         ANNUAL REPORT     |     JULY 31, 2021     19
    


             

 

The following information is presented in conformance with annual reporting requirements for funds that have filed a Short Form N-2.

 

Summary of Fund Expenses

The following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in Common Shares of the Fund would bear, directly or indirectly, as a result of an offering. The table reflects the use of leverage attributable to the Fund’s outstanding Preferred Shares and reverse repurchase agreements averaged over the fiscal year ended July 31, 2021 in an amount equal to 33.46% of the Fund’s total average managed assets (including assets attributable to such leverage), and shows Fund expenses as a percentage of net assets attributable to Common Shares. The percentage above does not reflect the Fund’s use of other forms of economic leverage, such as credit default swaps or other derivative instruments. The table and example below are based on the Fund’s capital structure as of July 31, 2021. The extent of the Fund’s assets attributable to leverage following an offering, and the Fund’s associated expenses, are likely to vary (perhaps significantly) from these assumptions.

 

Shareholder Transaction Expense

 

Sales load (as a percentage of offering price)(1)

      [    ]%  

Offering Expenses Borne by Common Shareholders (as a percentage of offering price)(2)

      [    ]%  

Dividend Reinvestment Plan Fees(3)

      None  

 

1  

In the event that the Common Shares to which this relates are sold to or through underwriters or dealer managers, a corresponding supplement will disclose the applicable sale load and/or commission.

2 

The related supplement will disclose the estimated amount of offering expense, the offering price and the offering expenses borne by the Fund and indirectly by all of its Common Shareholders as a percentage of the offering price.

3 

You will pay broker chargers if you direct your broker or the plan agent to sell your Common Shares that you acquired pursuant to a dividend reinvestment plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open market purchase pursuant to the Fund’s Dividend Reinvestment Plan.

 

Annual Fund Operating Expenses

 

           Percentage of
Net Assets Attributable to
Common Shares  (reflecting
leverage attributable to
ARPS and reverse
repurchase agreements)
 

Management Fees(1)

       1.25%  

Dividend Cost on Preferred Shares(2)

       0.23%  

Interest Payments on Borrowed Funds(3)

       0.24%  

Other Expenses(4)

       0.02%  

Total Annual Fund Operating Expenses(5)

       1.74%  

 

1.  

Management fees include fees payable to the Investment Manager for advisory services and for supervisory, administrative and other services. The Fund pays for the advisory, supervisory and administrative services it requires under what is essentially

  an all-in fee structure. Pursuant to an investment management agreement, PIMCO is paid a Management Fee of 0.83% of the Fund’s average weekly total managed assets. The Fund (and not PIMCO) will be responsible for certain fees and expenses which are, reflected in the table above, that are not covered by the management fee under the investment management agreement. Please see Note 9, Fees and Expenses in the Notes to Financial Statements for an explanation of the management fee.
2. 

Reflects the Fund’s outstanding Preferred Shares averaged over the fiscal year ended July 31, 2021, which represented 8.53% of the Fund’s total average managed assets (including the liquidation preference of outstanding Preferred Shares and assets attributable to reverse repurchase agreements), at an estimated annual dividend rate to the Fund of 1.60% (based on the weighted average Preferred Share dividend rate during the fiscal year ended July 31, 2021) and assumes the Fund will continue to pay Preferred Share dividends at the “maximum applicable rate” called for under the Fund’s Bylaws due to the ongoing failure of auctions for the ARPS. The actual dividend rate paid on the ARPS will vary over time in accordance with variations in market interest rates.

3. 

Reflects the Fund’s use of leverage in the form of reverse repurchase agreements averaged over the fiscal year ended July 31, 2021, which represented 24.93% of the Fund’s total average managed assets (including assets attributable to reverse repurchase agreements), at an annual interest rate cost to the Fund of 0.60%, which is the weighted average interest rate cost during the fiscal year ended July 31, 2021. The actual amount of interest expense borne by the Fund will vary over time in accordance with the level of the Fund’s use of reverse repurchase agreements, dollar rolls and/or borrowings and variations in market interest rates. Borrowing expense is required to be treated as an expense of the Fund for accounting purposes. Any associated income or gains (or losses) realized from leverage obtained through such instruments is not reflected in the Annual Fund Operating Expenses table above, but would be reflected in the Fund’s performance results.

4. 

Other expenses are estimated for the Fund’s current fiscal year ending July 31, 2021.

5. 

“Dividend Cost on Preferred Shares”, including distributions on Preferred Shares, and “Interest Payments on Borrowed Funds” are borne by the Fund separately from management fees paid to PIMCO. Excluding these expenses, Total Annual Fund Operating Expenses are 1.27%. Excluding only distributions on Preferred Shares of 0.20%, Total Annual Fund Operating Expenses are 1.54%.

 

Example

The following example illustrates the expenses that you would pay on a $1,000 investment in Common Shares of the Fund, assuming (1) that the Fund’s net assets do not increase or decrease, (2) that the Fund incurs total annual expenses of 1.74% of net assets attributable to Common Shares in years 1 through 10 (assuming assets attributable to Preferred Shares and reverse repurchase agreements representing 33.46% of the Fund’s total managed assets) and (3) a 5% annual return(1):

 

          1 Year     3 Years     5 Years     10 Years  

Total Expenses Incurred

    $   18     $   55     $   94     $   205  

 

1)  

The example above should not be considered a representation of future expenses. Actual expenses may be higher or lower than those shown. The example assumes that the estimated Interest Payments on Borrowed Funds, Dividend Cost on Preferred Shares and Other Expenses set forth in the Annual Fund Operating Expenses table are accurate, that the rate listed under Total Annual Fund Operating Expenses remains the same each year and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example. The example does not include commissions or estimated offering expenses, which would cause the expenses shown in the example to increase.

 

 

       
20   PIMCO CLOSED-END FUNDS            


Index Descriptions              

 

Index*    Description
ICE BofAML US High Yield Index    ICE BofAML U.S. High Yield Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. Qualifying bonds must have at least one year remaining term to maturity, a fixed coupon schedule and a minimum amount outstanding of USD 100 million. Bonds must be rated below investment grade based on a composite of Moody’s and S&P.

 

* It is not possible to invest directly in an unmanaged index.

 

         ANNUAL REPORT     |     JULY 31, 2021     21
    


Financial Highlights              

 

          Investment Operations     Less Distributions to ARPS(c)           Less Distributions to Common Shareholders(d)  
                                                             
Selected Per Share Data for the Year Ended^:   Net Asset
Value
Beginning
of Year(a)
    Net
Investment
Income
(Loss)(b)
    Net
Realized/
Unrealized
Gain (Loss)
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Net Increase
(Decrease)
in Net Assets
Applicable
to Common
Shareholders
Resulting
from
Operations
    From Net
Investment
Income
    From Net
Realized
Capital
Gains
    Tax Basis
Return of
Capital
    Total  

PIMCO Corporate & Income Opportunity Fund

                   

07/31/2021

  $ 12.44     $ 1.32     $ 1.78     $ (0.00   $ 0.00     $ 3.10     $ (1.22   $ 0.00     $ (0.34   $ (1.56

07/31/2020

    14.66       1.36       (2.41     (0.05     0.00       (1.10     (1.59     0.00       0.00       (1.59

07/31/2019

    14.80 (h)      1.36       0.09       (0.13     0.00       1.32       (1.63     0.00       0.00       (1.63

07/31/2018

    14.87       1.30       0.16       (0.09     0.00       1.37       (1.56     0.00       0.00       (1.56

07/31/2017

    13.27       1.21       2.06       (0.04     0.00       3.23       (1.59     0.00       (0.14     (1.73

PIMCO Corporate & Income Strategy Fund

                   

07/31/2021

  $ 12.76     $ 1.24     $ 1.77     $ (0.00   $ 0.00     $ 3.01     $ (1.35   $ 0.00     $ 0.00     $ (1.35

07/31/2020

    14.94       1.31       (2.07     (0.01     0.00       (0.77     (1.41     0.00       0.00       (1.41

07/31/2019

    14.90 (h)      1.22       0.20       (0.05     0.00       1.37       (1.43     0.00       0.00       (1.43

07/31/2018

    15.32       1.20       (0.24     (0.03     0.00       0.93       (1.35     0.00       0.00       (1.35

07/31/2017

    14.28       1.12       1.70       (0.01     0.00       2.81       (1.75     0.00       (0.02     (1.77

PIMCO High Income Fund

                   

07/31/2021

  $ 5.01     $ 0.56     $ 0.93     $ (0.00   $ 0.00     $ 1.49     $ (0.44   $ 0.00     $ (0.14   $ (0.58

07/31/2020

    6.38       0.65       (1.30     (0.01     0.00       (0.66     (0.68     0.00       (0.03     (0.71

07/31/2019

    6.54 (h)      0.61       0.11       (0.03     0.00       0.69       (0.73     0.00       (0.16     (0.89

07/31/2018

    6.90       0.62       0.01       (0.02     0.00       0.61       (0.84     0.00       (0.13     (0.97

07/31/2017

    6.63       0.67       0.71       (0.01     0.00       1.37       (0.91     0.00       (0.19     (1.10

PIMCO Income Strategy Fund

                   

07/31/2021

  $ 9.46     $ 0.91     $ 1.32     $ (0.02   $ 0.00     $ 2.21     $ (0.84   $ 0.00     $ (0.24   $ (1.08

07/31/2020

    11.00       1.01       (1.52     (0.04     0.00       (0.55     (0.97     0.00       (0.11     (1.08

07/31/2019

    11.14 (h)      0.90       0.02       (0.07     0.00       0.85       (0.99     0.00       (0.09     (1.08

07/31/2018

    11.60       0.87       (0.19     (0.06     0.00       0.62       (1.07     0.00       (0.01     (1.08

07/31/2017

    10.53       0.88       1.31       (0.04     0.00       2.15       (1.08     0.00       0.00       (1.08

PIMCO Income Strategy Fund II

                   

07/31/2021

  $ 8.53     $   0.78     $ 1.05     $   (0.02   $   0.00     $ 1.81     $ (0.75   $   0.00     $ (0.21   $ (0.96

07/31/2020

    9.91       0.86         (1.32     (0.03     0.00         (0.49       (0.90     0.00         (0.06       (0.96

07/31/2019

      10.07 (h)      0.83       0.04       (0.05     0.00       0.82       (1.03     0.00       0.00       (1.03

07/31/2018

    10.33       0.79       (0.05     (0.04     0.00       0.70       (0.96     0.00       0.00       (0.96

07/31/2017

    9.42       0.80       1.10       (0.03     0.00       1.87       (0.96     0.00       0.00       (0.96

 

       
22   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


          

 

                  Common Share     Ratios/Supplemental Data  
                              Ratios to Average Net Assets(f)        
Increase
Resulting from
Common Share
Offering
    Offering Cost
Charged to
Paid in Capital
    Increase
Resulting from
Tender of
ARPS(c)
    Net Asset
Value End of
Year(a)
    Market Price
End of Year
    Total
Investment
Return(e)
    Net Assets
Applicable
to Common
Shareholders
(000s)
    Expenses(g)     Expenses
Excluding
Waivers(g)
    Expenses
Excluding
Interest
Expense
   

Expenses
Excluding
Interest
Expense
and
Waivers

    Net
Investment
Income (Loss)
    Portfolio
Turnover
Rate
 
 

    

    

 

 

                       
$   0.42     $ 0.00     $   0.00     $ 14.40     $ 20.56       46.75   $   1,643,538       1.06     1.06     0.76     0.76     9.60     58
  0.47       (0.00     0.00         12.44         15.34       (8.77     1,248,837       1.30       1.30       0.82       0.82       10.20       34  
  0.15       0.00       0.02       14.66       18.60       14.48       1,291,233       1.35       1.35       0.80       0.80       9.44       22  
  0.12       0.00       0.00       14.80 (h)      17.95       16.78       1,219,515       1.26       1.26       0.81       0.81       8.73       19  
  0.10       0.00       0.00       14.87       16.92       29.18       1,140,768       1.08       1.08       0.83       0.83       8.68       39  
                       
$ 0.12     $   (0.00   $ 0.00     $ 14.54     $ 18.93       34.41   $ 605,830       1.15     1.15     0.87     0.87     8.95     48
  N/A       N/A       0.00       12.76       15.29       (7.72     509,488       1.57       1.57       0.87       0.87       9.57       31  
  N/A       N/A       0.10       14.94       18.08       9.20       591,931       1.60       1.60       0.94       0.94       8.39       18  
  N/A       N/A       0.00       14.90 (h)      18.09       9.61       586,592       1.36       1.36       0.94       0.94       7.97       20  
  N/A       N/A       0.00       15.32       17.92       30.63       599,266       1.17       1.17       0.93       0.93       7.65       38  
                       
$ N/A     $ N/A     $ 0.00     $ 5.92     $ 6.95       47.82   $ 792,773       1.14     1.14     0.86     0.86     9.96     60
  N/A       N/A       0.00       5.01       5.18       (27.55     664,144       1.73       1.73       0.86       0.86       11.42       40  
  N/A       N/A       0.04       6.38       8.03       3.57       835,988       1.86       1.86       0.91       0.91       9.74       20  
  N/A       N/A       0.00       6.54 (h)      8.67       13.13       847,052       1.48       1.48       0.90       0.90       9.30       27  
  N/A       N/A       0.00       6.90       8.71       (1.45     884,912       1.25       1.25       0.90       0.90       10.08       32  
                       
$ 0.07     $ 0.00     $ 0.00     $ 10.66     $ 12.47       38.31   $ 365,580       1.62     1.62     1.36     1.36     8.81     42
  0.09       (0.00     0.00       9.46       9.95       (7.65     295,167       1.69       1.69       1.21       1.21       10.03       21  
  0.06       0.00       0.03       11.00       11.99       8.10       305,453       1.69       1.69       1.18       1.18       8.39       17  
  N/A       N/A       0.00       11.14 (h)      12.23       10.37       284,677       1.48       1.48       1.17       1.17       7.67       21  
  N/A       N/A       0.00       11.60       12.17       28.11       294,525       1.35       1.35       1.17       1.17       8.01       40  
                       
$ 0.04     $ 0.00     $ 0.00     $ 9.42     $ 11.01       37.03   $ 723,617       1.54     1.54     1.29     1.29     8.58     38
  0.07       (0.00     0.00       8.53       8.88       (7.75     605,851       1.62       1.62       1.15       1.15       9.49       21  
  0.04       0.00       0.01       9.91       10.70       11.03       632,927       1.66       1.66       1.12       1.12       8.57       17  
  N/A       N/A       0.00       10.07 (h)      10.70       9.19       600,890       1.41       1.41       1.10       1.10       7.79       18  
  N/A       N/A       0.00       10.33       10.76       26.32       612,310       1.26       1.26       1.09       1.09       8.15       26  

 

         ANNUAL REPORT     |     JULY 31, 2021     23
    


Financial Highlights   (Cont.)  

 

Ratios/Supplemental Data      
    ARPS  
Selected Per Share Data for the Year or Period Ended^:   Total Amount
Outstanding
    Asset Coverage per
Preferred Share(1)
    Involuntary
Liquidating
Preference per
Preferred Share(2)
    Average
Market Value
per ARPS(3)
 

PIMCO Corporate & Income Opportunity Fund

       
7/31/2021   $   212,650,000     $   218,218     $   25,000       N/A  
7/31/2020     212,650,000       171,815       25,000       N/A  
7/31/2019     212,650,000       176,730       25,000       N/A  
7/31/2018     237,950,000       153,072       25,000       N/A  
7/31/2017     237,950,000       144,819       25,000       N/A  
7/31/2016+     237,950,000       124,468       25,000       N/A  
12/1/2014 - 7/31/2015+     237,950,000       130,743       25,000       N/A  
11/30/2014+     325,000,000       108,229       25,000       N/A  
11/30/2013+     325,000,000       113,443       25,000       N/A  
11/30/2012+     325,000,000       117,697       25,000       N/A  
11/30/2011+     325,000,000       99,399       25,000       N/A  

PIMCO Corporate & Income Strategy Fund

       
7/31/2021   $ 23,525,000     $ 668,805     $ 25,000       N/A  
7/31/2020     23,525,000       566,423       25,000       N/A  
7/31/2019     23,525,000       653,838       25,000       N/A  
7/31/2018     55,525,000       289,023       25,000       N/A  
7/31/2017     55,525,000       294,755       25,000       N/A  
7/31/2016+     55,525,000       274,223       25,000       N/A  
11/1/2014 - 7/31/2015+     169,000,000       109,336       25,000       N/A  
10/31/2014+     169,000,000       113,753       25,000       N/A  
10/31/2013+     169,000,000       115,565       25,000       N/A  
10/31/2012+     169,000,000       114,270       25,000       N/A  
10/31/2011+     169,000,000       101,188       25,000       N/A  

PIMCO High Income Fund

       
7/31/2021   $ 58,050,000     $ 366,413     $ 25,000       N/A  
7/31/2020     58,050,000       311,018       25,000       N/A  
7/31/2019     58,050,000       384,900       25,000       N/A  
7/31/2018     101,975,000       232,587       25,000       N/A  
7/31/2017     101,975,000       241,894       25,000       N/A  

PIMCO Income Strategy Fund

       
7/31/2021   $ 45,200,000     $ 227,165     $ 25,000       N/A  
7/31/2020     45,200,000       188,225       25,000       N/A  
7/31/2019     45,200,000       193,873       25,000       N/A  
7/31/2018     51,275,000       163,725       25,000       N/A  
7/31/2017     51,275,000       168,552       25,000       N/A  
7/31/2016+     51,275,000       154,837       25,000       N/A  
7/31/2015+     51,275,000       166,328       25,000       N/A  
7/31/2014+     78,975,000       122,004       25,000       N/A  
7/31/2013+     78,975,000       118,058       25,000       N/A  
7/31/2012+     78,975,000       114,654       25,000       N/A  

PIMCO Income Strategy Fund II

       
7/31/2021   $ 87,425,000     $ 231,880     $ 25,000       N/A  
7/31/2020     87,425,000       198,210       25,000       N/A  
7/31/2019     87,425,000       205,928       25,000       N/A  
7/31/2018     92,450,000       187,429       25,000       N/A  
7/31/2017     92,450,000       190,527       25,000       N/A  
7/31/2016+     92,450,000       175,544       25,000       N/A  
7/31/2015+     92,450,000       189,105       25,000       N/A  
7/31/2014+       161,000,000         124,695         25,000       N/A  
7/31/2013+     161,000,000       119,060       25,000       N/A  
7/31/2012+     161,000,000       117,792       25,000       N/A  

 

       
24   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


        

 

^

A zero balance may reflect actual amounts rounding to less than $0.01 or 0.01%.

+

Unaudited. Information is presented in conformance with annual reporting requirements for funds that have filed a registration statement pursuant to General Instruction A.2 of Form N-2 (“Short Form N-2”).

(a) 

Includes adjustments required by U.S. GAAP and may differ from net asset values and performance reported elsewhere by the Funds.

(b) 

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

(c) 

Auction-Rate Preferred Shareholders (“ARPS”) asset coverage per share is disclosed as the product of the asset coverage ratio as of period end and the current liquidation preference. See Note 14, Auction-Rate Preferred Shares, in the Notes to Financial Statements for more information.

(d) 

The tax characterization of distributions is determined in accordance with Federal income tax regulations. See Note 2, Distributions — Common Shares, in the Notes to Financial Statements for more information.

(e) 

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

(f) 

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

(g) 

Ratio includes interest expense which primarily relates to participation in borrowing and financing transactions. See Note 5, Borrowings and Other Financing Transactions, in the Notes to Financial Statements for more information.

(h) 

The NAV presented may differ from the NAV reported for the same period in other Fund materials.

1 

“Asset Coverage per Preferred Share” means the ratio that the value of the total assets of the Fund, less all liabilities and indebtedness not represented by ARPS, bears to the aggregate of the involuntary liquidation preference of ARPS, expressed as a dollar amount per ARPS.

2 

“Involuntary Liquidating Preference” means the amount to which a holder of ARPS would be entitled upon the involuntary liquidation of the Fund in preference to the Common Shareholders, expressed as a dollar amount per Preferred Share.

3 

The ARPS have no readily ascertainable market value. Auctions for the ARPS have failed since February 2008, there is currently no active trading market for the ARPS and the Fund is not able to reliably estimate what their value would be in a third-party market sale. The liquidation value of the ARPS represents its liquidation preference, which approximates fair value of the shares less any accumulated unpaid dividends. See Note 14, Auction-Rate Preferred Shares, in the notes to Financial Statements for more information.

 

         ANNUAL REPORT     |     JULY 31, 2021     25
    


Statements of Assets and Liabilities          July 31, 2021

 

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

Assets:

         

Investments, at value

                                       

Investments in securities*

  $ 2,953,946     $ 1,048,700     $ 1,304,543     $ 583,700     $ 1,142,727  

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    3,726       1,951       5,404       1,036       2,272  

Over the counter

    4,195       861       975       759       1,455  

Cash

    469       296       82       138       0  

Deposits with counterparty

    50,581       18,556       32,349       11,682       23,688  

Foreign currency, at value

    6,094       1,265       2,353       565       1,437  

Receivable for investments sold

    60,189       23,897       24,695       31,079       18,576  

Receivable for TBA investments sold

    0       0       103       0       0  

Receivable for Fund shares sold

    0       424       0       0       0  

Interest and/or dividends receivable

    26,758       9,160       13,396       5,417       10,410  

Other assets

    656       509       10       491       341  

Total Assets

    3,106,614       1,105,619       1,383,910       634,867       1,200,906  

Liabilities:

         

Borrowings & Other Financing Transactions

                                       

Payable for reverse repurchase agreements

  $ 1,012,822     $ 415,972     $ 479,064     $ 181,435     $ 326,550  

Financial Derivative Instruments

                                       

Exchange-traded or centrally cleared

    4,691       1,863       5,412       1,019       2,109  

Over the counter

    8,121       533       546       460       835  

Payable for investments purchased

    161,739       44,906       31,598       29,228       42,064  

Payable for unfunded loan commitments

    34,957       4,169       4,616       6,174       5,939  

Payable for TBA investments purchased

    0       0       206       0       0  

Deposits from counterparty

    10,718       3,119       3,943       1,899       4,691  

Distributions payable to common shareholders

    14,834       4,675       6,428       3,086       6,149  

Distributions payable to auction rate preferred shareholders

    4       1       1       8       19  

Overdraft due to custodian

    0       0       0       0       62  

Accrued management fees

    1,056       444       565       428       817  

Accrued taxes payable

    1,301       468       624       312       572  

Other liabilities

    183       114       84       38       57  

Total Liabilities

    1,250,426       476,264       533,087       224,087       389,864  

Auction Rate Preferred Shares^

    212,650       23,525       58,050       45,200       87,425  

Net Assets Applicable to Common Shareholders

  $ 1,643,538     $ 605,830     $ 792,773     $ 365,580     $ 723,617  

Net Assets Applicable to Common Shareholders Consist of:

         

Par value^^

  $ 1     $ 0     $ 1     $ 0     $ 1  

Paid in capital in excess of par

    1,714,584       622,932       975,860       377,950       764,031  

Distributable earnings (accumulated loss)

    (71,047     (17,102     (183,088     (12,370     (40,415

Net Assets Applicable to Common Shareholders

  $ 1,643,538     $ 605,830     $ 792,773     $ 365,580     $ 723,617  

Net Asset Value Per Common Share(a)

  $ 14.40     $ 14.54     $ 5.92     $ 10.66     $ 9.42  

Common Shares Outstanding

    114,110       41,677       133,904       34,281       76,856  

Auction Rate Preferred Shares Issued and Outstanding

    9       1       2       2       3  

Cost of investments in securities

  $   2,865,514     $   1,006,586     $   1,267,830     $   561,552     $   1,096,700  

Cost of foreign currency held

  $ 6,285     $ 1,327     $ 2,409     $ 598     $ 1,505  

Cost or premiums of financial derivative instruments, net

  $ (1,777   $ 4,450     $ 119,760     $ 4,569     $ 9,416  

* Includes repurchase agreements of:

  $ 61,990     $ 30,423     $ 1,905     $ 1,546     $ 18,368  

 

  

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

^ 

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

^^ 

($0.00001 per share)

(a) 

Includes adjustments required by U.S. GAAP and may differ from net asset values and performance reported elsewhere by the Funds.

 

       
26   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


Statements of Operations              

 

Year Ended July 31, 2021                              
(Amounts in thousands)   PIMCO
Corporate &
Income
Opportunity
Fund
    PIMCO
Corporate &
Income
Strategy
Fund
    PIMCO High
Income Fund
    PIMCO Income
Strategy
Fund
    PIMCO Income
Strategy
Fund II
 

Investment Income:

         

Interest, net of foreign taxes*

  $   158,270     $ 55,829     $ 79,807     $ 34,933     $ 67,568  

Dividends, net of foreign taxes**

    1,439       1,147       3,329       561       1,190  

Total Income

    159,709       56,976       83,136       35,494       68,758  

Expenses:

         

Management fees

    11,105       4,754       6,132       4,485       8,503  

Trustee fees and related expenses

    219       75       102       50       101  

Interest expense

    4,563       1,570       2,105       894       1,666  

Auction agent fees and commissions

    202       67       103       60       110  

Auction rate preferred shares related expenses

    22       44       53       46       42  

Miscellaneous expense

    4       7       39       3       7  

Total Expenses

    16,115       6,517       8,534       5,538       10,429  

Net Investment Income (Loss)

    143,594       50,459       74,602       29,956       58,329  

Net Realized Gain (Loss):

         

Investments in securities

    (47,962     (29,654     (36,543       (13,018     (30,366

Exchange-traded or centrally cleared financial derivative instruments

    19,429       11,179       20,784       5,656       13,123  

Over the counter financial derivative instruments

    511       (5,382     (9,605     (3,777     (7,589

Foreign currency

    (2,590     (1,153     (938     (894     (1,677

Net Realized Gain (Loss)

    (30,612     (25,010     (26,302     (12,033     (26,509

Net Change in Unrealized Appreciation (Depreciation):

         

Investments in securities

    214,649       96,365       154,862       55,133       102,772  

Exchange-traded or centrally cleared financial derivative instruments

    (12,348     (5,277     (11,693     (3,286     (6,932

Over the counter financial derivative instruments

    13,104       3,975       4,539       3,038       6,038  

Foreign currency assets and liabilities

    2,407       241       1,668       299       564  

Net Change in Unrealized Appreciation (Depreciation)

    217,812       95,304       149,376       55,184       102,442  

Net Increase (Decrease) in Net Assets Resulting from Operations

  $ 330,794     $ 120,753     $ 197,676     $ 73,107     $ 134,262  

Distributions on Auction Rate Preferred Shares from Net Investment Income and/or Realized Capital Gains

  $ (318   $ (27   $ (69   $ (718   $ (1,388

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

  $ 330,476     $   120,726     $   198,198     $ 72,389     $   132,874  

* Foreign tax withholdings - Interest

  $ 71     $ 26     $ 34     $ 18     $ 33  

** Foreign tax withholdings - Dividends

  $ 41     $ 17     $ 19     $ 10     $ 61  

 

  

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

 

         ANNUAL REPORT     |     JULY 31, 2021     27
    


Statements of Changes in Net Assets              

 

    PIMCO
Corporate & Income Opportunity Fund
    PIMCO
Corporate & Income Strategy Fund
 
(Amounts in thousands)   Year Ended
July 31, 2021
    Year Ended
July 31, 2020
    Year Ended
July 31, 2021
    Year Ended
July 31, 2020
 

Increase (Decrease) in Net Assets from:

       

Operations:

       

Net investment income (loss)

  $ 143,594     $ 128,584     $ 50,459     $ 52,161  

Net realized gain (loss)

    (30,612     (192,954     (25,010     (72,741

Net change in unrealized appreciation (depreciation)

    217,812       (37,562     95,304       (10,212

Net Increase (Decrease) in Net Assets Resulting from Operations

    330,794       (101,932     120,753       (30,792

Distributions on auction rate preferred shares from net investment income and/or realized capital gains

    (318     (4,901     (27     (408

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

    330,476       (106,833     120,726       (31,200

Distributions to Common Shareholders:

       

From net investment income and/or net realized capital gains

    (133,020     (149,985     (54,756     (56,092

Tax basis return of capital

    (36,889     0       0       0  

Total Distributions to Common Shareholders(a)

    (169,909     (149,985     (54,756     (56,092

Common Share Transactions*:

       

Net proceeds from at-the-market offering

    213,794       198,642       25,618       0  

Net at-the-market offering costs

    88       (93     (46     0  

Issued as reinvestment of distributions

    20,252       15,873       4,800       4,849  

Total increase (decrease) resulting from common share transactions

    234,134       214,422       30,372       4,849  

Total increase (decrease) in net assets applicable to common shareholders

    394,701       (42,396     96,342       (82,443

Net Assets Applicable to Common Shareholders:

       

Beginning of year

    1,248,837       1,291,233       509,488       591,931  

End of year

  $   1,643,538     $   1,248,837     $   605,830     $   509,488  

* Common Share Transactions:

       

Shares sold

    12,480       11,310       1,454       0  

Shares issued as reinvestment of distributions

    1,205       1,006       297       297  

Net increase (decrease) in common shares outstanding

    13,685       12,316       1,751       297  

 

 

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

(a) 

The tax characterization of distributions is determined in accordance with Federal income tax regulations. See Note 2, Distributions — Common Shares, in the Notes to Financial Statements for more information.

 

       
28   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


        

 

PIMCO
High Income Fund
    PIMCO
Income Strategy Fund
    PIMCO
Income Strategy Fund II
 
Year Ended
July 31, 2021
    Year Ended
July 31, 2020
    Year Ended
July 31, 2021
    Year Ended
July 31, 2020
    Year Ended
July 31, 2021
    Year Ended
July 31, 2020
 
         
         
$ 74,602     $ 85,274     $ 29,956     $ 29,940     $ 58,329     $ 58,663  
  (26,302     (216,826     (12,033     (40,842     (26,509       (100,069
  149,376       44,622       55,184       (4,691     102,442       8,859  
  197,676       (86,930     73,107       (15,593     134,262       (32,547

 

(69

    (1,072     (718     (1,126     (1,388     (2,180
  197,607       (88,002     72,389       (16,719     132,874       (34,727
         
  (57,461     (89,285     (27,617     (28,689     (55,505     (61,121
  (19,329     (4,178     (8,099     (3,398     (15,939     (4,395
  (76,790     (93,463     (35,716     (32,087     (71,444     (65,516
         
  0       0       30,494       35,959       48,744       67,156  
  0       0       60       (39     63       (125
  7,812       9,621       3,186       2,600       7,529       6,136  
  7,812       9,621       33,740       38,520       56,336       73,167  
  129,220         (171,844     70,413       (10,286     117,766       (27,076
         
  664,144       835,988       295,167       305,453       605,851       632,927  
$   792,773     $ 664,144     $   365,580     $   295,167     $   723,617     $ 605,851  
         
  0       0       2,766       3,197       4,997       6,557  
  1,349       1,534       297       250       800       655  
  1,349       1,534       3,063       3,447       5,797       7,212  

 

         ANNUAL REPORT     |     JULY 31, 2021     29
    


Statements of Cash Flows              

 

Year Ended July 31, 2021                              
(Amounts in thousands)   PIMCO
Corporate &
Income
Opportunity
Fund
    PIMCO
Corporate &
Income
Strategy
Fund
    PIMCO High
Income
Fund
    PIMCO Income
Strategy
Fund
    PIMCO Income
Strategy
Fund II
 

Cash Flows Provided by (Used for) Operating Activities:

         

Net increase (decrease) in net assets resulting from operations

  $ 330,794     $ 120,753     $ 197,676     $ 73,107     $ 134,262  

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

         

Purchases of long-term securities

    (2,406,758     (697,761     (960,924     (350,355     (632,208

Proceeds from sales of long-term securities

    1,629,310       480,584       723,648       247,407       456,982  

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

    (18,186     (28,428     18,163       3,927       (10,648

(Increase) decrease in deposits with counterparty

    (22,530     (8,761     (6,880     (5,752     (10,655

(Increase) decrease in receivable for investments sold

    (26,262     966       77,054       (25,263     10,491  

(Increase) decrease in interest and/or dividends receivable

    (8,367     (1,949     (2,886     (1,270     (2,068

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

    8,511       6,099       9,991       2,492       6,372  

Proceeds from (Payments on) over the counter financial derivative instruments

    (3,602     (5,355     (9,559     (3,710     (7,460

(Increase) decrease in other assets

    (260     (375     (2     (299     (142

Increase (decrease) in payable for investments purchased

    52,819       (15,797     (95,824     9,430       (14,940

Increase (decrease) in payable for unfunded loan commitments

    32,211       722       1,166       5,291       4,105  

Increase (decrease) in deposits from counterparty

    1,611       (3,182     (923     470       (257

Increase (decrease) in accrued management fees

    215       61       76       114       202  

Proceeds from (Payments on) foreign currency transactions

    (2,073     (1,147     (903     (724     (1,306

Increase (decrease) in other liabilities

    80       (2     5       (35     (51

Net Realized (Gain) Loss

                                       

Investments in securities

    47,962       29,654       36,543       13,018       30,366  

Exchange-traded or centrally cleared financial derivative instruments

    (19,429     (11,179     (20,784     (5,656     (13,123

Over the counter financial derivative instruments

    (511     5,382       9,605       3,777       7,589  

Foreign currency

    2,590       1,153       938       894       1,677  

Net Change in Unrealized (Appreciation) Depreciation

                                       

Investments in securities

    (214,649     (96,365     (154,862     (55,133     (102,772

Exchange-traded or centrally cleared financial derivative instruments

    12,348       5,277       11,693       3,286       6,932  

Over the counter financial derivative instruments

    (13,104     (3,975     (4,539     (3,038     (6,038

Foreign currency assets and liabilities

    (2,407     (241     (1,668     (299     (564

Net amortization (accretion) on investments

    (10,869     (4,363     (5,031     (2,199     (5,036

Net Cash Provided by (Used for) Operating Activities

    (630,556     (228,229     (178,227     (90,520     (148,290

Cash Flows Received from (Used for) Financing Activities:

         

Net proceeds from at-the-market offering

    213,794       25,194       0       30,563       48,744  

Net at-the-market offering cost

    88       (46     0       60       63  

Increase (decrease) in overdraft due to custodian

    (397     0       (299     (20     (106

Cash distributions paid to common shareholders*

    (147,813     (49,773     (68,913     (32,247     (63,445

Cash distributions paid to auction rate preferred shareholders

    (319     (26     (69     (718     (1,388

Proceeds from reverse repurchase agreements

    4,460,867       1,572,810       1,795,724       754,396       1,429,772  

Payments on reverse repurchase agreements

      (3,892,988       (1,320,373       (1,548,909       (661,725       (1,265,920

Net Cash Received from (Used for) Financing Activities

    633,232       227,786       177,534       90,309       147,720  

Net Increase (Decrease) in Cash and Foreign Currency

    2,676       (443     (693     (211     (570

Cash and Foreign Currency:

         

Beginning of year

    3,887       2,004       3,128       914       2,007  

End of year

  $ 6,563     $ 1,561     $ 2,435     $ 703     $ 1,437  

* Reinvestment of distributions to common shareholders

  $ 20,252     $ 4,800     $ 7,812     $ 3,186     $ 7,529  

Supplemental Disclosure of Cash Flow Information:

         

Interest expense paid during the year

  $ 4,428     $ 1,550     $ 2,095     $ 895     $ 1,629  

Non Cash Payment in Kind

  $ 2,421     $ 1,203     $ 2,802     $ 769     $ 1,689  

 

 

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

A Statement of Cash Flows is presented when a Fund has a significant amount of borrowing during the year, based on the average total borrowing outstanding in relation to total assets or when substantially all of a Fund’s investments are not classified as Level 1 or 2 in the fair value hierarchy.

 

       
30   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


Schedule of Investments   PIMCO Corporate & Income Opportunity Fund          July 31, 2021

 

(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 179.7%

 

LOAN PARTICIPATIONS AND ASSIGNMENTS 38.6%

 

AAdvantage Loyalty IP Ltd.

 

5.500% (LIBOR03M + 4.750%) due 04/20/2028 ~

  $     4,103     $     4,221  

Alphabet Holding Co., Inc.

 

3.592% (LIBOR03M + 3.500%) due 09/26/2024 ~

      96         96  

AT Home Group, Inc.

 

TBD% due 06/24/2028

      2,800         2,801  

Atlantic Aviation FBO, Inc.

 

TBD% due 07/13/2028

      3,400         3,381  

Avantor, Inc.

 

2.500% (LIBOR03M +2.000%) due 11/21/2024 «~

      20         20  

Axalta Coating Systems U.S. Holdings, Inc.

 

1.897% (LIBOR03M + 1.750%) due 06/01/2024 ~

      321         317  

Banijay Entertainment S.A.S

 

3.851% (LIBOR03M + 3.750%) due 03/01/2025 ~

      32         32  

Bausch Health Cos., Inc.

 

2.842% (LIBOR03M + 2.750%) due 11/27/2025 ~

      113         112  

3.092% (LIBOR03M + 3.000%) due 06/02/2025 ~

      309         307  

Birkenstock GmbH & Co. KG

 

TBD% due 04/27/2028

  EUR     3,000         3,549  

BWAY Holding Co.

 

3.342% (LIBOR03M + 3.250%) due 04/03/2024 ~

  $     3,022         2,930  

Caesars Resort Collection LLC

 

2.842% (LIBOR03M + 2.750%) due 12/23/2024 ~

      29,325         29,022  

4.592% (LIBOR03M + 4.500%) due 07/21/2025 ~

      4,770         4,779  

Carnival Corp.

 

TBD% (LIBOR03M + 3.000%) due 06/30/2025 ~

      1,485         1,477  

3.750% (EUR003M + 3.750%) due 06/30/2025 ~

  EUR     5,793         6,887  

Cengage Learning, Inc.

 

TBD% due 06/29/2026

  $     12,808           12,815  

CenturyLink, Inc.

 

2.342% (LIBOR03M + 2.250%) due 03/15/2027 ~

      502         495  

Cerba Healthcare S.A.S

 

TBD% due 05/24/2028

  EUR     8,800         10,438  

Cimpress PLC

 

4.000% (LIBOR03M + 3.500%) due 05/17/2028 ~

  $     4,400         4,397  

CityCenter Holdings LLC

 

3.000% (LIBOR03M + 2.250%) due 04/18/2024 ~

      5,486         5,476  

Clear Channel Outdoor Holdings, Inc.

 

3.607% - 3.629% (LIBOR03M + 3.500%) due 08/21/2026 ~

      4,082         3,971  

CommScope, Inc.

 

3.342% (LIBOR03M + 3.250%) due 04/06/2026 ~

      197         195  

Cornerstone Building Brands, Inc.

 

3.750% (LIBOR03M + 3.250%) due 04/12/2028 ~

      284         284  

Coty, Inc.

 

1.750% (EUR003M + 1.750%) due 04/05/2023 ~

  EUR     3,074         3,626  

2.352% (LIBOR03M + 2.250%) due 04/07/2025 ~

  $     3,187         3,065  

2.500% (EUR003M + 2.500%) due 04/07/2025 ~

  EUR     4,681         5,400  

Dei Sales, Inc.

 

6.250% (LIBOR03M + 5.500%) due 04/23/2028 «~

  $     16,200         16,078  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Diamond Resorts Corp.

 

4.750% - 6.000% (PRIME + 2.750%) due 09/02/2023 ~

  $     12,055     $       12,056  

DirectTV Financing LLC

 

TBD% due 07/22/2027

      4,000         3,998  

Emerald TopCo, Inc.

 

3.592% - 3.629% (LIBOR03M + 3.500%) due 07/24/2026 ~

      229         227  

Encina Private Credit LLC

 

TBD% - 4.096% (LIBOR03M + 3.096%) due 11/30/2025 «~µ

      32,000         32,000  

Endure Digital, Inc.

 

4.250% (LIBOR03M + 3.500%) due 02/10/2028 ~

      12,000         11,856  

Envision Healthcare Corp.

 

3.842% (LIBOR03M + 3.750%) due 10/10/2025 ~

      50,368         43,214  

First Student Bidco, Inc.

 

TBD% due 07/21/2028

      14,732         14,641  

Fly Funding SARL

 

7.000% (LIBOR03M + 6.000%) due 10/08/2025 ~

      11,069         11,152  

Forbes Energy Services LLC

 

TBD% due 12/31/2021 «

      1,147         0  

Forest City Enterprises LP

 

3.592% (LIBOR03M + 3.500%) due 12/08/2025 ~

      5,447         5,356  

Frontier Communications Corp.

 

4.500% (LIBOR03M + 3.750%) due 05/01/2028 ~

      15,522         15,542  

Gainwell Acquisition Corp.

 

4.750% (LIBOR03M + 4.000%) due 10/01/2027 ~

      6,053         6,057  

GreenSky Holdings LLC

 

3.375% (LIBOR03M + 3.250%) due 03/31/2025 ~

      8,777         8,624  

iHeartCommunications, Inc.

 

3.092% (LIBOR03M + 3.000%) due 05/01/2026 ~

      4,313         4,257  

INEOS Finance PLC

 

2.500% (EUR003M + 2.000%) due 04/01/2024 ~

  EUR     12,222         14,437  

Intelsat Jackson Holdings S.A.

 

3.600% - 6.500% (LIBOR03M + 5.500%) due 07/13/2022 ~

  $     752         759  

8.000% (PRIME + 4.750%) due 11/27/2023 ~

      3,180         3,230  

8.750% (PRIME + 5.500%) due 01/02/2024 ~

      100         102  

IRB Holding Corp.

 

2.964% - 3.750% (LIBOR03M + 2.750%) due 02/05/2025 ~

      1,837         1,829  

Jazz Financing LUX SARL

 

3.500% (EUR003M + 3.500%) due 05/05/2028 ~

  EUR     3,400         4,037  

4.000% (LIBOR03M + 3.500%) due 05/05/2028 ~

  $     12,100         12,128  

LBM Acquisition LLC

 

TBD% due 12/17/2027

      1,965         1,942  

4.500% (LIBOR03M + 3.750%) due 12/17/2027 ~

      3,930         3,884  

Lealand Finance Company B.V.

 

3.092% (LIBOR03M + 3.000%) due 06/30/2024 «~

      189         123  

Lealand Finance Company B.V. (1.092% Cash and 3.000% PIK)

 

4.092% (LIBOR03M + 1.000%) due 06/30/2025 ~(d)

      2,027         911  

Madison IAQ LLC

 

3.750% (LIBOR03M + 3.250%) due 06/21/2028 ~

      6,400         6,355  

MH Sub LLC

 

3.592% (LIBOR03M + 3.500%) due 09/13/2024 ~

      23,152         23,019  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Nascar Holdings, Inc.

 

2.842% (LIBOR03M + 2.750%) due 10/19/2026 ~

  $     122     $     121  

Parexel International Corp.

 

2.842% (LIBOR03M + 2.750%) due 09/27/2024 ~

      25,943           25,891  

PetSmart, Inc.

 

4.500% (LIBOR03M + 3.750%) due 02/12/2028 ~

      5,100         5,104  

PUG LLC

 

TBD% due 02/12/2027 «

      5,400         5,370  

3.592% (LIBOR03M + 3.500%) due 02/12/2027 ~

      8,773         8,597  

RE/MAX International, Inc.

 

3.000% (LIBOR03M + 2.500%) due 07/21/2028 «~

      3,100         3,096  

Redstone Buyer LLC

 

TBD% due 04/27/2028 µ

      2,067         2,061  

5.500% (LIBOR03M + 4.750%) due 04/27/2028 ~

      5,281         5,266  

RegionalCare Hospital Partners Holdings, Inc.

 

3.842% (LIBOR03M + 3.750%) due 11/16/2025 ~

      87         86  

Rising Tide Holdings, Inc.

 

5.500% (LIBOR03M + 4.750%) due 06/01/2028 ~

      5,200         5,214  

Sasol Ltd.

 

0.500% - 1.746% (LIBOR03M + 1.600%) due 11/23/2022 «~µ

      10,520         9,989  

Scientific Games International, Inc.

 

2.842% (LIBOR03M + 2.750%) due 08/14/2024 ~

      17,471         17,225  

Sequa Mezzanine Holdings LLC

 

7.750% (LIBOR03M + 6.750%) due 11/28/2023 ~

      2,235         2,268  

11.750% (LIBOR03M + 10.750%) due 04/28/2024 ~

      5,598         5,535  

Sigma Bidco BV

 

3.500% (EUR003M + 3.500%) due 07/02/2025 ~

  EUR     7,000         8,052  

Sitel Worldwide Corp.

 

TBD% due 07/27/2028

      6,500         7,715  

TBD% due 07/27/2028

  $     4,000         3,995  

SkyMiles IP Ltd.

 

4.750% (LIBOR03M + 3.750%) due 10/20/2027 ~

      11,100         11,740  

Sotera Health Holdings LLC

 

3.250% (LIBOR03M + 2.750%) due 12/11/2026 ~

      309         308  

Stars Group Holdings BV

 

2.397% - 3.647% (LIBOR03M + 2.250%) due 07/21/2026 ~

      4,300         4,285  

Summer (BC) Holdco SARL

 

TBD% due 12/04/2026

      6,600         6,603  

Surgery Center Holdings, Inc.

 

4.500% (LIBOR03M + 3.750%) due 08/31/2026 ~

      3,392         3,395  

Syniverse Holdings, Inc.

 

6.000% (LIBOR03M + 5.000%) due 03/09/2023 ~

      30,184         29,877  

10.000% (LIBOR03M + 9.000%) due 03/11/2024 ~

      2,242         2,222  

Team Health Holdings, Inc.

 

3.750% (LIBOR03M + 2.750%) due 02/06/2024 ~

      17,897         17,345  

TransDigm, Inc.

 

2.342% (LIBOR03M + 2.250%) due 08/22/2024 ~

      11,653         11,487  

2.342% (LIBOR03M + 2.250%) due 05/30/2025 ~

      4,120         4,051  

2.342% (LIBOR03M + 2.250%) due 12/09/2025 ~

      1,127         1,109  

U.S. Renal Care, Inc.

 

5.125% (LIBOR03M + 5.000%) due 06/26/2026 ~

      4,989         5,003  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     31
    


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

 

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

6.500% (LIBOR03M + 5.500%) due 06/26/2026 ~

  $     16,200     $     16,281  

Uber Technologies, Inc.

 

3.592% (LIBOR03M + 3.500%) due 04/04/2025 ~

      4,987         4,976  

3.592% (LIBOR03M + 3.500%) due 02/16/2027 ~

      7,761         7,740  

Veritas Holdings, Inc

 

6.000% (LIBOR03M + 5.000%) due 09/01/2025 ~

      8,254         8,335  

Viad Corp.

 

TBD% due 07/27/2028 «

      4,500         4,455  

Victoria’s Secret & Co.

 

TBD% due 06/30/2028

      5,100         5,081  

Westmoreland Coal Company (15.000% PIK)

 

15.000% due 03/15/2029 «(d)

      3,682         792  

Westmoreland Mining Holdings LLC

 

9.250% (LIBOR03M + 8.250%) due 03/15/2022 «~

      222         214  

Whatabrands LLC

 

2.839% (LIBOR03M + 2.750%) due 07/31/2026 ~

      43         43  

Windstream Services LLC

 

7.250% (LIBOR03M + 6.250%) due 09/21/2027 ~

      5,883         5,912  
       

 

 

 

Total Loan Participations and Assignments (Cost $634,185)

      634,746  
 

 

 

 
CORPORATE BONDS & NOTES 90.7%

 

BANKING & FINANCE 22.2%

 

Acrisure LLC

 

6.000% due 08/01/2029 (c)

      3,300         3,288  

Allied Universal Holdco LLC

 

3.625% due 06/01/2028 (n)

  EUR     5,000         5,910  

Ally Financial, Inc.

 

8.000% due 11/01/2031 (n)

  $     5,957         8,590  

American Assets Trust LP

 

3.375% due 02/01/2031 (n)

      2,200         2,315  

American Homes 4 Rent LP

 

2.375% due 07/15/2031

      200         203  

3.375% due 07/15/2051

      100         104  

Banca Monte dei Paschi di Siena SpA

 

2.625% due 04/28/2025

  EUR     19,170         23,492  

3.625% due 09/24/2024

      9,609         12,042  

Banco de Credito del Peru

 

4.650% due 09/17/2024

  PEN     1,600         395  

Bank of Ireland Group PLC

 

6.000% due 09/01/2025 •(j)(k)(n)

  EUR     4,542         6,003  

Bank of Nova Scotia

 

4.900% due 06/04/2025 •(j)(k)(n)

  $     4,456         4,896  

Barclays PLC

 

5.875% due 09/15/2024 •(j)(k)

  GBP     3,800         5,659  

7.125% due 06/15/2025 •(j)(k)

      2,200         3,490  

7.750% due 09/15/2023 •(j)(k)

  $     2,000         2,197  

7.875% due 03/15/2022 •(j)(k)

      200         208  

7.875% due 09/15/2022 •(j)(k)

  GBP     5,025         7,470  

8.000% due 06/15/2024 •(j)(k)

  $     1,000         1,134  

BGC Partners, Inc.

 

4.375% due 12/15/2025 (n)

      5,300         5,773  

5.375% due 07/24/2023 (n)

      490         530  

Cosaint Re Pte Ltd.

 

9.288% (T-BILL 1MO + 9.250%) due 04/03/2028 ~

      1,900         1,936  

Credit Agricole S.A.

 

7.875% due 01/23/2024 •(j)(k)

      400         452  

Credit Suisse Group AG

 

3.091% due 05/14/2032 •(n)

      2,250         2,354  

3.869% due 01/12/2029 •(n)

      300         334  

4.194% due 04/01/2031 •(n)

      1,550         1,769  

5.250% due 02/11/2027 •(j)(k)

      600         631  

6.250% due 12/18/2024 •(j)(k)

      300         328  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

6.375% due 08/21/2026 •(j)(k)(n)

  $     1,300     $     1,445  

7.250% due 09/12/2025 •(j)(k)

      200         226  

7.500% due 07/17/2023 •(j)(k)

      1,300         1,411  

7.500% due 12/11/2023 •(j)(k)(n)

      2,336         2,584  

7.500% due 12/11/2023 •(j)(k)

      1,500         1,660  

Deutsche Bank AG

 

3.035% due 05/28/2032 •(l)(n)

      3,400         3,522  

3.547% due 09/18/2031 •(n)

      4,000         4,329  

Doric Nimrod Air Alpha Pass-Through Trust

 

5.250% due 05/30/2025

      49         49  

Doric Nimrod Air Finance Alpha Ltd. Pass-Through Trust

 

5.125% due 11/30/2024

      43         43  

Erste Group Bank AG

 

4.250% due 10/15/2027 •(j)(k)(n)

  EUR     1,600         2,042  

Essential Properties LP

 

2.950% due 07/15/2031 (n)

  $     500         507  

Fairfax Financial Holdings Ltd.

 

4.625% due 04/29/2030 (n)

      10,800           12,558  

4.850% due 04/17/2028 (n)

      100         117  

Ford Motor Credit Co. LLC

 

1.355% due 02/07/2025

  EUR     100         120  

2.330% due 11/25/2025

      200         249  

2.386% due 02/17/2026

      400         500  

2.748% due 06/14/2024 (n)

  GBP     3,500         4,964  

3.250% due 09/15/2025

  EUR     510         658  

4.535% due 03/06/2025 (n)

  GBP     1,000         1,502  

5.125% due 06/16/2025 (n)

  $     900         992  

Fortress Transportation & Infrastructure Investors LLC

 

6.500% due 10/01/2025 (n)

      785         814  

GSPA Monetization Trust

 

6.422% due 10/09/2029

      5,588         6,070  

Hampton Roads PPV LLC

 

6.171% due 06/15/2053 (n)

      1,800         2,143  

Host Hotels & Resorts LP

 

3.375% due 12/15/2029

      100         106  

Howard Hughes Corp.

 

4.125% due 02/01/2029 (n)

      700         695  

4.375% due 02/01/2031 (n)

      400         399  

HSBC Holdings PLC

 

4.750% due 07/04/2029 •(j)(k)

  EUR     9,600         12,868  

5.875% due 09/28/2026 •(j)(k)(n)

  GBP     600         936  

6.000% due 09/29/2023 •(j)(k)(n)

  EUR     2,330         3,027  

6.000% due 05/22/2027 •(j)(k)

  $     600         665  

6.500% due 03/23/2028 •(j)(k)

      400         457  

Hudson Pacific Properties LP

 

3.250% due 01/15/2030 (n)

      1,000         1,085  

ING Groep NV

 

4.875% due 05/16/2029 •(j)(k)

      6,100         6,416  

5.750% due 11/16/2026 •(j)(k)

      700         774  

Intesa Sanpaolo SpA

 

7.750% due 01/11/2027 •(j)(k)(n)

  EUR     2,400         3,530  

Kennedy Wilson Europe Real Estate Ltd.

 

3.950% due 06/30/2022

  GBP     5,767         8,174  

Ladder Capital Finance Holdings LLLP

 

4.750% due 06/15/2029 (n)

  $     2,400         2,394  

Lloyds Banking Group PLC

 

7.500% due 09/27/2025 •(j)(k)

      700         815  

7.625% due 06/27/2023 •(j)(k)

  GBP     4,610         7,006  

7.875% due 06/27/2029 •(j)(k)

      5,721         10,213  

LPL Holdings, Inc.

 

4.000% due 03/15/2029 (n)

  $     7,376         7,496  

MGM Growth Properties Operating Partnership LP

 

3.875% due 02/15/2029 (n)

      3,300         3,389  

4.500% due 09/01/2026 (n)

      300         320  

4.500% due 01/15/2028 (n)

      3,050         3,243  

4.625% due 06/15/2025 (n)

      8,425         8,977  

5.625% due 05/01/2024 (n)

      600         650  

5.750% due 02/01/2027

      500         560  

MPT Operating Partnership LP

 

3.375% due 04/24/2030

  GBP     2,100         3,052  

3.500% due 03/15/2031 (n)

  $     3,200         3,288  

National Health Investors, Inc.

 

3.000% due 02/01/2031 (n)

      800         800  

Natwest Group PLC

 

6.000% due 12/29/2025 •(j)(k)

      4,900         5,457  

8.000% due 08/10/2025 •(j)(k)(n)

      15,325         18,144  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Navient Corp.

 

5.625% due 08/01/2033

  $     74     $     72  

6.125% due 03/25/2024 (n)

      289         314  

7.250% due 09/25/2023

      77         85  

Newmark Group, Inc.

 

6.125% due 11/15/2023

      128         139  

Owl Rock Capital Corp.

 

2.625% due 01/15/2027 (n)

      3,800         3,849  

PennyMac Financial Services, Inc.

 

4.250% due 02/15/2029 (n)

      700         679  

PRA Group, Inc.

 

7.375% due 09/01/2025 (n)

      4,420         4,779  

Santander UK Group Holdings PLC

 

6.750% due 06/24/2024 •(j)(k)(n)

  GBP     9,405           14,593  

7.375% due 06/24/2022 •(j)(k)

      1,640         2,404  

Sberbank of Russia Via SB Capital S.A.

 

6.125% due 02/07/2022

  $     500         514  

Sitka Holdings LLC

 

5.250% due 07/06/2026 •

      971         977  

Societe Generale S.A.

 

4.750% due 05/26/2026 •(j)(k)(n)

      2,000         2,070  

6.750% due 04/06/2028 •(j)(k)

      400         455  

7.375% due 09/13/2021 •(j)(k)

      200         201  

7.375% due 10/04/2023 •(j)(k)(n)

      1,300         1,416  

Standard Chartered PLC

 

4.750% due 01/14/2031 •(j)(k)

      3,400         3,487  

7.500% due 04/02/2022 •(j)(k)

      200         208  

Tesco Property Finance PLC

 

5.661% due 10/13/2041

  GBP     508         963  

5.744% due 04/13/2040

      397         750  

5.801% due 10/13/2040

      1,637         3,093  

6.052% due 10/13/2039

      1,160         2,178  

UBS Group AG

 

5.125% due 07/29/2026 •(j)(k)

  $     200         219  

UniCredit SpA

 

7.830% due 12/04/2023 (n)

      8,660         10,007  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     4,024         6,289  

Uniti Group LP

 

7.125% due 12/15/2024 (n)

  $     2,588         2,665  

7.875% due 02/15/2025 (n)

      30,470         32,497  

Voyager Aviation Holdings LLC

 

8.500% due 05/09/2026

      6,156         5,664  
       

 

 

 
            365,511  
       

 

 

 
INDUSTRIALS 60.8%

 

AA Bond Co. Ltd.

 

4.875% due 07/31/2043

  GBP     500         744  

5.500% due 07/31/2050

      10,000         15,764  

Air Canada

 

3.875% due 08/15/2026 (c)

  $     600         602  

4.625% due 08/15/2029 «(c)

  CAD     2,500         1,999  

Air Canada Pass-Through Trust

 

5.250% due 10/01/2030 (n)

  $     1,499         1,632  

Alaska Airlines Pass-Through Trust

 

4.800% due 02/15/2029 (n)

      10,570         11,764  

American Airlines Pass-Through Trust

 

3.350% due 04/15/2031 (n)

      1,256         1,299  

3.700% due 04/01/2028

      651         664  

American Airlines, Inc.

 

5.500% due 04/20/2026

      2,600         2,724  

Associated Materials LLC

 

9.000% due 09/01/2025

      1,077         1,144  

B.C. Unlimited Liability Co.

 

3.500% due 02/15/2029 (n)

      4,300         4,283  

Baptist Healthcare System Obligated Group

 

3.540% due 08/15/2050 (n)

      1,500         1,690  

Bausch Health Cos., Inc.

 

4.875% due 06/01/2028 (n)

      3,700         3,822  
 

 

       
32   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

Bioceanico Sovereign Certificate Ltd.

 

0.000% due 06/05/2034 (h)

  $     146     $     110  

Boeing Co.

 

3.250% due 02/01/2035

      100         104  

3.600% due 05/01/2034 (n)

      300         322  

5.150% due 05/01/2030 (n)

      1,342         1,600  

5.705% due 05/01/2040 (n)

      1,723         2,243  

5.805% due 05/01/2050 (n)

      1,470         2,008  

5.930% due 05/01/2060 (n)

      1,992         2,761  

6.125% due 02/15/2033 (n)

      3,988         5,148  

Bombardier, Inc.

 

6.000% due 10/15/2022 (n)

      5,500         5,528  

6.125% due 01/15/2023

      1,000         1,053  

7.125% due 06/15/2026

      4,799         4,997  

7.500% due 12/01/2024 (n)

      9,527         9,920  

7.500% due 03/15/2025 (n)

      17,337           17,696  

7.875% due 04/15/2027

      2,107         2,184  

Bon Secours Mercy Health, Inc.

 

3.205% due 06/01/2050 (n)

      700         750  

British Airways Pass-Through Trust

 

3.300% due 06/15/2034 (n)

      193         199  

3.800% due 03/20/2033 (n)

      250         264  

Broadcom, Inc.

 

2.450% due 02/15/2031 (n)

      5,000         4,987  

3.419% due 04/15/2033 (n)

      2,800         2,991  

3.469% due 04/15/2034 (n)

      12,900         13,751  

4.150% due 11/15/2030 (n)

      2,780         3,155  

4.300% due 11/15/2032 (n)

      5,661         6,547  

5.000% due 04/15/2030

      2,092         2,501  

Builders FirstSource, Inc.

 

4.250% due 02/01/2032

      3,500         3,583  

Caesars Entertainment, Inc.

 

6.250% due 07/01/2025 (n)

      9,300         9,833  

Caesars Resort Collection LLC

 

5.750% due 07/01/2025

      1,000         1,053  

Cameron LNG LLC

 

3.402% due 01/15/2038

      100         108  

Carnival Corp.

 

4.000% due 08/01/2028

      1,700         1,695  

CCO Holdings LLC

 

4.250% due 02/01/2031 (n)

      15,924         16,450  

4.500% due 08/15/2030 (n)

      349         367  

4.500% due 05/01/2032 (n)

      2,100         2,204  

4.500% due 06/01/2033 (n)

      4,757         4,958  

Cellnex Finance Co. S.A.

 

3.875% due 07/07/2041

      800         815  

Centene Corp.

 

2.450% due 07/15/2028 (n)

      7,200         7,309  

CGG S.A.

 

7.750% due 04/01/2027

  EUR     300         358  

7.750% due 04/01/2027 (n)

      9,200         10,976  

8.750% due 04/01/2027

  $     5,600         5,593  

Charter Communications Operating LLC

 

3.700% due 04/01/2051 (n)

      400         406  

3.850% due 04/01/2061 (n)

      1,300         1,301  

3.900% due 06/01/2052 (n)

      5,600         5,813  

4.400% due 12/01/2061 (n)

      4,800         5,282  

CommonSpirit Health

 

3.910% due 10/01/2050 (n)

      1,600         1,815  

Community Health Systems, Inc.

 

5.625% due 03/15/2027 (n)

      1,680         1,781  

6.625% due 02/15/2025 (n)

        17,948         18,843  

8.000% due 03/15/2026 (n)

      3,672         3,941  

Connect Finco SARL

 

6.750% due 10/01/2026

      126         133  

Corning, Inc.

 

5.450% due 11/15/2079 (n)

      157         229  

Coty, Inc.

 

3.875% due 04/15/2026 (n)

  EUR     6,600         7,881  

5.000% due 04/15/2026 (n)

  $     9,400         9,498  

CSC Holdings LLC

 

4.500% due 11/15/2031 (n)

      8,100         8,171  

CVS Pass-Through Trust

 

7.507% due 01/10/2032 (n)

      1,518         1,931  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

DAE Funding LLC

 

4.500% due 08/01/2022 (n)

  $     200     $     200  

Delta Air Lines, Inc.

 

4.375% due 04/19/2028

      100         105  

4.750% due 10/20/2028 (n)

      2,400         2,685  

7.000% due 05/01/2025 (n)

      653         769  

7.375% due 01/15/2026 (n)

      2,170         2,556  

Deluxe Corp.

 

8.000% due 06/01/2029 (n)

      12,752           13,949  

Diamond Resorts International, Inc.

 

10.750% due 09/01/2024 (n)

      2,984         3,080  

Dufry One BV

 

2.500% due 10/15/2024

  EUR     300         353  

Energy Transfer LP

 

5.300% due 04/01/2044

  $     100         119  

Envision Healthcare Corp.

 

8.750% due 10/15/2026 (n)

      9,851         7,277  

Exela Intermediate LLC

 

10.000% due 07/15/2023

      217         153  

Ferroglobe PLC

 

9.375% due 03/01/2022

      2,500         2,644  

First Quantum Minerals Ltd.

 

6.500% due 03/01/2024 (n)

      2,888         2,949  

6.875% due 03/01/2026 (n)

      1,882         1,970  

Ford Motor Co.

 

7.700% due 05/15/2097 (n)

      29,796         37,930  

Fresh Market, Inc.

 

9.750% due 05/01/2023 (n)

      12,200         12,613  

Frontier Communications Holdings LLC

 

5.000% due 05/01/2028 (n)

      1,200         1,243  

Frontier Finance PLC

 

8.000% due 03/23/2022

  GBP     1,650         2,347  

Full House Resorts, Inc.

 

8.250% due 02/15/2028 (n)

  $     727         789  

General Electric Co.

 

6.875% due 01/10/2039

      3         5  

Greene King Finance PLC

 

1.881% (BP0003M + 1.800%) due 12/15/2034 ~

  GBP     350         406  

Gruenenthal GmbH

 

4.125% due 05/15/2028

  EUR     9,636         11,774  

HCA, Inc.

 

7.500% due 11/15/2095 (n)

  $     4,800         7,137  

Helios Software Holdings, Inc.

 

4.625% due 05/01/2028 (n)

      4,418         4,363  

Hilton Domestic Operating Co., Inc.

 

3.625% due 02/15/2032 (n)

      4,900         4,895  

3.750% due 05/01/2029 (n)

      5,100         5,172  

4.000% due 05/01/2031 (n)

      6,300         6,456  

4.875% due 01/15/2030 (n)

      500         537  

HollyFrontier Corp.

 

4.500% due 10/01/2030 (n)

      17,955         19,353  

iHeartCommunications, Inc.

 

6.375% due 05/01/2026 (n)

      2,493         2,633  

IHO Verwaltungs GmbH (6.375% Cash or 7.125% PIK)

 

6.375% due 05/15/2029 (d)

      718         781  

Innophos Holdings, Inc.

 

9.375% due 02/15/2028

      258         279  

Integris Baptist Medical Center, Inc.

 

3.875% due 08/15/2050 (n)

      1,200         1,386  

Intelsat Connect Finance S.A.

 

9.500% due 02/15/2023 ^(e)

      196         63  

Intelsat Jackson Holdings S.A.

 

5.500% due 08/01/2023 ^(e)

      14,709         8,072  

8.000% due 02/15/2024

      156         161  

8.500% due 10/15/2024 ^(e)

        19,698         11,003  

9.750% due 07/15/2025 ^(e)

      10,549         5,924  

Intelsat Luxembourg S.A.

 

8.125% due 06/01/2023 ^(e)

      1,939         62  

Jaguar Land Rover Automotive PLC

 

4.500% due 07/15/2028

  EUR     3,700         4,431  

5.875% due 01/15/2028 (n)

  $     14,400         14,939  

6.875% due 11/15/2026

  EUR     1,500         2,040  

7.750% due 10/15/2025 (n)

  $     7,100         7,726  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Kraft Heinz Foods Co.

 

4.250% due 03/01/2031 (n)

  $     6,000     $     6,930  

Level 3 Financing, Inc.

 

3.625% due 01/15/2029 (n)

      12,800         12,452  

3.875% due 11/15/2029

      200         216  

Lundin Energy Finance BV

 

3.100% due 07/15/2031 (n)

      700         717  

Madison IAQ LLC

 

4.125% due 06/30/2028 (n)

      150         150  

Marriott International, Inc.

 

4.625% due 06/15/2030

      80         93  

Marriott Ownership Resorts, Inc.

 

6.125% due 09/15/2025 (n)

      800         847  

Melco Resorts Finance Ltd.

 

5.750% due 07/21/2028 (n)

      3,800         3,945  

MGM China Holdings Ltd.

 

5.250% due 06/18/2025 (n)

      2,400         2,468  

5.375% due 05/15/2024

      300         306  

5.875% due 05/15/2026

      800         831  

MGM Resorts International

 

4.750% due 10/15/2028 (n)

      3,700         3,900  

Mileage Plus Holdings LLC

 

6.500% due 06/20/2027 (n)

      3,400         3,706  

Mohegan Gaming & Entertainment

 

8.000% due 02/01/2026

      3,100         3,232  

NCL Corp. Ltd.

 

10.250% due 02/01/2026 (n)

      8,419         9,629  

12.250% due 05/15/2024 (n)

      6,920         8,174  

Nielsen Finance LLC

 

5.625% due 10/01/2028 (n)

      1,700         1,799  

Nissan Motor Co. Ltd.

 

4.345% due 09/17/2027 (n)

      9,200         10,225  

4.810% due 09/17/2030 (n)

      21,100           24,121  

Noble Corp. PLC (11.000% Cash or 15.000% PIK)

 

11.000% due 02/15/2028 (d)

      105         115  

Novelis Corp.

 

3.250% due 11/15/2026 (c)

      1,900         1,931  

3.875% due 08/15/2031 (c)

      1,000         1,013  

Occidental Petroleum Corp.

 

1.606% (US0003M + 1.450%) due 08/15/2022 ~(n)

      6,000         5,969  

Odebrecht Oil & Gas Finance Ltd.

 

0.000% due 08/30/2021 (h)(j)

      1,279         17  

Oracle Corp.

 

3.650% due 03/25/2041 (l)(n)

      2,800         3,045  

3.850% due 04/01/2060

      100         107  

3.950% due 03/25/2051 (l)(n)

      2,400         2,677  

4.100% due 03/25/2061 (l)(n)

      1,900         2,148  

Ortho-Clinical Diagnostics, Inc.

 

7.250% due 02/01/2028 (n)

      1,207         1,317  

7.375% due 06/01/2025

      494         530  

PeaceHealth Obligated Group

 

3.218% due 11/15/2050 (n)

      500         537  

Penn National Gaming, Inc.

 

4.125% due 07/01/2029

      6,100         6,022  

Petroleos Mexicanos

 

2.750% due 04/21/2027 (n)

  EUR     400         440  

4.875% due 02/21/2028 (n)

      2,647         3,144  

5.350% due 02/12/2028 (n)

  $     1,406         1,387  

5.950% due 01/28/2031 (n)

      5,802         5,711  

6.490% due 01/23/2027

      160         170  

6.500% due 03/13/2027 (n)

      13,470         14,282  

6.750% due 09/21/2047

      90         81  

6.840% due 01/23/2030 (n)

      9,289         9,702  

6.950% due 01/28/2060

      660         593  

7.690% due 01/23/2050 (n)

      4,940         4,808  

Prime Healthcare Services, Inc.

 

7.250% due 11/01/2025 (n)

        24,484         26,336  

Prosus NV

 

1.288% due 07/13/2029

  EUR     1,900         2,260  

1.985% due 07/13/2033

      1,800         2,145  

3.061% due 07/13/2031 (n)

  $     3,700         3,660  

Qatar Petroleum

 

2.250% due 07/12/2031 (n)

      3,000         3,040  

3.125% due 07/12/2041 (n)

      4,800         4,987  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     33
    


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

 

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

QualityTech LP

 

3.875% due 10/01/2028 (n)

  $     4,300     $     4,612  

QVC, Inc.

 

5.950% due 03/15/2043 (n)

      4,426         4,603  

Rolls-Royce PLC

 

1.625% due 05/09/2028

  EUR     100         110  

3.625% due 10/14/2025

  $     200         202  

4.625% due 02/16/2026 (n)

  EUR     1,900         2,453  

4.625% due 02/16/2026

      200         258  

5.750% due 10/15/2027

  $     300         328  

Royal Caribbean Cruises Ltd.

 

9.125% due 06/15/2023

      900         980  

11.500% due 06/01/2025 (n)

      7,404         8,487  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     1,500         2,781  

Sands China Ltd.

 

4.375% due 06/18/2030

  $     200         221  

5.400% due 08/08/2028 (n)

      13,190         15,435  

Santos Finance Ltd.

 

3.649% due 04/29/2031 (n)

      2,300         2,387  

Schenck Process Holding GmbH

 

5.375% due 06/15/2023

  EUR     3,000         3,590  

6.875% due 06/15/2023

      900         1,078  

Seagate HDD Cayman

 

4.091% due 06/01/2029 (n)

  $     2,000         2,103  

Sensata Technologies BV

 

4.000% due 04/15/2029 (n)

      1,700         1,749  

Spirit AeroSystems, Inc.

 

3.950% due 06/15/2023 (n)

      6,753         6,876  

Standard Industries, Inc.

 

2.250% due 11/21/2026 (n)

  EUR     4,000         4,693  

3.375% due 01/15/2031 (n)

  $     4,600         4,467  

4.375% due 07/15/2030 (n)

      12,825         13,227  

Studio City Finance Ltd.

 

6.000% due 07/15/2025 (n)

      4,200         4,393  

6.500% due 01/15/2028 (n)

      4,200         4,415  

Syngenta Finance NV

 

4.892% due 04/24/2025

      200         222  

5.182% due 04/24/2028

      600         694  

5.676% due 04/24/2048

      8,957           11,018  

Tenet Healthcare Corp.

 

6.750% due 06/15/2023 (n)

      4,600         4,997  

Teva Pharmaceutical Finance BV

 

3.650% due 11/10/2021 (n)

      2,220         2,234  

Teva Pharmaceutical Finance Co. BV

 

2.950% due 12/18/2022 (n)

      2,369         2,387  

Teva Pharmaceutical Finance Netherlands BV

 

2.800% due 07/21/2023 (n)

      3,710         3,672  

6.000% due 01/31/2025

  EUR     200         259  

Topaz Solar Farms LLC

 

4.875% due 09/30/2039 (n)

  $     4,312         4,757  

5.750% due 09/30/2039 (n)

      40,712           47,550  

TransDigm, Inc.

 

5.500% due 11/15/2027

      80         83  

Transocean Guardian Ltd.

 

5.875% due 01/15/2024

      115         109  

Transocean Pontus Ltd.

 

6.125% due 08/01/2025

      218         215  

Transocean, Inc.

 

7.250% due 11/01/2025

      216         173  

8.000% due 02/01/2027

      372         275  

Travel + Leisure Co.

 

6.000% due 04/01/2027 (n)

      1,330         1,444  

Triumph Group, Inc.

 

6.250% due 09/15/2024

      152         153  

U.S. Airways Pass-Through Trust

 

3.950% due 05/15/2027

      327         331  

U.S. Renal Care, Inc.

 

10.625% due 07/15/2027

      137         149  

Uber Technologies, Inc.

 

6.250% due 01/15/2028 (n)

      3,300         3,572  

Unigel Luxembourg S.A.

 

8.750% due 10/01/2026

      300         324  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

United Airlines Pass-Through Trust

 

2.700% due 11/01/2033 (n)

  $     1,922     $     1,948  

3.100% due 01/07/2030

      79         84  

4.150% due 02/25/2033

      84         92  

4.875% due 07/15/2027 (n)

      4,111         4,319  

5.875% due 04/15/2029 (n)

      10,759         11,991  

United Airlines, Inc.

 

4.375% due 04/15/2026 (n)

      1,700         1,751  

4.625% due 04/15/2029 (n)

      5,800         5,974  

United Group BV

 

4.875% due 07/01/2024

  EUR     200         240  

Univision Communications, Inc.

 

5.125% due 02/15/2025 (n)

  $     767         780  

Valaris Ltd. (8.250% Cash or 12.000% PIK)

 

8.250% due 04/30/2028 (d)

      35         37  

Vale Overseas Ltd.

 

6.875% due 11/21/2036 (n)

      320         447  

6.875% due 11/10/2039 (n)

      90         127  

Vale S.A.

 

2.762% due 12/29/2049 ~(j)

  BRL     250,000         30,572  

Veritas U.S., Inc.

 

7.500% due 09/01/2025 (n)

  $     4,500         4,671  

10.500% due 02/01/2024

      1,000         1,023  

Victoria’s Secret & Co.

 

4.625% due 07/15/2029 (n)

      2,100         2,106  

Viking Cruises Ltd.

 

13.000% due 05/15/2025 (n)

      9,655         11,212  

Vmed O2 UK Financing PLC

 

4.750% due 07/15/2031

      1,700         1,738  

VOC Escrow Ltd.

 

5.000% due 02/15/2028 (n)

      11,938         11,868  

Windstream Escrow LLC

 

7.750% due 08/15/2028 (n)

      17,794         18,175  

WMG Acquisition Corp.

 

3.000% due 02/15/2031 (n)

      7,997         7,758  

Wynn Las Vegas LLC

 

5.500% due 03/01/2025 (n)

      8,300         8,788  

Wynn Macau Ltd.

 

4.875% due 10/01/2024

      400         403  

5.125% due 12/15/2029 (n)

      1,200         1,214  

5.500% due 10/01/2027

      1,100         1,132  

5.625% due 08/26/2028 (n)

      4,335         4,449  

Yum! Brands, Inc.

 

3.625% due 03/15/2031 (n)

      5,200         5,311  

ZoomInfo Technologies LLC

 

3.875% due 02/01/2029 (n)

      700         702  
       

 

 

 
            999,499  
       

 

 

 
UTILITIES 7.7%

 

AT&T, Inc.

 

3.100% due 02/01/2043 (n)

      2,896         2,899  

3.300% due 02/01/2052 (n)

      2,896         2,897  

3.500% due 06/01/2041 (n)

      4,842         5,150  

3.500% due 02/01/2061 (n)

      2,934         2,939  

3.650% due 06/01/2051 (n)

      4,860         5,167  

3.850% due 06/01/2060 (n)

      3,282         3,527  

DTEK Finance PLC (1.500% Cash and 3.500% PIK)

 

5.000% due 12/31/2027 (d)

      8,688         5,673  

Edison International

 

5.750% due 06/15/2027 (n)

      121         140  

Genesis Energy LP

 

8.000% due 01/15/2027 (n)

      3,012         3,109  

Lumen Technologies, Inc.

 

4.000% due 02/15/2027

      128         132  

Mountain States Telephone & Telegraph Co.

 

7.375% due 05/01/2030

      6,900         8,717  

NGD Holdings BV

 

6.750% due 12/31/2026

      1,261         1,215  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 12/01/2021 ^

      26         26  

Odebrecht Drilling Norbe Ltd. (6.350% Cash and 1.000% PIK)

 

7.350% due 12/01/2026 ^(d)

      341         185  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Odebrecht Offshore Drilling Finance Ltd.

 

6.720% due 12/01/2022 ^

  $     2,829     $     2,780  

Odebrecht Offshore Drilling Finance Ltd. (6.720% Cash and 1.000% PIK)

 

7.720% due 12/01/2026 ^(d)

      8,789         2,170  

Oi S.A. (10.000% Cash or 12.000% PIK)

 

10.000% due 07/27/2025 (d)

      9,090         8,992  

Pacific Gas & Electric Co.

 

3.300% due 03/15/2027 (n)

      3,862         3,980  

3.450% due 07/01/2025 (n)

      1,628         1,699  

3.750% due 08/15/2042

      46         42  

4.000% due 12/01/2046 (n)

      1,006         942  

4.300% due 03/15/2045 (n)

      257         244  

4.450% due 04/15/2042 (n)

      2,120         2,120  

4.500% due 07/01/2040 (n)

      4,623           4,677  

4.500% due 12/15/2041

      65         63  

4.550% due 07/01/2030 (n)

      8,174         8,734  

4.600% due 06/15/2043 (n)

      1,036         1,050  

4.750% due 02/15/2044 (n)

      8,520         8,607  

4.950% due 07/01/2050 (n)

      8,191         8,483  

Petrobras Global Finance BV

 

6.250% due 12/14/2026 (n)

  GBP     4,976         7,941  

6.625% due 01/16/2034 (n)

      800         1,287  

6.750% due 01/27/2041

  $     1,450         1,699  

6.750% due 06/03/2050 (n)

      4,800         5,487  

Rio Oil Finance Trust

 

8.200% due 04/06/2028

      340         393  

8.200% due 04/06/2028 (n)

      3,492         4,042  

9.250% due 07/06/2024 (n)

      5,277         5,876  

9.750% due 01/06/2027

      425         502  

Southern California Edison Co.

 

4.875% due 03/01/2049 (n)

      316         381  

6.650% due 04/01/2029 (n)

      142         179  

Transocean Phoenix Ltd.

 

7.750% due 10/15/2024 (n)

      1,601         1,623  

Transocean Poseidon Ltd.

 

6.875% due 02/01/2027

      238         233  

Transocean Proteus Ltd.

 

6.250% due 12/01/2024

      220         219  
       

 

 

 
          126,221  
       

 

 

 

Total Corporate Bonds & Notes
(Cost $1,420,970)

      1,491,231  
 

 

 

 
CONVERTIBLE BONDS & NOTES 0.4%

 

BANKING & FINANCE 0.1%

 

Credit Suisse Group Guernsey Ltd.

 

3.000% due 11/12/2021 «

  CHF     800         930  
       

 

 

 
INDUSTRIALS 0.3%

 

DISH Network Corp.

 

3.375% due 08/15/2026

  $     5,900         6,062  
       

 

 

 

Total Convertible Bonds & Notes (Cost $6,776)

    6,992  
 

 

 

 
MUNICIPAL BONDS & NOTES 2.3%

 

ILLINOIS 1.3%

 

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

 

7.517% due 01/01/2040 (n)

      13,700         20,472  

Chicago, Illinois General Obligation Bonds, Series 2015

 

7.750% due 01/01/2042

      51         58  

Chicago, Illinois General Obligation Bonds, Series 2017

 

7.045% due 01/01/2029

      170         199  

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

 

6.725% due 04/01/2035

      60         77  

7.350% due 07/01/2035

      40         53  

Illinois State General Obligation Bonds, Series 2003

 

5.100% due 06/01/2033

      365         438  
       

 

 

 
          21,297  
       

 

 

 
 

 

       
34   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
PUERTO RICO 0.4%

 

Commonwealth of Puerto Rico General Obligation Bonds, Series 2014

 

8.000% due 07/01/2035 ^(e)

  $     7,900     $     6,754  
       

 

 

 
VIRGINIA 0.1%

 

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

 

6.706% due 06/01/2046

      1,310         1,395  
       

 

 

 
WEST VIRGINIA 0.5%

 

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

 

0.000% due 06/01/2047 (h)

      78,700         8,945  
       

 

 

 

Total Municipal Bonds & Notes
(Cost $28,174)

    38,391  
 

 

 

 
U.S. GOVERNMENT AGENCIES 2.5%

 

Fannie Mae

 

3.000% due 01/25/2042 (a)

      327         11  

3.500% due 02/25/2033 (a)(n)

      1,378         133  

3.739% due 02/25/2040 •

      640         663  

4.500% due 07/25/2050 (a)

      8,645         1,140  

5.000% due 02/25/2036 ~(a)

      347         47  

5.839% due 07/25/2029 •

      2,010         2,222  

6.011% due 07/25/2040 •(a)

      60         2  

6.689% due 02/25/2040 •

      2,340         2,511  

Freddie Mac

 

0.000% due 02/25/2046 (b)(h)

      4,277         3,850  

0.100% due 02/25/2046 (a)

      4,278         2  

2.514% due 09/15/2042 •

      840         778  

3.000% due 12/25/2050 (a)

      8,958         1,236  

3.500% due 10/15/2035 (a)(n)

      1,412         147  

5.710% due 03/15/2043 •(n)

      100         97  

5.947% due 05/15/2039 •(a)(n)

      3,894         109  

6.170% due 11/25/2055 «~

      13,949         8,566  

7.027% due 02/15/2034 •(a)

      1,305         262  

7.639% due 12/25/2027 •

      4,400         4,788  

9.099% due 07/15/2039 •

      2,207         2,648  

10.374% due 03/15/2044 •

      1,822         2,270  

10.839% due 03/25/2025 •

      1,708         1,715  

11.733% due 02/15/2036 •

      5,228         7,062  

Ginnie Mae

 

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

      613         64  

6.666% due 01/20/2042 •(a)

      1,245         211  
       

 

 

 

Total U.S. Government Agencies (Cost $39,078)

      40,534  
 

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 10.7%

 

Adjustable Rate Mortgage Trust

 

0.429% due 05/25/2036 •

      1,546         658  

1.239% due 01/25/2035 •

      3,226         3,131  

Banc of America Funding Trust

 

0.329% due 06/26/2036 •

      16,516         16,344  

5.500% due 01/25/2036

      208         199  

6.000% due 07/25/2037 ^

      385         388  

BCAP LLC Trust

 

2.839% due 02/26/2036 ~

      2,143         2,093  

2.941% due 03/27/2036 ~

      3,141         2,606  

4.834% due 03/26/2037 þ

      1,336         2,116  

7.000% due 12/26/2036 ~

      2,536         2,213  

Bear Stearns ALT-A Trust

 

2.726% due 11/25/2034 ~

      199         206  

2.933% due 08/25/2046 ^~

      3,040         2,421  

3.020% due 09/25/2035 ^~

      606         450  

3.104% due 11/25/2036 ^~

      583         391  

3.379% due 08/25/2036 ^~

      2,296         1,487  

Bear Stearns Mortgage Funding Trust

 

7.500% due 08/25/2036 þ

      580         582  

CD Mortgage Trust

 

5.688% due 10/15/2048

      4,906         699  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Chase Mortgage Finance Trust

 

3.029% due 12/25/2035 ^~

  $     10     $     10  

6.000% due 02/25/2037 ^

      1,261         707  

6.000% due 03/25/2037 ^

      327         233  

6.000% due 07/25/2037 ^

      1,127         770  

Citigroup Commercial Mortgage Trust

 

5.514% due 12/10/2049 ~

      407         222  

Citigroup Mortgage Loan Trust

 

2.529% due 04/25/2037 ^~

      2,331         2,092  

2.754% due 11/25/2035 ~

      12,758         8,676  

3.170% due 03/25/2037 ^~

      371         371  

6.000% due 11/25/2036 ~

      10,553         7,805  

CitiMortgage Alternative Loan Trust

 

5.750% due 04/25/2037 ^

      1,615         1,629  

Commercial Mortgage Loan Trust

 

5.973% due 12/10/2049 ~

      3,160         1,360  

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 08/25/2037 ^~

      1,643         1,275  

Countrywide Alternative Loan Trust

 

0.504% due 03/20/2046 •

      3,403         2,902  

0.629% due 08/25/2035 •

      265         182  

3.238% due 06/25/2037 ^~

      1,730         1,592  

5.161% due 04/25/2037 ^•(a)

      15,261         3,316  

5.500% due 03/25/2035

      432         278  

5.500% due 09/25/2035 ^

      3,507           3,017  

5.750% due 01/25/2035

      336         340  

5.750% due 02/25/2035

      440         414  

6.000% due 02/25/2035

      573         560  

6.000% due 04/25/2036

      1,373         870  

6.000% due 05/25/2036 ^

      1,508         1,018  

6.000% due 02/25/2037 ^

      549         311  

6.000% due 02/25/2037

      1,683         1,263  

6.000% due 04/25/2037 ^

      4,590         3,043  

6.000% due 08/25/2037 ^•

      7,236         5,207  

6.250% due 10/25/2036 ^

      1,797         1,493  

6.250% due 12/25/2036 ^•

      2,892         1,976  

6.500% due 08/25/2036 ^

      699         361  

6.500% due 09/25/2036 ^

      334         241  

21.306% due 02/25/2036 •

      1,173         1,512  

Countrywide Home Loan Mortgage Pass-Through Trust

 

5.500% due 07/25/2037 ^

      502         342  

6.000% due 04/25/2036 ^

      296         234  

Credit Suisse Mortgage Capital Mortgage-Backed Trust

 

5.750% due 04/25/2036 ^

      1,130         819  

Eurosail PLC

 

1.434% due 06/13/2045 •

  GBP     4,487         5,706  

4.084% due 06/13/2045 •

      1,394         1,864  

First Horizon Alternative Mortgage Securities Trust

 

6.250% due 11/25/2036 ^

  $     1,159         653  

GS Mortgage Securities Corp. Trust

 

4.591% due 10/10/2032 ~

      9,200         9,025  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

      1,151         390  

GSR Mortgage Loan Trust

 

2.486% due 03/25/2037 ^~

      1,639         1,310  

3.204% due 11/25/2035 ^~

      885         847  

5.500% due 05/25/2036 ^

      22         125  

HomeBanc Mortgage Trust

 

1.289% due 03/25/2035 •

      118         118  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      6,473         3,349  

Jackson Park Trust

 

3.242% due 10/14/2039 ~

      4,368         4,184  

JP Morgan Alternative Loan Trust

 

2.995% due 03/25/2037 ~

      5,594         5,733  

JP Morgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      130         109  

JP Morgan Mortgage Trust

 

2.685% due 02/25/2036 ^~

      1,170         972  

2.798% due 01/25/2037 ^~

      563         510  

2.878% due 10/25/2035 ~

      18         18  

2.974% due 06/25/2036 ^~

      410         341  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038 ^

      2,853         959  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Lehman Mortgage Trust

 

6.000% due 07/25/2037 ^

  $     85     $     84  

Lehman XS Trust

 

0.309% due 06/25/2047 •

      2,069         1,985  

MASTR Alternative Loan Trust

 

6.750% due 07/25/2036

      2,981         1,684  

Merrill Lynch Mortgage Investors Trust

 

2.732% due 03/25/2036 ^~

      2,303         1,478  

Motel 6 Trust

 

7.020% due 08/15/2024 •

      4,933         4,822  

Natixis Commercial Mortgage Securities Trust

 

2.343% due 11/15/2034 •

      4,500         4,500  

RBSSP Resecuritization Trust

 

0.309% due 10/27/2036 •

      3,609         1,174  

0.572% due 08/27/2037 •

      8,000         4,233  

Residential Accredit Loans, Inc. Trust

 

0.319% due 05/25/2037 ^•

      200         154  

0.469% due 08/25/2036 ^•

      552         553  

6.000% due 08/25/2036 ^

      429         429  

6.000% due 05/25/2037 ^

      1,378         1,363  

Residential Asset Securitization Trust

 

5.750% due 02/25/2036 ^

      319         198  

6.000% due 02/25/2037 ^

      1,579         1,044  

6.250% due 09/25/2037 ^

      4,798         2,786  

Residential Funding Mortgage Securities, Inc. Trust

 

3.868% due 02/25/2037 ~

      1,842         1,480  

Structured Adjustable Rate Mortgage Loan Trust

 

2.840% due 07/25/2035 ^~

      1,154         1,078  

2.909% due 11/25/2036 ^~

      2,783         2,687  

2.982% due 01/25/2036 ^~

      4,968         3,552  

Structured Asset Mortgage Investments Trust

 

0.209% due 08/25/2036 •

      129         121  

SunTrust Adjustable Rate Mortgage Loan Trust

 

2.230% due 02/25/2037 ^~

      2,605         2,462  

2.316% due 04/25/2037 ^~

      262         196  

2.369% due 02/25/2037 ^~

      305         286  

WaMu Mortgage Pass-Through Certificates Trust

 

2.925% due 07/25/2037 ^~

      538         542  

3.051% due 07/25/2037 ^~

      1,181         1,192  

3.092% due 02/25/2037 ^~

      692         688  

3.267% due 10/25/2036 ^~

      971         942  

Washington Mutual Mortgage Pass-Through Certificates Trust

 

0.947% due 05/25/2047 ^•

      96         9  

6.000% due 10/25/2035 ^

      1,096         898  

6.000% due 03/25/2036 ^

      1,474         1,503  

6.000% due 02/25/2037

      3,006         2,955  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $171,508)

      175,716  
 

 

 

 
ASSET-BACKED SECURITIES 11.6%

 

Adagio CLO DAC

 

0.000% due 04/30/2031 ~

  EUR     1,800         1,258  

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

 

1.439% due 03/25/2033 •

  $     50         51  

Apidos CLO

 

0.000% due 01/20/2031 ~

      8,800         5,038  

Bear Stearns Asset-Backed Securities Trust

 

0.489% due 04/25/2037 •

      10,106         8,645  

Belle Haven ABS CDO Ltd.

 

0.526% due 07/05/2046 •

      324,260         854  

Carlyle Global Market Strategies CLO Ltd.

 

0.000% due 04/17/2031 ~

      6,000         2,899  

CIFC Funding Ltd.

 

0.000% due 04/24/2030 ~

      4,100         1,773  

0.010% due 10/22/2031 ~

      3,000         1,169  

Cork Street CLO Designated Activity Co.

 

0.000% due 11/27/2028 ~

  EUR     2,667         2,411  

Credit-Based Asset Servicing & Securitization LLC

 

3.344% due 12/25/2035 ^þ

  $     7         7  

Dryden CLO Ltd.

 

0.000% due 07/17/2031 ~

      14,311         10,603  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     35
    


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

 

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

First Franklin Mortgage Loan Trust

 

0.409% due 10/25/2036 •

  $     3,499     $     2,852  

Flagship Credit Auto Trust

 

0.000% due 05/15/2025 «(h)

      16         1,423  

Fremont Home Loan Trust

 

0.239% due 01/25/2037 •

      6,004         3,408  

0.569% due 02/25/2036 •

      12,004         9,001  

Glacier Funding CDO Ltd.

 

0.446% due 08/04/2035 •

      7,405         1,367  

Grand Canal Securities

 

0.447% due 12/24/2058 •

  EUR     1,406         1,665  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029 ~

      750         491  

GSAMP Trust

 

0.229% due 12/25/2036 •

  $     1,495         962  

Home Equity Mortgage Loan Asset-Backed Trust

 

0.249% due 07/25/2037 •

      2,847         1,943  

JP Morgan Mortgage Acquisition Trust

 

6.330% due 07/25/2036 ^þ

      110         47  

Lehman XS Trust

 

6.790% due 06/24/2046 þ

      1,018         1,054  

LNR CDO Ltd.

 

0.367% due 02/28/2043 •

      3,239         83  

Long Beach Mortgage Loan Trust

 

0.689% due 01/25/2036 •

      5,244         5,014  

Marlette Funding Trust

 

0.000% due 09/17/2029 «(h)

      15         1,817  

Merrill Lynch Mortgage Investors Trust

 

3.824% due 03/25/2037 þ

      6,429         2,031  

Morgan Stanley ABS Capital, Inc. Trust

 

0.239% due 10/25/2036 •

      6,350         4,156  

Morgan Stanley Mortgage Loan Trust

 

6.250% due 02/25/2037 ^~

      919         595  

N-Star REL CDO Ltd.

 

0.520% due 02/01/2041 •

      661         633  

Orient Point CDO Ltd.

 

0.408% due 10/03/2045 •

      122,853           47,605  

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

 

1.064% due 07/25/2035 •

      6,000         5,772  

Renaissance Home Equity Loan Trust

 

5.612% due 04/25/2037 þ

      11,496         5,048  

7.238% due 09/25/2037 ^þ

      8,515         4,790  

Securitized Asset-Backed Receivables LLC Trust

 

0.509% due 03/25/2036 •

      10,876         10,716  

SLM Student Loan EDC Repackaging Trust

 

0.000% due 10/28/2029 «(h)

      8         8,226  

SLM Student Loan Trust

 

0.000% due 01/25/2042 «(h)

      7         3,018  

SMB Private Education Loan Trust

 

0.000% due 09/18/2046 «(h)

      3         1,079  

0.000% due 10/15/2048 «(h)

      3         1,266  

SoFi Professional Loan Program LLC

 

0.000% due 05/25/2040 «(h)

      7,500         1,110  

0.000% due 07/25/2040 «(h)

      38         745  

0.000% due 09/25/2040 «(h)

      3,226         763  

South Coast Funding Ltd.

 

0.762% due 08/10/2038 •

      19,217         2,555  

Symphony CLO Ltd.

 

4.733% due 07/14/2026 •

      3,600         3,587  

Taberna Preferred Funding Ltd.

 

0.536% due 12/05/2036 •

      10,733         9,204  

0.556% due 08/05/2036 •

      500         434  

0.556% due 08/05/2036 ^•

      9,684         8,401  

0.576% due 02/05/2036 •

      4,319         3,833  
       

 

 

 

Total Asset-Backed Securities (Cost $236,678)

      191,402  
 

 

 

 
SOVEREIGN ISSUES 5.1%

 

Argentina Government International Bond

 

0.500% due 07/09/2030 þ

      10,604         3,606  

1.000% due 07/09/2029

      1,352         520  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

1.125% due 07/09/2035 þ

  $     9,865     $     3,105  

1.125% due 07/09/2046 þ

      115         39  

2.000% due 01/09/2038 þ

      22,691         8,986  

2.500% due 07/09/2041 þ

      17,491         6,573  

15.500% due 10/17/2026

  ARS     92,410         214  

34.119% (BADLARPP) due 10/04/2022 ~

      116         1  

Dominican Republic International Bond

 

4.875% due 09/23/2032

  $     8,000         8,320  

Egypt Government International Bond

 

3.875% due 02/16/2026

      3,400         3,323  

5.875% due 02/16/2031

      4,200         4,054  

7.500% due 02/16/2061

      4,200         3,922  

Ghana Government International Bond

 

6.375% due 02/11/2027

      1,100         1,084  

7.875% due 02/11/2035

      1,300         1,251  

8.750% due 03/11/2061

      400         381  

10.750% due 10/14/2030

      800         999  

Ivory Coast Government International Bond

 

4.875% due 01/30/2032 (n)

  EUR     8,800         10,563  

6.625% due 03/22/2048

      1,600         2,022  

Panama Government International Bond

 

4.500% due 04/16/2050

  $     3,600         4,111  

Provincia de Buenos Aires

 

37.883% due 04/12/2025 (n)

  ARS     810,515         3,876  

37.883% due 04/12/2025

      51,870         248  

South Africa Government International Bond

 

5.750% due 09/30/2049 (n)

  $     3,216         3,272  

Turkiye Ihracat Kredi Bankasi A/S

 

8.250% due 01/24/2024

      200         218  

Ukraine Government International Bond

 

4.375% due 01/27/2030

  EUR     2,495         2,763  

7.750% due 09/01/2022

  $     9,800         10,262  

Venezuela Government International Bond

 

8.250% due 10/13/2024 ^(e)

      70         7  

9.250% due 09/15/2027 ^(e)

      598         64  
       

 

 

 

Total Sovereign Issues (Cost $104,193)

      83,784  
 

 

 

 
        SHARES            
COMMON STOCKS 2.2%

 

COMMUNICATION SERVICES 0.9%

 

Clear Channel Outdoor Holdings, Inc. (f)

      1,167,686         3,106  

iHeartMedia, Inc. ‘A’ (f)

      275,106         7,112  

iHeartMedia, Inc. ‘B’ «(f)

      213,502         4,967  
       

 

 

 
          15,185  
       

 

 

 
ENERGY 0.1%

 

Axis Energy Services ‘A’ «(f)(l)

    6,085         90  

Noble Corp. (f)(l)

      42,080         926  

Valaris Ltd. (f)

      2,895         78  
       

 

 

 
          1,094  
       

 

 

 
FINANCIALS 0.2%

 

Associated Materials Group, Inc. «(f)(l)

      411,442         2,913  

Stearns Holdings LLC ‘B’ «(f)(l)

    42,113         58  
       

 

 

 
          2,971  
       

 

 

 
INDUSTRIALS 1.0%

 

McDermott International Ltd. (f)

    57,728         19  

Neiman Marcus Group Ltd. LLC «(f)(l)

      152,491         16,777  

Noble Corp. (f)

      3,270         72  

Voyager Aviation Holdings «(f)

    2,841         0  

Westmoreland Mining Holdings LLC «(f)(l)

      45,070         0  
       

 

 

 
          16,868  
       

 

 

 

Total Common Stocks (Cost $28,003)

    36,118  
 

 

 

 
        SHARES         MARKET
VALUE
(000S)
 
WARRANTS 1.7%

 

FINANCIALS 0.0%

 

Guaranteed Rate, Inc. - Exp. 12/31/2060 «

      202     $     24  
       

 

 

 
INDUSTRIALS 0.1%

 

Sequa Corp. - Exp. 04/28/2024 «

      1,355,000         854  
       

 

 

 
INFORMATION TECHNOLOGY 1.6%

 

Windstream Holdings LLC - Exp. 09/21/2055 «

    1,181,266         26,360  
       

 

 

 

Total Warrants (Cost $9,822)

    27,238  
 

 

 

 
PREFERRED SECURITIES 6.0%

 

BANKING & FINANCE 3.1%

 

AGFC Capital Trust

 

1.876% (US0003M + 1.750%) due 01/15/2067 ~

    1,800,000         1,138  

Banco Santander S.A.

 

6.250% due 09/11/2021 •(j)(k)(n)

      2,200,000         2,627  

Brighthouse Holdings LLC

 

6.500% due 07/27/2037 þ(j)

      110,000         101  

Charles Schwab Corp.

 

4.000% due 12/01/2030 •(j)

      100,000         104  

Compeer Financial ACA

 

4.875% due 08/15/2026 •(j)

      4,400,000         4,488  

Farm Credit Bank of Texas

 

5.700% due 09/15/2025 •(j)

      1,000,000         1,095  

Stichting AK Rabobank Certificaten

 

2.188% due 12/29/2049 þ(j)

      22,728,000         37,361  

Wells Fargo & Co.

 

3.900% due 03/15/2026 •(j)

      3,200,000         3,324  
       

 

 

 
          50,238  
       

 

 

 
INDUSTRIALS 2.9%

 

General Electric Co.

 

3.449% (US0003M + 3.330%) due 09/15/2021 ~(j)(n)

      1,343,000         1,319  

Sequa Corp. (15.000% PIK)

 

15.000% «(d)

      37,679         41,404  

Voyager Aviation Holdings LLC

 

9.500% «

      17,047         5,228  
       

 

 

 
          47,951  
       

 

 

 

Total Preferred Securities (Cost $75,621)

      98,189  
 

 

 

 
REAL ESTATE INVESTMENT TRUSTS 2.0%

 

REAL ESTATE 2.0%

 

Uniti Group, Inc.

      572,252         6,701  

VICI Properties, Inc.

      858,541         26,778  
       

 

 

 

Total Real Estate Investment Trusts (Cost $14,376)

    33,479  
 

 

 

 
SHORT-TERM INSTRUMENTS 5.9%

 

REPURCHASE AGREEMENTS (m) 3.8%

 

          61,990  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
ARGENTINA TREASURY BILLS 0.0%

 

39.804% due 11/30/2021 (h)(i)

  ARS     14,960         73  
       

 

 

 
 

 

       
36   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
U.S. TREASURY BILLS 1.3%

 

0.035% due 08/03/2021 - 09/30/2021 (g)(h)(p)(r)

  $     21,498     $     21,497  
       

 

 

 
U.S. TREASURY CASH MANAGEMENT BILLS 0.8%

 

0.049% due 09/16/2021 - 10/19/2021 (c)(g)(h)(i)(p)(r)

      12,567         12,566  
       

 

 

 
Total Short-Term Instruments (Cost $96,130)     96,126  
 

 

 

 
       
Total Investments in Securities (Cost $2,865,514)

 

      2,953,946  
       
Total Investments 179.7% (Cost $2,865,514)

 

  $     2,953,946  
   

Financial Derivative
Instruments (o)(q) (0.3)%

(Cost or Premiums, net $(1,777))

    (4,891
   
Auction Rate Preferred Shares (12.9)%     (212,650
 
Other Assets and Liabilities, net (66.5)%       (1,092,867
   

 

 

 
Net Assets Applicable to Common Shareholders 100.0%

 

  $     1,643,538  
   

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS:

 

*

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

^

Security is in default.

«

Security valued using significant unobservable inputs (Level 3).

µ

All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments.

~

Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description.

Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description.

þ

Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end.

(a)

Security is an Interest Only (“IO”) or IO Strip.

(b)

Principal only security.

(c)

When-issued security.

(d)

Payment in-kind security.

(e)

Security is not accruing income as of the date of this report.

(f)

Security did not produce income within the last twelve months.

(g)

Coupon represents a weighted average yield to maturity.

(h)

Zero coupon security.

(i)

Coupon represents a yield to maturity.

(j)

Perpetual maturity; date shown, if applicable, represents next contractual call date.

(k)

Contingent convertible security.

 

(l)  RESTRICTED SECURITIES:

 

Issuer Description    Acquisition
Date
    Cost     Market
Value
    Market Value
as Percentage
of Net Assets
Applicable to
Common
Shareholders
 

Associated Materials Group, Inc.

     03/13/2020     $ 2,613     $ 2,913       0.18

Axis Energy Services ‘A’

     03/13/2020       90       90       0.01  

Deutsche Bank AG 3.035% due 05/28/2032

     05/27/2021 - 06/16/2021           3,406       3,522       0.21  

Neiman Marcus Group Ltd. LLC

     03/13/2020       4,911           16,777       1.02  

Noble Corp.

     02/05/2021 - 02/27/2021       562       926       0.06  

Oracle Corp. 3.650% due 03/25/2041

     03/22/2021       2,781       3,045       0.19  

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     37
    


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

 

Issuer Description    Acquisition
Date
    Cost     Market
Value
    Market Value
as Percentage
of Net Assets
Applicable to
Common
Shareholders
 

Oracle Corp. 3.950% due 03/25/2051

     03/22/2021     $ 2,396     $ 2,677       0.16 %  

Oracle Corp. 4.100% due 03/25/2061

     03/22/2021 - 08/02/2021       1,959       2,148       0.13  

Stearns Holdings LLC ‘B’

     03/13/2020       74       58       0.00  

Westmoreland Mining Holdings LLC

     03/13/2020       1,172       0       0.00  
    

 

 

   

 

 

   

 

 

 
  $     19,964     $     32,156       1.96
    

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(m)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received(1)
 
BPS     0.040     07/30/2021       08/02/2021     $     53,600     U.S. Treasury Inflation Protected Securities 0.250% due 02/15/2050   $ (54,634   $ 53,600     $ 53,600  
FICC     0.000       07/30/2021       08/02/2021       8,390     U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022     (8,558     8,390       8,390  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

    $     (63,192   $     61,990     $     61,990  
   

 

 

   

 

 

   

 

 

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
    Amount
Borrowed(2)
    Payable for
Reverse
Repurchase
Agreements
 

BOS

    0.280     05/14/2021       08/16/2021         (12,978   $ (12,986
    0.280       07/06/2021       08/10/2021         (25,832     (25,838
    0.280       07/21/2021       08/23/2021         (536     (536
    0.280       07/30/2021       08/16/2021         (591     (591
    0.290       05/17/2021       08/17/2021         (1,905     (1,906

BPS

    (0.300     06/24/2021       09/24/2021       EUR       (4,502     (5,339
    (0.300     06/29/2021       09/24/2021         (4,439     (5,264
    (0.280     06/24/2021       09/24/2021         (4,968     (5,891
    0.150       02/08/2021       TBD (3)      $       (1,214     (1,215
    0.350       05/05/2021       08/09/2021         (11,300     (11,310
    0.350       05/10/2021       08/12/2021         (829     (829
    0.350       06/17/2021       08/27/2021         (2,362     (2,363
    0.350       06/24/2021       09/24/2021       GBP       (3,300     (4,589
    0.500       07/22/2021       01/24/2022       $       (1,674     (1,674
    0.540       07/09/2021       03/08/2022         (867     (867
    0.550       04/19/2021       09/20/2021         (5,479     (5,488
    0.550       04/20/2021       09/20/2021         (3,529     (3,535

BRC

    (0.350     07/26/2021       10/26/2021       EUR       (7,728     (9,167
    0.250       11/09/2020       TBD (3)        (6,998     (7,010
    0.300       07/09/2021       10/08/2021       GBP       (5,524     (7,679
    0.350       05/21/2021       08/24/2021       $           (15,644     (15,655
    0.350       06/03/2021       09/03/2021         (12,501     (12,508
    0.450       05/28/2021       08/31/2021         (2,850     (2,852
    0.450       06/03/2021       09/03/2021         (3,709     (3,712
    0.450       06/11/2021       09/03/2021         (355     (355
    0.450       06/23/2021       09/24/2021         (2,560     (2,562
    0.450       07/29/2021       09/03/2021         (951     (951
    0.480       04/30/2021       08/03/2021         (2,605     (2,609
    0.480       07/09/2021       08/06/2021         (38,254     (38,266
    0.480       07/26/2021       08/06/2021         (1,748     (1,748
    0.480       07/29/2021       08/06/2021         (1,638     (1,638
    0.500       07/13/2021       TBD (3)        (17,070     (17,074
    0.500       07/19/2021       01/19/2022         (939     (939
    0.500       07/22/2021       01/24/2022         (1,760     (1,761
    0.550       06/24/2021       03/10/2022         (2,698     (2,700
    0.550       08/02/2021       03/10/2022         (2,024     (2,024
    0.560       06/11/2021       09/10/2021         (4,742     (4,746

BYR

    0.500       07/26/2021       01/26/2022         (5,912     (5,912
    0.650       03/31/2021       03/25/2022         (35,965         (36,042
    0.650       04/19/2021       03/25/2022         (4,461     (4,469

 

       
38   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
    Amount
Borrowed(2)
    Payable for
Reverse
Repurchase
Agreements
 
    0.650     07/30/2021       03/25/2022       $       (990   $ (989

CDC

    0.300       05/18/2021       08/20/2021         (2,720     (2,722
    0.300       05/20/2021       08/23/2021         (2,408     (2,409
    0.300       05/24/2021       08/27/2021             (17,924         (17,935
    0.300       05/25/2021       08/27/2021         (13,753     (13,761
    0.300       06/21/2021       09/20/2021         (5,055     (5,056
    0.300       06/22/2021       09/23/2021         (15,753     (15,759
    0.300       06/24/2021       09/22/2021         (8,620     (8,623
    0.300       07/02/2021       10/01/2021         (496     (496
    0.300       07/19/2021       09/22/2021         (638     (638
    0.350       07/21/2021       01/21/2022         (7,017     (7,017
    0.420       07/19/2021       08/19/2021         (1,193     (1,194
    0.470       06/14/2021       09/14/2021         (14,819     (14,829
    0.480       06/17/2021       09/15/2021         (8,261     (8,266
    0.480       07/07/2021       10/07/2021         (1,275     (1,275
    0.500       05/07/2021       08/09/2021         (1,030     (1,031
    0.500       05/12/2021       08/03/2021         (1,555     (1,556
    0.500       05/20/2021       08/23/2021         (4,350     (4,355
    0.500       05/21/2021       08/24/2021         (5,730     (5,736
    0.500       06/10/2021       08/24/2021         (1,875     (1,877

CEW

    0.500       05/07/2021       02/01/2022         (26,295     (26,327
    0.500       07/08/2021       01/04/2022         (26,872     (26,882
    0.500       07/09/2021       01/05/2022         (6,969     (6,971

CIB

    0.500       07/07/2021       08/11/2021         (442     (442

CIW

    0.320       07/14/2021       09/14/2021         (31,729     (31,734
    0.400       07/21/2021       01/21/2022         (5,643     (5,644

FOB

    0.250       04/15/2021       TBD (3)        (2,879     (2,881

IND

    0.270       05/07/2021       08/03/2021         (412     (413
    0.290       07/30/2021       01/31/2022         (298     (298
    0.290       08/03/2021       02/03/2022         (431     (431
    0.300       06/09/2021       03/09/2022         (8,674     (8,678
    0.300       07/21/2021       01/20/2022         (17,998     (18,000
    0.300       07/26/2021       01/26/2022         (3,651     (3,651
    0.330       06/09/2021       03/09/2022         (402     (402
    0.330       06/23/2021       03/09/2022         (775     (775
    0.380       05/14/2021       08/12/2021         (7,460     (7,467
    0.420       07/26/2021       01/26/2022         (15,876     (15,878
    0.430       07/26/2021       01/26/2022         (941     (941
    0.450       07/26/2021       01/26/2022         (6,296     (6,297
    0.540       07/26/2021       01/24/2022         (1,688     (1,688

JML

    (0.450     06/15/2021       09/15/2021       EUR       (311     (368
    (0.400     06/15/2021       09/15/2021         (2,613     (3,099
    (0.380     06/15/2021       09/15/2021         (5,158     (6,115
    (0.380     06/16/2021       09/16/2021         (5,628     (6,673
    (0.300     07/14/2021       10/14/2021         (2,277     (2,701
    (0.050     07/08/2021       TBD (3)      $       (752     (752
    0.200       06/15/2021       09/15/2021       GBP       (772     (1,073
    0.230       06/15/2021       09/15/2021         (966     (1,343
    0.350       07/14/2021       10/14/2021         (9,244     (12,852
    0.350       07/19/2021       10/19/2021         (401     (557
    0.450       06/21/2021       09/20/2021       $       (8,368     (8,373
    0.450       07/12/2021       09/20/2021         (1,553     (1,553
    0.500       07/22/2021       01/24/2022         (873     (874

MEI

    (0.200     07/13/2021       10/11/2021       EUR       (2,559     (3,035

NOM

    0.400       08/02/2021       09/02/2021       $       (11,685     (11,685
    0.450       06/01/2021       08/02/2021         (2,883     (2,885
    0.450       06/03/2021       08/02/2021         (3,215     (3,218
    0.450       06/10/2021       08/02/2021         (1,096     (1,097
    0.450       06/14/2021       08/02/2021         (190     (190
    0.450       07/22/2021       08/02/2021         (4,176     (4,177

SCX

    (0.370     07/08/2021       10/08/2021       EUR       (1,853     (2,198

SOG

    0.270       07/28/2021       08/30/2021       $       (6,134     (6,135
    0.400       07/16/2021       01/18/2022         (3,438     (3,439
    0.450       05/10/2021       08/13/2021         (3,916     (3,920
    0.450       05/17/2021       08/20/2021         (5,064     (5,069
    0.450       05/20/2021       08/17/2021         (550     (551
    0.450       05/24/2021       08/25/2021         (3,223     (3,226
    0.450       05/25/2021       08/27/2021         (5,270     (5,275
    0.450       06/02/2021       09/02/2021         (1,310     (1,311
    0.450       06/03/2021       09/07/2021         (2,688     (2,690

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     39
    


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

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
    Amount
Borrowed(2)
    Payable for
Reverse
Repurchase
Agreements
 
    0.450     06/14/2021       09/16/2021       $       (8,099   $ (8,104
    0.450       06/15/2021       09/17/2021         (8,405     (8,410
    0.450       06/16/2021       08/20/2021         (1,442     (1,443
    0.450       06/17/2021       09/17/2021         (1,945     (1,946
    0.450       06/18/2021       08/27/2021         (576     (577
    0.450       06/25/2021       09/07/2021         (8,788     (8,792
    0.450       06/28/2021       08/27/2021         (1,389     (1,390
    0.450       06/28/2021       09/28/2021         (1,426     (1,427
    0.450       07/02/2021       09/02/2021         (3,722     (3,723
    0.450       07/19/2021       08/17/2021         (6,868     (6,870
    0.500       07/07/2021       10/05/2021         (4,438     (4,439
    0.500       07/16/2021       01/18/2022         (24,255     (24,261
    0.500       07/20/2021       01/20/2022         (3,116     (3,117
    0.550       06/02/2021       03/02/2022         (15,355         (15,369
    0.550       06/07/2021       03/07/2022         (16,662     (16,676
    0.550       06/10/2021       03/10/2022         (739     (739
    0.550       06/16/2021       03/02/2022         (2,679     (2,680
    0.550       06/24/2021       03/02/2022         (4,516     (4,518
    0.550       06/28/2021       03/02/2022         (5,188     (5,190
    0.550       06/30/2021       03/02/2022         (4,137     (4,139
    0.550       07/01/2021       03/02/2022         (3,517     (3,518
    0.550       07/07/2021       03/02/2022         (3,975     (3,977
    0.550       07/09/2021       03/07/2022         (6,707     (6,710
    0.550       07/27/2021       04/27/2022         (1,289     (1,289
    0.550       07/30/2021       03/02/2022         (1,020     (1,020

TDM

    0.220       06/03/2021       TBD (3)        (2,526     (2,527
    0.220       06/07/2021       TBD (3)        (3,560     (3,561
    0.250       02/24/2021       TBD (3)        (1,238     (1,239
    0.250       04/16/2021       TBD (3)            (22,639     (22,656

UBS

    (0.100     05/12/2021       08/12/2021       EUR       (1,918     (2,274
    0.350       07/08/2021       10/08/2021       $       (5,482     (5,484
    0.400       07/23/2021       08/24/2021         (47,785     (47,791
    0.400       07/27/2021       08/30/2021         (6,338     (6,338
    0.400       07/30/2021       08/30/2021         (40,546     (40,547
    0.430       06/07/2021       09/07/2021         (6,602     (6,606
    0.430       07/20/2021       10/19/2021         (3,748     (3,748
    0.450       05/19/2021       08/19/2021         (5,560     (5,565
    0.450       06/02/2021       09/03/2021         (48,160     (48,197
    0.500       05/12/2021       08/12/2021       GBP       (4,727     (6,578
    0.500       07/14/2021       01/12/2022       $       (9,027     (9,029
           

 

 

 

Total Reverse Repurchase Agreements

 

  $     (1,012,822
           

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral pledged/(received) as of July 31, 2021:

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received(1)
    Payable for
Reverse
Repurchase
Agreements
    Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
    Collateral
Pledged/(Received)
    Net Exposure(4)  

Global/Master Repurchase Agreement

 

BOS

  $ 0     $ (41,857   $     0      $ (41,857   $ 43,780     $ 1,923  

BPS

        53,600       (48,364     0        5,236       (2     5,234  

BRC

    0           (135,956     0        (135,956         152,907           16,951  

BYR

    0       (47,412     0        (47,412     56,697       9,285  

CDC

    0       (114,535     0            (114,535     121,919       7,384  

CEW

    0       (60,180     0        (60,180     71,968       11,788  

CIB

    0       (442     0        (442     485       43  

CIW

    0       (37,378     0        (37,378     38,920       1,542  

FICC

    8,390       0       0        8,390       (8,558     (168

FOB

    0       (2,881     0        (2,881     3,193       312  

IND

    0       (64,919     0        (64,919     70,955       6,036  

JML

    0       (46,333     0        (46,333     52,868       6,535  

MEI

    0       (3,035     0        (3,035     3,144       109  

NOM

    0       (23,252     0        (23,252     12,471           (10,781

SCX

    0       (2,198     0        (2,198     2,453       255  

SOG

    0       (171,940     0        (171,940     200,354       28,414  

TDM

    0       (29,983     0        (29,983     31,633       1,650  

UBS

    0       (182,157     0        (182,157     213,021       30,864  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     61,990     $     (1,012,822   $     0         
 

 

 

   

 

 

   

 

 

        

 

       
40   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

 

Corporate Bonds & Notes

  $ 0     $ (329,570   $ (305,931   $ (331,224   $ (966,725

Municipal Bonds & Notes

    0       0       0       (17,075     (17,075

U.S. Government Agencies

    0       (442     0       0       (442

Sovereign Issues

    0       0       (10,199     (752     (10,951

Preferred Securities

    0       (2,274     0       (1,215     (3,489
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (332,286   $     (316,130   $     (350,266   $     (998,682
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Payable for reverse repurchase agreements(5)

 

  $     (998,682
 

 

 

 

 

(n)

Securities with an aggregate market value of $1,143,573 and cash of $150 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021.

 

(1)

Includes accrued interest.

(2)

The average amount of borrowings outstanding during the period ended July 31, 2021 was $(749,579) at a weighted average interest rate of 0.564%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period.

(3)

Open maturity reverse repurchase agreement.

(4)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

(5)

Unsettled reverse repurchase agreements liability of $(14,140) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity   Fixed
Receive Rate
    Payment
Frequency
    Maturity
Date
    Implied
Credit Spread at
July 31, 2021(2)
    Notional
Amount(3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Market
Value(4)
    Variation Margin  
  Asset     Liability  

Atlantia SPA

    1.000     Quarterly       12/20/2025       1.071     EUR       1,000     $ (45   $ 43     $ (2   $ 0     $ 0  

Atlantia SpA

    1.000       Quarterly       06/20/2026       1.141         4,500       (155     125       (30     1       0  

Boeing Co.

    1.000       Quarterly       12/20/2021       0.443       $       1,000       (25     28       3       0       0  

Boeing Co.

    1.000       Quarterly       06/20/2026       1.109         12,700       (231     180       (51     0       (1

Bombardier, Inc.

    5.000       Quarterly       06/20/2024       2.773         4,700       (9     326       317       7       0  

Bombardier, Inc.

    5.000       Quarterly       12/20/2024       3.311         1,000       (2     62       60       0       (1

Energy Transfer Operating LP

    1.000       Quarterly       06/20/2026       0.906         100       (2     3       1       0       0  

Hess Corp.

    1.000       Quarterly       06/20/2026       1.152         100       (3     2       (1     0       0  

MGM Resorts International

    5.000       Quarterly       06/20/2026       2.229         11,800       1,619       (54     1,565       0       (26

Rolls-Royce PLC

    1.000       Quarterly       06/20/2025       2.108       EUR       1,900       (362     270       (92     2       0  

Rolls-Royce PLC

    1.000       Quarterly       12/20/2025       2.269         27,400       (4,887     3,185       (1,702     0       0  

Rolls-Royce PLC

    1.000       Quarterly       06/20/2026       2.395         11,400       (853     (8     (861     5       0  
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        $     (4,955   $     4,162     $     (793   $     15     $     (28
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Index/Tranches   Fixed
Receive Rate
    Payment
Frequency
    Maturity
Date
    Notional
Amount(3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Market
Value(4)
    Variation Margin  
  Asset     Liability  

CDX.HY-34 5-Year Index

    5.000     Quarterly       06/20/2025     $     1,104     $ (7   $ 115     $ 108     $ 0     $ (1

CDX.HY-35 5-Year Index

    5.000       Quarterly       12/20/2025       1,300       51       75       126       0       (3

CDX.HY-36 5-Year Index

    5.000       Quarterly       06/20/2026       8,900       815       56       871       0       (25
         

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        $     859     $     246     $     1,105     $     0     $     (29
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

INTEREST RATE SWAPS

 

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

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750   Annual     09/15/2031       GBP       23,800     $ (20   $ (507   $ (527   $ 0     $ (43

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750     Annual     09/15/2051         7,800       491       (845     (354     0       (39

Receive(5)

 

1-Day USD-Federal Funds Rate Compounded-OIS

    0.100     Annual     01/13/2023       $       10,000       (1     4       3       0       (1

Pay

 

1-Year BRL-CDI

    4.640     Maturity     01/03/2022       BRL       827,500       60       (580     (520     0       (67

Pay

 

1-Year BRL-CDI

    6.170     Maturity     01/02/2023         168,900           (31         (314         (345         0           (91

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     41
    


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

 

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

Receive

 

3-Month USD-LIBOR

    0.250 %     Semi-Annual     12/18/2022       $       78,000     $ 38     $ (127   $ (89   $ 0     $ (6

Receive

 

3-Month USD-LIBOR

    0.250     Semi-Annual     06/16/2024         10,000       27       26       53       0       (6

Pay

 

3-Month USD-LIBOR

    2.750     Semi-Annual     06/17/2025         8,580       541       189       730       10       0  

Pay

 

3-Month USD-LIBOR

    2.250     Semi-Annual     06/15/2026         44,400       2,099       1,173       3,272       68       0  

Receive

 

3-Month USD-LIBOR

    0.500     Semi-Annual     06/16/2026         35,000       544       (103     441       0       (45

Pay

 

3-Month USD-LIBOR

    2.500     Semi-Annual     12/20/2027         73,900       530       6,757       7,287       176       0  

Receive(5)

 

3-Month USD-LIBOR

    1.420     Semi-Annual     08/17/2028         47,100       0       (1,196     (1,196     0       (124

Receive(5)

 

3-Month USD-LIBOR

    1.380     Semi-Annual     08/24/2028         71,000       0       (1,585     (1,585     0       (187

Pay

 

3-Month USD-LIBOR

    3.000     Semi-Annual     06/19/2029         263,700       13,372       25,555       38,927       925       0  

Receive

 

3-Month USD-LIBOR

    1.000     Semi-Annual     12/16/2030         3,600       (75     144       69       0       (14

Receive

 

3-Month USD-LIBOR

    1.160     Semi-Annual     04/12/2031         6,100       0       36       36       0       (26

Receive

 

3-Month USD-LIBOR

    0.750     Semi-Annual     06/16/2031         154,000       12,493       (5,300     7,193       0       (616

Receive(5)

 

3-Month USD-LIBOR

    1.750     Semi-Annual     12/15/2031         97,600       (1,547     (2,450     (3,997     0       (426

Pay

 

3-Month USD-LIBOR

    3.500     Semi-Annual     06/19/2044         305,100       (9,953     123,986       114,033       2,524       0  

Receive

 

3-Month USD-LIBOR

    2.250     Semi-Annual     12/11/2049         2,200       (3     (302     (305     0       (17

Receive

 

3-Month USD-LIBOR

    2.000     Semi-Annual     01/15/2050         19,800       (143     (1,388     (1,531     0       (143

Receive

 

3-Month USD-LIBOR

    1.750     Semi-Annual     01/22/2050         28,200       (65     (420     (485     0       (191

Receive

 

3-Month USD-LIBOR

    1.875     Semi-Annual     02/07/2050         29,300       (114     (1,505     (1,619     0       (205

Receive

 

3-Month USD-LIBOR

    2.250     Semi-Annual     03/12/2050         9,800       (29     (1,395     (1,424     0       (75

Receive

 

3-Month USD-LIBOR

    1.150     Semi-Annual     12/11/2050         318,100       697       40,193       40,890       0       (1,772

Receive

 

3-Month USD-LIBOR

    1.250     Semi-Annual     12/16/2050         17,000       1,650       120       1,770       0       (98

Pay

 

6-Month  AUD-BBR-BBSW

    3.500     Semi-Annual     06/17/2025       AUD       13,400       332       837       1,169       0       0  

Pay

 

6-Month CZK-PRIBOR

    1.800     Annual     05/17/2026       CZK       814,100       0       10       10       0       (159

Receive

 

6-Month EUR-EURIBOR

    (0.150   Annual     03/18/2030       EUR       21,400       392       (427     (35     0       (31

Receive(5)

 

6-Month EUR-EURIBOR

    0.000     Annual     09/15/2031         19,500       321       (447     (126     0       (37

Pay

 

6-Month HUF-BBR

    2.121     Annual     05/17/2026       HUF       11,300,600       0       (458     (458     0       (215

Pay

 

28-Day MXN-TIIE

    4.550     Lunar     02/27/2023       MXN       117,300       14       (120     (106     3       0  

Pay

 

28-Day MXN-TIIE

    4.500     Lunar     03/03/2023         218,400       (8     (200     (208     5       0  
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $  21,612     $ 179,361     $ 200,973     $ 3,711     $ (4,634
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

 

    $     17,516     $     183,769     $     201,285     $     3,726     $     (4,691
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of July 31, 2021:

 

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

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     3,726     $     3,726       $     0     $     0     $     (4,691)     $     (4,691)  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(p)

Securities with an aggregate market value of $22,851 and cash of $50,431 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information.

 

       
42   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

(q)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty

  

Settlement
Month

   

Currency to
be Delivered

   

Currency to
be Received

     Unrealized Appreciation/
(Depreciation)
 
   Asset     Liability  

BOA

     08/2021     CHF     799     $     886      $ 3     $ 0  
     08/2021     PEN     1,044         268        11       0  
     08/2021     $     8,154     CAD     9,838        0       (268
     08/2021         806     RUB     60,607        20       0  
     09/2021         1,596         116,457        0       (17
     10/2021         268     PEN     1,044        0       (10

BPS

     08/2021     AUD     285     $     213        4       0  
     08/2021     EUR     8,033         9,530        3       (2
     08/2021     HUF     44,875         153        4       0  
     08/2021     MXN     3,296         155        0       (11
     08/2021     PEN     2,700         731        66       0  
     11/2021     $     513     MXN     10,362        0       0  

BRC

     08/2021     EUR     2,164     $     2,575        8       0  
     08/2021     GBP     11,640         16,128        0       (52
     08/2021     $     162     HUF     47,072        0       (7

CBK

     08/2021     PEN     7,736     $     2,052        148       0  
     08/2021     $     2,945     PEN     11,667        0       (72
     08/2021         735     RUB     55,253        18       0  
     09/2021     CLP     116,610     $     162        9       0  
     09/2021     MXN     2,565         128        0       0  
     09/2021     PEN     30,324         7,801        336       0  
     09/2021     $     177     CLP     130,274        0       (6
     09/2021         8,824     PEN     33,811        0       (500
     09/2021         4     TRY     37        0       0  
     09/2021         5,754     ZAR     79,141        0           (382
     10/2021     PEN     3,112     $     797        30       0  
     10/2021     $     7,456     PEN     29,128        0       (284
     11/2021         5,929     MXN     120,969        59       0  
     12/2021         2,821     INR     216,258        45       0  

GLM

     08/2021     HUF     333,762     $     1,161        57       0  
     08/2021     $     89,576     GBP     64,214        0       (319
     08/2021         1,254     PEN     4,984        0       (27
     08/2021         1,030     RUB     77,184        22       0  
     09/2021     GBP     64,214     $     89,583            319       0  
     09/2021     $     2,028     RUB     148,665        0       (12
     09/2021         2,786     ZAR     38,351        0       (183
     10/2021         1,543     RUB     116,316        25       0  

HUS

     08/2021     EUR     11,209     $     13,274        0       (22
     08/2021     GBP     52,574         72,772        0       (306
     08/2021     $     1,656     RUB     124,684        44       0  
     09/2021         20,813     CNH     133,757        0       (195
     09/2021         159     PEN     624        0       (5
     09/2021         837     RUB     61,317        0       (6
     10/2021     PEN     410     $     111        10       0  
     10/2021     $     9,357     MXN     189,579        65       0  
     10/2021         401     RUB     30,242        7       0  
     12/2021     PEN     384     $     104        9       0  
     12/2021     $     1,223     INR     94,145        24       0  

JPM

     08/2021     CZK     24,181     $     1,160        36       0  
     12/2021     $     817     INR     61,626        0       (1

MYI

     08/2021     BRL     90,532     $     17,360        0       (23
     08/2021     $     17,902     BRL     90,532        0       (520
     08/2021         166     MXN     3,296        0       0  
     09/2021     MXN     3,296     $     165        0       0  
     09/2021     $     17,293     BRL     90,532        19       0  
     09/2021         65     PEN     258        0       (1

SCX

     08/2021     EUR     113,799     $     135,031        47       (10
     08/2021     $     131     CZK     2,724        0       (4
     08/2021         1,861     EUR     1,576        9       0  
     09/2021     EUR     133,629     $     158,548        0       (61
     09/2021     PEN     2,531         636        13       0  
     09/2021     $     8,229     IDR     118,524,667        0       (59
     10/2021         1,979     RUB     148,938        30       0  
     12/2021     PEN     238     $     64        6       0  

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     43
    


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

 

Counterparty

  

Settlement
Month

   

Currency to
be Delivered

   

Currency to
be Received

     Unrealized Appreciation/
(Depreciation)
 
   Asset     Liability  
     12/2021     $     3,276     INR     246,047      $ 0     $ (16

SOG

     08/2021         171     CZK     3,578        0       (4
     08/2021         919     RUB     69,290        26       0  

UAG

     08/2021     SEK     315     $     38        1       0  
     08/2021     $     7,478     NOK     61,817        0       (481
     09/2021         826     RUB     60,579        0       (4
     10/2021         1,215         91,522        20       0  
             

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

           $     1,553     $     (3,870
             

 

 

   

 

 

 

 

WRITTEN OPTIONS:

 

CREDIT DEFAULT SWAPTIONS ON CREDIT INDICES

 

Counterparty   Description   Buy/Sell
Protection
  Exercise
Rate
    Expiration
Date
    Notional
Amount(1)
  Premiums
(Received)
    Market
Value
 

BOA

 

Put - OTC CDX.HY-36 5-Year Index

  Sell     101.000     10/20/2021     3,700   $ (17   $ (10

BPS

 

Put - OTC iTraxx Europe 35 5-Year Index

  Sell     0.800       09/15/2021     7,800     (10     (2

BRC

 

Put - OTC iTraxx Europe 35 5-Year Index

  Sell     0.800       09/15/2021     17,200     (23     (3
 

Put - OTC iTraxx Europe 35 5-Year Index

  Sell     0.850       10/20/2021     17,000     (20     (7

DUB

 

Put - OTC CDX.IG-36 5-Year Index

  Sell     0.900       09/15/2021     51,300     (52     (10

FBF

 

Put - OTC CDX.HY-36 5-Year Index

  Sell     104.000       09/15/2021     3,500     (20     (7
 

Put - OTC CDX.IG-36 5-Year Index

  Sell     0.750       08/18/2021     15,500     (16     (1
 

Put - OTC CDX.IG-36 5-Year Index

  Sell     0.900       09/15/2021     34,000     (36     (6

GST

 

Put - OTC CDX.IG-36 5-Year Index

  Sell     0.850       10/20/2021     32,100     (34     (16

JPM

 

Put - OTC iTraxx Europe 35 5-Year Index

  Sell     0.850       10/20/2021     17,000     (21     (7
           

 

 

   

 

 

 

Total Written Options

  $     (249   $     (69
 

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

CREDIT DEFAULT SWAPS ON CORPORATE AND SOVEREIGN ISSUES - SELL PROTECTION(2)

 

Counterparty

 

Reference Entity

 

Fixed
Receive Rate

   

Payment
Frequency

 

Maturity
Date

    Implied
Credit Spread at
July 31, 2021(3)
    Notional
Amount(4)
   

Premiums
Paid/(Received)

    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at  Value(5)
 
  Asset     Liability  
BPS  

Petrobras Global Finance BV

    1.000   Quarterly     12/20/2024       1.561   $ 1,800     $ (352   $ 320     $ 0     $ (32
BRC  

Springleaf Finance Corp.

    5.000     Quarterly     12/20/2021       0.499       2,700       (40     104       64       0  
 

Ukraine Government International Bond

    5.000     Quarterly     12/20/2022       3.320           16,900           1,036       (549     487       0  
GST  

Petrobras Global Finance BV

    1.000     Quarterly     12/20/2024       1.561       2,400       (476     434       0       (42
 

Petroleos Mexicanos

    1.000     Quarterly     12/20/2021       1.456       100       (5     5       0       0  
HUS  

Petrobras Global Finance BV

    1.000     Quarterly     12/20/2024       1.561       3,000       (623     571       0       (52
JPM  

Springleaf Finance Corp.

    5.000     Quarterly     06/20/2022       0.675       6,570       620           (326         294       0  
             

 

 

   

 

 

   

 

 

   

 

 

 
          $ 160     $ 559     $ 845     $     (126
         

 

 

   

 

 

   

 

 

   

 

 

 

 

CREDIT DEFAULT SWAPS ON CREDIT INDICES - SELL PROTECTION(2)

 

Counterparty

 

Index/Tranches

 

Fixed
Receive Rate

   

Payment
Frequency

 

Maturity
Date

    Notional
Amount(4)
   

Premiums
Paid/(Received)

    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at  Value(5)
 
  Asset     Liability  
BRC  

ABX.HE.AAA.6-2 Index

    0.110   Monthly     05/25/2046       $    28,949     $ (6,111   $ 5,198     $ 0     $ (913
GST  

ABX.HE.AA.6-1 Index

    0.320     Monthly     07/25/2045       13,018       (618     (224     0       (842
 

ABX.HE.AAA.6-2 Index

    0.110     Monthly     05/25/2046       2,449       (516     439       0       (77
MEI  

ABX.HE.AAA.6-2 Index

    0.110     Monthly     05/25/2046       33,741       (7,042     5,977       0       (1,065
MYC  

ABX.HE.AAA.6-2 Index

    0.110     Monthly     05/25/2046       36,732       (4,684     3,525       0       (1,159
           

 

 

   

 

 

   

 

 

   

 

 

 
          $     (18,971   $     14,915     $     0     $     (4,056
         

 

 

   

 

 

   

 

 

   

 

 

 

 

       
44   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

INTEREST RATE SWAPS

 

Counterparty

 

Pay/Receive
Floating Rate

 

Floating Rate Index

 

Fixed Rate

   

Payment
Frequency

 

Maturity
Date

 

Notional
Amount

    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
  Asset     Liability  
MYC  

Pay

 

3-Month USD-LIBOR

    1.670   Semi-Annual   08/17/2028   $     188,400     $ (134   $ 860     $ 726     $ 0  
 

Pay

 

3-Month USD-LIBOR

    1.630     Semi-Annual   08/24/2028         284,100       (99     1,167       1,068       0  
             

 

 

   

 

 

   

 

 

   

 

 

 
    $     (233   $     2,027     $     1,794     $     0  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

TOTAL RETURN SWAPS ON INTEREST RATE INDICES

 

Counterparty

 

Pay/Receive(6)

 

Underlying Reference

 

# of Units

   

Financing Rate

 

Payment
Frequency

 

Maturity
Date

 

Notional
Amount

   

Premiums
Paid/(Received)

    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
  Asset     Liability  

BPS

 

Receive

 

iBoxx USD Liquid High Yield Index

    N/A    

0.135% (3-Month USD-LIBOR plus a specified spread)

  Maturity   12/20/2021   $     2,600     $ 0     $ 3     $ 3     $ 0  
               

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

 

  $     (19,044   $     17,504     $     2,642     $     (4,182
 

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral pledged/(received) as of July 31, 2021:

 

Counterparty

  Financial Derivative Assets           Financial Derivative Liabilities                    
  Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
    Swap
Agreements
    Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
Pledged/
(Received)
    Net
Exposure(7)
 

BOA

  $ 34      $ 0      $ 0      $ 34       $ (295   $ (10   $ 0     $ (305   $ (271   $ 303     $ 32  

BPS

    77        0        3        80         (13     (2     (32     (47     33       0       33  

BRC

    8        0        551        559         (59     (10     (913     (982     (423     449       26  

CBK

    645        0        0        645         (1,244     0       0       (1,244     (599     430       (169

DUB

    0        0        0        0         0       (10     0       (10     (10     (10     (20

FBF

    0        0        0        0         0       (14     0       (14     (14     41       27  

GLM

    423        0        0        423         (541     0       0       (541     (118     0       (118

GST

    0        0        0        0         0       (16     (961     (977     (977     1,228       251  

HUS

    159        0        0        159         (534     0       (52     (586     (427     581       154  

JPM

    36        0        294        330         (1     (7     0       (8     322       (310     12  

MEI

    0        0        0        0         0       0       (1,065     (1,065       (1,065       1,147       82  

MYC

    0        0        1,794        1,794         0       0       (1,159     (1,159     635       (870       (235

MYI

    19        0        0        19         (544     0       0       (544     (525     26       (499

SCX

    105        0        0        105         (150     0       0       (150     (45     0       (45

SOG

    26        0        0        26         (4     0       0       (4     22       0       22  

UAG

    21        0        0        21         (485     0       0       (485     (464     542       78  
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

Total Over the Counter

  $   1,553      $   0      $   2,642      $   4,195       $   (3,870   $   (69   $   (4,182   $   (8,121      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

   

 

 

   

 

 

       

 

(r)

Securities with an aggregate market value of $4,747 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of July 31, 2021.

 

(1)

Notional Amount represents the number of contracts.

(2)

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

(3)

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

(4)

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

(5)

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

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     45
    


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

 

(6) 

Receive represents that the Fund receives payments for any positive net return on the underlying reference. The Fund makes payments for any negative net return on such underlying reference. Pay represents that the Fund receives payments for any negative net return on the underlying reference. The Fund makes payments for any positive net return on such underlying reference.

(7)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of July 31, 2021:

 

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

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 15     $ 0     $ 0     $ 3,711     $ 3,726  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 1,553     $ 0     $ 1,553  

Swap Agreements

    0       845       0       0       1,797       2,642  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 845     $ 0     $ 1,553     $ 1,797     $ 4,195  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 860     $ 0     $ 1,553     $ 5,508     $ 7,921  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 57     $ 0     $ 0     $ 4,634     $ 4,691  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 3,870     $ 0     $ 3,870  

Written Options

    0       69       0       0       0       69  

Swap Agreements

    0       4,182       0       0       0       4,182  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 4,251     $ 0     $ 3,870     $ 0     $ 8,121  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     4,308     $     0     $     3,870     $     4,634     $     12,812  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:

 

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

Net Realized Gain (Loss) on Financial Derivative Instruments

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 1,614     $ 0     $ 0     $ 17,815     $ 19,429  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (5,505   $ 0     $ (5,505

Written Options

    0       43       0       0       0       43  

Swap Agreements

    0       6,807       0       0       (834     5,973  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 6,850     $ 0     $ (5,505   $ (834   $ 511  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 8,464     $ 0     $     (5,505   $ 16,981     $ 19,940  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 5,615     $ 0     $ 0     $ (17,963   $     (12,348
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 5,538     $ 0     $ 5,538  

Written Options

    0       180       0       0       0       180  

Swap Agreements

    0       5,355       0       0       2,031       7,386  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 5,535     $ 0     $ 5,538     $ 2,031     $ 13,104  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     11,150     $     0     $ 5,538     $     (15,932   $ 756  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

       
46   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 0     $ 562,609     $ 72,137     $ 634,746  

Corporate Bonds & Notes

 

Banking & Finance

    0       365,511       0       365,511  

Industrials

    0       997,500       1,999       999,499  

Utilities

    0       126,221       0       126,221  

Convertible Bonds & Notes

 

Banking & Finance

    0       0       930       930  

Industrials

    0       6,062       0       6,062  

Municipal Bonds & Notes

 

Illinois

    0       21,297       0       21,297  

Puerto Rico

    0       6,754       0       6,754  

Virginia

    0       1,395       0       1,395  

West Virginia

    0       8,945       0       8,945  

U.S. Government Agencies

    0       31,968       8,566       40,534  

Non-Agency Mortgage-Backed Securities

    0           175,716       0       175,716  

Asset-Backed Securities

    0       171,955           19,447           191,402  

Sovereign Issues

    0       83,784       0       83,784  

Common Stocks

 

Communication Services

        10,218       0       4,967       15,185  

Energy

    1,004       0       90       1,094  

Financials

    0       0       2,971       2,971  

Industrials

    19       72       16,777       16,868  

Warrants

 

Financials

    0       0       24       24  

Industrials

    0       0       854       854  

Information Technology

    0       0       26,360       26,360  

Preferred Securities

 

Banking & Finance

    0       50,238       0       50,238  

Industrials

    0       1,319       46,632       47,951  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Real Estate Investment Trusts

 

Real Estate

  $ 33,479     $ 0     $ 0     $ 33,479  

Short-Term Instruments

 

Repurchase Agreements

    0       61,990       0       61,990  

Argentina Treasury Bills

    0       73       0       73  

U.S. Treasury Bills

    0       21,497       0       21,497  

U.S. Treasury Cash Management Bills

    0       12,566       0       12,566  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 44,720     $ 2,707,472     $ 201,754     $ 2,953,946  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

    0       3,726       0       3,726  

Over the counter

    0       4,195       0       4,195  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 7,921     $ 0     $ 7,921  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (4,691     0       (4,691

Over the counter

    0       (8,121     0       (8,121
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (12,812   $ 0     $ (12,812
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ (4,891   $ 0     $ (4,891
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     44,720     $     2,702,581     $     201,754     $     2,949,055  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:

 

Category and Subcategory   Beginning
Balance
at 07/31/2020
    Net
Purchases
    Net
Sales/
Settlements
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation)(1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 07/31/2021
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
07/31/2021(1)
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 45,887     $ 86,039     $ (55,548   $ 129     $ (18,668   $ 13,538     $ 792     $ (32   $ 72,137     $ (791

Corporate Bonds & Notes

 

Industrials

    0       1,985       0       0       0       14       0       0       1,999       14  

Convertible Bonds & Notes

 

Banking & Finance

    0       876       0       0       0       54       0       0       930       54  

U.S. Government Agencies

    8,599       0       (188     35       63       57       0       0       8,566       46  

Non-Agency Mortgage-Backed Securities

    4,804       0       0       42       0       860       0       (5,706     0       0  

Asset-Backed Securities

    43,762       0       (22,977     0       (4,751     1,540       1,873       0       19,447       (3,930

Common Stocks

 

Communication Services

    7       4,276       0       0       0       684       0       0       4,967       684  

Energy

    0       90       0       0       0       0       0       0       90       0  

Financials

    0       2,812       (125     0       0       284       0       0       2,971       284  

Industrials

    338       4,911       0       0       0       11,528       0       0       16,777       11,528  

Real Estate

    5,369       0       0       0       0       1,332       0       (6,701     0       0  

Warrants

 

Financials

    0       26       0       0       0       (2     0       0       24       (2

Industrials

    0       0       0       0       0       854       0       0       854       854  

Information Technology

    0       9,795       0       0       0       16,565       0       0       26,360       16,565  

Preferred Securities

 

Industrials

    25,801       5,586       (8,181     0       0       23,426       0       0       46,632       23,426  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     134,567     $     116,396     $     (87,019   $     206     $     (23,356   $     70,734     $     2,665     $     (12,439   $     201,754     $     48,732  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     47
    


Schedule of Investments   PIMCO Corporate & Income Opportunity Fund   (Cont.)   July 31, 2021

 

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

 

Category and Subcategory   Ending
Balance
at 07/31/2021
     Valuation
Technique
   Unobservable
Inputs
     Input Value(s)      Weighted
Average
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 32,000      Waterfall Recoverability    Recovery Value      %        100.000        —    
    9,989      Reference Instrument    Yield         5.738        —    
    30,148      Third Party Vendor    Broker Quote         21.500-99.875        97.110  

Corporate Bonds & Notes

                

Industrials

    1,999      Proxy Pricing    Base Price         100.000        —    

Convertible Bonds & Notes

                

Banking & Finance

    930      Other Valuation Techniques(2)    —           —          —    

U.S. Government Agencies

    8,566      Proxy Pricing    Base Price         61.285        —    

Asset-Backed Securities

    19,447      Proxy Pricing    Base Price             14.800-98,000.000        54,843.723  

Common Stocks

 

Communication Services

    4,967      Reference Instrument    Liquidity Discount         10.000        —    

Energy

    90      Other Valuation Techniques(2)    —           —          —    

Financials

    2,971      Other Valuation Techniques(2)    —           —          —    

Industrials

    16,777      Discounted Cash Flow    Discount Rate         14.250        —    

Warrants

 

Financials

    24      Other Valuation Techniques(2)    —           —          —    

Industrials

    854      Other Valuation Techniques(2)    —           —          —    

Information Technology

    26,360      Comparable Companies    EBITDA      x        4.375        —    

Preferred Securities

                

Industrials

    5,228      Comparable Companies/
Discounted Cash Flow
   Book Value/
Discount Rate
     x/%        0.210/20.150        —    
    41,404      Comparable Companies    EBITDA      x/x        11.700/9.200        —    
 

 

 

                

Total

  $     201,754                 
 

 

 

                

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 may be due to an investment no longer held or categorized as Level 3 at period end.

(2)

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

 

       
48   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


Schedule of Investments   PIMCO Corporate & Income Strategy Fund          July 31, 2021

 

(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 173.1%

 

LOAN PARTICIPATIONS AND ASSIGNMENTS 28.7%

 

AAdvantage Loyalty IP Ltd.

 

5.500% (LIBOR03M + 4.750%) due 04/20/2028 ~

  $     1,000     $     1,029  

Alphabet Holding Co., Inc.

 

3.592% (LIBOR03M + 3.500%) due 09/26/2024 ~

      96         96  

Banijay Entertainment S.A.S

 

3.851% (LIBOR03M + 3.750%) due 03/01/2025 ~

      14         14  

BWAY Holding Co.

 

3.342% (LIBOR03M + 3.250%) due 04/03/2024 ~

      698         677  

Caesars Resort Collection LLC

 

2.842% (LIBOR03M + 2.750%) due 12/23/2024 ~

      13,794           13,651  

4.592% (LIBOR03M + 4.500%) due 07/21/2025 ~

      2,286         2,291  

Carnival Corp.

 

3.750% (EUR003M + 3.750%) due 06/30/2025 ~

  EUR     2,197         2,612  

Cengage Learning, Inc.

 

TBD% due 06/29/2026

  $     4,677         4,680  

Cimpress PLC

 

4.000% (LIBOR03M + 3.500%) due 05/17/2028 ~

      1,600         1,599  

CityCenter Holdings LLC

 

3.000% (LIBOR03M + 2.250%) due 04/18/2024 ~

      1,099         1,097  

Clear Channel Outdoor Holdings, Inc.

 

3.607% - 3.629% (LIBOR03M + 3.500%) due 08/21/2026 ~

      5,086         4,947  

Cornerstone Building Brands, Inc.

 

3.750% (LIBOR03M + 3.250%) due 04/12/2028 ~

      39         39  

Coty, Inc.

 

2.352% (LIBOR03M + 2.250%) due 04/07/2025 ~

      2,291         2,203  

Diamond Resorts Corp.

 

4.750% - 6.000% (PRIME + 2.750%) due 09/02/2023 ~

      548         548  

Emerald TopCo, Inc.

 

3.592% - 3.629% (LIBOR03M + 3.500%) due 07/24/2026 ~

      105         104  

Envision Healthcare Corp.

 

3.842% (LIBOR03M + 3.750%) due 10/10/2025 ~

      20,146         17,285  

First Student Bidco, Inc.

 

TBD% due 07/21/2028

      5,406         5,372  

Fly Funding SARL

 

7.000% (LIBOR03M + 6.000%) due 10/08/2025 ~

      4,331         4,364  

Forbes Energy Services LLC

 

TBD% due 12/31/2021 «

      202         0  

Forest City Enterprises LP

 

3.592% (LIBOR03M + 3.500%) due 12/08/2025 ~

      1,912         1,880  

Frontier Communications Corp.

 

4.500% (LIBOR03M + 3.750%) due 05/01/2028 ~

      4,788         4,794  

Hertz Corp.

 

4.000% - 4.250% (LIBOR03M + 3.500%) due 06/14/2028 ~

      2,363         2,352  

ICON Luxembourg SARL

 

3.000% (LIBOR03M + 2.500%) due 07/03/2028 ~

      6,100         6,093  

INEOS Finance PLC

 

2.500% (EUR003M + 2.000%) due 04/01/2024 ~

  EUR     2,700         3,189  

Intelsat Jackson Holdings S.A.

 

3.600% - 6.500% (LIBOR03M + 5.500%) due 07/13/2022 ~

  $     1,810         1,827  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

IRB Holding Corp.

 

2.964% - 3.750% (LIBOR03M + 2.750%) due 02/05/2025 ~

  $     914     $     909  

Lealand Finance Company B.V.

 

3.092% (LIBOR03M + 3.000%) due 06/30/2024 «~

      75         49  

Lealand Finance Company B.V. (1.092% Cash and 3.000% PIK)

 

4.092% (LIBOR03M + 1.000%) due 06/30/2025 ~(d)

      349         157  

Madison IAQ LLC

 

3.750% (LIBOR03M + 3.250%) due 06/21/2028 ~

      2,400         2,383  

Mcafee LLC

 

TBD% due 05/03/2028

      1,610         1,605  

MH Sub LLC

 

3.592% (LIBOR03M + 3.500%) due 09/13/2024 ~

      3,572           3,551  

Nascar Holdings, Inc.

 

2.842% (LIBOR03M + 2.750%) due 10/19/2026 ~

      56         55  

Padagis LLC

 

5.250% (LIBOR03M + 4.750%) due 07/06/2028 «~

      6,600         6,621  

Parexel International Corp.

 

2.842% (LIBOR03M + 2.750%) due 09/27/2024 ~

      2,772         2,766  

PUG LLC

 

3.592% (LIBOR03M + 3.500%) due 02/12/2027 ~

      4,672         4,579  

Redstone Buyer LLC

 

TBD% due 04/27/2028 µ

      744         742  

5.500% (LIBOR03M + 4.750%) due 04/27/2028 ~

      1,900         1,895  

Sasol Ltd.

 

0.500% - 1.746% (LIBOR03M + 1.600%) due 11/23/2022 «~µ

      3,962         3,762  

SkyMiles IP Ltd.

 

4.750% (LIBOR03M + 3.750%) due 10/20/2027 ~

      2,400         2,538  

Sotera Health Holdings LLC

 

3.250% (LIBOR03M + 2.750%) due 12/11/2026 ~

      137         136  

Stars Group Holdings BV

 

2.397% - 3.647% (LIBOR03M + 2.250%) due 07/21/2026 ~

      7,377         7,351  

Summer (BC) Holdco SARL

 

TBD% due 12/04/2026

      2,400         2,401  

4.884% (LIBOR03M + 4.750%) due 12/04/2026 ~

      2,935         2,938  

Syniverse Holdings, Inc.

 

6.000% (LIBOR03M + 5.000%) due 03/09/2023 ~

      11,300           11,185  

10.000% (LIBOR03M + 9.000%) due 03/11/2024 ~

      832         824  

Team Health Holdings, Inc.

 

3.750% (LIBOR03M + 2.750%) due 02/06/2024 ~

      7,993         7,747  

TK Elevator GmbH

 

TBD% due 07/31/2027

  EUR     5,700         6,769  

TransDigm, Inc.

 

2.342% (LIBOR03M + 2.250%) due 08/22/2024 ~

  $     2,045         2,016  

2.342% (LIBOR03M + 2.250%) due 05/30/2025 ~

      2,045         2,011  

2.342% (LIBOR03M + 2.250%) due 12/09/2025 ~

      2,045         2,011  

U.S. Renal Care, Inc.

 

5.125% (LIBOR03M + 5.000%) due 06/26/2026 ~

      414         415  

United Airlines, Inc.

 

4.500% (LIBOR03M + 3.750%) due 04/21/2028 ~

      4,795         4,812  

Univision Communications, Inc.

 

4.000% (LIBOR03M + 3.250%) due 03/15/2026 ~

      3,419         3,418  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Victoria’s Secret & Co.

 

TBD% due 06/30/2028

  $     1,900     $     1,893  

Westmoreland Coal Company (15.000% PIK)

 

15.000% due 03/15/2029 «(d)

      4,125         887  

Westmoreland Mining Holdings LLC

 

9.250% (LIBOR03M + 8.250%) due 03/15/2022 «~

      245         237  

Windstream Services LLC

 

7.250% (LIBOR03M + 6.250%) due 09/21/2027 ~

      2,461         2,473  
       

 

 

 

Total Loan Participations and Assignments (Cost $178,319)

      173,879  
 

 

 

 
CORPORATE BONDS & NOTES 81.3%

 

BANKING & FINANCE 19.1%

 

Allied Universal Holdco LLC

 

3.625% due 06/01/2028 (n)

  EUR     1,900         2,246  

Ally Financial, Inc.

 

8.000% due 11/01/2031

  $     840         1,223  

8.000% due 11/01/2031 (n)

      927         1,328  

Apollo Commercial Real Estate Finance, Inc.

 

4.625% due 06/15/2029 (n)

      3,900         3,832  

Banca Monte dei Paschi di Siena SpA

 

2.625% due 04/28/2025 (n)

  EUR     6,959         8,528  

3.625% due 09/24/2024 (n)

      1,714         2,148  

5.375% due 01/18/2028 •

      100         98  

8.000% due 01/22/2030 •(n)

      619         681  

8.500% due 09/10/2030 •

      200         223  

10.500% due 07/23/2029 (n)

      663         885  

Banco de Credito del Peru

 

4.650% due 09/17/2024

  PEN     700         173  

Bank of Nova Scotia

 

4.900% due 06/04/2025 •(j)(k)(n)

  $     1,849         2,032  

Barclays PLC

 

5.875% due 09/15/2024 •(j)(k)(n)

  GBP     1,400         2,085  

6.125% due 12/15/2025 •(j)(k)

  $     2,000         2,229  

7.875% due 09/15/2022 •(j)(k)(n)

  GBP     3,800         5,649  

BGC Partners, Inc.

 

4.375% due 12/15/2025 (n)

  $     1,800         1,961  

Cosaint Re Pte Ltd.

 

9.288% (T-BILL 1MO + 9.250%) due 04/03/2028 ~

      700         713  

Credit Agricole S.A.

 

7.875% due 01/23/2024 •(j)(k)(n)

      200         226  

Credit Suisse Group AG

 

7.500% due 07/17/2023 •(j)(k)

      200         217  

Deutsche Bank AG

 

3.035% due 05/28/2032 •(l)(n)

      900         932  

Erste Group Bank AG

 

4.250% due 10/15/2027 •(j)(k)(n)

  EUR     200         255  

Fairfax Financial Holdings Ltd.

 

4.625% due 04/29/2030 (n)

  $     4,089         4,755  

Ford Motor Credit Co. LLC

 

1.744% due 07/19/2024

  EUR     300         365  

2.330% due 11/25/2025

      100         125  

2.748% due 06/14/2024 (n)

  GBP     200         284  

3.250% due 09/15/2025

  EUR     300         387  

4.535% due 03/06/2025 (n)

  GBP     200         300  

5.125% due 06/16/2025 (n)

  $     2,300         2,536  

Fortress Transportation & Infrastructure Investors LLC

 

6.500% due 10/01/2025 (n)

      361         374  

GSPA Monetization Trust

 

6.422% due 10/09/2029

      3,004         3,262  

Howard Hughes Corp.

 

4.125% due 02/01/2029 (n)

      300         298  

4.375% due 02/01/2031

      100         100  

HSBC Holdings PLC

 

4.750% due 07/04/2029 •(j)(k)(n)

  EUR     1,900         2,547  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     49
    


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

 

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

5.875% due 09/28/2026 •(j)(k)(n)

  GBP     200     $     312  

6.000% due 09/29/2023 •(j)(k)(n)

  EUR     2,100         2,728  

ING Groep NV

 

5.750% due 11/16/2026 •(j)(k)

  $     300         332  

Kennedy Wilson Europe Real Estate Ltd.

 

3.950% due 06/30/2022

  GBP     2,231         3,162  

Ladder Capital Finance Holdings LLLP

 

4.750% due 06/15/2029 (n)

  $     900         898  

Lloyds Banking Group PLC

 

6.750% due 06/27/2026 •(j)(k)(n)

      3,500         4,028  

7.500% due 06/27/2024 •(j)(k)(n)

      2,800         3,163  

MGM Growth Properties Operating Partnership LP

 

3.875% due 02/15/2029 (n)

      5,800         5,957  

5.750% due 02/01/2027 (n)

      700         783  

Natwest Group PLC

 

6.000% due 12/29/2025 •(j)(k)

      2,000         2,227  

8.000% due 08/10/2025 •(j)(k)(n)

      6,390         7,565  

Navient Corp.

 

5.625% due 08/01/2033 (n)

      686         667  

Newmark Group, Inc.

 

6.125% due 11/15/2023

      62         67  

Owl Rock Capital Corp.

 

2.625% due 01/15/2027 (n)

      1,400         1,418  

Park Aerospace Holdings Ltd.

 

5.500% due 02/15/2024

      20         22  

PennyMac Financial Services, Inc.

 

4.250% due 02/15/2029 (n)

      300         291  

PRA Group, Inc.

 

7.375% due 09/01/2025 (n)

      1,700         1,838  

Sitka Holdings LLC

 

5.250% due 07/06/2026 •

      442         445  

Societe Generale S.A.

 

6.750% due 04/06/2028 •(j)(k)

      200         228  

7.375% due 10/04/2023 •(j)(k)(n)

      600         654  

Tesco Property Finance PLC

 

7.623% due 07/13/2039 (n)

  GBP     224         470  

UniCredit SpA

 

7.830% due 12/04/2023 (n)

  $     4,050         4,680  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     2,160         3,376  

Uniti Group LP

 

7.875% due 02/15/2025 (n)

  $     14,430         15,390  

Voyager Aviation Holdings LLC

 

8.500% due 05/09/2026

      2,156         1,983  
       

 

 

 
            115,681  
       

 

 

 
INDUSTRIALS 54.4%

 

AA Bond Co. Ltd.

 

5.500% due 07/31/2050 (n)

  GBP     3,600         5,675  

Air Canada

 

3.875% due 08/15/2026 (c)

  $     2,200         2,208  

4.625% due 08/15/2029 «(c)

  CAD     900         720  

Alaska Airlines Pass-Through Trust

 

4.800% due 02/15/2029 (n)

  $     1,249         1,390  

Altice Financing S.A.

 

7.500% due 05/15/2026 (n)

      1,400         1,458  

American Airlines Pass-Through Trust

 

3.375% due 11/01/2028 (n)

      772         770  

American Airlines, Inc.

 

5.500% due 04/20/2026 (n)

      1,400         1,467  

APi Group DE, Inc.

 

4.125% due 07/15/2029 (n)

      2,300         2,246  

Associated Materials LLC

 

9.000% due 09/01/2025 (n)

      299         318  

B.C. Unlimited Liability Co.

 

3.500% due 02/15/2029 (n)

      1,700         1,693  

3.875% due 01/15/2028 (n)

      4,300         4,343  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Bioceanico Sovereign Certificate Ltd.

 

0.000% due 06/05/2034 (h)

  $     146     $     110  

Boeing Co.

 

3.600% due 05/01/2034 (n)

      300         322  

5.150% due 05/01/2030 (n)

      754         899  

5.705% due 05/01/2040 (n)

      736         958  

5.805% due 05/01/2050 (n)

      958         1,309  

5.930% due 05/01/2060 (n)

      884         1,225  

6.125% due 02/15/2033 (n)

      1,447         1,868  

Bombardier, Inc.

 

6.000% due 10/15/2022 (n)

      692         696  

6.125% due 01/15/2023 (n)

      745         785  

7.125% due 06/15/2026 (n)

      861         897  

7.500% due 12/01/2024 (n)

      1,000         1,041  

7.500% due 03/15/2025 (n)

      5,257         5,366  

7.875% due 04/15/2027 (n)

      6,633         6,875  

Broadcom, Inc.

 

3.419% due 04/15/2033 (n)

      5,329         5,693  

3.469% due 04/15/2034 (n)

      5,230           5,575  

4.150% due 11/15/2030 (n)

      502         570  

4.300% due 11/15/2032 (n)

      1,079         1,248  

5.000% due 04/15/2030

      40         48  

Caesars Entertainment, Inc.

 

6.250% due 07/01/2025 (n)

      400         423  

Caesars Resort Collection LLC

 

5.750% due 07/01/2025 (n)

      700         737  

Carnival Corp.

 

4.000% due 08/01/2028

      6,009         5,992  

CCO Holdings LLC

 

4.250% due 02/01/2031 (n)

      6,538         6,754  

4.500% due 08/15/2030 (n)

      148         156  

4.500% due 06/01/2033 (n)

      1,741         1,815  

CGG S.A.

 

7.750% due 04/01/2027

  EUR     800         954  

8.750% due 04/01/2027 (n)

  $     5,839         5,832  

Charter Communications Operating LLC

 

3.700% due 04/01/2051 (n)

      4,400         4,463  

3.850% due 04/01/2061 (n)

      400         400  

4.400% due 12/01/2061 (n)

      1,000         1,100  

Community Health Systems, Inc.

 

5.625% due 03/15/2027 (n)

      2,570         2,724  

6.625% due 02/15/2025 (n)

      620         651  

8.000% due 03/15/2026

      753         808  

Connect Finco SARL

 

6.750% due 10/01/2026

      58         61  

Corning, Inc.

 

5.450% due 11/15/2079

      70         102  

Coty, Inc.

 

3.875% due 04/15/2026 (n)

  EUR     5,400         6,448  

5.000% due 04/15/2026 (n)

  $     4,750         4,799  

CSC Holdings LLC

 

4.500% due 11/15/2031 (n)

      2,900           2,925  

CVS Pass-Through Trust

 

7.507% due 01/10/2032 (n)

      649         825  

DAE Funding LLC

 

5.250% due 11/15/2021 (n)

      268         271  

Delta Air Lines, Inc.

 

7.375% due 01/15/2026 (n)

      508         598  

Deluxe Corp.

 

8.000% due 06/01/2029 (n)

      4,788         5,238  

Exela Intermediate LLC

 

10.000% due 07/15/2023

      117         82  

Ferroglobe PLC

 

9.375% due 03/01/2022

      1,550         1,639  

First Quantum Minerals Ltd.

 

6.500% due 03/01/2024 (n)

      1,214         1,239  

Ford Motor Co.

 

7.700% due 05/15/2097 (n)

      7,315         9,312  

Fresh Market, Inc.

 

9.750% due 05/01/2023 (n)

      5,650         5,841  

Frontier Finance PLC

 

8.000% due 03/23/2022

  GBP     863         1,227  

Full House Resorts, Inc.

 

8.250% due 02/15/2028 (n)

  $     310         337  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

General Electric Co.

 

6.875% due 01/10/2039 (n)

  $     2     $     3  

Gruenenthal GmbH

 

4.125% due 05/15/2028 (n)

  EUR     2,681         3,276  

HCA, Inc.

 

7.500% due 11/15/2095 (n)

  $     1,200         1,784  

Helios Software Holdings, Inc.

 

4.625% due 05/01/2028 (n)

      1,700         1,679  

Hilton Domestic Operating Co., Inc.

 

3.625% due 02/15/2032 (n)

      2,600         2,597  

3.750% due 05/01/2029 (n)

      1,800         1,825  

4.000% due 05/01/2031 (n)

      1,800         1,845  

Hilton Grand Vacations Borrower Escrow LLC

 

4.875% due 07/01/2031 (n)

      2,000         1,967  

HollyFrontier Corp.

 

4.500% due 10/01/2030 (n)

      6,400         6,898  

iHeartCommunications, Inc.

 

6.375% due 05/01/2026 (n)

      1,143         1,208  

Innophos Holdings, Inc.

 

9.375% due 02/15/2028

      108         117  

Intelsat Connect Finance S.A.

 

9.500% due 02/15/2023 ^(e)

      86         28  

Intelsat Jackson Holdings S.A.

 

5.500% due 08/01/2023 ^(e)

      3,914         2,148  

8.000% due 02/15/2024

      44         46  

8.500% due 10/15/2024 ^(e)

      10,423           5,822  

9.750% due 07/15/2025 ^(e)

      3,007         1,689  

Intelsat Luxembourg S.A.

 

8.125% due 06/01/2023 ^(e)(n)

      1,121         36  

Jaguar Land Rover Automotive PLC

 

4.500% due 01/15/2026

  EUR     400         493  

4.500% due 07/15/2028 (n)

      1,350         1,617  

6.875% due 11/15/2026 (n)

      900         1,224  

Las Vegas Sands Corp.

 

3.900% due 08/08/2029 (n)

  $     300         320  

Level 3 Financing, Inc.

 

3.625% due 01/15/2029 (n)

      5,200         5,059  

3.875% due 11/15/2029 (n)

      600         648  

Marriott International, Inc.

 

4.625% due 06/15/2030

      34         39  

Melco Resorts Finance Ltd.

 

5.750% due 07/21/2028 (n)

      1,500         1,557  

MGM Resorts International

 

4.750% due 10/15/2028 (n)

      1,400         1,475  

NCL Corp. Ltd.

 

10.250% due 02/01/2026 (n)

      3,203         3,663  

12.250% due 05/15/2024 (n)

      2,900         3,426  

New Albertson’s LP

 

6.570% due 02/23/2028 (n)

      5,600         5,970  

Nissan Motor Co. Ltd.

 

4.345% due 09/17/2027 (n)

      400         445  

4.810% due 09/17/2030 (n)

      11,100           12,689  

Noble Corp. PLC (11.000% Cash or 15.000% PIK)

 

11.000% due 02/15/2028 (d)

      47         51  

Norfolk Southern Corp.

 

4.100% due 05/15/2121 (n)

      600         693  

Novelis Corp.

 

3.250% due 11/15/2026 (c)

      700         711  

3.875% due 08/15/2031 (c)

      300         304  

Odebrecht Oil & Gas Finance Ltd.

 

0.000% due 08/30/2021 (h)(j)

      753         11  

Oracle Corp.

 

4.100% due 03/25/2061 (l)(n)

      100         113  

Ortho-Clinical Diagnostics, Inc.

 

7.375% due 06/01/2025

      23         25  

Penn National Gaming, Inc.

 

4.125% due 07/01/2029 (n)

      2,200         2,172  

Performance Food Group, Inc.

 

4.250% due 08/01/2029

      1,000         1,018  

Petroleos Mexicanos

 

2.750% due 04/21/2027 (n)

  EUR     6,522         7,172  

5.950% due 01/28/2031 (n)

  $     1,931         1,901  

6.490% due 01/23/2027

      70         74  
 

 

       
50   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

6.500% due 03/13/2027 (n)

  $     190     $     201  

6.500% due 01/23/2029 (n)

      900         936  

6.750% due 09/21/2047 (n)

      950         851  

6.840% due 01/23/2030 (n)

      2,220         2,319  

6.950% due 01/28/2060 (n)

      300         270  

7.690% due 01/23/2050 (n)

      110         107  

Prime Healthcare Services, Inc.

 

7.250% due 11/01/2025 (n)

      8,093         8,705  

Prosus NV

 

1.288% due 07/13/2029 (n)

  EUR     700         833  

1.985% due 07/13/2033 (n)

      600         715  

3.061% due 07/13/2031 (n)

  $     1,400         1,385  

Qatar Petroleum

 

2.250% due 07/12/2031 (n)

      1,100         1,115  

3.125% due 07/12/2041 (n)

      1,700         1,766  

3.300% due 07/12/2051 (n)

      1,400         1,454  

QualityTech LP

 

3.875% due 10/01/2028 (n)

      1,700         1,823  

QVC, Inc.

 

5.950% due 03/15/2043 (n)

      2,408           2,504  

Rolls-Royce PLC

 

3.375% due 06/18/2026 (n)

  GBP     100         139  

4.625% due 02/16/2026

  EUR     100         129  

5.750% due 10/15/2027 (n)

  GBP     600         913  

Royal Caribbean Cruises Ltd.

 

11.500% due 06/01/2025 (n)

  $     2,086         2,391  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031 (n)

  GBP     1,000         1,854  

Sands China Ltd.

 

5.400% due 08/08/2028 (n)

  $     5,128         6,001  

Schenck Process Holding GmbH

 

6.875% due 06/15/2023

  EUR     750         898  

Seagate HDD Cayman

 

4.091% due 06/01/2029 (n)

  $     5,000         5,259  

Sensata Technologies BV

 

4.000% due 04/15/2029 (n)

      600         617  

Standard Industries, Inc.

 

3.375% due 01/15/2031 (n)

      600         583  

4.375% due 07/15/2030 (n)

      2,000         2,063  

Teva Pharmaceutical Finance BV

 

3.650% due 11/10/2021

      1,864         1,876  

Teva Pharmaceutical Finance Co. BV

 

2.950% due 12/18/2022 (n)

      1,332         1,342  

Teva Pharmaceutical Finance Netherlands BV

 

6.000% due 01/31/2025

  EUR     100         130  

Times Square Hotel Trust

 

8.528% due 08/01/2026

  $     1,095         1,194  

Topaz Solar Farms LLC

 

4.875% due 09/30/2039 (n)

      2,209         2,437  

5.750% due 09/30/2039 (n)

      9,035         10,553  

TransDigm, Inc.

 

5.500% due 11/15/2027

      34         35  

Transocean Pontus Ltd.

 

6.125% due 08/01/2025

      106         105  

Transocean, Inc.

 

7.250% due 11/01/2025

      74         59  

7.500% due 01/15/2026

      26         20  

8.000% due 02/01/2027

      117         86  

Triumph Group, Inc.

 

6.250% due 09/15/2024

      67         68  

U.S. Renal Care, Inc.

 

10.625% due 07/15/2027

      59         64  

Uber Technologies, Inc.

 

6.250% due 01/15/2028 (n)

      1,300         1,407  

Unigel Luxembourg S.A.

 

8.750% due 10/01/2026 (n)

      400         432  

United Airlines Pass-Through Trust

 

4.875% due 07/15/2027 (n)

      1,495         1,571  

5.875% due 04/15/2029 (n)

      2,875           3,204  

United Airlines, Inc.

 

4.375% due 04/15/2026 (n)

      500         515  

United Group BV

 

4.875% due 07/01/2024

  EUR     100         120  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Univision Communications, Inc.

 

5.125% due 02/15/2025 (n)

  $     433     $     441  

Valaris Ltd. (8.250% Cash or 12.000% PIK)

 

8.250% due 04/30/2028 (d)

      15         15  

Vale Overseas Ltd.

 

6.875% due 11/21/2036

      59         82  

6.875% due 11/10/2039

      43         61  

Vale S.A.

 

2.762% due 12/29/2049 ~(j)

  BRL     90,000         11,006  

Veritas U.S., Inc.

 

7.500% due 09/01/2025 (n)

  $     930         965  

10.500% due 02/01/2024 (n)

      2,180         2,229  

Victoria’s Secret & Co.

 

4.625% due 07/15/2029 (n)

      700         702  

Viking Cruises Ltd.

 

13.000% due 05/15/2025 (n)

      3,697         4,293  

VOC Escrow Ltd.

 

5.000% due 02/15/2028 (n)

      4,000         3,977  

Windstream Escrow LLC

 

7.750% due 08/15/2028 (n)

      7,444         7,603  

WMG Acquisition Corp.

 

3.000% due 02/15/2031 (n)

      3,234         3,137  

Wynn Las Vegas LLC

 

5.250% due 05/15/2027 (n)

      400         420  

Wynn Macau Ltd.

 

5.125% due 12/15/2029 (n)

      200         202  

5.625% due 08/26/2028 (n)

      2,200         2,258  

Yum! Brands, Inc.

 

3.625% due 03/15/2031 (n)

      2,100         2,145  

ZoomInfo Technologies LLC

 

3.875% due 02/01/2029 (n)

      1,900         1,906  
       

 

 

 
            329,855  
       

 

 

 
UTILITIES 7.8%

 

AT&T, Inc.

 

3.100% due 02/01/2043 (n)

      1,178         1,179  

3.300% due 02/01/2052 (n)

      1,178         1,178  

3.500% due 06/01/2041 (n)

      964         1,025  

3.500% due 02/01/2061 (n)

      1,192         1,194  

3.650% due 06/01/2051 (n)

      2,030         2,158  

3.850% due 06/01/2060 (n)

      1,450         1,558  

DTEK Finance PLC (1.500% Cash and 3.500% PIK)

 

5.000% due 12/31/2027 (d)

      3,565         2,328  

Edison International

 

5.750% due 06/15/2027

      51         59  

Genesis Energy LP

 

8.000% due 01/15/2027 (n)

      1,103         1,139  

Jersey Central Power & Light Co.

 

2.750% due 03/01/2032 (n)

      600         629  

Lumen Technologies, Inc.

 

4.000% due 02/15/2027

      54         56  

Mountain States Telephone & Telegraph Co.

 

7.375% due 05/01/2030 (n)

      3,600         4,548  

NGD Holdings BV

 

6.750% due 12/31/2026 (n)

      377         363  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 12/01/2021 ^(n)

      18         18  

Odebrecht Drilling Norbe Ltd. (6.350% Cash and 1.000% PIK)

 

7.350% due 12/01/2026 ^(d)

      195         106  

Odebrecht Offshore Drilling Finance Ltd.

 

6.720% due 12/01/2022 ^

      511         502  

Odebrecht Offshore Drilling Finance Ltd. (6.720% Cash and 1.000% PIK)

 

7.720% due 12/01/2026 ^(d)

      5,191         1,281  

Oi S.A. (10.000% Cash or 12.000% PIK)

 

10.000% due 07/27/2025 (d)

      3,440         3,403  

Pacific Gas & Electric Co.

 

3.450% due 07/01/2025 (n)

      1,376         1,436  

3.750% due 08/15/2042

      22         20  

4.000% due 12/01/2046

      7         7  

4.250% due 03/15/2046 (n)

      1,700         1,649  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

4.300% due 03/15/2045 (n)

  $     27     $     26  

4.450% due 04/15/2042

      70         70  

4.500% due 07/01/2040 (n)

      2,303         2,330  

4.500% due 12/15/2041 (n)

      275         269  

4.550% due 07/01/2030 (n)

      4,291         4,585  

4.600% due 06/15/2043 (n)

      118         119  

4.750% due 02/15/2044 (n)

      852         861  

4.950% due 07/01/2050 (n)

      3,358         3,478  

Petrobras Global Finance BV

 

6.250% due 12/14/2026 (n)

  GBP     3,966         6,329  

6.625% due 01/16/2034 (n)

      100         161  

Rio Oil Finance Trust

 

8.200% due 04/06/2028 (n)

  $     236         273  

9.250% due 07/06/2024 (n)

      1,867         2,079  

9.750% due 01/06/2027

      142         167  

9.750% due 01/06/2027 (n)

      170         201  

Southern California Edison Co.

 

6.650% due 04/01/2029

      39         49  

Transocean Poseidon Ltd.

 

6.875% due 02/01/2027

      110         107  
       

 

 

 
          46,940  
       

 

 

 

Total Corporate Bonds & Notes (Cost $471,820)

      492,476  
 

 

 

 
CONVERTIBLE BONDS & NOTES 0.6%

 

INDUSTRIALS 0.6%

 

DISH Network Corp.

 

3.375% due 08/15/2026

      3,400         3,494  
       

 

 

 

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

    3,494  
 

 

 

 
MUNICIPAL BONDS & NOTES 5.1%

 

ILLINOIS 3.2%

 

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

 

7.517% due 01/01/2040 (n)

      12,700         18,978  

Chicago, Illinois General Obligation Bonds, Series 2017

 

7.045% due 01/01/2029

      95         111  

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

 

6.725% due 04/01/2035

      35         45  

7.350% due 07/01/2035

      20         26  

Illinois State General Obligation Bonds, Series 2003

 

5.100% due 06/01/2033

      95         114  
       

 

 

 
          19,274  
       

 

 

 
PUERTO RICO 1.0%

 

Commonwealth of Puerto Rico General Obligation Bonds, Series 2014

 

8.000% due 07/01/2035 ^(e)

      7,000         5,985  
       

 

 

 
VIRGINIA 0.1%

 

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

 

6.706% due 06/01/2046

      735         783  
       

 

 

 
WEST VIRGINIA 0.8%

 

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

 

0.000% due 06/01/2047 (h)

      44,400         5,046  
       

 

 

 

Total Municipal Bonds & Notes (Cost $22,887)

    31,088  
 

 

 

 
U.S. GOVERNMENT AGENCIES 2.5%

 

Fannie Mae

 

3.000% due 02/25/2043 (a)(n)

      16,729         2,019  

3.000% due 06/25/2050 (a)

      5,212         664  

5.839% due 07/25/2029 •

      1,150         1,271  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     51
    


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

 

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

Freddie Mac

 

0.000% due 02/25/2046 (b)(h)

  $     2,140     $     1,927  

0.100% due 02/25/2046 (a)

      2,141         1  

3.500% due 05/25/2050 (a)(n)

      2,467         404  

6.170% due 11/25/2055 «~

      7,864         4,829  

7.639% due 12/25/2027 •

      3,263         3,551  

10.839% due 03/25/2025 •

      534         536  
       

 

 

 

Total U.S. Government Agencies (Cost $20,357)

      15,202  
 

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 11.5%

 

Banc of America Funding Trust

 

6.000% due 07/25/2037 ^

      199         201  

Banc of America Mortgage Trust

 

6.000% due 03/25/2037 ^

      179         183  

BCAP LLC Trust

 

2.941% due 03/27/2036 ~

      1,815         1,507  

3.074% due 08/28/2037 ~

      3,622         3,613  

4.834% due 03/26/2037 þ

      699         1,107  

Bear Stearns ALT-A Trust

 

0.589% due 01/25/2036 ^•

      653         822  

2.951% due 11/25/2035 ^~

      3,345         3,231  

3.020% due 09/25/2035 ^~

      314         233  

3.104% due 11/25/2036 ^~

      2,979         1,998  

3.148% due 09/25/2047 ^~

      4,402         2,949  

3.379% due 08/25/2036 ^~

      640         414  

Bear Stearns Mortgage Funding Trust

 

7.500% due 08/25/2036 þ

      312         314  

CD Mortgage Trust

 

5.688% due 10/15/2048

      2,737         390  

Chase Mortgage Finance Trust

 

3.029% due 12/25/2035 ^~

      5         5  

6.000% due 07/25/2037 ^

      580         396  

Citigroup Mortgage Loan Trust

 

2.529% due 04/25/2037 ^~

      172         154  

Commercial Mortgage Loan Trust

 

5.973% due 12/10/2049 ~

      1,734         746  

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 08/25/2037 ^~

      834         647  

Countrywide Alternative Loan Trust

 

5.500% due 03/25/2035

      222         143  

5.750% due 01/25/2035

      183         185  

5.750% due 02/25/2035

      238         224  

5.750% due 03/25/2037 ^

      471         370  

6.000% due 02/25/2035

      804         787  

6.000% due 04/25/2036

      781         495  

6.000% due 02/25/2037 ^

      4,376         2,556  

6.000% due 04/25/2037 ^

      799         530  

6.250% due 12/25/2036 ^•

      1,247         852  

6.500% due 08/25/2036 ^

      392         202  

Countrywide Home Loan Mortgage Pass-Through Trust

 

2.775% due 09/20/2036 ^~

      169         163  

6.000% due 07/25/2037

      1,160         745  

Credit Suisse Mortgage Capital Certificates

 

2.811% due 10/26/2036 ~

      6,915         5,536  

GS Mortgage Securities Corp. Trust

 

4.591% due 10/10/2032 ~

      4,600         4,512  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

      640         217  

GSR Mortgage Loan Trust

 

3.350% due 08/25/2034 ~

      288         283  

5.500% due 05/25/2036 ^

      34         188  

6.000% due 02/25/2036 ^

      1,473         934  

HarborView Mortgage Loan Trust

 

0.569% due 01/19/2036 ^•

      924         879  

3.565% due 06/19/2036 ^~

      4,336         2,799  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      3,329         1,722  

Jackson Park Trust

 

3.242% due 10/14/2039 ~

      1,772         1,697  

Jefferies Resecuritization Trust

 

6.000% due 05/26/2036

      7,854         4,913  

JP Morgan Alternative Loan Trust

 

3.266% due 03/25/2037 ^~

      918         942  

6.000% due 12/25/2035 ^

      1,077         985  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

JP Morgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

  $     75     $     63  

JP Morgan Mortgage Trust

 

2.685% due 02/25/2036 ^~

      1,244         1,033  

2.798% due 01/25/2037 ^~

      293         265  

3.029% due 04/25/2037 ~

      4         4  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038 ^

      363         122  

5.562% due 02/15/2040 ^~

      241         105  

Lehman Mortgage Trust

 

6.000% due 07/25/2037 ^

      59         58  

Lehman XS Trust

 

0.309% due 06/25/2047 •

      1,218         1,168  

MASTR Alternative Loan Trust

 

6.750% due 07/25/2036

      1,532         866  

Merrill Lynch Mortgage Investors Trust

 

2.732% due 03/25/2036 ^~

      475         305  

Motel 6 Trust

 

7.020% due 08/15/2024 •

      2,530         2,473  

Residential Accredit Loans, Inc. Trust

 

0.319% due 05/25/2037 ^•

      99         76  

3.343% due 12/26/2034 ^~

      933         490  

6.000% due 08/25/2036 ^

      206         206  

Residential Asset Securitization Trust

 

6.000% due 11/25/2036 ^

      2,454         1,344  

6.250% due 09/25/2037 ^

      2,481         1,441  

Residential Funding Mortgage Securities, Inc. Trust

 

3.868% due 02/25/2037 ~

      976         784  

6.500% due 03/25/2032

      92         96  

Sequoia Mortgage Trust

 

2.592% due 02/20/2047 ~

      176         159  

2.707% due 07/20/2037 ^~

      386         355  

Structured Adjustable Rate Mortgage Loan Trust

 

2.840% due 07/25/2035 ^~

      398         372  

2.909% due 11/25/2036 ^~

      1,455         1,405  

2.982% due 01/25/2036 ^~

      1,563         1,118  

SunTrust Adjustable Rate Mortgage Loan Trust

 

2.316% due 04/25/2037 ^~

      200         150  

2.369% due 02/25/2037 ^~

      159         149  

WaMu Mortgage Pass-Through Certificates Trust

 

2.925% due 07/25/2037 ^~

      282         284  

3.051% due 07/25/2037 ^~

      627         633  

3.092% due 02/25/2037 ^~

      346         344  

3.267% due 10/25/2036 ^~

      1,295         1,256  

Washington Mutual Mortgage Pass-Through Certificates Trust

 

0.947% due 05/25/2047 ^•

      47         4  

6.000% due 10/25/2035 ^

      1,153         946  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $73,601)

      69,843  
 

 

 

 
ASSET-BACKED SECURITIES 14.0%

 

ACE Securities Corp. Home Equity Loan Trust

 

0.674% due 02/25/2036 •

      23,578         22,715  

Adagio CLO DAC

 

0.000% due 04/30/2031 ~

  EUR     1,800         1,258  

Apidos CLO

 

0.000% due 01/20/2031 ~

  $     4,500         2,576  

Argent Securities Trust

 

0.469% due 03/25/2036 •

      3,337         2,277  

Avoca CLO DAC

 

0.000% due 04/15/2034 ~

  EUR     1,600         1,062  

Bear Stearns Asset-Backed Securities Trust

 

0.229% due 10/25/2036 ^•

  $     2,706         3,490  

6.500% due 10/25/2036 ^

      338         225  

Belle Haven ABS CDO Ltd.

 

0.526% due 07/05/2046 •

      175,347         462  

Carlyle Global Market Strategies CLO Ltd.

 

0.000% due 07/20/2029 ~

      1,895         947  

CIFC Funding Ltd.

 

0.000% due 04/24/2030 ~

      2,300         995  

0.010% due 10/22/2031 ~

      1,500         584  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Citigroup Mortgage Loan Trust

 

0.249% due 12/25/2036 •

  $     1,571     $     1,059  

First Franklin Mortgage Loan Trust

 

1.034% due 09/25/2035 •

      3,442         3,251  

1.064% due 05/25/2036 •

      6,458         6,000  

Flagship Credit Auto Trust

 

0.000% due 05/15/2025 «(h)

      8         712  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029 ~

  EUR     500         328  

Home Equity Mortgage Loan Asset-Backed Trust

 

0.249% due 07/25/2037 •

  $     8,778         5,990  

JP Morgan Mortgage Acquisition Trust

 

4.528% due 10/25/2030 ^þ

      4,275         2,961  

Lehman XS Trust

 

5.670% due 08/25/2035 ^þ

      38         40  

LNR CDO Ltd.

 

0.367% due 02/28/2043 •

      1,620         41  

Marlette Funding Trust

 

0.000% due 09/17/2029 «(h)

      7         838  

Merrill Lynch Mortgage Investors Trust

 

0.409% due 04/25/2037 •

      437         295  

Morgan Stanley ABS Capital, Inc. Trust

 

0.389% due 06/25/2036 •

      307         279  

Morgan Stanley Mortgage Loan Trust

 

6.250% due 02/25/2037 ^~

      490         317  

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

 

0.869% due 08/25/2035 •(n)

      5,000         4,823  

1.859% due 10/25/2034 •

      573         594  

Residential Asset Mortgage Products Trust

 

1.289% due 01/25/2035 ^•

      2,397         2,263  

SLM Student Loan EDC Repackaging Trust

 

0.000% due 10/28/2029 «(h)

      3         3,349  

SLM Student Loan Trust

 

0.000% due 01/25/2042 «(h)

      4         1,725  

SMB Private Education Loan Trust

 

0.000% due 09/18/2046 «(h)

      1         506  

0.000% due 10/15/2048 «(h)

      1         402  

SoFi Professional Loan Program LLC

 

0.000% due 05/25/2040 «(h)

      4,300         636  

0.000% due 07/25/2040 «(h)

      21         406  

0.000% due 09/25/2040 «(h)

      1,718         406  

South Coast Funding Ltd.

 

0.762% due 08/10/2038 •

      9,770         1,299  

Symphony CLO Ltd.

 

4.733% due 07/14/2026 •

      2,000         1,993  

Taberna Preferred Funding Ltd.

 

0.556% due 08/05/2036 •

      296         257  

0.556% due 08/05/2036 ^•

      5,481         4,755  

0.608% due 07/05/2035 •

      2,734         2,440  
       

 

 

 

Total Asset-Backed Securities (Cost $88,494)

      84,556  
 

 

 

 
SOVEREIGN ISSUES 5.0%

 

Argentina Government International Bond

 

0.500% due 07/09/2030 þ

      3,343         1,142  

1.000% due 07/09/2029

      669         257  

1.125% due 07/09/2035 þ

      3,289         1,037  

1.125% due 07/09/2046 þ

      115         39  

2.000% due 01/09/2038 þ(n)

      10,995         4,354  

2.500% due 07/09/2041 þ(n)

      5,955         2,238  

15.500% due 10/17/2026

  ARS     53,560         124  

34.119% (BADLARPP) due 10/04/2022 ~

      58         0  

Autonomous City of Buenos Aires

 

37.381% (BADLARPP + 3.250%) due 03/29/2024 ~

      90,469         454  

37.877% (BADLARPP + 3.750%) due 02/22/2028 ~

      22,091         106  

Egypt Government International Bond

 

3.875% due 02/16/2026 (n)

  $     1,200         1,173  

5.875% due 02/16/2031 (n)

      1,600         1,544  

7.500% due 02/16/2061 (n)

      1,600         1,494  
 

 

       
52   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

Ghana Government International Bond

 

6.375% due 02/11/2027 (n)

  $     600     $     591  

7.875% due 02/11/2035 (n)

      600         577  

8.750% due 03/11/2061

      200         190  

Ivory Coast Government International Bond

 

4.875% due 01/30/2032

  EUR     3,300         3,962  

6.625% due 03/22/2048

      600         758  

Oman Government International Bond

 

7.000% due 01/25/2051 (n)

  $     1,000         1,037  

Panama Government International Bond

 

4.500% due 04/16/2050

      1,300         1,485  

Provincia de Buenos Aires

 

37.883% due 04/12/2025 (n)

  ARS     136,652         654  

37.883% due 04/12/2025

      100         1  

Republic of Greece Government International Bond

 

4.300% due 02/24/2023 þ

  EUR     142         180  

4.300% due 02/24/2024 þ

      142         188  

4.300% due 02/24/2025 þ

      142         194  

4.300% due 02/24/2026 þ

      142         200  

4.300% due 02/24/2027 þ

      142         206  

4.300% due 02/24/2028 þ

      142         210  

4.300% due 02/24/2029 þ

      142         213  

4.300% due 02/24/2030 þ

      142         217  

4.300% due 02/24/2031 þ

      142         221  

4.300% due 02/24/2032 þ

      142         224  

4.300% due 02/24/2033 þ

      142         229  

4.300% due 02/24/2034 þ

      142         233  

4.300% due 02/24/2035 þ

      142         237  

4.300% due 02/24/2036 þ

      142         240  

4.300% due 02/24/2037 þ

      142         245  

4.300% due 02/24/2038 þ

      142         251  

4.300% due 02/24/2039 þ

      142         252  

4.300% due 02/24/2040 þ

      142         256  

4.300% due 02/24/2041 þ

      142         257  

4.300% due 02/24/2042 þ

      142         259  

South Africa Government International Bond

 

5.750% due 09/30/2049 (n)

  $     800         814  

Turkiye Ihracat Kredi Bankasi A/S

 

8.250% due 01/24/2024

      200         218  

Ukraine Government International Bond

 

4.375% due 01/27/2030

  EUR     1,054         1,167  

Venezuela Government International Bond

 

8.250% due 10/13/2024 ^(e)

  $     28         3  

9.250% due 09/15/2027 ^(e)

      308         33  
       

 

 

 

Total Sovereign Issues (Cost $33,269)

      29,964  
 

 

 

 
        SHARES            
COMMON STOCKS 2.7%

 

COMMUNICATION SERVICES 1.2%

 

Clear Channel Outdoor Holdings, Inc. (f)

      531,903         1,415  

iHeartMedia, Inc. ‘A’ (f)

      126,306         3,265  

iHeartMedia, Inc. ‘B’ «(f)

      98,039         2,281  
       

 

 

 
          6,961  
       

 

 

 
        SHARES         MARKET
VALUE
(000S)
 
ENERGY 0.1%

 

Axis Energy Services ‘A’ «(f)(l)

      1,070     $     16  

Noble Corp. (f)(l)

      20,115         442  

Valaris Ltd. (f)

      1,224         33  
       

 

 

 
          491  
       

 

 

 
FINANCIALS 0.1%

 

Associated Materials Group, Inc. «(f)(l)

      114,060         807  
       

 

 

 
INDUSTRIALS 1.3%

 

Neiman Marcus Group Ltd. LLC «(f)(l)

      73,491         8,086  

Noble Corp. (f)

      1,458         32  

Voyager Aviation Holdings «(f)

      995         0  

Westmoreland Mining Holdings LLC «(f)(l)

      50,497         0  
       

 

 

 
          8,118  
       

 

 

 

Total Common Stocks (Cost $12,531)

    16,377  
 

 

 

 
WARRANTS 1.9%

 

INDUSTRIALS 0.1%

 

Sequa Corp. - Exp. 04/28/2024 «

      775,000         488  
       

 

 

 
INFORMATION TECHNOLOGY 1.8%

 

Windstream Holdings LLC - Exp. 09/21/2055 «

      493,740         11,018  
       

 

 

 

Total Warrants (Cost $4,094)

      11,506  
 

 

 

 
PREFERRED SECURITIES 9.1%

 

BANKING & FINANCE 4.9%

 

AGFC Capital Trust

 

1.876% (US0003M + 1.750%) due 01/15/2067 ~(n)

      2,300,000         1,454  

Banco Santander S.A.

 

6.250% due 09/11/2021 •(j)(k)

      400,000         478  

Brighthouse Holdings LLC

 

6.500% due 07/27/2037 þ(j)

      70,000         64  

Compeer Financial ACA

 

4.875% due 08/15/2026 •(j)

      1,600,000         1,632  

Farm Credit Bank of Texas

 

5.700% due 09/15/2025 •(j)

      1,000,000         1,095  

Nationwide Building Society

 

10.250% ~

      34,400         9,073  

Stichting AK Rabobank Certificaten

 

2.188% due 12/29/2049 þ(j)

      8,813,525         14,488  

Wells Fargo & Co.

 

3.900% due 03/15/2026 •(j)

      1,200,000         1,246  
       

 

 

 
          29,530  
       

 

 

 
        SHARES         MARKET
VALUE
(000S)
 
INDUSTRIALS 4.2%

 

General Electric Co.

 

3.449% (US0003M + 3.330%) due 09/15/2021 ~(j)

    261,000     $     256  

Sequa Corp. (15.000% PIK)

 

15.000% «(d)

      21,529         23,657  

Voyager Aviation Holdings LLC

 

9.500% «

      5,971         1,832  
       

 

 

 
          25,745  
       

 

 

 

Total Preferred Securities (Cost $41,614)

    55,275  
 

 

 

 
REAL ESTATE INVESTMENT TRUSTS 2.6%

 

REAL ESTATE 2.6%

 

Uniti Group, Inc.

      239,397         2,804  

VICI Properties, Inc.

      416,263         12,983  
       

 

 

 

Total Real Estate Investment Trusts (Cost $6,941)

    15,787  
 

 

 

 
SHORT-TERM INSTRUMENTS 8.1%

 

REPURCHASE AGREEMENTS (m) 5.0%

 

          30,423  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
ARGENTINA TREASURY BILLS 0.0%

 

40.499% due 10/29/2021 (h)(i)

  ARS     8,260         42  
       

 

 

 
U.S. TREASURY BILLS 3.1%

 

0.030% due 08/26/2021 - 09/23/2021 (g)(h)(p)

  $     18,789         18,788  
       

 

 

 

Total Short-Term Instruments

(Cost $49,259)

    49,253  
 

 

 

 
       

Total Investments in Securities

(Cost $1,006,586)

      1,048,700  
       

Total Investments 173.1%

(Cost $1,006,586)

 

 

  $     1,048,700  

Financial Derivative Instruments (o)(q) 0.1%

(Cost or Premiums, net $4,450)

 

 

      416  
Auction Rate Preferred Shares (3.9)%

 

      (23,525
Other Assets and Liabilities, net (69.3)%     (419,761
 

 

 

 
Net Assets Applicable to Common Shareholders 100.0%

 

  $     605,830  
   

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS:

 

*

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

^

Security is in default.

«

Security valued using significant unobservable inputs (Level 3).

µ

All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments.

~

Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description.

Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description.

þ

Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end.

(a)

Security is an Interest Only (“IO”) or IO Strip.

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     53
    


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

 

(b)

Principal only security.

(c)

When-issued security.

(d)

Payment in-kind security.

(e)

Security is not accruing income as of the date of this report.

(f)

Security did not produce income within the last twelve months.

(g)

Coupon represents a weighted average yield to maturity.

(h)

Zero coupon security.

(i)

Coupon represents a yield to maturity.

(j)

Perpetual maturity; date shown, if applicable, represents next contractual call date.

(k)

Contingent convertible security.

 

(l)  RESTRICTED SECURITIES:

 

Issuer Description                  Acquisition
Date
    Cost     Market
Value
    Market Value
as Percentage
of Net Assets
Applicable
to  Common
Shareholders
 

Associated Materials Group, Inc.

         08/24/2020       $       724     $ 807       0.13

Axis Energy Services ‘A’

         07/01/2021       16       16       0.00  

Deutsche Bank AG 3.035% due 05/28/2032

         05/25/2021 - 05/26/2021       901       932       0.16  

Neiman Marcus Group Ltd. LLC

         09/25/2020       2,408       8,086       1.34  

Noble Corp.

         02/05/2021 - 02/27/2021       273       442       0.07  

Oracle Corp. 4.100% due 03/25/2061

         06/17/2021       111       113       0.02  

Westmoreland Mining Holdings LLC

         12/08/2014 - 10/19/2016       1,455       0       0.00  
        

 

 

   

 

 

   

 

 

 
    $    5,888     $     10,396       1.72
        

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(m)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received(1)
 
BPS     0.040     07/30/2021       08/02/2021     $     27,300     U.S. Treasury Inflation Protected Securities 0.250% due 02/15/2050   $ (27,827   $ 27,300     $ 27,300  
FICC     0.000       07/30/2021       08/02/2021       3,123     U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022     (3,186     3,123       3,123  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

    $     (31,013   $     30,423     $     30,423  
   

 

 

   

 

 

   

 

 

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(2)

    Payable for
Reverse
Repurchase
Agreements
 

BOS

    0.280     05/14/2021       08/16/2021       $       (1,901   $ (1,902
    0.280       07/02/2021       08/06/2021         (6,273     (6,275
    0.290       05/17/2021       08/17/2021         (1,875     (1,876

BPS

    (0.400     07/02/2021       08/19/2021       EUR       (1,568)       (1,860
    (0.350     07/02/2021       08/19/2021         (2,125     (2,520
    (0.320     07/02/2021       08/19/2021         (3,723     (4,415
    (0.300     07/23/2021       10/22/2021         (2,774     (3,290
    0.290       07/23/2021       10/22/2021       GBP       (301     (418
    0.320       07/08/2021       10/08/2021       $       (2,075     (2,075
    0.380       04/30/2021       08/03/2021         (749     (749
    0.500       04/30/2021       08/03/2021         (4,603     (4,609
    0.500       06/01/2021       09/03/2021         (6,135     (6,140
    0.500       07/30/2021       08/03/2021         (531     (531
    0.550       07/23/2021       04/25/2022         (5,089     (5,090

BRC

    0.350       05/21/2021       08/24/2021         (5,970     (5,975
    0.450       06/14/2021       09/17/2021         (8,234     (8,239
    0.450       06/25/2021       09/03/2021         (1,014     (1,014
    0.450       07/09/2021       09/07/2021         (5,174     (5,176
    0.450       08/02/2021       09/03/2021         (760     (760
    0.470       07/14/2021       09/17/2021         (1,959     (1,959
    0.480       07/09/2021       08/06/2021             (6,376         (6,378
    0.500       03/25/2020       TBD (3)        (125     (126

 

       
54   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(2)

    Payable for
Reverse
Repurchase
Agreements
 
    0.500     07/13/2021       TBD (3)      $           (15,824   $     (15,828
    0.500       07/22/2021       01/24/2022         (6,108     (6,109
    0.550       06/18/2021       03/10/2022         (6,994     (6,999
    0.550       07/12/2021       03/10/2022         (2,367     (2,368
    0.550       07/16/2021       03/10/2022         (1,378     (1,378
    0.785       06/22/2021       08/09/2021         (3,910     (3,914

BYR

    0.500       07/26/2021       01/26/2022         (622     (622
    0.650       03/31/2021       03/25/2022         (4,833     (4,843
    0.650       06/24/2021       03/25/2022         (2,546     (2,548
    0.650       06/30/2021       03/25/2022         (446     (446
    0.650       07/29/2021       03/25/2022         (178     (179

CDC

    0.250       03/22/2021       TBD (3)        (1,801     (1,802
    0.260       07/21/2021       08/23/2021         (1,704     (1,704
    0.260       08/02/2021       09/02/2021         (7,621     (7,621
    0.300       05/24/2021       08/27/2021         (7,657     (7,661
    0.300       05/25/2021       08/27/2021         (5,123     (5,126
    0.300       05/27/2021       08/27/2021         (3,189     (3,190
    0.300       06/02/2021       09/03/2021         (259     (260
    0.300       06/21/2021       09/20/2021         (664     (664
    0.300       07/01/2021       10/01/2021         (308     (308
    0.300       07/15/2021       10/15/2021         (2,314     (2,314
    0.300       07/19/2021       09/22/2021         (310     (310
    0.330       05/03/2021       08/02/2021         (6,044     (6,049
    0.330       06/09/2021       08/02/2021         (1,321     (1,322
    0.350       07/15/2021       01/14/2022         (1,322     (1,322
    0.350       07/21/2021       01/21/2022         (1,565     (1,565
    0.480       06/21/2021       09/20/2021         (6,520     (6,524
    0.480       07/09/2021       10/07/2021         (1,619     (1,619
    0.490       07/01/2021       10/01/2021         (10,953     (10,958

CEW

    (0.400     07/23/2021       10/22/2021       EUR       (1,243     (1,475
    0.180       07/23/2021       10/22/2021       GBP       (3,953     (5,495
    0.220       07/23/2021       10/22/2021         (2,101     (2,921
    0.450       05/07/2021       08/09/2021       $       (1,574     (1,576
    0.467       07/26/2021       01/26/2022         (13,131     (13,132
    0.500       07/08/2021       01/04/2022         (11,777     (11,781

CIB

    0.500       07/09/2021       08/13/2021         (1,683     (1,684
    0.530       06/30/2021       08/04/2021         (349     (350

IND

    0.300       07/21/2021       01/20/2022         (2,618     (2,618
    0.300       07/23/2021       01/24/2022         (4,488     (4,488
    0.420       07/21/2021       01/19/2022         (6,811     (6,812

JML

    (0.450     06/15/2021       09/15/2021       EUR       (6,627     (7,857
    (0.420     07/23/2021       10/22/2021         (2,495     (2,959
    (0.400     07/08/2021       10/08/2021         (3,500     (4,151
    (0.400     07/23/2021       10/22/2021         (2,156     (2,557
    (0.380     06/15/2021       09/15/2021         (190     (225
    (0.300     07/14/2021       10/14/2021         (2,052     (2,434
    (0.050     07/08/2021       TBD (3)      $       (376     (376
    0.200       06/15/2021       09/15/2021       GBP       (3,918     (5,448
    0.230       06/15/2021       09/15/2021         (374     (520
    0.250       06/15/2021       09/15/2021         (97     (135
    0.250       06/22/2021       09/15/2021         (91     (126
    0.350       07/19/2021       10/19/2021         (200     (279
    0.350       07/23/2021       10/22/2021         (4,927     (6,850
    0.400       07/27/2021       08/27/2021       $       (4,983     (4,983

SCX

    (0.400     07/08/2021       10/08/2021       EUR       (1,955     (2,319
    0.250       07/23/2021       10/22/2021       GBP       (1,216     (1,690
    0.450       05/21/2021       08/20/2021       $       (2,047     (2,049

SOG

    0.270       07/28/2021       08/30/2021         (2,300     (2,301
    0.330       07/13/2021       10/14/2021         (4,286     (4,287
    0.350       05/18/2021       08/20/2021         (557     (557
    0.350       06/01/2021       09/01/2021         (910     (910
    0.350       06/24/2021       09/24/2021         (2,241     (2,242
    0.430       07/19/2021       10/08/2021         (621     (621
    0.450       05/06/2021       08/09/2021         (5,821     (5,827
    0.450       05/14/2021       08/17/2021         (3,525     (3,528
    0.450       05/18/2021       08/16/2021         (6,252     (6,258
    0.450       05/18/2021       08/20/2021         (3,131     (3,134
    0.450       05/24/2021       08/25/2021         (3,227     (3,230
    0.450       05/25/2021       08/27/2021         (4,132     (4,135
    0.450       05/26/2021       08/30/2021         (3,553     (3,556

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     55
    


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

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(2)

    Payable for
Reverse
Repurchase
Agreements
 
    0.450     06/01/2021       09/01/2021       $           (2,975   $ (2,977
    0.450       06/11/2021       08/09/2021         (1,396     (1,397
    0.450       06/11/2021       08/17/2021         (893     (894
    0.450       06/15/2021       09/17/2021         (4,998     (5,001
    0.450       06/17/2021       09/15/2021         (903     (904
    0.450       06/18/2021       08/20/2021         (246     (246
    0.450       06/23/2021       09/23/2021         (733     (733
    0.450       06/25/2021       08/17/2021         (510     (510
    0.450       07/02/2021       09/02/2021         (4,455     (4,456
    0.450       07/19/2021       08/17/2021         (2,459     (2,460
    0.450       07/29/2021       08/25/2021         (977     (977
    0.500       07/15/2021       01/14/2022         (9,926     (9,928
    0.500       07/20/2021       01/20/2022         (4,245     (4,246
    0.500       07/27/2021       01/20/2022         (1,012     (1,012
    0.550       06/07/2021       03/07/2022         (1,739     (1,740
    0.550       07/22/2021       03/02/2022         (596     (596
    0.550       07/27/2021       04/27/2022         (7,433     (7,434

TDM

    0.220       06/14/2021       TBD (3)        (600     (601
    0.250       04/01/2021       TBD (3)        (1,702     (1,703
    0.250       04/16/2021       TBD (3)        (9,626     (9,633
    0.250       06/09/2021       TBD (3)        (3     (3

UBS

    0.350       06/01/2021       09/01/2021         (203     (203
    0.350       07/08/2021       10/08/2021         (2,334     (2,335
    0.400       03/22/2021       TBD (3)        (2,589     (2,593
    0.400       07/21/2021       08/23/2021         (1,940     (1,941
    0.450       05/13/2021       08/13/2021         (2,120     (2,122
    0.450       05/14/2021       08/13/2021         (3,860     (3,864
    0.450       05/19/2021       08/19/2021         (898     (898
    0.450       05/26/2021       08/24/2021         (5,130     (5,134
    0.450       07/07/2021       10/05/2021         (6,718     (6,721
    0.450       07/22/2021       09/01/2021         (383     (383
    0.450       07/22/2021       09/02/2021         (211     (211
    0.500       07/12/2021       01/10/2022         (2,544     (2,545
    0.500       07/14/2021       01/12/2022         (2,425     (2,426
    0.500       07/16/2021       01/14/2022         (10,793     (10,795
    0.510       06/14/2021       01/14/2022         (1,543     (1,544
           

 

 

 

Total Reverse Repurchase Agreements

 

  $     (415,972
           

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral pledged/(received) as of July 31, 2021:

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received(1)
    Payable for
Reverse
Repurchase
Agreements
    Payable for
Sale-Buyback
Transactions
    Total
Borrowings and
Other Financing
Transactions
    Collateral
Pledged/(Received)
    Net Exposure(4)  

Global/Master Repurchase Agreement

 

BOS

  $ 0     $ (10,053   $ 0     $ (10,053   $ 10,544     $ 491  

BPS

    27,300       (31,697     0       (4,397     7,474       3,077  

BRC

    0       (66,223     0       (66,223     75,942       9,719  

BYR

    0       (8,638     0       (8,638     10,723       2,085  

CDC

    0       (60,319     0       (60,319     56,570       (3,749

CEW

    0       (36,380     0       (36,380     41,354       4,974  

CIB

    0       (2,034     0       (2,034     2,424       390  

FICC

    3,123       0       0       3,123       (3,186     (63

IND

    0       (13,918     0       (13,918     15,416       1,498  

JML

    0       (38,900     0       (38,900     45,165       6,265  

SCX

    0       (6,058     0       (6,058     6,719       661  

SOG

    0       (86,097     0       (86,097         99,196           13,099  

TDM

    0       (11,940     0           (11,940     12,537       597  

UBS

    0       (43,715     0       (43,715     51,199       7,484  
 

 

 

   

 

 

   

 

 

       

Total Borrowings and Other Financing Transactions

  $     30,423     $     (415,972   $     0        
 

 

 

   

 

 

   

 

 

       

 

       
56   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

 

Corporate Bonds & Notes

  $ 0     $ (116,661   $ (130,693   $ (125,769   $ (373,123

Municipal Bonds & Notes

    0       0       0       (15,828     (15,828

U.S. Government Agencies

    0       (2,034     0       0       (2,034

Asset-Backed Securities

    0       (3,914     0       0       (3,914

Sovereign Issues

    0       (6,009     0       (5,634     (11,643

Preferred Securities

    0       (1,049     0       0       (1,049
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (129,667   $     (130,693   $     (147,231   $     (407,591
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Payable for reverse repurchase agreements(5)

 

  $ (407,591
 

 

 

 

 

(n)

Securities with an aggregate market value of $466,507 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021.

 

(1)

Includes accrued interest.

(2)

The average amount of borrowings outstanding during the period ended July 31, 2021 was $(258,605) at a weighted average interest rate of 0.560%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period.

(3)

Open maturity reverse repurchase agreement.

(4)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

(5)

Unsettled reverse repurchase agreements liability of $(8,381) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity   Fixed
Receive Rate
    Payment
Frequency
    Maturity
Date
   

Implied

Credit Spread at

July 31, 2021(2)

   

Notional

Amount(3)

    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
   

Market

Value(4)

    Variation Margin  
  Asset     Liability  

Bombardier, Inc.

    5.000     Quarterly       06/20/2024       2.773     $        600     $ (1   $ 42     $ 41     $ 1     $ 0  

Rolls-Royce PLC

    1.000       Quarterly       12/20/2025       2.269       EUR        10,600       (1,305     646       (659     0       0  

Rolls-Royce PLC

    1.000       Quarterly       06/20/2026       2.395          2,000       (149     (2     (151     1       0  
              

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        $     (1,455   $     686     $     (769   $     2     $     0  
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

INTEREST RATE SWAPS

 

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

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750   Annual     09/15/2031       GBP       10,500     $ (9   $ (224   $ (233   $ 0     $ (19

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750     Annual     09/15/2051         3,000       189       (325     (136     0       (15

Receive(5)

 

1-Day USD-Federal Funds Rate Compounded-OIS

    0.100     Annual     01/13/2023       $       1,000       0       0       0       0       0  

Pay

 

3-Month USD-LIBOR

    2.750     Semi-Annual     12/19/2023         64,000       (594     4,456       3,862       32       0  

Pay

 

3-Month USD-LIBOR

    2.750     Semi-Annual     06/17/2025         75,590       4,664           1,768           6,432           91       0  

Receive(5)

 

3-Month USD-LIBOR

    1.250     Semi-Annual     12/15/2026         56,800       (960     (47     (1,007     0           (86

Pay

 

3-Month USD-LIBOR

    2.500     Semi-Annual     12/20/2027         44,900       325       4,102       4,427       107       0  

Receive(5)

 

3-Month USD-LIBOR

    1.370     Semi-Annual     08/25/2028         16,898       0       (365     (365     0       (44

Pay

 

3-Month USD-LIBOR

    3.000     Semi-Annual     06/19/2029         68,300       3,736       6,346       10,082       240       0  

Receive

 

3-Month USD-LIBOR

    0.750     Semi-Annual     06/16/2031         57,200       4,175       (1,406     2,769       0       (233

Receive(5)

 

3-Month USD-LIBOR

    1.750     Semi-Annual     12/15/2031         36,100       (572     (906     (1,478     0       (158

Pay

 

3-Month USD-LIBOR

    3.500     Semi-Annual     06/19/2044         169,400       (5,526     68,840       63,314       1,401       0  

Receive

 

3-Month USD-LIBOR

    2.000     Semi-Annual     01/15/2050         8,300       (60     (582     (642     0       (60

Receive

 

3-Month USD-LIBOR

    1.750     Semi-Annual     01/22/2050         14,500       (33     (216     (249     0       (98

Receive

 

3-Month USD-LIBOR

    1.875     Semi-Annual     02/07/2050         15,100       (58     (776     (834     0       (105

Receive

 

3-Month USD-LIBOR

    2.250     Semi-Annual     03/12/2050         10,800       (33     (1,536     (1,569     0       (83

Receive

 

3-Month USD-LIBOR

    1.150     Semi-Annual     12/11/2050             168,200       (561     22,182       21,621       0       (937

Pay(5)

 

3-Month USD-LIBOR

    2.000     Semi-Annual     12/15/2051         10,900       798       (1     797       78       0  

Pay

 

6-Month AUD-BBR-BBSW

    3.500     Semi-Annual     06/17/2025       AUD       7,600       188       475       663       0       0  

Receive

 

6-Month EUR-EURIBOR

    (0.150   Annual     03/18/2030       EUR       8,700       159       (173     (14     0       (13

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     57
    


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

 

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

Receive(5)

 

6-Month EUR-EURIBOR

    0.000 %     Annual     09/15/2031       EUR           6,400     $ 105     $ (146   $ (41   $ 0     $ (12
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 5,933     $ 101,466     $ 107,399     $ 1,949     $ (1,863
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

 

    $     4,478     $     102,152     $     106,630     $     1,951     $     (1,863
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of July 31, 2021:

 

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

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     1,951     $     1,951       $     0     $     0     $     (1,863   $     (1,863
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(p)

Securities with an aggregate market value of $4,882 and cash of $18,556 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information.

 

(q)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

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

BOA

     08/2021     $     8     RUB     637     $ 0     $ 0  

BPS

     08/2021     EUR     5,943     $     7,044       0       (6
     08/2021     PEN     1,075         291       26       0  

BRC

     08/2021     EUR     651         775       2       0  
     08/2021     GBP     3,856         5,343       0           (17

CBK

     08/2021     PEN     3,084         818           59       0  
     08/2021     $     617     PEN     2,428       0       (19
     09/2021     PEN     2,604     $     683       42       0  
     10/2021         1,238         317       12       0  
     12/2021     $     128     PEN     470       0       (12

GLM

     08/2021         18,455     GBP     13,230       0       (66
     08/2021         8     RUB     638       0       0  
     09/2021     GBP     13,230     $     18,457       66       0  
     09/2021     $     9     RUB     637       0       0  

HUS

     08/2021     EUR     4,087     $     4,840       0       (8
     08/2021     GBP     21,130         29,248       0       (123
     08/2021     $     16,910     GBP     12,310       201       0  
     10/2021     PEN     165     $     45       4       0  
     12/2021         153         41       4       0  
     12/2021     $     2,728     PEN     10,044       0       (257

JPM

     08/2021         10,079     EUR     8,565       82       0  

SCX

     08/2021     EUR     38,559     $     45,748       16       (7
     08/2021     $     8,775     EUR     7,416       23       0  

 

       
58   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

Counterparty    Settlement
Month
    Currency to
be Delivered
    Currency to
be Received
    Unrealized Appreciation/
(Depreciation)
 
  Asset     Liability  
     09/2021     EUR     33,259     $     39,461     $ 0     $ (15
     09/2021     PEN     5,031         1,281       42       0  
     12/2021         96         26       2       0  

UAG

     08/2021     GBP     554         767       0       (3
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

  $     581     $     (533
 

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

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

Pay

 

3-Month USD-LIBOR

    1.620%       Semi-Annual     08/25/2028   $         75,100     $ (28   $ 308     $ 280     $ 0  
               

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

    $     (28   $     308     $     280     $     0  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral pledged/(received) as of July 31, 2021:

 

    Financial Derivative Assets           Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
     Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
   

Collateral
Pledged/

(Received)

   

Net

Exposure(1)

 

BPS

  $ 26      $ 0      $ 0      $ 26       $ (6   $ 0      $ 0      $ (6   $ 20     $ 0     $ 20  

BRC

    2        0        0        2         (17     0        0        (17     (15     0       (15

CBK

    113        0        0        113         (31     0        0        (31     82       0       82  

GLM

    66        0        0        66         (66     0        0        (66     0       0       0  

HUS

    209        0        0        209         (388     0        0        (388         (179     0           (179

JPM

    82        0        0        82         0       0        0        0       82       0       82  

MYC

    0        0        280        280         0       0        0        0       280           (260     20  

SCX

    83        0        0        83         (22     0        0        (22     61       0       61  

UAG

    0        0        0        0         (3     0        0        (3     (3     0       (3
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

    

 

 

       

Total Over the Counter

  $     581      $     0      $     280      $     861       $     (533   $     0      $     0      $     (533      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

    

 

 

       

 

(1) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of July 31, 2021:

 

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

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 2     $ 0     $ 0     $ 1,949     $ 1,951  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 581     $ 0     $ 581  

Swap Agreements

    0       0       0       0       280       280  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 581     $ 280     $ 861  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 2     $ 0     $ 581     $ 2,229     $ 2,812  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 0     $ 0     $ 0     $ 1,863     $ 1,863  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 533     $ 0     $ 533  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     0     $     0     $     533     $     1,863     $     2,396  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     59
    


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

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:

 

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

Net Realized Gain (Loss) on Financial Derivative Instruments

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 91     $ 0     $ 0     $ 11,088     $     11,179  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (4,904   $ 0     $ (4,904

Swap Agreements

    0       0       0       0       (478     (478
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ (4,904   $ (478   $ (5,382
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 91     $ 0     $     (4,904   $     10,610     $ 5,797  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 815     $ 0     $ 0     $ (6,092   $ (5,277
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 3,667     $ 0     $ 3,667  

Swap Agreements

    0       0       0       0       308       308  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 3,667     $ 308     $ 3,975  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     815     $     0     $ 3,667     $ (5,784   $ (1,302
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 0     $     162,323     $     11,556     $     173,879  

Corporate Bonds & Notes

 

Banking & Finance

    0       115,681       0       115,681  

Industrials

    0       329,135       720       329,855  

Utilities

    0       46,940       0       46,940  

Convertible Bonds & Notes

 

Industrials

    0       3,494       0       3,494  

Municipal Bonds & Notes

 

Illinois

    0       19,274       0       19,274  

Puerto Rico

    0       5,985       0       5,985  

Virginia

    0       783       0       783  

West Virginia

    0       5,046       0       5,046  

U.S. Government Agencies

    0       10,373       4,829       15,202  

Non-Agency Mortgage-Backed Securities

    0       69,843       0       69,843  

Asset-Backed Securities

    0       75,576       8,980       84,556  

Sovereign Issues

    0       29,964       0       29,964  

Common Stocks

 

Communication Services

        4,680       0       2,281       6,961  

Energy

    475       0       16       491  

Financials

    0       0       807       807  

Industrials

    0       32       8,086       8,118  

Warrants

 

Industrials

    0       0       488       488  

Information Technology

    0       0       11,018       11,018  

Preferred Securities

 

Banking & Finance

    0       29,530       0       29,530  

Industrials

    0       256       25,489       25,745  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Real Estate Investment Trusts

 

Real Estate

  $ 15,787     $ 0     $ 0     $ 15,787  

Short-Term Instruments

 

Repurchase Agreements

    0       30,423       0       30,423  

Argentina Treasury Bills

    0       42       0       42  

U.S. Treasury Bills

    0       18,788       0       18,788  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 20,942     $ 953,488     $ 74,270     $ 1,048,700  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

    0       1,951       0       1,951  

Over the counter

    0       861       0       861  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 2,812     $ 0     $ 2,812  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (1,863     0       (1,863

Over the counter

    0       (533     0       (533
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (2,396   $ 0     $ (2,396
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ 416     $ 0     $ 416  
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     20,942     $     953,904     $     74,270     $     1,049,116  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

 

       
60   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:

 

Category and Subcategory   Beginning
Balance
at 07/31/2020
    Net
Purchases
    Net
Sales/
Settlements
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation)(1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 07/31/2021
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
07/31/2021(1)
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 11,340     $ 18,518     $ (17,378   $ 70     $ (7,291   $ 5,424     $ 887     $ (14   $ 11,556     $ 82  

Corporate Bonds & Notes

 

Industrials

    0       715       0       0       0       5       0       0       720       5  

U.S. Government Agencies

    4,848       0       (106     15       36       36       0       0       4,829       30  

Asset-Backed Securities

    15,550       0       (5,912     0       115       (1,815     1,042       0       8,980       (1,807

Common Stocks

 

Communication Services

    3       2,065       0       0       0       213       0       0       2,281       213  

Energy

    0       16       0       0       0       0       0       0       16       0  

Financials

    0       724       0       0       0       83       0       0       807       83  

Industrials

    379       2,408       0       0       0       5,299       0       0       8,086       5,299  

Real Estate

    2,246       0       0       0       0       557       0       (2,803     0       0  

Warrants

 

Industrials

    0       0       0       0       0       488       0       0       488       488  

Information Technology

    0       4,094       0       0       0       6,924       0       0       11,018       6,924  

Preferred Securities

 

Industrials

    14,742       1,956       (4,673     0       0       13,464       0       0       25,489       13,464  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     49,108     $     30,496     $     (28,069   $     85     $     (7,140   $     30,678     $     1,929     $     (2,817   $     74,270     $     24,781  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Category and Subcategory   Ending
Balance
at 07/31/2021
    Valuation
Technique
  Unobservable
Inputs
         Input Value(s)     Weighted
Average
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 3,763     Reference Instrument   Yield     %       5.738       —    
    7,793     Third Party Vendor   Broker Quote       21.500-100.313       91.006  

Corporate Bonds & Notes

 

Industrials

    720     Proxy Pricing   Base Price       100.000       —    

U.S. Government Agencies

    4,829     Proxy Pricing   Base Price       61.285       —    

Asset-Backed Securities

    8,980     Proxy Pricing   Base Price       14.800-98,000.000       50,808.459  

Common Stocks

 

Communication Services

    2,281     Reference Instrument   Liquidity Discount       10.000       —    

Energy

    16     Other Valuation Techniques(2)   —         —         —    

Financials

    807     Other Valuation Techniques(2)   —         —         —    

Industrials

    8,086     Discounted Cash Flow   Discount Rate       14.250       —    

Warrants

 

Industrials

    488     Other Valuation Techniques(2)   —         —         —    

Information Technology

    11,018     Comparable Companies   EBITDA     x       4.375       —    

Preferred Securities

 

Industrials

    1,832     Comparable Companies/Discounted Cash Flow   Book Value/Discount Rate     x/%       0.210/20.150       —    
    23,657     Comparable Companies   EBITDA     x/x       11.700/9.200       —    
 

 

 

           

Total

  $     74,270            
 

 

 

           

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 may be due to an investment no longer held or categorized as Level 3 at period end.

(2)

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

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     61
    


Schedule of Investments   PIMCO High Income Fund           

 

(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 164.5%

 

LOAN PARTICIPATIONS AND ASSIGNMENTS 22.1%

 

Alphabet Holding Co., Inc.

 

3.592% (LIBOR03M + 3.500%) due 09/26/2024 ~

  $     96     $     96  

Banijay Entertainment S.A.S

 

3.851% (LIBOR03M + 3.750%) due 03/01/2025 ~

      19         19  

BWAY Holding Co.

 

3.342% (LIBOR03M + 3.250%) due 04/03/2024 ~

      997         967  

Caesars Resort Collection LLC

 

2.842% (LIBOR03M + 2.750%) due 12/23/2024 ~

      6,612         6,543  

4.592% (LIBOR03M + 4.500%) due 07/21/2025 ~

      8,647         8,664  

Carnival Corp.

 

3.750% (EUR003M + 3.750%) due 06/30/2025 ~

  EUR     2,500         2,972  

Cengage Learning, Inc.

 

TBD% due 06/29/2026

  $     6,213         6,216  

Cimpress PLC

 

4.000% (LIBOR03M + 3.500%) due 05/17/2028 ~

      2,100         2,099  

CityCenter Holdings LLC

 

3.000% (LIBOR03M + 2.250%) due 04/18/2024 ~

      1,596         1,593  

Clear Channel Outdoor Holdings, Inc.

 

3.607% - 3.629% (LIBOR03M + 3.500%) due 08/21/2026 ~

      6,653         6,471  

Cornerstone Building Brands, Inc.

 

3.750% (LIBOR03M + 3.250%) due 04/12/2028 ~

      49         49  

Diamond Resorts Corp.

 

4.750% - 6.000% (PRIME + 2.750%) due 09/02/2023 ~

      1,252         1,252  

Emerald TopCo, Inc.

 

3.592% - 3.629% (LIBOR03M + 3.500%) due 07/24/2026 ~

      147         146  

Envision Healthcare Corp.

 

3.842% (LIBOR03M + 3.750%) due 10/10/2025 ~

      24,822           21,296  

First Student Bidco, Inc.

 

TBD% due 07/21/2028

      7,105         7,061  

Fly Funding SARL

 

7.000% (LIBOR03M + 6.000%) due 10/08/2025 ~

      5,679         5,721  

Forbes Energy Services LLC

 

TBD% due 12/31/2021 «

      1,195         0  

Frontier Communications Corp.

 

4.500% (LIBOR03M + 3.750%) due 05/01/2028 ~

      10,424         10,437  

Hertz Corp.

 

4.000% - 4.250% (LIBOR03M + 3.500%) due 06/14/2028 ~

      3,058         3,044  

ICON Luxembourg SARL

 

3.000% (LIBOR03M + 2.500%) due 07/03/2028 ~

      8,100         8,092  

Intelsat Jackson Holdings S.A.

 

3.600% - 6.500% (LIBOR03M + 5.500%) due 07/13/2022 ~

      2,004         2,023  

IRB Holding Corp.

 

2.964% - 3.750% (LIBOR03M + 2.750%) due 02/05/2025 ~

      1,264         1,258  

Lealand Finance Company B.V.

 

3.092% (LIBOR03M + 3.000%) due 06/30/2024 «~

      105         68  

Lealand Finance Company B.V. (1.092% Cash and 3.000% PIK)

 

4.092% (LIBOR03M + 1.000%) due 06/30/2025 ~(d)

      492         221  

MH Sub LLC

 

3.592% (LIBOR03M + 3.500%) due 09/13/2024 ~

      4,836         4,809  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Nascar Holdings, Inc.

 

2.842% (LIBOR03M + 2.750%) due 10/19/2026 ~

  $     78     $     78  

Padagis LLC

 

5.250% (LIBOR03M + 4.750%) due 07/06/2028 «~

      8,600         8,627  

Parexel International Corp.

 

2.842% (LIBOR03M + 2.750%) due 09/27/2024 ~

      3,628         3,620  

PUG LLC

 

3.592% (LIBOR03M + 3.500%) due 02/12/2027 ~

      1,984         1,944  

Sasol Ltd.

 

0.500% - 1.746% (LIBOR03M + 1.600%) due 11/23/2022 «~µ

      5,328         5,059  

Stars Group Holdings BV

 

2.397% - 3.647% (LIBOR03M + 2.250%) due 07/21/2026 ~

      9,700         9,666  

Summer (BC) Holdco SARL

 

4.884% (LIBOR03M + 4.750%) due 12/04/2026 ~

      4,078         4,081  

Syniverse Holdings, Inc.

 

6.000% (LIBOR03M + 5.000%) due 03/09/2023 ~

      16,241         16,075  

Team Health Holdings, Inc.

 

3.750% (LIBOR03M + 2.750%) due 02/06/2024 ~

      9,567         9,272  

TK Elevator GmbH

 

TBD% due 07/31/2027

  EUR     7,500         8,906  

U.S. Renal Care, Inc.

 

5.125% (LIBOR03M + 5.000%) due 06/26/2026 ~

  $     2,566         2,573  

Westmoreland Coal Company (15.000% PIK)

 

15.000% due 03/15/2029 «(d)

      7,213         1,551  

Westmoreland Mining Holdings LLC

 

9.250% (LIBOR03M + 8.250%) due 03/15/2022 «~

      429         414  

Windstream Services LLC

 

7.250% (LIBOR03M + 6.250%) due 09/21/2027 ~

      2,688         2,701  
       

 

 

 

Total Loan Participations and Assignments (Cost $182,725)

      175,684  
 

 

 

 
CORPORATE BONDS & NOTES 76.0%

 

BANKING & FINANCE 18.4%

 

Allied Universal Holdco LLC

 

3.625% due 06/01/2028

  EUR     2,400         2,837  

Ally Financial, Inc.

 

8.000% due 11/01/2031

  $     4         6  

8.000% due 11/01/2031 (n)

      1,270         1,819  

Apollo Commercial Real Estate Finance, Inc.

 

4.625% due 06/15/2029 (n)

      5,200         5,109  

Atlantic Marine Corps Communities LLC

 

5.383% due 02/15/2048 (n)

      4,327         4,672  

Banca Monte dei Paschi di Siena SpA

 

1.875% due 01/09/2026

  EUR     1,200         1,440  

2.625% due 04/28/2025 (n)

      8,579         10,513  

3.625% due 09/24/2024 (n)

      2,131         2,671  

Banco de Credito del Peru

 

4.650% due 09/17/2024

  PEN     1,000         247  

Barclays PLC

 

5.875% due 09/15/2024 •(j)(k)

  GBP     1,800         2,681  

6.125% due 12/15/2025 •(j)(k)(n)

  $     2,600         2,898  

6.375% due 12/15/2025 •(j)(k)

  GBP     400         624  

7.125% due 06/15/2025 •(j)(k)

      1,600         2,538  

7.875% due 09/15/2022 •(j)(k)(n)

    3,700         5,501  

BGC Partners, Inc.

 

4.375% due 12/15/2025 (n)

  $     2,300         2,505  

Claveau Re Ltd.

 

17.291% (T-BILL 3MO + 17.250%) due 07/08/2028 ~

      1,200         1,204  

Cosaint Re Pte Ltd.

 

9.288% (T-BILL 1MO + 9.250%) due 04/03/2028 ~

      1,000         1,019  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Credit Agricole S.A.

 

7.875% due 01/23/2024 •(j)(k)(n)

  $     250     $     282  

Credit Suisse Group AG

 

7.250% due 09/12/2025 •(j)(k)

      200         226  

7.500% due 07/17/2023 •(j)(k)(n)

      400         434  

Doctors Co. An Interinsurance Exchange

 

6.500% due 10/15/2023 (n)

      10,000         10,736  

Fairfax Financial Holdings Ltd.

 

4.625% due 04/29/2030 (n)

      5,400         6,279  

Fortress Transportation & Infrastructure Investors LLC

 

6.500% due 10/01/2025 (n)

      510         529  

General Shopping Finance Ltd.

 

10.000% due 08/30/2021 (j)(n)

      5,300         3,475  

GSPA Monetization Trust

 

6.422% due 10/09/2029 (n)

      4,960         5,387  

Howard Hughes Corp.

 

4.125% due 02/01/2029 (n)

      300         298  

4.375% due 02/01/2031 (n)

      200         200  

HSBC Holdings PLC

 

5.875% due 09/28/2026 •(j)(k)(n)

  GBP     600         936  

6.500% due 03/23/2028 •(j)(k)

  $     300         343  

ING Groep NV

 

5.750% due 11/16/2026 •(j)(k)

      500         553  

Kennedy Wilson Europe Real Estate Ltd.

 

3.950% due 06/30/2022

  GBP     3,262         4,623  

Ladder Capital Finance Holdings LLLP

 

4.750% due 06/15/2029 (n)

  $     1,100         1,097  

Lloyds Banking Group PLC

 

6.750% due 06/27/2026 •(j)(k)

      1,625         1,870  

7.875% due 06/27/2029 •(j)(k)(n)

  GBP     3,115         5,561  

MGM Growth Properties Operating Partnership LP

 

3.875% due 02/15/2029 (n)

  $     6,900         7,087  

4.625% due 06/15/2025 (n)

      300         320  

Natwest Group PLC

 

8.000% due 08/10/2025 •(j)(k)(n)

      2,000         2,368  

Navient Corp.

 

5.625% due 08/01/2033 (n)

      8,064         7,843  

Newmark Group, Inc.

 

6.125% due 11/15/2023

      40         43  

Owl Rock Capital Corp.

 

2.625% due 01/15/2027 (n)

      1,900         1,924  

PennyMac Financial Services, Inc.

 

4.250% due 02/15/2029 (n)

      400         388  

PRA Group, Inc.

 

7.375% due 09/01/2025 (n)

      4,100         4,433  

Sitka Holdings LLC

 

5.250% due 07/06/2026 •

      562         566  

Societe Generale S.A.

 

6.750% due 04/06/2028 •(j)(k)

      200         228  

7.375% due 10/04/2023 •(j)(k)(n)

      900         980  

Starwood Property Trust, Inc.

 

5.500% due 11/01/2023 (n)

      2,500         2,625  

UniCredit SpA

 

7.830% due 12/04/2023 (n)

      3,300         3,813  

Uniti Group LP

 

7.875% due 02/15/2025 (n)

      18,734         19,980  

Voyager Aviation Holdings LLC

 

8.500% due 05/09/2026

      2,186         2,011  
       

 

 

 
            145,722  
       

 

 

 
INDUSTRIALS 47.1%

 

AA Bond Co. Ltd.

 

5.500% due 07/31/2050 (n)

  GBP     1,323         2,086  

Alaska Airlines Pass-Through Trust

 

4.800% due 02/15/2029 (n)

  $     1,729         1,925  

American Airlines, Inc.

 

5.500% due 04/20/2026 (n)

      300         314  

Associated Materials LLC

 

9.000% due 09/01/2025 (n)

      425         452  

B.C. Unlimited Liability Co.

 

3.875% due 01/15/2028 (n)

      5,600         5,655  
 

 

       
62   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

Bioceanico Sovereign Certificate Ltd.

 

0.000% due 06/05/2034 (h)

  $     146     $     110  

Boeing Co.

 

5.150% due 05/01/2030 (n)

      746         889  

5.705% due 05/01/2040 (n)

      962         1,253  

5.805% due 05/01/2050 (n)

      822         1,123  

5.930% due 05/01/2060 (n)

      1,112         1,541  

6.125% due 02/15/2033 (n)

      1,909         2,464  

Bombardier, Inc.

 

6.000% due 10/15/2022 (n)

      1,417         1,424  

6.125% due 01/15/2023 (n)

      2,620         2,760  

7.125% due 06/15/2026 (n)

      2,216         2,307  

7.500% due 12/01/2024 (n)

      3,396         3,536  

7.500% due 03/15/2025 (n)

      5,748         5,867  

7.875% due 04/15/2027 (n)

      3,952         4,096  

Broadcom, Inc.

 

3.419% due 04/15/2033 (n)

      8,000         8,546  

3.469% due 04/15/2034 (n)

      6,060         6,460  

4.150% due 11/15/2030 (n)

      300         341  

4.300% due 11/15/2032 (n)

      300         347  

Caesars Entertainment, Inc.

 

6.250% due 07/01/2025 (n)

      500         529  

CCO Holdings LLC

 

4.500% due 08/15/2030 (n)

      207         218  

4.500% due 06/01/2033 (n)

      2,326         2,424  

CGG S.A.

 

7.750% due 04/01/2027

  EUR     1,000         1,193  

8.750% due 04/01/2027 (n)

  $     7,789         7,780  

Charter Communications Operating LLC

 

3.700% due 04/01/2051 (n)

      5,900         5,985  

3.850% due 04/01/2061 (n)

      500         500  

4.400% due 12/01/2061

      100         110  

Community Health Systems, Inc.

 

4.750% due 02/15/2031 (n)

      1,300         1,321  

5.625% due 03/15/2027 (n)

      1,580         1,675  

6.625% due 02/15/2025 (n)

      7,770         8,157  

Connect Finco SARL

 

6.750% due 10/01/2026

      80         84  

Coty, Inc.

 

3.875% due 04/15/2026

  EUR     7,300         8,717  

5.000% due 04/15/2026 (n)

  $     5,900         5,962  

CSC Holdings LLC

 

4.500% due 11/15/2031 (n)

      3,900         3,934  

Deluxe Corp.

 

8.000% due 06/01/2029 (n)

      6,320         6,913  

Envision Healthcare Corp.

 

8.750% due 10/15/2026 (n)

      3,318         2,451  

Exela Intermediate LLC

 

10.000% due 07/15/2023 (n)

      172         121  

Ferroglobe PLC

 

9.375% due 03/01/2022 (n)

      2,750         2,908  

First Quantum Minerals Ltd.

 

6.500% due 03/01/2024 (n)

      2,040         2,083  

6.875% due 03/01/2026 (n)

      1,348         1,411  

Ford Motor Co.

 

7.700% due 05/15/2097 (n)

      15,515           19,751  

Fresh Market, Inc.

 

9.750% due 05/01/2023 (n)

      9,300         9,615  

Frontier Finance PLC

 

8.000% due 03/23/2022

  GBP     1,238         1,760  

Full House Resorts, Inc.

 

8.250% due 02/15/2028 (n)

  $     525         570  

General Electric Co.

 

6.875% due 01/10/2039

      2         3  

General Shopping Investments Ltd.

 

12.000% due 03/20/2022 ^(e)(j)

      2,500         344  

Hawaiian Airlines Pass-Through Certificates

 

7.375% due 09/15/2027 (n)

      4,713         5,375  

HCA, Inc.

 

7.500% due 11/15/2095 (n)

      3,462         5,147  

Helios Software Holdings, Inc.

 

4.625% due 05/01/2028 (n)

      2,100         2,074  

Hilton Domestic Operating Co., Inc.

 

3.625% due 02/15/2032 (n)

      1,700         1,698  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

3.750% due 05/01/2029 (n)

  $     2,400     $     2,434  

4.000% due 05/01/2031 (n)

      2,400         2,460  

Hilton Grand Vacations Borrower Escrow LLC

 

4.875% due 07/01/2031 (n)

      2,700         2,656  

HollyFrontier Corp.

 

4.500% due 10/01/2030 (n)

      8,700         9,377  

Innophos Holdings, Inc.

 

9.375% due 02/15/2028 (n)

      151         163  

Intelsat Connect Finance S.A.

 

9.500% due 02/15/2023 ^(e)

      23         7  

Intelsat Jackson Holdings S.A.

 

5.500% due 08/01/2023 ^(e)

      5,413         2,970  

8.000% due 02/15/2024

      17         18  

8.500% due 10/15/2024 ^(e)

      12,674         7,079  

9.750% due 07/15/2025 ^(e)

      4,215         2,367  

Intelsat Luxembourg S.A.

 

8.125% due 06/01/2023 ^(e)

      15,504         498  

Jaguar Land Rover Automotive PLC

 

6.875% due 11/15/2026

  EUR     400         544  

Leviathan Bond Ltd.

 

6.500% due 06/30/2027 (n)

  $     1,300         1,437  

Marriott International, Inc.

 

4.625% due 06/15/2030

      44         51  

MGM Resorts International

 

4.750% due 10/15/2028 (n)

      2,000         2,108  

NCL Corp. Ltd.

 

10.250% due 02/01/2026 (n)

      10,123         11,578  

New Albertson’s LP

 

6.570% due 02/23/2028 (n)

      4,021         4,287  

Nissan Motor Co. Ltd.

 

4.345% due 09/17/2027 (n)

      400         445  

4.810% due 09/17/2030 (n)

      8,700         9,945  

Noble Corp. PLC (11.000% Cash or 15.000% PIK)

 

11.000% due 02/15/2028 (d)

      60         67  

Novelis Corp.

 

3.250% due 11/15/2026 (c)

      900         915  

3.875% due 08/15/2031 (c)

      400         405  

Odebrecht Oil & Gas Finance Ltd.

 

0.000% due 08/30/2021 (h)(j)

      3,371         46  

Ortho-Clinical Diagnostics, Inc.

 

7.375% due 06/01/2025

      32         34  

Penn National Gaming, Inc.

 

4.125% due 07/01/2029 (n)

      3,000         2,962  

Petroleos Mexicanos

 

2.750% due 04/21/2027

  EUR     1,500         1,650  

5.950% due 01/28/2031 (n)

  $     4,221         4,155  

6.490% due 01/23/2027

      100         106  

6.500% due 03/13/2027

      270         286  

6.500% due 01/23/2029 (n)

      2,300         2,392  

6.750% due 09/21/2047

      70         63  

6.840% due 01/23/2030 (n)

      5,900         6,162  

6.950% due 01/28/2060 (n)

      6,894         6,196  

7.690% due 01/23/2050

      150         146  

Prime Healthcare Services, Inc.

 

7.250% due 11/01/2025 (n)

      10,674           11,481  

Qatar Petroleum

 

2.250% due 07/12/2031 (n)

      1,300         1,317  

3.125% due 07/12/2041 (n)

      2,300         2,390  

3.300% due 07/12/2051 (n)

      1,800         1,869  

QVC, Inc.

 

5.950% due 03/15/2043 (n)

      3,268         3,399  

Rolls-Royce PLC

 

4.625% due 02/16/2026

  EUR     300         387  

5.750% due 10/15/2027

  GBP     600         913  

Royal Caribbean Cruises Ltd.

 

11.500% due 06/01/2025 (n)

  $     2,853         3,270  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031 (n)

  GBP     13,100         24,286  

Sands China Ltd.

 

5.400% due 08/08/2028 (n)

  $     3,379         3,954  

Schenck Process Holding GmbH

 

6.875% due 06/15/2023 (n)

  EUR     600         719  

Seagate HDD Cayman

 

4.125% due 01/15/2031 (n)

  $     700         733  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Standard Industries, Inc.

 

3.375% due 01/15/2031 (n)

  $     800     $     777  

4.375% due 07/15/2030 (n)

      2,600         2,682  

Syngenta Finance NV

 

5.182% due 04/24/2028

      200         231  

Teva Pharmaceutical Finance BV

 

3.650% due 11/10/2021

      73         73  

Teva Pharmaceutical Finance Netherlands BV

 

6.000% due 01/31/2025

  EUR     100         130  

Topaz Solar Farms LLC

 

4.875% due 09/30/2039 (n)

  $     2,442         2,695  

5.750% due 09/30/2039 (n)

      5,881         6,869  

TransDigm, Inc.

 

5.500% due 11/15/2027

      46         48  

Transocean Pontus Ltd.

 

6.125% due 08/01/2025

      155         153  

Transocean, Inc.

 

7.250% due 11/01/2025

      96         77  

7.500% due 01/15/2026

      80         62  

8.000% due 02/01/2027

      162         120  

Triumph Group, Inc.

 

6.250% due 09/15/2024

      116         117  

U.S. Renal Care, Inc.

 

10.625% due 07/15/2027

      77         84  

United Airlines Pass-Through Trust

 

4.875% due 07/15/2027 (n)

      2,055         2,160  

5.875% due 04/15/2029 (n)

      3,895         4,341  

United Airlines, Inc.

 

4.375% due 04/15/2026 (n)

      700         721  

United Group BV

 

4.875% due 07/01/2024

  EUR     100         120  

Valaris Ltd. (8.250% Cash or 12.000% PIK)

 

8.250% due 04/30/2028 (d)

  $     28         29  

Vale Overseas Ltd.

 

6.875% due 11/21/2036 (n)

      89         124  

6.875% due 11/10/2039

      60         85  

Vale S.A.

 

2.762% due 12/29/2049 ~(j)

  BRL     120,000         14,675  

Veritas U.S., Inc.

 

7.500% due 09/01/2025 (n)

  $     2,130         2,211  

10.500% due 02/01/2024 (n)

      2,909         2,975  

Viking Cruises Ltd.

 

13.000% due 05/15/2025 (n)

      8,659         10,055  

Windstream Escrow LLC

 

7.750% due 08/15/2028 (n)

      8,129         8,303  

Wynn Macau Ltd.

 

5.125% due 12/15/2029

      200         202  

5.625% due 08/26/2028 (n)

      2,800         2,874  

Yum! Brands, Inc.

 

3.625% due 03/15/2031 (n)

      2,700         2,757  

ZoomInfo Technologies LLC

 

3.875% due 02/01/2029 (n)

      2,500         2,508  
       

 

 

 
            373,294  
       

 

 

 
UTILITIES 10.5%

 

AT&T, Inc.

 

3.100% due 02/01/2043 (n)

      2,538         2,541  

3.300% due 02/01/2052 (n)

      3,038         3,039  

3.500% due 06/01/2041 (n)

      1,254         1,334  

3.500% due 02/01/2061 (n)

      1,558         1,560  

3.650% due 06/01/2051 (n)

      2,750         2,924  

3.850% due 06/01/2060 (n)

      1,902         2,044  

DTEK Finance PLC (1.500% Cash and 3.500% PIK)

 

5.000% due 12/31/2027 (d)(n)

      2,168         1,416  

Edison International

 

5.750% due 06/15/2027 (n)

      97         112  

FirstEnergy Corp.

 

3.400% due 03/01/2050 (n)

      500         505  

5.600% due 07/15/2047 (n)

      500         629  

Genesis Energy LP

 

8.000% due 01/15/2027 (n)

      1,473         1,521  

Lumen Technologies, Inc.

 

4.000% due 02/15/2027

      76         78  

7.200% due 12/01/2025 (n)

      1,122         1,256  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     63
    


Schedule of Investments   PIMCO High Income Fund   (Cont.)  

 

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

Mountain States Telephone & Telegraph Co.

 

7.375% due 05/01/2030 (n)

  $     5,130     $     6,481  

NGD Holdings BV

 

6.750% due 12/31/2026 (n)

      846         816  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 12/01/2021 ^

      304         302  

Odebrecht Drilling Norbe Ltd. (6.350% Cash and 1.000% PIK)

 

7.350% due 12/01/2026 ^(d)

      3,116         1,690  

Odebrecht Offshore Drilling Finance Ltd.

 

6.720% due 12/01/2022 ^(n)

      1,882         1,849  

Odebrecht Offshore Drilling Finance Ltd. (6.720% Cash and 1.000% PIK)

 

7.720% due 12/01/2026 ^(d)

      14,925         3,684  

Oi S.A. (10.000% Cash or 12.000% PIK)

 

10.000% due 07/27/2025 (d)(n)

      4,510         4,461  

Pacific Gas & Electric Co.

 

3.250% due 06/01/2031 (n)

      3,335         3,289  

3.500% due 08/01/2050 (n)

      1,426         1,279  

4.000% due 12/01/2046 (n)

      600         562  

4.250% due 03/15/2046 (n)

      2,300         2,231  

4.450% due 04/15/2042 (n)

      980         980  

4.500% due 07/01/2040 (n)

      3,488         3,529  

4.550% due 07/01/2030 (n)

      3,093         3,304  

4.600% due 06/15/2043

      200         203  

4.750% due 02/15/2044 (n)

      3,250         3,283  

4.950% due 07/01/2050 (n)

      1,054         1,091  

Petrobras Global Finance BV

 

6.250% due 12/14/2026

  GBP     7,102         11,334  

6.625% due 01/16/2034

      200         322  

6.850% due 06/05/2115

  $     39         44  

Rio Oil Finance Trust

 

8.200% due 04/06/2028

      245         284  

9.250% due 07/06/2024 (n)

      11,613         12,932  

Southern California Edison Co.

 

6.650% due 04/01/2029

      20         25  

Transocean Poseidon Ltd.

 

6.875% due 02/01/2027

      156         152  
       

 

 

 
          83,086  
       

 

 

 

Total Corporate Bonds & Notes (Cost $588,232)

      602,102  
 

 

 

 
CONVERTIBLE BONDS & NOTES 0.6%

 

INDUSTRIALS 0.6%

 

DISH Network Corp.

 

3.375% due 08/15/2026

      5,100         5,240  
       

 

 

 

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

    5,240  
 

 

 

 
MUNICIPAL BONDS & NOTES 9.7%

 

CALIFORNIA 0.5%

 

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

 

6.506% due 02/01/2031

      1,525         1,936  

Sacramento County, California Revenue Bonds, Series 2013

 

7.250% due 08/01/2025

      1,500         1,825  
       

 

 

 
          3,761  
       

 

 

 
DISTRICT OF COLUMBIA 1.8%

 

District of Columbia Revenue Bonds, Series 2011

 

7.625% due 10/01/2035

      9,740         14,376  
       

 

 

 
ILLINOIS 3.7%

 

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

 

6.257% due 01/01/2040

      11,000         14,747  

7.517% due 01/01/2040

      9,805         14,652  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

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

 

6.725% due 04/01/2035

  $     45     $     58  

7.350% due 07/01/2035

      30         39  

Illinois State General Obligation Bonds, Series 2003

 

5.100% due 06/01/2033

      130         156  
       

 

 

 
            29,652  
       

 

 

 
NEW YORK 0.0%

 

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

 

6.000% due 06/01/2028

      370         370  
       

 

 

 
PUERTO RICO 1.0%

 

Commonwealth of Puerto Rico General Obligation Bonds, Series 2014

 

8.000% due 07/01/2035 ^(e)

      9,300         7,951  
       

 

 

 
TEXAS 1.5%

 

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

 

7.250% due 08/15/2043

      7,480         11,762  
       

 

 

 
VIRGINIA 0.2%

 

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

 

6.706% due 06/01/2046

      1,285         1,368  
       

 

 

 
WEST VIRGINIA 1.0%

 

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

 

0.000% due 06/01/2047 (h)

      66,200         7,524  
       

 

 

 

Total Municipal Bonds & Notes (Cost $55,929)

    76,764  
 

 

 

 
U.S. GOVERNMENT AGENCIES 2.6%

 

Fannie Mae

 

3.500% due 09/25/2027 (a)

      157         11  

4.000% due 06/25/2050 (a)(n)

      3,191         487  

5.000% due 06/25/2050 (a)(n)

      5,983         866  

6.011% due 07/25/2050 •(a)(n)

      5,629         880  

10.000% due 01/25/2034 •(n)

      216         257  

Freddie Mac

 

0.000% due 02/25/2046 (b)(h)

      3,166         2,850  

0.100% due 02/25/2046 (a)

      3,166         1  

5.000% due 06/15/2033 ~(a)(n)

      823         133  

6.007% due 07/15/2035 •(a)(n)

      631         109  

6.011% due 06/25/2050 •(a)(n)

      5,917         1,101  

6.107% due 02/15/2042 •(a)(n)

      996         140  

6.170% due 11/25/2055 «~

      13,575         8,336  

7.047% due 08/15/2036 •(a)

      385         88  

9.289% due 10/25/2027 •

      4,300         4,945  

12.814% due 05/15/2033 •

      38         48  

Ginnie Mae

 

3.500% due 06/20/2042 (a)

      63         6  

3.500% due 03/20/2043 (a)(n)

      813         102  

4.500% due 07/20/2042 (a)

      123         18  

5.000% due 09/20/2042 (a)

      221         40  

6.166% due 02/20/2042 •(a)

      474         5  

Uniform Mortgage-Backed Security, TBA

 

2.000% due 09/01/2036

      100         104  
       

 

 

 

Total U.S. Government Agencies (Cost $22,702)

      20,527  
 

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 11.7%

 

Adjustable Rate Mortgage Trust

 

0.429% due 05/25/2036 •

      3,287         1,400  

Banc of America Alternative Loan Trust

 

0.449% due 06/25/2037 •

      2,514         1,889  

5.511% due 06/25/2046 ^•(a)

      3,574         421  

6.551% due 06/25/2037 ^•(a)

      2,731         536  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Banc of America Funding Trust

 

6.000% due 07/25/2037 ^

  $     345     $     348  

6.250% due 10/26/2036

      5,325         3,511  

Banc of America Mortgage Trust

 

2.789% due 02/25/2036 ^~

      9         9  

BCAP LLC Trust

 

4.834% due 03/26/2037 þ

      1,314         2,081  

6.000% due 05/26/2037 ~

      4,845         2,968  

39.815% due 06/26/2036 ~

      429         263  

Bear Stearns Adjustable Rate Mortgage Trust

 

3.442% due 11/25/2034 ~

      41         40  

CD Mortgage Trust

 

5.688% due 10/15/2048

      1,123         160  

Chase Mortgage Finance Trust

 

2.990% due 09/25/2036 ^~

      56         51  

3.029% due 12/25/2035 ^~

      10         10  

5.500% due 05/25/2036 ^

      1         1  

Citigroup Commercial Mortgage Trust

 

5.514% due 12/10/2049 ~

      3,537           1,928  

Citigroup Mortgage Loan Trust

 

2.754% due 11/25/2035 ~(n)

      11,674         7,939  

2.993% due 07/25/2037 ^~

      55         53  

3.265% due 08/25/2037 ^~

      31         28  

6.500% due 09/25/2036

      2,757         2,198  

Commercial Mortgage Loan Trust

 

5.973% due 12/10/2049 ~

      8,917         3,837  

Countrywide Alternative Loan Trust

 

0.589% due 12/25/2046 •

      2,165         2,107  

3.052% due 02/25/2037 ^~

      132         132  

4.911% due 04/25/2035 •(a)

      2,647         257  

6.000% due 02/25/2037 ^

      4,563         2,715  

6.250% due 12/25/2036 ^•

      2,615         1,787  

6.500% due 06/25/2036 ^

      693         521  

Countrywide Home Loan Mortgage Pass-Through Trust

 

2.775% due 09/20/2036 ^~

      298         288  

3.032% due 09/25/2047 ^~

      23         22  

5.261% due 12/25/2036 •(a)

      1,907         219  

Credit Suisse Commercial Mortgage Trust

 

5.859% due 09/15/2040 ~

      16         38  

Credit Suisse First Boston Mortgage Securities Corp.

 

6.000% due 01/25/2036 ^

      1,369         1,118  

Eurosail PLC

 

1.434% due 06/13/2045 •

  GBP     3,347         4,256  

4.084% due 06/13/2045 •

      988         1,321  

HarborView Mortgage Loan Trust

 

2.562% due 08/19/2036 ^~

  $     6         6  

3.341% due 08/19/2036 ^~

      191         179  

IM Pastor Fondo de Titluzacion Hipotecaria

 

0.000% due 03/22/2043 •

  EUR     3,668         4,049  

Jackson Park Trust

 

3.242% due 10/14/2039 ~

  $     2,311         2,214  

JP Morgan Alternative Loan Trust

 

3.266% due 03/25/2037 ^~

      3,605         3,700  

JP Morgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      110         92  

JP Morgan Mortgage Trust

 

2.892% due 07/27/2037 ~

      3,656         3,063  

6.531% due 01/25/2037 ^•(a)

      14,402         4,466  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038 ^

      559         188  

5.562% due 02/15/2040 ^~

      373         163  

Lehman XS Trust

 

0.309% due 06/25/2047 •

      1,881         1,804  

Motel 6 Trust

 

7.020% due 08/15/2024 •

      3,763         3,678  

Nomura Asset Acceptance Corp. Alternative Loan Trust

 

3.173% due 04/25/2036 ^~

      4,151         3,813  

Nomura Resecuritization Trust

 

4.066% due 07/26/2035 ~

      4,349         4,137  

Residential Asset Securitization Trust

 

0.489% due 01/25/2046 ^•

      183         56  

6.250% due 09/25/2037 ^

      4,682         2,719  

6.500% due 08/25/2036 ^

      801         399  
 

 

       
64   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

Structured Adjustable Rate Mortgage Loan Trust

 

2.982% due 01/25/2036 ^~

  $     125     $     89  

3.097% due 04/25/2047 ~

      358         231  

Structured Asset Mortgage Investments Trust

 

0.469% due 07/25/2046 ^•

      7,453         6,074  

WaMu Mortgage Pass-Through Certificates Trust

 

3.260% due 05/25/2037 ^~

      82         74  

Washington Mutual Mortgage Pass-Through Certificates Trust

 

6.500% due 03/25/2036 ^

      5,181         4,402  

6.591% due 04/25/2037 •(a)

      8,305         2,977  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $88,413)

      93,025  
 

 

 

 
ASSET-BACKED SECURITIES 10.0%

 

ACE Securities Corp. Home Equity Loan Trust

 

0.369% due 07/25/2036 •

      2,080         1,868  

Apidos CLO

 

0.000% due 07/22/2026 ~

      3,000         1  

Avoca CLO DAC

 

0.000% due 04/15/2034 ~

  EUR     2,150         1,427  

Belle Haven ABS CDO Ltd.

 

0.526% due 07/05/2046 •

  $     185,947         490  

Carlyle Global Market Strategies CLO Ltd.

 

0.000% due 10/15/2031 ~

      4,200         2,624  

Carlyle Global Market Strategies Euro CLO DAC

 

0.000% due 04/15/2027 ~

  EUR     800         433  

0.000% due 01/25/2032 ~

      2,200         1,521  

CIFC Funding Ltd.

 

0.000% due 04/24/2030 ~

  $     4,000         1,730  

0.010% due 10/22/2031 ~

      3,000         1,169  

Cork Street CLO Designated Activity Co.

 

0.000% due 11/27/2028 ~

  EUR     2,667         2,411  

Countrywide Asset-Backed Certificates Trust

 

0.359% due 09/25/2046 •

  $     12,035         10,684  

CVC Cordatus Loan Fund DAC

 

0.000% due 04/15/2032 ~

  EUR     2,500         1,254  

Duke Funding Ltd.

 

0.810% due 08/07/2033 •

  $     15,326         4,261  

Glacier Funding CDO Ltd.

 

0.446% due 08/04/2035 •

      6,523         1,204  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029 ~

  EUR     1,000         655  

Jay Park CLO Ltd.

 

0.000% due 10/20/2027 ~

  $     7,503         3,958  

Long Beach Mortgage Loan Trust

 

0.469% due 02/25/2036 •

      1,114         1,015  

Man GLG Euro CLO DAC

 

0.000% due 10/15/2030 ~

  EUR     4,150         2,943  

Marlette Funding Trust

 

0.000% due 12/15/2028 «(h)

  $     24         2,362  

0.000% due 04/16/2029 «(h)

      7         569  

0.000% due 07/16/2029 «(h)

      10         1,128  

Merrill Lynch Mortgage Investors Trust

 

0.409% due 04/25/2037 •

      729         492  

Morgan Stanley Mortgage Loan Trust

 

1.411% due 11/25/2036 ^•

      719         372  

5.965% due 09/25/2046 ^þ

      6,459         3,334  

People’s Financial Realty Mortgage Securities Trust

 

0.249% due 09/25/2036 •

      20,694         5,957  

Renaissance Home Equity Loan Trust

 

6.998% due 09/25/2037 ^þ

      7,011         3,945  

7.238% due 09/25/2037 ^þ

      6,066         3,412  

Segovia European CLO

 

0.000% due 04/15/2030 ~

  EUR     1,100         817  

Sherwood Funding CDO Ltd.

 

0.463% due 11/06/2039 •

  $     32,808         8,425  

SMB Private Education Loan Trust

 

0.000% due 10/15/2048 «(h)

      5         1,811  

SoFi Consumer Loan Program LLC

 

0.000% due 05/26/2026 (h)

      75         2,870  

South Coast Funding Ltd.

 

0.762% due 08/10/2038 •

      25,412         3,379  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Specialty Underwriting & Residential Finance Trust

 

1.064% due 06/25/2036 •

  $     409     $     350  

Washington Mutual Asset-Backed Certificates Trust

 

0.389% due 05/25/2036 •

      190         166  
       

 

 

 

Total Asset-Backed Securities (Cost $128,154)

    79,037  
 

 

 

 
SOVEREIGN ISSUES 4.0%

 

Argentina Government International Bond

 

0.500% due 07/09/2030 þ

      9,677         3,281  

1.000% due 07/09/2029

      163         63  

1.125% due 07/09/2035 þ

      8,923         2,809  

1.125% due 07/09/2046 þ

      115         39  

2.000% due 01/09/2038 þ(n)

      1,326         525  

2.500% due 07/09/2041 þ(n)

      9,486         3,565  

15.500% due 10/17/2026

  ARS     38,100         88  

34.119% (BADLARPP) due 10/04/2022 ~

      84         0  

Autonomous City of Buenos Aires

 

37.381% (BADLARPP + 3.250%) due 03/29/2024 ~

      47,730         239  

37.877% (BADLARPP + 3.750%) due 02/22/2028 ~

      34,626         166  

Egypt Government International Bond

 

3.875% due 02/16/2026 (n)

  $     1,700         1,661  

5.875% due 02/16/2031 (n)

      2,100         2,027  

7.500% due 02/16/2061 (n)

      2,100         1,961  

Ghana Government International Bond

 

6.375% due 02/11/2027 (n)

      600         591  

7.875% due 02/11/2035 (n)

      600         578  

8.750% due 03/11/2061

      200         190  

Ivory Coast Government International Bond

 

4.875% due 01/30/2032

  EUR     4,500         5,402  

6.625% due 03/22/2048

      800         1,011  

Oman Government International Bond

 

7.000% due 01/25/2051 (n)

  $     1,300         1,348  

Panama Government International Bond

 

4.500% due 04/16/2050

      1,700         1,942  

Provincia de Buenos Aires

 

37.883% due 04/12/2025 (n)

  ARS     270,895         1,296  

Republic of Greece Government International Bond

 

4.300% due 02/24/2023 þ

  EUR     25         32  

4.300% due 02/24/2024 þ

      25         33  

4.300% due 02/24/2025 þ

      25         34  

4.300% due 02/24/2026 þ

      25         35  

4.300% due 02/24/2027 þ

      25         36  

4.300% due 02/24/2028 þ

      25         37  

4.300% due 02/24/2029 þ

      25         38  

4.300% due 02/24/2030 þ

      25         38  

4.300% due 02/24/2031 þ

      25         39  

4.300% due 02/24/2032 þ

      25         40  

4.300% due 02/24/2033 þ

      25         41  

4.300% due 02/24/2034 þ

      25         41  

4.300% due 02/24/2035 þ

      25         42  

4.300% due 02/24/2036 þ

      25         42  

4.300% due 02/24/2037 þ

      25         43  

4.300% due 02/24/2038 þ

      25         44  

4.300% due 02/24/2039 þ

      25         44  

4.300% due 02/24/2040 þ

      25         45  

4.300% due 02/24/2041 þ

      25         45  

4.300% due 02/24/2042 þ

      25         46  

Turkiye Ihracat Kredi Bankasi A/S

 

8.250% due 01/24/2024

  $     200         218  

Ukraine Government International Bond

 

4.375% due 01/27/2030

  EUR     1,471         1,629  

Venezuela Government International Bond

 

8.250% due 10/13/2024 ^(e)

  $     34         4  

9.250% due 09/15/2027 ^(e)

      452         48  
       

 

 

 

Total Sovereign Issues (Cost $39,341)

      31,476  
 

 

 

 
        SHARES            
COMMON STOCKS 3.0%

 

COMMUNICATION SERVICES 1.2%

 

Clear Channel Outdoor Holdings, Inc. (f)

      754,306         2,006  
        SHARES         MARKET
VALUE
(000S)
 

iHeartMedia, Inc. ‘A’ (f)

      178,528     $     4,615  

iHeartMedia, Inc. ‘B’ «(f)

      138,545         3,223  
       

 

 

 
          9,844  
       

 

 

 
ENERGY 0.3%

 

Axis Energy Services ‘A’ «(f)(l)

      6,207         91  

Noble Corp. (f)(l)

      116,046         2,553  

Valaris Ltd. (f)

      2,307         63  
       

 

 

 
          2,707  
       

 

 

 
FINANCIALS 0.2%

 

Associated Materials Group, Inc. «(f)(l)

      162,396         1,150  
       

 

 

 
INDUSTRIALS 1.3%

 

Neiman Marcus Group Ltd. LLC «(f)(l)

      90,604         9,968  

Noble Corp. (f)

      1,879         42  

Voyager Aviation Holdings «(f)

    1,009         0  

Westmoreland Mining Holdings LLC «(f)(l)

      88,291         0  
       

 

 

 
          10,010  
       

 

 

 

Total Common Stocks (Cost $19,046)

    23,711  
 

 

 

 
WARRANTS 1.6%

 

INDUSTRIALS 0.1%

 

Sequa Corp. - Exp. 04/28/2024 «

    1,795,000         1,131  
       

 

 

 
INFORMATION TECHNOLOGY 1.5%

 

Windstream Holdings LLC - Exp. 09/21/2055 «

      537,548         11,995  
       

 

 

 

Total Warrants (Cost $4,455)

    13,126  
 

 

 

 
PREFERRED SECURITIES 15.5%

 

BANKING & FINANCE 8.3%

 

AGFC Capital Trust

 

1.876% (US0003M + 1.750%) due 01/15/2067 ~

      27,410,000         17,328  

Brighthouse Holdings LLC

 

6.500% due 07/27/2037 þ(j)

      70,000         64  

Compeer Financial ACA

 

4.875% due 08/15/2026 •(j)

      2,100,000         2,142  

Nationwide Building Society

 

10.250% ~

      71,345         18,817  

OCP CLO Ltd.

 

0.000% due 04/26/2028 (h)

      8,700         6,836  

Stichting AK Rabobank Certificaten

 

2.188% due 12/29/2049 þ(j)

      11,425,000         18,781  

Wells Fargo & Co.

 

3.900% due 03/15/2026 •(j)

      1,600,000         1,662  
       

 

 

 
          65,630  
       

 

 

 
INDUSTRIALS 7.2%

 

General Electric Co.

 

3.449% (US0003M + 3.330%) due 09/15/2021 ~(j)

      373,000         367  

Sequa Corp. (15.000% PIK)

 

15.000% «(d)

      49,925         54,860  

Voyager Aviation Holdings LLC

 

9.500% «

      6,055         1,857  
       

 

 

 
          57,084  
       

 

 

 

Total Preferred Securities (Cost $87,392)

      122,714  
 

 

 

 
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     65
    


Schedule of Investments   PIMCO High Income Fund   (Cont.)  

 

        SHARES         MARKET
VALUE
(000S)
 
REAL ESTATE INVESTMENT TRUSTS 3.3%

 

REAL ESTATE 3.3%

 

Uniti Group, Inc.

      261,443     $     3,061  

VICI Properties, Inc.

      734,782         22,918  
       

 

 

 

Total Real Estate Investment Trusts (Cost $11,180)

      25,979  
 

 

 

 
SHORT-TERM INSTRUMENTS 4.4%

 

REPURCHASE AGREEMENTS (m) 0.2%

 

          1,905  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
           
ARGENTINA TREASURY BILLS 0.0%

 

39.804% due 11/30/2021 (h)(i)

  ARS     11,320         55  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
U.S. TREASURY BILLS 4.2%

 

0.040% due 08/03/2021 - 01/27/2022 (g)(h)(p)

  $     33,200     $     33,198  
       

 

 

 
Total Short-Term Instruments
(Cost $35,161)
    35,158  
 

 

 

 
       
Total Investments in Securities
(Cost $1,267,830)
    1,304,543  
 
Total Investments 164.5%
(Cost $1,267,830)

 

  $       1,304,543  

Financial Derivative
Instruments (o)(q) 0.1%

(Cost or Premiums, net $119,760)

 

 

      421  
Auction Rate Preferred Shares (7.3)%

 

      (58,050
Other Assets and Liabilities, net (57.3)%       (454,141
 

 

 

 
Net Assets Applicable to Common Shareholders 100.0%

 

  $     792,773  
   

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS:

 

*

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

^

Security is in default.

«

Security valued using significant unobservable inputs (Level 3).

µ

All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments.

~

Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description.

Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description.

þ

Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end.

(a)

Security is an Interest Only (“IO”) or IO Strip.

(b)

Principal only security.

(c)

When-issued security.

(d)

Payment in-kind security.

(e)

Security is not accruing income as of the date of this report.

(f)

Security did not produce income within the last twelve months.

(g)

Coupon represents a weighted average yield to maturity.

(h)

Zero coupon security.

(i)

Coupon represents a yield to maturity.

(j)

Perpetual maturity; date shown, if applicable, represents next contractual call date.

(k)

Contingent convertible security.

 

(l)  RESTRICTED SECURITIES:

 

Issuer Description                  Acquisition
Date
    Cost     Market
Value
    Market Value
as Percentage
of Net Assets
Applicable
to Common
Shareholders
 

Associated Materials Group, Inc.

         08/24/2020       $    1,031     $ 1,150       0.14

Axis Energy Services ‘A’

         07/01/2021       91       91       0.01  

Neiman Marcus Group Ltd. LLC

         09/25/2020       2,918       9,968       1.26  

Noble Corp.

         02/05/2021 - 02/27/2021       1,838       2,553       0.32  

Westmoreland Mining Holdings LLC

         07/11/2016 - 10/19/2016       2,160       0       0.00  
        

 

 

   

 

 

   

 

 

 
    $    8,038     $     13,762       1.73
 

 

 

   

 

 

   

 

 

 

 

       
66   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(m)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received
 
FICC     0.000     07/30/2021       08/02/2021     $     1,905     U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022   $     (1,943   $     1,905     $     1,905  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

    $     (1,943   $     1,905     $     1,905  
   

 

 

   

 

 

   

 

 

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate(1)
    Settlement
Date
    Maturity
Date
    Amount
Borrowed(1)
     Payable for
Reverse
Repurchase
Agreements
 

BOS

    0.280     05/14/2021       08/16/2021     $     (1,331    $ (1,332

BPS

    0.350       05/05/2021       08/09/2021         (2,154      (2,156
    0.500       07/20/2021       01/20/2022         (6,655      (6,657
    0.540       06/09/2021       03/09/2022         (1,922      (1,923
    0.550       07/23/2021       04/25/2022         (1,852      (1,853
    0.600       07/20/2021       01/20/2022         (3,630      (3,630

BRC

    0.250       11/09/2020       TBD (2)        (1,239      (1,241
    0.300       07/09/2021       10/08/2021     GBP     (3,124      (4,343
    0.350       05/21/2021       08/24/2021     $     (5,670      (5,675
    0.380       07/06/2021       08/06/2021         (1,532      (1,532
    0.450       05/03/2021       08/06/2021         (2,880      (2,884
    0.450       06/03/2021       09/03/2021         (1,532      (1,533
    0.450       06/25/2021       09/03/2021         (1,267      (1,268
    0.450       07/09/2021       10/08/2021     GBP     (15,503      (21,555
    0.450       07/15/2021       09/07/2021     $     (900      (900
    0.450       08/02/2021       09/03/2021         (929      (929
    0.470       07/15/2021       09/17/2021         (1,172      (1,173
    0.480       07/07/2021       10/05/2021         (6,516      (6,519
    0.480       07/09/2021       08/06/2021         (19,380          (19,386
    0.480       07/12/2021       10/05/2021         (1,472      (1,472
    0.500       07/16/2021       01/18/2022         (1,769      (1,770
    0.550       06/18/2021       03/10/2022         (1,463      (1,464
    0.550       07/09/2021       03/10/2022         (1,767      (1,767
    0.897       06/30/2021       08/17/2021         (6,441      (6,446

BYR

    0.650       03/31/2021       03/25/2022         (9,046      (9,066
    0.650       06/18/2021       03/25/2022         (5,830      (5,835

CDC

    0.250       07/29/2021       08/30/2021         (6,755      (6,755
    0.260       08/02/2021       09/02/2021         (2,196      (2,196
    0.300       05/18/2021       08/20/2021         (187      (187
    0.300       05/24/2021       08/27/2021         (10,669      (10,675
    0.300       05/25/2021       08/27/2021         (7,931      (7,936
    0.300       06/21/2021       09/20/2021         (5,182      (5,184
    0.300       07/02/2021       10/01/2021         (2,186      (2,186
    0.330       05/03/2021       08/02/2021         (2,081      (2,082
    0.350       07/15/2021       01/14/2022         (5,213      (5,214
    0.350       07/21/2021       01/21/2022         (2,117      (2,117
    0.470       06/14/2021       09/14/2021         (289      (290
    0.480       06/01/2021       08/30/2021         (3,764      (3,767
    0.480       06/02/2021       08/31/2021         (3,880      (3,883
    0.480       06/17/2021       09/15/2021         (5,251      (5,254
    0.490       05/24/2021       08/27/2021         (528      (528
    0.490       06/02/2021       09/03/2021         (5,082      (5,086
    0.500       06/18/2021       08/03/2021         (2,829      (2,831
    0.500       06/24/2021       08/03/2021         (2,840      (2,842
    0.500       08/03/2021       02/03/2022         (5,790      (5,790

CEW

    0.180       07/23/2021       10/22/2021     GBP     (1,453      (2,020
    0.300       07/23/2021       10/22/2021         (3,396      (4,721
    0.450       07/12/2021       01/11/2022     $         (11,748      (11,751
    0.500       05/07/2021       02/01/2022         (4,130      (4,135
    0.500       07/09/2021       01/05/2022         (11,085      (11,089

CIB

    0.500       07/09/2021       08/13/2021         (2,431      (2,432
    0.500       07/23/2021       08/24/2021         (395      (395
    0.530       06/30/2021       08/04/2021         (616      (616

CIW

    0.310       06/03/2021       09/03/2021         (1,987      (1,988

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     67
    


Schedule of Investments   PIMCO High Income Fund   (Cont.)  

 

Counterparty   Borrowing
Rate(1)
    Settlement
Date
    Maturity
Date
    Amount
Borrowed(1)
    Payable for
Reverse
Repurchase
Agreements
 

IND

    0.300     06/09/2021       03/09/2022     $         (10,870   $     (10,875
    0.420       08/02/2021       02/02/2022         (6,469     (6,469
    0.450       08/02/2021       02/02/2022         (744     (744
    0.480       06/22/2021       02/04/2022         (1,106     (1,106

JML

    (0.400     07/21/2021       10/21/2021     EUR     (7,462     (8,850
    (0.380     07/21/2021       10/21/2021         (913     (1,083
    (0.300     07/14/2021       10/14/2021         (534     (633
    (0.050     07/08/2021       TBD (2)    $     (374     (374
    0.350       07/19/2021       10/19/2021     GBP     (601     (836
    0.350       07/23/2021       10/22/2021         (3,507     (4,875
    0.400       07/27/2021       08/27/2021     $     (2,032     (2,032

NOM

    0.400       08/02/2021       09/02/2021         (1,073     (1,073
    0.450       07/22/2021       08/02/2021         (1,061     (1,061

SOG

    0.270       07/28/2021       08/30/2021         (3,067     (3,067
    0.330       07/06/2021       10/06/2021         (1,846     (1,846
    0.330       07/08/2021       10/06/2021         (5,117     (5,119
    0.350       06/24/2021       09/24/2021         (7,143     (7,145
    0.450       05/03/2021       08/06/2021         (4,762     (4,768
    0.450       05/14/2021       08/17/2021         (2,090     (2,092
    0.450       05/24/2021       08/25/2021         (3,993     (3,996
    0.450       05/25/2021       08/27/2021         (4,080     (4,083
    0.450       06/01/2021       09/01/2021         (1,046     (1,047
    0.450       06/03/2021       09/07/2021         (4,475     (4,478
    0.450       07/19/2021       08/17/2021         (3,307     (3,308
    0.480       04/30/2021       08/03/2021         (3,577     (3,582
    0.500       07/06/2021       01/04/2022         (18,043     (18,050
    0.500       07/15/2021       01/14/2022         (5,921     (5,923
    0.500       07/16/2021       01/14/2022         (3,143     (3,144
    0.500       07/20/2021       01/20/2022         (13,810     (13,813
    0.500       07/27/2021       01/20/2022         (1,434     (1,434
    0.550       06/09/2021       03/02/2022         (254     (254
    0.550       07/27/2021       04/27/2022         (6,816     (6,816

TDM

    0.220       06/09/2021       TBD (2)        (6,495     (6,497
    0.220       07/06/2021       TBD (2)        (4,638     (4,639
    0.250       04/01/2021       TBD (2)        (1,331     (1,332
    0.250       04/16/2021       TBD (2)        (7,316     (7,321

UBS

    0.350       06/01/2021       09/02/2021         (5,177     (5,180
    0.350       07/14/2021       10/15/2021         (9,807     (9,809
    0.400       07/06/2021       08/06/2021         (5,936     (5,938
    0.400       07/27/2021       08/30/2021         (9,256     (9,257
    0.430       06/03/2021       09/03/2021         (4,499     (4,502
    0.450       05/14/2021       08/13/2021         (3,355     (3,358
    0.450       05/19/2021       08/19/2021         (14,689     (14,703
    0.450       06/01/2021       09/01/2021         (4,606     (4,609
    0.450       06/01/2021       09/02/2021         (3,336     (3,339
    0.450       06/02/2021       09/03/2021         (5,128     (5,132
    0.450       06/29/2021       09/29/2021         (11,773     (11,778
    0.450       07/06/2021       08/06/2021         (1,161     (1,161
    0.450       07/07/2021       10/05/2021         (8,151     (8,154
    0.450       07/14/2021       10/15/2021         (213     (213
    0.450       07/22/2021       09/02/2021         (179     (179
    0.500       07/12/2021       01/10/2022         (2,987     (2,988
    0.500       07/14/2021       01/12/2022         (6,739     (6,740
           

 

 

 

Total Reverse Repurchase Agreements

 

        $     (479,064
           

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral pledged/(received) as of July 31, 2021:

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
    Payable for
Reverse
Repurchase
Agreements
    Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
    Collateral
Pledged/(Received)
    Net Exposure(3)  

Global/Master Repurchase Agreement

 

BOS

  $     0     $ (1,332   $     0      $ (1,332   $ 1,492     $ 160  

BPS

    0           (16,219     0        (16,219     21,922       5,703  

BRC

    0       (81,857     0        (81,857         92,701           10,844  

BYR

    0       (14,901     0            (14,901     17,613       2,712  

CDC

    0       (74,803     0        (74,803     71,576       (3,227

CEW

    0       (33,716     0        (33,716     39,396       5,680  

 

       
68   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
    Payable for
Reverse
Repurchase
Agreements
    Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
    Collateral
Pledged/(Received)
    Net Exposure(3)  

CIB

  $ 0     $ (3,443   $ 0      $ (3,443   $ 4,074     $ 631  

CIW

    0       (1,988     0        (1,988     2,109       121  

FICC

        1,905       0       0        1,905       (1,943     (38

IND

    0       (19,194     0        (19,194     21,345       2,151  

JML

    0       (18,683     0        (18,683     21,672       2,989  

NOM

    0       (2,134     0        (2,134     1,215       (919

SOG

    0       (93,965     0        (93,965     107,115       13,150  

TDM

    0       (19,789     0        (19,789     20,786       997  

UBS

    0       (97,040     0        (97,040     113,700           16,660  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     1,905     $     (479,064   $     0         
 

 

 

   

 

 

   

 

 

        

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

 

Corporate Bonds & Notes

  $ 0     $ (130,942   $ (157,133   $ (154,369   $ (442,444

U.S. Government Agencies

    0       (3,443     0       0       (3,443

Non-Agency Mortgage-Backed Securities

    0       (6,446     0       0       (6,446

Sovereign Issues

    0       (2,033     (1,047     (6,450     (9,530
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (142,864   $     (158,180   $     (160,819   $ (461,863
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Payable for reverse repurchase agreements(4)

 

      $     (461,863
         

 

 

 

 

(n)

Securities with an aggregate market value of $540,950 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021.

 

(1)

The average amount of borrowings outstanding during the period ended July 31, 2021 was $(310,593) at a weighted average interest rate of 0.592%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period.

(2)

Open maturity reverse repurchase agreement.

(3)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

(4)

Unsettled reverse repurchase agreements liability of $(17,201) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity

  Fixed
Receive Rate
    Payment
Frequency
    Maturity
Date
    Implied
Credit Spread at
July 31, 2021(2)
    Notional
Amount(3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Market
Value(4)
    Variation Margin  
  Asset     Liability  

Bombardier, Inc.

    5.000     Quarterly       12/20/2024       3.311     $       2,000     $ (8   $ 128     $ 120     $ 0     $ (2

Rolls-Royce PLC

    1.000       Quarterly       12/20/2025       2.269       EUR       15,900       (1,924     936       (988     0       0  
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
            $     (1,932   $     1,064     $     (868   $     0     $     (2
           

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

INTEREST RATE SWAPS

 

Pay/Receive
Floating Rate
 

Floating Rate Index

  Fixed Rate     Payment
Frequency
  Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Market
Value
   

Variation Margin

 
  Asset      Liability  

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750   Annual     09/15/2031       GBP       20,400     $ (17   $ (435   $ (452   $ 0      $ (37

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750     Annual     09/15/2051         1,700       107       (184     (77     0        (8

Receive

 

3-Month USD-LIBOR

    1.000     Semi-Annual     06/17/2023       $       17,400       (376     110       (266     0        (4

Receive

 

3-Month USD-LIBOR

    0.250     Semi-Annual     06/16/2024         14,250       39       37       76       0        (8

Receive

 

3-Month USD-LIBOR

    3.000     Semi-Annual     06/19/2024         1,900       (32     (114     (146     0        (1

Receive

 

3-Month USD-LIBOR

    0.400     Semi-Annual     12/18/2024         72,000       (205     520       315       0        (63

Receive

 

3-Month USD-LIBOR

    0.500     Semi-Annual     06/16/2026         68,500       1,264       (402     862       0        (88

Receive(5)

 

3-Month USD-LIBOR

    1.250     Semi-Annual     12/15/2026             152,200           (2,540     (159         (2,699     0            (230

Receive(5)

 

3-Month USD-LIBOR

    1.370     Semi-Annual     08/25/2028         27,135       0       (586     (586     0        (71

Pay

 

3-Month USD-LIBOR

    3.000     Semi-Annual     06/19/2029         79,200       1,687           10,009       11,696       277        0  

Receive

 

3-Month USD-LIBOR

    1.000     Semi-Annual     12/16/2030         127       1       2       3       0        (1

Receive

 

3-Month USD-LIBOR

    0.750     Semi-Annual     06/16/2031         97,200       7,950       (3,423     4,527       0        (389

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     69
    


Schedule of Investments   PIMCO High Income Fund   (Cont.)  

 

Pay/Receive
Floating Rate
 

Floating Rate Index

  Fixed Rate     Payment
Frequency
  Maturity
Date
    Notional
Amount
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Market
Value
   

Variation Margin

 
  Asset      Liability  

Receive(5)

 

3-Month USD-LIBOR

    1.750 %     Semi-Annual     12/15/2031       $       52,600     $ (834   $ (1,320   $ (2,154   $ 0      $ (230

Pay

 

3-Month USD-LIBOR

    3.500     Semi-Annual     06/19/2044         617,800       110,477       119,840       230,317       4,521        0  

Receive

 

3-Month USD-LIBOR

    2.000     Semi-Annual     01/15/2050         35,600       (256     (2,497     (2,753     0        (257

Receive

 

3-Month USD-LIBOR

    1.750     Semi-Annual     01/22/2050         55,100       (127     (820     (947     0        (373

Receive

 

3-Month USD-LIBOR

    1.875     Semi-Annual     02/07/2050         42,480       (165     (2,182     (2,347     0        (297

Receive

 

3-Month USD-LIBOR

    1.150     Semi-Annual     12/11/2050         491,800       1,785       61,433       63,218       0        (2,740

Pay(5)

 

3-Month USD-LIBOR

    2.000     Semi-Annual     12/15/2051         29,200       2,124       10       2,134       210        0  

Receive

 

6-Month EUR-EURIBOR

    0.270     Annual     09/11/2024       EUR       25,600       4       (828     (824     0        (6

Pay

 

6-Month EUR-EURIBOR

    0.650     Annual     02/26/2029         263,700       264       22,214       22,478       332        0  

Receive

 

6-Month EUR-EURIBOR

    0.150     Annual     06/17/2030         24,100       (1,059     296       (763     0        (38

Receive(5)

 

6-Month EUR-EURIBOR

    0.000     Annual     09/15/2031         3,200       55       (76     (21     0        (6

Receive

 

6-Month EUR-EURIBOR

    1.250     Annual     08/19/2049         65,900       274       (22,575     (22,301     0        (563

Pay

 

6-Month EUR-EURIBOR

    0.500     Annual     06/17/2050         7,700       1,317       (711     606       64        0  
             

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
    $ 121,737     $ 178,159     $     299,896     $ 5,404      $ (5,410
             

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

 

    $     119,805     $     179,223     $ 299,028     $     5,404      $     (5,412
             

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of July 31, 2021:

 

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

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     5,404     $     5,404       $     0     $     0     $     (5,412)     $     (5,412)  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(p)

Securities with an aggregate market value of $9,977 and cash of $32,349 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information.

 

(q)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

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

BPS

     08/2021     EUR     6,317     $     7,493     $ 4     $ (5
     08/2021     $     1,286     EUR     1,084       0       0  

BRC

     08/2021     GBP     1,111     $     1,539       0       (5

GLM

     08/2021     $     50,614     GBP     36,284       0       (180
     09/2021     GBP     36,283     $     50,618       180       0  
     11/2021     $     963     PEN     3,610       0       (74

HUS

     08/2021     GBP     42,652     $     59,039       0       (248
     08/2021     $     8,810     EUR     7,481       64       0  
     08/2021         11,189     GBP     8,145       133       0  
     09/2021     PEN     4,729     $     1,280       116       0  

SCX

     08/2021     EUR     59,505         70,608       25       (5
     08/2021     $     619     EUR     525       4       0  
     09/2021     EUR     56,732     $     67,311       0       (26

UAG

     08/2021     GBP     665         921       0       (3
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

  $     526     $     (546
 

 

 

   

 

 

 

 

       
70   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

SWAP AGREEMENTS:

 

INTEREST RATE SWAPS

 

Counterparty

 

Pay/ Receive
Floating Rate

 

Floating Rate Index

 

Fixed Rate

   

Payment
Frequency

 

Maturity
Date

 

Notional
Amount

   

Premiums
Paid/(Received)

    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
  Asset     Liability  
MYC  

Pay

 

3-Month USD-LIBOR

    1.620%     Semi-Annual   08/25/2028   $     120,600     $ (45   $ 494     $ 449     $ 0  
             

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

    $     (45   $     494     $     449     $     0  
 

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral pledged/(received) as of July 31, 2021:

 

    Financial Derivative Assets           Financial Derivative Liabilities                    
Counterparty   Forward
Foreign
Currency
Contracts
     Purchased
Options
     Swap
Agreements
     Total
Over the
Counter
           Forward
Foreign
Currency
Contracts
    Written
Options
     Swap
Agreements
     Total
Over the
Counter
    Net Market
Value of OTC
Derivatives
    Collateral
Pledged/
(Received)
    Net
Exposure(1)
 

BPS

  $ 4      $ 0      $ 0      $ 4       $ (5   $ 0      $ 0      $ (5   $ (1   $ 0     $ (1

BRC

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

GLM

    180        0        0        180         (254     0        0        (254     (74     0       (74

HUS

    313        0        0        313         (248     0        0        (248     65       0       65  

MYC

    0        0        449        449         0       0        0        0           449           (260         189  

SCX

    29        0        0        29         (31     0        0        (31     (2     0       (2

UAG

    0        0        0        0         (3     0        0        (3     (3     0       (3
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

    

 

 

       

Total Over the Counter

  $     526      $     0      $     449      $     975       $     (546   $     0      $     0      $     (546      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

    

 

 

       

 

(1) 

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of July 31, 2021:

 

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

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 0     $ 0     $ 0     $ 5,404     $ 5,404  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 526     $ 0     $ 526  

Swap Agreements

    0       0       0       0       449       449  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 526     $ 449     $ 975  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 526     $ 5,853     $ 6,379  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 2     $ 0     $ 0     $ 5,410     $ 5,412  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 546     $ 0     $ 546  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     2     $     0     $     546     $     5,410     $     5,958  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     71
    


Schedule of Investments   PIMCO High Income Fund   (Cont.)  

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:

 

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

Net Realized Gain (Loss) on Financial Derivative Instruments

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 195     $ 0     $ 0     $ 20,589     $ 20,784  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (7,864   $ 0     $ (7,864

Swap Agreements

    0       0       0       0       (1,741     (1,741
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ (7,864   $ (1,741   $ (9,605
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 195     $ 0     $     (7,864   $ 18,848     $ 11,179  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 1,514     $ 0     $ 0     $ (13,207   $     (11,693
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 4,044     $ 0     $ 4,044  

Swap Agreements

    0       0       0       0       495       495  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 4,044     $ 495     $ 4,539  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     1,514     $     0     $ 4,044     $     (12,712   $ (7,154
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 0     $     159,965     $     15,719     $ 175,684  

Corporate Bonds & Notes

 

Banking & Finance

    0       145,722       0       145,722  

Industrials

    0       373,294       0       373,294  

Utilities

    0       83,086       0       83,086  

Convertible Bonds & Notes

 

Industrials

    0       5,240       0       5,240  

Municipal Bonds & Notes

 

California

    0       3,761       0       3,761  

District of Columbia

    0       14,376       0       14,376  

Illinois

    0       29,652       0       29,652  

New York

    0       370       0       370  

Puerto Rico

    0       7,951       0       7,951  

Texas

    0       11,762       0       11,762  

Virginia

    0       1,368       0       1,368  

West Virginia

    0       7,524       0       7,524  

U.S. Government Agencies

    0       12,191       8,336       20,527  

Non-Agency Mortgage-Backed Securities

    0       93,025       0       93,025  

Asset-Backed Securities

    0       73,167       5,870       79,037  

Sovereign Issues

    0       31,476       0       31,476  

Common Stocks

 

Communication Services

        6,621       0       3,223       9,844  

Energy

    2,616       0       91       2,707  

Financials

    0       0       1,150       1,150  

Industrials

    0       42       9,968       10,010  

Warrants

 

Industrials

    0       0       1,131       1,131  

Information Technology

    0       0       11,995           11,995  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Preferred Securities

 

Banking & Finance

  $ 0     $ 65,630     $ 0     $ 65,630  

Industrials

    0       367       56,717       57,084  

Real Estate Investment Trusts

 

Real Estate

    25,979       0       0       25,979  

Short-Term Instruments

 

Repurchase Agreements

    0       1,905       0       1,905  

Argentina Treasury Bills

    0       55       0       55  

U.S. Treasury Bills

    0       33,198       0       33,198  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 35,216     $ 1,155,127     $ 114,200     $ 1,304,543  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

    0       5,404       0       5,404  

Over the counter

    0       975       0       975  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 6,379     $ 0     $ 6,379  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (5,412     0       (5,412

Over the counter

    0       (546     0       (546
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (5,958   $ 0     $ (5,958
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ 421     $ 0     $ 421  
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     35,216     $     1,155,548     $     114,200     $     1,304,964  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

       
72   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:

 

Category and Subcategory   Beginning
Balance
at 07/31/2020
    Net
Purchases
    Net
Sales/
Settlements
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation)(1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 07/31/2021
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
07/31/2021(1)
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 14,020     $ 23,891     $ (20,924   $ 61     $ (9,246   $ 6,385     $ 1,551     $ (19   $ 15,719     $ (881

U.S. Government Agencies

    8,368       0       (183     27       62       62       0       0       8,336       52  

Non-Agency Mortgage-Backed Securities

    3,584       0       0       31       0       641       0       (4,256     0       0  

Asset-Backed Securities

    12,433       345       (3,121     0       (3,365     2,448       0       (2,870     5,870       (2,201

Common Stocks

 

Communication Services

    4       2,963       0       0       0       256       0       0       3,223       256  

Energy

    0       91       0       0       0       0       0       0       91       0  

Financials

    0       1,031       0       0       0       119       0       0       1,150       119  

Industrials

    662       2,918       0       0       0       6,388       0       0       9,968       6,388  

Real Estate

    2,453       0       0       0       0       608       0       (3,061     0       0  

Warrants

 

Industrials

    0       0       0       0       0       1,131       0       0       1,131       1,131  

Information Technology

    0       4,455       0       0       0       7,540       0       0       11,995       7,540  

Preferred Securities

 

Industrials

    34,186       1,984       (10,840     0       0       31,387       0       0       56,717       31,387  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     75,710     $     37,678     $     (35,068   $     119     $     (12,549   $     56,965     $     1,551     $     (10,206   $     114,200     $     43,791  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Category and Subcategory   Ending
Balance
at 07/31/2021
    Valuation
Technique
  Unobservable
Inputs
          Input Value(s)     Weighted
Average
 

Investments in Securities, at Value

 

 

Loan Participations and Assignments

  $ 5,059     Reference Instrument   Yield      %       5.738       —    
    10,660     Third Party Vendor   Broker Quote        21.500-100.313       88.472  

U.S. Government Agencies

    8,336     Proxy Pricing   Base Price        61.285       —    

Asset-Backed Securities

    5,870     Proxy Pricing   Base Price        8,496.580-40,342.32       19,359.901  

Common Stocks

            

Communication Services

    3,223     Reference Instrument   Liquidity Discount        10.000       —    

Energy

    91     Other Valuation Techniques(2)          —         —    

Financials

    1,150     Other Valuation Techniques(2)          —         —    

Industrials

    9,968     Discounted Cash Flow   Discount Rate        14.25       —    

Warrants

            

Industrials

    1,131     Other Valuation Techniques(2)          —         —    

Information Technology

    11,995     Comparable Companies   EBITDA      x       4.375       —    

Preferred Securities

            

Industrials

    1,857     Comparable Companies/Discounted Cash Flow   Book Value/Discount Rate      x/%       0.210/20.150       —    
    54,860     Comparable Companies   EBITDA      x/x       11.700/9.200       —    
 

 

 

            

Total

  $     114,200             
 

 

 

            

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 may be due to an investment no longer held or categorized as Level 3 at period end.

(2)

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

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     73
    


Schedule of Investments   PIMCO Income Strategy Fund         

 

(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 159.7%

 

LOAN PARTICIPATIONS AND ASSIGNMENTS 25.7%

 

Banijay Entertainment S.A.S

 

3.851% (LIBOR03M + 3.750%) due 03/01/2025 ~

  $     8     $     8  

BWAY Holding Co.

 

3.342% (LIBOR03M + 3.250%) due 04/03/2024 ~

      399         387  

Caesars Resort Collection LLC

 

2.842% (LIBOR03M + 2.750%) due 12/23/2024 ~

      6,354         6,288  

4.592% (LIBOR03M + 4.500%) due 07/21/2025 ~

      2,023         2,027  

Carnival Corp.

 

3.750% (EUR003M + 3.750%) due 06/30/2025 ~

  EUR     1,200         1,427  

Cengage Learning, Inc.

 

TBD% due 06/29/2026

  $     2,847         2,849  

Clear Channel Outdoor Holdings, Inc.

 

3.607% - 3.629% (LIBOR03M + 3.500%) due 08/21/2026 ~

      1,984         1,930  

Cornerstone Building Brands, Inc.

 

3.750% (LIBOR03M + 3.250%) due 04/12/2028 ~

      19         19  

Dei Sales, Inc.

 

6.250% (LIBOR03M + 5.500%) due 04/23/2028 «~

      2,600         2,581  

Diamond Resorts Corp.

 

4.750% - 6.000% (PRIME + 2.750%) due 09/02/2023 ~

      204         204  

Emerald TopCo, Inc.

 

3.592% - 3.629% (LIBOR03M + 3.500%) due 07/24/2026 ~

      54         54  

Encina Private Credit LLC

 

TBD% - 4.096% (LIBOR03M + 3.096%) due 11/30/2025 «~µ

      4,600         4,600  

Envision Healthcare Corp.

 

3.842% (LIBOR03M + 3.750%) due 10/10/2025 ~

      11,532         9,894  

First Student Bidco, Inc.

 

TBD% due 07/21/2028

      3,271         3,250  

Fly Funding SARL

 

7.000% (LIBOR03M + 6.000%) due 10/08/2025 ~

      2,599         2,618  

Forbes Energy Services LLC

 

TBD% due 12/31/2021 «

      236         0  

Frontier Communications Corp.

 

4.500% (LIBOR03M + 3.750%) due 05/01/2028 ~

      3,022         3,026  

Hertz Corp.

 

4.000% - 4.250% (LIBOR03M + 3.500%) due 06/14/2028 ~

      1,390         1,383  

Intelsat Jackson Holdings S.A.

 

3.600% - 6.500% (LIBOR03M + 5.500%) due 07/13/2022 ~

      4         4  

IRB Holding Corp.

 

2.964% - 3.750% (LIBOR03M + 2.750%) due 02/05/2025 ~

      399         397  

Jazz Financing LUX SARL

 

3.500% (EUR003M + 3.500%) due 05/05/2028 ~

  EUR     800         950  

4.000% (LIBOR03M + 3.500%) due 05/05/2028 ~

  $     2,700           2,706  

LBM Acquisition LLC

 

TBD% due 12/17/2027

      436         431  

4.500% (LIBOR03M + 3.750%) due 12/17/2027 ~

      872         862  

Lealand Finance Company B.V.

 

3.092% (LIBOR03M + 3.000%) due 06/30/2024 «~

      40         26  

Lealand Finance Company B.V. (1.092% Cash and 3.000% PIK)

 

4.092% (LIBOR03M + 1.000%) due 06/30/2025 ~(d)

      180         81  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Madison IAQ LLC

 

TBD% due 06/21/2028

  $     1,500     $     1,489  

MH Sub LLC

 

3.592% (LIBOR03M + 3.500%) due 09/13/2024 ~

      1,554         1,545  

Nascar Holdings, Inc.

 

2.842% (LIBOR03M + 2.750%) due 10/19/2026 ~

      29         29  

Padagis LLC

 

5.250% (LIBOR03M + 4.750%) due 07/06/2028 «~

      4,000         4,013  

Parexel International Corp.

 

2.842% (LIBOR03M + 2.750%) due 09/27/2024 ~

      1,643         1,640  

PUG LLC

 

TBD% due 02/12/2027 «

      1,200         1,193  

3.592% (LIBOR03M + 3.500%) due 02/12/2027 ~

      887         869  

RE/MAX International, Inc.

 

3.000% (LIBOR03M + 2.500%) due 07/21/2028 «~

      700         699  

Redstone Buyer LLC

 

TBD% due 04/27/2028 µ

      470         468  

5.500% (LIBOR03M + 4.750%) due 04/27/2028 ~

      1,200         1,197  

Sasol Ltd.

 

0.500% - 1.746% (LIBOR03M + 1.600%) due 11/23/2022 «~µ

      2,459         2,335  

Sequa Mezzanine Holdings LLC

 

11.750% (LIBOR03M + 10.750%) due 04/28/2024 ~

      42         41  

SkyMiles IP Ltd.

 

4.750% (LIBOR03M + 3.750%) due 10/20/2027 ~

      1,800         1,904  

Sotera Health Holdings LLC

 

3.250% (LIBOR03M + 2.750%) due 12/11/2026 ~

      73         73  

Stars Group Holdings BV

 

2.397% - 3.647% (LIBOR03M + 2.250%) due 07/21/2026 ~

      4,500         4,484  

Summer (BC) Holdco SARL

 

4.884% (LIBOR03M + 4.750%) due 12/04/2026 ~

      1,576         1,577  

Syniverse Holdings, Inc.

 

6.000% (LIBOR03M + 5.000%) due 03/09/2023 ~

      6,983         6,912  

10.000% (LIBOR03M + 9.000%) due 03/11/2024 ~

      508         503  

Team Health Holdings, Inc.

 

3.750% (LIBOR03M + 2.750%) due 02/06/2024 ~

      4,747         4,600  

TK Elevator GmbH

 

TBD% due 07/31/2027

  EUR     3,500         4,156  

U.S. Renal Care, Inc.

 

5.125% (LIBOR03M + 5.000%) due 06/26/2026 ~

  $     215         216  

6.500% (LIBOR03M + 5.500%) due 06/26/2026 ~

      2,200         2,211  

Univision Communications, Inc.

 

4.000% (LIBOR03M + 3.250%) due 03/15/2026 ~

      1,800         1,800  

Westmoreland Coal Company (15.000% PIK)

 

15.000% due 03/15/2029 «(d)

      2,078         447  

Westmoreland Mining Holdings LLC

 

9.250% (LIBOR03M + 8.250%) due 03/15/2022 «~

      124         119  

Windstream Services LLC

 

7.250% (LIBOR03M + 6.250%) due 09/21/2027 ~

      1,370         1,377  
       

 

 

 

Total Loan Participations and Assignments (Cost $95,942)

      93,899  
 

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
CORPORATE BONDS & NOTES 89.2%

 

BANKING & FINANCE 23.5%

 

Ally Financial, Inc.

 

8.000% due 11/01/2031 (n)

  $     402     $     585  

8.000% due 11/01/2031

      135         193  

Apollo Commercial Real Estate Finance, Inc.

 

4.625% due 06/15/2029 (n)

      2,400         2,358  

Banca Monte dei Paschi di Siena SpA

 

1.875% due 01/09/2026

  EUR     600         720  

2.625% due 04/28/2025

      3,774         4,625  

3.625% due 09/24/2024

      1,483         1,858  

5.375% due 01/18/2028 •

      111         108  

8.500% due 09/10/2030 •

      238         265  

10.500% due 07/23/2029

      533         712  

Banco de Credito del Peru

 

4.650% due 09/17/2024

  PEN     400         99  

Bank of Ireland Group PLC

 

6.000% due 09/01/2025 •(j)(k)

  EUR     1,038         1,372  

Bank of Nova Scotia

 

4.900% due 06/04/2025 •(j)(k)(n)

  $     1,064         1,169  

Barclays PLC

 

6.375% due 12/15/2025 •(j)(k)

  GBP     600         935  

7.125% due 06/15/2025 •(j)(k)

      5,100         8,091  

BGC Partners, Inc.

 

3.750% due 10/01/2024 (n)

  $     1,000         1,066  

4.375% due 12/15/2025 (n)

      1,000         1,089  

Claveau Re Ltd.

 

17.291% (T-BILL 3MO + 17.250%) due 07/08/2028 ~

      600         602  

Cosaint Re Pte Ltd.

 

9.288% (T-BILL 1MO + 9.250%) due 04/03/2028 ~

      400         408  

Credit Suisse Group AG

 

3.091% due 05/14/2032 •(n)

      500         523  

7.500% due 07/17/2023 •(j)(k)

      200         217  

7.500% due 12/11/2023 •(j)(k)

      3,840           4,248  

Fortress Transportation & Infrastructure Investors LLC

 

6.500% due 10/01/2025

      179         186  

GLP Capital LP

 

4.000% due 01/15/2031 (n)

      1,000         1,096  

GSPA Monetization Trust

 

6.422% due 10/09/2029

      1,397         1,517  

HSBC Holdings PLC

 

4.750% due 07/04/2029 •(j)(k)

  EUR     2,100         2,815  

5.875% due 09/28/2026 •(j)(k)(n)

  GBP     200         312  

6.000% due 09/29/2023 •(j)(k)(n)

  EUR     1,200         1,559  

6.500% due 03/23/2028 •(j)(k)

  $     200         228  

ING Groep NV

 

4.875% due 05/16/2029 •(j)(k)

      1,400         1,473  

5.750% due 11/16/2026 •(j)(k)

      800         885  

Kennedy Wilson Europe Real Estate Ltd.

 

3.950% due 06/30/2022

  GBP     1,323         1,874  

Lloyds Banking Group PLC

 

7.500% due 09/27/2025 •(j)(k)

  $     2,900         3,378  

7.875% due 06/27/2029 •(j)(k)

  GBP     3,219         5,746  

MGM Growth Properties Operating Partnership LP

 

3.875% due 02/15/2029 (n)

  $     1,800         1,849  

4.500% due 01/15/2028 (n)

      1,280         1,361  

Natwest Group PLC

 

8.000% due 08/10/2025 •(j)(k)

      3,000         3,552  

Navient Corp.

 

5.625% due 08/01/2033

      31         30  

7.250% due 09/25/2023 (n)

      2,974         3,279  

Newmark Group, Inc.

 

6.125% due 11/15/2023

      28         30  

OneMain Finance Corp.

 

6.125% due 03/15/2024

      66         71  

PennyMac Financial Services, Inc.

 

4.250% due 02/15/2029

      100         97  

PRA Group, Inc.

 

7.375% due 09/01/2025 (n)

      1,000         1,081  

Santander UK Group Holdings PLC

 

6.750% due 06/24/2024 •(j)(k)

  GBP     2,850         4,422  

7.375% due 06/24/2022 •(j)(k)

      1,800         2,639  
 

 

       
74   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

Sitka Holdings LLC

 

5.250% due 07/06/2026 •

  $     250     $     252  

Societe Generale S.A.

 

7.375% due 10/04/2023 •(j)(k)

      300         327  

Starwood Property Trust, Inc.

 

5.500% due 11/01/2023 (n)

      1,200         1,260  

UniCredit SpA

 

7.830% due 12/04/2023 (n)

      1,960         2,265  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     1,136         1,776  

Uniti Group LP

 

7.125% due 12/15/2024

  $     581         598  

7.875% due 02/15/2025 (n)

      7,300         7,786  

Voyager Aviation Holdings LLC

 

8.500% due 05/09/2026

      1,165         1,072  
       

 

 

 
            86,059  
       

 

 

 
INDUSTRIALS 55.6%

 

Air Canada

 

3.875% due 08/15/2026 (c)

      1,500         1,505  

Alaska Airlines Pass-Through Trust

 

4.800% due 02/15/2029 (n)

      769         855  

Altice Financing S.A.

 

7.500% due 05/15/2026 (n)

      1,500         1,562  

Associated Materials LLC

 

9.000% due 09/01/2025

      147         156  

B.C. Unlimited Liability Co.

 

3.500% due 02/15/2029

      1,000         996  

3.875% due 01/15/2028 (n)

      2,600         2,626  

Boeing Co.

 

5.150% due 05/01/2030 (n)

      428         510  

5.705% due 05/01/2040 (n)

      416         542  

5.805% due 05/01/2050 (n)

      540         738  

5.930% due 05/01/2060 (n)

      500         693  

6.125% due 02/15/2033 (n)

      885         1,142  

Bombardier, Inc.

 

6.000% due 10/15/2022 (n)

      951         956  

6.125% due 01/15/2023

      182         192  

7.125% due 06/15/2026

      834         868  

7.500% due 12/01/2024 (n)

      1,614         1,681  

7.500% due 03/15/2025 (n)

      3,414         3,485  

7.875% due 04/15/2027 (n)

      2,848         2,952  

British Airways Pass-Through Trust

 

2.900% due 09/15/2036 (n)

      2,400         2,448  

Broadcom, Inc.

 

2.600% due 02/15/2033 (n)

      1,700         1,695  

3.419% due 04/15/2033 (n)

      1,300         1,389  

3.469% due 04/15/2034 (n)

      2,600         2,772  

4.150% due 11/15/2030

      282         320  

4.300% due 11/15/2032 (n)

      926         1,071  

5.000% due 04/15/2030

      22         26  

Builders FirstSource, Inc.

 

4.250% due 02/01/2032

      800         819  

Carnival Corp.

 

4.000% due 08/01/2028 (n)

      3,631         3,621  

CCO Holdings LLC

 

4.250% due 02/01/2031 (n)

      3,779         3,904  

4.500% due 08/15/2030

      82         86  

4.500% due 06/01/2033 (n)

      1,066         1,111  

Centene Corp.

 

2.450% due 07/15/2028 (n)

      1,600         1,624  

CGG S.A.

 

7.750% due 04/01/2027

  EUR     1,300         1,551  

8.750% due 04/01/2027

  $     1,944         1,942  

Charter Communications Operating LLC

 

3.700% due 04/01/2051

      100         101  

3.850% due 04/01/2061

      200         200  

3.900% due 06/01/2052 (n)

      2,900         3,010  

4.400% due 12/01/2061 (n)

      2,600         2,861  

Community Health Systems, Inc.

 

5.625% due 03/15/2027 (n)

      1,100         1,166  

6.625% due 02/15/2025 (n)

      1,559         1,637  

8.000% due 03/15/2026 (n)

      906         972  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Connect Finco SARL

 

6.750% due 10/01/2026

  $     30     $     32  

Corning, Inc.

 

5.450% due 11/15/2079

      37         54  

Coty, Inc.

 

3.875% due 04/15/2026

  EUR     3,300         3,941  

5.000% due 04/15/2026 (n)

  $     2,700         2,728  

CVS Pass-Through Trust

 

7.507% due 01/10/2032 (n)

      365         465  

Delta Air Lines, Inc.

 

7.375% due 01/15/2026 (n)

      508         598  

Deluxe Corp.

 

8.000% due 06/01/2029 (n)

      2,830         3,096  

Diamond Resorts International, Inc.

 

10.750% due 09/01/2024

      712         735  

Envision Healthcare Corp.

 

8.750% due 10/15/2026 (n)

      2,205         1,629  

Exela Intermediate LLC

 

10.000% due 07/15/2023

      57         40  

Ferroglobe PLC

 

9.375% due 03/01/2022

      700         740  

Ford Motor Co.

 

7.700% due 05/15/2097 (n)

      7,435         9,465  

Fresh Market, Inc.

 

9.750% due 05/01/2023 (n)

      3,313         3,425  

Full House Resorts, Inc.

 

8.250% due 02/15/2028

      208         226  

General Electric Co.

 

6.875% due 01/10/2039

      2         3  

HCA, Inc.

 

7.500% due 11/15/2095 (n)

      1,050         1,561  

Hilton Domestic Operating Co., Inc.

 

3.625% due 02/15/2032

      300         300  

3.750% due 05/01/2029 (n)

      1,100         1,116  

4.000% due 05/01/2031 (n)

      1,400         1,435  

Hilton Grand Vacations Borrower Escrow LLC

 

4.875% due 07/01/2031 (n)

      1,200         1,180  

HollyFrontier Corp.

 

4.500% due 10/01/2030 (n)

      4,000         4,311  

Innophos Holdings, Inc.

 

9.375% due 02/15/2028

      60         65  

Intelsat Connect Finance S.A.

 

9.500% due 02/15/2023 ^(e)

      39         13  

Intelsat Jackson Holdings S.A.

 

5.500% due 08/01/2023 ^(e)

      1,646         903  

8.000% due 02/15/2024

      18         19  

8.500% due 10/15/2024 ^(e)

      5,416         3,025  

9.750% due 07/15/2025 ^(e)

      4,805         2,698  

Intelsat Luxembourg S.A.

 

8.125% due 06/01/2023 ^(e)

      524         17  

Jaguar Land Rover Automotive PLC

 

5.875% due 01/15/2028 (n)

      3,400           3,527  

7.750% due 10/15/2025

      1,600         1,741  

Las Vegas Sands Corp.

 

3.900% due 08/08/2029

      200         213  

Marriott International, Inc.

 

4.625% due 06/15/2030

      20         23  

Melco Resorts Finance Ltd.

 

5.750% due 07/21/2028

      800         831  

Mileage Plus Holdings LLC

 

6.500% due 06/20/2027 (n)

      600         654  

Mohegan Gaming & Entertainment

 

8.000% due 02/01/2026

      700         730  

NCL Corp. Ltd.

 

10.250% due 02/01/2026 (n)

      1,916         2,191  

12.250% due 05/15/2024 (n)

      1,660         1,961  

New Albertson’s LP

 

6.570% due 02/23/2028

      2,800         2,985  

Nissan Motor Co. Ltd.

 

4.810% due 09/17/2030 (n)

      5,300         6,059  

Noble Corp. PLC (11.000% Cash or 15.000% PIK)

 

11.000% due 02/15/2028 (d)

      25         27  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Novelis Corp.

 

3.250% due 11/15/2026 (c)

  $     400     $     407  

3.875% due 08/15/2031 (c)

      200         203  

Odebrecht Oil & Gas Finance Ltd.

 

0.000% due 08/30/2021 (h)(j)

      450         7  

Ortho-Clinical Diagnostics, Inc.

 

7.375% due 06/01/2025

      63         68  

Penn National Gaming, Inc.

 

4.125% due 07/01/2029

      1,400         1,382  

Petroleos Mexicanos

 

2.750% due 04/21/2027

  EUR     200         220  

4.875% due 02/21/2028

      556         660  

5.350% due 02/12/2028

  $     333         329  

5.950% due 01/28/2031

      1,294         1,274  

6.490% due 01/23/2027

      40         43  

6.500% due 03/13/2027 (n)

      3,093         3,279  

6.750% due 09/21/2047

      20         18  

6.840% due 01/23/2030 (n)

      2,143         2,238  

6.950% due 01/28/2060

      150         135  

7.690% due 01/23/2050

      1,160         1,129  

Prime Healthcare Services, Inc.

 

7.250% due 11/01/2025 (n)

      4,000         4,302  

Qatar Petroleum

 

2.250% due 07/12/2031 (n)

      700         709  

3.125% due 07/12/2041 (n)

      1,100         1,143  

3.300% due 07/12/2051 (n)

      800         831  

QualityTech LP

 

3.875% due 10/01/2028 (n)

      1,000         1,072  

QVC, Inc.

 

5.950% due 03/15/2043 (n)

      1,508         1,568  

Rolls-Royce PLC

 

3.625% due 10/14/2025

      700         706  

5.750% due 10/15/2027

  GBP     300         456  

Royal Caribbean Cruises Ltd.

 

11.500% due 06/01/2025 (n)

  $     1,297         1,487  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     700         1,298  

Sands China Ltd.

 

5.400% due 08/08/2028 (n)

  $     2,702         3,162  

Schenck Process Holding GmbH

 

6.875% due 06/15/2023

  EUR     200         240  

Sensata Technologies BV

 

4.000% due 04/15/2029

  $     400         412  

Spirit AeroSystems, Inc.

 

3.950% due 06/15/2023 (n)

      1,557         1,585  

Standard Industries, Inc.

 

3.375% due 01/15/2031 (n)

      4,950         4,806  

Studio City Finance Ltd.

 

6.000% due 07/15/2025

      1,000         1,046  

6.500% due 01/15/2028

      1,000         1,051  

Syngenta Finance NV

 

5.676% due 04/24/2048

      1,990         2,448  

Teva Pharmaceutical Finance BV

 

3.650% due 11/10/2021

      942         948  

Teva Pharmaceutical Finance Co. BV

 

2.950% due 12/18/2022

      674         679  

Teva Pharmaceutical Finance Netherlands BV

 

6.000% due 01/31/2025

  EUR     100         130  

Topaz Solar Farms LLC

 

4.875% due 09/30/2039 (n)

  $     1,009           1,114  

5.750% due 09/30/2039 (n)

      5,960         6,961  

TransDigm, Inc.

 

5.500% due 11/15/2027

      20         21  

Transocean Pontus Ltd.

 

6.125% due 08/01/2025

      51         50  

Transocean, Inc.

 

7.250% due 11/01/2025

      68         54  

7.500% due 01/15/2026

      56         44  

8.000% due 02/01/2027

      66         49  

Triumph Group, Inc.

 

6.250% due 09/15/2024

      32         32  

U.S. Renal Care, Inc.

 

10.625% due 07/15/2027

      34         37  

Uber Technologies, Inc.

 

6.250% due 01/15/2028 (n)

      800         866  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     75
    


Schedule of Investments   PIMCO Income Strategy Fund   (Cont.)  

 

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

Unigel Luxembourg S.A.

 

8.750% due 10/01/2026

  $     200     $     216  

United Airlines Pass-Through Trust

 

5.875% due 04/15/2029 (n)

      1,669         1,861  

United Airlines, Inc.

 

4.375% due 04/15/2026 (n)

      1,100         1,133  

4.625% due 04/15/2029

      300         309  

Univision Communications, Inc.

 

5.125% due 02/15/2025

      283         288  

Valaris Ltd. (8.250% Cash or 12.000% PIK)

 

8.250% due 04/30/2028 (d)

      14         14  

Vale Overseas Ltd.

 

6.875% due 11/21/2036

      29         40  

6.875% due 11/10/2039

      257         364  

Vale S.A.

 

2.762% due 12/29/2049 ~(j)

  BRL     60,000         7,337  

Veritas U.S., Inc.

 

7.500% due 09/01/2025

  $     557         578  

10.500% due 02/01/2024

      1,337         1,367  

Viking Cruises Ltd.

 

13.000% due 05/15/2025 (n)

      3,217         3,736  

Vmed O2 UK Financing PLC

 

4.250% due 01/31/2031 (n)

      2,400         2,382  

VOC Escrow Ltd.

 

5.000% due 02/15/2028 (n)

      1,100         1,094  

Windstream Escrow LLC

 

7.750% due 08/15/2028 (n)

      4,144         4,233  

WMG Acquisition Corp.

 

3.000% due 02/15/2031 (n)

      1,869         1,813  

Wolverine Escrow LLC

 

9.000% due 11/15/2026

      200         194  

Wynn Las Vegas LLC

 

5.500% due 03/01/2025 (n)

      1,900         2,012  

Wynn Macau Ltd.

 

5.500% due 01/15/2026

      1,000         1,036  

5.625% due 08/26/2028

      500         513  

Yum! Brands, Inc.

 

3.625% due 03/15/2031 (n)

      1,200         1,225  

ZoomInfo Technologies LLC

 

3.875% due 02/01/2029

      200         201  
       

 

 

 
            203,192  
       

 

 

 
UTILITIES 10.1%

 

AT&T, Inc.

 

3.100% due 02/01/2043 (n)

      684         685  

3.300% due 02/01/2052 (n)

      684         684  

3.500% due 06/01/2041 (n)

      544         578  

3.500% due 02/01/2061 (n)

      694         695  

3.650% due 06/01/2051 (n)

      1,960         2,084  

3.850% due 06/01/2060 (n)

      1,292         1,388  

DTEK Finance PLC (1.500% Cash and 3.500% PIK)

 

5.000% due 12/31/2027 (d)

      2,024         1,321  

Edison International

 

5.750% due 06/15/2027

      31         36  

Gazprom Neft OAO Via GPN Capital S.A.

 

6.000% due 11/27/2023 (n)

      3,700         4,088  

Genesis Energy LP

 

8.000% due 01/15/2027 (n)

      675         697  

Lumen Technologies, Inc.

 

4.000% due 02/15/2027

      30         31  

NGD Holdings BV

 

6.750% due 12/31/2026

      188         181  

Northwestern Bell Telephone

 

7.750% due 05/01/2030 (n)

      7,000         8,862  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 12/01/2021 ^

      3         3  

Odebrecht Drilling Norbe Ltd. (6.350% Cash and 1.000% PIK)

 

7.350% due 12/01/2026 ^(d)

      146         79  

Odebrecht Offshore Drilling Finance Ltd.

 

6.720% due 12/01/2022 ^

      274         269  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Odebrecht Offshore Drilling Finance Ltd. (6.720% Cash and 1.000% PIK)

 

7.720% due 12/01/2026 ^(d)

  $     2,992     $     738  

Oi S.A. (10.000% Cash or 12.000% PIK)

 

10.000% due 07/27/2025 (d)

      2,070         2,048  

Pacific Gas & Electric Co.

 

3.300% due 03/15/2027 (n)

      917         945  

3.750% due 08/15/2042

      10         9  

4.000% due 12/01/2046 (n)

      1,004         940  

4.300% due 03/15/2045

      11         10  

4.450% due 04/15/2042

      240         240  

4.500% due 07/01/2040 (n)

      939         950  

4.500% due 12/15/2041

      10         10  

4.550% due 07/01/2030 (n)

      2,164         2,312  

4.600% due 06/15/2043

      8         8  

4.750% due 02/15/2044 (n)

      1,152         1,164  

4.950% due 07/01/2050 (n)

      2,360         2,444  

Petrobras Global Finance BV

 

6.625% due 01/16/2034

  GBP     100         161  

6.750% due 06/03/2050

  $     1,000         1,143  

Rio Oil Finance Trust

 

9.250% due 07/06/2024 (n)

      1,888         2,102  

Southern California Edison Co.

 

6.650% due 04/01/2029

      18         23  

Transocean Poseidon Ltd.

 

6.875% due 02/01/2027

      54         53  
       

 

 

 
          36,981  
       

 

 

 

Total Corporate Bonds & Notes (Cost $307,839)

      326,232  
 

 

 

 
CONVERTIBLE BONDS & NOTES 0.5%

 

INDUSTRIALS 0.5%

 

DISH Network Corp.

 

3.375% due 08/15/2026

      1,600         1,644  
       

 

 

 

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

    1,644  
 

 

 

 
MUNICIPAL BONDS & NOTES 3.7%

 

ILLINOIS 2.5%

 

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

 

7.517% due 01/01/2040

      6,000         8,966  

Chicago, Illinois General Obligation Bonds, Series 2017

 

7.045% due 01/01/2029

      50         58  

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

 

6.725% due 04/01/2035

      10         13  

7.350% due 07/01/2035

      10         13  

Illinois State General Obligation Bonds, Series 2003

 

5.100% due 06/01/2033

      40         48  
       

 

 

 
          9,098  
       

 

 

 
PUERTO RICO 0.4%

 

Commonwealth of Puerto Rico General Obligation Bonds, Series 2014

 

8.000% due 07/01/2035 ^(e)

      1,800         1,539  
       

 

 

 
VIRGINIA 0.1%

 

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

 

6.706% due 06/01/2046

      370         394  
       

 

 

 
WEST VIRGINIA 0.7%

 

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

 

0.000% due 06/01/2047 (h)

      21,900         2,489  
       

 

 

 

Total Municipal Bonds & Notes (Cost $9,674)

    13,520  
 

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
U.S. GOVERNMENT AGENCIES 2.2%

 

Fannie Mae

 

3.500% due 12/25/2032 - 12/25/2049 (a)

  $     2,391     $     238  

3.739% due 02/25/2040 •

      150         155  

4.000% due 11/25/2042 (a)

      1,122         132  

5.839% due 07/25/2029 •

      570         630  

5.866% due 06/25/2043 •(a)

      62         6  

5.961% due 02/25/2049 •(a)

      826         107  

14.699% due 12/25/2040 •

      132         185  

Freddie Mac

 

0.000% due 02/25/2046 (b)(h)

      1,050         945  

0.100% due 02/25/2046 (a)

      1,050         0  

0.700% due 11/25/2055 ~(a)

      16,571         1,138  

3.000% due 11/15/2033 (a)

      1,920         122  

6.170% due 11/25/2055 «~

      3,932         2,415  

7.639% due 12/25/2027 •

      1,483         1,614  

9.800% due 11/15/2040 •

      161         200  

10.839% due 03/25/2025 •

      213         214  
       

 

 

 

Total U.S. Government Agencies (Cost $8,425)

      8,101  
 

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 6.4%

 

Banc of America Funding Trust

 

6.000% due 08/25/2036 ^

      455         475  

BCAP LLC Trust

 

2.941% due 03/27/2036 ~

      851         706  

4.834% due 03/26/2037 þ

      335         531  

39.815% due 06/26/2036 ~

      38         23  

Bear Stearns ALT-A Trust

 

0.409% due 06/25/2046 ^•

      1,062         1,027  

3.020% due 09/25/2035 ^~

      153         114  

3.104% due 11/25/2036 ^~

      167         112  

3.148% due 09/25/2047 ^~

      2,103         1,409  

Bear Stearns Mortgage Funding Trust

 

7.500% due 08/25/2036 þ

      150         150  

CD Mortgage Trust

 

5.688% due 10/15/2048

      1,332         190  

Chase Mortgage Finance Trust

 

3.029% due 12/25/2035 ^~

      2         2  

6.000% due 02/25/2037 ^

      315         177  

6.000% due 07/25/2037 ^

      225         154  

6.250% due 10/25/2036 ^

      651         450  

Citicorp Mortgage Securities Trust

 

5.500% due 04/25/2037

      5         5  

Commercial Mortgage Loan Trust

 

5.973% due 12/10/2049 ~

      631         271  

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 05/25/2036 ^

      848         678  

6.000% due 08/25/2037 ^~

      417         324  

Countrywide Alternative Loan Trust

 

0.439% due 05/25/2037 ^•

      134         45  

2.821% due 04/25/2036 ^~

      313         296  

5.500% due 03/25/2035

      111         72  

5.500% due 12/25/2035 ^

      1,015         751  

5.750% due 01/25/2035

      88         89  

6.000% due 02/25/2035

      145         142  

6.000% due 08/25/2036 ^•

      149         122  

6.000% due 04/25/2037 ^

      400         265  

6.250% due 11/25/2036 ^

      266         241  

6.250% due 12/25/2036 ^•

      758         518  

6.500% due 08/25/2036 ^

      196         101  

Countrywide Home Loan Mortgage Pass-Through Trust

 

2.665% due 02/20/2035 ~

      4         4  

5.500% due 10/25/2035 ^

      198         164  

6.250% due 09/25/2036 ^

      193         119  

Deutsche Mortgage Securities, Inc. Mortgage Loan Trust

 

2.039% due 06/25/2034 •

      2,030         2,077  

Eurosail PLC

 

4.084% due 06/13/2045 •

  GBP     239         320  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

  $     298         101  

GSR Mortgage Loan Trust

 

5.500% due 05/25/2036 ^

      5         26  

6.000% due 02/25/2036 ^

      1,175         745  
 

 

       
76   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

HarborView Mortgage Loan Trust

 

0.809% due 01/19/2035 •

  $     53     $     53  

2.680% due 07/19/2035 ^~

      16         14  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      1,627         842  

Jackson Park Trust

 

3.242% due 10/14/2039 ~

      1,033         990  

JP Morgan Alternative Loan Trust

 

2.812% due 03/25/2036 ^~

      516         460  

3.266% due 03/25/2037 ^~

      459         471  

JP Morgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      35         30  

JP Morgan Mortgage Trust

 

2.685% due 02/25/2036 ^~

      110         92  

2.798% due 01/25/2037 ^~

      113         102  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038 ^

      174         58  

5.562% due 02/15/2040 ^~

      108         47  

Lehman XS Trust

 

0.309% due 06/25/2047 •

      582         559  

Merrill Lynch Mortgage Investors Trust

 

2.732% due 03/25/2036 ^~

      623         400  

Morgan Stanley Mortgage Loan Trust

 

5.962% due 06/25/2036 ^~

      2,253         946  

Motel 6 Trust

 

7.020% due 08/15/2024 •

      158         155  

Natixis Commercial Mortgage Securities Trust

 

2.343% due 11/15/2034 •

      1,065         1,065  

Residential Asset Securitization Trust

 

5.750% due 02/25/2036 ^

      406         252  

6.000% due 07/25/2037 ^

      639         368  

6.250% due 09/25/2037 ^

      1,201         697  

Residential Funding Mortgage Securities, Inc. Trust

 

4.271% due 08/25/2036 ^~

      228         210  

6.000% due 09/25/2036 ^

      65         62  

6.000% due 06/25/2037 ^

      775         768  

Structured Adjustable Rate Mortgage Loan Trust

 

2.909% due 11/25/2036 ^~

      496         479  

2.982% due 01/25/2036 ^~

      535         383  

SunTrust Adjustable Rate Mortgage Loan Trust

 

2.316% due 04/25/2037 ^~

      283         212  

2.369% due 02/25/2037 ^~

      66         62  

WaMu Mortgage Pass-Through Certificates Trust

 

1.843% due 12/25/2046 •

      236         229  

3.092% due 02/25/2037 ^~

      173         172  

3.267% due 10/25/2036 ^~

      248         240  

Wells Fargo Mortgage-Backed Securities Trust

 

6.000% due 06/25/2037 ^

      23         24  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $23,797)

      23,438  
 

 

 

 
ASSET-BACKED SECURITIES 10.4%

 

Adagio CLO DAC

 

0.000% due 04/30/2031 ~

  EUR     1,750         1,223  

Apidos CLO

 

0.000% due 01/20/2031 ~

  $     2,200         1,259  

Argent Securities Trust

 

0.469% due 03/25/2036 •

      6,531         4,456  

Asset-Backed Funding Certificates Trust

 

0.239% due 10/25/2036 •

      3,207         3,171  

Avoca CLO DAC

 

0.000% due 07/15/2032 ~

  EUR     1,070         997  

Bear Stearns Asset-Backed Securities Trust

 

6.500% due 10/25/2036 ^

  $     211         141  

Belle Haven ABS CDO Ltd.

 

0.526% due 07/05/2046 •

      85,896         226  

CIFC Funding Ltd.

 

0.000% due 04/24/2030 ~

      1,200         519  

0.010% due 10/22/2031 ~

      1,000         390  

Citigroup Mortgage Loan Trust

 

0.239% due 12/25/2036 •

      3,032         1,586  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Dryden CLO Ltd.

 

0.000% due 07/17/2031 ~

  $     5,689     $     4,215  

Flagship Credit Auto Trust

 

0.000% due 05/15/2025 «(h)

      4         356  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029 ~

  EUR     250         164  

GSAMP Trust

 

1.064% due 03/25/2035 ^•

  $     4,186         4,087  

Jay Park CLO Ltd.

 

0.000% due 10/20/2027 ~

      2,700         1,424  

Lehman XS Trust

 

6.790% due 06/24/2046 þ

      570         590  

Marlette Funding Trust

 

0.000% due 07/16/2029 «(h)

      6         736  

0.000% due 03/15/2030 «(h)

      3         581  

Merrill Lynch Mortgage Investors Trust

 

0.409% due 04/25/2037 •

      219         148  

Morgan Stanley Mortgage Loan Trust

 

0.329% due 04/25/2037 •

      2,875         1,204  

6.250% due 02/25/2037 ^~

      245         159  

Residential Asset Mortgage Products Trust

 

0.649% due 09/25/2036 •

      160         157  

Securitized Asset-Backed Receivables LLC Trust

 

0.369% due 05/25/2036 •

      4,650         3,169  

SLM Student Loan EDC Repackaging Trust

 

0.000% due 10/28/2029 «(h)

      1         1,340  

SLM Student Loan Trust

 

0.000% due 01/25/2042 «(h)

      2         862  

SoFi Professional Loan Program LLC

 

0.000% due 05/25/2040 «(h)

      2,100         311  

0.000% due 09/25/2040 «(h)

      846         200  

South Coast Funding Ltd.

 

0.762% due 08/10/2038 •

      5,549         738  

Symphony CLO Ltd.

 

4.733% due 07/14/2026 •

      1,000         996  

Taberna Preferred Funding Ltd.

 

0.556% due 08/05/2036 •

      148         129  

0.556% due 08/05/2036 ^•

      2,777         2,409  
       

 

 

 

Total Asset-Backed Securities (Cost $48,041)

      37,943  
 

 

 

 
SOVEREIGN ISSUES 4.7%

 

Argentina Government International Bond

 

0.500% due 07/09/2030 þ

      1,927         655  

1.000% due 07/09/2029

      366         141  

1.125% due 07/09/2035 þ

      2,099         661  

1.125% due 07/09/2046 þ

      115         39  

2.000% due 01/09/2038 þ

      6,188         2,450  

2.500% due 07/09/2041 þ

      2,872         1,079  

15.500% due 10/17/2026

  ARS     26,000         60  

34.119% (BADLARPP) due 10/04/2022 ~

      28         0  

Dominican Republic International Bond

 

4.875% due 09/23/2032 (n)

  $     1,700         1,768  

Egypt Government International Bond

 

5.875% due 02/16/2031

      900         869  

7.500% due 02/16/2061

      900         841  

Ghana Government International Bond

 

6.375% due 02/11/2027

      300         296  

7.875% due 02/11/2035

      400         385  

8.750% due 03/11/2061

      200         190  

Ivory Coast Government International Bond

 

4.875% due 01/30/2032

  EUR     2,000         2,400  

6.625% due 03/22/2048

      400         506  

Panama Government International Bond

 

4.500% due 04/16/2050

  $     800         914  

Provincia de Buenos Aires

 

37.883% due 04/12/2025 (n)

  ARS     201,514         964  

37.883% due 04/12/2025

      15,800         76  

South Africa Government International Bond

 

5.750% due 09/30/2049

  $     600         610  

Turkey Government International Bond

 

5.600% due 11/14/2024

      1,400         1,447  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Ukraine Government International Bond

 

4.375% due 01/27/2030

  EUR     582       $ 645  

Venezuela Government International Bond

 

8.250% due 10/13/2024 ^(e)

  $     12         1  

9.250% due 09/15/2027 ^(e)

      151         16  
       

 

 

 

Total Sovereign Issues (Cost $21,830)

      17,013  
 

 

 

 
        SHARES            
COMMON STOCKS 2.3%

 

COMMUNICATION SERVICES 0.9%

 

Clear Channel Outdoor Holdings, Inc. (f)

      261,329         695  

iHeartMedia, Inc. ‘A’ (f)

      62,317         1,611  

iHeartMedia, Inc. ‘B’ «(f)

      48,387         1,126  
       

 

 

 
          3,432  
       

 

 

 
ENERGY 0.1%

 

Axis Energy Services ‘A’ «(f)(l)

      1,253         19  

Noble Corp. (f)(l)

      10,196         224  

Valaris Ltd. (f)

      1,183         32  
       

 

 

 
          275  
       

 

 

 
FINANCIALS 0.1%

 

Associated Materials Group, Inc. «(f)(l)

      55,999         396  
       

 

 

 
INDUSTRIALS 1.2%

 

Neiman Marcus Group Ltd. LLC «(f)(l)

      39,846         4,384  

Noble Corp. (f)

      781         17  

Voyager Aviation Holdings «(f)

    538         0  

Westmoreland Mining Holdings LLC «(f)(l)

      25,438         0  
       

 

 

 
          4,401  
       

 

 

 

Total Common Stocks (Cost $6,435)

    8,504  
 

 

 

 
WARRANTS 1.7%

 

INDUSTRIALS 0.1%

 

Sequa Corp. - Exp. 04/28/2024 «

      394,000         248  
       

 

 

 
INFORMATION TECHNOLOGY 1.6%

 

Windstream Holdings LLC - Exp. 09/21/2055 «

      272,031         6,071  
       

 

 

 

Total Warrants (Cost $2,252)

    6,319  
 

 

 

 
PREFERRED SECURITIES 7.2%

 

BANKING & FINANCE 3.6%

 

Banco Santander S.A.

 

6.250% due 09/11/2021 •(j)(k)

      200,000         239  

Brighthouse Holdings LLC

 

6.500% due 07/27/2037 þ(j)

      35,000         32  

Nationwide Building Society

 

10.250% ~

      16,350         4,312  

Stichting AK Rabobank Certificaten

 

2.188% due 12/29/2049 þ(j)

      5,118,000         8,413  
       

 

 

 
          12,996  
       

 

 

 
INDUSTRIALS 3.6%

 

General Electric Co.

 

3.449% (US0003M + 3.330%) due 09/15/2021 ~(j)

      127,000         125  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     77
    


Schedule of Investments   PIMCO Income Strategy Fund   (Cont.)  

 

        SHARES         MARKET
VALUE
(000S)
 

Sequa Corp. (15.000% PIK)

 

15.000% «(d)

      10,948     $     12,030  

Voyager Aviation Holdings LLC

 

9.500% «

      3,228         990  
       

 

 

 
          13,145  
       

 

 

 

Total Preferred Securities (Cost $19,104)

      26,141  
 

 

 

 
REAL ESTATE INVESTMENT TRUSTS 2.2%

 

REAL ESTATE 2.2%

 

Uniti Group, Inc.

      133,286         1,561  

VICI Properties, Inc.

      202,347         6,311  
       

 

 

 

Total Real Estate Investment Trusts (Cost $3,535)

    7,872  
 

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
SHORT-TERM INSTRUMENTS 3.5%

 

REPURCHASE AGREEMENTS (m) 0.4%

 

      $       1,546  
       

 

 

 
ARGENTINA TREASURY BILLS 0.0%

 

40.164% due 10/29/2021 - 11/30/2021 (g)(h)

  ARS     6,730         33  
       

 

 

 
U.S. TREASURY BILLS 2.4%

 

0.045% due 09/02/2021 - 10/14/2021 (g)(h)(r)

  $     8,876         8,875  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
U.S. TREASURY CASH MANAGEMENT BILLS 0.7%

 

0.056% due 09/16/2021 (c)(h)(i)(p)

  $     2,620     $     2,620  
       

 

 

 
Total Short-Term Instruments
(Cost $13,078)
    13,074  
 

 

 

 
       
Total Investments in Securities
(Cost $561,552)
    583,700  
       
Total Investments 159.7%
(Cost $561,552)

 

  $     583,700  

Financial Derivative
Instruments (o)(q) 0.1%

(Cost or Premiums, net $4,569)

 

 

      316  

Auction Rate Preferred Shares (12.4)%

 

      (45,200
Other Assets and Liabilities, net (47.4)%       (173,236
 

 

 

 
Net Assets Applicable to Common Shareholders 100.0%

 

  $     365,580  
   

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS:

 

*

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

^

Security is in default.

«

Security valued using significant unobservable inputs (Level 3).

µ

All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments.

~

Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description.

Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description.

þ

Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end.

(a)

Security is an Interest Only (“IO”) or IO Strip.

(b)

Principal only security.

(c)

When-issued security.

(d)

Payment in-kind security.

(e)

Security is not accruing income as of the date of this report.

(f)

Security did not produce income within the last twelve months.

(g)

Coupon represents a weighted average yield to maturity.

(h)

Zero coupon security.

(i)

Coupon represents a yield to maturity.

(j)

Perpetual maturity; date shown, if applicable, represents next contractual call date.

(k)

Contingent convertible security.

 

(l)  RESTRICTED SECURITIES:

 

Issuer Description                  Acquisition
Date
    Cost     Market
Value
   

Market Value
as Percentage
of Net Assets

Applicable

to Common
Shareholders

 

Associated Materials Group, Inc.

         08/24/2020     $ 355     $ 396       0.11

Axis Energy Services ‘A’

         07/01/2021       19       19       0.00  

Neiman Marcus Group Ltd. LLC

         09/25/2020       1,307       4,384       1.20  

Noble Corp.

         02/05/2021 - 02/27/2021       136       224       0.06  

Westmoreland Mining Holdings LLC

         12/08/2014 - 10/19/2016       733       0       0.00  
        

 

 

   

 

 

   

 

 

 
  $     2,550     $     5,023       1.37
 

 

 

   

 

 

   

 

 

 

 

       
78   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(m)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received
 
FICC     0.000     07/30/2021       08/02/2021     $     1,546     U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022   $ (1,577   $ 1,546     $ 1,546  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

    $     (1,577   $     1,546     $     1,546  
   

 

 

   

 

 

   

 

 

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate(1)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(1)

    Payable for
Reverse
Repurchase
Agreements
 

BOS

    0.280     07/02/2021       08/06/2021       $       (4,622   $ (4,623

BPS

    0.350       05/10/2021       08/12/2021         (654     (655
    0.350       05/28/2021       08/31/2021         (4,804     (4,807
    0.350       06/23/2021       08/09/2021         (434     (434
    0.500       06/01/2021       09/03/2021         (1,608     (1,610

BRC

    0.400       08/03/2021       09/03/2021         (4,092     (4,092
    0.450       05/28/2021       08/31/2021         (2,310     (2,312
    0.450       06/01/2021       09/03/2021         (6,263     (6,268
    0.450       06/08/2021       09/03/2021         (6,998     (7,003
    0.450       06/10/2021       09/03/2021         (6,325     (6,329
    0.450       06/25/2021       09/03/2021         (1,441     (1,441
    0.450       07/02/2021       09/24/2021         (1,489     (1,489
    0.450       07/12/2021       09/03/2021         (1,259     (1,259
    0.450       07/29/2021       09/03/2021         (1,457     (1,457
    0.470       07/14/2021       09/17/2021         (3,059     (3,060
    0.480       04/30/2021       08/03/2021         (4,137     (4,142
    0.480       05/14/2021       08/06/2021         (957     (958
    0.480       07/09/2021       08/06/2021         (14,321         (14,326
    0.480       07/12/2021       10/05/2021         (605     (605
    0.500       05/03/2021       08/06/2021         (1,308     (1,310
    0.500       05/18/2021       08/06/2021         (823     (824
    0.500       07/23/2021       01/24/2022         (905     (905
    0.550       07/02/2021       03/10/2022         (1,144     (1,145
    0.550       07/12/2021       03/10/2022         (518     (518
    0.600       05/03/2021       08/06/2021         (1,779     (1,781

BYR

    0.500       07/26/2021       01/26/2022         (5,096     (5,096
    0.500       07/30/2021       01/26/2022         (3,201     (3,201
    0.650       03/31/2021       03/25/2022         (3,806     (3,814
    0.650       07/22/2021       03/25/2022         (1,397     (1,397

CDC

    0.250       07/29/2021       08/30/2021         (4,800     (4,800
    0.300       05/18/2021       08/20/2021         (4,014     (4,016
    0.350       07/15/2021       01/14/2022         (7,627     (7,628
    0.480       06/01/2021       08/30/2021         (4,159     (4,162
    0.490       05/24/2021       08/27/2021         (1,535     (1,536
    0.500       05/21/2021       08/24/2021         (1,329     (1,331

CIW

    0.310       06/03/2021       09/03/2021         (1,656     (1,657

IND

    0.240       07/28/2021       08/30/2021         (6,089     (6,090
    0.300       07/29/2021       01/31/2022         (2,642     (2,642
    0.420       08/02/2021       02/02/2022         (10,479     (10,479
    0.430       08/02/2021       02/02/2022         (2,943     (2,943

JML

    (0.300     07/14/2021       10/14/2021       EUR       (1,173     (1,391
    (0.050     07/08/2021       TBD (2)      $       (376     (376
    0.350       07/19/2021       10/19/2021       GBP       (200     (279

NOM

    0.400       07/28/2021       08/27/2021       $       (1,620     (1,620
    0.490       07/30/2021       08/27/2021         (519     (519

SOG

    0.270       07/28/2021       08/30/2021         (1,342     (1,342
    0.350       05/26/2021       08/30/2021         (5,491     (5,495
    0.350       06/24/2021       09/24/2021         (4,804     (4,806
    0.430       07/15/2021       10/08/2021         (976     (976
    0.450       05/06/2021       08/09/2021         (3,736     (3,740
    0.450       05/26/2021       08/30/2021         (3,926     (3,930
    0.450       06/03/2021       09/07/2021         (5,897     (5,901
    0.450       06/10/2021       08/16/2021         (1,073     (1,074
    0.450       07/15/2021       09/02/2021         (3,935     (3,936

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     79
    


Schedule of Investments   PIMCO Income Strategy Fund   (Cont.)  

 

Counterparty   Borrowing
Rate(1)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(1)

    Payable for
Reverse
Repurchase
Agreements
 
    0.450 %       07/22/2021       10/01/2021       $       (3,879   $ (3,880
    0.500       07/21/2021       01/21/2022         (849     (849
    0.550       06/10/2021       03/10/2022         (1,705     (1,707

TDM

    0.220       06/02/2021       TBD (2)        (632     (632

UBS

    0.450       05/19/2021       08/19/2021         (507     (507
    0.450       07/22/2021       09/02/2021         (817     (817
    0.500       07/14/2021       01/12/2022         (3,512     (3,513
           

 

 

 

Total Reverse Repurchase Agreements

 

        $     (181,435
           

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral pledged/(received) as of July 31, 2021:

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received
    Payable for
Reverse
Repurchase
Agreements
    Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
    Collateral
Pledged/(Received)
    Net Exposure(3)  

Global/Master Repurchase Agreement

 

BOS

  $ 0     $ (4,623   $ 0      $ (4,623   $ 4,887     $ 264  

BPS

    0       (7,506     0        (7,506     8,018       512  

BRC

    0       (61,224     0            (61,224         66,768           5,544  

BYR

    0       (13,508     0        (13,508     15,856       2,348  

CDC

    0       (23,473     0        (23,473     25,720       2,247  

CIW

    0       (1,657     0        (1,657     1,758       101  

FICC

    1,546       0       0        1,546       (1,577     (31

IND

    0       (22,154     0        (22,154     24,188       2,034  

JML

    0       (2,046     0        (2,046     2,131       85  

NOM

    0       (2,139     0        (2,139     1,688       (451

SOG

    0       (37,636     0        (37,636     42,713       5,077  

TDM

    0       (632     0        (632     616       (16

UBS

    0       (4,837     0        (4,837     6,368       1,531  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     1,546     $     (181,435   $     0         
 

 

 

   

 

 

   

 

 

        

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

 

Corporate Bonds & Notes

  $     0     $ (67,595   $ (61,282   $ (33,048   $ (161,925

Sovereign Issues

    0       (1,620     0       (376     (1,996
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (69,215   $     (61,282   $     (33,424   $     (163,921
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Payable for reverse repurchase agreements(4)

 

  $ (163,921
 

 

 

 

 

(n)

Securities with an aggregate market value of $202,969 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021.

 

(1)

The average amount of borrowings outstanding during the period ended July 31, 2021 was $(135,166) at a weighted average interest rate of 0.633%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period.

(2)

Open maturity reverse repurchase agreement.

(3)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

(4)

Unsettled reverse repurchase agreements liability of $(17,514) is outstanding at period end.

 

       
80   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity

  Fixed
Receive Rate
    Payment
Frequency
  Maturity
Date
    Implied
Credit Spread at
July 31, 2021(2)
   

Notional
Amount(3)

    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
   

Market
Value(4)

     Variation Margin  
   Asset      Liability  

Bombardier, Inc.

    5.000   Quarterly     06/20/2024       2.773   $     300     $ (1   $ 21     $ 20      $ 1      $ 0  

Bombardier, Inc.

    5.000     Quarterly     12/20/2024       3.311         700       (3     45       42        0        (1

MGM Resorts International

    5.000     Quarterly     06/20/2026       2.229         1,000       141       (8     133        0        (2

Rolls-Royce PLC

    1.000     Quarterly     12/20/2025       2.269     EUR     7,100       (868     427       (441      0        0  
             

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
        $     (731   $     485     $     (246    $     1      $     (3
       

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

INTEREST RATE SWAPS

 

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

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750   Annual     09/15/2031     GBP     11,000     $ (9   $ (235   $ (244   $ 0     $ (20

Receive

 

3-Month USD-LIBOR

    0.250     Semi-Annual     12/18/2022     $     25,500       12       (41     (29     0       (2

Pay

 

3-Month USD-LIBOR

    2.750     Semi-Annual     06/17/2025         43,420       2,555       1,140       3,695       53       0  

Pay

 

3-Month USD-LIBOR

    2.250     Semi-Annual     06/15/2026         15,300       723       405       1,128       23       0  

Pay

 

3-Month USD-LIBOR

    2.500     Semi-Annual     12/20/2027         28,100       200       2,570       2,770       67       0  

Receive(5)

 

3-Month USD-LIBOR

    1.420     Semi-Annual     08/17/2028         15,100       0       (383     (383     0       (40

Receive(5)

 

3-Month USD-LIBOR

    1.380     Semi-Annual     08/24/2028         16,100       0       (359     (359     0       (42

Pay

 

3-Month USD-LIBOR

    3.000     Semi-Annual     06/19/2029         49,900       2,148       5,218       7,366       175       0  

Receive

 

3-Month USD-LIBOR

    1.160     Semi-Annual     04/12/2031         1,400       0       8       8       0       (6

Pay

 

3-Month USD-LIBOR

    1.380     Semi-Annual     04/12/2031         7,000       (19     126       107       30       0  

Receive

 

3-Month USD-LIBOR

    0.750     Semi-Annual     06/16/2031         36,300       3,000       (1,316     1,684       0       (145

Receive(5)

 

3-Month USD-LIBOR

    1.750     Semi-Annual     12/15/2031         20,100       (319     (504     (823     0       (88

Pay

 

3-Month USD-LIBOR

    3.500     Semi-Annual     06/19/2044         83,100       (2,711     33,769       31,058       687       0  

Receive

 

3-Month USD-LIBOR

    2.000     Semi-Annual     01/15/2050         3,200       (23     (224     (247     0       (23

Receive

 

3-Month USD-LIBOR

    1.750     Semi-Annual     01/22/2050         8,400       (20     (124     (144     0       (57

Receive

 

3-Month USD-LIBOR

    1.875     Semi-Annual     02/07/2050         8,800       (34     (452     (486     0       (61

Receive

 

3-Month USD-LIBOR

    2.250     Semi-Annual     03/12/2050         1,700       (5     (242     (247     0       (13

Receive

 

3-Month USD-LIBOR

    1.150     Semi-Annual     12/11/2050         91,100       52       11,658       11,710       0       (507

Pay

 

6-Month  AUD-BBR-BBSW

    3.500     Semi-Annual     06/17/2025     AUD     3,900       97       243       340       0       0  

Receive

 

6-Month EUR-EURIBOR

    (0.150   Annual     03/18/2030     EUR     3,400       62       (68     (6     0       (5

Receive(5)

 

6-Month EUR-EURIBOR

    0.000     Annual     09/15/2031         3,600       59       (82     (23     0       (7
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 5,768     $ 51,107     $ 56,875     $ 1,035     $ (1,016
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

    $     5,037     $     51,592     $     56,629     $     1,036     $     (1,019
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of July 31, 2021:

 

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

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     1,036     $     1,036       $     0     $     0     $     (1,019)     $     (1,019)  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(p)

Securities with an aggregate market value of $2,620 and cash of $11,682 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

(1)

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

(2)

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

(3)

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

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     81
    


Schedule of Investments   PIMCO Income Strategy Fund   (Cont.)  

 

(4) 

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

(5)

This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information.

 

(q)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty

  

Settlement
Month

   

Currency to
be Delivered

   

Currency to
be Received

    Unrealized Appreciation/
(Depreciation)
 
  Asset     Liability  

BOA

     08/2021     PEN     366     $     94     $ 4     $ 0  
     08/2021     $     25     RUB     1,919       1       0  
     09/2021         5         361       0       0  
     10/2021         94     PEN     366       0       (4

BPS

     08/2021     EUR     2,541     $     3,013       1       (2
     08/2021     PEN     705         191       17       0  

BRC

     08/2021     EUR     451         537       2       0  

CBK

     08/2021     PEN     4,249         1,114       68       0  
     08/2021     $     129     MXN     2,689       6       0  
     08/2021         1,085     PEN     4,187       0       (54
     09/2021     PEN     822     $     222       20       0  
     10/2021         817         209       8       0  
     10/2021     $     251     PEN     991       0       (7
     12/2021         950         3,491       0       (91

GLM

     08/2021     MXN     2,689     $     134       0       (1
     08/2021     $     32,351     GBP     23,191       0       (115
     08/2021         11     RUB     834       0       0  
     09/2021     GBP     23,191     $     32,353       115       0  
     09/2021     $     12     RUB     918       0       0  
     10/2021         133     MXN     2,689       1       0  

HUS

     08/2021     GBP     23,206     $     32,120       0       (136
     08/2021     $     4     RUB     268       0       0  
     09/2021         5         380       0       0  
     10/2021     PEN     106     $     29       3       0  
     12/2021         99         27       2       0  

SCX

     08/2021     EUR     27,146         32,214       12       0  
     09/2021         30,138         35,758       0       (14
     09/2021     PEN     2,081         534       21       0  
     12/2021         63         17       1       0  

SOG

     08/2021     $     4     RUB     297       0       0  

SSB

     08/2021         401     GBP     291       3       0  

UAG

     08/2021     GBP     276     $     382       0       (1
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

  $     285     $     (425
 

 

 

   

 

 

 

 

SWAP AGREEMENTS:

 

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

 

Counterparty   Reference Entity   Fixed
Receive Rate
    Payment
Frequency
  Maturity
Date
    Implied
Credit Spread at
July 31, 2021(2)
    Notional
Amount(3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at  Value(4)
 
  Asset     Liability  
BPS  

Petrobras Global Finance BV

    1.000   Quarterly     12/20/2024       1.561   $     500     $ (98   $ 89     $ 0     $ (9
GST  

Petrobras Global Finance BV

    1.000     Quarterly     12/20/2024       1.561       700       (139     127       0       (12
HUS  

Petrobras Global Finance BV

    1.000     Quarterly     12/20/2024       1.561       800       (166     152       0       (14
             

 

 

   

 

 

   

 

 

   

 

 

 
          $     (403   $     368     $     0     $     (35
         

 

 

   

 

 

   

 

 

   

 

 

 

 

INTEREST RATE SWAPS

 

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

Pay

  3-Month USD-LIBOR     1.670     Semi-Annual     08/17/2028   $         60,300     $ (43   $ 276     $ 233      $ 0  
 

Pay

  3-Month USD-LIBOR     1.630       Semi-Annual     08/24/2028       64,200       (22     263       241        0  
               

 

 

   

 

 

   

 

 

    

 

 

 
      $ (65   $ 539     $ 474      $ 0  
               

 

 

   

 

 

   

 

 

    

 

 

 

Total Swap Agreements

    $     (468   $     907     $     474      $     (35
 

 

 

   

 

 

   

 

 

    

 

 

 

 

       
82   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral pledged/(received) as of July 31, 2021:

 

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

BOA

  $ 5      $ 0      $ 0      $ 5       $ (4   $ 0      $ 0     $ (4   $ 1     $ 0     $ 1  

BPS

    18        0        0        18         (2     0        (9     (11     7       0       7  

BRC

    2        0        0        2         0       0        0       0       2       0       2  

CBK

    102        0        0        102         (152     0        0       (152     (50     0       (50

GLM

    116        0        0        116         (116     0        0       (116     0       0       0  

GST

    0        0        0        0         0       0        (12     (12     (12     76       64  

HUS

    5        0        0        5         (136     0        (14     (150         (145     311       166  

MYC

    0        0        474        474         0       0        0       0       474           (280         194  

SCX

    34        0        0        34         (14     0        0       (14     20       0       20  

SSB

    3        0        0        3         0       0        0       0       3       0       3  

UAG

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

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $     285      $     0      $     474      $     759       $     (425   $     0      $     (35   $     (460      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

 

(r)

Securities with an aggregate market value of $387 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of July 31, 2021.

 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of July 31, 2021:

 

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

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 1     $ 0     $ 0     $ 1,035     $ 1,036  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 285     $ 0     $ 285  

Swap Agreements

    0       0       0       0       474       474  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 285     $ 474     $ 759  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1     $ 0     $ 285     $ 1,509     $ 1,795  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 3     $ 0     $ 0     $ 1,016     $ 1,019  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 425     $ 0     $ 425  

Swap Agreements

    0       35       0       0       0       35  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 35     $ 0     $ 425     $ 0     $ 460  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     38     $     0     $     425     $     1,016     $     1,479  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     83
    


Schedule of Investments   PIMCO Income Strategy Fund   (Cont.)  

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:

 

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

Net Realized Gain (Loss) on Financial Derivative Instruments

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 98     $ 0     $ 0     $ 5,558     $ 5,656  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (3,563   $ 0     $ (3,563

Swap Agreements

    0       20       0       0       (234     (214
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 20     $ 0     $ (3,563   $ (234   $     (3,777
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 118     $ 0     $     (3,563   $ 5,324     $ 1,879  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 707     $ 0     $ 0     $ (3,993   $ (3,286
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 2,370     $ 0     $ 2,370  

Swap Agreements

    0       129       0       0       539       668  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 129     $ 0     $ 2,370     $ 539     $ 3,038  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     836     $     0     $ 2,370     $     (3,454   $ (248
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 0     $ 77,886     $ 16,013     $ 93,899  

Corporate Bonds & Notes

 

Banking & Finance

    0       86,059       0       86,059  

Industrials

    0       203,192       0       203,192  

Utilities

    0       36,981       0       36,981  

Convertible Bonds & Notes

 

Industrials

    0       1,644       0       1,644  

Municipal Bonds & Notes

 

Illinois

    0       9,098       0       9,098  

Puerto Rico

    0       1,539       0       1,539  

Virginia

    0       394       0       394  

West Virginia

    0       2,489       0       2,489  

U.S. Government Agencies

    0       5,686       2,415       8,101  

Non-Agency Mortgage-Backed Securities

    0       23,438       0       23,438  

Asset-Backed Securities

    0           33,557       4,386           37,943  

Sovereign Issues

    0       17,013       0       17,013  

Common Stocks

 

Communication Services

        2,306       0       1,126       3,432  

Energy

    256       0       19       275  

Financials

    0       0       396       396  

Industrials

    0       17       4,384       4,401  

Warrants

 

Industrials

    0       0       248       248  

Information Technology

    0       0       6,071       6,071  

Preferred Securities

 

Banking & Finance

    0       12,996       0       12,996  

Industrials

    0       125           13,020       13,145  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Real Estate Investment Trusts

       

Real Estate

  $ 7,872     $ 0     $ 0     $ 7,872  

Short-Term Instruments

 

Repurchase Agreements

    0       1,546       0       1,546  

Argentina Treasury Bills

    0       33       0       33  

U.S. Treasury Bills

    0       8,875       0       8,875  

U.S. Treasury Cash Management Bills

    0       2,620       0       2,620  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $ 10,434     $ 525,188     $ 48,078     $ 583,700  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

    0       1,036       0       1,036  

Over the counter

    0       759       0       759  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 1,795     $ 0     $ 1,795  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (1,019     0       (1,019

Over the counter

    0       (460     0       (460
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (1,479   $ 0     $ (1,479
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ 316     $ 0     $ 316  
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     10,434     $     525,504     $     48,078     $     584,016  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

       
84   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:

 

Category and Subcategory   Beginning
Balance
at 07/31/2020
    Net
Purchases
    Net
Sales/
Settlements
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation)(1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 07/31/2021
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
07/31/2021(1)
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 8,380     $ 19,585     $ (11,294   $ 47     $ (4,245   $ 3,101     $ 447     $ (8   $ 16,013     $ 69  

U.S. Government Agencies

    2,424       0       (53     9       18       17       0       0       2,415       14  

Asset-Backed Securities

    8,532       0       (4,094     0       (722     159       511       0       4,386       (701

Common Stocks

                   

Communication Services

    1       1,048       0       0       0       77       0       0       1,126       77  

Energy

    0       18       0       0       0       1       0       0       19       1  

Financials

    0       356       0       0       0       40       0       0       396       40  

Industrials

    191       1,306       0       0       0       2,887       0       0       4,384       2,887  

Real Estate

    1,251       0       0       0       0       310       0       (1,561     0       0  

Warrants

                   

Industrials

    0       0       0       0       0       248       0       0       248       248  

Information Technology

    0       2,252       0       0       0       3,819       0       0       6,071       3,819  

Preferred Securities

                   

Industrials

    7,496       1,058       (2,377     0       0       6,843       0       0       13,020       6,843  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     28,275     $     25,623     $     (17,818   $     56     $     (4,949   $     17,502     $     958     $     (1,569   $     48,078     $     13,297  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Category and Subcategory   Ending
Balance
at 07/31/2021
    Valuation
Technique
  Unobservable
Inputs
         Input Value(s)     Weighted
Average
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 2,335     Reference Instrument   Yield     %       5.738       —    
    9,078     Third Party Vendor   Broker Quote       21.500-100.313       95.831  
    4,600     Waterfall Recoverability   Recovery Value       100.000       —    

U.S. Government Agencies

    2,415     Proxy Pricing   Base Price       61.285       —    

Asset-Backed Securities

    4,386     Proxy Pricing   Base Price       14.800-98,000.000       43,848.453  

Common Stocks

 

Communication Services

    1,126     Reference Instrument   Liquidity Discount       10.000       —    

Energy

    19     Other Valuation Techniques(2)   —         —         —    

Financials

    396     Other Valuation Techniques(2)   —         —         —    

Industrials

    4,384     Discounted Cash Flow   Discount Rate       14.25       —    

Warrants

 

Industrials

    248     Other Valuation Techniques(2)   —         —         —    

Information Technology

    6,071     Comparable Companies   EBITDA     x       4.375       —    

Preferred Securities

 

Industrials

    990     Comparable Companies/Discounted Cash Flow   Book Value/Discount Rate     x/%       0.210/20.150       —    
    12,030     Comparable Companies   EBITDA     x/x       11.700/9.200       —    
 

 

 

           

Total

  $     48,078            
 

 

 

           

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 may be due to an investment no longer held or categorized as Level 3 at period end.

(2)

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

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     85
    


Schedule of Investments   PIMCO Income Strategy Fund II         

 

(Amounts in thousands*, except number of shares, contracts, units and ounces, if any)

 

        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
INVESTMENTS IN SECURITIES 157.9%

 

LOAN PARTICIPATIONS AND ASSIGNMENTS 24.3%

 

Alphabet Holding Co., Inc.

 

3.592% (LIBOR03M + 3.500%) due 09/26/2024 ~

  $     96     $     96  

Banijay Entertainment S.A.S

 

3.851% (LIBOR03M + 3.750%) due 03/01/2025 ~

      16         16  

BWAY Holding Co.

 

3.342% (LIBOR03M + 3.250%) due 04/03/2024 ~

      898         870  

Caesars Resort Collection LLC

 

2.842% (LIBOR03M + 2.750%) due 12/23/2024 ~

      11,580           11,460  

4.592% (LIBOR03M + 4.500%) due 07/21/2025 ~

      3,176         3,182  

Carnival Corp.

 

3.750% (EUR003M + 3.750%) due 06/30/2025 ~

  EUR     2,300         2,734  

Cengage Learning, Inc.

 

TBD% due 06/29/2026

  $     5,680         5,683  

Cerba Healthcare S.A.S

 

TBD% due 05/24/2028

  EUR     3,800         4,507  

CityCenter Holdings LLC

 

3.000% (LIBOR03M + 2.250%) due 04/18/2024 ~

  $     244         243  

Clear Channel Outdoor Holdings, Inc.

 

3.607% - 3.629% (LIBOR03M + 3.500%) due 08/21/2026 ~

      3,864         3,759  

Cornerstone Building Brands, Inc.

 

3.750% (LIBOR03M + 3.250%) due 04/12/2028 ~

      39         39  

Dei Sales, Inc.

 

6.250% (LIBOR03M + 5.500%) due 04/23/2028 «~

      5,100         5,062  

Diamond Resorts Corp.

 

4.750% - 6.000% (PRIME + 2.750%) due 09/02/2023 ~

      373         373  

Emerald TopCo, Inc.

 

3.592% - 3.629% (LIBOR03M + 3.500%) due 07/24/2026 ~

      112         111  

Envision Healthcare Corp.

 

3.842% (LIBOR03M + 3.750%) due 10/10/2025 ~

      23,575         20,226  

First Student Bidco, Inc.

 

TBD% due 07/21/2028

      6,487         6,447  

Fly Funding SARL

 

7.000% (LIBOR03M + 6.000%) due 10/08/2025 ~

      5,198         5,236  

Forbes Energy Services LLC

 

TBD% due 12/31/2021 «

      386         0  

Frontier Communications Corp.

 

4.500% (LIBOR03M + 3.750%) due 05/01/2028 ~

      5,885         5,893  

Hertz Corp.

 

4.000% - 4.250% (LIBOR03M + 3.500%) due 06/14/2028 ~

      2,850         2,836  

Intelsat Jackson Holdings S.A.

 

3.600% - 6.500% (LIBOR03M + 5.500%) due 07/13/2022 ~

      2         2  

IRB Holding Corp.

 

2.964% - 3.750% (LIBOR03M + 2.750%) due 02/05/2025 ~

      933         929  

Jazz Financing LUX SARL

 

3.500% (EUR003M + 3.500%) due 05/05/2028 ~

  EUR     1,500         1,781  

4.000% (LIBOR03M + 3.500%) due 05/05/2028 ~

  $     5,200         5,212  

LBM Acquisition LLC

 

TBD% due 12/17/2027

      865         855  

4.500% (LIBOR03M + 3.750%) due 12/17/2027 ~

      1,731         1,710  

Lealand Finance Company B.V.

 

3.092% (LIBOR03M + 3.000%) due 06/30/2024 «~

      88         57  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Lealand Finance Company B.V. (1.092% Cash and 3.000% PIK)

 

4.092% (LIBOR03M + 1.000%) due 06/30/2025 ~(d)

  $     772     $     347  

MH Sub LLC

 

3.592% (LIBOR03M + 3.500%) due 09/13/2024 ~

      3,197         3,179  

Nascar Holdings, Inc.

 

2.842% (LIBOR03M + 2.750%) due 10/19/2026 ~

      60         59  

Padagis LLC

 

5.250% (LIBOR03M + 4.750%) due 07/06/2028 «~

      7,900         7,925  

Parexel International Corp.

 

2.842% (LIBOR03M + 2.750%) due 09/27/2024 ~

      3,342         3,335  

PUG LLC

 

3.592% (LIBOR03M + 3.500%) due 02/12/2027 ~

      5,563         5,452  

RE/MAX International, Inc.

 

3.000% (LIBOR03M + 2.500%) due 07/21/2028 «~

      1,400         1,398  

Redstone Buyer LLC

 

TBD% due 04/27/2028 µ

      939         937  

5.500% (LIBOR03M + 4.750%) due 04/27/2028 ~

      2,400         2,394  

Sasol Ltd.

 

0.500% - 1.746% (LIBOR03M + 1.600%) due 11/23/2022 «~µ

    4,782         4,540  

Sequa Mezzanine Holdings LLC

 

11.750% (LIBOR03M + 10.750%) due 04/28/2024 ~

      94         93  

SkyMiles IP Ltd.

 

4.750% (LIBOR03M + 3.750%) due 10/20/2027 ~

      400         423  

Sotera Health Holdings LLC

 

3.250% (LIBOR03M + 2.750%) due 12/11/2026 ~

      152         152  

Stars Group Holdings BV

 

2.397% - 3.647% (LIBOR03M + 2.250%) due 07/21/2026 ~

    8,800         8,769  

Summer (BC) Holdco SARL

 

4.884% (LIBOR03M + 4.750%) due 12/04/2026 ~

      3,270         3,273  

Syniverse Holdings, Inc.

 

6.000% (LIBOR03M + 5.000%) due 03/09/2023 ~

      13,737         13,597  

10.000% (LIBOR03M + 9.000%) due 03/11/2024 ~

      1,007         998  

Team Health Holdings, Inc.

 

3.750% (LIBOR03M + 2.750%) due 02/06/2024 ~

      9,299         9,012  

TK Elevator GmbH

 

TBD% due 07/31/2027

  EUR     6,900         8,194  

U.S. Renal Care, Inc.

 

5.125% (LIBOR03M + 5.000%) due 06/26/2026 ~

  $     447         448  

6.500% (LIBOR03M + 5.500%) due 06/26/2026 ~

      4,300         4,321  

Univision Communications, Inc.

 

4.000% (LIBOR03M + 3.250%) due 03/15/2026 ~

      3,715         3,714  

Westmoreland Coal Company (15.000% PIK)

 

15.000% due 03/15/2029 «(d)

      4,350         935  

Westmoreland Mining Holdings LLC

 

9.250% (LIBOR03M + 8.250%) due 03/15/2022 «~

      259         250  

Windstream Services LLC

 

7.250% (LIBOR03M + 6.250%) due 09/21/2027 ~

      2,820         2,834  
       

 

 

 

Total Loan Participations and Assignments
(Cost $180,578)

      175,898  
 

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
CORPORATE BONDS & NOTES 82.3%

 

BANKING & FINANCE 21.2%

 

Ally Financial, Inc.

 

8.000% due 11/01/2031 (n)

  $     1,445     $     2,081  

Apollo Commercial Real Estate Finance, Inc.

 

4.625% due 06/15/2029 (n)

      4,800         4,717  

Banca Monte dei Paschi di Siena SpA

 

1.875% due 01/09/2026

  EUR     2,600         3,120  

2.625% due 04/28/2025

      400         490  

3.625% due 09/24/2024

      1,200         1,504  

8.000% due 01/22/2030 •

      750         825  

10.500% due 07/23/2029

      1,341         1,790  

Banco de Credito del Peru

 

4.650% due 09/17/2024

  PEN     800         197  

Bank of Ireland Group PLC

 

6.000% due 09/01/2025 •(j)(k)

  EUR     2,075         2,742  

Bank of Nova Scotia

 

4.900% due 06/04/2025 •(j)(k)(n)

  $     2,191         2,407  

Barclays PLC

 

6.125% due 12/15/2025 •(j)(k)

      2,115         2,357  

7.125% due 06/15/2025 •(j)(k)

  GBP     1,200         1,904  

7.750% due 09/15/2023 •(j)(k)

  $     1,000         1,099  

7.875% due 09/15/2022 •(j)(k)

  GBP     415         617  

8.000% due 06/15/2024 •(j)(k)

  $     400         454  

BGC Partners, Inc.

 

3.750% due 10/01/2024 (n)

      1,200         1,279  

4.375% due 12/15/2025 (n)

      2,100         2,287  

Cosaint Re Pte Ltd.

 

9.288% (T-BILL 1MO + 9.250%) due 04/03/2028 ~

      900         917  

Credit Agricole S.A.

 

7.875% due 01/23/2024 •(j)(k)(n)

      300         339  

Credit Suisse Group AG

 

3.091% due 05/14/2032 •(n)

      900         942  

7.500% due 07/17/2023 •(j)(k)

      200         217  

7.500% due 12/11/2023 •(j)(k)

      1,463         1,619  

7.500% due 12/11/2023 •(j)(k)(n)

      5,780         6,394  

Ford Motor Credit Co. LLC

 

4.389% due 01/08/2026 (n)

      1,400         1,521  

5.125% due 06/16/2025 (n)

      2,700         2,977  

Fortress Transportation & Infrastructure Investors LLC

 

6.500% due 10/01/2025 (n)

      377         391  

GSPA Monetization Trust

 

6.422% due 10/09/2029

      3,004         3,263  

HSBC Holdings PLC

 

4.750% due 07/04/2029 •(j)(k)

  EUR     4,400         5,898  

5.875% due 09/28/2026 •(j)(k)(n)

  GBP     200         312  

6.000% due 09/29/2023 •(j)(k)(n)

  EUR     2,070         2,689  

6.500% due 03/23/2028 •(j)(k)

  $     300         343  

ING Groep NV

 

4.875% due 05/16/2029 •(j)(k)

      2,700         2,840  

5.750% due 11/16/2026 •(j)(k)

      1,600         1,769  

Kennedy Wilson Europe Real Estate Ltd.

 

3.950% due 06/30/2022

  GBP     2,655         3,762  

Ladder Capital Finance Holdings LLLP

 

4.750% due 06/15/2029 (n)

  $     1,100         1,097  

Lloyds Banking Group PLC

 

7.500% due 09/27/2025 •(j)(k)

      5,999         6,988  

7.625% due 06/27/2023 •(j)(k)

  GBP     2,300         3,495  

7.875% due 06/27/2029 •(j)(k)

      6,518           11,635  

MGM Growth Properties Operating Partnership LP

 

3.875% due 02/15/2029 (n)

  $     3,700         3,800  

4.500% due 01/15/2028 (n)

      2,291         2,436  

Natwest Group PLC

 

6.000% due 12/29/2025 •(j)(k)

      2,400         2,673  

8.000% due 08/10/2025 •(j)(k)(n)

      5,990         7,092  

Navient Corp.

 

5.625% due 08/01/2033

      48         47  

Newmark Group, Inc.

 

6.125% due 11/15/2023

      62         67  

OneMain Finance Corp.

 

6.125% due 03/15/2024

      134         144  

Owl Rock Capital Corp.

 

2.625% due 01/15/2027 (n)

      1,700         1,722  
 

 

       
86   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

PennyMac Financial Services, Inc.

 

4.250% due 02/15/2029 (n)

  $     300     $     291  

PRA Group, Inc.

 

7.375% due 09/01/2025

      2,000         2,162  

Santander UK Group Holdings PLC

 

6.750% due 06/24/2024 •(j)(k)

  GBP     2,025         3,142  

7.375% due 06/24/2022 •(j)(k)

      4,100         6,011  

Sitka Holdings LLC

 

5.250% due 07/06/2026 •

  $     459         462  

Societe Generale S.A.

 

6.750% due 04/06/2028 •(j)(k)

      200         228  

7.375% due 10/04/2023 •(j)(k)

      600         654  

Tesco Property Finance PLC

 

5.411% due 07/13/2044

  GBP     615         1,141  

6.052% due 10/13/2039

      2,223         4,176  

UniCredit SpA

 

7.830% due 12/04/2023 (n)

  $     4,160         4,807  

Unique Pub Finance Co. PLC

 

5.659% due 06/30/2027

  GBP     2,277         3,558  

Uniti Group LP

 

7.125% due 12/15/2024 (n)

  $     1,148         1,182  

7.875% due 02/15/2025 (n)

      14,880         15,870  

Voyager Aviation Holdings LLC

 

8.500% due 05/09/2026

      2,502         2,302  
       

 

 

 
            153,245  
       

 

 

 
INDUSTRIALS 51.2%

 

Alaska Airlines Pass-Through Trust

 

4.800% due 02/15/2029 (n)

      1,537         1,711  

Altice Financing S.A.

 

7.500% due 05/15/2026 (n)

      2,600         2,708  

Associated Materials LLC

 

9.000% due 09/01/2025

      304         323  

B.C. Unlimited Liability Co.

 

3.500% due 02/15/2029 (n)

      2,000         1,992  

3.875% due 01/15/2028 (n)

      5,200         5,252  

Bioceanico Sovereign Certificate Ltd.

 

0.000% due 06/05/2034 (h)

      146         110  

Boeing Co.

 

5.150% due 05/01/2030 (n)

      884         1,054  

5.705% due 05/01/2040 (n)

      860         1,120  

5.805% due 05/01/2050 (n)

      1,116         1,525  

5.930% due 05/01/2060 (n)

      1,036         1,436  

6.125% due 02/15/2033 (n)

      1,755         2,266  

Bombardier, Inc.

 

6.000% due 10/15/2022 (n)

      1,891         1,901  

6.125% due 01/15/2023

      830         874  

7.125% due 06/15/2026

      1,851         1,927  

7.500% due 12/01/2024 (n)

      3,302         3,438  

7.500% due 03/15/2025

      7,700         7,859  

7.875% due 04/15/2027

      2,803         2,905  

Broadcom, Inc.

 

2.600% due 02/15/2033 (n)

      1,200         1,197  

3.419% due 04/15/2033 (n)

      1,300         1,389  

3.469% due 04/15/2034 (n)

      4,800         5,117  

3.500% due 02/15/2041 (n)

      2,700         2,809  

3.750% due 02/15/2051 (n)

      1,100         1,164  

4.150% due 11/15/2030 (n)

      586         665  

4.300% due 11/15/2032 (n)

      1,876         2,170  

5.000% due 04/15/2030

      46         55  

CCO Holdings LLC

 

4.250% due 02/01/2031 (n)

      7,759         8,015  

4.500% due 08/15/2030

      170         179  

4.500% due 06/01/2033 (n)

      2,110         2,199  

Centene Corp.

 

2.450% due 07/15/2028 (n)

      3,200         3,248  

CGG S.A.

 

7.750% due 04/01/2027

  EUR     2,600         3,102  

8.750% due 04/01/2027

  $     3,656         3,652  

Charter Communications Operating LLC

 

3.700% due 04/01/2051

      200         203  

3.850% due 04/01/2061

      400         400  

3.900% due 06/01/2052 (n)

      5,900         6,124  

4.400% due 12/01/2061 (n)

      5,200         5,722  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Community Health Systems, Inc.

 

6.625% due 02/15/2025 (n)

  $     4,788     $     5,027  

8.000% due 03/15/2026 (n)

      494         530  

Connect Finco SARL

 

6.750% due 10/01/2026

      62         65  

Corning, Inc.

 

5.450% due 11/15/2079 (n)

      77         112  

Coty, Inc.

 

3.875% due 04/15/2026

  EUR     6,700         8,001  

5.000% due 04/15/2026 (n)

  $     5,300         5,355  

CVS Pass-Through Trust

 

7.507% due 01/10/2032 (n)

      758         964  

Delta Air Lines, Inc.

 

7.375% due 01/15/2026 (n)

      508         598  

Deluxe Corp.

 

8.000% due 06/01/2029 (n)

      5,610         6,137  

Diamond Resorts International, Inc.

 

10.750% due 09/01/2024 (n)

      1,476         1,524  

Envision Healthcare Corp.

 

8.750% due 10/15/2026 (n)

      4,556         3,366  

Exela Intermediate LLC

 

10.000% due 07/15/2023

      120         84  

Ferroglobe PLC

 

9.375% due 03/01/2022

      1,700         1,798  

First Quantum Minerals Ltd.

 

6.500% due 03/01/2024

      1,252         1,278  

6.875% due 03/01/2026

      1,000         1,047  

Ford Motor Co.

 

7.700% due 05/15/2097 (n)

      9,770         12,437  

Fresh Market, Inc.

 

9.750% due 05/01/2023 (n)

      7,590         7,847  

Frontier Finance PLC

 

8.000% due 03/23/2022

  GBP     863         1,227  

Full House Resorts, Inc.

 

8.250% due 02/15/2028

  $     310         337  

General Electric Co.

 

6.875% due 01/10/2039

      2         3  

HCA, Inc.

 

7.500% due 11/15/2095 (n)

      1,200         1,784  

Helios Software Holdings, Inc.

 

4.625% due 05/01/2028 (n)

      1,900         1,876  

Hilton Domestic Operating Co., Inc.

 

3.750% due 05/01/2029 (n)

      2,200         2,231  

4.000% due 05/01/2031 (n)

      2,200         2,255  

Hilton Grand Vacations Borrower Escrow LLC

 

4.875% due 07/01/2031 (n)

      2,500         2,459  

HollyFrontier Corp.

 

4.500% due 10/01/2030 (n)

      8,100         8,731  

iHeartCommunications, Inc.

 

6.375% due 05/01/2026 (n)

      1,177         1,243  

Innophos Holdings, Inc.

 

9.375% due 02/15/2028

      124         134  

Intelsat Connect Finance S.A.

 

9.500% due 02/15/2023 ^(e)

      52         17  

Intelsat Jackson Holdings S.A.

 

5.500% due 08/01/2023 ^(e)

      3,453         1,895  

8.000% due 02/15/2024

      11         11  

8.500% due 10/15/2024 ^(e)

      11,500         6,424  

9.750% due 07/15/2025 ^(e)

      9,438         5,300  

Intelsat Luxembourg S.A.

 

8.125% due 06/01/2023 ^(e)

      7,535         242  

Jaguar Land Rover Automotive PLC

 

5.875% due 01/15/2028 (n)

      6,500         6,743  

7.750% due 10/15/2025 (n)

      3,300         3,591  

Marriott International, Inc.

 

4.625% due 06/15/2030

      40         46  

Melco Resorts Finance Ltd.

 

5.750% due 07/21/2028 (n)

      1,900         1,973  

MGM Resorts International

 

4.750% due 10/15/2028 (n)

      1,700         1,792  

Mileage Plus Holdings LLC

 

6.500% due 06/20/2027 (n)

      1,200         1,308  

Mohegan Gaming & Entertainment

 

8.000% due 02/01/2026 (n)

      1,400         1,459  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

NCL Corp. Ltd.

 

10.250% due 02/01/2026 (n)

  $     3,845     $     4,398  

12.250% due 05/15/2024 (n)

      3,440         4,064  

New Albertson’s LP

 

6.570% due 02/23/2028 (n)

      6,800         7,249  

Nissan Motor Co. Ltd.

 

4.810% due 09/17/2030 (n)

      10,500         12,003  

Noble Corp. PLC (11.000% Cash or 15.000% PIK)

 

11.000% due 02/15/2028 (d)

      51         56  

Novelis Corp.

 

3.250% due 11/15/2026 (c)

      800         813  

3.875% due 08/15/2031 (c)

      400         405  

Odebrecht Oil & Gas Finance Ltd.

 

0.000% due 08/30/2021 (h)(j)

      1,101         16  

Ortho-Clinical Diagnostics, Inc.

 

7.375% due 06/01/2025

      131         141  

Penn National Gaming, Inc.

 

4.125% due 07/01/2029

      2,700         2,665  

Petroleos Mexicanos

 

2.750% due 04/21/2027

  EUR     6,476         7,121  

4.875% due 02/21/2028

      318         378  

5.350% due 02/12/2028

  $     690         681  

5.950% due 01/28/2031 (n)

      2,594         2,553  

6.490% due 01/23/2027

      80         85  

6.500% due 03/13/2027 (n)

      2,894         3,068  

6.750% due 09/21/2047

      50         45  

6.840% due 01/23/2030

      2,530         2,642  

6.950% due 01/28/2060

      320         288  

7.690% due 01/23/2050

      2,320         2,258  

Prime Healthcare Services, Inc.

 

7.250% due 11/01/2025 (n)

      7,900         8,497  

Qatar Petroleum

 

2.250% due 07/12/2031

      1,300         1,317  

3.125% due 07/12/2041

      2,100         2,182  

3.300% due 07/12/2051

      1,700         1,766  

QualityTech LP

 

3.875% due 10/01/2028 (n)

      2,000         2,145  

QVC, Inc.

 

5.950% due 03/15/2043 (n)

      2,954         3,072  

Rolls-Royce PLC

 

3.625% due 10/14/2025 (n)

      1,500         1,513  

5.750% due 10/15/2027

  GBP     600         913  

Royal Caribbean Cruises Ltd.

 

11.500% due 06/01/2025 (n)

  $     2,491         2,855  

Russian Railways via RZD Capital PLC

 

7.487% due 03/25/2031

  GBP     1,300         2,410  

Sands China Ltd.

 

5.400% due 08/08/2028 (n)

  $     5,811         6,800  

Schenck Process Holding GmbH

 

6.875% due 06/15/2023

  EUR     400         479  

Sensata Technologies BV

 

4.000% due 04/15/2029

  $     800         823  

Spirit AeroSystems, Inc.

 

3.950% due 06/15/2023 (n)

      3,142         3,199  

Studio City Finance Ltd.

 

6.000% due 07/15/2025 (n)

      2,100         2,197  

6.500% due 01/15/2028 (n)

      2,100         2,208  

Teva Pharmaceutical Finance BV

 

3.650% due 11/10/2021

      1,913         1,925  

Teva Pharmaceutical Finance Co. BV

 

2.950% due 12/18/2022

      1,369         1,379  

Teva Pharmaceutical Finance Netherlands BV

 

6.000% due 01/31/2025

  EUR     100         130  

Topaz Solar Farms LLC

 

4.875% due 09/30/2039

  $     2,102         2,319  

5.750% due 09/30/2039 (n)

      12,280           14,343  

TransDigm, Inc.

 

5.500% due 11/15/2027

      116         120  

Transocean Pontus Ltd.

 

6.125% due 08/01/2025

      110         109  

Transocean, Inc.

 

7.250% due 11/01/2025

      74         59  

7.500% due 01/15/2026

      69         54  

8.000% due 02/01/2027

      134         99  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     87
    


Schedule of Investments   PIMCO Income Strategy Fund II   (Cont.)  

 

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

Travel + Leisure Co.

 

6.000% due 04/01/2027 (n)

  $     644     $     699  

Triumph Group, Inc.

 

6.250% due 09/15/2024

      70         71  

U.S. Renal Care, Inc.

 

10.625% due 07/15/2027

      69         75  

Uber Technologies, Inc.

 

6.250% due 01/15/2028 (n)

      1,600         1,732  

Unigel Luxembourg S.A.

 

8.750% due 10/01/2026

      400         432  

United Airlines Pass-Through Trust

 

5.875% due 04/15/2029 (n)

      3,524         3,928  

United Airlines, Inc.

 

4.375% due 04/15/2026 (n)

      2,100         2,163  

United Group BV

 

4.875% due 07/01/2024

  EUR     100         120  

Univision Communications, Inc.

 

5.125% due 02/15/2025 (n)

  $     571         581  

Valaris Ltd. (8.250% Cash or 12.000% PIK)

 

8.250% due 04/30/2028 (d)

      31         32  

Vale Overseas Ltd.

 

6.875% due 11/21/2036

      53         74  

6.875% due 11/10/2039

      41         58  

Vale S.A.

 

2.762% due 12/29/2049 ~(j)

  BRL     110,000         13,452  

Veritas U.S., Inc.

 

7.500% due 09/01/2025

  $     1,123         1,166  

10.500% due 02/01/2024

      2,644         2,704  

Viking Cruises Ltd.

 

13.000% due 05/15/2025 (n)

      6,375         7,403  

Vmed O2 UK Financing PLC

 

4.250% due 01/31/2031

      2,000         1,985  

VOC Escrow Ltd.

 

5.000% due 02/15/2028 (n)

      2,200         2,187  

Windstream Escrow LLC

 

7.750% due 08/15/2028 (n)

      8,528         8,711  

WMG Acquisition Corp.

 

3.000% due 02/15/2031 (n)

      3,853         3,738  

Wolverine Escrow LLC

 

9.000% due 11/15/2026 (n)

      400         388  

Wynn Las Vegas LLC

 

5.500% due 03/01/2025 (n)

      3,800         4,023  

Wynn Macau Ltd.

 

5.125% due 12/15/2029

      200         202  

5.500% due 01/15/2026

      1,600         1,658  

5.625% due 08/26/2028

      1,000         1,026  

Yum! Brands, Inc.

 

3.625% due 03/15/2031 (n)

      2,500         2,553  

ZoomInfo Technologies LLC

 

3.875% due 02/01/2029

      300         301  
       

 

 

 
            370,366  
       

 

 

 
UTILITIES 9.9%

 

AT&T, Inc.

 

3.100% due 02/01/2043 (n)

      1,402         1,404  

3.300% due 02/01/2052 (n)

      1,402         1,403  

3.500% due 06/01/2041 (n)

      1,134         1,206  

3.500% due 02/01/2061 (n)

      1,422         1,424  

3.650% due 06/01/2051 (n)

      3,902         4,148  

3.850% due 06/01/2060 (n)

      2,548         2,738  

DTEK Finance PLC (1.500% Cash and 3.500% PIK)

 

5.000% due 12/31/2027 (d)

      4,155         2,713  

Edison International

 

5.750% due 06/15/2027

      65         75  

Gazprom Neft OAO Via GPN Capital S.A.

 

6.000% due 11/27/2023 (n)

      8,000         8,838  

Genesis Energy LP

 

8.000% due 01/15/2027 (n)

      1,337         1,380  

Lumen Technologies, Inc.

 

4.000% due 02/15/2027

      62         64  

NGD Holdings BV

 

6.750% due 12/31/2026

      396         382  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

Northwestern Bell Telephone

 

7.750% due 05/01/2030

  $     12,625     $     15,983  

Odebrecht Drilling Norbe Ltd.

 

6.350% due 12/01/2021 ^

      5         5  

Odebrecht Drilling Norbe Ltd. (6.350% Cash and 1.000% PIK)

 

7.350% due 12/01/2026 ^(d)

      243         132  

Odebrecht Offshore Drilling Finance Ltd.

 

6.720% due 12/01/2022 ^

      709         697  

Odebrecht Offshore Drilling Finance Ltd. (6.720% Cash and 1.000% PIK)

 

7.720% due 12/01/2026 ^(d)

      7,751         1,913  

Oi S.A. (10.000% Cash or 12.000% PIK)

 

10.000% due 07/27/2025 (d)

      4,000         3,957  

Pacific Gas & Electric Co.

 

3.300% due 03/15/2027 (n)

      1,492         1,538  

3.450% due 07/01/2025 (n)

      1,445         1,508  

3.750% due 08/15/2042

      22         20  

4.000% due 12/01/2046

      8         8  

4.300% due 03/15/2045

      27         26  

4.450% due 04/15/2042 (n)

      370         370  

4.500% due 07/01/2040 (n)

      2,873         2,907  

4.500% due 12/15/2041

      22         22  

4.550% due 07/01/2030 (n)

      4,311         4,606  

4.600% due 06/15/2043

      18         18  

4.750% due 02/15/2044 (n)

      1,959         1,979  

4.950% due 07/01/2050 (n)

      4,703         4,870  

Petrobras Global Finance BV

 

6.625% due 01/16/2034

  GBP     100         161  

6.750% due 06/03/2050

  $     2,200         2,515  

Rio Oil Finance Trust

 

8.200% due 04/06/2028

      236         273  

9.250% due 07/06/2024

      1,518         1,690  

9.750% due 01/06/2027

      430         509  

Southern California Edison Co.

 

6.650% due 04/01/2029

      40         50  

Transocean Poseidon Ltd.

 

6.875% due 02/01/2027

      114         111  
       

 

 

 
          71,643  
       

 

 

 

Total Corporate Bonds & Notes
(Cost $566,280)

      595,254  
 

 

 

 
CONVERTIBLE BONDS & NOTES 0.5%

 

INDUSTRIALS 0.5%

 

DISH Network Corp.

 

3.375% due 08/15/2026

      3,400         3,494  
       

 

 

 

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

    3,494  
 

 

 

 
MUNICIPAL BONDS & NOTES 3.9%

 

CALIFORNIA 0.4%

 

San Francisco, California City & County Redevelopment Agency Tax Allocation Bonds, Series 2009

 

8.406% due 08/01/2039

      1,650         2,810  
       

 

 

 
ILLINOIS 0.0%

 

Chicago, Illinois General Obligation Bonds, Series 2015

 

7.750% due 01/01/2042

      56         65  

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

 

6.725% due 04/01/2035

      35         45  

7.350% due 07/01/2035

      20         26  

Illinois State General Obligation Bonds, Series 2003

 

5.100% due 06/01/2033

      100         120  
       

 

 

 
          256  
       

 

 

 
OHIO 2.3%

 

Ohio State University Revenue Bonds, Series 2011

 

4.800% due 06/01/2111

      11,000         16,388  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
PUERTO RICO 0.4%

 

Commonwealth of Puerto Rico General Obligation Bonds, Series 2014

 

8.000% due 07/01/2035 ^(e)

  $     3,500     $     2,992  
       

 

 

 
VIRGINIA 0.1%

 

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

 

6.706% due 06/01/2046

      785         836  
       

 

 

 
WEST VIRGINIA 0.7%

 

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

 

0.000% due 06/01/2047 (h)

      45,700         5,194  
       

 

 

 

Total Municipal Bonds & Notes
(Cost $18,480)

    28,476  
 

 

 

 
U.S. GOVERNMENT AGENCIES 2.1%

 

Fannie Mae

 

3.500% due 02/25/2042 (a)

      453         42  

3.739% due 02/25/2040 •

      310         321  

4.500% due 11/25/2042 (a)

      1,266         182  

6.161% due 01/25/2040 •(a)

      197         34  

Freddie Mac

 

0.000% due 02/25/2046 (b)(h)

      2,201         1,981  

0.100% due 02/25/2046 (a)

      2,202         1  

0.700% due 11/25/2055 ~(a)

      34,358         2,359  

3.000% due 02/15/2033 (a)

      1,123         95  

3.500% due 12/15/2032 (a)

      1,675         191  

6.170% due 11/25/2055 «~

      8,332         5,117  

7.639% due 12/25/2027 •

      2,868         3,120  

10.839% due 03/25/2025 •

      534         536  

11.733% due 09/15/2035 •

      776         1,040  

Ginnie Mae

 

3.500% due 06/20/2042 - 10/20/2042 (a)

      276         28  

4.000% due 10/16/2042 - 10/20/2042 (a)

      224         30  
       

 

 

 

Total U.S. Government Agencies (Cost $15,542)

      15,077  
 

 

 

 
NON-AGENCY MORTGAGE-BACKED SECURITIES 11.7%

 

Banc of America Funding Corp.

 

6.000% due 01/25/2037

      3,798         3,741  

Banc of America Funding Trust

 

3.358% due 01/20/2047 ^~

      608         584  

BCAP LLC Trust

 

2.865% due 08/26/2037 ~

      11,150         9,942  

3.046% due 07/26/2037 ~

      5,908         5,587  

3.074% due 08/28/2037 ~

      3,688         3,678  

3.718% due 09/26/2036 ~

      4,365         4,401  

4.834% due 03/26/2037 þ

      699         1,107  

5.750% due 12/26/2035 ~

      2,148         1,848  

6.250% due 11/26/2036

      2,955         2,667  

8.844% due 05/26/2037 ~

      976         417  

39.815% due 06/26/2036 ~

      75         46  

Bear Stearns ALT-A Trust

 

0.589% due 01/25/2036 ^•

      661         832  

2.873% due 11/25/2035 ~

      4,881         4,024  

3.020% due 09/25/2035 ^~

      320         238  

3.104% due 11/25/2036 ^~

      333         224  

3.148% due 09/25/2047 ^~

      4,445         2,978  

CD Mortgage Trust

 

5.688% due 10/15/2048

      759         108  

Chase Mortgage Finance Trust

 

3.029% due 12/25/2035 ^~

      5         5  

5.500% due 05/25/2036 ^

      7         5  

Citicorp Mortgage Securities Trust

 

5.500% due 04/25/2037

      10         10  

6.000% due 09/25/2037

      453         464  

Commercial Mortgage Loan Trust

 

5.973% due 12/10/2049 ~

      1,451         624  
 

 

       
88   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

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

Countrywide Alternative Loan Resecuritization Trust

 

6.000% due 05/25/2036 ^

  $     1,741     $     1,393  

6.000% due 08/25/2037 ^~

      869         674  

Countrywide Alternative Loan Trust

 

2.821% due 04/25/2036 ^~

      647         610  

5.500% due 03/25/2035

      229         147  

5.500% due 01/25/2036

      351         288  

5.750% due 01/25/2035

      183         185  

5.750% due 02/25/2035

      238         224  

5.750% due 12/25/2036 ^

      672         434  

6.000% due 02/25/2035

      302         296  

6.000% due 04/25/2036

      404         256  

6.000% due 04/25/2037 ^

      1,346         870  

6.250% due 11/25/2036 ^

      547         495  

6.250% due 12/25/2036 ^•

      489         334  

6.500% due 08/25/2036 ^

      392         202  

Countrywide Home Loan Mortgage Pass-Through Trust

 

0.669% due 03/25/2035 ^•

      2,598         2,298  

6.000% due 07/25/2037

      1,220         783  

6.250% due 09/25/2036 ^

      398         245  

Credit Suisse First Boston Mortgage-Backed Pass-Through Certificates

 

6.000% due 11/25/2035 ^

      270         257  

Credit Suisse Mortgage Capital Certificates

 

2.811% due 10/26/2036 ~

      6,959         5,571  

Credit Suisse Mortgage Capital Mortgage-Backed Trust

 

5.750% due 04/25/2036 ^

      122         88  

First Horizon Mortgage Pass-Through Trust

 

2.625% due 11/25/2035 ^~

      170         165  

2.815% due 05/25/2037 ^~

      151         87  

GS Mortgage Securities Trust

 

5.622% due 11/10/2039

      682         231  

IndyMac Mortgage Loan Trust

 

6.500% due 07/25/2037 ^

      3,440         1,780  

Jackson Park Trust

 

3.242% due 10/14/2039 ~

      2,116         2,027  

JP Morgan Alternative Loan Trust

 

2.737% due 05/25/2036 ^~

      1,018         744  

2.812% due 03/25/2036 ^~

      1,089         972  

3.266% due 03/25/2037 ^~

      631         648  

JP Morgan Chase Commercial Mortgage Securities Trust

 

5.623% due 05/12/2045

      79         66  

JP Morgan Mortgage Trust

 

2.685% due 02/25/2036 ^~

      191         159  

2.878% due 10/25/2035 ~

      93         92  

6.500% due 09/25/2035

      64         59  

LB-UBS Commercial Mortgage Trust

 

5.407% due 11/15/2038 ^

      367         123  

5.562% due 02/15/2040 ^~

      253         110  

Lehman Mortgage Trust

 

6.000% due 07/25/2037 ^

      332         328  

6.500% due 09/25/2037 ^

      1,784         939  

Lehman XS Trust

 

0.309% due 06/25/2047 •

      1,230         1,180  

MASTR Asset Securitization Trust

 

6.500% due 11/25/2037 ^

      358         161  

Merrill Lynch Mortgage Investors Trust

 

2.732% due 03/25/2036 ^~

      1,215         780  

Nomura Asset Acceptance Corp. Alternative Loan Trust

 

5.476% due 05/25/2035 ^þ

      8         6  

Residential Accredit Loans, Inc. Trust

 

3.343% due 12/26/2034 ^~

      561         295  

6.000% due 08/25/2036 ^

      206         206  

Residential Asset Securitization Trust

 

5.750% due 02/25/2036 ^

      839         520  

6.000% due 07/25/2037 ^

      1,358         782  

6.250% due 09/25/2037 ^

      2,562         1,487  

Residential Funding Mortgage Securities, Inc. Trust

 

4.271% due 08/25/2036 ^~

      396         365  

4.703% due 09/25/2035 ~

      461         332  

Structured Adjustable Rate Mortgage Loan Trust

 

2.909% due 11/25/2036 ^~

      1,455         1,405  

2.982% due 01/25/2036 ^~

      1,606         1,148  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

SunTrust Adjustable Rate Mortgage Loan Trust

 

2.369% due 02/25/2037 ^~

  $     133     $     124  

WaMu Mortgage Pass-Through Certificates Trust

 

2.878% due 05/25/2037 ^~

      654         651  

3.051% due 07/25/2037 ^~

      616         622  

3.092% due 02/25/2037 ^~

      346         344  

3.267% due 10/25/2036 ^~

      495         480  

Worldwide Plaza Trust

 

3.596% due 11/10/2036 ~(n)

      5,600         5,724  
       

 

 

 

Total Non-Agency Mortgage-Backed Securities (Cost $79,952)

      84,322  
 

 

 

 
ASSET-BACKED SECURITIES 9.8%

 

Adagio CLO DAC

 

0.000% due 04/30/2031 ~

  EUR     1,800         1,258  

Apidos CLO

 

0.000% due 07/22/2026 ~

  $     1,500         1  

0.000% due 01/20/2031 ~

      4,500         2,576  

Argent Securities Trust

 

0.469% due 03/25/2036 •

      3,361         2,293  

Avoca CLO DAC

 

0.000% due 07/15/2032 ~

  EUR     2,230         2,078  

Bear Stearns Asset-Backed Securities Trust

 

0.229% due 10/25/2036 ^•

  $     2,885         3,721  

6.500% due 10/25/2036 ^

      338         225  

Belle Haven ABS CDO Ltd.

 

0.526% due 07/05/2046 •

      180,259         475  

CIFC Funding Ltd.

 

0.000% due 04/24/2030 ~

      2,400         1,038  

0.010% due 10/22/2031 ~

      1,500         584  

Citigroup Mortgage Loan Trust

 

0.239% due 12/25/2036 •

      12,801         6,698  

0.249% due 12/25/2036 •

      1,583         1,067  

Cork Street CLO Designated Activity Co.

 

0.000% due 11/27/2028 ~

  EUR     2,366         2,139  

Countrywide Asset-Backed Certificates

 

0.229% due 12/25/2046 •

  $     10,024         9,270  

Flagship Credit Auto Trust

 

0.000% due 05/15/2025 «(h)

      8         711  

Fremont Home Loan Trust

 

0.239% due 01/25/2037 •

      12,682         7,198  

Grosvenor Place CLO BV

 

0.000% due 04/30/2029 ~

  EUR     500         328  

Home Equity Mortgage Loan Asset-Backed Trust

 

0.249% due 07/25/2037 •

  $     2,669         1,821  

Lehman XS Trust

 

6.790% due 06/24/2046 þ

      962         995  

Long Beach Mortgage Loan Trust

 

0.689% due 01/25/2036 •

      3,334         3,183  

Magnetite Ltd.

 

0.000% due 01/15/2028 ~

      5,650         2,722  

Marlette Funding Trust

 

0.000% due 09/17/2029 «(h)

      7         888  

0.000% due 03/15/2030 «(h)

      6         1,203  

Merrill Lynch Mortgage Investors Trust

 

0.409% due 04/25/2037 •

      437         295  

Morgan Stanley Mortgage Loan Trust

 

6.250% due 02/25/2037 ^~

      490         317  

SLM Student Loan EDC Repackaging Trust

 

0.000% due 10/28/2029 «(h)

      1         1,423  

SLM Student Loan Trust

 

0.000% due 01/25/2042 «(h)

      4         1,725  

SMB Private Education Loan Trust

 

0.000% due 09/18/2046 «(h)

      1         520  

0.000% due 10/15/2048 «(h)

      1         402  

SoFi Professional Loan Program LLC

 

0.000% due 05/25/2040 «(h)

      4,400         651  

0.000% due 07/25/2040 «(h)

      21         417  

0.000% due 09/25/2040 «(h)

      1,758         416  

South Coast Funding Ltd.

 

0.762% due 08/10/2038 •

      11,762         1,564  

Taberna Preferred Funding Ltd.

 

0.536% due 12/05/2036 •

      4,753         4,076  
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 

0.556% due 08/05/2036 •

  $     296     $     257  

0.556% due 08/05/2036 ^•

      5,851         5,076  

0.608% due 07/05/2035 •

      1,806         1,612  
       

 

 

 

Total Asset-Backed Securities (Cost $92,459)

      71,223  
 

 

 

 
SOVEREIGN ISSUES 4.0%

 

Argentina Government International Bond

 

0.500% due 07/09/2030 þ

      4,017         1,365  

1.000% due 07/09/2029

      683         263  

1.125% due 07/09/2035 þ

      4,041         1,274  

1.125% due 07/09/2046 þ

      115         39  

2.000% due 01/09/2038 þ

      11,605         4,596  

2.500% due 07/09/2041 þ

      5,512         2,071  

15.500% due 10/17/2026

  ARS     61,630         143  

34.119% (BADLARPP) due 10/04/2022 ~

      58         0  

Egypt Government International Bond

 

3.875% due 02/16/2026

  $     1,500         1,466  

5.875% due 02/16/2031

      1,900         1,834  

7.500% due 02/16/2061

      1,900         1,774  

Ghana Government International Bond

 

6.375% due 02/11/2027

      500         493  

7.875% due 02/11/2035

      600         577  

8.750% due 03/11/2061

      200         190  

Ivory Coast Government International Bond

 

4.875% due 01/30/2032

  EUR     4,000         4,802  

6.625% due 03/22/2048

      700         885  

Panama Government International Bond

 

4.500% due 04/16/2050

  $     1,600         1,827  

Provincia de Buenos Aires

 

37.883% due 04/12/2025 (n)

  ARS     354,562         1,696  

37.883% due 04/12/2025

      8,450         40  

South Africa Government International Bond

 

5.750% due 09/30/2049

  $     1,200         1,221  

Turkey Government International Bond

 

7.625% due 04/26/2029

      500         552  

Turkiye Ihracat Kredi Bankasi A/S

 

8.250% due 01/24/2024

      200         218  

Ukraine Government International Bond

 

4.375% due 01/27/2030

  EUR     1,205         1,334  

Venezuela Government International Bond

 

8.250% due 10/13/2024 ^(e)

  $     28         3  

9.250% due 09/15/2027 ^(e)

      315         34  
       

 

 

 

Total Sovereign Issues (Cost $36,747)

    28,697  
 

 

 

 
        SHARES            
COMMON STOCKS 2.4%

 

COMMUNICATION SERVICES 1.0%

 

Clear Channel Outdoor Holdings, Inc. (f)

      549,096         1,460  

iHeartMedia, Inc. ‘A’ (f)

      129,909         3,358  

iHeartMedia, Inc. ‘B’ «(f)

      100,822         2,346  
       

 

 

 
          7,164  
       

 

 

 
ENERGY 0.1%

 

Axis Energy Services ‘A’ «(f)(l)

      2,048         30  

Noble Corp. (f)(l)

      21,190         466  

Valaris Ltd. (f)

      2,535         69  
       

 

 

 
          565  
       

 

 

 
FINANCIALS 0.1%

 

Associated Materials Group, Inc. «(f)(l)

      116,123         822  
       

 

 

 
INDUSTRIALS 1.2%

 

Neiman Marcus Group Ltd. LLC «(f)(l)

    82,915         9,123  

Noble Corp. (f)

      1,598         35  

Voyager Aviation Holdings «(f)

      1,155         0  
 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     89
    


Schedule of Investments   PIMCO Income Strategy Fund II   (Cont.)  

 

        SHARES         MARKET
VALUE
(000S)
 

Westmoreland Mining Holdings LLC «(f)(l)

      53,248     $     0  
       

 

 

 
          9,158  
       

 

 

 

Total Common Stocks (Cost $13,030)

      17,709  
 

 

 

 
WARRANTS 1.8%

 

INDUSTRIALS 0.1%

 

Sequa Corp. - Exp. 04/28/2024 «

    819,000         516  
       

 

 

 
INFORMATION TECHNOLOGY 1.7%

 

Windstream Holdings LLC - Exp. 09/21/2055 «

      565,698         12,624  
       

 

 

 

Total Warrants (Cost $4,690)

    13,140  
 

 

 

 
PREFERRED SECURITIES 7.9%

 

BANKING & FINANCE 4.1%

 

AGFC Capital Trust

 

1.876% (US0003M + 1.750%) due 01/15/2067 ~

      1,800,000         1,138  

Banco Santander S.A.

 

6.250% due 09/11/2021 •(j)(k)

      400,000         478  

Brighthouse Holdings LLC

 

6.500% due 07/27/2037 þ(j)

      70,000         64  

Farm Credit Bank of Texas

 

5.700% due 09/15/2025 •(j)

      1,000,000         1,095  

Nationwide Building Society

 

10.250% ~

      35,500         9,363  

Stichting AK Rabobank Certificaten

 

2.188% due 12/29/2049 þ(j)

      10,599,000         17,423  
       

 

 

 
          29,561  
       

 

 

 
        SHARES         MARKET
VALUE
(000S)
 
INDUSTRIALS 3.8%

 

General Electric Co.

 

3.449% (US0003M + 3.330%) due 09/15/2021 ~(j)

      268,000     $     263  

Sequa Corp. (15.000% PIK)

 

15.000% «(d)

      22,788         25,041  

Voyager Aviation Holdings LLC

 

9.500% «

      6,929         2,125  
       

 

 

 
          27,429  
       

 

 

 

Total Preferred Securities (Cost $42,245)

      56,990  
 

 

 

 
REAL ESTATE INVESTMENT TRUSTS 2.3%

 

REAL ESTATE 2.3%

 

Uniti Group, Inc.

      274,273         3,212  

VICI Properties, Inc.

      423,584         13,212  
       

 

 

 

Total Real Estate Investment Trusts
(Cost $7,261)

    16,424  
 

 

 

 
SHORT-TERM INSTRUMENTS 4.9%

 

REPURCHASE AGREEMENTS (m) 2.5%

 

          18,368  
       

 

 

 
        PRINCIPAL
AMOUNT
(000S)
        MARKET
VALUE
(000S)
 
ARGENTINA TREASURY BILLS 0.0%

 

40.499% due 10/29/2021 (h)(i)

  ARS     18,070     $     91  
       

 

 

 
U.S. TREASURY BILLS 2.4%

 

0.039% due 08/10/2021 - 01/27/2022 (c)(g)(h)(p)(r)

  $     17,566         17,564  
       

 

 

 
Total Short-Term Instruments (Cost $36,036)

 

      36,023  
       

 

 

 
       
Total Investments in Securities
(Cost $1,096,700)

 

      1,142,727  
       
Total Investments 157.9%
(Cost $1,096,700)

 

  $       1,142,727  

Financial Derivative
Instruments (o)(q) 0.1%

(Cost or Premiums, net $9,416)

 

 

      783  
Auction Rate Preferred Shares (12.1)%

 

      (87,425
Other Assets and Liabilities, net (45.9)%     (332,468
 

 

 

 
Net Assets Applicable to Common Shareholders 100.0%

 

  $       723,617  
   

 

 

 
 

NOTES TO SCHEDULE OF INVESTMENTS:

 

*

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

^

Security is in default.

«

Security valued using significant unobservable inputs (Level 3).

µ

All or a portion of this amount represents unfunded loan commitments. The interest rate for the unfunded portion will be determined at the time of funding. See Note 4, Securities and Other Investments, in the Notes to Financial Statements for more information regarding unfunded loan commitments.

~

Variable or Floating rate security. Rate shown is the rate in effect as of period end. Certain variable rate securities are not based on a published reference rate and spread, rather are determined by the issuer or agent and are based on current market conditions. Reference rate is as of reset date, which may vary by security. These securities may not indicate a reference rate and/or spread in their description.

Rate shown is the rate in effect as of period end. The rate may be based on a fixed rate, a capped rate or a floor rate and may convert to a variable or floating rate in the future. These securities do not indicate a reference rate and spread in their description.

þ

Coupon represents a rate which changes periodically based on a predetermined schedule or event. Rate shown is the rate in effect as of period end.

(a)

Security is an Interest Only (“IO”) or IO Strip.

(b)

Principal only security.

(c)

When-issued security.

(d)

Payment in-kind security.

(e)

Security is not accruing income as of the date of this report.

(f)

Security did not produce income within the last twelve months.

(g)

Coupon represents a weighted average yield to maturity.

(h)

Zero coupon security.

(i)

Coupon represents a yield to maturity.

(j)

Perpetual maturity; date shown, if applicable, represents next contractual call date.

(k)

Contingent convertible security.

 

       
90   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

(l)  RESTRICTED SECURITIES:

 

Issuer Description                  Acquisition
Date
    Cost     Market
Value
   

Market Value
as Percentage
of Net Assets
Applicable

to Common

Shareholders

 

Associated Materials Group, Inc.

         08/24/2020     $ 737     $ 822       0.11

Axis Energy Services ‘A’

         07/01/2021       30       30       0.00  

Neiman Marcus Group Ltd. LLC

         09/25/2020       2,719       9,123       1.26  

Noble Corp.

         02/05/2021 - 02/27/2021       285       466       0.06  

Westmoreland Mining Holdings LLC

         12/08/2014 - 10/19/2016       1,535       0       0.00  
        

 

 

   

 

 

   

 

 

 
  $     5,306     $     10,441       1.43
 

 

 

   

 

 

   

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

(m)  REPURCHASE AGREEMENTS:

 

Counterparty   Lending
Rate
    Settlement
Date
    Maturity
Date
    Principal
Amount
    Collateralized By   Collateral
(Received)
    Repurchase
Agreements,
at Value
    Repurchase
Agreement
Proceeds
to be
Received(1)
 
BPS     0.040     07/30/2021       08/02/2021     $     15,200     U.S. Treasury Inflation Protected Securities 0.250% due 02/15/2050   $ (15,493   $ 15,200     $ 15,200  
FICC     0.000       07/30/2021       08/02/2021       3,168     U.S. Treasury Inflation Protected Securities 0.125% due 04/15/2022     (3,232     3,168       3,168  
           

 

 

   

 

 

   

 

 

 

Total Repurchase Agreements

 

    $     (18,725   $     18,368     $     18,368  
   

 

 

   

 

 

   

 

 

 

 

REVERSE REPURCHASE AGREEMENTS:

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(2)

    Payable for
Reverse
Repurchase
Agreements
 

BOS

    0.280     07/02/2021       08/06/2021     $         (9,504   $ (9,506
    0.280       07/06/2021       08/10/2021         (4,386         (4,387

BPS

    0.350       05/05/2021       08/09/2021         (384     (385
    0.350       05/28/2021       08/31/2021         (555     (556
    0.350       07/20/2021       01/20/2022         (8,280     (8,281
    0.380       04/30/2021       08/03/2021         (1,652     (1,653
    0.500       04/30/2021       08/03/2021         (1,626     (1,628
    0.500       07/09/2021       01/05/2022         (2,782     (2,783
    0.500       07/20/2021       01/20/2022         (8,960     (8,961

BRC

    0.450       05/11/2021       08/11/2021         (1,820     (1,822
    0.450       05/28/2021       08/31/2021         (2,533     (2,535
    0.450       06/08/2021       08/31/2021         (6,671     (6,676
    0.450       06/08/2021       09/03/2021             (13,402     (13,412
    0.450       06/10/2021       09/03/2021         (613     (613
    0.450       06/18/2021       09/03/2021         (253     (253
    0.450       06/22/2021       09/03/2021         (3,077     (3,079
    0.450       06/23/2021       09/24/2021         (9,617     (9,621
    0.450       06/24/2021       09/07/2021         (1,966     (1,967
    0.450       06/25/2021       09/03/2021         (1,183     (1,183
    0.450       06/28/2021       09/07/2021         (2,188     (2,189
    0.450       07/07/2021       09/03/2021         (2,765     (2,766
    0.450       07/14/2021       09/17/2021         (2,235     (2,236
    0.450       08/02/2021       09/03/2021         (929     (929
    0.470       07/14/2021       09/17/2021         (3,872     (3,873
    0.480       06/17/2021       08/06/2021         (1,932     (1,933
    0.480       06/25/2021       08/06/2021         (99     (99
    0.500       05/24/2021       08/06/2021         (414     (414
    0.500       07/19/2021       01/19/2022         (585     (585
    0.500       07/22/2021       01/24/2022         (890     (891
    0.550       06/22/2021       03/10/2022         (1,866     (1,867
    0.560       05/03/2021       09/10/2021         (2,757     (2,761
    0.560       05/06/2021       09/10/2021         (2,690     (2,694
    0.560       06/01/2021       09/10/2021         (336     (337
    0.576       06/09/2021       08/06/2021         (2,566     (2,568
    0.750       07/23/2021       02/03/2022         (2,259     (2,259

BYR

    0.500       07/26/2021       01/26/2022         (5,466     (5,467
    0.500       07/30/2021       01/26/2022         (4,277     (4,277
    0.650       03/31/2021       03/25/2022         (14,369     (14,400
    0.650       06/22/2021       03/25/2022         (1,307     (1,308
    0.650       06/25/2021       03/25/2022         (1,684     (1,685
    0.650       07/09/2021       03/25/2022         (1,539     (1,539
    0.650       07/14/2021       03/25/2022         (2,246     (2,247

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     91
    


Schedule of Investments   PIMCO Income Strategy Fund II   (Cont.)  

 

Counterparty   Borrowing
Rate(2)
    Settlement
Date
    Maturity
Date
   

Amount
Borrowed(2)

    Payable for
Reverse
Repurchase
Agreements
 

CDC

    0.250 %       03/22/2021       TBD (3)    $     (5,025   $ (5,029
    0.300       05/24/2021       08/27/2021         (14,504     (14,512
    0.300       05/27/2021       08/27/2021         (2,537     (2,538
    0.300       06/03/2021       09/03/2021         (1,450     (1,451
    0.300       07/01/2021       10/01/2021         (5,473     (5,474
    0.300       07/19/2021       09/22/2021         (2,520     (2,520
    0.500       05/21/2021       08/24/2021         (1,517     (1,519

CEW

    0.457       07/09/2021       01/07/2022         (21,791     (21,798

CIW

    0.310       06/03/2021       09/03/2021         (2,404     (2,406

IND

    0.300       06/09/2021       03/09/2022         (17,063     (17,070
    0.420       07/26/2021       01/26/2022             (10,779     (10,780
    0.480       05/20/2021       02/04/2022         (1,841     (1,843

JML

    (0.300     07/14/2021       10/14/2021     EUR     (2,023     (2,400
    (0.070     07/30/2021       08/27/2021     $     (520     (520
    (0.050     07/08/2021       TBD (3)        (752     (752
    0.350       07/19/2021       10/19/2021     GBP     (200     (279

NOM

    0.400       08/02/2021       09/02/2021         (2,216     (2,216
    0.450       06/03/2021       08/02/2021         (2,182     (2,183

SOG

    0.270       07/28/2021       08/30/2021         (2,780     (2,780
    0.330       07/06/2021       10/06/2021         (5,592     (5,594
    0.350       06/01/2021       09/01/2021         (6,596     (6,600
    0.450       06/02/2021       09/02/2021         (7,583     (7,589
    0.450       06/04/2021       09/02/2021         (3,163     (3,165
    0.450       06/08/2021       08/13/2021         (6,288     (6,292
    0.450       06/23/2021       08/20/2021         (1,299     (1,300
    0.450       07/02/2021       09/02/2021         (4,121     (4,122
    0.450       07/09/2021       09/28/2021         (9,215     (9,217
    0.500       07/21/2021       01/21/2022         (9,055     (9,057
    0.500       07/29/2021       01/21/2022         (1,567     (1,567
    0.550       07/22/2021       03/02/2022         (506     (507
    0.550       07/27/2021       04/27/2022         (6,468     (6,469
    0.550       07/28/2021       04/27/2022         (5,698     (5,698

TDM

    0.220       06/02/2021       TBD (3)        (907     (908
    0.250       04/16/2021       TBD (3)        (4,118     (4,121

UBS

    0.450       05/19/2021       08/19/2021         (1,051     (1,052
    0.450       05/25/2021       08/26/2021         (7,540     (7,546
    0.450       06/02/2021       09/02/2021         (336     (336
    0.450       07/22/2021       09/01/2021         (639     (639
    0.450       07/22/2021       09/02/2021         (984     (984
    0.500       07/14/2021       01/12/2022         (4,622     (4,624
    0.500       07/16/2021       01/14/2022         (2,468     (2,468
           

 

 

 

Total Reverse Repurchase Agreements

 

        $     (326,550
           

 

 

 

 

BORROWINGS AND OTHER FINANCING TRANSACTIONS SUMMARY

 

The following is a summary by counterparty of the market value of Borrowings and Other Financing Transactions and collateral pledged/(received) as of July 31, 2021:

 

Counterparty   Repurchase
Agreement
Proceeds
to be
Received(1)
    Payable for
Reverse
Repurchase
Agreements
    Payable for
Sale-Buyback
Transactions
     Total
Borrowings and
Other Financing
Transactions
    Collateral
Pledged/(Received)
    Net Exposure(4)  

Global/Master Repurchase Agreement

 

BOS

  $ 0     $ (13,893   $ 0      $ (13,893   $     14,519     $ 626  

BPS

    15,200       (24,247     0        (9,047     11,327       2,280  

BRC

    0       (69,562     0        (69,562     80,149           10,587  

BYR

    0       (30,923     0            (30,923     36,551       5,628  

CDC

    0       (33,043     0        (33,043     34,740       1,697  

CEW

    0       (21,798     0        (21,798     25,259       3,461  

CIW

    0       (2,406     0        (2,406     2,375       (31

FICC

    3,168       0       0        3,168       (3,232     (64

IND

    0       (29,693     0        (29,693     32,224       2,531  

JML

    0       (3,951     0        (3,951     4,100       149  

NOM

    0       (4,399     0        (4,399     2,355       (2,044

SOG

    0       (69,957     0        (69,957     79,634       9,677  

TDM

    0       (5,029     0        (5,029     5,343       314  

UBS

    0       (17,649     0        (17,649     21,372       3,723  
 

 

 

   

 

 

   

 

 

        

Total Borrowings and Other Financing Transactions

  $     18,368     $     (326,550   $     0         
 

 

 

   

 

 

   

 

 

        

 

       
92   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

CERTAIN TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

 

Remaining Contractual Maturity of the Agreements

 

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

Reverse Repurchase Agreements

 

Corporate Bonds & Notes

  $ 0     $ (62,071   $ (109,526   $ (146,228   $ (317,825

Non-Agency Mortgage-Backed Securities

    0       (2,568     0       (2,259     (4,827

Sovereign Issues

    0       0       0       (753     (753
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Borrowings

  $     0     $     (64,639   $     (109,526   $     (149,240   $     (323,405
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Payable for reverse repurchase agreements(5)

 

  $ (323,405
 

 

 

 

 

(n)

Securities with an aggregate market value of $369,812 have been pledged as collateral under the terms of the above master agreements as of July 31, 2021.

 

(1)

Includes accrued interest.

(2)

The average amount of borrowings outstanding during the period ended July 31, 2021 was $(255,439) at a weighted average interest rate of 0.597%. Average borrowings may include reverse repurchase agreements and sale-buyback transactions, if held during the period.

(3)

Open maturity reverse repurchase agreement.

(4)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from borrowings and other financing transactions can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

(5)

Unsettled reverse repurchase agreements liability of $(3,145) is outstanding at period end.

 

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

 

SWAP AGREEMENTS:

 

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

 

Reference Entity

 

Fixed
Receive Rate

    Payment
Frequency
    Maturity
Date
    Implied
Credit Spread at
July 31, 2021(2)
    Notional
Amount(3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
   

Market
Value(4)

    Variation Margin  
  Asset     Liability  

Bombardier, Inc.

    5.000     Quarterly       06/20/2024       2.773     $       2,300     $ (4   $ 159     $ 155     $ 4     $ 0  

Bombardier, Inc.

    5.000       Quarterly       12/20/2024       3.311         1,600       (7     103       96       0       (1

MGM Resorts International

    5.000       Quarterly       06/20/2026       2.229         2,000       280       (15     265       0       (5

Rolls-Royce PLC

    1.000       Quarterly       12/20/2025       2.269       EUR       14,400       (1,757     863       (894     0       0  
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
        $     (1,488   $     1,110     $     (378   $     4     $     (6
       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

INTEREST RATE SWAPS

 

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

Receive(5)

 

1-Day GBP-SONIO Compounded-OIS

    0.750   Annual     09/15/2031       GBP       13,300     $ (11   $ (284   $ (295   $ 0     $ (24

Receive(5)

 

1-Day GBP-SONIO  Compounded-OIS

    0.750     Annual     09/15/2051         3,200       201       (346     (145     0       (16

Receive

 

3-Month USD-LIBOR

    0.250     Semi-Annual     12/18/2022       $       150,500       73       (244     (171     0       (12

Pay

 

3-Month USD-LIBOR

    2.750     Semi-Annual     06/17/2025         149,020       9,092       3,588       12,680       181       0  

Pay

 

3-Month USD-LIBOR

    2.250     Semi-Annual     06/15/2026         26,800       1,267       708       1,975       41       0  

Pay

 

3-Month USD-LIBOR

    2.500     Semi-Annual     12/20/2027         49,000       343       4,487       4,830       116       0  

Receive(5)

 

3-Month USD-LIBOR

    1.420     Semi-Annual     08/17/2028         29,500       0       (749     (749     0       (78

Receive(5)

 

3-Month USD-LIBOR

    1.380     Semi-Annual     08/24/2028         32,500       0       (726     (726     0       (86

Pay

 

3-Month USD-LIBOR

    3.000     Semi-Annual     06/19/2029         75,000       4,675       6,397       11,072       263       0  

Receive

 

3-Month USD-LIBOR

    1.160     Semi-Annual     04/12/2031         2,800       0       17       17       0       (12

Receive

 

3-Month USD-LIBOR

    0.750     Semi-Annual     06/16/2031         38,000       3,140       (1,377     1,763       0       (151

Receive(5)

 

3-Month USD-LIBOR

    1.750     Semi-Annual     12/15/2031         40,600       (643     (1,020     (1,663     0       (177

Pay

 

3-Month USD-LIBOR

    3.500     Semi-Annual     06/19/2044         201,500       (6,573     81,885       75,312       1,667       0  

Receive

 

3-Month USD-LIBOR

    2.000     Semi-Annual     01/15/2050         1,400       (10     (98     (108     0       (10

Receive

 

3-Month USD-LIBOR

    1.750     Semi-Annual     01/22/2050         21,100       (49     (314     (363     0       (143

Receive

 

3-Month USD-LIBOR

    1.875     Semi-Annual     02/07/2050         22,000       (85     (1,131     (1,216     0       (154

Receive

 

3-Month USD-LIBOR

    2.250     Semi-Annual     03/12/2050         6,000       (18     (854     (872     0       (46

Receive

 

3-Month USD-LIBOR

    1.150     Semi-Annual     12/11/2050         206,400       (289     26,820       26,531       0       (1,150

Receive

 

3-Month USD-LIBOR

    1.250     Semi-Annual     12/16/2050         2,400       233       17       250       0       (14

Pay

 

6-Month AUD-BBR-BBSW

    3.500     Semi-Annual     06/17/2025       AUD       8,100       201       506       707       0       0  

Receive

 

6-Month EUR-EURIBOR

    (0.150   Annual     03/18/2030       EUR       8,300       152       (166     (14     0       (12

Receive(5)

 

6-Month EUR-EURIBOR

    0.000     Annual     09/15/2031         9,800       161       (224     (63     0       (18
             

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 11,860     $ 116,892     $ 128,752     $ 2,268     $ (2,103
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

 

    $     10,372     $     118,002     $     128,374     $     2,272     $     (2,109
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     93
    


Schedule of Investments   PIMCO Income Strategy Fund II   (Cont.)  

 

FINANCIAL DERIVATIVE INSTRUMENTS: EXCHANGE-TRADED OR CENTRALLY CLEARED SUMMARY

 

The following is a summary of the market value and variation margin of Exchange-Traded or Centrally Cleared Financial Derivative Instruments as of July 31, 2021:

 

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

Total Exchange-Traded or Centrally Cleared

  $     0     $     0     $     2,272     $     2,272       $     0     $     0     $     (2,109)     $     (2,109)  
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

 

 

(p)

Securities with an aggregate market value of $4,361 and cash of $23,688 have been pledged as collateral for exchange-traded and centrally cleared financial derivative instruments as of July 31, 2021. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

This instrument has a forward starting effective date. See Note 2, Securities Transactions and Investment Income, in the Notes to Financial Statements for further information.

 

(q)  FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER

 

FORWARD FOREIGN CURRENCY CONTRACTS:

 

Counterparty

  

Settlement
Month

   

Currency to
be Delivered

   

Currency to
be Received

    Unrealized Appreciation/
(Depreciation)
 
  Asset     Liability  

BOA

     08/2021     PEN     3,389     $     869     $ 34     $ 0  
     08/2021     $     65     RUB     4,874       2       0  
     09/2021         25         1,835       0       0  
     10/2021         868     PEN     3,389       0       (34

BPS

     08/2021     EUR     5,319     $     6,308       3       (4
     08/2021     PEN     1,285         348       32       0  

BRC

     08/2021     EUR     893         1,063       3       0  

CBK

     08/2021     PEN     5,793         1,512       86       0  
     08/2021     $     266     MXN     5,571       13       0  
     08/2021         2,178     PEN     8,402       0       (109
     08/2021         8     RUB     602       0       0  
     09/2021     PEN     1,500     $     405       36       0  
     10/2021         1,482         379       14       0  
     10/2021     $     534     PEN     2,110       0       (15
     12/2021         1,494         5,492       0       (143

GLM

     08/2021     MXN     5,571     $     278       0       (2
     08/2021     $     54,369     GBP     38,975       0       (193
     08/2021         11     RUB     841       0       0  
     09/2021     GBP     38,975     $     54,373       194       0  
     09/2021     $     19     RUB     1,412       0       0  
     10/2021         275     MXN     5,571       2       0  

HUS

     08/2021     GBP     38,744     $     53,629       0       (225
     08/2021     $     18     RUB     1,358       0       0  
     09/2021         13         966       0       0  
     10/2021     PEN     198     $     53       5       0  
     12/2021         183         49       4       0  

MYI

     08/2021     EUR     704         829       0       (6

SCX

     08/2021         53,814         63,859       23       0  
     09/2021         60,730         72,055       0       (28
     09/2021     PEN     6,018         1,532       51       0  
     12/2021         115         31       3       0  

SOG

     08/2021     $     10     RUB     755       0       0  

SSB

     08/2021         747     GBP     542       7       0  

UAG

     08/2021     GBP     773     $     1,071       0       (4
            

 

 

   

 

 

 

Total Forward Foreign Currency Contracts

 

  $     512     $     (763
 

 

 

   

 

 

 

 

       
94   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

SWAP AGREEMENTS:

 

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

 

Counterparty

 

Reference Entity

  Fixed
Receive Rate
   

Payment
Frequency

    Maturity
Date
    Implied
Credit Spread at
July 31, 2021(2)
    Notional
Amount(3)
    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value(4)
 
  Asset     Liability  
BPS  

Petrobras Global Finance BV

    1.000     Quarterly       12/20/2024       1.561     $       1,000     $ (195   $ 177     $ 0     $ (18
GST  

Petrobras Global Finance BV

    1.000       Quarterly       12/20/2024       1.561             1,400       (278     254       0       (24
HUS  

Petrobras Global Finance BV

    1.000       Quarterly       12/20/2024       1.561         1,700       (353     323       0       (30
               

 

 

   

 

 

   

 

 

   

 

 

 
          $     (826   $     754     $     0     $     (72
         

 

 

   

 

 

   

 

 

   

 

 

 

 

INTEREST RATE SWAPS

 

Counterparty

 

Pay/ Receive
Floating Rate

 

Floating Rate Index

 

Fixed Rate

   

Payment
Frequency

   

Maturity
Date

 

Notional
Amount

    Premiums
Paid/(Received)
    Unrealized
Appreciation/
(Depreciation)
    Swap Agreements,
at Value
 
  Asset     Liability  
MYC  

Pay

 

3-Month USD-LIBOR

    1.670     Semi-Annual     08/17/2028   $         118,100     $ (84   $ 539     $ 455     $ 0  
 

Pay

 

3-Month USD-LIBOR

    1.630       Semi-Annual     08/24/2028       129,800       (46     534       488       0  
               

 

 

   

 

 

   

 

 

   

 

 

 
      $ (130   $ 1,073     $ 943     $ 0  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total Swap Agreements

    $     (956   $     1,827     $     943     $     (72
 

 

 

   

 

 

   

 

 

   

 

 

 

 

FINANCIAL DERIVATIVE INSTRUMENTS: OVER THE COUNTER SUMMARY

 

The following is a summary by counterparty of the market value of OTC financial derivative instruments and collateral pledged/(received) as of July 31, 2021:

 

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

BOA

  $ 36      $ 0      $ 0      $ 36       $ (34   $ 0      $ 0     $ (34   $ 2     $ 0     $ 2  

BPS

    35        0        0        35         (4     0        (18     (22     13       0       13  

BRC

    3        0        0        3         0       0        0       0       3       0       3  

CBK

    149        0        0        149         (267     0        0       (267         (118     0           (118

GLM

    196        0        0        196         (195     0        0       (195     1       0       1  

GST

    0        0        0        0         0       0        (24     (24     (24     106       82  

HUS

    9        0        0        9         (225     0        (30     (255     (246     271       25  

MYC

    0        0        943        943         0       0        0       0       943           (680     263  

MYI

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

SCX

    77        0        0        77         (28     0        0       (28     49       0       49  

SSB

    7        0        0        7         0       0        0       0       7       0       7  

UAG

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

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

Total Over the Counter

  $     512      $     0      $     943      $     1,455       $     (763   $       0      $     (72   $     (835      
 

 

 

    

 

 

    

 

 

    

 

 

     

 

 

   

 

 

    

 

 

   

 

 

       

 

(r)

Securities with an aggregate market value of $377 have been pledged as collateral for financial derivative instruments as governed by International Swaps and Derivatives Association, Inc. master agreements as of July 31, 2021.

 

(1)

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

(2)

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

(3)

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

(4)

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

(5)

Net Exposure represents the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same legal entity. See Note 8, Master Netting Arrangements, in the Notes to Financial Statements for more information.

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     95
    


Schedule of Investments   PIMCO Income Strategy Fund II   (Cont.)  

 

FAIR VALUE OF FINANCIAL DERIVATIVE INSTRUMENTS

 

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

 

Fair Values of Financial Derivative Instruments on the Statements of Assets and Liabilities as of July 31, 2021:

 

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

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 4     $ 0     $ 0     $ 2,268     $ 2,272  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 512     $ 0     $ 512  

Swap Agreements

    0       0       0       0       943       943  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 0     $ 0     $ 512     $ 943     $ 1,455  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 4     $ 0     $ 512     $ 3,211     $ 3,727  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 6     $ 0     $ 0     $ 2,103     $ 2,109  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ 763     $ 0     $ 763  

Swap Agreements

    0       72       0       0       0       72  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $     72     $     0     $     763     $ 0     $ 835  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $ 78     $ 0     $ 763     $     2,103     $     2,944  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The effect of Financial Derivative Instruments on the Statements of Operations for the period ended July 31, 2021:

 

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

Net Realized Gain (Loss) on Financial Derivative Instruments

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 292     $ 0     $ 0     $ 12,831     $     13,123  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

  $ 0     $ 0     $ 0     $ (7,065   $ 0     $ (7,065

Swap Agreements

    0       41       0       0       (565     (524
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 41     $ 0     $ (7,065   $ (565   $ (7,589
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 333     $ 0     $     (7,065   $     12,266     $ 5,534  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

Exchange-traded or centrally cleared

 

Swap Agreements

  $ 0     $ 1,965     $ 0     $ 0     $ (8,897   $ (6,932
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Over the counter

 

Forward Foreign Currency Contracts

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

Swap Agreements

    0       263       0       0       1,072       1,335  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 263     $ 0     $ 4,703     $ 1,072     $ 6,038  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $     0     $     2,228     $     0     $ 4,703     $ (7,825   $ (894
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

       
96   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


      July 31, 2021

 

FAIR VALUE MEASUREMENTS

 

The following is a summary of the fair valuations according to the inputs used as of July 31, 2021 in valuing the Fund’s assets and liabilities:

 

Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 0     $     155,731     $     20,167     $     175,898  

Corporate Bonds & Notes

 

Banking & Finance

    0       153,245       0       153,245  

Industrials

    0       370,366       0       370,366  

Utilities

    0       71,643       0       71,643  

Convertible Bonds & Notes

 

Industrials

    0       3,494       0       3,494  

Municipal Bonds & Notes

 

California

    0       2,810       0       2,810  

Illinois

    0       256       0       256  

Ohio

    0       16,388       0       16,388  

Puerto Rico

    0       2,992       0       2,992  

Virginia

    0       836       0       836  

West Virginia

    0       5,194       0       5,194  

U.S. Government Agencies

    0       9,960       5,117       15,077  

Non-Agency Mortgage-Backed Securities

    0       84,322       0       84,322  

Asset-Backed Securities

    0       62,867       8,356       71,223  

Sovereign Issues

    0       28,697       0       28,697  

Common Stocks

 

Communication Services

    4,818       0       2,346       7,164  

Energy

    535       0       30       565  

Financials

    0       0       822       822  

Industrials

    0       35       9,123       9,158  

Warrants

 

Industrials

    0       0       516       516  

Information Technology

    0       0       12,624       12,624  

Preferred Securities

 

Banking & Finance

    0       29,561       0       29,561  

Industrials

    0       263       27,166       27,429  
Category and Subcategory   Level 1     Level 2     Level 3     Fair
Value at
07/31/2021
 

Real Estate Investment Trusts

 

Real Estate

  $     16,424     $ 0     $ 0     $ 16,424  

Short-Term Instruments

 

Repurchase Agreements

    0       18,368       0       18,368  

Argentina Treasury Bills

    0       91       0       91  

U.S. Treasury Bills

    0       17,564       0       17,564  
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments

  $     21,777     $     1,034,683     $     86,267     $     1,142,727  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Assets

 

Exchange-traded or centrally cleared

    0       2,272       0       2,272  

Over the counter

    0       1,455       0       1,455  
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ 3,727     $ 0     $ 3,727  
 

 

 

   

 

 

   

 

 

   

 

 

 

Financial Derivative Instruments - Liabilities

 

Exchange-traded or centrally cleared

    0       (2,109     0       (2,109

Over the counter

    0       (835     0       (835
 

 

 

   

 

 

   

 

 

   

 

 

 
  $ 0     $ (2,944   $ 0     $ (2,944
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Financial Derivative Instruments

  $ 0     $ 783     $ 0     $ 783  
 

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $ 21,777     $ 1,035,466     $ 86,267     $ 1,143,510  
 

 

 

   

 

 

   

 

 

   

 

 

 
 

 

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund during the period ended July 31, 2021:

 

Category and Subcategory   Beginning
Balance
at 07/31/2020
    Net
Purchases
    Net
Sales/
Settlements
    Accrued
Discounts/
(Premiums)
    Realized
Gain/(Loss)
    Net Change in
Unrealized
Appreciation/
(Depreciation)(1)
    Transfers into
Level 3
    Transfers out
of Level 3
    Ending
Balance
at 07/31/2021
    Net Change in
Unrealized
Appreciation/
(Depreciation)
on Investments
Held at
07/31/2021(1)
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 13,086     $ 28,304     $ (19,946   $ 86     $ (8,769   $ 6,487     $ 935     $ (16   $ 20,167     $ 136  

U.S. Government Agencies

    5,137       0       (112     20       38       34       0       0       5,117       28  

Asset-Backed Securities

    17,699       0       (8,460     0       (1,511     (439     1,067       0       8,356       (2,238

Common Stocks

 

Communication Services

    3       2,077       0       0       0       266       0       0       2,346       266  

Energy

    0       30       0       0       0       0       0       0       30       0  

Financials

    0       737       0       0       0       85       0       0       822       85  

Industrials

    400       2,719       0       0       0       6,004       0       0       9,123       6,004  

Real Estate

    2,573       0       0       0       0       638       0       (3,211     0       0  

Warrants

 

Industrials

    0       0       0       0       0       516       0       0       516       516  

Information Technology

    0       4,690       0       0       0       7,934       0       0       12,624       7,934  

Preferred Securities

 

Industrials

    15,604       2,270       (4,948     0       0       14,240       0       0       27,166       14,240  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Totals

  $     54,502     $     40,827     $     (33,466   $     106     $     (10,242   $     35,765     $     2,002     $     (3,227   $     86,267     $     26,971  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See Accompanying Notes     ANNUAL REPORT     |     JULY 31, 2021     97
    


Schedule of Investments   PIMCO Income Strategy Fund II   (Cont.)   July 31, 2021

 

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

 

Category and Subcategory   Ending
Balance
at 07/31/2021
    Valuation
Technique
  Unobservable
Inputs
         Input Value(s)     Weighted
Average
 

Investments in Securities, at Value

 

Loan Participations and Assignments

  $ 4,540     Reference Instrument   Yield     %       5.738       —    
    15,627     Third Party Vendor   Broker Quote       21.500-100.313       95.022  

U.S. Government Agencies

    5,117     Proxy Pricing   Base Price       61.285       —    

Asset-Backed Securities

    8,356     Proxy Pricing   Base Price       14.800-98,000.000       35,178.280  

Common Stocks

 

Communication Services

    2,346     Reference Instrument   Liquidity Discount       10.000       —    

Energy

    30     Other Valuation Techniques(2)   —         —         —    

Financials

    822     Other Valuation Techniques(2)   —         —         —    

Industrials

    9,123     Discounted Cash Flow   Discount Rate       14.250       —    

Warrants

 

Industrials

    516     Other Valuation Techniques(2)   —         —         —    

Information Technology

    12,624     Other Valuation Techniques(2)   EBITDA     x       4.375       —    

Preferred Securities

 

Industrials

    2,125     Comparable Companies/Discounted Cash Flow   Book Value/Discount Rate     x/%       0.210/20.150       —    
    25,041     Other Valuation Techniques(2)   EBITDA     x/x       11.700/9.200       —    
 

 

 

           

Total

  $     86,267            
 

 

 

           

 

(1) 

Any difference between Net Change in Unrealized Appreciation/(Depreciation) and Net Change in Unrealized Appreciation/(Depreciation) on Investments Held at July 31, 2021 may be due to an investment no longer held or categorized as Level 3 at period end.

(2)

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

 

       
98   PIMCO CLOSED-END FUNDS      See Accompanying Notes  


Notes to Financial Statements          July 31, 2021

 

1. ORGANIZATION

 

PIMCO Corporate & Income Opportunity Fund, PIMCO Corporate & Income Strategy Fund, PIMCO High Income Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II (each a “Fund” and collectively the “Funds”) are organized as closed-end management investment companies registered under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the “Act”). Each Fund was organized as a Massachusetts business trust on the dates shown in the table below. Pacific Investment Management Company LLC (“PIMCO” or the “Manager”) serves as the Funds’ investment manager.

 

Fund Name         Formation Date  

PIMCO Corporate & Income Opportunity Fund

      September 13, 2002  

PIMCO Corporate & Income Strategy Fund

      October 17, 2001  

PIMCO High Income Fund

      February 18, 2003  

PIMCO Income Strategy Fund

      June 19, 2003  

PIMCO Income Strategy Fund II

      June 30, 2004  

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Each Fund is treated as an investment company under the reporting requirements of U.S. GAAP. The functional and reporting currency for the Funds is the U.S. dollar. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

(a) Securities Transactions and Investment Income  Securities transactions are recorded as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled beyond a standard settlement period for the security after the trade date. Realized gains (losses) from securities sold are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as a Fund is informed of the ex-dividend date. Interest income, adjusted for the accretion of discounts and amortization of premiums, is recorded on the accrual basis from settlement date, with the exception of securities with a forward starting effective date, where interest income is recorded on the accrual basis from effective date. For convertible securities, premiums attributable to the conversion feature are not amortized. Estimated tax liabilities on

certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized appreciation (depreciation) on investments on the Statements of Operations, as appropriate. Tax liabilities realized as a result of such security sales are reflected as a component of net realized gain (loss) on investments on the Statements of Operations. Paydown gains (losses) on mortgage-related and other asset-backed securities, if any, are recorded as components of interest income on the Statements of Operations. Income or short-term capital gain distributions received from registered investment companies, if any, are recorded as dividend income. Long-term capital gain distributions received from registered investment companies, if any, are recorded as realized gains.

 

Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is probable.

 

(b) Foreign Currency Translation  The market values of foreign securities, currency holdings and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the current exchange rates each business day. Purchases and sales of securities and income and expense items denominated in foreign currencies, if any, are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Funds do not separately report the effects of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized gain (loss) and net change in unrealized appreciation (depreciation) from investments on the Statements of Operations. The Funds may invest in foreign currency-denominated securities and may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through a forward foreign currency contract. Realized foreign exchange gains (losses) arising from sales of spot foreign currencies, currency gains (losses) realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid are included in net realized gain (loss) on foreign currency transactions on the Statements of Operations. Net unrealized foreign exchange gains (losses) arising from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period are included in net change in unrealized appreciation (depreciation) on foreign currency assets and liabilities on the Statements of Operations.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     99
    


Notes to Financial Statements   (Cont.)  

 

(c) Distributions — Common Shares  The following table shows the anticipated frequency of distributions from net investment income to common shareholders.

 

      Distribution Frequency  
Fund Name         Declared     Distributed  

PIMCO Corporate & Income Opportunity Fund

      Monthly       Monthly  

PIMCO Corporate & Income Strategy Fund

      Monthly       Monthly  

PIMCO High Income Fund

      Monthly       Monthly  

PIMCO Income Strategy Fund

      Monthly       Monthly  

PIMCO Income Strategy Fund II

      Monthly       Monthly  

 

Each Fund intends to distribute at least annually to its shareholders all or substantially all of its net tax-exempt interest and any investment company taxable income, and may distribute its net capital gain.

 

As of the end of the fiscal year, none of the Funds were in default on long-term debt or had any accumulated dividend in arrears.

 

A Fund may engage in investment strategies, including those that employ the use of derivatives, to, among other things, seek to generate current, distributable income without regard to possible declines in the Fund’s net asset value (“NAV”). A Fund’s income and gain generating strategies, including certain derivatives strategies, may generate current, distributable income, even if such strategies could potentially result in declines in the Fund’s NAV. A Fund’s income and gain generating strategies, including certain derivatives strategies, may generate current income and gains taxable as ordinary income sufficient to support monthly distributions even in situations when the Fund has experienced a decline in net assets due to, for example, adverse changes in the broad U.S. or non-U.S. equity markets or the Fund’s debt investments, or arising from its use of derivatives. A Fund may enter into opposite sides of interest rate swap and other derivatives for the principal purpose of generating distributable gains on the one side (characterized as ordinary income for tax purposes) that are not part of the Fund’s duration or yield curve management strategies, and with a substantial possibility that the Fund will experience a corresponding capital loss and decline in NAV with respect to the opposite side transaction (to the extent it does not have corresponding offsetting capital gains). Consequently, common shareholders may receive distributions and owe tax on amounts that are effectively a taxable return of the shareholder’s investment in the Fund at a time when their investment in a Fund has declined in value, which may be taxed at ordinary income rates. The tax treatment of certain derivatives in which a Fund invests may be unclear and thus subject to recharacterization. Any recharacterization of payments made or received by a Fund pursuant to derivatives potentially could affect the amount, timing or character of Fund distributions. In addition, the tax treatment of such investment strategies may be changed by regulation or otherwise.

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

 

Separately, if a Fund determines that a portion of a distribution may be comprised of amounts from capital gains, paid in capital, or other capital sources in accordance with its policies, accounting records, and accounting practices, the Fund will notify shareholders of the estimated composition of such distribution through a Section 19 Notice. For these purposes, a Fund determines the source or sources from which a distribution is paid, to the close of the period as of which it is paid, in reference to its internal accounting records and related accounting practices. If, based on such accounting records and practices, it is determined that a particular distribution does not include capital gains or paid-in surplus or other capital sources, a Section 19 Notice generally would not be issued. It is important to note that differences exist between a Fund’s daily internal accounting records and practices, a Fund’s financial statements presented in accordance with U.S. GAAP, and recordkeeping practices under income tax regulations. For instance, a Fund’s internal accounting records and practices may take into account, among other factors, tax-related characteristics of certain sources of distributions that differ from treatment under U.S. GAAP. Examples of such differences may include, among others, the treatment of periodic payments under interest rate swap contracts. Accordingly, among other consequences, it is possible that a Fund may not issue a Section 19 Notice in situations where the Fund’s financial statements prepared later and in accordance with U.S. GAAP and/or the final tax character of those distributions might later report that the sources of those distributions included capital gains and/or a return of capital. Please visit www.pimco.com for the most recent Section 19 Notice, if applicable, for additional information regarding the estimated composition of distributions. Final determination of a distribution’s tax character will be provided to shareholders when such information is available.

 

Distributions classified as a tax basis return of capital at a Fund’s fiscal year end, if any, are reflected on the Statements of Changes in Net Assets and have been recorded to paid in capital on the Statements of Assets and Liabilities. In addition, other amounts have been reclassified between distributable earnings (accumulated loss) and paid in capital on the Statements of Assets and Liabilities to more appropriately conform U.S. GAAP to tax characterizations of distributions.

 

 

       
100   PIMCO CLOSED-END FUNDS            


    July 31, 2021

 

(d) New Accounting Pronouncements and Regulatory Updates  In March 2020, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”), ASU 2020-04, which provides optional guidance to ease the potential accounting burden associated with transitioning away from the London Interbank Offered Rate and other reference rates that are expected to be discontinued. The ASU is effective immediately upon release of the update on March 12, 2020 through December 31, 2022. At this time, management is evaluating implications of these changes on the financial statements.

 

In October 2020, the U.S. Securities and Exchange Commission (“SEC”) adopted a rule related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies that rescinds and withdraws the guidance of the SEC and its staff regarding asset segregation and cover transactions. Subject to certain exceptions, the rule requires funds to trade derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to a value-at-risk leverage limit, certain derivatives risk management program and reporting requirements. The rule went into effect on February 19, 2021 and funds will have an eighteen-month transition period to comply with the rule and related reporting requirements. At this time, management is evaluating the implications of these changes on the financial statements.

 

In October 2020, the SEC adopted a rule regarding the ability of a fund to invest in other funds. The rule allows a fund to acquire shares of another fund in excess of certain limitations currently imposed by the Act without obtaining individual exemptive relief from the SEC, subject to certain conditions. The rule also included the rescission of certain exemptive relief from the SEC and guidance from the SEC staff for funds to invest in other funds. The rule went into effect on January 19, 2021 and funds will have a one-year transition period to comply with the rule and related reporting requirements. At this time, management is evaluating the implications of these changes on the financial statements.

 

In December 2020, the SEC adopted a rule addressing fair valuation of fund investments. The new rule sets forth requirements for good faith determinations of fair value as well as for the performance of fair value determinations, including related oversight and reporting obligations. The new rule also defines “readily available market quotations” for purposes of the definition of “value” under the Act, and the SEC noted that this definition would apply in all contexts under the Act. The effective date for the rule was March 8, 2021. The SEC adopted an eighteen-month transition period beginning from the effective date for both the new rule and the associated new recordkeeping requirements. At this time, management is evaluating the implications of these changes on the financial statements.

3. INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

 

(a) Investment Valuation Policies  The NAV of a Fund, or each of its share classes as applicable, is determined by dividing the total value of portfolio investments and other assets, less any liabilities attributable to that Fund or class, by the total number of shares outstanding of that Fund.

 

On each day that the New York Stock Exchange (“NYSE”) is open, Fund shares are ordinarily valued as of the close of regular trading (normally 4:00 p.m., Eastern time) (“NYSE Close”). Information that becomes known to the Funds or their agents after the time as of which NAV has been calculated on a particular day will not generally be used to retroactively adjust the price of a security or the NAV determined earlier that day. If regular trading on the NYSE closes earlier than scheduled, each Fund reserves the right to either (i) calculate its NAV as of the earlier closing time or (ii) calculate its NAV as of the normally scheduled close of regular trading on the NYSE for that day. Each Fund generally does not calculate its NAV on days during which the NYSE is closed. However, if the NYSE is closed on a day it would normally be open for business, each Fund reserves the right to calculate its NAV as of the normally scheduled close of regular trading on the NYSE for that day or such other time that the Fund may determine.

 

For purposes of calculating NAV, portfolio securities and other assets for which market quotes are readily available are valued at market value. Market value is generally determined on the basis of official closing prices or the last reported sales prices, or if no sales are reported, based on quotes obtained from established market makers or prices (including evaluated prices) supplied by the Funds’ approved pricing services, quotation reporting systems and other third-party sources (together, “Pricing Services”). The Funds will normally use pricing data for domestic equity securities received shortly after the NYSE Close and do not normally take into account trading, clearances or settlements that take place after the NYSE Close. If market value pricing is used, a foreign (non-U.S.) equity security traded on a foreign exchange or on more than one exchange is typically valued using pricing information from the exchange considered by PIMCO to be the primary exchange. A foreign (non-U.S.) equity security will be valued as of the close of trading on the foreign exchange, or the NYSE Close, if the NYSE Close occurs before the end of trading on the foreign exchange. Domestic and foreign (non-U.S.) fixed income securities, non-exchange traded derivatives, and equity options are normally valued on the basis of quotes obtained from brokers and dealers or Pricing Services using such data reflecting the principal markets for those securities. Prices obtained from Pricing Services may be based on, among other things, information provided by market makers or estimates of market values obtained from yield data relating to investments or securities with similar characteristics. Certain fixed

 

 

         ANNUAL REPORT     |     JULY 31, 2021     101
    


Notes to Financial Statements   (Cont.)  

 

income securities purchased on a delayed-delivery basis are marked to market daily until settlement at the forward settlement date. Exchange-traded options, except equity options, futures and options on futures are valued at the settlement price determined by the relevant exchange, quotes obtained from a quotation reporting system, established market makers or pricing services. Swap agreements are valued on the basis of market-based prices supplied by Pricing Services or quotes obtained from brokers and dealers. A Fund’s investments in open-end management investment companies, other than exchange-traded funds (“ETFs”), are valued at the NAVs of such investments.

 

If a foreign (non-U.S.) equity security’s value has materially changed after the close of the security’s primary exchange or principal market but before the NYSE Close, the security may be valued at fair value based on procedures established and approved by the Funds’ Boards of Trustees (the “Board”). Foreign (non-U.S.) equity securities that do not trade when the NYSE is open are also valued at fair value. With respect to foreign (non-U.S.) equity securities, a Fund may determine the fair value of investments based on information provided by Pricing Services and other third-party vendors, which may recommend fair value or adjustments with reference to other securities, indices or assets. In considering whether fair valuation is required and in determining fair values, a Fund may, among other things, consider significant events (which may be considered to include changes in the value of U.S. securities or securities indices) that occur after the close of the relevant market and before the NYSE Close. A Fund may utilize modeling tools provided by third-party vendors to determine fair values of non-U.S. securities. For these purposes, any movement in the applicable reference index or instrument (“zero trigger”) between the earlier close of the applicable foreign market and the NYSE Close may be deemed to be a significant event, prompting the application of the pricing model (effectively resulting in daily fair valuations). Foreign exchanges may permit trading in foreign (non-U.S.) equity securities on days when a Fund is not open for business, which may result in a Fund’s portfolio investments being affected when shareholders are unable to buy or sell shares.

 

Senior secured floating rate loans for which an active secondary market exists to a reliable degree are valued at the mean of the last available bid/ask prices in the market for such loans, as provided by a Pricing Service. Senior secured floating rate loans for which an active secondary market does not exist to a reliable degree are valued at fair value, which is intended to approximate market value. In valuing a senior secured floating rate loan at fair value, the factors considered may include, but are not limited to, the following: (a) the creditworthiness of the borrower and any intermediate participants, (b) the terms of the loan, (c) recent prices in the market for similar loans, if any, and (d) recent prices in the market for instruments of similar quality, rate, period until next interest rate reset and maturity.

Investments valued in currencies other than the U.S. dollar are converted to the U.S. dollar using exchange rates obtained from Pricing Services. As a result, the value of such investments and, in turn, the NAV of a Fund’s shares may be affected by changes in the value of currencies in relation to the U.S. dollar. The value of investments traded in markets outside the United States or denominated in currencies other than the U.S. dollar may be affected significantly on a day that a Fund is not open for business. As a result, to the extent that a Fund holds foreign (non-U.S.) investments, the value of those investments may change at times when shareholders are unable to buy or sell shares and the value of such investments will be reflected in the Fund’s next calculated NAV.

 

Investments for which market quotes or market based valuations are not readily available are valued at fair value as determined in good faith by the Board or persons acting at their direction. The Board has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available, and has delegated to PIMCO the responsibility for applying the fair valuation methods. In the event that market quotes or market based valuations are not readily available, and the security or asset cannot be valued pursuant to a Board approved valuation method, the value of the security or asset will be determined in good faith by the Board. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information, bid/ask information, indicative market quotations (“Broker Quotes”), Pricing Services’ prices), including where events occur after the close of the relevant market, but prior to the NYSE Close, that materially affect the values of a Fund’s securities or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade do not open for trading for the entire day and no other market prices are available. The Board has delegated, to the Manager, the responsibility for monitoring significant events that may materially affect the values of a Fund’s securities or assets and for determining whether the value of the applicable securities or assets should be reevaluated in light of such significant events.

 

When a Fund uses fair valuation to determine the value of a portfolio security or other asset for purposes of calculating its NAV, such investments will not be priced on the basis of quotes from the primary market in which they are traded, but rather may be priced by another method that the Board or persons acting at their direction believe reflects fair value. Fair valuation may require subjective determinations about the value of a security. While the Funds’ policy is intended to result in a calculation of a Fund’s NAV that fairly reflects security values as of the time of pricing, a Fund cannot ensure that fair values determined by the Board or persons acting at their direction would accurately reflect the price that a Fund could obtain for a security if it

 

 

       
102   PIMCO CLOSED-END FUNDS            


    July 31, 2021

 

were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Fund may differ from the value that would be realized if the securities were sold.

 

(b) Fair Value Hierarchy  U.S. GAAP describes fair value as the price that a Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that prioritizes inputs to valuation methods and requires disclosure of the fair value hierarchy, separately for each major category of assets and liabilities, that segregates fair value measurements into levels (Level 1, 2, or 3). The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities. Levels 1, 2, and 3 of the fair value hierarchy are defined as follows:

 

   

Level 1 — Quoted prices in active markets or exchanges for identical assets and liabilities.

 

   

Level 2 — Significant other observable inputs, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

 

   

Level 3 — Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at their direction that are used in determining the fair value of investments.

 

Assets or liabilities categorized as Level 2 or 3 as of period end have been transferred between Levels 2 and 3 since the prior period due to changes in the method utilized in valuing the investments. Transfers from Level 2 to Level 3 are a result of a change, in the normal course of business, from the use of methods used by Pricing Services (Level 2) to the use of a Broker Quote or valuation technique which utilizes significant unobservable inputs due to an absence of current or reliable market-based data (Level 3). Transfers from Level 3 to Level 2 are a result of the availability of current and reliable market-based data provided by Pricing Services or other valuation techniques which utilize significant observable inputs. In accordance with the requirements of U.S. GAAP, the amounts of transfers into and out of Level 3, if material, are disclosed in the Notes to Schedule of Investments for each respective Fund.

 

For fair valuations using significant unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported fair values that presents changes attributable to realized gain

(loss), unrealized appreciation (depreciation), purchases and sales, accrued discounts (premiums), and transfers into and out of the Level 3 category during the period. The end of period value is used for the transfers between Levels of a Fund’s assets and liabilities. Additionally, U.S. GAAP requires quantitative information regarding the significant unobservable inputs used in the determination of fair value of assets or liabilities categorized as Level 3 in the fair value hierarchy. In accordance with the requirements of U.S. GAAP, a fair value hierarchy, and if material, a Level 3 reconciliation and details of significant unobservable inputs, have been included in the Notes to Schedule of Investments for each respective Fund.

 

(c) Valuation Techniques and the Fair Value Hierarchy

Level 1 and Level 2 trading assets and trading liabilities, at fair value  The valuation methods (or “techniques”) and significant inputs used in determining the fair values of portfolio securities or other assets and liabilities categorized as Level 1 and Level 2 of the fair value hierarchy are as follows:

 

Fixed income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. treasury obligations, sovereign issues, bank loans, convertible preferred securities and non-U.S. bonds are normally valued on the basis of quotes obtained from brokers and dealers or Pricing Services that use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models. The Pricing Services’ internal models use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Fixed income securities purchased on a delayed-delivery basis or as a repurchase commitment in a sale-buyback transaction are marked to market daily until settlement at the forward settlement date and are categorized as Level 2 of the fair value hierarchy.

 

Mortgage-related and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by Pricing Services that use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, current market data, estimated cash flows and market-based yield spreads for each tranche, and incorporate deal collateral performance, as available. Mortgage-related and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Common stocks, ETFs, exchange-traded notes and financial derivative instruments, such as futures contracts, rights and warrants, or options

 

 

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Notes to Financial Statements   (Cont.)  

 

on futures that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy.

 

Valuation adjustments may be applied to certain securities that are solely traded on a foreign exchange to account for the market movement between the close of the foreign market and the NYSE Close. These securities are valued using Pricing Services that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments. Securities using these valuation adjustments are categorized as Level 2 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are also categorized as Level 2 of the fair value hierarchy.

 

Valuation adjustments may be applied to certain exchange traded futures and options to account for market movement between the exchange settlement and the NYSE close. These securities are valued using quotes obtained from a quotation reporting system, established market makers or pricing services. Financial derivatives using these valuation adjustments are categorized as Level 2 of the fair value hierarchy.

 

Equity exchange-traded options and over the counter financial derivative instruments, such as forward foreign currency contracts and options contracts derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. These contracts are normally valued on the basis of quotes obtained from a quotation reporting system, established market makers or Pricing Services (normally determined as of the NYSE Close). Depending on the product and the terms of the transaction, financial derivative instruments can be valued by Pricing Services using a series of techniques, including simulation pricing models. The pricing models use inputs that are observed from actively quoted markets such as quoted prices, issuer details, indices, bid/ask spreads, interest rates, implied volatilities, yield curves, dividends and exchange rates. Financial derivative instruments that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.

 

Centrally cleared swaps and over the counter swaps derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. They are valued using a broker-dealer bid quotation or on market-based prices provided by Pricing Services (normally determined as of the NYSE Close). Centrally cleared swaps and over the counter swaps can be valued by Pricing Services using a series of techniques, including simulation pricing models. The

pricing models may use inputs that are observed from actively quoted markets such as the overnight index swap rate, London Interbank Offered Rate forward rate, interest rates, yield curves and credit spreads. These securities are categorized as Level 2 of the fair value hierarchy.

 

Level 3 trading assets and trading liabilities, at fair value  When a fair valuation method is applied by PIMCO that uses significant unobservable inputs, investments will be priced by a method that the Board or persons acting at their direction believe reflects fair value and are categorized as Level 3 of the fair value hierarchy. The valuation techniques and significant inputs used in determining the fair values of portfolio assets and liabilities categorized as Level 3 of the fair value hierarchy are as follows:

 

Proxy pricing procedures set the base price of a fixed income security and subsequently adjust the price proportionally to market value changes of a pre-determined security deemed to be comparable in duration, generally a U.S. Treasury or sovereign note based on country of issuance. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by the Valuation Oversight Committee. Significant changes in the unobservable inputs of the proxy pricing process (the base price) would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy.

 

If third-party evaluated vendor pricing is not available or not deemed to be indicative of fair value, the Manager may elect to obtain Broker Quotes directly from the broker-dealer or passed through from a third-party vendor. In the event that fair value is based upon a single sourced Broker Quote, these securities are categorized as Level 3 of the fair value hierarchy. Broker Quotes are typically received from established market participants. Although independently received, the Manager does not have the transparency to view the underlying inputs which support the market quotation. Significant changes in the Broker Quote would have direct and proportional changes in the fair value of the security.

 

Reference instrument valuation estimates fair value by utilizing the correlation of the security to one or more broad-based securities, market indices, and/or other financial instruments, whose pricing information is readily available. Unobservable inputs may include those used in algorithms based on percentage change in the reference instruments and/or weights of each reference instrument. Significant changes in the unobservable inputs would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 2 or Level 3 of the fair value hierarchy depending on the source or input of the reference instrument.

 

 

       
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The Discounted Cash Flow model is based on future cash flows generated by the investment and may be normalized based on expected investment performance. Future cash flows are discounted to present value using an appropriate rate of return, typically calibrated to the initial transaction date and adjusted based on Capital Asset Pricing Model and/or other market-based inputs. Significant changes in the unobservable inputs would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy.

 

The Comparable Companies model is based on application of valuation multiples from publicly traded comparable companies to the financials of the subject company. Adjustments may be made to the market-derived valuation multiples based on differences between the comparable companies and the subject company. Significant changes in the unobservable inputs would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy.

 

The Waterfall Recoverability model is based on liquidation or net asset value approaches. Typically this model would be used in distressed scenarios or when a business is worth more through the sale of individual assets than continuing as an operating business. Significant changes in the unobservable inputs would result in direct and proportional changes in the fair value of the security. These securities are categorized as Level 3 of the fair value hierarchy.

 

Short-term debt instruments (such as commercial paper) having a remaining maturity of 60 days or less may be valued at amortized cost, so long as the amortized cost value of such short-term debt instruments is approximately the same as the fair value of the instrument as determined without the use of amortized cost valuation. These securities are categorized as Level 2 or Level 3 of the fair value hierarchy depending on the source of the base price.

 

4. SECURITIES AND OTHER INVESTMENTS

 

Investments in Securities

The Funds may utilize the investments and strategies described below to the extent permitted by each Fund’s respective investment policies.

 

Inflation-Indexed Bonds  are fixed income securities whose principal value is periodically adjusted by the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value which is adjusted for inflation. Any increase or decrease in the principal amount of an inflation-indexed bond will be included as interest income on the Statements of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon

maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury Inflation-Protected Securities. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

 

Loans and Other Indebtedness, Loan Participations and Assignments  are direct debt instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers. A Fund’s investments in loans may be in the form of direct investments, participations in loans or assignments of all or a portion of loans from third parties or exposure to investments in loans through investments in a mutual fund or other pooled investment vehicle. A loan is often administered by a bank or other financial institution (the “agent”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. A Fund may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the agent that is selling the loan agreement.

 

In the event of the insolvency of the agent selling a participation, a Fund may be treated as a general creditor of the agent and may not benefit from any set-off between the agent and the borrower. When a Fund purchases assignments from agents it acquires direct rights against the borrowers of the loans. These loans may include participations in bridge loans, which are loans taken out by borrowers for a short period (typically less than one year) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high yield bonds issued for the purpose of acquisitions.

 

Investments in loans are generally subject to risks similar to those of investments in other types of debt obligations, including, among others, credit risk, interest rate risk, variable and floating rate securities risk, and risks associated with mortgage-related securities. In addition, in many cases loans are subject to the risks associated with below investment grade securities. The Funds may be subject to heightened or additional risks and potential liabilities and costs by investing in mezzanine and other subordinated loans, including those arising under bankruptcy, fraudulent conveyance, equitable subordination, environmental and other laws and regulations, and risks and costs associated with debt servicing and taking foreclosure actions associated with the loans.

 

Additionally, because loans are not ordinarily registered with the SEC or any state securities commission or listed on any securities exchange, there is usually less publicly available information about such

 

 

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Notes to Financial Statements   (Cont.)  

 

instruments. In addition, loans may not be considered “securities” for purposes of the anti-fraud provisions under the federal securities laws and, as a result, as a purchaser of these instruments, a Fund may not be entitled to the anti-fraud protections of the federal securities laws. In the course of investing in such instruments, a Fund may come into possession of material nonpublic information and, because of prohibitions on trading in securities of issuers while in possession of such information, the Fund may be unable to enter into a transaction in a publicly-traded security of that issuer when it would otherwise be advantageous for the Fund to do so. Alternatively, a Fund may choose not to receive material nonpublic information about an issuer of such loans, with the result that the Fund may have less information about such issuers than other investors who transact in such assets.

 

The types of loans and related investments in which the Funds may invest include, among others, senior loans, subordinated loans (including second lien loans, B-Notes and mezzanine loans), whole loans, commercial real estate and other commercial loans and structured loans. The Funds may acquire direct interests in loans through primary loan distributions and/or in private transactions. In the case of subordinated loans, there may be significant indebtedness ranking ahead of the borrower’s obligation to the holder of such a loan, including in the event of the borrower’s insolvency. Mezzanine loans are typically secured by a pledge of an equity interest in the mortgage borrower that owns the real estate rather than an interest in a mortgage.

 

Investments in loans may include unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate a Fund to supply additional cash to the borrower on demand. Unfunded loan commitments represent a future obligation in full, even though a percentage of the committed amount may not be utilized by the borrower. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the agent selling the loan agreement and only upon receipt of payments by the agent from the borrower. Because investing in unfunded loan commitments creates a future obligation for a Fund to provide funding to a borrower upon demand in exchange for a fee, the Fund will segregate or earmark liquid assets with the Fund’s custodian in amounts sufficient to satisfy any such future obligations. A Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a loan. In certain circumstances, a Fund may receive a penalty fee upon the prepayment of a loan by a borrower. Fees earned or paid are recorded as a component of interest income or interest expense, respectively, on the Statements of Operations. Unfunded loan commitments, if any, are reflected as a liability on the Statements of Assets and Liabilities.

Mortgage-Related and Other Asset-Backed Securities  directly or indirectly represent a participation in, or are secured by and payable from, loans on real property. Mortgage-related securities are created from pools of residential or commercial mortgage loans, including mortgage loans made by savings and loan institutions, mortgage bankers, commercial banks and others. These securities typically provide a monthly payment which consists of both principal and interest. Interest may be determined by fixed or adjustable rates. In times of declining interest rates, there is a greater likelihood that a Fund’s higher yielding securities will be pre-paid with the Fund being unable to reinvest the proceeds in an investment with as great a yield. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective duration of the security relative to what was anticipated at the time of purchase. Interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment assumptions about those investments. The timely payment of principal and interest of certain mortgage-related securities is guaranteed with the full faith and credit of the U.S. Government. Pools created and guaranteed by non-governmental issuers, including government-sponsored corporations, may be supported by various forms of insurance or guarantees, but there can be no assurance that private insurers or guarantors can meet their obligations under the insurance policies or guarantee arrangements. Many of the risks of investing in mortgage-related securities secured by commercial mortgage loans reflect the effects of local and other economic conditions on real estate markets, the ability of tenants to make lease payments, and the ability of a property to attract and retain tenants. These securities may be less liquid and may exhibit greater price volatility than other types of mortgage-related or other asset-backed securities. Other asset-backed securities are created from many types of assets, including, but not limited to, auto loans, accounts receivable, such as credit card receivables and hospital account receivables, home equity loans, student loans, boat loans, mobile home loans, recreational vehicle loans, manufactured housing loans, aircraft leases, computer leases and syndicated bank loans. The Funds may invest in any level of the capital structure of an issuer of mortgage-backed or asset-backed securities, including the equity or “first loss” tranche.

 

Collateralized Debt Obligations  (“CDOs”) include Collateralized Bond Obligations (“CBOs”), Collateralized Loan Obligations (“CLOs”) and other similarly structured securities. CBOs and CLOs are types of asset-backed securities. A CBO is a trust which is typically backed by a diversified pool of high risk, below investment grade fixed income securities. A CLO is a trust typically collateralized by a pool of loans, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans,

 

 

       
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including loans that may be rated below investment grade or equivalent unrated loans. For both CBOs and CLOs, the cash flows from the trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche which bears the bulk of defaults from the bonds or loans in the trust and serves to protect the other, more senior tranches from default in all but the most severe circumstances. Since it is partially protected from defaults, a senior tranche from a CBO trust or CLO trust typically has higher ratings and lower yields than the underlying securities, and can be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults and aversion to CBO or CLO securities as a class. The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. CDOs carry additional risks including, but not limited to, (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments, (ii) the collateral may decline in value or default, (iii) the risk that a Fund may invest in CDOs that are subordinate to other classes, and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results.

 

Collateralized Mortgage Obligations  (“CMOs”) are debt obligations of a legal entity that are collateralized by whole mortgage loans or private mortgage bonds and divided into classes. CMOs are structured into multiple classes, often referred to as “tranches”, with each class bearing a different stated maturity and entitled to a different schedule for payments of principal and interest, including prepayments. CMOs may be less liquid and may exhibit greater price volatility than other types of mortgage-related or asset-backed securities.

 

As CMOs have evolved, some classes of CMO bonds have become more common. For example, a Fund may invest in parallel-pay and planned amortization class (“PAC”) CMOs and multi-class pass-through certificates. Parallel-pay CMOs and multi-class pass-through certificates are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO and multi-class pass-through structures, must be retired by its stated maturity date or final distribution date but may be retired earlier. PACs generally require payments of a specified amount of principal on each payment date. PACs are parallel-pay CMOs with the required principal amount on such securities having the highest priority after interest has been paid to all classes. Any CMO or multi-class pass-through structure that includes PAC securities must also have support tranches — known as

support bonds, companion bonds or non-PAC bonds — which lend or absorb principal cash flows to allow the PAC securities to maintain their stated maturities and final distribution dates within a range of actual prepayment experience. These support tranches are subject to a higher level of maturity risk compared to other mortgage-related securities, and usually provide a higher yield to compensate investors. If principal cash flows are received in amounts outside a pre-determined range such that the support bonds cannot lend or absorb sufficient cash flows to the PAC securities as intended, the PAC securities are subject to heightened maturity risk. A Fund may invest in various tranches of CMO bonds, including support bonds and equity or “first loss” tranches (see “Collateralized Debt Obligations” above).

 

Stripped Mortgage-Backed Securities  (“SMBS”) are derivative multi-class mortgage securities. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. An SMBS will have one class that will receive all of the interest (the interest-only or “IO” class), while the other class will receive the entire principal (the principal-only or “PO” class). IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on a Fund’s yield to maturity from these securities. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Funds may fail to recoup some or all of its initial investment in these securities even if the security is in one of the highest rating categories.

 

Payments received for IOs are included in interest income on the Statements of Operations. Because no principal will be received at the maturity of an IO, adjustments are made to the cost of the security on a monthly basis until maturity. These adjustments are included in interest income on the Statements of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.

 

Payment In-Kind Securities  may give the issuer the option at each interest payment date of making interest payments in either cash and/or additional debt securities. Those additional debt securities usually have the same terms, including maturity dates and interest rates, and associated risks as the original bonds. The daily market quotations of the original bonds may include the accrued interest (referred to as a dirty price) and require a pro rata adjustment from the unrealized

 

 

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Notes to Financial Statements   (Cont.)  

 

appreciation (depreciation) on investments to interest receivable on the Statements of Assets and Liabilities.

 

Perpetual Bonds  are fixed income securities with no maturity date but pay a coupon in perpetuity (with no specified ending or maturity date). Unlike typical fixed income securities, there is no obligation for perpetual bonds to repay principal. The coupon payments, however, are mandatory. While perpetual bonds have no maturity date, they may have a callable date in which the perpetuity is eliminated and the issuer may return the principal received on the specified call date. Additionally, a perpetual bond may have additional features, such as interest rate increases at periodic dates or an increase as of a predetermined point in the future.

 

Real Estate Investment Trusts  (“REITs”) are pooled investment vehicles that own, and typically operate, income-producing real estate. If a REIT meets certain requirements, including distributing to shareholders substantially all of its taxable income (other than net capital gains), then it is not taxed on the income distributed to shareholders. Distributions received from REITs may be characterized as income, capital gain or a return of capital. A return of capital is recorded by a Fund as a reduction to the cost basis of its investment in the REIT. REITs are subject to management fees and other expenses, and so the Funds that invest in REITs will bear their proportionate share of the costs of the REITs’ operations.

 

Restricted Investments  are subject to legal or contractual restrictions on resale and may generally be sold privately, but may be required to be registered or exempted from such registration before being sold to the public. Private placement securities are generally considered to be restricted except for those securities traded between qualified institutional investors under the provisions of Rule 144A of the Securities Act of 1933. Disposal of restricted investments may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult to achieve. Restricted investments held by the Funds at July 31, 2021, as applicable, are disclosed in the Notes to Schedules of Investments.

 

Securities Issued by U.S. Government Agencies or Government-Sponsored Enterprises  are obligations of and, in certain cases, guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S. Government securities, such as Treasury bills, notes and bonds, and securities guaranteed by the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Government; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the U.S. Department of the Treasury (the “U.S. Treasury”); and others, such as those of the Federal National Mortgage Association (“FNMA” or “Fannie Mae”), are supported by the discretionary authority of the U.S.

Government to purchase the agency’s obligations. U.S. Government securities may include zero coupon securities which do not distribute interest on a current basis and tend to be subject to a greater risk than interest-paying securities of similar maturities.

 

Government-related guarantors (i.e., not backed by the full faith and credit of the U.S. Government) include FNMA and the Federal Home Loan Mortgage Corporation (“FHLMC” or “Freddie Mac”). FNMA is a government-sponsored corporation. FNMA purchases conventional (i.e., not insured or guaranteed by any government agency) residential mortgages from a list of approved seller/servicers which include state and federally chartered savings and loan associations, mutual savings banks, commercial banks and credit unions and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA, but are not backed by the full faith and credit of the U.S. Government. FHLMC issues Participation Certificates (“PCs”), which are pass-through securities, each representing an undivided interest in a pool of residential mortgages. FHLMC guarantees the timely payment of interest and ultimate collection of principal, but PCs are not backed by the full faith and credit of the U.S. Government. Instead, they are supported only by the discretionary authority of the U.S. Government to purchase the agency’s obligations.

 

In June 2019, FNMA and FHLMC started issuing Uniform Mortgage Backed Securities in place of their current offerings of TBA-eligible securities (the “Single Security Initiative”). The Single Security Initiative seeks to support the overall liquidity of the TBA market and aligns the characteristics of FNMA and FHLMC certificates. The effects that the Single Security Initiative may have on the market for TBA and other mortgage-backed securities are uncertain.

 

Roll-timing strategies can be used where a Fund seeks to extend the expiration or maturity of a position, such as a TBA security on an underlying asset, by closing out the position before expiration and opening a new position with respect to substantially the same underlying asset with a later expiration date. TBA securities purchased or sold are reflected on the Statements of Assets and Liabilities as an asset or liability, respectively. Recently finalized FINRA rules include mandatory margin requirements for the TBA market that require the Funds to post collateral in connection with their TBA transactions. There is no similar requirement applicable to the Funds’ TBA counterparties. The required collateralization of TBA trades could increase the cost of TBA transactions to the Funds and impose added operational complexity.

 

Warrants  are securities that are usually issued together with a debt security or preferred security and that give the holder the right to buy a proportionate amount of common stock at a specified price. Warrants

 

 

       
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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 warrants at a profit. If interest rates rise, these warrants would generally expire with no value.

 

When-Issued Transactions  are purchases or sales made on a when-issued basis. These transactions are made conditionally because a security, although authorized, has not yet been issued in the market. Transactions to purchase or sell securities on a when-issued basis involve a commitment by a Fund to purchase or sell these securities for a predetermined price or yield, with payment and delivery taking place beyond the customary settlement period. A Fund may sell when-issued securities before they are delivered, which may result in a realized gain (loss).

 

5. BORROWINGS AND OTHER FINANCING TRANSACTIONS

 

The Funds may enter into the borrowings and other financing transactions described below to the extent permitted by each Fund’s respective investment policies.

 

The following disclosures contain information on a Fund’s ability to lend or borrow cash or securities to the extent permitted under the Act, which may be viewed as borrowing or financing transactions by a Fund. The location of these instruments in each Fund’s financial statements is described below.

 

(a) Repurchase Agreements  Under the terms of a typical repurchase agreement, a Fund purchases an underlying debt obligation (collateral)

subject to an obligation of the seller to repurchase, and a Fund to resell, the obligation at an agreed-upon price and time. In an open maturity repurchase agreement, there is no pre-determined repurchase date and the agreement can be terminated by the Fund or counterparty at any time. The underlying securities for all repurchase agreements are held by a Fund’s custodian or designated subcustodians under tri-party repurchase agreements and in certain instances will remain in custody with the counterparty. The market value of the collateral must be equal to or exceed the total amount of the repurchase obligations, including interest. Repurchase agreements, if any, including accrued interest, are included on the Statements of Assets and Liabilities. Interest earned is recorded as a component of interest income on the Statements of Operations. In periods of increased demand for collateral, a Fund may pay a fee for the receipt of collateral, which may result in interest expense to the Fund.

 

(b) Reverse Repurchase Agreements  In a reverse repurchase agreement, a Fund delivers a security in exchange for cash to a financial institution, the counterparty, with a simultaneous agreement to repurchase the same or substantially the same security at an agreed upon price and date. In an open maturity reverse repurchase agreement, there is no pre-determined repurchase date and the agreement can be terminated by the Fund or counterparty at any time. A Fund is entitled to receive principal and interest payments, if any, made on the security delivered to the counterparty during the term of the agreement. Cash received in exchange for securities delivered plus accrued interest payments to be made by a Fund to counterparties are reflected as a liability on the Statements of Assets and Liabilities. Interest payments made by a Fund to counterparties are recorded as a component of interest expense on the Statements of Operations. In periods of increased demand for the security, a Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund’s use of the proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce a Fund’s obligation to repurchase the securities. Reverse repurchase agreements involve leverage risk and also the risk that the market value of the securities to be repurchased may decline below the repurchase price.

 

6. FINANCIAL DERIVATIVE INSTRUMENTS

 

The Funds may enter into the financial derivative instruments described below to the extent permitted by each Fund’s respective investment policies.

 

The following disclosures contain information on how and why the Funds use financial derivative instruments, and how financial derivative

 

 

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Notes to Financial Statements   (Cont.)  

 

instruments affect the Funds’ financial position, results of operations and cash flows. The location and fair value amounts of these instruments on the Statements of Assets and Liabilities and the net realized gain (loss) and net change in unrealized appreciation (depreciation) on the Statements of Operations, each categorized by type of financial derivative contract and related risk exposure, are included in a table in the Notes to Schedules of Investments. The financial derivative instruments outstanding as of period end and the amounts of net realized gain (loss) and net change in unrealized appreciation (depreciation) on financial derivative instruments during the period, as disclosed in the Notes to Schedules of Investments, serve as indicators of the volume of financial derivative activity for the Funds.

 

PIMCO Corporate & Income Opportunity Fund is subject to regulation as a commodity pool under the Commodity Exchange Act pursuant to recent rule changes by the Commodity Futures Trading Commission (the “CFTC”). The Manager has registered with the CFTC as a Commodity Pool Operator and a Commodity Trading Adviser with respect to the Fund, and is a member of the National Futures Association. As a result, additional CFTC-mandated disclosure, reporting and recordkeeping obligations apply to PIMCO Corporate & Income Opportunity Fund.

 

(a) Forward Foreign Currency Contracts  may be engaged, in connection with settling planned purchases or sales of securities, to hedge the currency exposure associated with some or all of a Fund’s securities or as part of an investment strategy. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The market value of a forward foreign currency contract fluctuates with changes in foreign currency exchange rates. Forward foreign currency contracts are marked to market daily, and the change in value is recorded by a Fund as an unrealized gain (loss). Realized gains (losses) are equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed and are recorded upon delivery or receipt of the currency. The contractual obligations of a buyer or seller of a forward foreign currency contract may generally be satisfied by taking or making physical delivery of the underlying currency, establishing an opposite position in the contract and recognizing the profit or loss on both positions simultaneously on the delivery date or, in some instances, paying a cash settlement before the designated date of delivery. These contracts may involve market risk in excess of the unrealized gain (loss) reflected on the Statements of Assets and Liabilities. Although forwards may be intended to minimize the risk of loss due to a decline in the value of the hedged currencies, at the same time, they tend to limit any potential gain which might result should the value of such currencies increase. In addition, a Fund could be exposed to risk if the counterparties are unable to meet the terms of

the contracts or if the value of the currency changes unfavorably to the U.S. dollar. To mitigate such risk, cash or securities may be exchanged as collateral pursuant to the terms of the underlying contracts.

 

(b) Options Contracts  An option on an instrument (or an index) is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the instrument underlying the option (or the cash value of the index) at a specified exercise price at any time during the term of the option. Writing put options tends to increase a Fund’s exposure to the underlying instrument. Writing call options tends to decrease a Fund’s exposure to the underlying instrument. When a Fund writes a call or put, an amount equal to the premium received is recorded and subsequently marked to market to reflect the current value of the option written. These amounts are included on the Statements of Assets and Liabilities. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying futures, swap, security or currency transaction to determine the realized gain (loss). Certain options may be written with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. A Fund as a writer of an option has no control over whether the underlying instrument may be sold (“call”) or purchased (“put”) and as a result bears the market risk of an unfavorable change in the price of the instrument underlying the written option. There is the risk a Fund may not be able to enter into a closing transaction because of an illiquid market.

 

Purchasing call options tends to increase a Fund’s exposure to the underlying instrument. Purchasing put options tends to decrease a Fund’s exposure to the underlying instrument. A Fund pays a premium which is included as an asset on the Statements of Assets and Liabilities and subsequently marked to market to reflect the current value of the option. Premiums paid for purchasing options which expire are treated as realized losses. Certain options may be purchased with premiums to be determined on a future date. The premiums for these options are based upon implied volatility parameters at specified terms. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying investment transaction to determine the realized gain (loss) when the underlying transaction is executed.

 

Credit Default Swaptions  may be written or purchased to hedge exposure to the credit risk of an investment without making a commitment to the underlying instrument. A credit default swaption is

 

 

       
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an option to sell or buy credit protection on a specific reference by entering into a pre-defined swap agreement by some specified date in the future.

 

(c) Swap Agreements  are bilaterally negotiated agreements between a Fund and a counterparty to exchange or swap investment cash flows, assets, foreign currencies or market-linked returns at specified, future intervals. Swap agreements may be privately negotiated in the over the counter market (“OTC swaps”) or may be cleared through a third party, known as a central counterparty or derivatives clearing organization (“Centrally Cleared Swaps”). A Fund may enter into asset, credit default, cross-currency, interest rate, total return, variance and other forms of swap agreements to manage its exposure to credit, currency, interest rate, commodity, equity and inflation risk. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency.

 

Centrally Cleared Swaps are marked to market daily based upon valuations as determined from the underlying contract or in accordance with the requirements of the central counterparty or derivatives clearing organization. Changes in market value, if any, are reflected as a component of net change in unrealized appreciation (depreciation) on the Statements of Operations. Daily changes in valuation of centrally cleared swaps, if any, are recorded as variation margin on the Statements of Assets and Liabilities. Centrally Cleared and OTC swap payments received or paid at the beginning of the measurement period are included on the Statements of Assets and Liabilities and represent premiums paid or received upon entering into the swap agreement to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). Upfront premiums received (paid) are initially recorded as liabilities (assets) and subsequently marked to market to reflect the current value of the swap. These upfront premiums are recorded as realized gain (loss) on the Statements of Operations upon termination or maturity of the swap. A liquidation payment received or made at the termination of the swap is recorded as realized gain (loss) on the Statements of Operations. Net periodic payments received or paid by a Fund are included as part of realized gain (loss) on the Statements of Operations.

 

For purposes of a Fund’s investment policy adopted pursuant to Rule 35d-1 under the Act (if any), the Fund will account for derivative instruments at market value. For purposes of applying a Fund’s other investment policies and restrictions, swap agreements, like other derivative instruments, may be valued by a Fund at market value, notional value or full exposure value (i.e., the sum of the notional

amount for the contract plus the market value) or any combination of the foregoing (e.g., notional value for purposes of calculating the numerator and market value for purposes of calculating the denominator for compliance with a particular policy or restriction). See Note 6 — Asset Segregation below. In the case of a credit default swap, in applying certain of a Fund’s investment policies and restrictions, the Funds will value the credit default swap at its notional value or its full exposure value (i.e., the sum of the notional amount for the contract plus the market value), but may value the credit default swap at market value for purposes of applying certain of a Fund’s other investment policies and restrictions. For example, a Fund may value credit default swaps at full exposure value for purposes of a Fund’s credit quality guidelines (if any) because such value in general better reflects a Fund’s actual economic exposure during the term of the credit default swap agreement. As a result, a Fund may, at times, have notional exposure to an asset class (before netting) that is greater or lesser than the stated limit or restriction noted in a Fund’s prospectus. In this context, both the notional amount and the market value may be positive or negative depending on whether a Fund is selling or buying protection through the credit default swap. The manner in which certain securities or other instruments are valued by a Fund for purposes of applying investment policies and restrictions may differ from the manner in which those investments are valued by other types of investors.

 

Entering into swap agreements involves, to varying degrees, elements of interest, credit, market and documentation risk in excess of the amounts recognized on the Statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of contractual terms in the agreements and that there may be unfavorable changes in interest rates or the values of the asset upon which the swap is based.

 

A Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s remaining life, to the extent that amount is positive. The risk may be mitigated by having a master netting arrangement between a Fund and the counterparty and by the posting of collateral to a Fund to cover a Fund’s exposure to the counterparty.

 

To the extent a Fund has a policy to limit the net amount owed to or to be received from a single counterparty under existing swap agreements, such limitation only applies to counterparties to OTC swaps and does not apply to centrally cleared swaps where the counterparty is a central counterparty or derivatives clearing organization.

 

 

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Notes to Financial Statements   (Cont.)  

 

Credit Default Swap Agreements  on corporate, loan, sovereign, U.S. municipal or U.S. Treasury issues are entered into to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where a Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. Credit default swap agreements involve one party making a stream of payments (referred to as the buyer of protection) to another party (the seller of protection) in exchange for the right to receive a specified return in the event that the referenced entity, obligation or index, as specified in the swap agreement, undergoes a certain credit event. As a seller of protection on credit default swap agreements, a Fund will generally receive from the buyer of protection a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Fund would effectively add leverage to its portfolio because, in addition to its total net assets, a Fund would be subject to investment exposure on the notional amount of the swap.

 

If a Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. If a Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, a Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation, other deliverable obligations or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. Recovery values are estimated by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specified valuation method, are used to calculate the settlement value. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protection’s right to choose the deliverable obligation with the lowest value following a credit event).

 

Credit default swap agreements on corporate or sovereign issues involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a

default or other credit event. If a credit event occurs and cash settlement is not elected, a variety of other deliverable obligations may be delivered in lieu of the specific referenced obligation. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protection’s right to choose the deliverable obligation with the lowest value following a credit event).

 

Credit default swap agreements on credit indices involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the credit default swap market based on the sector of the index. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset-backed securities, emerging markets, and/or various credit ratings within each sector. Credit indices are traded using credit default swaps with standardized terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, and if there is a default, the credit event is settled based on that name’s weight in the index. The composition of the indices changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. Credit default swaps on credit indices may be used to hedge a portfolio of credit default swaps or bonds, which is less expensive than it would be to buy many credit default swaps to achieve a similar effect. Credit default swaps on indices are instruments for protecting investors owning bonds against default, and traders use them to speculate on changes in credit quality.

 

Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements on corporate, loan, sovereign, U.S. municipal or U.S. Treasury issues as of period end, if any, are disclosed in the Notes to Schedules of Investments. They serve as an indicator of the current status of payment/performance risk and represent the likelihood or risk of default for the reference entity. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Increasing market values, in absolute terms when

 

 

       
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compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

 

The maximum potential amount of future payments (undiscounted) that a Fund as a seller of protection could be required to make under a credit default swap agreement equals the notional amount of the agreement. Notional amounts of each individual credit default swap agreement outstanding as of period end for which a Fund is the seller of protection are disclosed in the Notes to Schedules of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by a Fund for the same referenced entity or entities.

 

Interest Rate Swap Agreements  may be entered into to help hedge against interest rate risk exposure and to maintain a Fund’s ability to generate income at prevailing market rates. The value of the fixed rate bonds that the Funds hold may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, a Fund may enter into interest rate swap agreements. Interest rate swap agreements involve the exchange by a Fund with another party for their respective commitment to pay or receive interest on the notional amount of principal. Certain forms of interest rate swap agreements may include: (i) interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or “cap”, (ii) interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified rate, or “floor”, (iii) interest rate collars, under which a party sells a cap and purchases a floor or vice versa in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels, (iv) callable interest rate swaps, under which the buyer pays an upfront fee in consideration for the right to early terminate the swap transaction in whole, at zero cost and at a predetermined date and time prior to the maturity date, (v) spreadlocks, which allow the interest rate swap users to lock in the forward differential (or spread) between the interest rate swap rate and a specified benchmark, or (vi) basis swaps, under which two parties can exchange variable interest rates based on different segments of money markets.

 

Total Return Swap Agreements  are entered into to gain or mitigate exposure to the underlying reference asset. Total return swap agreements involve commitments where single or multiple cash flows are exchanged based on the price of an underlying reference asset and

on a fixed or variable interest rate. Total return swap agreements may involve commitments to pay interest in exchange for a market-linked return. One counterparty pays out the total return of a specific underlying reference asset, which may include a single security, a basket of securities, or an index, and in return receives a fixed or variable rate. At the maturity date, a net cash flow is exchanged where the total return is equivalent to the return of the underlying reference asset less a financing rate, if any. As a receiver, a Fund would receive payments based on any net positive total return and would owe payments in the event of a net negative total return. As the payer, a Fund would owe payments on any net positive total return, and would receive payments in the event of a net negative total return. A Fund’s use of a total return swap exposes the Fund to credit loss in the event of nonperformance by the swap counterparty. Risk may also arise from the unanticipated movements in value of exchange rates, interest rates, securities, or the index.

 

Asset Segregation  Certain transactions described above can be viewed as constituting a form of borrowing or financing transaction by a Fund. In such event, a Fund will cover its obligation under such transactions by segregating or “earmarking” assets in accordance with procedures adopted by the Board, in which case such transactions will not be considered “senior securities” by a Fund. With respect to forwards, futures contracts, options and swaps that are contractually required to cash settle (i.e., where physical delivery of the underlying reference asset is not permitted), a Fund (other than PIMCO Corporate & Income Opportunity Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II) is permitted to segregate or earmark liquid assets equal to a Fund’s daily marked-to-market net obligation under the derivative instrument, if any, rather than the derivative’s full notional value. For PIMCO Corporate & Income Opportunity Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II, with respect to forwards and futures contracts and interest rate swaps that are contractually required to cash settle (i.e., where physical delivery of the underlying reference asset is not permitted), the Fund is permitted to segregate or earmark liquid assets equal to the Fund’s daily marked-to-market net obligation under the derivative instrument, if any, rather than the derivative’s full notional value, but may segregate full notional value, as applicable, with respect to certain other derivative instruments (including, written credit default swaps and written options) that contractually require or permit physical delivery of securities or other underlying assets. By segregating or earmarking liquid assets equal to only its net marked-to-market obligation under certain derivatives that are required to cash settle, a Fund will have the ability to employ leverage to a greater extent than if a Fund were to segregate or earmark liquid assets equal to the full notional value of the derivative.

 

 

 

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Notes to Financial Statements   (Cont.)  

 

7. PRINCIPAL AND OTHER RISKS

 

(a) Principal Risks

In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to such things as changes in the market (market risk) or failure or inability of the other party to a transaction to perform (credit and counterparty risk). See below for a detailed description of select principal risks. For a more comprehensive list of the principal risks the Funds may be subject to, please see the Principal Risks of the Funds section of this report.

 

          PIMCO
Corporate &
Income
Opportunity
Fund (PTY)
  PIMCO
Corporate &
Income
Strategy
Fund (PCN)
  PIMCO
High
Income
Fund
(PHK)
  PIMCO
Income
Strategy
Fund (PFL)
  PIMCO
Income
Strategy
Fund II
(PFN)

Call Risk

    X   X   X   X   X

Collateralized Loan Obligations Risk

    X   X   X   X   X

Contingent Convertible Securities Risk

    X   X   X   X   X

Counterparty Risk

    X   X   X   X   X

Credit Default Swaps Risk

    X   X   X   X   X

Credit Risk

    X   X   X   X   X

Derivatives Risk

    X   X   X   X   X

Distressed and Defaulted Securities Risk

    X   X   X   X   X

Distribution Rate Risk

    X   X   X   X   X

Emerging Markets Risk

    X   X   X   X   X

Equity Securities and Related Market Risk

    X   X   X   X   X

High Yield Securities Risk

    X   X   X   X   X

Inflation/Deflation Risk

    X   X   X   X   X

Inflation-Indexed Security Risk

    X   X   X   X   X

Interest Rate Risk

    X   X   X   X   X

Issuer Risk

    X   X   X   X   X

Leverage Risk

    X   X   X   X   X

Liquidity Risk

    X   X   X   X   X

Loans and Other Indebtedness; Loan Participations and Assignments Risk

    X   X   X   X   X

Market Risk

    X   X   X   X   X

Management Risk

    X   X   X   X   X

Mortgage-Related and Other Asset-Backed Instruments Risk

    X   X   X   X   X

Other Investment Companies Risk

    X   X   X   X   X

Portfolio Turnover Risk

    X   X   X   X   X

Preferred Securities Risk

    X   X   X   X   X

Private Placements Risk

    X   X   X   X   X

Privately-Issued Mortgage-Related Securities Risk

    X   X   X   X   X

Reinvestment Risk

    X   X   X   X   X

Repurchase Agreements Risk

    X   X   X   X   X

Restricted Securities Risk

    X   X   X   X   X

Segregation and Coverage Risk

    X   X   X   X   X

Senior Debt Risk

    X   X   X   X   X

Sovereign Debt Risk

    X   X   X   X   X

Structured Investments Risk

    X   X   X   X   X

Tax Risk

    X   X   X   X   X

Valuation Risk

    X   X   X   X   X

 

Call Risk  is the risk that an issuer may exercise its right to redeem a fixed income security earlier than expected (a call). Issuers may call outstanding securities prior to their maturity for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the issuer’s credit quality). If an issuer calls a security that the Fund has invested in, the Fund may not recoup the full amount

of its initial investment and may be forced to reinvest in lower-yielding securities, securities with greater credit risks or securities with other, less favorable features.

 

Collateral Loan Obligations Risk  is the risk of investing in a trust typically collateralized by a pool of loans issued by banks, corporations

 

 

       
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or any other public or private entity or person, which may include, among others, domestic and foreign senior secured loans, senior unsecured loans and subordinate or mezzanine loans, including loans that may be rated below investment grade or equivalent unrated loans (“Collateralized Loan Obligations Risk”) or (“CLOs”). In addition to the normal risks associated with debt instruments (e.g., interest rate risk and credit risk), CLOs carry additional risks including, but not limited to: (i) the possibility that distributions from the collateral will not be adequate to make interest or other payments; (ii) the risk that the quality of the collateral may decline in value or default; (iii) the risk that the Fund may invest in CBOs, CLOs or other CDOs that are subordinate to other classes; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or others and may produce unexpected investment results.

 

Contingent Convertible Securities Risk  is the risk of investing in contingent convertible securities, which includes the risk that interest payments will be cancelled by the issuer or a regulatory authority, the risk of ranking junior to other creditors in the event of a liquidation or other bankruptcy-related event as a result of holding subordinated debt, the risk of the Fund’s investment becoming further subordinated as a result of conversion from debt to equity, the risk that the principal amount due can be written down to a lesser amount, and the general risks applicable to fixed income investments, including interest rate risk, credit risk, market risk and liquidity risk, any of which could result in losses to the Fund.

 

Counterparty Risk  is the risk that the Fund will be subject to credit risk with respect to the counterparties to the derivative contracts and other instruments entered into by the Fund or held by special purpose or structured vehicles in which the Fund invests. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery (including recovery of any collateral it has provided to the counterparty) in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding.

 

Credit Default Swaps Risk  is the risk of investing in credit default swaps, including illiquidity risk, counterparty risk, leveraging risk and credit risk. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. When the Fund acts as a seller of a credit default swap, it is exposed to many of the same risks of leverage described herein since if an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation. In addition, selling credit default swaps may not be profitable for the Fund if no secondary

market exists or the Fund is otherwise unable to close out these transactions at advantageous times.

 

Credit Risk  is the risk that the Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivative contract, repurchase agreement or a loan of portfolio securities, is unable or unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to meet its financial obligations.

 

Derivatives Risk  is the risk of investing in derivative instruments (such as futures, swaps and structured securities), including leverage, liquidity, interest rate, market, credit and management risks and valuation complexity. Changes in the value of a derivative may not correlate perfectly with, and may be more sensitive to market events than, the underlying asset, rate or index, and the Fund could lose more than the initial amount invested. The Fund’s use of derivatives may result in losses to the Fund, a reduction in the Fund’s returns and/or increased volatility. Over-the-counter (“OTC”) derivatives are also subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations to the other party, as many of the protections afforded to centrally-cleared derivative transactions might not be available for OTC derivatives. The primary credit risk on derivatives that are exchange-traded or traded through a central clearing counterparty resides with the Fund’s clearing broker, or the clearinghouse itself.

 

Distressed and Defaulted Securities Risk  is the risk of investing in the securities of financially distressed issuers, including the risk of default. These securities may fluctuate more in price, and are typically less liquid. The Fund also will be subject to significant uncertainty as to when, and in what manner, and for what value obligations evidenced by securities of financially distressed issuers will eventually be satisfied.

 

Distribution Rate Risk  is the risk that, to the extent the Fund seeks to maintain a level distribution rate, the Fund’s distribution rate may be affected by numerous factors, including but not limited to changes in realized and projected market returns, fluctuations in market interest rates, Fund performance, and other factors. For instance, during periods of low or declining interest rates, the Fund’s distributable income and dividend levels may decline for many reasons. There can be no assurance that a change in market conditions or other factors will not result in a change in the Fund’s distribution rate or that the rate will be sustainable in the future.

 

Emerging Markets Risk  is the risk of investing in emerging market securities, primarily increased foreign (non-U.S.) investment risk.

 

Equity Securities and Related Market Risk  is the risk that the value of equity securities, such as common stocks and preferred securities, may

 

 

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Notes to Financial Statements   (Cont.)  

 

decline due to general market conditions which are not specifically related to a particular company or to factors affecting a particular industry or industries. Equity securities generally have greater price volatility than fixed income securities.

 

High Yield Securities Risk  is the risk that high yield securities and unrated securities of similar credit quality (commonly known as “junk bonds”) are subject to greater levels of credit, call and liquidity risks. High yield securities are considered primarily speculative with respect to the issuer’s continuing ability to make principal and interest payments, and may be more volatile than higher-rated securities of similar maturity.

 

Inflation/Deflation Risk  is the risk that the value of assets or income from the Fund’s investments will be worth less in the future as inflation decreases the value of payments at future dates. As inflation increases, the real value of the Fund’s portfolio could decline. Deflation Risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio and common shares.

 

Inflation-Indexed Security Risk  is the risk that inflation-indexed debt securities are subject to the effects of changes in market interest rates caused by factors other than inflation (real interest rates). In general, the value of an inflation-indexed security, including TIPS, tends to decrease when real interest rates increase and can increase when real interest rates decrease. Interest payments on inflation-indexed securities are unpredictable and will fluctuate as the principal and interest are adjusted for inflation. There can be no assurance that the inflation index used will accurately measure the real rate of inflation in the prices of goods and services. Any increase in the principal amount of an inflation-indexed debt security will be considered taxable ordinary income, even though the Fund will not receive the principal until maturity.

 

Interest Rate Risk  is the risk that fixed income securities and other instruments in the Fund’s portfolio will decline in value because of an increase in interest rates; a fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.

 

Issuer Risk  is the risk that the value of a security may decline for a reason directly related to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or services.

 

Leverage Risk  is the risk that certain transactions of the Fund, such as reverse repurchase agreements, dollar rolls and/or borrowings (as well as from any future issuance of preferred shares), delayed delivery or

forward commitment transactions, or derivative instruments, may give rise to leverage, magnifying gains and losses and causing the Fund to be more volatile than if it had not been leveraged. This means that leverage entails a heightened risk of loss.

 

Liquidity Risk  is the risk that a particular investment may be difficult to purchase or sell and that the Fund may be unable to sell illiquid investments at an advantageous time or price or possibly require the Fund to dispose of other investments at unfavorable times or prices in order to satisfy its obligations, which could prevent the Fund from taking advantage of other investment opportunities. Additionally, the market for certain investments may become illiquid under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer.

 

Loans and Other Indebtedness; Loan Participations and Assignments Risk  the risk that scheduled interest or principal payments will not be made in a timely manner or at all, either of which may adversely affect the values of a loan. Additionally, there is a risk that the collateral underlying a loan may be unavailable or insufficient to satisfy a borrower’s obligation, and the Fund could become part owner of any collateral if a loan is foreclosed, subjecting the Fund to costs associated with owning and disposing of the collateral.

 

In the event of the insolvency of the lender selling a participation, there is a risk that the Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

 

There is the risk that the Fund may have difficulty disposing of loans and loan participations due to the lack of a liquid secondary market for loans and loan participations.

 

To the extent the Fund acquires loans, including bank loans, the Fund may be subject to greater levels of credit risk, call risk, settlement risk and liquidity risk than funds that do not acquire such instruments.

 

Management Risk  is the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results and that actual or potential conflicts of interest, legislative, regulatory, or tax restrictions, policies or developments may affect the investment techniques available to PIMCO and the individual portfolio manager in connection with managing the Fund and may cause PIMCO to restrict or prohibit participation in certain investments. There is no guarantee that the investment objective of the Fund will be achieved.

 

Market Risk  is the risk that the value of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably due to factors affecting securities markets generally or particular industries.

 

 

       
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    July 31, 2021

 

Mortgage-Related and Other Asset-Backed Securities Risk  is the risk of investing in mortgage-related and other asset-backed securities, including interest rate risk, extension risk, prepayment risk and credit risk.

 

Other Investment Companies Risk  is the risk that Common Shareholders may be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, these other investment companies may utilize leverage, in which case an investment would subject the Fund to additional risks associated with leverage.

 

Portfolio Turnover Risk  is the risk that a high portfolio turnover will result in greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. Such sales may result in realization of taxable capital gains (including short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates when distributed net of short-term capital losses and net long-term capital losses), and may adversely affect the Fund’s after-tax returns.

 

Preferred Securities Risk  is the risk that certain preferred securities contain provisions that allow an issuer under certain conditions to skip or defer distributions which may require the Fund to include the amount of the deferred distribution in its taxable income for tax purposes although it does not currently receive such amount in cash. Additionally, preferred securities are subordinated to bonds and other debt securities in an issuer’s capital structure in terms of priority for corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt securities. Preferred securities may trade less frequently and in a more limited volume and may be subject to more abrupt or erratic price movements than many other securities, such as common stocks, corporate debt securities and U.S. Government securities.

 

Private Placements Risk  is the risk that securities received in a private placement may be subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise valuation risks.

 

Privately-Issued Mortgage-Related Securities Risk  is the risk of nonpayment because there are no direct or indirect government or agency guarantees of payments in the pools created by non-governmental issuers.

 

Reinvestment Risk  is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured,

traded or called debt obligations at market interest rates that are below the portfolio’s current earnings rate. The Fund also may choose to sell higher yielding portfolio securities and to purchase lower yielding securities to achieve greater portfolio diversification, because the portfolio managers believe the current holdings are overvalued or for other investment-related reasons.

 

Repurchase Agreements Risk  is the risk that, if the party agreeing to repurchase a security should default, the Fund will seek to sell the securities which it holds, which could involve procedural costs or delays in addition to a loss on the securities if their value should fall below their repurchase price.

 

Restricted Securities Risk  is the risk that the Fund’s investment in securities that have not been registered for public sale, but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act, may be relatively less liquid than registered securities traded on established securities markets.

 

Segregation and Coverage Risk  is the risk that certain portfolio management techniques may be considered senior securities unless steps are taken to segregate the Fund’s assets or otherwise cover its obligations. To avoid having these instruments considered senior securities, the Fund may segregate liquid assets with a value equal (on a daily mark-to-market basis) to its obligations under these types of leveraged transactions, enter into offsetting transactions or otherwise cover such transactions. The Fund may be unable to use such segregated assets for certain other purposes, which could result in the Fund earning a lower return on its portfolio than it might otherwise earn if it did not have to segregate those assets in respect of, or otherwise cover, such portfolio positions. To the extent the Fund’s assets are segregated or committed as cover, it could limit the Fund’s investment flexibility.

 

Senior Debt Risk  is the risk that the Fund may be subject to greater levels of credit risk than funds that do not invest in below investment grade senior debt. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in senior debt. Restrictions on transfers in loan agreements, a lack of publicly available information and other factors may, in certain instances, make senior debt more difficult to sell at an advantageous time or price than other types of securities or instruments.

 

Sovereign Debt Risk  is the risk that investments in fixed income instruments issued by sovereign entities may decline in value as a result of default or other adverse credit event resulting from an issuer’s inability or unwillingness to make principal or interest payments in a timely fashion.

 

Structured Investments Risk  is the risk that the Fund’s investment in structured products, including, structured notes, credit-linked notes and

 

 

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Notes to Financial Statements   (Cont.)  

 

other types of structured products bear the risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer or the entity that sold the assets to be securitized. Structured products generally entail risks associated with derivative instruments.

 

Tax Risk  is the risk that if, in any year, the Fund were to fail to qualify for treatment as a regulated investment company under the Tax Code, and were ineligible to or did not otherwise cure such failure, the Fund would be subject to tax on its taxable income at corporate rates and, when such income is distributed, shareholders would be subject to a further tax to the extent of the Fund’s current or accumulated earnings and profits.

 

Valuation Risk  is the risk that fair value pricing used when market quotations are not readily available may not result in adjustments to the prices of securities or other assets, or that fair value pricing may not reflect actual market value. It is possible that the fair value determined in good faith for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that actually could be or is realized upon the sale of that security or other asset.

 

(b) Other Risks

In general, a Fund may be subject to additional risks, including, but not limited to, risks related to government regulation and intervention in financial markets, operational risks, risks associated with financial, economic and global market disruptions, and cybersecurity risks. Please see the Principal Risks of the Funds section of this report for a more comprehensive list of the principal risks the Funds may be subject to. Please see the Important Information section of this report for additional discussion of certain regulatory and market developments (such as the anticipated discontinuation of LIBOR) that may impact a Fund’s performance.

 

Market Disruption Risk  A Fund is subject to investment and operational risks associated with financial, economic and other global market developments and disruptions, including those arising from war, terrorism, market manipulation, government interventions, defaults and shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters, which can all negatively impact the securities markets and cause a Fund to lose value. These events can also impair the technology and other operational systems upon which a Fund’s service providers, including PIMCO as a Fund’s investment adviser, rely, and could otherwise disrupt a Fund’s service providers’ ability to fulfill their obligations to a

Fund. For example, the recent spread of an infectious respiratory illness caused by a novel strain of coronavirus (known as COVID-19) has caused volatility, severe market dislocations and liquidity constraints in many markets, including markets for the securities a Fund holds, and may adversely affect a Fund’s investments and operations. Please see the Important Information section for additional discussion of the COVID-19 pandemic.

 

Regulatory Risk  Financial entities, such as investment companies and investment advisers, are generally subject to extensive government regulation and intervention. Government regulation and/or intervention may change the way a Fund is regulated, affect the expenses incurred directly by a Fund and the value of its investments, and limit and/or preclude a Fund’s ability to achieve its investment objective. Government regulation may change frequently and may have significant adverse consequences. Moreover, government regulation may have unpredictable and unintended effects.

 

Operational Risk  An investment in a Fund, like any fund, can involve operational risks arising from factors such as processing errors, human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel and errors caused by third-party service providers. The occurrence of any of these failures, errors or breaches could result in a loss of information, regulatory scrutiny, reputational damage or other events, any of which could have a material adverse effect on a Fund. While a Fund seeks to minimize such events through controls and oversight, there may still be failures that could cause losses to the Fund.

 

Cyber Security Risk  As the use of technology has become more prevalent in the course of business, the Funds have become potentially more susceptible to operational and information security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber events that may, among other things, cause a Fund to lose proprietary information, suffer data corruption and/or destruction or lose operational capacity, result in the unauthorized release or other misuse of confidential information, or otherwise disrupt normal business operations. Cyber security failures or breaches may result in financial losses to a Fund and its shareholders. These failures or breaches may also result in disruptions to business operations, potentially resulting in financial losses; interference with a Fund’s ability to calculate its net asset value, process shareholder transactions or otherwise transact business with shareholders; impediments to trading; violations of applicable privacy and other laws; regulatory fines; penalties; reputational damage; reimbursement or other compensation costs; additional compliance and cyber security risk management costs and other adverse consequences. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future.

 

 

       
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    July 31, 2021

 

8. MASTER NETTING ARRANGEMENTS

 

A Fund may be subject to various netting arrangements (“Master Agreements”) with select counterparties. Master Agreements govern the terms of certain transactions, and are intended to reduce the counterparty risk associated with relevant transactions by specifying credit protection mechanisms and providing standardization that is intended to improve legal certainty. Each type of Master Agreement governs certain types of transactions. Different types of transactions may be traded out of different legal entities or affiliates of a particular organization, resulting in the need for multiple agreements with a single counterparty. As the Master Agreements are specific to unique operations of different asset types, they allow a Fund to close out and net its total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single Master Agreement with a counterparty. For financial reporting purposes the Statements of Assets and Liabilities generally present derivative assets and liabilities on a gross basis, which reflects the full risks and exposures prior to netting.

 

Master Agreements can also help limit counterparty risk by specifying collateral posting arrangements at pre-arranged exposure levels. Under most Master Agreements, collateral is routinely transferred if the total net exposure to certain transactions (net of existing collateral already in place) governed under the relevant Master Agreement with a counterparty in a given account exceeds a specified threshold, which typically ranges from zero to $250,000 depending on the counterparty and the type of Master Agreement. United States Treasury Bills and U.S. dollar cash are generally the preferred forms of collateral, although other securities may be used depending on the terms outlined in the applicable Master Agreement. Securities and cash pledged as collateral are reflected as assets on the Statements of Assets and Liabilities as either a component of Investments at value (securities) or Deposits with counterparty. Cash collateral received is not typically held in a segregated account and as such is reflected as a liability on the Statements of Assets and Liabilities as Deposits from counterparty. The market value of any securities received as collateral is not reflected as a component of NAV. A Fund’s overall exposure to counterparty risk can change substantially within a short period, as it is affected by each transaction subject to the relevant Master Agreement.

 

Master Repurchase Agreements and Global Master Repurchase Agreements (individually and collectively “Master Repo Agreements”) govern repurchase, reverse repurchase, and certain sale-buyback transactions between a Fund and select counterparties. Master Repo Agreements maintain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral. The market value of transactions under the Master Repo Agreement, collateral pledged or received, and the net exposure by counterparty as of period end are disclosed in the Notes to Schedules of Investments.

Master Securities Forward Transaction Agreements (“Master Forward Agreements”) govern certain forward settling transactions, such as TBA securities, delayed-delivery or certain sale-buyback transactions by and between a Fund and select counterparties. The Master Forward Agreements maintain provisions for, among other things, transaction initiation and confirmation, payment and transfer, events of default, termination, and maintenance of collateral. The market value of forward settling transactions, collateral pledged or received, and the net exposure by counterparty as of period end is disclosed in the Notes to Schedules of Investments.

 

Customer Account Agreements and related addenda govern cleared derivatives transactions such as futures, options on futures, and cleared OTC derivatives. Such transactions require posting of initial margin as determined by each relevant clearing agency which is segregated in an account at a futures commission merchant (“FCM”) registered with the CFTC. In the United States, counterparty risk may be reduced as creditors of an FCM cannot have a claim to Fund assets in the segregated account. Portability of exposure reduces risk to the Funds. Variation margin, which reflects changes in market value, is generally exchanged daily, but may not be netted between futures and cleared OTC derivatives unless the parties have agreed to a separate arrangement in respect of portfolio margining. The market value or accumulated unrealized appreciation (depreciation), initial margin posted, and any unsettled variation margin as of period end are disclosed in the Notes to Schedules of Investments.

 

Prime Broker Arrangements may be entered into to facilitate execution and/or clearing of listed equity option transactions or short sales of equity securities between a Fund and selected counterparties. The arrangements provide guidelines surrounding the rights, obligations, and other events, including, but not limited to, margin, execution, and settlement. These agreements maintain provisions for, among other things, payments, maintenance of collateral, events of default, and termination. Margin and other assets delivered as collateral are typically in the possession of the prime broker and would offset any obligations due to the prime broker. The market values of listed options and securities sold short and related collateral are disclosed in the Notes to Schedules of Investments.

 

International Swaps and Derivatives Association, Inc. Master Agreements and Credit Support Annexes (“ISDA Master Agreements”) govern bilateral OTC derivative transactions entered into by a Fund with select counterparties. ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral posting and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to

 

 

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Notes to Financial Statements   (Cont.)  

 

terminate early could be material to the financial statements. The ISDA Master Agreement may contain additional provisions that add counterparty protection beyond coverage of existing daily exposure if the counterparty has a decline in credit quality below a predefined level or as required by regulation. Similarly, if required by regulation, the Funds may be required to post additional collateral beyond coverage of daily exposure. These amounts, if any, may (or if required by law, will) be segregated with a third-party custodian. To the extent the Funds are required by regulation to post additional collateral beyond coverage of daily exposure, they could potentially incur costs, including in procuring eligible assets to meet collateral requirements, associated with such posting. The market value of OTC financial derivative instruments, collateral received or pledged, and net exposure by counterparty as of period end are disclosed in the Notes to Schedules of Investments.

 

9. FEES AND EXPENSES

 

(a) Management Fee  Pursuant to the Investment Management Agreement with PIMCO (the “Agreement”), and subject to the supervision of the Board, PIMCO is responsible for providing to each Fund investment guidance and policy direction in connection with the management of the Fund, including oral and written research, analysis, advice, and statistical and economic data and information. In addition, pursuant to the Agreement and subject to the general supervision of the Board, PIMCO, at its expense, provides or causes to be furnished most other supervisory and administrative services the Funds require, including but not limited to, expenses of most third-party service providers (e.g., audit, custodial, legal, transfer agency, printing) and other expenses, such as those associated with insurance, proxy solicitations and mailings for shareholder meetings, NYSE listing and related fees, tax services, valuation services and other services the Funds require for their daily operations.

 

Pursuant to the Agreement, PIMCO receives an annual fee, payable monthly, at the annual rates shown in the table below:

 

Fund Name         Annual
Rate
 

PIMCO Corporate & Income Opportunity Fund

      0.65% (1) 

PIMCO Corporate & Income Strategy Fund

      0.81% (1) 

PIMCO High Income Fund

      0.76% (1) 

PIMCO Income Strategy Fund

      0.86% (2) 

PIMCO Income Strategy Fund II

      0.83% (2) 

 

(1) 

Management fees calculated based on the Fund’s average daily net asset value (including daily net assets attributable to any preferred shares of the Fund that may be outstanding).

(2) 

Management fees calculated based on the Fund’s average weekly “total managed assets”. Total managed assets includes total assets of each Fund (including any assets attributable to any preferred shares or other forms of leverage that may be outstanding) minus accrued liabilities (other than liabilities representing leverage).

 

(b) Fund Expenses  Each Fund bears other expenses, which may vary and affect the total level of expenses paid by shareholders, such as

(i) salaries and other compensation or expenses, including travel expenses of any of the Fund’s executive officers and employees, if any, who are not officers, directors, shareholders, members, partners or employees of PIMCO or its subsidiaries or affiliates; (ii) taxes and governmental fees, if any, levied against the Fund; (iii) brokerage fees and commissions and other portfolio transaction expenses incurred by or for the Fund (including, without limitation, fees and expenses of outside legal counsel or third-party consultants retained in connection with reviewing, negotiating and structuring specialized loans and other investments made by the Fund, subject to specific or general authorization by the Fund’s Board (for example, so-called “broken-deal costs” (e.g., fees, costs, expenses and liabilities, including, for example, due diligence-related fees, costs, expenses and liabilities, with respect to unconsummated investments))); (iv) expenses of the Fund’s securities lending (if any), including any securities lending agent fees, as governed by a separate securities lending agreement; (v) costs, including interest expenses, of borrowing money or engaging in other types of leverage financing, including, without limitation, through the use by the Fund of reverse repurchase agreements, tender option bonds, bank borrowings and credit facilities; (vi) costs, including dividend and/or interest expenses and other costs (including, without limitation, offering and related legal costs, fees to brokers, fees to auction agents, fees to transfer agents, fees to ratings agencies and fees to auditors associated with satisfying ratings agency requirements for preferred shares or other securities issued by the Fund and other related requirements in the Fund’s organizational documents) associated with the Fund’s issuance, offering, redemption and maintenance of preferred shares, commercial paper or other senior securities for the purpose of incurring leverage; (vii) fees and expenses of any underlying funds or other pooled vehicles in which the Fund invests; (viii) dividend and interest expenses on short positions taken by the Fund; (ix) fees and expenses, including travel expenses, and fees and expenses of legal counsel retained for their benefit, of Trustees who are not officers, employees, partners, shareholders or members of PIMCO or its subsidiaries or affiliates; (x) extraordinary expenses, including extraordinary legal expenses, that may arise, including expenses incurred in connection with litigation, proceedings, other claims, and the legal obligations of the Fund to indemnify its Trustees, officers, employees, shareholders, distributors, and agents with respect thereto; (xi) organizational and offering expenses of the Fund, including with respect to share offerings, such as rights offerings and shelf offerings, following the Fund’s initial offering, and expenses associated with tender offers and other share repurchases and redemptions; and (xii) expenses of the Fund which are capitalized in accordance with U.S. GAAP.

 

Each of the Trustees of the Funds who is not an interested person under Section 2(a)(19) of the Act, (the “Independent Trustees”) also serves as a trustee of a number of other closed-end funds for which PIMCO serves as investment manager (together with the Funds, the

 

 

       
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    July 31, 2021

 

“PIMCO Closed-End Funds”), as well as PIMCO Flexible Emerging Markets Income Fund, PIMCO Flexible Credit Income Fund and PIMCO Flexible Municipal Income Fund, each a closed end management investment company managed by PIMCO that is operated as an “interval fund” (the ”PIMCO Interval Funds”), and PIMCO Managed Accounts Trust, an open-end management investment company with multiple series for which PIMCO serves as investment adviser and administrator (“PMAT” and, together with the PIMCO Closed-End Funds and the PIMCO Interval Funds, the “PIMCO Managed Funds”). In addition, during the reporting period, each of the Independent Trustees (other than Mr. Kittredge and Ms. Vandecruze) also served as a trustee of certain funds for which Allianz Global Investors U.S. LLC (“AllianzGI”), an affiliate of PIMCO, served as investment manager. Effective February 1, 2021 (and February 26, 2021 with respect to Virtus AllianzGI Artificial Intelligence & Technology Opportunities Fund), Virtus Investment Advisers, Inc. became the primary investment adviser to all of those funds (the “Former Allianz-Managed Funds”), and therefore they are no longer included within the same fund complex as the PIMCO-Managed Funds. AllianzGI has been appointed to serve as sub-adviser to most of the remaining Former Allianz-Managed Funds.

 

The Funds pay no compensation directly to any Trustee or any other officer who is affiliated with the Manager, all of whom receive remuneration for their services to the Funds from the Manager or its affiliates.

 

10. RELATED PARTY TRANSACTIONS

 

The Manager is a related party. Fees payable to this party are disclosed in Note 9, Fees and Expenses, and the accrued related party fee amounts are disclosed on the Statements of Assets and Liabilities.

 

Certain Funds are permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of securities by the Funds from or to another fund or portfolio that are, or could be, considered an affiliate, or an affiliate of an affiliate, by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 under the Act.

Further, as defined under the procedures, each transaction is effected at the current market price. During the period ended July 31, 2021, the Funds below engaged in purchases and sales of securities pursuant to Rule 17a-7 under the Act (amounts in thousands):

 

Fund Name         Purchases     Sales  

PIMCO Corporate & Income Opportunity Fund

    $     70,046     $     294,975  

PIMCO Corporate & Income Strategy Fund

      11,652       83,465  

PIMCO High Income Fund

      29,205       48,241  

PIMCO Income Strategy Fund

      17,149       45,485  

PIMCO Income Strategy Fund II

      22,111       103,696  

 

  

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

 

11. GUARANTEES AND INDEMNIFICATIONS

 

Under each Fund’s organizational documents, each Trustee and officer is indemnified, to the extent permitted by the Act, against certain liabilities that may arise out of performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts.

 

12. PURCHASES AND SALES OF SECURITIES

 

The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as “portfolio turnover.” Each Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements. High portfolio turnover may involve correspondingly greater transaction costs, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities, which are borne by the Fund. Such sales may also result in realization of taxable capital gains, including short-term capital gains (which are generally taxed at ordinary income tax rates when distributed to shareholders). The transaction costs associated with portfolio turnover may adversely affect a Fund’s performance. The portfolio turnover rates are reported in the Financial Highlights.

 

 

Purchases and sales of securities (excluding short-term investments) for the period ended July 31, 2021, were as follows (amounts in thousands):

 

      U.S. Government/Agency     All Other  
Fund Name     Purchases     Sales     Purchases     Sales  

PIMCO Corporate & Income Opportunity Fund

    $ 285,857     $ 302,429     $     2,131,203     $     1,080,945  

PIMCO Corporate & Income Strategy Fund

      74,896       83,144       626,436       312,522  

PIMCO High Income Fund

          323,355           353,605       635,972       285,358  

PIMCO Income Strategy Fund

      0       0       350,345       207,813  

PIMCO Income Strategy Fund II

      0       0       631,981       369,855  

 

  

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

 

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Notes to Financial Statements   (Cont.)  

 

13. COMMON SHARES OFFERING

 

Each of PIMCO Corporate & Income Opportunity Fund (“PTY”), PIMCO Corporate & Income Strategy Fund (“PCN”), PIMCO High Income Fund (“PHK”), PIMCO Income Strategy Fund (“PFL”) and PIMCO Income Strategy Fund II (“PFN”) has authorized an unlimited number of Common Shares at a par value of $0.00001 per share (each of the foregoing Fund’s shares as the context requires, “Common Shares”).

 

As of the end of the reporting period, each of PTY, PCN, PFL and PFN had an effective registration statement on file with the SEC authorizing the Fund to issue shares through the “shelf” registration process pursuant to Rule 415 under the Securities Act (each, a “Shelf Registration Statement”). Pursuant to such Shelf Registration Statements, PTY, PCN, PFL and PFN may offer and sell Common Shares having an aggregate offering value of up to $600,000,000, $200,000,000, $200,000,000 and $250,000,000, respectively. Each

Fund may have had one or more prior Shelf Registration Statements in effect during this and/or previous fiscal periods authorizing the sale of additional Common Shares.

 

Each of PTY, PCN, PFL and PFN have entered into a sales agreement (a “Sales Agreement”) with JonesTrading Institutional Services LLC (“JonesTrading”), pursuant to which each Fund may offer and sell its Common Shares offered by an applicable prospectus supplement through JonesTrading as its agent in negotiated transactions or transactions that are deemed to be “at the market” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. Each Fund will pay JonesTrading compensation of up to 1.00% of the gross proceeds with respect to sales of the Common Shares actually effected by JonesTrading under the Sales Agreement.

 

 

The aggregate dollar amount of Common Shares registered under each Fund’s Shelf Registration Statement as of the end of the periods described below, as well as number of Common Shares sold and total amount of offering proceeds (net of offering costs, if any) received by each Fund under one or more Shelf Registration Statements during the Fund’s most recent and prior fiscal periods were as follows:

 

          PTY           PCN           PFL  
         

Year Ended

07/31/2021

   

Year Ended

07/31/2020

         

Year Ended

07/31/2021

   

Year Ended

07/31/2020

         

Year Ended

07/31/2021

   

Year Ended

07/31/2020

 

Common Shares registered (aggregate $)

    $ 600,000,000     $ 500,000,000             $     200,000,000     $ 0       $     200,000,000     $     100,000,000  

Common Shares sold

      12,480,419       11,309,630               1,453,643       0         2,765,940       3,197,447  

Offering proceeds (net of offering costs)

    $     213,881,835     $     198,548,214       $ 25,572,479     $     0       $ 30,554,383     $ 35,920,234  

 

          PFN  
         

Year Ended

07/31/2021

   

Year Ended

07/31/2020

 

Common Shares registered (aggregate $)

    $     250,000,000     $     175,000,000  

Common Shares sold

      4,996,511       6,557,002  

Offering proceeds (net of offering costs)

    $ 48,806,626     $ 67,031,388  

 

A Fund may not sell any Common Shares at a price below the NAV of such Common Shares, exclusive of any distributing commission or discount. Sales of the Common Shares, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market”, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.

14. AUCTION-RATE PREFERRED SHARES

 

Each series of Auction-Rate Preferred Shares (“ARPS”) outstanding of each Fund has a liquidation preference of $25,000 per share plus any accumulated, unpaid dividends. Dividends are accumulated daily at an annual rate that is typically reset every seven days through auction procedures (or through default procedures in the event of failed auctions). Distributions of net realized capital gains, if any, are paid at least annually.

 

 

For the period ended July 31, 2021, the annualized dividend rates on the ARPS ranged from:

 

Fund Name         Shares
Issued and
Outstanding
    High     Low     As of
July 31, 2021
 

PIMCO Corporate & Income Opportunity Fund

         

Series M

      1,748       0.240%       0.060%       0.100%  

Series T

      1,596       0.240%       0.080%       0.160%  

Series W

      1,634       0.200%       0.080%       0.160%  

Series TH

      1,786       0.240%       0.080%       0.160%  

Series F

      1,742       0.220%       0.080%       0.120%  

 

       
122   PIMCO CLOSED-END FUNDS            


    July 31, 2021

 

Fund Name         Shares
Issued and
Outstanding
    High     Low     As of
July 31, 2021
 

PIMCO Corporate & Income Strategy Fund

         

Series M

      242       0.180%       0.048%       0.080%  

Series T

      180       0.180%       0.064%       0.128%  

Series W

      214       0.150%       0.064%       0.128%  

Series TH

      138       0.180%       0.064%       0.128%  

Series F

      167       0.165%       0.060%       0.096%  

PIMCO High Income Fund

         

Series M

      455       0.192%       0.048%       0.080%  

Series T

      526       0.192%       0.064%       0.128%  

Series W

      369       0.160%       0.064%       0.128%  

Series TH

      476       0.192%       0.064%       0.128%  

Series F

      496       0.176%       0.064%       0.096%  

PIMCO Income Strategy Fund

         

Series T

      698       1.615%       1.558%       1.583%  

Series W

      636       1.622%       1.560%       1.584%  

Series TH

      474       1.617%       1.558%       1.587%  

PIMCO Income Strategy Fund II

         

Series M

      671       1.612%       1.560%       1.584%  

Series T

      855       1.615%       1.558%       1.583%  

Series W

      627       1.622%       1.560%       1.584%  

Series TH

      706       1.617%       1.558%       1.587%  

Series F

      638       1.617%       1.558%       1.587%  

 

Each Fund is subject to certain limitations and restrictions while ARPS are outstanding. Failure to comply with these limitations and restrictions could preclude a Fund from declaring or paying any dividends or distributions to common shareholders or repurchasing common shares and/or could trigger the mandatory redemption of ARPS at their liquidation preference plus any accumulated, unpaid dividends.

 

Auction Rate Preferred shareholders of each Fund, who are entitled to one vote per share, generally vote together with the common shareholders of the Fund but vote separately as a class to elect two Trustees of the Fund and on certain matters adversely affecting the rights of the ARPS.

 

Since mid-February 2008, holders of ARPS issued by the Funds have been directly impacted by a lack of liquidity, which has similarly affected ARPS holders in many of the nation’s closed-end funds. Since then, regularly scheduled auctions for ARPS issued by the Funds have consistently “failed” because of insufficient demand (bids to buy shares) to meet the supply (shares offered for sale) at each auction. In a failed auction, ARPS holders cannot sell all, and may not be able to sell any, of their shares tendered for sale. While repeated auction failures have affected the liquidity for ARPS, they do not constitute a default or automatically alter the credit quality of the ARPS, and ARPS holders have continued to receive dividends at the defined “maximum rate,” as defined for the Funds in the table below:

 

Fund Name                Applicable %              Reference Rate            Maximum Rate(1)  

PIMCO Corporate & Income Opportunity Fund

               200%        x      7-day “AA” Financial Composite
Commercial Paper Rates
     =        Maximum Rate for PTY  

PIMCO Corporate & Income Strategy Fund

               160%        x      7-day “AA” Financial Composite
Commercial Paper Rates
     =        Maximum Rate for PCN  

PIMCO High Income Fund

               160%        x      7-day “AA” Financial Composite
Commercial Paper Rates
     =        Maximum Rate for PHK  

PIMCO Income Strategy Fund

    The higher of         

200%

1.50%

 

 

    

x

+

 

 

   7-Day USD LIBOR
OR
7-Day USD LIBOR
    

=

=

 

 

     Maximum Rate for PFL (2) 

PIMCO Income Strategy Fund II

    The higher of         

200%

1.50%

 

 

    

x

+

 

 

   7-Day USD LIBOR
OR
7-Day USD LIBOR
    

=

=

 

 

     Maximum Rate for PFN (2) 

 

(1)  

In any event, the Maximum Rate will not be lower than 0%.

(2) 

For the avoidance of doubt, the Maximum Rate for PFL and PFN may be less than the Applicable %, but will not be lower than 0%.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     123
    


Notes to Financial Statements   (Cont.)  

 

The maximum rate is a function of short-term interest rates and is typically but not necessarily, higher than the rate that would have otherwise been set through a successful auction. If the Funds’ ARPS auctions continue to fail and the “maximum rate” payable on the ARPS rises as a result of changes in short-term interest rates, returns for the Fund’s common shareholders could be adversely affected.

 

In May 2020, Fitch downgraded its rating of the ARPS of PIMCO Income Strategy Fund and PIMCO Strategy Fund II from “AAA” to “AA” and updated it’s applicable spread over reference rate from 1.25% to 1.50%, indicating the downgrades reflected recent extreme market volatility and reduced asset liquidity, which have quickly eroded asset coverage cushions for closed-end funds and challenged fund managers’ ability to deleverage.

 

Ratings agencies may change their methodologies for evaluating and providing ratings for shares of closed-end funds at any time and in their sole discretion, which may affect the rating (if any) of a Fund’s shares. Fitch Ratings published ratings criteria relating to closed-end funds on December 4, 2020, which effectively result in a rating cap of “AA” for debt and preferred stock issued by all closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The updated ratings criteria cap the credit ratings of each of the Funds’ ARPS at “A”. Accordingly, on April 30, 2021, Fitch Ratings announced that it had downgraded to “A” from “AA” the long-term ratings assigned to each of the Funds’ ARPS. The long-term rating actions were driven by changes in the updated ratings criteria for closed-end funds rather than by any fundamental changes to the Funds’ credit profiles. With respect to PCN, the April 2021 Fitch downgrade resulted in an increase in the multiple used to calculate the maximum applicable rate from 150% to 160%, thereby increasing the dividend rate payable to ARPS holders and increasing the expenses to Common Shareholders associated with the Fund’s leverage. With respect to each of PFL and PFN, the April 2021 Fitch downgrade resulted in an increase in the dividend rate multiplier from 1.50 to 2.00, which could increase the dividend rate payable to ARPS holders should the maximum dividend rate be determined via the multiplier in lieu of the spread noted in the table above (the maximum dividend rate is based on the greater of a multiple of or a spread plus a reference rate) and, thereby, increase the expenses to the each applicable Fund’s Common Shareholders associated with the Fund’s leverage.

There were no tender offers for the period ended July 31, 2021, and as such, the ARPS outstanding for each Fund as of July 31, 2021 remains consistent with those amounts presented in the funds’ Annual Report to Shareholders dated July 31, 2020.

 

15. REGULATORY AND LITIGATION MATTERS

 

The Funds are not named as defendants in any material litigation or arbitration proceedings and are not aware of any material litigation or claim pending or threatened against them.

 

The foregoing speaks only as of the date of this report.

 

16. FEDERAL INCOME TAX MATTERS

 

Each Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code (the “Code”) and distribute all of its taxable income and net realized gains, if applicable, to shareholders. Accordingly, no provision for Federal income taxes has been made.

 

A Fund may be subject to local withholding taxes, including those imposed on realized capital gains. Any applicable foreign capital gains tax is accrued daily based upon net unrealized gains, and may be payable following the sale of any applicable investments.

 

In accordance with U.S. GAAP, the Manager has reviewed the Funds’ tax positions for all open tax years. As of July 31, 2021, the Funds have recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions they have taken or expect to take in future tax returns.

 

The Funds file U.S. federal, state, and local tax returns as required. The Funds’ tax returns are subject to examination by relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.

 

 

       
124   PIMCO CLOSED-END FUNDS            


    July 31, 2021

 

As of July 31, 2021, the components of distributable taxable earnings are as follows (amounts in thousands):

 

          Undistributed
Ordinary
Income(1)
    Undistributed
Long-Term
Capital Gains
    Net Tax Basis
Unrealized
Appreciation/
(Depreciation)(2)
    Other
Book-to-Tax
Accounting
Differences(3)
    Accumulated
Capital
Losses(4)
    Qualified
Late-Year Loss
Deferral-
Capital(5)
    Qualified
Late-Year Loss
Deferral-
Ordinary(6)
    Total
Components of
Distributable
Earnings
 

PIMCO Corporate & Income Opportunity Fund

    $   0     $   0     $   274,306     $   (14,838   $   (324,423   $   0     $ (6,092   $ (71,047

PIMCO Corporate & Income Strategy Fund

      0       0       132,115       (4,677     (136,705     0       (7,835     (17,102

PIMCO High Income Fund

      0       0       231,398       (6,428     (397,617     0         (10,441       (183,088

PIMCO Income Strategy Fund

      0       0       69,134       (3,092     (74,740     0       (3,672     (12,370

PIMCO Income Strategy Fund II

      0       0       159,811       (6,167     (184,724     0       (9,335     (40,415

 

 

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

(1) 

Includes undistributed short-term capital gains, if any.

(2) 

Adjusted for open wash sale loss deferrals and accelerated recognition of unrealized gain or loss on certain forward contracts for federal income tax purposes. Also adjusted for differences between book and tax realized and unrealized gain/loss on swap contracts, defaulted securities, straddle loss deferrals, hyperinflationary adjustments, partnership adjustments, Grantor Trust adjustments, Passive Foreign Investment Companies (PFICs), and Real Estate Investment Trusts (REITs).

(3) 

Represents differences in income tax regulations and financial accounting principles generally accepted in the United States of America, mainly for distributions payable at fiscal year-end.

(4) 

Capital losses available to offset future net capital gains expire in varying amounts in the years shown below.

(5) 

Capital losses realized during the period November 1, 2020 through July 31, 2021 which the Funds elected to defer to the following taxable year pursuant to income tax regulations.

(6) 

Specified losses realized during the period November 1, 2020 through July 31, 2021 and Ordinary losses realized during the period January 1, 2021 through July 31, 2021, which the Funds elected to defer to the following taxable year pursuant to income tax regulations.

 

Under the Regulated Investment Company Modernization Act of 2010, a fund is permitted to carry forward any new capital losses for an unlimited period. Additionally, such capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term under previous law.

 

As of July 31, 2021, the Funds had the following post-effective capital losses with no expiration (amounts in thousands):

 

          Short-Term     Long-Term  

PIMCO Corporate & Income Opportunity Fund

    $   179,096     $   145,327  

PIMCO Corporate & Income Strategy Fund

      71,483       65,222  

PIMCO High Income Fund

      180,744       216,873  

PIMCO Income Strategy Fund

      41,791       32,949  

PIMCO Income Strategy Fund II

      102,430       82,294  

 

  

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

 

As of July 31, 2021, the aggregate cost and the net unrealized appreciation/(depreciation) of investments for federal income tax purposes are as follows (amounts in thousands):

 

           Federal
Tax Cost
     Unrealized
Appreciation
     Unrealized
(Depreciation)
     Net Unrealized
Appreciation/
(Depreciation)(7)
 

PIMCO Corporate & Income Opportunity Fund

     $   2,876,076      $   433,089      $   (157,860    $   275,229  

PIMCO Corporate & Income Strategy Fund

       1,022,982        203,428        (70,753      132,675  

PIMCO High Income Fund

       1,371,549        384,015        (150,974      233,041  

PIMCO Income Strategy Fund

       571,149        105,101        (35,620      69,481  

PIMCO Income Strategy Fund II

       1,111,287        233,924        (73,490      160,434  

 

  

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

(7) 

Primary differences, if any, between book and tax net unrealized appreciation/(depreciation) on investments are attributable to open wash sale loss deferrals, straddle loss deferrals, unrealized gain or loss on certain forward contracts, defaulted securities, swaps, partnership adjustments, Grantor Trust Adjustments, hyperinflationary adjustments, Passive Foreign Investment Companies (PFICs), and Real Estate Investment Trusts (REITs) for federal income tax purposes.

 

         ANNUAL REPORT     |     JULY 31, 2021     125
    


Notes to Financial Statements   (Cont.)   July 31, 2021

 

For the fiscal years ended July 31, 2021 and July 31, 2020, respectively, the Funds made the following tax basis distributions (amounts in thousands):

 

          July 31, 2021     July 31, 2020  
          Ordinary
Income
Distributions(8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital(9)
    Ordinary
Income
Distributions(8)
    Long-Term
Capital Gain
Distributions
    Return of
Capital(9)
 

PIMCO Corporate & Income Opportunity Fund

    $   133,338     $   0     $   36,889     $   154,886     $   0     $ 0  

PIMCO Corporate & Income Strategy Fund

      54,783       0       0       56,500       0       0  

PIMCO High Income Fund

      57,530       0       19,329       90,357       0       4,178  

PIMCO Income Strategy Fund

      28,335       0       8,099       29,815       0         3,398  

PIMCO Income Strategy Fund II

      56,893       0       15,939       63,301       0       4,395  

 

  

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

(8) 

Includes short-term capital gains, if any, distributed.

(9) 

A portion of the distributions made represents a tax return of capital. Return of capital distributions have been reclassified from undistributed net investment income to paid-in capital to more appropriately conform financial accounting to tax accounting.

 

17. SUBSEQUENT EVENTS

 

In preparing these financial statements, the Funds’ management has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

 

On August 2, 2021, the following distributions were declared to common shareholders payable September 1, 2021 to shareholders of record on August 12, 2021:

 

PIMCO Corporate & Income Opportunity Fund

    $   0.130000 per common share  

PIMCO Corporate & Income Strategy Fund

    $ 0.112500 per common share  

PIMCO High Income Fund

    $ 0.048000 per common share  

PIMCO Income Strategy Fund

    $ 0.090000 per common share  

PIMCO Income Strategy Fund II

    $ 0.080000 per common share  

On September 1, 2021, the following distributions were declared to common shareholders payable October 1, 2021 to shareholders of record on September 13, 2021:

 

PIMCO Corporate & Income Opportunity Fund

    $   0.118800 per common share  

PIMCO Corporate & Income Strategy Fund

    $ 0.112500 per common share  

PIMCO High Income Fund

    $ 0.048000 per common share  

PIMCO Income Strategy Fund

    $ 0.081400 per common share  

PIMCO Income Strategy Fund II

    $ 0.071800 per common share  

 

There were no other subsequent events identified that require recognition or disclosure.

 

 

       
126   PIMCO CLOSED-END FUNDS            


Report of Independent Registered Public Accounting Firm              

 

To the Board of Trustees and Shareholders of PIMCO Corporate & Income Opportunity Fund,

PIMCO Corporate & Income Strategy Fund, PIMCO High Income Fund, PIMCO Income Strategy Fund and

PIMCO Income Strategy Fund II

 

Opinions on the Financial Statements

 

We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of PIMCO Corporate & Income Opportunity Fund, PIMCO Corporate & Income Strategy Fund, PIMCO High Income Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II (hereafter collectively referred to as the “Funds”) as of July 31, 2021, the related statements of operations and cash flows for the year ended July 31, 2021, the statements of changes in net assets for each of the two years in the period ended July 31, 2021, including the related notes, and the financial highlights for each of the five years in the period ended July 31, 2021 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds as of July 31, 2021, the results of each of their operations and each of their cash flows for the year then ended, the changes in each of their net assets for each of the two years in the period ended July 31, 2021 and each of the financial highlights for each of the five years in the period ended July 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinions

 

These financial statements are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of July 31, 2021 by correspondence with the custodian, brokers and agent banks; when replies were not received from brokers or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinions.

 

/s/ PricewaterhouseCoopers LLP

Kansas City, Missouri

 

September 24, 2021

 

We have served as the auditor of one or more investment companies in PIMCO Taxable Closed-End Funds since 1995.

 

         ANNUAL REPORT     |     JULY 31, 2021     127
    


Glossary:   (abbreviations that may be used in the preceding statements)          (Unaudited)

 

Counterparty Abbreviations:

               
BOA  

Bank of America N.A.

  DUB  

Deutsche Bank AG

  MEI  

Merrill Lynch International

BOS  

BofA Securities, Inc.

  FBF  

Credit Suisse International

  MYC  

Morgan Stanley Capital Services LLC

BPS  

BNP Paribas S.A.

  FICC  

Fixed Income Clearing Corporation

  MYI  

Morgan Stanley & Co. International PLC

BRC  

Barclays Bank PLC

  FOB  

Credit Suisse Securities (USA) LLC

  NOM  

Nomura Securities International Inc.

BYR  

The Bank of Nova Scotia - Toronto

  GLM  

Goldman Sachs Bank USA

  SCX  

Standard Chartered Bank, London

CBK  

Citibank N.A.

  GST  

Goldman Sachs International

  SOG  

Societe Generale Paris

CDC  

Natixis Securities Americas LLC

  HUS  

HSBC Bank USA N.A.

  SSB  

State Street Bank and Trust Co.

CEW  

Canadian Imperial Bank of Commerce

  IND  

Crédit Agricole Corporate and Investment Bank S.A.

  TDM  

TD Securities (USA) LLC

CIB  

Canadian Imperial Bank of Commerce

  JML  

JP Morgan Securities Plc

  UAG  

UBS AG Stamford

CIW  

CIBC World Markets Corp.

  JPM  

JP Morgan Chase Bank N.A.

  UBS  

UBS Securities LLC

Currency Abbreviations:

               
ARS  

Argentine Peso

  CZK  

Czech Koruna

  NOK  

Norwegian Krone

AUD  

Australian Dollar

  EUR  

Euro

  PEN  

Peruvian New Sol

BRL  

Brazilian Real

  GBP  

British Pound

  RUB  

Russian Ruble

CAD  

Canadian Dollar

  HUF  

Hungarian Forint

  SEK  

Swedish Krona

CHF  

Swiss Franc

  IDR  

Indonesian Rupiah

  TRY  

Turkish New Lira

CLP  

Chilean Peso

  INR  

Indian Rupee

  USD (or $)  

United States Dollar

CNH  

Chinese Renminbi (Offshore)

  MXN  

Mexican Peso

  ZAR  

South African Rand

Exchange Abbreviations:

               
OTC  

Over the Counter

       

Index/Spread Abbreviations:

               
ABX.HE  

Asset-Backed Securities Index - Home Equity

  CDX.IG  

Credit Derivatives Index - Investment Grade

  PRIME  

Daily US Prime Rate

BADLARPP  

Argentina Badlar Floating Rate Notes

  EUR003M  

3 Month EUR Swap Rate

  SONIO  

Sterling Overnight Interbank Average Rate

BP0003M  

3 Month GBP-LIBOR

  LIBOR03M  

3 Month USD-LIBOR

  US0003M  

ICE 3-Month USD LIBOR

CDX.HY  

Credit Derivatives Index - High Yield

       

Municipal Bond or Agency Abbreviations:

               
AGM  

Assured Guaranty Municipal

       

Other Abbreviations:

               
ABS  

Asset-Backed Security

  CLO  

Collateralized Loan Obligation

  PIK  

Payment-in-Kind

ALT  

Alternate Loan Trust

  DAC  

Designated Activity Company

  PRIBOR  

Prague Interbank Offered Rate

BABs  

Build America Bonds

  EBITDA  

Earnings before Interest, Taxes, Depreciation and Amoritization

  TBA  

To-Be-Announced

BBR  

Bank Bill Rate

  EURIBOR  

Euro Interbank Offered Rate

  TBD  

To-Be-Determined

BBSW  

Bank Bill Swap Reference Rate

  LIBOR  

London Interbank Offered Rate

  TBD%  

Interest rate to be determined when loan settles or at the time of funding

CDI  

Brazil Interbank Deposit Rate

  Lunar  

Monthly payment based on 28-day periods. One year consists of 13 periods.

  TIIE  

Tasa de Interés Interbancaria de Equilibrio “Equilibrium Interbank Interest Rate”

CDO  

Collateralized Debt Obligation

  OIS  

Overnight Index Swap

   

 

       
128   PIMCO CLOSED-END FUNDS            


Federal Income Tax Information     (Unaudited)

 

As required by the Internal Revenue Code (“Code”) and Treasury Regulations, if applicable, shareholders must be notified within 60 days of the Funds’ fiscal year end regarding the status of qualified dividend income and the dividend received deduction.

 

Dividend Received Deduction.  Corporate shareholders are generally entitled to take the dividend received deduction on the portion of a Fund’s dividend distribution that qualifies under tax law. The percentage of the following Funds’ Fiscal 2021 ordinary income dividend that qualifies for the corporate dividend received deduction is set forth below:

 

Qualified Dividend Income.  Under the Jobs and Growth Tax Relief Reconciliation Act of 2003, the following percentage of ordinary dividends paid during the calendar year was designated as “qualified dividend income”, as defined in the Jobs and Growth Tax Relief Reconciliation Act of 2003 subject to reduced tax rates in 2021:

 

Qualified Interest Income and Qualified Short-Term Capital Gain (for non-U.S. resident shareholders only).  Under the American Jobs Creation Act of 2004, the following amounts of ordinary dividends paid during the fiscal year ended July 31, 2021 are considered to be derived from “qualified interest income,” as defined in Section 871(k)(1)(E) of the Code, and therefore are designated as interest-related dividends, as defined in Section 871(k)(1)(C) of the Code. Further, the following amounts of ordinary dividends paid during the fiscal year ended July 31, 2021 are considered to be derived from “qualified short-term capital gain,” as defined in Section 871(k)(2)(D) of the Code, and therefore are designated as qualified short-term gain dividends, as defined by Section 871(k)(2)(C) of the Code.

 

            Dividend
Received
Deduction
%
     Qualified
Dividend
Income
%
     Qualified
Interest
Income
(000s)
     Qualified
Short-Term
Capital Gain
(000s)
 

PIMCO Corporate & Income Opportunity Fund

        0.00%        0.00%      $   130,605      $   0  

PIMCO Corporate & Income Strategy Fund

        0.00%        0.00%        54,783        0  

PIMCO High Income Fund

        0.00%        0.00%        57,530        0  

PIMCO Income Strategy Fund

        0.00%        0.00%        28,335        0  

PIMCO Income Strategy Fund II

        0.00%        0.00%        56,893        0  

 

  

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

 

Shareholders are advised to consult their own tax advisor with respect to the tax consequences of their investment in the Trust. In January 2022, you will be advised on IRS Form 1099-DIV as to the federal tax status of the dividends and distributions received by you in calendar year 2021.

 

Section 163(j) Interest Dividends.  The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Proposed Treasury Section 1.163(j)-1(b). The 163(j) percentage of ordinary income distributions are as follows:

 

            163 (j)
Interest
Dividends
%
 

PIMCO Corporate & Income Opportunity Fund

        0%  

PIMCO Corporate & Income Strategy Fund

        0%  

PIMCO High Income Fund

        0%  

PIMCO Income Strategy Fund

        0%  

PIMCO Income Strategy Fund II

        0%  

 

Section 199A Dividends.  Non-corporate fund shareholders of the funds below meeting certain holding period requirements may be able to deduct up to 20 percent of qualified REIT dividends passed through and reported to the shareholders by the fund as Section 199A dividends. The Section 199A percentage of ordinary dividends are as follows:

 

            199A
Dividends
%
 

PIMCO Corporate & Income Opportunity Fund

        96.96%  

PIMCO Corporate & Income Strategy Fund

        57.45%  

PIMCO High Income Fund

        32.73%  

PIMCO Income Strategy Fund

        58.45%  

PIMCO Income Strategy Fund II

        57.54%  

 

         ANNUAL REPORT     |     JULY 31, 2021     129
    


Distribution Information     (Unaudited)

 

For purposes of Section 19 of the Investment Company Act of 1940 (the “Act”), the Fund estimated the periodic sources of any dividends paid during the period covered by this report in accordance with good accounting practice. Pursuant to Rule 19a-1(e) under the Act, the table below sets forth the actual source information for dividends paid during the six month period ended July 31, 2021 calculated as of the end of each distribution period pursuant to Section 19 of the Act. The information below is not provided for U.S. federal income tax reporting purposes. The tax character of all dividends and distributions is reported on Form 1099-DIV (for shareholders who receive U.S. federal tax reporting) at the end of each calendar year.

 

See the Financial Highlights section of this report for the tax characterization of distributions determined in accordance with federal income tax regulations for the fiscal year.

 

PIMCO Corporate & Income Opp Fund          Net Investment
Income*
     Net Realized
Capital Gains*
     Paid-in Surplus or
Other  Capital
Sources**
     Total (per
common share)
 

February 2021

     $ 0.1082      $ 0.0000      $ 0.0218      $ 0.1300  

March 2021

     $ 0.1154      $ 0.0000      $ 0.0146      $ 0.1300  

April 2021

     $ 0.1300      $ 0.0000      $ 0.0000      $ 0.1300  

May 2021

     $ 0.1063      $ 0.0000      $ 0.0237      $ 0.1300  

June 2021

     $ 0.1300      $ 0.0000      $ 0.0000      $ 0.1300  

July 2021

     $ 0.1300      $ 0.0000      $ 0.0000      $ 0.1300  
PIMCO Corporate & Income Strategy Fund          Net Investment
Income*
     Net Realized
Capital Gains*
     Paid-in Surplus or
Other Capital
Sources**
     Total (per
common share)
 

February 2021

     $ 0.1125      $ 0.0000      $ 0.0000      $ 0.1125  

March 2021

     $ 0.1125      $ 0.0000      $ 0.0000      $ 0.1125  

April 2021

     $ 0.1125      $ 0.0000      $ 0.0000      $ 0.1125  

May 2021

     $ 0.1125      $ 0.0000      $ 0.0000      $ 0.1125  

June 2021

     $ 0.1125      $ 0.0000      $ 0.0000      $ 0.1125  

July 2021

     $ 0.1125      $ 0.0000      $ 0.0000      $ 0.1125  
PIMCO High Income Fund          Net Investment
Income*
     Net Realized
Capital Gains*
     Paid-in Surplus or
Other Capital
Sources**
     Total (per
common share)
 

February 2021

     $ 0.0480      $ 0.0000      $ 0.0000      $ 0.0480  

March 2021

     $ 0.0480      $ 0.0000      $ 0.0000      $ 0.0480  

April 2021

     $ 0.0480      $ 0.0000      $ 0.0000      $ 0.0480  

May 2021

     $ 0.0480      $ 0.0000      $ 0.0000      $ 0.0480  

June 2021

     $ 0.0480      $ 0.0000      $ 0.0000      $ 0.0480  

July 2021

     $ 0.0480      $ 0.0000      $ 0.0000      $ 0.0480  
PIMCO Income Strategy Fund          Net Investment
Income*
     Net Realized
Capital Gains*
     Paid-in Surplus or
Other Capital
Sources**
     Total (per
common share)
 

February 2021

     $ 0.0732      $ 0.0000      $ 0.0168      $ 0.0900  

March 2021

     $ 0.0798      $ 0.0000      $ 0.0102      $ 0.0900  

April 2021

     $ 0.0869      $ 0.0000      $ 0.0031      $ 0.0900  

May 2021

     $ 0.0732      $ 0.0000      $ 0.0168      $ 0.0900  

June 2021

     $ 0.0900      $ 0.0000      $ 0.0000      $ 0.0900  

July 2021

     $ 0.0900      $ 0.0000      $ 0.0000      $ 0.0900  
PIMCO Income Strategy Fund II          Net Investment
Income*
     Net Realized
Capital Gains*
     Paid-in Surplus or
Other Capital
Sources**
     Total (per
common share)
 

February 2021

     $ 0.0679      $ 0.0000      $ 0.0121      $ 0.0800  

March 2021

     $ 0.0753      $ 0.0000      $ 0.0047      $ 0.0800  

April 2021

     $ 0.0737      $ 0.0000      $ 0.0063      $ 0.0800  

May 2021

     $ 0.0761      $ 0.0000      $ 0.0039      $ 0.0800  

June 2021

     $ 0.0800      $ 0.0000      $ 0.0000      $ 0.0800  

July 2021

     $ 0.0770      $ 0.0000      $ 0.0030      $ 0.0800  

 

*

The source of dividends provided in the table differs, in some respects, from information presented in this report prepared in accordance with generally accepted accounting principles, or U.S. GAAP. For example, net earnings from certain interest rate swap contracts are included as a source of net investment income for purposes of Section 19(a). Accordingly, the information in the table may differ from information in the accompanying financial statements that are presented on the basis of U.S. GAAP and may differ from tax information presented in the footnotes. Amounts shown may include accumulated, as well as fiscal period net income and net profits.

**

Occurs when a fund distributes an amount greater than its accumulated net income and net profits. Amounts are not reflective of a fund’s net income, yield, earnings or investment performance.

 

       
130   PIMCO CLOSED-END FUNDS            


Shareholder Meeting Results     (Unaudited)

 

PIMCO Corporate & Income Opportunity Fund and PIMCO Corporate & Income Strategy Fund held their annual meetings of shareholders on April 26, 2021. Shareholders voted as indicated below:

 

PIMCO Corporate & Income Opportunity Fund

 

Common Shareholders voted as indicated below:

 

           Affirmative      Withheld
Authority
 

Re-election of Deborah A. DeCotis — Class III to serve until the annual meeting held during the 2024 fiscal year

       72,699,234        1,523,593  

Re-election of Hans W. Kertess — Class III to serve until the annual meeting held during the 2024 fiscal year

       71,818,314        2,404,513  

Re-election of Joseph B. Kittredge, Jr. — Class III to serve until the annual meeting held during the 2024 fiscal year

       72,723,607        1,499,220  

 

The other members of the Board of Trustees at the time of the meeting, namely, Ms. Sarah E. Cogan and Messrs. David N. Fisher, John C. Maney, William B. Ogden, IV and Alan Rappaport continued to serve as Trustees of the Fund.

 

PIMCO Corporate & Income Strategy Fund

 

Common Shareholders voted as indicated below:

 

           Affirmative      Withheld
Authority
 

Re-election of Hans W. Kertess — Class I to serve until the annual meeting held during the 2024 fiscal year

       28,066,903        1,458,137  

Re-election of Joseph B. Kittredge, Jr.* — Class I to serve until the annual meeting held during the 2024 fiscal year

       420        505  

 

The other members of the Board of Trustees at the time of the meeting, namely, Mses. Deborah A. DeCotis and Sarah E. Cogan and Messrs. David N. Fisher, John C. Maney, William B. Ogden, IV and Alan Rappaport continued to serve as Trustees of the Fund.

 

*

Preferred Shares Trustee

 

PIMCO High Income Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II held their annual meetings of shareholders on June 28, 2021. Shareholders voted as indicated below:

 

PIMCO High Income Fund

 

Common Shareholders voted as indicated below:

 

           Affirmative      Withheld
Authority
 

Re-election of Deborah A. DeCotis — Class III to serve until the annual meeting held during the 2024 fiscal year

       83,276,173        3,491,716  

Re-election of Hans W. Kertess — Class III to serve until the annual meeting held during the 2024 fiscal year

       83,055,072        3,712,817  

Re-election of Joseph B. Kittredge, Jr. — Class III to serve until the annual meeting held during the 2024 fiscal year

       83,577,672        3,190,217  

 

The other members of the Board of Trustees at the time of the meeting, namely, Ms. Sarah E. Cogan and Messrs. David N. Fisher, John C. Maney, William B. Ogden, IV and Alan Rappaport continued to serve as Trustees of the Fund.

 

PIMCO Income Strategy Fund

 

Common Shareholders voted as indicated below:

 

           Affirmative      Withheld
Authority
 

Re-election of John C. Maney — Class II to serve until the annual meeting held during the 2024 fiscal year

       23,946,323        474,186  

Re-election of Alan Rappaport* — Class II to serve until the annual meeting held during the 2024 fiscal year

       16        357  

 

The other members of the Board of Trustees at the time of the meeting, namely, Mses. Deborah A. DeCotis and Sarah E. Cogan and Messrs. David N. Fisher, Hans W. Kertess, Joseph B. Kittredge, Jr. and William B. Ogden, IV continued to serve as Trustees of the Fund.

 

 

Interested Trustee

*

Preferred Shares Trustee

 

         ANNUAL REPORT     |     JULY 31, 2021     131
    


Shareholder Meeting Results   (Cont.)   (Unaudited)

 

PIMCO Income Strategy Fund II

 

Common Shareholders voted as indicated below:

 

           Affirmative      Withheld
Authority
 

Re-election of David N. Fisher — Class I to serve until the annual meeting held during the 2024 fiscal year

       53,877,515        1,066,585  

Re-election of William B. Ogden, IV — Class I to serve until the annual meeting held during the 2024 fiscal year

       53,520,039        1,424,061  

Re-election of Alan Rappaport* — Class I to serve until the annual meeting held during the 2024 fiscal year

       17        1,453  

 

The other members of the Board of Trustees at the time of the meeting, namely, Mses. Deborah A. DeCotis and Sarah E. Cogan and Messrs. Hans W. Kertess, Joseph B. Kittredge, Jr. and John C. Maney continued to serve as Trustees of the Fund.

 

 

Interested Trustee

*

Preferred Shares Trustee

 

       
132   PIMCO CLOSED-END FUNDS            


Changes to Boards of Trustees     (Unaudited)

 

Effective June 29, 2021, the Board of Trustees appointed Ms. E. Grace Vandecruze to the Board as a Class I Trustee of PIMCO Corporate & Income Strategy Fund, Class II Trustee of PIMCO Corporate & Income Opportunity Fund, PIMCO Income Strategy Fund and PIMCO High Income Fund; and a Class II Trustee of PIMCO Income Strategy Fund II.

 

Effective December 31, 2020, James A. Jacobson resigned from his position as Trustee of each Fund.

 

         ANNUAL REPORT     |     JULY 31, 2021     133
    


Changes to Bylaws     (Unaudited)

 

There have been no changes to PIMCO Corporate & Income Opportunity Fund Bylaws.

 

Effective March 18, 2021, PIMCO Corporate & Income Strategy Fund adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.

 

Effective March 18, 2021, PIMCO High Income Fund adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.

 

Effective March 18, 2021, PIMCO Income Strategy Fund adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.

 

Effective March 18, 2021, PIMCO Income Strategy Fund II adopted amended and restated by-laws (“By-laws”) that incorporate updated ratings criteria (the “New Fitch Criteria”) issued by Fitch, Inc. (“Fitch”) on December 4, 2020. Fitch published ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “AA” for debt and preferred stock issued by closed-end funds and a rating cap of “A” for (i) debt and preferred shares issued by closed-end funds exposed to corporate debt, emerging market debt, below-investment-grade and unrated debt, structured securities and equity, (ii) and closed-end funds with material exposure to “BBB” category rated assets. The New Fitch Criteria is available on the Fitch website (www.fitchratings.com) and is incorporated by reference into Fund’s By-laws.

 

       
134   PIMCO CLOSED-END FUNDS            


Dividend Reinvestment Plan     (Unaudited)

 

Each Fund has adopted a Dividend Reinvestment Plan (the “Plan”) which allows common shareholders to reinvest Fund distributions in additional common shares of the Fund. American Stock Transfer & Trust Company, LLC (the “Plan Agent”) serves as agent for common shareholders in administering the Plan. It is important to note that participation in the Plan and automatic reinvestment of Fund distributions does not ensure a profit, nor does it protect against losses in a declining market.

 

Automatic enrollment/voluntary participation  Under the Plan, common shareholders whose shares are registered with the Plan Agent (“registered shareholders”) are automatically enrolled as participants in the Plan and will have all Fund distributions of income, capital gains and returns of capital (together, “distributions”) reinvested by the Plan Agent in additional common shares of a Fund, unless the shareholder elects to receive cash. Registered shareholders who elect not to participate in the Plan will receive all distributions in cash paid by check and mailed directly to the shareholder of record (or if the shares are held in street or other nominee name, to the nominee) by the Plan Agent. Participation in the Plan is voluntary. Participants may terminate or resume their enrollment in the Plan at any time without penalty by notifying the Plan Agent online at www.astfinancial.com, by calling (844) 33-PIMCO, by writing to the Plan Agent, American Stock Transfer & Trust Company, LLC, at P.O. Box 922, Wall Street Station, New York, NY 10269-0560, or, as applicable, by completing and returning the transaction form attached to a Plan statement. A proper notification will be effective immediately and apply to each Fund’s next distribution if received by the Plan Agent at least three (3) days prior to the record date for the distribution; otherwise, a notification will be effective shortly following the Fund’s next distribution and will apply to the Fund’s next succeeding distribution thereafter. If you withdraw from the Plan and so request, the Plan Agent will arrange for the sale of your shares and send you the proceeds, minus a transaction fee and brokerage commissions.

 

How shares are purchased under the Plan  For each Fund distribution, the Plan Agent will acquire common shares for participants either (i) through receipt of newly issued common shares from each Fund (“newly issued shares”) or (ii) by purchasing common shares of the Fund on the open market (“open market purchases”). If, on a distribution payment date, the net asset value per common share of a Fund (“NAV”) is equal to or less than the market price per common share plus estimated brokerage commissions (often referred to as a “market premium”), the Plan Agent will invest the distribution amount on behalf of participants in newly issued shares at a price equal to the greater of (i) NAV or (ii) 95% of the market price per common share on the payment date. If the NAV is greater than the

market price per common shares plus estimated brokerage commissions (often referred to as a “market discount”) on a distribution payment date, the Plan agent will instead attempt to invest the distribution amount through open market purchases. If the Plan Agent is unable to invest the full distribution amount in open market purchases, or if the market discount shifts to a market premium during the purchase period, the Plan Agent will invest any un-invested portion of the distribution in newly issued shares at a price equal to the greater of (i) NAV or (ii) 95% of the market price per share as of the last business day immediately prior to the purchase date (which, in either case, may be a price greater or lesser than the NAV per common shares on the distribution payment date). No interest will be paid on distributions awaiting reinvestment. Under the Plan, the market price of common shares on a particular date is the last sales price on the exchange where the shares are listed on that date or, if there is no sale on the exchange on that date, the mean between the closing bid and asked quotations for the shares on the exchange on that date.

 

The NAV per common share on a particular date is the amount calculated on that date (normally at the close of regular trading on the New York Stock Exchange) in accordance with each Fund’s then current policies.

 

Fees and expenses  No brokerage charges are imposed on reinvestments in newly issued shares under the Plan. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. There are currently no direct service charges imposed on participants in the Plan, although each Fund reserves the right to amend the Plan to include such charges. The Plan Agent imposes a transaction fee (in addition to brokerage commissions that are incurred) if it arranges for the sale of your common shares held under the Plan.

 

Shares held through nominees  In the case of a registered shareholder such as a broker, bank or other nominee (together, a “nominee”) that holds common shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of common shares certified by the nominee/record shareholder as representing the total amount registered in such shareholder’s name and held for the account of beneficial owners who are to participate in the Plan. If your common shares are held through a nominee and are not registered with the Plan Agent, neither you nor the nominee will be participants in or have distributions reinvested under the Plan. If you are a beneficial owner of common shares and wish to participate in the Plan, and your nominee is unable or unwilling to become a registered shareholder and a Plan participant on your behalf, you may request that your nominee arrange to have all or a portion of your shares re-registered with the Plan Agent in your

 

 

         ANNUAL REPORT     |     JULY 31, 2021     135
    


Dividend Reinvestment Plan   (Cont.)   (Unaudited)

 

name so that you may be enrolled as a participant in the Plan. Please contact your nominee for details or for other possible alternatives. Participants whose shares are registered with the Plan Agent in the name of one nominee firm may not be able to transfer the shares to another firm and continue to participate in the Plan.

 

Tax consequences  Automatically reinvested dividends and distributions are taxed in the same manner as cash dividends and distributions — i.e., automatic reinvestment in additional shares does not relieve shareholders of, or defer the need to pay, any income tax that may be payable (or that is required to be withheld) on Fund dividends and distributions. The Funds and the Plan Agent reserve the right to amend or terminate the Plan. Additional information about the Plan, as well as a copy of the full Plan itself, may be obtained from the Plan Agent, American Stock Transfer & Trust Company, LLC, at P.O. Box 922, Wall Street Station, New York, NY 10269-0560; telephone number: (844) 33-PIMCO; www.astfinancial.com.

 

 

       
136   PIMCO CLOSED-END FUNDS            


Additional Information Regarding the Funds     (Unaudited)

 

CHANGES OCCURRING DURING THE REPORTING PERIOD

 

The following information in this annual report is a summary of certain changes during the period since the Funds’ last annual reports to shareholders were filed. This information may not reflect all of the changes that have occurred since you purchased shares of a Fund.

 

  1.

Each Fund may invest in risk retention instruments. Related disclosure has been added to each Fund’s principal investment strategies and principal risks. Please see below for further details:

 

With respect to investments in the lowest, first-loss tranch(es) of a commercial mortgage-backed securities (“CMBS”) or other eligible securitizations, the Fund may invest in risk retention tranches (“risk retention tranches”), which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act (the “U.S. Risk Retention Rules”). In the case of CMBS transactions, for example, the U.S. Risk Retention Rules permit all or a portion of the retained credit risk associated with certain securitizations (i.e., retained risk) to be held by an unaffiliated “third party purchaser,” such as the Fund, if, among other requirements, the third-party purchaser holds its retained interest, unhedged, for at least five year following the closing of the CMBS transaction, after which it is entitled to transfer its interest in the securitization to another person that meets the requirements for a third-party purchaser. Even after the required holding period has expired, due to the generally illiquid nature of such investments, no assurance can be given as to what, if any, exit strategies will ultimately be available for any given position.

 

In addition, there is limited guidance on the application of the Final U.S. Risk Retention Rules to specific securitization structures. There can be no assurance that the applicable federal agencies charged with the implementation of the Final U.S. Risk Retention Rules (the FDIC, the Comptroller of the Currency, the Federal Reserve Board, the SEC, the Department of Housing and Urban Development, and the Federal Housing Finance Agency) could not take positions in the future that differ from the interpretation of such rules taken or embodied in such securitizations, or that the Final U.S. Risk Retention Rules will not change.

 

Furthermore, in situations where the Fund invests in risk retention tranches of securitizations structured by third parties, the Fund may be required to execute one or more letters or other agreements, the exact form and nature of which will vary (each, a “Risk Retention Agreement”) under which it will make certain undertakings designed to ensure such securitization complies with the Final U.S. Risk Retention Rules. Such Risk Retention Agreements may include a variety of representations, warranties, covenants and other indemnities, each of which may run to various transaction parties. If the Fund breaches any undertakings in any Risk Retention Agreement, it will be exposed to claims by the other parties thereto, including for any losses incurred as a result of such breach.

 

  2.

Disclosure with respect to the Funds has been updated to clarify the ability of the each Fund to invest in “covenant-lite” obligations, and “Covenant-Lite” Obligations Risk has been added as a principal risk of PIMCO Corporate & Income Opportunity Fund, PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II.

 

  3.

The following principal risk disclosure has been added with respect to the Funds:

 

Subsidiary Risk To the extent the Fund invests through one or more of its subsidiaries, the Fund would be exposed to the risks associated with such subsidiary’s investments. Such subsidiaries would likely not be registered as investment companies under the Act and therefore would not be subject to all of the investor protections of the Act. Changes in the laws of the United States and/or the jurisdiction in which a subsidiary is organized could result in the inability of the Fund and/or the subsidiary to operate as intended and could adversely affect the Fund.

 

Special Purpose Acquisition Companies (“SPACs”) Risk The Fund may invest in stock, warrants, debt and other securities of SPACs or similar special purpose entities that pool funds to seek potential acquisition opportunities. Unless and until an acquisition is completed, a SPAC generally invests its assets (less a portion retained to cover expenses) in US government securities, money market securities or holds cash; if an acquisition that meets the requirements for the SPAC is not completed within a pre-established period of time, the invested funds are returned to the entity’s shareholders. Because SPACs and similar entities are in essence blank check companies without operating history or ongoing business other than seeking acquisitions, the value of their securities is particularly dependent on the ability of the entity’s management to identify and complete a profitable acquisition. A SPAC’s structure may result in significant dilution of a stockholder’s share value immediately upon the completion of a business combination due to, among other reasons, interests held by the SPAC sponsor, conversion of warrants into additional shares, shares issued in connection with a business combination and/or certain embedded costs. There is no guarantee that the SPACs in which the Fund invests will complete an acquisition or that any acquisitions that are completed will be profitable. Some SPACs may pursue acquisitions only within certain industries or regions, which may increase the volatility of their prices. In addition, these securities, which are typically traded in the over-the-counter market, may be considered illiquid and/or be subject to restrictions on resale.

 

         ANNUAL REPORT     |     JULY 31, 2021     137
    


Additional Information Regarding the Funds   (Cont.)   (Unaudited)

 

The Funds do not believe that there are any material unresolved written comments, received 180 days or more before July 31, 2021 from the Staff of the SEC regarding any of the Funds’ periodic or current reports under the Securities Exchange Act or the Investment Company Act, or their

registration statements.

 

Portfolio Transactions

 

The aggregate amounts of brokerage commissions paid by the Funds during the fiscal year ended July 31, 2021 were as follows (amounts in thousands)

 

Fund Name          Total Commissions Paid      Commissions Paid
to Affiliated Brokers
 

PIMCO Corporate & Income Opportunity Fund

     $     14      $     0  

PIMCO Corporate & Income Strategy Fund

       2        0  

PIMCO Income Strategy Fund

       1        0  

PIMCO Income Strategy Fund II

       4        0  

 

  

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

 

       
138   PIMCO CLOSED-END FUNDS            


Principal Investment Strategies1     (Unaudited)

 

The term “invest” includes both direct investing and indirect investing and the term “investments” includes both direct investments and indirect investments. For example, a Fund may invest indirectly by investing in derivatives or through wholly-owned and/or controlled subsidiaries (“Subsidiaries”), if applicable. The allocation of a Fund’s assets to a Subsidiary, if applicable, will vary over time and will likely not include all of the different types of investments described herein at any given time.

 

PIMCO Corporate & Income Opportunity Fund

 

The Fund seeks to achieve its investment objective by utilizing a dynamic asset allocation strategy among multiple fixed income sectors in the global credit markets, including corporate debt (including, among other things, fixed-, variable- and floating-rate bonds, bank loans, convertible securities and stressed debt securities issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers), mortgage-related and other asset-backed securities, government and sovereign debt, taxable municipal bonds and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers, including emerging market issuers. The Fund may invest in investment grade debt securities and below investment grade debt securities (commonly referred to as “high yield” securities or “junk bonds”), including securities of stressed, distressed and defaulted issuers. The Fund cannot assure you that it will achieve its investment objective, and you could lose all of your investment in the Fund.

 

Portfolio Management Strategies

 

Dynamic Allocation Strategy.  In managing the Fund, the Fund’s investment manager, Pacific Investment Management Company LLC (“PIMCO” or the “Investment Manager”), employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.

 

Investment Selection Strategies.  Once the Fund’s top-down, portfolio positioning decisions have been made as described above,

PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.

 

PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.

 

Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.

 

Credit Quality.  The Fund may invest in debt instruments that are, at the time of purchase, rated below investment grade, or that are unrated but determined by PIMCO to be of comparable quality. The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P Global Ratings (“S&P”) and Fitch, Inc. (“Fitch”) and Caa1 or lower by Moody’s Investors Services Inc. (“Moody’s”), or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. The Fund may also invest up to 5% of its total assets in defaulted bonds when PIMCO believes that the issuer’s potential revenues and prospects for recovery are favorable, except that the Fund may invest in mortgage-related and other asset-backed securities without regard to this limit, subject to the Fund’s other investment policies. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at

 

 

         ANNUAL REPORT     |     JULY 31, 2021     139
    


Principal Investment  Strategies1   (Cont.)  

 

the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.

 

Independent Credit Analysis.  PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in high yield securities and in securities of emerging market issuers.

 

Duration Management.  It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.

Portfolio Contents

 

Under normal market conditions, the Fund seeks to achieve its investment objective by investing at least 80% of its net assets plus borrowings for investment purposes in a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. Government securities, municipal securities and mortgage-backed and other asset-backed securities issued on a public or private basis (the “80% Policy”). The Fund’s investments in derivatives and other synthetic instruments that have economic characteristics similar to corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers will be counted toward satisfaction of this 80% Policy. The Fund will normally invest at least 25% of its total assets in corporate debt obligations and other corporate income-producing securities. Corporate income-producing securities include fixed-, variable- and floating-rate bonds, debentures, notes and other similar types of corporate debt instruments, such as preferred shares, convertible securities, bank loans and loan participations and assignments, payment-in-kind securities, step-ups, zero-coupon bonds, bank capital securities, bank certificates of deposit, fixed time deposits and bankers’ acceptances, stressed debt securities, structured notes and other hybrid instruments. Certain corporate income-producing securities, such as convertible bonds, also may include the right to participate in equity appreciation, and PIMCO will generally evaluate those instruments based primarily on their debt characteristics. In satisfying the Fund’s 80% Policy, the Fund may invest in mortgage-related securities, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, adjustable rate mortgage-backed securities, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, debt instruments, including, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; catastrophe bonds and other event-linked bonds; credit-linked notes; credit-linked trust certificates; structured credit products; bank loans (including, among others, senior loans, delayed

 

 

       
140   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the investment limitations described above, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities (including collateralized bond obligations, collateralized loan obligations and other collateralized debt obligations), including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable, and may move in the opposite direction to interest rates generally or the interest rate on another security or index (i.e., inverse floaters).

 

The Fund may invest up to 25% of its total assets (measured at the time of investment) in non-U.S. dollar denominated securities (of both developed and “emerging market” countries), including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises. The Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.

 

The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency

exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales.

 

The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers.

 

The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other open- and closed-end investment companies, including, without limit, exchange-traded funds (“ETFs”), and may invest in foreign ETFs. The Fund may invest in real estate investment trusts. The Fund may invest in securities of companies with any market capitalization, including small and medium capitalizations.

 

The Fund may invest up to 20% of its total assets in illiquid securities (i.e., securities that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the security).

 

The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.

 

The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.

 

There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.

 

The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     141
    


Principal Investment  Strategies1   (Cont.)  

 

In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s imposes asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.

 

Temporary defensive investments.  Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment objective and policies and invest some or all of its net assets in investments of non-corporate issuers, including high quality, short-term debt securities. The Fund may not achieve its investment objective when it does so.

 

Use of Leverage

 

The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities. The amount of leverage the Fund utilizes may vary, but the Fund will not incur leverage (including Preferred Shares and other forms of leverage) in an amount exceeding 50% of its total assets.

 

The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.

 

The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.

 

The Fund also may borrow money for temporary administrative purposes, to add leverage to the portfolio or for the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.

 

PIMCO Corporate & Income Strategy Fund

 

The Fund seeks to achieve its investment objectives by utilizing a dynamic asset allocation strategy among multiple fixed income sectors

in the global credit markets, including corporate debt (including, among other things, fixed-, variable- and floating-rate bonds, bank loans, convertible securities and stressed debt securities issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers), mortgage-related and other asset-backed securities, government and sovereign debt, taxable municipal bonds and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers, including emerging market issuers. The Fund may invest in investment grade debt securities and below investment grade debt securities (commonly referred to as “high yield” securities or “junk bonds”), including securities of stressed, distressed and defaulted issuers. The Fund cannot assure you that it will achieve its investment objectives, and you could lose all of your investment in the Fund.

 

Portfolio Management Strategies

 

Dynamic Allocation Strategy.  In managing the Fund, the Fund’s investment manager, PIMCO employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. For example, subject to the Fund’s investment policies and limitations, the Fund may invest a substantial portion of its total assets in mortgage-related and other asset-backed securities, which investments PIMCO may choose to increase or decrease, or eliminate entirely, over time and from time to time. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.

 

Investment Selection Strategies.  Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.

 

PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit

 

 

       
142   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.

 

Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.

 

Credit Quality.  The Fund may invest in debt instruments that are, at the time of purchase, rated below investment grade, or that are unrated but determined by PIMCO to be of comparable quality. The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. The Fund may also invest up to 5% of its total assets in defaulted bonds when PIMCO believes that the issuer’s potential revenues and prospects for recovery are favorable, except that the Fund may invest in mortgage-related and other asset-backed securities without regard to this limit, subject to the Fund’s other investment policies. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging

purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.

 

Independent Credit Analysis.  PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in high yield securities and in securities of emerging market issuers.

 

Duration Management.  It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.

 

Portfolio Contents

 

Under normal market conditions, the Fund seeks to achieve its investment objectives by investing at least 80% of its net assets plus borrowings for investment purposes in a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. Government securities, municipal securities and mortgage-backed and other asset-backed securities issued on a public or private basis (the “80% Policy”). The Fund’s investments in derivatives and other synthetic instruments that have economic characteristics similar to corporate debt obligations of

 

 

         ANNUAL REPORT     |     JULY 31, 2021     143
    


Principal Investment  Strategies1   (Cont.)  

 

varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers will be counted toward satisfaction of this 80% Policy. The Fund will normally invest at least 25% of its total assets in corporate debt obligations and other corporate income-producing securities. Corporate income-producing securities include fixed-, variable- and floating-rate bonds, debentures, notes and other similar types of corporate debt instruments, such as preferred shares, convertible securities, bank loans and loan participations and assignments, payment-in-kind securities, step-ups, zero-coupon bonds, bank capital securities, bank certificates of deposit, fixed time deposits and bankers’ acceptances, stressed debt securities, structured notes and other hybrid instruments. Certain corporate income-producing securities, such as convertible bonds, also may include the right to participate in equity appreciation, and PIMCO will generally evaluate those instruments based primarily on their debt characteristics. In satisfying the Fund’s 80% Policy, the Fund may invest in mortgage-related securities, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, adjustable rate mortgage-backed securities, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property, debt instruments, including, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; catastrophe bonds and other event-linked bonds; credit-linked notes; credit-linked trust certificates; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the investment limitations described above, at any given time and from time to time, substantially all of the Fund’s portfolio

may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities (including collateralized bond obligations, collateralized loan obligations and other collateralized debt obligations), including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable, and may move in the opposite direction to interest rates generally or the interest rate on another security or index (i.e., inverse floaters).

 

The Fund may invest up to 25% of its total assets (measured at the time of investment) in non-U.S. dollar denominated securities (of both developed and “emerging market” countries), including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises. The Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.

 

The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales.

 

The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security.

 

 

       
144   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

Common stocks include common shares and other common equity interest issued by public or private issuers.

 

The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other open- and closed-end investment companies, including, without limit, exchange-traded funds (“ETFs”), and may invest in foreign ETFs. The Fund may invest in real estate investment trusts. The Fund may invest in securities of companies with any market capitalization, including small and medium capitalizations.

 

The Fund may invest up to 15% of its total assets in illiquid investments (i.e., investments that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the security).

 

The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.

 

The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.

 

The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objectives, particularly during periods of volatile market movements.

 

There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.

 

In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.

 

Temporary defensive investments.  Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment objectives and policies and invest some or all of its net assets in investments of

non-corporate issuers, including high quality, short-term debt securities. The Fund may not achieve its investment objectives when it does so.

 

Use of Leverage

 

The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities. The amount of leverage the Fund utilizes may vary but total leverage resulting from the issuance of Preferred Shares and senior securities representing indebtedness of the Fund will not exceed 50% of the Fund’s total assets less all liabilities and indebtedness not represented by senior securities.

 

The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.

 

The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.

 

The Fund also may borrow money for temporary administrative purposes, to add leverage to the portfolio or for the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.

 

PIMCO High Income Fund

 

The Fund seeks to achieve its investment objectives by utilizing a dynamic asset allocation strategy among multiple fixed income sectors in the global credit markets, which may include corporate debt (including, among other things, fixed-, variable- and floating-rate bonds, bank loans, convertible securities and stressed debt securities issued by U.S. or foreign (non-U.S.) corporations or other business entities, including emerging market issuers), mortgage-related and other asset-backed securities, government and sovereign debt, taxable municipal bonds and other fixed-, variable- and floating-rate income-producing securities of U.S. and foreign issuers, including emerging

 

 

         ANNUAL REPORT     |     JULY 31, 2021     145
    


Principal Investment  Strategies1   (Cont.)  

 

market issuers. Aiming to identify securities that provide high current income and/or capital appreciation, the Fund focuses on duration management, credit quality analysis, risk management techniques and broad diversification among issuers, industries and sectors as well as other risk management techniques designed to manage default risk. The Fund may invest in investment grade debt securities and below investment grade debt securities (commonly referred to as “high yield” securities or “junk bonds”), including securities of stressed, distressed and defaulted issuers. The Fund cannot assure you that it will achieve its investment objectives, and you could lose all of your investment in the Fund.

 

Portfolio Management Strategies

 

Dynamic Allocation Strategy.  In managing the Fund, the Fund’s investment manager, PIMCO, employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. PIMCO may choose to focus on particular countries/regions , asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.

 

Investment Selection Strategies.  Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.

 

PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.

 

Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment

of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.

 

Credit Quality.  The Fund may invest in debt instruments that are, at the time of purchase, rated below investment grade, or that are unrated but determined by PIMCO to be of comparable quality. The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.

 

Independent Credit Analysis.  PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit

 

 

       
146   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in high yield securities and in securities of emerging market issuers.

 

Duration Management.  It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.

 

Portfolio Contents

 

Under normal market conditions, the Fund seeks to achieve its investment objectives by investing in, among other things, a combination of corporate debt obligations of varying maturities, other corporate income-producing securities, and income-producing securities of non-corporate issuers, such as U.S. Government securities, municipal securities and mortgage-backed and other asset-backed securities issued on a public or private basis. Corporate-income producing may include fixed-, variable- and floating-rate bonds, debentures, notes and other similar types of corporate debt instruments, such as preferred shares, convertible securities, bank loans and loan participations and assignments, payment-in-kind securities, step-ups, zero-coupon bonds, bank certificates of deposit, fixed time deposits and bankers’ acceptances, stressed debt securities, structured notes and other hybrid instruments. Certain corporate income-producing securities, such as convertible bonds, also may include the right to participate in equity appreciation, and PIMCO will generally evaluate those instruments based primarily on their debt characteristics. The Fund may invest in mortgage-related securities, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, adjustable rate mortgage-backed securities, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property,

debt instruments, including, without limitation, bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers, including commercial paper; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; catastrophe bonds and other event-linked bonds; credit-linked notes; credit-linked trust certificates; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the investment limitations described above, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities (including collateralized bond obligations, collateralized loan obligations and other collateralized debt obligations), including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable, and may move in the opposite direction to interest rates generally or the interest rate on another security or index (i.e., inverse floaters).

 

The Fund may invest up to 25% of its total assets (measured at the time of investment) in non-U.S. dollar denominated securities (of both developed and “emerging market” countries), including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises. The Fund may invest without limit

 

 

         ANNUAL REPORT     |     JULY 31, 2021     147
    


Principal Investment  Strategies1   (Cont.)  

 

in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.

 

The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales.

 

The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers. The Fund may invest up to 20% of its total assets in bank loans.

 

The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other open- and closed-end investment companies, including, without limit, exchange-traded funds (“ETFs”), and may invest in foreign ETFs. The Fund may invest in real estate investment trusts. The Fund may invest in securities of companies with any market capitalization, including small and medium capitalizations.

 

The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.

 

The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.

The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objectives, particularly during periods of volatile market movements.

 

In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.

 

Temporary defensive investments.  Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment objectives and policies and invest some or all of its net assets in investments of non-corporate issuers, including high quality, short-term debt securities. The Fund may not achieve its investment objectives when it does so.

 

Use of Leverage

 

The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or credit facilities. The Fund will segregate liquid assets against or otherwise cover its future obligations under such transactions to the extent that, immediately after entering into such a transaction, the Fund’s future commitments that it has not segregated liquid assets against or otherwise covered, together with any outstanding Preferred Shares, would exceed 38% of the Fund’s total assets.

 

The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.

 

The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.

 

 

       
148   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

The Fund also may borrow money for temporary administrative purposes, to add leverage to the portfolio or for the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.

 

PIMCO Income Strategy Fund

 

The Fund seeks to achieve its objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund cannot assure you that it will achieve its investment objective, and you could lose all of your investment in the Fund.

 

Portfolio Management Strategies

 

Dynamic Allocation Strategy.  In managing the Fund, the Fund’s investment manager, PIMCO employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. The Fund has the flexibility to allocate assets in varying proportions among floating- and fixed-rate debt instruments, as well as among investment-grade and non-investment grade securities. It may focus more heavily or exclusively on an asset class at any time, based on assessments of relative values, market conditions and other factors. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.

 

Investment Selection Strategies.  Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class

represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.

 

PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.

 

Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.

 

Credit Quality.  The Fund may invest without limit in debt securities that are, at the time of purchase, rated below investment grade or that are unrated but judged by PIMCO to be of comparable quality (commonly referred to as “high yield” securities or “junk bonds”). The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories and securities that are in default or the issuers of which are in bankruptcy). For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment

 

 

         ANNUAL REPORT     |     JULY 31, 2021     149
    


Principal Investment  Strategies1   (Cont.)  

 

grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.

 

Independent Credit Analysis.  PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in floating rate loans, high yield securities and in securities of emerging market issuers.

 

Duration Management.  It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.

 

Portfolio Contents

 

The Fund seeks to achieve its investment objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities

that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund also considers floating-rate assets to include securities with durations of less than or equal to one year and fixed-rate securities with respect to which the Fund has entered into derivative instruments to effectively convert the fixed-rate interest payments into floating-rate interest payments. The Fund also may invest in a wide variety of fixed-rate debt securities, including corporate bonds and mortgage-backed and other asset-backed securities issued on a public or private basis, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities (“SMBSs”) and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. The Fund may make use of a variety of other instruments, including collateralized debt obligations, preferred securities, commercial paper, zero-coupon and inflation-indexed bonds, bank certificates of deposit, fixed time deposits and bankers’ acceptances, real estate investment trusts (“REITs”), bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; credit-linked notes; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. Certain debt instruments, such as convertible bonds, also may include the right to participate in equity appreciation. The principal and/or interest rate on some debt instruments may be determined by reference to the performance of a benchmark asset or market, such as an index of securities, or the differential performance of two assets or markets, such as the level of exchange rates between the U.S. dollar and a foreign currency or currencies. The Fund may invest in debt securities of stressed, distressed and defaulted issuers. Subject to the Fund’s investment

 

 

       
150   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

limitations, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities, including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable.

 

The Fund invests predominantly in U.S. dollar-denominated debt securities, which may include those issued by foreign corporations or supra-national government agencies. The Fund may invest up to 25% of its total assets in securities denominated in foreign currencies, including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises, except that the Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.

 

The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers.

 

The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment

basis and may engage in short sales. The Fund may also seek to obtain market exposure to the securities in which it invests by entering into a series of purchase and sale contracts.

 

The Fund has a policy not to concentrate investments in any particular industry, but may (consistent with that policy) invest up to 25% of its assets in any particular industry, and may invest a substantial portion of its assets in companies in related sectors, such as those in the banking or financial services sectors, which may share common characteristics and are often subject to similar business risks and regulatory burdens.

 

The Fund may invest in securities that have not been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other investment companies, including, without limit, exchange-traded funds. The Fund may invest in REITs. The Fund may invest in securities of companies of any market capitalization, including small and medium capitalizations.

 

The Fund may invest without limit in illiquid securities (i.e., securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities).

 

The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.

 

The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.

 

The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements.

 

There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.

 

In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred

 

 

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Principal Investment  Strategies1   (Cont.)  

 

Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.

 

Temporary defensive investments.  Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment strategy by investing some or all of its total assets in investments such as high grade debt securities, including high quality, short-term debt securities, and cash and cash equivalents. The Fund may not achieve its investment objective when it does so.

 

Use of Leverage

 

The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities.

 

The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.

 

The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.

 

The Fund also may borrow money in order to repurchase its shares or as a temporary measure for extraordinary or emergency purposes, including for the payment of dividends or the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.

 

PIMCO Income Strategy Fund II

 

The Fund seeks to achieve its objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and

other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund cannot assure you that it will achieve its investment objective, and you could lose all of your investment in the Fund.

 

Portfolio Management Strategies

 

Dynamic Allocation Strategy.  In managing the Fund, the Fund’s investment manager, PIMCO employs an active approach to allocation among multiple fixed income sectors based on, among other things, market conditions, valuation assessments, economic outlook, credit market trends and other economic factors. With PIMCO’s macroeconomic analysis as the basis for top-down investment decisions, including geographic and credit sector emphasis, PIMCO manages the Fund with a focus on seeking income generating investment ideas across multiple fixed income sectors, with an emphasis on seeking opportunities in developed and emerging global credit markets. The Fund has the flexibility to allocate assets in varying proportions among floating- and fixed-rate debt instruments, as well as among investment-grade and non-investment grade securities. It may focus more heavily or exclusively on an asset class at any time, based on assessments of relative values, market conditions and other factors. PIMCO may choose to focus on particular countries/regions, asset classes, industries and sectors to the exclusion of others at any time and from time to time based on market conditions and other factors. The relative value assessment within fixed income sectors draws on PIMCO’s regional and sector specialist insights. The Fund will observe various investment guidelines as summarized below.

 

Investment Selection Strategies.  Once the Fund’s top-down, portfolio positioning decisions have been made as described above, PIMCO selects particular investments for the Fund by employing a bottom-up, disciplined credit approach which is driven by fundamental, independent research within each sector/asset class represented in the Fund, with a focus on identifying securities and other instruments with solid and/or improving fundamentals.

 

PIMCO utilizes strategies that focus on credit quality analysis, duration management and other risk management techniques. PIMCO attempts to identify, through fundamental research driven by independent credit analysis and proprietary analytical tools, debt obligations and other income-producing securities that provide current income and/or opportunities for capital appreciation based on its analysis of the issuer’s credit characteristics and the position of the security in the issuer’s capital structure.

 

Consideration of yield is only one component of the portfolio managers’ approach in managing the Fund. PIMCO also attempts to

 

 

       
152   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

identify investments that may appreciate in value based on PIMCO’s assessment of the issuer’s credit characteristics, forecast for interest rates and outlook for particular countries/regions, currencies, industries, sectors and the global economy and bond markets generally.

 

Credit Quality.  The Fund may invest without limit in debt securities that are, at the time of purchase, rated below investment grade or that are unrated but judged by PIMCO to be of comparable quality (commonly referred to as “high yield” securities or “junk bonds”). The Fund will not normally invest more than 20% of its total assets in debt instruments, other than mortgage-related and other asset-backed securities, that are, at the time of purchase, rated CCC or lower by S&P and Fitch and Caa1 or lower by Moody’s, or that are unrated but determined by PIMCO to be of comparable quality. The Fund may invest without limit in mortgage-related and other asset-backed securities regardless of rating (i.e., of any credit quality). Subject to this 20% restriction, the Fund may invest in issuers of any credit quality (including bonds in the lowest ratings categories and securities that are in default or the issuers of which are in bankruptcy) if PIMCO determines that the particular obligation is undervalued or offers an attractive yield relative to its risk profile. For purposes of applying the foregoing policies, in the case of securities with split ratings (i.e., a security receiving two different ratings from two different rating agencies), the Fund will apply the higher of the applicable ratings. Subject to the aforementioned investment restrictions, the Fund may invest in securities of stressed issuers, which include securities at risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s or CC or lower by S&P or Fitch) or, if unrated, are determined by PIMCO to be of comparable quality. Debt instruments of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and to repay principal, and are commonly referred to as “high yield” securities or “junk bonds.” Debt instruments in the lowest investment grade category also may be considered to possess some speculative characteristics. The Fund may, for hedging, investment or leveraging purposes, make use of credit default swaps, which are contracts whereby one party makes periodic payments to a counterparty in exchange for the right to receive from the counterparty a payment equal to the par (or other agreed-upon) value of a referenced debt obligation in the event of a default or other credit event by the issuer of the debt obligation.

 

Independent Credit Analysis.  PIMCO relies primarily on its own analysis of the credit quality and risks associated with individual debt instruments considered for the Fund, rather than relying exclusively on

rating agencies or third-party research. The Fund’s portfolio managers utilize this information in an attempt to manage credit risk and/or to identify issuers, industries or sectors that are undervalued and/or offer attractive yields relative to PIMCO’s assessment of their credit characteristics. This aspect of PIMCO’s capabilities will be particularly important to the extent that the Fund invests in floating rate loans, high yield securities and in securities of emerging market issuers.

 

Duration Management.  It is expected that the Fund normally will have a short to intermediate average portfolio duration (i.e., within a zero to eight year (0 to 8) range), as calculated by PIMCO, although it may be shorter or longer at any time or from time to time depending on market conditions and other factors. While the Fund seeks to maintain a short to intermediate average portfolio duration, there is no limit on the maturity or duration of any individual security in which the Fund may invest. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The Fund’s duration strategy may entail maintaining a negative average portfolio duration from time to time, which would potentially benefit the portfolio in an environment of rising market interest rates, but would generally adversely impact the portfolio in an environment of falling or neutral market interest rates. PIMCO may also utilize certain strategies, including without limit investments in structured notes or interest rate futures contracts or swap, cap, floor or collar transactions, for the purpose of reducing the interest rate sensitivity of the Fund’s portfolio, although there is no assurance that it will do so or that such strategies will be successful.

 

Portfolio Contents

 

The Fund seeks to achieve its investment objective by ordinarily investing in a diversified portfolio of floating- and/or fixed-rate debt instruments. The Fund may invest a substantial portion of its floating-rate assets in floating-rate loans. Other floating-rate debt instruments in which the Fund may invest include catastrophe and other event-linked bonds, bank capital securities, unsecured bank loans, corporate bonds and other debt securities, money market instruments and certain types of mortgage-backed and other asset-backed securities that pay interest at rates that adjust whenever a specified interest rate changes and/or reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund also considers floating-rate assets to include securities with durations of less than or equal to one year and fixed-rate securities with respect to which the Fund has entered into derivative instruments to effectively convert the fixed-rate interest payments into floating-rate interest payments. The Fund also may invest in a wide variety of fixed-rate debt securities, including corporate bonds and mortgage-backed and other asset-backed securities issued on a public or private basis, including mortgage pass-through securities, collateralized mortgage obligations (“CMOs”),

 

 

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Principal Investment  Strategies1   (Cont.)  

 

commercial or residential mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. The Fund may make use of a variety of other instruments, including collateralized debt obligations, preferred securities, commercial paper, zero-coupon and inflation-indexed bonds, bank certificates of deposit, fixed time deposits and bankers’ acceptances, real estate investment trusts (“REITs”), bonds, debentures, notes, and other debt securities of U.S. and foreign (non-U.S.) corporate and other issuers; obligations of foreign governments or their sub-divisions, agencies and government sponsored enterprises and obligations of international agencies and supranational entities; municipal securities and other debt securities issued by states or local governments and their agencies, authorities and other government-sponsored enterprises, including taxable municipal securities (such as Build America Bonds); inflation-indexed bonds issued by both governments and corporations; structured notes, including hybrid or indexed securities; credit-linked notes; structured credit products; bank loans (including, among others, senior loans, delayed funding loans, revolving credit facilities and loan participations and assignments); covenant-lite obligations; preferred securities and convertible debt securities (i.e., debt securities that may be converted at either a stated price or stated rate into underlying shares of common stock), including synthetic convertible debt securities (i.e., instruments created through a combination of separate securities that possess the two principal characteristics of a traditional convertible security, such as an income-producing security and the right to acquire an equity security) and contingent convertible securities. Certain debt instruments, such as convertible bonds, also may include the right to participate in equity appreciation. The principal and/or interest rate on some debt instruments may be determined by reference to the performance of a benchmark asset or market, such as an index of securities, or the differential performance of two assets or markets, such as the level of exchange rates between the U.S. dollar and a foreign currency or currencies. The Fund may invest in debt securities of stressed, distressed and defaulted issuers.

 

Subject to the Fund’s investment limitations, at any given time and from time to time, substantially all of the Fund’s portfolio may consist of below investment grade securities. The Fund may invest in various levels of the capital structure of an issuer of mortgage-backed or asset-backed securities, including the equity or “first loss” tranche. For the avoidance of doubt, equity or “first loss” tranches of mortgage-backed or asset-backed securities do not constitute equity interests for purposes of the Fund’s 20% limit on investments in equity interests described below. The Fund may also invest, as a third party purchaser, in risk retention tranches of CMBS or other eligible securitizations, which are eligible residual interests held by the sponsors of such

securitizations pursuant to the final rules implementing the credit risk retention requirements of Section 941 of the Dodd-Frank Act. The rate of interest on an income-producing security may be fixed, floating or variable.

 

The Fund invests predominantly in U.S. dollar-denominated debt securities, which may include those issued by foreign corporations or supra-national government agencies. The Fund may invest up to 25% of its total assets in securities denominated in foreign currencies, including obligations of non-U.S. governments and their respective sub-divisions, agencies and government-sponsored enterprises, except that the Fund may invest without limit in investment grade sovereign debt denominated in the relevant country’s local currency with less than 1 year remaining to maturity (“short-term investment grade sovereign debt”), including short-term investment grade sovereign debt issued by emerging market issuers. The Fund may invest up to 40% of its total assets in securities and instruments that are economically tied to “emerging market” countries other than investments in short-term investment grade sovereign debt issued by emerging market issuers, where as noted above there is no limit. The Fund may also invest directly in foreign currencies, including local emerging market currencies.

 

The Fund may invest up to 20% of its total assets in common stocks and other equity securities from time to time, including those it has received through the conversion of a convertible security held by the Fund or in connection with the restructuring of a debt security. Common stocks include common shares and other common equity interest issued by public or private issuers.

 

The Fund may, but is not required to, utilize various derivative strategies (both long and short positions) involving the purchase or sale of futures and forward contracts (including foreign currency exchange contracts), call and put options, credit default swaps, total return swaps, basis swaps and other swap agreements and other derivative instruments for investment purposes, leveraging purposes or in an attempt to hedge against market, credit, interest rate, currency and other risks in the portfolio. The Fund may purchase and sell securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales. The Fund may also seek to obtain market exposure to the securities in which it invests by entering into a series of purchase and sale contracts.

 

The Fund has a policy not to concentrate investments in any particular industry, but may (consistent with that policy) invest up to 25% of its assets in any particular industry, and may invest a substantial portion of its assets in companies in related sectors, such as those in the banking or financial services sectors, which may share common characteristics and are often subject to similar business risks and regulatory burdens. The Fund may invest in securities that have not

 

 

       
154   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

been registered for public sale in the U.S. or relevant non-U.S. jurisdictions, including without limit securities eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended, or relevant provisions of applicable non-U.S. law, and other securities issued in private placements. The Fund may also invest in securities of other investment companies, including, without limit, exchange-traded funds. The Fund may invest in REITs. The Fund may invest in securities of companies of any market capitalization, including small and medium capitalizations.

 

The Fund may invest without limit in illiquid securities (i.e., securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities).

 

The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer and the bank or broker-dealer agrees to repurchase the security at the Fund’s cost plus interest within a specified time.

 

The Fund may lend its portfolio securities to brokers, dealers or other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized.

 

The length of time the Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements.

 

There have been no significant changes in the Fund’s portfolio turnover rates over the last two fiscal years, and no significant change to the portfolio turnover rates of the Fund described in the Financial Highlights can currently be predicted.

 

In connection with rating the Fund’s outstanding auction rate preferred shares of beneficial interest (“ARPS” and, together with any other preferred shares the Fund may have outstanding, “Preferred Shares”), Moody’s and Fitch impose asset coverage tests and other restrictions that may limit the Fund’s ability to engage in certain of the transactions described above.

 

Temporary defensive investments.  Upon PIMCO’s recommendation, for temporary defensive purposes and in order to keep the Fund’s cash fully invested, the Fund may deviate from its investment strategy by investing some or all of its total assets in investments such as high grade debt securities, including high quality, short-term debt securities, and cash and cash equivalents. The Fund may not achieve its investment objective when it does so.

Use of Leverage

 

The Fund currently utilizes leverage principally through its outstanding Preferred Shares and reverse repurchase agreements and may also obtain additional leverage through dollar rolls or borrowings, such as through bank loans or commercial paper and/or other credit facilities.

 

The Fund may also enter into transactions other than those noted above that may give rise to a form of leverage including, among others, futures and forward contracts (including foreign currency exchange contracts), total return swaps and other derivative transactions, loans of portfolio securities, short sales, when-issued, delayed delivery and forward commitment transactions and selling credit default swaps. The Fund may also determine to issue other types of preferred shares.

 

The Fund utilizes certain kinds of leverage, such as reverse repurchase agreements and selling credit default swaps, opportunistically and may choose to increase or decrease, or eliminate entirely, its use of such leverage over time and from time to time based on PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors. The Fund may also determine to decrease the leverage it currently maintains through its outstanding Preferred Shares through Preferred Shares redemptions or tender offers and may or may not determine to replace such leverage through other sources.

 

The Fund also may borrow money in order to repurchase its shares or as a temporary measure for extraordinary or emergency purposes, including for the payment of dividends or the settlement of securities transactions which otherwise might require untimely dispositions of portfolio securities held by the Fund.

 

 

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Principal Risks of the Funds1    

 

The factors that are most likely to have a material effect on a particular Fund’s portfolio as a whole are called “principal risks.” Unless otherwise indicated, each Fund is subject to the principal risks indicated below, whether through direct investments, investments by a subsidiary (if applicable) or derivative positions. Each Fund may be subject to additional risks other than those described below because the types of investments made by a Fund can change over time.

 

Anti-Takeover Provisions

The Fund’s Amended and Restated Agreement and Declaration of Trust or Articles of Incorporation (collectively, the “Organizational Documents”), as applicable, includes provisions that could limit the ability of other entities or persons to acquire control of the Fund or to convert the Fund to open-end status. These provisions in the Organizational Documents could have the effect of depriving the holders of the Fund’s common shares of beneficial interest (“Common Shares”) of opportunities to sell their Common Shares at a premium over the then-current market price of the Common Shares or at NAV.

 

Asset Allocation Risk

The Fund’s investment performance depends upon how its assets are allocated and reallocated. A principal risk of investing in the Fund is that PIMCO may make less than optimal or poor asset allocation decisions. PIMCO employs an active approach to allocation among multiple fixed-income sectors, but there is no guarantee that such allocation techniques will produce the desired results. It is possible that PIMCO will focus on an investment that performs poorly or underperforms other investments under various market conditions. You could lose money on your investment in the Fund as a result of these allocation decisions.

 

Call Risk

Call risk refers to the possibility that an issuer may exercise its right to redeem a fixed income security earlier than expected (a call). Issuers may call outstanding securities prior to their maturity for a number of reasons (e.g., declining interest rates, changes in credit spreads and improvements in the issuer’s credit quality). If an issuer calls a security in which the Fund has invested, the Fund may not recoup the full amount of its initial investment and may be forced to reinvest in lower-yielding securities, securities with greater credit risks or securities with other, less favorable features.

 

Certain Affiliations

Certain broker-dealers may be considered to be affiliated persons of the Fund and/or the Investment Manager due to their possible affiliations with Allianz SE, the ultimate parent of the Investment Manager. Absent an exemption from the SEC or other regulatory relief, the Fund is generally precluded from effecting certain principal transactions with affiliated brokers, and its ability to purchase securities being underwritten by an affiliated broker or a syndicate

including an affiliated broker, or to utilize affiliated brokers for agency transactions, is subject to restrictions. This could limit the Fund’s ability to engage in securities transactions and take advantage of market opportunities.

 

Collateralized Loan Obligations Risk

CLOs may charge management fees and administrative expenses. The cash flows from a CLO trust are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the equity tranche which generally bears losses in connection with the first defaults, if any, on the bonds or loans in the trust. A senior tranche from a CLO trust typically has higher credit ratings and lower yields than the underlying securities. CLO tranches, even senior ones, can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults and aversion to CLO securities. The risks of an investment in a CLO depend largely on the type of the collateral securities and the class/tranche of the CLO in which the Fund invests. Normally, CLOs are privately offered and sold, and thus are not registered under the securities laws. Investments in CLOs may be or become illiquid. In addition to the normal risks associated with debt instruments (e.g., interest rate risk and credit risk), CLOs carry additional risks including, but not limited to: (i) the possibility that distributions from the collateral will not be adequate to make interest or other payments; (ii) the risk that the quality of the collateral may decline in value or default; (iii) the risk that the Fund may invest in CBOs, CLOs or other CDOs that are subordinate to other classes; and (iv) the risk that the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or others and may produce unexpected investment results.

 

Confidential Information Access Risk

In managing the Fund (and other PIMCO clients), PIMCO may from time to time have the opportunity to receive material, non-public information (“Confidential Information”) about the issuers of certain investments, including, without limitation, senior floating rate loans, other loans and related investments being considered for acquisition by the Fund or held in the Fund’s portfolio. For example, an issuer of privately placed loans considered by the Fund may offer to provide PIMCO with financial information and related documentation regarding the issuer that is not publicly available. Pursuant to applicable policies and procedures, PIMCO may (but is not required to) seek to avoid receipt of Confidential Information from the issuer so as to avoid possible restrictions on its ability to purchase and sell investments on behalf of the Fund and other clients to which such Confidential Information relates. In such circumstances, the Fund (and other PIMCO clients) may be disadvantaged in comparison to other investors, including with respect to the price the Fund pays or receives

 

 

       
156   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

when it buys or sells an investment. Further, PIMCO’s and the Fund’s abilities to assess the desirability of proposed consents, waivers or amendments with respect to certain investments may be compromised if they are not privy to available Confidential Information. PIMCO may also determine to receive such Confidential Information in certain circumstances under its applicable policies and procedures. If PIMCO intentionally or unintentionally comes into possession of Confidential Information, it may be unable, potentially for a substantial period of time, to purchase or sell investments to which such Confidential Information relates.

 

Contingent Convertible Securities Risk

The risks of investing in CoCos include, without limit, the risk that interest payments will be cancelled by the issuer or a regulatory authority, the risk of ranking junior to other creditors in the event of a liquidation or other bankruptcy-related event as a result of holding subordinated debt, the risk of the Fund’s investment becoming further subordinated as a result of conversion from debt to equity, the risk that the principal amount due can be written down to a lesser amount, and the general risks applicable to fixed income investments, including interest rate risk, credit risk, market risk and liquidity risk, any of which could result in losses to the Fund. CoCos may experience a loss absorption mechanism trigger event, which would likely be the result of, or related to, the deterioration of the issuer’s financial condition (e.g., a decrease in the issuer’s capital ratio) and status as a going concern. In such a case, with respect to contingent convertible securities that provide for conversion into common stock upon the occurrence of the trigger event, the market price of the issuer’s common stock received by the Fund will have likely declined, perhaps substantially, and may continue to decline, which may adversely affect the Fund’s NAV.

 

Convertible Securities Risk

The market values of convertible securities may decline as interest rates increase and, conversely, may increase as interest rates decline. A convertible security’s market value, however, tends to reflect the market price of the common stock of the issuing company when that stock price approaches or is greater than the convertible security’s “conversion price.” The conversion price is defined as the predetermined price at which the convertible security could be exchanged for the associated stock. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities may be paid before the company’s common stockholders but after holders of any senior debt obligations of the company. Consequently, the issuer’s convertible securities

generally entail less risk than its common stock but more risk than its debt obligations. Convertible securities are often rated below investment grade or not rated.

 

Counterparty Risk

The Fund will be subject to credit risk with respect to the counterparties to the derivative contracts and other instruments entered into by the Fund or held by special purpose or structured vehicles in which the Fund invests. In the event that the Fund enters into a derivative transaction with a counterparty that subsequently becomes insolvent or becomes the subject of a bankruptcy case, the derivative transaction may be terminated in accordance with its terms and the Fund’s ability to realize its rights under the derivative instrument and its ability to distribute the proceeds could be adversely affected. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery (including recovery of any collateral it has provided to the counterparty) in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy or other analogous proceeding. In addition, in the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value. If the Fund is owed this fair market value in the termination of the derivative transaction and its claim is unsecured, the Fund will be treated as a general creditor of such counterparty and will not have any claim with respect to any underlying security or asset. The Fund may obtain only a limited recovery or may obtain no recovery in such circumstances. While the Fund may seek to manage its counterparty risk by transacting with a number of counterparties, concerns about the solvency of, or a default by, one large market participant could lead to significant impairment of liquidity and other adverse consequences for other counterparties.

 

“Covenant-Lite” Obligations Risk

Covenant-lite obligations contain fewer maintenance covenants than other obligations, or no maintenance covenants, and may not include terms that allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached. Covenant-lite loans may carry more risk than traditional loans as they allow individuals and corporations to engage in activities that would otherwise be difficult or impossible under a covenant-heavy loan agreement. In the event of default, covenant-lite loans may exhibit diminished recovery values as the lender may not have the opportunity to negotiate with the borrower prior to default.

 

Credit Default Swaps Risk

Credit default swap agreements may involve greater risks than if the Fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to illiquidity

 

 

         ANNUAL REPORT     |     JULY 31, 2021     157
    


Principal Risks of the  Funds1   (Cont.)  

 

risk, counterparty risk and credit risk. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller (if any), coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller. When the Fund acts as a seller of a credit default swap, it is exposed to many of the same risks of leverage described herein since if an event of default occurs, the seller must pay the buyer the full notional value of the reference obligation.

 

Although the Fund may seek to realize gains by selling credit default swaps that increase in value, to realize gains on selling credit default swaps, an active secondary market for such instruments must exist or the Fund must otherwise be able to close out these transactions at advantageous times. In addition to the risk of losses described above, if no such secondary market exists or the Fund is otherwise unable to close out these transactions at advantageous times, selling credit default swaps may not be profitable for the Fund.

 

The market for credit default swaps has become more volatile as the creditworthiness of certain counterparties has been questioned and/or downgraded. The Fund will be subject to credit risk with respect to the counterparties to the credit default swap contract (whether a clearing corporation or another third party). If a counterparty’s credit becomes significantly impaired, multiple requests for collateral posting in a short period of time could increase the risk that the Fund may not receive adequate collateral. The Fund may exit its obligations under a credit default swap only by terminating the contract and paying applicable breakage fees, or by entering into an offsetting credit default swap position, which may cause the Fund to incur more losses.

 

Credit Risk

The Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivatives contract, repurchase agreement or a loan of portfolio securities is unable or unwilling, or is perceived (whether by market participants, rating agencies, pricing services or otherwise) as unable or unwilling, to make timely principal and/or interest payments or to otherwise honor its obligations. The downgrade of the credit of a security held by the Fund may decrease its value. Measures such as average credit quality may not accurately reflect the true credit risk of the Fund. This is especially the case if the Fund consists of securities with widely varying credit ratings. This risk is greater to the extent the Fund uses leverage or derivatives in connection with the management of the Fund.

 

Currency Risk

Currency risk may be particularly high because the Fund may, at times or in general, have substantial exposure to emerging market currencies, and engage in foreign currency transactions that are

economically tied to emerging market countries. These currency transactions may present market, credit, currency, liquidity, legal, political and other risks different from, or greater than, the risks of investing in developed foreign (non-U.S.) currencies or engaging in foreign currency transactions that are economically tied to developed foreign countries.

 

Investments denominated in foreign (non-U.S.) currencies or that trade in and receive revenues in, foreign (non-U.S.) currencies or derivatives that provide exposure to foreign (non-U.S.) currencies, are subject to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged.

 

Currency rates in foreign (non-U.S.) countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates, rates of inflation, balance of payments and governmental surpluses or deficits, intervention (or the failure to intervene) by U.S. or foreign (non-U.S.) governments, central banks or supranational entities such as the International Monetary Fund, or by the imposition of currency controls or other political developments in the United States or abroad. These fluctuations may have a significant adverse impact on the value of the Fund’s portfolio and/or the level of Fund distributions made to Common Shareholders. There is no assurance that a hedging strategy, if used, will be successful.

 

Moreover, currency hedging techniques may be unavailable with respect to emerging market currencies. As a result, the Fund’s investments in foreign currency-denominated, and especially emerging market-currency denominated, securities may reduce the returns of the Fund.

 

The local emerging market currencies in which the Fund may be invested from time to time may experience substantially greater volatility against the U.S. dollar than the major convertible currencies of developed countries. Some of the local currencies in which the Fund may invest are neither freely convertible into one of the major currencies nor internationally traded. The local currencies may be convertible into other currencies only inside the relevant emerging market where the limited availability of such other currencies may tend to inflate their values relative to the local currency in question. Such internal exchange markets can therefore be said to be neither liquid nor competitive. In addition, many of the currencies of emerging market countries in which the Fund may invest have experienced steady devaluation relative to freely convertible currencies.

 

Continuing uncertainty as to the status of the euro and the European Monetary Union (“EMU”) has created significant volatility in currency and financial markets generally. Any partial or complete dissolution of

 

 

       
158   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

the EMU could have significant adverse effects on currency and financial markets, and on the values of the Fund’s portfolio investments. If one or more EMU countries were to stop using the euro as its primary currency, the Fund’s investments in such countries may be redenominated into a different or newly adopted currency. As a result, the value of those investments could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject to foreign currency risk, liquidity risk and valuation risk to a greater extent than similar investments currently denominated in euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments, or should the euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such investments particularly difficult to value or dispose of. The Fund may incur additional expenses to the extent it is required to seek judicial or other clarification of the denomination or value of such securities.

 

There can be no assurance that if the Fund earns income or capital gains in a non-U.S. country or PIMCO otherwise seeks to withdraw the Fund’s investments from a given country, capital controls imposed by such country will not prevent, or cause significant expense in, doing so.

 

Cybersecurity Risk

As the use of technology has become more prevalent in the course of business, the Fund has become potentially more susceptible to operational and information security risks resulting from breaches in cyber security. A breach in cyber security refers to both intentional and unintentional cyber events that may, among other things, cause the Fund to lose proprietary information, suffer data corruption and/or destruction or lose operational capacity, result in the unauthorized release or other misuse of confidential information or otherwise disrupt normal business operations. Cyber security breaches may involve unauthorized access to the Fund’s digital information systems (e.g., through “hacking” or malicious software coding), but may also result from outside attacks such as denial-of-service attacks (i.e., efforts to make network services unavailable to intended users). In addition, cyber security breaches involving the Fund’s third party service providers (including but not limited to advisers, administrators, transfer agents, custodians, distributors and other third parties), trading counterparties or issuers in which the Fund invests can also subject the Fund to many of the same risks associated with direct cyber security breaches. Moreover, cyber security breaches involving trading counterparties or issuers in which the Fund invests could adversely impact such counterparties or issuers and cause the Fund’s investments to lose value.

 

Cyber security failures or breaches may result in financial losses to the Fund and its shareholders. These failures or breaches may also result

in disruptions to business operations, potentially resulting in financial losses; interference with the Fund’s ability to calculate its NAV, process shareholder transactions or otherwise transact business with shareholders; impediments to trading; violations of applicable privacy and other laws; regulatory fines; penalties; reputational damage; reimbursement or other compensation costs; additional compliance and cyber security risk management costs and other adverse consequences. In addition, substantial costs may be incurred in an attempt to prevent any cyber incidents in the future.

 

Like with operational risk in general, the Fund has established risk management systems and business continuity plans designed to reduce the risks associated with cyber security. However, there are inherent limitations in these plans and systems, including that certain risks may not have been identified, in large part because different or unknown threats may emerge in the future. As such, there is no guarantee that such efforts will succeed, especially because the Fund does not directly control the cyber security systems of issuers in which the Fund may invest, trading counterparties or third party service providers to the Fund. There is also a risk that cyber security breaches may not be detected. The Fund and its shareholders could be negatively impacted as a result.

 

Debt Securities Risk

Debt securities are generally subject to the risks described below and further herein:

 

Issuer risk.  The value of fixed income securities may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage, reduced demand for the issuer’s goods and services, historical and prospective earnings of the issuer and the value of the assets of the issuer.

 

Interest rate risk.  The market value of debt securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of debt securities will increase as interest rates fall and decrease as interest rates rise, which would be reflected in the Fund’s NAV. The Fund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by the Fund’s management. Moreover, because rates on certain floating rate debt securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden and significant changes) can be expected to cause some fluctuations in the NAV of the Fund to the extent that it invests in floating rate debt securities.

 

Prepayment risk.  During periods of declining interest rates, borrowers may prepay principal. This may force the Fund to reinvest in lower yielding securities, resulting in a possible decline in the Fund’s income and distributions.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     159
    


Principal Risks of the  Funds1   (Cont.)  

 

Credit risk.  Credit risk is the risk that one or more debt securities in the Fund’s portfolio will decline in price or fail to pay interest or principal when due because the issuer of the security experiences a decline in its financial status. Credit risk is increased when a portfolio security is downgraded or the perceived creditworthiness of the issuer deteriorates.

 

Reinvestment risk.  Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds from matured, traded or called fixed income securities at market interest rates that are below the portfolio’s current earnings rate.

 

Duration and maturity risk.  The Fund may seek to adjust the duration or maturity of its investments in debt securities based on its assessment of current and projected market conditions. The Fund may incur costs in seeking to adjust the average duration or maturity of its portfolio of debt securities. There can be no assurances that the Fund’s assessment of current and projected market conditions will be correct or that any strategy to adjust duration or maturity will be successful.

 

Derivatives Risk

The use of derivative instruments involves risks different from, or possibly greater than, the risks associated with investing directly in securities and other traditional investments. Derivatives are subject to a number of risks, such as liquidity risk (which may be heightened for highly customized derivatives), interest rate risk, market risk, credit risk, leveraging risk, counterparty risk, tax risk and management risk, as well as risks arising from changes in applicable requirements. They also involve the risk of mispricing, the risk of unfavorable or ambiguous documentation and the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index. By investing in a derivative instrument, it could lose more than the amount invested, and derivatives may increase the volatility of the Fund, especially in unusual or extreme market conditions. Also, suitable derivative transactions may not be available in all circumstances and there can be no assurance that the Fund will engage in these transactions to reduce exposure to other risks when that would be beneficial or that, if used, such strategies will be successful. In addition, the Fund’s use of derivatives may increase or accelerate the amount of taxes payable by Common Shareholders.

 

Over-the-counter (“OTC”) derivatives are also subject to the risk that a counterparty to the transaction will not fulfill its contractual obligations to the other party, as many of the protections afforded to centrally cleared derivatives might not be available for OTC derivatives transactions. For derivatives traded on an exchange or through a central counterparty, credit risk resides with the Fund’s clearing broker, or the clearinghouse itself, rather than with a counterparty in an OTC derivative transaction. The primary credit risk on derivatives

that are exchange-traded or traded through a central clearing counterparty resides with the Fund’s clearing broker, or the clearinghouse. Participation in the markets for derivative instruments involves investment risks and transaction costs to which the Fund may not be subject absent the use of these strategies. The skills needed to successfully execute derivative strategies may be different from those needed for other types of transactions. If the Fund incorrectly forecasts the value and/or creditworthiness of securities, currencies, interest rates, counterparties or other economic factors involved in a derivative transaction, the Fund might have been in a better position if the Fund had not entered into such derivative transaction. In evaluating the risks and contractual obligations associated with particular derivative instruments, it is important to consider that certain derivative transactions may be modified or terminated only by mutual consent of the Fund and its counterparty.

 

It may not be possible for the Fund to modify, terminate, or offset the Fund’s obligations or the Fund’s exposure to the risks associated with a derivative transaction prior to its scheduled termination or maturity date, which may create a possibility of increased volatility and/or decreased liquidity to the Fund. Hedges are sometimes subject to imperfect matching between the derivative and the underlying instrument, and there can be no assurance that the Fund’s hedging transactions will be effective. In such case, the Fund may lose money.

 

Because the markets for certain derivative instruments (including markets located in foreign countries) are relatively new and still developing, appropriate derivative transactions may not be available in all circumstances for risk management or other purposes. Upon the expiration of a particular contract, the Fund may wish to retain the Fund’s position in the derivative instrument by entering into a similar contract but may be unable to do so if the counterparty to the original contract is unwilling to enter into the new contract and no other appropriate counterparty can be found. When such markets are unavailable, the Fund will be subject to increased liquidity and investment risk. When a derivative is used as a hedge against a position that the Fund holds, any loss generated by the derivative generally should be substantially offset by gains on the hedged investment, and vice versa. Although hedging can reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching between the derivative and the underlying instrument, and there can be no assurance that the Fund’s hedging transactions will be effective.

 

The Fund may enter into opposite sides of interest rate swap and other derivatives for the principal purpose of generating distributable gains on the one side (characterized as ordinary income for tax purposes) that are not part of the Fund’s duration or yield curve management strategies (“paired swap transactions”), and with a substantial

 

 

       
160   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

possibility that the Fund will experience a corresponding capital loss and decline in NAV with respect to the opposite side transaction (to the extent it does not have corresponding offsetting capital gains). Consequently, Common Shareholders may receive distributions and owe tax on amounts that are effectively a taxable return of the shareholder’s investment in the Fund, at a time when their investment in the Fund has declined in value, which tax may be at ordinary income rates. The tax treatment of certain derivatives in which the Fund invests may be unclear and thus subject to recharacterization. Any recharacterization of payments made or received by the Fund pursuant to derivatives potentially could affect the amount, timing or character of Fund distributions. In addition, the tax treatment of such investment strategies may be changed by regulation or otherwise.

 

The regulation of the derivatives markets has increased over the past several years, and additional future regulation of the derivatives markets may make derivatives more costly, may limit the availability or reduce the liquidity of derivatives, or may otherwise adversely affect the value or performance of derivatives. Any such adverse future developments could impair the effectiveness or raise the costs of the Fund’s derivative transactions, impede the employment of the Fund’s derivatives strategies, or adversely affect the Fund’s performance and cause the Fund to lose value. For instance, on October 28, 2020, the SEC adopted Rule 18f-4 under the 1940 Act providing for the regulation of a registered investment company’s use of derivatives and certain related instruments. Among other things, Rule 18f-4 limits a fund’s derivatives exposure through a value-at-risk test and requires the adoption and implementation of a derivatives risk management program for certain derivatives users. Subject to certain conditions, limited derivatives users (as defined in Rule 18f-4), however, would not be subject to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, the SEC also eliminated the asset segregation framework arising from prior SEC guidance for covering derivatives and certain financial instruments. Compliance with Rule 18f-4 will not be required until August 19, 2022. As the Fund comes into compliance, the Fund’s approach to asset segregation and coverage requirements will be impacted. In addition, Rule 18f-4 could restrict the Fund’s ability to engage in certain derivatives transactions and/or increase the costs of such derivatives transactions, which could adversely affect the value or performance of the Fund and the Common Shares and/or the Fund’s distribution rate.

 

Distressed and Defaulted Securities Risk

Investments in the securities of financially distressed issuers involve substantial risks, including the risk of default, or may be in default at the time of investment. In addition, these securities may fluctuate more in price, and are typically less liquid. The Fund also will be subject to significant uncertainty as to when, and in what manner, and

for what value obligations evidenced by securities of financially distressed issuers will eventually be satisfied. Defaulted obligations might be repaid only after lengthy workout or bankruptcy proceedings, during which the issuer might not make any interest or other payments. In any such proceeding relating to a defaulted obligation, the Fund may lose its entire investment or may be required to accept cash or securities with a value substantially less than its original investment. Moreover, any securities received by the Fund upon completion of a workout or bankruptcy proceeding may be less liquid, speculative or restricted as to resale. Similarly, if the Fund participates in negotiations with respect to any exchange offer or plan of reorganization with respect to the securities of a distressed issuer, the Fund may be restricted from disposing of such securities. To the extent that the Fund becomes involved in such proceedings, the Fund may have a more active participation in the affairs of the issuer than that assumed generally by an investor. The Fund may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings.

 

Also among the risks inherent in investments in a troubled issuer is that it frequently may be difficult to obtain information as to the true financial condition of such issuer. PIMCO’s judgments about the credit quality of a financially distressed issuer and the relative value of its securities may prove to be wrong.

 

Distribution Rate Risk

Although the Fund may seek to maintain level distributions, the Fund’s distribution rates may be affected by numerous factors, including but not limited to changes in realized and projected market returns, fluctuations in market interest rates, Fund performance, and other factors. There can be no assurance that a change in market conditions or other factors will not result in a change in the Fund’s distribution rate or that the rate will be sustainable in the future.

 

For instance, during periods of low or declining interest rates, the Fund’s distributable income and dividend levels may decline for many reasons. For example, the Fund may have to deploy uninvested assets (whether from purchases of Fund shares, proceeds from matured, traded or called debt obligations or other sources) in new, lower yielding instruments. Additionally, payments from certain instruments that may be held by the Fund (such as variable and floating rate securities) may be negatively impacted by declining interest rates, which may also lead to a decline in the Fund’s distributable income and dividend levels.

 

Emerging Markets Risk

Foreign investment risk may be particularly high to the extent that the Fund invests in securities of issuers based in or doing business in emerging market countries or invests in securities denominated in the

 

 

         ANNUAL REPORT     |     JULY 31, 2021     161
    


Principal Risks of the  Funds1   (Cont.)  

 

currencies of emerging market countries. Investing in securities of issuers based in or doing business in emerging markets entails all of the risks of investing in foreign securities noted above, but to a heightened degree.

 

Investments in emerging market countries pose a greater degree of systemic risk (i.e., the risk of a cascading collapse of multiple institutions within a country, and even multiple national economies). The inter-relatedness of economic and financial institutions within and among emerging market economies has deepened over the years, with the effect that institutional failures and/or economic difficulties that are of initially limited scope may spread throughout a country, a region or all or most emerging market countries. This may undermine any attempt by the Fund to reduce risk through geographic diversification of its portfolio.

 

There is a heightened possibility of imposition of withholding taxes on interest or dividend income generated from emerging market securities. Governments of emerging market countries may engage in confiscatory taxation or expropriation of income and/or assets to raise revenues or to pursue a domestic political agenda. In the past, emerging market countries have nationalized assets, companies and even entire sectors, including the assets of foreign investors, with inadequate or no compensation to the prior owners. There can be no assurance that the Fund will not suffer a loss of any or all of its investments, or interest or dividends thereon, due to adverse fiscal or other policy changes in emerging market countries.

 

There is also a greater risk that an emerging market government may take action that impedes or prevents the Fund from taking income and/or capital gains earned in the local currency and converting into U.S. dollars (i.e., “repatriating” local currency investments or profits). Certain emerging market countries have sought to maintain foreign exchange reserves and/or address the economic volatility and dislocations caused by the large international capital flows by controlling or restricting the conversion of the local currency into other currencies. This risk tends to become more acute when economic conditions otherwise worsen. There can be no assurance that if the Fund earns income or capital gains in an emerging market currency or PIMCO otherwise seeks to withdraw the Fund’s investments from a given emerging market country, capital controls imposed by such country will not prevent, or cause significant expense in, doing so.

 

Bankruptcy law and creditor reorganization processes may differ substantially from those in the United States, resulting in greater uncertainty as to the rights of creditors, the enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims. In certain emerging market countries, although bankruptcy laws have been enacted, the process for reorganization

remains highly uncertain. In addition, it may be impossible to seek legal redress against an issuer that is a sovereign state.

 

Emerging market countries typically have less established legal, accounting and financial reporting systems than those in more developed markets, which may reduce the scope or quality of financial information available to investors. Governments in emerging market countries are often less stable and more likely to take extra-legal action with respect to companies, industries, assets, or foreign ownership than those in more developed markets. Moreover, it can be more difficult for investors to bring litigation or enforce judgments against issuers in emerging markets or for U.S. regulators to bring enforcement actions against such issuers. The Fund may also be subject to Emerging Markets Risk if it invests in derivatives or other securities or instruments whose value or return are related to the value or returns of emerging markets securities.

 

Other heightened risks associated with emerging markets investments include without limit (i) risks due to less social, political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict the Fund’s investment opportunities, including restrictions on investing in issuers or industries deemed sensitive to relevant national interests and requirements that government approval be obtained prior to investment by foreign persons; (iv) certain national policies that may restrict the Fund’s repatriation of investment income, capital or the proceeds of sales of securities, including temporary restrictions on foreign capital remittances; (v) the lack of uniform accounting and auditing standards and/or standards that may be significantly different from the standards required in the United States; (vi) less publicly available financial and other information regarding issuers; (vii) potential difficulties in enforcing contractual obligations; and (viii) higher rates of inflation, higher interest rates and other economic concerns. The Fund may invest to a substantial extent in emerging market securities that are denominated in local currencies, subjecting the Fund to a greater degree of foreign currency risk. Also, investing in emerging market countries may entail purchases of securities of issuers that are insolvent, bankrupt or otherwise of questionable ability to satisfy their payment obligations as they become due, subjecting the Fund to a greater amount of credit risk and/or high yield risk. The economy of some emerging markets may be particularly exposed to or affected by a certain industry or sector, and therefore issuers and/or securities of such emerging markets may be more affected by the performance of such industries or sectors.

 

Equity Securities and Related Market Risk

The market price of common stocks and other equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may

 

 

       
162   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

decline in value due to factors affecting equity securities markets generally, particular industries represented in those markets, or the issuer itself. The values of equity securities may decline due to real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to labor shortages or increased production costs and competitive conditions within an industry. Equity securities generally have greater price volatility than bonds and other debt securities.

 

Different types of equity securities provide different voting and dividend rights and priority in the event of the bankruptcy and/or insolvency of the issuer. In addition to common stock, equity securities may include preferred securities, convertible securities and warrants. Equity securities other than common stock are subject to many of the same risks as common stock, although possibly to different degrees. The risks of equity securities are generally magnified in the case of equity investments in distressed companies.

 

Focused Investment Risk

To the extent that the Fund focuses its investments in a particular sector, it may be susceptible to loss due to adverse developments affecting that sector, including (but not limited to): governmental regulation; inflation; rising interest rates; cost increases in raw materials, fuel and other operating expenses; technological innovations that may render existing products and equipment obsolete; competition from new entrants; high research and development costs; increased costs associated with compliance with environmental or other governmental regulations; and other economic, business or political developments specific to that sector. Furthermore, the Fund may invest a substantial portion of its assets in companies in related sectors that may share common characteristics, are often subject to similar business risks and regulatory burdens, and whose securities may react similarly to the types of developments described above, which will subject the Fund to greater risk. The Fund also will be subject to focused investment risk to the extent that it invests a substantial portion of its assets in a particular issuer, market, asset class, country or geographic region.

 

Foreign (Non-U.S.) Investment Risk

Foreign (non-U.S.) securities may experience more rapid and extreme changes in value than securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of industries. Additionally, issuers of foreign (non-U.S.) securities are usually not subject to the same degree of regulation as U.S. issuers. Reporting, accounting, auditing and custody standards of foreign countries differ, in some cases significantly, from U.S. standards. Global economies and financial markets are becoming increasingly interconnected, and

conditions and events in one country, region or financial market may adversely impact issuers in a different country, region or financial market. Also, nationalization, expropriation or confiscatory taxation, currency blockage, political changes or diplomatic developments could adversely affect the Fund’s investments in a foreign country. In the event of nationalization, expropriation or other confiscation, the Fund could lose its entire investment in foreign (non-U.S.) securities. Adverse conditions in a certain region can adversely affect securities of other countries whose economies appear to be unrelated. To the extent that the Fund invests a significant portion of its assets in a specific geographic region, the Fund will generally have more exposure to regional economic risks associated with foreign (non-U.S.) investments. Foreign (non-U.S.) securities may also be less liquid and more difficult to value than securities of U.S. issuers.

 

The Fund may face potential risks associated with the United Kingdom’s departure from the European Union (“EU”). The departure may result in substantial volatility in financial and foreign exchange markets and a sustained weakness in the British pound, the euro and other currencies, which may impact Fund returns. It may also destabilize some or all of the other EU member countries and/or the Eurozone. These developments could result in losses to the Fund, as there may be negative effects on the value of the Fund’s investments and/or on the Fund’s ability to enter into certain transactions or value certain investments, and these developments may make it more difficult for the Fund to exit certain investments at an advantageous time or price. Adverse events triggered by the departure, as well as an exit or expulsion of an EU member state other than the United Kingdom from the EU, could negatively impact Fund returns.

 

The Fund may invest in securities and instruments that are economically tied to Russia. Investments in Russia are subject to various risks such as political, economic, legal, market and currency risks. The risks include uncertain political and economic policies, short term market volatility, poor accounting standards, corruption and crime, an inadequate regulatory system and unpredictable taxation. Investments in Russia are particularly subject to the risk that economic sanctions may be imposed by the United States and/or other countries. Such sanctions — which may impact companies in many sectors, including energy, financial services and defense, among others — may negatively impact the Fund’s performance and/or ability to achieve its investment objectives. The Russian securities market is characterized by limited volume of trading, resulting in difficulty in obtaining accurate prices. The Russian securities market, as compared to U.S. markets, has significant price volatility, less liquidity, a smaller market capitalization and a smaller number of traded securities. There may be little publicly available information about issuers. Settlement, clearing and registration of securities transactions are subject to risks because

 

 

         ANNUAL REPORT     |     JULY 31, 2021     163
    


Principal Risks of the  Funds1   (Cont.)  

 

of registration systems that may not be subject to effective government supervision. This may result in significant delays or problems in registering the transfer of securities. Russian securities laws may not recognize foreign nominee accounts held with a custodian bank, and therefore the custodian may be considered the ultimate owner of securities they hold for their clients. Ownership of securities issued by Russian companies is recorded by companies themselves and by registrars instead of through a central registration system. It is possible that the ownership rights of the Fund could be lost through fraud or negligence. While applicable Russian regulations impose liability on registrars for losses resulting from their errors, it may be difficult for the Fund to enforce any rights it may have against the registrar or issuer of the securities in the event of loss of share registration. Adverse currency exchange rates are a risk and there may be a lack of available currency hedging instruments. Investments in Russia may be subject to the risk of nationalization or expropriation of assets. Oil, natural gas, metals and timber account for a significant portion of Russia’s exports, leaving the country vulnerable to swings in world prices.

 

High Yield Securities Risk

To the extent that the Fund invests in high yield securities and unrated securities of similar credit quality (commonly known as “high yield securities” or “junk bonds”), the Fund may be subject to greater levels of credit risk, call risk and liquidity risk than funds that do not invest in such securities, which could have a negative effect on the NAV and market price of the Fund’s Common Shares or Common Share dividends. These securities are considered predominantly speculative with respect to an issuer’s continuing ability to make principal and interest payments, and may be more volatile than other types of securities. An economic downturn or individual corporate developments could adversely affect the market for these securities and reduce the Fund’s ability to sell these securities at an advantageous time or price. The Fund may purchase distressed securities that are in default or the issuers of which are in bankruptcy, which involve heightened risks.

 

Issuers of high yield securities may have the right to “call” or redeem the issue prior to maturity, which may result in the Fund having to reinvest the proceeds in other high yield securities or similar instruments that may pay lower interest rates. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in high yield securities. Consequently, transactions in high yield securities may involve greater costs than transactions in more actively traded securities. These factors may result in the Fund being unable to realize full value for these securities and/or may result in the Fund not receiving the proceeds from a sale of a high yield security for an extended period after such sale, each of which could result in losses to

the Fund. Because of the risks involved in investing in high yield securities, an investment in the Fund should be considered speculative. To the extent that the Fund invests in high yield securities and unrated securities of similar credit quality (commonly known as “high yield securities” or “junk bonds”), the Fund may be subject to greater levels of credit risk, call risk and liquidity risk than funds that do not invest in such securities, which could have a negative effect on the NAV and market price of the Fund’s Common Shares or Common Share dividends. These securities are considered predominantly speculative with respect to an issuer’s continuing ability to make principal and interest payments, and may be more volatile than other types of securities. An economic downturn or individual corporate developments could adversely affect the market for these securities and reduce the Fund’s ability to sell these securities at an advantageous time or price. The Fund may purchase distressed securities that are in default or the issuers of which are in bankruptcy, which involve heightened risks.

 

Issuers of high yield securities may have the right to “call” or redeem the issue prior to maturity, which may result in the Fund having to reinvest the proceeds in other high yield securities or similar instruments that may pay lower interest rates. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in high yield securities. Consequently, transactions in high yield securities may involve greater costs than transactions in more actively traded securities. These factors may result in the Fund being unable to realize full value for these securities and/or may result in the Fund not receiving the proceeds from a sale of a high yield security for an extended period after such sale, each of which could result in losses to the Fund. Because of the risks involved in investing in high yield securities, an investment in the Fund should be considered speculative.

 

In general, lower rated debt securities carry a greater degree of risk that the issuer will lose its ability to make interest and principal payments, which could have a negative effect on the Fund. Securities of below investment grade quality are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal and are commonly referred to as “high yield” securities or “junk bonds.” High yield securities involve a greater risk of default and their prices are generally more volatile and sensitive to actual or perceived negative developments. Debt securities in the lowest investment grade category also may be considered to possess some speculative characteristics by certain rating agencies. The Fund may purchase stressed or distressed securities that are in default or the issuers of which are in bankruptcy, which involve heightened risks. An economic downturn could severely affect the ability of issuers (particularly those that are highly leveraged) to service or repay their debt obligations. Lower-rated securities are generally

 

 

       
164   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

less liquid than higher-rated securities, which may have an adverse effect on the Fund’s ability to dispose of them. For example, under adverse market or economic conditions, the secondary market for below investment grade securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and certain securities in the Fund’s portfolio may become illiquid or less liquid. As a result, the Fund could find it more difficult to sell these securities or may be able to sell these securities only at prices lower than if such securities were widely traded. To the extent the Fund focuses on below investment grade debt obligations, PIMCO’s capabilities in analyzing credit quality and associated risks will be particularly important, and there can be no assurance that PIMCO will be successful in this regard. Due to the risks involved in investing in high yield securities, an investment in the Fund should be considered speculative. The Fund’s credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security in the event that a rating agency or PIMCO downgrades its assessment of the credit characteristics of a particular issue. Analysis of creditworthiness may be more complex for issuers of high yield securities than for issuers of higher quality debt securities. Analysis of creditworthiness may be more complex for issuers of high yield securities than for issuers of higher quality debt securities.

 

Inflation/Deflation Risk

Inflation risk is the risk that the value of assets or income from the Fund’s investments will be worth less in the future as inflation decreases the value of payments at future dates. As inflation increases, the real value of the Fund’s portfolio could decline. Deflation risk is the risk that prices throughout the economy decline over time. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio and Common Shares.

 

Inflation-Indexed Security Risk

Inflation-indexed debt securities are subject to the effects of changes in market interest rates caused by factors other than inflation (real interest rates). In general, the value of an inflation-indexed security, including Treasury Inflation-Protected Securities (“TIPS”), tends to decrease when real interest rates increase and can increase when real interest rates decrease. Thus generally, during periods of rising inflation, the value of inflation-indexed securities will tend to increase and during periods of deflation, their value will tend to decrease. Interest payments on inflation-indexed securities are unpredictable and will fluctuate as the principal and interest are adjusted for inflation. There can be no assurance that the inflation index used (i.e., the Consumer Price Index (“CPI”)) will accurately measure the real rate of inflation. Increases in the principal value of TIPS due to inflation are considered taxable ordinary income. Any increase in the principal

amount of an inflation-indexed debt security will be considered taxable ordinary income, even though the Fund will not receive the principal until maturity. Additionally, a CPI swap can potentially lose value if the realized rate of inflation over the life of the swap is less than the fixed market implied inflation rate (fixed breakeven rate) that the investor agrees to pay at the initiation of the swap. With municipal inflation-indexed securities, the inflation adjustment is integrated into the coupon payment, which is federally tax exempt (and may be state tax exempt). For municipal inflation-indexed securities, there is no adjustment to the principal value. Because municipal inflation-indexed securities are a small component of the municipal bond market, they may be less liquid than conventional municipal bonds.

 

Interest Rate Risk

Interest rate risk is the risk that fixed income securities and other instruments in the Fund’s portfolio will decline in value because of a change in interest rates. As nominal interest rates rise, the value of certain fixed income securities held by the Fund is likely to decrease. A nominal interest rate can be described as the sum of a real interest rate and an expected inflation rate. Interest rate changes can be sudden and unpredictable, and the Fund may lose money as a result of movements in interest rates. The Fund may not be able to effectively hedge against changes in interest rates or may choose not to do so for cost or other reasons.

 

A wide variety of factors can cause interest rates to rise (e.g., central bank monetary policies, inflation rates, general economic conditions). This risk may be particularly acute in the current market environment because market interest rates are currently near historically low levels. Thus, the Fund currently faces a heightened level of interest rate risk.

 

Fixed income securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile. Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates that incorporates a security’s yield, coupon, final maturity and call features, among other characteristics. Duration is useful primarily as a measure of the sensitivity of a fixed income security’s market price to interest rate (i.e., yield) movements. All other things remaining equal, for each one percentage point increase in interest rates, the value of a portfolio of fixed income investments would generally be expected to decline by one percent for every year of the portfolio’s average duration above zero. For example, the value of a portfolio of fixed income securities with an average duration of eight years would generally be expected to decline by approximately 8% if interest rates rose by one percentage point.

 

Variable and floating rate securities may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in

 

 

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Principal Risks of the  Funds1   (Cont.)  

 

general. Conversely, floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if interest rates increase. Inverse floating rate securities may also exhibit greater price volatility than a fixed rate obligation with similar credit quality. When the Fund holds variable or floating rate securities, a decrease (or, in the case of inverse floating rate securities, an increase) in market interest rates will adversely affect the income received from such securities and the NAV of the Fund’s shares.

 

During periods of very low or negative interest rates, the Fund may be unable to maintain positive returns. Interest rates in the United States and many parts of the world are at or near historically low levels. Very low or negative interest rates may magnify interest rate risk. Changing interest rates, including rates that fall below zero, may have unpredictable effects on markets, may result in heightened market volatility and may detract from Fund performance to the extent the Fund is exposed to such interest rates.

 

Measures such as average duration may not accurately reflect the true interest rate sensitivity of the Fund. This is especially the case if the Fund consists of securities with widely varying durations. Therefore, if the Fund has an average duration that suggests a certain level of interest rate risk, the Fund may in fact be subject to greater interest rate risk than the average would suggest. This risk is greater to the extent the Fund uses leverage or derivatives in connection with the management of the Fund.

 

Convexity is an additional measure used to understand a security’s or Fund’s interest rate sensitivity. Convexity measures the rate of change of duration in response to changes in interest rates. With respect to a security’s price, a larger convexity (positive or negative) may imply more dramatic price changes in response to changing interest rates. Convexity may be positive or negative. Negative convexity implies that interest rate increases result in increased duration, meaning increased sensitivity in prices in response to rising interest rates. Thus, securities with negative convexity, which may include bonds with traditional call features and certain mortgage-backed securities, may experience greater losses in periods of rising interest rates. Accordingly, if the Fund holds such securities, the Fund may be subject to a greater risk of losses in periods of rising interest rates.

 

Rising interest rates may result in a decline in value of the Fund’s fixed income investments and in periods of volatility. Further, while U.S. bond markets have steadily grown over the past three decades, dealer “market making” ability has remained relatively stagnant. As a result, dealer inventories of certain types of bonds and similar instruments, which provide a core indication of the ability of financial intermediaries to “make markets,” are at or near historic lows in relation to market

size. Because market makers provide stability to a market through their intermediary services, a significant reduction in dealer inventories could potentially lead to decreased liquidity and increased volatility in the fixed income markets. Such issues may be exacerbated during periods of economic uncertainty. All of these factors, collectively and/or individually, could cause the Fund to lose value.

 

Issuer Risk

The value of a security may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods or services, as well as the historical and prospective earnings of the issuer and the value of its assets. A change in the financial condition of a single issuer may affect securities markets as a whole. These risks can apply to the Common Shares issued by the Fund and to the issuers of securities and other instruments in which the Fund invests.

 

Leverage Risk

The Fund’s use of leverage, if any, creates the opportunity for increased Common Share net income, but also creates special risks for Common Shareholders. To the extent used, there is no assurance that the Fund’s leveraging strategies will be successful. Leverage is a speculative technique that may expose the Fund to greater risk and increased costs. The Fund’s assets attributable to leverage, if any, will be invested in accordance with the Fund’s investment objectives and policies. Interest expense payable by the Fund with respect to derivatives and other forms of leverage, and dividends payable with respect to any preferred shares outstanding, if any, will generally be based on shorter-term interest rates that would be periodically reset. So long as the Fund’s portfolio investments provide a higher rate of return (net of applicable Fund expenses) than the interest expenses and other costs to the Fund of such leverage, the investment of the proceeds thereof will generate more income than will be needed to pay the costs of the leverage. If so, and all other things being equal, the excess may be used to pay higher dividends to Common Shareholders than if the Fund were not so leveraged. If, however, shorter-term interest rates rise relative to the rate of return on the Fund’s portfolio, the interest and other costs to the Fund of leverage could exceed the rate of return on the debt obligations and other investments held by the Fund, thereby reducing return to Common Shareholders. In addition, fees and expenses of any form of leverage used by the Fund will be borne entirely by the Common Shareholders (and not by preferred shareholders, if any) and will reduce the investment return of the Common Shares. Therefore, there can be no assurance that the Fund’s use of leverage will result in a higher yield on the Common Shares, and it may result in losses. In addition, any preferred shares issued by the Fund are expected to pay cumulative

 

 

       
166   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

dividends, which may tend to increase leverage risk. Leverage creates several major types of risks for Common Shareholders, including:

 

   

the likelihood of greater volatility of NAV and market price of Common Shares, and of the investment return to Common Shareholders, than a comparable portfolio without leverage;

 

   

the possibility either that Common Share dividends will fall if the interest and other costs of leverage rise, or that dividends paid on Common Shares will fluctuate because such costs vary over time; and

 

   

the effects of leverage in a declining market or a rising interest rate environment, as leverage is likely to cause a greater decline in the NAV of the Common Shares than if the Fund were not leveraged and may result in a greater decline in the market value of the Common Shares.

 

In addition, the counterparties to the Fund’s leveraging transactions and any preferred shareholders of the Fund will have priority of payment over the Fund’s Common Shareholders.

 

Reverse repurchase agreements involve the risks that the interest income earned on the investment of the proceeds will be less than the interest expense and Fund expenses associated with the repurchase agreement, that the market value of the securities sold by the Fund may decline below the price at which the Fund is obligated to repurchase such securities and that the securities may not be returned to the Fund. There is no assurance that reverse repurchase agreements can be successfully employed. Dollar roll transactions involve the risk that the market value of the securities the Fund is required to purchase may decline below the agreed upon repurchase price of those securities. Successful use of dollar rolls may depend upon the Investment Manager’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully employed. In connection with reverse repurchase agreements and dollar rolls, the Fund will also be subject to counterparty risk with respect to the purchaser of the securities. If the broker/dealer to whom the Fund sells securities becomes insolvent, the Fund’s right to purchase or repurchase securities may be restricted.

 

The Fund may engage in total return swaps, reverse repurchases, loans of portfolio securities, short sales and when-issued, delayed delivery and forward commitment transactions, credit default swaps, basis swaps and other swap agreements, purchases or sales of futures and forward contracts (including foreign currency exchange contracts), call and put options or other derivatives. The Fund’s use of such transactions gives rise to associated leverage risks described above, and may adversely affect the Fund’s income, distributions and total returns to Common Shareholders. To the extent that any offsetting

positions do not behave in relation to one another as expected, the Fund may perform as if it is leveraged through use of these derivative strategies.

 

Any total return swaps, reverse repurchases, loans of portfolio securities, short sales and when-issued, delayed delivery and forward commitment transactions, credit default swaps, basis swaps and other swap agreements, purchases or sales of futures and forward contracts (including foreign currency exchange contracts), call and put options or other derivatives by the Fund or counterparties to the Fund’s other leveraging transactions, if any, would have seniority over the Fund’s Common Shares.

 

On October 28, 2020, the SEC adopted Rule 18f-4 under the Act providing for the regulation of a registered investment company’s use of derivatives and certain related instruments. Among other things, Rule 18f-4 limits a fund’s derivatives exposure through a value-at-risk test and requires the adoption and implementation of a derivatives risk management program for certain derivatives users. Subject to certain conditions, limited derivatives users (as defined in Rule 18f-4), however, would not be subject to the full requirements of Rule 18f-4. In connection with the adoption of Rule 18f-4, the SEC also eliminated the asset segregation framework arising from prior SEC guidance for covering derivatives and certain financial instruments. Compliance with Rule 18f-4 will not be required until August 19, 2022. As the Fund comes into compliance, the Fund’s approach to asset segregation and coverage requirements will be impacted. In addition, Rule 18f-4 could restrict the Fund’s ability to engage in certain derivatives transactions and/or increase the costs of such derivatives transactions, which could adversely affect the value or performance of the Fund and the Common Shares and/or the Fund’s distribution rate.

 

Because the fees received by the Investment Manager may increase depending on the types of leverage utilized by the Fund,1 the Investment Manager has a financial incentive for the Fund to use certain forms of leverage, which may create a conflict of interest between the Investment Manager, on the one hand, and the Common Shareholders, on the other hand.

 

Liquidity Risk

Liquidity risk exists when particular investments are difficult to purchase or sell. Illiquid investments are investments that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. Illiquid investments may become harder to value, especially in changing markets. The Fund’s investments in illiquid investments may reduce the returns of the Fund because it may be unable to sell the illiquid investments at an advantageous time or price or possibly

 

 

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Principal Risks of the  Funds1   (Cont.)  

 

require the Fund to dispose of other investments at unfavorable times or prices in order to satisfy its obligations, which could prevent the Fund from taking advantage of other investment opportunities. Additionally, the market for certain investments may become illiquid under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer. Bond markets have consistently grown over the past three decades while the capacity for traditional dealer counterparties to engage in fixed income trading has not kept pace and in some cases has decreased. As a result, dealer inventories of corporate bonds, which provide a core indication of the ability of financial intermediaries to “make markets,” are at or near historic lows in relation to market size. Because market makers seek to provide stability to a market through their intermediary services, the significant reduction in dealer inventories could potentially lead to decreased liquidity and increased volatility in the fixed income markets. Such issues may be exacerbated during periods of economic uncertainty. In such cases, the Fund, due to limitations on investments in illiquid investments and the difficulty in purchasing and selling such securities or instruments, may be unable to achieve its desired level of exposure to a certain sector. To the extent that the Fund invests in securities of companies with smaller market capitalizations, foreign (non-U.S.) securities, Rule 144A securities, illiquid sectors of fixed income securities, derivatives or securities with substantial market and/or credit risk, the Fund will tend to have greater exposure to liquidity risk.

 

Further, fixed income securities with longer durations until maturity face heightened levels of liquidity risk as compared to fixed income securities with shorter durations until maturity. The risks associated with illiquid instruments may be particularly acute in situations in which the Fund’s operations require cash (such as in connection with repurchase offers) and could result in the Fund borrowing to meet its short-term needs or incurring losses on the sale of illiquid instruments. It may also be the case that other market participants may be attempting to liquidate fixed income holdings at the same time as the Fund, causing increased supply in the market and contributing to liquidity risk and downward pricing pressure.

 

Loans and Other Indebtedness; Loan Participations and Assignments Risk

Loan interests may take the form of direct interests acquired during a primary distribution and may also take the form of assignments of, novations of or participations in all or a portion of a loan acquired in secondary markets. In addition to credit risk and interest rate risk, the Fund’s exposure to loan interests may be subject to additional risks. For example, purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of principal and interest. Loans are subject to the risk that scheduled interest or principal payments will not be made

in a timely manner or at all, either of which may adversely affect the values of the loans. If the Fund does not receive scheduled interest or principal payments on such indebtedness, the Fund’s share price and yield could be adversely affected. The collateral underlying a loan may be unavailable or insufficient to satisfy a borrower’s obligation, and the Fund could become part owner of any collateral if a loan is foreclosed, subjecting the Fund to costs associated with owning and disposing of the collateral.

 

Investments in loans through a purchase of a loan or a direct assignment of a financial institution’s interests with respect to a loan may involve additional risks to the Fund. For example, if a loan is foreclosed, the Fund could become owner, in whole or in part, of any collateral, which could include, among other assets, real or personal property, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that the Fund could be held liable as co-lender. It is unclear whether loans and other forms of direct indebtedness offer securities law protections against fraud and misrepresentation. In the absence of definitive regulatory guidance, the Fund will rely on PIMCO’s research in an attempt to avoid situations where fraud or misrepresentation could adversely affect the Fund. The purchaser of an assignment typically succeeds to all the rights and obligations under the loan agreement with the same rights and obligations as the assigning lender. Assignments may, however, be arranged through private negotiations between potential assignees and potential assignors, and the rights and obligations acquired by the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender.

 

In connection with purchasing loan participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the loan in which it has purchased the loan participation. As a result, the Fund may be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, the Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower. Certain loan participations may be structured in a manner designed to prevent purchasers of participations from being subject to the credit risk of the lender, but even under such a structure, in the event of the lender’s insolvency, the lender’s servicing of the participation may be delayed and the assignability of the participation impaired.

 

The Fund may have difficulty disposing of loans and loan participations because to do so it will have to assign or sell such securities to a third

 

 

       
168   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

party. Because there is no liquid market for many such securities, the Fund anticipates that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such securities and the Fund’s ability to dispose of particular loans and loan participations when that would be desirable, including in response to a specific economic event such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for loans and loan participations also may make it more difficult for the Fund to assign a value to these securities for purposes of valuing the Fund’s portfolio.

 

To the extent the Fund invests in loans, including bank loans, the Fund may be subject to greater levels of credit risk, call risk, settlement risk and liquidity risk. These instruments are considered predominantly speculative with respect to an issuer’s continuing ability to make principal and interest payments and may be more volatile than other types of securities. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in loans. In addition, the loans in which the Fund invests may not be listed on any exchange and a secondary market for such loans may be comparatively illiquid relative to markets for other more liquid fixed income securities. Consequently, transactions in loans may involve greater costs than transactions in more actively traded securities. Restrictions on transfers in loan agreements, a lack of publicly available information, irregular trading activity and wide bid/ask spreads, among other factors, may, in certain circumstances, make loans more difficult to sell at an advantageous time or price than other types of securities or instruments. These factors may result in the Fund being unable to realize full value for the loans and/or may result in the Fund not receiving the proceeds from a sale of a loan for an extended period after such sale, each of which could result in losses to the Fund. Some loans may have extended trade settlement periods, including settlement periods of greater than seven days, which may result in cash not being immediately available to the Fund. If an issuer of a loan prepays or redeems the loan prior to maturity, the Fund may have to reinvest the proceeds in other loans or similar instruments that may pay lower interest rates. Because of the risks involved in investing in loans, an investment in the Fund should be considered speculative.

 

The Fund’s investments in subordinated and unsecured loans generally are subject to similar risks as those associated with investments in secured loans. Subordinated or unsecured loans are lower in priority of payment to secured loans and are subject to the additional risk that the cash flow of the borrower and property securing the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. This risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Subordinated and unsecured loans generally have greater price volatility than secured

loans and may be less liquid. There is also a possibility that originators will not be able to sell participations in subordinated or unsecured loans, which would create greater credit risk exposure for the holders of such loans. Subordinate and unsecured loans share the same risks as other below investment grade securities.

 

There may be less readily available information about most loans and the underlying borrowers than is the case for many other types of securities. Loans may be issued by companies that are not subject to SEC reporting requirements and therefore may not be required to file reports with the SEC or may file reports that are not required to comply with SEC form requirements. In addition, such companies may be subject to a less stringent liability disclosure regime than companies subject to SEC reporting requirements. Loans may not be considered “securities,” and purchasers, such as the Fund, therefore may not be entitled to rely on the anti-fraud protections of the federal securities laws. Because there is limited public information available regarding loan investments, the Fund is particularly dependent on the analytical abilities of the Fund’s portfolio managers.

 

Economic exposure to loan interests through the use of derivative transactions may involve greater risks than if the Fund had invested in the loan interest directly during a primary distribution or through assignments of, novations of or participations in a loan acquired in secondary markets since, in addition to the risks described above, certain derivative transactions may be subject to leverage risk and greater illiquidity risk, counterparty risk, valuation risk and other risks.

 

Management Risk

The Fund is subject to management risk because it is an actively managed investment portfolio. PIMCO and each individual portfolio manager will apply investment techniques and risk analysis in making investment decisions for the Fund, but there can be no guarantee that these decisions will produce the desired results. Certain securities or other instruments in which the Fund seeks to invest may not be available in the quantities desired. In addition, regulatory restrictions, actual or potential conflicts of interest or other considerations may cause PIMCO to restrict or prohibit participation in certain investments. In such circumstances, PIMCO or the individual portfolio managers may determine to purchase other securities or instruments as substitutes. Such substitute securities or instruments may not perform as intended, which could result in losses to the Fund. To the extent the Fund employs strategies targeting perceived pricing inefficiencies, arbitrage strategies or similar strategies, it is subject to the risk that the pricing or valuation of the securities and instruments involved in such strategies may change unexpectedly, which may result in reduced returns or losses to the Fund. The Fund is also subject to the risk that deficiencies in the internal systems or controls of PIMCO or another service provider will cause losses for the Fund or hinder

 

 

         ANNUAL REPORT     |     JULY 31, 2021     169
    


Principal Risks of the  Funds1   (Cont.)  

 

Fund operations. For example, trading delays or errors (both human and systematic) could prevent the Fund from purchasing a security expected to appreciate in value. Additionally, actual or potential conflicts of interest, legislative, regulatory, or tax restrictions, policies or developments may affect the investment techniques available to PIMCO and each individual portfolio manager in connection with managing the Fund and may also adversely affect the ability of the Fund to achieve its investment objectives. There also can be no assurance that all of the personnel of PIMCO will continue to be associated with PIMCO for any length of time. The loss of the services of one or more key employees of PIMCO could have an adverse impact on the Fund’s ability to realize its investment objectives.

 

In addition, the Fund may rely on various third-party sources to calculate its NAV. As a result, the Fund is subject to certain operational risks associated with reliance on service providers and service providers’ data sources. In particular, errors or systems failures and other technological issues may adversely impact the Fund’s calculations of its NAV, and such NAV calculation issues may result in inaccurately calculated NAVs, delays in NAV calculation and/or the inability to calculate NAVs over extended periods. The Fund may be unable to recover any losses associated with such failures.

 

Market Discount Risk

The price of the Fund’s Common Shares will fluctuate with market conditions and other factors. If you sell your Common Shares, the price received may be more or less than your original investment. The Common Shares are designed for long-term investors and should not be treated as trading vehicles. Shares of closed-end management investment companies frequently trade at a discount from their NAV.

 

Market Disruptions Risk

The Fund is subject to investment and operational risks associated with financial, economic and other global market developments and disruptions, including those arising from war, terrorism, market manipulation, government interventions, defaults and shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters, which can all negatively impact the securities markets, interest rates, secondary trading, ratings, credit risk, inflation, deflation, other factors relating to the Fund’s investments or the Investment Manager’s operations and the value of an investment in the Fund, its distributions and its returns. These events can also impair the technology and other operational systems upon which the Fund’s service providers, including PIMCO as the Fund’s investment adviser, rely, and could otherwise disrupt the Fund’s service providers’ ability to fulfill their obligations to the Fund.

 

The U.S. Federal Reserve has made emergency interest-rate cuts, moving short-term rates to near zero, issued forward guidance that

rates will remain low until the economy weathers the COVID-19 crisis, and resumed quantitative easing. Additionally, Congress has approved stimulus to offset the severity and duration the adverse economic effects of COVID-19-and related disruptions in economic and business activity. Dozens of central banks across Europe, Asia, and elsewhere have announced and/or adopted similar economic relief packages. The introduction and adoption of these packages could cause market disruptions and volatility. In addition, the end of any such program could cause market downturns, disruptions and volatility, particularly if markets view the ending as premature.

 

Market Risk

The market price of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of a security may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, adverse changes to credit markets or adverse investor sentiment generally. The value of a security may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes may decline in value simultaneously. Equity securities generally have greater price volatility than fixed income securities. Credit ratings downgrades may also negatively affect securities held by the Fund. Even when markets perform well, there is no assurance that the investments held by the Fund will increase in value along with the broader market. In addition, market risk includes the risk that geopolitical and other events will disrupt the economy on a national or global level. For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental disasters can all negatively impact the securities markets, which could cause the Fund to lose value. These events could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and significantly adversely impact the economy. The current contentious domestic political environment, as well as political and diplomatic events within the United States and abroad, such as presidential elections in the U.S. or abroad or the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, has in the past resulted, and may in the future result, in a government shutdown or otherwise adversely affect the U.S. regulatory landscape, the general market environment and/or investor sentiment, which could have an adverse impact on the Fund’s

 

 

       
170   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

investments and operations. Additional and/or prolonged U.S. federal government shutdowns may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. Governmental and quasi-governmental authorities and regulators throughout the world have previously responded to serious economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets, which could adversely affect the Fund’s investments. Any market disruptions could also prevent the Fund from executing advantageous investment decisions in a timely manner. Funds that have focused their investments in a region enduring geopolitical market disruption will face higher risks of loss. Thus, investors should closely monitor current market conditions to determine whether the Fund meets their individual financial needs and tolerance for risk.

 

Current market conditions may pose heightened risks with respect to the Fund’s investment in fixed income securities. Interest rates in the U.S. are near historically low levels. Any interest rate increases in the future could cause the value of any Fund that invests in fixed income securities to decrease. As such, fixed income securities markets may experience heightened levels of interest rate, volatility and liquidity risk.

 

Exchanges and securities markets may close early, close late or issue trading halts on specific securities, which may result in, among other things, the Fund being unable to buy or sell certain securities or financial instruments at an advantageous time or accurately price its portfolio investments.

 

Mortgage-Related and Other Asset-Backed Instruments Risk

Generally, rising interest rates tend to extend the duration of fixed rate mortgage-related assets, making them more sensitive to changes in interest rates. As a result, in a period of rising interest rates, the Fund may exhibit additional volatility since individual mortgage holders are less likely to exercise prepayment options, thereby putting additional downward pressure on the value of these securities and potentially causing the Fund to lose money. This is known as extension risk. Mortgage-backed securities can be highly sensitive to rising interest rates, such that even small movements can cause the Fund to lose value. Mortgage-backed securities, and in particular those not backed by a government guarantee, are subject to credit risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This can reduce the returns of the Fund because the Fund may have to reinvest that money at the lower prevailing interest rates. The Fund’s investments in other asset-backed instruments are subject

to risks similar to those associated with mortgage-related assets, as well as additional risks associated with the nature of the assets and the servicing of those assets. Payment of principal and interest on asset-backed instruments may be largely dependent upon the cash flows generated by the assets backing the instruments, and asset-backed instruments may not have the benefit of any security interest in the related assets.

 

Subordinate mortgage-backed or asset-backed instruments are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payment on subordinate mortgage-backed or asset-backed instruments will not be fully paid.

 

There are multiple tranches of mortgage-backed and asset-backed instruments, offering investors various maturity and credit risk characteristics. Tranches are categorized as senior, mezzanine, and subordinated/equity or “first loss,” according to their degree of risk. The most senior tranche of a mortgage-backed or asset-backed instrument has the greatest collateralization and pays the lowest interest rate. If there are defaults or the collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches, and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. Lower tranches represent lower degrees of credit quality and pay higher interest rates intended to compensate for the attendant risks. The return on the lower tranches is especially sensitive to the rate of defaults in the collateral pool. The lowest tranche (i.e., the “equity” or “residual” tranche) specifically receives the residual interest payments (i.e., money that is left over after the higher tranches have been paid and expenses of the issuing entities have been paid) rather than a fixed interest rate. The Fund expects that investments in the lowest tranche of or subordinate mortgage-backed and other asset-backed instruments will be subject to the greatest risks of losing part or all of their values, which could arise from delinquencies and foreclosures, thereby exposing the Fund’s investment portfolio to potential losses. Subordinate securities of mortgage-backed and other asset-backed instruments are also subject to greater credit risk than those mortgage-backed or other asset-backed instruments that are more highly rated.

 

The mortgage markets in the United States and in various foreign countries have experienced extreme difficulties in the past that adversely affected the performance and market value of certain of the Fund’s mortgage-related investments. Delinquencies and losses on residential and commercial mortgage loans (especially subprime and second-lien mortgage loans) may increase, and a decline in or flattening of housing and other real property values may exacerbate

 

 

         ANNUAL REPORT     |     JULY 31, 2021     171
    


Principal Risks of the  Funds1   (Cont.)  

 

such delinquencies and losses. In addition, reduced investor demand for mortgage loans and mortgage-related securities and increased investor yield requirements have caused limited liquidity in the secondary market for mortgage-related securities, which can adversely affect the market value of mortgage-related securities. It is possible that such limited liquidity in such secondary markets could continue or worsen.

 

Mortgage-Related Derivative Instruments Risk

The Fund may engage in derivative transactions related to mortgage-backed securities, including purchasing and selling exchange-listed and OTC put and call options, futures and forwards on mortgages and mortgage-backed securities. The Fund may also invest in mortgage-backed securities credit default swaps, which include swaps the reference obligation for which is a mortgage-backed security or related index, such as the CMBX Index (a tradeable index referencing a basket of commercial mortgage-backed securities), the TRX Index (a tradeable index referencing total return swaps based on commercial mortgage-backed securities) or the ABX (a tradeable index referencing a basket of sub-prime mortgage-backed securities). The Fund may invest in newly developed mortgage related derivatives that may hereafter become available.

 

Derivative mortgage-backed securities (such as principal-only (“POs”), interest-only (“IOs”) or inverse floating rate securities) are particularly exposed to call and extension risks. Small changes in mortgage prepayments can significantly impact the cash flows and the market value of these derivative instruments. In general, the risk of faster than anticipated prepayments adversely affects IOs, super floaters and premium priced mortgage-backed securities. The risk of slower than anticipated prepayments generally affects POs, floating-rate securities subject to interest rate caps, support tranches and discount priced mortgage-backed securities. In addition, particular derivative instruments may be leveraged such that their exposure (i.e., price sensitivity) to interest rate and/or prepayment risk is magnified.

 

Mortgage-related derivative instruments involve risks associated with mortgage-related and other asset-backed instruments, privately-issued mortgage-related securities, the mortgage market, the real estate industry, derivatives and credit default swaps.

 

Operational Risk

An investment in the Fund, like any fund, can involve operational risks arising from factors such as processing errors, human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel and errors caused by third-party service providers. The occurrence of any of these failures, errors or breaches could result in a loss of information, regulatory scrutiny, reputational damage or other events, any of which could have a

material adverse effect on the Fund. While the Fund seeks to minimize such events through controls and oversight, there may still be failures that could cause losses to the Fund.

 

Other Investment Companies Risk

When investing in an investment company, the Fund will bear its ratable share of that investment company’s expenses and would remain subject to payment of the Fund’s management fees and other expenses with respect to assets so invested. Common Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to same leverage risks.

 

Platform Risk

If the Fund purchases Alt Lending ABS on an alternative lending platform, the Fund will have the right to receive principal and interest payments due on loans underlying the Alt Lending ABS only if the platform servicing the loans receives the borrower’s payments on such loans and passes such payments through to the Fund. If a borrower is unable or fails to make payments on a loan for any reason, the Fund may be greatly limited in its ability to recover any outstanding principal or interest due, as (among other reasons) the Fund may not have direct recourse against the borrower or may otherwise be limited in its ability to directly enforce its rights under the loan, whether through the borrower or the platform through which such loan was originated, the loan may be unsecured or under-collateralized and/or it may be impracticable to commence a legal proceeding against the defaulting borrower.

 

The Fund may have limited knowledge about the underlying loans and is dependent upon the platform for information regarding underlying loans. Although the Fund may conduct diligence on the platforms, the Fund generally does not have the ability to independently verify the information provided by the platforms, other than payment information regarding loans and other alternative lending-related instruments owned by the Fund, which the Fund observes directly as payments are received. With respect to alternative lending instruments that the Fund purchases in the secondary market (i.e., not directly from an alternative lending platform), the Fund may not perform the same level of diligence on such platform or at all. The Fund may not review the particular characteristics of the loans collateralizing an Alt Lending ABS, but rather negotiate in advance with platforms the general criteria of the underlying loans. As a result, the Fund is dependent on the platforms’ ability to collect, verify and provide information to the Fund about each loan and borrower.

 

The Fund relies on the borrower’s credit information, which is provided by the platforms. However, such information may be out of date, incomplete or inaccurate and may, therefore, not accurately reflect the

 

 

       
172   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

borrower’s actual creditworthiness. Platforms may not have an obligation to update borrower information, and, therefore, the Fund may not be aware of any impairment in a borrower’s creditworthiness subsequent to the making of a particular loan. The platforms’ credit decisions and scoring models may be based on algorithms that could potentially contain programming or other errors or prove to be ineffective or otherwise flawed. This could adversely affect loan pricing data and approval processes and could cause loans to be mispriced or misclassified, which could ultimately have a negative impact on the Fund’s performance.

 

In addition, the underlying loans, in some cases, may be affected by the success of the platforms through which they are facilitated.

 

Therefore, disruptions in the businesses of such platforms may also negatively impact the value of the Fund’s investments. In addition, disruption in the business of a platform could limit or eliminate the ability of the Fund to invest in loans originated by that platform, and therefore the Fund could lose some or all of the benefit of its diligence effort with respect to that platform.

 

Platforms are for-profit businesses that, as a general matter, generate revenue by collecting fees on funded loans from borrowers and by assessing a loan servicing fee on investors, which may be a fixed annual amount or a percentage of the loan or amounts collected. This business could be disrupted in multiple ways; for example, a platform could file for bankruptcy or a platform might suffer reputational harm from negative publicity about the platform or alternative lending more generally and the loss of investor confidence in the event that a loan facilitated through the platform is not repaid and the investor loses money on its investment. Many platforms and/or their affiliates have incurred operating losses since their inception and may continue to incur net losses in the future, particularly as their businesses grow and they incur additional operating expenses. Platforms may also be forced to defend legal action taken by regulators or governmental bodies. Alternative lending is a newer industry operating in an evolving legal environment. Platforms may be subject to risk of litigation alleging violations of law and/or regulations, including, for example, consumer protection laws, whether in the U.S. or in foreign jurisdictions. Platforms may be unsuccessful in defending against such lawsuits or other actions and, in addition to the costs incurred in fighting any such actions, platforms may be required to pay money in connection with the judgments, settlements or fines or may be forced to modify the terms of its borrower loans, which could cause the platform to realize a loss or receive a lower return on a loan than originally anticipated. Platforms may also be parties to litigation or other legal action in an attempt to protect or enforce their rights or those of affiliates, including intellectual property rights, and may incur similar costs in connection with any such efforts.

The Fund’s investments in Alt Lending ABS may expose the Fund to the credit risk of the issuer. Generally, such instruments are unsecured obligations of the issuer; an issuer that becomes subject to bankruptcy proceedings may be unable to make full and timely payments on its obligations to the Fund, even if the payments on the underlying loan or loans continue to be made timely and in full. In addition, when the Fund owns Alt Lending ABS, the Fund and its custodian generally does not have a contractual relationship with, or personally identifiable information regarding, individual borrowers, so the Fund will not be able to enforce underlying loans directly against borrowers and may not be able to appoint an alternative servicing agent in the event that a platform or third-party servicer, as applicable, ceases to service the underlying loans. Therefore, the Fund is more dependent on the platform for servicing than if the Fund had owned whole loans through the platform. Where such interests are secured, the Fund relies on the platform to perfect the Fund’s security interest. In addition, there may be a delay between the time the Fund commits to purchase an instrument issued by a platform, its affiliate or a special purpose entity sponsored by the platform or its affiliate and the issuance of such instrument and, during such delay, the funds committed to such an investment will not earn interest on the investment nor will they be available for investment in other alternative lending-related instruments, which will reduce the effective rate of return on the investment.

 

Portfolio Turnover Risk

The Investment Manager manages the Fund without regard generally to restrictions on portfolio turnover. The use of futures contracts and other derivative instruments with relatively short maturities may tend to exaggerate the portfolio turnover rate for the Fund. Trading in fixed income securities does not generally involve the payment of brokerage commissions but does involve indirect transaction costs. The use of futures contracts and other derivative instruments may involve the payment of commissions to futures commission merchants or other intermediaries. Higher portfolio turnover involves correspondingly greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. The higher the rate of portfolio turnover of the Fund, the higher these transaction costs borne by the Fund generally will be. Such sales may result in realization of taxable capital gains (including short-term capital gains, which are generally taxed to shareholders at ordinary income tax rates when distributed net of short-term capital losses and net long-term capital losses) and may adversely impact the Fund’s after-tax returns.

 

Potential Conflicts of Interest Risk — Allocation of Investment Opportunities

The Investment Manager is involved worldwide with a broad spectrum of financial services and asset management activities and may engage

 

 

         ANNUAL REPORT     |     JULY 31, 2021     173
    


Principal Risks of the  Funds1   (Cont.)  

 

in the ordinary course of business in activities in which their interests or the interests of their clients may conflict with those of the Fund. The Investment Manager may provide investment management services to other funds and discretionary managed accounts that follow an investment program similar to that of the Fund. Subject to the requirements of the Act, the Investment Manager intends to engage in such activities and may receive compensation from third parties for its services. The results of the Fund’s investment activities may differ from those of the Fund’s affiliates, or another account managed by the Fund’s affiliates, and it is possible that the Fund could sustain losses during periods in which one or more of the Fund’s affiliates and/or other accounts managed by the Investment Manager or its affiliates, including proprietary accounts, achieve profits on their trading.

 

Preferred Securities Risk

In addition to equity securities risk, credit risk and possibly high yield risk, investment in preferred securities involves certain other risks. Certain preferred securities contain provisions that allow an issuer under certain conditions to skip or defer distributions. If the Fund owns a preferred security that is deferring its distribution, the Fund may be required to include the amount of the deferred distribution in its taxable income for tax purposes although it does not currently receive such amount in cash. In order to receive the special treatment accorded to regulated investment companies and their shareholders under the Code and to avoid U.S. federal income and/or excise taxes at the Fund level, the Fund may be required to distribute this income to shareholders in the tax year in which the income is recognized (without a corresponding receipt of cash). Therefore, the Fund may be required to pay out as an income distribution in any such tax year an amount greater than the total amount of cash income the Fund actually received and to sell portfolio securities, including at potentially disadvantageous times or prices, to obtain cash needed for these income distributions. Preferred securities often are subject to legal provisions that allow for redemption in the event of certain tax or legal changes or at the issuer’s call. In the event of redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred securities are subordinated to bonds and other debt securities in an issuer’s capital structure in terms of priority for corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt securities. Preferred securities may trade less frequently and in a more limited volume and may be subject to more abrupt or erratic price movements than many other securities.

 

Additional Risks Associated with the Fund’s Preferred Shares

Although the Fund’s ARPS ordinarily would pay dividends at rates set at periodic auctions, the weekly auctions for the ARPS (and auctions for similar preferred shares issued by closed-end funds in the U.S.) have failed since 2008. The dividend rates on the ARPS since that time

have been paid, and the Fund expects that they will continue to be paid for the foreseeable future, at the “maximum applicable rate” under the Fund’s Bylaws (i.e., the greater of a multiple of or a spread plus a reference rate). An increase in market interest rates generally, therefore, could increase substantially the dividend rate required to be paid by the Fund to the holders of ARPS, which would increase the costs associated with the Fund’s leverage and reduce the Fund’s net income available for distribution to Common Shareholders. In addition, the multiple or spread used to calculate the maximum applicable rate is based in part on the credit rating assigned to the ARPS by the applicable rating agency(ies), with the multiple or spread generally increasing as the rating declines. The Fund’s ARPS rating has previously been downgraded and the ARPS could be subject to further ratings downgrades in the future, possibly resulting in further increases to the maximum applicable rate.

 

Therefore, it is possible that a substantial rise in market interest rates and/or further ratings downgrades of the ARPS could, by reducing income available for distribution to the Common Shareholders and otherwise detracting from the Fund’s investment performance, make the Fund’s continued use of Preferred Shares for leverage purposes less attractive than such use is currently considered to be. In such case, the Fund may elect to redeem some or all of the Preferred Shares outstanding, which may require it to dispose of investments at inopportune times and to incur losses on such dispositions. Such dispositions may adversely affect the Fund’s investment performance generally, and the resultant loss of leverage may materially and adversely affect the Fund’s investment returns to Common Shareholders. The Fund has previously been required to redeem a portion of its ARPS due to market dislocations that caused the value of the Fund’s portfolio securities and related asset coverage to decline and could be required to do so again in the future.

 

The Fund is also subject to certain asset coverage tests associated with the rating agencies that rate the ARPS. Failure by the Fund to maintain the asset coverages (or to cure such failure in a timely manner) may require the Fund to redeem ARPS. Failure to satisfy ratings agency asset coverage tests or other guidelines could also result in the applicable ratings agency downgrading its then-current ratings on the ARPS, as described above. Moreover, the rating agency guidelines impose restrictions or limitations on the Fund’s use of certain financial instruments or investment techniques that the Fund might otherwise utilize in order to achieve its investment objective, which may adversely affect the Fund’s investment performance. Rating agency guidelines may be modified by the rating agencies in the future and such modifications may make such guidelines substantially more restrictive or otherwise result in downgrades, which could further negatively affect the Fund’s investment performance.

 

 

       
174   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

As discussed further in “Notes to Financial Statements — Auction-Rate Preferred Shares”, on December 4, 2020, Fitch published revised ratings criteria relating to closed-end fund obligations, including preferred shares, which effectively result in a rating cap of “A” for the Fund. Following the close of business on April 30, 2021, Fitch downgraded its rating of the Fund’s ARPS from “AA” to “A” pursuant to the revised ratings methodology and related new rating caps. With respect to PIMCO Corporate & Income Strategy Fund, under the Fund’s Bylaws, the April 2021 Fitch downgrade resulted in an increase in the multiple used to calculate the maximum applicable rate from 150% to 160%, thereby increasing the dividend rate payable to the Fund’s ARPS holders and increasing the expenses to the Common Shareholders associated with the Fund’s leverage. With respect to each of PIMCO Income Strategy Fund and PIMCO Income Strategy Fund II, under each Fund’s Bylaws, the April 2021 Fitch downgrade resulted in an increase in the dividend rate multiplier from 1.50 to 2.00, which could increase the dividend rate payable to each Fund’s ARPS holders should the maximum dividend rate be determined via the multiplier in lieu of the spread noted above (the maximum dividend rate is based on the greater of a multiple of or a spread plus a reference rate) and, thereby, increase the expenses to Common Shareholders associated with the Fund’s leverage.

 

Privacy and Data Security Risk

The Fund generally does not intend to obtain or hold borrowers’ non-public personal information, and the Fund intends to implement procedures designed to prevent the disclosure of borrowers’ non-public personal information to the Fund. However, service providers to the Fund or its direct or indirect fully owned subsidiaries, including their custodians and the platforms acting as loan servicers for the Fund or its direct or indirect fully-owned subsidiaries, may obtain, hold or process such information. The Fund cannot guarantee the security of non-public personal information in the possession of such a service provider and cannot guarantee that service providers have been and will continue to comply with the Gramm-Leach-Bliley Act (“GLBA”), other data security and privacy laws and any other related regulatory requirements. Violations of GLBA and other laws could subject the Fund to litigation and/or fines, penalties or other regulatory action, which, individually or in the aggregate, could have an adverse effect on the Fund. The Fund may also face regulations related to privacy and data security in the other jurisdictions in which the Fund invests.

 

Private Placements Risk

A private placement involves the sale of securities that have not been registered under the 1933 Act, or relevant provisions of applicable non-U.S. law, to certain institutional and qualified individual purchasers, such as the Fund. In addition to the general risks to which all securities are subject, securities received in a private placement

generally are subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise valuation risks.

 

Privately Issued Mortgage-Related Securities Risk

There are no direct or indirect government or agency guarantees of payments in pools created by non-governmental issuers. Privately issued mortgage-related securities are also not subject to the same underwriting requirements for the underlying mortgages that are applicable to those mortgage-related securities that have a government or government-sponsored entity guarantee.

 

Privately issued mortgage-related securities are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, mortgage-related securities held in the Fund’s portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans.

 

Real Estate Risk

To the extent that the Fund invests in real estate related investments, including REITs, real estate-related loans or real-estate linked derivative instruments, it will be subject to the risks associated with owning real estate and with the real estate industry generally. These include difficulties in valuing and disposing of real estate, the possibility of declines in the value of real estate, risks related to general and local economic conditions, the possibility of adverse changes in the climate for real estate, environmental liability risks, the risk of increases in property taxes and operating expenses, possible adverse changes in zoning laws, the risk of casualty or condemnation losses, limitations on rents, the possibility of adverse changes in interest rates and in the credit markets and the possibility of borrowers paying off mortgages sooner than expected, which may lead to reinvestment of assets at lower prevailing interest rates. To the extent that the Fund invests in REITs, it will also be subject to the risk that a REIT may default on its obligations or go bankrupt. By investing in REITs indirectly through the Fund, a shareholder will indirectly bear his or her proportionate share of the expenses of the REITs. The Fund’s investments in REITs could cause the Fund to recognize income in excess of cash received from those securities and, as a result, the Fund may be required to sell portfolio securities, including when it is not advantageous to do so, in order to make distributions. An investment in a REIT or a real estate-linked derivative instrument that is linked to the value of a REIT is subject to additional risks, such as poor performance by the manager of the REIT, adverse changes to the tax laws or failure by the REIT to qualify for favorable tax treatment under

 

 

         ANNUAL REPORT     |     JULY 31, 2021     175
    


Principal Risks of the  Funds1   (Cont.)  

 

the Code. In addition, some REITs have limited diversification because they invest in a limited number of properties, a narrow geographic area, or a single type of property. Also, the organizational documents of a REIT may contain provisions that make changes in control of the REIT difficult and time-consuming. Finally, private REITs are not traded on a national securities exchange. As such, these products are generally illiquid. This reduces the ability of the Fund to redeem its investment early. Private REITs are also generally harder to value and may bear higher fees than public REITs.

 

Regulatory Changes Risk

Financial entities, such as investment companies and investment advisers, are generally subject to extensive government regulation and intervention. Government regulation and/or intervention may change the way the Fund is regulated, affect the expenses incurred directly by the Fund and the value of its investments, and limit and /or preclude the Fund’s ability to achieve its investment objective. Government regulation may change frequently and may have significant adverse consequences. The Fund and the Investment Manager have historically been eligible for exemptions from certain regulations. However, there is no assurance that the Fund and the Investment Manager will continue to be eligible for such exemptions. Actions by governmental entities may also impact certain instruments in which the Fund invests.

 

Moreover, government regulation may have unpredictable and unintended effects. Legislative or regulatory actions to address perceived liquidity or other issues in fixed income markets generally, or in particular markets such as the municipal securities market, may alter or impair the Fund’s ability to pursue its investment objectives or utilize certain investment strategies and techniques.

 

Current rules related to credit risk retention requirements for asset-backed securities may increase the cost to originators, securitizers and, in certain cases, asset managers of securitization vehicles in which the Fund may invest. The impact of the risk retention rules on the securitization markets is uncertain. These requirements may increase the costs to originators, securitizers, and, in certain cases, collateral managers of securitization vehicles in which the Fund may invest, which costs could be passed along to such Fund as an investor in such vehicles. In addition, the costs imposed by the risk retention rules on originators, securitizers and/or collateral managers may result in a reduction of the number of new offerings of asset-backed securities and thus in fewer investment opportunities for the Fund. A reduction in the number of new securitizations could also reduce liquidity in the markets for certain types of financial assets, which in turn could negatively affect the returns on the Fund’s investment.

 

Regulatory Risk — Commodity Pool Operator

The CFTC has adopted regulations that subject registered investment companies and their investment advisers to regulation by the CFTC if

the registered investment company invests more than a prescribed level of its liquidation value in futures, options on futures or commodities, swaps, or other financial instruments regulated under the CEA and the rules thereunder (“commodity interests”), or if the Fund markets itself as providing investment exposure to such instruments.

 

Regulatory Risk — LIBOR

The Fund’s investments (including, but not limited to, repurchase agreements, collateralized loan obligations and mortgage-backed securities), payment obligations and financing terms may rely in some fashion on LIBOR. LIBOR is an average interest rate, determined by the ICE Benchmark Administration, that banks charge one another for the use of short-term money. The United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, has announced plans to phase out the use of LIBOR by the end of 2021. On July 27, 2017, the Chief Executive of the FCA announced that after 2021 it will cease its active encouragement of banks to provide the quotations needed to sustain LIBOR due to the absence of an active market for interbank unsecured lending and other reasons. On March 5, 2021, the ICE Benchmark Administration (“IBA”), the administrator of LIBOR, announced that it will cease publication of many of its LIBOR settings after December 31, 2021, and that it will cease publication of certain commonly used tenors of U.S. dollar LIBOR after June 30, 2023. While the FCA may consult on the issue of requiring the IBA to produce certain LIBOR tenors on a synthetic basis, it has announced that all 35 LIBOR settings will either cease to be provided by any administrator or will no longer be representative as of the dates published by the IBA. The Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation have issued guidance encouraging market participants to adopt alternatives to LIBOR in new contracts as soon as practicable and no later than December 31, 2021. Although the transition process away from LIBOR has become increasingly well-defined in advance of the anticipated discontinuation date, there remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate (e.g., the Secured Overnight Financing Rate, which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities). Any potential effects of the transition away from LIBOR on the Fund or on certain instruments in which the Fund invests can be difficult to ascertain, and they may vary depending on factors that include, but are not limited to: (i) existing fallback or termination provisions in individual contracts and (ii) whether, how, and when industry participants develop and adopt new reference rates and fallbacks for both legacy and new products and instruments. For example, certain of the Fund’s investments may involve individual contracts that have no existing fallback provision or language that contemplates the discontinuation

 

 

       
176   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

of LIBOR, and those investments could experience increased volatility or illiquidity as a result of the transition process. In addition, interest rate provisions included in such contracts, or in contracts or other arrangements entered into by the Fund, may need to be renegotiated. The transition may also result in a reduction in the value of certain instruments held by the Fund, a change in the cost of borrowing or the dividend rate for any preferred shares that may be issued by the Fund, or a reduction in the effectiveness of related Fund transactions such as hedges. Any such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to the Fund.

 

Reinvestment Risk

Income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called debt obligations at market interest rates that are below the portfolio’s current earnings rate. For instance, during periods of declining interest rates, an issuer of debt obligations may exercise an option to redeem securities prior to maturity, forcing the Fund to invest in lower-yielding securities. The Fund also may choose to sell higher yielding portfolio securities and to purchase lower yielding securities to achieve greater portfolio diversification, because the portfolio managers believe the current holdings are overvalued or for other investment-related reasons. A decline in income received by the Fund from its investments is likely to have a negative effect on dividend levels and the market price, NAV and/or overall return of the Common Shares.

 

Repurchase Agreements Risk

The Fund may enter into repurchase agreements, in which the Fund purchases a security from a bank or broker-dealer, which agrees to repurchase the security at the Fund’s cost plus interest within a specified time. If the party agreeing to repurchase should default, the Fund would seek to sell the securities which it holds. This could involve procedural costs or delays in addition to a loss on the securities if their value should fall below their repurchase price. Repurchase agreements may be or become illiquid. These events could also trigger adverse tax consequences for the Fund.

 

Restricted Securities Risk

A private placement involves the sale of securities that have not been registered under the Securities Act or relevant provisions of applicable non-U.S. law to certain institutional and qualified individual purchasers, such as the Fund. In addition to the general risks to which all securities are subject, securities received in a private placement generally are subject to strict restrictions on resale, and there may be no liquid secondary market or ready purchaser for such securities. Therefore, the Fund may be unable to dispose of such securities when it desires to do so, or at the most favorable time or price. Private placements may also raise valuation risks. Restricted securities are often purchased at a discount from the market price of unrestricted

securities of the same issuer reflecting the fact that such securities may not be readily marketable without some time delay. Such securities are often more difficult to value, and the sale of such securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of liquid securities trading on national securities exchanges or in the over-the-counter markets. Until the Fund can sell such securities into the public markets, its holdings will be less liquid, and any sales will need to be made pursuant to an exemption under the Securities Act.

 

Securities Lending Risk

For the purpose of achieving income, the Fund may lend its portfolio securities to brokers, dealers, and other financial institutions provided a number of conditions are satisfied, including that the loan is fully collateralized. When the Fund lends portfolio securities, its investment performance will continue to reflect changes in the value of the securities loaned, and the Fund will also receive a fee or interest on the collateral. Securities lending involves the risk of loss of rights in the collateral or delay in recovery of the collateral if the borrower fails to return the security loaned or becomes insolvent. The Fund may pay lending fees to a party arranging the loan. Cash collateral received by the Fund in securities lending transactions may be invested in short-term liquid fixed income instruments or in money market or short-term mutual funds, or similar investment vehicles, including affiliated money market or short-term mutual funds. The Fund bears the risk of such investments.

 

Segregation and Coverage Risk

Certain portfolio management techniques, such as, among other things, entering into reverse repurchase agreement transactions, swap agreements, futures contracts or other derivative transactions, purchasing securities on a when-issued or delayed delivery basis or engaging in short sales may be considered senior securities unless steps are taken to segregate the Fund’s assets or otherwise cover its obligations. To avoid having these instruments considered senior securities, the Fund may segregate liquid assets with a value equal (on a daily mark-to-market basis) to its obligations under these types of leveraged transactions, enter into offsetting transactions or otherwise cover such transactions. At times, all or a substantial portion of the Fund’s liquid assets may be segregated for purposes of various portfolio transactions. The Fund may be unable to use such segregated assets for certain other purposes, which could result in the Fund earning a lower return on its portfolio than it might otherwise earn if it did not have to segregate those assets in respect of, or otherwise cover, such portfolio positions. To the extent the Fund’s assets are segregated or committed as cover, it could limit the Fund’s investment flexibility. Segregating assets and covering positions will not limit or offset losses on related positions.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     177
    


Principal Risks of the  Funds1   (Cont.)  

 

Senior Debt Risk

The Fund may be subject to greater levels of credit risk than funds that do not invest in below investment grade senior debt. The Fund may also be subject to greater levels of liquidity risk than funds that do not invest in senior debt. Restrictions on transfers in loan agreements, a lack of publicly available information and other factors may, in certain instances, make senior debt more difficult to sell at an advantageous time or price than other types of securities or instruments. Additionally, if the issuer of senior debt prepays, the Fund will have to consider reinvesting the proceeds in other senior debt or similar instruments that may pay lower interest rates.

 

Short Exposure Risk

The Fund’s short sales, if any, are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. The Fund may also enter into a short position through a forward commitment or a short derivative position through a futures contract or swap agreement. If the price of the security or derivative has increased during this time, then the Fund will incur a loss equal to the increase in price from the time that the short sale was entered into plus any transaction costs (i.e., premiums and interest) paid to the broker-dealer to borrow securities. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the investment. By contrast, a loss on a long position arises from decreases in the value of the security and is limited by the fact that a security’s value cannot decrease below zero.

 

By investing the proceeds received from selling securities short, the Fund could be deemed to be employing a form of leverage, which creates special risks. The use of leverage may increase the Fund’s exposure to long security positions and make any change in the Fund’s NAV greater than it would be without the use of leverage. This could result in increased volatility of returns. There is no guarantee that any leveraging strategy the Fund employs will be successful during any period in which it is employed.

 

In times of unusual or adverse market, economic, regulatory or political conditions, the Fund may not be able, fully or partially, to implement its short selling strategy. Periods of unusual or adverse market, economic, regulatory or political conditions generally may exist for long periods of time. Also, there is the risk that the third party to the short sale will not fulfill its contractual obligations, causing a loss to the Fund.

 

Special Purpose Acquisition Companies (“SPACs”) Risk See “Additional Information Regarding the Funds—Changes Occurring During the Reporting Period” for a description of this principal risk.

Smaller Company Risk. The general risks associated with debt instruments or equity securities are particularly pronounced for securities issued by companies with small market capitalizations. Small capitalization companies involve certain special risks. They are more likely than larger companies to have limited product lines, markets or financial resources, or to depend on a small, inexperienced management group. Securities of smaller companies may trade less frequently and in lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. They may also have limited liquidity. These securities may therefore be more vulnerable to adverse developments than securities of larger companies, and the Fund may have difficulty purchasing or selling securities positions in smaller companies at prevailing market prices. Also, there may be less publicly available information about smaller companies or less market interest in their securities as compared to larger companies. Companies with medium-sized market capitalizations may have risks similar to those of smaller companies.

 

Sovereign Debt Risk

In addition to the other risks applicable to debt investments, sovereign debt may decline in value as a result of default or other adverse credit event resulting from an issuer’s inability or unwillingness to make principal or interest payments in a timely fashion. A sovereign entity’s failure to make timely payments on its debt can result from many factors, including, without limitation, insufficient foreign currency reserves or an inability to sufficiently manage fluctuations in relative currency valuations, an inability or unwillingness to satisfy the demands of creditors and/or relevant supranational entities regarding debt service or economic reforms, the size of the debt burden relative to economic output and tax revenues, cash flow difficulties, and other political and social considerations. The risk of loss to the Fund in the event of a sovereign debt default or other adverse credit event is heightened by the unlikelihood of any formal recourse or means to enforce its rights as a holder of the sovereign debt. In addition, sovereign debt restructurings, which may be shaped by entities and factors beyond the Fund’s control, may result in a loss in value of the Fund’s sovereign debt holdings.

 

Structured Investments Risk

Holders of structured products, including structured notes, credit-linked notes and other types of structured products, bear the risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer or the entity that sold the assets to be securitized. While certain structured products enable the investor to acquire interests in a pool of securities without the brokerage and other expenses associated with directly holding the same securities, investors in structured products generally pay their share of the

 

 

       
178   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

structured product’s administrative and other expenses. Although it is difficult to predict whether the prices of indices and securities underlying structured products will rise or fall, these prices (and, therefore, the prices of structured products) are generally influenced by the same types of political and economic events that affect issuers of securities and capital markets generally. If the issuer of a structured product uses shorter term financing to purchase longer term securities, the issuer may be forced to sell its securities at below market prices if it experiences difficulty in obtaining such financing, which may adversely affect the value of the structured products owned by the Fund. Structured products generally entail risks associated with derivative instruments.

 

Subprime Risk

Loans, and debt instruments collateralized by loans, acquired by the Fund may be subprime in quality, or may become subprime in quality. Although there is no specific legal or market definition of “subprime,” subprime loans are generally understood to refer to loans made to borrowers that display poor credit histories and other characteristics that correlate with a higher default risk. Accordingly, subprime loans, and debt instruments secured by such loans, have speculative characteristics and are subject to heightened risks, including the risk of nonpayment of interest or repayment of principal, and the risks associated with investments in high yield securities. In addition, these instruments could be subject to increased regulatory scrutiny. The Fund is not restricted by any particular borrower credit criteria when acquiring loans or debt instruments collateralized by loans.

 

Subsidiary Risk

See “Additional Information Regarding the Funds—Changes Occurring During the Reporting Period” for a description of this principal risk.

 

Synthetic Convertible Securities Risk

The values of synthetic convertible securities will respond differently to market fluctuations than a traditional convertible security because a synthetic convertible is composed of two or more separate securities or instruments, each with its own market value. Synthetic convertible securities are also subject to the risks associated with derivatives. In addition, if the value of the underlying common stock or the level of the index involved in the convertible element falls below the strike price of the warrant or option, the warrant or option may lose all value.

 

Tax Risk

The Fund has elected to be treated as a “regulated investment company” (a “RIC”) under the Code and intends each year to qualify and be eligible to be treated as such, so that it generally will not be subject to U.S. federal income tax on its net investment income or net short-term or long-term capital gains, that are distributed (or deemed distributed, as described below) to shareholders. In order to qualify

and be eligible for such treatment, the Fund must meet certain asset diversification tests, derive at least 90% of its gross income for such year from certain types of qualifying income, and distribute to its shareholders at least 90% of its “investment company taxable income” as that term is defined in the Code (which includes, among other things, dividends, taxable interest and the excess of any net short-term capital gains over net long-term capital losses, as reduced by certain deductible expenses).

 

The Fund’s investment strategy will potentially be limited by its intention to continue qualifying for treatment as a RIC, and can limit the Fund’s ability to continue qualifying as such. The tax treatment of certain of the Fund’s investments under one or more of the qualification or distribution tests applicable to regulated investment companies is uncertain. An adverse determination or future guidance by the IRS or a change in law might affect the Fund’s ability to qualify or be eligible for such treatment.

 

If, in any year, the Fund were to fail to qualify for treatment as a RIC under the Code and were ineligible to or did not otherwise cure such failure, the Fund would be subject to tax on its taxable income at corporate rates and, when such income is distributed, shareholders would be subject to further tax on such distributions to the extent of the Fund’s current or accumulated earnings and profits.

 

U.S. Government Securities Risk

Certain U.S. Government Securities such as U.S. Treasury bills, notes and bonds and mortgage-related securities guaranteed by the GNMA, are supported by the full faith and credit of the United States; others, such as those of Federal Home Loan Banks (“FHLBs”) or the Federal Home Loan Mortgage Corporation (“FHLMC”), are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the FNMA, are supported by the discretionary authority of the U.S. Government to purchase the agency’s obligations; and still others are supported only by the credit of the agency, instrumentality or corporation. Although legislation has been enacted to support certain government sponsored entities, including the FHLBs, FHLMC and FNMA, there is no assurance that the obligations of such entities will be satisfied in full, or that such obligations will not decrease in value or default. It is difficult, if not impossible, to predict the future political, regulatory or economic changes that could impact the government sponsored entities and the values of their related securities or obligations. In addition, certain governmental entities, including FNMA and FHLMC, have been subject to regulatory scrutiny regarding their accounting policies and practices and other concerns that may result in legislation, changes in regulatory oversight and/or other consequences that could adversely affect the credit quality, availability or investment character of securities issued by these entities. Yields available from U.S. Government debt securities are

 

 

         ANNUAL REPORT     |     JULY 31, 2021     179
    


Principal Risks of the  Funds1   (Cont.)   (Unaudited)

 

generally lower than the yields available from such other securities. The values of U.S. Government Securities change as interest rates fluctuate.

 

Valuation Risk

Certain securities in which the Fund invests may be less liquid and more difficult to value than other types of securities. When market quotations or pricing service prices are not readily available or are deemed to be unreliable, the Fund values its investments at fair value as determined in good faith pursuant to policies and procedures approved by the Board. Fair value pricing may require subjective determinations about the value of a security or other asset. As a result, there can be no assurance that fair value pricing will result in adjustments to the prices of securities or other assets or that fair value pricing will reflect actual market value, and it is possible that the fair value determined for a security or other asset will be materially different from quoted or published prices, from the prices used by others for the same security or other asset and/or from the value that actually could be or is realized upon the sale of that security or other asset.

 

Zero-Coupon Bond, Step-Ups and Payment-in-Kind Securities Risk

The market prices of zero-coupon, step-ups and payment-in-kind securities are generally are more volatile than the prices of securities that pay interest periodically and in cash and are likely to respond to changes in interest rates to a greater degree than other types of debt securities with similar maturities and credit quality. Because zero-coupon securities bear no interest, their prices are especially volatile. And because zero-coupon bondholders do not receive interest payments, the prices of zero-coupon securities generally fall more dramatically than those of bonds that pay interest on a current basis when interest rates rise. The market for zero-coupon and payment-in-kind securities may suffer decreased liquidity. In addition, as these securities may not pay cash interest, the Fund’s investment exposure to these securities and their risks, including credit risk, will increase during the time these securities are held in the Fund’s portfolio. Further, to maintain its qualification for treatment as a RIC and to avoid Fund-level U.S. federal income and/or excise taxes, the Fund is required to distribute to its shareholders any income it is deemed to have received in respect of such investments, notwithstanding that cash has not been received currently, and the value of paid-in-kind interest. Consequently, the Fund may have to dispose of portfolio securities under disadvantageous circumstances to generate the cash or may have to leverage itself by borrowing the cash to satisfy this distribution requirement. The required distributions, if any, would result in an increase in the Fund’s exposure to these securities. Zero coupon bonds, step-ups and payment-in-kind securities allow an issuer to avoid or delay the need to generate cash

to meet current interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The Fund would be required to distribute the income on these instruments as it accrues, even though the Fund will not receive the income on a current basis or in cash. Thus, the Fund may sell other investments, including when it may not be advisable to do so, to make income distributions to its shareholders.

 

1 Defined terms used and not otherwise defined in this section have the meanings set forth in the Principal Investment Strategies and Principal Risks of the Funds sections.

 

 

       
180   PIMCO CLOSED-END FUNDS            


Risk Management Strategies     (Unaudited)

 

A Fund may (but is not required to) use various investment strategies to attempt to hedge exposure to reduce the risk of price fluctuations of its portfolio securities, the risk of loss, and to preserve capital. Derivatives strategies and instruments that a Fund may use include, among others, reverse repurchase agreements; interest rate swaps; total return swaps; credit default swaps; basis swaps; other types of swap agreements or options thereon; dollar rolls; futures and forward contracts (including foreign currency exchange contracts); short sales; options on financial futures; options based on either an index of municipal securities or taxable debt securities whose prices, PIMCO believes, correlate with the prices of the Fund’s investments; other derivative transactions; loans of portfolio securities and when-issued, delayed delivery and forward commitment transactions. Income earned by a Fund from its hedging and related transactions may be subject to one or more special U.S. federal income tax rules that can affect the amount, timing and/or character of distributions to holders of the Fund’s Common Shares. For instance, many hedging activities will be treated as capital gain and, if not offset by net realized capital loss, will be distributed to shareholders in taxable distributions. If effectively used, hedging strategies will offset in varying percentages losses incurred on a Fund’s investments due to adverse interest rate changes. There is no assurance that these hedging strategies will be available at any time or that PIMCO will determine to use them for a Fund or, if used, that the strategies will be successful. PIMCO may determine not to engage in hedging strategies or to do so only in unusual circumstances or market conditions. In addition, a Fund may be subject to certain restrictions on its use of hedging strategies imposed by guidelines of one or more ratings agencies that may issue ratings on any preferred shares issued by the Fund.

 

A Fund may take certain actions if short-term interest rates increase or market conditions otherwise change (or the Fund anticipates such an increase or change) and the Fund’s leverage begins (or is expected) to adversely affect holders of its Common Shares. In order to attempt to offset such a negative impact of leverage on holders of Common Shares, a Fund may shorten the average maturity or duration of its investment portfolio (by investing in short-term, high quality securities or implementing certain hedging strategies). Should a Fund issue preferred shares, the Fund also may attempt to reduce leverage by redeeming or otherwise purchasing preferred shares or by reducing any holdings in other instruments that create leverage. The success of any such attempt to limit leverage risk depends on PIMCO’s ability to accurately predict interest rate or other market changes. Because of the difficulty of making such predictions, a Fund may not be successful in managing its interest rate exposure in the manner described above.

In addition, each Fund has adopted certain investment limitations designed to limit investment risk. See “Fundamental Investment Restrictions” below for a description of these limitations.

 

1 Defined terms used and not otherwise defined in this section have the meanings set forth in the Principal Investment Strategies and Principal Risks of the Funds sections.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     181
    


Effects of  Leverage1     (Unaudited)

 

The following table is furnished in response to requirements of the SEC. It is designed to, among other things, illustrate the effects of leverage through the use of senior securities, as that term is defined under Section 18 of the Act, on Common Share total return, assuming investment portfolio total returns (consisting of income and changes in the value of investments held in a Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. The table below reflects each Fund’s continued use of Preferred Shares and reverse repurchase agreements, as applicable, as of July 31, 2021 as a percentage of total managed assets (including assets attributable to such leverage), the estimated annual effective Preferred Share dividend rate and interest expense rate payable by the Fund on such instruments (based on market conditions as of July 31, 2021), and the annual return that the Fund’s portfolio must experience (net of expenses) in order to cover such costs. The information below

does not reflect any Fund’s use of certain other forms of economic leverage achieved through the use of other instruments or transactions not considered to be senior securities under the Act, such as covered credit default swaps or other derivative instruments.

 

The assumed investment portfolio returns in the table below are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. Your actual returns may be greater or less than those appearing below. In addition, actual borrowing expenses associated with reverse repurchase agreements (or dollar rolls or borrowings, if any) used by the Fund may vary frequently and may be significantly higher or lower than the rate used for the example below.

 

 

 

          PIMCO
Corporate &
Income
Opportunity
Fund (PTY)
    PIMCO
Corporate &
Income
Strategy
Fund (PCN)
    PIMCO
High
Income
Fund
(PHK)
    PIMCO
Income
Strategy
Fund (PFL)
    PIMCO
Income
Strategy
Fund II
(PFN)
 

Preferred Shares as a Percentage of Total Managed Assets (Including Assets Attributable to Preferred Shares and Reverse Repurchase Agreements)

      7.41     2.25     4.37     7.63     7.69

Estimated Annual Effective Preferred Share Dividend Rate

      0.14     0.11     0.11     1.58     1.59

Reverse Repurchase Agreements as a Percentage of Total Managed Assets (Including Assets Attributable to Preferred Shares and Reverse Repurchase Agreements)

      35.30     39.79     36.02     30.64     28.71

Estimated Annual Effective Interest Expense Rate Payable by Fund on Reverse Repurchase Agreements

      0.56     0.56     0.59     0.63     0.60

Annual Return Fund Portfolio Must Experience (net of expenses) to Cover Estimated Annual Effective Preferred Share Dividend Rate and Interest Expense Rate on Reverse Repurchase Agreements

      0.21     0.23     0.22     0.31     0.29

Common Share Total Return for (10.00)% Assumed Portfolio Total Return

      (17.82 )%      (17.64 )%      (17.14 )%      (16.71 )%      (16.18 )% 

Common Share Total Return for (5.00)% Assumed Portfolio Total Return

      (9.09 )%      (9.02 )%      (8.75 )%      (8.61 )%      (8.32 )% 

Common Share Total Return for 0.00% Assumed Portfolio Total Return

      (0.37 )%      (0.39 )%      (0.37 )%      (0.51 )%      (0.46 )% 

Common Share Total Return for 5.00% Assumed Portfolio Total Return

      8.36     8.24     8.02     7.59     7.40

Common Share Total Return for 10.00% Assumed Portfolio Total Return

      17.09     16.87     16.41     15.69     15.26

 

Common Share total return is composed of two elements — the distributions paid by a Fund to holders of Common Shares (the amount of which is largely determined by the net investment income of the Fund after paying dividend payments on any preferred shares issued by the Fund and expenses on any forms of leverage outstanding) and gains or losses on the value of the securities and other instruments the Fund owns. As required by SEC rules, the table assumes that a Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, a Fund must assume that the income it receives on its investments is entirely offset by losses in the value of those investments. This table reflects hypothetical performance of a Fund’s portfolio and not the actual performance of the Fund’s Common Shares, the value of which is determined by market forces and other factors.

 

Should a Fund elect to add additional leverage to its portfolio, any benefits of such additional leverage cannot be fully achieved until the proceeds resulting from the use of such leverage have been received by the Fund and invested in accordance with the Fund’s investment objectives and policies. As noted above, a Fund’s willingness to use additional leverage, and the extent to which leverage is used at any time, will depend on many factors, including, among other things, PIMCO’s assessment of the yield curve environment, interest rate trends, market conditions and other factors.

 

1 Defined terms used and not otherwise defined in this section have the meanings set forth in the Principal Investment Strategies and Principal Risks of the Funds sections.

 

 

       
182   PIMCO CLOSED-END FUNDS            


Fundamental Investment Restrictions1     (Unaudited)

 

PIMCO Corporate & Income Opportunity Fund

 

The investment restrictions set forth below are each a fundamental policy of the Fund that may not be changed without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class. The Fund may not:

 

(1)

Concentrate its investments in a particular “industry,” as that term is used in the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(2)

With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each obligor, if any, is treated as a separate issuer of municipal bonds.

 

(3)

Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein.

 

(4)

Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws.

 

(5)

Borrow money or issue any senior security, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(6)

Make loans, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

(7)

Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws.

 

PIMCO Corporate & Income Strategy Fund

 

Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class:

 

(1)

Concentrate its investments in a particular “industry,” as that term is used in the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(2)

With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each guarantor, if any, are treated as separate issuers of municipal bonds.

 

(3)

Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein.

 

(4)

Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws.

 

(5)

Borrow money or issue any senior security, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

 

         ANNUAL REPORT     |     JULY 31, 2021     183
    


Fundamental Investment  Restrictions1   (Cont.)  

 

(6)

Make loans, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(7)

Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws.

 

PIMCO High Income Fund

 

Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest of the Fund (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest of the Fund (including the Preferred Shares) voting as a separate class:

 

(1)

Concentrate its investments in a particular “industry,” as that term is used in the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(2)

With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer. For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each obligor, if any, is treated as a separate issuer of municipal bonds.

 

(3)

Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein.

 

(4)

Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws.

(5)

Borrow money or issue any senior security, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(6)

Make loans, except to the extent permitted under the Investment Company Act of 1940, as amended, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(7)

Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws.

 

PIMCO Income Strategy Fund

 

The investment restrictions set forth below are each a fundamental policy of the Fund that may not be changed without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class. The Fund may not:

 

(1)

Concentrate its investments in a particular “industry,” as that term is used in the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(2)

With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer.

 

(3)

Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein.

 

(4)

Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws.

 

 

       
184   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

(5)

Borrow money or issue any senior security, except to the extent permitted under the 1940 Act and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(6)

Make loans, except to the extent permitted under the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(7)

Act as an underwriter of securities of other issuers, except to the extent that in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under the federal securities laws.

 

PIMCO Income Strategy Fund II

 

The investment restrictions set forth below are each a fundamental policy of the Fund that may not be changed without the approval of the holders of a majority of the outstanding Common Shares and any outstanding preferred shares of beneficial interest (including Preferred Shares) voting together as a single class, and of the holders of a majority of any outstanding preferred shares of beneficial interest (including Preferred Shares) voting as a separate class. The Fund may not:

 

(1)

Concentrate its investments in a particular “industry,” as that term is used in the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction, from time to time.

 

(2)

With respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. Government or any of its agencies or instrumentalities or securities issued by other investment companies, if, as a result, (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer.

 

(3)

Purchase or sell real estate, although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein.

 

(4)

Purchase or sell commodities or commodities contracts or oil, gas or mineral programs. This restriction shall not prohibit the Fund, subject to restrictions described in the Prospectus and elsewhere in this Statement of Additional Information, from purchasing, selling or entering into futures contracts, options on futures contracts, forward contracts, or any interest rate, securities-related or other hedging instrument, including swap agreements and other derivative instruments, subject to compliance with any applicable provisions of the federal securities or commodities laws

 

 

         ANNUAL REPORT     |     JULY 31, 2021     185
    


Management of the Funds    

 

The chart below identifies Trustees/Directors and Officers of the Funds. Unless otherwise indicated, the address of all persons below is c/o Pacific Investment Management Company LLC, 1633 Broadway, New York, New York 10019.

 

A list of officers and trustees of PIMCO containing information as to any business, profession, vocation, or employment of a substantial nature engaged in by such officers and directors during the past two years is included in the most recent Form ADV filed by PIMCO pursuant to the Investment Advisers Act of 1940.

 

The Funds’ Statement of Additional Information, if available, includes more information about the Trustees/Directors and Officers. To request a free copy, call PIMCO at (844) 33-PIMCO.

 

Trustees/Directors

 

Name and
Year of Birth
  Position(s)
Held
with the
Funds
  Term of
Office and
Length of
Time Served
 

Principal Occupation(s)

During the Past 5 Years

   Number
of Portfolios
in Fund
Complex
Overseen by
Trustee/
Director
   Other
Directorships
Held by
Trustee/
Director
During the
Past 5 Years
Independent Trustees

Deborah A. DeCotis

1952

  Chair of the Board, Trustee/Director   Trustee of each Fund since 2011, expected to stand for re-election at the annual meeting of shareholders held during the 2021- 2022 fiscal year for PFL, PFN and PCN and the 2023-2024 fiscal year for PHK and PTY.   Advisory Director, Morgan Stanley & Co., Inc. (since 1996); Member, Circle Financial Group (since 2009); Member, Council on Foreign Relations (since 2013); Trustee, Smith College (since 2017); and Director, Watford Re (since 2017). Formerly, Co-Chair Special Projects Committee, Memorial Sloan Kettering (2005-2015); Trustee, Stanford University (2010- 2015); Principal, LaLoop LLC, a retail accessories company (1999-2014); Director, Helena Rubenstein Foundation (1997-2010); and Director, Armor Holdings (2002-2010).    30    Trustee, Allianz Funds (2011-2021); Trustee, Virtus Funds (2021-Present).

Sarah E. Cogan

1956

  Trustee/Director   Trustee of each Fund since 2019, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PHK, PFL and PTY and the 2021-2022 fiscal year for PFN and PCN.   Retired Partner, Simpson Thacher & Bartlett LLP (law firm); Director, Girl Scouts of Greater New York, Inc. (since 2016); and Trustee, Natural Resources Defense Council, Inc. (since 2013). Formerly, Partner, Simpson Thacher & Bartlett LLP (1989-2018).    30    Trustee, Allianz Funds (2019-2021); Trustee, Virtus Funds (2021-Present).

Hans W. Kertess

1939

 

Trustee/Director

  Trustee of PCN since 2002, Trustee of PHK, PFL and PTY since 2003 and Trustee of PFN since 2004, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PFL and PFN and the 2023-2024 fiscal year for PHK, PCN and PTY.   President, H. Kertess & Co., a financial advisory company; and Senior Adviser (formerly, Managing Director), Royal Bank of Canada Capital Markets (since 2004).    30    Trustee, Allianz Funds (2004-2021); Trustee, Virtus AllianzGI Closed-End Funds (2021-Present)

Joseph B. Kittredge, Jr.

1954

 

Trustee/Director

  Trustee of each Fund since 2020, expected to stand for re-election at the annual meeting of shareholders held during the 2021-2022 fiscal year for PFL and PFN and the 2023-2024 fiscal year for PHK, PTY and PCN.   Trustee, Vermont Law School (since 2019); Director and Treasurer, Center for Reproductive Rights (since 2015). Formerly, Director (2013 to 2020) and Chair (2018 to 2020), ACLU of Massachusetts; General Counsel, Grantham, Mayo, Van Otterloo & Co. LLC (2005-2018) and Partner (2007-2018); President, GMO Trust (institutional mutual funds) (2009-2018); Chief Executive Officer, GMO Trust (2009-2015); President and Chief Executive Officer, GMO Series Trust (platform based mutual funds) (2011-2013).    30    Trustee, GMO Trust (2010-2018); Chairman of the Board of Trustees, GMO Series Trust (2011-2018).

William B. Ogden, IV

1945

 

Trustee/Director

  Trustee of each Fund since 2006, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PFL and PCN, the 2023-2024 fiscal year for PFN and the 2021-2022 fiscal year for PHK and PTY.   Retired. Formerly, Asset Management Industry Consultant; and Managing Director, Investment Banking Division of Citigroup Global Markets Inc.    30    Trustee, Allianz Funds (2006-2021); Trustee, Virtus AllianzGI Closed-End Funds (2021-Present).

 

       
186   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

Name and
Year of Birth
  Position(s)
Held
with the
Funds
  Term of
Office and
Length of
Time Served
 

Principal Occupation(s)

During the Past 5 Years

   Number
of Portfolios
in Fund
Complex
Overseen by
Trustee/
Director
   Other
Directorships
Held by
Trustee/
Director
During the
Past 5 Years

Alan Rappaport

1953

  Trustee   Trustee of PHK, PCN and PTY since 2010, Trustee of PFL since 2014 and Trustee of PFN since 2012, expected to stand for re-election at the annual meeting of shareholders held during the 2023-2024 fiscal year for PFL and PFN, the 2022-2023 fiscal year for PCN and the 2021-2022 fiscal year for PHK and PTY.   Adjunct Professor, New York University Stern School of Business (since 2011); Lecturer, Stanford University Graduate School of Business (since 2013); and Director, Victory Capital Holdings, Inc., an asset management firm (since 2013). Formerly, Advisory Director (formerly, Vice Chairman), Roundtable Investment Partners (2009-2018); Member of Board of Overseers, NYU Langone Medical Center (2015-2016); Trustee, American Museum of Natural History (2005-2015); Trustee, NYU Langone Medical Center (2007-2015); and Vice Chairman (formerly, Chairman and President), U.S. Trust (formerly, Private Bank of Bank of America, the predecessor entity of U.S. Trust) (2001-2008).    30    Trustee, Allianz Funds (2010-2021); Trustee, Virtus AllianzGI Closed-End Funds (2021-Present)

E. Grace Vandecruze

1963

  Trustee   Trustee of the Funds since 2021, expected to stand for election at the annual meeting of shareholders held during the 2021-2022 fiscal year end for each Fund.   Founder and Managing Director, Grace Global Capital LLC, a strategic advisory firm to the insurance industry (since 2006); Director and Member of the Audit Committee and the Wealth Solutions Advisory Committee, M Financial Group, a life insurance company (since 2015); Director, The Doctors Company, a medical malpractice insurance company (since 2020); Chief Financial Officer, Athena Technology Acquisition Corp, a special purpose acquisition company (since 2021); Director, Link Logistic REIT, a real estate company (since 2021); Director and Member of the Investment & Risk Committee, Resolution Life Group Holdings, a global life insurance group (since 2021); and Director, Wharton Graduate Executive Board. Formerly, Director, Resolution Holdings (2015-2019). Formerly, Director, SBLI USA, a life insurance company (2015-2018).    30    None
Interested Trustees*

David N. Fisher

1968

  Trustee   Trustee of each Fund since January 2019, expected to stand for re-election at the annual meeting of shareholders held during the 2022-2023 fiscal year for PHK, PCN and PTY, the 2023-2024 fiscal year for PFN and the 2021-2022 fiscal year for PFL.   Managing Director and Co-Head of U.S. Global Wealth Management Strategic Accounts, PIMCO (since 2021); Managing Director and Head of Traditional Product Strategies, PIMCO (2015-2021); and Director, Court Appointed Special Advocates (CASA) of Orange County, a non-profit organization (since 2015). Formerly, Global Bond Strategist, PIMCO (2008-2015); and Managing Director and Head of Global Fixed Income, HSBC Global Asset Management (2005-2008).    30    None

John C. Maney**

1959

  Trustee   Trustee of each Fund since 2006, expected to stand for re-election at the annual meeting of shareholders held during the 2023-2024 fiscal year for PFL, the 2022-2023 fiscal year for PFN and the 2021-2022 fiscal year for PHK, PCN and PTY.   Consultant to PIMCO since January 2020; Non-Executive Director and a member of the Compensation Committee of PIMCO Europe Ltd (since December 2017). Formerly, Managing Director of Allianz Asset Management of America L.P. (2005-2019); member of the Management Board and Chief Operating Officer of Allianz Asset Management of America L.P (2006-2019); Member of the Management Board of Allianz Global Investors Fund Management LLC (2007-2014) and Managing Director of Allianz Global Investors Fund Management LLC (2011-2014).    30    None

 

*

The Trustee/Director is an “interested person” of the Fund, as defined in Section 2(a)(19) of the 1940 Act, due to their affiliations with PIMCO and its affiliates.

**

Mr. Maney’s address is 650 Newport Center Drive, Newport Beach, Califorinia 92660.

 

         ANNUAL REPORT     |     JULY 31, 2021     187
    


Management of the Funds   (Cont.)   (Unaudited)

 

Officers

 

Name, Address and
Year of Birth
   Position(s)
Held
with Funds
   Term of Office
and Length
of Time Served
   Principal Occupation(s) During the Past 5 Years

Eric D. Johnson1

1970

   President    Since 2019    Executive Vice President and Head of Funds Business Group Americas, PIMCO. President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Keisha Audain-Pressley

1975

   Chief Compliance Officer    Since 2018    Executive Vice President and Deputy Chief Compliance Officer, PIMCO. Chief Compliance Officer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Ryan G. Leshaw1

1980

   Chief Legal Officer    Since 2019    Executive Vice President and Senior Counsel, PIMCO. Chief Legal Officer, PIMCO-Managed Funds. Chief Legal Officer and Secretary, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Associate, Willkie Farr & Gallagher LLP.

Joshua D. Ratner

1976

   Senior Vice President    Since 2019    Executive Vice President and Head of Americas Operations, PIMCO. Senior Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Peter G. Strelow1

1970

   Senior Vice President    Since 2019    Managing Director and Co-Chief Operating Officer, PIMCO. Senior Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Chief Administrative Officer, PIMCO.

Wu-Kwan Kit1

1981

   Vice President, Senior Counsel and Secretary    Since 2018    Senior Vice President and Senior Counsel, PIMCO. Vice President, Senior Counsel and Secretary, PIMCO-Managed Funds. Assistant Secretary, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT. Formerly, Assistant General Counsel, VanEck Associates Corp.

Jeffrey A. Byer1

1976

   Vice President    Since 2020    Executive Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Elizabeth A. Duggan1

1964

   Vice President    Since March 2021    Executive Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Mark A. Jelic1

1981

   Vice President    Since September 2021    Senior Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Brian J. Pittluck1

1977

   Vice President    Since 2020    Senior Vice President, PIMCO. Vice President, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Bijal Parikh1

1978

   Treasurer    Since January 2021    Senior Vice President, PIMCO. Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Colleen Miller

1980

   Deputy Treasurer    Since 2020    Senior Vice President, PIMCO. Deputy Treasurer, PIMCO-Managed Funds. Assistant Treasurer, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Erik C. Brown2

1967

   Assistant Treasurer    Since 2015    Executive Vice President, PIMCO. Assistant Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Brandon T. Evans1

1982

   Assistant Treasurer    Since 2019    Vice President, PIMCO. Assistant Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

Jason J. Nagler2

1982

   Assistant Treasurer    Since 2015    Senior Vice President, PIMCO. Assistant Treasurer, PIMCO-Managed Funds, PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series and PIMCO Equity Series VIT.

 

1 

The address of these officers is Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, California 92660.

2 

The address of these officers is Pacific Investment Management Company LLC, 401 Congress Ave., Austin, Texas 78701.

 

       
188   PIMCO CLOSED-END FUNDS            


Approval of Investment Management Agreement     (Unaudited)

 

PTY, PCN, PHK, PFL, PFN

 

The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the Board of Trustees (the “Board” or the “Trustees”), including a majority of the Trustees who are not “interested persons,” as that term is defined in the 1940 Act (the “Independent Trustees”), of PIMCO Corporate & Income Opportunity Fund (“PTY”), PIMCO Corporate & Income Strategy Fund (“PCN”), PIMCO High Income Fund (“PHK”), PIMCO Income Strategy Fund (“PFL”), and PIMCO Income Strategy Fund II (“PFN”) (each, a “Fund” and, collectively, the “Funds”), voting separately, annually approve the continuation of the Investment Management Agreement between each Fund and Pacific Investment Management Company LLC (“PIMCO”) (each, an “Agreement” and, collectively, the “Agreements”). At a meeting held by videoconference1 on June 29-30, 2021 (the “Approval Meeting”), the Board, including the Independent Trustees, considered and unanimously approved the continuation of each Agreement for an additional one-year period commencing on August 1, 2021.

 

In addition to the Approval Meeting, the annual contract review process with respect to the Agreements involved multiple discussions and meetings with members of the Contracts Committee of the Board (the “Committee”) and the full Committee (the Approval Meeting, together with such discussions and meetings, the “Contract Renewal Meetings”). Throughout the process, the Independent Trustees received legal advice from independent legal counsel that is experienced in 1940 Act matters and independent of PIMCO (“Independent Counsel”), and with whom they met separately from PIMCO during the Contract Renewal Meetings. Representatives from Fund management attended portions of the Contract Renewal Meetings and responded to questions from the Independent Trustees. The Committee also received and reviewed a memorandum from Independent Counsel regarding the Trustees’ responsibilities in considering each Agreement and the fees paid thereunder.

 

In connection with their deliberations regarding the proposed continuation of the Agreement for each Fund, the Board, including the Independent Trustees, considered such information and factors as they believed, in light of the legal advice furnished to them and their own business judgment, to reasonably be necessary to evaluate the terms of the Agreements. The Trustees also considered the nature, quality and extent of the various investment management, administrative and other services performed by PIMCO under the Agreements.

 

In evaluating each Agreement, the Board, including the Independent Trustees, reviewed extensive materials provided by PIMCO in response to questions, inclusive of follow-up inquiries, submitted by the Independent Trustees and Independent Counsel. It also met with senior representatives of PIMCO regarding its personnel, operations, and estimated profitability as they relate to the Funds.

 

The Trustees also considered the broad range of information relevant to the annual contract review that is provided to the Board (including its various standing committees) at meetings throughout the year, including reports on investment performance based on net asset value (“NAV”), market value (both absolute and compared against its Broadridge Performance Universe (as defined below)) and distribution yield, use of leverage (if applicable), information regarding share price premiums and/or discounts, risks, and other portfolio information, including the use of derivatives if used as part of the Fund’s strategy, as well as periodic reports on, among other matters, pricing and valuation, quality and cost of portfolio trade execution, compliance, and shareholder and other services provided by PIMCO and its affiliates. To assist with their review, the Trustees reviewed summaries prepared by PIMCO that analyzed each Fund based on a number of factors, including fees/expenses, performance, distribution yield, and risk-based factors, as of December 31, 2020. Additionally, the Trustees considered the impact of significant market volatility that occurred before, during, and after the period for which information was requested in conducting its evaluation of PIMCO. They also considered, among other information, performance based on NAV and market value, investment objective and strategy, portfolio managers, assets under management, outstanding leverage, share price premium and/or discount information, annual fund operating expenses, total expense ratio and management fee comparisons between each Fund and its Broadridge Expense Group (as defined below), and estimated profitability to PIMCO from its relationship with each Fund. In considering the Broadridge Performance Universe and Broadridge Expense Group, the Trustees requested that PIMCO comment on whether the Broadridge peer funds selected for each Fund provided an appropriate comparison, and if not, whether PIMCO believes another peer group would provide a more appropriate comparison.

 

The Trustees’ conclusions as to the continuation of each Agreement were based on a comprehensive consideration of all information provided to the Trustees during the Contract Renewal Meetings and throughout the year and were not the result of any single factor. Some

 

 

1 

The Board, including a majority of the Independent Trustees, determined to rely on the relief granted by a temporary exemptive order issued by the U.S. Securities and Exchange Commission (the “SEC”) under the 1940 Act that permits fund boards of trustees to approve advisory contracts at a meeting held by remote communications that allows participating trustees to hear one another simultaneously, rather than in-person, in light of the impact of the COVID-19 pandemic and restrictions on travel and in-person gatherings. The Board determined that reliance on the exemptive order was necessary and appropriate due to circumstances related to current or potential effects of the COVID-19 pandemic and government-mandated restrictions, and prior to commencing the approval meeting, the Board confirmed that all Board members could hear each other simultaneously during the meeting. The Board noted that it would ratify any actions taken at this meeting pursuant to the SEC relief at its next in-person meeting.

 

         ANNUAL REPORT     |     JULY 31, 2021     189
    


Approval of Investment Management Agreement   (Cont.)  

 

of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, attributing different weights to various factors. The Trustees evaluated information available to them on a Fund-by-Fund basis, and their determinations were made separately in respect of each Fund.

 

Nature, Extent and Quality of Services

 

As part of their review, the Trustees received and considered descriptions of various functions performed by PIMCO for the Funds, such as portfolio management, compliance monitoring, portfolio trading practices, and oversight of third-party service providers. They also considered information regarding the overall organization and business functions of PIMCO, including, without limitation, information regarding senior management, portfolio managers and other personnel providing or proposed to provide investment management, administrative, and/or other services, and corporate ownership and business operations unrelated to the Funds. The Trustees examined PIMCO’s abilities to provide high-quality investment management and other services to the Funds, noting PIMCO’s long history and experience in managing closed-end funds, such as the Funds, including experience monitoring and assessing discounts and premiums and complying with New York Stock Exchange (NYSE) requirements. Among other information, the Trustees considered the investment philosophy and research and decision-making processes of PIMCO; the breadth of each Fund’s investment universe; the experience of key advisory personnel of PIMCO responsible for portfolio management of the Funds; information regarding the Funds’ use of leverage; the ability of PIMCO to attract and retain capable personnel; the background and capabilities of the senior management and staff of PIMCO; the general process or philosophy for determining employee compensation; and the operational infrastructure, including technology and systems, of PIMCO. The Trustees also considered actions taken by PIMCO to manage the impact on each Fund and its portfolio holdings of market volatility during the time periods for which information was provided.

 

In addition, the Trustees noted the extensive range of services that PIMCO provides to the Funds beyond investment management services. In this regard, the Trustees reviewed the extent and quality of PIMCO’s services with respect to regulatory compliance and its ability to comply with the investment policies of the Funds; the compliance programs and risk controls of PIMCO (including the implementation of new policies and programs); the specific contractual obligations of PIMCO pursuant to the Agreements; the nature, extent, and quality of the supervisory and administrative services PIMCO is responsible for providing to the Funds; PIMCO’s risk management function; the time and resources PIMCO expends monitoring the leverage employed by the Funds, including the covenants and restrictions imposed by certain

forms of leverage such as the Funds’ preferred shares; and conditions that might affect PIMCO’s ability to provide high-quality services to the Funds in the future under the Agreements, including, but not limited to, PIMCO’s financial condition and operational stability. The Trustees also took into account the entrepreneurial and business risk that PIMCO has undertaken as investment manager and sponsor of the Funds. Specifically, the Trustees considered that PIMCO’s responsibilities include continual management of investment, operational, enterprise, legal, regulatory, and compliance risks as they relate to the Funds. The Trustees also noted PIMCO’s activities under its contractual obligation to coordinate, oversee, and supervise the Funds’ various outside service providers, including its negotiation of certain service providers’ fees and its due diligence and evaluation of service providers’ infrastructure, cybersecurity programs, compliance programs, and business continuity programs, among other matters. The Trustees also considered PIMCO’s ongoing development of its own infrastructure and information technology, including its proprietary software and applications, to support the Funds through, among other things, cybersecurity, business continuity planning, and risk management. The Trustees also considered PIMCO’s effective operation and successful implementation of its business continuity plan in response to the COVID-19 pandemic and its oversight of the service providers’ business continuity during this period.

 

The Trustees concluded that PIMCO’s investment process, research capabilities and philosophy were well suited to each Fund given its investment objective and policies, that PIMCO would be able to continue to meet any reasonably foreseeable obligations under each Agreement, and that PIMCO would otherwise be able to continue to provide investment and non-investment services to each Fund of an appropriate extent and quality.

 

Fee and Expense Information

 

In assessing the reasonableness of each Fund’s fees and expenses under the Agreement, the Trustees considered, among other information, the Fund’s management fee and its total expenses as a percentage of average net assets attributable to common shares and as a percentage of average total managed assets (including assets attributable both to common shares and specified leverage outstanding), in comparison to information about other peer funds as determined by Broadridge Financial Solutions, Inc. (“Broadridge”), including the management fees and other expenses of a smaller sample of peer funds with different investment advisers identified by Broadridge (for each Fund, its “Broadridge Expense Group”) as well as of a larger sample of peer funds identified by Broadridge (for each Fund, its “Broadridge Expense Universe”). In each case, the total expense ratio information was provided both inclusive and exclusive of interest and borrowing expenses. The Fund-specific fee and expense

 

 

       
190   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

results discussed below were prepared and provided by Broadridge and were not independently verified by the Trustees. The Trustees noted that only leveraged closed-end funds were considered for inclusion in the Broadridge Expense Groups and Broadridge Expense Universes.

 

The Trustees considered information regarding the investment performance and fees for other funds and accounts managed by PIMCO, if any, including funds and accounts with comparable investment programs and/or principal investment strategies to those of the Funds, as well as certain other funds requested by the Trustees with broadly similar strategies and/or investment types. The Trustees considered information provided by PIMCO indicating that, in comparison to certain other products managed by PIMCO, including open-end funds and exchange-traded funds, there are additional portfolio management challenges in managing closed-end funds such as the Funds. For example, the challenges associated with managing closed-end funds may include investing in less liquid and complex holdings, a greater use of leverage, issues relating to trading on a national securities exchange and managing the funds’ dividend practices. In addition, the Independent Trustees considered information provided by PIMCO as to the generally broader and more extensive services provided to the Funds in comparison to those provided to private funds or institutional or separate accounts; the higher demands placed on PIMCO to provide considerable shareholder services due to the volume of investors; the greater entrepreneurial, enterprise, and reputational risk in managing registered closed-end funds; and the impact on PIMCO and expenses associated with the more extensive regulatory and compliance requirements to which the Funds are subject in comparison to private funds or institutional or separate accounts. The Trustees were advised by PIMCO that, in light of these additional challenges and additional services, different pricing structures between closed-end funds and other products managed by PIMCO are to be expected, and that comparisons of pricing structures across these products may not always be apt comparisons, even where other products have comparable investment objectives and strategies to those of the Funds.

 

The Trustees also took into account that the Funds have preferred shares outstanding and use other forms of leverage, such as by the use of reverse repurchase agreements, which increases the amount of management fees payable by each Fund under the Agreement (because each Fund’s fees are calculated either based on net assets, including assets attributable to preferred shares outstanding, or based on total managed assets, including assets attributable to preferred shares and certain other forms of leverage outstanding). In this regard, the Trustees took into account that PIMCO has a financial incentive for the Funds to use or continue to use leverage on which management fees are charged, which may create a conflict of interest between PIMCO, on one hand, and the Funds’ common shareholders, on the other.

Therefore, the Trustees noted that the total fees paid by each Fund to PIMCO under the Fund’s unitary fee arrangement would therefore vary more with increases and decreases in leverage than under a non-unitary fee arrangement, all other things being equal. The Trustees considered information provided by PIMCO and related presentations as to why each Fund’s use of leverage continues to be appropriate and in the best interests of the respective Fund under current market conditions. The Trustees noted that they receive each quarter information from PIMCO comparing the recent, historical and projected costs of each Fund’s existing leverage arrangements against other available financing options, as well as information relating to PIMCO’s views regarding economic or other risks of maintaining those leverage arrangements and/or replacing them with alternate forms of financing. The Trustees also considered PIMCO’s representation that it will use leverage for the Funds solely as it determines to be in the best interests of the Funds from an investment perspective and without regard to the level of compensation PIMCO receives.

 

The Trustees noted that, for each of PTY and PHK, the contractual and actual management fee rates for the Fund under its unitary fee arrangement were below the median contractual and actual management fees of the other funds in its Broadridge Expense Group, calculated both on average net assets and on average total managed assets. For each of PCN, PFL and PFN, the contractual management fee rate for the Fund under its unitary fee arrangement was above the median contractual management fees of the other funds in its Broadridge Expense Group calculated on average net assets and above the median actual management fees of the other funds in its Broadridge Expense Group calculated on average total managed assets, while the actual management fee rate for the Fund under its unitary fee arrangement was below the median actual management fees of the other funds in its Broadridge Expense Group calculated on average net assets and above the median actual management fees of the other funds in its Broadridge Expense Group calculated on average total managed assets. In this regard, the Trustees took into account that each Fund’s unitary fee arrangement covers substantially all of the Fund’s operating fees and expenses (“Operating Expenses”), and therefore, all other things being equal, would tend to be higher than the contractual management fee rates of other funds in the Broadridge Expense Group, which generally do not have a unitary fee structure and instead incur Operating Expenses directly and in addition to the management fee. The Trustees determined that a comparison of each Fund’s total expense ratio with the total expense ratios of its Broadridge Expense Group would generally provide more meaningful comparisons than comparing contractual and actual management fee rates in isolation.

 

In this regard, the Trustees noted PIMCO’s view that the unitary fee arrangements have benefited and will continue to benefit common

 

 

         ANNUAL REPORT     |     JULY 31, 2021     191
    


Approval of Investment Management Agreement   (Cont.)  

 

shareholders because they provide an expense structure (including Operating Expenses) that is essentially fixed for the duration of the contractual period as a percentage of either NAV, including daily net assets attributable to outstanding preferred shares of the fund (as in case of PTY, PCN, and PHK), or total managed assets, including any assets attributable to any outstanding preferred shares or other forms of leverage of the Fund minus accrued liabilities other than liabilities representing leverage (as in case of PFL and PFN), as applicable, making it more predictable under ordinary circumstances in comparison to other fee and expense structures, under which the Funds’ Operating Expenses (including certain third-party fees and expenses) could vary significantly over time. The Trustees also considered that the unitary fee arrangements generally insulate the Funds and common shareholders from increases in applicable third-party and certain other expenses because PIMCO, rather than the Funds, would bear the risk of such increases (though the Trustees also noted that PIMCO would benefit from any reductions in such expenses).

 

Performance Information

 

Fund-specific comparative performance results for the Funds reviewed by the Trustees are discussed below. With respect to investment performance, the Trustees considered information regarding each Fund’s performance based on NAV and market value, as applicable, net of the Fund’s fees and expenses, both on an absolute basis and relative to the performance of its Broadridge Performance Universe (as defined below). The Trustees considered information provided by Broadridge for the Funds regarding the investment performance of a group of funds with investment classifications/objectives that Broadridge determined are comparable to those of each Fund (for each Fund, its “Broadridge Performance Universe”). The comparative performance information was prepared and provided by Broadridge and was not independently verified by the Trustees. The Trustees also considered information regarding the Funds’ comparative yields and risk-adjusted returns. The Trustees recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results. They further acknowledged that long-term performance could be impacted by even one period of significant outperformance or underperformance. The Trustees considered information from PIMCO regarding the risks undertaken by each Fund, including the use of leverage, and PIMCO’s management and oversight of the Fund’s risk profile, including in instances where the Fund outperformed its Broadridge Performance Universe.

 

In addition, the Trustees considered matters bearing on the Funds and their advisory arrangements at their meetings throughout the year, including a review of performance data at each regular meeting (by both the Board and its Performance Committee).

Profitability, Economies of Scale, and Fall-out Benefits

 

The Trustees considered estimated profitability analyses provided by PIMCO, which included, among other information, (i) PIMCO’s estimated pre- and post-distribution operating margin for each Fund, as well as PIMCO’s estimated pre- and post-distribution operating margin for all of the closed-end funds advised by PIMCO, including the Funds (collectively, the “Estimated Margins”), in each case for the one-year period ended December 31, 2020; (ii) a year-over-year comparison of PIMCO’s Estimated Margins for the one-year periods ended December 31, 2020 and December 31, 2019; and (iii) an overview of PIMCO’s average fee rates with respect to all of the closed-end funds advised by PIMCO, including the Funds, compared to PIMCO’s average fee rates with respect to its other clients, including PIMCO-advised separate accounts, open-end funds, hedge funds and private equity funds. The Trustees also took into account explanations from PIMCO regarding how certain of PIMCO’s corporate and shared expenses were allocated among the Funds and other funds and accounts managed by PIMCO for purposes of developing profitability estimates. Based on the profitability analyses provided by PIMCO, the Trustees determined, taking into account the various assumptions made, that such profitability did not appear to be excessive.

 

The Trustees also considered information regarding possible economies of scale in the operation of the Funds, including in connection with at-the-market offerings conducted by PFL, PFN, PTY and PCN. The Trustees noted that the Funds do not currently have any breakpoints in their management fees. The Trustees considered that, as closed-end investment companies, the Funds do not continually offer new shares to raise additional assets (as does a typical open-end investment company), but may raise additional assets through follow-on offerings (including at-the-market offerings with respect to PFL, PFN, PTY and PCN) and dividend reinvestments and may also experience asset growth through investment performance and/or the increased use of leverage. The Trustees noted PIMCO’s assertion that it may share the benefits of potential economies of scale, if any, with the Funds and their shareholders in a number of ways, including investing in portfolio and trade operations management, firm technology, middle and back office support, legal and compliance, and fund administration logistics; senior management supervision and governance of those services; and the enhancement of services provided to the Funds in return for fees paid. The Trustees also considered that the unitary fee arrangements provide inherent economies of scale because a Fund maintains competitive fixed unitary fees even if the particular Fund’s assets decline and/or operating costs increase. The Trustees further considered that, in contrast, breakpoints may be used as a proxy for charging higher fees on lower asset levels and that when a fund’s assets decline, breakpoints may reverse, which causes expense ratios to increase. The

 

 

       
192   PIMCO CLOSED-END FUNDS            


    (Unaudited)

 

Trustees also considered that, unlike the Funds’ unitary fee arrangements, funds with “pass through” administrative fee structures may experience increased expense ratios when fixed dollar fees are charged against declining fund assets. The Trustees also considered that the unitary fee arrangements protect shareholders, during the contractual period, from a rise in operating costs that may result from, among other things, PIMCO’s investments in various business enhancements and infrastructure. The Trustees noted that PIMCO has made extensive investments in these areas.

 

Additionally, the Trustees considered so-called “fall-out benefits” to PIMCO, such as reputational value derived from serving as investment manager to the Funds and research, statistical and quotation services that PIMCO may receive from broker-dealers executing the Funds’ portfolio transactions on an agency basis.

 

Fund-by-Fund Performance and Fee/Expense Analysis

 

With regard to the investment performance of each Fund and the fees charged to each Fund, the Board considered the following information. With respect to performance quintile rankings for a Fund compared to its Broadridge Performance Universe, the first quintile represents the highest (best) performance and the fifth quintile represents the lowest performance. The Board considered each Fund’s performance and fees in light of the limitations inherent in the methodology for determining such comparative groups.

 

PTY

 

With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consists of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had second quintile performance for the one-year period and first quintile performance for the three-, five- and ten-year periods ended December 31, 2020.

 

The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (including interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe.

PCN

 

With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consists of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had third quintile performance for the one-year period and first quintile performance for the three-, five- and ten-year periods ended December 31, 2020.

 

The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Group. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe.

 

PHK

 

With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, consisting of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had third quintile performance for the one-year period and first quintile performance for the three-, five- and ten-year periods ended December 31, 2020.

 

The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and

 

 

         ANNUAL REPORT     |     JULY 31, 2021     193
    


Approval of Investment Management Agreement   (Cont.)   (Unaudited)

 

borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Group. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) was above the median total expense ratio (including interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (including interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe.

 

PFL

 

With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consisted of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had first quintile performance for the one-, three- and five-year periods and third quintile performance for the ten-year period ended December 31, 2020.

 

The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (including interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) was above the median total expense ratio (excluding interest and borrowing expenses) calculated on average total managed assets and at the median total expense ratio (excluding interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) was above the median total expense ratio (excluding interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (excluding interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Group.

PFN

 

With respect to the Fund’s common share total return performance (based on NAV) relative to its respective Broadridge Performance Universe, which consisted of 35 funds for one-year performance, 28 funds for three-year performance, 26 funds for five-year performance and 17 funds for ten-year performance, the Trustees noted that the Fund had second quintile performance for the one-year period, first quintile performance for the three- and five-year periods and second quintile performance for the ten-year period ended December 31, 2020.

 

The Trustees noted that, including the Fund, the Broadridge Expense Group for the Fund consisted of 12 funds and the Broadridge Expense Universe for the Fund consisted of 23 funds. The Trustees noted that the Fund’s total expense ratio (including interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (including interest and borrowing expenses) of the funds in its Broadridge Expense Group and Broadridge Expense Universe. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) calculated on both average total managed assets and average net assets was below the median total expense ratio (excluding interest and borrowing expenses) of the funds in its Broadridge Expense Group. The Trustees noted that the Fund’s total expense ratio (excluding interest and borrowing expenses) was at the median total expense ratio (excluding interest and borrowing expenses) calculated on average total managed assets and below the median total expense ratio (excluding interest and borrowing expenses) calculated on average net assets of the funds in its Broadridge Expense Universe.

 

Conclusion

 

After reviewing these and other factors described herein, the Trustees concluded, with respect to each Fund, within the context of their overall conclusions regarding the Agreements, and based on the information provided and related representations made by management, and in their business judgment, that they were satisfied with PIMCO’s responses and efforts relating to the investment performance of the Funds. The Trustees also concluded that the fees payable under the Agreements represent reasonable compensation in light of the nature, extent, and quality of services provided by PIMCO. Based on their evaluation of factors that they deemed to be material, including, but not limited to, those factors described above, the Trustees, including the Independent Trustees, unanimously concluded that the continuation of the Agreements was in the interests of each Fund and its shareholders, and should be approved.

 

 

       
194   PIMCO CLOSED-END FUNDS            


Privacy  Policy1     (Unaudited)

 

The Funds2,3 consider customer privacy to be a fundamental aspect of their relationships with shareholders and are committed to maintaining the confidentiality, integrity and security of their current, prospective and former shareholders’ non-public personal information. The Funds have developed policies that are designed to protect this confidentiality, while allowing shareholder needs to be served.

 

OBTAINING NON-PUBLIC PERSONAL INFORMATION

 

In the course of providing shareholders with products and services, the Funds and certain service providers to the Funds, such as the Funds’ investment advisers or sub-advisers (“Advisers”), may obtain non-public personal information about shareholders, which may come from sources such as account applications and other forms, from other written, electronic or verbal correspondence, from shareholder transactions, from a shareholder’s brokerage or financial advisory firm, financial professional or consultant, and/or from information captured on applicable websites.

 

RESPECTING YOUR PRIVACY

 

As a matter of policy, the Funds do not disclose any non-public personal information provided by shareholders or gathered by the Funds to non-affiliated third parties, except as required or permitted by law or as necessary for such third parties to perform their agreements with respect to the Funds. As is common in the industry, non-affiliated companies may from time to time be used to provide certain services, such as preparing and mailing prospectuses, reports, account statements and other information, conducting research on shareholder satisfaction and gathering shareholder proxies. The Funds or their affiliates may also retain non-affiliated companies to market Fund shares or products which use Fund shares and enter into joint marketing arrangements with them and other companies. These companies may have access to a shareholder’s personal and account information, but are permitted to use this information solely to provide the specific service or as otherwise permitted by law. In most cases, the shareholders will be clients of a third party, but the Funds may also provide a shareholder’s personal and account information to the shareholder’s respective brokerage or financial advisory firm and/or financial professional or consultant.

 

SHARING INFORMATION WITH THIRD PARTIES

 

The Funds reserve the right to disclose or report personal or account information to non-affiliated third parties in limited circumstances where the Funds believe in good faith that disclosure is required under law, to cooperate with regulators or law enforcement authorities, to protect their rights or property, or upon reasonable request by any Fund in which a shareholder has invested. In addition, the Funds may disclose information about a shareholder or a shareholder’s accounts to a non-affiliated third party at the shareholder’s request or with the consent of the shareholder.

SHARING INFORMATION WITH AFFILIATES

 

The Funds may share shareholder information with their affiliates in connection with servicing shareholders’ accounts, and subject to applicable law may provide shareholders with information about products and services that the Funds or their Advisers, distributors or their affiliates (“Service Affiliates”) believe may be of interest to such shareholders. The information that the Funds may share may include, for example, a shareholder’s participation in the Funds or in other investment programs sponsored by a Service Affiliate, a shareholder’s ownership of certain types of accounts (such as IRAs), information about the Funds’ experiences or transactions with a shareholder, information captured on applicable websites, or other data about a shareholder’s accounts, subject to applicable law. The Funds’ Service Affiliates, in turn, are not permitted to share shareholder information with non-affiliated entities, except as required or permitted by law.

 

PROCEDURES TO SAFEGUARD PRIVATE INFORMATION

 

The Funds take seriously the obligation to safeguard shareholder non-public personal information. In addition to this policy, the Funds have implemented procedures that are designed to restrict access to a shareholder’s non-public personal information to internal personnel who need to know that information to perform their jobs, such as servicing shareholder accounts or notifying shareholders of new products or services. Physical, electronic and procedural safeguards are in place to guard a shareholder’s non-public personal information.

 

INFORMATION COLLECTED FROM WEBSITES

 

The Funds or their service providers and partners may collect information from shareholders via websites they maintain. The information collected via websites maintained by the Funds or their service providers includes client non-public personal information.

 

CHANGES TO THE PRIVACY POLICY

 

From time to time, the Funds may update or revise this privacy policy. If there are changes to the terms of this privacy policy, documents containing the revised policy on the relevant website will be updated.

 

1 Amended as of June 25, 2020.

2 PIMCO Investments LLC (“PI”) serves as the Funds’ distributor and does not provide brokerage services or any financial advice to investors in the Funds solely because it distributes the Funds. This Privacy Policy applies to the activities of PI to the extent that PI regularly effects or engages in transactions with or for a shareholder of a series of a Trust who is the record owner of such shares. For purposes of this Privacy Policy, references to “the Funds” shall include PI when acting in this capacity.

3 When distributing this Policy, a Fund may combine the distribution with any similar distribution of its investment adviser’s privacy policy. The distributed, combined, policy may be written in the first person (i.e. by using “we” instead of “the Funds”).

 

 

         ANNUAL REPORT     |     JULY 31, 2021     195
    


General Information

 

Investment Manager

Pacific Investment Management Company LLC

650 Newport Center Drive

Newport Beach, CA 92660

 

Custodian

State Street Bank and Trust Company

801 Pennsylvania Avenue

Kansas City, MO 64105

 

Transfer Agent, Dividend Paying Agent and Registrar for Common Shares

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

 

Auction Agent, Transfer Agent, Dividend Paying Agent and Registrar for Auction Rate Preferred Shares

Deustsche Bank Company Americas

1 Columbus Circle

New York, NY 10019

 

Legal Counsel

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

 

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

1100 Walnut Street, Suite 1300

Kansas City, MO 64106

 

This report is submitted for the general information of the shareholders of the Funds listed on the Report cover.


 

LOGO

 

CEF3011AR_073121


Item 2.

Code of Ethics.

As of the end of the period covered by this report, the Registrant has adopted a code of ethics (the “Code”) that applies to the Registrant’s principal executive officer and principal financial officer. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the principal executive officer or principal financial officer during the period covered by this report.

A copy of the Code is included as an exhibit to this report.

 

Item 3.

Audit Committee Financial Expert.

The Board of Trustees has determined that Joseph B. Kittredge, Jr., who serves on the Board’s Audit Oversight Committee, qualifies as an “audit committee financial expert” as such term is defined in the instructions to this Item 3. The Board has also determined that Mr. Kittredge is “independent” as such term is interpreted under this Item 3.

 

Item 4.

Principal Accountant Fees and Services.

 

(a)    Fiscal Year Ended

 

Audit Fees

 

        July 31, 2021

 

$ 84,900

 

        July 31, 2020

 

$ 59,116

 

(b)    Fiscal Year Ended

 

Audit-Related Fees

 

        July 31, 2021

 

$ 19,000

 

        July 31, 2020

 

$ 19,000

 

(c)    Fiscal Year Ended

 

Tax Fees (1)

 

        July 31, 2021

 

$ —

 

        July 31, 2020

 

$ —

 

(d)    Fiscal Year Ended

 

All Other Fees (2)

 

        July 31, 2021

 

$ —

 

        July 31, 2020

 

$ —

 

“Audit Fees” represents fees billed for each of the last two fiscal years for professional services rendered for the audit and review of the Registrant’s annual financial statements for those fiscal years or services that are normally provided by the accountant in connection with statutory or regulatory filings or engagements for those fiscal years.

“Audit-Related Fees” represents fees billed for each of the last two fiscal years for assurance and related services that are reasonably related to the performance of the audit or review of the Registrant’s financial statements, but not reported under “Audit Fees” above, and that include accounting consultations, agreed-upon procedure reports (inclusive of annual review of basic maintenance testing associated with the Preferred Shares), attestation reports and comfort letters for those fiscal years.

“Tax Fees” represents fees billed for each of the last two fiscal years for professional services related to tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, and tax distribution and analysis reviews.

“All Other Fees” represents fees, if any, billed for other products and services rendered by the principal accountant to the Registrant other than those reported above under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” for the last two fiscal years.


 

(1) There were no “Tax Fees” for the last two fiscal years.

(2) There were no “All Other Fees” for the last two fiscal years.

 

  (e)

Pre-approval policies and procedures

(1) The Registrant’s Audit Oversight Committee has adopted pre-approval policies and procedures (the “Procedures”) to govern the Audit Oversight Committee’s pre-approval of (i) all audit services and permissible non-audit services to be provided to the Registrant by its independent accountant, and (ii) all permissible non-audit services to be provided by such independent accountant to the Registrant’s investment adviser and to any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant (collectively, the “Service Affiliates”) if the services provided directly relate to the Registrant’s operations and financial reporting. In accordance with the Procedures, the Audit Oversight Committee is responsible for the engagement of the independent accountant to certify the Registrant’s financial statements for each fiscal year. With respect to the pre-approval of non-audit services provided to the Registrant and its Service Affiliates, the Procedures provide that the Audit Oversight Committee may annually pre-approve a list of types or categories of non-audit services that may be provided to the Registrant or its Service Affiliates, or the Audit Oversight Committee may pre-approve such services on a project-by-project basis as they arise. Unless a type of service has received general pre-approval, it will require specific pre-approval by the Audit Oversight Committee if it is to be provided by the independent accountant. The Procedures also permit the Audit Oversight Committee to delegate authority to one or more of its members to pre-approve any proposed non-audit services that have not been previously pre-approved by the Audit Oversight Committee, subject to the ratification by the full Audit Oversight Committee no later than its next scheduled meeting.

(2) With respect to the services described in paragraphs (b) through (d) of this Item 4, no amount was approved by the Audit Oversight Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

  (f)

Not applicable.

 

  (g)

 

          Aggregate Non-Audit Fees Billed to Entity         
Entity   July 31, 2021      July 31, 2020  

PIMCO High Income Fund

  $ 19,000      $ 19,000  

Pacific Investment Management Company LLC (“PIMCO”)

    15,487,493        18,863,643  
 

 

 

 

Totals

  $             15,506,493      $             18,882,643  
 

 

 

    

 

 

 

 

  (h)

The Registrant’s Audit Oversight Committee has considered whether the provision of non-audit services that were rendered to the Registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant which were not pre-approved (not requiring pre-approval) is compatible with maintaining the principal accountant’s independence.

 

  (i)

Not applicable.

 

  (j)

Not applicable.

 

Item 5.

Audit Committee of Listed Registrants.

The Registrant has a separately-designated standing audit committee (known as the Audit Oversight Committee) established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Oversight Committee is comprised of:

T. Matthew Buffington

Sarah E. Cogan

Deborah A. DeCotis

Hans W. Kertess

William B. Ogden, IV


Alan Rappaport

E. Grace Vandercruze

 

Item 6.

Schedule of Investments.

The information required by this Item 6 is included as part of the annual report to shareholders filed under Item 1 of this Form N-CSR.

 

Item 7.

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Policy Statement: PIMCO adopted a written proxy voting policy (“Proxy Policy”) as required by Rule 206(4)-6 under the Advisers Act. The Proxy Policy is intended to foster PIMCO’s compliance with its fiduciary obligations and applicable law. The Proxy Policy applies to any voting or consent rights with respect to securities held in accounts over which PIMCO has discretionary voting authority. The Proxy Policy is designed in a manner reasonably expected to ensure that voting and consent rights are exercised in the best interests of PIMCO’s clients.

Overview: As a general matter, PIMCO will adhere to its fiduciary obligations for any proxies it has the authority to vote on behalf of its clients. Each proxy is voted on a case-by-case basis, taking into account relevant facts and circumstances. When considering client proxies1, PIMCO may determine not to vote a proxy in limited circumstances.

Equity Securities.2 PIMCO has retained an Industry Service Provider (“ISP”)3 to provide research and voting recommendations for proxies relating to Equity Securities in accordance with the ISP’s guidelines. By following the guidelines of an independent third party, PIMCO seeks to mitigate potential conflicts of interest PIMCO may have with respect to proxies covered by the ISP. PIMCO will follow the recommendations of the ISP unless: (i) the ISP does not provide a voting recommendation; or (ii) a PM/Analyst decides to override the ISP’s voting recommendation. In each case as described above, the Legal and Compliance department will review the proxy to determine whether an actual or potential conflict of interest exists. When the ISP does not provide a voting recommendation, the relevant PM/Analyst will make a determination regarding how, or if, the proxy will be voted by completing required documentation.

Fixed Income Securities. Fixed income securities can be processed as proxy ballots or corporate action-consents4 at the discretion of the issuer/ custodian. When processed as proxy ballots, the ISP generally does not provide a voting recommendation and their role is limited to election processing and recordkeeping. In such instances, any elections would follow the standard process discussed above for Equity Securities. When processed as corporate action-consents, the Legal and Compliance department will review all election forms to determine whether an actual or potential conflict of interest exists with respect to the PM’s consent election. PIMCO’s Credit Research and Portfolio Management Groups are responsible for issuing recommendations on how to vote proxy ballots and corporation action-consents with respect to fixed income securities.

Resolution of potential/identified conflicts of interest. The Proxy Policy permits PIMCO to seek to resolve material conflicts of interest by pursuing any one of several courses of action. With respect to material conflicts of interest between PIMCO and a client account, the Proxy Policy permits PIMCO to either: (i) convene a working group to assess and resolve the conflict (the “Proxy Working Group”); or (ii) vote in accordance with protocols previously established by the Proxy Policy, the Proxy Working Group and/or other relevant procedures approved by PIMCO’s Legal and Compliance department or PIMCO’s Conflict Committee with respect to specific types of conflicts.

PIMCO will supervise and periodically review its proxy voting activities and the implementation of the Proxy Policy. PIMCO’s Proxy Policy, and information about how PIMCO voted a client’s proxies, is available upon request.

ISP Oversight: Consistent with its fiduciary obligations, PIMCO will perform periodic due diligence and oversight of ISP’s engaged to provide PIMCO with proxy voting research and recommendations. PIMCO’s due diligence and oversight process includes, but is not limited to, the evaluation of: the ISP’s capacity and competency to provide proxy voting research and recommendations5 and the ISP’s compliance program.

Sub-Adviser Engagement: As an investment manager, PIMCO may exercise its discretion to engage a Sub-Adviser to provide portfolio management services to certain PIMCO-affiliated Funds. Consistent with its management responsibilities, the Sub-Adviser will assume the authority for voting proxies on behalf of PIMCO for these Funds. Sub-Advisers may utilize third parties to perform certain services related to their portfolio management responsibilities. As a fiduciary, PIMCO will maintain


oversight of the investment management responsibilities (which may include proxy voting) performed by the Sub-Adviser and contracted third parties.

 

1Proxies generally describe corporate action consent rights (relative to fixed income securities) and proxy voting ballots (relative to fixed income or equity securities) as determined by the issuer or custodian.

2 The term “Equity Securities” means common and preferred stock, including common and preferred shares issued by investment companies; it does not include debt securities convertible into equity securities.

3 The ISP for Equity Securities proxy voting is Institutional Shareholder Services (“ISS”), Inc., 1177 Avenue of the Americas 2nd Floor, New York NY 10036.

4 Voting or consent rights shall not include matters which are primarily decisions to buy or sell investments, such as tender offers, exchange offers, conversions, put options, redemptions, and Dutch auctions.

5 This includes the adequacy and quality of the ISP’s operational infrastructure as it relates to its process for seeking timely input from issuers and its voting methodologies.

 

Item 8.

Portfolio Managers of Closed-End Management Investment Companies.

(a)(1)    

As of September 29, 2021, the following individuals have primary responsibility for the day-to-day management of the PIMCO High Income Fund (the “Fund”):

Daniel J. Ivascyn - Mr. Ivascyn has been the lead portfolio manager of the Fund since its inception in May 2012. Mr. Ivascyn is Group Chief Investment Officer and a managing director in the Newport Beach office. Prior to joining PIMCO in 1998, he worked at Bear Stearns in the asset-backed securities group, as well as T. Rowe Price and Fidelity Investments.

Joshua Anderson - Mr. Anderson has been a portfolio manager of the Fund since its inception in May 2012. Mr. Anderson is a managing director and portfolio manager in the London office, where he leads the European structured product group. He also oversees global structured credit investments. Previously, he was a structured product portfolio manager in the Newport Beach office. Prior to joining PIMCO in 2003, he was an analyst at Merrill Lynch covering both the residential ABS and collateralized debt obligation sectors and was ranked as one of the top analysts by Institutional Investor magazine. He was previously a portfolio manager at Merrill Lynch Investment Managers.

Alfred T. Murata - Mr. Murata has been a portfolio manager of the Fund since its inception in May 2012. Mr. Murata is a managing director in the Newport Beach office and a portfolio manager on the mortgage credit team. Prior to joining PIMCO in 2001, he researched and implemented exotic equity and interest rate derivatives at Nikko Financial Technologies.

(a)(2)    

The following summarizes information regarding each of the accounts, excluding the Fund, managed by the Portfolio Managers as of July 31, 2021, including accounts managed by a team, committee, or other group that includes a Portfolio Manager. Unless mentioned otherwise, the advisory fee charged for managing each of the accounts listed below is not based on performance.

 

     Registered Investment Companies    Other Pooled Investment Vehicles   

Other Accounts

Portfolio Manager

  

#

  

AUM($million)

  

#

  

AUM($million)

  

#

  

AUM($million)

Daniel J. Ivascyn1

   20    $185,826.73    17    $96,030.53    7    $2,358.66

Joshua Anderson2

   6    $152,578.49    11    $16,491.65    1    $0.11

Alfred T. Murata3

   21    $187,779.10    15    $40,397.18    6    $1,955.75

1 Of these Other Pooled Investment Vehicles,     6     accounts totaling $12,002.72                million in assets pay an advisory fee that is based in part on the performance of the accounts. Of these Other Accounts, 1     account totaling $271.10 million in assets pays an advisory fee that is based in part on the performance of the accounts.


2 Of these Other Pooled Investment Vehicles,     5     accounts totaling     $10,304.84                million in assets pay an advisory fee that is based in part on the performance of the accounts.

3 Of these Other Pooled Investment Vehicles,     2     accounts totaling     $2,162.92     million in assets pay an advisory fee that is based in part on the performance of the accounts.

From time to time, potential and actual conflicts of interest may arise between a portfolio manager’s management of the investments of a Fund, on the one hand, and the management of other accounts, on the other. Potential and actual conflicts of interest may also arise as a result of PIMCO’s other business activities and PIMCO’s possession of material non-public information (“MNPI”) about an issuer. Other accounts managed by a portfolio manager might have similar investment objectives or strategies as the Funds, track the same index a Fund tracks or otherwise hold, purchase, or sell securities that are eligible to be held, purchased or sold by the Funds. The other accounts might also have different investment objectives or strategies than the Funds. Potential and actual conflicts of interest may also arise as a result of PIMCO serving as investment adviser to accounts that invest in the Funds. In this case, such conflicts of interest could in theory give rise to incentives for PIMCO to, among other things, vote proxies of a Fund in a manner beneficial to the investing account but detrimental to the Fund. Conversely, PIMCO’s duties to the Funds, as well as regulatory or other limitations applicable to the Funds, may affect the courses of action available to PIMCO-advised accounts (including certain Funds) that invest in the Funds in a manner that is detrimental to such investing accounts. In addition, regulatory restrictions, actual or potential conflicts of interest or other considerations may cause PIMCO to restrict or prohibit participation in certain investments.

Because PIMCO is affiliated with Allianz SE, a large multi-national financial institution (together with its affiliates, “Allianz”), conflicts similar to those described below may occur between the Funds or other accounts managed by PIMCO and PIMCO’s affiliates or accounts managed by those affiliates. Those affiliates (or their clients), which generally operate autonomously from PIMCO, may take actions that are adverse to the Funds or other accounts managed by PIMCO. In many cases, PIMCO will not be in a position to mitigate those actions or address those conflicts, which could adversely affect the performance of the Funds or other accounts managed by PIMCO (each, a “Client,” and collectively, the “Clients”). In addition, because certain Clients are affiliates of PIMCO or have investors who are affiliates or employees of PIMCO, PIMCO may have incentives to resolve conflicts of interest in favor of these Clients over other Clients.

Knowledge and Timing of Fund Trades. A potential conflict of interest may arise as a result of a portfolio manager’s day-to-day management of a Fund. Because of their positions with the Funds, the portfolio managers know the size, timing and possible market impact of a Fund’s trades. It is theoretically possible that the portfolio managers could use this information to the advantage of other accounts they manage and to the possible detriment of a Fund.

Cross Trades. A potential conflict of interest may arise in instances where a Fund buys an instrument from a Client or sells an instrument to a Client (each, a “cross trade”). Such conflicts of interest may arise, among other reasons, as a result of PIMCO representing the interests of both the buying party and the selling party in the cross trade or because the price at which the instrument is bought or sold through a cross trade may not be as favorable as the price that might have been obtained had the trade been executed in the open market. PIMCO effects cross trades when appropriate pursuant to procedures adopted under applicable rules and SEC guidance. Among other things, such procedures require that the cross trade is consistent with the respective investment policies and investment restrictions of both parties and is in the best interests of both the buying and selling accounts.

Investment Opportunities. A potential conflict of interest may arise as a result of a portfolio manager’s management of a number of accounts with varying investment guidelines. Often, an investment opportunity may be suitable for one or more Clients, but may not be available in sufficient quantities for all accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a Fund and another Client. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities on a fair and equitable basis over time.

PIMCO seeks to allocate orders across eligible Client accounts with similar investment guidelines and investment styles fairly and equitably, taking into consideration relevant factors including, among others, applicable investment restrictions and guidelines, regulatory requirements, risk tolerances and available cash. As part of PIMCO’s trade allocation process, portions of new fixed income investment opportunities are distributed among Client account categories where the relevant portfolio managers seek to participate in the investment. Those portions are then further allocated among the Client accounts within such categories pursuant to PIMCO’s trade allocation policy. Portfolio managers managing quantitative strategies and specialized accounts, such as those focused on international securities, mortgage-backed securities, bank loans, or other specialized asset classes, will likely receive an increased distribution of new fixed income investment opportunities where the investment involves a quantitative strategy or specialized asset class that matches the investment objective or focus of the Client account category.


Any particular allocation decision among Client accounts may be more or less advantageous to any one Client or group of Clients, and certain allocations will, to the extent consistent with PIMCO’s fiduciary obligations, deviate from a pro rata basis among Clients in order to address for example, differences in legal, tax, regulatory, risk management, concentration, exposure, Client guideline limitations and/or mandate or strategy considerations for the relevant Clients. PIMCO may determine that an investment opportunity or particular purchases or sales are appropriate for one or more Clients, but not appropriate for other Clients, or are appropriate or suitable for, or available to, Clients but in different sizes, terms, or timing than is appropriate or suitable for other Clients. For example, some Clients have higher risk tolerances than other Clients, such as private funds, which, in turn, allows PIMCO to allocate a wider variety and/or greater percentage of certain types of investments (which may or may not outperform other types of investments) to such Clients. Those Clients receiving an increased allocation as a result of the effect of their respective risk tolerance may be Clients that pay higher investment management fees or that pay incentive fees. In addition, certain Client account categories focusing on certain types of investments or asset classes will be given priority in new issue distribution and allocation with respect to the investments or asset classes that are the focus of their investment mandate. Legal, contractual, or regulatory issues and/or related expenses applicable to PIMCO or one or more Clients may result in certain Clients not receiving securities that may otherwise be appropriate for them or may result in PIMCO selling securities out of Client accounts even if it might otherwise be beneficial to continue to hold them. Additional factors that are taken into account in the distribution and allocation of investment opportunities to Client accounts include, without limitation: ability to utilize leverage and risk tolerance of the Client account; the amount of discretion and trade authority given to PIMCO by the Client; availability of other similar investment opportunities; the Client account’s investment horizon and objectives; hedging, cash and liquidity needs of the portfolio; minimum increments and lot sizes; and underlying benchmark factors. Given all of the foregoing factors, the amount, timing, structuring, or terms of an investment by a Client, including a Fund, may differ from, and performance may be lower than, investments and performance of other Clients, including those that may provide greater fees or other compensation (including performance-based fees or allocations) to PIMCO. PIMCO has also adopted additional procedures to complement the general trade allocation policy that are designed to address potential conflicts of interest due to the side-by-side management of the Funds and certain pooled investment vehicles, including investment opportunity allocation issues.

From time to time, PIMCO may take an investment position or action for one or more Clients that may be different from, or inconsistent with, an action or position taken for one or more other Clients having similar or differing investment objectives. These positions and actions may adversely impact, or in some instances may benefit, one or more affected Clients (including Clients that are PIMCO affiliates) in which PIMCO has an interest, or which pays PIMCO higher fees or a performance fee. For example, a Client may buy a security and another Client may establish a short position in that same security. The subsequent short sale may result in a decrease in the price of the security that the other Client holds. Similarly, transactions or investments by one or more Clients may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of another Client.

When PIMCO implements for one Client a portfolio decision or strategy ahead of, or contemporaneously with, similar portfolio decisions or strategies of another Client, market impact, liquidity constraints or other factors could result in one or more Clients receiving less favorable trading results, the costs of implementing such portfolio decisions or strategies could be increased or such Clients could otherwise be disadvantaged. On the other hand, potential conflicts may also arise because portfolio decisions regarding a Client may benefit other Clients. For example, the sale of a long position or establishment of a short position for a Client may decrease the price of the same security sold short by (and therefore benefit) other Clients, and the purchase of a security or covering of a short position in a security for a Client may increase the price of the same security held by (and therefore benefit) other Clients.

Under certain circumstances, a Client may invest in a transaction in which one or more other Clients are expected to participate, or already have made or will seek to make, an investment. Such Clients (or groups of Clients) may have conflicting interests and objectives in connection with such investments, including with respect to views on the operations or activities of the issuer involved, the targeted returns from the investment and the timeframe for, and method of, exiting the investment. When making such investments, PIMCO may do so in a way that favors one Client over another Client, even if both Clients are investing in the same security at the same time. Certain Clients may invest on a “parallel” basis (i.e., proportionately in all transactions at substantially the same time and on substantially the same terms and conditions). In addition, other accounts may expect to invest in many of the same types of investments as another account. However, there may be investments in which one or more of such accounts does not invest (or invests on different terms or on a non-pro rata basis) due to factors such as legal, tax, regulatory, business, contractual or other similar considerations or due to the provisions of a Client’s governing documents. Decisions as to the allocation of investment opportunities among such Clients present numerous conflicts of interest, which may not be resolved in a manner that is favorable to a Client’s interests. To the extent


an investment is not allocated pro rata among such entities, a Client could incur a disproportionate amount of income or loss related to such investment relative to such other Client.

In addition, Clients may invest alongside one another in the same underlying investments or otherwise pursuant to a substantially similar investment strategy as one or more other Clients. In such cases, certain Clients may have preferential liquidity and information rights relative to other Clients holding the same investments, with the result that such Clients will be able to withdraw their interests in underlying investments in priority to Clients who may have more limited access to information or more restrictive withdrawal rights. Clients with more limited information rights or more restrictive liquidity may therefore be adversely affected in the event of a downturn in the markets.

Further, potential conflicts may be inherent in PIMCO’s use of multiple strategies. For example, conflicts will arise in cases where different Clients invest in different parts of an issuer’s capital structure, including circumstances in which one or more Clients may own private securities or obligations of an issuer and other Clients may own or seek to acquire private securities of the same issuer. For example, a Client may acquire a loan, loan participation or a loan assignment of a particular borrower in which one or more other Clients have an equity investment, or may invest in senior debt obligations of an issuer for one Client and junior debt obligations or equity of the same issuer for another Client.

Certain service providers to the Fund are expected to be owned by or otherwise related to or affiliated with the Fund or other account managed by PIMCO and in certain cases, such service providers are expected to be, or are owned by, employed by, or otherwise related to, PIMCO, Allianz, their affiliates and/or their respective employees, consultants and other personnel. PIMCO may, in its sole discretion, determine to provide, or engage or recommend an affiliate of PIMCO to provide, certain services to the Fund, instead of engaging or recommending one or more third parties to provide such services. Subject to the governance requirements of the Fund and applicable law, PIMCO or its affiliates, as applicable, will receive compensation in connection with the provision of such services. As a result, PIMCO faces a conflict of interest when selecting or recommending service providers for the Fund. Fees paid to an affiliated service provider will be determined in PIMCO’s commercially reasonable discretion, taking into account the relevant facts and circumstances, and consistent with PIMCO’s responsibilities. Although PIMCO has adopted various policies and procedures intended to mitigate or otherwise manage conflicts of interest with respect to affiliated service providers, there can be no guarantee that such policies and procedures (which may be modified or terminated at any time in PIMCO’s sole discretion) will be successful.

PIMCO may also, for example, direct a Client to invest in a tranche of a structured finance vehicle, such as a CLO or CDO, where PIMCO is also, at the same or different time, directing another Client to make investments in a different tranche of the same vehicle, which tranche’s interests may be adverse to other tranches. PIMCO may also cause a Client to purchase from, or sell assets to, an entity, such as a structured finance vehicle, in which other Clients may have an interest, potentially in a manner that will have an adverse effect on the other Clients. There may also be conflicts where, for example, a Client holds certain debt or equity securities of an issuer, and that same issuer has issued other debt, equity or other instruments that are owned by other Clients or by an entity, such as a structured finance vehicle, in which other Clients have an interest. In addition, to the extent permitted by applicable law, a Client may also engage in investment transactions that may result in other Clients being relieved of obligations, or that may cause other Clients to divest certain investments (e.g., a Client may make a loan to, or directly or indirectly acquire securities or indebtedness of, a company that uses the proceeds to refinance or reorganize its capital structure, which could result in repayment of debt held by another Client).

In each of the situations described above, PIMCO may take actions with respect to the assets held by one Client that are adverse to the other Clients, for example, by foreclosing on loans, by putting an issuer into default, or by exercising rights to purchase or sell to an issuer, causing an issuer to take actions adverse to certain classes of securities, or otherwise. In negotiating the terms and conditions of any such investments, or any subsequent amendments or waivers or taking any other actions, PIMCO may find that the interests of a Client and the interests of one or more other Clients could conflict. In these situations, decisions over items such as whether to make the investment or take an action, proxy voting, corporate reorganization, how to exit an investment, or bankruptcy or similar matters (including, for example, whether to trigger an event of default or the terms of any workout) may result in conflicts of interest. Similarly, if an issuer in which a Client and one or more other Clients directly or indirectly hold different classes of securities (or other assets, instruments or obligations issued by such issuer or underlying investments of such issuer) encounters financial problems, decisions over the terms of any workout will raise conflicts of interests (including, for example, conflicts over proposed waivers and amendments to debt covenants). For example, a debt holder may be better served by a liquidation of the issuer in which it may be paid in full, whereas an equity or junior bond holder might prefer a reorganization that holds the potential to create value for the equity holders. In some cases PIMCO may refrain from taking certain actions or making certain investments on behalf of Clients in order to avoid or mitigate certain conflicts of interest or to prevent adverse regulatory or other effects on PIMCO, or may sell investments for certain Clients (in each case potentially disadvantaging the Clients on whose behalf the actions are not taken,


investments not made, or investments sold). In other cases, PIMCO may not refrain from taking actions or making investments on behalf of certain Clients that have the potential to disadvantage other Clients. In addition, PIMCO may take actions or refrain from taking actions in order to mitigate legal risks to PIMCO or its affiliates or its Clients even if disadvantageous to a Client’s account. Moreover, a Client may invest in a transaction in which one or more other Clients are expected to participate, or already have made or will seek to make, an investment.

Additionally, certain conflicts may exist with respect to portfolio managers who make investment decisions on behalf of several different types of Clients. Such portfolio managers may have an incentive to allocate trades, time or resources to certain Clients, including those Clients who pay higher investment management fees or that pay incentive fees or allocations, over other Clients. These conflicts may be heightened with respect to portfolio managers who are eligible to receive a performance allocation under certain circumstances as part of their compensation.

From time to time, PIMCO personnel may come into possession of MNPI which, if disclosed, might affect an investor’s decision to buy, sell or hold a security. Should a PIMCO employee come into possession of MNPI with respect to an issuer, he or she generally will be prohibited from communicating such information to, or using such information for the benefit of, Clients, which could limit the ability of Clients to buy, sell or hold certain investments, thereby limiting the investment opportunities or exit strategies available to Clients. In addition, holdings in the securities or other instruments of an issuer by PIMCO or its affiliates may affect the ability of a Client to make certain acquisitions of or enter into certain transactions with such issuer. PIMCO has no obligation or responsibility to disclose such information to, or use such information for the benefit of, any person (including Clients).

PIMCO maintains one or more restricted lists of companies whose securities are subject to certain trading prohibitions due to PIMCO’s business activities. PIMCO may restrict trading in an issuer’s securities if the issuer is on a restricted list or if PIMCO has MNPI about that issuer. In some situations, PIMCO may restrict Clients from trading in a particular issuer’s securities in order to allow PIMCO to receive MNPI on behalf of other Clients. A Client may be unable to buy or sell certain securities until the restriction is lifted, which could disadvantage the Client. PIMCO may also be restricted from making (or divesting of) investments in respect of some Clients but not others. In some cases PIMCO may not initiate or recommend certain types of transactions, or may otherwise restrict or limit its advice relating to certain securities if a security is restricted due to MNPI or if PIMCO is seeking to limit receipt of MNPI.

PIMCO may conduct litigation or engage in other legal actions on behalf of one or more Clients. In such cases, Clients may be required to bear certain fees, costs, expenses and liabilities associated with the litigation. Other Clients that are or were investors in, or otherwise involved with, the subject investments may or may not (depending on the circumstances) be parties to such litigation actions, with the result that certain Clients may participate in litigation actions in which not all Clients with similar investments may participate, and such non-participating Clients may benefit from the results of such litigation actions without bearing or otherwise being subject to the associated fees, costs, expenses and liabilities. PIMCO, for example, typically does not pursue legal claims on behalf of its separate accounts. Furthermore, in certain situations, litigation or other legal actions pursued by PIMCO on behalf of a Client may be brought against or be otherwise adverse to a portfolio company or other investment held by a Client.

The foregoing is not a complete list of conflicts to which PIMCO or Clients may be subject. PIMCO seeks to review conflicts on a case-by-case basis as they arise. Any review will take into consideration the interests of the relevant Clients, the circumstances giving rise to the conflict, applicable PIMCO policies and procedures, and applicable laws. Clients (and investors in Funds) should be aware that conflicts will not necessarily be resolved in favor of their interests and may in fact be resolved in a manner adverse to their interests. PIMCO will attempt to resolve such matters fairly, but even so, matters may be resolved in favor of other Clients which pay PIMCO higher fees or performance fees or in which PIMCO or its affiliates have a significant proprietary interest. There can be no assurance that any actual or potential conflicts of interest will not result in a particular Client or group of Clients receiving less favorable investment terms in or returns from certain investments than if such conflicts of interest did not exist.

Conflicts like those described above may also occur between Clients, on the one hand, and PIMCO or its affiliates, on the other. These conflicts will not always be resolved in favor of the Client. In addition, because PIMCO is affiliated with Allianz, a large multi-national financial institution, conflicts similar to those described above may occur between clients of PIMCO and PIMCO’s affiliates or accounts managed by those affiliates. Those affiliates (or their clients), which generally operate autonomously from PIMCO, may take actions that are adverse to PIMCO’s Clients. In many cases PIMCO will have limited or no ability to mitigate those actions or address those conflicts, which could adversely affect Client performance. In addition, certain regulatory or internal restrictions may prohibit PIMCO from using certain brokers or investing in certain companies (even if such companies are not affiliated with Allianz) because of the applicability of certain laws and regulations


or internal Allianz policies applicable to PIMCO, Allianz SE or their affiliates. An account’s willingness to negotiate terms or take actions with respect to an investment may also be, directly or indirectly, constrained or otherwise impacted to the extent Allianz SE, PIMCO, and/or their affiliates, directors, partners, managers, members, officers or personnel are also invested therein or otherwise have a connection to the subject investment (e.g., serving as a trustee or board member thereof).

Performance Fees. A portfolio manager may advise certain accounts with respect to which the management fee is based entirely or partially on performance. Performance fee arrangements may create a conflict of interest for the portfolio manager in that the portfolio manager may have an incentive to allocate the investment opportunities that he or she believes might be the most profitable to such other accounts instead of allocating them to a Fund. PIMCO has adopted policies and procedures reasonably designed to allocate investment opportunities between the Funds and such other accounts on a fair and equitable basis over time.

(a)(3)

As of July 31, 2021, the following explains the compensation structure of the individuals who have primary responsibility for day-to-day portfolio management of the Fund:

Portfolio Manager Compensation

PIMCO’s approach to compensation seeks to provide professionals with a Total Compensation Plan and process that is driven by PIMCO’s mission and values. Key Principles on Compensation Philosophy include:

 

   

PIMCO’s pay practices are designed to attract and retain high performers;

 

   

PIMCO’s pay philosophy embraces a corporate culture of rewarding strong performance, a strong work ethic, and meritocracy;

 

   

PIMCO’s goal is to ensure key professionals are aligned to PIMCO’s long-term success through equity participation; and

 

   

PIMCO’s “Discern and Differentiate” discipline guides total compensation levels.

The Total Compensation Plan consists of three components. The compensation program for portfolio managers is designed to align with clients’ interests, emphasizing each portfolio manager’s ability to generate long-term investment success for PIMCO’s clients. A portfolio manager’s compensation is not based solely on the performance of any Fund or any other account managed by that portfolio manager:

Base Salary – Base salary is determined based on core job responsibilities, positions/levels and market factors. Base salary levels are reviewed annually, when there is a significant change in job responsibilities or position, or a significant change in market levels.

Performance Bonus – Performance bonuses are designed to reward risk-adjusted performance and contributions to PIMCO’s broader investment process. The compensation process is not formulaic and the following non-exhaustive list of qualitative and quantitative criteria are considered when determining the total compensation for portfolio managers:

 

   

Performance measured over a variety of longer- and shorter-term periods, including 5-year, 4-year, 3-year, 2-year and 1-year dollar-weighted and account-weighted, pre-tax total and risk-adjusted investment performance as judged against the applicable benchmarks (which may include internal investment performance-related benchmarks) for each account managed by a portfolio manager (including the Funds) and relative to applicable industry peer groups; greatest emphasis is placed on 5-year and 3-year performance, followed by 1-year performance;

 

   

Consistency of investment performance across portfolios of similar mandate and guidelines, rewarding low dispersion and consistency of outperformance;

 

   

Appropriate risk positioning and risk management mindset which includes consistency with PIMCO’s investment philosophy, the Investment Committee’s positioning guidance, absence of defaults, and appropriate alignment with client objectives;

 

   

Contributions to mentoring, coaching and/or supervising members of team;


   

Collaboration, idea generation, and contribution of investment ideas in the context of PIMCO’s investment process, Investment Committee meetings, and day-to-day management of portfolios;

 

   

With much lesser importance than the aforementioned factors: amount and nature of assets managed by the portfolio manager, contributions to asset retention, and client satisfaction.

PIMCO’s partnership culture further rewards strong long term risk adjusted returns with promotion decisions almost entirely tied to long term contributions to the investment process. 10-year performance can also be considered, though not explicitly as part of the compensation process.

Deferred Compensation – The Long Term Incentive Plan (“LTIP”) is awarded to key professionals. Employees who reach a total compensation threshold are delivered their annual compensation in a mix of cash and/or deferred compensation. PIMCO incorporates a progressive allocation of deferred compensation as a percentage of total compensation, which is in line with market practices.

 

   

The LTIP provides participants with deferred cash awards that appreciate or depreciate based on PIMCO’s operating earnings over a rolling three-year period. The plan provides a link between longer term company performance and participant pay, further motivating participants to make a long term commitment to PIMCO’s success.

Eligibility to participate in LTIP program is contingent upon continued employment at PIMCO and all other applicable eligibility requirements.

Profit Sharing Plan. Portfolio managers who are Managing Directors of PIMCO receive compensation from a non-qualified profit sharing plan consisting of a portion of PIMCO’s net profits. Portfolio managers who are Managing Directors receive an amount determined by the Compensation Committee, based upon an individual’s overall contribution to the firm.

(a)(4)

The following summarizes the dollar range of securities of the Fund the Portfolio Managers beneficially owned as of July 31, 2021:

 

Portfolio Manager    Dollar Range of Equity Securities of the Fund  Owned as
of July 31, 2021

Daniel J. Ivascyn

   over $1,000,000

Joshua Anderson

   $100,001-$500,000

Alfred T. Murata

   $100,001-$500,000

 

Item 9.

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

None.

 

Item 10.

Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Trustees since the Fund last provided disclosure in response to this item.

 

Item 11.

Controls and Procedures.

 

  (a)

The principal executive officer and principal financial & accounting officer have concluded as of a date within 90 days of the filing date of this report, based on their evaluation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act), that the design of such procedures is effective to provide reasonable assurance that material information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

 

  (b)

There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d))) that occurred during the last fiscal quarter of the period covered by this report


 

that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

Item 12.

Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.

None.

 

Item 13.

Exhibits.

 

(a)(1)

   Exhibit 99.CODE—Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002.

(a)(2)

   Exhibit 99.CERT—Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(a)(3)

   None.

(a)(4)

   There was no change in the registrant’s independent public accountant for the period covered by the report.

(b)

   Exhibit 99.906CERT—Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

PIMCO High Income Fund

By:

 

/s/    Eric D. Johnson

    

 

Eric D. Johnson

  President (Principal Executive Officer)

Date:

 

September 29, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:  

/s/    Eric D. Johnson

    

  Eric D. Johnson
  President (Principal Executive Officer)
Date:   September 29, 2021
By:  

/s/    Bijal Y. Parikh

    

  Bijal Y. Parikh
  Treasurer (Principal Financial & Accounting Officer)
Date:   September 29, 2021

Code of Ethics Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 for Principal

Executive and Senior Financial Officers

PIMCO Funds

PIMCO Variable Insurance Trust (“PVIT”)

PIMCO ETF Trust (“ETF”)

PIMCO Equity Series (“PES”)

PIMCO Equity Series VIT (“PESVIT”)

PIMCO Managed Accounts Trust

PIMCO Sponsored Closed-End Funds

PIMCO Sponsored Interval Funds1

 

I.

Covered Officers/Purpose of the Code

This Code of Ethics (this “Code”) pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 has been adopted by the Funds and, except as provided in Section VI below, applies to each Fund’s Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer (the “Covered Persons”). Each Covered Person is identified in Exhibit A.)

This Code has been adopted for the purpose of promoting:

 

   

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

   

full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by a Fund;

 

   

compliance with applicable laws and governmental rules and regulations;

 

   

the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and

 

   

accountability for adherence to the Code.

Each Covered Person should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to conflicts of interest or the appearance thereof.

 

1 

The listed entities which are open-end investment companies are known as the “Trusts,” the listed entities which are publicly-traded closed-end investment companies are known as the “Closed-End Funds,” and the listed entities which are closed-end investment companies operating as “interval” funds under Rule 23c-3 of the 1940 Act are known as the “Interval Funds.” The Trusts’ respective series, the Closed-End Funds, and the Interval Funds are referred to herein as the “Funds.” References to “Trustees” include Directors, as applicable.


Sarbanes-Oxley Code of Ethics

 

II.

Covered Persons Should Handle Ethically Any Actual or Apparent Conflicts of Interest

Overview. A “conflict of interest” occurs when a Covered Person’s private interest interferes with the interests of, or his service to, the relevant Fund. For example, a conflict of interest would arise if a Covered Person, or a member of the Covered Person’s family, receives improper personal benefits as a result of the Covered Person’s position with the relevant Fund.

Certain conflicts of interest arise out of the relationships between Covered Persons and the relevant Fund and already are subject to conflict of interest provisions and procedures in the Investment Company Act of 1940, as amended (including the regulations thereunder, the “1940 Act”) and the Investment Advisers Act of 1940, as amended (including the regulations thereunder, the “Investment Advisers Act”) and other applicable laws. Indeed, conflicts of interest are endemic for registered management investment companies and those conflicts are both substantially and procedurally dealt with under the 1940 Act. For example, Covered Persons may not engage in certain transactions with a Fund because of their status as “affiliated persons” of such Fund. The compliance program of each Fund and the compliance programs of its investment adviser, principal underwriter (with respect to the Trusts) and administrator (each a “PIMCO-Affiliated Service Provider” and, collectively, the “PIMCO-Affiliated Service Providers”2) are reasonably designed to prevent, or identify and correct, violations of many of those provisions, although they are not designed to provide absolute assurance as to those matters. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. See also Section V of this Code.

Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Fund and its applicable PIMCO-Affiliated Service Providers of which the Covered Persons are also officers or employees. As a result, this Code recognizes that the Covered Persons will, in the normal course of their duties (whether for the Funds or for a PIMCO-Affiliated Service Provider, or for both), be involved in establishing policies and implementing decisions that will have different effects on the PIMCO-Affiliated Service Providers and the Funds. The participation of the Covered Persons in such activities is inherent in the contractual relationships between the Funds and their applicable PIMCO-Affiliated Service Providers and is consistent with the performance by the Covered Persons of their duties as officers of the relevant Fund. Thus, if performed in conformity with the provisions of the 1940 Act, the Investment Advisers Act, other applicable law and the relevant Fund’s constitutional documents, such activities will be deemed to have been handled ethically. Frequently, the 1940 Act establishes, as a mechanism for dealing with conflicts, requirements that such potential conflicts be disclosed to and approved by the Trustees of a Fund who are not “interested persons” of such Fund under the 1940 Act. In addition, it is recognized by each Fund’s Board of Trustees that the Covered Persons may also be officers or employees of one or more other investment companies covered by this or other codes and that such service, by itself, does not give rise to a conflict of interest.

 

2 

Each PIMCO-Affiliated Service Provider is identified in Exhibit B.

 

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Sarbanes-Oxley Code of Ethics

 

Other conflicts of interest are covered by the Code, even if such conflicts of interest are not the subject of provisions of the 1940 Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Persons should bear in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Person should not be placed improperly before the interest of the relevant Fund, unless the personal interest is disclosed to and reviewed by other officers of such Fund or such Fund’s Chief Compliance Officer (“CCO”).

*          *          *           *

Each Covered Person must not:

 

   

use his personal influence or personal relationships to improperly influence investment decisions or financial reporting by the relevant Fund whereby the Covered Person would benefit personally to the detriment of such Fund;

 

   

cause the relevant Fund to take action, or fail to take action, for the individual personal benefit of the Covered Person rather than the benefit of such Fund; or

 

   

retaliate against any other Covered Person or any employee of the Funds or their PIMCO-Affiliated Service Providers for reports of potential violations that are made in good faith.

There are some conflict of interest situations that should always be submitted for review by the President of the relevant Fund (or, with respect to activities of the President, by the Chairman of the relevant Fund or, if the same person holds the titles of President and Chairman, by the Fund’s CCO). These conflict of interest situations are listed below:

 

   

service on the board of directors or governing board of a publicly traded entity;

 

   

knowing acceptance of any investment opportunity or of any material gift or gratuity from any person or entity that does business, or desires to do business, with the relevant Fund. For these purposes, material gifts do not include (i) gifts from a single giver so long as their aggregate annual value does not exceed the equivalent of $100.00; (ii) attending business meals, business related conferences, sporting events and other entertainment events at the expense of a giver, so long as the expense is reasonable3 and both the Covered Person and the giver are present4; or (iii) gifts or meals/conferences/events received from the Covered Person’s employer;

 

3                 Whether an entertainment expense is “reasonable” will vary depending on the circumstances. For example, under proposed FINRA (NASD) guidance (Proposed IM 3060, SEC Release No. 34-55765, May 15, 2007), generally, a business entertainment event that is so lavish or extensive in nature that an attendee would likely feel compelled to direct business to the sponsor of the event, or a business entertainment event that is intended or designed to cause, or would be reasonably judged to have the likely effect of causing the attendee to act in a manner that is inconsistent with the best interests of a Fund would be unreasonable per se.

4                 In the event a Covered Person is a registered representative of the Funds’ principal underwriter, the aggregate annual gift value from a single giver shall not exceed $100.00 as required by the rules of FINRA. However, PIMCO employees and PIMCO Investments LLC registered representatives are subject to the respective firm’s internal policies on accepting gifts and entertainment and must abide by the limitations imposed by such policies.

 

3


Sarbanes-Oxley Code of Ethics

 

   

any ownership interest in, or any consulting or employment relationship with, any entities doing business with the relevant Fund, other than a PIMCO-Affiliated Service Provider or an affiliate of a PIMCO-Affiliated Service Provider.5 This restriction shall not apply to or otherwise limit the ownership of publicly traded securities of such entities doing business with the relevant Fund so long as the Covered Person’s ownership does not exceed more than 2% of the outstanding securities of the relevant class; or

 

   

knowingly have a direct or indirect financial interest in commissions, transaction charges or spreads paid by the relevant Fund for effecting portfolio transactions or for selling or redeeming shares of a Fund other than an interest arising from the Covered Person’s employment. This restriction shall not apply to or otherwise limit the direct or indirect ownership of publicly traded securities of any such company so long as the Covered Person’s ownership does not exceed more than 2% of the particular class of security outstanding.

 

III.

Disclosure and Compliance

 

   

No Covered Person should knowingly misrepresent, or cause others to misrepresent, facts about the relevant Fund to others, whether within or outside such Fund, including to such Fund’s Board of Trustees and auditors, and to governmental regulators and self-regulatory organizations;

 

   

each Covered Person should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds, applicable PIMCO Affiliated Service Providers, other service providers, or with counsel to the Funds with the goal of promoting full, fair, accurate, timely and understandable disclosure in the registration statements or periodic reports that the Funds file with, or submit to, the SEC (which, for sake of clarity, does not include any sales literature, omitting prospectuses, or “tombstone” advertising prepared by the relevant Fund’s principal underwriter(s)); and

 

   

it is the responsibility of each Covered Person to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.

  

 

5                 For purposes of the Code, an “affiliate” of a Service Provider is (a) any natural person or entity directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of the Service Provider; (b) any natural person or entity 5% or more of whose outstanding voting securities are directly or indirectly owned by, controlled, or held with power to vote, by the Service Provider; (c) any person directly or indirectly controlling, controlled by, or under common control with, the Service Provider; or (d) any officer, director, partner, copartner, or employee of the Service Provider.

 

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Sarbanes-Oxley Code of Ethics

 

IV.

Reporting and Accountability

Each Covered Person must:

 

   

upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Person), affirm in writing to the relevant Fund that he has received, read, and understood the Code;

 

   

annually thereafter affirm to the relevant Fund that he has complied with the requirements of the Code by completing the Annual Certification of Compliance attached hereto as Exhibit C;

 

   

provide full and fair responses to all questions asked in any Trustee and Officer Questionnaire provided by the relevant Fund as well as with respect to any supplemental request for information; and

 

   

notify the President of the relevant Fund promptly if he or she is convinced to a moral certainty that there has been a material violation of this Code (with respect to violations by a President, the Covered Person shall report to the Chairman of the relevant Fund or, if the same person holds the titles of President and Chairman, to the Fund’s CCO).

The President of each Fund is responsible for applying this Code to specific situations in which questions are presented under it and, in consultation with the Fund’s CCO, has the authority to interpret this Code in any particular situation. However, any reviews sought by the President will be considered by the Chairman of the relevant Fund or, if the same person holds the titles of President and Chairman, by the Fund’s CCO.

The Funds will follow these procedures in investigating and enforcing this Code:

 

   

the President will take all appropriate action to investigate any potential material violations reported to him, which actions may include the use of internal or external counsel, accountants or other personnel;

 

   

if, after such investigation, the President believes that no material violation has occurred, the President is not required to take any further action;

 

   

any matter that the President believes is a material violation will be reported to the applicable Fund’s CCO;

 

   

if the CCO concurs that a material violation has occurred, it will inform and make a recommendation to the Fund’s Board of Trustees, which will consider appropriate action, which may include review of, and appropriate modifications to applicable policies and procedures; notification to appropriate personnel of a PIMCO-Affiliated Service Provider or its board; or a recommendation to dismiss the Covered Person; and

 

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Sarbanes-Oxley Code of Ethics

 

A Fund’s CCO or Board of Trustees may grant waivers under this Code, as each deems appropriate.

 

V.

Public Disclosure of Changes and Waivers

Any changes to this Code will, to the extent required by the SEC’s rules, be disclosed on the Fund’s website or in the Fund’s N-CSR. Any waivers under this Code relating to a Covered Person will, to the extent required by the SEC’s rules, be disclosed on the Fund’s website or in the Fund’s N-CSR.

 

VI.

Other Policies and Procedures

This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds or the Funds’ PIMCO-Affiliated Service Providers govern or purport to govern the behavior or activities of the Covered Persons who are subject to this Code, they are superseded by this Code to the extent that they conflict with the provisions of this Code. The Funds’ and their PIMCO-Affiliated Service Providers’ codes of ethics under Rule 17j-1 under the 1940 Act and the PIMCO-Affiliated Service Providers’ more detailed compliance policies and procedures are separate requirements applying to the Covered Persons and others, and are not part of this Code.

This Code will not be interpreted or applied in any manner that would violate the legal rights of any Covered Person as an employee under applicable law. For example, nothing in this Code or the Exhibits attached hereto prohibits or in any way restricts any Covered Person from reporting possible violations of law or regulation to, otherwise communicating directly with, cooperating with or providing information to any governmental or regulatory body or any self-regulatory organization or making other disclosures that are protected under applicable law or regulations of the SEC or any other governmental or regulatory body or self-regulatory organization. A Covered Person does not need prior authorization of PIMCO, a Fund or a PIMCO-Affiliated Service Provider before taking any such action and is not required to inform PIMCO, a Fund or a PIMCO-Affiliated Service Provider if he or she chooses to take such action.

 

VII.

Amendments

Any material amendments to this Code must be approved or ratified by a majority vote of the Board of Trustees.

 

VIII.

Confidentiality

All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone except as permitted by the Board of Trustees.

 

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Sarbanes-Oxley Code of Ethics

 

IX.

Internal Use

The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion.

 

7


Sarbanes-Oxley Code of Ethics

 

History of Amendments

 

History of adoptions and amendments:

Adopted:

 

September 29, 2004

Effective:

 

October 5, 2004

Amended:

 

April 1, 2005

Amended:

 

May 24, 2005

Amended:

 

February 24, 2009 (added ETF)

Amended:

 

March 31, 2009

Amended:

 

August 11, 2009

Amended:

 

March 30, 2010 (added PES and PESVIT)

Amended:

 

March 1, 2011

Amended:

 

February 27, 2013

Amended:

 

November 7, 2013 (non-material changes)

Amended:

 

February 26, 2014 (non-material changes)

Amended:

 

August 14, 2014 (added PIMCO Managed Accounts Trust and PIMCO Sponsored Closed-End Funds)

Amended:

 

January 17, 2015

Amended:

 

December 14, 2016 (added PIMCO Sponsored Interval Funds)

Amended:

 

February 15, 2017 (Open-End Funds Boards); March 23, 2017 (Approved by PIMCO Managed Accounts Trust, PIMO Sponsored Closed-End Funds and PIMCO Sponsored Interval Funds)

Amended:

 

May 28, 2019 (updated Exhibit A for PIMCO Managed Accounts Trust, PIMO Sponsored Closed-End Funds and PIMCO Sponsored Interval Funds)

Amended:

 

June 15, 2019 (updated Exhibit A for OEF/ETF)

Amended:

 

January 1, 2021 (updated PFO/PAO in Exhibit A)

 

8


Exhibit A

Persons Covered by this Code of Ethics

 

Trust   

Principal Executive

Officer

  

Principal Financial

Officer

 

  

Principal Accounting

Officer

PIMCO Funds    Eric D. Johnson    Bijal Parikh    Bijal Parikh
PVIT    Eric D. Johnson    Bijal Parikh    Bijal Parikh
ETF    Eric D. Johnson    Bijal Parikh    Bijal Parikh
PES    Eric D. Johnson    Bijal Parikh    Bijal Parikh
PESVIT    Eric D. Johnson    Bijal Parikh    Bijal Parikh
PIMCO Managed Accounts Trust    Eric D. Johnson    Bijal Parikh    Bijal Parikh
PIMCO Sponsored Closed-End Funds    Eric D. Johnson    Bijal Parikh    Bijal Parikh
PIMCO Sponsored Interval Funds    Eric D. Johnson    Bijal Parikh    Bijal Parikh

Note that a listed officer is only a “Covered Person” of the Fund(s) for which he or she serves as a Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer.

 

A-1


Exhibit B

PIMCO-Affiliated Service Providers*

 

Investment Adviser

  

Pacific Investment Management Company LLC (“PIMCO”)

Principal Underwriter**   

PIMCO Investments LLC

Administrator***

  

PIMCO

 

* None of the PIMCO-Affiliated Service Providers are publicly traded companies.

** PIMCO Investments LLC does not serve as the principal underwriter for the Closed-End Funds.

*** Each Fund retains PIMCO to provide administrative services, either under separate administration agreements or under their advisory or management agreements.

 

B-1


Exhibit C

ANNUAL CERTIFICATION OF COMPLIANCE

I hereby certify that I have complied with the requirements of the Code of Ethics Pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 for Principal Executive and Senior Financial Officers (the “Code”) for the year ended December 31,         . I also agree to cooperate fully with any investigation or inquiry as to whether a possible violation of the foregoing Code has occurred.

 

Date:                                                          

 

 

 

Signature

 

C-1

Exhibit 99.CERT

Certification Under Rule 30a-2(a)

CERTIFICATION

I, Eric D. Johnson, certify that:

 

  1.

I have reviewed this report on Form N-CSR of PIMCO High Income Fund;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

   Date:  

September 29, 2021

    

  

    

   Signature:  

/s/ Eric D. Johnson

    

  
   Title:  

President (Principal Executive Officer)

    

  


Exhibit 99.CERT

Certification Under Rule 30a-2(a)

CERTIFICATION

I, Bijal Y. Parikh, certify that:

 

  1.

I have reviewed this report on Form N-CSR of PIMCO High Income Fund;

 

  2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

  4.

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5.

The registrant’s other certifying officer and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

   Date:  

September 29, 2021

    

  
        Signature:  

/s/ Bijal Y. Parikh

    

  
   Title:  

Treasurer (Principal Financial & Accounting Officer)

    

  

Exhibit 99.906CERT

Certification Under Rule 30a-2(b)

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act)

In connection with the Report on Form N-CSR to which this certification is furnished as an exhibit (the “Report”), the undersigned officers of PIMCO High Income Fund (the “Registrant”) each certify that to his knowledge:

 

  1.

The Report on Form N-CSR fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2.

The information contained in the Report on Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

By:   

/s/ Eric D. Johnson

    

     By:   

/s/ Bijal Y. Parikh

    

Name:   

Eric D. Johnson

    

                Name:   

Bijal Y. Parikh

    

Title:   

President (Principal Executive Officer)

    

     Title:   

Treasurer (Principal Financial & Accounting Officer)

    

Date:   

September 29, 2021

    

     Date:   

September 29, 2021

    

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.

This certification is being furnished to the Commission solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Reports.